Court filing
Fiscal Year 2022 Audit Plan (SIGPR-A-21-004)
Filed September 29, 2021 in Sigpr Reports; one of 4 filings from this case.
Record facts
| Court | Special Inspector General for Pandemic Recovery |
|---|---|
| Filed | 2021-09-29 |
Full text
Fiscal Year 2022
Audit Plan
Report Number: SIGPR-A-21-004
September 29, 2021
FOREWORD
This audit plan is the culmination of our planning efforts for Fiscal Year 2022. We
developed the audits identified in this document through an assessment of the loan
programs within Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security
(CARES) Act. We conducted our assessment based on input both from officials within our
organization, and external stakeholders. We met with the Special Inspector General for
Pandemic Recovery and his senior staff to discuss potential audits. We also met with the
Department of the Treasury’s Chief Recovery Officer, and officials within the White
House’s American Rescue Plan implementation team to obtain their input. We reached
out to the Office of Management and Budget, and staffers in both the House and Senate
Subcommittees on Financial Services and General Government. The Office of Audits took
the input from these discussions along with our own evaluation of vulnerabilities and
risks to develop an audit plan for the programs under our jurisdiction – the Treasury’s
Direct Loan Program; the Federal Reserve Bank of Boston’s Main Street Lending
Program; and the Federal Reserve Bank of New York’s investment programs: the
Municipal Liquidity Facility, the Term Asset-Backed Securities Loan Facility; the Primary
Market Corporate Credit Facility, and the Secondary Market Corporate Credit Facility.
The Fiscal Year 2022 Audit Plan represents our forecast for allocating available resources
during the fiscal year. This plan is based on a current resource base of 11 audit staff and
takes into account resources required for current audits that will carry over into the next
fiscal year.
We anticipate that members of Congress, other government entities, and CARES Act
program managers will request additional audits over the coming year. We will make an
effort to respond to these requests as our resources allow. This audit plan is a living
document, and the Office of Audits will adjust as priorities change.
We would also like to note that to conduct the audits on our plan, we need coordination
from Federal Reserve and Treasury officials and access to data, documentation, and
program administrators to make sufficient progress to meet our anticipated timelines.
Resources and timelines will be adjusted as needed.
Theodore R. Stehney
Assistant Inspector General for Auditing
TABLE OF CONTENTS
PROPOSED FISCAL YEAR 2022 AUDIT RESOURCES
1
FISCAL YEAR 2021 CARRYOVER AUDITS
2
FISCAL YEAR 2022 AUDIT PLAN
4
DIRECT LOAN PROGRAM
4
MAIN STREET LENDING PROGRAM
8
SECONDARY MARKET CORPORATE CREDIT FACILITY 14
MUNICIPAL LIQUIDITY FACILITY
16
TERM ASSET-BACKED SECURITIES LOAN FACILITY
18
ONGOING EFFORT - DATA ANALYTICS
AND INVESTIGATIVE SUPPORT
20
Report Number: SIGPR-A-21-004
1
Proposed Fiscal Year 2022 Audit Resources
The SIGPR Office of Audits currently has 11 auditors/analysts on staff. After accounting for
leave, holidays, training, administrative duties, and other similar “indirect hours,” we estimate
that the 11 audit staff will have a combined 16,800 direct audit hours available in Fiscal Year
2022. The Office of Audits has identified the following projects for the FY 2022 plan:
# of Hours
Hours for FY 2021 Carryover Audits:
Audit of the Direct Loan Program
1,300
Audit of the Main Street Lending Program (MSLP) - Survey
1,800
Data Analytics & Investigative Support Hours:
Data Analytics
3,050
Investigative Support
2,700
FY 2022 – New Starts
Audit of Direct Loan Program - Use of Lobbyists
1,650
Audit of Direct Loan Recipient - To be Determined
1,800
Audit of MSLP - Review of Interrelated Borrowers
1,800
Audit of the Secondary Market Corporate Credit Facility
2,250
Audit of the Municipal Liquidity Facility
1,800
Less: Hours for FY 2023 Carryover Audits:
Audit of Direct Loan Program Recipient - To be Determined
(900)
Audit of the Municipal Liquidity Facility
(450)
Net FY 2022 Direct Hours
16,800
Project’s Pending Due to Resource Limitations:
Audit of the Direct Loan Program Loan Portfolio Management
1,800
Audit of MSLP - Review of Borrowers with Multiple Businesses
1,800
Audit of MSLP - Review of Borrower Tax Liens
1,800
Audit of MSLP Lender or Borrower - To be Determined
1,800
Audit of TALF Borrowers and Material Investors
2,100
Total Hours: Pending Products
9,300
Report Number: SIGPR-A-21-004
2
FISCAL YEAR 2021 CARRYOVER AUDITS
Title: Audit of the Direct Loan Program
Program Background
Section 4003 of the CARES Act authorizes the Department of the Treasury to make loans, loan
guarantees, and other investments to provide liquidity to eligible businesses related to losses
incurred because of the coronavirus pandemic.
Specific to the Section 4003 loans (hereinafter referred to as the “Direct Loan Program”) the
CARES Act provided up to:
(1) $25 billion for loans and loan guarantees for passenger air carriers; eligible businesses
that are certified under 14 CFR Part 145 and approved to perform inspection, repair,
replace, or overhaul services; and ticket agents (as defined in 49 U.S.C. Section 40102);
(2) $4 billion for loans and loan guarantees for cargo air carriers; and
(3) $17 billion for loans and loan guarantees for businesses critical to maintaining national
security.
Treasury entered into 35 direct loans with qualified borrowers. Although the loans and loan
guarantees totaled $21.9 billion, only $2.7 billion was disbursed to the 35 borrowers.
Audit Objective:
Determine whether the processes used to approve loans under the Direct Loan Program
followed the requirements under Section 4003 of the CARES Act and other appropriate
regulations and guidance.
Estimated Completion Date: January 15, 2022
Estimated Remaining Hours: 1300
Report Number: SIGPR-A-21-004
3
Title: Audit of the Main Street Lending Program—Survey
Program Background
The Main Street Lending Program (MSLP) was designed to provide support to small and
medium-sized businesses and their employees across the United States during the COVID-19
pandemic. The program was intended to help companies that were in sound financial condition
prior to the onset of the pandemic maintain their operations and payroll until conditions
normalize. In total, the MSLP issued 1830 loans valued at over $17.3 billion.
The MSLP offers three separate loan facilities:
(1) Main Street New Loan Facility (MSNLF)
(2) Main Street Priority Loan Facility (MSPLF)
(3) Main Street Expanded Loan Facility (MSELF).
Each loan facility uses the same borrower eligibility criteria and has similar commercial
components. The facilities differ in the maximum loan amount available and in the way they
interact with the borrower’s existing debt.
Audit Objective:
To assess the process used by banks to issue loans under the MSLP, evaluate the process used
by the Federal Reserve’s Special Purpose Vehicle to purchase the loans, determine
vulnerabilities based on a risk-based analysis, and identify specific areas that warrant further
audit work.
Methodology:
As part of this effort, the audit team distributed a survey to all MSLP lender banks and
borrowers to get an assessment of the program from the borrowers’ and lenders’ vantage
point. We will report on the results of the survey once we collect and analyze the results.
Estimated Completion Date: March 31, 2022
Estimated Remaining Hours: 1800
Report Number: SIGPR-A-21-004
4
FISCAL YEAR 2022 AUDIT PLAN
Direct Loan Program
Program Background
Section 4003 of the CARES Act authorizes the Department of the Treasury to make loans, loan
guarantees, and other investments to provide liquidity to eligible businesses related to losses
incurred because of the coronavirus pandemic.
Treasury entered into 35 direct loans with qualified borrowers. As of September 1, 2021,
Treasury has 28 outstanding loans with a remaining principal balance of $1.3 billion. The loan
agreements contain several requirements for borrowers. Borrowers must:
-
Maintain employment levels as of March 24, 2020 to the extent practicable, and in any
case shall not reduce their employment levels by more than 10 percent from the levels
on such date, until September 30, 2020;
-
Place certain restrictions on employee compensation;
-
Avoid repurchasing stock, except to the extent required under a contractual obligation
in effect as of March 27, 2020; and
-
Avoid paying dividends or making other capital distributions with respect to the
borrower’s common stock until 12 months after the loan has been repaid.
In addition, the CARES Act requires that the Department of the Treasury receive a warrant or
equity instrument in the borrower if the borrower is a public company (unless Treasury
determines that the issuance of warrants or equity is infeasible, in which case the company
must provide a senior debt instrument), or a warrant, equity instrument, or senior debt
instrument if the borrower is a private company, to compensate taxpayers.
Report Number: SIGPR-A-21-004
5
Title: Audit of the Direct Loan Program—Use of Lobbyists
Description of Audit:
Based on the survey results received during the ongoing audit of the Direct Loan Program, it
was determined that 7 of the 35 qualified borrowers who received a loan and 2 of the 56
unsuccessful applicants who responded to our survey indicated that they used third party firms
to assist in the loan application process.
Preliminary Objectives:
1. Determine the extent to which outside firms – lobbyists – assisted applicants in submitting
their applications for a direct loan; and
2. Determine, to the extent possible, the process used and impact of an applicant’s use of
outside parties to obtain a direct loan.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1650
Projected timeline: 165 days
Estimated Start Date: January 15, 2022
Estimated Completion Date: June 30, 2022
Report Number: SIGPR-A-21-004
6
Title: Audit of Direct Loan Recipient—To be Determined
Description of Audit:
Although the loan agreements between the Department of the Treasury and the direct loan
recipients contain several requirements that borrowers must adhere to, these requirements
require only a borrower certification to remain in compliance. We plan to conduct a review to
ensure the program requirement to maintain employment levels was met by the borrowers.
We will also review borrower employee compensation, stock repurchasing, and dividend
payouts to ensure that borrowers remained in compliance with program terms.
Preliminary Objective:
Determine if loan recipients are fully compliant with the terms and conditions of their loan
agreements.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1800
Projected timeline: 180 days
Estimated Start Date: July 1, 2022
Estimated Completion Date: December 31, 2022
Report Number: SIGPR-A-21-004
7
Title: Audit of the Department of the Treasury’s Direct Loan Program Loan
Portfolio Management
Description of Audit:
During our ongoing audit work on the Direct Loan Program, we learned that the Department of
the Treasury has a web portal which collects data directly from direct loan recipients. This data
is used to monitor compliance with loan terms and conditions. We plan to review the flow of
data to determine if the Department of the Treasury is monitoring this data appropriately to
assess risk in its loan portfolio. Specifically, we plan to determine whether the Department of
the Treasury, while acting in the capacity of a lender of last resort, clearly defined portfolio
oversight roles and responsibilities; performed risk identification, analysis, and assessment of
its loan portfolio; performed stress testing of its loan portfolio; and has sufficient monitoring
controls in place to protect the interests of American taxpayers.
Preliminary Objectives:
-
Determine the Direct Loan Program’s loan portfolio objectives.
-
Determine how and to what extent the Department of the Treasury performed risk
identification, analysis, and assessment of the Direct Loan Program loan portfolio.
-
Determine whether, how, and to what extent the Department of the Treasury
performed stress testing of the Direct Loan Program loan portfolio.
-
Determine how and to what extent the Department of the Treasury performs loan
portfolio management supervision.
-
Maintain up-to-date status on all outstanding loans.
-
Identify poor performing loans for potential future audits.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1800
Projected timeline: 180 days
Report Number: SIGPR-A-21-004
8
Main Street Lending Program
Program Background
The Main Street Lending Program (MSLP) was designed to provide support to small and
medium-sized businesses and their employees across the United States during the COVID-19
pandemic. The program was intended to help companies that were in sound financial condition
prior to the onset of the pandemic maintain their operations and payroll until conditions
normalize. In total, the MSLP issued 1830 loans valued at $17.5 billion.
While the Department of the Treasury provided the funding for MSLP, implementation was
handled by the Federal Reserve. The Federal Reserve Bank of Boston set up a Special Purpose
Vehicle (SPV) to purchase participations in loans originated by eligible lenders. The SPV
purchased 95% of the principal loan amount from the lending institution, thereby limiting the
Lender’s exposure to 5% of the loan amount.
To be eligible for an MSLP loan, a business must have less than 15,000 employees or have an
annual revenue of $5 billion or less. In addition, Borrowers must meet several other
requirements, including, but not limited to the following:
• Must be a U.S. based business;
• Must be a business established prior to March 13, 2020;
• Cannot be an ineligible business listed in 13 CFR Section 120.110;
• Must be able to certify that the business can meet its financial obligations for the next
90 days from application date; and
• Loan cannot exceed four times the business’ earnings before interest, taxes,
depreciation, and amortization (EBITDA) for MSNLF loans, or six times the EBITDA for
MSPLF and MSELF loans.
Eligible MSLP Lenders may rely on an Eligible Borrower’s certifications and covenants, as well as
any subsequent self-reporting by the Borrower. The Lender is not expected to independently
verify the Borrower’s certifications or actively monitor ongoing compliance with covenants
required for Borrowers. If a Lender becomes aware that a Borrower made a material
misstatement or otherwise breached a covenant during the term of an MSLP loan, the Lender
should notify the Federal Reserve Bank of Boston.
Report Number: SIGPR-A-21-004
9
Title: Audit of Main Street Lending Program—Review of Interrelated Borrowers
Description of Audit:
During our review of the MSLP loan universe, we identified different Borrowers with similar
business names, similar business phone numbers, or similar email addresses. In some cases,
these “relationships” existed across over 15 separate MSLP loans. We plan to conduct a review
of these potentially interrelated MSLP loan recipients to determine if the recipients obtained
loans according to the terms of the program.
Preliminary Objectives:
To identify if there are improper interrelated loans in the MSLP loan universe. If so, determine
the circumstances surrounding each loan.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1800
Projected timeline: 180 days
Estimated Start Date: April 1, 2022
Estimated Completion Date: September 30, 2022
Report Number: SIGPR-A-21-004
10
Title: Audit of Main Street Lending Program—Review of Borrowers with Multiple
Businesses
Description of Audit:
While businesses are eligible to receive more than one MSLP loan, the loans when added
together cannot exceed the maximum loan threshold for any given loan facility, and the loans
must all be of the same facility. For example, any given business may receive multiple MSPLF
loans, if the combined loan amount is less than $50 million (MSPLF loan limit). However, a
business receiving an MSPLF loan may not also receive an MSNLF loan or an MSELF loan.
While reviewing the universe of MSLP loans, we identified instances where multiple businesses
that received loans had the same principal borrower (individual). We plan to conduct a review
of these businesses to determine if the borrowers stayed within the program guidelines when
obtaining MSLP loans.
Preliminary Objectives:
Determine if individual borrowers receiving more than one MSLP loan adhered to the
program’s requirements, including limitations on loan amount and restrictions upon receiving
loans in more than one MSLP facility.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1800
Projected timeline: 180 days
Report Number: SIGPR-A-21-004
11
Title: Audit of Main Street Lending Program—Review of Borrower Tax Liens
Description of Audit:
While conducting a risk analysis of the universe of loans extended as part of MSLP, we found
indications that loans may have been extended to businesses that were subject to Federal or
State tax liens. The existence of tax liens may indicate that a business is not in sound financial
condition and would be a considerable loan risk. We intend to conduct an audit to determine if
MSLP loans were indeed granted to businesses under a Federal or State tax lien, and if so, the
circumstances surrounding each loan.
Preliminary Objectives:
Determine if the Federal Reserve’s Special Purpose Vehicle purchased MSLP loans to businesses
subject to Federal or State tax liens. If so, conduct a review of these loans to determine if they
were in accordance with the terms of the program.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1800
Projected timeline: 180 days
Report Number: SIGPR-A-21-004
12
Title: Audit of Main Street Loan Program Lender or Borrower—To be Determined
Description of Audit:
The Office of Audits is in the process of conducting a risk analysis on the universe of MSLP
loans, encompassing the program’s 319 lenders and 1830 borrowers. As we continue our
assessment of the MSLP loan universe, we plan to identify MSLP loans, lenders, and/or
borrowers to audit.
Preliminary Objectives:
1. Assess the process used by banks to issue loans under the MSLP;
2. Evaluate the process used by the Federal Reserve’s Special Purpose Vehicle to purchase
the loans; and
3. Evaluate whether MSLP loans were awarded and administered in accordance with the
terms of the program.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 1800
Projected timeline: 180 days
Report Number: SIGPR-A-21-004
13
Title: Audit of Main Street Lending Program—Compendium
Description of Audit:
The Office of Audits plans to conduct a number of audits into various aspects of the Main Street
Lending Program in the coming years. We will use the results of these audits to draw overall
conclusions on the program and present those conclusions in a final report on the program.
Preliminary Objectives:
1. Assess the effectiveness of the Main Street Lending Program by reviewing the process
used by banks to issue loans;
2. Evaluate the process used by the Federal Reserve’s Special Purpose Vehicle to purchase
the loans; and
3. Identify program vulnerabilities.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge.
Projected number of hours required: 4800
Projected timeline: 1440 days
Project completion date: September 2025
Report Number: SIGPR-A-21-004
14
Secondary Market Corporate Credit Facility
Program Background
The Federal Reserve established the Secondary Market Corporate Credit Facility (SMCCF) to
support credit to employers by providing liquidity to the market for outstanding corporate
bonds.
The SMCCF was designed to support market liquidity by purchasing secondary market
corporate bonds issued by investment grade U.S. companies, as well as U.S. listed exchange-
traded funds whose investment objective is to provide broad exposure to the market for U.S.
corporate bonds. The Department of the Treasury, using funds appropriated through the CARES
Act, made an equity investment in a Special Purpose Vehicle (SPV) established by the Federal
Reserve for the SMCCF and the Primary Market Corporate Credit Facility.
The SMCCF ceased purchasing assets on December 31, 2020. In June 2021, the Federal Reserve
Board announced plans to begin winding down the SMCCF portfolio. The Federal Reserve Board
stated that SMCCF portfolio sales will be gradual and orderly. They further stated that these
sales will aim to minimize the potential for any adverse impact on the market by considering
daily liquidity and trading conditions for exchange traded funds and corporate bonds. As of
August 30, 2021, SMCCF has sold all its exchange traded funds and all but $128.8 million of its
corporate bonds.
The SMCCF signed an agreement with BlackRock Financial Management, Inc.
(BlackRock) in May 2020. BlackRock, an expert asset management advisor with experience
advising official institutions, central banks, leading pension plans, and global financial
institutions, will perform investment management services for the SMCCF. The agreement was
amended in June 2021 when the SMCCF decided to begin to sell its corporate bonds and
exchange traded funds.
Report Number: SIGPR-A-21-004
15
Title: Audit of the Secondary Market Corporate Credit Facility (SMCCF)
Description of Audit:
It is important for the government to have a plan when it is purchasing billions of dollars in
corporate bonds and exchanged traded funds. Similarly, with such a large investment, it is
important for the portfolio to be diversified so there is less risk. It is also important to ensure
that controls are in place and working properly to prevent BlackRock from taking advantage of
its agreement with the government. The audit will examine the Federal Reserve’s plan for the
SMCCF portfolio and determine if controls were in place to monitor the agreement with
BlackRock.
Preliminary Objectives:
The audit will determine whether:
1. The Federal Reserve's plan showed a prudent investment strategy, and whether
BlackRock selected and managed the portfolio in a prudent, competent, and expert
manner. How, if at all, did the Federal Reserve's unique position and goals for the
SMCFF influence the plan or portfolio?
2. The SMCCF disproportionately bought exchange traded funds from BlackRock. Were
controls implemented to detect or prevent such an occurrence?
3. The Federal Reserve had a plan for selling the SMCCF portfolio. How closely did SMCCF’s
sales match the plan?
4. The SMCCF disproportionately sold exchange traded funds from BlackRock. Were
controls implemented to detect or prevent such an occurrence?
5. The controls for how BlackRock mitigates the risk of its employees using confidential
information from SMCCF benefit themselves and their clients.
6. BlackRock was selected appropriately, and if any changes can be made to improve the
competitiveness and preparedness of any future investment advisor awards during a
crisis.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 2250
Projected timeline: 225 days
Estimated Start Date: October 1, 2021
Estimated Completion Date: May 15, 2022
Report Number: SIGPR-A-21-004
16
Municipal Liquidity Facility
Program Background
Due to the COVID-19 pandemic, state and local governments faced potential cash flow
problems resulting from reduced tax revenue, increased expenses, or similar financial
problems. The Municipal Liquidity Facility (MLF) was established by the Federal Reserve, under
the authority of Section 13(3) of the Federal Reserve Act, to help State and Local governments
manage these cash flow pressures by purchasing short-term notes directly from states,
counties, and cities.
The Department of the Treasury Secretary, using funds appropriated to the Exchange
Stabilization Fund under Section 4027 of the CARES Act, made an initial equity investment of
$35 billion to the Special Purpose Vehicle (SPV), which was authorized to purchase up to $500
billion in eligible notes.
The original criteria limited borrowing to eligible states, cities, counties, or multi-state entities
at or above specified credit ratings. On June 3, 2020, the Federal Reserve expanded the criteria
to revenue bond issuers designated by state Governors. These issuers must also meet a
minimum credit rating.
The Dodd-Frank Act prohibits lending under Section 13(3) of the Federal Reserve Act to
insolvent borrowers and requires the Federal Reserve to adopt policies and procedures to
protect taxpayers from losses as a result of emergency lending.
The MLF became operational on May 26, 2020 and during its existence, purchased eligible
notes totaling about $6.6 billion - $3.2 billion from State of Illinois and $3.4 billion from the
New York Metropolitan Transit Authority. The MLF ceased purchasing eligible notes on
December 31, 2020.
As of August 31, 2021, about $2.2 billion has been prepaid by the State of Illinois, leaving about
$4.4 billion worth of notes outstanding.
Report Number: SIGPR-A-21-004
17
Title: Audit of the Municipal Liquidity Facility (MLF)
Description of Audit:
The MLF is an investment made by the Department of the Treasury using taxpayer funds. Its
purpose is to provide short-term relief to municipalities that have a temporary cash flow
shortage due to the pandemic but anticipate having the revenue to repay the funds later. If
MLF borrowers are not able to repay the debt, the Department of the Treasury could lose up to
billions of dollars of taxpayer funds. It is important that the Department of the Treasury’s
investments appropriately account for risk and that Treasury does not fund billions of dollars’
worth of loans to entities that are at high risk of defaulting.
Preliminary Objectives:
(1) Determine whether MTA qualified for the MLF based on the facility’s requirements at
the time the transactions were made.
(2) Determine whether the Federal Reserve risked losing Department of the Treasury funds
by allowing MTA to participate in the MLF.
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected numbers of hours required: 1800
Projected timeline: 180 days
Estimated Start Date: May 15, 2022
Estimated Completion Date: November 30, 2022
Report Number: SIGPR-A-21-004
18
Term Asset-Backed Securities Loan Facility
Program Background
The Term Asset-Backed Securities Loan Facility (TALF) is a credit facility authorized under
Section 13(3) of the Federal Reserve Act intended to help meet the credit needs of consumers
and businesses by facilitating the issuance of asset-backed securities.
The Federal Reserve Bank of New York established a Special Purpose Vehicle (SPV) to operate
the TALF. The Department of the Treasury, using funds appropriated to the Exchange
Stabilization Fund under Section 4027 of the CARES Act, made an equity investment of $10
billion in the SPV.
The TALF SPV was authorized to make up to $100 billion of loans available to borrowers who
are unable to secure adequate credit accommodations from other banking institutions. In total,
the TALF SPV made $4.4 billion in loans.
Section 4003(c)(3)(C) of the CARES Act requires loan recipients to be created or organized in the
United States or have the majority of its employees based in the United States:
A program or facility in which the Secretary makes a loan, loan guarantee, or other
investment under subsection (b)(4) shall only purchase obligations or other interests
(other than securities that are based on an index or that are based on a diversified pool
of securities) from, or make loans or other advances to, businesses that are created or
organized in the United States or under the laws of the United States and that have
significant operations in and a majority of its employees based in the United States.
In addition to the CARES Act requirement on domestic borrowers, Federal Reserve internal
guidance states that eligible borrowers include businesses that (a) are created or organized in
the United States or under the laws of the United States, (b) have significant operations in and a
majority of their employees based in the United States, and (c) maintain an account
relationship with a TALF Agent.
Report Number: SIGPR-A-21-004
19
Title: Audit of Term Asset-Backed Securities Loan Facility (TALF) Borrowers and
Material Investors
Description of Audit:
Congress specifically put in the requirement that the borrowers under TALF are located in the
United States, and the Department of the Treasury’s equity investment in the Special Purpose
Vehicle is from taxpayer funds. However, while all TALF borrowers are in the United States, just
150 of the 371 material investors in the TALF borrowers are located in the United States.
Although that does not violate the CARES Act requirement, this issue may be of interest to
Congress, Treasury, the Federal Reserve, and the public. We plan to review the universe of TALF
borrowers to determine if they have employees working in the United States. We will also
review if borrowers’ certifications that they could not secure adequate credit from other
banking institutions were valid.
Preliminary Objectives:
(1) Determine how borrowers and material investors interacted and who ultimately
benefitted from the loans
(2) Determine the percentage of loans that went to borrowers with foreign material
investors
(3) Determine how the borrowers operate in the United States, including present functions
and number of employees, and how they certified that they were unable to secure
adequate credit accommodations from other banking institutions
Staffing needs:
Two individuals: Audit Manager, Auditor in Charge
Projected number of hours required: 2100
Projected timeline: 210 days
Report Number: SIGPR-A-21-004
20
Ongoing Effort - Data Analytics and Investigative Support
Description of Work:
One of the Office of Audits’ first tasks was to identify the program data that related to the Main
Street Lending Program and Direct Loan Program loans authorized by the CARES Act and merge
that information into useable datasets. These datasets contain more than 70 million rows of
data, covering billions of dollars in CARES Act funding.
Using an analytical approach, the Office of Audits developed “risk scores” to identify areas of
potential vulnerabilities and financial risk in CARES Act programs. This approach provides a
detailed analysis to pinpoint financial risks of all CARES Act programs—a process that is critically
important to the mission of SIGPR. In addition, this data-driven process allows audit teams to
deliver a premier, qualitative view of financial processes and results. This information will
enable audit team members to consider key performance indicators of multiple operational
aspects, as well as variances, relationships, patterns, and anomalies. It will eventually offer new
objectives and overall perspectives on the use of CARES Act funding.
A natural by-product of the evaluation process is to generate vital insights and provide
potential investigative leads. The Office of Audits’ data analytical capabilities is used to support
ongoing investigations to assess monetary transactions and trace the receipt and use of CARES
Act funds.
The Office of Audits remains unwavering in developing risk assessment models to identify areas
of potential vulnerabilities and financial risk in CARES Act programs under its purview. The
Office of Audits continues its collaboration with other SIGPR offices in developing custom
proactive analytics and technical support in identifying abuse and fraudulent schemes.
Continued Staffing needs:
Three individuals: Program Director, Audit Manager, and 1 staff auditor/analyst
Projected number of hours required: 5750
Projected timeline: ContinuingFile and source
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