REPORT OF AUDIT CONCERNING OPERATIONS OF THE CENTRAL AMERICAN BANK FOR ECONOMIC INTEGRATION (CABEI)

BANK PROMOTES ECONOMIC INTEGRATION & BALANCED DEVELOPMENT WITHIN 5 CA COMMON MARKET COUNTRIES (CMC). EVALUATION BASED ON INTERVIEWS, RECORDS & ON-SITE OBSERVATIONS. BANK PROVIDES A VIABLE SERVICE. 13 OF 19 AID RECOMMENDATIONS HAVE BEEN IMPLEMENTED. HIGH INTEREST RATES ON AID LOANS HAVE RESULTED IN A $3.6 MILLION PROFIT AND BANK HAS EXPANDED ITS INTERNAL AUDIT FUNCTION. ALSO,THE ECONOMIC RESEARCH DEPARTMENT IS CONDUCTING IN-DEPTH ECONOMIC STUDIES OF CA CMC"S. DESPITE PROGRESS,PROJECT OBJECTIVES HAVE NOT BEEN ACHIEVED. ACCOUNTING STATEMENTS DO NOT DISCLOSE FINANCIAL CONDITIONS. EARNINGS ARE ADVERSELY AFFECTED DUE TO POOR RESOURCE UTILIZATION,INADEQUATE SUB-LOAN COLLATERAL & NON-COMPLIANCE WITH SUB-LOANS. BANK LIABILITY RATES ARE OFTEN INADEQUATE. ACCOUNTING SYSTEM IS DEFICIENT IN PROVIDING CASH DISCLOSURES,AND ACCOUNTS PAYABLE & RECEIVABLE. SUB-LOANS ON THE BOOKS FOR OVER ONE YEAR ($20 MILLION) HAVE NOT BEEN DISBURSED.DELAYED FUNDING RESULTED IN A $713,000 LOSS WITH AN ADDITIONAL $8,800 LOSS EXPECTED EACH 6 MONTHS. INTEREST IS CHARGED ON TEMPORARY INVESTMENT ACCOUNTS FUNDS BEFORE THEY ARE NEEDED. THERE HAVE BEEN LIEN DIFFICULTIES. WEAK COLLATERAL HAS RESULTED IN LOSS DUE TO FORECLOSURES. THERE ARE ALSO LAGS IN SUB-LOAN DISBURSEMENTS,LACK OF NON-COMPLIANCE ACTIONS,LACK OF SUB-BORROWERS & INADEQUATE PRE-LOAN REVIEWS. TEAM RECOMMENDS BANK: 1)ADOPT ACCEPTABLE ACCOUNTING SYSTEM; 2)IMPROVE FINANCIAL STATEMENTS; 3)REVISE DEBT POLICY & PROCEDURES; 4)REVISE CASH MANAGEMENT POLICY & PROCEDURES; 5)VERIFY SUB-LOAN APPLICATION DATA; 6)CANCEL UNPRODUCTIVE SUB-LOANS; 7)DEVELOP REALISTIC COLLATERAL PRACTICES; 8)IMPROVE RELATIONS WITH SUB-BORROWERS; 9)DEVELOP SUB-LOAN POLICIES; 10)SUBSTITUTE ITS FUNDS FOR AID FUNDS IN REVOLVING OPERATIONS; 11)APPLY AUDIT STAFF RECOMMENDATIONS; 12)OBTAIN MORTGAGE SUBSTITUTIONS; AND 13)INCORPORATE RECOVERY CLAUSE AND OVERHEAD RATES IN SUB-LOAN CONTRACTS.