Audit Report 13-16R: Purchase Reviews Allowed $4.6 Million in Improper Payments on 7(a) Recovery Act Loans

On June 14, 2013, the OIG issued Advisory Memorandum 13-16R, Purchase Reviews Allowed $4.6 Million in Improper Payments on 7(a) Recovery Act Loans. This advisory memorandum presents the results of the first in a series of the OIG’s ongoing audit of purchased 7(a) Recovery Act loans.  The OIG found that six 7(a) Recovery Act loans were not originated and closed in accordance with SBA rules and regulations including Standard Operating Procedure 50 10 and the Code of Federal Regulations.  The deficiencies included loans approved with questionable eligibility; with inadequate assurance of repayment ability; with equity injection issues, and with insufficient collateral.  As the deficiencies identified in the six loans were not detected during SBA’s purchase reviews, they resulted in inappropriate or unsupported disbursements of approximately $4.6 million.  The OIG recommended that the SBA seek recovery from the six lenders associated with these loans on the guaranties paid by the SBA.