**AUDIT OF**

**KANSAS CITY DISTRICT OFFICE 7(a) LOANS**

**KANSAS CITY, KANSAS**

**AUDIT REPORT NO. 9-16**

**August 4, 1999**

**This report may contain proprietary information subject to the
provisions of 18 USC 1905 and must not be released to the public or
another agency without permission of the Office of Inspector General.**

**US SMALL BUSINESS
ADMINISTRATION**![](media/image1.png){width="1.6006944444444444in"
height="1.4986111111111111in"}

**OFFICE OF INSPECTOR GENERAL**

**Washington, DC 20416**

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| **AUDIT REPORT**                                                      |
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| #### ISSUE DATE: AUGUST 4, 1999                                       |
+-----------------------------------------------------------------------+
| #### NUMBER: 9-16                                                     |
+-----------------------------------------------------------------------+

**To:** Dorothy Kleeschulte, District Director

Kansas City District Office

**From:** John Dye, Acting Assistant Inspector General

for Auditing

**Subject:** Audit of Kansas City District Office 7(a) Loans

Attached is a copy of the subject audit report that contains one finding
with six recommendations addressed to the Kansas City District Office.

The recommendations in the report are subject to review and
implementation of corrective action by your office in accordance with
existing Agency procedures for audit follow-up. Please provide your
management response within 30 days from the date of this report using
the attached SBA Forms 1824, Recommendation Action Sheet.

Any questions or discussion of the issues contained in the report should
be directed to Garry Duncan at 202-205-7732.

Attachment

**AUDIT OF 7 (a) LOAN PROCESSING**

**KANSAS CITY DISTRICT OFFICE**

**KANSAS CITY, KANSAS**

> **[TABLE OF CONTENTS]{.underline}**

####  Page

SUMMARY i

INTRODUCTION

A. Background 1

> B. Audit Objective and Scope 1

RESULTS OF AUDIT

Findings and Recommendations

> 1\. SBA 7(a) Guaranteed Loans were not always Processed,
>
> Disbursed, and Proceeds Used in Accordance with SBA Requirements 2

Other Matters

Borrower Misrepresentations 7

APPENDICIES

A- Schedule of Loans Reviewed and their Status

B.  SBA Procedures Reviewed and the Related Loans with Discrepancies

C.  Audit Report Distribution

**SUMMARY**

The audit was part of a nationwide review to determine whether 7(a)
loans were processed, disbursed, and used in accordance with Small
Business Administration (SBA) requirements. The Kansas City District
Office was assigned 561 loans valued at \$127.6 million from

March 1, 1996,to June 30, 1997. We selected a random sample of 30 loans
valued at \$6.1 million for review. The District Office, Branch Office,
or the Preferred Lender Loan Processing Center approved the sample loans
made to small business concerns within the States of Kansas and
Missouri.

SBA procedures for lenders and SBA loan officers are intended to reduce
risks and to assure that only eligible loans are guaranteed. Failure to
follow these procedures increases the chance that ineligible or risky
loans will be approved. We reviewed lenders\' compliance with 22 such
procedures. We determined that lenders did not follow at least 1 of the
22 SBA procedures for 17 of the 30 loans reviewed.

The noncompliance with procedures consisted of the following:

-   Financial information was not verified with the Internal Revenue
    Service prior to disbursing 12 loans valued at about \$3 million.

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-   Joint payee checks were not used to disburse loan proceeds for three
    loans totaling \$264,400.

-   Uses of loan proceeds were not verified for two loans totaling
    \$231,400.

-   Equity injections of \$80,008 were not verified for five loans.

-   Loan proceeds were not used in accordance with the loan
    authorization for two loans valued at \$184,000.

-   Professional fees totaling \$11,728 were not itemized or a required
    SBA Compensation Agreement (Form 159) was not completed for services
    performed for five loans.

To prevent recurrence of the problems, recommendations for corrective
action are addressed to the District Director. The District has verbally
agreed with all the recommendations.

As of January 31, 1999, 21 of the 30 loans were current, 3 were paid in
full, and 6 were in liquidation. Lenders stated that the deficiencies
were generally due to unintentional loan officer errors.

The finding in this report is the conclusion of the OIG's Auditing
Division based on testing of the auditee's operations. The finding and
recommendations are subject to review, management decision, and
corrective action by your office in accordance with existing Agency
procedures for follow-up and resolution.

.

**INTRODUCTION**

A.  **BACKGROUND**

Audits of the SBA LowDoc Loan program (a subsection of the 7(a) Loan
Program) in 1996 and 1997 showed that lenders and SBA district offices
were not always processing loans in compliance with existing policies
and procedures. At the request of SBA's Office of Financial Assistance,
we initiated an audit of the 7(a) Loan Program to determine if a similar
level of non-compliance exists. Our evaluation will be presented in a
summary report combining the results of eight individual audits. This
report presents the audit results for one site.

Section 7(a) of the Small Business Act of 1958, as amended, authorizes
SBA to provide financial assistance to small businesses. SBA provides
this financial assistance primarily through guarantees for loans made by
participating lenders to small businesses. To obtain the SBA guarantee,
a lender must have continuing ability to evaluate, close, service, and
liquidate loans in accordance with SBA requirements. A Loan Guaranty
Agreement between SBA and the lender requires the lender to abide by SBA
regulations and procedures and allows the lender to request SBA purchase
of defaulted loans.

Generally, SBA regulations and procedures require both the lender and
SBA to review the borrower's eligibility, repayment ability, management
qualifications, character, creditworthiness, and adequacy of collateral
for loans submitted under regular procedures. The most active and expert
lenders qualify for SBA's Certified Lender Program (CLP) and Preferred
Lender Program (PLP). Under CLP procedures, SBA utilizes the credit
presentation of the lender and makes a credit and eligibility
determination. Under PLP procedures, the PLP Loan Processing Center
reviews loan applications solely for eligibility.

**B. AUDIT OBJECTIVE AND SCOPE**

The audit objective was to determine whether 7(a) loans (excluding
special programs with modified requirements such as LowDoc) were
processed and proceeds disbursed and used in accordance with SBA
requirements. The audit was based on a statistical sample of 30 loans
(see Appendix A) valued at \$6.1 million out of a population of 561
loans totaling \$127.6 million. These loans were made to small
businesses in the States of Kansas and Missouri and assigned to the
Kansas City District Office between March 1, 1996, and June 30, 1997.

The auditors reviewed compliance with 22 procedures established by SBA
to reduce risks associated with loan making and to assure that only
eligible loans are guaranteed (see Appendix B). To make these
determinations, the auditors reviewed lender and SBA file documentation
for each loan in the sample; interviewed borrower, lender, and SBA
district office personnel; and visited businesses to review records.
Field work was performed from October 1998 through March 1999. The audit
was conducted in accordance with Government Auditing Standards.

**RESULTS OF AUDIT**

FINDING 1 SBA 7(a) Guaranteed Loans were not always Processed,
Disbursed, and Proceeds Used in Accordance with SBA Requirements

SBA procedures for lenders and SBA loan officers are intended to reduce
risks and assure that only eligible loans are approved. The chance that
ineligible or risky loans will be approved is increased when these
procedures are not followed. In our sample, at least one processing or
disbursing deficiency was identified for 17 of the 30 loans reviewed.
Noncompliance with established procedures resulted in SBA
inappropriately providing guarantees for four loans (*sample numbers 9,
21, 24, and 29*) totaling \$295,150. Corrective actions are also
necessary to protect the guarantees for four loans (*sample numbers 1,
3, 7, and 17*) totaling \$279,190. Corrective action is not required for
the remaining nine loans.

**Financial information was not verified prior to disbursement**

For 12 loans, lenders did not verify business and borrower financial
information prior to disbursement as required by the loan agreement.
Internal Revenue Service (IRS) verifications for five loans (*sample
numbers 1, 3, 21, 24, and 29*) were never obtained by the lenders,
therefore the guarantees may need an adjustment due to unknown risks.
SBA Policy Notice 9000-941 required lenders to obtain IRS verification
of financial information of the small business concern, or for a
business being purchased, prior to loan disbursement. This requirement
ensures the financial information submitted by the small businesses and
used by the lender or SBA to make loan decisions is credible. The other
seven loans included: four loans (*sample numbers 14, 16, 17, and 32*)
for which lenders obtained IRS verifications after the loans were
disbursed; two loans (*sample numbers 6 and 20*) for which lenders did
not obtain IRS verifications, but the loans were paid in full; and one
loan (*sample number 28*) where the IRS could not provide the
verification because the tax return was more than three years old when
requested. The five loans where IRS verification was not obtained are
discussed below.

A loan for \[FOIA Ex. 4\] (*sample number 21*) was approved in \[FOIA
Ex. 4\] for machinery, equipment, and leasehold improvements. The loan
authorization required that the lender obtain verification of the
borrower's tax returns submitted with the loan application. The loan
file was missing both the tax returns and the IRS verification. The
lender stated that although it was probably not done due to an
oversight, they could not request the data at this time because the loan
was in liquidation and the relationship with the borrower was strained.

A loan for \[FOIA Ex. 4\] (*sample number 24*) was approved in \[FOIA
Ex. 4\] for equipment, inventory, and working capital. The loan
authorization required that no disbursements be made until the IRS
transcripts were received and verified. The lender obtained all tax
returns for 1994, 1995, and 1996. In response to a verification request,
the IRS stated that it was unable to verify the 1996 tax return because
an extension had been filed. Further, the lender did not provide
evidence that they obtained IRS verifications for the 1994 and 1995 tax
returns. As a result, we could not determine if the tax returns
submitted were verified prior to loan disbursement. The loan is in
liquidation.

A loan for \[FOIA Ex. 4\] (*sample number 29*) was approved in \[FOIA
Ex. 4\] for repayment of debt. The loan authorization required that,
prior to disbursement, the lender obtain and confirm that the copies of
tax returns included with the loan application conform with the actual
returns submitted to the IRS. The lender obtained verification of the
borrower's returns for 1993 and 1994, but did not obtain verification
for the 1995 tax return. The lender could not explain why the
verification for 1995 was missing. The loan is in liquidation.

A loan for \[FOIA Ex. 4\] (*sample number 1*) was approved in \[FOIA Ex.
4\] for the purchase of machinery, equipment, furniture and fixtures,
and working capital. The loan authorization required that the lender
verify the borrower's tax returns. However, a modification was approved
that allowed the lender to perform the verification of 1993 and 1994 tax
returns over the phone with IRS. The loan file did not contain evidence
that verification had been performed. Additionally, a copy of the 1995
return was not in the loan file. The lender stated that they could not
verify the tax return. The loan was current as of January 31, 1999.

A loan for \[FOIA Ex. 4\] (*sample number 3*) was approved in \[FOIA Ex.
4\] to purchase a business, including machinery, equipment, furniture
and fixtures, inventory, leasehold improvements, and working capital.
The loan authorization required verification of tax return information
with the IRS. The lender stated that they were unable to accomplish the
verification. The selling business was uncooperative with the
requirement to allow verification of their returns. The lender stated
that they requested waiver of the verification requirement from SBA. The
lender, however, could not provide written evidence of this. SBA was
unable to confirm that such a waiver had been granted. The loan was
current as of January 31, 1999.

**The use of loan proceeds was either not verified or not used in
accordance with the loan authorization**

For four loans, use of proceeds were either not verified or were not
used in accordance with the loan authorization. In signing the SBA Form
1050 (Settlement Sheet), the lender certifies that the loan proceeds
were disbursed and used in accordance with the loan authorization.
Verification of the use of proceeds is intended to prevent borrowers
from using loan proceeds for unauthorized purposes. For three of these
loans (*sample numbers 9, 21, and 24*), the lender disbursed the funds
directly to the borrower rather than using joint payee checks.

A loan for \[FOIA Ex. 4\] (*sample number 9*) was approved in \[FOIA Ex.
4\] for working capital and the purchase of machinery and inventory. SBA
Form 1050 requires that any deviation from the loan authorization must
be authorized in writing prior to disbursement of the loan funds. Loan
proceeds totaling \$17,830 were used to pay off liens to the lender on
two vans already owned by the business. The lender stated that SBA was
aware that the vans would be sold and that the lender would be paid upon
the sale. SBA, however, was not notified that part of the proceeds would
be used to repay debt rather than purchase machinery, as required.

For a loan discussed above (*sample number 21*), proceeds were to be
used as follows: \[FOIA Ex. 4\] for machinery and equipment, \[FOIA Ex.
4\] for leasehold improvements, and \[FOIA Ex. 4\] for working capital.
The authorization also required that the borrower provide evidence that
the funds were expended as required, unless the lender used joint payee
checks to pay vendors. We attempted to verify the \$65,400 in
non-working capital expenditures. The lender was only able to provide
evidence of expenditures for a total of \$41,553 (64 percent of
non-working capital uses). The lender did not properly ensure that all
loan proceeds were used as required.

For another loan discussed above (*sample number 24*), proceeds were to
be used as follows: \[FOIA Ex. 4\] for machinery, equipment, furniture,
and fixtures; \[FOIA Ex. 4\] for inventory; and \[FOIA Ex. 4\] for
working capital. The borrower used the proceeds to purchase \$50,376 in
inventory, \$45,376 more than authorized. Additionally, the borrower
spent \$29,567 for capital improvements. Capital improvements were not
an authorized use of proceeds. The deviation from authorized use of
proceeds occurred because the lender disbursed \[FOIA Ex. 4\] directly
to the borrower instead of using a joint payee check.

SOP 70 50 2, paragraph 3.F(1), and SBA Form 1050 require that joint
payee checks be used to disburse loan proceeds not designated as working
capital. Without joint payee checks, borrowers could use loan proceeds
for unauthorized purposes. The lenders disbursed \$31,500, \$65,400, and
\$51,081, respectively, for non-working capital expenditures directly to
the borrowers. All three loans are currently in liquidation.

Another loan for \[FOIA Ex. 4\] (*sample number 1*) was approved in
\[FOIA Ex. 4\] for the purchase of machinery, equipment,
furniture/fixtures, and working capital to operate a laundromat. The
settlement sheet indicates \$146,000 was paid to the selling business.
The canceled checks provided by the lender, however, were made payable
to various parties, but only one \$2,977 check to the seller. There was
no documentation, i.e., a closing statement, to indicate why these
payments were made to the various parties. Additionally, it is not
apparent from the canceled checks that any of the proceeds were used to
purchase machinery, equipment, furniture, or fixtures, as required. The
lender could not explain why the loan disbursements were poorly
documented. The loan was current as of January 31, 1999.

**Equity injections were not verified prior to disbursement**

For five loans, lenders did not ensure that cash injections were made
prior to disbursement as required by the loan agreement. The loan
agreement for each of the loans stated that prior to the first
disbursement, the lender must be in receipt of satisfactory evidence
(invoices, receipts, or canceled checks) that the borrower and/or
guarantor(s) has/have made the requisite equity injection.

By not complying with the loan agreement, lenders increased the risk
that borrowers may not remain committed to the business or the business
may not have sufficient cash flow to sustain operations. For three loans
discussed below, the borrowers did not inject \$36,940 as required by
the loan agreement.

A loan for \[FOIA Ex. 4\] (*sample number 7*) was approved in \[FOIA Ex.
4\] for machinery and equipment. The borrower was required to deliver
evidence to the lender that it had injected \$54,000 into the business.
The loan authorization required that the lender review the submitted
evidence and determine if it sufficiently documented that the borrower
made the required injection. The borrower submitted several invoices,
canceled checks, and other documentation totaling \$55,675. Two invoices
totaling \$20,670 to support the equity injection were the same
documents used to document use of proceeds. The total amount injected by
the borrower, excluding these two invoices, was \$35,005. The lender was
not aware that the invoices were duplicates. The loan was current as of
January 31, 1999.

A loan for \[FOIA Ex. 4\] (*sample number 6*) was approved in \[FOIA Ex.
4\] for acquisition of machinery and equipment, inventory, goodwill, and
working capital. The loan authorization required that the borrower
deliver evidence to the lender that not less than \$15,000 had been
injected into the business prior to disbursement of the loan. The lender
file did not contain evidence that the injection had been made. The
lender stated that they did not know why support for the injection
wasn't in the loan file. The loan had been paid in full.

A loan for \[FOIA Ex. 4\] (*sample number 17*) was approved in \[FOIA
Ex. 4\] for the purchase of business assets. The loan authorization
required that the borrower inject \$134,000 into the business as
permanent equity capital. The lender was required to verify, by canceled
check, the injection toward the purchase. The lender obtained evidence
that the borrower injected \$131,055 into the business. Proof that the
remaining \$2,945 had been injected could not be provided. The loan was
current as of January 31, 1999.

Lenders did not verify that cash injections were made prior to
disbursement for two other loans (*sample numbers 1 and 3*). The audit
showed that the required cash injections were made.

#### Undisclosed fees or fees not itemized

####  Lenders did not disclose fees paid by borrowers for services performed in conjunction with five loans or did not itemize fees over \$1,000. The loan authorizations required that a Form 159 shall be executed by the borrower, his representative, and the lender if the borrower has employed an attorney, accountant, consultant, or packager in the preparation of the loan application. Additionally, 13 CFR 120.195 requires that the applicant for a business loan must identify each agent that helped the applicant get the loan. SBA Form 159 requires that if the total compensation exceeds \$1,000, the services performed must be itemized on a schedule showing the day, time, and description of the services rendered.

#### Three borrowers (*sample numbers 7, 8, and 10*) paid \$700, \$2,800, and \$228, respectively, for attorney fees. Another borrower (*sample number 13*) paid \$4,750 for a construction origination fee and \$1,750 for an appraisal. The lenders did not disclose the fees paid on SBA Form 159. The fees for sample numbers 8 and 13 should also have been itemized because they exceeded \$1,000. Another loan (*sample number 21*) was approved in \[FOIA Ex. 4\] for machinery, equipment, and leasehold improvements. The lender completed a Form 159 for \$1,500 but it was not itemized, as required. We were unable to contact the borrower to determine what services were performed. Three of the loans were current and two were in liquidation as of January 31, 1999.

**Relationship of loan deficiencies to SBA oversight**

All loans with deficiencies were originated when SBA had limited or no
oversight of lenders' loan processing and disbursing. For certain loan
processing and disbursing actions, an SBA district office would normally
be unaware of how and when the actions were done because documentation
of the actions was not required to be submitted to SBA. These actions
include equity injections, IRS verifications, and use of loan proceeds.
District offices are unaware of most actions for loans processed under
PLP procedures. As a result, SBA generally would not be able to identify
these deficiencies until after the loan defaulted and the lender
requested that the guarantee be honored.

#### Reasons for lender deficiencies {#reasons-for-lender-deficiencies .unnumbered}

Lenders provided the following reasons for the deficiencies:

Loan officers made unintentional errors 10 deficiencies

Loan officers lacked knowledge of SBA policy 1 deficiency

Loan officer disagreed that an error was made 7 deficiencies

Loan officer could not provide reason 11 deficiencies

These issues will be further addressed in a summary audit report on the
7(a) Loan Program because actions to minimize SBA's risk must be
implemented Agency-wide.

**Recommendations**

We recommend that the District Director, Kansas City District Office,
take the following actions:

> 1.A. Deny guarantees for a loan in liquidation (*sample number 24*)
> based on: unauthorized use of proceeds; the lender's failure to issue
> joint payee checks; and the lender's failure to verify financial data
> with the IRS.
>
> 1.B. Verify borrower financial information for four loans (*sample
> numbers 1, 3, 21, and 29*) with the IRS. If the information is
> inaccurate, notify the lenders that SBA may deny liability if
> requested to purchase the guarantee.
>
> 1.C. Reduce the guarantee for one loan (*sample number 9*) by \[FOIA
> Ex. 4\] that was used to pay off other debt owed the lender.
>
> 1.D. Require the remaining equity injections for two loans (*sample
> numbers 7 and 17*) be made or notify the lenders that SBA may deny
> liability in whole or part if requested to purchase the guarantees.
>
> 1.E. Re-emphasize to lenders their responsibility to comply with SBA
> loan requirements by ensuring:

-   loan proceeds are verified and used for authorized purposes,

-   required equity injections are made, properly documented, and used
    in accordance with the requirements of the loan agreement,

-   financial data are verified with the IRS prior to disbursement of
    loan proceeds,

-   loan fees are recorded and itemized in SBA's 159 Compensation Form,
    and

-   joint payee checks are used to disburse non-working capital
    expenditures.

> 1.F. Reduce the guarantee percentage for one loan (sample number 21)
> to reflect the lender's failure to verify the use of \$23,847 of loan
> proceeds.

**Management Response**

The District Director verbally agreed with our recommendations and
stated that notifications will be sent to lenders addressing procedures
for IRS verifications. She also stated that SBA may deny liability if
requested to purchase the guarantee if information submitted with the
loan application is found to be inaccurate or will propose a repair of
guarantee for those loans with improper use of proceeds or inadequate
equity injections.

**Evaluation of Management's Response**

The planned actions are responsive to our recommendations.

**OTHER MATTERS**

**Borrower Misrepresentations**

The auditors requested criminal history reviews for the principals
identified as a borrower of each loan. The results of the criminal
history checks showed that three borrowers (*sample numbers 13, 23, and
24)* did not state that they had a criminal history when, in fact, they
did. Their histories, however, did not contain offenses that were
serious enough to preclude financial assistance from SBA.

**Appendix A**

**Schedule of Loans Reviewed and Their Status as of January 31, 1999**

  ---------- ---------- ----------------------- ------------ ---------- ------------- ----------
  **SAMPLE   **LOAN     **BORROWER**            **GUARANTY   **LOAN     **LENDER LOAN **TYPE**
  NUMBER**   NUMBER**                           (%)**        AMOUNT**   STATUS**      

  1          95188430   \[FOIA Ex.4\]           75           \[ FOIA    Current       CLP
                                                             Ex. 4\]                  

  2          94486030                           75                      Paid-off      REGULAR

  3          93154830                           75                      Current       REGULAR

  4          12716340                           80                      Current       REGULAR

  5          92859730                           75                      Current       PLP

  6          97062930                           75                      Paid-off      PLP

  7          99604330                           80                      Current       REGULAR

  8          95965730                           75                      Current       PLP

  9          99454530                           75                      Liquidation   CLP

  10         13703340                           75                      Current       PLP

  11         93312431                                                                 

  12         11198140                           75                      Current       REGULAR

  13         92687230                           75                      Liquidation   PLP

  14         91458430                           75                      Current       REGULAR

  15         95246130                                                                 

  16         96090530                           75                      Current       CLP

  17         10184840                           75                      Current       REGULAR

  18         94243830                           80                      Current       CLP

  19         98482730                           80                      Current       REGULAR

  20         91851730                           70                      Paid-off      REGULAR

  21         93807930                           80                      Liquidation   CLP

  22         99444130                           80                      Liquidation   CLP

  23         98840330                           75                      Current       CLP

  24         12864540                           75                      Liquidation   REGULAR

  25         98018930                           75                      Current       CLP

  26         91964530                           80                      Current       REGULAR

  27         92385030                           80                      Current       REGULAR

  28         95502430                           75                      Current       CLP

  29         97200230                           75                      Liquidation   REGULAR

  30         91371230                           75                      Current       REGULAR

  31         93765630                           75                      Current       CLP

  32         11849340   \[FOIA Ex. 4\]          75           \[FOIA     Current       PLP
                                                             Ex.4\]                   
  ---------- ---------- ----------------------- ------------ ---------- ------------- ----------

**Appendix B**

**Schedule of Procedures Reviewed and the Related Loans with
Discrepancies**

+--------------------------------------+-------------------------------+
| **Procedures Reviewed**              | **Loans with Discrepancies**  |
+--------------------------------------+-------------------------------+
| 1.  Inadequate evidence of repayment | \[FOIA Ex. 4\]                |
|     ability                          |                               |
|                                      |                               |
| 2.  No repayment ability calculation |                               |
|     documented                       |                               |
|                                      |                               |
| 3.  Lack of                          |                               |
|     character/creditworthiness       |                               |
|     (including lack of credit        |                               |
|     reports and 912)                 |                               |
|                                      |                               |
| 4.  Conflict of interest             |                               |
|                                      |                               |
| 5.  Alternative sources of funds     |                               |
|     availability                     |                               |
|                                      |                               |
| 6.  Size standards                   |                               |
|                                      |                               |
| 7.  Ineligible loan purpose or       |                               |
|     ineligible use of proceeds       |                               |
|                                      |                               |
| 8.  Unallowed business type          |                               |
|                                      |                               |
| 9.  IRS verification not done        |                               |
|                                      |                               |
| 10. IRS verification done after      |                               |
|     disbursement of loan             |                               |
|                                      |                               |
| 11. False/inaccurate financial       |                               |
|     information provided             |                               |
|                                      |                               |
| 12. 1050 Settlement sheet signed in  |                               |
|     blank                            |                               |
|                                      |                               |
| 13. 1050 Settlement sheet not        |                               |
|     prepared                         |                               |
|                                      |                               |
| 14. Disbursements not made per loan  |                               |
|     authorization requirements       |                               |
|                                      |                               |
| 15. Joint payee checks not used      |                               |
|                                      |                               |
| 16. Use of proceeds not verified or  |                               |
|     not used in accordance with the  |                               |
|     A&LA                             |                               |
|                                      |                               |
| 17. Required equity injections not   |                               |
|     verified or allocated in accord  |                               |
|     with the A&LA                    |                               |
|                                      |                               |
| 18. Adverse change not reported      |                               |
|                                      |                               |
| 19. All available and needed         |                               |
|     collateral not used              |                               |
|                                      |                               |
| 20. Disbursements not per the        |                               |
|     required time frame              |                               |
|                                      |                               |
| 21. Required standby agreement not   |                               |
|     obtained No 159 Form or fees     |                               |
|     charged to borrowers not         |                               |
|     itemized                         |                               |
+--------------------------------------+-------------------------------+

> **Appendix C**
>
> **Office of Inspector General**
>
> **Audit Report Distribution**
>
> [Recipient]{.underline} [Number of Copies]{.underline}
>
> Administrator\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
>
> Deputy
> Administrator\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
> \-\-\-\-\-\-\-\-\-\--1
>
> General
> Counsel\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--2
>
> Associate Administrator for
>
> Field
> Operations\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
>
> Associate Administrator for
>
> Financial
> Assistance\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
>
> Deputy Associate Administrator for
>
> Financial
> Assistance\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
>
> Associate Deputy Administrator for
>
> Management &
> Administration\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
>
> Financial Administrative
> Staff\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
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> Attention: Jeff Brown
>
> District Director
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> Kansas City District
> Office\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1
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> General Accounting
> Office\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--1