Audit Report 13-18: The SBA Did Not Effectively Manage Defaulted Disaster Loans to Maximize Recovery from 2006 to 2011

On September 27, 2013, the OIG issued Audit Report 13-18, The SBA Did Not Effectively Manage Defaulted Disaster Loans to Maximize Recovery from 2006 to 2011.  The objective of this audit was to determine whether the Small Business Administration National Disaster Loan Resolution Center: (1) effectively managed delinquent disaster loans to maximize recovery and minimize losses, (2) complied with applicable laws and regulations, and (3) had a mission aligned with Federal debt collection objectives.

The OIG determined that the SBA National Disaster Loan resolution Center (NDLRC) did not effectively manage delinquent disaster loans to maximize recovery and minimize losses.  During the five-year period from June 2006 through June 2011, the NDLRC charged off approximately 9,035 defaulted disaster loans.  The OIG estimates that at least 7,198 of these loans, totaling $752.6 million, were charged off without using all appropriate collection tools to maximize recovery. 

Specifically, the OIG found that the NDLRC did not: (1) transfer all non-exempt delinquent debts to Treasury cross servicing and offset; (2) analyze most delinquent debts for workout and restructuring potential; (3) liquidate loan collateral; (4) renew UCC financing statements to retain SBA’s lien priority in non-real estate collateral; or, (5) refer offer-in-compromise settlements for debts above $500,000 to the Headquarters Claims Review Committee, as required by the Standard Operating Procedures (SOPs).

The OIG concluded that the SBA was not successful in maximizing recovery because management did not: (1) align the NDLRC mission with Federal debt collection objectives; (2) adhere to existing controls, including Standard Operating Procedures; (3) include requirements of the DCIA in the SOP; (4) provide oversight of loan collateral, or have an effective Management Information System to monitor and track the collateral, (5) ensure that staff were properly trained; or, (6) ensure that management and staff performance goals emphasized effective debt recovery.