Audit of RISE Act Eligibility Controls

This report presents the results of our audit of the Small Business Administration’s (SBA’s) Recovery Improvements for Small Entities after Disaster Act of 2015 (RISE Act) eligibility controls.  The RISE Act, enacted 3 years after Hurricane Sandy, reopened the Hurricane Sandy disaster loan application filing period for an additional 1-year period, and required the Office of Inspector General to review the controls for ensuring applicant eligibility for these loans.  We audited a statistically valid sample of 26 of disbursed RISE Act loans to determine whether the borrowers were eligible based on statute, regulation, and Agency policy.

SBA did not establish controls to ensure that loss verifiers obtained documentary evidence of incurred costs prior to RISE Act loan approval when real estate already had been repaired.  For 6 of 26 loans we reviewed, loss verifiers did not obtain receipts, invoices, and other documentation of incurred costs needed to support damage claims.  As a result, SBA approved loans without sufficiently verifying damages and determining eligible loan amounts.  Since some properties had been fully repaired, with no remaining physical damage to view, this documentary evidence was critical for determining the eligible loan amount.  When projecting these results to the population of 640 disbursed loans, we estimate that proper controls were not applied to ensure that approximately 63 loans and disbursements of approximately $415,579 were awarded in accordance with program requirements.

We also found that 5 of the 26 RISE Act disaster loans reviewed, totaling $1,714,110, contained ineligible disbursements due to wrongful acts by borrowers or errors in loan processing.  Three of these loans had indications of fraud or misapplied loan proceeds and were subsequently referred to our Investigations Division for review.

We provided two recommendations to improve SBA’s management of the Disaster Assistance Program and to prevent loans to ineligible borrowers and protect against fraud.  SBA management agreed to implement both recommendations and proposed actions sufficient to resolve the recommendations.