The Farm Credit System (FCS) can’t seem to shake its reputation for shoddy accounting and questionable deals. On top of targeting a bankrupt college, creating “a shell corporation to funnel federal money” in Connecticut and its usual questionable loans to huge corporations, now one FCS association has run into trouble. Big trouble.
Lone Star ACA, a Farm Credit association in Texas, has a lot of explaining to do. Last month it issued a Notification of Non-Reliance on Previously Issued Financial Statements. It’s as bad as it sounds. The notification makes clear that the financial statements “as of and for the year ended December 31, 2016, as well as the three months ended March 31, 2017, should no longer be relied upon.” The Notice continues, “During the second quarter of 2017, Association management discovered appraisal and accounting irregularities affecting a segment of the Association’s lending portfolio. [emphasis added]”
These are words that no customer-owner wants to hear. And behind the statement’s opacity, observers can only imagine what’s behind the irregularities. Did a Farm Credit employee commit fraud? Was money being laundered? Did someone receive a loan they shouldn’t have?
What’s most unsettling about this is the Notice’s omission of any involvement of the Farm Credit Administration (FCA), the System’s oversight agency. The Notice mentions that Association management discovered the irregularities. Why did the FCA not see these in its regular audits? The FCA boasts that its examiners “work effectively with System institutions.” That clearly isn’t the case if the examiners didn’t notice this irregularity before now.
This isn’t the first time that the FCA’s insufficient oversight has caused problems for customer-owners. In 2015, the FCA consecrated a shotgun marriage (while holding the shotgun!) between the now defunct Farm Credit Services Southwest andFarm Credit West. The prior was discovered to have “a sudden significant increase in the level of delinquent loans affecting an identifiable portion of the Association’s loan portfolio.” So, to cover its failure to discover this before, the FCA forced a merger. The result is an engorged Farm Credit West, holding more than $10 billion in assets – hardly a small, local agricultural lender.
But even putting aside this similar failure, Reform Farm Credit readers have seen how feckless the FCA has been in its oversight of the System in general. Under the FCA’s weak oversight, the System has extended a loan to bailout a failing foreign company, a loan to a publicly-traded Real Estate Investment Trust (REIT) for data centers, loans for luxury housing and loans for “automobiles, college tuition, investments, vacation homes or almost any credit need you may have.”
Lone Star’s accounting irregularities, and the FCA’s weak oversight, are troubling. More troubling though is what hasn’t been discovered yet: how many associations are suffering from accounting irregularities? Is the System as sound as the FCA claims? Can the FCA be trusted to continue its oversight?
There should be no doubt that Congress needs to take a closer look at the FCA, its examination practices and any FCS associations it thinks may not be financially stable. Congress owes it to the public, and members of Congress owe it to their constituents.