SBA Agency Financial Report, Fiscal Year 2012
Summary
This is the U.S. Small Business Administration's Agency Financial Report for FY 2012. The message from the Administrator, dated November 15, 2012, lists key accomplishments in FY 2012, beginning with "Second Highest Year in SBA Lending". A highlights table (dollars in thousands) lists a loan portfolio of $102,630,652, total assets of $14,014,855 and total employees of 3,234 for FY 2012. The page says the FY 2012 APR, included in the FY 2014 Congressional Budget Justification, will be issued February 4, 2013, and the Summary of Performance and Financial Information (SPFI) released February 15, 2013. A box says the SBA and AARP formed a strategic alliance in May 2012 to counsel and train entrepreneurs over the age of 50.
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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ABOUT THIS FY 2012 HIGHLIGHTS
REPORT
The U.S. Small Business (Dollars in Thousands) FY 2009 FY 2010 FY 2011 FY 2012
Administration’s (SBA) Agency
Financial Report (AFR) for FY Loan Portfolio(1) $ 90,451,263 $ 93,339,844 $ 99,203,933 $ 102,630,652
2012 provides an overview
of the Agency’s financial and
Regular FTE Employees 2,098 2,135 2,175 2,089
performance data to help
Congress, the President, and the Disaster Employees 1,743 1,120 1,141 1,145
public assess SBA’s stewardship Total Employees 3,841 3,255 3,316 3,234
over the resources entrusted to
it. The AFR is the first in a series Total Assets $ 12,626,459 $ 15,230,476 $ 16,882,801 $ 14,014,855
of three annual financial and Total Liabilities $ 15,315,059 $ 16,765,021 $ 17,191,824 $ 13,640,581
performance reports for federal
Total Net Position $ (2,688,600) $ (1,534,545) $ (309,023) $ 374,274
agencies choosing to produce
Total Net Cost of
a separate AFR. An Annual Operations
$ 5,995,716 $ 5,277,197 $ 3,460,562 $ 1,274,805
Performance Report (APR) and Total Budgetary Resources $ 12,337,055 $ 18,340,769 $ 19,277,292 $ 14,400,162
a Summary of Performance and
Financial Information (SPFI) make (1)
The total portfolio consists of guarantied business loans outstanding, direct business loans, and direct disaster loans. The data includes all performing loans
and defaulted loans that have not been charged off.
up the other two reports. The
FY 2012 APR, included as part
of the FY 2014 Congressional
Budget Justification (CBJ), which
is the Agency’s budget request
to Congress, will be issued FOR MORE INFORMATION
February 4, 2013; and the FY
2012 SPFI, which brings together
in summary fashion the financial,
performance and budgetary
Information about SBA’s programs is available at: www.sba.gov
information presented in the
AFR and the CBJ/APR, is to be SBA’s plans and reports are available at: www.sba.gov/performance
released February 15, 2013.
Para información acerca de los programas de la SBA: www.sba.gov “Translate” “Select Language”
Requests for printed copies, or questions and comments regarding the content, presentation and
usefulness of this report are welcome and may be addressed to: performancereports@SBA.gov
Or, you may write to: Or, you may call:
U.S. Small Business Administration Timothy Gribben
Office of Performance Management Director, Office of Performance Management
and Chief Financial Officer (202) 205-6449
409 Third Street, S.W.
Washington, DC 20416
Follow us on: www.facebook.com/sbagov, on www.twitter.com/sbagov and www.youtube.com/sba
TABLE OF CONTENTS
Message from the Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Primer of SBA’s Principal Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SBA by the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SBA’s History and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Analysis of SBA’s Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Agency Priority Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Summary of Key SBA Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Operational Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Analysis and Highlights of Financial Statements and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Highlights of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Analysis of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Analysis of SBA’s Systems, Controls and Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Internal Control Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Management Systems Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management Assurances: FMFIA and FFMIA Assurance Statement for FY 2012 . . . . . . . . . . . . . . . . . . 29
Improper Payments Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Audit and Financial Management Advisory Committee’s Report . . . . . . . . . . . . . . . . . . . . . . . . . 37
Inspector General’s Audit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Independent Auditors’ Report on FY 2012 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 40
CFO Response to Draft Audit Report on FY 2012 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 51
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Other Accompanying Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Schedule of Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
OIG Report on the Most Serious Management and Performance Challenges . . . . . . . . . . . . . . . . 90
Summary of Financial Statement Audit and Management Assurances . . . . . . . . . . . . . . . . . . . . 112
Summary of OIG Audit Follow-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Appendix 1 – Contact SBA: Useful Sites and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Appendix 2 – Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Attached CD – Supplementary Information
SI 1 – SBA Programs and Offices
SI 2 – Strategic Plan FY 2011-2016
Addendum to Strategic Plan FY 2011-2016
SI 3 – Detail of OIG Audit Follow-up Activity
AGENCY FINANCIAL REPORT • FY 2012
SBA’s Mission
The mission of the U.S. Small Business Administration is to maintain and strengthen the nation’s economy
by enabling the establishment and vitality of small businesses and by assisting in the economic recovery
of communities after disasters.
The Association of Government Accountants has awarded the U.S. SMALL BUSINESS ADMINISTRATION
The Certificate of Excellence in Accountability Reporting
In recognition of SBA’s outstanding efforts in preparing its
Performance and Accountability Report
or
Agency Financial Report
for the fiscal years ended September 30, 2006, 2007, 2008, 2009, 2010, and 2011
Agency
Financ
Fiscal ial Re
Year 20 port
08
Helping
Small Bus
iness Sta
rt, Grow
and Suc
ceed
2006 2007 2008
2009 2010 2011
MESSAGE FROM THE ADMINISTRATOR
Message from the Administrator November 15, 2012
We are pleased to present the U.S. Small Business Administration’s Fiscal Year 2012
Agency Financial Report as an alternative to the consolidated Performance and
Accountability Report.
This report details SBA’s efforts to strengthen the nation’s economy by enabling the
establishment and growth of small businesses, as well as the Agency’s efforts to support
communities following disasters.
Over the last two decades, small and new businesses have been responsible for creating
two out of every three net new jobs in the U.S., and today over half of all working Americans own or work for
a small business.
The SBA is committed to ensuring that America’s small businesses have the access and opportunities they need
to start and grow their operations and create new jobs. In FY 2012, we continued to build on the Agency’s
strong track record of providing entrepreneurs and small businesses access to capital, opportunities in govern-
ment contracting, entrepreneurial development and disaster assistance.
As part of these efforts, the SBA has streamlined and simplified its core programs and expanded the reach of
our services to more communities and constituencies. As the economy has grown stronger, the SBA is filling
the remaining gaps in the lending market. To accomplish this, we’ve developed new products, improved exist-
ing programs and worked to bring more financial institutions into small business lending.
Key SBA accomplishments in FY 2012:
Second Highest Year in SBA Lending: The SBA built on its record breaking year in FY 2011 with its second
consecutive year supporting more than $30 billion in lending. In addition, our 504 loan program set an all-
time record in dollar terms in FY 2012. Overall for FY 2012, the SBA supported more than $30.25 billion
in lending to more than 47,000 companies.
Third Consecutive Record Year in Growth Capital: The Small Business Investment Company (SBIC) Deben-
ture program had its third consecutive record breaking year. Investment funds licensed as SBICs pro-
vided nearly $3 billion in growth capital to over 1,000 businesses, a 17 percent increase from FY 2011
and an 83 percent increase from FY 2010. In FY 2012, the SBA licensed a record 27 SBIC debenture
funds and licensing times dropped over 60 percent from 14.6 months in FY 2009 to 5.4 months in FY
2012. This helped the SBIC program get out a record of more than $1.9 billion in commitments to its
funds in FY 2012.
Expanding Contracting Opportunities for Small Business: The SBA continues to work with agencies across the
government to expand small business contracting opportunities. Since January 2009, small businesses have
been awarded more than $286.3 billion in federal contracts. That is $32 billion more than the previous
three years, even as overall contract spending decreased during those years. (FY 2012 contracting numbers
continue to be collected and certified.)
Inclusive Entrepreneurship: SBA’s resource partner network served over one million clients in FY 2012. In
addition, we expanded the entrepreneurial playing field with new initiatives, including a partnership with
AGENCY FINANCIAL REPORT • FY 2012 1
MESSAGE FROM THE ADMINISTRATOR
AARP to counsel more than 100,000 entrepreneurs over the age of 50 during the next year. The SBA also
launched an important veterans initiative, Boots to Business: From Service to Start-up, a program designed to
help returning service members transition into successful small business ownership.
In addition, the SBA continues to build on its successful place-based regional growth strategy, which
includes the federal government’s first official cluster strategy. During the first year of investment, research
shows small business participation in SBA’s 10 pilot clusters grew by 275 percent. Employment grew by
11.2 percent, and over two-thirds of small businesses that sought cluster services reported that they devel-
oped new products or services. Today, the SBA, in conjunction with other agencies, has invested in more
than 40 regional clusters.
Streamlined Disaster Assistance: The SBA quickly responded to over 345 disasters and approved over $689
million in loans to businesses, homeowners and renters in FY 2012. In addition, we further streamlined our
disaster application process and today turnaround time for a disaster loan is under 10 days.
I’m pleased to provide an assurance that SBA’s financial and performance data in this report are reliable and
complete. SBA’s auditors issued an unqualified opinion on our FY 2012 financial statements. The auditor did
not note any material internal weaknesses.
Sincerely,
Karen G. Mills
Administrator
2 AGENCY FINANCIAL REPORT • FY 2012
Management’s
Discussion &
Analysis
MANAGEMENT’S DISCUSSION & ANALYSIS
Primer of SBA’s Principal Programs
Access to Capital (www.sba.gov/financialassistance)
The SBA has a total loan portfolio of $102.6 billion; $87.1 billion of that total is in the following programs:
7(a) Loan Guaranties — The SBA offers government guaranties on loans (up to $5 million) made by com-
mercial lenders to help expand access to capital for business owners who face challenges in getting approved for
financing. The SBA guarantees a portion of 7(a) loans made and administered by commercial lending institu-
tions. Loans can be guaranteed for a variety of general business purposes.
504 CDC Loan Guaranties — These are long-term, fixed-rate loans (up to $5.5 million) for major assets such
as real estate and heavy equipment. Loans are delivered by certified development companies (CDC) which are
private, non-profit corporations. CDCs work with the SBA and private lenders to provide the financing. The
SBA guarantees a portion of these loans.
Microloans — These loans (up to $50,000) are designed for small businesses needing small scale financing
and technical assistance for start-up or expansion. They are delivered through intermediary lenders, which are
nonprofit community-based organizations with experience in lending and technical assistance.
Surety Bonds — A surety bond is a type of insurance that guarantees performance of a contract. If one party
does not fulfill its end of the bargain, then the surety bond provides financial compensation to the other party.
The SBA guarantees bonds issued by a surety company in order to encourage the surety company to provide
bonds to small businesses.
Opportunities in Contracting (www.sba.gov/contracting)
The SBA leads federal efforts to deliver 23 percent of contracts to small business through the following programs:
Procurement Assistance to Small Businesses — Small business contracts represent the largest form of direct
monetary support for small business in the federal government. Within this program are four sub-programs:
8(a) Business Development — This program provides assistance to businesses owned and controlled by
socially and economically disadvantaged individuals. Over the course of nine years, a firm is assisted in
gaining resources to compete for federal contracts as well as in the private sector.
HUBZone — This program provides sole-source and set-aside contracting for firms located in economically
disadvantaged geographical areas.
Service-Disabled Veteran-Owned Small Businesses — This program allows federal agencies to set-aside
contracts for competition only among service-disabled veteran-owned small businesses.
Women-Owned Small Businesses — This program allows federal agencies to set-aside certain contracts for
competition only among small businesses owned and controlled by women.
4 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Access to Counseling and Training (www.sba.gov/training)
The SBA and its network of 14,000 business counselors, mentors and trainers serve over 1 million small business
clients a year through the following programs:
Small Business Development Centers — SBDCs deliver an array of services to small businesses and prospec-
tive business owners using an extensive network of 63 lead centers managing more than 900 service delivery
points throughout the U.S. and the insular territories. SBDCs deliver professional counseling and training in
key management areas to more than 600,000 clients annually.
Women’s Business Centers — WBCs provide counseling and training through 106 educational centers across
the nation. They provide services on a vast array of topics, from how to write a business plan to programs
specifically for veterans. Many WBCs provide multilingual services, and a number offer flexible hours allowing
for mothers with children to attend training classes.
SCORE — SCORE is a non-profit association comprised of over 12,000 volunteer business counselors that
serve entrepreneurs with in-person mentoring and local training workshops. As the largest volunteer business
advisor network in the federal government, SCORE adapts its structure and services to meet the needs of the
small business.
Regional Innovation Clusters — Regional Innovation Clusters support small businesses by fostering a
synergistic network of businesses, university researchers, economic development experts, stakeholders, and
investors that work to develop and grow a particular industry or related set of industries, while providing
targeted matchmaking business training, counseling, mentoring and other services.
High-growth Small Businesses (www.sba.gov/inv and www.sba.gov/oit)
The SBA supports high-growth small businesses that drive net new job growth through the following programs:
SBIR — The Small Business Innovation Research program is a highly competitive program that stimulates
high-tech innovation by reserving a specific percentage of federal R&D funds for small business. SBIR
protects the small business and enables it to compete on the same level as larger businesses. (www.sbir.gov)
SBIC — Small Business Investment Companies are privately owned and managed investment funds that
use their own capital plus funds borrowed with an SBA guaranty to make equity and debt investments in
qualifying small businesses. (www.sba.gov/sbic)
Exporting — The SBA, through its staff, lending and resource partners, leads federal efforts to support small
U.S. exporters through its international trade loans and counseling programs. (www.sba.gov/exporting)
Disaster Assistance (www.sba.gov/disaster)
The SBA has a portfolio of $7.2 billion in direct disaster loans to businesses, homeowners, and renters.
Disaster — The SBA is the federal government’s primary source of financing for the long-term repair and
rebuilding of disaster-damaged private property for homeowners, renters, businesses of all sizes, and private
nonprofit organizations affected by disasters. It is the only form of SBA assistance not limited to small
businesses.
AGENCY FINANCIAL REPORT • FY 2012 5
SUCCESS STORY: Creamier Yogurt Rises to the Top!
Chobani, Inc., Norwich, New York
It all started in 2005 with the purchase of a 100-year-old plant in upstate New
York, a staff of three, an SBA 504 loan and an ambitious Turkish immigrant
who switched his product line from feta cheese to Greek yogurt. Two years
later, Hamdi Ulukaya and his team at Chobani, Inc. began producing
Chobani Greek Yogurt.
Penetrating a market saturated with familiar names like Yoplait and Dannon was possible because Hamdi decided
to create a creamier Greek yogurt with twice the protein without artificial flavors or preservatives. In October 2007
Chobani, Inc. sold its first shipment to a grocery store on Long Island. By 2008 the company had grown to 83
employees with sales of $22.9 million. Within four years Chobani grew to become a major player in the U.S. Greek
yogurt market with 1.7 million cases shipped weekly.
Chobani, Inc. is a job-creator, having expanded to 1,200 employees. The company expects to hire 400 Idaho
residents when its Twin Falls plant opens in 2012. Hamdi’s philosophy - “keep the product simple, know what you
do and do it better than anybody” - is reflected in Chobani’s tremendous success. Sales during the first nine months
of 2011 were $434 million, with the company’s net worth at $117 million. Chobani is the 2012 national winner of
SBA’s Entrepreneurial Success of the Year Award.
MANAGEMENT’S DISCUSSION & ANALYSIS
Executive Summary The SBA continues to work with agencies across the
government to expand small business contracting
opportunities. Since January 2009, small businesses
The U.S. Small Business Administration’s (SBA) efforts
have accessed more than $286.3 billion dollars in
to assist entrepreneurs and small business owners are
federal contracts. That is $32 billion more than the
critical as the U.S. economy continues to recover and
previous three years, even as overall contract spending
grow. Throughout history, small businesses have played
has decreased during those years. (FY 2012 contracting
a critical role in job creation. Over the last two decades,
numbers continue to be collected and certified.)
small and new businesses have been responsible for
creating two out of every three net new jobs in the U.S., SBA’s resource partner network served over one million
and today over half of all working Americans own or clients in FY 2012 and the SBA expanded the entre-
work for a small business. preneurial playing field with new initiatives, includ-
ing a partnership with AARP and a veterans program
The SBA is committed to ensuring that America’s small
designed to help returning service members transition
businesses have the access and opportunities they need
into successful small business ownership.
to start, grow their operations and create new jobs.
These tools include access to capital; opportunities in
federal contracting; access to entrepreneurial education Financial Results
and counseling; and disaster assistance for business
owners, homeowners, and renters. (in-depth analysis found in Analysis of Financial Results
section)
Throughout FY 2012, the SBA relied on three Strategic For FY 2012, SBA’s total budgetary resources for
Goals to guide the Agency’s actions: staffing and operations and subsidy costs were $5.0
billion, and $9.4 billion were in nonbudgetary resources
1. Growing businesses and creating jobs
for loan financing used to purchase guarantied loans
2. Building an SBA that meets the needs of today’s and in default and to make direct loans. SBA’s guarantied
tomorrow’s small businesses portion of the outstanding loan principal balance
3. Serving as the voice for small business rose 6.3 percent in FY 2012 to $74.4 billion. New
guaranties disbursed by SBA participating banks during
In FY 2012, the SBA built on its record breaking year FY 2012 were $16.0 billion, a 3.6 percent decrease
in FY 2011 with its second consecutive year support- compared to FY 2011. Guarantied loan purchases
ing more than $30 billion1 in lending. In addition, the dropped again in FY 2012, falling from $3.4 billion
504 loan program set an all-time record in dollar terms to $2.6 billion. This encouraging trend is expected
in FY 2012. Overall, for FY 2012, the SBA supported to continue in upcoming years as the country moves
more than $30.25 billion in lending to more than further into economic recovery. The credit program
47,000 companies. receivables portion of the SBA portfolio continued to
Notably, FY 2012 also reflected a third consecutive decline from $8.4 billion to $7.7 billion in FY 2012.
record breaking year for Small Business Investment A net reduction of defaulted guarantied business loans
Companies, a zero subsidy guaranty debenture program accounted for $508 million of this decrease while an
targeted at high-growth firms. Nearly $3 billion in additional $203 million came from direct disaster
growth capital was provided to over 1,000 businesses, loans. Disaster loans decreased as collections and
a 17 percent increase from FY 2011 and an 83 percent charge-offs exceeded new loan disbursements. The
increase from FY 2010. decrease in guarantied business loan receivables was due
mostly to an increase in the subsidy allowance from FY
In FY 2012, the SBA launched a streamlined disaster 2012 subsidy reestimates along with a decrease in new
loan application process, which resulted in a turn- purchases of defaulted guarantied loans.
around time for disaster loans of less than 10 days and
more than $689 million in loan approvals.
1 “Lending Supported” includes gross approvals in the 17(a) loan program, gross approvals in
the 504 loan program, and third party loans that are made by commercial lenders as part of
the 504 funding package.
AGENCY FINANCIAL REPORT • FY 2012 7
MANAGEMENT’S DISCUSSION & ANALYSIS
Program Results and level of service in its business loan programs.
The SBA exceeded its FY 2012 targets for this
(in-depth analysis found in SBA’s Annual Performance goal. The FY 2012 target for 7(a) was 85 percent
Plan, to be released in February 2013) and the SBA achieved 87.4 percent and the target
The SBA by the Numbers table (see following page) for 504 was 62 percent and the SBA achieved
64.5 percent.
reflects strong performance across all Agency programs
in FY 2012. This includes: 2. Maximize small business participation in gov-
ernment contracting: Maximize small business
• nearly $22 billion in loans approved to small participation in federal government contracting to
businesses through the 7(a), 504 and Microloan meet the statutory goals and ensure program benefits
programs; flow to the intended recipients. Final federal-wide
• increases across other capital access programs, results for FY 2012 will not be available until
such as Small Loan Advantage and CAPLines, 3rd or 4th quarter FY 2013. While the federal
goal is 23 percent, based on preliminary data, the
due to streamlining and simplification efforts that
SBA expects to exceed its Agency’s 67 percent
cut turnaround times and opened them up to target for small business contracting, by awarding
more lending institutions; over 70 percent of its FY 2012 contracts to small
• third consecutive record year in growth capital businesses and achieving all four disadvantaged
by SBA’s Small Business Investment Company business goals.
Debenture program that targets high-growth 3. Process Disaster Assistance applications ef-
small businesses; ficiently: By September 30, 2013, increase the use
• over $90 billion in federal contracts to small of the Disaster Assistance electronic loan applica-
businesses (projected); tion (ELA) by 50 percent. The FY 2011 baseline
number was 26 percent so the goal is to achieve
• counseled and trained over one million small
39 percent. In FY 2012, the SBA achieved 36.3
businesses through SBA resource partners; and
percent, exceeding the FY 2012 target of 27
• provided over $689 million in direct disaster loans percent by 133 percent.
to small businesses, homeowners and renters.
4. Expand access to long-term capital: From FY
2012 through September 30, 2013, commit at
Management Results least $4.3 billion of capital via the Small Business
Investment Company program in order to facilitate
In addition, the SBA achieved significant successes access to capital for high growth companies and
across its four Agency Priority Goals which are effective enhance job creation and retention by these
for FY 2012 and FY 2013: companies. In FY 2012, the SBA licensed a
record 27 SBIC debenture funds and licensing
1. Process business loans as efficiently as possible: times have dropped over 60 percent from 14.6
By September 30, 2013, increase the use of paperless months in FY 2009 to 5.4 months in FY 2012.
processing in the 7(a) program from 72 percent to This helped the SBIC program meet its FY 2012
90 percent and in the 504 program from 55 percent target by getting out a record of more than $1.9
to 75 percent to improve the efficiency, effectiveness, billion in commitments to its funds in 2012.
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8 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
SBA by the Numbers
(Dollars in Millions)
FY 2009 FY 2010 FY 2011 FY 2012
Total Portfolio (1)
Outstanding Principal Balance $ 90,451 $ 93,340 $ 99,204 $ 102,631
Capital (2)
7(a) Loans Dollars of Gross Loans Approved $ 9,191 $ 12,407 $ 19,638 $ 15,153
504 Loans Dollars of Gross Loans Approved $ 3,834 $ 4,433 $ 4,845 $ 6,712
Microloans (3) Dollars of Gross Loans Approved to Microborrowers $ 36 $ 47 $ 47 $ 45
Surety Bond Number of Bid and Final Bonds Guaranteed 6,135 8,348 8,638 9,503
Contracting (3) (4)
Prime Contracting Dollars of Annual Federal Contracts to SBs $ 96,834 $ 97,947 $ 91,468 $ – (5)
Prime Contracting Percentage of Federal Contracts to SBs 21.89% 22.66% 21.65% – (5)
HUBZone Dollars of HUBZone Contracts $ 12,413 $ 11,969 $ 9,915 $ – (5)
8(a) Program Dollars of 8(a) Contracts $ 18,670 $ 18,466 $ 16,678 $ – (5)
Counseling and Training (6)
SCORE Number of Clients Trained 176,621 236,853 221,019 292,264
SBDC Number of Clients Trained 375,669 379,794 352,290 332,421
WBC Number of Clients Trained 131,065 135,941 115,805 114,931
Microloans Number of Clients Trained 10,908 15,180 15,964 15,892
Disaster (1) (2)
Disaster Assistance Dollars of Gross Loans Approved $ 1,130 $ 574 $ 739 $ 690
High-growth Small
Businesses
SBIC Dollars of SBA Debenture Leverage Committed to SBICs $ $788 $ 1,165 $ 1,827 $ 1,924
SBIC Dollars of SBIC Debenture Capital to Small Businesses $ 1,227 $ 1,587 $ 2,589 $ 2,950
(1) The total portfolio consists of guarantied business loans outstanding, direct business loans, and direct disaster loans. The data includes all performing loans and defaulted loans that have
not been charged off.
(2) There are three basic ways to present loan data: (1) Gross Loans Approved (the total loans approved); (2) Net Loans Approved (gross loans approved plus any loan increases minus any
cancellations); and, (3) Disbursed Loans (the amount that is actually given to the borrower). Gross Loans Approved is presented in the “Capital” and “Disaster Assistance” sections because it
is the only loan data that remains constant over time.
(3) A more precise methodology was developed in FY 2012 to calculate “Loans Approved to Microborrowers.” Prior year results have been restated to reflect this change.
(4) The federal goal is to give small businesses at least 23 percent of all government-wide contract dollars. The SBA negotiates goals annually with each federal agency on an individual basis,
however, the SBA has no authority to enforce other federal agencies’ contracting goals.
(5) Federal agencies have not yet certified their FY 2012 data. The SBA expects to receive the FY 2012 certified data in the 3rd or 4th quarter of FY 2013.
(6) The FY 2012 numbers for Counseling and Training are preliminary. Final numbers will appear in the FY 2014 CBJ/ FY 2012 APR which will be published February 4, 2013.
AGENCY FINANCIAL REPORT • FY 2012 9
MANAGEMENT’S DISCUSSION & ANALYSIS
SBA’s History and ers, renters and businesses following a disaster. The Di-
saster loan program is the only form of SBA assistance
Organization that is not limited to small businesses.
In 1953, Congress created the U.S. Small Business Ad- The Office of International Trade enhances the ability of
ministration to “aid, counsel, assist and protect, insofar small businesses to export and compete in the global
as is possible, the interests of small business concerns.” marketplace by facilitating access to capital, providing
SBA’s headquarters is located in Washington, D.C. technical assistance, ensuring the interests of small busi-
while its business products and services are delivered ness are considered and reflected in trade negotiations,
with the help of field personnel and a vast network of and supporting and contributing to the U.S. govern-
private sector and nonprofit partners in each U.S. state ment’s international commercial and economic agenda.
and territory. Major SBA offices fall under one of three
Across all of these offices is an emphasis on reaching
Agency-wide strategic goals, as outlined in SBA’s long-
underserved communities, which is a particular focus of
term Strategic Plan:
the Office of Veterans Business Development, the Office of
Native American Affairs, and the Center for Faith-Based
STRATEGIC GOAL ONE — GROWING BUSINESSES
and Neighborhood Partnerships.
AND CREATING JOBS
The Office of Capital Access assists small businesses in STRATEGIC GOAL TWO — BUILDING AN SBA THAT
obtaining capital via the 7(a), 504 and Microloan pro- MEETS THE NEEDS OF TODAY’S AND TOMORROW’S
grams through an extensive lending network.
SMALL BUSINESSES
The Office of Investments and Innovation assists high- SBA’s management offices support Strategic Goal Two:
growth small businesses through the Small Business
The Office of Performance Management and Chief Finan-
Investment Company program, the Small Business
cial Officer provides financial and performance data and
Innovation Research program, and other tailored pro-
information that is useful, relevant, timely and accurate
grams that drive innovation and competitiveness.
and which assists the SBA and its executive team in
The Office of Government Contracting and Business Devel- maximizing program performance and accountability to
opment (GC/BD) provides assistance to small businesses taxpayers.
in competing for federal contracting opportunities
The Office of Credit Risk Management focuses on mitiga-
through the government-wide prime and subcontract-
tion of risk to taxpayers through ever-improving risk
ing programs. This includes HUBZone, 8(a), women-
management and oversight of SBA lending programs.
owned and veteran-owned small businesses. GC/
BD also sets size standards for small businesses which The Office of the Chief Information Officer provides in-
determine the size a business must be to be considered a formation technology leadership, product services, and
small business. operational support for the SBA in order to maximize
internal efficiency and responsiveness to small busi-
The Office of Entrepreneurial Development provides
nesses.
business counseling and training through its resource
partner network composed of small business develop- The Office of Field Operations works as the front-line
ment centers, women’s business centers and SCORE, operating team for the SBA. Most SBA programs and
as well as through online training at SBA’s website. In services are executed when small businesses connect
addition to coordinating connections between SBA with their regional, district and branch field offices
resource partners and local small business communi- located in each state and territory.
ties, SBA’s district offices provide business development
services and support through the 8(a) program which The Office of Communications and Public Liaison com-
complements and builds upon the assistance provided municates the Agency’s programs and priorities to small
by SBA resource partners. businesses, their partners, and the public at large by
working with media outlets, developing social media
The Office of Disaster Assistance provides affordable, content, creating user-friendly online resources, crafting
timely and accessible financial assistance to homeown- high quality marketing materials, organizing events to
10 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
gain feedback from small businesses, and coordinating innovation; government contracting; exporting; and
strategic partnerships. entrepreneurship among underserved communities
including women, minorities, veterans and others.
Other offices include the Office of Management and
Administration, Congressional and Legislative Affairs, Reducing Burdens — The SBA works across the federal
the Office of General Counsel, the Office of Hearings and government to increase responsiveness to and opportu-
Appeals, the Office of Human Resources Solutions, and the nities for small businesses while also reducing regulatory
Office of Equal Employment Opportunity. burdens and excessive or unnecessary enforcement. The
SBA fulfills these functions through an array of listening
STRATEGIC GOAL THREE — SERVING AS THE VOICE sessions and strategic partnerships as well as the Office
FOR SMALL BUSINESS of the National Ombudsman, which receives complaints
All of SBA’s management and program offices work to- and comments from small businesses and acts as a
gether to support increasing interagency collaboration; “trouble shooter” between small businesses and federal
reducing burdens on small business; and, providing cur- agencies.
rent, accurate data statistics on small business to inform
top level strategic decision-making. Statistics on Small Business — SBA’s policy analysts
are responsible for collecting data and statistics to help
Interagency Collaboration — To ensure effective evaluate existing policies and programs of the SBA.
delivery of programs and services, the SBA has made They translate economic, social and demographic trends
collaboration with other federal agencies a top prior- that have an impact on small business job creation
ity. The SBA is the leading participant in interagency into policy prescriptions that allow the Agency to be as
collaborations that focus on small business job creation proactive as possible in anticipating and addressing the
including: access to capital; entrepreneurial education; needs of small business.
Don’t think the SBA can help you? Think again! Small business
Did owners from around the country share how they used an SBA service
you – everything from startup loans to disaster recovery - to help their
know business start, grow, and succeed. Small Business Owners Speak
is a new online feature highlighting the voices of successful small
business owners.
For more information, go to www.sba.gov/stories.
AGENCY FINANCIAL REPORT • FY 2012 11
12
SBA Organization Chart
Office of the Administrator Office of Advocacy
(Administrator, Deputy Administrator,
Chief of Staff, Chief Operating Officer)
Office of the Inspector General
Office of Office of Office of Investments Office of Government Office of Field Office of Disaster
Capital Access Entrepreneurial & Innovation Contracting & Business Operations Assistance
Development Development
• Office of Financial • Small Business • Office of Regional
Assistance • Office of Small Business Innovation Research • Office of Business Administrators Office of Disaster
• Office of Surety Development Centers Program Development • District Offices Planning
Guarantees • Office of Women’s • Small Business • Office of Government
• Office of Economic Business Ownership Investment Companies Contracting
Opportunity • Office of • HUBZone Program Office of
• Office of Performance Entrepreneurship International Trade
& Systems Management Education
MANAGEMENT’S DISCUSSION & ANALYSIS
• Office of Credit
Risk Management
• Office of Financial
Program Operations
Office of Office of Performance Office of Chief Office of Office of Native
Management & Management & Chief Information Officer General Counsel American Affairs
Administration Financial Officer
• Office of Chief
AGENCY FINANCIAL REPORT • FY 2012
• Office of Human • Office of the Chief Technology Officer
Resources Solutions Financial Officer
Office of Congressional Office of Veterans
• Office of Grants • Office of Performance
Management Management
& Legislative Affairs Business Development
• Office of Administrative • Office of Internal
Services Controls
• Office of Executive Office of Center for Faith-Based
Secretariat & Neighborhood
Hearings & Appeals
Partnerships
Office of Office of National
Equal Employment Ombudsman &
Opportunity & Civil Regulatory
Rights Compliance Enforcement Fairness
Office of
Communication &
Public Liaison
MANAGEMENT’S DISCUSSION & ANALYSIS
SBA Regions and Field Offices
AGENCY FINANCIAL REPORT • FY 2012 13
MANAGEMENT’S DISCUSSION & ANALYSIS
Analysis of SBA’s Performance
Agency Priority Goals
The SBA identified four Agency Priority Goals that reflect priorities of SBA leadership and the Administration, and
are critical to success in SBA’s strategic plan. These goals reflect the breadth and depth of SBA’s commitment both
to taxpayers and to the small business community. By actively pursuing these goals, the SBA can strengthen its
national contributions to entrepreneurship, innovation, and competitiveness. These are two-year goals measuring
program efficacy for FY 2012 and FY 2013.
Priority Goal #1: Process business loans as efficiently as possible. By September 30, 2013, increase the use of paperless
processing in the 7(a) program from 72 percent to 90 percent and in the 504 program from 55 percent to 75 percent to improve
the efficiency, effectiveness, and level of service in its business loan programs. The SBA exceeded its FY 2012 targets.
95%
7(a) 75%
504
Target: 75%
90% 70%
Target: 90%
Percent Electronic Percent Electronic
85% 65%
Target: 85%
80% 60% Target: 62%
Achieved
75% 86.1% 55% Achieved
64.5%
70% 50%
FY 2012 FY 2013 FY 2012 FY 2013
Actual Actual
ACHIEVED FY 2012 TARGET
Priority Goal #2: Maximize small business participation in government contracting. Maximize small business participation
in federal government contracting to meet the statutory goals and ensure program benefits flow to the intended recipients. The fol-
lowing chart for FY 2011 shows that out of $422 billion of government contracts, small businesses received $91.5 billion or 21.65
percent. The federal government substantialy met its goal. (The data supporting the FY 2012 indicators are not finalized until the
3rd or 4th quarter of FY 2013. Therefore, FY 2011 data is reported on as required by OMB Circular A-11.) This Goal for FY 2012/13
was also a Priority Goal for FY 2010/11.
Small Disadvantaged Bus. 7.67%
Women-Owned 3.98%
Small Bus. Other than Small Bus.
$91.47 B $331.06 B Goal: 5%
(21.65%) Service-Disabled
2.65%
Goal: 23% Veteran-Owned
HUBZone 2.35%
Goal: 3%
SUBSTANTIALLY ACHIEVED FY 2011 GOAL
14 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Priority Goal #3: Process Disaster Assistance Priority Goal #4: Expand access to long-term capital.
applications efficently. By September 30, 2013, increase the From FY 2012 through September 30, 2013, commit
use of the Disaster Assistance electronic loan application (ELA) at least $4.3 billion of capital via the Small Business
by 50 percent. In FY 2011, 26 percent of applications were Investment Company program in order to facilitate access
received through the use of the ELA, so the goal is to increase to capital for high growth companies and enhance job
that to 39 percent by September 30, 2013. Increasing the creation and retention by these companies. In FY 2012,
number of paperless disaster loan applications will improve the the SBA licensed a record 27 SBIC debenture funds and
delivery of the Disaster loan program. Response time to the licensing times have dropped over 60 percent from 14.6
disaster victim will be reduced by the time saved in not sending months in FY 2009 to 5.4 months in FY 2012. This helped
the application through the mail, and the integrity of the data the SBIC program get out a record of more than $1.9 billion
used in the underwriting process will be improved as a result in commitments to its funds in FY 2012. The SBA achieved
of not having to have staff input the data into the system. The its FY 2012 target.
SBA exceeded its FY 2012 target.
3.0 Debenture Leverage
45% ODA Electronic Loan Applications Committed to SBICs
40% 2.5
Target: 39% Target: $2.40
35%
2.0
30%
Percent Electronic
$ Billions
Target: $1.90
25% Target: 27% 1.5
20%
1.0
15% Achieved
Achieved $1.92 B
10% 36.3% 0.5
5%
0.0
0% FY 2012 FY 2013
FY 2012 FY 2013
Actual
Actual
ACHIEVED FY 2012 TARGET ACHIEVED FY 2012 TARGET
AGENCY FINANCIAL REPORT • FY 2012 15
MANAGEMENT’S DISCUSSION & ANALYSIS
Summary of Key SBA Programs
The following table presents key SBA FY 2012 performance data from Strategic Goal 1 - Growing businesses and
creating jobs. Although the SBA has three Strategic Goals, 93 percent of all SBA program costs are in Strategic
Goal 1. Therefore, only Strategic Goal 1 performance indicators are presented here. The presentation of the perfor-
mance indicators is by Strategic Objectives which follows SBA’s Strategic Plan adopted in FY 2011. Detailed per-
formance information on all SBA programs will be presented, and all variances explained, in the FY 2014 Congres-
sional Budget Justification and FY 2012 Annual Performance Report which will be submitted February 4, 2013.
Strategic Objective 1.1 – Expand Access to capital through SBA’s extensive lending network.
Capital
Type of FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2012 FY 2012
Program Performance Indicator
Indicator Actual Actual Actual Actual Actual Target Variance
7(a) and 504 Lending Supported ($ Billions)(1) Output $24.6 $17.8 $22.4 $30.5 $30.3 $22.4 35%
G
7(a), 504,
Microloan, Jobs Supported(2) Outcome 713,574 514,035 583,737 700,736 609,437 574,800 6%
and SBG
G
(1) Lending Supported includes gross approvals in the 7(a) loan program, gross approvals in the 504 loan program, and third party loans that are made by commercial lenders as part of the 504 funding package.
(2) Job Supported numbers are self-reported by the borrower and appear in the SBA loan application form. A filter was applied to reduce outliers and jobs associated with cancelled loans.
Strategic Objective 1.2 - Ensure federal contracting goals are met or exceeded by collaborating across the federal government to expand
opportunities for small businesses and strengthen the integrity of the federal contracting certification process and data.
Contracting
FY 2008 FY 2009 FY 2010 FY 2011 FY 2011 FY 2011
Program Performance Indicator (3) Type
Actual Actual Actual Actual Target Variance
Percent of Federal Contract Dollars Awarded to
Prime Contracting Outcome 21.50% 21.89% 22.66% 21.65% 23% -6%
Small Businesses
Y
(3) The data supporting the FY 2012 indicators are not finalized until the 3rd or 4th quarter of FY 2013. Therefore, FY 2011 numbers are reported as required by OMB Circular A-11.
Strategic Objective 1.3 - Strengthen SBA’s entrepreneurial education, counseling and training resources to help create new businesses and support the
needs of existing businesses by successfully focusing on core program resources and ensuring these resources are aligned with the needs of both Main
Street and high-growth small businesses.
Counseling and Training
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2012 FY 2012
Program Performance Indicator Type
Actual Actual Actual Actual Actual Target Variance
SBDC, WBC, SCORE
and Online
Training Clients (#) Output 1,220,051 1,295,355 1,232,588 923,114 739,616 N/A* N/A
SBDC, WBC, and
SCORE
Small Businesses Created (#) Outcome 14,400 14,201 15,831 15,181 15,879 17,270 -8%
Y
*New indicator. Did not Target for FY 2012.
The Actual result meets or exceeds The Actual result is within 10% or The Actual result is less than 90%
G target. Y
less of the target.
R
of the target.
16 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Strategic Objective 1.4 - Ensure that SBA’s disaster assistance resources for businesses, non-profit organizations, homeowners, and renters can be
deployed quickly, effectively and efficiently in order to preserve jobs and help return small businesses to operation.
Disaster Assistance
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2012 FY 2012
Program Performance Indicator Type
Actual Actual Actual Actual Actual Target Variance
Disaster Disasters Having a Field Presence Within 3 Days (%) Output 100% 100% 100% 100% 100% 95% 5%
G
Disaster Customer Satisfaction Rate for Approvals (%) Outcome 65% 72% 74% 80% 80% 71% 13%
G
Strategic Objective 1.5 – Strengthen SBA’s relevance to high-growth entrepreneurs and small businesses to more effectively drive innovation and job
creation through both the Agency’s existing programs as well as new initiatives.
Investment and Innovation
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2012 FY 2012
Program Performance Indicator Type
Actual Actual Actual Actual Actual Target Variance
SBA Debenture Leverage Committed to SBICs
SBIC Output 1,029 788 1,165 1,827 1,924 1,900 1%
($ Millions)
G
SBIC Small Businesses Assisted (#) Output 1,905 1,481 1,331 1,339 1,094 1,500 -27%
R
SUCCESS STORY: Success and Dedication to Others Go Hand in Hand
Clinical Research Management, Inc., Hinckley, Ohio
When Victoria Tifft was a Peace Corps volunteer working on infectious disease
control in Togo more than 20 years ago, she came down with malaria. But it was the
suffering of the local people living under devastating third world conditions that led
her to dedicate her life to fighting infectious diseases – and that’s what she’s done.
This year, Tifft, president and CEO of Clinical Research Management, was named
2012 National Small Business Person of the Year by the SBA. “The innovation,
inspiration and determination shown by Victoria Tifft have elevated her company
above and beyond the norm,” said SBA Administrator Karen Mills. “These qualities
are what make small businesses such a powerful force for job creation in the
American economy and in their local communities.”
Tifft built her dream-fulfilling company from scratch after she took a job at the Walter Reed Army Institute
of Research following her return from West Africa. While there, she identified an opportunity to help the
Army with pre-clinical early and late-stage clinical vaccine trials. Seizing her chance, Victoria created Clinical
Research Management, also known as ClinicalRM. The company supports development of FDA-regulated
vaccines, pharmaceuticals, and medical devices for government and commercial customers. ClinicalRM helped
create, and today manages, the Walter Reed Army Institute of Research’s Clinical Trials Center. The Center
develops vaccines for infectious diseases such as malaria and E. coli.
ClinicalRM has achieved amazing growth. Employing three people in 1994, the company maintains domestic
and international operations today with a staff of 331. Annual revenues have increased from $17 million in
2007 to $40 million in 2010.
AGENCY FINANCIAL REPORT • FY 2012 17
MANAGEMENT’S DISCUSSION & ANALYSIS
Operational Portfolio CHART I MAKEUP OF SBA’S OUTSTANDING LOAN PORTFOLIO
Analysis
$1.5 $1.1 $0.9 $0.8 $0.7 $0.6
The Small Business Administration is 100%
$7.9 $7.5 $7.2
the taxpayers’ custodian of a small busi- $9.0 $8.6 $8.4
90% $8.0 $7.8
ness loan portfolio of over $102.6 bil- $8.4 $8.5 $8.4 $8.1
80%
lion. SBA’s two flagship loan programs
– 7(a) working capital loans and 504 70% $19.6 $22.3 $24.1 $25.5 $26.6 $26.9
fixed asset loans – made up almost 85 60%
percent of the outstanding loan portfo- 50%
lio at the end of FY 2012 (see Chart I).
40%
Their relative growth in the portfolio
30%
can be explained both by their absolute $46.1 $47.7 $48.6 $50.8 $56.4 $60.1
growth and by the relative declines in 20%
disaster loans due to tame hurricane 10%
seasons over the past few years and the 0%
winding down of the SBIC Participat- FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
ing Securities program. The absolute ($ Billions) 84.5 88.2 90.4 93.3 99.2 102.6
growth of 7(a) and 504 loans, driven by
7(a) 504 SBIC Programs Disaster All Other
incentives such as higher guaranties and
lower fees in the Recovery Act of 2009
and the Jobs Act of 2010, continued and raised guaranties for SBA’s 7(a) and 504 loan pro-
in FY 2012, buoyed by higher loan limits, a recovering grams, among its many other provisions. This stimulus
economy, and streamlined program operations. helped double lending from a quarterly low of $2.2
billion in Q2 FY 2009 to $4.6 billion in Q4 FY 2009.
As seen in Chart II, the Recovery Act, passed in the
When the Recovery Act and its extensions ended in
second quarter of FY 2009, temporarily lowered fees
Q4 FY 2010, the Jobs Act released a second round of
CHART II QUARTERLY GROSS 7(A) AND 504 LOAN APPROVALS
ct
s A ed
Q2 ob st
12 it
ed d
cr te Q4
: J hau
11 ex
ct en FY ing
y A em
er pl Q1 und
ct
ov im y A ed
er st
f
ec s
: R io n t ov au
09 vi s di
re en ec xh
FY pro : C roz :R ge
10 in
10 09 t f
FY rke
Q1 ma
FY fund
8
FY11 Average
($ Billions)
$6.12 B
FY12 Average
6 $5.47 B
FY08 Average
$4.49 B FY10 Average
$4.21 B
FY09 Average
4 $3.26 B
2
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
18 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
stimulus, leading to a record $10.4 billion in Q1 FY been tracking or out performing historical delinquency
2011. While funding specific to the Jobs Act ran out rates. Therefore, as the makeup of the portfolio shifts
in that quarter, its provisions for higher loan limits and more fully into loans made post-crisis, the risk of loss
revised size standards that determine who qualifies as to taxpayers in the form of purchased loan guaranties
a small business in a variety of industries were made appears to be diminishing. This trend is confirmed by
permanent. It also led to a higher number of loan ap- delinquency rates for 7(a) and 504 loans declining 16
provals in FY 2012 than in even the pre-crisis years. In percent and 25 percent year-over-year in FY 2012 and
FY 2012, the SBA approved $15.2 billion in 7(a) loans purchase amounts for the same dropping 23 percent
and $6.7 billion in 504 loans. and 29 percent respectively.
Concerted efforts to streamline program operations – a As seen in Chart III, the growth of the SBIC program
priority goal for the Agency is to process business loans over the past several fiscal years masks the divergent
as efficiently as possible – likely contributed to the rise paths of two of its constituent parts. The core “Deben-
in loan approval volume in FY 2012 as well. The use of ture” program, which now finances the bulk of SBICs,
electronic loan applications in the 7(a) program jumped has been on a growth trajectory since FY 2008. By
nearly 20 percent and nearly 30 percent in the 504 pro- contrast, the “Participating Securities” (PS) program has
gram in FY 2012 compared to the previous year. The been gradually winding down since Congress ended it
increased use of electronic loan applications improves in 2004. The two programs were roughly equal in size
quality through automatic checks for errors and reduces as recently as FY 2010. Today, however, debentures
the complexity of the process, making the SBA loan are more than 67 percent of the outstanding portfolio,
program simpler and easier to use for small businesses and SBICs financed through the Debenture program
and lending partners. The SBA also streamlined several now manage more than four times the capital of PS
loan products, prompting large increases in volume in funds. Importantly, the SBIC program is run at zero
7(a) programs such as CAPLines which provide lines of subsidy. This means no taxpayer funds are appropriated
credit to small businesses. The revamp of CAPLines re- to underwrite the credit costs of the program. While a
sulted in a 393 percent increase in loan approvals in FY small number of funds default on their obligations to
2012. In addition, Small Loan Advantage 2.0, which the SBA, fees that the program charges more than offset
speeds the process of receiving a loan guaranty for small those costs. In FY 2012, the SBA licensed a record 27
loans, experienced a 251 percent increase in loans ap- SBIC debenture funds and licensing times dropped
proved in the three months after it was streamlined in over 60 percent from 14.6 months in FY 2009 to 5.4
June 2012 than in the previous 16 months of its
existence.
The rise in loan volumes over the past several CHART III COMPOSITION OF SBIC OUTSTANDING PORTFOLIO
years means the composition of SBA’s out-
standing loan portfolio is changing. More 8
than half of the $87 billion in outstanding
7(a) and 504 loans in the portfolio is from
loans approved since FY 2009, and the risk
6
profile of the portfolio has declined as a
result. Delinquency rates (borrowers who
($ Billions)
are late on their payments) are good pre-
4
indicators of eventual defaults of loans, in
which case the SBA has to purchase the loan
guaranty, and the taxpayer loses money. The
2
loans made in the three years during the
height of the housing bubble and just before
the financial crisis had delinquency and pur-
0
chase rates three or four times higher than FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
the historical trend. Loans originated over
Debentures Participating Securities
the past four years, on the other hand, have
AGENCY FINANCIAL REPORT • FY 2012 19
MANAGEMENT’S DISCUSSION & ANALYSIS
months in FY 2012. This helped the SBIC program get lio, accounting for almost 50 percent of the outstanding
out a record of more than $1.9 billion in commitments loans despite five years of repayments. Going forward,
to its funds in FY 2012. the relatively low charge-off rate for disaster loans - 2.36
percent in FY 2012 - will continue to make disaster
Finally, the disaster loan section of SBA’s outstanding loans an important tool for homeowners, businesses,
loan portfolio declined in both relative and absolute and renters who may fall victim to a disaster.
terms as payments and the occasional charge-off on
disaster loans made in previous years outpaced new Quarterly information on the status of SBA’s loan port-
disaster loans in FY 2012. The high volume of loans folio, including outstanding balances and approvals by
made in FY 2006 - $11.7 billion - which included loan program and purchase rates, is available on SBA’s
Hurricanes Katrina, Rita and Wilma, represents more website at www.sba.gov/content/small-business-admin-
than double the number of disaster loans approved in istration-sba-loan-program-performance.
all the following years combined. Not surprisingly, this
cohort continues to dominate the disaster loan portfo-
Nine percent of small businesses are veteran-owned. These 2.45
Did million veteran-owned businesses employ more than 5 million people;
and veterans are more likely than those with no active-duty military
you experience to be self-employed. SBA’s Operation Boots to Business:
know From Service to Startup helps support veterans as they grow
businesses and create jobs. In FY 2012, the SBA launched the first
four pilot sites for this initiative.
For more information, go to www.sba.gov/bootstobusiness.
20 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Analysis and Highlights of Financial Statements and Results
Highlights of Financial Results (September 2012)
(Dollars in Thousands)
At End of Fiscal Year 2012 2011 % Change
CONDENSED BALANCE SHEET DATA
Fund Balance with Treasury $ 6,273,663 $ 8,469,322 -25.92%
Credit Program Receivables 7,654,295 8,354,739 -8.38%
All Other Assets 86,897 58,740 47.93%
Total Assets $ 14,014,855 $ 16,882,801 -16.99%
Debt 7,919,801 11,190,279 -29.23%
Downward Reestimate Payable to Treasury 1,689,133 911,765 85.26%
Liability for Loan Guaranties 3,725,951 4,741,442 -21.42%
All Other Liabilities 305,696 348,338 -12.24%
Total Liabilities 13,640,581 17,191,824 -20.66%
Unexpended Appropriations 1,281,279 1,537,185 -16.65%
Cumulative Results of Operations (907,005) (1,846,208) -50.87%
Total Net Position 374,274 (309,023) -221.12%
Total Liabilities and Net Position $ 14,014,855 $ 16,882,801 -16.99%
For the Fiscal Year
STATEMENT OF NET COST BY STRATEGIC GOAL
Goal 1: Growing Businesses and Creating Jobs
Loan Subsidy Cost Including Reestimates $ 350,577 $ 2,559,524 -86.30%
All Other Costs Net of Revenue 828,869 744,627 11.31%
Goal 2: Building an SBA that Meets the Needs of Today's
and Tomorrow's Small Businesses 1,959 6,132 68.05%
Goal 3: Serving as the Voice for Small Business 14,369 13,454 6.80%
Costs Not Assigned 79,031 136,825 -42.24%
Net Cost of Operations $ 1,274,805 $ 3,460,562 -63.16%
CONDENSED STATEMENT OF NET POSITION
Beginning Cumulative Results of Operations $ (1,846,208) $ (3,829,615) -51.79%
Total Financing Sources 2,214,008 5,443,969 -59.33%
Less: Net Cost of Operations 1,274,805 3,460,562 -63.16%
Ending Cumulative Results (907,005) (1,846,208) -50.87%
Beginning Unexpended Appropriations 1,537,185 2,295,070 -33.02%
Total Budgetary Financing Sources (255,906) (757,885) -66.23%
Ending Unexpended Appropriations 1,281,279 1,537,185 -16.65%
Ending Net Position $ 374,274 $ (309,023) -221.12%
CONDENSED STATEMENT OF BUDGETARY RESOURCES
Unobligated Balance Brought Forward $ 7,384,285 $ 5,226,984 41.27%
Other Budgetary Resources, Net (1,938,161) (769,832) 151.76%
Appropriations 3,592,151 5,608,629 -35.95%
Borrowing Authority 1,129,367 347,617 224.89%
Spending Authority from Offsetting Collections 4,232,520 8,863,894 -52.25%
Total Budgetary Resources $ 14,400,162 $ 19,277,292 -25.30%
Obligations Incurred, Budgetary 4,130,864 6,919,443 -40.30%
Obligations Incurred, Nonbudgetary 4,636,930 4,973,564 -6.77%
Unobligated Balances, Available and Unavailable 5,632,368 7,384,285 -23.72%
Total Status of Budgetary Resources $ 14,400,162 $ 19,277,292 -25.30%
AGENCY FINANCIAL REPORT • FY 2012 21
MANAGEMENT’S DISCUSSION & ANALYSIS
Analysis of Financial Results resources are made up of new budget authority and un-
obligated balances of budget authority provided in pre-
The SBA prepares its financial statements as a critical vious years. The loan financing funds are nonbudgetary
aspect of ensuring the accountability and stewardship accounts that record all the cash flow activity resulting
for the public resources entrusted to it. The financial from post 1991 direct loans and loan guaranties. This
statements are prepared in accordance with guidance activity in the financing account is reported separately
issued by the Office of Management and Budget in the Budget of the United States Government and is
(OMB) pursuant to the Chief Financial Officers Act of excluded from the budget surplus/deficit totals.
1990. While these statements have been prepared from
SBA’s books and records in accordance with generally The portion of the outstanding principal guaranteed by
accepted accounting principles for federal entities and the SBA as of September 30, 2012 was $74.4 billion
the formats prescribed by OMB, they are in addition an increase of 6.3 percent from the $70.0 billion
to the financial reports used to monitor and control guaranteed at September 30, 2011 (see Note 6C in
budgetary resources, which are prepared from the same the financial statements). As shown in Chart I, new
books and records. The statements should be read guaranties disbursed by SBA participating banks during
with the realization that they are a component of the FY 2012 were $16.0 billion, a 3.6 percent decrease
U.S. government, a sovereign entity. One implication compared to FY 2011. This was still great enough to
of this is that the liabilities presented herein cannot be cause an overall increase in the outstanding principal
liquidated without the enactment of appropriations, amount. The 3.6 percent decrease in new guaranties
and ongoing operations are subject to the enactment of disbursed by banks is consistent with the state of the
future appropriations. economy and the expiration of the Small Business
Jobs Act in FY 2011. The Small Business Jobs Act had
This Analysis of Financial Results references numbers in extended the provisions in the American Recovery and
the Highlights to the financial statements on the previ- Reinvestment Act that had enabled the SBA to provide
ous page as well as those in the Financial Statements guarantied loans with reduced fees and increased
and Notes in this report. The Operational Portfolio guaranty percentages. This resulted in the large increase
Analysis does not reference the financial statements, but in loans disbursed in FY 2011. The Jobs Act also
rather it provides an operational analysis of SBA’s credit increased the maximum size of guarantied loans. These
programs. As a result, the definitions of the loan and larger loans helped support FY 2012 volume.
guaranty balances in the Portfolio Analysis section may
differ somewhat from the balances used in this Analysis Credit program receivables for the SBA are comprised
of Financial Results. For example, for the 7(a) program of business and disaster direct loans and defaulted
the total amount of guarantied loans is used in the business loans purchased per the terms of SBA’s loan
Portfolio Analysis, where only SBA’s guarantied portion guaranty programs which are offset by an allowance for
is used in the Analysis of Financial Results, as it ties to subsidy. An allowance for the subsidy cost of the gross
balances in the financial statements. loans receivable is recorded as a contra asset and the net
BACKGROUND
The SBA is a major federal credit
agency of the U.S. government. The CHART I GUARANTIED LOANS DISBURSED
Agency has roughly 2,200 employees
not counting its Disaster temporary 20
employees. As a result less than $1.0
billion of SBA’s $14.4 billion budgetary 16
resources in FY 2012 were for salaries
($ Billions)
12
and expenses, with the rest being to
support SBA’s credit programs. Bud- 8
getary resources when apportioned by 4
the Office of Management and Budget
are available to enter into new obliga- 0
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
tions and to liquidate them. Budgetary
22 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
asset is reported on the Balance Sheet.
The subsidy allowance is determined CHART II PURCHASES OF GUARANTIED LOANS
by modeling the projected future cash
inflows and outflows of SBA credit 6
programs using discounted cash flow
5
methodology. Loan losses, the costs
of loan servicing and loan interest 4
($ Billions)
rates are factors that affect the subsidy 3
allowance. 2
1
SBA credit program receivables were
valued at $7.7 billion in FY 2012 0
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
which was a decrease of $0.7 billion
from FY 2011. The biggest changes
in the credit program receivables were
decreases in disaster loans of $0.2 billion and guarantied FINANCIAL POSITION
business loans of $0.5 billion. Disaster loans decreased Assets
as collections and charge-offs exceeded new loan dis-
bursements because there were no new major disasters The SBA had total assets of $14.0 billion at the end
in FY 2012. The decrease in guarantied business loan of FY 2012, down 17.0 percent from FY 2011. Total
receivables was due mostly to an increase in the subsidy assets decreased primarily due to a $2.2 billion decrease
allowance from FY 2012 subsidy reestimates along with in the Fund Balance with Treasury. This decrease was
a decrease in new purchases of defaulted guarantied due primarily to the repayment of Treasury borrowings
loans. The increase to the subsidy allowance at FY 2012 in FY 2012 that were not needed to finance the cost of
year-end was caused by a decrease in projected future SBA’s ongoing credit programs. Also, the $0.7 billion
recoveries on guarantied receivables in the subsidy decrease in credit program receivables, discussed previ-
model in the FY 2012 subsidy reestimates. ously, contributed to the decrease in SBA’s assets.
As reflected in Chart II, guarantied loan purchases de- Liabilities
creased $0.8 billion in FY 2012. This is still a high level
historically, but it did contribute to a slight decrease in The SBA had total liabilities of $13.6 billion at the end
the outstanding guarantied business loans receivable of FY 2012, down 20.7 percent from FY 2011. Liabili-
after including recoveries, expenses and charge-offs in ties consist primarily of the Liability for Loan Guaran-
the loans purchased portfolio. ties, Downward Reestimate Payable to Treasury, and
Debt with Treasury. The Liability for Loan Guaranties
SBA’s assets and liabilities consist primarily of Fund is defined as the estimate of the net present value of the
Balances with Treasury, credit program receivables, future amount the SBA will pay, net of fee collections,
liabilities for loan guaranties, and Debt with Treasury. to liquidate expected purchases of guarantied loans
SBA’s loans and guaranties are financed by a combina- under its guarantied loan programs. The Liability for
tion of subsidy appropriations, fees charged to lend- Loan Guaranties decreased $1.0 billion primarily due
ers and borrowers, and borrowings from the Treasury. to the year-end reestimate as well as subsidy and fees
Congress provides appropriations to cover the estimated collected (offset by claim payments).
long-term costs of SBA’s disaster loans. While SBA’s
guarantied business loan program costs are largely The Downward Reestimate Payable to Treasury
financed through fees, Recovery and Jobs Act loans were increased $0.8 billion due to the larger year-end accrual
augmented by appropriations. Borrowings are repaid to of the downward reestimates for the 7(a) Recovery Act
the Treasury as loans are repaid to the SBA. and 7(a) Jobs Act loan cohorts. Lower than average
purchases during FY 2012 decreased the overall
purchase curve, in turn decreasing purchase projections
in future years and contributing to a downward
reestimate for FY 2012.
AGENCY FINANCIAL REPORT • FY 2012 23
MANAGEMENT’S DISCUSSION & ANALYSIS
Debt with Treasury decreased $3.3
billion as SBA’s repayments of borrow- CHART III CREDIT PROGRAM SUBSIDY REESTIMATES
ings were greater than new borrowings
5
made in FY 2012. In FY 2012 new
borrowing was made to fund disas- 4
ter loans and to cover cash shortfalls 3
($ Billions)
related to SBIC defaulted guaranties. 2
Note 9 to the financial statements
1
provides additional detail on SBA debt
0
with Treasury.
-1
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Net Position
Direct Disaster Loans Direct Business Loans
Cumulative Results of Operations is Guarantied Business Loans
the accumulative difference between
expenditures and financing sources
since the inception of the Agency. This 2012 from last year, and there was a change from a net
negative balance decreased $0.9 billion due to unfund- downward to a net upward reestimate in the SBIC Par-
ed subsidy reestimates at year-end for the 7(a) guaranty, ticipating Securities program. The subsidy reestimates
504 and SBIC programs which were less this year than for FY 2012 still netted an $81 million increase, but
last year. Upward subsidy reestimates determined at that increase was much smaller than in FY 2011. Those
year-end are funded in the following year when they are subsidy reestimates were the largest components of the
received. Unexpended Appropriations decreased $0.3 change (net decrease) in the Agency’s net cost. Chart
billion this year primarily because the appropriations III reflects the decreases in the subsidy reestimates for
used were greater than the appropriations received in the Guarantied Business and Direct Disaster loan pro-
FY 2012 for disaster and administrative activity. This grams in FY 2012.
affected Budgetary Financing Sources and the Ending There are significant downward reestimates in the
Net Position. 7(a) Recovery Act and 7(a) Jobs Act programs. These
downward reestimates of $0.4 billion and $0.2 billion
Results of Operations were due mostly to lower than average purchases during
FY 2012 that decreased the overall purchase curve, in
The Results of Operations primarily reflects the costs of
turn decreasing purchase projections in future years and
SBA credit programs subsidy expenses during the year
contributing to the downward reestimate for FY 2012.
for new loans and subsidy reestimates at year-end. The
credit subsidy cost is the net present value of expected The SBIC Participating Securities program had an
cash inflows and outflows over the life of a guarantied upward reestimate of $0.4 billion in FY 2012 that was
loan, or the difference between the net present value of due mostly to updated methodologies for assumption
expected cash flows and the face value of a direct loan. curves which allow for more accurate projections of
The SBA receives appropriations annually to fund its future cash flows. These methodology changes resulted
credit programs. When loans are disbursed, the SBA in decreased projections of recoveries, reimbursement of
records subsidy expense. In accordance with the Fed- prioritized payments and annual fees for the remaining
eral Credit Reform Act, the subsidy costs are reestimat- years within most of the cohorts.
ed annually. Reestimates update original loan program
cost estimates to reflect actual experience and changes The 504 program also had an upward reestimate of $0.4
in forecasts of future cash flows. Increased reestimated billion that was due mostly to poorer than expected
costs are funded in the following year by permanent performance for the FY 2005 through FY 2007 loan
indefinite budget authority, while decreased costs are cohorts and updated model assumptions that increased
returned by the SBA to a Treasury general fund. the model projections of future purchases. Further
detail on subsidy reestimates can be found in Note 6I
The net upward reestimated costs for the 7(a) and to the financial statements in the Financial Reporting
504 guarantied business programs decreased in FY section of this report.
24 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Budgetary Resources
CHART IV APPROPRIATIONS
Total Budgetary Resources decreased $4.9
billion in FY 2012 from FY 2011. This
8
decrease includes Appropriations, Spend-
ing Authority from Offsetting Collections, 7
and Other Budgetary Resources, Net that
6
were partially offset by increases in Bor-
rowing Authority and Unobligated Bal- 5
($ Billions)
ance Brought Forward October 1. Other
4
Budgetary Resources, Net decreased by
$1.2 billion in FY 2012. This decrease is 3
attributable to the large repayment of bor-
2
rowings in FY 2012.
1
Spending Authority decreased $4.6 billion
in FY 2012. The decrease in Spending 0
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Authority is primarily in the loan guaranty
financing fund and is due to the decrease in Disaster Loans Business Loans Salaries and Expenses
the loan subsidy reestimate and the increase
in the repayment of borrowings from cur-
rent year authority.
2012 for the guarantied business programs. Obliga-
Borrowing Authority increased $0.8 billion in FY 2012. tions also decreased $0.3 billion in the nonbudgetary
Although borrowing authority granted to the SBA was financing funds. This decrease is primarily due to a
practically the same in both years, the SBA decreased decrease in default claims paid (purchased loans) in the
the authority by $0.7 billion at year-end FY 2011 as it loan guaranty financing fund plus a decrease in obliga-
was unneeded to fund future credit program operations. tions in the disaster financing fund due primarily to the
lack of major disasters in FY 2012.
Appropriations decreased $2.0 billion in FY 2012.
The decrease was due to the decrease in the amount of Unobligated balances at September 30, 2012 and 2011
appropriations needed to fund SBA’s upward credit sub- were $5.6 billion and $7.4 billion which include $2.9
sidy reestimates. Chart IV depicts that the substantial billion and $5.3 billion of unavailable unobligated
decrease in Appropriations is for business loans. balances. These balances were unavailable because they
were unapportioned by OMB. The SBA accumulates
Status of Budgetary Resources the majority of unobligated balances in its nonbudget-
ary financing accounts ($4.8 billion in FY 2012 and
Total Status of Budgetary Resources decreased $4.9 $6.4 billion in FY 2011) from reestimates that are used
billion in FY 2012. This decrease included a decrease primarily to pay default claims in future years.
in unobligated balance of $1.8 billion and a decrease
in obligations incurred of $3.1 billion. Obligations
decreased by $2.8 billion in the budgetary funds due to
the large decrease in upward subsidy reestimates in FY
AGENCY FINANCIAL REPORT • FY 2012 25
MANAGEMENT’S DISCUSSION & ANALYSIS
Analysis of SBA’s Systems, Controls and Legal Compliance
Internal Control Environment reviewed some of the business processes with no mate-
rial impact on the financial statements, but which have
The SBA believes that maintaining integrity and ac- some potential for risk or exposure for the Agency.
countability in all programs and operations is critical Based on the evaluation of 10 business processes, the
for good government, demonstrates responsible stew- OIC identified a number of deficiencies in the internal
ardship over assets and resources, ensures high quality, control over financial reporting, including several in
is a sign of responsible leadership, ensures the effective SBA’s key business areas. However, the OIC deter-
delivery of services to customers, and maximizes de- mined that none reached the level of material weakness.
sired program outcomes. The SBA has developed and
implemented management, administrative and financial This is the second year since the SBA transferred the
system controls to reasonably ensure that: procurement functions to the Office of the Chief
Financial Officer. The FY 2012 review of internal
• programs and operations achieve intended results controls over financial reporting revealed that, while
efficiently and effectively; there was considerable improvement in the contracting
• resources are used in accordance with the mission area, more time and resources will be required to resolve
of the Agency; all outstanding issues. These include formalizing the
• programs and resources are protected from waste, acquisition process and related requirements through
fraud, and mismanagement; agency-wide Standard Operating Procedures, ensur-
ing all contracting documents are signed by appropri-
• program and operations activities are in compli-
ate authorized individuals, and ensuring that invoices
ance with laws and regulations; and
are reviewed by appropriate parties before payment is
• reliable, complete and timely data are maintained disbursed. The Agency takes this matter very seriously
and used for decision-making at all levels. and the following steps have already been taken to make
The Federal Managers’ Financial Integrity Act of 1982 further improvements:
requires federal agencies to conduct an annual assess- • contracted with acquisition experts to help up-
ment of internal control and report the results to the date Standard Operating Procedures;
President and the Congress in a statement of assurance.
• trained and re-trained contracting officers, con-
The conclusion of the Administrator’s Annual FMFIA
tracting officer representatives, and accounting
assurance statement is based on the self-assessment of
personnel on the invoice certification process;
program managers, internal control reviews, and audits
and reviews done by the Government Accountability • explored the possibility of creating an interface
Office and SBA’s Office of the Inspector General. between the System for Award Management and
SBA’s financial system to ensure the most current
The SBA continues to strengthen and improve the ex- contractor information is available at the time of
ecution of its mission through the application of sound payment; and
internal controls. The Office of Internal Controls • implemented electronic invoice routing and ap-
(OIC) is responsible for overseeing the requirements provals in the financial system.
of the Office of Management and Budget’s revised
Circular No. A-123, Appendix A, Internal Control This year the SBA continued to have a significant
Over Financial Reporting. During FY 2012 the OIC deficiency in information technology security controls,
conducted SBA’s eighth annual assessment of internal including security management, vulnerability remedia-
control over financial reporting to comply with this tion, asset and configuration management, background
circular. The Senior Assessment Team (SAT), chaired clearance, security training, contingency planning,
by the Chief Financial Officer and comprised of SBA system interface security, access security, contract limita-
managers from the major programs and support offices tions, system auditing, and incident management. The
directed this effort. The OIC reviewed the key busi- Agency is sensitive to the need to protect SBA data, and
ness processes impacting financial operations and the continues to work diligently to improve both process
financial statements. In addition, the SAT members and performance in this critical area. The following
26 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
steps to remediate findings pointed out in the Auditors’ transmission is confidential, accurate and retains
Report are currently underway: integrity.
• Access Management: A policy will be developed
• Secure Network: The SBA is promulgating
to guide the provisioning and de-provisioning of
technology that blocks connection of non-SBA
access to SBA systems and physical locations. A
government equipment to the SBA infrastructure.
periodic review of access occurs bi-annually to
• Vulnerability Management: The SBA has in- identify and take action on inappropriate access.
vested in leading vulnerability scanning tools and
• Third-Party Contracts: OCIO contracts with
partnered with other federal agencies to prevent
third-party vendors will be evaluated and, where
and detect inappropriate activities. Problem areas
lacking, will be revised to include security clauses.
are immediately reported upon and remediated as
required. • System Audit Log: A project is underway to pro-
cure an audit log management tool to monitor
• Asset Management: A project is underway to
systems for unauthorized activities or inappropri-
obtain a tool to centrally track the lifecycle of all
ate occurrences.
SBA hardware and software assets.
• Backup Tape Management: A process will be
• Configuration and Patch Management: A project
implemented to account for all tapes with SBA
is underway to obtain a configuration manage-
data stored both onsite and offsite.
ment tool to centrally maintain a baseline of all
SBA assets. A policy will be developed to ensure • Incident Response: A project is underway to
a revision to each asset’s configuration undergoes establish an incident response program that is
formal change control. Leading enterprise patch consistent with federal requirements.
management tools are in review to solidify the
patching function. Financial Management Systems
• Tracking of Plans of Action and Milestones
Strategy
(POAMs): SBA’s Office of the CIO (OCIO)
now tracks each SBA IT system-related finding in Financial management systems at the SBA are designed
the Agency’s tool of record, CSAM. Remediation to support effective internal control, produce reliable,
progress of each POAM is reviewed between IT timely financial information, and ensure cost effective
Security and system owners on a weekly basis. loan guaranty processing. Management remains fo-
• Contractor Clearance: A policy and process is cused on robust financial management systems that im-
now in place that requires OCIO contractors to prove SBA’s ability to comply with laws and regulations,
be cleared before gaining access to SBA systems. provide timely and accurate data to support manage-
A periodic independent review will be instituted ment analysis and decision-making, enable the Agency
to identify and remove any inappropriate contrac- to keep pace with its lending partners, and effectively
tor access. use automation to achieve operational efficiency.
• Security Training: General IT security train- As demonstrated throughout this Agency Financial Re-
ing now occurs on an annual basis for all SBA port, the SBA seeks to comply with all federal financial
personnel. A vendor will be procured to provide management system requirements and there have been
IT role-based security training specific to OCIO no deficiencies identified under FFMIA.
staff.
The SBA is in the process of conducting a series of in-
• Contingency Planning: The OCIO is identify-
cremental improvement projects designed to modernize
ing disaster recovery solutions that can enable a
the financial management systems to improve financial
reliable recovery in the event of an emergency.
system controls, reduce sustainment costs, provide ad-
Periodic contingency tests will be performed to
ditional functionality for external lending partners, and
assess SBA’s resiliency and capabilities against
prolong system useful lives. These projects include the
disasters.
migration of the systems to more current technology
• System Interfaces: A plan is underway to identify platforms and relocation to more modern data centers
all system interconnections and establish formal
agreements among system owners to ensure data
AGENCY FINANCIAL REPORT • FY 2012 27
MANAGEMENT’S DISCUSSION & ANALYSIS
that provide expanded capability for continuity of The systems include:
operations.
• Oracle Federal Financials – Recently upgraded to
In addition to modernization of the financial system the most current release, this COTS package is
platforms, the incremental improvement projects will used for budget execution and management for
also add missing functionality to the financial systems, administrative activity.
building improved integration between the systems, • Loan Systems – A series of SBA-built systems
improving consistency of data, enhancing reporting used to support the lifecycle of loan guaranty
capability, and improving SBA’s automation of funds processing, loan program funds control, man-
control for loan programs and loan subsidy. agement and accounting for loan activity, and a
COTS package used for disaster loan application
When completed, the incremental improvement proj-
processing.
ects enhance SBA’s financial system controls over lend-
ing programs and provide for improvement in acces- • Financial Management System (FMS) – An SBA-
sibility to common information, financial and budget built system used to consolidate administrative
management, and financial reporting. Core financial and loan activity, manage cash and control funds,
systems at the SBA are comprised of three systems oper- and provide financial reporting.
ated and managed by the Offices of the Chief Financial
Problems associated with the aging of the SBA-devel-
Officer, Capital Access, and Chief Information Officer.
oped financial systems are being addressed as part of
the modernization projects included in SBA’s financial
systems strategy.
Did Small business owners can now take advantage of a new business
you tool to help them compete and grow. The free tool, called SizeUp,
provides data analysis to help small businesses compare their
know performance to competitors and find areas to attract new customers.
For more information, go to www.sba.gov/sizeup.
28 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Management Assurances:
FMFIA and FFMIA Assurance Statement for FY 2012
The Small Business Administration continued to strengthen internal controls over its programs and operations
during FY 2012. Creating and sustaining a culture of responsibility and accountability while eliminating and
preventing waste, fraud and abuse is critical to meeting our mission at the SBA. I am pleased to report that
the SBA is on course to achieve its internal control objectives.
SBA management is responsible for establishing and maintaining effective internal controls and financial man-
agement systems that meet the objective of the Federal Managers Financial Integrity Act (FMFIA). The SBA
conducted its assessment of internal controls over the effectiveness and efficiency of operations and compliance
with applicable laws and regulations in accordance with OMB Circular A-123, Management’s Responsibility
for Internal Controls. Agency managers have issued assertions to me as to the status of their FY 2012 internal
controls in their areas of responsibility. These assertions are supported by internal testing, checklists and other
management reviews. Although a few Agency managers reported some operating deficiencies, these were not of a
material nature. Based on the results of this evaluation, I can provide reasonable assurance that internal controls
over operations and compliance with applicable laws and regulations, as of September 30, 2012, were operating
effectively and no material weaknesses were identified in the design or operation of those internal controls. In
addition, the Agency’s financial management systems conform to the principles, standards, and related require-
ments prescribed by Section 4 of FMFIA.
In addition, the SBA conducted its assessment of the effectiveness of internal controls over financial report-
ing, which includes safeguarding of assets and compliance with applicable laws and regulations, in accordance
with the requirements of Appendix A of OMB Circular A-123. Based on the results of this evaluation, I can
provide reasonable assurance that internal controls over financial reporting were operating effectively and no
material weaknesses were identified in the design or operation of internal controls over financial reporting.
SBA’s independent auditors issued an unqualified opinion on the Agency’s FY 2012 financial statements for
the eighth year in a row. However, our auditor identified one instance of non-compliance with applicable
laws and regulations as of September 30, 2012. Specifically, due to ongoing system issues with the Agency’s
legacy mainframe information system, not all co-borrowers and guarantors on 7(a), 504 and disaster charged-
off loans were referred to the Department of Treasury for collection of debt as required by the Debt Collec-
tion Improvement Act (DCIA). Over the past three years, Treasury has collected on average 1.33 percent of
outstanding loan balances referred at 180 days delinquent. Treasury has collected on average 0.63 percent of
outstanding loans balances referred after charge-off and all servicing actions have been completed by the SBA
and third party lenders.
The SBA has a DCIA Compliance Team made up of representatives from the Office of Capital Access, the Office
of the Chief Financial Officer, and the Office of the Chief Information Officer, who work together to identify
and resolve each of the system problems. As a result of their efforts, the SBA has implemented improvements to
support the ongoing referral of defaulted loans, including referrals of co-borrowers and guarantors, to Treasury.
The Compliance Team continues to monitor and review issues affecting referrals and make system adjustments as
necessary to confirm the completeness and accuracy of referrals to Treasury. However, the underlying system is-
sues will likely continue to be a challenge for the Agency until the transition from the mainframe to a web-based
system is complete.
AGENCY FINANCIAL REPORT • FY 2012 29
MANAGEMENT’S DISCUSSION & ANALYSIS
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 Government Standard General
Ledger. Based on the FFMIA criteria, the SBA provides reasonable assurance that its financial management
systems substantially comply with FFMIA for FY 2012.
Karen G. Mills
Administrator
November 15, 2012
30 AGENCY FINANCIAL REPORT • FY 2012
MANAGEMENT’S DISCUSSION & ANALYSIS
Improper Payments Summary management for follow-up which may include training
or re-training of staff members.
Three of SBA’s four major credit programs, which were
identified in the former section 57 of OMB Circular The FY 2012 improper payment rate for the disaster
A-11, are subject to improper payment reporting: the loan program was determined to be 17.9 percent or
7(a) loan program, the Certified Development Compa- $91.0 million compared to 28.4 percent reported last
ny (504) loan program, and the Disaster loan program. year. Disaster improper payments are generally the
OMB provided relief from reporting for the fourth result of loan documentation errors and do not result
program, the Small Business Investment Company pro- in an ineligible disaster victim receiving funds. The
gram, due to the low occurrence of improper payments reduced improper payment rate in FY 2012 indicates
as determined by several years of review and the low an improvement in adherence to the requirements from
probability for improper payments as determined by a the previous year. The Processing and Disbursement
risk assessment conducted in FY 2011. center continues to provide additional training to en-
sure that staff is aware of all requirements. A dedicated
The SBA includes loan guaranty approvals in its Im- team continues to perform Quality Assurance reviews in
proper Payment program reporting for the 7(a) and 504 addition to the Improper Payment reviews, which facili-
loan programs. Most frequently the reason for an im- tate the identification and correction of areas of concern
proper payment in this category was the lack of eligibil- in a timely manner.
ity or a non-compliance with lending procedures. The
result of SBA’s testing for 7(a) loan guaranties and 504 During FY 2011 the SBA conducted a pilot review
CDC loan guaranties issued in FY 2012 indicated an for improper payments in the Agency’s disbursements
improper payment rate of 1.8 percent totaling $233.2 related to contracting, which led to the determination
million and 2.0 percent totaling $104.5 million, respec- that those disbursements were susceptible to improper
tively. The increase in the improper payment rates of payments under the IPERA guidelines for FY 2011.
FY 2011 zero percent for both programs is due to an The SBA recovered $32,200 of the $32,500 overpay-
enhanced improper payment review procedure which ments identified during the pilot review in FY 2011
identified more errors. but did not collect the remaining $300 as it represented
a large number of small interest overpayments and
The FY 2012 improper payment rate for the 7(a) loan recovery was not determined to be cost-effective. The
guaranty purchases was determined to be 3.15 percent estimated improper payments for the baseline year (FY
or $44.0 million, compared with last year’s improper 2012) were 9.6 percent or $12.1 million. The Agency
payment rate of 1.73 percent. The reasons for improper will undertake the recovery of the $5,239 identified as
payments in this category tend to be the same as those overpayments in the FY 2012 review and institute a
cited for approvals. The increase in the improper pay- corrective action plan to eliminate improper payments
ment rate is due primarily to an increase in the maxi- in the future. The plan includes electronic enhance-
mum loan amount in the 7(a) loan program (up to $5 ments to systems to prevent improper payments and
million) and the focus on selecting high dollar and early training and re-training of staff to ensure payment
defaulted loans in the sampling methodology. In FY processing requirements are followed.
2012 the SBA recovered $103,000 of the $1.6 million
in overpayments identified in FY 2011 and will con- In summary, the SBA places a top priority on the
tinue collection efforts to recapture the entire amount detection and remediation of improper payment oc-
in FY 2012. Recovery efforts are underway to recapture currence. The Agency’s disbursement activities, 7(a)
all overpayments identified in FY 2012 from the lenders guaranty approval and purchase, 504 guaranty approval,
from which loans were improperly purchased. and Disaster loan programs now have staff that moni-
tor and review their operations for improper payments
To eliminate improper payments in the future for 7(a) and are charged with implementing improvements that
guaranty approvals, purchases and 504 loan guaranty will continue to reduce the Agency’s improper payment
approvals, the Office of Capital Access will incorporate rates.
management’s corrective action plan in the Quality As-
surance process at each of the loan centers. The Quality
Assurance teams will continuously monitor loan ap-
provals and purchases to provide timely information to
AGENCY FINANCIAL REPORT • FY 2012 31
MANAGEMENT’S DISCUSSION & ANALYSIS
SUCCESS STORY: Husband and Wife Construction Team Are Successful Contractors
BrooAlexa LLC, Charleston, West Virginia
BrooAlexa, LLC, started out as a small trophy-making business in 2005
with just two employees. But when an SBA contract specialist advised the
owners to change direction radically to gain access to federal contracting
opportunities, the owners, Frances Foster Brooks and Gene T. Brooks Jr.,
took the leap. Reborn as a construction company, BrooAlexa participated
in SBA’s Mentor- Protégé program and is certified in SBA’s 8(a) Business
Development and HUBZone programs.
BrooAlexa has developed into a multi-faceted construction company with
offices in West Virginia, Ohio, Kansas, Missouri, Maryland, Florida and Oklahoma. The company’s services
include general construction, and it has secured successful design/build and construction management contracts.
It has expanded from two employees in 2005 to eight full-time and 33 part-time employees today. Sales increased
from $86,000 in 2008 to $1.7 million in 2010, and $1.4 million through the first six months of 2012.
The company and its founders credit hard work and the SBA for the company’s growing success. “We credit the
success of our company to programs of the SBA. We were in the mentor program. And as a young company, our
close relationship with the SBA and . . . the West Virginia Small Business Development Center . . . made all the
difference,” CEO Frances Brooks said.
32 AGENCY FINANCIAL REPORT • FY 2012
Financial
Reporting
SUCCESS STORY: Small Business Exporter of the Year
Rekluse Motor Sports, Inc., Boise, Idaho
By deploying creative, strategic marketing techniques, Rekluse Motor Sports,
Inc., the SBA 2012 Small Business Exporter of the Year, has carved itself a niche
in international markets despite the challenging economic situation both in
the U.S. and abroad. Rekluse is the sole producer of Auto Clutch technology
products for motorcycles and has targeted export markets through its racing
series and team tie-ins.
A computer engineer by training, Albert Youngwerth was a motocross racing
enthusiast from his childhood days. After developing a new auto-clutch for
motorcycles in 2002, he launched Rekluse in 2003. He was later joined by
Joe DeGano who in 2001 had founded his own company to train and develop
aspiring motocross racers. Alison Kelsey, also a motorcyclist, joined Rekluse’s
team in 2010 and brings a unique retail sales perspective that helped her develop the company’s successful
international marketing and distribution strategy.
The company’s export sales have grown year after year since its creation in 2003, thanks in part to an SBA
guaranteed loan, and a grant from the state of Idaho funded by SBA’s State Trade and Export Promotion program.
During the height of the economic downturn in the U.S., Rekluse’s international sales jumped 45 percent in 2010.
FINANCIAL REPORTING
Message from the Chief Financial Officer
November 15, 2012
I am pleased to submit the U.S. Small Business Administration’s (SBA) Agency Financial Report for FY 2012. For
the sixth straight year the SBA has won the CEAR (Certificate of Excellence in Accountability Reporting) award.
An independent audit has earned the SBA an unqualified and clean opinion with no material weaknesses. Howev-
er, our auditor identified one instance of non-compliance with applicable laws and regulations as of September 30,
2012. Due to ongoing system issues with the Agency’s legacy mainframe information system, not all co-borrowers
and guarantors for charged-off loans were referred to the Treasury for cross-servicing collection of debt as required
by the Debt Collection Improvement Act (DCIA). Improvements have been implemented to support the referral
of loans and the SBA will make system adjustments as necessary to confirm the completeness and accuracy of refer-
rals to Treasury.
In FY 2012, the SBA came within one percent of last year’s all-time record in small business lending, supporting
over $30 billion in lending to over 47,000 small businesses. FY 2012’s level of lending supported was achieved
without the additional incentives provided by the Small Business Jobs Act of 2010.
In addition to its normal operations, the CFO’s office began implementing two important process changes this fis-
cal year to improve Agency operations: the President’s Do-Not-Pay initiative and Prime Contractor Quick-Pay. In
FY 2012, the SBA embraced the Do-Not-Pay initiative and implemented a solution to reduce improper payments.
SBA’s implementation of the Prime Contractor Quick-Pay initiative to ensure the timely payment of invoices to
prime contractors has resulted in significant process improvements. To decrease the waiting time for internal in-
voice approvals, the accounting division developed a system of automatic email reminders sent to Agency staff when
their invoices become idle. These process improvements led to a record 99.25 percent of invoices paid on time in
FY 2012 by our Denver Finance Center. The SBA spent 75.7 percent less in annual invoice interest penalties in FY
2012 as compared to the prior fiscal year, primarily as a result of Quick-Pay’s success.
SBA’s efforts to assist entrepreneurs and small business owners are especially critical as the U.S. economy continues
to recover and grow. Throughout America’s history, small businesses have played the leading role in job creation.
In fact, more than half of working Americans own or work for a small business and small businesses are responsible
for two out of every three net new private sector jobs created over the past decade. The SBA plays a critical role in
strengthening America’s economy by providing tools to help grow businesses and create jobs. At the same time, the
federal government is entering a period of renewed focus on how to spend the taxpayers’ money most effectively
and efficiently.
After integrating the budget and acquisition process under the OCFO last fiscal year, the SBA continues to leverage
the financial management expertise of the Denver Finance Center’s staff to drive efficiency. Throughout 2012, a
realigned Acquisition Division has made considerable progress toward standardizing and improving SBA’s procure-
ment process. As of October 1, the SBA met its overall FY 2012 small business contracting goal — at 67 percent,
the highest percentage goal in the government for small business contracts — as well as all socio-economic sub-
goals.
In the beginning of FY 2012, the Acquisition Division also conducted the Agency’s Advanced Acquisition Strategy
sessions to outline upcoming awards. These sessions enhanced the collaborative planning process and communica-
tion with requesting program offices. The Advanced Acquisition Strategies allowed the SBA to reduce a year-end
workload crunch and smooth out the Agency’s buying curve. Effective planning in FY 2012 also created an oppor-
tunity for SBA to take advantage of available federal resources to perform assisted acquisitions. The SBA entered
into a Memorandum of Understanding with the Department of Interior’s National Business Center (NBC) in May,
2012 and sent 20 contracts worth approximately $11 million in FY 2012. Sending a limited number of complex
AGENCY FINANCIAL REPORT • FY 2012 35
FINANCIAL REPORTING
contract actions to NBC created additional flexibility for SBA’s internal Acquisition Division to concentrate on
compliance and training.
In addition to utilizing shared federal services in FY 2012, SBA’s Office of Financial Analysis and Modeling
(OFAM) has also become a provider. OFAM is now available to perform credit modeling services for other federal
agencies to leverage SBA’s best practices of financial management across the government. SBA’s OCFO is commit-
ted not only to leading the Agency’s financial management but also to teaching others the processes and practices
that have made our operation so successful.
Finally, I want to recognize the independent Audit and Financial Management Advisory Committee who, since late
FY 2004, has advised us in the financial reporting process and audit cycle, provided oversight of financial manage-
ment activities, and made recommendations pertaining to our financial statement footnotes and the AFR prior to
publication. I thank them for their support and dedication to continued improvement.
Sincerely,
Jonathan I. Carver,
Associate Administrator for Performance Management
and Chief Financial Officer
36 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Audit and Financial Management Advisory Committee’s Report
The Audit and Financial Management Advisory Committee (the Committee) assists the Administrator in over-
seeing the U.S. Small Business Administration’s (SBA’s) financial operations. As part of that responsibility, the
Committee meets with Agency management, the Agency’s Inspector General, and its external auditors to review
and discuss SBA’s external financial audit coverage, the effectiveness of SBA’s internal controls over its financial
operations, and its compliance with certain laws and regulations that could materially impact SBA’s financial
statements. SBA’s external auditors are responsible for expressing an opinion on the conformity of SBA’s audited
financial statements with the U.S. generally accepted accounting principles. The Committee reviews the findings
of the Inspector General and external auditors, and SBA’s responses to those findings, to ensure that SBA’s plan
for corrective action includes appropriate and timely follow-up measures. In addition, the Committee reviews the
draft Agency Financial Report (AFR), including its financial statements, and provides comments to management
who has primary responsibility for the AFR. The Committee met three times during the year with respect to these
responsibilities on FY 2012 financial management and reporting. Two of the meetings were conducted via telecon-
ference. During these sessions, the Committee met with the Inspector General and external auditors without SBA
management being present and discussed with the external auditors the matters that are required to be discussed
by generally accepted auditing standards. Nothing came to our attention as a result of these discussions to indicate
changes were needed to the financial statements and notes thereto that are included in the FY 2012 AFR.
Edward J. Mazur
Chairman
Audit and Financial Management Advisory Committee
AGENCY FINANCIAL REPORT • FY 2012 37
FINANCIAL REPORTING
Inspector General’s Audit Report
38 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
AGENCY FINANCIAL REPORT • FY 2012 39
FINANCIAL REPORTING
Independent Auditor’s Report on FY 2012 Financial Statements
KPMG LLP
Suite 12000
1801 K Street, NW
Washington, DC 20006
Independent Auditors’ Report
Inspector General,
U.S. Small Business Administration:
We have audited the accompanying consolidated balance sheets of the U.S. Small Business Administration
(SBA) as of September 30, 2012 and 2011, and the related consolidated statements of net cost, and changes
in net position, and combined statements of budgetary resources (hereinafter referred to as “consolidated
financial statements”) for the years then ended. The objective of our audits was to express an opinion on
the fair presentation of these consolidated financial statements. In connection with our fiscal year 2012
audit, we also considered the SBA’s internal control over financial reporting and tested the SBA’s
compliance with certain provisions of applicable laws, regulations, contracts, and grant agreements that
could have a direct and material effect on these consolidated financial statements.
Summary
As stated in our opinion on the consolidated financial statements, we concluded that the SBA’s
consolidated financial statements as of and for the years ended September 30, 2012 and 2011, are presented
fairly, in all material respects, in conformity with U.S. generally accepted accounting principles.
As discussed in our opinion on the consolidated financial statements, the SBA changed its presentation for
reporting the statement of budgetary resources in fiscal year 2012.
Our consideration of internal control over financial reporting resulted in identifying certain deficiencies,
relating to information technology security controls, that we consider to be a significant deficiency, as
defined in the Internal Control Over Financial Reporting section of this report.
We did not identify any deficiencies in internal control over financial reporting that we consider to be
material weaknesses as defined in the Internal Control Over Financial Reporting section of this report.
The results of our tests of compliance with certain provisions of laws, regulations, contracts, and grant
agreements disclosed one instance of noncompliance, relating to the Debt Collection Improvement Act of
1996, and one other matter, that are required to be reported under Government Auditing Standards, issued
by the Comptroller General of the United States, and Office of Management and Budget (OMB) Bulletin
No. 07-04, Audit Requirements for Federal Financial Statements, as amended.
The following sections discuss our opinion on the SBA’s consolidated financial statements; our
consideration of the SBA’s internal control over financial reporting; our tests of the SBA’s compliance
with certain provisions of applicable laws, regulations, contracts, and grant agreements; and management’s
and our responsibilities.
40 AGENCY FINANCIAL REPORT • FY 2012
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
FINANCIAL REPORTING
U.S. Small Business Administration
November 14, 2012
Page 2 of 5
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of the SBA as of September 30, 2012 and
2011, and the related consolidated statements of net cost, and changes in net position, and the combined
statements of budgetary resources for the years then ended.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the SBA as of September 30, 2012 and 2011, and its net costs, changes in
net position, and budgetary resources for the years then ended, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 15 to the consolidated financial statements, the SBA changed its presentation for
reporting the combined statement of budgetary resources in fiscal year 2012, based on new reporting
requirements under OMB Circular No. A-136, Financial Reporting Requirements. As a result, the SBA’s
combined statement of budgetary resources for fiscal year 2011 has been adjusted to conform to the current
year presentation.
U.S. generally accepted accounting principles require that the information in the Management’s Discussion
and Analysis, Required Supplementary Information, and Required Supplementary Stewardship Information
sections be presented to supplement the basic financial statements. Such information, although not a part of
the basic 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 financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to the
required supplementary information in accordance with auditing standards generally accepted in the United
States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management’s responses to our inquiries,
the basic financial statements, and other knowledge we obtained during our audits of the basic financial
statements. We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements as a
whole. The information in the Other Information section is presented for the purposes of additional
analysis and is not a required part of the basic financial statements. Such information has not been
subjected to the auditing procedures applied in the audits of the basic financial statements, and accordingly,
we do not express an opinion or provide any assurance on it.
Internal Control Over Financial Reporting
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination
of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of
the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the
Responsibilities section of this report and was not designed to identify all deficiencies in internal control
over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. In our
AGENCY FINANCIAL REPORT • FY 2012 41
FINANCIAL REPORTING
U.S. Small Business Administration
November 14, 2012
Page 3 of 5
fiscal year 2012 audit, we did not identify any deficiencies in internal control over financial reporting that
we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in
internal control over financial reporting described in Exhibit I, related to information technology security
controls, that we consider to be a significant deficiency in internal control over financial reporting. A
significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe
than a material weakness, yet important enough to merit attention by those charged with governance.
Exhibit II presents the status of the prior year significant deficiency, which was also related to information
technology security controls.
We noted certain additional matters that we have reported to management of the SBA in a separate letter
dated November 14, 2012.
Compliance and Other Matters
The results of certain of our tests of compliance as described in the Responsibilities section of this report,
exclusive of those referred to in the Federal Financial Management Improvement Act of 1996 (FFMIA),
disclosed one instance of noncompliance and one other matter that are required to be reported herein under
Government Auditing Standards or OMB Bulletin No. 07-04, and are described below.
Debt Collection Improvement Act of 1996 (DCIA). The DCIA assigns the U.S. Department of Treasury
(Treasury) the responsibility for collecting delinquent debts (cross servicing) Government-wide. The DCIA
requires federal agencies to transfer their nontax debt over 180 days delinquent to Treasury. During our
testwork over loan charge-offs, we noted the SBA did not refer obligors (eligible principal borrowers, co-
borrowers, and/or guarantors) to Treasury for offset or cross-servicing at the time of charge-off, as required
by DCIA. Exhibit III presents the status of the prior year noncompliance finding, which was also related to
DCIA.
The results of our other tests of compliance as described in the Responsibilities section of this report,
exclusive of those referred to in FFMIA, disclosed no instances of noncompliance and one other matter that
is required to be reported herein under Government Auditing Standards or OMB Bulletin No. 07-04.
The results of our tests of FFMIA disclosed no instances in which the SBA’s financial management
systems did not substantially comply with the (1) Federal financial management systems requirements, (2)
applicable Federal accounting standards, and (3) the United States Government Standard General Ledger at
the transaction level.
Other Matter: A matter has been identified that may be a violation of the Federal Acquisition Regulation
documentation retention requirements. This matter is currently under review by SBA management and the
Office of Inspector General. The outcome of this matter is not presently known.
*******
Responsibilities
Management’s Responsibilities. Management is responsible for the consolidated financial statements;
establishing and maintaining effective internal control over financial reporting; and complying with laws,
regulations, contracts, and grant agreements applicable to the SBA.
42 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
U.S. Small Business Administration
November 14, 2012
Page 4 of 5
Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2012 and 2011
consolidated financial statements of the SBA based on our audits. We conducted our audits in accordance
with auditing standards generally accepted in the United States of America; the standards applicable to
financial audits contained in Government Auditing Standards, issued by the Comptroller General of the
United States; and OMB Bulletin No. 07-04. Those standards and OMB Bulletin No. 07-04 require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the SBA’s internal control over
financial reporting. Accordingly, we express no such opinion.
An audit also includes:
• Examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements;
• Assessing the accounting principles used and significant estimates made by management; and
• Evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In planning and performing our fiscal year 2012 audit, we considered the SBA’s internal control over
financial reporting by obtaining an understanding of the SBA’s internal control, determining whether
internal controls had been placed in operation, assessing control risk, and performing tests of controls as a
basis for designing our auditing procedures for the purpose of expressing our opinion on the consolidated
financial statements, but not for the purpose of expressing an opinion on the effectiveness of the SBA’s
internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of
the SBA’s internal control over financial reporting. We did not test all controls relevant to operating
objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982.
As part of obtaining reasonable assurance about whether the SBA’s fiscal year 2012 consolidated financial
statements are free of material misstatement, we performed tests of the SBA’s compliance with certain
provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a
direct and material effect on the determination of the consolidated financial statement amounts, and certain
provisions of other laws and regulations specified in OMB Bulletin No. 07-04, including the provisions
referred to in Section 803(a) of FFMIA. We limited our tests of compliance to the provisions described in
the preceding sentence, and we did not test compliance with all laws, regulations, contracts, and grant
agreements applicable to the SBA. However, providing an opinion on compliance with laws, regulations,
contracts, and grant agreements was not an objective of our audit and, accordingly, we do not express such
an opinion.
______________________________
The SBA’s written response to the findings identified in our audit and presented in Exhibit IV was not
subjected to the auditing procedures applied in the audit of the SBA’s consolidated financial statements
and, accordingly, we express no opinion on it.
AGENCY FINANCIAL REPORT • FY 2012 43
FINANCIAL REPORTING
U.S. Small Business Administration
November 14, 2012
Page 5 of 5
This report is intended solely for the information and use of the SBA’s management, the SBA’s Office of
Inspector General, OMB, the U.S. Government Accountability Office, and the U.S. Congress and is not
intended to be and should not be used by anyone other than these specified parties.
November 14, 2012
44 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
The significant deficiency identified in our Fiscal Year (FY) 2012 audit, is summarized below:
Improvement Needed in Information Technology Security Controls
During our prior year, FY 2011, financial statement audit, we identified 18 information technology (IT)
control findings, and recommended many corresponding corrective actions. During the FY 2012 financial
statement audit, we found that the U.S. Small Business Administration (SBA) implemented corrective
actions to remediate 3 of the 18 findings; however, we also identified 9 new IT control findings. Therefore,
SBA’s IT control environment continues to require improvement.
The IT control deficiencies that we noted during the FY 2012 audit are summarized below and fall under
the following general IT control objectives: security access controls, segregation of duties, security
management, software configuration management, and contingency planning. We did not provide details
on the specific IT control deficiencies in this report due to sensitivity considerations surrounding the
information systems. We have provided the details in a separate report to SBA management. Exhibit II of
our report discloses the status of prior year IT findings.
Security Access Controls
Integral to the effectiveness of an organization’s security program management efforts, system security
access controls should provide reasonable assurance that IT resources, such as data files, application
programs, and IT-related facilities/equipment, are protected against unauthorized modification, disclosure,
loss, or impairment. Our audit found the following control deficiencies:
• Several high- and medium-risk security vulnerabilities affecting various financial systems.
• A weakness in network access controls.
• The SBA was unable to provide evidence that security incidents are analyzed, validated, and resolved.
• Physical access control procedures can be improved for all financial systems managed at SBA
Headquarters (HQ) and one financial system hosted by an SBA service provider. In addition, access to
the data centers can be improved.
• Several users had unnecessary access to an SBA financial subsystem.
• User accounts were not reviewed in accordance with SBA policy for five of the seven systems we
reviewed.
• Complex and unique password configurations were not implemented and/or enforced.
• User accounts were not disabled or removed promptly upon personnel termination.
• Financial system user accounts and remote access authorizations were not properly authorized.
• Weak controls over the monitoring and review of audit logs for four of the seven systems we reviewed.
I-1
AGENCY FINANCIAL REPORT • FY 2012 45
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
Recommendations – Security Access Controls:
We recommend the Chief Information Officer (CIO) coordinates with SBA program offices to:
1. Enhance security vulnerability management processes. Specifically, (a) ensure that servers, operating
systems, and databases are properly configured and updated on a routine basis; (b) monitor SBA
vulnerability reports for required patches; (c) update systems based on risk determination and threats.
2. Develop and implement procedures to ensure mandatory domain authentication for Internet Protocol
(IP) address issuance.
3. Fully implement the SBA entity-wide incident management and response program and ensure that
procedures are enforced.
4. Ensure that information systems hosted by the SBA and third parties comply with SBA policy and
National Institute of Standards and Technology guidance.
5. Develop and implement procedures for user access reviews to ensure that proper access rights are set
for financial subsystems.
6. Ensure that all new system users are assigned random passwords and are subsequently required to
change their password upon first log-in.
7. Develop and implement procedures for user access termination to ensure that access for terminated or
transferred personnel is removed from systems in a timely manner.
8. Develop and enforce procedures for user access approvals, including remote access, and retain the
evidence of the approvals.
9. Oversee the review and validation of financial system accounts on a quarterly basis.
10. Implement a process to monitor the audit logs of all financial applications on a regular basis.
Segregation of Duties
The primary focus of an organization’s segregation of duties controls is to provide reasonable assurance
that incompatible duties are effectively segregated. Without such controls, there is a risk that unauthorized
changes could be implemented into the IT environment, and users may have access that is inappropriate for
their duties. As a result, the confidentiality, integrity, and availability of financial data are at risk of
possible loss, modification, or disclosure. Our audit found the following control deficiencies:
• An authorized user had conflicting access rights in a key financial system.
• Twenty-eight service accounts were not properly restricted with unique log-ins and passwords.
• Users were authorized with conflicting rights as a database administrator (DBA) and system
administrator to a financial application hosted by an SBA service provider.
I-2
46 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
Recommendations – Segregation of Duties:
We recommend the CIO coordinates with the Chief Financial Officer (CFO) to:
11. Restrict access to software programs based on the principle of least privilege, and implement
compensating controls over actions where limited resources cause individuals to perform conflicting
job functions.
12. Ensure that DBA and system administrator access is restricted through role-based segregation of duties
and managed through an effective audit log review process.
Security Management
An entity-wide information security management program is the foundation of a security control structure
and a reflection of senior management’s commitment to addressing security risks. This security
management program should establish a framework and continuous cycle of activity for assessing risk,
developing and implementing effective security procedures, and monitoring the effectiveness of these
procedures. Our audit found the following control deficiency:
• The CIO had not fully implemented a mandatory training program for IT security personnel.
Recommendations – Security Management:
We recommend the CIO:
13. Updates the position descriptions for IT security personnel to include minimum annual training
requirements.
14. Develops and fully implement a comprehensive security education and training program for all IT
security personnel, to include a method for monitoring the training program.
Software Configuration Management
The primary focus of an organization’s software configuration management process is to control the
software changes made to networks and systems. Without such controls, there is a risk that security
features could be inadvertently, or deliberately, omitted or turned off, or that processing irregularities or
malicious code could be introduced into the IT environment. Our audit noted the following control
deficiencies:
• The configuration management process is not centralized, and the Enterprise Change Control Board
governance processes were not fully implemented across SBA.
• SBA personnel did not provide sufficient evidence to support software change authorizations for one
financial system.
• Software changes for one financial subsystem were not tested before being moved to production,
which impacted the SBA’s compliance with the Debt Collection Improvement Act of 1996 (DCIA).
This issue was reported as a noncompliance matter in the Compliance and Other Matters section of our
audit report.
I-3
AGENCY FINANCIAL REPORT • FY 2012 47
FINANCIAL REPORTING
Exhibit I
U.S. Small Business Administration
Significant Deficiency
Recommendations – Software Configuration Management:
We recommend the CIO:
15. Enforces an organization-wide configuration management process, to include policies and procedures
for maintaining documentation that supports testing and approvals of software changes.
We recommend the CIO coordinates with the CFO to:
16. Implement configuration management policies and procedures for document retention to include
supporting evidence to validate the authorization of operating system changes.
Contingency Planning
The focus of an organization’s contingency planning program should provide reasonable assurance that
information resources are protected and the risk of unplanned interruptions is minimized. Without such
controls, there is a risk that data may be lost or that critical operations may not resume in a timely manner.
Our audit noted the following control deficiencies:
• Backup tapes necessary to restore system operations were not consistently rotated off-site for four of
the seven systems we reviewed.
• Comprehensive contingency plans had not been developed and authorized for one key financial system.
In addition, another system’s plan was not updated to reflect the current environment.
• Five of the seven contingency plans, which includes the HQ Continuity of Operations Plan (COOP),
were documented and approved but were not tested semiannually as prescribed by SBA policy. Two of
the plans, which were first authorized in May 2011, had never been tested.
• One key financial system lacked adequate recovery capabilities commensurate with the system’s
Federal Information Processing Standards Publication 199 categorization.
Recommendations – Contingency Planning:
We recommend the CIO:
17. Enforces existing SBA policies to rotate backups off-site.
18. Conducts a Business Impact Analysis, develop and implement the contingency plans, and establish an
alternate processing site.
We recommend the CIO coordinate with the CFO to:
19. Test system-specific plans and the HQ COOP on a frequency consistent with SBA policy.
I-4
48 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Exhibit II
U.S. Small Business Administration
Status of Prior Year Significant Deficiency
Fiscal Year 2011 Finding Fiscal Year 2012 Status of Finding
Improvement Needed in Information Technology (IT) During our review of SBA’s IT general and application
Security Controls controls, we noted some improvements made to
address prior year findings. However, control
deficiencies continue to exist.
Therefore, in fiscal year 2012, the issue is again
presented in Exhibit I. The issue was modified to
reflect current year operations, and we continue to
report a significant deficiency in internal controls, as it
relates to IT systems and the associated impact on the
consolidated financial statements.
II-1
AGENCY FINANCIAL REPORT • FY 2012 49
FINANCIAL REPORTING
Exhibit III
U.S. Small Business Administration
Status of Prior Year Noncompliance
Fiscal Year 2011 Finding Fiscal Year 2012 Status of Finding
Debt Collection Improvement Act of 1996 (DCIA)
During our Fiscal Year (FY) 2011 audit, we noted the During our review over SBA’s compliance with the
agency was noncompliant with the DCIA. The DCIA, we noted improvements made in SBA’s
noncompliance was due to instances where SBA did Treasury cross-servicing referral process. However,
not refer a substantial number of charged-off loans to during FY 2012, we noted instances of noncompliance
the Treasury for cross-servicing. related to timely referrals of loan charge-offs to
Treasury for offset and cross-servicing. We also noted
that the approximately 5,000 eligible obligors
identified in FY 2011 have not been properly referred
to the Treasury as of FY 2012.Therefore, in FY2012,
the issue is again presented in the Compliance and
Other Matters section of our Independent Auditors’
Report.
We recommend the Associate Administrator for
Capital Access 1:
20. Conducts training to educate loan center staff on
the proper steps to refer obligors to the Treasury
through the system and how to correct errors after
loans have been referred to Treasury.
21. Considers implementing a process to monitor loans
that reach 150 days delinquent to ensure, that at
180 days, the loans are properly referred to the
Treasury.
22. Continues to work with the Treasury to refer the
more than 5,000 co-borrowers and guarantors that
were not referred in FY 2011.
23. Continues to review system protocol to identity
any other coding problems which may cause
untimely referral of loans.
24. Implements quarterly monitoring reviews to
identify all charged-off loans where the automatic
referral did not occur.
1
The recommendations listed in this exhibit were sequenced after the recommendations presented on Exhibit I, IT
Significant Deficiency, to assist users of this report tracking the number of recommendations presented.
III-1
50 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Exhibit IV
CFO Response to Draft Audit Report on FY 2012
Financial Statements
DATE: November 14, 2012
TO: John Needham, Assistant IG for Auditing
FROM: Jonathan Carver, Chief Financial Officer
SUBJECT: Draft Audit Report on FY 2012 Financial Statements
The Small Business Administration has received the draft Independent Auditors’ Report from KPMG that includes
the auditor’s opinion on the financial statements and its review of the Agency’s internal control over financial re-
porting and compliance with laws and regulations. The independent audit of the Agency’s financial statements and
related processes is a core component of SBA’s financial management program.
We are pleased that the SBA has again received an unqualified audit opinion from the independent auditor with no
material weaknesses. We believe these results accurately reflect the quality of the Agency’s financial statements and
our improved accounting, budgeting and reporting processes. As you know, the SBA has worked hard in past years
to address the findings from our independent auditor. Our core financial reporting data and processes have further
improved, and we are proud that the results of our efforts have been confirmed by the independent auditor.
The audit report includes a continuing significant deficiency in SBA’s information technology controls. As the
auditor noted in the report on the FY 2012 financial statements, the SBA implemented corrective action this year
to remediate 3 of the 18 prior year IT control findings. The auditor, however, identified 9 new IT findings this
year and re-issued one NFR related to it. The SBA will continue to work on improvements in IT security. The
SBA will track, monitor, and aggressively mitigate vulnerabilities in all Agency systems. Furthermore, the SBA will
clarify and strengthen detailed procedures required to ensure security access controls are in place to protect SBA
data from unauthorized modification, disclosure, and loss.
The auditor reported again this year that the SBA is not compliant with the Debt Collection Improvement Act of
1996 related to timely referral of charged-off loans to the Department of the Treasury for its tax refund offset and
collection programs. Although the SBA made improvements to correct systemic errors identified last year, the
auditor again found instances of charged-off loans where co-borrowers and guarantors were not referred to Treasury.
The SBA is working on procedures to correct this issue.
The audit report includes one other matter that may be a violation of the Federal Acquisition Regulation docu-
mentation retention requirements. This is the second year since the SBA transferred the procurement functions to
the Office of the Chief Financial Officer. The FY 2012 review of internal controls over financial reporting revealed
that, while there was considerable improvement in the contracting area, more time and resources will be required to
resolve all outstanding issues. These include formalizing the acquisition process and related requirements through
Agency-wide Standard Operating Procedures, ensuring all contracting documents are signed by appropriate autho-
rized individuals, and ensuring that invoices are reviewed by appropriate parties before payment is disbursed. The
Agency takes this matter very seriously and we have already taken steps to make further improvements.
We appreciate all of your efforts and those of your colleagues in the Office of the Inspector General as well as those
of KPMG. The independent audit process continues to provide us with new insights and valuable recommenda-
tions that will further enhance SBA’s financial management practices. We continue to be committed to excellence
in financial management and look forward to making more progress in the coming year.
AGENCY FINANCIAL REPORT • FY 2012 51
FINANCIAL REPORTING
Financial Statements and Notes
The U.S. Small Business Administration prepares its financial statements as a critical aspect of ensuring account-
ability 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 statements are used, along with other financial
reports, to monitor and control budgetary resources. The SBA prepares these financial statements from its books
and records in accordance with generally accepted accounting principles in the United States as well as formats
prescribed by the Office of Management and Budget.
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 Required Supplementary Information presents a Combining Statement of Budgetary Resources report by
principal functional area.
The Required Supplementary Stewardship Information provides information on SBA’s investment in human
capital.
52 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
U. S. Small Business Administration
Consolidated Balance Sheet
as of September 30, 2012 and 2011
(Dollars in Thousands)
2012 2011
ASSETS
Intragovernmental Assets
Fund Balance with Treasury (Note 2) $ 6,273,663 $ 8,469,322
Accounts Receivable (Note 5) – 406
Advances 6,871 –
Total Intragovernmental Assets 6,280,534 8,469,728
Assets - Public and Other
Cash (Note 3) 5,485 2,935
Accounts Receivable, Net (Note 5) 72,423 52,813
Credit Program Receivables and Related Foreclosed Property, Net (Note 6) 7,654,295 8,354,739
General Property and Equipment, Net (Note 7) 2,118 1,804
Advances – 782
Total Assets - Public and Other 7,734,321 8,413,073
Total Assets $ 14,014,855 $ 16,882,801
LIABILITIES
Intragovernmental Liabilities
Interest Payable $ 4,928 $ 1,347
Debt (Note 9) 7,919,801 11,190,279
Net Assets of Liquidating Funds Due to Treasury (Note 10) 52,200 63,970
Downward Reestimate Payable to Treasury (Note 1, Note 13) 1,689,133 911,765
Other (Note 8, Note 11) 12,678 13,657
Total Intragovernmental Liabilities 9,678,740 12,181,018
Other Liabilities - Public
Accounts Payable (Note 1) 42,614 94,628
Accrued Grant Liability (Note 1) 94,000 76,000
Liability for Loan Guaranties (Note 6) 3,725,951 4,741,442
Federal Employee Compensation Act Actuarial Liability (Note 1, Note 8) 31,591 30,630
Surety Bond Guarantee Program Future Claims (Note 8) 22,606 20,385
Other (Note 8, Note 11) 45,079 47,721
Total Other Liabilities - Public 3,961,841 5,010,806
Total Liabilities 13,640,581 17,191,824
NET POSITION
Unexpended Appropriations (Note 1) 1,281,279 1,537,185
Cumulative Results of Operations (Note 1) (907,005) (1,846,208)
Total Net Position 374,274 (309,023)
Total Liabilities and Net Position $ 14,014,855 $ 16,882,801
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2012 53
FINANCIAL REPORTING
U. S. Small Business Administration
Consolidated Statement of Net Cost
as of September 30, 2012 and 2011
(Dollars in Thousands)
2012 2011
STRATEGIC GOAL 1:
Growing Businesses and Creating Jobs
Gross Cost $ 1,876,569 $ 4,000,361
Less: Earned Revenue 697,123 696,210
Net Cost of Strategic Goal 1 1,179,446 3,304,151
STRATEGIC GOAL 2:
Building an SBA that Meets the Needs of Today’s
and Tomorrow’s Small Businesses
Gross Cost 1,959 6,132
Total Program Cost of Strategic Goal 2 1,959 6,132
STRATEGIC GOAL 3:
Serving as the Voice for Small Business
Gross Cost 14,369 13,454
Total Program Cost of Strategic Goal 3 14,369 13,454
COST NOT ASSIGNED TO STRATEGIC GOALS
Gross Cost 79,031 136,825
Total Program Cost Not Assigned to Strategic Goals 79,031 136,825
Net Cost of Operations $ 1,274,805 $ 3,460,562
Note 12, Note 14
The accompanying notes are an integral part of these statements.
54 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
U. S. Small Business Administration
Consolidated Statement of Changes in Net Position
For the years ended September 30, 2012 and 2011
(Dollars in Thousands)
2012 2011
Beginning Cumulative Results of Operations $ (1,846,208) $ (3,829,615)
Budgetary Financing Sources
Appropriations Used 3,840,682 6,353,577
Donations of Cash and Cash Equivalents 17 33
Other Financing Sources
Imputed Financing from Costs Absorbed by Others 20,453 26,749
Other - Cancelled Authority (252) –
Other - Current Year Liquidating Equity Activity (1,207) (2,409)
Other - Non-entity Activity (1,645,685) (933,981)
Total Financing Sources 2,214,008 5,443,969
Less: Net Cost of Operations 1,274,805 3,460,562
Ending Cumulative Results of Operations $ (907,005) $ (1,846,208)
Beginning Unexpended Appropriations $ 1,537,185 $ 2,295,070
Budgetary Financing Sources
Appropriations Received 3,592,151 5,611,644
Rescissions – (1,462)
Adjustment - Cancelled Authority (7,028) (10,120)
Other Adjustments (347) (4,370)
Appropriations Used (3,840,682) (6,353,577)
Total Budgetary Financing Sources (255,906) (757,885)
Ending Unexpended Appropriations $ 1,281,279 $ 1,537,185
Ending Net Position $ 374,274 $ (309,023)
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2012 55
FINANCIAL REPORTING
U. S. Small Business Administration
Combined Statement of Budgetary Resources
For the years ended September 30, 2012 and 2011
(Dollars in Thousands)
September 30, 2012
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 969,277 $ 6,415,008 $ 7,384,285
Recoveries of Prior Year Obligations 89,736 234,613 324,349
Other Changes in Unobligated Balance (20,608) (2,241,902) (2,262,510)
Unobligated Balance from Prior Year Budget Authority, net 1,038,405 4,407,719 5,446,124
Appropriations (discretionary and mandatory) 3,592,151 – 3,592,151
Borrowing Authority (discretionary and mandatory) – 1,129,367 1,129,367
Spending Authority from Offsetting Collections 363,209 3,869,311 4,232,520
Total Budgetary Resources $ $4,993,765 $ $9,406,397 $ $14,400,162
STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 4,130,864 $ 4,636,930 $ 8,767,794
Apportioned 221,119 2,491,404 2,712,523
Unapportioned 641,782 2,278,063 2,919,845
Total Unobligated Balance, end of year 862,901 4,769,467 5,632,368
Total Status of Budgetary Resources $ 4,993,765 $ 9,406,397 $ 14,400,162
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations, Brought Forward, October 1 (gross) $ 747,111 $ 584,678 $ 1,331,789
Uncollected Customer Payments from Federal
Sources Brought Forward, October 1 – (246,756) (246,756)
Obligated Balance Start of Year (net), before adjustments 747,111 337,922 1,085,033
Obligated Balance Start of Year (net), as adjusted 747,111 337,922 1,085,033
Obligations Incurred 4,130,864 4,636,930 8,767,794
Gross Outlays (4,168,243) (4,708,822) (8,877,065)
Change in Uncollected Customer Payments
from Federal Sources – 70,075 70,075
Recoveries of Prior Year Unpaid Obligations (89,736) (234,613) (324,349)
Unpaid Obligations, end of year (gross) 619,996 278,173 898,169
Uncollected Customer Payments from
Federal Sources, end of year – (176,681) (176,681)
Obligated Balance, End of Year $ 619,996 $ 101,492 $ 721,488
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross (discretionary and mandatory) $ 3,955,361 $ 4,998,678 $ 8,954,039
Actual Offsetting Collections (discretionary and mandatory) (363,722) (6,016,599) (6,380,321)
Change in Uncollected Customer Payments
from Federal Sources (discretionary and mandatory) – 70,075 70,075
Budget Authority, net (discretionary and mandatory) $ 3,591,639 $ (947,846) $ 2,643,793
Gross Outlays (discretionary and mandatory) $ 4,168,243 $ 4,708,822 $ 8,877,065
Actual Offsetting Collections (discretionary and mandatory) (363,722) (6,016,599) (6,380,321)
Net Outlays (discretionary and mandatory) 3,804,521 (1,307,777) 2,496,744
Less: Distributed Offsetting Receipts (51) (868,316) (868,367)
Agency Outlays, net (discretionary and mandatory) $ 3,804,470 $ (2,176,093) $ 1,628,377
Note 15
The accompanying notes are an integral part of these statements.
56 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
U. S. Small Business Administration
Combined Statement of Budgetary Resources
For the years ended September 30, 2012 and 2011
(Dollars in Thousands)
September 30, 2011
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 1,768,609 $ 3,458,375 $ 5,226,984
Recoveries of Prior Year Obligations 69,518 91,458 160,976
Other Changes in Unobligated Balance (21,289) (909,519) (930,808)
Unobligated Balance from Prior Year Budget Authority, net 1,816,838 2,640,314 4,457,152
Appropriations (discretionary and mandatory) 5,608,629 – 5,608,629
Borrowing Authority (discretionary and mandatory) – 347,617 347,617
Spending Authority from Offsetting Collections 463,253 8,400,641 8,863,894
Total Budgetary Resources $ 7,888,720 $ 11,388,572 $ 19,277,292
STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 6,919,443 $ 4,973,564 $ 11,893,007
Apportioned 271,885 1,845,980 2,117,865
Unapportioned 697,392 4,569,028 5,266,420
Total Unobligated Balance, end of year 969,277 6,415,008 7,384,285
Total Status of Budgetary Resources $ 7,888,720 $ 11,388,572 $ 19,277,292
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations, Brought Forward, October 1 (gross) $ 676,054 $ 443,586 $ 1,119,640
Uncollected Customer Payments from Federal
Sources Brought Forward, October 1 – (230,303) (230,303)
Obligated Balance Start of Year (net), before adjustments 676,054 213,283 889,337
Obligated Balance Start of Year (net), as adjusted 676,054 213,283 889,337
Obligations Incurred 6,919,443 4,973,564 11,893,007
Gross Outlays (6,778,868) (4,741,014) (11,519,882)
Change in Uncollected Customer Payments
from Federal Sources – (16,453) (16,453)
Recoveries of Prior Year Unpaid Obligations (69,518) (91,458) (160,976)
Unpaid Obligations, end of year (gross) 747,111 584,678 1,331,789
Uncollected Customer Payments from
Federal Sources, end of year – (246,756) (246,756)
Obligated Balance, End of Year $ 747,111 $ 337,922 $ 1,085,033
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross (discretionary and mandatory) $ 6,071,882 $ 8,748,258 $ 14,820,140
Actual Offsetting Collections (discretionary and mandatory) (463,253) (8,384,188) (8,847,441)
Change in Uncollected Customer Payments
from Federal Sources (discretionary and mandatory) – (16,453) (16,453)
Budget Authority, net (discretionary and mandatory) $ 5,608,629 $ 347,617 $ 5,956,246
Gross Outlays (discretionary and mandatory) $ 6,778,868 $ 4,741,014 $ 11,519,882
Actual Offsetting Collections (discretionary and mandatory) (463,253) (8,384,188) (8,847,441)
Net Outlays (discretionary and mandatory) 6,315,615 (3,643,174) 2,672,441
Less: Distributed Offsetting Receipts (97) (153,211) (153,308)
Agency Outlays, net (discretionary and mandatory) $ 6,315,518 $ (3,796,385) $ 2,519,133
Note 15
The accompanying notes are an integral part of these statements.
AGENCY FINANCIAL REPORT • FY 2012 57
FINANCIAL REPORTING
Note 1 Significant Accounting Policies
Reporting Entity
The Small Business Act of 1953 created the Small Business Administration as an independent federal agency. SBA’s
mission is to maintain and strengthen the nation’s economy by aiding, counseling, assisting and protecting the
interests of small businesses and to help businesses and families recover from natural disasters. The SBA operates
through the execution of a congressionally approved budget that funds its programs.
Basis of Accounting and Presentation
The SBA prepares financial statements to report its financial position and results of its operations as required by
the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. The financial
statements are prepared from the Agency’s records in accordance with generally accepted accounting principles
using formats prescribed by the Office of Management and Budget. The statements are in addition to other
financial reports used to monitor and control budgetary resources. As a federal agency, the SBA cannot incur
obligations without authority from the Congress and an apportionment by the OMB.
These financial statements reflect transactions recorded on both a proprietary accrual accounting basis and a bud-
getary obligation basis, in accordance with concepts and guidance provided by the OMB, the Federal Accounting
Standards Advisory Board, and the Department of the Treasury. Under the accrual method of accounting, revenues
are recognized when earned and expenses are recognized when incurred, without regard to receipt or payment of
cash. Budgetary accounting recognizes the legal commitment or obligation of funds in advance of the proprietary
accruals and facilitates compliance with legal constraints and controls over the use of federal funds.
The Federal Credit Reform Act of 1990 governs SBA’s accounting for direct loans and loan guaranties made in FY
1992 and thereafter. Under the FCRA, the liability for loan guaranties is determined as the summarized discounted
present value of the estimated future net cash inflows and outflows for each fiscal year’s cohort of guaranties. For
direct loans, the allowance is the current outstanding FCRA loans receivable balance less the discounted present
value of the estimated future net cash flows for all the loan cohorts. A cohort of loans receivable or guarantied loans
is all of the loans made in a given fiscal year. Increases to individual loans in a cohort that are made in a subsequent
fiscal year are accounted for in the subsequent year’s loan cohort. Cohort cash flows include loan repayments, recov-
eries 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. Actual results may differ from those estimates and the differences may
be significant. The most significant differences between actual results and SBA’s estimates may occur in the valua-
tion of credit program receivables and liabilities for loan guaranties under guidelines in the Federal Credit Reform
Act of 1990. The SBA recognizes the sensitivity of credit reform modeling to slight changes in some model assump-
tions 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.
58 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
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
Department of the Treasury for the remaining non-subsidized portion of the loans. The Congress may provide
one year, multi-year or no year appropriations to cover the estimated long-term costs of the loan programs. The
non-subsidized portion of each loan disbursement, financed initially under permanent indefinite authority to
borrow funds from the Treasury, is repaid from collections of loan fees, repayments and default recoveries. The
Congress limits the dollar amount of obligations that can be made for direct loans and loan guaranties in its annual
appropriation bill. Similarly, appropriations received for the long-term cost of loan guaranties are reserved when the
guarantied loans are disbursed.
A permanent indefinite authority is available to fund any reestimated increase of subsidy costs that occurs after
the year in which a loan is disbursed. Reestimated reductions of subsidy costs are returned to the Treasury and are
unavailable to the SBA. As required by the Federal Credit Reform Act of 1990, the SBA uses budgetary “program
accounts” to account for appropriations in its credit programs and nonbudgetary “financing accounts” to account
for credit program cash flow. Estimates and reestimates of credit program subsidy expenses are recorded in SBA’s
program accounts. Financing accounts are used to account for Treasury borrowings, the collection of loan fees,
repayments and default recoveries, and the disbursement of loans and loan expenses.
Accounts Payable
Accounts Payable are amounts due to public entities that will be liquidated during the next operating cycle.
Included in the liability are payables to SBA lenders for their share of loan collections and to vendors for goods and
services.
Accrued Grant Liability
Disbursements of grant funds are recognized as expenses at the time of disbursement. However, some grant recipi-
ents incur expenditures prior to initiating a request for disbursement based on the nature of the expenditures. The
SBA accrues a liability for expenditures incurred by grantees prior to receiving grant funds for the expenditures.
The amount to be accrued is determined through an analysis of historic grant expenditures. The Small Business
Development program and several other grant programs are subject to this treatment.
Contingencies
The SBA is a party in various administrative proceedings, legal actions, environmental suits and claims brought against
the Agency. In the opinion of SBA’s management and legal counsel, the ultimate resolution of these proceedings,
actions, suits and claims will not materially affect the financial position or results of SBA’s operations.
Cumulative Results of Operations
Cumulative Results of Operations, presented on the Balance Sheet and on the Statement of Changes in Net
Position, is the accumulated difference between expenditures and financing sources since the inception of the
Agency. Unfunded expenses do not yet have a financing source and thus increase the loss the SBA reports as
Cumulative Results of Operations. The largest category of unfunded expenses at the SBA is year-end subsidy
reestimates which are funded in the following year. The majority of the Cumulative Results of Operations reported
results from these unfunded reestimates.
AGENCY FINANCIAL REPORT • FY 2012 59
FINANCIAL REPORTING
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.
Employee Benefits
LEAVE
A liability for employee annual leave is accrued as it is earned and reduced as leave is taken. Each year the bal-
ance of accrued annual leave is adjusted to reflect current pay rates as well as forfeited “use or lose” leave. Amounts
are reported as unfunded to the extent current or prior year appropriations are not available to fund annual leave
earned but not taken. Sick leave and other types of non-vested leave are expensed as taken.
EMPLOYEE HEALTH AND LIFE INSURANCE BENEFITS
SBA employees may choose to participate in the contributory Federal Employees Health Benefit and the Federal
Employees Group Life Insurance programs. The SBA matches a portion of the employee 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 with-
holding 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 contrib-
uted by employees, retirees, and the Agency. The SBA recognizes these imputed costs in the Statement of Net Cost
and as a part of net cost funded by an imputed financing source included in determining SBA’s net position.
FEDERAL EMPLOYEES’ COMPENSATION ACT
The Federal Employees’ Compensation Act provides income and medical cost protection to covered federal
civilian employees injured on the job and to beneficiaries of employees whose deaths are attributable to job-
related injury or disease. The FECA program is administered by the Department of Labor. Labor pays valid
claims as they occur, which are billed to the SBA annually and funded and paid approximately 15 months
later. Labor also calculates an estimated actuarial liability for future benefits based upon historical experience
60 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
and other economic variables. Projected annual benefit payments are then discounted to present value using
the forecasted interest rates for 10-year Treasury notes and bonds published by the OMB in its economic
assumptions for the federal budget. The SBA recognizes a current unfunded cost for the actual claims paid and
the change in the FECA actuarial liability each year.
Note 2 Fund Balance with Treasury
The Department of the Treasury processes cash receipts and disbursements on SBA’s behalf to pay liabilities
and finance loan program costs. Cash receipts are deposited into SBA’s Treasury General Accounts. SBA’s fund
balances with the Treasury are available to make expenditures to liquidate allowable obligations, except for
Non-entity Fund Balance which is not available to the SBA to obligate or expend. Separate records are main-
tained for SBA’s program, financing, liquidating and other accounts. Fund balances at the Treasury include
expired year amounts, which are unavailable for obligation, as well as amounts currently available for new
obligations.
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2012 2011
Appropriated Funds $ 1,398,400 $ 1,641,312
Financing Funds 4,790,763 6,752,927
Liquidating Funds 22,896 16,013
Revolving Fund 61,457 58,933
Trust Fund 142 133
Total Entity Fund Balance with Treasury 6,273,658 8,469,318
Non-entity Fund Balance 5 4
Total Fund Balance with Treasury $ 6,273,663 $ 8,469,322
Status of Fund Balance with Treasury
Unobligated Balance Available $ 2,712,523 $ 2,117,804
Unobligated Balance Unavailable 2,919,845 5,266,481
Obligated Balance Not Yet Disbursed 721,488 1,085,033
Borrowing Authority Not Converted to Funds (80,198) –
Nonbudgetary 5 4
Total Fund Balance with Treasury $ 6,273,663 $ 8,469,322
Unobligated balances become available when apportioned by the OMB 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.
Note 3 Cash
SBA field offices deposit collections from borrowers in Treasury General Accounts at financial institutions for credit
to SBA’s account at the Treasury. At the end of the fiscal year, collections temporarily held by SBA field offices
pending deposit are recorded as Undeposited Collections – Cash in Transit and total $5.5 million and $2.9 million
at September 30, 2012 and 2011.
AGENCY FINANCIAL REPORT • FY 2012 61
FINANCIAL REPORTING
Note 4 Fiduciary Activities: Master Reserve Fund
and Master Reserve Account
Fiduciary activities are the receipt, management, protection, accounting, investment and disposition by the federal
government of cash or other assets in which non-federal entities have an ownership interest that the federal gov-
ernment must uphold. Fiduciary cash and other assets are not assets of the government, and are not recognized
on SBA’s proprietary statements, but they are required to be disclosed in the notes to SBA’s financial statements.
Fiduciary balances may be on deposit with the Treasury or commercial banks.
SBA’s fiduciary activities include the Master Reserve Fund and Master Reserve Account both administered by SBA’s
fiscal agent, Colson Inc. The MRF and MRA are maintained in commercial bank accounts (not the Treasury). The
balances in the MRF and MRA are invested according to SBA policy entirely in Treasury securities and repurchase
agreements that are backed by Treasury securities. The MRF is an integral part of SBA’s 7(a) secondary market pro-
gram. The MRF was authorized by the Small Business Secondary Market Improvement Act of 1984 to facilitate the
pooling of 7(a) guarantied loans that are purchased by secondary market investors. The 7(a) secondary market pro-
gram includes SBA’s guaranty of timely payment, as well as a default guaranty, to 7(a) secondary market investors.
There was $19.2 billion and $17.6 billion of outstanding SBA guarantied loan principal in the secondary market at
September 30, 2012 and 2011.
The MRA facilitates the operation of the 504 Development Company secondary market program. The MRA
was authorized by Section 505 of the Small Business Investment Act of 1958 as a vehicle to receive, temporarily
hold and distribute 504 program cash flows. The MRA receives monthly payments from the 504 borrowers, and
retains the payments until a semi-annual debenture payment is due to the secondary market investors. The 504
secondary market program includes SBA’s guaranty of timely payment, as well as a default guaranty, to 504 sec-
ondary market investors. There was $26.2 billion and $24.3 billion of SBA guarantied 504 debentures outstand-
ing in the secondary market at September 30, 2012 and 2011.
The composition of the MRF and MRA and a reconciliation of the changes in the assets are included in the
following table.
MASTER RESERVE FUND AND MASTER RESERVE ACCOUNT
(Dollars in Thousands)
FIDUCIARY ASSETS
AS OF SEPTEMBER 30, 2012 2011
Short Term Securities
Money Market Funds $ 8,357 $ 10,086
Treasury Bills – 17,997
Repurchase Agreements 1,015,810 915,951
Total Short Term Securities 1,024,167 944,034
Long Term Securities
Treasury Notes Including Interest 1,958,378 1,833,113
Total Long Term Securities 1,958,378 1,833,113
Net Assets $ 2,982,545 $ 2,777,147
62 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
MASTER RESERVE FUND AND MASTER RESERVE ACCOUNT (CONTINUED)
(Dollars in Thousands)
RECONCILIATION OF FIDUCIARY ASSETS
FOR THE YEARS ENDING SEPTEMBER 30, 2012 2011
Beginning Net Assets $ 2,777,147 $ 2,626,436
Receipts
Earned Income 44,062 56,057
Contributions 7,968,441 7,913,304
Net Realized Gain (Loss) 1,347 2,503
Total Receipts 8,013,850 7,971,864
Less Disbursements
Payments to Investors 7,808,452 7,821,153
Total Disbursements 7,808,452 7,821,153
Ending Net Assets $ 2,982,545 $ 2,777,147
Note 5 Accounts Receivable
Accounts receivable include amounts owed by the public for guaranty fees in SBA’s loan and surety bond programs,
refunds due from employees and others, as well as other amounts owed by lenders on guarantied loans purchased
by the SBA. An Allowance for Loss on uncollectible Surety Bond Guaranty fees is based on an aging of delin-
quent balances. The uncollectible amount for refunds and loan guaranty fees is not significant and no allowance is
provided. Amounts over 180 days past due on guarantied loans purchased by the SBA are written off for financial
reporting purposes.
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2012 2011
Intragovernmental
Administrative Receivables $ – $ 406
Total Intragovernmental $ – $ 406
Public
Guaranty Fees Receivable $ 66,184 $ 37,108
Refunds 271 146
Other 5,971 15,561
Total Public 72,426 52,815
Allowance For Loss (3) (2)
Net Public $ 72,423 $ 52,813
AGENCY FINANCIAL REPORT • FY 2012 63
FINANCIAL REPORTING
Note 6 Credit Program Receivables and Liability for Loan
Guaranties
A. Loan Program Descriptions and Cost Determinations
LOAN PROGRAM DESCRIPTIONS
The SBA administers guarantied and direct loan programs that help small businesses obtain financing, and a direct
loan program that assists homeowners, renters and businesses to recover from disasters.
MAJOR DIRECT LOAN AND LOAN GUARANTY PROGRAMS
Program group Program type Program
Disaster Direct Disaster Assistance Loans
Business Guarantied 7(a) Loan Guaranty
Business Guarantied 504 Certified Development Company
Business Guarantied 504 First Mortgage Loan Pooling
Business Guarantied 504 CDC - Debt Refinancing
Business Guarantied Small Business Investment Company Debentures
Business Guarantied Small Business Investment Company Participating Securities
Business Guarantied America’s Recovery Capital Loan
Business Guarantied Dealer Floor Plan
Business Direct 7(m) Microloan
Business Direct Intermediary Lending Pilot Program
SBA’s Disaster Assistance Loan program makes direct loans to disaster victims under four categories: (1) loans for
homes and personal property; (2) physical disaster loans to businesses of any size; (3) economic injury loans to
small businesses without credit available elsewhere; and (4) economic injury loans to eligible businesses affected by
essential employees called up to active duty in the military reserves. The maximum interest rate is 4 percent for loan
applicants without credit available elsewhere and 8 percent for applicants with credit available elsewhere.
SBA’s business loan programs include its flagship 7(a) Loan Guaranty program in which the SBA guarantees up to
90 percent of the principal amount of loans made by banks and other lending institutions to small businesses not
able to obtain credit elsewhere.
The Section 504 Certified Development Company program guarantees 100 percent of the principal and interest
payments on debentures issued by development companies that make small business loans secured primarily by real
estate. The 504 First Mortgage Loan Pooling program was authorized by the Recovery Act to provide liquidity to
banks through the sale in the secondary market of SBA Guarantied pools of bank loans related to the 504 CDC
program so that the banks can make additional loans to small businesses. The 504 CDC – Debt Refinancing pro-
gram, a temporary program that was authorized by the Jobs Act, supported small businesses’ ability to restructure
their collateralized debt.
The Small Business Investment Company Debentures and Participating Securities programs guarantee principal and
interest payments on securities issued by investment capital firms, which in turn make investments in small businesses.
America’s Recovery Capital Loan program was a temporary guarantied loan program authorized by the Recovery Act
of 2009 until September 30, 2010. ARC loans are deferred payment loans of up to $35,000 available through SBA’s
7(a) participating lenders. ARC loans are interest free to the borrower, 100 percent guaranteed by the SBA to the lend-
er, and have no fees associated with them. The SBA will continue to service the ARC loan portfolio until its maturity.
64 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
The Dealer Floor Plan is a temporary program that encourages SBA lenders to extend lines of credit to eligible deal-
ers of new and used automobiles, motorcycles, boats, recreational vehicles and manufactured housing by providing
guaranties of 75 percent for loans up to $5,000,000.
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.
The Intermediary Lending Pilot program was authorized in the Small Business Jobs Act to provide loans to intermedi-
aries for relending to small businesses in economically distressed areas with a lack of credit availability to small business.
CREDIT PROGRAM RECEIVABLES AND LIABILITY FOR LOAN GUARANTIES
The Federal Credit Reform Act of 1990 governs direct loans made after FY 1991. FCRA loans are valued at the pres-
ent 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. FCRA also governs loan guaranties made after FY
1991. A liability for outstanding guaranties is included on SBA’s Balance Sheet. The liability is determined by calculat-
ing the net present value of expected future cash flows for outstanding guaranties in a manner similar to that used to
determine the subsidy allowance for direct loans. Guarantied loans purchased by the SBA upon borrower default are
established as loans receivable and are valued in a similar manner as direct loans under FCRA.
Direct loans made prior to FCRA are recorded at cost with an allowance for uncollectible amounts calculated
using historical loss experience. For loan guaranties made prior to FCRA, a liability for expected future losses on
outstanding guaranties is established based on historical experience. Guarantied loans purchased upon borrower
default are established as loan receivables with an allowance for losses based on historical loss experience.
The SBA advances payments semiannually to honor SBA’s timely payment requirement of principal and interest
due for debentures in SBA’s Section 504 Certified Development Company and Small Business Investment Com-
pany programs. The advances are liquidated by receipt of the payments due from borrowers in these programs. To
the extent that borrower payments may not repay advances, balances that remain collectible are reported as credit
program receivables. Advances are also made to the Federal Financing Bank for loans guarantied under Section 503
of the Small Business Act. These advances are also reported as credit program receivables.
SUBSIDY FUNDING UNDER FEDERAL CREDIT REFORM
FCRA requires that the credit subsidy costs of direct loans and loan guaranties be expensed in the year loans are
disbursed. The credit subsidy cost is the net present value of expected cash inflows and outflows over the life of
a guarantied loan, or the difference between the net present value of expected cash flows and the face value of a
direct loan. The cost expressed as a percentage of loans disbursed is termed the subsidy rate. The SBA receives
appropriations annually to fund its credit programs based on the subsidy rate that applies to the credit program
level approved by Congress. The SBA records subsidy expenses when loans are disbursed. In accordance with
FCRA, subsidy costs are reestimated annually.
INTEREST RECEIVABLE
Interest receivable is comprised of accrued interest on loans receivable and purchased interest related to defaulted
guarantied loans. Interest income is accrued at the contractual rate on the outstanding principal amount and
is reduced by the amount of interest income accrued on non-performing loans in excess of 90 days delinquent.
Purchased interest is carried at cost. A 100 percent loss allowance is established for all purchased interest on non-
performing loans.
FORECLOSED PROPERTY
Foreclosed property is comprised of real and business-related and personal property acquired through foreclosure
on direct loans and defaulted loan guaranties. Properties acquired as a result of defaulted loans committed after FY
AGENCY FINANCIAL REPORT • FY 2012 65
FINANCIAL REPORTING
1991 are shown at recoverable value which is adjusted to the present value of expected future cash flows for finan-
cial statement presentation through the allowance for subsidy. Other foreclosed property is shown at the appraised
value. At September 30, 2012 SBA’s foreclosed property was $45.6 million related to 78 loans. The properties had
been held for an average of 725 days. At September 30, 2011 foreclosed property was $39.9 million related to
72 loans. The properties had been held for an average of 789 days.
VALUATION METHODOLOGY FOR POST-1991 DIRECT LOANS AND LOAN GUARANTIES
The value of direct and guarantied loans committed after FY 1991 is based on the net present value of their
expected future cash flows. The SBA estimates future cash flows for guarantied and direct loans using economic
and financial credit subsidy models. The SBA has developed a customized credit subsidy model for each of its major
loan guaranty and direct loan programs.
SBA’s models vary in the specific methodologies employed to forecast future program cash flows. In general, how-
ever, models for all major credit programs use historical data as the basis for assumptions about future program per-
formance and then translate these assumptions into nominal cash flow estimates by applying rules about program
structure. Nominal cash flow forecasts are discounted using the Office of Management and Budget’s Credit Subsidy
Calculator that has both forecasted and actual Treasury interest rates.
Historical data is used as the basis for program performance assumptions. The historical data undergoes quality
review and analysis prior to its use in developing model assumptions.
Key input to the subsidy models varies by program. Input includes items such as:
• Contractual terms of the loan or guaranty such as loan amount, interest rate, maturity and grace period
• Borrower characteristics
• Loan origination methods
• Economic indicators such as gross domestic product growth and unemployment rate
• Loan performance assumptions, for example: conditional purchase and prepayment rates and recovery rates
• Loan fee rates
VALUATION METHODOLOGY FOR PRE-1992 DIRECT LOANS AND LOAN GUARANTIES
The SBA values pre-credit reform direct and defaulted guarantied loans by estimating an allowance for loan losses.
This allowance is offset against gross loan receivables to obtain SBA’s expected net 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. A liability is also established for active pre-credit reform loan guaranties. The liability is estimated
based on historical experience.
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66 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
B. Credit Program Receivables and Related Foreclosed Property, Net
(Dollars in Thousands)
AS OF SEPTEMBER 30, 2012 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 9,402 $ 142,536 $ 151,938
Interest Receivable 1,936 945 2,881
Foreclosed Property 3,107 – 3,107
Allowance (1,188) (34,197) (35,385)
Total Direct Business Loans 13,257 109,284 122,541
Direct Disaster Loans
Disaster Loans Receivable 6,634 7,174,910 7,181,544
Interest Receivable 45 34,733 34,778
Foreclosed Property – 1,498 1,498
Allowance (966) (1,403,968) (1,404,934)
Total Direct Disaster Loans 5,713 5,807,173 5,812,886
Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 26,529 8,079,439 8,105,968
Other Loans Receivable (see note below) – 443,904 443,904
Interest Receivable 747 87,968 88,715
Foreclosed Property 3,244 37,737 40,981
Allowance (20,227) (6,940,473) (6,960,700)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 10,293 1,708,575 1,718,868
Total Credit Program Receivables & Related Foreclosed Property, Net $ 7,654,295
AS OF SEPTEMBER 30, 2011 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 14,810 $ 125,065 $ 139,875
Interest Receivable 1,907 997 2,904
Foreclosed Property 3,106 – 3,106
Allowance (1,824) (31,635) (33,459)
Total Direct Business Loans 17,999 94,427 112,426
Direct Disaster Loans
Disaster Loans Receivable 8,563 7,459,690 7,468,253
Interest Receivable 65 33,797 33,862
Foreclosed Property – 799 799
Allowance (1,042) (1,486,011) (1,487,053)
Total Direct Disaster Loans 7,586 6,008,275 6,015,861
Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 39,829 8,285,473 8,325,302
Other Loans Receivable (see note below) – 502,332 502,332
Interest Receivable 794 71,489 72,283
Foreclosed Property 3,238 32,734 35,972
Allowance (21,278) (6,688,159) (6,709,437)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 22,583 2,203,869 2,226,452
Total Credit Program Receivables & Related Foreclosed Property, Net $ 8,354,739
Note: Other Loans Receivable includes payments advanced by the SBA against future reimbursements in the SBIC and 504 Guaranty programs.
AGENCY FINANCIAL REPORT • FY 2012 67
FINANCIAL REPORTING
C. Loans Disbursed and Outstanding Loan Obligations
(Dollars in Thousands)
DIRECT LOANS
New Loans Disbursed During the Year Ending September 30, 2012 2011
Business Direct Loan Program $ 40,316 $ 33,799
Disaster Loan Program 481,741 312,050
Total Direct Loans Disbursed $ 522,057 $ 345,849
Outstanding Loan Obligations as of September 30, 2012 2011
Business Direct Loan Program $ 56,240 $ 61,640
Disaster Loan Program 181,145 427,244
Total Direct Loan Obligations $ 237,385 $ 488,884
GUARANTIED LOANS
New Loans Disbursed During the Year Ending September 30, 2012 2011
Total Principal Disbursed at Face Value $ 19,533,852 $ 19,647,608
Total Principal Disbursed Guarantied by the SBA 15,993,888 16,584,726
Outstanding Loan Obligations as of September 30, 2012 2011
Business Guarantied Loan Programs $ 13,988,806 $ 12,415,542
Loans Outstanding as of September 30, 2012 2011
Total Principal Outstanding at Face Value $ 87,433,714 $ 82,233,722
Total Principal Outstanding Guarantied by the SBA 74,371,378 70,011,195
SBA’s guarantied loan servicing agent provides data to the SBA on the unpaid principal balance of guarantied loans within a precision of less than 1 percent
due to timing.
D. Subsidy Cost Allowance Balances
(Dollars in Thousands)
For the Years Ending September 30, 2012 2011
Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account $ 6,719,794 $ 6,003,982
Current Year’s Subsidy (see 6G for breakdown by component) 6,700 5,128
Loans Written Off (2,173,585) (2,224,182)
Subsidy Amortization (2,223) (1,980)
Allowance Related to Guarantied Loans Purchased This Year 2,337,586 2,860,687
Miscellaneous Recoveries and Costs 88,300 72,139
Balance of Subsidy Allowance Account before Reestimates 6,976,572 6,715,774
Technical Assumptions/Default Reestimates (1,902) 4,020
Ending Balance of Allowance Account $ 6,974,670 $ 6,719,794
Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account $ 1,486,011 $ 1,475,666
Current Year’s Subsidy (see 6G for breakdown by component) 58,307 39,736
Loans Written Off (169,471) (212,044)
Subsidy Amortization (26,784) (14,522)
Miscellaneous Recoveries and Costs 47,303 41,529
Balance of Subsidy Allowance Account before Reestimates 1,395,366 1,330,365
Technical Assumptions/Default Reestimates 8,602 155,646
Ending Balance of Allowance Account $ 1,403,968 $ 1,486,011
68 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
E. Liability for Loan Guaranties
(Dollars in Thousands)
For the Years Ending September 30, 2012 2011
Pre-1992 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties $ 306 $ 574
Adjustment to Expected Losses, Guaranties Outstanding (197) (268)
Ending Balance of Liability for Loan Guaranties 109 306
Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties 4,741,136 4,466,432
Current Year’s Subsidy (see 6G for breakdown by component) 197,559 553,814
Fees 822,503 632,922
Interest Accumulation Factor 189,787 111,290
Claim Payments to Lenders (2,567,534) (3,418,876)
Adjustment Due to Reestimate & Guarantied Loan Purchases 229,948 558,189
Miscellaneous Recoveries and Costs 31,132 36,185
Balance of Liability for Loan Guaranties before Reestimates 3,644,531 2,939,956
Technical Assumptions/Default Reestimates 81,311 1,801,180
Ending Balance of Liability for Loan Guaranties 3,725,842 4,741,136
Total Ending Balance of Liability for Loan Guaranties $ 3,725,951 $ 4,741,442
F. 2012 Subsidy Rates by Program and Component
LOAN PROGRAM Total Financing Default Other Fee
Subsidy
Guaranty
7(a) 1.05% 0.00% 5.25% 0.00% -4.20%
504 CDC 1.09% 0.00% 9.07% 0.73% -8.71%
SBIC Debentures 0.00% 0.00% 7.72% 0.16% -7.88%
Direct
Disaster (10-1-11 to 2-29-12) 11.28% 4.82% 12.34% -5.88% 0.00%
Disaster (3-1-12 to 9-30-12) 10.93% 4.43% 12.35% -5.85% 0.00%
Microloan 14.71% 4.47% 2.17% 8.07% 0.00%
Intermediary Lending Program 25.73% 22.94% 2.79% 0.00% 0.00%
Recovery Act Guaranty
504 First Mortgage Loan Pooling 0.00% 0.00% 3.07% 0.51% -3.58%
Jobs Act Guaranty
504 CDC - Debt Refinancing 0.00% 0.00% 9.06% 0.74% -9.80%
Dealer Floor Plan 0.49% 0.00% 3.99% 0.00% -3.50%
The subsidy rates in Table F pertain only to loans obligated in the current year. These rates cannot be applied to
the loans disbursed during the current year to yield the subsidy expense because loans disbursed during the current
year include loans obligated in prior years. Subsidy expenses reported in Table G result from the disbursement of
loans obligated in the current year as well as in prior years, and include reestimates.
AGENCY FINANCIAL REPORT • FY 2012 69
FINANCIAL REPORTING
G. Subsidy Expense by Component
(Dollars in Thousands)
For the Years Ending September 30, 2012 2011
Business Loan Guaranties
Interest $ 16 $ 7,395
Defaults 835,394 993,474
Fees (649,395) (454,961)
Other 11,544 7,906
Subsidy Expense Before Reestimates and Loan Modifications 197,559 553,814
Reestimates 81,311 1,801,180
Total Guarantied Business Loan Subsidy Expense $ 278,870 $ 2,354,994
Business Direct Loans
Interest $ 3,440 $ 2,663
Defaults 896 692
Other 2,364 1,773
Subsidy Expense Before Reestimates 6,700 5,128
Reestimates (1,902) 4,020
Total Business Direct Loan Subsidy Expense $ 4,798 $ 9,148
Disaster Direct Loans
Interest $ 29,503 $ 21,926
Defaults 57,430 34,396
Other (28,626) (16,586)
Subsidy Expense Before Reestimates 58,307 39,736
Reestimates 8,602 155,646
Total Disaster Direct Loan Subsidy Expense $ 66,909 $ 195,382
H. Administrative Expense
The SBA received appropriations to administer its credit programs, including the making, servicing and liquidation
of its loans and guaranties. Amounts expensed in the Statement of Net Cost are:
(Dollars in Thousands)
For the Years Ending September 30, 2012 2011
Disaster Direct Loan Programs $ 189,704 $ 190,228
Business Loan Programs 148,078 157,767
Total Administrative Expense $ 337,782 $ 347,995
I. Credit Program Subsidy Reestimates
Reestimates are performed annually, on a cohort-by-cohort basis. The purpose of reestimates is to update original
program cost estimates to reflect actual cash flow experience as well as changes in forecasts of future cash flows.
Forecasts of future cash flows are updated based on additional information about historical program performance,
revised expectations for future economic conditions, and enhancements to cash flow projection methods. Financial
statement reestimates were performed using a full year of performance data for FY 2012 for SBA’s large loan
programs and with nine months of actual and three months of projected performance data for the Secondary
Market Guaranty and the small loan programs.
70 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
BUSINESS GUARANTIED LOAN PROGRAMS
Net subsidy reestimates of business guarantied loan programs follows:
(Dollars in Thousands)
Guarantied Loan Program Subsidy Reestimates 2012 2011
7(a) $ (8,131) $ 1,235,733
7(a) - Recovery Act (402,448) 115,495
7(a) - Jobs Act (241,334) (42,042)
Dealer Floor Plan (871) (214)
504 CDC 357,707 1,063,772
504 CDC - Recovery Act (24,712) 209,379
504 CDC - Jobs Act 22,684 20,478
504 CDC - Debt Refinancing 32,352 2,221
504 First Mortgage Loan Pooling - Recovery Act 2,309 5,054
SBIC Debentures (70,163) 28,010
SBIC Participating Securities 444,090 (757,505)
Secondary Market Guaranty Program (12,376) (9,916)
ARC - Recovery Act (28,625) (66,210)
All Other Guaranty Loan Programs 10,829 (3,075)
Total Guarantied Loan Program Subsidy Reestimates $ 81,311 $ 1,801,180
The 7(a) Loan Guaranty program, SBA’s flagship and largest program had a net downward reestimate in FY 2012
of $8.1 million. While loans in cohorts 2009 through 2011 performed better than projected in FY 2012, loans in
cohort 2000 through 2008 performed worse than projected. This offsetting performance resulted in a nearly flat
reestimate. Additionally, FY 2012 loan performance contributed to updated model assumptions, which resulted in
increased purchase projections for the remaining years within cohorts 2005 through 2008 and resulted in decreased
purchase projections for the remaining years within the cohorts 2009 through 2011.
The 7(a) Recovery Act program had a net downward reestimate in FY 2012 of $402.4 million. A significant por-
tion of the reestimate is due to better than projected FY 2012 loan performance. Purchases in the 7(a) Recovery Act
program during FY 2012 represented only 36 percent of the purchases projected for FY 2012 by last year’s reesti-
mate model. Additionally, FY 2012 loan performance contributed to updated model assumptions, which resulted
in decreased purchase projections for the remaining years of all 7(a) Recovery Act program cohorts.
The 7(a) Jobs Act cohort had a net downward reestimate in FY 2012 of $241.3 million. A significant portion of the
reestimate is due to better than projected FY 2012 loan performance. Purchases in the 7(a) Jobs Act cohort dur-
ing FY 2012 represented only 14 percent of the purchases projected for FY 2012 by last year’s reestimate model.
Additionally, FY 2012 loan performance contributed to updated model assumptions, which resulted in decreased
purchase projections for the remaining years in the 7(a) Jobs Act program cohort.
The Dealer Floor Plan program had a net downward reestimate of $0.9 million, due to better than projected
performance during FY 2012.
The 504 Certified Development Company program had a net upward reestimate of $357.7 million. While the
2008 through 2011 cohorts performed better than expected in FY 2012, many other cohorts, especially 2005
through 2007, performed worse. Additionally, updated model assumptions resulted in increased purchase pro-
jections and decreased recovery projections for the remaining years of almost all cohorts. The remainder of the
reestimate was due to increased loss projections for the remaining years in the 2011 and 2012 cohorts as compared
to their original budget formulation loss projections.
AGENCY FINANCIAL REPORT • FY 2012 71
FINANCIAL REPORTING
The 504 Recovery Act program had a net downward reestimate of $24.7 million. The reestimate is due to better
than projected FY 2012 loan performance. Purchases in the 504 Recovery Act program represented only 34 percent
of the purchases projected for FY 2012 by last year’s reestimate model.
The 504 Jobs Act program had a net upward reestimate of $22.7 million despite having better than projected loan
performance in FY 2012. The reestimate is due to increased loss projections for the remaining years in the 504 Jobs
Act cohorts as compared to the original budget formulation loss projections.
The 504 Debt Refinancing program had a net upward reestimate of $32.4 million despite having better than pro-
jected loan performance in FY 2012. The reestimate is due to increased loss projections for the remaining years in
the 504 Debt Refinancing cohorts as compared to the original budget formulation loss projections.
The 504 First Mortgage Loan Pooling program had a net upward reestimate of $2.3 million. While pools in the
504 First Mortgage Loan Pooling program performed better in FY 2012 than projected by last year’s reestimate
model, additional loan performance data increased loss projections for the remaining years within the cohorts.
The SBIC Debentures program had a net downward reestimate of $70.2 million. The reestimate was largely due to
a decrease in projected purchases for the remaining years within cohorts 2000 through 2011.
The SBIC Participating Securities program had a net upward reestimate of $444.1 million. The reestimate was
largely due to updated methodologies for assumption curves which allow for more accurate projections of future
cash flows. These methodology changes resulted in decreased projections of recoveries, reimbursement of prioritized
payments and annual fees for the remaining years within most of the cohorts.
The Secondary Market Guaranty program had a net downward reestimate of $12.4 million. This downward reestimate
was due to a decrease in the projected interest rate paid to investors for the remaining years within the cohorts.
The America’s Recovery Capital program had a net downward reestimate of $28.6 million. Over half of the ARC
downward reestimate is due to better than projected loan performance in FY 2012. The remainder of the reestimate
is mostly due to lower purchase projections, as a result of recent actual loan performance, for future fiscal years.
All Other Guaranty Loan programs, which include the SBIC New Market Venture Capital program, had a net
upward reestimate of $10.8 million. The majority of the reestimate was due to higher than projected purchases in
FY 2012, in particular the 2002 cohort.
BUSINESS DIRECT LOAN PROGRAMS
Net subsidy reestimates for business direct loan programs follows:
(Dollars in Thousands)
Business Direct Loan Program Subsidy Reestimates 2012 2011
7(m) Microloan $ (2,350) $ (2,115)
7(m) Microloan - Recovery Act 806 2,004
SBIC Preferred Stock (101) 4,189
All Other Direct Loan Programs (257) (58)
Total Direct Loan Program Subsidy Reestimates $ (1,902) $ 4,020
The 7(m) Direct Microloan program had a net downward reestimate of $2.4 million. The reestimate is largely due to
better than projected performance during FY 2012.
The 7(m) Direct Microloan Recovery Act program had a net upward reestimate of $0.8 million. While both the
Recovery Act cohorts performed slightly better than expected during FY 2012, the upward reestimate is primarily due
to updated assumption curves for the Recovery Act cohorts.
72 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
DISASTER DIRECT LOAN PROGRAM
Net subsidy reestimates for the disaster direct loan programs follows:
(Dollars in Thousands)
Disaster Direct Loan Program Subsidy Reestimates 2012 2011
Disaster $ 8,602 $ 155,646
Total Disaster Direct Loan Program Subsidy Reestimates $ 8,602 $ 155,646
The Disaster Assistance program had a net upward reestimate of $8.6 million, primarily in the 2006 cohort. The 2006
cohort mostly consists of loans made in response to the Gulf Coast hurricanes of 2005. These loans currently account
for half of the outstanding portfolio of direct Disaster loans. The upward reestimate is largely the result of performance
probabilities being updated with actual performance during FY 2012 which resulted in an increase in projected defaults.
Note 7 General Property and Equipment, Net
The SBA capitalizes equipment with a cost of $50,000 or more per unit and a useful life of 2 years or more at full
cost and depreciates using the straight-line method over the useful life. The SBA expenses other equipment items
not meeting the capitalization criteria when purchased.
Leasehold improvements with modifications of $50,000 or more and a useful life of 2 years or more are capitalized
and amortized using the straight-line method over the useful life of the improvement or the lease term, whichever is
shorter. Other leasehold improvement expenditures not meeting the capitalization criteria are expensed.
Software intended for internal use, whether internally developed, contractor developed or purchased, is capitalized
at cost if the unit acquisition cost is $250,000 or more and service life is at least 2 years. Capitalized software costs
include all direct and indirect costs incurred, including overhead to develop the software. Software for internal use
is amortized using the straight-line method over its useful life, not to exceed 5 years. Amortization begins when the
software or equipment is put into production. The costs of enhancements are capitalized when it is more likely than
not that the enhancements will result in significant additional capabilities. Costs that do not meet the capitalization
criteria are expensed when incurred.
Assets meeting the capitalization thresholds at September 30, 2012 and 2011 are detailed below.
(Dollars in Thousands)
2012 2011
Equipment $ 2,602 $ 1,787
Accumulated Depreciation (1,875) (1,394)
Net 727 393
Leasehold Improvements 1,811 1,811
Amortization of Leasehold Improvements (551) (400)
Net 1,260 1,411
Software in Development 131 –
Software in Use 30,546 30,546
Amortization of Software in Use (30,546) (30,546)
Net 131 –
Total General Property and Equipment, Net $ 2,118 $ 1,804
AGENCY FINANCIAL REPORT • FY 2012 73
FINANCIAL REPORTING
Note 8 Liabilities Not Covered by Budgetary Resources
Liabilities not covered by budgetary resources are liabilities for which congressional action is needed before budget-
ary resources can be provided. These unfunded liabilities at September 30, 2012 and 2011 consisted of:
(Dollars in Thousands)
2012 2011
Intragovernmental Liabilities - Other
Employment Taxes Payable $ 1,815 $ 1,946
Federal Employees’ Compensation Act Payable 5,808 5,850
Total Intragovernmental Liabilities - Other 7,623 7,796
Federal Employees’ Compensation Act Actuarial Liability 31,591 30,630
Surety Bond Guarantee Program Future Claims 22,606 20,385
Other Liabilities
Prior Liens on Real Estate Payable 59 440
Accrued Unfunded Annual Leave 25,758 26,897
Total Other Liabilities 25,817 27,337
Total Liabilities Not Covered by Budgetary Resources $ 87,637 $ 86,148
The liability for Surety Bond Guarantees is an estimate of future claims in the SBG Program for guaranties out-
standing at year-end.
Note 9 Debt
Borrowings payable to the Treasury result from loans provided by the Treasury to fund the portion of direct loans
not covered by subsidy appropriations and to fund the payment of downward subsidy reestimates and other credit
program disbursements (see Note 15). The SBA makes periodic principal repayments to the Treasury based on the
analysis of its cash balances and future disbursement needs.
Borrowings payable to the Federal Financing Bank are the result of its financing of SBA Section 503 Debentures
issued prior to 1988.
All debt is intragovernmental and covered by budgetary resources. Debt transactions for the periods ending
September 30, 2012 and 2011 and resulting balances are:
74 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
INTRAGOVERNMENTAL DEBT
(Dollars in Thousands)
Department of Treasury 2012 2011
Beginning Balance $ 11,189,686 $ 11,751,594
New Borrowing 1,049,171 347,617
Repayments (4,319,116) (909,525)
Ending Balance $ 7,919,741 $ 11,189,686
Federal Financing Bank 2012 2011
Beginning Balance $ 593 $ 2,187
Repayments (518) (1,552)
Change in Interest Payable (15) (42)
Ending Balance $ 60 $ 593
Total Debt $ 7,919,801 $ 11,190,279
Note 10 Net Assets of Liquidating Funds Due to Treasury
Net Assets of Liquidating Funds Due to Treasury is the residual of the book value of assets less liabilities in the Liq-
uidating Funds for loans made prior to FY 1992. Subsequent to the issuance of its audited financial statements each
year, the SBA returns to the Treasury the portion of this balance that is considered to be the unobligated balance for
budgetary reporting at fiscal year-end.
(Dollars in Thousands)
As of September 30, 2012 2011
Pollution Control Equipment Guaranty Fund $ 2,125 $ 2,646
Disaster Loan Fund 9,748 12,263
Business Loan and Investment Fund 40,327 49,061
Total Due Treasury $ 52,200 $ 63,970
Persons impacted by a disaster may now apply for disaster loan
Did assistance through the Electronic Loan Application. The ELA simplifies
you the application process and speeds delivery of assistance. It allows
anyone whose home or business was damaged by a declared disaster to
know apply for disaster loan assistance. Homeowners and renters can apply
for damages to their home, personal property, and vehicles. Businesses
can apply for damages to their real estate or business contents and for
economic losses. For more information, go to www.sba.gov/disaster.
AGENCY FINANCIAL REPORT • FY 2012 75
FINANCIAL REPORTING
Note 11 Other Liabilities
Other liabilities at September 30th were:
(Dollars in Thousands)
2012 2011
OTHER LIABILITIES - INTRAGOVERNMENTAL
Entity
Current
Employment Taxes Payable $ 4,380 $ 4,496
Advances from Other Agencies 721 1,282
Total Current 5,101 5,778
Non-current
Employment Taxes Payable 1,815 1,946
Federal Employees’ Compensation Act Payable 5,808 5,850
Payable to Federal Financing Bank (53) 76
Total Non-current 7,570 7,872
Total Entity 12,671 13,650
Non-entity
Current
Payable to Treasury 7 7
Total Other Liabilities - Intragovernmental $ 12,678 $ 13,657
OTHER LIABILITIES - PUBLIC
Entity
Current
Accrued Funded Payroll and Benefits $ 19,017 $ 20,133
Accrued Unfunded Annual Leave 25,758 26,897
Suspense Accounts 241 247
Total Current 45,016 47,277
Non-current
Prior Liens on Real Estate Payable 59 440
Total Non-current 59 440
Total Entity 45,075 47,717
Non-entity
Current
Non-entity Current Payable 4 4
Total Other Liabilities - Public $ 45,079 $ 47,721
Note 12 Leases
The SBA leases all of its facilities from the General Services Administration. The SBA enters into an Occupancy
Agreement with GSA for each facility. GSA, in turn, leases commercial facilities or provides space in federal build-
ings. Agreements for space in federal buildings can be vacated with 120 to 180 days notice. However, the SBA
anticipates continuing the same or similar facilities leases in the future. These leases with GSA are operating leases
and are expensed in the Statement of Net Cost when incurred. FY 2012 and 2011 facilities lease costs were $47.2
million and $41.9 million. FY 2012 lease costs included $2.0 million associated with FY 2011 occupancy in the
new lease for the SBA Headquarters building that was signed on November 24, 2010. Future lease payments shown
below assume a 3 percent inflation factor from the following years’ projected totals as estimated by GSA, as well as
76 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
continued costs during the next five years as leases expire and new leases are added. Payments after five years reflect
only current leases that will still be in effect then, projected to the end of each lease term.
(Dollars in Thousands)
FUTURE FACILITIES OPERATING LEASE PAYMENTS
FY Lease Payments
2013 $ 44,939
2014 46,028
2015 47,149
2016 48,305
2017 49,495
After 2017 65,824
Total $ 301,740
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 with the exception of one deposit fund. Also at year-end, the SBA accrues the
current year’s reestimates, including downward reestimates as applicable. For the downward reestimates, in the loan
financing funds, the SBA records an accrual adjustment that records a transfer out to the non-entity fund, a reduc-
tion 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)
2012 2011
Entity
Financing Fund Payable $ (1,689,133) $ (911,765)
Non-entity
Miscellaneous Receipts Fund Receivable 1,689,133 911,765
Downward Reestimate Payable to Treasury (1,689,133) (911,765)
Balance Sheet Reported Payable $ (1,689,133) $ (911,765)
AGENCY FINANCIAL REPORT • FY 2012 77
FINANCIAL REPORTING
Note 14 Consolidated Statement of Net Cost
Federal cost accounting standards require the SBA to report operating costs by strategic goal activity. Full costs in-
clude 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 reason-
ably 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 costs consistent with its three strategic goals. Costs Not Assigned to strategic goals on the
Statement of Net Cost includes costs of congressionally mandated grant programs and the Office of the Inspector
General. Congressionally mandated programs are community enhancement projects that do not necessarily involve
small business. The Office of the Inspector General mission and funding is independent of the SBA’s.
Intragovernmental Gross Cost is cost incurred by the SBA in exchange transactions with other federal agencies.
Gross Cost with the Public is cost incurred by the SBA in exchange transactions. Intragovernmental Earned
Revenue is revenue earned by the SBA in exchange transactions with other federal agencies. Earned Revenue from
the Public is revenue earned by the SBA in exchange transactions.
The classification as Intragovernmental Costs or Gross Cost with the Public relate to the source of goods and services
received by the SBA and not to the classification of related revenue. The classification of revenue or cost being
defined as “intragovernmental” or “public” is defined on a transaction by transaction basis. The purpose of this
classification is to enable the federal government to provide consolidated financial statements, and not to match the
public and intragovernmental revenue with costs that are incurred to produce public and intragovernmental revenue.
For the fifth year, SBA’s Emerging 200 initiative (e200) trained small
Did business owners in 27 cities across the country and helped nearly
you 1,000 urban and Native American small business owners to sustain
and grow their business. Each participant receives eight months of
know intensive training.
For more information, visit
http://www.sba.gov/content/sba-emerging-200-initiative-0.
78 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
(Dollars in Thousands)
INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUE
For the Years ending September 30, 2012 2011
STRATEGIC GOAL 1:
Growing Businesses and Creating Jobs
Intragovernmental Gross Cost $ 596,821 $ 656,169
Gross Cost with the Public 1,279,748 3,344,192
Total Strategic Goal 1 Gross Cost 1,876,569 4,000,361
Intragovernmental Earned Revenue 257,952 308,917
Earned Revenue from the Public 439,171 387,293
Total Strategic Goal 1 Earned Revenue 697,123 696,210
STRATEGIC GOAL 2:
Building an SBA that Meets the Needs of Today’s and Tomorrow’s
Small Businesses
Intragovernmental Gross Cost $ 366 $ 1,159
Gross Cost with the Public 1,593 4,973
Total Strategic Goal 2 Gross Cost 1,959 6,132
STRATEGIC GOAL 3:
Serving as the Voice for Small Business
Intragovernmental Gross Cost $ 2,687 $ 2,543
Gross Cost with the Public 11,682 10,911
Total Strategic Goal 3 Gross Cost 14,369 13,454
COST NOT ASSIGNED TO STRATEGIC GOALS
Intragovernmental Gross Cost $ 14,778 $ 25,861
Gross Cost with the Public 64,253 110,964
Total Gross Cost Not Assigned to Strategic Goals 79,031 136,825
Net Cost of Operations $ 1,274,805 $ 3,460,562
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, 2012 and 2011. SBA’s total budgetary resources were $5.0
billion and $7.9 billion for the years ended September 30, 2012 and 2011. Additionally, $9.4 billion and $11.4
billion of nonbudgetary resources including borrowing authority and collections of loan principal, interest and fees
in financing funds were reported for the years ended September 30, 2012 and 2011.
OMB Circular A-136 required a change in format for the Combined Statement of Budgetary Resources to bet-
ter align with the SF133 Report on Budget Execution and Budgetary Resources. The FY 2011 balances have been
reclassified for comparability as required by Circular A-136.
Permanent Indefinite Appropriations
The SBA receives permanent indefinite appropriations annually to fund increases in the projected subsidy costs of
loan programs as determined by the reestimation process required by the Federal Credit Reform Act of 1990. The
appropriations are received initially in the SBA Program Funds and then transferred to the Financing Funds where
they are used to fund obligations. SBA’s Liquidating Funds also receive permanent indefinite appropriations to fund
AGENCY FINANCIAL REPORT • FY 2012 79
FINANCIAL REPORTING
obligations. The Financing Funds are used to account for credit program obligations made subsequent to FY 1991.
Liquidating Funds are used to account for credit program obligations made prior to FY 1992.
Decreases in projected subsidy costs in the Financing Funds are returned to the Treasury through SBA’s annual
reestimation process. The prior year’s ending unobligated balances in SBA’s Liquidating Funds are also transferred
to the Treasury annually.
Borrowing Authority and Terms of Borrowing
The SBA is authorized to borrow from the Treasury’s Bureau of Public Debt when funds needed to disburse direct
loans and purchase guarantied loans exceed subsidy costs and collections in the nonbudgetary loan financing funds.
In FY 2012 and FY 2011, the SBA received $1.1 billion and $0.3 billion of borrowing authority from the OMB.
At the end of FY 2012, the SBA had $0.1billion in borrowing authority available that will be used to fund guaran-
tied loans disbursed in the future. The SBA pays interest to the Treasury based on Treasury’s cost of funds. The rate
at which interest is paid to the Treasury on the amounts borrowed (or received from the Treasury on uninvested
cash balances) in a loan financing fund for a particular cohort is a disbursement-weighted average discount rate for
cohorts prior to FY 2001 and a single effective rate for cohorts beginning with FY 2001. The SBA calculates and
repays borrowings not needed for working capital at midyear for prior year cohorts. The SBA uses the loan princi-
pal, interest and fees collected from the borrowers in its loan financing funds to repay its Treasury borrowings. The
repayment maturity dates for the borrowing from the Treasury are based on the loan maturities used in the subsidy
calculation. The maturities range from 16 years for Direct Business loans, 25 years for Guarantied Business loans
and 30 years for Disaster loans.
Apportionment Categories of Obligations Incurred
During FY 2012 and FY 2011, the SBA incurred $8.8 billion and $11.9 billion of direct and reimbursable obli-
gations of which $0.7 billion and $0.8 billion was apportioned in category A; $8.1 billion and $11.1 billion was
apportioned in category B. Category A apportionments are restricted by quarter and program, category B appor-
tionments are restricted by purpose and program.
Unobligated Balances
Unobligated balances at September 30, 2012 and 2011 are $5.6 billion and $7.4 billion which include $2.9 billion
and $5.3 billion of unavailable unobligated balances. These balances are unavailable primarily because they are
unapportioned by the OMB. The SBA accumulates the majority of these unobligated balances in its nonbudgetary
financing accounts during the fiscal year ($4.8 billion in FY 2012 and $6.4 billion in FY 2011) from reestimates
that are used primarily to pay default claims in the following fiscal year. In addition, unobligated balances are ac-
cumulated in budgetary accounts from appropriations ($0.9 billion in FY 2012 and $1.0 billion in FY 2011) that
are used to finance SBA’s ongoing program operations.
Undelivered Orders
Undelivered orders for the periods ended September 30, 2012 and 2011 were $0.7 billion and $1.1 billion.
Differences between the Statement of Budgetary Resources and the Budget
of the U. S. Government
There was no material difference between the FY 2011 Statement of Budgetary Resources and the President’s FY
2013 budget submission. The President’s Budget with actual numbers for FY 2014 has not yet been published. The
SBA expects no material differences between the President’s Budget “actual” column and the FY 2012 reported
results when the budget becomes available in February 2013.
80 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Note 16 Reconciliation of Budgetary Obligations
Incurred to Net Cost of Operations
The SBA presents the Statement of Net Cost using the accrual basis of accounting. This differs from the obliga-
tion-based measurement of total resources supplied, both budgetary and from other sources, on the Statement of
Budgetary Resources.
The Federal Financial Accounting Standard No. 7 requires “a reconciliation of proprietary and budgetary informa-
tion in a way that helps users relate the two.” The focus of this presentation is to reconcile budgetary net obligations
to the net cost of operations. The objective of this information is to categorize the differences between budgetary
and financial (proprietary) accounting.
Am I a small business? The SBA uses the North American Industry
Did Classification System (NAICS) as the basis for its size standards. This
you tool can help you determine if you qualify as a small business under
SBA size standards. Qualifying as “small” may allow your business
know to take advantage of valuable government contracting opportunities
reserved for small businesses. NAICS assigns numerical codes to classify
business activities to various economic sectors and industries. For more
information, visit http://www.sba.gov/size-standards-tool.
AGENCY FINANCIAL REPORT • FY 2012 81
FINANCIAL REPORTING
CONSOLIDATED RECONCILIATION OF BUDGETARY OBLIGATIONS TO NET COST
For the years ended September 30, 2012 and 2011
(Dollars in Thousands)
2012 2011
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred $ 8,767,794 $ 11,893,007
Less: Spending Authority from Offsetting Collections and Recoveries 6,634,592 9,024,868
Obligations Net of Offsetting Collections and Recoveries 2,133,202 2,868,139
Less: Offsetting Receipts 868,367 153,308
Net Obligations 1,264,835 2,714,831
Other Resources
Imputed Financing 20,453 26,749
Other Financing Sources (1,647,144) (936,390)
Net Other Resources Used to Finance Activities (1,626,691) (909,641)
Total Resources Used to Finance Activities (361,856) 1,805,190
RESOURCES THAT DO NOT FINANCE NET COST OF OPERATIONS
(Increase) Decrease in Budgetary Resources Obligated for Goods, Services,
and Benefits Ordered But Not Yet Provided 325,086 (257,869)
Resources that Fund Expenses Recognized in Prior Periods (1,817,256) (3,796,986)
Budgetary Offsetting Collections and Receipts that Do Not Affect Net Cost of Operations
Credit Program Collections 6,016,599 8,384,188
Offsetting Receipts 868,367 153,308
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (4,651,674) (4,648,463)
Other - Current Year Liquidating Equity Activity 1,207 2,409
Other Resources that Do Not Affect Net Cost of Operations 257 3
Total Resources that Do Not Finance Net Cost of Operations 742,586 (163,410)
Total Resources Used to Finance the Net Cost of Operations 380,730 1,641,780
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL NOT
REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD
Components Requiring or Generating Resources in Future Periods
Change in Annual Leave Liability (1,139) 139
Upward Reestimates of Credit Subsidy Expense 882,560 1,816,761
Change in Revenue Receivable from Public (306) 309
Provision for Losses on Estimated Guaranties 2,221 846
Change in Unfunded Employee Benefits 961 670
Total Components Requiring or Generating Resources in Future Periods 884,297 1,818,725
Components Not Requiring or Generating Resources
Depreciation or Amortization 632 1,014
Change in Bad Debt Expense - Pre-1992 Loans 8,517 (452)
Other (Income) Expenses Not Requiring Budgetary Resources 629 (505)
Total Components Not Requiring or Generating Resources 9,778 57
Total Components of the Net Cost of Operations that Will Not
Require or Generate Resources in the Current Period 894,075 1,818,782
Net Cost of Operations $ 1,274,805 $ 3,460,562
82 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Liabilities Not Covered by Budgetary Resources on the Balance Sheet (Note 8) differs from Components Requiring
or Generating Resources in Future Periods in this reconciliation primarily due to reestimated subsidy costs of loan
programs. The subsidy costs are shown in the Statement of Net Cost and are to be covered by budgetary resources
but these resources, while available under permanent and indefinite authority, were not provided by year-end.
Additionally, there will always be a difference for existing liabilities because the Reconciliation of Budgetary
Obligations Incurred to Net Cost of Operations reports only current year changes, not balances.
The following table details these differences:
(Dollars in Thousands)
As of September 30, 2012 2011
Current Year Liabilities Not Covered By Budgetary Resources $ 87,637 $ 86,148
Less: Prior Year 86,148 84,622
Change in Liabilities Not Covered By Budgetary Resources 1,489 1,526
Upward Reestimates of Credit Subsidy Expense 882,560 1,816,761
Change in Revenue Receivable from Public (306) 309
All Other 554 129
Components (of Net Cost) Generating Resources in Future Periods
(Per Reconciliation Above) $ 884,297 $ 1,818,725
SBA training and counseling resource partners — Small Business
Did Development Centers, Women’s Business Centers, and SCORE — serve
you more than a million small business owners and aspiring small business
know owners annually. They serve as counselors advisors and mentors to
aspiring entrepreneurs and business owners.
For more information, go to http://www.sba.gov/training.
AGENCY FINANCIAL REPORT • FY 2012 83
FINANCIAL REPORTING
Required Supplementary Information
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the year ended September 30, 2012
(Dollars in Thousands) BLIF DLF SBGRF PCECGF
Nonbudgetary Nonbudgetary
Budgetary Financing Budgetary Financing Budgetary Budgetary
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 179,425 $ 5,665,347 $ 519,659 $ 749,661 $ 58,705 $ 2,491
Recoveries of Prior Year Obligations 33,151 6,950 30,670 227,663 – –
Other Changes in Unobligated Balance (6,420) (1,265,836) (4,677) (976,066) – (2,491)
Unobligated Balance from Prior Year Budget
206,156 4,406,461 545,652 1,258 58,705 –
Authority, net
Appropriations (discretionary and mandatory) 2,869,413 – 278,003 – – 2,000
Borrowing Authority (discretionary and mandatory) – 383,619 – 745,748 – –
Spending Authority from Offsetting Collections 19,037 3,782,397 2,419 86,914 10,266 63
Total Budgetary Resources $ 3,094,606 $ 8,572,477 $ 826,074 $ 833,920 $ 68,971 $ 2,063
STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 2,867,382 $ 3,853,024 $ 378,321 $ 783,906 $ 7,544 $ –
Apportioned 68,564 2,441,390 43,373 50,014 8,736 2,063
Unapportioned 158,660 2,278,063 404,380 – 52,691 –
Total Unobligated Balance, end of year 227,224 4,719,453 447,753 50,014 61,427 2,063
Total Status of Budgetary Resources $ 3,094,606 $ 8,572,477 $ 826,074 $ 833,920 $ 68,971 $ 2,063
CHANGE IN OBLIGATED BALANCES
Unpaid Obligations, Brought Forward, October 1
$ 191,203 $ 155,285 $ 57,968 $ 429,393 $ 227 $ –
(gross)
Uncollected Customer Payments from Federal
Sources Brought Forward, October 1 – (189,160) – (57,596) – –
Obligated Balance Start of Year (net),
191,203 (33,875) 57,968 371,797 227 –
before adjustments
Obligated Balance Start of Year (net), as adjusted 191,203 (33,875) 57,968 371,797 227 –
Obligations Incurred 2,867,382 3,853,024 378,321 783,906 7,544 –
Gross Outlays (2,864,513) (3,905,507) (384,740) (803,315) (7,741) –
Change in Uncollected Customer Payments
from Federal Sources – 33,338 – 36,737 – –
Recoveries of Prior Year Unpaid Obligations (33,151) (6,950) (30,670) (227,663) – –
Unpaid Obligations, end of year (gross) 160,921 95,852 20,879 182,321 30 –
Uncollected Customer Payments from
Federal Sources, end of year – (155,822) – (20,859) – –
Obligated Balance, End of Year $ 160,921 $ (59,970) $ 20,879 $ 161,462 $ 30 $ –
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross
$ 2,888,450 $ 4,166,016 $ 280,423 $ 832,662 $ 10,266 $ 2,063
(discretionary and mandatory)
Actual Offsetting Collections
(19,548) (4,865,525) (2,417) (1,151,074) (10,265) (63)
(discretionary and mandatory)
Change in Uncollected Customer Payments
from Federal Sources
– 33,338 – 36,737 – –
(discretionary and mandatory)
Budget Authority, net
$ 2,868,902 $ (666,171) $ 278,006 $ (281,675) $ 1 $ 2,000
(discretionary and mandatory)
Gross Outlays (discretionary and mandatory) $ 2,864,513 $ 3,905,507 $ 384,740 $ 803,315 $ 7,741 $ –
Actual Offsetting Collections
(19,548) (4,865,525) (2,417) (1,151,074) (10,265) (63)
(discretionary and mandatory)
Net Outlays (discretionary and mandatory) 2,844,965 (960,018) 382,323 (347,759) (2,524) (63)
Less: Distributed Offsetting Receipts – (865,830) – (2,486) – –
Agency Outlays, net
$ 2,844,965 $ (1,825,848) $ 382,323 $ (350,245) $ (2,524) $ (63)
(discretionary and mandatory)
84 AGENCY FINANCIAL REPORT • FY 2012
FINANCIAL REPORTING
Required Supplementary Information
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the year ended September 30, 2012
(Dollars in Thousands) SE OIG ADVOCACY BATF TOTAL TOTAL
Nonbudgetary
Budgetary Budgetary Budgetary Budgetary Budgetary Financing TOTAL
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 198,910 $ 9,955 $ – $ 132 $ 969,277 $ 6,415,008 $ 7,384,285
Recoveries of Prior Year Obligations 25,295 620 – – 89,736 234,613 324,349
Other Changes in Unobligated Balance (6,972) (46) – (2) (20,608) (2,241,902) (2,262,510)
Unobligated Balance from Prior Year Budget
217,233 10,529 – 130 1,038,405 4,407,719 5,446,124
Authority, net
Appropriations (discretionary and mandatory) 417,348 16,267 9,120 – 3,592,151 – 3,592,151
Borrowing Authority (discretionary and
– – – – – 1,129,367 1,129,367
mandatory)
Spending Authority from Offsetting Collections 330,401 1,006 – 17 363,209 3,869,311 4,232,520
Total Budgetary Resources $ 964,982 $ 27,802 $ 9,120 $ 147 $ 4,993,765 $ 9,406,397 $ 14,400,162
STATUS OF BUDGETARY RESOURCES
Obligations Incurred $ 849,104 $ 20,067 $ 8,440 $ 6 $ 4,130,864 $ 4,636,930 $ 8,767,794
Apportioned 93,049 4,530 680 124 221,119 2,491,404 2,712,523
Unapportioned 22,829 3,205 – 17 641,782 2,278,063 2,919,845
Total Unobligated Balance, end of year 115,878 7,735 680 141 862,901 4,769,467 5,632,368
Total Status of Budgetary Resources $ 964,982 $ 27,802 $ 9,120 $ 147 $ 4,993,765 $ 9,406,397 $ 14,400,162
CHANGE IN OBLIGATED BALANCES
Unpaid Obligations, Brought Forward, October 1
$ 494,945 $ 2,766 $ – $ 2 $ 747,111 $ 584,678 $ 1,331,789
(gross)
Uncollected Customer Payments from Federal
Sources Brought Forward, October 1 – – – – – (246,756) (246,756)
Obligated Balance Start of Year (net), before
494,945 2,766 – 2 747,111 337,922 1,085,033
adjustments
Obligated Balance Start of Year (net), as adjusted 494,945 2,766 – 2 747,111 337,922 1,085,033
Obligations Incurred 849,104 20,067 8,440 6 4,130,864 4,636,930 8,767,794
Gross Outlays (884,275) (19,850) (7,117) (7) (4,168,243) (4,708,822) (8,877,065)
Change in Uncollected Customer Payments
from Federal Sources – – – – – 70,075 70,075
Recoveries of Prior Year Unpaid Obligations (25,295) (620) – – (89,736) (234,613) (324,349)
Unpaid Obligations, end of year (gross) 434,479 2,363 1,323 1 619,996 278,173 898,169
Uncollected Customer Payments from
Federal Sources, end of year – – – – – (176,681) (176,681)
Obligated Balance, End of Year $ 434,479 $ 2,363 $ 1,323 $ 1 $ 619,996 $ 101,492 $ 721,488
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, gross
$ 747,749 $ 17,273 $ 9,120 $ 17 $ 3,955,361 $ 4,998,678 $ 8,954,039
(discretionary and mandatory)
Actual Offsetting Collections
(330,404) (1,008) – (17) (363,722) (6,016,599) (6,380,321)
(discretionary and mandatory)
Change in Uncollected Customer Payments
from Federal Sources
– – – – – 70,075 70,075
(discretionary and mandatory)
Budget Authority, net
(discretionary and mandatory) $ 417,345 $ 16,265 $ 9,120 $ – $ 3,591,639 $ (947,846) $ 2,643,793
Gross Outlays (discretionary and mandatory) $ 884,275 $ 19,850 $ 7,117 $ 7 $ 4,168,243 $ 4,708,822 $ 8,877,065
Actual Offsetting Collections
(330,404) (1,008) – (17) (363,722) (6,016,599) (6,380,321)
(discretionary and mandatory)
Net Outlays (discretionary and mandatory) 553,871 18,842 7,117 (10) 3,804,521 (1,307,777) 2,496,744
Less: Distributed Offsetting Receipts (51) – – – (51) (868,316) (868,367)
Agency Outlays, net
(discretionary and mandatory) $ 553,820 $ 18,842 $ 7,117 $ (10) $ 3,804,470 $ (2,176,093) $ 1,628,377
AGENCY FINANCIAL REPORT • FY 2012 85
FINANCIAL REPORTING
Required Supplementary Stewardship Information
Stewardship Investments in Human Capital
Human Capital investments are expenses included in net cost for education and training programs that are
intended to increase or maintain national economic productive capacity and that produce outputs and outcomes
that provide evidence of maintaining or increasing national productive capacity. The definition excludes education
and training expenses for federal personnel.
Small Business Development Centers deliver an array of services to small businesses and prospective business
owners using an extensive network of lead centers and service delivery points. SBDCs deliver professional counsel-
ing and training in key management areas to small business clients throughout the U.S.
SCORE is a nonprofit association comprised of over 12,000 volunteer business counselors that serve entrepreneurs
with in-person mentoring and local training workshops. SCORE adapts its structure and services to meet the needs
of specific small businesses.
Women’s Business Centers provide counseling and training through educational centers across the nation. They
provide services on a variety of topics including how to write a business plan and specialized programs to meet
specific customer needs.
Microloan Program helps the smallest of small businesses become established and achieve success. Community-
based intermediary lenders provide business-based training and technical assistance to microbusinesses.
All Other Training and Assistance Programs includes small business training provided by a counselor from a
resource partner, district office, or SBA sponsor who delivers a structured program of knowledge, information or
experience on a business-related subject. The training may be for an individual or a class. Training is also available
online on a number of subjects of interest to the small business person. Other programs not separately detailed
include PRIME Technical Assistance and the 7(j) program resources.
Performance results are provided in the Management Discussion and Analysis section of SBA’s annual Agency
Financial Report in “SBA by the Numbers” and “Performance Information on Key SBA Programs.”
Significant Human Capital investments occur within the following programs:
For the Five Years Ended September 30, 2012
(Dollars in Thousands)
2012 2011 2010 2009 2008
Small Business Development Centers $ 152,835 $ 123,097 $ 130,046 $ 116,909 $ 98,484
SCORE 9,331 14,094 11,134 9,899 10,960
Women’s Business Centers 25,006 13,080 16,924 21,504 23,655
Microloan Technical Assistance 22,487 30,485 23,426 11,606 315
All Other Training and Assistance Programs 41,054 36,609 57,631 49,750 41,003
Total $ 250,713 $ 217,365 $ 239,161 $ 209,668 $ 174,417
86 AGENCY FINANCIAL REPORT • FY 2012
Other
Accompanying
Information
SUCCESS STORY: Outstanding Small Business Disaster Recovery
O’Donovan’s Pub, Cranford, New Jersey
Barry O’Donovan was planning a celebration – the third anniversary of his
Kilkenny House restaurant, named after the town in Ireland where he grew up.
But then, in August 2011, Hurricane Irene devastated his town and his business.
The storm left 12 feet of water in the basement, where the restaurant’s office,
electrical system, food prep and refrigeration areas were housed. The flooring in
the restaurant was destroyed, and, all told, the losses totaled about $300,000.
An astute business owner, Barry had already worked to establish a reputation
as one of Cranford, New Jersey’s most eager boosters, always ready to support local fundraisers. To support
the recovery of local produce vendors and the small brewery in town, he set a goal to be open for business by
October 15. Barry also helped find temporary jobs for his staff. Meanwhile, he received an SBA disaster loan for
$262,000, which he used to cover the rebuilding costs. Only six weeks after the flood – a week before his October
15 deadline – Barry and his staff of 22 reopened Kilkenny House. O’Donovan is the recipient of the SBA 2012
Phoenix Award for Outstanding Small Business Disaster Recovery.
OTHER ACCOMPANYING INFORMATION
U. S. Small Business Administration
Schedule of Spending
For the year ended September 30, 2012
(Dollars in Thousands)
Nonbudgetary
Budgetary Financing Total
What Money is Available to Spend?
Total Resources $ 4,993,765 $ 9,406,397 $ 14,400,162
Less Amount Available but Not Agreed to be Spent 221,119 2,491,404 2,712,523
Less Amount Not Available to be Spent 641,782 2,278,063 2,919,845
Total Amounts Agreed to be Spent $ 4,130,864 $ 4,636,930 $ 8,767,794
Nonbudgetary
Budgetary Financing Total
How was the Money Spent?
Administrative
Salary & Benefits $ 413,408 $ – $ 413,408
Grants 253,733 – 253,733
Contracts 122,310 – 122,310
Travel 20,082 – 20,082
Other 101,721 – 101,721
Surety Bonds Defaults 7,740 – 7,740
Business Direct
Interest Paid to Treasury 133 6,442 6,575
Loans Direct 6,700 40,315 47,015
Other 239 796 1,035
Treasury Reestimate – 2,977 2,977
Admin Program Fund 41,248 – 41,248
Subsidy Reestimate Program 5,329 – 5,329
Business Guaranty
Interest Paid to Treasury 803 119,760 120,563
Loans Guarantied 197,575 – 197,575
Other 610 121,900 122,510
Treasury Reestimate – 862,836 862,836
Default Claims 1,057 2,750,484 2,751,541
Admin Program Fund 106,967 – 106,967
Subsidy Reestimate Program 2,503,848 – 2,503,848
Disaster
Interest Paid to Treasury 410 309,320 309,730
Loans Direct 58,307 481,741 540,048
Other 19 9,765 9,784
Treasury Reestimate – 2,486 2,486
Default Claims – – –
Admin Program Fund 167,301 – 167,301
Subsidy Reestimate Program 158,703 – 158,703
Total Spending 4,168,243 4,708,822 8,877,065
Amounts Remaining to be Spent (37,379) (71,892) (109,271)
Total Amounts Agreed to be Spent $ 4,130,864 $ 4,636,930 $ 8,767,794
AGENCY FINANCIAL REPORT • FY 2012 89
OTHER ACCOMPANYING INFORMATION
OIGReport
OIG Report
onon
thethe Most
Most Serious
Serious Management
Management and Performance
and Performance Challenges
Challenges
U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
Report No. 13-02
Report on the Most Serious Management and
Performance Challenges
Facing the Small Business Administration
In Fiscal Year 2013
October 15, 2012
90 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
WASHINGTON, D.C. 20416
October 15, 2012
MEMORANDUM
TO: Karen G. Mills
Administrator
FROM: Peggy E. Gustafson
Inspector General
SUBJECT: Report on the Most Serious Management and Performance Challenges Facing the Small
Business Administration in Fiscal Year 2013
In accordance with the Reports Consolidation Act of 2000, we are providing you with the Office of
Inspector General’s (OIG) Report on the Most Serious Management and Performance Challenges Facing
the Small Business Administration (SBA) in Fiscal Year (FY) 2013.
This report represents our current assessment of Agency programs and/or activities that pose significant
risks, including those that are particularly vulnerable to fraud, waste, error, mismanagement, or
inefficiencies. The Challenges are not presented in order of priority, as we believe that all are critical
management or performance issues.
Our report is based on specific OIG, Government Accountability Office (GAO), and other official reports,
as well as our general knowledge of SBA’s programs and operations. Our analysis generally considers
those accomplishments that the SBA reported as of September 30, 2012.
Within each Management Challenge, there are a series of “recommended actions” to resolve the
Challenge. Each recommended action is assigned a color “status” score. The scores are as follows:
Green for “Implemented,” Yellow for “Substantial Progress,” Orange for “Limited Progress,” and Red for
“No Progress.” An arrow in the color box indicates that the color score went up or down from the prior
year. If a recommended action was added since last year’s report, no color score has been assigned and
the recommended action has been designated as “New.”
As part of the OIG’s continuing evaluation of the Management Challenges, certain Challenges have been
updated or revised. In addition, actions that were scored Green last year, which remained Green this
year, have been moved up to the “history bar” above the recommended actions. The history bar
highlights any progress that the Agency has made on a Challenge over the past four fiscal years (or as
long as the Challenge has existed, if shorter) by showing the number of actions that have moved to
Green each year.
The following table provides a summary of the Most Serious Management and Performance Challenges
Facing the SBA in FY 2013.
AGENCY FINANCIAL REPORT • FY 2012 91
OTHER ACCOMPANYING INFORMATION
Table 1: Summary of the Most Serious Management and Performance Challenges Facing the
SBA in FY 2013
Color Scores
Change from
Status at End of FY 2012
Prior Year
Challenge Green Yellow Orange Red Up Down
Small Business
1 1 2 1
Contracting
2 IT Security 3 2
3 Human Capital 1 3 1
Loan Guaranty
4 1
Purchase
5 Lender Oversight 1 1 1 1
8(a) Business
6 1 1 1
Development Program
7 Loan Agent Fraud 1 1 1
Loan Management
8 and Accounting 1 3 1 3
System
Improper Payments –
9 2 2 1
7(a) program
Improper Payments –
1
Disaster Loan 1
0
program
1 Acquisition
1 Management (NEW)
TOTAL 3 12 11 4 6 3
We would like to thank the SBA’s management and staff for their cooperation in providing us with
information needed to prepare this report. We look forward to continuing to work with the SBA’s
leadership team in addressing the Agency’s Management Challenges.
92 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
Contents
Challenge 1. Procurement flaws allow large firms to obtain small business awards
and agencies to count contracts performed by large firms towards their small
business goals.
Challenge 2. Weaknesses in information systems security controls pose significant
risks to the Agency.
Challenge 3. Effective human capital strategies are needed to enable the SBA to carry
out its mission successfully and become a high-performing organization.
Challenge 4. The SBA needs to implement a quality control program in its loan
centers.
Challenge 5. The SBA needs to further strengthen its oversight of lending
participants.
Challenge 6. The Section 8(a) Business Development program needs to be modified
so more firms receive business development assistance, standards for determining
economic disadvantage are justifiable, and the SBA ensures that firms follow 8(a)
regulations when completing contracts.
Challenge 7. Effective tracking and enforcement would reduce financial losses from
loan agent fraud.
Challenge 8. The SBA needs to modernize its Loan Accounting System and migrate it
off the mainframe.
Challenge 9. The SBA needs to accurately report, significantly reduce, and strengthen
efforts to recover improper payments in the 7(a) loan program.
Challenge 10. The SBA needs to significantly reduce improper payments in the
Disaster loan program.
Challenge 11. The SBA needs to effectively manage the acquisition program.
Appendix: Relevant Reports
AGENCY FINANCIAL REPORT • FY 2012 93
OTHER ACCOMPANYING INFORMATION
Challenge 1. Procurement flaws allow large firms to obtain small business awards
and agencies to count contracts performed by large firms towards their small
business goals.
The Small Business Act established a government-wide goal that 23 percent of the total value of all prime
contract awards for each fiscal year (FY) be to small businesses. As the advocate for small business, the
SBA should strive to ensure that only small firms obtain and perform small business awards. Further, the
SBA should ensure that procuring agencies accurately report contracts awarded to small businesses
when representing its progress in meeting small business contracting goals.
Previous OIG audits and other governmental studies have shown widespread misreporting by procuring
agencies since many contract awards that were reported as having gone to small firms have actually
been performed by larger companies. While some contractors may misrepresent or erroneously calculate
their size, most of the incorrect reporting results from errors made by government contracting personnel,
including misapplication of small business contracting rules. In addition, contracting officers do not
always review the on-line certifications that contractors enter into a governmental database prior to
awarding contracts. The SBA needs to ensure that contracting personnel are adequately trained on small
business procurement and are reviewing this database prior to awarding contracts.
The SBA also needs to address a loophole within General Services Administration (GSA) Multiple Awards
Schedule (MAS) contracts, which contain multiple industrial codes. Currently, a company awarded such
a contract can identify itself as small on individual task orders awarded under that contract even though it
does not meet the size criteria for the applicable task. Thus, agencies may obtain small business credit
for using a firm classified as small, when the firm is not small for specific orders under the MAS contract.
The SBA made limited progress on this challenge. In FY 2012, the SBA progressed to a “Green” rating to
provide reasonable assurance that agencies are providing small business contracting training to
acquisition personnel. As part of the training requirements for Level I, II, and III contracting officer
certifications, course curricula includes training on aspects of small business programs. The SBA also
introduced a revised checklist for conducting surveillance reviews, and submitted for clearance a revised
Standard Operating Procedure (SOP) to ensure consistency in conducting its surveillance reviews. The
SBA also obtained comments on a proposed rule that would provide a contracting officer multiple options
for assigning codes on a multiple award contract and is currently drafting a final rule for assigning
industrial codes on multiple award contracts.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
2005 08-1 09-0 10-0 11-1
Status at
Recommended Actions for FY 2013 end of FY
2012
1. Develop and take steps to provide reasonable assurance that agencies are
providing adequate basic and continuing education training to contracting personnel Green
on small business contracting procedures.
2. Revise the surveillance review process to ensure that they are conducted in a
Orange
thorough and consistent manner
3. Issue regulations that require firms to meet the size standard for each specific order
they receive under a GSA schedule and Government-wide Acquisition Contract Orange
(GWAC) and show that the regulations are being followed. (Previously action 3)
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
94 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
Challenge 2. Weaknesses in information systems security controls pose significant
risks to the Agency.
The confidentiality, integrity, and availability of SBA’s information systems are vital to the continued
successful operation of the Agency. While information technology (IT) can result in a number of benefits,
such as information being processed more quickly and communicated almost instantaneously, it can also
increase the risk of fraud, inappropriate disclosure of sensitive data, and disruption of critical operations
and services. The SBA’s computer security program operates in a dynamic and highly decentralized
environment, and requires management’s attention and resources as weaknesses are identified.
The SBA improved in information system security in some critical areas during FY 2012. For example,
the Chief Information Security Officer instituted a review of all Plan of Action and Milestones (POA&M) for
SBA IT systems and began the acquisition of an application to manage SBA’s IT systems. Vulnerability
Assessment Team procedures were implemented to timely identify, prioritize and remediate critical
issues.
To show further progress, the SBA needs to address both known and newly reported information security
issues. For example, the SBA needs to demonstrate a process that accomplishes timely mitigation of
system risks that are identified as “medium” and “high;” enforce an enterprise-wide configuration
management process; and ensure segregation of duties controls are in place and operating for all of its
systems. The SBA has improved in some areas; however, fieldwork for the FY 2012 Financial Statement
Audit has identified new weaknesses and findings and is anticipated for the FY 2012 Federal Information
Security Management Act (FISMA) review.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 1999 08-2 09-0 10-0 11-0
Status at end
Recommended Actions for FY 2013
of FY 2012
1. Access controls are in place and operating effectively, and contractors are not FY 2012
granted system access until they have obtained the required background Yellow
investigations and/or security clearances.
2. System software controls are in place and operating effectively. Orange$
3. Segregation of duty controls are in place and operating effectively. Orange
4. The POA&M accurately reports all computer security weaknesses and corrective Yellow
actions.
5. The IT security management program is effective to address information
Yellow
security in systems that support the operations and assets of the
organization.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
AGENCY FINANCIAL REPORT • FY 2012 95
OTHER ACCOMPANYING INFORMATION
Challenge 3. Effective human capital strategies are needed to enable the SBA to
carry out its mission successfully and become a high-performing organization.
The SBA has experienced downsizing, high turnover, reorganizations, and realignments over the last several
years. In FY 2010, the SBA experienced significant turnover in the Office of Human Capital Management
(OHCM) which seriously impacted the level and scope of services provided to the Agency. In October 2011, the
U.S. Office of Personnel Management (OPM) completed a review that identified weaknesses in the SBA’s
human capital policies and practices that highlight the serious human capital challenges facing the Agency.
In late FY 2011, OHCM restructured and the Office of Human Resources Solutions (OHRS) was established.
During FY 2012, as part of its effort to restructure and address these issues, the SBA issued its Strategic
Human Capital Plan (SHCP) for FYs 2013 – 2016 that reflects a partnership between Program Offices and
Human Resources. The SHCP is designed to support the goals identified in the SBA’s Strategic Plan, which is
aimed at aligning human capital programs with the Agency’s mission, goals, and objectives. Further, the SHCP
incorporates the OIG’s recommended actions from the Management Challenges report with timeframes for
implementation.
The SBA demonstrated progress in FY 2012, by aligning current staff according to their competencies, verifying
current full-time equivalent (FTE) allocations for programs and offices, and establishing new FTE ceilings based
on workload analysis protocol between OHRS and Program Offices. The SBA also completed an impact study
of retirement projections, and continued efforts toward recruiting, hiring, and retaining people with critical skills.
OHRS has been proactive in making needed improvements; however, continued progress is needed to
complete the OIG’s recommended actions.
The results of Federal Human Capital Surveys—now called the Employee Viewpoint Survey (EVS)—also have
highlighted SBA’s serious human capital challenges. The SBA has consistently ranked near the bottom on all
four human capital indices—Leadership and Knowledge Management, Results-Oriented Performance Culture,
Talent Management, and Job Satisfaction. While the Agency showed some improvement in the 2011 EVS, it
still fell below the government-wide average on these indices. In addition, the SBA was ranked 28th out of 33
large agencies in the Partnership for Public Service’s 2011 “Best Places to Work” rankings. The 2012 EVS
scores and ranking were not available in time for this report.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
2001 (Revised 2007) 08-0 09-0 10-0 11-0
Status at end
Recommended Actions for FY 2013
Of FY 2012
1. Ensure the Agency has an effective, comprehensive workforce and succession plan
that align talent needs and capabilities with SBA’s FY 2011-2016 Strategic Plan. The Orange
SBA’s workforce and succession planning goals should reflect the need to recruit and
retain the appropriate talent, and should establish appropriate metrics to gauge
SBA’s success at having the right people, in the right jobs, at the right time.
2 . Ensure the Office of Human Capital Management (OHCM) is structured and
equipped so as to add value by delivering needed strategic support and services
such as continuity planning, talent management, organizational development, and Orange
strategic consulting to implement the Agency’s human capital plan and its mission.
3. Ensure that Human Capital Management Standard Operating Procedures (SOPs) are
updated and appropriately structured to support the Agency’s long-term goals and Orange
objectives and government-wide Human Capital Management initiatives.
4. Take steps to correct problems identified in the 2010 EVS. Demonstrate
Yellow
improvement by increasing overall scores/Agency rankings in the 2011 EVS.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
96 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
Challenge 4. The SBA needs to implement a quality control program in its loan
centers.
The initial focus of this challenge was on improving deficiencies identified in the SBA’s loan liquidation and
guaranty purchase processes. Over the last decade, the Agency has made significant progress to improve
these processes at its loan centers, but a significant deficiency continues to exist in the area of quality control.
The Office of Financial Program Operations (OFPO) has made significant progress in developing a Quality
Control (QC) program for all of its loan centers to verify and document compliance with the loan process.
The QC program will assess the loan process from origination to close-out to identify where material
deficiencies may exist so that remedial action can be taken. A project guide for the QC program has been
developed and agreed upon by relevant parties within the Office of Capital Access. The QC program will
assess the overall quality of the centers’ deliverables to provide confidence to its stakeholders. The SBA hired a
QC manager to oversee the development of the program and established QC specialist positions for each
center. Furthermore, the SBA (1) developed and documented Quality Program Manuals for each center, (2)
updated checklists for each critical center function and, (3) refined feedback, training, and reporting processes.
While the SBA has made substantial progress in its development of a quality control program, additional work
remains before the SBA can demonstrate that all elements of the QC program are being completed and that the
program is effective at identifying and correcting material deficiencies. For example, an ongoing audit of the
SBA’s FY 2011 improper payment rate in the 7(a) loan guaranty purchase program found that improper
payment reviews led by the QC teams did not detect a high number of material improper payments.
Additionally, the audit determined that some QC specialists responsible for reviewing the loans were either
unfamiliar with or misinterpreted Agency policies, and applied internal guidance that conflicted with Agency
policies and procedures. In order to demonstrate that the QC program has been fully implemented, the SBA will
need to provide the results of QC reviews and other evidence to demonstrate that the reviews are effective at
identifying and correcting material deficiencies.
Actions Accomplished (Green Status) during Past
Challenge History
4 FYs
Fiscal Year (FY) Issued: 2007
08-2 09-0 10-1 11-0
Status at
Remaining Recommended Actions for FY 2013 end of FY
2012
1. Implement a Quality Assurance Program for all SBA loan centers. Yellow
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
AGENCY FINANCIAL REPORT • FY 2012 97
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Challenge 5. The SBA needs to further strengthen its oversight of lending
participants
Since its inception in 1953, the SBA has loaned or guaranteed billions of dollars to finance and spur investment
in small businesses. In FY 2011, approximately 51 percent of loan dollars guaranteed by the SBA were made
using delegated authorities with limited oversight. Prior Office of Inspector General (OIG) and Government
Accountability Office reports disclosed weaknesses in the SBA’s oversight of its lending participants. In a
September 2012 audit report, the OIG found that during its onsite reviews, the SBA did not always recognize the
significance of lender weaknesses and determine the risks they posed to the Agency. Additionally, the SBA did
not link the risks associated with the weaknesses to the lenders’ corresponding risk ratings and assessments of
operations. Further, the SBA did not require lenders to correct performance problems that could have exposed
the Agency to unacceptable levels of financial risk. The risks inherent in delegated lending require an effective
oversight program to (1) monitor compliance with SBA policies and procedures, and (2) take corrective actions
when a material non-compliance is detected.
Since this management challenge was created in 2001, the SBA has made significant progress in its oversight
of lending participants. In FY 2012, the SBA expanded its review selection criteria to include portfolio size, risk
ratings, high growth, credit quality of new loans, and projected purchased rate of existing portfolio. Furthermore,
the SBA drafted a new composite risk measurement protocol to assess lender performance, asset and liability
management, compliance with program requirements, risk mitigation, and other factors.
In FY 2012, the SBA also fully implemented guidance for effective supervision and enforcement by taking
one enforcement action and several supervisory actions, while also preparing for others.
Although the Agency has made progress, it needs to demonstrate that onsite reviews are conducted on the
highest risk lending participants, which are selected for review based on its expanded selection criteria.
The SBA also needs to demonstrate that it tailors onsite reviews to determine the root cause of the risks in a
participant’s portfolio. Furthermore, the Agency needs to ensure that corrective actions are required for material
non-compliances and monitored for implementation and effective resolution.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 08-7(a)-2 09-7(a)-0 10-7(a)-0 11-7(a)-0
2001 08-504-2 09-504-0 10-504-0 11-504-0
Status at end of
Recommended Actions for FY 2013 FY 2012
7(a) 504
1. Expand the scope of lender oversight and improve the process for reviewing
Yellow Yellow
lenders and Certified Development Companies.
2. Implement guidance providing for effective supervision and enforcement. Green Green
3. Monitor and verify implementation of corrective actions to ensure effective
Orange Orange
resolution prior to close-out.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
98 AGENCY FINANCIAL REPORT • FY 2012
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Challenge 6. The Section 8(a) Business Development program needs to be modified
so more firms receive business development assistance, standards for determining
economic disadvantage are justifiable, and the SBA ensures that firms follow 8(a)
regulations when completing contracts.
The SBA’s 8(a) Business Development (BD) program was created to assist eligible small disadvantaged
business concerns compete in the American economy through business development. Previously, the Agency
did not place adequate emphasis on business development to enhance the ability of 8(a) firms to compete, and
did not adequately ensure that only 8(a) firms with economically disadvantaged owners in need of business
development remained in the program. Companies that were “business successes” were allowed to remain in
the program and continue to receive 8(a) contracts, causing fewer companies to receive most of the 8(a)
contract dollars and many to receive none.
The SBA had made progress towards addressing issues that hinder the Agency’s ability to deliver an effective
8(a) program. For example, the SBA took a positive step by revising its regulations in March 2011 to ensure
that companies that are “business successes” are graduated out of the program, and by working to update its
SOP for the BD program to reflect these regulatory changes. These revised regulations also establish
additional standards to address the definition of “economic disadvantage,” however; the Agency has not
provided an economic analysis to justify these standards. In December 2011, the SBA awarded a contract to
develop and deploy a new system by December 2012 to assist SBA employees in monitoring 8(a) program
participants. However, the SBA has delayed deployment of the new system until January 2013.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 2003 08-1 09-1 10-0 11-0
Status at
Recommended Actions for FY 2013 end of FY
2012
1. Develop and implement a plan, including SOP provisions, which ensures that the 8(a)
BD program identifies and addresses the business development needs of program Orange
participants on an individualized basis.
2. Develop and implement Regulations and SOP provisions to ensure that participants
Yellow
are graduated once they reach the levels defined as business success.
3. Establish objective and reasonable criteria that effectively measures “economic
Red
disadvantage” and implement the new criteria.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
AGENCY FINANCIAL REPORT • FY 2012 99
OTHER ACCOMPANYING INFORMATION
Challenge 7. Effective tracking and enforcement would reduce financial losses from
loan agent fraud.
For years, OIG investigations have revealed a pattern of fraud by loan packagers and other for-fee agents
in the 7(a) loan guaranty program. These schemes have involved hundreds of millions of dollars, yet
SBA’s oversight of loan agents has been limited, putting taxpayer dollars at risk. The Agency could
reduce this risk by establishing effective loan agent disclosure requirements, a database or equivalent
means to track loan agent involvement with its loans, and a more effective agent enforcement program.
Tracking Loan Agent Data. Over the years, in response to this Management Challenge, the SBA has
proposed various methods of tracking loan agent activity. After attempting and then rejecting various
initiatives during Fiscal Years (FYs) 2007 through 2009, during FY 2010, the SBA advised that it would
capture the data by having lenders fax the Form 159 (Fee Disclosure Form and Compensation
Agreement for Agency Services) to the SBA’s Fiscal and Transfer Agent (FTA). At the end of FY 2010,
the SBA issued a Notice with instructions on how lenders were to submit this data. During FY 2011, the
Agency provided additional guidance to lenders on how to submit Form 159 data (including loan
identification numbers) to the FTA, and updated loan review guidance so that the Office of Credit Risk
Management (OCRM) could identify loan agent-related problems. The SBA also issued the loan agent
data collection requirement as permanent guidance in SOP 50 10 effective October 1, 2011. During FY
2012, the Agency made additional progress by beginning to link Form 159 information with its loan data.
Although the SBA continues to experience problems with data completeness and categorization, data
quality is steadily improving. Moreover, the SBA is considering implementing a registration system that
would assign identifying numbers to registered loan agents, thus enhancing its tracking capability.
Loan Agent Enforcement Procedures. In FY 2007, the Agency made progress by issuing SOP 51 00 that
contained procedures for reviewing loan agent information during onsite reviews and examinations and
by revising the guaranty purchase checklist (which lists the records that lenders need to provide when
requesting the SBA to pay a guaranty) to include the submission of the Form 159. However, the Agency
also needed to establish a more effective enforcement program to deter fraudulent loan agent activity.
Effective October 1, 2010, the SBA issued the Lender Supervision and Enforcement SOP 50 53 with
provisions for enforcement actions against loan agents and a delegation of authority to undertake these
actions to the Director of OCRM. A revised version of that SOP with improved procedures went into
effect on June 1, 2012. At the end of FY 2012, the Agency updated its website to notify lenders of those
loan agents that had been the subject of enforcement actions.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
2000 08-1 09-00 10-0- 11-0
Status at
Recommended Actions for FY 2013 end of FY
2012
1. Develop an effective method of disclosing and tracking loan agent involvement in
SBA business loan programs. Yellow
2. Implement procedures for enforcement actions against loan agents for improper
and fraudulent conduct. Green
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
100 AGENCY FINANCIAL REPORT • FY 2012
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Challenge 8. SBA needs to modernize its Loan Accounting System and migrate it
off the mainframe.
In November 2005, the SBA initiated the Loan Management and Accounting System (LMAS) project to
update the Agency’s Loan Accounting System, and migrate it off of the mainframe. An OIG report in
2005 noted that the system was close to the end of its expected useful life, relied on obsolete technology,
contained major security vulnerabilities that could not be addressed until the system was moved to a new
operating platform, and was costly to operate.
In 2010, the Office of Management and Budget (OMB) issued Memorandum 10-26, recommending that
Federal agencies split large-scale modernization efforts into smaller, simpler segments with clear
deliverables. In response, the SBA changed its strategy for LMAS— going forward— to accelerate the
migration of user interfaces from the mainframe legacy platform to the Agency’s current architecture, and
convert batch COBOL systems from the mainframe to a more current and platform-independent
environment. This strategy separated LMAS into seven Incremental Improvement Projects (IIP). In
addition, the SBA created a new Standard Operating Procedure (SOP) to provide guidance for its IT
Quality Assurance (QA) program. However, to show further progress, the SBA needs to implement its
QA/Independent Verification and Validation (IV&V) process that encompasses all of the requirements of
its enterprise SDM, and provides sufficient evidence that all LMAS work products undergo IV&V activities
in accordance with the Agency’s Enterprise Quality Assurance Plan.
Previous OIG and GAO reports on the LMAS identified concerns about SBA’s management of the project
and the project’s noncompliance with the Agency’s System Development Methodology (SDM) in key
areas, which impacted SBA’s ability to control project costs and quality; and the lack of an enterprise-wide
or project-level Quality Assurance (QA) functions to ensure that LMAS deliverables met SBA’s
requirements and quality standards.
In 2012, the SBA upgraded its Oracle accounting software, and implemented a number of web-based
user interface screens to initiate migration from the mainframe and is currently migrating its mainframe
COBOL computer code to a more modern platform. Also, in 2012, the SBA did not deploy an
independent QA and IV&V entity to ensure that LMAS deliverables meet SBA requirements and quality
standards. These needs were identified in previous OIG and GAO LMAS audit reports.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued: 2010 N/A N/A 10-0 11
Status-0at end
Recommended Actions for FY 2013
of
1. Migrate LAS to a new operating platform before the current mainframe contract FY
expires in 2013. 2012
Yellow
2. Modify the LMAS QA/IV&V contract and establish an effective Quality Assurance
(QA) process which provides senior management independent assurance that Red
LMAS development activities and related project deliverables meet SBA Quality
standards.
3. Establish a process for reviewing and accepting LMAS deliverables that complies with
Quality Assurance and Systems Development Methodology requirements. This Red
includes hiring or fully staffing an IV&V entity to validate deliverable acceptance.
4. Implement a Quality Assurance process in LMAS in accordance with SBA’s
Enterprise Quality Assurance Plan. Red
4. hiring
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress
AGENCY FINANCIAL REPORT • FY 2012 101
OTHER ACCOMPANYING INFORMATION
Challenge 9. The SBA needs to accurately report, significantly reduce, and strengthen
efforts to recover improper payments in the 7(a) loan program.
Previous OIG audits have determined that the SBA’s reported improper payment rates for 7(a) loan
approvals and purchases were significantly understated. In FY 2011, the SBA reported no improper
payments for 7(a) loan approvals. However, a recent OIG audit estimated that at least 1,196 7(a)
Recovery Act loans were not originated and closed in compliance with SBA requirements. This resulted
in at least $869.5 million in inappropriate or unsupported loan approvals. Furthermore, in FY 2011, the
SBA reported that the improper payment rate for 7(a) purchases was 1.73-percent, or $40.7 million, when
the rate could have been as high as 20-percent, or about $472 million. The SBA’s improper payment
rates were understated because the Agency did not adequately review sampled loans, used flawed
sampling methodologies, and did not accurately project review findings for both programs. The SBA also
has not aggressively pursued recovery of 7(a) improper payments.
Earlier OIG audits identified 7(a) loans that were not properly closed, or were made to borrowers who
were ineligible or who lacked repayment ability. In 2012, we reported that the limited reviews of lender
underwriting performed at guaranty purchase on early defaulted loans were not consistent with statutory
and regulatory authority and were contrary to SBA procedures, resulting in improper payments. We also
reported that high-dollar early-defaulted loans were not reviewed with the scrutiny required to identify
improper payments at guaranty purchase.
The Office of Capital Access (OCA) has taken actions to correct many of the deficiencies identified by the
OIG. The OCA has (1) acquired a statistician and revised its improper payment sampling methodology;
(2) improved and formalized its improper payment review process for 7(a) loan approvals and 7(a) loan
purchases; and (3) revised and formalized its process to review disputed denial, repair, and improper
payment decisions. The OCA has also improved the scrutiny applied to high-dollar early-defaulted loans
by requiring every loan to receive a quality control review prior to purchase. However, additional actions
are needed to accurately report, significantly reduce, and recover improper payments. The OCA needs to
incorporate the improper payment recovery process into formal policy. Additionally, the OCA needs to
establish repayment ability review requirements to be applied at guaranty purchase, develop a corrective
action plan for 7(a) loan approvals, and demonstrate that its corrective action plan for 7(a) loan purchases
is effective in reducing improper payments.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
N/A N/A N/A 11-0
2010
Status at end of FY 2012
Recommended Actions for FY 2013 7(a) 7(a)
Approvals Purchases
1. Ensure that processes used to calculate the improper payment rates
for 7(a) loan approvals and purchases are designed and
Yellow Yellow
implemented to effectively identify improper payments as defined by
Office of Management and Budget (OMB) Circular A-123.
2. Reassign responsibility for final approval of disputed denial, repair,
and improper payment decisions from the Office of Financial
N/A Yellow
Assistance (OFA) to the Office of Credit Risk Management (OCRM)
to ensure an adequate and timely resolution of disputes.
3. Establish a process and time standards to expeditiously recover
N/A Orange
improper payments identified during Agency reviews and OIG audits.
4. Demonstrate that corrective action plans are effective in reducing
Orange Orange
improper payments in the 7(a) loan program.
Green-Implemented Yellow-Substantial Progress Orange -Limited Progress Red-No Progress
102 AGENCY FINANCIAL REPORT • FY 2012
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Challenge 10. The SBA Needs to Significantly Reduce Improper Payments in the
Disaster Loan Program.
Previous OIG audits of the SBA’s Disaster Loan program determined that the improper payment rates
reported for this program were significantly understated. The SBA estimated that improper payments in
the Disaster Loan program were about $4.5 million, or 0.55 percent of loans approved in FY 2007, while
the OIG reported that it was at least 46 percent, or approximately $1.5 billion. The SBA’s improper
payment rates were understated because the Agency did not adequately review sampled loans, used
flawed sampling methodologies, and did not accurately project review findings for the program.
Previously, management challenge 9,”SBA needs to accurately report, significantly reduce, and
strengthen efforts to recover improper payments in the Disaster and 7(a) loan programs,” included both
the Disaster Loan program and 7(a) program. There were three recommended actions applicable to the
Disaster Assistance Program. Of the three recommended actions, one was implemented during FY 2010
and the two remaining actions were implemented during FY 2011. One recommended action was to
develop and implement a corrective action plan to reduce improper payments. Although the Office of
Disaster Assistance (ODA) implemented the recommended action, the Agency has not achieved its
reduction targets since implementation. Specifically, the Agency missed its target goals of 16.7 percent
for FY 2010 and 20.0 percent for FY 2011, instead reporting rates of 34.2 and 28.4 percent, respectively.
The target goals in the FY 2011 Agency Financial Report are 20 percent for FY 2012, 17 percent for FY
2013, and 15 percent for FY 2014.
At the end of FY 2011, a new recommended action was added requiring the SBA to demonstrate that the
corrective action plan is effective in reducing improper payments in the Disaster Assistance Program.
The Agency has implemented an improved corrective action plan that specifically addresses root causes
and provides specific remedies, such as targeted training and inclusion of improper payments in personal
business commitment plans for employees. If properly implemented, we believe this course of action
should effectively reduce the rate in future years. The Agency’s internal improper payment assessment
for FY 2012 indicated a rate of 17.9 percent. This rate is lower than the 20 percent target necessary to
achieve a rating of Yellow. Therefore, the color status for FY 2012 is Yellow.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
2012 N/A N/A N/A NEW
Status at
Remaining Recommended Actions for FY 2013 end of
FY 2012
1. Demonstrate that corrective action plans are effective in reducing improper payments
Yellow
in the Disaster Loan program.
Green-Implemented Yellow-Substantial Progress Orange -Limited Progress Red-No Progress
AGENCY FINANCIAL REPORT • FY 2012 103
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Challenge 11: The SBA Needs to Effectively Manage the Acquisition Program
In October 2010, the SBA realigned its acquisition program to address several significant deficiencies that
included high staff turnover; compliance with laws and regulations; application of funding principles;
training and certification of key contracting personnel; contractor oversight, and measuring performance
through validated metrics. Since realignment, the SBA has provided training to, and increased the
number of, acquisition staff. Our recent audit work and familiarity with SBA’s current acquisition activities
indicate that while improvements are in process, continuing challenges exist, including (1) poorly defined
requirements, (2) internal control deficiencies, (3) improper funding of contracts, (4) inadequate oversight,
and (5) outdated and incomplete SOPs related to acquisition.
For example, the SBA inadequately defined its requirements in its acquisition plan for the procurement of
information systems and IT hardware and software. In addition, the SBA’s contract management system
PRISM does not fully interface with the Agency’s current financial system JAAMS, exposing an internal
control deficiency. The SBA improperly funded contracts by violating the bona fide needs rule for
procuring IT hardware and software as well as reported an improper payments rate. Likewise, the SBA
inadequately monitored contracts to ensure products and services were delivered in accordance with
contract requirements. Furthermore, the SBA’s acquisition SOP is outdated; however, the SBA’s
management plans to hire a contractor to update its SOP. Finally, the SBA has not conducted an internal
control review of its acquisition functions consistent with the OMB requirements prior to this year, but is
currently in the process of completing its assessment. Whether this assessment will fully address the four
key acquisition management areas identified in OMB’s Assessment Guidelines for Assessing the
Acquisition Function will have to be determined.
Agency managers are required by OMB Circular A-123, Managements Responsibility for Internal Control
to continuously monitor and improve the effectiveness of agency internal controls. However, the
problems discussed above indicate continuing systemic acquisition management issues for the SBA.
Therefore, the SBA still needs to better prepare its acquisition workforce for proper procurement planning,
monitoring of contractor performance, and conducting effective contract administration.
Challenge History Actions Accomplished (Green Status) during Past 4 FYs
Fiscal Year (FY) Issued:
N/A N/A N/A NEW
2013
Status
at end
Recommended Actions for FY 2013
of FY
2012
1. Complete an assessment of the Agency’s acquisition activities using the OMB’s
New
Guidelines for Assessing the Acquisition Function.
2. Create and implement a comprehensive improvement plan — based on the results
of the acquisition function assessment — that has measurable goals, objectives,
New
prioritized actions and timeframes to address deficiencies identified in the
organizational alignment and leadership assessment area.
3. Create and implement a comprehensive improvement plan — based on the results
of the acquisition function assessment — that has measurable goals, objectives,
prioritized actions and timeframes to address deficiencies identified in the New
acquisition policies and processes assessment area (i.e. acquisition management
SOP).
104 AGENCY FINANCIAL REPORT • FY 2012
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4. Create and implement a comprehensive improvement plan — based on the results
of the acquisition function assessment — that has measurable goals, objectives,
New
prioritized actions and timeframes to address deficiencies identified in the
acquisition workforce assessment area.
5. Create and implement a comprehensive improvement plan — based on the results
of the acquisition function assessment — that has measurable goals, objectives,
New
prioritized actions and timeframes to address deficiencies identified in the
knowledge management and information systems assessment area.
Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress
AGENCY FINANCIAL REPORT • FY 2012 105
OTHER ACCOMPANYING INFORMATION
Appendix: Relevant Reports
Most of the SBA OIG Reports listed can be found at http://www.sba.gov/office-of-inspector-general.
Challenge 1:
• SBA OIG, SBA’s Planning and Award of the Customer Relationship Management Contracts, ROM
10-16, June 29, 2010.
• Interagency Task Force on Federal Contracting Opportunities for Small Businesses Report,
September 2010.
• SBA Advocacy, Analysis of Type of Business Coding for the Top 1,000 Contractors Receiving Small
Business Awards in FY 2002, December, 2004.
• The Center for Public Integrity, The Big Business of Small Business: Top defense contracting
companies reap the benefits meant for small businesses, September 29, 2004.
• The Center for Public Integrity, The Pentagon’s $200 Million Shingle: Defense data shows billions in
mistakes and mislabeled contracts, September 29, 2004.
• SBA OIG, Audit of SBA's Administration of the Procurement Activities of Asset Sale Due Diligence
Contracts and Task Orders, Report 4-16, March 17, 2004, pp. 8-9.
• GAO, Contract Management: Reporting of Small Business Contract Awards Does Not Reflect Current
Business Size, GAO-03-704T. May 7, 2003.
• The Small Business Committee, U.S. House of Representatives Hearing, Are Big Businesses Being
Awarded Contracts Intended for Small Businesses? Testimony of Mr. Fred C. Armendáriz, Associate
Deputy Administrator, SBA, May 7, 2003.
• The Small Business Committee, U.S. House of Representatives Hearing, Are Big Businesses Being
Awarded Contracts Intended for Small Businesses? Testimony of Mr. Felipe Mendoza, Associate
Administrator, Office of Small Business Utilization, U.S. General Services Administration, May 7,
2003.
• SBA OIG, Review of Selected Small Business Procurements, Report 5-16, March 8, 2005.
• SBA OIG, SBA Small Business Procurement Awards Are Not Always Going to Small Businesses,
Report 5-14, February 24, 2005.
Challenge 2:
• SBA OIG, Weaknesses Identified During the FY 2010 Federal Information Security Management Act
Review, Report 11-06, January, 28, 2011
• SBA OIG, Audit of SBA’s FY 2010 Financial Statements, Report 11-03, November 12, 2010
• SBA OIG, Audit of SBA’s FY 2009 Financial Statements, Report 10-04, November 13, 2009
• SBA OIG, SBA’s FY 2008 Financial Statements, Report 9-03, November 14, 2008
• SBA OIG, Audit of SBA’s Financial Statements for FY 2006, Report 7-03, November 15, 2006
• SBA OIG, Audit of SBA’s Information System Controls for FY 2004, Report 5-12, February 24, 2005
Challenge 3:
• OPM, 2011 Federal Employee Viewpoint Survey
• Partnership for Public Service, Best Places to Work in the Federal Government 2011
• Partnership for Public Service, Best Places to Work in the Federal Government 2010
• OPM, 2010 Federal Employee Viewpoint Survey
• SBA OIG, The Colorado District Office’s Servicing of 8(A) Business Development Program
Participants, Report 10-15, September 30, 2010
• SBA OIG, Adequacy of Procurement Staffing and Oversight of Contractors Supporting the
Procurement Function, ROM 10-13, April 9, 2010
• SBA OIG, SBA's Administration of the Microloan Program under the Recovery Act, ROM 10-10,
December 28, 2009
• Partnership for Public Service, Best Places to Work in the Federal Government 2009
• OPM, 2008 Federal Human Capital Survey
106 AGENCY FINANCIAL REPORT • FY 2012
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• GAO, Agency Should Assess Resources Devoted to Contracting and Improve Several Processes in
the 8(a) Program, GAO-09-16, November 2008
• GAO, Opportunities Exist to Build on Leadership’s Efforts to Improve Agency Performance and
Employee Morale, GAO-08-995, September 2008
• SBA OIG, Non-Native Managers Secured Millions of Dollars from 8(a) Firms Owned by Alaska Native
Corporations through Unapproved Agreements that Jeopardize the Firms’ Program Eligibility, Report
8-14, August 7, 2008
• GAO, Opportunities Exist to Improve Oversight of Women’s Business Centers and Coordination
Among SBA’s Business Assistance Programs, GAO-08-49, November 2007
• SBA OIG, Audit of Two 8(a) Sole-Source Contracts Awarded to Contractors in SBA’s Mentor
Protégé Program, Report 7-19, March 30, 2007
• SBA OIG, Management Advisory Report on the Transfer of Operations to the National Guaranty
Purchase Center, Report 4-39, August 31, 2004
• GAO, Small Business Administration: Progress Made, but Transformation Could Benefit from
Practices Emphasizing Transparency and Communication, GAO-04-76, October 2003
• GAO, Results Oriented Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-699, July 2003
• GAO, Small Business Administration: Workforce Transformation Plan is Evolving, GAO-02-931T,
July 16, 2002
• SBA OIG, Modernizing Human Capital Management, Report 2-20, May 31, 2002
• GAO, Small Business Administration: Current Structure Presents Challenges for Service Delivery,
GAO-02-17, October 2001
• GAO, Small Business Administration: Steps Taken to Better Manage its Human Capital, but More
Needs to be Done, GAO/T-GGD/AIMD-00-256, July 20, 2000
• SBA OIG, A Framework for Considering the Centralization of SBA Functions, November 1996
Challenge 4:
• SBA OIG, A Detailed Repayment Ability Analysis is Needed on High-Dollar Early-Defaulted Loans to
Prevent Future Improper Payments, Report 12-18, August 16, 2012
• SBA OIG, High-Dollar Early-Defaulted Loans Require an Increased Degree of Scrutiny and Improved
Quality Control at the National Guaranty Purchase Center, Report 12-11R, March 23, 2012
• SBA OIG, SBA Generally Meets IPERA Reporting Guidance but Immediate Attention Is Needed to
Prevent and Reduce Improper Payments, Report 12-10, March 15, 2012.
• SBA OIG, Origination and Closing Deficiencies Identified In 7(a) Recovery Act Loan Approvals, ROM
11-07, September 30, 2011
• SBA OIG, Material Deficiencies Identified in Five 7(a) Recovery Act Loans Resulted in $2.7 Million of
Questioned Costs, ROM 11-06, August 25, 2011
• SBA OIG, Banco Popular Did Not Adequately Assess Borrower Repayment Ability When Originating
Huntington Learning Center Franchise Loans, Report 11-16, July 13, 2011
• SBA OIG, Material Deficiencies Identified in Four 7(a) Recovery Act Loans Resulted in $3.2 Million of
Questioned Costs, ROM 11-05, June 29, 2011
• SBA, OIG America’s Recovery Capital Loans Were Not Originated and Closed In Accordance With
SBA’s Policies and Procedures, ROM 11-03, March 2, 2011
• SBA OIG, Material Deficiencies Identified in Early-Defaulted and Early-Problem Recovery Act Loans,
ROM 10-19, September 24, 2010
• SBA OIG, SBA’s Management of the Backlog of Post-purchase Reviews at the National Guaranty
Purchase Center, Report 9-18, August 25, 2009
• SBA OIG, The Small Business Administration’s Fiscal Year 2008 Improper Payment Rate for the 7(a)
Guaranty Loan Program, Report 9-16, July 10, 2009
• SBA OIG, Review of Key Unresolved OIG Audit Recommendations in Program Areas Funded by the
American Recovery and Reinvestment Act and Related Activities Need to Safeguard Funds, ROM
09-1, April 30, 2009
• SBA OIG, Audit of the Liquidation Process at the National Guaranty Purchase Center, Report 9-08,
January 30, 2009
• SBA OIG, Audit of Six SBA Guaranteed Loans, Report 8-18, September 8, 2008
AGENCY FINANCIAL REPORT • FY 2012 107
OTHER ACCOMPANYING INFORMATION
• SBA OIG, Audit of Loan Classifications and Overpayments on Secondary Market Loans, Report 8-09,
March 26, 2008
• SBA OIG, Audit of UPS Capital Business Credit’s Compliance with Selected 7(a) Lending
Requirements, Report 8-08, March 21, 2008
• SBA OIG, Audit of the Guarantee Purchase Process for Section 7(a) Loans at the National Guaranty
Purchase Center, Report 7-23, May 8, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-17, March 12, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-15, February 12, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-10, January 16, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-09, January 9, 2007
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-07, December 29, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-06, December 28, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-05, December 20, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 7-02, October 23, 2006
• SBA OIG, Audit of Deficiencies in OFA’s Purchase Review Process for Backlogged Loans, Report 6-
35, September 29, 2006
• SBA OIG, Survey of the Quality Assurance Review Process, Report 6-26, July 12, 2006
• SBA OIG, Audit of SBA’s Implementation of the Improper Payments Information Act, Report 6-25,
June 21, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 6-22, May 17, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 6-17, March 20, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 6-16, March 20, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 6-14, March 2, 2006
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 5-26, September 28, 2005
• SBA OIG, Audit of an SBA Guaranteed Loan, Report 5-21, July 15, 2005
• SBA OIG, Management Advisory Report on the Transfer of Operations to the National Guaranty
Purchase Center, Report 4-39, August 31, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report 4-38, August 24, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report 4-33, July 30, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report 4-28, July, 9, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report 4-25, June 22, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report 4-06, January 8, 2004
• SBA OIG, Audit of an Early Defaulted Loan, Report 3-38, September 22, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report 3-30, June 19, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report 3-27, May 22, 2003
• SBA OIG, Audit of the Guaranty Purchase Process, Report 3-15, March 17, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report 3-07, January 23, 2003
• SBA OIG, Audit of an Early Defaulted Loan, Report 2-32, September 30, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report 2-30, September 24, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report 2-23, August 7, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report 2-15, March 29, 2002
• SBA OIG, Improvements are Needed in Small Business Lending Company Oversight Process,
Report 2-12, March 21, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report 2-03, February 27, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report 2-05, February 27, 2002
• SBA OIG, Audit of an Early Defaulted Loan, Report 1-10, March 9, 2001
• GAO, Major Management Challenges and Program Risks, GAO-01-260, January 2001
• SBA OIG, Audit of an Early Defaulted Loan, Report 0-10, April 23, 2000
• SBA OIG, Audit of an Early Defaulted Loan, Report 0-12, March 28, 2000
• SBA OIG, Audit of an Early Defaulted Loan, Report 0-05, February 14, 2000
Challenge 5:
• SBA OIG, Addressing Performance Problems of High-Risk Lenders Remains a Challenge for the
Small Business Administration, Report 12-20R, September 28, 2012
• SBA OIG, SBA’s Oversight of SBA Supervised Lenders, Report 8-12, May 9, 2008
108 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
• SBA OIG, UPS Capital Compliance with Selected 7(a) Lending Requirements, Report 8-08, March
21, 2008
• GAO, Small Business Administration: Additional Measures Needed to Assess 7(a) Loan Program’s
• Performance, GAO-07-769, July 13, 2007
• SBA OIG, SBA’s Oversight of Business Loan Center, LLC, Report 7-28, July 11,2007
• SBA OIG, SBA’s Use of the Loan and Lender Monitoring System, Report 7-21, May 2, 2007
• SBA OIG, Audit of the Office of Lender Oversight Corrective Action Process, Report 7-18, March 14,
2007
• GAO, Small Business Administration: Improvements Made, But Loan Programs Face Ongoing
Management
• Challenges, GAO-06-605T, April 6, 2006
• SBA OIG, SBA’s Administration of the Supplemental Terrorist Activity Relief (STAR) Loan Program,
Report 6-09, December 23, 2005
• GAO, Small Business Administration: New Service for Lender Oversight Reflects Some Best
Practices, But
• Strategy for Use Lags Behind, GAO-04-610, June 8, 2004
• GAO, Continued Improvements Needed in Lender Oversight, Report 03-90, December 2002
• SBA OIG, Impact of Loan Splitting on Borrowers and SBA, Advisory Memorandum Report 2-31,
• September 30, 2002
• SBA OIG, Improvements needed in SBLC Oversight, Advisory Memorandum Report 2-12, March 20,
2002
• SBA OIG, Preferred Lender Oversight Program, Report 1-19, September 27, 2001
• SBA OIG, SBA Follow-up on SBLC Examinations, Report 1-16, August 17, 2001
Challenge 6:
• SBA OIG, Audit on the Effectiveness of the SBA’s Surveillance Review Process, Report 11-11,
March 31, 2011
• SBA OIG, Audit of Two 8(a) Sole –Source Contracts Awarded to Contractors in SBA’s Mentor
Protégé Program, Report 7-19, March 30, 2007
• SBA OIG, Audit of Monitoring Compliance with 8(a) Business Development Regulations During 8(a)
Business Development Contract Performance, Report 6-15, March 16, 2006
• SBA OIG, Business Development Provided by SBA’s 8(a) Business Development Program, Report 4-
22, June 2, 2004
• SBA OIG, SACS/MEDCOR: Ineffective and Inefficient, Report 4-15, March 9, 2004
• SBA OIG, Section 8(a) Program Continuing Eligibility Reviews, Report 4-3-H-006-021, September 30,
1994
Challenge 7:
• SBA OIG, Applicant Character Verification in SBA’s Business Loan Program, Report 3-43, April 5,
2001
• SBA OIG, Summary Audit of Section 7(a) Loan Processing, Report 0-03, January 11, 2000
• SBA OIG, Loan Agents and the Section 7(a) Program, Report 98-03-01, March 31, 1998
• SBA OIG, Fraud Detection in SBA Programs, Report 97-11-01, November 24, 1997
• SBA OIG, Operation Clean sweep, Memorandum, August 21, 1996
Challenge 8:
• SBA OIG, Adequacy of Quality Assurance Oversight of the Loan Management and Accounting
System Project, Report 10-14, September 13, 2010
• SBA OIG, Review of Allegations Concerning How the Loan Management and Accounting System
Modernization Project is Being Managed, Report 9-17, July 30, 2009
• SBA OIG, Planning for the Loan Management and Accounting System Modernization and
Development Effort, Report 8-13, May 14, 2008
AGENCY FINANCIAL REPORT • FY 2012 109
OTHER ACCOMPANYING INFORMATION
• SBA OIG, SBA Needs to Implement a Viable Solution to its Loan Accounting System Migration
Problem, Report 5-29, September 20, 2005
• GAO, Information Technology: Agencies Need to Improve the Accuracy and Reliability of Investment
Information, GAO-06-250, January 12, 2006
• GAO, Major Management Challenges and Program Risks: Small Business Administration, GAO-03-
116, January 1, 2003
• GAO, SBA Loan Monitoring System: Substantial Progress Yet Key Risks and Challenges Remain,
Testimony of Joel C. Willemssen, Director, Civil Agencies Information Systems Accounting and
Information Management Division, Before the Subcommittee on Government Programs Statement
Committee on Small Business, House of Representatives, GAO/T-AIMD-00-113, February 29, 2000
• GAO, SBA Needs to Establish Policies and Procedures for Key IT Processes, Accounting and
Information Management Division, GAO/AIMD-00-170, May 31, 2000
Challenge 9:
• SBA OIG, A Detailed Repayment Ability Analysis is Needed on High-Dollar Early-Defaulted Loans to
Prevent Future Improper Payments, Report 12-18, August 16, 2012
• SBA OIG, High-Dollar Early-Defaulted Loans Require an Increased Degree of Scrutiny and Improved
Quality Control at the National Guaranty Purchase Center, Report 12-11R, March 23, 2012
• SBA OIG, SBA Generally Meets IPERA Reporting Guidance but Immediate Attention Is Needed to
Prevent and Reduce Improper Payments, Report 12-10, March 15, 2012.
• SBA OIG, Origination and Closing Deficiencies Identified In 7(a) Recovery Act Loan Approvals,
ROM 11-07, September 30, 2011
• SBA OIG, Material Deficiencies Identified in Five 7(a) Recovery Act Loans Resulted in $2.7 Million of
Questioned Costs, ROM 11-06, August 25, 2011
• SBA OIG, Banco Popular Did Not Adequately Assess Borrower Repayment Ability When Originating
Huntington Learning Center Franchise Loans, Report 11-16, July 13, 2011
• SBA OIG, Material Deficiencies Identified in Four 7(a) Recovery Act Loans Resulted in $3.2 Million of
Questioned Costs, ROM 11-05, June 29, 2011
• SBA, OIG America’s Recovery Capital Loans Were Not Originated and Closed In Accordance With
SBA’s Policies and Procedures, ROM 11-03, March 2, 2011
• SBA OIG, Material Deficiencies Identified in Early-Defaulted and Early-Problem Recovery Act Loans,
ROM 10-19, September 24, 2010
• SBA OIG, SBA’s Management of the Backlog of Post-Purchase Reviews at the National Guaranty
Purchase Center, Report 9-18, August 25, 2009
• SBA OIG, The Small Business Administration’s Fiscal Year 2008 Improper Payment Rate for the 7(a)
Guaranty Loan Program, Report 9-16, July 10, 2009
• SBA OIG, Audit of Borrower Eligibility for Gulf Coast Disaster Loans, Report 9-09, March 31, 2009
• SBA OIG, The Small Business Administration’s Fiscal Year 2007 Improper Payment Rate for the
Disaster Loan Program, Report 9-10, March 26, 2009
• SBA OIG, Audit of the Liquidation Process at the National Guaranty Purchase Center, Report 9-08,
January 30, 2009
• SBA OIG, The Use of Proceeds From Gulf Coast Disaster Loans, Report 9-06, January 15, 2009
• SBA OIG, Disaster Loss Verification Process, Report 8-15, June 17, 2008
• SBA OIG, Review of the Adequacy of Supporting Documentation for Disbursements, Report 8-07,
January 29, 2008
• SBA OIG, The Quality of Loans Processed Under the Expedited Disaster Loan Program, Report 7-34,
September 28, 2007
• SBA OIG, SBA’s Quality Assurance Reviews of Loss Verifications, Report 7-29, July 23, 2007
110 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
• SBA OIG, Securing Collateral for Disaster Loan Disbursements, Report 7-22, May 9, 2007
Challenge 10:
• SBA OIG, Origination and Closing Deficiencies Identified In 7(a) Recovery Act Loan Approvals, ROM
11-07, September 30, 2011
Challenge 11:
• SBA, OIG, The Small Business Administration’s Process Could Lead to Possible Anti-Deficiency Act
Violations, Report 12-22, September 28, 2012
• SBA, OIG, The Small Business Administration’s Inappropriate Use of the Government Purchase Card
for Construction Purchases, Report 12-16, August 6, 2012
• SBA OIG, The SBA’s Improper Payment Review and Reporting for its Contracting Activities did not
Comply with IPERA and IPIA Requirements During FY 2011, Report 12-07, March 8, 2012
• SBA OIG, Small Business Administration’s Funding of Information Technology Contracts Awarded to
Isika Technologies, Inc., Report 11-14, June 2, 2011
• SBA OIG, SBA’s Procurement of Information Technology Hardware and Software through Isika
Technologies, Inc., Report 11-08, February 25, 2011
• SBA OIG, SBA’s Planning and Award of the Customer Relationship Management Contracts, ROM
10-16, June 29, 2010
• SBA OIG, SBA’s Efforts to Improve the Quality of Acquisition Data in the Federal Procurement Data
System, Report 10-08, February 26, 2010
• SBA OIG, Adequacy of Procurement Staffing and Oversight of Contractors Supporting the
Procurement Function, ROM 10-13, April 9, 2010
• SBA OIG, Office of Business Operations Contracting Personnel Qualifications and Warrant Authority,
Report 9-14, July 6, 2009
As part of the Start-Up America initiative, over the next five years, the
Did SBA will commit $2 billion as a match to private sector investment in
promising high-growth companies. Using existing authority, with no
you new cost to taxpayers, and the operating infrastructure of the Small
know Business Investment Company program SBA guarantied bonds will
match private capital raised by these privately-owned and managed
investment funds and serve as a catalyst for accelerating capital
support for startups and high-growth firms.
For more information, go to www.sba.gov/startupamerica.
AGENCY FINANCIAL REPORT • FY 2012 111
OTHER ACCOMPANYING INFORMATION
Summary of Financial Statement Audit and Management
Assurances
As required by OMB Circular A-136, Section II.5.6, the following summarizes SBA’s financial statement audit and
SBA’s Management Assurances:
SUMMARY OF FINANCIAL STATEMENT AUDIT
Audit Opinion Unqualified
Restatement No
Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance
Financial Reporting 0 0 N/A N/A N/A 0
SUMMARY OF MANAGEMENT ASSURANCES
Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)
Statement of Assurance Unqualified
Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance
Financial Reporting 0 0 N/A N/A N/A 0
Effectiveness of Internal Control over Operations (FMFIA § 2)
Statement of Assurance Unqualified
Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance
None 0 0 N/A N/A N/A 0
Conformance with Financial Management System Requirements (FMFIA § 4)
Statement of Assurance Systems conform to financial management system requirements.
Non-Conformances Beginning Balance New Resolved Consolidated Reassessed Ending Balance
None 0 0 N/A N/A N/A 0
Conformance with Federal Financial Management Improvement Act (FFMIA)
Agency Auditor
Overall Substantial Compliance Yes Yes
1. System Requirements Yes
2. Accounting Standards Yes
3. USSGL at Transaction Level Yes
112 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
Summary of OIG Audit Follow-up
Throughout the year, the OIG conducts audits of SBA’s processes, procedures and programs, and makes recom-
mendations 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 dis-
agrees 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 manage-
ment 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 OCFO maintains a database to track the recommendations through to the conclusion, or Final Action. Dur-
ing FY 2012, there were 116 Final Actions, resulting from 15 monetary and 101 non-monetary recommendations.
The status of the corrective actions is updated regularly and is available for review on the SBA Intranet. The status
of all audit recommendations is reconciled with the OIG to ensure actions are posted promptly and accomplished
in accordance with the agreed-upon target dates.
The following two tables depict the SBA’s final action activity for FY 2012. Detailed information by report number
on final action with disallowed or questioned costs, funds put to better use, and status of corrective action plans
not implemented within one year can be found in Supplementary Information #3 that accompanies this Agency
Financial Report.
TABLE 1 FINAL ACTION ON AUDIT RECOMMENDATIONS WITH DISALLOWED OR QUESTIONED COSTS
OCTOBER 1, 2011 – SEPTEMBER 30, 2012
Disallowed Costs (Rounded to
Number of Recommendations
Thousands)
A. Recommendations with management decisions on which final action 12 $11,231
had not been taken at the beginning of the period.
B. Recommendations on which management decisions were made 7 5,879
during the period.
C.Total recommendations pending final action during period. 19 $17,110
D. Recommendations on which final action was taken during the period.
1. Recoveries:
(a) Collections and Offsets 10 $4,718
(b) Property
(c) Other 4 5,251
2. Write-Offs 1 3,631
3. Total 15 $13,600
E. Recommendations needing final action at the end of the period. 4 $3,510
AGENCY FINANCIAL REPORT • FY 2012 113
OTHER ACCOMPANYING INFORMATION
TABLE 2 FINAL ACTION ON AUDIT RECOMMENDATIONS WITH FUNDS PUT TO BETTER USE
OCTOBER 1, 2011 – SEPTEMBER 30, 2012
Number of Funds to be Put to Better Use
Recommendations (Rounded to Thousands)
A. Recommendations with management decisions on which final 4 $54,242
action had not been taken at the beginning of the period.
B. Recommendations on which management decisions were made 2 7,700
during the period.
C. Total recommendations pending final action during period. 6 $61,942
D. Recommendations on which final action was taken during the period.
1. Value of recommendations implemented (completed).
2. Value of recommendations that management concluded should
not or could not be implemented or completed.
3. Total 0 $0
E. Recommendations needing final action at the end of the period. 6 $61,942
Did The SBA’s Regional Cluster initiative helps develop and grow regional
you economies and promote small business growth across the country.
During year one (September 2010 – September 2011), the Cluster
know initiative increased small business participation in 10 regional
economies, known as “clusters,” by over 275 percent. Small business
participants in the clusters grew from 179 to 672 during the first year.
114 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
Improper Payments tible to significant improper payments and included it
in the Improper Payments program in FY 2012.
Improper Payments Statistical Sampling
As required by the Improper Payment Information Act The statistical sampling processes used in FY 2012 were
of 2002 and as amended by the Improper Payments unchanged from those used in FY 2011; however, test
Elimination and Recovery Act of 2010 (IPERA) and programs were changed for the 7(a) and 504/CDC loan
OMB Circular A-123, Management’s Responsibility for guaranty programs to promote a more in-depth review.
Internal Controls, Appendix C, the SBA has reviewed Changes were also made to the disbursements related
all programs and activities for susceptibility to signifi- to contracting activities to promote a more effective
cant improper payments for FY 2012. A significant review.
improper payment is defined as a payment in any one
program that exceeds either 2.5 percent of program pay- The 7(a) and 504/CDC populations contain loan
ments and $10 million annually or that exceeds $100 types that are not homogeneous and exhibit skewed
million (regardless of the improper payment percentage distributions in loan size. That is, large loans consti-
of total program payments). tute a relatively smaller percentage of the populations
by count but a relatively larger percentage by dollar
amount. Therefore, the SBA stratified the data on sev-
Risk Assessment eral key variables and used a sampling method known
OMB Circular A-123 requires risk assessments at least as Probability Proportional to Size (PPS) sampling with
once every three years for programs not deemed risk replacement. This is a sampling technique in which
susceptible. The circular also requires risk assessments the probability that a particular loan will be selected for
when a significant change in legislation and/or a signifi- the sample is proportional to the population size of the
cant increase in funding levels occur. With the passage corresponding strata. By using PPS, the SBA attempts
of IPERA, the SBA was required to assess all programs to create a comprehensive sample that addresses the fact
and activities in FY 2011 for susceptibility to significant that different types of loans may have unequal improper
improper payments. During FY 2012, no significant payment probabilities.
changes occurred to any SBA program or activity to
7(a) loan guaranty purchase review sample cases were
warrant conducting any new risk assessments.
chosen using PPS sampling with replacement from
Three of the SBA’s four major credit programs were all purchases approved during the 12 month period
included in the Improper Payments program as they ended March 31, 2012. The purchase population was
were previously identified in the former Section 57 of divided into four strata based on the following factors:
Circular A-11. (1) which servicing office processed the purchase, and
(2) whether the loan was considered an early default,
1. 7(a) business loan program regardless of servicing office. Using the PPS approach,
2. 504 Certified Development Company loan the SBA determined the appropriate total sample size to
guaranty program be 377 loans from the population. Using the Hansen-
3. Disaster loan program Hurwitz estimation method, the estimated improper
payment rate for the 7(a) loan guaranty purchase
For the fourth major credit program, Small Business
population is 3.15 percent for the annual period ending
Investment Company program, the SBA obtained ap-
March 31, 2012.
proval from OMB for relief from reporting due to the
low occurrence of improper payments determined by 7(a) loan guaranty approval review sample cases were
several years’ review and low probability for improper chosen using PPS sampling with replacement from all
payments as determined by the FY 2011 risk assess- loan guaranties approved during the 12 month period
ment. ended March 31, 2012. The approval population was
divided into two strata based on whether the loan was
The SBA also identified disbursements for goods and
SBAExpress or not. The SBA determined the ap-
services in its FY 2011 assessment of activities suscep-
propriate total sample size to be 111 loans from the
AGENCY FINANCIAL REPORT • FY 2012 115
OTHER ACCOMPANYING INFORMATION
population. Using the Hansen-Hurwitz estimation payment rate does not truly reflect the potential that
method, the estimated improper payments rate for the disaster loans are disbursed to disaster victims that are
annual period ending March 31, 2012 was calculated not eligible under the disaster direct loan program. The
as 1.8 percent. The rate also was calculated using total improper payments consisted of 99 disbursements out
approval amount (guarantied and unguarantied). This of the 500 disbursements reviewed. Of the 99 consid-
sample included improper payments of $4,475,500 and ered to be improper payments, 50 were for “paperwork”
the SBA estimated an improper payments rate of 2.71 issues. The paperwork issues do not result in a disaster
percent for the annual period ending March 31, 2012. loan borrower’s receiving any loan funds that they were
not eligible to receive or have any impact on SBA’s abil-
The 7(a) loan guaranty purchase and approval reviews ity to collect on the disaster loans.
were conducted to examine whether the lender or the
SBA complied materially with the 7(a) loan program Disbursements for goods and services review samples
origination requirements including statutory provisions, were chosen using PPS with replacement for pay-
SBA regulations, any agreement the lender executed ments disbursed during the 12 months ended March
with the SBA, standard operating procedures, loan 31, 2012. The total number of disbursements for the
authorizations, and official SBA notices and forms reference period is 7,622 and the total dollar amount is
applicable to the 7(a) loan program. The reviews were $129,977,541. The SBA determined the appropriate
to determine if the lender or the SBA (1) originated, total sample size to be 216 invoices with total outlays
serviced, and liquidated the loan in a prudent and of $46,858,387. The scope of the review covered three
commercially reasonable manner, (2) misrepresented or areas: invoice accuracy, compliance with contract terms
failed to disclose a material fact to the SBA, and/or (3) and accuracy of invoice processing. Based upon the
put SBA’s financial interest at risk. sample results, the estimated FY 2012 contracting im-
proper payment rate is 9.6 percent for a total of $12.1
504 CDC guaranty approval review sample cases were million.
chosen using PPS sampling with replacement from all
loan guaranties approved during the 12 month period
ended March 31, 2012. Unlike FY 2011, the approval Corrective Action
population was not stratified because there was no The 7(a) loan and 504/CDC guaranty approval and
empirical evidence that multiple smaller strata increased 7(a) loan guaranty purchase improper payments
the efficiency of the estimate. The SBA determined programs identify and track the reasons for any im-
the appropriate total sample size to be 49 loans from proper payments discovered during the reviews and
the population. Using the Hansen-Hurwitz estimation then appropriately adjust the loan making or purchase
method, the estimated improper payments rate for the processes to reduce future errors in addition to making
annual period ending March 31, 2012 was calculated as recoveries as appropriate.
2.04 percent.
The root cause for all identified improper payments for
Disaster direct loans approved undergo a semi-annual the 7(a) loan guaranty purchase, the 7(a) loan guaranty
Quality Assurance Review (QAR). As part of the approval and 504 CDC guaranty approval programs
QAR, disaster loans are sampled and examined for any were Administrative and Documentation Errors. The
deficiency that would result in an improper payment. error rates were 3.15 percent for a total of $44,084,477,
The sample size is determined using statistical software 1.8 percent for a total of $233,234,994 and 2.04 per-
and methods that follow widely accepted practices, cent for a total of $104,523,284, respectively. Neither
and based on assumptions about the likely prevalence Authentication nor Verification errors were found.
and severity of improper payments. A total of 500 Given the nature of SBA’s programs and activities,
randomly selected loans were reviewed with disburse- Medical Necessity errors are not a possibility.
ments made during the 12 month period ended June
30, 2012. The total number of loans from the reference Improper payments generally arise from the failure of
period is 19,478 and the total value of disbursements an approval or purchase processor to identify material
is $509,181,000. The improper payment rate of 17.9 lender deficiencies in the handling of an SBA guaran-
percent would reflect $91,028,000 in improper pay- tied loan. Primary reasons for errors in approvals and
ments for the reference period. The stated improper purchases reviewed this year were:
116 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
• improper use of loan proceeds (not in accordance the SBA expanded training efforts to include individual
with loan authorization); one-on-one training with the individuals identified
• failure to conduct timely site visit; in audits as either taking the action or approving
the action that resulted in an improper payment.
• failure of lender to assure adequate technical as-
Additionally, the SBA added reduction of the improper
sistance on Community Express loan;
payment rate to the personal business commitment
• failure of lender to perfect security interest in plans of all the processing and disbursement staff
collateral; at the processing and disbursement center (PDC)
• failure to verify borrower financial information in Fort Worth, Texas. To ensure that reduction of
using IRS tax transcripts; improper payments remains a high priority, the PDC is
• ineligible loan structures; establishing a team that will report directly to the center
manager for the express purpose of identifying and
• underpayment of interest to lender because incor-
correcting potential improper payments.
rect interest rate was used; and
• reimbursement of lender expenses that were not Disbursements related to contracting sample results
fully justified. demonstrate the SBA has made improvements in issues
surrounding improper payments in both testing and
Ongoing corrective action procedures followed for the processes. The estimated improper payment rate for
7(a) loan guaranty purchase process involve advising contracting is 9.6 percent totaling $12.5 million. The
the purchase processing team of improper payment nature of errors found in the FY 2012 contracting
determinations and clarification of the issues to avoid improper payment review are administrative and docu-
possible improper payments in the future through a mentation errors with the root causes being:
Quality Improvement Program (QIP) process. A fully
documented guaranty purchase procedure handbook • inadequate comparison of the invoice to the con-
is updated periodically. Remedial actions taken by the tract to verify period of performance, labor rates
QIP team on an ongoing basis include: and categories to ensure they agree;
• payment accuracy issues where the financial
• identify and analyze error patterns;
system was not updated with current (at the time
• communicate error patterns to the staff process- of payment) information from the Central Con-
ing purchases; tractor Registry (CCR) (now System for Award
• review current policies and procedures to ensure Management [SAM]);
that any error patterns are appropriately ad- • amounts paid were different than what was rec-
dressed in current guidance; ommended for payment; and
• revise policies and procedures where necessary; • interest over-payments due to improper prompt
• issue guidance to the purchase staff on specific payment data selection criteria.
issues;
Although recoveries will be made where appropriate, it
• provide training and direct feedbacks; and
is important to note that findings revealed no apparent
• supplement center resources where possible to significant overpayments or opportunities for recapture
ensure ongoing QIP procedures that will identify and that all payments correspond to valid goods and
any emerging patterns or potential problem areas services received. To prevent the administrative and
that might result in future improper payments, documentation errors noted in the improper payment
as well as take action to mitigate these potential review, the SBA has completed or plans to complete the
problem areas. following corrective actions in the coming year:
Disaster direct loans substantially reduced the • training and re-training of Contracting Officers,
improper payment rate over the last fiscal year. The Contracting Officer Representatives, and ac-
root cause of the actions that have resulted in the counting personnel on required invoice informa-
improper payments was that the processing and tion, and comparison of invoice to the contract;
disbursement staff was not following the guidance
provided in the SOP and policy memos. As a result,
AGENCY FINANCIAL REPORT • FY 2012 117
OTHER ACCOMPANYING INFORMATION
• exploring the possibility of an interface between 1. A random sample of loan purchases for 12
the CCR and the financial system to ensure the months ending March 31, validated by a contrac-
most current contractor information is available tor-statistician, is reviewed for potential improper
at the time of payment; payments to lenders each year. The results of this
targeted review for potential improper payments
• implementing electronic invoice routing and are reported annually in SBA’s Agency Financial
approvals in the financial system; and Report.
• adding data fields in the financial system to 2. Improper payment approval reviews are conduct-
prevent payment of invoices outside the contract ed by four loan officers who were not associated
period of performance for contracts with actions with the approval process for the individual loan
occurring in 2nd quarter of FY 2012 forward. being reviewed. Improper payments have not
been detected in these reviews in the past, due to
the multiple reviews that take place when a loan
Improper Payment Reporting is being processed.
The table on this page presents SBA’s Improper Payment 3. Continuous Quality Control reviews assess the
program results for FY 2012. quality of the loan and loan documentation and
include a review for potential improper payments
for targeted loans, such as high dollar loans or
Recapture of Improper Payments those that experience early default. The SBA’s
The existing reviews performed by SBA personnel are Quality Control staff in the Office of Capital Ac-
cess conducts the reviews and tracks the reasons
considered to be sufficient to identify and recapture
for any improper payments discovered in the re-
overpayments. Due to the historical low error rates and views. As a result of the root cause identification,
the complex nature of the programs, further recapture appropriate adjustments to the guaranty purchase
audits would not be cost-effective. Since the SBA does process are made to reduce future errors.
not conduct recapture audits, tables 2-5 from A-136 are
Overpayments identified in any of the three reviews
not included in this report.
listed are recovered from the lender as appropriate. This
7(a) loan guaranty purchase improper payments are is a case-by-case determination that varies substantially
identified and recovered by three different sources:
IMPROPER PAYMENT REDUCTION OUTLOOK ($ IN MILLIONS)
FY FY
FY FY FY FY FY FY FY FY FY FY FY FY FY FY
FY 20111 1 2012 2011 1 1 1 1
Program 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2015
$ Outlays $ Over- Under-
IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $ $ Outlays IP % IP $
paid paid
7(a) Guaranty
2,355.6 1.73 40.7 1,398.4 3.2 44.0 44.0 0.0 2,000.0 2.0 40.0 1,800.0 1.5 27.0 1,600.0 1.0 16.0
Purchases1
7(a) Guaranty
15,327.8 0 0 12,933.7 1.8 233.2 233.2 0.0 15,500.0 1.5 232.5 15,500.0 1.0 155.0 15,500.0 0.0 0.0
Approvals1,2
CDC Loans
Guarantied1 4,375.3 0 0 5,121.6 2.0 104.5 104.5 0.0 6,000.0 1.5 90.0 6,500.0 1.0 65.0 7,000.0 0.0 0.0
Disaster Loan
339.6 28.4 96.3 509.1 17.9 91.0 91.0 0.0 800.0 14.0 112.0 800.0 10.0 80.0 800.0 10.0 80.0
Disbursements1
Contract
133.4 N/A N/A 130.0 9.6 12.5 12.5 0.0 130.0 4.6 6.0 130.0 2.3 3.0 130.0 1.0 1.3
Disbursements3
1. Outlays in this report represent the base amount of the program activity related to SBA improper payments; and this amount will differ from the amount reported as outlays in SBA’s President’s
Budget submissions because they include re-estimates of subsidy cost, reimbursements to SBA administrative funds and other costs. Outlays for 7(a) Guaranty Purchases are the amount of
disbursements for the purchase of defaulted guarantied loans. Outlays for 7(a) Guaranty Approvals are the amount of new guaranty approvals by banks and other SBA lending partners. Outlays
for CDC Loans Guarantied are approvals irrespective of disbursement, net of approval increases, decreases, reinstatements and cancellations for the current year. Outlay figures for Disaster are loan
disbursements on current year approvals.
2. For 7(a) Guaranty Approvals, amounts reported are based on the Guarantied Amount Only. When considering the Full Approval Amount the IP % is 2.7 and the IP $ are 350.2.
3. The SBA identified contract disbursements as susceptible to significant improper payments in FY 2011. The SBA conducted a test of these payments that examined invoice processing, contracting
and invoice payment.
118 AGENCY FINANCIAL REPORT • FY 2012
OTHER ACCOMPANYING INFORMATION
depending on the circumstances of the loan making, Disbursements for goods and services also would not
servicing, purchases and liquidation. benefit from a separate recapture audit. The improper
payment testing required 867 labor hours at a cost of
Disaster direct loans would not benefit from a separate $56,837. Payments identified during the improper
recapture audit. Based upon the results of the second payment review as eligible for recapture totaled $5,239;
portion of the program’s semi-annual Quality Assur- thus the cost of the review far exceeds the return. The
ance Review, a separate recapture audit would not be SBA determined it is not cost-effective to do separate
cost-effective. The QAR team located in the PDC payment recapture audits.
completed the review under the supervision of the
Director of Program Policy and Evaluation in Wash- Overpayments Recaptured Outside of Payment
ington, DC. The review identified 54 disbursements Recapture Audits are applicable only to 7(a) Loan
as improper payments totaling $13,493,413. Of Guaranty Purchases or disbursements for goods and
the improper payments, 20 disbursements totaling services as payments made within these program areas
$4,278,500 were for paperwork issues and not subject are recoverable from vendors and lenders as appropriate.
to recovery. The remaining 34 disbursements totaling Overpayments for disaster loans are collected through
$9,214,913 had an eligibility issue that was missed in the normal loan repayment process if the overpayment
the processing and disbursing of the loans. Further was due to a SBA error. Overpayments as a result of
analysis concluded the eligibility issue could be resolved fraudulent actions of a borrower are immediately recap-
resulting in an additional 23 of the exceptions totaling tured. The amount identified for recapture during the
$6,915,100 being classified as not subject to recovery. 7(a) Loan Guaranty Purchase improper payment review
The remaining improper payments subject to recovery was $6,462,350. The disbursement overpayments that
were 11 disbursements totaling $2,299,813. Of the relate to cash payments made for an inaccurate amount
$2,299,813 in disbursements, the potential recovery or not according to contract terms, total $5,239; all
amount was $214,835. Before the SBA attempts to other over payments were due to missing or incom-
recover any overpayments on a disaster loan, the bor- plete documentation. The amount not recaptured in
rower is given an opportunity to resolve any eligibility FY 2011 for disbursements of goods and services is
issues. For two of the potential recovery items, it is approximately $300 which represents a large number
expected they would be found eligible during this phase of small interest overpayments whose recovery was not
of the process. Therefore, the resulting amount subject determined to be cost-effective.
to recovery would be $17,835 or 0.04% of the sample
amount. Based on the sample results, the amount of
disaster direct loan disbursements subject to recovery
Accountability
for the entire population in the second half of the QAR SBA’s Strategic Goal 2 is to build an SBA that meets
is $86,535. The second half of the semi-annual QAR needs of today’s and tomorrow’s small businesses.
required 2,200 hours of staff time to complete and the Within that goal is Strategic Objective 2.1, which is
cost of the audit in terms of just staff hours to produce to strengthen SBA’s core programs and operations to
the report was $92,925. In evaluating the time and cost ensure that they are high performing, effective, and
to identify the total improper
payments it is clear that further
OVERPAYMENTS RECAPTURED OUTSIDE OF PAYMENT RECAPTURE AUDITS ($ IN THOUSANDS)
expenditures for a separate re-
capture audit would not be cost-
Amount Amount Amount Amount Cumulative Cumulative Cumulative
effective: the recoverable amount Source of
Identified Recovered Identified Recovered Amount Amount Amount
Recovery
is less than the cost of the audit. FY 2012 FY 2012 FY 2011 FY 2011 Identified Recovered Collectable
Furthermore, the over-disbursed
amount is in the form of a loan 7(a) Loan
Guaranty
which will be repaid according Purchase IP
$6,462 0 $1,600 $103 $8,064 $103 0
to the terms and conditions in Review
the Loan Authorization and
Agreement. Contract IP
5.2 0 32.5 32.2 37.7 32.2 0.3
Review
AGENCY FINANCIAL REPORT • FY 2012 119
OTHER ACCOMPANYING INFORMATION
relevant to the needs of the small business commu- improper payments to targeted levels. For example, the
nity. The SBA’s strategic goals are included in annual ODA has an integrated, electronic loan processing sys-
performance plans for all of its programs as business tem, the Disaster Credit Management System (DCMS)
objectives, and these business objectives are included in to streamline, enhance and improve the loan-making
employee performance plans. SBA management moni- process. This system supports workflow management,
tors accomplishment of its business objectives in its electronic file management and document generation
performance plan using its performance management functions. In fact, the ODA Quality Assurance team
process, and action is taken when progress is not on is continually working with the DCMS development
target. Executive and management bonuses are based team to improve the Quality Assurance process with a
on the accomplishment of business objectives included goal to minimize future improper payments events as
in employee annual performance plans. This manage- much as possible. Many of the business rules that gov-
ment process helps assure accountability of improper ern the programming of this system have been designed
payment administration. to help improve the Quality Assurance process.
Disbursements for goods and services are supported
Information Systems and Other by the Oracle Federal Financial System and the con-
Infrastructure tracting process is supported by PRISM Contract Man-
agement System which tracks and records acquisitions.
7(a) loan guaranty purchases are supported by the Management of the PRISM and financial systems falls
Guaranty Purchase Tracking System. It is continually within the CFO’s Office of Financial Systems. The
updated to enhance the overall integrity of the purchase Acquisition Division expanded the two-way interface
process. between the PRISM and the financial systems and plans
7(a) loan guaranty approvals and 504 CDC guaranty to continue development in connecting the acquisition
approvals are supported by E-Tran, SBA’s electronic and financial systems.
loan processing/servicing system. Both the SBA and
delegated lenders process applications through the Statutory or Regulatory Barriers
system and lenders may also handle unilateral servicing The SBA does not have any statutory or regulatory bar-
actions electronically. The system provides increased riers limiting improvement to its performance on the
efficiency and decreased costs in the loan guaranty origi- improper payments initiative.
nation and servicing processes.
Disaster direct loan program has the information
systems and other infrastructure it needs to reduce
120 AGENCY FINANCIAL REPORT • FY 2012
Appendices
SUCCESS STORY: Women-owned Business Provides Vehicles With Alternative Power Sources
SVI dba Specialty Vehicles, Henderson, Nevada
For Nancy and Leah Munoz and Rachel Munoz Drenk, Specialty Vehicles is a
family business that’s been woman-owned for two generations. Nancy started off
working for her father, a manufacturer of trolleys and trams. After his passing, she
reincorporated the company as Specialty Vehicles. Her daughters Leah and Rachel
began working for the company as teenagers. From one trolley model at the start,
the product line has grown to 27 vehicles. Today, Specialty Vehicles is a major
provider of a diversified line of transportation vehicles, including specialty trolleys,
trams, mini-trams and buses. The vehicles have options for alternative fuel sources
and zero-emission battery power with solar panels.
During tight economic times, even though upfront costs were daunting, Specialty
Vehicles grew with the help of an SBA-guaranteed loan for working capital to develop new lines. Net worth and
employment rolls have steadily increased, and Specialty Vehicles secured an SBA 504 loan to purchase an industrial
building to expand manufacturing and distribution operations.
APPENDICES
Appendix 1 - Contact SBA: Useful Sites and Numbers
The SBA home page is www.sba.gov. Information on SBA programs may be accessed from this site. Several of the
more frequently visited sites are listed here:
SBA INFORMATION
About SBA www.sba.gov/about-sba
SBA Direct www.sba.gov/sba-direct
SBA Strategic Plan www.sba.gov/AgencyStrategicPlan
SBA Performance, Budget & Planning www.sba.gov/performance
STARTING AND MANAGING A BUSINESS
What is a Small Business? www.sba.gov/content/am-i-small-business-concern
Thinking about starting a business? http://www.sba.gov/thinking-about-starting/
Resources
Local Assistance www.sba.gov/local-assistance
Lender Resources www.sba.gov/lender_resources
Financing Growth www.sba.gov/content/financing-growth
Explore Exporting www.sba.gov/exporting
LOANS and GRANTS
Small Business Loans www.sba.gov/financialassistance
Bonds www.sba.gov/content/surety-bonds-explained
www.sba.gov/content/tax-exempt-bonds
Grants www.sba.gov/content/facts-about-government-grants
CONTRACTING
Government Contracting www.sba.gov/contracting
Contracting Opportunities www.sba.gov/contracting-opportunities
Register as a Contractor www.sam.gov
Explore Exporting www.sba.gov/size
COUNSELING and TRAINING
Online Training www.sba.gov/training
SBDCs www.sba.gov/sbdc
Women’s Business Centers www.sba.gov/content/womens-business-centers
SCORE Counselors www.sba.gov/score
Veterans Outreach www.sba.gov/content/veterans-business-outreach-centers
AGENCY FINANCIAL REPORT • FY 2012 123
APPENDICES
DISASTER ASSISTANCE
Disaster Assistance www.sba.gov/disaster
Disaster Area Office Locations www.sba.gov/about-offices-list/4
Response Office Locations for a Declared Go to www.sba.gov/content/current-disaster-declarations and then
Disaster select the disaster/affected area in question
FEMA Information www.fema.gov
ADDITIONAL RESOURCES
Office of Advocacy www.sba.gov/advocacy
Office of the National Ombudsman www.sba.gov/ombudsman
Office of the Inspector General www.sba.gov/oig
Facebook: www.facebook.com/sbagov
Twitter: www.twitter.com/sbagov
YouTube: www.youtube.com/sba
SBA National Answer Desk (Toll Free) (800) 827-5722
Disaster Customer Service Center (Toll Free) (800) 659–2955
SUCCESS STORY: Bringing Safety to Manufacturing and Construction
Banda Group International, LLC, Chandler, Arizona
Zeferino Banda was a certified safety professional with two decades of experience
and a master’s degree in safety working for a construction company on a large
semiconductor project in Ireland. He realized that large manufacturing and
construction firms need environmental health and safety personnel for their
projects, so he decided to start a business to provide those services.
Banda Group International is a growing environmental health, safety and technical
consulting company headquartered in Chandler, Arizona. Since its creation in
2003, the firm has grown to 32 employees and opened additional offices in New
Mexico and Texas. In 2007, the company received certification in SBA’s 8(a)
Business Development program. Since then BGI has won a five-year NASA
contract at the Goddard Space Flight Center and a contract for occupational safety support services for the
Transportation Safety Administration. BGI has also worked on projects in Algeria, China, Ireland, Israel, Kuwait,
Laos, Mexico and Venezuela.
Banda, a veteran of the U.S. Air Force, actively supports the military and his fellow veterans. For the past three
years he has served as chairman of Safety Professionals and the Latino Workforce, a forum for safety professionals
to better engage with Latino workers on the topic of safety. Zeferino Banda is the 2012 Arizona Small Business
Person of the Year.
124 AGENCY FINANCIAL REPORT • FY 2012
APPENDICES
Appendix 2 - Glossary
(Available at: “FY 2012 Agency Financial Report“ www.sba.gov/performance)
504 504 Certified Development Loan APR Annual Performance Report
Program Required by the Government
Provides small businesses with long-term, Performance and Results Act, it presents
fixed-rate financing for the purchase a federal agency’s progress in achieving
of land, buildings and long-life capital the goals in its strategic plan and perfor-
equipment. mance budget.
ARC America’s Recovery Capital Loan
7(a) 7(a) Loan Guaranty Program Program
SBA’s primary loan program. It provides A temporary guaranty loan program
general loan financing for a wide variety authorized by the American Recovery and
of purposes. Reinvestment Act of 2009.
8(a) 8(a) Business Development Program ARRA American Recovery and Reinvestment
Assists firms owned and controlled by Act of 2009
socially and economically disadvantaged Most often referred to as the Recovery
individuals to enter and succeed in the Act in SBA documents.
economic mainstream.
BATF Business Assistance Trust Fund
7(m) The 7(m) Microloan Program
A trust fund in the U.S. Treasury main-
Provides small, short-term loans to small tained to receive and account for dona-
business concerns and certain types of tions made by private entities for activi-
not-for-profit child-care centers. ties to assist small business.
A-123 Designation for OMB Circular on BD Business Development
“Internal Control Systems.” It prescribes
The Office of Business Development uses
policies and procedures to be followed
SBA’s statutory authority to provide busi-
by executive departments and agencies
ness development and federal contract
in establishing, maintaining, evaluating,
support to small disadvantaged firms.
improving, and reporting on internal
controls in their program and administra- BLIF Business Loan and Investment Fund
tive activities. Operated by the Treasury Department to
maintain the accounting records of loans
AARP Association for the Advancement of
approved prior to 1992.
Retired Persons
CAPLine An SBA program to help small busi-
AFMAC Audit and Financial Management
nesses meet their short-term and cycli-
Advisory Committee
cal working capital needs.
Assists the Administrator in overseeing
SBA’s financial operations. CBJ Congressional Budget Justification
A federal agency’s annual budget re-
AFR Agency Financial Report
quest to Congress.
One of the annual PAR reports.
CDC Certified Development Company
ANC Alaska Native Corporation
Refers to the Section 504 Certified
Development Company debenture
program.
AGENCY FINANCIAL REPORT • FY 2012 125
APPENDICES
CEAR Certificate of Excellence in FCRA Federal Credit Reform Act
Accountability Reporting, A law enacted to provide a more realistic
An award given by the Associate of picture of the cost of U.S. government
Government Accountants. direct loans and loan guaranties.
CFO Chief Financial Officer FECA Federal Employees Compensation Act
The CFO is responsible for the financial Provides compensation benefits to fed-
leadership of the Agency. This includes eral civilian employees for work-related
responsibility for all Agency disburse- injuries or illnesses and to their surviving
ments, management and coordination dependents.
of Agency planning, budgeting, analysis
and accountability processes. FEMA Federal Emergency Management
Agency
CIO Chief Information Officer The agency that is tasked with respond-
The CIO is responsible for the manage- ing to, planning for, recovering from and
ment of information technology for the mitigating against disasters.
Agency, including the design, imple-
mentation and continuing successful FERS Federal Employees’ Retirement System
operation(s) of information programs and A three-tiered retirement plan for
initiatives. federal employees hired after 1984,
composed of Social Security benefits, a
COBOL A computer programming language basic benefit plan, and contributions to
designed for business applications. a Thrift Savings Plan.
COOP Continuity of Operations Plan FFMIA Federal Financial Management
A predetermined set of instructions or Improvement Act
procedures that describes how an or- A law that requires each agency to
ganization’s essential functions will be implement and maintain financial man-
sustained for up to 30 days following agement systems that comply substan-
a disaster and then return to normal tially with federal financial management
operations. systems requirements, applicable federal
accounting standards, and the USSGL.
COTS Commercial Off-The-Shelf
Software or hardware products that are FICA Federal Insurance Contributions Act
ready-made and available for sale to the A law requiring a deduction from pay-
general public. checks and income that goes toward the
Social Security program and Medicare.
CRM Office of Credit Risk Management.
See OCRM. FISMA Federal Information Security
Management Act
CSAM Cyber Security Assessment and
Management FMFIA Federal Managers Financial Integrity Act
A law that primarily requires ongoing
DCMS Disaster Credit Management System
evaluations and reports on the adequacy
The electronic system used by the SBA of the internal accounting and admin-
to process loan applications for all new istrative control systems of executive
disaster declarations. agencies.
DLF Disaster Loan Fund FPDS-NG A system used for reporting, recording
Assists eligible small businesses impacted and tracking agencies’ procurement
by disasters. actions
FAR Federal Acquisition Regulations
126 AGENCY FINANCIAL REPORT • FY 2012
APPENDICES
FTA Fiscal and Transfer Agent IPIA Improper Payment Information Act
A federal law enacted in 2002 to iden-
FTE Full Time Equivalent tify and reduce erroneous payments
Indicates the workload of an employed in the government’s programs and
person; an FTE of 1.0 means that activities.
the person is equivalent to a full-time
worker, while an FTE of 0.5 signals that IT Information Technology
the worker is only half-time. Refers to matters concerned with the
design, development, installation and
FY Fiscal Year
implementation of information systems
The federal government fiscal year be- and applications.
gins October 1 and ends the following
September 30. ITQA Information Technology Quality
Assurance program
GAO U.S. Government Accountability Office
The audit, evaluation and investigative IV&V Independent Validation and
arm of Congress. Verification
A review of SBA Office of Financial
GC/BD Office of Government Contracting and Analysis and Modeling (OFAM) Financial
Business Development Models for accuracy and proper function-
GC/BD works to create an environment ing by an outside expert.
for maximum participation by small, dis-
advantaged and women-owned business JAAMS Joint Administrative Accounting
in federal government contract awards Management System
and large prime subcontract awards.
Jobs Act Small Business Jobs Act of 2010
GPRA Government Performance and Results Most often referred to as the Jobs Act in
Act, modified in 2010. SBA documents, may also be referred to
as SBJA.
GSA General Services Administration
LAS Loan Accounting System
GWAC Government-wide Acquisition Contract
SBA’s loan origination servicing and
High-growth Rapidly expanding small businesses that disbursement system.
Small drive net new job growth. The SBA
Business LMAS Loan Management and Accounting
supports high-growth small businesses
System
through its SBIR, SBIC and export pro-
Financial management system that sup-
grams, among others.
ports loan accounting.
HUBZone Historically Underutilized Business
MAS The GSA Multiple Awards Schedule
Zone
Program that encourages economic devel- MD&A Management’s Discussion and Analysis
opment by the establishment of federal The MD&A is considered required
contract award preferences for small busi- supplementary information for federal
nesses located in historically underutilized financial statements and is designed
business zones. to provide a high level overview of the
Agency.
IDIQ Indefinite-delivery indefinite-quantity
MED Minority Enterprise Development
IIP Incremental Improvement Project
IP Internet Protocol
AGENCY FINANCIAL REPORT • FY 2012 127
APPENDICES
MRA Master Reserve Account federal assistance for non-farm, private
SBA’s fiscal agent maintains this es- sector disaster losses for individuals and
crow fund to facilitate the operation of businesses.
the Certified Development Company
OFA Office of Financial Assistance
program.
SBA office that administers various loan
MRF Master Reserve Fund programs to assist small businesses.
SBA’s fiscal and transfer agent main-
OFAM Office of Financial Analysis and
tains this reserve fund to facilitate the
Modeling
operation of the 7(a) secondary market
An office in the SBA Office of
program.
Performance Management and Chief
NAICS North American Industry Classification Financial Officer.
System
OFPO Office of Financial Program Operations
NAICS is the standard used by federal
statistical agencies in classifying busi- OHCM SBA Office of Human Capital
ness establishments for the purpose of Management
collecting, analyzing, and publishing Now referred to as Office of Human
statistical data related to the U.S. business Resources Solutions.
economy.
OIC Office of Internal Control
NBC National Business Center Part of the SBA Office of the Chief
In the Department of the Interior Financial Officer, has the lead in making
sure managers can comply with internal
NIST National Institute of Standards and
control standards.
Technology
An agency of the U.S. Department of OIG Office of Inspector General
Commerce. Conducts and supervises audits, inspec-
NWBC National Women’s Business Council tions and investigations relating to SBA
programs and operations.
A bi-partisan federal advisory council
created to serve as an independent source OMB U. S. Office of Management and
of advice and policy recommendations to Budget
the President, Congress, and the SBA on White House office that oversees prepara-
economic issues of importance to women tion of the federal budget and supervises
business owners. its administration in Executive Branch
OCA Office of Capital Access agencies.
The office responsible for small business OPM U.S. Office of Personnel Management
program loans, lender oversight, and the The federal government’s human resourc-
surety bond program. es agency.
OCFO Office of the Chief Financial Officer ORACLE The accounting program used by SBA’s
OCRM Office of Credit Risk Management Administrative Accounting Division.
SBA office that manages program credit PAR Performance and Accountability Report
risk, monitors lender performance, and Annual report that presents financial,
enforces lending program requirements. budgetary and performance information
ODA Office of Disaster Assistance to OMB, Congress and the public.
SBA office that promotes economic
recovery in disaster ravaged areas. SBA
disaster loans are the primary form of
128 AGENCY FINANCIAL REPORT • FY 2012
APPENDICES
PCECGF Pollution Control Equipment Contract agreements with universities and colleges
Guaranty Fund and government organizations.
Supports costs associated with the credit
SBG Surety Bond Guarantee Program
portfolio of pre-October 1991 pollution
control equipment loans and guaranties Provides guaranties, bid, performance
being liquidated by the SBA. and payment bonds for contracts up to
$2 million for eligible small businesses
POA&M Plan of Action and Milestones that cannot obtain surety bonds through
regular commercial channels.
PPS Probability Proportional to Size
SBGRF Surety Bond Guaranty Revolving Fund
QA Quality Assurance
All the contractor and surety fees collected
Functions to assure that project deliver- by the SBA are deposited in the SBGRF at
ables meet SBA’s requirements and quality the Treasury Department, which is used to
standards. pay claims.
QAR Quality Assurance Review SBIC Small Business Investment Company
R&D Research and Development Provides long-term loans, debt-equity
investments and management assistance
Recovery American Recovery and Reinvestment to small businesses, particularly during
Act Act of 2009 their growth stages.
Most often referred to as the Recovery
Act in SBA documents, may also be SBIR Small Business Innovation Research
referred to as ARRA. SBA office that supports scientific
excellence and technological innovation
SAS Statement on Auditing Standards through the investment of federal research
Establishes standards and provides guid- funds.
ance on the design and selection of an
audit sample and the evaluation of the SBJA Small Business Jobs Act of 2010,
sample results. most often referred to as the Jobs Act
in SBA documents.
SAT Senior Assessment Team
SBLC Small Business Lending Company
SBA U.S. Small Business Administration Non-depository small business lending
A federal agency of the Executive Branch companies listed by the SBA Office of
whose mission is to aid, counsel and pro- Capital Access.
tect the interests of small businesses and
help families and businesses recover from SCORE A volunteer organization sponsored
disasters. by the SBA that offers counseling and
training for small business owners who
SBA Express Provides selected lenders with a 50 percent are starting, building or growing their
guaranty on their loans in exchange for the businesses.
ability to primarily use their own applica-
tion and documentation forms, making SDM System Development Methodology
it easier and faster for lenders to provide A software development methodology
small business loans of $250,000 or less. or system development methodology in
software engineering is a framework that
SBDC Small Business Development Center is used to structure, plan, and control
Program the process of developing an information
Delivers management and technical assis- system.
tance, economic development and man-
agement training to existing and prospec- SHCP Strategic Human Capital Plan
tive small businesses through cooperative
AGENCY FINANCIAL REPORT • FY 2012 129
APPENDICES
SOP Standard Operating Procedure.
SOPs are the primary source of the
Agency’s internal control.
SPFI Summary of Performance and Financial
Information
One of three annual financial and
performance reports required of federal
agencies.
STEP Refers to State Trade and Export
Promotion program or grant.
USSGL United States Standard General Ledger
VAT Vulnerability Assessment Team
Performs monthly scans of network-
attached devices to identify and remedy
network vulnerabilities.
WBC Women’s Business Center
WBCs provide long-term training and
counseling to women owning or man-
aging a business, including financial,
management, marketing and technical
assistance, and procurement.
Did In May 2012, the SBA and AARP formed a strategic alliance to provide
you counseling and training to entrepreneurs over the age of 50, known as
“encore entrepreneurs,” who want to start or grow a small business.
know Jointly, the SBA and AARP expect to train over 100,000 entrepreneurs.
For more information, go to www.sba.gov/cluster.
130 AGENCY FINANCIAL REPORT • FY 2012
ACKNOWLEDGMENTS
This Agency Financial Report was produced with the energies and talents of the SBA staff. To these
individuals, the Office of Performance Management and the Chief Financial Officer would like to
offer sincere thanks and acknowledgment.
We would also like to acknowledge the Office of the Inspector General and KPMG LLP for the pro-
fessional manner in which they conducted the audit of the Fiscal Year 2012 Financial Statements.
We offer our special thanks to Innovative Consultants International and Corporate Visions, Inc. for
outstanding contributions to producing this report.
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