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loans, procurement flaws that allow large firms to obtain small business awards, excessive improper payments, and outdated legacy information systems.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

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