On January 11, 2001, the OIG issued Advisory Memorandum Report A1-02, Identification of Possible Ineligible Borrowers. The purpose of the memorandum was to alert agency officials to an issue identified during the ongoing audit of the Preferred Lenders Program. While conducting the PLP audit, the OIG discovered that the SBA was providing loans to borrowers who had previously defaulted on SBA guaranteed loans and caused the SBA to suffer losses. For example, the OIG identified a principal who obtained three SBA guaranteed loans between Fiscal Years 1996-1999 after defaulting on an SBA guaranteed loan in 1993. To determine the extent of this problem, the OIG queried SBA’s loan accounting system to identify the Social Security Numbers (SSNs) applicable to all purchased loans. The OIG then compared the numbers to the SSNs for loans committed and disbursed during fiscal years 1998, 1999, and 2000.
The OIG identified 180 loans where the borrower had previously defaulted on an SBA loan. Of the 180 loans, 31 were loan commitments valued at about $12.5 million that had not been disbursed. These commitments involved the Fastrack, 504, International Trade, and general business loan programs, and included preferred, express, and regular loan processing procedures. Since the SSNs for the principals of the committed and defaulted loans were the same, it appeared that the loans may have been inappropriately approved. The OIG made three recommendations.