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Agriculture loan program: 'no rules, regulations or oversight'

CHARLESTON, W.Va. -- A preliminary legislative audit released Monday has uncovered evidence of mismanagement and a lack of internal controls in a $5 million revolving loan program administered by the state Department of Agriculture.

Auditors found that 25 of 40 outstanding Rural Rehabilitation Loan Program loans are delinquent, and found that in nearly half the loans audited, there was no evidence of any effort to collect on delinquent loans.

The audit also found evidence of potential conflicts of interest between the former commissioner of Agriculture, Gus Douglass, and/or the four-member loan committee, and loan recipients in five of the 19 loans audited.

It did not elaborate on the nature of the conflicts of interest, or identify the loan recipients.

"We've got some kind of a rogue loan program without any sort of rules, regulations or oversight," Senate President Jeff Kessler, D-Marshall, commented during the presentation to the legislative Post Audits committee.

Legislative auditor Aaron Allred said it is believed the program was set up in the late 1960s or early 1970s with federal Department of Agriculture funds, but auditors have been unable to find original documentation for the program.

Currently, the fund has about $1 million, with about $4 million in loans outstanding.

The audit also found a number of loans that lacked sufficient collateral, including a $149,000 loan secured by 2.5 acres of land valued at $15,700, and a $15,000 loan with a truck and camper valued at $6,200 as collateral.

Another two loans were issued to pay off existing bank loans of $200,000 and $50,000, the audit found.

The audit found no formal policies or procedures for awarding loans, with no requirements that loan recipients have a good credit history or proof of ability to repay the loan.

"One of the business plans was literally one sheet of notebook paper," Allred told the committee.

Additionally, while the loan program was intended to allow farmers to purchase real estate, livestock and equipment, the audit found that nearly half the loans went to restaurants, food production businesses, and wholesale industries.

Current Agriculture Commissioner Walt Helmick told legislators Monday he requested the audit of the department when he first took office last January.

Helmick said he was unaware of the problems with the loan program, other than hearsay.

"The rumor when I first took office was, you better look at that loan program," he said.

He said the loan committee consisted of four department employees, and indicated only one still works for the department.

Helmick said he would like to continue the loan program, which he has placed in hiatus, once sufficient regulations and oversight are put in place.

"We would like to continue this program. We think it fits our mission, and fits it very well," he said, adding, "We feel there's tremendous opportunity in agriculture, and we have to have this loan program."

Last week, House Speaker Tim Miley, D-Harrison, announced the findings of the preliminary audit had been turned over to the U.S. Attorney's Office for further investigation.

A final version of the audit is expected to be completed in February, Allred said.Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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