The OIG seems to be first and foremost concerned with loan agent fraud, probably because several of the more high profile frauds in the past have involved loan agents (packagers, brokers etc).  We know that many financial institutions by policy restrict their association with loan agents.  But just like other professionals, there are many highly capable and high integrity agents and a wholesale exclusion of their services may lead to missed opportunity.  Perhaps a better approach is to develop internal controls that monitor loan performance cross referenced to referral sources.  Additionally if BDO’s are allowed to work with specific agents, there should be tracking in place to mitigate anomalies and potential collusion in a fraud.  Control of appraisals and valuations should rest with authorized, non commissioned credit administration personnel, not with the agent or a highly commissioned loan officer.

The OIG also identifies numerous potential opportunities for borrowers to commit fraud in relation to SBA lending programs.  Topping the list of borrower frauds is false equity injections.  It’s no secret SBA has intensified their focus on equity injection documentation and part of the reason is to help mitigate borrower fraud.  Prudent lenders understand the concept of “skin in the game”, and, therefore, adequate equity injections are fundamental to a sound loan proposal.  Because SBA programs provide built in flexibility regarding the equity amount (often just 10% is required), this places more pressure on the lender and the loan structure to assure that the designated equity is really there and solidly injected into the project.  The OIG notice itemizes the “usual suspects” for fraudulent borrower documentation concerning equity injection and overall financial performance: false gift letters or gift affidavits; false promissory notes and standby agreements; false financial statements; and false bank statements and cashier checks.