oversight

Progress Being Made and Difficulties Being Encountered by Credit Unions Serving Low-Income Persons

Published by the Government Accountability Office on 1971-06-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 REPORT ?‘O THE CONGRESS




” Progress Being Made And
  Difficulties Being\ Encountered
  By Credit Unions/
  Serving Low-Income Persons
                                       B-164031       (4)



 Offtce of Economic   Opportunity




                                                  .




 BY THE COMPTROLLER GENERAL
 OF THE UNITED STATES



                                    JUNEI?,l97I.
              COMPTROLLER     GENERAL      OF THE    UNITED    STATE!3
                            WASHINGTON      DC   20548




B-164031(4)




To the President  of the Senate and the
Speaker of the House of Representatives

        This IS our report on the progress    bemg made and dlfflcul-
ties being encountered    by Office of Economic   Opportumty-fmanced
 credit umonb servmg low-mcome        persons

      Our revzew was made pursuant      to the Budget and Accounting
Act, 1921 (31 U.S C. 53), and the fhxaun~ing    and Audltmg Act of
1950 (31 u.S.c   67).

       Copies of this report are being                   sent to the Director, Offlce of
Management    and Budget, the Director,                    Office of Economx   Opportu-
nity, and the Admllustrator,  National                   Credit Union Adrmmstratlon




                                         Comptroller          General
                                         of the United        States




                      50 TH ANNIVERSARY             1921-     1971
COMPTROLLERGENERAL'S                      PROGRESSBEING MADE AND DIFFICULTIES BEING
REPORTTO THE CONGRESS                     ENCOUNTEREDBY CREDIT UNIONS SERVING LOW-
                                          INCOME PERSONS
                                          OffIce of Economic Opportunity B-164031(4)


DIGEST
------

WHYTHE REVIEW WASMADE
      In January 1965, as part of the Community Actlon Program, the Office of
      Economic Opportunity     (OEO) began provldjng financial assistance to credit
      unions sponsored by Community Action Agencies to serve low-income resi-
      dents llvlng   in designated   neighborhoods.

      At December 31, 1969, 125 credit unions--l06               federally   chartered    and 19
      State chartered--were       recelvlng    financial     support from OEO for payment
      of employee salaries,       rental of space, or other operating            expenses
      During calendar year 1969 OEO support to the credit unions amounted to
      an estimated $3.2 mIllion,          of which $2 1 mllllon       was for direct    assis-
      tance in the form of grants and $1 1 million               was for technical     assis-
      tance contracts,     special consultants,          and other expenses.

      The General Accounting Office       (GAO) made this review to evaluate       the
      (1) progress made by the OEO-financed credit          unions in becoming self-
      supporting,     (2) benefits provided   to low-income participants      of the OEO
      credit union program, and (3) results        of financial    operations   of OEO-
      financed    credit unions.

       GAO reviewed the actlvltles    of eight       credit   unions--six federally char-
       tered and two State chartered--selected           on the basis of the amounts of
       their assets and their locations.


FINDINGS AND CONCLUSIONS

       Benefitis   to the poor
       Principal   benefits     that low-income persons received      from the OEO-financed
       credit unions were the avallabtllty        of (1) depositories     for their savings
       and (2) loans that they otherwise might not have obtained or loans at
       lower interest      rates than those available    from other sources,

       At December 31, 1969, the 706 federally       chartered    OEO-financed         credit
       unions had 65,900 members, $4.2 million       in members' deposits,           and 18,200
       loans outstanding  totaling   $4.2 million.      From inception,     the      credit
       unions had made loans totaling     $14 2 million.       Comparable data        was not
       readily available  for the State-chartered        credit unions
 Tear Sheet




                                                                   JUHE17,19?31
                                                1
GAO's review of delinquent    and uncollectible  loans at the eight credit
unions Indicated  that delinquency   was not a maJor problem and that rela-
tively  few loans had been written   off as uncollectible.   (See p. 11 )


Problems IA becomzng self-supportzng
The eight OEO-financed credit unions have encountered           a number of prob-
lems ln their operations      that have resulted  ln relatively        high operating
deflclts    and ln little   success in attalnlng OEO's goal of becoming self-
supporting.     Significant   problems that GAO identified      follow


Deflclts    from operations--The    results  of financial    operations   of the
eight OEO-financed credit unions showed that, from the beglnnlng             of OEO
flnanclng     (January 1965 through March 1967) to December 1969, they had
incurred    expenses which exceeded operating      revenues by $500,000 and that
the deficits      had been offset  by grants from OEO amounting to $565,000.
The credit unions' prospects for attaining         a break-even     point in opera-
tions are not promising without corrective         action by OEO.

On the basis of calendar year 1969 operating              experience,     none of the
eight credit unions had sufficient          income to cover their fixed expenses,
such as salarles    of permanent staff,        rent, and uttlltles.         Application
of-their  income toward covering       their variable       expenses, such as sup-
plies and provisions     for the payment of dividends            and required     reserves,
showed that five of the eight credit unions' variable                 expenses had ex-
ceeded their operating      income.    The eight credit unions would have dlf-
flcultles   ln achieving    a break-even      position,    even with a substantial          in-
crease ln loans, unless their operating             expenses were reduced.          (See p. 13.)


 Insufflclent growth of shareholder     deposits--The      eight credit unions
 did not have sufficient    shareholder  deposits,    the primary source of
 funds for maklng loans, to make loans to generate interest            income ade-
quate to cover operating     expenses.   OEO has provided       grants to credit
unions for operating     expenses which have offset      their operating     deficits
for periods longer than the 1 or 2 years anticipated            by OEO guidelines.
The lnsufflclent  growth in shareholders'            deposits 1s attributable     prl-
marlly to the very limited  savings that           low-income families      have avall-
able for deposit ln the credit unions.

CUNA     International,    Inc --an international        credit union organization
which     1s an OEO contractor     responsible    for certain    admlnlstratlve    func-
tlons     of the credit union program--stated          that the slow growth of
credit      unions in low-income areas had led to a low level of loan ser-
vices,      which lmplled limited     usefulness    of the credit unions.       CUNA
stated      also that the limited     usefulness    also was measured by the low
level     of dividends   that the credit unions had paid            (See p. 15 >




                                        2
        t-(;'gh salary costs--The total salary costs and the number of paid, full-
   p 'time      employees of the ejght credit unions were higher than those of
                                                             (See p 20 )
/i      other Federal credit unions of comparable size


             lgh space costs--Seven  of the esght credit unions experienced     higher
           costs for space occupled-- rent, utllltles,   and maintenance--than     other
 \         Federal credit unions of similar   size, primarily    because most of them
           paid rent for space whereas many other credit      umons which were not OEO
           financed were provided with space free of charge or at relatively        low
           rentals     (See p. 21.)


           Foq?maZgoals for     credzt   unzons
     gbi       estabZzshed
           Neither OEO nor CUNA has required   the OEO-financed credit unions to de-
           velop plans showing proJections   of their flnanclal    operations    or target
           dates for achieving  the goal of becoming self-supportlng          The estab-
           lishment of such a target date and its comparison with a credit         union's
           progress toward meeting that goal would enable OEO and the credit          union
           to determine whether the credit union's    progress was adequate.

           Also, this would enable OEO and the credit union to lnltlate  actions to
           alleviate  the problems that might be causing the credit union to experl-
           ence a less than anticipated  rate of progreis   (See p. 23.)



           PotentzaZ   for   mcreaszng    Zoan funds
           The Federal Credit Union Act was amended on October 19, 1970, by Public
           Law 91-468 to provide for the National   Credit Union Administration    to
           insure the deposits   in credit unions in the same manner as the Federal
           Deposit Insurance Corporation   insures deposits in commercial banks.
           Presumably, such deposit Insurance ~111 permit low-income credit     unions
           to attract  more funds.

           OEO has funded the Opportunity       Funding Corporation    and a pIlot guarantee
           program whxh have, or plan to have, proJects directed             toward assisting
           the low-income credit   unions in obtal nlng deposits.         The assistance
           could include provldlng    incentives     to encourage institutional      deposits
           in credit unions and guarantylng       deposits and a minimum rate of return
           on deposits.   (See p. 24.)


RECOMMEiWATIOiWOR SUGGESTIONS
           To assist the OEO-financed    credit unions     ln becoming self-supporting  and
           to thereby reduce OEO financial     support,    GAO recommends that the Direc-
           tor, OEO*

Tear Sheet

                                                  3
        --Require    each cvedlt unwon to perlodlcally         develop a plan showing its
           current   flnanclal    status,   sts annual proJections       of expenses, in-
           come, and growth, and a target date for becoming self-supportlng
           The plans and the results        of operations    should be revlewed by OEO
           to ascertain     whether the progections       are reasonable     and whether the
           credit union has initiated,         or plans to initiate,      actions that will
           enable attainment      of proJected goals

        --Provide  guidance and assistance     to credit unions expenenclng  dlffl-
           cult7es -rn attalnlng establIshed    goals and encourage them to reduce
           expenses whenever possjble.      (See p 28 )


AGElUCY ACTIONS   AND UNRESOLVED        ISSUES

     OEO and the NatIonal     Credit Union Admlnlstratlon     agreed with GAO's con-
     cluslons and recommendations.        {See pp 28 and 29 ) OEO stated that It
     intended to obta-rn status reports,       plans, and proJections    bearing on
     the goal of se7f-support      of credit unions, to review the operations       of
     the credit unions and to provide necessary guidance and assistance,            and
     to require them to concentrate       their efforts   on cost reductions

     OEO stated    also that                                                                        I

                                                                                                    I
        --Although     Public Law 91-468 undoubtedly  would increase the ablllty
           of credit unions to attract    deposits,  the extent of success that
           credit unions may achieve in becoming self-supporting     remalned un-
           predictable

        --Although     becoming self-supporting        was a goal of OEO for credit
           unions now financially      assisted,     the continuation     of such assistance
           to credit unions a7so should be considered             on the basis of the value
           of the services     that financial      assistance    enabled the credit unions
           to provide.     To  better  assess    the   value  of  these servTces,     OEO in-
           tends to obtain an analysis of credit union operations               relating    costs
           to benefits    and to develop a plan for evaluation           of credit union
           operations    by means of a comparison of costs and benefits.
     The Admlnlstrator,      National      Credit   Union Admlnjstratlon,    indicated    that.

       --One of OEO's ObJectives    was to staff credit unions with low-income
          persons and that, as a result,     there was a tendency to over-staff,
          wh?ch was in conflict  with the concepts of keeping payroll      costs to
          a mlnlmum and making credit    unions self-sufficient

       --Other     credit unions had succeeded because of the voluntary     efforts
          of offTclals     during the early stages of existence,    The payment of
          salarIes     to employees has been counterproductive   in the development
          of voluntary     efforts  by directors, poor people need urging and
          tralnlng     to become leaders and are prone to let the paid employees
          assume all responsibllltles,



                                                    4
                                                                                       L




               --The AdminIstration     believed that credit unions were an effective in-
                  strument in helping poor people to help themselves and that the so-
                  cial benefits    that accrued were worth some expenditure by the Govern-
                  ment to assist them


MATTERSFUR CONSIDERATIONBY T3E CONGRESS
        In view of the interest       shown by members of Congress in antipoverty       pro-
        grams, GAO 1s bringing      its flndlngs    and observations to the attention      of
        the Congress.      The matters presented in this report may be of particular
        interest  to the congressional       committees having responslbllitles     for
        federally   assisted antipoverty      programs.




Ttar
--     Sheet
                         Contents
                                                            Page

DIGEST                                                        1

CHAPTER

   1      INTRODUCTION
              OEO-financed     credit unions
              OEO program administration
              National   Credit Union Administration
              CUNA International,     Inc,

   2      BENEFITS RECEIVED BY LOW-INCOME FAMILIES
          FROM OEO-FINANCED CREDIT UNIONS                    11

   3      PROSPECTS FOR OEO-FINANCED CREDIT UNIONS'
          BECOMING SELF-SUPPORTING                           13
              Deficits     from operations                   13
              Insufficient      growth of shareholder
                 deposits                                    15
              High operating       costs                     19
                     Salary costs                            20
                     Space costs                             21
              Need to establish        formal goals for
                 credit    unions                            23
          POTENTIAL FOR INCREASING LOAN FUNDS                24
              Opportunity      Funding Corporation           24
              Pilot   guaranty    program                    25
          CONCLUSIONS, RECOMMENDATIONS, AND AGENCY
          COMMENTS                                           27
              Conclusions                                    27
             Recommendations     to the Director,     OEO    28
              OEO comments                                   28
              National    Credit Union Administration
                comments                                     29
   6      SCOPE OF REVIEW                                    31
APPENDIX                                                               Page

      I     Letter    dated January 21, 1971, from the
               Deputy Director,      Office    of Economic
               Opportunity,     to the    General  Accounting
               Office                                                   35

      II    Letter    dated October 29, 1970, from the
               Administrator,    National Credit Union
               Administration,    to the General Accounting
               Office                                                   40

      III   Prlncrpal      offlclals      of the Offxe   of Economic
               Opportunity        responsible    for the actlvltles
               discussed       In this report                           41

                           ABBREVIATIONS

GAO         General    Accounting      Offlce

NCUA        National     Credit     Union   Admlnlstratlon

OEO          Offlce    of Economic     Opportunity
COMPTROLLERGENER4L"S                   PROGRESSBEING MADE AND DIFFICULTIES BEING
REPORTTO THE CONGRESS                  ENCOUNTEREDBY CREDIT UNIONS SERVING LOW-
                                        INCOME PERSONS
                                       Office   of Economic Opportunity       B-164031(4)


DIGEST
------

WHYTI?E REVIEW WASMADE
     In January 1965, as part of the Community Action Program, the Office of
     Economic Opportunity   (OEO) began providing flnanclal assistance to credit
     unions sponsored by Community Action Agencies to serve low-income resi-
     dents living  in designated  neighborhoods,

    At December 31, 1969, 125 credit unions--106              federally   chartered   and 19
    State chartered--were      receiving    financial     support from OEO for payment
    of employee salaries,       rental of space, or other operating           expenses.
    During calendar year 1969 OEO support to the credit unions amounted to
    an estimated $3.2 mil'lIon,        of which $2.1 million       was for direct assis-
    tance in the form of grants and $1.1 million              was for technical     assls-
    tance contracts,     special consultants,         and other expenses.

    The General Accounting Office     (GAO) made this review to evaluate             the
     (1) progress made by the OEO-financed credit unions In becoming               self-   ..
    supporting,   (2) benefits provided   to low-Income participants    of         the OEO
    credit union program, and (3) results      of financial  operations  of          OEO-
    financed credit   unions.

     GAO reviewed the activities    of eight      credit unions--six  federally  char-
     tered and two State chartered--selected          on the basis of the amounts of
     their assets and their locations,


FINDINGS AND CONCLUSIONS
     Benefits   to the poor
     Principal   benefits    that low-income persons received      from the OEO-financed
     credit unions were the avallabl'l7ty      of (1) depositories     for their savings
     and (2) loans that they otherwise might not have obtained or loans at
     lower interest     rates than those available   from other sources

     At December 31, 7969, the 706 federally       chartered    OEO-financed      credit
     unions had 65,900 members, $4.2 million       In members' deposits,         and 18,200
     loans outstanding  totaling   $4.2 mllllon.      From Tnceptlon,     the    credit
     unions had made loans totaling     $14 2 million.       Comparable data      was not
     readily avaIlable  for the State-chartered       credit unions.
GAO's review of deJlnquent    and uncollectible  loans at the eight credit
unions Indicated  that delinquency   was not a maJor problem and that rela-
tively  few 1oans had been written   off as uncol Jectt ble  (See p. 11.)


Problems     zn becomzng seZf-supportzng

The eight OEO-financed credit unions have encountered         a number of prob-
lems In their operations     that have resulted in relatively       high operating
deficits   and in little   success in attaining  OEO's goal of becoming self-
supporting     Significant   problems that GAO identified     follow.

Deflclts    from operations--The    results  of financial    operations of the
eight OEO-financed credit unions showed that, from the beginning           of OEO
financing     (January 1965 through March 1967) to December 1969, they had
incurred    expenses which exceeded operating      revenues by $500,000 and that
the deficits      had been offset  by grants from OEO amounting to $565,000.
The credit unions' prospects for attalntng         a break-even point in opera-
tions are not promising without corrective         action by OEO.

On the basis of calendar year 1969 operating    experience,                 none of the
eight credit unions had sufficient   income to cover their            fixed expenses,
such as salaries of permanent staff,    rent, and uttlltles.             Application
of their income toward covering        their variable     expenses, such as sup-
plies and provisions     for the payment of dividends         and required     reserves,
showed that five of the eight credit unions’ variable expenses had ex-
ceeded their operating      income.    The eight credit      unions would have dlf-
flcultles   in achieving    a break-even    position,    even with a substantial         in-
crease in loans, unless their operating           expenses were reduced          (See p. 13.)


 Insufficient growth of shareholder    deposits--The      eight credit unions
did not have sufficient    sharehoJder  deposits,    the primary source of
funds for making loans, to make loans to generate interest            income ade-
quate to cover operating    expenses.   OEO has provided       grants to credit
unions for operating    expenses which have offset      their operating     deficits
for periods longer than the 1 or 2 years anticipated           by OEO guidelines.
The insufficient  growth in shareholders'             deposits    1s attributable    prl-
marlly to the very lnnlted  savings that             low-1 ncome families      have aval J-
able for deposit in the credit unions.

CUNA International,   Inc --an international  credit union organlzatJon
which 1s an OEO contractor    responsible for certain admlnlstratlve    func-
tions    of the credit union program--stated that the slow growth of
credit    unions in low-income areas had led to a low level of loan ser-
vices,    which implied limited usefulness of the credit unions. CUNA
stated    also that the limited usefulness also was measured by the low
level    of dlvldends   that   the credit   unions     had paid      (See p     15 )




                                       2
    High salary costs--The  total salary costs and the number of paid, full-
    time employees of the eight credit unions were higher than those of
    other Federal credJt unions of comparable size.    (See p. 20.)


    High space costs--Seven   of the eight credit    unions experienced   higher
    costs for space occupled-- rent, utllltles,    and maintenance--than     other
    Federal credit unions of similar    sire, prlmarlly    because most of them
    paid rent for space whereas many other credit unions which were not OEO
    financed were provided   with space free of charge or at relatively       low
    rentals.   (See p 21.)


    FomaZ goah for credzt        umons
    not esta.hZmhed
    Neither OEO nor CUNA has requared the OEO-financed credit         unions to de-
    velop plans showing proJections  of their flnanclal      operations    or target
    dates for achlevlng  the goal of becoming self-supportlng.          The estab-
    lishment of such a target date and Its compartson with a credit          union's
    progress toward meeting that goal would enable OEO and the credit           union
    to determlne whether the credit unaon's progress was adequate.

    Also, this would enable OEO and the credit union to InltIate   actions to
    alleviate  the problems that might be causing the credit union to expen-
    ence a less than antlclpated  rate of progress.   (See p. 23.)



    Potentzal   for inereaszng    Zoan fimds
    The Federal Credit Union Act was amended on October 19, 1970, by Public
    Law 91-468 to provide for the National   Credit Union Administration   to
    insure the deposits   In credit unions In the same manner as the Federal
    Deposit Insurance Corporation   ensures deposits In commercial banks.
    Presumably, such deposit insurance will permit low-income credit     unions
    to attract  more funds.

    OEO has funded the Opportunity       Funding Corporation    and a pilot guarantee
    program which have, or plan to have, proJects dlrected            toward assisting
    the low-income credit   unions in obtaining       deposits.    The assistance
    could include provsdlng    incentives     to encourage institutional      deposits
    in credit unions and guarantylng       deposits and a minimum rate of return
    on deposits.    (See p. 24.)


RECOiWEflDATIONSOR SUGGESTIONS
     To assist the OEO-financed credit unaons in becomlng self-supportlng   and
     to thereby reduce OEO flnanclal  support, GAO recommends that the Direc-
     tor, OEO:
       --Require    each credTt union to perlodlcally       develop a p7an showing its
          current financial    status,  its annual proJectIons       of expenses, in-
          come, and growth, and a target date for becoming self-supporting.
          The plans and the results     of operations    should be reviewed by OEO
          to ascertaln   whether the proJections      are reasonable     and whether the
          credit union has In-rtlated,     or plans to initiate,       actions that ~111
          enable attainment    of prOJected goals

       --Provide   guidance and assistance     to credit unions experiencing dlffl-
          culties  in attaining established     goals and encourage them to reduce
          expenses whenever possible.       (See p, 28 )


AGENCY ACl’IONS AND UNRESOLVEDISSUES

     OEO and the Natlonal     Credit Union Admlnlstratlon      agreed with GAO's con-
     clusions   and recommendations.       (See pp. 28 and 29.)      OEO stated that it
     Intended to obtain status reports,         plans, and proJections    bearing on
     the goal of self-support       of credit unions, to review the operations       of
     the credit   unions and to provide necessary guidance and assistance,           and
     to require   them to concentrate      their efforts  on cost reductions

     OEO stated   also   that:

       --Although      Public Law 91-468 undoubtedly  would increase the ability
          of credit unions to attract     deposits,  the extent of success that
          credit unions may achieve in becoming self-supporting      remained un-
          predictable.

       --Although     becomIng self-supporting       was a goaJ of OEO for credit
          unions now flnanclally      assisted,     the continuation    of such assistance
          to credit unions also should be considered            on the basis of the value
          of the services     that financial     assistance    enabled the credit unions
          to provide.     To better assess the value of these services,             OEO in-
          tends to obta3n an analysis         of credit union operations      relating    costs
          to benefits and to develop a plan for evaluation             of credit union
          operations    by means of a comparison of costs and benefits.

    The Administrator,       NatIonal   Credit   Union Adminlstrat7on,      lndlcated   that.

       --One of OEO's obJectives    was to staff credit        unions with low-income
          persons and that, as a result,      there was a tendency to over-staff,
          which was in conflict  with the concepts of keeping payroll          costs to
          a minimum and making credit    un Ions self-sufficient.

       --Other credit      unions had succeel ded because of the voluntary  efforts
          of offlclals     during the early stages of existence.     The payment of
          salaries     to employees has been counterproductive   In the development
          of voluntary     efforts  by directors;  poor people need urg-rng and
          training     to become leaders and are prone to let the pald employees
          assume all responsibllit7es.



                                                 4
      --The Admlnlstratlon     believed that credit unions were an effective in-
         strument an helping poor people to help themselves and that the so-
         cial benefits    that accrued were worth some expenditure by the Govern-
         ment to assist them.


MATTERSFOR CONSIDEMTION BY TBE CONGRESS
    In view of the Interest      shown by members of Congress In antipoverty       pro-
    grams, GAO 1s bnnglng      its findings    and observations to the attention      of
    the Congress.     The matters presented in this report may be of particular
    interest  to the congressional      committees having responslbllltles     for
    federally  assisted antlpoverty      programs,
                                 CHAPTER 1

                               INTRODUCTION

       The Office    of Economic Opportunity provides    financial
assistance     to certain  credit unions as part of the Community
Action    Program under the Economic Opportunity      Act of 1964,
as amended (42 U.S.C. 2701).

OEO-FINANCED CREDIT UNIONS

        A credit      union is defined      by the National      Credit    Union
Administration         as a cooperative      association     organized     for
the purposes of promoting            thrift   among its members and cre-
ating a source of credit           for provident       or productive      pur-
poses.      The membership of a credst union consrsts                of a group
of individuals         with a common bond or interest,           such as em-
ployment;       residence,    or membership in a fraternal,            profes-
sional,     religious,      or other association.

       Each OEO-financed    credit  union operates under a charter
                                                                                   .
issued either   by the Federal     Government under the Federal
Credit   Union Act (12 U.S.C. 1751) or by a State government
under a State credit     union act.

       The Economic Opportunity         Act, as amended, provides       for
the establishment       of Community Action Agencies and Community
Action   Programs, which are to focus upon the needs of low-
income individuals       and families.       As part of the Community
Action   Program, in January 1965 OEO began providing            finan-
cial assistance     to credit    unions sponsored by Community Ac-
tion Agencies     or other OEO-related         antipoverty groups to
serve low-income      residents    living    in designated  neighbor-
hoods.

      To become a credit         union member, a person is required
to contract   to purchase a share in the credit               union at a
minimum of $5 and may be required               to pay a nominal member-
ship fee.    Only   members      are  eligible     to obtain   loans from
the credit   union.    Eligibility          for membership in a credit
union is defined     in the credit         union's   charter.




                                        6
       Seven of the eight OEO-financed              credit  unions which we
reviewed    had charters      which permitted        any person who loved
or was employed in a designated             neighborhood      to become a
member of the credit         union.     About 55 percent        of the OEO-
assisted    credit     unions operate under this type of charter,
and many of the OEO-assisted            credrt    unions have converted      to
this type of charter         since February       1970.    Membership   in the
other credit       union that we reviewed         and in the remaining
45 percent     of OEO-financed       credit    unions was restricted      to
persons who were enrolled           and participating       in a community
action   program,

        The Federal       Credit     Union Act, as amended, requires           that
a federally       chartered      credit     union be managed by a board of
directors      consisting       of at least five members of the credit
union elected        by the members of the credit            union.    Similar
requirements       are contained         In credit    union laws of some
States.       Because of such legal requirements,               OEO guidelines
provide     that the OEO-financed            credit   unions not be adminis-
tered by the board of directors                 of Community Action Agencies
or other OEO-related            antipoverty      groups but be operated        as
delegate      agencies     of such agencies         or groups.

        Records available           at OEO and the National            Credit     Union
Admlnistratlon          showed that,        as of December 31, 1969, 125
credit     unions --lo6 federally              chartered    and 19 State char-
tered--were        receiving      financial        support   from OEO for theI
payment of employee salaries,                   rental    of space, or other op-
erating     expenses.        Although       OEO does not maintain           records
showing the total           OEO financial          support provided       to the
credit     unions,     on the basis of information               obtained      from
OEO, CUNA International,               Inc.,      and the National      Credit      Union
Administration,          we estimate         that during     calendar     year 1969
OEO support        to the credit         unions amounted to $3.2 million,
of which about $2.1 million                 was for direct       assistance       in the
form of grants and $1.1 million                    was for technical        assistance
contracts,       special     consultants,          and other expenses,
     OEO PROGRAM ADMINISTRATION

             The Director   of OEO is responsible        to the President      for
     the administration      and coordination      of antipoverty      programs
     authorized     by the Economic Opportunity        Act.    He is respon-
     sible    also for the establishment      of policies      governing     OEO
     operations     and for the planning,     direction,      control,    and
     evaluation     of OEO programs.

              Prior    to September 1969 the OEO-financed             credit   unions
     were administered           by the Community Action         Program office,
     OEO Headquarters,           Washington,     D.C.    In September 1969 OEO
     Headquarters         underwent     a major reorganization;         the responsi-
     bilities       for administering         OEO-financed   credit    unions were
     vested either          in the newly established        Office    of Program
     Development--        for credit      unions which are components of pilot
     and demonstration           projects--    or in the Office      of Operations--
     for credit        unions which are components of Community Action
     42 encies.
             OEO has established         10 regional         offices       whose employees
     assist     communities      in applying       for and conducting             Community
     Action     Programs.      Each regional         director        is responsible        for
     the direction,        control,     evaluation,        and coodination            of all
     aspects of the programs and activities                      in his region          and for
-4   monitoring       compliance     by OEO-financed          activities--including
     credit     unions --with      basic OEO policies,             standards,       proce-
     dures,     and grant conditions.            Each regional           office     is
     staffed     with an official        whose duties         include        coordination
     of the credit       union program with OEO's contractor,                       CUNA.

     NATIONAL CREDIT UNION ADMINISTRATION

            The National   Credit Union Adminrstration    is an lndepen-
     dent agency of the Federal Government and is responsible         for
     the administration     of the Federal   Credit Union Act (12 U.S.C.
     1751).1    The Administration    is engaged in chartering,

     1 Prior to March 10, 1970, responsrbility         for administering
       the Federal    Credit   Union Act was vested in the Bureau of
       Federal  Credit    Unions,   Social Security  Administration,     De-
      partment    of Health,     Education, and Welfare.



                                                  8
examanlng,       and supervlsxng        Federal     credit    unions,      including
federally       chartered     credit   unions financed          by OEO. The Ad-
minastratlon        also prescribes        standards,      procedures,         and ac-
counting     forms for use by Federal             credit     unions;      establishes
Federal     credit      union rules and regulations;              and compiles        and
analyzes      financial      and statlstlcal        data on Federal          credit
union operations.            The Administration          operates      from a Wash-
ington Headquarters           office    and six regional          offices.

       At December 31, 1969, the Administration          had chartered
106 of the 125 credit      unions which were receiving       financial
support   from OEO. Six of the eight credit          unions which we
reviewed    were chartered    by the Administration.

         In March 1965 OEO contracted              with the Administration         for
the training        of credit     union staff        and board members.        The
training     program included          staff    training     and education     In
fiscal     operations,      collection       methods, consumer education,
debt reduction,        financial       counseling,       and legal   services.
Durmg the period           of the training         program,    May 1966 through
August 1968, the Administration                 trained     about 500 OEO-
sponsored credit         union representatives            for which the Admm-
 istratlon     was reimbursed         about $272,000 by OEO.

         The traming    program was discontinued           by OEO m August
1968 because of limited           available   funds.     The trainmg      pro-
gram was reinstated        for the year enduag June 30, 1971, and
$216,000 wa     s  made available       to the Administration       for a
training     program for about 400 credit          union officials.

CUNA INTERNATIONAL,           INC.

        CUNA International,         Inc.,'     Madison,    Wisconsin,   is an
international        credit    union organlzatlon        whose membership is
composed of representatives               of central    credit    union organl-
zations      (leagues)      and credit     unions located      In areas which
do not have a central           credit     union league.       All 50 States
and the District         of Columbia are represented             ln CUNA. Among

1 CUNA International,        Inc.,   prior    to becomlng an international
  organization,       was designated       as the Credit  Union National
 Association,
other activities,           CUNA designs credit      union promotional        ma-
terial,     conducts training        courses for credit       union person-
nel, gathers       statistics     on credit     unions,   publishes     credit-
union-related       magazines;     and   provides    bonding,    property,      and
casualty      loss insurance,

        In April     1966 OEO contracted        with CUNA to develop a
plan for assisting            Community Action      Agencies    in designing
credit    union program components and for encouraging                   State
credit    union leagues and established              credit    unions to take
a more active        role in the war on poverty*              CUBA also was to
assist    in organizing          low-income  credit     unions and to assist
established       credit      unions in designing       programs for, and ex'-
panding services           in, low-income    areas.       The contract    was for
a l-year     period      for which CUNA was paid $19,500.

         In April    1967 OEO and CUNA entered               into a second con-
tract      in the amount of $180,000 for the period April                          1967 to
March 31, 1968, under which CUNA was to provide                            assistance
to credit       unions In record maintenance,                collection        proce-
dures, membership,             and other areas of credit             union admmis-
tratron.        CUNA   also     was  to  provide    consultative           services     to
Community Action           Agencies,     coordinate       credit     unions'       con-
sumer action        activities       with the OEO regional             offices,
evaluate      the impact of the credit             unions,       and perform other
services.         The contract       was extended       through      June 30, 1970,
and increased        to a total       amount of $593,000.             CUNA's in-
volvement       in the program terminated             at June 30, 1970.              At
January 27, 1971, OEO had not made a decision                         as to whether
a contractor        would be engaged for future                assistance        in the
program.




                                           10
                                   CHAPTER2

             BENEFITS RECEIVED BY LOW-INCOMEFAMILIES
                    FROMOEO-FINANCEDCREDIT UNIONS



v/l
        The prlnclpal      benefits   that low-Income    persons received
 from the OEO-financed         credit   unions were the avarlabllrty
 of (1) depositories        for their    savings and (2) loans that
 they otherwise       might not have obtained      or loans at lower In-
 terest   rates than those available          from other sources.

        According     to OEO, credit    unions are a source of low-
 cost credit      which 1s particularly       suitable    for assisting         the
 low-income      consumer.   OEO states     that,     for low-income       per-
 sons, credit      1s often the only means of acqulrlng             life's
 necessities      and that low-income      persons do not qualify           for
 low-cost     loans because most banks regard them as poor credit
 risks.      Some employed low-income       persons may find that
 credit    IS available,    but only at high interest           rates,

         Since 1934, Federal    credit unions have been permitted
 to charge an interest      rate of up to 1 percent     per month
  (12 percent    per year) on the outstanding    loan balance.     From
 inception     of the OEO financing,   the eight credit     unions re-
 viewed generally     charged the maximum interest      rate of 12 per-
 cent per year.

        At December 31, 1969, the 106 federally        chartered    OEO-
 financed    credit  unions had 65,900 members, $4.2 million         In
 members' deposits,      and 18,200 loans outstanding      totaling
 $4.2 millron.      From lnceptlon  the credit   unions had made
 loans totaling     $14.2 mllllon.

        Our analysis    of 4,985 loans totaling            about $1.2 million
 that were made from lnceptlon              to December 31, 1969, to mem-
 bers of the SIX Federal           credit     unions which we reviewed
 showed that 3,250,       or about 65 percent          of the loans,   had
 been made to famllles         that had a reported         annual income of
 less than $5,000.        These loans totaled          about $500,000,    or
 44 percent     of the total       amount of the loans made by the SIX
 credit   unions.     Slmllar      lnformatlon      was not available   on the
 two State-chartered        credit      unions reviewed.


                                         11
     Information on the purposes for which the                   4,985    loans
were made is shown in the table which follows.

                                                                   Percent of
                                 Number of      Total amount        nz11Tber of
         Purpose                   loans            loaned             loans

Debt consolidation                     706        $   231,552             14.2
Rent or utilities                      593             73,771             11.9
Furniture     and
   appliances                          377            116,850              7.6
Clothing                               366             45,964              7.3
Medlcal                                353             57,116              7.1
Automobile                             328            170,816              6.6
Travel and vacation                    255             59,979              5.1
School                                 207             57,259              4.2
Christmas                              172             35,590              3.4
Food                                   164              8,905              3.3
Taxes                                  156             38,749              3.1
Home improvement                       105             38,134              2.1
Other                               1,183             221,644             23.7
Purpose not stated                      20              3,125                l4

      Total                        4,985         $1,159,454              100.0

      Our review of delinquent    and uncollectible  loans at the
eight credit    unions indicated  that delinquency  was not a
maJor problem and that relatively      few loans had been written
off as uncollectible.

        Other services        provided    by OEO-financed       credit  unions
have included       financial       counseling;    sale of money orders,
bus tokens,     postage stamps, and food stamps; and facilities
for cashing checks and paying utility                bills.      OEO-financed
credit    unions also have made arrangements                with Community
Action Agencies and private              employers    to permit credit      union
members to make deposits             in their   share accounts by means of
payroll    deductions.




                                       12
                                    CHAPTER 3

            PROSPECTS
                  --  FOR OEO-FINANCED CREDIT UNIONS'

                           BECOMING SELF-SUPPORTING

         The eight OEO-financed     credit     unions have encountered
a number of problems in their          operations     that have resulted
in relatively        high operating   deficits     and in little  success
in attaining        OEO's goal of becoming self-supporting.          Slg-
nificant      problems that we identified         are as follows:

      --The credit          unions have not been able to achieve         a
         satisfactory          rate of growth in member shareholder
         deposits,         primarily   because the poor do not have ex-
         cess funds         that can be used for investment       purposes.
         As a result,          limited  funds have been available      to
         the credit         unions for making loans to members, and
         the interest          income on such loans has not been suf-
         ficient      to    cover the credit   unions'  operating     ex-
         penses.

      --Generally,   high operating      expenses were being in-
         curred because full-time,       paid employees were carry-
         ing out credit   union activities      and because contrib-
         uted space was not made available.

 DEFICITS
-1__1_      FROM OPERATIONS

        Our review of the results
the eight
financing
              credit
                                         of financial
                        unions showed that,
              through December 1969, the credit
curred expenses which exceeded operating
$500,000 and that the deficits
                                                           operations
                                                 from inception

                                                       revenues by
                                         had been offset       by grants
                                                                           of
                                                                        of OEO
                                                           unions had rn-        J
from OEO, amounting         to $565,000,    for credit     union operating
expenses.       Prospects     for these credit     unions'    attaining     a
break-even      point   in operations    are not promising.

      A table   follows   showing a summary of the results   of
the operations      of the eight OEO-financed credit  unions for
calendar   years 1967, 1968, and 1969, and OEO financing      to
December 31, 1969.



                                         13
                                                                                                                           From lnceptlo"        of
                                               Calendar          year                                                      OEO financing       to
                           1967                           1968                                   1969                      December      31, 1969
                             Oper-                         oper-                                   oper-                        Oper-                   OEO         Date
                   oper-     ating           oper-          at1ng                     oper-        atlng            oper-       at1ng               fIna"-          OEO
 Credzt            at1ng       ex-   Def-    at1ng           ex-      Def-            at1ng          ex-   Def-     atmg          ex-     Def-        cral    financing
 H               income    pe15es    g      L"COme        penses      g&            income       penses    _1c1t    xncome    penses      lclt     support    xntlated
                                                                             (000      omtted)
                                                                                                                                           $112     $131      Jan      1965
                                                                                     $10
                                                                                      10
                                                                                         a
                                                                                                  $:fi
                                                                                                   31
                                                                                                       $it23 $20
                                                                                                             21
                                                                                                             14
                                                                                                                 $132
                                                                                                                   131                      110
                                                                                                                                              78
                                                                                                                                                      130
                                                                                                                                                        91
                                                                                                                                                              Jan      1965a
                                                                                                                                                                       1966
                                                                                                                                                              *P=
                                                                                                      17       11     13            :;        36        43
                                                                                           i          11       10       1           30        29              sept
                                                                                                                                                              hOV      :z
                                                                                                                                                              Mar      1967
                                                                                         2"          2         :;       5'          5”:       :9'             Ja"      1966
                                                                                       (b)          - 7     --z       -L          22        -2                Jan      1967

                                                                                     $39
                                                                                      Z           SIT&     $137      $2          $578



bLess     than   $500


           The CUJYA research       and economrcs department          has devel-
oped a break-even           analysis      procedure,    for the use of any
credit       union,    which considers        a credit    union's    operating
expenses to be either             a fixed     expense or a varrable         expense.
CUNA defined         a fixed expense as any expense which could not
be reduced easily--           salaries      of permanent staff,       rent and
utilities,         equipment,     audit or examination          fees, and credrt
union State league membershlp fees.                    Other credit      unwon ex-
penses, such as supplies               and provlsrons      for the payment of
dlvldends        and required       reserves,     are consrdered      by CUNA to
be variable         expenses.

        Appllcatlon        of the CUNA break-even          analysis     procedure
to the calendar          year 1969 operating         experience     of the eight
OEO-financed        credit     unions showed that none of the credit
unions had had sufflclent               income to cover their         fixed ex-
penses.       Appllcatlon       of their     income toward covering          their
variable      expenses showed that five of the eight credit
unions'     variable       expenses had exceeded their            operating     in-
come, The eight credit              unions would have dlfflcultles              In
achieving       a break-even       posltlon,     even with a substantial
increase      in loans, unless their            operating    expenses were re-
duced.




                                                                                     14
 INSUFFICIENT GROWTHOF SHAREHOLDER
                                 DEPOSITS
         The eight credrt unions did not have sufficient         share-
('holder deposits,      the primary source of funds for making
  loans, to make loans to generate interest          Income adequate
: to  cover   operating    expenses.    To keep the  credit unions sol-
  vent, OEOhas provided grants to cover the operating defl-
  tits for periods longer than those anticipated           by OEOguide-
  lines.     The insufficient     growth in shareholders'    deposits
  is attributable      primarily   to the very limited savings that
  low-income families have available         for investment in the
  credit unions.
        At December 31, 1969, the eight credit unions' assets
 totaled $554,938 and their liabilities     and capital consisted
 of shareholders ' deposit account balances of $486,099, notes
 payable of $16,282, other llablllties     of $3,978, and re-
 serves and undistributed     earnings of $48,579.    Since incep-
 tion, OEOhas provided these credit unions with grants for
 operations totaling    $565,000.
        OEOguidelines  dated August 1969 state that certain
 operating and administrative    costs of a credit union can be
 financed by OEObut that such assistance cannot be expected
 to be provided for more than a year or two. The guldelines
 state also that it is essential     to precede the establish-
 ment of a credit union with an energetic campaign of educa-
 tion and organization   and that an operating credit union
 must continue these activities    to enlarge its membership,
 capital,  and impact on the economy of the target area.
        The CUNA report to CEO for the period July 1968 through
 June 1969 included a model credit union program for use in
 planning a credit union component of a Cormnunity Action
 Agency. The CUNA model credit union was based on an urban
 area with a potential     membership of about 20,000 and was
 projected to become self-supporting      after 5 years of opera-
 tions which is considerably     longer than the year or two in-
 dicated in the OEO guidelines.       CUNA projected that the
 model credit union's share deposits would increase as shown
 in the following   table.




                                   15
       Year        Average      Total growth   Total shares
        of         growth        in shares        at end
     operatron   each month         a year        of year
          1         $1,000          $ 12,000     $ 12,000
          2          3,000            36,000       48,000
          3          5,000            60,000      108,000
          4          7,000            84,000      192,000
          5          9,000           108,000      300,000

        The CUNA report stated that, during the first year of
the model credit union's operations,      the credit union could
adequately serve the needs of its members on a part-time ba-
sis at the hours of peak needs and that, during its second
year of operations,     the credit union's office hours would
expand because of an increasing membership. The CUNA re-
port stated also that, during the model credit union's third
year 9 it would be operated on a full-time      basis and that in-
come generated from loans would be available        to pay a por-
tion of its operating expenses,      The CUNA model provided
that, during the fourth and fifth year of credit union op-
erations,    it would have developed volunteer    leadership
skilled    in managing the credit union and that, at the end of
the fifth year, it would have member deposits of about
$300,000.
       CDNA stated that a credit union of that size would gen-
erate annual income of approximately    $30,000, of which
$15,000 could be used to pay dividends to shareholders and
to set aside legal reserves and $15,000 could be used to
pay operating expenses, which would eliminate    the need for
subsrdy.    CUNA, In estimating that the model credit union's
operating costs would be about $30,000, assumed that there
would be volunteer help to keep out-of-pocket    costs down.
      Each of the eight credit unions was expected by OEOto
become self-supporting   within a few years from the date
that they obtained OEOfinancial      support. At December 31,
1969, however,they were not self-supporting    nor were they
progressing   toward becoming self-supporting  at the rate of
the CDNAmodel, although they had been receiving OEO finan-
cial support for more than 1 or 2 years.,



                               16
       The following     table shows the total  assets of each of
the credit     unions at December 31 of each year since rncep-
tion and their       comparison with those of the CUNA model
credit   union at December 31, 1969.

                             Projected
                                total
                              assets
              Date QEQ       based on             Total assets at
Credit      financing           CUNA                December 31
 union      rnitiated           model    1969
                                         ---     1968 1967 1966              1965

                                           (000 omitted)

   A   Jan.          1965      $291      $156    $48     $33         $24     $16
   B   Jan.          1965"      282       127     96      49          31      31
   c   Apr.          1966       164       103     50      28          11      -
   D   Sept.         1966       I.29       73     54      31          16      -
   E   Nov.          1966       115        30     13       5          (b)     -
   F _ Mar.          1967        Cc)       29    '31       6          -       -
   G   Jan.          1966       164        26     25      16            4     -
   H   Jan.          1967       108        11      3       3          -       -

aCredit  union was chartered in July 1961 and had total     assets
 of about $12,000 when OEO began financing  its activitres.

bLess     than   $500.

'Credit      union   1s located   in a rural    area   for   which     the   CUNA
 model     is not    intended   to apply.

      At December 31, 1969, the 125 QEO-financed        credit
unions had accumulated     total assets of about $6 mullion.
Only 17 of the credit     unrons had total   assets 1n excess of
$100,000,  and only two had total     assets in excess of
$300,000 which was the amount estamated       by CTJNA to be nec-
essary for a credit    union to become self-supporting.
       CUNA, in its August 1970 report to OEO, commented on
the problems that credit unions in low-income areas have in
achieving growth, as follows:
     'The growth of the capital of a credit union de-
     pends upon the number of members in the credit
     union, and amount of money they save, Community-
     type credit unions in low-income areas have had a
     good deal of trouble accumulating sufficient     cap-
     ital to be able to support the necessary full-time
     operations without some subsidy.    The slow growth
     of membership and of members' shares has led to a
     low level of loan services, which in turn implies
     limited usefulness of the credit union.     This
     limited usefulness is also measured by the gener-
     ally low level of dividend that such credit
     unions have paid.    The end result 1s that the
     credit union attracts neither the saver nor the
     borrower, and shows only minimal growth."




                              18
            HIGH OPERATING COSTS

                     The eight OEO-financed      credit  unions experienced       srg-
            nificantly      hrgher operating     costs than other Federal       credit
            unions of the same size,          Generally,    their  high operating                                                                                                                                                                z
            costs were attributable         to the employment of paid,      full-
            time employees rather        than volunteers      and to a lack of con-
            trlbuted     space.

                    The follow-Lng table,    which compares the average 1969
            operating     expenses of the eight OEO-financed           credit  unions
            with those of slmllar-sized        Federal   credit    unions,    shows
            that the eight credit       unions experienced      slgnlflcantly
            higher    costs for salaries,     space, and other expenses.

                                                                               ComParlson        of ODeratmn                   Expenses              of
                                                                    OEO-Financed        Credit      Unmns    with                Those        of      Slmllar-
                                                                                    Sned       Federal    Credit                 Unions

                                                                                                                       Asset       sxze at                December      31,          1969
                                                           ~$10,000          to   $25,000               $25,000           to      $50,000                        $50,000             to $100,000                   $lOO,O 00 to      $250,000
                                                               All                                       All                                                       All                                                All
                                                           Federal                  Credit           Federal                        Credit                     Federal                        Credit               Federal             Credit
                                                           credit                   UnlOnS            credit                        unions                     credit                         UnlOnS               credit              Ul-AlO"S
                                                           UllO"S                 reviewed           -UnlOnS                      renewed                      __
                                                                                                                                                               unions                       reviewed               m                 reviewed
Total       number       of      credit     unons           1,172                    A__             1,318                          3                                1,768                                              2,672
                                                                                                                                                                                             1                                        3
Average        1969 operatmg               ex-
   penses       of credit           unions
   exclusive           of dividends
       Salaries                                               $167                 $5,447            $        441                 $14,576                                                   $12,806                $2 262            $21,812
       Cost of space              occupied                       24                         64                  41                   2,321                       $         'E                                         147                1,906
       Borrower's           protectzon           and
           11fe savmgs              XIsurance                  141                          58                343                          227                             700                       505                1 553              964
      Leazue         dues                                        28                         42                  68                           99                            135                       110                  284                42
       Sur&y         bond premiums                               20                           7                 33                           26                              52                        48                 106                28
       Examination            and swerv~s~on
           fees                                                                             40                135                          126                             188                        55                   292                336
       Interest          on borrowed           money                                                            57                           23                            131                       280                   282                  50
      Educatmnal              expenses                                                                                                                                                               253                     67               158
      Depreciatmn                                                                                              15                          14:                               E                        81                     67               113
       other       insurance                                                                                   ::                          277                               25                                                               724
       Comunlcations                                                                         15                12                          173                               24                  -304                           2:            842
      Accountmg             services                                                                           15                                                                                                               46
       Conventmns             and conferences                                                22                   9                                                             ;i                    15                        59            149
       supervisory            ccmmuttee          ex-
           pUEX?
       Annual        meetmg         expenses                                             -16                     3                               5                              51                     73                  1::                   51
       Other       expenses         (note      a)                                    1,136               32                         1,7553                           347                     2,788                         670        3,636

              Total                                                                $6,851             $1,412                      $19,753                        $2,809                     $17,318                    $6,080        $30,811

=Includes            statmnery            and   supplies        collection           expense,     payroll             taxes         barn         service             charges,         and    other          expenses




                    Seven of the eight credit    unions paid dividends   during
             1969.    The dlvldend  rates varred    from 3 to 5 percent  and
             averaged 3.9 percent.      Without  the   OEO subsidy, none of   the
             credit   unions would have been able to pay a dividend.

                                  Details  on certain    operations    of the eight                                                                                                                     credit
             unions                 are discussed     in the following    sections.
Salary    costs

       The total      salary    costs and the number of pald,           full-
time employees of the eight credit                unions were higher        than
those of other Federal            credit   unions of comparable       size.
The services       provided     by the eight credit        unions,   except
for selling      food stamps, were similar            to the services       gen-
erally   provided      by other credit        unions.    Only a small por-
tron of the higher          salary    costs was attributable       to the
sale of food stamps.

        Standards    have not been established             by OEO, CUNA, or
the Natronal       Credit    Union Admlnsstratlon           on staffing     re-
quirements      for credit     unions.     A   CUNA   offlclal      responsible
for admlnlsterlng         the OEO contract       informed us that,          on the
basis of his experience            with credit    union operations          over
a number of years, he believed             that an OEO-financed            credit
union with total         assets of $300,000 could be sufflclently
staffed     with one paid,       full-time     employee supplemented            with
competent volunteer          assistance.

         In July 1970 the CUNA official               informed        us that in Jan-
uary 1965, when OEO began to finance                    credit      unions,    OEO gen-
erally     had provided       grants to finance           the salaries        of three
full-time      employees.        OEO officials        informed us that OEO
had provided       grants to finance          the salaries          of more full-
time employees than were employed by Federal credit                            unions
of comparable         size in order to provide              sufficient      manpower
resources      to enable the credit           unions to increase            their
rate of growth.            The CUNA offlcral        stated       that OEO, when
financing      additional      new credit       unions,      now provided        grants
only to finance          the salary   of one full-time              employee.

        The CUNA offlclal     informed us further       that the credit
unions,    which orlglnally      had received     OEO flnanclng     for two
or more full-time       employees,    still   were receiving     financing
for two or more full-time          employees although      he believed
that In most cases one full-time            employee was sufflclent.

      The following    table        shows that each of the eight credit
unions had more full-time            employees and greater  salary  costs
than other Federal     credit        unions of comparable  asset size.




                                           20
                                                                Average     number    of    pald     employees            Average     1969
                                                                   FulLtIme                       Part-trme               salary    costs
                                  Number      Number of                        All                             All                     All
                             of     Federal      credrt       Credit        Eederal          Credit         Federal     h-edit      Federal
     Asset    s~.ze   at          credit         U"l0Il.S     unions        credit           unmns          credzt      unions      credit
  December      31.   1969        UIllOilS     renewed      revlewed        un~ona         revxewed         unions    reviewed      unions

$ 10,000     to   $ 25,000        1,172            1           100           0 09               1            0 46     $ 5,447       $       167
  25,000     to     50,000        1,318            3           2 67            11               -              72      14,576              441
  50,000     to    100,000        1,768            1           2 00            12               -              96      12,806              964
 100,000     to    250,000        2,672            3           3 00            26               -            1 24      21,812           2,262



        The CUNA offrclal      stated  that many credit      unrons,     rn-
cludlng    some which were operated        In conJunctlon     with an QEO
program but which were not financed           by OEO, were staffed
with only volunteer        assistance.     The CUNA official       stated,
however,    that one of the chref benefits         of a credit      union's
having a full-time        employee was that It could operate            on a
full-time     basis and thus could be more accessible            to the
residents     of the neighborhood.

 Space            costs

          Seven of the eight OEO-financed              credit   unions ex-
 perlenced      higher costs for space occupied--rent,                  utllatles,
 and malntenance--        than other Federal          credit   unions of similar
 size, prlmarlly         because most of them paid rent for space
 whereas many other credit               unions which were not OEO financed
 were provided        with space free of charge or at relatively                      low
 rentals.       For example,         the Federal     Credit   Union Act, as
 amended (12 U.S.C. 1770), states that a Federal                      agency may
 allot     space in Federal          bunldlngs    to a credrt     union whose
 membership consists            of Federal      employees without       charge for
 rent or services.           Also,      credit   unions at lndustrral           plants
 or other private         facllltles        often are provided       with space
 without      charge.

        In a report     to the Congress (B-164031(4),                February     17,
 1971), we recommended that the Admlnlstrator                   of General
 Services   establish      guldellnes        for use by Federal        agencies
 In determining       charges to credit          unions serving       Federal
 employees for space, related              services,    and personal        prop-
 erty furnished      by the Federal Government,            when the credit
 unions had attained        a degree of frnanclal           stablllty       that
 would enable them to pay for the space and other services.
 The OEO-financed       credit     unions revrewed       have not attained
 this degree of flnancbal           stablllty.



                                                                      21
      The OEO-financed   credit  unions'     operatrng     costs would
be reduced If they obtalned     space free of charge or at
modest rentals    from such groups as charitable,          relrglous,
governmental,   and commercial   organizations        an low-income
nelghborhoods.

       By letter    to us, dated January 21, 1971, the Deputy
Director,     OEO, stated that some OEO-financed         credit    unrons
that were paying rent for space were located             in premises
owned by or leased to other organizatrons           that    received
Federal   assistance.      The Deputy Director    stated also that,
If the credit     unrons were permrtted     to reduce their        payments
for space to such organlzatrons,        the organlzatlons         would
incur a reduction       of income which would merit conslderatlon
In determinrng      the amount of their    Federal assistance.

       We recognize    that rentals     recerved      by federally           as-
srsted organlzatrons       from the OEO-financed           credit     unions
could be a factor       In determrnlng     their    Federal assistance.
We believe,    however,    that,   to attain     flnanclal        stabllrty,
those credit     unions paying rent for space should attempt                     to
obtain   free or less costly       space from charitable,             rellglous,
governmental,     or other organlzatlons.




                                        22
NEED TO ESTABLISH FORMAL GOALS
FOR CREDIT UNIONS

        Nerther    OEO nor CUNA has required        the OEO-financed
credit    unions to develop plans showing proJectrons             of therr
financial      operatsons    or target   dates for achrevlng      the goal
of becomlng self-supporting.            The establishment     of such a
target     date and Its comparison with a credit          unlonOs progress
toward meeting that goal would enable OEO and the credit
union to determlne        whether the credit     unron's   progress    was
adequate.       Also, this would enable OEO and the credit           union
to initiate      actlons   to alleviate     the problems   that might be
causing the credit        union to experience       a less than antlcl-
pated rate of progress.

       None of the eight OEO-financed           credit    unions had estab-
lished    formal goals for therr operations.              Prior    to the es-
tablishment     of one credit      union,    however,   the delegate        agen-
cy's proposal      for fundlng     a credit    union to begin operations
In April     1966 stated that It would be self-supporting                  by De-
cember 1968.       The available      records,    however,     did not show
that any attempts       had been made to perlodlcally             evaluate    the
progress     of this credit      unwon.     We also noted that fundrng
requests     to OEO for periods       after October 1966 had not men-
tioned    that becoming self-supporting           was a goal of the credit
union.

         In its August 1970 report            to OEO, CUNA stated that,
orlglnally,        goals for limited-income          credit   unions had not
been established          because of a lack of experience           In what a
llmlted-income         credit   union could be expected          to accomplish
and because of the belief             that the failure       to achieve   a goal
would be dlscouraglng            to llmrted-income       people;   however3
lthldden'f     goals-- such as obtalnlng         $300,000 in total      assets--
did exist.         CUNA offlcrals       stated   that they had encouraged
credit      unions to establish         plans for growth and that they
believed       that goals should be established             now. CUNA stated
 that the goals of a credit             union must be understood        and es-
 tablished       by the credit     union members,




                                        23
                                    CHAPTER 4

                 POTENTIAL FOR INCREASING LOAN FUNDS

        Funds available        to credit     unions for loans are, for the
most part,     limited      to member shareholders'          deposits        and what-
ever additional        capital      1s earned through       credit    union activ-
ities    and funds whxch the credit             unions can borrow.            As pre-
vlously    discussed,the         limited    amount of members' deposits
has had an adverse effect              on the credit    unions'      ability      to
earn the revenue needed for a break-even                  operation.          There
have been some recent developments,                 however, which seem to
offer    some potential        for rncreasrng       the amount of funds that
can be used for making loans.

       On October 19, 1970, the            Federal Credit       Union Act was
amended by Publrc Law 91-468             to provide     insurance      for member
deposits      In State and federally          chartered    credit    unions.
The act, as amended., provides             for the National       Credit     Union
Administration       to insure the       deposits     in credit     unions in
the same manner as the Federal              Deposit Insurance        Corporation
insures     deposits   in commercial        banks.

        During the Senate debate on the amendment to the Federal
Credrt Union Act, it was noted that low-income           credit   unions
had demand for loans rn amounts which exceeded the available
deposits      and that the insurance   of deposits   would permit     low-
income credit       unions to attract  more funds.    It was antici-
pated that organizations        would be willing   to deposit   funds
in low-income       credit unions If the funds could be insured
against     loss.

        OEO has funded the Opportunity             Funding    Corporation  and
a pilot    guaranty  program that have,            or plan    to have, proJects
directed    toward assisting   low-income           credit    unions in obtain-
ing deposits.

OPPORTUNITY FUNDING CORPORATION

       In June 1970 OEO made grants totaling             $7,450,000      to the
Opportunity      Funding Corporation,       Washington,     D.C., a nation-
ally based, llmsted-purpose          organlzatlon     that was to draw on
the resources      of the financial      sector to help low-income          per-
sons.     Credit   unions were among the financial           organizations

                                         24
that could be assisted          by the corporation,  and such assls-
tance would be provided          in one or more ways, as follows

      --Provide        incentives  to institutions                to encourage      de-
         posits      in low-income   credit     unions.

      --Offer      to selected   credit     unions in poverty    areas in-
         surance on members' deposits             similar to that now
         available       to commercial    banks through     the Federal  De-
         posit     Insurance   Corporation.

      --Guarantee       credit    unions    against        loss     on loans      made to
         low-income      persons.

      --Rediscount        a portion    of the notes          held     by credit
         unions.

        In April   1971 an OEO official      informed      us that the Op-
portunity     Funding Corporation      had allocated       about $5 million
to individual      economic development      activrties.        He informed
us also that,      although    none of this amount was allotted           for
use in the credit        union program,   the Opportunity        Funding Cor-
poration     still   planned to assist    credit      unions.

PILOT GUARANTY PROGRAM

       In June 1969 OEO made a grant of $35,000 to CUNA for a
Z-year pIlot    and demonstration     proJect,    during which time
CUNA was to provide     $5,000 to each of the seven then-existing
OEO regions   for use in guaranteeing         not only the investment
but also a minimum return       on the investment       for deposits  of
organizations    which, pursuant     to the guaranty,       deposited
funds in credit    unions serving      low-income    persons,
      A credit    union that received      a guaranteed   deposit   would
be required    to develop a plan for satisfactory         credit   union
asset growth through      increased    member shareholdings.       Also,
the plan would be required        to provide   for the eventual     full-
time operation     of the credit    union without     any OEO financial
support   and to include     a phaseout of the pilot      guaranty    pro-
gram investments.

       In July    1970 CUNA officials           informed       OEO that most State
credit   union    leagues were not         interested        in the program


                                           25
because of the trght money srtuatron             and because of the
leagues'    belref    that the prlot    guaranty    program was not fi-
nancrally    sound.      An OEO offxial     informed us that,    under
the program,       CUNA could guarantee     only a 3-percent   return    on
investments      In the credit   unrons and that rnstltutions        wanted
a hrgher return.

      In December 1970 we were informed     by OEO offrcrals that
CUNA had contracted   with two State credit    union leagues to
admrnlster  the pilot   guaranty program but that the program
had not become operational.




                                   26
                                   CHAPTER 5

       CONCLUSIONS, RECOMMENDATIONS, AND AGENCY COMMENTS

CONCLUSIONS

         The OEO-financed      credit    unions have been of some bene-
fit     to low-income    families.       They are located      in areas that
are accessible        to the poor and have provided          the poor with
loan funds and depositories             for their   savings,     as well as
facllitles       for the purchase of food stamps.            Had these credit
unions not been established,              certarn low-income       famllres
might not have obtained            loans or, if obtained,        the interest
rates on the loans might have been higher.

        These benefits,      however, were attainable              only because
a substantial       amount of the credit         unions'      operating    costs
were financed       by OEO. Although        OEO intended         that its flnan-
clal assistance        would be provided       for a relatively          short pe-
riod,     CUNA stated that 1-t would take 5 years for an average
OEO-financed,       low-income     credit   union to become self-
supporting.       Also, the OEO-financed          credit      unions that we
reviewed      were making slower progress           than that anticipated
by CUNA as necessary         for a low-income         credit     union to become
self-supporting        in 5 years.       We believe      that,     unless changes
are made in the credit          unions'    operations,        OEO financing
will    be required      for much longer periods           than originally       an-
ticipated      by OEO and CUNA.

        Generally,     the neighborhoods       served by the OEO-financed
credit    unions are low-income          areas and, for the foreseeable
future,     probably     will    not generate    sufficient       shareholder
deposits      to become self-supporting,            If operating        costs are
not reduced through           the use of volunteer          help and free space,
the credit       unions will      have to obtain      fairly     substantial   de-
posits    from other sources to generate              sufflclent      revenue to
cover operating        costs.

       OEO has not required       the financed    credit     unions to de-
velop plans showrng projections          of their    financial     operations
or target   dates for achieving       the goal of becoming self-
supporting.      Frequent   assessment of a credit         union's    progress
toward attaining      an established     goal would enable OEO and
the creht     union to determine      whether the credit         union's

                                          27
 progress   was adequate and to rnrtrate               actron to allevrate
 problems that mrght be causing a less                 than antrcrpated    rate
 of progress.

          Vrgorous    efforts   are needed by the OEO-financed       credit
 unions to reduce hrgh operatrng            costs.    Emphasis should be
 placed on obtalnrng          and utllrzrng   volunteer    help rn lieu of
 full-time,       paid employees and on obtaining        free space or
 space at modest rentals           from such groups as charrtable,       re-
 ligious,      governmental,     and comrraerclal orgarnzatrons    in low-
 income nelghborhoods.

 RECOMJ%ENDATIONSTO THE DIRECTOR, OEO

       To assist the OEO-financed             credit    unions In becomrng
self-supportrng    and to thereby           reduce     OEO frnancral  support,
we recommend that the Drrector,               OEO

       --Require      each credrt     unwon to perlodlcally         develop   a
          plan showing Its current          flnanclal     status,    its annual
          projectrons     of expenses,      Income, and growth;         and a
          target    date for becoming self-supportrng.               The plans
          and the results      of operatrons        should be reviewed      by
          OR0 to ascertain      whether the projectrons           are reason-
          able and whether       the credit      union has rnltlated,       or
          plans to initiate,        actrons    that will     enable attarn-
          ment of projected        goals.

       --Provide     guidance       and assistance     to credrt     unions ex-
          periencing     diffrcultres       in attaining     established    goals
          and encourage them to reduce expenses whenever pos-
          sible.

OEO COMMENTS

       On September 28, 1970, we requested           the comments of the
Director,   OEO, on the matters        discussed   rn this report.          The
Deputy Director,     OEO, in a letter       to us, dated January         21,
1971, (see app. I) agreed wath our conclusions               and recommen-
dations.    He stated     that the OEO Office      of Program Develop-
ment intended     to obtain    status reports,     plans,   and projec-
tions bearing     on the goals of self-support          of credit     unions;
to review the operatrons        of the credit    unions and to provide
necessary   guidance    and assrstance,      and to require       them to
concentrate    therr efforts      on cost reductions.

                                       28
       The Deputy     Director      stated        also    that*

       --Although       Public    Law 91-468 (to provide         insurance   for
          member deposits)          undoubtedly    would increase       the abil-
          ity of credit        unions to attract       depos$ts,     the extent
          of success that credit            unions may achieve       in becoming
          self-supporting         remained unpredictable.

       --Although      becoming self-supporting          was a goal of OEO
          for credit      unions now financially         assisted,      the con-
          tinuation      of such assrstance       to credit      unions also
          should be considered         on the basis of the value of the
          services     that financial      assistance     enabled the credit
          unions to provide.          To better     assess the value of
          these services,        it would be desirable          to obtain     an
          analysis     of credit    union operations        relating      costs to
          benefits     and to develop      a plan for evaluation           of
          credit    union operations       by means of a comparison             of
          costs and benefits.          The Office     of Program Develop-
          ment intends       to make the necessary        preparations        to
          enable OEO to obtain         such an analysis         and plan.

NATIONAL CREDIT UNION ADMINISTRATION                      COMMENTS

        By letter       to us, dated October 29, 1970, (see app. II)
the Administrator,          National   Credit     Union Administration,        ad-
vised us that he was in general               agreement with our conclu-
sions and recommendations            and that the Administration's           re-
gional    offices       had urged the officials        of credit    unions to
establish      realistic      goals which would result        In their    tran-
sition    to a status of self-support.

      The Administrator          indicated         that

      --One of OEO's objectives       was to staff    credit   unions
         with low-income   persons and that,as       a result,    there
         was a tendency   to overstaff,    which was in conflict
         with the concepts of keeping      payroll    costs to a mini-
         mum and making credit    unions self-sufficient.

      --Other    credit   unions had succeeded because of the vol-
         untary   efforts    of officials   during  the early stages
         of existence.       The payment of salaries    to employees
         has been counterproductive       in the development    of


                                             29
 voluntary  efforts by drrectors,   poor people need urg-
 ing and training   to become leaders and are prone to
 let the paid employees assume all responsiblllties.
&The Adminzstration    believed that credit unions were
  an effective  instrument In helping poor people to
  help themselves and that the social benefits that ac-
  crued to the community were worth* some expendsture
  by the Government to assist them.




                        30
                                    CHAPTER     6


                                SCOPE OF REVIEW

        Our review was made to evaluate                the (1) progress       made
by the credit         unions in becoming self-supporting,                (2) bene-
fits    provided      to low-income     participants        in the OEO credit
union program,          and (3) results      of financial       operations      of
the OEO-financed          credit   unions.      Our review was made at six
federally       chartered      and two State-chartered          credit    unions,
at the offices          of CUNA in Madison,        and at OEO Headquarters.
The credit       unions reviewed       were selected        on the basis of the
amounts of their          assets and their       locations.        Our review was
directed      primarily      toward reviewing        the credit     unions' calen-
dar year 1969 operations.

         We reviewed     legislation       pertaining      to OEO-financed        credit
unions and OEO policies              and procedures       applicable     to the
credit     union program.          We examined program documents,              corre-
spondence,        and pertinent       records     and reports.       We interviewed
officials      of OEO, credit         unions,    delegate      agencies,    the Na-
tional     Credit    Union Administratron,            CUNA, and private        banks.

        Although    our review included         tests of the accounting
procedures       and records,     such tests were not designed         to         ver-
ify the financial         statements     of the credit   unions.    For            ex-
ample, we did not obtain           confirmations--from      commercial             de-
positories,       shareholders,      or borrowers--of    the amounts             re-
corded as being on deposit            or on loan.




                                           31
APPENDIXES




 33
                                                                        APPENDIX I


                                                  EXECUTIVE    OFHCE OF THE PRESIDEM
OFFICE OF ECONOMIC                                              WASHINGTON, 0 c 2OSO6




                                                 JAN 21 1971




        Mr. Henry Eschwege
        Associate Director
        United States General
          Accounting  Office
        Washington,  D.C. 20548
                                                               D
                                                         I
        Dear Mr. Eschwege.

        I am pleased to enclose the comments of the Offxe      of Economic
        Opportunity  on your proposed report on the prospects that
        credit unions benefltlng   the poor will become self-supporting.

        I appreciate     having   had the opportunity        of submitting   these
        comments.




                p’ erector
        Enclosure




                                         35
APPENDIX I


  Comments of Office of Economzc Opportunity    on the draft report
  of the Comptroller  General of the Unrted States entitled    "Dim
  Prospects that Credit Unions Benefltlng    the Poor W111 Become
  Self-Supporting"


                                                I     General        Comments

  We agree with               the conc'luslons               and recommendations              stated         at pages 44-46

  of the draft              report.        Consistent            with     them, the staff             of the Office            of

  Program Development                   Intend,         in cooperation            with      other     OEO staff,          to

  obtain       status        reports,           p lans and proJections               bearing         on the goal of

  self-support              of assisted             credit      unions,      to review        the operations              of

  such credit              unions      in the light             of these      and to provide             necessary           guld-

  ante and assistance                   and to require               such credit          unions      to concentrate

  efforts          on cost reduction.

  The      draft     report         takes notice             of certain         factors      that     impede the

  progress          of credit          unions        m low-income           communities             toward     self-

  sufficiency.               These include the fact that loans                              typlcally         are small and
                             k
  the fact          that     such credit unions have difficulty                              in attractrng             deposits.

 Although           Public      Law 91-468            undoubtedly          will     increase         the ability          of

  credit       unions        to attract             deposits,        the extent          of success that              credit

  unions       In low-Income              communltles            may achieve         towards         becoming self-

  supportlng          remains          unpredictable                 However,       as the draft             report     concludes,

  these credit              unions      have been of benefit                  to low-income             families        and the

 benefits          have been obtainable                      only because of the substantial                          OEO asslst-

  ante         Therefore,             although        self-support          1s a goal of the Offlce                     of

 Economrc Opportunity                     for       presently        assisted      credrt       unions,        we belleve




                                                                36
                                                                                                                                              APPENDIX I

that      contlnuatlon                       of         assistance                  to     them         should              be considered                          on the

basis       not     only             of      therr              progress                toward          that           goal        but      a Iso        on the

basis       of     the         value          of          the      services                that         assistance                  enables              them             to

provide


In     order       to apply                  these              bases         ObJectlvely                    and consistently,                                it     would

be desirable                   to      obtain                  an analysis                 of        low-income                 credit            union             operations

that      relates              costs              to benefits                     and a plan                  for       evaluatlorl                 of        such

operations               by means                      of a comparison                         of      costs           and benefits                                Office           of

Program           Development                          staff       intend,                In        cooperation                 wrth        other             OEO staff,

to make           the      necessary                      preparatzons                     to        enable            OEO to            obtain          such             an

analysis           and plan


                                                  II            Speclflc                 Comments                 ’

           1        CA0 draft                     report,               p      10          “Most            of        the     OEO financed                         credit

unions           have      charters                     which           permit            any person                   who lives              or         1s employed

m a designated                            nelghborhood                        to become                a member               of      the      credit               union            ”


           OEO comment:

Approximately                       55      percent               of        the         OEO assisted                   credit            unions           possess                   this

type       of     experimental                           charter,                 the     remalnlng                   ones      are         restrlcted                      to

persons           enrolled                  and          partlcipatlng                         In     the        community                actlon          program                   only

This       has      In         the         past          restrlcted                     membershlp                to        those         least          likely                to

accumulate                savings                        The new share                         insurance                law ~~111 markedly                                Increase

 the      prospects                  for      share              accumulation                       lsy permlttlng                       Investments                           It

 should          also          be remembered                           that        the         experrmental                    charters              have            only           been

available                for         a little                  more         than         two years,                   and      that         many         of         the        credit




                                                                                  37
APPENDIX I


 unions        that     have them converted                        only recently.

          2.     GAO draft             report,             p. 14        "During       the period            May 1966 through

 August        1968, the National                  Credit           Union Admxnrstratlon                    trained       about 500

 OEO     sponsored        credit         union             representatives            for     which the Administration

 was reimbursed             about        $272,000              by OEO          The trainxng            program was discon-

 tinued        by OEO because OEO had llmlted                                 funds available               for     the credrt

 union     program         H


 OEO comment

 The trarnrng            program was relnstated                             in June 1970 and $216,000                     was made

 avarlable            to NCUA for             a speclflc            program of training                    including       plannxng

 and goal        setting         for      lndlvldual               credit      unions'        officials.


          3.     CA0 draft             report,             p. 370       "Seven of the eight                  OEO financed

 credit        unions     reviewed             experienced              higher       costs     for     space occupied                -

 rent,     utllltles,            and marntenance                    - than other            credrt         unions      prrmarily

 because most OEO financed                             credit       unions       paid rent           forlspace         occupied

 whereas        many other         credit          unions           are provided             space free           of charge          or

 at relatively             low rentals                 "


 OEO comment*

 We agree with            this     statement                 but do not belleve                that        in all      cases     the

 reduction        of asslsted                 credit         unions’        space costs                 as a result             of

 obtarning        space free             of charge              or at relatively               low rentals             would     result

 in savings           to the Government                         Some assisted            credit        unions       are quartered

 in premises            owned by or leased                      to organizations               that     themselves             receive

 Federal       assistance                If      those credit               unions     were permitted               to reduce



                                                                   38
                                                                               APPENDIX I

   their    payments to such organlzatlons,            the latter   would suffer   a reduction

   of income which would merit         consideration        in the determlnatlon    of the

   amounts of Federal     assistance     to be provided         to them.




                               [See GAO note.]




GAO note:       Deleted material     was concerned with matters                     presented
                in the draft   report   whxh were not Included                      In this
                report.


                                               39
APPENDIX II




                                  NATIONAL   CREDIT UNION ADMINISTRATION
                                              Washmgton, D C 20456
                                               October   29,   1970


    Office of the Administrator




       Mr. Irvine M. Crawford
       Assistant   I)lrector, Civil Dxvislon
       Unxted States General Accounting Office
       Washington,     D.C. 20548
       Deer Mr. Crawford

       Thank you for the opportutllty to comment on the draft report, "mm
       Prospects That Credit Umons Benefiting   the Poor Wzll Become Self-
       Supporting."
       We are in general agreement mth the conclusions     and recommendatxons
       of Chapter 5 (pp 44-45-46). 0 ur regional   offices have for some tune
       urged the officials  of funded cre&t uxuons to establish     resJx-&nc
       goals wiuch would result 111 the transltlon  to a status of self-support.

       The draft report does not comment on the fact that OEO in grantxng
       funhng to luruted-income    cre&t urmons had an ad&.tional       ObJective
       of provzdzng employment to persons In the lrnuted-income        area.    !L%Ls
       obJective,  which in fact provided an overstaffing,       ran counter to a
       goal of self-support.    The employees whose salarxes were pwd by OEO
       funds could not avoid a conflict    of interest,    since to become self-
       supporting   could only mean the elLru.nation    of their Jobs.

       Credit unions have succeeded because of the voluntary        efforts of
       officials   during the early stages of existence.      The psyment of
       salwles   to employees through funhng has also been counterproductive
       in the development of voluntary    efforts by &rectors.       First of all,
       poor people need urging and trammg        to become leaders and secondly
       they are prone to let the employees who are pad assume all responsi-
       billties.

       We in NCUA hold the view that cre&t unxons are an effectrve   instrument
       in helping poor people to help themselves and that the social benefits
       that may accrue to the commurnty are worth some expenbture   by the
       Government to assxst them.
       Smcerely,




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                                                                  APPENDIX III        '


                       PRINCIPAL    OFFICIALS   OF

                 THE OFFICE OF ECONOMIC OPPORTUNITY

                  RESPONSIBLE FOR THE ACTIVITIES

                     DISCUSSED IN THIS REPORT


                                                    Tenure    of office
                                                    From                  To
                                                                          -
DIRECTOR
    Frank C. Carluccr                        Dec.      1970      Present
    Donald Rumsfeld                          May       1969      Dec.    1970
    Bertrand  M. Harding      (acting)       Mar.      1968      May     1969
    R. Sargent Shrlver                       Oct.      1964      Mar.    1968

ASSISTANT DIRECTOR FOR COMMUNITY
  ACTION PROGRAM (note a>:
     Theodore M. Berry                       Apr.      1965      Sept.         1969
ASSISTANT DIRECTOR FOR PROGRAM                                           *
  DEVELOPMENT:
     Joseph P, Maldonado                     Aug.      1970      Present
     Marvin J. Feldman                       Jan.      1970      Aug.    1970
     Robert Perrin  (actrng)                 Sept.     1969      Jan.    1970
ASSISTANT DIRECTOR FOR OPERATIONS:
     Phillip V. Sanchez                      Feb.      1971      Present
     Don I. Wortman (acting)                 Dec.      1970      Feb.    1971
     Frank C. Carlucci                       Dec.      1969      Dec.    1970

aIn September 1969 this position              was terminated   as an orga-
 nlzational     entity,    and responsibility        for the programs was
  shifted    to the Office    of Program Development         and the Office
 of-Operations,       newly created    offices.




 USGAO.Wash,DC




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