Peggy E. (Peg) Gustafson was sworn in as the Inspector General of the U.S. Small Business Administration on October 2, 2009. Ms. Gustafson previously served as General Counsel to Senator Claire...
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Audit Report 0-10: An Audit of an Early Defaulted Loan
On March 23, 2000, the OIG issued Audit Report 0-10, An Audit of an Early Defaulted Loan. The loan was judgmentally selected for review as part of the OIG’s ongoing program to audit SBA guaranteed loans charged off or transferred to liquidation within 36 months of origination (early default). The objective of this audit was to determine if the early loan default was caused by lender or borrower noncompliance with SBA requirements.
The OIG found that improper lender processing procedures were used to approve the loan. Specifically, the lender did not follow prudent lending procedures in approving and disbursing the loan. The borrower’s equity injection and personal financial information were not verified and the lender could not provide support that loan proceeds were used for the purposes designated by the Loan Authorization Agreement. In addition, the seller’s financial information was not validated. When these facts were brought to the lender’s attention, SBA’s obligation to honor a $204,866 guarantee on this loan was relieved. The OIG made two recommendations.