Review of TVA's Economic Development Loan Program

We reviewed 42 loans initiated through Economic Development's (ED) four loan programs (Economic Development Loan Fund, Minority Business Development Loan Fund, Business Incubator Loan Fund, and Special Opportunity Counties Loan Fund) and found:Management had not fully implemented procedures governing the loan administrative process after closing, as agreed upon in response to Audit2004-011F.Noncompliance with ED loan guidelines in 13 of 42 loan files reviewed.Uncollectible ED loans were not written off in a timely manner as required by generally accepted accounting principles.Explanations provided by ED management for 10 of the 13 loan files where noncompliance was noted indicated the Loan Approval Committee made exceptions and approved loan applications even though they were not in compliance with program guidelines. Of these ten loans, five were identified as being in default status indicating that departure from guidelines could have potentially contributed to the loan defaults. Our review noted no other specific trends in the loan files that appeared to contribute to loan defaults. At ED's request, we reviewed ED's draft Loan Manual and identified improvement opportunities. Management generally agreed with our findings and recommendations and is taking or plans to take corrective action.