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SBA Office of Inspector General's Spring 2016 Report to Congress

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SBA Office of Inspector General's Spring 2016 Report to Congress

 

The transcript of the video follows below for further review.

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loans, procurement flaws that allow large firms to obtain small business awards, excessive improper payments, and outdated legacy information systems.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.

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$375,000 SBA 504 LOAN - SBA OIC CASH SETTLEMENT

$375,000 SBA 504 LOAN - SBA OIC CASH SETTLEMENT

The client personally guaranteed an SBA 504 loan balance of $375,000.  Debt had been cross-referred to the Treasury at the time we got involved with the case.  We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.

$140,000 SBA 7(a) LOAN – PERSONAL GUARANTY LIABILITY | NEGOTIATED 50% SETTLEMENT

$140,000 SBA 7(a) LOAN – PERSONAL GUARANTY LIABILITY | NEGOTIATED 50% SETTLEMENT

Our firm successfully resolved an SBA 7(a) loan default in the amount of $140,000 on behalf of a husband-and-wife guarantor pair. The business had closed following a prolonged decline in revenue, leaving the borrowers personally liable for the remaining balance.

After conducting a comprehensive financial analysis and preparing a detailed SBA Offer in Compromise (SBA OIC) package, we negotiated directly with the SBA and the lender to achieve a settlement for $70,000 — just 50% of the outstanding balance. This settlement released the borrowers from further personal liability and allowed them to move forward without the threat of enforced collection.

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

Client’s small business obtained an SBA 7(a) loan for $750,000.  She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance.  The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance.  However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.

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