United States General Accounting Office GAO Report to the Chairman, Committee on Agriculture, Nutrition, and Forestry, U.S. Senate April 1997 FARM SERVICE AGENCY Additional Actions Needed to Address Employee Conflict-of-Interest Issues GAO/RCED-97-104 United States GAO General Accounting Office Washington, D.C. 20548 Resources, Community, and Economic Development Division B-276432 April 25, 1997 The Honorable Richard G. Lugar Chairman, Committee on Agriculture, Nutrition, and Forestry United States Senate Dear Mr. Chairman: Through its farm credit programs, the U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) provides loans at less than market interest rates for borrowers of limited resources. Farmers borrow about $2.5 billion annually through these programs. The potential for conflicts of interest1 in federal farm loan programs increased with the creation of FSA in 1994. At that time, the farm credit programs of the former Farmers Home Administration (FmHA), most of the functions of the former Agricultural Stabilization and Conservation Service (ASCS), and other USDA activities were merged. Consequently, FSA now has federal employees, former ASCS nonfederal employees,2 and members of county farmer committees (county committees), as well as the family members and business associates of these groups, participating in the farm credit program. Prior to the creation of FSA, ASCS federal and nonfederal employees were not involved in the administration of the farm loan programs and were eligible to participate in USDA’s farm programs. In contrast, FmHA employees were not permitted to receive FmHA farm loans, and their relationships with borrowers had been subject to review to avoid conflicts of interest. FSA has started to phase out the eligibility of all of its employees for farm loans and has been working to identify cases requiring action to avoid conflicts of interest through a nationwide survey of employees and county committee members. FSA’s instructions on addressing conflicts of interest are based on FmHA’s instructions and the definition of conflict of interest in USDA’s regulations. 1 In this report, the term conflict of interest refers to both actual and apparent conflicts of interest as used in FSA’s instructions. A conflict of interest is defined as a situation in which the private interest, usually of an economic nature, of an FSA federal employee, nonfederal employee, or county farmer committees member conflicts with his or her government duties and responsibilities. An apparent conflict of interest is defined as a situation in which it could reasonably be concluded that a private interest of an FSA federal employee, nonfederal employee, or county committee member is in conflict with his or her government duties and responsibilities, even though there may not actually be such a conflict. 2 Nonfederal employees staffed and administered ASCS’ farm programs in county offices nationwide. FSA continues to use this nonfederal employee workforce in addition to its federal employees. FSA’s nonfederal employees are paid from Commodity Credit Corporation funds and are hired by the county executive director, who in turn is hired by the each county committee. Page 1 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 Because of concerns about conflicts of interest in FSA’s farm loan program, we reviewed the (1) number of FSA’s federal and nonfederal employees and county committee members who have FSA farm loans; (2) comparative size and repayment history of farm loans to FSA’s federal employees, FSA’s nonfederal employees, county committee members, and other FSA borrowers; (3) number of cases FSA has identified requiring action to avoid conflicts of interest; and (4) actions FSA has taken to address these cases. Starting in 1995, FSA directed its state offices to survey their employees and county committee members to identify (1) those with loans and relationships with borrowers and (2) cases in which action was needed to avoid conflicts of interest. However, FSA’s state offices were not required to report to headquarters on the cases they reviewed. Accordingly, we surveyed FSA’s state office directors to obtain information that had been reported to FSA’s state offices on employees’ and county committee members’ loans and relationships with other borrowers, as well as the determinations of these state offices on actions to avoid conflicts of interest. As of September 30, 1996, FSA’s loan portfolio indicated that 414 of about Results in Brief 16,300 FSA federal and nonfederal employees and 1,209 of about 8,150 members of county committees had 4,089 FSA farm loans. While the outstanding principal of the loans of FSA’s federal and nonfederal employees and county committee members was about $265 million of FSA’s outstanding loan principal of $16.9 billion, these employees’ loans differed in size when compared with the loans of other FSA borrowers. As of September 30, 1996, the loans of FSA’s federal employees averaged about $197,700 per borrower; the loans of nonfederal employees averaged about $127,000; the loans of FSA’s county committee members averaged about $183,500; and the loans of all other borrowers averaged about $145,200 per borrower. With respect to repayment history, FSA’s federal and nonfederal employees and county committee members were delinquent and needed debt relief on their farm loans less often than other borrowers. However, when these employees received debt relief, it was greater than the relief granted other borrowers—53 percent, on average, for FSA’s federal employees, and 7 percent and 2 percent, respectively, for nonfederal employees and county committee members. As of March 1997, FSA had identified 1,767 cases in which its federal and nonfederal employees or county committee members had loans or Page 2 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 relationships with other borrowers that required action to avoid conflicts of interest. These cases were identified through FSA’s review of 3,622 cases in which FSA’s federal and nonfederal employees and county committee members reported that they or their relatives or business associates had FSA farm loans. The total number of cases is likely to increase as FSA proceeds with its efforts to identify cases requiring action to avoid conflicts of interest. Although FSA has made progress in dealing with conflicts of interest, it has not provided its state offices with clear and consistent guidance on how to identify and address conflict-of-interest cases. Furthermore, FSA headquarters has not reviewed the state offices’ efforts to address conflicts of interest. As a result, FSA’s state offices vary in the extent to which they have identified and taken action on cases to avoid conflicts of interest. FSA provides credit assistance through direct loans funded by the federal Background government and through guaranteed loans, which are made by commercial lenders to farmers and generally guaranteed by the government for up to 90 percent of the face value of the loan. FSA offers several types of loans, such as farm operating loans, farm ownership loans, and emergency disaster loans. Farm operating loans are authorized for buying feed, seeds, fertilizer, livestock, and farm equipment; paying family living expenses; and refinancing existing debt. Farm ownership loans are authorized for buying and improving farmland; constructing, repairing, and improving farm buildings; and refinancing existing debt. Emergency disaster loans are for farmers whose operations have been substantially damaged by adverse weather or by other natural disasters. FSA’s full-time permanent workforce included about 5,940 federal and 10,365 nonfederal employees at the time of our review. FSA’s federal employees consist of headquarters staff, former FmHA county loan specialists, former ASCS state executive directors, state committee members, district directors, and state office employees. FSA’s nonfederal employees consist of former ASCS county executive directors and county office staff. Prior to FSA’s creation, FmHA’s policy precluded the agency’s employees from obtaining farm loans to avoid conflicts of interest. Unlike former FmHA employees, former ASCS employees were not involved in the administration of the farm loan programs and were eligible to receive the benefits of USDA’s farm programs and FmHA’s farm loans. Page 3 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 FSA uses county committees, consisting of about 8,150 locally elected farmers, to assist in implementing agricultural programs, including the farm loan program. USDA pays county committee members for their services. Among other tasks, county committees review loan applications to determine if the applicants have sufficient farming experience to qualify for an FSA farm loan. In addition, each FSA state office has a committee of farmers who provide advice on farm program operations. Within FSA, the operations and offices of the former FmHA and ASCS offices have been consolidated. Former ASCS employees who have FSA farm loans may be physically located at the same office as the FSA employees who approve and service these loans. In addition, FSA anticipates that some former ASCS employees will be assigned to assist in administering farm loans. FSA has adopted procedures to avoid conflicts of interest in loan-making and servicing decisions. These rules are similar to those used by the former FmHA. For example, loan-processing, approval, servicing, and review activities can be conducted only by FSA employees who are not immediate family members or relatives of loan applicants and who have not had a business or a close personal association with these applicants. To avoid conflicts of interest, FSA is phasing out the eligibility of former ASCS employees for FSA farm loans. In December 1995, FSA announced that its employees, including former ASCS nonfederal employees, would no longer be eligible for direct farm ownership loans. However, it stated that FSA employees would still be eligible for direct emergency loans and guaranteed loans. Those in an employee’s household with existing direct loans may be considered for annual operating loans through September 30, 1998. Employees were also authorized to co-sign (and are therefore considered borrowers) for direct annual operating loans until December 1998 if they were already a cosigner on such a loan. Our analysis of FSA’s loan portfolio database showed that 414 employees Number of Employees and 1,209 county committee members had FSA farm loans as of and Committee September 30, 1996. FSA’s federal employees and county committee Members With FSA members had slightly more loans per borrower than other FSA borrowers, while FSA’s nonfederal employees had slightly fewer loans per borrower Farm Loans than other borrowers. Table 1 provides information on the number of direct and guaranteed loans obtained by FSA’s federal employees, Page 4 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 nonfederal employees, and county committee members, as well as other borrowers. Table 1: Number of FSA Farm Loans Per Borrower for FSA Employees, Number of Number of County Committee Members, and Number of Number of guaranteed loans per Other Borrowers, as of September 30, Type of borrower borrowers direct loans loans borrower 1996 Federal employee 77 65 138 2.6 Nonfederal employee 337 578 158 2.2 County committee member 1,209 2,525 625 2.6 All other borrowers 138,469 260,217 60,381 2.3 Source: GAO’s analysis of FSA’s loan file database. While the outstanding principal of the direct and guaranteed loans of FSA Differences in the Size employees and county committee members was about $265 million of the and Repayment $16.9 billion in FSA’s outstanding loan principal as of September 30, 1996, History of Loans to we found some differences in the average amount of loans, loan delinquencies, and debt relief received by FSA employees and county FSA Employees, committee members in comparison with other FSA borrowers. County Committee has not developed information about the comparative loan sizes for Members, and Other FSA these groups nor examined why these groups would differ in their loans, Borrowers repayment history, and debt relief. Consequently, FSA officials do not have specific information that would explain the sources of these differences. However, an FSA official said that these differences may be influenced by, among other things, (1) a comparison of groups of borrowers that vary in number; (2) the incomes of FSA employees, which would enable them to have larger farm operations than some other borrowers; and (3) the inclusion of several hundred cases in which borrowers have debt of $1 million or more. In addition, according to USDA officials, committee members are likely to have larger farm operations than many other producers, which could lead to differences in loan amounts and debt-relief decisions.3 More specifically, our analysis shows that FSA’s federal employees and county committee members had obtained loans that were somewhat 3 USDA’s Payments Through County Offices (GAO/RCED-96-102R, Apr. 8, 1996). Page 5 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 larger, while nonfederal employees’ loans were somewhat smaller than the loans of other FSA borrowers. Table 2 shows the status of outstanding FSA farm loans, as of September 30, 1996. Table 2: Loan Amounts and Loan Debt of FSA Employees, County Committee Members, and Other Borrowers, as of September 30, 1996 Average Percent Average Percent Percent direct difference guaranteed difference Average debt difference Type of borrower Loan from others loan from others per borrower from others Federal employee $65,800 37.7 $79,300 (37.6) $197,700 36.2 Nonfederal employee $46,700 (2.3) $100,100 (21.2) $127,000 (12.5) County committee member $52,400 9.6 $143,500 13.0 $183,500 26.4 All other borrowers $47,800 $127,000 $145,200 Source: GAO’s analysis of FSA’s loan file database. With respect to delinquencies, FSA’s federal employees were delinquent on their direct farm loans slightly less often than other borrowers. FSA’s nonfederal employees and county committee members were delinquent on their direct farm loans about half as often as other borrowers.4 However, the average amounts of the delinquencies for FSA’s federal employees and county committee members were somewhat larger than the delinquencies of other borrowers, as shown in table 3. Table 3: Delinquencies on Direct Loans for FSA Employees, County Average Committee Members, and Other Number of Number of Percent of amount Borrowers, as of September 30, 1996 borrowers with delinquent delinquent delinquent Type of borrower direct loans borrowers borrowers per borrower Federal employee 31 6 19.4 $169,344 Nonfederal employee 301 37 12.3 $136,961 County committee member 969 110 11.4 $162,906 All other borrowers 114,473 24,179 21.1 $147,032 Source: GAO’s analysis of FSA’s loan file database. 4 We did not include guaranteed loans in our analysis of delinquencies and debt relief because about only about 4 percent of FSA borrowers had been delinquent on guaranteed loans as of Sept. 30, 1996. This compares with a delinquency rate of over 21.1 percent for borrowers with direct loans. Page 6 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 Finally, with respect to debt relief, all of FSA’s employee groups received more debt relief per borrower than others who received debt relief, as shown in table 4. Table 4: Debt Relief on Direct Loans for FSA Employees, County Committee Number of Average Percent Members, and Other Borrowers, as of borrowers amount of debt difference September 30, 1996 receiving debt relief per from other Type of borrower relief borrower borrowers Federal employee 32 $278,300 52.8 Nonfederal employee 168 195,300 7.2 County committee member 231 185,032 1.6 All other borrowers 78,572 182,165 Source: GAO’s analysis of FSA’s loan file database. Additional information about the debt relief FSA has provided to federal employees and other borrowers is included in appendix I. Starting in 1995, FSA’s state offices began to survey FSA employees and Number of Cases committee members to identify those with loans and relationships with Requiring Action to borrowers so that the offices could take action to avoid conflicts of Avoid Conflicts of interest in FSA’s farm loan program. However, FSA’s state offices were not required to report to headquarters on the cases they reviewed. Interest Accordingly, we surveyed FSA’s 50 state office directors to obtain information that they had developed on employees’ and county committee members’ loans and relationships with borrowers, as well as state offices’ determinations on cases requiring action to avoid conflicts of interest. As of March 1997, according to the data we obtained from the 50 FSA state offices, 1,767 employees and county committee members (about 7 percent) had loans or loan-related relationships that required action to avoid conflicts of interest. FSA identified these cases through its state offices’ (1) surveys of employees and committee members and (2) reviews of individual cases to identify those whose loans and relationships with borrowers required action to avoid conflicts of interest. However, the information we obtained from state offices shows that not all employees and committee members had responded to the state office surveys and that some state offices had not reviewed all cases in which employees reported that they or their relatives had farm loans. Consequently, the number of cases requiring action by FSA’s state offices to avoid conflicts of Page 7 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 interest can be expected to increase as these offices complete their case reviews. Table 5 summarizes the results of the state offices’ surveys. (See app. II for state-by-state information on these surveys.) Table 5: FSA Employees and Committee Members With Loans or Number with With Close Relatives or Business loans or with Associates Who Had Loans, as of relatives Cases March 1997 and/or requiring business action to avoid Type of Number of associates Cases conflicts of employee employees with loans reviewed interest Federal employee 4,010 583 394 182 Nonfederal employee 12,055 2,000 1,532 776 County committee member 8,539 1,896 1,696 809 Total 24,604 4,479 3,622 1,767 Note: Not all state offices responded to each of our questions. Source: GAO’s analysis of survey responses from 50 FSA state offices. As table 5 indicates, as of March 1997, FSA’s state offices had reviewed 3,622 of 4,479 cases, leaving 857 cases that needed review. In addition to these cases, as table 6 shows, 11 states had not received responses to their survey questions from every employee and county committee member. Page 8 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 Table 6: Response Rates of FSA Employees and County Committee Percentage of Members to FSA’s Conflict-Of-Interest Percentage of Percentage of county Survey in 11 States Without Complete federal nonfederal committee Responses, as of March 1997 employees employees members State responding responding responding Arizona 100 98 7 Colorado 18 25 32 Florida 100 100 39 Idaho 90 90 90 Louisiana 28 23 63 New Jersey 100 100 50 New Mexico 50 80 50 Oklahoma 90 84 82 Rhode Island 10 0 10 Texas 96 95 84 Wisconsin 100 100 99 Source: GAO’s analysis of survey responses from 50 FSA state offices. Furthermore, the responses of FSA’s state offices to our survey shows that the information gathered from members of county committees varied widely among these offices. For example, only 126 of 8,539 county committee members reported to their FSA state office that they had business relationships with FSA borrowers, and 77 of these cases occurred in just three states, according to responses we received from FSA’s state offices. Committee members in 27 states did not report to their FSA state office any business relationships with other borrowers. In other cases, some members indicated that they were reluctant to reveal this information. In one state we visited, three county committee members, including the county committee chairman, had submitted statements to FSA saying that it was “none of [FSA’s] business” if they had farm credit loans themselves or had relationships with other borrowers. During our review, we found that one of these individuals, the county committee chairman, had two FSA loans. Page 9 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 FSA’s state offices have made progress by taking action on a significant FSA Has Taken Action number of cases to avoid conflicts of interest. Nevertheless, the guidance to Avoid Conflicts of to state offices from FSA headquarters on dealing with conflicts of interest Interest, but has been inconsistent, particularly regarding how state offices should address the loans of county committee members and their relatives, as Additional Actions well as their business relations with other borrowers. Because of Are Needed differences in how FSA’s state offices interpreted the guidance in these and other areas, state offices have varied in the extent to which they have taken actions to avoid conflicts of interest. Furthermore, FSA has not thus far followed up on the completeness or consistency of state offices’ actions. FSA’s Actions to Avoid Of the 1,767 cases that had been identified, FSA’s state offices reported that Conflicts of Interest they had taken action on 1,441 cases, as shown in table 7. Typical actions were to transfer borrowers’ loan files from (1) one county to another for servicing or (2) one employee to another within the same office. These actions serve to ensure that those administering loan files do not have a personal interest in loan decisions. Table 7: Actions Taken by FSA’s State Offices to Avoid Conflicts of Interest, Number of cases Number of cases with as of March 1997 Type of employee requiring action action taken Federal employee 182 133 Nonfederal employee 776 595 County committee member 809 713 Total 1,767 1,441 Source: GAO’s analysis of survey responses from 50 FSA state offices. Action had not yet been taken on 326 cases involving 14 states, as of March 1997. Inconsistent Instructions Between October 1995 and May 1996, FSA issued several notices by FSA instructing its state offices on how to identify and deal with conflict-of-interest issues. An FSA headquarters official said that these notices were developed to respond to such issues as they were being raised. However, officials in FSA’s state offices said that these notices were difficult to implement because the (1) scope of conflicts they were to address changed from one notice to another and (2) instructions for resolving conflicts were difficult to interpret. FSA headquarters officials Page 10 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 said that they recognized there was inconsistency in their notices and that the notices have been difficult for state offices to implement. As of March 1997, FSA had not yet developed a specific plan of action to address these inconsistencies. FSA twice notified its state offices to survey employees and committee members and take action on conflict-of-interest issues—in October 1995 and in December 1995. Four states—California, Connecticut, Iowa, and Tennessee—based their surveys on the October notice only. This notice instructed FSA’s state offices to (1) survey employees and county committee members to identify those with loans, (2) identify those whose loan files were in the county in which they work, and (3) move those loan files to another county or state for servicing to avoid conflicts of interest. The December notice called for an expanded survey that was to identify loans to employees and committee members, loans to close relatives of employees, loans co-signed by employees, business relationships between borrowers and employees, and the investment or managerial roles of employees or their close relatives in firms doing farm credit business with FSA. However, this expanded survey did not call for county committee members to disclose loans that had been received by their family members and business associates. As a result, some states did not collect this information. FSA’sOctober 1995 notice concerning employees’ and committee members’ loans was consistent with the former FmHA’s policy. FmHA’s policy had stated that while county committee members were not employees, they had a special relationship with the agency and therefore were subject to conflict-of-interest restrictions. These restrictions included avoiding certain situations, such as participating in decisions on loans for themselves, family members, or business associates. However, FSA’s March 1996 notice appears inconsistent with its October 1995 position. This notice stated that the loan files of county committee members did not need to be moved from the county in which these members were serving unless there were unusual circumstances or the files had already been moved and the state executive director determined that they should remain in the new location. The notice did not define unusual circumstances or provide other guidance on how to determine when county committee members’ files should be moved. We found that some states had returned these files to the original county office, while others had not. Page 11 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 In May 1996, FSA issued a notice providing instructions for dealing with conflict-of-interest situations that it had not mentioned previously. This notice stated that county committee members were not to act in an official capacity in any decision or meeting involving an FSA borrower or potential borrower when a business or family relationship was involved. However, this notice also stated that county committee members were not specifically prohibited from leasing real estate to FSA borrowers or loan applicants (as are employees or state committee members), although FSA stated that such leases were to be discouraged. As a result of this inconsistency, the state office officials we interviewed expressed frustration and confusion about the proper actions to take in such circumstances. Furthermore, the May 1996 notice emphasized that employees needed to recognize an even broader range of relationships that could be identified as posing conflict-of-interest concerns. This notice stated that employees must examine the employment, activity, and financial interests of their family members because these are considered the same as if done by the employees and are crucial to determining if a conflict of interest exists. These additional relationships had not been specifically mentioned in FSA’s October and December 1995 notices. According to the responses of FSA’s state offices to our questionnaire, 23 of these offices had completed their reviews of cases to identify potential conflicts of interest before this notice was issued and therefore did not obtain this information from their employees. Variations in the Actions of Our review disclosed wide variations in the extent to which state offices FSA’s State Offices decided on whether action was needed to avoid a conflict of interest and in the frequency of actions taken to address those cases. FSA state office officials from Arkansas, California, Iowa, Mississippi, North Dakota, and Texas said that their efforts to identify and address cases were hampered by the unclear guidance from FSA headquarters. To illustrate, some states, such as Iowa and Wisconsin, decided as a matter of procedure that every case they reviewed in which an employee or committee member reported a relationship with a borrower required action to ensure that conflicts of interest would be avoided. However, other state offices decided action was warranted less often. For example, North Carolina, Kansas, and Missouri officials took action to avoid actual or apparent conflicts for only 42, 12, and 4 percent of the cases, respectively, that state office officials had reviewed as of March 1997. Page 12 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 In addition, as of March 1997, many state offices had not yet taken action to address all of the cases in which action appeared to be needed to avoid conflicts of interest. For example, according to the FSA director of state agriculture credit in Missouri, his primary concern in deciding whether to take action was to avoid inconveniencing borrowers by moving loan files to distant county offices. Other FSA officials in state and county offices agreed that the convenience of the borrower was one of the important considerations in deciding where loan files should be maintained. On the other hand, FSA officials in Mississippi made arrangements for borrowers to continue to visit the same county offices for day-to-day loan transactions, such as making payments on a loan, while their loan files were moved to other counties for servicing decisions. Lack of Follow-Up by the While FSA headquarters instructed state offices to address conflicts of National and State Offices interest, it has had a limited role in following up on state offices’ efforts. FSA headquarters addressed conflicts involving FSA state executive directors and state committee members and responded to specific inquiries from FSA state office officials. However, FSA headquarters has not reviewed the actions of its state offices on county employee groups. FSA headquarters officials said that while they have been very much concerned about conflicts of interest, they have relied on FSA state offices to take appropriate action because of staffing limitations and the need to focus attention on FSA’s urgent program and organizational priorities. We also found a lack of follow-up by state offices on actions that county offices had taken to address conflict-of-interest cases. While some FSA state offices are developing their own case-tracking systems for monitoring these actions, others have no such systems. Officials in 13 of 50 state offices indicated they had no system for following up on actions taken to address conflict-of-interest cases. Officials in the other 37 state offices indicated that they have some method, generally informal, for tracking such cases. These methods include having FSA district directors follow up on conflict-of-interest cases or using manual tracking systems. A few FSA state offices, such as Kansas and Wisconsin, have developed computer-based information systems. FSA headquarters officials recognized that additional follow-up efforts are needed to address both state and county offices’ activities. In particular, they specifically agreed that it is important for FSA to follow up on the inconsistencies in the state offices’ surveys and actions. A tool that could enhance FSA’s overall monitoring effort is a feature in its computer system Page 13 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 that allows computer records to be marked to identify loans received by employees, their relatives, and their business associates. However, FSA would need to update the database to make its information current and useful. Finally, FSA officials said that they plan to rewrite their policy manual on how to address conflicts of interest. In addition to the agency’s nationwide effort to identify existing conflict-of-interest cases, FSA county offices make daily efforts to identify and address future conflicts of interest whenever an individual applies for an FSA farm loan. In this regard, FSA state office officials said that they were following instructions that call for loan applicants and employees to disclose relationships and associations so that conflicts of interest can be avoided from the outset. Although this activity has not been reviewed regularly, FSA headquarters officials said that they are considering the development of a procedure for periodically reviewing state and county offices’ activities. FSA has made a concerted effort to address conflict-of-interest concerns in Conclusions its state and county offices. It has delegated most of the responsibility for dealing with conflicts of interest to its state offices. However, FSA has not provided state offices with clear and consistent guidance on identifying situations that constitute conflicts of interest and carrying out their responsibilities, nor has it periodically reviewed how well the state offices are fulfilling their roles. As a result, FSA has little assurance that state offices have consistently identified and acted upon all conflict-of-interest cases. We recommend that the Secretary of Agriculture direct the Administrator Recommendations of FSA to (1) clarify FSA’s policy and guidance that define situations constituting potential conflicts of interest and the actions that are needed for addressing such cases, (2) require all state offices to address conflict-of-interest cases using the revised policy and guidance, and (3) monitor and review state and county offices’ actions to ensure that the efforts to address conflicts of interest are adequate and thorough. We provided copies of a draft of this report to FSA for review and Agency Comments comment. Subsequently, we met with FSA’s Deputy Administrator and Assistant Deputy Administrator for Program Delivery and Field Operations and seven other FSA officials to discuss the information in this report. Page 14 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 These officials agreed with the presentation of issues in the report and our finding that FSA’s instructions for addressing conflict-of-interest issues require clarification. They stated that our recommendations were reasonable steps that would address the issues. We analyzed USDA’s databases to identify FSA employees and county Scope and committee members who have received direct and guaranteed farm loans. Methodology We determined the extent of loans to these groups, compared their loans with loans to other FSA borrowers, and determined the extent to which the loans of borrowers were delinquent, restructured, or written off. We did not include the family members and business associates of FSA employees and county committee members in this analysis because FSA’s database identifies only a portion of these individuals, and we did not verify the accuracy of FSA’s loan database. We surveyed FSA’s 50 state executive directors to obtain information on conflicts of interest. The information we obtained includes data on the number of FSA employees with loans and relationships with borrowers and FSA’s state offices’ determinations on whether actions were needed to avoid conflicts of interest. We did not review the appropriateness of state offices’ decisions on individual cases. We visited and interviewed officials at FSA headquarters and selected FSA offices in California, Iowa, Kansas, Missouri, Mississippi, and Texas. Our work was performed from June 1996 through March 1997 in accordance with generally accepted government auditing standards. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days from the date of this letter. At that time we will make copies available to appropriate Senate and House committees; the Secretary of Agriculture, the Administrator of FSA; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others on request. Page 15 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency B-276432 Please call me at (202) 512-5138 if you or your staff have any questions. Major contributors to this report are listed in appendix III. Sincerely yours, Robert A. Robinson Director, Food and Agriculture Issues Page 16 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Page 17 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Contents Letter 1 Appendix I 20 Additional Information on Debt Relief Appendix II 21 Cases Reviewed by FSA to Avoid Conflicts of Interest, According to FSA’s State Offices’ Responses Received From January Through March, 1997 Appendix III 23 Major Contributors to This Report Tables Table 1: Number of FSA Farm Loans per Borrower for FSA 5 Employees, County Committee Members, and Other Borrowers, as of September 30, 1996 Table 2: Loan Amounts and Loan Debt of FSA Employees, County 6 Committee Members, and Other Borrowers, as of September 30, 1996 Table 3: Delinquencies on Direct Loans for FSA Employees, 6 County Committee Members, and Other Borrowers, as of September 30, 1996 Table 4: Debt Relief on Direct Loans for FSA Employees, County 7 Committee Members, and Other Borrowers, as of September 30, 1996 Page 18 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Contents Table 5: FSA Employees and Committee Members With Loans or 8 With Close Relatives or Business Associates Who Had Loans, as of March 1997 Table 6: Response Rates of FSA Employees and County 9 Committee Members to FSA’s Conflict-of-Interest Survey in 11 States Without Complete Responses, as of March 1997 Table 7: Actions Taken by FSA’s State Offices to Avoid Conflicts 10 of Interest, as of March 1997 Table I.1: Debt Relief Provided to FSA Employees and Other 20 Borrowers Abbreviations ASCS Agricultural Stabilization and Conservation Service FmHA Farmers Home Administration FSA Farm Service Agency GAO General Accounting Office USDA U.S. Department of Agriculture Page 19 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Appendix I Additional Information on Debt Relief The Farm Service Agency’s (FSA) direct loan policies provide various types of relief assistance to help borrowers who are delinquent and having trouble repaying their loans. Two such options are (1) “writing down” (reducing) portions of restructured debt so that borrowers can continue farming and remain FSA clients and (2) allowing borrowers to satisfy the debt in its entirety by paying an adjusted amount based on the value of the loan collateral and “writing off” the remaining debt—referred to as “net recovery value buy-out with write-off.” A third direct loan-servicing option—the debt settlement process—also results in writing off debt. Table I.1: Debt Relief Provided to FSA Employees and Other Borrowers Average loan Average loan Average loan Type of borrower write-off write-down buyout FSA employees $190,600 $135,000 $220,400 Other borrowers 204,700 153,200 182,900 Percent difference (6.9) (11.9) 20.5 Source: GAO’s analysis of FSA loan file database. Page 20 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Appendix II Cases Reviewed by FSA to Avoid Conflicts of Interest, According to FSA’s State Offices’ Responses Received From January Through March, 1997 Number Cases with with loans action Number of or with needed to Number of Number of county relationships Number of avoid Number of federal nonfederal committee with FSA cases conflicts of cases with State employees employees members borrowersa reviewed interest action taken Alabama 66 238 189 52 52 52 52 Alaska 8 5 12 3 1 1 0 Arkansas 119 290 325 166 153 16 16 Arizona 22 48 42 5 5 0 0 California 71 145 147 19 19 4 4 Colorado 49 147 150 37 37 14 5 Connecticut 12 20 24 1 1 1 1 Delaware 13 10 9 8 8 7 7 Florida 71 149 131 13 13 13 13 Georgia 102 411 335 92 81 49 49 Hawaii 15 17 16 5 5 0 0 Idaho 67 125 123 33 33 29 4 Illinois 144 578 282 197 196 166 6 Indiana 92 419 263 109 109 4 4 Iowa 219 790 300 151 151 151 151 Kansas 123 516 312 242 242 30 30 Kentucky 129 409 414 281 281 113 113 b b Louisiana 147 204 156 134 134 Maine 37 45 43 24 24 21 21 Maryland 22 60 69 9 9 8 8 Massachusetts 24 24 34 9 7 7 7 Michigan 87 268 194 23 23 16 16 Minnesota 142 461 246 261 239 48 48 Mississippi 141 265 246 148 122 122 122 Missouri 153 448 286 347 347 13 8 Montana 68 217 168 116 112 107 107 Nebraska 132 518 279 205 203 82 35 Nevada 15 20 54 9 8 2 2 New Hampshire 11 16 30 10 8 8 8 New Jersey 23 31 124 37 6 3 3 New Mexico 36 77 96 38 38 18 18 New York 88 162 153 49 49 31 31 North Carolina 112 457 291 50 50 21 21 North Dakota 157 347 159 242 12 12 0 (continued) Page 21 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Appendix II Cases Reviewed by FSA to Avoid Conflicts of Interest, According to FSA’s State Offices’ Responses Received From January Through March, 1997 Number Cases with with loans action Number of or with needed to Number of Number of county relationships Number of avoid Number of federal nonfederal committee with FSA cases conflicts of cases with State employees employees members borrowersa reviewed interest action taken Ohio 71 528 405 87 85 36 3 Oklahoma 114 300 230 163 98 97 97 Oregon 43 97 88 23 23 16 16 Pennsylvania 80 201 197 64 64 63 63 Rhode Island 9 4 25 6 2 1 1 South Carolina 67 177 121 31 31 31 31 c South Dakota 153 330 240 34 22 12 Tennessee 103 333 285 41 41 40 40 Texas 269 1066 613 395 162 13 13 Utah 33 73 86 42 42 42 42 Vermont 24 29 36 7 7 0 0 Virginia 76 210 237 67 67 66 42 Washington 53 110 106 14 14 4 4 West Virginia 41 96 138 36 36 29 29 Wisconsin 128 505 208 124 124 124 124 Wyoming 29 59 62 14 14 14 14 Total 4,010 12,055 8,539 4,479 3,622 1,767 1,441 a The figures in this column include employees with loans, employees’ with close relatives with loans, and employees having business relationships with other borrowers. b According to Louisiana FSA officials, FSA district directors in Louisiana identified cases requiring action to avoid conflicts of interest and took the required actions. However, the district directors did not report on these cases to the FSA state office. c South Dakota FSA officials did not obtain information on the total number of county committee members. Source: GAO’s analysis of survey responses from 50 state offices. Page 22 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Appendix III Major Contributors to This Report Charles M. Adams, Assistant Director Larry D. Van Sickle, Evaluator-in-Charge Daniel F. Alspaugh W. Carl Christian, Jr. Kelly S. Ervin Alice G. Feldesman Jerry D. Hall Judy K. Hoovler Carol Herrnstadt Shulman Robert C. Sommer (150425) Page 23 GAO/RCED-97-104 Conflict-of-Interest Issues in the Farm Service Agency Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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Farm Service Agency: Additional Actions Needed to Address Employee Conflict-of-Interest Issues
Published by the Government Accountability Office on 1997-04-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)