SBA’s Processing of COVID-19 Economic Injury Disaster Loan Reconsideration Requests

Summary

U.S. Small Business Administration Office of Inspector General Inspection Report 24-22, SBA's Processing of COVID-19 Economic Injury Disaster Loan Reconsideration Requests, dated August 6, 2024, with a memorandum to Administrator Isabella Casillas Guzman from Inspector General Hannibal “Mike” Ware. The report states that OIG reviewed 83 randomly sampled reconsideration requests that SBA approved and funded, and found that SBA approved and funded 77 of the 83 (or 93 percent) within 30 days of receiving all documents needed for processing. It states that SBA processed 71 of the 83 (or 86 percent) accurately. OIG recommended that SBA recover the funds provided to ineligible applicants, and the report states that SBA agreed with the recommendation.

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U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
SBA’s Processing of COVID-19
Economic Injury Disaster Loan
Reconsideration Requests
Inspection Report
Report 24-22
August 6, 2024

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U.S. Small Business Administration
Office of Inspector General
EXECUTIVE SUMMARY
SBA’s Processing of COVID-19 Economic Injury Disaster Loan
Reconsideration Requests (Report 24-22)
What OIG Reviewed
This report presents the results of our inspection
of the U.S. Small Business Administration’s (SBA)
Coronavirus Disease 2019 (COVID-19) Economic
Injury Disaster Loan (EIDL) reconsideration
process.
SBA began accepting COVID-19 EIDL applications
on March 12, 2020, and continued to accept
them through December 31, 2021, when the
COVID-19 EIDL program ended. COVID-19 EIDL
applicants who were not approved for a loan
could request the agency reconsider their loan
application, initiating the reconsideration
process. Our objective was to assess SBA’s
reconsideration process for COVID-19 EIDLs.
To accomplish our objective, we evaluated the
accuracy and timeliness of reconsideration
processing by reviewing information and
supporting documentation for 83 randomly
sampled reconsideration requests SBA approved
and funded.
What OIG Found
We found SBA generally processed
reconsideration requests timely and accurately.
The agency approved and funded 77 of the
83 (or 93 percent) COVID-19 EIDL
reconsideration requests within 30 days
of receiving all documents needed for
processing, which is the agency’s goal.
We also determined SBA processed 71 of the
83 (or 86 percent) reconsideration requests
accurately. The remaining 12 requests
involved the approval of 2 loans to ineligible
borrowers and other discrepancies, including
7 miscalculated loan amounts and 3 instances
in which the system did not contain sufficient
information to determine eligible loan amounts
for borrowers.
What OIG Recommended
We recommended SBA recover the funds
provided to ineligible applicants.
Agency Response
SBA agreed with our recommendation and
intends to recover the funds provided to
inelegible applicants through the normal
repayment and collection processes.
Management’s proposed corrective actions
satisfy the recommendation.

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:
August 6, 2024
To:
Isabella Casillas Guzman
Administrator
From:
Hannibal “Mike” Ware
Inspector General
Subject:
SBA’s Processing of COVID-19 Economic Injury Disaster Loan
Reconsideration Requests (Report 24-22)
This report presents the results of our inspection of SBA’s Processing of COVID-19 Economic
Injury Disaster Loan Reconsideration Requests. We considered management’s comments on
the draft of this report when preparing the final report. SBA management agreed with our
recommendation.
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
Katie Frost, Associate Administrator, Office of Capital Access
Arthur Plews, Chief of Staff, Office of the Administrator
David Brown, Director of Policy, Office of the Administrator
John Miller, Deputy Associate Administrator, Office of Capital Access
Peter Meyers, Senior Advisor, Office of Capital Access, Disaster Loan Program
Kate Aaby, Associate Administrator, Office of Performance, Planning, and
Chief Financial Officer
Therese Meers, General Counsel, Office of General Counsel
Michael Simmons, Attorney Advisor, Office of General Counsel
Anna M. Calcagno, Director, Office of Program Policy, Analysis, and Evaluation
Walter B. Hill Jr., Chief Risk Officer, Office of Strategic Management and Enterprise
Integrity, Office of Performance, Planning, and the Chief Financial Officer
Han Nguyen, Associate Administrator, Office of Communications and Public Liaison
George Holman, Associate Administrator, Office of Congressional and Legislative Affairs
Isabelle James, Deputy Chief of Staff, Office of the Administrator
Rachel Wilson, Program Analyst, Office of Capital Access, Disaster Loan Liaison

i
Contents
Introduction .................................................................................................................................... 1
Background ............................................................................................................................... 1
Objective ................................................................................................................................... 2
Results ............................................................................................................................................. 2
Finding 1: Reconsideration Processing Timeliness .................................................................... 2
Finding 2: Reconsideration Processing Accuracy ...................................................................... 3
Ineligible Borrowers ............................................................................................................ 3
Other Discrepancies ............................................................................................................ 4
Recommendations .................................................................................................................... 4
Evaluation of Agency Response ....................................................................................................... 4
Summary of Actions Necessary to Close the Recommendation ............................................... 4
Appendices

1 Scope and Methodology ................................................................................................ 1-1

2 Monetary Impact ............................................................................................................ 2-1
3 Agency Response ............................................................................................................ 3-1

1
Introduction
Background
In response to the adverse economic effects caused by the Coronavirus Disease 2019 (COVID-19)
pandemic, Congress provided lending authority for the U.S. Small Business Administration (SBA)
to provide COVID-19 Economic Injury Disaster Loans (EIDL) to help businesses pay for expenses
that could have been met had the pandemic not occurred, including working capital needs such
as fixed debt payments and operating expenses such as payroll.
SBA began accepting COVID-19 EIDL applications on March 12, 2020, and continued to
accept them through December 31, 2021, when the COVID-19 EIDL program ended. As of
September 30, 2022, SBA had approved approximately 4 million COVID-19 EIDLs totaling
$387 billion. COVID-19 EIDL applicants who were not approved for a loan could ask the agency
to reconsider their loan application.
SBA contracted to use an existing commercial loan application processing system for COVID-19
EIDLs. Unlike the agency’s usual disaster loan processing system, the contractor’s system did not
initially have a mechanism for reconsidering an application once it was declined. Therefore, SBA
developed an ad hoc method to accept and process COVID-19 EIDL reconsideration requests.
The method required applicants to request reconsideration via email. Once SBA received the
request, staff manually entered the information into the system. These applications were
commingled with all other applications; therefore, SBA could not track or identify
reconsideration requests received and processed prior to September 2020.
In September 2020, the system was enhanced to identify reconsideration requests, and in
June 2021, SBA added the ability to track each request. Through our data analytics capabilities,
we were able to identify all reconsideration requests received between September 16, 2020, and
May 5, 2022.
Upon receipt of a COVID-19 EIDL reconsideration request, a SBA loan specialist determined
why the original loan application was declined and what additional information was needed to
approve the loan. Once SBA received all required documents from the applicant, the loan
specialist reviewed the documents and then recommended approval or declination of the
reconsideration request.

2
Our analysis revealed that SBA received 263,752 reconsideration requests from
applicants between September 16, 2020, and May 5, 2022. SBA approved and funded
138,157 reconsideration requests totaling $27.2 billion during this time.
Objective
Our objective was to assess SBA’s reconsideration process for COVID-19 EIDLs.
Results
We found SBA generally processed reconsideration requests timely and accurately. Specifically,
we randomly sampled 83 reconsideration requests that SBA approved and funded. Of the
83 requests, we determined SBA processed 77 of the 83 (or 93 percent) timely, within the
agency’s 30-day goal. The remaining six requests were processed between 37 and 61 days. SBA’s
goal measured the processing time beginning with the date it received all documentation from
the applicant because the agency could not evaluate a reconsideration request until it received
all required documentation from the applicant.
We also found SBA accurately processed 71 of 83 (or 86 percent) COVID-19 EIDL reconsideration
requests we reviewed. The remaining 12 requests totaling $737,600 had the following
discrepancies:
•
SBA approved loans to ineligible applicants for two requests totaling $144,500.
•
SBA approved incorrect loan amounts for seven requests totaling $320,300.
•
We could not verify whether applicants were approved and funded for the correct loan
amounts for three requests totaling $272,800.
Finding 1: Reconsideration Processing Timeliness
SBA’s goal was to make lending decisions for COVID-19 EIDL reconsideration requests within
30 days of receiving all required documentation. We found the agency processed 77 of 83
(or 93 percent) requests within 30 days or less. For the remaining six requests, applicants
experienced wait times ranging from 37 to 61 days. Overall, the agency processed all 83 requests
we sampled in an average of 7 days, ranging from 1 to 61 days.

3
While it was not possible for SBA to evaluate a reconsideration request until it received all
required documentation from the applicant, it is noted that borrowers could have experienced
considerable dialogue with SBA officials leading up to their submission of necessary
documentation. For instance, based on our sample, an average of 106 days elapsed between
the date applicants submitted their initial request and the date SBA received all required
documentation.
Finding 2: Reconsideration Processing Accuracy
Based on our review, SBA processed 71 of the 83 (or 86 percent) reconsideration requests we
reviewed accurately according to program standards. The remaining 12 requests involved
the approval of 2 loans to ineligible borrowers and other discrepancies, including 7 miscalculated
loan amounts and 3 instances in which the system did not contain sufficient information to
determine eligible loan amounts for borrowers.
Ineligible Borrowers
Two reconsideration requests totaling $144,500 were approved for ineligible borrowers. The
first borrower was a wage earner who did not have a business in 2019 but received a loan for
$44,500. The Coronavirus Aid, Relief, and Economic Security Act authorized COVID-19 EIDLs
only for businesses, not wage earners. The other borrower received a $100,000 loan but
was ineligible because the loan was made to a Limited Liability Company that included a
nonqualified alien business partner, which is not permitted by both federal law and SBA
procedures.1
The co-owner of the business was not a qualified alien; therefore, the other applicant agreed to
dissolve the partnership and remove the nonqualified partner so that he could obtain the loan.
However, the documents in the loan file did not confirm the nonqualified alien relinquished
ownership of the business. An SBA official confirmed the agency should have obtained additional
documents to verify the nonqualified alien relinquished ownership prior to loan approval and
disbursement.

1 Reconsideration Guide, updated on November 5, 2021. This requirement is based on 8 U.S.C. § 1611(a)-(c) and
SOP 50 30 9, Disaster Assistance Program, pages 173–174, effective May 31, 2018 (citing U.S.C. 8 § 1641).

4
Other Discrepancies
We found seven requests totaling $320,300 had minor miscalculated loan amounts due to errors
made by the loan specialist and three requests totaling $272,800 for which we could not verify
whether applicants were approved and funded for the correct loan amounts. We provided this
information to the agency and are not making recommendations regarding these discrepancies.
Recommendations
To address inaccurate processing of COVID-19 EIDL reconsideration requests, we recommend
the Administrator direct the Associate Administrator for the Office of Capital Access to:
Recommendation 1: Recover COVID-19 EIDL funds provided to the two ineligible borrowers.
Evaluation of Agency Response
SBA management provided formal written comments that are included in their entirety in
appendix 3. Management agreed with our recommendation to recover COVID-19 EIDL funds
provided to the two ineligible borrowers.
Summary of Actions Necessary to Close the Recommendation
The following section summarizes the status of our recommendation and the actions necessary
to close it.
Recommendation 1
To address inaccurate processing of COVID-19 EIDL reconsideration requests, we recommend
the Administrator direct the Associate Administrator for the Office of Capital Access to recover
COVID-19 EIDL funds provided to the two ineligible borrowers.
Status: Resolved
Management agreed with our recommendation, stating that the funds from the two ineligible
loans will be returned to SBA through the normal loan repayment and collection processes.
Management further stated that both loans in question are current and have never been late or
missed a payment. Additionally, the borrowers have never been enrolled in the Hardship
Accommodation Program. SBA plans to complete final action by September 6, 2024.

5
This recommendation can be closed when SBA provides evidence that the two loans referenced
in the recommendation are current and that the ineligible borrowers have never made a
late payment or missed a loan payment and have never been enrolled in the Hardship
Accommodation Plan.

1-1
Appendix 1: Scope and Methodology
The scope of our inspection to assess the reconsideration request process for Coronavirus
Disease 2019 (COVID-19) Economic Injury Disaster Loans (EIDL) covered September 16, 2020, the
first date for which COVID-19 EIDL reconsideration request data was available, through May 5,
2022, the date of the last reconsideration approval shown in the data.
We obtained and reviewed pertinent laws, U.S. Small Business Administration (SBA) policies and
procedures, and other written guidance pertaining to COVID-19 EIDLs and reconsideration
request processing requirements. We also reviewed information regarding the COVID-19 EIDL
program found on the SBA website. Our review methodology included interviews of SBA officials
and staff at Headquarters and the Processing and Disbursement Center responsible for the
management, oversight, and execution of the COVID-19 EIDL reconsideration process.
We obtained a universe of all available reconsideration requests identified between
September 16, 2020, and May 5, 2022. This did not include reconsideration requests received
or processed prior to September 16, 2020, because the system did not have the ability to
identify reconsideration requests separately from other COVID-19 EIDL applications until this
date. From this, we selected a random statistical sample of COVID-19 reconsideration requests
to review.
We conducted a file review of a sample of 83 funded reconsideration requests to evaluate the
timeliness and accuracy of the reconsideration decision and to determine whether the loan file
contained adequate support for the decision. For each of the 83 funded samples, we obtained
and reviewed information and supporting documentation contained in SBA’s systems.
COVID-19 EIDL reconsideration data records contained only the last decision date for each
reconsideration request, not the reconsideration approval decision date. Because
reconsideration decision dates were not available for the entire universe of reconsideration
requests, we relied on the results of our review of the random sample of 83 reconsideration
requests to evaluate reconsideration processing timeliness.
We identified the reconsideration decision date from the loan notes and comments. From our
sample, we calculated the time that elapsed from the date SBA received the final documents
required for a loan decision to the date the agency approved each of the reconsideration
requests to determine the total processing time. We also calculated the time that elapsed from
the original loan reconsideration request date to the date the agency received all documents
needed for a loan decision.

1-2
We did not project the results of our test of the sample of 83 funded COVID-19 EIDL
reconsideration requests to the total population because the small sample size
would have resulted in a wide deviation range. Therefore, a projection would not be
meaningful.
We performed this review in accordance with the Council on Inspectors General on Integrity
and Efficiency’s Quality Standards for Inspection and Evaluation. Those standards require we
plan and perform a review to obtain sufficient and appropriate evidence to provide a reasonable
basis for our conclusions and observations based on our objective. We believe the evidence
obtained provides a reasonable basis for our conclusions and observations based on our
objectives.
Use of Computer-processed Data
We leveraged automated tools to identify and extract COVID-19 EIDL reconsideration data. The
data contained reconsideration requests dated from September 16, 2020, through May 5, 2022.
We determined an entire universe of records of reconsideration requests did not exist because
requests initiated prior to September 16, 2020, were not identified in the loan data. Additionally,
this data did not include:
• The date that each reconsideration request was submitted;
• A record of the date each reconsideration decision was made (for loans with multiple
reconsideration requests); or
• The dollar amount approved by the reconsideration.
We were able to use the limited data to select a sample of reconsideration requests for
review; however, we could not perform any additional analyses using the reconsideration
data.

1-3
Prior Audit Coverage
The following lists the Office of Inspector General’s previous audit coverage related to the
objective of this report:
Report
Number
Report Title
Report Date
22-22
Follow-Up Inspection of SBA’s Internal Controls to Prevent COVID-19
EIDLs to Ineligible Applicants
September 29, 2022
21-02
Inspection of Small Business Administration’s Initial Disaster
Assistance Response to the Coronavirus Pandemic
October 28, 2020
20-16
Serious Concerns of Potential Fraud in Economic Injury Disaster
Loan Program Pertaining to the Response to COVID-19
July 28, 2020

2-1
Appendix 2: Monetary Impact
Monetary Impact identified in this report is categorized as “questioned costs.” Questioned costs
are expenditures that do not comply with legal, regulatory, or contractual requirements; are not
supported by adequate documentation at the time of the audit; or are unnecessary or
unreasonable.1 Questioned costs may be remedied by offset, waiver, recovery of funds, the
provision of supporting documentation, or contract ratification, where appropriate.
Recommendation
Category
Amount
Explanation
1
Ineligible costs
$144,500
Loans disbursed to ineligible applicants
 Total questioned costs
$144,500

Source: Office of Inspector General analysis

1 Inspector General Act of 1978. Public Law 110-409, §5(f)(1), as amended,
https://www.govinfo.gov/content/pkg/USCODE-2015-title5/pdf/USCODE-2015-title5-app-inspector.pdf

3-1
Appendix 3: Agency Response
U.S. Small Business Administration
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
Office of Capital Access

Date:
July 29, 2024
Subject:
Response to OIG Draft Report – SBA’s Processing of COVID-19 Economic
Injury Disaster Loan Reconsideration Requests – Project 22806
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 response to draft report’s recommendation.
To address inaccurate processing of COVID-19 EIDL reconsideration requests, we recommend
the Administrator direct the Associate Administrator for the Office of Capital Access to:
Recommendation 1: Recover COVID-19 EIDL funds provided to the two ineligible borrowers.
SBA Response: SBA agrees with this recommendation. The funds addressed in this
recommendation will be returned to SBA through the normal loan repayment and collection
processes. In the case of both loans referenced in this recommendation, both loans are current
and have never been late nor missed a payment. Both borrowers have also never been enrolled in
the Hardship Accommodation Plan.

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