ROM 11-07- Origination and Closing Deficiencies Identified in 7(a) Recovery Act Loan Approvals

Date Issued: 
Friday, September 30, 2011
Report Number: 
ROM 11-07

On September 30, 2011, the OIG issued the third in a series of reports resulting from our ongoing audit of purchased 7(a) Recovery Act loans. This report identifies documentation deficiencies found in twenty-four, or 40 percent, of a sample of sixty 7(a) loans reviewed, which resulted in inappropriate or unsupported loan approvals of approximately $14.2 million. The documentation in the loan files was inadequate to ensure the loans were made to creditworthy borrowers, met SBA's eligibility criteria, and had adequate evidence of equity injection, use of proceeds, or Internal Revenue Service (IRS) verification. The results of the randomly selected and statistically valid samples were projected onto the universe of 6,467 7(a) Recovery Act loans with gross loan approvals totaling approximately $3.9 billion. Based on the sample results, we estimate that at least 1,996 of the loans in the universe were not originated and closed in compliance with SBA's policies and procedures, resulting in at least $869.5 million in inappropriate or unsupported loan approvals.