Audit of the housing and other credit guaranty programs" fiscal year 1991 annual financial statement under the CFOs Act of 1990

The accounting records for the HG program did not provide sufficient information for the auditors to apply adequate auditing procedures. However, the audit disclosed that the HG program does not have an adequate internal control structure. Seven material weaknesses were uncovered: failure to adequately evaluate the HG program for attaining legislative objectives in a cost effective manner; lack of formal policies and procedures and an automated accounting system; insufficient monitoring of the paying and transfer agent; failure to properly maintain source documentation; lack of collections procedures for claims receivable collection; lack of documented formal guidelines or system to identify loans that require claim payments or to minimize late fees and penalties paid on behalf of the borrower; and failure to maintain the HG Central Reserve Bank Account in a U.S. Treasury account. The audit also disclosed some noteworthy issues. (1) During FY91, the HG program continued to incur losses; the program incurred a net loss of $34 million and had to borrow $48 million from the U.S. Treasury to sustain operations. (2) The HG fee structure needs to be reassessed to see if a risk-based structure is feasible. The program generally charged a front-end loan guaranty fee of 1%, and an annual fee of 0.05% These fees were set at the same level regardless of a country"s repayment ability. Starting in FY92, discretionary funds will be appropriated based on subsidy calculations. These subsidies could be reduced if a risk-based fee structure is deemed feasible. (Author abstract, modified)