Credit Reform

GAO's report on the government's consolidated financial statements for fiscal year 1997 (GAO/AIMD-98-127, Mar. 1998) raised significant concerns about the ability of credit agencies to reasonably estimate subsidy costs related to the reported $216.6 billion in direct loans and $712.4 billion in loan guarantees issued by the federal government. Program managers and Congress depend on this information to make funding and program decisions involving hundreds of billions of dollars each year. For some types of credit programs, unreliable information can affect the availability and the delivery of basic services to taxpayers because changes in cost estimates may alter the number and amount of loans available. GAO reviewed the ability of the five key credit agencies--the Small Business Administration and the Departments of Education, Housing and Urban Development, Veterans Affairs, and Agriculture--to reasonably estimate their loan programs, including whether they used practices identified by the Credit Reform Task Force as being effective in making these estimates. GAO also reviewed the status of agencies' efforts to ensure that computer systems used to estimate the cost of credit programs are Year 2000 compliant.

GAO noted that: (1) the problems agencies faced in making credit subsidy estimates as required by Federal Credit Reform Act and federal accounting standards stemmed largely from their lack of: (a) reliable historical data upon which to base estimates of future loan performance; (b) adequate systems that have the capability to track the required information; (c) sound cash flow models; and (d) appropriate policies and procedures for ensuring the accuracy of data used to generate the estimates; (2) SBA was one of the two agencies able to make reasonable estimates of the cost of its loan programs in its fiscal year (FY) 1997 financial statements, primarily because the agency maintained reliable records of historical loan performance data; (3) however, SBA made significant errors in calculating its reestimates of loan program costs; (4) these errors were adjusted for in SBA's draft financial statements, thereby allowing for an unqualified audit opinion on those statements; (5) Education was able to prepare reasonable credit program estimates for its FY 1997 financial statements based on information obtained through a significant data gathering effort from its guaranty agencies; (6) however, the audited estimates differed significantly from the estimates based on data from Education's database, which raises questions about the validity of Education's database; (7) HUD was unable to provide adequate supporting data for its FY 1997 financial statement estimates of its loan program costs, which resulted in a qualified audit opinion from HUD's Inspector General on those financial statements; (8) HUD has developed an action plan to address identified financial management issues related to the loan cost estimation process; (9) VA faced significant problems performing routine accounting for its loan programs including loss of accountability over certain loans transferred to an outside servicer; (10) USDA was unable to make reasonable financial statement estimates of its loan programs' costs because it had not maintained the necessary historical data and continued to use computer systems that were not appropriately configured to capture the data necessary to make such estimates; (11) the five key credit agencies also face the challenge of addressing the year 2000 problem related to systems used in the loan cost estimation process; and (12) according to agency officials, for the 10 loan programs reviewed, all of the mission critical systems are either year 2000 compliant or are scheduled to be compliant by March 31, 1999.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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