Audit of SBA's Compliance with the Debt Collection Improvement Act, as Amended

This report presents the results of our audit to determine if the Small Business Administration (SBA) was in compliance with the Debt Collection Improvement Act of 1996, as amended, for delinquent disaster loans as of April 30, 2019. Under the law as amended in 2014, if a disaster loan is delinquent for 120 days, the SBA is required to refer the debtors to the U.S. Department of the Treasury Offset Program for administrative offset. The Act also requires SBA to transfer all disaster loans that are 180-days delinquent to Treasury for collection action unless they are exempt.

We found SBA was not fully in compliance with the Debt Collection Improvement Act, because the agency had not sent more than 250 past-due loans totaling more than $30.5 million and 180 days or more delinquent to Treasury Cross-Servicing for collection. None of the 250 loans that SBA was maintaining without sending to Treasury Cross-Servicing were exempt from collection action.

In addition, a number of delinquent loans were incorrectly classified as exempt from transfer to Treasury for collection. In our sample of 20 loans, eight (40 percent) totaling $1.2 million, were incorrectly classified as exempt.

We also determined that although SBA could assess but chose not to assess administrative fees to offset the overhead costs of operating SBA’s National Disaster Loan Resolution Center, which is responsible for resolving delinquencies of more than 90 days for disaster loans with balances of more than $25,000 and secured with collateral. Consequently, U.S. taxpayers bear the full cost of operating the resolution center, a total of approximately $49.6 million from fiscal years 2011-19.

We recommended 10 actions for SBA to strengthen its controls and improve compliance with the Debt Collection Improvement Act.