Audit 46953

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.

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.

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.

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.