SBA’S USE OF THE LOAN AND LENDER MONITORING SYSTEM
Report Number: 7-21
Date Issued: May 2, 2007
U.S. Small Business Administration
Office Inspector General
To: Bryan Hooper Director, Office of Lender Oversight
/S/ original signed
Date: May 2, 2007
From: Debra S. Ritt
Assistant Inspector General for Auditing
Subject:Audit of SBA’s Use of the Loan and Lender Monitoring System Report No. 7-21
This report presents the results of our audit of the Office of Lender Oversight's (OLO) Loan and Lender Monitoring System (L/LMS). The Small Business Programs Improvement Act of 1996(1) required SBA to establish a risk management database that would provide timely and accurate information to identify underwriting, collections, recovery and liquidation problems with 7(a) and 504 loans. To respond to this mandate, in fiscal year (FY) 2003 SBA contracted with Dun & Bradstreet for loan and lender monitoring services. These services, collectively referred to as L/LMS, comprise commercial off-the-shelf risk scoring models developed by Fair Isaac and data managed by Dun and Bradstreet, and is used by SBA to generate lender risk ratings.
We conducted an audit to determine (1) whether L/LMS generates lender ratings that correspond to actual lender performance, and (2) the extent to which SBA uses lender ratings to manage the risk in the section 7(a) program. To determine whether L/LMS generates reliable lender ratings, we reviewed system documentation and test results and interviewed officials from SBA and Dun & Bradstreet. We performed tests to evaluate whether using loan volumes, financial stress scores, and recovery dollars as additional variables in L/LMS would result in more predictive risk ratings.
To assess how SBA uses L/LMS for lender oversight, we reviewed relevant SBA operating procedures and interviewed SBA officials in OLO and at the National
1 Public Law No. 104-208, Div. D, 110 Stat. 3009-724, 15 U.S.C. Section 633, as amended.
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1 Guaranty Purchase Center. We also reviewed prior Government Accountability Office (GAO) and Office of Inspector General (OIG) audit reports, Office of Management and Budget (OMB) Circular A-129, and Public Law 104-208. Our audit was conducted at SBA headquarters between February 2006 and March 2007 in accordance with Government Auditing Standards prescribed by the Comptroller General of the United States.