Management Advisory Memorandum 16-23: Audit of SBA’s 504 Loan Liquidation Process

This management advisory presents the results of our audit of the Small Business Administration’s 504 loan liquidation process.  Based on our results, we believe management and monitoring of the 504 liquidation portfolio at the Commercial Loan Servicing Centers (CLSC) during FYs 2015 and 2016 was effective.  Additionally, SBA CLSCs generally maximized recovery when liquidating the 504 loans we reviewed.  While SBA had established effective policies and procedures and had experienced staff managing its current 504 loan liquidation operations, we identified opportunities to improve SBA’s internal controls.  Specifically, we determined that one CLSC had not developed a formal training plan for staff in accordance with established goals and procedures.  We also determined that the internal policies and procedures for liquidating 504 loans were unique to and applied inconsistently at the centers.  In addition, components of the information systems used by each center were developed independently and were not utilized uniformly.  Without consistent implementation and application of policies and procedures over the 504 loan liquidation process, the CLSCs’ effectiveness in liquidating 504 loans could result in loss to the Agency.  Further, in the event of significant turnover or workload fluctuation at a given center, differences in operations could impact the Agency’s ability to effectively reallocate resources to meet demand.  OIG recommended two actions that will help improve SBA’s internal controls over servicing and liquidating 504 loans.  The Agency agreed with OIG’s findings and recommendations.