Report 11-07 - Processing of Insurance Recovery Checks at the Disaster Loan Servicing Centers

This report summarizes our audit of the Small Business Administration's (SBA) processing of insurance recovery checks at the Disaster Loan Servicing Centers. The audit objective was to determine whether the servicing centers have adequate and effective systems for processing insurance checks and recovering duplicate benefits.

The servicing centers receive and process a variety of checks including loan payoff checks, borrower monthly payments, and insurance checks. To evaluate the insurance recovery check processing systems, we obtained a universe of 21,568 checks processed by the Birmingham servicing center and 9,990 checks processed by the EI Paso servicing center for FY 2008 and FY 2009. Because the universe of checks did not identify which were for insurance recovery, we extracted a sample of 1,500 checks from the Birmingham universe and 800 checks from the EI Paso universe to identify those checks that were for insurance. From these samples, we identified 133 insurance checks processed by the Birmingham servicing center and 211 checks processed by the El Paso servicing center that were specifically for insurance. We determined that 77 of the 133 insurance checks received by the Birmingham servicing center and 97 of the 211 insurance checks received by the El Paso servicing center were for the same disaster as the SBA loan and, therefore, should have been evaluated for potential duplication of benefits.

We interviewed the staff at the Birmingham and El Paso servicing centers responsible for performing duplication of benefits analysis and observed staff as they analyzed sample insurance checks for potential duplication of benefits (DOBs). To test whether the servicing centers accurately identified DOBs, we reviewed Disaster Credit Management System (DCMS), Centralized Loan Chronology System (CLCS), and Field Cashiering System (FCS) entries related to the loan for each check in our sample. We also contacted the insurance companies to obtain a complete, up-to-date record of all insurance claim payments for each sample item. Our audit scope and methodology is further detailed in Appendix I, and our sampling methodology is provided in Appendix II.

We conducted the audit between March 2010 and October 2010 in accordance with Government Auditing Standards prescribed by the Comptroller General of the United States.