Throwback Thursday: Commerce Wasted $1.3M on Mismanaged Loan Program
In 1987, the U.S. Department of Commerce wasted $1.3 million – worth $3.5 million in 2023 dollars – on a revolving loan program that did more harm than good thanks to rampant mismanagement.
Sen. William Proxmire, a Democrat from Wisconsin, awarded the department his Golden Fleece Award for this entirely preventable waste.
According to Proxmire, Commerce’s Economic Development Administration was responsible for managing grants to localities to establish revolving loan programs. The loans were meant to spur local economic development, increase incomes, and decrease unemployment.
Unfortunately, despite strict oversight requirements, officials from the administration often neglected to monitor these loans. Auditors found several issues that resulted in rampant fraud and abuse within the program.
Auditors described the loan portfolio as in “poor condition at best” and found that four loans had been awarded despite receiving no loan application and having insufficient funds to make the loans with. Two of those loans did not receive funding for over two years.
Of the loans that were made, one was in default and had never been monitored or serviced in seven years. This loan’s default cost $700,000, and auditors noted none of the other loans were monitored, raising the possibility of default.
The board that made the grants knowingly violated a key provision and principle of the bill, Proxmire alleged. These funds could not be used to relocate employees, but they were, costing 45 jobs in a town. In fact, many of the basic terms of these loans were ignored, with four loans made in amounts over $100,000, which was the maximum amount allowed.
This waste could have been prevented with appropriate oversight. Instead, taxpayers ended up losing $1.3 million.
The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com
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