Peggy E. (Peg) Gustafson was sworn in as SBA Inspector General on October 2, 2009. Ms. Gustafson previously served as General Counsel to Senator Claire McCaskill (D-MO), where she advised the...
Audit Report 0-03: Summary Audit of 7(a) Loan Processing
On January 11, 2000, the OIG issued Audit Report 0-03, Summary Audit of 7(a) Loan Processing. This audit was conducted at the request of the Associate Administrator for Financial Assistance requested to determine the level of compliance with SBA’s requirements for loans made under the general 7(a) loan program and to compare the results to previously conducted similar audits of the Low Documentation Loan program (LowDoc), a sub-program of 7(a).
The objective of the audit, therefore, was to determine whether loans were processed, disbursed, and used in accordance with SBA requirements. The OIG concluded that 7(a) loans were not always processed, disbursed, and used in accordance with SBA requirements. Further, the OIG concluded that the rate of non-compliance was about half that of the two LowDoc audits that preceded it. Based on a statistical projection of the sample results, the OIG estimated that 3,505 loans, valued at $405 million, had a deficiency that resulted from noncompliance with SBA requirements.
The OIG also evaluated lender compliance with 22 required procedures considered material to the loan approval process. Non-compliances were evaluated to determine whether they resulted in an actual deficiency that impacted the guarantee or required other corrective action to protect the Government’s interests. There were 26 (11 percent) valued at $7 million that had deficiencies in this category. Another 92 loans (38 percent) had non-compliances in which the impact could not be determined during the audit, or had non-compliances that did not result in deficiencies. Specifically, the OIG noted that:
- Four out of five non-compliances occurred when SBA had limited or no oversight of the lender’s processing and disbursing actions;
- The SBA did not make lender oversight reviews, as required;
- A baseline goal had not been developed to measure and evaluate the adequacy of lender loan processing performance, and
- Procedures for tracking guarantee repairs had not been developed by SBA district offices.
During the audit, the SBA began to improve lender oversight by conducting Preferred Lender Program (PLP) Lender Reviews and Small Business Lending Company examinations, and by developing a guide for district offices to use for monitoring lenders. The SBA is also in the process of establishing a lender oversight office.