Mysterious West Virginian loan program ran rampant for years, audit reveals

Grae Stafford | Freelance Photographer

A recent audit of the West Virginia Rural Rehabilitation Loan Program revealed an alarming series of irregularities in the scheme overseen by the Department of Agriculture, nicknamed the “friends and family program” by some state lawmakers.

“We’ve got some kind of a rogue loan program without any sort of rules, regulations or oversight,” Democratic Senate President Jeff Kessler said at the presentation of the audit.

This is hardly surprising. In the process of auditing the loan program, legislative auditor Aaron Allred discovered that there was actually no documentation regarding the set up of it. Allred’s best guess?

“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,” he said.

The criticisms come thick and fast. Of the 40 loans currently in effect, 25 are delinquent. No attempt has been made to collect half of those. The audit also discovered that out of 19 loans granted, five of them had evidence of “conflicts of interest between the former commissioner of Agriculture, Gus Douglass, and/or the four-member loan committee, and loan recipients.”

The West Virginia Rural Rehabilitation Loan Program at present has funds equalling about $1 million. But that’s dwarfed by the $4 million that it currently has in outstanding loans.

The audit also discovered that loans have been secured against insufficient collateral. In one case a $149,000 loan was secured against less than three acres of land valued at $15,700. A $15,000 loan was secured against a truck and camper valued at $6,200. In two cases, loans were also taken out to repay bank debts, one worth $50,000 and another worth $200,000.

The original intention of the West Virginia Rural Rehabilitation Loan Program was to give the means to farmers “to purchase real estate, livestock and equipment.” However the audit discovered that “nearly half” of the loans made “went to restaurants, food production businesses and wholesale industries.”

Apart from not knowing when the program started, 300 percent underwater thanks to outstanding liabilities, not securing loans against equivalent capital, conflicts of interest in the loan allotment, inappropriate businesses being given loans and loans made to cover personal debts, the audit discovered that the most basic book keeping and accounting measures were not followed.

“One of the business plans was literally one sheet of notebook paper.” Allred said.

The new Agriculture Commissioner Walt Helmick, who took over in January 2013, ordered the audit after hearing rumors about its mismanagement. “The rumor when I first took office was, you better look at that loan program,” he said.

While Allred’s audit is just the preliminary report, Democratic House Speaker Tim Miley has said that its findings have been passed on to the U.S. Attorney’s Office for further investigation. Only one of the four departmental employees working on the program still remains.

Amazingly, despite its litany of failures, Helmick still supports the program and wants to see it return with much tighter oversight.

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

State Attorney General Patrick Morrisey is calling for much tighter rules regarding the program.

“If a state agency knows that they could be subject to scrutiny, maybe every two, maybe every three years, you’re less likely to see some of the disastrous practices that occurred,” he said.

West Virginia currently has a $66 million dollar hole in its budget after after revenue collections for 2013 year fell below estimates. Analysts are warning that the hole in 2014 will grow even larger.

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