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...
Audit Report 0-21: Audit of a Y2K Loan
On July 20, 2000, the OIG issued Audit Report 0-21, Audit of a Y2K Loan. The OIG was required to conduct this review to mitigate the risk of fraud and ensure safety and soundness of the program. The objective of this audit was to determine whether loans issued in in the Y2K loan program were processed and disbursed, and whether proceeds were used in accordance with regulations. For the five loans selected, the OIG reviewed: (1) repayment ability; (2) character and creditworthiness; (3) eligibility for the loan; (4) compliance with the loan authorization and law; and (5) use of proceeds.
The Y2K Loan Program, authorized by the Small Business Year 2000 Readiness Act (Act), was established to help small businesses become Y2K compliant and to provide relief for business economic injury due to Y2K problems occurring after January 1, 2000. Use of program funds included the repair and acquisition of information technology systems (hardware and software) and the purchase of consulting and other third party services and related expenses. There were 104 loans valued at $8.1 million approved under this program as of March 31, 2000.
The particular loan under review was judgmentally selected and examined to evaluate the safety and soundness of the nationwide Y2K loan program. The OIG found that undisbursed funds for this loan were not needed for Y2K compliance as they did not meet the usage criteria set forth for the program. Specifically, the borrower engaged a firm to replace its entire computer system prior to January 1, 2000, to bring the system into Y2K compliance. The Act states that a small business concern that receives a loan guaranteed under the act shall only use the proceeds to address the Year 2000 computer problems. Further, an SBA procedural notice stated that there can be no mixed use of proceeds in a Y2K loan. The OIG made one recommendation.