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SBA Office of Inspector General's Spring 2016 Report to Congress
Pursuant to the Inspector General Act of 1978 (the IG Act), as amended, the Office of Inspector General (OIG) provides independent, objective oversight to improve the integrity, accountability, and performance of SBA and its programs for the benefit of the American people. While SBA’s programs are essential to strengthening America’s economy, the Agency faces a number of challenges in carrying out its mission. Challenges include fraudulent schemes affecting all SBA programs, significant losses from defaulted loans, procurement flaws that allow large firms to obtain small business awards, excessive improper payments, and outdated legacy information systems.
The U.S. Small Business Administration (SBA or the Agency) Office of Inspector General’s (OIG) recently provided its Spring 2016 Semiannual Report to Congress. The OIG report describes OIG’s activities from October 1, 2015 through March 31, 2016. OIG which continues to focus on the most critical risks facing the SBA.
The OIG’s resources are directed at key SBA programs and operations to include Agency management challenges, financial assistance, disaster assistance, Government contracting and business development, financial management and information technology, and security operations.
During the reporting period, OIG issued 12 reports with 49 recommendations to improve SBA operations and reduce fraud and unnecessary losses in the Agency’s programs. In addition, OIG investigations resulted in 18 indictments and 24 convictions. Overall, OIG’s investigations and audits achieved monetary recoveries and savings of $106.7 million. OIG also sent 36 suspension or debarment referrals to SBA and 2 additional suspension or debarment referrals to other agencies.
Some of the key reviews and investigative outcomes detailed in the OIG report are highlighted below:
Georgia Bank President Sentenced to 7 Years in Prison and Ordered to Pay $3.9 Million in Restitution
The former president of a Georgia banking company was sentenced in Federal court to 7 years of incarceration and 3 years of supervised release. He was also ordered to pay $3.9 million in restitution. The man previously had pled guilty to conspiracy to commit bank fraud and conspiracy to commit major fraud against the United States. He admitted that, from 2005 through 2010, he conspired with others to obtain money, funds, credits, securities, and other property of the banking company while replacing non-performing loans with new Government guaranteed loans, including a $1.5 million SBA-guaranteed loan to a Georgia business. This was done to make the bank appear financially stronger than it actually was. To save the failing bank, the president continued these illegal activities during the time that the bank received assistance from the Troubled Asset Relief Program (TARP), a Government initiative established to help institutions during a financial crisis. His actions caused a monetary loss to SBA, the U.S. Department of Agriculture (USDA), and the FDIC of over $3.9 million. This is a continuing joint investigation with the FDIC, Special Inspector General for TARP, FBI, USDA OIG, and Tift County (GA) Sheriff’s Office.
7(a) Lender to Pay SBA $299,318 for Failing to Properly Follow SBA’s Origination and Closing Requirements
OIG reviewed a $1.3 million 7(a) loan intended to acquire a limousine service. The OIG identified that a 7(a) lender did not provide sufficient information to support that it approved the loan in accordance with SBA’s origination and closing requirements. Specifically, the lender did not inspect or adequately value the significant fixed assets for this limousine and transportation service business, resulting in increased losses to SBA. SBA has agreed to recover the $299,318 guarantee payment from the lender to cure the lender’s material deficiencies on this loan.
(a) Lender to Pay $2 Million to SBA for not Complying with SBA’s Origination and Closing Requirements
OIG identified that another 7(a) lender did not provide sufficient information to support that it approved the loan in accordance with SBA’s origination and closing requirements. Specifically, the lender did not comply with material SBA requirements regarding new construction of and improvements to an existing building. We also determined that the lender failed to address and mitigate adverse changes affecting both project control and the borrower’s financial condition, compounding the risk to the SBA loan. As a result, SBA has agreed to recover from the lender the $2 million guarantee payment to cure the lender’s material deficiencies on this loan.
OIG Hotline
OIG’s Hotline reviews allegations of waste, fraud, abuse, or serious mismanagement within SBA or its programs from employees, contractors, and the public. During this reporting period, the Hotline received 641 complaints. Hotline conducts a preliminary review of each allegation and may consult with OIG’s Investigations Division, Auditing Division, and Office of Counsel to determine the appropriate course of action. Referrals within OIG may result in corrective actions, audits, or administrative, civil, or criminal investigations. Hotline staff monitor matters referred to SBA program offices for further action to ensure timely response and adequate resolution of the allegations, and corrective action taken."
A complete copy of the OIG’s Report to Congress can be found here: Spring 2016 Semiannual Report to Congress
If you are facing an SBA loan default, contact us today for a consultation with an experienced SBA workout attorney at 888-756-9969
We analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’sBureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.
Clients personally guaranteed SBA 504 loan balance of $750,000. Clients also pledged the business’s equipment/inventory and their home as additional collateral. Clients had agreed to a voluntary sale of their home to pay down the balance. We intervened and rejected the proposed home sale. Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.