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entitled 'Export-Import Bank: Enhancements Needed in Loan Guarantee 
Underwriting Procedures and for Documenting Fraud Processes' which was 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

September 2014: 

Export-Import Bank: 

Enhancements Needed in Loan Guarantee Underwriting Procedures and for 
Documenting Fraud Processes: 

GAO-14-574: 

GAO Highlights: 

Highlights of GAO-14-574, a report to congressional committees. 

Why GAO Did This Study: 

Ex-Im serves as the official export credit agency of the United 
States, providing a range of financial products to support the export 
of U.S. goods and services. Following the 2007-2009 financial crisis, 
increased demand for Ex-Im support resulted in significant increases 
in Ex-Im's outstanding financial commitments and risk exposure, which 
heightened interest in ensuring that Ex-Im has procedures in place to 
minimize financial risks. 

GAO was mandated by the Export-Import Bank Reauthorization Act of 2012 
to review the extent to which Ex-Im (1) adequately designed and 
implemented procedures to reasonably assure compliance with its 
underwriting process requirements for loan guarantee transactions and 
consistency with federal guidance and (2) adequately designed 
procedures to prevent, detect, and investigate fraudulent applications 
for loan guarantees. To address these objectives, GAO (1) reviewed Ex-Im
's relevant procedures and federal guidance; (2) conducted tests on 
statistically random samples of loan guarantees authorized between 
October 1, 2011, and March 31, 2013; and (3) interviewed Ex-Im 
officials. 

What GAO Found: 

The Export-Import Bank's (Ex-Im) Loan, Guarantee, and Insurance Manual 
(Manual) describes Ex-Im's underwriting procedures and generally 
provides loan officers with a framework to implement its underwriting 
process requirements for loan guarantee transactions. GAO's review of 
a statistical sample of loan guarantees indicated that Ex-Im 
implemented many key aspects of the underwriting process as required 
by the Manual. However, the Manual did not (1) include certain 
procedures or sufficiently detailed instructions to verify compliance 
with Ex-Im's requirements and consistency with federal guidance, such 
as a procedure to verify that loan guarantee transaction applicants 
did not have delinquent federal debt; (2) include instructions for 
loan officers to use credit reports and for the inclusion of all 
required documents and analyses in the loan file prior to approval; 
and (3) call for assessments of collateral, as required by federal 
guidance, for certain loan guarantee transactions prior to approval. 
Further, Ex-Im did not have mechanisms to verify compliance with 
certain established procedures, including documenting certain loan 
guarantee eligibility procedures. In addition, Ex-Im's current risk-
based approach for scheduling examinations to monitor lenders with 
delegated authority to approve guaranteed loans was not documented. 
Improvements in these areas help enhance the assessment of transaction 
participant eligibility and the reasonable assurance of repayment, as 
well as help prevent fraud. 

While Ex-Im has processes to prevent, detect, and investigate fraud, 
Ex-Im has not documented its overall processes for doing so. Such 
documentation is recommended by several authoritative auditing and 
antifraud organizations as a key step in evaluating and updating these 
processes. The processes Ex-Im used to prevent and detect fraud were 
part of its underwriting and monitoring of loan guarantees. A number 
of divisions within Ex-Im, as well as lenders, played a role in 
preventing fraudulent applications from being approved and monitoring 
activity that could help detect potential fraud. If a guaranteed loan 
defaults and an indicator of fraud existed, staff would work with Ex-Im'
s Office of Inspector General to leverage its investigative resources 
to pursue involved parties. 

Figure: Key Aspects of Export-Import Bank's Fraud Processes: 

[Refer to PDF for image: illustration] 

Export-Import Bank divisions: 

Fraud Prevention: 
* Underwriting process; 
* Oversight of lenders; 
* Training. 

Fraud Detection: 
* Monitoring of active loan guarantees; 
* Claims and recovery process; 
* Fraud hotline. 

Inspector General: Fraud Investigation: 
* Investigations of defaulted loan guarantees. 

Source: GAO analysis of Ex-Im information. GAO-14-574. 

[End of figure] 

What GAO Recommends: 

GAO is making a number of recommendations to Ex-Im to enhance its loan 
guarantee underwriting process with additional procedures for ensuring 
compliance with Ex-Im and federal requirements, as well as for 
documenting fraud processes. In commenting on GAO's draft report, Ex-
Im concurred with GAO's recommendations. 

View GAO-14-574. For more information, contact Steve Lord at (202) 512-
4379 or lords@gao.gov or Gary Engel at (202) 512-3406 or 
engelg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Underwriting Guidance Was Established, but It Did Not Reasonably 
Assure Consistent Implementation and Compliance with Certain 
Requirements: 

While Ex-Im Has Taken Steps to Prevent, Detect, and Investigate Fraud, 
It Has Not Documented Its Overall Fraud Processes: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Export-Import Bank of the United States: 

Appendix III: GAO Contacts and Staff Acknowledgments: 

Figures: 

Figure 1: Types of Export-Import Bank (Ex-Im) Loan Guarantees: 

Figure 2: Export-Import Bank (Ex-Im) Authorization and Full-time 
Employees, 2006 through 2013: 

Figure 3: Number of Export-Import Bank (Ex-Im) Loan Guarantees 
Authorized, 2006 through 2013: 

Figure 4: Dollar Value of Export-Import Bank (Ex-Im) Loan Guarantees 
Authorized, 2006 through 2013: 

Figure 5: Export-Import Bank's (Ex-Im) Underwriting Activities: 

Figure 6: Overview of Export-Import Bank's Fraud Prevention, 
Detection, and Investigation Process: 

Figure 7: Overview of Export-Import Bank's Fraud Prevention Process: 

Figure 8: Overview of Export-Import Bank's Fraud Detection Process: 

Figure 9: Overview of Export-Import Bank's Fraud Investigation Process: 

Abbreviations: 

AMD: Asset Management Division: 

CRC: Credit Review and Compliance Division: 

ECA: export credit agency: 

ERC: Enterprise Risk Committee: 

Ex-Im: Export-Import Bank of the United States: 

GC: General Counsel: 

IG: Office of Inspector General: 

OECD: Organisation for Economic Co-operation and Development: 

OMB: Office of Management and Budget: 

[End of section] 

United States Government Accountability Office: 
GAO: 
441 G St. N.W. 
Washington, DC 20548: 

September 9, 2014: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Jeb Hensarling: 
Chairman: 
The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Export-Import Bank of the United States (Ex-Im) serves as the 
official export credit agency of the United States. It provides a 
range of financial products, including direct loans, loan guarantees, 
and insurance for foreign customers of U.S. companies to support the 
export of U.S. goods and services, thereby supporting U.S. jobs. 
Following the financial crisis of 2007-2009, increased demand for Ex-
Im credit authorizations--caused by a retreat of private sector 
lenders from the market--led to rapid increases in the size of Ex-Im's 
portfolio.[Footnote 1] From 2008 to 2013, Ex-Im's outstanding 
financial commitments--and by extension its exposure--grew from about 
$59 billion to about $114 billion, primarily in its long-term loans 
and loan guarantees. Also, since 2008, Ex-Im has been "self-
sustaining" for budgetary purposes by financing its operations, 
including administrative costs and actual and expected losses on its 
risk exposure, from actual and expected interest and fees charged to 
its customers.[Footnote 2] But, because Ex-Im's portfolio contains a 
large volume of recent transactions, the long-term impact of this 
business on the federal budget is not yet known. Ex-Im must operate 
within the parameters and limits authorized by law. The Export-Import 
Bank Reauthorization Act of 2012,[Footnote 3] among other things, 
increased the agency's exposure limit--that is, the total outstanding 
value of all direct loans, loan guarantees, and insurance policies 
that Ex-Im cannot exceed--from $100 billion in 2011 to as much as $140 
billion in 2014. 

Ex-Im's charter requires the transactions the agency authorizes to 
have a reasonable assurance of repayment.[Footnote 4] To comply with 
this requirement, Ex-Im must manage the wide variety of risks 
associated with providing export financing, including credit, 
political, and operational risks. Ex-Im uses a number of risk-
management techniques throughout the different stages of a 
transaction, including underwriting, legal review and documentation, 
monitoring and restructuring, and claims and recovery. The recent 
growth in Ex-Im's exposure has heightened interest in ensuring that Ex-
Im has proper procedures in place to minimize these risks while 
meeting the needs of U.S. exporters. 

The Export-Import Bank Reauthorization Act of 2012 mandated that GAO, 
among other things, evaluate Ex-Im's underwriting process and fraud 
controls for its loan and loan guarantee transactions.[Footnote 5] 
Since Ex-Im's Office of Inspector General (IG) recently analyzed the 
underwriting of direct loans, we limited our review to loan guarantee 
transactions.[Footnote 6] This report discusses the extent to which Ex-
Im has (1) adequately designed and implemented procedures to 
reasonably assure compliance with its underwriting process 
requirements for loan guarantee transactions and consistency with 
federal guidance and (2) adequately designed procedures to prevent, 
detect, and investigate fraudulent applications for loan guarantees. 

To evaluate Ex-Im's procedures related to underwriting loan guarantee 
transactions, we reviewed Ex-Im's Loan, Guarantee and Insurance 
Manual, which describes, among other things, Ex-Im's procedures to 
assess loan guarantee applications and prepare loan agreements. We 
also reviewed other relevant Ex-Im documents, including the Ex-Im 
charter, performance reports, and other policies and procedures. 
Additionally, we interviewed Ex-Im officials about the underwriting 
process. We also reviewed IG and GAO reports relevant to Ex-Im's 
underwriting process. We identified criteria from the Office of 
Management and Budget (OMB) and Department of the Treasury (Treasury) 
guidance on managing loan guarantee programs,[Footnote 7] as well as 
from Standards for Internal Control in the Federal Government. 
[Footnote 8] We conducted tests on statistically random samples of 
loan guarantees authorized from October 1, 2011, to March 31, 2013, 
and reviewed loan files for documentation of the underwriting process 
and projected the results of our statistical samples.[Footnote 9] We 
tested two samples representing (1) short-term loan guarantees and (2) 
medium-and long-term loan guarantees.[Footnote 10] The results from 
our samples apply to the universe of loan guarantees authorized from 
October 1, 2011 to March 31, 2013. We also reviewed Ex-Im's delegated 
authority lender examination reports for certain lenders of short-term 
loan guarantees. To assess the reliability of the data we used, we 
analyzed information related to data quality controls, reviewed the 
data for obvious errors in accuracy and completeness, compared data to 
published documents, and interviewed knowledgeable officials about the 
data. We concluded that the data elements we used were sufficiently 
reliable for purposes of selecting samples of transactions to review 
and describing Ex-Im's loan guarantee balances. 

To evaluate Ex-Im's procedures to prevent, detect, and investigate 
fraudulent applications for loan guarantees, we reviewed previous GAO 
and Ex-Im IG reports and relevant Ex-Im documents; the Ex-Im charter; 
and other plans, performance reports, policies, and procedures. We 
interviewed Ex-Im and IG officials knowledgeable about procedures to 
prevent, detect, and investigate fraud and spoke with lenders to 
identify steps Ex-Im has taken to strengthen lender procedures related 
to potential fraud. Using the statistically random samples described 
above, we tested documentation of fraud prevention processes. We also 
reviewed documentation of cases illustrating how Ex-Im detected 
potential fraud under a variety of circumstances. 

We conducted this performance audit from March 2013 to September 2014 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. Appendix I 
provides more information on our scope and methodology. 

Background: 

Ex-Im is an independent agency operating under the Export-Import Bank 
Act of 1945, as amended. Its mission is to support the export of U.S. 
goods and services, thereby supporting U.S. jobs. Ex-Im's charter 
states that it should not compete with the private sector. Rather, Ex-
Im's role is to assume the credit and country risks that the private 
sector is unable or unwilling to accept, while still maintaining a 
reasonable assurance of repayment. Ex-Im must operate within the 
parameters and limits authorized by law, including, for example, 
statutory mandates that it support small business and promote sub-
Saharan African and environmentally beneficial exports. In addition, 
Ex-Im must provide financing on a competitive basis with other export 
credit agencies and minimize competition in government-supported 
export financing and must submit annual reports to Congress on its 
actions.[Footnote 11] 

Ex-Im's Functional Areas and Products: 

Ex-Im operates in several functional areas under the leadership of its 
President who also serves as Chairman of Ex-Im's Board of 
Directors.[Footnote 12] Functional areas include the Office of the 
Chief Financial Officer, Office of General Counsel, Office of Resource 
Management, and Export Finance Group. The Export Finance Group is 
subdivided into business divisions that are responsible for 
underwriting related to loan guarantees, including processing 
applications, evaluating compliance of transactions with credit and 
other policies, performing financial analysis, negotiating financing 
terms, coordinating and synthesizing input to credit recommendations 
from other divisions, and presenting credit recommendations for 
approvals. 

Ex-Im offers export financing through direct loans, loan guarantees, 
and insurance. Ex-Im's loan guarantees cover the repayment risk on the 
foreign buyer's loan obligations incurred to purchase U.S. exports. 
Loan guarantees are classified as short, medium, or long term. Figure 
1 highlights the basic differences between the three loan guarantee 
types. Further, while Ex-Im relies on the value of U.S. content as a 
proxy to evidence support for U.S. jobs, it also considers exporter-
supplied data on jobs created or preserved. Because foreign content 
and local costs represent amounts that do not directly benefit the 
U.S. economy or U.S. employment, Ex-Im developed requirements that 
limit the extent to which such amounts are covered by its financing. 
[Footnote 13] Specifically, Ex-Im's content policy includes criteria 
for identifying exports eligible for Ex-Im support based on the amount 
of foreign labor, materials, and overhead included in the production 
of the exported goods or services. Eligibility criteria and the amount 
of financing Ex-Im will provide based on content value depends on the 
terms of the financing requested and, for short-term transactions, 
whether the exporter is a small business. Ex-Im's content policy is 
self-imposed and establishes (1) the level of financing available 
depending on the content of exported goods and services and terms of 
the transaction and (2) procedures for exporters to report content 
information to Ex-Im and for Ex-Im to assess the reasonableness of 
such information. When a loan guarantee transaction is approved, 
exporters are required to complete and provide an Exporter's 
Certificate in which they certify the amount of foreign and domestic 
content included in the goods or services financed by Ex-Im. The 
certificate warns exporters of the federal penalties for making false 
statements. 

Figure 1: Types of Export-Import Bank (Ex-Im) Loan Guarantees: 

[Refer to PDF for image: illustrated table] 

Length of loan: 
Short term (working capital): 1-3 years; May be approved for a single 
transaction or a revolving line of credit that can be extended up to 3 
years; 
Medium term: 1-7 years; 
Long term: Generally more than 7 years. 

Loan amount: 
Short term (working capital): No minimum or maximum amount; 
Medium term: Under $10 million; 
Long term: Generally over $10 million. 

Ex-Im guarantee percentage: 
Short term (working capital): Generally 90% guaranteed (lender 
maintains risk of remaining 10%); 
Medium term: Generally 100% guaranteed (Ex-Im guarantees 90% if the
lender performs the underwriting); 
Long term: 100% guaranteed. 

Guarantee to lender: 
Short term (working capital): Conditional upon participants'
compliance with Ex-Im requirements; 
Medium term: Unconditional; 
Long term: Unconditional. 

Examples: 
Short term (working capital): Food products and supplies; 
Medium term: Agricultural, construction, and medical equipment; 
Long term: Aircraft, railroad equipment, and oil and gas exploration 
and drilling. 

Source: GAO analysis of Ex-Im data. GAO-14-574. 

[End of figure] 

* Short-term loan guarantees: Ex-Im's short-term loan guarantee 
product is focused on working capital financing (hereinafter referred 
to as working capital loan guarantees). Working capital loan 
guarantees may be approved for a single transaction or a revolving 
line of credit that can be extended up to 3 years. In general, if the 
financed eligible product contains more than 50 percent U.S. content, 
then the entire transaction value is eligible for an Ex-Im working 
capital loan guarantee.[Footnote 14] Generally, Ex-Im guarantees 90 
percent of the loan's principal and interest if the borrower defaults. 
Therefore, the lender maintains the risk of the remaining 10 percent. 
Ex-Im's payment of working capital claims is conditional upon the 
guaranteed lenders' compliance with Ex-Im requirements, such as 
underwriting policies, deadlines for filing claims, payment of 
premiums and fees, and submission of proper documentation. Ex-Im has 
reported that over 80 percent of its working capital guarantee 
transactions are approved by lenders with delegated authority, which 
means that commercial lenders approve the guaranteed loans in 
accordance with agreed-upon underwriting requirements without first 
obtaining Ex-Im approval. If a lender does not have delegated 
authority, Ex-Im performs its own underwriting procedures and approves 
the guaranteed loans. 

* Medium-and long-term loan guarantees: Financing eligibility for Ex-
Im's medium-and long-term loan guarantee support is limited to the 
lesser of (1) 85 percent of eligible goods and services in the U.S. 
export contract or (2) 100 percent of the U.S. content.[Footnote 15] 
Ex-Im's medium-and long-term loan guarantees generally cover 100 
percent of the loan's principal and interest if the buyer defaults. Ex-
Im's guarantee to the lender is transferable, carrying the full faith 
and credit of the U.S. government, and is unconditional, meaning that 
Ex-Im must pay submitted claims regardless of the cause of default, as 
long as the claim is filed timely and no amendments were made without 
Ex-Im's consent. The underwriting of medium-term loan guarantees is 
generally performed by Ex-Im and approved by certain Ex-Im officers 
with delegated authority. For about 3 percent of medium-term loan 
guarantee transactions, Ex-Im has provided certain lenders delegated 
authority to underwrite and approve these guarantees. The underwriting 
of long-term loan guarantees is performed by Ex-Im and approved by the 
Ex-Im Board of Directors. 

Ex-Im's annual authorizations for direct loans, loan guarantees, and 
insurance increased from about $12 billion in 2006 to over $27 billion 
in 2013, an increase of about 125 percent. Over the same period, Ex-
Im's staff level, as measured by full-time employees, increased from 
376 to 403, about 7 percent (see figure 2). 

Figure 2: Export-Import Bank (Ex-Im) Authorization and Full-time 
Employees, 2006 through 2013: 

[Refer to PDF for image: vertical bar graph and line graph] 

Year: 2006; 
Amount: $12.2 million. 

Year: 2007; 
Amount: $12.6 million. 

Year: 2008; 
Amount: $14.4 million. 

Year: 2009; 
Amount: $21.0 million. 

Year: 2010; 
Amount: $24.5 million. 

Year: 2011; 
Amount: $32.7 million. 

Year: 2012; 
Amount: $35.8 million. 

Year: 2013; 
Amount: $27.3 million. 

Year: 2006; 
Number of full-time employees: 376. 

Year: 2007; 
Number of full-time employees: 365. 

Year: 2008; 
Number of full-time employees: 362. 

Year: 2009; 
Number of full-time employees: 375. 

Year: 2010; 
Number of full-time employees: 372. 

Year: 2011; 
Number of full-time employees: 381. 

Year: 2012; 
Number of full-time employees: 406. 

Year: 2013; 
Number of full-time employees: 403. 

Source: GAO analysis of Ex-Im data. GAO-14-574. 

[End of figure] 

Of the annual authorizations for all Ex-Im financing products, as 
shown in figure 3, Ex-Im's number of authorized transactions for 
working capital and long-term loan guarantees fluctuated from 2006 to 
2013. However, the number of medium-term loan guarantee transactions 
decreased from 2006 to 2013. There were 533 working capital, 68 medium-
term, and 73 long-term loan guarantee authorizations that totaled 
$14.9 billion, or 55 percent, of Ex-Im's total annual authorizations 
in 2013. 

Figure 3: Number of Export-Import Bank (Ex-Im) Loan Guarantees 
Authorized, 2006 through 2013: 

[Refer to PDF for image: vertical bar graph] 

Number of authorizations: 

Year: 2006; 
Working capital loan guarantees: 492; 
Medium-term loan guarantees: 194; 
Long-term loan guarantees: 50. 

Year: 2007; 
Working capital loan guarantees: 483; 
Medium-term loan guarantees: 159; 
Long-term loan guarantees: 47. 

Year: 2008; 
Working capital loan guarantees: 459; 
Medium-term loan guarantees: 135; 
Long-term loan guarantees: 79. 

Year: 2009; 
Working capital loan guarantees: 473; 
Medium-term loan guarantees: 89; 
Long-term loan guarantees: 57. 

Year: 2010; 
Working capital loan guarantees: 557; 
Medium-term loan guarantees: 95; 
Long-term loan guarantees: 67. 

Year: 2011; 
Working capital loan guarantees: 606; 
Medium-term loan guarantees: 81; 
Long-term loan guarantees: 97. 

Year: 2012; 
Working capital loan guarantees: 590; 
Medium-term loan guarantees: 62; 
Long-term loan guarantees: 92. 

Year: 2013; 
Working capital loan guarantees: 533; 
Medium-term loan guarantees: 68; 
Long-term loan guarantees: 73. 

Source: GAO analysis of Ex-Im data. GAO-14-574. 

[End of figure] 

Although the number of working capital loan guarantees greatly exceeds 
the number of medium-and long-term loan guarantees, long-term loan 
guarantees account for the greatest dollar value of loan guarantees 
(see figure 4). During the period 2006 through 2013, reported claim 
payments on defaulted loan guarantees have fluctuated and averaged 
$76.5 million. Such claim payments ranged from a high of $176.5 
million in 2010 to lows of $19.3 million and $28.4 million in 2012 and 
2013, respectively. 

Figure 4: Dollar Value of Export-Import Bank (Ex-Im) Loan Guarantees 
Authorized, 2006 through 2013: 

[Refer to PDF for image: vertical bar graph] 

Year: 2006; 
Working capital loan guarantees: $1.107 billion; 
Medium-term loan guarantees: $454 million; 
Long-term loan guarantees: $6.604 billion. 

Year: 2007; 
Working capital loan guarantees: $1.171 billion; 
Medium-term loan guarantees: $589 million; 
Long-term loan guarantees: $7.234 billion. 

Year: 2008; 
Working capital loan guarantees: $1.257 billion; 
Medium-term loan guarantees: $822 million; 
Long-term loan guarantees: $8.102 billion. 

Year: 2009; 
Working capital loan guarantees: $1.451 billion; 
Medium-term loan guarantees: $395 million; 
Long-term loan guarantees: $9.628 billion. 

Year: 2010; 
Working capital loan guarantees: $2.131 billion; 
Medium-term loan guarantees: $750 million; 
Long-term loan guarantees: $10.225 billion. 

Year: 2011; 
Working capital loan guarantees: $3.228 billion; 
Medium-term loan guarantees: $712 million; 
Long-term loan guarantees: $15.461 billion. 

Year: 2012; 
Working capital loan guarantees: $3.253 billion; 
Medium-term loan guarantees: $187 million; 
Long-term loan guarantees: $14.880 billion. 

Year: 2013; 
Working capital loan guarantees: $2.615 billion; 
Medium-term loan guarantees: $124 million; 
Long-term loan guarantees: $12.188 billion. 

Source: GAO analysis of Ex-Im data. GAO-14-574. 

[End of figure] 

Overview of Ex-Im's Underwriting Process: 

Ex-Im's Loan, Guarantee and Insurance Manual (Manual), which was 
updated in January 2013, February 2014, and March 2014, describes, 
among other things, Ex-Im's underwriting procedures for long-term, 
medium-term, and working capital loan guarantees. The Manual describes 
the responsibilities of Ex-Im's divisions (e.g., Transportation or 
Working Capital Finance) involved in the credit process, including 
application processing activities shown in figure 5. The underwriting 
of loans guaranteed by Ex-Im is performed by either Ex-Im loan 
officers or qualified lenders with delegated authority, which allows a 
lender to authorize a loan guaranteed by Ex-Im in accordance with 
agreed-upon underwriting requirements without first obtaining Ex-Im 
approval. All of the underwriting for long-term loan guarantees is 
performed by Ex-Im loan officers. According to Ex-Im officials, the 
underwriting process is essential to helping to prevent fraud because 
of the due diligence performed over the transactions and the 
transaction participants. 

Figure 5: Export-Import Bank's (Ex-Im) Underwriting Activities: 

[Refer to PDF for image: illustration] 

Application intake: 
Applications are screened for basic completeness. 

Application screening: 
Transactions are evaluated for minimal eligibility requirements. 

Risk assessment and due diligence: 
Transactions are evaluated for conformity with Ex-Im credit policies 
related to risk. 

Credit structure: 
Financing terms and conditions (including collateral requirements)
are determined. 

Credit decision: 
Loan officer documents due diligence performed and subsequent 
recommendation to approve or deny transaction. 

Source: GAO analysis of Ex-Im data. GAO-14-574. 

[End of figure] 

Application intake. When an application is initially received, it is 
screened for basic completeness; follow-up on incomplete or 
unacceptable applications is performed; and once considered complete, 
it is assigned to a processing division. 

Application screening. After an application is determined to be 
complete, it is assigned to the applicable Ex-Im division that 
oversees the type of transaction. For example, an application for the 
purchase of an aircraft would be assigned to the Transportation 
Division. Once assigned, a loan officer in that division is to assess 
the eligibility of the transaction, including eligibility of the 
export item, additionality,[Footnote 16] and eligibility of the 
country where goods are to be shipped. To ensure compliance with laws 
and regulations, the loan officer is to obtain and assess various 
certifications from transaction participants, such as Iran Sanctions 
Certifications[Footnote 17] and antilobbying statements.[Footnote 18] 
Loan officers are also required to submit the corporate and individual 
names and addresses of lenders, borrowers, guarantors, and other 
transaction participants to the Ex-Im Library. Library staff are then 
to conduct a Character, Reputational, and Transaction Integrity review-
-a procedure designed to, among other things, provide due diligence 
over various risks and to help prevent fraud by checking loan 
participants' information with approximately 20 databases. Databases 
include various U.S. government and international debarment and 
sanction lists, as well as lists maintained by international financial 
institutions, the World Bank, and the Inter-American Development Bank. 
These lists contain the names and addresses of individuals and 
organizations that have been debarred or placed on a sanctions list by 
major international financial institutions because of their 
involvement in irregular, fraudulent, or corrupt acts. 

Risk assessment and due diligence. Once the transaction meets minimum 
eligibility requirements for Ex-Im support, the loan officer performs 
a series of due diligence activities to determine (1) whether the 
transaction provides a reasonable assurance of repayment, (2) any 
potential material issues regarding the transaction or the 
participants that could preclude Ex-Im support or affect the material 
terms of the proposed transaction, and (3) the appropriate risk level 
and pricing for the transaction. As part of the financial evaluation 
of the transaction, the loan officer obtains and analyzes the 
borrower's audited financial statements, credit reports[Footnote 19] 
or rating agency reports, financial projections, and other relevant 
information. A credit report is generally required for medium-and long-
term loan guarantee transactions, except when the primary source of 
repayment is another government or a financial institution. If there 
are any exceptions to credit information requirements, credit 
standards, or Ex-Im policy, the loan officer is required to document 
the rationale for exceptional treatment. As needed, the loan officer 
obtains input from other Ex-Im staff, such as attorneys, economists, 
or engineers, to reach a conclusion regarding the legal, technical, or 
country risks and the level of environmental or social impacts of the 
proposed transaction. In addition, Ex-Im may utilize external 
financial, legal, and technical advisors to assist in the due 
diligence process. With the assistance from these other Ex-Im staff 
and external advisors, as needed, the loan officer is in a position to 
confirm the eligibility of exports for financing and the eligibility 
of the U.S. and foreign content included in the transaction.[Footnote 
20] Ex-Im has established detailed policy on the amount of foreign 
content it will finance. Based on this due diligence, the loan officer 
is to assess the transaction for risk and assign an overall risk 
rating to the transaction. This rating is used, in part, to determine 
the exposure fee Ex-Im will charge the borrower for guaranteeing the 
transaction. Greater risks result in higher fees. 

Credit structure. After the risk assessment and due diligence is 
performed, the loan officer determines the financing terms and 
conditions to be recommended. The loan officer is generally required 
to structure the transaction to include a security interest 
(collateral) in the financed goods or other assets of the borrower. If 
it is determined that collateral is not necessary, the loan officer is 
to document the explanation and other mitigating factors to indicate 
this is acceptable to Ex-Im (e.g., Ex-Im support is small relative to 
borrower's size). For all aircraft transactions, the loan officer is 
required to perform an assessment and loan-to-value analysis of the 
collateral,[Footnote 21] and the financing terms must include 
requirements for the borrower to maintain the ownership and condition 
of collateral. 

Credit decision. The loan officer is to document the due diligence 
performed, including any analyses performed by external advisors, in a 
credit or board memo, which also contains the loan officer's 
recommendation to approve or decline the transaction. These memos and 
applicable supporting documentation are then to be forwarded to the 
approving party. The credit memo applicable to working capital or 
medium-term transactions is to be provided to Ex-Im officials with 
individual delegated authority to approve transactions of $10 million 
and under.[Footnote 22] Board memos for long-term transactions or 
transactions greater than $10 million or those within certain 
sensitive sectors (e.g., steel) are to be presented to the Ex-Im Board 
of Directors for consideration and approval. 

Underwriting Delegated-Authority Transactions: 

When the underwriting and credit decision is delegated to preapproved 
lenders, Ex-Im does not perform the underwriting procedures. However, 
Ex-Im's established procedures call for delegated authority lender 
examinations to be performed at least annually to assess lenders' 
compliance with Ex-Im's underwriting standards. To conduct these 
examinations, an Ex-Im examiner selects a sample of the lender's 
outstanding Ex-Im guaranteed loans to analyze.[Footnote 23] The 
examiner is to assess the lender's credit underwriting practices to 
ensure they meet Ex-Im's requirements and include due diligence and 
financial analyses. The examiner is required to review a loan's 
application, authorization notice, credit memo, and loan agreement. 
Any exceptions to Ex-Im standards are to be noted in the examination 
report. Based on the seriousness of any exception(s), the lender 
receives either a Pass, Pass with Qualification, or Fail rating. Pass 
ratings indicate substantial compliance with only minor weaknesses; 
Pass with Qualification indicates overall adequate compliance except 
within a limited area of concern; Fail indicates a lack of compliance. 
A Pass with Qualification rating requires subsequent corrective 
action, while a Fail rating requires immediate suspension of delegated 
authority. 

Management of Loan Guarantee Programs: 

Government-wide guidance for federal agencies to follow for the 
management and operation of a loan guarantee program include the 
following: 

* OMB Circular No. A-129, Policies for Federal Credit Programs and Non-
Tax Receivables, revised in January 2013, prescribes policies and 
procedures for designing and managing federal credit programs, 
including requirements for applicant screening, assessing 
creditworthiness, loan documentation, and collateral. 

* Treasury's Bureau of the Fiscal Service's Managing Federal 
Receivables provides federal agencies with a general overview of 
standards, guidance, and procedures for successful management of 
credit activities, including requirements for evaluating and 
documenting loan applications. 

Underwriting Guidance Was Established, but It Did Not Reasonably 
Assure Consistent Implementation and Compliance with Certain 
Requirements: 

The Manual, which describes Ex-Im's loan guarantee underwriting 
procedures, provided a framework for Ex-Im officials to implement Ex-
Im's underwriting process requirements for loan guarantee 
transactions, and Ex-Im implemented many key aspects of its 
underwriting process as required by the Manual. For example, Ex-Im 
consistently documented (1) transaction participant information, (2) 
due diligence over borrower creditworthiness and eligibility of costs, 
(3) loan guarantee terms and conditions, and (4) loan guarantee 
transaction approvals. However, the Manual did not adequately address 
the underwriting process in the following four areas: (1) application 
screening, (2) risk assessment and due diligence, (3) credit 
structure, and (4) credit decision. Specifically, the Manual did not 
include certain procedures that should be performed, or sufficiently 
detailed instructions on how certain procedures should be performed 
and documented, to reasonably assure compliance with Ex-Im's 
requirements and consistency with federal guidance prior to loan 
guarantee approval. Further, Ex-Im did not have mechanisms to verify 
compliance with certain established procedures related to loan 
guarantee transactions prior to approval. In addition, while Ex-Im's 
process for scheduling its delegated authority lender examinations was 
consistent with federal guidance, it was not documented or consistent 
with its established procedures. 

Certain Application Screening Procedures Were Not Fully Consistent 
with Federal Guidance or Consistently Implemented: 

Ex-Im's Manual generally provided loan officers guidance to screen 
application documentation and verify that loan guarantee transactions 
met certain eligibility criteria consistent with federal guidance. 
However, the Manual did not address the federal requirement that 
applicants must not be delinquent on federal debt to be eligible for 
financing. Further, the Manual did not include mechanisms to verify 
that certain application screening procedures were documented prior to 
loan guarantee approval, such as obtaining credit reports and 
documenting certain other eligibility procedures. 

Application Screening Documentation: 

We estimated that Ex-Im documented transaction participants, such as 
the applicant, borrower, guarantor, buyer, lender, end user, exporter, 
supplier, and guaranteed lender, for 100 percent of the medium-and 
long-term loan guarantee transactions.[Footnote 24] In addition, Ex-Im 
generally obtained from applicants and documented in the loan files 
the antilobbying statements, environmental screening documents, and 
Iran Sanctions Certifications, where applicable. 

Delinquent Federal Debt: 

While Ex-Im's loan guarantee applications require applicants to 
disclose if they are delinquent on federal debt, as required by OMB 
Circular No. A-129, Ex-Im's Manual did not include procedures for Ex-
Im to verify the information provided by the applicant as required by 
Treasury's Managing Federal Receivables. To determine whether an 
applicant is delinquent on federal debt, this federal guidance states 
that agencies are required to use credit reports as a screening tool 
and should use appropriate databases, such as the Department of 
Housing and Urban Development's Credit Alert Verification Reporting 
System or Treasury's Do Not Pay List, to identify delinquencies on 
federal debt.[Footnote 25] While Ex-Im's Character, Reputational, and 
Transaction Integrity review process called for transaction 
participants' information to be checked against various databases, it 
did not include the recommended databases that could identify 
delinquent federal debt of the transaction participants. Further, 
while Ex-Im's Manual required loan officers to obtain credit reports 
with applications for transactions with specific risks,[Footnote 26] 
the Manual did not state that the credit reports should be used to 
identify whether transaction applicants have delinquent federal debt. 
Having procedures and data to verify that transaction applicants are 
not delinquent on federal debt helps assure applicant eligibility is 
consistent with federal guidance. 

Credit Reports: 

Ex-Im did not consistently follow its established procedures for 
obtaining credit reports or did not document why the credit reports 
were not applicable. Specifically, we estimated that credit reports 
were not obtained, and Ex-Im did not document why they would not be 
applicable, for 61 percent of the medium-and long-term loan 
guarantees.[Footnote 27] Ex-Im officials told us that they did not 
always enforce the requirement to obtain credit reports because 
information in such reports could be stale or erroneous and did not 
heavily influence the overall eligibility determination. Additionally, 
loan officers told us that credit reports were not needed for aircraft 
transactions because of the extensive financial analyses performed 
during the underwriting of these transactions as well as the prior 
approvals of the applicants' creditworthiness for previous 
transactions.[Footnote 28] For example, Ex-Im officials indicated that 
on such large, longer-term financing, the applicant must provide 3 
years of audited financial statements, as well as a thorough 
explanation of its business plan. Ex-Im officials stated that a loan 
officer's due diligence provides information that is more extensive 
than that obtained through a review of a credit report. Nevertheless, 
Ex-Im did not have a mechanism to verify that credit reports were 
obtained in accordance with established procedures or that reasons for 
credit reports not being applicable were documented prior to loan 
guarantee approval. Obtaining credit reports for transaction 
participants, when available, could provide additional information to 
further enhance the loan officers' knowledge about the financial 
condition of the transaction borrower and the risk associated with the 
proposed transaction. 

Other Eligibility Procedures: 

Ex-Im loan officers did not consistently implement established 
procedures for documenting the determination of certain other 
eligibility related information for loan guarantee transactions. 

* Character, Reputational, and Transaction Integrity reviews. We 
estimated that Ex-Im documented its Character, Reputational, and 
Transaction Integrity reviews, including any identified issues and how 
they were resolved, as called for by Ex-Im's established procedures, 
for 100 percent of the working capital loan guarantees. However, we 
estimated that about 4 percent of the medium-and long-term loan 
guarantee transactions did not include all documentation related to 
these reviews being performed.[Footnote 29] 

* Export item eligibility and country eligibility. According to Ex-
Im's Manual, export item eligibility and country eligibility should be 
determined and documented during the loan guarantee application 
screening process as part of Ex-Im's minimum eligibility requirements. 
However, while loan files we reviewed documented the export item and 
country involved in the transaction, we estimated that 39 percent of 
the medium- and long-term loan guarantee transactions did not have 
specific statements regarding the determination of export item, and we 
estimated that 41 percent of the medium-and long-term loan guarantee 
transactions did not have specific statements regarding the 
determination of country eligibility.[Footnote 30] 

OMB Circular No. A-129 and Treasury's guidance state that agencies 
shall determine and document that applicants comply with statutory, 
regulatory, and administrative eligibility requirements. In addition, 
internal control standards require controls and transactions to be 
clearly documented and documentation to be readily available for 
examination.[Footnote 31] When we inquired about these eligibility 
documentation issues, loan officers indicated that the supporting 
documentation for the Character, Reputational, and Transaction 
Integrity review was not uploaded into the system for inclusion in the 
loan files, and based on their institutional knowledge of prior 
history with applicants, country eligibility, and export items, 
eligibility was clear and did not need to be documented. However, 
overreliance on this institutional knowledge could create 
inconsistencies in the underwriting process and could lead to 
transactions not being documented in accordance with established 
procedures. Further, when institutional knowledge is a part of the 
basis for loan guarantee approval, there is a risk that such knowledge 
could be lost if employee turnover takes place. Ex-Im did not have a 
mechanism in place to verify that these procedures related to 
eligibility requirements were performed and documented prior to loan 
guarantee approval. Consistently performing and documenting 
eligibility determinations helps ensure transaction and applicant 
eligibility. 

In September 2013, the IG reported, based on its review of Ex-Im's 
underwriting of direct loans, that Ex-Im lacked documented support for 
statements regarding additionality (the justification for Ex-Im 
support). We observed a similar issue during our review of a sample of 
working capital and medium-and long-term loan guarantee transactions. 
In its September 2013 report, the IG recommended that Ex-Im update 
procedures for loan officers to maintain detailed documentation 
regarding the need for Ex-Im support.[Footnote 32] Ex-Im agreed with 
the IG recommendation and stated that the Ex-Im Manual would be 
updated to require loan officers to maintain detailed documentation 
regarding the need for Ex-Im support. As of July 2014, Ex-Im had 
updated the Manual for verification procedures over additionality for 
long-term transactions and Ex-Im officials stated that they are 
considering ways to further document additionality statements for 
working capital and medium-term transactions. 

Ex-Im Performed Risk and Due Diligence Analyses, but Certain Necessary 
Steps Were Either Not Documented or Not Required: 

We estimated that Ex-Im documented 100 percent of its financial 
analysis of the applicants' creditworthiness, the eligibility of 
costs, the value of U.S. and foreign content, the budget-cost level, 
the engineering report, and environmental analyses, where applicable, 
for the working capital and medium-and long-term loan guarantee 
transactions.[Footnote 33] In addition, Ex-Im also documented in the 
loan files the economic impact analysis required by the Manual, where 
applicable.[Footnote 34] We also estimated that Ex-Im documented 100 
percent of its due diligence for country risk, sovereign risk, 
political risk, financial institution risk, and nonfinancial 
institution risk factors for medium-and long-term loan guarantee 
transactions.[Footnote 35] Further, for 19 out of 19 aircraft loan 
guarantee transactions that we reviewed, Ex-Im documented the credit 
and legal strengths, weaknesses, and uncertainties related to the 
proposed transaction. Moreover, for 11 out of 11 medium-term loan 
guarantee transactions in excess of $1 million that we reviewed, Ex-Im 
documented the transaction risk classification in the loan file, as 
required by the Manual. However, loan officers did not document the 
analysis of country exposure,[Footnote 36] as required by Ex-Im's 
established procedures, for an estimated 11 percent of the medium-and 
long-term loan guarantee transactions.[Footnote 37] 

Further, as noted above, credit reports were required for certain loan 
guarantee transactions. Also, Ex-Im's Manual called for loan officers 
to document any mitigating factors for issues identified during the 
risk assessment and due diligence process. However, the Manual did not 
include detailed instructions for loan officers to use information in 
credit reports to enhance their financial analysis of transaction 
participants' creditworthiness during the risk assessment and due 
diligence process. During our review of a sample of loan files, we 
noted that certain approved transaction participants' credit reports 
contained issues, such as outstanding liens and poor credit history, 
yet the loan files did not contain documentation that these issues 
were identified by the loan officers or how these issues were 
mitigated. We inquired with Ex-Im loan officers about how these issues 
were mitigated, and they provided reasonable explanations. 

OMB Circular No. A-129 states that loan origination files should 
contain credit reports and credit analyses. Further, internal control 
standards require that controls and transactions be clearly documented 
and documentation be readily available for examination.[Footnote 38] 
However, Ex-Im did not have a mechanism in place to verify that the 
country exposure and information in credit reports were considered and 
documented during the risk assessment and due diligence process prior 
to loan guarantee approval. Ex-Im officials stated that the Credit 
Review and Compliance Division (CRC) directly monitors loan guarantee 
transactions by selecting and reviewing a random sample of loan 
guarantee transactions for compliance with Ex-Im's established 
procedures. However, these reviews occur after the loan guarantees 
have been approved by Ex-Im and the funds have been disbursed by the 
lenders. Consistently performing and documenting reviews and key 
decisions related to risk assessments and due diligence helps ensure 
that Ex-Im's financing is provided to applicants representing 
reasonable assurance of repayment. 

To be eligible for Ex-Im financing, exported goods and services must 
meet Ex-Im's content requirements intended to ensure that U.S. jobs 
benefit from Ex-Im programs. In December 2013, the Ex-Im IG reported 
that only long-term loan guarantee transactions were subjected to 
procedures that could identify content-related discrepancies.[Footnote 
39] Further, the IG reported that because of the lack of verification 
efforts and identified concerns regarding exporter certifications of 
content value, Ex-Im had limited assurance that content requirements 
are met and therefore that (1) Ex-Im finances only eligible exports 
and (2) its financing activities effectively achieve the agency's 
mission of maintaining or increasing U.S. employment. The IG also 
noted that Ex-Im relied on criminal penalty warnings to deter 
exporters from making false statements instead of confirming foreign 
and domestic content for working capital and medium-term transactions. 
We also found that Ex-Im relied on exporter self-certifications of 
each export's foreign and U.S. content information when performing its 
due diligence process for working capital and medium-term loan 
guarantee transactions. In its December 2013 report, the IG 
recommended that Ex-Im implement procedures to verify the accuracy of 
exporter self-certifications of content information for a 
representative sample of transactions each fiscal year. Ex-Im agreed 
with the recommendation, and in June 2014, procedures to verify a 
representative sample of exporters' self-certifications each fiscal 
year were approved for use. Ex-Im officials stated that they are now 
in the process of implementing the procedures. 

Ex-Im Documented Credit Structure Terms and Conditions, but Certain 
Collateral Requirements Were Not Consistent with Federal Guidance: 

Generally, Ex-Im's Manual provided loan officers with detailed 
guidance for determining and documenting key credit structure 
components--financing terms and conditions, including collateral 
requirements--of a loan guarantee transaction. We estimated that Ex-Im 
implemented established procedures and documented 100 percent of 
certain credit structure components of the loan guarantee 
transactions, such as transaction participants, financed amount, 
repayment terms, and exposure fee.[Footnote 40] In addition, while Ex-
Im generally identified collateral associated with its transactions, 
it did not consistently document an assessment of collateral prior to 
loan guarantee approval. Specifically, Ex-Im's established procedures 
for nonaircraft medium-and long-term loan guarantees did not call for 
assessments of collateral prior to approval of the transactions as 
recommended by federal guidance, including OMB Circular No. A-129. We 
estimated that 37 percent of the medium-and long-term loan guarantee 
transactions did not have documentation to show that the identified 
collateral was assessed prior to loan guarantee approval.[Footnote 41] 

As stated in OMB Circular No. A-129, the government can reduce its 
risk of default and potential losses through well-managed collateral 
requirements for many types of loans during the application screening 
process. Collateral requirements were clearly defined in Ex-Im's 
Manual for aircraft and working capital loan guarantee transactions, 
but these requirements were not clearly defined in Ex-Im's Manual for 
nonaircraft medium-and long-term loan guarantee transactions. For 
example, procedures specific to aircraft transactions require an 
analysis of collateral and require that the ownership and condition of 
the collateral be maintained. Ex-Im documented detailed assessments of 
collateral for all long-term aircraft transactions we reviewed. 
Further, the procedures specific to working capital loan guarantee 
transactions state that the transactions must be fully collateralized 
at all times. The collateral for these transactions typically consists 
of export-related inventory, export-related accounts receivable, and 
export-related general intangibles. 

In February 2014, Ex-Im updated its procedures for collateral 
requirements. This additional guidance contained more details related 
to the identification of collateral; however, it did not include steps 
for an assessment of collateral as recommended by federal guidance. Ex-
Im officials stated that lenders are usually required to provide 
evidence of obtained collateral in financed goods, which is to be 
reviewed by Ex-Im staff. However, this documentation was not 
maintained with underwriting documents, and loan officers generally 
told us that they did not rely on collateral during the underwriting 
process because it contributes to recoveries in the event of a default 
rather than to determining the reasonable assurance of repayment. 
Further, Ex-Im officials stated that since collateral is often 
negotiated and documented after loan approval, it may not be possible 
to assess collateral prior to approval. Ex-Im officials stated that 
the loan guarantees (including collateral) are monitored by Ex-Im's 
Asset Management Division (AMD) once the loan guarantees become 
operative (approved by Ex-Im). However, having procedures for 
documenting an assessment of collateral prior to loan guarantee 
approval helps in the assessment of the overall financial risk of the 
proposed loan guarantee transaction. 

Approvals Were Documented, but Some Credit Decisions Were Made without 
Ensuring Loan Documentation Completeness: 

Ex-Im's Manual described the tasks that need to be performed during 
the underwriting process and included credit memo templates to support 
a decision for various types of guarantees. However, the Manual did 
not include detailed instructions for preparation and inclusion of all 
required documents or analyses in a loan file prior to loan guarantee 
approval. 

We estimated that Ex-Im documented the approvals of 100 percent of all 
loan guarantee transactions with signatures on various loan guarantee 
documents.[Footnote 42] In addition, when lenders with delegated 
authority performed the underwriting for working capital loan 
guarantee transactions, we estimated that Ex-Im officials completed 
and signed the delegated authority checklist for 100 percent of the 
transactions.[Footnote 43] These checklists included transaction 
information such as the lender, borrower, loan amount, type of 
facility, letters of credit, warranties, disbursement date, primary 
and secondary collateral, and the terms of the loan. Although Ex-Im's 
Manual described the tasks that needed to be performed during the 
underwriting process, it was not clear as to what documentation needed 
to be included in the loan file or when certain documentation was not 
required. Both OMB Circular No. A-129 and Treasury guidance state that 
loan origination files should contain loan applications, credit 
reports, credit analyses, loan contracts, and other documents 
necessary to conform to private sector standards for that type of 
loan. In addition, internal control standards state that all 
transactions and other significant events need to be clearly 
documented, and the documentation should be readily available for 
examination. Further, the standards state that all documentation and 
records should be properly managed and maintained.[Footnote 44] 
Detailed instructions help to reasonably assure that complete 
documentation is included in the loan file prior to loan guarantee 
approval, providing further support for the final credit decision. 

In September 2013, the IG reported on Ex-Im's underwriting of direct 
loans and found that loan officers did not always complete various 
checklists intended to reasonably assure that (1) all required 
commitment documents are obtained prior to loan guarantee approval, 
(2) borrowers are eligible, and (3) loan applications are complete and 
comply with Ex-Im credit policies and standards.[Footnote 45] The IG 
found that loan officers generally relied on their institutional 
knowledge of Ex-Im operations when underwriting loans. We found a 
similar condition with regard to the underwriting of loan guarantee 
transactions. In its September 2013 report, the IG recommended that Ex-
Im develop a systematic quality control review program or other 
mechanism(s) necessary to prevent, detect, and correct Ex-Im staff 
noncompliance with federal and agency credit program policy. Ex-Im 
agreed with the recommendation and stated that it would expand the 
scope of postauthorization reviews to assess compliance with federal 
and Ex-Im credit program policies. As of July 2014, Ex-Im had updated 
the Manual to include transaction assessments that call for 
standardized audits to evaluate transaction compliance with federal 
and Ex-Im credit program policies. 

In its September 2013 report, the IG also noted that Ex-Im's record-
keeping practices were inadequate.[Footnote 46] The IG noted that 
while the stated goal of Ex-Im's Records Management Policy is the 
efficient and effective management of records and access, it did not 
address "how, where and by whom" loan documentation is to be 
maintained. Examples included records maintained by various 
individuals and divisions, requested files that could not be easily 
located, and disagreement on when and what files were to be 
transferred to Ex-Im's central records facility. The IG noted that the 
lack of access to certain files hindered its ability to assess Ex-Im's 
operations. We were similarly hindered in our testing of loan 
guarantee transactions. For example, we estimate that in 57 percent of 
the medium-and long-term loan guarantee transactions, all loan 
documentation was not kept in the loan file.[Footnote 47] In its 
September 2013 report, the IG recommended that Ex-Im evaluate its 
record-keeping practices to identify operational risks and to develop 
and implement a plan to address deficiencies. Ex-Im agreed with the 
recommendation and stated that it would evaluate its record-keeping 
practices and implement improvements in this area to address any 
deficiencies and operational risks. As of July 2014, Ex-Im officials 
stated that Ex-Im is in the process of developing an electronic 
application to address this recommendation. 

Process for Scheduling Delegated Authority Lender Examinations Was 
Consistent with Federal Guidance but Was Not Documented: 

Ex-Im used a risk-based approach to schedule delegated authority 
lender examinations to verify that approvals made under delegated 
authority were done according to Ex-Im standards. However, this risk-
based approach for scheduling these examinations was not documented. 
Ex-Im's written procedures require examinations of its delegated 
authority lenders for working capital guarantee transactions at least 
yearly or more frequently if follow-up examinations are required to 
verify that corrective action is taken by the lender on any weaknesses 
found during the annual examination. However, Ex-Im officials stated 
that because of a lack of needed staff and resources, Ex-Im was using 
a risk-based approach to schedule the examinations, which was in 
accordance with OMB Circular No. A-129. Under this risk-based 
approach, lenders with less risk and less volume may have their 
examinations extended past the 12-month period. For example, for the 
18 lenders that approved working capital loan guarantees in our 
review, Ex-Im performed annual examinations for 4 lenders, performed 
less frequent examinations for 12 lenders, and did not perform 
examinations for 2 of the lenders. Internal control standards call for 
internal controls to be clearly documented.[Footnote 48] Documenting 
the risk-based approach helps ensure consistent scheduling of the 
delegated authority lender examinations. 

While Ex-Im Has Taken Steps to Prevent, Detect, and Investigate Fraud, 
It Has Not Documented Its Overall Fraud Processes: 

While Ex-Im has taken steps to prevent, detect, and investigate fraud 
and officials could describe the steps they use, Ex-Im has not 
documented its overall fraud process, which is recommended by several 
authoritative auditing and antifraud organizations as a key step in 
evaluating and updating these processes. According to Ex-Im officials, 
the underwriting process is essential to helping to prevent fraud 
because Ex-Im loan officers undertake a series of assessments to 
evaluate transaction risk.[Footnote 49] Detecting fraud is a potential 
outcome of the processes Ex-Im uses to monitor guaranteed loans as 
well as the steps it uses in its claims and recoveries process once a 
loan defaults. Lenders also play a role in detecting fraud and are 
required to communicate information to Ex-Im about significant changes 
in the risk of a loan guarantee. When Ex-Im employees suspect fraud in 
a loan guarantee, they are to contact Ex-Im's General Counsel (GC) or 
the IG with these concerns.[Footnote 50] Ex-Im's GC compiles relevant 
information and evidence from sources within Ex-Im and, as 
appropriate, makes a formal referral to the IG, which is responsible 
for investigating allegations of potential fraud in Ex-Im's portfolio 
of loan guarantees (see figure 6 for an overview of Ex-Im's fraud 
prevention, detection, and investigation processes). 

Figure 6: Overview of Export-Import Bank's Fraud Prevention, 
Detection, and Investigation Process: 

[Refer to PDF for image: illustration] 

Fraud prevention, detection, and investigation process: 
The process the Export-Import Bank (Ex-Im) uses to prevent, detect, 
and investigate fraud is generally part of its larger framework of 
underwriting and monitoring active loan guarantees. 

Lenders: (Prevention); 
With delegated authority conduct underwriting due diligence (report to 
Ex-Im). 

Lenders: (Detection); 
Who have Ex-Im loan guarantees may detect potential fraud as they 
monitor active loans (report to Ex-Im). 

Fraud awareness training to Ex-Im: 

Ex-Im divisions: 

Ex-Im's underwriting process (Prevention); 
Includes due diligence, such as checking debarment and sanctions 
watchlists. 

Ex-Im sections: (Detection); 
Monitor active loan guarantees and may detect fraud. 

Any Ex-Im staff: (Detection); 
Can report reasonable suspicion of fraud or other criminality. 

General Counsel: (Detection); 
Obtains information on suspicious activity and potential fraud. 

General Counsel: Formal referrals sent for review to Inspector General; 
Ongoing communication between General Counsel and Inspector General. 

Inspector General: (Investigation); 
Investigates fraud when there are reasonable suspicions. 

Source: GAO analysis of Ex-Im information. GAO-14-574. 

[End of figure] 

Ex-Im Has Not Documented Its Overall Fraud Process: 

Ex-Im has not documented its overall process for fraud prevention, 
detection, and investigation, including mapping out the respective 
roles and responsibilities of Ex-Im divisions and lenders that are key 
participants in Ex-Im's efforts in these areas. Auditing and antifraud 
organizations recommend documenting an organization's fraud policy in 
part because clearly defined roles and responsibilities help an 
organization more coherently respond to the risk of fraud.[Footnote 
51] In addition, according to these organizations, documenting an 
overall antifraud policy is also a key step in enabling an agency to 
evaluate and test its antifraud processes for effectiveness and to 
update these processes as appropriate. Furthermore, if an organization 
publicly communicates certain aspects of its fraud detection policy, 
it can create a deterrent effect. Likewise, internal control standards 
call for internal controls to be clearly documented and communicated 
to employees.[Footnote 52] 

As shown in figure 6 and discussed below, Ex-Im uses a variety of 
organizational divisions in its efforts to prevent, detect, and 
investigate fraud, as well as lenders and the IG. Ex-Im officials told 
us that Ex-Im had not yet documented its overall approach to fraud, 
including clearly describing the processes and roles and 
responsibilities of divisions within Ex-Im. These officials explained 
that after a large fraud scheme involving the San Antonio Trade Group 
was uncovered in 2008,[Footnote 53] Ex-Im focused on improving 
awareness of fraud across all of the divisions in Ex-Im so that its 
staff developed and exercised professional skepticism to stay aware of 
fraud indicators. Creating a strong control environment in which staff 
are aware of and committed to fraud prevention and detection is a best 
practice recommended by audit and fraud examination associations. 
Documenting the antifraud process, including the respective roles and 
responsibilities of various organizational units involved in the 
process, helps to create a sound control environment and to update the 
approach based on changes in technology, processes, and organization. 
In addition, documenting the roles and responsibilities of the 
organizational units helps to identify aspects of the process that 
could be strengthened. 

Ex-Im Considers Its Underwriting Process Essential to Helping Prevent 
Fraudulent Applications from Being Approved: 

A key principle in any organization's approach to proactively managing 
fraud risk is to develop effective fraud prevention techniques because 
preventing dollars from being paid fraudulently is more effective and 
efficient than attempting to recover these dollars once they have been 
paid.[Footnote 54] Ex-Im officials indicated that the underwriting 
process is essential to helping to prevent fraud because Ex-Im loan 
officers undertake a series of assessments to evaluate risk and 
identify potential fraud indicators by reviewing financial, legal, and 
other documentation on key parties to a proposed loan guarantee. (See 
figure 7 for an overview of fraud prevention processes.) Because the 
underwriting process involves loan officers reviewing applicant 
documentation, Ex-Im officials stated that the loan officers sometimes 
prevent fraudulent applications from being approved when they identify 
falsified documentation. For example, in one case, an Ex-Im loan 
officer noticed that the signatures on a new application were 
identical to the signatures on a previous application as were the 
submitted financials (for instance, the amount of reported rent was 
identical to that on a previous application). Ex-Im officials stated 
that if issues are identified during underwriting, the primary 
recourse is to deny the application, but loan officers can also report 
the problem to Ex-Im's GC for further review and follow-up or to the 
IG for investigation. 

Figure 7: Overview of Export-Import Bank's Fraud Prevention Process: 

[Refer to PDF for image: illustration] 

Fraud prevention process: 
The underwriting process is essential to helping prevent fraud. This 
process involves Export-Import Bank (Ex-Im) loan officers undertaking 
a series of assessments to evaluate risk and identify potential fraud 
indicators by reviewing financial, legal, and other information on key 
parties to the loan guarantee. 

Fraud training: 

Ex-Im divisions: 

Underwriting process: 
Ex-Im conducts due diligence, including checking debarment and 
sanctions watchlists. 

Ex-Im oversight: 
Ex-Im oversees lender underwriting and due diligence practices: 
Lenders oversight (not an Ex-Im division): Lenders with delegated 
authority conduct underwriting due diligence. 

Both of the above: Detect potential fraudulent application. 

Deny application. 

Refer to Inspector General for investigations as appropriate. 

Source: GAO analysis of Ex-Im information. GAO-14-574. 

[End of figure] 

In addition to loan officers identifying potentially falsified 
documentation, Ex-Im officials identified the following aspects of the 
underwriting process as contributing more directly to fraud 
prevention. As noted earlier, however, we identified issues in some of 
these areas that could limit the effect these areas have on the 
overall fraud prevention process. 

* Character reviews of key parties to the transaction: Ex-Im's 
Character, Reputational, and Transaction Integrity review is designed 
to identify, among other things, potential risks related to the 
possibility that parties to the transaction are not legitimate or have 
been involved with fraud, corruption, or other suspect practices. 
Before recommending approval of a loan guarantee, loan officers are 
required to submit the corporate and individual names and addresses of 
lenders, borrowers, guarantors, and other transaction participants to 
the Ex-Im Library. As noted earlier, library staff search a series of 
20 databases that include various U.S. government and international 
debarment and sanction lists for any red flags. This practice is 
similar to searching major international financial institutions' 
debarment lists--an approach recommended by the Organisation for 
Economic Co-operation and Development for export credit agencies. 
[Footnote 55] 

* Credit review: Once a transaction is considered eligible for Ex-Im 
support, the loan officer reviews the creditworthiness of the 
borrowers involved in the proposed loan guarantee transaction, which 
can help prevent opportunities for fraud, according to Ex-Im officials. 

* Collateral requirements: Ex-Im requires collateral for medium-term 
loan guarantee transactions, which officials told us was in response 
to higher levels of fraud in this type of loan guarantee. Since this 
requirement was introduced, officials told us they have seen a 
decrease in the frequency of fraud within medium-term loan guarantee 
transactions, which they believe can be attributed at least in part to 
the collateral requirements. 

* Oversight of delegated authority lenders: Since Ex-Im does not 
perform underwriting for loan guarantees that fall under delegated 
authority, Ex-Im's fraud prevention activities rely on the delegated 
authority lenders and Ex-Im's oversight of these lenders. Ex-Im 
accomplishes this oversight through the delegated authority lender 
examinations. 

* Fraud awareness training: In accordance with best practices from 
auditing and antifraud organizations, having a strong training program 
is another element of an effective fraud prevention strategy.[Footnote 
56] Ex-Im officials reported providing fraud training to their staff 
using several different sources. Officials stated that the IG 
generally conducts fraud training for Ex-Im staff about every 18 
months. For example, officials reported that the IG provided fraud 
awareness training to Ex-Im's AMD in November 2013 on lessons learned 
through fraud investigations, money laundering trends, and economic 
and trade finance schemes. Ex-Im also leverages its internal knowledge 
of fraud by having its CRC provide agency-wide training on fraud 
tricks to be aware of. It also supplemented the training with a fraud 
tips and tricks memo--which lists common fraud indicators and their 
potential significance--that it provided to Ex-Im staff. Ex-Im staff 
also told us that a vendor was awarded a 5-year contract to offer 
formalized fraud training to include two classes each year for Ex-Im 
staff. This training occurred in January and June 2014. 

Ex-Im's Processes to Monitor Risk and Collect Claims Have Occasionally 
Detected Fraud: 

Ex-Im's fraud detection process is a part of its overall monitoring of 
risk in its loan guarantee portfolio and the steps it uses during its 
claims and recovery process (see figure 8). 

Figure 8: Overview of Export-Import Bank's Fraud Detection Process: 

[Refer to PDF for image: illustration] 

Fraud detection process: 

Ex-Im divisions and offices: 

Monitors risk in loan guarantees: 

Claims and Recovery Group: 
May detect potential fraud as it explores reasons for a default from a 
failed loan guarantee. 

Asset Management Division: 
Monitors loan guarantees and may uncover indicators of potential fraud. 

Credit Review and Compliance Division: 
May detect potential fraud through compliance reviews of randomly 
selected loan guarantees. 

Other Ex-Im groups responsible for monitoring active loan guarantees 
may detect potential fraud. 

Ex-Im Fraud Hotline: Identify anomalies and red flags for fraud. 

All: Identify anomalies and red flags for fraud. 

General Counsel: 
Obtains information from groups within Ex-Im on suspicious activity 
and potential fraud. 

Lenders: (Not an Ex-Im division); 
That have Ex-Im loan guarantees may also detect potential fraud as 
they monitor active loans; 
Identify anomalies and red flags for fraud; 
Report to Ex-Im. 

General Counsel: 
Identify anomalies and red flags for fraud. 

IG monitors risk: 
Identify anomalies and red flags for fraud. 

Refer to Inspector General (IG) for investigations. 

Source: GAO analysis of Ex-Im information. GAO-14-574. 

[End of figure] 

Monitoring Risk in Its Portfolio: 

Ex-Im officials stated that once a loan guarantee is active, they use 
the following processes to monitor risk in Ex-Im's portfolio and that 
these risk monitoring processes sometimes help officials detect fraud. 
[Footnote 57] 

* Ex-Im's CRC directly monitors loan guarantee transactions by 
selecting and reviewing a random sample of loan guarantee transactions 
for compliance with internal Ex-Im policies and procedures and ensures 
that the transactions occurred as outlined in the terms of the loans. 
According to Ex-Im officials, these reviews occur after the guarantees 
have been approved by Ex-Im and the funds have been disbursed by the 
lenders. Officials stated that these reviews have the potential to 
uncover irregularities and indicators of potential fraud--such as 
goods not being delivered or inappropriate documentation--which would 
result in staff communicating their concerns to Ex-Im's GC or making a 
referral to the IG for further investigation. 

* Ex-Im's AMD monitors the credit and restructuring of medium-and long-
term loan guarantees by annually reviewing each loan guarantee to 
determine if any changes in the risk rating are necessary. Officials 
stated that this review can create an opportunity to detect potential 
fraud.[Footnote 58] According to Ex-Im's IG, which tracks the sources 
of referrals it receives, AMD has referred 64 cases of potential fraud 
to the IG for investigation since 2007. 

Reporting Requirements for Lenders: 

Ex-Im also tracks the status and probability of repayment of the loans 
it guarantees through lender reporting requirements, which Ex-Im 
officials noted provide another mechanism for Ex-Im to possibly detect 
fraud. Lender reporting requirements are outlined in the terms of a 
Master Guarantee Agreement--a document signed by Ex-Im and the lender 
to describe the responsibilities of each party. Specifically, lenders 
are required to inform Ex-Im of "material changes" in a guaranteed 
loan, meaning any changes a lender reasonably determines could 
materially and adversely affect the borrower's ability to repay its 
debt, and that can stem from a poor business climate or potential 
fraud. For example, one lender contacted Ex-Im officials when a random 
audit, which the lender performed in 2006 as part of its own 
monitoring activities, found suspicious invoices for the sale of over 
$1 million of heavy equipment. Specifically, the lender found that an 
exporter provided false bills of lading--including one on which the 
vessel listed had never traveled to the port indicated. Also, the 
buyers listed on the false bills of lading claimed they never placed 
orders for the equipment. According to IG officials, this case was 
investigated by the IG, and in 2010, the owner of the export company 
was convicted of mail fraud. 

In addition, lenders indicated that they communicate with Ex-Im about 
changes to a loan guarantee that did not constitute material changes 
but represent causes for concern. For example, officials from one 
lender informed Ex-Im when they learned that an equipment company 
appeared to have a partial ownership in the exporter that the 
equipment company used to ship its product--a situation that can 
facilitate collusion by producing false shipping documents for 
products that were paid for through an Ex-Im guaranteed loan but were 
never actually shipped. 

Claims and Recovery Process: 

When a guaranteed loan defaults, the guaranteed lender or exporter 
will typically file a claim with Ex-Im. As part of the claims process, 
Ex-Im's Claims and Recovery Group typically drafts and sends a "demand 
for payment" letter to the delinquent borrower, and these letters 
sometimes elicit suspicious responses that may indicate defaults 
because of fraud. For instance, in response to a demand for payment 
letter, a borrower disputed Ex-Im's claim and provided documentation 
that it had made timely payment to the lender through a wire transfer. 
Claims officials also discovered that the exporter had submitted three 
other claims for reimbursement to Ex-Im around the same time. Given 
the payment made by the buyer, Ex-Im officials concluded it was likely 
that the exporter submitted a fraudulent claim to Ex-Im and referred 
the exporter to Ex-Im's IG for further investigation, which was 
ongoing as of July 2014. 

Ex-Im officials stated that the recovery process, in which Ex-Im 
determines the best options for maximizing the amount the defaulted 
party repays the lender, is the most common way that Ex-Im detects 
fraud. Because the recovery process involves activities such as 
physical reviews of the borrower's assets and recovery officials going 
on-site to meet with the parties involved with the transaction, Ex-Im 
officials said that this process provides the most definitive 
opportunities to uncover discrepancies that indicate fraud. For 
example, in one case Ex-Im's recovery officials determined that the 
exporter and buyer of a defaulted loan guarantee were family members 
and business-related documentation showed a likely relationship 
between the companies, such as having the same address for the 
borrower and exporter on bills of lading and websites. 

Monitoring Trends and Patterns: 

Ex-Im officials stated that the Claims and Recovery Group observes 
trends and patterns in claims that can aid Ex-Im in detecting fraud. 
For example, Claims and Recovery staff may observe a concentration of 
claims by certain buyers, exporters, or lenders or in certain 
geographic areas and industries (e.g., farming equipment, energy 
projects, or agricultural products such as seed). Officials described 
two instances in which country-based fraud patterns were identified by 
their staff. In the first instance, the staff reviewing claims 
realized that there was an increase in claims from the Philippines. 
Officials noted that the pattern was not immediately apparent because 
a number of different parties were involved in the claims but they 
considered the increase in claims from a single country to be a 
potential fraud indicator, and claims staff referred these claims to 
Ex-Im's GC for investigation. In another case, claims staff noticed a 
spike in claims from a single lender for loans to buyers in a single 
country. Further review by staff from CRC uncovered other anomalies 
involving this lender. The reviews by both claims staff and CRC led to 
uncovering a fraud scheme involving the lender's staff in that foreign 
country. 

Role of Ex-Im General Counsel: 

According to Ex-Im officials, Ex-Im's GC plays a role in fraud 
detection by collecting additional information on fraud concerns 
reported to GC by Ex-Im staff and developing formal referrals to Ex-
Im's IG when additional information indicates that such action is 
warranted.[Footnote 59] GC officials explained that if a preliminary 
assessment suggests that a crime may have occurred, they will make a 
formal referral to the IG. If the concerns do not rise to that level, 
GC will make an informal referral to share information with the IG. 
According to the IG, since 2007, Ex-Im's GC has made 104 referrals for 
investigation to the IG of information that Ex-Im employees believed 
indicated potential fraud. 

When a Loan Guarantee Defaults and Fraud Is Suspected, Ex-Im Refers 
the Case for Investigation: 

If Ex-Im staff determined that fraud may be the underlying cause of a 
default, Ex-Im can work with the IG to leverage the IG's investigative 
resources to pursue involved parties (see figure 9).[Footnote 60] 
According to Ex-Im officials, determining whether a default occurred 
because of fraud can be complex--there is no single formula for 
determining whether a guaranteed loan defaulted because of fraud or 
for another reason, and this determination can take time. IG officials 
stated that many of the guaranteed loans that defaulted because of 
fraud may not be flagged until 6 months after a loan was disbursed, 
depending on the terms of the loan, because some loans do not require 
an initial payment for 6 months or longer. In addition, IG officials 
stated that sometimes parties that obtained financing through 
fraudulent means that were not detected during the underwriting 
process will actually make an initial payment or two in order to seem 
more legitimate and put additional time and space between them and a 
default and investigation. When a guaranteed loan defaults within 6 to 
12 months between the first advance and first payment in the loan 
term, Ex-Im officials said that they generally consider the default to 
be a potential fraud situation because it is less likely that a loan 
would make it through the underwriting process and be extended only to 
have its business condition deteriorate so quickly that it would 
default early in the life of the guaranteed loan. 

Figure 9: Overview of Export-Import Bank's Fraud Investigation Process: 

[Refer to PDF for image: illustration] 

Fraud investigation process: 
When a loan guarantee defaults or fraud is suspected, the Export-
Import Bank's (Ex-Im) policy is to refer the case for investigation. 
These referrals are evaluated and then either converted to 
investigations or closed. 

Inspector General: 
Responsible for investigating fraud when there are reasonable 
suspicions. 

Inspector General: 
Communicates information on investigations as appropriate, to 
strengthen Ex-Im fraud prevention and detection processes to Ex-Im 
division, General Counsel. 

Inspector General: 
Refers cases and accumulated evidence for criminal investigations to: 
Department of Justice; 
Department of Homeland Security; 
Other relevant law enforcement authorities. 

Source: GAO analysis of Ex-Im information. GAO-14-574. 

[End of figure] 

The IG receives information on potential fraud from several sources, 
including Ex-Im's GC, other Ex-Im staff, and its anonymous tip 
hotline. IG officials told us that information on potential fraud is 
initially processed in the IG's case management system as complaint 
evaluations, which are evaluated and then either converted to 
investigations or closed. The IG also stated that it partners with the 
Department of Homeland Security and other law enforcement agencies, 
such as Interpol, U.S. Customs and Border Protection, and the U.S. 
Marshals Service, to leverage their resources in investigations and 
refers investigative matters to other law enforcement agencies for 
further criminal investigation. Since its inception in 2007, the IG 
reported processing 325 complaint evaluations with over 120 of these 
resulting in investigations, and since January 2009, the IG reported 
obtaining 70 indictments, garnering approximately $224 million in 
criminal fines, forfeitures, and restitution and approximately $54 
million in direct repayments and cost savings to Ex-Im. 

When appropriate, the IG communicates information about potential 
fraud to GC to help broaden Ex-Im's awareness of parties and schemes 
that could make Ex-Im vulnerable to fraud. Since 2009, in 471 
instances the Ex-Im IG provided investigative information to Ex-Im's 
GC concerning potential fraud that the IG believed was appropriate for 
enhanced due diligence. For instance, according to a director in the 
Trade Finance Group, an individual applied for every form of financing 
Ex-Im offered and consistently supplied substantially incomplete 
documentation for the applications. The IG determined that the 
individual also applied for Ex-Im financing under a different 
company's name that the IG had flagged for concern. The IG provided 
this information to GC so that Ex-Im could conduct additional due 
diligence on the company to ensure that no potentially fraudulent 
applications had been approved. 

Conclusions: 

Ex-Im's Manual for underwriting provided a framework for loan officers 
to determine that only qualified applicants representing reasonable 
assurance of repayment were provided loan guarantees. While loan 
officers documented many key aspects of the underwriting process as 
required by the Manual, the process could be enhanced if certain 
procedures to be performed and sufficiently detailed instructions on 
how certain procedures should be performed and documented were 
included in the Manual. For example, the Manual did not include 
procedures for verifying that loan guarantee transaction applicants 
were not delinquent on federal debt, or for performing assessments of 
collateral for nonaircraft medium-and long-term loan guarantee 
transactions. In addition, mechanisms to oversee compliance with Ex-
Im's established procedures, including those related to documenting 
the determination of export item and country eligibility and 
documenting the analysis of country exposure, did not exist. 
Furthermore, while Ex-Im implemented a risk-based approach to 
delegated authority lender examinations, the approach was not 
documented. Improvements in these areas could help enhance the 
assessment of transaction participant eligibility and the reasonable 
assurance of repayment and the oversight of lenders, as well as help 
prevent fraud. 

Ex-Im also has not documented its overall process for preventing, 
detecting, and investigating fraud, including describing the roles and 
responsibilities of the divisions and officials within Ex-Im and of 
key participants in these processes. Doing so would aid in codifying 
institutional knowledge of these processes and facilitate 
communication about fraud for employees or lenders who may be new to 
Ex-Im. In addition, documenting these processes may be particularly 
important for Ex-Im because a number of divisions are involved in 
preventing, detecting, and investigating fraud, including but not 
limited to its AMD, Claims and Recovery Group, GC, and key 
participants such as Ex-Im's lenders. Documenting the current fraud 
process is a key step in facilitating evaluations and testing the 
effectiveness of these processes. 

Recommendations for Executive Action: 

We recommend that the Chairman of the Export-Import Bank of the United 
States direct the appropriate officials to take the following six 
actions: 

* Develop and implement procedures, prior to loan guarantee approval, 
for (1) verifying that transaction applicants are not delinquent on 
federal debt, including using credit reports to make such a 
determination, and (2) performing assessments of collateral for 
nonaircraft medium-and long-term loan guarantee transactions. 

* Establish mechanisms to oversee compliance with Ex-Im's existing 
procedures, prior to loan guarantee approval, for (1) obtaining credit 
reports for transaction borrowers or documenting why they were not 
applicable; (2) documenting certain eligibility procedures, including 
the Character, Reputational, and Transaction Integrity reviews for 
medium-and long-term loan guarantee transactions, export item 
eligibility, and country eligibility; and (3) documenting the analysis 
of country exposure. 

* Develop and implement detailed instructions, prior to loan guarantee 
approval, for (1) preparing and including all required documents or 
analyses in the loan file and (2) using credit reports in the risk 
assessment and due diligence process. 

* Update the Character, Reputational, and Transaction Integrity review 
process to include the search of databases to help identify 
transaction applicants with delinquent federal debt that would then 
not be eligible for loan guarantees. 

* Document Ex-Im's current risk-based approach for scheduling 
delegated authority lender examinations. 

* Document Ex-Im's overall fraud process, including describing the 
roles and responsibilities of Ex-Im divisions and officials that are 
key participants in Ex-Im's fraud processes. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to Ex-Im for review and comment. In 
written comments on a draft of this report, which are reprinted in 
appendix II, Ex-Im concurred with our six recommendations. Ex-Im also 
provided technical comments that we incorporated into the final 
report, as appropriate. 

In its written comments, Ex-Im described planned actions to address 
our recommendations. For example, Ex-Im stated that it will develop 
and implement procedures for verifying that transaction applicants are 
not delinquent on federal debt. Ex-Im also stated that management is 
reviewing its current Character, Reputational, and Transaction 
Integrity process to assess the inclusion of the Do Not Pay List 
database. Additionally, Ex-Im stated that it would update its Manual 
to include current practices related to collateral assessments of 
nonaircraft medium-and long-term loan guarantee transactions, as well 
as potential enhancements. Further, Ex-Im stated that it will develop 
and implement instructions for loan officers regarding the preparation 
and inclusion of all required documents in a loan file and mechanisms 
to oversee compliance with Ex-Im's existing procedures prior to loan 
guarantee approval. Ex-Im also stated that it would document its risk-
based approach for scheduling delegated authority lender examinations 
and its fraud process, including a description of roles and 
responsibilities. If implemented effectively, Ex-Im's planned actions 
should address the intent of our recommendations. 

We are sending copies of this report to appropriate congressional 
committees, the Chairman of the U.S. Export-Import Bank of the United 
States, and the Ex-Im Inspector General. The report is also available 
at no charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact Steve Lord at (202) 512-6722 or lords@gao.gov or Gary Engel at 
(202) 512-3406 or engelg@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix III. 

Signed by: 

Stephen M. Lord: 
Managing Director, Forensic Audits and Investigative Service: 

Signed by: 

Gary T. Engel: 
Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to examine the extent to which the Export-Import 
Bank of the United States (Ex-Im) (1) adequately designed and 
implemented procedures to reasonably assure compliance with its 
underwriting process requirements for loan guarantee transactions and 
consistency with federal guidance and (2) adequately designed 
procedures to prevent, detect, and investigate fraudulent applications 
for loan guarantees. 

To assess Ex-Im's design of procedures related to underwriting loan 
guarantee transactions, we reviewed relevant requirements and 
guidance, including the Office of Management and Budget's Circular No. 
A-129, Policies for Federal Credit Programs and Non-Tax Receivables; 
the Department of the Treasury Bureau of the Fiscal Service's Managing 
Federal Receivables: A Guide for Managing Loans and Administrative 
Debt; GAO's Standards for Internal Control in the Federal Government; 
and the Bureau of Industry and Security's "Know Your Customer" Lending 
Guidance. We also examined Ex-Im's charter, credit framework, content 
policy, and other due diligence procedures. We compared the various 
requirements and guidance to Ex-Im's Loan, Guarantee and Insurance 
Manual (Manual), which describes, among other things, Ex-Im's 
procedures for assessing loan guarantee applications and preparing 
loan agreements.[Footnote 61] In addition, we reviewed Ex-Im's Office 
of Inspector General (IG) reports since 2009 related to underwriting 
issues, various laws applicable to Ex-Im, and GAO reports related to 
Ex-Im. We also discussed underwriting requirements and the due 
diligence process with Ex-Im officials. For the implementation of the 
underwriting process, we identified key procedures from Ex-Im's 
Manual. We also reviewed Ex-Im's loan files used to document 
procedures performed during the underwriting process and Ex-Im's 
financial statements from 2011 through 2013 along with other reports 
summarizing loan guarantee amounts. 

To select loan files to review, we obtained Ex-Im's population of all 
authorized loan guarantee transactions from October 1, 2011, to March 
31, 2013, which included data such as borrower, authorization amount 
and date, lender name, and product type. The total loan guarantee 
population contained 275 medium-and long-term loan guarantees totaling 
$21.9 billion and 792 working capital loan guarantees totaling $4.0 
billion, which were authorized by Ex-Im from October 1, 2011, to March 
31, 2013. To assess the reliability of data provided by Ex-Im, we 
analyzed information related to data elements and controls, reviewed 
the data for obvious errors in accuracy and completeness, compared 
data to published documents, and interviewed knowledgeable Ex-Im 
officials about the data. We concluded that the data elements we used 
were sufficiently reliable for purposes of selecting samples of loan 
guarantee transactions to review and for describing Ex-Im's loan 
guarantee balances. 

Because of the differences in the underwriting process between the 
working capital loan guarantees and the medium-and long-term loan 
guarantees, we divided the population into two groups. The medium-and 
long-term guarantees were combined in one group while the working 
capital loan guarantees were placed in another group. For each sample, 
we made estimates for an attribute measure at the 95 percent level of 
confidence. From the sample design, we were able to conclude that the 
population error rate was less than 5 percent at the 95 percent level 
of confidence when no control violations were discovered in the 
sample. The final samples for the medium-and long-term transactions 
and the working capital transactions were 54 and 58, respectively. 

Because we followed a probability procedure based on random 
selections, each of our samples is only one of a large number of 
samples that we might have drawn. Since each sample could have 
provided different estimates, we express our confidence in the 
precision of our particular sample's results as a 95 percent 
confidence interval (e.g., plus or minus 7 percentage points). This is 
the interval that would contain the actual population value for 95 
percent of the samples we could have drawn. Confidence intervals are 
provided along with each sample estimate in the report. The results 
from our samples apply to the universe of loan guarantees authorized 
from October 1, 2011, to March 31, 2013. 

Based on our review of the Manual and the key procedures we 
identified, we developed a data collection instrument for working 
capital loan guarantee transactions and another data collection 
instrument for medium-and long-term loan guarantee transactions, which 
we used to test the two samples extracted from the loan guarantee 
population. 

Working capital loan guarantees. We divided our working capital loan 
guarantee data collection instrument into delegated authority and 
nondelegated authority transactions. For each nondelegated authority 
working capital loan guarantee transaction in our sample, we reviewed 
the credit memo to determine if Ex-Im documented the following: credit 
reports on individual guarantor(s) or Dunn and Bradstreet reports if 
the guarantor was a business, analysis of contract and payment terms, 
financial analysis, bank references, collateral, and additionality. We 
also tested to see if exporter eligibility; Character, Reputational, 
and Transaction Integrity reviews, which included due diligence for 
Iran sanctions and other reputational risks; and appropriate 
signatures for approval from Ex-Im management were documented. For 
delegated authority working capital loan guarantees, we reviewed the 
selected transactions for exporter credit reports to determine if Ex-
Im addressed any risks associated with the transaction participants 
and reviewed Dunn and Bradstreet reports on the exporter. We tested to 
see if all required information and approvals were contained in Ex-
Im's Application Processing System, including documentation of the 
type of loan facility, a product description, primary and secondary 
collateral, use of proceeds, export markets, export value, loan 
amount, additionality, and any environmental impacts. In addition, we 
tested to see if the loan amount on our sample was equal to the loan 
amount reported in the Application Processing System and that the 
transaction was properly classified as a working capital transaction. 
We also tested to see if an Ex-Im program management assistant 
completed and signed a delegated authority checklist for the borrower 
that contained information such as the lender, borrower, loan amount, 
type of facility, letters of credit, warranties, final disbursement 
date, primary and secondary collateral, and term of the loan. We also 
tested to see if an appropriate Ex-Im official signed the delegated 
authority checklist. For each of the delegated authority working 
capital loan guarantee transactions in our sample, we examined Ex-Im's 
available examination reports for the applicable delegated authority 
lenders and tested to see if the approved loan guarantee transaction 
were within delegated authority lender levels. We requested the three 
most recent examinations conducted for the 18 lenders involved in the 
delegated authority transactions from our sample (47 out of the 58 
items in our sample were done under delegated authority). For 12 
lenders, we received three reports; we received one report for 4 of 
the lenders and no report for 2 of the lenders. 

Medium-and long-term loan guarantees. The key procedures relate to the 
following four underwriting activities: 

(1) Application screening. For this activity, we evaluated the 
documentation of the eligibility of loan guarantee participants and 
whether the information contained in the loan guarantee transactions 
met minimum eligibility criteria standards. We tested to see if the 
sample items contained complete transactional party information, 
including applicant, borrower, guarantor, buyer, lender, end user, 
exporter, supplier, and guaranteed lender. We determined if the 
eligibility of the export item was clearly stated or could be clearly 
assumed in the sample documents. We also tested to see if 
additionality, country eligibility, and any applicable State 
Department clearance were recorded. We tested to see if Ex-Im's Credit 
Review and Compliance Division documented the Character, Reputational, 
and Transaction Integrity review process prior to loan guarantee 
approval which included the full request, the participants screened 
list, and the results of the Ex-Im library's research and determined 
if issues identified in this review were resolved by viewing the board 
memo for each long-term loan guarantee transaction and the credit memo 
for each medium-term loan guarantee transaction. For all board-
approved transactions, we also tested to see if the Iran Sanctions 
Certification was obtained.[Footnote 62] For all medium-and long-term 
loan guarantee transactions, we tested to see if a credit report, a 
Dunn and Bradstreet report, or both dated within 6 months of the 
application date, were obtained and maintained or, if not, whether Ex-
Im documented why these reports were not applicable. Further, we 
tested to see if the loan guarantee application contained an 
antilobbying statement and an Environmental Screening Document. 

(2) Risk assessment and due diligence. For this activity, we evaluated 
the documentation related to financial risk factors and the commercial 
viability of the loan guarantee transaction. We tested to see if the 
engineering memo for long-term loan guarantee transactions and the 
credit memo for medium-term loan guarantee transactions documented the 
eligibility of costs and the value and eligibility of U.S. and foreign 
content. For long-term loan guarantee transactions, we tested to see 
if Ex-Im documented the environmental impact in the engineering 
report. For medium-term loan guarantee transactions, we tested to see 
if the Vice President of Ex-Im's Engineering and Environment Division 
conducted an environmental impact analysis. For long-term loan 
guarantee transactions that were authorized after May 30, 2012, we 
tested to see if a summary of economic impact analysis was included. 
[Footnote 63] We also tested to see if Ex-Im documented its due 
diligence over certain applicable risks and the mitigation of those 
risks. These risks included country exposure and technical and 
environmental risk for long-term loan guarantee transactions. In 
addition, we tested to see if Ex-Im performed due diligence for 
sovereign risk, political risk, financial institution risk, and 
nonfinancial institution risk factors for both medium-and long-term 
loan guarantee transactions. We also reviewed credit and board memos 
to determine if Ex-Im summarized risks included in credit reports and 
the mitigating factors for those risks. We further reviewed loan files 
to determine if the overall budget cost level for both medium-and long-
term loan guarantee transactions were documented. For aircraft 
transactions, we tested to see if the credit and legal strength, 
weakness, and uncertainties analyses were completed. For medium-term 
loan guarantee transactions in excess of $1 million, we tested to see 
if the transaction risk classification was assessed and documented in 
the loan file. We tested the appendixes of the credit memo for long-
term loan guarantee transactions to see if the financial assessment, 
engineering report, country risk assessment, risk rating summary, 
economic analysis, and any special conditions were documented. 

(3) Credit structure. For this activity, we evaluated the 
documentation of the financing terms and conditions, including 
collateral to be recommended for the loan guarantee transaction. For 
medium-and long-term loan guarantee transactions, we reviewed the loan 
file to determine if Ex-Im documented the exposure fee calculator 
worksheet; the repayment terms, to ensure that the terms did not 
exceed the useful life of the collateral or scope of supply; the long-
term action sheet; and the medium-term decision memo. We tested to see 
if collateral for the loan guarantee had been identified and assessed 
and to see if the loan agreement included requirements for the 
borrower to maintain the collateral, where applicable. 

(4) Credit decision. For this activity, we evaluated the approved 
amount, proper categorization of the loan guarantee, and the 
appropriate records storage for the loan documentation. For long-term 
and aircraft loan guarantee transactions, we tested to see if there 
was approval by an Ex-Im loan officer, an Ex-Im lawyer, and the Vice 
President of Trade Finance on the credit memo. For medium-term loan 
guarantee transactions, we tested to see if the credit memo was signed 
by the appropriate official. For long-term loan guarantee 
transactions, we tested to see if approval signatures on the board 
memo were documented. For all selected loan guarantee transactions, we 
tested to see if the actual loan amount per Ex-Im's Application 
Processing System was equal to the loan agreement and equal to or less 
than the financed amount approved. We also tested to see if the loan 
agreement was signed by all applicable parties and that the 
transaction was approved by the appropriate authority level. In 
addition, we tested to see if the loan was properly categorized as 
medium or long term and that the loan documentation was kept in the 
appropriate records storage location. 

For any unresolved issues found on both the working capital and 
medium- and long-term loan guarantee data collection instruments, we 
followed up with Ex-Im officials to evaluate any additional supporting 
documentation not originally included in the loan files. Additionally, 
we interviewed Ex-Im loan officers, directors, and other officials to 
obtain further perspective on the underwriting process of loan 
guarantee transactions. 

To evaluate whether Ex-Im adequately designed procedures to prevent, 
detect, and investigate potential fraud in loan guarantee 
transactions, we identified key procedures by reviewing Ex-Im's 
established procedures and interviewing officials from the Ex-Im IG. 
We also interviewed lenders and Ex-Im officials to identify steps Ex-
Im has taken to strengthen lender fraud procedures. We evaluated the 
federal standards and, as appropriate, industry standards and best 
practices for preventing, detecting, and investigating fraud. We 
reviewed Ex-Im's practices for verifying that debarred lenders and 
borrowers have not been authorized to receive loan guarantees. To 
assess Ex-Im's implementation of procedures to prevent fraudulent 
applications from being approved, we reviewed the same sample of loan 
guarantee transactions described above to determine whether Ex-Im 
effectively implemented its procedures, such as reviewing and 
evaluating documentation and implementing its Character, Reputational, 
and Transaction Integrity check, to detect and prevent fraudulent 
applications from being approved during the underwriting process. To 
identify and evaluate Ex-Im's processes for detecting potential fraud 
among active loan guarantee transactions, we interviewed officials 
about current practices and reviewed documentation of cases showing 
how Ex-Im detected potential fraud under a variety of circumstances. 

We conducted this performance audit from March 2013 to September 2014 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Export-Import Bank of the United States: 

Export-Import Bank of The United States: 
811 Vermont Avenue, N.W. 
Washington, DC 20571: 

August 27, 2014: 

Gary Engel: 
Director Financial Management and Assurance: 
U.S. Government Accountability Office: 
Washington, D.C. 20584: 

Dear Mr. Engel: 

Thank you for providing the Export-Import Bank of the United States 
("Ex-Im Bank" or "the Bank") with the Government Accountability Office 
(GAO) report, "Enhancements Needed in Loan Guarantee Underwriting 
Procedures and for Documenting Fraud Processes" (August 2014). The 
Bank supports the GAO's work and audits which complement the Bank's 
efforts to continually improve its practices and procedures. Ex-1m 
Bank is proud of its cooperative relationship with GAO. 

We are pleased that GAO recognized that Ex-1m Bank has implemented 
many key aspects of the underwriting process as required by the Bank's 
Loan, Guarantee, and Insurance Manual. We appreciate that GAO noted 
the Bank's low amount of claims paid which is due in part to the
Bank's underwriting efforts. In FY 2013, the Bank paid $28.4 million 
in claims on all guarantee programs, which represents 0.04% percent of 
the entire $70.3 billion portfolio. 

GAO has made six recommendations in this report regarding loan 
guarantee underwriting due diligence and documentation of fraud 
processes. These recommendations deal primarily with enhancing 
documentation and providing detailed instructions to Bank staff in the 
Loan, Guarantee, and Insurance Manual. 

Recommendation 1: Develop and implement procedures, prior to loan 
guarantee approval, for (1) verifying the transaction applicants are 
not delinquent on federal debt, including using credit reports to make 
such a determination and (2) performing assessments of collateral for 
nonaircraft medium and long-term loan guarantee transactions. 

Management response: Management concurs with this recommendation. 

The Bank will develop and implement procedures, including the use of 
credit reports as applicable, for verifying the transaction applicants 
are not delinquent on federal debt. Currently all relevant transaction 
parties must certifY they are not delinquent on any amounts due and
owing to the U.S., they have not been suspended or debarred by the 
U.S. government, and that they have paid all federal, state and local 
taxes and material judgments. These certifications are subject to 
penalties for false or misleading statements to the U.S. government 
(18 U.S.C. 1001, et seq.). 

Management is currently reviewing and evaluating its current 
Character, Reputational, and Transaction Integrity (CRTI) process, and 
expects to have this completed by the end of this calendar year. The 
review includes an assessment of the Do Not Pay List database and
consideration of its inclusion into the database check currently 
conducted by the Bank for all transactions. The Bank's current Know 
Your Customer standards, implemented in May 2014, include independent 
credit reports under due diligence documents, and provide for loan 
officers to "obtain and review tax records" as additional due 
diligence when applicable. In addition, the Bank will instruct loan 
officers on the use of credit reports, and documenting when a credit
report is not required for the transaction. 

The Bank also agrees with the second part of the recommendation. It is 
important to note that the Bank does perform assessments of collateral 
for non-aircraft medium and long term guarantee transactions. The GAO 
recommendation is to document current practices in the Manual for 
performing assessments of collateral for non-aircraft medium and long 
term guarantee transactions. Ex-1m Bank currently evaluates each 
medium and long term export contract which is used as an appropriate 
assessment of collateral for non-aircraft transactions. The Bank will 
update the Manual to include current practices as well as potential 
enhancements. 

Recommendation 2: Establish mechanisms to oversee compliance with Ex-
1m's existing procedures, prior to loan guarantee approval, for (1) 
obtaining credit reports for transaction applicants or documenting why 
they were not applicable; (2) documenting certain eligibility
procedures, including the Character, Reputational, and Transaction 
Integrity reviews for medium and long-term loan guarantee 
transactions, export item eligibility, and country eligibility; and (3)
documenting the analysis of country exposure. 

Management response: The Bank concurs with this recommendation. 

As stated in the report, the Bank believes credit reports are not 
usually the most reliable and current sources of information, and as a 
result the Loan Officer's due diligence is much more extensive than 
what a credit report may be able to provide. Ex-1m requires in long term
transactions, at a minimum, three years of audited financial 
statements and significant business operation and management 
information. To the extent possible, Ex-1m also uses credit rating
reports such as Moody's and Standard and Poor's, initial public 
offering (IPO) or bond prospectuses, industry information, project and 
export information, financial projections, and supporting underlying 
contracts and memoranda. This is in addition to all the contractually
required certifications which may be subject to penalties for false or 
misleading statements to the U.S. government (18 U.S.c. 1001, et 
seq.). The Bank will assess the existing procedures and requirements 
for obtaining credit reports, and will update the Manual on the use of 
credit reports, and documenting when a credit report is not required 
for the transaction. 

Ex-1m will develop mechanisms to oversee compliance with Ex-1m Bank's 
existing procedures, prior to loan guarantee approval, for documenting 
certain eligibility procedures. including the Character, Reputational, 
and Transaction Integrity reviews for medium and long-term loan 
guarantee transactions, export item eligibility, country eligibility, 
and the analysis of country exposure. The Bank also plans to review 
the Loan, Guarantee, and Insurance Manual to determine if certain 
elements in the current eligibility procedures and requirements need 
to be updated. Ex-1m Bank has also created a Business Compliance Group 
to work with Bank staff to develop procedures to ensure transactional 
compliance with requirements. 

Recommendation 3: Develop and implement detailed instructions, prior 
to loan guarantee approval, for (1) preparing and including all 
required documents or analyses in the loan file and (2) using credit 
reports in the risk assessment and due diligence process. 

Management response: The Bank concurs with this recommendation. 

The Bank will develop and implement instructions for loan officers 
regarding the preparation and inclusion of all required documents in 
the loan file. As mentioned above, the Bank has created a new Business 
Compliance Group to work with Bank staff to develop procedures to
ensure transactional compliance with requirements. The group will work 
with loan officers to develop processes for documentation and ensure 
the required documentation is contained in each loan file. 

The Bank will assess the existing procedures and requirements for 
obtaining credit reports, and update the Manual on the use of credit 
reports as applicable in risk assessment and due diligence processes, 
and documenting when a credit report is not required for the 
transaction. 

Recommendation 4: Update the Character, Reputational, and Transaction 
Integrity review process to include the search of databases to help 
identify transaction applicants with delinquent federal debt that 
would then not be eligible for loan guarantees. 

Management response: The Bank concurs with this recommendation. 

Management is currently reviewing and evaluating its current 
Character, Reputational, and Transaction Integrity (CRTI) process, and 
expects to have this completed by the end of this calendar year. The 
review includes an assessment of the Do Not Pay List database and
consideration of its inclusion into the database check currently 
conducted by the Bank for all transactions. The Bank's current Know 
Your Customer standards, implemented in May 2014, include independent 
credit reports under due diligence documents, and "obtain and review 
tax records" as additional due diligence when applicable. 

Recommendation 5: Document Ex-1m's current risk-based approach for 
scheduling delegated authority lender field exams. 

Management response: The Bank concurs with this recommendation.
Ex-Im Bank will update the Manual to include a current risk-based 
approach for scheduling delegated authority lender field exams. This 
update will be completed by December 31, 2014. Recommendation 6: 
Document Ex-1m's overall fraud process, including describing the roles 
and responsibilities of Ex-1m divisions and officials that are key 
participants in Ex-1m's fraud processes. 

Management response: The Bank concurs with this recommendation. 

The Bank appreciates the GAO report acknowledging that the Bank has 
taken steps to "prevent, detect, and investigate fraud" including 
training for staff by the OIG, the Bank's Credit Review and Compliance 
Division, and an external vendor contracted to provide formalized 
training. The Bank will develop a document which encompasses the 
Bank's comprehensive fraud process, describing the roles and 
responsibilities of Ex-1m divisions and officials that are key 
participants in Ex-1m's fraud processes. 

We thank the GAO for your efforts to ensure the Bank's policies and 
procedures continue to improve, as well as protect the U.S. Taxpayer 
from fraud, waste, and abuse. 

Sincerely, 

Signed by: 

Charles J. Hall: 
Executive Vice President and Chief Risk Officer: 
Export-Import Bank of the United States: 

[End of section] 

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Stephen M. Lord, (202) 512-4379 or lords@gao.gov: 

Gary T. Engel, (202) 512-3406 or engelg@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Marcia Carlsen (Assistant 
Director), Joah Iannotta (Assistant Director), Jeanette Brahame, 
Michael Bird, Katy Crosby, Dennis Fauber, Natasha Guerra, Cole Haase, 
Debra Hoffman, Dragan Matic, and Carroll Warfield Jr. made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] All years in this report are federal fiscal years unless otherwise 
indicated. An authorization is an export financing transaction that Ex-
Im has approved. 

[2] Under the Federal Credit Reform Act of 1990, Pub. L. No. 101-508, 
title XIII, § 13201 (Nov. 5, 1990), classified at 2 U.S.C. §§ 661-
661f, agencies, including Ex-Im, are required to estimate and request 
appropriations for the long-term costs, or subsidy costs, of their 
credit activities. Ex-Im's subsidy cost estimates take into account, 
among other things, interest and fees it charges its customers for 
loans, loan guarantees, and insurance, as well as estimated default 
costs. Based on these estimates, Ex-Im has been self-sustaining for 
budgetary purposes since 2008, meaning that it estimates that expected 
interest and fees will more than cover expected default costs. 
However, the actual long-term cost of Ex-Im's credit activities will 
not be known until these loans are repaid and insurance contracts 
expire. 

[3] Pub. L. No. 112-122 (May 30, 2012). 

[4] As a government corporation, the statutory text establishing Ex-Im 
and governing its operations is referred to as a charter. See Export-
Import Bank Act of 1945, Pub. L. No. 79-173 (July 31, 1945), 
classified in part, as amended, at 12 U.S.C. §§ 635-635t. Ex-Im's 
charter includes a defined termination date, which has been 
periodically extended by laws reauthorizing the entity. Most recently, 
the Export-Import Bank Reauthorization Act of 2012, enacted on May 30, 
2012, extended this termination date to September 30, 2014. 

[5] The underwriting process encompasses Ex-Im's underwriting 
guidelines, lending policies, due diligence procedures, and content 
guidelines. Content guidelines determine the U.S. export contract 
eligibility and the level of support available in an Ex-Im financing 
package. That is, Ex-Im's content eligibility criteria state that to 
be eligible for inclusion in an Ex-Im financing package, all products 
in an export contract must be shipped from the United States to the 
foreign buyer. 

[6] Export-Import Bank of the United States, Office of Inspector 
General, Export-Import Bank's Management of Direct Loans and Related 
Challenges, OIG-AR-13-05 (Washington, D.C.: Sept. 26, 2013). 

[7] Office of Management and Budget, Policies for Federal Credit 
Programs and Non-Tax Receivables, OMB Circular No. A-129 (revised 
2013), and Department of the Treasury, Bureau of the Fiscal Service, 
Managing Federal Receivables (May 2005). 

[8] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[9] Because we followed a probability procedure based on random 
selections, each of our samples is only one of a large number of 
samples that we might have drawn. Since each sample could have 
provided different estimates, we express our confidence in the 
precision of our particular sample results as a 95 percent confidence 
interval (e.g., plus or minus 7 percentage points). This is the 
interval that would contain the actual population value for 95 percent 
of the samples we could have drawn. Confidence intervals are provided 
along with each sample estimate in the report. A detailed description 
of our sampling methodology can be found in appendix I. 

[10] We selected two statistically random samples of (1) 58 loan 
guarantee transactions from a population of 792 total short-term loan 
guarantees authorized from October 1, 2011, to March 31, 2013, and (2) 
54 loan guarantee transactions from a population of 275 total medium-
and long-term loan guarantees authorized from October 1, 2011, to 
March 31, 2013. 

[11] Official export credit agencies (ECA) are organizations that 
provide export credits with explicit government backing, where either 
the government or the government-owned ECA assumes all or a portion of 
the risk. 

[12] Ex-Im's Board of Directors consists of five members, with one 
seat vacant as of July 2014. The Ex-Im President serves as Chairman, 
Ex-Im's First Vice-President serves as Vice Chairman, and three 
additional members are appointed for 4-year terms by the President of 
the United States by and with the advice and consent of the Senate. 

[13] Local costs represent the aggregate price of all goods originated 
or manufactured in the purchaser's country and all services provided 
by registered local business entities of the purchaser's country. 

[14] In general, the entire product must be exported from the United 
States. When eligible content includes both direct and indirect costs, 
these costs are treated differently for small business and non-small 
business working capital transactions. Also, if an applicant is a 
small business and the financed product represents less than 50 
percent U.S. content, then only the U.S. costs are eligible for an Ex-
Im guarantee. 

[15] Eligible goods could include foreign content if exported from the 
United States. Financing 85 percent of the value of these transactions 
is considered full financing because of provisions under an 
international arrangement that ECAs generally do not finance more than 
this for transactions with terms greater than 2 years. In addition, Ex-
Im guarantees can cover some local costs, such as on-site construction 
services, beyond the value of the export contract. 

[16] Ex-Im's charter directs that Ex-Im should foster the expansion of 
U.S. exports and that it should supplement and encourage, rather than 
compete with, private capital. Therefore, Ex-Im directs its efforts at 
financing export transactions that are considered unlikely to proceed 
without Ex-Im support. Ex-Im refers to the likelihood that an export 
transaction will not go forward unless it provides support as 
additionality. The primary considerations in determining additionality 
are the availability of competing financing from other ECAs and the 
availability of private sector financing on acceptable terms. 

[17] For all transactions subject to approval by the Board of 
Directors, the borrower and guarantor lender (if any) must submit a 
certification with respect to certain activities prohibited by the 
Iran Sanctions Act of 1996, Pub. L. No. 104-172 (Aug. 5, 1996), 
classified as amended at 50 U.S.C. § 1701 note; the Comprehensive Iran 
Sanctions, Accountability, and Divestment Act of 2010, Pub. L. No. 111-
195 (July 1, 2010); and the Iranian Transactions Regulations, 31 
C.F.R. part 560. 

[18] Recipients of federal loans, grants, contracts, and cooperative 
agreements are prohibited from spending federally appropriated funds 
to influence or lobby certain U.S. government employees, including Ex-
Im employees, in connection with the granting of those federal awards. 
31 U.S.C. §1352. 

[19] A credit report is a document created by a credit reporting 
agency that summarizes the financial history of a party (a person or a 
business). Examples of information found in a credit report include 
the amount of credit available to a party, how much of its credit 
limit a party tends to rely on for purchases, whether the party has a 
history of paying its bills on time, and whether a party has 
previously gone through bankruptcy. 

[20] "Content" refers to the country of origin of the goods and 
services that make up an export contract. According to Ex-Im, its 
content policy is "the proxy to connect its activities to jobs, and 
the most fitting policy tool to promote U.S. employment." 

[21] The loan-to-value analysis compares the expected future values of 
the financed aircraft with the estimated Ex-Im exposure balance over 
the term of the financing. 

[22] The $10 million threshold for individual delegated authority does 
not include any exposure fees associated with a loan guarantee 
transaction. 

[23] Ex-Im's policies state that the sample must include (1) any loan 
facility of $5 million or more, (2) at least 25 percent of the total 
dollar amount of the outstanding portfolio, (3) at least 25 percent of 
the total number of loan facilities in the portfolio, and (4) a sample 
of both new and renewed loans. In addition, if a lender has three or 
fewer outstanding loans, all of the loans should be reviewed. 

[24] The 95 percent confidence interval for the medium-and long-term 
loan guarantee transactions is between 95 percent and 100 percent. 

[25] The Department of Housing and Urban Development's Credit Alert 
Verification Reporting System was developed in June 1987 as a shared 
database of defaulted federal debtors, and enables processors of 
applications for federal credit to identify individuals who are in 
default or have had claims paid on direct or guaranteed federal loans 
or are delinquent on other debts owed to federal agencies. The Do Not 
Pay List is a web-based single-entry access portal that federal 
agencies can use to gain access to several databases to assist in 
determining whether an individual or entity is ineligible, in part 
because of delinquent federal debt, to receive federal payments or 
engage in federal contracts or grants. 

[26] A credit report is generally required for medium-and long-term 
loan guarantee transactions, except when the primary source of 
repayment is another government or a financial institution. We use the 
term credit report to refer to both a credit bureau report on an 
individual guarantor or a Dunn and Bradstreet report if the guarantor 
is a business. 

[27] The 95 percent confidence interval for this estimate is between 
48 percent and 73 percent. 

[28] Our total sample of 54 medium-and long-term loan guarantee 
transactions included 19 aircraft transactions. From those 19, we 
found two instances where credit reports were obtained. 

[29] The 95 percent confidence interval for working capital loan 
guarantee transactions is between 95 percent and 100 percent. The 95 
percent confidence interval for medium-and long-term loan guarantee 
transactions is between .7 percent and 12 percent. All exceptions that 
we identified related to medium-term loan guarantee transactions. 

[30] All exceptions that we identified related to medium-term loan 
guarantee transactions. The 95 percent confidence interval for the 
loan guarantees that lacked statements regarding the determination of 
export item eligibility is between 27 percent and 52 percent. The 95 
percent confidence interval for the loan guarantees that lacked 
statements regarding the country eligibility is between 29 percent and 
54 percent. 

[31] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[32] Export-Import Bank of the United States, Office of Inspector 
General, OIG-AR-13-05. 

[33] The 95 percent confidence interval for the working capital and 
medium-and long-term loan guarantee transactions is between 95 percent 
and 100 percent. 

[34] An economic impact analysis is an assessment of whether the 
extension of Ex-Im financing support is likely to cause substantial 
injury to U.S. industry or would result in the production of 
substantially the same product that is the subject of specified trade 
measures. 

[35] The 95 percent confidence interval for the medium-and long-term 
loan guarantee transactions is between 95 percent and 100 percent. 

[36] The country exposure analysis provides a breakdown of Ex-Im's 
outstanding financing regarding a specific country by type of risk 
(e.g., sovereign, public nonsovereign, private, and financial 
institution). 

[37] All exceptions that we identified related to medium-term loan 
guarantee transactions. The 95 percent confidence interval for this 
estimate is between 5 percent and 22 percent. 

[38] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[39] Export-Import Bank of the United States, Office of the Inspector 
General, Export-Import Bank's Content Policy: Opportunities Exist to 
Improve Controls and Address the Impact of Voluntary Reporting, OIG-AR-
14-01 (Washington D.C.: Dec. 11, 2013). 

[40] The 95 percent confidence interval for the working capital and 
medium-and long-term loan guarantee transactions is between 95 percent 
and 100 percent. 

[41] The 95 percent confidence interval for this estimate is between 
26 percent and 50 percent. 

[42] The 95 percent confidence interval for the working capital and 
medium-and long-term loan guarantee transactions is between 95 percent 
and 100 percent. 

[43] The 95 percent confidence interval for the working capital loan 
guarantee transactions is between 95 percent and 100 percent. 

[44] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[45] Export-Import Bank of the United States, Office of Inspector 
General, OIG-AR-13-05. 

[46] Export-Import Bank of the United States, Office of Inspector 
General, OIG-AR-13-05. 

[47] The 95 percent confidence interval for this estimate is between 
44 percent and 70 percent. 

[48] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[49] The underwriting process would not necessarily prevent all 
incidences of fraud, such as fraud because of collusion. 

[50] The IG is an independent office within Ex-Im headed by the 
Inspector General who is presidentially appointed and Senate 
confirmed. Pursuant to the Inspector General Act of 1978, Pub. L. No. 
95-452 (Oct. 12, 1978), codified as amended at 5 U.S.C. app., the IG 
is under the "general supervision" of the head of the establishment 
(for Ex-Im, the Chairman and President), but operates independently 
and has its own budget and personnel authority and a separate 
appropriation. 

[51] Institute of Internal Auditors, American Institute of Certified 
Public Accountants, and Association of Certified Fraud Examiners, 
Managing the Business Risk of Fraud: A Practical Guide. 

[52] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[53] In October 2008, the owner of San Antonio Trade Group, Inc. pled 
guilty to charges including conspiracy, wire fraud, and money 
laundering and was sentenced to 117 months in federal prison and 
ordered to pay restitution of $10 million and a $1.1 million special 
assessment. The owner admitted that from February 2003 to November 
2006, he schemed to defraud Ex-Im by stealing millions of dollars in 
loan proceeds from private U.S. lenders to Mexican business owners and 
causing multimillion-dollar losses to Ex-Im as it guaranteed those 
loans based on false applications and support documentation submitted 
by the owner. 

[54] Institute of Internal Auditors, American Institute of Certified 
Public Accountants, and Association of Certified Fraud Examiners, 
Managing the Business Risk of Fraud: A Practical Guide; Institute of 
Internal Auditors, Internal Auditing and Fraud (December 2009); and 
GAO, Highlights of a Forum: Data Analytics for Oversight and Law 
Enforcement, [hyperlink, http://www.gao.gov/products/GAO-13-680SP] 
(Washington, D.C.: July 2013). 

[55] The Organisation for Economic Co-operation and Development (OECD) 
is an international economic organization of 34 countries whose 
mission is to promote economic growth, financial stability, trade and 
investment, technology, innovation, and development cooperation. It 
exists as a forum of governments committed to democracy and the market 
economy, and provides a platform for its members to seek solutions to 
common problems, including those related to economic, social, and 
environmental changes. The debarment list review of major 
international financial institutions was one of the measures included 
in the OECD Recommendation on Bribery and Officially Supported Export 
Credits that was adopted by the OECD Council in December 2006. 

[56] Institute of Internal Auditors, American Institute of Certified 
Public Accountants, and Association of Certified Fraud Examiners, 
Managing the Business Risk of Fraud: A Practical Guide, and Institute 
of Internal Auditors, Internal Auditing and Fraud. 

[57] We have previously made recommendations to Ex-Im to help manage 
operational risks stemming from Ex-Im's increased business volume, 
which include the risk of fraud. In addition, the Ex-Im IG recommended 
that Ex-Im develop a systematic approach related to addressing 
portfolio risk, and appoint a chief risk officer to oversee the design 
and implementation of an agency-wide risk management function, 
including development of an overarching risk management policy. In 
response, in 2013, Ex-Im established the Enterprise Risk Committee 
(ERC) responsible for creating a risk management strategy that 
includes objectives, assignment of responsibilities, key performance 
indicators, and key risk indicators. Ex-Im officials stated that the 
ERC has been meeting on a monthly basis since November 2013, acting as 
a senior management working group across divisions, and in December 
2013 Ex-Im hired its Executive Vice President and Chief Risk Officer, 
who serves as the Chair of the ERC. Officials told us that the ERC is 
focused on broadly defined risk across Ex-Im. 

[58] Ex-Im's Transportation Portfolio Management Division had similar 
responsibilities to monitor compliance, but for transportation-related 
borrowers and guarantors, which tend to involve large, long-term 
direct loans and loan guarantees. 

[59] According to Ex-Im officials, employees can go directly to the Ex-
Im IG with concerns or they can refer cases to Ex-Im's GC so that GC 
can conduct additional due diligence to compile additional relevant 
information regarding a fraud allegation that Ex-Im may subsequently 
refer to the IG. GC officials noted that they conveyed to employees 
that employees have free and unfettered access to the IG but that it 
was helpful for GC to remain cognizant of potential fraud since Ex-Im 
had concerns about such instances that may be different in focus than 
those of the IG. 

[60] The IG consists of both auditors, who review Ex-Im's internal 
activities, and criminal investigators and analysts, who follow up on 
allegations of waste, fraud, and abuse. As of July 2014, the IG's 
Office of Investigation was staffed with the Assistant Inspector 
General for Investigations, the Deputy Assistant Inspector General for 
Investigations, two special agents, an investigative analyst, and a 
financial analyst. 

[61] Since procedures related to underwriting were recently updated by 
Ex-Im, we reviewed the procedures in place when the loan guarantees in 
our review were approved as well as the revised procedures. 

[62] The Iran Sanctions Certification replaced the Prohibited 
Producer/Refiner questionnaire that was previously required. 

[63] The Export-Import Bank Authorization Act of 2012, Pub. L. No. 112-
122, § 12 (May 30, 2012), added an explicit requirement that Ex-Im 
retain documentation in support of its economic impact analyses. 

[End of section] 

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