SBA Agency Financial Report, Fiscal Year 2023
Summary
This is the U.S. Small Business Administration's Agency Financial Report for fiscal year 2023, the first of two required annual reports for federal agencies. The message from the Administrator, Isabella Casillas Guzman, is dated November 15, 2023. It says the SBA approved 63,000 loans in the 7(a) and 504 loan programs, providing more than $33 billion to small businesses. It also says the SBA received a disclaimed opinion from its auditor on its FY 2023 Consolidated Balance Sheet. A highlights table (dollars in thousands, unaudited) lists a principal program portfolio of $412,215,125 and total assets of $316,328,584 for FY 2023.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“SBA Agency Financial Report, Fiscal Year 2023.”
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Agency Financial Report
FISCAL YEAR 2023
Agency Financial Report Fiscal Year 2023 2 Management’s Discussion and Analysis (Unaudited)
About this Report
The U.S. Small Business Administration’s Agency Financial Report (AFR)
for FY 2023 provides an overview of the Agency’s financial and performance
data to help Congress, the President, and the public assess the SBA’s
stewardship over the resources entrusted to it. The AFR is the first of
two required annual reports for federal agencies. The FY 2023
Annual Performance Report (APR) is the other report and
is part of the FY 2025 Congressional Justification (CJ).
The CJ/APR is scheduled for publication in
February 2024. The reports can be found
at: www.sba.gov/performance.
FY 2023 HIGHLIGHTS
(Dollars in Thousands)
FY 2020 FY 2021 FY 2022 FY 2023
(unaudited) (unaudited) (unaudited) (unaudited)
Principal Program Portfolio1 $ 835,987,031 $ 713,196,138 $ 559,170,974 $ 412,215,125
Total Assets $ 897,533,990 $ 562,417,681 $ 378,012,365 $ 316,328,584
Total Liabilities $ 718,056,018 $ 503,539,063 $ 395,123,603 $ 346,035,882
Total Net Position $ 179,477,972 $ 58,878,618 $ (17,111,238) $ (29,707,298)
Total Net Cost of Operations $ 554,231,547 $ 346,283,553 $ 47,096,949 $ 35,322,586
Total Budgetary Resources $ 1,518,667,904 $ 1,347,118,849 $ 420,033,718 $ 107,153,718
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 and
defaulted loans that have not been charged off.
FOR MORE INFORMATION
Information about the SBA’s programs is available at: www.sba.gov
The SBA’s plans and reports are available at: www.sba.gov/performance
Para información acerca de los programas de la SBA: www.sba.gov “Translate” “Select Language”
Questions and comments regarding the content, presentation, and usefulness of this report are welcome and may be
addressed to: performance.management@sba.gov
Or, you may write to:
FOLLOW US ON:
U.S. Small Business Administration
Office of Performance, Planning, and the Chief Financial Officer https://www.facebook.com/sbagov
409 Third Street, S.W. https://www.x.com/sbagov
Washington, DC 20416 (formerly Twitter)
Or, you may call: https://www.youtube.com/sba
Anna Maria Calcagno, Director
Office of Program Performance, Analysis and Evaluation (OPPAE)
(202) 401-2895
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 i Introduction (Unaudited)
Table of Contents
MESSAGE FROM THE ADMINISTRATOR ......................................................................................................................................... 1
MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) ...................................................................................................... 3
The SBA’s History, Goals, and Organization ................................................................................................................................ 4
Executive Summary ....................................................................................................................................................................... 8
Primer of the SBA’s Principal Programs ...................................................................................................................................... 9
Summary of COVID-19 Financial Impacts .................................................................................................................................. 12
Analysis of Performance Results ................................................................................................................................................ 13
Summary of Performance Results .......................................................................................................................................... 13
Verification and Validation of Performance Data .................................................................................................................. 14
Operational Portfolio Analysis ................................................................................................................................................ 14
Forward Looking Analysis ........................................................................................................................................................... 18
Analysis and Highlights of Financial Statements and Results ................................................................................................ 20
Highlights of Financial Results ................................................................................................................................................ 20
Analysis of Financial Results.................................................................................................................................................... 21
Analysis of SBA’s Systems, Controls, and Legal Compliance .................................................................................................. 25
Internal Control Environment ................................................................................................................................................. 25
Financial Management Systems Strategy .............................................................................................................................. 26
Management Assurances: FMFIA and FFMIA Assurance Statement for FY 2023.................................................................. 28
FINANCIAL REPORTING (UNAUDITED) ........................................................................................................................................ 33
Message from the Chief Financial Officer .................................................................................................................................. 34
Inspector General’s Audit Report ............................................................................................................................................... 35
Independent Auditors’ Report on FY 2023 Financial Statements ........................................................................................... 38
CFO Response to Draft Audit Report on FY 2023 Financial Statements ....................................................................... 63
Financial Statements and Notes (Unaudited)........................................................................................................................... 64
OTHER INFORMATION (UNAUDITED) ........................................................................................................................................ 113
OIG Report on the Top Management and Performance Challenges ..................................................................................... 114
Agency Response to the OIG Report on the Top Management and Performance Challenges ........................................... 156
Payment Integrity ...................................................................................................................................................................... 158
Summary of Financial Statement Audit and Management Assurances ............................................................................... 173
Grants Programs ........................................................................................................................................................................ 175
Civil Monetary Penalty Adjustment for Inflation ................................................................................................................... 176
APPENDICES (UNAUDITED) ....................................................................................................................................................... 177
APPENDIX 1 – Contact SBA: Useful Websites and Phone Numbers ....................................................................................... 178
APPENDIX 2 – Glossary .............................................................................................................................................................. 179
APPENDIX 3 – OIG Audit Follow-Up Activity ............................................................................................................................ 186
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 ii Introduction (Unaudited)
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 2023 Agency Financial Report (AFR) provides financial and performance
information for the fiscal year beginning October 1, 2022, and ending September 30, 2023. This report presents
the SBA’s operations, accomplishments, and challenges. Following a message from the SBA Administrator are four
principal sections: Management’s Discussion and Analysis, Financial Reporting, Other Information, and Appendices.
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 the SBA’s history, organization,
and principal programs. This section highlights financial results and analysis; performance results; and
analysis of systems, controls, and legal compliance.
FINANCIAL REPORTING
The Financial Reporting section provides a detailed report of the SBA’s finances. It includes a message
from the Chief Financial Officer, the audit transmittal memorandum from the Inspector General,
the Independent Auditors’ report, and the financial statements and notes. Additionally, the required
supplementary information provides a combined statement of budgetary resources.
OTHER INFORMATION
The Other Information section includes the Inspector General’s report on the Agency’s most serious
management and performance challenges along with recommended actions. This section also includes a
summary of the financial statement audit and management assurances.
APPENDICES
The Appendices provide supporting information—a contact list of useful websites and telephone
numbers, a glossary, and a detailed report on audit follow-up activity.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 1 Introduction (Unaudited)
Message from the Administrator
November 15, 2023
The U.S. Small Business Administration and its mission-driven team has scaled
to historic levels to help America’s small businesses, innovative startups and
disaster-impacted communities access the tools and resources they need to start,
recover, build and grow. The SBA’s FY 2023 Agency Financial Report highlights
our substantial impact and continuous management improvements to ensure
that small businesses are supported to deliver the jobs, innovation, products and
services our economy depends on for its global competitiveness.
Throughout Fiscal Year 2023, America’s small business economy continued
to experience significant growth, reflecting historic support and program
improvements across the SBA. During this period, our nation has enjoyed
strong job creation, historically high rates of new business application filings, historically low unemployment,
generational investments in American manufacturing, and much more.
The SBA has significantly modernized its programs and services – including small business lending,
investments, federal contracting, technical and skills training, innovation, and disaster response. The SBA
achieved significant regulatory and programmatic reforms during FY 2023, including the creation of a new
Community Advantage Small Business Lending Company (CA SBLC) License and Small Business Investment
Company accrual license, the expansion of access to capital for small businesses by modernizing SBA’s signature
7(a) and 504 loan programs, and the continued implementation of the Community Navigators Pilot Program.
Based on preliminary reported impacts, it is reasonable to expect these regulatory and programmatic reforms to
continue providing strong economic returns for America’s small businesses.
Access to capital is a vital aspect of economic development. At the SBA, we work with approved lenders and
community development organizations to guarantee loans to small businesses that are unable to obtain credit
in the conventional lending marketplace. In FY 2023, the SBA approved 63,000 loans in the 7(a) and 504 loan
programs, providing more than $33 billion to small businesses.
In FY 2023, minority business owners received $11 billion in combined 7(a) and 504 lending, nearly one-third
of the SBA’s loan portfolio; 7(a) and 504 lending to Native American business owners was the highest ever
at $278 million. The SBA’s 7(a) and 504 lending to women-owned businesses was $5.1 billion in FY 2023.
Loans to veterans reached $1.1 billion for the 7(a) and 504 programs. Additionally, the SBA’s microloan
program, which offers loans up to $50,000, approved $87 million in new loans in FY 2023, underscoring our
commitment to helping the small businesses and start-ups that need assistance.
The Small Business Investment Company program, in which the SBA partners with private investors to finance
small businesses through professionally managed investment funds, supported over 1,200 small businesses with
over $8 billion in financing. SBIC financing to women-owned, minority-owned, and veteran-owned small
businesses increased over 25 percent from FY 2022.
The SBA ensures that America’s small business owners can access the entrepreneurial training, counseling,
and resources to tackle the challenges they face every day. Our combined SBA network offers free or low-
cost programs to help entrepreneurs plan their business, research market trends, expand their customer base,
and secure funding. These efforts are powered by our 68 district offices and strong resource partner network
made up of Small Business Development Centers (SBDC), Women’s Business Centers (WBC), Veterans
Business Outreach Centers (VBOC), SCORE chapters, Regional Innovation Cluster, Growth Accelerators and
Community Navigators. In FY 2023, hundreds of thousands of American small businesses took advantage of
counseling, mentoring, and training assistance through the SBA network.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 2 Introduction (Unaudited)
Thanks to the SBA’s efforts, in FY 2022, federal agencies collectively awarded an all-time high of 26.5% of
federal contract dollars totaling $163 billion went to small businesses. That is an over $8 billion increase from
the previous fiscal year and exceeded the federal small business contracting goal of 23 percent for FY 2022.
This marks the tenth consecutive year in a row that the Federal Government has exceeded this goal. The SBA
continues to promote equity in federal contracting, and for the second year in a row, Small Disadvantaged
Business (SDB) spending exceeded its 11 percent goal.
When disaster strikes, the SBA joins with our federal partners to respond by helping businesses, nonprofits,
homeowners, and renters recover from declared disaster events. Direct low-interest loans from the SBA have
enabled borrowers to replace or repair uninsured losses, whether through physical damage or economic injury.
The SBA also assists borrowers in financing improvements to their homes or businesses to mitigate future
disaster damages. The SBA has continued to work with federal, state, and local partners to improve disaster
response and ensure we are assisting economic recovery as expediently as possible. In FY 2023, the SBA
approved more than 43,100 direct disaster loans for natural disasters such as wildfires, floods, hurricanes, and
tornadoes, totaling $2.98 billion.
The SBA continues to drive strong financial management of all its programs, including COVID programs, to
ensure it can effectively serve America’s small businesses, innovative startups and disaster-impacted communities
into the future. The financial and performance data published in this report are reliable, complete, and in
accordance with the U.S. Office of Management and Budget Circulars A – 136 and A – 11. As the SBA
continues to implement the historic, over-$1.2 Trillion in pandemic relief, the Agency recognizes it has
received a disclaimed opinion from its auditor on its FY 2023 Consolidated Balance Sheet. However, under
my leadership, the SBA has taken action to correct course and implement internal controls to ensure that all
programs are carried out at the highest standards with the utmost integrity. The SBA believes that its efforts to
develop and implement controls for its COVID-related programs in FY 2023 would have remediated material
weaknesses identified from the FY 2022 audit. Nonetheless, my team and I remain committed to ensuring
proper management of Agency resources by addressing the issues our auditor identified and continuing to
strengthen management controls.
We have worked across the whole of SBA to ensure that we are functioning as efficiently, effectively, and
equitably as possible for America’s entrepreneurs while leveraging modernization, technology, and expanded
networks and partnerships to streamline operations and deliver strong customer experience. As we look toward
FY 2024 and a future of possibilities, the SBA remains committed to achieving equity and meeting all of
America’s small businesses where they are – and everywhere they are.
Sincerely,
Isabella Casillas Guzman
27th Administrator
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 3 Management’s Discussion and Analysis (Unaudited)
Management’s Discussion
and Analysis (Unaudited)
SECTION 1
Agency Financial Report Fiscal Year 2023 4 Management’s Discussion and Analysis (Unaudited)
The SBA’s History, Goals, and Organization
In 1953, Congress created the SBA to aid, counsel, assist, and protect the interests of small businesses. As the nation’s only go-to
resource and voice for small businesses, the SBA provides programs and services that help small businesses confidently start, grow,
expand, or recover. The SBA is backed by the Federal Government and is the only cabinet-level federal agency fully dedicated to
small business. The SBA’s headquarters is in Washington, D.C., whereas its business products and services are delivered through
field personnel and a network of private sector and nonprofit partners in every U.S. state and territory. Major SBA offices
contribute to one or more Agency-wide strategic goals as outlined in the SBA’s FY 2022-2026 Strategic Plan:
MISSION STATEMENT
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
GOAL 1 GOAL 2 GOAL 3
Ensure equitable and customer-centric design Build resilient Implement strong
and delivery of programs to support small businesses and a stewardship of resources
businesses and innovative startups sustainable economy for greater impact
1.1 Ensure all entrepreneurs have access to 2.1 Help small businesses 3.1 Strategically manage
capital to start and grow their businesses recover from the resources by
pandemic and become integrating quality
1.2 Build a thriving national innovation
more resilient data, evidence,
ecosystem that promotes investments in all
and risk in decision-
small business communities 2.2 Prepare small
making processes
businesses and rebuild
1.3 Increase exporting opportunities to help
communities affected 3.2 Build an inclusive
small businesses across the country expand
by natural disasters and high-performing
into new markets
workforce
1.4 Build back an inclusive and proficient small
3.3 Develop and deploy
business contracting base ready to compete
technology-driven
for all federal procurement opportunities
solutions to enhance
1.5 Build an equitable entrepreneurial mission delivery
ecosystem through tailored training
and counseling
STRATEGIC GOAL ONE
Ensure Equitable and Customer-Centric Design The Office of Investments and Innovation assists small
and Delivery of Programs to Support Small businesses through initiatives such as the Small Business
Businesses and Innovative Startups Investment Company, Small Business Innovation Research,
Small Business Technology Transfer, and other tailored
Strategic Goal One aims to improve access to SBA
programs that drive innovation and competitiveness.
programs and services for all entrepreneurs.
The Office of Capital Access assists small businesses with The Office of International Trade enhances the ability of small
obtaining capital via the 7(a), 504, and Microloan businesses to export and compete in the global marketplace
programs and via bonds through the Surety Bond by facilitating access to capital, providing technical assistance,
Guarantee program. PRIME Technical Assistance Grants ensuring the consideration of small business interests in trade
Program provides training and technical assistance to negotiations, and contributing to the U.S. government’s
underserved entrepreneurs and microenterprise development international commercial and economic agenda.
organizations and programs.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 5 Management’s Discussion and Analysis (Unaudited)
The Office of Government Contracting and Business STRATEGIC GOAL THREE
Development assists small businesses in competing for federal
contracting opportunities through the government-wide Implement Strong Stewardship of Resources for
prime and subcontracting programs. The office also sets Greater Impact
size standards for small businesses, which determine the Strategic Goal Three focuses on SBA resources and
size a business must be to be considered a small business. ways to optimize them to best support the small
Additionally, business development assistance includes the business community.
HUBZone, 8(a) business development, 7(j) management
The Office of Performance, Planning, and the Chief Financial
and technical assistance, and Mentor-Protégé programs.
Officer leads the Agency’s performance management,
The Office of Entrepreneurial Development provides business program evaluation, and evidence-building activities;
advising, mentoring, and training assistance through its enterprise and fraud risk management; financial
resource partner network composed of Small Business management; and acquisition management functions.
Development Centers, Women’s Business Centers, SCORE,
The Office of Executive Management, Installations, and Support
Community Navigator Pilot Program, and through
Services supports resource and core administrative functions,
Entrepreneurship Education programs.
including grant management, facilities, records management,
The Office of Veterans Business Development ensures the and personnel security.
applicability and usability of all the Agency’s small business
The Office of Human Resources Solutions provides strategic
programs for active-duty military personnel, National Guard
human capital solutions to workforce issues and strives to
and Reservists, veterans, and veteran or military spouses
create a work environment that attracts and retains a talented
through Veterans’ Business Outreach Centers, Boots to
and high-performing workforce.
Business, and other grant programs.
The Office of the Chief Information Officer provides
The Office of Field Operations is responsible for connecting
information technology leadership, product services, and
and supporting entrepreneurs with the Agency’s products
operational support for the SBA to maximize internal
and services through 10 regional offices and 68 district
efficiency and responsiveness to small businesses.
offices. Each of the SBA’s programmatic areas are directly
supported by specialist field staff. Other offices that support the strategic goals and
objectives include the Office of the National Ombudsman;
STRATEGIC GOAL TWO Office of Continuous Operations and Risk Management;
Office of Diversity, Inclusion, and Civil Rights; Office of
Build Resilient Businesses and a Communications and Public Liaison; Office of Congressional
Sustainable Economy and Legislative Affairs; Office of General Counsel; and
Office of Hearings and Appeals.
Strategic Goal Two focuses on how the SBA can rebuild
a sustainable economy fueled by small businesses.
The Office of Capital Access administers disaster loans through
the Disaster Assistance Program, the only SBA program
not limited to small businesses. Additionally, the SBA
oversees Paycheck Protection Program loans, Restaurant
Revitalization Fund grants, and COVID-19 EIDL loans in
support of pandemic relief.
The Office of Disaster Recovery and Resilience provides short-
and long-term assistance after disasters by engaging with
district offices and resource partners to aid their communities
even after the disaster declaration deadlines have closed. The
SBA communicates its preparedness and disaster resources
through outreach that raises awareness and underscores
seasonal risks. The office also oversees Shuttered Venue
Operator Grants Program in support of pandemic relief.
U.S. Small Business Administration
SBA Organization Chart
Agency Financial Report Fiscal Year 2023
Office of the Administrator Office of Inspector General
Administrator
Chief of Staff — Deputy Administrator Office of Advocacy
Office of Office of Continuous
Office of Office of Hearings Office of Human
Office of Capital Access Communications Operations and
International Trade and Appeals Resources Solutions
and Public Liaison Risk Management
U.S. Small Business Administration
Office of Executive
Office of Government Office of Diversity,
Office of Investment Office of Office of the National Management,
Contracting and Inclusion and
and Innovation General Counsel Ombudsman Installation and
Business Development Civil Rights
Support Services 6
Office of Disaster Office of Performance,
Office of Entrepreneurial Office of Congressional
Recovery Planning, and the Chief
Development and Legislative Affairs
and Resilience Financial Officer
Office of Field Office of Veterans Office of the Chief
Management’s Discussion and Analysis (Unaudited)
Operations Business Development Information Officer
SBA Field Office Locations
Region 10 Agency Financial Report Fiscal Year 2023
AK AK, WA, Region 8 Region 1
ANC OR, ID VT, NH,
MT, ND, WY, Region 5 ME, MA,
SD, UT, CO
ANC MN, WI, MI, IL, CT, RI
(In Region 10) IN, OH
WA
ANC
ME
ANC ANC
MT ND ANC
ANC
NH
OR MN VT ANC
ANC ANC
ID ANC
MA
WI ANC
SD
ANC
ANC ANC NY ANC
RI
Region 2
WY MI ANC CT
U.S. Small Business Administration
ANC
ANC NY, NJ, PR,
ANC ANC
ANC ANC PA ANC
ANC
USVI
ANC ANC ANC IA NJ
NV NE IA ANC
ANC
ANC IN ANC
DE
ANC
ANC IL
ANC OH MD 7
ANC UT ANC
ANC HQ
CO ANC ANC
WVA
CA VA
ANC
KS MO KY
ANC
Region 3
ANC
ANC ANC NC
ANC PA, WV, VA,
TN
AZ ANC DC (HQ), DE,
ANC OK ANC MD
ANC
NM ANC SC
ANC
AR MS
ANC GA
AL
ANC
Region 4
Management’s Discussion and Analysis (Unaudited)
ANC
TX LA
KY, TN, NC,
ANC
HON
ANC
MS, AL, GA,
ANC
FL
SC, FL
GU HI
Region 9 ANC HAT
(In Region 9) NV, CA, AZ, ANC Region 6 PR
GU, HI NM, TX, OK, USVI
Region 7 AR, LA
(In Region 2)
NE, KS, IA, MO
Published by OCPL 9/2023
Agency Financial Report Fiscal Year 2023 8 Management’s Discussion and Analysis (Unaudited)
Executive Summary
America’s 33 million small businesses play a critical role in PERFORMANCE RESULTS
job creation and retention. During the last two decades,
Capital: In FY 2023, the SBA approved nearly $34 billion,
small businesses have been responsible for creating two out
or more than 63,000 7(a) and 504 loans to small businesses;
of every three net new jobs. In turn, the U.S. Small Business
7(a) loans, 504 loans, microloans, and surety bonds helped
Administration’s assistance to those firms and entrepreneurs
to support more than 705,000 American jobs. The SBA
helps drive a healthy economy.
invested more than $8 billion in over 1,200 small businesses
The SBA employs a variety of methods to support America’s through the Small Business Investment Company program,
small businesses. These methods include promoting equitable which supported over 130,000 jobs.
access to capital, federal contracting, counseling, and
Contracting: The SBA continued to partner with agencies
disaster assistance.
across the Federal Government to expand small business
The SBA published the Agency’s FY 2022–2026 Strategic contracting opportunities. From FY 2017 through FY 2022,
Plan, which established the following strategic goals: small businesses were awarded over $820 billion in federal
contracts (FY 2023 contracting numbers continue to be
1. Ensure equitable and customer-centric design and collected and certified). The Federal Government continued
delivery of programs to support small businesses and to exceed its small disadvantaged and service-disabled,
innovative startups veteran-owned small business contracting goals but will
2. Build resilient businesses and a sustainable economy continue to face challenges meeting its HUBZone and
3. Implement strong stewardship of resources for women-owned small business contracting goals.
greater impact Counseling: The SBA helped entrepreneurs start more
The following sections highlight financial and performance than 28,900 new businesses in FY 2023 and served over
results for the Agency. Additional information can be 737,000 unique clients. Additionally, the SBA’s Community
found in the Analysis of Financial Results and Summary Navigators Pilot Program helped small businesses access over
of Performance Results sections. The complete set of $115 million in grants and loans. Under the community
performance results will be reported in the Annual navigator approach, traditional business assistance
Performance Report to be published in February 2024. organizations enlist trusted, culturally knowledgeable
partners to conduct targeted outreach to specific,
underserved sectors of the entrepreneurial community.
FINANCIAL RESULTS
Disaster Assistance: In FY 2023, the SBA approved more
For FY 2023, the SBA’s total budgetary resources used
than 43,000 direct disaster loans for events such as floods,
for staffing, operations, and loan subsidy costs were
hurricanes, and tornadoes, totaling nearly $3 billion. The
$32.3 billion. Total nonbudgetary resources for loan
Agency managed 425 disaster assistance declarations during
financing used to make direct loans and purchase guarantied
FY 2023. In addition to supporting communities before,
loans in default were $32.3 billion. The SBA’s guarantied
during, and after natural disasters, the SBA continued
portion of the outstanding loan principal decreased
to oversee COVID-19 relief programs in every state
$23.5 billion in FY 2023 to $140.2 billion. During
and territory.
FY 2023, new guaranties disbursed by SBA participating
banks were $27.0 billion, a $5.6 billion decrease from last
year. In FY 2023, purchases of defaulted guarantied loans
increased from $6.0 billion last year to $12.2 billion. The
loans receivable portion of the SBA credit program portfolio
decreased in FY 2023 to $272.0 billion from $321.5 billion
in FY 2022. The decrease in loans receivable was related to a
spike in disaster loan-making in 2022.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 9 Management’s Discussion and Analysis (Unaudited)
Primer of the SBA’s Principal Programs
CAPITAL Small Business Technology Transfer — The STTR
program reserves a specific percentage of federal research
7(a) Loans — The SBA offers government guaranties on
and development funding to award to small business and
loans (up to $5 million) made by lenders to help expand
nonprofit research institution partners.
access to capital for business owners who face challenges
getting approved for financing. The SBA guaranties a portion Federal and State Technology Partnership Program —
of 7(a) loans made and administered by commercial lending The FAST Partnership Program provides direct assistance to
institutions. Loans can be guaranteed for a variety of general underserved innovation-based entrepreneurs to help increase
business purposes. their success in obtaining SBIR and STTR funding.
504 Certified Development Company Loans — The SBA Growth Accelerator Fund Competition Program —
works with CDCs, which are private nonprofit corporations, GAFC provides up to $50,000 in funding to accelerators,
and private lenders to provide long-term financing (up to incubators, co-working communities, makerspaces, and
$5.5 million) to support investment in major assets, such other organizations that provide entrepreneurial support,
as real estate and heavy equipment. The SBA guaranties the mentorship, and assistance to STEM/R&D entrepreneurs.
CDC’s portion of these loans.
Regional Innovation Clusters — RICs promote
Microloans — The SBA provides loans to nonprofit innovation in regional ecosystems through on-the-ground
intermediary lenders, which are community-based collaborations between businesses, research, education,
organizations with experience in lending and providing financing, and government institutions that work to develop
technical assistance, that in turn make these loans (up to and grow a particular industry or related set of industries in a
$50,000) to small businesses needing small-scale financing geographic region.
and technical assistance for startup or expansion.
Surety Bond Guarantees — A surety bond is a type of EXPORTING
contract that guarantees the performance of a contractor. Export Loans — The SBA provides several types of export
If one party does not fulfill its end of the bargain, the SBG loans, including SBA Export Express loans (up to $500,000),
program provides financial compensation to the other party. Export Working Capital loans (up to $5 million), and
The SBA guarantees bonds issued by a surety company to International Trade loans (up to $5 million) that provide
encourage the surety company to provide bonds to small small businesses with enhanced export financing options
businesses, up to $6.5 million for non-federal contracts and to develop foreign markets, fund their export transactions,
up to $10 million for federal contracts. and/or support business expansion due to exporting success.
U.S. Export Assistance Centers — USEACs are staffed
INVESTMENT AND INNOVATION
by SBA, Department of Commerce, and Export-Import
Small Business Investment Companies — SBICs are Bank professionals. Together, their mission is to help
privately owned and managed investment funds that use small- and medium-sized businesses compete in today’s
their capital plus funds borrowed, with an SBA guaranty global marketplace by providing export marketing and
(up to $175 million), to make equity and debt investments finance assistance.
in qualifying small businesses.
State Trade Expansion Program — STEP provides grants
Small Business Innovation Research — The SBIR to states to assist small businesses with the information
program stimulates high-tech innovation by reserving a and tools they need to succeed in export related activities.
specific percentage of federal research and development These activities include participation in foreign trade
funds for small businesses. missions, foreign market sales trips, international marketing
campaigns, export trade shows, and training workshops.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 10 Management’s Discussion and Analysis (Unaudited)
CONTRACTING AND BUSINESS Women’s Business Centers — WBCs provide advising
DEVELOPMENT and training through more than 140 nonprofit educational
centers across the nation. Many WBCs provide multilingual
Procurement Assistance to Small Businesses — Small
services, and some offer flexible hours allowing mothers with
business contracts represent the largest form of direct
children to attend training classes.
monetary support for small business in the Federal
Government. Within this goal are four subgoals: Boots to Business — B2B is an entrepreneurial education
and training program offered by the SBA as part of the
• Small Disadvantaged Businesses — This program
Department of Defense Transition Assistance Program
provides assistance through the 8(a) Business
(TAP). The course provides an overview of entrepreneurship
Development program and set-aside contracting
and applicable business ownership fundamentals. Active
for businesses owned and controlled by socially and
Duty Service members (including National Guard and
economically disadvantaged individuals. For 9 years,
Reserve), veterans of all eras, and spouses are eligible
a firm is assisted in gaining resources to compete for
to participate.
federal contracts and for contracts in the private sector.
• HUBZone Small Businesses — This program Native American Outreach — The program supports
provides sole-source and set-aside contracting for firms American Indians, Alaska Natives, and Native Hawaiians
located in designated economically disadvantaged seeking to create, develop, and expand small businesses. It
geographical areas. engages in outreach, technical assistance, and education,
• Veteran-Owned Small Businesses and Service- formulates and administers training programs, and
Disabled Veteran-Owned Small Businesses — The coordinates entrepreneurial development opportunities
SDVOSB program allows federal agencies to set aside through cosponsorship agreements with entities and other
contracts for competition only among service-disabled federal agencies.
veteran-owned small businesses. Certified VOSBs have
Veterans Business Outreach Centers — The SBA’s 28
additional opportunities to pursue sole-source and
VBOCs provide counseling and training services to veteran-
set-aside contracts at the Veterans Administration.
owned and service-disabled veteran-owned small businesses
• Women-Owned Small Businesses — This program and entrepreneurs, along with reserve component members
allows federal agencies to set aside certain contracts who have an interest in either starting a new small business
for competition only among small businesses owned or expanding an established small business.
by women.
SCORE — SCORE is a nonprofit association comprising
7(j) Management and Technical Assistance — This nearly 10,000 volunteer business mentors that serve
program provides training to small businesses owned and entrepreneurs with in-person mentoring and local training
controlled by economically and socially disadvantaged workshops. As the largest volunteer business mentor network
individuals and those small businesses located in areas of in the Federal Government, SCORE adapts its structure and
high unemployment, low income, 8(a) and HUBZone small services to meet the needs of small businesses.
businesses, and economically disadvantaged WOSBs.
Learning Center and Ascent — The SBA Learning Center
Mentor-Protégé Program — This program helps is an online portal that hosts a variety of self-paced online
small businesses gain experience in and access to federal training courses, quick videos, web chats, and other helpful
acquisition marketplace through formal partnerships with tools to assist small business owners to explore and learn
experienced firms. about business ownership. Ascent is an online learning portal
with materials and tools for women entrepreneurs.
COUNSELING AND TRAINING
Small Business Development Centers — SBDCs deliver
an array of services to small businesses and prospective
business owners using a network of 63 lead centers managing
more than 900 service delivery points throughout the United
States and the insular territories.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 11 Management’s Discussion and Analysis (Unaudited)
Community Navigator Pilot Program — Through the COVID-19 EIDL Advance — These grants, up to $10,000
Community Navigator Pilot Program, the SBA engages in value, went to small businesses that also applied for
in targeted outreach to underserved communities through COVID-19 EIDL Loans and are not repaid.
states, local governments, resource partners, and nonprofit
organizations. Under the community navigator approach, Restaurant Revitalization Fund — The American Rescue
traditional business assistance organizations (“hubs”) engage Plan Act established the RRF to provide funding to help
trusted, culturally knowledgeable partners (“spokes”) restaurants and other eligible businesses keep their doors
to conduct targeted outreach to specific sectors of the open. This program provided restaurants with funding equal
entrepreneurial community. to their pandemic-related revenue loss up to $10 million per
business and no more than $5 million per physical location.
Recipients are not required to repay the funding if funds
DISASTER ASSISTANCE were spent for eligible uses. The SBA continues to provide
Disaster Assistance — The SBA is the Federal Government’s servicing and oversight for this program.
primary source of financing for the long-term repair
Shuttered Venue Operators Grants — The Economic Aid
and rebuilding of disaster-damaged private property for
to Hard-Hit Small Businesses, Nonprofits, and Venues Act
homeowners, renters, businesses of all sizes, and private
established these grants to support shuttered venues because
nonprofit organizations. It is the only form of SBA assistance
of the COVID-19 pandemic. Recipients were not required
that is not limited to small businesses.
to repay the grants if funds were spent for eligible uses
Paycheck Protection Program — The Coronavirus Aid, within established timeframes. The SBA continues to provide
Relief, and Economic Security (CARES) Act established servicing and oversight for this program.
this loan of up to $10 million designed to provide a direct
incentive for small businesses to keep their workers on the
payroll because of the COVID-19 pandemic. These loans
can be forgiven if the funds are used for payroll costs, interest
on mortgages, rent, and utilities. The SBA continues to
provide loan servicing and oversight for this program.
COVID-19 EIDL Loans — The CARES Act modified
the existing Economic Injury Disaster Loan within the
Disaster Assistance program. In response to the COVID-19
pandemic, small businesses owners, including agricultural
cooperatives and nonprofit organizations, can apply for these
loans, which go up to $2 million and must be repaid. The
SBA continues to provide loan servicing and oversight for
this program.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 12 Management’s Discussion and Analysis (Unaudited)
Summary of COVID-19 Financial Impacts
In FY 2023, the SBA serviced and provided oversight The Shuttered Venue Operators Grant (SVOG) program,
functions for Coronavirus Aid, Relief, and Economic established by the Economic Aid Act and amended by
Security (CARES) Act, Economic Aid Act, and American ARPA, included over $16 billion in grants for shuttered
Rescue Plan Act programs that saved millions of jobs venues. The Agency completed all grant processing for
and kept small businesses in operation. The SBA will the SVOG program in FY 2022, awarding more than
continue to perform oversight and monitoring activities $14.6 billion in grants. The SBA continues to monitor
on pandemic-related programs, such as requests for loan and deliver required compliance activities for these grants.
forgiveness, required reporting for grants recipients, Approximately 4,500 grants have been closed for proper
recoveries, and other activities. expenditure of funds, and the SBA will continue to work
with grantees to close grants in a timely manner.
The SBA approved more than 11 million applications for
the Paycheck Protection Program (PPP) and provided over In addition, the Agency awarded more than $28.6 billion
$799 billion in lending over the lifetime of the program.1 in Restaurant Revitalization Fund (RRF) direct payments
The program ended in May 2021, and existing borrowers to more than 100,000 restaurants, bars, and other
may be eligible for and request PPP loan forgiveness. As businesses. Established in March 2021, the SBA stopped
of September 2023, over 10.6 million applications have accepting applications in July 2021. In FY 2023, the
been submitted requesting PPP loan forgiveness, with SBA redistributed returned funds in the RRF, awarding
nearly $760 billion total forgiveness paid.2 Approximately approximately $83 million in coordination with the
96 percent of total PPP loan value has been forgiven, in Department of Justice. The funds were required to be used
full or in part. for eligible uses by March 11,2023. The Agency continues
to manage the annual reporting requirement for venues to
For the COVID-19 Economic Injury Disaster Loan (EIDL) report on fund use.
program, by April 2022, the SBA had approved nearly
4 million EIDL loans totaling nearly $378 billion, more than More information on the financial impacts can be found in
601,000 Targeted EIDL Advance payment (grants) totaling the Analysis of Financial Results section.
over $5 billion, and more than 453,000 Supplemental
Targeted EIDL Advance payment (grants) totaling over
$2 billion.3 In May 2022, the SBA’s COVID-19 EIDL
funds were exhausted, and the SBA was no longer accepting
COVID-19 EIDL loan increase requests or requests
for reconsideration, with the application portal closing
on May 16, 2022. The SBA continues to service the
more than 2.4 million COVID-19 EIDL loans, the vast
majority of which have entered active repayment. There are
approximately 452,000 COVID-19 EIDL loans which are
30 days or more delinquent.
1 SBA, “Paycheck Projection Program (PPP) Report, Summary of All PPP Approved Lending, approvals through 05/31/2021”, at Paycheck Protection Program (PPP) Report:
Approvals through 05/31/2021 (sba.gov).
2 SBA, “Forgiveness Platform Lender Submission Metrics | September 11, 2022” at Forgiveness Platform Lender Submission Metrics, September 11 (sba.gov).
3 SBA, “Disaster Assistance Update Nationwide COVID-19 EIDL, Targeted EIDL Advances, Supplemental Targeted Advances, April 28, 2022 (figures as of April 27, 2022),” at
https://www.sba.gov/document/report-covid-19-eidl-reports-2022.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 13 Management’s Discussion and Analysis (Unaudited)
Analysis of Performance Results
SUMMARY OF PERFORMANCE RESULTS
The following section presents key FY 2023 performance data. The presentation is organized by strategic objective, which follows
the SBA’s FY 2022-2026 Strategic Plan. Detailed information on all SBA program performance data, including explanations of
variances, will be presented in the FY 2023 Annual Performance Report to be published in February 2024.
Strategic Goal 1: Ensure Equitable and Customer-Centric Design and Delivery of Programs to Support Small Businesses
and Innovative Startups
FY 2020 FY 2021 FY 2022 FY 2023 FY 2023
S.O. Performance Measure
Actual Actual Actual Goal Actual
Number of Jobs Supported by 7(a) Loans,
1.1 552,497 729,034 621,856 723,000 705,569
504 Loans, Microloans, and Surety Bonds
1.2 Number of Jobs Supported by SBIC Financings 91,557 126,431 129,098 130,000 130,2814
Number of Jobs Supported by Businesses
1.3 N/A 25,159 23,869 26,000 22,4275
Receiving Export Grants and Loans
Number of Jobs Supported by Federal
1.4 699,000 691,700 727,800 700,000 Data Lag6
Contract Set-Asides
Number of New Business Starts through SBA
1.5 19,660 28,771 27,757 27,000 28,9007
Counseling and Training Programs
Strategic Goal 2: Build Resilient Businesses and a Sustainable Economy
FY 2020 FY 2021 FY 2022 FY 2023 FY 2023
S.O. Performance Measure
Actual Actual Actual Goal Actual
Small Business Employment in the United States
2.1 64.7 62.1 65.2 65.5 Data Lag 8
(Millions)
2.2 Number of Loans that Include Mitigation Measures N/A N/A 522 626 1,358
Strategic Goal 3: Implement Strong Stewardship of Resources for Greater Impact
FY 2020 FY 2021 FY 2022 FY 2023 FY 2023
S.O. Performance Measure
Actual Actual Actual Goal Actual
Customer Satisfaction Rate of Financial
3.1 4.6 4.7 4.3 4.0 4.5
Management Services for SBA Employees
Federal Employee Viewpoint Survey Global
3.2 72% 70% 76% 72% Data Lag9
Satisfaction Rate
3.3 Inspector General Maturity Rating 2.8 3 2.58 3.4 2.8
4 SBIC data are not complete. Full year complete data will be published in the FY 2023 Annual Performance Report.
5 State Trade Expansion Program (STEP) FY 2023 data are not complete and only include partial year data. Full year complete data will be published in the FY 2023 Annual
Performance Report.
6 Federal Contracting data continues to be certified by the SBA and will be available by summer 2024.
7 Preliminary data. Full year complete data will be published in the FY 2023 Annual Performance Report.
8 Full year data for FY 2023 have not yet been published. Source: Bureau of Labor Statistics; Business Employment Dynamics Data by Firm Size Class
https://www.bls.gov/web/cewbd/table_f.txt
9 At the time of publication, the FEVS Global Satisfaction Rate was not yet available. FY 2023 data will be published in the FY 2023 Annual Performance Report.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 14 Management’s Discussion and Analysis (Unaudited)
VERIFICATION AND VALIDATION OF
PERFORMANCE DATA Chart I: Makeup of the SBA’s Outstanding Loan Portfolio
Managing for results and integrating performance, financial,
and budgetary information requires valid, reliable, and 900
high-quality performance measures and data. Improving 800
data quality continues to be a priority for the SBA. The 700
Outstanding Loans ($ Billions)
SBA’s performance analysts work with program office leads
600
across the Agency to acquire high-quality data. In addition
500
to using output data internally from its systems, the SBA
400
relies on data from resource partners, other federal agencies,
300
and other government entities to assess its accomplishments
and effectiveness. 200
100
The SBA rigorously pursues the following strategies to ensure 0
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
data quality: ensuring the validity of performance measures
7(a) PPP 504 SBIC Disaster All Other
and data; fostering organizational commitment and capacity
for data quality; assessing the quality of existing data; and
FY = fiscal year. PPP = Payment Protection Program. SBIC = Small Business
responding to data limitations. For additional information Investment Company.
regarding the SBA’s approach to verifying and validating
performance data, see the Congressional Budget Justification
and Annual Performance Report, updated each February. New Guarantied Loans
The quarterly average loan volume decreased slightly
in FY 2023 with an average of $8.5 billion. Chart II
OPERATIONAL PORTFOLIO ANALYSIS
demonstrates the trend in loan approvals since FY 2018.
The Operational Portfolio Analysis provides information
on the SBA’s credit programs and does not reference the
financial statements. The SBA is the taxpayers’ custodian Chart II: Quarterly Gross 7(a) and 504 Loan Approvals
of small business loan guaranties and direct loans with a
portfolio of $481.5 billion.10 During FY 2023, the portfolio
25
decreased year over year by $77.7 billion, or 13.9 percent.
The largest decrease was the Agency’s disaster loan portfolio 20
of $55.6 billion (15.2 percent), because the COVID
Loan Approvals ($ Billions)
Economic Injury Disaster Loans (EIDL) program stopped 15
Average
accepting applications during FY 2022, the disaster portfolio Average
11,188,716
Average Average
Average Average 8,725,450
is now trending downwards. There was also a continued 10
7,531,546 7,033,591 7,094,264
8,484,336
reduction of the Paycheck Protection Program (PPP), a
loan program authorized in 2020 through the Coronavirus 5
Aid, Relief and Economic Security Act (CARES Act) in
response to the COVID-19 pandemic. The PPP portfolio 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
decreased by $30 billion (-77.5 percent), whereas the SBA’s FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
7(a) and 504 loan portfolios expanded by $3.3 billion (3.1
percent) and $3 billion (9.7 percent), respectively. The SBIC FY = fiscal year. Q1 = first quarter, etc.
portfolio increased by $1.4 billion (11.2 percent) and all
other portfolios increased by $221 million (8.2 percent).
(see Chart I).
10 The total portfolio consists of guarantied business loans outstanding, guarantied debentures, direct business loans, and direct disaster loans. The data include all performing loans and
defaulted loans that have not been charged-off.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 15 Management’s Discussion and Analysis (Unaudited)
At least three main factors contributed to the loan guaranty
portfolio’s recent changes: Chart III: Outstanding Commercial Loans to
Small vs. Nonsmall Businesses
Continuous Growth in the Economy — Real Gross Domestic
Product in the United States decreased during the first
5,000
half of 2022 but has started to trend back upwards in the
latter half of 2022 and beginning of 2023, with a rate of
4,000
Outstanding Loans ($ Billions)
2.1 percent in the second quarter of 2023. The increase in
the second quarter of 2023 primarily reflected increases in 3,000
business investment, consumer spending, and state and local 2.999 3.474
3.099
government spending that were partly offset by a decrease in 2,000 2.601 2.796 2.888
exports. Imports, which are a subtraction in the calculation
of GDP, decreased.11 1,000
699 712 721 904 737 717
Changes in Market Volatility — Inflation remained low 0
CY 2017 CY 2018 CY 2019 CY 2020 CY 2021 CY 2022
throughout 2020 (monthly average, 1.7 percent),12 but Small Business Loans Nonsmall Business Loans
picked up sharply in April 2021 and continued to increase,
leading to an average monthly increase of 3.6 percent for the
CY = calendar year.
following year. In 2022, the monthly inflation rate continued
to climb, peaking at 6.6 percent in September 2022 to end
the year with a 6.2 percent monthly average. Finally, in 2023 New Direct Loans
inflation has begun to ease slightly with a monthly average In FY 2022, the SBA’s gross approvals for the Disaster
of 5.4 through the first six months of the year. Inflationary Assistance loan program decreased by 92 percent to
pressures have significantly increased interest rates across the $3 billion against an FY 2022 total of 36.7 billion. In
commercial and consumer loan market. Conversely, while FY 2023, the EIDL program is no longer approving loans
the unemployment rate surged to a peak of 14.8 in April for COVID-19, so disaster loan approvals are returning to a
2020, it has decreased significantly throughout 2021-2023 comparable level with to the pre-pandemic period. Chart IV
to 3.8 percent in September 2023.13 illustrates the relative sum of disaster loans in FY 2023 by
month, compared with the prior three fiscal years.
Market for Small Business Lending — Data from the
Federal Deposit Insurance Corporation (FDIC) showed
that the total market for business loans increased between Chart IV: Monthly Gross Disaster Assistance Loan Approvals
2017-2022 by 27 percent ($889 billion). However,
98 percent ($872 billion) of this increase comes from loans
80,000
to nonsmall businesses,14 whereas total small business loans
increased by $18 billion. Thus, the ratio of small business 70,000
loans compared with the total bank market has decreased 60,000
Loan Approvals ($ Millions)
between 2017-2022, with a marked decrease during the 50,000
pandemic years of 2020-2022 (see Chart III). Furthermore, 40,000
the banking industry’s trend toward consolidation, reflected 30,000
in the reduction of commercial banks by 16 percent15 20,000
between 2017-2022, makes the SBA’s guaranty products
10,000
more critical for growing small businesses that may be denied
0
credit in the private loan market. Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept
FY 2020 FY 2021 FY 2022 FY 2023
FY = fiscal year.
11 U.S. Department of Commerce, Bureau of Economic Analysis: www.bea.gov/newsreleases/glance.htm.
12 U.S. Department of Labor, Bureau of Labor Statistics: www.bls.gov/cpi/home.htm.
13 U.S. Department of Labor, Bureau of Labor Statistics: data.bls.gov/timeseries/LNS14000000.
14 Nonsmall businesses are firms that have more than 500 employees. https://www.fdic.gov/analysis/quarterly-banking-profile/index.html.
15 https://www.fdic.gov/bank/statistical/stats/.
Agency Financial Report Fiscal Year 2023 16 Management’s Discussion and Analysis (Unaudited)
Aside from the FY 2020-2022 COVID-19 EIDL loans, Monthly 504 delinquency rates decreased during 2023
most of the Disaster Assistance loan portfolio’s outstanding following a period of greater variability in FY 2021-2022,
balance includes lending from FY 2006 (hurricanes peaking at 3.4 percent in September, 2021. During FY 2022,
Katrina, Rita, and Wilma), FY 2013 (Hurricane Sandy) the delinquency rate trended downward, but experienced
and FY 2018 (hurricanes Harvey, Irma, and Maria). The high variability throughout that fiscal year. The average
SBA will continue to make disaster loans an important FY 2023 YTD 504 delinquency rate of 0.74 percent is
recovery tool for businesses, homeowners, and renters that significantly below the FY 2022 average delinquency rate of
survive a disaster. 1.5 percent. The SBA will continue to monitor the variability
and level of 504 delinquency rates closely post-CARES Act.
Portfolio Performance — Delinquencies
Delinquency rates (i.e., borrowers who are late on their Portfolio Performance — Charge-Offs
payments) are a leading indicator of the Agency’s charge- The 12-month charge-off rate for the 7(a) loan program
off rate (i.e., the rate of dollars spent to cover loans that sharply declined between FY 2010-2013, falling from
defaulted). Thus, delinquency rates are a general indicator 4.3 percent in the fourth quarter of 2010 to 1.2 percent in
of the Agency’s and taxpayers’ future liabilities for these the third quarter of 2013. The rate increased but ultimately
programs. A declining delinquency rate (see Chart V) is decreased by July 2023 to 0.6 percent (see Chart V). The
a positive indicator for the financial performance of any 7(a) loans not sold on the secondary market become a
loan portfolio. charge-off after all efforts to recover a delinquent balance
were exhausted, such as liquidating the underlying collateral.
Strong economic growth, strong profit performance, and The latent rise of the 7(a) charge-off rate in 2013 is
tighter lending standards by financial institutions during attributable to recession-era loans that were charged-off after
the past several years have reduced delinquency rates for efforts to recover delinquent balances had been exhausted.
all business loans, which have been steadily declining since Now that this effort to charge-off the recession-era loans is
reaching cyclical peaks in 2009. Delinquency rates for complete, the charge-off rate again closely trends with the
the Agency’s major loan programs followed this national delinquency rate in FY 2023.
downward trend. Delinquency rates for the 7(a) loan
program declined from the 3.8 percent peak in January 2009 The 12-month charge-off rate for the 504 loan program
to 0.84 percent in February 2020, prior to the start of the continuously increased from FY 2008 to FY 2013, peaking
COVID-19 pandemic. Similarly, delinquency rates for the at 4.4 percent in January 2013, but dropping to 0.2
504 loan program likewise declined from the 5 percent peak percent by July 2023. This trend is not surprising, since the
in February 2010 to 0.9 percent in February 2020. 504 loan program is an economic development program
with a commercial real estate focus. As such, recovery rates
The CARES Act provided pandemic debt relief to current of defaulted 504 loans are, with some noticeable time lag,
borrowers of 7(a) and 504 loans, authorizing the SBA to significantly impacted by the pricing trend in this sector.
pay the principal, interest, and associated fees on existing The continued downward trend in the 504 delinquency
loans for six months. This led to a delinquency rate of near rate during FY 2023 indicates that the volatility during
zero percent in the last six months of FY 2020. With the FY 2021-2022 period had little impact on the trajectory of
expiration of CARES Act funds, both programs saw more 504 charge-off rates and as of July 2023, does not appear to
variability in their delinquency rates during FY 2021-2022. have been a significant factor.
As of July 2023, the average FY 2023 YTD 7(a) delinquency
rate of 0.56 percent is slightly higher than the FY 2021
average delinquency rate of 0.54 percent. The 7(a) rate
remained low throughout FY 2023 though, staying below
one percent every month and despite generally trending
slightly upwards.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 17 Management’s Discussion and Analysis (Unaudited)
Quarterly information on the status of the SBA’s loan
portfolio, including outstanding balances and approvals by
loan program and purchase rates, is available on the SBA’s
website at www.sba.gov/performance.
Chart V: Delinquency and Charge-Off Rates
for the 7(a) and 504 Loan Programs by Fiscal Year
504 Loans
5%
4%
Delinquency Rate (Percentage)
3%
2%
1%
0%
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
7(a) Delinquency Rate 7(a) Past 12 Months Charge-Off Rate
7(a) Loans
5%
4%
Delinquency Rate (Percentage)
3%
2%
1%
0%
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
504 Delinquency Rate 504 Past 12 Months Charge-Off Rate
FY = fiscal year.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 18 Management’s Discussion and Analysis (Unaudited)
Forward Looking Analysis
The SBA equips America’s small business owners with the will continue to mobilize resources across programs to
tools, resources, and support they need to start, manage, remediate audit findings and to maximize the recovery of
and grow their small businesses and innovative start-ups. pandemic funds that were not used in accordance with
The SBA continues to administer and provide oversight for program requirements and from recipients that were
programs implemented to reduce the COVID-19 pandemic’s deemed ineligible.
impacts on small businesses and reimagine the Agency’s
service delivery in virtual and hybrid spaces while improving
PANDEMIC RECOVERY, BUSINESS
access for underserved populations. The following areas
serve as both challenges and opportunities that factor into
ADAPTATION, AND ECONOMIC RECOVERY
the SBA’s strategies for delivering on outcomes and using The Agency has helped small businesses recover through
taxpayer resources efficiently. The Agency will continue to timely economic relief, supported millions of jobs, and
review these factors as it implements its programs to ensure helped small businesses avert bankruptcies. As the nation’s
optimal performance. economy continues its post-pandemic recovery, small
businesses and entrepreneurs negotiate fluctuations in
consumer habits, workforce shortages, real estate costs,
RISK MANAGEMENT AND AUDIT supply chain disruptions, natural disasters, and other
REMEDIATION disruptors that inhibit small business stability and growth.
Although the emergency declaration of the pandemic is The SBA can help businesses and entrepreneurs adapt to
behind us, the SBA continues to fulfill requirements across new market forces through increased access to capital,
long-term oversight, servicing, litigation, audit remediation, government contracting opportunities, technical assistance,
and fraud risk management to provide support in what has and disaster recovery. Small business growth and stability are
been a historic response by the Agency to the COVID-19 key factors in job creation and heathy communities.
pandemic. The heightened response to the pandemic exposed
gaps in the SBA’s financial management internal control Millions of small businesses received government support
protocols. OIG Audits, GAO Audits, and Financial Advisors during the pandemic, and the SBA will continue helping
cited the need to have an elevated and well-established ERM businesses build resilience, create jobs, and increase revenues
program, a Fraud Risk Management (FRM) Program, and a as challenges and volatile conditions in the market remain.
Chief Risk Officer function. To address this need, the SBA Access to capital is a critical element for small businesses
is establishing an Agency-wide risk management program, to mitigate disruptions and become more robust. The
which consolidates and elevates its risk management SBA continues to assist small businesses in recovering and
functions. This program is championed by senior SBA growing in the new normal economy, and it will continue to
leadership and enhances decision-making processes for invest in business innovation and in supporting innovative
agency planning, including strategic and tactical planning, start-ups as part of its comprehensive programming to
human capital planning, capital investment planning, support a healthy business ecosystem and entrepreneurs.
program management, and budget formulation.
CLIMATE CRISIS
The SBA will continue to prioritize audit remediation and
identify and assess risks at all levels of the organization and A natural disaster can destroy lives, businesses, and
develop risk response strategies to build an agency-wide communities. Moreover, natural disasters have become more
portfolio of internal and external risks facing the Agency. intense and more costly. In 2022, the U.S. experienced
This comprehensive view of risks to the organization will 18 separate weather and climate disasters costing at least
position the SBA to better prioritize resources and efforts to 1 billion dollars each, tied with 2011 and 2017 for the
manage risk. The SBA will also increase risk management third-highest number of billion-dollar disasters in a calendar
training, with an emphasis on fraud risks, and build on year, behind the 22 events in 2020 and the 20 events in
the progress made in FY 2023. Additionally, the SBA 2021.16 Although the SBA has programs that can respond
16 https://www.climate.gov/news-features/blogs/beyond-data/2022-us-billion-dollar-weather-and-climate-disasters-historical
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 19 Management’s Discussion and Analysis (Unaudited)
to hurricanes, tornados, forest fires, and floods, the growing services for previously underserved populations. Not all
threat and number of these occurrences remains a serious entrepreneurs have access to broadband internet services,
concern. Disaster preparedness is a key component of the and some face challenges connecting to resources. The SBA
SBA’s Disaster Assistance program and has helped many will continue adapting and developing new platforms to
small businesses prepare for the unexpected. Research reach entrepreneurs in emerging markets. The Agency will
shows that for every $1 spent on hazard mitigation, up to continue to streamline processes, increase accessibility, and
$6 in future disaster recovery costs are saved.17 In 2022 and deliver broad equitable support across programs to more
FY 2023, the SBA spotlighted the promotion of its disaster communities and entrepreneurs who have faced historic
mitigation loan option through an Agency Priority Goal barriers to small business ownership.
to drive increased awareness of this mitigation option and
encourage businesses and homeowners to invest in their own
A CHANGING FEDERAL WORK ENVIRONMENT
preparedness, increasing participation in the mitigation loan
option by over 100 percent in FY 2023 over the FY 2022 The federal workforce landscape continues to evolve as
baseline. By financing property improvements that help persistent challenges, such as a growing percentage of
prevent future damage caused by flooding, fires, severe Agency employees eligible for retirement, meet with new
winds, or other natural disasters, businesses and homeowners planning efforts for the future of work and workplace
can proactively reduce the impact of future disasters and modernization. As the nation continues to recover from the
shorten recovery time when disasters do occur. The SBA COVID-19 pandemic, the SBA will evaluate the agency’s
continues to modernize its response in communities that work environment plan in alignment with OMB M-23-15,
have experienced a natural disaster event by updating Measuring, Monitoring, and Improving Organizational
technology and streamlining its ability to onboard staff. Health and Performance in the Context of Evolving Agency
Work Environments, requirements. The Agency will assess
In addition to the Disaster Assistance program, the SBA its organizational health and performance to inform human
is responding to Executive Order 14057 Catalyzing Clean capital policies and workplace space requirements that
Energy Industries and Jobs through Federal Sustainability by enable an effective mission-based hybrid workforce. The
prioritizing resources for the operation and procurement of Agency has also conducted a survey of space considerations
electric vehicles and associated charging infrastructure. The for Headquarters, which will inform how the SBA could
Agency will only replace vehicles from the existing fleet, configure its space in the future.
when necessary, to accomplish the transition to a motor
vehicle fleet of clean and zero-emission vehicles. The SBA continues to search for ways to recruit and retain
the best talent. Competition with private industry and
other agencies is strong, and retention is challenging. The
TECHNOLOGY AND AUTOMATION SBA needs a workforce that is representative of the public it
As small businesses experienced a rapid evolution of serves and that can effectively communicate with, and meet
technology and automation during the COVID-19 the needs of, entrepreneurs and small business owners. The
pandemic, the SBA undertook significant programmatic SBA has developed and aligned training for its field staff
improvements across the Agency. The SBA will continue its to ensure that they have the tools to help small businesses
multi-year initiative that will unite the customer experience succeed. By providing SBA employees with the necessary
of SBA programs and harmonize processes while retaining tools and resources, the Agency will be able to better support
critical functions unique to each program area. Under America’s small businesses.
MySBA–the whole-of-agency approach working toward
improving SBA programs and services–the agency will
streamline access to programs by small business owners
and disaster survivors, empower SBA personnel to better
understand and serve small business owners, and leverage
shared services to improve operational efficiency. Virtual
training platforms and online tools allow the SBA to
reach further into communities and reduce barriers to
17 Source: National Institutes for Building Sciences, 2018.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 20 Management’s Discussion and Analysis (Unaudited)
Analysis and Highlights of Financial
Statements and Results
HIGHLIGHTS OF FINANCIAL RESULTS
(Dollars in Thousands)
At End of Fiscal Year 2023 2022 $ Change
CONDENSED BALANCE SHEET DATA
Fund Balance with Treasury $ 44,081,291 $ 56,225,809 $ (12,144,518)
Credit Program Receivables and Related Foreclosed Property, Net 271,944,994 321,528,158 $ (49,583,164)
All Other Assets 302,299 258,398 $ 43,901
Total Assets $ 316,328,584 $ 378,012,365 $ (61,683,781)
Debt 334,320,210 362,801,468 $ (28,481,258)
Downward Reestimate Payable to Treasury 2,724,486 5,591,451 $ (2,866,965)
Liability for Loan Guaranties 7,895,498 25,708,234 $ (17,812,736)
All Other Liabilities 1,095,688 1,022,450 $ 73,238
Total Liabilities 346,035,882 395,123,603 (49,087,721)
Unexpended Appropriations 3,723,550 10,558,338 $ (6,834,788)
Cumulative Results of Operations (33,430,848) (27,669,576) $ (5,761,272)
Total Net Position (29,707,298) (17,111,238) (12,596,060)
Total Liabilities and Net Position $ 316,328,584 $ 378,012,365 $ (61,683,781)
For the Fiscal Year 2023 2022 $ Change
STATEMENT OF NET COST BY STRATEGIC GOAL
Goal 1: Ensure Equitable and Customer-Centric Design and Delivery of
Programs to Support Small Businesses and Innovative Startups
Net Cost $ 799,140 $ (1,052,501) $ 1,851,641
Goal 2: Build Resilient Businesses and a Sustainable Economy
Net Cost 34,120,775 47,877,837 $ (13,757,062)
Goal 3: Implement Strong Stewardship of Resources for Greater Impact
Net Cost 169,534 150,014 $ 19,520
Costs Not Assigned 233,137 121,599 $ 111,538
Net Cost of Operations $ 35,322,586 $ 47,096,949 $ (11,774,363)
CONDENSED STATEMENT OF NET POSITION
Beginning Unexpended Appropriations 10,558,338 69,132,143 $ (58,573,805)
Total Budgetary Financing Sources (6,834,788) (58,573,805) $ 51,739,017
Ending Unexpended Appropriations $ 3,723,550 $ 10,558,338 $ (6,834,788)
Beginning Cumulative Results of Operations $ (27,669,576) $ (10,253,525) $ (17,416,051)
Total Financing Sources 29,561,314 29,680,898 $ (119,584)
Less: Net Cost of Operations 35,322,586 47,096,949 $ (11,774,363)
Ending Cumulative Results of Operations $ (33,430,848) $ (27,669,576) $ (5,761,272)
Ending Net Position $ (29,707,298) $ (17,111,238) $ (12,596,060)
CONDENSED STATEMENT OF BUDGETARY RESOURCES
Unobligated Balance Brought Forward $ 54,834,396 $ 295,788,920 $ (240,954,524)
Other Budgetary Resources, Net - - $ 0
Appropriations (discretionary and mandatory) 24,899,206 (22,774,310) $ 47,673,516
Borrowing Authority (discretionary and mandatory) 5,903,912 113,703,268 $ (107,799,356)
Spending Authority from Offsetting Collections 21,516,204 33,315,840 $ (11,799,636)
Total Budgetary Resources $ 107,153,718 $ 420,033,718 $ (312,880,000)
Obligations Incurred, Budgetary $ 32,264,241 $ 35,455,067 $ (3,190,826)
Obligations Incurred, Nonbudgetary 32,336,647 340,161,321 $ (307,824,674)
Unobligated Balances, Available and Unavailable 42,552,830 44,417,330 $ (1,864,500)
Total Status of Budgetary Resources $ 107,153,718 $ 420,033,718 $ (312,880,000)
Agency Financial Report Fiscal Year 2023 21 Management’s Discussion and Analysis (Unaudited)
ANALYSIS OF FINANCIAL RESULTS post-1991 direct loans and loan guaranties and are not
budgetary costs. The financing accounts are reported
The principal financial statements have been prepared to
separately in the Budget of the United States Government and
report the financial position and results of operations of the
are excluded from the budget surplus/deficit totals.
entity, pursuant to the requirements of 31 U.S.C. 3515(b).
Although the statements have been prepared from the The Federal Credit Reform Act (FCRA) governs the SBA’s
records of the entity in accordance with GAAP for federal accounting for direct loans and loan guaranties made in
entities and the formats prescribed by the OMB, the FY 1992 and thereafter. Under FCRA, direct loans
statements are in addition to the financial reports used to outstanding are reported net of an allowance using the
monitor and control budgetary resources, which are prepared present value of forecasted cash flows in subsidy models that
from the same records. The statements should be read are OMB-approved.
with the realization that they are for a component of the
U.S. Government, a sovereign entity. A Liability for Loan Guaranties is also reported using
subsidy models with forecasted cash flows from user fees and
This Analysis of Financial Results references numbers in defaulted guarantied loans. The direct loan allowance and
the Highlights of Financial Results that were derived from liability for loan guaranties for each loan program cohort
the Financial Statements and Notes in this report. As a is adjusted annually under FCRA through the subsidy
result, the definitions of the loan and guaranty balances used model reestimation process. The SBA’s FCRA accounting is
in this Analysis of Financial Results may differ somewhat discussed further in this section and in Notes 1 and 6.A of
from the balances in the Operational Portfolio Analysis the financial statements.
section. For example, for the 7(a) loan program, the total
amount of guarantied loans is used in the Portfolio Analysis, The credit subsidy cost is the net present value of expected
but only the SBA’s guarantied portion is used in the Analysis cash inflows and outflows over the life of a guarantied loan or
of Financial Results because it ties to balances in the the difference between the net present value of expected cash
financial statements. flows and the face value of a direct loan. The SBA receives
budget authority annually to fund its credit programs. When
During FY 2023, the SBA continued to support the recovery loans are disbursed, the SBA records subsidy expenses for
of the American economy from the COVID-19 pandemic. non-zero subsidy loan programs.
The American Rescue Plan (ARP) Act established the
Restaurant Revitalization Fund (RRF) to provide funding to In accordance with the FCRA, the subsidy costs are
help restaurants and other eligible businesses keep their doors reestimated annually. Reestimates update original loan
open. This program provided restaurants with funding equal program cost estimates to reflect actual experience and
to their pandemic-related revenue loss up to $10 million per changes in forecasts of future cash flows for each annual
business and no more than $5 million per physical location. cohort of loans. An upward reestimate occurs when the
Recipients are not required to repay the funding if funds are present value of future expected cash flows results in
used for eligible uses by March 11, 2023. liabilities exceeding assets. A downward reestimate occurs
when the present value of future expected cash flows results
The SBA continues to support other COVID-related in assets exceeding liabilities.
programs whose authority expired prior to the beginning of
FY 2023. Increased reestimated costs are funded in the following year
by permanent indefinite budget authority, whereas decreased
Background costs are returned by the SBA to a Treasury general fund.
The portion of the outstanding principal guaranteed by
The SBA is a major federal credit reform agency of the
the SBA was $140.3 billion as of September 30, 2023, a
U.S. Government, and the vast majority of the Agency’s
decrease of $23.5 billion from the $163.8 billion guaranteed
$107 billion budgetary resources support the SBA’s credit
as of September 30, 2022 (see Note 6.C in the financial
programs. When apportioned by the OMB, budgetary
statements). As shown in Chart VI, new guaranties disbursed
resources are available to enter into new obligations and
by the SBA participating banks during FY 2023 were
to liquidate them. Budgetary resources are made up of
$27 billion, a $5.6 billion decrease compared to the FY 2022
new budget authority and unobligated balances of budget
figure of $32.6 billion.
authority provided in previous years. The loan financing
funds record all the cash flow activity resulting from
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 22 Management’s Discussion and Analysis (Unaudited)
Chart VI: Guarantied Loans Disbursed Chart VII: Purchases of Guarantied Loans
11.99
600 12
538.0
500 10
400 8
304 5.90
($ Billions) ($ Billions)
300 6
200 4
100 2 1.44 1.19
0.98 0.72
23.0 21.0 32.6 27.0
0 0
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
FY = fiscal year. FY = fiscal year.
Credit program receivables for the SBA comprise business Financial Position
and disaster direct loans and defaulted business loans
purchased per the terms of the SBA’s loan guaranty Assets
programs, which are offset by an allowance for the subsidy. The SBA had total assets of $316.3 billion at the end of
The allowance for the subsidy cost of the gross loan FY 2023, down $61.7 billion from FY 2022. Total assets
receivable is recorded as a contra asset, and the net asset is decreased because of a $12.1 billion decrease in Fund
reported on the Balance Sheet. The subsidy allowance is Balance with Treasury combined with a $49.6 billion
determined by modeling the projected future cash inflows decrease in Credit Program Receivables and Related
and outflows of SBA credit programs using discounted Foreclosed Property.
cash-flow methodology. The subsidy allowance for each loan
program cohort is reestimated annually. Increases are funded Liabilities
by Treasury, whereas decreases are returned to Treasury by The SBA had total liabilities of $346 billion at the end of
the Agency. Loan losses, the costs of loan servicing, and loan FY 2023, down $49.1 billion from FY 2022. Liabilities
interest rates are factors that affect the subsidy allowance. consist primarily of the Principal Payable to the Bureau
of the Fiscal Service, Liability for Loan Guaranties, and
The SBA credit program receivables were valued at $271.9 Downward Reestimate Payable to Treasury.
billion in FY 2023, a decrease of $49.6 billion from FY
2022. The change in the credit program receivables resulted The Principal Payable to the Bureau of the Fiscal Service
from a decrease in direct disaster loans as a result of disaster decreased $28.5 billion in FY 2023 because of repayment of
lending activity, recoupment of loans previously disbursed, debt as the SBA collected disaster loans receivable. Note 9 in
and current year write-offs. As reflected in Chart VII, the financial statements provides additional detail on SBA’s
guarantied loan purchases increased $6.09 billion in FY Principal Payable to the Treasury.
2023 to $11.99 billion as the SBA honors its guarantees.
The Loan Guarantee Liabilities is the estimate of the net
present value of the future amount the SBA will pay,
net of fee collections, to liquidate expected purchases of
guarantied loans under its guarantied loan programs. The
Loan Guarantee Liabilities for each loan program cohort
is reestimated annually. Increases are funded by Treasury,
whereas the Agency returns the decreases to Treasury.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 23 Management’s Discussion and Analysis (Unaudited)
The Loan Guarantee Liabilities decreased $17.8 billion Chart VIII reflects the change in the net subsidy reestimates
primarily because of claim payments to lenders and for the guarantied business and direct disaster loan programs
miscellaneous recoveries and costs in FY 2023, which are in FY 2023. The PPP program had a net downward
mostly attributable to Paycheck Protection Program purchase reestimate of $1.19 billion for FY 2023 and is attributable
guarantee and forgiveness payments. Note 6.E in the to fewer purchase and forgiveness payments processed in
financial statements provides additional detail. FY 2023 than anticipated for both the 2020 and 2021
cohorts. Further detail on subsidy reestimates can be found
The Downward Reestimate Payable to Treasury decreased in Note 6.I of the financial statements in the Financial
to $2.7 billion in FY 2023. The decrease was a direct Reporting section of this report.
result of overall changes within guarantied Loan program
reestimates. The Paycheck Protection Program is the largest
single program contributor to the downward reestimate Chart VIII: Credit Program Subsidy Reestimates
and had a downward reestimate of $1.19 billion in FY
2023. The reestimate is mostly due to lower net outflows,
(34.000)
aggregate of forgiveness payments and guarantee purchases, 35
processed in FY 2023 than anticipated for both the 2020 30 (28.000)
and 2021 cohorts. The reestimate is also partly due to 25
higher net recoveries in FY 2023 than anticipated. The gap
20
in actual and expected cash flows in FY 2023 was partially
offset by a higher lifetime expected default rate for the 15
2021 cohort. Note 6.I in the financial statements provides 10
additional detail.
($ Billions)
5
0.036
Net Position 0 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Cumulative Results of Operations is the accumulative 0.093
-5
difference between expenditures and financing sources since (3.800)
the inception of the Agency. This negative balance increased -10
$5.8 billion primarily because unfunded upward subsidy -15
reestimates at year-end for the 7(a) loan and disaster loan
-20
programs were higher for FY 2023 compared with FY 2022. (19.000)
Upward subsidy reestimates determined at year-end are Guaranteed Business Loans (Strategic Goal 1) Direct Business Loans (Strategic Goal 1)
Direct Disaster Loans (Strategic Goal 3)
funded in the following year when they are received.
FY = fiscal year.
Unexpended Appropriations decreased $6.8 billion this
year primarily because the total amount of beginning
balance, appropriations received and expended was less than The Disaster Assistance program had a net upward reestimate
the beginning balance, appropriations received and expended of $34.0 billion in FY 2023 compared to a $28.0 billion
in FY 2023 for business, disaster, and administrative downward reestimate in FY 2022. The upward reestimate
activities combined with a rescission of $5.9 billion. This is primarily due to higher than projected charge offs of
affected Budgetary Financing Sources and the Ending COVID-19 EIDL loans in FY 2023, the first year of
Net Position. required repayment for many COVID-19 EIDL borrowers.
The higher than projected charge offs also contributed
Net Costs of Operations to updated performance assumptions, which resulted
The Net Costs of Operations primarily reflects the costs in downward revisions to future cash collections from
of SBA credit programs subsidy expenses during the year outstanding COVID-19 EIDL loans. Further detail on
for new loans and subsidy reestimates at year-end. Net subsidy reestimates can be found in Note 6.I of the financial
reestimates for the business loan programs were upward in statements in the Financial Reporting section of this report.
FY 2023 compared FY2022, which affected Strategic Goal
1 costs. Disaster reestimates were upward but offset by a
reduction in subsidy cost due a lower level of loan activity.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 24 Management’s Discussion and Analysis (Unaudited)
BUDGETARY RESOURCES
For FY 2023, Total Budgetary Resources decreased from
$420.0 billion in FY 2022 to $107.1 billion in FY2023.
This decrease was primarily due to a decrease in beginning
balance, borrowing authority, and spending authority from
offsetting collections as well as other factors shown in the
Highlights table and following discussion.
Unobligated Balance from Prior Year Budget Authority
(discretionary and mandatory) decreased $241 billion in
FY 2023. Borrowing Authority decreased $107.8 billion in
FY 2023 because of a decrease in borrowing needed to cover
disaster loan making. Spending Authority from Offsetting
Collections decreased $11.8 billion in FY 2023. This
decrease is primarily attributable to a decrease in the amount
of subsidy collected in business.
STATUS OF BUDGETARY RESOURCES
The Total Status of Budgetary Resources decreased to
$107.1 billion in FY 2023 from $420.0 billion in FY 2022.
Nonbudgetary obligations decreased by $307.8 billion,
mainly resulting from the PPP forgiveness payments,
PPP fees, and increased downward reestimates for both
disaster and business programs.
Budgetary obligations decreased $3.2 billion because of
decreased subsidy obligations for the business subsidy
associated with the PPP program.
Unobligated balances as of September 30, 2023, and
September 30, 2022, were $42.5 billion and $44.4 billion,
respectively, which included $23.8 billion and $28.2 billion
of unavailable unobligated balances. These balances were
unavailable because they were unapportioned by the OMB.
The SBA accumulates the majority of unobligated balances
in its nonbudgetary financing accounts ($38.2 billion
in FY 2023 and $35.6 billion in FY 2022) from subsidy
estimates and reestimates that are used primarily to pay
default claims in future years. The unobligated balances in
the nonbudgetary accounts are directly attributable to the
PPP program and will be used to make future forgiveness
and default payments.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 25 Management’s Discussion and Analysis (Unaudited)
Analysis of SBA’s Systems, Controls, and
Legal Compliance
INTERNAL CONTROL ENVIRONMENT The Office of Performance, Planning, and the Chief
Financial Officer’s (OPPCFO) Internal Controls Division
The SBA believes that maintaining integrity and
(ICD) provides training and tools, designed specifically
accountability in all programs and operations is critical for
for program support offices and district offices, to
demonstrating consistently responsible stewardship over
aid management in assessing and documenting the
assets and resources and is a sign of responsible leadership.
effectiveness of internal controls within their respective
The SBA’s commitment to integrity, ethical values, and an
area of responsibility. These assessments are performed
effective system of internal controls helps to ensure that
based on the five components and 17 principles of the
every employee remains dedicated to the efficient delivery
internal control framework prescribed in GAO’s Standards
of services to customers and maximizes desired program
for Internal Control in the Federal Government, known as
outcomes. Accordingly, the SBA has developed and
the Green Book.
implemented management, administrative, and financial
system controls to reasonably ensure that: The SBA Senior Management Council (SMC) was
established to oversee the Agency’s internal control system.
• programs and operations achieve intended results
The SMC, chaired by the Deputy Chief Financial Officer,
efficiently and effectively;
is composed of SBA managers from the major program
• resources are used in accordance with the mission of and support offices. The SMC plans and executes the
the Agency; Agency’s internal control activities that include assessing
• programs and resources are protected from waste, and improving compliance with applicable guidance
fraud, and mismanagement; (e.g., Office of Management and Budget Circular A-123,
• program and operation activities are in compliance Management’s Responsibilities for Enterprise Risk Management
with laws and regulations; and and Internal Control), monitoring and remediation of
• reliable, complete, and timely data are maintained and identified deficiencies, and communicating the results of
used for decision-making at all levels. reviews to senior management.
Each office within the SBA is required to implement SMC activities in FY 2023 included planning the annual
or maintain effective internal controls over operations, internal controls assessments; identifying key processes and
reporting, and compliance to achieve programmatic goals. related control activities; documenting the scope, design,
Each year, the SBA conducts an assessment of internal and methodology of risk and internal control assessments;
control as required by the Federal Managers’ Financial testing of internal controls and monitoring corrective action
Integrity Act (FMFIA) of 1982 in accordance with the plans for remediation. In addition, the SMC discussed
Office of Management and Budget (OMB)’s Circular any material information that should be considered for
No. A-123, Management’s Responsibility for Enterprise the Administrator’s annual statement of assurance with the
Risk Management and Internal Control. The FMFIA Enterprise Risk Management Board.
requires that the assessment results be reported to the
In 2023, the SBA continued its oversight and monitoring
President and Congress in a statement of assurance. The SBA
efforts related to the pandemic programs created by
Administrator provides the statement of assurance based on
legislation. The methodology applied to all programs
the self-assessment of program managers, internal control
established by the Coronavirus Aid, Relief, and Economic
reviews, and audits and reviews done by the Government
Security Act (CARES), Economic Aid Act, and American
Accountability Office (GAO) and SBA’s Office of the
Rescue Plan Act (ARPA). Although most of the pandemic
Inspector General (OIG).
programs have ceased making disbursements, they are
still included in our oversight and monitoring efforts.
Risk assessments were conducted to assess the impact and
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 26 Management’s Discussion and Analysis (Unaudited)
likelihood of different risk factors and to identify deficiencies and mechanisms. In FY 2023, the Agency saw an increase in
for remediation. Risk assessments will continue in FY 2024 its overall FISMA maturity rating to 2.80 from 2.58 last year
for programs that exceed the materiality threshold. within the Core questions. Also, the Agency scored a 2.68
in the new FY 2023 Supplemental questions which will be
Furthermore, the SBA continued with the development tested again in FY 2025 per OIG.
and execution of the FY 2023 Annual Assessment Plan.
Internal control assessments were conducted for the The Information Security Division has requested FY 2024
Small Business Investment Company (SBIC), PPP Loan funds through the Technology Modernization Fund which
Forgiveness Limited Scope, Shuttered Venue Operator will allow SBA to mature its Security Program, thereby
Grant (SVOG) Limited Scope, Restaurant Revitalization enhancing its security posture.
Fund Limited Scope, Entity Level Controls (ELC) and
504/7a – Citrus Heights. The FY 2022 Financial Statement The SBA will continue to incorporate the changes derived
Audit identified weaknesses and deficiencies that required from the evaluation criterion and continue developing
corrective actions. The SBA worked with responsible officials its cybersecurity program in the areas of configuration
to develop corrective actions and process documentation to management, cybersecurity training, asset management,
support the remediation of existing deficiencies. The Agency vulnerability management, supply chain risk evaluation
continues to collaborate with program offices to support and management, red team penetration testing, network
the remediation of corrective actions and implement new segmentation, Dev/Sec/Ops, risk quantification, and
controls related to PPP, COVID-19 EIDL, SVOG, RRF, and automation of controls assessments.
Service Organization. Efforts will continue beyond FY 2023
until remediation is complete. FINANCIAL MANAGEMENT
The SBA’s Enterprise Risk Management (ERM) Board,
SYSTEMS STRATEGY
which is chaired by the Deputy Administrator and composed The SBA’s financial management systems are designed to
of senior leaders (Senior Executive Service members) from support effective internal controls, produce reliable and
the SBA’s major program and support offices, generally meets timely financial information, and ensure cost-effective loan
monthly to discuss the management of the agency’s top risks guaranty processing. Management remains focused on robust
and share risk management best practices. The Office of financial management systems that support the SBA’s ability
Continuous Operations and Risk Management (OCORM) to comply with laws and regulations. SBA systems must also
facilitates the ERM Board meetings and has been responsible provide timely and accurate data to support management
for implementing ERM agency wide. The SBA took several analysis and decision-making, enable the Agency to keep
steps to strengthen risk and fraud efforts this fiscal year: (1) pace with its lending partners, and effectively use automation
established the FY 2023-2026 ERM Strategic Plan to mature to achieve operational efficiency. As demonstrated
the ERM program; (2) continued to integrate the ERM throughout the FY 2023 Agency Financial Report, the SBA
process into existing management processes; (3) updated seeks to comply with all federal financial management system
the SBA Risk Appetite Statement and ERM Framework requirements, including the Federal Financial Management
Guide; (4) as directed by OMB, approved the agency-wide Improvement Act of 1996, which requires that the Agency’s
risk profile that identified cross-cutting risks related to financial management systems comply with federal financial
fraud, technology, and operations; and; (5) hired the Fraud management systems requirements, applicable federal
Risk Manager who is responsible to facilitate the Fraud accounting standards, and the U.S. Standard General Ledger
Risk Management Board meetings, coordinate SBA’s fraud at the transaction level.18
risk activities, and implement an agency-wide fraud risk
assessment tool to assess agency programs and operations. The SBA has continued to build on incremental
improvement projects designed to modernize the financial
The SBA delivers enterprise level cybersecurity and privacy management system environment, improve financial system
services that empower the Agency to better support the small controls, reduce sustainment costs, provide additional
business community through robust yet flexible processes functionality for external lending partners, and improve
system reliability. Projects included the migration of the
18 The Federal Financial Management Improvement Act of 1996 promotes more effective federal financial management by ensuring that financial management systems provide accurate,
reliable, and timely financial management information to the government’s managers. Compliance with the FFMIA provides the basis for the continuing use of reliable financial
management information by program managers, the President, Congress, and the public.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 27 Management’s Discussion and Analysis (Unaudited)
hosting platform from legacy systems to more current
technology platforms as well as utilization and integration
with SBA enterprise IT services. The SBA has also been
working with the Quality Service Management Office
(QSMO) at the U.S. Department of Health and Human
Services (HHS) for the improvement of grants management
systems and integration. An Interagency Agreement (IAA)
was established to begin integrating SBA’s financial system
with the HHS GrantSolutions systems. In addition, the
SBA has been working closely with the QSMO for Financial
Management at the U.S. Treasury as they continue their
efforts in establishing a marketplace for financial systems
that can be used for modernization efforts for SBA’s core
financial system.
SBA financial systems continued to process a high volume of
transactions this fiscal year. A large part of the focus for FY
2023 was on improved collections processes for repayments
and other recoveries. For FY 2023, the systems processed
over 28 million general ledger transactions in support
of collections primarily relating to the various pandemic
emergency relief programs.
The SBA has continued to take steps to enhance its financial
system controls over lending programs and improve
accessibility to common information, financial and budget
management, and financial reporting. The SBA’s tightly
integrated financial systems allow the Agency to respond
quickly to both internal and external financial information
inquiries and requirements.
The Office of Performance Management, the Chief Financial
Officer, and the Office of Capital Access oversee the
following three core financial management systems:
• Oracle Federal Financials — This system, the most
current release in its implementation of the Joint
Administrative Accounting Management System
(JAAMS), supports the SBA’s funding and expenditure
of administrative funds.
• Loan Systems — This SBA-built system supports the
lifecycle of loan guarantee processing, loan program
funds control, management and accounting for loan
servicing, and loan-related expenses.
• Financial Management System — This SBA-built
system consolidates administrative and loan activity,
manages cash and control funds, and supports
financial reporting.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 28 Management’s Discussion and Analysis (Unaudited)
MANAGEMENT ASSURANCES: FMFIA AND FFMIA ASSURANCE STATEMENT FOR FY 2023
The Small Business Administration (SBA or Agency) continued to strengthen its internal controls over core and
COVID-related programs and operations during FY 2023. 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.
While the SBA continued to strengthen internal controls, the SBA’s independent auditor has issued a disclaimed opinion
on the Agency’s FY 2023 Consolidated Balance Sheet and is reporting material weaknesses in internal controls. Although
the SBA believes that its efforts to develop and implement controls for its COVID-related programs in FY 2023 would
have remediated material weaknesses identified from the FY 2022 audit, the SBA will continue to resolve findings next
year. The SBA has provided responses outlining proposed corrective actions for identified deficiencies to the auditor in
an effort to remediate.
The SBA management is responsible for managing risks and maintaining effective internal controls and financial
management systems to meet the objectives of Sections 2 and 4 of the Federal Managers Financial Integrity Act
(FMFIA). The SBA conducted its assessment of risk and internal controls in accordance with OMB Circular No. A-123,
Management’s Responsibility for Enterprise Risk Management and Internal Control. Agency managers have issued assertions
to me as to the status of the FY 2023 internal controls in their areas of responsibility. These assertions are supported by
internal testing, checklists, and other management reviews.
FMFIA section 2 requires that the head of each executive agency annually submit to the President and Congress:
(i) A statement on whether there is reasonable assurance that the Agency’s controls are achieving their intended
objectives, and
(ii) A report on material weaknesses in the Agency’s controls.
Based on the results of the SBA managers assessments, I can provide modified assurance over the internal controls over
operations, reporting, and compliance with applicable laws and regulations, as of September 30, 2023. The internal
controls over operations, reporting, and compliance with applicable laws and regulations were operating effectively
except for certain controls noted below. The SBA has developed and implemented controls to remedy the material
weaknesses identified in the FY 2022 audit but notes that the material weaknesses identified through the prior year
audit remain because of the timing of corrective action plan implementation. During FY 2023, material weaknesses in
the following areas were identified:
• Controls over Paycheck Protection Program (PPP) Loan Guarantees Need Improvement
• Controls over COVID-19 Economic Injury Disaster Loans (EIDLs) Need Improvement
• Controls over Monitoring of Restaurant Revitalization Fund (RRF) and Shuttered Venues Operators Grant
(SVOG) Programs Need Improvement
• Controls over Financial Reporting for Programs Funded by CARES Act and Related Legislation Need Improvement
• Controls over the Evaluation of Service Organizations Need Improvement
• Entity Level Controls Need Improvement
FMFIA section 4 requires agencies to report on whether the Agency’s financial management systems comply with
government-wide requirements. The SBA evaluated its financial management system; however, the auditor noted
noncompliance with Federal Financial Systems Requirements and Federal Accounting Standards. As a result of this
audit assessment, the Agency’s financial management systems do not conform to the principles, standards, and related
requirements prescribed by Section 4 of FMFIA; therefore, the SBA provides a modified assurance.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 29 Management’s Discussion and Analysis (Unaudited)
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
requirements, federal accounting standards, and the United States Standard General Ledger. The SBA evaluated its
financial management systems to determine conformance; however, the auditor identified that it does not comply with
Federal Financial Systems Requirements and Federal Accounting Standards. Based on the FFMIA criteria and audit
report, the SBA provides a modified assurance that its financial management systems substantially comply with FFMIA
for FY 2023. The Agency is committed to continuing to evaluate identified material weaknesses and non-conformances
to make any adjustments necessary to bring its programs into compliance.
Isabella Casillas Guzman
Administrator
November 15, 2023
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 30 Management’s Discussion and Analysis (Unaudited)
SUMMARY OF MATERIAL WEAKNESSES
1. Controls over Paycheck Protection Program (PPP) 3. Controls over Accounting and Monitoring,
Loan Guarantees Need Improvement of Shuttered Venue Operators Grant (SVOG)
The auditor identified deficiencies in controls related and Restaurant Revitalization Fund (RRF)
to the review of the status of PPP loan guarantees, Need Improvement
forgiveness review process, and the loan purchase review The auditor identified deficiencies in the design and
process. Specifically, the auditor identified deficiencies implementation of monitoring controls to ensure that
in: (a) the SBA’s process for lender accountability recipients’ use of funds were in accordance with related
related to the 1502 reporting errors and inaccurate legislation and program terms. Specifically, the auditor
reporting of PPP outstanding principal loan balance noted: (a) the SBA is required to monitor and manage the
and liability for loan guarantee, (b) the SBA’s oversight status of SVOG awards and funds recovery process, and
process related to the screening, review, monitoring, and (b) the SBA is required to follow-up, review, and recover
fund recovery related to PPP loan forgiveness, and (c) any outstanding funds from ineligible RRF recipients.
the SBA’s oversight activities related to the review and The SBA will continue its eligibility and cost compliance
monitoring of PPP loan purchases. The SBA continues to reviews and determine the appropriate plan for fund
implement a Corrective Action Plan (CAP) that includes recovery for ineligible fund recipients.
the implementation of the Paycheck Protection Program
Loan Review Plan with a detailed review process to ensure 4. Controls over Financial Reporting for Programs
the PPP Loans are accurately designed, implemented, Funded by CARES Act and Related Legislation
and reported and a monitoring plan to address the loan Need Improvement
forgiveness population.
The auditor identified deficiencies in design and
implement controls to account for the recovery of
2. Controls over COVID-19 Economic Injury Disaster funds and subsidy reestimates. Specifically, the auditor
Loans (EIDLs) Need Improvement identified deficiencies in: (a) the SBA’s accounting policy
The auditor identified deficiencies in the design and and procedures for the recovery of funds related to the
implementation of controls related to COVID-19 EIDL. RRF program, SVOG program, COVID-19 EIDLs,
Specifically, the auditor identified deficiencies in: (a) and the PPP loan programs, and (b) the controls to
the design of reviews used to identify a complete and ensure the data inputs used within the reestimate models
accurate COVID-19 EIDL population of outstanding for PPP and COVID-19 EIDLs were complete and
loans disbursed, (b) the design of SBA’s review over loans accurate and the appropriateness of projected collections
with existing eligibility concerns, and (c) the design and on receivables charged-off were not considered against
implementation of effective controls over the charge off relevant accounting standards. The SBA will develop
process for non-performing COVID-19 EIDL loans. The and implement a funds recovery policy that considers
SBA will ensure procedures for the COVID-19 EIDL the allowance for estimates of uncollectable amounts
servicing incorporate a comprehensive review process and communicate the new policy throughout SBA and
that includes how it identified, tracked, resolved, loans explore options to update the financial system to ensure
and funds that are returned to the SBA are managed. preparer information is retained in the accounting entries.
In addition, the SBA will conduct an internal control In addition, the SBA will continue to implement a
assessment to determine the controls in place are properly Corrective Action Plans (CAP) that will improve controls
designed and operating effectively. around business processes that generate data inputs used
to inform critical assumptions used in the reestimate
models. SBA will review the treatment of expected
post-charge-off collections against relevant accounting
standards and based on this review will implement any
revisions to year-end reporting processes as needed to
conform with those standards.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 31 Management’s Discussion and Analysis (Unaudited)
5. Controls over the Evaluation of Service Organizations
Need Improvement
The auditor identified deficiencies in internal controls
for service organizations. Specifically, the auditor
noted: (a) the SBA is required to obtain and monitor
the SOC 1 reports for service organizations, and (b) the
SBA is required to review the adequacy of the service
organization’s user entity controls. The SBA will continue
to implement the System and Organization Controls
(SOC) policy that was issued in FY2023 to address SOC
complementary design controls, exception reporting, and
impact analysis. The implementation will ensure required
organizations provide SOC reports for evaluation and
monitoring of identified controls.
6. Entity Level Controls Need Improvement
The auditor identified deficiencies in the entity level
controls system to produce reliable and accurate financial
reporting. Specifically, the auditor identified deficiencies
in: (a) the SBA’s establishment of an effective control
environment and performance of an effective risk
assessment, and (b) the SBA’s design and implementation
of an effective monitoring process. In FY2024, the
SBA will develop and implement a plan to assess high
risk programs. Additionally, the SBA will continue to
perform a significant programs identification analysis
quarterly for the purpose of identifying, early in the
fiscal year, programs that might prove significant to the
financial statements at year-end. The SBA will engage and
communicate with the program offices early to assess,
monitor, and address identified risks and associated
controls and the effects on financial reporting and
compliance with relevant laws and regulations.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 32 Management’s Discussion and Analysis (Unaudited)
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U.S. Small Business Administration
Financial Reporting
(Unaudited)
SECTION 2
Agency Financial Report Fiscal Year 2023 34 Financial Reporting (Unaudited)
Message from the Chief Financial Officer
November 15, 2023
I am pleased to issue the SBA’s FY 2023 Agency Financial Report as of
September 30, 2023. This report presents the Agency’s financial results in
accordance with U.S. Office of Management and Budget guidance, and
the financial statements have been developed within Generally Accepted
Accounting Principles.
In FY 2023, the SBA continued the management and oversight of the
COVID-19 pandemic programs that funded $1.2 trillion in programs that
were implemented to mitigate its impact on small businesses. The execution of
CARES Act programs, the Economic Aid Act, and the American Rescue Plan
Act were essential to saving millions of jobs and helping small businesses stay
open, preserving the vitality of small businesses, and strengthening the economic recovery of communities
after disasters.
The SBA continues to focus on serving small businesses and entrepreneurs while strengthening controls to
prevent fraud, waste, and abuse. In FY 2022, the Agency implemented the Fraud Risk Management Board
(FRMB), a governing body that serves as the SBA’s anti-fraud entity. In FY 2023, the FRMB made significant
progress through the performance of fraud risk assessments of key programs and the development of a
fraud risk management strategy to guide the maturity of the Agency’s fraud risk management program. In
addition, the Agency has documented processes for new programs and implemented new controls to prevent
fraud and strengthen the reliability of the values presented in the Agency’s financial statements. The Agency
understands implementation and oversight of these significant efforts are crucial to ensuring taxpayer dollars
are appropriately awarded.
The SBA continues to work towards improving its audit outcomes through collaborative partnerships across
the Agency along with a forward-leaning strategy that prioritizes the most critical corrective action needs and
optimizes resources.
I look forward to supporting the mission of the SBA and sharing those achievements next year. I also thank the
dedicated SBA team that achieved these great successes and developed the FY 2023 Agency Financial Report.
Sincerely,
Kate Aaby
Associate Administrator for Performance, Planning, and the Chief Financial Officer
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 35 Financial Reporting (Unaudited)
Inspector General’s Audit Report
OFFICE OF INSPECTOR GENERAL
U.S. SMALL BUSINESS ADMINISTRATION
DATE: November 15, 2023
TO: Isabella Casillas Guzman
Administrator
FROM: Hannibal “Mike” Ware
Inspector General
SUBJECT: Independent Auditors’ Report on SBA’s Fiscal Year 2023 Financial Statements
(Report 24-03)
I am pleased to present the attached Independent Auditors’ Report on the U.S. Small Business
Administration’s (SBA) financial statements for fiscal year (FY) 2023, as required annually by the
Chief Financial Officers Act of 1990, as amended.
We contracted with the independent certified public accounting firm KPMG LLP to conduct an
audit of SBA’s consolidated balance sheets as of September 30, 2023 and 2022 and the related
notes to these statements. Our contract with KPMG required that the audit be performed in
accordance with auditing standards generally accepted in the United States of America,
Government Auditing Standards issued by the Comptroller General of the United States, and
Office of Management and Budget (OMB) Bulletin No. 24-01, Audit Requirements for Federal
Financial Statements.
KPMG’s responsibility was to express an opinion on the consolidated balance sheets based on
their audit. KPMG was not engaged to audit the consolidated statements of net cost and changes
in net position and combined statements of budgetary resources for the years ended September
30, 2023 and 2022 and the related notes to these statements.
In the audit, KPMG reported significant matters for which they were unable to obtain sufficient
and appropriate audit evidence to provide a basis for an audit opinion on SBA’s balance sheet as
of September 30, 2023. Accordingly, KPMG issued a disclaimer of opinion on the consolidated
balance sheets as of September 30, 2023 and 2022.
The basis for the disclaimer was that due to inadequate processes and controls, SBA was unable
to provide adequate evidential matter in support of a significant number of transactions and
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 36 Financial Reporting (Unaudited)
account balances related to the Paycheck Protection Program, Economic Injury Disaster Loan
program, the Restaurant Revitalization Fund, and the Shuttered Venue Operators Grant
program.
As a result, KPMG was unable to determine whether any adjustments might have been
necessary with respect to the following line items and related notes:
• Credit Program Receivables and Related Foreclosed Property, Net
• Other than Intragovernmental Accounts Receivable, Net
• Downward Reestimate Payable to Treasury
• Loan Guarantee Liabilities
For the period ended September 30, 2023, KPMG identified material weaknesses over six areas
and significant deficiencies over three areas in internal control over financial reporting.
Appendices I and II of this report describe details of KPMG’s conclusions about the material
weaknesses and significant deficiencies. Appendix III describes instances of noncompliance with
applicable laws or other matters required to be reported under Government Auditing Standards
or OMB Bulletin No. 24-01.
In connection with the contract, we reviewed KPMG’s report and related documentation and
inquired of its representatives. Our oversight protocols included evaluation of major work
products, attendance at critical meetings, review of significant findings, and examination of
related evidential matter. Our review, as differentiated from an audit of the financial statements
in accordance with government auditing standards, was not intended to enable us to express,
and we do not express, opinions on SBA’s financial statements or internal control over financial
reporting or conclusions on SBA’s compliance with applicable laws and other matters. Our
review disclosed no instances where KPMG did not comply in all material respects with auditing
standards. KPMG is responsible for the attached auditors’ report dated November 15, 2023 and
the conclusions expressed. However, OIG provides negative assurance of this audit.
We provided a draft of KPMG’s report to SBA’s Chief Financial Officer, who generally concurred
with its findings and recommendations and agreed to implement the recommendations. The
Chief Financial Officer stated that SBA remains committed to excellence in financial management
and looks forward to furthering progress in the coming year. The Chief Financial Officer’s
response is included in Appendix IV.
We appreciate the cooperation and assistance of SBA and KPMG during the audit. Should you or
your staff have any questions, please contact me or Andrea Deadwyler, Assistant Inspector
General for Audits, at (202) 205-6586.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 37 Financial Reporting (Unaudited)
cc: Dilawar Syed, Deputy Administrator, Office of the Administrator
Arthur Plews, Chief of Staff, Office of the Administrator
Isabelle James, Deputy Chief of Staff, Office of the Administrator
Peggy Delinois Hamilton, Special Counsel for Enterprise Risk, Office of the Administrator
Katherine Aaby, Associate Administrator, Office of Performance, Planning, and the Chief
Financial Officer
Kathryn Frost, Acting Associate Administrator, Office of Capital Access
Francisco Sanchez Jr., Associate Administrator, Office of Disaster Assistance
John Miller, Deputy Associate Administrator, Office of Capital Access
Therese Meers, General Counsel, Office of General Counsel
Michael Simmons, Attorney Advisor, Office of General Counsel
Anna M. Calcagno, Director, Office of Program Performance, Analysis, and Evaluation
Tonia Butler, Director, Office of Internal Controls
Attachment
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 38 Financial Reporting (Unaudited)
Independent Auditors’ Report on FY 2023
Financial Statements
KPMG LLP
Suite 12000
1801 K Street, NW
Washington, DC 20006
Independent Auditors’ Report
Inspector General
U.S. Small Business Administration
Administrator
U.S. Small Business Administration
Report on the Audit of the Consolidated Financial Statements
Disclaimer of Opinion
We were engaged to audit the consolidated balance sheets of the United States (U.S.) Small Business
Administration (SBA) as of September 30, 2023 and 2022, and the related notes to the consolidated balance
sheets (the consolidated financial statements).
We do not express an opinion on the accompanying consolidated financial statements of the SBA. Because of
the significance of the matter described in the Basis for Disclaimer of Opinion section of our report, we ha ve not
been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the se
consolidated financial statements.
Basis for Disclaimer of Opinion
The SBA’s pandemic relief programs include the Paycheck Protection Program, Economic Injury Disaster Loan
program, Restaurant Revitalization Fund program, and Shuttered Venues Operators Grant program, which
were authorized by the Coronavirus Aid, Relief, and Economic Security Act of 2020 and related legislations.
These programs affect a substantial proportion of SBA’s consolidated financial statements. The SBA was
unable to provide adequate evidential matter in support of a significant number of transactions and account
balances related to these programs due to inadequate processes and controls. As a result of this matter, we
were unable to determine whether any adjustments might have been necessary related to the Credit Program
Receivables and Related Foreclosed Property, Net; Other than Intragovernmental Accounts Receivable, Net;
Downward Reestimate Payable to Treasury; Loan Guarantee Liabilities; and the related notes.
Other Matter – Report on Certain Fiscal Year 2023 and 2022 Information
We were not engaged to audit the consolidated statements of net cost and changes in net position, and
combined statements of budgetary resources for the years ended September 30, 2023 and 2022, and the
related notes to these statements. Accordingly, we express no opinion on them.
Other Matter - Interactive Data
Management has elected to reference to information on websites or other forms of interactive data outside the
Agency Financial Report to provide additional information for the users of its consolidated financial statements.
Such information is not a required part of the 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.
KPMG LLP, a Delaware limited liability partnership and a member firm of
the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 39 Financial Reporting (Unaudited)
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with U.S. generally accepted accounting principles, and for 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’ Responsibilities for the Audit of the Consolidated Financial Statements
Our responsibility is to conduct an audit of the SBA’s consolidated financial statements in accordance with
auditing standards generally accepted in the United States of America (GAAS), Government Auditing
Standards, issued by the Comptroller General of the United States, and Office of Management and Budget
(OMB) Bulletin No. 24-01, Audit Requirements for Federal Financial Statements, and to issue an auditors’
report. However, because of the matter described in the Basis for Disclaimer of Opinion section of our report,
we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these
consolidated financial statements.
We are required to be independent of the SBA and to meet our other ethical responsibilities, in accordance with
the relevant ethical requirements relating to our audit.
Required Supplementary Information
U.S. generally accepted accounting principles require that the information in the Management’s Discussion and
Analysis and Required Supplementary Information sections be presented to supplement the basic consolidated
financial statements. Such information is the responsibility of management and, 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 were unable to apply certain limited
procedures to the required supplementary information in accordance with GAAS because of the significance of
the matter described in the Basis for Disclaimer of Opinion paragraph. We do not express an opinion or provide
any assurance on the information.
Report on Internal Control Over Financial Reporting
In connection with our engagement to audit the SBA’s consolidated financial statement as of September 30,
2023, we considered the SBA’s internal control over financial reporting (internal control) as a basis for
designing audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion
on the consolidated financial statement, but not for the purpose of expressing an opinion on the effectiveness of
the SBA’s internal control. Accordingly, we do not express an opinion on the effectiveness of the 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.
Our consideration of internal control was for the limited purpose described in the preceding paragraph 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.
However, as described in the accompanying Appendices I and II, we identified certain deficiencies in internal
control that we consider to be material weaknesses and significant deficiencies.
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. We consider the deficiencies
described in Appendix I to be material weaknesses.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 40 Financial Reporting (Unaudited)
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. We
consider the deficiencies described in Appendix II to be significant deficiencies.
Report on Compliance and Other Matters
In connection with our engagement to audit the SBA’s consolidated financial statement as of September 30,
2023, 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 consolidated financial
statement. However, providing an opinion on compliance with those provisions was not an objective of our
engagement, 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. 24-01, and which are described in Appendix III.
We also performed tests of the 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 engagement, and accordingly, we do not express such an opinion. The
results of our tests disclosed instances, described in Appendix III, in which the SBA’s financial management
systems did not substantially comply with the (1) Federal financial management systems requirements, and (2)
applicable Federal accounting standards. The results of our tests disclosed no instances in which the SBA’s
financial management systems did not substantially comply with the United States Government Standard
General Ledger at the transaction level.
Additionally, if the scope of our work had been sufficient to enable us to express an opinion on the consolidated
financial statements, other instances of noncompliance or other matters may have been identified and reported
herein.
SBA’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the SBA's response to
the findings identified in our engagement and described in Appendix IV. The SBA’s response was not subjected
to the other auditing procedures applied in the engagement to audit the consolidated financial statements and,
accordingly, we express no opinion on the response.
Purpose of the Reporting Required by Government Auditing Standards
The purpose of the communication described in the Report on Internal Control Over Financial Reporting and
the Report on Compliance and Other Matters sections is solely to describe the scope of our testing of internal
control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
SBA’s internal control or compliance. Accordingly, this communication is not suitable for any other purpose.
Washington, DC
November 15, 2023
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 41 Financial Reporting (Unaudited)
Appendix I
U.S. Small Business Administration
Material Weaknesses
The following deficiencies are considered to be material weaknesses in internal controls over financial
reporting.
1. Controls over Paycheck Protection Program (PPP) Loan Guarantees Need Improvement
2. Controls over Coronavirus Disease 2019 (COVID-19) Economic Injury Disaster Loans (EIDLs)
Need Improvement
3. Controls over Monitoring of Restaurant Revitalization Fund (RRF) and Shuttered Venues
Operators Grant (SVOG) Programs Need Improvement
4. Controls over Financial Reporting for Programs Funded by CARES Act and Related Legislation
Need Improvement
5. Controls over the Evaluation of Service Organizations Need Improvement
6. Entity Level Controls Need Improvement
Background
The PPP, COVID-19 EIDLs, RRF, and SVOG programs were authorized and funded by the Coronavirus Aid,
Relief, and Economic Security Act of 2020, the Paycheck Protection Program and Health Care Enhancement
Act, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, and the American Rescue
Plan Act. The referenced laws are collectively referred to as the CARES Act and related legislation. The
CARES Act and related legislation were passed by Congress to provide emergency assistance in response to
the extensive effects of the public health and economic crisis arising from the COVID-19 pandemic. The PPP,
COVID-19 EIDLs, RRF, and SVOG programs affect a substantial proportion of the consolidated financial
statements.
1. Controls over PPP Loan Guarantees Need Improvement
A. Reporting of PPP Loan Guarantees
As part of the PPP, lenders must report on the status of PPP loans using the lender loan status reports on a
monthly basis. The SBA updates the outstanding principal balances and ultimately the Loan Guarantee
Liabilities and related accounting entries based on the submitted lender reports.
Management did not have adequate processes and controls in place to determine the status of PPP loan
guarantees based on the lender loan status reports that were not submitted, submitted incorrectly, or submitted
but not processed and evaluated by SBA for the majority of the fiscal year 2023. Also, management did not
design and implement effective controls to ensure that the population of active PPP loan guarantees reviewed
by management for status determination was complete and accurate.
Management did not implement controls to identify and resolve variances between SBA’s and the lenders’
records for 6 of 28 PPP loan guarantees samples tested. In addition, management flagged PPP loan
guarantees that had eligibility concerns as part of their review process and did not have controls to support the
existence and accuracy for 11 of 28 samples tested due to unresolved eligibility concerns as of September 30,
2023.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 42 Financial Reporting (Unaudited)
These deficiencies were caused by insufficient risk assessment and monitoring controls over the follow-up
process for lender loan status reports. Also, management did not design and implement an effective process of
accountability over the lenders that were not submitting loan status reports timely or accurately. Further, the
automated system control used to reduce the outstanding principal balance for loan guarantees that received
partial forgiveness payments is not designed and implemented effectively to prevent errors.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• Government Accountability Office’s (GAO’s) Standards for Internal Control in the Federal Government
(Green Book), Principle 7, Identify, Analyze, and Respond to Risks; Principle 10, Design Control
Activities;
• Office of Management and Budget (OMB) Circular No. A-123, Management’s Responsibility for
Enterprise Risk Management and Internal Control
The deficiencies described above may result in material misstatements to the Loan Guarantee Liabilities,
Downward Reestimate Payable to Treasury line items and related elements in the consolidated financial
statements.
Recommendations – Reporting of PPP Loan Guarantees
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
1. Design and implement controls to ensure the population used in the review and follow-up of
nonreporting loan status reports or loan status reports with errors is complete and accurate.
2. Determine enforceable actions and controls to hold lenders accountable for submitting loan status
reports timely and correctly.
3. Assess the sufficiency of implemented controls to monitor incomplete or inaccurate PPP lender loan
status reports on an ongoing basis, including the identification and resolution of the root causes of
reporting noncompliance.
4. Design and implement an automated system control to accurately reduce the outstanding principal
balance after the processing of all forgiveness payments.
B. Forgiveness Review of PPP Loan Guarantees
The PPP program terms, authorized by the CARES Act and related legislation, permitted for the forgiveness of
PPP loan guarantees if the borrower met the forgiveness criteria. To request forgiveness, borrowers submit the
forgiveness application to the lenders for approval. The lenders will subsequently notify SBA of their
forgiveness decision and submit the request to SBA.
Management did not design and implement adequate monitoring controls over the work performed by a
contractor and the use of its case management system to ensure that the population of PPP loan guarantees
identified with eligibility flags was complete and accurate and ultimately determine their eligibility for
forgiveness. Moreover, management did not provide sufficient evidence to demonstrate that an effective control
environment existed when the case management system was used to perform the automated screening of the
PPP loan guarantees. Management did not effectively perform independent review controls to determine
whether the results of the contractor’s screening process of certain loan guarantees were effective and
accurate. These loan guarantees included those with no flags identified for eligibility concerns, or those that
had flags identified for eligibility concerns but were not reviewed further based on management’s policy
decision.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 43 Financial Reporting (Unaudited)
Management did not design and implement an effective review and monitoring process for the 2021 cohort of
PPP loan guarantees, which comprises the majority of the outstanding principal balance of PPP loan
guarantees as of September 30, 2023. While the case management system contains a comprehensive series
of validation checks to identify potential noncompliance with PPP loan guarantee program eligibility
requirements, management communicated that the case management system performed only a limited number
of validation checks against program eligibility requirements for the 2021 cohort of PPP loan guarantees.
Further, management did not implement a sufficient monitoring process to ensure that lenders followed
established procedures and adequately resolved the eligibility concerns identified by the case management
system’s limited automated screening.
Management did not design and implement effective controls to determine the accuracy and completeness for
their sample of PPP loan guarantee forgiveness transactions. Management’s review of the sample from the
largest subset of PPP loan forgiveness transactions did not address the eligibility for forgiveness and the
accuracy of the approved loan guarantee and forgiveness amounts. In addition, management’s review process
did not consider a follow-up requirement when a difference exists for each sample’s loan approval amount and
the loan forgiveness amount within an acceptable variance threshold. Instead, management’s review process
allowed for a variance threshold between the calculated loan guarantee approval amount as compared to the
actual approved loan guarantee amount. Similarly, management’s review process allowed for a variance
threshold between the calculated loan forgiveness amount and requested loan forgiveness amount. As a result,
management’s sample review process was not properly designed to sufficiently evaluate and quantify the
magnitude of the actual error amounts for the loan guarantee approval and loan guarantee forgiveness
variances.
Management did not adequately design and implement the post payment review control to determine the
appropriate status and financial reporting impacts of PPP loan guarantees forgiven as of the end of the fiscal
year. Also, management’s process and related control activities for funds recovery of PPP loan guarantees that
were erroneously forgiven was not documented.
These deficiencies were caused by management’s reliance on the contractor’s automated and manual loan
review processes without adequate monitoring controls to evaluate and assess the work product. Further, there
was reliance placed on the lenders’ self-certifications prior to the approval of the 2021 cohort of PPP loan
guarantees without adequate monitoring controls. In addition, management did not perform an adequate risk
assessment process to identify and mitigate relevant risks and design appropriate controls to ensure a
complete and accurate portfolio of PPP loan guarantees that were disbursed to eligible recipients.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 6, Define
Objectives and Risk Tolerances; Principle 7, Identify, Analyze, and Respond to Risks; Principle 10,
Design Control Activities; and Principle 16, Perform Monitoring Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in a material misstatement to the Loan Guarantee Liabilities and
Downward Reestimate Payable to Treasury line items, and the related elements in the consolidated financial
statements.
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Agency Financial Report Fiscal Year 2023 44 Financial Reporting (Unaudited)
Recommendations – Forgiveness Review of PPP Loan Guarantees
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
5. Perform a thorough review of the outstanding PPP loan guarantees and determine the impact on the
outstanding guarantee and eligibility for forgiveness of loans determined to not be in conformance with
the related legislation and program’s terms.
6. Design, implement, and document an effective PPP forgiveness review process for loan guarantees
that were forgiven that addresses both the eligibility and the accuracy of the loan approval and
forgiveness amounts.
7. Design and implement an effective funds recovery plan to ensure PPP funds disbursed on behalf of
ineligible recipients are recovered and reported accurately in a timely manner. The plan should include
an effective process to provide the information necessary to the Office of Performance, Planning, and
the Chief Financial Officer to record any required accounting adjustments.
C. Purchases of PPP Loan Guarantees
The PPP program terms, authorized by the CARES Act and related legislation, fully guaranteed the PPP loans
disbursed by lenders on behalf of the SBA. Lenders are required to service the PPP loans and continue to
report on their status on a monthly basis until the loan is fully forgiven, repaid, or the borrower defaults. In the
event of default, the lender may request that SBA honor its full guarantee and purchase the loan.
Management did not adequately design and implement controls to ensure that purchase requests of PPP loan
guarantees were appropriately reviewed to verify that requesting lenders met the program requirements prior to
approving and disbursing the original loan.
The PPP loan guarantee purchases review process relied on the identification of flags by the case
management system indicating that the lender may not have fulfilled the program requirements. Management
did not design and implement adequate controls to ensure the completeness and accuracy of flags identified
and resolved. In addition, management added additional flags that would require a manual purchase review at
various stages of the program. However, management did not retroactively review PPP loan guarantee
purchase requests that were previously automatically approved that subsequently required a manual review.
The PPP loan guarantee purchases review process documentation did not consider all guidance issued to
lenders as part of the origination process when determining the subset of flags that would require a manual
purchase review. Specifically, SBA did not include adequate evaluation of flags communicated to lenders in the
procedural notices related to the cohort 2021 loan approval requirements.
These deficiencies were caused by an inadequate risk assessment performed to ensure sufficient controls
were designed and implemented for the review of PPP loan guarantee purchase transactions.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 6, Define
Objectives and Risk Tolerances; Principle 7, Identify, Analyze, and Respond to Risks; Principle 10,
Design Control Activities; and Principle 16, Perform Monitoring Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in a material misstatement to the Loan Guarantee Liabilities and
Downward Reestimate Payable to Treasury line items, and the related elements in the consolidated financial
statements.
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Agency Financial Report Fiscal Year 2023 45 Financial Reporting (Unaudited)
Recommendations – Purchases of PPP Loan Guarantees
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
8. Perform a thorough and complete analysis of all requirements communicated to lenders for the PPP
program and determine how to evaluate whether lenders met the requirements prior to disbursing a
PPP loan. The analysis should include evidence to support the adequacy of SBA’s review process
when determining which purchase requests will require additional review.
9. Develop and implement an effective process to review purchase requests for outstanding PPP loan
guarantees and for loans that have already been purchased that addresses whether the lender met
their requirements in accordance with the program requirements.
10. Develop and implement an effective funds recovery plan to ensure funds related to PPP purchases
disbursed to ineligible recipients are recovered and reported accurately in a timely manner. The plan
should include an effective process to provide the information necessary to the Office of Performance,
Planning, and the Chief Financial Officer to record any required accounting adjustments.
2. Controls over COVID-19 EIDLs Need Improvement
COVID-19 EIDLs were approved in fiscal years 2020 through 2022 and have a 30-year term. Payments on
COVID-19 EIDLs were deferred by the SBA for up to 30 months after loan disbursement. The payment deferral
period ended for a significant number of COVID-19 EIDLs during fiscal year 2023.
Management did not design and implement adequate monitoring controls over the COVID-19 EIDLs portfolio to
ensure reliable financial reporting as of the end of the fiscal year. Management’s review was not appropriately
designed to identify a complete and accurate COVID-19 EIDLs population of outstanding loans disbursed to
eligible recipients. The review process relied on hold codes in the SBA’s loan repository system to identify the
COVID-19 EIDLs with eligibility concerns. However, management was not able to provide evidence of the
completeness and accuracy of the population of loans with hold codes as of the end of the fiscal year.
Management’s review controls over loans with existing hold codes were not properly designed. The review did
not contain sufficient evidence about the identification, research, and resolution of hold codes to support
management’s reliance for financial reporting purposes as of the end of the fiscal year. Management did not
identify and research COVID-19 EIDLs with unresolved hold codes for loans charged-off, in deferment,
repayment, and delinquent stages as of the end of the fiscal year.
Management did not fully design and implement effective controls over their charge-off process for non-
performing COVID-19 EIDLs. The non-performing loans are those that are 90 days or more past due.
Management implemented a process to automatically charge-off non-performing COVID-19 EIDLs that have an
original loan balance of $200,000 or less without any unresolved hold codes. These loans subject to automated
charge-off are significant to the COVID-19 EIDLs portfolio, were not reviewed, did not have justification to
support the charge-off decision, and were not assessed for recoverability. In addition, management’s charge-off
process was primarily based on the number of days past due without sufficient regard to the recoverability of
the loan. Thus, management’s controls were not appropriately designed to identify the root cause of the
delinquency of the charged-off COVID-19 EIDLs.
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Agency Financial Report Fiscal Year 2023 46 Financial Reporting (Unaudited)
These deficiencies were caused by an inadequate risk assessment process to identify and mitigate relevant
risks and design appropriate controls to ensure a complete and accurate population of COVID-19 EIDLs that
were disbursed to eligible recipients. In addition, management implemented a policy that was not adequately
supported because the review of the COVID-19 EIDLs portfolio was incomplete. Therefore, the information
used by management to make an informed charge-off policy decision was not relevant and reliable. In addition,
management’s risk assessment process did not adequately consider the accounting and financial reporting
implications of charging off a loan without assessing the impact of the likelihood of recovery.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 6, Define
Objectives and Risk Tolerances; Principle 7, Identify, Analyze, and Respond to Risks; Principle 9,
Identify, Analyze, and Respond to Change; and Principle 10, Design Control Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in a material misstatement of the Credit Program Receivables and
Related Foreclosed Property, Net and Downward Reestimate Payable to Treasury line items, and related
elements in the consolidated financial statements.
Recommendations – Controls over COVID-19 EIDLs Need Improvement
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
11. Perform and update the program’s internal control risk assessment to identify changes to risks that may
require the design and implementation of effective monitoring controls over the review of the COVID-19
EIDLs portfolio.
12. Design and implement an effective funds recovery plan to ensure COVID-19 EIDLs funds disbursed to
ineligible recipients are recovered and reported accurately and in a timely manner. The plan should
include an effective process to provide the information necessary to the Office of Planning,
Performance, and the Chief Financial Officer to record any required accounting adjustments.
13. Reevaluate the appropriateness and update SBA’s existing policies and procedures to ensure they are
supported by quality information stemming from effective control activities. This includes assessing the
recoverability of COVID-19 EIDLs prior to charge-off. Perform a regular review of implemented policies
to ensure they are responding to relevant risks.
3. Controls over Monitoring of RRF and SVOG Programs Need Improvement
A. Monitoring of RRF Awards
The period to use RRF awards for eligible purposes expired on March 11, 2023. Management’s process relies
on award recipients to submit Post Award Reports by April 30, 2023, to disclose the amount of the award used
on eligible purposes prior to expiration. If any amount of the award was not used for eligible purposes before
expiration, the unused funds must be returned to SBA.
Management did not design and implement the appropriate monitoring controls over RRF awards to ensure
that the funds were used in accordance with the CARES Act and related legislation and accurate financial
reporting as of the end of the fiscal year. Specifically, a Post Award Report was not submitted for a significant
number of awards as of September 30, 2023. While management performed follow-up procedures to ensure
the outstanding Post Award Reports were submitted by the remaining recipients, the procedures were not
substantial enough to support the completeness and accuracy of financial reporting as of the end of the fiscal
year. Management selected a sample of RRF awards for review to determine the accuracy of submitted Post
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 47 Financial Reporting (Unaudited)
Award Reports. However, management did not initiate or fully complete reviews for a significant number of
samples to ensure accurate financial reporting as of the end of the fiscal year. Further, management’s process
for funds recovery was not fully implemented for RRF awards that had eligibility concerns.
These deficiencies were caused by an inadequate risk assessment process to identify and mitigate relevant
risks and design appropriate controls to ensure funds were spent on eligible expenses to be relied upon for
financial reporting.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Principle 10, Design Control Activities; Principle 12, Implement Control Activities;
and Principle 13, Use Quality Information
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in a material misstatement to the Other than Intragovernmental
Accounts Receivable, Net, line item and the related elements in the consolidated financial statements.
Recommendations – Monitoring of RRF Awards
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
14. Perform and update the program’s internal control assessment to identify changes to risks that may
require the design and implementation of effective monitoring controls and review processes of RRF
awards to identify recipients that may not have been eligible to receive awards or that may have spent
awards on ineligible expenses in accordance with the program’s terms.
15. Design and implement effective follow-up procedures for RRF award recipients that are not complying
with the program’s terms and to ensure complete, accurate, and timely reporting for the use of the
award.
16. Design and implement an effective funds recovery plan and controls to ensure RRF awards disbursed
to ineligible recipients or spent on ineligible expenses are recovered and reported accurately and in a
timely manner. In conjunction with the Office of Planning, Performance, and the Chief Financial Officer,
design and implement an effective process to provide the information necessary to record any required
accounting adjustments.
B. Monitoring of SVOG Awards
The period to use SVOG funds for eligible purposes expired for a majority of SVOG awards as of
September 30, 2023. Management’s process relies on award recipients to submit an Expense Report and
Standard Form (SF) 425, Federal Financial Report, to disclose the amount of the award used for eligible
purposes prior to expiration. If any amount of the award was not used for eligible purposes before expiration,
the unused funds must be returned to SBA.
Management did not design and implement appropriate monitoring controls over SVOG awards to ensure that
the funds were used in accordance with the CARES Act and related legislation and accurate financial reporting
as of the end of the fiscal year. Specifically, as of September 30, 2023, an Expense Report or SF-425 was not
submitted for a significant number of awards. In addition, management selected samples of SVOG awards to
review the accuracy of report submissions and eligibility of award recipients. However, management did not
initiate or fully complete the sample reviews for a significant number of samples. Thus, management’s sample
review process is not adequately designed and implemented to ensure accurate financial reporting as of the
end of the fiscal year.
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Agency Financial Report Fiscal Year 2023 48 Financial Reporting (Unaudited)
Management’s process for funds recovery was not fully implemented for SVOG awards that had identified
eligibility concerns. Additionally, management’s process to review the recipients’ single audit reports was not
fully implemented by the end of the fiscal year. Therefore, management could not determine the impact of
potential control and compliance deficiencies noted in the single audit reports over the use of SVOG awards.
These deficiencies were caused by an inadequate risk assessment process to identify and mitigate relevant
risks and design appropriate controls to ensure funds were spent on eligible expenses to be relied upon for
financial reporting.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Principle 10, Design Control Activities; Principle 12, Implement Control Activities;
and Principle 13, Use Quality Information
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in a material misstatement to the Other than Intragovernmental
Accounts Receivable, Net, line item and the related elements in the consolidated financial statements.
Recommendations – Monitoring of SVOG Awards
We recommend the Administrator coordinate with the Associate Administrator for the Office of Disaster
Recovery and Resilience to:
17. Perform and update the program’s internal control assessment to identify changes to risks that may
require the design and implementation of effective monitoring controls and review processes of SVOG
awards to identify recipients that may not have been eligible to receive awards or that may have spent
awards on ineligible expenses in accordance with the program’s terms.
18. Design and implement effective follow-up procedures for SVOG award recipients that are not
complying with the program’s terms and to ensure complete, accurate, and timely reporting for the use
of the award.
19. Design and implement an effective funds recovery plan and controls to ensure SVOG awards
disbursed to ineligible recipients or spent on ineligible expenses are recovered and reported accurately
and in a timely manner. In conjunction with the Office of Planning, Performance, and the Chief
Financial Officer, design and implement an effective process to provide the information necessary to
record any required accounting adjustments.
4. Controls over Financial Reporting for Programs Funded by CARES Act and Related Legislation
Need Improvement
A. Accounting for Funds Recovery
The PPP, COVID-19 EIDLs, RRF, and SVOG programs affect a significant portion of SBA’s consolidated
financial statements. As these programs are either in the servicing or post payment review phases, SBA began
the process to recover funds or identify funds that need to be recovered.
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Agency Financial Report Fiscal Year 2023 49 Financial Reporting (Unaudited)
Management did not adequately design and implement controls to account for the recovery of funds related to
these programs. Management did not provide evidence of documented policies and procedures for the
recovery of funds related to the RRF and SVOG programs and the recording of activities associated with the
related accounts receivable, and the allowance for estimated uncollectible amounts. For example, management
was not able to demonstrate the application of the accounts receivable recognition criteria for the determination
of a claim to cash or other assets due to recovery of funds for each program. Also, management did not have
adequate documentation about the estimation methodology used to determine the accounts receivables and
the related allowance for estimated uncollectible amounts. Finally, management did not have adequate
documentation about the financial reporting considerations related to the recovery of funds for the RRF and
SVOG programs including the respective accounting entries.
Management did not provide sufficient evidence of documented accounting policies for the recovery of funds
related to the COVID-19 EIDLs and PPP loan programs. Further, management did not have adequate
documentation about the appropriate accounting treatment and the respective accounting entries throughout
each step of the recovery life cycle in accordance with generally accepted accounting principles.
These deficiencies were caused by an inadequate risk assessment to identify and mitigate relevant financial
reporting risks. Also, management did not develop the appropriate policies and procedures for considerations
related to the recovery of funds through the applicable programs’ lifecycle including the servicing and post
payment review phases.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; and Principle 10,
Design Control Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies identified above may result in a material misstatement to the Other than Intragovernmental
Accounts Receivable, Net, Credit Program Receivables and Related Foreclosed Property, Net, and Downward
Reestimate Payable to Treasury line items, and related elements in the consolidated financial statements.
Recommendations – Accounting for Funds Recovery
We recommend the Administrator coordinate with the Chief Financial Officer to:
20. Develop and document the policies and procedures for the recovery of funds, the accounts receivable,
and the allowance for estimated uncollectible amounts related to the programs created or expanded by
the CARES Act and related legislation.
21. Document the current state of accounting policies and procedures for the recovery of funds, including
the respective accounting entries for all applicable scenarios (e.g., fraud related, ineligibility) for
COVID-19 EIDLs and PPP loans that have been charged-off or forgiven.
22. Inquire with standard setting bodies to confirm the appropriate accounting treatment throughout each
step of the recovery lifecycle for COVID-19 EIDLs and the PPP loans that have been charged-off or
forgiven. Memorialize the response by updating management’s documented policies and procedures
including the respective accounting entries under generally accepted accounting principles for all
applicable scenarios.
23. Design and implement effective controls and communication processes to timely obtain the information
necessary from program offices to record any required accounting adjustments for programs created or
expanded by the CARES Act and related legislation.
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Agency Financial Report Fiscal Year 2023 50 Financial Reporting (Unaudited)
B. Subsidy Reestimate
Statement of Federal Financial Accounting Standards Number 2, Accounting for Direct Loans and Loan
Guarantees, requires that direct loans and loan guarantees committed after September 30, 1991, be recorded
on a present value basis consistent with the intent of the Federal Credit Reform Act of 1990. As such, SBA
developed an estimation methodology to reestimate the future net cash inflows and outflows for the COVID-19
EIDLs and PPP loan portfolios as of the end of the fiscal year.
Management did not design and implement adequate controls over the review of the data inputs used in the
PPP subsidy reestimate. Specifically, management did not adequately design and implement controls to ensure
the data inputs used in the PPP subsidy reestimate methodology that are derived from the lender loan status
reporting, and the forgiveness and purchases processes, are complete and accurate. Therefore, management
did not have sufficient controls in place to ensure the development of significant assumptions in the
methodology were appropriate.
Management did not adequately design and implement controls to ensure the assumptions used in the subsidy
reestimate for the COVID-19 EIDLs were appropriate with their risks. Management’s review was not
appropriately designed to identify a complete and accurate COVID-19 EIDLs population of outstanding loans
disbursed to eligible recipients. Management’s review was still in process as of the end of the fiscal year and
management did not sufficiently document an assessment to demonstrate that the assumptions applied are
appropriate for the COVID-19 EIDLs in the portfolio based on their specific risk characteristics.
Further, the loan-level projection datasets included projected cash flows for COVID-19 EIDLs that were
charged-off without an outstanding loan receivable balance as of September 30, 2023. The projected cash
flows for these charged-off loans inappropriately affected the allowance for subsidy balances without the
related recognition of the gross loans receivable.
These deficiencies were caused by an inadequate entity wide control environment related to the design,
implementation, and operating effectiveness of controls related to the review of the loan portfolio at a precision
level necessary to ensure the data inputs used for the reestimate models are complete and accurate. In
addition, the deficiencies were caused by the implementation and development of subsidy reestimate models
for new programs that do not have a significant volume of historical data or precedence and inadequately
designed and implemented controls to ensure the reestimate output complied with the applicable accounting
standards related to charged-off loans.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• GAO’s Green Book, Principle 10, Design Control Activities; and Principle 13, Use Quality Information
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in a material misstatement to the Credit Program Receivables and
Related Foreclosed Property (Net), Downward Reestimate Payable to Treasury, and Loan Guarantee Liabilities
line items, and the related elements in the consolidated financial statements.
Recommendations – Subsidy Reestimate
We recommend the Administrator coordinate with the Chief Financial Officer to:
24. Continue implementing controls in collaboration with relevant program offices for the PPP and COVID-
19 EIDLs portfolios to accumulate relevant, complete, and accurate data on which to base the subsidy
reestimate.
25. Design and implement adequate review and approval controls over the reestimate for the PPP and
COVID-19 EIDLs portfolios by appropriate levels of management, and to coordinate with relevant
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Agency Financial Report Fiscal Year 2023 51 Financial Reporting (Unaudited)
program offices to assess the integrity of relevant data inputs used in the development of assumptions,
and reasonableness for the selected assumptions used and the resulting estimates.
26. Refine existing review and approval controls to ensure the reestimate output is in accordance with
accounting standards for charged-off loans.
5. Controls over the Evaluation of Service Organizations Need Improvement
A. Service Organizations Used for Loan Guarantee Programs
Management did not obtain reasonable assurance on the operating effectiveness of internal controls in multiple
service organizations’ control environments relevant to the 7(a) loan guarantee program fiscal transfer agent,
the financial service providers for the 7(a) and 504 loan guarantee programs, and the PPP forgiveness and
purchases platform. With regards to the financial service providers for the 7(a) and 504 loan guarantee
programs, the relevant control environments include the facilitation, maintenance, and reporting of the account
balances for the respective secondary market programs. With regards to the PPP forgiveness and purchases
platform, the relevant control environment includes the operation of the PPP loan forgiveness and PPP loan
purchase modules, the data transmissions over the internet between the relevant modules and SBA systems
used in the configured checks, the cloud-based infrastructure hosting provider, and the application controls
within the application intake platform.
In addition, management did not provide evidence of adequate monitoring activities performed over the relevant
internal control environments at the respective service organizations and subservice organizations, such as
obtaining and reviewing an attestation report on the design, implementation, and operating effectiveness of
controls at the service organization.
Management did not have adequate evidence that complementary user entity controls identified in the service
organization control (SOC) 1 Type 2 reports obtained for the 504 loan guarantee program central servicing
agent and the financial service provider were designed, implemented, and operating effectively. Specifically,
management’s review of complementary user entity controls indicated that controls were in process of being
identified as of the end of the fiscal year. Management’s assessment of internal controls over financial reporting
is not complete without the sufficient consideration of existing and non-existing controls at relevant service
organizations and the effectiveness of those controls.
These deficiencies identified above were caused by inadequate monitoring controls over the relevant service
organizations for their assigned internal control responsibilities to obtain reasonable assurance on the operating
effectiveness of internal controls in the service organizations’ control environments.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Section 4, Additional Considerations: Service Organizations; Principle 5, Enforce
Accountability; Principle 10, Design Control Activities; and Principle 16, Perform Monitoring Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above prevent SBA from obtaining an understanding of relevant service
organization controls and their operating effectiveness to identify all relevant control gaps and deficiencies that
require a complementary user control to mitigate the risk of error to the Loan Guarantee Liabilities line item and
related elements in the consolidated financial statements.
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Agency Financial Report Fiscal Year 2023 52 Financial Reporting (Unaudited)
Recommendations – Service Organizations Used for Loan Guarantee Programs
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
27. Continually evaluate the established policy for SOC 1 reports that requires service organizations to
provide a SOC 1 report over the control environment that is relevant and significant to the processing
and recording of SBA’s transactions as it relates to loan guarantee programs. If a SOC 1 report cannot
be obtained, management should design, implement, and operate controls within SBA’s control
environment.
28. Assess the risk posed by the service organizations’ control environments and obtain sufficient
assurance over the operating effectiveness of relevant and significant controls to determine the
integrity of loan guarantee programs transactions processed on behalf of and recorded by SBA. To
achieve this, consider obtaining a SOC 1 report for the relevant control environments at the service
organizations, and perform and document the following:
• SOC 1 report is sufficiently scoped to cover transaction processing and related control activities
performed by the service organizations on behalf of SBA.
• All exceptions noted in the SOC 1 report – not just those described in the independent service
auditor’s report – are evaluated to determine applicability to SBA’s internal controls over financial
reporting, the potential impact to SBA’s financial statements, and mitigating controls considerations
made during their risk assessment.
• All complementary user entity controls described in the SOC 1 reports are evaluated using current
information and with consideration to their applicability to SBA’s internal controls over financial
reporting.
• Evaluation procedures performed to assess whether complementary user entity controls and other
SBA-performed controls were tested on a frequency determined by SBA and found operating
effectively and, if they are not, assess the impact of such deficiencies on SBA’s internal controls
over financial reporting.
• All complementary subservice organization controls described in SOC 1 reports are evaluated to
determine whether they provided services and performed controls considered relevant to SBA’s
internal controls over financial reporting and, if relevant subservice organizations were identified,
an evaluation is performed to obtain an understanding of the subservice organization(s) and their
controls.
• SOC 1 reports cover the appropriate period or corresponding gap letters provide sufficient
coverage to assess impacts on SBA’s internal controls over financial reporting.
B. Service Organization Used for the SVOG Program
Management did not obtain reasonable assurance on the operating effectiveness of internal controls in the
service organization’s control environments relevant to the external cloud service provider used for the SVOG
platform in monitoring the status of awards.
Management did not obtain and review the SOC 1 report for the service provider in a timely manner as of fiscal
year-end. Additionally, management did not provide evidence of adequate monitoring activities performed over
the relevant internal control environment at the respective subservice organizations identified in the SOC 1
report for an earlier period in the fiscal year. Further, management did not provide evidence of adequate
evaluation of the control exceptions identified in the SOC 1 report and the impact to SBA’s internal controls
over financial reporting. Management’s assessment of internal controls over financial reporting is not complete
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Agency Financial Report Fiscal Year 2023 53 Financial Reporting (Unaudited)
because it did not fully consider the existing and non-existing controls at relevant service and subservice
organizations and the effectiveness of those controls.
These deficiencies were caused by management not implementing effective monitoring of the effectiveness of
internal control over the assigned processes performed by the relevant service organization.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Section 4, Additional Considerations: Service Organizations; Principle 5, Enforce
Accountability; Principle 10, Design Control Activities; and Principle 16, Perform Monitoring Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above prevented SBA from obtaining an understanding of relevant service
organization controls and their operating effectiveness to identify all relevant control gaps and deficiencies that
require a complementary user control to mitigate the risk of error to the Other than Intragovernmental Accounts
Receivable, Net line item and related elements in the consolidated financial statements.
Recommendations – Service Organizations Used for the SVOG Program
We recommend the Administrator coordinate with the Associate Administrator for the Office of Disaster
Recovery and Resilience to:
29. Continually evaluate the established policy for SOC 1 reports that requires service organizations to
provide a SOC 1 report over the control environment that is relevant and significant to the processing
and recording of SBA’s transactions as it relates to the SVOG program. If a SOC 1 report cannot be
obtained, management should design, implement, and operate controls within SBA’s control
environment.
30. Assess the risk posed by the service organizations’ control environments and obtain sufficient
assurance over the operating effectiveness of relevant and significant controls to determine the
integrity of SVOG program transactions processed on behalf of and recorded by SBA. To achieve this,
consider obtaining a SOC 1 report for the relevant control environments at the service organizations,
and perform and document the following:
• SOC 1 report is sufficiently scoped to cover transaction processing and related control activities
performed by the service organizations on behalf of SBA.
• All exceptions noted in the SOC 1 report – not just those described in the independent service
auditor’s report – are evaluated to determine applicability to SBA’s internal controls over financial
reporting, the potential impact to SBA’s financial statements, and mitigating controls considerations
made during their risk assessment.
• All complementary user entity controls described in the SOC 1 reports are evaluated using current
information and with consideration to their applicability to SBA’s internal controls over financial
reporting.
• Evaluation procedures performed to assess whether complementary user entity controls and other
SBA-performed controls were tested on a frequency determined by SBA and found operating
effectively and, if they are not, assess the impact of such deficiencies on SBA’s internal controls
over financial reporting.
• All complementary subservice organization controls described in SOC 1 reports are evaluated to
determine whether they provided services and performed controls considered relevant to SBA’s
internal controls over financial reporting and, if relevant subservice organizations were identified,
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Agency Financial Report Fiscal Year 2023 54 Financial Reporting (Unaudited)
an evaluation is performed to obtain an understanding of the subservice organization(s) and their
controls.
• SOC 1 reports cover the appropriate period or corresponding gap letters provide sufficient
coverage to assess impacts on SBA’s internal controls over financial reporting.
6. Entity Level Controls Need Improvement
Management faced challenges in maintaining an adequate entity level controls system that produces reliable
and accurate financial reporting. The significance of the internal control matters indicated weaknesses across
several entity level control categories. The following conditions were identified.
A. Control Environment and Risk Assessment
Management did not establish an effective control environment and did not perform effective risk assessment
processes. The following deficiencies were identified across the SBA:
• The materiality threshold developed and documented was not adequately considered and applied by
program offices when key decisions regarding controls and review processes were implemented. The
controls within the relevant offices were not designed, implemented, and operating effectively to a
sufficient precision level to ensure the reporting objective of preparing the financial statements free of
material misstatement could be achieved. For example, the COVID-19 EIDLs and PPP loan review
processes were not designed to ensure the reviews performed were to a sufficient level of precision to
ensure the related balances were free of material misstatement. Management implemented a policy in
fiscal year 2022 to automatically charge-off non-performing COVID-19 EIDLs with an original loan
balance of $200,000 or less that do not have eligibility concerns without further review. However,
management did not reassess this policy in fiscal year 2023 given relevant risks and materiality
thresholds to ensure the review controls over COVID-19 EIDL charge-offs were operating effectively to
a sufficient precision level.
• Management did not complete the planned risk assessments for material programs, including COVID-
19 EIDLs, PPP, COVID-19 EIDL grants, and Debt Relief Program payments in fiscal year 2023.
• Management did not implement adequate risk assessment processes to identify, analyze, and respond
to relevant risks. For example, management did not adequately respond to the increased risk of
noncompliance due to the significant volume of COVID-19 EIDLs going into servicing phase beginning
in fiscal year 2023.
B. Monitoring
Management did not design and implement effective monitoring processes. SBA did not have adequate or
effective monitoring controls related to:
• PPP lenders.
• Internal control over processes performed by service organizations.
• RRF and SVOG program award recipients.
• The COVID-19 EIDLs portfolio to identify a complete and accurate population of loans disbursed to
eligible recipients for financial reporting purposes as of fiscal year-end.
These deficiencies were caused by the prioritization of the continued execution and servicing of the CARES Act
and related legislation programs over internal control processes and related remediation of prior year control
deficiencies. In addition, these deficiencies were caused by the lack of dedicated staff to perform an adequate
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Agency Financial Report Fiscal Year 2023 55 Financial Reporting (Unaudited)
risk assessment, appropriately remediate prior year control deficiencies, implement, and monitor the operating
effectiveness of controls, and operationally service large-scale programs effectively.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
• GAO’s Green Book, Principle 6, Define Objectives and Risk Tolerances; Principle 7, Identify, Analyze,
and Respond to Risks; Principle 9, Identify, Analyze, and Respond to Change; Principle 10, Design
Control Activities; Principle 12, Implement Control Activities; Principle 16, Perform Monitoring Activities;
Principle 17, Evaluate Issues and Remediate Deficiencies
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
As a result of the deficiencies described above, we noted that without the proper level of entity level controls in
place and operating effectively, there is an increased risk that a material misstatement in the consolidated
financial statements, and noncompliance with the relevant laws and regulations would neither be prevented or
detected and corrected in a timely manner.
Recommendations – Entity Level Controls Need Improvement
We recommend that the Administrator coordinate with the Acting Associate Administrator of the Office of
Capital Access and the Associate Administrator of the Office of Disaster Recovery and Resilience to:
31. In conjunction with the Office of the Chief Financial Officer, complete the internal control risk
assessments for programs that have a material impact on the financial statements at a process level in
a timely manner including the consideration of whether controls are designed, implemented, and are
operating at a sufficient precision level in accordance with management’s materiality threshold and will
be sufficient for financial reporting purposes.
32. Design, implement, and monitor the operating effectiveness of key controls that respond to significant
risks of material misstatements and compliance with relevant laws and regulations.
We recommend that the Administrator coordinate with the Chief Financial Officer to:
33. Perform and document a thorough risk assessment at the financial statement assertion level to identify
process level risks and communicate the results to relevant program offices. Also, assess the
effectiveness of the key process level controls to respond to the identified risks in conjunction with
relevant program offices.
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Appendix II
U.S. Small Business Administration
Significant Deficiencies
The following deficiencies are considered to be significant deficiencies in internal controls over financial
reporting.
1. Controls over Payments for Covered Loans under the Debt Relief Program Need Improvement
2. Controls over General Information Technology Need Improvement
3. Controls over Subsequent Events Need Improvement
1. Controls over Payments for Covered Loans under the Debt Relief Program Need Improvement
The CARES Act and related legislation authorized the Debt Relief Program that allowed SBA to make
payments on behalf of certain loans in the 7(a) and 504 loan guarantee programs and the Microloan program.
Management did not design and implement effective controls over the Debt Relief Program post payment
review process. Management used a contractor to develop and perform a risk-based methodology to identify
the payments for covered loans that may have a higher risk for overpayments and would require further review.
However, management did not provide documentation evidencing adequate monitoring controls over the
methodology produced by the contractor. Specifically, management did not provide evidence of an effective
review over the accuracy of the inputs, appropriateness of significant assumptions, and the application of the
methodology.
Further, management did not provide evidence of an effective review of the other alternative methodologies
considered and a documented approved basis for the selected risk-based methodology. In addition,
management did not provide documentation evidencing a risk assessment for the impact of the payments that
were not considered, determined to be of lower risk, and the application of variance thresholds. Despite the
high rate of false positive loan payments that were identified for review by the methodology, management did
not provide documentation considering whether the applied methodology was still appropriate.
These deficiencies were caused by management’s reliance on the contractor’s work product without adequate
monitoring controls. Also, management’s lack of an adequate risk assessment process to identify and mitigate
relevant risks and design appropriate controls to ensure an effective post payment review of payments for
covered loans under the Debt Relief Program caused the deficiency identified above.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 6, Define
Objectives and Risk Tolerances; Principle 10, Design Control Activities; and Principle 16, Perform
Monitoring Activities
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiencies described above may result in misstatements of the Loan Guarantee Liabilities line item and
related elements in the consolidated financial statements.
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Recommendations – Payments for Covered Loans under the Debt Relief Program
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
34. Design and implement controls that demonstrate oversight over the contractor, including
documentation that provides evidence over the adequate review and validation of the contractor’s work
product.
35. Perform and document a thorough risk assessment of the payments for covered loans under the Debt
Relief Program, including the impact of payments not considered, determined to be of lower risk, for
which a variance threshold was applied, and the appropriateness and sufficiency of the applied
methodology given the results of the review.
36. Based on the results of the risk assessment performed, design and implement appropriate controls to
ensure an effective post payment review of payments for covered loans under the Debt Relief Program.
2. Controls over General Information Technology Need Improvement
Management had control deficiencies that limited SBA’s ability to effectively manage its information system
risks. Collectively, these conditions increase the risk of unauthorized use, modification, or destruction of
financial data, which may impact the integrity of information used to prepare the financial statements. In the
sections below, 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.
The following criteria were considered with respect to the matters described in the following paragraphs:
• GAO’s Green Book, Principle 7, Identify, Analyze, and Respond to Risks; Principle 10, Design Control
Activities; Principle 11, Design Activities for the Information System; and Principle 12, Implement
Control Activities
• National Institute of Standards and Technology Special Publication 800-53, Revision 5, Security and
Privacy Controls for Federal Information Systems and Organizations
We have summarized the information technology control deficiencies by the following general information
technology control objectives: logical access controls and system configuration management.
Logical Access Controls
Management did not have adequate controls designed, implemented, and operating effectively for the timely
removal of access to SBA systems for separated employees and contractors. In addition, management did not
consistently implement recertification and authentication controls to the network and applications.
These deficiencies were caused by the lack of a policy defining an overall timeframe for the removal of access
following separation, an improper reliance of separated personnel reports, lack of effective monitoring of job
processing failures, lack of enforcement of authentication controls, and an inadequate risk assessment process
to identify and mitigate the risk of inappropriate access.
The deficiencies described above increases the risk that unauthorized users may retain access to the system
resulting in unauthorized modification, destruction, or exposure to SBA systems and data.
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Recommendations – Logical Access Controls
We recommend the Administrator coordinate with the Acting Chief Information Officer to:
37. Review and update current processes and procedures for defining a time period by which system
access must be disabled or removed for separated individuals.
38. Develop procedures to validate that access for separated employees is removed in accordance with
required timeframes.
39. Develop procedures to validate that access for separated contractors is removed in accordance with
required timeframes.
40. Design, implement, and document controls for monitoring job failures to ensure complete and accurate
reports are generated.
41. Design and implement multi-factor authentication controls for non-privileged users.
42. Implement monitoring controls to track compliance with the multi-factor authentication controls.
We recommend the Administrator coordinate with the Chief Financial Officer to:
43. Design and implement controls to validate that access for separated employees is removed in
accordance with required timeframes.
44. Develop, design, and implement controls for access recertification for accounts with administrative or
privileged roles annually.
45. Perform a risk assessment and obtain an approved waiver in accordance with established policy of not
updating authentication controls due to system limitations. Design and implement relevant
compensatory controls if necessary.
System Configuration Management
The general ledger system was not properly configured to retain the actual preparer of a manually uploaded
journal entry. Once the manually uploaded journal entry transaction is approved and posted, the transaction
history is modified, and the preparer’s name is replaced with a generic system name.
The deficiency was caused by an information system not designed to obtain and process information to meet
each operational process’ information requirements and respond to the entity’s objectives and risks.
Without capturing auditable application system events, the risk increases that unauthorized or inappropriate
access and actions could occur. Such actions could negatively affect the completeness, accuracy, and
availability of the system and its data.
Recommendations – System Configuration Management
46. We recommend the Administrator coordinate with the Chief Financial Officer to make the necessary
adjustments to system configurations to ensure a complete record of the journal entry process is
maintained, including the actual user identification of the preparer, for all journal entry transactions.
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3. Controls over Subsequent Events Need Improvement
Statement of Federal Financial Accounting Standards Number 39, Subsequent Events, establishes the
accounting and financial reporting requirements for subsequent events. Subsequent events are events or
transactions that affect the consolidated financial statements that occur after the end of the reporting period, but
before the financial report is issued. Certain subsequent events require adjustments to amounts recognized in
the consolidated financial statements and others may require disclosure.
Management did not have adequate controls designed and implemented to identify and determine whether
significant subsequent events required disclosure in the consolidated financial statements in accordance with
generally accepted accounting principles.
The deficiency was caused by the lack of an effective communication process between the Office of
Performance, Planning, and the Chief Financial Officer and the Office of General Counsel. Also, management
did not adequately consider the requirements of generally accepted accounting principles for the treatment of
subsequent events.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• GAO’s Green Book, Principle 4, Demonstrate Commitment to Competence; Principle 10, Design
Control Activities; and Principle 14, Communicate Internally
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
The deficiency described above may result in misstatements or omissions to the subsequent events disclosure
in the consolidated financial statements.
Recommendations – Subsequent Events
We recommend the Administrator coordinate with the Chief Financial Officer to:
47. Design and implement effective communication processes with other relevant offices, including the
Office of General Counsel, to ensure subsequent events are timely identified and reported completely
and accurately.
48. Improve training plans to ensure individuals responsible for financial reporting functions are adequately
prepared to respond to the occurrence of events or transactions that may require financial reporting
considerations, including subsequent events, under generally accepted accounting principles.
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Appendix III
U.S. Small Business Administration
Compliance and Other Matters
A. Debt Collection Improvement Act of 1996, as amended (DCIA)
Certain provisions of the DCIA require agencies to notify and refer debts that are delinquent by 120 days or
more, for purposes of administrative offset and centralized collection, to the U.S. Department of Treasury
(Treasury).
The SBA did not refer delinquent loans to the Treasury for collection within the required timeframe.
Management identified and communicated that over one million COVID-EIDLs and 16,814 PPP loans were
noncompliant with DCIA requirements for the fiscal year ended September 30, 2023.
In addition, management implemented a policy to end collection efforts on certain delinquent PPP loans and
COVID-19 EIDLs and cease the referral of these loans to Treasury. However, management did not provide
evidence that the policy was reassessed in fiscal year 2023 given the updated status of outstanding loans and
relevant risks.
The conditions identified were caused by inadequate design and implementation of risk assessment and
monitoring processes that enable management to identify, analyze, and respond to the relevant risks of
noncompliance and to ensure delinquent loans were referred to Treasury within the required timeframe. Also,
the SBA’s operational infrastructure could not accommodate the volume of delinquent loans.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• DCIA
• GAO’s Green Book, Principle 10, Design Control Activities; and Principle 13, Use Quality Information
As a result of delays and absence of referrals of delinquent borrowers and guarantors to Treasury, SBA did not
comply with DCIA requirements. The absence of referrals of delinquent borrowers and guarantors to Treasury,
based on the policy to end collections and cease referral to Treasury, increases the risk of additional instances
of noncompliance with DCIA.
Recommendations – DCIA
We recommend the Administrator coordinate with the Acting Associate Administrator for the Office of Capital
Access to:
49. Reassess existing policies to ensure they are supported by quality information stemming from an
effective control environment that reviews the root causes of borrower delinquency prior to charge-off
and referral to Treasury. Perform a regular review of the implemented policies to ensure they are
responding to relevant risks of noncompliance for the current fiscal year.
50. Design, implement, and document appropriate monitoring controls to address compliance with DCIA.
51. Reevaluate the operational infrastructure to address relevant risks of noncompliance and ensure that
borrowers are notified timely of delinquency, and if applicable, subsequently referred to Treasury
timely.
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B. Federal Managers’ Financial Integrity Act of 1982 (FMFIA)
Management performed an internal control assessment as required under FMFIA. However, management’s
assessment did not substantially comply with FMFIA and the related OMB Circular No. A-123 requirements.
Specifically, management did not:
• Perform, document, and demonstrate that they completed an internal control over financial reporting
evaluation regarding significant programs while giving consideration to relevant risks during the fiscal
year.
• For the risks significant to financial reporting, consistently document financial statement risks and
assertions covered, testing procedures performed, extent of sampling performed, testing results,
corrective action plans to respond to deficiencies identified, and provide evidence of management
review. Additionally, management did not complete testing over significant areas and did not plan for
and test information technology controls as part of the internal control evaluation program.
• Ensure their own assurance process was sufficient to identify material weaknesses that existed during
the fiscal year in addition to those identified by external auditors.
Management did not substantially meet FMFIA requirements due to the urgent need to implement the
provisions of the CARES Act and related legislation as quickly and efficiently as possible, the lack of historical
precedence, and other inherent challenges faced in implementing and expanding programs. In addition,
management did not consider all FMFIA and OMB Circular No. A-123 requirements when performing their
evaluation over internal controls.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• Section 2 of FMFIA
• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal
Control
Management did not substantially comply with FMFIA and the related OMB Circular No. A-123 requirements,
which may lead to not identifying the appropriate risks and key controls, and not detecting internal control or
compliance deficiencies. The risk of not detecting and correcting control deficiencies could result in
misstatements to the consolidated financial statements.
Recommendations – FMFIA
We recommend the Administrator coordinate with the Chief Financial Officer to:
52. Update the risk assessment regarding the evaluation of internal controls to ensure it includes all
significant programs, key processes, and other material line items on the consolidated financial
statements.
53. In conjunction with relevant program offices, perform and document the internal control evaluation for
significant programs or processes affecting the financial statements. This should include entity level
controls, manual controls, general information technology controls, and system application controls
covering key financial statement line items and risks.
54. Update the existing policy and implement adequate controls to ensure that the statement of assurances
provided by the program offices are adequately documented and reviewed for completeness and
accuracy to provide a sufficient basis to support the Administrator’s statement of assurance.
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C. Federal Financial Management Improvement Act of 1996 (FFMIA)
Management did not establish and maintain financial management systems that substantially comply with the
following FFMIA requirements:
• Federal Financial Management Systems Requirements. As discussed in Appendix I – Material
Weaknesses, control deficiencies over transactions arising from the implementation of the CARES Act
and related legislation do not enable reliable and accurate financial reporting, do not ensure
compliance objectives are met, and do not ensure budgetary resources are safeguarded against waste,
loss, and misuse.
• Federal Accounting Standards. The deficiencies identified and reported in Appendix I – Material
Weaknesses, provide an indication that SBA’s financial management systems were substantially
noncompliant with applicable federal accounting standards. Specifically, management was unable to
provide evidence that the accounting treatment and financial reporting of the recovery of funds related
to the RRF, SVOG, COVID-19 EIDLs, and PPP programs were in accordance with U.S. generally
accepted accounting principles.
Management did not substantially meet FFMIA requirements because of the reasons discussed in Appendix I –
Material Weaknesses and due to an inadequate entity wide control environment to implement the provisions of
the CARES Act and related legislation with sufficiently designed and implemented controls.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
• Section 803(a) of FFMIA
• GAO’s Green Book, Section 2, Establishing an Effective Internal Control System
• Appendix D to OMB Circular No. A-123, Compliance with the Federal Financial Management
Improvement Act of 1996
Management did not substantially comply with FFMIA increasing the risk that transactions are incorrectly
recorded to the general ledger, impacting the completeness, existence, and accuracy of the balances in the
consolidated financial statements.
Recommendations – FFMIA
We recommend the Administrator coordinate with the Chief Financial Officer to:
55. Address the control deficiencies over transactions arising from the implementation of the CARES Act
and related legislation by working with the Office of Capital Access and the Office of Disaster Recovery
and Resilience to implement the recommendations in Appendix I – Material Weaknesses.
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CFO Response to Draft Audit Report on FY 2023
Financial Statements
Appendix IV
CFO Response to Audit Report on FY
2023 Financial Statements
DATE: November 15, 2023
TO: Hannibal M. Ware, Inspector General
FROM: Kate Aaby, Associate Administrator for Performance, Planning and the Chief Financial
Officer
SUBJECT: FY 2023 Financial Statement Audit
The Small Business Administration has reviewed the Independent Auditors’ Report from KPMG that includes
the auditors’ disclaimer of opinion on the Agency’s FY 2023 and FY 2022 Consolidated Balance Sheets. The
independent audit of the Agency’s financial statements and related processes is a core component of SBA’s
financial management program, and we are concerned by this result.
The FY 2023 Agency Financial Report includes pandemic relief programs: the Paycheck Protection Program,
COVID-19 Economic Injury Disaster Loan program, Restaurant Revitalization Fund program, and Shuttered
Venues Operators Grant program, which were authorized by the Coronavirus Aid, Relief, and Economic
Security Act of 2020, the Economic Aid Act, the American Rescue Plan Act and related legislations. As in FY
2022, the management of these programs during prolonged unprecedented times continued to emphasize the
importance of serving small businesses as they navigate extraordinary circumstances.
The SBA has continued making tremendous progress strengthening internal controls for pandemic-focused
programs and is dedicated to accountability and transparency to the American public. SBA’s Fraud Risk
Management Board (FRMB) mitigates, manages, and monitors fraud risks aligned with GAO’s Fraud Risk
Management Framework. The FRMB is chaired by the CFO and members include Deputy Associate
Administrators of key Program Offices, who are supported by an Advisory Team of SBA leaders with subject
matter expertise across cyber security, data, systems, learning and development, and more. In addition, to the
governance bodies SBA has in place, the CFO and key SBA Program Offices have partnered in the
development and implementation of corrective actions that will strengthen internal controls as well as address
audit identified deficiencies.
The SBA Senior Management Council (SMC) which is chaired by the Deputy Chief Financial Officer and
comprised SBA managers from program and support offices, actively plans and executes the Agency’s internal
control activities that include assessing and improving compliance, monitoring and remediation of identified
deficiencies and communicating results of reviews to senior management.
As in FY 2022, the auditors identified material weaknesses related to the internal controls over six areas; PPP
Loan Guarantees, COVID-19 EIDL Loans, Restaurant Revitalization Fund and Shuttered Venues Operators
Grant Program, Financial Reporting for Programs Funded by CARES Act and Related Legislation, Entity Level
Controls, and Evaluation of Service Organizations. The SBA has undergone tremendous efforts to strengthen
internal controls, policies and procedures and will continue remediation efforts in the coming audit year.
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 beneficial recommendations that support
our efforts to further enhance the SBA's financial management practices. We remain committed to excellence
in financial management and look forward to furthering progress in the coming year.
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Financial Statements and Notes (Unaudited)
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 performance and
allocate resources.
SBA’s management is responsible for the accuracy and propriety of the information contained in the principal financial statements
and the quality of internal controls. The SBA prepares these financial statements from its 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 records in accordance with generally accepted accounting principles for
federal entities and the formats prescribed by the OMB, they are in addition to the financial reports used to monitor and control
budgetary resources, which are prepared from the same records. The statements should be read with the realization that they are
a component of the U.S. Government.
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 Budgetary Resources
is consistent with information reflected on the Report on Budget Execution and Budgetary Resources (SF 133), with the one
exception of offsetting receipts. Offsetting receipts offset budget authority and outlays at the agency level in the Budget of the
United States Government but are not reflected in the SF 133. The SBA includes offsetting receipts in this statement for the
purpose of reconciling outlay information presented in the Budget of the United States Government.
The 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.
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U.S. SMALL BUSINESS ADMINISTRATION
CONSOLIDATED BALANCE SHEET
As of September 30, 2023 and 2022
(Dollars in Thousands)
Line Item 2023 2022
ASSETS
Intragovernmental
Fund Balance with Treasury (Note 2) $ 44,081,291 $ 56,225,809
Advances and Prepayments 6,303 1,458
Total Intragovernmental 44,087,594 56,227,267
Other than Intragovernmental
Cash and Other Monetary Assets (Note 3) 10,460 2,270
Accounts Receivable, Net (Note 5) 165,487 135,629
Loans Receivables, Net:
Credit Program Receivables and Related Foreclosed Property, Net (Note 6) 271,944,994 321,528,158
General Property, Plant and Equipment, Net (Note 7) 103,995 100,717
Advances and Prepayments 16,054 18,324
Total Other than Intragovernmental 272,240,990 321,785,098
Total Assets $ 316,328,584 $ 378,012,365
LIABILITIES
Intragovernmental
Accounts Payable:
Accounts Payable, Capital Transfers:
Net Assets of Liquidating Funds Due to Treasury (Note 10) $ 10,960 $ 7,056
Accounts Payable 3,938 5,725
Debt:
Interest Payable – Loans and Other Funds (Note 9) 69 251
Loans Payable:
Principal Payable to the Bureau of the Fiscal Service (Note 9) 334,320,210 362,801,468
Advances from Others and Deferred Revenue 2,427 2,271
Other Liabilities:
Benefit Program Contributions Payable 15,068 18,485
Liability to the General Fund of the U.S. Government for Other Non-Entity Assets:
Downward Reestimate Payable to Treasury (Note 13) 2,724,486 5,591,451
Other (Note 11) 2,955 2,123
Total Intragovernmental 337,080,113 368,428,830
Other than Intragovernmental
Accounts Payable 539,791 556,306
Federal Employee Benefits Payable 74,276 69,963
Loan Guarantee Liabilities (Note 6) 7,895,498 25,708,234
Other Liabilities:
Accrued Grant Liability 248,158 197,716
Surety Bond Guarantee Program Future Claims (Note 8) 68,655 62,635
Other (Note 11) 129,391 99,919
Total Other than Intragovernmental 8,955,769 26,694,773
Total Liabilities 346,035,882 395,123,603
NET POSITION
Unexpended Appropriations – Funds from Other Than Dedicated Collections 3,723,550 10,558,338
Cumulative Results of Operations – Funds from Other Than Dedicated Collections (33,430,848) (27,669,576)
Total Net Position (29,707,298) (17,111,238)
Total Liabilities and Net Position $ 316,328,584 $ 378,012,365
The accompanying notes are an integral part of these statements.
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Agency Financial Report Fiscal Year 2023 66 Financial Reporting (Unaudited)
U.S. SMALL BUSINESS ADMINISTRATION
CONSOLIDATED STATEMENT OF NET COST
For the Years Ended September 30, 2023 and 2022
(Dollars in Thousands)
Line Item 2023 2022
STRATEGIC GOAL 1:
Ensure Equitable and Customer-Centric Design and Delivery of
Programs to Support Small Businesses and Innovative Startups
Gross Cost $ 1,033,792 $ (663,444)
Less: Earned Revenue 234,652 389,057
Net Cost of Strategic Goal 1 799,140 (1,052,501)
STRATEGIC GOAL 2:
Build Resilient Businesses and a Sustainable Economy
Gross Cost 40,040,060 53,026,265
Less: Earned Revenue 5,919,285 5,148,428
Net Cost of Strategic Goal 2 34,120,775 47,877,837
STRATEGIC GOAL 3:
Implement Strong Stewardship of Resources for Greater Impact
Gross Cost 169,534 150,014
Net Cost of Strategic Goal 3 169,534 150,014
COST NOT ASSIGNED TO STRATEGIC GOALS
Gross Cost 233,137 121,599
Net Cost Not Assigned to Strategic Goals 233,137 121,599
Net Cost of Operations $ 35,322,586 $ 47,096,949
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, 2023 and 2022
(Dollars in Thousands)
Line Item 2023 2022
Funds from other than Dedicated Collections
Unexpended Appropriations:
Beginning Balance $ 10,558,338 $ 69,132,143
Appropriations Received 30,739,480 12,693,825
Other Adjustments:
Rescissions (5,867,516) (35,467,645)
Adjustment – Cancelled Authority (15,088) (17,235)
Return of Unrequired Liquidating Fund Appropriation (597) (490)
Other Adjustments (104) (151)
Appropriations Used (31,690,963) (35,782,109)
Total Unexpended Appropriations $ 3,723,550 $ 10,558,338
Cumulative Results of Operations:
Beginning Balance $ (27,669,576) $ (10,253,525)
Other Adjustments:
Current Year Liquidating Equity Activity (5,932) (460)
Appropriations Used 31,690,963 35,782,109
Donations of Cash and Cash Equivalents - 506
Transfers In/Out Without Reimbursement - 10,115
Imputed Financing 38,595 44,092
Other:
Non-entity Activity (2,162,312) (6,155,464)
Net Cost of Operations 35,322,586 47,096,949
Net Change in Cumulative Results of Operations (5,761,272) (17,416,051)
Total Cumulative Results of Operations $ (33,430,848) $ (27,669,576)
Ending Net Position $ (29,707,298) $ (17,111,238)
The accompanying notes are an integral part of these statements.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 68 Financial Reporting (Unaudited)
U.S. SMALL BUSINESS ADMINISTRATION
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2023 and 2022
(Dollars in Thousands)
September 30, 2023
Nonbudgetary
Line Item Budgetary Total
Financing
BUDGETARY RESOURCES
Unobligated Balance from Prior Year Budget Authority, Net
$ 10,514,312 $ 44,320,084 $ 54,834,396
(discretionary and mandatory)
Appropriations (discretionary and mandatory) 24,899,206 - 24,899,206
Borrowing Authority (discretionary and mandatory) - 5,903,912 5,903,912
Spending Authority from Offsetting Collections 1,246,101 20,270,103 21,516,204
Total Budgetary Resources $ 36,659,619 $ 70,494,099 $ 107,153,718
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 32,264,241 $ 32,336,647 $ 64,600,888
Unobligated Balance, end of year:
Apportioned, unexpired accounts 1,658,289 14,681,439 16,339,728
Unapportioned, unexpired accounts 327,684 23,476,013 23,803,697
Unexpired Unobligated Balance, end of year 1,985,973 38,157,452 40,143,425
Expired Unobligated Balance, end of year 2,409,405 - 2,409,405
Total Unobligated Balance, end of year 4,395,378 38,157,452 42,552,830
Total Status of Budgetary Resources $ 36,659,619 $ 70,494,099 $ 107,153,718
OUTLAYS, NET and DISBURSEMENTS, NET
Net Outlays (discretionary and mandatory) $ 31,040,175 $ 31,040,175
Distributed Offsetting Receipts (5,047,035) (5,047,035)
Agency Outlays, Net (discretionary and mandatory) $ 25,993,140 $ 25,993,140
Disbursements, Net (total) (mandatory) $ (22,583,469)
Note 15
The accompanying notes are an integral part of these statements.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 69 Financial Reporting (Unaudited)
U.S. SMALL BUSINESS ADMINISTRATION
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2023 and 2022
(Dollars in Thousands)
September 30, 2022
Nonbudgetary
Line Item Budgetary Total
Financing
BUDGETARY RESOURCES
Unobligated Balance from Prior Year Budget Authority, Net
$ 66,203,391 $ 229,585,529 $ 295,788,920
(discretionary and mandatory)
Appropriations (discretionary and mandatory) (22,785,272) 10,962 (22,774,310)
Borrowing Authority (discretionary and mandatory) - 113,703,268 113,703,268
Spending Authority from Offsetting Collections 830,053 32,485,787 33,315,840
Total Budgetary Resources $ 44,248,172 $ 375,785,546 $ 420,033,718
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 35,455,067 $ 340,161,321 $ 375,616,388
Unobligated Balance, end of year:
Apportioned, unexpired accounts 5,194,132 8,725,136 13,919,268
Unapportioned, unexpired accounts 1,289,000 26,899,089 28,188,089
Unexpired Unobligated Balance, end of year 6,483,132 35,624,225 42,107,357
Expired Unobligated Balance, end of year 2,309,973 - 2,309,973
Total Unobligated Balance, end of year 8,793,105 35,624,225 44,417,330
Total Status of Budgetary Resources $ 44,248,172 $ 375,785,546 $ 420,033,718
OUTLAYS, NET and DISBURSEMENTS, NET
Net Outlays (discretionary and mandatory) $ 35,164,861 $ 35,164,861
Distributed Offsetting Receipts (11,965,553) (11,965,553)
Agency Outlays, Net (discretionary and mandatory) $ 23,199,308 $ 23,199,308
Disbursements, Net (total) (mandatory) $ 302,454,224
Note 15
The accompanying notes are an integral part of these statements.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 70 Financial Reporting (Unaudited)
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.
The SBA is a component of the U.S Government. For this reason, some of the assets and liabilities reported by the entity may
be eliminated for Government-wide reporting because they are offset by assets and liabilities of another U.S. Government entity.
These financial statements should be read with the realization that they are for a component of the U.S. Government.
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 the direct loans obligated, or loan guaranties committed,
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. 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 FCRA. 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.
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Agency Financial Report Fiscal Year 2023 71 Financial Reporting (Unaudited)
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 nonsubsidized 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 Act.
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 FCRA, 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.
As a component of the Government-wide reporting entity, the SBA is subject to the Federal budget process, which involves
appropriations that are provided annually and appropriations that are provided on a permanent basis. The financial transactions
that are supported by budgetary resources, which include appropriations, are generally the same transactions reflected in agency
and the Government-wide financial reports.
SBA’s budgetary resources reflect past congressional action and enable the entity to incur budgetary obligations, but they do not
reflect assets to the Government as a whole. Budgetary obligations are legal obligations for goods, services, or amounts to be paid
based on statutory provisions. After budgetary obligations are incurred, the Treasury will make disbursements certified by the SBA
to liquidate the budgetary obligations and finance those disbursements in the same way it finances all disbursements, which is to
borrow from the public if there is a budget deficit.
ADVANCES
Advances are cash outlays made by a Federal entity to its employees, contractors, grantees, or others to cover a part or all of the
recipients’ anticipated expenses or as advance payments for the costs of goods and services the entity receives. Prepayments are
payments made by a Federal entity to cover certain periodic expenses before those expenses are incurred. The SBA has both
intragovernmental advances and advances to the public. Intragovernmental advances are primarily 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 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 accrual 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.
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Agency Financial Report Fiscal Year 2023 72 Financial Reporting (Unaudited)
CONTINGENCIES
The SBA is a party in various administrative proceedings, legal activities, environmental suits, and claims brought against the
Agency. In the opinion of SBA’s management and legal counsel, there are certain matters regarding subsequent legal claims for
which a clear evaluation of the likelihood of an unfavorable outcome cannot be determined as of the date of this financial report.
See Note 18, Subsequent Events for further details. The resolution of all other legal 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 amounts 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. The SBA does not have funds from dedicated collections.
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. The SBA does not have funds from
dedicated collections.
CLASSIFIED ACTIVITIES
Accounting standards require all reporting entities to disclose that accounting standards allow certain presentations and disclosures
to be modified, if needed, to prevent the disclosure of classified information.
FIDUCIARY ACTIVITIES
Fiduciary activities are the receipt, management, protection, accounting, investment, and disposition by the Federal Government
of cash or other assets in which non-federal entities have an ownership interest that the Federal Government must uphold.
Fiduciary cash and other assets are not assets of the government, and are not recognized on SBA’s proprietary statements, but they
are required to be disclosed in the notes to SBA’s financial statements. SBA’s fiduciary balances are on deposit in commercial banks.
SBA’s fiduciary activities are discussed in Note 4.
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. Annual leave earned but not
taken, within established limits, is funded from future financing sources. Sick leave and other types of non-vested leave are
expensed as taken.
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Agency Financial Report Fiscal Year 2023 73 Financial Reporting (Unaudited)
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.
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.
The DOL pays valid claims as they occur, which are billed to the SBA annually and funded and paid approximately 15 months
later. The DOL 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.
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Agency Financial Report Fiscal Year 2023 74 Financial Reporting (Unaudited)
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. Records are maintained for SBA’s program, financing, liquidating, suspense/budget clearing accounts
(awaiting disposition or reclassification), and other accounts at the fund level. Fund balances with the Treasury include expired
year amounts, which are unavailable for obligation, as well as amounts currently available for new obligations.
FBWT is an asset to the SBA and a liability of the General Fund. The amounts represent commitments by the Government to
provide resources for particular programs, but they do not represent net assets to the Government as a whole. When disbursements
are made, the Treasury will finance the disbursements in the same way it finances all other disbursements, using some combination
of receipts, other inflows, and borrowing from the public (if there is a budget deficit).
(Dollars in Thousands)
As of September 30, 2023 2022
Appropriated Funds $ 5,833,607 $ 12,101,171
Financing Funds 38,060,348 43,958,137
Liquidating Funds 344 549
Revolving Funds 113,918 110,492
Trust Fund 552 671
Total Entity Fund Balance with Treasury 44,008,769 56,171,020
Budget Clearing Account Balance 72,522 54,789
Total Fund Balance with Treasury $ 44,081,291 $ 56,225,809
Status of Fund Balance with Treasury
Apportioned, unexpired accounts $ 16,339,728 $ 13,919,268
Unapportioned, unexpired accounts 23,803,697 28,188,089
Obligated Balance Not Yet Disbursed 2,421,001 14,906,099
Expired Unobligated Balance 2,409,405 2,309,973
Borrowing Authority Not Converted to Funds (965,062) (3,152,409)
Nonbudgetary 72,522 54,789
Total Fund Balance with Treasury $ 44,081,291 $ 56,225,809
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 Statement of Budgetary Resources.
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Agency Financial Report Fiscal Year 2023 75 Financial Reporting (Unaudited)
NOTE 3 Cash
The 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 Undeposited
Collections – Cash in Transit and totaled $10.5 million and $2.3 million as of September 30, 2023 and 2022.
Fiduciary Activities: Master Reserve Fund and Master
NOTE 4
Reserve Account
Fiduciary activities are the receipt, management, protection, accounting, investment, and disposition by the federal government
of cash or other assets in which non-federal entities have an ownership interest that the federal government must uphold. Fiduciary
cash and other assets are not assets of the government, and are not recognized on SBA’s proprietary statements, but 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 7(a) Fiscal Transfer Agent. The balance in the MRF is
invested, according to SBA policy, entirely in Treasury securities. The MRF is an integral part of SBA’s 7(a) secondary market
program. The MRF was authorized by the Small Business Secondary Market Improvement Act of 1984 to facilitate the pooling
of 7(a) guarantied loans that are purchased by secondary market investors. The MRF receives monthly payments from SBA
guarantied borrowers and disburses monthly to 7(a) secondary market pool investors based on a schedule of amounts due. 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 $38.1 billion and $38.0 billion of outstanding SBA guarantied 7(a) secondary market pool
principal as of September 30, 2023 and 2022.
The Master Reserve Account is a fiduciary activity administered by SBA’s 504 Central Servicing Agent. The balance in the
MRA is invested entirely in Treasury securities. The MRA facilitates the operation of the 504 Certified 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
504 borrowers and retains the payments until a semi-annual debenture payment is due to secondary 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 $36.1 billion and $32.7 billion of SBA guarantied 504 debentures outstanding in the secondary
market as of September 30, 2023 and 2022.
The composition of the MRF and MRA and a reconciliation of the changes in the assets are included in the following table.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 76 Financial Reporting (Unaudited)
MASTER RESERVE FUND AND MASTER RESERVE ACCOUNT
(Dollars in Thousands)
FIDUCIARY ASSETS
As of September 30, 2023 2022
MRF MRA Total MRF MRA Total
Short Term Securities
Money Market Funds $ 480,960 $ 584,118 $ 1,065,078 $ 501,161 $ 780,155 $ 1,281,316
Treasury Bills 221,905 - 221,905 661,816 - 661,816
Total Cash and Short 702,865 584,118 1,286,983 1,162,977 780,155 1,943,132
Term Securities
Long Term Securities
Treasury Notes/Bonds
Including Interest 1,191,086 - 1,191,086 875,912 - 875,912
Total Long Term Securities 1,191,086 - 1,191,086 875,912 - 875,912
Net Assets $ 1,893,951 $ 584,118 $ 2,478,069 $ 2,038,889 $ 780,155 $ 2,819,044
(Dollars in Thousands)
RECONCILIATION OF FIDUCIARY ASSETS
For the Years Ended
2023 2022
September 30,
MRF MRA Total MRF MRA Total
Beginning Net Assets $ 2,038,889 $ 780,155 $ 2,819,044 $ 2,093,543 $ 878,654 $ 2,972,197
Receipts
Earned Income 63,935 36,937 100,872 25,862 5,393 31,255
Contributions 11,312,538 13,238,008 24,550,546 10,657,949 18,754,704 29,412,653
Total Receipts 11,376,473 13,274,945 24,651,418 10,683,811 18,760,097 29,443,908
Less Disbursements
Payments to Investors 11,521,411 13,470,982 24,992,393 10,738,465 18,858,596 29,597,061
Total Disbursements 11,521,411 13,470,982 24,992,393 10,738,465 18,858,596 29,597,061
Ending Net Assets $ 1,893,951 $ 584,118 $ 2,478,069 $ 2,038,889 $ 780,155 $ 2,819,044
The SBA has four accounts that belong to the 7(a) loan program and are non-MRF in nature. Two of the four non-MRF
accounts are fiduciary in nature (7a Escrow & 7a Disbursement). The balances of the two fiduciary accounts are $151.0 million
and $264.9 million as of September 30, 2023 and September 30, 2022. The other two non-MRF accounts are non-fiduciary in
nature and are maintained for administrative actions and fees.
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Agency Financial Report Fiscal Year 2023 77 Financial Reporting (Unaudited)
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 for guarantied loan purchases that lack the required
documents. 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. The amount shown in “Other”
consists primarily of receivables due from lenders and guaranty purchase repairs.
(Dollars in Thousands)
As of September 30, 2023 2022
Other than Intragovernmental
Guaranty Fees Receivable $ 75,764 $ 67,913
Refunds 1,891 3,093
Other 88,990 65,795
Total Other than Intragovernmenta 166,645 136,801
Allowance For Loss (1,158) (1,172)
Net Other than Intragovernmental $ 165,487 $ 135,629
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 eligible small businesses obtain loans from participating lenders and licensed small business
investment companies to make investments in qualifying small businesses. The SBA also makes loans to microloan intermediaries
and provides direct loans that assist homeowners, renters, businesses of all sizes, and private nonprofit organizations 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
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SBA’s Disaster Assistance Loan program makes direct loans to disaster survivors under four categories: (1) physical disaster loans
to repair or replace damaged homes and personal property; (2) physical disaster loans to businesses of any size; (3) economic
injury disaster loans to eligible small businesses and nonprofit organizations without credit available elsewhere; and (4) economic
injury loans to eligible small 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. The SBA offered low-interest Economic Injury Disaster Loans for working capital to small businesses
suffering substantial economic injury as a result of the COVID-19 pandemic. The intent of the COVID-19 EIDL loans was to
assist these businesses in meeting financial obligations and covering operating expenses due to the pandemic. The interest rate
was 3.75 percent for small businesses and 2.75 percent for non-profits. The SBA stopped accepting new loan applications on
January 1, 2022.
SBA’s business loan programs include its flagship 7(a) Loan Guaranty program in which the SBA guaranties up to 90 percent of
the amount of loans made by participating banks and other lending institutions to eligible small businesses not able to obtain
credit elsewhere. The CARES Act added the Paycheck Protection Program in the 7(a) loan program which is designed to provide
a direct incentive for small businesses to keep their workers on the payroll. Loans issued prior to June 5, 2020 have a maturity
of 2 years while those issued after have a maturity of 5 years. All loans have an interest rate of 1 percent. Loan payments will be
deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower’s loan forgiveness amount to the lender.
If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the
borrower’s loan forgiveness (between 8 and 24 weeks). The Paycheck Protection Program ended on May 31, 2021.
The 504 Certified Development Company program guarantees 100 percent of the principal and interest payments on debentures
issued by development companies for loans to eligible small businesses secured by real estate or equipment.
The Small Business Investment Company program guarantees principal and interest payments on debentures issued by small
business investment companies, which in turn make investments in qualifying 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 programs.
SBA’s models vary in the specific methodologies employed to forecast future program cash flows. In general, however, models for
all major credit programs use historical data as the basis for assumptions about future program performance and then translate
these assumptions into nominal cash flow estimates by applying rules about program structure. Nominal cash flow forecasts are
discounted using the OMB’s Credit Subsidy Calculator that has both forecasted and actual Treasury interest rates.
Historical data are used as the basis for program performance assumptions. The historical data undergo quality review and analysis
prior to their 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 periods
• 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
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Agency Financial Report Fiscal Year 2023 79 Financial Reporting (Unaudited)
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 disbursed. 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 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 difference 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 allowance 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 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 guarantied 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 nonperforming loans in excess of 90 days delinquent. SBA’s purchase of accrued interest is limited to 120
days on the defaulted guaranty unless the loan has been sold in the secondary market. Purchased interest is carried at cost, and an
allowance is established for amounts in excess of 90 days delinquent.
Foreclosed property is comprised of real 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 September 30, 2023 SBA’s foreclosed property was $27.8 million
related to 71 loans. The properties had been held for an average of 1,594 days. At September 30, 2022 foreclosed property was
$26.2 million related to 57 loans. The properties had been held for an average of 1,761 days.
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 the 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 establishes a 100 percent
allowance for pre-credit reform direct and guarantied loans that are past due more than 180 days.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 80 Financial Reporting (Unaudited)
B. CREDIT PROGRAM RECEIVABLES AND RELATED FORECLOSED PROPERTY, NET
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2023 Total
Loans Loans
Direct Business Loans
Business Loans Receivable $ 753 $ 232,732 $ 233,485
Interest Receivable - 1,000 1,000
Foreclosed Property 2,620 - 2,620
Allowance (3,373) (20,362) (23,735)
Total Direct Business Loans - 213,370 213,370
Direct Disaster Loans
Disaster Loans Receivable 204 311,320,821 311,321,025
Interest Receivable 308 13,257,040 13,257,348
Foreclosed Property - 4,160 4,160
Allowance (70) (53,947,589) (53,947,659)
Total Direct Disaster Loans 442 270,634,432 270,634,874
Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 448 3,492,648 3,493,096
Other Loans Receivable (see note below) - 59,438 59,438
Interest Receivable - 28,191 28,191
Foreclosed Property 1,263 19,742 21,005
Allowance (1,711) (2,503,269) (2,504,980)
Total Defaulted Guarantied Business Loans & Other Loans Receivable - 1,096,750 1,096,750
Total Credit Program Receivables & Related Foreclosed Property, Net $ 271,944,994
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 81 Financial Reporting (Unaudited)
B. CREDIT PROGRAM RECEIVABLES AND RELATED FORECLOSED PROPERTY, NET CONTINUED
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2022 Total
Loans Loans
Direct Business Loans
Business Loans Receivable $ 6,507 $ 223,178 $ 229,685
Interest Receivable - 732 732
Foreclosed Property 2,609 - 2,609
Allowance (6,161) (26,954) (33,115)
Total Direct Business Loans 2,955 196,956 199,911
Direct Disaster Loans
Disaster Loans Receivable 262 366,973,740 366,974,002
Interest Receivable 171 14,805,758 14,805,929
Foreclosed Property - 1,936 1,936
Allowance (114) (61,462,708) (61,462,822)
Total Direct Disaster Loans 319 320,318,726 320,319,045
Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 3,227 3,214,141 3,217,368
Other Loans Receivable (see note below) - 85,234 85,234
Interest Receivable - 23,559 23,559
Foreclosed Property 1,264 20,435 21,699
Allowance (3,034) (2,335,624) (2,338,658)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 1,457 1,007,745 1,009,202
Total Credit Program Receivables & Related Foreclosed Property, Net $ 321,528,158
Note: Other Loans Receivable includes payments advanced by the SBA against future reimbursements in the SBIC and 504 loan programs.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 82 Financial Reporting (Unaudited)
C. LOANS DISBURSED AND OUTSTANDING LOAN OBLIGATIONS
(Dollars in Thousands)
DIRECT LOANS
New Loans Disbursed During the Year Ended September 30, 2023 2022
Business Direct Loan Program $ 48,772 $ 42,950
Disaster Loan Program 2,097,897 127,261,347
Total Direct Loans Disbursed $ 2,146,669 $ 127,304,297
Outstanding Loan Obligations as of September 30, 2023 2022
Business Direct Loan Program $ 48,372 $ 47,145
Disaster Loan Program 896,097 13,128,963
Total Direct Loan Obligations $ 944,469 $ 13,176,108
GUARANTIED LOANS
New Loans Disbursed During the Year Ended September 30, 2023 2022
Total Principal Disbursed at Face Value $ 33,410,769 $ 38,855,280
Total Principal Disbursed Guarantied by the SBA 26,958,798 32,578,412
Outstanding Loan Obligations as of September 30, 2023 2022
Business Guarantied Loan Programs $ 22,600,122 $ 22,416,143
Loans Outstanding as of September 30, 2023 2022
Total Principal Outstanding at Face Value $ 165,520,099 $ 187,900,729
Total Principal Outstanding Guarantied by the SBA 140,270,131 163,785,929
Note: Total guarantied balances as of September 30, 2022 include remitted forgiven principal that is pending lender confirmation of reduced borrower balances.
There is lag in reporting between when the SBA has forgiven the principal balance, and when lenders confirm they have applied the forgiveness to the borrower
balance via a lender 1502 report. Process changes implemented in FY 2023 to reduce guarantied balances after forgiveness is remitted by SBA, have reduced the
impact of the lender reporting lag. Total guarantied balances also include 504 guarantied debenture balances which have not been reduced by recent semi-annual
scheduled principal payments.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 83 Financial Reporting (Unaudited)
D. SUBSIDY COST ALLOWANCE BALANCES
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account $ 2,362,578 $ 2,290,475
Current Year's Subsidy (see 6.G for breakdown by component) 3,650 3,607
Loans Written Off (11,227,347) (5,419,939)
Subsidy Amortization (2,102) (3,040)
Allowance Related to Guarantied Loans Purchased This Year 10,237,161 5,342,638
Miscellaneous Recoveries and Costs 1,157,900 152,182
Balance of Subsidy Allowance Account before Reestimates 2,531,840 2,365,923
Reestimates (8,209) (3,345)
Ending Balance of Allowance Account $ 2,523,631 $ 2,362,578
Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account $ 61,462,708 $ 12,633,871
Current Year's Subsidy (see 6.G for breakdown by component) 251,139 14,756,882
Loan Modification 57,961 172,204
Loans Written Off (49,728,611) (366,244)
Subsidy Amortization 6,544,909 6,126,803
Miscellaneous Recoveries and Costs 1,291,687 66,877
Balance of Subsidy Allowance Account before Reestimates 19,879,793 33,390,393
Reestimates 34,067,796 28,072,315
Ending Balance of Allowance Account $ 53,947,589 $ 61,462,708
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 84 Financial Reporting (Unaudited)
E. LIABILITY FOR LOAN GUARANTIES
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties $ 25,708,234 $ 227,831,513
Claim Payments to Lenders/Guarantee Payments (12,223,993) (6,023,484)
Fees 1,244,154 1,474,784
Interest Supplements Paid (307,695) (1,939,216)
Interest Revenue on Uninvested Funds 113,905 275,218
Interest Expense on Entity Borrowings (62,886) (62,693)
Current Year's Subsidy (see 6.G for breakdown by component) 72,371 183,871
Upward Reestimates 408,676 32,540
Downward Reestimates (1,611,710) (5,230,089)
Adjustment Due to Reestimate & Guarantied Loan Purchases 1,986,832 680,846
Miscellaneous Recoveries and Costs (7,432,390) (191,515,056)
Total Ending Balance of Liability for Loan Guaranties $ 7,895,498 $ 25,708,234
F. 2023 SUBSIDY RATES BY PROGRAM AND COMPONENT
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 Note 6.G result from the disbursement of loans obligated in the current year
as well as in prior years and include reestimates and modifications.
Loan Program Total Subsidy Financing Default Other Fee
Guaranty
7(a) 0.00% 0.00% 4.07% 0.00% -4.07%
504 CDC 0.00% 0.00% 5.00% 0.50% -5.50%
504 Refi 0.00% 0.00% 5.11% 0.50% -5.61%
SBIC Debentures 0.00% 0.00% 3.35% 0.03% -3.38%
Direct
Disaster 12.91% 1.66% 11.57% -0.32% 0.00%
Microloan 08.18% 6.31% 02.25% -0.38% 0.00%
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 85 Financial Reporting (Unaudited)
G. SUBSIDY EXPENSE BY COMPONENT
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
Business Loan Guaranties
Defaults $ 108,675 $ 822,338
Fees (41,895) (203,611)
Other 5,591 (434,856)
Subsidy Expense Before Reestimates and Loan Modifications 72,371 183,871
Components of Subsidy Reestimates
Technical Assumptions/Default Reestimates (1,177,584) (5,220,762)
Interest Rate Reestimates (25,450) 23,213
Total of the above Components of Subsidy Reestimates (1,203,034) (5,197,549)
Total Guarantied Business Loan Subsidy Expense $ (1,130,663) $ (5,013,678)
Business Direct Loans
Interest $ 2,661 $ 2,768
Defaults 1,161 992
Other (172) (153)
Subsidy Expense Before Reestimates and Loan Modifications 3,650 3,607
Components of Subsidy Reestimates
Technical Assumptions/Default Reestimates (7,301) (3,251)
Interest Rate Reestimates (908) (94)
Total of the above Components of Subsidy Reestimates (8,209) (3,345)
Total Business Direct Loan Subsidy Expense $ (4,559) $ 262
Disaster Direct Loans
Interest $ (229,722) $ (41,045,330)
Defaults 411,396 42,808,837
Other 69,465 12,993,375
Subsidy Expense Before Reestimates and Loan Modifications 251,139 14,756,882
Loan Modifications 57,961 172,204
Components of Subsidy Reestimates
Technical Assumptions/Default Reestimates 30,167,468 18,558,485
Interest Rate Reestimates 3,900,328 9,513,830
Total of the above Components of Subsidy Reestimates 34,067,796 28,072,315
Total Disaster Direct Loan Subsidy Expense $ 34,376,896 $ 43,001,401
Note: For new Disaster loans approved in FY 2023, loan modifications were required to waive interest during the first year and extend the due date for the first
required payment to 12 months. Loan modifications were also required to increase home Disaster loan limits. In FY 2022, loan modifications were required to
extend Disaster COVID-19 EIDL payment deferment.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 86 Financial Reporting (Unaudited)
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 shown in the following table.
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
Disaster Direct Loan Programs $ 1,014,570 $ 617,843
Business Loan Programs 165,718 163,539
Total Administrative Expense $ 1,180,288 $ 781,382
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 of future economic
conditions, and enhancements to cash-flow projection methods. Financial statement reestimates were performed using a full
year of performance data for FY 2023 for SBA’s large loan programs, with nine months of actual and three months of projected
performance data for the Secondary Market Guarantee, Microloan, and the small loan programs.
Business Guarantied Loan Programs
Net subsidy reestimates for the business guarantied loan programs are shown in the following table.
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
7(a) $ 197,242 $ (1,043,011)
7(a) – Recovery Act (5,262) (5,498)
7(a) – Jobs Act 100 (2,716)
7(a) – COVID Support (41,981) (694,093)
504 CDC (216,797) (266,964)
504 CDC – Recovery Act (4,573) (4,885)
504 CDC – Jobs Act (993) (1,593)
504 CDC – COVID Support (30,695) (76,577)
504 CDC – Debt Refinancing (4,018) (11,706)
504 CDC – Debt Refinancing – COVID Support (2,918) (18,802)
504 First Mortgage Loan Pooling – Recovery Act (4,239) (1,129)
SBIC Debentures 108,228 (200,001)
SBIC Participating Securities 10,475 (10,505)
Secondary Market Guaranty Program (18,237) (130,803)
Paycheck Protection Program (1,186,597) (2,728,162)
ARC – Recovery Act (266) (334)
All Other Guaranty Loan Programs (2,503) (770)
Total Guarantied Loan Program Subsidy Reestimates $ (1,203,034) $ (5,197,549)
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 87 Financial Reporting (Unaudited)
The 7(a) Loan Guaranty program, SBA’s flagship program, had a net upward reestimate of $197.2 million in FY 2023. The
reestimate is mostly concentrated in the 2022 and 2023 cohorts and is in part due to higher purchases in FY 2023 than
previously projected for these cohorts. The reestimate for these cohorts is also in part due to higher projected losses, due to higher
unemployment rate and Prime rate projections than previously projected. The reestimate is also in part due to lower secondary
market premium income for 2023 cohort loans than previously projected.
The 7(a) Recovery Act program had a net downward reestimate of $5.3 million. The reestimate is mostly due to better than
expected recoveries in FY 2023.
The 7(a) Jobs Act cohort had a net upward reestimate of $0.1 million. Several factors had small and offsetting impacts that result
in the relatively small reestimate.
Authorized by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the 7(a)
COVID Support program offered 90 percent guarantee and upfront and ongoing fee waivers for eligible borrowers and additional
debt relief support. The 7(a) COVID Support program had a net downward reestimate of $42.0 million. The reestimate is in part
due to better than projected actual loan performance in FY 2023.
The 504 Certified Development Company program had a net downward reestimate of $216.8 million. The reestimate is mostly
due to better than expected loan performance in FY 2023 contributing to a downward reestimate in all but one cohort. Aggregate
purchases were lower than projected, and recoveries were higher than projected by the prior year model.
The 504 Recovery Act program had a net downward reestimate of $4.6 million. The reestimate is mostly due to better than
expected loan performance in FY 2023.
The 504 Jobs Act program had a net downward reestimate of $1.0 million. The reestimate is mostly due to better than expected
loan performance in FY 2023.
Authorized by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the 504
COVID support program offered fee waivers of third-party lender fees and borrower CDC Processing fees, provided for CDC
reimbursements of Processing fees, and extended additional debt relief support. The 504 COVID support program had a net
downward reestimate of $30.7 million. The reestimate is mostly due to better than expected loan performance in FY 2023.
Aggregate purchases were lower than projected by the prior year model.
The 504 Debt Refinancing program had a net downward reestimate of $4.0 million. The reestimate is mostly due to better than
expected loan performance in FY 2023 contributing to a downward reestimate in most of the cohorts except for 2021 and 2023.
Aggregate purchases were lower than projected, and recoveries were higher than projected by the prior year model.
Authorized by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the 504 Debt
Refinancing COVID support program offered fee waivers of third-party lender fees and borrower Processing fees, provided for
CDC reimbursements of Processing fees, and extended additional debt relief support. The 504 Debt Refinance COVID support
program had a net downward reestimate of $2.9 million. The reestimate is in part due to better projected loan performance in
FY 2023. The reestimate is also in part due to lower than projected disbursements for the 2021 cohort, resulting in lower cash
outflows for debt relief payments than originally estimated.
The Section 504 First Mortgage Loan Pooling program had a net downward reestimate of $4.2 million. The reestimate is mostly
due to higher than projected recoveries, and lower than projected purchases in FY 2023.
The SBIC Debentures program had a net upward reestimate of $108.2 million. The reestimate is mostly due to higher projected
purchases due to updates to performance assumptions and updated economic forecasts. The reestimate is also in part due to lower
than projected recoveries in FY 2023.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 88 Financial Reporting (Unaudited)
The SBIC Participating Securities program had a net upward reestimate of $10.5 million. The reestimate is mostly due to lower
cash inflows, in the form of profit participation and other inflows, than projected by the prior year model, namely for the 2001-
2004 cohorts.
The Secondary Market Guaranty program had a net downward reestimate of $18.2 million. The reestimate is primarily driven by
higher than projected prepayments and updated economic assumptions which resulted in higher expected investment earnings,
both of which contributed to lowering long term expected cash outflows.
The Paycheck Protection Program (PPP) had a downward reestimate of $1,186.6 million in FY 2023. The reestimate is mostly due
to lower net outflows, aggregate of forgiveness payments and guarantee purchases, processed in FY 2023 than anticipated for both
the 2020 and 2021 cohorts. The reestimate is also in part due to higher net recoveries in FY 2023 than anticipated. The gap in
actual and expected cash flows in FY 2023 was partially offset by a higher lifetime expected default rate for the 2021 cohort.
The America’s Recovery Capital program had a net downward reestimate of $0.3 million. The reestimate is primarily due to higher
than projected recoveries in FY 2023.
All Other Guaranty Loan programs includes the SBIC New Market Venture Capital program that had a net downward reestimate
of $2.6 million. The reestimate is due to higher than projected recoveries in FY 2023.
Business Direct Loan Programs
Net subsidy reestimates for the business direct loan programs are shown in the following table.
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
7(m) Microloan $ (8,180) $ (3,207)
7(m) Microloan – Recovery Act (7) -
Intermediary Lending Pilot Program (10) (134)
All Other Direct Loan Programs (12) (4)
Total Direct Loan Program Subsidy Reestimates $ (8,209) $ (3,345)
The 7(m) Direct Microloan program had a net downward reestimate of $8.2 million. The reestimate is primarily due to aggregate
actual defaults being lower than projected in FY 2023. In addition, higher borrower interest rates for 2022 and 2023 cohort loans
relative to the originally estimated rates contribute to the downward reestimate.
The Intermediary Lending Pilot and 7(m) Direct Microloan Recovery Act programs each had a downward reestimate of $0.01
million. The reestimate is mostly due to minor differences in actual FY 2023 inflows relative to prior year projections.
All Other Direct Loan programs includes the Economic Opportunity Loan program that had a net downward reestimate of $0.01
million. The reestimate is mostly due to minor differences in actual FY 2023 inflows relative to prior year projections.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 89 Financial Reporting (Unaudited)
Disaster Direct Loan Program
Net subsidy reestimates for the disaster direct loan programs are shown in the following table.
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
Disaster $ 34,067,796 $ 28,072,315
Total Disaster Direct Loan Program Subsidy Reestimates $ 34,067,796 $ 28,072,315
The Disaster Assistance program had a net upward reestimate of $34,067.8 million. The upward reestimate is primarily due
to higher than projected charge offs of COVID-19 EIDL loans in FY 2023, the first year of required repayment for many
COVID-19 EIDL borrowers. The higher than projected charge offs also contributed to updated performance assumptions which
resulted in downward revisions to future cash collections from outstanding COVID-19 EIDL loans.
J. LOANS RECEIVABLE
Business Direct
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2023 Total
Loans Loans
Loans Receivable Direct, Net, beginning of year $ 2,955 $ 196,956 $ 199,911
Loans Disbursed - 48,772 48,772
Principal & Interest Payments Received 998 (39,592) (38,594)
Foreclosed Property 11 - 11
Loans Written Off - (19) (19)
Interest Revenue on Uninvested Funds - (1,181) (1,181)
Interest Expense on Entity Borrowings - 4,474 4,474
Subsidy Expense - (3,650) (3,650)
Upward Reestimates - (953) (953)
Downward Reestimates - 9,162 9,162
Subsidy Allowance - (1,193) (1,193)
Other (3,964) 594 (3,370)
Loans Receivable Direct, Net, end of year $ - $ 213,370 $ 213,370
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 90 Financial Reporting (Unaudited)
Disaster Direct
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2023 Total
Loans Loans
Loans Receivable Disaster, Net, beginning of year $ 319 $ 320,318,726 $ 320,319,045
Loans Disbursed - 2,097,897 2,097,897
Principal & Interest Payments Received (63) (3,576,632) (3,576,695)
Foreclosed Property - 2,224 2,224
Loans Written Off - (49,728,611) (49,728,611)
Interest Revenue on Uninvested Funds - (879,147) (879,147)
Interest Expense on Entity Borrowings - 5,919,111 5,919,111
Loan Modification - (57,961) (57,961)
Subsidy Expense - (251,139) (251,139)
Upward Reestimates - (34,530,798) (34,530,798)
Downward Reestimates - 463,003 463,003
Subsidy Allowance - (11,585,581) (11,585,581)
Other 186 42,443,340 42,443,526
Loans Receivable Disaster, Net, end of year $ 442 $ 270,634,432 $ 270,634,874
Business Guarantied
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2023 Total
Loans Loans
Defaulted Guaranteed Loans Receivable, Net, beginning of year $ 1,457 $ 1,007,745 $ 1,009,202
Claim Payment to Lenders/Guarantee Payments - 12,223,993 12,223,993
Principal & Interest Payments Received (125) (502,218) (502,343)
Fees - (1,244,154) (1,244,154)
Foreclosed Property (1) (693) (694)
Loans Written Off - (11,227,328) (11,227,328)
Subsidy Allowance - 1,178,413 1,178,413
Other (1,331) (339,008) (340,339)
Defaulted Guaranteed Loans Receivable, Net, end of year $ - $ 1,096,750 $ 1,096,750
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 91 Financial Reporting (Unaudited)
Business Direct
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2022 Total
Loans Loans
Loans Receivable Direct, Net, beginning of year $ 2,622 $ 188,022 $ 190,644
Loans Disbursed - 42,950 42,950
Principal & Interest Payments Received (190) (38,130) (38,320)
Loans Written Off - (29) (29)
Interest Revenue on Uninvested Funds - (1,358) (1,358)
Interest Expense on Entity Borrowings - 5,479 5,479
Subsidy Expense - (3,607) (3,607)
Upward Reestimates - (858) (858)
Downward Reestimates - 4,203 4,203
Subsidy Allowance - 515 515
Other 523 (231) 292
Loans Receivable Direct, Net, end of year $ 2,955 $ 196,956 $ 199,911
Disaster Direct
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2022 Total
Loans Loans
Loans Receivable Disaster, Net, beginning of year $ 398 $ 244,081,351 $ 244,081,749
Loans Disbursed - 127,261,347 127,261,347
Principal & Interest Payments Received (92) (3,372,299) (3,372,391)
Foreclosed Property - (993) (993)
Loans Written Off - (366,244) (366,244)
Interest Revenue on Uninvested Funds - (980,978) (980,978)
Interest Expense on Entity Borrowings - 4,773,168 4,773,168
Loan Modification - (172,204) (172,204)
Subsidy Expense - (14,756,882) (14,756,882)
Upward Reestimates - (28,554,343) (28,554,343)
Downward Reestimates - 482,028 482,028
Subsidy Allowance - (9,919,562) (9,919,562)
Other 13 1,844,337 1,844,350
Loans Receivable Disaster, Net, end of year $ 319 $ 320,318,726 $ 320,319,045
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 92 Financial Reporting (Unaudited)
Business Guarantied
(Dollars in Thousands)
Pre-1992 Post-1991
As of September 30, 2022 Total
Loans Loans
Defaulted Guaranteed Loans Receivable, Net, beginning of year $ 1,546 $ 1,171,156 $ 1,172,702
Claim Payment to Lenders/Guarantee Payments - 6,023,484 6,023,484
Principal & Interest Payments Received (321) (797,697) (798,018)
Fees - (1,474,784) (1,474,784)
Foreclosed Property (4) (6,795) (6,799)
Loans Written Off - (5,419,911) (5,419,911)
Subsidy Allowance - 1,628,475 1,628,475
Other 236 (116,183) (115,947)
Defaulted Guaranteed Loans Receivable, Net, end of year $ 1,457 $ 1,007,745 $ 1,009,202
NOTE 7 General Property, Plant, and Equipment, Net
The SBA capitalizes equipment with a cost of $100,000 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 capitalization criteria.
Leasehold improvements with modifications of $200,000 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 $500,000 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.
Assets meeting the capitalization thresholds are detailed in the following table.
(Dollars in Thousands)
As of September 30, 2023 2022
Software in Development $ 6,269 $ 4,702
Software in Use 171,405 145,188
Amortization of Software in Use (73,679) (49,173)
Net 103,995 100,717
Total General Property and Equipment, Net $ 103,995 $ 100,717
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 93 Financial Reporting (Unaudited)
The increase in Software in Development represents the SBA’s investment in the development of a unified experience structure.
The changes in Software in Use represents the SBA’s use of software developed for the disaster loan system modernization to
streamline borrower interface and provide the ability for disaster borrowers to make payments via the SBA’s unified lending
platform. Additional use includes the Veteran-Owned Small Businesses and Service-Disabled Veteran-Owned Small Businesses
certification management system launching the SBA’s ownership from the U.S. Department of Veteran’s Affairs starting January
2023 as authorized in the National Defense Authorization Act of 2021.
NOTE 8 Liabilities Not Covered by Budgetary Resources
Liabilities not covered by budgetary resources require future congressional action, whereas liabilities covered by budgetary
resources reflect prior congressional action. Regardless of when the congressional action occurs, when the liabilities are liquidated,
Treasury will finance the liquidation in the same way that it finances all other disbursements, using some combination of receipts,
other inflows, and borrowing from the public (if there is a budget deficit).
These liabilities consisted of the following categories, as shown in the table.
(Dollars in Thousands)
As of September 30, 2023 2022
Intragovernmental Liabilities – Benefit Program Contributions Payable
Unfunded Employment Taxes Payable $ 2,249 $ 6,171
Federal Employees' Compensation Act Payable 5,899 6,403
Total Intragovernmental Liabilities – Benefit Program Contributions Payable 8,148 12,574
Other than Intragovernmental Liabilities – Federal Employee Benefits Payable
Federal Employees' Compensation Act Actuarial Liability 27,477 27,477
Accrued Unfunded Annual Leave 45,736 41,544
Total Other than Intragovernmental Liabilities – Federal Employee Benefits Payable 73,213 69,021
Surety Bond Guarantee Program Future Claims 68,655 62,635
Total Other Liabilities
Total Liabilities Not Covered by Budgetary Resources $ 150,016 $ 144,230
Total Liabilities Covered by Budgetary Resources 345,813,548 394,924,807
Total Liabilities Not Requiring Budgetary Resources 72,318 54,566
Total Liabilities $ 346,035,882 $ 395,123,603
The liability for Surety Bond Guarantees is an estimate of future claims in the SBG Program for guaranties outstanding
at year-end.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 94 Financial Reporting (Unaudited)
NOTE 9 Federal Debt and Interest Payable
Borrowings payable to the Treasury result from loans provided by the Treasury to fund the portion of direct loans not covered by
subsidy appropriations, 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 shown in the
following table.
INTRAGOVERNMENTAL DEBT
(Dollars in Thousands)
As of September 30, 2023 2022
Principal Payable to the Bureau of the Fiscal Service
Beginning Balance $ 362,801,468 $ 262,654,877
New Borrowings 9,927,898 114,163,763
Repayments (38,409,156) (14,017,172)
Total Principal Payable to the Bureau of the Fiscal Service 334,320,210 362,801,468
Interest Payable
Change in Interest Payable – Liquidating Funds 69 251
Total Interest Payable 69 251
Ending Balance $ 334,320,279 $ 362,801,719
NOTE 10 Net Assets of Liquidating Funds Due to Treasury
Unobligated balances of liquidating funds are transferred to the Treasury general fund at the end of the fiscal year. Net Assets of
Liquidating Funds Due to Treasury is the residual of the book value of assets less liabilities in the Liquidating Funds for loans
made prior to FY 1992 that is not yet available for transfer.
(Dollars in Thousands)
As of September 30, 2023 2022
Disaster Loan Fund $ 442 $ 318
Business Loan and Investment Fund 10,518 6,738
Total Due to Treasury $ 10,960 $ 7,056
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 95 Financial Reporting (Unaudited)
NOTE 11 Other Liabilities
Other liabilities are shown in the following table.
(Dollars in Thousands)
As of September 30, 2023 2022
Other Liabilities – Intragovernmental
Employment Taxes Payable $ 2,949 $ 2,117
Payable to Treasury 6 6
Total Other Liabilities – Intragovernmental $ 2,955 $ 2,123
Other Liabilities – Other than Intragovernmental
Accrued Funded Payroll and Leave $ 57,073 $ 45,353
Suspense Accounts 72,318 54,566
Total Other Liabilities – Other than Intragovernmental $ 129,391 $ 99,919
All liabilities reflected are current liabilities.
NOTE 12 Leases
The SBA leases all of its facilities from the General Services Administration. The SBA enters into an Occupancy Agreement with
the GSA for each facility. The 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 federal leases with the GSA are operating leases and are expensed in the Statement
of Net Cost when incurred. FY 2023 and FY 2022 historical facilities lease costs were $34.1 million and $44.8 million. Future
lease payments are based on FY 2024 GSA base year estimates. Projections after the base year assume a 3 percent inflation
factor. Payments after 5 years reflect only current leases that will still be in effect, projected to the end of each lease term. Lease
Projections after 2028 increased due to the increase in the total number of Occupancy Agreements still in effect until 2043.
FUTURE FACILITIES OPERATING LEASE PAYMENTS
(Dollars in Thousands)
Fiscal Year Lease Projections
2024 $ 44,571
2025 45,908
2026 47,285
2027 48,704
2028 50,165
After 2028 341,191
Total $ 577,824
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 96 Financial Reporting (Unaudited)
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 reestimates are not available
to the SBA and they are returned to the Treasury in the fiscal year following the accrual of the reestimates. During the year, these
general fund accounts contain SBA’s prior year reestimates. At year-end, the funds are swept by the Treasury. 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, 2023 2022
Entity
Financing Fund Payable $ (2,724,486) $ (5,591,451)
Non-entity
Miscellaneous Receipts Fund Receivable 2,724,486 5,591,451
Downward Reestimate Payable to Treasury (2,724,486) (5,591,451)
Balance Sheet Reported Payable $ (2,724,486) $ (5,591,451)
See Note 6.I for information on the Downward Reestimate Payable.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 97 Financial Reporting (Unaudited)
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 (Ensure Equitable
and Customer-Centric Design and Delivery of Programs to Support Small Businesses and Innovative Startups) aims to improve
access to SBA programs and services for all entrepreneurs. Strategic Goal 2 (Build Resilient Businesses and a Sustainable Economy)
focuses on how the SBA can rebuild a sustainable economy fueled by small businesses. Strategic Goal 3 (Implement Strong
Stewardship of Resources for Greater Impact) focuses on the SBA resources and ways to optimize them to best support the small
business community. 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 are costs associated with the Office of the Inspector General. The OIG’s
mission and funding are a separate and independent part of the SBA and is therefore not assigned.
Intragovernmental Gross Cost is incurred by the SBA in exchange transactions with other federal agencies. 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. Earned Revenue from the Public is earned in exchange transactions with the public. The
General Services Administration and the Treasury are SBA’s primary intragovernmental trading partners.
The classification as Intragovernmental Cost 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.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 98 Financial Reporting (Unaudited)
GROSS COST AND EXCHANGE REVENUE
(Dollars in Thousands)
For the Years Ended September 30, 2023 2022
STRATEGIC GOAL 1:
Ensure Equitable and Customer-Centric Design and Delivery of Programs to
Support Small Businesses and Innovative Startups
Intragovernmental Gross Cost $ 176,519 $ 170,900
Other than Intragovernmental Gross Cost 857,273 (834,344)
Total Strategic Goal 1 Gross Cost 1,033,792 (663,444)
Intragovernmental Earned Revenue 117,292 277,457
Other than Intragovernmental Earned Revenue 117,360 111,600
Total Strategic Goal 1 Earned Revenue 234,652 389,057
STRATEGIC GOAL 2:
Build Resilient Businesses and a Sustainable Economy
Intragovernmental Gross Cost $ 6,044,967 $ 4,952,660
Other than Intragovernmental Gross Cost 33,995,093 48,073,605
Total Strategic Goal 2 Gross Cost 40,040,060 53,026,265
Intragovernmental Earned Revenue 879,147 980,978
Other than Intragovernmental Earned Revenue 5,040,138 4,167,450
Total Strategic Goal 2 Earned Revenue 5,919,285 5,148,428
STRATEGIC GOAL 3:
Implement Strong Stewardship of Resources for Greater Impact
Intragovernmental Gross Cost $ 27,313 $ 19,587
Other than Intragovernmental Gross Cost 142,221 130,427
Total Strategic Goal 3 Gross Cost 169,534 150,014
COST NOT ASSIGNED TO STRATEGIC GOALS
Intragovernmental Gross Cost $ 32,313 $ 15,767
Other than Intragovernmental Gross Cost 200,824 105,832
Total Gross Cost Not Assigned to Strategic Goals 233,137 121,599
Net Cost of Operations $ 35,322,586 $ 47,096,949
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 99 Financial Reporting (Unaudited)
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, 2023 and 2022. SBA’s budgetary resources were $36.7 billion and $44.2 billion for the fiscal
years ended September 30, 2023 and 2022. Additionally, $70.5 billion and $375.8 billion of nonbudgetary resources (including
borrowing authority and collections of loan principal, interest, and fees in financing funds) were reported for the fiscal years ended
September 30, 2023 and 2022.
NET ADJUSTMENTS TO UNOBLIGATED BALANCE, BROUGHT FORWARD, OCTOBER 1
The beginning balance brought forward for FY 2023 increased by $10.4 billion in total. This amount reflects an increase of
$14.4 billion in recoveries and a decrease of $4.0 billion in Other Changes in Unobligated Balance. This other change represents
the prior year repayment of debt.
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 FCRA. The appropriations are received initially in the SBA Program
Funds, and then transferred to the Financing Funds, where they are used to fund obligations. SBA’s Liquidating Funds also receive
permanent indefinite appropriations to fund obligations. The Financing Funds are used to account for credit program obligations
made subsequent to FY 1991. Liquidating Funds are used to account for credit program obligations made prior to FY 1992.
Decreases in projected subsidy costs in the Financing Funds are returned to the Treasury through SBA’s annual reestimation
process. The prior year’s ending unobligated balances in SBA’s Liquidating Funds are also transferred to the Treasury annually.
BORROWING AUTHORITY AND TERMS OF BORROWING
The SBA is authorized to borrow from the Treasury’s Bureau of 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 2023 and
FY 2022, the SBA received $5.9 billion and $113.7 billion of borrowing authority from the OMB. At the end of FY 2023, the
SBA had $1.0 billion in borrowing authority carried over to fund direct loans and default claims to be disbursed in the future.
At the end of FY 2022, the SBA had $3.2 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 mid-year 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 borrowings 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.
UNOBLIGATED BALANCES
Unobligated balances at September 30, 2023 and 2022 are $42.6 billion and $44.4 billion, which include $26.2 billion and $30.5
billion of unavailable unobligated balances. These balances are unavailable primarily because they are unapportioned by the OMB.
The SBA accumulates the majority of the unobligated balances in its nonbudgetary financing accounts during the fiscal year
($38.2 billion in FY 2023 and $35.6 billion in FY 2022) from fees and subsidy to fund default claims in future years. In addition,
unobligated balances are accumulated in budgetary accounts from appropriations ($4.4 billion in FY 2023 and $8.8 billion in FY
2022) 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.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 100 Financial Reporting (Unaudited)
UNDELIVERED ORDERS
Undelivered orders consist of goods or services ordered and obligated which the SBA has not received. This includes any orders
that have been paid in advance, but for which delivery or performance has not yet occurred.
(Dollars in Millions)
As of September 30, 2023 2022
Intragovernmental
Unpaid $ 210.3 $ 1,902.8
Paid 7.0 2.5
Total Intragovernmental 217.3 1,905.3
Other than Intragovernmental
Unpaid $ 1,556.1 $ 14,019.7
Paid 15.9 16.2
Total Other than Intragovernmental 1,572.0 14,035.9
Total Undelivered Orders $ 1,789.3 $ 15,941.2
DIFFERENCES BETWEEN THE STATEMENT OF BUDGETARY RESOURCES AND THE BUDGET OF
THE U. S. GOVERNMENT
There was no material difference between the FY 2022 Statement of Budgetary Resources and the President’s FY 2024 budget
submission. The President’s FY 2025 Budget with actual numbers for FY 2023 has not yet been published and will be available
at a later date at President’s Budget | The White House. The SBA expects no material differences between the President’s Budget
“actual” column and the FY 2023 reported results when the budget becomes available in February 2024.
DISTRIBUTED OFFSETTING RECEIPTS
Distributed offsetting receipts are amounts that an agency collects from the public or from other Government agencies that are
used to offset or reduce an agency’s budget outlays. Agency outlays are measured on both a gross and net basis, with net outlays
being reduced by offsetting receipts (and other amounts).
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 101 Financial Reporting (Unaudited)
NOTE 16 Reconciliation of Net Operating Cost and Net Budgetary Outlay
Statement of Federal Financial Accounting Standards 53 amends requirements for a reconciliation between budgetary and
financial accounting information established by SFFAS 7. SFFAS 53 provides for the budget and accrual reconciliation to replace
the statement of financing. The BAR explains the relationship between the entity’s net outlays on a budgetary basis and the net
cost of operations during the reporting period.
Budgetary accounting is used for planning and control purposes and relates to both the receipt and use of cash. Financial
accounting is intended to provide a picture of the government’s financial operations and financial position and presents
information on an accrual basis. The accrual basis includes information about costs arising from the consumption of assets and
the incurrence of liabilities. The reconciliation of net outlays presented on a budgetary basis, and the net cost, presented on an
accrual basis, provides an explanation of the relations between budgetary and financial accounting information. The reconciliation
serves not only to identify costs paid for in the past and those that will be paid in the future, but also to assure integrity between
budgetary and financial accounting. The analysis illustrates this reconciliation by listing the key differences between net cost
and net outlays.
Reestimate expense is recorded at the end of the fiscal year and funded in the following fiscal year. SBA’s annual reestimate process
updates program costs based upon actual cash flow experience and forecasts of future cash flow. As a part of the reestimate process
there is an adjustment for the President’s Budget where expenses for downward adjustments are recorded in the budgetary program
funds and the outlays are from financing funds creating a difference between budgetary outlays and net cost. Additional discussion
of reestimates is in Note 6.I and referenced throughout Note 6.
Changes in assets recognize the timing differences between the recognition of income and the receipt of funds. These are primarily
non-federal advances.
Changes in liabilities recognize the timing difference between the recording and payment of expenses.
Other financing sources include SBA’s imputed cost for retirement benefits. This is an expense for the Agency that is funded
by the OPM.
Components of budget outlays that are not part of net operating cost include disbursements and receipts that are not a revenue
or expense.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 102 Financial Reporting (Unaudited)
BUDGET AND ACCRUAL RECONCILIATION
(Dollars in Thousands)
Federal Non-federal Total 2023
Net Operating Cost (SNC) $ 5,284,673 $ 30,037,913 $ 35,322,586
Components of Net Operating Cost Not Part of the Budgetary Outlays
General Property, plant and equipment depreciation expense - (24,506) (24,506)
Year-end credit reform subsidy reestimates (32,154,833) - (32,154,833)
President's Budget adjustment to downward reestimates (640,612) - (640,612)
President's Budget adjustment to upward reestimates (61,108) - (61,108)
Increase/(decrease) in assets not affecting Budget Outlays:
Accounts Receivable, Net - (946) (946)
Advances 4,845 (2,270) 2,575
Loans Receivable, Net - (4,285) (4,285)
Other assets - 8,190 8,190
(Increase)/decrease in liabilities not affecting Budget Outlays:
Accounts Payable 1,968 9,702 11,670
Accrued Grant Liability - (50,442) (50,442)
Federal Employee Benefits Payable - (4,313) (4,313)
Surety Bond Guarantee Program Future Claims - (6,020) (6,020)
Other Liabilities 2,428 (11,738) (9,310)
Other Financing Sources:
Imputed Cost (38,595) - (38,595)
Total Components of Net Operating Cost Not Part of the
$ (32,885,907) $ (86,628) $ (32,972,535)
Budget Outlays
Components of the Budget Outlays That Are Not Part of
Net Operating Cost
Acquisition of Capital Assets - 27,784 27,784
Effect of prior year credit reform subsidy reestimates 28,662,340 - 28,662,340
Total Components of the Budget Outlays That Are Not Part of
$ 28,662,340 $ 27,784 $ 28,690,124
Net Operating Cost
Other Reconciling Items
Distributed Offsetting Receipts - (5,047,035) (5,047,035)
Total Other Reconciling Items $ - $ (5,047,035) $ (5,047,035)
Total Net Outlays $ 25,993,140
Budgetary Agency Outlays, Net (SBR)
Budgetary Agency Outlays, Net $ 25,993,140
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 103 Financial Reporting (Unaudited)
BUDGET AND ACCRUAL RECONCILIATION, CONTINUED
(Dollars in Thousands)
Federal Non-federal Total 2022
Net Operating Cost (SNC) $ 3,900,479 $ 43,196,470 $ 47,096,949
Components of Net Operating Cost not Part of the Budgetary Outlays
General Property, plant and equipment depreciation expense - (9,110) (9,110)
Year-end credit reform subsidy reestimates (23,073,605) - (23,073,605)
President's Budget adjustment to downward reestimates 188,692 - 188,692
Downward Modification 63,824 - 63,824
President's Budget adjustment to upward reestimates 13,491 - 13,491
Modification Adjustment Transfer (MAT), Net - 364,358 364,358
Increase/(decrease) in assets not affecting Budget Outlays:
Accounts Receivable, Net - 2,898 2,898
Advances 489 (2,575) (2,086)
Loans Receivable, Net - 162 162
Other assets - (1,476) (1,476)
(Increase)/decrease in liabilities not affecting Budget Outlays:
Accounts Payable 887 102,959 103,846
Accrued Grant Liability - (94,578) (94,578)
FECA Actuarial Liability - 2,477 2,477
Surety Bond Guarantee Program Future Claims - (2,581) (2,581)
Other Liabilities (3,262) 12,848 9,586
Other Financing Sources:
Imputed Cost (44,092) - (44,092)
Total Components of Net Operating Cost Not Part of the
$ (22,853,576) $ 375,382 $ (22,478,194)
Budget Outlays
Components of the Budget Outlays That Are Not Part of
Net Operating Cost
Acquisition of Capital Assets - 84,551 84,551
Other Financing Sources:
Donation of Cash and Cash Equivalents - (506) (506)
Transfer out (in) without reimbursement (115) - (115)
Effect of prior year credit reform subsidy reestimates 10,462,176 - 10,462,176
Total Components of the Budget Outlays That Are Not Part of
$ 10,462,061 $ 84,045 $ 10,546,106
Net Operating Cost
Other Reconciling Items
Distributed Offsetting Receipts - (11,965,553) (11,965,553)
Total Other Reconciling Items $ - $ (11,965,553) $ (11,965,553)
Total Net Outlays $ 23,199,308
Budgetary Agency Outlays, Net (SBR)
Budgetary Agency Outlays, Net $ 23,199,308
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 104 Financial Reporting (Unaudited)
NOTE 17 COVID-19 Activity
HISTORY
In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act PL 116-136) was enacted to provide
emergency and immediate national economic relief and assistance across the American economy, including to small businesses,
workers, families, and the health-care system, to alleviate the severe economic hardships and public health threat created by the
2019 Novel Coronavirus pandemic. The CARES Act was subsequently modified in legislation in April, June, and July of 2020 to
add funding and adjust programs for continued pandemic response. Agency disaster declarations were announced for all states and
six territories of the United States, enabling existing disaster response programs to respond to the pandemic. CARES Act programs
included:
• Subsidy for Paycheck Protection Program (PPP)
• CARES Act Debt Relief
• Economic Injury Disaster Loan Emergency Advance (EIDL) Grants
• Subsidy for Coronavirus Disaster Assistance Loans
More funding and programs were specified in the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
(Economic Aid Act), PL 116-260. Additionally, the American Rescue Plan Act of 2021, PL 117-2, modified and extended existing
programs and created new programs to support small businesses and other entities that have been affected during the COVID-19
pandemic. Additional programs include:
• Modifications to the Paycheck Protection Program
• Business Loan Fee Waiver and Debt Relief
• Targeted EIDL and Supplemental EIDL Advance
• Restaurant Revitalization Program
• Shuttered Venue Operators Grants
• Community Navigator Pilot Program
• Microloan Technical Assistance Grant
Some COVID-19 program applications closed due to funding availability in FY 2021. Authority for the PPP and Debt Relief
programs expired in FY 2021, and new Coronavirus Disaster Assistance Loans and Targeted EIDL Grant program no longer
accepted new applications after December 31, 2021.
SUBSIDY FOR PAYCHECK PROTECTION PROGRAM
The Paycheck Protection Program (PPP) was established by the CARES Act. Under the Economic Aid Act additional funds
were appropriated to make new First Draw PPP loans. This act also allowed certain eligible borrowers that previously received a
PPP loan to apply for a Second Draw PPP loan with the same general loan terms as their First Draw PPP loan. It also permitted
borrowers that had not received a First Draw PPP loan in 2020 to be eligible to apply for both a First and Second draw loan under
certain circumstances.
The Paycheck Protection Program ended on May 31, 2021. Existing borrowers may be eligible for loan forgiveness.
Pursuant to P.L.117-58, 135 STAT 1347 Sec 90007 (d)(1), $4.7 billion was permanently rescinded in FY 2022. Pursuant to
P.L.117-328, Division MM, Sec.101(d)(1), $2.9 billion was permanently rescinded in FY 2023. Rescinded amounts were from
unobligated balances made available under P.L. 116– 260 and P.L. 117-2. The rescissions were recorded in fund X1154.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 105 Financial Reporting (Unaudited)
BUSINESS LOAN FEE WAIVER AND DEBT RELIEF
As a part of the CARES Act, the SBA is authorized to pay six months of principal, interest, and any associated fees that borrowers
owe for all 7(a), 504, and Microloans reported in regular servicing status (excluding Paycheck Protection Program loans).
These original provisions were amended on December 27, 2020, through the Economic Aid to Hard-Hit Small Businesses,
Non-Profits and Venues Act (Economic Aid Act). The Economic Aid Act revised the eligibility criteria for assistance to include
all 7(a), 504, and Microloans approved up to September 27, 2020, even if not fully disbursed. Additionally, the Economic Aid
Act provided additional relief for covered loans and for loans in hard hit industries approved prior to March 27, 2020, as well as
payments for covered loans made between February 1, 2021 through September 30, 2021.
The Economic Aid Act also included temporary modifications to the 7(a) Loan Program, including temporary higher guaranty
percentages and fee reductions on eligible business loans and an increase in the maximum SBA Express loan amount.
Pursuant to P.L.117-58, 135 STAT 1347 Sec 90007 (d)(2), $255.2 million was permanently rescinded in FY 2022, and
$24.6 million realized recovery was permanently rescinded in FY 2023. Rescinded amounts were from unobligated balances made
available under P.L. 116-260. The rescissions were recorded in fund X1154.
TARGETED ECONOMIC INJURY DISASTER LOAN EMERGENCY (EIDL) ADVANCE AND
SUPPLEMENTAL ADVANCE
The COVID-19 Targeted EIDL Advance and Supplemental EIDL Advance programs provide funding to help small businesses
recover from the economic impacts of the COVID-19 pandemic. No appropriations were received this fiscal year; funding is
limited to carryover funding.
As of January 1, 2022, the SBA stopped accepting applications for new COVID-19 EIDL advances.
Pursuant to P.L.117-58, 135 STAT 1347 Sec 90007 (b)(1), $15.8 billion was permanently rescinded in FY 2022, and
$27.8 million was permanently rescinded in FY 2023. Rescinded amounts were from unobligated balances made available under
P.L. 116–260. The rescissions were recorded in fund X0500.
EMERGENCY EIDL GRANTS
This funding establishes an additional amount for the cost of emergency EIDL grants established under Section 1110 of the
CARES Act.
Pursuant to P.L. 118-5, Sec. 47, of the unobligated balances made available by P.L, 116-139, $48.2 million was permanently
rescinded in FY 2023. The recission was recorded in fund X0500.
DISASTER LOAN PROGRAM ACCOUNT
Based on Agency disaster declarations, the SBA offered disaster designated states and territories low-interest federal disaster loans
for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19) under
P.L 116-139, Division B Title II.
Due to the continued adverse effects of the COVID-19 emergency, the SBA is extending the previous deferments granted to
COVID-19 EIDL Borrowers to provide an additional 6-month deferment of principal and interest payments on their COVID
EIDLs. This 6-month deferment extension is effective for all COVID EIDLs approved in calendar years 2020, 2021 and 2022.
COVID EIDLs have a total deferment of 30 months from the date of the Note.
Existing SBA disaster loans approved prior to 2020 in regular servicing status as of March 1, 2020, received an automatic
deferment of principal and interest payments through December 31, 2020. This initial deferment period was subsequently
extended through March 31, 2021. An additional 12-month deferment of principal and interest payments will be automatically
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 106 Financial Reporting (Unaudited)
granted to these borrowers. Borrowers will resume their regular payment schedule with the payment immediately preceding March
31, 2022, unless the borrower voluntarily continues to make payments while on deferment. Interest will continue to accrue on the
outstanding balance of the loan throughout the duration of the deferment.
As of May 6, 2022, the SBA is no longer processing COVID-19 EIDL loan increase requests or requests for reconsideration of
previously declined loan applications due to a lack of available funding.
Pursuant to P.L.117-58, 135 STAT 1346 Sec 90007 (a)(1), $13.5 billion was permanently rescinded in FY 2022. Pursuant to
P.L. 118-5 Sec 22, $858 million by section 5002(b) and 5006(a)(2) of Public Law 117-2, including any amounts transferred and
merged with “Small Business Administration- Disaster Loan Program Account” pursuant to section 90007(b)(2)(A) of P.L. 117-
58 was permanently rescinded in FY2023. In addition, $1.5 billion under the heading “Independent Agencies—Small Business
Administration, Disaster Loans Program Account” in the title II of Div B of P.L. 116-139 was permanently rescinded pursuant to
P.L. 118-5 Sec. 23. The rescissions were recorded in fund X1152.
RESTAURANT REVITALIZATION FUND
This program provides emergency assistance for eligible restaurants, bars, and other qualifying businesses impacted by COVID-19.
The American Rescue Plan Act established the Restaurant Revitalization Fund (RRF) to provide funding to help restaurants and
other eligible businesses keep their doors open.
On July 2, 2021, the SBA announced that the $28.6 billion dollar fund had been exhausted and the program closed.
SHUTTERED VENUE OPERATORS GRANT
This funding provides emergency assistance for eligible venues affected by COVID-19. The Shuttered Venue Operators Grant
(SVOG) program was established by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, and amended
by the American Rescue Plan Act.
As of August 20, 2021, SVOG was no longer accepting new applications.
Pursuant to P.L.117-158, Sec 4(a)(3), $1.2 billion was permanently rescinded in FY 2022. Pursuant to P.L. 117-328 Division
MM, Sec 101(d)(2), $459 million was permanently rescinded in FY 2023. Rescinded amounts were from unobligated balances
made available under P.L. 116-260 and P.L. 117- 2. The rescissions were recorded in fund X0700.
COMMUNITY NAVIGATOR PILOT PROGRAM
P.L. 117-2, Sec. 5004 establishes a Community Navigator pilot program to make grants to, or enter into contracts or cooperative
agreements with, private nonprofit organizations, resource partners, States, Tribes, and units of local government to ensure the
delivery of free community navigator services to current or prospective owners of eligible businesses in order to improve access to
assistance programs and resources made available because of the COVID–19 pandemic by Federal, State, Tribal, and local entities.
This public law appropriated $100 million for the program and $75 million for outreach and education. The funding was available
until September 30, 2022, for carrying out this program. The authority of the Administrator to make grants under this section
shall terminate on December 31, 2025.
MICROLOAN TECHNICAL ASSISTANCE GRANT
This program provides technical assistance grants under such section 7(m), a program grant for microloan intermediaries.
Intermediaries use these funds to provide training and technical assistance to microloan borrowers and prospective borrowers.
Pursuant to P.L. 118-5 Sec.49, $1.4M was permanently rescinded in FY2023. Rescinded amounts were from unobligated balances
made under P.L. 116-260, Sec. 323(d)(1)(E)(i).
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 107 Financial Reporting (Unaudited)
SALARIES AND EXPENSES ADMINISTRATIVE FUNDING
P.L. 116-260 P.L. 117-2 and authorities provided within P.L.117-58, provided no-year S&E funds to SBA to support ongoing
operating requirements related to pandemic relief programs.
Pursuant to P.L.117-58, 135 STAT 1348 Sec 90007 (g)(1), $45.8 million was permanently rescinded in FY 2022. Pursuant to
P.L. 117-58, Sec 90007 (g)(1), $5,469.65 realized recovery was permanently rescinded in FY 2023. Rescinded amounts were
from unobligated balances made available under P.L. 116-136, P.L. 116-139, and P.L. 116-260. The rescissions were recorded
in fund X0100.
The impact of COVID programs on various financial statement and footnote lines are decreases and the result of these specific
programs being closed, with no additional funding provided.
(Dollars in Thousands)
COVID-19 Activity Funded by DEF Code L, M, N, O, P, U, or V FY 2023 FY 2022
Budgetary Resources: Unobligated (and Unexpired) Balance Carried Forward from PY $ 7,185,885 $ 64,520,626
Rescissions(-)/Other Changes (+/-) to Budgetary Resources (4,185,295) (28,763,165)
Budgetary Resources Obligated (-) 404,434 23,035,026
Budgetary Resources: Ending Unobligated (and Unexpired) Balance to be Carried Forward 242,955 10,457,142
Outlays, Net (Total) 677,015 23,712,329
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 108 Financial Reporting (Unaudited)
NOTE 18 Subsequent Events
On October 25, 2023, a class action lawsuit was filed against the SBA (naming the United States the defendant as required) in the
United States Court of Federal Claims by 303 plaintiffs seeking damages for failure to obtain RRF funding. The SBA is unable to
determine the likelihood of the outcome of this lawsuit as of the date of this financial report.
Reclassification of Financial Statement Line Items for Financial
NOTE 19
Report Compilation Process
To prepare the Financial Report of the U.S. Government (Financial Report), the Department of the Treasury requires agencies
to submit an adjusted trial balance, which is a listing of amounts by U.S. Standard General Ledger account that appear in the
financial statements. Treasury uses the trial balance information reported in the Government-wide Treasury Account Symbol
Adjusted Trial Balance System (GTAS) to develop a Reclassified Statement of Net Cost and a Reclassified Statement of Changes
in Net Position for each agency, which are accessed using GTAS. Treasury eliminates all intragovernmental balances from the
reclassified statements and aggregates lines with the same title to develop the Financial Report statements. This note shows
SBA’s financial statements and SBA’s reclassified statements prior to elimination of intragovernmental balances and prior to
aggregation of repeated Financial Report line items. A copy of the 2022 Financial Report can be found here: Bureau of the Fiscal
Service – Reports, Statements & Publications (treasury.gov), and a copy of the 2023 Financial Report will be posted to this site
as soon as it is released.
The term “intragovernmental” is used in this note to refer to amounts that result from other components of the
Federal Government.
The term “non-Federal” is used in this note to refer to Federal Government amounts that result from transactions with
non-Federal entities. These include transactions with individuals, businesses, non-profit entities, and State, local, and
foreign governments.
The SBA does not have funds from dedicated collections.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 109 Financial Reporting (Unaudited)
(Dollars in Thousands)
Line Items Used to Prepare FY 2023 Government-Wide
FY 2023 SBA Statement of Net Cost
Statement of Net Cost
STRATEGIC GOAL 1: Net Cost Amount Line Item Amount
Ensure Equitable and Customer-Centric
Design and Delivery of Programs
to Support Small Businesses and
Innovative Startups
Non-Federal Cost
Gross Cost $ 1,033,792 $ 35,195,412 Non-Federal Gross Cost
Less: Earned Revenue 234,652 35,195,412 Total Non-Federal Cost
Net Cost of Strategic Goal 1 799,140
Intragovernmental Costs
135,786 Benefit Program Costs
STRATEGIC GOAL 2: 38,595 Imputed Costs
Build Resilient Businesses and a
73,299 Buy/Sell Costs
Sustainable Economy
Gross Cost 40,040,060 5,986,541 Borrowing and Other Interest Expense
Less: Earned Revenue 5,919,285 46,890 Other Expenses (w/o Reciprocals)
Net Cost of Strategic Goal 2 34,120,775 6,281,111 Total Intragovernmental Costs
41,476,523 Total Reclassified Gross Cost
STRATEGIC GOAL 3:
Implement Strong Stewardship of
5,157,498 Non-federal Earned Revenue
Resources for Greater Impact
Gross Cost 169,534
Net Cost of Strategic Goal 3 169,534 Intragovernmental Earned Revenue
2,206 Buy/Sell Revenue
994,233 Borrowing and Other Interest Revenue
COST NOT ASSIGNED TO
996,439 Total Intragovernmental Earned Revenue
STRATEGIC GOALS
Gross Cost 233,137
Net Cost Not Assigned to Strategic Goals 233,137 6,153,937 Total Reclassified Earned Revenue
Net Cost of Operations $ 35,322,586 $ 35,322,586 Net Cost
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 110 Financial Reporting (Unaudited)
(Dollars in Thousands)
Line Items Used to Prepare FY 2023 Government-Wide
FY 2023 SBA Statement of Changes in Net Position
Statement of Changes in Net Position
Funds from other than Dedicated Collections Net Postion Amount Line Item Amount
Unexpended Appropriations:
Unexpended Appropriations,
Beginning balance $ 10,558,338 $ 10,558,338
Beginning Balance
Appropriations Received 30,739,480 24,856,175 Appropriations Received
Other Adjustments:
Rescissions (5,867,516)
Adjustment – Cancelled Authority (15,088)
Return of Unrequired Liquidating
(597)
Fund Appropriation
Other Adjustments (104)
Appropriations Used (31,690,963) (31,690,963) Appropriations Used
Total Unexpended Appropriations $ 3,723,550 $ 3,723,550 Total Unexpended Appropriations
Cumulative Results of Operations:
Beginning Balance $ (27,669,576) $ (27,669,576) Cumulative Results, Beginning Balance
Other Adjustments:
Current Year Liquidating
(5,932) 31,690,963 Appropriations Expended
Equity Activity
Appropriations Used 31,690,963
Non-expenditure Transfers-Out of
(5,932) Unexpended Appropriations and
Financing Sources
31,685,031 Total Appropriations Used
24 Other Taxes and Receipts
24 Total Non-Federal Non-Exchange Revenue
Imputed Financing 38,595 38,595 Imputed Financing
Non-Entity Collections Transferred to the
Other: (5,029,301)
General Fund of the U.S. Government
Accrual for Non-Entity Amounts to be
Non-entity Activity (2,162,312) 2,866,965 Collected and Transferred to the General
Fund of the U.S. Government
(2,123,741) Total Transfers and Imputed Financing
Net Cost of Operations 35,322,586 35,322,586 Net Cost of Operations
Net Change in Cumulative Results
(5,761,272)
of Operations
Total Cumulative Results of Operations $ (33,430,848) $ (33,430,848) Total Cumulative Results of Operations
Ending Net Position $ (29,707,298) $ (29,707,298) Net Position
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 111 Financial Reporting (Unaudited)
REQUIRED SUPPLEMENTARY INFORMATION
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2023 (Unaudited)
(Dollars in Thousands)
Line Item BLIF DLF SBGRF SE OIG
Nonbudgetary Nonbudgetary
BUDGETARY RESOURCES Budgetary Budgetary Budgetary Budgetary Budgetary
Financing Financing
Unobligated Balance from Prior Year Budget
$ 5,028,683 $ 32,272,168 $ 2,320,662 $ 12,047,916 $ 112,754 $ 1,447,519 $ 42,515
Authority, Net (discretionary and mandatory)
Appropriations (discretionary and mandatory) (2,714,261) - 28,046,857 - - 501,023 41,620
Borrowing Authority (discretionary and mandatory) - 375,023 - 5,528,889 - - -
Spending Authority from Offsetting Collections 2 2,240,809 (1) 18,029,294 21,990 1,224,107 4
Total Budgetary Resources $ 2,314,424 $ 34,888,000 $ 30,367,518 $ 35,606,099 $ 134,744 $ 3,172,649 $ 84,139
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 278,207 $ 24,102,252 $ 29,922,410 $ 8,234,395 $ 20,941 $ 1,568,778 $ 46,533
Unobligated Balance, end of year:
Apportioned, unexpired accounts 4,749 10,720,944 334,682 3,960,495 591 1,180,826 34,946
Unapportioned, unexpired accounts 86,619 64,804 110,426 23,411,209 113,212 - 4
Unexpired Unobligated Balance, end of year 91,368 10,785,748 445,108 27,371,704 113,803 1,180,826 34,950
Expired Unobligated Balance, end of year 1,944,849 - - - - 423,045 2,656
Unobligated Balance, end of year (total) 2,036,217 10,785,748 445,108 27,371,704 113,803 1,603,871 37,606
Total Status of Budgetary Resources $ 2,314,424 $ 34,888,000 $ 30,367,518 $ 35,606,099 $ 134,744 $ 3,172,649 $ 84,139
OUTLAYS, NET and DISBURSEMENTS, NET
Net Outlays (discretionary and mandatory) $ 348,332 $ 29,927,641 $ (3,427) $ 241,782 $ 45,279
Distributed Offsetting Receipts - - - (5,047,035) -
Agency Outlays, Net (discretionary and mandatory) $ 348,332 $ 29,927,641 $ (3,427) $ (4,805,253) $ 45,279
Disbursements, Net (total) (mandatory) $ 21,087,133 $ (43,670,602)
(Dollars in Thousands)
Line Item ADVOCACY EDP EIDL SVOG RRF WCF BATF TOTAL TOTAL
Nonbudgetary
BUDGETARY RESOURCES Budgetary Budgetary Budgetary Budgetary Budgetary Budgetary Budgetary Budgetary Total
Financing
Unobligated Balance from Prior Year Budget
$ 4,896 $ 90,688 $ 871,249 $ 487,737 $ 91,669 $ 15,269 $ 671 $ 10,514,312 $ 44,320,084 $ 54,834,396
Authority, Net (discretionary and mandatory)
Appropriations (discretionary and mandatory) 10,211 318,558 (858,884) (459,000) 13,082 - 24,899,206 - 24,899,206
Borrowing Authority (discretionary
- - - - - - - - 5,903,912 5,903,912
and mandatory)
Spending Authority from Offsetting Collections - - - - - (1) - 1,246,101 20,270,103 21,516,204
Total Budgetary Resources $ 15,107 $ 409,246 $ 12,365 $ 28,737 $ 91,669 $ 28,350 $ 671 $ 36,659,619 $ 70,494,099 $ 107,153,718
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 8,984 $ 323,409 $ 53 $ 5,559 $ 83,014 $ 6,234 $ 119 $ 32,264,241 $ 32,336,647 $ 64,600,888
Unobligated Balance, end of year:
Apportioned, unexpired accounts 6,123 57,505 1,215 23,178 - 13,922 552 1,658,289 14,681,439 16,339,728
Unapportioned, unexpired accounts - 600 - - 8,655 8,168 - 327,684 23,476,013 23,803,697
Unexpired Unobligated Balance, end of year 6,123 58,105 1,215 23,178 8,655 22,090 552 1,985,973 38,157,452 40,143,425
Expired Unobligated Balance, end of year - 27,732 11,097 - - 26 - 2,409,405 - 2,409,405
Unobligated Balance, end of year (total) 6,123 85,837 12,312 23,178 8,655 22,116 552 4,395,378 38,157,452 42,552,830
Total Status of Budgetary Resources $ 15,107 $ 409,246 $ 12,365 $ 28,737 $ 91,669 $ 28,350 $ 671 $ 36,659,619 $ 70,494,099 $ 107,153,718
OUTLAYS, NET AND DISBURSEMENTS, NET
Net Outlays (discretionary and mandatory) $ 8,927 $ 440,165 $ (1,483) $ (22,114) $ 53,700 $ 1,254 $ 119 $ 31,040,175 $ 31,040,175
Distributed Offsetting Receipts - - - - - - - (5,047,035) (5,047,035)
Agency Outlays, Net
$ 8,927 $ 440,165 $ (1,483) $ (22,114) $ 53,700 $ 1,254 $ 119 $ 25,993,140 $ 25,993,140
(discretionary and mandatory)
Disbursements, Net (total) (mandatory) $ (22,583,469)
U.S. Small Business Administration
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U.S. Small Business Administration
Other Information
(Unaudited)
SECTION 3
Agency Financial Report Fiscal Year 2023 114 Other Information (Unaudited)
U.S. Small Business Administration
Office of Inspector General
TOP MANAGEMENT AND PERFORMANCE CHALLENGES FACING
THE SMALL BUSINESS ADMINISTRATION IN
FISCAL YEAR 2024
October 16, 2023
Report 24-01
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 115 Other Information (Unaudited)
Table of Contents
MESSAGE FROM THE INSPECTOR GENERAL ............................................................................................................................. 117
FY 2024 CHALLENGES AND ISSUES ........................................................................................................................................... 118
Table 1: Top Management and Performance Challenges Facing SBA in FY 2024........................................................................ 118
Table 2: Color Code Definitions ................................................................................................................................................... 119
CHALLENGE 1: SBA’S ECONOMIC RELIEF PROGRAMS ARE SUSCEPTIBLE TO SIGNIFICANT FRAUD RISKS AND
VULNERABILITIES ............................................................................................................................................. 120
Why This Is a Challenge ............................................................................................................................................................... 120
Paycheck Protection Program ..................................................................................................................................................... 121
Issue: Paycheck Protection Program Susceptible to Abuse and Fraud ...................................................................................... 121
Remaining Challenges ................................................................................................................................................................. 124
Issue: Paycheck Protection Program Eligibility........................................................................................................................... 125
Issue: Paycheck Protection Program Data Reliability ................................................................................................................. 126
COVID-19 Economic Injury Disaster Loan .................................................................................................................................... 127
Issue: SBA Must Review COVID-19 EIDLs and Grants for Potential Fraud Identified in OIG Reports .......................................... 128
Issue: Unprecedented Increase in Servicing COVID-19 EIDLs ..................................................................................................... 131
CHALLENGE 2: ELIGIBILITY CONCERNS IN SMALL BUSINESS CONTRACTING PROGRAMS UNDERMINE THE
RELIABILITY OF CONTRACTING GOAL ACHIEVEMENTS................................................................................... 133
Why This Is a Challenge ............................................................................................................................................................... 133
Issue: Agencies Receive Credit for Ineligible Firms or Those Not Participating in SBA’s Contracting Programs ....................... 133
Issue: Women-Owned Small Business Federal Certification Program Susceptible to Abuse .................................................... 135
CHALLENGE 3: SBA FACES SIGNIFICANT CHALLENGES IN IT INVESTMENTS, SYSTEM DEVELOPMENT, AND
SECURITY CONTROLS ....................................................................................................................................... 137
Why This Is a Challenge ............................................................................................................................................................... 137
Issue: SBA’s IT Investment Controls Need Improvement ............................................................................................................ 137
Issue: Existing System Development and Monitoring Controls Need to Reflect Changing IT Design Risks............................... 138
Issue: Additional Progress Needed in IT Security Controls......................................................................................................... 140
CHALLENGE 4: SBA RISK MANAGEMENT AND OVERSIGHT PRACTICES NEED IMPROVEMENT TO ENSURE
THE INTEGRITY OF LOAN PROGRAMS .............................................................................................................. 141
Why This Is a Challenge ............................................................................................................................................................... 141
Issue: SBA’s Oversight of High-Risk Lending Participants ........................................................................................................... 141
Issue: Increased Risk Introduced by Loan Agents ....................................................................................................................... 142
Issue: Increased Risk Introduced by Lender Service Providers .................................................................................................. 143
CHALLENGE 5: SBA’S MANAGEMENT AND MONITORING OF THE 8(a) BUSINESS DEVELOPMENT PROGRAM
NEEDS IMPROVEMENT ...................................................................................................................................... 144
Why This Is a Challenge ............................................................................................................................................................... 144
Issue: SBA Continues to Address Its Ability to Develop Firms in the 8(a) Program and Measure Results.................................. 144
CHALLENGE 6: IDENTIFICATION OF IMPROPER PAYMENTS IN SBA’S 7(a) LOAN PROGRAM REMAINS
A CHALLENGE .................................................................................................................................................... 146
Why This Is a Challenge ............................................................................................................................................................... 146
Issue: Improvements Needed to Ensure High-Risk 7(a) Loan Reviews Reduce the Risk of Losses ............................................ 146
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 116 Other Information (Unaudited)
CHALLENGE 7: SBA’S DISASTER ASSISTANCE PROGRAM MUST BALANCE COMPETING PRIORITIES TO
DELIVER PROMPT ASSISTANCE BUT PREVENT FRAUD ................................................................................... 148
Why This Is a Challenge ............................................................................................................................................................... 148
Issue: Reserve Staff Need Training to Sustain Productivity During Mobilization ....................................................................... 148
Issue: Improper Payment Quality Assurance Process Needs Strengthening ............................................................................. 149
CHALLENGE 8: SBA NEEDS ROBUST GRANTS MANAGEMENT OVERSIGHT ............................................................................. 150
Why This Is a Challenge ............................................................................................................................................................... 150
Issue: SBA’s Grants Management System Needs Improvement.................................................................................................. 150
Issue: Better Performance Measurements Needed to Monitor Grant Program Achievements .................................................. 151
Issue: Comprehensive Oversight Plan with Strong Controls Will Help SBA Better Assess Risk, Distribute Payments,
and Audit the Shuttered Venue Operators Grant and Restaurant Revitalization Fund .................................................... 152
Issue: Leveraging SBA’s Workforce to Ensure Effective Administration of New and Significantly Expanded Grant
Programs to Aid Small Businesses .................................................................................................................................... 154
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 117 Other Information (Unaudited)
Message from the Inspector General
SBA’s role in the nation’s pandemic response was unprecedented and immense.
Even before the pandemic, SBA faced major challenges in its internal control
environments for large financial lending programs, information technology, and
business development assistance programs. The strain on the agency’s capacity
to meet the needs of delivering more than $1.2 trillion in pandemic assistance
to America’s small businesses laid bare these challenges. SBA continues to be
responsive to OIG’s recommended corrective actions to promote efficiency
and effectiveness in the programs and mitigate the eight challenges identified
in this report.
Major consequences of internal controls that do not provide assurance of identity
and eligibility include a loss of public trust, improper payments, and fraud.
OIG’s white paper COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape
estimated that SBA disbursed over $200 billion in potentially fraudulent COVID-19 Economic Injury Disaster
Loans (EIDL), EIDL Targeted Advances, Supplemental Targeted Advances, and Paycheck Protection Loans
(PPP) loans. Every fraudulent transaction also is an improper payment. With SBA’s flagship contracting, capital,
and counseling programs having identified challenges in mitigating improper payments and ensuring only
eligible entities gain access to its programs, action to eliminate self-certification as a practice and strengthen
internal controls is at the forefront of our recommended corrective actions.
OIG also shares SBA’s concern in its capacity to service its EIDL portfolio. SBA is now servicing about 4
million outstanding disaster loans — 15 times the amount the agency was managing before the pandemic. SBA
must be responsive to recipients of these loans and perform its due diligence to mitigate loss to the taxpayer.
SBA’s pandemic response also offered an opportunity to learn new ways to meet America’s small business owners
in underserved areas. This principally involved SBA lending partners leveraging financial technology and SBA
expanding the reach of its Supervised Lenders, which are Non-Federally Regulated Lenders. Technology must
be integrated within programs in a manner that assures eligibility criteria are met, to include identity, and that
robust verification and validation are inherent in the internal control framework. SBA must fully meet its lender
oversight responsibilities to avoid missteps that occurred in its pandemic response.
The nation can depend on OIG to provide independent, objective, and timely oversight of SBA. We will focus
our resources on systems and processes that present serious management and performance challenges within
SBA programs with a goal of improving the integrity, accountability, and performance of those programs for the
benefit of the American people.
Sincerely,
Hannibal “Mike” Ware
SBA Inspector General
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 118 Other Information (Unaudited)
FY 2024 Challenges and Issues
Identification of an issue as a top challenge does not necessarily denote significant deficiencies or lack of attention on SBA’s part.
Many of the top management challenges are longstanding, inherently difficult, and will likely continue to be challenges in the
coming years. Addressing the challenges will require consistent attention from agency management and ongoing engagement with
Congress, the public, and other stakeholders.
Table 1: Top Management and Performance Challenges Facing SBA in FY 2024
Challenge Issue
Challenge 1 — SBA’s Economic Relief Programs Are • Paycheck Protection Program Susceptible to Abuse and Fraud
Susceptible to Significant Fraud Risks • Paycheck Protection Program Eligibility
and Vulnerabilities • Paycheck Protection Program Data Reliability
• SBA Must Review COVID-19 EIDLs and Grants for Potential
Fraud Identified in OIG Reports
• Unprecedented Increase in Servicing COVID-19 EIDLs
Challenge 2 — Eligibility Concerns in Small Business • Agencies Receive Credit for Ineligible Firms or Those Not
Contracting Programs Undermine Participating in SBA’s Contracting Programs
the Reliability of Contracting • Women-Owned Small Business Federal Certification Program
Goal Achievements Susceptible to Abuse
Challenge 3 — SBA Faces Significant Challenges in IT • SBA’s IT Investment Controls Need Improvement
Investments, System Development, and • Existing System Development and Monitoring Controls Need to
Security Controls Reflect Changing IT Design Risks
• Additional Progress Needed in IT Security Controls
Challenge 4 — SBA Risk Management and Oversight • SBA’s Oversight of High-Risk Lending Participants
Practices Need Improvement to Ensure the • Increased Risk Introduced by Loan Agents
Integrity of Loan Programs • Increased Risk Introduced by Lender Service Providers
Challenge 5 — SBA’s Management and Monitoring of • SBA Continues to Address Its Ability to Develop Firms in the
the 8(a) Business Development Program 8(a) Program and Measure Results
Needs Improvement
Challenge 6 — Identification of Improper Payments • Improvements Needed to Ensure High-Risk 7(a) Loan Reviews
in SBA’s 7(a) Loan Program Remains Reduce the Risk of Losses
a Challenge
Challenge 7 — SBA’s Disaster Assistance Program Must • Reserve Staff Need Training to Sustain Productivity
Balance Competing Priorities to Deliver During Mobilization
Prompt Assistance but Prevent Fraud • Improper Payment Quality Assurance Process
Needs Strengthening
Challenge 8 — SBA Needs Robust Grants • SBA’s Grants Management System Needs Improvement
Management Oversight • Better Performance Measurements Needed to Monitor Grant
Program Achievements
• Comprehensive Oversight Plan with Strong Controls Will
Help SBA Better Assess Risk, Distribute Payments, and Audit
the Shuttered Venue Operators Grant and the Restaurant
Revitalization Fund
• Leveraging SBA’s Workforce to Ensure Effective Administration
of New and Significantly Expanded Grant Programs to Aid
Small Businesses
Agency Financial Report Fiscal Year 2023 119 Other Information (Unaudited)
The management challenges report is an important tool to help the agency prioritize its work to improve program performance
and enhance operations. OIG remains committed to protecting the interests of American taxpayers by promoting positive change
within SBA and across government, ensuring taxpayer dollars are spent efficiently according to intent. I am confident SBA leaders
are willing partners in ensuring their programs have integrity and meet the needs of the nation’s small businesses.
Table 2: Color Code Definitions
We use a color gauge as a visual indicator of the agency’s progress in confronting the issues that make a particular function a
top management challenge. The color gauge indicates whether the agency has made little, no, or significant progress on the issue
to date.
COLOR DEFINITION COLOR INDICATOR COLOR DEFINITION COLOR INDICATOR
Issue Resolved or
Green Red No Progress
Appropriately Reduced
Yellow Substantial Progress N/A New, Not Rated
New, Not Rated
Moderate or Limited Not Rated
Orange N/A
Progress (extenuating circumstances)
Not Rated
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 120 Other Information (Unaudited)
Challenge 1: SBA’s Economic Relief Programs Are Susceptible to Significant
Fraud Risks and Vulnerabilities
Why This Is a Challenge
In the wake of the Coronavirus Disease 2019 (COVID-19) pandemic, action was needed to avert an economic crisis caused by
lockdowns, business closures, and other economic impediments. More than 30 million small businesses in the United States were
adversely affected by the economic crisis. In March 2020 the Coronavirus Aid, Relief, and Economic Security (CARES) Act was
enacted, authorizing the U.S. Small Business Administration (SBA) to administer an unprecedented amount of funds through the
Paycheck Protection Program (PPP) and COVID-19 Economic Injury Disaster Loan (EIDL) program. These funds were intended
to help eligible small business owners and entrepreneurs adversely affected by the economic crisis.
Executive and legislative actions intended to expedite aid during the crisis led SBA to reduce or eliminate key internal controls
that could have helped to mitigate fraud and misuse of taxpayer funds. The agency also relied on a mandated self-certification of
eligibility for PPP loans to expedite aid. We have determined the agency has made progress in strengthening internal controls, but
several issues remain open, which we highlight in this report, and should be considered for future economic relief programs like
the PPP and COVID-19 EIDL.
Our PPP and EIDL investigative work has resulted in 1,090 indictments, 906 arrests, and 576 convictions as of August 31, 2023.
The Office of Inspector General (OIG) has received more than 250,000 Hotline complaints since the start of SBA’s pandemic
relief programs. Additionally, OIG collaboration with SBA and the U.S. Secret Service has resulted in the seizure of more than
$1 billion stolen from the EIDL program. OIG played a key role in assisting financial institutions in the return of another $8
billion to SBA’s EIDL program. SBA has received over $20 billion in EIDL funds returned by borrowers prior to the deferment
period ending. We are also aware of approximately $168 million in additional PPP seizures and funds that may have been
returned. However, due to the informal, ad hoc nature of SBA’s tracking, the full scope of PPP seized and returned funds is
not presently known, as detailed in our management advisory Serious Concerns Regarding the Return of Paycheck Protection
Program Funds (Report 23-08). To date, we have issued 12 reports related to the PPP program and 12 reports related to the
COVID-19 EIDL program.
Since both programs have closed to new loans, the challenge has evolved from preventing fraud to bringing wrongdoers to justice
and identifying and recovering funds that were misused or illegally obtained. Thanks to swift congressional action, the statute
of limitations for COVID-19 EIDL and PPP fraud was increased to 10 years. As SBA conducts automated and manual reviews
of PPP loans regarding forgiveness and guaranty purchasing, it could still identify ineligible loans, work to recover funds, and
refer potential fraud for investigation. Fraud can be identified in these loans at any stage, even after they have been forgiven. See
Figure 1 for important stages of these programs that are ongoing through 2026 and beyond.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 121 Other Information (Unaudited)
Figure 1: Current and Ongoing Actions Relating to the PPP and COVID-19 EIDL
Source: OIG generated from SBA data
PAYCHECK PROTECTION PROGRAM
As a result of the pandemic’s widespread economic effects on the U.S. economy, Congress approved legislation to create and fund
SBA’s PPP, which was gradually increased to $813.7 billion in 2021.
PPP loans were made through more than 5,400 private lenders and can be fully forgiven if proceeds were used in accordance with
law. Often, the lenders had existing relationships with the borrowers. PPP loans were made through existing SBA lenders and non-
traditional lenders, including online financial technology companies (fintechs), which did not have the same relationships with
borrowers as traditional lenders.
The pandemic radically affected the agency tasked with economic assistance to America’s small businesses. From FY 2000 to
2019, before the pandemic, SBA-guaranteed 7(a) lending amounted to about 1.2 million loans, totaling $333 billion. By the end
of the PPP program, SBA had processed 11.8 million PPP loans, totaling $800 billion. In just over a year the agency handled
more demand than in the previous 20 years combined. The unprecedented demand and stress on SBA systems were considerable
challenges for the agency, and fraudsters took advantage.
ISSUE: PAYCHECK PROTECTION PROGRAM SUSCEPTIBLE TO ABUSE AND FRAUD
SBA’s fraud risk management approach in 2020 for PPP loans was intentionally developed with more
fraud risk controls at the loan forgiveness phase, the final phase, rather than at application. For funds
disbursed on a fraudulent loan, the back-end controls established for the forgiveness stage may never be
applied because it is unlikely that forgiveness will be sought. This has led to the current environment,
YELLOW where we and other law enforcement partners are chasing taxpayer funds that have already been stolen.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 122 Other Information (Unaudited)
We explored this issue in detail in our COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape (Report 23-09) white paper. We
estimated that SBA disbursed $64 billion in potentially fraudulent PPP loans, which represents 8 percent of total disbursed funds.
Based on the various fraud schemes identified in our ongoing and adjudicated criminal investigations, we expanded rule-based
analytics through link analysis — an investigative technique that identifies fraud clusters through shared data attributes. As
a result, we identified multiple fraud indicators and schemes fraudsters used to steal from the American taxpayer and exploit
programs meant to help those in need. The potential fraud estimates directly correlate to our investigative casework, adjudicated
and ongoing criminal cases, and to schemes OIG and other oversight agencies are continuing to unravel and then prosecute. These
indicators will continue to evolve as more data becomes available to us.
Indicators of potential PPP fraud include:
• Hold codes — loans flagged by SBA or third-party lenders that identified potential indicators of fraud.
• Internet Protocol (IP) addresses — loan applications submitted from a foreign country, so likely ineligible, or from an IP
address that matches another application found to have a higher likelihood of fraud.
• Defaulted/no loan forgiveness — borrowers have not made any payments, are in default, or have not asked for loan
forgiveness because they never intended to use the loan according to program requirements.
• Employer Identification Numbers (EIN) — borrowers who appeared to have established their business after the qualifying
date; EINs that match those of other PPP loans.
• Hotline complaints — the loan was the subject of an OIG Hotline complaint with a high probability of fraud, such as a
business misusing funds or identity theft.
• Suspicious email addresses — borrowers whose email addresses are from potentially temporary domains, have modifications
such as dots, dashes, or pluses, or match those in other applications found to have a higher likelihood of fraud.
• Bank accounts — SBA lenders disbursed PPP loan funds to bank accounts matching other applications found to have a
higher likelihood of fraud.
See Figure 2 for the total disbursed dollar value estimate of each PPP fraud indicator. The aggregate of each group total differs
from the total potential fraud estimate because duplicates across groups may exist, while duplicates are removed from the total
potential fraud estimate.
Figure 2: Summary of Potentially Fraudulent PPP Loans by Fraud Indicator
Source: OIG analysis of PPP data
We have several concerns from past audit work that falls under this issue, so we highlight here major concerns which are still being
addressed by the agency.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 123 Other Information (Unaudited)
Returning Potentially Fraudulent Paycheck Protection Program Funds
In our management advisory Serious Concerns Regarding the Return of Paycheck Protection Program Funds (Report 23-08), we
found SBA’s guidance to borrowers and lenders on returning PPP funds was insufficient. SBA did not explain how funds could be
returned after forgiveness was approved. Also, SBA did not have specific guidance for financial institutions that needed to return
PPP funds. At the time, SBA was tracking return of PPP funds on an ad hoc basis using a spreadsheet. Due to the informal and
ad hoc nature of SBA’s tracking, the full scope of returned PPP funds is not presently known.
When an agency implements a process ad hoc, it means program managers have no set procedure, which could lead to financial
loss. We made four suggestions related to SBA establishing clear and detailed guidance for borrowers, lenders, and financial
institutions on how to return PPP funds and implementing a process to accurately handle and track the returned funds to mitigate
the risk of financial loss.
Duplicate Paycheck Protection Program Loans
Because SBA did not always have sufficient controls in place to detect and prevent duplicate PPP loans (see Duplicate Loans Made
Under the Paycheck Protection Program, (Report 21-09), OIG and other federal agencies have worked to track criminal fraud cases
related to duplicate loans made to the same business. Based on our review of PPP loan data as of August 31, 2020, we found that
lenders made more than one PPP disbursement to 4,260 borrowers, which totaled about $692 million and involved 8,731 loans.
These disbursements were made during rounds 1 and 2 when only one PPP loan was permitted.
We made four recommendations to SBA to strengthen controls related to detecting and preventing duplicate loans to include
ensuring duplicate PPP loans are not forgiven, taking action to recover improper payments, and ensuring appropriate controls are
in place for future PPP type programs.
Program Changes Expanded the Opportunity for Sole Proprietor and Independent
Contractor Fraud
In our evaluation report SBA’s Paycheck Protection Program Loan Review Processes (Report 22-09), we noted changes SBA made
to expand access to the program for certain borrowers could have been exploited by unscrupulous applicants. In March 2021,
SBA issued an interim final rule that allowed individuals who filed an Internal Revenue Service (IRS) Form 1040, Schedule C, to
calculate their maximum loan amount using gross income rather than net income. This change led to a significant increase in the
number of loans of $20,833 or less, the maximum allowable loan amount for a Schedule C business with no employees.
Based on our analysis of the PPP loan data, many of the Schedule C loans were made by lenders that relied exclusively on
third-party loan processing or software platform vendors (i.e., loan service providers) they hired to complete loan processes.
Data shows that 7 of the top 15 lenders made more than 2.4 million loans in 2021, or more than 18,000 loans per day, after
having made fewer than 22,000 PPP loans combined in 2020. These seven lenders included fintech lenders, Community
Development Financial Institutions, and small business lending companies. SBA Lenders should be providing oversight of their
third-party vendors.
We believe that these lenders and their reliance on third-party vendors could present SBA with several challenges moving forward,
including access to loan documents. Within the context of the PPP eligibility and forgiveness process, we believe it is important
for SBA to focus targeted efforts on these types of loans and review appropriate documentation to ensure these smaller loans were
made to eligible businesses and minimize the losses associated with forgiveness of fraudulent loans.
U.S. Small Business Administration
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Managing the Oversight of Potentially Fraudulent Paycheck Protection Program Loans
We found SBA did not have an organizational structure with clearly defined roles, responsibilities, and processes to manage and
handle potentially fraudulent PPP loans in our inspection SBA’s Handling of Potentially Fraudulent Paycheck Protection Program
Loans (Report 22-13). The agency did not establish a centralized entity to design, lead, and manage fraud risk because it did not
establish a sufficient fraud risk framework. This was partly due to the speed in which SBA was required to launch the PPP, which
was 15 days after enactment of the CARES Act, and the continuous and rapid discovery of different kinds of fraud schemes.
In addition, lenders were not always clear on how to handle PPP fraud or recover fraudulently obtained funds that remained in
the borrower’s account. SBA did not provide lenders sufficient and specific guidance to effectively handle potentially fraudulent
PPP loans. To better mitigate fraud, we made two recommendations for SBA to establish clearly defined and detailed roles,
responsibilities, and processes and provide lenders formal guidance for managing and handling potentially fraudulent loans.
Agency Progress
SBA has made substantial progress in reducing fraud risk moving forward, including:
• Establishing a Fraud Risk Management Board in 2022;
• Developing a webpage dedicated to preventing fraud and identity theft, which includes a section titled “Lenders and
Fraud Response”;
• Developing aggregate review processes to identify different fraud scenarios;
• Developing and implementing a Master Review Plan that established guidelines for loan and forgiveness reviews;
• Increasing antifraud controls for loans originating in 2021, including checking application data against Treasury’s Do Not
Pay database before loans were approved;
• Developing and implementing SBA and contractor fraud risk management policy and framework;
• Increasing post-disbursement antifraud controls for loans that originated in 2020;
• Commencing manual loan and forgiveness reviews;
• Engaging a contractor with expertise in detection and identification of potential fraud;
• Using a contractor’s automated review tool and the SBA Paycheck Protection Platform to analyze loans for fraud
and eligibility;
• Implementing machine learning functionality to focus on areas of higher risk;
• Providing outreach and training;
• Implementing processes to refer potential fraud to SBA OIG;
• Developing a plan for recovering PPP funds; and
• Developing and implementing controls to enhance the loan review process, specifically for loans with a no further action
decision made by contractors.
Remaining Challenges
Although SBA has made substantial progress in this area, the need to establish and use a clearly defined and comprehensive
approach for managing and handling potentially fraudulent PPP loans, to include sufficient guidance when implementing similar
future programs, remains an ongoing challenge.
SBA’s plans and actions to reduce fraud risks and prevent further losses will determine how this challenge will continue to be
rated in the future. Our investigations into suspected fraud and suspicious activities continue. We have ongoing or planned audit
work on PPP loan eligibility, loan forgiveness, guaranty purchase, and lender activities to determine the effectiveness of agency
implemented controls. We will continue to monitor agency actions to assess and reduce fraud risk and address vulnerabilities in
the PPP. Strong internal controls will help reduce fraud risk and enhance program integrity for the PPP and similar programs
enacted in the future.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 125 Other Information (Unaudited)
ISSUE: PAYCHECK PROTECTION PROGRAM ELIGIBILITY
PPP funds could still be returned to Treasury as loan forgiveness reviews continue. SBA’s PPP risk
management approach was intentionally developed with eligibility controls at the loan forgiveness
phase, the final phase, rather than at application.
YELLOW OIG reviews have found deficiencies with internal controls related to eligibility of borrowers. Our
review of SBA’s implementation of the PPP identified thousands of loans provided to potentially
ineligible borrowers. SBA lenders also inappropriately approved loans for businesses that exceeded maximum loan amounts for the
number of employees and exceeded the maximum size allowed. Also, SBA lenders approved loans for nonprofit organizations that
did not meet SBA’s eligibility requirement for size standards.
We have several concerns from past audit work that falls under this issue, so we are highlighting here major concerns which are
still being addressed by the agency.
Businesses Exceeding Maximum Loan Amounts
In our Inspection of SBA’s Implementation of the Paycheck Protection Program (Report 21-07), we found tens of thousands of
approved and disbursed loans were made to borrowers for amounts that exceeded the loan maximum based on the number of
employees and compensation rates, as defined in the CARES Act. The CARES Act states that the maximum loan amount is
generally obtained by multiplying the average total monthly payments by the applicant for payroll costs incurred during the
1-year period before the date on which the loan is made times 2.5, plus any outstanding amounts of Economic Injury Disaster
Loans made beginning January 31, 2020. We made six recommendations to improve SBA’s program and reduce the risk of
financial loss from PPP loans made to ineligible or fraudulent borrowers.
Businesses that Exceeded Maximum Size Standards
In Report 21-07, we also identified hundreds of businesses that exceeded the maximum size standard and may have been
erroneously approved for PPP loans. These businesses exceeded both 500 employees and the applicable employee-based size
standard for the business industry. Under the CARES Act, an eligible business cannot exceed the greater of 500 employees or the
SBA size standard for number of employees in the industry, if applicable.
Eligibility for Nonprofit Organizations
In our inspection report Paycheck Protection Program Eligibility for Nonprofit Organizations (Report 22-21), we identified
179 PPP loans, totaling approximately $684 million, made to potentially ineligible nonprofits that may have exceeded SBA’s
requirements for business size at the time of application.
We also reviewed PPP loans for three large nonprofits. We determined that two of the three large nonprofits met the eligibility
requirements and one of the large nonprofits did not meet the eligibility requirements. We recommended SBA review the
179 PPP loans to ensure eligibility requirements were met and seek remedy or repayment for all loans deemed ineligible.
Borrowers with Treasury’s Do Not Pay Data Matches
In our management alert Paycheck Protection Program Loan Recipients on the Department of Treasury’s Do Not Pay List
(Report 21-06), we found SBA did not use Treasury’s Do Not Pay system data to screen borrowers for eligibility before approving
PPP round one loans. Following OIG oversight and communication with the agency, SBA started checking loan applicants against
Treasury’s Do Not Pay database. The U.S. Department of the Treasury’s Do Not Pay system is the designated source of centralized
data and analytics services to help agencies verify eligibility. The Payment Integrity Information Act of 2019 requires agencies to
establish pre-award procedures to determine eligibility and prevent improper payments before the release of any federal funds. The
law further specifies the use of Do Not Pay data sources as a control to determine program or award eligibility.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 126 Other Information (Unaudited)
Agency Progress
SBA has initiated several corrective actions to enhance and develop additional controls to address loan reviews, loan forgiveness,
and fraud, including:
• Developing the Master Review Plan, establishing guidelines for loan and forgiveness reviews;
• Implementing SBA and contractor fraud risk management policy and framework;
• Developing machine learning models to focus on areas of higher risk;
• Implementing automated screening to detect potentially ineligible loans;
• Developing a plan for recovering PPP funds; and
• Continuing manual reviews of loans flagged for potential eligibility issues.
The fraud control framework also includes a variety of antifraud controls in place designed to detect and mitigate possible
instances of eligibility fraud. These controls include approved lender lists, verification with the Treasury Do Not Pay database, and
compliance checks.
SBA also integrated affiliation data, which shows business affiliation through ownership and maximum number of employees, as
well as maximum loan amount. SBA instituted an affiliation worksheet for PPP loan and forgiveness reviews. Swift management
action to identify and review potentially ineligible loans could prevent improper payments to lenders because the associated loan
forgiveness may still be in process.
As we complete current reviews and conduct future audit work, SBA’s plans and actions to reduce and prevent improper payments
in addition to SBA’s corrective actions to address OIG recommendations will determine how we will rate this challenge in
the future.
ISSUE: PAYCHECK PROTECTION PROGRAM DATA RELIABILITY
OIG’s flash report SBA’s Implementation of the Paycheck Protection Program Requirements (Report 20-14)
found the data SBA reported and the loan-level PPP data was inaccurate and incomplete. Without
accurate and complete data, SBA cannot reliably and accurately inform SBA management and
Congress about program effectiveness and measures needed to inform program decisions.
GREEN
Underserved Market Data Was Incomplete
At the beginning of the PPP program, our flash report found that SBA’s demographic information for underserved markets for
PPP borrowers was incomplete. SBA’s borrower application for PPP did not include standard SBA fields to request demographic
information. One week after we issued our flash report, SBA issued the initial PPP loan forgiveness application, which included an
optional page for borrower demographic information. We believe sufficient data still may not be collected.
Some borrowers may not apply for loan forgiveness while others may choose not to complete the optional page. Although ethnic
demographic information is optional for SBA’s traditional loan programs and the PPP, SBA generally requests the demographic
information as a section on a mandatory form. Borrowers have the option to decline to provide the information.
North American Industry Classification System Data Was Incomplete
In our Inspection of SBA’s Implementation of the Paycheck Protection Program (Report 21-07), we found SBA’s loan-level data
on PPP NAICS codes was incomplete. SBA did not require the borrower to provide the industry classification code on the
application, so lenders did not have the information to put in the loan processing platform. As of June 30, 2020, there were
222,096 loans, totaling approximately $9.9 billion, identified as unclassified establishments because there was no industry
classification data on the application.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 127 Other Information (Unaudited)
Job Statistics Were Inaccurate and Incomplete
Also in Report 21-07, we found SBA’s loan-level data for job statistics was inaccurate and incomplete. We found that 191,003
loans approved in 2020, totaling about $11 billion, did not include employment information in the required job field for the
number of current employees. SBA officials said because of a backlog of loan applications before the beginning of the second
round of PPP funding, lenders were allowed to submit loan applications in bulk. The officials said they turned off system controls
to allow for faster approval. Of the 191,003 applications that did not have data for the number of current employees, 83,374
were approved during the first week of the second round of funding. Because SBA removed the internal control to check data for
the number of current employees, these loans, totaling about $4 billion, were not validated before approval and issuance of loan
numbers to PPP lenders.
Agency Progress
SBA implemented additional controls to ensure the integrity of the key data fields noted above, including:
• Adding mandatory fields in borrower and lender application processes;
• Updating controls to ensure data accuracy of lender-reported data;
• Instituting a procedure for lenders and borrowers to correct publicly available PPP loan data provided to SBA by
delegated PPP lenders; and
• Launching a new data reporting webpage for public and SBA stakeholders with links to several public SBA reports
and datasets.
We have an ongoing audit reviewing PPP loan eligibility, loan forgiveness, and guaranty purchase. We will continue to assess the
reliability of PPP loan data and monitor the agency’s efforts to ensure data reliability.
COVID-19 ECONOMIC INJURY DISASTER LOAN
As a result of the pandemic’s widespread economic effects on the U.S. economy, Congress approved legislation that increased
funding to SBA’s disaster assistance program, providing $470 billion in funding to the Economic Injury Disaster Loan (EIDL)
program and $20 billion for emergency grants for eligible entities, which was then increased to $35 billion in 2021.
This program was different from the PPP in that a COVID-19 EIDL was a direct loan from the government, requiring collateral
or personal guarantees from borrowers depending on the amount of the loan. SBA relied initially on a quick online application
and self-certification of eligibility. Later, once authorized by Congress to do so, the agency required Internal Revenue Service (IRS)
tax transcripts to confirm business income and expenses.
The COVID-19 EIDL represented a significant increase over all disaster loan funding disbursed in the agency’s 70-year history.
Since the agency’s inception in 1953, SBA has approved 2.2 million disaster assistance loans, totaling $66.7 billion. From March
2020 to the end of the program in May 2022, so in a little over 2 years, SBA approved approximately 4 million COVID-19
EIDLs totaling $387 billion.
Like the PPP, the significant increase in demand for disaster funding and the stress on SBA systems created considerable
challenges. Again, fraudsters took advantage of the crisis and weak internal controls in SBA’s programs. The magnitude of fraud in
this program will become more apparent as delinquent loans are liquidated and charged-off and investigations are adjudicated.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 128 Other Information (Unaudited)
ISSUE: SBA MUST REVIEW COVID-19 EIDLS AND GRANTS FOR POTENTIAL FRAUD IDENTIFIED
IN OIG REPORTS
Because the COVID-19 EIDL program has closed, the issue has evolved from preventing fraud
in the program to identifying and remedying fraud that has already occurred. In our white paper
COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape (Report 23-09), we estimated SBA
disbursed over $136 billion in potentially fraudulent COVID-19 EIDLs, which represents 33 percent
ORANGE of total disbursed funds.
As described above in the PPP section of this report, we identified multiple fraud indicators and schemes used by fraudsters
to steal from the American taxpayer and exploit programs meant to help those in need. The potential fraud estimates directly
correlate to our investigative casework, adjudicated and ongoing criminal cases, and to schemes OIG and other oversight agencies
are continuing to unravel and then prosecute. These indicators will continue to evolve as more data becomes available to us.
Indicators of potential COVID-19 EIDL fraud include:
• Internet Protocol (IP) addresses — loan applications submitted from a foreign country, so likely ineligible, or from an IP
address that matches another application, indicating possible duplication of loan requests.
• Hold codes — loans flagged by SBA or a third party that identified potential indicators of fraud.
• Bank accounts — SBA disbursed funds for multiple loans to the same bank account; borrowers who changed their bank
account information during the application process, or those whose bank account matches other applications.
• Employer Identification Numbers (EIN) — borrowers who appeared to have established their business after the qualifying
date, EINs matching those of other COVID-19 EIDLs, and borrowers with an EIN that is improperly formatted or begins
with an invalid prefix, masking a nonexistent or ineligible business.
• Sole proprietors/independent contractors without an EIN — borrowers who claim to employ more than one person but
did not use an EIN in their application. The IRS requires all businesses that employ more than one person to register
for an EIN.
• Hotline complaints — the loan was the subject of an OIG Hotline complaint.
• Suspicious phone numbers — borrowers whose phone numbers match those in other applications.
• COVID-19 EIDL Targeted Advances — applicants who received advances SBA identified as potentially fraudulent.
• Suspicious physical addresses — borrowers whose addresses match other applications found to have a higher likelihood
of fraud.
• Suspicious email addresses — borrowers whose email addresses are from potentially temporary domains, have modifications
or match those in other applications.
See Figure 3 for the total disbursed dollar value estimate of each COVID-19 EIDL fraud indicator. The aggregate of each group
total differs from the total potential fraud estimate because duplicates across groups may exist, while duplicates are removed from
the total potential fraud estimate.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 129 Other Information (Unaudited)
Figure 3: Summary of Potentially Fraudulent COVID-19 EIDLs by Fraud Indicator
Source: OIG analysis of COVID-19 EIDL data
We have several concerns from past audit work that falls under this issue, so we are highlighting here major concerns which have
not yet been addressed by the agency. Although the loans and grants we have cited may overlap with each other, the total potential
fraud estimate presented in our fraud landscape white paper removed duplicate loans. Per our estimate, there are over $136 billion
in COVID-19 EIDLs and grants that require further investigation.
Ending Collections
In our management advisory Ending Active Collections on Delinquent COVID-19 Economic Injury Disaster Loans (Report 23-16),
we reported that in April 2022, SBA decided to cease some active collection activities, such as foreclosure on property collateral
and wage garnishment, on all delinquent COVID-19 EIDLs with an outstanding balance of $100,000 or less. While SBA
indicated it will not end collection efforts on any amount that appears to be, or has been, reported as fraudulent, false, or
misrepresented, these loans only represent $11.2 billion of the $70.9 billion COVID-19 EIDLs that are $100,000 or less.
As indicated in our fraud landscape white paper, $136 billion COVID-19 EIDLs were determined to be potentially fraudulent.
Of this amount, $25.9 billion were for loans valued at $100,000 or less. We estimate that SBA will cease active collection activities
on $14.7 billion potentially fraudulent COVID-19 EIDLs valued at $100,000 or less, which could violate the federal law that
prohibits agencies from ending collections on fraudulent, false, or misrepresented claims.
Foreign IP Applications
Our evaluation report COVID-19 Economic Injury Disaster Loan Applications Submitted From Foreign IP Addresses (Report 22-17)
found that SBA approved and disbursed 41,638 potentially fraudulent COVID-19 EIDLs, advances, and grants totaling
$1.3 billion that were submitted from foreign IP addresses.
Although applicants that reside overseas may qualify for this assistance, transnational crime entities in foreign countries have
fraudulently obtained funding from this and other U.S. programs in the past. The numerous applications submitted from foreign
IP addresses are an indication of potential fraud that could involve international criminal organizations. OIG has ongoing
investigations into international organized crime operations that applied for and stole pandemic relief funds.
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We recommended the agency review the loans in our test sample and the $1.3 billion disbursed to applicants from foreign IP
addresses. We also recommended SBA recover any disbursed loans and advances determined to be ineligible or fraudulent.
Additionally, we recommended that the agency examine controls related to foreign IP addresses and ensure these controls are more
effective in future disaster processing systems.
Treasury’s Do Not Pay List
Our management advisory COVID-19 EIDL Program Recipients on the Department of Treasury’s Do Not Pay List (Report 22-06)
identified over $3.1 billion in EIDLs and over $550 million in emergency EIDL grants to potentially ineligible applicants in the
Department of Treasury’s Do Not Pay database. OIG has launched numerous investigations into the suspect loans identified in
this report.
We made three recommendations for SBA to use the Do Not Pay system to prevent improper payments, including for SBA to use
the batch match or continuous monitoring functions available in Treasury’s Do Not Pay portal to identify potentially ineligible
applicants. We are currently assessing whether SBA effectively implemented controls, utilizing the Treasury Do Not Pay databases
to ensure only eligible recipients received COVID-19 EIDLs and grants.
Fraudulent Advances and Grants
Our inspection of SBA’s Emergency EIDL Grants to Sole Proprietors and Independent Contractors (Report 22-01) found SBA
provided $4.5 billion more in advances and grants than the applicants were entitled to receive. Eligible applicants were entitled
to receive $1,000 per employee up to the CARES Act mandated maximum amount of $10,000. The report identified 542,897
sole proprietors and 161,197 independent contractors who received a grant of more than $1,000 but did not have an Employer
Identification Number (EIN). The absence of a provided EIN may indicate the applicants should have claimed no employees.
We recommended SBA remedy $4.5 billion in funds disbursed in excess of its statutory allowance to sole proprietors and
independent contractors.
Control Weaknesses
Since the start of the pandemic, we have identified potential fraud resulting from serious control weaknesses in the system
SBA used to process COVID-19 EIDL and grants. Our Inspection of SBA’s Initial Disaster Assistance Response to the Coronavirus
Pandemic (Report 21-02) identified $78.1 billion in potentially fraudulent loans and grants to borrowers who changed their bank
account from the original account listed on the loan application prior to disbursement; borrowers who used the same IP address,
email address, bank account, or physical address; and potentially ineligible businesses. We made 10 recommendations to SBA to
strengthen its controls to lower fraud risk and recover funds from ineligible businesses. Of those, seven recommendations have
been closed.
Our Follow-up Inspection of SBA’s Internal Controls to Prevent COVID-19 EIDLs to Ineligible Applicants (Report 22-22) found
that SBA did not implement the IRS tax transcript requirement in a timely manner, potentially disbursing COVID-19 EIDLs to
ineligible entities. In the 4 months after Congress removed the tax return prohibition, SBA disbursed $92 million to businesses
with suspect tax ID numbers. Also, SBA approved and disbursed 20 loans totaling $1.9 million to businesses that did not exist on
or before January 31, 2020, had an unknown start date, or had other red flags, including change of registered agent shortly before
the application date, evidence of falsified documents, or evidence that the applicant did not own the business. Ten of these loans
were flagged by SBA for suspected fraud. We recommended SBA recover funds disbursed to ineligible applicants identified in
our sample and review the remaining COVID-19 EIDL disbursements with suspect tax ID numbers to determine if the business
applicant was legitimate.
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Agency Progress
SBA made some progress in addressing this issue, implementing new controls in the EIDL program in 2021, such as:
• Reviewing correspondence and making loan referrals to OIG in response to identity theft complaints;
• Validating business addresses with the U.S. Postal Service and location indicators; and
• Implementing multi-factor authentication and automated reviews, such as checking Treasury’s Do Not Pay database.
In addition, the fraud review team within the SBA Office of Performance, Planning, and the Chief Financial Officer collaborated
with the Office of Capital Access on a data analytics project to help identify COVID-19 EIDLs that may be associated with
identity theft or fraud. The results of this project are being used by the fraud review team to research suspected cases of identity
theft and fraud.
According to SBA, if it is determined that a file should be flagged for suspected fraud or identity theft, an agency hold is added to
the processing system. Holds are added to an application at any stage. They alert staff that special attention is required and that it
should be reviewed. SBA is still reviewing loans that have been on hold for review to make a fraud determination. The agency hold
review system allowed staff to review and recategorize or refer agency holds to the disaster fraud review team.
SBA has made progress in identifying and reviewing fraud and agency holds, but the sheer volume of potential fraudulent
loans and grants discovered in OIG reports will be a continuing challenge for the agency. The deferment period ended for some
COVID-19 EIDLs in October 2022, and borrowers were expected to begin making payments on these loans. As of October
2023, approximately 20 percent of active performing loans, totaling $77 billion, are past due, delinquent, or in liquidation. SBA
anticipates the majority of these loans will require liquidation and charge-off. Another $47.7 billion in COVID-19 EIDLs has
already been charged-off. We discuss this issue to a greater extent in this report. OIG’s ongoing reviews will continue to assess
SBA’s progress in addressing potential fraud in the COVID-19 EIDL program.
ISSUE: UNPRECEDENTED INCREASE IN SERVICING COVID-19 EIDLS
Before the COVID-19 pandemic, SBA was servicing about 263,000 outstanding disaster loans, totaling
approximately $9 billion, across the three servicing centers. SBA maintains two Disaster Loan Servicing
Centers, one in Birmingham, Alabama and the other in El Paso, Texas, to service disaster loans that
have been approved and fully disbursed. The two centers manage the portfolio and provide customer
ORANGE service, including accepting and processing loan payments, making routine collection efforts by phone,
email, and postal letters, and handling any loan-related issues, such as insurance, title, or lien matters.
After a disaster loan becomes 90 days delinquent, it is transferred to a third center known as the National Disaster Loan
Resolution Center in Santa Ana, California. The loan resolution center manages the portfolio of defaulted disaster loans with
increased collection efforts, including foreclosure when necessary.
The center also handles other loan servicing activities, such as processing loan payments. When disaster loans are deemed
ultimately uncollectable and charged-off, or removed from the agency’s loan portfolio, the borrowers and guarantors are referred to
the Treasury Department.
Treasury has the authority to take stronger efforts to collect, including offset of other federal payments. In this context, offset
means diverting federal payments to satisfy the delinquent loan.
As a result of the unprecedented number of pandemic relief loans, SBA is now servicing about 3.7 million outstanding disaster
loans — 15 times what the agency was doing before the pandemic. A total of 30 months of payment deferment was instituted for
all COVID EIDLs. The end of this deferment period began in October 2022. Because the COVID-19 EIDLs were approved with
repayment terms of 30 years, the expected servicing duration of this portfolio is long term.
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SBA indicated there were over 764,000 COVID-19 EIDLs, totaling $77 billion, that are either past due, delinquent, or in
liquidation as of October 2023. In addition, $47.7 billion in COVID-19 EIDLs have been charged-off. We have not yet validated
this data.
Agency Progress
SBA officials have made some progress to service a historic number of outstanding loans, such as:
• Establishing the standalone COVID-19 EIDL Servicing Center in Fort Worth, Texas, which became fully functional in the
first quarter of FY 2023 with 500 employees handling the first loans that entered repayment status. Hiring continued at an
intentionally measured pace as more loans reentered repayment status. By the first quarter of FY 2024, 1,841 employees were
servicing over 3.7 million loans with a total value of $349 billion. Recently, SBA stated it is servicing more than 90 percent
of the COVID-19 EIDL portfolio after deferments were ended.
• Establishing a dedicated phone number (1-833-853-5638) and general email address inbox (covideidlserviciing@sba.gov).
Loan servicers use an internal tracking system with controls to administer and monitor servicing in a timely manner.
• Transitioning to a borrower portal, MySBA Loan Portal, active as of the second quarter of 2023, that allows all SBA
borrowers to access their loan details, obtain billing notices, and make payments and includes a link for submitting
suspected identity theft claims. The loan portal is automated to mail letters, send emails, and call past-due borrowers at
regular intervals.
• Enabling a pay-by-phone capability in the third quarter of 2023.
• Issuing Policy Notice 5000-840468, COVID-19 EIDL Servicing and Liquidation, effective December 2022, giving specific
requirements on collecting documentation and deciding on different servicing requests.
• Implementing a new hardship accommodation process in November 2022, which allows COVID-19 EIDL borrowers to
obtain 6 months of reduced payments, which remains available in FY 2023.
This issue remains a significant challenge for SBA because it is still unclear if the agency will be able to service and collect its entire
COVID-19 EIDL portfolio.
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Challenge 2: Eligibility Concerns in Small Business Contracting Programs
Undermine the Reliability of Contracting Goal Achievements
Why This Is a Challenge
The government-wide goal of the Small Business Act is to ensure that 23 percent of all prime contracts are awarded to small
businesses each fiscal year. Since FY 2013, SBA has reported in its annual Small Business Procurement Scorecard that the federal
government has met or exceeded that goal. This year, SBA announced the federal government exceeded the FY 2022 goal,
awarding 26 percent of prime contracts to small businesses. Though the overall percentage awarded decreased from FY 2021
goaling achievements, the contracts awarded to small businesses in FY 2022 totaled $162.9 billion, an $8.7 billion increase from
the previous fiscal year. SBA reported the federal government earned an “A” on this year’s government-wide scorecard.
SBA’s achievement reports do not portray federal contracting dollars ultimately earned by small businesses, and this reduces the
ability of Congress and other federal policymakers to determine whether the government is maximizing contracting opportunities
for small businesses.
This risk is revealed in OIG audits on how federal agencies award contracts to small firms with provisions or other contract
language that allows larger companies to do most of the work. Although the agencies report these awards as part of their small
business contracting goaling achievements, the true percentage of work performed is misreported in these instances. We found
this to be the case in our Evaluation of SBA’s Contract for Disaster Assistance Loan Recommendation Services (Report 22-10). SBA
awarded the contract using procedures that restricted the competition for the award to small businesses. The business SBA made
the award to then subcontracted with a large business. SBA did not adequately assess whether the relationship between the
small and large businesses made them affiliated. Also, we found the contractor exceeded the limit for how much of the work it
could subcontract.
We found the subcontracting limits were exceeded in another recent evaluation of an SBA agreement that was awarded as a set-
aside for an 8(a) small business in SBA’s Awards for Staffing Support for COVID-19 Economic Relief Loan Programs (Report 23-11).
Specifically, we found SBA did not ensure the small business complied with the subcontracting limitations for 5 of the 29
contracts we reviewed. For those five orders, the small business subcontracted an average of 93 percent of the work to firms that
were not similarly situated and exceeded the 50 percent limitations on subcontracting.
As the federal government’s primary advocate for small business, SBA must continue to strive to ensure federal agencies award
small business contracts only to eligible entities and that those qualifying businesses are counted in the assessment.
ISSUE: AGENCIES RECEIVE CREDIT FOR INELIGIBLE FIRMS OR THOSE NOT PARTICIPATING IN
SBA’S CONTRACTING PROGRAMS
SBA program success and integrity could be adversely affected if the agency admits ineligible firms
into programs intended for disadvantaged small businesses. OIG continues to find that SBA does not
consistently detect ineligible firms in its small business contracting certification programs. SBA needs
to further strengthen its controls in reviewing eligibility to ensure that only businesses meeting program
YELLOW requirements are awarded contracts.
Agency contracting officers have incorrectly reported awards were made to firms certified as HUBZone or 8(a) Business
Development program businesses in the System for Award Management (SAM.gov). In 2020, the General Services Administration
(GSA) Office of Inspector General found $89 million in contracting dollars erroneously recorded as awarded to small businesses in
the Federal Procurement Data System–Next Generation, the contract reporting system of record at the time of the audit.
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The Small Business Act requires that 5 percent of all prime and all subcontracts for the federal government be awarded to
contractors with small, disadvantaged business status. In December 2021, the Office of Management and Budget raised the prime
contracting goal for small, disadvantaged businesses to 11 percent for FY 2022. Participants in the 8(a) program are considered
small, disadvantaged businesses and awards made to them are also counted toward agency goals.
We also found SBA’s Dynamic Small Business Search database did not consistently update when SBA made decisions on
applicants’ WOSB certifications. Contracting officers throughout the government rely on the certification status reported in
the database, the system of record for SBA’s small business contracting programs. The Dynamic Small Business Search database
integrates with SAM.gov. Without reliable information, contracting officers may be awarding contracts set aside for disadvantaged
small businesses to ineligible firms.
We have several concerns from past audit work that falls under this issue, so we are highlighting here major concerns which are
still being addressed by the agency.
HUBZone Eligibility Requirement
GAO’s Small Business Administration Could Further Strengthen HUBZone Eligibility Reviews in Puerto Rico and Programwide
(GAO-18-666) and OIG’s audit SBA’s HUBZone Certification Process (Report 19-08) found SBA did not ensure only eligible firms
entered the HUBZone program.
This program was created to bring more economic opportunity to small, disadvantaged businesses and workers located in areas
categorized as historically underutilized business zones. In late 2019, SBA changed a HUBZone requirement allowing the
businesses to employ a large percentage of its workforce outside the HUBZone, widening eligibility and, we believe, deviating
from congressional intent. Under the new requirement, the business continues to qualify as long as it has employees who lived
in a HUBZone for at least 180 days leading up to the date of recertification. This means HUBZone businesses could have no
employees residing in the HUBZone and still qualify.
Small, Disadvantaged Business Goaling
Federal agencies will need to expand procurement activities to deliver on the President’s goal of increasing the share of federal
contracts awarded to small, disadvantaged businesses from 5 to 15 percent by 2025. SBA program success and integrity could be
adversely affected if the agency admits ineligible firms into programs intended for disadvantaged small businesses. SBA terminated
its small, disadvantaged business certification program in 2008 as a result of past court decisions. Since then, firms have been
allowed to self-certify, opening up the designation to risk. As of September 2023, SBA’s Dynamic Small Business Search database
included 300,836 firms that self-certified as small, disadvantaged businesses. Firms that falsely certify they are socially and
economically disadvantaged may receive federal contracts counting toward the agency’s goal achievements.
Based on FY 2022 contract data retrieved from SAM.gov, as much as $16.5 billion in prime contracts was awarded to small,
disadvantaged businesses without a certification overseen by SBA. Given the large amount of federal contracting dollars awarded
to these self-certified small, disadvantaged businesses, it is crucial for SBA to ensure that only eligible firms are counted.
Even though self-certification is inherently risky, SBA removed regulations allowing for protests of a firm’s small, disadvantaged
business status in FY 2020. SBA manages a protest process, which means interested parties to the contract that had been set aside
for small businesses can challenge the size or status of an entity in line to receive the award. This process is intended to instill
integrity within SBA’s small business contracting programs.
While firms were still subject to protests related to their small business size, business owners’ status as socially or economically
disadvantaged could not be challenged. We discovered this oversight and reported it to SBA. In September 2022, SBA proposed to
authorize reviews and protests of the small, disadvantaged business status in connection with prime contracts and subcontracts to a
federal prime contract. SBA requested comments on that proposal and others by November 8, 2022. The agency recently issued a
final rule, effective May 30, 2023, to allow for reviews of the small, disadvantaged businesses status.
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Agency Progress
SBA has made substantial progress in adding controls to detect ineligible firms in the HUBZone program, such as:
• Updating procedures and training staff on its HUBZone policy directives to standardize analysis and oversight;
• Requiring each firm complete a program examination every 3 years;
• Taking action to decertify firms that are no longer eligible for the program, decertifying 3,750 firms as of June 1, 2023; and
• Educating HUBZone firms on meeting part-time employee requirements.
While recent regulatory and procedural changes improved SBA’s oversight of firms in the HUBZone program, the changes also
removed a certain control that we believe is essential for proper oversight. The new HUBZone employee residency requirement
could reduce the program’s ability to meet legislative intent. Allowing certified businesses to count employees who are not current
HUBZone residents does not help provide economic opportunity to HUBZone residents.
SBA has achieved significant progress on the issue involving small, disadvantaged business goaling by making the following
improvements during FY 2023:
• SBA recently issued a final rule, effective May 30, 2023, to allow for reviews of the small, disadvantaged businesses status.
• SBA strengthened the process it uses to alert other federal agencies of potentially inaccurate contracting data in SAM.gov, the
system SBA relies on to assess government-wide goaling achievements and grading federal agencies using the small business
contracting scorecard.
• SBA improved its regulations for handling protests, requiring that program officials review entities representing
themselves as a small, disadvantaged business on a federal prime contract or subcontract whenever the agency receives
credible information.
• SBA also worked with GSA to add clarifying language to SAM.gov so that business owners self-certifying as a small,
disadvantaged businesses are prompted to review the definition in the Federal Acquisition Regulation.
ISSUE: WOMEN-OWNED SMALL BUSINESS FEDERAL CERTIFICATION PROGRAM SUSCEPTIBLE
TO ABUSE
SBA’s Women-Owned Small Business (WOSB) program is intended to give eligible companies greater
access to federal contracting opportunities, ensuring a level playing field for women business owners.
Both OIG and GAO have reported weaknesses in SBA’s controls intended to ensure only eligible firms
receive federal contracts set aside for these businesses.
YELLOW
The federal government’s annual contracting goal for WOSBs is 5 percent of all federal contracting dollars. The WOSB
program is a subset of this larger goal, but not the sole driver. The government limits competition for set-aside WOSB and
economically disadvantaged women-owned small business federal contracts to participants in the WOSB Federal Contracting
Program. Some contracts are awarded directly with no competitive bidding. Such contracts are known as sole-source awards.
This means significant contracting dollars and taxpayer funds are at stake, beginning with program eligibility and certification of
the designation.
The 2015 National Defense Authorization Act required qualifying small businesses to be certified by a federal agency, a state
government, SBA’s Administrator, or a national certifying entity approved by the Administrator.
Women business owners seeking to participate in the WOSB program may submit an application and supporting documents
to SBA at no cost via WOSB.Certify.sba.gov, or pay a fee to be certified by an official third-party organization. As mandated in
FY 2015, SBA has four approved third-party certifiers that are allowed to charge a fee to certify the WOSB or the economically
disadvantaged women-owned small business.
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In our audit SBA’s Implementation of the Women-Owned Small Business Certification Program (Report 22-20), we reported that SBA
established its WOSB certification process to collect documents to verify applicants met most program eligibility requirements,
but did not require any documentation to ensure businesses met SBA size standards. SBA analysts also did not always ensure
women were the majority owners and controlled the business. In our analysis, we found 3 of the 25 firms we reviewed did not
have documentation showing that a woman controlled the business. To ensure that only small businesses owned and controlled
by women benefit from the WOSB certification program, SBA must create a control environment requiring all eligibility
requirements to be verified.
SBA and other agencies rely on a third party for many WOSB certifications, but SBA is still not conducting consistent reviews of
these organizations to make sure only qualifying women-owned businesses receive the benefit. This has been a challenge for the
agency since 2014, when GAO first recommended SBA establish procedures to assess the performance of the third-party certifiers.
Agency Progress
SBA has made progress toward addressing risks in the Women-Owned Small Business program, including:
• Launching WOSB.Certify.sba.gov, the operational platform used to manage the certification process for the WOSB and
economically disadvantaged women-owned small business programs in July 2020;
• Conducting WOSB certification determinations in October 2020;
• Hiring additional WOSB analysts, a program director, and increased the number of staff supporting the program;
• Holding bi-weekly webinars to help prepare the firms whose applications were returned for a more successful reapplication;
• Implementing new measures to verify WOSB program data and develop repairs or workarounds to reduce the risk of
reporting inaccurate data in FY 2023;
• Cross-checking data between databases to identify and remedy errors on a semi-annual basis; and
• Establishing a desk guide in December 2022 for staff to follow when reviewing applications.
Although SBA has drafted standard operating procedures for application reviews, SBA managers determined they would not
implement OIG’s recommendations to review documentation to verify that applicants meet small business size standards. SBA
disagreed with OIG’s interpretation that the 2015 National Defense Authorization Act required SBA to verify that the business
was small in addition to the requirement that the business be owned and controlled by a woman. We alerted the Audit Follow-up
Official of our concerns in accordance with our policy. The Audit Follow-Up official decided the agency would continue to allow
applicants to self-certify that the business met size standards. While OIG believes that removing self-certification from the WOSB
program is essential to reducing the risk, OIG will not take further action and has closed the recommendation.
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Challenge 3: SBA Faces Significant Challenges in IT Investments, System
Development, and Security Controls
Why This Is a Challenge
The inherent risks and related internal controls related to this challenge are included on the Government Accountability
Office’s (GAO) federal high-risk list: IT investments, SBA’s emergency loan process, and cybersecurity. According to GAO,
this list comprises federal programs and operations that need reform because they are vulnerable to waste, fraud, abuse,
and mismanagement.
SBA uses third-party providers to provide application processing services for multiple assistance programs, including veteran
assistance and loan processing. Federal guidance, such as OMB Circular A-123 and the Federal Information Security
Modernization Act (FISMA), requires agency management to validate the adequacy of controls by third-party service providers.
Commercial software development requires transparency, ability to resist attack, and controls to prevent tampering by malicious
actors. Moreover, SBA needs to implement rigorous and predictable programs to monitor supply chain security over this software.
IT investments, system development, and security controls are managed primarily through entity-level control activities. These
activities allow the agency to meet its objectives, address related risks, and ensure information technology continues to properly
operate. SBA must maintain and establish IT design and security control baselines essential to protect information and preserve
data integrity.
ISSUE: SBA’S IT INVESTMENT CONTROLS NEED IMPROVEMENT
Effective IT system design and development improve business processes and reduces the cost of
providing essential government services. SBA must establish effective IT investment controls to ensure
the agency meets performance metrics, projected schedules, and estimated costs.
ORANGE The SBA Business Technology Investment Council (BTIC) oversees significant IT investments and
monitors system development, design, and security controls. The BTIC is responsible for implementing
key provisions of the Clinger-Cohen Act, also known as the Information Technology Management Reform Act. It charges chief
information officers with the duty to monitor, evaluate, and report agency performance of IT programs. The BTIC monitors
development performance against requirements and baseline controls, facilitates corrective actions, and provides transparency to
the investment control process. This oversight is critical to ensure systems are delivered in a cost-effective manner and that SBA’s
technical infrastructure is designed and maintained properly.
The BTIC met in September 2022 to start a re-design of its oversight controls. These controls will address project investment cost,
schedule, and performance. The re-design will provide improved oversight of project schedules and costs.
Standard Operation Procedure (SOP) 90 82, Procedure for Managing SBA IT Investments Investment Review Board, requires
an investment control framework to integrate investment planning and execution. This policy specifically requires reviews be
conducted on an annual basis to determine the overall health of an existing investment, approve project level requests, and assign
project resources if needed. SBA’s SOP IT Investment Performance Baseline Management Policy requires that the BTIC be
involved for the whole life of the IT project/investment. The policy further states the BTIC should provide direction on reviewing
and approving the SBA IT portfolio. The council should be helping the agency create the optimum return on its IT investment.
The BTIC should be supporting the agency’s mission and ensuring the accountability of SBA business and IT investments.
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Agency Progress
After reviewing February 2023 SBA BTIC meeting minutes, we found many investment controls previously identified as missing
in the FY 2020-2022 timeframe, were still not in place. We found the BTIC did not consistently report on the performance of
previous IT investments or provide the basis of its acceptance or continuation of new and existing investments.
Until this process is implemented there will be little oversight over SBA’s IT investments. The agency made progress in designing
a new investment oversight framework, but preliminary implementation of this re-design is not planned until the second quarter
of FY 2024.
SBA can improve in these specific areas:
• Full adherence to preliminary design criteria and agency SOPs, which includes approval by the BTIC and Architectural
Review Board.
• Effective project baseline management, which allows planned results to be assessed against investment performance and then
actions taken to improve performance.
• Ongoing quality assurance reviews to assess development progress, improvement, baseline management policy controls.
• Periodic analysis of investment performance throughout the project lifecycle to identify improvement areas.
Full implementation of the above controls will allow senior agency leaders, Congress, and other stakeholders to better gauge
SBA’s IT oversight and performance. These controls will deter fraud and better protect the identity of taxpayers who have received
SBA assistance.
ISSUE: EXISTING SYSTEM DEVELOPMENT AND MONITORING CONTROLS NEED TO REFLECT
CHANGING IT DESIGN RISKS
Our past audit work identified multiple areas in system development and monitoring controls
requiring improvement. Through our FISMA evaluations and monitoring of open recommendations,
we found the agency made progress in these areas. SBA updated its policy for System and Organization
Controls (SOC) 1 Type 2 reports. Yet we found these issues with SBA’s system development
YELLOW methodology and system acceptance controls. Many of the control areas identified below will be tested
in our ongoing audits and evaluations.
Communication and Mitigation of Privacy Risks
In the last 3 years, OIG has identified potential privacy and identity internal control weaknesses. In COVID-19 and Disaster
Assistance Information Systems Security Controls (Report 22-19), we recommended that a process be established to communicate
identified privacy and identity risks. FISMA criteria recommends the development of performance metrics to monitor the
effectiveness of SBA’s privacy internal controls. The agency has revised its privacy impact assessment process to address this issue.
Coordination of System Contracts and Data Management Oversight
In our Report 22-19, we also found SBA managers did not fully implement controls to show that external service providers
adhered to federal cybersecurity and supply chain risk management requirements. Also, SBA management did not document
assessment and review of the supply chain-related risks as required by FISMA guidance.
We recommended that SBA enforce the requirement to establish and implement internal controls to ensure program officials
perform and document contract reviews. This will ensure that information security is addressed in the contract language, as
required by OMB Circular A-130 and SBA SOP 90 47 6.
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FISMA guidance requires continuous monitoring of third-party software security controls. SBA officials stated they would revise
their IT Governance Framework to ensure contracts are updated with the appropriate security language.
Monitoring of Third-Party Systems
In our Repot 22-19, we recommended SBA fully update its policy to provide a roadmap for the purchase, launching, and
management of software and related application development activities. Updated system guidance is crucial for monitoring
third-party systems used to process transactions integral to the mission of SBA. The agency must update its guidance for
purchasing and related system development to validate essential controls exist before a system is put into production.
In response to Report 22-19, SBA plans to revise the agency’s SBA System Development Methodology and provide procedural
guidance over supply chain risk management practices including applications with high-value asset system designation.
Updated System and Organization Controls Reports
In the Independent Auditors’ Report on SBA’s Fiscal Year 2022 Financial Statements (Report 23-02), the OIG’s independent public
accountant was unable to obtain reasonable assurance regarding the reliability and integrity of reported financial data for critical
third-party systems, which contributed to two disclaimer audit opinions for FYs 2020 and 2021. The SOC 1 Type 2 report
provides assurance that reported financial data is complete and reliable.
SBA has updated its policies to ensure that prior to issuing a contract, SOC 1 has been reviewed and impact assessed on SBA
internal controls as well as modify ongoing contracts where a SOC 1 may be necessary.
System Acceptance Controls and Monitoring to Limit Risk
In our Repot 22-19, we recommended SBA meet federal guidance in delivering program funds to eligible taxpayers. Testing
protocols must be fully implemented, even within limited timeframes, and then independently tested to ensure they operate
as designed. Acceptance criteria must also specify the minimum desired functionality acceptable for a system to be put
into operation.
Agency Progress
Through our FISMA evaluations and monitoring of open recommendations, we found the agency made progress updating its
polices to ensure that prior to issuing a contract, security controls have been reviewed and impact assessed and modifying ongoing
contracts where a SOC 1 may be necessary.
In response to OIG Report 22-19, SBA plans to revise the agency’s System Development Methodology; and provide procedural
guidance over supply chain risk management practices, including applications with high-value asset system designation.
The agency stated it will update policy to require that all systems include an assessment of security risk management activities via
the Cyber Risk Management Platform by July 31, 2024.
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ISSUE: ADDITIONAL PROGRESS NEEDED IN IT SECURITY CONTROLS
Inspectors general are required by FISMA to assess the effectiveness of information security programs
on a maturity model spectrum and assess security capability in eight domains.
For FY 2023, the scope of the FISMA evaluation included a core set of 20 metrics and a supplemental
YELLOW set of an additional 23 metrics. The maturity model criteria places SBA at an overall level of
“not effective.”
Agency Progress
The current benchmark for an effective program within the context of the maturity model is managed and measurable. SBA
quickly responds to identified vulnerabilities but continues to experience reoccurring control challenges in the areas of user access,
configuration management, and security training and risk management.
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Challenge 4: SBA Risk Management and Oversight Practices Need
Improvement to Ensure the Integrity of Loan Programs
Why This Is a Challenge
SBA’s Office of Credit Risk Management manages credit risk for the agency’s loan portfolio of approximately $173 billion (as of
December 2022), and this includes the remaining outstanding loans made through the Paycheck Protection Program (PPP). As
discussed in Management Challenge 1, SBA’s lack of internal controls led to significant fraud risk and vulnerabilities. Additionally,
we found SBA did not have an organizational structure with clearly defined roles, responsibilities, and processes to manage and
handle potentially fraudulent PPP loans. As of December 2022, SBA has made forgiveness payments exceeding $750 billion
to over 4,700 PPP lenders, which the SBA Office of Credit Risk Management has the responsibility to oversee. PPP loans were
originated by lenders and other companies that often have a low degree of expertise in SBA loan program requirements, which is
why this continues to be a challenge for FY 2024.
Lenders often rely on the services of fee-based and other third-party agents to help originate, close, service, and liquidate SBA
loans. Most traditional SBA-guaranteed 7(a) and 504 Certified Development Company loans are originated by lenders with
delegated approval authority. Generally, these lenders are subject to only limited SBA oversight and quality control unless a
borrower defaults on a loan.
Our previous audits have found SBA has not adequately recognized or managed significant lender weaknesses. In our Audit of
SBA’s Oversight of High-Risk Lenders (Report 20-03), we identified additional internal control weaknesses in lender oversight.
Previous OIG audits have also shown that SBA did not effectively identify and track third-party agent involvement in its 7(a) and
504 loan portfolios. Tracking such agents is crucial in managing the portfolios because many lenders rely on the services of fee-
based and other third-party agents to help originate, close, service, and liquidate SBA loans.
ISSUE: SBA’S OVERSIGHT OF HIGH-RISK LENDING PARTICIPANTS
The risks inherent in delegated lending require effective oversight to monitor compliance with SBA
policies and procedures and corrective actions to address noncompliance. However, in Report 20-03,
we found that the SBA Office of Credit Risk Management did not always effectively oversee high-risk
lenders to identify and mitigate risks. Specifically, SBA did not always:
YELLOW
• Conduct planned high-risk lender reviews,
• recommend appropriate and consistent risk mitigation actions for the deficiencies identified during the oversight reviews of
high-risk lenders, and
• communicate loan deficiencies noted during high-risk lender reviews to SBA approval and purchase loan centers.
Agency Progress
SBA has worked to address issues with its oversight of lenders in response to our audit recommendations and, in FY 2021,
improved its ability to oversee high-risk lenders by:
• Issuing the Final 7(a) Lending Oversight Rule and publication of Standard Operating Procedure (SOP) 50 53 (2) on
supervision and enforcement,
• Realigning the organizational structure of the Office of Credit Risk Management to strengthen lender oversight and add
resources to the review teams for effective oversight, and
• Implementing quarterly meetings to ensure adequate oversight of lenders with elevated risk profiles.
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In FY 2023, SBA continues to revise SOP 51 00 2, On-Site Lender Reviews/Examinations, and document the process for on-site
lender reviews and examinations, which is planned to be finalized by the agency in December. This revision will include the
communications protocol that was developed by SBA to document deficiencies identified during loan file reviews and to then
share this information with SBA loan centers and other internal stakeholders.
In FY 2023, SBA took additional actions to improve its ability to oversee high-risk lenders by issuing SOP 50 56, Lender
Participation Requirements. The agency increased frequency of review activities for 7(a) Lenders with portfolios of $350 million
or greater and SBA Supervised Lenders. It increased review activity with the Office of Performance and Systems Management and
Fiscal and Transfer Agent to assist lenders with loan reporting compliance.
The agency implemented a scaled down review for 7(a) lenders with delegated authority and 7(a) loan portfolios between
$1 million and $10 million to review between one and three recently disbursed loans. It implemented quarterly reviews where the
sample is taken from high-dollar loans coded as early defaults. SBA formalized quarterly high-risk lender meetings where lenders
with an elevated risk profile are discussed and SBA leaders ensure that oversight activity is adequate.
Although SBA has made substantive progress, it has not addressed the remaining three recommendations in Report 20-03. Agency
management has indicated it needs time to finalize and implement oversight policies and procedures, including SOP 51 00 2.
Agency managers need to obtain additional information to confirm that identified deficiencies have been corrected.
While SBA has made substantial progress in its oversight of high-risk lending participants, in Report 23-05, White Paper: 7(a)
Loan Program During SBA’s Response to the COVID-19 Pandemic, we found oversight staffing levels in the Office of Credit Risk
Management decreased from 42 to 26 employees, or by 38 percent. This staff reduction could affect SBA’s FY 2023 goal for
oversight reviews, which help ensure lender compliance with program requirements and sustain the progress SBA has achieved
addressing this issue. The report indicated that to ensure 7(a) loan program integrity and reduce the risk of financial loss, SBA
should consider potential risks related to staffing shortages in its 7(a) risk strategy. Since Report 23-05 was issued, SBA stated that
the Office of Credit Risk Management has been successful in recruiting additional staff and utilizing staff from other departments
and contract personnel.
OIG will continue to monitor SBA’s ongoing efforts to address open recommendations in this report, including developing
effective oversight policies and procedures and a comprehensive database or workflow management tool to manage oversight of
high-risk lenders.
ISSUE: INCREASED RISK INTRODUCED BY LOAN AGENTS
Previous OIG audits and investigations have shown SBA could not effectively identify and track loan
agent involvement in its 7(a) and 504 loan portfolios. OIG investigations have also revealed a pattern
of fraud by loan packagers and other fee-based agents in the 7(a) loan program involving hundreds of
millions of dollars. Despite the prevalence of fraud in its loan portfolios, SBA’s oversight of loan agents
GREEN was limited.
SBA requires lenders to provide a loan agent disclosure form (Form 159) to SBA’s fiscal and transfer agent for 7(a) loans that
involve a loan agent. The fiscal and transfer agent is a contractor who supports SBA by serving as paying agent for all investor
payments, processes lender loan reporting, and payment remittance reconciliations. The fiscal and transfer agent also serves as
the central registry for all guaranteed secondary-market interests. The fiscal and transfer agent must enter the data into a database
accessible to SBA. Prior OIG audits identified significant issues in the data quality of Form 159 being tracked by the fiscal agent.
We also found that SBA had not begun tracking Form 159 in the 504-loan program.
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Agency Progress
SBA’s oversight of loan agents has been a long-standing challenge that the agency has made great progress in resolving. SBA took
actions to improve the information collected on loan agents by enhancing Form 159, which improved its ability to oversee loan
agents. The improvements included:
• Requiring lenders to electronically submit Form 159s through the Capital Access Financial System,
• Developing application and follow-up controls to ensure critical fields on each form are completed,
• Aggregating and reporting on loan agent activity to analyze lender portfolios, and
• Considering the loan agent activity for lenders under review and regularly reporting on risks associated with loan agents
across the 7(a) portfolio.
Because loan agent involvement in the 7(a) program is significant, it is important for SBA to have oversight tools that monitor
loan agent involvement in this sizeable program. SBA also needs to effectively manage the risk introduced by high-risk loan agents.
OIG plans to conduct work related to agents involved in the PPP and monitor risks related to SBA’s oversight of loan agents.
ISSUE: INCREASED RISK INTRODUCED BY LENDER SERVICE PROVIDERS
In August 2021, an SBA OIG investigation resulted in the conviction of five people on all charges
in a 13-year conspiracy to defraud SBA in connection with programs to guarantee loans made to
small businesses.
GREEN The five people fraudulently obtained guarantees for loans SBA deemed ineligible. They hid signs
of ineligibility from SBA by misrepresenting the use of SBA loan proceeds and unlawfully diverting
previously denied loan applications into expedited approval channels. They originated dozens of loans, totaling more than
$10 million in disbursements, that were not eligible for SBA guarantees. SBA has had to contend with risks introduced by the
outsourcing of traditional lender functions to lender service providers, a type of loan agent, for some time.
The number of SBA-approved lender service provider agreements has grown significantly, in part because of SBA’s effort to better
control access to its systems by lender service providers. SBA assigns an identifying number to all lender service providers that
access SBA systems and records all SBA-approved agreements. The limited oversight capacity within the Office of Credit Risk
Management to oversee its lenders also may challenge its ability to monitor the Lender Service Providers operating on behalf of
these lenders.
Agency Progress
Since we first reported on these issues in 2015, SBA has implemented internal controls related to the tracking and monitoring of
lender service provider involvement in SBA’s loan programs. Specifically, SBA:
• Established a method to track lender service provider involvement at the loan level;
• Established procedures to assess provider activities and oversight, as part of lender risk-based reviews that include file
inspection; and
• Worked with a contractor to aggregate lender usage of lender service providers and to develop a performance analysis for
lender service provider portfolios to identify any high-risk providers and identify the lender with whom they are aligned.
SBA’s analyses since 2021 have indicated that loans with a lender service provider generally performed worse than those without
provider involvement in both guaranty purchase and early default rates.
It remains critically important for SBA to continue to evaluate performance and act when necessary to effectively reduce the
incurred risks. We will continue to assess risks and conduct further audits and reviews as necessary.
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Challenge 5: SBA’s Management and Monitoring of the 8(a) Business
Development Program Needs Improvement
Why This Is a Challenge
SBA’s 8(a) Business Development Program was created to provide business development assistance to eligible small, disadvantaged
businesses seeking to compete in the federal marketplace. A major benefit of the 8(a) program is that these certified firms can
receive sole source and set-aside contracts. Sole-source awards are contracts proposed for award without competition. A set-aside
award is a proposed contract with competition limited to small businesses. This means small businesses do not have to compete
against large businesses that may have an industry advantage.
The goals of these contracts and certification programs are that the federal government receives the needed services for the benefit
of taxpayers and also helps diversify the economy by supporting small business. In looking ahead to how courts are weighing in on
the aspect of social disadvantage, we anticipate effects to several of SBA’s certification programs like the 8(a) program. A review of
SBA’s process for determining eligibility will be planned in the future. The agency continues to address the challenges in providing
effective business development assistance, as well as measuring and reporting the outcomes of the program.
ISSUE: SBA CONTINUES TO ADDRESS ITS ABILITY TO DEVELOP FIRMS IN THE 8(a) PROGRAM
AND MEASURE RESULTS
SBA has historically emphasized business development to enhance the ability of 8(a) firms to better
compete for federal contracts. SBA offers individualized development assistance to program participants
and also makes referrals to its resource partners, Small Business Development Centers, a volunteer
mentor network composed of retired executives and entrepreneurs, Women’s Business Centers, Veterans
YELLOW Business Outreach Centers, and affiliate Apex Accelerators (formerly known as Procurement Technical
Assistance Centers).
Despite this, SBA has not fully established an information technology system to perform regular performance monitoring and
reporting for 8(a) participants to ensure progress within their business plans. Without an effective IT system to monitor 8(a)
participant progress in meeting individualized business development goals, SBA may not be able to consistently determine if 8(a)
participants have demonstrated the ability to compete in the open marketplace without program assistance.
SBA has not finalized next steps for IT development that would facilitate tracking, measuring, and monitoring individual
business progress. To bridge the gap in the interim, SBA in FY 2020 revised the Business Opportunity Specialist Annual Review
Workbook. The specialist uses this Excel workbook for each firm during annual reviews to evaluate business development,
competitive business mix of 8(a) and non-8(a) revenue, and financial condition. The specialist also reviews other business
proficiencies, such as marketing and government contracting goals.
SBA’s IT challenge is not the sole reason the 8(a) program has not improved in measuring the development of firms over the years.
In our report SBA’s Business Development Assistance to 8(a) Program Participants (Report 22-08), we found SBA’s processes did
not consistently allow for SBA or stakeholders to determine whether firms met their individual goals to successfully complete the
9-year program.
SBA did not ensure specialists regularly monitored a participant’s business goals, assessed business development needs, and
followed up with actions for training and accountability. We found that 15 of the 40 firms tested did not have approved business
plans with identified goals, making them ineligible to receive 8(a) contracts. We questioned $93 million in 8(a) set-aside or
sole-source contracts that four of the firms were awarded.
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SBA also did not establish performance measures at the program level to know whether the 8(a) program was successful as an SBA
program. There are no relevant performance metrics to gauge the outcomes of the program or to know the effects the program is
having on small businesses.
Without consistent procedures, there is no assurance that participants received the business development assistance needed for
them to become viable competitors in the contracting arena. As a result, the agency continues to face challenges on how it can best
manage a program that will effectively increase the participation of small businesses in the American economy.
Agency Progress
Notwithstanding the issues noted above, SBA has made substantial progress to improve its ability to develop firms in the 8(a)
program and measure results. The agency has completed these things:
• Implemented a standard process to ensure initial business plans are monitored and annual reviews capture the 8(a)
participant’s business plan updates;
• Issued Procedural Notice 6000-836899 (effective August 2022), which standardized 8(a) business processes and required all
district offices to ensure that 8(a) firms obtain their business plan approval prior to the first contract being awarded; and
• Mandated the use of the updated Business Opportunity Specialist Annual Review Workbook that track development of
firms throughout the 9-year program, across all district offices when conducting annual reviews.
Officials added sections for capturing data on a firm’s competencies in marketing, human resources, financial condition, sales
trends, management experience, and government contracting goals. The agency is initiating plans to include a business proficiency
matrix in the workbook so the specialist can use stated metrics to evaluate a firm’s skill level in each competency and make referrals
to resource partners or training available through SBA’s 7(j) Management and Technical program, in line with the firm’s business
development needs.
The enhancements to the workbook will allow SBA to aggregate and analyze the data to identify trends at the 8(a) program
level, which will improve SBA’s ability to provide timely and accurate results of program measures and outcomes for an annual
congressional report. SBA is developing a long-term strategic plan that aims to provide all 8(a) certified firms throughout the
country with equitable business development assistance. When fully implemented, the enhanced processes could help emphasize
business development rather than solely focusing on eligibility and annual compliance.
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Challenge 6: Identification of Improper Payments in SBA’s 7(a) Loan Program
Remains a Challenge
Why This Is a Challenge
OIG audits and reviews have identified 7(a) loans that were made to ineligible borrowers, given to borrowers who did not have the
ability to repay, or were not properly closed, resulting in improper payments. Improper payments occurred in part because SBA
did not adequately review related loans, which is why this remains a management challenge this year.
In FY 2022, the dollar amount of SBA’s 7(a) loan approvals totaled $25.9 billion. Most of these loans were made by lenders with
delegated approval authority. When a loan goes into default, SBA reviews the lender’s actions on the loan to determine if it is
appropriate to pay the lender the guaranty, which SBA refers to as a guaranty purchase.
About 9 years ago, OIG established a High-Risk 7(a) Loan Review Program to evaluate lender compliance with SBA requirements
for high-dollar, early defaulted 7(a) loans. High-dollar, early defaulted loans are $500,000 or more and default within the first 18
months of initial disbursement. The 7(a) loan program has been the agency’s largest financing program for general business needs,
so it is vital that SBA identify and reduce the risk of improper payments to meet its objectives for the program.
ISSUE: IMPROVEMENTS NEEDED TO ENSURE HIGH-RISK 7(a) LOAN REVIEWS REDUCE THE
RISK OF LOSSES
Between 2014 and 2019, OIG conducted risk-based reviews of 7(a) loans and recommended recoveries
on 17 loans totaling more than $19.3 million. In addition, we identified suspicious activity on five
loans totaling nearly $4 million, which were ultimately referred to our Investigations Division.
Although SBA completed purchase and quality control reviews on all the loans, the agency did not
YELLOW
identify or fully address the material deficiencies noted in the OIG review.
The OIG High-Risk 7(a) Loan Review Program used an internal scoring system to prioritize loans for review by level of risk. This
evaluation included a review of high-risk loans purchased by SBA to determine whether lenders complied with SBA requirements
and identified suspicious activity.
Our reviews of high-risk loans have consistently identified issues regarding eligibility, repayment ability, size standards, franchise
agreements, business valuations, appraisals, equity injection, and debt refinance. Our review program also has helped us identify
concerns with change of ownership transactions and SBA’s identification of improper payments.
In May 2023, we reported that SBA did not demonstrate improvements to payment integrity for 7(a) loan guaranty purchases
as the improper payment estimate increased between FYs 2021 and 2022, as detailed in the Independent Auditors’ Report on
SBA’s Fiscal Year 2022 Compliance with the Payment Integrity Information Act of 2019 (Report 23-07).
Agency Progress
Despite the issues identified in the May 2023 report, we noted that SBA has made progress in addressing the identification of
improper payments in the 7(a) program since FY 2020, including:
• Allowing loan specialists more time to review complex early defaulted loans;
• Improving its review of loans;
• Training loan specialists and updating the loan review checklist;
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• Providing regular feedback to loan center management and staff regarding improper payments, root causes, and
corrective actions;
• Internally evaluating its purchase process and quality control reviews for 7(a) guaranteed loans to determine why the loan
center reviews did not identify or correct lenders’ noncompliance with SBA requirements;
• Conducting a training session at the loan center focused on the requirements and SBA review of documentation related to
the source of funds used for equity injection; and
• Providing training at lender conferences on the most common root causes of the improper payments.
SBA revised and issued SOP 50 57 3, 7(a) Loan Servicing and Liquidation Standard Operating Procedure, in August 2023. SBA
will provide training to staff and lenders on the new SOP.
We continue to communicate with the agency about previous recommendations for recoveries as part of the audit follow-up
process. We will monitor risks in this area and conduct audits and reviews as necessary.
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Challenge 7: SBA’s Disaster Assistance Program Must Balance Competing
Priorities to Deliver Prompt Assistance but Prevent Fraud
Why This Is a Challenge
SBA contributes to disaster recovery by providing long-term, low-interest loans to affected homeowners, renters, businesses of all
sizes, and nonprofits. SBA must continually balance the priority of quickly assisting survivors in the immediate aftermath of a
disaster with the need to mitigate fraud risk and ensure program integrity. To do so, the agency faces challenges in staffing, quality
assurance, and increased loan servicing requirements.
ISSUE: RESERVE STAFF NEED TRAINING TO SUSTAIN PRODUCTIVITY DURING MOBILIZATION
The magnitude of the pandemic relief demand (27.7 million applications received as of December 31,
2021) required SBA to rapidly increase and train staff; staffing numbers rose to historic levels. The
number of personnel needed to serve during the pandemic was almost twice the previous record high
staff total. In addition, the agency had to develop the needed training to address the new criteria for
YELLOW COVID-19 EIDLs.
Effective July 3, 2022, the agency reorganized its Office of Disaster Assistance. SBA moved the entire disaster lending program
from the Office of Disaster Assistance to the Office of Capital Access. The Office of Disaster Recovery and Resilience manages the
agency’s non-lending aspects of the disaster program (such as the immediate response group).
SBA’s Office of Disaster Assistance increased its trained staff from 800 to more than 5,000 employees in December 2017 to
respond to hurricanes Harvey, Irma, and Maria. In response to the COVID-19 pandemic, the Office of Disaster Assistance
increased its permanent and temporary staff size from about 1,200 at the onset of the pandemic to more than 11,500 by
December 2020. In those 9 months, the staff was increased nearly 10 times.
Agency Progress
SBA management made good progress on this long-term issue during the pandemic. SBA implemented a cross-functional training
plan, as well as online and automated tutorials, a change that resulted from a previous report. The COVID-19 pandemic required
SBA to train and mobilize the largest number of new employees ever in its history.
Bringing on a large temporary staff in response to a major natural disaster will always be a challenge for any organization,
including SBA. However, during the past couple of years, SBA was able to increase its staff by almost tenfold to provide
COVID-19 pandemic financial assistance. The new disaster assistance employees expanded the pool of reserve staff that can
be activated for future disasters. The lessons learned from this surge inform the agency’s current hiring and training practices;
therefore, this issue has achieved a rating of yellow.
Although the agency has now achieved a rating of yellow, the Office of Capital Access is urged to keep monitoring the need to
revise and update its plan for rapid staff surge and the associated need to update its training. This is needed to ensure a high level
of customer service with reduced applicant processing times, and to ensure eligible applicants receive the federal assistance they
need in a timely manner. The strain of the pandemic response effort made these concerns more evident. This is significant because
SBA is developing a new computer system to process disaster loan applications. SBA is currently running a test of its Unified
Lending Platform, with full implementation planned to roll out in late 2023.
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ISSUE: IMPROPER PAYMENT QUALITY ASSURANCE PROCESS NEEDS STRENGTHENING
SBA received a historic number of loan applications during FY 2020 through FY 2022 when
COVID-19 relief programs were established. SBA tests a statistical sample of these loans for improper
payments. Because the total of the number of loans that have been approved and disbursed is so large,
the statistical sample also is large, which has highlighted issues in SBA’s improper payment process. As
ORANGE a result, providing an accurate estimate of the improper payment poses a significant challenge to the
disaster program.
An improper payment is any federal government payment made to an ineligible recipient or for an ineligible good or service,
duplicate payment, or payment for goods or services not received (except for such payment authorized by law). While not every
improper payment is fraudulent; every fraud is an improper payment. This highlights the need to ensure internal controls result in
eligible recipients gaining access to programs.
In our Audit of the Office of Disaster Assistance Improper Payment Appeal Process (Report 20-07), we found the improper payments
appeal process effectively assessed improper payments, but the initial review process was inefficient.
Our Independent Auditors’ Report on SBA’s Fiscal Year 2022 Compliance with the Payment Integrity Information Act of 2019
(Report 23-07) found the sampling and estimation methodology plans were not statistically acceptable for SBA disaster assistance
loans, COVID-19 Economic Injury Disaster Loans, and Economic Injury Disaster Loan Targeted advanced programs and
activities. The population of outlays reported in the agency financial report were not reconciled to the general ledger and were not
complete. Consequently, certain transactions were omitted from the population and excluded from SBA’s review procedures. As
a result, these programs and activities did not comply with the requirement of the Payment Integrity Information Act of 2019 to
publish improper and unknown payment rates of less than 10 percent.
The Payment Integrity Information Act of 2019 requires agencies to publish improper payments information within an agency
financial report or performance accountability report for each fiscal year. To be in compliance with the act, SBA must report an
estimated gross improper payment rate of less than 10 percent for each program.
Agency Progress
While SBA had previously made significant progress to improve the quality assurance process, the results of our report regarding
SBA’s compliance with the Payment Integrity Information Act for FY 2022 indicate that issues continue to exist in the improper
payment estimation process. To address the findings of that report, SBA entered into a contract with an independent statistician in
December 2022, who has:
• Developed a statistically valid sampling and estimation plan. The plan for FY 2023 has been developed with sufficient
documentation to support the methodology identified in the plan.
• Performed monthly reconcilements of the agency’s outlays for the disaster assistance loan program. The contractor will
continue to perform monthly reconcilements for the upcoming fiscal year. This action has been completed for FY 2023 and
is ongoing for FY 2024.
• Developed a statistically valid sample of outlays in the disaster assistance loan program. This action has been completed for
FY 2023 and is ongoing for FY 2024.
• Plans to develop statistical estimates of improper and unknown payment rates. This action will be completed to report rate
estimates in the agency’s annual financial report, as of September 2023.
Overall, while SBA has stated that it took actions to address our recent findings, it is too early to assess the agency’s progress.
OIG will perform its annual audit of the agency’s compliance with the Payment Integrity Information Act for FY 2023. We will
assess, at that time, whether the actions taken above addressed our concerns. At this time, we consider the agency to have made
limited progress.
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Challenge 8: SBA Needs Robust Grants Management Oversight
Why This Is a Challenge
In FY 2021, pandemic relief legislation authorized new, multibillion-dollar grant programs in addition to SBA’s existing
entrepreneurial development grant program portfolio. Congress authorized $45.3 billion for SBA to administer as grants to
provide economic relief and technical assistance, nearly doubling SBA’s existing technical assistance programs. This remains
a challenge because SBA must ensure more than 111,000 grant recipients used the funds appropriately and measure the
performance results of the pandemic grant programs. SBA administers grants to organizations that aid in counseling and training
small business owners and emerging entrepreneurs. These entrepreneurial development programs are part of SBA’s core mission to
support and grow small businesses.
Because of the government-wide emphasis on grants management reform, it is SBA’s responsibility to maximize the value of its
grant funding to ensure its programs accomplish program objectives. In recent OIG audits, we have found ineffective oversight of
grant recipients and systemic issues with the accuracy of SBA grant data in both financial and performance reporting.
ISSUE: SBA’S GRANTS MANAGEMENT SYSTEM NEEDS IMPROVEMENT
Previous OIG reports have found SBA used an inefficient and error-prone system to manage its grant
awards. The grant management system SBA used to award, monitor, and report on technical assistance
programs required substantial manual data entry, which can lead to input errors.
YELLOW Data inaccuracies inhibit the ability to effectively track federal spending. Errors also affect the agency’s
ability to report complete and accurate information on time, as required by the Digital Accountability
and Transparency Act of 2014. Our advisory memorandum Improvement Needed in the Accuracy of SBA Data Reported on
USASpending.gov (Report 18-15) detailed material weaknesses identified by an independent accounting firm in SBA’s controls over
the accuracy of grant award data reported on USASpending.gov.
Immediately after our alert was issued, program officials requested a review of the internal controls of the grant management
process to assess and verify OIG’s findings. SBA’s internal auditors found that all 45 of the sampled awards included inaccuracies
and deficiencies.
The grant management system was not completely integrated with SBA’s financial system and required additional manual entry to
obligate funds and authorize payments to grant recipients. Without a fully integrated system, the agency must continue manual
and burdensome processes to manage compliance requirements. Manual workarounds were the main cause for the errors in the
data reported on USASpending.gov. Reliable data in a grants management system ensures the federal funds are awarded to eligible
recipients, disbursements are accurate, and that management can make informed decisions to effectively administer programs.
Agency Progress
SBA has made substantial progress in modernizing its grants management system over the last 5 years. It entered into an
interagency agreement in 2019 with the U.S. Department of Health and Human Services for transition analysis, infrastructure
setup, and training services to launch GrantSolutions.gov. SBA spent $2.5 million to implement the system to help the agency do
these things:
• Improve funding management, award of grants, and process payments and closeouts;
• Enhance ability to develop accurate performance metrics reporting;
• Reduce compliance violations; and
• Increase auditability, accountability, and transparency.
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The SBA Office of Grants Management implemented the GrantSolutions system for program office use, providing training
to program officials on how to use the system during FY 2023. The office also works with each program office to identify
program-specific system customizations that ensure the agency complies with federal and SBA policies.
As of FY 2023, the GrantSolutions management system is used by all grant making program offices, excluding those offices issuing
pandemic related grants. The Shuttered Venue Operators Grant (SVOG) program opted to use a contracted customer relationship
management system to manage its grants. The Restaurant Revitalization Fund (RRF) program developed its own application
portal that interfaced with the SBA Office of Capital Access’s systems to manage the application intake, processing, and award
approvals. Both the SVOG and RRF programs were integrated into SBA’s Joint Administrative Accounting Management System.
Since 2020, SBA has been working to integrate the SBA’s Joint Administrative Accounting Management System with
GrantSolutions.gov. Until the agency integrates the financial interface, program offices are still required to use the grant
management system that they used prior to GrantSolutions, which was also not completely integrated with SBA’s financial
system. It requires manual entry to obligate funds and authorize payments to grant recipients. While SBA continues to have to
work around the limitations, grants management officials perform monthly data quality assessments of the manually input data,
reporting deficiencies.
ISSUE: BETTER PERFORMANCE MEASUREMENTS NEEDED TO MONITOR GRANT
PROGRAM ACHIEVEMENTS
Our management alert on Serious Concerns About SBA’s Control Environment and the Tracking of
Performance Results in the Shuttered Venue Operators Grant Program (Report 21-13) found SBA did not
establish performance goals and measurements for the grant recipients before disbursing $14.6 billion
in SVOG funds.
YELLOW
After our management alert, SBA created a logic model in March 2021. The model helped identify
outputs and outcomes to assess whether the program successfully aided small businesses in the live arts and entertainment industry.
We found in our Evaluation of SBA’s Award Procedures for the CARES Act Entrepreneurial Development Cooperative Agreements
(Report 21-11) that the agency did not establish clearly defined goals with targets for the award recipients. Because of this, SBA
cannot effectively measure and accurately report performance results to assess whether the award recipient’s performance met
objectives, ensuring the pandemic relief programs were effective.
Federal regulations require awards to include performance goals. The agency must provide a standard to effectively measure grantee
performance, such as the estimated number of jobs saved or created, tax revenue generated, or entity operational status.
GAO reported similar concerns about how SBA took limited steps in enforcing RRF reporting. Thirty-two percent of RRF
recipients have not yet reported how they used their funds for 2021 (GAO-22-105442). Our audit report on SBA’s Oversight of
Restaurant Revitalization Fund Recipients (Report 23-15) found that as of June 2023, 20 percent of all recipients, with awards
totaling $3.5 billion, had not yet filed the required report.
Program officials did establish performance goals and indicators for the supplemental CARES Act funds provided to Small
Business Development Centers, Women’s Business Centers, and the Resource Partner Training Portal, but SBA should have clearly
defined the goals and set targets to more effectively ensure they were achieved as intended.
We first identified oversight of grant program performance as a top management challenge in FY 2019. To address these
weaknesses, SBA updated its grant management policies and procedures. The agency required grant officers to enforce performance
requirements and verify reported information as well as to ensure applicants’ proposals include plans to measure performance in a
way that will help SBA achieve program goals.
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Agency Financial Report Fiscal Year 2023 152 Other Information (Unaudited)
The SBA Office of Entrepreneurial Development had until September 2020 to fully adopt the updated policies, which are not
reflected in the CARES Act entrepreneurial development grants. Without clearly defined performance goals and targets, SBA
cannot effectively measure and accurately report performance results. Our evaluation SBA’s Oversight of the Grant Recipient’s
Implementation of the CARES Act Resource Partners Training Portal (Report 22-07) found that SBA and its grant recipient that
implemented the Resource Partner Training Portal, an initiative authorized under the CARES Act, did not set targets for
performance goals to assess whether the portal met the intended purpose. We reported the portal did not serve as a major source
for COVID-19 information. SBA awarded the grant recipient $18.6 million and less than 1 percent of 30 million eligible small
businesses used the portal within the first year of the pandemic. Only about 62 resource partner counselors and mentors out of
approximately 13,000 completed any of the training modules.
Without performance targets, program officials could not hold the Resource Partner Training Portal grant recipient accountable
for ensuring the information hub served as a major source of COVID-19 related resources for small businesses and a training
portal for resource partner counselors and mentors.
Agency Progress
SBA has made substantial progress in establishing performance measures for its grant programs. In FY 2022, the SBA Office of
Grants Management collaborated with all of SBA’s grants-making program offices to oversee an overall approach for implementing
effective performance monitoring.
The SBA Office of Entrepreneurial Development applied lessons learned from our Evaluation of SBA’s Award Procedures for the
Coronavirus Aid, Relief, and Economic Security Act Entrepreneurial Development Cooperative Agreements (Report 21-11). The office
established a variety of output and outcome-focused measures for the Community Navigator pilot program, authorized by the
American Rescue Plan Act of 2021.
In the announcement for the program, SBA required grant applicants to establish realistic targets for the goals to measure
achievements during grant performance. The Office of Entrepreneurial Development enforced its procedures by requiring clearly
defined performance goals. The office included performance targets in all future Small Business Development Centers and
Women’s Business Centers cooperative agreements to objectively measure performance results.
In June 2021, SVOG program officials finalized a program evaluation framework. This framework examined venue survival
and other outcomes across industry, geographic location, and business owner demographics. Additionally, program officials
implemented SVOG performance metrics, such as revenue dollars earned, a shuttered entity’s capacity to continue operation, and
planned versus actual expenditures. This information will be collected as part of the close-out process.
SVOG program officials developed a customer experience and award outcomes survey. As of June 5, 2023, nearly 9,000 award
recipients have received invitations to complete the survey. SBA expects a final report of the survey results and program evaluation
by the end of FY 2024.
ISSUE: COMPREHENSIVE OVERSIGHT PLAN WITH STRONG CONTROLS WILL HELP SBA BETTER
ASSESS RISK, DISTRIBUTE PAYMENTS, AND AUDIT THE SHUTTERED VENUE OPERATORS GRANT
AND RESTAURANT REVITALIZATION FUND
In our management alert on Serious Concerns About SBA’s Control Environment and the Tracking
of Performance Results in the Shuttered Venue Operators Grant Program (Report 21-13), we alerted
management to concerns about SBA’s initial plans for assessing applicant risk and setting
payment disbursements.
YELLOW
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 153 Other Information (Unaudited)
Since the majority of SVOG grant awards were under a certain dollar threshold, they were categorized as low risk. These
awards were disbursed in lump sum payments with minimal financial reporting requirements and expectations for
post-award accountability.
SBA reported that as of July 5, 2022, the agency completed processing applications for the SVOG program. In total, SBA awarded
$14.6 billion to 13,011 grant recipients, of which 9,800 received supplemental awards.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act of 2020 required SBA to submit the policies and
procedures used to conduct oversight and audits of the grants to Congress. It also required measurement standards to determine
which grants should undergo an audit. The SBA Office of Disaster Recovery and Resilience based its audit plan for this program
on the risk level established for the payment distributions and financial reporting requirements for the grant recipients.
All grant recipients who received $10 million, which is the maximum amount for any single award, were going to be audited. It
is likely a minimal number of recipients will be subject to an audit. The office’s initial audit plan exposed the $16.25 billion grant
program to potential misuse of funds because the bulk of grant funds will not be subject to a reasonable degree of scrutiny. SBA
has finalized its oversight plan to include monitoring, audit, and closeout strategies that address the agency’s obligation to uphold
federal grant regulations and other applicable requirements.
In our inspection SBA’s Award and Payment Practices in the Shuttered Venue Operators Grant Program (Report 22-15), we reported
that even after determining multiple disbursements would better protect grant funds from fraud or misuse, SBA switched to a
riskier single advance payment for all grantees. This lump sum payment method may have hastened award disbursement, but
multiple disbursements are a better way to protect taxpayer funds. Multiple disbursements enable program officials to verify that
grant recipients used initial award funds for allowable activities, before then disbursing the remaining award. Because SBA made
this change, program officials will not be able to monitor grantees’ use of the proceeds until the end of the award, when closing
out the grant, after all the funds have been disbursed.
Some of the issues we identified in SVOG were also identified in the Restaurant Revitalization Fund program. In FY 2022, GAO
reported that SBA had emphasized putting pre-award controls in place to manage risk but identified weaknesses in the design
and operation of the internal controls (GAO-22-105442). As a result, the agency did not effectively prevent systemic control
weaknesses throughout the award process.
Our inspection SBA’s Administrative Process to Address Potentially Fraudulent Restaurant Revitalization Fund Awards (Report 23-10)
found SBA designed the RRF application validation and approval processes using the GAO’s A Framework for Managing Fraud
Risks in Federal Programs. However, 3,790 applications submitted through a point-of-sale partner were processed without verifying
gross sales, a key control designed to prevent ineligible entities from receiving awards.
In our recent audit of SBA’s Oversight of Restaurant Revitalization Fund Recipients (Report 23-15), OIG identified issues with SBA’s
post-award process for the RRF program. The Office of Capital Access developed a post award report process to monitor the use of
funds by awardees. All RRF awardees are expected to submit a post-award report to SBA itemizing the use of funds.
SBA is also performing a manual audit of approximately 10 percent of the 10,000 awards to confirm eligibility, award calculation,
and use of funds. Although SBA developed a plan for monitoring and auditing RRF recipients, program officials did not
implement the process as planned.
OIG found program officials did not obtain sufficient information to monitor the RRF program to ensure funds were used as
intended. RRF recipients were required to submit their final use of funds report to SBA by April 30, 2023. As of June 2023, 20
percent of all recipients, with awards totaling $3.5 billion, had not yet filed the required report.
In addition, program officials selected 10 percent of the awards to review; however, they did not select all awards considered
to be potentially fraudulent or ineligible, as originally planned. We identified 210 awards with indicators of potential fraud or
ineligibility were not included in SBA’s sample selection plan. We also found program officials did not implement procedures for
recipients to return unused or improperly awarded funds to Treasury.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 154 Other Information (Unaudited)
Agency Progress
SBA has made progress in its oversight of the SVOG and RRF programs. For the SVOG program, agency officials accomplished
these things:
• Finalized a revised oversight plan and established procedures to monitor, audit, and close out awards;
• Drafted standard operating procedures to identify and recover improper payments;
• Modified the SVOG budget form to include constraints on budget submissions for certain cost categories to help recipients
comply with program requirements;
• Contracted with a firm to help develop the strategy and oversight plan;
• Trained staff and SVOG grant recipients on audit and grant management policies and procedures; and
• Established a plan to audit a statistically significant sample of low, moderate, and high-risk level SVOG recipients.
For the RRF program, agency officials accomplished these things:
• Approved the RRF Award Recovery Plan in May 2023, which detailed the process for notifying awardees when funds must
be returned;
• Developed an outreach strategy to notify awardees who did not file the final financial report to comply or return funds. SBA
alerted awardees through all known contact information.
• Initiated plans with the RRF platform developers to identify the most efficient way to implement the plan and begin
notifying awardees of the intent to recover funds.
ISSUE: LEVERAGING SBA’S WORKFORCE TO ENSURE EFFECTIVE ADMINISTRATION OF NEW AND
SIGNIFICANTLY EXPANDED GRANT PROGRAMS TO AID SMALL BUSINESSES
SBA will need to leverage and maintain a skilled workforce to meet the demands of ongoing grant
management and administration of awards. SBA did not have enough staff to handle the new and
significantly expanded grant programs to aid and assist small businesses during the pandemic. When
SBA began implementing the SVOG program, it had only one official and a few temporary staff to
YELLOW start the program. Once implemented, SBA had to onboard and train a substantial workforce to review
and approve applications. SBA awarded 13,011 grants, totaling $14.6 billion. With more than
13,000 grants to service through monitoring, audit, and closeout.
To oversee the RRF program, SBA selected 10,050 RRF recipients, or 10 percent, to manually verify that awarded funds were
used for allowable costs. In our audit SBA’s Oversight of Restaurant Revitalization Fund Recipients (Report 23-15), we found that
SBA was not on track to review awards in a prompt manner. We identified imbalances in the number of personnel assigned to
review a single award, leading to an inefficient review process that will need to be addressed in the near term. The agency assigned
a team of 22 reviewers and 6 approvers to complete the 10,050 reviews. As of August 2023, program officials have completed
over 1,400 reviews. At this rate of review, we estimate it will take nearly 5 years to complete the remaining reviews, which raises
concerns because the reviews would extend beyond the required timeframe for retaining award records.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 155 Other Information (Unaudited)
Agency Progress
SBA had made the following progress on ensuring the SVOG had staff to support grant monitoring activities in FY 2023:
• SVOG realigned its workforce to better use the workforce strengths and skills and provided opportunities for staff
members to participate in cross-functional training and knowledge sharing.
• Program officials trained staff on oversight procedures now that it has transitioned to monitoring the 13,011 shuttered
venue grants.
• The agency detailed a grants management specialist to provide strategic guidance on all monitoring, auditing, and
closeout activities.
For the RRF program, SBA made the following progress:
• SBA increased the staff assigned to conduct the 10,050 planned post-award reviews.
• SBA plans to maintain current staffing levels of 40 employees to complete post-award reviews through Q1 FY 2025.
• As of August 2023, SBA completed over 1,400 or 14 percent of the planned post-award reviews.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 156 Other Information (Unaudited)
OFFICE OF THE ADMINISTRATOR
U.S. Small Business Administration
Washington, D.C. 20416
Agency’s Response to Top Management and Performance Challenges Facing
the Small Business Administration in Fiscal Year 2024
The SBA scaled to historic levels to meet the critical financial needs of America’s small businesses during the
COVID-19 pandemic and, as a result, has implemented an unprecedented response to strengthening its
management, operations, and performance to protect both special and core program integrity. I thank the Office
of Inspector General (OIG) for its collaboration with our teams and its efforts to identify the top management
and performance challenges facing the U.S. Small Business Administration (SBA or Agency) in Fiscal Year 2024
(2024 Management Challenge [MC] Report). The OIG’s investigation and analysis provides important insights
on the threats, strengths, weaknesses, and opportunities facing our enterprise objectives.
SBA’s substantial progress, resolution, and/or appropriate reduction on 17 of the 21 issues identified in the
2024 MC Report is attributable to our continued communication, collaboration, and coordination with the
OIG leadership and staff. We appreciate the OIG’s recognition of these successes as well as further suggestions.
We remain dedicated to resolving the remaining four issues, and I have directed SBA’s program, strategic, and
support offices to continue to prioritize them. The insights of this report have been shared throughout the
Agency so that leadership at every level can evaluate the risks and effectively direct resources and oversight efforts.
The SBA believes the public will benefit from having more context and direct management insights on serval
issues. Although not an exhaustive list, SBA would like to highlight the following:
1. $28 Billion in Likely Fraud in the COVID-19 EIDL Portfolio. OIG reports an estimated $136 Billion in
COVID-19 EIDL program grants and loans that require further investigation. SBA has clearly articulated
in its anti-fraud report, Protecting the Integrity of the Pandemic Relief Programs | U.S. Small Business
Administration (sba.gov) that $28 billion represents likely fraud in this portfolio after screening 36.7 million
entities and flagging three million of them for additional review and referral to OIG for further investigation
and possible legal action. SBA’s anti-fraud report highlighted the Agency’s actions to prevent, detect, and
respond to fraud. Additionally, the report sought to support public understanding of SBA’s work as well as
provide an estimate of likely fraud across pandemic programs with significant detail on the methodology
used to develop the estimate. The OIG conducted its review simply “to provide a comprehensive estimate of
the potential fraud in the U.S. Small Business Administration’s (SBA) pandemic assistance loan programs.”
The SBA has expressed its concerns with the methodology used by OIG to achieve its estimates and is very
open to continued dialogue with OIG about the methodologies used. The SBA also looks forward to the
results of the Government Accountability Office’s work to establish a uniform methodology for estimating
fraud in federal programs.
2. SBA’s Continued Work to Collect on Fraudulent COVID-EIDL Borrowers. The SBA is not terminating
collection efforts on its COVID-EIDL portfolio, and especially not on loans identified as fraudulent
COVID-EIDL loans. As noted by OIG, the SBA is required to conduct collection activities on fraudulent,
false, or misrepresented claims. Once OIG provides the data on the loans that it believes are potentially
fraudulent and need to be remedied, the SBA would be able to take appropriate actions.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 157 Other Information (Unaudited)
3. 99.85% of Shuttered Venue Operators Grants (SVOG) Were Issued with Performance Measures and Goals
in Place. The SBA only disbursed 0.15% or $21.2M to 74 SVOG recipients before the finalization of the
program evaluation framework in June of 2021, and those measures applied retroactively. OIG incorrectly
reported that the SBA disbursed $14 Billion to grant recipients without performances goals and measures
in place.
4. General Services Administration (GSA) is responsible for addressing concerns with SAM.gov, not the SBA.
The SBA does not own, control, or manage SAM.gov and has repeatedly requested that OIG exclude GSA’s
OIG report in SBA’s MC Reports. The GSA’s OIG report identified issues related to the management of the
Federal Procurement Data System – Next Generation (FPDS-NG) system and their oversight of contracting
offices across the government. Notable, these issues are not within the purview of the SBA to check and
verify, and the SBA cannot make changes to the system entries. GSA owns and is responsible for the
SAM.gov system.
Consequently, the MC report unfairly and inaccurately presents this issue as a problem relating to SBA’s
oversight and management of 8(a) and HUBZone Programs, when the SBA does not have control or even
an ability to change the system without any authority to address limitations in the system. The SBA can only
continue to request that GSA take appropriate action to update its system.
5. Women-Owned Small Business (WOSB) current certification process addresses the risks raised by OIG.
SBA’s WOSB certification process allows for certain eligibility requirements to be met at the time of initial
application, and others to be met prior to the aware of a set-aside contract. Although the OIG recommends
that the SBA review documentation to verify that applicants meet small business size standards at the time of
initial application, this is not unambiguously required by the National Defense Authorization Act (NDAA)
of 2015. Specifically, the 2015 NDAA does not plainly require a size determination as part of determining
eligibility for the WOSB program and does not directly make any revisions to the Small Business Act with
respect to size determinations. A size determination for a WOSB (whether it is small or not small) is made
prior to the WOSB receiving an individual procurement action, which allows the SBA to determine whether
it is small in the relevant North American Industry Classification System (NAICS) code for that action.
Consequently, a WOSB cannot “self-certify” as owned and controlled by a woman to benefit from those
set-aside contracts.
This matter was adjudicated, and the resolution agreed to by the SBA and OIG. Moreover, both SBA and
OIG agree that this matter has been resolved. The risks raised by OIG have been addressed and the WOSB
certification process should no longer be presented as a top management challenge for the SBA in this report.
The SBA is dedicated to fully addressing its outstanding audit recommendations, many of which are closely
tied to the issues identified in the 2024 MC Report. The SBA’s efforts and progress have already produced
benefits that will allow the SBA to better protect its program and stakeholders. In Fiscal Year 2023, the SBA
successfully implemented and closed 101 OIG audit recommendations. As noted by OMB Circular No. A-123,
the SBA continues to exercise the best practice of reviewing and considering our auditors’ perspective and
recommendations from this and other reports when evaluating the enterprise risks. As a result, SBA’s skilled
workforce and committed leadership have worked diligently and effectively to advance improvements to our
program and operational integrity and internal controls.
I look forward to the continued strengthening of SBA’s collaboration with the OIG in our endeavor to innovate,
institutionalize continuous improvement, and facilitate strategic collaboration with our stakeholders to ensure the
SBA is well-positioned to deliver against its mission of serving America’s small businesses and innovative startups.
Sincerely,
Isabella Casillas Guzman
Administrator
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 158 Other Information (Unaudited)
Payment Integrity
The Payment Integrity Information Act of 2019 (PIIA) • Economic Injury Disaster Loan Emergency
was established to improve efforts to identify and reduce Assistance (Advance);
Government-wide improper payments, and it requires • Paycheck Protection Program (PPP) Loan Guaranty
agencies to estimate improper payments and report on actions Purchases; and
to reduce improper payments. In accordance with Office of
• Paycheck Protection Program (PPP) Loan Forgiveness.
Management and Budget (OMB) Circular A-123, Appendix
C, Requirements for Payment Integrity Improvement The SBA conducts risk assessments on a 3-year rotation
(M-21-19) (hereafter referred to as “Appendix C”), agencies cycle for programs not deemed susceptible to significant
are required to identify, assess, prioritize, and respond to improper payments, or earlier if a program was subjected to
payment integrity risks to prevent improper payments in the significant change in legislation or funding level. Significant
most appropriate manner. This report will discuss the SBA’s improper payments are defined as gross annual improper
efforts and results related to improper payment assessment payments exceeding (1) both 1.5 percent of program outlays
and reviews. More detailed information on improper and $10,000,000, or (2) $100,000,000. In FY 2023, the
payments and information previously reported in the AFR SBA updated the qualitative risk assessment template used
that is not included in the FY 2023 AFR can be found to identify programs susceptible to significant improper
on PaymentAccuracy.gov. payments. The updated qualitative risk assessment applies
an individual risk weight to each risk factor to account for
The SBA improper payment reviews include a multi-layered
the variability in potential risk that each risk factor could
process that starts with a risk assessment. If a risk assessment
impose on a program. This year, the SBA performed one
indicates that a program is susceptible to improper payments,
risk assessment on the Congressional Grants program
then testing is performed using a statistically valid sampling
using the revised qualitative risk assessment and concluded
technique. Based upon the testing results, a corrective action
that the program was not susceptible to significant
plan is developed to prevent and remediate the types of errors
improper payments.
uncovered. If testing finds a significant amount of recoverable
dollars, the SBA considers the appropriateness of performing The next sections discuss SBA efforts and results related to
a recapture audit. improper payment assessments and reviews.
The detection and remediation of improper payments is a
priority for the Agency. SBA staff monitor and review for
improper payments and implement improvements that will
reduce improper payment rates. The SBA also continually
seeks opportunities to enhance and implement internal
controls to reduce the risk for improper payments.
In FY 2023, the SBA reviewed eight programs and activities
that were deemed susceptible to significant improper
payments. Of the eight programs reviewed, four programs are
major credit programs mandated by OMB, and four programs
are programs that were created as a result of the pandemic
response. The eight programs are:
• 7(a) Loan Guaranty Approvals;
• 7(a) Loan Guaranty Purchases;
• 504 Certified Development Loan Approvals;
• Disaster Assistance Loans;
• COVID-Economic Injury Disaster Loan (EIDL);
U.S. Small Business Administration
Payment Reporting
Agency Financial Report Fiscal Year 2023
Table 1: Improper Payment Reporting and Reduction Outlook ($ in Millions)1
FY 2022 FY 2023 Summary FY 2023 Breakdown
Overpay- Overpay- Overpay- Overpay- FY 2024
Technically Technically Reduction
Program Proper Improper Unknown Proper Improper Unknown ments (Out- ments (With- Underpay- ments (Out- ments (With- Underpay-
Outlays 2
IP IP Outlays 2
Improper Improper Target
Payment Payment Payment Payment Payment Payment side Agency in Agency ments side Agency in Agency ments
$ % $ $ Payments Payment %
% % % $ $ $ Control) Control) %" Control) Control) $
%" $
% %" $ $
7(a) Loan Guaranty Approvals 29,717.21 1.00 298.07 20,110.22 98.69% 1.31% 0.00% 19,847.48 262.74 - 0.00% 0.00% 0.00% 1.31% - - - 262.74 1.00%
7(a) Loan Guaranty
706.87 4.15 29.32 793.65 93.85% 6.15% 0.00% 744.84 48.81 - 0.00% 4.76% 1.39% 0.00% - 37.75 11.06 - 6.05%
Purchases
504 Certified Development
10,020.79 1.99 198.96 7,150.24 96.86% 2.75% 0.39% 6,925.83 196.70 27.71 0.00% 0.00% 0.00% 2.75% - - - 196.70 2.65%
Loan Approvals
Disaster Assistance Loans 1,133.59 3.06 34.68 871.64 96.07% 3.93% 0.00% 837.35 34.29 - 0.00% 3.80% 0.13% 0.00% - 33.13 1.16 - 3.83%
U.S. Small Business Administration
COVID-Economic Injury
153,811.64 4.50 6,916.71 38,931.71 91.85% 8.15% 0.00% 35,759.94 3,171.77 - 0.00% 6.52% 1.63% 0.00% - 2,537.39 634.38 - N/A4
Disaster Loan (EIDL)
Economic Injury Disaster
Loan Emergency Assistance
(Advance)
7,849.84 9.76 766.34 74.53 93.20% 6.81% 0.00% 69.46 5.07 - 0.00% 6.80% 0.00% 0.00% - 5.07 - - N/A4
159
Paycheck Protection
Program (PPP) Loan N/A3 N/A3 N/A3 46,280.99 59.49% 1.94% 38.56% 27,532.73 896.04 17,852.22 0.00% 1.89% 0.05% 0.00% - 873.93 22.12 - 1.84%
Forgiveness
Paycheck Protection
Program (PPP) Loan N/A3 N/A3 N/A3 8,274.20 50.85% 1.52% 47.63% 4,207.71 125.77 3,940.71 0.00% 1.52% 0.00% 0.00% - 125.77 - - 1.42%
Guaranty Purchases
Total 203,239.94 8,244.08 122,972.28 95,925.34 4,741.19 21,820.64 0.07 3,613.04 668.72 459.44 4
Other Information (Unaudited)
1 Amounts and percentages reported on this table may not reconcile due to rounding differences.
2 Outlays in this report represent the base amount of the program activity related to SBA improper payments; and this amount will differ from the amount reported as outlays in SBA’s President’s Budget submissions because they
include reestimates of subsidy cost, reimbursements to SBA administrative funds and other costs. Outlays for 7(a) loan guaranty purchases are the amount of disbursements for the purchase of defaulted guarantied loans. Outlays for
7(a) loan 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. Outlays for disaster loans are loan disbursements on current year approvals.
3 Prior year data for the program is not available as FY 2023 is the first year program is reporting improper payment data.
4 An FY 2024 reduction target was not established for this program. The program will not have any disbursements in the FY 2024 reporting period.
Agency Financial Report Fiscal Year 2023 160 Other Information (Unaudited)
Table 1 presents a summary of the SBA’s improper payment For FY 2024, the SBA established a reduction target of
review results and reduction outlook. 1.00 percent for the 7(a) Loan Guaranty Approvals program.
This FY 2024 reduction target is the same as the FY 2023
To provide more clarity for the reader, this section is organized reduction target. The FY 2023 improper payment rate
by the eight programs and activities subjected to review estimate of 1.31 percent for the 7(a) Loan Guaranty Approval
for improper payments and provides statistical sampling program is slightly higher than the target reduction rate of
information and review results coupled with the SBA’s 1.00 percent established for FY 2023. To improve payment
planned corrective actions to address the improper payments. integrity, the SBA has revised its Standard Operating
Procedure (SOP) 50 10, Lender and Development Company
7(a) LOAN GUARANTY APPROVALS Loan Programs, and has provided training on the new SOP to
lenders in July and August 2023.
The 7(a) Loan program is the SBA’s most common loan
program. The 7(a) Loan program provides small businesses The 7(a) Loan Guaranty Approval reviews were conducted to
with short- and long-term working capital, capital to refinance determine whether lenders complied materially with the 7(a)
current business debt, and capital for specific business loan program origination requirements, including statutory
expenditures. For payment integrity reporting, the 7(a) Loan provisions, SBA regulations, any agreement the lender
program is bifurcated into 7(a) Loan Guaranty Approvals and executed with the SBA, Standard Operating Procedures, Loan
7(a) Loan Guaranty Purchases. Authorizations, and official SBA notices and forms applicable
to the 7(a) loan program. The reviews were conducted in order
7(a) Loan Guaranty Approvals describes the loan guaranty
to determine if lenders (1) originated the loan in a prudent
approval process. The SBA does not make loans directly to
and commercially reasonably manner, (2) mispresented or
borrowers; the SBA provides a guaranty to a lender which
failed to disclose a material fact to the SBA, and/or (3) put
makes the loan to a borrower. The SBA delegates authority
the SBA’s financial interest at risk. All 7(a) loans are reviewed
to certain lenders to process, close, service, and liquidate
at the time of approval; these loans are generally made to the
certain 7(a) loans without prior SBA review. Approximately
right recipient for the right amount, but the approval process
80 percent of 7(a) loans are approved by lenders under their
failed to follow all statutes and regulations. In these cases there
delegated authority. At the time of loan approval, no monies
is no amount that needs to be recovered. However, because
are disbursed. Improper payments identified during loan
the lender failed to adhere to all applicable statutes, the
review result in no monetary loss to the government. During
guaranty is considered technically improper.
the loan guaranty approval review process, the SBA reviews
the 7(a) loan for calculation accuracy to ensure that lenders
Root Cause and Corrective Action
issued the 7(a) loans to eligible borrowers and that loans are
made within statutory, regulatory, and SBA-issued guidelines. Approximately 80 percent of all 7(a) Loan Guaranty
Approvals are performed by lenders with delegated authority
Statistical Sampling to evaluate, process, close, and disburse 7(a) loans. Lenders
with delegated authority were responsible for all identified
For the 7(a) Loan Guaranty Approval review, the sample cases
improper payments for 7(a) loan program approvals
were chosen using PPS Sampling, with replacement from all
in FY 2023.
loan guaranties approved during the 12-month period ended
March 31, 2023. The approval population was divided into In two of the three loans in the sample identified with
two strata based on whether the loan was SBA Express or improper payments, the lender failed to document or
not. The SBA determined the appropriate total sample size determine adequate debt service coverage, based on SOP
to be 270 loans from the population. The sample included requirements. In the remaining loan identified as an
net guaranteed approvals of $392,359,586 and improper improper payment, the lender failed to meet loan refinancing
payments of $3,672,356 within the sample. Using the requirements as stated in the SOP. Because the improper
Hansen-Hurwitz estimation method, the estimated improper payments for these 7(a) approvals are technically improper,
payments rate for the annual period ending March 31, 2023, the OMB root cause is identified as Statutory Requirements
was calculated as 1.31 percent, with an estimated improper of Program Were Not Met.
payment dollar amount of $262,740,596. In FY 2023, the
SBA did not identify any unknown payments.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 161 Other Information (Unaudited)
To reduce and/or eliminate the occurrence of future improper Statistical Sampling
payments, a Corrective Action Plan has been developed for
For 7(a) Loan Guaranty Purchase reviews, the sample cases
the 7(a) Loan Guaranty Approval program centers. Specific
were chosen using PPS Sampling, with replacement from
corrective actions are determined based upon the primary
all purchases approved during the 12-month period ending
reason for the error, with the purpose of both remedying
March 31, 2023. The purchase population was divided
the error and preventing recurrence. Plans for improvement
into four strata based on the following factors: (1) which
include the following:
servicing office processed the purchase, and (2) whether the
• Collaborating with the Office of Credit Risk loan was considered an early default, regardless of servicing
Management (OCRM) to inform the office of specific office. The SBA determined the appropriate total sample size
lender deficiencies for further monitoring and potential to be 284 loans from the population. The sample included
incorporation into Risk Based Reviews; aggregate purchase outlays of $251,468,403 and an absolute
value of improper payments of $27,101,525 within the
• Collaborating with the Office of Financial Assistance
sample. Using the Hansen-Hurwitz estimation method, the
(OFA) to inform the office of deficiencies identified
estimated improper payment rate for the 7(a) Loan Guaranty
for potential incorporation into policy, regulatory, or
Purchase population is 6.15 percent, with an estimated
standard operating procedure rewrite or update; and
improper payment amount of $48,808,949 for the annual
• External training for lenders on policy requirements period ending March 31, 2023. In FY 2023, the SBA did not
governing eligibility and appropriate loan structure. identify any unknown payments.
The Office of Financial Program Operations (OFPO) shares For FY 2024, the SBA established a reduction target of
the loan level and lender deficiencies identified during 6.05 percent for the 7(a) Loan Guaranty Purchases program.
the reviews with OCRM and OFA and will continue its The FY 2023 improper payment rate estimate of 6.15 percent
efforts throughout the upcoming fiscal year to ensure that for the 7(a) Loan Guaranty Purchase program is higher than
lender deficiencies are monitored and recommended to be the target reduction rate of 4.05 percent established for FY
incorporated into OCRM’s Risk Based Reviews and OFA’s 2023. To improve payment integrity, the SBA has revised
policy rewrites and updates. its Standard Operating Procedure (SOP) 50 57, 7(a) Loan
Corrective actions for specific loans are tracked at the loan Servicing and Liquidation, its Guaranty Purchase guidance,
level through a centralized database. The Quality Control and provided training on the new SOP to lenders in July and
Specialist for 7(a) Loan Guaranty Approvals monitors errors August 2023. The SBA is also developing a “Universal 327,” a
from identification through completion of the corrective transaction record wherein legal and finance staff analyze and
actions. OFPO management provides oversight to ensure that address relevant transactions and issues related to the guaranty
milestones are met. Improper payments identified as a result purchase process.
of the FY 2023 PIIA reviews have been resolved through The 7(a) Loan Guaranty Purchase reviews were conducted
recommendations to reduce or cancel the loan guaranty, to determine whether lenders complied materially with
additional documentation, and/or referral to other offices. the 7(a) loan program origination requirements, including
Corrective actions are initiated within 120 days and are statutory provisions, SBA regulations, any agreement the
generally taken within the fiscal year. lender executed with the SBA, standard operating procedures,
loan authorizations, and official SBA notices and forms
7(a) LOAN GUARANTY PURCHASES applicable to the 7(a) loan program. The reviewers determined
whether the lender (1) originated, serviced, and liquidated the
7(a) Loan Guaranty Purchases describes the loan guaranty
loan in a prudent and commercially reasonable manner, (2)
purchase process. A lender may demand that the SBA honor
misrepresented or failed to disclose a material fact to the SBA,
its guaranty on a loan if a borrower is in default or files for
and/or (3) put the SBA’s financial interest at risk.
federal bankruptcy protection. During the loan guaranty
purchase process, the SBA will purchase (also called “honor”)
the guaranty on a defaulted SBA loan.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 162 Other Information (Unaudited)
Root Cause and Corrective Action Corrective actions are tracked at the loan level through a
centralized database. The Quality Control Specialists for the
The root cause categories established by OMB are: (1)
7(a) Loan Guaranty Purchase centers monitor errors from
Statutory Requirements of Program Were Not Met; (2)
identification through completion of the corrective action.
Unable to Determine Whether Proper or Improper; (3)
Headquarters management provides oversight to ensure that
Data/Information Needed Does Not Exist; (4) Inability to
milestones are met. Improper payments identified as a result
Access Data/Information; and, (5) Failure to Access Data/
of the FY 2023 PIIA reviews have been resolved through
Information. The root cause for 7(a) Loan Guaranty Purchases
obtaining additional documentation, referral for denial review,
improper payments was identified as Failure to Access Data/
collection of funds from the lender, or reimbursement to the
Information. Improper payments generally arose when
lender. Corrective actions were generally completed at the
purchase processors failed to identify lenders’ deficiencies
loan level within 60 days, and all actions were taken by the
during the evaluating, processing, closing, disbursing,
end of the fiscal year.
servicing, liquidating, or litigating of an SBA guaranteed loan.
The primary reasons for 7(a) Loan Guaranty Purchase
504 CERTIFIED DEVELOPMENT
improper payments included:
LOANS APPROVALS
• Reimbursement of lender liquidation expenses were The 504 Certified Development Loans program, made
ineligible, not fully justified, or not approved by available through Certified Development Companies (CDCs),
the SBA; provides small businesses with long-term, fixed rate financing
• Inability to determine borrower eligibility; for major assets that promote business growth and job
• Data entry errors resulting in overpayments creation. CDCs are the SBA’s community-based partners:
and underpayments; nonprofit corporations certified and regulated by the Small
Business Administration to package, process, close, and
• Inaccurate interest rate calculation resulting in
service 504 loans in order to promote economic development
overpayments and underpayments;
within their communities. During the loan approval process,
• Inaccurate/missing data resulting in an inability to
the SBA reviews the 504 loan for accuracy to ensure that
reconcile transcripts of account; and
the CDC lender issued the 504 loan to an eligible borrower
• Ineligible use of proceeds. and that the loan was made within statutory, regulatory, and
SBA-issued guidelines.
In order to reduce and/or eliminate the occurrence of future
improper payments, a Corrective Action Plan has been
Statistical Sampling
developed for the 7(a) Loan Guaranty Purchase centers.
Specific corrective actions are determined based upon the For 504 CDC approval reviews, the sample cases were
primary reason for the error to prevent recurrence of improper chosen using PPS Sampling with replacement from all loan
payments. The Corrective Action Plan includes: guaranties approved during the 12-month period ended
March 31, 2023. The approval population was not stratified.
• Internal training for purchase processors, reviewers, The SBA determined the appropriate total sample size to
and approvers to determine proper recommendation of be 258 loans from the population. The sample included net
guaranty purchase or denial, ensuring that liquidation approval outlays of $533,949,000 and improper payments of
expenses are appropriate and/or approved, verifying the $19,010,918 within the sample.
documentation and accuracy of calculations, ensuring
that documentation for account reconciliation is Using the Hansen-Hurwitz estimation method, the estimated
complete, and verifying the proper use of proceeds and improper payments rate for the annual period ending March
reviewing expenses for eligibility of reimbursement. 31, 2023, was calculated as 2.75, with an estimated improper
• Recovery of lender expenses that were withheld from payment amount of $196,703,368. For instances in which
recovery proceeds or paid but were not fully justified the SBA was unable to determine whether a payment was
and deemed ineligible. Internal feedback was provided proper or improper at the time of review, the SBA categorized
to center staff regarding the specific loan-level deficiency these payments as “Unknown.” In FY 2023, one 504 loan
upon detection. was identified as an unknown payment in the amount of
$1,462,000, which translated to an Unknown Payment
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 163 Other Information (Unaudited)
rate of 0.39 percent. The unknown payment identified The root cause categories established by the OMB are:
in FY 2022, in the amount of $116,781, was resolved in (1) Statutory Requirements of Program Were Not Met;
FY 2023 and determined to be proper. (2) Unable to Determine Whether Proper or Improper;
(3) Data/Information Needed Does Not Exist; (4) Inability
For FY 2024, the SBA established a reduction target of to Access Data/Information; and (5) Failure to Access Data/
2.65 percent for the 504 Certified Development Loans Information. The most prevalent root cause stemmed from
program. The FY 2023 improper payment rate estimate the CDC’s failure to authenticate compliance with loan
of 2.75 percent for the 504 Certified Development Loans program requirements at origination. Because the improper
program is higher than the target reduction rate of 1.89 payments for these 504 approvals are technically improper,
percent established for FY 2023. The increase in the rate the OMB root cause is identified as Statutory Requirements
can be attributed to the number of CDCs with delegated of Program Were Not Met.
authority causing improper payments. In FY2023, 64
percent of the improper payment debenture amount in the The primary reasons for 504 approval improper payments in
sample was from CDCs with delegated authority. To improve FY 2023 included:
payment integrity, the SBA has revised its Standard Operating
Procedure (SOP) 50 10, Lender and Development Company • Lender’s failure to determine proper amount or source
Loan Programs, adding several 504 Loan Program specific of equity injection;
requirements. SBA has also provided training on the new SOP • Lender’s failure to adequately determine proper use of
to lenders in July and August 2023. proceeds; and
• Lender’s failure to properly determine borrower’s overall
The 504 CDC approval reviews were conducted to determine
eligibility given SBA Size Standards.
whether CDCs complied materially with the program’s
origination requirements, including statutory provisions, As a means to reduce and/or eliminate the occurrence of
SBA regulations, any agreement the CDC executed with the future improper payments, a Corrective Action Plan has been
SBA, standard operating procedures, loan authorizations, formalized for the 504 approval center. Specific corrective
and official SBA notices and forms applicable to the 504 loan actions are determined based upon the primary reason for the
program. The reviews were conducted to determine whether improper payment with the purpose of both remedying the
CDCs (1) originated the loans in a prudent and commercially improper payment and preventing recurrence.
reasonable manner, (2) misrepresented or failed to disclose a
material fact to the SBA, and/or (3) put the SBA’s financial Plans for improvement include the following:
interest at risk.
• Collaborating with the Office of Credit Risk
Management (OCRM) to recommend that specific
Root Cause and Corrective Action
lender deficiencies be monitored and incorporated into
504 loans are reviewed at the time of approval. 504 loans are Risk Based Reviews;
available through Certified Development Companies (CDCs), • Collaborating with the Office of Financial Assistance
SBA’s community-based partners who regulate nonprofits and (OFA) to inform the office of deficiencies identified
promote economic development within their communities. for potential incorporation into policy, regulatory, or
CDCs are certified and regulated by the SBA. Loans may be standard operating procedure rewrite or update; and
disbursed up to 4 years after the original approval date. These
• External training for lenders to ensure that appropriate
loans are generally made to the right recipient for the right
documentation is obtained and analyzed prior to loan
amount, but the approval process failed to follow all statutes
approval that policy requirements are met.
and regulation. In these cases, there is no amount that needs
to be recovered. However, because the CDC lender failed The corrective actions are currently in process. The OFPO
to adhere to all applicable statutes, the loan is considered will continue to share the loan level and lender deficiencies
technically improper. At the time of loan approval, no monies identified during the reviews with the OFA and the OCRM.
are disbursed. Improper payments identified during loan The OFPO will also continue its efforts to ensure that CDC
review result in no monetary loss to the government. deficiencies are monitored and incorporated into lenders’ Risk
Based Reviews. External training will be provided in FY 2024.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 164 Other Information (Unaudited)
Because 504 loans are usually reviewed prior to monies being A probability sampling procedure called “Stratification” was
disbursed, resolution of an identified improper payment is employed to select samples monthly for each program. Each
usually through obtaining additional documentation from loan was assigned to a group and the stratification tool in R
the CDC to remedy the potential improper payment or software was used to select a sample from each group with an
through cancellation of the loan. There is no monetary outlay unequal probability based on loan dollar amount. The sample
at approval, and thus no loss to the Federal Government. size was adequate for a 97 percent confidence and a design
Specific corrective actions on loans reviewed are tracked at precision of 3 percent. To facilitate the random selection of
the loan level through a centralized database. The Quality loans, the Stratified Sampling package in R software and the
Control Specialist for 504 approvals monitors errors from stratification procedure was used to select the sample within
identification through completion of the corrective action. each stratum. For loans with multiple transaction lines, one
Management provides oversight to ensure that milestones transaction to test was randomly selected. This approach
are met. All improper payments identified as a result of the creates a two-stage sampling approach with the first stage
FY 2023 PIIA reviews have been resolved through obtaining sampling at the loan level and the second stage sampling
additional documentation, loan modification, or cancellation at the disbursement level among cases with more than one
of the loan authorization. Corrective actions were generally disbursement. The sample size and probabilities of selections
completed at the loan level within 180 days with all actions were calculated using classical stratification formulas,
taken by the end of the fiscal year. specifically the Neyman optimization formula.
A total of 26,017 loans were approved during the improper
DISASTER ASSISTANCE LOANS payment year, with a total loan outlay of approximately
The Disaster Assistance Loans provides low-interest loans $872 million. The SBA determined the appropriate total
to help businesses and homeowners recover from declared sample size to be 315 loans from the population, with net
disasters. The Disaster Assistance Loans are available to all loan outlays of $33,874,786. The improper payments rate
businesses located within a declared disaster area, private for the annual period ending March 31, 2023, was estimated
non-profit organizations, homeowners, and renters affected as 3.93 percent, and the improper payment amount was
by declared disasters. Disaster Assistance Loans can be used to estimated as $34,292,950.
pay for personal or business losses not covered by insurance
For FY 2024, the SBA established a reduction target of
or funding from other government agencies, as well as for
3.83 percent for the Disaster Assistance Loan program. The
business operating expenses that could have been met had the
FY 2023 improper payment rate estimate for this program
disaster not occurred.
is 3.93 percent, which is slightly higher than the target
reduction rate of 2.96 percent established for FY 2023. This
Statistical Sampling
minor increase has been addressed through reorganization and
The Disaster Assistance Loan reviews for improper transitioning the Disaster program to the Office of Capital
payments were conducted to determine whether loans were Access. Steps to improve payment integrity include the
materially in compliance with SBA guidance, including to development and piloting of a new loan processing system,
determine whether borrowers were eligible for the disaster Unified Lending Platform, which is vastly automating the
assistance loan, whether the amount approved was correct, system and has third party verifications built in to address
whether the loan was made in accordance with existing eligibility concerns and verification of loan amount. The
regulations, Standard Operating Procedures (SOPs) and SBA is also in the process of updating Standard Operating
other internal guidance. Procedure (SOP) 50 30, Disaster Assistance Program to
streamline the disaster lending process. The automation plus
Improper payments for disaster loans are identified through a
the updated SOP will specifically address improper payment
review of a statistical sample of disbursements for a 12-month
issues and will establish business rules and have third party
period ending March 31, 2023. The disbursements are
verification for eligible borrower and correct the loan amount.
reviewed by the SBA Disaster Internal Control Division
(DICD) team for compliance in accordance with Appendix
C’s definition of an Improper Payment: (1) basic eligibility
(right person) and (2) disbursement of payments in
accordance with relevant statutory, regulatory, and operating
procedures (right amount).
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 165 Other Information (Unaudited)
Root Cause and Corrective Action sampling approach with the first stage sampling at the loan
level and the second stage sampling at the disbursement
The root cause categories established by OMB are:
level among cases with more than one disbursement. The
(1) Statutory Requirements of Program Were Not Met;
sample size and probabilities of selections were calculated
(2) Unable to Determine Whether Proper or Improper;
using classical stratification formulas, specifically the Neyman
(3) Data/Information Needed Does Not Exist; (4) Inability
optimization formula.
to Access Data/Information; and, (5) Failure to Access
Data/Information. The root cause of improper payments in Improper payments for COVID-19 EIDLs are identified
the Disaster Assistance Loan Program was Failure to Access through a review of a statistical sample of disbursements
Data/Information. The most prevalent causes of improper for a 12-month period ending March 31, 2023. The
payments stemmed from improper accounting of verified disbursements are reviewed by the SBA DICD Team for
losses on disaster-damaged property, duplication of benefits compliance in accordance with Appendix C’s definition of
not adequately addressed, misallocation of loan funds, and an Improper Payment: (1) basic eligibility (right person)
improper calculation of economic injury. and (2) disbursement of payments in accordance with
relevant statutory, regulatory, and operating procedures
The SBA revised its corrective action processes in FY 2022.
(right amount).
Corrective actions, which typically include obtaining
supporting documentation from the borrower, are completed COVID-19 EIDL improper payments reviews included
within 15 days of being informed of the improper payment. an examination of disaster loans to determine whether the
In addition, the SBA provides quarterly training to loan SBA originated the loans and subsequently disbursed loan
approval staff on the causes of and prevention of improper funds to eligible borrowers for a correct amount in material
payments. compliance with the Loan Authorization and Agreement,
SBA regulations, state and federal laws, Standard Operating
COVID-ECONOMIC INJURY DISASTER LOAN Procedures (SOPs), COVID-19 EIDL program guidelines,
(EIDL) (COVID-19 EIDL) and other applicable SBA guidance.
The Small Business Act authorizes the SBA to make EIDL A total of 220,060 loans were approved, with a total outlay
loans to eligible small businesses and nonprofit organizations of approximately $39 billion. The SBA determined the
located in a disaster area. On March 6, 2020, Congress appropriate total sample size to be 340 loans from the
deemed COVID-19 to be a disaster, thus allowing the SBA to population, with net loan outlays of $219,304,341. The
make EIDL loans available to small businesses and nonprofit improper payments rate for the annual period ending March
organizations suffering substantial economic injury as a result 31, 2023, was estimated as 8.15 percent, and the improper
of the COVID-19 pandemic. payment amount was estimated as $3,171,771,259. SBA
did not identify any unknown payments for the COVID-19
Statistical Sampling EIDL program in FY 2023.
A probability sampling procedure called “Stratification” was The FY 2023 improper payment rate estimate for this
employed to select samples monthly for each program. Each program is 8.15 percent, which is higher than the target
loan was assigned to a group and the stratification tool in R reduction rate of 4.40 percent established for FY 2023. The
software was used to select a sample from each group with an increase in the improper payment rate can be attributed to
unequal probability based on loan dollar amount. The SBA’s new personnel at the newly established COVID-19 EIDL
sampling methodology is a statistically valid and rigorous Servicing Center. The increase in the improper payment rate
plan, with a 97 percent confidence interval, plus or minus has been addressed through additional staff training and
a 3 percent margin of error, the upper and lower bounds of mentoring. In addition, the Disaster Lending Program is in
the confidence interval. The sample size was adequate for a the process of piloting a new loan processing system, Unified
97 percent confidence and a design precision of 3 percent. Lending Platform, which is vastly automating the system
To facilitate the random selection of loans, the Stratified and has third party verifications built in to address eligibility
Sampling package in R software and the stratification concerns and verification of loan amount.
procedure was used to select the sample within each stratum.
For loans with multiple transaction lines, one transaction to
test was randomly selected. This approach creates a two-stage
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 166 Other Information (Unaudited)
The COVID-19 EIDL program ended as of December Statistical Sampling
31,2021 and the FY 2023 improper payment estimates
A probability sampling procedure called “Stratification” was
only consisted of re-disbursements of previously rejected
employed to select samples monthly for each program. Each
disbursements or loan increases and reconsiderations
loan was assigned to a group and the stratification tool in R
disbursed after March 31, 2022. As such, there is no new
software was used to select a sample from each group with an
funding for this program in FY 2024 and no reduction target
unequal probability based on loan dollar amount. The sample
was established for FY 2024.
size was adequate for a 97 percent confidence and a design
precision of 3 percent. To facilitate the random selection of
Root Cause and Corrective Action loans, the Stratified Sampling package in R software and the
The SBA revised its corrective action process in FY 2022. stratification procedure was used to select the sample within
Corrective actions, which typically include obtaining each stratum. For loans with multiple transaction lines, one
supporting documentation from the borrower, are completed transaction to test was randomly selected. This approach
within 15 days of being informed of the improper payment. creates a two-stage sampling approach with the first stage
In addition, SBA provides quarterly training to loan approval sampling at the loan level and the second stage sampling
staff on the causes of and prevention of improper payments. at the disbursement level among cases with more than one
disbursement. The sample size and probabilities of selections
The root cause categories established by OMB are: (1) were calculated using classical stratification formulas,
Statutory Requirements of Program Were Not Met; (2) specifically the Neyman optimization formula.
Unable to Determine Whether Proper or Improper; (3)
Data/Information Needed Does Not Exist; (4) Inability A total of 11,136 EIDL Advances were awarded in FY 2023,
to Access Data/Information; and, (5) Failure to Access with total program outlays of $74,531,673. The SBA
Data/Information. The root cause for COVID-19 EIDL determined the appropriate total sample size to be 131
improper payments was Failure to Access Data/Information. EIDL Advances from the population, with net outlays of
The most prevalent cause stemmed from missing verification $1,026,000. The improper payment rate for the annual period
of business ownership. ending March 31, 2023, was estimated as 6.81 percent, and
the improper payment amount was estimated as $5,072,502.
The SBA provides quarterly training to staff on the causes SBA did not identify any Unknown Payments for the EIDL
and prevention of improper payments. The DICD no Advance program in FY 2023.
longer conducts quality assurance reviews for COVID-19
EIDLs as the program has ended and the SBA is no longer The FY 2023 improper payment rate estimate of 6.81 percent
originating loans nor disbursing newly approved funds under for EIDL Advance is lower than the target reduction rate
this program. of 9.66 percent established for FY 2023. Therefore, the
EIDL Advance program is considered to have met its
reduction target in accordance with Appendix C. The EIDL
ECONOMIC INJURY DISASTER LOAN
Advance program ended as of December 31,2021 and
EMERGENCY ASSISTANCE (ADVANCE) the FY 2023 improper payment estimates consisted solely
(EIDL ADVANCE) of re-disbursements of previously rejected disbursements
The EIDL Advance Program provided funding to help disbursed after March 31, 2022. As such, there is no new
small businesses recover from the economic impacts of funding for this program in FY 2024 and no reduction target
the COVID-19 pandemic and are awarded to existing was established for FY 2024.
COVID-19 EIDL applicants who meet certain eligibility
criteria. The EIDL Advances are similar to grants (without Root Cause and Corrective Action
the typical requirements for grants) and are not required to Improper payments for EIDL Advances are identified
be repaid. There are two forms of EIDL Advances: Targeted through a review of a statistical sample of disbursements
EIDL Advance and Supplemental Targeted Advance. for a 12-month period ending March 31,2023. The
Targeted EIDL Advance provided up to $10,000 to eligible disbursements are reviewed by the SBA DICD Team for
low-income applicants that met specific program eligibility compliance in accordance with Appendix C’s definition of
criteria. Supplemental Targeted Advance provided $5,000 an Improper Payment: (1) basic eligibility (right person)
to eligible low-income applicants that met specific program and (2) disbursement of payments in accordance with
eligibility criteria. relevant statutory, regulatory, and operating procedures
(right amount).
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 167 Other Information (Unaudited)
EIDL Advance improper payments reviews included an make a determination as to whether the loan was proper or
examination of advances to determine whether the SBA improper. SBA has determined that 1,359 of those sample
originated the advances and subsequently disbursed advance loans identified as Unknown payments were Proper; 1,226
funds to eligible borrowers for a correct amount in material loans were Improper; and 23 loans remain Unknown and are
compliance with SBA regulations, state and federal laws, currently under review or the SBA is awaiting documentation.
Standard Operating Procedures (SOPs), COVID-19 EIDL
program guidelines, and other applicable SBA guidance.
PAYCHECK PROTECTION PROGRAM (PPP)
The root cause categories established by OMB are: (1) LOAN FORGIVENESS
Statutory Requirements of Program Were Not Met; (2) The CARES Act established the Paycheck Protection Program
Unable to Determine Whether Proper or Improper; (3) (PPP) loans to provide economic relief to small businesses
Data/Information Needed Does Not Exist; (4) Inability and incentivize small businesses to keep their workers on
to Access Data/Information; and, (5) Failure to Access the payroll because of the COVID-19 pandemic. The
Data/Information. The root cause for EIDL Advances PPP loans can be forgiven if the funds are used for payroll
improper payments was Failure to Access Data/Information. costs, interest on mortgages, rent, utilities, or other eligible
The most prevalent cause stemmed from borrowers failing to expenses. A borrower can apply for forgiveness once all loan
document the required income reduction in order to qualify. proceeds for which the borrower is requesting forgiveness
Additional causes for improper payments included borrowers have been used. Borrowers can apply for forgiveness any
failing to document citizenship, existence of the business, or time up to the maturity date of the loan. If borrowers do not
that the business was located in a low-income area. apply for forgiveness within 10 months after the last day of
the covered period, then PPP loan payments are no longer
Corrective actions may include but are not limited to
deferred, and borrowers will begin making loan payments to
obtaining supporting documentation from the borrower,
their PPP lender.
completing a loan modification, and/or adding clarifying
comments to a file. Corrective actions are to be completed In response to the FY 2023 PIIA Compliance Audit
within 15 days of the final improper payment decision. The conducted by OIG, the SBA separated PPP into three
SBA provides quarterly training to PDC staff on the causes payment integrity reporting categories – PPP Approvals,
and prevention of, improper payments. The DICD no longer PPP Forgiveness, and PPP Purchases, and subsequently
conducts quality assurance reviews for EIDL Advance as the initiated the improper payments review process shortly
program has ended and SBA is no longer originating advances after. The SBA generated the loan sample and requested
or disbursing newly approved funds under this program. supporting documentation from lenders. In many instances,
PPP loans forgiveness requests were submitted via SBA’s
PAYCHECK PROTECTION PROGRAM (PPP) forgiveness platform and, although the lenders and borrowers
LOAN APPROVALS were required to retain supporting documentation, they
were not required to submit that documentation to the
The CARES Act established the Paycheck Protection Program SBA. For several of the PPP loans reviewed as part of the
(PPP) loans to provide economic relief to small businesses forgiveness sample, lenders had to request documents from
and incentivize small businesses to keep their workers on the borrowers. The SBA asked lenders to submit their documents
payroll because of the COVID-19 pandemic. The PPP loans as soon as possible. As a result of the compressed time
can be forgiven if the funds are used for payroll costs, interest between documentation requests and reporting improper
on mortgages, rent, utilities, or other eligible expenses. payment rates, many borrowers and lenders were unable to
provide complete documentation. Those PPP loans with
Funding for PPP loans ended in May 2021. There have
documentation requests outstanding were categorized as
been no new loan approvals since that time. Consequently,
“Unknown” payments since the SBA did not have sufficient
the SBA did not conduct improper payment reviews of
supporting documentation to make a determination as to
PPP loan approvals in FY 2023 (April 1, 2022 through
whether the forgiveness payment was proper or improper.
March 31, 2023).
In FY 2022, SBA reported an Unknown Payment rate
of 2.41 percent. There were 2,608 loans in the FY 2022
sample for which SBA had insufficient information to
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 168 Other Information (Unaudited)
Statistical Sampling amount of the loan disbursed for these forgiveness denials was
determined to be improper.
For Paycheck Protection Program (PPP) Forgiveness
reviews, the sample cases were chosen using PPS Sampling The SBA also reviewed documentation to determine whether
with replacement from all forgiveness outlays processed borrowers had eligible expenses during the covered period,
during the 12-month period ended March 31, 2023. The and, if so, in what amount. If a borrower had eligible expenses
forgiveness population was divided into three strata based that did not equal the amount of the loan disbursed, only that
on the lender type: (1) Bank lender, (2) State Regulated portion of the loan forgiven was determined to be proper. The
Finance Company lender, and (3) All Other lender types. remaining unforgiven portion was determined to be improper.
The SBA determined the appropriate total sample size to be
385 loans from the population. Sampling with replacement The SBA reviewed the forgiveness applications and
means that a loan is eligible to be sampled more than documentation from lenders. If the SBA determined that
once. For PPP forgiveness, there were three loans that were the loan is not eligible for forgiveness (in whole or in part),
sampled twice. Hence, while the SBA only needed to review the payment is considered to be improper; the PPP loan is
382 loans, the true sample size was 385 loans. The sample no longer deferred; and, the borrower must begin paying
included aggregate forgiveness outlays of $415,506,532 principal and interest.
and an absolute value of improper payments of $5,500,542
within the sample. Using the Hansen-Hurwitz estimation The root cause categories established by OMB are: (1)
method, the estimated improper payment rate for the PPP Statutory Requirements of Program Were Not Met; (2)
Forgiveness population is 1.94 percent for the annual period Unable to Determine Whether Proper or Improper; (3)
ending March 31, 2023, and an estimated improper payment Data/Information Needed Does Not Exist; (4) Inability
amount of $896,044,467. to Access Data/Information; and, (5) Failure to Access
Data/Information. The root cause for PPP Forgiveness
The SBA is awaiting lender documentation for all of its improper payments was Failure to Access Data/Information.
PPP Forgiveness payments categorized as “Unknown.” In The most prevalent root cause for PPP Forgiveness Unknown
the forgiveness sample of 382 loans, lenders did not return payments was Unable to Determine Whether Proper or
sufficient supporting documentation for 193 loans. The Improper. The most prevalent cause stemmed from missing
inability to assess whether these loans were proper or improper verification of business ownership.
required the SBA to categorize these loans as “Unknown”
payments. The unknown payment rate for FY 2023 for PPP Corrective actions to address the improper payments
Forgiveness was 38.56 percent. identified may include, but are not limited to the following:
(1) implementing a quality control review process, (2)
For FY 2024, the SBA established a reduction target of internally escalate the loan review of a loan for a loan review
1.84 percent for the PPP Forgiveness program. As this is decision, and/or (3) engage an outside contractor to conduct
the first year reporting improper payment estimates for quality control reviews of a sample of the loan review files to
PPP Forgiveness, a reduction target rate was not established ensure the SBA’s loan review process is complete and accurate.
for FY 2023.
PAYCHECK PROTECTION PROGRAM (PPP)
Root Cause and Corrective Action
LOAN GUARANTY PURCHASES
The SBA reviewed the forgiveness applications from lenders.
The CARES Act established the Paycheck Protection Program
SBA compared the loan amount disbursed to the amount
(PPP) loans to provide economic relief to small businesses
of loan forgiveness requested. The SBA reviewed borrower
and incentivize small businesses to keep their workers on the
eligibility, (including whether the borrower had been
payroll because of the COVID-19 pandemic. The PPP loans
debarred; whether the borrower had defaulted on federal
can be forgiven if the funds are used for payroll costs, interest
debt within the last seven years; whether the borrower
on mortgages, rent, utilities, or other eligible expenses. If the
had been convicted of a felony involving fraud, bribery,
loan is not forgiven, the SBA may purchase (honor) all or part
or embezzlement; whether the borrower was incarcerated;
of the PPP loan guaranty. Lenders may request that the SBA
and, whether the borrower was a U.S. citizen) and reviewed
purchase the guaranty of a PPP loan in the event of a default
documentation to determine whether the borrower’s business
or other qualifying event.
was in operation. Borrowers that were not eligible based on
these eligibility criteria were denied forgiveness. The full
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 169 Other Information (Unaudited)
A lender must have made certain certifications about the all of its PPP Guaranty Purchase payments categorized as
loan and supporting information. The SBA reviews the “Unknown.” The sample of 376 loans, included 176 loans,
lenders’ requests for guaranty purchase and charge-off in where lenders did not return sufficient documentation for the
accordance with PPP Loan Program Requirements. The SBA SBA to assess whether the payments were proper or improper.
will honor its guaranty and purchased 100 percent of the These loans were categorized as “Unknown” payments. The
outstanding balance of the loan provided that the lender has unknown payment rate for PPP guaranty purchases was
complied with all PPP Loan Program Requirements. The SBA 47.63 percent.
reviewed a sample of those PPP loan guaranty purchases for
improper payments. For FY 2024, the SBA established a reduction target of
1.42 percent for the PPP Forgiveness program. As this is
Statistical Sampling the first year reporting improper payment estimates for
PPP Forgiveness, a reduction target rate was not established
For Paycheck Protection Program (PPP) Purchase reviews, for FY 2023.
the sample cases were chosen using PPS Sampling with
replacement from all purchases processed during the Root Cause and Corrective Action
12-month period ended March 31, 2023. The purchase
population was divided into three strata based on the lender The SBA will review a Lender’s request for guaranty purchase
type: (1) Bank lender, (2) State Regulated Finance Company in accordance with all PPP Loan Program Requirements,
lender, and (3) All Other lender types. The SBA determined including the Lenders’ underwriting requirements and the
the appropriate total sample size to be 385 loans from the document collection and retention requirements described in
population. Nine loans were sampled twice for PPP guaranty the Lender application forms.
purchase: although the SBA reviewed 376 loans, the true The SBA reviews documentation to determine the following:
sample size was 385 loans. The sample included aggregate
purchase outlays of $117,921,324 and an absolute value of • The submission accurately reflects the Lender’s records
improper payments of $407,736 within the sample. Using the for the PPP loan;
Hansen-Hurwitz estimation method, the estimated improper • The official transcript of account provided by the Lender
payment rate for the PPP Purchase population is 1.52% for is true and accurate;
the annual period ending March 31, 2023.
• The data reported by the Lender as reflected in E-Tran
In response to the FY 2023 PIIA Compliance Audit as of the date of this certification, including the loan
conducted by OIG, the SBA separated PPP into three status and the outstanding balance of the loan, is true
payment integrity reporting categories – PPP Approvals, PPP and accurate;
Forgiveness, and PPP Purchases, and subsequently initiated • The Lender has made, closed, and serviced the loan in
the improper payments review process shortly after. The accordance with the PPP Loan Program Requirements;
SBA generated the loan sample and requested supporting • The PPP loan has not been cancelled, repaid in full or
documentation from lenders. In many instances, PPP loans forgiven by the SBA in full; and,
guaranty purchase requests were submitted via SBA’s PPP • The PPP loan is evidenced by a legally enforceable
platform and, although the lenders were required to retain promissory note executed by an authorized borrower
supporting documentation, they were not required to representative, and the promissory note and any
submit that documentation to the SBA. The SBA requested modification(s) were made in accordance with the PPP
documentation from lenders for those guaranty purchases Loan Program Requirements.
that were a part of the sample, with the added instruction to
submit the documentation as soon as possible. As a result of The root cause of PPP Guaranty Purchase Improper Payments
the compressed time between documentation requests and was Failure to Access Data/Information. Improper payments
reporting improper payment rates, many lenders were unable stemmed primarily from lenders’ failure to verify the eligibility
to provide complete documentation. Those PPP loans with of the borrower.
documentation requests outstanding were categorized as
“Unknown” payments since the SBA did not have sufficient In the upcoming fiscal year, the SBA will work with lenders
supporting documentation to make a determination as to to gather and obtain documentation required to reduce the
whether the guaranty purchase payments were proper or number of unknown payments in FY 2023. Early in the
improper. The SBA is awaiting lender documentation for FY 2024 fiscal year, the SBA will work with lenders to collect
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 170 Other Information (Unaudited)
documentation to prevent unknown payments in FY 2024. 7(a) LOAN GUARANTY APPROVALS
In addition to recover guaranty purchase improper payments, AND 504 CERTIFIED DEVELOPMENT
The SBA will use processes similar to the process used for LOANS APPROVALS
its 7(a) guaranty purchase portfolio, which begin with
demanding repayment from the lender. Overpayments recaptured outside payment recapture
audits are not applicable to 7(a) loan guaranty approvals and
504 certified development loans approvals as no payments
RESTAURANT REVITALIZATION FUND (RRF) are made at the time of approval. Improper payments
The RRF program was created as a temporary relief program identified through the annual improper payment reviews for
in response to the COVID-19 pandemic with most of the the 7(a) loan guaranty approvals program and 504 certified
disbursements made within the first year. Based on guidance development loans approvals program are resolved through
from OMB and Appendix C guidance limitations, which is obtaining additional documentation, loan modification,
written for programs with multiple years of disbursements, or cancellation of the loan. Improper payments identified
the SBA is committing to working with OMB to perform an as a result of the FY 2023 PIIA reviews have been resolved
improper payment review of a sample population reflective of through obtaining additional documentation, or cancellation
the total programmatic outlays for RRF and will report on the or reduction of the loan guaranty and/or referral to other
results from that improper payment review. offices within the Office of Capital Access, as appropriate.
Determination of a course of action is made on a case-by-case
basis, which varies substantially depending on the
SHUTTERED VENUE OPERATORS GRANT circumstances of the loan approval and lender’s authority.
PROGRAM (SVOG)
The SVOG program was created as a temporary relief program
DISASTER DIRECT LOAN PROGRAM
in response to the COVID-19 pandemic with most of the
disbursements made within the first year. Based on guidance Overpayments are the result of the borrower receiving both
from OMB and Appendix C guidance limitations, which is an SBA loan and insurance payments or other benefits
written for programs with multiple years of disbursements, as a result of the disaster. If the duplication of benefit is
the SBA is committing to working with OMB to perform an recognized prior to the final disbursement, the loan amount
improper payment review of a sample population reflective of is modified to reflect a lower amount and no repayment is
the total programmatic outlays for SVOG and will report on required. If the duplication of benefit is identified after the
the results from that improper payment review. final disbursement of the loan, then the borrower is given
30 days to provide evidence to prove that the disaster loan
was not over-disbursed. For example, the borrower can
PAYMENT RECOVERY EFFORT provide documentation demonstrating that insurance funds
The SBA makes every effort to recover improper payments received did not duplicate the disaster loan purpose. If the
identified during their improper payment review process. This borrower has not provided the appropriate evidence within
recovery effort is independent of the recapture audit process, the 30-day period, a demand is made for the over-disbursed
which can be deemed costly and ineffective. The agency efforts funds. Collection efforts continue at the Disaster loan
to recapture improper payments are discussed by program or servicing centers, but if these efforts fail, the borrower will
activity below. still be liable for the over-disbursed amount in the form of
monthly payments in accordance with the loan agreement.
Thus, any actual loss is the cost of funds related to the
7(a) LOAN GUARANTY PURCHASES over disbursement.
Overpayments identified in the improper payments’ reviews
are recaptured from the lender. The Quality Control staff
tracks and collects any monetary overpayment. In some
instances, the loan is referred to the Guaranty Review Team
for further action. Determination of a course of action is
made on a case-by-case basis, depending on the specific
details of the reason for the improper payment. Refer to
section above for corrective action plans to prevent future
improper payments.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 171 Other Information (Unaudited)
COVID-ECONOMIC INJURY DISASTER LOAN PAYCHECK PROTECTION PROGRAM LOAN
(EIDL) (COVID-19 EIDL) GUARANTY PURCHASES
Improper payments are generally the result of loan If the SBA determines that the guaranty purchase was not in
documentation errors. Loan documentation legally obligates accordance with PPP Loan Program Requirements, the SBA
the recipient of a disaster loan to pay back the entire loan will request that the lender repay the guaranty purchase funds.
amount whether or not the loan contains any improper In some instances, the loan may be referred to the Guaranty
payments. Therefore, improper payments are not recovered Review Team for further action. Determination of a course
upon discovery but realized as the borrower makes each of action is made on a case-by-case basis, depending on the
payment on the loan. specific details of the reason for the improper payment.
ECONOMIC INJURY DISASTER LOAN PAYMENT RECAPTURE AUDITS
EMERGENCY ASSISTANCE (ADVANCE) On September 15, 2011, the SBA submitted a Payment
(EIDL ADVANCE) Recapture Audit Cost-Effective Analysis to the Office
The SBA is developing a plan to assess the Emergency EIDL of Management and Budget. The analysis discussed the
Advances. The SBA will demand repayment for EIDL 7(a) Business Loan Guaranty Program, the 504 Certified
Advances identified as improper. The SBA will explore Development Company Loan Guaranty Program, the
available options to remedy cases, including recovery of funds Disaster Direct Loan Program, Disbursements for Goods
by offset, referral to OIG’s Division of Investigations, or and Services, the Small Business Investment Company
providing supporting documentation where appropriate. Financing Guaranty Program, the Surety Bond Guaranty
Program, and Grants, which included all grant programs. The
analysis described the program, the controls over financial
PAYCHECK PROTECTION PROGRAM disbursements, and the size of the program and concluded
LOAN APPROVALS for each program that recapture audits would not be cost
Overpayments are the result of the borrower receiving a PPP effective due to low error rates, complexity of the program, or
loan in an amount that (1) exceeds the borrower’s eligibility, limited amount of outlays. A subsequent cost analysis for the
(2) that cannot supported through documentation, or (3) that 7(a) loan guaranty purchase program was submitted to OMB
was not used for purposes permitted by statute or guidance. on September 13, 2017, to include the results of a payment
In its review of the loan, if the SBA determines that the loan is recapture audit performed in 2015, which again concluded
not eligible for forgiveness (in whole or in part), the borrower that such an audit is not cost effective. In FY 2022, the SBA
must begin paying principal and interest. performed a cost-benefit analysis for programs with over
$1 million in disbursements and not covered by the analysis
completed in 2011, and concluded that it would not be
PAYCHECK PROTECTION PROGRAM cost-effective to perform a recovery audit. Some of the factors
LOAN FORGIVENESS considered include the following: program was not identified
If the SBA determines that the borrower was ineligible for as being susceptible to significant improper payments in the
the loan amount or used PPP loan proceeds for unauthorized last risk assessment, there have been no recent audit findings
uses, the SBA may seek repayment of part or all of the or reports to suggest that the program is susceptible to
outstanding PPP loan balance or pursue other available improper payments, prior internal control assessments did
remedies. If the SBA uncovers information that indicates not identify the program as being susceptible to significant
that the borrower made a material misstatement of fact or improper payments, and the cost to perform a recovery audit
provided a false certification, before or after the SBA remits exceeded the potential recovery amount.
a forgiveness payment to the lender, the SBA may seek
In FY 2023, the SBA did not conduct any recovery audits.
repayment of the outstanding PPP loan balance, refer the
As mentioned above, in prior years, the SBA has conducted
borrower to the SBA Office of Inspector General (OIG),
cost-benefit analyses on programs subject to payment
or pursue other available remedies. Further, if the SBA
recapture audit, and deemed the costs to perform a payment
determines that the loan is not eligible for forgiveness (in
recapture audit outweighed the benefits of the audit.
whole or in part), the borrower must begin paying principal
and interest.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 172 Other Information (Unaudited)
AGENCY IMPROVEMENT OF PAYMENT
ACCURACY WITH THE DO NOT PAY INITIATIVE
The SBA has implemented the Do Not Pay Initiative (DNP)
and incorporated the use of the DNP by submitting all
programmatic disbursements through the DNP portal. If
anomalies are identified, the SBA takes corrective actions to
remedy the anomalies. For disbursements that have not been
disbursed to the recipient, the SBA requires the recipient to
resolve the DNP finding prior to becoming eligible for SBA
funding. For disbursements that have already be disbursed to
the recipient, the SBA would place a hold code on the loan or
grant and/or deny future loan or grant requests or loan relief
requests until the recipient was able to successfully resolve
the DNP finding.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 173 Other Information (Unaudited)
Summary of Financial Statement Audit and
Management Assurances
As required by OMB Circular A-136, Section II.4.4, the following summarizes the SBA’s Financial Statement Audit and
Management Assurances:
SUMMARY OF FINANCIAL STATEMENT AUDIT
Audit Opinion Disclaimer
Restatement No
Beginning Ending
Material Weaknesses New Resolved Consolidated
Balance Balance
Controls over PPP Loan Guarantees 1 0 0 N/A 1
Controls over COVID-19 EIDLs 1 0 0 N/A 1
Controls over Subsidy Re-estimates 1 0 0 1 0
Controls over Financial Reporting for
0 1 0 N/A 1
Subsidy Re-estimates and Recoveries
Controls over the Evaluation of Service
1 0 0 N/A 1
Organizations
Entity Level Controls 1 0 0 N/A 1
Controls over Restaurant Revitalization and
1 0 0 N/A 1
Shuttered Venues
Total Material Weaknesses 6 1 0 1 6
SUMMARY OF MANAGEMENT ASSURANCES
Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)
Statement of Assurance Modified
Beginning Ending
Material Weaknesses New Resolved Consolidated Reassessed
Balance Balance
Controls over PPP Loan Guarantees 1 0 0 N/A N/A 1
Control over COVID-19 EIDLs 1 0 0 N/A N/A 1
Controls over Subsidy Re-estimates 1 0 0 1 N/A 0
Controls over Financial Reporting for
0 1 0 N/A N/A 1
Subsidy Re-estimates and Recoveries
Controls over the Evaluation of Service
1 0 0 N/A N/A 1
Organizations
Entity Level Controls 1 0 0 N/A N/A 1
Controls over Restaurant Revitalization
1 0 0 N/A N/A 1
and Shuttered Venues
Total Material Weaknesses 6 1 0 1 N/A 6
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 174 Other Information (Unaudited)
Effectiveness of Internal Control over Operations (FMFIA § 2)
Statement of Assurance Modified
Beginning Ending
Material Weaknesses New Resolved Consolidated Reassessed
Balance Balance
None 0 0 N/A N/A N/A 0
Total Material Weaknesses 0 0 N/A N/A N/A 0
Conformance with Financial Management System Requirements (FMFIA § 4)
Statement of Assurance Federal Systems do not conform to financial management system requirements.
Beginning Ending
Material Weaknesses New Resolved Consolidated Reassessed
Balance Balance
Federal Financial Management System
1 0 N/A N/A N/A 1
Requirements
Federal Accounting Standards 1 0 N/A N/A N/A 1
Total Non-conformances 2 0 N/A N/A N/A 2
Compliance with Section 803(a) of the Federal Financial Management Improvement Act (FFMIA)
Item Agency Auditor
1. Federal Financial Management System Requirements Lack of compliance noted Lack of compliance noted
2. Applicable Federal Accounting Standards Lack of compliance noted Lack of compliance noted
3. USSGL at Transaction Level No lack of compliance noted No lack of compliance noted
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 175 Other Information (Unaudited)
Grants Programs
More than
Category 2-3 Years 3-5 Years
5 Years
Number of Grants/Cooperative Agreements with Zero Dollar Balances 210 460 0
Number of Grants/Cooperative Agreements with
186 229 0
Undisbursed Balances
Total Amount of Undisbursed Balances $0 $0 0
The SBA works to continuously improve its grants management process and manage risk. The Agency used the following
procedures to assess risk in the Agency’s grant closeout process and improve closeout rates:
• Evaluating the nature and type of grants issued to recipients;
• Examining Agency policy and procedures related to grant closeout; and
• Reviewing the consistency of procedures with federal regulation, industry standards, and other guidance, including but not
limited to evaluating the complexities of procedures in the grant closeout process, assessing the population of expired grant
accounts, reviewing information systems used to process grant data, assessing challenges, and assessing internal controls.
To maintain 100 percent accuracy in the closeout rate, the Agency developed a second-tier approval mechanism to ensure that all
grant awards are in compliance and are accurately closed in its grants management information technology systems. The closeout
team reviews the status of grants regularly, including the number of grants by period of expiration, the number with zero-dollar
balances, and the number with undisbursed balances.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 176 Other Information (Unaudited)
Civil Monetary Penalty Adjustment for Inflation
The Federal Civil Penalties Inflation Adjustment Act of 1990 (Act), as amended, requires agencies to make regular and consistent
inflationary adjustments of civil monetary penalties to maintain their deterrent effect. A civil monetary penalty is defined as any
penalty, fine, or other sanction that is for a specific monetary amount as provided by federal law or has a maximum amount
provided for by federal law, is assessed or enforced by an agency pursuant to federal law, and is assessed or enforced pursuant to an
administrative proceeding or a civil action in the federal courts. To improve compliance with the Act and in response to multiple
audits and recommendations, agencies must report the most recent inflationary adjustments to civil monetary penalties to ensure
that penalty adjustments are both timely and accurate. Pursuant to the Act, the SBA reviewed each of the penalty amounts under
its statutes and adjusted them for inflation when required under the law. The SBA applied a prescribed formula from the Act for
calculating the penalty.
The following table reflects the authorities imposing the penalties, the basis for imposing the penalties, the year the penalties were
authorized, the current penalty levels, the program offices responsible for imposing the penalties, and the citation for the most
recent publication of the penalty updates.
SBA FEDERAL CIVIL PENALTIES
Current
Latest Year of Location
Penalty
Statutory Penalty (Name Year Adjustment Sub-Agency/ for Penalty
Level
Authority or Description) Enacted (via Statute Bureau/Unit Update
($ Amount
or Regulation) Details
or Range)
Small Business Failing to File Report 1966 2023 $314 Office of 88 F.R. 50003
Investment Act, Timely for a Small Investment and (8/1/23)
15 USC 687g Business Investment Innovation
Company (SBIC)
Small Business Act, Failing to File Report 2004 2023 $7,805 Office of 88 F.R. 50003
15 USC 650(j)(1) Timely for a Small Capital Access (8/1/23)
Business Lending
Company (SBLC)
Small Business Act, Types of Formal 2020 2023 $289,504 Office of 88 F.R. 50003
15 USC 657t(e)(2)(B) Enforcement Actions Credit Risk (8/1/23)
Management
Small Business Act, Administrative 1986 2023 $13,508 Multiple 88 F.R. 50004
15 USC 634(b)(6) Remedies for False offices (8/1/23)
and Program Fraud Statements and
Civil Remedies Act Claims
31 USC 3802(d)
Small Business Act, Penalty for Violation 1990 2023 not less than Multiple 88 F.R. 50004
15 USC 634(b)(6) of Lobbying $23,727 and offices (8/1/23)
and Program Fraud Restrictions not more than
Civil Remedies Act $237,268
31 USC 1352
U.S. Small Business Administration
Appendices
(Unaudited)
SECTION 4
Agency Financial Report Fiscal Year 2023 178 Appendices (Unaudited)
APPENDIX 1 – Contact SBA: Useful Websites and
Phone Numbers
The SBA home page is www.sba.gov. Information on SBA programs may be accessed from this website. Several of the more
frequently visited websites are listed here:
SBA and BUSINESS INFORMATION
About the SBA www.sba.gov/about-sba
SBA Performance, Budget & Finances www.sba.gov/performance
Small Business USA www.usa.gov/business
Local Assistance www.sba.gov/local-assistance
Qualifying as a Small Business www.sba.gov/size
Business Guide www.sba.gov/business-guide
CAPITAL
Small Business Loans & Grants www.sba.gov/funding-programs
Lender Resources www.sba.gov/lenders
Surety Bonds www.sba.gov/funding-programs/surety-bonds
Export Products www.sba.gov/exporting
CONTRACTING
Government Contracting www.sba.gov/federal-contracting
Register as a Contractor www.sam.gov
Contracting Certifications certify.sba.gov
COUNSELING
SBA Learning Center learn.sba.gov
Small Business Development Centers www.sba.gov/sbdc
Women’s Business Centers www.sba.gov/wbc
SCORE www.sba.gov/score
Veterans Business Outreach Centers www.sba.gov/vboc
DISASTER ASSISTANCE
Disaster Assistance www.sba.gov/disaster
COVID-19 Relief Options www.sba.gov/coronavirus
Disaster Assistance Customer Service Center (Toll Free) (800) 659-2955
SBA INFORMATION
SBA National Answer Desk (Toll Free) (800) 827-5722
Facebook www.facebook.com/SBAgov
X (formerly Twitter) www.x.com/sbagov
YouTube www.youtube.com/sba
Blogs www.sba.gov/blogs
Instagram www.instagram.com/sbagov
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 179 Appendices (Unaudited)
APPENDIX 2 – Glossary
504 Loan 504 Certified Development APR Annual Performance Report
Loan Program A report that is required by the Government
Provides small businesses with long-term, Performance and Results Act and presents a
fixed-rate financing for the purchase of land, federal agency’s progress in achieving the goals
buildings, and long-life capital equipment. in its strategic plan and performance budget.
7(a) 7(a) Loan Guaranty Program ARP(A) American Rescue Plan (Act)
The SBA’s primary loan program; it provides A law that provides relief to individuals
general loan financing for a wide variety and businesses affected by the
of purposes. COVID-19 pandemic.
7(j) 7(j) Management and Technical B2B Boots to Business
Assistance Program An entrepreneurial education and training
Provides specialized assistance to underserved program offered by the U.S. Small Business
small businesses. Administration as part of the Department of
Defense Transition Assistance Program.
7(m) 7(m) Microloan Program
Provides small, short-term loans to small BATF Business Assistance Trust Fund
businesses and certain types of nonprofit A revolving trust fund in which all donated
childcare centers. funds are to be deposited.
8(a) 8(a) Business Development Program BLIF Business Loan and Investment Fund
Assists firms owned and controlled by socially Assists eligible small businesses through
and economically disadvantaged individuals various loan programs.
compete for federal contracts.
CAP Goals Cross-Agency Priority Goals
A-123 Designation for OMB Circular on Internal A limited number of Presidential priority
Control Systems areas where implementation requires active
Prescribes policies and procedures to be collaboration among multiple agencies.
followed by federal agencies in establishing,
maintaining, evaluating, improving, and CARES Act Coronavirus, Aid, Relief and Economic
reporting on internal controls in their Security Act
program and administrative activities. A $2.2 trillion economic stimulus bill passed
in response to the economic fallout of the
AFR Agency Financial Report COVID-19 pandemic in the United States.
An annual report that provides to OMB,
Congress, and the public an overview of the CJ Congressional Justification
Agency’s financial and performance data. A federal agency’s annual budget request
to Congress.
AGA Association of Government Accountants
The member organization for government CDC Certified Development Company
financial management professionals. Nonprofit corporations, certified and
regulated by the SBA, that work with
APG Agency Priority Goal participating lenders to provide financing to
A set of 2-year goals required by GPRAMA small businesses.
that reflect the highest priorities of a federal
agency’s leadership.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 180 Appendices (Unaudited)
CFO Chief Financial Officer EAA Economic Aid to Hard-Hit Small
The financial leader whose duties include Businesses, Non-Profits and Venues Act
overseeing all Agency disbursements, Authorizes the U.S. Small Business
management and coordination of Agency Administration to Guarantee additional loans
planning, budgeting, analysis, and under the temporary Paycheck Protection
accountability processes. Program and adds a second temporary
program to SBA’s 7(a) Loan Program titled,
CNPP Community Navigator Pilot Program “Paycheck Protection Program Second
Engages in targeted outreach to underserved Draw Loans.”
communities through states, local
governments, resource partners, and EDP Entrepreneurial Development Program
non-profit organizations. An account that reports entrepreneurial
development expenses.
COVID-19 Coronavirus Disease, 2019
Highly contagious respiratory disease caused EIDL Economic Injury Disaster Loan
by the SARS-CoV-2 virus. A grant to provide economic relief to
businesses experiencing a temporary loss of
DATA Act The Digital Accountability and revenue due to the COVID-19 pandemic.
Transparency Act
A law that aims to make information on ERM Enterprise Risk Management
federal expenditures more easily accessible Provides a framework to manage risks and
and transparent. seize opportunities related to the achievement
of their objectives.
DCMS Disaster Credit Management System
Electronic system used to process loan FAST Federal and State Technology
applications for all new disaster declarations. (FAST) Grants
One year funding opportunity to help increase
DLF Disaster Loan Fund the number of SBIR and STTR proposals.
Assists eligible small businesses impacted
by disasters. FCRA Federal Credit Reform Act
A law enacted to provide a more realistic
DNP Do Not Pay Initiative picture of the cost of U.S. Government direct
Established by IPERIA to support federal loans and loan guaranties.
agencies with their efforts to prevent and
detect improper payments. FEMA Federal Emergency Management Agency
Coordinates the response to a disaster that has
DO District Office occurred in the United States.
SBA offices that are responsible for the
delivery of the SBA’s many programs and FEVS Federal Employee Viewpoint Survey
services throughout the country. An OPM survey administered to federal
employees that measures perceptions of
DOD Department of Defense whether, and to what extent, conditions
The federal agency charged with coordinating characteristic of successful organizations are
national security and the armed services. present in their agencies.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 181 Appendices (Unaudited)
FFMIA Federal Financial Management FY Fiscal Year
Improvement Act The Federal Government fiscal year
A law that requires each federal agency begins October 1 and ends the following
to implement and maintain financial September 30.
management systems that comply
substantially with federal financial GAAP Generally Accepted
management system requirements, applicable Accounting Principles
federal accounting standards and the United The standard framework of guidelines
States Standard General Ledger. for financial accounting generally known
as accounting standards or standard
FISMA Federal Information Security accounting practice.
Management Act
A law that defines a comprehensive framework GAO U.S. Government Accountability Office
to protect government information, An independent, nonpartisan agency that
operations, and assets against natural or investigates how the federal government
man-made threats. spends taxpayer dollars and reports their
findings to Congress.
FITARA Federal Information Technology
Acquisition Reform Act GPRAMA Government Performance and Results
Legislation to improve the acquisition Act (GPRA) Modernization Act
and management of federal information A law that modernizes the federal
technology assets. government’s performance management
framework, retaining and amplifying some
FMFIA Federal Managers Financial Integrity Act aspects of the Government Performance and
A law that primarily requires ongoing Results Act (GPRA) of 1993 while addressing
evaluations and reports on the adequacy of the some of its weaknesses.
internal accounting and administrative control
systems of executive agencies. It also requires GSA General Services Administration
evaluations and reports on the conformance of A federal agency of the Executive Branch
financial management systems. whose mission is to deliver the best value real
estate, acquisition, and technology services to
FR Financial Report of the U.S. Government government agencies.
Record of the United States government’s
financial activities. GTAS Governmentwide Treasury Account
Symbol Adjusted Trial Balance System
FRMB Fraud Risk Management Board Used by government entities to provide
Anti-fraud entity responsible for the proprietary financial reporting and
oversight and coordination of the SBA’s fraud information about budget execution to the
risk activities. Department of the Treasury.
FTA Fiscal Transfer Agent HHS U.S. Department of Health and
The central registry for all guaranteed Human Services
individual loan and SBA pool The federal agency that aims to protect the
certificate interests. health of all Americans and provide essential
human services.
FTE Full-Time Equivalent
Indicates the workload of an employed
person. An FTE of 1.0 means that the
person is equivalent to a full-time worker
while an FTE of 0.5 means that the worker
is half-time.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 182 Appendices (Unaudited)
HUBZone Historically Underutilized Business Zone JAAMS Joint Administrative Accounting
An SBA program that encourages economic Management System
development by the establishment of A financial management system, also
federal contract award preferences for small known as the Oracle Administrative
businesses located in historically underutilized Accounting System, which is used to keep
business zones. records of the SBA’s administrative funding
and expenditures.
ICD Internal Controls Division
Ensures managers comply with internal LSP Lender Service Provider
control standards. Carries out functions in originating,
dispersing, servicing, or liquidating a specific
ICOR Internal Control Assessment SBA business loan or loan portfolio for
Over Reporting compensation from the lender.
A reporting methodology that manages assets
(including data), improves data quality, MAT Modification Adjustment Transfer
and reduces compliance-oriented burdens A transfer made between the financing
shifting activities to support attaining high account as the general fund.
quality data.
MRA Master Reserve Account
IPERA Improper Payments Elimination and The SBA’s fiscal agent maintains this escrow
Recovery Act fund to facilitate the operation of the Certified
A law that requires that agencies examine Development Company program.
the risk of, and feasibility of, recapturing
improper payments in all programs MRF Master Reserve Fund
and activities. A reserve fund maintained by the SBA’s
fiscal and transfer agent that is used to
IPERIA Improper Payments Elimination and facilitate the operation of the 7(a) secondary
Recovery Improvement Act market program.
An act to intensify efforts to identify, prevent,
and recover payment error, waste, fraud, and OBD Office of Business Development
abuse within federal spending. Assists small, disadvantaged businesses
to gain access to federal and private
IPIA Improper Payment Information Act procurement markets.
A law enacted in 2002 to identify and reduce
erroneous payments in the government’s OCA Office of Capital Access
programs and activities. Manages small business loans, lender
oversight, and the Surety Bond
ISS Industrial Specialists for Size Guaranty program.
Specialists who perform size determinations
for protests. OPPCFO Office of Performance, Planning, and the
Chief Financial Officer
IT Information Technology Financial leadership of the Agency, including
Refers to matters concerned with the all disbursements, management, and
design, development, installation, and coordination of planning, budgeting, analysis,
implementation of information systems and accountability processes.
and applications.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 183 Appendices (Unaudited)
OCIO Office of the Chief Information Officer OIG Office of Inspector General
Manages information technology for Conducts and supervises audits, inspections,
the Agency, including the design, and investigations relating to SBA programs
implementation, and continuing successful and operations.
operation(s) of information programs
and initiatives. OMB U.S. Office of Management and Budget
White House office that oversees preparation
OCRM Office of Credit Risk Management of the federal budget and supervises its
Manages program credit risk, monitors administration in Executive Branch agencies.
lender performance, and enforces lending
program requirements. OPM U.S. Office of Personnel Management
The Federal Government’s human
OCORM Office of Continuous Operations and resources agency.
Risk Management
Ensures enterprise-wide disaster planning, OPSM Office of Performance and
readiness, and implementation of ERM best Systems Management
practices for the SBA. Manages the Capital Access Financial System,
Lender Loan Management System, Central
ODR&R Office of Disaster Recovery & Resilience Servicing Agent system, and Fiscal Transfer
Promotes economic recovery in Agent system.
disaster-ravaged areas and assists survivors
with accessing SBA disaster loans. Disaster OSDBU Office of Small Disadvantaged
loans are the Agency’s primary form of federal Business Utilization
assistance for non-farm, private sector disaster Offices located within each federal agency
losses for individuals and businesses. that enable small disadvantaged businesses to
gain access to economic opportunity through
OFA Office of Financial Assistance federal contracts.
Oversees the SBA’s credit programs that
provide capital alternatives for small PIIA Payment Integrity Information
businesses not adequately served by Act of 2019
conventional lending. Law established to improve efforts to identify
and reduce government-wide improper
OFPO Office of Financial Program Operations payments; requires agencies to estimate
Leads the financial services industry in improper payments and report on actions to
quality products and services to SBA partners reduce improper payments.
and customers and protects the integrity of
SBA programs. PPP Paycheck Protection Program
A loan designed to provide a direct incentive
OGC Office of General Counsel for small businesses to keep their workers on
Provides comprehensive legal services to the the payroll.
Administrator and all Agency offices.
PPS Probability Proportional to Size
OGCBD Office of General Contracting and A method of sampling that takes the varying
Business Development size of each item within the population into
Works to create an environment for maximum account when selecting the audit sample.
participation by small, disadvantaged,
and woman-owned businesses in Federal QAR Quality Assurance Review
Government contract awards and large prime A review to identify any deficiencies, to
subcontract awards. include improper payments.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 184 Appendices (Unaudited)
QSMO Quality Service Management Office SBLC Small Business Lending Company
Office designated by OMB to promote the use Non-depository small business lending
of shared services in specific functional areas. companies listed by the SBA Office of
Capital Access.
RRF Restaurant Revitalization Fund
A COVID-19 relief program authorized SE Salaries and Expenses
under the American Rescue Plan. Operating expenses of the Agency.
SBA U.S. Small Business Administration SMC Senior Management Council
The federal agency whose mission is to Established by the Administrator to
maintain and strengthen the nation’s ensure the SBA has an effective system of
economy by enabling the establishment and internal controls.
vitality of small businesses and by assisting
in the economic recovery of communities SOP Standard Operating Procedure
after disasters. The primary source of the Agency’s
internal control.
SBDC Small Business Development Center
SBDCs provide management and technical STEP State Trade Expansion Program
assistance, economic development, and Makes matching fund awards to states to
management training to existing and help small businesses enter and succeed in the
prospective small businesses through internal marketplace.
cooperative agreements with universities and
colleges and government organizations. SVOG Shuttered Venues Operator Grant
COVID-19 relief program authorized under
SBG Surety Bond Guarantee the American Rescue Plan.
Provides guaranties and bid, performance,
and payment bonds for contracts up to TAP Transition Assistance Program
$2 million for eligible small businesses that Collaborative program between federal
cannot obtain surety bonds through regular agencies to assist active duty service members’
commercial channels. transition to civilian life through access to
employment workshops and other services.
SBGRF Surety Bond Guaranty Revolving Fund
A fund at the U.S. Department of the USEAC U.S. Export Assistance Center
Treasury that collects the SBA’s contractor and Centers located nationwide that help firms
surety fees and is used to pay claims. grow internationally by assisting in developing
a plan of action with solutions tailored to
SBIC Small Business Investment Company their needs.
Provides long-term loans, debt-equity
investments, and management assistance to USSGL The United States Standard
small businesses, particularly during their General Ledger
growth stages. Provides a uniform chart of accounts and
technical guidance for standardizing federal
SBIR Small Business Innovation Research agency accounting.
A highly competitive SBA program that
encourages domestic small businesses VBOC Veterans Business Outreach Centers
to engage in federal research/research Provide entrepreneurial development services
and development that has the potential such as business training, counseling,
for commercialization. and mentoring, and referrals for eligible
veterans owning or considering starting a
small business.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 185 Appendices (Unaudited)
WBC Women’s Business Centers
Provide long-term training and advising
to women who own or manage a business,
including financial, management, marketing,
and technical assistance and procurement.
WCF Working Capital Fund
A fund for IT modernization efforts.
WOSB Women-Owned Small
Businesses Program
Allows federal agencies to set aside certain
contracts for competition only among small
businesses owned and controlled by women.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 186 Appendices (Unaudited)
APPENDIX 3 – OIG Audit Follow-Up Activity
Throughout the year, the Office of Inspector General conducts audits of SBA’s processes, procedures, and programs, and
makes recommendations for improvement. Many of these recommendations are not material, relative to their dollar impact on
SBA’s financial and administrative operation but are beneficial to SBA’s management. If SBA management disagrees with an OIG
recommendation, the OIG may revise the recommendation or refer the issue to a higher level of SBA management. When both
SBA management and the OIG agree on the recommendation, SBA management develops a corrective action plan, including
a target date for completion. This recommendation is identified as having a “Management Decision.” When the corrective
action plan is implemented and the recommendation has been fully addressed, the recommendation is identified as having a
“Final Action.”
The SBA maintains a database to track the recommendations through to the conclusion, or Final Action. During FY 2023 there
were 100 final actions, resulting from 6 monetary and 95 non-monetary recommendations.
The following tables depict the SBA’s Final Action activity for FY 2023 and the status of corrective action plans not implemented
within one year:
• Table I: Final Action on Audit Recommendations with Disallowed or Questioned Costs
• Table II: Final Action on Audit Recommendations with Funds Put to Better Use
• Table III: Final Action on Audit Recommendations Not Completed within One Year
TABLE I
Final Action on Audit Recommendations with Disallowed or Questioned Costs
October 1, 2022 – September 30, 2023
Number of
Recommendations Disallowed Costs
Recommendations
A. Recommendations with management decisions on which final action
16 $ 4,663,086,471
had not been taken at the beginning of the period.
B. Recommendations on which management decisions were made
5 $ 315,658
during the period.
C. Total recommendations pending final action during period. 21 $ 4,663,402,129
D. Recommendations on which final action was taken during the period.
1. Recoveries: 1 $ 1,367,417
a. Collections and Offsets
b. Property
c. Other
2. Write-Offs 5 $ 160,933,093
3. Total 6 $ 162,300,510
E. Recommendations needing final action at the end of the period. 11 $ 4,868,703,005
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 187 Appendices (Unaudited)
TABLE II
Final Action on Audit Recommendations with Funds Put to Better Use
October 1, 2022 - September 30, 2023
Number of Funds to Be Put
Recommendations
Recommendations to Better Use
A. Recommendations with management decisions on which final 0 $0
action had not been taken at the beginning of the period.
B. Recommendations on which management decisions were
0 $0
made during the period.
C. Total recommendations pending final action during period. 0 $0
D. Recommendations on which final action was taken during the period.
1. Value of recommendations implemented (completed). 0 $0
2. Value of recommendations that management concluded should not
0 $0
or could not be implemented or completed.
3. Total 0 $0
E. Recommendations needing final action at the end of the period. 0 $0
TABLE III
Final Action on Audit Recommendations Not Completed within One Year
As of September 30, 2023
REPORT # 20-03 AUDIT OF SBA’S OVERSIGHT OF HIGH-RISK LENDERS
Program: OCA
Date Issued: 11/12/2019
Management Decision Date: 11/15/2019
Explanation: 6 Recommendations.
Recommendation 1 – OCRM has requested more time to review the recently implemented program changes that took
effect 8/1/2023. Estimated completion date is 12/31/2023. Recommendation 2 - OCRM is working with OPSM to develop
a database/workflow management tool to more effectively manage the oversight of high-risk Lenders. It is currently in
development. Final action target date 12/31/2023. Recommendation 3 – Closed by OIG. Recommendation 4 – Closed by OIG.
Recommendation 5 - OCRM is reviewing the recently implemented program changes that took effect 8/31/2023. Estimated
completion date is 12/31/2023. Recommendation 6 - Closed by OIG.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 188 Appendices (Unaudited)
REPORT # 20-20 COMPLIANCE WITH THE DEBT COLLECTION ACT
Program: OCA
Date Issued: 9/30/2020
Management Decision Date: 9/30/2020
Explanation: 10 Recommendations.
Recommendations 2, 3, 8, and 9 are currently tied to a memorandum that is being approved by OFPO leadership.
Recommendations 2, 3, and 9 have a deadline for 10/31/23 and Recommendation 8 is due 12/22/2023. Recommendation 1
is due 11/17, and Recommendations 5, 6, 7, and 10 are due 12/15/2023. For Recommendation 1, OFPO is currently revising
documentation to submit for closure.
REPORT # 21-07 INSPECTION OF SBA’S PAYCHECK PROTECTION PROGRAM
Program: OCA
Date Issued: 1/14/2021
Management Decision Date: 2/14/2022
Explanation: 1 Recommendation
OFPO reviewing loan documentation to support closure documents for this recommendation. Extension request to 10/31/2023
has been granted. Submitted for to OIG for closure on 10/25/2023.
REPORT # 21-08 SBA’S USE OF VENDORS WITHOUT A CONTRACT
Program: OCA
Date Issued: 2/3/2021
Management Decision Date: 9/30/2020
Questioned Costs: 10,800.00
Explanation: 3 Recommendations.
Recommendations 1 and 2 – OFPO is currently working with OIG to establish a clear path toward closure and will meet
both internally and with OIG to determine what documentation is required for the closure package. Requested extension to
12/22/2023. Recommendation 3 – OFPO Final Action Target Date to close this recommendation is 12/15/2023.
REPORT # 21-09 DUPLICATE LOANS MADE UNDER THE PAYCHECK PROTECTION PROGRAM
Program: OCA
Date Issued: 1/27/2021
Management Decision Date: 2/26/2021
Explanation: 4 Recommendations.
Recommendation 1 – OFPO held a meeting on 10/11/2023 with OIG and OPSM to discussion path to closure and
documentation needed, and extension approved to 3/29/2024. Recommendations 2, 3, 4 – Closed by OIG.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 189 Appendices (Unaudited)
REPORT # 21-14 SBA’S OVERSIGHT OF WOMEN’S BUSINESS CENTER COOPERATIVE AGREEMENTS
Program: OED
Date Issued: 5/04/2021
Management Decision Date: 5/04/2021
Explanation: 8 Recommendations.
Recommendations 1,4,5,6 and 8 – OWBO has developed specific practices to address oversight procedures and incorporated it
into its draft Standard Operating Procedure. 10/31/2023, is the target date for the final SOP draft for internal review. In early
November 2023, will re-route the SOP in the clearance system for the Administrator’s signature. Recommendations 2,3 and 7 –
OWBO is on track to meet the Final Action Target date of 9/29/2024.
REPORT # 22-01 SBA’S EMERGENCY ECONOMIC INJURY DISASTER LOAN GRANTS TO SOLE PROPRIETORS AND
INDEPENDENT CONTRACTORS
Program: OCA
Date Issued: 10/07/2021
Management Decision Date: 8/22/2022
Explanation: 1 Recommendation.
Recommendation 1 – Remediation work with the customer is ongoing and taking longer than expected. Implementation of the
process and procedure to close out the work has been time lined and is an ongoing project for the OCA. Extension approved for
final action date 12/15/2023.
REPORT # 22-08 SBA’S BUSINESS DEVELOPMENT ASSISTANCE TO 8(a) PROGRAM PARTICIPANTS
Program: GCBD
Date Issued: 2/14/2022
Management Decision Date: 11/10/2022
Explanation: 8 Recommendations.
Recommendation 1,2,3,5,and 6 – GCBD issued new Procedural Notice 6000-836899, a BOS Analysis Workbook, and
is updating the SOP and Desk Guide to clarify business plan review requirements. Final action target date 12/29/2023.
Recommendations 4,7, and 8 – Closed by OIG.
REPORT # 22-22 FOLLOW-UP INSPECTION OF SBA’S INTERNAL CONTROLS TO PREVENT COVID-19 EIDLS TO
INELIGIBLE APPLICANTS
Program: OCA
Date Issued: 9/29/2022
Management Decision Date: 11/9/2022
Explanation: 2 Recommendations.
Recommendations 1 and 2 – OCA offices are working with offices in the SBA to use data analytics to propose a sampling of the
remediation done for these recommendations. Extension approved for final action date 12/29/2023.
U.S. Small Business Administration
Agency Financial Report Fiscal Year 2023 190 Appendices (Unaudited)
Acknowledgments
This Agency Financial Report was produced with the energies and talents of the SBA staff. To all these dedicated individuals listed
below, and those not listed, the Office of Performance, Planning, and the Chief Financial Officer would like to offer sincere thanks
and acknowledgment.
Katherine Aaby Leslie Godsey Mike Peterson
Omar Aboushady Kathleen Graber Janette Porter
Melissa Atwood Qiuyan Gu Trevor Postlethwaite
Brian Benoit Blake Hoing Steve Ramey
Johnathan Brame Scott Holland Marjorie Rudinsky
Tonia Butler Jennifer Katchmark Scott Stilmar
Anna Calcagno Mindy Kim Zahid Syed
Deborah Chen Sharon Kirkley Leo Tudela
Jeffrey Davis Terri Luebs Danielle Ventura
Kelli Davis Christine O’Neill Lucine Willis
Kelsey Do Mathew Pascarella Hellen Wong
Travis Dorsey Tony Paul Mandana Yousefi
We would also like to acknowledge the Office of Inspector General and KPMG LLP for their professionalism while conducting
the audit of the Fiscal Year 2023 Financial Statements. We offer our special thanks to Schatz Publishing Group and Omnidigital
Studio, Inc. for contributions in producing this report.
U.S. Small Business Administration
Office of Performance, Planning, and the Chief Financial Officer
409 Third Street, S.W. Washington, DC 20416
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