On April 12, 2002, the OIG issued the Independent Public Accountant or IPA’s management letter in Audit Report 2-17, Audit of SBA’s FY 2001 Financial Statements-Management Letter. The management letter includes information related to nine non-reportable issues discovered during the audit of SBA’s FY 2001 financial statements. Specifically:
- Personal Property and Equipment. This was a continuation of the FY 1999 and FY 2000 management letters where the IPA reported that SBA field offices were not consistently conducting annual physical inventories of personal property and equipment, and that the agency’s property accountability system did not fully meet the needs of all field offices. The SBA concurred and the finding was closed.
- Foreclosed Property Records and Valuation. In FY 2000, the IPA reported that the SBA did not always record the disposition of foreclosed property in a timely manage and it did not always calculate the net realizable value property. Similar conditions were reported for FY 2001. In response to the recommendations, the SBA issued an information notice and added elements to its Quality Service Reviews. With these changes initiated, the finding was closed.
- Loan Accounting Records and Servicing. This was first reported in the FY 2000 audit, based upon results of loan confirmations received from borrowers. In FY 2000, the IPA sent 288 confirmations and 22 or 8 percent were returned with incorrect addresses. For the FY 2001 audit, 16 percent were returned with incorrect addresses. Confirmations with incorrect addresses were generally associated with non-performing loans. The IPA recommended that the CFO and Office of Capital Access evaluate the LAS.
- Analysis of Account Balances and Transactions. Specifically, the Office of Chief Financial Officer did not perform adequate analyses of accounts and transactions to determine reasonableness and appropriateness. One item related to $8.1 million in account marked “Advance to Subcontractors 8a” that had been outstanding for several years. The SBA determined that the balance was uncollectible and that it should have been written-off. As a result, the SBA overstated advances on its balance sheet by $8.1 million. A second item related to three loans with payments made during FY 2001 that were not recorded by the SBA in the LAS until FY 2002, which caused an error in loan balances of $3.5 million.
- Credit Card Use. The IPA found that the SBA was not adhering to its policies governing the monitoring of credit card use. The IPA tested credit card use at five headquarters’ offices and found that in a sample of 25 credit card transactions, the SBA was unable to provide supporting receipts or the Form 2 for three transactions. Eleven of the form 2s that were attached did not have the required approving official’s signature and 11 did not have the budget officer’s initials. For three of the five offices visited, credit card statements contained no evidence of review by the cardholder or approving official. The IPA recommended that the AA for Administration issue a procedural notice to all cardholders and approving officials emphasizing the SOP requirements.
- Sensitive Loan-Sale Information. The IPA noted that the SBA was not properly limiting and controlling intra-agency access to sensitive borrow information that may allow unauthorized individuals to view and download borrowers’ tax returns, banking information, and social Security Numbers. The IPA recommend that the CIO determine if other information systems containing confidential, sensitive information are protected from unauthorized access and to establish procedures to periodically monitor software installed at workstations to assure proper licensing and authorized access to data.
- Office of the Chief Financial Officer missing policies or procedures for communicating new transaction codes and general ledger accounts. The IPA found that without such procedures, the Loan Accounting System (LAS) data, which is used to populate SBA’s database for analyzing cash flows, may not have been complete and unknown transaction codes and general ledger accounts that should have been included in the database may have been excluded.
- Reporting the Master Reserve Fund. The IPA found that the SBA changed the manner in which it presents its ownership in earnings from the Master Reserve Fund (MRF) in FY 2001. While an improvement over past practices, it could be enhanced with additional disclosures.
- Disaster Loan Cash Flows. In FY 2000, programming errors— resulting in insignificant cash flow errors— were identified. The SBA did not correct the errors in FY 2000 because they did not significantly influence cash flow. The SBA stated that the errors would be corrected for FY 2001. However, since they did not have a process to monitor and track changes, the errors remained uncorrected.
The SBA agreed with most of the findings except Number 3, Loan Accounting Records and Servicing. Officials from the Office of Capital Access noted that most of the loans associated with the returned confirmations were in liquidation or charged off. Loans in liquidation status would indicate that the businesses that received these loans were no longer operating. As the LAS did not have the capability to capture multiple addresses (i.e., it only contains the borrower’s original business address) it made “sense that the auditor’s confirmations ere returned. Although lenders do not have the ability to enter data into the LAS, liquidation plans provided to the district offices generally contain current borrower contact information and are the primary vehicles from which the loans are serviced. For charged off loans, the remaining balances were written off, and contact with the borrowers is no longer necessary. Officials from the Office of Capital Access agreed that loans in regular servicing status should have current addresses in the LAS, but noted that an insignificant number of these loans had returned confirmations.