June 7, 2022
SBA Hot Topic Tuesday – OIG Says SBA Must Develop Effective Risk Oversight Policies and Procedures
One of the top eight management and performance challenges facing the SBA is the risk management and oversight practices that need improvement. In the report, the OIG reports that SBA has implemented several actions to address previous recommendations that the OIG has made, but more improvements are necessary to protect the integrity of the loan programs.
The Office of Inspector General found that SBA needs effective oversight to monitor compliance with policies and procedures and corrective actions to address non-compliance, especially considering the risks that come with delegated lending. SBA did not always conduct planned high-risk lender reviews and recommend appropriate risk mitigation actions for deficiencies identified during oversight reviews of high-risk lenders. The OIG also reports that the SBA did not always communicate loan deficiencies found during high-risk lender reviews to SBA approval and purchase loan centers. While SBA has made many improvements, they indicated that more time was necessary to finalize and implement the policies and procedures that will address this issue.
Another facet of this challenge is the SBA’s ability to identify and track loan agent involvement in the 7(a) and 504 loan portfolios. The OIG’s investigations revealed notable fraud by loan packagers and fee-based agents in the 7(a) program, and SBA’s oversight of loan agents was limited. SBA made improvements to the Form 159 in response to this issue, and loan agent information is generally tracked and provides more complete data to evaluate loan agent performance. Integrity in the loan programs will require effective management of risk caused by high-risk loan agents.
A third issue that the SBA must continue to work on is managing the risk associated with lender service providers. With the increasing number of SBA-approved LSPs, each is provided an identifying number that allows the Office of Credit Risk Management to develop initial statistics on provider participation in the 7(a) loan program. More oversight is still needed because the SBA’s analysis does not include loan-level information from lenders which would help identify high-risk LSPs. An analysis report was developed to identify high-risk LSPs, but they are evaluating the information from the analysis report to determine if it signals LSPs that add risk to loan portfolios.