Audit Report 14-13: Significant Opportunities Exist to Improve the Management of the 7(a) Loan Guaranty Approval Process

On June 6, 2014, the OIG issued Audit Report 14-13, Significant Opportunities Exist to Improve the Management of the 7(a) Loan Guaranty Approval Process.  This report presents the results of the OIG’s audit of the 7(a) Loan Guaranty Approval Process. 

The OIG determined that significant opportunities exist to improve the management of the 7(a) loan guaranty approval process to mitigate the SBA’s risk of loss.  Specifically, the OIG found that Loan Guaranty Processing Center (LGPC) management emphasized quantity over quality for 7(a) loan reviews, which was not in accordance with the strategic mission of the LGPC.  Additionally, the OIG determined that LGPC loan specialists were not provided adequate guidance and training to conduct their 7(a) loan review activities.  Further, a decrease in the number of staff assigned to loan reviews, increase in loan size and complexity, additional LGPC responsibilities, and inadequate supervision contributed to inappropriate loan decisions

Furthermore, based on a sample of 13 loans approved for $13 million, the OIG identified that 11 loans—approved for $11.3 million—had material underwriting deficiencies.  In addition, based on limited reviews of 57 other loans, the OIG found evidence indicating that 8 of these loans— totaling $5.6 million—should not have been approved due to repayment ability and eligibility deficiencies.  Finally, the OIG identified suspicious activity in five of the loans reviewed.

The OIG recommended five actions that will help strengthen the management of the 7(a) Loan Guaranty Approval Process.  The Agency generally agreed with the OIG’s findings and agreed with all of the recommendations. The Agency has taken steps to improve the 7(a) loan guaranty approval process.