DOE Has Not Fully Developed or Consistently Adhered to Loan Monitoring Policies

DOE has not fully developed or consistently adhered to loan monitoring  policies for its loan programs. DOE Has Policies for Most Loan Monitoring Activities, but Some Remain Incomplete or Are Outdated

DOE has established policies for most loan monitoring activities, but  policies for some of these activities remain incomplete or outdated. This division was established in February 2012 and has been operating  since its inception under incomplete or outdated policies. DOE officials told us  that policy revisions were delayed in part because the Loan Programs  Office did not have a Director of Risk Management until November 2012  and that a planned revision was put on hold to await the arrival of a new  Executive Director in May 2013. Additionally, the Risk Management  Division had not staffed 11 of its 16 planned positions until late 2013,  when it staffed 6 of 11 vacancies. Similarly, Office of  Management and Budget (OMB) guidance specifies that credit programs  should have robust management and oversight frameworks for monitoring  the programs’ progress toward achieving policy goals within acceptable  risk thresholds, and taking action where appropriate to increase efficiency  and effectiveness. It is difficult to determine whether DOE is adequately  managing risk if policies against which to compare its actions are  outdated or incomplete. DOE Did Not Consistently Adhere to Its Loan Monitoring Policies Because Its Loan Programs Office Organizational Structure Was Still under Development

In some cases we examined, DOE generally adhered to its loan  monitoring policies but, in other cases, DOE adhered to its monitoring  policies inconsistently or not at all because DOE was still developing the  Loan Programs Office’s organizational structure, including staffing,  management and reporting software, and implementing procedures for  policies. As a consequence, DOE was making loans and disbursing funds  from 2009 through 2013 without a fully developed loan monitoring  function. DOE officials told us that such  reports were not produced before then because the Portfolio  Management Division had not filled the staff positions needed for  producing these reports, and its management and reporting software was  under development. As a result, DOE disbursed more than $4.7 billion for  the 10 loans in our sample before it began producing periodic credit  reports as required in its policy manuals. In another example, DOE inconsistently adhered to policies for managing  troubled loans. DOE’s policy manuals require that DOE prepare and  approve plans for handling troubled loans to borrowers who are in danger  of defaulting on their loan repayments. Further, DOE did not adhere to some existing policies for program-wide  evaluation and mitigation of portfolio-wide risk, in particular policies for  evaluating the effectiveness of its loan monitoring. Without  conducting these evaluations, DOE management cannot assess the  adequacy of its monitoring efforts and thus be reasonably assured that it  is effectively managing risks associated with its loan programs. In its policy manuals, DOE recognizes the  importance of monitoring loans and guarantees to proactively manage  their risks and protect the financial interests of the federal government  and the taxpayer. Because  DOE inconsistently adhered to the policies it had in place, DOE’s  assurance that it was completing activities critical to monitoring the loans  has been limited. Recommendations for Executive Action

To provide greater assurance that DOE is effectively monitoring its loans,  we recommend that the Secretary of Energy direct the Executive Director  of the Loan Programs Office to take the following four actions:
Fully develop its organizational structure by updating management and reporting software, and staffing key monitoring positions,  completing policies and procedures for loan monitoring and risk  management. In its  written comments, DOE generally agreed with our recommendations. However, DOE did not indicate that  it plans to prepare the required reports to evaluate the effectiveness of its  loan monitoring. Because DOE is  administering the LGP and Advanced Technology Vehicles Manufacturing  (ATVM) loan program through one Loan Programs Office, we included  both programs in this review. To assess the extent to which DOE adhered to its monitoring policies, we  acquired and analyzed documentation from a nonprobability sample of 10  of the 36 loans and loan guarantees that had been made by March 2013,  therefore, requiring monitoring. To develop this summary of DOE’s monitoring activities, we examined  high-level DOE policy guidance—specifically DOE’s October 2011 policy  manual for its Loan Guarantee Program, its 2009 policy manual for its  Advanced Technology Vehicles Manufacturing (ATVM) loan program,  DOE’s approved implementing procedure documents, and DOE loan  monitoring documentation. 1. 2. Department of Energy: Status of Loan Programs.
Why GAO Did This Study

DOE's Loan Programs Office administers the Loan Guarantee Program (LGP) for certain renewable or innovative energy projects and the Advanced Technology Vehicles Manufacturing (ATVM) loan program for projects to produce more fuel-efficient vehicles and components. As of March 2014, the programs had made more than $30 billion in loans and guarantees: approximately $21.9 billion for 33 loan guarantees under the LGP and $8.4 billion for 5 loans under the ATVM loan program. Both programs can expose the government and taxpayers to substantial financial risks should borrowers default.
GAO assessed the extent to which DOE has developed and adhered to loan monitoring policies for its loan programs for 2009 to 2013. GAO analyzed relevant regulations and guidance; prior audits; DOE policies; and DOE data, documents, and monitoring reports for a nonprobability sample of 10 loans and guarantees. Findings from the sample are not generalizable, but the sample covered a range of technologies and loan statuses. GAO also interviewed DOE officials.

What GAO Found

The Department of Energy (DOE) has not fully developed or consistently adhered to loan monitoring policies for its loan programs. In particular, DOE has established policies for most loan monitoring activities, but policies for evaluating and mitigating program-wide risk remain incomplete and outdated. These activities are generally the responsibility of the Risk Management Division in DOE's Loan Programs Office. This division, established in February 2012, has been operating since its inception under incomplete or outdated policies. DOE has missed several internal deadlines for updating its loan monitoring policies. DOE officials told GAO that updated policies were delayed in part because the Loan Programs Office did not have a Director of Risk Management until November 2012. Additionally, the Risk Management Division had not staffed 11 of its 16 planned positions until late 2013, when it staffed 6 of the 11 vacancies. Under federal guidance, credit programs should have robust management and oversight frameworks for monitoring the programs' progress toward achieving policy goals within acceptable risk thresholds, and taking action where appropriate to increase efficiency and effectiveness. It is difficult to determine whether DOE is adequately managing risk if policies are outdated or incomplete and key monitoring positions are not fully staffed.
In some cases GAO examined, DOE generally adhered to the loan monitoring policies that it had in place. For example, DOE generally adhered to its policies for authorizing disbursement of funds to borrowers. But, in other cases, DOE adhered to the policies inconsistently or not at all because the Loan Programs Office had staff vacancies and was still developing management and reporting software and procedures for implementing policies. For example:
DOE inconsistently adhered to its policies for monitoring and reporting on credit risk, particularly for preparing credit reports—periodic reviews of project progress and factors that may affect the borrower's ability to meet the terms of the loan. DOE did not prepare dozens of credit reports, mostly in 2011, because according to officials it had not filled positions or fully developed the software needed for producing these reports.
DOE inconsistently adhered to its policies for managing troubled loans requiring that it prepare and approve plans for handling loans to borrowers in danger of defaulting on their loan repayments. For two troubled loans, officials said DOE did not prepare a formal plan, as called for in its policy, in part because implementing procedures were incomplete.
DOE did not adhere to its policy requiring it to evaluate the effectiveness of its loan monitoring because of continuing staff vacancies. Without conducting these evaluations, DOE management cannot assess the adequacy of its monitoring efforts and thus be reasonably assured that it is effectively managing risks associated with its loan programs.
As a result, DOE was making loans and disbursing funds from 2009 through 2013 without a fully developed loan monitoring function. During this time, inconsistent adherence to policies limited assurance that DOE was completing activities important to monitoring the loans and protecting the government's interest.

What GAO Recommends

GAO recommends that DOE (1) staff key positions, (2) update management and reporting software, (3) complete policies for loan monitoring, and (4) evaluate the effectiveness of its loan monitoring. DOE generally agreed with the recommendations.