On July 2, 2013, the OIG issued Evaluation Report 13-17, The OIG’s Portfolio Risk Management Program Can be Strengthened. This evaluation report presents the results of the OIG’s analysis of the SBA’s 7(a) loan portfolio data. The evaluation was designed to identify high-risk audit areas and identify loan program, portfolio, and data reliability issues warranting attention by the Agency. The OIG determined that the SBA had not implemented a program or process to effectively monitor risk in its loan portfolio. The OIG’s limited analysis identified three high-volume franchises with historical default rates of at least 46-percent, default values over 38-percent, and loss rates over 18-percent. Further, the OIG determined that over the 2002-2009 period reviewed, the Agency disbursed nearly 1,000 loans to these three franchises, totaling $199 million. Of these loans, 501, representing $84 million in Agency guaranties, defaulted. The OIG also identified five high-volume retail industries with historical default rates of at least 40-percent, default values over 30-percent, and loss rates over 16-percent. The OIG determined that over a seven-year period from 2002 to 2009, loans to these five industries resulted in 4,415 defaults and approximately $150 million in SBA charge-offs.
According to SBA officials, the Agency had not implemented a program or process to monitor risk in its portfolio because the SBA had traditionally focused on loan approval volume and loss rates to evaluate program performance with risk being assessed at the lender level. The OIG recommended three actions that will help strengthen the SBA’s portfolio risk management program. The Agency has recently taken steps towards establishing a program that will monitor portfolio risk, and where necessary, address the types of portfolio risks identified in the evaluation.