FRB Minneapolis PPPLF Collateral Risk Management (2024)
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Evaluation Report
2024-FMIC-B-018
September 23, 2024
Board of Governors of the Federal Reserve System
FRB Minneapolis Followed Its Paycheck
Protection Program Liquidity Facility
Collateral Risk Management Processes and
Can Enhance Monitoring and Collection
Processes
2024-FMIC-B-018 1 of 21
Executive Summary, 2024-FMIC-B-018, September 23, 2024
FRB Minneapolis Followed Its Paycheck Protection Program Liquidity
Facility Collateral Risk Management Processes and Can Enhance
Monitoring and Collection Processes
Finding Purpose
The Paycheck Protection Program Liquidity Facility (PPPLF) followed its The purpose of this evaluation was to
collateral risk management processes for at‐risk, unresolved, and assess the effectiveness of the System
potentially fraudulent collateral for the pledged Paycheck Protection PPPLF’s processes for (1) identifying
and managing at-risk and unresolved
Program (PPP) loans we reviewed. However, the PPPLF did not fully
collateral, (2) addressing
develop and document measures to address the risk of nonpayment. nonpayment, and (3) detecting and
Federal Reserve System representatives determined that it was unlikely mitigating fraudulent collateral. The
that both (1) PPPLF participants would become insolvent and (2) the scope of our evaluation included PPP
U.S. Small Business Administration (SBA) would deny guarantee loans pledged to the PPPLF as
purchase payment. As of March 31, 2024, the System has charged off a collateral from February 2022 to
de minimis dollar amount of unpaid PPPLF advances; however, the December 2023.
amount of charge-offs may increase if the SBA denies guarantee
purchase payment for pledged PPP loans and PPPLF participants Background
responsible for repayment of those advances are insolvent. The COVID-19 pandemic disrupted
economic activity in the United
In response to the evolving economic impacts of the COVID-19 States, which heightened the need for
pandemic, the Board of Governors of the Federal Reserve System businesses to obtain credit to manage
quickly authorized the PPPLF and designated the Federal Reserve Bank cash flows and sustain operations
of Minneapolis (FRB Minneapolis) as the program administrator. The until economic conditions normalized.
PPPLF is no longer issuing advances; however, to reduce financial risk To support lenders that originated
SBA PPP loans to small businesses, the
should the Board need to establish a similar lending facility in the future,
Board authorized the PPPLF using
Reserve Banks should establish as soon as practical processes to section 13(3) of the Federal Reserve
(1) identify data needs during a facility’s design phase and work with Act, with prior approval of the
partner agencies to explore options for facilitating information sharing secretary of the U.S. Department of
and (2) independently verify nondepository institution solvency and that the Treasury. FRB Minneapolis
pledged loans are funded in a manner consistent with facility administers the PPPLF, which includes
requirements. servicing the remaining PPPLF
portfolio. As of March 31, 2024, the
PPPLF had 145,971 outstanding PPP
Recommendation loans pledged as collateral to the
Our report contains one recommendation designed to help FRB PPPLF against advances totaling over
Minneapolis strengthen its processes related to repayment of $3 billion—approximately
outstanding advances. In its response to our draft report, FRB $550 million held by depository
Minneapolis concurs with our recommendation and outlines actions to institutions and $2.5 billion held by
address it. We will follow up to ensure that the recommendation is fully nondepository institutions.
addressed.
2024-FMIC-B-018 2 of 21
Recommendation, 2024-FMIC-B-018, September 23, 2024
FRB Minneapolis Followed Its Paycheck Protection Program Liquidity
Facility Collateral Risk Management Processes and Can Enhance
Monitoring and Collection Processes
Finding: The PPPLF Followed Its Collateral Risk Management Processes and Should Strengthen Some
Processes to Identify and Respond to Financial Risk
Number Recommendation Responsible office
1 Develop and implement formal procedures that monitor NDI FRB Minneapolis Supervision,
participants and address at-risk and unresolved collateral. Regulation, and Credit
2024-FMIC-B-018 3 of 21
MEMORANDUM
DATE: September 23, 2024
TO: Ken Heinecke
Senior Vice President, Supervision, Regulation, and Credit
Federal Reserve Bank of Minneapolis
FROM: Cynthia Gray
Deputy Associate Inspector General for Audits and Evaluations
SUBJECT: OIG Report 2024-FMIC-B-018: FRB Minneapolis Followed Its Paycheck Protection Program
Liquidity Facility Collateral Risk Management Processes and Can Enhance Monitoring and
Collection Processes
We have completed our report on the subject evaluation. We conducted this evaluation to assess the
effectiveness of the Federal Reserve System Paycheck Protection Program Liquidity Facility’s processes
for (1) identifying and managing at‐risk and unresolved collateral, (2) addressing nonpayment, and
(3) detecting and mitigating fraudulent collateral.
We provided you with a draft of our report for review and comment. In your response, you concur with
our recommendation and outline actions to address it. We have included your response as appendix B to
our report.
We appreciate the cooperation that we received from the Board of Governors of the Federal Reserve
System and the Federal Reserve Bank of Minneapolis during our evaluation. Please contact me if you
would like to discuss this report or any related issues.
cc: Mark E. Van Der Weide
Ron Feldman
Matthew J. Eichner
Andreas Lehnert
Michael S. Gibson
Jason Gonzalez
Bernard Kim
Melissa Ku
Brian Phillips
Jeffrey Walker
Casey Clark
2024-FMIC-B-018 4 of 21
Jason Hinkle
Shannon Hulsandra
Zineb York
Amy Kytonen
Tavis Morello
Tim Devaney
Patrick J. McClanahan
Stephen J. Bernard
Craig Delaney
2024-FMIC-B-018 5 of 21
Contents
Introduction 7
Objective 7
Background 7
PPP Overview 7
PPPLF Overview 9
The PPPLF’s Eligibility Requirements 11
PPPLF Collateral Risk Management Processes 11
Finding: The PPPLF Followed Its Collateral Risk Management Processes and Should
Strengthen Some Processes to Identify and Respond to Financial Risk 13
The PPPLF’s Processes Should Include Additional Measures Related to Repayment of
Outstanding Advances 13
Recommendation 14
Management Response 14
OIG Comment 14
Matter for Management Consideration: Program Design Factors if the Board
Establishes a Similar Liquidity Facility in the Future 15
Appendix A: Scope and Methodology 17
Appendix B: Management Response 19
Abbreviations 20
2024-FMIC-B-018 6 of 21
Introduction
Objective
The COVID-19 pandemic disrupted economic activity in the United States, which heightened the need for
businesses to obtain credit to manage cash flows and sustain operations until economic conditions
normalized. To support lending to small businesses, under section 13(3) of the Federal Reserve Act and
with prior approval by the secretary of the U.S. Department of the Treasury, the Board of Governors of
the Federal Reserve System authorized the Paycheck Protection Program Liquidity Facility (PPPLF) to
provide liquidity to financial institution lenders that made loans to small businesses through the
U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The PPPLF advanced
approximately $200 billion to eligible lenders and had approximately $3.05 billion in outstanding
advances as of March 31, 2024.
The objective of this evaluation was to assess the effectiveness of the PPPLF’s processes for (1) identifying
and managing at-risk and unresolved collateral, (2) addressing nonpayment, and (3) detecting and
mitigating fraudulent collateral.1 To accomplish our objective, we interviewed Federal Reserve System
representatives and reviewed 15 PPP loans that went through PPPLF processes for identifying and
managing at-risk and unresolved collateral, nonpayment, and fraudulent collateral from February 2022
through December 2023. We reviewed PPP loan data, including current repayment status and
communications between the PPPLF and participants. Details on our scope and methodology are in
appendix A.
Background
PPP Overview
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to support lending to
small businesses affected by the COVID-19 pandemic. Under the PPP, depository institution (DI) and
nondepository institution (NDI) lenders made forgivable loans to small businesses for payroll and certain
other purposes specified in the CARES Act (figure 1).2
1 At-risk collateral includes pledged PPP loans that may be unlikely to receive SBA forgiveness or guarantee repurchase payments
because they do not meet the requirements of the PPP and are unlikely to be repaid in full by the PPP borrower, who may be
insolvent. Unresolved collateral includes pledged PPP loans for which the Federal Reserve System has not received a participant’s
expected payment or confirmation that the PPP loan meets the SBA guarantee purchase requirements.
2 DIs include banks, credit unions, or other savings associations that accept deposits and extend credit for business or for
personal expenditure purposes. NDIs include companies that do not accept deposits and primarily finance investments and
business and personal expenditures.
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Figure 1. PPP Loan Funding Process
Source: OIG adaptation of a Federal Reserve Bank of Minneapolis graphic.
PPP borrowers can apply for loan forgiveness, and the SBA will pay the eligible calculated forgiveness
amount to the PPP lender. In addition, the SBA provides a conditional guarantee of 100 percent of the
outstanding PPP loan to protect lenders against borrower defaults provided the lender complies with
certain requirements, including that they (1) complied with all PPP loan program requirements, including
the lenders’ underwriting requirements and the document collection and retention requirements;
(2) request guarantee purchase within 180 days after loan maturity, after a forgiveness decision, or after
completion of liquidation; (3) disclose accurate material facts to the SBA; and (4) make, close, service, or
liquidate the loan in a prudent manner. If a PPP borrower defaults and the SBA approves the loan for
guarantee purchase, the SBA pays the lender. If the SBA denies the PPP loan for guarantee purchase,
2024-FMIC-B-018 8 of 21
lenders can seek to collect the outstanding balance of the PPP loans from the borrowers. Lenders can
request reconsideration of initial PPP loan guarantee purchase denials with the SBA.3
PPPLF Overview
Section 13(3) of the Federal Reserve Act permits the Board of Governors, in “unusual and exigent
circumstances,” to authorize the Federal Reserve Banks to extend credit to participants in any program or
facility with broad-based eligibility, with the prior approval of the secretary of the U.S. Department of the
Treasury. To provide liquidity support to the PPP program, the Board used this authority to create the
PPPLF, which authorized the Reserve Banks to advance funds to both DI and NDI PPP lenders that pledged
PPP loans as collateral; these lenders became PPPLF participants. Once a PPP participating lender
received payment from the borrower, the SBA forgiveness amount, or the SBA guarantee purchase
payment for a pledged PPP loan, the participating lender was required by the PPPLF to pay the PPPLF for
that portion of the outstanding PPPLF advance plus interest (figure 2).4
3 The guarantee purchase denial reconsideration process is an SBA-specific process. Therefore, we did not assess it.
4 The PPPLF charged participants an interest rate of 0.35 percent and did not charge fees.
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Figure 2. How the PPPLF Advanced Funds
Source: OIG adaptation of a Federal Reserve Bank of Minneapolis graphic.
a A PPPLF participant is a lender that pledged PPP loans as collateral.
The Board authorized the 12 Reserve Banks to make PPPLF advances and designated the Federal Reserve
Bank of Minneapolis (FRB Minneapolis) as the PPPLF program manager to foster consistency in its
processes and tools. Individual Reserve Banks administered their own PPPLF advances until January 2022,
when FRB Minneapolis assumed centralized administration responsibilities for the System’s remaining
PPPLF portfolio pursuant to a memorandum of understanding among the Reserve Banks.5
The PPPLF advanced approximately $200 billion, including approximately $110 billion to DIs and
$90 billion to NDIs. As of March 31, 2024, outstanding PPPLF advances totaled approximately
$3.05 billion, including approximately $550 million to DIs and $2.5 billion to NDIs. The outstanding
5 The Board’s Legal Division also consults with FRB Minneapolis and other System participants on the PPPLF’s policy and process
decisions for managing the portfolio and any necessary deviations from policy.
2024-FMIC-B-018 10 of 21
advances included 145,971 PPP loans pledged as collateral to the PPPLF. As of March 31, 2024, the
System has received $460 million in interest income from participating lenders.
Further, as of March 2024, the SBA has preliminarily denied guarantee payment for thousands of PPP
loans pledged as collateral to the PPPLF. Some of the pledged loans denied guarantee are pending SBA
reconsideration.6
The PPPLF’s Eligibility Requirements
The PPPLF’s terms and conditions allowed all lenders eligible to originate PPP loans to participate in the
PPPLF, and the PPPLF accepted only SBA–conditionally guaranteed PPP loans as qualifying collateral. 7
To become a PPPLF participant, PPP lenders had to certify their solvency and commit to funding PPP loans
before submitting them to the PPPLF as collateral and commit to
• service pledged PPP loans and apply for SBA guarantee payments in the event of borrower
default or bankruptcy before or upon maturity
• remit as prepayment to the Reserve Bank any amounts received from borrowers or the SBA for
collateralized PPP loans
• direct that SBA payments be wired directly to the lending Reserve Bank upon request
NDI participants further agreed to
• provide Reserve Banks with additional financial and operational information upon request,
including about their financial condition
• obtain a correspondent banking relationship with a DI that has a master account at the
designated Reserve Bank for the purposes of credit or debit entries for the PPPLF
If participants fail to adhere to PPP or PPPLF requirements, their PPPLF advances become recourse
obligations, which would allow the PPPLF to pursue other participant assets for a full recovery. Such a
failure could also result in the PPPLF requiring participants to repay PPPLF advances before maturity or
transfer outstanding collateral to the System.
PPPLF Collateral Risk Management Processes
The PPPLF identifies potential at-risk and unresolved collateral using SBA data and reviews the
U.S. Department of Justice’s (DOJ) COVID-19 fraud cases and other reliable sources to identify potentially
fraudulent PPP collateral. For each identified PPP loan pledged as collateral, PPPLF policies state that the
program will contact participants and request supporting documentation or a paydown of the identified
6 The number and dollar value of at-risk loans or loans with preliminary denials of guarantee purchase payment may be
incomplete, as FRB Minneapolis relies on SBA or participant reporting.
7 The SBA has preliminarily denied guarantee purchase payment of loans in the PPPLF portfolio because lenders did not meet the
SBA’s requirements for PPP loan origination. Lenders may request reconsideration.
2024-FMIC-B-018 11 of 21
loans, debit the relevant master account if the participant is nonresponsive, and notify program
leadership for further guidance on unresolved exceptions.8
For matured PPPLF advances that have not received SBA guarantee purchase payments, the PPPLF will
(1) request participant confirmation that they have requested guarantee purchase from the SBA and
(2) remind participants of the requirement to apply for guarantee purchase within 180 days after
maturity.
8 When debiting a master account, the PPPLF can debit a DI’s master account or an NDI’s correspondent master account.
However, unlike a DI with a master account, a correspondent bank can decline or reverse the PPPLF’s debit if the correspondent
bank has not received the funds due from an NDI participant.
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Finding: The PPPLF Followed Its Collateral
Risk Management Processes and Should
Strengthen Some Processes to Identify and
Respond to Financial Risk
The PPPLF followed its collateral risk management processes for at‐risk, unresolved, and potentially
fraudulent collateral for the loans we reviewed. However, the PPPLF’s documented procedures did not
include all available measures, such as monitoring the financial condition of NDIs, taking control of
collateral, directing SBA guarantee purchase payments to the PPPLF, or seeking repayments from
participants for loans with a preliminary or final SBA guarantee denial. The PPPLF did not fully develop
and document these processes because System representatives determined that it was unlikely that both
(1) PPPLF participants would become insolvent and (2) the SBA would deny guarantee purchase. The
PPPLF’s current charge-offs are de minimis in relation to actual and anticipated revenue; however, if the
SBA does not ultimately approve guarantee purchase payments and PPPLF participants cannot repay their
advances, charge-offs could increase.
The PPPLF’s Processes Should Include Additional
Measures Related to Repayment of Outstanding
Advances
The PPPLF followed its collateral risk management processes for at‐risk, unresolved, and potentially
fraudulent collateral for the loans we reviewed. However, the PPPLF’s documented procedures do not
include the following measures to assess the likelihood of repayment and to address nonpayment:
• Monitoring NDI financial condition: While Reserve Banks have established processes for
monitoring the financial condition of DIs as part of their safety and soundness supervisory
oversight processes for financial institutions, the Reserve Banks do not have insight into the
financial condition of NDIs. As a result, Reserve Banks may have little or no advance notice of
potential NDI default or insolvency. Reserve Banks can request and obtain NDI financial
information; however, the PPPLF does not proactively monitor the financial condition of NDIs and
has requested NDI financial information only after becoming aware of a potential decline in an
NDI’s financial condition.
• Taking control of collateral or payments: The PPPLF has relied on participants to service PPP
loans, provide requested information, apply for SBA guarantees, and repay advances. The PPPLF
did not establish specific processes to take control of collateral or payments.
• Seeking repayment for loans denied SBA guarantee: A PPPLF representative stated that the PPPLF
did not have a documented process to seek repayment for PPPLF advances secured by PPP loans
with known guarantee purchase denials that were scheduled to mature in 2025 or 2026. During
2024-FMIC-B-018 13 of 21
our review, the PPPLF developed a new process to seek repayment of such PPPLF advances, but
this process does not include mechanisms to enforce repayment.
Internal control standards highlight the importance of reviewing policies and procedures for effectiveness
in achieving entity objectives or addressing related risks.
The PPPLF has not fully developed processes to monitor the financial condition of NDI participants,
manage at-risk and unresolved collateral, or address nonpayment because System representatives
determined that it was unlikely that both (1) participants would become insolvent and (2) the SBA would
deny guarantee purchase. Instead, the PPPLF manages these scenarios on a case-by-case basis. Further,
System officials expected that the SBA would protect Reserve Banks from credit losses, although this
expectation was not formalized with the SBA in a written agreement.
As of March 31, 2024, the PPPLF has charged off approximately $332,000 for unpaid and nonguaranteed
PPP loan collateral held by insolvent participants, which is a de minimis amount in relation to the PPPLF’s
actual and anticipated revenue. However, these charge-offs could increase if the SBA ultimately denies
guarantee purchase payments and PPPLF participants cannot repay their advances. The System can more
effectively identify and respond to financial risks by (1) proactively monitoring NDI participants’ financial
condition and (2) formalizing procedures on how and when to take control of collateral or payments
when needed.
Recommendation
We recommend that the senior vice president, FRB Minneapolis Supervision, Regulation, and Credit
1. Develop and implement formal procedures that monitor NDI participants and address at-risk and
unresolved collateral.
Management Response
In the response to our draft report, the senior vice president, FRB Minneapolis Supervision, Regulation,
and Credit, concurs with our recommendation. FRB Minneapolis will document the suggested process
enhancements and implement the processes when appropriate. FRB Minneapolis anticipates completing
this process documentation by June 2025.
OIG Comment
The actions described by FRB Minneapolis appear to be responsive to our recommendation. We will
follow up to ensure that the recommendation is fully addressed.
2024-FMIC-B-018 14 of 21
Matter for Management Consideration:
Program Design Factors to Consider Should
the Board Establish a Similar Liquidity
Facility in the Future
The PPPLF responded to the evolving economic impacts of the pandemic and quickly supplied liquidity to
financial institutions participating in the PPP program. From April 2020 through May 2020, the Board
authorized the PPPLF and established program terms, and Reserve Banks began issuing advances. While
the PPPLF was able to leverage existing risk management practices, the System had minimal
documentation of experiences and lessons learned from prior lending facilities to leverage in designing
processes for certain unique aspects of the PPPLF. These aspects included (1) relying on another federal
agency and its lending program requirements and (2) advancing funds to NDI participants.
Section 13(3) of the Federal Reserve Act authorizes the Board to implement emergency liquidity facilities
similar to the PPPLF in the future with the prior approval of the secretary of the U.S. Department of the
Treasury. Because the PPPLF issued its last advance in July 2021, our observations below are forward
looking. Should the Board need to consider a liquidity facility with similar features or risks in the future,
we encourage consideration of the design factors described below to help reduce financial risk.
• Enhance data coordination with partner agencies: The System did not have an agreement with
the SBA to obtain relevant data until 5 months after the PPPLF’s implementation. During this
5-month interval, the PPPLF advanced funds without confirming collateral approval by the SBA
and delayed identification of canceled or invalid PPP loans. In addition, the data sharing
agreement eventually implemented does not provide complete loan-level data, which requires
the System to conduct additional outreach to the SBA for relevant information needed to monitor
guarantee status. Not having full access to these data limits the PPPLF’s ability to effectively
manage collateral risk, contributing to the issues outlined in the finding. The System should
identify data needs during the design phase and work with partner agencies to explore options
for facilitating enhanced and timely information sharing.
• Verify key program requirements: The PPPLF required participants to be solvent and pledge only
fully funded PPP loans to the facility. PPPLF representatives stated that the PPPLF relied solely on
attestations for these requirements. Independent verification of the following elements would
help limit or avoid extending credit to participants that present additional financial risk through
noncompliance with facility requirements:
▪ NDI solvency—Reserve Banks have financial condition information and existing processes
for interacting with DIs. Regulators also have established robust processes to resolve and
transfer assets of failed DIs. Reserve Banks have little to no insight into NDI financial
condition information, and other financial regulators do not have established processes
to resolve NDI insolvency. Reserve Banks should establish as soon as practical a process
to verify the financial condition of NDIs.
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▪ Fully-funded PPP loan collateral—The PPPLF’s procedures required that collateral be fully
funded before providing any advances to program participants. Despite having an
attestation from lenders that the underlying PPP loans had been fully funded in advance,
we observed two PPP loans for over $830,000 that participants funded after receiving
PPPLF advances.9 Reserve Banks should establish as soon as practical a process to verify
that pledged loans are funded in a manner consistent with facility requirements.
9 We identified these instances in the course of our review of at-risk and unresolved PPPLF collateral. We did not review the
entire population of PPPLF collateral, so we cannot determine whether there are additional advances that were not fully funded
at the time of the PPPLF advance.
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Appendix A: Scope and Methodology
Our objective was to assess the effectiveness of the System PPPLF’s processes for (1) identifying and
managing at-risk and unresolved collateral, (2) addressing nonpayment, and (3) detecting and mitigating
fraudulent collateral. The scope of our evaluation included PPP loans pledged as collateral to the PPPLF
that went through oversight processes from February 2022 to December 2023.
To understand the design, implementation, and effectiveness of these processes, we reviewed applicable
laws; PPPLF internal documentation; and publicly available information, such as the PPPLF’s frequently
asked questions and term sheets. We also conducted interviews with relevant officials from the Board’s
Legal Division, the Division of Reserve Bank Operations and Payment Systems, and the PPPLF team.
Further, we reached out to SBA officials regarding data sharing availability with the PPPLF. The SBA did
not provide the requested information, but we did not pursue the matter further because it was not
substantive to our finding and recommendation.
We also reviewed 15 PPP loans that went through processes related to either (1) collateral due diligence
for at-risk, unresolved, or potentially fraudulent collateral; (2) PPP loans past maturity; or (3) PPP loans
with preliminarily denied guarantee purchase payment from February 2022 through December 2023. We
used PPPLF-provided reports to identify PPP loans that went through these processes and contained
certain factors, such as dollar value, participant type (DI or NDI), and PPPLF resolution of the issue. We
then selected PPP loans to provide coverage of participants for each process. Because this is a
nonstatistical sample, we are unable to project the results to the population of outstanding PPPLF
advances.
Our sample included 8 PPP loans that went through the PPPLF’s collateral due diligence processes to
identify canceled or invalid loans, loans that received SBA payment, and potentially fraudulent loans. The
sample included 4 loans that were paid off and 4 that remained unpaid at the time of our selection. The
selection covered the 2 participants (100 percent) identified as having canceled loans or loans not
matching SBA data, 4 of 10 participants (40 percent) identified as having received SBA payment without
remission to the PPPLF, and 2 of 8 participants (25 percent) with loans identified as potentially fraudulent
through review of the DOJ’s PPP fraud website. For each collateral due diligence sample, we determined
whether the PPPLF (1) contacted authorized individuals, (2) followed communication time frames,
(3) maintained appropriate documentation of the collateral due diligence process and communications,
and (4) attempted to resolve the issue and receive payment.
The sample also included 4 loans past maturity, which covered all 3 participants (100 percent) with loans
past maturity. For each loan past maturity sample, we determined whether the PPPLF (1) contacted
participants to try and resolve matured collateral, (2) obtained participants’ plans to pay down matured
collateral or apply for SBA guarantee purchase, (3) directed participants to pay down matured collateral
past the SBA guarantee deadline, and (4) attempted to debit participant accounts that did not pay down
matured collateral past the SBA guarantee deadline.
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Finally, the sample included 3 loans preliminarily denied guarantee purchase payment, which covered
3 of 8 participants (37.5 percent) with preliminarily denied guarantees.10 For each loan preliminarily
denied guarantee purchase payment, we determined whether the PPPLF (1) contacted participants to pay
down the PPPLF advance for the amount of the preliminarily denied SBA guarantee purchase payment
and (2) attempted to debit participant accounts for the amount of the preliminarily denied SBA guarantee
purchase payment if the participant did not pay off the PPPLF advance.
To identify collateral not funded before the PPPLF issued an advance, we reviewed PPPLF-provided
records of PPP loan collateral identified as fraudulent and compared the advance issuance dates with PPP
loan funding dates listed in DOJ criminal complaints.
We assessed the PPPLF’s processes administered by FRB Minneapolis because the Board authorized the
lending facilities and reports to Congress and the public in accordance with section 13(3) of the Federal
Reserve Act. Moreover, the Board authorized FRB Minneapolis to operate the PPPLF, and as such, the
lending facilities, including the PPPLF, are subject to the limitations, restrictions, and regulations of the
Board.
We conducted this evaluation in accordance with the Council of the Inspectors General on Integrity and
Efficiency’s Quality Standards for Inspection and Evaluation. We conducted our work from May 2023 to
June 2024.
10 We selected these samples from a January 2023 PPPLF report that listed 19 total PPPLF advances preliminarily denied
guarantee purchase payment. PPPLF management affirmed that these were all known denials through December 2023. For the
3 sampled loans, we do not know whether participants requested reconsideration of guarantee denial decisions from the SBA.
Two participants paid off the advances, and one participant’s PPP loan collateral has not yet matured.
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Appendix B: Management Response
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Abbreviations
CARES Act Coronavirus Aid, Relief, and Economic Security Act
DI depository institution
DOJ U.S. Department of Justice
FRB Minneapolis Federal Reserve Bank of Minneapolis
NDI nondepository institution
PPP Paycheck Protection Program
PPPLF Paycheck Protection Program Liquidity Facility
SBA U.S. Small Business Administration
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Report Contributors
Eric Barker, Project Lead
Brad Booth, Auditor
Bladen Vickery, Auditor
Neha Davaluri, Audit Intern
Megan Taylor, OIG Manager, Financial Management and Internal Controls
Jackie Ogle, Senior OIG Manager for Financial Management and Internal Controls
Cynthia Gray, Deputy Associate Inspector General for Audits and Evaluations
Michael VanHuysen, Associate Inspector General for Audits and Evaluations
Contact Information
General Media and Congressional
Office of Inspector General OIG.Media@frb.gov
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Mail Center I-2322
Washington, DC 20551
Phone: 202-973-5000
Fax: 202-973-5044
OIG Hotline
Hotline OIG Hotline
Board of Governors of the Federal Reserve System
Report fraud, waste, and abuse. 20th Street and Constitution Avenue NW
Those suspecting possible Mail Center I-2322
Washington, DC 20551
wrongdoing may contact the
OIG Hotline by mail, Phone: 800-827-3340
web form, phone, or fax. Fax: 202-973-5044
2024-FMIC-B-018 21 of 21
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