LATIN AMERICAN AGRIBUSINESS DEVELOPMENT CORPORATION

THE AUDIT WAS PERFORMED ON-SITE AT ROCAP,LADD,AND SELECTED SUB-BORROWERS. AS OF 5/74, $3.2 MIL OF THE 20-YR, $6 MIL LOAN HAD BEEN DISBURSED. LAAD AGRESSIVELY PROMOTED THE INVESTMENT PROG,TAKING THE INITIATIVE IN CONTACTING PROSPECTIVE BORROWERS & ASSISTING THEM IN CREATING,ANALYZING,AND COORDINATING EXPANSION PROJS. IN ADDITION,LAAD IS PROVIDING MARKETING INFO & FINDING POTENTIAL MARKETS FOR SUB-BORROWERS PRODUCTS. FOR EXAMPLE,A SMALL MARKETING ORGANIZATION WAS FORMED BY LAAD & TWO OF ITS SUB-BORROWERS TO MARKET FLOWERS IN THE US. HOWEVER,LAAD HAD MORE LIMITED SUCCESS IN DEVLPING THE BASIC MECHANISMS OF A CAPITAL MARKET FOR COMMERCIAL SECURITIES. WHILE LAAD DID INVEST IN A SMALL BROKERAGE FIRM IN HONDURAS,EFFORTS IN OTHER CA COUNTRIES WERE NOT FRUITFUL. PRINCIPAL DIFFICULTIES STEMMED FROM THE INGRAINED RELUCTANCE OF CA BUSINESSMEN TO PLACE FUNDS W/OUT AN ALMOST IRON-CLAD GUARANTEE OF AN IMMEDIATE & PROFITABLE RETURN. THE ABSENCE OF PRO FORMA PROSCRIBING THE PROPER USE OF FUNDS & FAILURE TO DOCUMENT EXPENDITURES BY SUB-BORROWERS PREVENTED ADEQUATE MONITORING OF SUBPROJS BY LADD & ROCAP. WHEN THE SITUATION WAS BROUGHT TO THE ATTENTION OF ROCAP,IT AGREED THAT GREATER DOCUMENTATION IS NEEDED. HOWEVER,ROCAP DID NOT AGREE THAT EQUITY CERTIFICATES ARE SUBJECT TO THE SAME LOAN AGREEMENT PROVISIONS AS SUB-LOANS. THE AUDITORS CITE SPECIFIC LOAN AGREEMENT PROVISIONS,AND RECOMMEND THAT LAAD BE REQUIRED TO ESTABLISH A MORE COMPLETE FORMAT FOR SUB-LOAN & INVESTMENT FILES. IN ADDITION,A SUBSTANTIAL NUMBER OF THE INITIAL SUB-LOAN & INVESTMENT PROPOSALS WERE NOT SUFFICIENTLY SUPPORTED BY FINANCIAL STATEMENTS. THE AUDITORS RECOMMEND AS A MINIMUM REQUIREMENT THAT: 1)AN UNQUALIFIED OPINION AUDIT BE PERFORMED BY A QUALIFIED AUDITING FIRM; OR 2)THAT QUALIFIED APPRAISERS PERFORM INDEPENDENT VALUATIONS OF THE RECIPIENT"S ASSETS & LIABILITIES. FINALLY,THE AUDITORS RECOMMEND THAT ROCAP STEP UP ITS MONITORING OF LADD SUB-LOANS.