YONKERS—The city failed to effectively monitor a portfolio of risky small-business loans that are now in default for more than $650,000, a public watchdog has found.
Yonkers Inspector General Kitley Covill called for tighter controls of a city-run commercial loan program Wednesday, citing evidence of lax oversight of its 11 loans made between 2004 and 2010.
The city issued the loans, totaling nearly $1 million, in hopes of spurring small business growth in economically troubled parts of Yonkers, Covill wrote in a report released Wednesday.
But six of the borrowers have since defaulted and are being sued by the city; another loan recipient is slipping into delinquency while the other four remain current on their debts.
Covill said the problems with the loan program included haphazard monitoring, poorly-maintained records and a failure to collect on defaulted loans for an extended period.
Her review also found that the city did not always follow its own protocols for issuing loans. For example, it sometimes relied on informal financial statements or failed to conduct a thorough review of guarantors.
Covill also noted that the loans were risky to begin with. In that light, she said, “it is not surprising that a number of the business entities have had financial challenges and are having trouble repaying the city.”
Mayor Mike Spano took aim at the delinquent borrowers: “Once again, it has become apparent that some businesses took advantage of the generosity of the city and are not paying its fair share back to the Yonkers taxpayers,” he said in a statement Wednesday.
“It is time,” the mayor continued, “for this well-intended program to get back into shape so that our businesses can thrive here in Yonkers.”
Covill’s recommendations include the following:
-All commercial loans must be given only after the requirements contained in the city’s Office of Economic Development policies and procedures are completely satisfied.
-Collateral for all loans must be thoroughly scrutinized before any loan is disbursed.
-Commercial loan repayment should be closely monitored and appropriate collection action begun in a timely manner.
-Department of Planning files should be organized and copies of all documents executed at closing must be provided to the city.
-Any time documents are requested by the Corporation Counsel, outside counsel or other entities, originals must be kept in the official Department of Planning file.
-The Planning Department employee managing the commercial loan portfolio should receive periodic updates from attorneys representing the city as to the litigation status for each defaulted loan and work closely with the attorneys when a commercial loan recipient falls behind in payment.
-The city needs to track the loans, as the bank that processed the payments may not have accurate information regarding loan requirements for repayment of principle and interest.
-The Corporation Counsel must ensure that the loan documents, particularly the promissory note, are in order before the loan is given, even if the city is being represented by outside counsel at the closing of the loan.