NEIGHBORHOOD COMMUNITY DEVELOPMENT FUND

CRITERIA: The SBA Standard Operating Procedure (SOP) 52.00 B provides detailed information on allowable and unallowable activities for which Microloan proceeds may be used. CONDITION: The Organization?s Loan Review Committee meets on a regular basis to review and evaluate loan applications from potential Microborrowers. Through our testing performed, we noted one Business Loan Agreement made during 2020 for which the documented use of proceeds described an activity that is unallowable per SOP 52.00 B. However, we were further able to determine that the Loan Review Committee had questioned the description of the use of proceeds during the evaluation process and it was determined that the description was an error. The Loan Review Committee approved the loan only after it was determined that the funds were actually being used for an approved purpose. The documentation in the agreement erroneously was not updated to reflect the actual, allowable, use of proceeds. CAUSE: The employee responsible for updating the Business Loan Agreement documentation, who is no longer employed at the Organization, erroneously did not correct the error that was identified by the Loan Review Committee prior to the agreement being executed by the Organization and the Microborrower. EFFECT: The Organization executed a Business Loan Agreement with an inaccurate description of the use of Microloan proceeds. RECOMMENDATION: We recommend that management of the Organization implement a procedure to provide for additional review of Business Loan Agreements after the evaluation performed by the Loan Review Committee before the final copy of an agreement is executed. MANAGEMENT?S RESPONSE: Management agrees with the finding and will implement a procedure to ensure that the Business Loan Agreements are reviewed for accuracy prior to executing the final copy of an agreement.