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 2-10: Audit of an Early Defaulted Disaster Loan
On March 12, 2002, the OIG issued Audit Report 2-10, Audit of an Early Defaulted Disaster Loan. The objective of the audit was to determine whether the early loan default was due to SBA non-compliance with its policies and procedures, borrower non-compliance with the loan agreement, or borrower misrepresentations. The disaster loan program is the primary Federal disaster assistance program for funding long-range recovery for victims of hurricanes, floods, earthquakes, tornadoes, wild fires, and other physical disasters. Disaster loans help business owners, individuals, and nonprofit organizations to fund rebuilding, replace personal property, and compensate for economic injury. When disaster victims need to borrow to repair or replace uninsured damages, the low interest rates and long terms available from the SBA make recovery affordable. Standard Operating Procedures (SOP) 50 30 4 and 50 31 2 provide specific policy and procedural guidance for making disaster loans.
The SBA approved a $136,600 disaster loan to the borrowers to repair and replace damaged manufactured housing, personal property, landscaping and cleanup and debris removal. Over a period of 28 months, from February 1999 to June 2001, the borrowers made payments of varying amounts culminating in a 6-month delinquency. The loan was a collection problem starting with the fourth installment payment due in May 1999. The loan was placed in liquidation in October 1999. Two months after the OIG’s field visit in June 2001, the borrowers made five payments totaling $4,950 that brought the loan current, indicating that the borrower may have had the ability to repay the loan.
The OIG identified four issues warranting management's attention involving the following areas: (1) unverified information relied on to determine borrower benefits; (2) use of loan proceeds for unauthorized purposes; (3) lack of support for 80 percent of funds received, and (4) false statements by the borrower, which were not referred to the OIG.