Systems to Manage the Lending Program
The Agriculture Financial Services Act gives Agriculture Financial Services Corporation a broad lending mandate. The Act allows AFSC to offer agriculture development loans and certain non-agriculture loans.
AFSC, with its lending program, serves approximately 12,000 customers through its 46 offices located across the province and supports primary agriculture producers, such as farmers, as well as commercial businesses and agribusinesses in Alberta. As at March 31, 2016, AFSC had approximately $2.16 billion in loans to Albertans and Alberta businesses.
What we examined
We examined AFSC’s systems to manage, monitor and measure the performance of its lending program. In our audit, we set out to answer three questions:
- Has AFSC clearly defined the objectives of its lending program?
- Is there proper oversight of the lending program to ensure it is delivering the desired results?
- How is the lending program funded, and how much does it cost Albertans?
While the lending program has, for many years, provided a source of capital to agriculture producers and agribusinesses in Alberta, it lacks strategic direction. Without clearly defined strategic objectives, AFSC’s lending activities could easily deviate from its development focus and replicate what other commercial lenders provide, rendering the lending program ineffective.
There are weaknesses in the oversight of the lending program. The department did not formally communicate to AFSC or document its performance expectations of the program. The former board of directors did not ensure that AFSC had adequate systems to monitor and measure the program’s performance and manage the risks one would expect in a lending institution.
AFSC has adequate procedures and controls for its day-to-day credit administration activities, which include loan disbursement, loan processing and collection, collateral documentation and interest calculation.