FSA provides credit assistance through direct loans funded by the federal government and through guaranteed loans, which are made by commercial lenders to farmers and generally guaranteed by the government for up to 90 percent of the face value of the loan. FSA offers several types of loans, such as farm operating loans, farm ownership loans, and emergency disaster loans. Farm operating loans are authorized for buying feed, seeds, fertilizer, livestock, and farm equipment; paying family living expenses; and refinancing existing debt. Farm ownership loans are authorized for buying and improving farmland; constructing, repairing, and improving farm buildings; and refinancing existing debt. Emergency disaster loans are for farmers whose operations have been substantially damaged by adverse weather or by other natural disasters. FSA’s full-time permanent workforce included about 5,940 federal and 10,365 nonfederal employees at the time of our review. FSA’s federal employees consist of headquarters staff, former FmHA county loan specialists, former ASCS state executive directors, state committee members, district directors, and state office employees. FSA’s nonfederal employees consist of former ASCS county executive directors and county office staff. Prior to FSA’s creation, FmHA’s policy precluded the agency’s employees from obtaining farm loans to avoid conflicts of interest. Unlike former FmHA employees, former ASCS employees were not involved in the administration of the farm loan programs and were eligible to receive the benefits of USDA’s farm programs and FmHA’s farm loans. FSA uses county committees, consisting of about 8,150 locally elected farmers, to assist in implementing agricultural programs, including the farm loan program. USDA pays county committee members for their services. Among other tasks, county committees review loan applications to determine if the applicants have sufficient farming experience to qualify for an FSA farm loan. In addition, each FSA state office has a committee of farmers who provide advice on farm program operations. Within FSA, the operations and offices of the former FmHA and ASCS offices have been consolidated. Former ASCS employees who have FSA farm loans may be physically located at the same office as the FSA employees who approve and service these loans. In addition, FSA anticipates that some former ASCS employees will be assigned to assist in administering farm loans. FSA has adopted procedures to avoid conflicts of interest in loan-making and servicing decisions. These rules are similar to those used by the former FmHA. For example, loan-processing, approval, servicing, and review activities can be conducted only by FSA employees who are not immediate family members or relatives of loan applicants and who have not had a business or a close personal association with these applicants. To avoid conflicts of interest, FSA is phasing out the eligibility of former ASCS employees for FSA farm loans. In December 1995, FSA announced that its employees, including former ASCS nonfederal employees, would no longer be eligible for direct farm ownership loans. However, it stated that FSA employees would still be eligible for direct emergency loans and guaranteed loans. Those in an employee’s household with existing direct loans may be considered for annual operating loans through September 30, 1998. Employees were also authorized to co-sign (and are therefore considered borrowers) for direct annual operating loans until December 1998 if they were already a cosigner on such a loan. Our analysis of FSA’s loan portfolio database showed that 414 employees and 1,209 county committee members had FSA farm loans as of September 30, 1996. FSA’s federal employees and county committee members had slightly more loans per borrower than other FSA borrowers, while FSA’s nonfederal employees had slightly fewer loans per borrower than other borrowers. Table 1 provides information on the number of direct and guaranteed loans obtained by FSA’s federal employees, nonfederal employees, and county committee members, as well as other borrowers. While the outstanding principal of the direct and guaranteed loans of FSA employees and county committee members was about $265 million of the $16.9 billion in FSA’s outstanding loan principal as of September 30, 1996, we found some differences in the average amount of loans, loan delinquencies, and debt relief received by FSA employees and county committee members in comparison with other FSA borrowers. FSA has not developed information about the comparative loan sizes for these groups nor examined why these groups would differ in their loans, repayment history, and debt relief. Consequently, FSA officials do not have specific information that would explain the sources of these differences. However, an FSA official said that these differences may be influenced by, among other things, (1) a comparison of groups of borrowers that vary in number; (2) the incomes of FSA employees, which would enable them to have larger farm operations than some other borrowers; and (3) the inclusion of several hundred cases in which borrowers have debt of $1 million or more. In addition, according to USDA officials, committee members are likely to have larger farm operations than many other producers, which could lead to differences in loan amounts and debt-relief decisions. More specifically, our analysis shows that FSA’s federal employees and county committee members had obtained loans that were somewhat larger, while nonfederal employees’ loans were somewhat smaller than the loans of other FSA borrowers. Table 2 shows the status of outstanding FSA farm loans, as of September 30, 1996. With respect to delinquencies, FSA’s federal employees were delinquent on their direct farm loans slightly less often than other borrowers. FSA’s nonfederal employees and county committee members were delinquent on their direct farm loans about half as often as other borrowers. However, the average amounts of the delinquencies for FSA’s federal employees and county committee members were somewhat larger than the delinquencies of other borrowers, as shown in table 3. Finally, with respect to debt relief, all of FSA’s employee groups received more debt relief per borrower than others who received debt relief, as shown in table 4. Additional information about the debt relief FSA has provided to federal employees and other borrowers is included in appendix I. Starting in 1995, FSA’s state offices began to survey FSA employees and committee members to identify those with loans and relationships with borrowers so that the offices could take action to avoid conflicts of interest in FSA’s farm loan program. However, FSA’s state offices were not required to report to headquarters on the cases they reviewed. Accordingly, we surveyed FSA’s 50 state office directors to obtain information that they had developed on employees’ and county committee members’ loans and relationships with borrowers, as well as state offices’ determinations on cases requiring action to avoid conflicts of interest. As of March 1997, according to the data we obtained from the 50 FSA state offices, 1,767 employees and county committee members (about 7 percent) had loans or loan-related relationships that required action to avoid conflicts of interest. FSA identified these cases through its state offices’ (1) surveys of employees and committee members and (2) reviews of individual cases to identify those whose loans and relationships with borrowers required action to avoid conflicts of interest. However, the information we obtained from state offices shows that not all employees and committee members had responded to the state office surveys and that some state offices had not reviewed all cases in which employees reported that they or their relatives had farm loans. Consequently, the number of cases requiring action by FSA’s state offices to avoid conflicts of interest can be expected to increase as these offices complete their case reviews. Table 5 summarizes the results of the state offices’ surveys. (See app. II for state-by-state information on these surveys.) As table 5 indicates, as of March 1997, FSA’s state offices had reviewed 3,622 of 4,479 cases, leaving 857 cases that needed review. In addition to these cases, as table 6 shows, 11 states had not received responses to their survey questions from every employee and county committee member. Furthermore, the responses of FSA’s state offices to our survey shows that the information gathered from members of county committees varied widely among these offices. For example, only 126 of 8,539 county committee members reported to their FSA state office that they had business relationships with FSA borrowers, and 77 of these cases occurred in just three states, according to responses we received from FSA’s state offices. Committee members in 27 states did not report to their FSA state office any business relationships with other borrowers. In other cases, some members indicated that they were reluctant to reveal this information. In one state we visited, three county committee members, including the county committee chairman, had submitted statements to FSA saying that it was “none of [FSA’s] business” if they had farm credit loans themselves or had relationships with other borrowers. During our review, we found that one of these individuals, the county committee chairman, had two FSA loans. FSA’s state offices have made progress by taking action on a significant number of cases to avoid conflicts of interest. Nevertheless, the guidance to state offices from FSA headquarters on dealing with conflicts of interest has been inconsistent, particularly regarding how state offices should address the loans of county committee members and their relatives, as well as their business relations with other borrowers. Because of differences in how FSA’s state offices interpreted the guidance in these and other areas, state offices have varied in the extent to which they have taken actions to avoid conflicts of interest. Furthermore, FSA has not thus far followed up on the completeness or consistency of state offices’ actions. Of the 1,767 cases that had been identified, FSA’s state offices reported that they had taken action on 1,441 cases, as shown in table 7.