Would it be considered a Segregation of Duties issue if the Loan Administration unit reported to the Senior Lending Officer?
Why...if within the Loan Administration Unit there are adequate controls covering segregation of duties with the employees?

In the typical community bank, I have always seen Loan Administration report to the head of lending. From a practical standpoint, I would say this is not a problem. My main concern would be that the senior lending staff overrides controls or approves exceptions that they are not authorized to. Any number of people may have the authority to approve policy and documentation exceptions; internal audit should check to see if such waivers are made pursuant to a written policy and with proper authority. "Controls" should never be overridden. Both line management and internal audit should test and confirm the effectiveness of controls.