Audit Inspection Report 97-11-01: Fraud in SBA Programs
Date Issued: Saturday, November 1, 1997
Report Number: 97-11-01

In November 1997, the OIG issued Audit Inspection Report 97-11-01, Fraud in SBA Programs. This inspection was initiated due to indications that two procedures essential for deterring and detecting fraud in SBA programs—completion of a personal history statement and verification of tax return and financial information—are not being used in a consistent manner.   The purpose of this inspection was to determine whether the information requested in SBA program application and participant materials provides sufficient criminal history and tax verification information to detect and deter fraud. In addition, the OIG wanted to ascertain if the Agency’s tax verification policy was being honored by program personnel when making decisions on applicant approval and continuing eligibility.

To support the Agency’s policy of providing loans, loan guarantees, or contractual benefits only to persons of good character, program applicants must submit a Statement of Personal History (Form 912), which includes specific questions about prior criminal records, and requests the information necessary for the OIG to conduct a criminal history check with the Federal Bureau of Investigation (FBI).   The SBA also uses Internal Revenue Service (IRS) verification of tax return and financial statement information to detect fraud by program applicants or participants. These two documents not only help the OIG detect program applicants and participants who have made false statements to secure SBA benefits, but they also serve as a deterrent to applicants who may be contemplating fraud.

 

The OIG issued 11 findings as a result of this inspection, specifically that:

 

  1. That the Office of Financial Assistance (OFA) either require all of its financial assistance applicants to submit the completed Statement of Personal History (Form 912) or include the necessary information fields on the application form. In the latter case, the application form must contain: (1) the data elements required to perform a criminal history check on each principal; (2) criminal history questions answered by each principal, accompanied by each principal’s signature; (3) a statement authorizing the SBA to request criminal records from other agencies; and (4) a warning concerning false statements.

 

  1. The OFA require PLP lenders to include the completed Statement of Personal History (Form 912) in the loan materials submitted to SBA’s PLP Processing Center.

 

  1. The Office of Disaster Assistance either require all disaster business loan applicants to complete a Form 912 or incorporate the necessary information in the application form.

 

  1. The Office of Financial Assistance revise the Statement of Personal History (Form 1081) to ensure that all information necessary for the OIG to conduct a criminal history check is included.

 

  1. The Office of Financial Assistance develop procedures to ensure that applicants’ tax returns and financial statements are verified with IRS information prior to loan disbursement.

 

  1. The MED adhere to SBA policy by amending the 8(a) SOP to include a requirement that information from the IRS be obtained and used to verify financial statements and/or tax returns for the electronic application process and for establishing a firm’s continuing eligibility for the 8(a) program to ensure that financial information verification procedures are applied consistently.

 

  1. The Size Standards Program obtain IRS tax verification for all determinations that are based on average annual receipts.

 

  1. The Surety Guarantees Program conduct a one-year pilot test to obtain tax verification information from the IRS and compare it to applicant financial statements.

 

  1.  The SBA assign appropriate personnel to work with the IRS to streamline the tax verification process.

 

  1. All SBA programs using IRS tax verification be required to provide the OIG the names of program applicants and/or participants who have failed to file tax returns or who are found to have provided false financial information.

 

  1. The Office of Financial Assistance revise the loan program information on SBA’s Internet site to clarify SBA’s “good character” policy and to inform potential applicants of the measures taken to enforce this policy.