Audit of the Accuracy of the FY 2015 Disaster Loan Program Improper Payments Rate

This report presents the results of our audit of the Small Business Administration’s (SBA’s) fiscal year (FY) 2015 improper payments rate for the Disaster Loan Program.  The Improper Payments Elimination and Recovery Act of 2010 and related legislation require agencies to annually report statistically valid estimates of their improper payments, and Inspectors General to annually determine agency compliance with key criteria in the Act. 

We found that SBA did not detect all improper payments when conducting improper payment reviews to estimate its FY 2015 rate for the Disaster Loan Program.  Consequently, they understated the FY 2015 improper payments rate for the Disaster Loan Program.  SBA reported improper payments of $24.6 million, or 8.13 percent, of the $302.3 million in disaster loans disbursed during the year.  We determined the improper payment rate to be at least 9.89 percent, or $29.9 million.  Our audit of a statistical sample of 31 loans identified 10 improper payments totaling $1,698,700, while SBA’s review of the same loans resulted in 4 identified improper payments, totaling $650,200.

We found that SBA’s review did not detect all improper payments because the review guidance used by Quality Control (QC) staff excluded relevant laws and regulations, the QC staff did not always follow the standard operating procedure, management overturned identified improper payments without clear justification, and QC staff did not consider relevant documents in the loan file if they were dated after loan disbursement.  We also determined that SBA did not include all detected improper payments in its rate calculation.  Consequently, SBA did not accurately report and assess the risk of improper payments in the program and could not establish appropriate reduction targets or properly implement corrective actions to reduce improper payments and enhance program integrity.

We provided four recommendations to improve SBA’s accuracy in reporting the estimated improper payments rate for the Disaster Loan Program.