On March 31, 1995, the OIG issued Evaluation Audit Report 5-3-H-004-006, SBA Loan Servicing and Debt Collection Activities. The objective of this review was to evaluate (1) the effectiveness of SBA's loan servicing and debt collection procedures for delinquent loans serviced by the SBA, and (2) whether the current loan collection and deposit procedures resulted in effective cash management.
The OIG found that enhancements to SBA's loan servicing and debt collection procedures could substantially increase collections. For example, the SBA did not have an aggressive program to recover delinquent debt or effective procedures to identify cash management improvements. Specifically, the OIG found that the SBA could maximize collections on delinquent debt and provide for management and technical assistance to delinquent borrowers by having loan officers intensify their servicing of delinquent borrowers. The Office of Management and Budget (OMB) Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables, requires agencies to establish aggressive programs for recovering delinquent debt and effective strategies to return debtors to current payment status.
The OIG also found that loan officers (1) did not emphasize site visits to delinquent borrowers, (2) lacked expertise in financial statement analysis, (3) conducted ineffective site visits, and (4) did not take aggressive actions to resolve delinquencies. Management stated they did not have the personnel resources to adequately service delinquent borrowers. As a result, loan officers neither detected severe cases of impropriety by borrowers nor identified the need for specific management assistance to borrowers.
The OIG recommended that the SBA:
- Refers loans to collection agencies on a more timely basis. Annual collections could be increased by approximately $18.5 million over the next five years if the Agency adheres to Circular A-129, which requires that accounts six or more months past due be turned over to collection agencies. Current procedures allow for referral when a loss is recognized and the account is removed from its receivables, i.e., charged-off. This is typically 30 months after account becomes delinquent and well beyond the six month requirement.
- Restructures its procedures for processing field office receipts and collecting bank loan guaranty fees. This restructuring could save the SBA approximately $764,485 over the next five years.
- Improve its procedures for referring delinquent borrowers to other agencies. As a result, the government could maximize collections and detect delinquent borrowers who apply for additional Federal assistance. The OIG found, for example, that delinquent commercial loans were not reported to other agencies for Federal salary offset, or to the Department of Housing and Urban Development's (HUD), Credit Alert Interactive Voice Response System (CAIVRS). Such procedures could include the establishment of a formal administrative offset program to collect delinquent amounts, as required by Circular A-129. Officials stated that the SBA currently did not have the system capability to comply with all OMB requirements and believed some requirements were impractical.