Audit of the Office of Disaster Assistance Improper Payment Appeal Process

This report presents the results of our audit of the Small Business Administration’s (SBA’s) Office of Disaster Assistance (ODA) improper payment appeal process.  Improper payments are payments that should not have been made or that were made in an incorrect amount. In addition, when an agency’s review is unable to discern whether a payment was proper because of insufficient or lack of documentation, the payment must be considered an improper payment.

For disaster loans, Quality Control (QC) Specialists conduct improper payment reviews.  The specialist identifies any payments that appear to have an exception that would make it improper.  Department managers review the exception and either agree or disagree. If the manager agrees, the payment is reported as improper. If the manager disagrees, the exception is appealed to the QC Supervisor. If the supervisor disagrees with the appeal, the manager can further appeal to the Policy and Evaluation (PP&E) Director.  The PP&E Director makes the final decision regarding whether the payment is an improper payment.

Our objective was to assess the disaster assistance improper payment appeal process. We found the process was effective to assess improper payments, but the initial review process was inefficient.  Based on our review, 31 of 35 (89 percent) exceptions removed by the PP&E Director were appropriately removed.  Nonetheless, the QC Specialist review process needs improvement.  Specifically, we found 310 of 563 (55 percent) of exceptions identified by QC Specialists in their FY 2018 review were appealed and removed by either the QC Supervisor or the PP&E Director.  This occurred because QC Specialists were inexperienced in improper payment reviews; the related standard operating procedures (SOPs), training guides, and checklist did not provide clear and comprehensive guidance to assist QC Specialists to accurately identify exceptions; and the QC Supervisor did not always provide adequate oversight of the QC Specialists or conduct quality reviews of the exceptions identified by the QC Specialists.

Although alleged in a hotline complaint, we did not identify any misconduct or misuse of authority by the PP&E Director.  However, we believe SBA should assess the current structure of the appeal process to determine if changes are needed to minimize the risk of a perceived appearance of impropriety and the risk of misconduct or misuse of authority.

We made three recommendations to improve the QC process by providing additional training to QC Specialists; updating SOPs, training guides, and checklists; and establishing internal controls to ensure the QC Supervisor provides adequate oversight of QC Specialists and conducts quality reviews of identified exceptions.  Management partially agreed with all three recommendations.  Management plans to develop and provide targeted training; update procedures, training guides, and checklists; and explore additional tools that can be used by staff when transitioning from other functional areas to the QC Team; and conduct spot checks on improper payments.  Management’s planned actions satisfy the intent of our recommendations.