Court filing
SIGPR-A-22-003-13 — Independent Review: Caribbean Sun Airlines Validation Memo (Oct. 2022)
Record facts
| Court | Special Inspector General for Pandemic Recovery (SIGPR) |
|---|---|
| Filed | 2022-10-26 |
Summary
Report SIGPR-A-22-003-13, dated October 26, 2022, from the Assistant Inspector General for Auditing of the Special Inspector General for Pandemic Recovery (SIGPR) to the Treasury Chief Recovery Officer. It reviews the Validation Memo Treasury completed for Caribbean Sun Airlines, Inc., which the report says applied on April 20, 2020 for a $57.8 million loan under Section 4003 of the CARES Act and received a finalized loan of $6,768,749 on December 7, 2020, as a Tier 3 borrower. SIGPR states it is not aware of any material modifications needed for the memo to comply with Treasury's Underwriting Guide. It notes one discrepancy it calls inconsequential, concerning whether the borrower had applied for loans under other CARES Act programs. Appendices set out the objective, scope and methodology and the report distribution.
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SIGPR-A-22-003-13 Independent Review of 4003(b) Loan Recipient’s Validation Memo – Caribbean Sun Airlines, Inc. Report Number: SIGPR-A-22-003-13 October 26, 2022 SIGPR-A-22-003-13 i October 26, 2022 TO: Jacob D. Leibenluft Chief Recovery Officer U.S. Department of the Treasury FROM: Theodore R. Stehney Assistant Inspector General for Auditing Special Inspector General for Pandemic Recovery (SIGPR) SUBJECT: Independent Review of 4003(b) Loan Recipient’s Validation Memo – Caribbean Sun Airlines, Inc. This report presents the results of our review of the Validation Memo associated with Caribbean Sun Airlines, Inc.’s (Caribbean Sun) application submission to the Department of the Treasury (Treasury). Caribbean Sun received a $6,768,749 loan under Section 4003, Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). On April 20, 2020, Caribbean Sun applied for a loan under Application Number LA- 2004160282. All applicants had to provide specific documentation along with their applications to be further considered to receive a loan, as outlined in Treasury’s Underwriting Guide. Treasury completed a Validation Memo once it received and reviewed an applicant’s document submissions. Once the Validation Memo was completed, Treasury forwarded the application to the next level of the underwriting process. Based on our review, we are not aware of any material modifications that should be made to the Validation Memo that Treasury completed for Caribbean Sun to comply with Treasury’s Underwriting Guide. Please address questions regarding this report to Michael Sinclair at (202) 923-8021 or Michael.Sinclair@sigpr.gov. SIGPR-A-22-003-13 1 Introduction Section 4003 of the CARES Act authorizes the Treasury to make loans, loan guarantees, and other investments to provide liquidity to eligible businesses related to losses incurred as a result of the coronavirus pandemic. Sections 4003(b)(1)-(3) appropriated $46 billion to help stabilize the airline industry and businesses critical to maintaining national security. The breakdown of available funding was as follows: 1. Up to $25 billion for passenger air carriers; businesses certified to perform inspection, repair, replace or overhaul services; and ticket agents; 2. Up to $4 billion for cargo air carriers; and 3. Up to $17 billion for businesses critical to maintaining national security. Section 4003 loans were further categorized by the loan amount requested. The Air Carrier Loan Program is categorized into tiers as follows: Tier 1 loan amounts were $300 million or greater, Tier 2 loans were less than $300 million and greater than $20 million, and Tier 3 loans were up to $20 million and no less than $250 thousand. Background On April 20, 2020, Caribbean Sun applied for a $57.8 million loan under Section 4003 of the CARES Act. Treasury finalized the loan amount of $6,768,749 on December 7, 2020. Based on its loan amount, Caribbean Sun is classified as a Tier 3 borrower. During the application period, applicants were required to submit documents through a Treasury web portal. For each applicant to move forward in the loan process, they had to provide a financial plan, IRS Form 941, and financial statements, among other documentation. Depending on the applicant’s type of business, additional documentation was also required. For instance, air carriers had to provide their Department of Transportation certification as such under Section 40102(a) of Title 49, United States Code. All documentation provided was to be maintained by Treasury. Once the required documentation was compiled, Treasury verified and recorded it using a Validation Memo. A completed and signed Validation Memo allowed the applicant to move forward to the loan underwriting process. Results in Brief Based on our review, we are not aware of any material modifications that should be made to the Validation Memo Treasury completed for Caribbean Sun to comply with Treasury’s Underwriting Guide. However, we identified the following discrepancy in the completion of the Validation Memo that we consider inconsequential: SIGPR-A-22-003-13 2 • We noted that the Reviewer asserts that the Borrower did not receive, apply for, or expect to apply for loans provided or guaranteed pursuant to other programs under the CARES Act. However, according to Treasury’s Validation Memo processes and applicant provided information, Caribbean Sun did indicate that it had received, applied for, or expected to apply for loans provided or guaranteed pursuant to other programs under the CARES Act. Furthermore, the Validation Memo itself indicates that Caribbean Sun is a Payroll Support Program applicant. Lastly, the Treasury website confirms that Caribbean Sun applied for and received a Payroll Support Program loan on April 23, 2020, totaling $6.3 million. Compliance Statement We conducted our review in accordance with generally accepted government auditing standards for attestation engagements. Those standards require that we plan and perform the review to obtain limited assurance that the Validation Memo is fairly presented in all material respects and completed according to Treasury’s Underwriting Guide. A review is substantially less in scope than an examination, the objective of which is to obtain reasonable assurance and express an opinion on the subject matter. Accordingly, we do not express such an opinion. We believe that our review provides a reasonable basis for our conclusion. Audit Team This review was conducted by the individuals listed below: Michael Sinclair Audit Manager Kevin Gallagher Audit Manager SIGPR-A-22-003-13 A-1 Appendix A – Objective, Scope and Methodology We have reviewed Caribbean Sun’s submission of loan documents under Application Number LA-2004160282. Treasury was responsible for obtaining Caribbean Sun’s loan documentation and completing the Validation Memo in accordance with its Underwriting Guide prior to moving the application further in the loan process. Our responsibility is to express a conclusion about whether any material modification should be made to the Validation Memo for it to be in accordance with Treasury’s Underwriting Guide and be fairly stated. The objective of this review is to evaluate whether Treasury’s Validation Memo for Caribbean Sun was completed according to Treasury’s Underwriting Guide and other applicable criteria, and fairly presents the supporting documentation provided by Caribbean Sun in all material respects. Treasury’s efforts culminated in the completion of the Validation Memo. Additionally, this review is an offshoot of the overall examination of the 4003(b) loan program. We primarily performed this review remotely due to the ongoing telework situation dictated by the pandemic. We therefore relied on mostly electronic records for our review. To accomplish the review objective, our fieldwork included, but was not limited to, the following procedures: • Reviewed Treasury’s Underwriting Guide and determined the documents required by all applicants; • Reviewed Caribbean Sun’s Validation Memo for completeness and accuracy; • Determined if the document submissions were complete and accurate; • Requested additional documentation from Treasury officials when needed; and • Held discussions with Treasury officials when applicable. The review was conducted in accordance with generally accepted government auditing standards for attestation engagements. SIGPR-A-22-003-13 B-1 Appendix B – Report Distribution Chief Recovery Officer – U.S. Department of the Treasury Office of General Counsel – U.S. Department of the Treasury Inspector General – Special Inspector General for Pandemic Recovery Asst. Inspector General for Auditing – Special Inspector General for Pandemic Recovery Office of General Counsel – Special Inspector General for Pandemic Recovery
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