Audit of U.S. Treasury's Direct Loan to YRC Worldwide, Inc. (SIGPR-A-22-005)

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Summary

An audit report of the Special Inspector General for Pandemic Recovery, Report Number SIGPR-A-22-005, issued May 11, 2023, on the U.S. Department of the Treasury's process for its direct loan to YRC Worldwide, Inc. under Section 4003 of the CARES Act. It reports internal control weaknesses in reviewing, approving and disbursing a $700 million loan, and states Treasury had no finalized loan approval policies or Validation Memo before approval. It notes Treasury's definition of businesses critical to maintaining national security was broader than the definition later added to 15 U.S.C. 9041 by the Consolidated Appropriations Act, 2021. The loan was agreed July 8, 2020 in tranches of $300 million and $400 million, with an initial disbursement of $245 million on July 9, 2020 and a 29.6 percent equity interest to Treasury. The report makes four recommendations to Treasury officials.

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Audit of the U.S. Department of the Treasury’s  
Process for Its Direct Loan to YRC Worldwide, Inc.  
Under Section 4003 of the CARES Act  
 
Report Number SIGPR-A-22-005 
May 11, 2023 
 
 
 

SIGPR-A-22-005 
Executive Summary 
 
Audit of the U.S. Department of the Treasury’s Process for Its Direct Loan to YRC 
Worldwide, Inc. Under Section 4003 of the CARES Act 
Report Number SIGPR-A-22-005 
May 11, 2023 
 
Why We Performed This Audit 
We performed this audit as part of our ongoing audit work relating to Section 4003, 
Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security Act 
of 2020. For all other loan recipients that received funding under Section 4003, the U.S. 
Department of the Treasury (Treasury) followed its published policies by completing a 
Validation Memo, which compiled information enabling Treasury to make a 
determination if the applicant should be considered for underwriting of the loan. YRC 
Worldwide, Inc.’s (Yellow) loan was approved prior to Treasury’s published policies and 
therefore did not have a Validation Memo prior to its loan approval. 
 
What We Found 
We identified internal control weaknesses in the development and implementation of 
Treasury’s approach to reviewing, approving, and disbursing a $700 million direct loan 
to Yellow. Treasury did not have specific, measurable objectives, nor did it have 
finalized loan approval policies and procedures in place prior to the approval and 
disbursement of Yellow’s loan. Treasury also developed a definition of “businesses 
critical to maintaining national security,” under which Yellow’s eligibility was determined, 
which had a broader scope than the definition later added as an amendment to 15 
U.S.C. 9041 by the Consolidated Appropriations Act, 2021.  
 
What We Recommended 
We recommend that Treasury officials: 
1. Finalize/codify program objectives in its policies and procedures before any new 
programs are established and executed.  
2. Ensure that appropriate policies and procedures are in place prior to rolling out 
new programs where American tax dollars are at risk. 
3. Develop a contingency plan for financial disasters that provides a framework for 
future direct lending programs to reduce implementation time and the possibility 
of errors or omissions.  
4. Develop a “Lessons Learned” report that discusses the strengths and 
weaknesses/successes and failures of the processes used to approve Yellow’s 
National Security Loan Program loan. 

SIGPR-A-22-005 
Table of Contents 
 
Introduction .............................................................................................................. 1 
 
Results 
Finding 1 – Treasury officials did not define traditional credit program metrics which 
makes program effectiveness difficult to measure. .................................. 3 
Finding 2 – Treasury officials approved and disbursed Yellow’s $700 million loan before 
National Security Loan Program policies or procedures were finalized and in 
effect ........................................................................................................ 5 
Other Matters ............................................................................................................. 7 
 
Conclusion .............................................................................................................. 10 
SIGPR Response……………………………………………………………….………….10 
Recommendations ................................................................................................... 10 
 
Appendixes 
Appendix A – Scope and Methodology .............................................................. A-1 
Appendix B – Agency Comments ....................................................................... B-1 
Appendix C – Report Distribution ....................................................................... C-1 
 

SIGPR-A-22-005 
1 
 
Introduction 
 
We performed an audit of the U.S. Department of the Treasury’s (Treasury) process for 
its $700 million loan to YRC Worldwide, Inc. (Yellow). This project is in lieu of an 
attestation review of Yellow’s Validation Memo, as Treasury did not complete a 
Validation Memo for Yellow. 
 
Purpose 
We performed this audit as part of our ongoing audit work relating to Section 4003, 
Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security 
(CARES) Act. Treasury followed its published policies and completed a Validation 
Memo, which compiled information enabling Treasury to determine if the applicant 
should be considered for underwriting of the loan, for all other loan recipients that 
received funding under Section 4003. Yellow did not have a Validation Memo prior to its 
loan approval. 
 
Objective 
The objective of SIGPR’s Audit of the U.S. Department of the Treasury’s Process for Its 
Direct Loan to YRC Worldwide, Inc. Under Section 4003 of the CARES Act is to 
determine if Treasury followed requirements under Section 4003 of the CARES Act and 
other appropriate regulations and guidance. 
See Appendix A – Scope and Methodology for additional details. 
 
Background 
The CARES Act became law on March 27, 2020.1 The CARES Act provided over $2 
trillion in relief to respond to the COVID-19 outbreak and its impact on individuals; 
businesses; public health; state, local, and tribal government; and federal agencies. 
Section 4003 of the CARES Act authorized Treasury to make loans, loan guarantees, 
and other investments to provide liquidity to eligible businesses related to losses 
resulting from the COVID-19 pandemic. Loans to eligible businesses were limited as 
follows: $25 billion for passenger air carriers, ticket agents, and aircraft repair stations; 
$4 billion for cargo air carriers; and $17 billion for businesses critical to maintaining 
national security.2 
Treasury created two programs to facilitate the issuance of these loans – the Air Carrier 
Loan Program (ALP) and the National Security Loan Program (NSLP). Loans under 
these programs were designed to have up to a 5-year maturity with a single lump sum 
payment due at the end of the loan term. Borrowers were charged interest using the 
London Interbank Offered Rate (LIBOR) plus an additional 2.5 to 3.5 percent for 
 
1 Pub. L. 116-136 
2 Id. § 4003(b)(1) – (3) 

SIGPR-A-22-005 
2 
 
secured loans or an additional 5.5 percent for unsecured loans. Furthermore, the 
CARES Act required the Secretary of the Treasury to receive a warrant, equity interest, 
or senior debt instrument from each borrower, for the benefit of taxpayers.3 Borrowers 
receiving these loans were also subject to limitations on certain employee 
compensation.4 
Treasury approved 22 loans worth approximately $21.2 billion to passenger air carriers, 
ticket agents, and repair stations; 2 loans worth $2.1 million to cargo air carriers; and 11 
loans worth approximately $735.9 million to businesses critical to maintaining national 
security. However, only 1 of the 7 largest air carriers drew more than 10 percent of its 
available funds. The opportunity for eligible businesses to apply for one of these direct 
loans expired on December 31, 2020. See Table 1 for a summary of direct loans made 
pursuant to CARES Act section 4003(b)(1)-(3). 
Table 1 – Summary of Section 4003 Direct Loans 
CARES Act 
Section 
Loan 
Category 
Appropriated 
Funds 
Total 
Value of 
Loansa 
Actual 
Disbursements 
Number of 
Loans 
Made 
4003(b)(1) 
Passenger air 
carrier, ticket 
agent, or 
repair station 
$25 billion 
$21.2 billion 
(84.8 
percent) 
$1.9 billion (7.6 
percent) 
22 
4003(b)(2) 
Cargo air 
carrier 
$4 billion 
$2.1 million 
(0.1 percent) 
$2.1 million (0.1 
percent) 
2 
4003(b)(3) 
Business 
critical to 
maintaining 
national 
security 
$17 billion 
$735.9 
million (4.3 
percent) 
$717.0 million 
(4.2 percent) 
11 
Totalsb 
 
$46 billion 
$21.9 billion 
(47.6 
percent) 
$2.7 billion (5.9 
percent) 
35 
Source: SIGPR Office of Audits generated. 
a Amounts and utilization rates as a percentage of appropriated amounts have been rounded. 
b Numbers may not add up due to rounding. 
 
Yellow’s Direct Loan  
On April 29, 2020, Yellow applied for a NSLP loan under Application Number NSL-
200428000022. Treasury agreed to a $700 million loan, in two tranches, on July 8, 
2020. Tranche A would provide $300 million to meet Yellow’s near-term contractual 
obligations and non-vehicle capital expenditures. Tranche B would provide $400 million 
 
3 Id. § 4003(d) 
4 Id. § 4004 

SIGPR-A-22-005 
3 
 
for capital investments subject to Treasury’s approval of capital plans developed by 
Yellow. An initial disbursement of $245 million was made on July 9, 2020. 
Tranche A’s interest rate is equal to LIBOR plus 1.5 percent cash interest and 2.0 
percent payment-in-kind interest. Tranche B’s interest rate is equal to LIBOR plus 3.5 
percent cash interest. Both tranches have a maturity date of September 30, 2024, and 
their loan agreements include certain restrictions on employee compensation, stock 
repurchases, dividends, and reductions in employment levels as required by the 
CARES Act. Treasury received an equity interest of 29.6 percent of Yellow’s common 
stock on a fully diluted basis. Additionally, Treasury was granted third liens on existing 
company assets and first liens on newly purchased assets pledged as collateral. 
 
Results 
 
We identified internal control weaknesses in the development and implementation of 
Treasury’s approach to reviewing, approving, and disbursing a $700 million direct loan 
to Yellow. Treasury did not have specific, measurable objectives, nor did it have 
finalized loan approval policies and procedures in place prior to the approval and 
disbursement of Yellow’s loan. Treasury also developed its own definition of 
“businesses critical to maintaining national security,” under which Yellow’s eligibility was 
determined, which had a broader scope than the definition later added as an 
amendment to 15 U.S.C. 9041 by the Consolidated Appropriations Act, 2021. 
 
Finding 1 – Treasury officials did not define traditional credit program metrics 
which makes program effectiveness difficult to measure. 
The overall effectiveness of the loan is difficult to measure until the loan is repaid or the 
borrower defaults because Treasury did not articulate specific and measurable 
objectives and associated performance measures (metrics) prior to the approval and 
disbursement of a $700 million loan to Yellow. Preparation, Submission, and Execution 
of the Budget (OMB Circular A-11) states that “the aim of risk management is to ensure 
that risks are identified at project inception and their potential impacts allowed for and 
accepted, where possible, so that the risks or their impacts are minimized.” Additionally, 
the Circular requires a risk management plan that “establishes the purpose, objective, 
and goals of [a] project,” “establishes monitoring metrics,” and “defines how risk will be 
monitored throughout the project life-cycle,” among other things. 5 Standards for Internal 
Control in the Federal Government (the Green Book) states “management should define 
objectives clearly to enable the identification of risks and define risk tolerances.”6 
Policies for Federal Credit Programs and Non-Tax Receivables (OMB Circular A-129) 
states “agencies must have and should codify clearly-defined lines of authority and 
communication. Through these structures, management should establish explicit 
programmatic policy goals and acceptable risk thresholds, and metrics to evaluate the 
 
5 OMB Circular A-11 at 59 of Capital Programming Guide 
6 GAO 14-704G §6.01 

SIGPR-A-22-005 
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program’s effectiveness against these goals and assess the program on an on-going 
basis.”7 Additionally, OMB Circular A-123 states that “specific objectives must be 
identified and documented to facilitate identification of risks to strategic, operations, 
reporting, and compliance [objectives].” Here, OMB defines operations objectives as 
“relating to the effective and efficient use of the Agency’s resources related to 
administrative and major program operations….”8 
The CARES Act provides a broad objective under Section 4003(a); however, this broad 
objective does not identify specific, measurable objectives which aid in the 
determination of the overall effectiveness of the program. Specifically, the CARES Act 
states: 
In GENERAL. – Notwithstanding any other provisions of law, to provide liquidity 
to eligible businesses, States, and municipalities related to losses incurred as a 
result of coronavirus, the Secretary is authorized to make loans, loan guarantees, 
and other investments in support of eligible businesses…. 
According to Treasury officials, “the success of this emergency program…is based on 
the overall ability of the domestic airline industry to survive the pandemic with operating 
capabilities necessary to support future economic growth.” Department officials also 
described the program as a “one-time, emergency credit program to provide general 
purpose liquidity, which Treasury implemented as a backstop facility in the event that 
credit could not be obtained through banks and market sources during the pandemic.” 
When asked if program officials had defined metrics or performance measures to 
evaluate the program’s performance, Department officials responded that “Treasury did 
not define traditional credit program metrics” and “did not establish quantitative goals for 
deploying the $46 billion in lending authority available to the program.” Instead, officials 
described the approach to measuring the program’s performance as determining the 
“extent to which large potential applicants could obtain credit elsewhere through market 
financings, the speed with which actual borrowers can prepay the loan and substitute 
private credit, the extent to which smaller applicants will repay their loans at maturity, 
and the size of the long-term gains from the taxpayer protection instruments received 
from program participants.” 
NSLP loans mature up to 5 years from their closing dates. Payment-in-kind interest of 3 
percent is also deferred to maturity. This deferred interest increases a borrower’s “total 
outstanding loan amount.” As of March 15, 2023, over 2.5 years into its loan, Yellow 
had an outstanding loan balance of $729.2 million, made $54.8 million in interest 
payments, and repaid $230 in principal.9 The single $230 principal payment was made 
on June 13, 2021.10 
 
7 OMB Circular A-129 at 10 
8 OMB Circular A-123 at 16 
9 Report Under Section 4026(b)(1)(C) of the CARES Act on Loans to Air Carriers, Eligible Businesses, 
and National Security Businesses (January 1, 2023). Available at https://home.treasury.gov/system/files/ 
136/4026b1CLoanReport01012023.pdf 
10 Id. at 8 (footnote 26) 

SIGPR-A-22-005 
5 
 
Figure 1. Yellow Corp. Outstanding Loan Amount, Cash Interest Receipts, and 
Total Repaid Principal  
 
As of March 15, 2023 
 
Source: SIGPR Office of Audits generated from information published in Treasury’s 4026(b)(1)(C) Loan Reports 
between August 7, 2020, and March 15, 2023. 
 
Finding 2 – Treasury officials approved and disbursed Yellow’s $700 million loan 
before National Security Loan Program policies or procedures were finalized and 
in effect. 
Treasury was exposed to increased compliance risk and other risks11 when Treasury 
officials approved and disbursed a $700 million direct loan to Yellow prior to finalizing 
the ALP Underwriting Guide and other appropriate internal policies and procedures. 
Yellow’s direct loan was approved and disbursed July 8-9, 2020. However, Treasury 
officials stated that the “Air Carrier Loan Program Underwriting Guide…was finalized on 
July 14, 2020” and that “the National Security Loan Program generally followed this 
process, with some minor adjustments.” When asked to clarify whether the Yellow direct 
loan was approved without a written policy or processes in place to guide decision-
making and manage risks, Treasury officials responded that “[current] Treasury staff 
remaining from that time period have limited insight into the underwriting process that 
occurred for [Yellow]. To the best of our understanding, the [Yellow] direct loan was 
approved before written policies/procedures were finalized due to the perceived 
exigencies of the situation. Treasury’s action Memo approving the [Yellow] 
loan…describes the underwriting process and analysis for the loan.” 
 
11 According to the Comptroller’s Handbook, management practices may need to address some or all of 
the following risks – credit, market, operating or transaction, reputation, strategic, compliance, legal, 
liquidity, and other risks depending on the nature and scope of an institution’s activities. (Bank Supervision 
Process at 74). 

SIGPR-A-22-005 
6 
 
Yellow was the first applicant to receive funding through the ALP/NSLP – months before 
any other applicant. Yellow’s loan process was different from other loan 
applicants/recipients. For instance, Treasury did not complete a Validation Memo for 
Yellow. According to Treasury’s Underwriting Guide, a review team would gather 
required information and then evaluate an application using the Validation Memo. The 
Validation Memo split the evaluation process into the following sections: 
1. Validation Memo Overview; 
2. Eligibility Review; 
3. Applicant Information; and 
4. Requested Attachments 
Each section contained key information collected during the intake of loan applications 
including, but not limited to: 
• Loan amounts requested;  
• Whether the applicant was a public or private company; 
• Whether there was an existing application for other CARES Act funding, such as 
the Payroll Support Program; 
• Names of parents and affiliate companies; and 
• Various financial documentation supporting the need for a loan, among other 
things. 
Other differences with Yellow’s loan process and/or loan agreement include Yellow 
being authorized to use loan proceeds for capital expenditures, Treasury receiving 
shares of common stock, and loan proceeds being issued under two different tranches 
with different terms and conditions. 
Treasury officials indicated that there was an urgency to disburse funding as soon as 
possible, stating, “Due to the emergency and one-time nature of the program, numerous 
aspects of the program were developed and implemented simultaneously and as soon 
as practicable, including program policies, underwriting standards, application 
procedures, information technology support, staffing, contracting, and operating 
procedures, among others.” However, many of these aspects were not completed prior 
to the approval and disbursement of Yellow’s loan. 
OMB Circular A-129 states that “agencies must implement budget policies and 
management practices that ensure the goals of credit programs are met.” GAO’s Green 
Book states that management should implement control activities through policies. 
Treasury’s Office of the Comptroller of the Currency (OCC) defines compliance risk as 
“the risk to current or projected financial condition and resilience arising from violations 
of laws or regulations, or from nonconformance with prescribed practices, 
internal…policies and procedures, or ethical standards.”12 OCC adds that compliance 
 
12 Comptroller’s Handbook: Bank Supervision Process (OCC Publication Version 1.1, September 2019) at 
27 

SIGPR-A-22-005 
7 
 
risk also includes “the exposure to litigation (known as legal risk) from all aspects of 
banking, traditional and nontraditional.”13 
The Federal Financial Institutions Examination Council (FFIEC) – a formal interagency 
body empowered to prescribe uniform principles, standards, and report forms for the 
federal examination of financial institutions by the OCC and other organizations and to 
make recommendations to promote uniformity in the supervision of financial institutions 
– has developed uniform reporting systems for federally supervised financial institutions. 
Among these systems, the Uniform Financial Institutions Rating System (UFIRS) – also 
commonly known as CAMELS14 – allows supervisory agencies to evaluate financial 
institutions in a comprehensive and uniform manner and ensure attention is focused on 
financial institutions exhibiting financial and operational weaknesses or adverse trends. 
Under this system, OCC evaluates several factors including, but not limited to: 
• The adequacy of underwriting standards, soundness of credit administration 
practices, and appropriateness of risk identification practices; 
• The adequacy of loan and investment policies, procedures, and practices; 
• The adequacy of internal controls and management information systems; 
• The adequacy of, and conformance with, appropriate internal policies and 
controls addressing the operations and risks of significant activities; 
• The adequacy of audits and internal controls to promote effective operations and 
reliable financial and regulatory reporting; safeguard assets; and ensure 
compliance with laws, regulations, and internal policies; and 
• Responsiveness to recommendations from auditors and supervisory authorities. 
Because the ALP, NSLP, and the offices charged with the programs’ management are 
not strictly “financial institutions,” they are not subject to OCC and FFIEC oversight. 
However, these best practices and mandates imposed on private sector entities 
illustrate the importance of having internal policies and procedures in place before 
undertaking any fiduciary activities. 
 
Other Matters 
The CARES Act explicitly provided the Secretary of the Treasury discretion to determine 
whether an “applicant is an eligible business for which credit is not reasonably available 
at the time of the transaction.”15 However, different definitions of the term “business 
critical to maintaining national security” were used to determine loan applicant eligibility 
under Section 4003 between passage of the CARES Act on March 27, 2020, and 
passage of the Consolidated Appropriations Act, 2021, on December 27, 2020. The 
clear differences between the definitions used to determine applicant eligibility during 
the loan application period and the definition eventually published in the Consolidated 
 
13 Ibid. at 28 
14 The acronym CAMELS refers to the assessment of six components of a bank’s performance: Capital 
adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. 
15 Pub. L 116-136 §4003(c)(2)(A) 

SIGPR-A-22-005 
8 
 
Appropriations Act of 2021 demonstrates the need for improved communication and 
coordination between Department officials, legislators, and other applicable 
stakeholders. 
OMB Circular A-129 states, “Federal credit granting agencies…shall determine whether 
applicants comply with statutory, regulatory, and administrative eligibility requirements 
for loan assistance.”16 The CARES Act tasked the Secretary of the Treasury with 
publishing “procedures for application and minimum requirements…for making loans, 
loan guarantees, or other investments under paragraphs (1), (2), and (3) of subsection 
(b)”…”as soon as practicable, but in no case later than 10 days after the date of 
enactment of this Act.”17 However, the original text of the CARES Act did not define 
“businesses critical to maintaining national security.” In a statement before the 
Congressional Oversight Commission on December 10, 2020, then-Secretary Mnuchin 
stated 
…after consulting with the Department of Defense and the Office of Director of 
National Intelligence, Treasury issued guidance on April 10, 2020, providing that 
a company can fall within this definition [of businesses critical to maintaining 
national security] if it meets at least one of three criteria: 
1. The applicant business performs under a “DX”-priority rated contract or order 
under the Defense Priorities and Allocations System regulations (15 CFR part 
700); 
2. The applicant business operates under a valid top secret facility security 
clearance under the National Industrial Security Program regulations (32 CFR 
part 2004); or 
3. Based on a recommendation and certification by the Secretary of Defense or 
the Director of National Intelligence that the applicant business is critical to 
maintaining national security, the Secretary of the Treasury determines that 
the applicant business is critical to maintaining national security. 
When asked whether there was any communication or coordination with members of 
Congress or their staffs, the Office of Management and Budget, the Federal Credit 
Policy Council, or any other stakeholders to define this term and determine eligibility for 
a direct loan under CARES Act section 4003(b)(3), Treasury officials stated that they 
were “unaware of any consultation with members of Congress or their staffs.” 
Additionally, “Treasury officials did not consult with the FCPC or OMB.” 
A separate audit, conducted by the U.S. Department of Defense Office of Inspector 
General, found that “[Department of Defense] officials did not document a definition or a 
specific set of screening criteria that each business must meet to be qualified as ‘critical 
to maintaining national security’ under Section 4003 of the CARES Act.”18 Furthermore, 
 
16 Policies for Federal Credit Programs and Non-Tax Receivables (OMB Circular No. A-129, January 2013) 
at 8. 
17 Pub. L 116-136 §4003(c)(1)(B) 
18 Audit of the DoD Certification Process for Coronavirus Aid, Relief, and Economic Security Act Section 
4003 Loans Provided to Businesses Designated as Critical to Maintaining National Security (DODIG-2022-
131, September 20, 2022) at 10. 

SIGPR-A-22-005 
9 
 
DoD OIG auditors determined this lack of documentation “potentially impaired…the 
effectiveness and accuracy of the [DoD] certification.” Instead, the report found, DoD 
officials screened businesses using criteria developed for a separate CARES Act 
program. Those criteria were as follows: 
• Do applicants supply to the DoD? 
• Are applicants owned in whole or part by China or Russia? 
• Are applicants participating in any other COVID-19-related loan or grant 
program? 
• Are there alternate sources for the goods or services provided? 
• Are applicants supplying a commodity (for example tennis shoes)?19 
On December 27, 2020, Congress passed the Consolidated Appropriations Act of 2021 
which amended the CARES Act to formally include a definition for businesses critical to 
maintaining national security. The amendment states: 
(11) Aerospace-related businesses critical to maintaining national security. – The 
term "businesses critical to maintaining national security" means those 
businesses that manufacture or produce aerospace-related products, civil or 
defense, including those that design, integrate, assemble, supply, maintain, and 
repair such products, and other businesses involved in aerospace-related 
manufacturing or production as further defined by the Secretary, in consultation 
with the Secretary of Defense and the Secretary of Transportation. For purposes 
of the preceding sentence, aerospace-related products include, but are not 
limited to, components, parts, or systems of aircraft, aircraft engines, or 
appliances for inclusion in an aircraft, aircraft engine, or appliance. 
Although the CARES Act explicitly provided the Secretary of the Treasury wide 
discretion to determine applicant eligibility for loans under Section 4003, the differences 
in these definitions of “businesses critical to maintaining national security” highlight the 
risk of making direct loans and loan guarantees to potentially ineligible borrowers when 
borrower eligibility is subjective or ambiguous. 
 
 
 
19 According to the report, the DoD defined commodity as “available commercially, not DoD specific.” 

SIGPR-A-22-005 
10 
  
Conclusion 
Treasury met the requirements of Section 4003 of the CARES Act. However, the 
exigency of the coronavirus pandemic applied pressures that increased risks to the 
success of the direct loan programs established under Section 4003. We identified 
internal control weaknesses in the development and implementation of Treasury’s 
approach to reviewing, approving, and disbursing a $700 million direct loan to Yellow. 
Specifically, Treasury did not have specific, measurable objectives, nor did it have 
finalized loan approval policies and procedures in place prior to the approval and 
disbursement of Yellow’s loan. Furthermore, ambiguity in the meaning of the term 
“businesses critical to maintaining national security” may have led to an overly broad 
pool of applicants for Section 4003. 
While the use of emergency funding to provide loans, loan guarantees, and other 
investments in support of eligible businesses was imperative at the beginning of the 
pandemic, it did not imply that Treasury circumvent federal rules and regulations. In the 
event of similar emergency funding needs in the future, Treasury should seek to 
improve its emergency lending strategies. 
 
Recommendations 
We recommend that Treasury officials: 
1. Finalize/codify program objectives in its policies and procedures before any new 
programs are established and executed.  
2. Ensure that appropriate policies and procedures are in place prior to rolling out 
new programs where American tax dollars are at risk. 
3. Develop a contingency plan for financial disasters that provides a framework for 
future direct lending programs to reduce implementation time and the possibility 
of errors or omissions.  
4. Develop a “Lessons Learned” report that discusses the strengths and 
weaknesses/successes and failures of the processes used to approve Yellow’s 
NSLP loan. 
Agency Comments 
Treasury officials agreed, in general, with our findings and two recommendations. 
However, the officials noted that, in their opinion, certain situations necessitate the 
concurrent design and implementation of some programs. Treasury’s management 
response is included in its entirety in Appendix B. 
 
SIGPR Response 
While Treasury generally agreed with our report’s findings and recommendations, we 
identified some inconsistencies in Treasury’s response.  
Relating to the definition of “critical to maintaining national security” Treasury states that 
“Because the statute did not define the phrase…Treasury worked with DOD and the 

SIGPR-A-22-005 
11 
  
Director of National Intelligence to develop an appropriate definition.” Treasury then 
states that “the definition of this term that Treasury applied in the program was the 
definition in the statute at the time and Treasury was in regular contact with members of 
Congress during the NSLP implementation period.” These two statements are 
contradictory – either the statute did not define the phrase, or Treasury applied the 
definition in the statute at the time. SIGPR believes that the CARES Act, as originally 
written, did not define the term “businesses critical to maintaining national security,” 
based on our audit work. 
After the completion of our audit fieldwork, Treasury informed us there were several 
letters between members of Congress and Treasury regarding Yellow. However, these 
discussions only related to the eventual approval of Yellow’s loan. We did not identify 
any discussions relating to the clarification of any specific terms within the Act. 
Therefore, it is likely that only aerospace-related firms would have been eligible for a 
direct loan under Section 4003 had Congress not waited to define the term “businesses 
critical to maintaining national security” as a CARES Act amendment in the 
Consolidated Appropriations Act, 2021. 
Treasury’s response also states that during certain emergency situations, such as the 
initial response to the pandemic in 2020, it may be necessary to design programs 
concurrently with their implementation. While we agree, Treasury approved only 
Yellow’s loan prior to establishing formal policies and procedures. None of the other Tier 
1 borrowers, most of which applied for emergency lending before Yellow, had received 
loan approval until at least 81 days after Yellow.  
Table 2 – Comparison of Tier 1 Applicant Application and Loan Agreement Dates 
Borrower 
Application Date 
Loan Agreement Date 
American Airlines, Inc. 
4/18/2020 
9/25/2020 
United Airlines, Inc. 
4/17/2020 
9/28/2020 
Frontier Airlines, Inc. 
4/16/2020 
9/28/2020 
Hawaiian Airlines, Inc. 
4/17/2020 
9/25/2020 
Alaska Airlines, Inc. 
4/17/2020 
9/28/2020 
SkyWest Airlines, Inc. 
4/24/2020 
9/29/2020 
JetBlue Airways Corporation 
4/29/2020 
9/28/2020 
Yellow Corporation (Formerly 
YRC Worldwide, Inc.) 
4/29/2020 
7/7/2020 
Source: SIGPR Office of Audits generated based on Section 4003 loan application data. 
 
In Treasury’s response, Treasury officials note that “regulators overseeing private 
financial institutions issuing credit are not tasked with providing emergency lending to 
businesses critical to national security in the midst of a pandemic….” We agree. 
However, the standards we cited as illustrative examples are regulations that the 
regulators, specifically OCC and FFIEC, enforce on private entities that issue loans and, 
therefore, provide examples of best practices for organizations to follow prior to 

SIGPR-A-22-005 
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engaging in the business of lending. The question of whether the U.S. Department of 
the Treasury is exempt from similar risk mitigation measures due to defined exigencies 
is a policy matter and beyond the scope of our audit. 
Finally, the response provided to our final recommendation that Treasury document the 
strengths and weaknesses of the processes used to approve Yellow’s loan omits one 
other outcome - the possibility that Yellow defaults on its loan. As mentioned in our 
report, Yellow has only made one principal payment of $230 to date and its loan 
balance has increased nearly $30 million. With the lack of defined metrics and 
objectives to measure the effectiveness of the loan, waiting until the loan reaches 
maturity, is fully paid off, or defaults to evaluate the strengths and weaknesses of the 
loan is reactive at best and may not be the best course of action to protect taxpayer 
funds. 
 
Audit Team 
This audit was managed and conducted by the individuals listed below: 
 
 
Michael Sinclair 
Audit Manager 
Reynaldo Gonzales 
Auditor-In-Charge 
 
 
 

SIGPR-A-22-005 
A-1 
  
Appendix A – Scope and Methodology 
Scope and Methodology 
Our objective was to determine if the U.S Department of the Treasury followed the 
requirements under Section 4003(b) of the CARES Act and other appropriate regulations 
and guidance in its processing of Yellow’s NSLP loan. 
To accomplish our objective, we: 
• Interviewed Treasury’s program officials charged to handle Yellow’s loan; 
• Reviewed the CARES Act Section 4003(b) requirements, OMB Circulars A-123 
and A-129, and Standards for Internal Control in the Federal Government (the 
Green Book); 
• Reviewed Treasury’s Air Carrier Loan Program Underwriting Guides; 
• Reviewed Yellow’s loan application and loan agreement; 
• Reviewed Congressional testimony by Treasury regarding Yellow’s loan; and 
• Reviewed DoDIG Report 2022-131 
We conducted this performance audit between April 2022 and March 2023 in accordance 
with generally accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit objectives. We 
believe that the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 
 
Internal Control  
We assessed internal control and compliance relating to the context of our audit against 
Standards for Internal Control in the Federal Government (GAO-14-704G) and with laws 
and regulations necessary to satisfy the audit objective. The methodology above 
describes the scope of our assessment and the report findings include any internal 
control deficiencies we identified. Our assessment is not intended to provide assurance 
on Treasury’s internal control structure as a whole. Treasury management is 
responsible for establishing and maintaining an effective system of internal control.  
 
 

SIGPR-A-22-005 
B-1 
  
Appendix B – Agency Comments 
 

SIGPR-A-22-005 
B-2 
  

SIGPR-A-22-005 
B-3 
  

SIGPR-A-22-005 
C-1 
  
Appendix C – 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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