October 24, 2012

Norman Greenspan, Partner, Starfield & Smith, PC

By Norman E. Greenspan, Esquire
Partner
Starfield and Smith, PC

What does it mean to be the subject of an investigation being conducted by the SBA's Office of Inspector General ("OIG")? The OIG was created pursuant to the Inspector General Act of 1978, 5a U.S.C. §1, et. seq. It has many and varied responsibilities, including the conduct and supervision of investigations relating to the SBA's operations, and to detect and prevent fraud, waste and abuse. An OIG inquiry most often means that the OIG has reason to believe that the subject of the investigation has done something that has put the SBA's program at risk.

In the OIG's Strategic Plan, Fiscal Years 2012 - 2017, one of the OIG's stated goals is to promote the integrity, efficiency and effectiveness of SBA programs and activities. The OIG says that it is going to measure its success in achieving this goal based, among other things, on whether the majority of OIG cases closed during the fiscal period were referred for criminal, civil or administrative action. Strategic Plan, p. 5. It is the OIG's goal to increase the number of its investigations with emphasis on those cases where the potential losses exceed $1 Million. It is also OIG's goal to increase the ratio of dollar accomplishments to audit and investigative costs. Id., p. 6. In other words, it is the OIG's stated goal to recover money, through fines, penalties or forfeitures, in amounts that approach, if not cover, the cost of the investigation.

The OIG is prepared to meet this goal. The Investigative Division carries out a full range of traditional law enforcement functions, including the detection of illegal and improper activities by lenders, lender service providers, brokers and borrowers involving SBA programs, operations and personnel. The OIG's Counsel Division assists the Investigative Division in its investigative activities. At times, the OIG Divisions work with the U.S. Justice Department and other federal investigative agencies. The government has allocated significant resources to enhance the OIG's investigative capabilities. In the Recovery Act, substantial funds were allocated to the OIG to increase its investigative activities.

Most OIG investigations do not result in a referral for criminal prosecution. However, just because the conduct does not rise to the level of a crime does not mean that the subject of the investigation is home free. There are many non-criminal remedies in the OIG's arsenal.

The OIG may seek to impose sanctions and/or seek civil and administrative remedies against those who put the system at risk. The OIG promotes the use of non-criminal remedies such as suspensions and debarment and other administrative enforcement actions as a means to protect taxpayers funds from those who have exhibited a lack of business integrity. The OIG regularly recommends that the SBA take administrative action when the conduct being investigated is not criminal, but which conduct in the OIG's view demonstrates a lack of candor, honesty and forthrightness. The OIG can recommend that the subject be suspended pending the outcome of an investigation if the OIG sees program risk by the subject's continuing participation in SBA programs. According to the OIG's semiannual report to Congress in the Spring of 2012, for the six month period ending March 31, 2012, the OIG sent 19 suspension and debarment referrals to the SBA. The persons and entities whose suspension and debarment were recommended included lenders, lender service providers and brokers. Suspension or debarment means that the entity is effectively precluded from conducting business with the SBA, or with any authorized SBA lender, which is often devastating to the business of the subject of the investigation.

How do you protect yourself against the potentially draconian remedies available to the OIG? How do you even know that the OIG is conducting an investigation? In most instances, the OIG never tells the subject that its conduct is under scrutiny. Often, the OIG's decision to begin an investigation is the result of an audit of information already in possession of the SBA such that the subject does not even know that its conduct is being audited. Not until the investigation manifests itself in some way, such as a request for information, or a published report, or a witness interview, does the subject know of the investigation.

Responding properly to an OIG investigation is critical. However, it is difficult to formulate the best response without knowing exactly what the problem is. Often, the best way to learn what the problem is that has resulted in the OIG investigation is to conduct an internal investigation. However, if not conducted properly, the results of a subject's internal investigation may be discovered by the OIG. If you have reason to believe that your company or any of its employees are the subject of an OIG investigation, you should immediately seek the advice of counsel experienced in representing subjects of government investigations and who is also familiar with the myriad SBA rules and regulations and inner-workings of the SBA.

For more information regarding OIG Investigations, please contact Norman at NGreenspan@StarfieldSmith.com or 215-542-7070.