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U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
SBA’s Guaranty Purchases for
Paycheck Protection Program Loans
Inspection Report
Report 24-20
July 9, 2024
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NOTICE:
Pursuant to the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, Public
Law 117-263, Section 5274, any nongovernmental organizations and business entities identified
in this report have the opportunity to submit a written response for the purpose of clarifying or
providing additional context as it relates to any specific reference contained herein. Comments
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U.S. Small Business Administration
Office of Inspector General
EXECUTIVE SUMMARY
SBA’s Guaranty Purchases for Paycheck Protection Program
Loans (Report 24-20)
What OIG Reviewed
The Coronavirus Aid, Relief, and Economic
Security (CARES) Act established the Paycheck
Protection Program (PPP), an $813.7 billion
program that provided guaranteed U.S. Small
Business Administration (SBA) loans for eligible
businesses, individuals, and nonprofits adversely
impacted by the Coronavirus Disease 2019
pandemic.
SBA can forgive PPP loans if borrowers use loan
proceeds as required. If the loan is not forgiven
and the loan payment becomes more than 60
days past due, the lender should request a
guaranty purchase, which is SBA’s purchase of
the guaranteed portion of the loan.
SBA simultaneously purchases and charges off
delinquent loans when the borrower is 60 days
or more past due on a loan payment,
permanently closed, bankrupt or deceased.
Charge-off status means SBA removes the
outstanding balance of the loan from its
accounting records. From July 23, 2021 to
December 31, 2022, SBA charged off 203,101
PPP loans totaling $7.3 billion.
Our objective was to assess SBA’s guaranty
purchase process for PPP loans. To accomplish
our objective, we reviewed SBA’s reporting and
referring of charged-off PPP loans to commercial
credit reporting agencies and the U.S.
Department of the Treasury (Treasury); and
oversight of lender communication, servicing,
and debt collection activities.
What OIG Found
SBA did not always report and refer charged-off
PPP loans to commercial credit reporting
agencies and Treasury, as required. Specifically,
SBA did not report 14,739 loans totaling $945.3
million to commercial credit reporting agencies
and did not refer 7,550 loans totaling $2.2 billion
to Treasury.
Further, SBA did not effectively oversee lender
communication, servicing, and debt collection
activities to ensure lenders met their required
responsibilities. For all of the 203,101 charged-
off loans totaling $7.3 billion, SBA did not ensure
lenders met their requirements to 1)
communicate with the borrower to determine
the status of the business, 2) notify the
borrower that the loan payment was due, and 3)
demand payment in full when the borrower
becomes more than 60 days past due.
What OIG Recommended
We made seven recommendations to improve
SBA’s reporting and referring of charged-off PPP
loans to commercial credit reporting agencies
and Treasury; and to ensure lenders comply with
SBA’s requirements for their communication,
servicing, and debt collection activities.
Agency Response
SBA management agreed with
recommendations 1 through 5 and 7 and
partially agreed with recommendation 6.
Management’s planned actions satisfy the intent
of recommendations 1 through 5. However,
management’s proposed actions do not satisfy
the intent of recommendations 6 and 7. OIG will
seek resolution of recommendations 6 and 7 in
accordance with our audit follow-up policy.
OFFICE OF INSPECTOR GENERAL
U.S. SMALL BUSINESS ADMINISTRATION
MEMORANDUM
409 Third St. SW, Washington, DC 20416 • (202) 205-6586 • Fax (202) 205-7382
Date:
July 9, 2024
To:
Isabella Casillas Guzman
Administrator
From:
Hannibal “Mike” Ware
Inspector General
Subject:
SBA’s Guaranty Purchases for Paycheck Protection Program Loans (Report 24-20)
This report presents the results of our inspection of SBA’s Guaranty Purchases for Paycheck
Protection Program Loans. We considered management’s comments on the draft of this report
when preparing the final report. SBA management agreed with six recommendations and
partially agreed with one recommendation. Two recommendations are pending resolution.
We appreciate the cooperation and courtesies provided by your staff. If you have any questions
or need additional information, please contact me or Andrea Deadwyler, Assistant Inspector
General for Audits, at (202) 205-6586.
cc:
Dilawar Syed, Deputy Administrator, Office of the Administrator
Arthur Plews, Chief of Staff, Office of the Administrator
Isabelle James, Deputy Chief of Staff, Office of the Administrator
Kathryn Frost, Associate Administrator, Office of Capital Access
Therese Meers, General Counsel, Office of General Counsel
John Miller, Deputy Associate Administrator, Office of Capital Access
Michael Simmons, Attorney Advisor, Office of General Counsel
Anna Maria Calcagno, Director, Office of Performance, Analysis, and Evaluation
Katherine Aaby, Associate Administrator, Office of Performance, Planning, and Chief
Financial Officer
Walter B. Hill, Jr. Chief Risk Officer, Office of Performance, Planning, and Chief Financial
Officer
Deborah Chen, Deputy Chief Financial Officer, Office of Performance, Planning, and Chief
Financial Officer
Tonia Butler, Director, Office of Internal Controls
Peter Meyers, Senior Advisor, Office of Capital Access
Rachel Wilson, Program Analyst, Office of Capital Access
Aaron Wright, Temporary Program Management Analyst, Office of Capital Access, and
Office of Financial Programs Operations
Lance Ausing, Contractor, Surge Loan Specialist, Office of Capital Access, and Office of
Financial Programs Operations
i
Contents
Introduction ................................................................................................................. 1
Background ....................................................................................................... 1
Objective ........................................................................................................... 4
Results .......................................................................................................................... 4
Finding 1: Reporting of Charged-Off PPP Loans to Commercial Credit
Reporting Agencies ........................................................................................... 5
Recommendations ............................................................................................ 7
Finding 2: Referral of Charged-Off PPP Loans to Treasury .............................. 7
Recommendations ............................................................................................ 9
Finding 3: SBA Oversight of Lender Communication, Servicing, and Debt
Collection Activities ........................................................................................... 9
Recommendations .......................................................................................... 12
Evaluation of Agency Response ................................................................................ 12
Summary of Actions Necessary to Close the Recommendations .................. 13
Figures
1
Overview of SBA’s Referral Process to Treasury ......................................... 3
ii
Appendices
1 Scope and Methodology ........................................................................... 1-1
2
Agency Response ...................................................................................... 2-1
1
Introduction
This report presents the results of our inspection of the Small Business Administration’s (SBA)
Guaranty Purchases for Paycheck Protection Program (PPP) loans. The SBA Office of Inspector
General (OIG) conducted this review to assess SBA’s guaranty purchase process for PPP loans.
We assessed whether SBA reported and referred charged-off PPP loans to commercial credit
reporting agencies and the U.S. Department of Treasury (Treasury) in accordance with applicable
regulations, policies, and procedures. We also assessed whether SBA effectively oversaw lender
communication, servicing, and debt collection activities to ensure lenders met their
responsibilities in accordance with applicable regulations, policies, and procedures.
Background
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27, 2020,
to provide $349 billion to create the PPP under Section 7(a) of the Small Business Act. The PPP
provided guaranteed, forgivable SBA loans for certain eligible borrowers who used loan proceeds
as required. Additional legislation increased total program funding to $813.7 billion. By the end
of the program in 2021, SBA had processed 11.8 million PPP loans through more than 5,400
lenders, including banks, credit unions, financial technology companies, small business lending
companies, and microlenders.
Lenders are responsible for servicing PPP loans, including collaborating with borrowers seeking
forgiveness within 10 months after the end of the loan’s covered period and collecting loan
payments. The lender must communicate with the borrower to determine the status of the
business and notify the borrower that payment is due. If a borrower does not submit a
forgiveness application after the 10-month deferral period and the borrower’s debt becomes
more than 60 days delinquent, the lender should demand payment in full and request a guaranty
purchase in accordance with SBA procedures.
A guaranty purchase is SBA’s purchase of the guaranteed portion of the loan. SBA’s guaranty
purchase for PPP loans was 100 percent of the outstanding loan amount if the lender met all
applicable PPP requirements. On July 15, 2021, SBA began allowing lenders to submit PPP
guaranty purchase requests using the PPP Platform. Lenders requesting a guaranty purchase
must certify that they are submitting documentation and information that accurately reflects
2
their PPP loan records; the data in SBA’s systems (including loan status and outstanding loan
amount) are true and accurate; the PPP loan is evidenced by a legally enforceable promissory
note; and the lender has made, closed, and serviced the loan in accordance with PPP
requirements.
In certain circumstances, lenders are responsible for servicing PPP loans after a guaranty
purchase. If the lender receives a forgiveness application after SBA purchases the loan, the
lender must submit its forgiveness decision to SBA. If the loan is eligible for any amount of
forgiveness, that amount will be subtracted from the loan’s outstanding balance. A borrower
may apply for forgiveness at any time up to the maturity date of the loan, even after guaranty
purchase.1 On November 14, 2022, SBA began allowing lenders to submit forgiveness decisions
for SBA-purchased loans.
SBA simultaneously purchases and charges off delinquent loans when the borrower is 60 days or
more past due on a loan payment, permanently closed, bankrupt or deceased. A charge off is
defined as an SBA administrative action whereby a loan is reclassified to “charge-off” status,
meaning the agency removes the outstanding balance of the loan from its accounting records. A
charge off has no impact on the borrower’s liability for the loan balance.
Prior to Treasury referral, SBA is required to send written notification to delinquent borrowers
providing them notice of the debt and the opportunity to review loan records and repay the
amount owed. If the borrower does not contact SBA to resolve the debt, SBA refers the loan to
the Treasury’s Cross-Servicing program for collection, unless there is a valid legal defense, such
as bankruptcy. Cross-Servicing collects delinquent debt using a variety of methods, such as wage
garnishment, negotiated repayment, private collection agencies, and the Treasury Offset
Program (TOP). Under TOP, delinquent debt is collected through funds that are due to the
delinquent borrower from government sources, such as tax refunds, wages, and payments owed
to government contractors. Borrowers reported to TOP are generally barred from receiving
additional federal financial assistance.2 See Figure 1 for an overview of SBA’s referral process to
Treasury and related timeframes.
1 SBA PPP Frequently Asked Questions dated May 9, 2024, states all borrowers have five years from the date that
SBA issued the SBA loan number to apply for forgiveness, including borrowers with a 2-year maturity on its PPP loan.
2 31 U.S.C. §3720B, states that a person generally may not obtain any federal financial assistance in the form of a
loan or loan insurance or guarantee administered by the agency if the person has an outstanding debt with any
federal agency which is in a delinquent status.
3
Figure 1: Overview of SBA’s Referral Process to Treasury
Source: SBA OIG analysis
On April 27, 2022, SBA decided to formally end collections on purchased PPP loans with an
outstanding balance of $100,000 or less, stating that the cost of collections would be more than
the recovery amount. In a prior SBA OIG report, we identified concerns with this decision.3 SBA
agreed with our recommendation and planned to use a third-party contractor to do a cost
benefit analysis assessing whether the cost of collections would be more than the recovery
amount. SBA also stated that its decision to end collections does not prevent it from reporting
borrowers to credit reporting agencies.
On December 28, 2023, the SBA Administrator informed Congress that SBA would begin
referring PPP and COVID Economic Injury Disaster Loan small business borrowers with loans
under $100,000 in default to Treasury for IRS-led and third-party collection activities. The SBA
Administrator stated that, based on SBA’s latest analysis, referrals to Treasury showed a likely
positive return.
However, in May 2024, SBA notified us that it requested — and Treasury approved — an
exemption from referring certain delinquent PPP loans to Treasury’s Cross-Servicing program in
March 2024. According to SBA, Treasury asked SBA to request the exemption. SBA stated the
exemption was requested, in part, to allow PPP borrowers the ability to seek forgiveness of the
loan, to include the appeals process when forgiveness is denied. We will continue monitoring
SBA’s processes and actions regarding this matter.
In accordance with Office of Management and Budget (OMB) Circular A-129, SBA must report
delinquent commercial loans to credit reporting agencies. Although OMB Circular A-129 does
not specify which and how many credit-reporting agencies SBA must report to, it has historically
reported charged-off loans to three major commercial reporting agencies — monthly to one
3 OIG Report No. 22-25, SBA’s Guaranty Purchases for Paycheck Protection Program Loans, September 30, 2022.
4
agency and quarterly to the other two.4 According to the Treasury Financial Manual, agencies
should report commercial debts on a quarterly basis; however, an agency may report more
frequently to maintain the integrity and accuracy of the information reported.5 Reporting debt
provides a more complete depiction of a borrower’s credit activities and assists other agencies
and lenders who use data from multiple commercial reporting agencies when evaluating
borrower creditworthiness.
As of December 31, 2022, SBA purchased and charged off 203,101 PPP loans totaling $7.3 billion.
The scope of this review covers charged-off PPP loans between July 23, 2021, and December 31,
2022.
Objective
Our objective was to assess SBA’s guaranty purchase process for PPP loans.
Results
SBA did not always report and refer charged-off PPP loans to commercial credit reporting
agencies and Treasury, as required. Specifically, SBA did not report 14,739 loans totaling $945.3
million to commercial credit reporting agencies or refer 7,550 loans totaling $2.2 billion to
Treasury.6 Additionally, SBA did not effectively oversee lender communication, servicing, and
debt collection activities to ensure lenders complied with applicable regulations, policies, and
procedures.
As a result, the agency is missing opportunities to collect on delinquent PPP loans, reduce
taxpayer burden, and hold borrowers and lenders accountable. Not always reporting and
referring loans as required increases the risk that delinquent borrowers could inappropriately
4 One major credit reporting agency requested SBA to report commercial debt information monthly instead of
quarterly to reflect more current payment information.
5 Treasury Financial Manual, Volume I, Part 3, Chapter 4000, Section 4040.20, Frequency of Commercial Debt
Reporting and Updates, August 2, 2021.
6 Loans not reported to commercial credit reporting agencies and referred to Treasury could overlap. Each report
sent to commercial credit reporting agencies and Treasury is unique because requirements for the reporting, timing,
and content of each report are different.
5
obtain funds from other lenders and federal programs. Further, not effectively overseeing
lenders increases the risk of lender noncompliance in similar future programs.
Finding 1: Reporting of Charged-Off PPP Loans to Commercial Credit
Reporting Agencies
SBA did not always report charged-off PPP loans to three major commercial credit reporting
agencies in accordance with federal guidance and SBA policy. Overall, we found that out of
39,434 charged-off loans from June to December 2022 totaling $2.6 billion, SBA did not report
14,739 (or 37 percent) totaling $945.3 million to any of the three commercial credit reporting
agencies.7 Additionally, when specifically reporting to the three major commercial reporting
agencies, we found that SBA did not sufficiently report all charged-off PPP loans to one major
commercial credit reporting agency on a monthly basis and to two major commercial reporting
agencies on a quarterly basis. Our analysis showed that of the 39,434 charged-off loans that SBA
should have reported monthly and quarterly, it did not report 38,060 (or 97 percent) totaling
$2.4 billion in its monthly commercial credit reports, and 15,164 (or 38 percent) totaling $977.3
million in its quarterly reports.8
OMB Circular A-129 states that agencies shall refer all current and delinquent commercial
accounts (non-tax related) to credit reporting agencies. SBA policy states the agency is
responsible for reporting the entire amount of all loans that it has charged off to the appropriate
credit reporting agencies.9 Although OMB Circular A-129 and SBA policy do not identify the
specific credit reporting agencies SBA must report to, SBA has historically reported charged-off
loans to the three major commercial reporting agencies designated by Treasury guidance.10
Additionally, the Treasury Financial Manual states that agencies should report commercial debt
7 We excluded charged-off PPP loans that were forgiven after charge off from our analysis. We also excluded loans
owed by sole proprietors, independent contractors, and self-employed individuals from our analysis of loans
reported in monthly and quarterly commercial credit reports, respectively. Some of these loans are potentially
reportable to consumer credit reporting agencies rather than commercial credit reporting agencies.
8 SBA provided quarterly reports from January to December 2022 and monthly reports from June to December
2022.
9 SBA SOP 50 57 2, Loan Servicing and Liquidation, December 1, 2015.
10 See Treasury Financial Management Service, Guide to the Federal Credit Bureau Program, November 2005,
Appendix 3 identifying three designated credit reporting agencies for commercial accounts. This guidance was
superseded with the Treasury Financial Manual, Volume I, Part 3, Chapter 4000, dated August 2, 2021, which no
longer identifies designated credit reporting agencies.
6
information to credit bureaus on a non-exclusive basis.11 All three commercial credit reporting
agencies indicated that they want to continue receiving credit reports from SBA in order have a
complete picture of a borrower’s credit profile. We believe SBA’s credit reporting requirements
need strengthening to ensure SBA is consistently reporting all current and delinquent
commercial loans to the appropriate credit reporting agencies, particularly those relied upon by
SBA’s lending partners.
SBA did not report these charged-off PPP loans to commercial credit reporting agencies because
it relied on its automated process used to report loans to credit reporting agencies and did not
periodically monitor or conduct reviews to ensure loans were reported, as required. When we
asked SBA officials why they did not report all loans to credit reporting agencies, they stated that
all charged-off PPP loans should be reported, and that SBA’s Office of Capital Access was in the
process of reviewing and updating its system to correctly identify PPP loans eligible for reporting.
SBA uses an automated process to generate consolidated files containing current and delinquent
loan data from multiple SBA programs, including PPP and disaster program loans.
As a result of not reporting charged-off PPP loans to commercial credit reporting agencies, SBA is
not holding all delinquent borrowers accountable and is increasing the risk that delinquent
borrowers could inappropriately obtain other loans. SBA is also missing the opportunity to
identify and prevent fraudulent activities and hold fraudulent borrowers accountable. For
example, not reporting these loans to credit reporting agencies could further victimize
individuals subject to identity theft because victims would not be notified that their identity was
stolen to obtain fraudulent loans.
11 Treasury Financial Manual, Volume I, Part 3, Chapter 4000, Section 4040.30, Method and Format for Reporting
Commercial Debts, August 2, 2021.
7
Recommendations
To address improvements needed in SBA’s reporting of charged-off PPP loans to credit reporting
agencies, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to:
Recommendation 1: Review charged-off PPP loans to ensure all eligible loans are reported to
commercial credit reporting agencies, as required.
Recommendation 2: Require personnel to conduct periodic monitoring and reviews of SBA’s
automated processes for PPP and future stimulus loan programs to ensure all eligible loans are
reported to commercial credit reporting agencies, as required.
Recommendation 3: Identify the credit reporting agencies to whom SBA must report current and
delinquent loans for PPP and future stimulus loan programs.
Finding 2: Referral of Charged-Off PPP Loans to Treasury
SBA did not always refer charged-off PPP loans to Treasury in accordance with federal
regulations and SBA policy. Specifically, as of December 31, 2022, SBA did not refer 7,550 of
8,308 charged-off PPP loans (or 91 percent) valued above $100,000 and totaling $2.2 billion to
Treasury’s Cross-Servicing program.12 All of the 7,550 loans (or 100 percent) SBA did not refer to
Treasury were at least 120-days delinquent and 5,557 of those (or 74 percent) were 180 days or
more delinquent.
According to federal regulations, SBA must transfer loans to the Treasury Cross-Servicing
program for collection by no later than 120 days delinquent if it relies on the program to transfer
the loan for centralized offset13 on its behalf, or otherwise, by no more than 180 days
12 We excluded from our analysis charged-off PPP loans that were forgiven or partially forgiven (with an outstanding
value of $100,000 or less) after charge-off, potentially fraudulent loans, and loans where the borrower was
permanently closed, bankrupt or deceased. We excluded loans with an outstanding value of $100,000 or less
because SBA decided to formally end collections on these loans on April 27, 2022. (Note: This decision was reversed
in December 2023.) Additionally, because SBA was required to send a written notice to delinquent borrowers at
least 60 days prior to Treasury referral, we reviewed loans that were charged off as of October 31, 2022.
13 31 CFR §285.5(b) defines centralized offset as the offset of Federal payments through the Treasury Offset
Program.
8
delinquent,14 unless there is an exception, such as the debt being in litigation.15 Additionally,
according to federal law, SBA is required to refer debts that are more than 180 days delinquent
to Treasury for debt collection.16 In addition, SBA policy requires the agency to refer loans to
Treasury for further collection efforts after charge off, if further collection is not barred by a valid
legal defense, such as bankruptcy.17 Further, according to an agreement with Treasury, SBA does
not refer loans to Treasury that appear to involve fraud.
We also found that SBA did not always send required written notices to borrowers to initiate the
Treasury referral process for 5,456 loans totaling $1.5 billion. These loans were charged off from
July 19 to December 31, 2022, and valued above $100,000. At least 60 days prior to Treasury
referral, SBA is required to send a written notification to delinquent borrowers providing them
notice of the debt and the opportunity to inspect, review, and copy loan records and repay the
amount owed.18 According to its policy, SBA sends a written notice to borrowers providing 60
days to either pay the loan in full or negotiate an acceptable payment plan.19
These charged-off loans were not referred to Treasury because SBA relied on its automated
Treasury referral process without monitoring or reviewing its effectiveness. After July 2022, SBA
did not refer loans to Treasury or send required written notices. SBA officials stated that a
system bypass was left in place due to an oversight, which resulted in no new PPP written
notices being issued after July 2022. SBA removed the system bypass during our inspection and
resumed the Treasury referral process in January 2023. However, SBA did not monitor the
effectiveness of its internal controls over the automated referral process as recommended in the
Standards for Internal Controls in the Federal Government.20 SBA was unaware that its
automated system was not referring eligible charged-off PPP loans to Treasury after July 2022,
until OIG brought this issue to its attention.
As a result of not referring loans to Treasury and not sending written notices to delinquent
borrowers, SBA increased the taxpayer burden by missing the opportunity to collect on
delinquent PPP loans. Although it is difficult to quantify the effect of not promptly initiating
collection actions, according to Treasury guidance, the ability of an agency to collect on
14 31 CFR §285.12(c)(2).
15 31 CFR §285.12(d)(1)(i).
16 31 U.S.C. §3711(g)(1).
17 SBA SOP 50 57 2, Loan Servicing and Liquidation, December 1, 2015.
18 31 U.S.C. §3716(a); 31 CFR §285.5(d)(6).
19 SBA SOP 50 57 2, Loan Servicing and Liquidation, December 1, 2015.
20 GAO-14-704G, Standards for Internal Controls in the Federal Government (September 2014).
9
delinquent debts will generally decrease as debts get older. There is also an increased risk that
delinquent borrowers could inappropriately obtain additional loans and assistance from SBA and
other federal programs in the future. Continuing to pursue collections will help ensure
accountability from delinquent borrowers and promote program integrity.
Recommendations
To address improvements needed in SBA’s referral of charged-off PPP loans to Treasury, we
recommend the Administrator direct the Associate Administrator for the Office of Capital Access
to:
Recommendation 4: Review charged-off PPP loans to ensure that all eligible loans are referred to
Treasury, as required.
Recommendation 5: Require personnel to conduct periodic reviews of its automated Treasury
referral process for PPP and future stimulus loan programs to ensure all eligible loans are
referred to Treasury, as required.
Finding 3: SBA Oversight of Lender Communication, Servicing, and Debt
Collection Activities
SBA did not effectively oversee lender communication, servicing, and debt collection activities to
ensure lenders performed their required responsibilities for 203,101 charged-off loans totaling
$7.3 billion. Specifically, SBA did not ensure that lenders met their requirements to:
10
• Communicate with borrowers to determine the status of the business.
• Notify the borrower that their loan payment is due.
• Demand payment in full when the borrower becomes more than 60 days past due.21
According to 13 CFR §120.1000, SBA is responsible for monitoring, supervising, examining,
regulating, and enforcing laws against SBA-supervised lenders and the SBA operations of SBA
lenders.22 SBA’s Office of Credit Risk Management (OCRM) is responsible for overseeing SBA
lender servicing activities; and the Office of Financial Program Operations (OFPO) is responsible
for originating, servicing, and liquidating loans and managing its loan portfolio. However, neither
office reviewed lender communication, servicing, and debt collection activities in the PPP loan
purchase process. According to OCRM officials, OFPO was tasked with purchase-related
activities. OFPO officials stated they performed purchase-related reviews to confirm lender
compliance with SBA and federal requirements; however, these reviews did not assess the
lenders’ communication, servicing, and debt collection activities.
This occurred because SBA relied on lenders’ certifications in the electronic guaranty purchase
application and did not establish procedures to obtain and review lenders’ compliance with their
communication, servicing, and debt collection responsibilities. While SBA required lenders to
retain evidence of communication with borrowers in lender loan files, SBA did not require
lenders to submit evidence of this communication when requesting guaranty purchase. Lenders
were only required to submit the following three items in the electronic guaranty purchase
application, which did not address lender’s communication with borrowers:
21 SBA Procedural Notice 5000-812316, SBA Guaranty Purchases and Lender Servicing Responsibilities for PPP
Loans, states that if a borrower does not submit for forgiveness within 10 months of the end of the covered period,
the lender must communicate with the borrower to determine the status of the business and notify the borrower of
the date the first payment is due. The lender must document communication attempts and results in its files.
Additionally, if the borrower becomes more than 60 days past due, the lender should make demand for payment in
full and submit a request for guaranty purchase.
22 13 CFR §120.10 states SBA-supervised lenders are 7(a) lenders that can be either small business lending
companies or non-federally regulated lenders. An SBA lender is an institution that has executed a participation
agreement with SBA under the guaranteed loan program.
11
• A bank note proving existence of the debt.
• A transcript of the account specifying the loan’s outstanding balance.
• Assignment of note authorizing SBA to make referral to Treasury for further collection
if applicable.
Therefore, SBA did not have sufficient information to determine whether lenders complied with
their communication responsibilities with the borrower.
Standards for Internal Control in the Federal Government recommends management create
documented processes and policies for an organization’s internal controls. In addition, the
Federal Claims Collection Standards states that before terminating collection of a claim, the
agency should have pursued all appropriate means of collection and determined that, based on
these efforts, the debt is uncollectable.
Because SBA did not have procedures for reviewing lenders’ compliance with their
communication, servicing, and debt collection responsibilities, the agency had no reasonable
assurance that lenders attempted to collect on delinquent loans and that lender assertions of
business status were accurate. As a result, SBA could be missing an opportunity to hold
noncompliant lenders accountable, which could lessen the taxpayer burden and promote
compliance in future similar programs.
Further, lenders who did not attempt to communicate with borrowers increased the risk that
potential identity theft could remain undetected, as these individuals may not be aware that
their identity was stolen to obtain fraudulent loans. Because SBA did not effectively oversee
lenders, it could be missing the opportunity to help identify identity theft early on and mitigate
this type of fraud. The Pandemic Response Accountability Committee (PRAC) also identified
many of the charged-off PPP loans as potentially fraudulent in its Fraud Alert: PRAC Identifies
$5.4 Billion in Potentially Fraudulent Pandemic Loans Obtained Using Over 69,000 Questionable
Social Security Numbers report, dated January 30, 2023. We compared our list of charged-off
PPP loans to the loans listed in the PRAC’s report and found that 1,641 of the 203,101 charged-
off loans, totaling $64.5 million, were identified in the PRAC’s report as potentially fraudulent.
Additionally, we compared our list of charged-off PPP loans to the loans identified in our COVID-
19 Pandemic EIDL and PPP Loan Fraud Landscape report23 and found that 169,589 loans totaling
$5.8 billion were also reported in the fraud landscape report as potentially fraudulent. This
23 OIG Report No. 23-09, COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape, June 27, 2023.
12
overlap further emphasizes the importance of SBA’s oversight of lender communication,
servicing, and debt collection activities to help ensure program integrity and mitigate the risk of
fraud and financial loss.
Recommendations
To address SBA not effectively overseeing lenders communication, servicing, and debt collection
activities, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to:
Recommendation 6: Conduct lender reviews to ensure lenders complied with their
communication, servicing, and debt collection activity requirements. If not, require the lender to
bring the loan into compliance or seek recovery of the guaranty paid by SBA as appropriate.
Recommendation 7: Require lenders to submit evidence of communication, servicing, and debt
collection activities with the borrower prior to guaranty purchase for PPP and future similar
programs to foster and maintain program integrity.
Evaluation of Agency Response
SBA management provided formal comments to the draft report, which we considered when
preparing this final report. Management agreed with recommendations 1, 2, 3, 4, 5, and 7 and
partially agreed with recommendation 6. Management’s planned actions are sufficient to resolve
recommendations 1 through 5. However, management’s proposed corrective actions for
recommendations 6 and 7 did not satisfy the intent of the recommendations. Therefore, these
recommendations are unresolved. In accordance with our follow-up policy, we will attempt to
reach agreement with SBA management on the unresolved recommendations within 60 days
after the date of this final report. If we do not reach agreement, OIG will notify the audit follow-
up official. We also noted that for several of the recommendations, management stated they
have already implemented the recommended actions; however, during our review, management
did not provide evidence of these processes and procedures. Management will need to provide
evidence that these actions are fully implemented for the recommendations to be closed.
Finally, in subsequent correspondence, management stated the targeted final action date for all
recommendations is May 30, 2025.
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See Appendix 2 for management’s comments in their entirety.
Summary of Actions Necessary to Close the Recommendations
The following section summarizes the status of our recommendations and the actions necessary
to close them.
Recommendation 1
To address improvements needed in SBA’s reporting of charged-off PPP loans to credit reporting
agencies, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to review charged-off PPP loans to ensure all eligible loans are reported to
commercial credit reporting agencies, as required.
Status: Resolved
SBA management agreed with the recommendation, stating that SBA is already performing these
reviews. Management stated SBA will continue to conduct reviews of charged-off PPP loans to
ensure eligible loans are reported to commercial credit reporting agencies through the
automated process as required.
This recommendation is resolved and can be closed when SBA management provides evidence
that they reviewed charged-off PPP loans and reported all eligible loans to commercial credit
reporting agencies, as required.
Recommendation 2
To address improvements needed in SBA’s reporting of charged-off PPP loans to credit reporting
agencies, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to require personnel to conduct periodic monitoring and reviews of SBA’s
automated processes for PPP and future stimulus loan programs to ensure all eligible loans are
reported to commercial credit reporting agencies, as required.
Status: Resolved
SBA management agreed with the recommendation, stating they are already performing these
reviews. Management stated that SBA will continue to conduct periodic reviews of its automated
processes for current and future stimulus loan programs for reporting to commercial credit
agencies, as required.
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This recommendation is resolved and can be closed when program officials provide 1) evidence
of ongoing periodic monitoring and reviews of SBA’s automated processes for reporting PPP
loans to commercial credit agencies, as required, and 2) evidence that SBA implemented a
periodic monitoring and review process to ensure all eligible loans in future stimulus programs
are reported to commercial credit agencies, as required.
Recommendation 3
To address improvements needed in SBA’s reporting of charged-off PPP loans to credit reporting
agencies, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to identify the credit reporting agencies to whom SBA must report current and
delinquent loans for PPP and future stimulus loan programs.
Status: Resolved
SBA management agreed with the recommendation. Management stated that SBA has identified
the credit reporting agencies for reporting current and delinquent loans and has an automated
process for reporting to these agencies.
This recommendation is resolved and can be closed when program officials provide evidence
that they have clearly identified the commercial and consumer credit reporting agencies to
whom SBA must report current and delinquent loans for PPP and future stimulus loan programs.
Recommendation 4
To address improvements needed in SBA’s referral of charged-off PPP loans to Treasury, we
recommend the Administrator direct the Associate Administrator for the Office of Capital Access
to review charged-off PPP loans to ensure that all eligible loans are referred to Treasury, as
required.
Status: Resolved
SBA management agreed with the recommendation, stating they are already performing these
reviews. Management stated they will continue to conduct reviews of charged-off PPP loans to
ensure eligible loans are referred to Treasury through the automated process, as required.
This recommendation is resolved and can be closed when program officials provide evidence
that they reviewed charged-off PPP loans and referred all eligible loans to Treasury, as required,
or implemented another viable solution. In May 2024, SBA notified us that it requested — and
Treasury approved — an exemption from referring certain delinquent PPP loans to Treasury’s
15
Cross-Servicing program in March 2024. We will continue to assess and monitor the effect of this
exemption as it relates to the implementation of this recommendation.
Recommendation 5
To address improvements needed in SBA’s referral of charged-off PPP loans to Treasury, we
recommend the Administrator direct the Associate Administrator for the Office of Capital Access
to require personnel to conduct periodic reviews of its automated Treasury referral process for
PPP and future stimulus loan programs to ensure all eligible loans are referred to Treasury, as
required.
Status: Resolved
SBA management agreed with the recommendation, stating they already perform these reviews.
Management stated it will continue conducting periodic reviews of automated processes for
reporting to Treasury, as required.
This recommendation is resolved and can be closed when program officials provide 1) evidence
of ongoing periodic reviews of SBA’s automated processes for reporting PPP loans to Treasury, as
required, and 2) evidence that SBA implemented a periodic review process that will ensure all
eligible loans in future stimulus loan programs are referred to Treasury, as required. We will
continue to monitor the effect of SBA’s March 2024 exemption from Treasury regarding
referrals, referenced under Recommendation 4 above, as it relates to the implementation of this
recommendation.
Recommendation 6
To address SBA not effectively overseeing lenders communication, servicing, and debt collection
activities, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to conduct lender reviews to ensure lenders complied with their communication,
servicing, and debt collection activity requirements. If not, require the lender to bring the loan
into compliance or seek recovery of the guaranty paid by SBA as appropriate.
Status: Unresolved
SBA management partially agreed with the recommendation, stating it does not currently have
the PPP funding or a contract to support the level of oversight recommended. In addition, going
forward, if a similar program is implemented, SBA will obtain both funding and contract(s) to
ensure that lenders meet their obligations pertaining to communication, servicing, and debt
16
collection activities. Finally, management stated, that in the interim, if SBA becomes aware that a
lender is materially deficient in its obligations, it will determine whether an agreed-upon third-
party practitioner can perform a review using SBA’s review protocol.
We maintain our position that SBA should conduct lender reviews to ensure compliance with
their communication, servicing, and debt collection activity requirements. Specifically, SBA
should validate that lenders meet their requirements to communicate with borrowers to
determine the status of the business, notify the borrower that their loan payment is due, or
demand payment in full when the borrower becomes more than 60 days past due.
SBA is responsible for overseeing that lenders participating in its loan programs meet their
responsibilities; however, management’s proposed actions are not sufficient because they only
address lenders identified as materially deficient in their obligations and does not provide
assurance that other lenders are complying with their responsibilities. In addition, it is unclear
how SBA may become aware of noncompliant lenders without conducting sufficient lender
reviews for compliance with their communication, servicing, and debt collection activity program
requirements.
This recommendation is unresolved. In accordance with our follow-up policy, we will attempt to
reach agreement with SBA management on the unresolved recommendations within 60 days
after the date of this final report. If we do not reach agreement, OIG will notify the audit follow-
up official.
Recommendation 7
To address SBA not effectively overseeing lenders’ communication, servicing, and debt collection
activities, we recommend the Administrator direct the Associate Administrator for the Office of
Capital Access to require lenders to submit evidence of communication, servicing, and debt
collection activities with the borrower prior to guaranty purchase for PPP and future similar
programs to foster and maintain program integrity.
Status: Unresolved
SBA management agreed with the recommendation, stating they currently require lenders to
confirm that they have made, closed, and serviced any PPP loan submitted for guaranty
purchase in accordance with PPP loan program requirements. In addition, management stated
that if SBA discovers an issue during a lender review of servicing performance, it will seek
additional documentation.
17
Management’s actions do not satisfy the intent of this recommendation. During this review, SBA
relied on lenders’ certification and did not require sufficient supporting evidence for compliance
with PPP loan program requirements prior to guaranty purchase. This practice does not provide
adequate assurance that lenders complied with their communication, servicing, and debt
collection responsibilities. Specifically, SBA does not have sufficient information to validate
whether lenders met their requirements to communicate with borrowers to determine the
status of the business, notify the borrower that their loan payment is due, or demand payment
in full when the borrower becomes more than 60 days past due.
In addition, SBA’s practice of only seeking additional documentation from a lender when it
identifies an issue with the lender’s servicing performance is not sufficient as there is no
assurance that the requested information is specifically related to the lender’s communication,
servicing, and debt collection activities.
This recommendation is unresolved. In accordance with our follow-up policy, we will attempt to
reach agreement with SBA management on the unresolved recommendations within 60 days
after the date of this final report. If we do not reach agreement, OIG will notify the audit follow-
up official.
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Appendix 1: Scope and Methodology
This report presents the results of our inspection of the Small Business Administration’s (SBA)
Guaranty Purchases for Paycheck Protection Program (PPP) loans. The SBA’s Office of Inspector
General (OIG) conducted this review to assess SBA’s guaranty purchase process for PPP loans.
Our scope of work covered charged-off PPP loans between July 23, 2021, and December 31,
2022.
To answer our objective, we reviewed laws, regulations, policies, procedures, and guidance
pertaining to the reporting and referring of charged-off PPP loans to credit reporting agencies
and Treasury. We also reviewed criteria related to SBA and lender communication, servicing, and
debt collection responsibilities.
We interviewed SBA officials from various offices within the Office of Capital Access, including
the Office of Credit Risk Management, Office of Financial Program Operations, Office of Financial
Assistance, Office of Performance and Systems Management (OPSM), Office of Financial
Operations and Acquisition Management, and Office of Administrative Services. We gained an
understanding of the involvement and roles of these offices in lender oversight for PPP loan
guaranty purchases and in the processes of reporting and referring loans to credit reporting
agencies and Treasury, including related criteria.
We also interviewed officials from three major commercial credit reporting agencies and
Treasury on SBA’s reporting of delinquent loans.
Further, we analyzed charged-off PPP loan data to identify the number and amount of PPP loans
and charged off as of December 31, 2022. We also compared charged-off PPP loan data to loan
information included in reports sent to commercial credit reporting agencies and Treasury to
determine if PPP loans were reported and referred to these agencies. Additionally, we analyzed
charged-off PPP loan data to determine the number of delinquent borrowers to whom SBA did
not send required written notices.
We conducted this inspection in accordance with the Council of the Inspectors General on
Integrity and Efficiency’s Quality Standards for Inspection and Evaluation. These standards
require that we adequately plan and perform the evaluation to obtain sufficient and appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our objective.
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We believe that the evidence provides a reasonable basis for our conclusions based on our
objective.
Use of Computer-Processed Data
We relied on data from SBA’s electronic Loan servicing system (E-Tran) and data from the OPSM
to conduct our analysis. We performed limited testing on data extracts as of December 31, 2022,
and verified information in the data extracts to SBA’s Capital Access Financial System, SBA’s
Paycheck Protection Platform, and reports sent to commercial and consumer credit reporting
agencies and Treasury. We also reviewed data reliability assessments from recent prior audits
that used E-Tran data.
We did not validate the accuracy of the data extracts to source documents because doing so
would involve reviewing lender loan files and would be outside the scope of our review.
However, we believe that the data are sufficiently reliable to support our findings.
Prior Audit Coverage
The following lists OIG’s previous audit coverage related to the objective of this report:
Report Number
Report Title
Report Date
SBA OIG Report 23-13
SBA’s Reporting of Loan Data to
a Commercial Credit Reporting
Agency
September 21, 2023
SBA OIG Report 23-02
Independent Auditors’ Report on
SBA’s FY 2022 Financial
Statements
November 15, 2022
SBA OIG Report 22-25
SBA’s Guaranty Purchases for
Paycheck Protection Program
Loans
September 30, 2022
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Appendix 2: Agency Response
SBA RESPONSE TO REPORT
U.S. SMALL BUSINESS ADMINISTRATION
WASHINGTON, DC 20416
To:
Hannibal “Mike” Ware
Inspector General
U.S. Small Business Administration
From:
Jihoon Kim, Director, Office of Financial Program Operations, OCA
Susan Streich, Director, Credit Risk Management, OCA
Steven Kucharski, Director, OPSM
STEPHEN KUCHARSKI
Digitally signed by STEPHEN KUCHARSKI
Date: 2024.05.28 16:58:09 -04'00'
Date:
May 29, 2024
Subject:
Response to OIG Draft Report – SBA’s Guaranty Purchases for Paycheck
Protection Program Loans – Project 22013A
We appreciate the role the Office of Inspector General (OIG) plays in working with management
in ensuring that our programs are effectively managed, and for the feedback provided in this
draft report. We offer the following comments to the draft and Recommendations:
Recommendation 1: Review charged-off PPP loans to ensure all eligible loans are reported to
commercial credit reporting agencies, as required.
SBA Response: SBA agrees and is already performing these reviews. The SBA will continue to
conduct reviews of charged-off PPP loans to ensure eligible loans are reported to commercial
credit reporting agencies through the automated process as required.
Recommendation 2: Require personnel to conduct periodic monitoring and review of SBA’s
automated processes for PPP and future stimulus loan programs to ensure all eligible loans are
reported to commercial credit reporting agencies, as required.
SBA Response: SBA agrees and is already performing these reviews. SBA will continue to
conduct periodic reviews of SBA’s automated processes of current and future stimulus loan
programs for reporting to commercial credit agencies as required.
Recommendation 3: Identify the credit reporting agencies to whom SBA must report current
and delinquent loans for PPP and future stimulus loan programs.
SBA Response: SBA agrees. SBA has identified the credit reporting agencies for reporting
current and delinquent loans and has an automated process for reporting to these agencies.
Recommendation 4: Review charged-off PPP loans to ensure that all eligible loans are referred
to Treasury, as required.
SBA Response: SBA agrees and is already performing these reviews. SBA will continue to
conduct reviews of charged-off PPP loans to ensure eligible loans are referred to Treasury
through the automated process as required.
Recommendation 5: Require personnel to conduct periodic reviews of its automated Treasury
referral process for PPP and future stimulus loan programs to ensure all eligible loans are
referred to Treasury, as required.
SBA Response: SBA agrees and is already performing these reviews. SBA will continue to
conduct periodic reviews of automated processes for reporting to Treasury as required.
Recommendation 6: Conduct lender reviews to ensure lenders complied with their
communication, servicing, and debt collection activity requirements. If not, require the lender to
bring the loan into compliance or seek recovery of the guaranty paid by SBA as appropriate.
SBA Response: SBA Partially Agrees. SBA does not currently have the PPP funding or a
contract to support the level of oversight recommended above. Going forward, if a similar
program is implemented, SBA will obtain both funding and contract(s) to ensure that Lenders
meet their obligations as it pertains to communication, servicing, and debt collection activities. In
the interim, if SBA becomes aware that a Lender is materially deficient in its obligations, SBA
will determine if an “Agreed Upon Procedure” review can be performed by a third-party
practitioner, upon which SBA and the Lender agrees, with the review protocol prescribed by
SBA.
Recommendation 7: Require lenders to submit evidence of communication, servicing, and debt
collection activities with the borrower prior to guaranty purchase for PPP and future similar
programs to foster and maintain program integrity.
SBA Response: SBA agrees. SBA currently requires lenders to confirm that they have made,
closed, and serviced any PPP loan submitted for guaranty purchase in accordance with the PPP
loan program requirements. If SBA discovers during a lender review of servicing performance
that there is an issue, SBA will seek additional documentation.