Report 7-23 – SBA’s Audit of the Guarantee Purchase Process for Section 7(A) Loans at the National Guaranty Purchase Center
Date Issued: Tuesday, May 8, 2007
Report Number: 7-23

Report Number: 7-23

Date Issued: May 8, 2007


U.S. Small Business Administration Office Inspector General

To: Janet A. Tasker Acting Director, Office of Financial Assistance
Jennifer E. Main
Chief Financial Officer

IS/ original signed

From: Debra S. Ritt Assistant Inspector General for Auditing

Date: May 8, 2007

Subject: Audit of the Guarantee Purchase Process for Section 7(a) Loans at the National . Guaranty Purchase Center Report No. 7-23

This report presents the results of our audit of the guarantee purchase process for section 7(a) loans at the National Guaranty Purchase Center. The Small Business
Administration (SBA) guarantees loans that are made by participating lenders and purchases the guarantees upon loan default. The guarantee purchase process involves a review of the purchase request and relevant documentation to evaluate whether the lender materially complied with program rules and regulations to determine whether to honor the guarantee. This review, which is intended to minimize erroneous payments, is generally performed before purchases are made but may occur post purchase when the loan has been sold on the secondary market. Prior Office of Inspector General (OIG) audits (1) found that the guarantee purchase process did not adequately protect SBA from making erroneous payments. To improve the quality of the purchase process, SBA centralized section 7(a) loan purchase reviews (excluding Express and Community Express
loans) by establishing the National Guaranty Purchase center in Herndon, VA. The purpose of this audit was to examine purchase procedures used by the Herndon Center to determine whether they were effective in identifying lender deficiencies to prevent erroneous payments. We statistically sampled 58 loans purchased for over $5 million from a universe of 1,803 loans purchased for $214.5 million, which were reviewed by the Center between October 1, 2004, and May 31, 2005. A listing of sampled loans is presented in Appendix I, and our sampling methodology is provided in Appendix II. Lender files for three of the sampled loans could not be located, and therefore, we relied on documentation jn SBA's loan files to assess the purchase reviews of these loans. We reviewed SBA and lender loan files and interviewed lender and SBA officials as necessary. We conducted our audit at the Herndon National Guaranty Purchase Center from July 2005 to June 2006, in accordance with Government Auditing Standards prescribed by the Comptroller General of the United States.

To read the complete report, please see the attached report.


1 Audit ofthe Guaranty Purchase Process, Report No. 3-15, March 17, 2003 Audit Report on Business Loan Guarantee Purchases, Report No. 7-5-H-0 11-26, September 30, 1997