Roll-up of Independent Review of 4003(b) Loan Recipients' Validation Memos (SIGPR-A-22-003-17)

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Audit Memorandum Number SIGPR-A-22-003-17, dated March 8, 2023, from the Special Inspector General for Pandemic Recovery's Assistant Inspector General for Auditing, Theodore R. Stehney, to Treasury Chief Recovery Officer Jacob D. Leibenluft. It rolls up 16 independent attestation reviews of Treasury Validation Memos for loan recipients under Section 4003(b) of the CARES Act, plus a limited analysis of the remaining 18 borrowers. The memorandum reports minor discrepancies in 10 of the 16 memos and a material deficiency for Ovation Travel Group, and tabulates 35 loans with authorized amounts of $21,890,983,560 and disbursements of $2,677,983,560. It states that 38 percent of all Validation Memos had discrepancies and makes no formal recommendations. Appendices list the distribution and a borrower response section.

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Special Inspector General for Pandemic Recovery | U.S. Department of the Treasury 
2051 Jamieson Avenue, Suite 600 | Alexandria, VA 22314 
www.sigpr.gov 
 
 
 
March 8, 2023 
 
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: 
Roll-up of the Independent Review of 4003(b) Loan Recipients’  
Validation Memos 
Audit Memorandum Number SIGPR-A-22-003-17 
 
 
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law on 
March 27, 2020. Section 4003 of the CARES Act authorized the U.S. Department of 
Treasury (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. 
Treasury created two programs to facilitate the issuance of these loans – the Air Carrier 
Loan Program (ALP) and the National Security Loan Program (NSLP). Both programs 
followed Treasury’s guidance as issued in the Underwriting Guide L1 Review Chapter 
and Underwriting Guide L2 Review Chapter. The L1 guidance covered the initial intake 
of applicant information through to the recommendation of sending applicants to the 
underwriting, credit analysis and approval process, which is covered in the L2 
Underwriting Guide. The recommendation to send an applicant forward in the process is 
documented by Treasury in a Validation Memo. 
During the initial loan application process, applicants were required to submit 
documents through a Treasury web portal. For each applicant to move forward in the 
loan process, applicants had to provide certain documentation, such as financial 
statements, an Internal Revenue Service (IRS) form 941, a financial plan, etc. Treasury 

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also performed internal queries to ensure the applicant wasn’t debarred or suspended 
from conducting business with the federal government and had no government liens or 
bankruptcies, among others checks. This information was compiled in the Validation 
Memo. 
Treasury made 35 loans totaling $21.9, with actual disbursements of $2.68 billion.* The 
loans are broken down as follows: 
Type 
No. of Loans 
Authorized Loan 
Amounts 
Loan 
Disbursements 
Air Carriers 
15  
$ 21,113,399,648 
$ 1,900,399,648 
Cargo Air Carriers 
2  
2,111,656 
2,111,656 
Ticket Agents 
2  
20,549,651 
20,549,651 
Repair Stations 
5  
18,988,205 
18,988,205 
National Security 
11  
735,934,400 
735,934,400 
Totals 
35  
21,890,983,560 
2,677,983,560 
* Disbursements are less than the Authorized Loan Amounts because not all borrowers took the full 
amount authorized. 
As part of our oversight of Section 4003, SIGPR performed 16 independent attestation 
reviews of 4003(b) loan recipients’ Validation Memos. Our objective was to evaluate 
whether Treasury’s Validation Memo for direct loan recipients was completed according 
to Treasury’s L1 Underwriting Guide and other applicable criteria, and fairly presented 
the supporting documentation provided by each loan recipient in all material respects.  
Treasury’s efforts culminated in the completion of a Validation Memo for 34 of 35 
borrowers. We also performed a limited analysis of the remaining 18 loan recipients’ 
Validation Memos.1 
We selected our judgmental sample of 16 Validation Memos by first looking at the 
largest borrowers. We then selected companies from various segments of the program, 
e.g., ticket agents, businesses critical to national security, etc. Our sample consisted of 
authorized loan amounts totaling $21.1 billion with actual loan disbursements of $1.9 
billion. After the initial 16 companies were reviewed, we then performed a limited 
analysis of the remaining borrowers that did not result in the issuance of a separate 
report. The results of our limited analysis of the remaining borrowers are also included 
in this memorandum. 
 
 
1 We did not perform a review of Yellow Corporation as a Validation Memo was not completed. We are assessing 
Yellow’s loan approval process under separate cover. 

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Results of Independent Attestation Reviews 
We identified minor discrepancies in 10 of the 16 Validation Memos reviewed and a 
material deficiency for one Validation Memo.2 The following chart below summarizes the 
results: 
 
Borrower 
Minor Discrepancies Identified 
Alaska Airlines 
1. The Validation Memo indicates that the applicant is publicly traded. It is 
not. 
2. The Validation Memo indicates that the borrower was not a Payroll 
Support Program (PSP) applicant. Borrower received Payroll Support 
Payments. 
3. The Salesforce Application had incomplete fields. 
Hawaiian Airlines 
1. The Validation Memo indicates that the borrower was not a PSP 
applicant. It was. 
2. The Validation Memo indicates that no other CARES Act funding was 
received. Borrower received Payroll Support Payments.  
Mesa Airlines 
1.  The Validation Memo indicates that the borrower was not a PSP 
applicant. It was. 
2. There was no supervisory review of the Validation Memo. 
American Airlines 
1. The Validation Memo indicates that the borrower was not a PSP 
applicant. It was. 
United Airlines 
1. The Validation Memo indicates that the borrower was not a PSP 
applicant. It was. 
SkyWest Airlines 
1. The Validation Memo indicates that the borrower was not a PSP 
applicant. It was. 
Caribbean Sun Airlines 
1. The Validation Memo indicates that the borrower was not a PSP 
applicant. It was. 
SpinLaunch 
1. Loan amount indicates borrower was allocated $20 million, however was 
only allocated $2.5 million. 
2. The Validation Memo indicates the borrower received $1.05 million in 
Payroll Protection Program (PPP); however, the PPP was cancelled, and 
the amount was $0. 
Meridian Rapid Defense 
Group 
1. The Validation Memo did not have a Lead Reviewer signature. 
TIMCO Engine Center 
1. The Validation Memo did not have a supervisory review. 
 
2 The 16 independent reports are posted on our website and can be accessed at www.sigpr.gov/reports.  
Borrower 
Material Deficiencies Identified 
Ovation Travel Group 
1. The entire Ticket Agent Section of the Validation Memo was incomplete. 
2. There was a discrepancy in the number of employees on the application 
and the IRS-941 form. 
3. There were other portions of the Validation Memo that were left blank. 

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Material Deficiencies 
We identified material deficiencies with Ovation Travel Group (Ovation), and the loan 
application should not have advanced to the next step in the loan process. Ovation was 
the only ticket agent reviewed. 
Ovation’s Validation Memo included a separate section with distinct questions for ticket 
agents. However, this section of Ovation’s Validation Memo was left blank. While it is 
not known if the responses to the questions would have prevented Ovation from being 
approved or eligible for a loan, this section should have been completed prior to 
advancing Ovations application to underwriting. 
There was also an unexplained discrepancy in the number of employees on Ovation’s 
application and its submitted IRS form 941. This is relevant because the CARES Act 
required borrowers to retain, within 10 percent, the number of employees between 
March 24,2020 and September 30, 2020. Without a confirmed number of employees in 
the documents provided, this requirement of the CARES Act could not be verified. 
Ovation, like several other borrowers, lacked documented evidence of a supervisory 
review. Had the supervisor reviewed the completed Validation Memo, these deficiencies 
may have been detected and corrected. 
 
Minor Discrepancies 
We identified 10 of 16 Validation Memos with minor discrepancies. However, the fact 
that many of these same minor discrepancies were repeatedly found in multiple 
Validation Memos points to a systemic issue with Treasury’s review process as it relates 
to following its L1 Underwriting Guide procedures. 
The most common discrepancy was that the Validation Memos stated that the borrower 
did not receive or apply for, or expect to apply for, loans provided or guaranteed 
pursuant to other programs under the CARES Act. We noted this for eight Validation 
Memos, where the borrower did either apply for or receive Payroll Support Payments 
PSP. While PSP is not a loan program, Treasury explained that PSP was considered 
“other assistance”. Treasury further goes on to say that the reviewer relied on the 
applicant’s self-reporting and certification. 
Other issues we identified were: 
• Four Validation Memos lacked a Supervisory or Lead Reviewer review and 
signature; 
• Two instances where there were blanks on the Validation Memo or application; 
• A Validation Memo had an incorrect amount for the allocated loan amount and 
indicated that the borrower received a PPP loan when it did not; and 
• A Validation Memo that indicates the company is publicly traded when it is a 
private company. 
 

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Results of Our Limited Analysis 
We performed a limited analysis of the remaining 18 borrowers, primarily looking for 
discrepancies that we found with the original 16 borrowers we reviewed. We identified 
four borrowers that appeared to have minor discrepancies; however, Treasury was able 
to explain or provide documents resolving the discrepancies for two of those borrowers. 
The remaining two borrowers showed that there was no supervisory review or signature. 
 
Conclusion 
Our reviews showed that 11 of 16, or nearly 69 percent, of the Validation Memos we 
reviewed had either major or minor discrepancies. Including the results of our limited 
analysis, we identified that 38 percent of all Validation Memos had discrepancies. The 
high instance of discrepancies identified points to a systemic issue with the initial step in 
the lending process. 
While no formal recommendations are being proposed,3 we strongly suggest that the 
systemic issues identified in this memorandum be addressed and corrected before 
Treasury uses the L1 Underwriting Guide in the future. Treasury’s Validation Memo was 
the end result of the first step of the loan approval process, where Treasury performed its 
due diligence to determine if applicants warranted being moved to the next phase of the 
loan approval process; an integral part in the overall loan approval process. Attention to 
detail and understanding and following policies and procedures could aid in eliminating 
the types of discrepancies identified in our reviews in future initiatives. 
We do not require a written response to this memorandum, however, if you wish to 
respond, we will incorporate the entire response as an addendum to this memorandum. 
If you have any questions regarding this memorandum, please contact me or any 
member of the audit team at the following: 
Michael Sinclair 
Audit 
Manager 
Michael.Sinclair@sigpr.gov 
(202) 923-8021 
Reynaldo Gonzales 
Auditor-in-
Charge 
Reynaldo.Gonzales@sigpr.gov 
(202) 941-6828 
I would like to thank you and your staff for your assistance during the attestation reviews.
 
3 Attestation review engagements only provide limited assurance, and as a result, auditors do not perform 
sufficient work to be able to develop elements of a finding or provide recommendations.  

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APPENDIX A – AUDIT MEMORANDUM 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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APPENDIX B – BORROWER RESPONSE IN ACCORDANCE 
WITH PUBLIC LAW 117-263 
 

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