The Department of Interior Office of Inspector General issued a report examining a loan guarantee program managed by the Bureau of Indian Affairs. The Loan Guaranty, Insurance, and Interest Subsidy Program run by the Office of Indian Energy and Economic Development guarantees up to 90 percent of unpaid interest and principal on a loan made to assist with Tribes developing and using their own resources.
The program has guaranteed over $600 million in loans – which means that if the borrower defaults the American taxpayers foot the bill. The program has had to pay out $12.4 million on defaulted loans between 2010 and 2016 and had another $20 million default claim pending at the time of review. That is $32 million in taxpayer funds paid out due to poor performing loaning.
The OIG found that the internal controls over the program were inadequate and documented several examples of their lax controls. These include:
- When the Acting program chief guaranteed a $16 million loan to finance a film against the credit committee’s recommendation.
- Only 2 of the 22 loan guarantee applications that they reviewed contained all the documents and information required for proper approval.
- Records for a $10 million loan guarantee issued in 2011 went without an update for 5 years – then was reduced to $6.7 million without any records or payment histories from the bank.
- Records on $37.9 million worth of loans reviewed were not being properly updated.
- The program incentivizes its staff to quickly process the loan guarantees but does not have any metrics to determine whether they are processed appropriately – leading to potential unethical behavior.
The OIG concluded that “DCI managed the Program with limited oversight from IEED and approved many loans without proof of benefit to Indian communities. In addition, DCI did not have adequate internal controls in place, which created unnecessary risk for an already risky program. Further, DCI has no clear line of authority for issuing loan guarantees. We found that DCI needs to add to existing controls and put in place controls where none currently exist.”
The lax controls were due to the program’s management belief that the program is too small to have stronger controls. The idea that $600 million is too small for strong internal controls is a symptom of a lack of accountability from Congress.
The OIG found lax internal controls in the $600 million Indian Affairs loan guarantee program
“The credit committee recommended that a $16 million loan guarantee application for a film project be denied. The acting DCI chief, however, approved the application without formally documenting his rationale for disregarding the recommendation."