"Sba Loan Sample"
OIG Recovery Act Plan Overview OIG Name: U.S. Small Business Administration, Office of Inspector General The OIG has developed oversight plans for deploying additional resources to monitor, evaluate, and report on the performance and oversight of SBA's programs under the Act. These new programs and program changes are inherently high risk, requiring the Agency to establish effective controls and adequate oversight. OIG Broad Recovery Act Goals: Therefore, the OIG’s oversight efforts will focus heavily on assessing these controls and detecting and deterring fraud, waste and abuse in Recovery Act programs. The OIG has conducted outreach efforts to raise fraud awareness and engage industry trade groups. Outreach efforts have focused on providing SBA lenders OIG Broad Training and Outreach Recovery Act and employees with information on detecting fraud patterns that have been identified in OIG loan fraud investigations through written guidance, website Goals: information, and presentations at trade group events, as well as notifying the public of scams. Additionally, the OIG posts the results of audits and other reviews on its Recovery Act website. The OIG has taken a number of actions to alert Agency managers of risks and recommend cost effective controls to help prevent fraud, waste, and abuse, and ensure program goals are achieved and stimulus funds are accurately tracked and reported. In FY 2010 we will review Agency regulations and procedures for OIG Recovery Act Risk Assessment Process: the new secondary market programs under the Recovery Act. Additionally, we have initiated periodic reviews of loan quality and will determine whether the Agency has taken the required steps, beyond standard practice, to initiate additional oversight mechanisms for programs funded by the Recovery Act. As we identify risks, we have and will continue to provide Agency managers with comments and recommendations for ways to mitigate these risks. OIG Staff Dedicated to Recovery Act Oversight: 6 OIG Recovery Act Funds: $10,000,000 Expiration Date of OIG Recovery Act Funds: September 30, 2013 OIG Recovery Act Funds Allocated to Contracts: Yes Purpose of Recovery Act Contracts: Contractors will be used to assist with loan reviews and financial statement audits. Types of Recovery Act Contracts Awarded to Fixed price modification of the existing financial statement audit contract; fixed-price contract for reviws of Recovery Act loans.. Date: Link to OIG Recovery Act Work Plan: www.sba.gov/ig/recovery Page 1 of Overview 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls OIG FY 2010 Recovery Act Work Plan Review Included on Expected Expected Recovery Act Funds Expected Entity Performing Prior Quarter Quarter(s) Agency Program Area Associated Type of Review Project Title Background Objective Number of Review Recovery Work Reports w/Program Area Reports Act Plan Begins Issued (Y/N) The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for many enhancements to current SBA programs to begin economic recovery for our country’s small business sector. The Recovery Act provides reduced loan fees, higher SBA guaranties on loans, and the creation of new SBA credit programs. In times of economic instability, SBA’s programs Reviews of Loans Made suffer increased vulnerability to fraud and To determine if loans disbursed pursuant to the Under the American Loans and Loan unnecessary losses as demonstrated by SBA’s Recovery Act were originated and closed in Q1 FY 10 SBA $630,000,000 Performance OIG Staff Recovery and Yes Q4 FY 09 4 Guaranties response after the 9-11 attacks and the Gulf Coast accordance with SBA’s policies and procedures Q2 FY 10 Reinvestment Act of Hurricanes. With increased guaranties, lenders and to identify any evidence of suspicious activity. 2009 will have reduced risk and may not exercise due diligence in originating loans thereby potentially increasing SBA losses. Additionally, SBA’s oversight may not be as effective in identifying red flags in loan applications due to public pressure to increase lending. An audit of the origination of loans disbursed pursuant to the Recovery Act is warranted. The Recovery Act authorizes $6 million for direct lending under SBA’s Microloan program. A previous OIG report identified significant internal control weaknesses in the administration of the Microloan program. In May 2003, the OIG issued a report on the Microloan Program that found (1) monitoring was not sufficient to catch duplicate and ineligible microloans; (2) there was no Standard Operating Procedure, requiring staff and SBA's Microloan Program participants to rely on other documents with To determine the adequacy of SBA’s (1) oversight Expansion Under the various shortcomings; and (3) performance of intermediaries, (2) performance data, and (3) SBA Microloans $6,000,000 Performance OIG Staff American Recovery and standards for intermediaries were inadequate. As Yes Q4 FY 09 Q1 FY 10 1 program metrics for managing the Recovery Act Reinvestment Act of a result of the significant Recovery Act funding and funds authorized for the Microloan program. 2009 known program weaknesses, SBA began a “best practices” review of the program and expects to make major changes to the Microloan Program before Recovery Act funds are disbursed. The OIG will evaluate whether SBA has sufficient resources, procedures, data and performance measures in place to assess program performance and whether the Agency's new program policy, which is currently in development, to determine their effectiveness. Page 2 of Work Plan 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls OIG FY 2010 Recovery Act Work Plan The Recovery Act calls for unprecedented levels of transparency and accountability in carrying out Agency programs. On April 3, 2009 the Office of Management and Budget (OMB) issued Memorandum M-09-15, Updated Implementing Review of Controls Over Guidance for the American Recovery and Job Creation and To: (1) determine whether SBA’s performance Reinvestment Act of 2009 . Sections 2.7 and 2.8 of Retention Statistics metrics adequately measure Recovery Act Program Administrative / this Memorandum require Agencies receiving SBA $630,000,000 OIG Staff Reported by SBA under program performance; and (2) assess data quality Yes Q3 FY 09 Q1 FY 10 1 Administration Financial Recovery Act funding to develop Agency-wide and the American Recovery controls to ensure that reported performance data program-specific recovery plans that include and Reinvestment Act of is accurate. performance measures to assess the quantifiable 2009 outcome of the programs. The Memorandum also requires Agencies to consult with the OIG to establish procedures to validate the accuracy of information submitted on a statistical basis and/or risk-based approach as approved by OMB. The Recovery Act created a new, 2-year program to establish a Secondary Market Guaranty Authority for 504 loans. Under this program, SBA will issue guaranties for the sale of first lien position loans issued by private lenders under the 504 program and develop a secondary market for To determine whether: (1) SBA has established an Periodic Review of the the purchase of these loans or pools of loans. The adequate process for evaluating applications for Use of SBA's Secondary program is set to expire February 17, 2011. This guaranties on pools of 504 first lien loans; and (2) SBA 504 Programs Performance OIG Staff Yes Q4 FY 10 Q3FY 11 1 Market Authority on 504 program results in SBA guaranties of first SBA’s guaranties were properly applied to 504 Loans mortgages made by private sector lenders to small loans and the pools of guaranteed loans were sold businesses. Since these are not SBA delegated to third party investors as required. lenders, they are not subject to SBA’s guidance and SOPs. Unlike participating 7(a) lenders, SBA has no recourse against these 504 lenders for loans poor underwriting and/or serviced. This greatly increases the risk of SBA losses. SBA guaranties loans that are made by participating lenders under a Guaranty Agreement to originate, service, and liquidate loans in accordance with SBA’s rules and regulations. When a loan defaults, the lender can request payment of the guaranty. SBA reviews loan documentation to evaluate the lender’s compliance with program rules and regulations. To determine whether purchased loans were This review is SBA’s primary control for ensuring originated, closed, and liquidated in accordance Q1 FY 11 Audits of Purchased Loans and Loan lender compliance and preventing improper with SBA’s rules and regulations and commercially Q2 FY 11 SBA $630,000,000 Performance Contractor Loans Made Under the No Q4 FY 10 4 Guaranties payments. In the event of noncompliance, SBA prudent lending standards for 7(a), 504 (including Q3 FY 11 Recovery Act may be released from its liability on a loan refinancing), and American Recovery Capital (ARC) Q4 FY 11 guaranty, in full or in part. Previous OIG audits loans. have identified material lender noncompliance in loan origination, closing, and liquidation that were not detected in SBA’s purchase review processes, resulting in improper payments. Increased lending under the Recovery Act, combined with limited SBA resources and higher default rates, put the Agency at risk for even higher improper payments. Page 3 of Work Plan 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls OIG FY 2010 Recovery Act Work Plan The Recovery Act is intended to stimulate small business lending, increase access to credit, and To assess the effectiveness of SBA's programs in improve secondary market liquidity. Periodic meeting the goals of the Recovery Act of increased Review of the Recovery reviews of program data will allow OIG to monitor Loans and Loan lending and job growth and to report to the SBA Performance OIG Staff Act's Impact on SBA how effectively SBA's programs are meeting the Yes Q4 FY 09 Q1 FY 10 1 Guaranties Agency any weaknesses in program data and how Lending goals of the Recovery Act. These reviews will also data is being used to measure the effectiveness of allow the OIG to identify program trends as they Recovery Act programs. occur, as well as indicators of control weaknesses or fraud. Under the Recovery Act of 2009, the SBA received $730 million to expand the Agency's lending and Review of SBA's Job investment programs and to create new ones to To evaluate the reliability of lender-reported job Creation Data Under the Loans and Loan aid small business owners and revitalize the creation and retention statistics, which are being SBA Performance OIG Staff American Recovery and No Q4 FY 09 Q3 FY 10 1 Guaranties secondary market for SBA-guaranteed loans. Data used as a major performance metric under the Reinvestment Act of reported on job creation and retention will be an Recovery Act. 2009 important measure of the Recovery Act's success and impact on the economy. To determine whether: (1) SBA has adequate controls in place over Recovery Act funds and the In conjunction with the annual financial statement Recovery Act budget process is executed in audit, OIG will modify the scope of its contract accordance with Federal guidance; (2) SBA's KPMG Audit of SBA's FY with KPMG to include additional testing for Office of Chief Financial Officer has established Financial Administrative/ 2009 Financial SBA Contractor Recovery Act activity. KPMG will assess the general ledger accounts to properly track recovery Yes Q3 FY 09 Q1 FY 10 1 Management Financial Statements - Statement adequacy of SBA's internal controls to ensure that fund activity and has properly accounted for fixed of Budgetary Resources Recovery Act funds are properly tracked, administrative costs; and (3) recorded spending controlled, and reported. authority from offsetting collections are available for obligation and referenced to the appropriate authorizing legislation. In conjunction with the annual financial statement KPMG Audit of SBA's FY audit, OIG will modify the scope of its contract To determine whether SBA has adequate 2009 Financial Financial Administrative/ with KPMG to include additional testing for accounting controls in place over loan guaranty SBA Contractor Statements - Credit Yes Q3 FY 09 Q1 FY 10 2 Management Financial Recovery Act activity. KPMG will assess the approvals, purchases, modifications and charge- Receivables - Loan adequacy of SBA's internal controls over the loan offs. Guaranties guaranty process. The Recovery Act established new reporting To determine whether SBA has established a requirements related to the award and use of process to perform limited data quality reviews Adequacy of Controls Financial Administrative/ funds to promote transparency. We will review intended to identify material omissions and/or SBA OIG Staff over FY 2009 Recovery No Q4 FY 09 Q1 FY 10 1 Management Financial SBA’s process for monitoring recipient reporting of significant reporting errors, and notify the Act Recipient Reporting Recovery Act funds for the quarter ending recipients of the need to make appropriate and September 30, 2009. timely changes. In conjunction with the annual financial statement To determine whether SBA: (1) has a system of KPMG Audit of SBA's FY audit, OIG will modify the scope of its contract quality controls for Recovery-Act related Financial Administrative/ 2009 Financial with KPMG to include additional testing for SBA Contractor operational expenses; and (2) validates the Yes Q2 FY 09 Q1 FY 10 2 Management Financial Statements - Operations Recovery Act activity. KPMG will assess the accuracy of accrual amounts for a sample of Expenses Testwork adequacy of SBA's internal controls in place over expense categories. operational expenses related to the Recovery Act. Page 4 of Work Plan 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls OIG FY 2010 Recovery Act Work Plan To determine whether: (1) SBA has adequate controls in place over Recovery Act funds and the In conjunction with the annual financial statement Recovery Act budget process is executed in audit, OIG will modify the scope of its contract accordance with Federal guidance; (2) SBA's OCFO KPMG Audit of SBA's FY with KPMG to include additional testing for has established general ledger accounts to Financial Administrative/ 2010 Financial SBA Contractor Recovery Act activity. KPMG will assess the properly track recovery fund activity and has No Q2 FY 10 Q1 FY 11 1 Management Financial Statements - Statement adequacy of SBA's internal controls to ensure that properly accounted for fixed administrative costs; of Budgetary Resources Recovery Act funds are properly tracked, and (3) recorded spending authority from controlled, and reported. offsetting collections is available for obligation and referenced to the appropriate authorizing legislation. In conjunction with the annual financial statement KPMG Audit of SBA's FY audit, OIG will modify the scope of its contract To determine whether SBA has adequate 2010 Financial Financial Administrative/ with KPMG to include additional testing for accounting controls in place over loan guaranty SBA Contractor Statements - Credit No Q2 FY 10 Q1 FY 11 2 Management Financial Recovery Act activity. KPMG will assess the approvals, purchases, modifications and charge- Receivables - Loan adequacy of SBA's internal controls over the loan offs. Guaranties guaranty process. To determine whether SBA: (1) performs internal In conjunction with the annual financial statement control assessments to evaluate the risk of waste, audit, OIG will modify the scope of its contract fraud, and/or abuse and identifies strategies to KPMG Audit of SBA's FY with KPMG to include additional testing for prevent and timely detect waste, fraud, and abuse 2010 Financial Recovery Act activity. KPMG will assess the Financial Administrative/ involving grants and operational expenses; (2) has SBA Contractor Statements - Operations adequacy of SBA's internal controls in place over No Q3 FY 10 Q1 FY 11 3 Management Financial a system of quality controls for accrued grant and Grant Expenses the grant management/accounting processes, liabilities and operational expenses in the financial Testwork which will include Microloan program grants statement footnotes; and (3) validates the funded by the Recovery Act. We will also assess accuracy of accrual amounts for a statistical controls over operational expenses. sample of grants and operational expenses. Under the Recovery Act, SBA received $20 million To determine whether SBA has: (1) adopted an to improve, streamline, and automate information acquisition plan for the procurements that Planning and Award technology systems related to lender processes promote competition, protect the taxpayer, and Process for Information and lender oversight. SBA intends to issue a series provide measurable outcomes; (2) ensured Administrative / SBA Contracts $20,000,000 OIG Staff Technology Contracts of contracts using various contract types and contractors are qualified and that contracts Yes Q3 FY 09 Q3 FY 10 1 or more Financial Awarded Under the methods. Because SBA plans to use contractors to contained required Recovery Act provisions; and Recovery Act manage the award of these contracts and has few (3) properly posted solicitations and contract staff to oversee them, there is an increased risk awards to meet the transparency requirements of that the contracts may not be properly awarded. the Recovery Act. SBA has designated six Recovery Act-funded To determine whether SBA is (1) managing the IT projects totaling $20 million as high priority and projects within cost, schedule, and performance Management of IT set ambitious deadlines for their implementation. Administrative/ goals; and (2) complying with Federal laws and SBA Performance OIG Staff Projects Funded By the The audit will examine how well SBA is managing No Q3 FY 10 Q1 FY 11 1 Financial regulations regarding the development and Recovery Act the Recovery Act projects, given concerns raised in protection of Federal information systems and prior OIG reports about the Agency's oversight of data. other IT projects. Because of the high risk associated with the award and expenditure of Recovery Act funds, OMB has re-emphasized the importance of providing To determine whether: (1) SBA is providing Oversight of Information adequate oversight of Recovery Act contracts to adequate oversight of IT contracts funded by the Administrative / Technology Contracts mitigate risks. Because SBA is largely using SBA Contracts OIG Staff Recovery Act; and (2) SBA appointed qualified No Q4 FY 10 Q1 FY 11 4 Financial Awarded Under the contractors to oversee the $20 million in IT contracting personnel to monitor contractor Recovery Act contracts that will be awarded with Recovery Act performance. funds and may not have sufficient staff to oversee them, the audit will evaluate how well the contract oversight process is being managed. Page 5 of Work Plan 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls OIG FY 2010 Recovery Act Work Plan Early defaulted loans are those loans that default or demonstrate payment problems within 18 months of disbursement. Previous OIG audits of early defaulted loans have determined that, in To determine: (1) whether early-problem or early- some cases, lenders’ negligence in originating, defaulted 7(a) Recovery Act loan were originated Audit of Early- closing, and administering loans in full compliance and closed in accordance with SBA's rules and Loans and Loan SBA $375,000,000 Performance OIG Staff Problem/Early-Defaulted with SBA requirements and prudent lending regulations and commercially prudent lending No Q2 FY 10 Q3 FY 10 1 Guaranties Recovery Act Loans practices did not protect the government’s standards; and, (2) If not, whether noncompliance interest and resulted in an increased risk of loss to with SBA's requirements led to the loan problem, SBA. As of December 31, 2009, 27 7(a) Recovery default, or unnecassary losses Act loans have already been purchased by SBA and 39 others have been transferred to liquidation, indicating payment problems or early default. In accordance with Office of Management and Budget's Recovery Act guidance, agencies are required to take steps, beyond standard practice, to initiate additional oversight mechanisms for To: (1) assess SBAs oversight of high-risk lenders programs funded by the Recovery Act. At a making loans under the Recovery Act; and SBA’s Oversight of High- minimum, agencies are to evaluate and Loans and Loan (2) evaluate the extent to which SBA has used SBA $630,000,000 Performance OIG Staff Risk Lenders Making demonstrate the effectiveness of standard No Q3 FY 10 Q1 FY 11 1 Guaranties Recovery Act funding to enhance its standard Recovery Act Loans monitoring and oversight practices. Agencies are monitoring and oversight practices of SBA’s also required to enhance performance riskiest lenders. management and accountability processes, as well as implement appropriate internal controls assessments to define strategies to prevent and timely detect waste, fraud and abuse. In June 2009, SBA launched the America’s Recovery Capital (ARC) Loan Program, a temporary guaranteed loan program authorized by the Recovery Act. This program is intended to provide loans, on a deferred basis, to viable small To determine whether SBA has: (1) implemented businesses that are experiencing immediate adequate program controls and oversight of the Loans and Loan SBA $255,000 Performance OIG Staff SBA’s Arc Loan Program financial hardship. Loan proceeds must be used to ARC Loan Program; and (2) taken steps to No Q3 FY 10 Q1 FY11 1 Guaranties make principal and interest payments on existing, effectively identify and manage risks in the ARC qualifying business loans. This audit will Loan Program. determine whether SBA’s implementation and oversight of the ARC Loan Program is adequate and if the Agency has taken effective steps to monitor and mitigate program risks. Page 6 of Work Plan 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls OIG FY 2010 Recovery Act Work Plan For SBA-approved loans, SBA determines the borrowers’ eligibility and credit risk and approves or declines the loans based on financial information and other required documentation submitted by lenders. Unlike lender-approved loans, if an SBA-approved loan defaults, generally the lender is not held responsible for poor underwriting decisions. Previous audits have To determine if SBA is approving 7(a) Recovery Act Loans and Loan SBA’s 7(A) Recovery Act identified that loans approved by SBA’s Loan loans in accordance with its policies, procedures, SBA $630,000,000 Performance OIG Staff No Q3 FY 10 Q1 FY 11 1 Guaranties Loan Approval Process Guaranty Processing Center (LGPC) have a higher and prudent lending standards in order to default rate and more material deficiencies than minimize risk of loss. delegated lender-approved loans. Recently completed and ongoing reviews of Recovery Act loans have identified issues in SBA’s approval of change of ownership transactions, calculation of repayment ability, eligibility determinations, consideration of affiliates, and compliance with guaranty limits. Page 7 of Work Plan 76b0881f-6f0e-4270-8b06-aadc0bf37427.xls