25 percent of farmers sold loan collateral without permission

Introduction

The Farm Service Agency, which makes direct loans up to $300,000 to family farmers and guarantees similar loans made by banks, failed to take action when some borrowers sold loan collateral without the agency’s permission, a government watchdog said.

In examining direct loans to 71 farmers in Arkansas, Kentucky and Michigan, the U.S. Agriculture Department inspector general said it found unauthorized removal of loan collateral by 25 percent of the borrowers it visited. Agency officials are required to take enforcement action, such as placing a borrower in “non-monetary default” status, when collateral is missing. But in virtually all of these cases, FSA officials simply rubber-stamped their post-approval of the collateral sales when they learned of it, the inspector general report said.

“Other borrowers could be encouraged to sell or otherwise dispose of loan collateral if they become aware that they can do this with no fear of consequences from FSA,” the report said. “This, in turn, could reduce FSA’s assurance that its nationwide loan portfolio is backed by sufficient collateral to ensure the agency’s security interest.”

A borrower who sells collateral without FSA approval must either make restitution or submit proof within 30 days that the money was used to buy property better suited to the farm’s operations. In some of the cases examined, borrowers sold tractors or wagons and said they forgot to report the sales to the agency, the watchdog said.

The FSA agreed to carry out the inspector general’s recommendations that the agency remind its field offices to document missing loan collateral discovered during farm visits. It also agreed to begin tracking unauthorized collateral sales in the FSA computer system in 2013, and to require local offices to keep a manual log until then.

Quick Fact: The FSA had a 2010 budget of about $5.1 billion for its direct loan and loan guarantee program. Agency officials are required to inspect a borrower’s loan collateral at least once every two or three years, depending on the type of loan.

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NATIONAL SECURITY

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• Coast Guard needs to boost $65.2 million budget to build a U.S. Coast Guard Museum in New London, Conn. (OIG)

MISC.

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• CalTech, which manages 101 vehicles for NASA’s Jet Propulsion Lab, fails to properly account for vehicles used by employees (OIG)