SBA Hot Topic Tuesday — SBA’s OIG Recommends Improvements for Risk Management and Lender Oversight

October 29, 2019

By Caity Witucki
Contributing Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — SBA’s OIG Recommends Improvements for Risk Management and Lender Oversight

According to the FY 2019 SBA management report card, the SBA has taken significant action to address the OIG’s previous concerns regarding the oversight of lenders. However, an ongoing OIG audit recently identified the following issues:

SBA’s Oversight of Lending Participants

From FY 2013 to FY 2018 the SBA developed risk profiles and lender performance thresholds, developed an analytical review process to allow for virtual risk-based reviews, updated its lender risk rating model to better stratify and predict risk, and conducted test reviews under the new risk-based review protocol.

Despite ongoing efforts to improve the SBA’s oversight of lending participants, the OIG has recommended that additional action should be taken. The SBA management report card notes that the OIG anticipates issuing a final audit report at the end of October 2019 which will recommend specific actions to address the ongoing internal control weakness and oversight issues.

Portfolio Risk Management Program

The SBA traditionally relied on loan approval volume and loss rates to evaluate overall program performance with the risk being assessed at the lender level. According to the SBA management report card, the SBA made substantial progress in monitoring portfolio segments and implementing additional controls to mitigate risks from FY 2016 to FY 2018.

During FY 2020, the SBA OIG recommends that the SBA should continue to use its improved portfolio risk management program to support risk-based decisions and implement additional controls to mitigate risks.

Increased Risk Introduced by Loan Agents

In September 2015, the OIG released an agent report which identified significant issues in the data quality from Form 159 (loan agent disclosure). In response to that report, the SBA determined that the optimal way to gather information would be through an enhanced Form 159 and through the SBA’s FTA contract. The SBA expects enhanced controls to be fully implemented in FY 2020.

Source: SBA OIG Report 20-01