Report 9-16 – The Small Business Administration’s Fiscal Year 2008 Improper Payment Rate for the 7(A) Guaranty Loan Program

This report summarizes the results of our audit of the Small Business Administration’s (SBA) Fiscal Year (FY) 2008 improper payment rate for the 7(a) Guaranty Loan Program (7(a) program). The Improper Payments Information Act (IPIA) of 2002 requires Federal agencies to review their programs and activities annually, identify programs that may be susceptible to significant improper payments, estimate amounts improperly paid, and report on the amounts of improper payments and actions to reduce them. Since implementation of the Act, SBA has reported a low improper payment rate for the 7(a) program. However, because several recent OIG audits uncovered a significant number of improper 7(a) guaranty loan purchases, we initiated the audit to determine (1) whether SBA’s FY 2008 estimate of the improper payment rate for the 7(a) program was accurate, (2) if the estimate was not accurate, the reasons why, and (3) if recovery goals for FY 2007 and FY 2008 were met. To assess the accuracy of SBA’s FY 2008 improper payment review process, we compared the Agency’s review methodology with Office of Management and Budget (OMB) guidelines contained in Appendix C of OMB Circular A-123. These guidelines, which were published in 2006, provide agencies with specific instructions for estimating and reporting the rate of improper payments.