20 13 White Paper Entrepreneurial Development Programs
Summary
A white paper issued by the Office of Inspector General of the U.S. Small Business Administration, Report Number 20-13, dated April 23, 2020, as a memorandum from the Inspector General to the Administrator. It compiles risks and lessons learned from prior audits of SBA's entrepreneurial development programs as the agency implements the Coronavirus Aid, Relief, and Economic Security Act, Public Law 116-136, which appropriated $265 million for those programs, including $240 million for Small Business Development Center and Women's Business Center grants and $25 million for resource partner associations. The paper states that prior audits found SBA's monitoring of grant recipients' spending and its performance assessment ineffective, and cites $391,000 in unallowable costs in one prior audit. It notes that six prior reports made 39 recommendations, of which SBA addressed 38.
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S B A I N S P E C T O R G E N E R A L
WHITE PAPER: RISK AWARENESS AND LESSONS
LEARNED FROM PRIOR AUDITS OF
ENTREPRENEURIAL DEVELOPMENT PROGRAMS
REPORT NUMBER 20-13|April 23, 2020
EXECUTIVE SUMMARY Report Number
20-13
RISK AWARENESS AND LESSONS LEARNED FROM
April 23, 2020
PRIOR AUDITS OF ENTREPRENEURIAL
DEVELOPMENT PROGRAMS
Why We Did This Identified Areas of Risk
We prepared this memorandum to inform the Prior audits and reviews identified areas of risk in
Small Business Administration (SBA) of lessons SBA’s entrepreneurial development programs.
learned and risks identified in prior audits and Specifically, SBA’s processes for monitoring how
reviews of entrepreneurial development grant recipients spent Federal funds and assessing
programs. SBA should consider this information as performance were ineffective. In addition, SBA’s
it implements mandates to administer Federal decentralized grants management functions
funds to Small Business Development Centers inhibited agencywide improvements to its grant
(SBDC), Women’s Business Centers (WBC), and management process. As a result, SBA’s
resource partner associations related to the entrepreneurial development programs were at
Coronavirus (COVID-19) pandemic to ensure funds risk of funds not being used for their intended
are used as intended and programs achieve their purpose and not achieving program goals and
goals and objectives. objectives.
The President signed the Coronavirus Aid, Relief, and While SBA has improved controls related to existing
Economic Security (CARES) Act into law on March 27, grant programs, we note risk areas that may present
2020. The Act contains several provisions intended to SBA with challenges while implementing the CARES
provide economic relief to our nation's small Act requirements for entrepreneurial development
businesses. One of the Act’s provisions provides programs.
$240 million for grants to SBA’s SBDC and WBC
resource partners to offer counseling, training, and Key Considerations for SBA
related assistance to small businesses affected by
COVID-19. The Act also provides $25 million for In summary, to ensure the integrity of
grants to resource partner associations to establish entrepreneurial development programs and to
a single centralized hub for COVID-19 information, mitigate the risk of funds not being used for
including a training program to educate resource intended purposes, SBA should:
partner counselors and mentors on the COVID-19
resources and information available to effectively • Establish clear oversight requirements in the
assist affected small businesses. notices of award and ensure program officials
and grant recipients implement increased
SBA’s entrepreneurial development programs internal controls
provide technical and counseling assistance to • Establish outcome-oriented performance
small businesses through cooperative agreements measures specific to entrepreneurial
awarded annually to its nationwide network of development COVID-19 priorities
resource partners, including SBDCs and WBCs. In • Track program data to adequately monitor
addition to the CARES Act funding, in fiscal year and validate the performance of COVID-19
(FY) 2020, Congress had already appropriated grant assistance
$149.5 million in funding for SBDC and WBC • Provide appropriate training to all grants
entrepreneurial development programs. officers and program personnel responsible
for monitoring grant recipients’ response to
What OIG Reviewed COVID-19
• Establish methodology to ensure funds are
The Office of Inspector General (OIG) regularly appropriately allocated to resource partners
conducts audits and other reviews that evaluate • Establish a quality assurance plan to prevent
management controls and assess the integrity, and detect improper payments
efficiency, and effectiveness of the SBA grant programs. • Provide oversight to ensure the COVID-19
We compiled findings from those audits and reviews programs are implemented as intended and
that identified significant issues and relevant risks. that program goals and objectives are met
Office of Inspector General
U.S. Small Business Administration
DATE: April 23, 2020
TO: Jovita Carranza
Administrator
FROM: Hannibal “Mike” Ware
Inspector General
SUBJECT: Risk Awareness and Lessons Learned From Prior Audits of Entrepreneurial
Development Programs
We prepared this memorandum to provide the Small Business Administration (SBA) information
regarding risks identified, in addition to lessons learned, from prior audit and evaluation findings
pertaining to its entrepreneurial development programs. SBA should consider this information in
managing and mitigating the risk of funds not being used for their intended purpose and of not
achieving program goals and objectives for entrepreneurial development programs related to the
Coronavirus (COVID-19) pandemic.
Background
Like other nations, the United States is dealing with the devastating effects of the COVID-19
pandemic, which has significantly impacted countless small businesses across the country.
Temporary business closings and layoffs could have a lasting negative impact on local economies if
these entities do not survive. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was
signed into law on March 27, 2020, to provide economic relief to our nation's small businesses. 1
One of the Act’s provisions provided $265 million for entrepreneurial development programs, that
results in $192 million to Small Business Development Centers (SBDC) and $48 million to Women’s
Business Centers (WBC) to offer counseling, training, and related assistance to small businesses
affected by COVID-19. The Act also provided $25 million to resource partner associations to
establish a single centralized hub for information related to COVID-19, including a training program
to educate resource partner counselors and mentors on the COVID-19 information available to
effectively assist affected small businesses. 2
Applicable Federal Statutes, Regulations, and Guidelines
Section 21 of the Small Business Act empowers SBA’s Administrator to make grants to SBDCs.
These powers are subject to restrictions, limitations, and provisions as defined in the Act.
Section 29 of the Small Business Act authorizes the Administrator to provide financial assistance for
the benefit of small business concerns owned and controlled by women.
1 Public Law 116-136.
2 SBA collaborates with resource partner associations for many of its entrepreneurial development initiatives. The
America’s SBDC and the Association of WBC support the nationwide networks of SBDCs and WBCs, respectively. These
nonprofit organizations promote, inform, support, continuously improve, and represent the interest of their members.
2
Title 13, Part 130 in the Code of Federal Regulations contains the requirements for SBDCs.
Title 13, Part 131 in the Code of Federal Regulations contains the requirements for WBCs.
SBA Standard Operating Procedures (SOP) 60 16 1 provides specific policies and procedures
governing SBDCs.
SBA SOP 90 80 provides specific policies and procedures governing WBCs.
SBA SOP 00 18 01 provides standardized policies for the management and administration of all
grants awarded by SBA by either the Office of Grants Management or other authorized program
offices to include the Office of Small Business Development Centers and the Office of Women
Business Ownership.
The CARES Act contains provisions that relate to SBA’s entrepreneurial development programs.
Specifically:
• Section 1103(b): authorizes SBA to provide financial assistance in the form of grants to
SBDCs and WBCs to provide counseling, training, and education on SBA and other Federal
resources relating to access to capital and business resiliency to small business owners
affected by COVID-19. The Act requires SBA to waive the requirement for recipients to
obtain matching funds for any grants awarded under the Act. Further, the Act requires that
SBA and resource partners jointly develop, negotiate, and agree upon goals and metrics. The
Act also requires SBA to publish the methodology by which SBA and resource partners
jointly developed the metrics and goals. Under this section, SBA is mandated to award
80 percent of funds appropriated for these education, training, and advertising grants to
SBDCs and 20 percent to WBCs.
• Section 1103(c): authorizes SBA to provide grants to an association or associations
representing resource partners to establish a single centralized hub for COVID-19
information, to include a training program to educate resource partner counselors and
mentors on the COVID-19 information available to effectively assist affected small
businesses.
• Section 1107: appropriates $265 million for SBA entrepreneurial development programs,
of which $240 million will fund grant awards to SBDCs and WBCs for education, training,
and advising small business concerns and $25 million will fund grant awards to resource
partner associations.
Prior Audit Findings
In fulfilling our responsibility to oversee the entrepreneurial development programs, we have
provided testimony in congressional hearings and issued numerous audit and evaluation reports. In
addition, in October 2018, we identified SBA’s grants management as a top management challenge
for the Agency. The following is a compilation of significant findings and relevant risks from prior
audits and evaluations focused on SBDC and WBC programs, as well as previous awards to resource
partners for disaster technical assistance.
3
Oversight of Federal Funds
In prior audits, we identified systemic issues with SBA’s oversight of grant recipients’ use of Federal
funds. These findings demonstrate that SBA needs to ensure it enforces financial reporting
requirements, detects budget reallocations that exceed allowable transfer limits, uses robust
financial review procedures, and maintains supporting documentation. Furthermore, prior audits
of resource partners that received disaster grants in addition to their annual technical assistance
grants, identified challenges the resource partners had with spending funds from competing
sources and providing simultaneous assistance. Because the CARES Act substantially increases the
amount of funds for SBA to administer to SBDC and WBC programs and waives grant matching
requirements, SBA must ensure it implements procedures to effectively oversee that recipients use
these funds for the intended purpose. Further, because certain parts of the country have been
impacted more by COVID-19 than others, SBA needs to ensure it allocates funds to the SBDCs and
WBCs proportionally with the demand for technical assistance in these areas.
OIG Management Advisory 19-20: Review of Women’s Business Center, Inc., Compliance with
Cooperative Agreement Requirements, September 19, 2019
We reported that SBA did not ensure WBCs complied with Federal statutes, regulations, or the
terms and conditions of the cooperative agreements. Specifically, the recipients did not maintain an
adequate financial management system and requisite supporting documents, records, or policies
and procedures. The recipients also did not have audited financial statements for FYs 2016 – 2018
as required by the terms and conditions of the cooperative agreements. Further, WBCs did not have
available client facilities and service hours or a fulltime program director. As a result, WBCs
received Federal funding without meeting the intent of the program to provide training and
counseling to women business owners.
OIG Report 17-10: The SCORE Association’s Disaster Technical Assistance Grant, March 31,
2017
We reported that SBA’s internal controls were insufficient to prevent unallowable costs of
$391,000, or 47 percent, of the awarded funds. In addition, SBA exempted the recipient from
submitting quarterly financial reports, which limited SBA’s ability to oversee the recipient’s use of
Federal funds. Therefore, SBA had no assurance the recipient effectively achieved the disaster
technical assistance grant objectives that the grant funds were intended to support.
OIG Report 17-09: Audit of New York Small Business Development Center’s Phase 2 Disaster
Technical Assistance Grant, March 31, 2017
We reported that SBA did not detect the SBDC incurred costs that were neither allowable nor
allocable to the grant. Specifically, the SBDC included personnel costs that were unrelated to the
grant. The SBDC also incurred advertising costs that were general in nature and not specific to the
disaster technical assistance and should not have been paid with disaster funding. As a result, SBA
had no assurance that the SBDC used Federal funds intended to assist disaster-impacted individuals
and small businesses only for disaster recovery and resiliency initiatives.
Program Performance Data Reliability and Reporting
Prior audits and evaluations also identified findings regarding program performance, data
reliability, and reporting, demonstrating that SBA needs to enforce performance reporting
requirements, develop data verification procedures, and ensure that its performance system of
4
record, Entrepreneurial Development Management Information System (EDMIS) captures a
complete record of performance data. SBA must implement procedures to ensure it effectively
oversees activities of SBDCs and WBCs and assesses the impact that these efforts have on helping
small businesses survive the COVID-19 outbreak and build resiliency for the future.
OIG Report 17-10: The SCORE Association’s Disaster Technical Assistance Grant, March 31,
2017
We reported that SBA exempted the recipient from submitting quarterly performance reports,
which limited SBA’s ability to oversee and assess the recipient’s role in the recovery efforts.
Further, SBA’s established performance goals for the disaster grant focused on outputs rather than
outcomes. We also determined that the disaster grant data entered into the Office of
Entrepreneurial Development’s EDMIS was unreliable. As such, SBA had no assurance the recipient
effectively achieved the objective that the grant funds were intended to support.
OIG Report 17-09: Audit of New York Small Business Development Center’s Phase 2 Disaster
Technical Assistance Grant, March 31, 2017
We reported that both SBA and the SBDC needed to improve their methods for gathering and
reporting performance data. Specifically, we found that SBA and the SBDC reported significantly
higher performance results for the disaster technical assistance grant than they were able to
support. Consequentially, SBA could not determine how well the SBDC performed or measure the
impact of the $6.2 million dollars it awarded to the SBDC for a long-term resiliency initiative.
Disaster Technical Assistance Implementation
A prior audit of the disaster technical assistance awards to resource partners determined that SBA
did not effectively oversee the resource partners to ensure they delivered increased services
generated by the additional disaster technical assistance funding. In addition, SBA did not ensure
that the resource partners fully collaborated with other resource partners outside of their core
network to whom they could have spread the funding and services that supported goal
achievement more broadly. These findings demonstrate the SBA’s need to implement effective
oversight, under compressed timelines, to ensure the integrity of entrepreneurial development
programs and to mitigate the greater risk posed by CARES Act spending.
OIG Report 15-15: SBA Needs to Improve its Management of Disaster Technical Assistance
Grants, July 31, 2015
We reported that SBA did not ensure that SBDCs mitigated the challenges faced in operating under
an aggressive 6-month timeline while delivering an increased level of technical assistance services
supported by multiple funding sources. Further, SBDCs faced challenges with attracting technical
assistance clients and spending disaster funds concurrent with funds from other grants. SBDCs also
had difficulty collaborating with other technical assistance providers. Also, SBA did not sufficiently
modify its oversight processes or ensure SBDCs’ modified their oversight processes of
subrecipients. SBA made plans to increase its oversight procedures midway through the disaster
assistance initiative; however, it did not effectively implement the changes because of a lack of
administrative funds and insufficient time allotted for planning at the onset of the disaster
assistance initiative. As a result, SBA did not provide sufficient oversight of the grant recipients and
significantly fell short of its target collective level of services intended for disaster-impacted
individuals and small businesses through the $12.6 million awarded to SBDCs.
5
SBA’s Improvements
The six reports we issued on SBA’s entrepreneurial development programs included
39 recommendations for improving the SBDC, WBC, and SCORE programs. SBA addressed 38 of
those recommendations, which we closed after review of the supporting documentation. SBA
continues to make progress toward implementing a new grants management system that officials
told us would improve their ability to enforce compliance and improve oversight and management
of the grants program. Without this system, SBA has limited ability to assess the effectiveness of the
recently implemented corrective actions. SBA made other improvements which include, but are not
limited to:
• Implementing controls to ensure program officials enforced financial and performance
reporting requirements
• Recovering unallowable costs
• Developing tools to monitor and validate performance
• Issuing revised SOP for grants management to standardize policies for compliance,
management, and administration of all grants awarded by SBA
• Identifying, developing, and implementing training for all personnel responsible for grants
management
Although SBA officials implemented corrective actions to address nearly all the recommendations
in these reports, the actions taken may have since been revised because of program changes over
time. SBA must reevaluate the current effectiveness of its internal controls to avoid a recurrence of
these issues and to mitigate the risk of fraud, waste, and abuse of funds provided to resource
partners in response to COVID-19 for entrepreneurial development programs.
Key Points to Consider When Administering COVID-19 funds for
Entrepreneurial Development Programs
In summary, to ensure the integrity of entrepreneurial development programs and to mitigate the
greater risk posed by CARES Act spending, SBA needs to augment existing internal controls to
monitor resource partners’ compliance with performance and financial requirements ensuring they
use CARES Act funds for intended purposes and achieve entrepreneurial development programs
goals. SBA should:
• Establish clear oversight requirements in the notices of award and ensure program officials
and grant recipients implement increased internal controls timely
• Establish outcome-oriented performance measures specific to entrepreneurial development
COVID-19 priorities
• Track program data to adequately monitor and validate the performance of COVID-19 grant
assistance
• Provide appropriate training to all grants officers and program personnel responsible for
monitoring grant recipients’ response to COVID-19
• Establish a methodology to ensure funds are appropriately allocated to resource partners
• Establish a quality assurance plan to prevent and detect improper payments
• Provide oversight to ensure SBA officials implement the program as intended and that
program goals and objectives are met
6
Fraud Hotline
SBA OIG also aggressively investigates allegations of fraud, waste, abuse, or mismanagement. Please
report fraud, waste, abuse, or mismanagement of Federal funds involving SBA programs,
operations, or personnel to the SBA OIG hotline. To submit a complaint, please visit
https://www.sba.gov/about-sba/oversight-advocacy/office-inspector-general/office-inspector-
general-hotline or call 1-800-767-0385.
Disclaimer
This White Paper contains findings from prior audits and reviews. It is intended solely to provide
risk information from those prior audits that SBA should consider as it implements mandates to
administer Federal funds to its resource partners to ensure the funds are used as intended and that
the programs achieve its goals. It is not an audit performed under Generally Accepted Government
Auditing Standards and not an inspection, evaluation, or review performed under the CIGIE Quality
Standards for Inspection and Evaluation.
If you have any questions, please contact me at 202-205-6586 or Andrea Deadwyler, Assistant
Inspector General for Audits, at 202-205-6616.
cc: William Manger, Chief of Staff and Associate Administrator, Office of Capital Access
Nina Levine, Acting General Counsel
Allen Gutierrez, Associate Administrator, Office of Entrepreneurial Development
Sean Crean, Executive Director, Office of Executive Management, Installation and Support
Services
Martin Conrey, Attorney Advisor, Legislation and Appropriations
Tami Perriello, Chief Financial Officer
Tonia Butler, Director, Office of Internal Controls
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