Community Development Resources

2023-001 – MISSING REQUIRED LANGUAGE IN LOAN AGREEMENT Condition: The Organization provided loans to microborrowers while excluding language required by the SBA in the loan agreement. This was noted on 5 of 19 tested microloan agreements. Criteria: The SBA requires the loan agreements to include language that protects the SBA’s interests. The SBA requires the following statement in each microloan agreement, “This note has been pledged to the U.S. Small Business Administration (SBA) as collateral. Further assignment cannot be made without prior written consent of the SBA.” Cause: The Organization had a breakdown in internal controls and did not use the appropriate document that includes the required statement. This was noted on 5 microloan agreements. Effect: As a result of excluding the required statement in the loan agreements the Organization was non-compliant with one of the required SBA Standard Operating Procedures. Recommendation: We recommend the Organization ensures that processes are in place to review loan agreements prior to issuing the loans to ensure all compliance requirements are met. Response: The Loan Officer, along with the preparer of the loan documents, if different, will verify the document has appropriate SBA verbiage and is compliant before issuing closing documents. Both should be knowledgeable about the rules and regulations associated with the process and double check one another.

Response: The Loan Officer, along with the preparer of the loan documents, if different, will verify the document has appropriate SBA verbiage and is compliant before issuing closing documents. Both should be knowledgeable about the rules and regulations associated with the process and double check one another.

2022-001 ? INTEREST RATE GREATER THAN MAXIMUM ALLOWED Condition: The Organization provided a loan to a microborrow in an amount greater than $10,000. The Organization charged an interest rate of 8.5% on this loan, even though it was for an amount greater than $10,000. Criteria: The SBA sets maximum interest rates allowed to be charged on the loans to the microborrowers. For loans greater than $10,000 the maximum interest rate allowed is 7.75%. Cause: The Organization had a breakdown in internal controls when preparing this loan. Effect: A microborrower is being charged interest at a higher rate than allowed by the SBA. The Organization will likely have to do a loan modification for the borrower that lowers the interest rate and applies the overage paid by the borrower as a reduction to the principal balance. Recommendation: We recommend the Organization ensures that processes are in place to review loan terms and agreements prior to issuing the loans to ensure all compliance requirements are met. Response: The Loan Officer, along with the preparer of the loan documents, if different, will verify the interest rate authorized by underwriting is compliant before issuing closing documents. Both should be knowledgeable about the rules and regulations associated with the process and double check one another.

Plan of Action - Implement an interest rate verification process before issuance of loan closing documents. Proposed Completion Date - June 30, 2023

2022-002 ? TRACKING OF PERSONNEL AND FRINGE BENEFIT COSTS Condition: The Organization doesn't have a consistent method or documented policy for tracking staff time spent on program activities, which caused discrepancies in the Organization's underlying records supporting technical assistance hours provided to microborrowers and allocations of personnel and fringe benefit costs charged to the program. Criteria: The SBA Microloan Program Standard Operating Procedures (SOP) Section 52, allows the Organization to provide technical assistance to microborrowers. The Organization's system of internal control over special tests and provisions includes the tracking of technical assistance hours. Additionally, the Organization's system of internal controls over allowable costs includes charging personnel and fringe benefit costs to the program based on the percentage of time each employee spends on program activities. Cause: A breakdown in the Organization's internal controls over special tests and provisions and allowable costs of the program did not allow for the Organization to consistently and accurately track staff time related to program activities. Effect: The Organization may not have complete and accurate records to support technical assistance hours provided to microborrowers or allocations of personnel and fringe benefit costs charged to the program. Recommendation: We recommend the Organization review its system of internal controls over special tests and provisions, and allowable costs related to tracking staff time to determine improvements that can be made to ensure it can support technical assistance reports and allocations of personnel and fringe benefit costs charged to the program. Response: During the fourth quarter of 2022, the Organization converted to a new financial reporting system. In doing so, all internal controls and processes were re-evaluated, including those related to time tracking and grant reporting. The Organization believes the new system will provide for complete and accurate records.

Plan of Action - Revise internal controls and processes related to time tracking and grant reporting to ensure complete and accurate records. Proposed Completion Date - June 30, 2023

2019 - 003 Identification data: U.S. Small Business Administration, Microloan Program, CFDA No. 59.046, Microloan 5151595004, Loan Term 2012 ? 2022. Criteria: The SBA Microloan Program Standard Operating Procedures (SOP) Section 52, requires the Organization to maintain a Loan Loss Reserve Fund (LLRF) and match all requested microloan disbursements at a rate of 15% with non-Federal and non-borrowed funds. Condition: The Organization did not maintain adequate matching funds in its LLRF at all times during the year. Cause: A breakdown in the Organization?s internal controls over matching requirements of the program did not allow for the Organization to maintain adequate matching funds in its LLRF. The breakdown in internal controls is considered a significant deficiency. Effect or potential effect: The Organization may not have had adequate reserves in the event of default by microloan borrowers. Recommendation: The Organization should review its system of internal control over matching to determine the extent of the Organization?s responsibility to monitor LLRF levels. If necessary, clarification of monitoring responsibilities should be obtained from the Small Business Administration. Responsible Officials Response: Management will review its system of internal control over matching of microloan disbursements to determine the extent and frequency of monitoring the Organization is required to perform for the Loan Loss Reserve Funds.

Finding 2019 - 003 Matching for the Microloan Program, CFDA No. 59.046 Corrective Action Planned: Management will review its system of internal control over matching of microloan disbursements to determine the extent and frequency of monitoring the Organization is required to perform for the Loan Loss Reserve Funds. Anticipated Completion Date: December 31, 2020. Responsible Parties: Management and Program Staff.

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