Audit Report 1-19: Audit of the PLP Oversight Process
Date Issued: Friday, September 21, 2001
Report Number: 1-19

On September 27, 2001, the OIG issued Audit Report 1-19, Audit of the PLP Oversight Process.  Under the Preferred Lender Program (PLP or program), the SBA authorizes designated lenders to approve Federally guaranteed loans without prior SBA credit approval. In 1996, Congress required the SBA to conduct an annual assessment of preferred lender participation in the program to include lender loans, defaults, and recoveries. To comply with the law, the SBA implemented the preferred lender compliance review process in fiscal year 1998. In 1999 the SBA established the Office of Lender Oversight to ensure that the oversight system, among other things, provided a more effective means of identifying risk to the Federal government.  The objective of this audit was to determine if SBA’s oversight of the preferred lender process, ensured that lenders are properly selected for participation in the PLP program, and identified lenders not processing, servicing, and liquidating loans in accordance with SBA policies and procedures.

 

The OIG determined that program oversight needs improvement to ensure lenders are properly selected for participation and to identify those not in compliance with SBA guidelines.  Specifically, the audit disclosed:

  • All PLP lenders were not selected for review and their past due, delinquent, and liquidation status loans were not adequately evaluated.
  • Lender participation in the program could be better assessed if the annual PLP review process considered financial and lender-based risk factors.
  • PLP Lender Evaluation Worksheets allowed lenders who did not meet performance benchmarks to obtain passing scores and district offices to provide unwarranted scores.
  • Annual lender reviews were not coordinated with the PLP renewal process.
  • There was no documentation that safety and soundness examination results for non-bank lenders were considered during the renewal process.

 

The OIG recommended the SBA make improvements in the areas of:  (1) selecting lenders and loans for review; (2) emphasizing performance benchmarks and credit quality in the annual review process; (3) scoring annual reviews and lender evaluation worksheets; (4) coordinating annual PLP reviews and lender renewal dates, and (5) informing district offices of safety and soundness examination results for non-bank lenders and documenting the results in the annual renewal process.  The report contains 5 findings and 10 recommendations.