Report 16-11: Management Advisory Memorandum

As part of its High-Risk 7(a) Loan Review Program, on March 17, 2016, the Office of Inspector General (OIG) issued a memorandum, Report 16-11, which provides the Small Business Administration (SBA) with early notification of issues identified as part of our review.  We identified that the lender did not provide sufficient information to support that it approved the loan in accordance with SBA’s origination and closing requirements.  Specifically, the lender did not comply with material SBA requirements regarding new construction of and improvements to an existing building.  We also determined that the lender failed to address and mitigate adverse changes affecting both project control and the borrower’s financial condition, compounding the risk to the SBA loan.  As a result, a recovery from the lender for SBA’s guarantee payment of $2,046,465 is appropriate to cure the lender’s material deficiencies on this loan.  The Agency agreed with the recommendation to recover funds from the lender.