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SBA Hot Topic Tuesday — SBA Needs to Further Strengthen its Oversight of Lending Participants Says OIG

November 10, 2015

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — SBA Needs to Further Strengthen its Oversight of Lending Participants Says OIG

SBA’s Inspector General issues an annual report card addressing the agency’s management challenges for the upcoming fiscal year.

Three challenges directly impact SBA 7(a) and 504 lenders — oversight, loan broker fraud and OIG’s continuing belief SBA does not deny enough 7(a) guaranties.

I’ll cover each topic separately.

Today’s installment addresses lender oversight.

Prior OIG and GAO reports disclosed weaknesses in SBA’s oversight of lenders that participate in its programs. The risks inherent in delegated lending require an effective oversight program to (1) monitor compliance with SBA policies and procedures and (2) take corrective actions when a material noncompliance is detected.

However, in prior years, we have found that SBA had not established sufficient controls that would identify—and safeguard against—the risks some lenders pose. For example, in a September 2012 audit report, OIG found that SBA did not always recognize the significance of lender weaknesses or determine the risks they posed to the Agency during its onsite reviews.

Further, SBA did not require lenders to correct performance problems that could have exposed SBA to unacceptable levels of financial risk. However, since this management challenge was first issued in 2001, SBA has made substantial progress in its oversight of lending participants.

In FY 2013, SBA (1) developed risk profiles and lender performance thresholds, (2) developed a select analytical review process to allow for virtual risk-based reviews, (3) updated its lender risk rating model to better stratify and predict risk, and (4) conducted test reviews under the new risk-based review protocol.

These efforts have demonstrated that onsite reviews are now conducted on the highest-risk lending participants based on expanded selection criteria.

Further, in FY 2014, SBA improved its monitoring and verification of lender corrective actions by: (1) developing corrective action assessment procedures, (2) finalizing a system to facilitate the corrective action process, and (3) populating the system with lender oversight results requiring corrective action.

In FY 2015, SBA’s Office of Credit Risk Management (OCRM) engaged contractor support to expand on its corrective action follow-up process. Additionally, OCRM issued its FY 2015 Risk Management Oversight Plan, which included plans to conduct 170 corrective action reviews between 7(a) and 504 lenders.

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