oversight

Audit of Commodity Credit Corporation, Fiscal Year 1970

Published by the Government Accountability Office on 1971-01-15.

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

                                               30
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                                    LM095750




               B-114824




BY THE COAPTRQLLER GENERAL
OF THE UNITED STATES
                               COMPTROLLER      GENERAL     OF   THE      UNITED   STATES
                                              WASHINGTON.    D.C.      20548




        B- 114824




        To the    President      of the Senate    and the
5       Speaker     of the    House   of Representatives
i
    ,                                                                                                               *I_.: ;.
               This is our report            on the audit of the Commodity           Credit
    / Corporation,     Department             of Agriculture,       for the fiscal  year ended                       ’ ‘-
      June 30, 1970.      The audit           was made pursuant          to the Government
      Corporation     Control     Act        (31 U.S.C.       841).

               Copies      of this report    are being sent to the Director,                          Office   of
        Management        and Budget,     and to the Secretary   of Agriculture.




                                                                        Comptroller         General
                                                                        of the United       States
    COMPTRbLLER
              Gl???ERAL'S                   AUDIT OF COMMODITY
                                                            CREDITCORPORATION,
    REPORT
         TO THECONGRESS                     FISCALYtAR 1970
                                            Department of Agriculture    3-114824

    DIGEST
    ------

    WHYTHEAUDIT WASMADE
           The Government Corporation Control Act requires that the General Ac-
           counting Office (GAO) make an annual financial   audit of the Commodity I
           Credit Corporation (CCC). The audit consists of an examination of
           CCC's financial   statements and a review of the manner in which CCC
           carries out selected programs and activities.


    FINDINGSANDCONCLUSIONS
           FinunciaZ statements
           In view of the character and scope of CCC's operations--particularly
           commodity inventories  and loan collateral--it    was not practicable   for
           GAO to perform all the steps of examination and verification       needed to
           reach an independent, overall opinion concerning the accuracy and fair-
           ness of the financial  statements.    (See p. 28.)

           Therefore, GAO cannot express an opinion that the accompanying finan-
           cial statements present fairly CCC's financial position  at June 30,
           1970, and the results of its operations for the year then ended. GAO
           believes,  however, that

              --CCC's accounting    methods provided a generally   satisfactory   record
                 of its financial   transactions  and

              --CCC's financial reporting system generally was adequate to supply
                management with information for conducting its affairs.   (See p. 30.)

           CCC reported a record-high loss of $4.2 billion    for fiscal year 1970.
           (Price-support  and related operations normally result in a loss.)
           Such losses are reimbursable through appropriations.      At June 30, 1970,
           unreimbursed losses totaled $7.5 billion--$4.2    billion  for fiscal year
           1970 and $3.3 billion   for prior years.   (See p. 18.)
           Matters reported by GAOto the Congress or
           brought to the attention of CCC
I
           CCC needed to obtain from Federal sources information    on domestic rice
           production,  sales, and inventories and more precise information    on
           world market prices for use in establishing export subsidy rates.      In
           the absence of Federal information,  the Department relied primarily    on

    ___-
    Tear
      Sheet                                                     JAW.E,197a
                                             1
   unofficial   and inadequate data. There was also a need for information-                        i
   on exports   by types of rice.   (See pm 6.)                                                    I
   CCC needed to (1) revise its feed grain program regulations          to exclude
   from the program all land devoted to, or designated for, nonagricul-
   tural uses and (2) establish      procedures to ensure that program regula-
   tions were uniformly and consistently       applied at 'the county level.
   Under this program, CCC made questionable        payments for diversion of
   land used (or designated for use) for such nonagricultural         purposes as
   housing and commercial development, recreation,        hobby farms, country
   estates, sod nurseries,     garbage dumps, and gravel pits.      This diversion
   did not contribute   to the program goals of controlling       production and
   maintaining  farm income and of conserving land for future agricultural
   or related uses. GAO expressed the belief that such payments might be
   widespread and significant.       (See p. 9.)

   CCC needed to eliminate         promptly inconsistencies      in price-support    regu-         i
   lations.     The price-support        rate for wheat at Gulf of Mexico ports was                I
   equivalent    to that paid at interior         points plus handling charges and
   interstate    freight     charges of railroads      for shipping the wheat to the              I
   Gulf.     The availability     of substantial      storage space at the Gulf corn-             1
   bined wi.th transportation         (barge, truck, or export rail)       charges that           ;
   were lower than interstate          rail rates gave producers an advantage of
   15 to 20 cents a Bushel if they placed their wheat under price support                         I
   at the Gulf rather than at inland points.               The Department took action             ;
   to eliminate     this undue advantage but 2 days later rescinded the ac-                       i
   tion when it was informed by farm and trade groups that the movement                           I
   of large quantities        of wheat had already been negotiated.          This re-
   scission resulted in a greater investment by CCC in price-support                 loans.       I:
   (See pe 12.)                                                                                   I1
                                                                                                  1
   CCC pays billions   of dollars annually to farmers and others by use of                        I
   sight drafts.     Weaknesses existed in accounting for and safeguarding                        I
   sight draft forms and in preparation and issuance procedures.      (See
   P* 15.)
   CCC needed to document significant     changes in contract terms.      CCC paid                  i
   damages to millers     (and others) because of failure    to issue delivery                      I
   notices on time.     It appeared that CCC did not have a legal 1iability                       I,1
   because any damages were caused by a longshoremen's strike and not by
   CCC's failure   to issue the notices.     CCC explained that the payments
   were made because it had informally     advised the trade that, if de-                      4
   livery was not feasible     because of the strike,    it would pay for storing              i
   the commodities on the same basis established       for liquidated  damages.               I,
                                                                                               ,
   (See p. 15.)
                                                                                              ,1
                                                                                              1


RECOMMENDATIONS
            ORSUGGESTIONS                                                                     I




   GAO recommended or suggested corrective action with respect               to the
   preceding matters.  (See pp. 7, 11, 13, 15, and 17.)


                                       2                                                      1
-   -.-_   I   A-   .-A--_   _   __--_   .__-__   __c_____   _________   __-   ,________-______-----   -------------   -___------.-------__---------------------.
AGENCY ACTTONS AND UNRES@VED ISSUES
--_-
        Generally, corrective    action was taken or planned.    In connection with
        rice export subsidy rates, a new policy and revised procedures were
        adopted for establishing     such rates.   GAO estimated that the changes
        reduced commercial rice export subsidy payments by about $23 million
        in fiscal year 1970 and that substantial     reductions would recur in
        varying amounts each year.      (See pm 8.)

ItMTTERS FOR CONSIDERATIONBY THE CONGRESS

       This report includes no recommendations or suggestions requiring     ac-
       tion by the Congress. It is submitted to the Congress, as required by
       law, to disclose the results of the annual audit of CCC's financial
       statements and such other information    as necessary to keep the Congress
       informed on the operations and financial    condition of the Corporation.




Tear Sheet
                          Contents
                                                                Page

DIGEST                                                           1

CHAPTER

  1       INTRODUCTION                                           4

  2       ORGANIZATION AND MANAGEMENT                            5

  3       SUMMARYOF CERTAIN MATTERS REPORTEDBY GAO
          TO THE CONGRESSOR BROUGHTTO THE ATTENTION
          OF CCC                                                 6
              Rice export subsidies      reduced substan-
                tially                                           6
              Improvements in administration        of
                 acreage-diversion    program                    9
              Basis for wheat price-support        loan
                 rates revised                                  12
              Improvement in controls       over CCC sight
                drafts                                          15
              Significant     changes in contracts     to be
                 documented                                     15

  4       COMMENTSON SELECTEDHIGHLIGHTS OF FISCAL
          YEAR 1970 OPERATIONS                                  18
              Record-high   realized    loss reported by
                ccc                                             18
              $5.7 billion    expended for price support
                and acreage diversion                           19
              $546 million    reduction    in commodity
                loans                                           21
              $608 million    increase in commodity in-
                ventories                                       22
              Storage, handling,      and transportation
                expenses increased       substantially          23
              $1.3 billion    in reimbursable       costs in-
                curred by CCC for special activities            24
              Receivables   for Public Law 480 credit
                 sales increased     substantially              26

  5       SCOPE OF AUDIT                                        28
             Examination     of CCC financial     statements    28
CHAPTER                                                             Page   .

      6    OPINION OF CCC FINANCIAL STATEIHENTS                      30

FINANCIAL STATEMENTS

Schedule

      1    Comparative statement of financial         condi-
             tion,   June 30, 1970 and 1969                          33
      2    Comparative statement of income and ex-
             pense, fiscal     years 1970 and 1969                   34
      3    Analysis   of deficit    from inception    in 1933
             to June 30, 1970                                        35
      4    Statement of source and application          of
              funds, fiscal    year 1970                             36
           Notes to financial      statements,   June 30,
             1970                                                    37

APPENDIX

      I    Principal    officials     of the Commodity Credit
              Corporation,      Department of Agriculture,
              fiscal   year 1970                                     49


                            ABBREVIATIONS

Ascs       Agricultural     Stabilization        and Conservation
           Service

ccc        Commodity Credit        Corporation

GAO        General    Accounting     Office
    COWTROLLERGENERAL'S                  AUDIT OF COMMODITY
                                                         CREDITCORPORATION,
.   REPORT
         TO THE CONGRESS                 FISCALYEAR1970
                                         Department of Agriculture    B-114824


    DIGEST
    ------

    WHYTHEAUDIT WASMADE
        The Government Corporation Control Act requires that the General Ac-
        counting Office (GAO) make an annual financial    audit of the Commodity
        Credit Corporation (CCC}.    The audit  consists of an examination of
        CCC's financial   statements and a review of the manner in which CCC
        carries out selected programs and activities.


    FINDINGSANDCONCLUSIONS
       Financial statements
        In view of the character  and scope of CCC's operations--particularly
        commodity inventories and loan collateral--it    was not practicable    for
        GAO to perform all the steps of examination and verification       needed to
        reach an independent, overall opinion concerning the accuracy and fair-
        ness of the financial statements.    (See p. 28.)

        Therefore, GAO cannot express an opinion that the accompanying finan-
        cial statements present fairly CCC's financial position at June 30,
        1970, and the results of its operations for the year then ended. GAO
        believes, however9 that
          --CCC's accounting    methods provided a generally    satisfactory     record
             of its financial   transactions  and

          --CCC's financial     reporting system generally   was adequate to supply
             management with    information for conducting   its affairs.   (See p* 30.)

        CCC reported a record-high loss of $4.2 billion    for fiscal year 1970.
        (Price-support  and related operations normally result in a loss.)
        Such losses are reimbursable through appropriations.      At June 30, 1970,
        unreimbursed losses totaled $7.5 billion--$4.2    billion  for fiscal year
        1970 and $3.3 billion   for prior years. (See p. 18.)
       Matters reported by GAOto the Congress or
       brought to the attention of CCC
        CCC needed to obtain from Federal sources information     on domestic rice
        production,  sales, and inventories and more precise information     on
        world market prices for use in establishing   export subsidy rates.     In
        the absence of Federal information,   the Department relied primarily    on
    unofficial   and inadequate data. There was also a need for             information
    on exports   by types of rice.   (See p- 6.)
    CCC needed to (1) revise its feed grain program regulations       to exclude
    from the program all land devoted to, or designated for, nonagricul-
    tural uses and (2) establish    procedures to ensure that program regula-
    tions were uniformly and consistently     applied at the county level.
    Under this program, CCCmade questionable payments for diversion of
    land used (or designated for use) for such nonagricultural       purposes as
    housing and commercial development, recreation,     hobby farms, country
    estates, sod nurseries, garbage dumps, and gravel pits.       This diversion
    did not contribute   to the program goals of controlling    production and
    maintaining  farm income and of conserving land for future agricultural
    or related uses. GAO expressed the belief that such payments might be
    widespread and significant.     (See pe 9.)

    CCC needed to eliminate        promptly inconsistencies      in price-support    regu-
    lations.     The price-support      rate for wheat at Gulf of Mexico ports was
    equivalent to that paid at interior           points plus handling charges and
    interstate    freight     charges of railroads     for shipping the wheat to the
    Gulf.     The availability     of substantial     storage space at the Gulf com-
    bined with transportation         (barge, truck, or export rail)       charges that
    were lower than interstate         rail rates gave producers an advantage of
    15 to 20 cents a bushel if they placed their wheat under price support
    at the Gulf rather than at inland points.              The Department took action
    to eliminate     this undue advantage but 2 days later rescinded the ac-
    tion when it was informed by farm and trade groups that the movement
    of large quantities        of wheat had already been negotiated.         This re-
    scission resulted in a greater investment by CCC in price-support                loans.
    (See pe 12.)
    CCC pays billions   of dollars annually to farmers and others by use of
    sight drafts.     Weaknesses existed in accounting for and safeguarding
    sight draft forms and in preparation and issuance procedures.      (See
    P* 15.)
    CCC needed to document significant     changes in contract terms.      CCC paid
    damages to millers     (and others) because of failure    to issue delivery
    notices on time.     It appeared that CCC did not have a legal liability
    because any damages were caused by a longshoremen's strike and not by
    CCC's failure   to issue the notices.    CCC explained that the payments
    were made because it had informally     advised the trade that, if de-
    livery was not feasible because of the strike,       it would pay for storing
    the commodities on the same basis established       for liquidated  damages.
    (See p- 15.)

RECOMMENDATIONS
              OR SUGGESTIONS

    GAO recommended or suggested corrective action with respect              to the
    preceding matters.  (See pp. 7, 11, 13, 15, and 17.)


                                       2
* AGENCY
       ACTIONSANDUNRESOLVED
                         ISSUES
     Generally, corrective    action was taken or planned.    In connection with
     rice export subsidy rates, a new policy and revised procedures were
     adopted for establishing     such rates.   GAO estimated that the changes
     reduced commercial rice export subsidy payments by about $23 million
     in fiscal year 1970 and that substantial     reductions would recur in
     varying amounts each year.      (See p. 8.)


 MATTERS
       FORCONSIDERATi-ON
                      BY TIdECONGRESS
     This report includes no recommendations or suggestions requiring     ac-
     tion by the Congress. It is submitted to the Congress, as required by
     law, to disclose the results of the annual audit of CCC's financial
     statements and such other information    as necessary to keep the Congress
     informed on the operations and financial    condition of the Corporation.
                                     CHAPTER1

                               INTRODUCTION

      The General     Accounting       Office     has made an audit       of the
Commodity    Credit    Corporation      for     the   fiscal   year   ended
June 30,    1970.     The scope of the audit             is described    on
pages 28 and 29.

        CCC, awhollyowned      Government corporation,      was created
as a corporation       under a Delaware charter        in 1933 to stabi-
lize,    support,   and protect   farm income and prices;       to as-
sist in the maintenance of balanced and adequate supplies
of agricultural      commodities;    and to facilitate     the orderly
distribution      of such commodities.      CCC was reincorporated
in 1948 as a Federal corporation         within    the Department of
Agriculture,      by the Commodity Credit Corporation         Charter
Act (15 U.S.C. 714).

        The principal   operations    conducted by CCC are price-
support programs for agricultural          commodities,    including the
storage, handling,      and disposition     of commodities acquired
under the programs; acreage-diversion           programs; and export
activities     under the Agricultural      Trade Development and As-
sistance Act of 1954, as amended (7 U.S.C. 1691)--commonly
known as Public Law 480--which         are financed by appropria-
tions authorized      under statutes    providing    for the activi-
ties.




                                         4
                               CHARTER2

                    ORGANIZATION AND MANAGEMENT

      Management of CCC is vested in a Board of Directors,
subject to the general supervision    and direction     of the
Secretary of Agriculture   who is an ex officio     Director   and
Chairman of the Board.    The Board consists    of six members,
in addition  to the Secretary,   who are appointed by the Pres-
ident of the United States by and with the advice and con-
sent of the Senate.

        A bipartisan    advisory board of five members, also ap-
pointed by the President,        surveys the general policies          of
CCC and advises the Secretary.           Officers       of CCC are desig-
nated according to their positions            in the Department of Ag-
riculture.        The names of principal      officials     of CCC during
fiscal     year 1970 are listed    in appendix I.          (See p. 49.1

       CCC has no operating     personnel of its own. Its activi-
ties are carried      out mainly by the personnel,       and through
the facilities,      of the Agricultural  Stabilization       and Con-
servation     Service (ASCS) and the Agricultural        Stabilization
and Conservation       State and county committees.       Other agen-
cies and offices      of the Department and commercial agents
also carry out certain       phases of CCC's activities,

       ASCS administers     CCC's activities       through its central
office   in WashSngton, D.C.,       and its   three    commodity offices
located in Kansas City9 Missouri;           Enneapolis,      Minnesota;
and New Orleans,     Louisiana.      Responsibilities       of the com-
modity offices    include acquisition,        storage,    transportation,
and disposition     of agricultural     commodities.

      The Agricultural    Stabilization       and Conservation     State
and county committees carry out certain            of CCC's price-
support and related     activities     within the States and coun-
ties.    There are 50 State offices,         an area office    in Puerto
Rico, and about 2,900 county offices.            The State committees
supervise the activities        of the county committees in their
respective    States.



                                      5
                               CHAPTER 3

         SUMMARYOF CERTAIN MATTERSREPORTEDBY GAO
                TO THE CONGRESSOR BROUGHT
                      TO THE ATTENTION OF CCC

RC
REDUCEDSUBSTANTIALLY

        Our review of CCC's policy and procedures for estab-
lishing    weekly rice export subsidy rates resulted         in the
adoption of a new policy       and revised procedures for estab-
lishing    such rates-- the first    substantive     changes in the
administration     of the rice export program since its incep-
tion in 1959. We estimated        that the changes reduced com-
mercial rice export subsidy payments by about $23 million
in fiscal    year 1970. Substantial       reductions    will recur in
varying amounts each year.

      Prior to the change in policy,           the objective       of the
Department's    rice export program was to make U.S. rice
available    in world markets at competitive           prices by provid-
ing export subsidies       to bridge the difference         between the
lower of U-S. domestic prices or price-support                rates and
world market prices.         Inasmuch as price-support          rates had
been consistently      below U.S. domestic prices,           export sub-
sidy rates represented         the difference     between U.S. price-
support rates and the generally           lower world market prices.
During fiscal     years 1964 through 1967--the          period covered
by our review-- CCC paid subsidies of about $142 million                  on
commercial exports of rice.

     In our review we noted the following   questionable  sub-
sidy rate decisions  which were made by CCC principally   on
the basis of inadequate sales and inventory   data or unoffi-
cial world market information.

      1. Export subsidy payments were continued and, in some
         instances,    increased during the period November 1966
         to May 1967, although such subsidies were generally
         not needed because the United States had practically
         no competition     from Thailand, its leading long-grain-
         rice competitor.

                                     6
      2. Rice export subsidy rates were substantially     in-
         creased primarily   on the basis of unofficial   pric-
         ing and other information   provided by representa-
         tives of the rice industry.

      3. Subsidy rates were increased for export of all
         medium- and short-grain   rice on the basis of negoti-
         ations for a specific   export transaction, rather
         than on the basis of more comprehensive world mar-
         ket pricing  data.

        In November 1968 we proposed that the Secretary         of Ag-
riculture    take appropriate     action to obtain,   from Federal
sources, information       on domestic rice production,     sales, and
inventories     along with more precise world market price data
for use in establishing       export subsidy rates.      We had
pointed out earlier      the need for information     on exports by
types--long-grain,     medium-grain,     short-grain,   and mixed
rice--for    use in establishing      subsidy rates.

        The Department advised us in December 1968 that (1) the
Bureau of the Census would initiate,         in January 1969, the
reporting    of rice exports by types, (2) efforts       to obtain
improved world price information        would continue,    and (3) a
further    determination    would be made on the practicability
of obtaining     production   data through Government channels.
The Department did not indicate        that any specific    change
would be made in the method of computing export subsidy
rates.

      Following  our discussions  with Department officials,
however, the General Sales Manager of the Export Marketing
Service --a Department of Agriculture   agency created in 1969
to place new emphasis on agricultural    export programs--
advised us, in letters    dated May 7 and July 2, 1970, that
a new policy and revised procedures had been adopted by CCC
for establishing   weekly export subsidy rates.

       The new policy   is designed to ensure that U.S. rice is
generally   competitive   in world markets.      Therefore,     export
subsidies   tend to bridge only part of the difference           between
domestic and world market prices for rice.           In contrast,      the
previous policy had been designed to provide export subsidies
which would make U.S. rice fully      competitive      in world

                                    7
markets; but, as previously      pointed out, such subsidies
were, in some instances,    higher than necessary to make U.S.
rice fully   competitive.   Notwithstanding     the substantial
reduction  in subsidies   resulting     from the new policy,    U.S.
commercial rice export sales in fiscal        year 1970 were about
the same as the annual average during 1964-67, the period
covered by our review.

       Under the procedures now being followed,             the Depart-
ment continues        to rely on an advisory    committee of its rice
marketing     specialists.      In arriving   at its recommendations
for weekly rice subsidy rates, the coAmmittee considers               sev-
eral factors      not previously    considered,     including   (1) the
availability      of U.S. rice for export,      by types, (2) the re-
lationship     of export sales to export subsidy rates, by
types of rice,        for use in determining    if U.S. rice is gen-
erally     competitive     in world markets, and (3) the degree to
which U.S. rice has become established            in foreign    markets.
These factors       are consistent    with the information      which we
proposed should be obtained and used in establishing                sub-
sidy rates.

      The General Sales Manager estimated      that, under the
new policy  and revised procedures,    subsidies    for fiscal year
1970 commercial rice exports would be about $12.5 million.
This amount was about $23 million    less than the annual aver-
age of $35.5 million   in commercial export subsidy payments
made during the 1964-67 period for about the same quanti-
ties.

        In our opinion,   the estimated   $23 million  reduction     in
subsidy payments under the new policy is conservative            be-
cause (1) if the previous method of computing export sub-
sidies had been applied to fiscal       year 1970 exports,     the
resulting    subsidy payments would have been considerably
higher than the annual average of $35.5 million         for the
1964-67 period,     in view of increasing    world rice production
and decreasing world rice prices and (2) it does not in-
clude any amount for the reduction        in subsidies paid on
Public Law 480 rice exports since the competitive          situation
for such exports is not the same as for commercial exports,
although the subsidy rates are the same. Subsidies paid on
Public Law 480 rice exports during the 1964-67 period
amounted to about $84 million.
IPPROVEHENTSIN ADMINISTRATION
E
---- ACREAGE-DIVERSION PROGRAM
       In a report to the Congress on objectives            of the feed
grain program not being attained          because of inclusion     of
nonagricultural     land (B-114824, January 19711, we commented
that, in 14 counties      in 6 States covered by our review,
we had identified      substantial    payments for the diversion
of land from agricultural        production    although the land was
being used,     or designated     for use,  for   nonagricultural    pur-
poses.

       From discussions    with program officials,    reviews of lo-
cal ASCS records,     and  information   otherwise coming   to our
attention,   we identified     for the 1969 crop year questionable
diversion   payments totaling      about $618,000 made to 938 farm
owners or operators      in the 14 counties covered by our review.
Of these payments, we selected for detailed        review payments
totaling   about $189,000 made to 215 individuals        or organiza-
tions.

      We identified       136 payments totaling    about $116,000 which
were made for the diversion          of land used, or designated for
use, for such nonagricultural          purposes as housing and commer-
cial development,       recreation,    hobby farms, country estates,
sod nurseries,      garbage dumps, and gravel pits.        About $87,000
was paid for the diversion          of certain  of these tracts  in
prior years.

        Because these uses of the land prevented the growing of
feed grains or because the intended future uses were incon-
sistent    with crop production,    the diversion     payments did not
contribute     to the accomplishment of the principal        objective
of the diversion     portion  of the feed grain program--control-
ling production.      Because most of the diversion       payments
identified     were made to recipients    engaged in nonagricultural
businesses or occupations,       such payments also were inconsis-
tent with the program objective        of maintaining    farm income.

       Further,   the making of diversion   payments for land al-
ready being used, or intended for use, for nonagricultural
purposes did not aid in attaining       the secondary program ob-
jective,    set forth in program regulations,     of conserving land
for future agricultural     uses or related uses.

                                     9
       Examples of diversion      payments for nonagricultural         land
enrolled   in the feed grain      program were as follows:

       --$1,484 was paid in 1969 for the diversion        of 25 acres
          which were being developed as part of a residential
          community.    During visits   to the property   in 1970, we
          found that a substantial    amount of construction        had
          been completed and that much of the land was not suit-
          able for cultivation    due to construction   activities.

      --$I.,000 was paid over an 8-year         period on a 7-acre
         tract which had been converted         from agricultural  land
         to a nudist camp.

      --$1,400 was paid over a Z-year period to a garbage
         disposal company. We inspected the diverted   acreage
         and found that the owner was selling the topsoil   and
         that he planned to use the excavated area as a gar-
         bage dump.

      --$2,000 was paid in 1969 to a participant          for the di-
         version of leased land within       a privately    owned ord-
         nance proving ground.       The ordnance manufacturer       had
         described the proving ground--which         was not readily
         accessible    because of fences and padlocked gates--as
         a completely     equipped facility   for the loading and
         testing    of ordnance devices ranging from small caliber
         ammunition to bomblets, grenades, land mines, and
         fuses of all types.

       We found that the ASCS regulations          governing the eligi-
bility   of land for diversion        payments were being subjected
to various interpretations         by ASCS county offices        and Agri-
cultural    Stabilization     and Conservation     county committees,
both of which had responsibilities          over the local administra-
tion of the program.         Also, ASCS's national      and State offices
were not providing        needed guidance to the county offices          and
committees in interpreting         the regulations    uniformly.

      Because the diversion      payments we reviewed were selected
on a judgment rather than a random basis, our findings        did
not permit statistical      projections   either nationwide or by
State or county.       Yet, because of the payments made for


                                     10
nonagricultural  land in each of the 6 States included in our
review and because of the weaknesses noted in ASCS regula-
tions and procedures,  we stated our belief  that such payments
were widespread and could be significant.

       We recommended that ASCS (1) revise the feed grain pro-
gram regulations       with a view toward excluding     from the pro-
gram all land devoted to, or designated for, nonagricultural
uses and (2) establish       review procedures at the State and
national    organizational     levels to ensure that adequate sur-
veillance    was being maintained      over the land placed in the
program and that regulations         were being uniformly   and con-
sistently    applied.

       In a reply dated September 23, 1970, the agency informed
us that it agreed with our conclusions          and that certain        ac-
tions had been taken or planned to implement our recommenda-
tions,   namely (1) State offices     were instructed         to direct
county committees to review all cases of the type described
in our report and to recover,       where appropriate,          any over-
payments or unearned payments, (2) regulations             were to be
reviewed with the aim of more clearly          defining     farms inel-
igible   for the program, and (3) administrative           controls     at
the national    and State levels were to be strengthened             to en-
 sure that county committees uniformly         applied the regula-
tions and maintained      adequate surveillance        of land and
promptly identified     those tracts   shifting      from agricultural
to nonagricultural    uses.




                                    11
BASIS FOR WHEATPRICE-SUPPORT LOAN RATES REVISED

       In a letter    dated March 23, 1970, to the Executive Vice
President,     CCC, we commented on a decision made by the De-
partment of Agriculture        in June 1969 to rescind an announce-
ment involving     a proposed reduction      in theCCCprice-support
loan rate on wheat stored at terminal          warehouses located at
ports on the Gulf of Mexico.          We recommended   that CCC adopt
a policy which would provide for the prompt elimination             of
inconsistencies     in price-support     regulations   that result
from differences      in freight   rates or other factors.

      The price-support     rate for wheat at Gulf of Mexico
ports was equivalent     to the price-support      rate at interior
points plus handling charges and interstate           freight  charges
of railroads    for transporting      the wheat to the Gulf.     The
availability    of substantial     storage space at the Gulf com-
bined with transportation        (barge, truck,   and export rail)
charges that were lower than the interstate           rail rates, gave
producers an advantage of 15 to 20 cents a bushel if they
placed their wheat under price support at the Gulf rather
than at inland points.

       To discourage this direct        flow of wheat to the Gulf,
the Department in June 1969 proposed to reduce the loan rate
at the Gulf to compensate for the difference                 in freight
rates.     The Department estimated        that,     otherwise,      the to-
tal direct    movement of 1969-crop wheat to the Gulf for price
support could be 15 to 20 million           bushels.       If such a move-
ment of wheat occurred,         CCC would disburse about $3 million
of additional     price-support     loans on wheat stored at Gulf
locations    because of the freight        differential.        Whether this
additional    investment would be recovered would ultimately
depend on export sales and the extent to which the value of
the wheat had been increased by virtue              of its location.

       The Department also wanted to discourage the direct
flow of wheat to the Gulf for storage as loan collateral
because the Department believed that wheat handlers who had
Gulf storage space available    and who controlled   barge trans-
portation   facilities would have a competitive    advantage
over other wheat handlers.



                                     12
        The Department,     2 days after announcing the proposed
change in wheat price-support          regulations,     rescinded it on
the basis of verbal information           received from farm and
trade groups indicating        that the movement of about 2 or
3 million     bushels of wheat had already been negotiated.
Agency officials      informed us that at this stage the Depart-
ment, after considering        theadvisabilityof        establishing   a
cut-off    date for making the proposed change effective,             de-
cided that such action would result             in inequities    among pro-
ducers.     On this basis,     it was decided that any adjustment
action should be withheld        until    the 11970 crop.

       At September 30, 1969, the quantity         of 1969-crop wheat
recorded by CCC as in storage at Gulf locations             was about
2.9 million     bushels.     The quantity  in storage increased to
about 5.1 million       bushels at December 31, 1969.        This in-
crease of 2.2 million        bushels during the quarter ended De-
cember 31 indicated       that, if the Department had made a
timely reduction      in the loan rate for wheat at Gulf port
terminal    warehouses, as was originally        contemplated,   CCC
could have avoided making a greater          investment    in wheat
loans,

       We agreed that there should be no inequities     in CCC's
treatment   of producers.   We stated the belief,   however,
that an excessive loan rate for a particular      geographical
area should be adjusted to the proper level as soon as prac-
ticable.    Such adjustment would not deny producers the
price support to which they were entitled      and would avoid
extra outlays of CCC funds.

       We recommended in our letter         of March 23, 1970, that
CCC adopt a policy which would provide for the prompt elim-
ination    of inconsistencies      in price-support   regulations    that
result   from differences       in freight   rates or other factors,
with due consideration        for commitments already made.

       In April 1970 CCC advised us that a broad change was
needed in the entire loan structure       for several grains and
that it had adopted a different     method of establishing      and
applying price-support   locational   differentials    for 1970-
crop wheat and other terminal-market-oriented        commodities
(grain sorghum, barley,    rye, and flaxseed).


                                    13
       Under the new method, according to CCC, the locational
differentials      generally   reflect no more than minimum trans-
portation     costs to recognized markets and eliminate    the in-
consistencies      in the regulations   commented on in our letter.
CCC advised us further       that the new method would not provide
a monetary inducement that could encourage abnormal move-
ments of grain for placement under CCC loan.




                                                                      ,.
                                14
-   IMPROVEMENTIN CONTROLS
    OVER CCC SIGHT DRAFTS

          In a letter  dated July 16, 1970, to the Executive Vice
    President,   CCC, we  pointed out a need for stronger      controls
    over CCC sight drafts.       Sight drafts  are issued by ASCS
    State and county offices      to pay farmers and others under CCC
    and ASCS programs.     In calendar year 1969 these offices        is-
    sued 7.4 million   sight drafts    amounting to $6.1 billion.

           Our review showed weaknesses in (1) procedures                and
    practices    regarding      blank sight draft       forms, (2) safeguard-
    ing of sight draft        forms,    (3) draft    preparation     and issuance
    procedures,     and (4) accounting       for missing sight draft         forms.
    Also, there was a lack of assurance that computer tape reels
    containing     information      from certain     drafts   prepared by the
    ASCS New Orleans Data Processing             Center were being trans-
    mitted promptly      to the ASCS Kansas City Data Processing               Cen-
    ter.    These reels are the means for recording               the draft
    transactions      in CCC's accounting        records maintained      at the
    Kansas City office.

          We made specific   recommendations  for correcting  the
    weaknesses.    By letter   dated August 31, 1970, the Executive
    Vice President   expressed general concurrence    with our rec-
    ommendations and advised us that actions      had been or would
    be taken to eliminate    the weaknesses.

    SIGNIFICANT CHANGESIN CONTRACTS
    TO BE DOCUMENTED

           In a letter    dated March 12, 1970, to the Executive
    Vice President,      CCC, we expressed views on CCC's payment of
    liquidated     damages claimed by processors,   mainly flour mil-
    lers,    on the basis that CCC delayed issuing Notices to De-
    liver.     The liquidated   damage payments totaled   about
    $200,000.

          CCC entered into contracts      with flour  millers  and other
    processors   to purchase processed commodities for export pro-
    grams.    Under the contractual    terms and conditions,    the
    processors   were required   to make delivery    at export points
    by certain   dates specified    in the contracts   and CCC was


                                          15
required   to issue Notices to Deliver     to the processors      in            I
sufficient    time to meet the specified     delivery schedule.
The contracts     provided that failure  of CCC to issue    Notices
to Deliver    timely would make CCC liable     for payment of
liquidated    damages.

      Processors'   shipments of commodities to Atlantic         and
Gulf ports were stopped about December 20, 19653, because of
a rail embargo resulting     from a strike    by longshoremen at
export points.    In view of the strike      and rail    embargo, CCC
did not issue Notices to Deliver.        Neither   the processors
nor CCC had any control     over the embargo or strike.        After
the strike   was settled  at the various ports,       around Febru-
ary or March 1969, CCC issued Notices to Deliver.

       It appeared to us that CCC had no legal liability         to
pay liquidated    damages because any damages were, in fact,
caused by the rail    embargo resulting  from the strike      and not
by CCC's failure    to issue Notices to Deliver   timely.      In our
letter    of March 12, 1970, we proposed, therefore,      that CCC
take steps to recover the amounts paid as liquidated          damages.

       The Executive Vice President,          by letter   dated May 7,
1970, informed us that CCC had advised the processors                that,
if delivery     was not feasible       because of the strike,     it would
pay them for storing         the commodities on the basis established
for liquidated      damages.     CCC considered      such payment to be
less than the costs CCC would incur in taking delivery                 of the
commodities during the strike.            The Executive Vice President
explained    that the processors        would have been inclined       to
increase their      bid prices if,      in view of the possibility        of
a longshoremenUs strike,         CCC had not given assurance of
either    accepting    delivery    while the strike     was in process or,
in some way, reimbursing         the processors     for storing   the com-
modities.

        At no time during our review of this matter at the ad-
ministering      office--    the Minneapolis   Commodity Office--in-
cluding     discussions      with officials   and personnel   of that
office,    were we informed that CCC had given the processors
such assurance.          Also, there was no documentation      indicating
that the contracts          had been so revised.
       We were informed by the national      office  in Washington
in response to our inquiry     concerning the nature of CCC's
advice to the processors    that (1) such assurance to the
trade was given during a meeting held at the Department of
Agriculture   with a miller   association    and (2) other trade
groups and vendors were similarly       advised in telephone con-
versations.

       The Executive Vice President      in his letter    of May 7,
1970, explained also that there was no general prohibition
against shipping commodities to port in trucks and that,
consequently,    a processor could have attempted the formality
of delivery    by truck.    Our comparison of transportation
charges for a typical      shipment of flour by rail and by truck
indicated   that shipment by truck would have been unlikely
because it was prohibitively       expensive.      Also, we believe
that delivery    by truck would not have been feasible,         even if
economical,    because of the necessity       to cross picket lines
established    by the strikers   and because terminals      at many
ports do not accept shipside delivery           by truck.

      In a letter   to the Executive Vice President   dated
June 25, 1970, we expressed the view that the liquidated
damage matter might not have been administered      in a reason-
able manner and suggested that significant     changes in con-
tract   terms should be documented, rather than handled orally,
to ensure that all parties    would be treated equitably     and
would be made fully    aware of their rights  and obligations.

       In August.1970,    the Executive Vice      President    advised us
that, in his opinion,       the action taken     by CCC was in the
best interest    of the Government and the        program.     He ac-
knowledged that significant        changes in    contract   terms should
be documented so that all parties        would    be aware of their
rights   and obligations.




                                  17
                              CHAPTER4

              COMMENTSON SELKTED HIGHLIGHTS

              OF FISCAL YEAR 1970 OPERATIONS

RECORD-HIGH REALIZED LOSS REPORTEDBY CCC

       CCC's price-support      and related    operations normally re-
sult in a loss.      For fiscal    year 1970, CCC reported a record-
high realized    loss of $4.2 billion       (recorded loss before
adjustment    of allowances for losses on loans, commodity in-
ventories,    and receivables).       CCC's comparative   statement
of income and expenses for fiscal          years 1970 and 1969 is
presented on page 34.

       Most of the loss resulted     from direct   price-support
and acreage-diversion       payments to producers,    totaling   about
$3 billion.      Also, interest   expense amounted to $616 mil-
lion,    of which $578 million    was on borrowings     from the U.S.
Treasury.     The Treasury interest     rates ranged from 7 to
8-l/4 percent,      compared with a range of 5-3/8 to 6-3/8 per-
cent in fiscal      year 1969.

       In fiscal    year 1969 CCC made a change in its accounting
policy    (with which we agreed) to provide that advance pay-
ments to producers for acreage diversion            or price support
be recorded as an asset and be written           off as an expense
upon compliance by the producers with program provisions.
Under this policy,       advances totaling     $369 million    that had
been treated as expenses for acreage diversions              in fiscal
year 1968 would have been expenses in fiscal             year 1969.
Therefore     the realized   loss for 1969 comparable to that for
1970 would be $3.5 billion         rather than $3.1 billion       as
shown in the comparative        statement of income and expenses on
page 34.      At June   30, 1970,    there were no advance payments
to producers.

       In fiscal  year 1970 the Congress appropriated     $5.2 bil-
lion to reimburse CCC for realized     losses,   compared with a
reimbursement    of $4.2 billion in fiscal   year 1969. A sum-
mary of changes in the amount of unreimbursed       losses during
fiscal   year 1970 follows.

                                  18
                                                                Amount
                                                              (billions)

    Unreimbursed losses, June 30, 1969                            $8.5
    Less reimbursements  in fiscal year 1970                       5.2

                                                                    3.3

    Plus realized     loss   in fiscal        year 1970

    Unreimbursed losses,       June 30, 1970
      (sch. 3, P. 35)                                             $7.5

      In addition   to incurring   a realized   loss of $4.2 bil-
lion in fiscal    year 1970, CCC incurred     costs of $1.3 bil-
lion for special activities      authorized   by various statutes
and financed through special appropriations.          Comments on
these activities    begin on page 24.

$5.7 BILLION EXI'ENQ$D FOR PRICE
sumom m@ AC~~~EYDIVERSION

        In fiscal    year 1970 CCC expended $4.7 billion            for the
price supportlof       agricultural     commodities through nonre-
course loans,        purchases,     and direct    payments.     Also, CCC
made direct       payments totaling     $1 billion     to producers for
diverting     acreage from production         of certain    crops.

      Most of the expenditures      pertained     to feed grains,  up-
land cotton,  and wheat.      Loans to producers and purchases
of commodities totaled     $2.7 billion;      direct   payments to
producers totaled   $3 billion.


1 The loans are referred to as nonrecourse                 because CCC will
 accept the commodity collateral   in full                settlement of a
  loan.




                                         19
     A summary of the expenditures             by commodity        follows.

                                                                         Acreage
                                  Price        support    _              diver-
               Total                                            Di-      sion--
                 ex-                                          rect       direct
               pendi-                             Pur-        pay-        pay-
               tures     Total      Loans        chases       ments       ments

                                  (000,000       omitted)

Feed grains   $2,236    $1,320     $   582        $ 10        $   728    $    916
Cotton, up-
   land        1,211     1,184         383                        801          27a
Wheat             996       925        519            4           40Zb         71
Soybeans          422       422        407           15
Dairy prod-
   ucts          253       253                      253
Tobacco          217       217         217
Rice             132       132         I.13          19
Peanuts           80        80           54          26
Wool              53        53
Flaxseed          35        35            34          1
Other             99        99            29         70

    Total     $5,734
               ~        $4,720
                         ___       $2,338                     $1,984
                                                               ~         $1,014
                                                                          -

aThis amount was paid to operators  of small farms on the
 basis of the projected  yield from a portion    of their cotton
 acreage.   Payments were made under statutory    provisions
 pertaining  to acreage diversion, but diversion    was not re-
 quired.

b Net after deduction of $389 million     collected  by CCC for
  certificates   soid to wheat processors   under the wheat mar-
 keting allocation    program,




                                  20
 $546 MILLION      REDUCTION IN COMMODITYLOANS

        At June 30,     1970, CCC's investment   in commodity loans
 amounted to $2.8       billion, a reduction   of $546 million   from
 the investment    at    June 30, 1969. The major loan decreases
 were $447 million       for soybeans and $153 million    for upland
 cotton.

       Commodity loan activity            during    fiscal    year 1970 is sum-
 marized as follows:
                                                                               Other
                                  Feed       To-             soy-    Upland   commod-
                        Total    grains    bacco
                                           ---      Wheat    beans   cotton    ities

                                               (000,000 omitted)

Loan balance,
  June 30, 1969        $3,334     $871     $761     $583              $322     $2


1970 fiscal     year
  activity:
    Loans made           2,338     582       217      519              383      230
    Repayments         -1,786     467      -127     -326             -248     -179
    Loans can-
        celed by
        CCC's acqui-
        sition of
        collateral     -1,073                  -5                     -288      47
    Loans charged
        off               -23                  -1                               -22
    Other trans-
        actions             -2                                                      I


         Net change      -546                  84                               -18
Loan balance,
  June 30, 1970        $2,788     $9       $845                                $24



        CCC's investment   in grain loans at June 30, 1970, to-
 taled $1.8 billion.      Of this amount, $1.3 billion repre-
 sented loans that had been extended by CCC beyond their
 original   maturity  dates.

       The collateral for the grain loans of $1.8 billion     ag-
 gregated 1.6 billion   bushels of grain, of which 1.2 billion
 bushels, or 75 percent,   were stored on farms and the


                                          21
remainder were stored in commercial warehouses.       Producers                                                             '
were earning  storage income from CCC on about 800 million
bushels of farm-stored   grain serving as collateral      for loans
that had been extended beyond their    original  maturity    dates.

$608 MILLION INCREASE IN
COMMODITY INVENTORIES

       At June 30, 1970, CCCDs investment   in commodity inven-
tories   amounted to $1.9 billion,  an increase of $608 million
over the investment   at June 30, 1969.    The major increases
were $239 million   in soybeans and $206 million    in upland
cotton.

     CCC's inventory activities during the year ended
June 30, 1970, are summarized in the following tabulation.
                                                          Additions
                                                                  Loan col-
                             Inventory                              lateral              Deductions            Inventorzy
                             June 30,                             acquired       Inventory       Donations     June 30,
       Commodity                1969              Purchases       (note a)          sold         (note b)        1970
                                                                      (000,000   omitted)

 Feed grains                  $     588             $ 11          $     130         $126          9        2    $    601
 Wheat                              229                7                213           44               -             405
 Soybeans                           138               15                422          195                   3         377
 Cotton,    upland                     2                                302           96                             208
 Dairy products                     169              261                -            176              120            134
 Flaxseed                            20                 1                 27          s                               48
 Rice, rough                         30                 9                  7            4                  1          41
 Oils, mainly      tung
    and linseed                       40               28                 11           44            10               25
 Other                                36             -220                  7         -193          - 49          -    21
      Total                   $1,252                $552          $1,119            $gg           $185          $U

 aIncludes     $46 million        of collateral         in excess of value of loans ($1,073 million)
  defaulted.

 b Includes    inventory     adjustments.




                                                               22
STORAGE,            HANDLING, AND TRANSPORTATION
EXPENSES            INCREASED             SUBSTANTIALLY

        Costs          incurred    by CCC for storing,    handling,   and trans-
porting    its          commodity inventories      and for storing    grain col-
lateral    for           its price-support    reseal loans (loans extended
beyond the             original   maturity   dates) totaled    $356 million   in
fiscal    year           1970, an increase of $108 million        over the costs
for fiscal             year 1969. The major increase in costs was
$57 million             for the storage and handling of CCC inventories.

      The cost for storing                                      collateral   on reseal loans in-
creased by $21 million    to                                    a record high of $144 million.
These costs consisted    of                                   $104 million    for collateral  stored
on farms and $40 million                                      for collateral     stored in commercial
warehouses.

      A summary of CCC expenses for                                              storing, handling, and
transporting  commodities in fiscal                                              years 1970 and 1969 fol-
lows.
                                               1970                                                       1969
                               Storane       and handling.       Transpor-                Storage       and handling     Transpor-
                                                    Reseal          tation                                     Reseal       tation
                                             ccc      loan          of ccc                            ccc        loan        of ccc
                     Total               itNell-    collat-         inven-      Total               inven-     collat-       inven-
    Commodity       expense   Total      tories      &              tories    expense   --Total     tories       era1
                                                                                                                 m           tories

                                                                  (000,000   omitted)

   Feed grains       $172     $149        $ 69        s 00           523        $141    $130         $55         $ 75        $11
   u-heat              99        76         27          49            23          66       55         17           38         11
   Soybeans            47       39          24          15              0         23       18           0          10           5
   Cotton,    up-
      land              15       13          13          -              2          -         -         -            -          -
   Dairy   prod-
      ucts              11       3           3           -                        13        5                                      8
   Other              - 12     - 9         - 9          --                       - 5      - 3                                  1




                                                                    23
$1.3 BILLION IN REIMBURSABLECOSTS
INCURRED BY CCC FOR SPECIAL ACTIVITIES

         Under various laws, CCC performs special activities            and
receives     appropriated    funds either    as partial   reimbursement
for costs incurred        or as advances.     Because the special ac-
tivities     are financed separately      from CCC's price-support
and related     programs, the costs of special activities          are
not included in CCC's loss from operations,             as shown in
schedule 2.

        Costs of the special activities           were $1.3 billion       for
fiscal     year 19700-about the same as for fiscal               year 1969.
This represents        a leveling    off of costs after a downtrend
 since fiscal      year 1962 when such costs were $2.3 billion.
The principal       special activity      pertained    to exports of ag-
ricultural       commodities-- at a total      cost of $1.2 billion--
under Public Law 480. Title             I of the law provides for CCC
to finance the sale of agricultural              commodities for dollars
on credit      terms or for foreign       currencies.       Title    II of the
law provides for Government donations of agricultural                    com-
modities     for distribution      in foreign     countries.

         A summary of costs incurred       under      Public      Law 480 during
fiscal     year 1970 follows.
                                              Title     I      Title     II       Total

                                              -(OOO,OOO            omittedj-

Commercial export sales of agri-
  cultural      commodities   (suppli-
   ers' invoices)                               $781              $ -         $     781
Payments to suppliers       for export
  differentials                                    41                                41
Disposition      of CCC inventories
   (included     as sales in CCC's
   statement of income and ex-
  pense)                                                           262              262
Ocean transportation                                                87              160
Other                                                                2                2

     Total                                      $895              $351
                                                                   Z          $1,246


                                      24
       About 45 percent of the total    cost under Public Law 480
pertained   to the export of wheat and wheat products.     The
following   tabulation  shows the total   cost by commodity or by
other category.
                                                                                                                                   Amount
                                              ItEm                                                                           (000,000 omitted)

Wheat (and products)                                                                                                                          $      538
Rice                                                                                                                                                 182
Cotton                                                                                                                                               112
Dairy products                                                                                                                                        93
Feed grains                                                                                                                                           76
Soybean oil                                                                                                                                           63
Vegetable oil products                                                                                                                                30
Blended food products                                                                                                                                 25
Tobacco                                                                                                                                               23
Tallow                                                                                                                                                10
Other                                                                                                                                                 46

                                                                                                                                                  1,198

Ocean transportation                                         on commodities donated
  through nonprofit                                         voluntary agencies                                                                          46
Other                                                                                                                                                    2

           Total                                                                                                                              $1,246

      A summary showing the costs incurred                                                                                  and the funds re-
ceived by CCC for the special activities                                                                                   during fiscal year
1970 follows.
                                                                   Unreimbursed         costs                                                     Unreimbursed         costs
                                                                   (appropriated         funds   Fiscal         year      1970 activity           (appropriated         funds
                                                                    In sdvance         of ex-                          Appropriations               in advance       of ex-
                                                                    penditurec-11          at        Costs             and other      funds        penditurek1)           at
                     Activity        and aiithorlty                    June 30,        1969      -incurred                 -received                  June 30.       1970

                                                                                                        (000,000          mitted>

Public       Law 480 (7 U.S.C.          1691):
      Title      I--sales      of commodities        for foreign
           currencies       and for     dollars     on credit
           terms                                                           -5168                   $      095                s      729                    s -2
       Title     II--donations        to furnish       enagency
          assistance        to friendly       peoples                        -198                   351                       -     500                    - 49

                                                                                  30                   1,246                     1,229                          47

National     Wool       Act     of   1954   (7 U.S.C.   1781)                     68                       56                        68                         56
Other                                                                        A                      1                         1                            -I
            Tote.1                                                           $2                   Sm                         $1,298                       $103




                                                                                   25
RECEIVABLES FOR PUBLIC LAW 480 CREDIT SALES
INCREASED SUBSTANTIALLY

       At June 30, 1970, CCC's accounts and notes receivable
amounted to $2.6 billion,      including   $1.8 billion in receiv-
ables (principal    and interest)     for Public Law 480 credit
sales for dollars,    an increase of about $500 million      during
fiscal   year 1970.

      Under this sales program, CCC finances commercial ex-
ports of agricultural      commodities under long-term    credit
agreements.    Payments are to be made periodically       in dollars
by the purchasing     governments or foreign   trade entities    over
periods not to exceed 40 years,

      The accounting      treatment   for these Public Law 480 re-
ceivables     is explained in note D to the financial          statements.
(See p. 39.)      As stated in the note, past due installments
on principal     and interest     at June 30, 1970, amounted to
$8.4 million,      The most significant       delinquencies   were
(1) $645,000 due from the Dominican Republic whose debt was
$31.6 million     and (2) $3.7 million      due from the United Arab
Republic whose debt was $16 million.             In July and August
1970, CCC collected       $4 million    on delinquent    accounts but
none of this amount pertained         to these two debts.

      A summary of the activity in the Public Law 480 accounts
during fiscal  year 1970 and the balances due from the debt-
ors at June 30, 1970, follows.




                                   26
                                     1970 fiscal        year activity
                Balance                                                Net        Balance
               June 30,      Financing                            increase or    June 30,
                 1969         by CCC        Collections           decrease(-)      1970

                                             (millions)

Principal      $1,301.9        $494.9              $48.7            $446.2       $1,748.1
Interest            16.2         32.8               26.2               6.6            22.8

     Total     $1,318.1        $527.7              $74.9            $452.8       $1,770.9

Analysis     by debtor
     Foreign governments:
          Indonesia                                                 $126.7       $     329.0
          India                                                        92.3            264.5
          Yugoslavia                                                  -7.8             231.9
          Brazil                                                       16.2            103.5
          Israel                                                      40.6             103.3
          Korea                                                       39.1              96.7
          Pakistan                                                     50.4             90.7
          Chile                                                         7.1             48.1
          Turkey                                                       29.4             43.8
          Morocco                                                       2.7             37.0
          Tunisia                                                      14.5             35.8
          Ceylon                                                        7.2             35.6
          Dominican Republic                                            4.8             31.6
          Congo                                                         1.5             29.9
          China                                                       -1.9              27.9
          Philippines                                                   5.7             25.5
          Columbia                                                      4.1             24.4
          U~guaY                                                          .3            19.0
          Bolivia                                                       6.5             18.4
          Greece                                                      -1.1              16.2
          United Arab Republic (increase in
             1970 was for interest)                                         .4          16.0
          Ghana                                                            8.5          14.1
          Iran                                                            -. 8          11.0
          Guinea                                                           2.2          10.9
          Other (23 governments, each under
             $10 million)                                                  1.6          82.7

                                                                        450.2        1,747.5

     Foreign    trade     entities                                         2.6          23.4

                Total                                                   $452.8   $1,770.9




                                                   27
                               CHAPTER 5

                           SCOPE OF AUDIT

       Our audit of the Commodity Credit Corporation        consisted
of two major phases:        (1) an examination   of CCC's financial
statements    as of June 30, 1970, modified as required by cir-
cumstances (see below) and (2) a review of the manner in
which CCC carried       out selected commodity programs and activ-
ities,   including    the controls   for safeguarding  CCC's assets
and protecting     the Government's interests.

       Our examination  of the financial      statements was made in
accordance with the principles        and procedures applicable    to
commercial corporate    transactions.      It was performed at the
headquarters    office in Washington, D.C.; the commodity of-
fices in Kansas City, Missouri;        and New Orleans,Louisiana;
and the data processing     center in Kansas City.       We reviewed
and appraised work performed by the Office of the Inspector
General, Department of Agriculture.          Where appropriate,   we
relied   on this work and modified      the scope of our audit.

EXAMINATION OF CCC FINANCIAL STATEMENTS

        Our examination    of the CCC financial     statements was di-
rected primarily      toward arriving    at a conclusion      as to their
reliability     and usefulness    for disclosing    financial    informa-
tion with respect to CCC's affairs.            The examination     in-
cluded such tests of the accounting          records and such other
auditing    procedures as we considered practicable           and reason-
able in view of the effectiveness         of CCC"s internal      control
and the audit work of the Office of the Inspector              General,
Department of Agriculture.

        In view of the unique character           and vast scope of CCC's
operations--particularly          commodity inventories      and loan col-
lateral --it    was not practicable        for us to perform all the
examination      and verification      steps which would be necessary
to reach an independent,          overall    opinion concerning the ac-
curacy and fairness         of the financial      statements  in present-
ing the financial        position    of CCC at June 30, 1970, and the
results    of its operations       for the year then ended.


                                    28
       The principal   step omitted was an independent verifica-
tion of CCC-owned commodities and of commodities stored as
collateral    for loans.   Such work would have been not only
costly but extremely difficult        because of such factors   as
the great n;mber and diversity        of storage facilities   and lo-
cations;   the general impracticability       of determining  by in-
dependent confirmation,      inspection,    or other means the quan-
tity and condition     of grain stored in public warehouses on a
commingled basis or stored on farms; and the large quantities
of commodities in transit.

       Periodically,    the Consumer and Marketing      Service,    De-
partment of Agriculture,         physically   examines CCC commodity
inventories     and collateral     stored in comnercial warehouses
to verify    the quantity      and quality   of these commodities.
During fiscal      year 1970, examinations      by the Consumer and
Marketing     Service covered 10,000 warehouses storing         grain,
cotton,    and other agricultural        commodities.  This number in-
cluded 1,900 warehouses examined by States under cooperative
agreesnent s e On the average, the warehouses were examined
twice during the year.

       We did not verify    the reasonableness       of GE's substan-
tial allowances for losses on disposition            of price-support
inventories     and loans.    The allowances are based on estimates
which are not susceptible        of audit verification.,           For ex-
ample, the amounts that CCC realizes         on disposition          of its
commodity inventories      depend on a number of complicated              and
interrelated     factors;  such as changes in domestic and world-
wide supply and demand, various legislative              restrictions        on
dSsposal of commodities,       time and manner of disposal,            and ef-
fect of commodity dispositions        on domestic and world prices.
For these reasons, the actual losses can differ                materially
from the amounts estimated        by CCC even though the procedures
followed     in computing the allowances indicate           that the esti-
mates are reasonable in the light         of the information          avail-
able at the time they were prepared.




                                       29
                              CHAPTER 6

              OPINION OF CCC FINAJXIAL       STATEMENTS

      The financial   statements-- Comparative Statement of Fi-
nancial Condition    (schedule 11, Comparative Statement of In-
come and Expense (schedule 21, Analysis of Deficit          (sched-
ule 31,  and  Statement   of  Source  and Application    of Funds
(schedule 4)-- and the notes to financial        statements  are the
same as those published in the Commodity Credit Corpora-
tion9s Report of Financial      Condition  and Operations    as of
June 30, 1970.

      CCC's loss from operations        does not include costs of
special activities     carried   out by CCC, which are paid by CCC
from appropriated    funds received in advance of expenditures
or as reimbursements      for financing    extended.   Comments on
these costs, which are accounted for separately          by CCC, be-
gin on page 24.

      For the reasons explained under 99Examination of CCC Fi-
nancial Statements"         (see p. 281, we cannot express an opin-
ion that CCC's financial         statements     (schedules 1, 2, 3, and
4) present fairly        its financial   position      at June 30, 1970,
and the results      of its operations       for the year then ended.
We believe,    however, that CCC's accounting methods provided
a generally    satisfactory      record of its financial       transac-
tions and that its system of financial             reporting   was, in gen-
eral,   adequate for the purpose of supplying CCC9s management
with information       for conducting     its affairs.




                                    30
WCIAL        STATEMENTS




        31
                                               COUHODITY                             CREDIT                       CORPORATION




                                                                              JUNE 30,      1970 AND 1969



                                                                                                 June   30.        1970                               June    30.     1999
                                    ASSEIS

CAsn                                                                                                          $     114.075.898                                S        6~,416,641
CQUODIlYLoANS                                                                     8 2.700,353.901                                       s 3.334.02A.797
    Less allowance                      for     Lxses        hlxC        8)             25.9X.000                 2.762.421.901               25.702.000            3.30.9,322.797
sNR.KE           FACILITY        AND          WJXPHENT        UUHS                                                  164,129,970                                       158.542.540

UM        TO SECRTTARY OF ACR1CuLm                                                                                    27,200,000                                        30,000,000
I&N       TO     FARHERS         HME ADtlLNISIRATION                                                                                                                    30.000,000

CWICOITY             LNVEXTORIES               (cost)       (note A)                 1.86D.271.182                                         1,251,883,964
    Less           allowance   far              losses        (note B)                   76.620.000               1.?83,651,182               122.146.OOQ           1,129.737,964
                                                   se
ACCQUNIS AND NOTES RECEIVABLE                                                        2.592.922.633                                         2.149,193,171
    Less dlouancc  for losses (note                                      a               10.607.000               2,582,315,633                12.042.000           2,137,151.171

umuEDrssRs                                                                                                            37,030,356                                        32,582,936

Fxxm        ASSETS bet)                                                                                               13,938,077                                        17.525.982
ADVANCE PAYMXYS                    TO    PRODUCERS                                                                                                                    407.639.055

OmER ASSETS                                                                                                           11.693.649                                        17.554.79~

TOYAL ASSET.9                                                                                                                                                  SL.354,4;7>-3

                     LIABILITIES

AccauKfS           PAYABLE                                                                                    5     218,189.559                                5      207.899,995
ACawwLxARILIn&S                                                                                                     636.142.848                                        389,617,239
IRUSI       MD      DEPOSIT LIABILITIES                                                                              178,071.945                                       3X.426.736

OBLICATIONTU  REDEMCERITFICAlZSOFIn-
  YEREST IN CUWODIlY LOANS (note                                    El                                                                                              1.589.544.96s
08LIwLTION     TO ISSUE EXPORT WEAT MARKET-
   ING c&RrIFIwsrRs    bot.2 Fl                                                                                        4,206,S69                                          4,206,569
DEFERRED CREDITF0RP.L.                              480     RECfXVMJL.ES--
     CREDIT        SALES fOR DOLIARS                      hotc   D)                                               1,770,919.065                                     1,318,150.145
mmLImILInES                                                                                                           16.987.696                                        17,519,189
DEFERRED INCQ(E                                                                                                                                                              155.209
-                   0FU.S.   COVERNMR4T:
         Borrowings      from Unfed  States                         Trea-
                                                                                    12.261.583.968                                        12.114,932.669
         ajzl           stock                                                           loo .ooo .ooo                                         100 .ooo .ooo

                                                                                    12,361.583,968                                        l2.214.932.669
                 Less    deficit              (schedule       3)                     7.609.646.984                4.671.938.984            8.738.978.838            3.475.953.831

rol-AL      I.IA3ILITIEs                                                                                                                                        sL.356.xaLu3
Ib       zmtes      following             schedule          4 are      an     integral    part      of this          statement.

2k       General        k-ting                   Office      opinion          on this    statement is               included       ln chapter    6.




                                                                                                 33
SCHEDULE 2.

                                                  COnnODI?r                                           CREDIT                       CORPORATION

                                                                   COHPARAIIVE                   STATEKENT             OF    1E;cO.S AZD EXPENSE
                                                                                        FISCAL TEARS 1970 ASD 1969

                                                                                                                                                        Fiscal                   Fiscal
                                                                                                                                                      xe:eor 1970               year 1969
REALIZED          CAIHS Am            LOSSES--PRocwLY:
       Codity                 invenrory    o?eratrons                         hmte        0):
                Sales  of cc~itles                                                                                                              s      a801425,422        s      491,900,049
                Cost of sales                                                                                                                          881.994,513               541.332.018
                        Net      loss         on sales                                                                                                    l&9,091                 49,431,96¶
                cost Of COtrxdities           donated                                                                                                  184,715,004               236,053,250
                Storage       and t'andling    expense                                                                                                 145,198,939                'X,570,674
                irmsportation          expense                                                                                                          66.784.603                364650.897
                        Net      loss      on co=odicy                       invenroy                operations                                       398n267.637               410.716.790
       Producer    and other        payaenrs:
            coccon    price-support           payrsnts                                                                                                800,886,656               642,784,058
            Feed grain       price-support          pay-ents                                                                                          727,750,666               626,424,279
                Yheat prtce-supporr         pay;enrs                                                                                                  602,264,804               362,669,422
                Export  payTents                                                                                                                      100,719,6L~                33,003,FJ'J4
                Cotton  diversion        and sxll    fam                                 payments                                                       2b,b78,21*               88,307,699
                Feed grain     diversion     pawent,                                                                                                  915,827,252               425,377,:1&
                Yheat dlverslon    payx~~nts                                                                                                           fl.S18,302                    -10,614
                W~fIOnol   UOOL Act paynenro                                                                                                            S2,643.584               bS.O66,52
                        Total          producer        and other                   payments                                                         3.098.289.098             2.243.b?2.097

       Other      program  cosu   (-,ainsl      and adJustz.ents:
                Reseal Loan storage      ex>ensc                                                                                                       363,754,503              '22<$,63;;
                Eeaesreh          experues                                                                                                                  507,535
                LOan and or.her                  cksrge-offs                                                                                            25,012,6SD                29,045:211
                Llveatock       feed             prograa     upcnse                                                                                         264,832                     -0,962
                O&r       costs                                                                                                                          9,306,?9r)                z,a5zJz
                        Total       other         progro               cosu         and adjustments                                                   L79.?46.560               L53.?89"3il
       Specie1          recoverlea               l uchorired                 (gslna):
                Research          experues                                                                                                                  825,576                 -951,695
                NA3fLOML          UOOl         Act                                                                                                      52.643.584               b5.066.53>
                        ioocol         special        recoveries                   authorized                                                           53.469.160               64.114.850
                        fleaet realized             loss--progran,                                                                                  3.622.334.135

IHco?E     AND ExPExsE--cE~RAl.:
       Iruou:
                Interest          on Loans                                                                                                              51,478,646
                Other         interest   lncoms                                                                                                         28,907,799
                Ocher         lncozie                                                                                                                       479,435
                        iota1          incw                                                                                                             R.D.865.880               55.029.579


                General  overhead                   expense                [net)        (note         P)
                Other expense
                        Total          crpense                                                                                                         671.862-                 423.971.540

                        Net      expense--general                                                                                                      530.997.010              368.941.961

ior&      REALIZED              Loss                                                                                                                4.213.331.145             3,113,~56.169

&J.,."SMh?s             (-GAINS)      OF ALUJWt'KES   FOR LDSSES--PROGRAW
       Allo"ence           for Losses on Loans                                                                                                               230,000
       AIlo~ace             for losses on comodity       inventories                                                                                  -45,526,OOO
       ~&~,~ce             for losses     on accounts   and mxes receiveble                                                                             -1.435.000

                        Net      ,,dj,,stment              of   allouanCeS                 for        loSSe.%-,XOg+m                                  46,73l.@DO              -188.182.0D0

 m      loss       'IFANSF'ERRED 'IU DEFICIT                               (schedule            3)                                              $4.166.600.145            $2.924.974.169
                                                                                                                                                 -e

 ¶i?e notes         follovtng              schedule             4 are          m integral                   part   of       this    Statemat.

 The General               Arcouming              Office         ophiot~             on this               statement         is    included     in chapter           6.




                                                                                                                        34
                                                                                                                                                   SCHEDULE3


                                          COnt4ODITY                          CREDIT                       CORPORATION



                                                                         ANALYSIS OF DEFICIT

                                                          FROM 1NCEPTION IN 1933 TO JUNE 30, 1970



                                                                                     Cuoul8eive to                                                  Cumulative to
                                                                                     June 30. 1969                   Fiscal     year        1970    June 30, 1970
TOTAL REkLXZED LOSS EXCLUSIVE OF COST OF
  UARTIHE COLSUUERSUBSIDY PROCRAH                                                 S38.097,220,830                    $4,213,331,145                542,310,551,975

COST OF UARTI!G CONSUMERNBSIDY PROCRAH                                                    2,102,281,073                                                 2,102,281.073
                                                                                      40,199,501,903                  4,213,331.145                 44,412,833,048

ALLOWANCES FOR LOSSES--PROGRAM                                                               159.890,000                -46,731.000a                      113,159,000

NET OPERATING LOSS                                                                    40,359.391,903                  4,166,600.145                 44,525.992,040


        Reimbursement     for     net realized    loss
           (15 U.S.C. 713a)                                                           31,022,257,834                  5,215,934,000                 36,230,191,834
        Appropriatlon     for     the postvar price
           sumore     of agriculture       (60 Stat. 8)                                      500,000,000                             m                    500,000,000
        Loss-&covered-under          the Foreign Aid
           ke of 1947 (22 U.S.C. 1411)                                                         56.239.432                                                  56,239.432
        Recovery     of emergency      feed prograa
           losses            (69     Stat.      62)                                           41,915.799                             -                     41.915.799

                                                                                         31.620,413.065               5.215.934.000                 36.836.347.065

                Net     deficit              (schedule        1)                     s 8.738.978,038                 S1.049,333.855                S 7.689.644,983b

aRepresents             adfustment              of     allouances       for
 losses.
b
    Comprised          of     the folloving:
        Unreseord               realized   losses              by fiscel
          year :
                1968                                                                 8       249,998,669
                1969                                                                      3,113,156,169
                1970                                                                      4.213.331,145

                                                                                          7,576,485,983

        Allovances                 for     losses,       June 30, 1970                        113.159,ooo

        Net deficit,                     June 30, 1970                               $7,689,644,983

The notes             folloming              schedule       4 are an integral               part    of      this   statement.
The Ceoeral                 Accounting           Office       opinion      on this        statement           is included       in       chapter   6.




                                                                                             35
SCHEDULE4


              COMMODITY                             CREDIT                    CORPORATION



                        STATEblENT         OF SOURCE AND APPLICATION                      OF FUNDS

                                                  FISCAL      YEAR 1970



  FUNDS PROVIDED:
      Borrowings    from U.S. Treasury                                                               $ 9,462,x6,169
      Reimbursement      for realized     losses by appropria-
         tions                                                                                            5,215,934,000
      Sales of commodities                                                                                   880,303,551
      Inventory    settlements     for differences   in grade,
         location,    and quantity     (net)                                                                    3,930,094
       Proceeds         of     domestic        wheat     marketing         certificates                      389,425,494
       Repayment of loans                  by producers                                                   1,832,930,114
       Repayment of loans                  by Secretary of Agriculture                                        30,000,000
       Repayment of loans                  by Farmers Home Administration                                     30,000,000
       Interest  income                                                                                       80,386,445
       Other                                                                                                    1,973,197

               Total         funds   provided                                                        $15.926.839,024

  PUNDS APPLIED:
      Repayment of borrowings           from U.S. Treasury                                           $ 9,315,504,870
      Cost of commodities          purchased                                                              552,283,409
      Acquisitions        of loan collateral       in excess of
         value of loans defaulted                                                                             46,308,843
      Storage,     transportation,        and processing    expenses                                         215,346,160
      Loans to producers                                                                                  2,388,544,432
      Reseal loan storage expense                                                                            143,754,503
       Loan     to     Secretary          of   Agriculture                                                    27,200,OOO
       Export payments                                                                                       100,719,620
       Payments under the cotton,        feed grain,                          and wheat
          programs                                                                                        3,334,351,369
       Interest     expense                                                                                  615,599,405
       State and county office       expenses                                                                 22,414,682
       Custodian      and agency expenses                                                                          383,094
       Administrative       expenses                                                                          31,962,742
       Purchases of nonexpendable        equipment                                                                 807,427
       Other                                                                                                  14,320,182
       Increase     in working capital     items                                                          1,117,338,306

               Total         funds   applied                                                         $15,926,839,024


  The notes       following          schedule          4 are an integral              part      of this     statement.

  The General Accounting    Office                      opinion        on this      financial        statement       is
  included  in chapter   6.




                                                                  36
                   COMMODITYCREDIT CORPORATION

                   NOTES TO FINI$NCW        STATEJ%ENTS

                                JUNE 30, 1970

A. Commodity inventories

   Inventories      are valued at acquisition       cost plus the cost
   of any packaging or processing          performed after acquisi-
   tion.     The amount of cost allocated         to dispositions     of
   commodities,      acquired under price-support        programs and
   generally     stored without    lot or crop year segregation,
   is computed on the basis of national            average unit cost
   of the oldest crop year of the commodities for which any
   quantity    remains in the inventory        accounts.     Cost allo-
   cated to other dispositions         from price-support       invento-
   ries is computed on the basis of actual lot cost or aver-
   age unit cost for the crop year inventory             from which the
   specific    lots were removed.        Actual lot cost or average
   cost, without       regard to crop year, is the basis for cost-
   ing dispositions        from supply and commodity export pro-
   gram inventories.

B. Allowances    for   losses    on loans   and inventories

   Allowances for losses on commodity loans and commodity
   inventories      are the estimated         loss on ultimate       commodity
   dispositions.        However, the corn leaf blight             epidemic
   that has hit most of the main corn-producing                   areas of
   the U.S. is a factor which has not been considered                    in de-
   termining     these allowances.          At the time these allowances
   were determined,       sufficient       information     was not avail-
   able to realistically          appraise the effect         that this ep-
   idemic may have on the ultimate               disposal of the Corpora-
   tion's    commodity loans and inventories.                To the extent
   practicable,      these estimates         are based on estimated re-
   coveries from foreseeable           dispositions       of the commodi-
   ties.     Estimated recoveries          for commodities which are in
   excess of foreseeable          dispositions       are generally     based
   on the lowest of cost, market price,                 or the Corporation's
   price for export sales.            Allowances are not established
   for commodities in the supply and commodity export pro-
   gram inventories       because they are usually acquired

                                     37
   pursuant to commitments providing     for disposition   on a.
   basis calculated    to recover full  costs to the Corpora-                 +
   tion.    (GAO note:   The corn leaf blight   has no physical
   effect   on previous years' corn serving as collateral      for
   loans or corn owned by CCC. The blight,       however, could
   affect  market conditions    which in turn could affect   the
   redemption of loan collateral     by producers and the sales
   value of CCC-owned corn.>

C. allowances    for losses    on accounts
   and notes    receivable

   Allowances for losses on accounts and notes receivable
   are based on the estimated recovery value of the respec-
   tive assets.

   No allowance has been provided for possible       losses on re-
   ceivables    established   under the Agricultural   Trade and De-
   velopment and Assistance      Act of 1954, P.L. 480 credit   sales
   for dollars,     as explained in Note D.

   The allowance provided for possible        losses under the
   Corporation's     export credit   sales program is based on
   estimates     of the recovery value of accounts in default       or
   past due at June 30, 1970. All receivables         under the
   program are covered by commercial bank letters         of credit
   and the Corporation      looks primarily   to the banks for pay-
   ment.

   Receivablesunderthe        export credit     sales program covered
   by letters    of credit    issued by the New York Branch of
   Intra Bank, S.A.L.,       Beirut,    Lebanon, which ceased opera-
   tions October 15, 1966, amounted to about $21 million.
   Accrued interest      through that date totaled        $747 thousand.
   CCC and the three other major creditors            of Intra Bank
    (the Governments of Lebanon, Kuwait, and Qatar) have en-
   tered into an agreement for the settlement             of claims of
   CCC and other creditors         against Intra Bank.       The agree-
   ment provides,     among other things,       that CCC will be an
   organizing    stockholder     in a new investment      corporation    to
   be established     under Lebanese law.         The agreement by its
   terms does not prevent CCC from pursuing its rights                under
   United States law with respect to assets of Intra Btank in
   the United States, which rights          are currently     being

                                     38
   pursued by the Department of Justice,        and also gives rec-
   ognition     to the claim of CCC against Intra Bank, Beirut.
   The Corporation     expects to recover a substantial      amount
   on its claim from the liquidation        of assets of Intra
   Bank in New York by the New York State banking authori-
   ties.     Although the remainder may ultimately      be recovered
   through the new investment     corporation,    an estimated
   amount has been established     as an allowance on this re-
   ceivable.

   Drafts equal to 90 percent of installments            on receivable
   under the export credit         sales program guaranteed by the
   National    Bank of Egypt, Cairo, which is owned by the
   Government of the United Arab Republic,           have not been
   honored since the UAR severed diplomatic           relations    with
   the United States early in June 1967. Drafts issued for
   10 percent of the installments         have been honored by the
   banks in the United States which confirmed 10 percent of
   the letters    of credit.      As of June 30, 1970, $63.0 mil-
   lion in principal     and $15.5 million      in interest     was due.
   Pending further    developments regarding       possible resump-
   tion of diplomatic      relations    between the two governments,
   the Corporation    does not have an adequate basis for es-
   timating    the amount of loss, if any,which may be sus-
   tained on receivables       guaranteed by the National        Bank of
   Egypt*
D. Receivables   for Public Law 480,
   credit  sales for dollars

   Amount to be-paid in dollars         by foreign    governments and
   private   trade entities     for agricultural      commodities and
   products thereof delivered         under agreements entered into
   pursuant to P.L. 480, are carried           as receivables    on
   the books of the Corporation,         pending payment under long-
   term credit    arrangements.      Accrued interest      is added to
   such receivables     on June 30 each year.         Because collec-
   tion on such receivables        are to be applied as reductions
   in the amounts to be appropriated          by the Congress for
   P.L. 480 programs, the total         amount of the receivables      is
   offset   by a deferred   credit     account.    As of June 30, 1970,
   past-due installments      of principal      and interest   on re-
   ceivables    due from foreign      governments amounted to about


                                   39
   $8,426,000.  Of this amount,            $4,013,000   was paid during       ~
   July and August 1970.

E. Obligation    to redeem certificates
   of interest     in commodity loans

   The certificate  of interest           program was discontinued      in
   fiscal  year 1970.

F. Obligation to issue
   export wheat marketing        certificates

   Under wheat marketing allocation              programs the Corporation
   collected    from wheat exporters          the cost of export wheat
   marketing    certificates        which the exporters      were obligated
   to acquire,       The amount collected         or due from exporters
   on wheat exported during the period July 1, 1968,through
   June 30, 1969 was first            applied to offset    the cost of
   wheat export subsidies earned by exporters                during the
   same period.        The amount by which the proceeds of export
   wheat marketing       certificates       exceeded the cost of subsi-
   dies is recorded as a liability.               For the period July 1,
   1969,through      June 30, 1970, the amount of export wheat
   marketing    certificates        did not exceed the cost of wheat
   export subsidies        earned by exporters.

G. Liability  for payments under
   the 1970 feed grain program

   Pursuant to legislation         applicable    to the 1970 crop of
   feed grains,     the Corporation       makes diversion      and price-
   support payments to producers by issuing negotiable
   payment-in-kind     certificates,       or by making cash advances
   in lieu of issuing certificates            to producers who elect in
   advance to have the Corporation            market their certificate
   rights.     The Corporation       was contingently     liable   at
   June 30, 1970, to make diversion            and price-support      pay-
   ments in an estimated        amount of $1,490 million.          Such
   payments were not due and the amounts cannot be deter-
   mined until     compliance With the terms of the program has
   been accomplished and verified.             The estimated     amount is
   not recorded as a liability          in the accounts.




                                     40
I-I. Liability for payments under
     the 1970 wheat program

     Pursuant to legislation      applicable     to the 1970 crop of
     wheat, the Corporation      makes diversion        payments to pro-
     ducers for acreage reduction          of wheat and will purchase
     domestic wheat marketing       certificates      to be issued to
     producers during the 1970 marketing year.              The Corpora-
     tion was contingently     liable      at June 30, 1970, to make
     diversion    payments in an estimated       amount of $67 million.       .
     In addition,    the Corporation       was contingently     liable at
     June 30, 1970, to purchase wheat marketing certificates
     from producers in an estimated          amount of $832 million      of
     which it is estimated     $397.5 million       will be recovered by
     the sale of certificates       to processors.       Such payments
     were not due and the amounts cannot be determined until
     compliance with the terms of the program has been accom-
     plished and verified.       These estimated amounts are not
     recorded as liabilities      in the accounts.

I.   Liability for payments under
     the 1970 cotton programs

     Pursuant to legislation      applicable     to the 1970 crops, the
     Corporation   makes price-support       and small farm payments
     to producers of upland cotton and price-support            payments
     to producers of extra long staple cotton.             The Corpora-
     tion was contingently     liable    at June 30, 1970, to make
     small farm payments in an estimated           amount of $25 million
     and price-support     payments in an estimated       amount of
     $882 million    to producers of upland cotton.          In addition
     the Corporation    was contingently      liable   to make price-
     support payments in an estimated         amount of $3.7 million
     to producers of extra long staple cotton,             Such payments
     were not due and the amounts cannot be determined until
     compliance with the terms of the program has been accom-
     plished and verified.       The estimated      amounts are not
     recorded as liabilities      in the accounts.

J. Commitments to acquire        or dispose   of commodities

     Contracts to acquire commodities are not reflected   in the
     accounts, but the smounts of firm contracts   are consid-
     ered as contingent  liabilities.  The approximate  contract
   values of undelivered    commodities and materials under                 *   .
   firm contracts   to acquire such commodities and materials
   as of June 30, 1970, were as follows:

                         Commodity                             Value

            Blended food products                          $    868,323
            Butter                                          4,954,584
             Cheese                                          8,668,961
             Corn products                                   1,411,657
            Milk, dried                                    24,2X,274
             Rolled oats                                        877,621
            'I&eat products                                l&282,429
             Strategic   and other materials                     78,855

                Total                                      $59,358,704

   Sales commitments and other disposition  commitments are
   not shown in the accounts but are considered  in estab-
   lishing allowances for losses.

K. Letters     of commitment

   Letters    of commitment issued to banking institutions
   authorizing    the banks to reimburse exporters    in dollars
   for sales of commodities made under P.L. 480, are not
   shown in the financial     statements.   As of June 30, 1970,
   the amount of outstanding      letters of commitment was
   $81,327,342.

L. Export     payments

   The Corporation    was contingently   liable    at June 30, 1970,
   to make export payments on sales registered         or declared,
   or export offers     accepted,  for which documents evidencing
   exportation   had not been submitted,      in the following   ap-
   proximate   amounts:
                        Commodity                 Amount
                     Rice                      $ 6,406,007
                     Wheat                       17,421,757
                     Wheat flour                  2,108,552
   These contingent        liabilities        are not shown in the finan-
   cial statements,

                                         42
M. Claims

   Amounts due the Corporation         arising    from claims that are
   definitely     known or can reasonably be established           are
   recorded currently       as accounts receivable.        On claims
   established     under programs for which the Corporation            will
   be reimbursed on an actual cost basis and on certain
   claims established       in the maximum mount chargeable,           not-
   withstanding      improbability    of collection,    credit   is de-
   ferred until     actual recovery is made. This deferred
   credit     is shown under "Other Liabilities."'         An allowance
   for losses is provided on other claims where collection
   is doubtful.       Amounts of claims on which adequate proof
   has not been established        are not recorded as accounts
   receivable     but are recorded for control        purposes.     It is
   estimated that such claims amounted to $13,013,788 as of
   June 30, 1970.

   Claims     against the Corporation   for which the amounts are
   definitely      known or can reasonably be established    are
   recorded as accounts payable.        Amounts of claims which
   are not considered valid by the Corporation        are not shown
   as accounts payable but are recorded for control         purposes.
   Claims in this category were estimated        at $2,495,704 as
   of June 30, 1970.

N. Potential     value    of freight      transit    rights

   The Corporation         had substantial         quantities      of grain and
   relatively      small quantities         of other commodities stored
   in commercial warehouses at inland locations                       with freight
   bills    covering the inbound shipments registered                     for tran-
   sit purposes under arrangements which permit use of the
   registered      freight    bills    to reduce the freight             costs on
   outbound shipments.            Because of uncertainty             as to when
   outbound shipments will be made and as to the ultimate
   destinations,        it is not practicable              to place a dollar
   value on the potential           freight      reductions       to be realized
   from the registered         freight      bills.         No value is recorded
   in the accounts for such potential                    savings.

   The Corporation    also had cotton stored in commercial ware-
   houses at inland locations       which had been shipped in by
   rail under tariffs     providing   for transit rights.  Part of

                                          43
   the costs of inbound freight      on such cotton may be sub-.          ,
   ject to refund after     the cotton is shipped out.      The
   Corporation     usually obtains any recoveries    of cotton
   transit   value in connection with sales of the cotton.
   Potential    recoveries  on cotton in inventory    at June 30,
   1970, have been estimated at $1,887,356.        IhLs amount is
   not recorded in the accounts.

0. Commodity inventory      operations

   Cost of sales and cost of commodities donated, as shown
   in the Comparative Statement of Income and Expense, rep-
   resent the acquisition   cost of the commodities plus the
   cost of any packaging or processing       performed after ac-
   quisition.   Cost of storing,   handling,     and transporting
   inventories  are shown separately    in this statement,

P. General   overhead    expense

   The general overhead expense for fiscal       year 1970 and for
   1969 excludes $20.3 million      and $20.5 million,  respec-
   tively,  of expenses financed with funds appropriated        to
   the Agricultural   Stabilization    and Conservation   Service
   WCS> *

   Substantially    all of CCC's operating      expenses are paid,
   as authorized    by law, from an ASCS consolidated       fund ac-
   count covering operating      expenses for both CCC and ASCS
   activities.     This consolidated    account is funded by an
   ASCS appropriation     and by transfer    of CCC corporate     funds
   subject to limitations     specified    in the annual appropria-
   tion act.     The amount of operating     expenses is distrib-
   uted to CCC and ASCS activities        on the basis of budget-
   ary workload statistics.

   For expenses in fiscal     year 1970, CCC transferred     the
   maximum amount authorized--$63,782,000--to         the consol-
   idated account.     The cost distribution     showed that ex-
   penses applicable    to CCC activities     amounted to $84.1 mil-
   lion,    or about $20.3 million   in excess of the amount con-
   tributed    to the expense fund by CCC.




                                   44
. Q. Pooled payment-in-kind           certificates

     Pursuant to legislation            authorizing     issuance of payment-
     in-kind      certificates,      the Corporation       assists    producers
     in marketing         their certificates       by making cash advances
     to them for the full value of the certificates.                       The cer-
     tificates       are pooled and marketed from the pools for im-
     mediate use by the purchasers to obtain delivery                      of com-
     modities      from the Corporation's          inventories.       Because      the
     certificate         payments for which advances were made have
     been recorded as expense and the amounts advanced are not
     repayable,        the advance and the offsetting            obligation      to
     redeem pooled certificates              are not shown in the Statement
     of Financial         Condition.     At June 30, 1970, the amount of
     the obligation          to redeem pooled cotton and feed grain
     certificates         was $1,053,314,374       and $7,647,834,079        re-
     spectively.          The corresponding       amounts at June 30, 1969,
     were $1,137,368,087           and $6,399,595,319.          The same amounts
     had been advanced.
APPENDIX




     47
                                                             APPENDIX I
                                                                 Page 1

                      PRINCIPAL OFFICIALS OF

               THE COMMODITYCREDIT CORPORATION

                    DEPARTMENTOF AGRICULTURE

                          FISCAL YEAR 1970


                                                             Appointed

                        BOARD OF DIRECTORS

Clifford       M. Hardin (Secretary     of Agricul-
    ture)                                                    Jan.    1969
J. Phil Campbell (Under Secretary             of Agri-
   culture)                                                  Jan.    1.969
Clarence D. Palmby (Assistant           Secretary     of
   Agriculture)                                              Jan.    1969
Richard E. Lyng (Assistant          Secretary     of Agri-
    culture)                                                 Mar.    1969
Thomas K. Cowden (Assistant          Secretary     of Ag-
    riculture)                                               Sept.   1969
Kenneth E. Frick (Administrator,            Agricultural
    Stabilization      and Conservation     Service)         Apr.    1969
Don Paarlberg, (Director,        Agricultural      ECO-
    nomics)                                                  Mar.    1969

                          OFFICERS (note          a)

PRESIDENT:
    Clarence D. Palmby         (Assistant        Secretary
       of Agriculture)                                       Jan,    1969

EXECUTIVE VICE PRESIDENT:
   Kenneth E. Frick (Administrator,   Agricul-
     tural Stabilization  and Conservation
     Service)                                                Mar.    1969




                                            49
APPENDIX I
    Page 2

                      PRINCIPAL OFFICIALS OF

               THE COMMODITYCREDIT CORPORATION

                     DEPARTMENTOF AGRICULTURE

                          FISCAL YEAR 1970 (continued)


                                                            Appointed

                               OFFICERS (note     a> (continued)

VICE PRESIDENTS:
      Raymond A. Ioanes (Administrator,            For-
         eign Agricultural      Service)                    Feb.           1962
      Roy W. Lennartson       (Administrator,      Con-
         sumer and Marketing        Service)                Feb.           1969
Carroll     G. Brunthaver     (Associate     Administra-
   tor, Agricultural       Stabilization      and Conser-
   vation Service)                                           Feb.          1969
Clifford     G. Pulvermacher       (General Sales Man-
   ager, Export Marketing         Service)                  Apr.           1969

aOfficers  of the Corporation  are designated   according                  to
 their positions  in the Department of Agriculture.




                                                             U.S.   GAO   Wash.,   D.C.

                                     50