DUPLICATE BENEFIT ADJUSTMENTS TO DISASTER ASSISTANCE LOANS ASSOCIATED
WITH HOUSING AND URBAN DEVELOPMENT GRANTS

Report Number: 07-25

Date Issued: May 15, 2007

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**U.S. Small Business Administration**

**Office Inspector General**

**Memorandum**

+---------+------------------------------------+------+----------------+---+
| To:     | > Herbert P. Mitchell              | > D  | > May 15, 2007 |   |
|         | >                                  | ate: |                |   |
|         | > Associate Administrator for      |      |                |   |
|         | > Disaster Assistance              |      |                |   |
+---------+------------------------------------+------+----------------+---+
| From:   | > Debra S. Ritt                    |      |                |   |
|         | >                                  |      |                |   |
|         | > Assistant Inspector General for  |      |                |   |
|         | > Auditing                         |      |                |   |
+---------+------------------------------------+------+----------------+---+
| S       | > Report on Duplicate Benefit      |      |                |   |
| ubject: | > Adjustments to Disaster          |      |                |   |
|         | > Assistance Loans Associated with |      |                |   |
|         | > Housing and Urban Development    |      |                |   |
|         | > Grants                           |      |                |   |
+---------+------------------------------------+------+----------------+---+

This report presents the results of our review of SBA's processing of
modifications to disaster assistance loans associated with Housing and
Urban Development (HUD) grants. Starting in fiscal year (FY) 2006 and
continuing to the present, SBA is processing a large number of
modification transactions to disaster assistance loans related to the
2005 Gulf Coast Hurricanes. These modifications have been made to reduce
SBA loan balances by amounts awarded through HUD Community Development
Block Grants (CDBG) administered by the Louisiana Road Home Program and
the Mississippi Homeowner Assistance Grant Program. SBA signed
agreements with the states of Louisiana and Mississippi where SBA would
evaluate each disaster loan for which a HUD grant may have duplicated
benefits and identify the amount of funds which the states should remit
to SBA. SBA would also determine if a reduction in loan eligibility was
warranted and if so, process and notify borrowers of modifications made
to their balances to account for the duplicate HUD grants.

As of May 2, 2007, SBA has processed 3,681 modifications totalling
\$172,745,986 to reduce disaster loan eligibility amounts as a result of
the HUD CDBG program. SBA had also received remittances totalling
\$131,740,417 from both the Louisiana Road Home Program and Mississippi
Homeowner Assistance Program to reduce SBA disaster loan balances.

The objective of our review was to determine if SBA loans were being
properly identified and modified in accordance with provisions of the
Stafford Act to prevent or detect duplication of benefits. 42 USC 68,
Section 5155, *Disaster Relief Duplication of Benefits,* prohibits
payments to individuals that duplicates benefits available to that
person from another source. The review was performed in concert with the
HUD Office of Inspector General (OIG).

We reviewed loans associated with 172 HUD CDBG grants that were
statistically sampled by the HUD OIG. The sample included 56 grants from
the Louisiana Road Home Program and 116 sample grants from the
Mississippi Homeowner Assistance Grant Program. For each loan, we
reviewed data in SBA's Disaster Credit Management System to determine
whether modifications were made to loan balances to reflect grant
benefits received from HUD. Nothing came to our attention other than the
issues identified below.

# Results

Our review of 172 grants showed that SBA generally complied with
provisions of the Stafford Act relating to preventing or detecting
duplicate benefits within SBA's Disaster Assistance Loan program. Of the
172 grants, SBA had 108 disaster loans. Of the 108 SBA loans:

-   44 were not subject to duplication of benefit provisions;

-   62 with remittances or modifications totalling \$2,472,663 were
    correctly processed to reduce SBA disaster loan balances;

-   One loan for \$10,000 was erroneously reduced by SBA. After receipt
    of the funds, SBA realized that it had requested the remittance in
    error and corrected the error by re-disbursing \$10,000 to the
    borrower; and

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-   One loan was erroneously reduced by a \$25,000 remittance that was
    incorrectly sent to SBA by Mississippi. After the OIG brought this
    to SBA's attention, SBA reinstated the loan.

Because only two loans were incorrectly modified, we concluded that they
did not represent a major breakdown in internal controls. Consequently,
we are making no recommendations as a result of this report.

**ACTIONS REQUIRED**

No actions are required as a result of this report. We appreciate the
courtesies and cooperation of the Small Business Administration
representatives during this review. If you have any questions concerning
this report, please call me at

\(202\) 205-**\[Exemption 2\]** or Jeff Brindle, Director of the
Financial Management and Information Technology group, at (202)
205-**\[Exemption 2\]**.

# APPENDIX I. Scope and Methodology {#appendix-i.-scope-and-methodology .Heading-Exhibits}

We performed an agreed-upon-procedures review of loans associated with
172 grant recipients identified by the Department of Housing and Urban
Development (HUD), Office of Inspector General as having received
disaster benefits between August 14, 2006, and December 31, 2006, as a
result of the Gulf Coast Hurricanes. Of the 172 sampled grant
recipients, 116 received grants administered by the Mississippi
Development Authority and 56 received grants administered by the
Louisiana Road Home Program. Of the 172 sampled grants, 108 grant
recipients had received an SBA disaster loan. Of the 108 SBA disaster
loans, 64 were subject to adjustment by SBA, 33 were cancelled prior to
disbursement, and 11 did not fall under Stafford Act criteria.

We queried the SBA Disaster Credit Management System (DCMS) to identify
and confirm borrower information such as names, social security numbers,
and property addresses. DCMS was further queried to identify SBA
approved loan amounts for personal property, real estate, landscaping
costs, debris removal and other land improvements. We also queried the
Electronic Loan Information Processing System on all loans for amounts
paid to SBA borrowers, amounts received from Louisiana and Mississippi,
and adjustments to SBA loan accounts as a result of HUD Community
Development Block Grant activity.

Our evaluation was performed at SBA's headquarters office in Washington,
D.C. from January 2007 through February 2007 in collaboration with the
HUD Office of Inspector General.

# APPENDIX II. Agency comments {#appendix-ii.-agency-comments .Heading-Exhibits}

Date: May 10, 2007

To: Debra S. Ritt

Assistant Inspector General for Auditing

**/S/ Original Signed**

From: Herbert L. Mitchell

Associate Administrator

For Disaster Assistance

Subject: OIG Draft Report -- Duplicate Benefit Adjustments to Disaster
Assistance Loans Associated with Housing and Urban Development Grants

We have reviewed the above mention draft audit that was prepared by your
office. We are pleased that the results are favorable and concluded that
we have complied with the provisions of the Stafford (and Small
Business) Act to prevent the duplication benefits.

We feel that the draft is self explanatory and does not require an exit
conference.

Thank you for the opportunity to comment on this draft report. If you
have any further questions please feel free to contact me or James
Rivera.

# APPENDIX III. Report Distribution {#appendix-iii.-report-distribution .Heading-Exhibits}

**[Recipient]{.underline}** **[No. of Copies]{.underline}**

Chief Operating
Officer...............................................................1

Chief Information Officer...........................
.................................1

General
Counsel..........................................................................3

Chief Financial
Officer.................................................................1

Chief Financial Officer

Attn: Jeff
Brown.............................................................1

Government Accountability
Office...................................................1