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Audit Report 2-29: Audit of Internal Control Over Colson Services Corporation’s Contract as Central Servicing Agent for SBA’s Certified Development Company Loan Program

Date Issued: 
Thursday, September 26, 2002
Report Number: 


On September 26, 2002, the OIG issued Audit Report 2-29, Audit of Internal Control Over Colson Services Corporation’s Contract as Central Servicing Agent for SBA’s Certified Development Company Loan Program. The purpose of this audit, which was conducted by an Independent Public Account (IPA) for the OIG, was to assess:  (1) internal control over Colson program operations including policies and procedures implemented to ensure Colson’s compliance with laws, regulations, and contract requirements, (2) safeguarding of assets, (3) segregation of duties, (4) accurate and timely recording of transactions, and (5) information processing to ensure data validity and reliability.  This audit was designed to follow-up on accounting and monitoring recommendations relevant to the CDC loan program made in Audit Report 3-2-H-007-036, Audit of SBA’s Oversight of Colson Services Corporation, issued June 16, 1993.


The Certified Development Company (CDC) program provides growing businesses in economically depressed areas with long-term, fixed-rate financing for major fixed assets such as land and buildings.  The CDCs, which are locally formed non-profit corporations, work with the SBA and private sector lenders to provide financing to small businesses.  The CDC loan program is financed through fees paid by borrowers.  These fees compensate all parties involved in the process including the CDCs, Colson, and the SBA. 


Colson is the Central Servicing Agent (CSA) for the CDC loan program.  As such, Colson collects a fee from each borrower’s monthly payment.  Colson’s duties include:


  • establishing and maintaining fund accounts;
  • disbursing twice-yearly payments to debenture holders;
  • disbursing fees and interest earned in accordance with contract provisions, and
  • maintaining the computer system and software used in accounting for loans.


The IPA found that some of the findings from the 1993 report remained unresolved, including recommendations related to the SBA’s monitoring of Colson’s compliance with contract terms.  The IPA issued made two recommendations.  First, the SBA needs to improve its reconciliation procedures with Colson to ensure that amounts recorded in the SBA’s Loan Accounting System are correct.  For example, the SBA did not record $22,650,000 of CDC loans funded in May 2000 in the LAS and did not discover this error.  Second, the IPA directed the SBA to increase oversight over Colson’s compliance with various contract terms.  Specifically, the IPA noted differences between the contract’s requirements and Colson’s practices, further reinforcing the need for a fully comprehensive monitoring program.