SBA Agency Financial Report, Fiscal Year 2015

Summary

This is the U.S. Small Business Administration's Agency Financial Report for FY 2015, covering the fiscal year beginning October 1, 2014 and ending September 30, 2015. A highlights table (dollars in thousands) lists a loan portfolio of $118,767,451 and total assets of $12,020,867 for FY 2015. The report is the first of three annual reports; the Annual Performance Report and the Summary of Performance and Financial Information are scheduled for publication in February 2016. It names SBA Administrator Maria Contreras-Sweet and credits KPMG LLP and the Office of the Inspector General for the audit of the Fiscal Year 2015 Financial Statements. It also tells of Conrad Kreuter, President of Moriches Inlet Marine, Inc., recipient of the SBA 2015 Phoenix Award for Outstanding Small Business Disaster Recovery.

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“SBA Agency Financial Report, Fiscal Year 2015.” Original at legacy.sba.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/sba-agency-financial-report-agency-financial-report-fy-2015-72ce9be8fa/, SHA-256 c6b6c0ab91e416c15a863dd1d62651daf8bfe9df83112fb94ce0a27e49f58ab4.

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ABOUT THIS REPORT FY 2015 HIGHLIGHTS

The U.S. Small Business
(Dollars in Thousands) FY 2012 FY 2013 FY 2014 FY 2015
Administration’s Agency Financial
Report (AFR) for FY 2015 provides an
Loan Portfolio(1) $ 104,442,586 $ 109,757,990 $ 114,433,669 $ 118,767,451
overview of the Agency’s financial and
performance data to help Congress,
the President, and the public assess Regular FTE Employees 2,089 2,148 2,137 2,115
SBA’s stewardship over the resources Disaster FTE Employees 1,145 1,628 991 991
entrusted to it. The AFR is the first Total Employees(2) 3,234 3,776 3,128 3,106
in a series of three annual financial
and performance reports for federal Total Assets $ 14,014,855 $ 13,846,170 $ 13,184,251 $ 12,020,867
agencies choosing to produce a separate Total Liabilities $ 13,640,581 $ 12,462,316 $ 11,695,803 $ 10,682,837
AFR. An Annual Performance Report Total Net Position $ 374,274 $ 1,383,854 $ 1,488,448 $ 1,338,030
(APR) and a Summary of Performance Total Net Cost of Operations $ 1,274,805 $ 524,086 $ (466,394) $ (644,590)
and Financial Information (SPFI) Total Budgetary Resources $ 14,400,162 $ 14,059,594 $ 10,826,659 $ 10,296,788
make up the other two reports. The
(1)
The total portfolio consists of guarantied business loans outstanding, guarantied debentures, direct business loans, and direct disaster loans. The data include all performing loans
FY 2015 APR is included as part of and defaulted loans that have not been charged off. Prior to the FY 2014 Agency Financial Report the SBA did not include ARC 506, Dealer Floor Plan, 504 First Lien, and 504
the FY 2017 Congressional Budget Refi in the portfolio total. The SBA has updated the data for FY 2012-2013 to include these programs in the totals.

Justification (CBJ), which is the (2)
The total does not include employees in the Offices of Advocacy or Inspector General.
Agency’s budget request to Congress.
The FY 2015 SPFI is a summary of the
financial, performance, and budgetary
information presented in the AFR and
the CBJ/APR. Both the SPFI and the
CBJ/APR are scheduled for publication
in February 2016. All three reports can
be found at www.sba.gov/performance.
FOR MORE INFORMATION

Information about SBA’s programs is available at: www.sba.gov
ABOUT THE COVER SBA’s plans and reports are available at: www.sba.gov/performance

The cover includes photos that represent Para información acerca de los programas de la SBA: www.sba.gov “Translate” “Select Language”
SBA clients in the construction, grocery,
Questions and comments regarding the content, presentation and usefulness of this report are
pharmaceutical, and solar technology
welcome and may be addressed to: performance@SBA.gov
industries.

Or, you may write to: Or, you may call:
U.S. Small Business Administration Jason Bossie
Office of Performance Management Director
and Chief Financial Officer Office of Performance Management
409 Third Street, S.W. (202) 205-6449
Washington, DC 20416

Message from the Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management’s Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Primer of SBA’s Principal Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SBA by the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SBA’s History and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Analysis of Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Analysis of Performance and Agency Priority Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Verification and Validation of Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Operational Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Looking Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Analysis and Highlights of Financial Statements and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Highlights of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Analysis of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Analysis of SBA’s Systems, Controls and Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Internal Control Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Management Systems Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Management Assurances: FMFIA and FFMIA Assurance Statement for FY 2015 . . . . . . . . . . . . . 37
Improper Payments Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Audit and Financial Management Advisory Committee’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Inspector General’s Audit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Independent Auditors’ Report on FY 2015 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
CFO Response to Draft Audit Report on FY 2015 Financial Statements . . . . . . . . . . . . . . . . . 55
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Schedule of Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
OIG Report on the Most Serious Management and Performance Challenges . . . . . . . . . . . . . . . . . . . . . . .94
Summary of Financial Statement Audit and Management Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Freeze the Footprint Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Civil Monetary Penalty Adjustment for Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Appendix 1 – Contact SBA: Useful Sites and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Appendix 2 – Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Appendix 3 – OIG Audit Follow-up Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

AGENCY FINANCIAL REPORT • FY 2015
SBA’S MISSION
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.

HOW THIS REPORT IS ORGANIZED
The U.S. Small Business Administration’s FY 2015 Agency Financial Report (AFR) provides financial and perfor-
mance information for the fiscal year beginning October 1, 2014 and ending September 30, 2015. This report
presents SBA’s operations, accomplishments, and challenges. It begins with a message from SBA Administrator
Maria Contreras-Sweet, followed by three principal sections — Management’s Discussion and Analysis, Financial
Reporting, Other Information, and Appendices. “Success Stories” that highlight small business entrepreneurs appear
throughout the report, along with interesting “Did You Know?” facts about the SBA and its work.

Management’s Discussion and Analysis
The Management’s Discussion and Analysis section provides a report of the Agency’s overall financial position,
program performance, and results of operations. It presents SBA’s history, organization, and principal programs.
This section highlights financial results and analysis; performance results and analysis; and analysis of systems,
controls, and legal compliance.

Financial Reporting
The Financial Reporting section provides a detailed report of SBA’s finances. It includes the message from the
Chief Financial Officer, the Audit and Financial Management Advisory Committee’s report, the audit trans-
mittal memorandum from the Inspector General, the independent auditors’ report, and the audited financial
statements and notes. The required supplementary information provides a combining statement of budgetary
resources, and the required supplementary stewardship information provides a report on stewardship invest-
ments in human capital.

Other Information
The Other Information section includes a schedule of spending and the Inspector General’s report on the Agency’s
most serious management and performance challenges along with recommended actions. Also included in this
section is a summary of financial statement audit and management assurances, and a detailed report on improper
payments.

Appendices
The Appendices provide supporting information — a contact list of useful web sites and telephone numbers; a
glossary; and a detailed report on audit follow-up activity.
ME SSAG E FRO M TH E A D M INIS T RATOR

MESSAGE FROM THE ADMINISTRATOR November 16, 2015

Under my tenure, one motto has driven our work at the SBA: “Smart, Bold and
Accessible.” That means we support our nation’s 28 million small businesses through
smart systems. We help them reach bold new markets. And we serve entrepreneurs of
every age, ethnicity, and background. An important piece of that work is to detail the
performance of our finances and our programs. In that spirit, I am pleased to present the
U.S. Small Business Administration’s FY 2015 Agency Financial Report.

In the pages to follow, we have highlighted some of our key accomplishments during
the fiscal year. These accomplishments cover our work in the areas of capital, contracts,
counseling, and disaster relief. SBA financial and performance data in this report are reliable and complete. Our auditors
issued an unmodified opinion on our FY 2015 financial statements and found no material weaknesses.

It was a big year for capital. In FY 2015, the SBA supported nearly $33 billion in lending through our 7(a) and 504
loan programs. These loans supported over 680,000 jobs across the country. The SBA did not require a credit subsidy
appropriation for the 7(a) loan program. Instead, we utilized fees to cover the costs of our most popular credit offering.
We accomplished this despite zeroing out fees for 7(a) loans of $150,000 or less, beginning in FY 2014 and extending to
FY 2015, to boost loan approvals to women, minorities, veterans, and business owners in distressed urban and rural areas.

In FY 2015, we made significant progress in our ongoing efforts to modernize the Agency’s capital access programs. Our
goal was 100 percent electronic submission of loan applications, which we met this past year. We continued development
work with our Fiscal Transfer Agent to construct and implement further enhancements to SBAOne, our newly-created
online lending platform. This system provides significantly more data on 7(a) loans and makes available additional
information that enhances program risk management, streamlines payment and reporting, and improves efficiency of
secondary market functions. This builds on previous capability that implemented a predictive credit scoring model on
smaller dollar loans to create an underwriting system that promotes more equitable distribution of capital and speeds our
response time on 7(a) loan applications.

The Small Business Investment Company (SBIC) Debenture program had another record year of growth. Investment
funds licensed as SBICs provided more than $6 billion in capital to small businesses, a 15 percent increase over last fiscal
year. In FY 2015, the SBA licensed 25 new SBIC funds, and licensing times averaged 8.4 months. This helped the SBIC
program execute more than $2.5 billion in commitments, one-quarter of which helped capitalize companies that are
minority-owned, women-owned, veteran-owned, or located in low-to-moderate income areas.

As with our work in capital, the SBA also reached an important milestone promoting greater federal contracting
opportunities for small businesses. For the second consecutive year, in FY 2014, the federal government surpassed its
statutory prime contracting goal, and the Agency achieved its priority goal by awarding 24.99 percent of federal prime
contracts to small businesses. This achievement occurred despite the fact that overall federal contract spending has been
reduced over the past several years. In FY 2014, the federal government also exceeded its small business contracting
goals for businesses owned by service-disabled veterans (3.68 percent) and businesses considered socially or economically
disadvantaged (9.46 percent).

AGENCY FINANCIAL REPORT • FY 2015 1
M E S SAGE FRO M T HE AD M I N I S T R ATOR

Many of these achievements are the result of SBA’s efforts to provide mentoring, business advice, and training assistance
to more than 1 million entrepreneurs and small businesses each year. These efforts help entrepreneurs create viable
business plans, acquire capital, and access numerous supply chains. This year, we recognized the 35th anniversary of
America’s Small Business Development Center network, an SBA resource partner that provides high quality advising,
mentoring, and training to hundreds of thousands of businesses in more than 900 centers each year.

This business counseling made an especially big impact in the veteran community. In FY 2015, the SBA trained more
than 14,000 transitioning service members at 184 military installations nationwide through our Boots to Business
program. This program, coupled with veteran’s loan advantage, provides the needed support to our hardworking military
service members interested in starting their own business.

Finally, the SBA reaffirmed its commitment to aid Americans in their hours of greatest need by continuing to improve
and streamline our disaster assistance programs. In FY 2015, the SBA approved more than 11,400 disaster loans totaling
more than $371.6 million and worked 255 active declarations across the country. While our disaster assistance loan
volume was down from previous years, we continued to make strides in processing payments more quickly and efficiently.
The SBA exceeded its priority goal for disaster loan applications returned, with a return rate of 98 percent. This higher
application return rate means a greater number of disaster survivors received SBA’s assistance in rebuilding or recovering
from an economic injury. We also made process improvements by adding multiple points for disaster survivors to apply
for SBA loans.

SBA services continue to be a vital resource for small businesses and an important driver of America’s economic growth.
In FY 2016, we plan to build upon these accomplishments in order for more small businesses to expand, create jobs, and
help America’s economy thrive.

Sincerely,

Maria Contreras-Sweet
Administrator

2 AGENCY FINANCIAL REPORT • FY 2015
Management’s
Discussion &
Analysis
SUCCESS Brother and Sister Team Are SBA
Small Business Persons of the Year
STORY Missouri Star Quilt Company
Hamilton, Missouri

Alan Doan took out a loan to buy a quilting machine and a small building
to house it, and in 2008 he and his sister Sarah Galbraith launched Missouri
Star Quilt Company. An SBA 504 loan in 2013 enabled the business to build
a 45,000 square-foot facility for warehousing and shipping, customer service,
sales, and a photo/catalog studio. Missouri Star Quilt is a unique combination of e-commerce and a bustling brick
and mortar operation that has brought new life to the city of Hamilton.

Quilting tutorials posted on YouTube and hosted by Alan and Sarah’s mother Jennie were widely viewed,
boosting the company’s image and engaging potential customers. The company now ships hundreds of
packages every day to customers all over the globe. The brick and mortar shop has become a quilting
destination.

Missouri Star Quilt now owns 15 buildings that encompass 116,365 square feet. With 148 employees, it is
the largest employer in Caldwell County, Missouri. The net worth of the operating company has grown from
$60,576 in 2011 to $206,608 in 2013.

In a May 2015 ceremony and reception in Washington, D.C., SBA Administrator Maria Contreras-Sweet
recognized Alan Doan and Sarah Galbraith as SBA’s 2015 National Small Business Persons of the Year.
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

PRIMER OF SBA’S PRINCIPAL PROGRAMS

CAPITAL (www.sba.gov/financialassistance)
The SBA has a total business loan portfolio of $102.4 billion.1

7(a) Loan Guaranties — The SBA offers government guaranties on loans (up to $5.0 million) made by commercial
lenders to help expand access to capital for business owners who face challenges in getting approved for financing.
The SBA guarantees a portion of 7(a) loans made and administered by commercial lending institutions. Loans can
be guaranteed for a variety of general business purposes.
504 CDC Loan Guaranties — These long-term, fixed-rate loans (up to $5.5 million) support investment in major
assets such as real estate and heavy equipment. Loans are delivered by certified development companies (CDC)
which are private, non-profit corporations. CDCs work with the SBA and private lenders to provide the financing.
The SBA guarantees the CDC’s portion of these loans.
Microloans — The SBA provides loans to non-profit intermediary lenders, which are community-based organiza-
tions with experience in lending and technical assistance, that in turn make these loans (up to $50,000) to small
businesses needing small-scale financing and technical assistance for start-up or expansion.
Surety Bonds — A surety bond is a type of insurance that guarantees performance of a contract. If one party does
not fulfill its end of the bargain, then the surety bond provides financial compensation to the other party. The SBA
guarantees bonds issued by a surety company in order to encourage the surety company to provide bonds to small
businesses.

CONTRACTING (www.sba.gov/contracting)
The SBA leads federal efforts to deliver 23 percent of contracts to small businesses, 5 percent to women-owned and small
disadvantaged/8(a) businesses, and 3 percent to HUBZone and service-disabled veteran small businesses.

Procurement Assistance to Small Businesses — Small business contracts represent the largest form of direct mon-
etary support for small business in the federal government. Within this goal are four sub-goals:
Small Disadvantaged Businesses — This program supports assistance through 8(a) Business Development and
set-aside contracting for businesses owned and controlled by socially and economically disadvantaged individu-
als. Over the course of nine years, a firm is assisted in gaining resources to compete for federal contracts and for
contracts in the private sector.
HUBZone Small Businesses — This program supports sole-source and set-aside contracting for firms located in
economically disadvantaged geographical areas.
Service-Disabled Veteran-Owned Small Businesses — This program allows federal agencies to set-aside con-
tracts for competition only among service-disabled veteran-owned small businesses.
Women-Owned Small Businesses — This program allows federal agencies to set-aside certain contracts for
competition only among small businesses owned and controlled by women.

1 The total portfolio of $118.8 billion consists of all performing loans and defaulted loans that have not been charged off, including guarantied business
loans outstanding, guarantied debentures, direct business loans and direct disaster loans, ARC 506, Dealer Floor Plan, 504 First Lien, and 504 Refi.

AGENCY FINANCIAL REPORT • FY 2015 5
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

ADVISING, MENTORING, AND TRAINING (www.sba.gov/local-assistance)
The SBA and its partners serve over 1 million small business clients a year through the following programs.

Small Business Development Centers — SBDCs provide advising and training services to small businesses and
prospective business owners using an extensive network of 63 lead centers managing more than 900 service delivery
points throughout the U.S. and the insular territories.
Women’s Business Centers — WBCs provide advising and training through more than 100 non-profit educa-
tional centers across the nation. They provide services on a vast array of topics, from how to write a business plan
to programs specifically for veterans. Many WBCs provide multilingual services, and a number offer flexible hours
allowing for mothers with children to attend training classes.
Veterans Business Outreach Centers — SBA’s 15 VBOCs provide counseling and training services to veteran-
owned and service-disabled veteran-owned small businesses and entrepreneurs, along with reserve component mem-
bers starting new small businesses or expanding established small businesses.
SCORE — SCORE is a non-profit association comprised of nearly 11,000 volunteer business mentors that serve
entrepreneurs with in-person mentoring and local training workshops. As the largest volunteer business mentor
network in the federal government, SCORE adapts its structure and services to meet the needs of the small business.

EXPORTING (www.sba.gov/oit)
The SBA provides loans to exporters and training assistance to small businesses.

Export Loans — The SBA provides several different types of export loans, including SBA Export Express loans
(up to $500,000), Export Working Capital loans (up to $5.0 million), and International Trade loans (up to $5.0
million) that provide small businesses with enhanced export financing options to develop foreign markets, fund
their export transactions, and/or support business expansion due to exporting success. The SBA provides technical
assistance on trade finance and funding questions through staff located in U.S. Export Assistance Centers.
U.S. Export Assistance Centers — USEACs are staffed by professionals from the SBA, the Department of Com-
merce, and the Export-Import Bank. Together, their mission is to help small and medium-sized businesses compete
in today’s global marketplace by providing export marketing and finance assistance.

HIGH-GROWTH SMALL BUSINESSES (www.sba.gov/inv)
The SBA supports high-growth investments through a portfolio of $10 billion in outstanding leverage.

SBIC — Small Business Investment Companies are privately owned and managed investment funds that use their
own capital plus funds borrowed with an SBA guaranty to make equity and debt investments in qualifying small
businesses.
SBIR/STTR — The Small Business Innovation Research and State Technology Transfer Research programs are high-
ly competitive funding agreements program that stimulate high-tech innovation by reserving a specific percentage of
federal research and development funds for small business. SBIR/STTR enables the small business to compete on
the same level as larger businesses.

DISASTER ASSISTANCE (www.sba.gov/disaster)
The SBA has a portfolio of $6.3 billion in direct disaster loans to businesses, homeowners, and renters.

Disaster — The SBA is the federal government’s primary source of financing for the long-term repair and rebuilding
of disaster-damaged private property for homeowners, renters, businesses of all sizes, and private non-profit
organizations. It is the only form of SBA assistance that is not limited to small businesses.

6 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

EXECUTIVE SUMMARY
America’s 28 million small businesses play a critical role in dation and charge-off of existing defaulted guaranties, a
job creation and retention. During the last two decades, decrease in new disaster direct loan disbursements, and
small businesses have been responsible for creating two collections on existing disaster loans
out of every three net new jobs. In turn, the U.S. Small
Business Administration’s assistance to those firms and
entrepreneurs helps drive a healthy economy.
Performance Results
Capital: In FY 2015, the dollar amount of SBA’s 7(a)
The SBA employs a variety of methods to support Amer- loans increased by 23 percent, leading to a record year of
ica’s small businesses. These methods include promoting approvals. Additionally, the 504 loan program met its FY
access to capital; federal contracting; advising, mentoring, 2015 target of $4.3 billion. The SBA saw a net increase
and training; and disaster assistance. of gross approvals over the prior year by 20 percent. In
Throughout FY 2015, three goals from the SBA’s FY 2014- all, the SBA approved more than 69,000 loans, supported
2018 Strategic Plan guided the Agency’s actions: 61,000 businesses, and provided nearly $33.2 billion in
both business and disaster loans.
1. Growing businesses and creating jobs
FY 2015 reflected the sixth consecutive year of growth in the
2. Serving as the voice for small business
financing of businesses by small business investment com-
3. Building an SBA that meets the needs of today’s and panies (SBICs). SBIC is a zero subsidy guaranty debenture
tomorrow’s small businesses program underpinned by a portfolio of public-private part-
nerships investing in small and typically technology-oriented
The following sections highlight financial and performance
high-growth businesses. More than $6 billion was invested
results for the Agency, including the four Agency Prior-
in 1,210 small businesses. Capital deployments increased
ity Goals and federal Cross-Agency Priority (CAP) Goals.
15 percent year-over-year and increased 95 percent since FY
In-depth analysis can be found in the Analysis of Financial
2012.
Results and Analysis of Performance Results sections. The
complete set of performance results will be reported in the Contracts: The SBA continues to work with agencies
Annual Performance Report to be released in February across the federal government to expand small business
2016. contracting opportunities. Between FY 2011 and
FY 2014, small businesses accessed more than $356 bil-
Financial Results lion in federal contracts (FY 2015 contracting numbers
continue to be collected and certified).
For FY 2015, SBA’s total budgetary resources used for
staffing, operations, and subsidy costs were $2.8 bil- Counseling: The SBA provides mentoring, business
lion and $7.5 billion in nonbudgetary resources for loan advice, and training assistance to more than 1 million
financing used to purchase guarantied loans in default entrepreneurs and small businesses each year. In FY 2015,
and to make direct loans. SBA’s guarantied portion of the these efforts helped entrepreneurs obtain $4.7 billion in
outstanding loan principal rose 5.8 percent in FY 2015, to capital for their businesses.
$88.3 billion. New guaranties disbursed by SBA partici-
Disaster Assistance: Disaster loan applications and ap-
pating banks during FY 2015 were $19.8 billion, a 9.9
provals declined compared to prior years, which included
percent increase this year that resulted in the 5.8 percent
the second costliest disaster in U.S. history, Hurricane San-
increase in outstanding guaranties. Purchases of defaulted
dy. In FY 2015, the Agency worked on 255 active disaster
guarantied loans dropped again, falling from $1.4 bil-
declarations and approved more than 11,400 disaster loans
lion last year to $1.1 billion this year. This encouraging
to homeowners and small businesses totaling more than
trend is expected to continue in upcoming years as the
$371.6 million.
nation moves further into economic recovery. The loan
receivables portion of the SBA credit program portfolio
continued to decline from $6.9 billion to $6.5 billion in
FY 2015. The drop in loan receivables was caused by the
decrease in purchases of defaulted guaranties, the liqui-

AGENCY FINANCIAL REPORT • FY 2015 7
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

Agency Priority Goals and Outcomes Cross-Agency Priority Goals
The Government Performance and Results Modernization The SBA also participates in many of the government-wide
Act of 2010 (GPRAMA) requires federal agencies to establish federal Cross-Agency Priority (CAP) goals. The CAP goals are
a set of two-year Agency Priority Goals (APGs) that reflect Presidential priorities and are complemented by other cross-
the highest priorities of agency leadership. The SBA has agency coordination and goal-setting efforts. A brief description
established four APGs. The goals and outcomes from this of the CAP goals to which the SBA contributes follows.
fiscal year are as follows:
• Job Creating Investment: Improve federal investment
• Increase active lender participation. tools and resources, while also increasing interagency
• Goal: Expand access to capital by adding 325 new or coordination to encourage job growth through foreign
returning lenders to SBA’s flagship 7(a) loan program investment.
each year in FY 2014-2015. • Cybersecurity: Improve cybersecurity performance
• Outcome: The SBA increased small business access through ongoing awareness of information security,
to capital by adding new and returning lenders to vulnerabilities and threats impacting the operating infor-
the 7(a) loan program. While the Agency missed mation environment. Ensure that only authorized users
its FY 2015 target by 10 percent, 292 new lenders can access resources and information, and implement
provided more than $260 million in new loans to technologies and processes to reduce the risk of malware.
small businesses.
• Customer Service: Deliver world-class customer service
• Maximize small business participation in government to citizens by making it faster and easier for individu-
contracting. als and businesses to complete transactions and have a
• Goal: Maximize small business participation in fed- positive experience with government.
eral government contracting to meet the statutory goals • Smarter IT Delivery: Improve outcomes and customer
and reduce participation by ineligible firms. satisfaction with federal services through smarter IT
• Outcome: The SBA will continue to collect and delivery and stronger agency accountability for success.
certify FY 2015 contracting numbers through the • Strategic Sourcing: Expand the use of high quality, high
third quarter of FY 2016. The Agency exceeded its value strategic sourcing solutions through this goal in
FY 2014 target, making 24.99 percent of contract- order to improve the government’s buying power and
ing dollars across the federal government available reduce contract duplication.
to small businesses.
• Benchmark and Improve Mission-Support Operations:
• Expand the base of lenders for small business exporters.
Improve administrative efficiency and increase the adop-
• Goal: Increase access to export financing by raising tion of effective management practices. Agencies will
the number of export finance lenders to 555 and the do this by establishing cost and quality benchmarks of
number of participating small business exporters to mission support operations, as well as by empowering
1,480 by FY 2015. decision-makers with better data to compare options,
• Outcome: The SBA met 93 percent (514 lenders) allocate resources, and improve processes.
of its FY 2015 export lender goal and exceeded its • Open Data: Fuel entrepreneurship and innovation.
FY 2015 target of small businesses assisted by 2 They will improve government efficiency and effective-
percent (1,513 small businesses assisted). ness by unlocking the value of government data and
• Increase the disaster loan application rate. adopting management approaches that promote the
• Goal: By September 30, 2015, increase the return rate interoperability and openness of this data.
of disaster survivor applications by 10 percentage points • Lab to Market: Increase the economic impact of feder-
(from a 24 percent to a 34 percent return rate). ally funded research and development by accelerating
• Outcome: This year, the SBA had a return rate and improving the transfer of new technologies from
of 98 percent due to process improvements and the laboratory to the commercial marketplace.
improving customer service touch points. Due to • People and Culture: Innovate by unlocking the full
the successful impact of these efforts, this goal will potential of the workforce of today and building the
be retired after FY 2016. workforce needed for tomorrow.

8 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

SBA BY THE NUMBERS
(Dollars in Millions)
FY 2012 FY 2013 FY 2014 FY 2015
Total Portfolio (1) Outstanding Principal Balance $ 104,443 $ 109,758 $ 114,434 $ 118,767
Capital (2)

7(a) Loans Dollars of Gross Loans Approved $ 15,153 $ 17,868 $ 19,191 $ 23,584
504 Loans Dollars of Gross Loans Approved $ 6,712 $ 5,227 $ 4,199 $ 4,298
Microloans Dollars of Gross Loans Approved to Microborrowers $ 45 $ 53 $ 54 $ 51
Surety Bond Dollars of Bid and Final Bonds Guaranteed $ 3,920 $ 6,150 $ 6,413 $ 6,348

Contracting (3)
Prime Contracting Dollars of Contracts Awarded to Small Businesses $ 89,923 $ 83,143 $ 91,682 N/A
HUBZone Small Dollars of Contracts Awarded to HUBZone
$ 8,140 $ 6,245 $ 7,000 N/A
Businesses Small Businesses
Small Disadvantaged Dollars of Contracts Awarded to Disadvantaged
$ 32,334 $ 30,616 $ 34,700 N/A
Businesses Small Businesses
Women-Owned Small Dollars of Contracts Awarded to Women-Owned
$ 16,180 $ 15,365 $ 17,200 N/A
Businesses Small Businesses
Service-Disabled Veteran- Dollars of Contracts to Awarded to Service-Disabled
$ 12,256 $ 12,023 $ 13,500 N/A
Owned Small Businesses Veteran-Owned Small Businesses

Advising, Mentoring,
and Training (4)
Small Business Number of Clients Advised and Trained
Development Centers 543,512 532,377 485,487 449,964
(SBDCs)
Women's Business Number of Clients Advised and Trained
136,951 133,765 140,037 140,716
Centers (WBCs)
SCORE Number of Clients Mentored and Trained 458,773 345,902 442,374 339,521
SBA Learning Center Number of Clients Trained Online 220,596 150,355 182,002 139,719
Veteran's Business Number of Clients Advised and Trained 88,614 73,062 75,393 55,899
Outreach Centers (VBOCs)

Exporting
Export Loans Dollars of Gross Loans Approved $ 926 $ 1,191 $ 1,341 $ 1,454

High-growth Small
Businesses
Dollars of SBA Debenture Leverage Committed to SBICs $ 1,924 $ 2,156 $ 2,549 $ 2,553
SBIC
Dollars of SBIC Debenture Capital to Small Businesses $ 2,950 $ 3,256 $ 5,465 $ 6,286

Disaster
Disaster Assistance (2) (5) Dollars of Gross Loans Approved $ 690 $ 2,797 $ 332 $ 372

(1) The total portfolio consists of guarantied business loans outstanding, direct business loans, and direct disaster loans. The data include all performing loans and defaulted loans that have
not been charged off. In previous Agency Financial Reports, the SBA has not included ARC 506, Dealer Floor Plan, 504 First Lien, and 504 Refi in the portfolio total. The SBA has updated the
data for FY 2012-2015 to include these programs in the totals.
(2) The SBA tracks loan data in three ways: Gross Loans Approved (the total loans approved); Net Loans Approved (gross loans approved plus any loan increases minus any cancellations);
and Disbursed Loans (the amount that is actually given to the borrower). Gross Loans Approved is presented in the Capital and Disaster Assistance sections because it is the only loan data
that remain constant over time.
(3) FY 2015 contracting numbers will continue to be collected and certified through the third quarter of FY 2016. Therefore, FY 2014 numbers are reported per OMB Circular A-11.
(4) Counseling is now referred to as “advising” and “mentoring.” The way these numbers are calculated has not changed. Resource partners may input data up to 45 days after the close of
the fiscal year.
(5) The significant increase in FY 2013 disaster loan approvals is attributable to Hurricane Sandy.

AGENCY FINANCIAL REPORT • FY 2015 9
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

SBA’S HISTORY AND ORGANIZATION
In 1953, Congress created the U.S. Small Business Administration to “aid, counsel, assist and protect, insofar as is pos-
sible, the interests of small business concerns.” SBA’s headquarters is located in Washington, D.C. while its business
products and services are delivered with the help of field personnel and a vast network of private sector and non-profit
partners in each U.S. state and territory. SBA’s FY 2014-2018 Strategic Plan2 includes the following strategic goals:

SBA Mission Statement
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.

Strategic Goal 1 Strategic Goal 2 Strategic Goal 3
Growing Business and Serving as the Voice Building an SBA that Meets the Needs of
Creating Jobs of Small Business Today’s and Tomorrow’s Small Business

1.1 Expand access to capital 2.1 Ensure inclusive entrepreneurship 3.1 Streamline, simplify, and
1.2 Ensure federal contracting goals are met 2.2 Provide useful information through strengthen program
or exceeded digital and in-person outreach operation
1.3 Strengthen entrepreneurial ecosystems 2.3 Foster a small business-friendly 3.2 Invest in SBA’s employees
1.4 Enhancing exporting abilities to succeed environment by reducing unfair 3.3 Mitigate risk to taxpayers
in global markets regulatory burdens and improve oversight
across programs
1.5 Fuel high-growth small businesses and
start-ups to drive innovation
1.6 Ensure disaster assistance can be deployed
quickly, effectively, and efficiently.

Major SBA offices fall under one of these three strategic goals: and SCORE, as well as through the Regional Innovation
Clusters, Entrepreneurship Education, SBA Learning
Center, and Emerging Leaders programs. In addition,
STRATEGIC GOAL ONE — Growing SBA’s district offices support coordination between SBA
businesses and creating jobs resource partners and local small business communities.
The Office of Capital Access Access assists small businesses in The Office of Government Contracting and Business Development
obtaining capital via the 7(a), 504, and Microloan programs, provides assistance to small businesses in competing for federal
and bonds through the Surety Bond Guarantee program. contracting opportunities through the government-wide prime
The Office of Disaster Assistance provides affordable, timely, and subcontracting programs. This includes HUBZone, 8(a)
and accessible financial assistance to homeowners, renters, business development, 7(j) technical assistance, women-owned,
and businesses following a disaster. The Disaster Loan and veteran-owned small businesses. The office also sets size
program is the only form of SBA assistance that is not standards for small businesses, which determine the size a busi-
limited to small businesses. Disaster funding is deployed ness must be to be considered a small business
quickly, effectively, and efficiently in order to preserve jobs The Office of International Trade enhances the ability of small
and help return small businesses back to operation. businesses to export and compete in the global marketplace
The Office of Entrepreneurial Development provides by facilitating access to capital, providing technical assis-
business advising, mentoring, and training assistance tance, ensuring the consideration of small business interests
through its resource partner network composed of small in trade negotiations, and contributing to the U.S. govern-
business development centers, women’s business centers, ment’s international commercial and economic agenda.

The Office of Investments and Innovation assists high-growth
2 SBA’s Strategic Plan is located at: www.sba.gov/about-sba/sba-performance/
strategic-planning/sba-strategic-plan-fiscal-years-2014-2018. small businesses through the Small Business Investment

10 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

Company, Small Business Innovation Research, Small Entrepreneurship Boot Camp for veterans with disabilities,
Business Technology Transfer, and other tailored programs and partnerships with other federal and non-profit agencies.
that drive innovation and competitiveness.
The National Women’s Business Council is a nonpartisan
federal government council created to serve as an indepen-
STRATEGIC GOAL TWO — Serving as dent source of advice and policy recommendations to the
the voice for small business President, Congress, and the SBA Administrator on issues
of economic importance to women business owner.
Strategic Goal Two focuses on underserved communities
and outreach to ensure that all small businesses receive
equal representation in the marketplace. SBA’s Office of STRATEGIC GOAL THREE — Building
Capital Access, Office of Entrepreneurial Development, an SBA that meets the needs of today’s
and Office of Government Contracting and Business
and tomorrow’s small businesses
Development (all defined under Strategic Goal One) each
have programs that support underserved communities. SBA’s management offices primarily support Strategic Goal
Three. Each program office, discussed in Strategic Goals
The Office of Communications and Public Liaison com-
1 and 2, maintains a key role ensuring that the Agency
municates the Agency’s programs and priorities to small
mitigates risk in its programs.
businesses, SBA resource partners, and the public at large
by working with media outlets, developing social media The Office of the Chief Information Officer provides infor-
content, creating user-friendly online resources, crafting mation technology leadership, product services, and opera-
high quality marketing materials, organizing events to tional support for the SBA in order to maximize internal
gain feedback from small businesses, coordinating strategic efficiency and responsiveness to small businesses.
partnerships, and overseeing faith-based initiatives.
The Office of Credit Risk Management focuses on mitigation
The Office of Field Operations is the SBA’s front-line operating of risk to taxpayers through ever-improving risk manage-
team. Most SBA programs and services are executed when ment and oversight of SBA lending programs.
small businesses connect with their regional, district, and
branch offices, which are located in each state and territory. The Office of Diversity, Inclusion, and Civil Rights serves a
diverse workforce by maintaining an inclusive culture and
The Office of the National Ombudsman works with all ensuring equal access and equitable treatment regarding
federal agencies that regulate small business to provide a employment and entrepreneurial endeavors.
means for businesses to comment on federal government
enforcement activity. This includes audits, on-site inspec- The Office of Human Resources Solutions provides strategic
tions, compliance assistance efforts, and other enforcement human capital solutions to workforce issues and strives
efforts. The office also maintains a five-member Regula- to create a work environment that attracts and retains a
tory Fairness Board in each of SBA’s ten regions to hold talented and high-performing workforce.
public hearings on small business concerns.
The Office of Performance Management and Chief Financial
The Office of Intergovernmental Affairs facilitates continuous Officer provides Agency performance management, finan-
and bilateral communications between the SBA and state cial, and acquisition oversight. The office is responsible for
and local governments, American Indian, Alaska Native, and Agency disbursements, management, and coordination of
Native Hawaiian tribal governments, as well as insular govern- Agency planning, budgeting, analysis, and accountability
ments. This office gains knowledge of the various govern- processes.
ments’ actions, concerns, issues, and supporting programs.
Other support offices include the Office of Congressional
The Office of Veterans Business Development ensures availabil- and Legislative Affairs, Office of General Counsel, and Office
ity, applicability, and usability of all Administration small of Hearings and Appeals that support the strategic goals and
business programs for veterans, service-disabled veterans, objectives.
reserve component members, and their dependents or
survivors. The office accomplishes its work through veterans
business outreach centers, the Boots to Business program,

AGENCY FINANCIAL REPORT • FY 2015 11
12

SBA ORGANIZATION CHART

Office of Advocacy
Office of the Administrator

Office of the Inspector General

Office of Office of Office of Investments Office of Government Office of Office of Disaster
Capital Access Entrepreneurial and Innovation Contracting and Business International Trade Assistance
Development Development
• Office of Financial • Small Business
Assistance • Office of Small Business Innovation Research • Office of Business
• Office of Surety Development Centers Program Development Office of Veterans
Office of National
Guarantees • Office of Women’s • Small Business • Office of Government
Ombudsman Business Development
• Office of Economic Business Ownership Investment Companies Contracting
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

Opportunity • Office of • Office of HUBZone
• Office of Performance and Entrepreneurship Program
Systems Management Education • Office of Policy, Planning,
• Office of Credit and Liaison Office of Office of
Risk Management Hearings and Appeals General Counsel
• Office of Financial
Program Operations

Office of Performance Office of Field Office of Office of Office of Office of Congressional
Management and the Operations Chief Operating Officer Intergovernmental Communication and and Legislative Affairs
AGENCY FINANCIAL REPORT • FY 2015

Chief Financial Officer Affairs Public Liason
• Regional • Office of Chief
• Office of the Chief • Office Native American • Office of Public
Administrators Information Officer
Financial Officer Affairs Engagement and
• District Offices
• Denver Finance Center • Office of Diversity, Inclusion Faith Based Initiatives
and Civil Rights
• Office of Performance
Management • Office of Disaster Planning
and Risk Management
• Office of Internal
Controls • Office of Human Resources
Solutions
• Office of Grants Management
• Office of Administrative
Services
• Office of Executive Secretariat
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

SBA REGIONS AND FIELD OFFICES

AGENCY FINANCIAL REPORT • FY 2015 13
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

ANALYSIS OF PERFORMANCE RESULTS

Analysis of Performance Performance Analysis: New and returning lenders are a
major component of SBA’s lending portfolio and are essen-
and Agency Priority Goals tial to growth in the quantity of loans approved and small
The following section presents key SBA FY 2015 perfor- businesses assisted. Attaining a high volume of new and
mance data, including the four FY 2014-2015 Agency returning lenders from one fiscal year to the next creates a
Priority Goals identified by SBA leadership that are critical consistent pipeline of SBA loans for small businesses. The
to the success of SBA’s mission. While the Agency Priority SBA accomplished 90 percent of its FY 2015 target (292
Goals are two-year goals, the FY 2015 results are measured new lenders) (see Chart I). These new and returning lend-
against FY 2015 targets. ers made 752 loans totaling $260.0 million. The number
of new or returning lenders recruited slowed in the fourth
The presentation of the performance data and analysis is quarter, particularly as fewer active lenders remain in busi-
organized by strategic objective, which follows SBA’s FY ness each year. However, the lending community has been
2014-2018 Strategic Plan. The following measures and responsive to SBA’s strategy of fee relief for lower- dollar
analysis represent SBA’s three strategic goals. Detailed loans and loan program improvements.
performance information on all SBA programs will be
presented, and all variances explained, in the FY 2017 Performance Goal: Support 688,650 jobs through capital
Congressional Budget Justification and FY 2015 Annual assistance programs in FY 2015.
Performance Report to be published in February 2016.
Performance Analysis: The number of jobs supported is
STRATEGIC OBJECTIVE 1.1: Expand access an important outcome measure of the effectiveness of SBA
financing. The measure tracks the number of jobs sup-
to capital through SBA’s extensive lending
ported through the 7(a), 504, Microloan, and Surety Bond
network.
Guarantee programs. In FY 2015, the SBA supported
Priority Goal: Expand access to capital by adding 325 728,820 jobs, which is 6 percent above the target and
new or returning lenders to SBA’s flagship 7(a) loan pro- an increase of 18 percent from FY 2014 (see Chart II).
gram in FY 2014 and FY 2015. While the 504 loan program did not meet the FY 2015
target, continued streamlining of the loan process and

CHART I CUMULATIVE NUMBER OF 7(a) NEW OR RETURNING LENDERS

350

300
292
275
250 259
231

Lenders
200
182
169
150 150
123
100 100

65
50
43
33
0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Sum of Lenders FY 2015 Target

14 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

to HUBZone small businesses and
CHART II 7(a), 504, MICROLOAN, AND SURETY BOND service-disabled veteran-owned small
GUARANTEE JOBS SUPPORTED businesses (see Chart III). In FY 2014
(the latest year of data available), the
800,000 federal government surpassed its prime
728,820 contracting goal; small businesses were
700,736 awarded $91.7 billion in contract-
600,000
ing dollars, the highest percentage of
615,364 contracting dollars awarded to small
583,737
609,437 621,869
businesses since the 23 percent goal
Jobs was established in 1997. Performance
400,000 in all the small business prime con-
tracting and socio-economic categories
showed significant improvement,
200,000
with increases in performance against
statutory goals. The goal for service-
disabled veterans was surpassed (FY
2014 result was 3.68 percent) for the
0 third time, and small disadvantaged
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
businesses exceeded the goal (FY 2014
Actuals Targets result was 9.46 percent) due in part to
the successful Mentor-Protégé program
that fosters relationships between suc-
ensuring effective certified development companies should cessful firms and disadvantaged small
have a positive impact on future results. businesses. The number of small business contracting
dollars going to women-owned small businesses increased
STRATEGIC OBJECTIVE 1.2: Ensure federal from 4.3 percent in FY 2013 to 4.68 percent in FY 2014.
contracting goals are met and/or exceeded Although HUBZone continues to recruit new firms, the
by collaborating across
the federal government to
expand opportunities for small
businesses and strengthen CHART III PERCENT OF FEDERAL PRIME CONTRACT DOLLARS
the integrity of the federal AWARDED TO SMALL BUSINESSES
contracting certification
25
process and data. 25.0%
23.4%
Priority Goal: Maximize small business 22.7% 22.3%
20 21.9% 21.7%
participation in federal government

Percent of Contract Dollars
contracting to meet the statutory goals
15
and reduce participation by ineligible
firms.
10
Performance Analysis: By law, 23
percent of federal government prime
5
contracting dollars are set-aside for
small businesses, including 5 per-
cent of prime and subcontracts to 0
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
small disadvantaged businesses and
Actuals Targets
women-owned small businesses, and
Note: FY 2015 contracting numbers will continue to be collected and
3 percent of prime and subcontracts certified through the 3rd quarter of FY 2016.

AGENCY FINANCIAL REPORT • FY 2015 15
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

CHART IV FY 2014 DISADVANTAGED SMALL BUSINESS GOALS

Service-Disabled
3.68% Small Disadvantaged Bus. 9.46%
Veteran-Owned

HUBZone 1.82% Women-Owned 4.68%
Goal: 5%
Goal: 3%

portfolio has not recovered from the loss of firms due to vices including the number of long-term clients served.
re-designation of areas from the 2010 census (see Chart To improve performance, the SBA standardized online
IV). The SBA is collaborating with the White House and courses to reduce cost and ensure consistent learner ex-
senior officials at each agency to ensure accountability for periences. Furthermore, the WBC program streamlined
the government-wide small business contracting goals. its grant process, which helped WBCs spend more time
This unprecedented amount of collaboration has ensured delivering advising and training services.
top-level leadership commitment to use small business
across the federal government. FY 2015 contracting
numbers will continue to be collected and certified
through the third quarter of FY 2016. Therefore, FY
2014 numbers are reported, per OMB Circular A-11.

STRATEGIC OBJECTIVE 1.3: Strengthen
entrepreneurial ecosystems3
through a variety of strategic
partnerships to provide tailored CHART V SMALL BUSINESS ENTREPRENEURS ADVISED,
training, mentoring, and MENTORED, AND TRAINED
advising services that support
entrepreneurs during every
phase of their business growth. 2,000,000
Performance Goal: Reach 1.35 million
clients with online and in-person advis-

Small Business Entrepreneurs
ing, mentoring, and training in FY 2015. 480,000
1,500,000

Performance Analysis: The SBA ac- 220,596
234,000
182,002
complished 79 percent of its perfor- 752,588 150,355
mance target for advising, mentoring, 1,000,000 689,114 739,616
688,688 139,719
663,525
and training assistance (see Chart V). 597,545
Although FY 2015 data trended below
FY 2014 levels, a greater emphasis was 500,000
placed on increasing the quality of ser- 404,739 399,620
364,344 348,519 379,210 332,656

3 The entrepreneurial ecosystem refers to external 0
elements which contribute to the likelihood that FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
a small business will be successful. This includes:
access to markets, access to capital, technical sup- Advising and Mentoring Actuals Training Actuals
port, finding and hiring qualified employees, mak-
Online Training Targets
ing connections to suppliers, and infrastructure.
The SBA addresses these needs through a variety of
strategic partnerships with our resource partners.

16 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

STRATEGIC OBJECTIVE 1.4: Enhance the Performance Analysis: Increasing access to export financ-
ability of current and future small business ing, combined with trade counseling and training, contrib-
exporters to succeed in global markets by utes to the enhanced ability of current and future U.S. small
expanding access to financing, counseling, business exporters to succeed in the global marketplace.
training, and other export tools. The SBA met 93 percent of its FY 2015 target for lenders
providing export financing solutions and exceeded its target
Priority Goal: Expand small business access to export for small businesses receiving export financing. The SBA as-
financing by increasing the number of lenders providing sisted 1,513 small businesses in export financing, 2 percent
export financing solutions to 555 and the number of small above its target of 1,480 small businesses (see Charts VI and
business exporters receiving financing through SBA loan VII). Performance results were affected by staffing shortages
programs to 1,480 by FY 2015. in the field during the year. Fifteen percent of field trade

CHART VI CUMULATIVE NUMBER OF SMALL BUSINESSES ASSISTED

1,600

1,400 1,513

1,200
1,191

Small Businesses
1,000
1,012

800
784
696
600
578
519
400 434
316
200 244
146
95
0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Sum of Small Businesses Target

CHART VII CUMULATIVE NUMBER OF EXPORT LENDERS

600

500 514
500
477
449
400 412
387

Lenders
347
300 317
277

200 231

162
100
99

0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Sum of Lenders Target

AGENCY FINANCIAL REPORT • FY 2015 17
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

finance positions were vacant for almost
9 months, impacting SBA’s ability to CHART VIII CUMULATIVE SBIC DEBENTURE LEVERAGE COMMITTED
increase the number of lenders active in
supporting small business exporters with 3,000
SBA financing. Also, the total number
of active lenders is decreasing across the
2,500
country each year due to bank consolida- 2,553
tion, which means that there are fewer 2,549
2,000 2,156
lenders to make export loans.

$ Billions
1,924
1,827
STRATEGIC OBJECTIVE 1.5: 1,500
Fuel high-growth
entrepreneurship, innovation, 1,165
1,000
and job creation by providing
the tools small businesses need to
500
start and grow their businesses.
Performance Goal: Issue $2.5 billion in
0
debenture leverage to small business in- FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
vestment companies (SBIC) in FY 2015. Actuals Targets

Performance Analysis: SBICs provide
long-term loans and equity capital
to small businesses. The SBICs are businesses to operation. As a result of implementing a
privately owned and managed investment funds that new process for issuing applications to disaster survi-
are licensed and regulated by the SBA. In FY 2015, the vors, the SBA exceeded its target by 188 percent this
SBA exceeded its target for committing $2.5 billion in year (see Chart IX). Each quarter the SBA successfully
debenture leverage to SBICs. This allowed SBICs to increased the disaster loan application return rate, going
invest more than $6 billion in 1,210 small businesses from 69 percent in FY 2014 to 98 percent in FY 2015.
(see Chart VIII). At the same time that commitments The SBA continues to improve disaster assistance by
for debenture leverage were increasing, the SBA licensed integrating user-friendly technology and streamlining
25 new SBICs with an average time to license of 8.4 the loan application process. For example, the elec-
months. tronic loan application rate increased to 84 percent in
FY 2015, more than tripling the rate from FY 2011.
STRATEGIC OBJECTIVE 1.6: Ensure that Beyond this approach, the SBA has implemented
SBA’s disaster assistance resources for several process improvements to its disaster response
businesses, non-profit organizations, framework following the response to Hurricane Sandy,
homeowners, and renters can be deployed and new training has been developed to ensure consis-
quickly, effectively, and efficiently in order tent outreach across the country. Since implementing
to preserve jobs and help return small these improvements, the return rate for applications has
businesses to operation. significantly increased, leading to quicker loan process-
ing for disaster survivors. Due to the successful impact
Priority Goal: By September 30, 2015, increase the return of these efforts, this goal will be retired after FY 2016.
rate for disaster survivor applications by 10 percentage
points (24 percent to 34 percent return rate). Performance Goal: Ensure the customer satisfaction rate
for disaster loan approvals is 71 percent in FY 2015.
Performance Analysis: Increasing the application re-
turn rate ensures that SBA’s disaster assistance resources Performance Analysis: The SBA tracks customer satisfac-
for businesses, non-profit organizations, homeowners, tion through an annual survey that uses the American
and renters are deployed quickly, effectively, and ef- Customer Satisfaction Index. The index synthesizes key
ficiently in order to preserve jobs and help return small points in the loan process, including the application, final

18 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

CHART IX RETURN RATE FOR DISASTER SURVIVOR APPLICATIONS

100
97% 98%
94% 94% 96% 96% 95% 94%
92% 92%
80 81%

Return Rate (Percent)
60
59%

0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Monthly Average Rate Target

decision, and closing of the loan. The
SBA had a customer satisfaction rate of CHART X CUSTOMER SATISFACTION RATE FOR DISASTER
80 percent this year, 13 percent above LOAN APPROVALS
the 71 percent target (see Chart X).
The high satisfaction rate is attributable 100
in part to the streamlined process for
issuing applications to disaster survi-
vors (i.e. using call centers to promote 80

Satisfaction Rate (Percent)
80% 81% 80% 80%
the use of electronic loan applications)
and the use of electronic loan applica- 72% 74%
tions. This approach is having a direct, 60
positive impact on disaster survivors
by increasing customer attention and
service, resulting in improved customer 40
satisfaction ratings.
20
STRATEGIC OBJECTIVE
2.1: Ensure inclusive
entrepreneurship by expanding 0
access and opportunity to small FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

businesses and entrepreneurs Actuals Targets
in communities where market
gaps remain.
Performance Analysis: Underserved communities – includ-
Performance Goal: Assist 32,250 underserved small
ing women, low-income, minority, and veteran entrepreneurs
businesses through capital assistance programs and
– often have difficulty accessing capital and federal contracts.
18,025 underserved small businesses through contract-
For capital assistance programs, including 7(a), 504, and
ing programs.
Microloans, the SBA assisted 35,819 underserved small busi-

AGENCY FINANCIAL REPORT • FY 2015 19
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

nesses – exceeding the FY 2014 result by 2
CHART XI SMALL BUSINESSES IN UNDERSERVED MARKETS
percent (see Chart XI). The elimination of
the fees on small dollar loans ($150,000 or ASSISTED BY 7(a), 504, AND MICROLOANS
less) was extended to FY 2015, attributing
to the increase in number of small businesses
40,000
assisted. Also, the streamlined application 36,936
process that uses credit scores instead of a 35,000
35,014 35,819
personal cash flow history analysis has greatly 34,115
30,000

Small Businesses
33,449 33,458
incentivized new lenders and made the loan
application process more efficient. 25,000

20,000
For contracting programs, including 8(a)
and HUBZone, the SBA assisted 15,437 15,000
underserved small businesses (see Chart
10,000
XII). While the results improved from
FY 2014, the increase can be attributed to 5,000
program and process improvements with
0
the 8(a) program. Anticipated regulatory FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
changes to expand the successful Mentor- Actuals Targets
Protégé program under the 8(a) program
to other underserved markets will support
more small businesses in FY 2016.

STRATEGIC OBJECTIVE 2.2:
CHART XII SMALL BUSINESSES IN UNDERSERVED MARKETS
Provide timely, instructive, and
ASSISTED BY 8(a), 7(j), AND HUBZONES
useful information to the small
business community through SBA’s
20,000
extensive digital and in person
outreach efforts.
Performance Goal: Reach 2,300,000 15,000 15,437

Small Businesses
14,847 15,260
average monthly SBA.gov site visits.
13,615 13,158 13,029
Performance Analysis: In FY 2015, SBA.gov
averaged 2.2 million monthly site visits. This 10,000
number is lower than the 2.4 million visitors
in FY 2014 and below the 2.3 million target
for visits in FY 2015 (see Chart XIII). While 5,000
the SBA monitors this data using cookies,
more site visitors used a Do Not Track feature
that the SBA chose to respect, which caused 0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
the numbers to decline. To serve the one in
four website visitors who access the website Actuals Targets

from a mobile device, the SBA launched the
first phase of its mobile site in FY 2015. The
Agency also launched a Spanish language
website with mobile-accessible content to reach
a more diverse small business community The SBA began
tracking the number of average monthly SBA.gov site visits in
January of FY 2011, therefore the data for FY 2011 is partial.

20 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

STRATEGIC OBJECTIVE 2.3:
CHART XIII NUMBER OF AVERAGE MONTHLY SBA.GOV
Foster a small business-friendly
SITE VISITS
environment by encouraging
federal agency awareness about
3,000,000
the impact of unfair regulatory
enforcement and compliance 2,440,223
2,500,000

Monthly Average Site Visits
efforts and reducing burdens on 2,159,850
2,245,979

small business.
2,000,000
Performance Goal: Maintain Regional
Regulatory Fairness Board membership at 1,50,0000 1,439,750
85 percent or higher. 1,124,134
1,000,000
Performance Analysis: SBA’s Office of the
National Ombudsman works with fed-
500,000
eral agencies and the small businesses they
regulate to provide a confidential, impartial
0
channel for small businesses to comment on FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
enforcement activities, audits, on-site inspec- Number of Average Targets
tions, compliance assistance, or other types of Monthly SBA.gov Site Visits

communication. SBA’s Regional Regulatory
Fairness Board oversees small business chal-
lenges to federal agency regulatory processes,
mandates, and enforcement actions. In FY
2015, due to internal process delays and dif- CHART XIV BOARD MEMBERSHIP RATE
ficulty in recruitment, the SBA maintained
74 percent membership on the Regulatory
100
Fairness Boards, 9 percent below its target of 98% 96%
85 percent (see Chart XIV)
80 88%

Membership Rate (Percent)
80%
74% 74%

0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Board Membership Rate Targets

AGENCY FINANCIAL REPORT • FY 2015 21
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

CHART XV SBA SMALL BUSINESS UTILIZATION RATE STRATEGIC OBJECTIVE 3.2:
Invest in the Agency’s employee
recruitment, hiring, training, work-
80 life programs, and performance
77% management so staff is engaged
70
to more effectively serve small
67% 67% 71% 72%

Utilization Rate (Percent)
60 businesses.
50 Performance Goal: Ensure that the average
time to hire will be less than 100 days in FY
40 2015.
30 Performance Analysis: In FY 2015, the SBA
20 continued to improve operational efficiencies
which positively impacted the Agency’s average
10 number of days to hire. The SBA exceeded
its FY 2015 target of 100 days by 3 percent-
0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 age points (see Chart XVI). Fewer days to
Actuals Targets hire ensures SBA’s competitiveness in recruit-
ment efforts and ability to hire highly qualified
individuals. Achievement of this goal is due to
on-going enhancements to the “HR Stat 2.0”
initiative. The system upgrades to recruitment
STRATEGIC OBJECTIVE 3.1: Streamline,
e-tools (USA Staffing and USAJobs) further streamlined
simplify, and strengthen SBA’s core programs recruitment decisions and onboarding new SBA employees by
and operations to ensure that they are high the Office of Human Resource Solutions.
performing, effective, and relevant to the needs
of the small business community.
Performance Goal: Award 69 percent of SBA contracts to
small businesses in FY 2015.

Performance Analysis: The SBA met its small
business utilization goal by awarding 77.5 CHART XVI AVERAGE NUMBER OF DAYS TO HIRE
percent of contracts (in FY 2014) totaling
$108.7 million to small businesses (see Chart
XV) and exceeded its sub-goals for women- 160

owned, small disadvantaged, HUBZones and 154 154

service-disabled veteran-owned businesses.
Although final performance numbers are not 120

yet certified or official for FY 2015, the SBA
reached its small business utilization goal of 69 97 112 97
Days 80
percent, as well as each of the small business 85
utilization rate sub-goals for contract awards.
The SBA was able to exceed the small busi-
40
ness utilization rate by maintaining a default
Agency position of awarding contracts to
small business concerns and only resorting to
0
large vendors when all small business options FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
were exhausted. Actuals Targets

22 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

STRATEGIC OBJECTIVE 3.3: Mitigate
risk to taxpayers and improve
CHART XVII NUMBER OF FINANCIAL REVIEWS OF
oversight across SBA programs.
ENTREPRENEURIAL DEVELOPMENT
RESOURCE PARTNERS
Performance Goals: Perform 300 select
analytical credit reviews, review 100 percent of 80
8(a) and 10 percent of HUBZone firms, and
70 76
conduct 65 financial reviews of entrepreneurial 70
66
development resource partners in FY 2015. 60

Financial Reviews
50
Performance Analysis: The SBA continued ef-
forts to further mitigate risk this year. Regard- 45 49
40
ing lender oversight, the Agency performed
30
378 analytical risk-based credit reviews which
provided oversight of loan performance, credit 20
scores, and compliance with SBA loan pro-
10
gram requirements. The Agency conducted 66
financial reviews of entrepreneurial develop- 0
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
ment resource partners (see Chart XVII) and
Actuals Targets
an additional five financial reviews of veteran
business outreach centers to review the accu-
racy in reporting and ensure finances were used
properly. After the reviews, the SBA provided • Ensuring the validity of performance measures and
face-to-face feedback and training on issues and shared data. The SBA conducts an annual performance
best practices. The SBA met its HUBZone and 8(a) re- measure review to assess the validity of its measures
views targets and ensured staff received training in order and underlying data. SBA’s performance analysts
to provide small businesses with a better understand- meet with each office for in-depth discussions about
ing of program eligibility requirements and compliance proposed externally reported measures. The meet-
reviews. Unfortunately, the SBA continued to be chal- ings help determine whether the proposed measures
lenged by ineligible HUBZone firms that increase risk for and underlying data are useful for demonstrating
the small business community. Continued monitoring program success, which is defined by the goals and
and enforcement will help mitigate risk to the Agency objectives identified in the Agency’s FY 2014 - 2018
and taxpayers. Strategic Plan.
• Fostering organizational commitment and capacity
Verification and Validation of for data quality. The SBA issues a monthly execu-
tive performance dashboard to apprise senior
Performance Data management on progress and holds quarterly
Managing for results and integrating performance, finan- performance review meetings with the Deputy
cial, and budgetary information require valid, reliable, and Administrator, Chief of Staff, Performance
high-quality performance measures and data. Improving data Improvement Officer, and program offices. At
quality continues to be a priority for the SBA, and is led by these meetings, the Agency leadership reinforces
the Office of Performance Management within the Office of its commitment to the performance metrics and
the Chief Financial Officer. SBA performance analysts work works directly with the programs to identify best
with programs across the Agency to acquire high quality data. practices and mitigate challenges. Annually, each
In addition to using output data internally from its systems, Associate Administrator must certify a program’s
the SBA relies on data from resource partners, other federal data before it is externally reported with the
agencies, and local governments to assess its accomplishments certifications published online along with each
and effectiveness. The SBA vigorously pursues the following measure’s data quality record at www.sba.gov/
strategies to ensure data quality: performance.

AGENCY FINANCIAL REPORT • FY 2015 23
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

• Assessing the quality of existing data. SBA’s per- • Responding to data limitations. The SBA works
formance analysts work with the programs to with the Office of the Chief Information Officer,
reconcile data by creating independent perfor- the Office of Financial Systems, and the programs
mance reports and analyses and comparing the to identify data limitations and specify the neces-
independently generated data with the data sary steps to improve the data. In addition, some
reported by the programs. These activities not programs rely on data provided by third-party
only verify the data but the underlying processes resource partners, who are responsible for collect-
used for reporting. ing, storing, and reporting data to the SBA. The
programs have internal processes for working
closely with their resource partners to ensure that
data is correctly reported.

DID
YOU Since 1953, the SBA has approved more than two million disaster loans
KNOW for a total of $53.8 billion to homeowners, renters, businesses of all sizes,
and nonprofit organizations.

24 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

Operational Portfolio Analysis average annual rate of 1.8 percent during 2013-2015.
The first half of 2015 experienced a volatile but still
The Small Business Administration is the taxpayers’ positive economic environment, with second quarter
custodian of a small business loan guaranties and direct RGDP posting a 3.9 percent annual growth rate. This
loans portfolio of $118.8 billion. During FY 2015, the rise in RGDP increased revenues and profits at all firms,
portfolio grew by $4.3 billion, or 3.8 percent. Since small and large, which in turn increased their demand
existing loans are continually being paid, this growth im- for credit.
plies that SBA’s lending during FY 2015 was significantly
greater than the $4.3 billion reflected in the portfolio Increase in Business Financial Stability – Corporate profits,
growth. The Agency’s 7(a) loan portfolio expanded by reaching record highs in the third quarter of 2014, are the
$4.8 billion. SBA’s 504 loan portfolio contracted by primary factor determining a business’s overall financial
$0.7 billion, while the SBIC portfolio grew by $1.0 bil- strength, including its ability to incur more debt. Data
lion. The Agency’s Disaster loan and All Other portfolios indicate that gains in corporate profits have been broadly
declined $0.5 billion and $0.4 billion, respectively. From distributed across firms of all sizes, although profit gains
FY 2009 through FY 2015, nearly all (99 percent), of the at small firms trail the gains at large firms. The broadly
portfolio’s cumulative $28.3 billion growth came from distributed increases in corporate profits allowed existing
7(a), 504 and SBIC programs (see Chart XVIII). firms to increase their borrowing.

NEW GUARANTIED LOANS Statutory Changes to SBA’s Loan Programs – Two changes
played a major role in the growth of SBA’s loan portfolio.
Three primary factors contributed to the loan guaranty
First, a series of legislative events permanently increased
portfolio’s recent growth in outstanding balances:
SBA loan limits and temporarily lowered fees and in-
Continuous Growth in the Economy – Real Gross Domes- creased guaranties. These statutory changes increased
tic Production (RGDP) in the United States grew at an SBA’s capacity to supply greater credit to small businesses.
The American Recovery and Rein-
vestment Act of 2009 temporarily
lowered fees and raised guaranties
CHART XVIII MAKEUP OF SBA’S OUTSTANDING LOAN PORTFOLIO for SBA’s 7(a) and 504 loan pro-
grams, among many other provi-
$2.9 sions. Second, when the Recovery
120 $3.3
$3.5 $6.3 Act and the extensions ended in Q4
$2.5 $6.8
$1.2 $7.2 $10.0 FY 2010, the Small Business Jobs Act
100 $1.1 $7.2 $9.0
$1.0 $7.5 $8.5 of 2010 made permanent the higher
$7.9 $7.8 $26.5
$8.4 $8.0 loan limits and upwardly revised size
80 $27.2
$8.1
$8.4
$26.9
$26.9 standards that determine what quali-
$26.6
fies as a small business. This in turn
$25.5

$ Billions
60 $24.1
allowed the Agency to guarantee a
greater dollar volume of loans which
40 $73.0 for some borrowers came in the form
$63.7 $68.2
$56.4 $60.1
$48.6 $50.8
20

0
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

7(a) 504 SBIC Disaster All Other

Note: Data have been rounded. See Unpaid Principal Balance Report at: www.sba.gov/about-
sba/sba-performance/performance-budget-finances/small-business-administration-sba-loan-
program-performance.

AGENCY FINANCIAL REPORT • FY 2015 25
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

of larger loans (see Chart XIX). These same factors also faulted). Thus, delinquency rates are a general indicator
contributed to the improvement in the portfolio’s financial of the Agency’s and taxpayers’ future liabilities for these
performance. programs. A declining delinquency rate (see Chart XX)
is a positive indicator for the financial performance of
NEW DIRECT LOANS any loan portfolio.
In FY 2015, SBA’s gross lending approvals for the Di-
Modest economic growth, strong profit performance,
saster Assistance program grew over $371 million due
and tighter lending standards by financial institutions
to loans extended to businesses and individuals im-
during the past several years have reduced delinquency
pacted by flooding in Texas, Oklahoma, and Michigan,
rates for all business loans, which have been steadily
and earthquakes in California. A detailed review of the
declining since reaching cyclical peaks in the latter part
portfolio indicates the high volume in FY 2006 ($12.04
of 2009. A declining national unemployment rate, off
billion), which included Hurricanes Katrina, Rita, and
a peak rate 10 percent in October of 2009, is a sign of a
Wilma along with an additional high volume in FY
generally improving environment for small businesses.
2013 ($2.68 billion), which included Hurricane Sandy,
For those businesses that survived the recession, the
represents nearly 54 percent of the portfolio’s outstand-
improved hiring is a signal of business expansion and
ing direct disaster loans. The SBA will continue to
an increase in the local demand for goods and services,
make disaster loans an important recovery tool for busi-
improving businesses’ ability to repay debt obligations.
nesses, homeowners, and renters who survive a disaster.
Delinquency rates for the Agency’s major loan programs
followed this national downward trend. Delinquency
PORTFOLIO PERFORMANCE –
rates for the 7(a) loan program declined from the
DELINQUENCIES
peak 3.9 percent recorded during January 2009 to 0.6
Delinquency rates (borrowers who are late on their pay- percent recorded during July 2015. Delinquency rates
ments) are a leading indicator of the Agency’s charge-off for the 504 loan program likewise declined from the 5
rate (i.e. the rate of dollars spent to cover loans that de-

CHART XIX QUARTERLY GROSS 7(a) AND 504 LOAN APPROVALS

t
s Ac
: Job ed
Y11 aust
Q1 F ing exh
fund ct
ry A
cove austed
12 : Re
Y10 g exh
Q4 F fundin

Note: Fiscal year-end spikes in Q4
10 lending activity for the last four fiscal years.

8
FY 2015 Average

$ Billions
$6,970,450
FY 2011 Average
FY 2013 Average FY 2014 Average
6 $6,120,752 FY 2012 Average
$5,773,587 $5,847,495
$5,466,264
FY 2010 Average
4 $4,257,960

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

26 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

CHART XX DELINQUENCY AND CHARGE-OFF RATES FOR THE 7(a) AND 504 PROGRAMS BY FISCAL YEAR

5
7(a) Program NBER
Declared
4 Recession

Rate (Percent)
3

FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

7(a) Delinquency Rate 7(a) Past 12 Months Charge Off Rate

5
504 Program NBER
Declared
4 Recession

Rate (Percent)
2

FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

504 Delinquency Rate 504 Past 12 Months Charge Off Rate

percent recorded during February 2010 to 0.9 percent FY 2010-2013 period, declining from 4.3 percent during
recorded during July 2015. the fourth quarter of 2010 to 1.1 percent in the third
quarter of 2013, but then experiencing a noticeable
PORTFOLIO PERFORMANCE – CHARGE- increase thereafter, posting a 2.0 percent rate in July of
OFFS 2015 (see Chart XX).
During FY 2014 and FY 2015 the charge-off rates of The past twelve-month charge-off rate for the 504 loan
the Agency’s major loan guaranty programs posted program experienced a continuous rise from the latter
diverging paths with the charge-off rates for the 7(a) part of FY 2008 to the early part of FY 2013, peaking
loan program recording noticeable increases while the at 4.4 percent during January 2013, but then recorded a
charge-off rates for its 504 program experiencing a con- pronounced decline thereafter, dropping to 0.9 percent
tinued downward trend. during July of 2015. This trend is not surprising since
The past twelve-month charge-off rate for the 7(a) loan the 504 loan program is an economic development pro-
program experienced a pronounced decline during the gram with a commercial real estate focus. As such, recov-

AGENCY FINANCIAL REPORT • FY 2015 27
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

ery rates of defaulted 504 loans are, with some noticeable ticipating securities program experienced a steady rise
time lag, significantly impacted by the pricing trend in during FY 2008-FY 2012, peaking at 13 percent in FY
this sector. Real estate prices have been on the rise since 2012, but then registered a pronounced drop thereafter,
the latter part of 2009, and as of August 2015 commer- posting a 0.2 percent during FY 2015.
cial real estate prices are at about 8.1 percent above peak
levels recorded during 2007. Quarterly information on the status of SBA’s loan portfo-
lio, including outstanding balances and approvals by loan
The recent charge-off rate for the SBIC debenture pro- program and purchase rates, is available on SBA’s website
gram has fluctuated in a narrow band, reaching a high at http://www.sba.gov/performance.
of 1.5 percent during FY 2011 and a low of 0.0 percent
during FY 2015. The charge-off rate for the SBIC par-

DID The Ash Center for Democratic Governance and Innovation at the Harvard

YOU Kennedy School recognized the Veteran Women Igniting the Spirit of
Entrepreneurship program as part of the 2015 Bright Ideas program.
KNOW Through a partnership between the SBA and the Institute for Veteran and
Military Families at Syracuse University, V-WISE provides entrepreneurial
training to women who are veterans, active duty military, or family
members of those in service.

28 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

LOOKING FORWARD that product to an emerging market outside the United
States all while working from one’s home in West Vir-
The SBA is committed to maintaining and strengthen- ginia. Today, technology has evolved to the point where
ing the nation’s economy through the growth of small entrepreneurs have greater access to markets and more
businesses. While much work has been completed since capabilities to start and expand their business. These
the creation of the SBA, more work remains to support changes require that the SBA be aware of these techno-
the American small businesses owner through a dynam- logical advancements to better communicate and share
ic economy, ever-changing developments in technology, successes for entrepreneurs across the country. It requires
and the growing and always present threat of natural that more online tools be developed and that Agency
disasters with many of them resulting from a changing processes be adapted to the twenty-first century. As an
climate. While many of these challenges cannot be ad- example, this year the Agency put forward SBAOne as
equately predicted, SBA senior leadership ensures that a new online tool to help small businesses access capital
they are considered and part of the Agency’s planning faster with new processes like online signatures. Greater
process. advancement in technology will continue to develop and
shape how small businesses operate.

A Dynamic Economy
Threats from Disasters
A small business often feels the first impacts of a stag-
gering economy. High unemployment, low wages, A natural disaster can destroy lives, businesses, and
growing inflation, and regulatory uncertainty all communities in little time. While the SBA has many
determine whether or not entrepreneurs will invest their capabilities to respond to hurricanes, tornados, forest
time and resources into a new venture. Without large fires, and floods, the growing threat and numbers of
reserves of capital like many corporations, a small busi- these occurrences remain a serious concern, particularly
ness can be shuttered within months during economic as the climate continues to change. To this end, small
decline. To meet these needs, the SBA plays a major businesses must adapt and become more resilient by
role in supporting access to capital. As many lenders planning in advance where to produce and sell goods
closed their doors during the Great Recession, the SBA and services on the market. Disaster preparedness and
stepped into the market with alternatives to traditional planning is a key component of SBA’s disaster assis-
financing. However, the Agency relied and will contin- tance program and has helped many small businesses
ue to depend on lenders to issue capital, and the decline prepare for the unexpected. At the same time, these
in the number of banks and credit unions is a concern growing threats require that the SBA be more nimble in
for the small business community. As fewer lenders its response and can continue to respond to multiple,
remain in operation, the small business community large-scale disasters at once.
must become more nimble to finding capital, including To address these challenges and continue enhancing cus-
through online tools, and the SBA must provide this tomer service to its partners and small business, Agency
support in an ever-changing economy. senior leadership has instituted processes to not only
help mitigate these challenges but improve performance.
Advancements in Technology These areas, among others, represent ever-growing chal-
lenges and require attention from the SBA and the small
It would have been unimaginable thirty years ago to business community.
obtain a loan from a bank in New York, submit a patent
for a new idea to Washington, and then develop and sell

AGENCY FINANCIAL REPORT • FY 2015 29
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

ANALYSIS AND HIGHLIGHTS OF FINANCIAL STATEMENTS AND RESULTS

Highlights of Financial Results (September 2015)
(Dollars in Thousands)

At End of Fiscal Year 2015 2014 % Change
CONDENSED BALANCE SHEET DATA
Fund Balance with Treasury $ 5,365,418 $ 6,110,111 -12.19%
Credit Program Receivables and Related Foreclosed Property, Net 6,502,745 6,946,903 -6.39%
All Other Assets 152,704 127,237 20.02%
Total Assets $ 12,020,867 $ 13,184,251 -8.82%
Debt 7,175,344 7,756,100 -7.49%
Downward Reestimate Payable to Treasury 1,600,653 1,637,283 -2.24%
Liability for Loan Guaranties 1,661,516 2,044,509 -18.73%
All Other Liabilities 245,324 257,911 -4.88%
Total Liabilities 10,682,837 11,695,803 -8.66%
Unexpended Appropriations 1,600,847 1,692,804 -5.43%
Cumulative Results of Operations (262,817) (204,356 ) -28.61%
Total Net Position 1,338,030 1,488,448 -10.11%
Total Liabilities and Net Position $ 12,020,867 $ 13,184,251 -8.82%

For the Fiscal Year
2015 2014 % Change
STATEMENT OF NET COST BY STRATEGIC GOAL
Goal 1: Growing Businesses and Creating Jobs
Loan Subsidy Cost Including Reestimates $ (1,414,341) $ (1,267,469) -11.59%
All Other Costs Net of Revenue 584,841 648,483 -9.81%
Goal 2: Serving as the Voice for Small Business 109,638 109,488 0.14%
Goal 3: Building an SBA that Meets the Needs of Today’s
and Tomorrow’s Small Businesses 40,427 25,830 56.51%
Costs Not Assigned 34,845 17,274 101.72%
Net Cost of Operations $ (644,590) $ (466,394) -38.21%

CONDENSED STATEMENT OF NET POSITION
Beginning Cumulative Results of Operations $ (204,356) $ (369,882) 44.75%
Total Financing Sources (703,051) (300,868) -133.67%
Less: Net Cost of Operations (644,590) (466,394) -38.21%
Ending Cumulative Results of Operations $ (262,817) $ (204,356) -28.61%
Beginning Unexpended Appropriations $ 1,692,804 $ 1,753,736 -3.47%
Total Budgetary Financing Sources (91,957) (60,932) -50.92%
Ending Unexpended Appropriations $ 1,600,847 $ 1,692,804 -5.43%
Ending Net Position $ 1,338,030 $ 1,488,448 -10.11%

CONDENSED STATEMENT OF BUDGETARY RESOURCES
Unobligated Balance Brought Forward $ 5,712,247 $ 5,433,986 5.12%
Other Budgetary Resources, Net (24,961) (577,710) 95.68%
Appropriations (discretionary and mandatory) 1,147,282 1,274,707 -10.00%
Borrowing Authority (discretionary and mandatory) 550,948 762,945 -27.79%
Spending Authority from Offsetting Collections 2,911,272 3,932,731 -25.97%
Total Budgetary Resources $ 10,296,788 $ 10,826,659 -4.89%
Obligations Incurred, Budgetary $ 1,535,235 $ 1,661,198 -7.58%
Obligations Incurred, Nonbudgetary 3,782,888 3,453,214 9.55%
Unobligated Balances, Available and Unavailable 4,978,665 5,712,247 -12.84%
Total Status of Budgetary Resources $ 10,296,788 $ 10,826,659 -4.89%

30 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

Analysis of Financial Results are reported separately in the Budget of the United States
Government and are excluded from the budget surplus/
The SBA prepares its financial statements as a critical as- deficit totals.
pect of ensuring the accountability and stewardship for the
public resources entrusted to it. The financial statements The Federal Credit Reform Act of 1990 governs SBA’s ac-
are prepared in accordance with guidance issued by the counting for direct loans and loan guaranties made in FY
Office of Management and Budget pursuant to the Chief 1992 and thereafter. Under FCRA direct loans outstand-
Financial Officers Act of 1990. While these statements ing are reported net of an allowance developed using the
have been prepared from SBA’s books and records in ac- present value of forecasted cash flows in subsidy models
cordance with generally accepted accounting principles for that are approved by the Office of Management and Bud-
federal entities and the formats prescribed by OMB, they get. A Liability for Loan Guaranties is reported also using
are in addition to the financial reports used to monitor subsidy models with forecasted cash flows from user fees
and control budgetary resources, which are prepared from and defaulted guarantied loans. SBA’s FCRA accounting
the same books and records. The statements should be is discussed further in this section and in Notes 1 and 6A
read with the realization that they are a component of the in the financial statements.
U.S. government, a sovereign entity.
The portion of the outstanding principal guaranteed by
This Analysis of Financial Results references numbers in the SBA as of September 30, 2015 was $88.3 billion, an
the Highlights of Financial Results that was derived from increase of 5.8 percent from the $83.5 billion guaranteed
the Financial Statements and Notes in this report. The at September 30, 2014 (see Note 6C in the financial
Operational Portfolio Analysis does not reference the statements). As shown in Chart XXI, new guaranties
financial statements, but rather it provides an operational disbursed by SBA participating banks during FY 2015
analysis of SBA’s credit programs. As a result, the defini- were $19.8 billion, a 9.9 percent increase compared to the
tions of the loan and guaranty balances in the Portfolio FY 2014 figure of $18.0 billion. The $1.8 billion increase
Analysis section may differ somewhat from the balances resulted from a $0.3 billion decrease in 504 Development
used in this Analysis of Financial Results. For example, Company Recovery Act loans, a $2.0 billion increase in
for the 7(a) loan program the total amount of guarantied 7(a) loans, a $0.2 billion increase in SBIC Debentures,
loans is used in the Portfolio Analysis, while only SBA’s and a net $0.1 billion decrease in other loan programs in
guarantied portion is used in the Analysis of Financial FY 2015. The increase in FY 2015 guaranty disburse-
Results, as it ties to balances in the financial statements. ments and a reduction in purchases of guarantied loans
contributed to a 5.8 percent increase in outstanding
BACKGROUND guaranteed principal to $88.3 billion in FY 2014 from the
The SBA is a major federal credit agency of the U.S. Gov- previous year.
ernment. The SBA had roughly 3,106 employees includ-
Credit program receivables for the SBA are comprised of
ing Disaster FTE employees at FYE 2015. As a result only
business and disaster direct loans and defaulted business
$0.9 billion of SBA’s $10.3 billion budgetary resources in
loans purchased per the terms of SBA’s loan guaranty pro-
FY 2015 were for salaries and expenses,
with the rest being to support SBA’s
credit programs. Budgetary resources CHART XXI GUARANTIED LOANS DISBURSED
when apportioned by the Office of
Management and Budget are available
20
to enter into new obligations and to
liquidate them. Budgetary resources are 16
made up of new budget authority and
12

$ Billions
unobligated balances of budget author-
ity provided in previous years. The loan 8
financing funds record all the cash flow
4
activity resulting from post 1991 direct
loans and loan guaranties, and are not 0
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
budgetary costs. The financing accounts

AGENCY FINANCIAL REPORT • FY 2015 31
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

decreased primarily due to a $745 mil-
CHART XXII PURCHASES OF GUARANTIED LOANS lion decrease in the Fund Balance with
Treasury (FBWT), as well as a $444
6
million decrease in Credit Program
Receivables and related Foreclosed
5
Property. The decrease in the FBWT
4 was due primarily to downward reesti-

$ Billions
3 mates and the reduction of Debt. The
2 decrease in Credit Program Receiv-
ables and Related Foreclosed Property
1
was due to the amount of defaulted
0
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 guarantied loans decreasing as the result
of collections and charge-offs exceed-
ing new guaranty purchases, as well
as the amount of direct disaster loans
grams, which are offset by an allowance for subsidy. The
decreasing as collections and charge-
allowance for the subsidy cost of the gross loan receivable
offs exceeded new loans.
is recorded as a contra asset and the net asset is reported on
the Balance Sheet. The subsidy allowance is determined by
Liabilities
modeling the projected future cash inflows and outflows of
SBA credit programs using discounted cash flow method- The SBA had total liabilities of $10.7 billion at the end
ology. Loan losses, the costs of loan servicing, and loan of FY 2015, down 8.7 percent from FY 2014. Liabilities
interest rates are factors that affect the subsidy allowance. consist primarily of the Liability for Loan Guaranties,
Downward Reestimate Payable to Treasury, and Debt with
SBA credit program receivables were valued at $6.5 billion Treasury. The Liability for Loan Guaranties is the estimate
in FY 2015, which was a decrease of $0.4 billion from of the net present value of the future amount the SBA will
FY 2014. The change in the credit program receivables pay, net of fee collections, to liquidate expected purchases
resulted from a decrease in defaulted guarantied busi- of guarantied loans under its guarantied loan programs.
ness loans of $0.1 billion and a decrease in direct disaster The Liability for Loan Guaranties decreased $0.4 billion
loans of $0.3 billion. The amount of defaulted guarantied due to the year-end downward reestimate of future costs
loans decreased as collections and charge-offs exceeded for SBA’s guaranty portfolio. The downward reestimate
new guaranty purchases, partially offset by a lower subsidy reflects the improvement in SBA’s portfolio and the eco-
allowance amount. This net decrease is attributable to nomic recovery.
an economy that continued to improve in FY 2015. The
amount of direct disaster loans decreased as collections and The Downward Reestimate Payable to Treasury decreased
charge-offs exceeded new loans, partially offset by a lower $37 million due largely to the change in the year-end ac-
subsidy allowance amount. crual of reestimates from downward in FY 2014 to upward
in FY 2015 for the Secondary Market Guaranty Program
As reflected in Chart XXII, guarantied loan purchases cohorts. Better than projected loan performance across all
decreased $0.3 billion in FY 2015. The decrease this year cohorts was the primary reason for the FY 2015 downward
reflects the continuing recovery after the economic reces- reestimate remaining close to the FY 2014 level.
sion. The decrease in purchases this year did contribute in
part to the decrease in the outstanding guarantied business Debt with Treasury decreased $0.6 billion due to the
loans receivable after including recoveries, expenses, and decrease in Disaster loan disbursements in FY 2015, as
charge-offs in the loans purchased portfolio. well as a large decrease in borrowing needed to cover cash
shortfalls in the guarantied loan programs. Note 9 to the
FINANCIAL POSITION financial statements provides additional detail on SBA
debt with Treasury
Assets
The SBA had total assets of $12.0 billion at the end of
FY 2015, down 8.8 percent from FY 2014. Total assets

32 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

Net Position
Cumulative Results of Operations is the accumulative There was a downward reestimate in the 7(a) loan pro-
difference between expenditures and financing sources grams. The downward reestimate of $0.2 billion was due
since the inception of the Agency. This negative balance mostly to lower than average purchases during FY 2015
increased $58 million because unfunded upward subsidy that decreased the overall purchase curve, in turn decreas-
reestimates at year-end for almost every program were ing purchase projections in future years and contributing
more this year than last year. Upward subsidy reestimates to the downward reestimate for FY 2015.
determined at year-end are funded in the following year
when they are received. The 504 Recovery Act and 504 Jobs Act loan programs had a
significant downward reestimate of $1.0 billion due to better
Unexpended appropriations decreased $92 million this than projected FY 2015 loan performance. Further detail on
year primarily because the amount of appropriations subsidy reestimates can be found in Note 6I to the financial
received was significantly less than the appropriations statements in the Financial Reporting section of this report.
received in FY 2014 for business, disaster, and administra-
tive activity. This affected Budgetary Financing Sources The SBIC Participating Securities and Debenture programs
and the Ending Net Position. had a downward reestimate of $0.2 billion in FY 2015 that
was due mostly to better than projected loan performance.
NET COSTS OF OPERATIONS Actual recoveries were higher than projected, and actual
The Net Costs of Operations reflects the costs of SBA default purchases were lower than projected in FY 2015.
credit programs subsidy expenses during the year for new
loans and subsidy reestimates at year-end, interest expense BUDGETARY RESOURCES
and revenue associated with the loan programs, and the Total Budgetary Resources of $10.3 billion decreased $0.5
cost of administering SBA’s program. The loan subsidy billion in FY 2015. This decrease is the net result of less
cost is the net present value of expected cash inflows and spending authority from offsetting collections this year
outflows over the life of a guarantied loan, or the differ- and the other factors in the Highlights table and discussed
ence between the net present value of expected cash flows here. Other Budgetary Resources, Net increased by $0.6
and the face value of a direct loan. The SBA receives bud- billion in FY 2015. This increase is attributable to a
get authority annually to fund its credit programs. When smaller repayment of borrowings from prior year balances,
loans are disbursed, the SBA records subsidy expense. offset with a decrease in prior year recoveries in FY 2015.
In accordance with the Federal Credit Reform Act, the
subsidy costs are reestimated annually. Reestimates update Appropriations (discretionary and mandatory) decreased
original loan program cost estimates to reflect actual $0.1 billion in FY 2015. As shown in Chart XXIV
experience and changes in forecasts of future cash flows for the decrease was the combination of the decrease in the
each annual cohort of loans. Increased reestimated costs amount of appropriations needed to fund SBA’s upward
are funded in the following year by
permanent indefinite budget authority,
while decreased costs are returned by
CHART XXIII CREDIT PROGRAM SUBSIDY REESTIMATES
the SBA to a Treasury general fund.

Despite the small increase in upward 5
reestimated costs for FY 2015, the end 4
result was still a net downward reesti- 3

$ Billions
mate which affected Strategic Goal 1 2
costs. Those subsidy reestimates were 1
the largest components of the change 0
(net decrease) in the Agency’s net cost. -1
Chart XXIII reflects the decreases in -2
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
the subsidy reestimates for the Guaran-
Direct Disaster Loans Direct Business Loans Guarantied Business Loans
tied Business and Direct Disaster loan
programs in FY 2015.

AGENCY FINANCIAL REPORT • FY 2015 33
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

credit subsidy reestimates, as well as a re-
duction in the need for subsidy to fund the CHART XXIV APPROPRIATIONS RECEIVED
Agency’s major loan programs in FY 2015.
8
Borrowing Authority decreased $0.2 billion
in FY 2015 due to a decrease in borrowing 7
needed to cover cash shortfalls in the guar- $0.65
6
antied loan programs. Borrowing author-
$5.58 $0.43
ity initially granted to the SBA was $1.2 5

$ Billions
billion, but the SBA withdrew $0.7 billion $4.90
4
at year-end FY 2015 as it was not needed to
$0.44
fund future credit program operations. 3
$2.87
$0.44
Spending Authority from Offsetting Col- 2 $1.32
lections decreased $1.0 billion in FY 2015. $0.47
1 $0.51
A significantly higher amount of current $0.89 $0.57 $0.42
$0.32 $0.28 $0.28 $0.23 $0.22
year collections were used to repay borrow- 0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
ings in FY 2015, thus resulting in a lower
Disaster Loans Business Loans Salaries and Expenses
ending balance. Additionally, there was
a small decrease in FY 2015 collections
received for subsidy this year. Unobligated balances at September 30, 2015 and 2014
were $5.0 billion and $5.7 billion which include $3.5
STATUS OF BUDGETARY RESOURCES
billion and $3.7 billion of unavailable unobligated
The Total Status of Budgetary Resources of $10.3 balances. These balances were unavailable because they
billion decreased $0.5 billion in FY 2015. Budgetary were unapportioned by OMB. The SBA accumulates
obligations decreased by $0.1 billion in part because of the majority of unobligated balances in its nonbudgetary
a subsidy rate decrease in FY 2015 for the 504 CDC financing accounts ($3.7 billion in FY 2015 and
program. Nonbudgetary obligations increased $0.3 $4.3 billion in FY 2014) from subsidy estimates and
billion due to the increase in obligations related to reestimates that are used primarily to pay default claims
financing fund reestimates, offset with decreases in direct in future years.
loan making and purchases of guarantied loans.

DID
YOU In FY 2015, the SBA conducted more than 380 training events for small
business exporters, reaching over 8,000 small businesses. Approximately
KNOW 1,500 small businesses received more than $1.45 billion in SBA financing.
Of special note is the 38 percent growth in international trade loans from
FY 2014 to $394 million in FY 2015.

34 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

ANALYSIS OF SBA’S SYSTEMS, CONTROLS AND LEGAL COMPLIANCE

Internal Control Environment Assessment Team (SAT), chaired by the Chief Financial
Officer and comprised of SBA managers from the major
The SBA believes that maintaining integrity and ac- programs and support offices directed compliance with
countability in all programs and operations is critical for the circular. The SAT employed, a risk-based approach in
good government. The ability to demonstrate consistent the selection of processes and systems for a more robust
responsible stewardship over assets and resources is a sign internal control evaluation. Additional reviews requested
of responsible leadership. SBA’s commitment to integrity by SAT members covered some business processes that had
and ethical values combined with an effective system of no material impact on the financial statements, but did
internal controls ensures that every employee remains present some potential for risk or exposure to the Agency.
dedicated to the efficient delivery of services to customers The OIC documented the process and key controls, evalu-
and maximizes desired program outcomes. The SBA has ated and tested the design and effectiveness of controls and
developed and implemented management, administrative, presented the results to the SAT. Each office is responsible
and financial system controls to reasonably ensure that: for developing and implementing corrective actions for
any reported deficiencies. Based on the evaluation of nine
• programs and operations achieve intended results
business processes in FY 2015, the OIC identified a num-
efficiently and effectively;
ber of deficiencies in the internal control over financial
• resources are used in accordance with the mission of reporting, including several in SBA’s key business process-
the Agency; es. The SAT evaluated the review findings and determined
• programs and resources are protected from waste, that none reached the level of material weakness.
fraud, and mismanagement;
In April of this year the Administrator established the SBA
• program and operation activities are in compliance
Enterprise Risk Management Board to oversee and guide
with laws and regulations; and
SBA’s enterprise risk management efforts. In addition
• reliable, complete, and timely data are maintained to identifying, evaluating, and establishing ownership of
and used for decision-making at all levels. cross-Agency risks, the Board will assess and advise on
enterprise risk, recommend risk avoidance, tolerance,
Each office within the SBA implements internal controls
mitigation, corrective actions, and serve as champions to
to achieve programmatic goals as well as controls over
introduce enterprise risk management best practices to the
operations, reporting, and compliance. Each year, the
SBA. Collecting and managing all types of risk (such as
SBA conducts an assessment of internal control as required
reputational, financial, information technology, and opera-
by the Federal Managers’ Financial Integrity Act of 1982.
tional) from all areas of the SBA will provide the highest
The FMFIA also requires that the assessment results be
levels of management valuable information on which to
reported to the President and the Congress in a statement
base decisions.
of assurance. The SBA Administrator provides the state-
ment of assurance based on the self-assessment of pro- This year, the SBA continued to have a significant deficien-
gram managers, internal control reviews, and audits and cy in information technology security controls, to include
reviews done by the Government Accountability Office, access controls and change control. A significant defi-
and SBA’s Office of the Inspector General. SBA’s Office ciency is a deficiency, or a combination of deficiencies, in
of Internal Controls (OIC) provides training on assessing internal control over financial reporting that is less severe
internal controls and tools, including a checklist designed than a material weakness, yet important enough to merit
specifically for district offices, to assist management in attention by those responsible for oversight of the com-
documenting the adequacy of controls within their area of pany’s financial reporting. To address these deficiencies,
responsibility. the SBA invested in the following key initiatives during FY
2015:
In support of internal control assessments, the OIC
oversees the requirements of the Office of Management • use of patch, configuration and IT asset manage-
and Budget’s revised Circular No. A-123, Appendix A, ment tools that provided enhanced capability in
Internal Control Over Financial Reporting. The Senior hardware and software management, vulnerability

AGENCY FINANCIAL REPORT • FY 2015 35
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

management, configuration management, and external lending partners, and prolong system useful
anti-virus management; the SBA will continue to lives. These projects include the migration of the systems
invest in efforts to develop logical access policies to more current technology platforms and relocation to
and improve compliance for identity management modern data centers that provide expanded capability for
and access controls; continuity of operations.
• investment to replace aging network infrastructure;
In addition to modernization of the financial system
• migrated the user community from Microsoft XP platforms, the incremental improvement projects added
to Windows 7; missing functionality to the financial systems, building
• required use of PIV cards to log onto SBA’s net- improved integration between the systems, improving
work; policies have been established to enforce consistency of data, enhanced reporting capability, and
utilization of PIV cards for both physical and logi- improving SBA’s automation of funds control for loan
cal access; and programs and loan subsidy.
• completion of Annual Agency-wide IT security
The incremental improvement projects enhance SBA’s
training by 100 percent of SBA employees and
financial system controls over lending programs and
contractors.
provide for improvement in accessibility to common
information, financial and budget management, and
Financial Management Systems financial reporting. Core financial systems at the SBA are
comprised of three systems operated and managed by the
Strategy
offices of the Chief Financial Officer and Capital Access.
Financial management systems at the SBA are designed The systems include:
to support effective internal control, produce reliable,
timely financial information, and ensure cost effective • Oracle Federal Financials – Upgraded to the most
loan guaranty processing. Management remains focused current release, this Commercial Off-The-Shelf
on robust financial management systems that improve (COTS) package is used for budget execution and
SBA’s ability to comply with laws and regulations, provide management for administrative activity.
timely and accurate data to support management analysis • Loan Systems – SBA-built systems used to support
and decision-making, enable the Agency to keep pace the lifecycle of loan guaranty processing, loan pro-
with its lending partners, and effectively use automation gram funds control, management and accounting
to achieve operational efficiency. for loan servicing, and loan related expenses.
• Financial Management System (FMS) – SBA-built
As demonstrated throughout this Agency Financial
system used to consolidate administrative and
Report, the SBA seeks to comply with all federal financial
loan activity, manage cash and control funds, and
management system requirements and there have been no
provide financial reporting.
deficiencies identified under the Federal Financial Man-
agement Improvement Act of 1996.4

The SBA completed a series of incremental improvement
projects designed to modernize the financial manage-
ment systems to improve financial system controls, reduce
sustainment costs, provide additional functionality for

4 The purpose of the Federal Financial Management Improvement Act of
1996 (FFMIA) is to advance federal financial management by ensuring
that federal financial management systems provide accurate, reliable and
timely financial management information to the government’s managers.
Core components include applying uniform accounting standards across
the federal government; full disclosure of all federal programs and activity;
increasing the accountability, creditability, performance, productivity and
efficiency of federal financial management; establishing financial systems
to control the cost of federal government; and increasing the capability of
agencies to monitor budget execution by comparing spending to results of
activities. Compliance with the FFMIA provides the basis for the continu-
ing use of reliable financial management information by program managers,
and by the President, the Congress, and the public. (Office of Management
and Budget, http://www.whitehouse.gov/omb/financial_ffs_ffmia)

36 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

Management Assurances:
FMFIA and FFMIA Assurance Statement for FY 2015
The Small Business Administration continued to strengthen internal controls over its programs and operations during
FY 2015. Creating and sustaining 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 continues to achieve
its internal control objectives.

SBA management is responsible for establishing and maintaining effective internal controls and financial management
systems that meet the objective of the Federal Managers Financial Integrity Act (FMFIA). The SBA conducted its as-
sessment of internal controls over the effectiveness and efficiency of operations and compliance with applicable laws and
regulations in accordance with OMB Circular No. A-123, Management’s Responsibility for Internal Controls. Agency
managers have issued assertions to me as to the status of their FY 2015 internal controls in their areas of responsibility.
These assertions are supported by internal testing, checklists, and other management reviews. Although a few Agency
managers reported some operating deficiencies, these were not of a material nature. Based on the results of these evalua-
tions, I can provide reasonable assurance that internal controls over operations and compliance with applicable laws and
regulations, as of September 30, 2015, were operating effectively and no material weaknesses were identified in the design
or operation of those internal controls. Further, the Agency’s financial management systems conform to the principles,
standards, and related requirements prescribed by Section 4 of FMFIA.

The SBA conducted its assessment of the effectiveness of internal controls over financial reporting, which includes safe-
guarding of assets and compliance with applicable laws and regulations, in accordance with the requirements of Appendix
A of OMB Circular No. 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 for FY 2015.

SBA’s independent auditor issued an unmodified opinion on the Agency’s FY 2015 financial statements for the eleventh
year in a row. However, the auditor again identified an instance of non-compliance with applicable laws and regulations as
of September 30, 2015. Specifically, not all co-borrowers and guarantors on charged-off 7(a), 504, and disaster loans were
referred to the Department of the Treasury for debt collection as required by the Debt Collection Improvement Act (DCIA).

The SBA has a DCIA Compliance Team comprised of representatives from the Office of Capital Access’ Office of Fi-
nancial Program Operations, the Office of Performance Systems Management, and the Office of the Chief Information
Officer who work together to identify and resolve problems pertaining to the implementation of the DCIA. Significant
improvements have been initiated and implemented since last year. For example, progress has been achieved this year
since we completed the legacy mainframe migration but data issues persist that have proven challenging to complete
compliance status. The DCIA compliance team meets regularly and works aggressively to achieve the remaining issues
with the complicated transfer protocol as well as to review other issues affecting referrals so business rules can be adjusted.

This year the SBA also identified an issue with potential non-compliance of the Antideficiency Act. While the dollar
amounts involved are negligible, the SBA has corrected the matter to the best of its ability and is preparing reports for the
President and Congress as required by the law.

AGENCY FINANCIAL REPORT • FY 2015 37
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

The Agency’s efforts to reduce improper payments met with mixed results this year. The Disaster loan disbursements
achieved compliance with OMB Circular A-123, Appendix C with an 8.13 percent improper payment rate, significantly
reducing its 12 percent FY 2014 improper payment rate. Conversely, the improper payment rate for disbursements
for goods and services related to contracts increased from 8.46 percent reported in FY 2014 to 13.52 percent this year.
A majority of the errors found were related to contract documentation discrepancies and payments made to incorrect
vendor bank accounts, which were valid bank accounts of the vendors, but differed from those registered in the System
for Award Management (SAM). Because the root cause of the improper payments were administrative and documenta-
tion errors, the estimated total recapture is less than $6,000. All goods and services were received and there was no fraud
detected during the review. The Deputy Chief Financial Officer and the Director of the Denver Finance Center are
aggressively developing a corrective action plan to enhance their internal controls over improper payments for goods and
services to come into compliance. The other programs’ improper payment rates varied slightly from FY 2014, without a
significant upward or downward movement.

The Federal Financial Management Improvement Act (FFMIA) requires federal agencies to implement and maintain
financial management systems that are in substantial compliance with federal financial management systems require-
ments, federal accounting standards, and the United States Standard General Ledger. Based on the FFMIA criteria, I can
provide reasonable assurance SBA’s financial management systems substantially comply with FFMIA for FY 2015.

SBA’s independent auditor reported significant deficiencies in Information Technology (IT) security. The issues relate to
access controls, change controls, and vulnerability management. To address many of the issues identified by the auditors,
the SBA made major investments in replacing aging network and infrastructure technology in FY 2015, the results of
which should be fully realized over the next fiscal year. The SBA anticipates these investments will resolve the deficiencies
noted.

In compliance with OMB Circular A-11, Section 51.3, the Chief Information Officer (acting) and the Associate Admin-
istrator for Performance Management and Chief Financial Officer have provided a signed statement that attests:

• The SBA Chief Information Officer (acting) reviewed and approved the major IT investments portion of the SBA
budget request;
• The SBA Chief Information Officer (acting) had a significant role in reviewing planned IT support for major
program objectives and significant increases and decreases in IT resources; and
• The SBA IT portfolio includes appropriate estimates of all IT resources included in the budget request.

Maria Contreras-Sweet
Administrator
November 16, 2015

38 AGENCY FINANCIAL REPORT • FY 2015
MA N AG E ME NT’ S D I SCUSSI ON & AN ALYS IS

Improper Payments Summary or activities funded with Hurricane Sandy disaster relief
funds, which include grant programs and disaster related
Improved financial performance through the reduction of administrative expenses of payroll, purchase cards, and
improper payments continues to be a key financial man- travel. The Small Business Investment Company program,
agement focus of the Federal government. SBA manage- a major credit program, retained approval from OMB for
ment continually develops strategies to reduce improper relief from reporting.
payments for responsible stewardship of public assets.
The detection and remediation of improper payments is a
The Improper Payments Information Act of 2002 (IPIA), priority for the Agency. SBA staff monitor and review for
its amendments, and as implemented by OMB in Circular improper payments and are charged with implementing
No. A-123, Appendix C, Requirements for Effective improvements that will reduce improper payment rates.
Measurement and Remediation of Improper Payments, The SBA also continually seeks opportunities to enhance
requires SBA management to review programs and activi- and implement internal controls to reduce the risk for
ties to identify those that are susceptible to significant improper payments.
erroneous payments and estimate annually the amount
of erroneous payments made in those programs deemed The Agency’s primary concern in its improper payment
risk susceptible. SBA management performs testing to reporting stems from administrative and documentation
estimate the rates and amounts of improper payments, errors which are caused by the absence or completeness of
establishes improper payment reduction targets in accor- supporting documentation necessary to verify the accuracy
dance with OMB guidance, and develops and implements of a payment. Detailed information concerning SBA’s im-
corrective actions. proper payment reviews and its efforts to reduce improper
payments is presented in the Other Information section of
The SBA has nine programs and activities that are subject this report.
to improper payment reporting: the 7(a) loan program
(approvals and purchases), the Certified Development
Company (504) loan program, the Disaster loan program,
disbursements related to goods and services, and programs

DID
YOU For the second consecutive year, in FY 2014, the federal government
exceeded the 23 percent small business contracting goal, purchasing
KNOW $91.7 billion in goods and services from small businesses. This
represents 24.99 percent of all eligible federal spending and supports
more than 550,000 jobs in the American economy.

AGENCY FINANCIAL REPORT • FY 2015 39
M A N AGE ME N T ’S D I S C US S I ON & AN ALYSI S

SUCCESS Florida Small Business Person
of the Year
STORY Craig Technologies
Cape Canaveral, Florida

Carol Craig considers herself an accidental entrepreneur. After leaving the
U.S. Navy where she served as a Naval Flight Officer, she founded Craig
Technologies in 1999. The Florida Small Business Development Center and a $150,000 SBA-backed loan helped
Carol realize her small business dreams. Craig Technologies is a woman-owned, service-disabled, veteran-owned,
SBA 8(a)-certified firm specializing in systems engineering, project management, infrastructure installation, software
design, and custom avionics.

What began as a one-woman business rapidly grew when the company received its first government contract in
2005. Today, the company manages more than 30 contracts with more than 20 government agencies and has nearly
400 associates in over 20 different states and $45 million in revenue.

Craig Technologies offers a wide scope of award-winning engineering and technical solutions. Its nationally-
recognized Aerospace & Defense Manufacturing Center in Cape Canaveral offers a unique end-to-end design-to-
production capability that includes specialty manufacturing, custom avionics, precision machining and fabrication,
and test and evaluation services.

The National Defense Industrial Association presented Carol with the Kathleen P. Sridhar Small Business Executive
of the Year Award in 2013. Florida Trend magazine listed Craig Technologies as one of Florida’s Best Companies to
Work For in 2011 and 2013

40 AGENCY FINANCIAL REPORT • FY 2015
Financial
Reporting
F I N A N C I A L RE P O RT I N G

MESSAGE FROM THE CHIEF FINANCIAL OFFICER
November 16, 2015

I am pleased to submit SBA’s Agency Financial Report for fiscal year 2015. An independent audit has earned the SBA an
unmodified opinion with no material weaknesses. This report means that the consolidated financial statements present
fairly, in all material respects, the financial position of the SBA as of September 30, 2015.

The audit report continued to identify issues with SBA’s information technology security and compliance with laws and
regulations governing debt referral for collection. While improvements to the financial management systems have been
made, the framework governing SBA’s information technology infrastructure is in need of additional controls over access,
vulnerability management, and code changes. And while the SBA successfully migrated its legacy financial systems this
year, data and process issues have persisted that have prevented full compliance with referral requirements of the Debt
Collection Improvement Act. In response to these matters, the SBA is making significant investments to improve its
network and technology management tools, and debt referral processes that should yield major improvements in the near
future.

A potential violation of the Antideficiency Act was identified during the year. Although the dollar amounts in question
were insignificant, the SBA has taken action to correct the problem it had identified, and is preparing the reports required
under the Act.

Despite these challenges, the SBA achieved significant accomplishments in several areas of financial management:

• Relocating the contract writing systems to a commercial data center to improve integration with the financial
systems and ensure data consistency and quality for management and DATA Act reporting;
• Implementing process improvements to streamline operations and refine policies and procedures for financial
management and acquisition;
• Serving as Treasury’s pilot agency for a technical solution in support of the government-wide implementation of
the DATA Act;
• Receiving an “A” grade on the Agency’s procurement scorecard and exceeding the small business contracting goal
of 69 percent – the highest percentage goal of any agency in the government; and
• Completing the assessment of the acquisition function.

The SBA continued to work toward achievement of its priority and strategic goals as documented in its FY 2014-2018
Strategic Plan. The plan includes three strategic goals that focus on job growth and creation, small business advocacy,
and effective internal management and risk mitigation. These strategic goals guide the Agency’s resource and manage-
ment decisions. Each strategic goal contains objectives which are directly tied to performance from the individual level to
Agency-wide. This framework is essential to ensure that the SBA continues to play a key role in strengthening America’s
economy by providing tools to help grow businesses and create jobs.

42 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

For the ninth year in a row the SBA won the prestigious Certificate of Excellence in Accountability Reporting (CEAR)
award to recognize high quality reporting in all aspects of accountability and transparency. Presented by the Association
of Government Accountants, this award is made to federal agencies following a rigorous, independent review against
established standards for presentation.

I want to recognize the independent Audit and Financial Management Advisory Committee who have provided advice
and recommendations to improve our financial reporting. Since 2004 their input has been an invaluable part of our ef-
forts for continuous improvement and I thank them for their ongoing support.

SBA’s efforts to assist entrepreneurs and small business owners are especially critical to a healthy economy. Through the
use of smart technologies, the advancement of bold ideas, and the efficient operation of accessible programs, SBA strives
to achieve a mission focused on the success of the small businesses that continue to build the American economy. My
office is proud to be a part of this effort.

Sincerely,

Tami Perriello
Associate Administrator for Performance Management
and Chief Financial Officer

AGENCY FINANCIAL REPORT • FY 2015 43
F I N A N C I A L RE P O RT I N G

AUDIT AND FINANCIAL MANAGEMENT ADVISORY COMMITTEE’S
REPORT
November 16, 2015

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 com-
pliance with certain laws and regulations that could materially impact SBA’s financial statements. SBA’s external audi-
tors are responsible for expressing an opinion on the conformity of SBA’s audited financial statements with the U.S.
generally accepted accounting 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 appropriate
and timely follow-up measures. In addition, the Committee reviews the draft Agency Financial Report (AFR), includ-
ing its financial statements, and provides comments to management who has primary responsibility for the AFR. The
Committee met formally twice during the year with respect to these responsibilities on FY 2015 financial manage-
ment and reporting. During the formal meetings the Committee met with the Inspector General and external audi-
tors 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 2015 AFR.

Joseph Kull
Chairman
Audit and Financial Management Advisory Committe

44 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

INSPECTOR GENERAL’S AUDIT REPORT

U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
WASHINGTON, D.C. 20416

Final Report Transmittal
Report Number: 16-02

DATE: November 16, 2015

TO: Maria Contreras-Sweet
Administrator, Small Business Administration

Douglas Kramer
Deputy Administrator, Small Business Administration

Tami Perriello
Chief Financial Officer, Small Business Administration

FROM: Troy M. Meyer
Assistant Inspector General for Auditing

SUBJECT: Independent Auditors’ Report on SBA’s FY 2015 Financial Statements

We contracted with the independent certified public accounting firm KPMG LLP (KPMG) to audit
the U.S. Small Business Administration’s (SBA) consolidated financial statements for fiscal year (FY)
2015, ending September 30, 2015. This audit is an annual requirement of the Chief Financial
Officers’ Act of 1990, and was conducted in accordance with the Generally Accepted Government
Auditing Standards; the Office of Management and Budget Bulletin No. 15-02, Audit Requirements
for Federal Financial Statements; and the U.S. Government Accountability Office’s Financial Audit
Manual and Federal Information System Controls Audit Manual.

The attached independent auditors’ report presents an unmodified opinion on SBA’s consolidated
financial statements for FY 2015. Specifically, KPMG reported that:

• The financial statements were fairly presented in all material aspects in conformity with
U.S. generally accepted accounting principles.
• There were no material weaknesses in internal control.
• There is a significant deficiency related to SBA’s information technology security controls,
which has been identified in the past.
• There is one instance of noncompliance with laws and regulations related to the Debt
Collection Improvement Act of 1996, which also has been reported in the past.

KPMG noted that SBA management identified a matter that may be reported as a violation of the
Antideficiency Act. The outcome of this matter and any resulting ramifications is not presently
known.

Details regarding KPMG’s conclusions are included in the “Compliance and Other Matters” section,
and Exhibit I to this report. Within 30 days of this report, KPMG expects to issue a separate letter to
SBA management regarding other, less significant matters that came to its attention during the
audit.

AGENCY FINANCIAL REPORT • FY 2015 45
F I N A N C I A L RE P O RT I N G

We reviewed a copy of KPMG’s report and related documentation and made necessary inquiries of
their respective representatives. Our review was not intended to enable us to express—and we do
not express—an opinion on SBA’s financial statements, KPMG’s conclusions about the effectiveness
of internal controls, or its conclusions about SBA’s compliance with laws and regulations. However,
our review disclosed no instances where KPMG did not comply, in all material respects, with the
Generally Accepted Government Auditing Standards.

We provided a draft of KPMG’s report to SBA’s Chief Financial Officer, who concurred with its
findings and recommendations and agreed to implement the recommendations. The Chief
Financial Officer’s comments are attached as Exhibit II to this report.

We appreciate the cooperation and assistance of SBA and KPMG. Should you or your staff have any
questions, please contact me at (202) 205-7390 or Jeffrey R. Brindle, Director of the Information
Technology and Financial Management Group at (202) 205-7490.

cc: Nick Maduros, Chief of Staff
Melvin F. Williams, Jr., General Counsel
Martin Conrey, Attorney Advisor, Legislation and Appropriations
LaNae Twite, Director, Office of Internal Controls

Attachment

46 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

INDEPENDENT AUDITORS’ REPORT ON FY 2015 FINANCIAL STATEMENTS

KPMG LLP
Suite 12000
1801 K Street, NW
Washington, DC 20006

Independent Auditors’ Report

Inspector General
United States Small Business Administration:

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of the U.S. Small Business
Administration (SBA), which comprise the consolidated balance sheets as of September 30, 2015 and
2014, and the related consolidated statements of net cost, and changes in net position, and combined
statements of budgetary resources for the years then ended, and the related notes to the consolidated
financial statements.

Management’s Responsibility for the Financial Statements

SBA’s management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control relevant to
the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements 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 Office of Management and
Budget (OMB) Bulletin No. 15-02, Audit Requirements for Federal Financial Statements. Those
standards and OMB Bulletin No. 15-02 require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

AGENCY FINANCIAL REPORT • FY 2015 47
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
F I N A N C I A L RE P O RT I N G

Opinion on the Financial Statements

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the U.S. Small Business Administration as of September 30, 2015
and 2014, and its net costs, changes in net position, and budgetary resources for the years then ended in
accordance with accounting principles generally accepted in the United States of America.

Other Matters

Within the Management’s Discussion and Analysis and Other Information, sections of the Agency
Financial Report, Management has elected to include references to information on websites to provide
additional information for the users of its financial statements. Such information is not a required part
of the basic consolidated financial statements or supplementary information required by the Federal
Accounting Standards Advisory Board. The information on these websites or the other interactive data
has not been subjected to any of our auditing procedures, and accordingly we do not express an
opinion or provide any assurance on it.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the information
in Management’s Discussion and Analysis, Required Supplementary Information, and Required
Supplementary Stewardship Information be presented to supplement the basic consolidated financial
statements. Such information, although not a part of the basic consolidated financial statements, is
required by the Federal Accounting Standards Advisory Board who considers it to be an essential part
of financial reporting for placing the basic consolidated financial statements in an appropriate
operational, economic, or historical context. We have applied certain limited procedures to the required
supplementary information in accordance with auditing standards generally accepted in the United
States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management’s responses to our
inquiries, the basic consolidated financial statements, and other knowledge we obtained during our
audits of the basic consolidated financial statements. We do not express an opinion or provide any
assurance on the information because the limited procedures do not provide us with sufficient evidence
to express an opinion or provide any assurance.

Other Information

Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial
statements as a whole. The Message from the Administrator, Other Information, and the information
on pages 41 to 45 of the Agency Financial Report, are presented for purposes of additional analysis
and are not a required part of the basic consolidated financial statements. Such information has not
been subjected to the auditing procedures applied in the audit of the basic consolidated financial
statements, and accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards
Internal Control Over Financial Reporting
In planning and performing our audit of the consolidated financial statements as of and for the year
ended September 30, 2015, we considered SBA’s internal control over financial reporting (internal
control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion

48 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

on the effectiveness of SBA’s internal control. We did not test all internal controls relevant to
operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982.

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. 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.

Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies
may exist that were not identified. Given these limitations, during our fiscal year 2015 audit we did not
identify any deficiencies in internal control that we consider to be material weaknesses. However, we
did identify a combination of certain deficiencies in internal control, described in Exhibit I that we
consider to be a significant deficiency.

Compliance and Other Matters
As part of obtaining reasonable assurance about whether SBA’s consolidated financial statements are
free from material misstatement, we performed tests of its 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 financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit, and accordingly, we do not express
such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are
required to be reported under Government Auditing Standards or OMB Bulletin No. 15-02.
Specifically, our audit results noted noncompliance with the Debt Collection Improvement Act of 1996
(DCIA or Act) which is described below:

The DCIA gave the U.S. Department of Treasury (Treasury) significant
responsibilities for collecting delinquent debts, Government-wide. The Act requires
Federal agencies to transfer their nontax delinquent debt to Treasury. During our test
work over loan charge-offs, we noted that SBA did not timely refer obligors (i.e.,
eligible principal borrowers, co-borrowers, and/or guarantors) to Treasury for offset or
cross-servicing as required by DCIA. Similar instances of noncompliance with the Act
were reported in prior years. SBA’s noncompliance with the DCIA was the result of
deficiencies in information technology controls. For additional discussion of the
information technology aspects of this finding and the related recommendation, see
Exhibit I.

Additionally, management has identified a matter that may be reported as a violation of the
Antideficiency Act. The outcome of this matter, and any resulting ramifications, is not presently
known.

We also performed tests of SBA’s compliance with certain provisions referred to in Section 803(a) of
the Federal Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on
compliance with FFMIA was not an objective of our audit, and accordingly, we do not express such an
opinion. 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

AGENCY FINANCIAL REPORT • FY 2015 49
F I N A N C I A L RE P O RT I N G

requirements, (2) applicable Federal accounting standards, and (3) the United States Government
Standard General Ledger at the transaction level.

SBA’s Response to Findings

SBA’s response to the findings identified in our audit is described in the accompanying Exhibit II.
SBA’s response was not subjected to the auditing procedures applied in the audit of the consolidated
financial statements and, accordingly, we express no opinion on the response.

Purpose of the Other Reporting Required by Government Auditing Standards

The purpose of the communication described in the Other Reporting Required by Government Auditing
Standards section is solely to describe the scope of our testing of internal control and compliance and
the result of that testing, and not to provide an opinion on the effectiveness of SBA’s internal control or
compliance. Accordingly, this communication is not suitable for any other purpose.

Washington, DC
November 16, 2015

50 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

Exhibit I
U.S. Small Business Administration
Significant Deficiency

Improvement Needed in Information Technology Security Controls

During the FY 2015 financial statement audit, we found that the U.S. Small Business Administration
(SBA) continued to implement corrective actions on some of the prior year findings; however, a number
of conditions persisted in FY 2015 that reduced SBA’s ability to effectively manage its information
system risks. As a result, collectively, these conditions continue to present a significant deficiency in
SBA’s internal control environment.

In an effort to provide additional clarity to SBA management with respect to the corrective actions
required, we enhanced our prior year recommendations where issues persisted in FY 2015, and issued
additional recommendations for the new control deficiencies identified. In the sections below, we
distinguish between recurring conditions and related recommendations, and those that were newly
identified in FY 2015. We have omitted some technical details from the conditions and recommendations
due to the sensitivity of the information. These details were communicated to management in Notices of
Findings and Recommendations throughout the audit.

We have summarized the Information Technology (IT) control deficiencies that we noted during the FY
2015 audit below, and have organized them by the following general IT control objectives: logical access
controls, application change management, system configuration management, and contingency planning.

Logical Access Controls

An integral part of the effectiveness of an organization’s security program management efforts should
be to ensure that logical access controls 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.

Our audit found that the following control deficiencies identified in prior year(s) persisted in FY 2015:
• User accounts were not properly authorized in accordance with SBA policy.
• User accounts were not recertified in accordance with SBA policy.
• The principle of “least privilege” for user/service accounts with administrator privileges was not
enforced.
• User accounts were not disabled or promptly removed upon personnel termination.
• The employee exit clearance and contractor off-boarding processes were not standardized to
ensure that access to SBA’s systems was timely removed upon separation.
• Processes for consistently and effectively reviewing audit logs were not implemented.

AGENCY FINANCIAL REPORT • FY 2015 51
F I N A N C I A L RE P O RT I N G

Exhibit I
U.S. Small Business Administration
Significant Deficiency

Recommendations – Logical Access Controls:

We have issued the following recommendations to address the repeat control deficiencies listed in the
section above.

We recommend that the Chief Information Officer (CIO) coordinate with SBA program offices to:

1. Implement and monitor procedures to ensure that access is appropriately granted to employees
and contractors, consistent with the conditions on their access forms after all approvals have
been obtained.
2. Implement procedures to ensure that user access, including user accounts and associated roles,
is reviewed on a periodic basis consistent with the nature and risk of the system, and any
necessary account modifications be performed when identified.
3. Grant elevated privileges per business needs only, and enforce the concept of least privilege or
implement mitigating controls to ensure that activities performed using privileged accounts
(including service accounts) are properly monitored.
4. Improve SBA’s administration of logical system access by taking the following actions:
o Implement an effective off-boarding process, and periodically verify that controls to remove
logical access for separated employees are implemented and operating as designed;
o Establish a process for the identification and removal of separated contractors to help ensure
that access is timely removed upon contractor separation; and
o Timely remove access to general support systems and major applications (including
development and test environments) when employees and contractors are terminated.
5. Improve SBA’s information system logging and auditing program, by taking the following
actions:
o Review and rationalize current audit and logging activities and capabilities to determine
their effectiveness in addressing risks to systems and data;
o Implement and enforce consistent and effective creation of audit records, capturing relevant
auditable events, auditing (i.e., manual or automated review of audit records) for specified
events, and automated alerting on specified events across SBA’s infrastructure using a risk-
based approach;
o Retain evidence of the audit log review; and
o Develop an Agency-wide plan and schedule for implementing the above recommendations.

Application Change Management

The integrity of information processing is dependent on the controlled management of changes to the
software that controls the processing. Software change management is designed to reduce the risk of
unauthorized or erroneous changes to software. Our audit found the following control deficiencies
remain, that were identified in a prior year:

52 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

Exhibit I
U.S. Small Business Administration
Significant Deficiency

• The change management process for one system, which includes several applications, did not
sufficiently reduce the risk of an unauthorized change being made to the production
environment. Specifically, the SBA did not review or compare system code to ensure that only
authorized changes had been made, and the audit log review process was not designed to detect
unauthorized changes to application software.
• Required software changes for one subsystem were not implemented due to the ongoing code
migration project which impacted SBA’s compliance with the Debt Collection Improvement Act
of 1996 in that system. This issue was reported as a noncompliance matter in the “Compliance
and Other Matters” section of our audit report.

In addition to the matters above, we noted the following additional control deficiency during our FY
2015 audit:

• The Security Authorization Package for one system was not updated to reflect control changes
resulting from the migration to a new system environment, and the system was not reauthorized
in accordance with SBA policy.

Recommendations – Application Change Management:
We have issued the following recommendations to address the repeat control deficiencies listed in the
section above, and recommend that the:
6. Associate Administrator, Office of Capital Access (OCA), in coordination with the CIO, design
and implement a combination of preventative and detective controls to address the issues and
related risks in the condition above, and ensure an auditable trail of software changes is
maintained to prevent and detect unauthorized changes to production programs.
7. Associate Administrator, OCA, in conjunction with the CIO, perform a comprehensive review
of system protocols to determine if any other coding problems exist that may cause untimely
referral of obligors, and address outstanding system protocol issues as identified.
To address the newly identified change management control weakness, we recommend that the:

8. Associate Administrator, OCA, in coordination with the CIO, implement controls and processes
to ensure that system changes are adequately tested, testing documentation is maintained, and
system Security Authorization Packages are updated to reflect major system changes.
System Configuration Management

The primary focus of an organization’s system configuration management process should be to control
the security configuration of its infrastructure including servers, databases, network equipment, security
appliances, and security services. Without such controls, there is a risk that security features could be
inadvertently, or deliberately, omitted or turned off, introducing risk into the IT environment.

Our audit noted that the following prior year control deficiency persisted in FY 2015:

• Numerous critical-, high- and medium-risk configuration and patch management vulnerabilities
were noted in certain systems.

AGENCY FINANCIAL REPORT • FY 2015 53
F I N A N C I A L RE P O RT I N G

Exhibit I
U.S. Small Business Administration
Significant Deficiency

Recommendation – System Configuration Management:

To address the repeat system configuration management condition above, we recommend that the:

9. CIO coordinate with SBA program offices to address the existing configuration and patch
management vulnerabilities noted during our assessment to be in compliance with SBA policy
and SBA Information System Vulnerability Management Plan, Version 1.0. In addition,
implement procedures to ensure the consistent implementation and monitoring of SBA approved
security configuration baselines across SBA’s workstations, servers, databases, network devices,
and other security relevant appliances.

Contingency Planning

The focus of an organization’s contingency planning program should be to provide reasonable assurance
that information resources are protected and the risk of unplanned interruptions is minimized. Without
such controls, there is a risk that data may be lost or that critical operations may not resume in a timely
manner.

Our audit noted that the following prior year control deficiencies persisted in FY 2015:
• Some of the systems were not configured to retain full backups in accordance with SBA Standard
Operating Procedure (SOP) 90.47.3, Information System Security Program.
• Incremental or full backups for some of the systems were not retained in accordance with SOP
90.47.3.
Recommendation – Contingency Planning:
To address the repeat contingency planning conditions above, we recommend that the:

10. CIO, Chief Financial Officer, and Associate Administrator, OCA, ensure that incremental and
full backups for all systems, including related support infrastructure, are configured and retained
in accordance with SBA policies.

54 AGENCY FINANCIAL REPORT • FY 2015
FI N A N CI A L REPORT IN G

Exhibit II

CFO Response to Draft Audit Report on FY 2015 Financial Statements
DATE: November 16, 2015

TO: Troy Meyer, Assistant Inspector General for Auditing

FROM: Tami Perriello, Associate Administrator for
Performance Management and Chief Financial Officer

SUBJECT: Draft Audit Report on FY 2015 Financial Statements

The Small Business Administration has received the draft Independent Auditors’ Report from KPMG that
includes the auditors’ opinion on the financial statements and its 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 pleased that the SBA has again received an unmodified audit opinion with no material weaknesses
from the independent auditor. 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 in past years to address the findings from our independent auditor. Our core financial reporting
data and processes have further improved, and we are proud that the results of our efforts have been
confirmed.

The audit report includes a continuing significant deficiency in SBA’s information technology controls. The SBA
will continue to work on improvements in IT security, specifically in access controls, change controls and
mitigation of vulnerabilities.

The auditor reported again this year that the SBA is not compliant with the Debt Collection Improvement Act
of 1996 related to timely referral of charged-off loans to the Department of the Treasury for its tax refund offset
and collection programs. Although the SBA made improvements to correct systemic errors identified last year,
the auditors again found instances of charged-off loans where co-borrowers and guarantors were not referred
to Treasury. The SBA is working on procedures to correct this issue.

The auditor reported that a potential violation of the Antideficiency Act was identified during the year. The SBA
has taken appropriate steps to correct the problem identified and is in the process of preparing the reports
required under the Act.

We appreciate 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 remain committed to
excellence in financial management and look forward to making more progress in the coming year.

AGENCY FINANCIAL REPORT • FY 2015 55
F I N A N C I A L RE P O RT I N G

FINANCIAL STATEMENTS AND NOTES
The U.S. Small Business Administration prepares its financial statements as a critical aspect of ensuring 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 reliable information that may be used to assess perfor-
mance 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 SBA prepares these financial statements from its books and records
in accordance with generally accepted accounting principles in the United States as well as formats prescribed by the
Office of Management and Budget. While these statements have been prepared from SBA’s books and records in ac-
cordance with generally accepted accounting principles for federal entities and the formats prescribed by OMB, they are
in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same
books and records. The statements should be read with the realization that they are a component of the U.S. Govern-
ment, a sovereign entity.

The financial statements include the following reports.

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 reporting 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 summarizes 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 Bud-
getary 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 off-
setting receipts in this statement for the purpose of reconciling outlay information presented in the Budget of the United
States Government.

The Notes to the Financial Statements provide information to explain the basis of the accounting and presentation used
to prepare the statements and to explain specific items in the statements. They also provide information to support how
particular accounts have been valued and computed.

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
that supports the increase or maintenance of national economic productivity capacity through education and training
programs.

56 AGENCY FINANCIAL REPORT • FY 2015
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U. S. Small Business Administration
Consolidated Balance Sheet
as of September 30, 2015 and 2014

(Dollars in Thousands)
2015 2014
ASSETS
Intragovernmental Assets
Fund Balance with Treasury (Note 2) $ 5,365,418 $ 6,110,111
Accounts Receivable (Note 5) 30 –
Advances (Note 1) 46,166 28,173
Total Intragovernmental Assets 5,411,614 6,138,284

Assets - Public and Other
Cash (Note 3) 1,164 1,264
Accounts Receivable, Net (Note 5) 98,206 83,816
Credit Program Receivables and Related Foreclosed Property, Net (Note 6) 6,502,745 6,946,903
General Property and Equipment, Net (Note 7) 2,562 4,729
Advances (Note 1) 4,576 9,255
Total Assets - Public and Other 6,609,253 7,045,967
Total Assets $ 12,020,867 $ 13,184,251

LIABILITIES
Intragovernmental Liabilities
Interest Payable $ 620 $ 864
Debt (Note 9) 7,175,344 7,756,100
Net Assets of Liquidating Funds Due to Treasury (Note 10) 13,818 10,140
Downward Reestimate Payable to Treasury (Note 1, Note 13) 1,600,653 1,637,283
Other (Note 11) 10,147 9,984
Total Intragovernmental Liabilities 8,800,582 9,414,371

Other Liabilities - Public
Accounts Payable (Note 1) 33,540 47,707
Accrued Grant Liability (Note 1) 76,000 77,000
Liability for Loan Guaranties (Note 6) 1,661,516 2,044,509
Federal Employees’ Compensation Act Actuarial Liability (Note 1, Note 8) 31,691 34,627
Surety Bond Guarantee Program Future Claims (Note 8) 43,679 35,799
Other (Note 11) 35,829 41,790
Total Other Liabilities - Public 1,882,255 2,281,432
Total Liabilities 10,682,837 11,695,803

NET POSITION
Unexpended Appropriations (Note 1) 1,600,847 1,692,804
Cumulative Results of Operations (Note 1) (262,817) (204,356)
Total Net Position 1,338,030 1,488,448

Total Liabilities and Net Position $ 12,020,867 $ 13,184,251

The accompanying notes are an integral part of these statements.

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U. S. Small Business Administration
Consolidated Statement of Net Cost
For the Years Ended September 30, 2015 and 2014

(Dollars in Thousands)
2015 2014
STRATEGIC GOAL 1:
Growing Businesses and Creating Jobs
Gross Cost $ (365,676) $ (107,258)
Less: Earned Revenue 463,824 511,728
Net Cost of Strategic Goal 1 (829,500) (618,986)

STRATEGIC GOAL 2:
Serving as the Voice for Small Business
Gross Cost 109,638 109,488
Net Cost of Strategic Goal 2 109,638 109,488

STRATEGIC GOAL 3:
Building an SBA that Meets the Needs of Today’s
and Tomorrow’s Small Businesses
Gross Cost 40,427 25,830
Net Cost of Strategic Goal 3 40,427 25,830

COST NOT ASSIGNED TO STRATEGIC GOALS
Gross Cost 34,845 17,274
Net Cost Not Assigned to Strategic Goals 34,845 17,274

Net Cost of Operations $ (644,590) $ (466,394)

Note 14
The accompanying notes are an integral part of these statements.

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U. S. Small Business Administration
Consolidated Statement of Changes in Net Position
For the Years Ended September 30, 2015 and 2014
(Dollars in Thousands)
2015 2014

Beginning Cumulative Results of Operations $ (204,356) $ (369,882)

Budgetary Financing Sources
Appropriations Used 1,122,290 1,325,564
Donations of Cash and Cash Equivalents 66 40

Other Financing Sources
Imputed Financing from Costs Absorbed by Others 16,050 21,893
Other - Current Year Liquidating Equity Activity (12,736) (3,218)
Other - Non-entity Activity (1,828,721) (1,645,147)
Total Financing Sources (703,051) (300,868)

Less: Net Cost of Operations (644,590) (466,394)

Ending Cumulative Results of Operations $ (262,817) $ (204,356)

Beginning Unexpended Appropriations $ 1,692,804 $ 1,753,736

Budgetary Financing Sources
Appropriations Received 1,150,247 1,278,241
Adjustment - Cancelled Authority (116,492) (9,434)
Return of Unrequired Liquidating Fund Appropriation (2,965) (3,534)
Other Adjustments (457) (641)
Appropriations Used (1,122,290) (1,325,564)
Total Budgetary Financing Sources (91,957) (60,932)

Ending Unexpended Appropriations $ 1,600,847 $ 1,692,804

Ending Net Position $ 1,338,030 $ 1,488,448

The accompanying notes are an integral part of these statements.

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U. S. Small Business Administration
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2015 and 2014
(Dollars in Thousands)
September 30, 2015
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 1,363,051 $ 4,349,196 $ 5,712,247
Recoveries of Prior Year Obligations 49,028 43,253 92,281
Other Changes in Unobligated Balance (116,492) (750) (117,242)
Unobligated Balance from Prior Year Budget Authority, net 1,295,587 4,391,699 5,687,286

Appropriations (discretionary and mandatory) 1,147,282 – 1,147,282
Borrowing Authority (discretionary and mandatory) – 550,948 550,948
Spending Authority from Offsetting Collections 378,825 2,532,447 2,911,272
Total Budgetary Resources $ 2,821,694 $ 7,475,094 $ 10,296,788

STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 1,535,235 $ 3,782,888 $ 5,318,123
Unobligated Balance, end of year:
Apportioned 390,580 1,081,724 1,472,304
Unapportioned 895,879 2,610,482 3,506,361
Total Unobligated Balance, end of year 1,286,459 3,692,206 4,978,665
Total Status of Budgetary Resources $ 2,821,694 $ 7,475,094 $ 10,296,788

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 485,198 $ 245,561 $ 730,759
Obligations Incurred 1,535,235 3,782,888 5,318,123
Gross Outlays (1,513,945) (3,784,215) (5,298,160)
Recoveries of Prior Year Unpaid Obligations (49,028) (43,253) (92,281)
Unpaid Obligations, end of year 457,460 200,981 658,441
Uncollected Payments:
Uncollected Payments, Federal Sources, brought forward, October 1 – (143,009) (143,009)
Change in Uncollected Payments, Federal Sources – 47,834 47,834
Uncollected Payments, Federal Sources, end of year – (95,175) (95,175)

Memorandum (non-add) entries:
Obligated Balance, start of year $ 485,198 $ 102,552 $ 587,750

Obligated Balance, end of year $ 457,460 $ 105,806 $ 563,266

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross (discretionary and mandatory) $ 1,526,107 $ 3,083,395 $ 4,609,502
Actual Offsetting Collections (discretionary and mandatory) (388,340) (3,725,160) (4,113,500)
Change in Uncollected Customer Payments
from Federal Sources (discretionary and mandatory) – 47,834 47,834
Budget Authority, net (discretionary and mandatory) $ 1,137,767 $ (593,931) $ 543,836

Gross Outlays (discretionary and mandatory) $ 1,513,945 $ 3,784,215 $ 5,298,160
Actual Offsetting Collections (discretionary and mandatory) (388,340) (3,725,160) (4,113,500)
Net Outlays (discretionary and mandatory) 1,125,605 59,055 1,184,660
Distributed Offsetting Receipts (6,364) (1,865,351) (1,871,715)
Agency Outlays, net (discretionary and mandatory) $ 1,119,241 $ (1,806,296) $ (687,055)

Note 15

The accompanying notes are an integral part of these statements.

60 AGENCY FINANCIAL REPORT • FY 2015
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U. S. Small Business Administration
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2015 and 2014
(Dollars in Thousands)
September 30, 2014
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 1,297,199 $ 4,136,787 $ 5,433,986
Recoveries of Prior Year Obligations 105,039 317,098 422,137
Other Changes in Unobligated Balance (34,053) (965,794) (999,847)
Unobligated Balance from Prior Year Budget Authority, net 1,368,185 3,488,091 4,856,276

Appropriations (discretionary and mandatory) 1,274,707 – 1,274,707
Borrowing Authority (discretionary and mandatory) – 762,945 762,945
Spending Authority from Offsetting Collections 381,357 3,551,374 3,932,731
Total Budgetary Resources $ 3,024,249 $ 7,802,410 $ 10,826,659

STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 1,661,198 $ 3,453,214 $ 5,114,412
Unobligated Balance, end of year:
Apportioned 398,548 1,586,238 1,984,786
Unapportioned 964,503 2,762,958 3,727,461
Total Unobligated Balance, end of year 1,363,051 4,349,196 5,712,247
Total Status of Budgetary Resources $ 3,024,249 $ 7,802,410 $ 10,826,659

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 639,951 $ 701,530 $ 1,341,481
Obligations Incurred 1,661,198 3,453,214 5,114,412
Gross Outlays (1,710,912) (3,592,085) (5,302,997)
Recoveries of Prior Year Unpaid Obligations (105,039) (317,098) (422,137)
Unpaid Obligations, end of year 485,198 245,561 730,759
Uncollected Payments:
Uncollected Payments, Federal Sources, brought forward, October 1 – (296,519) (296,519)
Change in Uncollected Payments, Federal Sources – 153,510 153,510
Uncollected Payments, Federal Sources, end of year – (143,009) (143,009)

Memorandum (non-add) entries:
Obligated Balance, start of year $ 639,951 $ 405,011 $ 1,044,962

Obligated Balance, end of year $ 485,198 $ 102,552 $ 587,750

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross (discretionary and mandatory) $ 1,656,064 $ 4,314,319 $ 5,970,383
Actual Offsetting Collections (discretionary and mandatory) (392,155) (3,923,558) (4,315,713)
Change in Uncollected Customer Payments
from Federal Sources (discretionary and mandatory) – 153,510 153,510
Budget Authority, net (discretionary and mandatory) $ 1,263,909 $ 544,271 $ 1,808,180

Gross Outlays (discretionary and mandatory) $ 1,710,912 $ 3,592,085 $ 5,302,997
Actual Offsetting Collections (discretionary and mandatory) (392,155) (3,923,558) (4,315,713)
Net Outlays (discretionary and mandatory) 1,318,757 (331,473) 987,284
Distributed Offsetting Receipts 900 (1,124,055) (1,123,155)
Agency Outlays, net (discretionary and mandatory) $ 1,319,657 $ (1,455,528) $ (135,871)

Note 15

The accompanying notes are an integral part of these statements.

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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 enabling the establishment and vitality of small
businesses and by assisting in the economic recovery of communities after 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. 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 the 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 obligation of funds in advance of the proprietary accruals
and facilitates compliance with legal constraints and controls over the use of federal funds.

The Federal Credit Reform Act of 1990 governs SBA’s accounting for direct loans and loan guaranties made in FY
1992 and thereafter. Under the FCRA, the liability for loan guaranties is determined as the summarized discounted
present value of the estimated future net cash inflows and outflows for each fiscal year’s cohort of guaranties. For
direct loans, the allowance is the current outstanding FCRA loans receivable balance less the discounted present value
of the estimated future net cash flows for all the loan cohorts. A cohort of loans receivable or guarantied loans is all
of the loans made in a given fiscal year. Increases to individual loans in a cohort that are made in a subsequent fiscal
year are accounted for in the subsequent year’s loan cohort. Cohort cash flows include loan repayments, recoveries on
defaulted guaranties, and loan fees received by the SBA that are due from the lenders and borrowers when the loan is
made and during the life of the loan cohort, as well as expenditures by the SBA for defaulted guaranties, loan servicing
expenses, and other required SBA expenditures. An initial allowance or liability for loan guaranties is established in
the original year of the loan cohort. The initial amount of the allowance and liability for each cohort is reestimated
annually at fiscal year-end, and the adjusted amount is included in SBA’s annual financial statements. Note 6 further
describes FCRA accounting.

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. The SBA also uses economic assumptions provided by the Office of
Management and Budget in preparing the estimates. Actual results may differ from those assumptions and estimates
and the differences may be significant. The most significant differences between actual results and these 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 techniques to reflect
the most accurate credit program costs possible in its annual financial statements.

62 AGENCY FINANCIAL REPORT • FY 2015
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Budgets and Budgetary Accounting for Loan Programs
SBA’s loan disbursements are financed by appropriations for long-term loan subsidy cost and borrowings from the
Treasury’s Bureau of the Fiscal Service 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 authorizes the dollar amount of obligations that can be made for the cost of direct loans and loan guaranties
and establishes the maximum amount of loans the SBA can guarantee in its annual appropriation bill.

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 nonbudgetary “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.

Advances
The SBA has both intragovernmental advances and advances to the public. Intragovernmental advances are to the
Interior Business Center of the Department of the Interior for contracting assistance on work not yet performed.
Advances to the public represent prepaid grants to counseling and training partners.

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 subject 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.

Cumulative Results of Operations
The Cumulative Results of Operations, presented on the Balance Sheet and on the Statement of Changes in Net
Position, is the accumulated difference between expenses and financing sources since the inception of the Agency.
The deficits reported reflect timing differences between the recording of expenses and the recognition of resources.
Most of this timing difference results from subsidy reestimates which are funded in the following year.

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Unexpended Appropriations
Unexpended Appropriations is the portion of SBA’s appropriations received which are either undelivered 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.

Other Financing Sources
The Statement of Changes in Net Position contains a line item under Other Financing Sources titled Other - Non-
entity Activity. This amount is the offset to non-entity collections to the general fund of the Treasury for downward
subsidy reestimates.

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 Benefits and the Federal
Employees Group Life Insurance programs. The SBA matches a portion of the employee contributions to each
program. Such 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 imputed financing in
determining SBA’s net position.

64 AGENCY FINANCIAL REPORT • FY 2015
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FEDERAL EMPLOYEES’ COMPENSATION ACT
The Federal Employees’ Compensation Act provides income and medical cost protection to covered federal 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 historical 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.

NOTE 2 FUND BALANCE WITH TREASURY
The Department of the Treasury processes cash receipts and disbursements on SBA’s behalf to pay liabilities and finance
loan program costs. Cash receipts are deposited into SBA’s account at the Treasury. SBA’s fund balances with the Treasury
are available to make expenditures to liquidate allowable obligations, except for the 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, sus-
pense/budget clearing accounts and other accounts. Fund balances at the Treasury include expired year amounts, which are
unavailable for obligation, as well as amounts currently available for new obligations.

(Dollars in Thousands)

As of September 30, 2015 2014
Appropriated Funds $ $1,657,534 $ 1,766,183
Financing Funds 3,621,114 4,260,921
Liquidating Funds 918 1,124
Revolving Fund 85,257 80,779
Trust Fund 209 162
Total Entity Fund Balance with Treasury 5,365,032 6,109,169
Budget Clearing Account Balance 386 942
Total Fund Balance with Treasury $ $5,365,418 $ 6,110,111

Status of Fund Balance with Treasury
Unobligated Balance Available $ $1,472,304 $ 1,984,786
Unobligated Balance Unavailable 3,506,361 3,727,461
Obligated Balance Not Yet Disbursed 563,266 587,750
Borrowing Authority Not Converted to Funds (176,899) (190,828)
Nonbudgetary 386 942
Total Fund Balance with Treasury $ $5,365,418 $ 6,110,111

Unobligated balances become available when OMB approves SBA’s request to apportion funds for obligation in the
current fiscal 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 reflected on the State-
ment of Budgetary Resources.

AGENCY FINANCIAL REPORT • FY 2015 65
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NOTE 3 CASH
SBA field offices deposit collections from borrowers in SBA’s account at the Treasury using an electronic deposit system.
At the end of the fiscal year, collections temporarily held by SBA field offices pending deposit are recorded as Undepos-
ited Collections - Cash in Transit and totaled $1.2 million and $1.3 million at September 30, 2015 and 2014.

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. Fidu-
ciary 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. SBA’s fiduciary balances are on deposit in commercial banks.

The Master Reserve Fund is a fiduciary activity administered by SBA’s fiscal agent, Colson Services Corp., a subsidiary of the
Bank of New York Mellon. The balance in the MRF is 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 pro-
gram. 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 MRF supports $25.2 billion
and $22.5 billion of outstanding SBA guarantied 7(a) loan principal in the secondary market at September 30, 2015 and 2014.

The Master Reserve Account is an SBA fiduciary activity that is administered for the SBA by Wells Fargo. The balance in
the MRA is invested entirely in Treasury securities. 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
amended, 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 second-
ary market investors. The 504 secondary market program includes SBA’s guaranty of timely payment, as well as a default
guaranty, to 504 secondary market investors. The MRA supports $27.7 billion and $28.4 billion of SBA guarantied 504
debentures outstanding in the secondary market at September 30, 2015 and 2014.

The composition of the MRF and MRA and a reconciliationof the changes in the assets are included in the following table.

MASTER RESERVE FUND AND MASTER RESERVE ACCOUNT
(Dollars in Thousands)

FIDUCIARY ASSETS
As of September 30, 2015 2014
MRF MRA Total MRF MRA Total
Cash $ 2,338 $ – $ 2,338 $ 44,994 $ – $ 44,994
Short Term Securities
Money Market Funds 5,866 722,814 728,680 76,758 636,789 713,547
Treasury Bills 719,705 – 719,705 404,924 – 404,924
Repurchase Agreements 201,800 – 201,800 223,892 – 223,892
Total Cash and Short Term Securities 929,709 722,814 1,652,523 750,568 636,789 1,387,357

Long Term Securities
Treasury Notes Including Interest 2,235,855 – 2,235,855 2,113,153 – 2,113,153
Total Long Term Securities 2,235,855 – 2,235,855 2,113,153 – 2,113,153

Net Assets $ 3,165,564 $ 722,814 $ 3,888,378 $ 2,863,721 $ 636,789 $ 3,500,510

66 AGENCY FINANCIAL REPORT • FY 2015
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MASTER RESERVE FUND AND MASTER RESERVE ACCOUNT
(Dollars in Thousands)

RECONCILIATION OF FIDUCIARY ASSETS
For the Years Ended September 30, 2015 2014
MRF MRA Total MRF MRA Total
Beginning Net Assets $ 2,863,721 $ 636,789 $ 3,500,510 $ 2,668,828 $ 700,760 $ 3,369,588
Receipts
Earned Income 30,661 98 30,759 33,616 106 33,722
Contributions 5,024,260 16,627,797 21,652,057 4,011,870 13,483,031 17,494,901
Net Realized Gain (Loss) (3,435) – (3,435) (4,239) – (4,239)
Total Receipts 5,051,486 16,627,895 21,679,381 4,041,247 13,483,137 17,524,384

Less Disbursements
Payments to Investors 4,749,643 16,541,870 21,291,513 3,846,354 13,547,108 17,393,462
Total Disbursements 4,749,643 16,541,870 21,291,513 3,846,354 13,547,108 17,393,462

Ending Net Assets $ 3,165,564 $ 722,814 $ 3,888,378 $ 2,863,721 $ 636,789 $ 3,500,510

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 aging of delinquent balances.
The uncollectible amount for refunds and loan guaranty fees is not significant and no allowance is provided. Amounts
over 180 days past due on guarantied loans purchased by the SBA are written off for financial reporting purposes.

(Dollars in Thousands)

As of September 30, 2015 2014
Intragovernmental
Administrative Receivables $ 30 $ –
Total Intragovernmental $ 30 $ –

Public
Guaranty Fees Receivable $ 92,221 $ 77,510
Refunds 545 437
Other 5,493 5,899
Total Public 98,259 83,846
Allowance For Loss (53) (30)
Net Public $ 98,206 $ 83,816

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NOTE 6 CREDIT PROGRAM RECEIVABLES AND LIABILITY FOR
LOAN GUARANTIES
A. Loan Program Descriptions and Accounting
LOAN PROGRAM DESCRIPTIONS
The SBA provides guaranties that help small businesses obtain bank loans and licensed companies to make investments
in qualifying small businesses. The SBA also makes loans to microloan intermediaries and provides 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 Guarantied 7(a) Loan Guaranty
Business Guarantied 504 Certified Development Company
Business Guarantied Small Business Investment Company Debentures
Business Direct 7(m) Microloan

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 businesses not able to
obtain credit elsewhere.

The Section 504 Certified Development Company program guarantees 100 percent of the principal and interest pay-
ments on debentures issued by development companies that make small business loans secured primarily by real estate.

The Small Business Investment Company Debentures program guarantees 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 $50,000 to eligible small businesses.

CREDIT SUBSIDY MODELING
The SBA estimates future cash flows for direct and guarantied loans using economic and financial credit subsidy models.
These estimated cash flows are used to develop the subsidy funding required under the Federal Credit Reform Act of
1990. The SBA has developed a customized credit subsidy model for each of its major loan guaranty 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. Nomi-
nal 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.

68 AGENCY FINANCIAL REPORT • FY 2015
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Historical data is used as the basis for program performance assumptions. 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

SUBSIDY FUNDING UNDER THE FEDERAL CREDIT REFORM ACT
FCRA requires that the credit subsidy costs of direct loans and loan guaranties be expensed in the year loans are dis-
bursed. The credit subsidy cost is the net present value of expected cash inflows and outflows 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.

CREDIT PROGRAM RECEIVABLES AND RELATED FORECLOSED PROPERTY, NET
FCRA governs direct loans made after FY 1991. FCRA direct loans are valued at the present value of expected future
cash flows, discounted at the interest rate of marketable Treasury securities. The subsidy allowance represents the differ-
ence between the outstanding loans receivable 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.

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 and defaulted guaranties made prior to FCRA are valued at the current receivable balance net of an allow-
ance for uncollectible amounts calculated using historical loss experience.

The SBA advances payments semiannually 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.
The advances are liquidated by receipt of the payments due from borrowers in these programs. Advance balances are
reported as Other Loans Receivable.

Interest receivable is comprised of accrued interest on loans receivable and purchased interest related to defaulted guar-
antied loans. Interest income is accrued at the contractual rate on the outstanding principal 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.

Foreclosed property is comprised of real and business-related and personal property acquired through foreclosure on
direct 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 Sep-
tember 30, 2015 SBA’s foreclosed property was $30.4 million related to 87 loans. The properties had been held for an
average of 1,106 days. At September 30, 2014 foreclosed property was $43.0 million related to 93 loans. The properties
had been held for an average of 860 days.

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VALUATION METHODOLOGY FOR THE LIABILITY FOR LOAN GUARANTIES UNDER FCRA
FCRA also governs loan guaranties made after FY 1991. A liability for outstanding guaranties is included on SBA’s Balance
Sheet. The liability for guarantied loans committed after FY 1991 is based on the net present value of their expected future
cash flows including guaranty fee inflows and the net cash outflows of defaulted guarantied loans purchased by SBA.

VALUATION METHODOLOGY FOR PRE-FCRA LIABILITY FOR 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 collections from these assets. The SBA es-
tablishes 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.

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B. Credit Program Receivables and Related Foreclosed Property, Net
(Dollars in Thousands)

As of September 30, 2015 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ $5,631 $ 167,569 $ 173,200
Interest Receivable 2,277 528 2,805
Foreclosed Property 3,110 – 3,110
Allowance (6,672) (11,562) (18,234)
Total Direct Business Loans 4,346 156,535 160,881

Direct Disaster Loans
Disaster Loans Receivable 2,907 6,314,459 6,317,366
Interest Receivable 145 32,947 33,092
Foreclosed Property – 1,601 1,601
Allowance (555) (1,087,238) (1,087,793)
Total Direct Disaster Loans 2,497 5,261,769 5,264,266

Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 5,634 5,492,503 5,498,137
Other Loans Receivable (see note below) – 226,571 226,571
Interest Receivable 6,698 73,858 80,556
Foreclosed Property 2,019 23,628 25,647
Allowance (8,691) (4,744,622) (4,753,313)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 5,660 1,071,938 1,077,598

Total Credit Program Receivables & Related Foreclosed Property, Net $ 6,502,745

As of September 30, 2014 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 5,727 $ 166,658 $ 172,385
Interest Receivable 2,142 683 2,825
Foreclosed Property 3,109 – 3,109
Allowance (8,268) (10,253) (18,521)
Total Direct Business Loans 2,710 157,088 159,798

Direct Disaster Loans
Disaster Loans Receivable 3,707 6,761,361 6,765,068
Interest Receivable 140 33,462 33,602
Foreclosed Property – 2,409 2,409
Allowance (548) (1,230,152) (1,230,700)
Total Direct Disaster Loans 3,299 5,567,080 5,570,379

Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 8,436 6,984,380 6,992,816
Other Loans Receivable (see note below) – 284,795 284,795
Interest Receivable 656 73,688 74,344
Foreclosed Property 2,070 35,381 37,451
Allowance (8,407) (6,164,273) (6,172,680)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 2,755 1,213,971 1,216,726

Total Credit Program Receivables & Related Foreclosed Property, Net $ 6,946,903

Note: Other Loans Receivable includes payments advanced by the SBA against future reimbursements in the SBIC and 504 guaranty programs.

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C. Loans Disbursed and Outstanding Loan Obligations
(Dollars in Thousands)

DIRECT LOANS
New Loans Disbursed During the Year Ended September 30, 2015 2014
Business Direct Loan Program $ 25,917 $ 36,410
Disaster Loan Program 294,066 438,375
Total Direct Loans Disbursed $ 319,983 $ 474,785

Outstanding Loan Obligations as of September 30, 2015 2014
Business Direct Loan Program $ 43,991 $ 40,669
Disaster Loan Program 116,667 156,158
Total Direct Loan Obligations $ 160,658 $ 196,827

GUARANTIED LOANS
New Loans Disbursed During the Year Ended September 30, 2015 2014
Total Principal Disbursed at Face Value $ 24,933,967 $ 22,453,725
Total Principal Disbursed Guarantied by the SBA 19,775,428 18,001,119

Outstanding Loan Obligations as of September 30, 2015 2014
Business Guarantied Loan Programs $ 16,070,177 $ 14,548,472

Loans Outstanding as of September 30, 2015 2014
Total Principal Outstanding at Face Value $ 105,662,573 $ 99,013,624
Total Principal Outstanding Guarantied by the SBA 88,337,969 83,505,973

SBA’s guarantied loan servicing agent provides data to the SBA on the unpaid principal balance of guarantied loans within a precision of less than 1 percent
due to timing.

D. Subsidy Cost Allowance Balances
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account $ 6,174,526 $ 6,662,139
Current Year's Subsidy (see 6G for breakdown by component) 4,068 6,557
Loans Written Off (2,110,027) (1,446,655)
Subsidy Amortization (2,207) (2,343)
Allowance Related to Guarantied Loans Purchased This Year 404,131 820,625
Miscellaneous Recoveries and Costs 286,654 140,817
Balance of Subsidy Allowance Account before Reestimates 4,757,145 6,181,140
Technical Assumptions/Default Reestimates (961) (6,614)
Ending Balance of Allowance Account $ 4,756,184 $ 6,174,526

Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account $ 1,230,152 $ 1,345,560
Current Year's Subsidy (see 6G for breakdown by component) 33,908 44,394
Loans Written Off (118,547) (208,657)
Subsidy Amortization (6,621) (12,096)
Miscellaneous Recoveries and Costs 66,110 54,388
Balance of Subsidy Allowance Account before Reestimates 1,205,002 1,223,589
Technical Assumptions/Default Reestimates (117,764) 6,563
Ending Balance of Allowance Account $ 1,087,238 $ 1,230,152

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E. Liability for Loan Guaranties
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
Pre-1992 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties $ 70 $ 45
Adjustment to Expected Losses, Guaranties Outstanding (56) 25
Ending Balance of Liability for Loan Guaranties 14 70

Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties 2,044,439 2,987,218
Current Year's Subsidy (see 6G for breakdown by component) 55,102 143,867
Fees 1,219,836 1,099,290
Interest Accumulation Factor 91,231 108,690
Claim Payments to Lenders (1,126,127) (1,470,965)
Adjustment Due to Reestimate & Guarantied Loan Purchases 721,995 650,340
Miscellaneous Recoveries and Costs 43,720 (11,765)
Balance of Liability for Loan Guaranties before Reestimates 3,050,196 3,506,675
Technical Assumptions/Default Reestimates (1,388,694) (1,462,236)
Ending Balance of Liability for Loan Guaranties 1,661,502 2,044,439

Total Ending Balance of Liability for Loan Guaranties $ 1,661,516 $ 2,044,509

F. FY 2015 Subsidy Rates by Program and Component
LOAN PROGRAM Total Financing Default Other Fee
Subsidy
Guaranty
7(a) 0.00% 0.00% 4.07% 0.00% -4.07%
504 CDC 0.60% 0.00% 8.65% 0.78% -8.83%
SBIC Debentures 0.00% 0.00% 7.19% 0.09% -7.28%

Direct
Disaster 12.43% 4.74% 13.12% -5.43% 0.00%
Microloan 10.12% 7.85% 2.36% -0.09% 0.00%

The subsidy rates in Table F pertain only to loans obligated in the current year. These rates cannot be applied 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.

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G. Subsidy Expense by Component
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
Business Loan Guaranties
Interest $ 2 $ 39
Defaults 509,812 971,685
Fees (483,888) (857,676)
Other 29,176 29,819
Subsidy Expense Before Reestimates and Loan Modifications 55,102 143,867
Reestimates (1,388,694) (1,462,236)
Total Guarantied Business Loan Subsidy Expense $ (1,333,592) $ (1,318,369)

Business Direct Loans
Interest $ 2,126 $ 3,227
Defaults 544 758
Other 1,398 2,572
Subsidy Expense Before Reestimates 4,068 6,557
Reestimates (961) (6,614)
Total Business Direct Loan Subsidy Expense $ 3,107 $ (57)

Disaster Direct Loans
Interest $ 9,435 $ 4,964
Defaults 39,804 61,760
Other (15,331) (22,330)
Subsidy Expense Before Reestimates 33,908 44,394
Reestimates (117,764) 6,563
Total Disaster Direct Loan Subsidy Expense $ (83,856) $ 50,957

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 Ended September 30, 2015 2014
Disaster Direct Loan Programs $ 172,624 $ 177,469
Business Loan Programs 146,778 151,282
Total Administrative Expense $ 319,402 $ 328,751

I. Credit Program Subsidy Reestimates
Reestimates are performed annually, on a cohort-by-cohort basis. The purpose of reestimates is to update 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 enhancements to cash flow projection methods. Financial statement
reestimates were performed using a full year of performance data for FY 2015 for SBA’s large loan programs and with
nine months of actual and three months of projected performance data for the Secondary Market Guaranty, Microloan,
and the small loan programs.

74 AGENCY FINANCIAL REPORT • FY 2015
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BUSINESS GUARANTIED LOAN PROGRAMS
Net subsidy reestimates for the business guarantied loan programs follows:
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
7(a) $ (268,899) $ (327,206)
7(a) - Recovery Act 46,109 398
7(a) - Jobs Act (8,605) (54,904)
Dealer Floor Plan (450) (1,866)
504 CDC (795,992) (619,688)
504 CDC - Recovery Act (105,987) (120,036)
504 CDC - Jobs Act (25,946) (33,148)
504 CDC - Debt Refinancing (72,831) (87,334)
504 First Mortgage Loan Pooling - Recovery Act (7,254) 1,726
SBIC Debentures (154,625) (53,499)
SBIC Participating Securities (76,888) (96,055)
Secondary Market Guaranty Program 84,477 (61,915)
ARC - Recovery Act (8,877) (15,131)
All Other Guaranty Loan Programs 7,074 6,422
Total Guarantied Loan Program Subsidy Reestimates $ (1,388,694) $ (1,462,236)

The 7(a) Loan Guaranty program, SBA’s flagship and largest program had a net downward reestimate in FY 2015 of
$268.9 million. The reestimate is primarily due to better than expected loan performance in cohorts 2011 through
2015, offsetting worse than expected loan performance in cohorts 2007 through 2010. Strong loan performance was
driven by lower than projected purchases in cohorts 2011 through 2014. Of note, FY 2015 loan performance contrib-
uted to updated model assumptions, which resulted in decreased recovery projections.

The 7(a) Recovery Act program had a net upward reestimate in FY 2015 of $46.1 million. The reestimate is primarily
due to higher than expected purchases in FY 2015. Additionally, FY 2015 loan performance contributed to updated
model assumptions, which resulted in decreased recovery projections.

The 7(a) Jobs Act cohort had a net downward reestimate in FY 2015 of $8.6 million. The reestimate is primarily due to
lower than projected purchases in FY 2015.

The Dealer Floor Plan program had a net downward reestimate of $0.5 million due to better than projected performance
during FY 2015.

The 504 Certified Development Company program had a net downward reestimate of $796.0 million. The reestimate is
primarily due to better than projected FY 2015 loan performance across all cohorts. Although some cohorts had higher
than expected purchases, these higher than expected losses were offset by higher than expected recoveries. FY 2015 loan
performance contributed to updated model assumptions which resulted in decreased purchase and increased recovery rate
projections. The remainder of the reestimate was due to decreased loss projections for the 2015 cohort as compared to
the original loss projections.

The 504 Recovery Act program had a net downward reestimate of $106.0 million. The reestimate is mostly due to better
than projected FY 2015 loan performance. Actual purchases in the 504 Recovery Act program were less than a quarter of
the purchases projected for FY 2015.

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The 504 Jobs Act program had a net downward reestimate of $25.9 million. The reestimate is mostly due to better than
projected FY 2015 loan performance. Actual purchases in the 504 Jobs Act program were less than a fifth of the pur-
chases projected for FY 2015.

The 504 Debt Refinancing program had a net downward reestimate of $72.8 million. The reestimate is mostly due to
better than projected FY 2015 loan performance. Actual purchases in the 504 Debt Refinancing program were less than
a quarter of the purchases projected for FY 2015.

The Section 504 First Mortgage Loan Pooling program had a net downward reestimate of $7.3 million. Lower
than projected purchases in the 2012 cohort offset higher than expected purchases in the 2010 and 2011 cohorts.
Additionally, FY 2015 loan performance contributed to updated model assumptions, which resulted in decreased
purchase projections.

The SBIC Debentures program had a net downward reestimate of $154.6 million. The primary driver of the
reestimate was better than projected loan performance in FY 2015. Actual purchases were less than projected in
FY 2015 for the 2004 through 2015 cohorts, while actual recoveries were greater than projected, specifically in the
2003 and 2008 cohorts. Additionally, updated performance expectation of the 2015 cohort contributed to the
downward reestimate.

The SBIC Participating Securities program had a net downward reestimate of $76.9 million. The downward reestimate
was due to better than expected loan performance in FY 2015, particularly for the 2002 and 2004 cohorts. The main
driver of the downward reestimate was higher actual recoveries than projected in FY 2015. The better-than-projected
recoveries were partially offset by higher than projected purchases and lower than projected reimbursements of prioritized
payments in FY 2015.

The Secondary Market Guaranty program had a net upward reestimate of $84.5 million. This upward reestimate was
driven mainly by actual loan terminations being lower than previously projected. Loan terminations accelerate pool
payments to investors and reduce SBA’s reliance on interest earnings to cover their guarantee of timely payment.

The America’s Recovery Capital program had a net downward reestimate of $8.9 million. The majority of this reestimate
is due to lower than projected purchases in FY 2015. The remainder of the reestimate is mostly due to lower purchase
projections in future years as a result of recent actual loan performance.

BUSINESS DIRECT LOAN PROGRAMS
Net subsidy reestimates for business direct loan programs follows:
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
7(m) Microloan $ (542) $ (3,412)
7(m) Microloan - Recovery Act 1,491 (1,030)
Intermediary Lending Pilot Program (1,885) (73)
SBIC Preferred Stock – (2,095)
All Other Direct Loan Programs (25) (4)
Total Direct Loan Program Subsidy Reestimates $ (961) $ (6,614)

The 7(m) Direct Microloan program had a net downward reestimate of $0.5 million. The downward reestimate is due to
better performance expectations for loans disbursed in FY 2015. These better performance expectations are partially offset
by a decrease in expected recoveries for the 2006 through 2008 cohorts.

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The 7(m) Direct Microloan Recovery Act program had a net upward reestimate of $1.5 million. The upward
reestimate is primarily due to an increase in projected defaults and a decrease in projected recoveries in future years
for both cohorts.

The Intermediary Lending Pilot program had a net downward reestimate of $1.9 million. The major driver of the
downward reestimate is a decrease in SBA’s cost of borrowing for the 2011 cohort from 4.11% to 2.51%.

DISASTER DIRECT LOAN PROGRAM
Net subsidy reestimates for the disaster direct loan programs follows:
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
Disaster $ (117,764) $ 6,563
Total Disaster Direct Loan Program Subsidy Reestimates $ (117,764) $ 6,563

The Disaster Assistance program had a net downward reestimate of $117.8 million. All Disaster cohorts (except for
the 2014 and 2015 regular cohorts and the 2001 World Trade Center cohort) experienced downward reestimates as
a result of better than expected performance in FY 2015 and revised performance assumptions. The 2014 cohort
experienced an upward reestimate due to updated present value discount factors applied to projected cash flows.
The 2015 cohort experienced an upward reestimate due to the actual average borrower’s interest rate being lower
than the original projected average borrower’s interest rate.

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 depreciates using the straight-line method over the useful life. The SBA expenses equipment not meeting the capital-
ization criteria.

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.
Leasehold improvements not meeting the capitalization criteria are expensed.

Software intended for internal use, whether internally developed, contractor developed or purchased, is capitalized
at cost if the unit acquisition cost is $250,000 or more and service life is at least 2 years. 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 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. Costs that do not meet the capitalization criteria
are expensed when incurred.

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Assets meeting the capitalization thresholds are detailed below.
(Dollars in Thousands)

As of September 30, 2015 2014
Equipment $ 2,675 $ 2,675
Accumulated Depreciation (2,663) (2,491)
Net 12 184

Leasehold Improvements 1,811 1,811
Amortization of Leasehold Improvements (1,004) (853)
Net 807 958

Software in Use 35,863 35,926
Amortization of Software in Use (34,120) (32,339)
Net 1,743 3,587

Total General Property and Equipment, Net $ 2,562 $ 4,729

NOTE 8 LIABILITIES NOT COVERED BY BUDGETARY RESOURCES
Liabilities not covered by budgetary resources include contingent liabilities and liabilities for which congressional action
is required before budgetary resources can be provided. These unfunded liabilities consisted of:
(Dollars in Thousands)

As of September 30, 2015 2014
Intragovernmental Liabilities - Other
Employment Taxes Payable $ 320 $ 1,536
Federal Employees' Compensation Act Payable 6,403 6,026
Total Intragovernmental Liabilities - Other 6,723 7,562

Federal Employees' Compensation Act Actuarial Liability 31,691 34,627

Surety Bond Guarantee Program Future Claims 43,679 35,799

Other Liabilities
Prior Liens on Real Estate Payable 59 59
Accrued Unfunded Annual Leave 24,976 26,361
Total Other Liabilities 25,035 26,420

Total Liabilities Not Covered by Budgetary Resources $ 107,128 $ 104,408

The liability for Surety Bond Guarantees is an estimate of future claims in the SBG program for guaranties outstanding
at year-end.

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FI N A N CI A L REPORT IN G

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.

All debt is intragovernmental and covered by budgetary resources. Debt transactions and resulting balances are:

INTRAGOVERNMENTAL DEBT
(Dollars in Thousands)

As of September 30, 2015 2014
Beginning Balance $ 7,756,100 $ $8,088,099
New Borrowing 564,871 852,468
Repayments (1,145,627) (1,184,467)
Ending Balance $ 7,175,344 $ 7,756,100

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 liabilities in the Liquidat-
ing Funds for loans made prior to FY 1992. The FY 2015 and FY 2014 balances include the transfer of the unobligated
balance to Treasury at September 30.

(Dollars in Thousands)

As of September 30, 2015 2014
Disaster Loan Fund $ 2,497 $ 3,297
Business Loan and Investment Fund 11,321 6,843
Total Due Treasury $ 13,818 $ 10,140

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NOTE 11 OTHER LIABILITIES
Other liabilities were:
(Dollars in Thousands)

As of September 30, 2015 2014
OTHER LIABILITIES - INTRAGOVERNMENTAL
Entity
Current
Employment Taxes Payable $ 2,486 $ 2,084
Advances from Other Agencies 932 332
Total Current 3,418 2,416
Non-current
Employment Taxes Payable 320 1,536
Federal Employees’ Compensation Act Payable 6,403 6,026
Total Non-current 6,723 7,562
Total Entity 10,141 9,978
Non-entity
Current
Payable to Treasury 6 6
Total Other Liabilities - Intragovernmental $ 10,147 $ 9,984
OTHER LIABILITIES - PUBLIC
Entity
Current
Accrued Funded Payroll and Benefits $ 9,261 $ 13,778
Accrued Unfunded Annual Leave 24,976 26,361
Contingent Liability – 464
Other Liabilities 955
Suspense Accounts 578 1,128
Total Current 35,770 41,731
Non-current
Prior Liens on Real Estate Payable 59 59
Total Non-current 59 59
Total Entity 35,829 41,790
Total Other Liabilities - Public $ 35,829 $ 41,790

NOTE 12 LEASES
The SBA leases all of its facilities from the General Services Administration. The SBA enters into an Occupancy Agree-
ment 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 2015 and 2014 facilities lease costs were $44.9 million and $45.1 mil-
lion. Future lease payments shown here assume a 3 percent inflation factor from the following years’ projected totals as
estimated by GSA, as well as continued costs during the next 5 years as leases expire and new leases are added. Payments
after 5 years reflect only current leases that will still be in effect then, projected to the end of each lease term.

80 AGENCY FINANCIAL REPORT • FY 2015
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FUTURE FACILITIES OPERATING LEASE PAYMENTS
(Dollars in Thousands)

Fiscal Year Lease Payments
2016 $ 44,025
2017 45,345
2018 46,706
2019 48,107
2020 49,550
After 2020 35,435
Total $ 269,168

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 is for SBA’s
downward subsidy reestimates in its loan programs. Because the loan programs are discretionary, the downward reesti-
mates are not available to the SBA and they are returned to the Treasury in the fiscal year following the accrual of the re-
estimates. During the year, these general fund accounts contain SBA’s prior year reestimates. At year-end, the funds are
swept by the Treasury. 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 guaranty 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 account receivable in
anticipation of the receipt of the downward reestimates in the following year and a Downward Reestimate Payable to the
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 the Treasury in the non-entity Treasury general fund is not eliminated and is reflected
on the Balance Sheet as a liability line item.

(Dollars in Thousands)

As of September 30, 2015 2014
Entity
Financing Fund Payable $ (1,600,653) $ (1,637,283)

Non-entity
Miscellaneous Receipts Fund Receivable 1,600,653 1,637,283
Downward Reestimate Payable to Treasury (1,600,653) (1,637,283)
Balance Sheet Reported Payable $ (1,600,653) $ (1,637,283)

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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 revenue arises from exchange transactions, and is deducted from the full cost of SBA’s major strategic goals to
arrive at net strategic goals costs. The SBA recognizes earned revenue 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 net costs consistent with its three strategic goals on a full cost allocation basis. Strategic Goal 1 (Growing
Businesses and Creating Jobs) includes SBA’s loan, disaster and other assistance programs, and STEP grants. Strategic Goal
2 (Serving as the Voice for Small Business) includes small business advocacy and programs to promote entrepreneurship in
economic sectors and communities where market gaps remain. Strategic Goal 3 (Building an SBA that Meets the Needs of
Today’s and Tomorrow’s Small Businesses) contains lender oversight costs. Agency administrative overhead costs are fully
allocated to the programs in Strategic Goals 1, 2, and 3. The Management’s Discussion and Analysis section of SBA’s annual
Agency Financial Report includes additional detail on SBA’s strategic goals. Costs Not Assigned to Strategic Goals include
the Office of the Inspector General and grants made under congressionally mandated programs. The Office of the Inspector
General’s mission and funding is a separate, independent part of the SBA and is therefore excluded. Congressional mandated
grants do not necessarily involve small business and are also excluded.

Intragovernmental Gross Cost is incurred by the SBA in exchange transactions with other federal agencies, and Gross Cost
with the Public is incurred in exchange transactions with the Public. Intragovernmental Earned Revenue is earned by
the SBA in exchange transactions with other federal agencies, and Earned Revenue from the Public is earned in exchange
transactions with the Public. The General Services Administration and the Treasury Department are SBA’s primary
Intragovernmental trading partners.

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.

SBA’s Gross Cost with the Public in Strategic Goal 1 is largely determined by estimates and reestimates of its credit
program costs (See Note 6I). Downward reestimates of these costs caused the credit to Gross Cost with the Public in
FY 2015 and FY 2014.

82 AGENCY FINANCIAL REPORT • FY 2015
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INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUE
(Dollars in Thousands)
For the Years Ended September 30, 2015 2014
STRATEGIC GOAL 1:
Growing Businesses and Creating Jobs
Intragovernmental Gross Cost $ 461,443 $ 506,417
Gross Cost with the Public (827,119) (613,675)
Total Strategic Goal 1 Gross Cost (365,676) (107,258)

Intragovernmental Earned Revenue 109,099 138,871
Earned Revenue from the Public 354,725 372,857
Total Strategic Goal 1 Earned Revenue 463,824 511,728

STRATEGIC GOAL 2:
Serving as the Voice for Small Business
Intragovernmental Gross Cost $ 27,432 $ 26,178
Gross Cost with the Public 82,206 83,310
Total Strategic Goal 2 Gross Cost 109,638 109,488

STRATEGIC GOAL 3:
Building an SBA that Meets the Needs of Today’s and Tomorrow’s
Small Businesses
Intragovernmental Gross Cost $ 10,115 $ 6,176
Gross Cost with the Public 30,312 19,654
Total Strategic Goal 3 Gross Cost 40,427 25,830

COST NOT ASSIGNED TO STRATEGIC GOALS
Intragovernmental Gross Cost $ 8,718 $ 4,130
Gross Cost with the Public 26,127 13,144
Total Gross Cost Not Assigned to Strategic Goals 34,845 17,274

Net Cost of Operations $ (644,590) $ (466,394)

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, 2015 and 2014. SBA’s total budgetary resources were $2.8 billion and $3.0
billion for the years ended September 30, 2015 and 2014. Additionally, $7.5 billion and $7.8 billion of nonbudget-
ary resources including borrowing authority and collections of loan principal, interest and fees in financing funds were
reported for the years ended September 30, 2015 and 2014.

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.

AGENCY FINANCIAL REPORT • FY 2015 83
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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 the Fiscal Service when funds needed to disburse direct
loans and purchase guarantied loans exceed subsidy costs and collections in the nonbudgetary loan financing funds. In
FY 2015 and FY 2014, the SBA received $0.6 billion and $0.8 billion of borrowing authority from the OMB. At the
end of FY 2015, the SBA had $0.2 billion in borrowing authority carried over to fund direct loans and default claims to
be disbursed in the future. At the end of FY 2014, the SBA had $0.2 billion in available borrowing authority. 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 disbursement-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
and at year-end 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 2015 and FY 2014, the SBA incurred $5.318 billion and $5.114 billion of direct and reimbursable obliga-
tions of which $0.020 billion and $0.035 billion were apportioned in category A; $5.298 billion and $5.079 billion were
apportioned in category B. Category A apportionments are restricted by quarter and program, category B apportion-
ments are restricted by purpose and program.

Unobligated Balances
Unobligated balances at September 30, 2015 and 2014 are $5.0 billion and $5.7 billion which include $3.5 billion
and $3.7 billion of unavailable unobligated balances. These balances are unavailable primarily because they are
unapportioned by the OMB. The SBA accumulates the majority of these unobligated balances in its nonbudgetary
financing accounts during the fiscal year ($3.7 billion in FY 2015 and $4.3 billion in FY 2014) 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 ($1.3 billion in FY 2015 and $1.4 billion in FY 2014) that are used to finance
SBA’s ongoing program operations. The SBA requests OMB apportionments as needed, and after OMB approval,
apportioned amounts are available for obligation.

Undelivered Orders
Undelivered orders are obligations that have not yet been disbursed by the SBA. Undelivered orders for the periods
ended September 30, 2015 and 2014 were $0.5 billion and $0.6 billion.

Differences between the Statement of Budgetary Resources and the Budget of the
U. S. Government
There was no material difference between the FY 2014 Statement of Budgetary Resources and the President’s FY 2016
budget submission. The President’s FY 2017 Budget with actual numbers for FY 2015 has not yet been published. The
SBA expects no material differences between the President’s Budget “actual” column and the FY 2015 reported results
when the budget becomes available in February 2016.

84 AGENCY FINANCIAL REPORT • FY 2015
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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 budgetary 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 2015 85
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CONSOLIDATED RECONCILIATION OF BUDGETARY OBLIGATIONS TO NET COST
(Dollars in Thousands)

For the Years Ended September 30, 2015 2014
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred $ 5,318,123 $ 5,114,412
Less: Spending Authority from Offsetting Collections and Recoveries 4,157,947 4,584,340
Obligations Net of Offsetting Collections and Recoveries 1,160,176 530,072
Less: Offsetting Receipts 1,871,715 1,123,155
Net Obligations (711,539) (593,083)
Other Resources
Imputed Financing 16,050 21,893
Other Financing Sources (1,841,457) (1,648,365)
Net Other Resources Used to Finance Activities (1,825,407) (1,626,472)
Total Resources Used to Finance Activities (2,536,946) (2,219,555)

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 (6,803) 450,569
Resources that Fund Expenses Recognized in Prior Periods (201,087) (362,689)
Budgetary Offsetting Collections and Receipts that Do Not Affect Net Cost of Operations
Credit Program Collections 3,725,160 3,923,558
Offsetting Receipts 1,871,715 1,123,155
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (3,771,717) (3,591,420)
Other - Current Year Liquidating Equity Activity 12,736 3,218
Other Resources that Do Not Affect Net Cost of Operations 72 38
Total Resources that Do Not Finance Net Cost of Operations 1,630,076 1,546,429

Total Resources Used to Finance the Net Cost of Operations (906,870) (673,126)

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 (1,385) (510)
Change in Contingent Liability (464) 464
Upward Reestimates of Credit Subsidy Expense 263,633 200,923
Change in Revenue Receivable from Public (5,627) (65)
Provision for Losses on Estimated Guaranties 7,880 4,795
Change in Unfunded Employee Benefits (3,775) 1,136
Total Components Requiring or Generating Resources in Future Periods 260,262 206,743

Components Not Requiring or Generating Resources
Depreciation or Amortization 2,104 2,252
Change in Bad Debt Expense - Pre-1992 Loans 24 (2,057)
Other (Income) Expenses Not Requiring Budgetary Resources (110) (206)
Total Components Not Requiring or Generating Resources 2,018 (11)

Total Components of the Net Cost of Operations that Will Not
Require or Generate Resources in the Current Period 262,280 206,732
Net Cost of Operations $ (644,590) $ (466,394)

86 AGENCY FINANCIAL REPORT • FY 2015
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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 pro-
grams. 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, 2015 2014
Current Year Liabilities Not Covered By Budgetary Resources $ 107,128 $ 104,408
Less: Prior Year 104,408 99,012
Change in Liabilities Not Covered By Budgetary Resources 2,720 5,396
Upward Reestimates of Credit Subsidy Expense 263,633 200,923
Change in Revenue Receivable from Public (5,627) (65)
All Other (464) 489
Components (of Net Cost) Generating Resources in Future Periods
(Per Reconciliation Above) $ 260,262 $ 206,743

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REQUIRED SUPPLEMENTARY INFORMATION
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2015

(Dollars in Thousands) BLIF DLF SBGRF PCECGF

Nonbudgetary Nonbudgetary
Budgetary Financing Budgetary Financing Budgetary Budgetary

BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 240,087 $ 3,865,480 $ 738,382 $ 483,716 $ 80,750 $ –
Recoveries of Prior Year Obligations 16,850 4,759 3,594 38,494 – –
Other Changes in Unobligated Balance (100,321) (750) – – – –
Unobligated Balance from Prior Year Budget
156,616 3,869,489 741,976 522,210 80,750 –
Authority, net
Appropriations (discretionary and mandatory) 419,630 – 222,132 – – –
Borrowing Authority (discretionary and mandatory) – 244,331 – 306,617 – –
Spending Authority from Offsetting Collections 1,083 2,511,161 – 21,286 18,303 –
Total Budgetary Resources $ 577,329 $ 6,624,981 $ 964,108 $ 850,113 $ 99,053 $ –

STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 401,582 $ 3,203,697 $ 258,551 $ 579,191 $ 13,800 $ –
Unobligated Balance, end of year:
Apportioned 19,364 1,013,190 100,663 68,534 4,494 –
Unapportioned 156,383 2,408,094 604,894 202,388 80,759 –
Total Unobligated Balance, end of year 175,747 3,421,284 705,557 270,922 85,253 –
Total Status of Budgetary Resources $ 577,329 $ 6,624,981 $ 964,108 $ 850,113 $ 99,053 $ –

CHANGE IN OBLIGATED BALANCES
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 128,778 $ 87,589 $ 15,048 $ 157,972 $ 29 $ –
Obligations Incurred 401,582 3,203,697 258,551 579,191 13,800 –
Gross Outlays (431,591) (3,203,774) (256,129) (580,441) (13,825) –
Recoveries of Prior Year Unpaid Obligations (16,850) (4,759) (3,594) (38,494) – –
Unpaid Obligations, end of year 81,919 82,753 13,876 118,228 4 –
Uncollected Payments:
Uncollected Payments, Federal sources
brought forward, October 1 – (127,881) – (15,128) – –
Change in Uncollected Payments, Federal Sources – 46,752 – 1,082 – –
Uncollected Payments, Federal Sources, end of year – (81,129) – (14,046) – –
Memorandum (non-add) entries:
Obligated Balance, start of year $ 128,778 $ (40,292) $ 15,048 $ 142,844 $ 29 $ –
Obligated Balance, end of year $ 81,919 $ 1,624 $ 13,876 $ 104,182 $ 4 $ –

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross
$ 420,713 $ 2,755,492 $ 222,132 $ 327,903 $ 18,303 $ –
(discretionary and mandatory)
Actual Offsetting Collections
(9,380) (2,719,444) (1,182) (1,005,716) (18,302) (36)
(discretionary and mandatory)
Change in Uncollected Customer Payments
from Federal Sources
– 46,752 – 1,082 – –
(discretionary and mandatory)
Budget Authority, net
(discretionary and mandatory) $ 411,333 $ 82,800 $ 220,950 $ (676,731) $ 1 $ (36)

Gross Outlays (discretionary and mandatory) $ 431,591 $ 3,203,774 $ 256,129 $ 580,441 $ 13,825 $ –
Actual Offsetting Collections
(9,380) (2,719,444) (1,182) (1,005,716) (18,302) (36)
(discretionary and mandatory)
Net Outlays (discretionary and mandatory) 422,211 484,330 254,947 (425,275) (4,477) (36)
Distributed Offsetting Receipts – (1,832,733) – (32,618) – –
Agency Outlays, net
(discretionary and mandatory) $ 422,211 $ (1,348,403) $ 254,947 $ (457,893) $ (4,477) $ (36)

88 AGENCY FINANCIAL REPORT • FY 2015
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REQUIRED SUPPLEMENTARY INFORMATION (continued)
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2015

(Dollars in Thousands) SE OIG ADVOCACY EDP BATF TOTAL TOTAL

Nonbudgetary
Budgetary Budgetary Budgetary Budgetary Budgetary Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 287,233 $ 11,232 $ 817 $ 4,391 $ 159 $ 1,363,051 $ 4,349,196 $ 5,712,247
Recoveries of Prior Year Obligations 25,062 62 15 3,445 – 49,028 43,253 92,281

Other Changes in Unobligated Balance (16,055) (116) – – – (116,492) (750) (117,242)
Unobligated Balance from Prior Year Budget
296,240 11,178 832 7,836 159 1,295,587 4,391,699 5,687,286
Authority, net
Appropriations (discretionary and mandatory) 256,310 19,400 9,120 220,690 – 1,147,282 – 1,147,282
Borrowing Authority (discretionary and mandatory) – – – – – – 550,948 550,948
Spending Authority from Offsetting Collections 358,354 1,014 2 4 65 378,825 2,532,447 2,911,272
Total Budgetary Resources $ 910,904 $ 31,592 $ 9,954 $ 228,530 $ 224 $ 2,821,694 $ 7,475,094 $ 10,296,788

STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 614,785 $ 19,977 $ 9,264 $ 217,257 $ 19 $ 1,535,235 $ 3,782,888 $ 5,318,123
Unobligated Balance, end of year:
Apportioned 248,431 7,114 690 9,684 140 390,580 1,081,724 1,472,304
Unapportioned 47,688 4,501 – 1,589 65 895,879 2,610,482 3,506,361
Total Unobligated Balance, end of year 296,119 11,615 690 11,273 205 1,286,459 3,692,206 4,978,665
Total Status of Budgetary Resources $ 910,904 $ 31,592 $ 9,954 $ 228,530 $ 224 $ 2,821,694 $ 7,475,094 $ 10,296,788

CHANGE IN OBLIGATED BALANCES
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 201,533 $ 1,949 $ 906 $ 136,951 $ 4 $ 485,198 $ 245,561 $ 730,759
Obligations Incurred 614,785 19,977 9,264 217,257 19 1,535,235 3,782,888 5,318,123
Gross Outlays (617,216) (19,297) (8,493) (167,375) (19) (1,513,945) (3,784,215) (5,298,160)
Recoveries of Prior Year Unpaid Obligations (25,062) (62) (15) (3,445) – (49,028) (43,253) (92,281)
Unpaid Obligations, end of year 174,040 2,567 1,662 183,388 4 457,460 200,981 658,441
Uncollected Payments:
Uncollected Payments, Federal sources
brought forward, October 1 – – – – – – (143,009) (143,009)

Change in Uncollected Payments, Federal Sources – – – – – – 47,834 47,834
Uncollected Payments, Federal Sources, end of year – – – – – – (95,175) (95,175)
Memorandum (non-add) entries:
Obligated Balance, start of year $ 201,533 $ 1,949 $ 906 $ 136,951 $ 4 $ 485,198 $ 102,552 $ 587,750
Obligated Balance, end of year $ 174,040 $ 2,567 $ 1,662 $ 183,388 $ 4 $ 457,460 $ 105,806 $ 563,266

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross
$ 614,664 $ 20,414 $ 9,122 $ 220,694 $ 65 $ 1,526,107 $ 3,083,395 $ 4,609,502
(discretionary and mandatory)
Actual Offsetting Collections
(358,353) (1,015) (1) (5) (66) (388,340) (3,725,160) (4,113,500)
(discretionary and mandatory)
Change in Uncollected Customer Payments
from Federal Sources
– – – – – – 47,834 47,834
(discretionary and mandatory)
Budget Authority, net
(discretionary and mandatory) $ 256,311 $ 19,399 $ 9,121 $ 220,689 $ (1) $ 1,137,767 $ (593,931) $ 543,836

Gross Outlays (discretionary and mandatory) $ 617,216 $ 19,297 $ 8,493 $ 167,375 $ 19 $ 1,513,945 $ 3,784,215 $ 5,298,160
Actual Offsetting Collections
(358,353) (1,015) (1) (5) (66) (388,340) (3,725,160) (4,113,500)
(discretionary and mandatory)
Net Outlays (discretionary and mandatory) 258,863 18,282 8,492 167,370 (47) 1,125,605 59,055 1,184,660
Distributed Offsetting Receipts (6,364) – – – – (6,364) (1,865,351) (1,871,715)
Agency Outlays, net
(discretionary and mandatory) $ 252,499 $ 18,282 $ 8,492 $ 167,370 $ (47) $ 1,119,241 $ (1,806,296) $ (687,055)

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REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION
STEWARDSHIP INVESTMENTS IN HUMAN CAPITAL
(Unaudited)
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 maintain-
ing or increasing national productive capacity. The definition excludes education and training expenses for federal personnel.

Small Business Development Centers provide advising and training services to small businesses and prospective business owners using an
extensive network of lead centers and outreach locations. SBDCs deliver professional business advising in key management areas to small
business clients throughout the U.S. that generates business revenue, creates and retains jobs, and enhances local and regional economies.

SCORE is a nonprofit association comprised of over 11,000 volunteer business mentors that serve entrepreneurs with in-person
mentoring, local training workshops, and online resources. SCORE adapts its structure and services to meet the needs of spe-
cific small businesses.

Women’s Business Centers provide advising and training primarily to women entrepreneurs through over 100 non-profit
educational centers across the nation. Many of the training courses focus on business and financial planning that help women
entrepreneurs gain financial literacy. They also provide direct advising to clients and help them access loans, federal contracts,
and exporting opportunities.

Microloan Program helps the smallest of small businesses become established and achieve success. Community-based interme-
diary lenders provide business-based training and technical assistance to microbusinesses. The program is an important source
of training assistance for low income, women, veteran, and minority entrepreneurs.

SBA’s Consulting and Training Programs include SBA’s work to develop or expand consulting and training programs focused
on key areas, including underserved markets, procurement, exports, and emerging and expanding technological sectors. These
small business advising and training programs are provided by or facilitated through an SBA district office for the delivery of a
structured program providing knowledge, information, or experience on a business-related subject. Training is available on a
number of subjects of interest to a small business person and may be delivered to an individual, a class, or online.

Veterans Outreach includes comprehensive outreach through veterans business outreach centers and technical assistance and training to
transitioning veterans that are interested in starting a new or growing an existing business through programs such as Boots-to-Business,
Veteran Women Igniting the Spirit of Entrepreneurship, and Entrepreneurship Boot Camp for Veterans with Disabilities. Consistent with
the new strategic plan, this item was broken out in FY 2014 (previously it was included in All Other Training and Assistance Programs).

All Other Assistance Programs not separately detailed include PRIME Technical Assistance, Native American Outreach and
the 7(j) program.

Performance results are provided in the Management’s Discussion and Analysis section of SBA’s annual Agency Financial Report
in “SBA by the Numbers” and “Primer of SBA’s Principal Programs.”

Significant Human Capital investments occur within the following programs:

(Dollars in Thousands)

For the Five Years Ended September 30, 2015 2014 2013 2012 2011

Small Business Development Centers $ 89,225 $ 154,400 $ 93,427 $ 152,835 $ 123,097
SCORE 19,615 5,758 10,894 9,331 14,094
Women’s Business Centers 18,658 24,842 21,049 25,006 13,080
Microloan Technical Assistance 19,216 21,552 16,525 22,487 30,485
SBA's Consulting and Training Programs 51,510 54,620 44,313 28,365 28,006
Veterans Outreach 27,031 13,244 – – –
All Other Training and Assistance Programs 9,010 12,832 6,924 12,689 8,603

Total $ 234,265 $ 287,248 $ 193,132 $ 250,713 $ 217,365

90 AGENCY FINANCIAL REPORT • FY 2015
Other
Information
SUCCESS Contributing to Community
is a Business Principle
STORY DSFederal
Rockville, MD

In 2007 Sophia Parker founded DSFederal, a company specializing in
grant program management and data analytics, training and education, and
information technology solutions. Within a year, the company grew to 120
employees with locations in eight states. DSFederal revenue increased from
$179,000 in 2009 to $10.9 million in 2013. Major clients include the Department of Health and Human Services
and the Department of Homeland Security, among others. The company’s annual income has reached $12 million,
and it has been ranked 55th among all rapidly growing small and medium-size enterprises nationwide.

Developing and cultivating a culture of innovation is also a key component to DSFederal’s success. The company
developed innovative methods for spreading government information using mobile apps, in line with the 2011
Digital Government Strategy.

Ms. Parker remembers humble beginnings, when she was the only employee and had $600 in the bank. No one
was willing to lend her the money she needed to keep her business afloat. She began working with a counselor at
the Maryland Small Business Development Center and secured a $26,000 SBA-guarantied loan which helped carry
her through a lean year. She successfully applied to SBA’s 8(a) Business Development program in 2008 and has been
actively pursuing and winning contracts ever since, enabling DSFederal to increase revenue every year since 2009.
“DSFederal would never be here if it weren’t for SBA,” she said.
OTH E R I NF ORMATION

U. S. Small Business Administration
Schedule of Spending
For the Years Ended September 30, 2015 and 2014 (Unaudited)
(Dollars in Thousands)
2015 2014

Non- Non-
budgetary budgetary
Budgetary Financing Total Budgetary Financing Total
What Money is Available to Spend?
Total Resources $ 2,821,694 $ 7,475,094 $ 10,296,788 $ 3,024,249 $ 7,802,410 $ 10,826,659
Less Amount Not Approved for Spending by SBA 390,580 1,081,724 1,472,304 398,548 1,586,238 1,984,786
Less Amount Approved for Spending by OMB 895,879 2,610,482 3,506,361 964,503 2,762,958 3,727,461
Total Amounts Agreed to be Spent $ 1,535,235 $ 3,782,888 $ 5,318,123 $ 1,661,198 $ 3,453,214 $ 5,114,412

Non- Non-
budgetary budgetary
Budgetary Financing Total Budgetary Financing Total
How was the Money Spent /Issued?
Salary & Benefits $ 391,177 $ – $ 391,177 $ 410,302 $ – $ 410,302
Grants 195,892 – 195,892 177,934 – 177,934
Rent 45,434 – 45,434 45,461 – 45,461
Contracts 104,337 – 104,337 116,398 – 116,398
Travel 13,712 – 13,712 10,305 – 10,305
Other Administrative Expenses 99,704 – 99,704 84,049 – 84,049
Telecommunications 11,047 – 11,047 9,926 – 9,926
Surety Bonds Defaults 13,799 – 13,799 11,273 – 11,273
Business Loans 46,586 54,799 101,385 50,356 55,156 105,512
Business Loan Guarantees 354,996 3,148,898 3,503,894 487,900 2,769,909 3,257,809
Disaster Lending 258,551 579,191 837,742 257,294 628,149 885,443
Total Amounts Agreed to be Spent $ 1,535,235 $ 3,782,888 $ 5,318,123 $ 1,661,198 $ 3,453,214 $ 5,114,412

Non- Non-
budgetary budgetary
Budgetary Financing Total Budgetary Financing Total
Who did the Money go to?
Other Federal Agencies $ 340,201 $ 2,172,935 $ 2,513,136 $ 355,061 $ 1,469,413 $ 1,824,474
Public Individuals and Organizations 1,195,034 1,609,953 2,804,987 1,306,137 1,983,801 3,289,938
Total Amounts Agreed to be Spent $ 1,535,235 $ 3,782,888 $ 5,318,123 $ 1,661,198 $ 3,453,214 $ 5,114,412

The Schedule of Spending (SOS) was developed to bridge the gap between budgetary accounting reports, such as the State-
ment of Budgetary Resources (SBR), and the public’s desire for a transparent view of how federal money was spent. The
SOS allows the reader to review SBA’s spending in more understandable terms and also provides the public with a high level
view of who benefited from federal funds. Payments to Other Federal Agencies include rent to the General Service Ad-
ministration and Downward Subsidy Reestimates payable to Treasury. Subsidy reestimates are discussed in Note 6A of the
Consolidated Financial Statements.

To obtain a more detailed view of SBA’s beneficiaries, the public can access general information about individual awards on
USASpending.gov. The data provided on the USAspending.gov website however does not include all spending information
provided in the SBR and SOS. For example, SBA is primarily a federal credit agency and SBA’s nonbudgetary financing
items, which are related to the direct and guarantee loan guarantee programs, are not included on USAspending.gov.

AGENCY FINANCIAL REPORT • FY 2015 93
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OIG REPORT ON THE MOST SERIOUS MANAGEMENT
AND PERFORMANCE CHALLENGES
OIG Report on the Most Serious Management and
Performance Challenges

REPORT ON THE MOST SERIOUS
MANAGEMENT AND PERFORMANCE
CHALLENGES IN FISCAL YEAR 2016

October 15, 2015 REPORT NUMBER 16-01

96
94 AGENCY FINANCIAL REPORT • FY 2015
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AGENCY FINANCIAL REPORT • FY 2015 95
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Table 1. Summary of the Most Serious Management and Performance Challenges Facing the SBA
in FY 2016

Color Scores

Status at End of FY 2015 Change from Prior Year

Challenge Green Yellow Orange Red Up á Down â
1 Small Business Contracting 1
2 IT Security 2 3 1
3 Human Capital 1 2 1
4 Lender Oversight 2
5 8(a) Business Development Program 2 1
6 Loan Agent Fraud 1 2 1 2
7 Loan Management and Accounting System 4 4
8 Improper Payments – 7(a) program 1 3 1
9 Disaster Loan program (NEW)
10 Acquisition Management 1 4 1
TOTAL 8 12 10 1 9 1

A significant change in this year’s report involves small business contracting (Challenge 1). SBA is responsible for manag-
ing and overseeing the small business procurement process throughout the Federal Government. Last year, we reported
that procurement flaws allow large firms to obtain small business awards and allow agencies to count contracts performed
by large firms towards their small business goals. While large firms continue to receive contracts that are counted towards
small business goals, we have realigned the discussion to include our concerns regarding weaknesses in small business
contracting programs and the reliability of data used to calculate contracting goal achievements.

In addition, we added a new challenge regarding SBA’s Disaster Assistance Program (Challenge 9). SBA’s disaster assis-
tance helps people and businesses recover from disasters by providing affordable, timely, and accessible loans to home-
owners, renters, and businesses. However, there is an inherent risk of non-repayment for disaster loans because these
loans repair or replace existing property, which means that loan recipients may be paying twice to maintain the same
assets. In carrying out its mission, SBA must balance competing priorities to deliver timely assistance and reduce the risk
of fraud and default.

We also removed the challenge pertaining to SBA’s implementation of a quality control program in its loan centers
(previously Challenge 4). SBA has made progress in implementing a quality control program for all of its loan centers.
SBA’s program is designed to verify and document compliance with the loan process, from origination to close-out, and
to identify where material deficiencies exist so that the Agency can take remedial action. While SBA has made progress
in implementing a quality control program, further improvement is needed for SBA to continue to demonstrate that
all elements of the program are being completed and that the program is effective at identifying and correcting mate-
rial deficiencies. We will continue to monitor SBA’s quality control program during FY 2016 to verify that reviews are
completed and effective at identifying and correcting material deficiencies.

The management challenge process is an important tool that we hope will assist the Agency in prioritizing its efforts to
improve program performance and enhance its operations. We look forward to continuing to work with SBA’s leader-
ship team in addressing the Agency’s management challenges.

96 AGENCY FINANCIAL REPORT • FY 2015
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CONTENTS

Challenge 1. Weaknesses in Small Business Contracting Programs and Inaccurate Procurement Data Undermine the
Reliability of Contracting Goals Achievements

Challenge 2. Weaknesses in Information Systems’ Security Controls Pose Significant Risks to the Agency

Challenge 3. SBA Needs Effective Human Capital Strategies to Carry Out its Mission Successfully and Become a High-
Performing Organization

Challenge 4. SBA Needs to Further Strengthen its Oversight of Lending Participants

Challenge 5. SBA Needs to Modify the Section 8(a) Business Development Program So More Firms Receive Business
Development Assistance, Standards for Determining Economic Disadvantage are Justifiable, and Firms
Follow 8(a) Regulations When Completing Contracts

Challenge 6. Effective Tracking and Enforcement Would Reduce Financial Losses from Loan Agent Fraud

Challenge 7. SBA Needs to Modernize its Loan Accounting System and Migrate it Off the Mainframe

Challenge 8. SBA Needs to Accurately Report, Significantly Reduce, and Strengthen Efforts to Recover Improper
Payments in the 7(a) Loan Program

Challenge 9. Disaster Assistance Must Balance Competing Priorities to Deliver Timely Assistance and Reduce Improper
Payments

Challenge 10: SBA Needs to Effectively Manage Its Acquisition Program

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Challenge 1. Weaknesses in Small Business Contracting Programs and Inaccurate
Procurement Data Undermine the Reliability of Contracting Goals Achievements

The Small Business Act established a Government-wide goal that 23 percent of all prime contracts be awarded to small
businesses each fiscal year. As the advocate for small business, SBA should strive to ensure that only eligible small firms
obtain and perform small business awards. Further, SBA should ensure that procuring agencies accurately report con-
tracts awarded to small businesses when representing their progress in meeting small business contracting goals. How-
ever, over the years, Congress has expressed concerns about the accuracy of the Small Business Goaling Report; this has
been substantiated by OIG audits and other Government studies, which have shown widespread misreporting by procur-
ing agencies, since many contract awards that were reported as having gone to small firms have actually been substantially
performed by larger companies. Awards made to ineligible firms impact procurement opportunities for small businesses
and damage SBA’s credibility in reporting accurate small business contracting goals achievements. While some contrac-
tors may misrepresent or erroneously calculate their size, the incorrect reporting also results from errors made by Gov-
ernment contracting personnel, including the misapplication of small business contracting rules. Without reliable data,
SBA cannot accurately measure the Federal Government’s small business procurement goals achievements, which in turn
weakens the ability of Congress and other Federal policy makers to determine whether the Government is maximizing
contracting opportunities for small businesses.

In September 2014, we issued Report 14-18, which identified over $400 million in FY 2013 contract actions that may
have been awarded to ineligible firms. We also found that over $1.5 billion dollars in FY 2013 contract actions went to
firms that were no longer in the 8(a) Business Development or Historically Underutilized Business Zone (HUBZone)
Programs. SBA regulations permit procuring agencies to claim small disadvantaged business and HUBZone goaling
credit on certain contract actions, even after firms have left the program. In our opinion, the amount of dollars that
SBA reports to Congress and the public as being performed by 8(a) and HUBZone firms in the Small Business Goal-
ing Report is overstated by including contract actions performed by former program participants. Further, in Report
13-03, we identified weaknesses in the 8(a) Mentor Protégé Program that could also allow procuring agencies to include
in their small business goal achievements contracts awarded to small businesses in which large businesses perform most
of the work. In addressing deficiencies identified in these reports, SBA has begun to correct weaknesses within its small
business information systems that impact the accuracy of goaling data. While SBA has taken steps to address reporting
accuracy, further progress is needed.

In addition, OIG and GAO have both recently reported weaknesses in SBA’s controls that would ensure only eligible
firms receive contracts set-aside for the Women Owned Small Business Federal Contracting Program (WOSBP). The
National Defense Authorization Acts (NDAA) for FY 2013 and FY 2015 made major programmatic changes to WOSBP.
Specifically, the NDAA for 2013 removed previously existing contract caps on set-aside awards for which WOSB and
economically disadvantaged WOSB firms were able to compete. The NDAA for 2015 granted contracting officers the
authority to award sole-source awards to firms in WOSBP and required firms to be certified by a Federal agency, a State
government, the Administrator, or a national certifying entity approved by the Administrator. However, SBA has opted
to implement the sole-source authority provision first—separate from a certification program. We believe allowing sole
source contracting authority in WOSBP, without implementing the contemporaneously required certification program,
is inconsistent with SBA’s statutory authorization and exposes the program to abuse. Absent a certification program, the
Government is more likely to award WOSBP contracts to ineligible firms.

Likewise, SBA failed to reduce the size standard of businesses it defines as small when the Agency’s own analysis indicated
it was appropriate to do so. Because SBA has not adhered to its own analysis, small businesses will need to compete
against larger companies within certain North American Industry Classification System (NAICS) codes.1 Within those
NAICS codes, the benefits intended for small business contractors may instead go to larger concerns. Similarly, small

1 NAICS classifies business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. economy. SBA uses NAICS as
a basis for its size standards.

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businesses will compete against larger concerns within those NAICS codes so that the goaling numbers may be further
distorted.

SBA performs surveillance reviews to assess Federal contracting agencies’ compliance with small business programs’
requirements and to verify that agencies are properly measuring their small business goal achievements. SBA has
implemented a new Standard Operating Procedure (SOP) to ensure consistency in conducting its surveillance reviews.
According to SBA, it has conducted over 60 surveillance reviews using the new SOP, and it continues to improve its
surveillance review process. We are working with the Agency to verify that the reviews are conducted in a thorough and
consistent manner.

Although SBA relies on Federal agencies to implement its programs and maximize procurement opportunities for small
businesses, SBA is ultimately responsible for ensuring that small businesses receive a fair and equitable opportunity to
participate in Federal contracts. As such, SBA needs to enhance its controls and continue to collaborate with other agen-
cies to improve procurement data accuracy supporting small business contracting goals. Similarly, SBA needs the full
range of Federal program enforcement tools at its disposal. To this end, the Agency should modify its Program Fraud
Civil Remedies Act (PFCRA) regulations so that SBA can pursue any small business contracting program violations,
subject to the PFCRA’s jurisdictional limits, under that statute.

Number of Actions Accomplished (Green Status)
2011: 1 2012: 1 2013: 0 2014: 1
During Last Four Fiscal Years (Challenge first reported in FY 2005)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Revise the surveillance review process to ensure that reviews are conducted in a thorough and consistent manner. (Previously action 2) Yellow
2. Strengthen controls to ensure the accuracy of the Federal Government’s annual small business procurement goals achievements reported
New
in the Small Business Goaling Report.
3. Implement a certification process for WOSBP. New
4. Revise SBA’s Program Fraud Civil Remedies Act regulations so that SBA can pursue violations of its Federal contracting programs and
New
demonstrate a capacity for taking enforcement actions under that statute.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 2. Weaknesses in Information Systems’ Security Controls Pose
Significant Risks to the Agency

Recent Government-wide security breaches have heightened the importance of continuously monitoring networks and
software applications. OIG and its external auditor have identified weaknesses when on-boarding and separating SBA
personnel. In addition, SBA needs to address long-standing security weaknesses in the following areas:

• SBA’s system software controls have long-standing recommendations relating to timely baseline configurations of
SBA’s IT platforms and patching operating systems, devices, and database management systems.
• SBA’s segregation of duty controls continue to have open recommendations relating to restricting access to system
software and effectively reviewing system and application logs.
• SBA’s IT security management program continues to have open recommendations relating to IT security oversight
as well as improvements in SBA’s compliance with guidance provided in the Federal Information Security Manage-
ment Act of 2002 (FISMA).

To show improvement in the above areas, SBA’s Office of the Chief Information Officer, in conjunction with SBA’s vari-
ous program offices, will need to implement tools and capabilities to provide effective oversight and continuously moni-
tor computer security controls.

Number of Actions Accomplished (Green Status)
2011: 1 2012: 0 2013: 1 2014: 0
During Last Four Fiscal Years (Challenge first reported in FY 1999)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Access controls are in place and operating effectively, and contractors are not granted system access until they have obtained the Orange â
required background investigations and/or security clearances.
2. System software controls are in place and operating effectively. Orange
3. Segregation of duty controls are in place and operating effectively. Orange
4. The plan of action and milestones accurately report all computer security weaknesses and corrective actions. Yellow
5. The IT security management program effectively addresses information security in systems that support the operations and assets of the
Yellow
organization.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

100 AGENCY FINANCIAL REPORT • FY 2015
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Challenge 3. SBA Needs Effective Human Capital Strategies to Carry Out its
Mission Successfully and Become a High-Performing Organization

The Office of Human Resource Solutions (OHRS) made significant progress toward its workforce and succession plan-
ning goals during FY 2015. By the beginning of the fiscal year, the Agency had contracted the services of the Office of
Personnel Management’s (OPM) fee-for-service arm, HR Solutions, who would review existing competency models,
related job materials, and job analysis information in order to provide feedback for SBA’s existing competency models.
OPM will then facilitate focus groups to update and validate the model based on HR Solutions’ feedback. Using the up-
dated and validated competency model, OHRS will also perform a competency gap analysis for each mission-critical oc-
cupation and provide a report on the gaps existing in the workforce, recruitment, retention, and employee development
program decisions. HR Solutions is expected to complete its work in FY 2016. In order to complete this recommended
action, SBA’s workforce and succession planning goals should establish appropriate metrics to gauge its success at having
the right people, in the right jobs, at the right time.

OHRS also continues to make substantial progress to update and establish standard operating procedures (SOP) for
human capital management. In FY 2015, OHRS issued one SOP and advanced two other critical SOPs into the final
stages of the clearance process. In addition, OHRS issued the Merit Promotion Plan SOP, updated the Delegation
Examination Handbook, and moved two other SOPs into the formal clearance process not previously identified in this
challenge. OHRS plans to work on updating the last SOP included in OIG’s recommended actions—Discipline and
Adverse Actions—in FY 2016.

The Agency has implemented the third recommended action under this management challenge. In FY 2015, OHRS
established an employee engagement working group to complement the ongoing SBA Way Initiative established in FY
2013. The employee engagement working group meets bi-weekly and is responding to the White House, Office of
Management and Budget (OMB), and OPM guidance with a four-pronged approach: (1) individual accountability, (2)
organizational performance, (3) communication, and (4) initiative and activity.

Number of Actions Accomplished (Green Status) During Last Four Fiscal
2011: 0 2012: 0 2013: 1 2014: 0
Years (Challenge first reported in FY 2001, revised FY 2007)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Ensure the Agency has an effective, comprehensive workforce and succession plan that aligns talent needs and capabilities with SBA’s FY
2011-2016 strategic plan. SBA’s workforce and succession planning goals should reflect the need to recruit and retain the appropriate Yellow
talent, and should establish appropriate metrics to gauge SBA’s success at having the right people, in the right jobs, at the right time.
2. Ensure that human capital management SOPs are updated and appropriately structured to support the Agency’s long-term goals and
Yellow
objectives and Government-wide human capital management initiatives. (Previously recommended action #3)
3. Demonstrate sustained progress toward a high-performing, employee-driven culture through activity and effort as prioritized by SBA’s
Green á
employee engagement initiative for two consecutive years (end of FY 2015) (Previously recommended action #4, modified in February 2014).
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 4. SBA Needs to Further Strengthen its Oversight of Lending
Participants

Prior OIG and GAO reports disclosed weaknesses in SBA’s oversight of lenders that participate in its programs. The risks
inherent in delegated lending require an effective oversight program to (1) monitor compliance with SBA policies and
procedures and (2) take corrective actions when a material noncompliance is detected. However, in prior years, we have
found that SBA had not established sufficient controls that would identify—and safeguard against—the risks some lend-
ers pose. For example, in a September 2012 audit report, OIG found that SBA did not always recognize the significance
of lender weaknesses or determine the risks they posed to the Agency during its onsite reviews (Report 12-20R). The
Agency also did not link the risks associated with these weaknesses to the lenders’ corresponding risk ratings and assess-
ments of operations. Further, SBA did not require lenders to correct performance problems that could have exposed SBA
to unacceptable levels of financial risk.

However, since this management challenge was first issued in 2001, SBA has made substantial progress in its oversight
of lending participants. In FY 2013, SBA (1) developed risk profiles and lender performance thresholds, (2) developed
a select analytical review process to allow for virtual risk-based reviews, (3) updated its lender risk rating model to better
stratify and predict risk, and (4) conducted test reviews under the new risk-based review protocol. These efforts have
demonstrated that onsite reviews are now conducted on the highest-risk lending participants based on expanded selection
criteria.

Further, in FY 2014, SBA improved its monitoring and verification of lender corrective actions by: (1) developing correc-
tive action assessment procedures, (2) finalizing a system to facilitate the corrective action process, and (3) populating the
system with lender oversight results requiring corrective action. In FY 2015, SBA’s Office of Credit Risk Management
(OCRM) engaged contractor support to expand on its corrective action follow-up process. Additionally, OCRM issued
its FY 2015 Risk Management Oversight Plan, which included plans to conduct 170 corrective action reviews between
7(a) and 504 lenders.

Number of Actions Accomplished (Green Status) 2012 2013 2014
During Last Four Fiscal Years 2011: 0 7(a) loans: 1 7(a) loans: 2 7(a) loans: 0
(Challenge first reported in FY 2001) 504 loans: 1 504 loans: 2 504 loans: 0

Status at end of FY 2015
Recommended Actions for FY 2016
7(a) 504

1. Monitor and verify implementation of corrective actions to ensure effective resolution prior to close-out.
Yellow Yellow
(Previously Recommended Action #3)
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 5. SBA Needs to Modify the Section 8(a) Business Development
Program So More Firms Receive Business Development Assistance, Standards
for Determining Economic Disadvantage are Justifiable, and Firms Follow 8(a)
Regulations When Completing Contracts

SBA’s 8(a) Program was created to provide business development assistance to eligible small disadvantaged businesses
seeking to compete in the American economy. SBA’s challenge has been to ensure that 8(a) guidance, controls, and prac-
tices truly prepare participating firms for a competitive market. In the past, SBA had not placed 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.

SBA continues to address issues that hinder its ability to deliver an effective 8(a) Program. For example, SBA has made
its assistance more readily available to program participants by using resource partners such as small business develop-
ment centers. SBA has also taken steps to ensure business opportunity specialists assess program participants’ business
development needs during site visits. SBA also revised its regulations, effective March 2011, to ensure that companies
deemed “business successes” graduate from the program, rather than allowing them to remain in the program and receive
8(a) contracts, which caused fewer companies to receive the majority of 8(a) contract dollars and many to receive none.
These regulations also establish additional standards to address the definition of “economic disadvantage.”

However, for the third consecutive year, SBA has not finalized its 8(a) Program SOP to reflect the March 2011 regulatory
changes. In October 2015, SBA submitted the SOP through its internal clearance process. Further, although the March
2011 regulations establish the threshold for “economic disadvantage,” we have concerns that SBA’s standards for deter-
mining economic disadvantage are not justified or objective because they are not based on economic analysis. Agency
officials stated that the rule-making process served as an adequate proxy to objectively and reasonably determine effective
measures for economic disadvantage, and were not aware of any reliable sources of data to determine economic disadvan-
tage. However, we continue to maintain that SBA’s standards for determining economic disadvantage are not justified
or objective based on the absence of an economic analysis. Finally, monitoring efforts have made limited progress. For
example, although SBA awarded a $1.9 million contract in December 2011 to develop and deploy a new IT system to
assist in monitoring 8(a) Program participants, in 2014, SBA decided not to deploy this new system. Instead, SBA is
now attempting to develop and implement another IT system.

Number of Actions Accomplished (Green Status) During Last Four Fiscal
2011: 0 2012: 0 2013: 0 2014: 0
Years (Challenge first reported in FY 2003)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Develop and implement a plan, including SOP provisions, which ensures that the 8(a) Business Development Program identifies and
Orange
addresses program participants’ business development needs on an individualized basis.
2. Update and issue the 8(a) Business Development SOP to reflect the March 2011 regulatory changes. Orange
3. Establish objective and reasonable criteria that effectively measure “economic disadvantage,” and implement the new criteria. Red
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 6. Effective Tracking and Enforcement Would Reduce Financial Losses
from Loan Agent Fraud

For years, OIG investigations have revealed a pattern of fraud by loan packagers and other for-fee agents in the 7(a)
Loan Program, involving hundreds of millions of dollars. Since 2005, SBA OIG has investigated at least 22 cases with
confirmed loan agent fraud totaling at least $335 million. Further, OIG has determined that loan agents were involved
in approximately 15 percent of all 7(a) loans and resulted in increased risk of default. Yet SBA’s oversight of loan agents
has been limited, putting taxpayer dollars at risk. Prior OIG audits and investigations have identified that SBA does not
have a way to effectively identify and track loan agent involvement in 7(a) portfolios, does not adequately list suspended
loan agents to prevent their involvement in the program, and may have outdated enforcement regulations. As loan agent
involvement in the 7(a) Program continues to increase, it will become all the more important for SBA to have oversight
tools in place to identify and track loan agent involvement in this sizeable program.

In response to this challenge, SBA has made gradual progress. First, to track loan agent activity, SBA eventually decided
to have lenders fax a loan agent disclosure form (Form 159) to SBA’s fiscal and transfer agent (FTA) and require the FTA
to enter the data into a database accessible to SBA. SBA also began linking Form 159 information with its loan data.
However, as a recent OIG report identified significant issues in the data quality on the Form 159 information, SBA will
likely need to make further modifications to this process. For example, the FTA is testing an automated Form 159. Ad-
ditionally, in response to OIG concerns that SBA loan agent enforcement regulations are outdated, SBA drafted revised
regulations, which the Office of Management and Budget is reviewing.

Lenders need to ensure that agents involved with their loans have not been subject to enforcement action by SBA. SBA
now lists the names of loan agents and others named in SBA enforcement actions on its website, and updated an SOP
in FY 2014 to instruct lenders to consult this list to avoid problematic loan agents. However, SBA also needs to develop
a system to assign a unique identifier to loan agents that participate in the 7(a) Program. Otherwise, suspended agents
could circumvent SBA by simply changing their name and continuing participating in the program. In response to our
loan agents report, SBA stated it will explore the feasibility of implementing a registration system (Report 15-16).

Number of Actions Accomplished (Green Status)
2011: 0 2012: 1 2013: 0 2014: 0
During Last Four Fiscal Years (Challenge first reported in FY 2000)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Develop an effective method of disclosing and tracking loan agent involvement in SBA business loan programs. Yellow
2. Update regulations (13 CFR Part 103) regarding loan agents to provide effective enforcement procedures. Yellow á
3. Issue guidance that lenders must (1) review SBA’s webpage list of loan agents that have been subject to an enforcement action and (2) refrain
Green á
from doing business with any agent appearing on the list during the time that an agent is suspended or revoked from the 7(a) Program.
4. Implement a loan agent registration system, including the issuance of a unique identifying number for each agent. Orange
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

104 AGENCY FINANCIAL REPORT • FY 2015
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Challenge 7. SBA Needs to Modernize its Loan Accounting System and Migrate it
Off the Mainframe

The Loan Accounting System is the core system of record used to account for SBA’s $115 billion loan portfolio. In No-
vember 2005, SBA initiated the loan management accounting system (LMAS) project, intended to update and modern-
ize the old system and migrate it off the mainframe. Since 2010, the LMAS modernization effort has been structured
into multiple components, or incremental improvement projects (IIPs).

SBA successfully migrated its Loan Accounting System off its legacy mainframe in January 2015, thereby ending SBA’s
reliance on the proprietary mainframe platform. The most recent transition to production planning IIP included testing
the new system and migrating code and financial data to the new production environment. This project was critical to
SBA’s overall effort to move off the proprietary mainframe. Our most recent review found that SBA’s multiple tests—in-
cluding system, integration, performance, and user acceptance tests—successfully ensured that the new system operated
correctly. We also found that SBA completed nearly all outstanding recommendations related to the recommended
actions below.

While SBA has successfully closed out the LMAS project, we have observed that the Agency needs to complete addi-
tional, complex IT projects timely and successfully. This effort may pose a challenge for the Agency because SBA does
not have experienced IT program managers and also lacks continuity within the Office of the Chief Information Officer.
Consequently, it will be difficult for the Agency to consistently ensure that its IT investments yield the intended results.
As a result, OIG will continue to evaluate whether SBA’s capital investment controls adhere to system development
methodologies and criteria.

Number of Actions Accomplished (Green Status)
2011: 0 2012: 0 2013: 0 2014: 0
During Last Four Fiscal Years (Challenge first reported in FY 2010)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Migrate LMAS to a new operating platform before the current mainframe contract expires in 2015.. Green á
2. Modify the LMAS quality assurance/independent verification and validation (IV&V) contract and establish an effective quality assurance
(QA) process which provides senior management independent assurance that LMAS development activities and related project Green á
deliverables meet SBA quality standards.
3. Establish a process for reviewing and accepting LMAS deliverables that complies with quality assurance and systems development methodology
Green á
requirements. This includes hiring or fully staffing an IV&V entity to validate deliverable acceptance.
4. Implement a quality assurance process in LMAS in accordance with SBA’s Enterprise QA Plan. Green á
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

AGENCY FINANCIAL REPORT • FY 2015 105
OT H E R I NF OR M AT I ON

Challenge 8. SBA Needs to Accurately Report, Significantly Reduce, and
Strengthen Efforts to Recover Improper Payments in the 7(a) Loan Program

Previous OIG audits have determined that SBA has significantly understated its improper payment rates for 7(a) loan
approvals and purchases because it did not adequately review loans, used flawed sampling methodologies, and did not ac-
curately project review findings. In FY 2011, SBA reported a 1.73 percent improper payment rate for 7(a) purchases, or
$40.7 million, when the rate could have been as high as 20 percent, or about $472 million. Similarly, even though SBA
in FY 2011 reported no improper payments for 7(a) loan approvals, an OIG audit estimated that at least 1,196 Recovery
Act 7(a) loans were not originated and closed in compliance with SBA requirements, resulting in at least $869.5 million
in inappropriate or unsupported loan approvals.

Recent OIG audits have also identified 7(a) loans that were ineligible, lacked repayment ability, or were not properly
closed. In 2012, we reported that the limited reviews of lender underwriting performed during guaranty purchase
reviews were contrary to SBA procedures, resulting in improper payments. We also reported that high-dollar, early-de-
faulted loans were not reviewed with the scrutiny required to identify improper payments. In 2014, we reported that six
SBA-approved loans with material underwriting deficiencies defaulted, resulting in $4.8 million in unnecessary losses. In
2015, we reported another $1.8 million in recommended recoveries on purchased 7(a) loans. Additionally, we reported
that due to a change in testing procedures, SBA missed identifying improper payments and, consequently, its FY 2014
reported improper payment rate for 7(a) purchases was understated.

The Office of Capital Access (OCA) has taken actions to accurately report and reduce improper payments in SBA’s 7(a)
Loan Program. OCA has (1) formalized its improper payment sampling, (2) demonstrated that its review process is
effective for 7(a) loan approvals, (3) formalized its process to review disputed cases, (4) formalized the recovery process
and time standards for 7(a) purchases, (5) developed appropriate corrective action plans for 7(a) loans, (6) established
repayment ability review requirements that are effective at identifying improper payments, (7) revised improper payment
review checklists, and (8) demonstrated recovery from lenders in a timely manner during FY 2015. However, OCA still
needs to demonstrate that its process over disputed cases ensures adequate and timely resolution.

Number of Actions Accomplished (Green Status) 2013 2014
During Last Four Fiscal Years 2011: 0 2012: 0 7(a) Approvals:1 7(a) Approvals:1
(Challenge first reported in FY 2001) 7(a) Purchases: 0 7(a) Purchases:1

Status at end of FY 2015
Recommended Actions for FY 2016
7(a) Approvals 7(a) Purchases

1. Reassign responsibility for final approval of disputed denial, repair, and improper payment decisions from the Office
of Financial Assistance (OFA) to the Office of Credit Risk Management (OCRM) to ensure an adequate and timely N/A Yellow
resolution of disputes.
2. Establish a process and time standards to expeditiously recover improper payments identified during Agency reviews
N/A Green á
and OIG audits.
3. Demonstrate that corrective action plans are effective in reducing improper payments in the 7(a) Loan Program. Yellow Yellow
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

106 AGENCY FINANCIAL REPORT • FY 2015
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Challenge 9. Disaster Assistance Must Balance Competing Priorities to Deliver
Timely Assistance and Reduce Improper Payments

SBA’s disaster loans are vulnerable to fraud and losses because (1) loan transactions are often expedited in order to pro-
vide quick relief to disaster survivors, (2) lending personnel hired in connection with a disaster declaration may lack suf-
ficient training or experience, and (3) the volume of loan applications may overwhelm SBA’s resources and its ability to
exercise careful oversight of lending transactions. Both OIG and GAO audits have determined that because SBA had not
taken sufficient steps to prepare for large-scale disasters, such as properly preparing and training a new workforce for high
application volumes, the program has often been unable to provide timely assistance in the aftermath of major disasters.
Even in the wake of disasters like Hurricane Sandy, SBA did not effectively develop and utilize programmatic innovations
intended to assist in disbursing funds quickly and effectively. For instance, SBA did not implement three new guaran-
teed disaster loan programs mandated by Congress in 2008 that would provide expedited disaster loans in partnership
with private sector lenders. SBA solicited feedback from lenders on these proposed programs and they objected to the
requirements regarding loan terms, interest rates and loan fee limits. Further, the expedited loan processes implemented
in response to Hurricane Sandy did not significantly reduce loan approval times.

Additionally, in FY 2014, the default component of the disaster direct loan program subsidy rate was 15 percent, and
the program’s improper payment rate was 12 percent. While the improper payment rate represents a gradual decrease
compared to the past several years, it remains above the 10 percent level required to be in compliance with the Improper
Payments Elimination and Recovery Act of 2010 (IPERA). In addition, the Disaster Direct Loan Program exceeds the
threshold for significant improper payments defined by IPERA ($10 million and 2.5 percent of program outlays)—Im-
proper payments were $70 million of the $585.6 million in program outlays in FY 2014. To reduce improper payments
with disaster loans, SBA’s Office of Disaster Assistance (ODA) should strengthen controls related to verification and
documentation of loan eligibility, insurance coverage, and other program requirements that have been identified as the
most prevalent errors in the program. If properly addressed, SBA can effectively reduce the improper payment rate in
future years.

Number of Actions Accomplished (Green Status)
2011: N/A 2012: N/A 2013: N/A/ 2014: N/A
During Last Four Fiscal Years (Challenge first reported in FY 2015)
Status at end
Recommended Actions for FY 2016
of FY 2015
OCA
1. Implement pilot programs of the new guaranteed disaster programs mandated by Congress.
New
ODA
2. Demonstrate that the Agency has adequately trained loan processing resources that can be quickly mobilized in the event of the disaster.
New

3. Reduce the improper payment rate to 9.5 percent or lower in FY 2016, in accordance with the reduction targets established in the FY 2014 ODA
Agency Financial Report. New
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

AGENCY FINANCIAL REPORT • FY 2015 107
OT H E R I NF OR M AT I ON

Challenge 10: SBA Needs to Effectively Manage Its Acquisition Program

SBA improved its acquisition process by reducing its improper payment rate for contract disbursements, providing train-
ing to acquisition personnel, conducting annual advanced strategic acquisition planning, and using the Contract Review
Board for making acquisition decisions. However, challenges still exist, including: (1) inadequate acquisition planning,
(2) poorly defined requirements, (3) incomplete systems interface, (4) lack of effective controls for interagency acquisi-
tion, and (5) an incomplete acquisition SOP.

We identified instances where SBA inadequately planned its requirements for procuring IT products and services. While
SBA, for the most part, interfaced the contract management system with the financial system, it has not completed the
interface for blanket purchase agreements and indefinite delivery indefinite quantity contracts—potentially exposing an
internal control deficiency. SBA also did not comply with Federal regulations when determining whether using inter-
agency acquisitions was the best procurement approach. Further, its acquisition SOP does not include procedures on the
use of modular contracting for major system acquisitions, interagency acquisitions, or post-award contract administration
requirements.

In July 2014, the Office of the Chief Financial Officer (OCFO) awarded a contract to assess its acquisition function.
The assessment was completed in March 2015; however, as of September 2015, OCFO had not implemented a compre-
hensive improvement plan to address deficiencies identified by the assessment. Until SBA can demonstrate that it has
developed and implemented a comprehensive improvement plan to address the control deficiencies within its acquisition
function, it will continue to experience challenges.

Number of Actions Accomplished (Green Status)
2011: N/A 2012: N/A (New) 2013: 0 2014: 0
During Last Four Fiscal Years (Challenge first reported in FY 2013)
Status at end
Recommended Actions for FY 2016
of FY 2015
1. Complete an assessment of the Agency’s acquisition activities using OMB’s Guidelines for Assessing the Acquisition Function. Green á
2. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that has
measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the organizational alignment and Orange
leadership assessment area.
3. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that has
measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the acquisition policies and Orange
processes assessment area (i.e. acquisition management SOP).
4. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that
has measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the acquisition workforce Orange
assessment area.
5. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that has
measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the knowledge management and Orange
information systems assessment area.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

108 AGENCY FINANCIAL REPORT • FY 2015
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SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT
ASSURANCES
As required by OMB Circular A-136, Section II.5.7, the following summarizes SBA’s Financial Statement Audit and
Management Assurances:

SUMMARY OF FINANCIAL STATEMENT AUDIT
Audit Opinion Unmodified
Restatement No

Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance
None 0 0 N/A N/A N/A 0

SUMMARY OF MANAGEMENT ASSURANCES
Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)
Statement of Assurance Unqualified

Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance
None 0 0 N/A N/A N/A 0

Effectiveness of Internal Control over Operations (FMFIA § 2)
Statement of Assurance Unqualified

Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending 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 Balance New Resolved Consolidated Reassessed Ending Balance
None 0 0 N/A N/A N/A 0

Conformance with Federal Financial Management Improvement Act (FFMIA)
Agency Auditor
1. System Requirements No lack of substantial compliance noted No lack of substantial compliance noted
2. Accounting Standards No lack of substantial compliance noted No lack of substantial compliance noted
3. USSGL at Transaction Level No lack of substantial compliance noted No lack of substantial compliance noted

AGENCY FINANCIAL REPORT • FY 2015 109
OT H E R I NF OR M AT I ON

IMPROPER PAYMENTS
As required by the Improper Payment Information Act OMB for relief from reporting due to the low occurrence
of 2002 (IPIA), its amendments, and OMB Circular No. of improper payments determined by several years’ review
123, Appendix C, Management’s Responsibility for Internal and low probability for improper payments.
Control: Requirements for Effective Estimation and Reme-
diation of Improper Payments, the SBA reviews programs The next sections discuss SBA efforts and results related to
identified as susceptible to improper payments. improper payment assessments and reviews.

Improper payment reviews are a multi-layered process that
starts with a risk assessment. If an assessment indicates a
Part I - Risk Assessments
program is susceptible to improper payments, then testing OMB Circular No. A-123, Appendix C requires risk as-
is performed using a statistically valid sampling technique. sessments at least once every three years for programs not
Based upon the testing results, a corrective action plan is deemed risk susceptible or if a program was subjected to
determined for the types of errors uncovered. If a signifi- a significant change in legislation or funding level. The
cant amount of recoverable dollars is found, the SBA con- SBA last conducted risk assessments for all programs and
siders the appropriateness of performing a recapture audit. activities, including payments made to employees, for
susceptibility to improper payments in FY 2014. The risk
The Disaster Relief Appropriations Act, 2013 provided assessments did not identify any additional programs as
funding for disaster relief in response to Hurricane Sandy susceptible to improper payments. Since no significant
to certain agencies including the SBA. Agencies were changes occurred to any SBA program or activity during
required to ensure the funds were used for their intended FY 2015, the SBA did not conduct any new risk assess-
purpose. The Act deemed all Hurricane Sandy funds as ments.
susceptible to significant improper payments and, regard-
less of risk assessment results, mandated that agencies
report an improper payment estimate for the funds. The Parts II and V - Statistical Sampling and
SBA received Hurricane Sandy Disaster Relief (HSDR) Corrective Actions
funds for the Disaster Direct loan program, including the
administrative expenses related to the program, and certain To provide more clarity for the reader, this section is
grant programs. Improper payment assessments of those organized by the nine programs subjected to review for
relevant grant programs and payments to federal employ- improper payments and provides statistical sampling infor-
ees did not determine them to be susceptible to improper mation coupled with corrective actions where applicable.
payments; however, the SBA conducted improper payment
reviews and is reporting the results to comply with the 7(A) LOAN GUARANTY PURCHASES
Disaster Relief Appropriations Act, 2013. Statistical Sampling
The SBA reviewed nine programs and activities for Using Probability Proportional to Size (PPS) sampling with
improper payments – three major credit programs as man- replacement, the 7(a) purchase sample cases were chosen
dated by OMB, disbursements for goods and services, and from all purchases approved during the 12 month period
Hurricane Sandy Disaster Relief (HSDR) funds for grants, ending March 31, 2015. The purchase population was di-
payroll, travel, and purchase cards. The three major credit vided into four strata based on the following factors: which
programs are: of three servicing offices processed the purchase and if the
loan was considered an early default, regardless of servicing
• 7(a) business loan program that includes guaranty office. Using the PPS approach, the SBA determined the
purchases and guaranty approvals; appropriate total sample size to be 261 loans from the popu-
• 504 certified development company loan guaranty lation. The sample included aggregate purchase outlays of
approvals; and $148,317,727 and an absolute value of improper payments
• Disaster direct loan disbursements. of $1,785,487 within the sample. Using the Hansen-
Hurwitz estimation method, the estimated improper pay-
A fourth major credit program, the Small Business Invest- ment rate for the 7(a) guaranty purchase population is .90
ment Company (SBIC) program, retains approval from percent.

110 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

Corrective Action

The 7(a) loan guaranty purchase reviews were conducted to In FY 2015, the most prevalent root cause for 7(a) loan
examine if the lender complied materially with the 7(a) loan approval improper payments stemmed from administra-
program origination requirements including statutory provi- tive or process errors made by the participating lender at
sions, SBA regulations, any agreement the lender executed origination. Improper payments generally arose when the
with the SBA, standard operating procedures, loan authori- participating lender failed to comply with loan program
zations, and official SBA notices and forms applicable to the requirements. The primary reasons for 7(a) approval errors
7(a) loan program. The purchase reviews were to determine in FY 2015 included:
if the lender (1) originated, serviced, and liquidated the loan • ineligible loan structures;
in a prudent and commercially reasonable manner; (2) mis-
represented or failed to disclose a material fact to the SBA; • lack of repayment ability; and
and/or (3) put SBA’s financial interest at risk. • improper determination of eligibility by lenders or
SBA loan officers.
Corrective Action
As a means to reduce and/or eliminate the occurrence of
The improper payment rate of 0.90 percent and $7.91 future improper payments, a Corrective Action Plan has
million does not exceed the 1.5 percent and $10 million been formalized for the 7(a) loan guaranty approval cen-
threshold for reporting a corrective action. ters. Specific corrective actions are determined based upon
the primary reason for the error with the purpose of both
7(A) LOAN GUARANTY APPROVALS remedying the error and ensuring the error does not occur
in the future. Plans for improvement include:
Statistical Sampling
Using PPS sampling with replacement, the 7(a) approval • revise and issue updated SOP 50 10 5(G) and
sample cases were chosen from all loan guaranties approved ensure clear guidance is provided as it relates to the
during the 12 month period ending March 31, 2015. The 7(a) guaranty purchase process;
loan guaranties were approved through SBA’s loan process- • the Office of Financial Program Operations will col-
ing centers, consisting of the 7(a) Loan Guaranty Process- laborate with the Office of Credit Risk Management
ing Center with dual locations in Sacramento, California to ensure specific lender deficiencies are monitored
and Hazard, Kentucky. The approval population was and incorporated into risk based reviews;
divided into two strata based on whether the loan was
• external training for lenders to avoid ineligible loan
SBAExpress or not. The SBA determined the appropriate
structures, ensure proper use of loan proceeds, and
total sample size to be 141 loans from the population. The
accurately determine loan eligibility; and
sample included net guarantied approvals of $162,199,500
and improper payments of $6,217,068 within the sample. • internal training for loan approvers to ensure appro-
Using the Hansen-Hurwitz estimation method, the priate documentation is obtained and analyzed prior
estimated improper payments rate was calculated as 5.59 to loan approval.
percent. The aforementioned corrective actions to ensure errors do
The 7(a) loan guaranty approval reviews were conducted not continue to occur are currently underway. Revisions
to examine if the lender complied materially with the 7(a) to the SOP are anticipated to be completed by the end of
loan program origination requirements including statu- FY 2016. The Office of Financial Program Operations
tory provisions, SBA regulations, any agreement the lender (OFPO) shared the loan level and lender deficiencies
executed with the SBA, standard operating procedures, with the Office of Credit Risk Management (OCRM) in
loan authorizations, and official SBA notices and forms August 2015, and will continue its efforts to ensure lender
applicable to the 7(a) loan program. The approval reviews deficiencies are monitored and incorporated into lender’s
were to determine if the lender (1) originated the loan in Risk Based Reviews. External and internal training will be
a prudent and commercially reasonable manner; (2) mis- provided by the end of the second quarter of FY 2016.
represented or failed to disclose a material fact to the SBA;
and/or (3) put SBA’s financial interest at risk.

AGENCY FINANCIAL REPORT • FY 2015 111
OT H E R I NF OR M AT I ON

Corrective actions are tracked at the loan level through lender failed to comply with loan program requirement.
a centralized database. The Quality Control Specialist The primary reasons for 504 approval errors in FY 2015
for 7(a) loan guaranty approvals monitors errors from included:
identification through completion of the corrective action.
Headquarters management provides oversight to ensure • lack of substantiating financial documents; and
milestones are met. All improper payments identified as a • inadequate affiliate and size standard analysis.
result of the FY 2015 IPERIA reviews have been recap-
tured through obtaining additional documentation, loan As a means to reduce and/or eliminate the occurrence of
modification, or cancellation of the loan guaranty. Cor- future improper payments, a Corrective Action Plan has
rective actions were generally completed at the loan level been formalized for the 504 loan approval center. Specific
within 60 days with all actions taken by the end of the corrective actions are determined based upon the primary
fiscal year. reason for the error with the purpose of both remedying
the immediate error and ensuring the error does not occur
504 CDC LOAN GUARANTY APPROVALS in the future. Plans to ensure reduction targets are met
include:
Statistical Sampling
• the Office of Financial Program Operations will col-
Using PPS sampling with replacement, the 504 CDC loan laborate with the Office of Credit Risk Management
approval sample cases were chosen from all loan guaranties (OCRM) to ensure specific lender deficiencies are
approved during the 12-month period ending March 31, monitored and incorporated into risk based reviews;
2015. The loan guaranties were approved at SBA’s Sacra-
• external training for CDCs focusing on substantiat-
mento Loan Processing Center and closed at various SBA
ing financial documents including analysis, affiliate
district offices, with servicing subsequently handled by
and size standard analysis, and accurately determin-
the Fresno, California Commercial Loan Servicing Center
ing loan eligibility;
and the Little Rock, Arkansas Commercial Loan Servicing
Center. The approval population was not stratified. The • internal training for loan approvers focusing on cal-
SBA determined the appropriate total sample size to be culating a borrower’s repayment ability, and affiliate
192 loans from the population. The sample included net and size standard analysis; and
approval outlays of $294,277,000 and improper payments • enhanced internal quality control reviews to test
of $16,663,014 within the sample. Using the Hansen- 504 pre-closing servicing actions.
Hurwitz estimation method, the estimated improper pay-
ments rate was calculated as 3.78 percent. The aforementioned corrective actions to ensure errors do
not continue to occur are currently underway. OFPO shared
The 504 CDC loan approval reviews were conducted the loan level and lender deficiencies with OCRM in August
to examine if the lender complied materially with the 2015, and will continue its efforts to ensure lender deficien-
program’s origination requirements including statutory cies are monitored and incorporated into lender’s Risk Based
provisions, SBA regulations, any agreement the CDC ex- Reviews. External and internal training will be provided
ecuted with the SBA, standard operating procedures, loan by the end of the second quarter of FY 2016. The Quality
authorizations, and official SBA notices and forms appli- Control program has designed the review process for 504 pre-
cable to the 504 CDC loan program. The reviews were to closing servicing actions, and anticipates incorporating such
determine if the CDC (1) originated the loan in a prudent reviews by the end of the second quarter in FY 2016.
and commercially reasonable manner; (2) misrepresented
or failed to disclose a material fact to the SBA; and/or (3) Corrective actions are tracked at the loan level through a cen-
put SBA’s financial interest at risk. tralized database. The Quality Control Specialist for 504 loan
guaranty approvals monitors errors from identification through
Corrective Action completion of the corrective action. Headquarters manage-
ment provides oversight to ensure milestones are met. All im-
In FY 2015, the most prevalent root cause for 504 ap-
proper payments identified as a result of the FY 2015 IPERIA
proval improper payments stemmed from administra-
reviews have been recaptured through obtaining additional
tive or process errors made by the participating lender at
documentation or through a loan modification. Corrective ac-
origination and the CDC’s failure to verify eligibility data.
tions were generally completed at the loan level within 60 days
Improper payments generally arose when the participating
with all actions taken by the end of the fiscal year.

112 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

DISASTER DIRECT LOAN PROGRAM The training will be completed by the end of FY
2016 first quarter, December 31, 2015.
Statistical Sampling
• Secondary reviews of specified (based on dollar
The Office of Disaster Assistance performs a Quality Assur- amount) disbursements to ensure the proper insur-
ance Review (QAR) of the approved loan portfolio annually. ance coverage is in effect. The second review is
A part of the QAR is to identify any deficiency that would currently ongoing and will be performed on every
result in an improper payment. The statistical methodology specified dollar amount disbursement
used follow widely accepted practices and was approved by
the Office of Management and Budget. The review popula- DISBURSEMENTS FOR GOODS AND
tion consisted of disaster loan disbursements, including SERVICES
HSDR funds, made during the 12-month period ending
June 30, 2015 with total disbursements of $302,288,000. Statistical Sampling
A sample of 500 payments was selected for which testing Disbursements for goods and services samples were chosen
yielded a weighted estimated improper payment rate of 8.13 using PPS with replacement methodology from payments
percent. Based on the sample results, the estimated amount completed during the 12 months ending March 31, 2015.
of improper payments was $24,575,000. This represents The total number of disbursements was 3,255, and the total
a substantial reduction in the improper payment rate and dollar amount was $105,444,360. The SBA determined the
dollars over the last fiscal year which reported a rate of 12 appropriate sample size to be 214 unique invoices having to-
percent and $70 million. tal outlays of $54,201,465. Based upon the sample results,
the estimated improper payment rate exceeded the estimat-
The scope of ODA’s review covers three primary compli-
ed rate used in the sampling methodology and therefore an
ance areas: (1) basic eligibility; (2) adherence to relevant
additional of 91 unique invoices totaling $8,982,495 were
laws, rules, regulations, and standard operating procedures;
sampled. Based upon both sample results, the estimated
and (3) credit worthiness.
FY 2015 disbursements for goods and services improper
payment rate is 13.52 percent for an estimated total of
Corrective Action
$14,260,252. This was a significant increase from last year’s
In FY 2015, the most prevalent root cause for Disaster estimated improper payment rate for disbursements for
Direct loan program improper payments stemmed from good and services of 8.46 percent and a slight increase from
administrative and documentation errors. The loan pro- FY 2013 rate of 11.6 percent.
cessing and disbursement staff did not consistently follow
the guidance provided in the SOP and policy memos. The scope of the review covered three areas: invoice ac-
Specifically, errors arose when: curacy, compliance with contract terms, and accuracy of
invoice processing.
• proper dates and type of insurance coverage,
which accounts for approximately 71 percent of Corrective Action
all improper payments in this program, were not
In FY 2015, the root cause of the improper payments was
confirmed;
administrative and documentation errors. All payments
• disbursements were made to parties that were ineli- corresponded to valid goods and services received. The
gible for disaster loan assistance; and types of errors included:
• underpayments that incorrectly lowered borrowers’
loan amount eligibility. • lack of review of contract documents prior to issuance;
• inadequate comparison of the invoice to the
As a result, ODA plans to continue the following correc- contract to verify period of performance, terms, or
tive actions: labor rates and categories to ensure they agree; and
• Intense training on the various types of insurance • payment accuracy issues where the financial system
coverage will be conducted for the disbursement was not updated at the time of payment with cur-
staff (case managers and attorneys) at the Process- rent vendor payment information from the System
ing and Disbursement Center in Fort Worth, Texas. for Award Management (SAM).

AGENCY FINANCIAL REPORT • FY 2015 113
OT H E R I NF OR M AT I ON

To prevent the administrative and documentation errors tive expenses will be reported in future years. The total
noted in the improper payment review, the SBA will com- dollar amount expended was $136,739,099. The SBA de-
plete the following corrective actions: termined the appropriate sample size to be 119 line items
having total outlays of $704,982.43. Based upon the
• develop an internal review process on contracts sample results, the estimated FY2015 improper payment
based on Federal Acquisition Regulations by Janu- rate was .30 percent for a total of $407,630.
ary 29, 2016;
• provide training to all contracting staff on reviewing Corrective Action
and approving invoices by January 31, 2016; and
The improper payment rate of .30 percent and $407,630
• install patches for the interface between the finan- does not exceed the 1.5 percent and $10 million threshold
cial system and SAM by January 31, 2016; continue for reporting a corrective action plan.
manual procedures until the interface between the
financial system and SAM is developed HURRICANE SANDY DISASTER RELIEF
ADMINISTRATIVE EXPENSES – TRAVEL
HURRICANE SANDY DISASTER RELIEF
GRANTS Statistical Sampling
Hurricane Sandy Disaster Relief travel administrative expense
Statistical Sampling
samples were chosen using PPS with replacement meth-
Hurricane Sandy Disaster Relief (HSDR) grant population odology from payments completed during the 12 months
for disbursements completed during the 12 months ending ending February 28, 2014. The administrative expenses
March 31, 2015 consisted of 43 disbursements for the total were inadvertently not reported in FY 2014 so expenses from
dollar amount of $4,267,246.63. In FY 2014 samples were March 1, 2013 to February 28, 2014 are being reported in
chosen using PPS with replacement methodology; however, FY 2015; subsequent HSDR administrative expenses will be
after assessing the cost of a statistician’s services to select reported in future years. The travel population was divided
a sample in FY 2014 and evaluating the small volume of into three strata based on the following factors: reimburse-
disbursements, it was determined that it was not cost effec- ments to employees for travel; payments associated with cen-
tive to contract with a statistician to select a sample. For trally billed accounts; and travel related relocation expenses.
this reason, 100 percent of the HSDR grant disbursements There were 7,278 expenditures with a total dollar amount of
were reviewed for improper payments. The 100 percent $10,115,680. Using the PPS approach, the SBA determined
test of disbursements will continue in future years until the the appropriate sample size to be 145 disbursements. Based
funds are fully expended. Based upon the test results, the upon the sample results, the estimated FY2015 improper pay-
estimated FY 2015 improper payment rate was 3 percent ment rate was 0.12 percent for a total of $12,065.
for a total of $130,050.76.
Corrective Action
Corrective Action
The improper payment rate of 0.12 percent and $12,065
The improper payment rate of 3.02 percent and does not exceed the 1.5 percent and $10 million threshold
$130,050.76 exceeds the 1.5 percent but does not exceed for reporting a corrective action plan.
$10 million threshold for reporting a corrective action plan.
HURRICANE SANDY DISASTER RELIEF
HURRICANE SANDY DISASTER RELIEF ADMINISTRATIVE EXPENSES – PURCHASE
ADMINISTRATIVE EXPENSES – PAYROLL CARDS
Statistical Sampling Statistical Sampling
Hurricane Sandy Disaster Relief payroll administrative There were 690 Hurricane Sandy Disaster Relief purchase
expense samples were chosen using PPS with replacement card administrative expense payments during the 12 months
methodology from payments completed during the 12 ending February 28, 2014 that totaled $514,813.55. The
months ending February 28, 2014. The administrative administrative expenses were inadvertently not reported in
expenses were inadvertently not reported in FY 2014 so FY 2014 so expenses from March 1, 2013 to February 28,
expenses from March 1, 2013 to February 28, 2014 are 2014 are being reported in FY 2015; subsequent HSDR
being reported in FY 2015; subsequent HSDR administra-

114 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

administrative expenses will be reported in future years. After Corrective Action
assessing the cost of a statistician’s services to select a sample The improper payment rate of 1 percent and $5,171.59
and evaluating the small volume of disbursements, it was does not exceed the 1.5 percent and $10 million threshold
determined that it was not cost effective to contract with a for reporting a corrective action plan.
statistician to select a sample. For this reason, 100 percent of
the HSDR purchase card disbursements were tested for im-
proper payments. The 100 percent test of disbursements will Part III - Improper Payment Reporting
continue in future years until the funds are fully expended.
Table 1 presents a summary of SBA’s improper payment
Based upon the test results, the estimated FY 2015 improper
review results and reduction outlook.
payment rate was 1 percent for a total of $5,171.59.

TABLE 1 IMPROPER PAYMENT REDUCTION OUTLOOK ($ IN MILLIONS)
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Program Outlays 1
Outlays1
Over- Under- Outlays $ 1
Outlays $
1
Outlays $
1
IP % IP $ IP % IP $ IP %5 IP $ IP %5 IP $ IP %5 IP $
$ $ paid $ paid $ Est. Est. Est.

7(a) Guaranty
858.6 1.75 15.0 880.16 0.9 7.91 4.05 3.86 900.00 1.00 9.00 925.00 1.00 9.20 950.00 1.00 9.50
Purchases1, 3, 5
7(a) Guaranty
11,741.1 5.15 605.0 15,160.48 5.59 848.08 848.08 0.00 15,240.00 4.75 723.90 15,500.00 4.65 720.75 15,750.00 4.55 716.63
Approvals1,2
504 CDC
Guaranty 4,571.5 1.09 49.9 4,189.53 3.78 158.20 158.20 0.00 4,200.00 3.50 147.00 4,250.00 3.40 144.50 4,300.00 3.30 141.90
Approvals
Disaster Loan
585.6 12.00 70.2 302.28 8.13 24.57 24.49 0.08 600.00 7.29 43.74 600.00 6.56 39.27 600.00 5.90 35.42
Disbursements1
Disbursements
for Goods and 92.6 8.46 7.8 105.44 13.52 14.26 14.26 0.00 115.00 13.00 11.30 115.00 12.50 10.87 115.00 12.00 10.43
Services
Hurricane Sandy
Disaster Relief 5.5 3.00 0.17 4.3 3.02 0.13 0.13 0.00 5.60 2.00 0.11 0.00 N/A N/A 0.00 N/A N/A
Grants
Hurricane Sandy
Disaster Relief
N/A N/A N/A 136.74 0.30 0.41 0.28 0.13 26.99 0.20 0.01 0.00 N/A N/A 0.00 N/A N/A
Administrative
Funds - Payroll4
Hurricane Sandy
Disaster Relief
N/A N/A N/A 10.12 0.12 0.012 0.009 0.003 0.27 0.10 0.00 0.00 N/A N/A 0.00 N/A N/A
Administrative
Funds - Travel4
Hurricane Sandy
Disaster Relief
Administrative
N/A N/A N/A 0.51 1.00 0.005 0.005 0.00 0.15 0.80 0.01 0.00 N/A N/A 0.00 N/A N/A
Funds -
Purchase
Cards4
Total6, 7
17,854.9 4.19 748.07 20,789.56 5.07 1,053.58 1,049.50 4.07 21,088.01 4.43 935.07 21,390.00 4.32 924.59 21,715.00 4.21 913.88

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 Bud-
get 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 504 CDC Loans
Guarantied are approvals irrespective of disbursement, net of approval increases, decreases, reinstatements and cancellations for the current year. Outlay figures for Disaster are loan disbursements on
current year approvals.
2 For 7(a) Guaranty Approvals, amounts reported are based on the guarantied amount only.
3 Improper payment rate of 1.33 percent in the amount of $11.4 reported in FY 2014; however an additional improper payment was identified and the rate was adjusted to 1.75 percent
and $15.0 million.
4 Data reported is for period March 1, 2013 through February 28, 2014 due to inadvertent lack of reporting in FY 2014.
5 Improper payment rate for 7(a) Guaranty Purchase is being projected as 1.0 percent for FY 2016 - FY 2018. As new loan products and processes are released a minimal impact is
anticipated; however, the improper payment rate is anticipated to remain at 1 percent. This is an acceptable level to the Agency.
6 Total improper payment estimates and improper payment percentages do not represent a true statistical estimate for the Agency.
7 Total does not include Hurricane Sandy Disaster Relief Indirect Expenses of $9.5 million; SBA recorded funds with ‘regular’ indirect administrative Disaster program funds as was allowed
by appropriation law.Improper payments for Hurricane Sandy Disaster Relief direct funds for administrative expenses of payroll, travel and purchase cards were reported above.

AGENCY FINANCIAL REPORT • FY 2015 115
OT H E R I NF OR M AT I ON

Part IV - Improper Payment Root Cause
Categories
Table 2 presents a summary of the root causes of SBA’s
improper payments.

TABLE 2 IMPROPER PAYMENT ROOT CAUSE CATEGORIES BY PROGRAM MATRIX ($ IN MILLIONS)
7(a) Guaranty 7(a) Guaranty 504 CDC Disaster Disbursements Hurricane HSDR HSDR HSDR
Purchases Approvals Guaranty Direct Loan for Good and Sandy Disaster Administrative Administrative Administrative
Approvals
Disbursements Services Relief Grants Expense - Expense - Expense -
Reason for Improper Payment Payroll Travel Purchase Card
Over Under Over Under Over Under Over Under Over Under Over Under Over Under Over Under Over Under
payment payment payment payment payment payment payment payment payment payment payment payment payment payment payment payment payment payment
Program Design or Structural
Issue
Inability to Authenticate
2.99 0.08 0.23
Eligibility
Death Data
Financial Data
Excluded
Failure to Party Data
Verify:
Prisoner Data
Other
Eligibility 728.09 153.83
Data1
Federal
4.05 3.86 119.99 4.37 14.07 0.13 0.05 0.13 0.009 0.003
Agency
Administrative/
Process Error State or Local
Made by: Agency
Other party
Medical Necessity
Insufficient Documentation to
Determine 0.19 0.005

Other Reason 2
21.50
Total Estimated Improper
Payments 4.05 3.86 848.08 158.20 24.49 0.08 14.26 0.13 0.28 0.13 0.009 0.003 0.005

1 Documentation provided by delegated lender was not sufficient to establish the eligibility of the loan
2 This category consists of lack of documents to support ODA’s policies concerning: a) insurance - $12,714,232; b) contractors compliance - $1,010,468; c)
building permits - $5,464, 995; d) titling/mortgage issues - $1,095,502; and e) miscellaneous - $1,213,486.

individual performance goals in recent years. Responsibili-
ties are clearly defined and individuals are held account-
Part V – Corrective Actions able as appropriate for their role in the process. Offices
perform periodic risk assessments to identify if adequate
To provide more clarity for the reader, the Corrective
mitigating controls exist. As an example, the Administra-
Actions section was coupled with the statistical sampling
tive Accounting Branch, which processes all payments for
information in Part II, organized by the nine programs
the SBA, performed a new risk assessment in FY 2015 to
subjected to review for improper payments.
ensure all risks have been identified and controls are in
place to mitigate the risk to an acceptable level. Based on
Part VI – Internal Control Over the assessment, the Administrative Accounting Branch
Payments developed process plans to strengthen internal controls as
needed.
The SBA is committed to establishing, maintaining, and
monitoring internal controls over improper payments. Each office has established adequate internal controls to
Reducing improper payments is a top management mitigate the risks identified. The processes for all loan
priority and has been included in management and staff programs and contracts with vendors include a compre-

116 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

hensive eligibility review which includes such activities as appears to be the predominant reason for most improper
checking Treasury’s Do Not Pay portal or other system, payments at the SBA.
(e.g., the Credit Alert Verification Reporting System or
CAIVRS), verifying income, confirming small business Table 3 reflects managements’ assessment of internal con-
classification, and in the case of Disaster direct loans, trols in their respective offices.
conducting on-site visits to determine the cost of repair or
replacement of the damaged property. Other requirements Part VII – Accountability
for specific loan programs and specific contracts are also
reviewed prior to approval. All disbursements are ap- The focus of SBA’s Strategic Goal 3 is to build an SBA that
proved using the “Rule of Two”, meaning that two people meets the needs of today’s and tomorrow’s small busi-
review and approve the disbursement at the office level; nesses. Strategic Objective 3.1 is designed to strengthen
the disbursements are reviewed again in the Administrative SBA’s core programs and operations to ensure that they
Accounting office using the “Rule of Two”. Finally, all dis- are high performing, effective, and relevant to the needs
bursements are batched and processed through Treasury’s of the small business community. SBA’s strategic goals
Do Not Pay portal at time of payment. are included in annual performance plans for all of its
programs as business objectives, which are included in
SBA management has established controls throughout employee performance plans. SBA management monitors
both the loan and contracting processes and is responsible accomplishments of these business objectives and takes
for training staff to perform the manual controls effec- action when progress toward goal achievement is not on
tively and to communicate any change to the programs or target. Executive and management bonuses are based on
controls timely. Due to the different levels of staff knowl- the accomplishment of business objectives included in
edge and skills in performing controls, the 7(a) Guaranty employee annual performance plans. This management
Approval, 7(a) Guaranty Purchase, 504 CDC Guaranty process helps assure accountability for improper payment
Approval, and the Disaster loan centers have established reduction.
robust Quality Control (QC) programs to monitor the
quality of loan approvals, purchases, and disbursements
and to provide feedback to management. High risk loans,
based on specific characteristics such as dollar value, loan
type, and loan delegation, are reviewed prior to any funds
being disbursed, or in the case of guaran-
ties, committed to the lender. Reviews are
documented in databases which provide TABLE 3 STATUS OF INTERNAL CONTROLS
timely information to management, such
as types of errors, corrective actions taken Internal Control 7(a) Guaranty 504 CDC Disaster Loan
Disbursements
for Goods and
or planned, and areas that may require ad- Standards Approvals Approvals Disbursements
Services
ditional training. The Acquisition Division
will be implementing a review process on Control Environment 4 4 4 4
contracts in FY 2016.
Risk Assessment 3 3 2 3
SBA management believes adequate con-
trols are in place and are generally working Control Activities 3 3 3 3
effectively; however, it appears that the SBA
needs to enhance its documentation proce- Information &
3 3 2 3
dures to evidence payments are proper. Per Communication
the definition provided in OMB Circular
A-123, Appendix C, if an agency’s review Monitoring 4 4 3 3
is unable to discern whether a payment
4 = Sufficient controls are in place to prevent improper payments
was proper as a result of insufficient or lack
3 = Controls are in place to prevent improper payments but there is room for improvement
of documentation, this payment must be
2 = Minimal controls are in place to prevent improper payments
considered as an improper payment. Lack
1 = Controls are not in place to prevent improper payments
of proper and/or accurate documentation

AGENCY FINANCIAL REPORT • FY 2015 117
OT H E R I NF OR M AT I ON

Part VIII - Information Systems and Financial Officer would benefit from additional staffing
resources.
Other Infrastructure
7(a) loan guaranty purchases are supported by the Guar-
Part IX - Statutory or Regulatory
anty Purchase Tracking System. It is continually updated
to enhance the overall integrity of the purchase process. Barriers
Resources as they relate to human capital are currently The SBA does not have any statutory or regulatory barriers
adequate; however, the 7(a) guaranty purchase program limiting improvement to its performance on the improper
would benefit from additional staffing resources. payments initiative.
7(a) loan guaranty approvals and 504 CDC loan guaranty
approvals have adequate internal controls and are sup- Part X - Recapture of Improper
ported by E-Tran, SBA’s electronic loan processing/servic-
Payments
ing system. Both the SBA and delegated lenders process
applications through the system. Lenders may also handle On September 15, 2011, the SBA submitted a Payment
unilateral servicing actions electronically. The system pro- Recapture Audit Cost-Effective Analysis to the Office
vides increased efficiency and decreased costs in the loan of Management and Budget. The analysis discussed the
guaranty origination and servicing processes. Resources 7(a) Business Loan Guaranty Program, the 504 Certified
as they relate to human capital are currently adequate; Development Company Loan Guaranty Program, the Di-
however, the 7(a) guaranty approval and 504 guaranty saster Direct Loan Program, Contracts/Acquisition (now
approval programs would benefit from additional staffing reported as Disbursements for Goods and Services), the
resources. Small Business Investment Company Financing Guaranty
Program (SBIC), the Surety Bond Guaranty Program, and
Disaster direct loan program has the information systems Grants, which included all grant programs. The analysis
and other infrastructure it needs to reduce improper described the program, the controls over financial dis-
payments to targeted levels. For example, the Office bursements, and the size of the program and concluded
Disaster Assistance (ODA) has an integrated, electronic for each program that recapture audits would not be cost
loan processing system, the Disaster Credit Management effective due to low error rates, complexity of the program,
System (DCMS), to streamline, enhance and improve or limited amount of outlays. For the latter three listed
the loan-making process. This system supports workflow programs, assessments in 2014 further supported the lack
management, electronic file management and document of cost-effectiveness of recapture audits by identifying that
generation functions. Many of the business rules govern- the programs are not susceptible to improper payments.
ing DCMS have been designed to improve the quality as-
surance process. In fact, the ODA quality assurance team Agency efforts to recapture improper payments are dis-
works continually with the DCMS development team to cussed by program.
improve the quality assurance process with a goal to mini-
mize future improper payments as much as possible. The 7(a) loan guaranty purchase improper payment reviews,
Disaster direct loan program has adequate human capital quality control reviews, and OMB Circular A-123 Ap-
to maintain its internal controls. pendix A reviews indicated in FY 2014 that payment
recapture audits would be cost effective and a recapture
Disbursements for goods and services are handled by the audit was conducted in FY 2015. Similar to the IPERIA
Oracle Federal Financial System. PRISM, a contract reviews, the recapture audit was conducted to determine if
management system, is used to process SBA’s acquisi- the lender and SBA materially complied with the 7(a) loan
tions. The SBA acquisition and accounts payable teams program’s origination, servicing, liquidation, and purchase
continue work to improve interfaces between PRISM, the requirements, and to recapture any funds improperly is-
financial system, and external databases such as SAM to sued as a result of a lender’s or SBA’s non-compliance.
streamline the acquisition process from start to finish. The
effectiveness of internal controls will need to be enhanced Loans were randomly selected on a monthly basis for a
to reduce improper payments; human capital resources are 12 month period ending March 31, 2015; samples were
adequate but the Acquisition Division and Office of Chief determined using the “Random Sample” function in
Excel, and were comprised of 10 percent of the previous

118 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

month’s 7(a) guaranty purchase. A total of 256 loans were loan documentation errors and do not result in a disaster
reviewed as part of the recapture audit, including aggregate victim receiving funds for which they are not eligible.
purchase outlays of $99,478,911. Deficiencies were identi- Loan documentation legally obligates the recipient of a di-
fied on 65 loans, totaling $2,084,425. Using a straight saster loan to pay back the entire loan amount whether or
line calculation, the deficiencies identified totaled 2.10 not the loan contains any improper payments. Therefore,
percent of the 7(a) guaranty purchase dollars reviewed. improper payments are not recovered upon discovery but
The most prevalent root cause of the deficiencies identified realized as the borrower makes each payment on the loan.
was insufficient documentation specifically relating to the Further, the majority of loans are collateralized which pro-
reimbursement of lender expenses that were not fully justi- motes maximum recovery. The FY 2015 IPERIA review
fied. All ineligible funds identified as part of the recap- of 500 disbursements identified 63 disbursements in 58
ture audit have since been recaptured through additional loans as improper payments for a total of $6,675,951.
documentation or lender billing. Pertaining to recovery of the 63 improper payments, 71
percent of the disbursements, or 87 percent of the dollars,
The SBA intends to continue performing recapture audits were for paperwork issues and are not subject to recovery.
as part of its QC Program in FY 2016; however, due to the Of the remaining payments only one was identified as
improvements seen in the 7(a) guaranty purchase program recoverable in the amount of $20,000 which, extrapolated
and its improper payment rate, the audit process and out to the population would indicate an overall recover-
results will not be formally reported in FY 2016. able amount of $90,486. The improper payment audit
was completed using 4,400 hours of staff time and cost
7(a) loan guaranty approval and 504 CDC loan approval
approximately$185,850. Based on the cost to audit versus
are not subject to payment recapture audits as no payment
the estimated dollars of recovery, it is clear that further
is made at the time of approval; payment is made only
expenditures for a separate recovery audit is not cost effec-
if the lender requests that the SBA honor its guaranty.
tive.
Improper payments identified through both the annual
improper payment and continuous quality control reviews Disbursements for goods and services recapture audits
are recovered from the lender through the cancellation of would not be cost effective. The improper payment
the SBA guaranty, reduction in loan guaranty percentage, testing required 618 labor hours at a cost of $40,265. Pay-
or loan modification, as appropriate. This determination ments identified during the improper payment review as
is made on a case-by-case basis, which varies substantially eligible for recapture totaled $5,851.09; thus the cost of
depending on the circumstances of the loan approval and the review exceeds the return.
lender authority.
Hurricane Sandy Disaster Relief grants would not benefit
Disaster direct loans recapture audits would not be cost from a recapture audit. The overpayments identified were
effective as improper payments are generally the result of

TABLE 4 IMPROPER PAYMENT RECAPTURES WITH AND WITHOUT AUDIT PROGRAMS ($ IN MILLIONS)

Overpayments
Recaptured outside of
Overpayments Recaptured through Payment Recapture Audits
Payment Recapture
Audits
Loans Total
CY + 1 CY + 2
Amount Amount CY Recapture Amount Amount Amount Amount
Program or Activity Recapture Recapture Rate
Identified Recaptured Rate Identified Recaptured Identified Recaptured
Rate Target Target

7(a) Guaranty Purchase1 2.08 2.08 100% 100% 100% 2.08 2.08

Contract IP Review1 0.0058 0.0052

TOTAL 2.08 2.08 100% 100% 100% 2.08 2.08 0.0058 0.0052

1 Period of review is for the 12 month ending 3/31/15

AGENCY FINANCIAL REPORT • FY 2015 119
OT H E R I NF OR M AT I ON

TABLE 5 DISPOSITION OF FUNDS RECAPTURED THROUGH PAYMENT RECAPTURE AUDITS ($ IN MILLIONS)

Program or Activity Amount Recovered Type of Payment Original Purpose

7(a) Guaranty Purchase 2.08 Loan 2.08

TOTAL 2.08 Loan 2.08

TABLE 6 AGING OF OUTSTANDING OVERPAYMENTS IDENTIFIED IN THE PAYMENT RECAPTURE AUDITS ($ IN MILLIONS)

Amount Outstanding Amount Outstanding Amount Outstanding Amount determined
Program or Activity Type of Payment
(0 - 6 months) (6 months to 1 year) (over 1 year) to not be collectable

7(a) Guaranty Purchase Loan 0 0 0 0

TOTAL 0 0 0 0

from administrative errors and these payments are not Part XI – Additional Comments
eligible for recapture.
A significant portion of the 7(a) guaranty approval and
Overpayments recaptured outside of payment recapture 504 guaranty approval programs’ improper payments
audits for SBA credit programs are applicable only to 7(a) stemmed from documentation errors, including missing
Loan Guaranty Purchases, as payments made within this or incomplete documents, at the time of loan approval.
program area are recoverable from lenders as appropriate. All documentation errors have been corrected through the
Amounts reported this year for the program were done receipt of additional information and were included in
within an SBA recapture audit. Cash disbursements re- the annual estimation. An estimation excluding corrected
lated to goods and services made for an inaccurate amount documentation was also performed. A comparison of the
or not according to contract terms total $5,851.09, of two estimation approaches is illustrated below:
which $5,229.19 has been recaptured.

IMPACT OF NEW IPERIA REPORTING REQUIREMENTS ($ REPORTED IN MILLIONS)

FY 2015 Improper Payment Estimation – FY 2015 Improper Payment Estimation –
All Errors Corrected Documentation Errors Excluded
Improper Payment Improper Payment Improper Payment Improper Payment
Loan Program
Rate Amount Rate Amount

7(a) Guaranty Approval 5.59% 848.08 3.01% 455.66

504 Guaranty Approval 3.78% 158.20 2.73% 114.56

120 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

If the corrected documentation errors were excluded from they were not eligible to receive or have any impact on
the improper payment estimations, the 7(a) guaranty SBA’s ability to collect on the disaster loans.
approval improper payment rate would decrease by more
than 2.5 percentage points, with the estimated improper
payments decreasing by almost $400 million; the 504
Part XI – Agency Reduction of Improper
guaranty approval improper payment rate also decreases Payments with the Do Not Pay Initiative
by more than 1.0 percentage point, with the estimated im- The SBA has implemented the Do Not Pay (DNP) Initia-
proper payment amount decreasing by approximately $35 tive and subjects its disbursements to comparison against
million. While the SBA understands that the definition the Death Master File (DMF) and SAM Exclusion Re-
of an improper payment includes loan guaranty commit- cords – Restricted at the time of payment. The compari-
ments, it is important to note that any loan submitted son between SBA and DNP data is completed on a daily
for guaranty purchase must undergo a rigorous review – basis using current disbursement data. SBA staff manually
including an analysis of the guaranty approval – prior to review and adjudicate the findings of the data matches,
guaranty purchase. In the event a lender fails to materially with the majority of matches received from the DMF.
comply with the SBA’s program requirements at any point The FY 2015 DNP process examined SBA disbursements
in the life of the loan, the SBA can deny payment of the between October 2014 and August 2015. September
guaranty to the lender. As such, it is SBA’s position that 2015 data was not available from DNP at the time of
the estimation excluding the corrected documentation er- this report. Using the DNP database has not impacted
rors reflects a more accurate representation of the improper improper payments as evidenced in Table 7. The table also
payment estimations for the 7(a) guaranty approval and reflects the root cause of the improper payments in the
504 guaranty approval programs. Disaster Direct loan program. The payments classified as
The improper payment rate for disaster direct loans does improper were the result of refunds on paid- in-full loans
not indicate such loans were disbursed to disaster victims paid to deceased borrowers.
that were not eligible under the Disaster loan program. The improper payments were not directly caused by a
The improper payments consisted of 79 disbursements out failure to use a DNP database but rather a failure to review
of the 500 disbursements reviewed. Of the 79 considered internal databases that had identified the borrower as de-
to be improper payments, 61 were for “paperwork” issues ceased. This brings to light an opportunity to review SBA’s
not eligibility issues. The paperwork issues did not result internal control for this particular process and evaluate the
in a disaster loan borrower receiving any loan funds that need for an improvement.

TABLE 7 RESULTS OF THE DO NOT PAY INITIATIVE IN PREVENTING IMPROPER PAYMENTS ($ IN MILLIONS)

Number (#) of Dollars $ of Number (#) Dollars ($)
payts reviewed payments Number (#) of Dollars ($) of of improper of improper
for possible reviewed payments payments payments payments
improper for improper stopped stopped reviewed and not reviewed and not
payments payments stopped stopped

Reviews with the IPERIA
204,726 $1,608.45 0 $0 16 0.004
specified databases

Reviews with databases not
$0 $0 0 $0 0 0
listed in IPERIA

Disaster Direct Loans
Reason for Improper Payment
Over Payment Under Payment
Death Data 0.004
Financial Data
Failure to Verify: Excluded Party Data
Prisoner Data
Other Eligibility Data

AGENCY FINANCIAL REPORT • FY 2015 121
OT H E R I NF OR M AT I ON

The SBA has incorporated the use of the DNP databases 504 CDC loan guaranty approval processes also require
Death Master File (DMF), Debt Check Database, and lenders and the SBA, depending on loan delegation, to
SAM Exclusion Records - Restricted for eligibility checks review CAIVRS and Debt Check during the loan approval
in the processing of 7(a) commercial loan program applica- process.
tions at the 7(a) Loan Guaranty Processing Center. This
has improved the process for determining eligibility. There In FY 2016, the SBA will continue to incorporate
are current plans to expand the use of DNP database for CAIVRS and Debt Check into its review processes, as well
eligibility checks to the SBA 504 loan program. as the Do Not Pay portal, but it does not have the capacity
to monitor the impact of funds not issued to a participat-
The 7(a) loan guaranty purchase process now requires ing lender or CDC.
the SBA to complete a CAIVRS search prior to guar-
anty purchase. The 7(a) loan guaranty approvals and

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STORY Tulsa, Oklahoma

Sawyer Manufacturing Company, a global provider of pipeline and welding
equipment with headquarters in Tulsa, Oklahoma, is the 2015 SBA Small
Business Exporter of the Year.

Founded in 1948, Sawyer Manufacturing has grown to a 40-staff firm that exports to more than 50 countries,
was recognized as part of Tulsa’s “Fast 40,” a ranking of the metro area’s fastest growing companies, and is an active
mentor for other local businesses.

Sawyer’s production line is primarily focused on midstream transportation, storage, and the general movement of
pipeline materials from production to distribution. Since its founding, the company has been exporting globally to
more than 50 countries. In recent years, international business has accounted for nearly 50 percent of the company’s
total revenue, and the company has added more than 20 overseas distributors in the past four years.

Sawyer’s experience in global markets has positioned the company as a mentor for other local businesses interested in
global market participation.

The company’s achievement is a testament to its export leadership team: Vice President Dave Hembree; Operations
Manager Scott Pearson; Shop Manager John Moorelock; and Sales and Marketing Director Andrew Martins.

122 AGENCY FINANCIAL REPORT • FY 2015
OTH E R I NF ORMATION

FREEZE THE FOOTPRINT REPORT
Section 3 of the Office of Management and Budget Mem- Reporting of O&M Costs – Owned and
orandum (OMB) M-12-12, Promoting Efficient Spend-
ing to Support Agency Operations, directs that all Chief Direct Lease Buildings
Financial Officers Act Executive Branch departments and The SBA only occupies buildings that are leased by GSA
agencies shall not increase the total square footage of their and subject to Occupancy Agreements between GSA and
domestic office and warehouse inventory compared to the the SBA, which are explicitly excluded from reporting in
FY 2012 baseline. This is referred to as the “Freeze the the Circular A-11.
Footprint” policy.
The space reductions mentioned in the 2013 Agency
On an annual basis, an agency shall not increase the size Freeze the Footprint update were completed in 2014 and
of its domestic real estate inventory, measured in square 2015. Additional space reductions may become possible
footage, for space predominately used for offices and ware- as a result of the ongoing space utilization survey and
houses. Progress in meeting the “Freeze the Footprint” will be included in future updates. In FY 2015, the SBA
policy is based on an annual evaluation of an agency’s total reduced the footprint by approximately 26,415 square
office and warehouse square footage. feet. SBA’s preliminary projection for FY 2016 is 10,505
square feet of space reduction; however this projection
Since the establishment of OMB Memorandum M-12-12,
will be reviewed and finalized in the upcoming Five Year
the Small Business Administration has successfully reduced
Real Property Efficiency Plan. Due to changing mission
its real estate footprint. SBA’s Freeze the Footprint 2012
requirements, the SBA added small amounts of space in
baseline was 1,374,644 square feet. In FY 2013, the
Washington, D.C. and Federal Way, Washington, and is in
SBA reduced its footprint by 1.6 percent, to 1,352,162
the process of adding additional space in Atlanta, Georgia.
square feet. In 2014, SBA’s footprint further reduced to
1,319,731 square feet. The table below summarizes the
status of current SBA space management projects: CIVIL MONETARY PENALTY
Following is the SBA annual report: ADJUSTMENT FOR INFLATION

FREEZE THE FOOTPRINT BASELINE COMPARISON The Federal Civil Penalties Inflation Adjustment Act of
1990, as amended, requires agencies to make regular and
Change consistent inflationary adjustments of civil monetary
FY 2012 FY 2014 Actuals (FY 2012 penalties to maintain their deterrent effect. To improve
Baseline (CY - 1) Baseline-2014
(CY-1)) compliance with the Act, and in response to multiple
audits and recommendations, agencies must report the
Square Footage most recent inflationary adjustments to civil monetary
1.375 1.319 0.056
(SF in Millions) penalties to ensure penalty adjustments are both timely
and accurate.

At this time, the SBA does not have any Federal Civil
Penalties

AGENCY FINANCIAL REPORT • FY 2015 123
OT H E R I NF OR M AT I ON

124 AGENCY FINANCIAL REPORT • FY 2015
Appendices
SUCCESS 2015 Jody C. Raskind Microlender
of the Year Award
STORY Justine Petersen Housing & Reinvestment Corporation
St. Louis, Missouri

Inspired by the legacy of the late Justine M. Petersen, a pioneer in implementing
community reinvestment in St. Louis, Robert Boyle founded the Justine
PETERSEN Housing & Reinvestment Corporation to help low-wealth individuals
and families develop, maintain, and increase their financial assets, including
homeownership. Recognizing the important role that small businesses play in promoting community stabilization,
economic opportunity and job creation, the Justine PETERSEN Housing & Reinvestment Corporation became
one of the first SBA microlenders in1992. Under Boyle’s leadership, and with the help of a dedicated staff, the
microlender placed $2.6 million in microloan capital into underserved markets in Missouri, Illinois, and Kansas (390
loans), the most in both dollars and number of loans among all SBA microlenders in FY 2014.

The Microlender of the Year Award honors Jody C. Raskind, a long-time SBA employee. Jody was a pioneer in U.S.
microlending and a leading force behind the establishment of the SBA Microloan program in 1992. She headed the
program for many years until last September when she lost a protracted battle with cancer. During her association
with the program, about 55,000 microloans were made totaling $655 million.

The Justine PETERSEN Housing & Reinvestment Corp. is the winner of the first-ever SBA Jody C. Raskind
Microlender of the Year Award.
APPENDICES

APPENDIX 1 - 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 here:

SBA INFORMATION
About SBA www.sba.gov/about-sba
SBA Performance, Budget and Planning www.sba.gov/performance
SBA Strategic Plan www.sba.gov/AgencyStrategicPlan
Business USA http://business.usa.gov/

STARTING AND MANAGING A BUSINESS
What is a Small Business? www.sba.gov/content/am-i-small-business-concern
Thinking about Starting a Business? http://www.sba.gov/thinking-about-starting/
Local Assistance www.sba.gov/local-assistance
Lender Resources www.sba.gov/lender_resources
Financing Growth www.sba.gov/content/financing-growth
Explore Exporting www.sba.gov/exporting
Health Care www.sba.gov/healthcare

LOANS, GRANTS and FUNDING
Small Business Loans www.sba.gov/financialassistance
Surety Bonds www.sba.gov/content/surety-bonds-explained

Venture Capital www.sba.gov/content/venture-capital#
Grants www.sba.gov/content/facts-about-government-grants

CONTRACTING
Government Contracting www.sba.gov/contracting
Register as a Contractor www.sam.gov
Size Standards www.sba.gov/size

ADVISING, MENTORING, and TRAINING
SBA Learning Center www.sba.gov/training
Small Business Development Centers www.sba.gov/sbdc
Women’s Business Centers www.sba.gov/offices/headquarters/wbo
SCORE Business Mentors www.sba.gov/score
Veterans Outreach www.sba.gov/content/veterans-business-outreach-centers

AGENCY FINANCIAL REPORT • FY 2015 127
AP P E ND I C E S

DISASTER ASSISTANCE
Disaster Assistance www.sba.gov/disaster
Disaster Area Office Locations www.sba.gov/about-offices-list/4
Response Office Locations for a Declared Go to www.sba.gov/content/current-disaster-declarations and then select
Disaster the disaster/affected area in question
FEMA Information www.fema.gov

ADDITIONAL RESOURCES
Office of Advocacy www.sba.gov/advocacy
Office of the National Ombudsman www.sba.gov/ombudsman
Office of the Inspector General www.sba.gov/oig

SBA National Answer Desk (Toll Free) (800) 827-5722
Disaster Customer Service Center (Toll Free) (800) 659-2955

Facebook: www.facebook.com/sbagov
Twitter: www.twitter.com/sbagov
YouTube: www.youtube.com/sba
SBA blog: www.sba.gov/blogs/

DID
YOU
KNOW SBICs invested more than $6 billion in American small businesses, the
largest amount of capital ever.

128 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

APPENDIX 2 - GLOSSARY
Available at: www.sba.gov/performance, (Agency Financial Report)

504 504 Certified Development Loan leadership. The SBA has established four
Program outcome-focused APGs.
Provides small businesses with long-term,
APR Annual Performance Report
fixed-rate financing for the purchase of
land, buildings, and long-life capital Required by the Government Performance
equipment. and Results Act, it presents a federal
agency’s progress in achieving the goals in
7(a) 7(a) Loan Guaranty Program its strategic plan and performance budget.
SBA’s primary loan program, provides
BATF Business Assistance Trust Fund
general loan financing for a wide variety of
purposes. A trust fund in the U.S. Treasury main-
tained to receive and account for donations
7(j) The 7(j) Management and Technical made by private entities for activities to
Assistance Program assist small business.
Provides specialized assistance to under-
BD Business Development
served small businesses.
The Office of Business Development uses
7(m) The 7(m) Microloan Program SBA’s statutory authority to provide busi-
Provides small, short-term loans to small ness development and federal contract sup-
business concerns and small non-profit port to small disadvantaged firms.
child care centers.
BLIF Business Loan and Investment Fund
8(a) 8(a) Business Development Program Fund operated by the U.S. Department of
Assists firms owned and controlled by the Treasury to maintain the accounting
socially and economically disadvantaged records of loans approved prior to 1992.
individuals to enter and succeed in the
CAP Cross-Agency Priority Goals
economic mainstream.
The SBA participates in many of the gov-
A-123 Designation for OMB Circular on ernment-wide federal Cross-Agency Priority
Internal Control Systems goals. CAP goals are Presidential priorities.
It prescribes policies and procedures to be They are identified in areas where increased
followed by executive departments and cross-agency coordination on outcome-
agencies in establishing, maintaining, evalu- focused areas is likely to improve progress.
ating, improving, and reporting on internal
CBJ Congressional Budget Justification
controls in their program and administra-
tive activities. A federal agency’s annual budget request to
Congress.
AFR Agency Financial Report
CDC Certified Development Company
Performance and Accountability reports Refers to the Section 504 Certified
required of federal. Development Company debenture
program.
APG Agency Priority Goal
The Government Performance and Results CFO Chief Financial Officer
Modernization Act of 2010 requires federal The CFO is responsible for the finan-
agencies to establish a set of two-year APGs cial leadership of the Agency, including
that reflect the highest priorities of agency responsibility for all Agency disbursements,

AGENCY FINANCIAL REPORT • FY 2015 129
AP P E ND I C E S

management, and coordination of Agency A law that requires each agency to imple-
planning, budgeting, analysis, and account- ment and maintain financial management
ability processes. systems that comply substantially with
federal financial management systems
CIO Chief Information Officer requirements, applicable federal accounting
The CIO is responsible for the management standards, and the USSGL.
of information technology for the Agency,
including the design, implementation, and FISMA Federal Information Security
continuing successful operation(s) of infor- Management Act
mation programs and initiatives. A law that defines a comprehensive frame-
work to protect government information,
COTS Commercial Off-The-Shelf operations, and assets against natural or
Software or hardware products that are man-made threats.
ready-made and available for sale to the
public. FMFIA Federal Managers Financial Integrity Act
A law that primarily requires ongoing
CSAM Cyber Security Assessment and evaluations and reports on the adequacy
Management of the internal accounting and administra-
DCIA Debt Collection Improvement Act tive control systems of executive agencies.
It also requires evaluations and reports on
The Debt Collection Improvement Act of the conformance of financial management
1996 provides federal agencies with new and systems.
enhanced delinquent debt collection tools.
FTA The SBA Fiscal Transfer Agent is the agent
DCMS Disaster Credit Management System tasked with the responsibility to administer
The electronic system used to process each SBA Pool or Individual Certificate.
loan applications for all new disaster It is to maintain a registry of Registered
declarations. Holders and other information as the SBA
requires.
DLF Disaster Loan Fund
Assists eligible small businesses impacted by FTE Full Time Equivalent
disasters. Indicates the workload of an employed per-
son; an FTE of 1.0 means that the person
FCRA Federal Credit Reform Act is equivalent to a full-time worker, while an
A law enacted to provide a more realistic FTE of 0.5 signals that the worker is only
picture of the cost of U.S. government half-time.
direct loans and loan guaranties.
FY Fiscal Year
FECA Federal Employees’ Compensation Act The federal government fiscal year be-
Provides compensation benefits to federal gins October 1 and ends the following
civilian employees and to their surviving September 30.
dependents for work-related injuries or
illnesses. GAO U.S. Government Accountability Office
The audit, evaluation, and investigative arm
FERS Federal Employees Retirement System of Congress.
A three-tiered retirement plan for federal
employees hired after 1984, composed of GC/BD Office of Government Contracting and
Social Security benefits, a basic benefit plan, Business Development
and contributions to a TSP. Works to create an environment for maxi-
mum participation by small, disadvantaged,
FFMIA Federal Financial Management and women-owned business in federal gov-
Improvement Act ernment contract awards and large prime
subcontract awards.

130 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

GSA General Services Administration LMAS Loan Management and Accounting
A federal agency of the Executive Branch System
whose mission is to deliver the best value Financial management system that supports
in real estate, acquisition, and technology loan accounting.
services to government and the American
people. MAS The GSA Multiple Award Schedule

HUBZone Historically Underutilized Business Zone MD&A Management’s Discussion and Analysis
SBA program that encourages economic The MD&A is required supplementary
development by the establishment of federal information for federal financial statements
contract award preferences for small busi- and is designed to provide a high level over-
nesses located in historically underutilized view of the Agency.
business zones. MRA Master Reserve Account
IIP Incremental Improvement Project SBA’s fiscal agent maintains this escrow
Information technology projects intended fund to facilitate the operation of the
to upgrade existing financial software Certified Development Company program.
and application modules in SBA’s Loan MRF Master Reserve Fund
Accounting System.
SBA’s fiscal and transfer agent maintains
IPIA Improper Payment Information Act this reserve fund to facilitate the operation
A federal law enacted in 2002 to identify of the 7(a) secondary market program.
and reduce erroneous payments in the gov- NBER National Bureau of Economic Research
ernment’s programs and activities.
OCA Office of Capital Access
IT Information Technology
The SBA office responsible for small busi-
Refers to matters concerned with the ness loans, lender oversight, and the surety
design, development, installation, and bond program.
implementation of information systems and
applications. OCFO Office of the Chief Financial Officer
Responsible for the financial leadership of
IV&V Independent Validation and Verification
the Agency, including all Agency disburse-
An IV&V review executes independent ments, management, and coordination of
procedures by a third party that are used Agency planning, budgeting, analysis, and
for checking that a model, product, accountability processes.
service, or system meets requirements and
specifications and that it fulfills its intended OCRM Office of Credit Risk Management
purpose. IV&V reviews of SBA’s Office of SBA office that manages program credit
Financial Analysis and Modeling financial risk, monitors lender performance, and
models are conducted to assure that they are enforces lending program requirements.
accurate and properly functioning.
ODA Office of Disaster Assistance
Jobs Act Small Business Jobs Act of 2010 SBA office that promotes economic recov-
Most often referred to as the Jobs Act in ery in disaster ravaged areas. SBA disaster
SBA documents, may also be referred to as loans are the primary form of federal as-
SBJA. sistance for non-farm, private sector disaster
losses for individuals and businesses.
LAS Loan Accounting System
SBA’s loan origination servicing and dis- OFA Office of Financial Assistance
bursement system. SBA office that administers various loan
programs to assist small businesses.

AGENCY FINANCIAL REPORT • FY 2015 131
AP P E ND I C E S

OFPO Office of Financial Program Operations PCECGF Pollution Control Equipment Contract
Leads the financial services industry in qual- Guaranty Fund
ity products and services to SBA partners Supports costs associated with the credit
and customers, and to protect the integrity portfolio of pre-October 1991 pollution
of SBA programs. control equipment loans and guaranties be-
ing liquidated by the SBA.
OHRS Office of Human Resources Solutions
Develops and provides innovative human PPS Probability Proportional to Size
capital strategies. The office advises SBA
QA Quality Assurance
management with respect to selecting,
developing, and managing a high quality, Functions to assure that project deliver-
productive workforce. ables meet SBA’s requirements and quality
standards.
OIC Office of Internal Controls
QAR Quality Assurance Review
Office within the Office of the Chief
Financial Officer that has the lead in ensur- RGDP Real Gross Domestic Production
ing managers comply with internal control
standards. SAM System for Award Management
The federal government system that tracks
OIG Office of Inspector General grant awards.
Conducts and supervises audits, inspec-
tions, and investigations relating to SBA SAT Senior Assessment Team
programs and operations. SBA’s SAT is chaired by the Chief Financial
Officer and comprised of SBA managers
OMB U .S. Office of Management and Budget from the major programs and support of-
White House office that oversees prepara- fices to oversee the assessment of internal
tion of the federal budget and supervises controls for financial reporting performed
its administration in Executive Branch by the Office of Internal Controls.
agencies.
SBA U.S. Small Business Administration
OPM U.S. Office of Personnel Management A federal agency of the Executive Branch
The federal government’s human resources whose mission is to maintain and strength-
agency. en the nation’s economy by enabling the es-
tablishment and vitality of small businesses
OPM&CFO Office of Performance Management and
and by assisting in the economic recovery of
Chief Financial Officer
communities after disasters.
Conducts and promotes effective financial
management activities for the SBA includ- SBDC Small Business Development Center
ing budget, credit subsidy, financial opera- program
tions, financial systems, internal controls, SBDCs provide management and techni-
and acquisitions. cal assistance, economic development,
and management training to existing and
ORACLE The accounting program used by SBA’s
prospective small businesses through co-
Administrative Accounting Division
operative agreements with universities and
PAR Performance and Accountability Report colleges and government organizations.
Annual report that presents financial,
SBG Surety Bond Guarantee program
budgetary, and performance information to
Provides guaranties, bid, performance, and
OMB, Congress, and the public.
payment bonds for contracts up to $2.0
million for eligible small businesses that
cannot obtain surety bonds through regular
commercial channels.

132 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

SBGRF Surety Bond Guaranty Revolving Fund SOP Standard Operating Procedure
All the contractor and surety fees collected SOPs are the primary source of the Agency’s
by the SBA are deposited in the SBGRF at internal control.
the U.S. Department of the Treasury, which
is used to pay claims. SPFI Summary of Performance and Financial
Information
SBIC Small Business Investment Company One of three annual financial and perfor-
Provides long-term loans, debt-equity mance reports required of federal agencies.
investments, and management assistance to
small businesses, particularly during their STEP State Trade and Export Promotion
growth stages. Program or Grant
A pilot export initiative to make matching-
SBIR Small Business Innovation Research fund awards to states to help small business-
Program es enter and succeed in the international
A highly competitive SBA program that marketplace.
encourages domestic small businesses to
engage in federal research/Research and VAT Vulnerability Assessment Team
Development (R/R&D) that has the poten- Performs monthly scans of network-
tial for commercialization. attached devices to identify and remedy
network vulnerabilities.
SBJA Small Business Jobs Act of 2010
Most often referred to as the Jobs Act in WBC Women’s Business Center Program
SBA documents. WBCs provide long-term training and
advising to women who own or manage a
SBLC Small Business Lending Company business, including financial, management,
Non-depository small business lending marketing, and technical assistance and
companies listed by the SBA Office of procurement.
Capital Access.

SCORE A volunteer organization sponsored by the
SBA that offers mentoring and training
for small business owners who are starting,
building, or growing their businesses.

DID
YOU The SBA awarded $400,000 to eight growth accelerators and awarded

KNOW $100,000 in Startup in a Day prizes for the creation of centralized,
streamlined platforms, making it easier for entrepreneurs
to start businesses in Native American communities.

AGENCY FINANCIAL REPORT • FY 2015 133
AP P E ND I C E S

APPENDIX 3 – OIG AUDIT FOLLOW-UP ACTIVITY
Throughout the year, the OIG conducts audits of the SBA’s processes, procedures and programs, and makes recommen-
dations for improvement. Many of these recommendations are not material, relative to their dollar impact on the SBA’s
financial and administrative operation, but are beneficial to the 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 manage-
ment. When both SBA management and the OIG agree on the recommendation, SBA management develops a correc-
tive 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
recommendation 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
2015 there were 146 Final Actions, resulting from 19 monetary and 127 non-monetary recommendations. The status of
the corrective actions is updated regularly and is available for review on the SBA Intranet.

The following tables depict the SBA’s final action activity for FY 2015 and the status of corrective action plans not imple-
mented within one year:

• Table I: Final Action on Audit Recommendations with Disallowed or Questioned Costs, with accompanying pages
describing the detail activity by report number.
• Table II: Final Action on Audit Recommendations with Funds Put to Better Use, with accompanying pages de-
scribing the detail activity by report number.
• Table III: Final Action on Audit Recommendations Not Completed with One Year.

TABLE I FINAL ACTION ON AUDIT RECOMMENDATIONS WITH DISALLOWED / QUESTIONED COSTS
OCTOBER 1, 2014 – SEPTEMBER 30, 2015
Number of Disallowed Costs
Recommendations (Rounded to Thousands)
A. Recommendations with management decisions on which final action had not been taken 14 $8,872
at the beginning of the period.
B. Recommendations on which management decisions were made during the period. 8 3,188
C.Total recommendations pending final action during period. 22 $12,060
D. Recommendations on which final action was taken during the period.
1. Recoveries:
(a) Collections and Offsets 3.5 $2,558
(b) Property
(c) Other 7.5 4,000
2. Write-Offs 1 715
3. Total 12 $7,273
E. Recommendations needing final action at the end of the period. 10 $4,787

The above table reflects an adjusted beginning balance from FY 2014 report, which reflected 19 open recommendations
for a total of $55,613 (in thousands). Amounts were adjusted as six items were later identified by the OIG as “Funds for
Better Use” rather than “Questionable Costs” as originally reported and one item that was previously reported as non-
monetary that was later identified as having questionable costs.

134 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

Detail of Final Action Activity
DISALLOWED / QUESTIONED COSTS
Report #13-07, Audit of SBA’s 7(a) Guaranty Purchases Improper Payments
Summary: : The audit objective was to determine whether SBA accurately estimated its FY2011 Improper Payment Rate
for 7(a) Loan Program purchases. The OIG identified questioned costs for six loans, two of which were $1,016,116 and
$714,444. The former amount was collected from the lender and the latter was written off as the bank has closed and
therefore recovery was not possible.
Final Action: $1,016,116 collected/$714,444 written off)

Report #13-08, Audit of SBA’s 8(a) Information Technology Contracts
Summary: The audit objective was to determine whether the SAB effectively managed information technology contracts
awarded to Isika Technologies, Inc. The OIG identified a duplicate payment of $12,073 and recommended that SBA
seek recovery. SBA was unsuccessful in collecting the debt which remains an open receivable.
Final Action: $12,073 not collected (other).

Report # 13-16R, Purchase Reviews Allowed $4.6 Million in Improper Payments on 7(a) Recovery Act Loans
Summary: The audit objective was to determine if the SBA is mitigating its risk of loss. Specifically, whether the SBA
is ensuring that 7(a) Recovery Act Loans were originated, closed, liquidated, and purchased in accordance with SBA’s
policies and procedures and prudent lending standards. The OIG identified questioned costs for six loans, four of which
total $3,618,447. The audit recommended that the SBA seek recovery from the banks for the guarantied amount paid.
The Office of Financial Program Operations, the Office of Credit Risk Management, and the Office of Financial As-
sistance submitted their opinion to the OIG that the purchase of this loan did not constitute an improper payment and
each recommended not to seek recovery. The OIG accepted their opinion and no recovery was sought.
Final Action: $3,618,447 not collected (other).

Report # 14-02, Audit of SBA’s FY 2012 Reported Improper Payment Rate for Disbursements and Contracting.
Summary: : The audit objective was to determine if the accuracy of SBA’s FY 2012 reported improper payment rate for
disbursements and contracting invoices and whether invoicing and payment processes for disbursements and contract-
ing will prevent improper payments. The OIG identified two invoices for which the invoiced services did not match the
contracts. SBA determined that the errors were in the contract documentation and because the services were requested
and performed no recovery was possible. The OIG accepted this explanation and no recovery was sought.
Final Action: $235,672.09 not collected (other)

Report # 14-09, Audit of Improper Payments on 7(a) Recovery Act Loans
Summary: The audit was a second in a series of ongoing audits of purchased 7(a) Recovery Act Loans. The audit objec-
tive was to determine if the SBA is mitigating its risk of loss. Specifically, whether the SBA is ensuring that 7(a) Recov-
ery Act Loans were originated, closed, liquidated, and purchased in accordance with SBA’s policies and procedures and
prudent lending standards. The OIG identified questioned costs for three loans, one of which was $1,473,770. The audit
recommended that the SBA seek recovery from the bank for the guaranteed amount paid less any amounts received from
liquidation. The amount collected was $1,473,770.
Final Action: $1,473,770 collected / $0.00 written off.

Report # 14-19, Audit of SBA’s Oversight of the Financial Management of the District of Columbia Small Business
Development Center
Summary: The audit objective was to determine whether the Small Business Development Centers complied with
matching requirements for grants funding. The OIG recommended SBA implement controls to ensure Lead Centers
use the appropriate indirect cost rate and category when computing indirect costs. SBA provided individual training to

AGENCY FINANCIAL REPORT • FY 2015 135
AP P E ND I C E S

SBDC Network hosts on direct cost rate agreements and calculations during the 2015 proposal review process. SBA revised
the form “Schedule of Indirect Cost” to facilitate indirect cost determinations. The OIG questioned costs of $143,811
related to this issue; subsequently an over-match of $9,598 was identified and the remaining $134,213 was confirmed to be
acceptable. In addition, a recalculation of indirect costs based on the 2012 financial statement recovered $58,862.27.
Final Action: $68,460.27 collected/$134,213 not collected (other)

TABLE II FINAL ACTION ON AUDIT RECOMMENDATIONS WITH FUNDS PUT TO BETTER USE
OCTOBER 1, 2014 – SEPTEMBER 30, 2015
Number of Funds to be Put to Better Use
Recommendations (Rounded to Thousands)
A. Recommendations with management decisions on which final action had not been 1 $2,500
taken at the beginning of the period. .
B. Recommendations on which management decisions were made during the period. 1 $43,000

C. Total recommendations pending final action during period. 2 $45,500
D. Recommendations on which final action was taken during the period..
1. Value of recommendations implemented (completed). 1.5 $43,800
2. Value of recommendations that management concluded should .5 $1,700
not or could not be implemented or completed.
3. Total 2 $45,500
E. Recommendations needing final action at the end of the period. 0 $0

The above table reflects an adjusted beginning balance from FY 2014 report, which reflected zero open recommenda-
tions. Amounts were adjusted as six items were later identified by the OIG as “Funds for Better Use” rather than “Ques-
tionable Costs” as originally reported and one was previously identified as non-monetary.

Detail of Final Action Activity
FUNDS FOR BETTER USE
Report #12-14, Audit of Disaster Loans in Liquidation
Summary: The audit objective was to assess SBA’s effectiveness in managing disaster loans in liquidation to maximize
debt recovery and minimize losses. One specific objective was to assess whether SBA complied with the Debt Col-
lection Improvement Act for disaster loans in liquidation status. The OIG recommended that (1) specific actions be
taken for loans over 180 days delinquent that are secured by collateral with funds for better use of $3,400,000; and (2)
immediately charge-off loans over 180 days delinquent not secured by collateral with funds for better use of $3,900,000.
Resolution activities included (1) creating procedures to identify the feasibility of foreclosure and the creation of a report
to identify loans that will be charged-off when foreclosure on the collateral is not feasible; and (2) generation of a report
to identify disaster loans in liquidation status that are delinquent over 180 days and not secured or exempt from referral
to Treasury.
Final Action: $7.3 million implemented; $0 not implemented

Report # 13-18, Audit of Defaulted Disaster Loans from 2006 to 2011
Summary: The objective of the audit was to determine whether SBA effectively managed delinquent disaster loans to
maximize recovery and minimize losses, were in compliance with applicable laws and regulations and was aligned with
Federal debt collection objectives. The OIG recommended that SBA 1) transfer of all eligible charged-off loans to Trea-
sury for cross-servicing; (2) transfer of all eligible charge-off loans to Treasury, including those with unliquidated collater-
al; (3) transfer of all legally enforceable debts already charged-off to Treasury for cross-servicing; (4) transfer of all debtors

136 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

associated with charged-off debts to Treasury. SBA developed a new profile for charged-off loans secured by collateral
with insufficient equity and is now transferring all eligible debt to Treasury for cross-servicing.
Final Action: $39.5 million implemented; $0 not implemented

Report #14-13, Audit of 7(a) Loan Guaranty Approval Process
Summary: The objective of the audit was to determine the extent to which the SBA was managing the 7(a) loan ap-
proval process to mitigate its risk of loss. The OIG identified six loans that were at risk for loss and determined $4.8
million as funds for better use and recommended SBA allocate resources to ensure risk is mitigated and quality is em-
phasized. SBA implemented risk-based processing which allowed more resources to be allocated to larger, more complex
loans, hired an additional supervisor to provide additional oversight, and transferred or streamlined processes to reallocate
resources to loan processing. SBA supported the identification of funds for better use for three of the six loans, or $2.3
million and the OIG accepted their opinion.
Final Action: $2.3 million implemented; $2.5 million not implemented

Report #15-15, Audit of Disaster Technical Assistance Grants
Summary: The objective of the audit was to determine whether SBA’s oversight of Hurricane Sandy technical assistance
grant funds ensured programs goals and objectives were achieved and whether requests for advances and reimbursements
were supported by valid grant expenditures. The OIG recommended that SBA de-obligate funds unexpended by August
31, 2015 in the amount of $9,108,271. SBA obtained a waiver from the Office of Management and Budget which
extended the funding to August 31, 2016.
Final Action: $9.108 million implemented; $0 not implemented

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 (OCFO) to
revise, clear and issue the draft SOP 00-02-3 and clearly define material weakness as it relates to SBA and at the differ-
ent levels of management within the Agency. A draft SOP was completed in FY 2014; however, it was not submitted for
clearance, awaiting the Office of Management and Budget’s issuance of the revised OMB Circular A-123, Management’s
Responsibility for Internal Control, to ensure compliance with the new guidance. The anticipated completion date is
9/30/16.

Report # 8-12, Oversight of SBA Supervised Lenders
Program: OCA
Date Issued: 05/09/2008
Management Decision Date: 06/26/2008
Explanation: One recommendation remains open to the Office of Capital Access (OCA) to establish risk mitigation
goals applicable to each loan program and the entire lending portfolio. OCA planned to develop program level perfor-
mance benchmarks and risk mitigation goals for each 7(a) loan program and the entire 7(a) portfolio based on OCRM’s
PARRiS framework. However, it was discovered that the PARRiS framework does not support program benchmarks and
OCA has requested an extension of the target date for completion to change their approach. Expected completion of this
final action is 9/30/16.

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Report #ROM 11-04, Audit of SBA’s Recovery Act Data on Public Websites.
Program: OCFO
Date Issued: 3/22/11
Management Decision Date: 06/30/2012
Explanation: The three recommendations are to the Office of the Chief Financial Officer to determine if awards were
made or funds should be de-obligated on 66 purchase requisitions; to deploy an independent statistical verification and
validation of all SBA transactions; and to determine if Recovery Act funds were used to fund 13 contracts. The OCFO
is researching and documenting the 66 purchase requisitions and anticipates resolution by May 2016. The independent
verification and validation of SBA transactions was believed to have been implemented and follow-up is being provided
to resolve by May 2016; and the documentation to support corrective action on the Recovery Act funded contracts has
been submitted to the OIG for resolution in October 2015.

Report # 11-06, Audit of FY2010 Federal Information Security Management Act Review
Program: CIO
Date Issued: 01/28/2011
Management Decision Date: 03/28/2011
Explanation: The one remaining recommendation is to develop and document baseline configuration for each informa-
tion system. System owners are conducting a gap analysis for software and hardware applications that have configuration
baselines properly documented. OCIO is implementing a BigFix Security and Compliance Analytics function to moni-
tor configuration and coordinating with program office to ensure configuration baseline documents are stored. Final
action is estimated to be completed by March 31, 2016.

Report #11-14, Audit of Funding of Information Technology contracts Awarded to Isika Technologies, Inc.
Program: CFO
Date Issued: 06/02/2011
Management Decision Date: 12/11/2011
Explanation: The one remaining recommendation to the Office of the Chief Financial Officer is a review of SBA’s
funding procedures. The OCFO has updated the Acquisitions Standard Operating Procedures (SOP) and management
is reviewing written policies and procedures to ensure work is performed in compliance with the FAR. Final action
completion date is estimated to be 9/30/16.

Report #12-02, Audit of FY 2011 Financial Statements
Program: OCIO
Date Issued: 11/14/11
Management Decision Date: 12/22/2011
Explanation: The three remaining recommendations are to the Office of the Chief Information Officer and require
(1) coordination with SBA program offices to enhance security vulnerability management processes; (2) Oversight of
the review and validation of financial system accounts quarterly; and (3) implementation of configuration management
policies and procedures for document retention for operating system changes. Resolution activities include (1) develop-
ment of a more thorough approach to track and mitigate configuration management vulnerabilities identified during
monthly scans. BigFix, the tool used to manage vulnerabilities, will be configured to appropriate standards. OCIO will
also institute a quality assurance process to validate patch success and completion. Estimated completion date is 9/30/16.
(2) SOP 90-47-3 requires that account reviews should be done semi-annually. The OCIO and programs offices conduct
this activity according to the SOP. Supporting evidence is being generated to formally close this finding with the OIG.
Estimated completion is 9/30/16; and (3) SBA currently follows the operating procedures outlined in the ECCB charger
IAW SOP 90 42 0. An Architect Review Charter has been approved and a draft Configuration Management policy is
under management review. Estimated completion date is 9/30/16.

138 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

Report #12-15, Audit of FY 2011 Federal Information Security Management Act Review
Program: OCIO
Date Issued: 7/16/12
Management Decision Date: 8/16/12
Explanation: The two remaining recommendations are to the Office of the Chief Information Officer and require (1)
perform recertification reviews of agency general support systems or design compensating controls; and (2) continuously
monitor remote access audit logs for unauthorized activity. The OCIO performs account reviews semi-annually in accor-
dance with SOP 90-47-3 and will submit documentation to the OIG to resolve this recommendation. At this time SBA
does not have access to any AT&T remote access logs but will coordinate with AT&T representatives to determine if the
contract allows access to the audit logs. Estimated completion date is 9/30/16.

Report #12-22, Audit of SBA’s Ratification Process
Program: OCFO
Date Issued: 9/28/12
Management Decision Date: 10/12/12
Explanation: The two remaining recommendations are to the Office of the Chief Financial Officer and requires that a
review of ratification actions for Anti-Deficiency Act violations. The OCFO reviewed the ratified commitments and con-
firmed that no Anti-Deficiency violations occurred. The OCFO will conclude the analysis once supplemental budgetary
information analyzed. Anticipated completion date is 4/30/16.

Report #13-01, Audit of SBA’s Section 8(a) Program’s use of Internal Revenue Service Tax Verification Form 4506T
Program: OBD
Date Issued: 10/4/12
Management Decision Date: 3/11/13
Explanation: The four recommendations are to the Office of Business Development and require changes to SOP 80 05
A to ensure (1) completion of Form 4506T and prompt submission; (2) completion of Form 4506T prior to the start of
the annual review and prompt submission; (3) suspension of the firm if tax returns submitted to SBA do not agree with
those submitted to the IRS; and (4) comparison of IRS transcripts with the tax return and advise OIG of discrepancies.
OBD has submitted closures for the four recommendations to OIG and is awaiting OIG confirmation on the proposed
closure status of the recommendations.

Report #13-03, Audit of Mentor Protégé Joint Ventures
Program: GCBD
Date Issued: 10/23/12
Management Decision Date: 1/24/13
Explanation: The ten remaining recommendations are to the Office of the Government Contracting and Business
Development and require a review of the Mentor-Protégé Program to (1) develop specific measurements to evaluate the
benefits of joint venture agreements; (2) assess risk of the program; (3) verify information submitted by 8(a) firms as part
of the annual review; (4) conduct site visits of 8(a) firms as part of the annual review; (5) collect quarterly or semiannual
contract status updates as part of the annual review; (6) collect work performance reports as part of the annual review; (7)
conduct a joint venture closeout evaluation as part of the annual review; (8) maintain complete data on 8(a) firms while
deploying a new information system; (9) maintain joint venture arrangement data; and (10) interface data system with
other systems. Resolution activities include (1) development of metrics to measure benefits of Mentor-Protégé and Joint
Venture relationships; (2) development of risk assessment procedures; (3) through (7) enhancement of annual review
procedures; and (8) through (10) implementation of One-Track CMS system to collect and maintain up-to-date data.
GCBD has submitted documentation to the OIG for closure. Estimated completion date is 12/31/15.

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Report #13-04, Audit of SBA’s FY 2012 Financial Statements
Program: OCIO
Date Issued: 11/14/12
Management Decision Date: 3/8/13
Explanation: The one remaining recommendation is to the Office of the Chief Information Officer and requires proce-
dures to ensure system access is removed for terminated/transferred users in a timely manner. OCIO is coordinating with
the Office of Human Resource Solutions and program offices to redesign and improve the separation process to ensure
timely removal of system access. Estimated completion date is 3/30/17.

Report #13-06i, Audit of SBA’s Section 8(a) Annual Review
Program: BD
Date Issued: 11/13/12
Management Decision Date: 3/11/13
Explanation: The two recommendations are to the Office of the Business Development and require that SOP 80 05 3
be revised to extend time for annual reviews, subject firms to termination if information is not provided, and allow SBA
to place an 8(a) firm in a “decision pending” category during the additional period. Resolution will be achieved with the
update of the SOP. Estimated completion date is 9/30/16.

Report #13-08, Audit of SBA’s 8(a) Information Technology Contracts
Program: OCFO
Date Issued: 12/3/12
Management Decision Date: 1/18/13
Explanation: The eight remaining recommendations are to the Office of the Chief Financial Officer and require (1)
demonstration of proficiency in price analysis; (2) retention of records used to establish price; (3) verification of price
analysis procedures; (4) enhance internal controls in response to any weaknesses identified in OMB Circular A-123 Ac-
quisition Assessment; (5) update payment processing internal controls; (6) provide a list of approvers to payment person-
nel; (7) implement attachment of a receiving report to each invoice; and (8) implement an automatic interface between
systems to tie payments to a contract number instead of purchase order numbers. Resolution activities include (1) Train-
ing has been provided to current contracting officers on price analysis; procedures will be documented in a revised SOP
which is under management review; (2) documents are retained and retention requirements will be incorporated in the
revised SOP; (3) price analysis procedures will be documented in the revised SOP; (4) an acquisition assessment to com-
ply with OMB Circular A-123 was conducted and the draft report is under review; internal controls will be enhanced
if any weaknesses are identified in the assessment; (5) payment processing controls are in place and will be documented
in the revised SOP; (6) providing a list of approvers to payment personnel will be addressed in the revised SOP; (7) a pro-
cess for receipts will be included in the revised SOP; and (8) an interface between systems to ensure the contract number
and purchase order number are the same is being evaluated. Estimated completion date is 1/31/17.

Report # 13-14, Audit of 417 Unauthorized Commitments
Program: OCFO
Date Issued: 3/28/13
Management Decision Date N/A
Explanation: Two remaining recommendations to the Office of the Chief Financial Officer require (1) Incorpora-
tion of COR Acceptance Letter and FAR into COR’s annual performance assessment; and (2) provide annual training
to employees on managing contracts to avoid unauthorized commitments. Resolution activities include (1) working
with OHRS to incorporate COR requirements in the annual performance assessment for CORS; estimated completion
7/31/16; and (2) technical training has been developed and uploaded into the Talent Management Center system and is

140 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

being reviewed by management; once deployed and 80% of employees have completed the training, OCFO will submit
the matter to the OIG for closure. Estimated completion date is 7/31/16.

Report # 13-16R, Audit of SBA’s 7(a) Guaranty Purchase of Recovery Act Loans Improper Payments
Program: OCA
Date Issued: 6/14/13
Management Decision Date 3/28/14
Explanation: The one remaining recommendation requires the Office of the Capital Access to recover $680,900 from a
lender. The file is in the dispute resolution process. Estimated completion date is 12/31/15.

Report # 13-17, Audit of SBA’s Portfolio Risk Management Program
Program: OCA
Date Issued: 6/14/13
Management Decision Date 9/30/13
Explanation: Two remaining recommendations to the Office of Capital Access require (1) use of portfolio risk manage-
ment program data to support risk-based decisions in its loan programs; and (2) implementation of additional controls to
mitigate identified risks where necessary. Resolution activities include (1) developing a Data Analytics Model that will be
used as a data source to store portfolio benchmark data and monitor risk tolerance limits; and (2) developing a Monitor-
ing and Observation Tool to mitigate identified risk based on established benchmark levels and enhancing or adding
additional controls as necessary. Estimated completion date 9/30/16.

Report # 13-18, Audit of SBA’s Defaulted Disaster Loans
Program: OCA
Date Issued: 9/27/13
Management Decision Date 3/31/14
Explanation: Four recommendations to the Office of Capital Access require (1) transfer of loans in litigation after
charge-off to Treasury if litigation is dismissed; (2) develop and implement controls and processes related to workouts;
(3) develop and implement controls and processes related to liquidation; and (4) publish a mission statement, update the
SOP, establish a performance management process for the disaster loan liquidation center. Resolution activities include
(1) creation of management controls to ensure all eligible charge-off loans are transferred to Treasury; (2) development
and implementation of controls and processes related to workouts; (3) development and implementation of controls and
processes related to liquidation; (4) SOP 50-52 has been updated and documentation has been submitted to the OIG to
close this recommendation. Estimated completion date for all recommendations is 9/30/16.

Report # 13-21, Audit of SBA’s Enterprise-Wide Controls over Co-Sponsored Activities
Program: OCPL, OFO, and OGC
Date Issued: 9/26/13
Management Decision Date 1/23/14 and N/A
Explanation: Five remaining recommendations include four to the Office of Communications and Public Liaison that
require (1) co-sponsorship agreement update to include all specific roles and responsibilities for fiscal agents and other
accountable parties; (2) establishment of controls to ensure all activities are properly closed out and all documents are
obtained; (3) periodic reviews of co-sponsorship files; and (4) training for staff. Resolution activities include (1) OCPL
and OGC have drafted a revised SOP with significantly expanded coverage of the roles and responsibilities of fiscal agents
and other cosponsors. The draft SOP, 90-75-4, is being reviewed by the AA/OCPL before being submitted for review
by the Administrator. After the SOP is effective, OCPL and OGC likely will issue new revisions to the co-sponsorship
template to reflect policies set forth in the SOP; (2) exploration of technology to collect co-sponsorship information and
track agreements; (3) exploration of partnership with OGC to work together on file review; and (4) providing training

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focused on roles and responsibilities of fiscal agents. Estimated completion date is 12/31/16. One recommendation is
to the Office of General Counsel and requires revision of SOP 90 75 3 to include specific procedures on the disposition
of excess funds that remain after co-sponsored activities. The General Counsel convened a task force to revise SOP 90 75
3. A revised SOP (SOP 90-75-4) on all outreach activities including co-sponsorships is under review. The revised SOP
draft contains several pages describing proper disposal of excess co-sponsorship funds. Estimated completion date for all
recommendations is 9/30/16.

Report # 14-03, Audit of HUBZone Certifications
Program: GCBD
Date Issued: 11/19/2013
Management Decision Date: 11/14/2013
Explanation: The two open recommendations to the Office of Government Contracting and Business Development
that require (1) an Update to the HUBZone guidance based on the current certification process; and (2) a review of the
HUBZone certification process to identify potential improvements to meet deadlines established by regulation. Resolu-
tion activities include (1) Updating and publishing HUBZone Standard Operating Procedures; and (2) amending the
certification process so that actions are completed within an average of 90 days from the date application is electronically
verified. Estimated completion date is 9/30/16.

Report # 14-04, Audit of SBA’s FY 2013 Financial Statements
Program: OCIO and OCA
Date Issued: 12/16/13
Management Decision Date: 4/9/14
Explanation: Five recommendations include four that require the Office of the Chief Information Officer (1) imple-
ment procedures to periodically review user access; (2) enforce a network security baseline across the network; (3)
improve information system logging and auditing program; and (4) grant elevated network privileges based on business
need only and monitor privileged network accounts. Resolution activities include; (1) periodic review of user access
has been implemented and the OCIO is working with OIG to close this recommendation; (2) the OCIO has enforced
a security baseline across the LAN/WAN and the supporting evidence is being generated to close this recommenda-
tion; (3) the OCIO is deploying Splunk to provide robust logging and auditing capabilities on the LAN/WAN with an
expected final action date of 2/1/16; and (4) the OCIO has deployed a segregation of duties matrix to prevent issuance
of excessive privileged network accounts and is generating the supporting documentation to close this recommendation.
Estimated completion date for all recommendations is 9/30/16. One recommendation requires the Office of Capital Ac-
cess to implement controls to prevent and detect unauthorized changes to production programs. OCA is in the process of
procuring software controls and estimates a completion date of 3/31/16.

Report # 14-07, Audit of SBA’s FY 2013 Financial Statements – Management Letter
Program: OCFO
Date Issued: 12/16/13
Management Decision Date: 9/5/14
Explanation: The one remaining recommendation requires the Office of the Chief Financial Officer to develop, formal-
ize and implement an up-to-date Standard Operating Procedure for monitoring and closing obligations. The SOP has
been drafted and is under management review. Estimated completion date is 12/31/16.

142 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

Report # 14-08, Audit of Quality Control at Loan Operation Centers
Program: OCA
Date Issued: 1/17/14
Management Decision Date: 1/17/14
Explanation: The one remaining recommendation requires the Office of Capital Access, Office of Credit Risk Manage-
ment, to establish and implement a plan to conduct quality assurance activities at SBA loan operation centers. OCRM is
in the process of identifying a quality assurance staff and developing procedures. Estimated completion is 9/30/16.

Report # 14-09, Audit of 7(a) Recovery Act Loans
Program: OCA
Date Issued: 1/29/14
Management Decision Date: 1/29/14
Explanation: The one remaining recommendation requires the Office of Capital Access to recover $685,691 from a
lender. The file is going through the dispute resolution process. Estimated completion date is 3/31/16.

Report # 14-12, FY2013 Federal Information Security Management Act Review
Program: OCIO
Date Issued: 4/30/14
Management Decision Date: 4/30/14
Explanation: The five remaining recommendations require the Office of the Chief Information Officer (1) implement
Personal Identification Verification (PIV) card logical access to all SBA systems, (2) improve Security Authorization
Packages for retain all documentation; (3) upgrade remote access solution to include required encryption standards; (4)
upgrade remote access solution to time-out after 30 minutes of inactivity; and (5) enhance security training for personnel
with specialized security positions. Resolution activities include (1) PIV has been implemented for 85% unprivileged
and 90% privileged accounts; estimated completion date is December 31, 2015, (2) SBA’s Security Assessment and
Authorization process has been updated to meet the requirements of FIPS 200 and aligned to the guidance with NIST
800-53 and NIST 800-37; a work plan has been developed to migrate to NIST 800-53 Rev 4 which addresses a record-
able, repeatable process in the development of authorization documentation; (3) remote access system has been upgraded
to meet FIPS 140-2 encryption requirements and documentation is being submitted to the OIG to close this recommen-
dation; (4) remote access systems have been programmed to time-out after 30 minutes of inactivity and documentation
is being submitted to the OIG to close this recommendation; and (5) users with specialized security access were identi-
fied and required to complete role-based security training with non-compliance resulting in disabled accounts until the
training was completed; documentation is being submitted to the OIG for closure of this recommendation. Estimated
completion date for all recommendations is 9/30/16.

Report # 14-14, Audit of Performance Reporting of Disaster Loan Processing Time
Program: ODA
Date Issued: 6/30/14
Management Decision Date: N/A
Explanation: The two remaining recommendations require the Office of Disaster Assistance to (1) report processing
time for separately for automatically declined, pre-loss verification declined, and other processing declined applications;
and (2) establish and report processing based on actual average processing times, net of automatic and pre-loss verifica-
tion declined applications. ODA disagrees with both of these recommendations and is entering the dispute resolution
process. Estimated completion date is 9/30/16.

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AP P E ND I C E S

Report # 14-15, Audit of Non-Manufacturer Rules Waiver Program
Program: GCBD
Date Issued: 8/14/14
Management Decision Date: 8/11/14
Explanation: The two remaining recommendations require the Office of Government Contracting and Business De-
velopment to publish a Standard Operating Procedure for the Non-Manufacturer Rules Waiver Program and establish
procedures to ensure all data and memorandums are complete, accurate, and up-to-date. The Office of Government
Contracting is developing an SOP for the Non-Manufacturer Rules Waiver Program which will include procedures for
maintaining file documentation. Estimated completion date is 9/30/16.

Report # 14-17, Audit of 2013 and 2014 Cash Gifts
Program: OCPL
Date Issued: 8/27/14
Management Decision Date: 8/27/14
Explanation: The one remaining recommendation requires the Office of Office of Communication and Public Liaison
to establish controls to ensure cash gifts from co-sponsored activities are documented and properly closed out. OCPL
is working with the Office of General Counsel’s outreach taskforce to establish controls including the development and
implementation of a reporting system. Estimated completion date is 9/30/16.

Report # 14-18, Audit of Small Disadvantaged Business and HUBZone Goaling
Program: GCBD
Date Issued: 9/24/14
Management Decision Date: 9/10/14
Explanation: The two remaining recommendations require the Office of Government Contracting and Business
Development to strengthen controls to ensure accuracy of 8(a) and HUBZone certification data in FPDS-NG; and to
either modify system to allow 8(a) and HUBZone firm profiles and certification information remains visible and accurate
to contracting officers or develop an alternative list to verify a firm’s status. Resolution activities include identifying
interface issues to determine the root cause(s) for inaccurate certification data in FPDS-NG and implement appropriate
corrective actions. Estimated completion is 9/30/17.

Report # 14-19, Audit of the District of Columbia Small Business Development Center
Program: SBDC
Date Issued: 9/29/14
Management Decision Date: 9/29/14
Explanation: The two remaining recommendations require the Office of the Small Business Development Centers to
updated their Standard Operating Procedures to address statutory and regulatory changes and to establish corresponding
internal controls; and to implement Lead Center controls to exclude excess sub-recipient costs when computing indirect
costs. The Office of the Small Business Development Centers is updating their SOPs to include statutory and regulatory
changes and estimate a completion date of 3/31/16. The enhancement of controls over indirect cost computation will be
documented in a specific SOP with an estimated completion date of 9/30/16.

144 AGENCY FINANCIAL REPORT • FY 2015
APPENDICES

Report # 14-20, Audit of Economic Injury Disaster Loans
Program: ODA
Date Issued: 9/29/14
Management Decision Date: 9/18/14
Explanation: The one remaining recommendation requires the Office of Disaster Assistance to develop a checklist for
key requirements in approving a loan. A checklist was developed and accepted by the OIG and will be incorporated into
a system change by 12/22/15.

Report # 14-21, Audit of LMAS Incremental Improvement Projects
Program: OCIO
Date Issued: 9/30/14
Management Decision Date: 9/25/14
Explanation: The one remaining recommendation requires the Chief Information Officer to modify its Enterprise
Architecture Roadmap to include all provisions of the LMAS IIPs. The planned action is to incorporate the LMAS
architecture and new capability requirements plan once it is received from the Office of Capital Access into the enterprise
architecture. Estimated completion date is 3/31/16.

DID The SBA proudly recognized the Small Business Development Center
YOU program on 35 years of service to small business. The SBDC network

KNOW counseled more than 1.2 million clients from 2009 through 2014, fueled by
$750 million in grants from the SBA. This funding has resulted in 82,000
new small business starts, access to $24 billion in capital, and $131 billion
in small business revenue.

AGENCY FINANCIAL REPORT • FY 2015 145
SUCCESS Phoenix Award for Outstanding Small
Business Disaster Recovery
STORY Moriches Inlet Marine, Inc.
East Moriches, New York

Conrad Kreuter’s retail shop and marina in East Moriches, New York typically
stores about 500 boats each year. With a background in electrical engineering,
Conrad’s mind envisioned – with dread – the extent of the damages to the marine
after Hurricane Sandy devastated the area on October 29, 2012. Windows were broken,
and the destroyed walls exposed insulation and wiring. Sand and seaweed were attached to
everything. Wet papers, twisted supply racks, light fixtures littered the floor, and the smell of
dead fish was overwhelming.

Moving quickly, Conrad created a chart to plot the first tasks needed to mount a successful
recovery. The damage was estimated at $825,000. He set a goal of reopening on April 1, the
beginning of the boating season.

Conrad kept his suppliers informed about his recovery efforts, and they in turn became a
valuable resource. One vendor sent salespeople to help Conrad and his team remove debris and restock shelves.
With the support of an SBA disaster loan, Conrad was able to keep his staff employed, rebuild his business, and
contribute to the restoration of the local economy, which depends on the vibrant marina industry.

Conrad Kreuter, President of Moriches Inlet Marine, Inc., is the recipient of the SBA 2015 Phoenix Award for
Outstanding Small Business Disaster Recovery.
ACKNOWLEDGMENTS

This Agency Financial Report was produced with the energies and talents of the SBA staff. To these
individuals, the Office of Performance Management and the Chief Financial Officer would like to
offer sincere thanks and acknowledgement.

We would also like to acknowledge the Office of the Inspector General and KPMG LLP for the
professional manner in which they conducted the audit of the Fiscal Year 2015 Financial Statements.
We offer our special thanks to Innovative Consultants International and Corporate Visions, Inc. for
outstanding contributions to producing this report.

CERTIFICATE OF EXCELLENCE IN ACCOUNTABILITY REPORTING

For the past nine years, FY 2006 to FY 2014, the U.S.
Small Business Administration is proud to have received
the prestigious Certificate of Excellence in Accountability
Reporting (CEAR) award from the Association of Government
Accountants (AGA) for its Agency Financial Report
(AFR). The CEAR program was established by the AGA in
conjunction with the Chief Financial Officers Council. The
award recognizes high-quality Performance and Accountability
Reports and Annual Financial Reports that effectively
illustrate and assess financial and program performance,
accomplishments and challenges, cost and accountability.
Office of Performance Management
and Chief Financial Officer
409 Third Street, S.W.
Washington, DC 20416

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