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090006 1 (1974-04-01)

handle is hein.gao/gaobacvvt0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D C 20548 RESOURCES AND ECONOMIC APR 01 1974 DEVELOPMENT DIVISION Mr. George P. Herzog Assistant Administrator-Administration Rural Electrification Administration Department of Agriculture 14th and Independence Avenue, SW. Washington, D.C. 20250 Dear Mr. Herzog Our report to the Congress on the examination of the Rural Telephone Bank's fiscal year 1973 financial statements is in final process. We would like to use this letter to comment on several matters noted during our audit. Allowance for possible losses on loans and interest receivable In our draft report we pointed out that minor discrepancies resulted from the application of the policy on allowance for possiDle losses on loans and interest receivable adopted by the Bank's Board of Directors The policy provides that the allowance be increased each year by .024 per- cent of the loans outstanding as of the close of each fiscal year until a maximum allowance of 0.6 percent of loans receivable is attained in about 25 years. In fiscal year 1973, the allowance was computed at the close of each quarter for presentation in the quarterly report to the directors. An allowance of $6,000 was accrued under this method. However, had the annual rate of .024 percent been applied to the loans receivable outstanding at the close of the fiscal year, the accrual for the allowance for losses would have been about $11,000. In addition, the use of an annual rate of .024 percent to compute the allowance ior losses will not achieve the maximum allowance set forth by the directors The annual rate must be increased each year by .024 percent to achieve the maximum allowance, i.e., .024 percent the first year, .048 the second year, etc This was discussed with the Chief and Assistant Chief of the Account- ing Branch who concurred that the allowance schedule should be revised. We understand that a new allowance schedule which includes the cumulative La?0-0

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