Evaluation Report 15-11: SBA’s FY 2014 Compliance with the Improper Payments Elimination and Recovery Act

On May 15, 2015, the Office of Inspector General issued Audit Report 15-11, SBA’s FY 2014 Compliance with the Improper Payments Elimination and Recovery Act.  Our objectives were to (1) assess progress SBA made in remediating improper payment-related recommendations; and (2) determine whether SBA complied with IPERA reporting requirements using guidelines outlined in the Office of Management and Budget (OMB) Memorandum M-15-02, Appendix C to Circular No. A-123, Requirements for Effective Estimation and Remediation of Improper Payments. To achieve our objectives we assessed controls SBA has implemented to address prior year OIG recommendations, and evaluated whether SBA mitigated those risks.  We also assessed SBA’s efforts to prevent and reduce improper payments and reviewed the accuracy and completeness of improper payment disclosures in the 2014 Agency Financial Report (AFR).

Overall, we found that SBA continued to make progress in its efforts to prevent and reduce improper payments but that SBA still needs to improve the effectiveness and development of SBA improper payment controls and processes for Hurricane Sandy disaster relief grants and 7(a) loan guaranty purchases.  Specific areas include the accuracy of the reported improper payment rates, and completeness of test plans.

Our review found that SBA was not compliant with IPERA reporting requirements in accordance with OMB Memorandum M-15-02 because the improper payment rate for the Disaster Assistance loan disbursements exceeded the 10 percent threshold, and 7(a) guaranty loan approvals did not meet their annual reduction target.  However, in accordance with OMB’s memorandum, SBA published and posted an AFR on its website, conducted program specific risk assessments, published improper payment estimates for all programs and activities identified as susceptible to significant improper payments, published extracts from the applicable programmatic corrective action plans in the AFR, reported a gross improper payment rate of less than 10 percent for 5 of 6 areas tested for FY 2014 reporting, and published and met the annual reduction target for 5 of the 6 areas tested.

We made six recommendations to improve the effectiveness of improper payment controls over the Hurricane Sandy technical assistance grants and Section 7(a) loan guaranty purchases.  SBA plans to develop a more robust test plan and provide training for staff that performs the improper payment review.  SBA is also in the process of refining its guidelines and protocols for disasters to incorporate lessons learned from Hurricane Sandy to mitigate the underlying causes of improper payments.  Additionally, for 7(a) loan guaranty purchases, SBA plans to revise NGPC’s checklist to include the necessary detail to ensure a thorough review of creditworthiness and repayment ability.