Federal Reports

This report presents the results of our audit of the Small Business Administration’s (SBA’s) controls over loans sold on the secondary market. The SBA secondary market program allows lenders to sell the guaranteed portions of their SBA 7(a) loans to private investors at a premium to provide expanded availability to capital for small businesses. The fiscal transfer agent for 7(a) loans that is contracted by SBA facilitates the sale process and is responsible for various other functions regarding the secondary market. Between fiscal years 2013 and 2017, approximately 59,000 7(a) loans were approved, disbursed, and sold on the secondary market, totaling $45 billion.We determined that internal controls related to the sale of loans into the secondary market and SBA’s reviews for lender compliance on defaulted loans were generally effective. However, opportunities exist to strengthen controls to further mitigate the risk of loss for loans sold on the secondary market. Specifically, we found that the Office of Credit Risk Management (OCRM) did not communicate the results of their secondary market loan sale reviews to the National Guaranty Purchase Center and the Commercial Loan Servicing Centers. Also, SBA did not always provide statutory reports to Congress timely, and SBA’s lender guidance for the secondary market was outdated. Lastly, SBA did not properly determine lender compliance with loan program requirements for one of the loans reviewed.As a result, there is a risk that SBA could improperly purchase secondary market loans that OCRM identified as having material noncompliance with SBA requirements. Additionally, Congress may not have the necessary information to make informed decisions regarding SBA’s secondary market operations, and new lenders may not have consistent and updated guidance to ensure compliance with SBA requirements. Finally, by charging off an ineligible loan, SBA incurred a loss of $130,173.We made and management agreed with five recommendations that, if implemented, will strengthen SBA’s internal controls, enhance external communication, and seek loan repair or recovery of funds on the ineligible loan that was charged off. SBA management’s proposed actions resolve all five of our recommendations.

The Office of the Inspector General conducted an organizational effectiveness review of Paradise Fossil Plant (PAF) to identify operational and cultural strengths and risks that could impact PAF’s organizational effectiveness. Our report identified strengths related to (1) organizational alignment, (2) teamwork within and between PAF departments, and (3) leadership of first-line supervisors. However, we also identified risks that could impact the effectiveness of PAF to achieve its responsibilities in support of Power Operation’s mission. These risks related to (1) diminished trust in leadership at PAF and TVA senior management levels; (2) a weak safety climate; and (3) lack of adequate training.

We conducted this review to determine whether the FY 2017 Single Audit conducted by Alexander, Aronson, Finning & Co., P.C. (AAFCPAs) for Technical Education Research Centers, Inc. (TERC) met the requirements of Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200) and applicable auditing standards.

This briefing is designated Sensitive But Unclassified. To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.