Audit Report 13-07: The Small Business Administration’s Improper Payment Rate for 7(a) Guaranty Purchases Remains Significantly Underestimated

This report presents the results of the OIG’s audit of the Small Business Improper Payment Rate for 7(a) Guaranty Purchases for Fiscal Year 2011.  The OIG audited the improper payment review process that the Small Business Administration (SBA or the Agency) used to estimate its FY 2011 improper payment rate on purchased loans to determine the accuracy of the Agency’s estimate. 

The OIG found that for 6 of the 30 sampled 7(a) guaranty purchase loans reviewed, the SBA did not detect all improper payments when conducting improper payment reviews to estimate its FY 2011 improper payment rate for 7(a) guaranty purchases.  This occurred because improper payment reviewers were unfamiliar with or misinterpreted Agency policies, or did not have adequate time to conduct reviews.  As a result, the SBA reported an improper payment rate of 1.73 percent or $40.7 million in its FY 2011 Agency Financial Report, when the rate could have been as high as 20 percent, or about $472 million.