Audit Report

OIG-20-026

SMALL BUSINESS LENDING FUND

Impact of Mandatory Dividend Rate Increases on Small Business 

Lending Fund Participants

January 29, 2020

Office of

Inspector General

Department of the Treasury
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Contents 

Impact of Mandatory Dividend Rate Increases on Small Business Page i

Lending Fund Participants (OIG-20-026)

Audit Report

Results in Brief ................................................................................................... 2

Background ........................................................................................................ 4

Audit Results...................................................................................................... 6

Eighty-One Percent of Participating Financial 

Institutions Exited the SBLF Program Prior to Dividend Rate Increases ......... 6

Investment Redemptions....................................................................... 7

Dividend Payments............................................................................... 9

Conclusion......................................................................................... 12

Appendices

Appendix 1: Objectives, Scope, and Methodology ......................................... 14

Appendix 2: Treasury Management Response ............................................... 17

Appendix 3: Major Contributors to This Report.............................................. 18

Appendix 4: Report Distribution.................................................................... 19

Abbreviations

Act Small Business Jobs Act of 2010

BNYM Bank of New York Mellon

CDFI community development financial institution

CIR Collections Information Repository

CDLF Community Development Lending Fund

FDIC Federal Deposit Insurance Corporation

OIG Office of Inspector General

QSBL Qualified Small Business Lending

QSR Quarterly Supplement Report

SPA Securities Purchase Agreement

SBLF Small Business Lending Fund

Treasury Department of the Treasury
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OIG Audit

Report

The Department of the Treasury

Office of Inspector General

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Lending Fund Participants (OIG-20-026)

January 29, 2020

Gavin A. Beske

Deputy Assistant Secretary for Community and Economic 

Development

This report presents the results of our audit of the impact of the 

mandatory dividend and interest rate increases on financial 

institutions participating in the Department of the Treasury’s 

(Treasury) Small Business Lending Fund (SBLF) program (also 

referred to as SBLF participants). Between December 2015 and 

April 2016, the dividend or interest rate (hereinafter collectively 

referred to as dividend rate) for SBLF participants rose to 9 percent 

for C corporations and 13.8 percent for S corporations.1 The 

objective of our audit was to evaluate the impact of these 

mandatory dividend rate increases on the remaining SBLF 

participants. Specifically, we determined the number of financial 

institutions that redeemed their securities (also referred to as SBLF 

program investments) and whether Treasury collected the 

additional dividends due from financial institutions remaining in the 

SBLF program.

The scope of our audit included 281 SBLF participants (comprised 

of 232 C corporations and 49 S corporations) of the 332 financial 

institutions participating in the SBLF program as of the 

September 27, 2011, statutory deadline for entering the program.

This comprised $3,923,424,880 (or 97 percent) of Treasury’s 

$4,027,703,880 total SBLF program investments. The remaining 

51 SBLF participants were comprised of Community Development 

Lending Funds (CDLF),

2 which were not within the scope of this 

audit. For the SBLF participants within our audit scope, we tested 

 

1

 Dividend rate increases were based on each SBLF participant’s investment dates per the Securities 

Purchase Agreement.

2

 CDLFs are tax-exempt organizations that provide microloans, mezzanine financing, and finance 

community facilities and must be certified by the Community Development Financial Institutions (CDFI) 

Fund as a CDFI. Dividend rate increases to 9 percent for CDLFs begin in calendar year 2019. 
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Lending Fund Participants (OIG-20-026)

all 269 investment redemptions beginning with the first

redemption, in May 2012, through March 2018. We tested all 197 

dividend payments totaling $46,062,138 owed to Treasury 

subsequent to SBLF participants’ respective dividend rate increases 

for the period January 2016 through March 2018. We conducted 

our audit from December 2017 through June 2019. Appendix 1 

provides more detail of our audit objectives, scope, and 

methodology.

Results In Brief

In brief, we found that 227 of the 281 (or 81 percent) financial 

institutions participating in the SBLF program fully redeemed their 

investments, totaling $3,416,196,880, prior to the dividend rate 

increase taking effect in the first quarter of calendar year 2016. 

Subsequent to the dividend rate increases, 54 financial institutions

(or 19 percent) remained in the SBLF program with an outstanding 

balance totaling $507,228,000. These remaining SBLF participants 

were required to make dividend payments at increased dividend 

rates (9 percent for C corporations and 13.8 percent for S 

corporations) until their investments were fully redeemed.

Subsequent to the SBLF participants’ respective dividend rate 

increases, 197 dividend payments totaling $46,062,138 were due

during the period of January 2016 through March 2018 from the 

remaining 54 SBLF participants. The SBLF program office collected

182 dividend payments (or 92 percent) due totaling $39,736,183. 

Fifteen missed dividend payments totaling $6,325,955 were due

from three financial institutions. One such financial institution fully 

redeemed its investment in July 2016 and paid a prorated dividend 

of $20,344. For the remaining two financial institutions, SBLF 

program officials stated that they wrote off SBLF’s investment of 

$6,742,000 in one of them (with dividends of $1,908,900 owed)

since it was not expected to continue operations as its sole 

subsidiary was seized and sold in a public auction in August 2017.

SBLF officials maintained its investment of $37,935,000 on the 

SBLF program records for the other financial institution, which filed 

for bankruptcy protection in May 2017 after its sole subsidiary was 

placed in Federal Deposit Insurance Corporation (FDIC) 
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receivership.

3 However, there was no expectation of its 

$4,267,687 dividend owed being paid.

During the period of January 2016 through March 2018, another 

42 financial institutions fully redeemed their investments totaling 

$378,259,000. As of March 31, 2018, 269 of the 281 

participating financial institutions (or 96 percent) had fully 

redeemed their investments and the 12 remaining participating 

institutions had unredeemed investments totaling $200,832,000. 

Overall, we concluded that financial institutions impacted by the 9 

percent and 13.8 percent dividend rate increases exited the SBLF 

program at an accelerated pace prior to their respective dividend 

increases. Furthermore, we found that SBLF program officials and 

staff complied with the office’s Redemption Procedure and 

Dividend and Interest Procedures. We verified the accuracy of all 

investment redemption amounts and total dividend payments 

collected by Treasury. In the case of missed dividend payments, 

SBLF program officials took appropriate actions. Since SBLF 

participants remaining as of March 31, 2018, were not required to 

redeem their investments, we make no recommendation in this 

report. 

As part of our reporting process, we provided Treasury 

management an opportunity to comment on a draft of this report. 

In a written response, management stated that while it was not 

able to independently verify all numbers in the draft report, it was 

pleased that the audit concluded that SBLF program officials and 

staff complied with the office’s Redemption Procedure and 

Dividend and Interest Procedures and that, in the case of missed 

payments, SBLF program officials took appropriate actions. We 

included Treasury management’s response, in its entirety, as 

appendix 2 of this report.

 

3 Receivership is a process in which a legally appointed receiver acts as a custodian of a company’s 

assets or business operations, as with bankruptcies. A bankruptcy court, creditor, or governing body 

may appoint a receiver. 
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Background

The SBLF program was created by the Small Business Jobs Act of 

2010 (Act)4to increase the availability of credit to small 

businesses. Section 4103(a) of the Act gave the Secretary of the 

Treasury temporary authority to make capital investments in 

eligible financial institutions in exchange for preferred shares of 

stock or other financial instruments. In return, financial institutions 

that received capital investments under the program are required to 

pay dividends or interest to Treasury. SBLF participants are 

corporation banks, holding institutions,5 mutual institutions,6

savings institutions, or CDLFs. 

Of the $30 billion available through the SBLF program, Treasury 

invested over $4 billion in 332 financial institutions as of the 

September 27, 2011, deadline for entering the program. Initial 

investments were comprised of: (a) $3,557,581,170 in 232 C 

corporations; (b) $365,843,710 in 49 S corporations and mutual 

institutions; and (c) $104,279,000 in 51 CDLFs.7 Under the Act, 

an investment in S corporations and mutual institutions must be 

repaid no later than the 10-year period beginning on the date the 

investment is made. Investments in C corporations are perpetual 

preferred shares and there is no set maturity date, although terms 

set in the Securities Purchase Agreement (SPA) signed by each 

SBLF participant include incentives to redeem at the 10 year 

investment anniversary.

In accordance with the Act, financial institutions participating in 

the SBLF program owed Treasury dividends at a rate determined by 

their increase in qualified small business lending over their baseline 

 

4

 Pub. L. No. 111-240, 124 Stat. 2582-2596 (September 27, 2010)

5

 Holding institutions are any company that has direct or indirect control, either through ownership of 

voting shares or exercise of control in any manner in the election of a majority of the directors or 

trustees, over a financial institution. 

6

 Mutual institutions are legal entities with no stockholders that are owned by their depositors or 

policyholders and are generally thrifts and savings and loan associations. 

7

 C corporations are legal entities operating under state law whose profits are taxed to the corporation 

when earned, and taxed to the shareholders when distributed as dividends. S corporations are entities, 

as allowed by the Internal Revenue Code, which pass income, losses, deductions, and credits to their 

shareholders for Federal tax purposes. In so doing, the corporation avoids double taxation on corporate 

income.
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level.

8 Participating institutions’ baseline levels of Qualified Small 

Business Lending (QSBL) were used to establish initial dividend 

rates. An institution’s QSBL was calculated by summing all of the 

following types of lending: (1) commercial and industrial loans; (2) 

loans secured by owner-occupied non-farm, non-residential 

properties; (3) loans to finance agricultural production and other 

loans to farmers; and (4) loans secured by farmland. Then, that 

amount was subtracted by all lending with the following 

characteristics: (1) loans to the same borrower and its affiliates 

with an original principal or commitment amount greater than 

$10 million; (2) loans to businesses with more than $50 million in 

revenues; (3) loans guaranteed by the U.S. government; and (4) 

loans in which a third party has assumed an interest.

Each SBLF participant’s SPA with Treasury legally required the 

payment of dividends on a quarterly basis based on applicable 

dividend rates. These SPAs established Treasury’s position through 

non-cumulative preferred shares and/or subordinated debt.

Dividends payments are payable quarterly in arrears on January 1, 

April 1, July 1, and October 1 of each calendar year.

For the first 2.5 years into the SBLF program, dividend rates ranged 

between 1 percent and 5 percent for participating C corporations 

and 1.5 percent and 7.7 percent for S corporations. After 2.5 

years, dividend rates for all participating financial institutions 

became static based on small business lending increases as of 

September 30, 2013. After 4.5 years in the SBLF program, or the 

first quarter of 2016, dividend/interest rates increased to 9 percent 

for C corporations and 13.8 percent for S corporations.

After initial dividend rates were established using participating 

institutions’ baseline QSBL levels, the majority of SBLF 

participants’ dividends rate varied depending on the institution’s 

type and increase in QSBL, as shown in Table 1 and Table 2.

 

8 The baseline level for measuring changes in small business lending is the average of the amounts 

reported for each of the 4 calendar quarters ended June 30, 2010. 
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Table 1. C Corporation Banks and Holding Companies

Dividend Rates

Increase in QSBL 

from the Baseline 

First 9 

Quarters 

Quarter 10 to 

Year 4.5 

After Year 4.5 

0% or less 5% 7% 9% 

More than 0%, but 

less than 2.5% 

5% 5% 9% 

2.5% or more, but 

less than 5% 

4% 4% 9% 

5% or more, but 

less than 7.5% 

3% 3% 9% 

7.5% or more, but 

less than 10% 

2% 2% 9% 

10% or more 1% 1% 9% 

Source: Office of Inspector General (OIG) analysis of interest rate increases

based on Treasury’s Summary of Terms.

Table 2. S Corporation Banks, Holding Companies, Mutual 

Institutions, and Savings Institutions

Interest Rates

Increase in QSBL 

from the Baseline 

First 9 

Quarters 

Quarter 10 to 

Year 4.5 

After Year 4.5 

0% or less 7.7% 10.8% 13.8% 

More than 0%, but 

less than 2.5% 

7.7% 7.7% 13.8% 

2.5% or more, but 

less than 5% 

6.2% 6.2% 13.8% 

5% or more, but 

less than 7.5% 

4.6% 4.6% 13.8% 

7.5% or more, but 

less than 10% 

3.1% 3.1% 13.8% 

10% or more 1.5% 1.5% 13.8% 

Source: OIG analysis of interest rate increases based on Treasury’s Summary of 

Terms.

Audit Results Eighty-One Percent of Participants Exited SBLF 

Program Prior to Dividend Rates Increasing

Prior to their respective dividend rate increases, 227 of the 281 

SBLF participants within the scope of this audit (or 81 percent) 

fully redeemed their investments totaling $3,416,196,880. The 54

financial institutions remaining in the SBLF program at the time 

their dividend rates increased had outstanding investment balances 
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totaling $507,228,000. These remaining SBLF participants 

comprised 46 C corporations ($468,103,000) and 8 S corporations

($39,125,000), which owed dividend payments at increased rates

of 9 percent and 13.8 percent respectively. From April 2016 

through March 2018, another 42 financial institutions redeemed 

their investments for a total of 269 of the 281 financial institutions 

exiting the SBLF program. Of the 12 SBLF participants remaining as 

of March 31, 2018, two of them experienced financial difficulties,

of which one was written off by SBLF program officials, as 

described below in more detail. That said, the remaining financial 

institutions had not reached their respective 10-year redemption 

date under the Act.

Of the 197 dividend payments totaling $46,062,138 that were due 

subsequent to the dividend rate increases, the SBLF program office 

collected 182 payments (or 92 percent) totaling $39,736,183. 

Payments included 166 dividends totaling $38,943,841 from C 

corporations and 16 dividends totaling $792,342 from S 

corporations. Treasury was owed $6,325,955 from three financial 

institutions that missed 15 dividend payments due between April 

2016 and January 2018. When asked about the impact of dividend 

rate increases and what actions, if any, would be taken on the 

remaining SBLF participants, SBLF program officials stated that the 

timing of redemptions was self-explanatory and no immediate

action would be taken with respect to the unredeemed 

investments.

We reviewed financial institutions’ investment redemptions and 

dividend payments for accuracy, and compliance with respective 

SPAs, as well as, the SBLF program office’s related actions 

described as follows.

Investment Redemptions 

The SBLF program office made investments in 281 financial 

institutions from June through September 2011. Financial 

institutions were redeeming their investments at an accelerated

pace prior to their respective dividend rate increase dates

(December 2015 through March 2016), which occurred as follows: 

(1) 9 redemptions in calendar year 2012; (2) 19 redemptions in 

calendar year 2013; (3) 21 redemptions in calendar year 2014; (4) 

88 redemptions in calendar year 2015; and (5) 90 redemptions in 
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first quarter of calendar year 2016. In all, 227 of the 281 (81 

percent) financial institutions had fully redeemed their investments

totaling $3,416,196,880 prior to their respective dividend rate 

increases.

Subsequent to the dividend rate increases, another 42 of the 54 

remaining financial institutions exited the SBLF program having 

fully redeemed their investments between April 2016 and March 

2018. Redemptions totaled $378,259,000, which were comprised 

of 36 C corporations ($342,376,000) and 6 S corporations

($35,883,000). By March 2018, investments totaling

$3,722,592,880 were fully redeemed by 269 of the 281 SBLF 

participants. In all, we confirmed that 222 C corporations (with 

redemptions of $3,367,399,170) and 47 S corporations (with 

redemptions of $355,193,710) had exited the SBLF program in 

accordance with their respective SPAs. We verified the accuracy of 

all redemption payments remitted through the Bank of New York 

Mellon’s (BNYM) FedWire system and reconciled to Treasury’s

records.

According to the SBLF program’s SPAs, investment redemption 

payments must be made at the full stated value of the related 

investment shares (no discounts permitted) plus accrued and 

unpaid dividends as of the date of redemption for the quarter that 

includes the redemption date. Additionally, investment redemptions 

must be made in amounts equal to at least 25 percent of the 

number of originally issued shares/debentures9or 100 percent of 

the then outstanding shares/debentures (if less than 25 percent of 

the number of originally issued shares/debentures).

Of the 12 financial institutions in the SBLF program as of April 

2018, 10 were C corporations with total remaining investments of 

$165,898,000 and 2 were S corporations with total remaining 

investments of $7,742,000. Additionally, two of these financial 

institutions experienced financial difficulties. According to SBLF 

program officials, one entity (S corporation)10 was not expected to 

continue operations as its sole subsidiary was seized and sold in a 

 

9

 A debenture is an unsecured loan certificate issued by a company that is backed by general credit 

rather than by specified assets. 

10 Treasury’s investment of $6,742,000 was written off in 2018. 
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public auction in August 2017. The other entity (C corporation)11

filed for bankruptcy protection in May 2017 after its sole subsidiary 

was placed in FDIC-receivership. As for the remaining active SBLF 

participants, SBLF program officials stated that they were not 

taking any action with respect to their unredeemed investments. 

Under the Act, SBLF participants are not required to redeem their 

investments until 10 years after an executed SPA. Since 

investments were made from June through September 27, 2011, 

the repayment deadline has not passed for the remaining 12 SBLF 

participants. 

Dividend Payments 

The SPA signed by each SBLF participant legally required the 

quarterly payment of dividends in arrears on January 1, April 1, 

July 1, and October 1 of each calendar year. The amount of 

dividends due was computed based on a 360-day year consisting 

of four 90-day quarters, including proration for days elapsed in 

cases of payment prior to the end of a quarter. Dividend payments 

required for preferred shares (C corporation banks and holding 

companies) were non-cumulative. Dividend payments for senior 

securities (S Corporation Banks, Holding Companies, Mutual 

Institutions, Savings Institutions, and CDLFs) were cumulative.

For the period January 2016 through March 2018, 197 dividend 

payments totaling $46,062,138 were due from the 54 financial 

institutions remaining in the SBLF program after their dividend rates 

increased. The SBLF program office collected 182 payments (or 92 

percent) totaling $39,736,183. We recalculated all dividend 

payments due and found no exceptions with the amounts. We 

reconciled the dividend payments due to amounts remitted through 

the BNYM FedWire system. Furthermore, dividends were paid in 

accordance with the due dates and amounts stipulated in SBLF 

participants’ respective SPAs. The remaining 15 missed payments 

totaling $6,325,955 were due from 3 financial institutions. One

financial institution fully redeemed its investment in July 2016. As 

part of its investment redemption, in accordance with the SPA, this 

financial institution paid prorated dividends of $20,344 after 

missing two preceding quarters’ dividend payments totaling 

 

11 Treasury’s investment of $37,935,000 was maintained on Treasury’s records pending the outcome 

of bankruptcy proceedings. This financial institution was still in bankruptcy proceedings as of August 

2019. 
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$149,368. As noted above, the SBLF program officials wrote off 

the investment of $6,742,000 in one financial institution, which 

missed 8 quarterly dividend payments totaling $1,908,900. Since 

this entity was not expected to continue operations, no action was 

taken by the SBLF program office. The financial institution in 

bankruptcy missed 5 payments totaling $4,267,687. According to 

SBLF program officials, this financial institution remains in

bankruptcy litigation.

The SBLF program officials took the following required actions for 

missed dividend payments in accordance with the SPAs.

 For any missed payment

The Chief Executive Officer(s) (CEO) and Chief Financial 

Officer(s) (CFO) of the financial institution “will be required 

to provide written notice, in a form satisfactory to Treasury, 

which is to include the rationale for the board of directors for 

not declaring dividends.” Furthermore, no repurchases may 

be effected and no dividends declared or paid during the 

current quarter and the next three quarters in the case of S 

corporations and not until all accrued dividends are paid in 

the case of C corporations.

For the three respective financial institutions with missed 

divided payments, we confirmed that the SBLF program 

office received 11 of the 15 written notifications letters due 

from the respective CEOs and the CFOs. The notices 

included the boards of directors’ rationale(s) for not declaring 

dividends. Overall, it was deemed imprudent to declare and 

pay dividends due to the insufficiency of funds. SBLF 

program officials acknowledged that they did not receive the 

other four missed payment letters due from the two financial 

institutions, one of which was not expected to continue 

operations and the other was in bankruptcy proceedings at 

the time of the missed payments. Since neither entity could 
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pay dividends, SBLF program officials stated that they did 

not make futile attempts to obtain notification letters.

 After four missed payments

After dividend payments have not been declared and paid for 

four quarters or more (whether or not consecutive) and the 

financial institution issuer was not subject to a regulatory 

determination prohibiting dividend declaration and payment, 

the board of directors must certify, in writing, that “best 

efforts” were used to declare and pay quarterly dividends 

consistent with safe and sound banking practices and the 

[financial institution] director’s fiduciary obligation.

For the three financial institutions that missed four quarterly 

dividend payments, SBLF program officials stated that they 

did not have “best efforts” certifications from them for the 

following reasons: (1) the institution that was not expected 

to continue operations no longer had an effectively 

functioning and operating issuer board of directors; (2) the 

institution in bankruptcy was prohibited from authorizing a 

dividend payment by their cognitive Federal Reserve Bank, 

“and such authorization and payment was necessary in order 

to allow” them to “make the interest payment to Treasury;”

and (3) the third institution was not required to provide a 

“best efforts” certification since the entity was prohibited by 

State law from declaring and paying dividends. As noted 

above, this institution fully redeemed its securities and paid a 

pro-rated dividend in July 2016.

 After five missed payments

Whenever dividend payments have not been declared and 

paid for five quarterly dividends or more, whether or not 

consecutive, Treasury will have the right, but not the 

obligation, to appoint a representative to serve as an 

observer on the Issuer’s board of directors. This right will

end when full dividends have been paid for four consecutive 

subsequent dividend periods.

We reviewed SBLF program office’s documentation 

supporting appointments of observers to the board of 
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directors of two organizations - the financial institution that 

redeemed its securities in July 2016 (they had missed 

dividend payments prior to their rate increase) and the 

financial institution that was not expected to continue 

operations - after they had accrued 5 missed payments. 

SBLF program officials stated that they chose not to institute 

any board observers or voting directors, as per their 

discretion, for the institution that went into bankruptcy. 

 After six missed payments

Whenever dividend payments have not been declared and 

paid for six quarters or more, whether or not consecutive, 

and if the principle amount of the holder’s securities is 

$25 million or more, the holder will have the right, but not 

the obligation, to elect two directors to the financial 

institution’s/issuer’s board of directors. Treasury’s 

investments in two of the three financial institutions that 

missed six dividend payments were under the $25 million 

threshold, and therefore, no action was required related to 

the missed dividend payments. As allowed by the SPAs, 

SBLF program officials did not elect to appoint directors to 

the financial institution that was in bankruptcy.

Conclusion

Overall, we concluded that financial institutions exited the SBLF 

program at an accelerated pace prior to their respective 9 percent 

and 13.8 percent dividend increases. Furthermore, we found that 

SBLF program officials and staff complied with the office’s 

Redemption Procedure and Dividend and Interest Procedures. We 

verified the accuracy of all investment redemption amounts and 

total dividend payments collected by Treasury. In the case of 

missed payments, SBLF program officials took appropriate actions. 

Since SBLF participants remaining as of March 31, 2018, were not 

required to redeem their investments, we make no recommendation

in this report.
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* * * * * *

We appreciate the courtesies and cooperation extended by your 

staff as we inquired about these matters. Major contributors to this 

report are listed in appendix 3. A distribution list for this report is 

provided as appendix 4. If you have any questions, you may 

contact me at (202) 927-5784 or Nick Slonka, Audit Manager at 

(202) 927-8772.

/s/

Donna Joseph

Deputy Assistant Inspector General for Audit
Appendix 1 

Objectives, Scope, and Methodology 

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Pursuant to Section 4107 of the Small Business Jobs Act of 2010, 

we initiated an audit of the impact of the mandatory dividend and 

interest rate increases on financial institutions participating in the 

Department of the Treasury’s (Treasury) Small Business Lending 

Fund (SBLF) program (also referred to as SBLF participants).

Between December 2015 and April 2016, the dividend or interest 

rates (hereinafter referred to as dividend rate) for SBLF participants 

increased to 9 percent for C corporations and 13.8 percent for S 

corporations. The objective of our audit was to evaluate the impact 

of these mandatory rate increases on the SBLF participants.

Specifically, we determined the number of financial institutions that

redeemed their securities (also referred to as SBLF program 

investments) and whether Treasury collected the additional 

dividends due from financial institutions remaining in the program.

The scope of our audit included 281 SBLF participants (comprised 

of 232 C corporations and 49 S corporations) of the 332 financial 

institutions participating in the SBLF program as of the 

September 27, 2011 statutory deadline for entering the program.

This comprised investments of $3,923,424,880 (or 97 percent) of 

the $4,027,703,880 of total SBLF program investments. The 

remaining 51 of the 332 SBLF participants were not within the 

scope of this audit as they were Community Development Lending 

Funds, which did not have dividend rate increases for the period of

this audit. For the 281 SBLF participants within our audit scope, 

we tested all 269 investment redemptions totaling 

$3,722,592,880 for the period June 2012 through March 2018 

and all 197 dividend payments owed totaling $46,062,138 for the 

period January 2016 through March 2018.

To accomplish our audit objectives, we performed the following

procedures.

 Reviewed applicable laws, regulations, policies, and 

procedures, as follows:

 Small Business Jobs Act of 2010 (Pub. L. No. 111-

240, 124 Stat. 2582-2596 (September 27, 2010);

 SBLF Redemption Procedure (February 25, 2015)

 SBLF Dividend and Interest Procedure (July 8, 2014); 

and
Appendix 1

Objectives, Scope, and Methodology

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Lending Fund Participants (OIG-20-026)

 SBLF Summary of Terms for both Senior Preferred 

Stock and Subchapter S Corporation Senior Securities

(May 2011).

 Reviewed documentation supporting investment redemptions 

and dividend payments as follows:

 SBLF program’s investment redemption lists (July 

2012 through December 2017);

 SBLF program’s dividend payments lists (January 

2016 through March 2018);

 SBLF Transaction Reports for the months August 

2012 through March 2018;

 Bank of New York Mellon FedWire Message 

Summaries;

 SBLF’s missed dividend payments lists April 2016 

through March 2018 

 SBLF program office’s meeting minutes demonstrating 

exercise of its Board Observer rights

 Notification letters from financial institutions stating 

intent not to declare dividends (missed payments);

 Quarterly Supplemental Reports (QSRs) from the 

lending institutions (December 2015 to December 

2017); and

 Securities Purchase Agreements for the 12 institutions 

still participating in the program as of April 2018 and 

subject to the mandatory dividend rate increases.

 Tested 100 percent of investment redemptions and dividend 

payments owed as follows:

 confirmed SBLF program office’s investment 

redemption lists agreed to the transactional data 

contained in the Bank of New York Mellon’s (BNYM)

“Collections Information Repository” (CIR). The CIR, 

also called the FedWire message summary report, was 

completely reconciled to confirm that redemptions 

received per SBLF were the same as the transaction 

records receipts from BNYM; and 

 verified the accuracy of all 197 dividend payments 

owed, totaling $46,062,138, from 54 financial 

institutions still participating in the SBLF program after 
Appendix 1

Objectives, Scope, and Methodology

Impact of Mandatory Dividend Rate Increases on Small Business Page 16

Lending Fund Participants (OIG-20-026)

the first mandatory dividend rate increased in first 

quarter of calendar year 2016 by (1)

determining the applicable dividend rate by comparing 

the CIR data, awardees’ C or S corporation status per 

SBLF program office, and the Summary of Terms

sheets; (2) reviewing the CIR data against the 

dividend payment list from the SBLF program office to 

ensure that payments received per BNYM were 

consistent and accurate; and (3) re-calculating each 

payment, based upon whether the entity was a C 

corporation subject to the 9 percent rate increase or 

an S corporation subject to a 13.8 percent rate 

increase.

 Interviewed key officials and personnel within the SBLF 

program office, to include SBLF’s Director, Compliance 

Specialist, Investment Manager, and Counsel.

We conducted our audit work at the SBLF program office and the 

Office of Inspector General in Washington D.C. from December 

2017 through June 2019.

We conducted this performance audit in accordance with generally 

accepted government auditing standards. Those standards require 

that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 
Appendix 2 

Treasury Management Response 

Impact of Mandatory Dividend Rate Increases on Small Business Page 17

Lending Fund Participants (OIG-20-026)
Appendix 3 

Major Contributors To This Report 

Impact of Mandatory Dividend Rate Increases on Small Business Page 18

Lending Fund Participants (OIG-20-026)

Nick Slonka, Audit Manager

Anita Smith, Auditor-In-Charge

Lynette Feliciano Del Valle, Auditor

Kevin Guishard, Referencer
Appendix 4 

Report Distribution 

Impact of Mandatory Dividend Rate Increases on Small Business Page 19

Lending Fund Participants (OIG-20-026)

Department of the Treasury

Deputy Secretary

Assistant Secretary for Financial Institutions

Deputy Assistant Secretary for Community and Economic 

Development

Office of Strategic Planning and Performance Improvement

Office of the Deputy Chief Financial Officer, Risk and Control

Group

Office of Management and Budget

OIG Budget Examiner

Small Business Lending Fund

Director
Treasury OIG Website

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