On March 29, 2002, the OIG issued Alert Memorandum Report 2-16, Review of Asset Sale due Diligence Contract. This memorandum discusses two issues identified during the on-going audit of asset sales due diligence contracts. The issues related to worked performed by one company that involved the validation of the cost data of a due diligence contract, and erroneous conclusions concerning over-billing issues. For each sale, the SBA contracted with a transaction financial advisor and due diligence firm to assist with the program. Issues identified in this report originated from an anonymous source that alleged that a firm had submitted over $2 million in invoices (over-billing) to the SBA for work it did not complete. The SBA then hired an independent public accountant (IPA) to validate the magnitude of the billing issues.
The OIG found that the accounting firm did not validate their database for reliability since it was not included in the scope of the agreed upon procedures, nor was the firm asked to perform a comprehensive audit. The OIG recommended that the IPA’s database be validated and transaction testing be accomplished to ensure data accuracy and reliability prior to reaching a negotiated settlement with the firm on Asset Sales.