SBA Agency Financial Report FY 2009 — Financial Reporting, OIG Reports and Appendices
Summary
These pages of the SBA's Agency Financial Report FY 2009 carry financial reporting notes in dollars in thousands, among them credit program receivables, loans disbursed and outstanding loan obligations, subsidy cost allowance balances and credit program subsidy reestimates. The text states that the 7(a) Loan Guaranty program had the largest net upward reestimates for the guarantied business loan programs in FY 2009, at $2,030.2 million, and the 504 Certified Development Companies program $1,565.8 million. Total Guarantied Loan Program Subsidy Reestimates are $4,684,836 for 2009 and $424,817 for 2008. Note 7 covers general property and equipment, and the acknowledgments thank the Office of the Inspector General and KPMG, LLP for the audit of the FY 2009 financial statements.
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“SBA Agency Financial Report FY 2009 — Financial Reporting, OIG Reports and Appendices.”
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FIN AN C IAL RE PORTI N G
SBA’s model varies in the specific methodologies employed to forecast future program cash flows. In
general, however, models for all major credit programs use historical data as the basis for assumptions
about future program performance and then translate these assumptions into nominal cash flow esti-
mates by applying rules about program structure. Nominal cash flow forecasts are discounted using
the Office of Management and Budget’s Credit Subsidy Calculator that has both forecasted and actual
Treasury interest rates.
Historical data used as the basis for program performance assumptions is drawn primarily from data
systems maintained by the SBA and its contractors. The historical data undergoes quality review and
analysis prior to its use in developing model assumptions.
Key input to the subsidy models vary by program. Input includes items such as:
• Contractual terms of the loan or guaranty such as loan amount, interest rate, maturity and
grace period
• Borrower characteristics
• Loan origination methods
• Economic indicators such as gross domestic product growth and unemployment rate
• Loan performance assumptions, for example: conditional purchase and prepayment rates and
recovery rates
• Loan fee rates
Valuation Methodology for Pre-1992 Direct Loans and Loan Guaranties
The SBA values pre-credit reform direct and defaulted guarantied loans by estimating an allowance for
loan losses. This allowance is offset against gross loan receivables to obtain SBA’s expected net collec-
tions from these assets. The SBA establishes a 100 percent allowance for pre-credit reform direct and
defaulted guarantied loans that are past due more that 180 days.
A liability is also established for active pre-credit reform loan guaranties. The liability is estimated based
on historical experience.
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Learn more at http://business.gov/business.gov.
Agency Financial Report FY 2009
66
F I N A N C I A L R E P O RT I N G
B. Credit Program Receivables and Related Foreclosure Property, Net
(Dollars in Thousands)
As of September 30, 2009 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 22,865 $ 111,870 $ 134,735
Interest Receivable 1,945 1,196 3,141
Foreclosed Property 3,104 – 3,104
Allowance (1,924) (28,445) (30,369)
Total Direct Business Loans 25,990 84,621 110,611
Direct Disaster Loans
Disaster Loans Receivable 13,825 8,424,827 8,438,652
Interest Receivable 103 29,501 29,604
Foreclosed Property – 933 933
Allowance (980) (1,597,336) (1,598,316)
Total Direct Disaster Loans 12,948 6,857,925 6,870,873
Defaulted Guarantied Business Loans & Other Loan Receivables
Defaulted Guarantied Business Loans 53,790 5,744,177 5,797,967
Other Loans Receivable (see note below) – 655,911 655,911
Interest Receivable 655 25,754 26,409
Foreclosed Property 3,270 34,374 37,644
Allowance (28,984) (4,341,935) (4,370,919)
Total Defaulted Guarantied Business Loans & Other Loan Receivables 28,731 2,118,281 2,147,012
Total Credit Program Receivables & Related Foreclosed Property, Net $ 9,128,496
As of September 30, 2008 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 28,253 $ 114,620 $ 142,873
Interest Receivable 2,325 1,299 3,624
Foreclosed Property 3,104 – 3,104
Allowance (1,741) (26,378) (28,119)
Total Direct Business Loans 31,941 89,541 121,482
Direct Disaster Loans
Disaster Loans Receivable 16,595 8,609,972 8,626,567
Interest Receivable 121 35,649 35,770
Foreclosed Property – 999 999
Allowance (978) (1,574,082) (1,575,060)
Total Direct Disaster Loans 15,738 7,072,538 7,088,276
Defaulted Guarantied Business Loans & Other Loan Receivables
Defaulted Guarantied Business Loans 56,127 3,510,385 3,566,512
Other Loans Receivable (see note below) – 627,007 627,007
Interest Receivable 458 14,453 14,911
Foreclosed Property 3,467 16,701 20,168
Allowance (29,288) (2,886,127) (2,915,415)
Total Defaulted Guarantied Business Loans & Other Loan Receivables 30,764 1,282,419 1,313,183
Total Credit Program Receivables & Related Foreclosed Property, Net $ 8,522,941
Note: Other Loan Receivables include payments advanced by the SBA against future reimbursements in the SBIC and 504 Guaranty Programs.
Agency Financial Report FY 2009
67
FIN AN C IAL RE PORTI N G
C. Loans Disbursed and Outstanding Loan Obligations
(Dollars in Thousands)
Direct LOANS
New Loans Disbursed During the Year Ending September 30, 2009 2008
Business Direct Loan Program $ 23,928 $ 16,429
Disaster Loan Program 725,405 860,629
Total Direct Loans Disbursed $ 749,333 $ 877,058
Outstanding Loan Obligations as of September 30, 2009 2008
Business Direct Loan Program $ 38,130 $ 25,576
Disaster Loan Program 211,128 468,200
Total Direct Loan Obligations $ 249,258 $ 493,776
Guarantied Loans
New Loans Disbursed During the Year Ending September 30, 2009 2008
Total Principal Disbursed at Face Value $ 12,728,017 $ 18,152,218
Total Principal Disbursed Guarantied by the SBA 10,665,284 14,685,373
Outstanding Loan Obligations as of September 30, 2009 2008
Business Guarantied Loan Programs $ 9,717,347 $ 11,335,863
Loans Outstanding as of September 30, 2009 2008
Total Principal Outstanding at Face Value $ 74,856,050 $ 75,088,280
Total Principal Outstanding Guarantied by the SBA 62,203,856 61,709,613
D. Subsidy Cost Allowance Balances
(Dollars in Thousands)
For the Years Ending September 30, 2009 2008
Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account $ 2,912,506 $ 3,246,479
Current Year’s Subsidy (see 6G for breakdown by component) 2,518 1,579
Loans Written Off (1,486,461) (1,420,426)
Subsidy Amortization (2,028) (2,521)
Allowance Related to Guarantied Loans Purchased This Year 2,909,644 1,032,790
Miscellaneous Recoveries and Costs 29,531 42,351
Balance of Subsidy Allowance Account before Reestimates 4,365,710 2,900,252
Technical Assumptions/Default Reestimates 4,670 12,253
Ending Balance of Allowance Account $ 4,370,380 $ 2,912,505
Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account $ 1,574,082 $ 1,563,019
Current Year’s Subsidy (see 6G for breakdown by component) 111,638 141,716
Loans Written Off (302,239) (331,081)
Subsidy Amortization (62,462) (37,692)
Miscellaneous Recoveries and Costs 33,008 28,020
Balance of Subsidy Allowance Account before Reestimates 1,354,027 1,363,982
Technical Assumptions/Default Reestimates 243,309 210,100
Ending Balance of Allowance Account $ 1,597,336 $ 1,574,082
Agency Financial Report FY 2009
68
F I N A N C I A L R E P O RT I N G
E. Loan Guaranty Liability Balances
(Dollars in Thousands)
For the Years Ending September 30, 2009 2008
Pre-1992 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties $ 816 $ 1,113
Adjustment to Expected Losses, Guaranties Outstanding (7) (297)
Ending Balance of Liability for Loan Guaranties 809 816
Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties 1,824,735 1,736,747
Current Year’s Subsidy (see 6G for breakdown by component) 98,459 3,270
Loan Modifications 13,216 –
Fees 402,711 654,399
Interest Accumulation Factor (59,446) (1,483)
Claim Payments to Lenders (3,913,241) (2,111,223)
Adjustment Due to Reestimate & Guarantied Loan Purchases 1,003,597 1,078,433
Miscellaneous Recoveries and Costs (61,040) 39,774
Balance of Liability for Loan Guaranties before Reestimates (691,009) 1,399,917
Technical Assumptions/Default Reestimates 4,684,836 424,818
Ending Balance of Liability for Loan Guaranties 3,993,827 1,824,735
Total Ending Balance of Liability for Loan Guaranties $ 3,994,636 $ 1,825,551
F. 2009 Subsidy Rates By Program and Component
Total
Loan Programs Financing Default Other Fee
Subsidy
Guaranty
7(a) 0.00% 0.00% 3.42% 0.00% -3.42%
504 CDC -0.07% 0.00% 1.79% 0.34% -2.20%
SBIC Debenture 0.00% 0.00% 5.38% 0.03% -5.41%
Direct
Disaster 14.92% 12.43% 9.05% -6.56% 0.00%
Microloan 11.66% 7.57% 0.37% 3.72% 0.00%
ARRA
7(a) (gty) 3.10% 0.00% 4.68% 0.00% -1.58%
504 CDC (gty) 2.14% 0.00% 1.81% 0.34% -0.01%
ARC (gty) 75.77% 20.16% 55.61% 0.00% 0.00%
7(a) Floor Plan (gty) 0.20% 0.00% 0.28% 0.00% -0.08%
The subsidy rates above pertain only to loans obligated in the current year. These rates cannot be ap-
plied to the loans disbursed during the current year to yield the subsidy expense because loans disbursed
during the current year include loans obligated in prior years. Subsidy expenses reported in Table G
result from the disbursement of loans obligated in the current year as well as in prior years, and includes
reestimates.
Agency Financial Report FY 2009
69
FIN AN C IAL RE PORTI N G
The 7(a) Dealer Floor Plan program is a revolving loan program in which borrowers may draw and repay
against the approved loan amount several times over the loan term. Based on OMB guidance, the dis-
bursements in the DFP program reflect this revolving activity and therefore, represent a multiple of the
approved loan amount. The subsidy rate stated in the table is the “actual” modeled rate, which is subsidy
dollars divided by the disbursement amount. However, for accounting purposes, the SBA also calculates
an “execution” subsidy rate, which is applied to each approved DFP loan amount in SBA’s accounting
system. The “execution” rate is 3.24 percent (Default 4.53 percent, Fee -1.30 percent), which is subsidy
dollars divided by approved loan amount.
G. Subsidy Expense by Component
(Dollars in Thousands)
For the Years Ending September 30, 2009 2008
Business Loan Guaranties
Interest $ 2,707 $ –
Defaults 145,749 3,952
Fees (52,746) (679)
Other 2,749 (3)
Subsidy Expense Before Reestimates and Loan Modifications 98,459 3,270
Loan Modifications 13,216 –
Reestimates 4,684,836 424,817
Total Guarantied Business Loan Subsidy Expense $ 4,796,511 $ 428,087
Business Direct Loans
Interest $ 1,966 $ 1,414
Defaults 22 6
Other 530 159
Subsidy Expense Before Reestimates 2,518 1,579
Reestimates 4,670 12,253
Total Business Direct Loan Subsidy Expense $ 7,188 $ 13,832
Disaster Direct Loans
Interest $ 85,592 $ 88,583
Defaults 68,446 84,837
Fees – (5)
Other (42,400) (31,699)
Subsidy Expense Before Reestimates 111,638 141,716
Reestimates 243,309 210,100
Total Disaster Direct Loan Subsidy Expense $ 354,947 $ 351,816
Agency Financial Report FY 2009
70
F I N A N C I A L R E P O RT I N G
H. Administrative Expense
The SBA received appropriations to administer its credit programs, including the making, servicing and
liquidation of its loans and guaranties. Amounts expensed in the Statement of Net Cost are:
(Dollars in Thousands)
For the Years Ending September 30, 2009 2008
Disaster Direct Loan Programs $ 251,999 $ 204,991
Business Loan Programs 138,601 135,796
Total Administrative Expense $ 390,600 $ 340,787
I. Credit Program Subsidy Reestimates
Reestimates are performed annually, on a cohort-by-cohort basis. The purpose of reestimates is to up-
date original program cost estimates to reflect actual cash flow experience as well as changes in forecasts
of future cash flows. Forecasts of future cash flows are updated based on additional information about
historical program performance, revised expectations for future economic conditions, and enhance-
ments to cash flow projection methods. Financial statement reestimates were performed using a full
year of performance data for FY 2009 for all of SBA’s large loan programs and with nine months of ac-
tual and three months of projected performance data for the Secondary Market Guaranty and the small
loan programs.
Business Guarantied Loan Programs
Net subsidy reestimates of business guarantied loan programs follows:
(Dollars in Thousands)
Guarantied Loan Program Subsidy Reestimates 2009 2008
7(a) Loan Guaranty $ 2,030,243 $ 574,840
7(a) Star 17,924 7,273
504 CDC Debentures 1,565,784 484,921
SBIC Debentures 66,598 (158,402)
SBIC Participating Securities 960,151 (492,386)
Secondary Market Guaranty Program (50,803) 10,196
All Other Guaranty Loan Programs (2,730) (1,625)
7(a) Loan Guaranty - ARRA 72,430 –
504 CDC Debentures - ARRA 25,239 –
Total Guarantied Loan Program Subsidy Reestimates $ 4,684,836 $ 424,817
The 7(a) Loan Guaranty program, SBA’s flagship and largest program, had the largest net upward rees-
timates for the guarantied business loan programs in FY 2009 at $2,030.2 million. The 504 Certified
Development Companies program had net upward reestimates of $1,565.8 million. For both programs,
the net upward reestimates were mostly due to the downturn in the economy that resulted in higher
than projected purchases during FY 2009 and an increase in projected purchases for the remaining years
within the cohorts.
Agency Financial Report FY 2009
71
FIN AN C IAL RE PORTI N G
The SBIC Debentures program had net upward reestimates of $66.6 million. The reestimates were
mostly due to lower than projected recoveries during FY 2009 and a decrease in projected recoveries for
the remaining years within the cohorts.
The SBIC Participating Securities program had a net upward reestimate of $960.2 million. The reesti-
mates were mostly due to the downturn in the economy that resulted in lower than projected recover-
ies and higher than projected purchases during FY 2009 and an increase in projected purchases for the
remaining years within the cohorts.
The Secondary Market Guaranty program had a net downward reestimate of $50.8 million. This downward
reestimate was due in part to the lower than projected interest rate paid to investors during FY 2009 and a
decrease in the projected interest rate paid to investors for the remaining years within the cohorts.
The 7(a) ARRA and 504 ARRA programs had net upward reestimates of $72.4 million and $25.2 mil-
lion respectively. These upward reestimates are mostly due to updated model and economic assumptions
since the original budget estimates. The updated assumptions result in an increase in projected purchases
for the remaining years within the cohorts.
Business Direct Loan Programs
Net subsidy reestimates for business direct loan programs follows:
(Dollars in Thousands)
Business Direct Loan Program Subsidy Reestimates 2009 2008
7(m) Microloan $ 4,507 $ 13,199
SBIC Preferred Stock 344 (944)
All Other Direct Loan Programs (181) (2)
Total Direct Loan Program Subsidy Reestimates $ 4,670 $ 12,253
The 7(m) Direct Microloan program had net upward reestimates of $4.5 million. These reestimates
in large part are due to the 2008 cohort that was reestimated for the first time this year. The projected
defaulted loans for the 2008 cohort are greater than the original budget estimates.
Disaster Direct Loan Program
Subsidy reestimates for Disaster direct loan programs follow:
(Dollars in Thousands)
Disaster Direct Loan Program Subsidy Reestimates 2009 2008
Disaster $ 231,117 $ 208,430
World Trade Center Disaster 12,192 1,670
Total Disaster Direct Loan Program Subsidy Reestimates $ 243,309 $ 210,100
The Disaster program had net upward reestimates of $231.1 million primarily in the 2006 cohort that
mostly consists of loans for the Gulf Coast hurricanes in 2005. Those loans currently account for about
55 percent of the outstanding portfolio of direct Disaster loans. The upward reestimates are primarily
the result of performance probabilities being updated with actual performance during FY 2009 that
resulted in an increase in projected defaults.
Agency Financial Report FY 2009
72
F I N A N C I A L R E P O RT I N G
Note 7. General Property and Equipment, Net
Equipment with a cost of $50,000 or more per unit and a useful life of 2 years or more is capitalized at
full cost and depreciated using the straight-line method over the useful life. Other equipment items not
meeting the capitalization criteria are expensed when purchased.
Leasehold improvements with modifications of $50,000 or more and a useful life of 2 years or more are
capitalized and amortized using the straight-line method over the useful life of the improvement or the
lease term, whichever is shorter. Other leasehold improvement expenditures not meeting the capitaliza-
tion criteria are expensed.
Software intended for internal use, whether internally developed, contractor developed or purchased,
is capitalized at cost if the initial unit acquisition cost is $250,000 or more and service life is at least 2
years. Costs that do not meet the capitalization criteria are expensed when incurred.
Capitalized software costs include all direct and indirect costs incurred, including overhead to develop
the software. Software for internal use is amortized using the straight-line method over its useful life,
not to exceed 5 years. Amortization begins when the system is put into operation. The costs of enhance-
ments are capitalized when it is more likely than not that the enhancements will result in significant
additional capabilities.
Assets meeting the capitalization thresholds established, at September 30, 2009 and 2008 are detailed
below.
(Dollars in Thousands)
2009 2008
Equipment $ 1,787 $ 1,787
Accumulated Depreciation (703) (357)
Net 1,084 1,430
Leasehold Improvements - Construction in Progress 75 –
Leasehold Improvements 1,496 1,496
Amortization of Leasehold Improvements (125) –
Net 1,446 1,496
Software in Development 4,970 1,491
Software in Use 30,546 28,994
Amortization of Software in Use (29,511) (28,994)
Net 6,005 1,491
Total General Property and Equipment, Net $ 8,535 $ 4,417
Note 8. Liabilities Not Covered by Budgetary Resources
Liabilities not covered by budgetary resources are liabilities for which congressional action is needed
before budgetary resources can be provided. These unfunded liabilities at September 30, 2009 and 2008
consisted of:
Agency Financial Report FY 2009
73
FIN AN C IAL RE PORTI N G
(Dollars in Thousands)
2009 2008
Intragovernmental Liabilities - Other
Employment Taxes Payable $ 2,870 $ 4,117
Federal Employee Compensation Act Payable 5,843 6,005
Total Intragovernmental Liabilities - Other 8,713 10,122
Federal Employee Compensation Act Actuarial Liability 29,640 27,061
Surety Bond Guarantee Program Future Claims 20,817 24,764
Other Liabilities
Prior Liens on Real Estate Payable 409 424
Accrued Unfunded Annual Leave 25,314 24,547
Total Other Liabilities 25,723 24,971
Total Liabilities Not Covered by Budgetary Resources $ 84,893 $ 86,918
The liability for Surety Bond Guarantees is an estimate of future claims in the SBG Program for guaran-
ties outstanding at year-end.
Note 9. Debt
Borrowings payable to the Treasury result from loans provided by the Treasury to fund the portion of
direct loans not covered by subsidy appropriations and to fund the payment of downward subsidy reesti-
mates and other credit program disbursements (see Note 15). The SBA makes periodic principal repay-
ments to the Treasury based on the analysis of its cash balances and future disbursement needs.
Borrowings payable to the Federal Financing Bank are the result of its financing of SBA Section 503
Debentures issued prior to 1988.
All debt is intragovernmental and covered by budgetary resources. Debt transactions for the periods
ending September 30, 2009 and 2008 and resulting balances are:
Intragovernmental Debt
(Dollars in Thousands)
Department of Treasury 2009 2008
Beginning Balance $ 9,462,882 $ 11,365,675
New Borrowing 2,594,270 865,663
Repayments (1,184,398) (2,768,456)
Ending Balance $ 10,872,754 $ 9,462,882
Federal Financing Bank 2009 2008
Beginning Balance $ 10,345 $ 17,513
Repayments (4,667) (6,943)
Change in Interest Payable (149) (225)
Ending Balance $ 5,529 $ 10,345
Total Debt $ 10,878,283 $ 9,473,227
Agency Financial Report FY 2009
74
F I N A N C I A L R E P O RT I N G
Note 10. Net Assets of Liquidating Funds Due to Treasury
Net Assets of Liquidating Funds Due to Treasury is the residual of the book value of assets less liability
in the Liquidating Funds for loans made prior to FY 1992. Subsequent to the issuance of its audited
financial statements each year, the SBA returns to the Treasury the portion of this balance that is consid-
ered to be the unobligated balance for budgetary reporting at fiscal year-end.
(Dollars in Thousands)
As of September 30, 2009 2008
Pollution Control Equipment Guaranty Fund $ 5,052 $ 5,272
Disaster Loan Fund 18,489 24,419
Business Loan and Investment Fund 55,043 75,098
Total Due Treasury $ 78,584 $ 104,789
Note 11. Other Liabilities
Other liabilities at September 30th were:
(Dollars in Thousands)
2009 2008
Other Liabilities - Intragovermental
Entity
Current
Employment Taxes Payable $ 3,457 $ 3,167
Advances from Other Agencies 3,580 5,823
Total Current 7,037 8,990
Non-current
Employment Taxes Payable 2,870 4,117
Federal Employee Compensation Act Payable 5,843 6,005
Payable to Federal Financing Bank 305 435
Total Non-current 9,018 10,557
Total Entity 16,055 19,547
Non-entity
Current
Payable to Treasury 7 7
Total Other Liabilities - Intragovernmental $ 16,062 $ 19,554
Other Liabilities - Public
Entity
Current
Accrued Funded Payroll and Benefits $ 15,158 $ 14,209
Accrued Unfunded Annual Leave 25,314 24,547
Suspense Accounts 327 454
Total Current 40,799 39,210
Non-current
Prior Liens on Real Estate Payable 409 424
Total Non-current 409 424
Total Entity 41,208 39,634
Non-entity
Current
Non-entity Current Payable 4 4
Total Other Liabilities - Public $ 41,212 $ 39,638
Agency Financial Report FY 2009
75
FIN AN C IAL RE PORTI N G
Note 12. Leases
The SBA leases all facilities from the General Services Administration. The SBA enters into an Occupancy
Agreement with GSA for each facility. GSA, in turn, leases commercial facilities or provides space in
federal buildings. Agreements for space in federal buildings can be vacated with 120 to 180 days notice.
However, the SBA anticipates continuing the same or similar facilities leases in the future. These leases
with GSA are operating leases and are expensed in the Statement of Net Cost when incurred. FY 2009
and 2008 facilities lease costs were $42.7 million and $41.5 million. Future lease payments shown below
assume a 3 percent inflation factor from the following years’ projected totals as estimated by GSA.
(Dollars in Thousands)
Future Facilities Operating Lease Payments
FY Lease Pmts
2010 $ 41,134
2011 42,369
2012 43,640
2013 44,949
2014 46,298
After 2014 51,353
Total $ 269,743
Note 13. Non-entity Reporting
Non-entity Assets are assets held by the SBA but not available to the SBA. The primary non-entity asset
held by the SBA is Fund Balance with the Treasury held in the Treasury general fund accounts specifi-
cally established for SBA’s downward subsidy reestimates for its discretionary loan programs. Because
the loan programs are discretionary, the downward reestimates are not available to the SBA and they are
returned to the Treasury in the fiscal year following the accrual of the reestimates. During the year, these
general fund accounts contain SBA’s prior year reestimates. At year-end, the funds are swept by the
Treasury with the exception of one deposit fund. Also at year-end, the SBA accrues the current year’s
reestimates, including downward reestimates as applicable. For the downward reestimates, in the loan
financing funds, the SBA records an accrual adjustment that records a transfer out to the non-entity
fund, a reduction of subsidy allowance or loan guarantee liability, and an account payable to the non-
entity fund. In the loan program funds the SBA records a reduction of loan subsidy expense and the
associated impact on the net cost. The non-entity Treasury general funds contain a corresponding ac-
count receivable in anticipation of the receipt of the downward reestimates in the following year and a
Downward Reestimate Payable to Treasury.
For consolidated financial statement presentation, the SBA eliminates the payable to the non-entity
fund and the non-entity Treasury general fund receivable from the financing funds; since both are
included in SBA’s reporting entity. The Downward Reestimate Payable to Treasury in the non-entity
Treasury general fund is not eliminated and is reflected on the Balance Sheet as a liability line item.
Agency Financial Report FY 2009
76
F I N A N C I A L R E P O RT I N G
(Dollars in Thousands)
2009 2008
Entity
Financing Fund Payable $ (64,875) $ (466,887)
Non-entity
Miscellaneous Receipts Fund Receivable 64,875 466,887
Downward Reestimate Payable to Treasury (64,875) (466,887)
Balance Sheet Reported Payable $ (64,875) $ (466,887)
Note 14. Consolidated Statement of Net Cost
Federal cost accounting standards require the SBA to report operating costs by strategic goal activity.
Full costs include all direct and indirect costs for a strategic goal. Full costs are reduced by exchange
(earned) revenues to arrive at net operating cost.
Operating Cost
The full and net operating costs of SBA’s major strategic goals are presented in the Consolidated
Statement of Net Cost. Full costs are comprised of all direct costs for the strategic goals and those
indirect costs which can be reasonably assigned or allocated to the strategic goals, including employee
pension and other retirement benefit costs paid by the OPM and charged to the SBA.
Earned Revenue
Earned revenues arise from exchange transactions, and are deducted from the full cost of SBA’s major
strategic goals to arrive at net strategic goals costs. The SBA recognizes earned revenues when reimburse-
ments are payable from other federal agencies and the public, as a result of costs incurred or services
performed. A major source of earned revenue include: interest earned on SBA’s outstanding Business and
Disaster loan portfolios and interest earned on uninvested funds in the credit reform financing accounts.
Reporting by Strategic Goal
The SBA reports costs consistent with its three strategic goals. The costs of Goal 4 “ensure that all SBA
strategic goals operate at maximum efficiency and effectiveness by providing them with high quality ex-
ecutive leadership and support services” are fully allocated to the other three strategic goals. Goal 4 costs
are estimated at $121.5 million and $117.8 million for FY 2009 and FY 2008. Costs Not Assigned to
Strategic Goals on the Statement of Net Cost includes costs of congressionally mandated grant pro-
grams and the Office of the Inspector General.
Intragovernmental Gross Cost is cost incurred by the SBA in exchange transactions with other fed-
eral agencies. Gross Cost with the Public is cost incurred by the SBA in exchange transactions.
Intragovernmental Earned Revenue is revenue earned by the SBA in exchange transactions with other
federal agencies. Earned Revenue from the Public is revenue earned by the SBA in exchange transactions.
The classification as Intragovernmental Costs or Gross Cost with the Public relate to source of the goods
and services received by the SBA and not to the classification of related revenue. The classification of
revenue or cost being defined as “intragovernmental” or “public” is defined on a transaction by transac-
Agency Financial Report FY 2009
77
FIN AN C IAL RE PORTI N G
tion basis. The purpose of this classification is to enable the federal government to provide consolidated
financial statements, and not to match the public and intragovernmental revenue with costs that are
incurred to produce public and intragovernmental revenue.
(Dollars in Thousands)
Intragovermental costs and exchange revenue
For the Years ending September 30 2009 2008
Strategic Goal 1:
Expand America’s Ownership Society, Particularly in Underserved Markets
Intragovernmental Gross Cost $ 237,923 $ 161,121
Gross Cost with the Public 5,172,008 834,610
Total Strategic Goal 1 Gross Cost 5,409,931 995,731
Intragovernmental Earned Revenue 113,832 79,491
Earned Revenue from the Public 52,511 69,831
Total Earned Revenue Strategic Goal 1 166,343 149,322
Strategic Goal 2:
Provide Timely Financial Assistance to Homeowners, Renters, Nonprofit
Organizations and Businesses Affected by Disaster
Intragovernmental Gross Cost 479,914 522,532
Gross Cost with the Public 601,318 530,498
Total Strategic Goal 2 Gross Cost 1,081,232 1,053,030
Intragovernmental Earned Revenue 74,732 128,459
Earned Revenue from the Public 331,172 339,709
Total Earned Revenue Strategic Goal 2 405,904 468,168
Strategic Goal 3:
Improve Economic Environment for Small Business
Intragovernmental Gross Cost 3,348 3,294
Gross Cost with the Public 11,158 10,820
Total Strategic Goal 3 Gross Cost 14,506 14,114
Cost Not Assigned to Strategic Goals
Intragovernmental Gross Cost 14,375 27,991
Gross Cost with the Public 47,919 91,940
Total Gross Cost Not Assigned to Strategic Goal 62,294 119,931
Net Cost of Operations $ 5,995,716 $ 1,565,316
Note 15. Statement of Budgetary Resources
The Statement of Budgetary Resources presents information about total budgetary resources available
to the SBA and the status of those resources, as of September 30, 2009 and 2008. SBA’s total budget-
ary resources were $5.0 billion and $3.0 billion for the years ended September 30, 2009 and 2008.
Additionally, $7.4 billion and $6.1 billion of nonbudgetary resources including borrowing authority
and collections of loan principal, interest and fees, in financing funds were reported for the years ended
September 30, 2009 and 2008.
Agency Financial Report FY 2009
78
F I N A N C I A L R E P O RT I N G
Adjustments to Beginning Balance of Budgetary Resources
The SBA made no adjustments to the beginning budgetary resources during the years ended September
30, 2009 and 2008.
Permanent Indefinite Appropriations
The SBA receives permanent indefinite appropriations annually to fund increases in the projected
subsidy costs of loan programs as determined by the reestimation process required by the Federal Credit
Reform Act of 1990. The appropriations are received initially in the SBA Program Funds and then
transferred to the Financing Funds where they are used to fund obligations. SBA’s Liquidating Funds
also receive permanent indefinite appropriations to fund obligations. The Financing Funds are used to
account for credit program obligations made subsequent to FY 1991; Liquidating Funds are used to ac-
count for credit program obligations made prior to FY 1992.
Decreases in projected subsidy costs in the Financing Funds are returned to the Treasury through SBA’s
annual reestimation process. The prior year’s ending unobligated balances in SBA’s Liquidating Funds
are also transferred to the Treasury annually.
Borrowing Authority and Terms of Borrowing
The SBA is authorized to borrow from the Treasury’s Bureau of Public Debt when funds needed to
disburse direct loans and purchase guarantied loans exceed subsidy costs and collections in the non-
budgetary loan financing funds. In FY 2009 and 2008, the SBA received $3.5 billion and $1.3 billion
of borrowing authority from the OMB. The SBA pays interest to the Treasury based on Treasury’s cost
of funds. The rate at which interest is paid to the Treasury on the amounts borrowed (or received from
the Treasury on uninvested cash balances) in a loan financing fund for a particular cohort is a disburse-
ment-weighted average discount rate for cohorts prior to FY 2001 and a single effective rate for cohorts
beginning with FY 2001. The SBA calculates and repays borrowings not needed for working capital
at midyear for prior year cohorts. The SBA uses the loan principal, interest and fees collected from the
public in its loan financing funds to repay its borrowings. The repayment maturity dates for the borrow-
ing from the Treasury are based on the loan maturities used in the subsidy calculation. The maturities
range from 16 years for Direct Business loans, 25 years for Guarantied Business loans and 30 years for
Disaster loans.
Apportionment Categories of Obligations Incurred
During FY 2009 and FY 2008, the SBA incurred $9.6 billion and $6.1 billion of direct and reimburs-
able obligations of which $0.7 billion and $0.6 billion was apportioned in category A; $8.9 billion and
$5.5 billion was apportioned in category B. Category A apportionments are restricted by quarter and
program, Category B apportionments are restricted by purpose and program.
Agency Financial Report FY 2009
79
FIN AN C IAL RE PORTI N G
Unobligated Balances
Unobligated balances at September 30, 2009 and 2008 are $2.7 billion and $3.0 billion which include
$1.3 billion and $1.6 billion of unavailable unobligated balances. These balances are unavailable primar-
ily because they are unapportioned by OMB. The SBA accumulates the majority of these unobligated
balances in its nonbudgetary financing accounts during the fiscal year ($1.2 billion in FY 2009 and $1.5
billion in FY 2008) from program collections that are used primarily to repay the Treasury borrowings
in the following fiscal year. In addition, unobligated balances are accumulated in budgetary accounts
from appropriations ($1.5 billion in FY 2009 and $1.4 billion in FY 2008) that are used to finance
SBA’s ongoing program operations.
Undelivered Orders
Undelivered orders for the periods ended September 30, 2009 and 2008 were $0.8 billion and
$0.8 billion.
Differences between the Statement of Budgetary Resources
and the Budget of the U. S. Government
There was a $619 million difference between the FY 2008 Statement of Budgetary Resources and the
President’s FY 2010 budget submission in the Beginning Adjusted Unobligated Balance line of the
business Guaranteed Loan Financing Fund. The SBA carried forward unused borrowing authority into
FY2008 in this Fund. For FACTS II and MAX reporting, the SBA cancelled this unused borrowing au-
thority and reclassified to the beginning unobligated balance line. For financial statement reporting the
SBA cancelled this unused borrowing authority during FY 2008 and this action was treated as current
year activity on the Permanently Not Available line on the SBR.
The President’s Budget with actual numbers for FY 2011 has not yet been published. The SBA expects
no material differences between the President’s Budget “actual” column and the FY 2009 reported re-
sults when the budget becomes available in February 2010.
Note 16. Reconciliation of Budgetary Obligations
Incurred to Net Cost of Operations
The SBA presents the Statement of Net Cost using the accrual basis of accounting. This differs from the
obligation-based measurement of total resources supplied, both budgetary and from other sources, on
the Statement of Budgetary Resources.
Agency Financial Report FY 2009
80
F I N A N C I A L R E P O RT I N G
The Federal Financial Accounting Standard No. 7 requires “a reconciliation of proprietary and budget-
ary information in a way that helps users relate the two.” The focus of this presentation is to reconcile
budgetary net obligations to the net cost of operations. The objective of this information is to categorize
the differences between budgetary and financial (proprietary) accounting.
Consolidated Reconciliation of Budgetary Obligations to Net Cost
For the years ended September 30, 2009 and 2008
(Dollars in Thousands)
2009 2008
Resources Used to Finance Activities
Budgetary Resources Obligated
Obligations Incurred $ 9,635,132 $ 6,133,235
Less: Spending Authority from Offsetting Collections and Recoveries 4,946,652 4,333,868
Obligations Net of Offsetting Collections and Recoveries 4,688,480 1,799,367
Less: Offsetting Receipts 489,395 742,578
Net Obligations 4,199,085 1,056,789
Other Resources
Imputed Financing 25,549 24,014
Other Financing Sources (88,187) (567,900)
Net Other Resources Used to Finance Activities (62,638) (543,886)
Total Resources Used to Finance Activities 4,136,447 512,903
Resources that Do Not Finance Net Cost of Operations
(Increase) Decrease in Budgetary Resources Obligated for Goods, Services,
and Benefits Ordered But Not Yet Provided 193,832 561,903
Resources that Fund Expenses Recognized in Prior Periods (1,313,301) (518,200)
Budgetary Offsetting Collections and Receipts that Do Not Affect Net Cost of Operations
Credit Program Collections 4,042,182 3,558,121
Offsetting Receipts 489,395 742,578
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (6,189,101) (4,621,804)
Other - Current Year Liquidating Equity Activity 863 4,502
Other Resources that Do Not Affect Net Cost of Operations (100) (399)
Total Resources that Do Not Finance Net Cost of Operations (2,776,230) (273,299)
Total Resources Used to Finance the Net Cost of Operations 1,360,217 239,604
Components of the Net Cost of Operations that Will Not
Require or Generate Resources in the Current Period
Components Requiring or Generating Resources in Future Periods
Change in Annual Leave Liability 767 1,639
Upward Reestimates of Credit Subsidy Expense 4,637,148 1,316,143
Change in Revenue Receivable from Public (3,623) 1,869
Provision for Losses on Estimated Guaranties (3,947) 1,176
Change in Unfunded Employee Benefits 2,579 740
Total Components Requiring or Generating Resources in Future Periods 4,632,924 1,321,567
Components Not Requiring or Generating Resources
Depreciation or Amortization 987 1,110
Change in Bad Debt Expense - Pre-1992 Loans 2,094 3,241
Other (Income) Expenses Not Requiring Budgetary Resources (507) (206)
Total Components Not Requiring or Generating Resources 2,574 4,145
Total Components of the Net Cost of Operations that Will Not
Require or Generate Resources in the Current Period 4,635,499 1,325,712
Net Cost of Operations $ 5,995,716 $ 1,565,316
Agency Financial Report FY 2009
81
FIN AN C IAL RE PORTI N G
Liabilities Not Covered by Budgetary Resources on the Balance Sheet (Note 8) differs from
Components Requiring or Generating Resources in Future Periods in this reconciliation primarily due
to reestimated subsidy costs of loan programs. The subsidy costs are shown in the Statement of Net
Cost and are to be covered by budgetary resources but these resources, while available under permanent
and indefinite authority, were not provided by year-end. Additionally, there will always be a difference
for existing liabilities because the Reconciliation of Budgetary Obligations Incurred to Net Cost of
Operations reports only current year changes, not balances.
The table below details these differences:
(Dollars in Thousands)
As of September 30, 2009 2008
Current Year Liabilities Not Covered By Budgetary Resources $ 84,893 $ 86,918
Less: Prior Year 86,918 85,534
Change in Liabilities Not Covered By Budgetary Resources (2,025) 1,384
Upward Reestimates of Credit Subsidy Expense 4,637,148 1,316,143
Change in Revenue Receivable from Public (3,623) 1,869
All Other 1,424 2,171
Components (of Net Cost) Generating Resources in Future Periods
(Per Reconciliation Above) $ 4,632,924 $ 1,321,567
Note 17. Significant Events
Recovery Act
The American Recovery and Reinvestment Act was signed by the President on February 17, 2009. The
Recovery Act provided $730 million to the SBA to alleviate the effect of the current economic recession
on American small business. These funds were allocated to SBA as follows:
• $636 million for loan program credit subsidies
• $45 million for administrative expense
• $24 million for microloan technical assistance grants
• $15 million for surety bond guaranty cost
• $10 million for Inspector General oversight and audit
On March 16, 2009 the SBA implemented Sections 501 and 502 of the Recovery Act. Section 501
provided for the reduction or elimination of guaranty fees for 7(a) loan guaranties and for the payment
by SBA of the 1.5 percent processing fee to 504 lenders previously due from 504 program borrowers. The
SBA also implemented a small Dealer Floor Plan pilot program to make loans to retail dealerships includ-
ing auto dealers that began in July 2009 and qualified for Section 501 provisions. Section 502 provided
for the increase of the SBA guaranty percent on 7(a) guaranties to 90 percent. Loan program credit
subsidies of $375 million were provided for Section 501 and Section 502 for use by September 30,
Agency Financial Report FY 2009
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F I N A N C I A L R E P O RT I N G
2010. The SBA made Section 501 of the Recovery Act retroactive to February 17, 2009. As a result,
the SBA rebated upfront 7(a) guaranty fees collected during the interim between February 17th and the
implementation of Section 501. Also, the SBA paid the 1.5 percent processing fee on 504 loan guaran-
ties approved beginning February 17, 2009. The $13.2 million cost of the retroactive implementation
of Section 501 was a “modification” under Federal Credit Reform requirements. The Recovery Act
Sections 501 and 502 supported $8.7 billion of guaranties, and increased bank participation in SBA
programs during FY 2009.
On June 15, 2009 the SBA began taking applications for the America’s Recovery Capital Loan Program
authorized by Section 506 of the Recovery Act. ARC Loans are made by participating 7(a) program
lenders to borrowers that need short term help to make their principal and interest payments on existing
qualifying loans. ARC Loans can cover up to six monthly installments (or a maximum of $35,000) and
no-interest deferred-payment loans, have no fees on them and are 100 percent guaranteed by the SBA. The
SBA pays the borrower’s interest to the 7(a) lender based on reports provided retroactively by the lender.
Loan program credit subsidies of $255 million were provided in the Recovery Act for ARC Loans that can
be approved until September 30, 2010. During FY 2009 $94 million of ARC Loans were approved.
Economic Conditions
The economic downturn continued in FY 2009 as indicated by lower GDP and increased unemploy-
ment. These macroeconomic factors had an impact on the FY 2009 performance of SBA’s loan portfolio.
Purchases of defaulted guaranties increased 85 percent over FY 2008. Projections for future purchases
are also higher primarily due to higher unemployment forecasts as indicated by the FY 2010 President’s
Economic Assumptions. In fact, projected quarterly unemployment rates for FY 2010 are 88 percent
higher (and 40 percent higher on average through FY 2018) in the current PEA as compared to this
time last year. All of these factors combined caused the upward reestimate in SBA loan programs (as dis-
cussed in Note 61). Under the Federal Credit Reform Act, upward reestimates are automatically covered
by permanent indefinite budget authority. Such authority provides the SBA resources to address losses
incurred in its existing portfolio without further action by Congress.
The Recovery Act programs that were implemented in FY 2009 contributed to an increase in monthly
lending activity. Nevertheless, it is too early to fully evaluate the ultimate impact of the economy and
the Recovery Act programs on SBA’s portfolio risk and performance. There continues to be volatility
and uncertainty in the financial markets and the Recovery Act programs are not yet seasoned enough to
measure their ultimate performance.
Did
you In FY 2009 85 percent of disaster assistance loans approved were for
know homeowners and renters to repair or replace disaster-damaged primary
residences and personal property.
Agency Financial Report FY 2009
83
FIN AN C IAL RE PORTI N G
Required Supplementary Information
Combining Statement of Budgetary Resources
For the year ended September 30, 2009
(Dollars in Thousands)
BLIF DLF SBGRF PCECGF
Nonbudgetary Nonbudgetary
BUDGETARY RESOURCES Budgetary Financing Budgetary Financing Budgetary Budgetary
Unobligated Balance
Brought Forward October 1 $ 29,458 $ 678,312 $ 1,217,311 $ 868,753 $ 30,371 $ 3,220
Recoveries of Prior Year Obligations 467 1,221 35,538 219,431 – –
Budget Authority
Appropriations Received 2,292,609 – 189,159 – 17,000 3,000
Borrowing Authority – 2,067,084 – 1,388,482 – –
Spending Authority from Offsetting Collections
Earned 10,652 2,745,872 5,113 1,296,311 8,048 195
Change in Unfilled Customer Orders – 201,125 – (44,114) – –
Total Budget Authority 2,303,261 5,014,081 194,272 2,640,679 25,048 3,195
Nonexpenditure Transfers, Net Budget Authority – – – – – –
Permanently Not Available (25,847) (84,521) (9,934) (1,961,180) – (3,220)
Total Budgetary Resources $ 2,307,339 $ 5,609,093 $ 1,437,187 $ 1,767,683 $ 55,419 $ 3,195
STATUS OF BUDGETARY RESOURCES
Obligations Incurred, Net
Direct $ 1,832,115 $ 5,053,057 $ 290,413 $ 1,128,408 $ – $ –
Reimbursable 139,075 – 288,000 – 6,023 –
Total Obligations Incurred, Net 1,971,190 5,053,057 578,413 1,128,408 6,023 –
Unobligated Balances, Available 233,485 250,391 73,004 639,275 6,054 3,195
Unobligated Balances, Not Available 102,664 305,645 785,770 – 43,342 –
Total Status of Budgetary Resources $ 2,307,339 $ 5,609,093 $ 1,437,187 $ 1,767,683 $ 55,419 $ 3,195
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward, Net October 1
Unpaid Obligations Brought Forward $ 7,287 $ 88,859 $ 77,111 $ 472,306 $ 622 $ –
Uncollected Customer Payments from Federal
Sources Brought Forward – (2,778) – (76,085) – –
Total Obligated Balance Brought Forward, Net 7,287 86,081 77,111 396,221 622 –
Obligations Incurred 1,971,190 5,053,057 578,413 1,128,408 6,023 –
Gross Outlays (1,771,524) (4,965,735) (587,343) (1,166,309) (6,627) –
Recoveries of Prior Year Unpaid Obligations (467) (1,221) (35,538) (219,431) – –
Change in Uncollected Customer Payments from
Federal Sources – (201,125) – 44,114 – –
Obligated Balance, Net, End of Period
Unpaid Obligations 206,486 174,960 32,643 214,974 18 –
Uncollected Customer Payments from Federal
Sources – (203,903) – (31,971) – –
Total Obligated Balance, Net, End of Period $ 206,486 $ (28,943) $ 32,643 $ 183,003 $ 18 $ –
Net Outlays
Gross Outlays $ 1,771,524 $ 4,965,735 $ 587,343 $ 1,166,309 $ 6,627 –
Offsetting Collections (10,652) (2,745,872) (5,113) (1,296,311) (8,048) (195)
Net Outlays Before Offsetting Receipts 1,760,872 2,219,863 582,230 (130,002) (1,421) (195)
Offsetting Receipts – (462,135) – (27,201) – –
Net Outlays $ 1,760,872 $ 1,757,728 $ 582,230 $ (157,203) $ (1,421) $ (195)
Agency Financial Report FY 2009
84
F I N A N C I A L R E P O RT I N G
Combining Statement of Budgetary Resources
For the year ended September 30, 2009
(Dollars in Thousands)
SE OIG BATF TOTAL TOTAL
Nonbudgetary
BUDGETARY RESOURCES Budgetary Budgetary Budgetary Budgetary Financing Total
Unobligated Balance
Brought Forward October 1 $ 141,833 $ 7,287 $ 274 $ 1,429,754 $ 1,547,065 $ 2,976,819
Recoveries of Prior Year Obligations 28,404 228 2 64,639 220,652 285,291
Budget Authority
Appropriations Received 521,550 26,750 – 3,050,068 – 3,050,068
Borrowing Authority – – – – 3,455,566 3,455,566
Spending Authority from Offsetting Collections
Earned 404,738 641 25 429,412 4,042,183 4,471,595
Change in Unfilled Customer Orders 33,423 (668) – 32,755 157,011 189,766
Total Budget Authority 959,711 26,723 25 3,512,235 7,654,760 11.166,995
Nonexpenditure Transfers, Net Budget Authority 2,953 – – 2,953 – 2,953
Permanently Not Available (10,232) (69) – (49,302) (2,045,701) (2,095,003)
Total Budgetary Resources $ 1,122,669 $ 34,169 $ 301 $ 4,960,279 $ 7,376,776 $ 12,337,055
STATUS OF BUDGETARY RESOURCES
Obligations Incurred, Net
Direct $ 461,659 $ 18,520 $ 38 $ 2,602,745 $ 6,181,465 $ 8,784,210
Reimbursable 417,538 286 – 850,922 – 850,922
Total Obligations Incurred, Net 879,197 18,806 38 3,453,667 6,181,465 9,635,132
Unobligated Balances, Available 206,333 15,055 263 537,389 889,666 1,427,055
Unobligated Balances, Not Available 37,139 308 – 969,223 305,645 1,274,868
Total Status of Budgetary Resources $ 1,122,669 $ 34,169 $ 301 $ 4,960,279 $ 7,376,776 $ 12,337,055
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward, Net October 1
Unpaid Obligations Brought Forward $ 334,457 $ 2,148 $ 5 $ 421,630 $ 561,165 $ 982,795
Uncollected Customer Payments from
Federal Sources Brought Forward – – – – (78,863) (78,863)
Total Obligated Balance Brought Forward, Net 334,457 2,148 5 421,630 482,302 903,932
Obligations Incurred 879,197 18,806 38 3,453,667 6,181,465 9,635,132
Gross Outlays (814,264) (17,408) (14) (3,197,180) (6,132,044) (9,329,224)
Recoveries of Prior Year Unpaid Obligations (28,404) (228) (2) (64,639) (220,652) (285,291)
Change in Uncollected Customer Payments from
Federal Sources – – – – (157,011) (157,011)
Obligated Balance, Net, End of Period
Unpaid Obligations 370,986 3,318 27 613,478 389,934 1,003,412
Uncollected Customer Payments from Federal
Sources – – – – (235,874) (235,874)
Total Obligated Balance, Net, End of Period $ 370,986 $ 3,318 $ 27 $ 613,478 $ 154,060 $ 767,538
Net Outlays
Gross Outlays $ 814,264 $ 17,408 $ 14 $ 3,197,180 $ 6,132,044 $ 9,329,224
Offsetting Collections (438,161) 27 (25) (462,167) (4,042,183) (4,504,350)
Net Outlays Before Offsetting Receipts 376,103 17,435 (11) 2,735,013 2,089,861 4,824,874
Offsetting Receipts (59) – – (59) (489,336) (489,395)
Net Outlays $ 376,044 $ 17,435 $ (11) $ 2,734,954 $ 1,600,525 $ 4,335,479
Agency Financial Report FY 2009
85
FIN AN C IAL RE PORTI N G
Required Supplementary Stewardship Information
Stewardship Investments in Human Capital for the
Five Years Ending September 30, 2009
Human Capital investments are expenses included in net cost for education and training programs that
are intended to increase or maintain national economic productive capacity and that produce outputs
and outcomes that provide evidence of maintaining or increasing national productive capacity. The
definition excludes education and training expenses for Federal personnel.
Small Business Development Centers deliver management and technical assistance, economic develop-
ment and management training to existing and prospective small businesses through cooperative agree-
ments with universities and colleges and government organizations.
SCORE is a nonprofit organization which provides small business counseling and training under a grant
from the SBA. SCORE members are successful business men and women who volunteer their time to
assist aspiring entrepreneurs and small business owners. There are SCORE chapters in every state.
Women’s Business Centers provide assistance to women business owners and acts as their advocate in
the public and private sectors in a number of locations around the U.S.
All Other Training and Assistance Programs includes primarily Small Business Training provided by a
counselor from a resource partner, district office, or SBA sponsor who delivers a structured program
of knowledge, information or experience on a business-related subject. The training lasts for one or
more hours and includes an agenda, attendee list, and a trainer evaluation. The session may be for
an individual or a class. Training is also available online on a number of subjects of interest to the
small business person. Other programs not separately detailed include Native American Outreach
and Drug Free Work Place. As additional years of data accumulate, the investments will be presented
separately.
Performance results are discussed in the Management Discussion and Analysis (MD&A) section of
SBA’s annual Agency Financial Report in the Programs results section of the Executive Summary.
Significant Human Capital investments occur within the following programs:
(Dollars in Thousands)
2009 2008 2007 2006 2005
Small Business Development Centers $ 116,909 $ 98,484 $ 99,748 $ 105,743 $ 104,075
SCORE 9,899 10,960 12,267 15,285 18,669
Women’s Business Centers 21,504 23,655 16,382 10,382 11,172
All Other Training and Assistance Programs 61,356 41,318 62,787 24,513 46,598
Total $ 209,668 $ 174,417 $ 191,184 $ 155,923 $ 180,514
Agency Financial Report FY 2009
86
office of the
inspector general
reports
OFFICE OF THE INSPECTOR GENERAL REPORTS
Agency Financial Report FY 2009
88
OFFICE OF THE INSPECTOR GENERAL REPORTS
Summary of OIG Audit Follow-Up
Summary report these to management, the OCFO main-
Throughout the year, the OIG conducts audits of tains a database and provides a status report avail-
SBA’s processes, procedures and programs, and able on the SBA intranet page. This is updated as
makes recommendations for improvement. Many corrective actions are completed. Program offices
of these recommendations are not material, rela- also provide regular updates on final action status
tive to their dollar impact on SBA’s financial and that are used to update the database.
administrative operation, but are very beneficial The OCFO continues to take aggressive steps to
to management. Program management has the improve management’s attention to these issues,
option to agree or disagree with OIG recom- resulting in 133 final actions during FY 2009. Of
mendations. If agreement cannot be reached, the these final actions, 12 were monetary and 121
issue can be raised to a higher level by the OIG. were non-monetary.
Once both management and the OIG agree with
a recommendation, it becomes a “management The following two charts depict SBA’s monetary
decision.” The manager develops a specific action final action activity: audit recommendations
plan and provides a target date for completion as with disallowed or questioned costs, and audit
part of the “management decision.” The corrective recommendations with funds put to better use.
action is referred to as a “final action.” The status of all audit recommendations is recon-
ciled with the OIG to ensure actions are posted
The Office of the Chief Financial Officer is promptly and accomplished in accordance with
responsible for monitoring the final actions and the agreed-upon target dates.
reporting on their implementation. To track and
TABLE I
Final Action On Audit Recommendations With Disallowed / Questioned Costs
October 1, 2008 – September 30, 2009
Disallowed Costs
Number of
(Rounded to
Recommendations
Thousands)
A. Recommendations with management decisions on which final action had not been taken at the 7 $ 7,429
beginning of the period.
B. Recommendations on which management decisions were made during the period. 10 $ 1,840
C. Total recommendations pending final action during period. 17 $ 9,269
D. Recommendations on which final action was taken during the period.
1. Recoveries:
(a) Collections and Offsets 7 $ 1,281
(b) Property 0 $ 0
(c) Other 0 $ 0
2. Write-Offs 4 $ 5,479
3. Total 11 $ 6,760
E. Recommendations needing final action at the end of the period. 6 $ 2,509
Agency Financial Report FY 2009
89
OFFICE OF THE INSPECTOR GENERAL REPORTS
TABLE II
Final Action On Audit Recommendations With Funds Put To Better Use
October 1, 2008 – September 30, 2009
Funds to be
Number of Put to Better Use
Recommendations (Rounded to
Thousands)
A. Recommendations with management decisions on which final action had not been taken at the 2 $ 7,200
beginning of the period.
B. Recommendations on which management decisions were made during the period. 3 $ 1,555,152
C. Total recommendations pending final action during period. 5 $ 1,562,352
D. Recommendations on which final action was taken during the period.
1. Value of recommendations implemented (completed). 1 $ 12,700
2. Value of recommendations that management concluded should not or could not be implemented 0 $ 0
or completed.
3. Total 1 $ 12,700
E. Recommendations needing final action at the end of the period. 4 $ 1,549,652
Success Story
Recovery Loan Helps Hammer Thru Defeat
ACE Hardware, Silver Lake, Washington
Ace Hardware of Silver Lake, Washington opened its doors in July 2009 thanks
to SBA’s 7(a) loan program. Gary Skrla was laid off from his corporate job
and headed to the SBA office in Seattle to discuss his business ideas with Ed
Milan, a SCORE representative. After a few counseling sessions, he decided
to follow his dream and open a hardware store. His past hardware industry
experience helped him decide the ACE Hardware franchise would be a good fit.
Skrla took advantage of the new lending incentives of increased guaran-
ties and reduced fees. He worked out the details in his loan application and
received financing through Seattle-based Fortune Bank and the SBA 7(a)
loan program. Lisa Forrest, vice president with Fortune Bank said, “Gary is a
perfect example of what can be done with an SBA loan. The Silver Lake area is growing and was ready for additional
services; and the 20 jobs the new store will generate are welcome, too.”
As part of the Recovery Act, the SBA temporarily eliminated fees paid by the borrowers in the 7(a) program. The bank
decision to provide an SBA 7(a) loan for $879,000 resulted in a savings of $19,777 in waived fees. This helped to get
the inventory needed and provided the working capital to have the store open on time. Hard work and perseverance
paid off for Skrla. He did his research, knew the industry, hired experienced staff, and sought out business assistance.
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U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
Report No. 10-02
Fiscal Year 2010 Report
on the Most Serious Management and
Performance Challenges Facing the
Small Business Administration
October 16, 2009
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U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
WASHINGTON, D.C. 20416
October 16, 2009
MEMORANDUM
TO: Karen G. Mills
Administrator
FROM: Peggy E. Gustafson
Inspector General
SUBJECT: Fiscal Year 2010 Report on the Most Serious Management and
Performance Challenges Facing the Small Business Administration
In accordance with the Reports Consolidation Act of 2000, we are providing you with the
Office of Inspector General’s (OIG) Fiscal Year (FY) 2010 Report on the Most Serious
Management and Performance Challenges Facing the Small Business Administration
(SBA). This report represents our current assessment of Agency programs and/or
activities that pose significant risks, including those that are particularly vulnerable to
fraud, waste, error, mismanagement or inefficiencies. The Challenges are not
presented in order of priority, as we believe that all are critical management or
performance issues.
Our report is based on specific OIG, Government Accountability Office (GAO), and
other official reports, as well as our general knowledge of SBA’s programs and
operations. Our analysis generally considers those accomplishments that SBA reported
as of September 30, 2009.
Within each Management Challenge there are a series of ―recommended actions‖ to
resolve the Challenge. Each recommended action is assigned a color ―status‖ score.
The scores are as follows: Green for Implemented; Yellow for Substantial Progress;
Orange for Some Progress; and Red for No Progress. An upwards arrow in the color
box indicates that the color score improved over last year’s report. As part of the OIG’s
continuing evaluation of the Management Challenges, certain Challenges have been
updated or revised. In addition, actions that were scored Green last year, and which
remained Green this year, have been moved up to the ―history bar‖ above the
recommended actions. The history bar highlights any progress that the Agency has
made on a Challenge over the past four FYs (or as long as the Challenge has existed, if
shorter) by showing the number of actions that have moved to Green each year.
This year’s report contains two new Management Challenges dealing with (1) SBA’s
Loan Management and Accounting System (LMAS) project, and (2) improper payments
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OFFICE OF THE INSPECTOR GENERAL REPORTS
in the Disaster and 7(a) loan programs. Since these two Management Challenges are
new, no color scores have been assigned; the Agency’s progress in resolving them will
be assessed during FY 2010 and color scores will be assigned in next year’s report.
Following is a summary of the FY 2010 report on the Agency’s Most Serious
Management and Performance Challenges.
Status Score
Topic Green Yellow Orange Red Improved1
Small Business
1 2 1 1
Contracts
2 IT Security 4 0
3 Human Capital 3 0
Loan Guaranty
4 1 1 0
Purchase
5 Lender Oversight 2 4 0
6 8(a) BD Program 1 4 3
7 SBIC Program 2 2 2
8 Loan Agent Fraud 2 --2
Loan Management and
9 New
Accounting System
10 Improper Payments New
TOTAL 3 18 8 0 6
We would like to thank SBA’s management and staff for their cooperation in providing
us with information needed to prepare this report. We look forward to working with
SBA’s new leadership team in addressing the Agency’s Management Challenges.
Attachment
1
“Improved” refers to a recommended action that showed progress this year over last year’s score (as denoted by an
“up” arrow).
2
Management Challenge 8, Loan Agent Fraud, was revised in FY 2009 to include two new recommended actions.
Consequently, no color scores were shown for these two remaining recommended in last year’s report against which
to measure progress.
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Table of Contents
Challenge 1. Procurement flaws allow large firms to obtain small business awards and
agencies to count contracts performed by large firms towards their small business
goals.
Challenge 2. Weaknesses in information systems security controls pose significant
risks to the Agency.
Challenge 3. Effective human capital strategies are needed to enable SBA to
successfully carry out its mission and become a high-performing organization.
Challenge 4. SBA needs better controls over loan purchase and liquidation processes.
Challenge 5. SBA needs to further strengthen its oversight of lending participants.
Challenge 6. The Section 8(a) Business Development program needs to be modified so
more firms receive business development assistance, standards for determining
economic disadvantage are clear and objective, and SBA ensures that firms follow 8(a)
regulations when completing contracts.
Challenge 7. Insufficient and outdated SBA controls contribute to excessive risk of the
SBIC program.
Challenge 8. Effective tracking and enforcement would reduce financial losses from
loan agent fraud.
Challenge 9. SBA needs to modernize its Loan Accounting System and migrate it off
the mainframe.
Challenge 10. SBA needs to accurately report, significantly reduce, and strengthen
efforts to recover improper payments in the Disaster and 7(a) loan programs.
Appendix: Relevant Reports
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Challenge 1. Procurement flaws allow large firms to obtain small business
awards and agencies to count contracts performed by large firms towards their
small business goals.
The Small Business Act establishes a Government wide goal that 23 percent of the total value of all prime
contract awards for each fiscal year (FY) be awarded to small businesses. As the advocate for small
business, the Small Business Administration (SBA) should strive to ensure that only small firms obtain
small business awards and that procuring agencies accurately report contracts awarded to small
businesses when representing its progress in meeting small business contracting goals.
Office of Inspector General (OIG) audits and other governmental studies have shown widespread
misreporting by procuring agencies; many contract awards recorded as going to small firms have actually
been performed by larger companies. While some contractors may misrepresent or erroneously calculate
their size, most incorrect reporting results from errors made by government contracting personnel. Noted
errors include acceptance of questionable size self-certifications and misapplication of small business
contracting rules. Also, it is unclear whether contracting officers always review the on-line certifications
that contractors enter into the governmental Online Representations and Certifications Application
(ORCA) prior to awarding contracts. SBA needs to do more to ensure that contracting personnel are
adequately trained on small business procurement procedures and are reviewing ORCA data prior to
awarding contracts.
The Agency also needs to address a loophole within General Services Administration Multiple Awards
Schedule (MAS) contracts that contain multiple industrial codes. Currently, a company awarded such a
contract can identify itself as small on individual task orders awarded under that contract even though it
does not meet the size criteria for the applicable task. Thus, agencies may obtain small business credit
for using a firm classified as small, when the firm is not small for specific orders under such a MAS
contract.
While more remains to be done, SBA made some progress on this challenge as it: (1) developed a
strategy for promoting and encouraging procurement officials to be trained on small business contracting
procedures; (2) conducted surveillance reviews to assess whether procurement officials confirmed the
small business size status prior to contract award, and (3) provided anomaly reports to Federal agencies
procurement officials that identified potentially miscoded business size status for correction.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
N/A 06-0 07-0 08-1
2005
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Develop and take steps to provide reasonable assurance that agencies are
providing adequate basic and continuing education training to contracting Yellow
personnel on small business contracting procedures.
2. Develop and implement a program that promotes accurate contractor
certifications and ensures that contracting personnel review contractor Yellow
certifications.
3. Issue regulations that require firms to meet the size standard for each specific
order they receive under a GSA schedule and Government-wide Acquisition
Orange
Contract (GWAC) and show that the regulations are being followed. (Previously
action # 4)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
1
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Challenge 2. Weaknesses in information systems security controls pose
significant risks to the Agency.
The confidentiality, integrity, and availability of SBA’s information systems are vital to the continued
successful operation of the Agency. While information technology (IT) can result in a number of benefits,
such as information being processed more quickly and communicated almost instantaneously, it can also
increase the risk of fraud, inappropriate disclosure of sensitive data, and disruption of critical operations
and services. SBA’s computer security program operates in a dynamic and highly decentralized
environment and requires management attention and resources as weaknesses are identified.
SBA continued to improve information system security in several critical areas during FY 2009. The
Agency established a vulnerability assessment team (VAT) which performs monthly scans of network
attached devices to identify and remediate network vulnerabilities; implemented procedures for
requesting and granting remote access and for sanitization of used media prior to disposal; made
progress documenting LAS and DCMS configuration baselines and implementing segregation of duties
controls in LAS; and developed guidance on how contractor access vulnerabilities should be reported in
the Plan of Actions and Milestones (POA&M) and now requires documentation justifying removal of prior
vulnerabilities from the POA&M. To show further progress, SBA needs to address both known and
newly-reported information security issues. For example, SBA needs to implement a process to more
timely mitigate system risks that are identified as ―medium‖ and ―high‖ and ensure that all security
weaknesses identified in risk assessments as ―high‖ are included in the POA&M; further implement
enterprise-wide and application level change control controls for both emergency and normal system
changes; and ensure that critical controls such as patch management are addressed in service level
agreements with contractors and hosting sites.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 05-2 06-2 07-2 08-2
1999
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Access controls are in place and operating effectively, and contractors are not
granted system access until they have obtained the required background Yellow
investigations and/or security clearances.
2. System software controls are in place and operating effectively. Yellow
3. Segregation of duty controls are in place and operating effectively. Yellow
4. The POA&M accurately reports all computer security weaknesses and corrective
Yellow
actions. (Previously action #5)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
2
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Challenge 3. Effective human capital strategies are needed to enable SBA to
successfully carry out its mission and become a high-performing organization.
Between 2001 and 2006, SBA’s staffing (excluding Disaster) decreased by more than 25 percent while
virtually all of its programs grew significantly. For example, the number of loans made to small
businesses doubled and the Agency’s oversight responsibilities over government contracting to small
businesses increased as the value of these Federal contracts rose by more than 50 percent. In response
to budget constraints, SBA restructured key Agency operations, reengineered its largest loan programs,
and downsized personnel through attrition and directed transfers. While these actions transformed the
way SBA does business, the Agency did not adequately analyze priorities and allocate resources
consistent with those priorities and its new business processes. As a result, there was no assurance that
sufficient resources—in terms of both number of staff and the knowledge and skills possessed by staff—
were available and appropriately deployed to perform critical functions. For example, audits showed that
inadequate staffing of key functions resulted in limited oversight of lenders and inadequate monitoring of
8(a) program requirements.
The results of the 2002, 2004 and 2006 Federal Human Capital Surveys (FHCS) illustrated SBA’s serious
human capital challenges. For example, in 2006 SBA ranked near the bottom on all four human capital
indices—Leadership and Knowledge Management, Results-Oriented Performance Culture, Talent
Management, and Job Satisfaction. SBA’s scores were particularly low related to the adequacy of job-
related knowledge and skills, the reasonableness of workload, sufficiency of information needed to go a
good job, and employee morale.
SBA was proactive in addressing the results of the 2006 FHCS. As a result, the 2008 survey showed
significant improvement. For example, on the four indices identified above, SBA’s rankings moved from
33rd to 22nd, 32nd to 26th, 35th to 31st, and 34th to 27th, respectively. In addition, the Partnership for
Public Service, in its 2009 rankings of the best places to work in the Federal Government, recognized
SBA as the most improved agency, although SBA still ranked 26 out of 30 large agencies. SBA has also
focused considerable attention on improving workforce planning and employee development. Human
capital management continues to be a significant challenge, however, requiring continued attention to
ensure that qualified staff is available and appropriately allocated toward SBA’s mission-critical functions
and identified priorities.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
05-0 06-0 07-0 08-0
2001 (Revised 2007)
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Allocate appropriate staffing toward Agency priorities – perform an analysis of
Agency priorities and develop, communicate, and implement a comprehensive
plan (including responsibilities, metrics, and timeframes) for allocating appropriate Yellow
staffing (in terms of staffing levels and requisite knowledge, skills, and abilities)
toward those priorities.
2. Take steps to correct problems identified by the Federal Human Capital Survey
(FHCS) – develop, communicate, and implement a corrective action plan
Yellow
(including priorities, responsibilities, metrics, and timeframes) to address the
underlying causes of SBA’s poor results on the FHCS.
3. Plan for the future of SBA – develop and implement an effective succession
planning program to ensure that there is qualified staff available to perform SBA’s Yellow
mission-critical functions and meet identified priorities for the foreseeable future.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
3
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Challenge 4. SBA needs better controls over loan purchase and liquidation
processes.
The majority of loans under the 7(a) loan-guaranty program are made with little or no review by SBA prior
to loan approval because SBA has delegated most of the credit decisions to lenders originating these
loans. SBA’s review of lender requests for guaranty purchases on defaulted loans is, therefore, the
Agency's primary tool for assessing lender compliance on individual loans and protecting SBA from
making erroneous purchase payments. Furthermore, as lenders are delegated the responsibility for
servicing and liquidating SBA loans, SBA’s liquidation process, including the comprehensive charge-off
review, is the last opportunity to identify lender noncompliance. However, OIG audits of defaulted loans
and SBA’s guaranty purchase and liquidation processes have shown that reviews performed by the loan
centers have not consistently detected failures by lenders to administer loans in full compliance with SBA
requirements and prudent lending practices, resulting in improper payments.
SBA has taken actions to correct many of the deficiencies identified by the OIG. SBA reengineered the
7(a) loan guaranty purchase processes at the National Guaranty Purchase Center (NGPC) and the Little
Rock and Fresno Service Centers to improve the efficiency and consistency of the process; increased
staffing levels at the centers; developed a comprehensive operations manual for the NGPC; trained
individuals responsible for making purchase decisions; and made significant progress in developing a
quality assurance program. While improvements have been made, additional actions are needed to
strengthen guaranty purchase and liquidation decisions to effectively reduce improper payments, such as
implementing effective policies and procedures governing the guaranty purchase and liquidation
processes and fully implementing the quality assurance program at the centers.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
05-2 06-0 07-0 08-2
2001
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Implement a Quality Assurance Program for all SBA loan centers. (Previously
Orange
action #3)
2. Implement policies and procedures governing the guaranty purchase and
liquidation processes to ensure lender compliance before honoring SBA loan Yellow
guaranties. (Previously action #4)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
4
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Challenge 5. SBA needs to further strengthen its oversight of lending
participants.
Since its inception in 1953, SBA has loaned or guaranteed billions of dollars to finance and spur
investment in small businesses. Over the years, SBA has shifted from processing loans to overseeing
lenders originate, service, and liquidate loans. This requires an effective oversight program to: (1)
monitor lender compliance with SBA policies and procedures, and (2) take corrective actions when
material noncompliance are detected.
The Agency has made substantial progress in its oversight of lenders in the 7(a) and 504 loan programs,
reducing action items within this Management Challenge from 8 in FY 2006 to 3 in FY 2009. With
authority to charge fees to cover the cost of on-site lender reviews, SBA expanded the scope of its
oversight by more than doubling the number of on-site reviews of large high-risk lenders. It also issued a
Lender Review Standard Operating Procedure (SOP) to guide the on-site review process and modified
the Lender Risk Rating System to further strengthen lender risk assessments. In January 2009, SBA
published an Interim Final Rule that outlined its policy on enforcement actions against nonperforming
lenders. This rule identified the types of enforcement actions that could be exercised, grounds for
enforcement action, and processes for implementing such actions. Subsequent to publishing the rule, the
Agency drafted, but did not finalize, a Lender Enforcement SOP, which contains guidance for
implementing enforcement actions. Finally, in FY 2009, SBA evaluated the sufficiency of over 180
corrective actions proposed by lenders and developed guidelines for establishing lender performance
measures that will be incorporated into the Lender Enforcement SOP. The guidelines will assist the
Office of Credit Risk Management (OCRM) in establishing lender performance goals and target dates for
inclusion in lender corrective action plans.
To progress further, SBA will need to conduct agreed-upon-procedure reviews of medium-sized, high-risk
lenders and ensure that its on-site reviews are based on statistically-valid samples of lender loan files.
While OCRM has drafted agreed-upon-procedures for the reviews of medium-sized lenders and has
developed possible statistical approaches for reviewing loan files, it has not finalized its plans in either
area. SBA will also need to finalize the Lender Enforcement SOP so that it can establish performance
measures in lender corrective action plans.
Actions Accomplished (Green Status) during Past 4 FYs
Challenge History
Fiscal Year (FY) Issued: 2001 05-7(A)-0 06-7(a)-2 07-7(a)-0 08-7(a)-2
05-504-3 06-504-1 07-504-1 08-504-2
Status at end of
Remaining Recommended Actions for FY 2010 FY 2009
7(a) 504
1. Expand the scope of lender oversight and improve the process for reviewing
lenders and Certified Development Companies (CDCs) for compliance risks. Yellow Yellow
(Previously action #2)
2. Implement guidance providing for effective oversight of lending programs.
Orange Orange
(Previously action #4)
3. Ensure that effective corrective actions are implemented, monitored, and
result in improvement in the performance of participants with unacceptable Orange Orange
performance. (Previously action #5)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
5
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Challenge 6. The Section 8(a) Business Development program needs to be
modified so more firms receive business development assistance, standards for
determining economic disadvantage are clear and objective, and SBA ensures
that firms follow 8(a) regulations when completing contracts.
The SBA 8(a) Business Development (BD) program was created to assist eligible small disadvantaged
business concerns to compete in the American economy through business development.
Previously, the Agency did not place adequate emphasis on business development to enhance the ability
of 8(a) firms to compete, and did not adequately ensure that only 8(a) firms with economically
disadvantaged owners in need of business development remained in the program. Companies that were
―business successes‖ were allowed to remain in the program and continue to receive 8(a) contracts,
causing fewer companies to receive most of the 8(a) contract dollars and many to receive none.
The Agency has made considerable progress in addressing issues that challenge its ability to deliver an
effective 8(a) program. The Office of Business Development has developed a Business Development
Assessment Tool, as well as a plan to provide 8(a) firms with individualized business development
assistance. In addition, the Office of Business Development has strengthened its policies and procedures
and revised its regulations to ensure that companies that are ―business successes‖ are graduated from
the program. Further, the Agency has issued proposed regulations establishing objective standards to
address the definition of ―economic disadvantage,‖ and has addressed the need to identify the skills
necessary for Business Development Specialists to adequately evaluate a company’s business plan and
assess a participant’s competitive potential. The Agency needs to ensure that procuring agencies
enforce contractors’ compliance with 8(a) BD program regulations and finalize regulations to complete the
recommended actions.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
05-0 06-1 07-1 08-1
2003
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Develop and implement a plan, including SOP provisions, which ensures that the
8(a) BD program identifies and addresses the business development needs of Yellow
program participants on an individualized basis.
2. Develop and implement Regulations and SOP provisions to ensure that
participants are graduated once they reach the levels defined as business Yellow
success.
3. Establish objective criteria that reasonably measures ―economic disadvantage‖
Yellow
and implement the new criteria.
4. Provide sufficient financial and analytical training to business development
specialists to enable them to evaluate a company’s business profile and Green
competitive potential.
5. On a regular basis, conduct surveillance reviews of procuring agencies to ensure
they are effectively monitoring and enforcing compliance with specified 8(a) BD Yellow
regulations on the contracts they administer. (Previously action #6)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
6
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Challenge 7. Insufficient and outdated SBA controls contribute to excessive risk
of the SBIC program.
The Small Business Investment Company (SBIC) program is designed to stimulate and supplement the
flow of private equity capital and long-term debt to small business concerns. SBA uses both guaranteed
debt (debentures) and equity interest (participating securities) to provide government-backed financing to
SBICs. As of September 30, 2009, SBA had about $8.2 billion of such financings at risk. From FY 1993
to FY 2004, program costs were about $2 billion more than anticipated. Prior audits performed by the
Government Accountability Office (GAO) and the OIG attributed the unanticipated costs to the structure of
the program, the funding process, and the lack of focus on limiting costs when liquidating SBICs. The
audits determined that: (1) the subsidy model underestimated the cost of the program; (2) SBA’s profits
were not proportional to its investments in the participating security SBICs; (3) insufficient incentives
existed to encourage participating security SBICs to repay principal debt as quickly as possible; (4) SBA
allowed too much time for financially troubled SBICs to attempt rehabilitation; (5) better performance
goals and indicators were needed to show how well and how timely recoveries were maximized for
liquidated SBICs; (6) SOPs for SBIC operations and liquidations were outdated; and (7) existing guidance
did not provide a systemic approach for estimating the level of financial risk, implementing transfers to
restrictive operation status, transferring capitally-impaired SBICs to liquidation status, liquidating SBICs
with participating securities, and monitoring the liquidation of SBIC receiverships.
From FY 2005 to FY 2009, however, the program has been self-sustaining, with fees covering all losses.
SBA has also demonstrated that it transferred 30 of 33 SBICs into restrictive operations in a timely
manner, that self-liquidation procedures for participating security SBICs were followed, and that effective
monitoring of SBIC receiverships was accomplished through oversight reports and documented quarterly
meetings with receivership personnel. These actions are sufficient to elevate to green the scores for two
of the four remaining recommended actions for this Management Challenge.
To further reduce risk in the program, SBA needs to more timely transfer debenture funded SBICs into
liquidation and implement performance goals and indicators that address the efficiency, cost-
effectiveness, and timeliness of the SBIC liquidation process. An analysis of 12 debenture funded SBICs
transferred into liquidation status between September 2007 and 2009 showed that the majority of these
transfers were not timely; the OIG found that at least 7 were transferred into liquidation status 12 months
or more after exceeding their maximum capital impairment percentage. Also, after establishing goals and
performance indicators to evaluate the liquidation of SBICs, SBA must demonstrate their effectiveness.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 05-0 06-1 07-1 08-1
2004
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Develop systematic criteria and implement a timely approach for transferring
Yellow
SBICs to liquidation status.
2. Incorporate into SOP 10 06 a requirement for the timely and consistent
Green
implementation of restrictive operations. (Previously action #3)
3. Develop and implement performance goals and indicators that address the
efficiency, cost-effectiveness, and timeliness of the SBIC liquidation process. Yellow
(Previously action #4)
4. Develop and implement procedures, to be included in a revised version of SOP 10
07 that address the liquidation of participating security SBICs and SBA monitoring Green
of the liquidation of SBICs in receivership. (Previously action #5)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
7
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Challenge 8. Effective tracking and enforcement would reduce financial losses
from loan agent fraud.
For years, OIG investigations have revealed a pattern of fraud in the 7(a) business loan guaranty program
by loan packagers and other for-fee agents. Fraudulent schemes have involved hundreds of millions of
dollars, yet SBA oversight of loan agents has been limited, putting taxpayer dollars at risk. The Agency
could reduce this risk by establishing effective loan agent disclosure requirements, a database or
equivalent means to track loan agent involvement with its loans, and a more effective agent enforcement
program.
In response to this Management Challenge, SBA had proposed to revise its E-Tran system (which is
designed to collect loan data electronically from participating lenders) to collect information on loan agent
involvement. The Agency concluded, however, that this would not address the problem due to limitations
in the E-Tran system and communication issues between lender personnel involved in loan decisions and
those performing E-Tran data entry. In addition, many lenders were not using E-Tran. In late FY 2007,
SBA proposed a new approach. The Agency intends to integrate the collection of data from the Form 159
(which asks for information about loan agents) into the Form 1502 process. The Form 1502 is an
electronically-submitted report that lenders submit to SBA’s Fiscal and Transfer Agent (FTA) to describe
the status of all SBA-guaranteed loans in their portfolios. This method of capturing the data is superior to
using the E-Tran system because: (1) the 1502 is first submitted after the initial loan disbursement, so a
lender should be aware of and able to report on loan agent activity, and (2) the 1502 is submitted by all
7(a) lenders. Accordingly, in FY 2008, the OIG issued the revised recommended action #1 below. SBA
made no progress on this action during FY 2008, in part due to a protest of the award of the FTA contract
to what would have been a new vendor. At the end of FY 2009, SBA devised a succinct plan for
implementing the 1502 approach.
In FY 2007, the Agency made progress by issuing its Lender Oversight SOP and by previously revising
the guaranty purchase checklist (which lists the records that lenders need to provide when requesting
SBA to pay a guaranty) to include the submission of the Form 159. However, the Agency also needs to
establish a more effective enforcement program to deter fraudulent loan agent activity. As a first step,
SBA issued for clearance at the end of FY 2009 a draft SOP revision with loan agent enforcement
procedures.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
05-0 06-0 07-1 08-1
2000
Status at end
Remaining Recommended Actions for FY 2010
of FY 2009
1. Develop an effective method of disclosing and tracking loan agent involvement in
Orange
the SBA business loan programs.
2. Implement procedures for enforcement actions against loan agents for improper
Orange
and fraudulent conduct. (Previously action #3)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
8
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Challenge 9. SBA needs to modernize its Loan Accounting System and migrate
it off the mainframe.
In November 2005, SBA initiated the Loan Management and Accounting System (LMAS) project, which is
the latest in a series of attempts to update the Agency’s Loan Accounting System (LAS) and migrate it off
of the mainframe. With an estimated cost of over $250 million, LMAS is SBA’s largest IT project. When
completed, it will increase functionality, reduce data entry redundancies, and allow real-time updates and
inquiry of loan data. Previous OIG reports have stressed the urgency of replacing the current loan
accounting system, which presents substantial risk to SBA. The system is dangerously close to the end
of its expected useful life, relies on obsolete technology, contains major security vulnerabilities that
cannot be addressed until the system is moved to a new operating platform, and is costly to operate.
Despite the cost and risks associated with the current system, SBA was unable to replace LAS prior to
the expiration of the mainframe contract in February 2007, and subsequently extended the contract to
2012. SBA also revised its acquisition strategy in May 2008 from a requirements-based approach to one
that relies on a provider to design a system that best meets SBA’s business objectives. Consequently,
the project is still in the planning phase. Additionally, recent OIG reports have raised concerns about how
the project was being managed. The OIG reported that the project did not comply with SBA’s System
Development Methodology in key quality assurance and earned value management areas, which
threatened SBA’s ability to control LMAS costs and quality. The OIG also reported that SBA had not
established either an enterprise-wide or project-level Quality Assurance (QA) function to ensure that
project deliverables meet SBA’s requirements and quality standards. Finally, the OIG reported that the
project lacked a defined process for reviewing and accepting deliverables that complied with SBA’s
Systems Development Methodology.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
N/A N/A N/A N/A
2010
Status at end
Recommended Actions for FY 2010
of FY 2009
1. Migrate LAS to a new operating platform before the current mainframe contract
New
expires in 2012.
2. Modify the LMAS QA/IV&V contract to require the contractor to report all findings
and recommendations to the Program Manager and an independent QA New
manager.
3. Establish a process for reviewing and accepting LMAS deliverables that complies
New
with SDM requirements.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
9
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OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 10. SBA needs to accurately report, significantly reduce, and
strengthen efforts to recover improper payments in the Disaster and 7(a) loan
programs.
Recent OIG audits of SBA’s Disaster and 7(a) Loan Programs determined that the improper payment
rates reported for these programs were significantly understated. SBA estimated that improper payments
in the Disaster Loan Program were about $4.5 million, or 0.55 percent of the $819.7 million in loans
approved in FY 2007, while the OIG reported that it was at least 46 percent, or approximately $1.5 billion.
SBA also reported that the improper payment rate for the 7(a) program was 0.53 percent of FY 2008
program outlays, although the OIG estimated the rate to be 27 percent, or approximately $234 million.
SBA’s improper payment rates were understated because the Agency did not adequately review sampled
loans, used flawed sampling methodologies, and did not accurately project review findings for both
programs. Additionally, the Office of Financial Assistance inappropriately overturned improper payments
identified by reviewers.
OIG audits in prior years have also identified high percentages of disaster and business loans that were
made to borrowers who were ineligible, lacked repayment ability, or did not provide the required
supporting documentation required for loan disbursement. In 2008, we reported that 63 percent of early
defaulted Gulf Coast loans reviewed went to individuals who lacked repayment ability, and that half of the
loans reviewed in another audit were disbursed without securing all the documentation needed to secure
SBA’s interest in the property. In 2009, we reported that over 30 percent of reviewed disaster loans were
disbursed for properties that were not the applicant’s primary residence. Further, audits in 2009 of SBA’s
post purchase and liquidation processes for 7(a) loans identified an estimated $30 million in improper
loan guaranty purchases. Finally, SBA has not aggressively pursued recovery of improper payments,
recovering only about 1 percent of the improper payments identified during its FY 2007 and FY 2008
improper payment reviews.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
N/A N/A N/A N/A
2010
Status at end of
FY 2009
Recommended Actions for FY 2010
Disaster 7(a)
1. Ensure that processes used to calculate the improper payment rate for
disaster and 7(a) loans are designed to identify all potential improper
New New
payments as defined by Office of Management and Budget (OMB) Circular A-
123.
2. Reassign responsibility for final approval of disputed denial, repair, and
improper payment decisions from the Office of Financial Assistance to the New New
Office of Risk Management.
3. Develop a process to ensure that reviewers are properly trained to perform
New New
improper payment reviews.
4. Develop and implement corrective action plans to reduce improper payments
New New
in the 7(a) and Disaster Loan programs.
5. Establish a process and time standards to expeditiously recover improper
New New
payments identified during Agency reviews and OIG audits.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
10
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104
OFFICE OF THE INSPECTOR GENERAL REPORTS
Appendix: Relevant Reports
Most of the SBA OIG reports listed can be found at
http://www.sba.gov/ig/onlinelibrary/oigreports/index.html
.
Challenge 1:
• SBA Advocacy, Analysis of Type of Business Coding for the Top 1,000 Contractors Receiving Small
Business Awards in FY 2002, December 2004.
• The Center for Public Integrity, The Big Business of Small Business: Top defense contracting
companies reap the benefits meant for small businesses, September 29, 2004.
• The Center for Public Integrity, The Pentagon’s $200 Million Shingle: Defense data shows billions in
mistakes and mislabeled contracts, September 29, 2004.
• SBA OIG, Audit of SBA's Administration of the Procurement Activities of Asset Sale Due Diligence
Contracts and Task Orders, Report #4-16, March 17, 2004, pp. 8-9.
• GAO, Contract Management: Reporting of Small Business Contract Awards Does Not Reflect Current
Business Size, GAO-03-704T, May 7, 2003.
• The Small Business Committee, U.S. House of Representatives Hearing, Are Big Businesses Being
Awarded Contracts Intended for Small Businesses? Testimony of Mr. Fred C. Armendariz, Associate
Deputy Administrator, SBA, May 7, 2003.
• The Small Business Committee, U.S. House of Representatives Hearing, Are Big Businesses Being
Awarded Contracts Intended for Small Businesses? Testimony of Mr. Felipe Mendoza, Associate
Administrator, Office of Small Business Utilization, U.S. General Services Administration, May 7,
2003.
• SBA OIG, SBA Small Business Procurement Awards Are Not Always Going to Small Businesses,
Report #5-14, February 24, 2005.
• SBA OIG, Review of Selected Small Business Procurements, Report #5-16, March 8, 2005.
Challenge 2:
• SBA OIG, Review of Allegations Concerning How the LMAS Modernization Project is Being
Managed, Report #9-17, July 30, 2009
• SBA OIG, System Access By Contractors Without Security Clearances, Report #9-07, January 26,
2009
• SBA OIG, SBA’s FY2008 Financial Statements-Management Letter, Report #9-05, December 17,
2008
• SBA OIG, SBA’s FY2008 Financial Statements, Report #9-03, November 14, 2008
• SBA OIG, SBA’s Implementation of an HSPD-12 Card Issuance System, Report #9-01, October 6,
2008
• SBA OIG, Planning for the Loan Management and Accounting System Modernization and
Development Effort, Report #8-13, May 14, 2008
• SBA OIG Audit of SBA’s FY 2007 Financial Statements, Report #8-03, November 15, 2007.
• SBA OIG, Audit of Controls Over Access to Employee Emails by SBA Managers, Report #8-02,
October 19, 2007.
• SBA OIG, Results of KPMG Vulnerability Assessment, Report #7-16, March 6, 2007.
• SBA OIG, FISMA Independent Evaluation for FY 2006, Report #7-14, February 9, 2007.
• SBA OIG, Memorandum Advisory Report on SBA’s Protection of Sensitive Information, Report #7-13,
February 9, 2007.
• Audit of SBA OIG, Audit of SBA’s Financial Statements for FY 2006, Report #7-03, November 15,
2006.
• SBA OIG, FISMA Independent Evaluation for FY 2005, Report #6-01, October 7, 2005.
• SBA OIG, Memorandum Advisory Report on SBA Needs to Implement a Viable Solution to its Loan
Accounting System Migration Problem, Report #5-29, September 30, 2005.
11
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105
OFFICE OF THE INSPECTOR GENERAL REPORTS
• SBA OIG, Audit of SBA’s Information System Controls for FY 2004, Report #5-12, February 24, 2005.
• SBA OIG, Audit of SBA’s Exchange Email System, Report #4-42, September 10, 2004.
• SBA OIG, Audit of Selected SBA General Support Computer Operating Systems, Report #4-41,
September 10, 2004.
• SBA OIG, Audit of SBA’s Information System Controls for FY 2003, Report #4-19, April 29, 2004.
• SBA OIG, Audit of SBA’s Information System Controls for FY 2002, Report #3-20, March 31, 2003.
Challenge 3:
• Partnership for Public Service, Best Places to Work in the Federal Government 2009,
http://data.bestplacestowork.org/bptw/index
• OPM, 2008 Federal Human Capital Survey (FHCS), http://www.fhcs.opm.gov/
• GAO, Opportunities Exist to Build on Leadership’s Efforts to Improve Agency Performance and
Employee Morale, GAO-08-995, September 2008
• SBA OIG, Non-Native Managers Secured Millions of Dollars from 8(a) Firms Owned by Alaska Native
Corporations through Unapproved Agreements that Jeopardize the Firms’ Program Eligibility, Report
#8-14, August 7, 2008
• SBA OIG, Audit of Two 8(a) Sole-Source Contracts Awarded to Contractors in SBA’s Mentor
Protégé Program, Report #7-19, March 30, 2007
• SBA OIG, Management Advisory Report on the Transfer of Operations to the National Guaranty
Purchase Center, Report #4-39, August 31, 2004
• GAO, Small Business Administration: Progress Made, but Transformation Could Benefit from
Practices Emphasizing Transparency and Communication, GAO-04-076, October 2003
• GAO, Results Oriented Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-699, July 2003
• GAO, Small Business Administration: Workforce Transformation Plan is Evolving, GAO-02-931T, July
16, 2002
• SBA OIG, Modernizing Human Capital Management, Report #2-20, May 31, 2002
• GAO, Small Business Administration: Current Structure Presents Challenges for Service Delivery,
GAO-02-17, October 2001
• GAO, Small Business Administration: Steps Taken to Better Manage its Human Capital, but More
Needs to be Done, GAO/T-GGD/AIMD-00-256, July 20, 2000
• SBA OIG, A Framework for Considering the Centralization of SBA Functions, November 1996
Challenge 4:
• SBA OIG, SBA’s Management of the Backlog of Post-purchase Reviews at the National Guaranty
Purchase Center, #9-18, August 25, 2009
• SBA OIG, , The Small Business Administration’s Fiscal Year 2008 Improper Payment Rate for the
7(a) Guaranty Loan Program #9-16, July 10, 2009
• SBA OIG, Review of Key Unresolved OIG Audit Recommendations in Program Areas Funded by the
American Recovery and Reinvestment Act and Related Activities Need to Safeguard Funds, #ROM
09-1, April 30, 2009
• SBA OIG, Audit of the Liquidation Process at the National Guaranty Purchase Center, #9-08, January
30, 2009
• SBA OIG, Audit of Six SBA Guaranteed Loans, #8-18, September 8, 2008
• SBA OIG, Audit of Loan Classifications and Overpayments on Secondary Market Loans, #8-09,
March 26, 2008
• SBA OIG, Audit of UPS Capital Business Credit’s Compliance with Selected 7(a) Lending
Requirements, #8-08, March 21, 2008
• SBA OIG, Audit of the Guarantee Purchase Process for Section 7(a) Loans at the National Guaranty
Purchase Center, Report #7-23, May 8, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-17, March 12, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-15, February 12, 2007
12
Agency Financial Report FY 2009
106
OFFICE OF THE INSPECTOR GENERAL REPORTS
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-10, January 16, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-09, January 9, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-07, December 29, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-06, December 28, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-05, December 20, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #7-02, October 23, 2006
• SBA OIG, Audit of Deficiencies in OFA’s Purchase Review Process for Backlogged Loans,
Report #6-35, September 29, 2006
• SBA OIG, Survey of the Quality Assurance Review Process, Report #6-26, July 12, 2006
• SBA OIG, Audit of SBA’s Implementation of the Improper Payments Information Act, Report #6-25,
June 21, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #6-22, May 17, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #6-17, March 20, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #6-16, March 20, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #6-14, March 2, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #5-26, September 28, 2005
• SBA OIG, Audit of an SBA Guaranteed Loan, Report #5-21, July 15, 2005
• SBA OIG, Management Advisory Report on the Transfer of Operations to the National Guaranty
Purchase Center, Report #4-39, August 31, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report #4-38, August 24, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report #4-33, July 30, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report #4-28, July, 9, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report #4-25, June 22, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report #4-06, January 8, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report #3-38, September 22, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report #3-30, June 19, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report #3-27, May 22, 2003
• SBA OIG, Audit of the Guaranty Purchase Process, Report #3-15, March 17, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report #3-07, January 23, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report #2-32, September 30, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report #2-30, September 24, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report #2-23, August 7, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report #2-15, March 29, 2002
• SBA OIG, Improvements are Needed in Small Business Lending Company Oversight Process,
Report #2-12, March 21, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report #2-03, February 27, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report #2-05, February 27, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report #1-10, March 9, 2001
• GAO, Major Management Challenges and Program Risks, GAO-01-260, January 2001
• SBA OIG, Audit of an Early Defaulted Loan, Report #0-10, April 23, 2000
• SBA OIG, Audit of an Early Defaulted Loan, Report #0-12, March 28, 2000
• SBA OIG, Audit of an Early Defaulted Loan, Report #0-05, February 14, 2000
Challenge 5:
• SBA OIG, SBA’s Oversight of SBA Supervised Lenders, Report #8-12, May 9, 2008
• SBA OIG, UPS Capital Compliance with Selected 7(a) Lending Requirements, Report #8-08, March
21, 2008
• GAO, Small Business Administration: Additional Measures Needed to Assess 7(a) Loan Program’s
Performance, GAO-07-769, July 13, 2007
• SBA OIG, SBA’s Oversight of Business Loan Center, LLC, Report #7-28, July 11,2007.
• SBA OIG, SBA’s Use of the Loan and Lender Monitoring System, Report #7-21, May 2, 2007.
13
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107
OFFICE OF THE INSPECTOR GENERAL REPORTS
• SBA OIG, Audit of the Office of Lender Oversight Corrective Action Process, Report #7-18, March 14,
2007.
• GAO, Small Business Administration: Improvements Made, But Loan Programs Face Ongoing
Management Challenges, GAO-06-605T, April 6, 2006
• SBA OIG, SBA’s Administration of the Supplemental Terrorist Activity Relief (STAR) Loan Program,
Report #6-09, December 23, 2005
• GAO, Small Business Administration: New Service for Lender Oversight Reflects Some Best
Practices, But Strategy for Use Lags Behind, GAO-04-610, June 8, 2004
• GAO, Continued Improvements Needed in Lender Oversight, Report #03-90, December 2002
• SBA OIG, Impact of Loan Splitting on Borrowers and SBA, Advisory Memorandum Report #2-31,
September 30, 2002
• SBA OIG, Improvements needed in SBLC Oversight, Advisory Memorandum Report, #2-12, March
20, 2002
• SBA OIG, Preferred Lender Oversight Program, Report #1-19, September 27, 2001
• SBA OIG, SBA Follow-up on SBLC Examinations, Report #1-16, August 17, 2001
Challenge 6:
• SBA OIG, Audit of Two 8(a) Sole –Source Contracts Awarded to Contractors in SBA’s Mentor
Protégé Program, Report #7-19, March 30, 2007.
• SBA OIG, Audit of Monitoring Compliance with 8(a) Business Development Regulations During 8(a)
Business Development Contract Performance, Report #6-15, March 16, 2006.
• SBA OIG, Business Development Provided by SBA’s 8(a) Business Development Program, Report
#4-22, June 2, 2004.
• SBA OIG, SACS/MEDCOR: Ineffective and Inefficient, Report #4-15, March 9, 2004.
• SBA OIG, Section 8(a) Program Continuing Eligibility Reviews, Report #4-3-H-006-021, September
30, 1994
Challenge 7:
• SBA OIG, Audit of SBIC Liquidations Process, Report #5-22, July 28, 2005
• SBA OIG, The SBIC Program: At Risk for Significant Losses, Report #4-21, May 24, 2004
• OMB, Small Business Administration: PART Assessment on the SBIC Program, February 2, 2004
• SBA OIG, FY 2003 Financial Statement Audit in the SBA FY 2003Performance and Accountability
Report, January 30, 2004, pp. 230-60
• SBA OIG, Audit of SBIC Oversight, Report #3-33, July 1, 2003
• GAO, Small Business: Update on SBA’s Small Business Investment Company Program, GAO/RCED-
97-55, February 1997
• GAO, Small Business Administration: SBA Monitoring Problems Identified in Case Studies of 12
SBICs and SSBICs, GAO/OSI-96-3, April 1996
• GAO, Small Business Administration: Better Oversight of SBIC Programs Could Reduce Federal
Losses, GAO/T-RCED-95-285, September 28, 1995
• GAO, Small Business Administration: Inadequate Oversight of Capital Management Services, Inc.-An
SSBIC, GAO/T-OSI-95-19, August 7, 1995
• GAO, Small Business Administration: Prohibited Practices and Inadequate Oversight in SBIC and
SSBIC Programs, GAO/OSI-95-16, May 28, 1995
• GAO, Small Business Administration: Inadequate Oversight of Capital Management Services, Inc.-An
SSBIC, GAO/OSI-94-23, March 1994
• SBA OIG, Audit Report on the Small Business Investment Company (SBIC) Liquidation Function,
Report #3-2-E-004-031, March 31, 1993
14
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OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 8:
• SBA OIG, Applicant Character Verification in SBA’s Business Loan Program, Report #3-43, April 5,
2001
• SBA OIG, Summary Audit of Section 7(a) Loan Processing, Report #0-03, January 11, 2000
• SBA OIG, Loan Agents and the Section 7(a) Program, Report #98-03-01, March 31, 1998
• SBA OIG, Fraud Detection in SBA Programs, Report #97-11-01, November 24, 1997
• SBA OIG, Operation Cleansweep Memorandum, August 21, 1996
Challenge 9:
• SBA OIG, Review of Allegations Concerning How the Loan Management and Accounting System
Modernization Project is Being Managed, Report #9-17 July 30, 2009
• SBA OIG, Planning for the Loan Management and Accounting System Modernization and
Development Effort, Report #8-13, May 14, 2008
• SBA OIG, SBA Needs to Implement a Viable Solution to its Loan Accounting System Migration
Problem, Report #5-29, September 20, 2005
• GAO, Information Technology: Agencies Need to Improve the Accuracy and Reliability of Investment
Information, GAO-06-250, January 12, 2006.
• GAO, Major Management Challenges and Program Risks: Small Business Administration, GAO-03-
116, January 1, 2003
• GAO, SBA Loan Monitoring System: Substantial Progress Yet Key Risks and Challenges Remain,
Testimony of Joel C. Willemssen, Director, Civil Agencies Information Systems Accounting and
Information Management Division, Before the Subcommittee on Government Programs Statement
Committee on Small Business, House of Representatives, GAO/T-AIMD-00-113, February 29, 2000
• GAO, SBA Needs to Establish Policies and Procedures for Key IT Processes, Accounting and
Information Management Division, GAO/AIMD-00-170, May 31, 2000
Challenge 10:
• SBA OIG, SBA’s Management of the Backlog of Post-Purchase Reviews at the National Guaranty
Purchase Center, Report #9-18, August 25, 2009
• SBA OIG, The Small Business Administration’s Fiscal Year 2008 Improper Payment Rate for the 7(a)
Guaranty Loan Program, Report #9-16, July 10, 2009
• SBA OIG, Audit of Borrower Eligibility for Gulf Coast Disaster Loans, Report #9-09, March 31, 2009
• SBA OIG, The Small Business Administration’s Fiscal Year 2007 Improper Payment Rate for the
Disaster Loan Program, Report #9-10, March 26, 2009
• SBA OIG, Audit of the Liquidation Process at the National Guaranty Purchase Center, Report #9-08,
January 30, 2009
• SBA OIG, The Use of Proceeds From Gulf Coast Disaster Loans, Report #9-06, January 15, 2009
• SBA OIG, Disaster Loss Verification Process, Report #8-15, June 17, 2008
• SBA OIG, Review of the Adequacy of Supporting Documentation for Disbursements, Report #8-07,
January 29, 2008
• SBA OIG, The Quality of Loans Processed Under the Expedited Disaster Loan Program, Report #7-
34, September 28, 2007
• SBA OIG, SBA’s Quality Assurance Reviews of Loss Verifications, Report #7-29, July 23, 2007
• SBA OIG, Securing Collateral for Disaster Loan Disbursements, Report #7-22, May 9, 2007
15
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109
OFFICE OF THE INSPECTOR GENERAL REPORTS
Agency Response to the OIG Report on
Management and Peformance Challenges
U.S. S MALL B USINESS ADMINISTRATION
O FFICE OF INSPECTOR GENERAL
WASHINGTON, D.C. 20416
November 9, 2009
October 16, 2009
To: Peggy E. Gustafson
Inspector General
MEMORANDUM
From: Eileen Harrington
TO: Chief Karen
Operating Officer
G. Mills
Administrator
Subject: FY 2010 OIG-Identified Major Management Challenges
Original signed by:
FROM: Peggy E. Gustafson
On October 16, 2009, the OIGGeneral
Inspector provided to the Administrator its report, entitled: “FY 2010 Report on the Most Serious
Management and Performance Challenges Facing the Small Business Administration.” The Challenge Report, which is
published in the Agency’s
SUBJECT: Annual
Fiscal Year Financial
2010 Report
Report on (AFR),
the Most provides a
Serious currentand
Management assessment of major Agency management
challenges that posePerformance
significant risks, including
Challenges those
Facing the that
Smallare particularly
Business vulnerable to fraud, waste, error, mismanage-
Administration
ment or inefficiencies. In FY 2009, SBA made progress on eight major challenges; for FY 2010, the OIG identified three
In accordance with the Reports Consolidation Act of 2000, we are providing you with the Office of
new challenges dealing with SBA’s Loan Management and Accounting System (LMAS), improper payments in the loan
Inspector Generals (OIG) Fiscal Year (FY) 2010 Report on the Most Serious Management and
programs, and internal
Performance controls.
Challenges Allthe
Facing 11 Small
challenges fall Administration
Business into two major(SBA).
risk categories:
This report represents our
current assessment of Agency programs and/or activities that pose significant risks, including those that
1. Those that posevulnerable
are particularly risk of losing taxpayers’
to fraud, money
waste, error, (i.e., guarantee
mismanagement purchase process,
or inefficiencies. lender oversight,
The Challenges are not loan agent
fraud, SBIC in
presented program
order ofrisk, improper
priority, as payments);
we believe that alland
are critical management or performance issues.
2. Those that pose risk of delivering inefficient programs (i.e., human capital, IT security, contracting loopholes, 8(a)
program execution,
Our report is based LMAS, andOIG,
on specific Agency internalAccountability
Government controls). Office (GAO), and other official reports, as
well as our general knowledge of SBAs programs and operations. Our analysis generally considers those
accomplishments that SBA reported as of September 30, 2009.
One of the Agency’s management goals is to create a transformed, high-performing organization that exercises cost-
effective stewardship
Within over itsChallenge
each Management resourcesthere
and offers transparent
are a series and accountable
of “recommended actions”service to its
to resolve thecustomers. SBA appreci-
ates the cooperation and work done by the OIG in helping the Agency to address successfully
Challenge. Each recommended action is assigned a color “status” score. The scores are as follows: its major management
challenges.
Green forInstituting
Implemented;sound internal
Yellow processes lead
for Substantial to reduced
Progress; government
Orange for Some risk; and
Progress; lowerRed
costfortoNothe taxpayer; and
reduced potential
Progress. An for waste,
upwards fraud
arrow andcolor
in the abuse.
boxThe Agency
indicates concurs
that the colorwith the OIG
score improvedReport, which
over last yearsreflects improvements
acrossreport. As part
the board andof the OIGsconsistent
a more continuingfocus
evaluation of the Management
on addressing Challenges,
the Challenges. certain Challenges
In addition to eliminating the last remain-
have been updated or revised. In addition, actions that were scored Green last year, and which remained
ing “red” rating and experiencing no deterioration in any single rating, SBA is pleased to report the following results:
Green this year, have been moved up to the “history bar” above the recommended actions. The history
bar highlights any progress that the Agency has made on a Challenge over the past four FYs (or as long as
1. Improved ratings in six of the 29 recommended actions in four of the eight Challenges; maintained “substantial” or
the Challenge has existed, if shorter) by showing the number of actions that have moved to Green each
“limited”
year. progress in the other four Challenges.
2. Achieved three green or “fully successful” ratings out of 29 actions.
3. Reduced thereport
This years number of recommended
contains actions from
three new Management 39 to 29,
Challenges downwith
dealing from
(1)136 in FY
SBAs 2004.
Loan Management
and Accounting System (LMAS) project; (2) improper payments in the Disaster and 7(a) loan programs;
Only and (3) internal
through controls. Since
our continued these three
collaboration Management
with Challenges
you and your staff canare
wenew, no color
create scores
a more have been
effective and efficient SBA.
assigned; the Agencys progress in resolving them will be assessed during FY 2010 and color scores will
Thank you and your staff for your continued commitment in helping us to improve our management environment.
be assigned in next years report.
Following is a summary of the FY 2010 report on the Agencys Most Serious Management and
Performance Challenges.
Agency Financial Report FY 2009 38
Agency Financial Report FY 2009
110
APPENDICES
Disaster Customer Service Center (Toll Free)
(800) 659 – 2955
The SBA home page is www.sba.gov.
Information on the programs may be accessed 504 504 Certified Development Company Loan
from this site. Several of the more frequently Program
visited sites are listed below: Provides small businesses with long-term, fixed
rate financing for the purchase of land, buildings
SBA INFORMATION and long-life capital equipment.
Who We Are and What We Do www.sba.gov/aboutsba
7(a) 7(a) Loan Guaranty Program
Find Your Local Office www.sba.gov/localresources/index.html
SBA’s primary loan program. It provides general
SBA’s Plans and Reports loan financing for a wide variety of purposes.
www.sba.gov/aboutsba/budgetsplans/index.html
SBA En Español www.sba.gov/espanol
8(a) 8(a) Business Development Program
Assists firms owned and controlled by socially and
Ombudsman www.sba.gov/ombudsman
economically disadvantaged individuals to enter
Online Library www.sba.gov/tools/resourcelibrary/index.html
and succeed in the economic mainstream.
FOR START-UP BUSINESSES A-123 Designation for OMB Circular on “Internal Control
Systems.” It prescribes policies and procedures to
What is a Small Business? www.sba.gov/starting/indexwhatis.html
be followed by executive departments and agencies
Starting Your Business www.sba.gov/starting/in establishing, maintaining, evaluating, improving,
Start-up Kit www.sba.gov/smallbusinessplanner/index.html
and reporting on internal controls in their program
On Line Training and administrative activities.
www.sba.gov/services/training/index.html
Outside Resources and Business Hotlinks www.sba.gov/hotlist/
AA Associate Administrator
AFMAC Audit and Financial Management Advisory
FOR ESTABLISHED BUSINESSES
Committee
Financing Your Business www.sba.gov/services/financialassistance
Assists the Administrator in overseeing SBA’s
Contracting www.sba.gov/services/contractingopportunities
financial operations.
Surety Bond www.sba.gov/services/financialassistance/suretybond/index.html
AFR Agency Financial Report
Business Opportunities www.sba.gov/expanding/
The name of one of the annual PAR reports.
APR Annual Performance Report
CONTRACTING WITH THE GOVERNMENT
A report required by the GPR that presents a fed-
Government Contracting www.sba.gov/GC eral agency’s progress in achieving the goals in its
PRO-Net: pro-net.sba.gov/ strategic plan and performance budget.
ARRA America’s Recovery Capital Loan Program
DISASTER ASSISTANCE A new temporary guarantied loan program autho-
Disaster Assistance www.sba.gov/services/disasterassistance
rized by the American Recovery and Reinvestment
Disaster Area Office Locations Act of 2009.
www.sba.gov/services/disasterassistance/officelocations
FEMA Information www.fema.gov
BATF Business Assistance Trust Fund.
A trust fund in the U.S. Treasury maintained to
Phone Numbers to Call receive and account for donations made by private
entities for activities to assist small business.
SBA Answer Desk (Toll Free) (800) 827-5722
APPENDICES
Appendix 1 The delegation of responsibility for the 7(a) guar-
anty program to SBA’s participating lenders na-
Improper Payments tionwide for the making, servicing and liquidation
of 7(a) loans causes a medium risk of improper
As required by the Improper Payments Information payments in the guaranty purchase process that is
Act, the SBA reviewed its payment programs for subject to SBA oversight, monitoring and atten-
improper payments during FY 2009. The SBA tion to identified discrepancies. The 7(a) guaranty
Inspector General’s reports issued this year on the purchase process operates in a center in Herndon,
sampling and test methodologies for improper Virginia that purchases defaulted 7(a) guarantied
payments were considered in the development loans and in centers in Fresno, California and
of the SBA’s FY 2009 improper payment results. Little Rock, Arkansas that purchase defaulted
Consequently, the SBA has restated some of the SBAExpress guarantied loans. The 7(a) guaranty
FY 2008 improper payment results in this year’s loan origination process is considered to be low risk
report and has changed the methodologies used with regard to the approval of loans that are deemed
in the statistical sampling process for the 7(a) and to be ineligible for the 7(a) program.
504 programs. In addition, the methodology used
for the disaster improper payment program was The risk of FY 2009 improper payments in the 504
changed to use disbursements of disaster loans CDC program is deemed by the SBA to be a low
rather than disaster loan approvals and to fully risk due to extensive controls that exist in the loan
consider documentation required in SBA’s Disaster origination process that include reviews by SBA
program procedures. program and legal professionals. This includes both
CDC debenture issuance and financings by CDCs
An Agency should: to the small concerns.
I. Briefly describe the risk assessment(s), performed The SBIC program has a low risk of improper pay-
subsequent to completing its full program inven- ments due to extensive internal controls, including
tory. List the risk-susceptible programs (i.e., legal review over guaranty issuance and default pur-
programs that have a significant risk of improp- chase activities. The SBIC examination program
er payments based on OMB guidance thresh- subjects SBICs to at least a biennial review of the
olds) identified through its risk assessments. Be SBICs investments in small business ventures.
sure to include the programs previously identi-
fied in the former Section 57 of Circular A-11 The Disaster program has a low risk of loss due to
(now located in Circular A-123, Appendix C). extensive, thorough operational controls over the
Please highlight any changes to risk assessment Disaster application, damage verification, credit
results that occurred since last years report. review and loan closing activities.
Response: The SBA’s four major credit programs II. Briefly describe the statistical sampling process
are included in the improper payments program. conducted to estimate the improper payment
They are: (1) 7(a) Business Loan Program, (2) 504 rate for each program identified. Please high-
Certified Development Company Program, (3) light any changes to the statistical sampling
Small Business Investment Company Program process that occurred since the last improper
and (4) Disaster Loan program. The first three payment report.
are loan guaranty programs and disaster is a direct
lending program. No other SBA programs meet Response: The 7(a) loan purchase statistical sam-
OMB guidance thresholds for improper payment pling process was changed in FY 2009 in response
reporting. There have been no changes in SBA’s risk to the SBA Inspector General’s report issued in July
assessment process since the last improper payment 2009 on the FY 2008 report. Last year’s improper
report. payment report applied the sampling guidance
in OMB Circular A-123 Appendix C directly
to SBA’s loan purchase program. This year the
Agency Financial Report FY 2009
113
APPENDICES
sampling process was enhanced in response to the tory provisions, SBA regulations, any agreement
OIG draft report. the lender executed with SBA, standard operating
procedures (SOPs), loan authorizations, and of-
The 7(a) and 504 CDC populations contain ficial SBA notices and forms applicable to the 7(a)
loan types that are not homogeneous and exhibit loan program. The reviews were to determine if
skewed distributions in loan size. That is, large the lender (1) originated the loan in a prudent and
loans constitute a relatively smaller percentage of commercially reasonable manner, (2) misrepresent-
the populations by count, but a larger percentage ed or failed to disclose a material fact to SBA, and/
by dollar amount. Therefore, the SBA stratified or (3) put SBA’s financial interest at risk.
the data on several key variables and used a sam-
pling method known as Probability Proportional For 7(a) guarantied loan approvals the sample cases
to Size sampling with replacement. This is a were chosen using PPS Sampling with replacement
sampling technique in which the probability that from all loan guaranties approved during the 12
a particular loan will be selected for the sample is month period ended March 31, 2009. The loan
proportional to the population size of the corre- guaranties were approved through SBA’s loan pro-
sponding strata. By using PPS, the SBA attempts cessing centers, consisting of the Standard 7(a) Loan
to create a comprehensive sample that addresses Guaranty Processing Center with dual locations in
the fact that different types of loans may have Sacramento, California and Hazard, Kentucky; and
unequal improper payment probabilities. the Sacramento, California Loan Processing Center
which handles PLP and SBAExpress loan approvals.
For 7(a) purchase reviews, the sample cases were The approval population was divided into five strata
chosen using PPS sampling with replacement based on the loan delivery method. The 7(a) loan
from all purchases approved during the 12 month delivery methods are SBA Express, Community
period ended March 31, 2009. The purchase Express, Patriot Express, Preferred Lender Program,
population was divided into twelve strata based and all others. The SBA determined the appro-
on the following three factors: (1) which servic- priate total sample size to be 112 loans from the
ing office processed the purchase, (2) whether the population. The base sample size was 110 as de-
purchase process was streamlined, and (3) whether termined by the SBA in the FY 2008 AFR. Using
the loan was considered an early default. Using the PPS sampling process within strata, the SBA
the PPS approach, the SBA determined the ap- rounded up when a fractional loan was selected in
propriate total sample size to be 203 loans from any stratum. Therefore, the final sample size for FY
the population. The sample included aggregate 2009 was 112. The estimated improper payments
purchase outlays of $89,774,114 and improper rate for the annual period ending March 31, 2009
payments of $3,014,571 within the sample. Using was calculated as 0 percent based on the aggregate
the Hansen-Hurwitz estimation method, the gross disbursement amount of $90,321,505 on the
estimated improper payment rate for the 7(a) approved loans with no improper payments found.
guaranty purchase population is 3.81 percent for
the annual period ending March 31, 2009. SBA’s For 504 CDC approval reviews, the sample cases
previous improper payment rates were calculated were chosen using PPS sampling with replacement
at 0.53 percent for FY 2008 (now adjusted to 3.2 from all loan guaranties approved during the 12
percent in connection with the audit by SBA’s month period ended March 31, 2009. The loan
Office of Inspector General), 0.43 percent for fiscal guaranties were approved at the SBA’s Sacramento
year 2007, and 1.56 percent for fiscal year 2006. loan processing center and closed at various SBA
district offices, with servicing subsequently han-
The 7(a) loan guaranty purchase and approval dled by the Fresno, California Commercial Loan
reviews were conducted to examine whether the Servicing Center and the Little Rock, Arkansas
lender complied materially with the 7(a) loan Commercial Loan Servicing Center. The approval
program origination requirements including statu- population was divided into three strata based on
Agency Financial Report FY 2009
114
APPENDICES
the loan delivery method. The 504 loan delivery loan disbursements from the period July 1, 2008
methods are Accredited Lenders Program, Premier to June 30, 2009 was used. The scope of the QAR
Certified Lenders Program, and Regular. The SBA covers three compliance areas: (1) basic eligibility,
determined the appropriate total sample size to be (2) adherence to relevant laws, rules, regulations
49 loans from the population. The base sample and standard operating procedures, and (3) cred-
size was 48 as determined by the SBA in the FY itworthiness. The total number of loans disbursed
2008 AFR. Using the PPS sampling process within was 20,425 and the total value of disbursements
strata, the SBA rounded up when a fractional loan was $806 million. The improper payment rate
was selected in any stratum. Therefore, the final determined was 20.9 percent or $168.5 million in
sample size for FY 2009 was 49. The estimated im- improper payments.
proper payments rate for the annual period ending
March 31, 2009 was calculated as 0 percent based III. Describe the Corrective Action Plans for:
on the aggregate gross disbursement amount of a. Reducing the estimate rate and amount of
$61,951,000 on the approved loans with no im- improper payments for each type of root
proper payments found. cause of error (e.g. Administrative and
The SBIC program used OMB guidance to deter- Documentation errors, Authentication and
mine a random sample of 95 SBIC financings by Medical Necessity errors, and Verification and
SBICs having SBA guarantied leverage during the Local Administrative errors). This discussion
period July 1, 2008 to June 30, 2009. Improper must include the corrective action(s) for each
payments were identified when an SBIC examina- different type of root cause of error. If efforts
tion or a review by a SBIC program analyst found are ongoing, it is appropriate to include that
a discrepancy with SBIC program regulations in information in this section and to highlight
the sampled financings. About 48 percent of the current efforts, including key milestones.
sampled financings were subjected to an SBIC ex- b. Grant-making agencies with risk susceptible
amination during the year. The rest of the sampled grant programs, discuss what your agency has
financings were reviewed by SBIC program ana- accomplished in the area of funds stewardship
lysts. The program analysts reviewed term sheets past the primary recipient. Include the status
(which include the terms of the financings), Forms on projects and results of any reviews.
468 financial statements, Forms 1031s reports of in-
dividual financings and other material to determine A. Response: The 7(a) guaranty purchase process
compliance with regulatory requirements. The improper payments program includes identifying
reviews revealed one potential erroneous payment and tracking the reasons for any improper pay-
among the sampled financings involving a possible ments discovered in the IPIA reviews, and then
pre-payment penalty that constituted $1,000,000 making appropriate adjustments to the guaranty
of the $88,004,157 in financings sampled, or 1.1 purchase process to reduce the purchase error rate
percent of the total. in future years. Improper payments in the guar-
anty purchase process arise from the failure of a
The Disaster program improper payment rate was purchase processor to identify material lender defi-
determined using the Disaster Quality Assurance ciencies in the handling of an SBA guarantied loan.
Review program that reviews the approved loan Primary reasons noted for the determination that
portfolio annually to identify any deficiency that all or a portion of the guaranty purchases identified
would result in an improper payment. As a result as improper were:
of an audit by SBA’s Inspector General, beginning
in FY 2009, the Disaster program improper pay- yyImproper use of proceeds (not in accordance
ments are based on disaster loan disbursements, not with loan authorization).
disaster loan approvals as in prior years. Following
OMB guidance, a sample of 245 randomly selected
Agency Financial Report FY 2009
115
APPENDICES
yyFailure to maximize recovery on loan collateral payments in 7(a) loan processing and 504 loan
in liquidation proceedings. originations because of multiple reviews that take
yyIncomplete documentation to justify lender place when a loan is being processed.
action.
The SBIC guaranty program had one potential er-
yyUnderpayment of interest owed lender. roneous payment. Over the four-year period that
yyFailure to verify borrower financial this sampling methodology has been used, there
information using IRS tax transcripts. have only been two instances of potentially errone-
yyDisbursement of guaranty purchase without ous payments. The SBA expects that this minimal
required SBA Form 1919 for SBAExpress number of erroneous payments will continue to
loan. be the case and has instituted a number of steps to
Corrective action procedures followed for the 7(a) ensure that. First, in the early to mid 1990s, more
guaranty purchase process involve advising the rigorous program standards were instituted. This
purchase processing team of improper payment has led to more knowledgeable fund managers
determinations and also providing clarification as to and reduced the likelihood that program fraud
the nature of the issues to avoid possible improper would be committed. Second, the SBA requires
payments in the future. In this regard, a fully docu- all fund managers to undergo training on regula-
mented guaranty purchase procedure handbook tions as a condition for receiving leverage. Almost
has been completed, including transcript analysis all SBICs are represented by very knowledgeable
instructions, and is updated as needed. This assures service providers who have extensive experience
consistency in the purchase process and will serve to in the program. As part of the licensing process,
minimize errors. In addition, the purchase centers the SBA conducts extremely detailed background
are two years into a process of lean six sigma based checks on fund managers with both the Office of
continuous improvement to enhance standardiza- the Inspector General and the Federal Bureau of
tion and reduce deviations. Other remedial actions Investigation. The SBA also does credit checks
include: on all potential fund managers as part of the due
diligence process in licensing. The SBA has a
yyidentify and analyze error patterns, program of auditing licensees on a periodic basis
yycommunicate error patterns to the centers to determine compliance. These steps ensure that
processing purchases, only fiscally prudent managers become part of the
yyreview current policies and procedures to program.
ensure that any error patterns are appropriately
addressed in current guidance, The Disaster program improper payment rate in FY
2009 is substantially greater than reported in prior
yyrevise policies and procedures where necessary,
years. The increased rate does not reflect a greater
yyissue guidance to the purchase centers on risk in the portfolio, only that the SBA is classify-
specific issues, ing improper payments differently than in the past.
yyprovide training, and In prior years improper payments represented loan
yysupplement center resources where possible funds that were disbursed to a borrower that based
to ensure ongoing quality assurance review on Standard Operating Procedures were not appro-
programs that will identify any emerging priate. In FY 2009 the majority of errors identified
patterns or potential problem areas that were the result of missing loan documentation.
might result in future improper payments, as The errors generally do not have an impact on the
well as take action to mitigate these potential eligibility of the borrower to receive the funds or
problem areas. the willingness and/or ability of the borrower to
7(a) loan guaranty approvals and CDC loan ap- repay the disaster loan. The SBA has instituted ad-
provals had no improper payments. There appear to ditional training to ensure that staff is aware of all
be sufficient safeguards in place to prevent improper paperwork requirements and the proper steps to
Agency Financial Report FY 2009
116
APPENDICES
be taken to waive requirements when appropriate. (ii) where no measurement is provided, agency
Additionally, a new quality assurance team report- should indicate the date by which a mea-
ing to the Disaster Headquarters office is being surement is expected;
assembled to provide an independent review of the
Disaster processing center. The improper payment (iii) if the Current Year (CY) is the baseline
review will then be completed more frequently measurement year, indicate by either note or
than annually allowing corrective actions to be by “n/a” in the Prior year (PY) column;
implemented in a timely manner. (iv) if any of the dollar amounts(s) included in
B. Response: The SBA does not have any report- the estimate correspond to newly established
able grant programs under risk susceptible OMB measurement components, separate the two
guidance. However, the Agency does employ in- amounts to the extent possible;
ternal control measures to address improper grant (v) include outlay estimates for CY+1, +2 and
payments. +3; and
IV. Program improper Payment Reporting (vi) agencies are expected to report on CY activ-
(a) The table below is required for each report- ity, and if not feasible, the PY activity is
ing agency. Agencies must include the fol- acceptable. (future year outlay estimates
lowing information: (CY+1, +2 and +3) should match the
outlay estimates for those years as reported
(i) all risk susceptible programs must be listed in the most recent President’s Budget.)
in this chart whether or not an error mea-
surement is being reported; Response: The SBA’s report of improper payments
is shown in the following table.
Improper Payment Reduction Outlook ($ in millions)
1 1 1 1
FY08 FY08 FY08 FY091 FY09 FY09 FY10 FY10 FY10 FY11 FY11 FY11 FY12 FY12 FY12
Program
$ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP
7(a) Guaranty 1,230.9 3.206 39.46 1,805.4 3.816 68.8 1,900.0 3.50 66.5 1,800.0 3.25 58.5 1,700.0 3.00 51.0
Purchases1
7(a) Guaranty 11,739.1 0.0 0.0 8,934.7 0.0 0.0 12,000.0 0.0 0.0 13,000.0 0.0 0.0 14,000.0 0.0 0.0
Approvals2
CDC 5,245.6 NA NA 3,820.6 0.0 0.0 4,000.0 0.0 0.0 4,500.0 0.0 0.0 5,000.0 0.0 0.0
Debentures3
CDC Loans 5,245.6 0.0 0.0 3,820.6 0.0 0.0 4,000.0 0.0 0.0 4,500.0 0.0 0.0 5,000.0 0.0 0.0
Guarantied2
SBIC 2,283.0 0.0 0.0 1856.0 1.1 20.4 1,800.0 1.0 18.0 1,750.0 1.0 17.5 1,750.0 1.0 17.0
Guaranties4
Disaster Loan 825.3 .74 6.1 806.0 20.96 168.5 800.0 16.7 133.6 800.0 13.3 106.4 800.0 10.7 85.6
Approvals5
1. Outlays in this report represent the base amount of the program activity related to SBA improper payments; and this amount will differ from the amount reported as outlays in SBA’s
President’s Budget submissions because they include reestimates of subsidy cost, reimbursements to SBA administrative funds and other costs. Outlays for 7(a) Guaranty Purchases
are the amount of disbursements for the purchase of defaulted guarantied loans. Outlays for 7(a) Guaranty Approvals are the amount of new guaranty approvals by banks and other
SBA lending partners. Outlays for CDC Debentures and CDC Loans Guarantied are approvals irrespective of disbursement, net of approval increases, decreases, reinstatements and
cancellations for the current year. Outlay figures for Disaster are loan disbursements.
2. Beginning with FY 2007, 7(a) and CDC reporting includes guaranties approved.
3. SBA has zero improper payments assumed for CDC debentures
4. SBIC guaranties include SBA guaranties of SBIC investments in small business for SBICs having SBA leverage.
5. Disaster Loan Approvals projected for FY 2010 thru FY 2012 reflects a historical average level.
6. The SBA Inspector General issued audit reports on the 7(a) and disaster improper payment programs in July and March 2009. As a result of findings and recommendations in these
reports the SBA has changed its methodology used in both of these programs for sampling and testing improper payments. As a result the improper payment rates and dollars have
increased in FY 2009 reflecting these changes. In addition, the 7(a) Guaranty Purchase program FY 2008 improper payment rate is restated reflecting the findings and conclusions
from the IG audit (3.20 versus 0.53 percent). The MD&A section of this report has additional information on the consequences of the IG audits.
Agency Financial Report FY 2009
117
APPENDICES
(b) Discuss you agency’s recovery of improper very rare step and has not been necessary for the
payments, if applicable. Include in your most part.
discussion the dollar amount of cumula-
tive recoveries collected beginning with FY The Disaster program improper payments are gen-
2004. erally the result of loan documentation errors and
do not result in a disaster victim receiving funds
Response: For 7(a) guaranty purchases, the SBA that they are not eligible to receive. The disaster
has established a recovery target of 85 percent loan program operation has a built in recovery
of the aggregate amount of improper payments system in that the majority of loans made are col-
identified by March 30, 2010 (and will pay the lateralized and all loans have to be repaid.
lender two small underpayments noted). While
SBA will attempt to recover 100 percent of the V. Discuss your agency’s recovery auditing
amounts identified as overpayments (with the effort, if applicable, including any contract
exception of the purchase where no loan file has types excluded from review and the justifica-
yet been located), litigation may be necessary in tion for doing so; actions taken to recoup
some instances with uncooperative lenders and improper payments, and the business process
additional information may be presented which changes and internal controls instituted and/
could indicate that all or a portion of a disburse- or strengthened to prevent further occurrences.
ment is not actually improper. Also, decisions may In addition complete the table below.
be made when appropriate to accept reasonable
settlements of improper payment claims rather
Amount subject to Review Actual Amount Reviewed
than to pursue protracted recovery proceedings.
Amount Recovered PYs
Cumulative Amount
Amount Recovered CY
Amount Identified for Amount Identified for Cumulative Amount
Procedures for Recovery of 7(a) guaranty purchas-
Agency component
Identified for Recovery
es: SBA will make formal written demand upon
for CY Reporting and Reported CY Recovery CY Recovery PYs Recovered (CY + PYs)
and/or engage in discussions with 7(a) lenders it
identifies as having received improper payments. (CY + PYs)
If a lender refuses to return a payment, litigation or N/A N/A N/A N/A N/A N/A N/A
other action will be explored if analysis determines
that such action will be cost effective and there will Response: Recovery auditing is a control tech-
be a reasonable chance for the Agency to prevail. nique to identify improper contractor payments
The litigation office in SBA’s Office of General and initiate recovery actions where appropri-
Counsel will conduct this analysis ate. Even though SBA does not meet the OMB
The SBA has a recovery program for the SBIC threshold for recovery auditing, SBA does employ
program and current recovery efforts are very internal control measures to address improper con-
effective. Most regulatory violations are resolved tract payments.
in a fairly short time frame. The resolution can be VI. Describe the steps the agency has taken and
in a number of ways. The violation may be deter- plans to take (including time line) to ensure
mined not to be a violation of the regulations after that agency managers (including the agency
further study. In other instances, the SBIC may be head) are held accountable for reducing and
asked to change the terms of the investment in the recovering improper payments.
portfolio concern in a manner that resolves the is-
sue. If the situation cannot be corrected, the SBIC Response: The SBA’s Strategic Goal 4 is to assure
may be asked to divest its interest in the portfolio SBA programs operate efficiently and effectively,
concern. In very rare instances, the SBIC might be including compliance with federal regulations im-
found to be in default of its covenants and trans- proper payment guidelines. The strategic goals are
ferred to the Office of SBIC Liquidations, where included in annual performance plans for all of its
recovery efforts will be implemented. This is a programs as business objectives, and these business
Agency Financial Report FY 2009
118
APPENDICES
objectives are included in employee performance making and disbursement function, and are
plans. SBA management monitors accomplish- responsible for the relatively minimal amounts of
ment of its business objectives in its performance unauthorized and/or ineligible loans. In addition,
plan using its performance management process, the Disaster Loan Program, by its very nature,
and action is taken when progress is not on target. legally obligates the recipient of any disaster loan
Executive and management bonuses are based (or any IP portion of a disaster loan) to pay back
on the accomplishment of business objectives all the loan funds whether the loan contains any
included in employee annual performance plans. Improper Payments or not. Not only is there a
This management process assures accountability of legally binding contract (between the government
improper payment administration. and the SBA) to repay the loan, the contract is usu-
ally secured by real estate collateral which further
For the SBIC program, operations analysts are strengthens the government’s recovery position.
evaluated, in part, on the resolution of regula- Accordingly, an ODA recovery auditing effort is
tory violations in a timely manner. They are also not applicable because each loan contract legally
evaluated, in part, on responding to requests for assures recovery of the entire loan (with interest)
clarification on regulations by licensees. Although as soon as the loan agreement is signed – notwith-
examiners are not evaluated on the number of standing the circumstances.
violations they uncover, they are evaluated on
the number of exams they perform. The Agency VII. Agency information systems and other
believes the assistance provided by the operations infrastructure
analysts and the approximately annual exams for
leveraged SBICs provide an incentive to perform A. Describe whether the agency has the informa-
within the framework of the regulations. tion systems and other infrastructure it needs
to reduce improper payments to the levels the
For the Disaster program, it is important to note: agency has targeted.
The majority of improper payments identified thru
annual Quality Assurance Reviews indicate mini- Response: SBA’s 7(a) program Guaranty Purchase
mal findings of unauthorized and/or ineligible Tracking System supports the 7(a) guarantied loan
loans. Disaster program internal controls include purchase process very well, and it is continually
the following: updated to enhance the overall integrity of the
purchase process. The 504 program software used
yyDisaster related damages are verified onsite by the Central Servicing Agent is owned by the
by SBA staff. The cost to repair and/or SBA. Therefore the Agency has a higher level of
replace the disaster damaged property is control over that software than would typically ex-
determined by SBA construction analysts. ist with contractor owned systems. In addition the
yyDisaster procedures also include credit contractor provides audited financial statements
checks, verification of income, verification and a SAS 70 report to verify its system. The
of ownership and checks with FEMA SBIC program maintains a data system that tracks
to ensure that federal assistance is not exams, exam findings and resolution of exam find-
duplicated during loan processing and ings. All individuals are empowered to refer any
disbursement of all disaster loan funds. case of suspected fraud to the Inspector General.
yyEvery secured disaster loan is reviewed by The Disaster loan program does have the informa-
disaster staff attorneys for legal sufficiency tion systems and other infrastructure it needs to
and the use of electronic funds transfer is reduce improper payments to targeted levels. For
utilized to prevent lost and stolen checks. example, ODA is engaged in an ongoing process
of developing and has already implemented an
Disaster program internal controls (checks and integrated, electronic loan processing system to
balances) have always been a part of its loan streamline, enhance and improve the loan-making
Agency Financial Report FY 2009
119
APPENDICES
process. This system will support workflow VIII. Describe any statutory or regulatory barri-
management, electronic file management and ers which may limit the agencies’ corrective
document generation functions. In fact, a Quality actions in reducing improper payments and
Assurance Task Force partnered with the Disaster actions taken by the agency to mitigate the
Credit Management System development team to barriers’ effects.
improve the Quality Assurance process with a goal
to minimize future Improper Payments events as Response: Not applicable. The SBA does not
much as possible. As a result, many of the busi- have any statutory or regulatory barriers limiting
ness rules that govern the programming of this improvement to its performance on improper pay-
new system have been designed to help improve ments initiative.
the Quality Assurance process. The DCMS will IX. Additional comments, if any, on overall
significantly impact the disaster assistance pro- agency efforts, specific programs, best prac-
gram and the manner in which it delivers services tices, or common challenges identified, as a
to disaster victims. result of IPIA implementation.
B. If the agency does not have such systems Response: No additional comments.
and infrastructure, describe the resources the
agency requested in its most recent budget
submission to Congress to obtain the neces-
sary information systems and infrastructure.
Response: Although SBA’s existing systems are
used to adequately manage its programs to avoid
improper payments, the SBA has requested ad-
ditional funding in its FY 2011 budget request
to support the implementation of the Loan
Management and Accounting System. This is an
important systems project that will require signifi-
cant additional budget authority in SBA’s budgets
through FY 2014. LMAS will enhance SBA’s
administrative and loan receivables information
systems that will support and improve improper
payment identification and results.
Agency Financial Report FY 2009
120
APPENDICES
Appendix 2 – Contact SBA: Useful Sites and Numbers
The SBA home page is www.sba.gov. Information on the programs may be accessed from this
site. Several of the more frequently visited sites are listed below:
SBA INFORMATION
Who We Are and What We Do www.sba.gov/aboutsba
Find Your Local Office www.sba.gov/localresources/index.html
SBA’s Plans and Reports www.sba.gov/aboutsba/budgetsplans/index.html
SBA En Español www.sba.gov/espanol
Ombudsman www.sba.gov/ombudsman
Online Library www.sba.gov/tools/resourcelibrary/index.html
FOR START-UP BUSINESSES
What is a Small Business? www.sba.gov/starting/indexwhatis.html
Starting Your Business www.sba.gov/starting/
Start-up Kit www.sba.gov/smallbusinessplanner/index.html
On Line Training www.sba.gov/services/training/index.html
Outside Resources and Business Hotlinks www.sba.gov/hotlist/
FOR ESTABLISHED BUSINESSES
Financing Your Business www.sba.gov/services/financialassistance
Contracting www.sba.gov/services/contractingopportunities
Surety Bond www.sba.gov/services/financialassistance/suretybond/index.html
Business Opportunities www.sba.gov/expanding/
CONTRACTING WITH THE GOVERNMENT
Government Contracting www.sba.gov/GC
PRO-Net: pro-net.sba.gov/
DISASTER ASSISTANCE
Disaster Assistance www.sba.gov/services/disasterassistance
Disaster Area Office Locations www.sba.gov/services/disasterassistance/officelocations
FEMA Information www.fema.gov
Phone Numbers to Call:
SBA Answer Desk (Toll Free) (800) 827-5722
Disaster Customer Service Center (Toll Free) (800) 659 – 2955
Agency Financial Report FY 2009
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APPENDICES
Appendix 3 – Glossary of Acronyms and Abbreviations
504 504 Certified Development Company Loan BD Business Development
Program The Office of Business Development uses SBA’s
Provides small businesses with long-term, fixed statutory authority to provide business development
rate financing for the purchase of land, buildings and federal contract support to small disadvan-
and long-life capital equipment. taged firms.
7(a) 7(a) Loan Guaranty Program BDMIS Business Development Management
SBA’s primary loan program. It provides general Information System
loan financing for a wide variety of purposes. The system that automates the certification and
annual review process for the 8(a) program.
8(a) 8(a) Business Development Program
Assists firms owned and controlled by socially and BLIF Business Loan and Investment Fund
economically disadvantaged individuals to enter Fund operated by the Treasury Department to
and succeed in the economic mainstream. maintain the accounting records of loans approved
prior to 1992.
A-123 Designation for OMB Circular on “Internal Control
Systems.” It prescribes policies and procedures to CA Capital Access (See OCA)
be followed by executive departments and agencies CDC Certified Development Company
in establishing, maintaining, evaluating, improving, Refers to the Section 504 Certified Development
and reporting on internal controls in their program Company debenture program.
and administrative activities.
CFO Chief Financial Officer
AA Associate Administrator The CFO is responsible for the financial leadership
AFMAC Audit and Financial Management Advisory of the Agency. This includes responsibility for all
Committee Agency disbursements, management and coordi-
Assists the Administrator in overseeing SBA’s nation of Agency planning, budgeting, analysis and
financial operations. accountability processes
AFR Agency Financial Report CFR Code of Federal Regulations
The name of one of the annual PAR reports. The codification of the general and permanent
rules published in the Federal Register by the
APR Annual Performance Report executive departments and agencies of the federal
A report required by the GPR that presents a fed- government.
eral agency’s progress in achieving the goals in its
strategic plan and performance budget. CIO Chief Information Officer
The CIO is responsible for the management of in-
ARRA America’s Recovery Capital Loan Program formation technology for the Agency, including the
A new temporary guarantied loan program autho- design, implementation and continuing successful
rized by the American Recovery and Reinvestment operation(s) of information programs and initiatives.
Act of 2009.
CLA Office of Congressional and Legislative
BATF Business Assistance Trust Fund. Affairs
A trust fund in the U.S. Treasury maintained to The CLA assists in the development and enactment
receive and account for donations made by private of SBA legislative proposals and serves as the
entities for activities to assist small business. liaison for SBA’s communications on all legislative
and congressional activities.
Agency Financial Report FY 2009
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APPENDICES
COO Office of the Chief Operating Officer FBCI Faith-Based and Community Initiatives
The office promotes SBA partnerships with faith-
COOP Continuity of Operations Plan based and neighborhood organizations to help
A predetermined set of instructions or procedures people receive training and credit assistance.
that describe how an organization’s essential func- In accordance with an Executive Order issued in
tions will be sustained for up to 30 days following a February 2009, the name will change to the Center
disaster and then return to normal operations. for Faith-Based and Neighborhood Partnerships.
CRC Civil Rights Center FCRA Federal Credit Reform Act
The CRC administers and enforces various federal A law enacted to provide a more realistic picture of
statutes, regulations, and Executive Orders that the cost of U.S. government direct loans and loan
relate to nondiscrimination and equal opportunity. guaranties.
DAIP Disaster Assistance Plan FECA Federal Employees’ Compensation Act
Executive Order 13411 mandates that the federal Provides compensation benefits to federal civilian
agencies create a single application that fulfills the employees for work-related injuries or illnesses
information requirements of all applicable federal and to their surviving dependents.
disaster assistance programs.
FEMA Federal Emergency Management Agency
DCMS Disaster Credit Management System The agency that is tasked with responding to,
The electronic system used by the SBA to process planning for, recovering from and mitigating
loan applications for all new disaster declarations. against disasters.
DCIA Debt Collection Improvement Act FERS Federal Employees’ Retirement System.
A federal law to maximize collections of delinquent A three-tiered retirement plan for federal employ-
debts owed to the government. ees hired after 1984, composed of Social Security
DFP Dealer Floor Plan benefits, a basic benefit plan, and contributions to
A small pilot program to make revolving loans to a TSP.
retail dealerships including automobile dealers that FFMIA Federal Financial Management
began in July 2009. Improvement Act of 1966
DLF Disaster Loan Fund A law that requires each agency to implement and
Assists eligible small businesses impacted by maintain financial management systems that com-
disasters. ply substantially with federal financial management
systems requirements, applicable federal account-
ECCB Enterprise Change Control Board ing standards, and the USSGL.
The ECCB is in charge of the administration of the
centeralized network accounts for the SBA. FHCS Federal Human Capital Survey
A survey administered by OPM, to measure federal
EEO Equal Employment Opportunity employees’ perceptions about how effectively
agencies have managed their workforces.
ELA Electronic Loan Application
Simplifies the application process by providing FICA Federal Insurance Contribution Act
electronic loan applications. The law establishing a social security tax, a largely
self-supporting program for employees.
FASAB Federal Accounting Standards Advisory
Board FMFIA Federal Managers Financial Integrity Act
Promulgates accounting principles for federal Requires ongoing evaluations and reports on the
government reporting entities. adequacy of the internal accounting and adminis-
trative control systems of executive agencies.
Agency Financial Report FY 2009
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APPENDICES
FPDS Federal Procurement Data System LMS Loan Monitoring System
Aids the SBA in managing its core loan guaranty
FT Fiscal Transfer Agent programs and serves as one of the building blocks
FY Fiscal Year in the overall systems modernization project.
The SBA fiscal year begins on October 1st and MAS Multiple Awards Schedule
ends the following September 31th.
MAX Budget Information System
GAO U.S. Government Accountability Office OMB uses the MAX Budget Information System to
The audit, evaluation and investigative arm of collect, validate, analyze, model and publish budget
Congress. Information.
GC/BD Office of Government Contracting and MD&A Management’s Discussion and Analysis
Business Development The MD&A is considered required supplementary
GB/CD works to cerate an environment fro maxi- information for federal financial statements and is
mum participation by small, disadvantaged and designed to provide a high level overview of the
woman-owned business in Federal Government Agency.
contract awards and large prime subcontract
awards. MRA Master Reserve Account
SBA’s fiscal agent maintains this escrow fund to
GSA General Services Administration facilitate the operation of the Certified Development
GWAC Government wide Acquisition Contract Company program.
HUBZone Historically Underutilized Business-Zone MRF Master Reserve Fund
Program SBA’s fiscal and transfer agent maintains this
Encourages economic development by the estab- reserve fund to facilitate the operation of the 7(a)
lishment of federal contract award preferences secondary market program.
for small businesses located in historically under- NAICS North American Industry Classification
utilized business zones. System
IP Improper Payments NAICS is the standard used by federal statistical
(See IPIA) agencies in classifying business establishments
for the purpose of collecting, analyzing, and pub-
IPA Independent Public Accountant lishing statistical data related to the U.S. business
A firm or person, other than the agency’s IG, who economy.
meets the independence standards specified in
GSA, and is engaged to perform the audit of a NGPC National Guaranty Purchase Center
federal agency or for other purposes. SBA’s centralized loan guaranty purchase process-
ing center.
IPIA Improper Payment Infraction Act
A federal law, enacted in 2002 to identify and NWBC National Women’s Business Council
reduce erroneous payments in the government’s A bi-partisan federal advisory council created to
programs and activities. serve as an independent source of advice and pol-
icy recommendations to the President, Congress,
IT Information Technology and the SBA on economic issues of importance to
Refers to matters concerned with the design, women business owners.
development, installation and implementation of
information systems and applications. OCA Office of Capital Access
The office responsible for small business program
L/LMS Loan and Lender Monitoring System loans, lender oversight, the investment company
Agency Financial Report FY 2009
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APPENDICES
program, the surety bond program and the interna- OPM U.S. Office of Personnel Management
tional trade program. The federal government’s human resources agency.
OCFO Office of the Chief Financial Officer ORACLE The Accounting program used by SBA’s
The office responsible for the financial activity Administrative Accounting Division
of the Agency, including Agency disbursements,
management and coordination of Agency planning, ORCA Online Representation and Certification
budgeting, analysis and accountability processes. Application
an e-Government initiative that was designed to
OCIO Office of the Chief Information Officer replace the paper based Representations and
Supports and provides guidance for SBA’s na- Certifications process
tionwide computer automation and information
technology efforts. OSA Office of Strategic Alliances
OCRM Office of Credit Risk Management OVBD Office of Veterans Business Development
The SBA office that works to enhance and increase
ODA Office of Disaster Assistance successful small business ownership by veterans.
SBA office that promotes economic recovery
in disaster ravaged areas. SBA loans are the PAR Performance and Accountability Report
primary form of federal assistance for non-farm, Reporting that presents financial, budgetary and
private sector disaster losses for individuals and performance information to OMB, Congress and
businesses. the public.
OFA Office of Financial Assistance PART Program Assessment Rating Tool
SBA office that administers various loan programs An OMB methodology developed to assess and
to assist small businesses. improve program performance.
OFO Office of Field Operations PCECGF The Pollution Control Equipment Contract
SBA office that represents field offices, including Guarantee Fund
regional and district offices, at headquarters. Supports costs associated with the credit portfolio
of pre-October 1991 pollution control equipment
OGC Office of General Counsel loans and guaranties being liquidated by the SBA.
Provides legal advice for senior management, as
well as legal support for all Agency programs, PCOE President’s Council on Integrity and
initiatives and administrative responsibilities. Efficiency
OHCM Office of Human Capital Management PIA Privacy Impact Assessment
Supports the strategic management of human Part of the Privacy Impact Statement from the
capital in the accomplishment of the Agency’s Privacy Act.
mission. PLP Preferred Lender Program
OIG Office of Inspector General Covers certified or preferred lenders that receive
Conducts and supervises audits, inspections full delegation of lending authority.
and investigations relating to SBA programs and PMA President’s Management Agenda
operations. A Bush Administration program to improve man-
OMB U.S. Office of Management and Budget agement of the federal government.
Presidential office that oversees preparation of the QA Quality Assurance
federal budget and supervises its administration in
Executive Branch agencies. QAR Quality Assurance Review
Agency Financial Report FY 2009
125
APPENDICES
SAS Statement on Auditing Standards SCORE Offers counseling and training for small business
Establish standards and provide guidance on the owners who are starting, building or growing their
design and selection of an audit sample and the businesses. Sponsored by the SBA, SCORE’s ser-
evaluation of the sample results. vices are free of charge and are provided by retired
or active business volunteers.
SBA Small Business Administration
A federal agency of the Executive Branch whose SDB Small Disadvantaged Business
mission is to aid, counsel and protect the interests Small business owned and controlled by
of small businesses and help families and busi- individual(s) claiming to be socially and economi-
nesses recover from national disasters. cally disadvantaged.
SBA Provides selected lenders with a 50 percent guar- SMG Secondary Market Guaranty
anty on their loans in exchange for the ability to use
primarily their own application and documentation SOP Standard Operating Procedure
SOPs are the primary source of the Agency’s
forms. This makes it easier and faster for lenders to
internal control.
provide small business loans of $250,000 or less.
SBDC Small Business Development Center SOX Sarbanes-Oxey Act 2002
The law introduced major changes to the regulations
SBDCs deliver management and technical as-
of financial practice and corporate governance.
sistance, economic development and management
training to existing and prospective small business- SSBIC Specialized Small Business Investment
es through cooperative agreements with universi- Company
ties and colleges and government organizations.. Provides equity capital, long-term loans, debt-
equity investments and management assistance
SBG Surety Bond Guarantee Program
to socially or economically disadvantaged small
Provides guarantees bid, performance and payment
businesses.
bonds for contracts up to $2 million for eligible
small businesses that cannot obtain surety bonds TOP Treasury Offset Program
through regular commercial channels. A centralized debt collection program developed by
the Treasury Department’s FMS to assist agencies
SBGRF Surety Bond Guarantees Revolving Fund
in the collection of delinquent debts owed to the
Provides assistance to small business contractors
Federal Government.
in obtaining bid, performance and payment bonds
for construction, service and supply contracts. WBC Women’s Business Center Program
WBCs provide long-term training and counseling to
SBIC Small Business Investment Company
women owning or managing a business, including
Provides equity capital, long-term loans, debt
financial, management, marketing and technical
equity investments and management assistance to
assistance, and procurement.
small businesses, particularly during their growth
stages.
SBLC Small Business Lending Companies
Non-depository small business lending companies
listed by the SBA Office of Capital Access.
SBPRA Small Business Paperwork Relief Act of
1992
SBREFA Small Business Regulatory Enforcement
Fairness Act
Agency Financial Report FY 2009
126
Acknowledgments
This Agency Financial Report was created by the energy and talent of the U.S. Small Business Administration staff. To all
these dedicated individuals listed below, as well as those not listed, we offer our sincerest acknowledgement.
CFO OFFICE PROGRAM OFFICES
Jonathan Carver John Kushman Michael Avant Christine Koronides
Melissa Atwood David Lippold Dennis Bumpass Nina Levine
Raymond Baca Theresa Lucero Shawne Carter Robert Naylor
James Bates Valerie Meadows Martin Coyret Bruce Purdy
Rory Berges Shirley Mebane Eugene Cornelius Yan Russell
Deepak Bhargava Robert Montgomery Jeanne Crepeau Holly Schick
Debra Braswell Maureen Moore-Vellucci Alan Escobar Ajoy Sinha
Jeffrey Brown JoAnn Mueller Roger Garland Annie Spiczak
Joshua Bull Rosemary Ngwiri Martin Gold James VanWert
Ashok Chaudhry Ivey Packwood Grady Hedgespeth Yvonne Walters
Randall Christopherson Sarada Parthasarathy Brian Hooper Gloria Wright-Simms
Elizabeth Cottom Mike Peterson Calvin Jenkins
Bruce Crippin Janette Porter
Mary Dam Trevor Postlethwaite
Gayle Daugherty Anthony Powell
Tamara Dollarhite Tong Qin
Sharon Evans Steve Ramey
Angela Ferrell Daniel Rivas
Leon Fleischer Donald Romek
Jananne Garl Ann Marie Schaef
Michelle Gierwatoski Harold Simmons
Leslie Godsey Rodney Simoneau
Gordon Goeke Jessica Smith
Timothy Gribben Katrina Sterling
Kylina Hanley Bruce Swartz
Marilyn Henderson Sylvia Thornton
Joseph Henry Darrell White
Malene Hernandez Kelly Wilcox
Blake Hoing Rita Williams
Michael Holland Petrina Worthington
Jonathan Jones Uma Yanamandra
Thomas Karg
We would also like to acknowledge the SBA Office
of the Inspector General and KPMG, LLP for the
professional manner in which they conducted the
audit of the FY 2009 financial statements.
We offer our special thanks to Innovative
Consultants International (ICI), and Corporate
Visions, Inc. for outstanding contributions to
producing this report.
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