Federal Credit Programs

The Federal Credit Reform Act of 1990 was meant to better control and manage the government's direct and guaranteed loan programs, which totaled $855 billion as of September 1991. GAO discovered that the law's potential has yet to be realized and is unlikely to be fully achieved soon, considering the generally poor state of agency financial systems and controls. The problems facing agencies include (1) serious and long-standing weaknesses in credit program financial systems and controls and resulting unreliable historical credit information, which stymied the major domestic lending agencies in meeting the Office of Management and Budget's implementing requirements under the act; (2) inadequate staff resources to develop the systems needed to carry out the act's new requirements; and (3) inappropriate accounting and inconsistent reporting for pre-credit reform act loans and loan guarantees, a condition that will both prevent that information from being used to appraise the reasonableness of post-credit data and diminish the value of financial reports in measuring agency performance, future funding needs, and other credit program analyses. These problems will not be easily overcome and will require a concerted effort and innovative approaches, such as the interim use of statistical sampling techniques, to develop and maintain reasonably accurate credit data.

GAO found that: (1) the OMB approach to accounting for the cost of loans and loan guarantees specifically covered by the act and to preparing related subsidy cost estimates for the budget is consistent with the act's provisions; (2) agencies' initial efforts to comply with OMB credit reform requirements were seriously hampered by severe and long-standing financial systems and control problems that would have required correction regardless of changes necessary to implement the act; (3) agencies had to rely on information that has historically been incomplete and unreliable; (4) most agencies are accounting for and reporting on pre- and post-credit reform loans and loan guarantees inconsistently, since the act and OMB requirements apply only to direct and guaranteed loans beginning with fiscal year 1992; and (5) agencies projected that implementing credit reform will take several years and will require extensive financial systems modifications and additional staff to meet the new requirements.

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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