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Audit Report 9-05: Audit of SBA’s FY 2008 Financial Statements - Management Letter
On December 17, 2008, the OIG issued the Independent Public Accountant or IPA’s management letter in Audit Report 9-05, Audit of SBA’s FY 2008 Financial Statements - Management Letter. The management letter includes information related to non-reportable findings discovered during the Audit of SBA’s FY 2008 financial statements. The IPA noted 16 issues, as follows:
- Improvement needed on SBA’s process to provide guidance and improve the timely charge-off of delinquent loans. The untimely charge-off of delinquent loans resulted in charge-off actions going unprocessed for extended periods, which reduced the likelihood that collections could be maximized. Further, the gross loan receivable and respective allowance accounts were overstated by the amount of the backlogged loans.
- Improvement needed in adherence to Information Technology general control procedures and in review of payments prior to processing by Treasury. The OIG advised the IPA of an issue concerning duplicate payments in which an invoice was paid multiple times by the SBA. Specifically, the SBA processed a batch payment multiple times resulting in duplicate payments to various vendors totaling $11,205,608.
- No pursuit of collateral prior to direct loan charge-off in compliance with SOP 50 5, Consumer loan servicing and collections for disaster home loans.
- SOP findings associated with direct loan servicing at the Fort Worth Loan Processing and Disbursement Center. The IPA noted deviations from the SOP at the Fort Worth Loan Processing and Disbursement Center. The auditor found, in some cases, a credit check was not completed before loan disbursement; an uncollateralized loan was approved for $27,100 (exceeding the $10,000 limit on such loans); duplication of benefits searches were not performed, and one loan was reinstated without a request from the borrower.
- Inadequate review of the loan loss reserve fund documentation submitted by intermediaries in the Microloan Program.
- Legal review was not performed in accordance with SOP 50 51 2A, Loan Liquidation and Acquired Property.
- Lack of legal review on SBA Form 327 for Loan Guaranty Charge-off.
- Lack of legal review documentation for charge-off actions by the Office of General Counsel related to the Small Business Investment Company (SBIC) Program.
- Missing loan files. The IPA found that many loan files were missing and therefore, could not be reviewed. This occurred because the SBA did not have an effective procedure in place to track the location of loan files.
- Improper referral of debtor to Treasury.
- Improvement needed in loan guaranty approval process controls in order to prevent approval of duplicate loans. The IPA found duplicate approvals of a loan resulting in two guaranties for the same borrower were approved for $2,912,000 on the same day. During a search to identify additional duplicate loan approvals, the IPA identified 52 potential duplicate approvals with a total dollar value of $17,826,000. The SBA identified, in their review, only 16 actual duplications totaling $7,464,000.
- Improvement needed in the Office of Credit Risk management (OCRM) documentation of departures from the General Standards stated in SOP 51 00, On-site lender reviews/examination. As part of their work on lender oversight, the IPA selected all 7(a) lenders as of June 30, 2008, with a risk rating of 4 (high) or 5 (highest) and an SBA share of loan balance greater than $10 million to determine if an on-site risk-based review was performed during FY 2007 and 2008. The auditor found that for 28 of the 91 lenders fitting the profile criteria, an on-site risk based review was not conducted within the 12- to 24-month cycle, as required by the SOP. Further, documentation to support such departures from the guidelines did not exist.
- Improvement needed in the new hire, personnel action, and employee separation process.
- Enhancement needed to ensure the SOP related to SBA’s organizational structure is current.
- Untimely de-obligation of undelivered orders and a need to improve documentation records. The untimely approval and posting of obligations indicated an inconsistency in obligating procedures, which could have resulted in unsupported recorded obligations. The IPA found that undelivered orders were overstated by approximately $999,000. Further, the projected results of the test work indicated that an error of $24,856,732 might exist in the undelivered orders recorded balance.
- Internal controls surrounding Congressional grant monitoring. The IPA found that the SBA did not collect and retain the quarterly Financial Status Reports (SF 269) for all grant recipients. This is required so the SBA can evidence its monitoring of the grantee.