SBA’s FY2017 Progress in Reducing Improper Payments

The objectives of our evaluation were (1) to determine whether SBA complied with Improper Payments Elimination and Recovery Act of 2010 (IPERA) 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, and (2) to assess SBA’s progress in remediating improper payment-related recommendations. 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 2017 Agency Financial Report(AFR).

Our overall qualitative review of Agency efforts to prevent and reduce improper payments showed that SBA continued to maintain adequate controls to prevent and reduce improper payments. Further, SBA was generally compliant in meeting the minimum requirements in accordance with OMB guidance. In accordance with IPERA, SBA published and posted an AFR on its website, conducted program-specific risk assessments, and published improper payment estimates for all programs and activities identified as susceptible to significant improper payments. SBA also published extracts from the applicable programmatic corrective action plans in the AFR for three of five areas tested for fiscal year 2017 reporting, and it met and published the annual reduction target for three of the applicable five areas tested. However, SBA was not compliant with IPERA reporting requirements because disbursements for disaster direct loans had an improper payment rate that exceeded the 10 percent threshold. SBA’s improper payment rate for disaster direct loan disbursements more than doubled, from 5.32 percent in FY 2016 to 13.65 percent in FY 2017. SBA management attributed the increase in the disaster improper payment rate to SBA loan officers not providing justifications when they approved loans exceeding SBA’s guidelines for repayment ability, documenting insurance coverage, or properly determining eligible loan amounts as a result of insurance or other payments received by the borrower related to the disaster. Also, 7(a) loan guaranty purchases and disbursements for disaster direct loans did not meet their annual reduction target.

The report contains two recommendations to improve the effectiveness of improper payment controls. Both recommendations will remain open until OIG receives documentation demonstrating that these recommendations have been addressed. We requested that SBA provide us within 90 days their progress in addressing these recommendations.