SBA Agency Financial Report, Fiscal Year 2010
Summary
This is the U.S. Small Business Administration's Agency Financial Report for FY 2010, the first of three reports required under the alternative to a consolidated Performance and Accountability Report. The message from Administrator Karen G. Mills, dated November 15, 2010, says SBA lending rose from over $17 billion (47,897 loans) in FY 2009 to over $22 billion (54,833 loans) in FY 2010. It also says the auditor issued an unqualified opinion on the FY 2010 financial statements. The executive summary gives total budgetary resources of $8.3 billion and an overall outstanding principal balance of a new high of $93.3 billion. A primer describes the 7(a) loan guarantees, the 504 CDC program and the Microloan program.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“SBA Agency Financial Report, Fiscal Year 2010.”
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The Association of Government Accountants has awarded the
SMALL BUSINESS ADMINISTRATION
The Certificate of Excellence
FOREWORD in Accountability Reporting
In recognition of SBA’s outstanding efforts in preparing its
The Government Performance and
Performance and
Results Act, enacted in 1993, requires Accountability Report
federal agencies to establish standards
for measuring their performance and ef- for the fiscal years ended September 30, 2006, 2007, 2008 and 2009
fectiveness. The law requires agencies to
develop annual performance plans that
contain quantifiable measures of what
they intend to accomplish, and issue
performance reports describing their
success in meeting those standards
and measures. Since March 2000,
performance reports are to be released
annually by all CFO agencies.
Since FY 2007, the Small Business
Administration has chosen to
2006 2007
participate in an alternative approach
to the Office of Management and
Budget’s consolidated Performance
and Accountability Report. This report,
the Agency Financial Report, is the first
of three reports required under the
alternative program. The other two Agency
Financ
Fiscal ial Re
Year 20 port
08
reports — the Annual Performance
Report and the Summary of
Performance and Financial Information
— will be delivered in February 2011. Helping
Small Bus
iness Sta
rt, Grow
and Suc
ceed
2008 2009
Information about SBA’s programs is available at: www.sba.gov
SBA’s plans and reports are available at: http://www.sba.gov/aboutsba/budgetsplans/index.html
Recovery Act - http://www.sba.gov/recovery/index.html
Para información acerca de los programas de la SBA: www.sba.gov/espanol/
Supplemental information relative to the AFR may be found in the CD that comes with this report.
Requests for printed copies, or questions and comments regarding the content, presentation and usefulness of this report are welcome and
may be addressed to: performancereports@SBA.gov
Or, you may write to: Or, you may call:
U.S. Small Business Administration Timothy Gribben
Office of Performance Management and the Chief Financial Officer Director, Office of Performance Management
409 Third Street, S.W. (202) 205-6449
Washington, DC 20416
TABLE OF CONTENTS
Message from the Administrator . 1
Management’s Discussion and Analysis
Executive Summary .5
SBA by the Numbers . 7
Management Information
SBA’s History and Organization . . 8
Summary Performance Information on Key SBA Offices/Programs . . 11
Analysis and Highlights of Financial Statements and Results . . 12
Highlights of Financial Results . 12
Analysis of Financial Results . 13
Operational Portfolio Analysis . 19
Analysis of SBA’s Systems, Controls and Legal Compliance . 24
Internal Control Environment . 24
Summary of Financial Statement Audit and Management Assurances . 27
FMFIA and FFMIA Assurance Statement for FY 2010 . 28
Improper Payments Summary . 29
Financial Reporting
Message from the Chief Financial Officer . 33
Audit and Financial Management Advisory Committee’s Report . 35
Inspector General’s Audit Report . 36
Independent Auditors’ Report on FY 2010 Financial Statements . 38
CFO Response to Draft Audit Report on FY 2010 Financial Statements . 49
Financial Statements and Notes . 50
Office of the Inspector General
Summary of OIG Audit Follow-up . 87
OIG Report on the Most Serious Management and Performance Challenges . 89
Agency Response to the OIG Report on Management and Performance Challenges . 108
Appendices
Appendix 1 – Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Appendix 2 – Contact SBA: Useful Sites and Numbers .116
Appendix 3 – Glossary of Acronyms and Abbreviations . 117
Attached CD – Supplementary Information
SI 1 – SBA Programs and Offices
SI 2 – Strategic Plan FY 2008-2013
SI 3 – Strategic Plan FY 2011-2016
SI 4 – Detail of OIG Audit Follow-up Action Activity
AGENCY FINANCIAL REPORT • FY 2010
Primer of SBA’s Primary Loan Programs
7(a) Loan Guarantees
This is SBA’s primary and most flexible loan program. Although it is delivered through commercial lend-
ing institutions, it is for businesses that would not otherwise have qualified for a loan through normal
lending channels. The SBA guarantees a portion of 7(a) loans made and administered by commercial
lending institutions. SBA 7(a) loans can be guaranteed for a variety of general business purposes includ-
ing working capital, machinery and equipment, furniture and fixtures, and land and buildings. Loan
maturity is up to 10 years for working capital and generally up to 25 years for fixed assets. The 7(a)
loan program has several tailored delivery methods. The express programs – SBAExpress, Community
Express, and Patriot Express – offer streamlined and expedited loan procedures for particular groups of
borrowers. Rural Lender Advantage offers smaller loans tailored for the unique needs of rural lenders.
Export Express, international trade loans, and Export Working Capital are 7(a) programs designed to
help the exporting community. Finally, the SBA offers Certified Lender and Preferred Lender 7(a) loans
through select lenders who have a proven track record with the SBA.
The Recovery Act of 2009 reduced fees for lenders and borrowers receiving 7(a) loans while also increas-
ing the maximum guaranty up from 85 to 90 percent. These popular Recovery Act provisions have been
extended in the Small Business Jobs Act of 2010 along with a permanent increase in the maximum loan
size amount from $2 million to $5 million. The Recovery Act created, and the Jobs Act expanded and
extended until 2013, another 7(a) specialty program called Dealer Floorplan Financing. This program
provides loans to dealers of cars, trucks, RVs, boats, and other titleable inventory.
504 CDC Program
The 504 program provides long-term, fixed-rate financing for major assets such as real estate and heavy
equipment. The loans provide financing to acquire fixed assets for business expansion or modernization.
They are delivered by Certified Development Companies which are private, non-profit corporations set
up to contribute to the economic development of their communities. SBA 504 loans cannot be used
for working capital or inventory. A typical 504 loan is made up of a 50 percent senior lien by a private
lender, a 40 percent junior lien by a CDC (which is 100 percent guaranteed by SBA), and a 10 percent
equity buy-in from the owner. The Small Business Jobs Act of 2010 increased the maximum loan size to
$5 million ($5.5 million for manufacturers).
Microloan Program
This program provides small short term loans for working capital or the purchase of inventory, supplies,
furniture, fixtures, machinery and/or equipment. It is designed for small businesses and not-for-profit
child care centers needing small scale financing and technical assistance for start-up or expansion. These
loans are delivered through specially designated intermediary lenders who are nonprofit organizations
with experience in lending and technical assistance. The Small Business Jobs Act of 2010 increased the
maximum loan size from $35,000 to $50,000.
AGENCY FINANCIAL REPORT • FY 2010
M E S S A G E F R O M T H E A D M I N I S T R ATO R
Message from the Administrator
November 15, 2010
I am pleased to present the U.S. Small Business Administration’s FY 2010 Agency
Financial Report. The SBA has chosen to produce the Agency Financial Report as an
alternative to the consolidated Performance and Accountability Report.
This report details the Agency’s efforts in its mission to maintain and strengthen the
nation’s economy by enabling the establishment and vitality of small businesses and by
assisting in the economic recovery of communities after disasters. The Agency continues
to move forward with goals in areas such as access to capital, opportunities in govern-
ment contracting, entrepreneurial development, and disaster assistance.
Key SBA accomplishments in FY 2010 include:
I ncrease in SBA lending: Due to the continued effectiveness of Recovery Act loan provisions, the SBA
increased lending support from over $17 billion (47,897 loans) in FY 2009 to over $22 billion (54,833 loans)
in FY 2010. Also, at the end of FY 2010, the SBA reached its high-priority performance goal of 3,000 active
lenders in its 7(a) loan program.
Increase in small business contracting in the federal government: Through stronger efforts to
coordinate and reach out to other federal agencies, the SBA helped more than 30 percent of all federal
Recovery Act contracting dollars go to small businesses. In addition, the SBA worked with government
agencies to increase the percentage of contracts going to small business from 21.5 percent (FY 2008) to 21.9
percent (FY 2009), just shy of the goal of 23 percent.
Increase in entrepreneurial education resources: SBA’s grant-funded resource partners continued to
experience high demand for their free and low-cost services from entrepreneurs and small business owners.
For example, SBA resource partners helped over 15,000 entrepreneurs start a business in FY 2010, an
8 percent increase over FY 2009.
C ontinued optimization of disaster assistance resources: The SBA quickly responded to dozens of
federally-declared disasters, including the BP Deepwater Horizon Oil Spill for which the SBA established 29 disas-
ter assistance centers in four states and approved over 1,200 loans and loan deferments to affected small businesses.
I n addition, in the final days of FY 2010, the President signed the most significant piece of
small business legislation in more than a decade: the Small Business Jobs Act of 2010. The
SBA implemented many of the key provisions almost immediately, helping 5,000 businesses receive SBA Jobs
Act loans (totaling nearly $3 billion in lending support) within 30 days of its enactment.
Through the Agency’s new Strategic Plan for FY 2011 through FY 2016, the SBA is renewing its commitment to
growing businesses and creating jobs, building an SBA that meets the needs of today’s and tomorrow’s small busi-
nesses, and serving as the voice for small business. The SBA will continue to work toward operational excellence,
while actively identifying and removing elements of waste, fraud, and abuse from its programs. In addition, we
AGENCY FINANCIAL REPORT • FY 2010
1
M E S S A G E F R O M T H E A D M I N I S T R ATO R
will work to address issues that may emerge such as the need for stronger oversight of increased risk exposure due
to our efforts to increase the number of SBA lenders.
I am pleased to provide an assurance that SBA’s financial and performance data in this report are reliable and
complete. SBA’s auditor issued an unqualified opinion on our FY 2010 financial statements. The auditor did not
note any material internal control weaknesses.
Sincerely,
Karen G. Mills
Administrator
AGENCY FINANCIAL REPORT • FY 2010
2
MANAGEMENT’S DISCUSSION & ANALYSIS
SBA’s Mission
The mission of the U.S. Small Business Administration is to maintain and strengthen the nation’s
economy by enabling the establishment and vitality of small businesses and by assisting in the economic
recovery of communities after disasters.
Success Story
Using Cutting Edge Technology to Prepare for Emergencies
Engineering & Computer Simulations, Inc., Orlando, Florida
Waymon Armstrong is the owner of Engineering & Computer Simulations, Inc. a
small business that uses computer simulations to help government and private sector
clients prepare for and respond to natural disasters, medical emergencies and combat.
This year he was honored by the SBA as the 2010 National Small Business Person of
the Year. SBA Administrator Karen Mills made the announcement during the annual
celebration of National Small Business Week.
“Waymon Armstrong is a perfect example of the innovation, inspiration and determina-
tion that exemplify America’s most successful entrepreneurs,” said Mills. He believed
in his brainchild to the point where he deferred his own salary for three years to keep it
afloat. When layoffs loomed for his staff after 9/11, their loyalty and belief in the company was so great that they were
willing to work without pay for four months.
“Waymon’s commitment to his employees and to his business demonstrates the qualities that make small businesses
such a powerful force for job creation in the American economy and in their local communities,” said Mills. “These
are the same qualities that will lead us to economic recovery.” The SBA is especially proud that his company benefited
from two grants under SBA’s Small Business Innovation and Research Program.
Started in 1997, Engineering & Computer Simulations is today one of Inc. Magazine’s 500 fastest growing private
companies in America. The ECS engineering team brings together an experienced group of professionals that value
innovation and creativity while focusing on customers’ needs. The successful company doubled its revenues in 2008
and expanded its staff by 33 percent in 2009. It has seen a 640 percent sales growth over the past three years.
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Executive Summary
The Small Business Administration acts as a direct Financial Results
lender or guarantor of small business loans and pro-
vides management and technical assistance as well as The SBA is the smallest of the major federal credit
contracting opportunities to small businesses. The agencies, behind the Department of Agriculture,
SBA also provides disaster assistance to communities the Department of Education, the Department
that have suffered through a catastrophe, with the of Housing and Urban Development, and the
intention of rebuilding the devastated economy and Department of Veteran Affairs. For FY 2010 SBA’s
community simultaneously. Throughout FY 2010, total budgetary resources were $8.3 billion as well
the SBA relied on four strategic goals to guide the as $10 billion for loan financing (nonbudgetary).
Agency’s actions: SBA’s guarantied portion of the outstanding loan
principal balance rose 3.6 percent in FY 2010 to
1. Drive business formation, job growth $64.4 billion. The overall outstanding principal
and economic expansion, particularly in balance grew at 3.2 percent in FY 2010 to a new
under-served markets. high of $93.3 billion. Growth in SBA’s portion oc-
2. Provide timely financial assistance to curred primarily as a result of the popularity of the
homeowners, renters, nonprofit organizations Recovery Act’s higher guaranty limits as well as its
and businesses affected by disaster.
extensions, with new guaranties up 23 percent com-
3. Improve the economic environment for small pared to FY 2009. On the downside, SBA’s portfolio
business by ensuring their needs are being met.
of loans receivable continued to grow in FY 2010
4. Optimize core operations to increase respon- due to increases in the purchases of guarantied busi-
siveness to customers, streamline processes and
improve compliance and controls. ness loans. This portfolio of purchased guaranties
and defaulted loans remained at $9.1 billion, though
In the past two years, the SBA has played a critical its composition changed as direct disaster loans
role in helping revive the nation’s economy. With shrank $392 million while defaulted guarantied
the Recovery Act passage in February 2009, the business loans grew $337 million.
SBA embarked on a period of rapid expansion with
lowered fees and higher guaranties on the major The financial management team has paid particu-
loan products. Recovery Act funding, originally lar attention to improving the Agency’s record on
intended to last until the end of FY 2010, ran out in improper payments. The SBA Inspector General
November 2009. The SBA received a course of tem- issued audit reports on the 7(a) Guaranty Purchase
porary extensions of funding from Congress until and Disaster improper payments in FY 2009. As a
passage of the Small Business Jobs Act in September result of the findings and recommendations of these
2010 made many of the provisions permanent. The reports, the SBA changed its methodology in both
SBA seized the moment of growth in programs programs in the sampling and testing for improper
and loan volumes to improve the financial manage- payments. After an uptick in FY 2009, FY 2010
ment practices and fine-tune performance measures. saw a decline in improper payment rates from 3.8
Indeed, the Agency received an unqualified audit percent to 1.9 percent in the 7(a) guaranty program
opinion with no material weaknesses in FY 2010. but an increase from 20.9 percent to 34.2 percent in
The government-wide response to the economic cri- Disaster improper payments. The latter generally re-
sis, combined with the collaborative regular report- sults from loan documentation errors and indicates a
ing required by the Recovery Act (and available at need to adhere to the documentation requirements
Recovery.gov), has helped push the SBA into a new of SBA’s Standard Operating Procedures, a need that
era of intra- and inter-agency cooperation to help will be addressed with additional training as well
small businesses expand and prosper. as a dedicated team to review and report on im-
proper payments from the disaster processing center.
AGENCY FINANCIAL REPORT • FY 2010
5
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Improper payments will receive additional empha- services to entrepreneurs throughout the nation.
sis for improvement when the Improper Payment Additionally, an estimated 600,000 users will access
Elimination and Recovery Act enacted in July 2010 free online courses through SBA’s Small Business
becomes effective in FY 2011. Training Network.
Program Results For FY 2010, the SBA approved $570 million in
disaster loans. The Office of Disaster Assistance’s
The SBA continued its rebound in lending volumes dedication to continual process improvement
to pre-crisis levels, averaging $1.4 billion in month- meant that 100 percent of home applications were
ly gross loan approvals for 7(a) and 504 in FY 2010 processed within 14 days, 100 percent of loans were
as compared to the $1.5 billion monthly average in disbursed within 5 days of closing, and 99 percent of
FY 2008. The response of lenders to the Recovery business applications were processed within 18 days.
Act provisions spurred a sizeable change in the
number of active lenders for the 7(a) program, a Management Results
High Priority Performance Goal for the Agency. In
FY 2010, 3,061 lenders made a 7(a) or ARC loan The SBA continues to work with its program
compared to the 2,408 lenders active in FY 2008, offices to provide the best possible measures of
an increase of 27 percent. This increased access to performance. In FY 2010, the SBA conducted
capital supported 556,045 jobs in FY 2010 and a full review of the performance measures, con-
assisted 49,085 small businesses, providing small solidating several into more accurate counts (i.e.
businesses and the many people they affect with the jobs supported replaced jobs created/retained)
necessary financial support to survive these tough while helping several program offices develop new
economic times. measures to follow the Recovery Act and Small
Business Jobs Act new programs and provisions.
The SBA continued to advocate for small businesses In addition, staff conducted webinars and training
pursuing government contracting opportunities as sessions for recipients of Recovery Act funds to as-
well. Congress has given the Agency the respon- sist in the reporting requirements of Recovery.gov.
sibility of overseeing the government-wide small Finally, the SBA participated with the Office of
business goal setting program, intending 23 percent Management and Budget (OMB) to develop High
of all contracts to go to small businesses. Priority Performance Goals for the Agency. These
goals helped organize the new strategic plan, future
SBA’s resource partners – the small business de- budget submissions, and fostered intra-agency
velopment centers, women’s business centers, and cooperation for a common endeavor. Indeed, the
SCORE – provide counseling and expertise to over renewed focus allowed the SBA to meet two of the
a million small businesses and entrepreneurs. These four high priority goals ahead of schedule, increas-
resource partners provide guidance in developing ing the number of active lenders to over 3,000 and
business plans, implementing new technologies, decreasing processing times for disaster loans. The
accessing capital, winning government contracts, SBA management team has put in place a strong
developing marketing plans, and many other foundation for the Agency in the realm of perfor-
undertakings vital to the success of a small busi- mance management as the government continues
ness throughout its lifecycle. The SBA provided to move toward a more collaborative approach,
$134 million in FY 2010 in grant funding for these both intra- and inter-agency.
programs to provide necessary, targeted technical
AGENCY FINANCIAL REPORT • FY 2010
6
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
SBA BY THE NUMBERS
(All Dollars in Millions) FY 2007 FY 2008 FY 2009 FY 2010
Total Portfolio(1) Outstanding Principal Balance $84,512 $88,095 $90,451 $93,340
Financial Assistance (2)
7(a) Regular Loans Dollars of Gross Loans Approved $ 14,292 $ 12,671 $ 9,191 $ 12,407
504 Regular Loans Dollars of Gross Loans Approved $ 6,314 $ 5,290 $ 3,834 $ 4,433
Dollars of Gross Loans Approved for
Microloans $ 33 $ 32 $ 35 $ 45
Microborrowers
Dollars of Gross Financings Invested in
SBIC $ 759 $ 1,030 $ 788 $ 2,047
Small Businesses
7(a) Loans Number of Gross Loans Approved 99,606 69,434 41,289 47,000
504 Loans Number of Gross Loans Approved 10,669 8,883 6,608 7,833
Number of Gross Loans Approved
Microloans 2,523 2,771 2,797 3,789
for Microborrowers
SBIC Number of Small Businesses Financed 2,057 1,905 1,481 1,331
Disaster Assistance (2) (6)
Dollars of Gross Loans Approved $ 820 $ 826 $ 1,130 $ 574
Number of Gross Loans Approved 14,014 15,128 21,780 15,356
Management Assistance
SCORE Number Small Businesses Assisted 336,411 360,559 380,357 407,240
SBDC Number Small Businesses Assisted 600,665 558,487 583,770 589,352
WBC Number Small Businesses Assisted 146,828 159,879 155,383 160,735
Procurement Assistance
Prime Contracting Annual Value of Federal Contracts $ 83,275 $ 93,305 $ 96,800 N/A (3)
Prime Contracting (%) (5) % of Federal Contracts to SBs 22.0% 21.5% 21.9% N/A (3)
Surety Bond Number Bid and Final Bonds Guaranteed 5,809 6,055 6,135 8,348
HUBZone Annual Value of Federal Contracts $ 8,463 $ 10,157 $ 12,413 N/A (3)
8(a) Program Number of Small Businesses Assisted 9,479 9,462 8,854 N/A (3)
Regulatory Assistance
Advocacy Regulatory Cost Savings $ 2,568 $ 10,760 $ 6,990 $ 14,994 (4)
(1) This is the gross cumulative outstanding disbursed amount that includes all Disaster loans and SBA guarantied loans (including the non-guarantied portion) less loan
payments and payoffs, plus loan increases.
(2) There are three basic ways to prsent loan data: 1) Gross Loans Approved–the total loans approved; 2) Net Loans Approved (gross loans approved plus any loan increases
minus any cancellations); and 3) Disbursed loans (the amount that is actually given to the borrower). In the “Financial Assistance” and “Disaster Assistance” part of the table
Gross Loans Approved is presented because it is the only loan data that will never change.
(3) Federal agencies have not yet certified their FY 2010 data. The SBA expects to receive the FY 2010 certified data by the 3rd or 4th quarter of FY 2011.
(4) The FY 2010 is an estimate. This number will be finalized in February 2011 in Advocacy’s annual report to Congress.
(5) The federal government is required to give small businesses at least 23 percent of all contracting dollars.
(6) In FY 2010, the SBA changed the method for determining these Disaster numbers. All prior numbers have been adjusted to ensure consistency and comparability.
AGENCY FINANCIAL REPORT • FY 2010
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
SBA’s History and Organization work, Engineering & Computer Simulations was
Congress created the U.S. Small Business named the 2010 National Small Business of the
Administration in 1953 to “aid, counsel, assist and Year. SBA Administrator Karen Mills saluted the
protect, insofar as is possible, the interests of small company and its owner Waymond Armstrong as “a
business concerns.” The charter also stipulated perfect example of the innovation, inspiration and
that the SBA would ensure small businesses a “fair determination that exemplify America’s most suc-
proportion” of government contracts and sales of cessful entrepreneurs.” He believed in his brain-
surplus property. SBA’s mission is to maintain and child to the point where he deferred his own salary
strengthen the nation’s economy by enabling the for three years to keep his company afloat. When
establishment and vitality of small businesses and layoffs loomed for his staff after 9/11, their loyalty
by assisting in the economic recovery of communi- and belief in the company was so great that they
ties after disasters. Agency programs also include were willing to work without pay for four months.
management assistance and specialized outreach “Mr. Armstrong’s commitment to his employees
to veterans, women and underserved markets. and to his business demonstrates the qualities
that make small businesses such a powerful force
The SBA provides financial assistance to small for job creation in the American economy and in
businesses in the form of loans and venture capital. their local communities; these are the same quali-
Since enactment of the Federal Credit Reform ties that will lead us to economic recovery.” The
Act of 1990, the SBA has made or guaranteed in Agency is proud that Engineering & Computer
excess of $242 billion in business loans. Through Simulations benefited from two grants under
the Small Business Investment Company program, SBA’s Small Business Innovation and Research
the SBA has put $57.6 billion worth of venture program.
capital into more than 107,000 small businesses
since 1990. Organization by Key Assistance Areas
The disaster loan program is the only form of SBA The SBA is an organization with a nation-
assistance that is not limited to small businesses. wide presence. Its headquarters is located in
Disaster loans help homeowners, renters, business- Washington, D.C., while its business products and
es of all sizes, and nonprofit organizations to fund services are delivered with the help of 10 regional
rebuilding and recovery efforts. The Agency does offices, 68 district offices and a vast network of
this by focusing on the restoration of real and per- resource partners in all 50 states, the District of
sonal property and assisting businesses to return to Columbia, Puerto Rico, American Samoa, the U.S.
operations as quickly as possible. On average, the Virgin Islands, and Guam.
Agency makes disaster loans totaling approximate-
The SBA is organized around five key func-
ly $500 million to $1 billion each year, and has
tional areas: Financial Assistance, Procurement
an active portfolio of about $8 billion. Since its
Assistance, Management Assistance, Disaster
inception, the SBA has approved over 1.9 million
Assistance and Regulatory Assistance. The catego-
disaster loans for nearly $49 billion.
ry of Other Assistance captures all other activities.
The SBA plays a vital role in enabling America’s Following are brief descriptions of SBA offices and
entrepreneurs and has stamped its mark on many programs and some of the products and services
small businesses that have grown to become they provide.
household names and leaders in their fields.
These firms include Nike, Staples, Apple, Federal Financial Assistance
Express, Ben & Jerry’s, Outback Steakhouse,
The Office of Capital Access assists small business-
Hewlett Packard, and a host of others. For their
es in obtaining capital via the 7(a), 504 and
outstanding achievements, dedication and hard
AGENCY FINANCIAL REPORT • FY 2010
8
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Microloan programs and the Small Business Disaster Assistance
Investment Company program. OCA is also re-
The Office of Disaster Assistance provides afford-
sponsible for the Surety Bond Guarantee and the
able, timely and accessible financial assistance to
International Trade Assistance programs.
homeowners, renters and businesses following a
disaster.
Procurement Assistance
The Office of Government Contracting and Regulatory Assistance
Business Development provides assistance to small
The Office of Advocacy provides an independent
businesses in obtaining federal procurement op-
voice for small business to advance its views,
portunities through the government-wide prime
concerns, and interests before Congress, the
and subcontracting programs. Additionally, the
federal government, federal courts and state policy
8(a) Business Development program assists small
makers.
businesses to be better prepared to take advantage
of procurement opportunities. GC/BD also sets The National Ombudsman receives complaints
size standards for small businesses which deter- and comments from small businesses and acts as
mine the size a business must be to be considered a a “trouble shooter” between small businesses and
small business. federal agencies.
Management Assistance Other Assistance
The Office of Entrepreneurial Development The Office of Veterans Business Development
provides business counseling and training through formulates and delivers policies and programs that
its partners network composed of small business provide assistance to veterans seeking to start and
development centers, women business centers develop small businesses.
and SCORE. In addition, district offices provide
counseling and training that complements the as- The Office of Native American Affairs focuses
sistance provided by SBA partners. on the assistance provided to American Indians,
Alaska Natives, Native Hawaiians, and the indig-
enous people of Guam and American Samoa.
Did The SBA partners with banks and credit unions to offer
you billions of dollars a year in loans to small business owners.
know In FY 2010, the SBA supported over 22 billion dollars in
lending to small businesses. Learn more at http://www.sba.
gov/aboutsba/sbaprograms/elending.
AGENCY FINANCIAL REPORT • FY 2010
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10
Office of the Administrator Office of Advocacy
(Includes Administrator, Deputy Administrator,
Chief of Staff, Chief Operating Officer)
Office of the Inspector General
Office of Office of Investments Office of Office of Gov’t Office of Field Office of Disaster
SBA’S ORGANIZATION CHART
Capital Access and Innovation Entrepreneurial Contracting & Business Operations Assistance
(Proposed) Development Development
• Office of Financial • Office of Regional
Assistance • Small Business • Office of Small Business • Office of Business Administrators Office of Disaster
• Office of Surety Bond Innovation Research Development Centers Development • District Offices Planning
Guarantees Program • Office of Women’s • Office of Gov’t
• Office of International • Small Business Business Ownership Contracting
Trade Investment Companies • Office of • HUBZone Program
• Office of Credit Risk Entrepreneurship • Office of Small Business
Management Education Utilization
• Microloans
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Office of Office of Performance Office of Chief Office of Congressional &
Management & Management & Chief Information Officer General Counsel Legislative Affairs
Administration Financial Officer
• Office of Chief
• Office of Human Capital • Office of Performance Technology Officer
Management Management Office of National Office of
AGENCY FINANCIAL REPORT • FY 2010
• Office of Grants • Office of Internal Ombudsman & Equal Employment
Management Controls Regulatory Opportunity & Civil
• Executive Secretariat Enforcement Fairness Rights Compliance
Office of Office of
Communication & Policy & Strategic
Public Liaison Planning
Office of Native Office of Veterans
American Affairs Business Development
Office of Faith Based & Office of
Community Initiatives Hearings & Appeals
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Summary Performance Information on Key SBA Offices/Programs
The following table presents key SBA FY 2010 performance data. SBA’s 7(a), 504, and Disaster loans are
the three largest SBA guaranty and direct loan programs. These programs make up the bulk of SBA’s loan
portfolio. The other indicators have been included as an example of the impact of other SBA programs
and to highlight the soundness of SBA’s financial systems (appropriate for the Agency’s financial report).
Detailed performance information on all SBA programs will be presented, and all variances explained, in
the FY 2010 Annual Performance Report which will be submitted in February 2011.
.
Type of FY 2007 FY 2008 FY 2009 FY 2010 FY 2010 FY 2010
Program Performance Indicator
Indicator Actual Actual Actual Goal Actual Variance
Strategic Goal 1 - Growing Businesses and Creating Jobs
Financial Assistance
7(a) Active Lending Partners (#) Outcome 2,383 2,408 2,771 2,800 3,061 9% G
7(a) Small Businesses Assisted (#) (1) Outcome 90,146 62,441 37,153 37,500 41,705 11%
G
7(a) Jobs Supported (#) (1) Outcome 776,729 586,955 423,980 625,500 473,502 -24%
R
504 Small Businesses Assisted (#) (1) Outcome 10,409 8,675 6,461 5,600 7,664 37%
G
504 Jobs Supported (#) (1) Outcome 126,069 111,996 74,849 133,000 82,543 -38%
R
Contracting Assistance
Prime Federal Contract Dollars Awarded to Small Businesses Outcome 22% 21 5% 21 9% 23 0% N/A(3) N/A
Contracting (% of Total Applicable Federal Contract Dollars)
Disaster Assistance
Disaster Average Time to Process Business Physical Application (days) Output 11 11 14 18 10 44% G
Disaster Home Loans Processed Within Standard (%) Output 97% 94% 94% 85% 100% 15%
G
Management and Technical Assistance
SBDC Small Business Created (#) Outcome 7,331 12,730 12,543 7,500 13,639 82% G
WBC Small Business Created (#) Outcome 618 727 727 618 689 12% G
SCORE Small Business Created (#) Outcome 1,082 943 931 1,082 1,077 0% Y
Strategic Goal 2 - Building an SBA that Meets the Needs of Today’s and Tomorrow’s Small Businesses
Financial Management
Financial Unqualified Opinions for Audit Year Outcome Yes Yes Yes Yes Yes 0%
Reporting
G
Strategic Goal 3 - Serving as the Voice for Small Businesses
Regulatory Assistance
Advocacy Regulatory Cost Savings to Small Businesses ($ in Billions) Outcome $ 2 60 $ 10 76 $ 6 99 $ 5 50 N/A(2) N/A
1
A more precise methodology was developed in FY 2009 to calculate “Jobs supported” and “Small Businesses Assisted ” In addition to the change in methodology, the figures are
net of fully cancelled loans Prior year results have been restated to reflect this change “Jobs supported” replaced the title “Jobs Created/Retained ” “Jobs supported” more clearly
described the measured activity
2
The FY 2010 “Actual” will be finalized in February 2011 in Advocacy’s annual report to Congress
3
The FY 2010 “Actual” will be finalized in the third or fourth quarter of FY 2011
Green Variance Explanations
The Actual result meets or exceeds target
G 7(a) Jobs Supported (#) (-24%) - the Goal of 625,500 Jobs Supported was established in FY
Yellow 2009 and was based on “Loans Disbursed.” In FY 2010 the methodology was changed to “Loans
The Actual result is within 10% of meeting the target
Y Approved Less Cancellations” which significantly reduced the identified loans.
Red 504 Jobs Supported (#) (-38%) - the Goal of 82,543 Jobs Supported was established in FY 2009
R The Actual result is less than 90% of target and was based on “Loans Disbursed.” In FY 2010 the methodology was changed to “Loans
Approved Less Cancellations” which significantly reduced the identified loans.
AGENCY FINANCIAL REPORT • FY 2010
11
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Analysis and Highlights of Financial Statements and Results
Highlights of Financial Results
(Dollars in Thousands) Unaudited % Change
At End of Fiscal Year FY 2010 FY 2009
CONDENSED BALANCE SHEET DATA
Fund Balance with Treasury $ 6,116,325 $ 3,469,465 76.29%
Credit Program Receivables 9,076,679 9,128,496 -0.57%
All Other Assets 37,472 28,498 31.49%
Total Assets $ 15,230,476 $ 12,626,459 20.62%
Liability for Loan Guaranties $ 4,467,006 $ 3,994,636 11.83%
Debt with Treasury 11,753,781 10,878,283 8.05%
Downward Reestimate Payable to Treasury 130,993 64,875 101.92%
All Other Liabilities 413,241 377,265 9.54%
Total Liabilities 16,765,021 15,315,059 9.47%
Unexpended Appropriations 2,295,070 1,983,504 15.71%
Cumulative Results of Operations (3,829,615) (4,672,104) 18.03%
Total Net Position (1,534,545) (2,688,600) 42.92%
Total Liabilities and Net Position $ 15,230,476 $ 12,626,459 20.62%
For the Fiscal Year
STATEMENT OF NET COST BY STRATEGIC GOAL
Goal 1: Expand America’s Ownership Society
Loan Subsidy Cost including Reestimates $ 4,193,713 $ 4,803,699 -12.70%
All Other Cost Net of Revenue 545,027 439,889 23.90%
Goal 2: Provide Timely Financial Assistance Affected by Disaster
Loan Subsidy Cost including Reestimates 208,372 354,947 -41.29%
All Other Cost Net of Revenue 238,341 320,381 -25.61%
Goal 3: Improve Economic Environment for Small Business 17,814 14,506 22.80%
Costs Not Assigned 73,930 62,294 18.68%
Total Net Cost of Operations $ 5,277,197 $ 5,995,716 -11.98%
STATEMENT OF NET COST BY EXPENSE TYPE
Loan Subsidy Cost and Required Annual Reestimates $ 4,402,085 $ 5,158,646 -14.67%
Goal 1 Administrative Costs 545,027 439,889 23.90%
Goal 2 Administrative Costs 238,341 320,381 -25.61%
Goal 3 Costs 17,814 14,506 22.80%
Congressional Initiative Grants 52,035 43,635 19.25%
Other Costs Not Assigned 21,895 18,659 17.34%
Total Net Cost of Operations $ 5,277,197 $ 5,995,716 -11.98%
CONDENSED STATEMENT OF CHANGES IN NET POSITION
Beginning Cumulative Results of Operations $ (4,672,104) $ (1,362,736) -242.85%
Total Financing Sources 6,119,686 2,686,348 127.81%
Less: Net Cost of Operations 5,277,197 5,995,716 -11.98%
Ending Cumulative Results (3,829,615) (4,672,104) 18.03%
Beginning Unexpended Appropriations 1,983,504 1,696,866 16.89%
Total Budgetary Financing Sources 311,566 286,638 8.70%
Ending Unexpended Appropriations 2,295,070 1,983,504 15.71%
Ending Net Position $ (1,534,545) $ (2,688,600) 42.92%
CONDENSED STATEMENT OF BUDGETARY RESOURCES
Net Appropriations & Budget Authority Received, Budgetary $ 6,554,119 $ 3,050,068 114.88%
Spending Authority from Offsetting Collections 8,218,384 4,471,595 83.79%
Unobligated Balances Forward 2,701,923 2,976,819 -9.23%
Other Budgetary Resources, Net 866,343 1,838,573 -52.88%
Total Budgetary Resources $ 18,340,769 $ 12,337,055 48.66%
Obligations Incurred, Budgetary $ 6,598,610 $ 3,453,667 91.06%
Obligations Incurred, Nonbudgetary 6,515,175 6,181,465 5.40%
Balances, Available and Unavailable 5,226,984 2,701,923 93.45%
Total Status of Budgetary Resources $ 18,340,769 $ 12,337,055 48.66%
AGENCY FINANCIAL REPORT • FY 2010
12
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Analysis of Financial Results result, the definitions of the loan and guaranty
The SBA prepares its financial statements as a criti- balances in the Portfolio Analysis section may
cal aspect of ensuring accountability and steward- differ somewhat from the balances used in this
ship for the public resources entrusted to it. The Analysis of Financial Results. For example, for
financial statements are prepared in accordance the 7(a) program the total amount of guarantied
with guidance issued by the Office of Management loans is used in the Portfolio Analysis, where only
and Budget pursuant to the Chief Financial SBA’s guarantied portion is used in the Analysis
Officers Act of 1990. While these statements have of Financial Results, as it ties to balances in the
been prepared from SBA’s books and records in financial statements.
accordance with generally accepted accounting
principles for federal entities and the formats pre- Background
scribed by OMB, they are in addition to the finan- The SBA is the smallest of the major federal credit
cial reports used to monitor and control budgetary agencies, behind the Department of Agriculture,
resources, which are prepared from the same books the Department of Education, the Department
and records. The statements should be read with of Housing and Urban Development and the
the realization that they are a component of the Department of Veterans Affairs. Most of SBA’s
U.S. Government, a sovereign entity. One implica- available budgetary resources are devoted to its
tion of this is that the liabilities presented herein credit programs. For FY 2010 SBA’s total budget-
cannot be liquidated without the enactment of ary resources were $8.3 billion, and nonbudgetary
appropriations, and ongoing operations are subject resources in the loan financing funds were $10 bil-
to the enactment of future appropriations. lion. The apportioned budgetary resources are the
amounts available to enter into new obligations
This analysis is intended to help readers under-
and to liquidate them. Budgetary resources are
stand the Agency’s financial results, position and
made up of new budget authority and unobligated
condition as portrayed in the principal financial
balances of budget authority provided in previous
statements and notes. It explains major changes in
years. The loan financing funds are nonbudget-
assets, liabilities, costs, and budgetary resources;
ary accounts that record all the cash flow activity
includes comparisons of the current year to the
resulting from post 1991 direct loans and loan
prior year; and discusses the relevance of particular
guaranties. This activity in the financing account
balances and amounts reflected in the principal
is reported separately in the Budget of the United
financial statements and notes. This section also
States Government and is excluded from the bud-
depicts trends via the use of charts and graphs to
get surplus/deficit totals.
further understanding of the financial condition
and results of the Agency. The SBA is primarily a The portion of the outstanding principal guar-
credit agency and therefore the trends and finan- anteed by the SBA as of September 30, 2010 was
cial condition of credit program receivables and $64.4 billion. This amount is up 3.58 percent
reestimates are emphasized in this analysis. The from the $62.2 billion guaranteed at September
Highlights of Financial Results chart provides a 30, 2009. New guaranties disbursed by SBA
condensed summary of the balances in the finan- participating banks during FY 2010 were up 23
cial statements for the current and prior year and percent compared to FY 2009 (see footnote 6C in
the percentage change. the financial statements for further detail on loans
disbursed and outstanding at year end). Chart I
The Portfolio Analysis section in this MD&A
depicts the increase in guarantied loans disbursed
discusses in some detail the major trends impact-
during FY 2010 to near pre-recession levels. This
ing SBA’s portfolio of loan guaranties and receiv-
increase in the guarantied loans disbursed is due
ables. The purpose of this section is to provide
to the passage of the American Recovery and
an operational analysis of SBA’s credit programs,
Reinvestment Act legislation. In February 2009,
rather than a financial statement analysis. As a
AGENCY FINANCIAL REPORT • FY 2010
13
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
CHART I GUARANTIED LOANS DISBURSED through December 31, 2010, and,
furthermore, appropriated $505
million to pay for the fee relief and
16 guaranty increase. Chart II de-
14 picts the monthly disbursements of
12
($
(inBillions)
10
guarantied loans during FY 2010.
billions)
8 As reflected in the chart, there is an
6 increase in March and April which
4
2 is when additional ARRA exten-
0 sions were appropriated and there
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 is a downward trend in August and
September because the ARRA lend-
ing expired.
SBA’s portfolio of loans receivable
CHART II GUARANTIED LOANS DISBURSED MONTHLY
continued to grow in FY 2010 due
to increases in purchases of guaran-
tied business loans. The portfolio
1.5 consists of guarantied loans out-
standing, defaulted guarantied busi-
($($Billions)
Billions)
1 ness loans receivable, direct disaster
loans and direct business loans
0.5
receivables. Credit program receiv-
ables for the SBA are comprised of
0
9 9 9
1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10 business and disaster direct loans
10/0 11/0 12/0
and defaulted business loans pur-
Month chased per the terms of SBA’s loan
guaranty programs which are offset
by an allowance for subsidy. These
credit program receivables were
through ARRA, Congress appropriated $730 million to the valued at $9.1 billion in FY 2010
SBA to provide new lending incentives that included the Agency which was little variation from FY
temporarily waiving its fees on 7(a) and 504 loans and increas- 2009. As reflected in Chart III,
ing the guaranties it offers banks on 7(a) loans. These funds the biggest changes in the credit
were exhausted during November 2010 and ARRA lending was program receivables included a
suspended. The U.S. Congress subsequently provided an ad- reduction in the direct disaster
ditional $305 million through several appropriations to extend loans of $392 million offset by an
ARRA lending in FY 2010. On May 31, 2010 the temporary increase in the defaulted guarantied
authority to increase the 7(a) guaranty percentage expired, business loans of $337 million. As
contributing to a reduction in SBA guarantied loan volume reflected in Chart IV, the defaulted
during the last four months of FY 2010. Chart I reflects the guarantied business loan receivables
increase in disbursements in FY 2010 (due to carryover from FY increased by $2 billion because of
2009 as well as the passage of the extensions). The SBA expects a continued increase in purchases,
disbursements to continue to grow in early FY 2011 because of and this was offset by an increase in
the passage of the Small Business Jobs Act of 2010 on September the allowance on these receivables
27, 2010. The Jobs Act extended ARRA fee relief for the 7(a) respectively. The increase in the
and 504 programs and increased the guaranty on 7(a) loans allowance was in part because of a
AGENCY FINANCIAL REPORT • FY 2010
14
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
reduction in the calculation of the CHART III TOTAL CREDIT PROGRAM RECEIVABLES
projected recovery percentage in FY
2010 due to the continued effect 10
of the economic recession. Charts
III and IV depict that the credit 8
program receivables decreased due
($ Billions)
6
($ Billions)
to a decrease in direct disaster loans
4
(there were no major disasters in FY
2010) and this was partially offset 2
by an increase in defaulted guaran-
0
tied business loans. FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
As reflected in Chart V, this in- Direct Business Loans
Defaulted Guarantied Business Loans
Direct Disaster Loans
Total Credit Program Receivables
crease in defaulted guarantied busi-
ness loans resulted from increased
purchases due to the continuation
of the economic recession dur- CHART IV CREDIT PROGRAM RECEIVABLES
ing FY 2010. Purchases of SBA’s
share of defaulted guarantied loans 9
8.0
8.5
increased from $3.9 billion in FY 8
2009 to $4.8 billion in FY 2010. 7
6.5 6.5
6.0
6
($ Billions)
SBA’s assets and liabilities result 5
4.4
($ Billions)
primarily from its credit program 4
activities. They consist of Fund 3
Balances with Treasury, credit pro- 2 1.5 1.5
gram receivables, liabilities for loan 1
0.1 0.1 0 0
guaranties, and Debt with Treasury. 0
Direct Direct Direct Direct Defaulted Defaulted
SBA’s loans and guaranties are fi- Business Loans
Receivables
Business Loans Disaster Loans
Allowance Receivables
Disaster Loans
Allowance
Guarantied Guarantied
Business Loans Business Loans
nanced by a combination of subsidy for Subsidy for Subsidy Receivables Allowance
for Subsidy
FY 2009 FY 2010
appropriations, fees charged to
lenders and borrowers, and borrow-
ings from the Treasury.
CHART V PURCHASES OF GUARANTIED LOANS
Congress provides appropriations
to cover the estimated long-term
6
costs of SBA’s disaster loan approv-
als, while SBA’s guarantied busi- 5
ness loan program costs are largely
($ ($
Billions)
4
Billions)
financed through fees, augmented 3
by appropriations for ARRA loans. 2
These new loan costs are defined as 1
the net present value of the estimat-
0
ed cash outflows and inflows associ- FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
ated with the loans. The remaining Fiscal Year
portion of each new direct loan
disbursed is financed under perma-
nent indefinite authority to borrow
AGENCY FINANCIAL REPORT • FY 2010
15
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
funds from Treasury’s Bureau of the Public Debt. amount the SBA will pay, net of fee collections, to
Borrowings are repaid to the Treasury as loans are liquidate expected purchases of guarantied loans
repaid to the SBA. under its guarantied loan programs. The Liability
for Loan Guaranties increased $472.4 million
Under the Credit Reform Act of 1990, the SBA primarily due to the year end reestimate as well
is required to reestimate the subsidy cost through as subsidy and fees collected (offset partially by
the life of each cohort of direct loans or loan claim payments). There was a net upward reesti-
guaranties to account for differences between the mate of $3.6 billion in the loan guaranty program
assumptions of cash flow and actual cash flow or at September 30, 2010. Refer to the following
revised assumptions about future cash flow. These Results of Operations section which discusses the
reestimates represent additional costs or savings impact of the reestimates and to the chart in Note
to the government and are recorded in the bud- 6E of the financial statements which reconciles this
get. Reestimates that indicate an increase in the account.
subsidy cost are financed by permanent indefinite
authority. Debt with Treasury increased $875.5 million as
a result of borrowings to cover the increases in
Financial Position purchases of defaulted loans. Purchases of SBA’s
share of defaulted guarantied loans increased from
ASSETS $3.9 billion to $4.8 billion from FY 2009 to FY
The SBA had total assets of $15.2 billion at the 2010. Due to this unexpected surge in purchases
end of FY 2010, up 20.6 percent from FY 2009. as a result of the continued effect of the economic
Assets increased primarily due to a $2.6 bil- recession, the SBA borrowed funds from Treasury
lion increase in the Fund Balance with Treasury to cover the purchases.
partially offset by a $52 million decrease in
Credit Program Receivables. The Fund Balance NET POSITION
with Treasury increased primarily in the Loan Net position, which is the sum of Unexpended
Guaranty Financing Fund ($2.2 billion). This Appropriations and Cumulative Results of
increase consisted primarily of the collection of Operations, increased in FY 2010 to $1.5 billion.
the prior year upward subsidy reestimate as well Cumulative Results of Operations is the accumu-
as FY 2010 subsidy ($5 billion), collection of fees lated difference between expenditures and financ-
($386 million), collection of principal ($856 mil- ing sources since the inception of the Agency. The
lion) and borrowings ($1.2 billion). This increase loss shown as Cumulative Results of Operations
was partially offset by purchases of defaulted loans decreased to $3.8 billion at the end of FY 2010
in FY 2010 ($4.8 billion). The decrease in the (from $4.7 billion last year) due to unfunded
Credit Program Receivables is due to the reduc- upward subsidy reestimates that decreased in FY
tion in the direct disaster loans portfolio. Per the 2010 on the 7(a) loan guaranty program from
provisions of the Federal Credit Reform Act of FY 2009. Unfunded expenses do not yet have
1990, credit program receivables are valued at the a financing source. They result in an increase in
present value of expected future cash flows. the loss the SBA reports as Cumulative Results
of Operations. The largest category of unfunded
LIABILITIES expenses at the SBA is year end reestimates which
The SBA had total liabilities of $16.8 billion are funded in the following year. Unexpended
at the end of FY 2010, up 9.5 percent from FY Appropriations increased $311.6 million this
2009. Liabilities consist primarily of the Liability year because the appropriations used in FY 2010
for Loan Guaranties and Debt with Treasury. were less than the appropriations received. This
The Liability for Loan Guaranties is defined as is primarily due to funding in the Small Business
the estimate of the net present value of the future Jobs Act that appropriated SBA $505 million to
AGENCY FINANCIAL REPORT • FY 2010
16
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
stimulate small business lending. CHART VI CREDIT PROGRAM SUBSIDY REESTIMATES
These funds were appropriated but
not disbursed at the end of the year,
5
resulting in the increase in the unex-
4
pended appropriations balance.
($($ Billions)
Billions)
3
2
Results of Operations
1
The Results of Operations primar-
0
ily reflects the costs of SBA credit
programs from subsidy expenses -1
FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
during the year for new loans and Direct Disaster Loans (Goal 2) Direct Business Loans (Goal 1) Guarantied Business Loans (Goal 1)
subsidy reestimates at year end. The
credit subsidy cost is the net present
value of expected cash inflows and
outflows over the life of a guaran- guarantied business loan program from FY 2009 to FY 2010.
tied loan, or the difference between The decrease in the overall Net Cost from FY 2009 to FY 2010
the net present value of expected in Strategic Goal 1: Drive business formation, job growth and eco-
cash flows and the face value of nomic expansion, particularly in under-served markets (formerly
a direct loan. The SBA receives Expand America’s ownership society, particularly in under-
appropriations annually to fund its served markets), is primarily due to the decrease in the upward
credit programs. When loans are reestimates for the business loan guaranty programs. The same
disbursed, the SBA records subsidy decrease also applies in Strategic Goal 2: Provide timely financial
expense. In accordance with the assistance to homeowners, renters, nonprofit organizations and
Federal Credit Reform Act, the business affected by disaster, for the Disaster direct programs.
subsidy costs are reestimated an- While there were still significant upward reestimates in both of
nually. Reestimates update origi- these programs (composing the majority of the FY 2010 Net
nal loan program cost estimates Cost), the upward reestimates were less this year than in FY
to reflect actual experience and 2009.
changes in forecasts of future cash
flows. Increased reestimated costs Strategic Goal 1 includes significant upward reestimates in the
are funded in the following year 7(a) Loan Guaranty program, the 504 CDC program, as well
by permanent indefinite authority, as the SBIC program. The 7(a) Loan Guaranty program, SBA’s
while decreased costs are returned flagship and largest program had a net upward reestimate in FY
by the SBA to a Treasury general 2010 of $1.5 billion. While the 2009 cohort performed bet-
fund. During FY 2010, the net ter than expected in FY 2010, many earlier cohorts performed
reestimated costs for the 7(a) and worse. Actual cohort performance, in particular performance
the SBIC Participating Securities of the 2005-2008 cohorts, made up a significant portion of the
programs decreased (guarantied reestimate. The remainder of the reestimate was mostly due
business loan program, Strategic to updated model assumptions and methodologies, which will
Goal 1) compared to FY 2009. allow for more accurate projections of future cash flows. These
Those decreases were the largest methodology changes in recognition of the economic times re-
components of the change (net sulted in increased purchase projections for the remaining years
decrease) in the Agency’s net cost. within the cohorts.
Chart VI reflects the decreases in
Similarly, the 504 Certified Development Companies program
the reestimates for the Disaster
had a net upward reestimate of $1.6 billion. While the 2009 co-
direct programs as well as the
hort performed better than expected in FY 2010, many earlier
AGENCY FINANCIAL REPORT • FY 2010
17
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
cohorts performed worse. The majority of the re- FY 2010 that resulted in an increase in projected
estimate was due to updated model assumptions defaults.
and methodologies, which will allow for more
accurate projections on future cash flows. These BUDGETARY RESOURCES
methodology changes resulted in increased pur- Total Budgetary Resources increased $6 billion
chase projections and decreased recovery projec- from FY 2009 to FY 2010. This increase con-
tions for the remaining years within the cohorts. sists of increases in Spending Authority from
The remainder of the reestimate was mostly due Offsetting Collections and Appropriations
to higher than projected purchases in FY 2010, Received. Spending Authority increased $3.7
in particular for cohorts 2005-2008. billion from FY 2009 to FY 2010. The increase in
Spending Authority is due to the collections of the
The SBIC Debentures program had a net up- FY 2009 upward reestimates in the loan guaranty
ward reestimate of $40 million. The reestimate financing fund in FY 2010. Upward reestimates
was mostly due to lower than projected recover- are funded in the following year after the accrual
ies during FY 2010 and a decrease in projected in the financial statements.
recoveries for the remaining years within the
cohorts. Appropriations Received increased $3.5 bil-
lion from FY 2009 to FY 2010. The increase in
The SBIC Participating Securities program had Appropriations Received is mainly the increase
a net upward reestimate of $337 million. The in Spending Authority discussed previously and
reestimate was mostly due to the downturn in the is the result of the receipt of appropriations for
economy that resulted in lower than projected upward reestimates during FY 2010. The SBA re-
recoveries and higher than projected purchases ceived funding for the FY 2009 upward reestimate
during FY 2010 and an increase in projected pur- in FY 2010. Appropriations Received was also
chases for the remaining years within the cohorts. increased due to appropriations provided by the
The 504 ARRA program had a net upward Small Business Jobs Act in September 2010 as well
reestimate of $156 million despite better than as the extensions for the Recovery Act (FY 2009
projected performance in FY 2010. The rees- was similarly affected by ARRA appropriations
timate was due in large part to updated model in February 2009). Chart VII depicts that the
assumptions and methodologies, which will al- substantial increase in Appropriations Received
low for more accurate projections of future cash is for business loans due to the upward subsidy
flows. These methodology changes resulted in reestimate.
increased purchase projections and decreased re-
covery projections for the remaining years within STATUS OF BUDGETARY RESOURCES
the cohorts. Total Status of Budgetary Resources increased $6
billion from FY 2009 to FY 2010. Obligations
Strategic Goal 2 includes a new upward re- incurred in the budgetary funds increased $3.1
estimate in the Disaster direct loan program billion due to the transfer of the FY 2009 upward
at year-end. The Disaster program had a net reestimate to the financing funds. This is consis-
upward reestimate of $161 million primarily tent with the increase in Appropriations Received
in the 2006 cohort, which mostly consists of discussed previously. Obligations increased in the
loans for the Gulf Coast hurricanes of 2005. nonbudgetary financing funds by $334 million.
Loans in the 2006 cohort currently account for This consisted of an increase of $592 million in
about 56 percent of the outstanding portfolio of the guaranty financing fund offset partially by a
direct disaster loans. The upward reestimate was decrease of $258 million in the direct loan financ-
primarily the result of performance probabilities ing fund. The increase in the obligations of the
being updated with actual performance during guaranty financing fund is consistent with the
AGENCY FINANCIAL REPORT • FY 2010
18
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
increase in purchases of defaulted CHART VII APPROPRIATIONS RECEIVED
guarantied loans. The decrease in
the obligations in the direct loan 7
financing fund is consistent with 6.5
the decrease in credit program 6
receivables. 5.5
5
Unobligated balances at September 4.5
30, 2010 and 2009 are $5.2 billion
($ Billions)
4
and $2.7 billion which include $3 3.5
($ Billions)
billion and $1.3 billion of unavail- 3
able unobligated balances. These 2.5
balances are unavailable because 2
they are unapportioned by OMB. 1.5
The SBA accumulates the majority 1
of these unobligated balances in its 0.5
nonbudgetary financing accounts 0
FY 2007 FY 2008 FY 2009 FY 2010
during the fiscal year ($3.5 billion
in FY 2010 and $1.2 billion in FY Disaster Loans Business Loans Salaries & Expenses
2009) from reestimates of subsidy
costs for the life of each cohort of
direct loans and loan guaranties. In
addition, unobligated balances are CHART VIII SBA OUTSTANDING LOAN PORTFOLIO
accumulated in budgetary accounts
from appropriations ($1.8 billion
in FY 2010 and $1.5 billion in Fiscal Year
Balance
($ Billions)
FY 2009) that are used to finance 2010 50.8 25.5 8.2 .8 7.9 $93
SBA’s ongoing program operations.
2009 48.6 24.1 8.4 .9 8.4 $90
Operational Portfolio 2008 47.7 22.3 8.5 1.1 8.6 $88
Analysis 2007 46.1 19.6 8.4 1.5 9.0 $84
The SBA is the taxpayers’ custodian 2006 44.4 16.7 8.2 2.0 6.8 $78
of a loan portfolio of $93.3 billion
to small businesses, as shown in 0 25 50 75 100
Chart VIII. This portfolio of % of SBA Portfolio
outstanding principal loan amounts 7(a) Regular 504 Regular SBIC Programs Other Disaster
includes both guarantied and direct
business loans as well as direct has largely avoided major hurricanes like those of 2005 and
disaster loans. SBA’s two flagship 2006 (Katrina, Rita and Wilma). The Deepwater Horizon oil
guaranty business loan programs, spill in the Gulf of Mexico during FY 2010 did not result in a
7(a) and 504, comprise roughly large increase in the disaster portfolio, most likely because small
80 percent of the outstanding loan business owners are turning to the BP compensation fund first
portfolio. The direct disaster loan for their damaged businesses. According to a bi-annual survey
portfolio has steadily shrunk by conducted by the National Small Business Association, the SBA’s
nearly a billion dollars in the past loan products reach around 4 percent of small businesses in need
four years as the United States of financing.
AGENCY FINANCIAL REPORT • FY 2010
19
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
programs that increased lending.
The 7(a) and 504 loan programs continue to drive the growth First, the Recovery Act temporarily
of the overall loan portfolio. In FY 2010, they accounted for allowed the SBA to eliminate fees
all the growth in the portfolio, growing at a rate of 5 percent for borrowers on 7(a) loans and
while the other programs contracted by 4.5 percent, leading for both borrowers and lenders
to an overall portfolio rate of 3.2 percent. The most likely on 504 Certified Development
explanation for 7(a) and 504’s popularity can be found in the Company loans. Second, the
month-by-month loan approval snapshot shown in Chart Recovery Act allowed the SBA to
IX. The American Recovery and Reinvestment Act, passed in raise the guaranty on 7(a) loans up
February 2009, contained several provisions for the flagship to 90 percent. Combined, these
CHART IX MONTHLY GROSS 7(a) AND 504 LOAN APPROVALS
2.5
Received
Extensions
2.0
FY08 Average
($ Billions)
$1.50 B
($ Billions)
FY10 Average
1.5 Recovery Average
$1.37 B $1.40 B
9/10
FY09 Average $1.25 B
$1.09 B
1.0
Pre-Recovery Average
$0.83 B
0.5
0
12/07 3/08 6/08 9/08 12/08 3/09 6/09 9/09 12/09 3/10 6/10 9/10
CHART X 7(a) SECONDARY MARKET PREMIUM RANGES two provisions made SBA loans
cheaper for borrowers and lenders
100 alike as well as less risky for lenders
90 fearful of risk after the financial
(Percentofof$ $Settled)
(Percent Settled)
80 crisis of 2008. High demand for
70 loans with Recovery Act fee relief
60
and guaranty enhancement drained
50
40
the entire amount appropriated
30 for these loans by November 2009,
20 nearly a year before the Recovery
10 Act ended. Thus, over the course
03/0
5/0 8
8 of FY 2010, the SBA received
four extensions of Recovery Act
7/0
9/0
11/08
1/0 8
8
9
3/0
5/0
7/0
9/0
11 9
9
9
9
/09
1/1
3/1
5/1 0
0
0
provisions from Congress and, as
7/1
9/1 0
0
103 or below 103.1-106 Above 106
seen in Chart IX, demand surged
AGENCY FINANCIAL REPORT • FY 2010
20
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
with each extension and fell with CHART XI NET PERCENTAGE OF DOMESTIC RESPONDENTS
every shortage. In the final week TIGHTENING STANDARDS FOR COMMERCIAL AND INDUSTRIAL LOANS
of FY 2010, Congress passed the
Small Business Jobs Act which
made these Recovery Act provisions 100% APR
Survey
permanent, along with other 80%
changes like higher loan size limits. 60%
40%
Loan Demand and 20%
Supply Revisited 0%
In last year’s Operational Portfolio -20%
Analysis, the relationship between -40%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
loan supply (willingness of banks
to lend) and loan demand (willing- Loans To Large And Medium-sized Firms Loans To Small Firms
ness of businesses to take on a loan)
was highlighted. It was noted that
a tight supply combined with weak CHART XII S&P CASE-SHILLER HOUSING INDEX & SBA 504
demand had led to a slowdown LOAN APPROVALS
in the number of loans approved.
Furthermore, the Agency predicted 7 250
that, as more current data become 6
200
available, it is likely that the SBA 5
Housing Price Index
($ ($
Billions)
will see the effects of the Recovery 4 150
Billions)
Act provisions to waive borrower 3 100
fees and increase SBA loan guaran- 2
50
ties on this loan equation. Reduced 1
fees, a bottoming-out of the hous- 0 0
ing market, and a rebounding in the 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
general economy will strengthen 504 Loan Approvals
S&P Case Shiller Housing Index
demand for small business loans
while the decrease in risk associ-
ated with the higher loan guaranty representing 94 percent of the total dollars were sold at or above
will lead to an expansion of supply premiums of 106 as seen in Chart X. In fact, 70 percent of the
from banks. Chart IX’s shape of loans settled at 109.1 or more, indicating that investors saw great
the loan approvals pre- and post- worth in the securitized bundles of 7(a) loans.
extension of Recovery Act provi-
sions strongly suggests that the SBA The changes to 7(a) and 504 accompanying the Recovery Act are
was correct regarding the latter half probably a strong reason why the number of banks using SBA
of the prediction. The demand on products has jumped 27 percent in the past two years. While
the secondary market for 7(a) loans banks may have found SBA’s products particularly enticing, the
became so high over the course Senior Loan Officer Opinion Survey, conducted quarterly by
of the year that, while zero loans the Federal Reserve Board, shows the abrupt tightening of credit
made in January or February 2009 standards for all banks to small firms when the financial crisis
(pre-Recovery Act) sold at a 106 began eased throughout 2010 and standards were even loosening
premium or above, in September by the summer of 2010, as evidenced by Chart XI.
2010, 95 percent of the loans settled
AGENCY FINANCIAL REPORT • FY 2010
21
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
However, the SBA expects continued depressed compared to around 110 in FY 2007. The lack
demand for loans from small businesses will of confidence both by businesses and consum-
hinder stronger growth in the loan portfolio. ers creates a circle of stagnation since businesses
The decline is caused in large part by the mid- remain unoptimistic about expanding and hiring,
dling economy and muddled housing market. As while consumers wait to spend and bring revenue
evidenced by Chart XII, for years the SBA loan to these businesses.
approval volumes have closely tracked the Case-
Shiller National Housing Price Index. Many In the equation of loan supply and demand, the
first-time entrepreneurs use the equity they have demand for loans will likely drive depressed loan
built in their houses as the collateral for their volumes. Policy changes in the past two years at-
small business loans. As that equity shriveled tracted lenders to SBA loans, but only a renewed
with the burst of the housing market bubble in confidence in the future will allow the demand
2007, demand for loans had a corresponding for loans to meet the supply again.
decline. A deeper examination of the regional
data for SBA shows the correlation’s strength. Default and Recovery Rates in
Of the nine metropolitan areas that have had the Times of High Unemployment
deepest continued decline in home prices from Each year the SBA uses a variety of sophisti-
their peak, SBA’s corresponding district office cated econometric models that employ a variety
has registered the steepest drop in loan demand of economic behavior pattern models as well
from FY 2006 to FY 2010 — six offices rank as the economic assumptions released by the
in the top ten and all nine register in the top White House. These models predict the amount
twenty. With the housing crisis now entering of SBA outstanding loans and loan guaranties
into a foreclosure crisis, the negative effects of a taxpayers will pay over the life of a loan cohort,
weak housing market on loan demand will likely namely all loans made that fiscal year. At the
persist for the foreseeable future. same time the SBA estimates the amount for the
The value of housing is only a part of the story upcoming fiscal year cohort it also reestimates all
however stagnation in the broader economy con- previous outstanding cohorts to adjust the model
tinues to result in lower demand for loans as small with the new data accumulated over the past year
businesses postpone plans for expansion or large and the White House’s new economic assump-
investments. According to the October 2010 tions. In FY 2010, the SBA had a higher than
Small Business Economic Trends survey pub- normal reestimate of $3.6 billion. This reesti-
lished by the National Federation of Independent mate has several notable characteristics. First,
Business, a record 53 percent of small businesses it was necessary to factor in an unprecedented
reported no need for a loan. In fact, only 3 per- continuing period of high unemployment for
cent listed financing as their number one business the models, and the effects of purchase rates on
problem; weak sales dominated their business defaulted loans remained uncertain. They were
concerns. A survey conducted by the National higher than expected (see Chart XIII), but now
Small Business Association in July 2010 points that there are two years of data, the SBA will
to the long-term effects of this concern: over 80 attune future models more closely to the nega-
percent of those businesses surveyed projected no tive effects of continued high unemployment.
growth opportunities for their firms in the next Second, 80 percent of the reestimate occurred
six months. Thus, hiring additional employees or because of worse than expected performance in
making big investments will be delayed. The con- loans originated in FY 2005-2008. Traditionally,
sumer Confidence Index similarly tracks this mid- loan cohorts in their third to fifth year of re-
dling economic condition, with confidence rates payments are most likely to default or run into
hovering in the mid-50s throughout FY 2010 as trouble, but the effect this time was probably
magnified because of the looser underwriting
AGENCY FINANCIAL REPORT • FY 2010
22
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
procedures and credit standards by CHART XIII PURCHASE RATES FOR 7(a) AND 504 BY FISCAL YEAR
lenders prevalent in that time peri-
od. Also, many of the loans from 8
those years were from the vari- 7(a)
7
ous SBA Express programs which 504
6
(% of Loans Purchased)
traditionally have lower recovery
rates post-default. Although SBA’s 5
models do not account for the val- 4
ue of a loan’s collateral (the bank 3
determines a loan’s collateral), the
2
FY 2005-2008 loans likely used
real estate with inflated prices as 1
collateral. As the housing market 0
settles to a new level, recovery rates 01 02 03 04 05 06 07 08 09 10
20 20 20 20 20 20 20 20 20 20
will likely lower for those particu-
lar cohorts, since their collateral
decreased in value from the time CHART XIV FY 2010 DISASTER OUTSTANDING PORTFOLIO
of loan origination. Due to the BY LOAN TYPE
Recovery Act and its extensions,
World Trade Center
loans made in the previous two 2%
Business/Economic Injury
fiscal years by the SBA have had
higher guaranties than previously.
To counter the risk associated with 20%
higher guaranties, the SBA altered
40% Katrina, Rita,
the financial models accordingly Wilma Home
with higher subsidies to take into
Home 23%
account the increased exposure to
individual loan performance. 15%
Disaster
Katrina, Rita,
SBA’s portfolio of direct disaster Wilma Business
loans has declined in volume by
over a billion dollars in the past 4
years, dropping from $8.96 billion total as seen in Chart XIV. By comparison, the three costliest
in FY 2007 to $7.93 billion by disasters of FY 2010 – the Tennessee floods, the Rhode Island/
the end of FY 2010. The three Massachusetts floods, and the BP oil spill – led to only $272.21
hurricanes of FY 2006 – Katrina, million of gross loan approvals. It is likely that the BP compen-
Rita and Wilma – continue to sation fund set up to help businesses affected by the Deepwater
compose the greatest portion of Horizon disaster led to a lower-than-expected amount of SBA
the outstanding disaster portfolio, disaster loans for the same event. As long as the United States
$4.39 billion or 55 percent of the continues to avoid major disasters, a decline in the overall port-
folio is a welcome and expected trend.
AGENCY FINANCIAL REPORT • FY 2010
23
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Analysis of SBA’s Systems, Controls and Legal Compliance
Internal Control Environment Internal Control Over Financial Reporting. The
INTERNAL CONTROL
OIC conducted SBA’s sixth annual assessment of
The SBA believes that maintaining integrity and internal control over financial reporting to comply
accountability in all programs and operations with this circular. The revised A-123 requires the
is critical for good government, demonstrates managers of federal agencies to take the responsi-
responsible stewardship over assets and resources, bility for assessing internal controls over financial
ensures high quality, is a sign of responsible leader- reporting similar to that imposed on publicly trad-
ship, ensures the effective delivery of services to ed companies by the Public Company Accounting
customers, and maximizes desired program out- Reform and Investor Protection Act of 2002 (the
comes. The SBA has developed and implemented “Sarbanes-Oxley Act” or “SOX”).
management, administrative and financial system The Senior Assessment Team, chaired by the Chief
controls to reasonably ensure that: Financial Officer and comprised of SBA manag-
yy programs and operations achieve intended ers from the major programs and support offices,
results efficiently and effectively; directed this effort. The OIC reviewed the key
business processes impacting financial operations
yy resources are used in accordance with the and the financial statements. In addition, the SAT
mission of the Agency; members reviewed some of the business processes
y programs and resources are protected from with no material impact on the financial state-
waste, fraud and mismanagement; ments, but which have some potential for risk or
y program and operations activities are in exposure for the Agency.
compliance with laws and regulations; and Based on the evaluation of 14 business processes,
y reliable, complete and timely data are the OIC identified a number of deficiencies in the
maintained and used for decision-making at internal control over financial reporting, includ-
all levels. ing several in SBA’s key business areas. However,
The Federal Managers’ Financial Integrity Act the OIC determined that most of the items were
of 1982 requires federal agencies to conduct an relatively minor and one reached the level of sig-
annual assessment of internal control and report nificant deficiency.
the results to the President. The conclusion of the
In addition, OIC also performed a review of the
Administrator’s Annual FMFIA assurance state-
Sacramento Loan Processing Center to help the
ment is based on the self-assessment of program
Office of Capital Access determine the effective-
managers, internal control reviews, and audits and
ness and efficiency of the internal controls in place
reviews done by the Government Accountability
for loan approvals made under the American
Office and the SBA’s Office of the Inspector
Recovery and Reinvestment Act of 2009. All de-
General.
ficiencies noted were minor and none reached the
The SBA continues to strengthen and improve the level of significant deficiency.
execution of its mission through the application
Given the size of its $93 billion loan portfolio,
of sound internal controls. The Office of Internal
the SBA’s lender and loan monitoring and re-
Controls is responsible for implementing the
view activities represent a critical component of
requirements of the Office of Management and
the Agency’s internal control framework. The
Budget’s revised Circular No. A-123, Appendix A,
Agency’s Office of Credit Risk Management rates
AGENCY FINANCIAL REPORT • FY 2010
24
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
lenders that disburse SBA-guarantied loans ac- information. In addition, the Agency’s financial
cording to risk. This analysis allows the SBA to and program-related internal control has im-
focus resources on those lenders that represent proved substantially over the years through the
the most risk in terms of exposure and credit remediation of audit recommendations made by
quality. Larger lenders are subject to periodic on- the Agency’s independent auditor in the annual
site reviews. Other lenders are on a case by case financial statements audit. Finally, the SBA also
basis. The SBA also conducts reviews of Certified considers and responds to recommendations from
Development Companies, examinations of Small audits and reviews conducted by the GAO.
Business Investment Companies, guarantied loan
purchase reviews and reviews of improper pay- During FY 2010, the OCFO continued to
ments for business and disaster loans. strengthen internal control over financial report-
ing and credit subsidy cost modeling through
LEGAL COMPLIANCE additional quality assurance procedures for vali-
The SBA’s independent auditor has identified one dating loan program data at key points. The SBA
instance of non-compliance with applicable laws also continued to strengthen its financial manage-
and regulations as of September 30, 2010. Due to ment team through communication on emerging
a system error, 473 of 8,229 charged-off disaster issues and training activities.
loans, or 5.7 percent were not referred to Treasury
INFORMATION SYSTEMS
for cross-servicing and for the Treasury offset as
required by the Debt Collection Improvement This year the SBA continued to have a significant
Act. This represents $11.3 million of the $247.5 deficiency in the information technology security
million disaster loans charged-off in FY 2010, controls—including access controls, segregation
or 4.6 percent. The system issue has been identi- of duties, software configuration and security
fied and is in the process of being remedied and management. The Agency is sensitive to the need
a mitigation plan has been developed to ensure to protect SBA data, and plans to work diligently
that this issue will not recur. All loans eligible to improve both process and performance in this
for Treasury referral will be referred within the critical area. The following steps to remediate
next six months. In FY 2009, through the SBA’s findings pointed out in the Auditors’ Report are
self-assessment process it was identified that the currently underway:
Agency was not referring non-disaster loans for yy Continuous Monitoring: SBA’s IT
the Treasury off-set program; this was corrected Security team in the Office of the CIO
in FY2010. There were no issues identified in (OCIO), under the direction of the Chief
the testing of the improved internal controls Information Officer, has begun fiscal year
over non-disaster loans by both our independent 2011 with a rigorous weekly session that
auditors and our OMB A-123 team in the current includes reports and evaluation by an
year and we anticipate the same successful resolu- OCIO team on the critical success factors
tion for the disaster loans in FY2011. (CSFs) that underlay IT security, and key
performance indicators for each CSF.
AUDIT FOLLOW-UP
yy Enterprise Change Control: SBA’s Change
SBA’s OIG conducts audits and reviews of the
Manager has convened a working group of
Agency’s operations, and the Office of the Chief
cross-SBA IT system owners to implement
Financial Officer works closely with SBA manage-
a delegated-authority Enterprise Change
ment and the OIG to complete actions necessary
Control Board which will mitigate the
to respond to OIG audits. The OCFO tracks
FY10 finding that concluded a non-
the completion of these audit recommendations,
inclusive control over changes in SBA’s IT
and posts the status of all open OIG recom-
infrastructure.
mendations on the SBA’s Intranet for managers’
AGENCY FINANCIAL REPORT • FY 2010
25
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
yy Configuration Management: SBA’s OCIO connection of non-SBA government
has begun a project to define and implement equipment to the SBA infrastructure.
a configuration management database to yy IT Security role-based training: in order to
account for and include all IT system assets. promote a program of continuous training
yy Tracking of Plans of Action and Milestones for IT system owners, security managers,
(POAMs): SBA’s OCIO now incorporates and associated personnel, SBA’s OCIO
POAMs for all SBA IT systems in the is implementing a monthly “IT Security
Agency’s Audit Tracking system, with Officer (ITSO)” joint meeting, led by
triggers to identify POAM vintages and SBA’s Chief Information Security Officer
milestones. The Audit Tracking system (CISO). The monthly ITSO meeting will
is reviewed with IT Security and system bring together system owners and those with
owners on a weekly basis. associated roles in order to conduct training.
yy Data Loss Protection: SBA has invested yy Log correlation and analysis: the SBA
in a leading data loss protection forensic has invested in software sensors and log
tool and has configured it to sense and extraction software in order to collect,
block all exports of personally identifiable compile, and statistically analyze critical
information, as well as controlled server logs. The analysis will be used to
unclassified information. discover patterns in user and server activity
yy Network Access Control: the SBA is that may point to non-standard network
promulgating a new policy that blocks practices, and direct follow-on forensic
activity.
Success Story
”Fishing” for Business While Overcoming Adversity
Tommy’s Seafood Inc. New Orleans, Louisiana
Louisiana small business owners Tommy and Maria Delaune suffered a one-
two punch from Hurricane Katrina and the Deepwater BP oil spill. They run
Tommy’s Seafood, a New Orleans seafood processor and wholesaler with 20
employees.
When Hurricane Katrina hit in August 2005, the business suffered major dam-
age at its two facilities, including loss of equipment and inventory. They applied
for an SBA disaster loan in October 2005, and the loan was approved seven
months later. But the loan for $960,000 wasn’t fully disbursed until October
2006, a year later.
The SBA overhauled the disaster loan program after the 2005 Gulf Coast hurricanes. Staff increases, improved tech-
nology and training, and a streamlined loan process resulted in vast improvements. The needs of disaster victims are
now being met more efficiently.
Tommy’s Seafood got hit again in April 2010 when the Deepwater BP oil spill forced closures of fishing waters in the
Gulf of Mexico, where their suppliers work. Tommy and Maria had to look 500 miles away to find more seafood to
process, so they had higher expenses and lower profit margins. This time around, however, their experience with the
SBA was “amazing,” according to Maria. Their Economic Injury Disaster loan for $460,900 was approved in 16 days,
and it was fully disbursed just a month later. In addition, the SBA deferred their existing Katrina loan for 12 months,
allowing them to use more of their resources to deal with the financial strain caused by the oil spill.
AGENCY FINANCIAL REPORT • FY 2010
26
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Summary of Financial Statement Audit
and Management Assurances
As required by OMB Circular A-136, Section II.5.6, the following summarizes SBA’s financial state-
ment audit and SBA’s Management Assurances:
Summary of Financial Statement Audit
Audit Opinion Unqualified
Restatement No
Material Beginning New Resolved Consolidated Reassessed Ending
Weaknesses Balance Balance
Financial Reporting 1 0 1 N/A N/A 0
Summary of Management Assurances
Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)
Statement of Assurance Unqualified
Material Beginning New Resolved Consolidated Reassessed Ending
Weaknesses Balance Balance
Financial Reporting 1 0 1 N/A N/A 0
Effectiveness of Internal Control over Operations (FMFIA § 2)
Statement of Assurance Unqualified
Material Beginning New Resolved Consolidated Reassessed Ending
Weaknesses Balance Balance
None 0 0 N/A N/A N/A 0
Conformance with financial management system requirements (FMFIA § 4)
Statement of Assurance Systems conform to financial management system requirements.
Non-Conformances Beginning New Resolved Consolidated Reassessed Ending
Balance Balance
None 0 0 N/A N/A N/A 0
Conformance with Federal Financial Management Improvement Act (FFMIA)
Agency Auditor
Overall Substantial Compliance Yes Yes
1. System Requirements Yes
2. Accounting Standards Yes
3. USSGL at Transaction Level Yes
AGENCY FINANCIAL REPORT • FY 2010
27
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
FMFIA and FFMIA Assurance Statement for FY 2010
The Small Business Administration continued to strengthen the internal controls over its programs and operations
during FY 2010. Creating a culture of responsibility and accountability while eliminating and preventing waste,
fraud and abuse is critical to meeting our mission at the SBA. I am pleased to report that the SBA is on course to
achieve its internal control objectives.
SBA management is responsible for establishing and maintaining effective internal controls and financial manage-
ment systems that meet the objective of the Federal Managers Financial Integrity Act. The SBA conducted its as-
sessment of the effectiveness of internal controls over the effectiveness and efficiency of operations and compliance
with applicable laws and regulations in accordance with OMB Circular A-123, Management’s Responsibility for
Internal Control. Agency managers have issued assertions as to the status of their FY 2010 internal controls, and
these assertions are supported by internal testing, checklists and other management reviews. Although Agency
managers reported some operating deficiencies, these were not of a material nature. Based on the results of this
evaluation, I can provide reasonable assurance that internal controls were operating effectively and no material
weaknesses were identified in the design or operation of internal controls.
In addition, the SBA conducted its assessment of the effectiveness of internal controls over financial reporting,
which includes safeguarding of assets and compliance with applicable laws and regulations, in accordance with
the requirements of Appendix A of OMB Circular A-123. Based on the results of this evaluation, I can provide
reasonable assurance that internal controls over financial reporting were operating effectively and no material
weaknesses were identified in the design or operation of internal controls over financial reporting.
SBA’s independent auditors issued an unqualified opinion on the Agency’s FY 2010 financial statements for the
sixth year in a row. However, our auditor identified one instance of non-compliance with applicable laws and reg-
ulations as of September 30, 2010. Due to a system error, 473 of 8,229 charged-off disaster loans, or 5.7 percent,
were not referred to Treasury for cross-servicing and for the Treasury offset as required by the Debt Collection
Improvement Act. This represents $11.3 million of the $247.5 million disaster loans charged-off in FY 2010, or
4.6 percent. The system issue has been identified and is in the process of being remedied and a mitigation plan
has been developed to ensure that this issue will not recur. All loans eligible for Treasury referral will be referred
within the next six months. In FY 2009, through SBA’s self-assessment process it was identified that the Agency
was not referring non-disaster loans for the Treasury off-set program; this was corrected in FY 2010. There were
no issues identified in the testing of the improved internal controls over non-disaster loans by both our indepen-
dent auditors and our OMB A-123 team in the current year and we anticipate the same successful resolution for
the disaster loans in FY2011.
The Federal Financial Management Improvement Act requires federal agencies to implement and maintain
financial management systems that are in substantial compliance with federal financial management systems
requirements, federal accounting standards, and the United States Government Standard General Ledger. The
SBA provides reasonable assurance that its financial management systems substantially comply with FFMIA for
FY 2010.
Karen Gordon Mills
Administrator
November 15, 2010
AGENCY FINANCIAL REPORT • FY 2010
28
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Improper Payments Summary The 7(a) guaranty purchase operation includes
The Improper Payment Information Act of 2002 centers in Herndon, Virginia, Fresno, California,
requires that agencies: (1) review programs and and Little Rock, Arkansas that report to head-
identify those susceptible to significant improper quarters in Washington DC. The FY 2010 7(a)
payments; (2) report to Congress on the amount guaranty purchase improper payment rate was
and cause of improper payments; and (3) de- determined to be 1.87 percent or $44.8 million
velop approaches for reducing such payments. compared with last year’s improper payment rate
Appendix C to OMB Circular A-123 provides of 3.81 percent. The Disaster program operation
additional guidance on agency compliance with includes a processing center in Fort Worth and op-
IPIA requirements. In addition, OMB Circular eration centers in Atlanta and Sacramento, as well
A-136 provides guidance on the form and con- as a Buffalo customer service center. The FY 2010
tent of IPIA reporting. Finally, the Improper Disaster improper payment rate was determined
Payment Elimination and Recovery Act enacted in to be 34.2 percent or $127.1 million compared to
July 2010, effective in FY 2011, places additional 20.9 percent reported last year.
emphasis on improper payment improvement. The 7(a) guaranty purchase review contains a
SBA’s improper payment program and reporting is number of judgmental considerations concern-
subject to this guidance. ing whether the originating lender exercised
SBA’s four major credit programs are currently reasonable commercial care and prudence in the
included under IPIA reporting. They are the 7(a) execution, servicing and liquidation of the loan
business loan program, the Section 504 Certified in accordance with SBA loan program require-
Development Company loan program, the Small ments; and whether or not the lender’s actions or
Business Investment Company program and the inactions have placed the SBA at financial risk or
Disaster Assistance loan program. SBA’s risk contributed materially to the loan default. The
assessment of the 7(a), 504, and SBIC guaranty evaluation of the lender’s exercise of reasonable
approval programs for improper payment indicate commercial lending practices is critical and needs
a low level of risk, due to the internal controls ap- to be consistent with the lending practices exer-
plied in these programs, and improper payments cised related to loans that did not default. The
are extremely low or nonexistent. The SBA con- exercise of this judgment is critical to the viability
siders the 7(a) guaranty purchase program to have of the 7(a) program as lenders can chose whether
a medium risk of improper payments due to the or not to participate in the 7(a) program and is
delegation of program authority to SBA’s lending especially relevant since over 85 percent of SBA
partners in this nationwide program. The Disaster 7(a) loans are approved by lenders using delegated
program has a low risk of loss, but improper pay- authority where they make the credit underwriting
ment reviews have found that compliance with the decisions.
paperwork required in Disaster program lending Disaster improper payments are generally the
procedures needs improvement. result of loan documentation errors and do not
The SBA Inspector General issued audit reports result in a disaster victim receiving funds that they
on the 7(a) Guaranty Purchase ( July 2009) and are not eligible to receive. Further, the disaster
Disaster Improper Payments (March 2009). As a loan program operation has a built in recovery
result of findings and recommendations in these system in that the majority of loans made are
reports the SBA has changed its methodology collateralized and all loans have to be repaid,
used in both of these programs in the sampling and SBA’s loan servicing and liquidation opera-
and testing for improper payments. This further tion attains maximum recovery. The increased
resulted in an increase of the improper payment rate in FY 2010 indicates a need to adhere to the
rates and dollars found in FY 2009. documentation requirements of SBA’s Standard
AGENCY FINANCIAL REPORT • FY 2010
29
M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S
Operating Procedures. Additional training has in FY 2010 indicated a zero percent improper pay-
been instituted to ensure that staff is aware of all ment rate for both programs. The SBIC program
paperwork requirements and waiver procedures testing found three potential improper payments
when appropriate. Also, a dedicated team that where excessive prepayment penalties were not
reports directly to SBA headquarters will com- approved by SBIC program officials as required
plete the annual Improper Payment review and (although they may have been approved if the
continuously review the work of the Production SBIC had requested approval) for 0.99 percent or
and Disbursement Center in Fort Worth. Finally, $14.6 million when extrapolated.
areas of concern will be identified and corrected in
In summary, the SBA places a top priority on the
a timely manner.
detection and remediation of improper pay-
In accordance with OMB guidance, the SBA ment occurrence. The 7(a) guaranty purchase,
includes loan guaranty approvals issued during FY SBIC and Disaster loan programs have staffs that
2010 in its Improper Payment program reporting monitor and review their operations for improper
for its 7(a), 504 and SBIC programs. Although payments and implement improvements. In addi-
these guaranties haven’t yet resulted in federal out- tion the SBA provided additional staff during FY
lays, they possibly could in the future and they are 2010 to support its internal controls over financial
therefore included. Most frequently, the reason management activities in accordance with OMB
for an improper payment in this category would Circular A-123 requirements. These resources
be the lack of appropriate eligibility or a non will be applied to future improvement of the SBA’s
compliance with lending procedures. The result Improper Payment program.
of SBA’s testing for 7(a) and 504 guaranties issued
Did What do Intel, FedEx and Outback Steakhouse have in com-
you mon? They all received SBA assistance. Learn about the
know SBA Investment Division at http://www.sba.gov/aboutsba/
sbaprograms/inv.
AGENCY FINANCIAL REPORT • FY 2010
30
FINANCIAL REPORTING
Success Story
Successful Entrepreneur Cites Military Experience
Hughes Group, LLC, Lakewood, Washington
Patrick L. Hughes, owner and managing member of Hughes Group,
LLC turned 28 years of military experience into a thriving business.
The veteran-owned company, established by Hughes in 1999, is an SBA
8(a) and HUBZone-certified firm, and is classified as a service disabled
veteran-owned small business. The company provides aircraft, admin-
istrative and training, integrated logistics and information technology
solutions to the armed forces and business community. Its wide range of
services to the federal government and major private sector companies includes aircraft refueling and maintenance, postal
services, personnel placement, property book management, food services, web hosting and design, and help desk support.
“Because of my military experience I have been able to grow the business into eleven states,” reports Hughes.
Hughes was honored by the SBA as the 2010 National Minority Small Business Person of the Year at the 28th annual
National Minority Enterprise Development (MED) Week conference in Washington, D.C. “We are honoring the
Hughes Group today for its extraordinary commitment to excellence in providing innovative products and services
to the federal government and commercial markets,” said SBA Administrator Karen G. Mills. “Mr. Hughes’ commit-
ment to excellence has made his small business the third fastest growing minority business in Washington state and
has helped spur job creation in the small business community and the nation’s economy.” Mr. Hughes is the recipient
of SBA loans made possible by the Recovery Act of 2009.
FINANCIAL REPORTING
Message from the Chief Financial Officer
November 15, 2010
In compliance with the Reports Consolidation Act, I am pleased to submit the U.S.
Small Business Administration’s Agency Financial Report for FY 2010.
SBA’s loan activities have increased dramatically since passage of the American Recovery and
Reinvestment Act in February 2009. As the popularity of the Recovery Act provisions for
SBA loans (higher guaranties and reduced fees) led demand to swiftly outpace the original
amount appropriated for Recovery Act loans, Congress passed four temporary extensions
in FY 2010 before making many of the provisions permanent in the Small Business Jobs Act
on September 27, 2010. Modeling and managing the waves of funds associated with the
extensions was challenging but I am happy to report that our financial management team was
once again up to the task. An independent audit has earned the SBA an unqualified and clean
opinion with no material weaknesses. In addition, for the fourth straight year the SBA has
won the prestigious CEAR (Certificate of Excellence in Accountability Reporting) award.
During FY 2010 we changed course on our ambitious Loan Management and Accounting
System (LMAS) project. In accordance with OMB guidance, the SBA reviewed and
subsequently discontinued this ongoing loan and financial system modernization project. As
a result, the $5.2 million accumulated cost to develop LMAS was written off to expense in
the FY 2010 results. The SBA divided the LMAS program into smaller, more manageable
projects which are funded separately, and which are intended to provide meaningful
deliverables and decision points as the financial systems modernization effort progresses.
This approach was also designed to enable the SBA to adjust the plans and implementation
strategy based on lessons learned and on changing circumstances and funding levels.
FY 2010 saw further integration of performance and budget at the SBA. Early in the year
we participated in the Administration’s High Priority Performance Goals initiative. In
the end, we chose four goals: increase the number of active SBA lending partners to
3,000 by the end of FY 2011; increase small business participation in federal government
contracting; process 85 percent of home and business disaster loans within 14 and 18
days, respectively; and improve our Small Business Innovation Research program. The
announcement of these goals spurred the Agency and as of September 30, we had already
met the lender goal and exceeded the processing time goal for disaster loans.
Our integration efforts continued over the summer as we developed a new Agency strategic plan
and budgetary submissions based on the framework of these goals. The creation of new programs
during the Recovery Act and the Small Business Jobs Act offered us an opportunity to update
and refine our performance measures. We seized it and, as a result, our performance is more
accurately tracked and the quality of our data is continually improving. I believe our forward-
looking performance and budget integration efforts will serve the SBA well as the government
continues to move toward a more collaborative environment, both intra-agency and inter-agency.
AGENCY FINANCIAL REPORT • FY 2010
33
FINANCIAL REPORTING
Finally, I want to thank the independent Audit and Financial Management Advisory Committee
who, since late FY 2004, engages with us in the financial reporting process and audit cycle, providing
oversight of activities and making recommendations for our financial statement footnotes and the
AFR prior to publication. We are proud to have one of the few independent audit committees
within the federal government and appreciate the opportunity to have such an esteemed group of
professionals advising us. I thank them for their support and dedication to continued improvement.
Sincerely,
Jonathan I. Carver
Chief Financial Officer
AGENCY FINANCIAL REPORT • FY 2010
34
FINANCIAL REPORTING
Audit and Financial Management Advisory Committee’s Report
The Audit and Financial Management Advisory Committee (the Committee) assists the Administrator
in overseeing the U.S. Small Business Administration’s (SBA’s) financial operations. As part of that
responsibility, the Committee meets with Agency management, the Agency’s Inspector General, and its
external auditors to review and discuss SBA’s external financial audit coverage, the effectiveness of SBA’s
internal controls over its financial operations, and its compliance with certain laws and regulations that
could materially impact SBA’s financial statements. SBA’s external auditors are responsible for expressing
an opinion on the conformity of SBA’s audited financial statements with the U.S. generally accepted ac-
counting principles. The Committee reviews the findings of the Inspector General and external auditors,
and SBA’s responses to those findings, to ensure that SBA’s plan for corrective action includes appro-
priate and timely follow-up measures. In addition, the Committee reviews the draft Agency Financial
Report (AFR), including its financial statements, and provides comments to management who has pri-
mary responsibility for the AFR. The Committee met three times during the year with respect to these
responsibilities on FY 2010 financial management and reporting. During these sessions, the Committee
met with the Inspector General and external auditors without SBA management being present and
discussed with the external auditors the matters that are required to be discussed by generally accepted
auditing standards. Nothing came to our attention as a result of these discussions to indicate changes
were needed to the financial statements and notes thereto that are included in the FY 2010 AFR.
Edward J. Mazur
Chairman
Audit and Financial Management Advisory Committee
AGENCY FINANCIAL REPORT • FY 2010
35
FINANCIAL REPORTING
Inspector General’s Audit Report
AGENCY FINANCIAL REPORT • FY 2010
36
FINANCIAL REPORTING
AGENCY FINANCIAL REPORT • FY 2010
37
FINANCIAL REPORTING
Independent Auditor’s Report on FY 2010 Financial Statements
KPMG LLP
2001 M Street, NW
Washington, DC 20036-3389
Independent Auditors’ Report
Office of Inspector General,
U.S. Small Business Administration:
We have audited the accompanying consolidated balance sheets of the U.S. Small Business Administration
(SBA) as of September 30, 2010 and 2009, and the related consolidated statements of net cost and changes
in net position, and combined statements of budgetary resources (hereinafter referred to as “consolidated
financial statements”) for the years then ended. The objective of our audits was to express an opinion on
the fair presentation of these consolidated financial statements. In connection with our Fiscal Year (FY)
2010 audit, we also considered SBA’s internal control over financial reporting and tested SBA’s
compliance with certain provisions of applicable laws, regulations, contracts, and grant agreements that
could have a direct and material effect on these consolidated financial statements.
Summary
As stated in our opinion on the consolidated financial statements, we concluded that SBA’s consolidated
financial statements as of and for the years ended September 30, 2010 and 2009, are presented fairly, in all
material respects, in conformity with U.S. generally accepted accounting principles.
Our consideration of internal control over financial reporting resulted in identifying certain deficiencies
that we consider to be a significant deficiency, as defined in the Internal Control Over Financial Reporting
section of this report, as follows:
Improvement Needed in Information Technology (IT) Security Controls
We did not identify any deficiencies in internal control over financial reporting that we consider to be
material weaknesses as defined in the Internal Control Over Financial Reporting section of this report.
The results of our tests of compliance with certain provisions of laws, regulations, contracts, and grant
agreements disclosed one instance of noncompliance that is required to be reported under Government
Auditing Standards, issued by the Comptroller General of the United States, and Office of Management
and Budget (OMB) Bulletin No. 07-04, Audit Requirements for Federal Financial Statements, as amended.
Noncompliance with the Debt Collection Improvement Act
The following sections discuss our opinion on SBA’s consolidated financial statements; our consideration
of SBA’s internal control over financial reporting; our tests of SBA’s compliance with certain provisions
of applicable laws, regulations, contracts, and grant agreements; and management’s and our
responsibilities.
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
AGENCY FINANCIAL REPORT • FY 2010
38
FINANCIAL REPORTING
U.S. Small Business Administration
November 12, 2010
Page 2 of 4
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SBA as of September 30, 2010 and
2009, and the related consolidated statements of net cost and changes in net position, and the combined
statements of budgetary resources for the years then ended.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of SBA as of September 30, 2010 and 2009, and its net costs, changes in net
position, and budgetary resources for the years then ended, in conformity with U.S. generally accepted
accounting principles.
The information in the Management’s Discussion and Analysis, Required Supplementary Information, and
Required Supplementary Stewardship Information sections is not a required part of the consolidated
financial statements, but is supplementary information required by U.S. generally accepted accounting
principles. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of this information. However, we did
not audit this information and, accordingly, we express no opinion on it.
Internal Control Over Financial Reporting
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination
of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of
the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the
Responsibilities section of this report and was not designed to identify all deficiencies in internal control
over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. In our
FY 2010 audit, we did not identify any deficiencies in internal control over financial reporting that we
consider to be material weaknesses, as defined above. However, we identified a deficiency in internal
control over financial reporting described in Exhibit I that we consider to be a significant deficiency in
internal control over financial reporting. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit
attention by those charged with governance.
Exhibit II presents the status of the prior year material weakness, and Exhibit III presents the status of the
prior year significant deficiency.
We noted certain additional matters that we have reported to management of SBA in a separate letter dated
November 12, 2010.
Compliance and Other Matters
The results of certain of our tests of compliance as described in the Responsibilities section of this report,
exclusive of those referred to in the Federal Financial Management Improvement Act of 1996 (FFMIA),
disclosed one instance of noncompliance that is required to be reported herein under Government Auditing
Standards or OMB Bulletin No. 07-04, and is described below.
AGENCY FINANCIAL REPORT • FY 2010
39
FINANCIAL REPORTING
U.S. Small Business Administration
November 12, 2010
Page 3 of 4
Debt Collection Improvement Act of 1996 (DCIA). During our testwork over loan charge-offs, we noted
SBA did not refer loans to Treasury for cross-servicing in accordance with the DCIA. Specifically, we
noted ten loan charge-off transactions that were not referred to Treasury for cross-servicing. Two of the ten
loans were loan guaranties that were not referred at time of charge-off. The remaining eight loans were not
referred due to outdated referral system programming logic which prevented the automatic referral of
charged-off loans to Treasury. Through additional research covering the population of Disaster loans
charged-off during FY 2010, SBA identified a total of 473 disaster loans that were not referred for cross-
servicing. Of the 473 loans identified, 334 loans were not referred due to the referral dates being out of the
system range parameter; thus preventing the system from transmitting the loan referrals to Treasury. SBA
was unable to determine why the remaining 139 charged-off loans were not referred. According to SBA
management, efforts are underway to address the issues noted which caused the system errors. Further,
SBA management agreed to perform an analysis of Disaster loans charged-off in prior years to identify and
correct potential additional issues of noncompliance. Exhibit IV presents the status of the prior year
noncompliance finding.
The results of our other tests of compliance as described in the Responsibilities section of this report,
exclusive of those referred to in FFMIA, disclosed no instances of noncompliance or other matters that are
required to be reported herein under Government Auditing Standards or OMB Bulletin No. 07-04.
The results of our tests of FFMIA disclosed no instances in which SBA’s financial management systems
did not substantially comply with (1) Federal financial management systems requirements, (2) applicable
Federal accounting standards, and (3) the United States Government Standard General Ledger at the
transaction level.
*******
Responsibilities
Management’s Responsibilities. Management is responsible for the consolidated financial statements;
establishing and maintaining effective internal control; and complying with laws, regulations, contracts,
and grant agreements applicable to SBA.
Auditors’ Responsibilities. Our responsibility is to express an opinion on the FY 2010 and 2009
consolidated financial statements of SBA based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States of America; the standards applicable to financial
audits contained in Government Auditing Standards, issued by the Comptroller General of the United
States; and OMB Bulletin No. 07-04. Those standards and OMB Bulletin No. 07-04 require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of SBA’s internal control over financial reporting.
Accordingly, we express no such opinion.
AGENCY FINANCIAL REPORT • FY 2010
40
FINANCIAL REPORTING
U.S. Small Business Administration
November 12, 2010
Page 4 of 4
An audit also includes:
• Examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements;
• Assessing the accounting principles used and significant estimates made by management; and
• Evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In planning and performing our FY 2010 audit, we considered the SBA’s internal control over financial
reporting by obtaining an understanding of SBA’s internal control, determining whether internal controls
had been placed in operation, assessing control risk, and performing tests of controls as a basis for
designing our auditing procedures for the purpose of expressing our opinion on the consolidated financial
statements, but not for the purpose of expressing an opinion on the effectiveness of SBA’s internal control
over financial reporting. Accordingly, we do not express an opinion on the effectiveness of SBA’s internal
control over financial reporting. We did not test all controls relevant to operating objectives as broadly
defined by the Federal Managers’ Financial Integrity Act of 1982.
As part of obtaining reasonable assurance about whether SBA’s FY 2010 consolidated financial statements
are free of material misstatement, we performed tests of SBA’s compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and material
effect on the determination of the consolidated financial statement amounts, and certain provisions of other
laws and regulations specified in OMB Bulletin No. 07-04, including the provisions referred to in Section
803(a) of FFMIA. We limited our tests of compliance to the provisions described in the preceding
sentence, and we did not test compliance with all laws, regulations, contracts, and grant agreements
applicable to SBA. However, providing an opinion on compliance with laws, regulations, contracts, and
grant agreements was not an objective of our audit and, accordingly, we do not express such an opinion.
*******
SBA’s response to the findings identified in our audit are presented in Exhibit V. We did not audit SBA’s
response and, accordingly, we express no opinion on it.
This report is intended solely for the information and use of SBA’s management, SBA’s Office of
Inspector General, OMB, the U.S. Government Accountability Office, and the U.S. Congress and is not
intended to be and should not be used by anyone other than these specified parties.
November 12, 2010
AGENCY FINANCIAL REPORT • FY 2010
41
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
The significant deficiency identified for the year ended September 30, 2010, is summarized below:
(1) Improvement Needed in Information Technology (IT) Security Controls
We made many recommendations to address IT weaknesses identified during the Fiscal Year (FY) 2009 SBA
audit. Although SBA has made some progress related to the FY 2009 weaknesses, improvements are still
necessary. During FY 2010, we noted additional weaknesses in security access controls, including configuration
and patch management, and segregation of duties. We are not providing details in this report on the specific
weaknesses due to their sensitivity, but we have provided the details under a separate cover to SBA management.
Security Access Controls
Integral to an organization’s security program management efforts, system security access controls should
provide reasonable assurance that IT resources, such as data files, application programs, and IT-related
facilities/equipment, are protected against unauthorized modification, disclosure, loss, or impairment.
A summary of the security access weaknesses we identified during the FY 2010 SBA financial statement audit
follows:
• We identified several high and medium risk security vulnerabilities affecting various financial systems. We
provided the detailed vulnerabilities to SBA management.
• We identified weaknesses in network access controls.
• We noted several high and medium risk security vulnerabilities affecting another key financial system, which
is hosted by an SBA service provider. Although the service provider was monitoring the vulnerabilities and a
plan to mitigate such weaknesses was developed, it was not implemented at the time of our review.
• We identified system patches that were not applied in a timely manner to a key financial system. Based on
review of the Plan of Actions and Milestones (POA&M) for the system, we could not determine whether
corrective actions were made timely.
• Password configuration settings for two key financial systems need improvement. We noted that one
financial system did not enforce user password history, password complexity or account lockout after a
specified number of failed login attempts. Another key financial system did not enforce password history,
password complexity, password changes after 90 days, or account lockout after a specified number of failed
login attempts. In addition, we found that password length settings are not compliant with SBA Standard
Operating Procedure (SOP) 90.47.2, Automated Information Systems Security Program.
• Physical access control procedures are not current and have not been implemented at one SBA location.
• Several users have unnecessary access to a SBA financial subsystem.
• User accounts are not periodically reviewed for three key financial systems.
• There are weak controls over the monitoring and review of audit logs for four of seven systems we reviewed.
I-1
AGENCY FINANCIAL REPORT • FY 2010
42
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
Recommendations – Security Access Controls:
We recommend that the Chief Information Officer (CIO) coordinate with SBA program offices to:
1. Improve the vulnerability tracking and monitoring process to fully address high and medium risk
vulnerabilities for key financial systems. Ensure that the vulnerability reports are reviewed and analyzed on a
regular basis. Periodically monitor the existence of necessary services and protocols running on servers and
network devices. Develop a more thorough approach to track and mitigate patch management and
configuration management vulnerabilities identified during monthly scans.
2. Prevent users from anonymously connecting unauthorized devices by developing and implementing
procedures to ensure mandatory domain authentication for IP address issuance.
3. Improve the POA&M review and approval process for key financial systems. In addition, include all
unresolved weaknesses on the POA&M (including vulnerabilities identified at service providers).
4. Enforce financial system password controls for System Administrators and Database Administrators (DBAs)
and physical access controls in accordance with SBA SOP 90.47.2.
5. Develop and implement procedures for user access reviews to ensure that proper access rights are set for
financial subsystems.
6. Oversee the review and validation of financial system accounts on a periodic basis.
7. Implement a process to monitor the audit logs of all financial applications on a regular basis.
Segregation of Duties
The primary focus of an organization’s segregation of duties controls is to provide reasonable assurance that
incompatible duties are effectively segregated. Without such controls, there is a risk that unauthorized changes
could be implemented into the IT environment, and users may have access that is inappropriate for their duties.
As a result, the confidentiality, integrity, and availability of financial data are at risk of possible loss,
modification, or disclosure.
A summary of the segregation of duties control deficiencies we identified during the FY 2010 SBA financial
statement audit follows:
• Application programmers for a key financial system have the ability to make changes and implement the
changes into the production environment.
• Access to the development and production libraries of a key financial system is not restricted based on job
role/functions or privileges.
• Certain Information Security staff and DBAs have incompatible access privileges for a financial system,
which enable them to perform the user administration functions (i.e., grant any role, create user, become user,
alter user, or drop user). We determined that compensating IT controls are not in place to mitigate this
weakness.
I-2
AGENCY FINANCIAL REPORT • FY 2010
43
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
Recommendations – Segregation of Duties:
We recommend the Chief Financial Officer:
8. Implement procedures and conduct audits of financial system software changes to ensure all changes are
sufficiently approved and tested.
We also recommend the CIO:
9. Restrict access to software program libraries based on the principle of least privilege, and periodically review
access to the libraries.
10. Separate user and data administration functions for financial systems, or implement compensating IT controls
such as management review of user administration functions.
Security Management
An entity-wide information security management program is the foundation of a security control structure and a
reflection of senior management’s commitment to addressing security risks. This security management program
should establish a framework, and continuous cycle of activity for assessing risk, developing and implementing
effective security procedures, and monitoring the effectiveness of these procedures.
A summary of the security management weaknesses we identified during the FY 2010 SBA financial statement
audit follows:
• A mandatory training program for IT security personnel has not been implemented.
• We could not obtain sufficient evidence that media was sanitized properly in accordance with SBA policy.
• SBA implemented end-user security policies and procedures in May 2010, but the policies were not
implemented during FY 2010.
Recommendations – Security Management:
We recommend the CIO:
11. Develop a comprehensive security education and training program for all IT security personnel and a method
for monitoring the training program.
12. Implement and enforce the procedures documented in SOP 90.47.2 for sanitizing media to be disposed and
for maintaining a log of employees who sanitize media to validate the appropriateness of the sanitization
process.
13. Coordinate with program offices using end-user programs containing sensitive data, such as Personally
Identifiable Information and financial data, to implement end-user computing procedures in accordance with
the guidance.
I-3
AGENCY FINANCIAL REPORT • FY 2010
44
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
Software Configuration Management
The primary focus of an organization’s software configuration management process is to control the software
changes made to networks and systems. Without such controls, there is a risk that security features could be
inadvertently, or deliberately, omitted or turned off, or that processing irregularities or malicious code could be
introduced into the IT environment.
A summary of the configuration management weaknesses we identified during the FY 2010 SBA financial
statement audit follows:
• The configuration management process is not centralized, and the Enterprise Change Control Board
governance processes are not fully implemented across SBA.
• SBA personnel could not provide sufficient evidence to support software change authorizations for several
financial systems.
Recommendations – Software Configuration Management:
We recommend the CIO:
14. Enforce an organization-wide configuration management process, to include policies and procedures for
maintaining documentation that supports testing and approvals of software changes.
.
I-4
AGENCY FINANCIAL REPORT • FY 2010
45
FINANCIAL REPORTING
Exhibit II
U.S. Small Business Administration
Status of Prior Year Material Weakness
Fiscal Year 2009 Finding Fiscal Year 2010 Status of Finding
During Fiscal Year (FY) 2009, we reported a material During FY 2010, SBA made significant operational
weakness in internal control related to SBA’s financial improvements over the controls surrounding the year-
reporting. end financial reporting process. These improvements
included automating previously manual processes and
increasing the level of financial statement review
performed by personnel within the Office of the Chief
Financial Officer. In addition, our testwork did not
identify any significant misstatements in FY 2010.
Therefore, in FY 2010, this matter is closed.
II-1
AGENCY FINANCIAL REPORT • FY 2010
46
FINANCIAL REPORTING
Exhibit III
U.S. Small Business Administration
Status of Prior Year Significant Deficiency
Fiscal Year 2009 Finding Fiscal Year 2010 Status of Finding
Improvement Needed In Information Technology (IT) During our review of SBA’s IT general and application
Security Controls controls, we noted minimal improvements made to
address prior year findings. Therefore, control
deficiencies continue to exist.
Therefore, in fiscal year 2010, the presentation of the
issue was modified to reflect current year operations,
and we continue to report a significant deficiency in
internal controls as it relates to IT systems and their
impact on the consolidated financial statements. See
Exhibit I for additional information.
III-1
AGENCY FINANCIAL REPORT • FY 2010
47
FINANCIAL REPORTING
Exhibit IV
U.S. Small Business Administration
Status of Prior Year Noncompliance
Fiscal Year 2009 Finding Fiscal Year 2010 Status of Finding
Debt Collection Improvement Act of 1996 (DCIA) During our review over SBA’s compliance with the
DCIA, we noted improvements made in SBA’s
During our Fiscal Year (FY) 2009 audit, as stated in itsTreasury offset and cross-servicing referral process.
Federal Managers’ Financial Integrity Act (FMFIA) However, during FY 2010 we noted instances of
Assurance Statement, SBA management reported the noncompliance related to timely referrals of loan
agency was noncompliant with the DCIA in FY 2009. charge-offs to Treasury for cross-servicing.
The noncompliance was due to instances where SBA
did not refer a substantial number of charged off loans Therefore, in FY 2010, the issue is again presented in
to Treasury for offset and cross servicing. the Compliance and Other Matters section of our
Independent Auditors’ Report.
IV-1
AGENCY FINANCIAL REPORT • FY 2010
48
FINANCIAL REPORTING
CFO Response to Draft Audit Report on FY 2010 Financial Statements
Exhibit V
DATE: November 12, 2010
TO: Debra Ritt, Assistant IG for Auditing
FROM: Jonathan Carver, Chief Financial Officer
SUBJECT: Draft Audit Report on FY 2010 Financial Statements
The Small Business Administration is in receipt of the draft Independent Auditors’ Report from KPMG
that includes the auditor’s opinion on the financial statements and review of the Agency’s internal control
over financial reporting and compliance with laws and regulations. The independent audit of the Agency’s
financial statements and related processes is a core component of SBA’s financial management program.
We are delighted that the SBA has again received an unqualified audit opinion from the independent
auditor with no reported material weaknesses. We believe these results accurately reflect the quality of the
Agency’s financial statements and our improved accounting, budgeting and reporting processes. As you
know, the SBA has worked hard over the past several years to address the findings from our independent
auditors. Our core financial reporting data and processes have improved substantially, and we are proud that
the results of our efforts have been confirmed by the independent auditor.
The audit report includes a continuing significant deficiency in SBA’s information technology controls. As
the auditors noted in their report on the 2010 financial statements, the SBA made substantial progress in
resolving IT deficiencies. The SBA will continue to improve the Agency’s IT security during the upcom-
ing fiscal year. The SBA is developing plans to track, monitor, and aggressively mitigate vulnerabilities in all
Agency systems. Furthermore, the SBA will clarify and strengthen detailed procedures required to ensure se-
curity access controls are in place to protect SBA data from unauthorized modification, disclosure, and loss.
The audit report identified one instance of non-compliance with applicable laws and regulations as of
September 30, 2010. Due to a system error, 473 of 8,229 charged off disaster loans, or 5.7 percent, were
not referred to Treasury for cross-servicing and for the Treasury offset as required by the Debt Collection
Improvement Act. This represents $11.3 million of the $247.5 million disaster loans written-off in FY 2010,
or 4.6 percent. The system issue has been identified and is in the process of being remedied, and a mitigation
plan has been developed to ensure that this issue will not recur. All loans eligible for Treasury referral will
be referred within the next six months. An issue with referring non-disaster loans was identified in FY 2009
through SBA’s self-assessment process and was corrected in FY2010. There were no issues identified in the
testing of the improved internal controls over non-disaster loans by both our independent auditors and our
OMB A-123 team in the current year, and we anticipate the same successful resolution for the disaster loans
in FY 2011.
We appreciate all of your efforts and those of your colleagues in the Office of the Inspector General as well
as those of KPMG. The independent audit process continues to provide us with new insights and valuable
recommendations that will further enhance SBA’s financial management practices. We continue to be com-
mitted to excellence in financial management and look forward to making more progress in the coming year.
AGENCY FINANCIAL REPORT • FY 2010
49
FINANCIAL REPORTING
Financial Statements and Notes
The U.S. Small Business Administration prepares its financial statements as a critical aspect of ensur-
ing accountability and stewardship for the public resources entrusted to the SBA. Preparation of these
statements is also an important part of SBA’s financial management goal of providing accurate and reli-
able information that may be used to assess performance and allocate resources.
SBA’s management is responsible for the accuracy and propriety of the information contained in the
principal financial statements and the quality of internal controls. The statements are, in addition to
other financial reports, used to monitor and control budgetary resources. The SBA prepares these finan-
cial statements from its books and records in accordance with generally accepted accounting principles
in the United States as well as formats as prescribed by the Office of Management and Budget.
The Consolidated Balance Sheet summarizes the assets, liabilities, and net position by major category as of
the reporting date. Intragovernmental assets and liabilities resulting from transactions between federal
agencies are presented separately from assets and liabilities resulting from transactions with the public.
The Consolidated Statement of Net Cost shows, by strategic goal, the net cost of operations for the report-
ing period. Net cost of operations consists of full program costs incurred by the SBA less the exchange
revenues earned by those programs.
The Consolidated Statement of Changes in Net Position presents SBA’s beginning and ending net position
by two components - Cumulative Results of Operations and Unexpended Appropriations. It summa-
rizes the change in net position by major transaction category. The ending balances of both components
of net position are also reported on the Balance Sheet.
The Combined Statement of Budgetary Resources provides information about funding and availability of
budgetary resources and the status of those resources at the end of the reporting period. Data on the
Combined Statement of Budgetary Resources is consistent with information reflected on the Report
on Budget Execution and Budgetary Resources (SF 133), with the one exception of offsetting receipts.
Offsetting receipts offset budget authority and outlays at the agency level in the Budget of the United
States Government, but are not reflected in the SF 133. The SBA includes offsetting receipts in this
statement for the purpose of reconciling outlay information presented in the Budget of the United
States Government.
The Required Supplementary Information presents a Combining Statement of Budgetary Resources report
by principal functional area.
The Required Supplementary Stewardship Information provides information on SBA’s investment in
human capital.
AGENCY FINANCIAL REPORT • FY 2010
50
FINANCIAL REPORTING
U S Small Business Administration
Consolidated Balance Sheet
as of September 30, 2010 and 2009
(Dollars in Thousands)
2010 2009
ASSETS
Intragovernmental Assets
Fund Balance with Treasury (Note 2) $ 6,116,325 $ 3,469,465
Total Intragovernmental Assets 6,116,325 3,469,465
Assets - Public and Other
Cash (Note 3) 3,031 2,662
Accounts Receivable, Net (Note 5) 30,961 16,081
Credit Program Receivables and Related Foreclosed Property, Net (Note 6) 9,076,679 9,128,496
General Property and Equipment, Net (Note 7) 2,817 8,535
Advances 663 1,220
Total Assets - Public and Other 9,114,151 9,156,994
Total Assets $ 15,230,476 $ 12,626,459
LIABILITIES
Intragovernmental Liabilities
Interest Payable $ 1,435 $ 2,143
Debt (Note 9) 11,753,781 10,878,283
Net Assets of Liquidating Funds Due to Treasury (Note 10) 68,359 78,584
Downward Reestimate Payable to Treasury (Note 1, Note 13) 130,993 64,875
Other (Note 8, Note 11) 14,234 16,062
Total Intragovernmental Liabilities 11,968,802 11,039,947
Other Liabilities - Public
Accounts Payable (Note 1) 169,723 129,807
Accrued Grant Liability (Note 1) 62,576 59,000
Liability for Loan Guaranties (Note 6) 4,467,006 3,994,636
Federal Employee Compensation Act Actuarial Liability (Note 1, Note 8) 29,960 29,640
Surety Bond Guarantee Program Future Claims (Note 8) 19,539 20,817
Other (Note 8, Note 11) 47,415 41,212
Total Other Liabilities - Public 4,976,219 4,275,112
Total Liabilities 16,765,021 15,315,059
NET POSITION
Unexpended Appropriations (Note 1) 2,295,070 1,983,504
Cumulative Results of Operations (Note 1) (3,829,615) (4,672,104)
Total Net Position (1,534,545) (2,688,600)
Total Liabilities and Net Position $ 15,230,476 $ 12,626,459
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2010
51
FINANCIAL REPORTING
U S Small Business Administration
Consolidated Statement of Net Cost
For the years ended September 30, 2010 and 2009
(Dollars in Thousands)
2010 2009
STRATEGIC GOAL 1:
Expand America’s Ownership Society, Particularly in Underserved Markets
Gross Cost $ 4,997,089 $ 5,409,931
Less: Earned Revenue 258,349 166,343
Net Cost of Strategic Goal 1 4,738,740 5,243,588
STRATEGIC GOAL 2:
Provide Timely Financial Assistance to Homeowners, Renters,
Nonprofit Organizations and Businesses Affected by Disaster
Gross Cost 814,451 1,081,232
Less: Earned Revenue 367,738 405,904
Net Cost of Strategic Goal 2 446,713 675,328
STRATEGIC GOAL 3:
Improve Economic Environment for Small Business
Gross Cost 17,814 14,506
Total Program Cost of Strategic Goal 3 17,814 14,506
COST NOT ASSIGNED TO STRATEGIC GOALS
Gross Cost 73,930 62,294
Total Program Cost Not Assigned to Strategic Goals 73,930 62,294
Net Cost of Operations $ 5,277,197 $ 5,995,716
Note 12, Note 14
The accompanying notes are an integral part of these statements.
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you The SBA helps small businesses win federal government contracts. In
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AGENCY FINANCIAL REPORT • FY 2010
52
FINANCIAL REPORTING
U S Small Business Administration
Consolidated Statement of Changes in Net Position
For the years ended September 30, 2010 and 2009
(Dollars in Thousands)
2010 2009
Beginning Cumulative Results of Operations $ (4,672,104) $ (1,362,736)
Budgetary Financing Sources
Appropriations Used 6,231,677 2,748,961
Donations of Cash and Cash Equivalents 24 25
Other Financing Sources
Imputed Financing from Costs Absorbed by Others 32,765 25,549
Other - Cancelled Authority (3) –
Other - Current Year Liquidating Equity Activity (760) (863)
Other - Non-entity Activity (144,017) (87,324)
Total Financing Sources 6,119,686 2,686,348
Less: Net Cost of Operations 5,277,197 5,995,716
Ending Cumulative Results of Operations $ (3,829,615) $ (4,672,104)
Beginning Unexpended Appropriations $ 1,983,504 $ 1,696,866
Budgetary Financing Sources
Appropriations Received 6,554,119 3,050,068
Appropriations Transferred In – 2,953
Adjustment - Cancelled Authority (7,598) (11,777)
Other Adjustments (3,278) (5,645)
Appropriations Used (6,231,677) (2,748,961)
Total Budgetary Financing Sources 311,566 286,638
Ending Unexpended Appropriations $ 2,295,070 $ 1,983,504
Ending Net Position $ (1,534,545) $ (2,688,600)
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2010
53
FINANCIAL REPORTING
U S Small Business Administration
Combined Statement of Budgetary Resources
For the years ended September 30, 2010 and 2009
(Dollars in Thousands)
September 30, 2010
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance
Brought Forward October 1 $ 1,506,612 $ 1,195,311 $ 2,701,923
Recoveries of Prior Year Obligations 53,179 81,604 134,783
Budget Authority
Appropriations Received 6,554,119 – 6,554,119
Borrowing Authority – 2,737,959 2,737,959
Spending Authority from Offsetting Collections
Earned 395,025 7,823,359 8,218,384
Change in Unfilled Customer Orders (116,593) (5,571) (122,164)
Total Budget Authority 6,832,551 10,555,747 17,388,298
Nonexpenditure Transfers, Net
Budget Authority – – –
Permanently Not Available (25,123) (1,859,112) (1,884,235)
Total Budgetary Resources $ 8,367,219 $ 9,973,550 $ 18,340,769
STATUS OF BUDGETARY RESOURCES
Obligations Incurred, Net
Direct $ 5,981,675 $ 6,515,175 $ 12,496,850
Reimbursable 616,935 – 616,935
Total Obligations Incurred, Net 6,598,610 6,515,175 13,113,785
Unobligated Balances, Available 215,473 2,060,909 2,276,382
Unobligated Balances, Not Available 1,553,136 1,397,466 2,950,602
Total Status of Budgetary Resources $ 8,367,219 $ 9,973,550 $ 18,340,769
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward, Net October 1
Unpaid Obligations Brought Forward $ 613,478 $ 389,934 $ 1,003,412
Uncollected Customer Payments from Federal Sources Brought Forward – (235,874) (235,874)
Total Obligated Balance Brought Forward, Net 613,478 154,060 767,538
Obligations Incurred 6,598,610 6,515,175 13,113,785
Gross Outlays (6,482,855) (6,379,919) (12,862,774)
Recoveries of Prior Year Unpaid Obligations (53,179) (81,604) (134,783)
Change in Uncollected Customer Payments from Federal Sources – 5,571 5,571
Obligated Balance, Net, End of Period
Unpaid Obligations 676,054 443,586 1,119,640
Uncollected Customer Payments from Federal Sources – (230,303) (230,303)
Total Obligated Balance, Net, End of Period $ 676,054 $ 213,283 $ 889,337
NET OUTLAYS
Gross Outlays $ 6,482,855 $ 6,379,919 $ 12,862,774
Offsetting Collections (278,430) (7,823,359) (8,101,789)
Net Outlays Before Offsetting Receipts 6,204,425 (1,443,440) 4,760,985
Offsetting Receipts (110) (77,891) (78,001)
Net Outlays $ 6,204,315 $ (1,521,331) $ 4,682,984
Note 15
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2010
54
FINANCIAL REPORTING
U S Small Business Administration
Combined Statement of Budgetary Resources
For the years ended September 30, 2010 and 2009
(Dollars in Thousands)
September 30, 2009
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance
Brought Forward October 1 $ 1,429,754 $ 1,547,065 $ 2,976,819
Recoveries of Prior Year Obligations 64,639 220,652 285,291
Budget Authority
Appropriations Received 3,050,068 – 3,050,068
Borrowing Authority – 3,455,566 3,455,566
Spending Authority from Offsetting Collections
Earned 429,412 4,042,183 4,471,595
Change in Unfilled Customer Orders 32,755 157,011 189,766
Total Budget Authority 3,512,235 7,654,760 11,166,995
Nonexpenditure Transfers, Net
Budget Authority 2,953 – 2,953
Permanently Not Available (49,302) (2,045,701) (2,095,003)
Total Budgetary Resources $ 4,960,279 $ 7,376,776 $ 12,337,055
STATUS OF BUDGETARY RESOURCES
Obligations Incurred, Net
Direct $ 2,602,745 $ 6,181,465 $ 8,784,210
Reimbursable 850,922 – 850,922
Total Obligations Incurred, Net 3,453,667 6,181,465 9,635,132
Unobligated Balances, Available 537,389 889,666 1,427,055
Unobligated Balances, Not Available 969,223 305,645 1,274,868
Total Status of Budgetary Resources $ 4,960,279 $ 7,376,776 $ 12,337,055
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward, Net October 1
Unpaid Obligations Brought Forward $ 421,630 $ 561,165 $ 982,795
Uncollected Customer Payments from Federal Sources Brought Forward – (78,863) (78,863)
Total Obligated Balance Brought Forward, Net 421,630 482,302 903,932
Obligations Incurred 3,453,667 6,181,465 9,635,132
Gross Outlays (3,197,180) (6,132,044) (9,329,224)
Recoveries of Prior Year Unpaid Obligations (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 613,478 389,934 1,003,412
Uncollected Customer Payments from Federal Sources – (235,874) (235,874)
Total Obligated Balance, Net, End of Period $ 613,478 $ 154,060 $ 767,538
NET OUTLAYS
Gross Outlays $ 3,197,180 $ 6,132,044 $ 9,329,224
Offsetting Collections (462,167) (4,042,183) (4,504,350)
Net Outlays Before Offsetting Receipts 2,735,013 2,089,861 4,824,874
Offsetting Receipts (59) (489,336) (489,395)
Net Outlays $ 2,734,954 $ 1,600,525 $ 4,335,479
Note 15
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2010
55
FINANCIAL REPORTING
NOTE 1. Significant Accounting Policies
Reporting Entity
The Small Business Act of 1953 created the Small Business Administration as an independent federal agency.
SBA’s mission is to maintain and strengthen the nation’s economy by aiding, counseling, assisting and protect-
ing the interests of small businesses and to help businesses and families recover from natural disasters. The
SBA operates through the execution of a congressionally approved budget that funds its programs.
Basis of Accounting and Presentation
The SBA prepares financial statements to report its financial position and results of its operations as
required by the Chief Financial Officers Act of 1990 and the Government Management Reform Act
of 1994. The financial statements are prepared from the Agency’s records in accordance with generally
accepted accounting principles using formats prescribed by the Office of Management and Budget. The
statements are in addition to other financial reports used to monitor and control budgetary resources.
As a federal agency, the SBA cannot incur obligations without authority from the Congress and an
apportionment by the OMB.
These financial statements reflect transactions recorded on both a proprietary accrual accounting basis and
a budgetary obligation basis, in accordance with concepts and guidance provided by OMB, the Federal
Accounting Standards Advisory Board, and the Department of the Treasury. Under the accrual method
of accounting, revenues are recognized when earned and expenses are recognized when incurred, without
regard to receipt or payment of cash. Budgetary accounting recognizes the legal commitment or obliga-
tion of funds in advance of the proprietary accruals and facilitates compliance with legal constraints and
controls over the use of federal funds.
Use of Estimates
SBA’s management makes assumptions and uses estimates to prepare the financial statements based upon the
facts that exist when the statements are prepared. Actual results may differ from those estimates and the differ-
ences may be significant. The most significant differences between actual results and SBA’s estimates may occur
in the valuation of credit program receivables and liabilities for loan guaranties under guidelines in the Federal
Credit Reform Act of 1990. The SBA recognizes the sensitivity of credit reform modeling to slight changes in
some model assumptions and therefore continually reviews its model factors and statistical modeling technique
to reflect the most accurate credit program costs possible in its annual financial statements.
Budgets and Budgetary Accounting for Loan Programs
SBA’s loan disbursements are financed by appropriations for long-term loan subsidy cost and borrow-
ings from the Department of the Treasury for the remaining non-subsidized portion of the loans. The
Congress may provide one year, multi-year or no year appropriations to cover the estimated long-term
costs of the loan programs. The non-subsidized portion of each loan disbursement, financed initially
under permanent indefinite authority to borrow funds from the Treasury, is repaid from collections of
loan fees, repayments and default recoveries. The Congress limits the dollar amount of obligations that
can be made for direct loans and loan guaranties in its annual appropriation bill. Similarly, appropriations
received for the long-term cost of loan guaranties are reserved when the guarantied loans are disbursed.
AGENCY FINANCIAL REPORT • FY 2010
56
FINANCIAL REPORTING
A permanent indefinite authority is available to fund any reestimated increase of subsidy costs that occurs
after the year in which a loan is disbursed. Reestimated reductions of subsidy costs are returned to the
Treasury and are unavailable to the SBA. As required by the Federal Credit Reform Act of 1990, the
SBA uses budgetary “program accounts” to account for appropriations in its credit programs and non-
budgetary “financing accounts” to account for credit program cash flow. Estimates and reestimates of
credit program subsidy expenses are recorded in SBA’s program accounts. Financing accounts are used to
account for Treasury borrowings, the collection of loan fees, repayments and default recoveries, and the
disbursement of loans and loan expenses.
Accounts Payable
Accounts Payable are amounts due to public entities that will be liquidated during the next operating
cycle. Included in the liability are payables to SBA lenders for their share of loan collections and to
vendors for goods and services.
Accrued Grant Liability
Disbursements of grant funds are recognized as expenses at the time of disbursement. However, some
grant recipients incur expenditures prior to initiating a request for disbursement based on the nature of
the expenditures. The SBA accrues a liability for expenditures incurred by grantees prior to receiving
grant funds for the expenditures. The amount to be accrued is determined through an analysis of historic
grant expenditures. The Small Business Development Center program and several other grant programs
are subjected to this treatment.
Contingencies
The SBA is a party in various administrative proceedings, legal actions, environmental suits and claims
brought against the Agency. In the opinion of SBA’s management and legal counsel, the ultimate
resolution of these proceedings, actions, suits and claims will not materially affect the financial position
or results of SBA’s operations. The likelihood of loss to the SBA ranges from remote on several items to a
reasonably possible amount of $2.0 million on one item.
Cumulative Results of Operations
Cumulative Results of Operations, presented on the Balance Sheet and on the Statement of Changes in
Net Position, is the accumulated difference between expenditures and financing sources since the
inception of the Agency. Unfunded expenses do not yet have a financing source and thus increase the
loss the SBA reports as Cumulative Results of Operations. The largest category of unfunded expenses at
the SBA is year-end reestimates which are funded in the following year. The majority of the Cumulative
Results of Operations reported results from these unfunded reestimates.
Unexpended Appropriations
Unexpended Appropriations is the portion of SBA’s appropriations received which are either undeliv-
ered or unobligated. Delivered orders result in expended appropriations and reduce the total reported
as Unexpended Appropriations. Undelivered orders are the amount of orders of goods or services which
have not been actually or constructively received.
AGENCY FINANCIAL REPORT • FY 2010
57
FINANCIAL REPORTING
Employee Benefits
LEAVE
A liability for employee annual leave is accrued as it is earned and reduced as leave is taken. Each year the
balance of accrued annual leave is adjusted to reflect current pay rates as well as forfeited “use or lose” leave.
Amounts are reported as unfunded to the extent current or prior year appropriations are not available to
fund annual leave earned but not taken. Sick leave and other types of non-vested leave are expensed as taken.
EMPLOYEE HEALTH AND LIFE INSURANCE BENEFITS
SBA employees may choose to participate in the contributory Federal Employees Health Benefit and the
Federal Employees Group Life Insurance Programs. The SBA matches a portion of the employee contri-
butions to each program. Matching contributions are recognized as current operating expenses.
EMPLOYEE PENSION BENEFITS
SBA employees participate in either the Civil Service Retirement System or the Federal Employees’
Retirement System and Social Security. These systems provide benefits upon retirement and in the event
of death, disability, or other termination of employment and may also provide pre-retirement benefits.
They may also include benefits to survivors and their dependents, and they may contain early retirement
or other special features. SBA’s contributions to both retirement plans, as well as to the government-
wide Federal Insurance Contribution Act, administered by the Social Security Administration, are
recognized on the Consolidated Statement of Net Cost as current operating expenses.
Federal employee benefits also include the Thrift Savings Plan. For FERS employees the SBA matches
employee contributions to the plan, subject to limitations. The matching contributions are recognized
as current operating expenses.
IMPUTED FINANCING COSTS
The SBA recognizes the full cost of providing all employee benefits and future retirement benefits,
including life and health insurance, at the time employee services are rendered. Eligible retired SBA
employees can continue to participate in health and life insurance plans. The cost of these benefits is
funded through Agency contributions, employee compensation to the extent withheld from employee
and retiree pay, from matching of employee withholding for Thrift Savings Plan and FICA, and by the
Office of Personnel Management which administers the retirement programs for SBA employees.
The OPM calculates imputed costs as the actuarial present value of future benefits attributed to services
rendered by covered employees and eligible retired SBA employees during the accounting period, net
of the amounts contributed by employees, retirees, and the Agency. The SBA recognizes these imputed
costs in the Statement of Net Cost and as a part of net cost funded by an imputed financing source
included in determining SBA’s net position.
FEDERAL EMPLOYEES COMPENSATION ACT
The Federal Employees Compensation Act provides income and medical cost protection to covered fed-
eral civilian employees injured on the job and to beneficiaries of employees whose deaths are attributable
to job-related injury or disease. The FECA program is administered by the Department of Labor. Labor
pays valid claims as they occur, which are billed to the SBA annually and funded and paid approximately
15 months later. Labor also calculates an estimated actuarial liability for future benefits based upon his-
torical experience and other economic variables. Projected annual benefit payments are then discounted
to present value using the forecasted interest rates for 10-year Treasury notes and bonds published by the
OMB in its economic assumptions for the federal budget. The SBA recognizes a current unfunded cost
for the actual claims paid and the change in the FECA actuarial liability each year.
AGENCY FINANCIAL REPORT • FY 2010
58
FINANCIAL REPORTING
NOTE 2. Fund Balance with Treasury
The Department of the Treasury processes cash receipts and disbursements on SBA’s behalf to pay liabili-
ties and finance loan program costs. SBA’s cash receipts are deposited to accounts at the Treasury. SBA’s
fund balances with the Treasury are available to make expenditures to liquidate allowable obligations,
except for Non-entity Fund Balance which is not available to the SBA to obligate or expend. Separate
records are maintained for SBA’s program, financing, liquidating and other accounts. Fund balances at
the Treasury include expired year amounts, which are unavailable for obligation, as well as amounts cur-
rently available for new obligations.
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2010 2009
Appropriated Funds $ 2,373,450 $ 2,052,859
Financing Funds 3,671,657 1,349,371
Liquidating Funds 14,588 17,527
Revolving Fund 56,363 49,415
Trust Fund 263 289
Total Entity Fund Balance with Treasury 6,116,321 3,469,461
Non-entity Fund Balance 4 4
Total Fund Balance with Treasury $ 6,116,325 $ 3,469,465
Status of Fund Balance with Treasury
Unobligated Balance Available $ 2,276,382 $ 1,427,055
Unobligated Balance Unavailable 2,950,602 1,274,868
Obligated Balance Not Yet Disbursed 889,337 767,538
Non-budgetary 4 4
Total Fund Balance with Treasury $ 6,116,325 $ 3,469,465
Unobligated balances become available when apportioned by the OMB for obligation in the current fis-
cal year. Obligated balances not yet disbursed include unpaid obligations offset by uncollected customer
payments from other federal government accounts. The unobligated and obligated balances are reflect-
ed on the Statement of Budgetary Resources.
NOTE 3. Cash
SBA field offices deposit collections from borrowers in Treasury General Accounts at financial institu-
tions for credit to SBA’s account at the Treasury. At the end of the fiscal year, collections temporarily
held by SBA field offices pending deposit are recorded as Undeposited Collections – Cash in Transit
and total $3.0 million and $2.6 million at September 30, 2010 and 2009.
NOTE 4. Fiduciary Activities: Master Reserve
Fund and Master Reserve Account
Fiduciary activities are the receipt, management, protection, accounting, investment and disposition by the
federal government of cash or other assets in which non-federal entities have an ownership interest that the
federal government must uphold. Fiduciary cash and other assets are not assets of the government, and are
not recognized on SBA’s proprietary statements, but they are required to be disclosed in the notes to SBA’s
financial statements. Fiduciary balances may be on deposit with the Treasury or commercial banks.
AGENCY FINANCIAL REPORT • FY 2010
59
FINANCIAL REPORTING
SBA’s fiduciary activities include the Master Reserve Fund and Master Reserve Account, both administered
by SBA’s fiscal agent, Colson Inc. The MRF and MRA are maintained in commercial bank accounts (not
the Treasury). The balances in the MRF and MRA are invested according to SBA policy entirely in Treasury
securities and repurchase agreements that are backed by Treasury securities. The MRF is an integral part of
SBA’s 7(a) secondary market program. The MRF was authorized by the Small Business Secondary Market
Improvement Act of 1984 to facilitate the pooling of 7(a) guarantied loans that are purchased by secondary
market investors. The 7(a) secondary market program includes SBA’s guaranty of timely payment, as well
as a default guaranty, to 7(a) secondary market investors. The program encompassed $15.5 billion and
$14.7 billion of outstanding secondary market loan principal at September 30, 2010 and 2009.
The MRA facilitates the operation of the 504 Development Company secondary market program.
The MRA was authorized by Section 505 of the Small Business Investment Act of 1958 as a vehicle to
receive, temporarily hold and distribute 504 program cash flows. The MRA receives monthly payments
from the 504 borrowers and retains the payments until a semi-annual debenture payment is due to the
secondary market investors. The 504 secondary market program includes SBA’s guaranty of timely pay-
ment, as well as a default guaranty, to 504 secondary market investors. The program encompassed $23.4
billion and $23.0 billion of debentures outstanding at September 30, 2010 and 2009.
The composition of the MRF and MRA and a reconciliation of the changes in the assets are included in
the following table:
(Dollars in Thousands)
FIDUCIARY ASSETS
AS OF SEPTEMBER 30, 2010 2009
Short Term Securities
Money Market Funds $ 27,767 $ 27,473
Treasury Bills 47,957 47,979
Repurchase Agreements 826,147 667,766
Total Short Term Securities 901,871 743,218
Long Term Securities
Treasury Notes Including Interest 1,724,565 1,643,277
Total Long Term Securities 1,724,565 1,643,277
Net Assets $ 2,626,436 $ 2,386,495
RECONCILIATION OF FIDUCIARY ASSETS
FOR THE YEARS ENDING SEPTEMBER 30, 2010 2009
Beginning Net Assets $ 2,386,495 $ 2,370,628
Receipts
Earned Income 63,178 65,219
Contributions 7,808,155 7,250,815
Net Realized Gain (Loss) 3,097 (109)
Total Receipts 7,874,430 7,315,925
Less Disbursements
Payments to Investors 7,634,350 7,298,452
Expenses 139 1,606
Total Disbursements 7,634,489 7,300,058
Ending Net Assets $ 2,626,436 $ 2,386,495
AGENCY FINANCIAL REPORT • FY 2010
60
FINANCIAL REPORTING
NOTE 5. Accounts Receivable
Accounts receivable include amounts owed by the public for guaranty fees in SBA’s loan and surety bond
programs, refunds due from employees and others, as well as other amounts owed by lenders on guarantied
loans purchased by the SBA. An Allowance for Loss on uncollectible Surety Bond Guaranty fees is based
on an analysis of delinquent balance aging. The uncollectible or unrecoverable amounts for Guaranty Fees
Receivable, Refunds and Other accounts receivable are not significant and no allowance is provided.
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2010 2009
Public
Guaranty Fees Receivable $ 13,559 $ 1,474
Refunds 18 229
Other 17,403 14,461
Total Public 30,980 16,164
Allowance For Loss (19) (83)
Net Public $ 30,961 $ 16,081
NOTE 6. Credit Program Receivables and
Liability for Loan Guaranties
A. Loan Program Descriptions and Cost Determinations
LOAN PROGRAM DESCRIPTIONS
The SBA administers guarantied and direct loan programs that help small businesses obtain financing,
and a direct loan program that assists homeowners, renters and businesses to recover from disasters.
MAJOR DIRECT LOAN AND LOAN GUARANTY PROGRAMS
Program group Program type Program
Disaster Direct Disaster Assistance Loans
Business Direct 7(m) Microloan
Business Guarantied 7(a) Loan Guaranty
Business Guarantied America’s Recovery Capital Loan
Business Guarantied 504 Certified Development Company
Business Guarantied Small Business Investment Company Debenture
Business Guarantied Small Business Investment Company Participating Securities
Business Guarantied Secondary Market Guaranty
SBA’s Disaster Assistance loan program makes direct loans to disaster victims under four categories: (1)
loans for homes and personal property, (2) physical disaster loans to businesses of any size, (3) economic
injury loans to small businesses without credit available elsewhere, and (4) economic injury loans to
eligible businesses affected by essential employees called up to active duty in the military reserves. The
maximum interest rate is 4 percent for loan applicants without credit available elsewhere and 8 percent
for applicants with credit available elsewhere.
SBA’s business loan programs include its flagship 7(a) Loan Guaranty program in which the SBA guarantees
up to 90 percent of the principal amount of loans made by banks and other lending institutions to small
AGENCY FINANCIAL REPORT • FY 2010
61
FINANCIAL REPORTING
businesses not able to obtain credit elsewhere. The Section 504 Certified Development Company pro-
gram guarantees 100 percent of the principal and interest payments on debentures issued by development
companies that make small business loans secured primarily by real estate. The Small Business Investment
Company Debentures and Participating Securities programs guarantee principal and interest payments on
securities issued by investment capital firms, which in turn make investments in small businesses. The 7(m)
Microloan program provides direct loans to nonprofit intermediaries, which use these funds to make loans up
to $35,000 to eligible small businesses. See Note 4 for further discussion of the Secondary Market Guaranty.
America’s Recovery Capital loan program is a new temporary guaranty loan program authorized by the
American Recovery and Reinvestment Act of 2009 (ARRA or Recovery Act). ARC loans are deferred pay-
ment loans of up to $35,000 available through SBA’s 7(a) participating lenders. ARC loans are interest free to
the borrower, 100 percent guaranteed by the SBA to the lender, and have no fees associated with them.
CREDIT PROGRAM RECEIVABLES AND LIABILITIES FOR LOAN GUARANTIES
The Federal Credit Reform Act of 1990 governs direct loans made after FY 1991. FCRA loans are valued
at the present value of expected future cash flows, discounted at the interest rate of marketable Treasury
securities. The subsidy allowance account represents the difference between the outstanding loans receiv-
able balance and the net present value of the estimated cash flows of the loans over their remaining term.
The subsidy allowance is subtracted from the outstanding loans receivable balance to obtain the net loans
receivable balance. FCRA also governs loan guaranties made after FY 1991. A liability for outstanding
guaranties is included on SBA’s balance sheet. The liability is determined by calculating the net present
value of expected future cash flows for outstanding guaranties in a manner similar to that used to determine
the subsidy allowance for direct loans. Guarantied loans purchased by the SBA upon borrower default are
established as loans receivable and are valued in a similar manner as direct loans under FCRA.
Direct loans made prior to FCRA are recorded at cost with an allowance for uncollectible amounts cal-
culated using historical loss experience. For loan guaranties made prior to FCRA, a liability for expected
future losses on outstanding guaranties is established based on historical experience. Guarantied loans
purchased upon borrower default are established as loan receivables with an allowance for losses based
on historical loss experience.
The SBA advances payments semiannually to the Federal Financing Bank for loans guarantied under
Section 503 of the Small Business Act. The advances are liquidated by receipt of the installment pay-
ments on loans made by state and local development companies. To the extent that those installments
may not repay advances, balances from development companies that remain collectible are reported as
credit program receivables.
Advances are similarly made to honor SBA’s timely payment requirement of principal and interest due
for debentures in SBA’s Section 504 Certified Development Company and Small Business Investment
Company programs. These advances are also reported as credit program receivables.
SUBSIDY FUNDING UNDER FEDERAL CREDIT REFORM
FCRA requires that the credit subsidy costs of direct loans and loan guaranties be expensed in the year
loans are disbursed. The credit subsidy cost is the net present value of expected cash inflows and out-
flows over the life of a guarantied loan, or the difference between the net present value of expected cash
flows and the face value of a direct loan. The cost expressed as a percentage of loans disbursed is termed
the subsidy rate. The SBA receives appropriations annually to fund its credit programs based on the
subsidy rate that applies to the credit program level approved by Congress. The SBA records subsidy
expenses when loans are disbursed. In accordance with FCRA, subsidy costs are reestimated annually.
AGENCY FINANCIAL REPORT • FY 2010
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FINANCIAL REPORTING
INTEREST RECEIVABLE
Interest receivable is comprised of accrued interest on loans receivable and purchased interest related to
defaulted guarantied loans. Interest income is accrued at the contractual rate on the outstanding princi-
pal amount and is reduced by the amount of interest income accrued on non-performing loans in excess
of 90 days delinquent. Purchased interest is carried at cost. A 100 percent loss allowance is established
for all purchased interest on non-performing loans made prior to FY 1992.
FORECLOSED PROPERTY
Foreclosed property is comprised of real and business-related property acquired through foreclosure on
loans and defaulted loan guaranties. Properties acquired as a result of defaulted loans committed after
FY 1991 are shown at recoverable value which is adjusted to the present value of expected future cash flows
for financial statement presentation through the allowance for subsidy. Other foreclosed property is shown
at the appraised value. At September 30, 2010 SBA’s foreclosed property was $44.9 million related
to 79 loans. The properties had been held for an average of 616 days. At September 30, 2009 foreclosed
property was $41.7 million related to 80 loans. The properties had been held for an average of 1,266 days.
VALUATION METHODOLOGY FOR POST-1991 DIRECT LOANS AND LOAN GUARANTIES
The value of direct and guarantied loans committed after FY 1991 is based on the net present value of
their expected future cash flow. The SBA estimates future cash flows for guarantied and direct loans us-
ing economic and financial credit subsidy models. The SBA has developed a customized credit subsidy
model for each of its major loan guaranty and direct loan programs.
SBA’s models vary 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 estimates 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 varies 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
guarantied loans that are past due more than 180 days. A liability is also established for active pre-credit
reform loan guaranties. The liability is estimated based on historical experience.
AGENCY FINANCIAL REPORT • FY 2010
63
FINANCIAL REPORTING
B. Credit Program Receivables and Related Foreclosure Property, Net
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2010 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 18,218 $ 120,151 $ 138,369
Interest Receivable 2,457 1,077 3,534
Foreclosed Property 3,104 – 3,104
Allowance (1,595) (30,646) (32,241)
Total Direct Business Loans 22,184 90,582 112,766
Direct Disaster Loans
Disaster Loans Receivable 10,643 7,931,998 7,942,641
Interest Receivable 73 12,191 12,264
Foreclosed Property – 658 658
Allowance (740) (1,475,666) (1,476,406)
Total Direct Disaster Loans 9,976 6,469,181 6,479,157
Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 51,002 7,763,190 7,814,192
Other Loans Receivable (see note below) – 583,745 583,745
Interest Receivable 408 48,719 49,127
Foreclosed Property 3,281 37,910 41,191
Allowance (30,163) (5,973,336) (6,003,499)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 24,528 2,460,228 2,484,756
Total Credit Program Receivables & Related Foreclosed Property, Net $ 9,076,679
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 Loans Receivable
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 Loans Receivable 28,731 2,118,281 2,147,012
Total Credit Program Receivables & Related Foreclosed Property, Net $ 9,128,496
Note: Other Loan Receivables include payments advanced by the SBA against future reimbursements in the SBIC and 504 Guaranty Programs.
AGENCY FINANCIAL REPORT • FY 2010
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FINANCIAL REPORTING
C. Loans Disbursed and Outstanding Loan Obligations
(Dollars in Thousands)
DIRECT LOANS
New Loans Disbursed During the Year Ending September 30, 2010 2009
Business Direct Loan Program $ 31,620 $ 23,928
Disaster Loan Program 387,058 725,405
Total Direct Loans Disbursed $ 418,678 $ 749,333
Outstanding Loan Obligations as of September 30, 2010 2009
Business Direct Loan Program $ 41,547 $ 38,130
Disaster Loan Program 217,463 211,128
Total Direct Loan Obligations $ 259,010 $ 249,258
GUARANTIED LOANS
New Loans Disbursed During the Year Ending September 30, 2010 2009
Total Principal Disbursed at Face Value $ 15,060,123 $ 12,728,017
Total Principal Disbursed Guarantied by the SBA 13,150,441 10,665,284
Outstanding Loan Obligations as of September 30, 2010 2009
Business Guarantied Loan Programs $ 10,081,005 $ 9,717,347
Loans Outstanding as of September 30, 2010 2009
Total Principal Outstanding at Face Value $ 76,247,818 $ 74,856,050
Total Principal Outstanding Guarantied by the SBA 64,433,140 62,203,856
D. Subsidy Cost Allowance Balances
(Dollars in Thousands)
FOR THE YEARS ENDING SEPTEMBER 30, 2010 2009
Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account $ 4,370,380 $ 2,912,506
Current Year’s Subsidy (see 6G for breakdown by component) 3,671 2,518
Loans Written Off (2,425,174) (1,486,461)
Subsidy Amortization (2,583) (2,028)
Allowance Related to Guarantied Loans Purchased This Year 4,015,052 2,909,644
Miscellaneous Recoveries and Costs 41,835 29,531
Balance of Subsidy Allowance Account before Reestimates 6,003,181 4,365,710
Technical Assumptions/Default Reestimates 801 4,670
Ending Balance of Allowance Account $ 6,003,982 $ 4,370,380
Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account $ 1,597,336 $ 1,574,082
Current Year’s Subsidy (see 6G for breakdown by component) 47,079 111,638
Loans Written Off (303,284) (302,239)
Subsidy Amortization (64,274) (62,462)
Miscellaneous Recoveries and Costs 37,516 33,008
Balance of Subsidy Allowance Account before Reestimates 1,314,373 1,354,027
Technical Assumptions/Default Reestimates 161,293 243,309
Ending Balance of Allowance Account $ 1,475,666 $ 1,597,336
AGENCY FINANCIAL REPORT • FY 2010
65
FINANCIAL REPORTING
E. Loan Guaranty Liability Balances
(Dollars in Thousands)
FOR THE YEARS ENDING SEPTEMBER 30, 2010 2009
Pre-1992 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties $ 809 $ 816
Adjustment to Expected Losses, Guaranties Outstanding (235) (7)
Ending Balance of Liability for Loan Guaranties 574 809
Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties 3,993,827 1,824,735
Current Year’s Subsidy (see 6G for breakdown by component) 574,260 98,459
Loan Modifications – 13,216
Fees 394,739 402,711
Interest Accumulation Factor (31,617) (59,446)
Claim Payments to Lenders (4,925,476) (3,913,241)
Adjustment Due to Reestimate & Guarantied Loan Purchases 910,425 1,003,597
Miscellaneous Recoveries and Costs (64,707) (61,040)
Balance of Liability for Loan Guaranties before Reestimates 851,451 (691,009)
Technical Assumptions/Default Reestimates 3,614,981 4,684,836
Ending Balance of Liability for Loan Guaranties 4,466,432 3,993,827
Total Ending Balance of Liability for Loan Guaranties $ 4,467,006 $ 3,994,636
F. 2010 Subsidy Rates by Program and Component
Total
LOAN PROGRAMS Financing Default Other Fee
Subsidy
Guaranty
7(a) 0.46% 0.00% 4.34% 0.00% -3.88%
7(a) Dealer Floor Plan 0.65% 0.00% 4.70% 0.00% -4.05%
504 CDC 0.00% 0.00% 4.20% 0.32% -4.52%
Disaster Gty - Immediate 2.83% 0.00% 2.83% 0.00% 0.00%
Disaster Gty - Expedited 2.14% 0.00% 2.14% 0.00% 0.00%
SBIC Debenture 0.00% 0.00% 4.83% 0.03% -4.86%
Direct
Disaster 10.77% 2.90% 11.86% -3.99% 0.00%
Microloan 12.04% 2.12% 2.77% 7.15% 0.00%
ARRA Guaranty
7(a) 4.23% 0.00% 6.07% 0.00% -1.84%
504 CDC 2.05% 0.00% 4.08% 0.33% -2.36%
504 1st Mortgage 0.00% 0.00% 0.92% 0.00% -0.92%
ARC 76.15% 18.37% 57.78% 0.00% 0.00%
7(a) Dealer Floor Plan 3.40% 0.00% 4.76% 0.00% -1.36%
ARRA Direct
7(a) Broker/Dealer -0.49% -4.89% 0.04% 4.36% 0.00%
Microloan 12.04% 2.12% 2.77% 7.15% 0.00%
AGENCY FINANCIAL REPORT • FY 2010
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FINANCIAL REPORTING
The subsidy rates in Table F 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 include
reestimates.
G. Subsidy Expense by Component
(Dollars in Thousands)
FOR THE YEARS ENDING SEPTEMBER 30, 2010 2009
Business Loan Guaranties
Interest $ 40,675 $ 2,707
Defaults 757,709 145,749
Fees (232,850) (52,746)
Other 8,726 2,749
Subsidy Expense Before Reestimates and Loan Modifications 574,260 98,459
Loan Modifications - 13,216
Reestimates 3,614,981 4,684,836
Total Guarantied Business Loan Subsidy Expense $ 4,189,241 $ 4,796,511
Business Direct Loans
Interest $ 1,730 $ 1,966
Defaults 410 22
Other 1,531 530
Subsidy Expense Before Reestimates 3,671 2,518
Reestimates 801 4,670
Total Business Direct Loan Subsidy Expense $ 4,472 $ 7,188
Disaster Direct Loans
Interest $ 22,663 $ 85,592
Defaults 42,449 68,446
Other (18,033) (42,400)
Subsidy Expense Before Reestimates 47,079 111,638
Reestimates 161,293 243,309
Total Disaster Direct Loan Subsidy Expense $ 208,372 $ 354,947
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, 2010 2009
Disaster Direct Loan Programs $ 203,716 $ 251,999
Business Loan Programs 151,098 138,601
Total Administrative Expense $ 354,814 $ 390,600
AGENCY FINANCIAL REPORT • FY 2010
67
FINANCIAL REPORTING
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 2010 for SBA’s large loan programs and with nine months of actual
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 2010 2009
7(a) $ 1,483,646 $ 2,030,243
7(a) Star 20,751 17,924
504 CDC 1,597,460 1,565,784
SBIC Debentures 40,407 66,598
SBIC Participating Securities 336,858 960,151
Secondary Market Guaranty Program (8,208) (50,803)
All Other Guaranty Loan Programs (2,702) (2,730)
7(a) - ARRA (9,543) 72,430
504 CDC - ARRA 156,312 25,239
Total Guarantied Loan Program Subsidy Reestimates $ 3,614,981 $ $4,684,836
The 7(a) Loan Guaranty program, SBA’s flagship and largest program had a net upward reestimate in
FY 2010 of $1.5 billion. While the 2009 cohort performed better than expected in FY 2010, many ear-
lier cohorts performed worse. Actual cohort performance, in particular performance of the 2005-2008
cohorts, made up a significant portion of the reestimate. The remainder of the reestimate was mostly
due to updated model assumptions and methodologies, which will allow for more accurate projections
of future cash flows. These methodology changes resulted in increased purchase projections for the
remaining years within the cohorts.
The 504 Certified Development Companies program had a net upward reestimate of $1.6 billion.
While the 2009 cohort performed better than expected in FY 2010, many earlier cohorts performed
worse. The majority of the reestimate was due to updated model assumptions and methodologies,
which will allow for more accurate projections on future cash flows. These methodology changes
resulted in increased purchase projections and decreased recovery projections for the remaining years
within the cohorts. The remainder of the reestimate was mostly due to higher than projected purchases
in FY 2010, in particular for cohorts 2005-2008.
The SBIC Debentures program had a net upward reestimate of $40.4 million. The reestimate was
mostly due to lower than projected recoveries during FY 2010 and a decrease in projected recoveries for
the remaining years within the cohorts.
AGENCY FINANCIAL REPORT • FY 2010
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FINANCIAL REPORTING
The SBIC Participating Securities program had a net upward reestimate of $336.9 million. The reesti-
mate was mostly due to the downturn in the economy that resulted in lower than projected recoveries
and higher than projected purchases during FY 2010 and an increase in projected purchases for the
remaining years within the cohorts.
The Secondary Market Guaranty program had a net downward reestimate of $8.2 million. This down-
ward reestimate was due in part to the lower than projected interest rate paid to investors during FY
2010 and a decrease in the projected interest rate paid to investors for the remaining years within the
cohorts.
The 7(a) ARRA program had a net downward reestimate of $9.5 million, due in part to better than
projected performance in FY 2010. This includes loans funded from several appropriations during the
year providing additional funds under ARRA provisions.
The 504 ARRA program had a net upward reestimate of $156.3 million despite better than projected
performance in FY 2010. The reestimate was due in large part to updated model assumptions and
methodologies, which will allow for more accurate projections of future cash flows. These methodology
changes resulted in increased purchase projections and decreased recovery projections 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 2010 2009
7(m) Microloan $ 487 $ 4,507
7(m) Microloan - ARRA 973 -
SBIC Preferred Stock (708) 344
All Other Direct Loan Programs 49 (181)
Total Direct Loan Program Subsidy Reestimates $ 801 $ 4,670
The 7(m) Direct Microloan program had a net upward reestimate of $0.5 million. This reestimate was
due in large part to the 2009 cohort that was reestimated for the first time this year. Actual purchase
activity during FY 2010 altered the historical purchase curve causing projected purchases for the 2009
cohort to be greater than the original budget estimates.
The 7(m) Direct Microloan Recovery Act program had a net upward reestimate of $1.0 million. This
reestimate was also due in large part to the 2009 cohort that was reestimated for the first time this year.
Actual purchase activity during FY 2010 altered the historical purchase curve causing projected pur-
chases for the 2009 cohort to be greater than the original budget estimates.
DISASTER DIRECT LOAN PROGRAM
(Dollars in Thousands)
Disaster Direct Loan Program Subsidy Reestimates 2010 2009
Disaster $ 152,945 $ 231,117
World Trade Center Disaster 8,348 12,192
Total Disaster Direct Loan Program Subsidy Reestimates $ 161,293 $ 243,309
AGENCY FINANCIAL REPORT • FY 2010
69
FINANCIAL REPORTING
The Disaster program had a net upward reestimate of $161.3 million primarily in the 2006 cohort,
which mostly consists of loans for the Gulf Coast hurricanes of 2005. Loans in the 2006 cohort cur-
rently account for about 56 percent of the outstanding portfolio of Direct Disaster loans. The upward
reestimate was primarily the result of performance probabilities being updated with actual performance
during FY 2010 that resulted in an increase in projected defaults.
NOTE 7. General Property and Equipment, Net
The SBA capitalizes equipment with a cost of $50,000 or more per unit and a useful life of 2 years or
more at full cost and depreciated using the straight-line method over the useful life. The SBA expenses
other equipment items not meeting the capitalization criteria 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 software or equipment is put into production. The
costs of enhancements 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, 2010 and 2009 are detailed
below:
(Dollars in Thousands)
2010 2009
Equipment $ 1,787 $ 1,787
Accumulated Depreciation (1,049) (703)
Net 738 1,084
Leasehold Improvements - Construction in Progress 315 75
Leasehold Improvements 1,496 1,496
Amortization of Leasehold Improvements (249) (125)
Net 1,562 1,446
Software in Development - 4,970
Software in Use 30,545 30,546
Amortization of Software in Use (30,028) (29,511)
Net 517 6,005
Total General Property and Equipment, Net $ 2,817 $ 8,535
AGENCY FINANCIAL REPORT • FY 2010
70
FINANCIAL REPORTING
NOTE 8 Liabilities Not Covered by Budgetary Resources
Liabilities not covered by budgetary resources are liabilities for which congressional action is needed before bud-
getary resources can be provided. These unfunded liabilities at September 30, 2010 and 2009 consisted of:
(Dollars in Thousands)
2010 2009
Intragovernmental Liabilities - Other
Employment Taxes Payable $ 2,091 $ 2,870
Federal Employee Compensation Act Payable 5,865 5,843
Total Intragovernmental Liabilities - Other 7,956 8,713
Federal Employee Compensation Act Actuarial Liability 29,960 29,640
Surety Bond Guarantee Program Future Claims 19,539 20,817
Other Liabilities
Prior Liens on Real Estate Payable 409 409
Accrued Unfunded Annual Leave 26,758 25,314
Total Other Liabilities 27,167 25,723
Total Liabilities Not Covered by Budgetary Resources $ 84,622 $ 84,893
The liability for Surety Bond Guarantees is an estimate of future claims in the SBG program for
guaranties 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
reestimates and other credit program disbursements (see Note 15). The SBA makes periodic principal
repayments 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, 2010 and 2009 and resulting balances are:
Intragovernmental Debt
(Dollars in Thousands)
Department of Treasury 2010 2009
Beginning Balance $ 10,872,754 $ 9,462,882
New Borrowing 1,578,644 2,594,270
Repayments (699,804) (1,184,398)
Ending Balance $ 11,751,594 $ 10,872,754
Federal Financing Bank 2010 2009
Beginning Balance $ 5,529 $ 10,345
Repayments (3,249) (4,667)
Change in Interest Payable (93) (149)
Ending Balance $ 2,187 $ 5,529
Total Debt $ 11,753,781 $ 10,878,283
AGENCY FINANCIAL REPORT • FY 2010
71
FINANCIAL REPORTING
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, 2010 2009
Pollution Control Equipment Guaranty Fund $ 3,996 $ 5,052
Disaster Loan Fund 14,428 18,489
Business Loan and Investment Fund 49,935 55,043
Total Due Treasury $ 68,359 $ 78,584
NOTE 11 Other Liabilities
Other liabilities at September 30th were:
(Dollars in Thousands)
2010 2009
OTHER LIABILITIES - INTRAGOVERNMENTAL
Entity
Current
Employment Taxes Payable $ 3,977 $ 3,457
Advances from Other Agencies 2,086 3,580
Total Current 6,063 7,037
Non-current
Employment Taxes Payable 2,091 2,870
Federal Employee Compensation Act Payable 5,865 5,843
Payable to Federal Financing Bank 209 305
Total Non-current 8,165 9,018
Total Entity 14,228 16,055
Non-entity
Current
Payable to Treasury 6 7
Total Other Liabilities - Intragovernmental $ 14,234 $ 16,062
OTHER LIABILITIES - PUBLIC
Entity
Current
Accrued Funded Payroll and Benefits $ 19,967 $ 15,158
Accrued Unfunded Annual Leave 26,758 25,314
Suspense Accounts 275 327
Total Current 47,000 40,799
Non-current
Prior Liens on Real Estate Payable 409 409
Total Non-current 409 409
Total Entity 47,409 41,208
Non-entity
Current
Non-entity Current Payable 6 4
Total Other Liabilities - Public $ 47,415 $ 41,212
AGENCY FINANCIAL REPORT • FY 2010
72
FINANCIAL REPORTING
NOTE 12 Leases
The SBA leases all of its 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
2010 and 2009 facilities lease costs were $42.4 million and $42.7 million. Future lease payments shown
below assume a 3 percent inflation factor from the following years’ projected totals as estimated by GSA.
The downward trend after 2015 is due to the expiration of a number of leases.
(Dollars in Thousands)
FUTURE FACILITIES OPERATING LEASE PAYMENTS
FY Lease Pmts
2011 $ 46,117
2012 47,500
2013 48,925
2014 50,393
2015 51,905
After 2015 39,451
Total $ 284,291
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 2010
73
FINANCIAL REPORTING
(Dollars in Thousands)
2010 2009
Entity
Financing Fund Payable $ (130,993) $ (64,875)
Non-entity
Miscellaneous Receipts Fund Receivable 130,993 64,875
Downward Reestimate Payable to Treasury (130,993) (64,875)
Balance Sheet Reported Payable $ (130,993) $ (64,875)
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 strate-
gic goals to arrive at net strategic goals costs. The SBA recognizes earned revenues when reimbursements are
payable from other federal agencies and the public, as a result of costs incurred or services performed. A major
source of earned revenue includes 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, to ensure that all SBA
strategic goals operate at maximum efficiency and effectiveness by providing them with high quality executive
leadership and support services, are fully allocated to the other three strategic goals. Goal 4 costs are estimated
at $146.3 million and $121.5 million for FY 2010 and FY 2009. Costs Not Assigned to Strategic Goals on
the Statement of Net Cost includes costs of congressionally mandated grant programs and the Office of the
Inspector General.
Intragovernmental Gross Cost is cost incurred by the SBA in exchange transactions with other federal 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 the source of 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 transaction 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.
AGENCY FINANCIAL REPORT • FY 2010
74
FINANCIAL REPORTING
(Dollars in Thousands)
INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUE
FOR THE YEARS ENDING SEPTEMBER 30, 2010 2009
STRATEGIC GOAL 1:
Expand America’s Ownership Society, Particularly in Underserved Markets
Intragovernmental Gross Cost $ 303,718 $ 237,923
Gross Cost with the Public 4,693,371 5,172,008
Total Strategic Goal 1 Gross Cost 4,997,089 5,409,931
Intragovernmental Earned Revenue 187,036 113,832
Earned Revenue from the Public 71,313 52,511
Total Earned Revenue Strategic Goal 1 258,349 166,343
STRATEGIC GOAL 2:
Provide Timely Financial Assistance to Homeowners, Renters, Nonprofit
Organizations and Businesses Affected by Disaster
Intragovernmental Gross Cost $ 419,946 $ 479,914
Gross Cost with the Public 394,505 601,318
Total Strategic Goal 2 Gross Cost 814,451 1,081,232
Intragovernmental Earned Revenue 60,803 74,732
Earned Revenue from the Public 306,935 331,172
Total Earned Revenue Strategic Goal 2 367,738 405,904
STRATEGIC GOAL 3:
Improve Economic Environment for Small Business
Intragovernmental Gross Cost $ 3,911 $ 3,348
Gross Cost with the Public 13,903 11,158
Total Strategic Goal 3 Gross Cost 17,814 14,506
Cost Not Assigned to Strategic Goals
Intragovernmental Gross Cost $ 16,232 $ 14,375
Gross Cost with the Public 57,698 47,919
Total Gross Cost Not Assigned to Strategic Goal 73,930 62,294
Net Cost of Operations $ 5,277,197 $ 5,995,716
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, 2010 and 2009. SBA’s total bud-
getary resources were $8.4 billion and $5 billion for the years ended September 30, 2010 and 2009.
Additionally, $10 billion and $7.4 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, 2010 and 2009.
AGENCY FINANCIAL REPORT • FY 2010
75
FINANCIAL REPORTING
Adjustments to Beginning Balance of Budgetary Resources
The SBA made no adjustments to the beginning budgetary resources during the years ended September
30, 2010 and 2009.
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
account 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 2010 and 2009, the SBA received $2.7 billion and $3.5 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
borrowers in its loan financing funds to repay its Treasury borrowings. The repayment maturity dates
for the borrowing 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 2010 and FY 2009, the SBA incurred $13.1 billion and $9.6 billion of direct and reimburs-
able obligations of which $0.9 billion and $0.7 billion was apportioned in category A; $12.2 billion and
$8.9 billion were 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 2010
76
FINANCIAL REPORTING
Unobligated Balances
Unobligated balances at September 30, 2010 and 2009 are $5.2 billion and $2.7 billion which include
$3.0 billion and $1.3 billion of unavailable unobligated balances. These balances are unavailable primarily
because they are unapportioned by OMB. The SBA accumulates the majority of these unobligated balanc-
es in its nonbudgetary financing accounts during the fiscal year ($3.5 billion in FY 2010 and $1.2 billion
in FY 2009) from reestimates that are used primarily to pay default claims in the following fiscal year. In
addition, unobligated balances are accumulated in budgetary accounts from appropriations ($1.8 billion in
FY 2010 and $1.5 billion in FY 2009) that are used to finance SBA’s ongoing program operations.
Undelivered Orders
Undelivered orders for the periods ended September 30, 2010 and 2009 were $0.9 billion and
$0.8 billion.
Differences between the Statement of Budgetary Resources
and the Budget of the U. S. Government
There was no material difference between the FY 2009 Statement of Budgetary Resources and the
President’s FY 2011 budget submission. The President’s Budget with actual numbers for FY 2012 has
not yet been published. The SBA expects no material differences between the President’s Budget “ac-
tual” column and the FY 2010 reported results when the budget becomes available in February 2011.
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.
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.
AGENCY FINANCIAL REPORT • FY 2010
77
FINANCIAL REPORTING
CONSOLIDATED RECONCILIATION OF BUDGETARY OBLIGATIONS TO NET COST
For the years ended September 30, 2010 and 2009
(Dollars in Thousands)
2010 2009
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred $ 13,113,785 $ 9,635,132
Less: Spending Authority from Offsetting Collections and Recoveries 8,231,003 4,946,652
Obligations Net of Offsetting Collections and Recoveries 4,882,782 4,688,480
Less: Offsetting Receipts 78,001 489,395
Net Obligations 4,804,781 4,199,085
Other Resources
Imputed Financing 32,765 25,549
Other Financing Sources (144,780) (88,187)
Net Other Resources Used to Finance Activities (112,015) (62,638)
Total Resources Used to Finance Activities 4,692,766 4,136,447
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 (74,812) 193,832
Resources that Fund Expenses Recognized in Prior Periods (4,637,929) (1,313,301)
Budgetary Offsetting Collections and Receipts that Do Not Affect Net Cost of Operations
Credit Program Collections 7,823,359 4,042,182
Offsetting Receipts 78,001 489,395
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (6,406,831) (6,189,101)
Other - Current Year Liquidating Equity Activity 760 863
Other Resources that Do Not Affect Net Cost of Operations (15) (100)
Total Resources that Do Not Finance Net Cost of Operations (3,217,467) (2,776,230)
Total Resources Used to Finance the Net Cost of Operations 1,475,299 1,360,217
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 1,444 767
Upward Reestimates of Credit Subsidy Expense 3,796,430 4,637,148
Change in Revenue Receivable from Public (249) (3,623)
Provision for Losses on Estimated Guaranties (1,278) (3,947)
Change in Unfunded Employee Benefits 320 2,579
Total Components Requiring or Generating Resources in Future Periods 3,796,667 4,632,924
Components Not Requiring or Generating Resources
Depreciation or Amortization 987 987
Change in Bad Debt Expense - Pre-1992 Loans 3,721 2,094
Other (Income) Expenses Not Requiring Budgetary Resources 523 (507)
Total Components Not Requiring or Generating Resources 5,231 2,574
Total Components of the Net Cost of Operations that Will Not
Require or Generate Resources in the Current Period 3,801,898 4,635,499
Net Cost of Operations $ 5,277,197 $ 5,995,716
AGENCY FINANCIAL REPORT • FY 2010
78
FINANCIAL REPORTING
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 following table details these differences:
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2010 2009
Current Year Liabilities Not Covered By Budgetary Resources $ 84,622 $ 84,893
Less: Prior Year 84,893 86,918
Change in Liabilities Not Covered By Budgetary Resources (271) (2,025)
Upward Reestimates of Credit Subsidy Expense 3,796,430 4,637,148
Change in Revenue Receivable from Public (249) (3,623)
All Other 757 1,424
Components (of Net Cost) Generating Resources in Future Periods
(Per Reconciliation Above) $ 3,796,667 $ 4,632,924
NOTE 17 Significant Events
Recovery Act Extensions
The President signed the American Recovery and Reinvestment Act on February 17, 2009. The ARRA
provided $730 million to the SBA to alleviate the effect of the economic recession on American small
business. Of the ARRA funding, $375 million was provided to temporarily reduce fees on 7(a) and 504
guarantied loans and increase the guaranty percentage on 7(a) loans. Although the $375 million was
scheduled to be available until September 30, 2010, the funds were exhausted during November 2009 and
ARRA lending was suspended. The U. S. Congress subsequently provided an additional $305 million
through several appropriations to extend ARRA lending. On May 31, 2010 the temporary authority to
increase the 7(a) guaranty percentage expired, contributing to a reduction in SBA guarantied loan volume
during the last four months of FY 2010. The President signed the Jobs Bill on September 27, 2010; the
bill provides $505 million of additional funding under ARRA provisions which will be used during
FY 2011. The short term ARRA funding extensions during FY 2010 required several changes to SBA’s
financial management systems to account for these funds. In addition, SBA’s funds control system was
enhanced in order to control the use of these short term funding extensions of ARRA provisions.
AGENCY FINANCIAL REPORT • FY 2010
79
FINANCIAL REPORTING
Economic Conditions
While the economy was no longer in a recession during FY 2010 as evidenced by an increase in GDP,
unemployment remained high throughout the fiscal year. These macroeconomic factors had an impact
on the FY 2010 performance of SBA’s loan portfolio. Despite the increase in GDP in FY 2010, the high
unemployment rate contributed to an increase in purchases of defaulted guaranties. The Mid-Session
Review Economic Assumptions continue to show higher unemployment forecasts as compared to last
year’s forecasts, which increase projections for future purchases. This factor contributed to the upward
reestimate in the SBA loan programs (as discussed in Note 6I). Future updates to economic forecasts
that drive model projections may result in large swings in reestimates. 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.
Financial Management System
During FY 2010, in accordance with OMB guidance, the SBA reviewed and subsequently discontinued
its ongoing loan and financial system modernization project to develop an integrated Loan Management
and Accounting System. As a result, the $5.2 million accumulated cost to develop LMAS was written off
to expense in the FY 2010 results. Instead of LMAS, the Agency plans to focus on migrating its loan and
financial systems from its mainframe platform to improve their efficiency and reliability and to continue
the upgrade of its Joint Accounting and Administrative Management System administrative accounting
system by implementing the latest version of the Oracle Federal Financials software.
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AGENCY FINANCIAL REPORT • FY 2010
80
FINANCIAL REPORTING
Required Supplementary Information
Combining Statement of Budgetary Resources
For the year ended September 30, 2010
(Dollars in Thousands)
BLIF DLF SBGRF PCECGF
Nonbudgetary Nonbudgetary
BUDGETARY RESOURCES Budgetary Financing Budgetary Financing Budgetary Budgetary
Unobligated Balance
Brought Forward October 1 $ 336,149 $ 556,036 $ 858,774 $ 639,275 $ 49,396 $ 3,195
Recoveries of Prior Year Obligations 17,052 3,311 11,810 78,293 – –
Budget Authority
Appropriations Received 5,576,868 – 315,513 – 1,000 2,000
Borrowing Authority – 1,736,548 – 1,001,411 – –
Spending Authority from Offsetting Collections
Earned 9,785 6,598,773 3,806 1,224,586 10,205 225
Change in Unfilled Customer Orders – 1,539 – (7,110) – –
Total Budget Authority 5,586,653 8,336,860 319,319 2,218,887 11,205 2,225
Permanently Not Available (10,485) (554,488) (5,575) (1,304,624) – (3,195)
Total Budgetary Resources $ 5,929,369 $ 8,341,719 $ 1,184,328 $ 1,631,831 $ 60,601 $ 2,225
STATUS OF BUDGETARY RESOURCES
Obligations Incurred, Net
Direct $ 5,127,072 $ 5,644,872 $ 288,335 $ 870,303 $ – $ –
Reimbursable 153,210 – 86,588 – 4,345 –
Total Obligations Incurred, Net 5,280,282 5,644,872 374,923 870,303 4,345 –
Unobligated Balances, Available 75,950 1,429,802 50,400 631,107 9,856 2,225
Unobligated Balances, Not Available 573,137 1,267,045 759,005 130,421 46,400 –
Total Status of Budgetary Resources $ 5,929,369 $ 8,341,719 $ 1,184,328 $ 1,631,831 $ 60,601 $ 2,225
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward,
Net October 1
Unpaid Obligations Brought Forward $ 206,486 $ 174,960 $ 32,643 $ 214,974 $ 18 $ –
Uncollected Customer Payments from Federal
Sources Brought Forward – (203,903) – (31,971) – –
Total Obligated Balance Brought Forward, Net 206,486 (28,943) 32,643 183,003 18 –
Obligations Incurred 5,280,282 5,644,872 374,923 870,303 4,345 –
Gross Outlays (5,261,352) (5,592,264) (370,406) (787,655) (4,257) –
Recoveries of Prior Year Unpaid Obligations (17,052) (3,311) (11,810) (78,293) – –
Change in Uncollected Customer Payments from
Federal Sources – (1,539) – 7,110 – –
Obligated Balance, Net, End of Period
Unpaid Obligations 208,364 224,257 25,350 219,329 106 –
Uncollected Customer Payments from Federal
Sources – (205,442) – (24,861) – –
Total Obligated Balance, Net, End of Period $ 208,364 $ 18,815 $ 25,350 $ 194,468 $ 106 $ 0
NET OUTLAYS
Gross Outlays $ 5,261,352 $ 5,592,264 $ 370,406 $ 787,655 $ 4,257 $ –
Offsetting Collections (9,785) (6,598,773) (3,806) (1,224,586) (10,205) (225)
Net Outlays Before Offsetting Receipts 5,251,567 (1,006,509) 366,600 (436,931) (5,948) (225)
Offsetting Receipts – (54,116) – (23,775) – –
Net Outlays $ 5,251,567 $ (1,060,625) $ 366,600 $ (460,706) $ (5,948) $ (225)
AGENCY FINANCIAL REPORT • FY 2010
81
FINANCIAL REPORTING
Combining Statement of Budgetary Resources
For the year ended September 30, 2010
(Dollars in Thousands)
SE OIG BATF TOTAL TOTAL
Nonbudgetary
BUDGETARY RESOURCES Budgetary Budgetary Budgetary Budgetary Financing Total
Unobligated Balance
Brought Forward October 1 $ 243,472 $ 15,363 $ 263 $ 1,506,612 $ 1,195,311 $ 2,701,923
Recoveries of Prior Year Obligations 24,065 252 – 53,179 81,604 134,783
Budget Authority
Appropriations Received 642,438 16,300 – 6,554,119 – 6,554,119
Borrowing Authority – – – – 2,737,959 2,737,959
Spending Authority from Offsetting Collections
Earned 369,966 1,014 24 395,025 7,823,359 8,218,384
Change in Unfilled Customer Orders (116,682) 89 – (116,593) (5,571) (122,164)
Total Budget Authority 895,722 17,403 24 6,832,551 10,555,747 17,388,298
Permanently Not Available (5,767) (101) – (25,123) (1,859,112) (1,884,235)
Total Budgetary Resources $ 1,157,492 $ 32,917 $ 287 $ 8,367,219 $ 9,973,550 $ 18,340,769
STATUS OF BUDGETARY RESOURCES
Obligations Incurred, Net
Direct $ 546,779 $ 19,444 $ 45 $ 5,981,675 $ 6,515,175 $ 12,496,850
Reimbursable 371,558 1,234 – 616,935 – 616,935
Total Obligations Incurred, Net 918,337 20,678 45 6,598,610 6,515,175 13,113,785
Unobligated Balances, Available 70,508 6,292 242 215,473 2,060,909 2,276,382
Unobligated Balances, Not Available 168,647 5,947 – 1,553,136 1,397,466 2,950,602
Total Status of Budgetary Resources $ 1,157,492 $ 32,917 $ 287 $ 8,367,219 $ 9,973,550 $ 18,340,769
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward, Net October 1
Unpaid Obligations Brought Forward $ 370,986 $ 3,318 $ 27 $ 613,478 $ 389,934 $ 1,003,412
Uncollected Customer Payments from
Federal Sources Brought Forward – – – – (235,874) (235,874)
Total Obligated Balance Brought Forward, Net 370,986 3,318 27 613,478 154,060 767,538
Obligations Incurred 918,337 20,678 45 6,598,610 6,515,175 13,113,785
Gross Outlays (825,985) (20,805) (50) (6,482,855) (6,379,919) (12,862,774)
Recoveries of Prior Year Unpaid Obligations (24,065) (252) – (53,179) (81,604) (134,783)
Change in Uncollected Customer Payments from
Federal Sources – – – – 5,571 5,571
Obligated Balance, Net, End of Period
Unpaid Obligations 439,273 2,939 22 676,054 443,586 1,119,640
Uncollected Customer Payments from Federal
Sources – – – – (230,303) (230,303)
Total Obligated Balance, Net, End of Period $ 439,273 $ 2,939 $ 22 $ 676,054 $ 213,283 $ 889,337
NET OUTLAYS
Gross Outlays $ 825,985 $ 20,805 $ 50 $ 6,482,855 $ 6,379,919 $ 12,862,774
Offsetting Collections (253,283) (1,102) (24) (278,430) (7,823,359) (8,101,789)
Net Outlays Before Offsetting Receipts 572,702 19,703 26 6,204,425 (1,443,440) 4,760,985
Offsetting Receipts (110) – – (110) (77,891) (78,001)
Net Outlays $ 572,592 $ 19,703 $ 26 $ 6,204,315 $ (1,521,331) $ 4,682,984
AGENCY FINANCIAL REPORT • FY 2010
82
FINANCIAL REPORTING
Required Supplementary Stewardship Information
Stewardship Investments in Human Capital
Five years ending September 30, 2010
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.
Additional information on these programs is provided in the Management Discussion and Analysis sec-
tion of this Agency Financial Report.
Significant Human Capital investments occur within the following programs:
(Dollars in Thousands)
2010 2009 2008 2007 2006
Small Business Development Centers $ 130,046 $ 116,909 $ 98,484 $ 99,748 $ 105,743
SCORE 11,134 9,899 10,960 12,267 15,285
Women’s Business Centers 16,924 21,504 23,655 16,382 10,382
All Other Training and Assistance Programs 81,057 61,356 41,318 62,787 24,513
Total $ 239,161 $ 209,668 $ 174,417 $ 191,184 $ 155,923
AGENCY FINANCIAL REPORT • FY 2010
83
FINANCIAL REPORTING
AGENCY FINANCIAL REPORT • FY 2010
84
OFFICE OF THE INSPECTOR GENERAL
REPORTS
Success Story
Successful Entrepreneur Finds His Own
“Land of Opportunity”
ETC Engineers & Architects, Inc., Little Rock, Arkansas
From the day he first set foot in the state, Mizan Rahman knew he’d find
success in Arkansas, a state formerly nicknamed the “Land of Opportunity.”
The owner and president of ETC Engineers and Architects, Inc., Rahman
relied on his engineering instincts: it takes time and teamwork to build
something good that will last.
ETC Engineers and Architects, Inc. is one of central Arkansas’ foremost
civil engineering companies. The company currently employs 13 engineers,
architects and support staff specializing in designing roads, water systems and sewage systems.
The successful company has taken years to build. Born in Bangladesh and later graduating from a university there,
Rahman applied for and received a United States Agency for International Development in-service training scholar-
ship. His scholarship was canceled in 1971 because of a civil war between Pakistan and Bangladesh, then known as
East Pakistan, but Mizan Rahman moved on to a post at the U.S. Geological Survey, and took a job testing water qual-
ity at its laboratory in Little Rock.
As the years rolled by, Rahman married, took his first job with an engineering firm, and completed a master’s degree
in civil engineering and an MBA before he decided to open his own firm. A $36,000 SBA-backed line of credit was
enough to open ETC Engineers and Architects, Inc. in 1978. The company has also benefited from the 8(a) Business
Development program and graduated from the program in 1994. The program helped Rahman compete in the
American economy and access the federal contracting market.
OFFICE OF THE INSPECTOR GENERAL REPORTS
Summary of OIG Audit Follow-up
Throughout the year, the OIG conducts audits of SBA’s processes, procedures and programs, and makes
recommendations for improvement. Many of these recommendations are not material, relative to their
dollar impact on SBA’s financial and administrative operation, but are beneficial to SBA’s management.
If SBA management disagrees with an OIG recommendation, the OIG may revise the recommendation
or refer the issue to a higher level of SBA management. When both SBA management and the OIG
agree on the recommendation, SBA management develops a corrective action plan, including a target
date for completion. This recommendation is identified as having a “Management Decision.” When
the corrective action plan is implemented and the recommendation has been fully addressed, the recom-
mendation is identified as having a “Final Action.”
The OCFO maintains a database to track the recommendations through to the conclusion, or Final
Action. During FY 2010, there were 156 Final Actions, resulting from 12 monetary and 144 non-
monetary recommendations. The status of the corrective actions is updated regularly and is available
for review on the SBA Intranet. The status of all audit recommendations is reconciled with the OIG to
ensure actions are posted promptly and accomplished in accordance with the agreed-upon target dates.
The following two tables reflect SBA’s monetary final action activity for FY 2010. Detailed information
on the final action activity and the status of corrective action plans not implemented within one year can
be found in the CD that accompanies this Agency Financial Report.
TABLE 1.
Final Action on Audit Recommendations with Disallowed / Questioned Costs
October 1, 2009 – September 30, 2010
Number of
Disallowed Costs (Rounded to Thousands)
Recommendations
A. Recommendations with management decisions on which final 5 $1,826
action had not been taken at the beginning of the period.
B. Recommendations on which management decisions were made 3 1,904
during the period.
C.Total recommendations pending final action during period. 8 $3,730
D. Recommendations on which final action was taken during the
period.
1. Recoveries:
(a) Collections and Offsets 4 1,854
(b) Property
(c) Other
2. Write-Offs 3 626
3. Total 7 $2,480
E. Recommendations needing final action at the end of the period. 1 $1,250
AGENCY FINANCIAL REPORT • FY 2010
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OFFICE OF THE INSPECTOR GENERAL REPORTS
TABLE 2
Final Action on Audit Recommendations with Funds Put To Better Use
October 1, 2009 – September 30, 2010
Number of Funds to be Put to Better Use
Recommendations (Rounded to Thousands)
A. Recommendations with management decisions on which final 5 $1,550,335
action had not been taken at the beginning of the period.
B. Recommendations on which management decisions were made 0
during the period.
C.Total recommendations pending final action during period. 5 $1,550,335
D. Recommendations on which final action was taken during the
period.
1. Value of recommendations implemented (completed). 4 1,547,644
2. Value of recommendations that management concluded should 1 2,691
not or could not be implemented or completed.
3. Total 5 $1,550,335
E. Recommendations needing final action at the end of the period. 0 $0
AGENCY FINANCIAL REPORT • FY 2010
88
OFFICE OF THE INSPECTOR GENERAL REPORTS
OIG Report on the Most Serious Management
and Performance Challenges
U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
Report No. 11-01
Fiscal Year 2011 Report
on the Most Serious Management and
Performance Challenges Facing the
Small Business Administration
October 15, 2010
AGENCY FINANCIAL REPORT • FY 2010
29 89
OFFICE OF THE INSPECTOR GENERAL REPORTS
U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
WASHINGTON, D.C. 20416
October 15, 2010
MEMORANDUM
TO: Karen G. Mills
Administrator
FROM: Peggy E. Gustafson
Inspector General
SUBJECT: Fiscal Year 2011 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) 2011 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, 2010.
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 Limited Progress; and Red for No
Progress. An upwards arrow in the color box indicates that the color score improved over last year’s
report, and a down arrow indicates that it regressed.
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.
We are pleased to report that one Management Challenge in last year’s report, Insufficient and Outdated
SBA Controls Contribute to Excessive Risk of the SBIC Program, has been completed by virtue of both
remaining recommended actions receiving Green color scores this year. The OIG determined that SBA
(1) was actively monitoring and timely transferring impaired Small Business Investment Companies
(SBICs) to liquidations when warranted and (2) had developed performance goals and indicators to
evaluate effectiveness of the liquidation process of SBICs and was reporting annually on whether these
goals had been met. This Challenge has been shown as “completed” in the attached report and the
remaining Challenges have been renumbered accordingly.
Agency Financial Report ▪ FY 2010
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OFFICE OF THE INSPECTOR GENERAL REPORTS
The following table provides a summary of the FY 2011 report on the Agency’s Most Serious
Management and Performance Challenges.
Status Score
1 2
Topic Green Yellow Orange Red Improved Worsened
1 Small Business Contracts 2 1
2 IT Security 3 1 1
3 Human Capital 2 1 1
4 Loan Guaranty Purchase 1 1 1
5 Lender Oversight 4 2 2
6 8(a) BD Program 3 1 1
7 Loan Agent Fraud 2 2
Loan Management and 3
8 4 __
Accounting System
4
9 Improper Payments 1 3 3 __
Completed Challenge
SBIC Program 2 2
TOTAL 4 18 14 7 3
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 continuing to work with SBA’s 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
" Worsened‖ refers to a recommended action that regressed from last year’s score (as denoted by a "down‖ arrow).
3
Management Challenge 8, Loan Management and Accounting System, was new in FY 2010. Consequently, no color scores were
shown in last year’s report against which to measure progress.
4
Management Challenge 9, Improper Payments, was new in FY 2010. Consequently, no color scores were shown in last year’s
report against which to measure progress.
31
Agency Financial Report ▪ FY 2010
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OFFICE OF THE INSPECTOR GENERAL REPORTS
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. Effective tracking and enforcement would reduce financial losses
from loan agent fraud
Challenge 8. SBA needs to modernize its Loan Accounting System and migrate
it off the mainframe
Challenge 9. SBA needs to accurately report, significantly reduce, and strengthen
efforts to recover improper payments in the Disaster and 7(a) loan programs
Completed Challenge: Insufficient and outdated SBA controls contribute to
excessive risk of the SBIC program
Appendix: Relevant Reports
32
Agency Financial Report ▪ FY 2010
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OFFICE OF THE INSPECTOR GENERAL REPORTS
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 of the 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 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 the MAS contract.
While more remains to be done, SBA made some progress on this challenge. For example, SBA
co-chaired the President’s Interagency Task Force on Federal Contracting Opportunities for
Small Businesses and recommended mandatory training on small business contracting,
procurement policies and regulations for contracting personnel and program managers. It is also
working on an interagency agreement with the Defense Acquisition University, expected to be
executed in FY 2011, whereby SBA personnel would serve as adjunct faculty to teach small
business related contracting courses; and has worked with the Department of Defense’s Office of
Small Business Programs to develop two small business courses intended for program
managers, contracting officers, and contract specialists. SBA estimated that the courses will be
available in FY 2011. Finally, SBA conducted surveillance reviews to assess whether
procurement officials confirmed the small business size status prior to contract award.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 2005 06-0 07-0 08-1 09-0
Status at end of
Remaining Recommended Actions for FY 2011
FY 2010
1. Develop and take steps to provide reasonable assurance that agencies are providing
adequate basic and continuing education training to contracting personnel on small Yellow
business contracting procedures.
2. Develop and implement a program that promotes accurate contractor certifications and
Yellow
ensures that contracting personnel review contractor 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 Contract (GWAC) and Orange
show that the regulations are being followed.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
33
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OFFICE OF THE INSPECTOR GENERAL REPORTS
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 2010.
SBA issued procedures requiring vulnerability scanning in contract service level agreements and
control reviews; implemented physical and administrative access controls over Agency systems;
and made progress implementing standard baseline configurations for its Windows operating
system servers and improving controls over major applications. SBA now reviews contractor
clearances as part of its Security Authorization process and tracks compliance in its Plan of
Actions and Milestones (POA&M). To show further progress, SBA needs to address both known
and newly-reported information security issues. For example, SBA needs to demonstrate a
process that accomplishes timely mitigation of system risks that are identified as ―
medium‖ and
―high;‖ further implement enterprise-wide and application-level change control controls for both
emergency and normal system changes; and timely implement OIG recommendations related to
IT security issues. While SBA has continued to improve its information system security, the FY
2010 Financial Statement Audit has identified new weaknesses in segregation of duty controls
within SBA financial systems.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 06-2 07-2 08-2 09-0
1999
Status at end
Remaining Recommended Actions for FY 2011
of FY 2010
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. Orange
4. The POA&M accurately reports all computer security weaknesses and corrective
Yellow
actions.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
34
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OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 3. Effective human capital strategies are needed to enable SBA to
successfully carry out its mission and become a high-performing organization.
During the past decade, facing budget constraints at the same time that virtually of all its
programs were growing significantly, 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 has not adequately analyzed
priorities and allocated resources consistent with those priorities and its new business processes.
As a result, there is no assurance that sufficient resources—in terms of both number of staff and
the knowledge and skills possessed by staff—are available and appropriately deployed to
perform critical functions. For example, OIG and GAO reviews have identified training and
inadequate staffing of key functions, including oversight of lenders and monitoring of 8(a)
program requirements, as critical issues affecting the Agency.
The results of the Office of Personnel Management’s (OPM’s) Federal Human Capital Surveys—
now the Federal Employee Viewpoint Survey (FEVS)—have highlighted 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 was proactive in addressing these results and
showed significant improvement in the 2008 survey. 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.
However, the 2010 FEVS did not show continued progress—SBA still trailed the government-
wide average on the four human capital indices, with the most significant gap (10 percent) being
in Talent Management. In addition, SBA was 29 out of 31 large agencies in the 2010 ― Best
Places to Work‖ rankings and its scores were lower than in the 2009 rankings for a number of
areas, including Employee Skills/Mission Match, Strategic Management, and Training and
Development.
While SBA has taken positive steps in some areas, such as performance management and
leadership development, it needs to develop a comprehensive workforce planning process that
provides a systematic and strategic approach for ensuring that qualified staff are available and
appropriately allocated toward mission-critical functions and Agency priorities.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
06-0 07-0 08-0 09-0
2001 (Revised 2007)
Status at end
Remaining Recommended Actions for FY 2011
of FY 2010
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 Employee Viewpoint
Survey (FEVS) – 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 FEVS.
3. Plan for the future of SBA – develop and implement an effective workforce
planning program to ensure that there are qualified staff available to perform
Orange ↓
SBA’s mission-critical functions and meet identified priorities for the foreseeable
future.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
35
Agency Financial Report ▪ FY 2010
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OFFICE OF THE INSPECTOR GENERAL REPORTS
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 implemented policies and procedures governing the guaranty purchase and liquidation
processes to ensure lender compliance before honoring loan guaranties. While improvements
have been made, SBA will need to fully implement its Quality Assurance Review Program at the
centers and incorporate these procedures into a formal policy.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
06-0 07-0 08-2 09-0
2001
Status at end
Remaining Recommended Actions for FY 2011
of FY 2010
1. Implement a Quality Assurance Program for all SBA loan centers. Orange
2. Implement policies and procedures governing the guaranty purchase and
liquidation processes to ensure lender compliance before honoring SBA loan Green ↑
guaranties.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
36
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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. More than 68 percent of loan dollars guaranteed by SBA are
made by lenders using delegated authorities with limited oversight. Prior reviews of SBA’s Office
of Credit Risk Management (OCRM) disclosed that onsite lender examinations did not adequately
assess lender risk; reviews were not made of high-risk, medium-sized lenders; and SBA had not
effectively implemented enforcement actions. High risk lenders now account for more than 80
percent of SBA’s 7(a) outstanding portfolio. The risks inherent in delegated lending require an
effective oversight program to: (1) monitor lender compliance with SBA policies and procedures;
and (2) take corrective actions when a material noncompliance is 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
2010. 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 October 2010, SBA issued its new Lender Supervision and Enforcement SOP
that establishes oversight and enforcement actions against nonperforming lenders. The SOP is
comprehensive and addresses a number of the concerns that the OIG has had with lender
oversight issues. In particular, the SOP provides for agreed- upon procedure reviews and
corrective action plans that include milestones and timeframes for achieving results. The
guidelines established for lender performance will assist the OCRM in establishing goals and
target dates for inclusion in lender corrective action plans.
While the SOP took effect on October 1, 2010, SBA will need to demonstrate consistent and
reliable adherence to the procedures and corrective action plans to improve the performance of
high-risk lenders.
Actions Accomplished (Green Status) during Past 4 FYs
Challenge History
Fiscal Year (FY) Issued: 2001 06-7(a)-2 07-7(a)-0 08-7(a)-2 09-7(a)-0
06-504-1 07-504-1 08-504-2 09-504-0
Status at end of
Remaining Recommended Actions for FY 2011 FY 2010
7(a) 504
1. Expand the scope of lender oversight and improve the process for reviewing
Yellow Yellow
lenders and Certified Development Companies (CDCs) for compliance risks.
2. Implement guidance providing for effective oversight of lending programs. Yellow ↑ Yellow ↑
3. Ensure that effective corrective actions are implemented, monitored, and
result in improvement in the performance of participants with unacceptable Orange Orange
performance.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
37
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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. Also, the Agency
issued proposed regulations in 2009 to establish clear and objective standards to address the
definition of ―
economic disadvantage,‖ but has not taken further action. SBA has further
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.
Although the Agency has taken steps to ensure that procuring agencies enforce contractor
compliance with 8(a) BD program regulations, significant improvements are still needed. The
Agency also needs to finalize regulations necessary to complete applicable recommended
actions.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
06-1 07-1 08-1 09-1
2003
Status at end
Remaining Recommended Actions for FY 2011
of FY 2010
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 and reasonable criteria that effectively measures ―
economic
Orange ↓
disadvantage‖ and implement the new criteria.
4. 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 #5)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
38
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OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 7. Effective tracking and enforcement would reduce financial losses
from loan agent fraud.
For more than a decade, 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.
Tracking Loan Agent Data -- Over the years, in response to this Management Challenge, SBA
has proposed various methods of tracking loan agent activity. At one point, SBA proposed to
revise its E-Tran system (which collects loan data electronically from participating lenders) to
collect information on loan agent involvement. The Agency ultimately concluded, however, that
this approach was not feasible. At the end of FY 2007, SBA proposed a new approach to
integrate information from the Form 159 (which asks for information about loan agents) into the
Form 1502 electronic data collection process by SBA’s Fiscal and Transfer Agent (FTA). The
OIG revised recommended action #1 below, but SBA made no progress on this action during FY
2008, in part due to a protest of the award of the FTA contract. At the end of FY 2009, SBA
presented a succinct plan for implementing the 1502 approach. However, during FY 2010, SBA
again changed its position, and advised that it would capture the data by having the Form 159
faxed in to the FTA. At the end of FY 2010, SBA issued a notice with directions on how this data
was to be submitted.
Loan Agent Enforcement Procedures -- 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. Effective October 1, 2010, SBA
issued a Lender Supervision and Enforcement SOP with provisions for loan agent enforcement
actions and a delegation of authority to the Director of the Office of Credit Risk Management.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
06-0 07-1 08-1 09-0
2000
Status at end
Remaining Recommended Actions for FY 2011
of FY 2010
1. Develop an effective method of disclosing and tracking loan agent involvement in
Yellow ↑
the SBA business loan programs.
2. Implement procedures for enforcement actions against loan agents for improper
Yellow ↑
and fraudulent conduct.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
39
Agency Financial Report ▪ FY 2010
AGENCY FINANCIAL REPORT • FY 2010
99
OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 8. 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
to update the Agency’s Loan Accounting System and migrate it off of the mainframe. Previous
OIG reports noted that the system is 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. Additionally, the OIG reported
concerns about SBA’s management of the project; the project’s noncompliance with the Agency’s
System Development Methodology (SDM) in key areas, which impacts SBA’s ability to control
project costs and quality; and the lack of an enterprise-wide or project-level Quality Assurance
(QA) function to ensure that LMAS deliverables meet SBA’s requirements and quality standards.
Finally, the OIG reported that the LMAS QA contractor had not performed all of the activities
stipulated in its contract and that none of the issued LMAS task orders have undergone
Independent Validation and Verification (IV&V) testing.
In 2009 SBA contracted with McKinsey & Company to conduct a review of the LMAS project.
This review identified multiple weaknesses in SBA’s LMAS project management activities and
recommended: (1) focusing on core mainframe legacy platform replacement; (2) strengthening
project governance; (3) increasing project team resources; 4) focusing on COTS capabilities
while minimizing customization; and 5) improving vendor management.
In 2010 OMB issued Memorandum 10-26, recommending that Federal agencies split large-scale
modernization efforts into smaller, simpler segments with clear deliverables. In response, SBA
changed its strategy for LMAS going forward to accelerate the migration of user interfaces from
the mainframe legacy platform to the Agency’s current architecture, and convert batch COBOL
systems from the mainframe to a more current and platform-independent environment. To show
further progress, SBA needs to develop detailed project plans for implementing its new LMAS
strategy; implement a QA/IV&V process that encompasses all of the requirements of its
enterprise SDM; and provide sufficient evidence that all LMAS work products undergo IV&V
activities in accordance with the Agency’s Enterprise Quality Assurance Plan.
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 2011
of FY 2010
1. Migrate LAS to a new operating platform before the current mainframe contract expires in
Orange
2012.
2. Modify the LMAS QA/IV&V contract and establish an effective Quality Assurance
(QA) process which provides senior management independent assurance that
Orange
LMAS development activities and related project deliverables meet SBA Quality
standards.
3. Establish a process for reviewing and accepting LMAS deliverables that complies
Orange
with Systems Development Methodology requirements.
4. Implement a Quality Assurance process in LMAS in accordance with SBA’s
Orange
Enterprise Quality Assurance Plan.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
40
Agency Financial Report ▪ FY 2010
AGENCY FINANCIAL REPORT • FY 2010
100
OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 9. SBA needs to accurately report, significantly reduce, and strengthen
efforts to recover improper payments in the Disaster and 7(a) loan programs.
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 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 OFA 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 support for loan disbursement. In 2009, we reported that over 30 percent of reviewed
disaster loans were disbursed for properties that were not the applicant’s primary residence and
identified an estimated $30 million in improper loan guaranty purchases in the 7(a) program. SBA
also has not aggressively pursued recovery of improper payments. SBA has not yet collected
more than $2 million of FY 2008 improper payments identified by the OIG.
SBA has taken actions to correct many of the deficiencies identified by the OIG. For example,
the Agency has determined that a secondary market purchase will be considered improper to the
extent that SBA failed to identify and/or collect the improper payment during its post purchase
review process. The Agency also established clear policies for offsetting outstanding ongoing
guaranty fees from amounts paid to the lenders. Also, the Agency has implemented a corrective
action plan for the disaster loan program that addresses OMB requirements. A QAR team of
experienced loan officers and legal personnel was established to perform the improper payment
reviews. However, additional actions are needed to accurately report, significantly reduce, and
recover improper payments. SBA needs to incorporate the improper payment review processes;
a denial, repair and improper payment dispute resolution process; and an improper payment
recovery process into formal policy.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 2010 N/A N/A N/A N/A
Status at end of
Recommended Actions for FY 2011 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 effectively identify improper payments as defined by Office Yellow Orange
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 Office of Risk N/A Orange
Management to ensure an adequate and timely resolution of disputes.
3. Develop a process to ensure that reviewers are properly trained to perform improper
Green N/A
payment reviews.
4. Develop and implement corrective action plans to reduce improper payments in the
Yellow Yellow
7(a) and Disaster Loan programs.
5. Establish a process and time standards to expeditiously recover improper payments
N/A Orange
identified during Agency reviews and OIG audits.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
41
Agency Financial Report ▪ FY 2010
AGENCY FINANCIAL REPORT • FY 2010
101
OFFICE OF THE INSPECTOR GENERAL REPORTS
Completed Challenge
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. Effective October 2004, SBA discontinued the licensing
of SBIC participating securities due to the over $2 billion in unprecedented losses experienced by
the program. While existing participating securities SBICs continue to operate in the program, the
last funds will expire by 2014 upon the maturity of their 10-year life cycle.
As of August 2010, SBA had about $6.4 billion of outstanding leverage in both debenture and
participating securities financings at risk. As of August 2010, 138 SBICs were in liquidation with
outstanding leverage of nearly $2 billion, most of which were in Participating Securities. Prior
OIG reports determined that: (1) existing guidance did not provide a systematic approach for
transferring capitally-impaired SBICs into liquidation status and (2) better performance goals and
indicators were needed to show how well and how timely recoveries were maximized for
liquidated SBICs.
Our review of the Investment Division’s management reports and discussions with division
officials disclosed that management was actively monitoring and timely transferring impaired
SBICs to liquidations when warranted. Also, management transferred one longstanding
problematic SBIC into liquidation in September 2010, after the principals conceded that they
could not raise the additional capital to cure the fund’s impairment. Management has also
developed performance goals and indicators to evaluate effectiveness of the liquidation process
of SBICs and reports annually on whether these goals have been met.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 06-1 07-1 08-1 09-2
2004
Status at end
Remaining Recommended Actions for FY 2011
of FY 2010
1. Develop systematic criteria and implement a timely approach for transferring
Green ↑
SBICs to liquidation status.
2. Develop and implement performance goals and indicators that address the
efficiency, cost-effectiveness, and timeliness of the SBIC liquidation process. Green ↑
(Previously action #3)
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
42
Agency Financial Report ▪ FY 2010
AGENCY FINANCIAL REPORT • FY 2010
102
OFFICE OF THE INSPECTOR GENERAL REPORTS
Appendix: Relevant Reports
Most of the SBA OIG Reports listed can be found at www.sba.gov/ig.
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.
SBA OIG, SBA’s Planning and Award of the Customer Relationship Management Contracts,
ROM 10-16, June 29, 2010.
Interagency Task Force on Federal Contracting Opportunities for Small Businesses Report,
September 2010.
Challenge 2:
SBA OIG, Audit of SBA’s FY 2009 Financial Statements, Report #10-04, November 13, 2009
SBA OIG, SBA’s FY2008 Financial Statements, Report #9-03, November 14, 2008
SBA OIG, Audit of SBA’s Financial Statements for FY 2006, Report #7-03, November 15, 2006.
SBA OIG, Audit of SBA’s Information System Controls for FY 2004, Report #5-12, February 24,
2005.
Challenge 3:
Partnership for Public Service, Best Places to Work in the Federal Government 2010,
http://bestplacestowork.org/BPTW/rankings/
OPM, 2010 Federal Employee Viewpoint Survey (FEVS), http://www.fedview.opm.gov/2010/
SBA OIG, The Colorado District Office’s Servicing of 8(A) Business Development Program
Participants, Report #10-15, September 30, 2010
SBA OIG, Adequacy of Procurement Staffing and Oversight of Contractors Supporting the
Procurement Function, ROM 10-13, April 9, 2010
SBA OIG, SBA's Administration of the Microloan Program under the Recovery Act, ROM 10-
10, December 28, 2009
Partnership for Public Service, Best Places to Work in the Federal Government 2009
OPM, 2008 Federal Human Capital Survey (FHCS)
GAO, Agency Should Assess Resources Devoted to Contracting and Improve Several
Processes in the 8(a) Program, GAO-09-16, November 2008
43
Agency Financial Report ▪ FY 2010
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103
OFFICE OF THE INSPECTOR GENERAL REPORTS
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
GAO, Opportunities Exist to Improve Oversight of Women’s Business Centers and
Coordination Among SBA’s Business Assistance Programs, GAO-08-49, November 2007
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-04-76, 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, Material Deficiencies Identified in Early-Defaulted and Early-Problem Recovery Act
Loans, #10-19, September 24, 2010
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
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,
44
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OFFICE OF THE INSPECTOR GENERAL REPORTS
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.
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
45
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OFFICE OF THE INSPECTOR GENERAL REPORTS
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, 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 8:
SBA OIG, Adequacy of Quality Assurance Oversight of the Loan Management and
Accounting System Project, Report 10-14, September 13, 2010
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 – all recommendations closed
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
46
Agency Financial Report ▪ FY 2010
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OFFICE OF THE INSPECTOR GENERAL REPORTS
Challenge 9:
SBA OIG, Material Deficiencies Identified in Early-Defaulted and Early-Problem Recovery Act
Loans, Report #10-19, September 24, 2010
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
47
Agency Financial Report ▪ FY 2010
AGENCY FINANCIAL REPORT • FY 2010
107
OFFICE OF THE INSPECTOR GENERAL REPORTS
Agency Response to the OIG Report on
Management and Performance Challenges
AGENCY FINANCIAL REPORT • FY 2010
108
APPENDICES
Success Story
SBA Programs Help Dental Center Serve Neighborhood
Jackson’s Dental Center, Atlanta, Georgia
After being on Martin Luther King Jr. Drive for several decades, Dr. Montina
Jackson and her husband Jerome Jackson realized it was time to upgrade and
expand their dental center and laboratory. They were committed to providing
their services to the local neighborhood, but at the same time they needed a
larger facility to replace the small building they had occupied in the area for over
30 years.
Dr. Jackson says doors really started to open for their expansion in the fall of
2008. She enrolled in SBA’s first “Emerging 200” management training course in
Atlanta. “My training really helped me to critically analyze my business,” said Dr.
Jackson. “When I was in dental school, there was very little instruction about
operating a business.” Dr. Jackson was introduced to SBA’s 7(a) lending program
after she presented her strategic plan to a panel of business specialists that includ-
ed Rosemarie Drake, a regional account manager for CIT Small Business Lending. Ms. Drake’s company made a $1.2
million SBA 7(a) loan to Dr. Jackson and her husband. They used the funds to acquire and rehab a 10,000 square-foot
building just a few blocks west of their old location. “The SBA guarantied loan was critical to getting our expansion
underway,” said Dr. Jackson. “And having to put only 10 percent down on the loan was a key to getting it done.” The
Jacksons also saved over $25,000 in lending fees which were waived since the loan was made under provisions of the
American Recovery and Reinvestment Act. Over half of the structure was transformed into a modern dental center
with seven dental examination rooms. Another half of the renovated building was made into four suites that can be
rented to other tenants.
Dr. Jackson practices both preventive and family dentistry. She also does cosmetic and emergency dental work and
was the first female dentist to treat patients at the Fulton County Jail.
APPENDICES
Appendix 1 - anty purchase population is 1.87 percent compared
to a 3.81 percent rate last year.
Improper Payments
As required by the Improper Payments 7(a) Approval reviews also used PPS Sampling
Information Act the SBA reviewed its payment with replacement for all loan guaranties approved
programs for improper payments during FY 2010. during the 12 month period ended March 31,
2010. The approval population was divided into
I. Risk Assessment six strata based on the loan delivery method. The
SBA determined the appropriate total sample
The SBA’s four major credit programs are included size to be 115 loans from the population. The
in our Improper Payments program as they were estimated improper payments rate for the annual
previously identified in the former Section 57 of period ending March 31, 2010 was calculated as
Circular A-11. zero percent based on the aggregate net approval
(1) 7(a) Business Loan guaranty approvals and amount of $98,084,100 on the approved loans
defaulted loan purchases with no improper payments found.
(2) 504 Certified Development Company 504 CDC Approval used PPS sampling with
guaranty approvals replacement from all loan guaranties approved dur-
(3) Small Business Investment Company ing the 12 month period ended March 31, 2010.
financings The approval population was divided into three
(4) Disaster Loans strata based on the loan delivery method. The SBA
determined the appropriate total sample size to
be 50 loans from the population. The estimated
The first three are loan guaranty programs and
improper payments rate was calculated as zero per-
Disaster is a direct lending program. No other
cent based on the aggregate net approval amount
SBA programs meet the dollar thresholds in OMB
of $64,524,000 on the approved loans with no
guidance for improper payment reporting. There
improper payments found.
have been no changes in SBA’s risk assessment pro-
cess since the last improper payment report. SBIC used a random sample of 95 SBIC financings
by SBIC’s having SBA guaranteed leverage during
II. Statistical Sampling the 12 month period ended March 31, 2010 (last
year the period was 12 months ended June 30th.)
The statistical sampling process used in FY 2010 is
Improper payments were identified when an SBIC
practically unchanged from that used last year. In
examination (either regularly scheduled or a special
accordance with OMB guidance a brief statement
examination) found a discrepancy with SBIC
of the process follows.
program regulations in the sampled financings. The
7(a) Guaranty Purchase statistical sampling used examinations identified three potential improper
Probability Proportional to Size with replacement payments where excessive prepayment penalties
in FY 2010. This method was used because large were not approved by SBIC program officials as
loans in the sample can skew the result. The sam- required (although they may have been approved
pling period was the 12 months ended March 31, if the SBIC had requested approval.) The three fi-
2010. The sample was stratified based on service nancings constituted $848,896 of the $85,942,350
center, purchase process and early default. Using in financings sampled, or 0.99% of the total.
PPS, the SBA determined the appropriate total
Disaster Quality Assurance Review included
sample size to be 211 loans with aggregate purchase
outlays of $90,507,176, and improper payments 252 disbursed disaster loans made during the 12
of $2,112,111 were identified within the sample. months ended June 30, 2010 found a 34.2 percent
Using the Hansen-Hurwitz estimation method, the improper payment rate. The scope of the QAR
estimated improper payment rate for the 7(a) guar- covers three compliance areas: (1) basic eligibility,
(2) adherence to relevant laws, rules, regulations
AGENCY FINANCIAL REPORT • FY 2010
111
APPENDICES
and standard operating procedures and (3) credit- y review current policies and procedures to
worthiness. The high rate of improper payments is ensure that any error patterns are appropriately
generally the result of paperwork errors, not eligibil- addressed in current guidance,
ity or creditworthiness errors. y revise policies and procedures where necessary,
III. Corrective Action y issue guidance to the purchase staff on specific
issues,
The 7(a) guaranty purchase improper payments y provide training, and to
program identifies and tracks the reasons for any
improper payments discovered in the reviews, y supplement center resources where possible
and then appropriate adjustments to the guaranty to ensure ongoing quality assurance review
purchase process are made to reduce future errors. programs that will identify any emerging
Improper payments arise from the failure of a pur- patterns or potential problem areas that might
result in future improper payments, as well as
chase processor to identify material lender deficien-
take action to mitigate these potential problem
cies in the handling of an SBA guaranteed loan.
areas.
Primary reasons for errors in purchases reviewed
this year were: 7(a) loan guaranty approvals and 504 CDC
loan approvals had no improper payments.
y Improper use of loan proceeds (not fully in
accordance with loan authorization). There appear to be sufficient safeguards in place to
prevent improper payments in 7(a) loan processing
y Failure to obtain equipment appraisal and
and 504 loan originations because of multiple re-
required liens on collateral.
views that take place when a loan is being processed.
y Loan made to an ineligible franchise.
y Appraisal of collateral did not meet loan SBIC financings had only three potential errone-
authorization requirement. ous payments. This minimal number of erroneous
payments will continue in the future due to rigor-
y Minor under/overpayments to secondary ous program standards. The following procedures
market due to incorrect interest rates. ensure fiscally prudent managers in the SBIC
y Payment of undocumented lender expenses. program.
y Overpayment as a result of lender billing twice
y Licensing standards require knowledgeable
for the same expense.
fund managers and this reduces the likelihood
y Failure to verify borrower financial of program errors and fraud.
information using IRS tax transcripts.
y All fund managers must undergo training on
Corrective action procedures followed for the 7(a) SBIC regulations as a condition for receiving
guaranty purchase process involve advising the leverage and therefore almost all SBICs are
purchase processing team of improper payment de- very knowledgeable service providers that have
terminations and clarification of the issues to avoid extensive experience in the program.
possible improper payments in the future through y Licensing includes extremely detailed
a newly structured quality assurance review (QAR) background checks on fund managers by both
process. A fully documented guaranty purchase the Office of the Inspector General and the
procedure handbook is updated when needed. Federal Bureau of Investigation.
Remedial actions taken by the QAR team include: y Credit checks are performed on all potential
y identify and analyze error patterns, fund managers as part SBIC licensing.
y communicate error patterns to the staff y Licensees are audited on a periodic basis to
processing purchases, determine ongoing compliance with regulatory
requirements.
AGENCY FINANCIAL REPORT • FY 2010
112
APPENDICES
Disaster improper payment rate was greater than y Disaster related damages are verified onsite by
was projected. The increased rate does not reflect SBA staff. The cost to repair and/or replace the
greater risk in the portfolio, but does indicate a need disaster damaged property is determined by
to adhere to the documentation requirements of SBA construction analysts.
our Standard Operating Procedures. The following y Disaster procedures include credit checks,
steps will reduce future Improper Payment rates. verification of income, verification of
y Additional training has been instituted to ownership and checks with FEMA to ensure
ensure that staff is aware of all paperwork that federal assistance is not duplicated during
requirements and waiver procedures when loan processing and disbursement of all
appropriate. disaster loans.
y A dedicated team that reports directly to y Every secured disaster loan is reviewed by
SBA HQ will complete the annual Improper disaster staff attorneys for legal sufficiency and
Payment review and continuously review the the use of electronic funds transfer is utilized to
work of the Production and Disbursement prevent lost and stolen checks.
Center.
Grant Programs
y Areas of concern will be identified and
The SBA does not have any reportable grant pro-
corrected in a timely manner.
grams under OMB risk susceptible guidance. As a
Disaster improper payments identified thru an- result, this report does not include a discussion of
nual Quality Assurance Reviews indicate minimal fund stewardship in its grant programs.
findings of unauthorized and/or ineligible loans.
Disaster program internal controls include the
following:
Improper Payment Reduction Outlook ($ in millions)
1 1 1 1
FY091 FY09 FY09 FY10 FY10 FY10 FY11 FY11 FY11 FY12 FY12 FY12 FY13 FY13 FY13
Program
$ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $
7(a) Guaranty 1,805 4 3 815 68 8 2,392 2 1 87 44 8 1,523 6 18 27 4 1,296 8 17 22 0 1,223 0 16 19 6
Purchases1
7(a) Guaranty 8,934 7 00 00 11,638 7 00 00 12,500 0 00 00 14,000 0 00 00 15,500 0 00 00
Approvals1
CDC 3,820 6 00 00 4,500 2 00 00 5,000 0 00 00 5,500 0 00 00 6,000 0 00 00
Debentures2
CDC Loans 3,820 6 00 00 4,500 2 00 00 5,000 0 00 00 5,500 0 00 00 6,000 0 00 00
Guarantied1
SBIC 1,856 0 11 20 4 1,475 0 0 99 14 6 1,400 0 10 14 0 1,400 0 10 14 0 1,400 0 0 90 12 6
Guaranties3
Disaster Loan 806 0 20 95 168 5 372 1 34 2 127 1 800 0 20 0 160 0 800 0 17 0 136 0 800 0 15 0 120 0
Disbursements4
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 cancella-
tions for the current year. Outlay figures for Disaster are loan disbursements on current year approvals. All improper payments in this report are overpayments, not underpayments.
2. SBA has zero improper payments assumed for CDC debentures.
3. SBIC Guaranties include SBA guaranties of SBIC investments in small business for SBICs having SBA leverage.
4. Disaster Loan Outlays projected for FY 2011 thru FY 2013 reflects a historical average level.
5. 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 changed its methodology used in both of these programs for sampling and testing improper payments. As a result the improper payment rates and dollars increased in
FY 2009 reflecting these changes.
AGENCY FINANCIAL REPORT • FY 2010
113
APPENDICES
IV. Improper Payment Reporting V. Recovery Auditing
The table on the previous page presents the SBA’s Recovery auditing is a control technique to iden-
Improper Payment program results for FY 2010. tify improper contractor payments and initiate
recovery actions where appropriate. Even though
Recovery of Improper Payments SBA does not meet the OMB threshold for recov-
ery auditing, SBA does employ internal control
7(a) guaranty purchase recovery has target of measures to address improper contract payments.
85% of the aggregate amount of improper pay-
ments identified by March 30th of the following Disaster program internal controls (checks and
year. Litigation may be necessary in some instanc- balances) have always been a part of loan making
es with uncooperative lenders and additional in- and disbursement and they are responsible for the
formation may be presented which could indicate relatively minimal amounts of unauthorized and/
that all or a portion of a disbursement is not actu- or ineligible loans. In addition, the Disaster loan
ally improper. Also, reasonable settlements of im- legally obligates the recipient of any disaster loan
proper payment claims may be made rather than to to pay back all the loan amount whether or not the
pursue protracted recovery proceedings. SBA will loan contains any Improper Payments. Not only is
make formal written demand upon and/or engage there a legally binding contract to repay the loan,
in discussions with 7(a) lenders having received the contract is usually secured by real estate col-
improper payments. If a lender refuses to return lateral which further strengthens the government’s
a payment, litigation or other cost effective action recovery position. Accordingly, an ODA recovery
will be explored to promote a reasonable chance auditing effort is not applicable because each loan
of recovery. The litigation office in SBA’s Office of contract legally assures recovery of the entire loan
General Counsel will conduct this analysis. (with interest) as soon as the loan agreement is
signed – notwithstanding the circumstances.
SBIC program recovery is very effective. SBA’s
current recovery efforts are very effective and are
resolved quickly. The reported improper pay-
Amount subject to Review Actual Amount Reviewed
ment may be determined to not be a violation of
Amount Recovered PYs
Cumulative Amount
Amount Recovered CY
Amount Identified for Amount Identified for Cumulative Amount
Agency Component
regulations after further study. Or the SBIC may
be asked to change the terms of the investment to Identified for Recovery
for CY Reporting and Reported CY Recovery CY Recovery PYs Recovered (CY + PYs)
resolve the issue. If necessary, the SBIC may be
asked to divest its interest in the portfolio concern. (CY + PYs)
In very rare instances, the SBIC might be found N/A N/A N/A N/A N/A N/A N/A N/A N/A
to be in default of its covenants and transferred to
the Office of SBIC Liquidations, where recovery
efforts will be implemented. This has not been VI. Improper Payment Accountability
necessary for the most part. The SBA’s Strategic Goal Three is to assure SBA
programs operate efficiently and effectively,
Disaster improper payments are generally the including compliance with federal regulations on
result of loan documentation errors and do not improper payments. The SBA’s strategic goals are
result in a disaster victim receiving funds that they included in annual performance plans for all of its
are not eligible to receive. Further, the disaster programs as business objectives, and these business
loan program operation has a built in recovery sys- objectives are included in employee performance
tem in that the majority of loans made are collat- plans. SBA management monitors accomplish-
eralized and all loans have to be repaid, and SBA’s ment of its business objectives in its performance
loan servicing and liquidation operation attains plan using its performance management process,
maximum recovery. and action is taken when progress is not on target.
AGENCY FINANCIAL REPORT • FY 2010
114
APPENDICES
Executive and management bonuses are based management and document generation functions.
on the accomplishment of business objectives The newly formed Quality Assurance Team is
included in employee annual performance plans. working with the Disaster Credit Management
This management process assures accountability of System development team to improve the Quality
improper payment administration. Assurance process with a goal to minimize future
Improper Payments events as much as possible.
SBIC operations analysts are evaluated, in part, Many of the business rules that govern the pro-
on the resolution of regulatory violations in a gramming of this system have been designed to
timely manner. They are also evaluated, in part, on help improve the Quality Assurance process.
responding to requests for clarification on regula-
tions by licensees. Although examiners are not Information System Resources Budget
evaluated on the number of violations they un- Request
cover, they are evaluated on the number of exams
they perform. We believe the assistance provided Although the SBA’s existing systems provide
by the Operations analysts and the approximately adequate support to its programs to avoid im-
annual exams for leveraged SBICs provide an proper payments, the SBA has included fund-
incentive to perform within the framework of the ing in its FY 2012 budget request to upgrade its
regulations. financial systems. During FY 2010, in accordance
with OMB guidance, SBA reviewed and subse-
quently discontinued its ongoing loan and finan-
VII. Information Systems and other cial system modernization project to develop an
Infrastructure and Improper Payments integrated Loan Management and Accounting
7(a) loan purchase is supported very well by the System. Instead of LMAS, the Agency plans to
Guaranty Purchase Tracking System. It is continu- focus on migrating its loan and financial systems
ally updated to enhance the overall integrity of the from its mainframe platform to improve their ef-
purchase process. ficiency and reliability and to continue the up-
grade of its Joint Accounting and Administrative
504 CDC software used by the Central Servicing Management System administrative accounting
Agent is owned by the SBA. Therefore the Agency system by implementing the latest version of the
has a higher level of control over that software Oracle Federal Financials software. These system
than would typically exist with contractor owned improvements will provide support to the SBA’s
systems. In addition the contractor provides au- Improper Payment program.
dited financial statements and a SAS 70 report to
verify its system.
VIII. Statutory or Regulatory Barriers
SBIC financings are supported very well by a The SBA does not have any statutory or regulatory
data system that tracks exams, exam findings and barriers limiting improvement to its performance
resolution of exam findings. All individuals are on improper payments initiative.
empowered to refer any case of suspected fraud to
the Inspector General.
IX. Additional Comments
Disaster does have the information systems and The SBA provided additional staff during FY
other infrastructure it needs to reduce improper 2010 to support its internal controls over financial
payments to targeted levels. Disaster is in engaged management activities in accordance with OMB
in an ongoing process of developing and has Circular A-123 requirements. These resources
already implemented an integrated, electronic will be applied to future improvement of the SBA’s
loan processing system to streamline, enhance and Improper Payment program.
improve the loan-making process. This system will
support workflow management, electronic file
AGENCY FINANCIAL REPORT • FY 2010
115
APPENDICES
Appendix 2 - Contact SBA: Useful Sites and Numbers
The SBA home page is www.sba.gov. Information on SBA 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
Advocacy www sba gov/advo
SBA Resource Partners www sba gov/services/counseling
Online Resources www sba gov/tools
Small Business Jobs Act of 2010 www sba gov/jobsact
Inspector General www sba gov/ig
FOR START-UP BUSINESSES
What is a Small Business? www.sba.gov/contractingopportunities/officials/size
Starting Your Business www.sba.gov/starting
SBA Direct www.sba.gov/direct
On Line Training www.sba.gov/services/training/index.html
SCORE www.score.org
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 http://business.sba.gov/financing/grants
Exporting www.sba.gov/aboutsba/sbaprograms/internationaltrade
CONTRACTING WITH THE GOVERNMENT
Government Contracting www.sba.gov/GC
Central Contractor Registration www.bpn.gov/ccr/default.aspx
DISASTER ASSISTANCE
Disaster Assistance www.sba.gov/services/disasterassistance
Disaster Area Office Locations www.sba.gov/services/disasterassistance/officelocations
FEMA Information www.fema.gov
Facebook: www.facebook.com/sbagov Twitter: www.twitter.com/sbagov
YouTube: www.youtube.com/sba
SBA National Answer Desk (Toll Free) (800) 827-5722
Disaster Customer Service Center (Toll Free) (800) 659–2955
AGENCY FINANCIAL REPORT • FY 2010
116
APPENDICES
Appendix 3 - Glossary of Acronyms and Abbreviations
(Available at: “Current Agency Financial Report“ http://www.sba.gov/aboutsba/budgetsplans/index.html)
504 504 Certified Development Loan ARC America’s Recovery Capital Loan
Program Program
Provides small businesses with long- A new temporary guaranty loan
term, fixed-rate financing for the pur- program authorized by the American
chase of land, buildings and long-life Recovery and Reinvestment Act of
capital equipment 2009.
7(a) 7(a) Loan Guaranty Program ARRA American Recovery and Reinvestment
SBA’s primary loan program. It Act of 2009
provides general loan financing for a Most often referred to as the
wide variety of purposes. Recovery Act in SBA documents.
8(a) 8(a) Business Development Program BATF Business Assistance Trust Fund
Assists firms owned and controlled by A trust fund in the U.S. Treasury
socially and economically disadvan- maintained to receive and account for
taged individuals to enter and suc- donations made by private entities for
ceed in the economic mainstream. activities to assist small business.
A-123 Designation for OMB Circular BD Business Development
on “Internal Control Systems.” It The Office of Business Development
prescribes policies and procedures uses SBA’s statutory authority to
to be followed by executive depart- provide business development and
ments and agencies in establishing, federal contract support to small
maintaining, evaluating, improving, disadvantaged firms.
and reporting on internal controls
in their program and administrative BDMIS Business Development Management
activities. Information System
The system that automates the certifi-
AA Associate Administrator cation and annual review process for
the 8(a) program.
AFMAC Audit and Financial Management
Advisory Committee BLIF Business Loan and Investment Fund
Assists the Administrator in oversee- Fund operated by the Treasury
ing SBA’s financial operations Department to maintain the account-
ing records of loans approved prior to
AFR Agency Financial Report 1992.
The name of one of the annual PAR
reports. CA Capital Access (See OCA)
APR Annual Performance Report CDC Certified Development Company
A report required by the Government Refers to the Section 504 Certified
Performance and Results Act that Development Company debenture
presents a federal agency’s progress program.
in achieving the goals in its strategic
plan and performance budget. CFO Chief Financial Officer
The CFO is responsible for the finan-
AGENCY FINANCIAL REPORT • FY 2010
117
APPENDICES
cial leadership of the Agency. This DAP Disaster Assistance Plan
includes responsibility for all Agency Executive Order 13411 mandates
disbursements, management and that federal agencies create a single
coordination of Agency planning, application that fulfills the informa-
budgeting, analysis and accountabil- tion requirements of all applicable
ity processes. federal disaster assistance programs.
CFR Code of Federal Regulations DCMS Disaster Credit Management System
The codification of the general and The electronic system used by the
permanent rules published in the SBA to process loan applications for
Federal Register by the executive de- all new disaster declarations.
partments and agencies of the federal
government. DCIA Debt Collection Improvement Act
A federal law to maximize collec-
CIO Chief Information Officer tions of delinquent debts owed to the
The CIO is responsible for the man- government.
agement of information technology
for the Agency, including the design, DFP Dealer Floor Plan
implementation and continuing suc- A small pilot program authorized by the
cessful operation(s) of information Recovery Act to make revolving loans to
programs and initiatives. retail dealerships including automobile
dealers that began in July 2009
CLA Office of Congressional and Legislative
Affairs DLF Disaster Loan Fund
The CLA assists in the development Assists eligible small businesses im-
and enactment of SBA legislative pacted by disasters.
proposals and serves as the liaison for ECCB Enterprise Change Control Board
SBA’s communications on all legisla- The ECCB is in charge of the admin-
tive and congressional activities. istration of the centralized network
COO Chief Operating Officer accounts for the SBA.
COOP Continuity of Operations Plan EEO Equal Employment Opportunity
A predetermined set of instructions ELA Electronic Loan Application
or procedures that describe how an Simplifies the application pro-
organization’s essential functions will cess by providing electronic loan
be sustained for up to 30 days fol- applications.
lowing a disaster and then return to
normal operations. FASAB Federal Accounting Standards Advisory
Board
CRC Civil Rights Center Promulgates accounting principles
The CRC administers and enforces for federal government reporting
various federal statutes, regulations entities.
and Executive Orders that relate
to nondiscrimination and equal FBCI Faith-Based and Community Initiatives
opportunity. The office promotes SBA partner-
ships with faith-based and neighbor-
CY Current Year hood organizations to help people
receive training and credit assistance.
AGENCY FINANCIAL REPORT • FY 2010
118
APPENDICES
In accordance with an Executive FMFIA Federal Managers Financial Integrity
Order issued in February 2009, the Act A law Act that primarily requires
name will change to the Center for ongoing evaluations and reports on
Faith-Based and Neighborhood the adequacy of the internal ac-
Partnerships. counting and administrative control
systems of executive agencies.
FCRA Federal Credit Reform Act
A law enacted to provide a more real- FPDS Federal Procurement Data System
istic picture of the cost of U.S. govern-
ment direct loans and loan guaranties. FRIS Financial Reporting Information System
SBA’s consolidated general ledger
FECA Federal Employees Compensation Act system.
Provides compensation benefits to
federal civilian employees for work- FTA Fiscal and Transfer Agent
related injuries or illnesses and to FY Fiscal Year
their surviving dependents. The SBA fiscal year begins October 1
FEMA Federal Emergency Management and ends the following September 30.
Agency GAO U.S. Government Accountability Office
The agency that is tasked with re- The audit, evaluation and investiga-
sponding to, planning for, recovering tive arm of Congress.
from and mitigating against disasters.
GC/BD Office of Government Contracting and
FERS Federal Employees’ Retirement System Business Development
A three-tiered retirement plan for GC/BD works to create an environ-
federal employees hired after 1984, ment for maximum participation by
composed of Social Security benefits, small, disadvantaged and woman-
a basic benefit plan, and contribu- owned business in federal govern-
tions to a TSP. ment contract awards and large prime
FEVS Federal Employee Viewpoint Survey subcontract awards.
FFMIA Federal Financial Management GDP Gross Domestic Product
Improvement Act GSA General Services Administration
A law that requires each agency to
implement and maintain financial GWAC Government-wide Acquisition Contract
management systems that comply
HUBZone Historically Underutilized Business-Zone
substantially with federal financial
Encourages economic develop-
management systems requirements,
ment by the establishment of federal
applicable federal accounting stan-
contract award preferences for small
dards, and the USSGL.
businesses located in historically
FHCS Federal Human Capital Survey underutilized business zones.
A survey administered by OPM to
IP Improper Payments (See IPIA)
measure federal employees’ percep-
tions about how effectively agencies IPA Independent Public Accountant
have managed their workforces. A firm or person, other than the agen-
cy’s IG, who meets the independence
standards specified in GSA, and is
AGENCY FINANCIAL REPORT • FY 2010
119
APPENDICES
engaged to perform the audit of a MRA Master Reserve Account
federal agency or for other purposes. SBA’s fiscal agent maintains this
escrow fund to facilitate the opera-
IPIA Improper Payment Information Act tion of the Certified Development
A federal law, enacted in 2002 to Company program.
identify and reduce erroneous pay-
ments in the government’s programs MRF Master Reserve Fund
and activities. SBA’s fiscal and transfer agent main-
tains this reserve fund to facilitate
IT Information Technology the operation of the 7(a) secondary
Refers to matters concerned with market program.
the design, development, installation
and implementation of information NAICS North American Industry Classification
systems and applications. System
NAICS is the standard used by
LAS Loan Accounting System federal statistical agencies in classify-
SBA’s loan origination servicing and ing business establishments for the
disbursement system. purpose of collecting, analyzing, and
LLG Liability for Loan Guaranties publishing statistical data related to
Net present value of expected future the U.S. business economy.
cash flows for outstanding guaranties. NGPC National Guaranty Purchase Center
LMAS Loan Management and Accounting SBA’s centralized loan guaranty pur-
System chase processing center.
Financial Management System that NIST National Institute of Standards and
supports loan accounting. Technology
LMS Loan Monitoring System An agency of the U.S. Department of
Aids the SBA in managing its core Commerce
loan guaranty programs and serves as NPV Net Present Value
one of the building blocks in the over-
all systems modernization project. NWBC National Women’s Business Council
A bi-partisan federal advisory coun-
MAS Multiple Awards Schedule cil created to serve as an indepen-
MAX Budget Information System dent source of advice and policy
OMB uses the MAX Budget recommendations to the President,
Information System to collect, Congress, and the SBA on economic
validate, analyze, model and publish issues of importance to women busi-
budget Information. ness owners.
MD&A Management’s Discussion and Analysis OCA Office of Capital Access
The MD&A is considered required The office responsible for small busi-
supplementary information for feder- ness program loans, lender oversight,
al financial statements and is designed the investment company program,
to provide a high level overview of the surety bond program and the
the Agency. international trade program.
OCFO Office of the Chief Financial Officer
The office responsible for the finan-
AGENCY FINANCIAL REPORT • FY 2010
120
APPENDICES
cial activity of the Agency, including that has the lead in making sure
Agency disbursements, management managers can comply with internal
and coordination of Agency plan- control standards.
ning, budgeting, analysis and ac-
countability processes. OIG Office of Inspector General
Conducts and supervises audits,
OCIO Office of the Chief Information Officer inspections and investigations relating
Supports and provides guidance for to SBA programs and operations.
SBA’s nationwide computer automa-
tion and information technology OMB U.S. Office of Management and Budget
efforts. Presidential office that oversees
preparation of the federal budget
OCRM Office of Credit Risk Management and supervises its administration in
SBA office that manages program Executive Branch agencies.
credit risk, monitors lender perfor-
mance, and enforces lending program OPM U.S. Office of Personnel Management
requirements. The federal government’s human
resources agency.
ODA Office of Disaster Assistance
SBA office that promotes economic ORACLE The Accounting program used by
recovery in disaster ravaged areas. SBA’s Administrative Accounting
SBA loans are the primary form of Division
federal assistance for non-farm, pri- ORCA Online Representation and Certification
vate sector disaster losses for individu- Application
als and businesses. an e-Government initiative that was
OFA Office of Financial Assistance designed to replace the paper based
SBA office that administers vari- Representations and Certifications
ous loan programs to assist small process.
businesses. OVBD Office of Veterans Business
OFO Office of Field Operations Development
SBA office that represents field of- The SBA office that works to enhance
fices, including regional and district and increase successful small business
offices, at headquarters. ownership by veterans.
OGC Office of General Counsel PAR Performance and Accountability Report
Provides legal advice for senior man- Reporting that presents financial,
agement, as well as legal support for budgetary and performance infor-
all Agency programs, initiatives and mation to OMB, Congress and the
administrative responsibilities. public.
OHCM Office of Human Capital Management PCECGF Pollution Control Equipment Contract
Supports the strategic management of Guaranty Fund
human capital in the accomplishment Supports costs associated with the
of the Agency’s mission. credit portfolio of pre-October 1991
pollution control equipment loans
OIC Office of Internal Control and guaranties being liquidated by
Is part of the SBA Office of the Chief the SBA.
Financial Officer, and is the office
AGENCY FINANCIAL REPORT • FY 2010
121
APPENDICES
PIA Privacy Impact Assessment mentation forms, making it easier
Part of the Privacy Impact Statement and faster for lenders to provide
from the Privacy Act. small business loans of $250,000 or
less.
PII Personally Identifiable Information
Any information that can identify a SBDC Small Business Development Center
person Program
SBDCs deliver management and
PLP Preferred Lender Program technical assistance, economic devel-
Covers certified or preferred lenders opment and management training to
that receive full delegation of lending existing and prospective small busi-
authority. nesses through cooperative agree-
POA&M Plan of Action and Milestones ments with universities and colleges
and government organizations.
PPS Probability Proportional to Size
SBG Surety Bond Guarantee Program
PY Prior Year Provides guaranties, bid, performance
and payment bonds for contracts
QA Quality Assurance — Function to
up to $2 million for eligible small
assure that project deliverables meet
businesses that cannot obtain surety
SBA’s requirements and quality
bonds through regular commercial
standards.
channels.
QAR Quality Assurance Review
SBGRF Surety Bond Guaranty Revolving Fund
Recovery American Recovery and Reinvestment All of the contractor and surety fees
Act Act of 2009 collected by SBA are deposited in
Most often referred to as the the SBG Revolving Fund at the US
Recovery Act in SBA documents, Department of Treasury, which is
may also be referred to as ARRA. used to pay claims.
SAS Statement on Auditing Standards SBIC Small Business Investment Company
Establishes standards and provides Provides equity capital, long-term
guidance on the design and selection loans, debt-equity investments and
of an audit sample and the evaluation management assistance to small
of the sample results. businesses, particularly during their
growth stages.
SAT Senior Assessment Team
SBLC Small Business Lending Company
SBA Small Business Administration Non-depository small business lend-
A federal agency of the Executive ing companies listed by the SBA
Branch whose mission is to aid, Office of Capital Access.
counsel and protect the interests of
small businesses and help families and SBPRA Small Business Paperwork Relief Act of
businesses recover from disasters. 1992
SBAExpress Provides selected lenders with a 50 SBREFA Small Business Regulatory Enforcement
percent guaranty on their loans in Fairness Act
exchange for the ability to primarily
SCORE A volunteer organization, sponsored
use their own application and docu-
by the SBA that offers counseling and
AGENCY FINANCIAL REPORT • FY 2010
122
APPENDICES
training for small business owners TOP Treasury Offset Program
who are starting, building or growing A centralized debt collection pro-
their businesses. gram developed by the Treasury
Department’s FMS to assist agencies
SDB Small Disadvantaged Business in the collection of delinquent debts
Small business owned and controlled owed to the Federal Government.
by individual(s) who are socially and
economically disadvantaged. VAT Vulnerability Assessment Team
Performs monthly scans of network-
SFFAS Statements of Federal Financial attached devices to identify and
Accounting Standards remedy network vulnerabilities.
Agreed upon specific standards and
concepts published in the Federal WBC Women’s Business Center
Register. WBCs provide long-term training
and counseling to women owning
SOP Standard Operating Procedure or managing a business, including
SOPs are the primary source of the financial, management, market-
Agency’s internal control. ing and technical assistance, and
SOX Sarbanes-Oxley Act 2002 procurement.
The law introduced major changes to
the regulations of financial practice
and corporate governance.
SSBIC Specialized Small Business Investment
Company
Provides equity capital, long-term
loans, debt-equity investments and
management assistance to socially or
economically disadvantaged small
businesses.
AGENCY FINANCIAL REPORT • FY 2010
123
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
Melissa Atwood Robert Montgomery Monique Allen Dionna Martin
James Bates Maureen Moore-Vellucci Michael Avant Nathan Osburne
Rory Berges JoAnn Mueller Charles Brinkley Bruce Purdy
Debra Braswell Rosemary Ngwiri Dennis Bumpass Jacqueline Ray
Jeffrey Brown Sarada Parthasarathy Martin Conrey Yan Russell
Joshua Bull Mathew Pascarella Jeanne Crepeau Holly Schick
Jonathan Carver Mike Peterson Paul Christy Michael Scott
Ashok Chaudhry Janette Porter Eugene Donaldson Ajoy Sinha
Randall Christopherson Anthony Powell Alan Escobar R. Dick Snyder
Bruce Crippin Tong Qin Roger Garland Joe Sobota
Mary Dam Steve Ramey Martin Gold Jonathan Swain
Gayle Daugherty Ann Marie Schaef Grady Hedgespeth James VanWert
Tamara Dollarhite Aschley Schiller Terrance Hetherington Daniel Vellucci
Leon Fleischer Charles Sensensey Walter Intlekofer Luciette Wren
Jananne Garl Rebecca Shoustal Cyril Jones Yvonne Walters
Michelle Gierwatoski Rodney Simoneau Gene Lambey Gloria Wright-Simms
Leslie Godsey Katrina Sterling Nina Levine
Gordon Goeke Bruce Swartz
Timothy Gribben Sylvia Thornton
Marilyn Henderson LaNae Twite
Joseph Henry Darrell White
Malene Hernandez Donna Wood
Blake Hoing Petrina Worthington
Jonathan Jones Uma Yanamandra
Laura Kennedy
Emily Knickerbocker
John Kushman
Luan Loerch-Wilson
Theresa Lucero
Valerie Meadows
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 2010 financial statements.
We offer our special thanks to Innovative
Consultants International (ICI), and Corporate
Visions, Inc. for outstanding contributions to
producing this report.
U.S. Small Business Administration
Office of Performance Management
and Chief Financial Officer
409 Third Street, S.W.
Washington, DC 20416
Attached CD – Supplementary Information
SI 1 – SBA Programs and Offices
(In alphabetical order)
Center for Faith-based and Neighborhood Partnerships
Faith-based and community organizations can play an important role in helping the SBA reach, train, and
finance the entrepreneurs whose businesses will bring jobs and hope to economically distressed
communities all across the nation. The Center for Faith-based and Neighborhood Partnerships promotes
SBA partnerships with faith-based and community organizations to help build awareness of SBA’s
programs that can transform neighborhoods and change lives. Additionally, the office informs faith-based
and neighborhood organization of SBA’s loan programs that require non-profit intermediary participation
and actively encourages qualified faith-based and neighborhood organizations to apply for certification as
microloan intermediaries.
Executive Secretariat
The Office of the Executive Secretariat works with senior management officials to formulate the
Administrator’s and Deputy Administrator’s written correspondence. Under the leadership of the
associate deputy administrator for management and administration, ExecSec reviews, edits, and
manages correspondence, rules, and regulations. ExecSec also reports products to and from the Office
of the Administrator, Deputy Administrator and chief of staff. Together with CLA, OGC, and program
offices, ExecSec ensures that correspondence and written products are delivered in the most timely and
efficient manner, while providing useful, reliable information, and advice to Congress, other federal
agencies, and small business owners nationwide.
Office of Advocacy
The Office of Advocacy is an independent voice for small business within the federal government. It
represents the interests of small entities including small businesses, small organizations, and small
governmental jurisdictions. Appointed by the President and confirmed by the U.S. Senate, the Chief
Counsel for Advocacy directs the office. The Chief Counsel advances the views, concerns, and interests
of small business before Congress, the White House, federal agencies, federal courts, and state
policymakers. Economic research, policy analyses, and small business outreach help identify issues of
concern. Regional advocates and an office in Washington, D.C. support the Chief Counsel’s efforts. The
Office of Advocacy’s economic research, regulatory interventions, and model state legislation initiative
reduce regulatory barriers that impede small business growth and development.
Office of Business Operations
The Office of Business Operations plans, directs, and executes all administrative management functions
within SBA headquarters, and monitors administrative programs in field offices. It develops policies and
procedures for the procurement of supplies, equipment, and non-personnel services. This office also
implements and manages approved grants and cooperative agreements.
Office of Capital Access
The Office of Capital Access assists small businesses in obtaining the loans necessary for growth by
being a gap lender, providing assistance to small businesses that would otherwise would not qualify for
un-guaranteed financing, obtaining equity, or taking advantage of procurement opportunities. Programs
include the following:
Agency Financial Report FY 2010 1
The 7(a) loan program requires the SBA’s lending partners to certify that the applicant was
unable to qualify for loans elsewhere on reasonable terms.
The 504 program, which has a statutorily mandated job creation component, fills another lending
gap by providing long term, fixed rate financing for major assets such as real estate and heavy
equipment.
The Surety Bond Guarantee is a program that serves as a gap surety bond credit provider,
expanding the bond credit and capacity of small contractors that would not otherwise be able to
compete for public and private work.
Small Business Investment Center financings generally support smaller transactions that may not
otherwise receive funding from private venture firms or financial institutions.
The Office of International Trade enhances the ability of small businesses to compete in
the global marketplace; facilitates access to capital to support international trade; ensures
the interests of small business are considered and reflected in trade negotiations; and
supports and contributes to the U.S. government’s international commercial and
economic agenda.
The Office of Credit Risk Management provides risk management based on monitoring,
reviewing, and oversight of the 7(a) and 504 lenders and microloan intermediaries; and
monitoring and analysis of the 7(a), 504, microloan and disaster portfolios.
Office of the Chief Financial Officer and Performance Management
The Office the Chief Financial Officer conducts and promotes effective financial management activities for
the SBA including budget, credit subsidy, financial operations, financial systems and internal controls. It
develops and maintains integrated accounting and financial management systems; directs, manages, and
provides policy guidance and oversight of all Agency financial management personnel, activities, and
operations; approves and manages financial management systems design and enhancement projects;
develops budgets for financial management operations and improvements; implements Agency asset
management systems; and monitors the financial execution of the Agency budget in relation to actual
expenditures.
The Office of the Chief Financial Officer and Performance Management provides tools and guidance to
assist the Agency in expanding its capacity to conduct and utilize the results of program evaluations. It
also helps the Agency develop better performance measures in order to facilitate the SBA’s continued
movement from measuring activity outputs to measuring programmatic and Agency outcomes. It builds
Agency capacity for results-based management through training and outreach to program offices and
supports the Agency’s strategic planning. The office also prepares annual accountability and/or
performance reports, and establishes and implements Agency-wide policies for management integrity and
audit follow-up, including internal controls.
Office of the Chief Information Officer
The Office of the Chief Information Officer provides information technology leadership, products, services
and operational support for the SBA. The chief information officer is the principal advisor to the
Administrator on information technology matters and has overall responsibility for developing, managing
and monitoring SBA-wide IT systems, projects, personnel and expenditures. The office provides
information technology governance support to the Agency, ensuring that the SBA manages its current
and prospective IT investment portfolio in accordance with the laws, regulations and policies applicable
across government.
The OCIO manages the SBA’s functional IT units encompassing systems development, operations, voice
and data communications and user support. Directly or through contractors, the OCIO has responsibility
for over 80 current, mission oriented IT systems that support SBA program delivery and enable the
Agency to equip and outfit its employees with current hardware, software and computing tools, such as
email, wireless capabilities and remote access for telecommuters. This office manages and maintains the
SBA’s web presence on www.sba.gov.
Agency Financial Report FY 2010 2
The OCIO is also the Agency’s lead office for information security, data privacy, electronic identity
protection and incident reporting, including information technology aspects of COOP, continuity of
operations planning.
Office of Communications and Public Liaison
The Office of Communications and Public Liaison has the principal responsibility for developing and
implementing effective communications strategies to ensure that the SBA’s mission, programs, services
and initiatives are articulated clearly and consistently to the American public in general and the small
business community in specific. It supports field and program offices with planning and implementation of
effective communications strategies. OCPL plays the chief role in articulating, explaining and promoting
Agency policy and goals to the national news media.
Through Community Relations and the Office of Strategic Alliances within OCPL, the SBA forms alliances
with for-profit corporations, small businesses, non-profit organizations, trade and professional
associations, academic institutions, and public-sector agencies. The alliances offer opportunities to
network on areas of common interest.
This office manages the web content on www.sba.gov and is also the federal managing partner for
Business Gateway, www.business.gov, a program integrating web resources to provide small businesses
and aspiring entrepreneurs with information services that save time and money, engage citizens to
participate, and enable collaboration across all levels of government.
Office of Congressional and Legislative Affairs
The Office of Congressional and Legislative Affairs assists in the development of SBA legislative
programs and serves as the communications focal point on legislation and congressional activity. The
CLA monitors legislation and policies introduced by Congress and government agencies to determine
their effects on the SBA and small business. It furthers the goals of the SBA and enables Members of
Congress to best serve their small business constituencies by promptly providing accurate, current, and
continuous information to Members of Congress, congressional committees, and others interested in SBA
programs. It also devises and implements legislative strategy and has primary responsibility for all
matters relating to the congressional and legislative functions of the SBA. It provides liaison with
legislative personnel at the White House, the Office of Management and Budget, and various federal
departments and agencies. It coordinates with program offices and field offices to ensure continuity and
consistency in the SBA’s communications with Congress.
Office of Disaster Assistance
The Office of Disaster Assistance plays a vital role in the aftermath of disasters. Through ODA, the SBA
is responsible for providing affordable, timely, and accessible financial assistance to homeowners,
renters, and businesses of all sizes affected by disaster. Financial assistance is available in the form of
low-interest, long-term loans. The SBA’s disaster loans are the primary form of federal assistance for the
repair and rebuilding of non-farm, private sector disaster losses. For this reason, the disaster loan
program is the only form of SBA assistance not limited to small businesses. ODA makes two types of
disaster loans:
Physical disaster loans are for permanent rebuilding and replacement of uninsured or
underinsured disaster-damaged privately-owned real and/or personal property. The SBA’s
physical disaster loans are available to homeowners, renters, businesses of all sizes and
nonprofit organizations.
Economic injury disaster loans provide necessary working capital until normal operations resume
after a disaster. Economic injury disaster loans are restricted to small businesses and non-profit
organizations.
Office of Disaster Planning
Agency Financial Report FY 2010 3
The Office of Disaster Planning reports directly to the SBA Administrator and is responsible for integrating
disaster planning, preparedness activities and disaster response programs for all SBA offices.
The office provides direction and oversight to the Agency’s Office of Disaster Assistance in coordinating
the utilization of SBA resources to assist citizens, communities and businesses in response to disaster
occurrences and long term recovery needs. It also represents the SBA on various inter-governmental
bodies related to disaster response and recovery and works to ensure that the Agency and its resource
partners coordinate effectively to help serve disaster victims. The Agency’s disaster training operations,
exercises and simulation programs also fall under the purview of the Office of Disaster Planning as does
the responsibility for monitoring internal and external communications in times of disaster.
Office of Entrepreneurial Development
The Office of Entrepreneurial Development serves the small business community through outreach and
public/private sector collaborative ventures and other creative mechanisms with the purpose of providing
management and technical assistance through counseling and training to America’s small businesses
that otherwise would not be able to locate or afford trained and professional assistance. OED provides
entrepreneurs with free and low-cost education and training, topical information, and management
assistance critical for sound decision-making in the start-up and growth phases of the business cycle.
The tools used to accomplish this are OED’s SCORE, Small Business Development Center, and
Women’s Business Center programs; the SBA’s online training portal; Emerging Leaders; and delivery
systems such as the SBA’s district offices.
Office of Equal Employment Opportunity and Civil Rights Compliance
To advance Agency-wide diversity at all levels, and equal access to programs and activities receiving
SBA financial assistance, this office works to prohibit discrimination against all SBA employees and
applicants based on: race, color, sex, age, religion, disability, national origin, and retaliation for opposition
to discriminatory practices or participation in the EEO process. The office of EEO and CRC also works to
achieve equal employment opportunity for all qualified employees consistent with the nation’s workforce
diversity. The office ensures that no person in the United States is denied the benefits of, excluded from
participation in, or subjected to discrimination under any program or activity receiving SBA financial
assistance, based on race, color, sex, age, disability, national origin, and marital status (extension of
credit). In addition, the office ensures that individuals with disabilities have equal access to the SBA
conducted or co-sponsored programs and activities.
Office of Field Operations
The Office of Field Operations represents SBA field offices at headquarters. This office:
Provides policy guidance and oversight to regional administrators and district directors in
implementing Agency goals and objectives, and in solving problems in specific operational areas;
Establishes and monitors performance goals for district offices;
Provides associate administrators, program heads and the general counsel with a vehicle for
overseeing field office program and policy implementation;
Provides feedback to headquarters management regarding the performance of their programs;
Ensures that field offices have adequate input into all policy formation and participate in policy
deliberations at headquarters;
Organizes reviews of field offices;
Informs the SBA Administrator of field activity; and
Provides coordination with the Office of Disaster Assistance when necessary.
Agency Financial Report FY 2010 4
Office of General Counsel
The Office of General Counsel provides legal advice in support of all SBA programs and initiatives. The
office helps to minimize the Agency’s legal risks and costs, reduce litigation exposure, and ensure
compliance with the applicable statutes, regulations, Executive Orders and other legal requirements.
OGC provides the legal support necessary to defend the SBA’s interest in judicial and administrative
actions, and proactively represent the Agency in all legal matters that arise in the context of its financial
assistance, procurement and contracting programs, as well as labor and employment disputes.
Office of Government Contracting and Business Development
The Office of Government Contracting and Business Development promotes increased small business
participation in the federal procurement market for goods and services. The office fulfills the SBA’s
statutory mission to ensure that a fair share of federal procurement goes to small businesses.
Working with federal agencies, the SBA negotiates procurement goals, monitors performance,
encourages the use of small business sources, provides procurement training and technical assistance to
small firms, and provides policy direction and guidance to federal agencies. Several of the government-
wide goals are statutory, including small businesses, small disadvantaged businesses, women-owned
small businesses, HUBZone small businesses, and service disabled veterans-owned small businesses.
Office of Hearings and Appeals
The Office of Hearings and Appeals was established in 1983 to provide an independent, quasi-judicial
appeal of certain SBA program decisions. OHA formally adjudicates disputes rising in numerous
jurisdictional areas. These include appeals regarding SBA formal size determinations; appeals from
contracting officer designations of North American Industry Classification System codes for procurements
government-wide; appeals regarding certain SBA determinations relating to development companies; and
appeals from Agency and private certifier small disadvantaged business determinations, all of which, by
regulation, may be decided either by an Administrative Judge or an Administrative Law Judge. OHA’s
jurisdiction also includes 8(a) BD program eligibility, suspension, and termination appeals, and salary
offset appeals, all of which, by statute, must be decided by an administrative law judge.
Office of Human Capital Management
The Office of Human Capital Management develops and provides innovative human capital strategies.
The OHCM advises SBA management with respect to selecting, developing and managing a high-quality,
productive workforce. This office sets the SBA’s workforce development strategy; assesses current
workforce characteristics and future needs based on the SBA’s strategic plan; aligns human resources
policies with organization mission, strategic goals, and performance outcomes; develops and advocates a
culture of continuous learning to attract and retain employees with superior abilities; identifies best
practices and benchmarks studies; and creates systems for measuring intellectual capital and identifying
links of that capital to organizational performance and growth. This office also implements laws, rules
and regulations governing the civil service.
Office of the Inspector General
The Office of Inspector General is an independent office created by law within the SBA to conduct and
supervise audits, investigations, and other reviews relating to SBA programs and supporting operations;
detect and prevent waste, fraud, and abuse; and promote economy, efficiency, and effectiveness in the
administration and management of SBA programs. The inspector general keeps the SBA Administrator
and the Congress fully informed of any problems, recommends corrective actions, and monitors progress
in the implementation of such actions. The two operating components of the OIG are the Auditing
Division and the Investigations Division. The Auditing and Investigations Divisions each administer their
respective activities through staff located in various locations around the country. The Management and
Agency Financial Report FY 2010 5
Policy and Counsel Divisions support both the inspector general and the operating divisions by providing
policy, planning, administrative, and legal services, respectively.
Office of the National Ombudsman
The Office of the National Ombudsman fosters a more small-business–friendly federal regulatory
enforcement environment by assisting small businesses when they experience excessive federal
regulatory enforcement actions, such as repetitive audits or investigations, excessive fines, penalties,
threats, retaliation, or other unfair enforcement action by a federal agency. It does this by evaluating how
federal agencies treat small businesses during enforcement or compliance actions.
Office of the National Women’s Business Council
The Office of the National Women’s Business Council undertakes a variety of programs and initiatives in
support of women-owned businesses. The council holds two public council meetings and other public
roundtable events. It publishes research study reports, Issue in Brief reports (which synthesize and
summarize federal and other research information for women business owners and policy makers on
topics such as health care and federal procurement), and fact sheets on the numbers and growth of
categories of women-owned firms. The council manages two web sites, www.nwbc.gov and
www.womenbiz.gov, plus a bimonthly e-newsletter, Engage!
Office of Native American Affairs
The SBA, through its Office of Native American Affairs, coordinates Native American initiatives and
develops policies and procedures to ensure that SBA assistance is made available to American Indians,
Native Alaskans, and Native Hawaiians. The initiative consists of three major components: marketing,
outreach, and training to enhance business opportunities.
Office of Policy and Strategic Planning
The Office of Policy and Strategic Planning is responsible for evaluating the existing policies and
programs of the Small Business Administration as well as translating economic, social and demographic
trends that have an impact on small business competitiveness into policy prescriptions that will allow the
Agency to be more proactive in addressing the needs of small business.
Office of Veterans Business Development
Statutes direct the Office of Veterans Business Development to conduct comprehensive outreach on
behalf of the Agency and to be responsible for the formulation, execution, and promotion of policies and
programs of the Administration. To accomplish these tasks, OVBD operates its national outreach
initiative and provides direct service delivery through utilization of funding agreements with resource
partners, coordination of outreach and service delivery with other federal agency partners, and
development of Agency program initiatives.
Agency Financial Report FY 2010 6
SI 2 – Strategic Plan FY 2008-2013 — This document can be found at
http://collab.sba.gov/sites/ocio/PMO/Strategic%20Plans/SBA%20Strategic%20Plan/SBA%20Strategic%2
0Plan%20FY%202008-2013.pdf
SI 3 – Strategic Plan FY 2011-2016 — This document can be found at
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_strategic_plan_2010-2016.pdf
Agency Financial Report FY 2010 1
SI 4 – Detail of OIG Audit Follow-up Activity
Disallowed / Questioned Costs
Report # 4-40, SBA Guaranteed Loan To Elatec Technology Corporation And HK Equipment, Inc.
Summary: The audit objective was to determine if the lender and borrowers materially complied with SBA’s
requirements in originating, closing and liquidating the loan. The audit recommended the Agency recover
the payment made to purchase a guaranty.
Final Action: $0.00 collected / $246,640.00 written off
Report # 8-09, Loan Classifications and Overpayments on Secondary Market Loans
Summary: The objectives of the audit were to determine whether SBA classified secondary market loans
appropriately, purchased loans from the secondary market in a timely manner and pursued lenders for
overpayments it made. The audit recommended the Office of Financial Assistance ensure that guarantees
are purchased within 30 days and that the Fiscal and Transfer Agent’s transcript is used when the lender’s
transcript is incomplete.
Final Action: $1,300,000.00 collected / $0.00 written off
Report # 8-18, Audit of Six SBA Guaranteed Loans
Summary: The audit report identified six loans that warranted immediate Agency attention during an
ongoing audit of the liquidation process at the National Guaranty Purchase Center in Herndon, Virginia. The
audit recommended the Office of Financial Assistance seek recovery, plus interest, of the guaranty paid by
SBA to two banks.
Final Action: $0.00 collected / $379,643.00 written off
Report # 9-12, Review of SBA's National Guaranty Purchase Center Furniture Contract
Summary: The review was conducted in response to an anonymous complaint that a prime contractor
received an advance payment for furniture that was never delivered. The audit recommended the Office of
Management and Administration determine whether invoices were paid under the proper contract or
purchase order and recover any funds, if necessary. And, to determine whether the contractor performed the
work and seek reimbursement if it was not.
Final Action: $239,030.00 collected / $0.00 written off
Report # 10-03, Application of Insurance Offsets for Gulf Coast Disaster Loans
Summary: The audit objective was to determine whether SBA properly reduced Gulf Coast Hurricanes loan
balances to reflect flood and hazard insurance offsets. The audit recommended the Office of Disaster
Assistance resolve two over-disbursements.
Final Action: $314,363.00 collected / $0.00 written off
Funds Put To Better Use
Report # 8-09, Loan Classifications and Overpayments on Secondary Market Loans
Summary: The objectives of this audit were to determine whether SBA classified secondary market loans
appropriately, purchased loans from the secondary market in a timely manner and pursued lenders for
overpayments it made to secondary market investors. The audit recommended the Office of Financial
Assistance (OFA) to require lenders request guarantee purchase when interest is 120 days or more days
past due. It also recommended that OFA reduce servicing fees owed by the amount of fees owed SBA from
the lender.
Final Action: $7,200,000.00 implemented / $0.00 not implemented
Agency Financial Report FY 2010 1
Report # 9-08, The Liquidation Process At The National Guaranty Purchase Center
Summary: The audit objectives were to determine if the Center’s liquidation process addressed lender
noncompliance to mitigate losses and adequately managed loans in liquidation status. The audit
recommended the Office of Financial Assistance recover improper payments and liquidation proceeds from
lenders identified in the audit report.
Final Action: $0.00 implemented / $2,690,427.00 not implemented
Report # 9-09, Borrower Eligibility for Gulf Coast Disaster Loans
Summary: The objective of the audit was to determine whether the SBA had controls in place to prevent
ineligible applicants from receiving disaster loans. The audit recommended the Agency instruct loan officers
to follow SOP requirements for residency verification.
Final Action: $683,200.00 implemented / $0.00 not implemented
Report # 9-10, SBA's FY 2007 Improper Payment Rate for the Disaster Loan Program
Summary: The objective of this audit were to determine whether SBA was properly identifying improper
disaster loan payments and correctly estimating the improper rate for the program. The audit recommended
the Executive Office of Disaster Strategic Planning and Operations direct the Office of Disaster Assistance to
recalculate the FY-2008 estimate of improper payments.
Final Action: $1,539,761,288.00 implemented / $0.00 not implemented
Final Action on Audit Recommendations Not Completed Within 1 Year
October 1, 2009 – September 30, 2010
Report # 0-14, 7(a) Service Fee Collections
Program: OCFO
Date Issued: 03/30/2000
Management Decision Date: 08/22/2000
Explanation: The recommendation is to establish receivable accounts for 7(a) loan service fees. This
final action cannot be completed until October 2011 when the LMAS receivable calculation function has
been implemented.
Report # 3-08, SBA's Oversight of the Fiscal Transfer Agent For The 7(a) Loan Program
Program: CA
Date Issued: 01/30/2003
Management Decision Date: 10/15/2003
Explanation: The recommendation is to the Office of Capital Access to develop SBA procedures and
regulations governing the proper operation of the Master Reserve Fund. An SOP has been delayed in
internal clearance. This final action is expected by 06/30/2011.
Report # 3-26, Microloan Program: Moving Toward Performance Management
Program: Microloan
Date Issued: 05/13/2003
Management Decision Date: 08/28/2003
Explanation: Three recommendations remain open to the Office of Financial Assistance. 1) Work with
the Office of Field Operations to establish a task force to develop a system for district office marketing
and oversight of the Microloan program. A task force is underway. The final action is expected by
03/31/2011. 2) Ensure the development of a comprehensive Microloan program SOP. This SOP is in
clearance and is expected to be issued by 12/31/2010. 3) Ensure program goals are set and require
outcome-oriented data. Principal program goals are set forth in the SBA microloan regulations and these
can only be modified by a regulatory change. This recommendation is tied to three recommendations in
the FY-2010 audit report, “SBA's Administration Of The Microloan Program Under The Recovery Act.”
These recommendations are expected to be completed at the same time, by 06/30/2011.
Agency Financial Report FY 2010 2
Report # 4-34, SBA's Process for Complying With the FMFIA Reporting Requirements
Program: OCFO
Date Issued: 07/29/2004
Management Decision Date: 09/09/2004
Explanation: The two recommendations remaining open are to the Office of the Chief Financial Officer
to revise, clear and issue the draft SOP 00 02 3 and clearly define material weakness as it relates to SBA
and at the different levels of management within the Agency. The current draft SOP needs some
rewriting. A recent change in key staff requires additional time for familiarization with the existing internal
control structure before the SOP can be effectively updated. These final actions are expected to be
completed by 03/31/2011.
Report # 6-10, SBA's FY 2005 Financial Statements Management Letter
Program: OCFO
Date Issued: 01/18/2006
Management Decision Date: 03/06/2006
Explanation: There is one open recommendation to the Office of the Chief Financial Officer to update
the accounting SOP to include SBA’s policies and procedures for processing detailed accounting
transactions. The draft SOP has been revised and is being placed into Agency clearance again. SBA
continues to use online tables to document its accounting transactions policy and procedures. The
recommendation is expected to have final action by 02/28/2011.
Report # 6-25, SBA's Implementation of The Improper Payments Information Act (IPIA)
Program: OCFO
Date Issued: 06/21/2006
Management Decision Date: 07/19/2006
Explanation: The recommendation is to the Office of the Chief Financial Officer to develop Procedure
Notices or SOPs as internal guidance when changes to IPIA requirements are issued by OMB. A draft
SOP was developed, but needs some rewriting. A recent change in key staff requires additional time for
familiarization with the existing internal control structure before the SOP can be effectively updated. This
final action is expected to be completed by 03/31/2011.
Report # 6-34, Policies and Procedures For the SBAExpress and Community Express Loan
Programs
Program: OCA
Date Issued: 09/29/2006
Management Decision Date: 09/30/2009
Explanation: There are five open recommendations to the Office of Capital Access (OCA).
1) Promulgate regulations to govern the SBAExpress Program in order to ensure that the Agency has
sufficient legal authority. OCA has developed a schedule to issue SBAExpress Regulations. This
recommendation is expected to have final action by 06/30/2012. 2) Revise the Guide to establish criteria
as to when lenders are permitted to use credit scores. This will be addressed in the next rewrite of SOP
50 10. Other general guidance on determining credit worthiness may be developed in the meantime.
This recommendation is expected to have final action by 09/30/2011. 3) Promulgate regulations to
exempt the SBAExpress Program from existing regulations that conflict with the SBAExpress Program
Guide. OCA has developed a schedule to issue SBAExpress Regulations. This recommendation is
expected to have final action by 06/30/2012. 4) Amend the Guide to set forth loan portfolio performance
standards for lenders with no 7(a) Program lending experience that seek admission to the SBAExpress
Program. This will be addressed in the next rewrite of SOP 50 10. This recommendation is expected to
have final action by 09/30/2011. 5) Revise the Community Express Program Guide to address the
recommendations set forth in Concerns 1-4, as applicable. A resolution has been delayed since the
future of the Community Express Program is uncertain. This recommendation is expected to have final
action by 09/30/2011.
Agency Financial Report FY 2010 3
Report # 7-03, SBA's FY-2006 Financial Statements
Program: M&A
Date Issued: 11/15/2006
Management Decision Date: 01/04/2007
Explanation: The recommendation is to the Chief Operating Officer, in conjunction with appropriate
program officials, to ensure that policies are implemented regarding segregation of duties for FRIS,
JAAMS, DCMS and LAS. The Office of the Chief Information Officer has developed a generic roles
matrix and distributed it to systems owners for education, review and customization for their
environments. This final action is expected to be completed by 06/30/2011.
Report # 7-28, SBA's Oversight of Business Loan Center, LLC
Program: Office of the Administrator
Date Issued: 07/11/2007
Management Decision Date: 09/16/2008
Explanation: The recommendation is to the Office of Capital Access to mitigate risk posed by Business
Loan Center, LLC (BLX) and promote consistent and uniform enforcement actions by developing SOPs
that provide an integrated system of enforcement activities. BLX is no longer an active SBA lender. To
avoid undue future risk to the Agency, SBA will publish a lender enforcement SOP to promote consistent
and uniform actions. The final action is expected to be completed by 12/31/2010.
Report # 7-29, Quality Assurance Reviews of Loss Verifications
Program: ODA
Date Issued: 07/23/2007
Management Decision Date: 09/30/2009
Explanation: The two open recommendations are to the Office of Disaster Assistance (ODA).
1) Recommend the Deputy Administrator of ODA pursue a reassignment of Quality Assurance Reviews
(QAR) responsibilities to an SBA organization outside of ODA. QAR agreed that the responsibilities
related to loss verification would be performed by the Most Efficient Organization A76 vendor. However,
the performance period for this MEO effort ended on September 30, 2010 and the ODA will not be
recompeting this function. ODA believes the responsibilities rest within ODA and has established a multi-
layered approach within ODA. 2) Recommend the Deputy Administrator of ODA ensure QAR guidance is
developed that requires responsible QAR officials to document the reasons for exceptions and any
changes to initial QAR results ODA will initiate a multilayer approach to ensure quality control. Quality
control will be performed and documented in the field by the team leader or designee with results
reported to the Production Manager on a real time basis. These recommendations are expected to have
final action by 06/30/2011.
Report # 7-32, Advisory Memorandum: Surety Bond
Program: OSG
Date Issued: 09/28/-2007
Management Decision Date: 11/27/2007
Explanation: The recommendation is to the Office of Surety Guarantees to require a surety to perform
specific actions before hiring a replacement contractor. A regulation addressing this situation is in
clearance. This final action is expected to be completed by 01/31/2011.
Report # 8-06, SBA's FY 2007 Financial Statements Management Letter
Program: OFA
Date Issued: 12/14/2007
Management Decision Date: 12/18/2007
Explanation: There are three open recommendations to the Office of Capital Access. 1) To mitigate
potential risks regarding the guaranteed loan purchase process, issue the updated SOP 50 51, Loan
Liquidation and Acquired Property. 2) Implement procedures regarding the evaluation of lenders.
3) Implement an action plan for timely updating, reviewing and approving of SOPs. Revisions to SOP 50
51 has been cleared and the comments are being addressed. The SOP will be issued before the end of
this calendar year. All final actions are expected to be completed by 12/31/2010.
Agency Financial Report FY 2010 4
Report # 8-12, Oversight of SBA Supervised Lenders
Program: CA
Date Issued: 05/09/2008
Management Decision Date: 06/26/2008
Explanation: One recommendation remains open to the Office of Capital Access to establish risk
mitigation goals applicable to each loan program and the entire lending portfolio. SBA executed a
contract in September 2010to provide consulting services on OCA's risk management practices. The
contractor will assist OCRM in developing the measures. This final action is expected to be completed by
06/30/2011.
Report # 8-13, Planning For The Loan Management And Accounting System Modernization And
Development Effort
Program: CA
Date Issued: 05/14/2008
Management Decision Date: 08/11/2008
Explanation: There is one remaining open recommendation to the Office of Financial Assistance to
make cost-effective remediation of mainframe vulnerabilities a priority and ensure that migration of LAS
occurs before the current mainframe contract expires in 2012. The objectives of the former LMAS project
will be incorporated under the new Incremental Improvements Project (IIP) initiative. The mainframe
contract will be extended through March, 2013. This final action is expected to be completed by
03/31/2013.
Report # 9-05, SBA’s FY 2008 Financial Statements - Management Letter
Program: OFA
Date Issued: 12/17/2008
Management Decision Date: 02/18/2009
Explanation: The two open recommendations are to the Director of the Office of Financial Assistance to
reinforce the importance of the collateral analysis in an updated SOP and ensure the revised Disaster
Loan SOP identifies procedures related to the disposition of collateral. The SOP is on track and will be in
clearance during the first quarter of FY-2011 and issued during the second quarter. These
recommendations are expected to have final actions by 02/28/2011.
Report # 9-15, Participants In The 8(a) Program By Firms Owned By Alaska Native Corporations
(ANCs)
Program: GC/BD
Date Issued: 07/10/2009
Management Decision Date: 08/04/2009
Explanation: The recommendations are to Government Contracting & Business Development to
determine whether 8(a) firms owned by ANCs and tribes should continue to be exempt from the cap on
total sole source awards, expedite the implementation of BDMIS, and finalize regulations necessary to
fully implement GAO's recommendations. Proposed 8(a) regulations were published in the Federal
Register for comment. These recommendations will be closed when SBA issues the final 8(a) regulations
by 12/31/2010.
Report # 9-16, SBA's FY 2008 Improper Payment Rate For The 7(a) Guaranty Loan Program
Program: OCA
Date Issued: 07/10/2009
Management Decision Date: 08/27/2009
Explanation: There are two open recommendations to the Office of Capital Access. 1) Seek recovery of
$2.3 million from lenders on the loans listed in the audit report. These loans are under various states of
review. Three need OGC opinions, and recovery is not warranted for another three. 2) Fully implement
the corrective action plan to reduce improper payments. The Agency has a plan to reduce improper
payments. However, a major component of this plan has not yet been fully implemented. These
recommendations are expected to have final actions by 12/31/2010.
Agency Financial Report FY 2010 5
Report # 9-17, Review of Allegations Concerning How the LMAS Modernization Project Is Being
Managed
Program: OCIO
Date Issued: 07/30/2009
Management Decision Date: 09/03/2009
Explanation: The recommendation is to the Office of Capital Access to fully implement the corrective
action plan to reduce improper payments in the 7(a) Guaranty Loan Programs. A major component of the
corrective action has not yet been fully implemented. This recommendation is expected to have final
action by 04/30/2011.
Report # 9-18, SBA's Management of the Backlog Of Post-Purchase Reviews At The National
Guaranty Purchase Center
Program: OFPO
Date Issued: 08/25/2009
Management Decision Date: 09/11/2009
Explanation: The recommendation is to the Office of Financial Program Operations to include detailed
scopes of work, measurable performance metrics, deliverables and adequate acceptance criteria in
service contracts. The measurement standards still must be completed for the contract employees in
each Center. This recommendation is expected to have final action by 12/31/2010.
Agency Financial Report FY 2010 6
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