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Small Business Lending Fund Annual Auditor Certification

As part of the Small Business Jobs Act of 2010, the Small Business Lending Fund (SBLF) was designed to encourage lending to small businesses by providing capital to community banks with assets less than $10 billion. The U.S. Treasury Department planned to make SBLF funding available by purchasing Tier 1-qualifying preferred stock or equivalents for institutions that applied and were approved. In general, the dividend rate that institutions pay on SBLF funding decreases as the institution’s qualified small business lending, as defined by the Treasury Department, increases. On September 27, 2011, after making its seventh and final announcement of institutions approved under the program, Treasury indicated total funding for the program was slightly more than $4 billion to 332 community banks.

Summary of Supplemental Reporting Requirements

An institution participating in the SBLF is required to submit Supplemental Reports, which are used for measuring changes in qualified small business lending. The qualified institution will calculate these measures, both the baseline and quarterly lending, using supplemental reports provided to the federal bank supervisory authority and Treasury. The supplemental reports are based in part on information reported on the call report (for holding companies, these reports are based on subsidiaries’ call reports). The supplemental reports are:

  • Initial Supplemental Report – before closing
  • Quarterly Supplemental Report – due at the call report due date

The qualifying institution’s management must certify to Treasury that the information provided in each supplemental report is accurate.

Annual Auditor Certification

In addition, the qualifying institution is required to receive and submit a certification from its external auditors within 90 days of the end of each fiscal year following the investment date. This must certify the processes and controls used to generate the supplemental reports are satisfactory.

To meet the annual auditor certification requirement, a participating institution may request its independent auditor issue a report following the guidance in paragraphs .10-.21 of AU section 623, Special Reports. Such guidance includes the following considerations:

  • Assurance, relative to the supplemental reports, may be provided in a separate report or in one or more paragraphs of the auditor’s report accompanying the audited financial statements.
  • Assurance should not be provided unless the auditor has audited the financial statements and subjected the supplemental reports to audit procedures applied in the audit of the financial statements.
  • When the auditor identifies items of noncompliance he or she believes should be reported, the auditor should identify the instances of noncompliance in the report.

A sample report that a participating bank’s auditor may use when, as a result of the auditor’s procedures, nothing has come to the auditor’s attention to indicate that the bank failed to comply with the terms of the SBLF may be found on the Treasury website. This type of report is commonly referred to as “negative assurance.”


If your institution is participating in the SBLF, management should discuss the annual auditor certification requirement with its outside auditors and plan for the additional time and effort required to comply with the annual SBLF certification to Treasury. If your institution is participating in the SBLF and does not receive an annual independent external financial statement audit, management may wish to contact legal counsel, accountants and appropriate officials at Treasury to determine an acceptable certification process.

For more information regarding the SBLF, please contact your BKD advisor.

This post was written by:

Leslie, a partner with BKD National Financial Services Group, has more than 15 years of experience providing audit and consulting services to a variety of organizations. Her experience includes bond issues, implementing new FASB and GASB pronouncements, technology issues, operations assessment and internal control reviews, indirect cost rate agreements and forecasts.

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