Financial Audit

The Department of Veterans Affairs' (VA) housing assistance program financial statements present fairly the program's financial position for fiscal year 1989 and 1988, and the results of its operations for those years. VA's housing assistance program operations for fiscal year 1989 reported a net operating income of $200 million, as compared to a $1.8 billion loss the preceding year. This change is due mainly to a refinement in how VA estimates its liability for losses on loans currently guaranteed. Further refinement in the way VA approximates guaranteed loan losses would ensure that estimates continue to reasonably reflect actual losses and requirements of the Federal Credit Reform Act are met. A decline in guaranteed home loan foreclosures also contributed to the changes, as well as to a related change in the amount of VA's estimated liability for these losses. For fiscal years 1986 through 1989, VA's housing assistance program had a cumulative net operating loss of $3.9 billion. At the end of fiscal year 1989, the present value of VA's estimated liability for accrued loan losses payable in the future was $2.7 billion. Most of the actual loan loss payments will be made over the next five years and could amount to $3.6 billion. These payments will have to be funded primarily from appropriations since the fees VA charged on these loans were legislatively designed to cover only a small portion of the related losses. Foreclosures on VA guaranteed loans grew between fiscal years 1986 and 1988 but declined in fiscal year 1989. However, recent increases in loan default rates suggest that future foreclosures could rise. This report discusses factors that could affect the VA housing assistance program's financial position in the future. VA's self-assessments of its housing assistance program internal controls disclosed material weaknesses in several areas for which corrective actions are under way. In addition, GAO found that VA did not reconcile discrepancies in financial data contained in various systems that support the housing assistance program.

GAO found that: (1) the VA housing assistance program financial statements presented fairly the financial position of the program as of September 30, 1989 and 1988, and the results of its operations for the years then ended; (2) VA housing assistance program operations for fiscal year (FY) 1989 reported a net operating income of $200 million, as compared to a $1.8-billion loss the preceding year; (3) the program's success was attributable to a decline in guaranteed home loan foreclosures and a refinement in the way VA estimates its liability for losses on loans currently guaranteed; (4) as of September 30, 1989, the value of estimated liability for accrued loan losses payable in the future was $2.7 billion, but most of the actual loan loss payments will be made over the next 5 years and could amount to $3.6 billion; (5) other factors that could affect the VA housing assistance program's financial position include the method chosen to resolve the program's $1.7-billion liability for borrowings from the Department of the Treasury, the elimination, in 1990, of most loan origination fees as a source of revenue for the Loan Guaranty Revolving Fund, and VA response to prior GAO recommendations; and (6) although federal accounting requirements call for reconciliations to ensure the accuracy of the data included in accounting systems and the reliability of financial reports, VA did not reconcile discrepancies in financial data included in various systems which support the housing assistance program.

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.

Director: Team: Phone: