SBA Agency Financial Report, Fiscal Year 2017

Summary

This is the U.S. Small Business Administration's Agency Financial Report for Fiscal Year 2017. Its highlights table (dollars in thousands) lists a principal program portfolio of $131,814,718, total assets of $13,215,919 and total employees of 3,271 for FY 2017. The report is the first of two required annual reports; the FY 2017 Annual Performance Report is part of the FY 2019 Congressional Budget Justification and is scheduled for publication in February 2018. The closing pages say the SBA received the Certificate of Excellence in Accountability Reporting for FY 2006 to FY 2016, along with four Special/Best-in-class awards, and thank the Office of Inspector General and KPMG LLP for the audit.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“SBA Agency Financial Report, Fiscal Year 2017.” Original at legacy.sba.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/sba-agency-financial-report-sba-fy-2017-afr-ec032402f5/, SHA-256 79a7596b7ec66e3f3dedcce05bfdcdb858a6091bfc84e6cd8059cfcc97dd1cf3.

Full text

AGENCY
FINANCIAL
REPORT
Fiscal Year 2017
ABOUT THIS REPORT FY 2017 HIGHLIGHTS

The U.S. Small Business
(Dollars in Thousands) FY 2014 FY 2015 FY 2016 FY 2017
Administration’s Agency Financial
Report (AFR) for FY 2017 provides
Principal Program Portfolio(1) $ 114,450,173 $ 118,767,451 $ 124,118,505 $ 131,814,718
an overview of the Agency’s
financial and performance data to
Regular FTE Employees 2,114 1,947 1,950 1,960
help Congress, the President, and
the public assess SBA’s stewardship Disaster FTE Employees 1,015 1,013 1,153 1,311
over the resources entrusted to it. Total Employees (2)
3,129 2,960 3,103 3,271
The AFR is the first of two required
annual reports for federal agencies. Total Assets $ 13,184,251 $ 12,020,867 $ 12,657,172 $ 13,215,919
The FY 2017 Annual Performance Total Liabilities $ 11,695,803 $ 10,682,837 $ 11,882,988 $ 11,703,589
Report (APR) is the other report and Total Net Position $ 1,488,448 $ 1,338,030 $ 774,184 $ 1,512,330
is part of the FY 2019 Congressional Total Net Cost of Operations $ (466,394) $ (644,590) $ 339,477 $ 3,910
Budget Justification (CBJ). The CBJ/
APR is scheduled for publication in Total Budgetary Resources $ 10,826,659 $ 10,296,788 $ 10,878,012 $ 12,243,154
February 2018. The reports can be (1)
The total portfolio consists of guarantied business loans outstanding, guarantied debentures, direct business loans and direct disaster loans. The data include all performing loans and
found at www.sba.gov/performance. defaulted loans that have not been charged-off.

(2)
The total excludes employees in the Offices of Advocacy and Office of Inspector General.

FOR MORE INFORMATION

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

Para información acerca de los programas de la SBA: www.sba.gov “Translate” “Select Language”

Questions and comments regarding the content, presentation and usefulness of this report are
welcome and may be addressed to: performance.management@sba.gov

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

Message from the Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SBA’s History, Goals, and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Primer of SBA’s Principal Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SBA by the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Analysis of Performance Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Analysis of Performance and Agency Priority Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Evidence and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Verification and Validation of Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Operational Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Forward Looking Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Analysis and Highlights of Financial Statements and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Highlights of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Analysis of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Analysis of SBA’s Systems, Controls, and Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Internal Control Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Financial Management Systems Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Management Assurances: FMFIA and FFMIA Assurance Statement for FY 2017 . . . . . . . . . . . . . . . . . . . . . 35
Improper Payments Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Audit and Financial Management Advisory Committee’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Inspector General’s Audit Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Independent Auditors’ Report on FY 2017 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
CFO Response to Draft Audit Report on FY 2017 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
OIG Report on the Most Serious Management and Performance Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Payment Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Summary of Financial Statement Audit and Management Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Fraud Reduction Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Reduce the Footprint Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Civil Monetary Penalty Adjustment for Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
GONE Act Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Appendix 1 – Contact SBA: Useful Websites and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Appendix 2 – Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Appendix 3 – OIG Audit Follow-up Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

AGENCY FINANCIAL REPORT • FY 2017 i
SBA’S MISSION
Maintain and strengthen the nation’s economy by enabling the establishment and vitality of small businesses
and by assisting in the economic recovery of communities after disasters.

HOW THIS REPORT IS ORGANIZED
The U.S. Small Business Administration’s FY 2017 Agency Financial Report (AFR) provides financial and
performance information for the fiscal year beginning October 1, 2016, and ending September 30, 2017.
This report presents SBA’s operations, accomplishments, and challenges. Following a message from the SBA
Administrator are four principal sections: Management’s Discussion and Analysis, Financial Reporting,
Other Information, and Appendices. “Did You Know?” facts about the SBA appear throughout the report
and are each accompanied by a “Success Story” highlighting a small business entrepreneur.

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

Financial Reporting
The Financial Reporting section provides a detailed report of SBA’s finances. It includes the message from
the Chief Financial Officer, the Audit and Financial Management Advisory Committee’s report, the audit
transmittal memorandum from the Inspector General, the Independent Auditors’ report, and the audited
financial statements and notes. The required supplementary information provides a combined statement of
budgetary resources, and the required supplementary stewardship information provides a report on stewardship
investments in human capital.

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

Appendices
The Appendices provide supporting information — a contact list of useful websites and telephone numbers, a
glossary, and a detailed report on audit follow-up activity.

ii AGENCY FINANCIAL REPORT • FY 2017
M ESSAG E FROM T H E ADMI NI STR ATOR

MESSAGE FROM THE ADMINISTRATOR November 14, 2017

It is my honor to present the U.S. Small Business Administration’s FY 2017 Agency
Financial Report.

Since taking leadership of the U.S. Small Business Administration in February, I have
had the privilege of meeting with entrepreneurs all over the country. I have visited offices,
factories, retail spaces, and restaurants; from Anchorage, Alaska to San Juan, Puerto
Rico, and lots of places in between, reflecting the true diversity of our geography and our
economy. So many of these entrepreneurs tell me their businesses simply would not exist
without the help of the SBA – from the guaranteed loans that provided the capital they
needed to realize their dreams of owning a small business, to the counseling services they received from our district offices
and resource partners, to the disaster aid they received when it seemed all hope had been lost.

As a member of President Trump’s Cabinet, I am honored to advocate on behalf of America’s 30 million small businesses.
I am committed to revitalizing the spirit of entrepreneurship in America, while ensuring this Agency operates as efficiently
and effectively as possible. I want more people to know about the resources available through the SBA, so that our nation’s
small businesses can continue to create jobs and make our communities vibrant places to live, work, and raise families.

This report highlights SBA’s key accomplishments in helping entrepreneurs start, grow, and succeed in business.
The financial and performance data published in this report are reliable and complete, and are in accordance with
the Office of Management and Budget Circulars A-136 and A-11. In the pages that follow, we detail our achievements
in the areas of capital, contracts, counseling, and disaster assistance.

SBA lending activity shows consistent growth, due to increasing loan levels in small business lending through the 7(a)
and 504 loan programs, as well as increases in lending to women, veterans, and socially and economically disadvantaged
communities in emerging markets. In FY 2017, the SBA approved more than 68,000 loans in the 7(a) and 504 loan
programs, providing more than $30 billion to small businesses and supporting nearly 630,000 jobs.

During FY 2017, SBA lending had a significant positive effect on businesses that have historically faced greater challenges
in obtaining conventional loans. Minority business owners received a record combined $9.58 billion in 7(a) and 504
approved lending, or 31 percent of SBA’s loan portfolio. SBA 7(a) lending to women-owned businesses grew in total
dollar and volume, exceeding $7.5 billion in FY 2017, an increase of $298 million from FY 2016. The 504 lending to
women-owned businesses reached $955.2 million, a $277 million increase over the previous fiscal year. Loans to veterans
totaled $1.15 billion for the 7(a) and 504 programs.

We continue our efforts to modernize and streamline our operations, including our lending practices. The SBA launched
its online lender referral tool, Lender Match, which helps connect small business borrowers with participating SBA
lenders, even from the comfort and convenience of a smartphone.

The Small Business Investment Company program, in which the SBA partners with private investors to finance
small businesses through professionally managed investment funds, supported nearly 1,000 small businesses with
$5.7 billion in financing.

AGENCY FINANCIAL REPORT • FY 2017 1
M E S S A G E FR OM TH E A DM I N I S TR ATO R

Sometimes good advice is just as valuable as capital to get a small business going. The SBA offers a wealth of knowledge
aimed at educating entrepreneurs on things like how to write a business plan and how to scale a business. Through SBA’s
68 district offices and resource partners, including Small Business Development Centers, Women’s Business Centers,
Veterans Business Outreach Centers, and SCORE, the SBA expanded outreach to small businesses. In FY 2017, nearly
1.46 million small businesses took advantage of counseling, mentoring, and training assistance.

The U.S. Government is the world’s largest purchaser of goods and services. The SBA is committed to ensuring that
small businesses have the training they need to access these contracts. The Federal Government has a goal that 23 percent
of all contract dollars go to small businesses, and it has specific programs to ensure businesses owned by women and
other disadvantaged groups have access to these contracts. This spring, the SBA announced that the Federal Government
met the small business prime contracting goal for FY 2016, awarding 24.34 percent of its contracts, worth nearly $100
billion, to small businesses.

This was a historic year for hurricanes, with three major storms – Harvey, Irma, and Maria – inflicting unprecedented
damage on Texas, Florida, Puerto Rico, and the U.S. Virgin Islands. The SBA is working very closely with FEMA and
other agencies, as well as with partners at the state and local levels, to help make recovery happen as expeditiously as
possible. SBA’s low interest loans help homeowners, renters, and businesses take care of uninsured losses so they can
get their lives back on track. Small businesses are the backbone of our communities, and getting them operating again
will be key to these areas’ economic recovery. During FY 2017, the SBA approved nearly 27,000 disaster loans for
a total of $1.7 billion.

The SBA is focused on supporting small businesses in our communities at every stage, whether they are launching,
expanding or getting through a tough time. Small businesses are the engines of our economy, and half of our workforce
either works for or owns a small business. Entrepreneurs find that owning a business is one of the most effective ways to
secure a financial future for themselves, provide for their families, exercise their commitments to their communities, and
drive our country’s economic growth. I am proud to lead a team of professionals dedicated to ensuring entrepreneurs
have the support and tools they need. We look forward to building on that success in FY 2018 and beyond.

Warm regards,

Linda McMahon
Administrator

2 AGENCY FINANCIAL REPORT • FY 2017
MANAGEMENT’S
DISCUSSION &
ANALYSIS
DID CAPITAL The growth in SBA’s 7(a) and 504 loan programs indicates the
YOU continued outreach and streamlining of program delivery. The 7(a) loan
program showed impressive gains in comparison to FY 2016, with over
KNOW $25.4 billion in approved loans—an increase of 5 percent. The 504 loan
program increased in FY 2017, with $5 billion in approvals. This level of
program activity demonstrates that access to capital through conventional
sources remains a challenge for America’s small businesses.

SUCCESS Lender Partnerships are Key to
Expanding Business and Economic
STORY Development
The Auto Bolt Company
Cleveland, Ohio

Founded in 1948, Robert Chapman Kocian has owned and operated the
Auto Bolt Company since 2005. Robert, who has more than 28 years of
experience in the fastener industry, has led the company’s resurgence and growth. Just a year after Robert acquired
the company, it received a $372,000 SBA 504 loan from Certified Development Company Growth Capital Corp.,
which was the first of several SBA loans that has allowed Auto Bolt to realize sustained growth. In the last 5 years,
the company has received six SBA 504 loans to purchase a new 100,000-square foot industrial building and acquire
manufacturing equipment. The company also received a $140,000 SBA Community Advantage Loan in 2014, which
provided permanent working capital.

Auto Bolt’s workforce has grown more than 35 percent, and it now employs upward of 60 employees. In addition,
revenues are up more than 55 percent in the last 4 years. The company has provided an important economic effect
to the local community. It has used lender partnerships that encourage and support comprehensive approaches to
economic development.
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

SBA’S HISTORY, GOALS, AND ORGANIZATION
In 1953, Congress created the U.S. Small Business Administration to “aid, counsel, assist and protect, insofar as is
possible, the interests of small business concerns.” SBA’s headquarters is located in Washington, DC, while its business
products and services are delivered with the help of field personnel and a network of private sector and nonprofit partners
in each U.S. state and territory. Major SBA offices fall under one of three Agency-wide strategic goals, as outlined in SBA’s
FY 2014-2018 Strategic Plan:

SBA’s Mission
Maintain and strengthen the nation’s economy by enabling the establishment and vitality of small businesses
and by assisting in the economic recovery of communities after disasters.

Strategic Goal 1 Strategic Goal 2 Strategic Goal 3
Growing businesses and Serving as the voice Building an SBA that meets the needs of
creating jobs for small business today’s and tomorrow’s small businesses

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

The Office of Entrepreneurial Development provides business
STRATEGIC GOAL ONE — Growing advising, mentoring, and training assistance through its
businesses and creating jobs resource partner network composed of Small Business
Development Centers, Women’s Business Centers, and
Strategic Goal One focuses on business formation, SCORE and Entrepreneurship Education activities.
job growth, and economic expansion through capital, In addition, SBA’s district offices support coordination
contracting, entrepreneurship, exporting, innovation, between SBA resource partners and local small business
and disaster assistance. communities.
The Office of Capital Access assists small businesses The Office of Government Contracting and Business
in obtaining capital via the 7(a) Loan, 504 Certified Development provides assistance to small businesses
Development Company Loan, and Microloan competing for federal prime contracting and subcontracting
Programs, as well as obtaining bonds through the Surety opportunities. These assistance programs include
Bond Guarantee Program. HUBZone, 8(a) Business Development, 7(j) Management
and Technical Assistance, All Small Mentor-Protégé,
The Office of Disaster Assistance provides affordable, timely,
and Women-owned and Veteran-owned Small Business
and accessible financial assistance to homeowners, renters,
set-asides. The office also sets size standards for small
businesses, and private nonprofit organizations following
businesses, which determine the size a business must be to
a disaster. The Disaster Loan program is the only form
be considered a small business for a particular industry.
of SBA assistance that is not limited to small businesses.
Disaster assistance funding is deployed quickly, effectively, The Office of International Trade enhances the ability of
and efficiently in order to preserve jobs and help return small businesses to export and compete in the global
small businesses back to operation. marketplace by facilitating access to capital, providing

AGENCY FINANCIAL REPORT • FY 2017 5
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

technical assistance, ensuring the consideration of small Alaska Native, and Native Hawaiian tribal governments;
business interests in trade negotiations, and contributing and insular governments.
to the U.S. Government’s international commercial and
economic agenda. The Office of Veterans Business Development ensures
applicability and usability of all the Agency’s small
The Office of Investments and Innovation assists high-growth business programs for veterans, service-disabled veterans,
small businesses through the Small Business Investment reserve component members, and their dependents or
Company, Small Business Innovation Research, and Small survivors. The office accomplishes its work through
Business Technology Transfer programs. Veterans Business Outreach Centers, the Boots to
Business program, Entrepreneurship Boot Camp for
veterans with disabilities, and partnerships with other
STRATEGIC GOAL TWO — Serving as federal agencies and nonprofit organizations.
the voice for small business
The National Women’s Business Council is a
Strategic Goal Two focuses on socially and economically nonpartisan federal government council created to
disadvantaged communities1 in emerging markets and serve as an independent source of advice and policy
outreach to ensure that all small businesses receive recommendations to the President, Congress, and the
equal representation in the marketplace. SBA’s Office of SBA on issues of economic importance to women
Capital Access, Office of Entrepreneurial Development, business owners.
and Office of Government Contracting and Business
Development (all represented in Strategic Goal One) each
have programs that support these communities. STRATEGIC GOAL THREE — Building an
SBA that meets the needs of today’s and
The Office of Communications and Public Liaison
communicates the Agency’s programs and priorities to tomorrow’s small businesses
small businesses, their partners, and the public at large
SBA’s management offices support Strategic Goal Three.
by working with media outlets, developing social media
content, creating user-friendly online resources, crafting The Office of the Chief Operating Officer provides oversight
high-quality marketing materials, organizing events to of information technology, administrative services, and
gain feedback from small businesses, and coordinating human resources for the SBA to maximize internal
strategic partnerships. efficiency and responsiveness to small businesses.
The Office of Field Operations is SBA’s front-line operating The Office of Credit Risk Management within the Office
team. Most SBA programs and services are executed of Capital Access focuses on the mitigation of risk to
when small businesses connect with their regional, taxpayers through ever-improving risk management and
district, and branch offices, which are located in each oversight of SBA lending programs.
state and territory.
The Office of Performance Management and the Chief
The Office of the National Ombudsman works with all Financial Officer provides Agency performance
federal agencies that regulate small businesses to provide a management, financial, and acquisition oversight.
means for businesses to comment on federal government The office is responsible for Agency disbursements,
enforcement activities, including audits, on-site inspections, management, and coordination of Agency planning,
compliance assistance efforts, and other enforcement budgeting, analysis, and accountability processes.
efforts. The office also maintains a five-member Regulatory
Fairness Board in each of SBA’s 10 regions to hold public Other support offices include the Office of Congressional
hearings on small business concerns. and Legislative Affairs, Office of General Counsel, and Office
of Hearings and Appeals.
The Office of Intergovernmental Affairs facilitates
continuous and bilateral communications between the
SBA and: state and local governments; American Indian,
1 Socially and economically disadvantaged communities in emerging markets
include women, veterans, minorities, and individuals in HUBZone and
rural areas.

6 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

EXECUTIVE SUMMARY
America’s 30 million small businesses play a critical role in Performance Results
job creation and retention. During the last two decades,
small businesses have been responsible for creating two Capital: In FY 2017, the dollar amount of SBA’s 7(a)
out of every three net new jobs. In turn, the U.S. Small loan program increased by 5 percent, leading to a record
Business Administration’s assistance to those firms and year of approvals. Additionally, the 504 loan program
entrepreneurs help drive a healthy economy. exceeded its FY 2017 target with $5 billion in loan
approvals. In all, through the 7(a) loan, 504 loan, and
The SBA employs a variety of methods to support Microloan programs, the SBA approved more than
America’s small businesses. These methods include 73,000 loans and provided more than $30.5 billion in
promoting access to capital, federal contracting, lending to small businesses. More than $11 billion was
counseling, and disaster assistance. invested in small businesses through the Small Business
Investment Company program.
Throughout FY 2017, three goals from the SBA’s FY
2014-2018 Strategic Plan guided the Agency’s actions: Contracts: The SBA continues to work with agencies
across the Federal Government to expand small business
1. Growing businesses and creating jobs
contracting opportunities. From the beginning of FY 2012
2. Serving as the voice for small business through FY 2016, small businesses accessed nearly $455
3. Building an SBA that meets the needs of today’s and billion in federal contracts (FY 2017 contracting numbers
tomorrow’s small businesses continue to be collected and certified).

The following sections highlight financial and Counseling: The SBA provided mentoring, business
performance results for the Agency, including the three advice, and training assistance to more than 1.4 million
Agency Priority Goals. An in-depth analysis can be entrepreneurs and small businesses this year, which helped
found in the Analysis of Financial Results and Analysis entrepreneurs start businesses and create or retain jobs.
of Performance Results sections. The complete set of
performance results will be reported in the Annual Disaster Assistance: Disaster loan applications and
Performance Report, released in February 2018. approvals increased compared to the previous year, due
to flooding in the southeast and hurricanes Harvey, Irma,
and Maria. In FY 2017, the Agency worked on 306 active
Financial Results disaster assistance declarations and approved more than
For FY 2017, SBA’s total budgetary resources used for 27,000 disaster loans totaling nearly $1.7 billion.
staffing, operations, and loan subsidy costs were $2.3
billion, and total nonbudgetary resources for loan financing Agency Priority Goals and Outcomes
used to purchase guarantied loans in default and to make
direct loans were $4.0 billion. SBA’s guarantied portion The Government Performance and Results Act
of the outstanding loan principal rose 6.1 percent in FY Modernization Act of 2010 requires federal agencies to
2017, to $99.5 billion. New guaranties disbursed by SBA establish a set of 2-year APGs that reflect the highest
participating banks during FY 2017 were $22.8 billion, priorities of agency leadership. The SBA has established
a 7.1 percent increase this year that resulted in the net three APGs. The goals and outcomes from fiscal year
6.1 percent increase in outstanding guaranties. Purchases 2017 were as follows.
of defaulted guarantied loans increased, going from
• Increase active lender participation.
$0.8 billion last year to $1.0 billion this year. The loan
receivables portion of the SBA credit program portfolio · Goal: By September 30, 2017, expand access
increased this year from $6.2 billion to $6.4 billion in to capital for small businesses by increasing the
FY 2017. The small spike in loan receivables was caused number of active lenders in SBA’s 7(a) loan
primarily by the increase in new disaster direct loan program from 2,244 (FY 2014) to 2,500.
disbursements made to assist FY 2016 flood survivors in · Outcome: The SBA increased small business
the southern United States. access to capital by adding new and returning
lenders to the 7(a) loan program. While the

AGENCY FINANCIAL REPORT • FY 2017 7
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

Agency missed its FY 2017 target by 21 percent,
lenders provided more than $25 billion in loans
to small businesses. Continuing bank mergers
translates to fewer unique lenders being able to
provide SBA guaranteed loans.
• Maximize small business participation in
government contracting.
· Goal: Through September 30, 2017, maximize
small business participation in federal government
contracting to meet the statutory goal of 23 percent,
ensure subgoals are met, and reduce participation
by ineligible firms.
· Outcome: The SBA will continue to collect
and certify FY 2017 contracting numbers
through the third quarter of FY 2018. The
Agency exceeded its FY 2016 target with the
Federal Government, making 24.34 percent of
contracting dollars available to small businesses.
The SBA provided continuous outreach to
other federal agencies to ensure that the goal
was exceeded.
• Support more disadvantaged small businesses.
· Goal: By September 30, 2017, support more
disadvantaged small businesses by increasing
the number of approved 8(a) certification
applications by 5 percent each fiscal year.
· Outcome: The SBA instituted several
process improvements for the 8(a) Business
Development program. The SBA spent time
developing existing businesses in the 8(a)
program and less time processing applications.
As a result, the SBA was under target by 12
percent due to greater focus on increasing the
number of 8(a) firms obtaining federal contracts.

8 AGENCY FINANCIAL REPORT • FY 2017
SBA ORGANIZATION CHART

Office of Advocacy
Office of the Administrator

Office of Inspector General

Office of Disaster Office of Veterans Office of Office of Government Office of Office of Investment Office of Field Office of
Assistance Business Entrepreneurial Contracting and Capital Access and Innovation Operations International Trade
Development Development Business • Office of Financial • Office of SBIC Operations • 10 Regional
Development Assistance • Office of SBIC Liquidation Administrators
• Office of Small Business • Office of Surety • Office of Examinations • 68 District Offices
Development Centers • Office of Business Guarantees • Office of Program
• Office of Women’s Development • Office of Economic Development
Business Ownership • Office of Government Opportunity • Office of Licensing and
• Office of Contracting • Office of Performance and Program Standards
Entrepreneurship • Office of HUBZone Systems Management • Office of Innovation
Education Program • Office of Credit Risk and Technology
• Office of Policy, Planning, Management
and Liaison • Office of Financial
• Office of Mentor- Program Operations
Protégé

Office of Hearings Office of National Office of Office of Office of Office of Office of Office of
and Appeals Ombudsman Performance Chief Operating Communications Congressional and General Counsel Intergovernmental
Management and Officer and Public Liaison Legislative Affairs Affairs
the Chief Financial • Office of the Chief • Office of Native
Officer Information Officer American Affairs
• Office of the Chief • Office of Diversity,
Financial Officer Inclusion, and Civil Rights
AGENCY FINANCIAL REPORT • FY 2017

• Office of Performance • Office of Disaster Planning
Management and Risk Management
• Office of Internal • Office of Human
Controls Resources Solutions
• Denver Finance • Office of Grants
Center Management
• Office of Administrative
Services
• Office of Executive
Secretariat
• Office of Personnel
Security

9
M ANAG EM ENT ’S DISCUSSION & ANALYSI S
10

SBA REGIONS AND FIELD OFFICES

Alaska DO
★
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

Seattle DO
★

★ ★ Montana DO
Oregon DO North Dakota DO ★ Maine DO
★
★Vermont DO
New Hampshire DO
★
★ Syracuse DO
Minnesota DO ★Massachusetts DO
★
★ Idaho DO
South Dakota DO ★Rhode Island DO
★ Milwaukee DO Michigan DO ★Buffalo DO ★
Wyoming DO ★ Connecticut DO
★ District Office ★ ★
★New York DO
★
★ New Jersey DO
Illinois DO ★ Pittsburgh DO
Sacramento DO Cleveland DO ★ Philadelphia DO
★ ★ ★
★ Nebraska DO
Des Moines DO
Utah DO ★ ★ ★ Delaware DO
Columbus DO ★Maryland DO
★ San Francisco DO ★ ★ ★ ★
AGENCY FINANCIAL REPORT • FY 2017

Colorado DO Indiana DO Clarksburg DO
Kansas City DO Washington, DC DO
★ ★
Fresno DO ★
Nevada DO St. Louis DO ★ ★ Richmond DO
★ Wichita DO Kentucky DO
★

North Carolina DO
★ Tennessee DO ★
★
Los Angeles DO ★ ★ Santa Ana DO
Oklahoma DO Arkansas DO
★ New Mexico DO ★ ★ ★
★ Arizona DO South Carolina DO
San Diego DO ★
Alabama DO Georgia DO
★ ★
Lubbock DO
★
★ ★
Dallas/Ft. Worth DO Mississippi DO
El Paso DO
★ North Florida DO
Guam Louisiana DO ★
Houston DO
★
★
★ San Antonio DO
Hawaii DO

★ South Florida DO
★ Harlingen DO

★
Puerto Rico and
U.S. Virgin Islands DO
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

PRIMER OF SBA’S PRINCIPAL PROGRAMS

CAPITAL (www.sba.gov/financialassistance)
The SBA has a business loan portfolio of $113.7 billion.2

7(a) Loan Program — The SBA offers government guaranties on loans (up to $5 million) made by commercial lenders
to help expand access to capital for business owners who face challenges in getting approved for financing. The SBA
guarantees a portion of 7(a) loans made and administered by commercial lending institutions. Loans can be guaranteed
for a variety of general business purposes.
504 Certified Development Company Loan Program — These long-term, fixed-rate loans (up to $5.5 million)
support investment in major assets such as real estate and heavy equipment. Loans are delivered by Certified
Development Companies, which are private, nonprofit corporations. CDCs work with the SBA and private lenders to
provide financing. The SBA guarantees the CDC’s portion of these loans.
Microloan Program — The SBA provides loans to nonprofit intermediary lenders, which are community-based
organizations with experience in lending and technical assistance, that in turn make these loans (up to $50,000) to small
businesses needing small-scale financing and technical assistance for startup or expansion.
Surety Bond Guarantee Program — A surety bond guarantee is a type of contract that guarantees the performance of a
contractor. If one party does not fulfill its end of the bargain, then the SBG program 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, up to $6.5 million for non-federal contracts and up to $10 million for federal contracts.

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

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 goal are four subgoals:

Small Disadvantaged Businesses — This program provides assistance through the 8(a) Business Development program
and set-aside contracting for businesses owned and controlled by socially and economically disadvantaged individuals.
Over the course of 9 years, a firm is assisted in gaining resources to compete for federal contracts and for contracts in the
private sector.
HUBZone Small Businesses — This program provides sole-source and set-aside contracting for firms located in
designated 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 by women.

ADVISING, MENTORING, AND TRAINING (www.sba.gov/local-assistance)
The SBA and its partners serve more than 1.4 million small business clients a year through the following programs.

Small Business Development Centers — SBDCs deliver an array of services to small businesses and prospective
business owners using an extensive network of 63 lead centers managing more than 900 service delivery points
throughout the United States and the insular territories.

2 The business loan portfolio of $113.7 billion consists of the following loan programs: 7(a), 504 loan, Microloan, ARC 506, Dealer Floor Plan, 504 First Lien,
and 504 Refi.

AGENCY FINANCIAL REPORT • FY 2017 11
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

Women’s Business Centers — WBCs provide advising and training through more than 100 nonprofit educational
centers across the nation. Many WBCs provide multilingual services, and a number offer flexible hours allowing for
mothers with children to attend training classes.
Veterans Business Outreach Centers — SBA’s 20 VBOCs provide counseling and training services to veteran-owned and
service-disabled veteran-owned small businesses and entrepreneurs, along with reserve component members starting new
small businesses or expanding established small businesses.
SCORE — SCORE is a nonprofit association comprised of nearly 11,000 volunteer business mentors that serve
entrepreneurs with in-person mentoring and local training workshops. As the largest volunteer business mentor network
in the federal government, SCORE adapts its structure and services to meet the needs of small businesses.
Learning Center — The SBA Learning Center is an online portal that hosts a variety of self-paced online training
courses, quick videos, web chats, and more to help small business owners explore and learn about many aspects of
business ownership.

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

Export Loans — The SBA provides several types of export loans, including SBA Export Express loans (up to $500,000),
Export Working Capital loans (up to $5 million), and International Trade loans (up to $5 million) that provide small
businesses with enhanced export financing options to develop foreign markets, fund their export transactions, and/or
support business expansion due to exporting success. The SBA provides technical assistance on trade finance and funding
questions through staff located in U.S. Export Assistance Centers.
U.S. Export Assistance Centers — USEACs are staffed by professionals from the SBA, the Department of Commerce,
and the Export-Import Bank. Together, their mission is to help small- and medium-sized businesses compete in today’s
global marketplace by providing export marketing and finance assistance.
State Trade and Export Promotion Program — STEP provides grants to states to assist small businesses with the
information and tools they need to succeed in export related activities. These activities include participation in foreign trade
missions, foreign market sales trips, international marketing campaigns, export trade shows, and training workshops.

HIGH-GROWTH SMALL BUSINESSES (www.sba.gov/sbic)
The SBA supports high-growth investments through a portfolio of $11.8 billion in guaranteed debentures.

Small Business Investment Companies — SBICs are privately owned and managed investment funds that use their
capital plus funds borrowed with an SBA guaranty to make equity and debt investments in qualifying small businesses.
Small Business Innovation Research — The SBIR program is a highly competitive funding agreement program that
stimulates high-tech innovation by reserving a specific percentage of federal research and development funds
for small businesses. The SBIR program protects the small business and enables it to compete on the same level as
larger businesses.

DISASTER ASSISTANCE (www.sba.gov/disaster)
The SBA has a portfolio of $6.2 billion in direct disaster loans to businesses of all sizes, private nonprofit organizations,
homeowners, and renters.

Disaster Assistance — 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. It is the only form of SBA assistance that is not limited to small businesses.

12 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

SBA BY THE NUMBERS
(Dollars in Millions)
FY 2014 FY 2015 FY 2016 FY 2017
Principal Program Portfolio (1) Outstanding Principal Balance $ 114,434 $ 118,767 $ 124,118 $ 131,815
Capital (2)
7(a) Loans Dollars of Gross Loans Approved $ 19,191 $ 23,584 $ 24,128 $ 25,447
504 Loans Dollars of Gross Loans Approved $ 4,199 $ 4,298 $ 4,740 $ 5,014
Microloans Dollars of Gross Loans Approved to Microborrowers $ 54 $ 51 $ 58 $ 68
Surety Bonds Dollars of Bid and Final Bonds Guaranteed $ 6,413 $ 6,348 $ 5,658 $ 6,032

Contracting (3)
Prime Contracting Dollars of Contracts Awarded to Small Businesses $ 91,682 $ 90,702 $ 99,960 N/A
HUBZone Small Dollars of Contracts Awarded to HUBZone
$ 7,000 $ 6,422 $ 6,864 N/A
Businesses Small Businesses
Small Disadvantaged Dollars of Contracts Awarded to Disadvantaged
$ 34,700 $ 35,430 $ 39,134 N/A
Businesses Small Businesses
Women-Owned Small Dollars of Contracts Awarded to Women-Owned
$ 17,200 $ 17,807 $ 19,670 N/A
Businesses Small Businesses
Service-Disabled, Veteran- Dollars of Contracts Awarded to Service-Disabled,
$ 13,500 $ 13,832 $ 16,337 N/A
Owned Small Businesses Veteran-Owned Small Businesses

Advising, Mentoring,
and Training (4)
Small Business Number of Clients Advised and Trained
Development Centers 485,487 454,898 453,427 451,041
(SBDCs)
Women's Business Number of Clients Advised and Trained
140,037 140,716 145,415 149,121
Centers (WBCs)
SCORE Number of Clients Mentored and Trained 442,374 349,539 433,394 613,286
Online Training Number of Clients Trained Online 182,002 139,719 187,162 206,172
Veteran's Business Number of Clients Advised and Trained 52,621 62,117 47,342 50,131
Outreach Centers (VBOCs)

Exporting
Export Loans Dollars of Gross Loans Approved $ 1,341 $ 1,454 $ 1,546 $ 1,872

High-growth Small
Businesses
Dollars of SBA Debenture Leverage Committed to
$ 2,549 $ 2,553 $ 2,514 $ 1,959
Small Business Investment SBICs
Company (SBIC) Dollars of SBIC Debenture Capital to Small Busi-
$ 5,465 $ 6,286 $ 5,529 $ 5,727
nesses

Disaster
Disaster Assistance (2) Dollars of Gross Loans Approved $ 332 $ 372 $ 1,407 $ 1,666

(1) The total portfolio consists of guarantied business loans outstanding, guarantied debentures, direct business loans, and direct disaster loans. The data include all performing loans and
defaulted loans that have not been charged-off.
(2) The SBA tracks loan data in three ways: Gross Loans Approved (the total loans approved); Net Loans Approved (gross loans approved plus any loan increases minus any cancellations);
and Disbursed Loans (the amount that is actually given to the borrower). Gross Loans Approved is presented in the Capital and Disaster Assistance sections because it is the only loan data
that remain constant over time.
(3) FY 2017 contracting numbers will continue to be collected and certified through the third quarter of FY 2018. Therefore, FY 2017 numbers are not yet available.
(4) Resource partners may input data up to 45 days after the close of the fiscal year.

AGENCY FINANCIAL REPORT • FY 2017 13
M A N A G EMEN T ’ S DI SCU S S I O N & A N A L YSIS

ANALYSIS OF PERFORMANCE RESULTS

Analysis of Performance and pipeline of SBA loans for small businesses. The SBA
accomplished 78 percent of its FY 2017 target to reach 2,500
Agency Priority Goals active lenders (see Chart I) that made loans totaling $25.4
The following section presents key SBA FY 2017 billion. The number of active lenders recruited slowed in
performance data, including the three FY 2016-2017 the fourth quarter. A key challenge is the consolidation of
Agency Priority Goals identified by SBA leadership that are lenders through mergers and acquisitions, which has been a
critical to the success of SBA’s mission. The presentation of continuing trend for several years. The lending community,
the performance data and analysis is organized by strategic however, has been responsive to SBA’s strategy of fee relief
objective, which follows SBA’s FY 2014-2018 Strategic for lower-dollar loans and loan program improvements, and
Plan. The following measures and analysis represent SBA’s the SBA has been actively recruiting credit unions to join the
three strategic goals. Detailed performance information on 7(a) loan program.
all SBA programs will be presented, and all variances will be
explained in the FY 2017 Annual Performance Report to be Performance Goal: Support 726,900 jobs through
published in February 2018 with the FY 2019 Congressional capital assistance programs in FY 2017.
Budget Justification.
Performance Analysis: The number of jobs
supported – jobs created and retained as a result of SBA
STRATEGIC OBJECTIVE 1.1: Expand
intervention – is an important outcome measure of the
access to capital through SBA’s extensive
effectiveness of SBA’s programs. This measure tracks the
lending network. number of jobs supported through the 7(a), 504 loan,
Priority Goal: By September 30, 2017, expand access microloan, and surety bond guarantee programs. Since FY
to capital for small businesses by increasing the number of 2012, the number of jobs has increased, with more than
active lenders in SBA’s 7(a) loan program from 2,244 (FY 675,000 jobs reported in FY 2017 (see Chart II).
2014) to 2,500. While the SBA missed its target by 7 percent, the
Agency saw a record year of 7(a) loan approvals. The
Performance Analysis: New and returning lenders SBA’s policies for fee relief on smaller dollar loans and
are a major component of SBA’s lending portfolio and are continued outreach to credit unions should support
essential to growth in the number of loans approved and more job creation and retention in the future. Additional
small businesses assisted. Attaining a high volume of active outreach will be conducted with lenders in FY 2018 to
lenders from one fiscal year to the next creates a consistent help support this measure.

CHART I NUMBER OF 7(a) ACTIVE LENDERS
3,000

Number of Active 7(a) Lenders
2,500
2,476
2,345
2,000 2,244
2,163
2,045
1,978
1,500

1,000

500

0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Actuals Target

14 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

CHART II 7(a), 504 LOAN, MICROLOAN, AND SURETY CHART III PERCENT OF FEDERAL PRIME CONTRACT
BOND GUARANTEE JOBS SUPPORTED DOLLARS AWARDED TO SMALL BUSINESSES

30
800,000

Percent of Small Business Contract Dollars
25 25.0 25.8
728,820 691,212 675,223
23.4 24.3

Number of Jobs Supported
600,000 615,364 22.3
609,437 621,869 20

400,000 15
Data
10 Available
Summer
200,000 2018
5

0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Actuals Target Actuals Target

STRATEGIC OBJECTIVE 1.2: Ensure federal
For the fourth consecutive year, in FY 2016 (the latest year
contracting goals are met and/or exceeded by of data available due to the data certification process), the
collaborating across the federal government Federal Government surpassed its prime contracting goal,
to expand opportunities for small businesses awarding small businesses nearly $100 billion in contracting
and strengthen the integrity of the federal dollars. The SBA surpassed its goals for service-disabled
contracting certification process and data. veteran-owned (FY 2016 result was 3.98 percent), and small
Priority Goal: Through September 30, 2017, maximize disadvantaged businesses exceeded its 5 percent target (FY
small business participation in federal government 2016 result was 9.53 percent). Also in FY 2016, women-
contracting to meet the statutory goal of 23 percent, ensure owned small businesses achieved 4.79 percent of its goal of
subgoals are met, and reduce participation by ineligible firms. 5 percent, and HUBZone achieved 1.67 percent of its 3
percent goal (see Chart IV). The SBA continued to work
Performance Analysis: By law, 23 percent of federal with the Office of Federal Procurement Policy to integrate
government prime contracting dollars are set-aside for small business data quality reviews (anomaly reports) into
small businesses, which includes 5 percent of prime and each agency’s contracting processes and procedures. The SBA
subcontracts to small disadvantaged businesses and women- developed potential anomaly reports for the top 10 agencies
owned small businesses, and 3 percent of prime and that issued small business award dollars to what appear to be
subcontracts to HUBZone small businesses and service- large businesses, missing NAICS codes, or missing contracting
disabled veteran-owned small businesses (see Chart III). officer’s size selection data.

CHART IV FY 2016 PERCENT OF FEDERAL PRIME CONTRACT DOLLARS AWARDED TO SOCIO-ECONOMIC
SMALL BUSINESSES

Service-Disabled
Small Disadvantaged Business 9.53% 3.98%
Veteran-Owned

Women-Owned 4.79% HUBZone 1.67%

Goal: 5% Goal: 3%

AGENCY FINANCIAL REPORT • FY 2017 15
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

Priority Goal: By September 30, 2017, support
CHART V NUMBER OF 8(a) APPLICATIONS APPROVED
more disadvantaged small businesses by increasing the
number of approved 8(a) certification applications by
5 percent each fiscal year.
1,000

Performance Analysis: The 8(a) program helps 911
socially and economically disadvantaged entrepreneurs 800
gain access to federal government contracting

Number of Applications
opportunities. In prior years, small businesses had a 600
difficult time negotiating the lengthy 8(a) certification 568 557
process. The SBA had major success in this program by
400
streamlining the application process. The SBA approved 419 391
Data
557 applications, missing the target by 12 percent. Not
As a result of the transition to a new Administration, 200 Available
the SBA has been placing a greater focus on 8(a) firms
obtaining federal contracts (see Chart V). 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
STRATEGIC OBJECTIVE 1.3: Actuals Target

Strengthen entrepreneurial ecosystems3
through a variety of strategic partnerships
to provide tailored training, mentoring, and
counseling services that support entrepreneurs
during every phase of their business growth.
Performance Goal: Reach 1.2 million clients with online
and in-person advising, mentoring, and training in FY 2017.

Performance Analysis: The SBA exceeded its
performance target for advising, mentoring,
and training assistance by 16 percent (see Chart CHART VI SMALL BUSINESS ENTREPRENEURS
VI). Resource partners may input data up to 45 ADVISED, MENTORED, AND TRAINED
days after the close of the fiscal year, and this
information will be made available in the APR
publication in February 2018. While the Small
Business Development program experienced a 1,500,000

Number of Small Business Entrepreneurs
slight decrease of 1 percent in the number of clients 206,172
220,596
served from FY 2016 to FY 2017, SCORE and 1,200,000 182,002 187,162
150,355 154,129
Women’s Business Center programs experienced
a 42 and 3 percent increase, respectively, in the 900,000
number of clients advised and trained. SCORE 739,616 663,525 688,688 637,129 723,343 888,795
implemented new online training, which greatly 600,000
increased the number of entrepreneurs assisted. In
addition, the SBA developed new regulations for 300,000
399,620 348,519 379,210 360,524 356,235 374,784
the WBC to provide comprehensive guidance to
grantees, and increased the number of VBOC and 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
WBC locations, allowing more entrepreneurs to
access vital small business services. Online Training
Training
3 The entrepreneurial ecosystem refers to external elements which Counseling/Advising and Mentoring Target
contribute to the likelihood that a small business will be successful.
This ecosystem includes access to markets, capital, technical support,
personnel, suppliers, and infrastructure. The SBA addresses these needs
through a variety of strategic partnerships with its resource partners.

16 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

STRATEGIC OBJECTIVE 1.4: Enhance the STRATEGIC OBJECTIVE 1.5: Fuel high-growth
ability of current and future small business entrepreneurship, innovation, and job creation
exporters to succeed in global markets by by providing the tools small businesses need to
expanding access to financing, counseling, start and grow their businesses.
training, and other export tools. Performance Goal: Issue $2.6 billion in debenture
Performance Goal: Expand small business access to leverage to small business investment companies
export financing by increasing the number of small business in FY 2017.
exporters receiving financing to 1,520 in FY 2017.
Performance Analysis: SBICs provide long-term
Performance Analysis: Increasing access to loans and equity capital to small businesses. The SBICs
export financing, combined with trade counseling and are privately owned and managed investment funds
training, contributes to the enhanced ability of current that are licensed and regulated by the SBA. In FY
and future U.S. small business exporters to succeed 2017, the SBA accomplished 75 percent of its target,
in the global marketplace. The SBA assisted 2,014 committing nearly $2 billion in debenture leverage to
small businesses in export financing, which exceeded SBICs. The debentures allowed SBICs to invest more
the target of 1,520 small businesses by 33 percent (see than $5.7 billion in nearly 1,000 small businesses
Chart VII). This year, the SBA approved 2,152 export (see Chart VIII). The SBA licensed 15 new SBICs
loans for $1.87 billion from 483 lenders, achieving and reduced the time to license by 29 percent from
a new SBA record as exports started to increase after FY 2015. As a new strategy, the SBA intends to focus
annual declines in FY 2015 and FY 2016. The SBA efforts on small businesses in emerging markets, which
accomplished this result by training and counseling will be reflected in FY 2018 performance.
lenders and hosting export roundtables across the
country to promote export lending.

CHART VII NUMBER OF SMALL BUSINESS CHART VIII SBIC DEBENTURE LEVERAGE
EXPORTERS ASSISTED COMMITTED

3,000

Dollars Invested in Small Businesses ( Billions)
2,500 2,500
2,549 2,533 2,514

Number of Small Business Exporters
2,156
2,000 2,000
2,014
1,924 1,959

1,500 1,550 1,500
1,513
1,392
1,283 1,388
1,000 1,000

500 500

0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Actuals Target Actuals Target

AGENCY FINANCIAL REPORT • FY 2017 17
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

STRATEGIC OBJECTIVE 1.6: a customer satisfaction rate of 85 percent, which
Ensure that SBA’s disaster assistance resources exceeds the 71 percent target (see Chart IX). The high
for businesses, nonprofit organizations, satisfaction rate is a result of several factors, including
homeowners, and renters can be deployed the improvements to the application process and
quickly, effectively, and efficiently in order upgrades to the Disaster Loan Assistance portal, which
allows applicants easier access to general questions,
to preserve jobs and help return small
status of their applications, and electronic signatures.
businesses to operation.
Performance Goal: Ensure the customer
satisfaction rate for disaster loan approvals is 71
percent in FY 2017.

Performance Analysis: The SBA tracks customer
satisfaction for its disaster assistance program through
an annual survey that uses the American Customer
Satisfaction Index. The index summarizes key points
in the loan process, including the application, final
decision, and closing of the loan. The SBA had

CHART IX CUSTOMER SATISFACTION RATE FOR DISASTER LOAN APPROVALS

100

Percent of Customer Satisfaction Rate
80 84
80 81 80 80

0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Actuals Target

18 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

STRATEGIC OBJECTIVE 2.1:
CHART X SMALL BUSINESSES IN EMERGING MARKETS
Ensure inclusive entrepreneurship
ASSISTED BY 7(a), 504 LOAN, AND MICROLOANS
by expanding access and
opportunity to small
businesses and entrepreneurs
40,000 37,917
in communities where market 35,014 35,819
34,081
gaps remain. 35,000 33,449 33,458

Number of Small Businesses
Performance Goal: Assist 34,050 30,000

underserved small businesses through 25,000
capital assistance programs in FY 2017.
20,000
Performance Analysis: Small 15,000
businesses in socially and economically
disadvantaged communities often 10,000
have difficulty accessing capital and 5,000
federal contracts. For capital assistance
programs, including 7(a), 504 loan, 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
and Microloans, the SBA assisted nearly Actuals Target
38,000 small businesses — exceeding
the FY 2017 target by 11 percent (see
Chart X). The elimination of the fees
on small dollar loans ($150,000 or less),
this fiscal year is a result of the transition and the
streamlined processes, and program improvements
continued focus on improving the SBA.gov website.
attributed to the increase in number of small businesses
assisted. In addition to the enhancements of the SBA
One electronic platform to submit applications, the
SBA introduced the online tool Lender Match to
connect distinct borrowers with lenders.

STRATEGIC OBJECTIVE 2.2:
Provide timely, instructive, and CHART XI NUMBER OF AVERAGE MONTHLY SBA.GOV
useful information to the small SITE VISITS
business community through SBA’s
extensive digital and in-person
3,000,000
outreach efforts.

Number of Monthly Average Site Visits
Performance Goal: Reach 2.4 million 2,500,000 2,440,223
2,245,979
average monthly SBA.gov site visits in 2,159,850
2,094,429
1,930,396
FY 2017. 2,000,000

1,439,750
Performance Analysis: In FY 2017, 1,500,000
SBA.gov averaged 1.9 million monthly site
visits. This number is lower than the 2.1 1,000,000
million visitors in FY 2016 and below the
2.4 million target for visits (see Chart XI). 500,000
While the SBA monitors this data using
cookies, more site visitors used a Do Not 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Track feature that the SBA chose to
Actuals Target
respect, which caused the numbers to
decline. In addition, the downward trend

AGENCY FINANCIAL REPORT • FY 2017 19
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

STRATEGIC OBJECTIVE 2.3:
CHART XII BOARD MEMBERSHIP RATE
Foster a small business-friendly
environment by encouraging
federal agency awareness about
100
the impact of unfair regulatory
96
enforcement and compliance

Percent of Board Membership Rate
80
efforts and reducing burdens on 80
74 76
small business. 74
60
Performance Goal: Maintain Regional
Regulatory Fairness Board membership at
40 46
85 percent or better in FY 2017.

Performance Analysis: SBA’s Office 20
of the National Ombudsman works with
federal agencies and the small businesses
0
they regulate to provide a confidential, FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
impartial channel for small businesses to Actuals Target
comment on enforcement activities, audits,
on-site inspections, compliance assistance,
or other types of communication. SBA’s
Regional Regulatory Fairness Board reviews small disadvantaged, HUBZone, and service-disabled
federal regulations impacting small businesses and veteran-owned small businesses. The SBA exceeded the
provides advice to the SBA National Ombudsman. small business utilization rate by maintaining a default
The SBA stopped recruiting new board members due Agency position of awarding contracts to small businesses
to the transition in administrations, which has led to a and only resorting to large vendors when all small
46 percent membership rate on the Regulatory Fairness business options were exhausted.
Board, 39 percentage points below the target of 85
percent (see Chart XII). In order to recruit new members
and to reduce the time required through the
vetting process, the SBA made revisions to the
process in FY 2017, and will continue to build CHART XIII SBA SMALL BUSINESS UTILIZATION RATE
a pipeline of candidates to fill current and
projected board member vacancies.

80
STRATEGIC OBJECTIVE 3.1:

Percent of Small Business Utilization Rate
Streamline, simplify, and strengthen 70
SBA’s core programs and 71 72 77 78 74 80
60
operations to ensure that they are
50
high performing, effective, and
relevant to the needs of the small 40
business community. 30
Performance Goal: Award 72.75 percent of 20
SBA contracts to small businesses in FY 2017.
10
Performance Analysis: The SBA exceeded
0
its small business utilization goal by awarding FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
nearly 80 percent of contracts, totaling $125 Actuals Target
million, to small businesses (see Chart XIII)
and exceeded its subgoals for women-owned,

20 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

STRATEGIC OBJECTIVE 3.2:
CHART XIV AVERAGE NUMBER OF DAYS TO HIRE
Invest in the Agency’s employee
recruitment, hiring, training,
work-life programs, and
160
performance management so staff
154
is engaged to more effectively 154

serve small businesses.
120
Performance Goal: Ensure that the

Number of Days
average time to hire will be less than 100 days 97 98
in FY 2017. 80 85
71
Performance Analysis: In FY 2017,
the SBA continued to improve operational 40
efficiencies which positively impacted the
Agency’s average number of days to hire.
The SBA exceeded its target of 100 days by 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
29 percent, with a time-to-hire of 71 days
Actuals Target
(see Chart XIV). The SBA partnered with
the U.S. Office of Personnel Management
to promote effective recruitment of high-
quality candidates equipped with the essential
skills to support the Agency’s mission. A hiring targets and ensured staff received training in order to
freeze between January and April 2017 also impacted provide small businesses with a better understanding of
the number of days to hire by reducing the number of program eligibility requirements and compliance reviews.
applications to process.

STRATEGIC OBJECTIVE 3.3: Mitigate risk
to taxpayers and improve oversight across
SBA programs.
Performance Goal: Perform 335 risk-based
credit reviews; review 100 percent of 8(a) and
CHART XV NUMBER OF RISK-BASED CREDIT REVIEWS
10 percent of HUBZone firms; and conduct 65
OF LENDERS
financial reviews of entrepreneurial development
resource partners in FY 2017.
400
Performance Analysis: The SBA continued
efforts to further mitigate risk this year. For
lender oversight, the Agency performed 340 378 368 340

Number of Credit Reviews
300
risk-based credit reviews, which provided
oversight of loan performance, credit scores,
and compliance with SBA loan program 200
requirements (see Chart XV). The Agency 188 219
conducted 64 financial examinations of
Data
entrepreneurial development resource partners 100 Not
to review the accuracy in reporting and ensure Available
finances were used properly. After the reviews,
the SBA provided face-to-face feedback and 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
training on issues and shared best practices. The
Actuals Target
SBA exceeded its HUBZone and 8(a) review

AGENCY FINANCIAL REPORT • FY 2017 21
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

Evidence and Evaluation and underlying data. SBA’s performance analysts
meet with each office for in-depth discussions
The SBA recognizes the importance of evidence and about proposed externally reported measures. These
evaluation to understand and improve the efficiency and meetings help determine whether the proposed
effectiveness of SBA programs and operations. Rigorous measures and underlying data are useful for
evidence allows leadership to make sound decisions about demonstrating a program office’s success, which is
program strategy, policy, and resources. In FY 2017, the SBA defined by the goals and objectives.
continued to build and use evidence to improve program
• Fostering organizational commitment and capacity for
performance. SBA leadership uses evidence in its quarterly
data quality. The SBA issues a monthly executive
deep dive reviews and strategic objective annual reviews, and
performance dashboard to apprise senior management
has woven evidence into the development of its Strategic
on progress and holds quarterly performance
Plan and Annual Performance Plan and Report.
review meetings with the Deputy Administrator,
The Agency is developing an enterprise learning agenda Chief of Staff, Performance Improvement Officer,
with a set of key research and evaluation questions. The and program offices. At these meetings, the
ELA identifies areas where evaluation would provide Agency leadership reinforces its commitment to
insights about program effectiveness, progress toward the performance metrics and works directly with
outcomes, or test pilot initiatives. The SBA initiated four program offices to identify best practices and mitigate
program evaluations to begin answering questions for challenges. Annually, each Associate Administrator
the following programs or activities: HUBZone, Boots must certify their program office’s performance data
to Business, Community Advantage, and Small Business before it is externally reported and published at
Development Centers. In addition, the SBA established www.sba.gov/performance/VV-fy2018.
a Performance and Evaluation Community of Practice • Assessing the quality of existing data. SBA’s
to increase staff capacity and knowledge of program performance analysts work with a program office’s
evaluation, developed a program evaluation framework staff to reconcile data by creating independent
and guidelines, and created an evidence registry. The SBA performance reports and analyses and comparing
will initiate new program evaluations annually, which will the independently generated data with the data
ultimately continue to build a suite of evidence from which reported by the program offices. These activities
to better inform decisions. The SBA will publish evaluation verify the data and the underlying processes used
results on its SBA.gov public website and incorporate for reporting.
findings into its performance management framework. • Responding to data limitations. SBA’s performance
analysts work with program offices to identify
Verification and Validation of data limitations and specify the necessary steps to
Performance Data improve data. In addition, some program offices
rely on data provided by third-party resource
Managing results and integrating performance, financial, partners, who are responsible for collecting, storing,
and budgetary information requires valid, reliable, and and reporting data to the SBA. The program
high-quality performance measures and data. Improving offices have internal processes for working closely
data quality is a priority for the SBA. The Agency’s with their resource partners to ensure that data are
performance analysts work with SBA program office leads correctly reported.
to acquire and review high-quality data as required by the
GPRA Modernization Act and OMB Circular A-11. In
addition to using output data internally from its systems, Operational Portfolio Analysis
the SBA relies on data from resource partners, federal
The Operational Portfolio Analysis provides information
agencies, and other government entities to assess its
on SBA’s credit programs and does not reference the
accomplishments and effectiveness. The SBA vigorously
financial statements. The SBA is the taxpayers’ custodian
pursues the following strategies to ensure data quality by:
of small business loan guaranties and direct loans
• Ensuring the validity of performance measures and portfolio of nearly $132 billion. During FY 2017, the
data. The SBA conducts an annual performance portfolio grew by $7.7 billion, or 6.2 percent. Since
measure review to assess the validity of its measures existing loans are continually being paid, this growth

22 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

implies that SBA’s lending during FY
2017 was significantly greater than the CHART XVI MAKEUP OF SBA’S OUTSTANDING LOAN PORTFOLIO
$7.7 billion reflected in the portfolio
growth. By program, the Agency’s 7(a) 140
$2.2
loan portfolio expanded by $7.4 billion, $2.4 $6.2
120 $2.9
the 504 loan portfolio contracted by $6.0 $11.8

Dollars of Outstanding Loans ( Billions)
$3.3 $6.3
$3.6 $11.2
$0.3 billion, and the SBIC portfolio $2.5
$7.2
$6.8
$10.0
100 $7.2 $9.0 $25.5
grew by $0.6 billion. The Agency’s $8.5
$25.8
$7.8
disaster loan portfolio increased by $27.2
$26.5
80 $26.9
$0.2 billion, while all other portfolios $26.9
declined by $0.2 billion. From FY 2012
60
through FY 2017, all of the portfolio’s
cumulative $27.4 billion growth came $86.2
40 $73.0 $78.8
from the 7(a) and SBIC programs $60.1 $63.7 $68.2

(see Chart XVI). 20

NEW GUARANTIED LOANS 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
The quarterly average loan volume
continued to increase in FY 2017, 7(a) 504 SBIC Disaster All Other

with an average of $7.6 billion. Chart
XVII demonstrates the growth in loan
approvals since FY 2012.

At least three main factors contributed to the Market for Small Business Lending – According to data
loan guaranty portfolio’s recent growth: from the Federal Deposit Insurance Corporation, the total
market for business loans has increased during 2012-
Continuous Growth in the Economy — Real Gross 2016 by 28 percent ($686 billion). However, 95 percent
Domestic Product in the United States grew at an average ($652 billion) of this increase is accounted for by loans
quarterly rate of 2.2 percent during 2014-2017.4 This to nonsmall businesses,8 while total small business loans
increase in RGDP supports increased revenues and profits increased by nearly $34 billion. This means the ratio of
at small and large firms, which in turn increases their small business loans compared to the total bank market
demand for credit. decreased (see Chart XVIII). Furthermore, there has been
a trend in the banking industry toward consolidation,
Increase in Business Financial Stability — As the economy
which is reflected in the reduction of commercial banks
continues to grow, several factors continue to influence
between the 2012-2016 period by 16 percent. This makes
demand and increases in revenues. First, inflation
SBA’s mission of providing access to capital even more
remains low (on average 1.3 percent in 2016),5 keeping
critical for growing small businesses that may be denied
the cost of consumer goods and services affordable.
credit in the private loan market.
Second, the dollar continued to maintain its strength
in international exchange markets during 2016-2017,6
NEW DIRECT LOANS
which also supports the stability of U.S. prices. Finally,
the unemployment rate has continued below 5 percent In FY 2017, SBA’s annual lending for the Disaster
at pre-recession levels, which boosts consumer confidence Assistance program was nearly $1.7 billion due to an
and spending.7 increase in activity at the end of the year in response
to hurricanes Harvey, Irma, and Maria. A large portion
of the outstanding balance of the Disaster Assistance
4 U.S. Department of Commerce, Bureau of Economic Analysis: loan portfolio is comprised of lending from FY 2006
www.bea.gov/newsreleases/glance.htm.
5 U.S. Department of Labor, Bureau of Labor Statistics:
(hurricanes Katrina, Rita, and Wilma) and FY 2013
www.bls.gov/cpi/home.htm. (Hurricane Sandy). The SBA will continue to make
6 Financial Deposit Insurance Corporation:
www.macrotrends.net/1329/us-dollar-index-historical-chart.
7 U.S. Department of Labor, Bureau of Labor Statistics:
data.bls.gov/timeseries/LNS14000000. 8 Nonsmall businesses are firms that have more than 500 employees.

AGENCY FINANCIAL REPORT • FY 2017 23
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

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

Dollars of Loan Approvals (Billions)
FY 2017 Average
8 $7,615,295
FY 2016 Average
FY 2015 Average $7,216,477
$6,970,450
FY 2013 Average FY 2014 Average
6 FY 2012 Average
$5,773,857 $5,847,495
$5,466,264

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

disaster loans an important recovery tool for businesses, indicator of the Agency’s and taxpayers’ future liabilities
homeowners, and renters who survive a disaster. for these programs. A declining delinquency rate (see
Chart XIX) is a positive indicator for the financial
PORTFOLIO PERFORMANCE — performance of any loan portfolio.
DELINQUENCIES
Strong economic growth, strong profit performance,
Delinquency rates (i.e., borrowers who are late on their and tighter lending standards by financial institutions
payments) are a leading indicator of the Agency’s charge- during the past several years have reduced delinquency
off rate (i.e., the rate of dollars spent to cover loans rates for all business loans, which have been steadily
that defaulted). Thus, delinquency rates are a general declining since reaching cyclical peaks in the latter
part of 2009. A declining national
CHART XVIII OUTSTANDING COMMERCIAL LOANS TO SMALL VS. unemployment rate, off a peak rate of
NONSMALL BUSINESSES 10 percent in October 2009, signals a
generally improving environment for
small businesses. Delinquency rates
3,000
for the Agency’s major loan programs

Dollars of Outstanding Loans (Billions)
$2,476
2,500 $2,303 followed this national downward
$2,105
$1,982 trend. Delinquency rates for the 7(a)
$1,824
2,000
loan program declined from the peak
1,500 3.8 percent recorded during January
2009 to 0.7 percent recorded during
1,000 $652 $666 $680 $696 July 2017. Delinquency rates for the
$655

500 504 loan program likewise declined
from the 5 percent peak recorded
0 during February 2010 to 0.8 percent
CY 2012 CY 2013 CY 2014 CY 2015 CY 2016
Small Business Loans Nonsmall Business Loans recorded during July 2017.

24 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

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

5
7(a) Loans NBER
Declared
Recession
4

Percent of Rates
3

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

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

6
504 Loans NBER
Declared
5 Recession

Percent of Rates
3

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

504 Delinquency Rate 504 Past 12 Months Charge-Off Rate

PORTFOLIO PERFORMANCE —
CHARGE-OFFS 2013 is attributable to recession-era loans that were
charged-off after efforts to recover delinquent balances
The 12-month charge-off rate for the 7(a) loan program had been exhausted. Now that this effort to charge-off
experienced a pronounced decline during the FY 2010- the recession-era loans is complete, the charge-off rate is
2013 period, declining from 4.3 percent during the mirroring the delinquency rate for FY 2017.
fourth quarter of 2010 to 1.2 percent in the third quarter
of 2013, but then experienced a noticeable increase The 12-month charge-off rate for the 504 loan program
thereafter, until coming back down in July 2017 to 1.1 experienced a continuous increase from FY 2008 to the
percent (see Chart XIX). The 7(a) loans that are not early part of FY 2013, peaking at 4.4 percent during January
sold on the secondary market become a charge-off only 2013, but then recorded a pronounced decline thereafter,
after all efforts to recover a delinquent balance have been dropping to 0.4 percent during July 2017. This trend is
exhausted, such as liquidating the underlying collateral. not surprising, since the 504 loan program is an economic
The latent rise of the 7(a) charge-off rate starting in development program with a commercial real estate focus.

AGENCY FINANCIAL REPORT • FY 2017 25
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

As such, recovery rates of defaulted 504 loans are, with some more online tools and adapt Agency processes to the 21st
noticeable time lag, significantly impacted by the pricing century. The Agency continues to make progress on this front
trend in this sector. Real estate prices have been on the rise through tools like SBA One, Certify.SBA.gov, and Lender
since the latter part of 2009, and as of 2017, commercial real Match. Greater advancements in technology will continue to
estate prices are increasing. develop and shape how small businesses operate and how the
Agency responds to and supports small businesses.
Quarterly information on the status of SBA’s loan
portfolio, including outstanding balances and approvals
by loan program and purchase rates, is available on SBA’s Threats from Disasters
website at www.sba.gov/performance. A natural disaster can destroy lives, businesses, and
communities in little time. While the SBA has many
FORWARD LOOKING ANALYSIS capabilities to respond to hurricanes, tornados, forest
fires, and floods, the growing threat and number of these
occurrences remain a serious concern, particularly with
The SBA is committed to maintaining and strengthening
a changing climate. This year, hurricanes Harvey, Irma,
the nation’s economy through the growth of small
and Maria have demonstrated the threats from an active
businesses. While much work has been done to support
hurricane season. To this end, small businesses must adapt
America’s small businesses since the creation of the SBA in
by planning in advance where to produce and sell goods
1953, the Agency is committed to ensuring it can adapt to
and services. Disaster preparedness is a key component of
a changing environment. The following areas present the
SBA’s Disaster Assistance program and has helped many
greatest insights into how the Agency shapes its programs
small businesses prepare for the unexpected. Among these
and responds to entrepreneurs and small business owners.
growing threats, the SBA must be more nimble while
simultaneously responding to multiple, large-scale disasters.
An Ever-changing Economy
A small business often feels the first impacts of a slowing An Evolving Workforce
economy. Unemployment, taxation, and regulatory
The SBA workforce continues to age and enter a period
uncertainty all determine whether entrepreneurs will
where the majority of its employees have reached retirement
invest their time and resources into a new venture.
eligibility. As baby boomers retire, the Agency continues
Without large reserves of capital like many corporations,
to search for ways to recruit and retain the best talent.
a small business can be shuttered within months during
Competition with industry and other agencies is strong, and
economic decline. To meet these needs, the SBA plays a
retention of new employees can be challenging. The Agency
key role in supporting access to capital. The Agency will
is identifying critical mission areas and developing workforce
continue to depend on lenders to issue capital. However,
plans to ensure that it understands where gaps exist. At the
the decline in the number of banks and credit unions is a
same time, the Agency seeks to ensure that its workforce is
concern. As fewer lenders remain, small businesses must
representative of the public it serves and that it can effectively
become nimbler when searching for capital, and the SBA
communicate with entrepreneurs and small business owners
must provide this support in an ever-changing economy.
in meeting their needs. To this end, the SBA has begun a
series of training sessions for its field staff to ensure that they
Advancements in Technology have the tools to help small businesses succeed.
It would have been unimaginable 30 years ago to obtain To address these areas and continue enhancing customer
a loan from a bank in Connecticut, submit a patent for a service to small businesses, the Agency has instituted
new idea, and then develop and sell that product in the processes to help mitigate and improve performance.
international marketplace all while working from one’s For example, the SBA is identifying ways to streamline
home in North Carolina. Today, technology has evolved to the processing of business development and loan
the point that entrepreneurs have greater access to markets applications. At the same time, new information systems
and more capabilities to start and expand their businesses. will reduce staff requirements to collect reports and data
Therefore, the SBA must be aware of these technological for compliance purposes, which will allow for greater time
advancements to better communicate and share successes for supporting small businesses.
entrepreneurs across the country. The SBA needs to develop

26 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

ANALYSIS AND HIGHLIGHTS OF FINANCIAL STATEMENTS AND RESULTS

Highlights of Financial Results (As of September 30)
(Dollars in Thousands)

At End of Fiscal Year 2017 2016 % Change
CONDENSED BALANCE SHEET DATA
Fund Balance with Treasury $ 6,719,641 $ 6,255,936 7.41%
Credit Program Receivables and Related Foreclosed Property, Net 6,359,969 6,182,889 2.86%
All Other Assets 136,309 218,347 -37.57%
Total Assets $ 13,215,919 $ 12,657,172 4.41%
Debt 7,693,059 8,019,526 -4.07%
Downward Reestimate Payable to Treasury 1,215,102 1,239,814 -1.99%
Liability for Loan Guaranties 2,556,368 2,371,505 7.80%
All Other Liabilities 239,060 252,143 -5.19%
Total Liabilities 11,703,589 11,882,988 -1.51%
Unexpended Appropriations 1,653,684 1,425,883 15.98%
Cumulative Results of Operations (141,354) (651,699) 78.31%
Total Net Position 1,512,330 774,184 95.35%
Total Liabilities and Net Position $ 13,215,919 $ 12,657,172 4.41%

For the Fiscal Year
2017 2016 % Change
STATEMENT OF NET COST BY STRATEGIC GOAL
Goal 1: Growing Businesses and Creating Jobs
Loan Subsidy Cost Including Reestimates $ (899,415) $ (547,531) -64.27%
All Other Costs, Net of Revenue 757,712 687,711 10.18%
Goal 2: Serving as the Voice for Small Business 86,286 123,151 -29.93%
Goal 3: Building an SBA that Meets the Needs of Today’s
and Tomorrow’s Small Businesses 36,678 41,326 -11.25%
Costs Not Assigned 22,649 34,820 -34.95%
Net Cost of Operations $ 3,910 $ 339,477 98.85%

CONDENSED STATEMENT OF CHANGES IN NET POSITION
Beginning Cumulative Results of Operations $ (651,699) $ (262,817) -147.97%
Total Financing Sources 514,255 (49,405) 1,140.90%
Less: Net Cost of Operations 3,910 339,477 -98.85%
Ending Cumulative Results of Operations $ (141,354) $ (651,699) 78.31%
Beginning Unexpended Appropriations 1,425,883 1,600,847 -10.93%
Total Budgetary Financing Sources 227,801 (174,964) 230.20%
Ending Unexpended Appropriations $ 1,653,684 $ 1,425,883 15.98%
Ending Net Position $ 1,512,330 $ 774,184 95.35%

CONDENSED STATEMENT OF BUDGETARY RESOURCES
Unobligated Balance Brought Forward $ 4,966,556 $ 4,978,665 -0.24%
Other Budgetary Resources, Net (123,924) 6,238 -2,086.60%
Appropriations (discretionary and mandatory) 1,933,824 1,144,588 68.95%
Borrowing Authority (discretionary and mandatory) 1,548,576 1,610,202 -3.83%
Spending Authority from Offsetting Collections 3,918,122 3,138,319 24.85%
Total Budgetary Resources $ 12,243,154 $ 10,878,012 12.55%
Obligations Incurred, Budgetary $ 2,333,955 $ 1,700,731 37.23%
Obligations Incurred, Nonbudgetary 4,033,287 4,210,725 -4.21%
Unobligated Balances, Available and Unavailable 5,875,912 4,966,556 18.31%
Total Status of Budgetary Resources $ 12,243,154 $ 10,878,012 12.55%

AGENCY FINANCIAL REPORT • FY 2017 27
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

Analysis of Financial Results direct loans outstanding are reported net of an allowance
developed using the present value of forecasted cash
The principal financial statements have been prepared to flows in subsidy models that are approved by OMB.
report the financial position and results of operations of A Liability for Loan Guaranties is reported also using
the entity, pursuant to the requirements of 31 U.S.C. 3515 subsidy models with forecasted cash flows from user fees
(b). While the statements have been prepared from the and defaulted guarantied loans. The direct loan allowance
books and records of the entity in accordance with GAAP and loan guaranty liability for each loan program cohort
for federal entities and the formats prescribed by OMB, is adjusted annually under FCRA through the subsidy
the statements are in addition to the financial reports used model reestimate process. The SBA’s FCRA accounting is
to monitor and control budgetary resources, which are discussed further below in this section and in Notes 1 and
prepared from the same books and records. The statements 6.A in the financial statements.
should be read with the realization that they are for a
component of the U.S. Government, a sovereign entity. The credit subsidy cost is the net present value of expected
cash inflows and outflows over the life of a guarantied
This Analysis of Financial Results references numbers in loan, or the difference between the net present value of
the Highlights of Financial Results that were derived from expected cash flows and the face value of a direct loan. The
the Financial Statements and Notes in this report. As a SBA receives budget authority annually to fund its credit
result, the definitions of the loan and guaranty balances programs. When loans are disbursed, the SBA records
used in this Analysis of Financial Results may differ subsidy expense for non-zero subsidy loan programs.
somewhat from the balances in the Operational Portfolio In accordance with the FCRA, the subsidy costs are
Analysis section. For example, for the 7(a) program, the reestimated annually. Reestimates update original loan
total amount of guarantied loans is used in the Portfolio program cost estimates to reflect actual experience and
Analysis, but only SBA’s guarantied portion is used in the changes in forecasts of future cash flows for each annual
Analysis of Financial Results because it ties to balances in cohort of loans. An upward reestimate occurs when the
the financial statements. present value of expected cash outflows exceeds the present
value of expected cash inflows. A downward reestimate
BACKGROUND
occurs when the present value of expected cash inflows
The SBA is a major federal credit agency of the U.S. exceeds the present value of expected cash outflows.
Government. The SBA had 3,271 employees at the Increased reestimated costs are funded in the following year
end of FY 2017, including disaster FTE employees. by permanent indefinite budget authority, while decreased
As a result, only $1.1 billion of SBA’s $12.2 billion costs are returned by the SBA to a Treasury general fund.
budgetary resources in FY 2017 were for salaries and
expenses, with the rest supporting SBA’s credit programs. The portion of the outstanding principal guaranteed by
Budgetary resources when apportioned by OMB are the SBA was $99.5 billion as of September 30, 2017, an
available to enter into new obligations and to liquidate increase of 6.1 percent from the $93.8 billion guaranteed
them. Budgetary resources are made up of new budget as of September 30, 2016 (see Note 6.C in the financial
authority and unobligated balances of statements). As shown in Chart XX, new guaranties
budget authority provided in previous
years. The loan financing funds record CHART XX GUARANTIED LOANS DISBURSED
all the cash flow activity resulting
from post-1991 direct loans and loan
guaranties, and are not budgetary costs. 25

Dollars of Loans (Billions)
The financing accounts are reported
20
separately in the Budget of the United
States Government and are excluded 15
from the budget surplus/deficit totals.
10

The Federal Credit Reform Act of 1990 5
governs SBA’s accounting for direct
0
loans and loan guaranties made in FY FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
1992 and thereafter. Under FCRA,

28 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

disbursed by SBA participating banks
during FY 2017 were $22.8 billion, CHART XXI PURCHASES OF GUARANTIED LOANS
a 7.1 percent increase compared to
the FY 2016 figure of $21.3 billion.
6
The $1.5 billion increase resulted

Dollars of Loans (Billions)
5
from a $0.3 billion increase in 504
Certified Development Company 4
loans, a $1.4 billion increase in 7(a) 3
loans, and a $0.2 billion decrease in 2
SBIC Debentures in FY 2017. This 1
net increase in FY 2017 guaranty
0
disbursements and reduction in FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
purchases of guarantied loans
contributed to the 6.1 percent increase
in outstanding guaranteed principal
FINANCIAL POSITION
mentioned above.
Assets
Credit program receivables for the SBA are comprised of
business and disaster direct loans and defaulted business The SBA had total assets of $13.2 billion at the end of FY
loans purchased per the terms of SBA’s loan guaranty 2017, up 4.4 percent from FY 2016. Total assets increased
programs, which are offset by an allowance for subsidy. The primarily due to a $463.7 million increase in the Fund
allowance for the subsidy cost of the gross loan receivable is Balance with Treasury, plus a $177.1 million increase
recorded as a contra asset, and the net asset is reported on in Credit Program Receivables and Related Foreclosed
the Balance Sheet. The subsidy allowance is determined by Property. The increase in the FBWT was due primarily
modeling the projected future cash inflows and outflows to an increase in appropriations received to fund the
of SBA credit programs using discounted cash flow disbursement of disaster loans. The increase in Credit
methodology. The subsidy allowance for each loan program Program Receivables and Related Foreclosed Property was
cohort is reestimated annually, and increases are funded by due primarily to the net increase in the amount of direct
Treasury while decreases are returned to Treasury by the disaster loans as collections and charge-offs did not exceed
Agency. Loan losses, the costs of loan servicing, and loan new loans.
interest rates are factors that affect the subsidy allowance.
Liabilities
SBA credit program receivables were valued at $6.4 billion
The SBA had total liabilities of $11.7 billion at the
in FY 2017, which was an increase of $0.2 billion from
end of FY 2017, down 1.5 percent from FY 2016.
FY 2016. The change in the credit program receivables
Liabilities consist primarily of the Liability for Loan
resulted from an increase of $0.2 billion in direct disaster
Guaranties, Downward Reestimate Payable to Treasury,
loans. The amount of defaulted guarantied loans decreased
and Debt with Treasury.
slightly as collections and charge-offs exceeded new
guaranty purchases, partially offset by a lower subsidy The Liability for Loan Guaranties is the estimate of
allowance amount. This net decrease is attributable to the net present value of the future amount the SBA
an economy that continued to improve in FY 2017. The will pay, net of fee collections, to liquidate expected
amount of direct disaster loans increased as collections purchases of guarantied loans under its guarantied
and charge-offs were exceeded by new loans, plus a lower loan programs. The Liability for Loan Guaranties for
subsidy allowance amount. each loan program cohort is reestimated annually,
and increases are funded by Treasury while decreases
As reflected in Chart XXI, guarantied loan purchases
are returned to Treasury by the Agency. The Liability
increased $0.2 billion in FY 2017 to $1.0 billion. The
for Loan Guaranties increased $0.2 billion due to the
increase in purchases this year did reduce the amount
net of downward reestimates of future costs for SBA’s
of the decrease in the outstanding guarantied business
guaranty portfolio, guarantied loan purchases, and the
loans receivable after including recoveries, expenses, and
collection of fees.
charge-offs in the loans purchased portfolio.

AGENCY FINANCIAL REPORT • FY 2017 29
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

The Downward Reestimate Payable to Treasury NET COSTS OF OPERATIONS
decreased $24.7 million due largely to the change in
The Net Costs of Operations primarily reflects the costs of
the year-end accrual of reestimates resulting from lower
SBA credit programs subsidy expenses during the year for
than projected purchases in FY 2017 for some cohorts
new loans and subsidy reestimates at year-end.
in the 7(a) and SBIC Debenture programs, and higher
than expected recoveries for the 504 loan program. Net downward reestimates were larger in FY 2017 than
Better than projected loan performance and higher than last year due to a large decrease in the amount of upward
expected recoveries across most cohorts were the primary reestimates, which affected Strategic Goal 1 costs. Those
reasons for the downward reestimate in FY 2017. subsidy reestimates were the largest components of the
change (net decrease) in the Agency’s net cost. Chart
Debt with Treasury decreased $0.3 billion due to the
XXII reflects the change in the net subsidy reestimates
increase in the amount of borrowing repayments to
for the guarantied business and direct disaster loan
Treasury in FY 2017, as well as a decrease in borrowing
programs in FY 2017.
needed to cover disaster loan programs. Note 9 in the
financial statements provides additional detail on SBA The net downward reestimate of $0.3 billion in the 7(a)
debt with Treasury. programs was due mostly to lower than average purchases
during FY 2017 that decreased the overall purchase curve,
Net Position which decreased purchase projections in future years and
Cumulative Results of Operations is the accumulative contributed to the downward reestimate for FY 2017.
difference between expenditures and financing sources
The 504, 504 Recovery Act, and 504 Jobs Act programs
since the inception of the Agency. This negative balance
had a large net downward reestimate of $0.4 billion due
decreased $510 million because unfunded upward
to better than projected loan performance for the FY 2016
subsidy reestimates at year-end for almost every program
cohort. Further detail on subsidy reestimates can be found
were less for FY 2017 compared to FY 2016. Upward
in Note 6.I of the financial statements in the Financial
subsidy reestimates determined at year-end are funded in
Reporting section of this report.
the following year when they are received. Unexpended
Appropriations increased $228 million this year The SBIC Participating Securities and Debenture programs
primarily because the amount of appropriations used had a net downward reestimate of $0.2 billion in FY 2017
was not greater than the appropriations received in FY that was due mostly to actual default purchases that were
2016 for business, disaster, and administrative activities. lower than projected in FY 2017.
This affected Budgetary Financing Sources and the
Ending Net Position.

CHART XXII CREDIT PROGRAM SUBSIDY REESTIMATES

Dollars of Loans (Billions)
4
3
2
1
0
-1
-2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Direct Disaster Loans (Strategic Goal 1) Direct Business Loans (Strategic Goal 1)
Guarantied Business Loans (Strategic Goal 1)

30 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

BUDGETARY RESOURCES
CHART XXIII APPROPRIATIONS RECEIVED
Total Budgetary Resources of $12.2 billion
increased $1.4 billion in FY 2017. This
increase is primarily the net result of a large 4
increase in appropriations and spending
authority from offsetting collections this
$0.44
year, as well as the other factors shown in
the Highlights table and discussed below. 3
Other Budgetary Resources, Net decreased
by $130 million in FY 2017. This change is $0.44

attributable to a large increase in prior year

Dollars of Loans (Billions)
recoveries, and a significant increase in the 2
$2.87 $1.32
amount of debt repaid. $0.54

Appropriations (discretionary and
$0.47 $0.74
mandatory) increased $789 million in 1
$0.51 $0.53
FY 2017. As shown in Chart XXIII,
$0.57
the increase was the combination of the $0.89 $0.42 $0.42
$0.65
increase in the amount of appropriations $0.28 $0.23 $0.22 $0.20
needed to fund SBA’s upward credit 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
subsidy reestimates, as well as an increase Disaster Loans Business Loans Salaries and Expenses
in the need for subsidy to fund the
Agency’s disaster program in FY 2017.

Borrowing Authority decreased $62
million in FY 2017 due to a decrease in Unobligated balances as of September 30, 2017 and
borrowing needed to cover disaster loan-making, offset 2016 were $5.9 billion and $5.0 billion, which included
by an increase to cover cash shortfalls in the guarantied $4.2 billion and $3.0 billion of unavailable unobligated
loan programs. Borrowing authority initially granted to balances. These balances were unavailable because they
the SBA was $1.8 billion, but the SBA withdrew $0.3 were unapportioned by OMB. The SBA accumulates the
billion at year-end FY 2017, as it was not needed to majority of unobligated balances in its nonbudgetary
fund future credit program operations. financing accounts ($4.6 billion in FY 2017 and
$3.9 billion in FY 2016) from subsidy estimates and
Spending Authority from Offsetting Collections increased reestimates that are used primarily to pay default claims in
$0.8 billion in FY 2017. This increase is attributable to future years.
larger net collections in both the disaster and guarantied
programs. A significantly higher amount of subsidy
collected, combined with higher loan repayments and
offset by the repayment of borrowings from current year
authority in FY 2017, resulted in a higher ending balance.

STATUS OF BUDGETARY RESOURCES
The Total Status of Budgetary Resources increased $1.4 billion
in FY 2017 to $12.2 billion. Budgetary obligations
increased by $0.6 billion in large part due to the larger
upward subsidy reestimate in FY 2017. Nonbudgetary
obligations decreased $0.2 billion due to a decrease in
guarantied program downward reestimates offset with an
increase in purchases of guarantied loans.

AGENCY FINANCIAL REPORT • FY 2017 31
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

ANALYSIS OF SBA’S SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE

Internal Control Environment effectiveness of internal controls within their respective
area of responsibility. These assessments are performed
The SBA believes that maintaining integrity and based on the five components and 17 principles of
accountability in all programs and operations is critical for internal control framework prescribed in GAO’s Standards
good government. The ability to demonstrate consistent for Internal Control in the Federal Government, known as
responsible stewardship over assets and resources is a the Green Book.
sign of responsible leadership. SBA’s commitment to
integrity and ethical values with an effective system of In support of the Agency’s internal control program, the
internal controls ensures that every employee remains Senior Assessment Team (SAT) oversees the assessment
dedicated to the efficient delivery of services to customers of internal controls conducted by the OIC and directs
and maximizes desired program outcomes. The SBA has compliance with the requirements of the OMB Circular
developed and implemented management, administrative, No. A-123, Appendix A, Internal Control Over Financial
and financial system controls to reasonably ensure that: Reporting. The SAT, chaired by the Chief Financial Officer
and comprised of SBA managers from the major programs
• Programs and operations achieve intended results and support offices, meets monthly to discuss the progress
efficiently and effectively; of the internal control assessment and other emerging
internal control matters. The SAT employs a risk-based
• Resources are used in accordance with the mission
approach in the selection of processes and systems for a
of the Agency;
more robust internal control evaluation. SAT members
• Programs and resources are protected from waste, may request additional reviews of business processes that
fraud, and mismanagement; have no material impact on the financial statements but did
present some potential for risk or exposure to the Agency.
• Program and operation activities are in compliance The OIC documents the process and key controls, evaluates
with laws and regulations; and and tests the design and effectiveness of controls, and
presents the results to the SAT. Each office is responsible
• Reliable, complete, and timely data are maintained
for developing and implementing corrective actions for any
and used for decision-making at all levels.
reported deficiencies. Based on the evaluation of business
Each office within the SBA implements or maintains processes in FY 2017, the OIC identified a number of
effective internal controls over operations, reporting, deficiencies in the internal control over financial reporting,
and compliance to achieve programmatic goals. Each including several in SBA’s key business processes. The SAT
year, the SBA conducts an assessment of internal evaluated the review findings and determined that none
control as required by the Federal Managers’ Financial reached the level of material weakness.
Integrity Act (FMFIA) of 1982 in accordance with the
The SBA Enterprise Risk Management Board continued to
Office of Management and Budget’s (OMB) Circular
oversee and guide SBA’s enterprise risk management efforts.
A-123, Management’s Responsibility for Enterprise Risk
The Board is chaired by the Deputy Administrator and
Management and Internal Control. The FMFIA requires
comprised of senior leaders from major SBA programs and
that the assessment results be reported to the President
support offices. The Board continues to consolidate, assess,
and Congress in a statement of assurance. The SBA
and prioritize enterprise-level risks and to conduct deep
Administrator provides the statement of assurance based
dive assessments on high-impact risks. The Board assigns
on the self-assessment of program managers, internal
responsibility for risk response and ongoing monitoring
control reviews, and audits and reviews done by the
of the risk environment. In addition, the Board has begun
Government Accountability Office (GAO) and SBA’s
the process of strengthening integration efforts with agency
Office of Inspector General (OIG).
strategic planning and performance management. During
SBA’s Office of Internal Controls (OIC) provides training FY 2017, the Board undertook efforts to better align the
and tools, including checklists designed specifically Agency’s process with GAO’s risk management framework,
for program support offices and district offices, to which successfully resolved the related long-standing
aid management in assessing and documenting the management challenge previously reported by GAO.

32 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

In FY 2017, SBA management identified a control weakness management systems with federal financial management
related to the distribution of excess principal to investors systems requirements, applicable federal accounting
when a loan prepays in the secondary market guarantee standards, and the U.S. Standard General Ledger at the
program. SBA’s auditors classified this control weakness transaction level.
as a significant deficiency. The SBA addressed the issue by
requiring its fiscal transfer agent to implement a corrective The SBA has continued to build on incremental
action to accelerate the payment of excess principal to improvement projects designed to modernize the financial
investors. This process change will be reflected in the management system environment to improve financial
payments to investors beginning on November 25, 2017. system controls, reduce sustainment costs, provide
additional functionality for external lending partners, and
The SBA continued to have a significant deficiency in improve system reliability. After migrating the Agency’s
information technology security controls, including systems to a state-of-the-art data center with system
access controls and change controls. In FY 2017, the SBA redundancy and disaster recovery capabilities that allow
continued strengthening the overall security posture of its for continuity of operations, the SBA has focused on
information technology systems. The enterprise IT system reducing costs and leveraging technology advancements
weakness management and oversight program continued to optimize infrastructure in accordance with the Data
prioritizing remediation efforts across all IT systems, Center Optimization Initiative established in OMB
especially high-value assets. As a result, the SBA was able Memorandum M-16-19.
to close approximately 60 percent of open OIG Federal
Information Security Modernization Act (FISMA) audit In FY 2017, the SBA also appointed a Chief Data
findings during FY 2017. Officer to oversee improvements to financial and
award system integration to ensure consistency of data,
enhance reporting capability, and improve SBA’s data
Financial Management Systems Strategy analytics capabilities to assist in management decision
Financial management systems at the SBA are designed making. Additionally, the Chief Data Officer oversees
to support effective internal control, produce reliable, the development and interpretation of DATA Act
timely financial information, and ensure cost-effective financial reports to analyze and evaluate the effectiveness
loan guaranty processing. Management remains focused of SBA programs and operations as well as the
on robust financial management systems that support development of interactive and flexible data dashboards
SBA’s ability to comply with laws and regulations, provide that present SBA award and financial information for
timely and accurate data to support management analysis consumption by the public.
and decision-making, enable the Agency to keep pace The SBA has taken steps to enhance SBA’s financial
with its lending partners, and effectively use automation system controls over lending programs and provide for
to achieve operational efficiency. improvement in accessibility to common information,
As demonstrated throughout the FY 2017 Agency financial and budget management, and financial
Financial Report, the SBA seeks to comply with all federal reporting. SBA’s tightly integrated financial systems allow
financial management system requirements, including the Agency to respond quickly to both internal and
the Federal Financial Management Improvement Act of external financial information inquiries and requirements.
19969 which requires compliance of the Agency’s financial The SBA completed all requirements of the DATA
Act and received the Treasury Secretary’s Certificate of
9 The purpose of the Federal Financial Management Improvement Act of Appreciation, recognizing the SBA as the first agency to
1996 is to advance federal financial management by ensuring that federal complete the recommended eight steps in the DATA Act
financial management systems provide accurate, reliable, and timely finan-
cial management information to the government’s managers. Core com- Agency Progress Dashboard.
ponents include applying uniform accounting standards across the federal
government; full disclosure of all federal programs and activity; increasing Core financial systems at the SBA are comprised of three systems
the accountability, creditability, performance, productivity, and efficiency
of federal financial management; establishing financial systems to control operated and managed by the Office of the Chief Financial
the cost of federal government; and increasing the capability of agencies to Officer and the Office of Capital Access. The systems include:
monitor budget execution by comparing spending to results of activities.
Compliance with the FFMIA provides the basis for the continuing use
of reliable financial management information by program managers, the • Oracle Federal Financials — The SBA will upgrade
President, Congress, and the public. (Office of Management and Budget to the most current release for budget execution
www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2009
/m09-06.pdf )

AGENCY FINANCIAL REPORT • FY 2017 33
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

and management for administrative activity in the
first quarter of FY 2018.
• Loan Systems — SBA-built systems support the
lifecycle of loan guaranty processing, loan program
funds control, management and accounting for
loan servicing, and loan-related expenses.
• Financial Management System — An SBA-built
system used to consolidate administrative and
loan activity, manage cash and control funds, and
provide financial reporting.

34 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

Management Assurances: FMFIA and FFMIA Assurance Statement for FY 2017
The Small Business Administration continued to strengthen internal controls over its programs and operations during
FY 2017. Creating and sustaining a culture of responsibility and accountability while eliminating and preventing waste,
fraud, and abuse is critical to meeting our mission at the SBA. I am pleased to report that the SBA continues to achieve
its internal control objectives, and that SBA’s independent auditor issued an unmodified opinion on the Agency’s FY
2017 financial statements for the 13th year in a row.

SBA management is responsible for managing risks and maintaining effective internal controls and financial management
systems to meet the objectives of Section 2 and 4 of the Federal Managers Financial Integrity Act. The SBA conducted its
assessment of internal controls in accordance with OMB Circular No. A-123, Management’s Responsibility for Enter-
prise Risk Management and Internal Control. Agency managers have issued assertions to me as to the status of the FY
2017 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 the Agency managers’ assessments and noting the control deficiency identified
by the external auditors, I can provide reasonable assurance that internal controls over operations and reporting, as of
September 30, 2017, were operating effectively, and no material weaknesses were identified in the design or operation of
those internal controls. I can also provide reasonable assurance of compliance with applicable laws and regulations with
the exception of an instance of non-compliance identified by SBA’s independent auditor.

This instance of non-compliance item related to delays encountered with approving and processing charge-off actions in
SBA’s internal systems prevented the timely referral of all borrowers and guarantors of direct and guaranty loans to the
Department of the Treasury for debt collection as required by the Debt Collection Improvement Act (DCIA). Specifical-
ly, a one-time systematic update in November 2016 allowed for principals on loans to be referred to the Department of
the Treasury for collection; however, this update prevented liable guarantors from being referred. In addition, untimely
data entry of charge-off activities at the SBA loan centers resulted in untimely referrals. The SBA has a DCIA Compli-
ance Team comprised of representatives from the Office of Capital Access’ Office of Financial Program Operations, the
Office of Performance Systems Management, and the Office of the Chief Information Officer; who work together to
identify and resolve problems pertaining to the implementation of the DCIA. The team worked to remediate defective
system coding that caused untimely referral of loans, and will implement an internal control to identify non-referral of
borrowers and guarantors when system upgrades occur in the future. In addition, the team worked with the loan servic-
ing center directors to ensure charge-offs are processed timely to ensure compliance with DCIA.

In addition, the SBA conducted its assessment of the effectiveness of internal controls over financial reporting, which
includes safeguarding of assets and compliance with applicable laws and regulations, in accordance with the requirements
of Appendix A of OMB Circular No. A-123. Based on the results of this evaluation, I can provide reasonable assurance
that internal controls over financial reporting were operating effectively and no material weaknesses were identified in the
design or operation of internal controls over financial reporting for FY 2017. I can also provide reasonable assurance that
the Agency’s financial management systems conform to the principles, standards, and related requirements prescribed by
Section 4 of FMFIA.

The Federal Financial Management Improvement Act requires federal agencies to implement and maintain financial
management systems that are in substantial compliance with federal financial management systems requirements, federal
accounting standards, and the United States Standard General Ledger. Based on the FFMIA criteria, I can provide rea-
sonable assurance SBA’s financial management systems substantially comply with FFMIA for FY 2017.

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

AGENCY FINANCIAL REPORT • FY 2017 35
M A N A G EMEN T ’ S DI SCU S S I O N & A N AL YS IS

• The SBA Chief Information Officer reviewed and approved the major IT investments portion of the SBA budget
request;

• The SBA Chief Information Officer had a significant role in reviewing planned IT support for major program
objectives and significant increases and decreases in IT resources; and

• The SBA IT portfolio includes appropriate estimates of all IT resources included in the budget request.

Linda E. McMahon
Administrator
November 14, 2017

36 AGENCY FINANCIAL REPORT • FY 2017
M ANAG EM ENT ’S DISCUSSION & ANALYSI S

Improper Payments Summary concluded that they did not and therefore, for FY 2017, the
SBA did not identify any additional programs or activities
Improved financial performance through the reduction as susceptible to significant improper payments.
of improper payments continues to be a key financial
management focus of the federal government. SBA At the beginning of FY 2016, the 7(a) Guaranty
management continually develops strategies to reduce Approvals Program was deemed to be a high-priority
improper payments for responsible stewardship of program for improper payment reporting purposes by
public assets. OMB, based on the estimated improper payment amount
reported in the FY 2015 Annual Financial Report. SBA
The Improper Payments Information Act of 2002 management has diligently worked to meet the additional
(IPIA), as amended, and as implemented by the Office requirements for the high-risk program, and has taken
of Management and Budget (OMB) in Circular No. several actions to reduce and prevent future improper
A-123, Appendix C, Requirements for Effective Estimation payments through streamlining and simplifying the
and Remediation of Improper Payments, requires SBA lending process as well as improving the quality of the
management to review programs and activities to documentation. As a result, the estimated improper
identify those that are susceptible to significant erroneous payment amounts for FY 2016 and FY 2017 have been
payments, and to estimate annually the amount of significantly reduced and no longer exceed the threshold
erroneous payments made in those programs deemed for a high-priority program. The SBA plans to request
risk susceptible. SBA management performs testing to that this program be relieved from reporting as a high-
estimate the rates and amounts of improper payments, priority program in FY 2018.
establishes improper payment reduction targets in
accordance with OMB guidance, and develops and The majority of improper payments for SBA are due
implements corrective actions. to administrative and documentation errors, which
are caused by the absence or lack-of-completeness
The SBA has five programs and activities that are subject of supporting documentation necessary to verify the
to annual improper payment reporting: the 7(a) loan accuracy and validity of a payment. The detection
program (approvals and purchases), the 504 Certified and remediation of improper payments is a priority
Development Company loan program, the Disaster loan for the Agency. SBA staff monitor and review for
program, and disbursements related to goods and services. improper payments and are charged with implementing
Since FY 2014, the SBA has reported improper payments improvements that will reduce improper payment rates.
for those receiving Hurricane Sandy Disaster Relief The SBA also continually seeks opportunities to enhance
funds, which include grant programs and disaster-related and implement internal controls to reduce the risk for
administrative expenses of payroll, purchase cards, and improper payments. Detailed information concerning
travel, to comply with the Disaster Relief Appropriations SBA’s improper payment reviews and its efforts to reduce
Act, 2013. In FY 2017, the SBA was granted relief improper payments is presented in the Other Information
from reporting Hurricane Sandy Disaster Relief funds section of this report.
by OMB, as SBA adequately demonstrated that the
previously reported program and activities had at least two
consecutive years of improper payments reporting below
the IPERA thresholds.

The Circular requires risk assessments at least once every 3
years to determine a program’s susceptibility to significant
improper payments. The term significant improper
payments is defined as gross annual improper payments
exceeding (i) both 1.5 percent of program outlays and $10
million of all program or activity payments, or (ii) $100
million. In FY 2017, the SBA identified 10 programs
and activities that exceeded the $10 million threshold
and conducted assessments according to the guidance to
determine whether they were susceptible to significant
improper payments. Based on the risk assessments, the SBA

AGENCY FINANCIAL REPORT • FY 2017 37
F I N A N C I A L R E PO R TI N G

FINANCIAL
REPORTING

38 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

MESSAGE FROM THE CHIEF FINANCIAL OFFICER
November 14, 2017

I am pleased to submit SBA’s FY 2017 Agency Financial Report. For almost 65 years, the Small
Business Administration has been a champion for entrepreneurs and small businesses and
delivered critical resources to help small businesses start, expand, and remain a vital part of
America’s economy.

The SBA is committed to being a good steward of its resources and transparent in its financial and performance
reporting. As a result, I am proud to announce that the SBA received an unmodified audit opinion on our financial
statements, which means that the statements and financial operations present fairly the financial position as of
September 30, 2017.

The auditors did not report any material weaknesses; however, two significant deficiencies have been identified.
First, information technology security controls need to be addressed; logical access control and system configuration
management controls must be improved to effectively manage information system risks. To address this challenge, the
SBA, through its Chief Information Officer, will coordinate with program offices to implement stronger policies and
controls over information systems. Second, the auditor identified that there were not sufficient monitoring controls over
the Secondary Market Guarantee program. In FY 2017, SBA management identified that prepaid principal was not
being distributed in accordance with program policy, and has instituted new oversight of its fiscal transfer agent. The
issue has been addressed and will not be a deficiency next year.

The auditor also identified an instance of non-compliance with the Debt Collection Improvement Act due to delays
encountered with approving and processing charge-off actions in SBA’s internal systems. In addition, untimely data entry
of charge-off activities at SBA loan centers resulted in untimely referrals. To remedy this issue, the SBA has a team of
program office representatives who will work to improve the implementation of DCIA.

Despite these challenges, the SBA achieved significant accomplishments in several areas of financial and performance
management. The SBA surpassed its small business acquisition goal, with an even higher target this year and the
highest rate in the Federal Government, and exceeded each of the four subgoals for HUBZone, women-owned,
service-disadvantaged veteran-owned, and disadvantaged small businesses. In addition, the Inspector General closed
the acquisition major management challenge due to the substantial progress my office made to resolve the four
outstanding recommendations.

The SBA successfully implemented the Digital Accountability and Transparency Act and received the U.S. Department
of the Treasury Secretary’s Certificate of Appreciation recognizing SBA’s outstanding achievements in implementing the
DATA Act and for being the first agency to complete the recommended eight steps in the DATA Act Agency Progress
Dashboard. The SBA continued its partnership with the Treasury in a pilot project to develop data visualizations that link
financial award information with SBA performance data to improve decision support.

The SBA began drafting its FY 2018-2022 Strategic Plan and FY 2018-2019 Agency Priority Goals to reflect
Administrator McMahon’s vision. SBA senior leaders have met to discuss new strategic goals, objectives, and strategies
that better focus on outcomes. The Strategic Plan will provide the blueprint for the Agency’s mission and will serve as a
framework for resource and policy decisions.

Finally, by establishing SBA’s program evaluation function last year, the SBA embarked on four new evaluations with program
offices to support continuous improvement. The SBA has completed evaluation plans and begun data collection to better assess
and review program effectiveness and efficiency. Upon completion, the SBA will implement the recommendations from
the studies and post results at www.sba.gov/performance to support transparency and accountability.

AGENCY FINANCIAL REPORT • FY 2017 39
F I N A N C I A L R E PO R TI N G

For the 11th consecutive year, the Association of Government Accountants recognized the SBA with the prestigious
Certificate of Excellence in Accountability Reporting award, which commends high-quality reporting for accountability
and transparency. This award is made to agencies following a rigorous, independent review against established standards
for presentation. Additionally, the SBA received a special CEAR best-in-class award for its presentation of performance
information in an Agency Financial Report.

I want to thank our Audit Financial Management Advisory Committee for their thoughtful comments and critiques.
This report also reflects the dedication of SBA employees not only in financial and performance management, but also
across the Agency. Through our employees, the SBA strives to achieve a mission focused on the success of the nation’s
small businesses, and aims to be an organization that is effective, efficient, and delivers results.

Sincerely,

Tim Gribben
Chief Financial Officer and Associate Administrator
for Performance Management

40 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

AUDIT AND FINANCIAL MANAGEMENT
ADVISORY COMMITTEE’S REPORT
November 14, 2017

The Audit and Financial Management Advisory Committee (the Committee) assists the Administrator in overseeing the
U.S. Small Business Administration’s (SBA’s) financial operations. As part of that responsibility, the Committee meets
with Agency management, the Agency’s Inspector General, and its external auditors to review and discuss SBA’s external
financial audit coverage, the effectiveness of SBA’s internal controls over its financial operations, and its compliance
with certain laws and regulations that could materially impact SBA’s financial statements. SBA’s external auditors are
responsible for expressing an opinion on the conformity of SBA’s audited financial statements with 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.

FY 2017 was a transition year for SBA’s Committee due to the change in SBA Administrations and the retirement
of the former Committee members. The SBA officially appointed the new Committee members on October 13,
2017. As a result, the Office of the Chief Financial Officer met informally with the new Committee to discuss these
responsibilities for the FY 2017 financial management and reporting.

The Committee will resume its official duties in FY 2018 to provide advice to the SBA on its financial management
and audit matters.

Tami Perriello
Chairperson
Audit and Financial Management Advisory Committee

AGENCY FINANCIAL REPORT • FY 2017 41
F I N A N C I A L R E PO R TI N G

INSPECTOR GENERAL’S AUDIT REPORT

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

Final Report Transmittal
Report Number: 18-03

DATE: November 14, 2017

TO: Linda E. McMahon
Administrator

FROM: Hannibal “Mike” Ware
Acting Inspector General

SUBJECT: Independent Auditors’ Report on SBA’s FY 2017 Financial Statements

We contracted with the independent certified public accounting firm KPMG LLP (KPMG) to audit
the U.S. Small Business Administration’s (SBA’s) consolidated financial statements for fiscal year
(FY) 2017, ending September 30, 2017. This audit is an annual requirement of the Chief Financial
Officers Act of 1990 and was conducted in accordance with generally accepted government
auditing standards; the Office of Management and Budget Bulletin No. 17-03, Audit Requirements
for Federal Financial Statements; and the U.S. Government Accountability Office’s Financial Audit
Manual and Federal Information System Controls Audit Manual.

The attached independent auditors’ report presents an unmodified opinion on SBA’s consolidated
financial statements for FY 2017. Specifically, KPMG reported that

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

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

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

42 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

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

We appreciate the cooperation and assistance of SBA and KPMG. Should you or your staff have
any questions, please contact me at (202) 205-6586 or Jeffrey R. Brindle, Director of the
Information Technology and Financial Management Group, at (202) 205-7490.

cc: Allie Leslie, Deputy Administrator
Mary Anne Bradfield, Chief of Staff
Timothy Gribben, Chief Financial Officer and Associate Administrator for
Performance Management
Pradeep Belur, Senior Advisor to the Administrator
Christopher M. Pilkerton, General Counsel
Martin Conrey, Attorney Advisor, Legislation and Appropriations
LaNae Twite, Director, Office of Internal Controls

Attachment

AGENCY FINANCIAL REPORT • FY 2017 43
F I N A N C I A L R E PO R TI N G

INDEPENDENT AUDITORS’ REPORT ON FY 2017 FINANCIAL STATEMENTS

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

Independent Auditor’s Report

Acting Inspector General
United States Small Business Administration:

Report on the Financial Statements
We have audited the accompanying consolidated financial statements of the U.S. Small Business
Administration (SBA), which comprise the consolidated balance sheets as of September 30, 2017 and 2016,
and the related consolidated statements of net cost, changes in net position, and combined statements of
budgetary resources for the years then ended, and the related notes to the consolidated financial statements.

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

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America,
in accordance with the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, and in accordance with the Office of Management and
Budget (OMB) Bulletin No. 17-03, Audit Requirements for Federal Financial Statements. Those standards and
OMB Bulletin No. 17-03 require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.

Opinion on the Financial Statements
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the U.S. Small Business Administration as of September 30, 2017 and 2016, and its net
costs, changes in net position, and budgetary resources for the years then ended in accordance with
accounting principles generally accepted in the United States of America.

KPMG LLP is a Delaware limited liability partnership and the U.S. member
firm of the KPMG network of independent member firms affiliated with
44 AGENCY
KPMG FINANCIAL
International Cooperative REPORT
(“KPMG • FYa Swiss
International”), 2017 entity.
F INANCIAL RE PORTING

Other Matters
Interactive Data
Management has elected to reference to information on websites or other forms of interactive data outside the
Agency Financial Report to provide additional information for the users of its financial statements. Such
information is not a required part of the basic consolidated financial statements or supplementary information
required by the Federal Accounting Standards Advisory Board. The information on these websites or the other
interactive data has not been subjected to any of our auditing procedures, and accordingly we do not express
an opinion or provide any assurance on it.

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

Other Information
Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements
as a whole. The Message from the Administrator, Other Information and information on pages 38 to 41 is
presented for purposes of additional analysis and is not a required part of the basic consolidated financial
statements. Such information has not been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements, and accordingly, we do not express an opinion or provide any
assurance on it.

Other Reporting Required by Government Auditing Standards
Internal Control Over Financial Reporting
In planning and performing our audit of the consolidated financial statements as of and for the year ended
September 30, 2017, we considered SBA’s internal control over financial reporting (internal control) to
determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our
opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the
effectiveness of SBA’s internal control. Accordingly, we do not express an opinion on the effectiveness of
SBA’s internal control. We did not test all internal controls relevant to operating objectives as broadly defined by
the Federal Managers’ Financial Integrity Act of 1982.

A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance.

AGENCY FINANCIAL REPORT • FY 2017 45
F I N A N C I A L R E PO R TI N G

Our consideration of internal control was for the limited purpose described in the first paragraph of this section
and was not designed to identify all deficiencies in internal control that might be material weaknesses or
significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not
been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control
that we consider to be material weaknesses. We identified the following deficiencies in internal control,
described in Exhibit I, that we consider to be significant deficiencies:

(1) Improvement Needed in Monitoring Controls over the Secondary Market Guaranty Program

(2) Improvement Needed in Information Technology Security Controls

Compliance and Other Matters
As part of obtaining reasonable assurance about whether SBA’s consolidated financial statements are free
from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of
our tests disclosed instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards or OMB Bulletin No. 17-03. Specifically, our audit results noted noncompliance
with the Debt Collection Improvement Act of 1996 (DCIA or Act) which is described below at Exhibit II:

The DCIA gave the U.S. Department of the Treasury (Treasury) significant responsibilities for collecting
delinquent debts, Government-wide. The Act requires Federal agencies to transfer their nontax
delinquent debt to Treasury. During our test work over loan charge-offs, we noted that the SBA did not
properly or timely refer obligors (i.e., eligible principal borrowers, co-borrowers, and/or guarantors) to
the Treasury for offset or cross-servicing as required by DCIA. Similar instances of noncompliance with
the Act were reported in prior years.

We also performed tests of its compliance with certain provisions referred to in Section 803(a) of the Federal
Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on compliance with FFMIA was
not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests
disclosed no instances in which SBA’s financial management systems did not substantially comply with (1)
Federal financial management systems requirements, (2) applicable Federal accounting standards, and (3) the
United States Government Standard General Ledger at the transaction level.

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

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

Washington, DC
November 14, 2017

46 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

Exhibit I

U.S. Small Business Administration

Significant Deficiencies

(1) Improvement Needed in Monitoring Controls over the Secondary Market Guaranty Program

During the Fiscal Year (FY) 2017 financial statement audit, management determined that the prepaid
principal to be distributed to pool investors by its fiscal transfer agent (FTA), as part of SBA’s 7(a)
Secondary Market Guaranty (SMG) Program, was not being executed in accordance with program policy
changes that were published in Federal Register Notice 69 FR 56472, dated September 2004. The
changes in the Notice were to apply to loan pools with an issue date on or after October 1, 2004. While
SBA management appropriately self-identified this matter, there was not sufficient visibility into the FTA’s
system and processes regarding the application of prepayments, in order to ensure that SBA’s policy
change was properly implemented in the FTA’s system.

The following criteria were considered with respect to the matter described in the preceding paragraph:

 GAO-14-704G, Standards for Internal Control in the Federal Government (Green Book) Sections
OV4.01 and OV4.02, Service Organizations

 Federal Financial Accounting and Auditing Technical Release 6, Preparing Estimates for Direct
Loans and Loan Guarantee Subsidies, Paragraph 35

 Office of Management and Budget Circular No. A-129, Policies for Federal Credit Programs and
Non-Tax Receivables

Recommendations:

We recommend that the Associate Administrator for Capital Access:

1. In consultation with the Chief Financial Officer, enhance SBA’s complementary controls regarding
the SMG program and relevant processes at the FTA. This process should be refined to include a
more thorough review and analysis of the FTA’s systems and data used for the liability for loan
guaranty reestimate.

2. Monitor and perform procedures over their service organization’s attestation report regarding user
control considerations. This assessment should be performed annually.

AGENCY FINANCIAL REPORT • FY 2017 47
F I N A N C I A L R E PO R TI N G

(2) Improvement Needed in Information Technology Security Controls

During the FY 2017 financial statement audit, we found that the SBA continued to implement corrective
actions on some of the prior year findings; however, a number of conditions persisted in FY 2017 that
reduced SBA’s ability to effectively manage its information system risks. As a result, collectively, these
conditions continue to present a significant deficiency in SBA’s internal control environment.

In an effort to provide additional clarity to SBA management with respect to the corrective actions
required, we enhanced our prior year recommendations where issues persisted in FY 2017, and issued
additional recommendations for the new control deficiencies that we identified. In the sections below, we
distinguish between recurring conditions and related recommendations, and those that were newly
identified in FY 2017. We have omitted some technical details from the conditions and recommendations
due to the sensitivity of the information. These details were formally communicated to management in
Notices of Findings and Recommendations throughout the audit.

The following criteria were considered with respect to the matter described in the preceding paragraph:

 National Institute of Standards and Technology (NIST) Special Publication 800-53, Security and
Privacy Controls for Federal Information Systems and Organizations, Revision 4

 Federal Information Processing Standards (FIPS) Publication 200, Minimum Security Requirements
for Federal Information and Information Systems

 SBA Standard Operating Procedure (SOP) 90 47 3, Information System Security Program

We have summarized the information technology (IT) control deficiencies that we noted during the FY
2017 audit below, and have organized them by the following general IT control objectives: logical access
controls, and system configuration management.

Logical Access Controls

An integral part of the effectiveness of an organization’s security program management efforts should be
to ensure that logical access controls provide reasonable assurance that IT resources, such as data files,
application programs, and IT-related facilities/equipment, are protected against unauthorized modification,
disclosure, loss, or impairment.

Our audit found that the following control deficiencies identified in prior year(s) persisted in FY 2017:

 Account authorization processes were not implemented in accordance with SBA policy.

 User accounts were not recertified in accordance with SBA policy.

 The employee exit clearance and contractor off-boarding processes were not standardized to ensure
that access to SBA’s systems was timely removed upon separation.

 Processes for consistently and effectively reviewing audit logs were not implemented.

Our audit identified the following new control deficiency in FY 2017:

 Administrator privilege escalations were not monitored for one general support system.

48 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

Recommendations – Logical Access Controls:

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

3. Continue to implement and monitor procedures to ensure that access is appropriately granted to
employees and contractors, consistent with the conditions on their access forms after all
approvals have been obtained.

4. Continue to implement access recertification procedures to ensure that user access, including
user accounts and associated roles, is reviewed on a periodic basis consistent with the nature
and risk of the system, and any necessary account modifications are performed when identified.

5. Continue to enforce the concept of least privilege for privileged accounts or implement mitigating
controls to ensure that activities performed using privileged accounts are properly monitored.

6. Continue to improve SBA’s administration of logical system access by taking the following
actions:

 Implement an effective off-boarding process, and periodically verify that controls to remove
logical access for separated employees are implemented and operating as designed;

 Establish a process for the identification and removal of separated contractors to help ensure
that logical access is timely removed upon contractor separation; and

 Timely remove access to general support systems and major applications (including
development and test environments) when employees and contractors are terminated.

7. Continue to improve SBA’s information system logging and auditing program, by taking the
following actions:

 Review and rationalize current audit and logging activities and capabilities to determine their
effectiveness in addressing risks to systems and data;

 Implement and enforce consistent and effective creation of audit records, capturing relevant
auditable events, auditing (i.e., manual or automated review of audit records) for specified
events, and automated alerting on specified events across SBA’s infrastructure using a risk-
based approach; and

 Retain sufficient evidence of the audit log review.

System Configuration Management Controls

An integral part of the effectiveness of an organization’s security program management efforts should be
to ensure that application change management controls provide reasonable assurance that program
changes implemented to the applications are appropriate and authorized.

Our audit identified the following new control deficiency in FY 2017:

 Application change management controls were not consistently implemented in accordance with SBA
policy.

AGENCY FINANCIAL REPORT • FY 2017 49
F I N A N C I A L R E PO R TI N G

Recommendation – System Configuration Management Controls:

We have issued the following recommendation to address the new control deficiency listed in the section
above.

We recommend that the CIO coordinate with SBA program offices to:

8. Enhance application change management controls to ensure approval documentation is
maintained in accordance with SBA policy.

50 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

Exhibit II

U.S. Small Business Administration

Non-Compliance with Debt Collection Improvement Act of 1996

Noncompliance with the Debt Collection Improvement Act of 1996
The Debt Collection Improvement Act of 1996 (DCIA) assigned the U.S. Department of the Treasury
(Treasury) the responsibility for collecting delinquent debts, government-wide. The DCIA requires Federal
agencies to transfer their nontax debt over 120 days delinquent to Treasury. During our testwork over
loan charge-offs, we noted SBA did not refer obligors (i.e., eligible principal borrowers, co-borrowers,
and/or guarantors) to the Treasury for offset or cross-servicing at the time of charge-off, as required by
the DCIA. Similar instances of noncompliance with the DCIA were reported in prior years. The SBA’s
noncompliance with the DCIA was the result of untimely entering of charge-offs at loan centers and a
systematic update that resulted in the elimination of certain liable obligors.

We recommend the Associate Administrator of the Office of Capital Access:

9. Perform a comprehensive root cause analysis of system protocols to identify, quantify, and
remediate all defective, system coding problems that may cause untimely referral of loans in
accordance with the DCIA.

10. Work with the loan servicing center directors and assess processes to timely enter charge-offs
within a reasonable timeline, to ensure compliance with the DCIA.

AGENCY FINANCIAL REPORT • FY 2017 51
F I N A N C I A L R E PO R TI N G

Exhibit Ill

CFO Response to Draft Audit Report on FY 2017
Financial Statements

DATE: November 14, 2017

TO: Hannibal M. Ware, (Acting) Inspector General

FROM: Timothy Gribben, Chief Financial Officer and
Associate Administrator for Performance Management

SUBJECT: FY 2017 Financial Statement Audit

The Small Business Administration has reviewed the draft Independent Auditors' Report from KPMG
that includes the auditors' opinion on the financial statements and its review of the Agency's internal
control over financial reporting and compliance with laws and regulations. The independent audit of
the Agency's financial statements and related processes is a core component of SBA's financial
management program.

We are pleased that the SBA has again received an unmodified audit opinion with no material
weaknesses from the independent auditor. We believe these results accurately reflect the quality of the
Agency's financial statements and our continued efforts to further improve our accounting, budgeting,
and reporting processes. As you know, the SBA has worked hard in past years to address the findings
from our independent auditor.

The audit report includes a continuing significant deficiency in SBA's information technology
security controls and a new significant deficiency related to monitoring controls over our Secondary
Market Guarantee Program. The auditor also reported 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. The SBA appreciates the
recommendations from the auditors, and we look forward to working with you to continue to improve
financial management in our Agency. Our response to the findings and recommendations follows.

Exhibit L Significant Deficiencies Related to Internal Control Over Financial Reporting

1. Improvement Needed in Monitoring Controls over the Secondary Market Guarantee Program

Management concurs. The SBA self-identified and reported this matter to the auditors. In FY
2018, we will continue to enhance complementary monitoring and user controls over the
program and the relevant processes at our fiscal transfer agent.

52 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

Exhibit Ill

2. Improvement Needed in Information Technology Security Controls

Management concurs. A new CIO onboarded in October 2016, and under her leadership the
Office of the CIO moved aggressively to increase governance and oversight, stabilize and
modernize SBA's network and systems, address security deficiencies, and improve its
cybersecurity posture. In FY 2018, the SBA will pursue additional policies and monitoring
activities to address deficiencies in logical access controls and system configuration
management.

Exhibit II, Noncompliance with Debt Collection Improvement Act of 1996

The SBA's noncompliance with the DCIA was the result of untimely entering of some charge-offs at
a loan center and a systematic update that resulted in the elimination of certain liable obligors. While
both situations have been addressed, the SBA will continue to monitor processes and procedures to
ensure compliance with DCIA.

Conclusion

We appreciate your efforts and those of your colleagues in the Office of the Inspector General, as
well as those of KPMG. The independent audit process continues to provide us with new insights and
valuable recommendations that directly support our efforts to further enhance SBA's financial
management practices. We remain committed to excellence in financial management and look
forward to making more progress in the coming year.

AGENCY FINANCIAL REPORT • FY 2017 53
F I N A N C I A L R E PO R TI N G

FINANCIAL STATEMENTS AND NOTES
The U.S. Small Business Administration prepares its financial statements as a critical aspect of ensuring accountability
and stewardship for the public resources entrusted to the SBA. Preparation of these statements is also an important part
of SBA’s financial management goal of providing accurate and reliable information that may be used to assess performance
and allocate resources.

SBA’s management is responsible for the accuracy and propriety of the information contained in the principal financial
statements and the quality of internal controls. The SBA prepares these financial statements from its books and records in
accordance with generally accepted accounting principles in the United States as well as formats prescribed by the Office
of Management and Budget. While these statements have been prepared from SBA’s books and records in accordance
with generally accepted accounting principles for federal entities and the formats prescribed by OMB, they are in
addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same
books and records. The statements should be read with the realization that they are a component of the U.S. Government,
a sovereign entity.

The financial statements include the following reports.

The Consolidated Balance Sheet summarizes the assets, liabilities, and net position by major category as of the reporting
date. Intragovernmental assets and liabilities resulting from transactions between federal agencies are presented separately
from assets and liabilities resulting from transactions with the public.

The Consolidated Statement of Net Cost shows, by strategic goal, the net cost of operations for the reporting period. Net
cost of operations consists of full program costs incurred by the SBA, less the exchange revenues earned by those programs.

The Consolidated Statement of Changes in Net Position presents SBA’s beginning and ending net position by two
components—Cumulative Results of Operations and Unexpended Appropriations. It summarizes the change in net
position by major transaction category. The ending balances of both components of net position are also reported on the
Balance Sheet.

The Combined Statement of Budgetary Resources provides information about funding and availability of budgetary
resources, and the status of those resources at the end of the reporting period. Data on the Combined Statement of
Budgetary Resources are consistent with information reflected on the Report on Budget Execution and Budgetary
Resources (SF 133), with the one exception of offsetting receipts. Offsetting receipts offset budget authority and outlays
at the agency level in the Budget of the United States Government, but are not reflected in the SF 133. The SBA includes
offsetting receipts in this statement for the purpose of reconciling outlay information presented in the Budget of the
United States Government.

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

The Required Supplementary Information presents a Combining Statement of Budgetary Resources report by principal
functional area.

The Required Supplementary Stewardship Information provides information on SBA’s investment in human capital
that supports the increase or maintenance of national economic productivity capacity through education and
training programs.

54 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

U.S. Small Business Administration
Consolidated Balance Sheet
As of September 30, 2017 and 2016

(Dollars in Thousands)
2017 2016
ASSETS
Intragovernmental Assets
Fund Balance with Treasury (Note 2) $ 6,719,641 $ 6,255,936
Advances (Note 1) 33,451 54,300
Total Intragovernmental Assets 6,753,092 6,310,236

Assets - Public and Other
Cash (Note 3) 1,376 1,767
Accounts Receivable, Net (Note 5) 100,874 161,312
Credit Program Receivables and Related Foreclosed Property, Net (Note 6) 6,359,969 6,182,889
General Property and Equipment, Net (Note 7) 505 825
Advances (Note 1) 103 143
Total Assets - Public and Other 6,462,827 6,346,936
Total Assets $ 13,215,919 $ 12,657,172

LIABILITIES
Intragovernmental Liabilities
Interest Payable $ 2,462 $ 446
Debt (Note 9) 7,693,059 8,019,526
Net Assets of Liquidating Funds Due to Treasury (Note 10) 4,939 14,824
Downward Reestimate Payable to Treasury (Note 1, Note 13) 1,215,102 1,239,814
Other (Note 11) 13,892 12,599
Total Intragovernmental Liabilities 8,929,454 9,287,209

Other Liabilities - Public
Accounts Payable (Note 1) 20,728 27,028
Accrued Grant Liability (Note 1) 75,890 80,000
Liability for Loan Guaranties (Note 6) 2,556,368 2,371,505
Federal Employees' Compensation Act Actuarial Liability (Note 1, Note 8) 34,889 32,676
Surety Bond Guarantee Program Future Claims (Note 8) 44,942 43,430
Other (Note 11) 41,318 41,140
Total Other Liabilities - Public 2,774,135 2,595,779
Total Liabilities 11,703,589 11,882,988

NET POSITION
Unexpended Appropriations (Note 1) 1,653,684 1,425,883
Cumulative Results of Operations (Note 1) (141,354) (651,699)
Total Net Position 1,512,330 774,184

Total Liabilities and Net Position $ 13,215,919 $ 12,657,172

The accompanying notes are an integral part of these statements.

AGENCY FINANCIAL REPORT • FY 2017 55
F I N A N C I A L R E PO R TI N G

U.S. Small Business Administration
Consolidated Statement of Net Cost
For the Years Ended September 30, 2017 and 2016

(Dollars in Thousands)
2017 2016
STRATEGIC GOAL 1:
Growing Businesses and Creating Jobs
Gross Cost $ 298,785 $ 597,683
Less: Earned Revenue 440,488 457,503
Net Cost of Strategic Goal 1 (141,703) 140,180

STRATEGIC GOAL 2:
Serving as the Voice for Small Business
Gross Cost 86,286 123,151
Net Cost of Strategic Goal 2 86,286 123,151

STRATEGIC GOAL 3:
Building an SBA that Meets the Needs of Today’s
and Tomorrow’s Small Businesses
Gross Cost 36,678 41,326
Net Cost of Strategic Goal 3 36,678 41,326

COST NOT ASSIGNED TO STRATEGIC GOALS
Gross Cost 22,649 34,820
Net Cost Not Assigned to Strategic Goals 22,649 34,820

Net Cost of Operations $ 3,910 $ 339,477

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

56 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

U.S. Small Business Administration
Consolidated Statement of Changes in Net Position
For the Years Ended September 30, 2017 and 2016
(Dollars in Thousands)
2017 2016

Beginning Cumulative Results of Operations $ (651,699) $ (262,817)

Budgetary Financing Sources
Appropriations Used 1,670,879 1,227,401
Donations of Cash and Cash Equivalents 105 10

Other Financing Sources
Imputed Financing from Costs Absorbed by Others 12,162 18,158
Other - Current Year Liquidating Equity Activity 7,463 (4,639)
Other - Non-entity Activity (1,176,354) (1,290,335)
Total Financing Sources 514,255 (49,405)

Less: Net Cost of Operations 3,910 339,477

Ending Cumulative Results of Operations $ (141,354) $ (651,699)

Beginning Unexpended Appropriations $ 1,425,883 $ 1,600,847

Budgetary Financing Sources
Appropriations Received 1,989,933 1,147,487
Rescissions (55,000) –
Adjustment - Cancelled Authority (34,647) (91,615)
Return of Unrequired Liquidating Fund Appropriation (1,109) (2,899)
Other Adjustments (497) (536)
Appropriations Used (1,670,879) (1,227,401)
Total Budgetary Financing Sources 227,801 (174,964)

Ending Unexpended Appropriations $ 1,653,684 $ 1,425,883

Ending Net Position $ 1,512,330 $ 774,184

The accompanying notes are an integral part of these statements.

AGENCY FINANCIAL REPORT • FY 2017 57
F I N A N C I A L R E PO R TI N G

U.S. Small Business Administration
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2017 and 2016
(Dollars in Thousands)
September 30, 2017
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 1,078,001 $ 3,888,555 $ 4,966,556
Recoveries of Prior Year Obligations 97,490 463,730 561,220
Other Changes in Unobligated Balance (29,364) (655,780) (685,144)
Unobligated Balance from Prior Year Budget Authority, Net 1,146,127 3,696,505 4,842,632

Appropriations (discretionary and mandatory) 1,933,824 – 1,933,824
Borrowing Authority (discretionary and mandatory) – 1,548,576 1,548,576
Spending Authority from Offsetting Collections 577,355 3,340,767 3,918,122
Total Budgetary Resources $ 3,657,306 $ 8,585,848 $ 12,243,154

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 2,333,955 $ 4,033,287 $ 6,367,242
Unobligated Balance, end of year:
Apportioned, unexpired accounts 491,684 1,135,296 1,626,980
Unapportioned, unexpired accounts 785,159 3,417,265 4,202,424
Unexpired Unobligated Balance, end of year 1,276,843 4,552,561 5,829,404
Expired Unobligated Balance, end of year 46,508 – 46,508
Total Unobligated Balance, end of year 1,323,351 4,552,561 5,875,912
Total Status of Budgetary Resources $ 3,657,306 $ 8,585,848 $ 12,243,154

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 507,386 $ 926,211 $ 1,433,597
New Obligations and Upward Adjustments 2,333,955 4,033,287 6,367,242
Gross Outlays (2,224,647) (3,622,268) (5,846,915)
Recoveries of Prior Year Unpaid Obligations (97,490) (463,730) (561,220)

Unpaid Obligations, end of year 519,204 873,500 1,392,704
Uncollected Payments:
Uncollected Payments, Federal Sources, Brought Forward, October 1 – (145,036) (145,036)

Change in Uncollected Payments, Federal Sources – 6,496 6,496

Uncollected Payments, Federal Sources, end of year – (138,540) (138,540)

Memorandum (non-add) Entries:
Obligated Balance, start of year $ 507,386 $ 781,175 $ 1,288,561

Obligated Balance, end of year $ 519,204 $ 734,960 $ 1,254,164

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross (discretionary and mandatory) $ 2,511,179 $ 4,889,343 $ 7,400,522
Actual Offsetting Collections (discretionary and mandatory) (585,557) (4,156,180) (4,741,737)
Change in Uncollected Customer Payments
– 6,496 6,496
from Federal Sources (discretionary and mandatory)
Recoveries of Prior Year Paid Obligations (discretionary and mandatory) 5,283 – 5,283

Budget Authority, Net (discretionary and mandatory) $ 1,930,905 $ 739,659 $ 2,670,564

Gross Outlays (discretionary and mandatory) $ 2,224,647 $ 3,622,268 $ 5,846,915

Actual Offsetting Collections (discretionary and mandatory) (585,557) (4,156,180) (4,741,737)

Net Outlays (discretionary and mandatory) 1,639,090 (533,912) 1,105,178

Distributed Offsetting Receipts (129) (1,201,066) (1,201,195)

Agency Outlays, Net (discretionary and mandatory) $ 1,638,961 $ (1,734,978) $ (96,017)

The accompanying notes are an integral part of these statements.
See Note 15.

58 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

U.S. Small Business Administration
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2017 and 2016
(Dollars in Thousands)
September 30, 2016
Nonbudgetary
Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 1,286,459 $ 3,692,206 $ 4,978,665
Recoveries of Prior Year Obligations 55,640 47,959 103,599
Other Changes in Unobligated Balance (86,861) (10,500) (97,361)
Unobligated Balance from Prior Year Budget Authority, Net 1,255,238 3,729,665 4,984,903

Appropriations (discretionary and mandatory) 1,144,588 – 1,144,588
Borrowing Authority (discretionary and mandatory) – 1,610,202 1,610,202
Spending Authority from Offsetting Collections 378,906 2,759,413 3,138,319
Total Budgetary Resources $ 2,778,732 $ 8,099,280 $ 10,878,012

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 1,700,731 $ 4,210,725 $ 5,911,456
Unobligated Balance, end of year:
Apportioned, unexpired accounts 299,478 1,690,457 1,989,935
Unapportioned, unexpired accounts 722,884 2,198,098 2,920,982
Unexpired Unobligated Balance, end of year 1,022,362 3,888,555 4,910,917
Expired Unobligated Balance, end of year 55,639 – 55,639
Total Unobligated Balance, end of year 1,078,001 3,888,555 4,966,556
Total Status of Budgetary Resources $ 2,778,732 $ 8,099,280 $ 10,878,012

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 457,460 $ 200,981 $ 658,441
New Obligations and Upward Adjustments (total) 1,700,731 4,210,725 5,911,456
Gross Outlays (1,595,165) (3,437,536) (5,032,701)
Recoveries of Prior Year Unpaid Obligations (55,640) (47,959) (103,599)
Unpaid Obligations, end of year 507,386 926,211 1,433,597
Uncollected Payments:
Uncollected Payments, Federal Sources, Brought Forward, October 1 – (95,175) (95,175)

Change in Uncollected Payments, Federal Sources – (49,861) (49,861)

Uncollected Payments, Federal Sources, end of year – (145,036) (145,036)

Memorandum (non-add) Entries:
Obligated Balance, start of year $ 457,460 $ 105,806 $ 563,266

Obligated Balance, end of year $ 507,386 $ 781,175 $ 1,288,561

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross (discretionary and mandatory) $ 1,523,494 $ 4,369,615 $ 5,893,109
Actual Offsetting Collections (discretionary and mandatory) (387,827) (3,641,970) (4,029,797)
Change in Uncollected Customer Payments
– (49,861) (49,861)
from Federal Sources (discretionary and mandatory)
Recoveries of Prior Year Paid Obligations (discretionary and mandatory) 4,753 – 4,753

Budget Authority, Net (discretionary and mandatory) $ 1,140,420 $ 677,784 $ 1,818,204

Gross Outlays (discretionary and mandatory) $ 1,595,165 $ 3,437,536 $ 5,032,701

Actual Offsetting Collections (discretionary and mandatory) (387,827) (3,641,970) (4,029,797)

Net Outlays (discretionary and mandatory) 1,207,338 (204,434) 1,002,904

Distributed Offsetting Receipts 742 (1,651,174) (1,650,432)

Agency Outlays, Net (discretionary and mandatory) $ 1,208,080 $ (1,855,608) $ (647,528)

The accompanying notes are an integral part of these statements.
See Note 15.

AGENCY FINANCIAL REPORT • FY 2017 59
F I N A N C I A L R E PO R TI N G

NOTE 1 SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity
The Small Business Act of 1953 created the Small Business Administration as an independent federal agency. SBA’s
mission is to maintain and strengthen the nation’s economy by enabling the establishment and vitality of small
businesses and by assisting in the economic recovery of communities after disasters. The SBA operates through the
execution of a Congressionally-approved budget that funds its programs.

Basis of Accounting and Presentation
The SBA prepares financial statements to report its financial position and results of its operations as required by the
Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. The financial statements
are prepared from the Agency’s records in accordance with generally accepted accounting principles using formats
prescribed by the Office of Management and Budget. As a federal agency, the SBA cannot incur obligations without
authority from Congress and an apportionment by the OMB.

These financial statements reflect transactions recorded on both a proprietary accrual accounting basis and a budgetary
obligation basis, in accordance with concepts and guidance provided by the OMB, the Federal Accounting Standards
Advisory Board, and the Department of the Treasury. Under the accrual method of accounting, revenues are
recognized when earned and expenses are recognized when incurred, without regard to receipt or payment of cash.
Budgetary accounting recognizes the legal commitment or obligation of funds in advance of the proprietary accruals
and facilitates compliance with legal constraints and controls over the use of federal funds.

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

Use of Estimates
SBA’s management makes assumptions and uses estimates to prepare the financial statements based upon the facts
that exist when the statements are prepared. The SBA also uses economic assumptions provided by the Office of
Management and Budget in preparing the estimates. Actual results may differ from those assumptions and estimates,
and the differences may be significant. The most significant differences between actual results and these estimates may
occur in the valuation of credit program receivables and liabilities for loan guaranties under guidelines in the Federal
Credit Reform Act of 1990. The SBA recognizes the sensitivity of credit reform modeling to slight changes in some
model assumptions and therefore continually reviews its model factors and statistical modeling techniques to reflect
the most accurate credit program costs possible in its annual financial statements.

60 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

Budgets and Budgetary Accounting for Loan Programs
SBA’s loan disbursements are financed by appropriations for long-term loan subsidy cost and borrowings from the
Treasury’s Bureau of the Fiscal Service for the remaining non-subsidized portion of the loans. 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. Congress authorizes
the dollar amount of obligations that can be made for the cost of direct loans and loan guaranties and establishes the
maximum amount of loans the SBA can guarantee in its annual appropriation act.

A permanent indefinite authority is available to fund any reestimated increase of subsidy costs that occurs after
the year in which a loan is disbursed. Reestimated reductions of subsidy costs are returned to the Treasury and are
unavailable to the SBA. As required by the Federal Credit Reform Act of 1990, the SBA uses budgetary “program
accounts” to account for appropriations in its credit programs and nonbudgetary “financing accounts” to account for
credit program cash flow. Estimates and reestimates of credit program subsidy expenses are recorded in SBA’s program
accounts. Financing accounts are used to account for Treasury borrowings, the collection of loan fees, repayments and
default recoveries, and the disbursement of loans and loan expenses.

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

Accounts Payable
Accounts Payable are amounts due to public entities that will be liquidated during the next operating cycle. Included
in the liability are payables to SBA lenders for their share of loan collections and to vendors for goods and services.

Accrued Grant Liability
Disbursements of grant funds are recognized as expenses at the time of disbursement. However, some grant recipients
incur expenditures prior to initiating a request for disbursement based on the nature of the expenditures. The
SBA accrues a liability for expenditures incurred by grantees prior to receiving grant funds for the expenditures.
The amount to be accrued is determined through an analysis of historic grant expenditures. The Small Business
Development Center program and several other grant programs are subject to this treatment.

Contingencies
The SBA is a party in various administrative proceedings, legal actions, environmental suits, and claims brought
against the Agency. In the opinion of SBA’s management and legal counsel, the ultimate resolution of these
proceedings, actions, suits and claims will not materially affect the financial position or results of SBA’s operations.

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

AGENCY FINANCIAL REPORT • FY 2017 61
F I N A N C I A L R E PO R TI N G

Unexpended Appropriations
Unexpended Appropriations is the portion of SBA’s appropriations received which are either undelivered or unobligated.
Delivered orders result in expended appropriations and reduce the total reported as Unexpended Appropriations.
Undelivered orders are the amount of orders of goods or services which have not been actually or constructively received.

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

Fiduciary Activities
Fiduciary activities are the receipt, management, protection, accounting, investment, and disposition by the
federal government of cash or other assets in which non-federal entities have an ownership interest that the federal
government must uphold. Fiduciary cash and other assets are not assets of the government, and are not recognized on
SBA’s proprietary statements, but they are required to be disclosed in the notes to SBA’s financial statements. SBA’s
fiduciary balances are on deposit in commercial banks. SBA’s fiduciary activities are discussed in Note 4.

Employee Benefits
LEAVE
A liability for employee annual leave is accrued as it is earned and reduced as leave is taken. Each year the balance
of accrued annual leave is adjusted to reflect current pay rates as well as forfeited “use or lose” leave. Amounts are
reported as unfunded to the extent current or prior year appropriations are not available to fund annual leave earned
but not taken. Sick leave and other types of non-vested leave are expensed as taken.

EMPLOYEE HEALTH AND LIFE INSURANCE BENEFITS
SBA employees may choose to participate in the contributory Federal Employees Health Benefits and the Federal
Employees Group Life Insurance programs. The SBA matches a portion of the employee contributions to each
program. Such matching contributions are recognized as current operating expenses.

EMPLOYEE PENSION BENEFITS
SBA employees participate in either the Civil Service Retirement System or the Federal Employees Retirement System
and Social Security. These systems provide benefits upon retirement and in the event of death, disability, or other
termination of employment, and may also provide pre-retirement benefits. They may also include benefits to survivors
and their dependents, and they may contain early retirement or other special features. SBA’s contributions to both
retirement plans, as well as to the government-wide Federal Insurance Contribution Act, administered by the Social
Security Administration, are recognized on the Consolidated Statement of Net Cost as current operating expenses.

Federal employee benefits also include the Thrift Savings Plan. For FERS employees, the SBA matches employee
contributions to the plan, subject to limitations. The matching contributions are recognized as current operating expenses.

IMPUTED FINANCING COSTS
The SBA recognizes the full cost of providing all employee benefits and future retirement benefits, including life and health
insurance, at the time employee services are rendered. Eligible retired SBA employees can continue to participate in health
and life insurance plans. The cost of these benefits is funded through Agency contributions, employee compensation to the
extent withheld from employee and retiree pay, from matching of employee withholding for Thrift Savings Plan and FICA,
and by the Office of Personnel Management, which administers the retirement programs for SBA employees.

62 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

The OPM calculates imputed costs as the actuarial present value of future benefits attributed to services rendered by covered
employees and eligible retired SBA employees during the accounting period, net of the amounts contributed by employees,
retirees, and the Agency. The SBA recognizes these imputed costs in the Statement of Net Cost and imputed financing in
determining SBA’s net position.

FEDERAL EMPLOYEES’ COMPENSATION ACT
The Federal Employees’ Compensation Act provides income and medical cost protection to covered federal civilian
employees injured on the job, and to beneficiaries of employees whose deaths are attributable to job-related injury or
disease. The FECA program is administered by the Department of Labor.

The DOL pays valid claims as they occur, which are billed to the SBA annually and funded and paid approximately
15 months later. The DOL also calculates an estimated actuarial liability for future benefits based upon historical
experience and other economic variables. Projected annual benefit payments are then discounted to present value using
the forecasted interest rates for 10-year Treasury notes and bonds published by the OMB in its economic assumptions for
the federal budget. The SBA recognizes a current unfunded cost for the actual claims paid and the change in the FECA
actuarial liability each year.

NOTE 2 FUND BALANCE WITH TREASURY
The Department of the Treasury processes cash receipts and disbursements on SBA’s behalf to pay liabilities and finance
loan program costs. Cash receipts are deposited into SBA’s account at the Treasury. SBA’s fund balances with the Treasury
are available to make expenditures to liquidate allowable obligations; except for the Non-entity Fund Balance, which is not
available to the SBA to obligate or expend. Separate records are maintained for SBA’s program, financing, liquidating,
suspense/budget clearing accounts, and other accounts. Fund balances at the Treasury include expired year amounts, which
are unavailable for obligation, as well as amounts currently available for new obligations.

(Dollars in Thousands)

As of September 30, 2017 2016
Appropriated Funds $ 1,747,177 $ 1,495,657
Financing Funds 4,877,175 4,669,731
Liquidating Funds 2,870 786
Revolving Fund 92,235 88,735
Trust Fund 273 208
Total Entity Fund Balance with Treasury 6,719,730 6,255,117
Budget Clearing Account Balance (89) 819
Total Fund Balance with Treasury $ 6,719,641 $ 6,255,936

Status of Fund Balance with Treasury
Apportioned, unexpired accounts $ 1,626,980 $ 1,989,935
Unapportioned, unexpired accounts 4,202,424 2,920,982
Obligated Balance Not Yet Disbursed 1,254,164 1,288,561
Expired Unobligated Balance 46,508 55,639
Borrowing Authority Not Converted to Funds (410,346) –
Nonbudgetary (89) 819
Total Fund Balance with Treasury $ 6,719,641 $ 6,255,936

Unobligated balances become available when OMB approves SBA’s request to apportion funds for obligation in the current
fiscal year. Obligated balances not yet disbursed include unpaid obligations offset by uncollected customer payments from other
federal government accounts. The unobligated and obligated balances are reflected on the Statement of Budgetary Resources.

AGENCY FINANCIAL REPORT • FY 2017 63
F I N A N C I A L R E PO R TI N G

NOTE 3 CASH
SBA field offices deposit collections from borrowers in SBA’s account at the Treasury using an electronic deposit system.
At the end of the fiscal year, collections temporarily held by SBA field offices pending deposit are recorded as Undeposited
Collections—Cash in Transit and totaled $1.4 million and $1.8 million as of September 30, 2017 and 2016.

NOTE 4 FIDUCIARY ACTIVITIES: MASTER RESERVE FUND
AND MASTER RESERVE ACCOUNT
Fiduciary activities are the receipt, management, protection, accounting, investment and disposition by the federal government of
cash or other assets in which non-federal entities have an ownership interest that the federal government must uphold. Fiduciary
cash and other assets are not assets of the government, and are not recognized on SBA’s proprietary statements, but they are required
to be disclosed in the notes of SBA’s financial statements. SBA’s fiduciary balances are on deposit in commercial banks.

The Master Reserve Fund is a fiduciary activity administered by SBA’s fiscal transfer agent, Colson Services Corp., a subsidiary of the
Bank of New York Mellon. The balance in the MRF is invested, according to SBA policy, entirely in Treasury securities and repurchase
agreements that are backed by Treasury securities. The MRF is an integral part of SBA’s 7(a) secondary market program. The MRF was
authorized by the Small Business Secondary Market Improvement Act of 1984 to facilitate the pooling of 7(a) guarantied loans that
are purchased by secondary market investors. The MRF receives monthly payments from SBA guarantied borrowers, and disburses
monthly to 7(a) secondary market pool investors based on a schedule of amounts due. The 7(a) secondary market program includes
SBA’s guaranty of timely payment, as well as a default guaranty, to 7(a) secondary market investors. The MRF supports $32.4 billion
and $28.2 billion of outstanding SBA guarantied 7(a) loan principal in the secondary market as of September 30, 2017 and 2016.

The Master Reserve Account is an SBA fiduciary activity that is administered for the SBA by PwC. The balance in the MRA
is invested entirely in Treasury securities. The MRA facilitates the operation of the 504 Certified Development Company
secondary market program. The MRA was authorized by Section 505 of the Small Business Investment Act of 1958 as amended,
as a vehicle to receive, temporarily hold, and distribute 504 program cash flows. The MRA receives monthly payments from 504
borrowers, and retains the payments until a semi-annual debenture payment is due to the secondary market investors. The 504
secondary market program includes SBA’s guaranty of timely payment, as well as a default guaranty to 504 secondary market
investors. The MRA supports $26.4 billion and $26.7 billion of SBA guarantied 504 debentures outstanding in the secondary
market as of September 30, 2017 and 2016.

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, 2017 2016
MRF MRA Total MRF MRA Total
Cash $ – $ – $ – $ 12,466 $ – $ 12,466
Short Term Securities
Money Market Funds 17,080 686,925 704,005 – 730,806 730,806
Treasury Bills 891,776 – 891,776 973,602 – 973,602
Repurchase Agreements 458,897 – 458,897 486,995 – 486,995
Total Cash and Short Term Securities 1,367,753 686,925 2,054,678 1,473,063 730,806 2,203,869

Long Term Securities
Treasury Notes/Bonds Including Interest 2,888,112 – 2,888,112 2,134,988 – 2,134,988
Total Long Term Securities 2,888,112 – 2,888,112 2,134,988 – 2,134,988

Net Assets $ 4,255,865 $ 686,925 $ 4,942,790 $ 3,608,051 $ 730,806 $ 4,338,857

64 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

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

RECONCILIATION OF FIDUCIARY ASSETS
For the Years Ended
September 30, 2017 2016
MRF MRA Total MRF MRA Total
Beginning Net Assets $ 3,608,051 $ 730,806 $ 4,338,857 $ 3,165,564 $ 722,814 $ 3,888,378
Receipts
Earned Income 33,646 4,856 38,502 29,214 1,115 30,329
Contributions 6,482,967 16,314,573 22,797,540 5,317,512 16,743,968 22,061,480
Net Realized Gain (Loss) 3,821 – 3,821 822 – 822
Total Receipts 6,520,434 16,319,429 22,839,863 5,347,548 16,745,083 22,092,631

Less Disbursements
Payments to Investors 5,872,620 16,363,310 22,235,930 4,905,061 16,737,091 21,642,152
Total Disbursements 5,872,620 16,363,310 22,235,930 4,905,061 16,737,091 21,642,152

Ending Net Assets $ 4,255,865 $ 686,925 $ 4,942,790 $ 3,608,051 $ 730,806 $ 4,338,857

NOTE 5 ACCOUNTS RECEIVABLE
Accounts receivable include amounts owed by the public for guaranty fees in SBA’s loan and surety bond programs,
refunds due from employees and others, as well as other amounts owed by lenders for guarantied loan purchases that
lack the required documents. An Allowance for Loss on uncollectible Surety Bond Guaranty fees is based on an aging
of delinquent balances. The uncollectible amount for refunds and loan guaranty fees is not significant and no allowance
is provided. Amounts over 180 days past due on guarantied loans purchased by the SBA are written off for financial
reporting purposes.

(Dollars in Thousands)

As of September 30, 2017 2016
Public
Guaranty Fees Receivable $ 83,414 $ 78,982
Refunds 805 776
Other 17,054 81,576
Total Public 101,273 161,334
Allowance For Loss (399) (22)
Net Public $ 100,874 $ 161,312

AGENCY FINANCIAL REPORT • FY 2017 65
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NOTE 6 CREDIT PROGRAM RECEIVABLES AND LIABILITY FOR LOAN
GUARANTIES
A. Loan Program Descriptions and Accounting
LOAN PROGRAM DESCRIPTIONS
The SBA provides guaranties that help eligible small businesses obtain loans from participating lenders and licensed
small business investment companies to make investments in qualifying small businesses. The SBA also makes loans to
microloan intermediaries and provides direct loans that assist homeowners, renters, businesses of all sizes, and private
nonprofit organizations recover from disasters.

MAJOR DIRECT LOAN AND LOAN GUARANTY PROGRAMS
Program group Program type Program
Disaster Direct Disaster Assistance Loans
Business Guarantied 7(a) Loan Guaranty
Business Guarantied 504 Certified Development Company
Business Guarantied Small Business Investment Company Debentures
Business Direct 7(m) Microloan

SBA’s Disaster Assistance Loan program makes direct loans to disaster survivors under four categories: (1) physical
disaster loans to repair or replace damaged homes and personal property; (2) physical disaster loans to businesses of
any size; (3) economic injury disaster loans to eligible small businesses and nonprofit organizations without credit
available elsewhere; and (4) economic injury loans to eligible small businesses affected by essential employees called up
to active duty in the military reserves. The maximum interest rate is 4 percent for loan applicants without credit available
elsewhere and 8 percent for applicants with credit available elsewhere.

SBA’s business loan programs include its flagship 7(a) Loan Guaranty program in which the SBA guarantees up to 90
percent of the amount of loans made by participating banks and other lending institutions to eligible small businesses
not able to obtain credit elsewhere.

The 504 Certified Development Company program guarantees 100 percent of the principal and interest payments on
debentures issued by development companies for loans to eligible small businesses secured by real estate or equipment.

The Small Business Investment Company program guarantees principal and interest payments on debentures issued by
small business investment companies, which in turn make investments in qualifying small businesses.10

The 7(m) Microloan program provides direct loans to nonprofit intermediaries, which use these funds to make loans up
to $50,000 to eligible small businesses.

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

SBA’s models vary in the specific methodologies employed to forecast future program cash flows. In general, however,
models for all major credit programs use historical data as the basis for assumptions about future program performance
and then translate these assumptions into nominal cash flow estimates by applying rules about program structure.

10 In February 2009, SBA conducted its last pooling of SBIC participating securities.

66 AGENCY FINANCIAL REPORT • FY 2017
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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 are used as the basis for program performance assumptions. The historical data undergo 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, and maturity and grace periods
• Borrower characteristics
• Loan origination methods
• Economic indicators such as gross domestic product growth and unemployment rate
• Loan performance assumptions, for example: conditional purchase and prepayment rates and recovery rates
• Loan fee rates

SUBSIDY FUNDING UNDER THE FEDERAL CREDIT REFORM ACT
FCRA requires that the credit subsidy costs of direct loans and loan guaranties be expensed in the year loans are disbursed.
The credit subsidy cost is the net present value of expected cash inflows and outflows over the life of a guarantied loan, or
the difference between the net present value of expected cash flows and the face value of a direct loan. The cost expressed
as a percentage of loans disbursed is termed the subsidy rate. The SBA receives appropriations annually to fund its credit
programs based on the subsidy rate that applies to the credit program level approved by Congress. The SBA records subsidy
expenses when loans are disbursed. In accordance with FCRA, subsidy costs are reestimated annually.

CREDIT PROGRAM RECEIVABLES AND RELATED FORECLOSED PROPERTY, NET
FCRA governs direct loans made after FY 1991. FCRA direct loans are valued at the present value of expected future
cash flows, discounted at the interest rate of marketable Treasury securities. The subsidy allowance represents the
difference between the outstanding loans receivable balance and the net present value of the estimated cash flows of the
loans over their remaining term. The subsidy allowance is subtracted from the outstanding loans receivable balance to
obtain the net loans receivable balance.

Guarantied loans purchased by the SBA upon borrower default are established as loans receivable and are valued in a
similar manner as direct loans under FCRA.

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

The SBA advances payments semiannually to honor SBA’s timely payment requirement of principal and interest due
for debentures in SBA’s 504 Certified Development Company and Small Business Investment Company programs. The
advances are liquidated by receipt of the payments due from borrowers in these programs. Advance balances are reported
as Other Loans Receivable.

Interest receivable is comprised of accrued interest on loans receivable and purchased interest related to defaulted
guarantied loans. Interest income is accrued at the contractual rate on the outstanding principal amount and is reduced
by the amount of interest income accrued on non-performing loans in excess of 90 days delinquent. SBA’s purchase of
accrued interest is limited to 120 days on the defaulted guaranty unless the loan has been sold in the secondary market.
Purchased interest is carried at cost and an allowance is established for amounts in excess of 90 days delinquent.

AGENCY FINANCIAL REPORT • FY 2017 67
F I N A N C I A L R E PO R TI N G

Foreclosed property is comprised of real and personal property acquired through foreclosure on direct loans and defaulted
loan guaranties. Properties acquired as a result of defaulted loans committed after FY 1991 are shown at recoverable
value, which is adjusted to the present value of expected future cash flows for financial statement presentation through the
allowance for subsidy. Other foreclosed property is shown at the appraised value. As of September 30, 2017, SBA’s foreclosed
property was $17.5 million related to 86 loans. The properties had been held for an average of 1,292 days. As of September
30, 2016, foreclosed property was $24.2 million related to 86 loans. The properties had been held for an average of 1,187
days.

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

VALUATION METHODOLOGY FOR PRE-FCRA LIABILITY FOR LOAN GUARANTIES
The SBA values pre-credit reform direct and defaulted guarantied loans by estimating an allowance for loan losses.
This allowance is offset against gross loan receivables to obtain SBA’s expected net collections from these assets. The
SBA establishes a 100 percent allowance for pre-credit reform direct and guarantied loans that are past due more than
180 days. A liability is also established for active pre-credit reform loan guaranties. The liability is estimated based on
historical experience.

68 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

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

As of September 30, 2017 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 1,037 $ 183,856 $ 184,893
Interest Receivable 2,536 315 2,851
Foreclosed Property 3,114 – 3,114
Allowance (5,544) (13,343) (18,887)
Total Direct Business Loans 1,143 170,828 171,971

Direct Disaster Loans
Disaster Loans Receivable 1,424 6,160,916 6,162,340
Interest Receivable 147 30,531 30,678
Foreclosed Property – 3,104 3,104
Allowance (187) (899,235) (899,422)
Total Direct Disaster Loans 1,384 5,295,316 5,296,700

Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 2,251 3,482,179 3,484,430
Other Loans Receivable (see note below) – 189,796 189,796
Interest Receivable 664 38,073 38,737
Foreclosed Property 1,868 9,427 11,295
Allowance (3,966) (2,828,994) (2,832,960)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 817 890,481 891,298

Total Credit Program Receivables & Related Foreclosed Property, Net $ 6,359,969

As of September 30, 2016 Pre-1992 Loans Post-1991 Loans Total
Direct Business Loans
Business Loans Receivable $ 2,011 $ 173,528 $ 175,539
Interest Receivable 2,745 405 3,150
Foreclosed Property 3,113 – 3,113
Allowance (4,687) (13,128) (17,815)
Total Direct Business Loans 3,182 160,805 163,987

Direct Disaster Loans
Disaster Loans Receivable 1,931 5,992,848 5,994,779
Interest Receivable 196 34,337 34,533
Foreclosed Property – 1,874 1,874
Allowance (203) (939,342) (939,545)
Total Direct Disaster Loans 1,924 5,089,717 5,091,641

Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans 1,512 3,941,186 3,942,698
Other Loans Receivable (see note below) – 222,318 222,318
Interest Receivable 9,042 37,845 46,887
Foreclosed Property 1,868 17,303 19,171
Allowance (4,723) (3,299,090) (3,303,813)
Total Defaulted Guarantied Business Loans & Other Loans Receivable 7,699 919,562 927,261

Total Credit Program Receivables & Related Foreclosed Property, Net $ 6,182,889

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

AGENCY FINANCIAL REPORT • FY 2017 69
F I N A N C I A L R E PO R TI N G

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

DIRECT LOANS
New Loans Disbursed During the Year Ended September 30, 2017 2016
Business Direct Loan Program $ 41,231 $ 33,594
Disaster Loan Program 886,275 401,121
Total Direct Loans Disbursed $ 927,506 $ 434,715

Outstanding Loan Obligations as of September 30, 2017 2016
Business Direct Loan Program $ 41,835 $ 42,839
Disaster Loan Program 803,049 851,495
Total Direct Loan Obligations $ 844,884 $ 894,334

GUARANTIED LOANS
New Loans Disbursed During the Year Ended September 30, 2017 2016
Total Principal Disbursed at Face Value $ 28,992,380 $ 26,971,386
Total Principal Disbursed Guarantied by the SBA 22,812,816 21,294,900

Outstanding Loan Obligations as of September 30, 2017 2016
Business Guarantied Loan Programs $ 16,756,254 $ 16,766,201

Loans Outstanding as of September 30, 2017 2016
Total Principal Outstanding at Face Value (see note below) $ 121,005,886 $ 113,113,553
Total Principal Outstanding Guarantied by the SBA (see note below) 99,512,501 93,764,878
Note: SBA’s guarantied loan servicing agent provides data to the SBA on the unpaid principal balance of guarantied loans within a precision of less than 1 percent due to timing.

D. Subsidy Cost Allowance Balances
(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account $ 3,312,218 $ 4,756,184
Current Year's Subsidy (see 6.G for breakdown by component) 3,971 4,000
Loans Written Off (971,719) (1,927,638)
Subsidy Amortization (2,364) (2,208)
Allowance Related to Guarantied Loans Purchased This Year 314,131 182,476
Miscellaneous Recoveries and Costs 187,293 299,146
Balance of Subsidy Allowance Account before Reestimates 2,843,530 3,311,960
Technical Assumptions/Default Reestimates (1,193) 258
Ending Balance of Allowance Account $ 2,842,337 $ 3,312,218

Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account $ 939,342 $ 1,087,238
Current Year's Subsidy (see 6.G for breakdown by component) 119,660 48,397
Loans Written Off (97,691) (111,340)
Subsidy Amortization (12,872) (4,987)
Miscellaneous Recoveries and Costs 64,668 77,684
Balance of Subsidy Allowance Account before Reestimates 1,013,107 1,096,992
Technical Assumptions/Default Reestimates (113,872) (157,650)
Ending Balance of Allowance Account $ 899,235 $ 939,342

70 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

E. Liability for Loan Guaranties
(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
Pre-1992 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties $ 7 $ 14
Adjustment to Expected Losses, Guaranties Outstanding 1 (7)
Ending Balance of Liability for Loan Guaranties 8 7

Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties 2,371,498 1,661,502
Current Year's Subsidy (see 6.G for breakdown by component) 10,608 26,292
Fees 1,350,243 1,247,356
Interest Accumulation Factor 77,457 76,294
Claim Payments to Lenders (1,016,981) (847,342)
Adjustment Due to Reestimate & Guarantied Loan Purchases 702,850 664,866
Miscellaneous Recoveries and Costs (20,726) 11,358
Balance of Liability for Loan Guaranties before Reestimates 3,474,949 2,840,326
Technical Assumptions/Default Reestimates (918,589) (468,828)
Ending Balance of Liability for Loan Guaranties 2,556,360 2,371,498

Total Ending Balance of Liability for Loan Guaranties $ 2,556,368 $ 2,371,505

F. 2017 Subsidy Rates by Program and Component
Total
Loan Program Subsidy Financing Default Other Fee
Guaranty
7(a) 0.00% 0.00% 4.48% 0.00% -4.48%
504 CDC 0.00% 0.00% 5.96% 0.64% -6.60%
504 Refi 0.00% 0.00% 6.18% 0.64% -6.82%
SBIC Debentures 0.00% 0.00% 4.97% 0.07% -5.04%

Direct
Disaster 14.42% 5.62% 13.30% -4.50% 0.00%
Microloan 9.08% 7.26% 2.26% -0.44% 0.00%

The subsidy rates in Table F pertain only to loans obligated in the current year. These rates cannot be applied to the loans
disbursed during the current year to yield the subsidy expense because loans disbursed during the current year include
loans obligated in prior years. Subsidy expenses reported in Note 6.G result from the disbursement of loans obligated in
the current year as well as in prior years, and include reestimates.

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G. Subsidy Expense by Component
(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
Business Loan Guaranties
Defaults $ 100,099 $ 228,080
Fees (98,224) (221,728)
Other 8,733 19,940
Subsidy Expense Before Reestimates and Loan Modifications 10,608 26,292
Reestimates (918,589) (468,828)
Total Guarantied Business Loan Subsidy Expense $ (907,981) $ (442,536)

Business Direct Loans
Interest $ 3,078 $ 2,585
Defaults 803 693
Other 90 722
Subsidy Expense Before Reestimates 3,971 4,000
Reestimates (1,193) 258
Total Business Direct Loan Subsidy Expense $ 2,778 $ 4,258

Disaster Direct Loans
Interest $ 38,772 $ 10,943
Defaults 119,543 54,571
Other (38,655) (17,117)
Subsidy Expense Before Reestimates 119,660 48,397
Reestimates (113,872) (157,650)
Total Disaster Direct Loan Subsidy Expense $ 5,788 $ (109,253)

H. Administrative Expense
The SBA received appropriations to administer its credit programs, including the making, servicing, and liquidation of its
loans and guaranties. Amounts expensed in the Statement of Net Cost are shown in the following table.

(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
Disaster Direct Loan Programs $ 225,814 $ 212,265
Business Loan Programs 152,629 151,692
Total Administrative Expense $ 378,443 $ 363,957

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 FY 2017 performance data for SBA’s large loan programs and 9 months of actual and
3 months of projected performance data for the Secondary Market Guaranty, Microloan, and the small loan programs.

72 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

BUSINESS GUARANTIED LOAN PROGRAMS
Net subsidy reestimates for the business guarantied loan programs are shown in the following table.

(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
7(a) $ (297,874) $ (163,406)
7(a) - Recovery Act 2,595 19,218
7(a) - Jobs Act 5,507 10,184
Dealer Floor Plan (57) (167)
504 CDC (375,851) (617,004)
504 CDC - Recovery Act (14,874) (46,505)
504 CDC - Jobs Act (4,904) (10,369)
504 CDC - Debt Refinancing (22,336) (24,683)
504 First Mortgage Loan Pooling - Recovery Act 3,881 3,686
SBIC Debentures (133,545) (156,544)
SBIC Participating Securities (90,473) (40,499)
Secondary Market Guaranty Program 2,757 546,107
ARC - Recovery Act (646) (1,387)
All Other Guaranty Loan Programs 7,231 12,541
Total Guarantied Loan Program Subsidy Reestimates $ (918,589) $ (468,828)

The 7(a) Loan Guaranty program, SBA’s flagship and largest program, had a net downward reestimate in FY 2017 of
$297.9 million. The reestimate is primarily due to lower than expected purchases in cohorts 2012 through 2016, and
higher than expected recoveries for most cohorts in FY 2017. This better than expected performance in FY 2017 is
partially offset by higher projected purchases for most cohorts. The higher projected purchases are due mainly to slower
loan payoffs than projected in FY 2017, which results in a higher unpaid principal balance at the end of FY 2017. With
a higher unpaid principal balance, more principal is subject to purchase, hence the higher projected purchases.

The 7(a) Recovery Act program had a net upward reestimate in FY 2017 of $2.6 million. The reestimate is primarily due
to higher than expected purchases in FY 2017, higher projected purchases, and lower projected recoveries. These factors
are partially offset by higher than expected recoveries in FY 2017.

The 7(a) Jobs Act cohort had a net upward reestimate in FY 2017 of $5.5 million. The reestimate is primarily due to
higher than expected purchases in FY 2017. This was partially offset by higher than expected recoveries.

The Dealer Floor Plan program had a net downward reestimate of $0.1 million due to better than expected performance
during FY 2017.

The 504 Certified Development Company program had a net downward reestimate of $375.9 million. The reestimate
is primarily due to better than expected FY 2017 loan performance. Although some cohorts had higher than expected
purchases, these higher than expected purchases were offset by higher than expected recoveries. The remainder of the
reestimate was due to decreased loss projections for the 2013 and 2016 cohorts as compared to the FY 2016 loss projections.

The 504 Recovery Act program had a net downward reestimate of $14.9 million. The reestimate is mostly due to better
than expected FY 2017 loan performance. Actual purchases in the 504 Recovery Act program were approximately half of
the purchases projected for FY 2017.

AGENCY FINANCIAL REPORT • FY 2017 73
F I N A N C I A L R E PO R TI N G

The 504 Jobs Act program had a net downward reestimate of $4.9 million. The reestimate is mostly due to better than
expected FY 2017 loan performance. Actual purchases in the 504 Jobs Act program were less than half the purchases
projected for FY 2017, while actual recoveries were more than double the recoveries projected for FY 2017.

The 504 Debt Refinancing program had a net downward reestimate of $22.3 million. The reestimate is mostly due to
better than expected FY 2017 loan performance. Actual purchases in the 504 Debt Refinancing program were less than
those projected for the original 2011 and 2012 cohorts, while actual recoveries were more than those projected for the
2012 cohort. Newly reauthorized in FY 2016, this amount includes a downward reestimate of $2.7 million for the 2016
and 2017 cohorts, reflecting decreased loss projections compared to the original loss projections.

The Section 504 First Mortgage Loan Pooling program had a net upward reestimate of $3.9 million. The majority
of the reestimate is due to higher than expected purchases in FY 2017, which were partially offset by higher than
expected recoveries.

The SBIC Debentures program had a net downward reestimate of $133.5 million. The primary driver of the reestimate
was lower than expected purchases in FY 2017 for the more recent cohorts, including 2011 through 2013 and 2015
through 2017. The lower actual purchase amount was partially offset by lower than expected recoveries.

The SBIC Participating Securities program had a net downward reestimate of $90.5 million. The downward reestimate
is due to better than expected loan performance in FY 2017, particularly for the 2004 cohort. The main driver of the
downward reestimate was higher recoveries than those projected in FY 2017. These recoveries were partially offset by
higher than expected purchases and lower reimbursements of prioritized payments.

The Secondary Market Guaranty program had a net upward reestimate of $2.8 million. The upward reestimate was due
to lower than projected pool prepayments, which are offset by increases to future pool prepayments as a result of program
changes. All else equal, higher pool prepayments due to loan terminations accelerate pool payments to investors and
reduce SBA’s reliance on interest earnings to cover its guarantee of timely payment.

The America’s Recovery Capital program had a net downward reestimate of $0.6 million. The majority of this reestimate
is due to higher than expected recoveries in FY 2017 for both cohorts.

All Other Guaranty Loan Programs include the New Market Venture Capital program that had a net upward reestimate
of $7.3 million. The upward reestimate was driven by lower than expected recoveries. The other guaranty loan programs
had a net $0.1 million downward reestimate.

BUSINESS DIRECT LOAN PROGRAMS
Net subsidy reestimates for business direct loan programs are shown in the following table.

(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
7(m) Microloan $ (121) $ 224
7(m) Microloan - Recovery Act (225) 82
Intermediary Lending Pilot Program (841) (41)
All Other Direct Loan Programs (6) (7)
Total Direct Loan Program Subsidy Reestimates $ (1,193) $ 258

74 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

The 7(m) Microloan program had a net downward reestimate of $0.1 million. The downward reestimate is attributed to
greater than anticipated cash inflows and fewer defaults in the current year. In addition, there was an increase in projected
principal payments in future years.

The 7(m) Microloan Recovery Act program had a net downward reestimate of $0.2 million. The downward reestimate is
primarily due to a decrease in projected defaults and prepayments in future years. This is partially offset by a decrease in
projected recoveries.

The Intermediary Lending Pilot program had a net downward reestimate of $0.8 million. The downward reestimate was
primarily due to greater than anticipated cash inflows from prepayments. The downward reestimate is partially offset by
decreased projected net prepayments in future years.

DISASTER DIRECT LOAN PROGRAM
Net subsidy reestimates for the disaster direct loan programs are in the following table.

(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
Disaster $ (113,872) $ (157,650)
Total Disaster Direct Loan Program Subsidy Reestimates $ (113,872) $ (157,650)

The Disaster Assistance Program had a net downward reestimate of $113.9 million. Most disaster cohorts (except for
the 2015 and 2017 regular cohorts) experienced downward reestimates as a result of better than expected performance
in FY 2017 and revised performance assumptions. The 2016 cohort experienced a downward reestimate due to
updated present value factors applied to projected cash flows, as well as revised performance assumptions. The 2015
cohort experienced a small upward reestimate due to worse than expected performance in FY 2017. The 2017 cohort
experienced an upward reestimate due to the actual average borrower’s interest rate being lower than the original
projected average borrower’s interest rate.

NOTE 7 GENERAL PROPERTY AND EQUIPMENT, NET
The SBA capitalizes equipment with a cost of $50,000 or more per unit and a useful life of 2 years or more at full cost
and depreciates using the straight-line method over the useful life. The SBA expenses equipment not meeting the
capitalization criteria.

Leasehold improvements with modifications of $50,000 or more and a useful life of 2 years or more are capitalized and
amortized using the straight-line method over the useful life of the improvement or the lease term, whichever is shorter.
Leasehold improvements not meeting the capitalization criteria are expensed.

Software intended for internal use, whether internally-developed, contractor-developed, or purchased, is capitalized at
cost if the unit acquisition cost is $250,000 or more and service life is at least 2 years. Capitalized software costs include
all direct and indirect costs incurred, including overhead to develop the software. Software for internal use is amortized
using the straight-line method over its useful life, not to exceed 5 years. Amortization begins when the software is put
into production. The costs of enhancements are capitalized when it is more likely than not that the enhancements will
result in significant additional capabilities. Costs that do not meet the capitalization criteria are expensed when incurred.

AGENCY FINANCIAL REPORT • FY 2017 75
F I N A N C I A L R E PO R TI N G

Assets meeting the capitalization thresholds are detailed in the following table.

(Dollars in Thousands)

As of September 30, 2017 2016
Leasehold Improvements $ 1,811 $ 1,811
Amortization of Leasehold Improvements (1,306) (1,079)
Net 505 732

Software in Use 35,863 35,863
Amortization of Software in Use (35,863) (35,770)
Net – 93

Total General Property and Equipment, Net $ 505 $ 825

NOTE 8 LIABILITIES NOT COVERED BY BUDGETARY RESOURCES
These unfunded liabilities consisted of the following categories, as shown in the following table.

(Dollars in Thousands)

As of September 30, 2017 2016
Intragovernmental Liabilities - Other
Employment Taxes Payable $ 1,903 $ 294
Federal Employees' Compensation Act Payable 6,337 6,580
Total Intragovernmental Liabilities - Other 8,240 6,874

Federal Employees' Compensation Act Actuarial Liability 34,889 32,676

Surety Bond Guarantee Program Future Claims 44,942 43,430

Other Liabilities
Prior Liens on Real Estate Payable 59 59
Accrued Unfunded Annual Leave 26,452 25,799
Total Other Liabilities 26,511 25,858

Total Liabilities Not Covered by Budgetary Resources $ 114,582 $ 108,838

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

76 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

NOTE 9 DEBT
Borrowings payable to the Treasury result from loans provided by the Treasury to fund the portion of direct loans not
covered by subsidy appropriations and to fund the payment of downward subsidy reestimates and other credit program
disbursements (see Note 15). The SBA makes periodic principal repayments to the Treasury based on the analysis of its
cash balances and future disbursement needs.

All debt is intragovernmental and covered by budgetary resources. Debt transactions and resulting balances are shown in
the following table.

INTRAGOVERNMENTAL DEBT
(Dollars in Thousands)

As of September 30, 2017 2016
Beginning Balance $ 8,019,526 $ 7,175,344
New Borrowing 1,138,230 1,787,103
Repayments (1,464,697) (942,921)
Ending Balance $ 7,693,059 $ 8,019,526

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 Liquidating
Funds for loans made prior to FY 1992. The FY 2017 and FY 2016 balances include the transfer of the unobligated
balance to Treasury as of September 30.

(Dollars in Thousands)

As of September 30, 2017 2016
Disaster Loan Fund $ 1,384 $ 1,924
Business Loan and Investment Fund 3,555 12,900
Total Due Treasury $ 4,939 $ 14,824

AGENCY FINANCIAL REPORT • FY 2017 77
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NOTE 11 OTHER LIABILITIES
Other liabilities are shown in the following table.

(Dollars in Thousands)

As of September 30, 2017 2016
OTHER LIABILITIES - INTRAGOVERNMENTAL
Entity
Current
Employment Taxes Payable $ 3,704 $ 3,530
Advances from Other Agencies 1,942 2,189
Total Current 5,646 5,719
Non-current
Employment Taxes Payable 1,903 294
Federal Employees’ Compensation Act Payable 6,337 6,580
Total Non-current 8,240 6,874
Total Entity 13,886 12,593
Non-entity
Current
Payable to Treasury 6 6
Total Other Liabilities - Intragovernmental $ 13,892 $ 12,599
OTHER LIABILITIES - PUBLIC
Entity
Current
Accrued Funded Payroll and Benefits $ 14,740 $ 14,291
Accrued Unfunded Annual Leave 26,452 25,799
Other Liabilities – 83
Suspense Accounts 67 908
Total Current 41,259 41,081
Non-current
Prior Liens on Real Estate Payable 59 59
Total Non-current 59 59
Total Entity 41,318 41,140
Total Other Liabilities - Public $ 41,318 $ 41,140

78 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

NOTE 12 LEASES
The SBA leases all of its facilities from the General Services Administration. The SBA enters into an Occupancy Agreement
with GSA for each facility. GSA, in turn, leases commercial facilities or provides space in federal buildings. Agreements for space
in federal buildings can be vacated with a 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. The FY 2017 and FY 2016 historical facilities lease costs were $48 million and $45 million. Future lease payments are
based on FY 2018 GSA base year estimates. Projections after the base year assume a 3 percent inflation factor. Payments after 5
years reflect only current leases that will still be in effect, projected to the end of each lease.

FUTURE FACILITIES OPERATING LEASE PAYMENTS

(Dollars in Thousands)

Fiscal Year Lease Projections
2018 $ 44,753
2019 46,095
2020 47,478
2021 48,902
2022 50,369
After 2022 14,249
Total $ 251,846

NOTE 13 NON-ENTITY REPORTING
Non-entity Assets are assets held by the SBA but not available to the SBA. The primary non-entity asset is for SBA’s
downward subsidy reestimates in its loan programs. Because the loan programs are discretionary, the downward reestimates
are not available to the SBA and they are returned to the Treasury in the fiscal year following the accrual of the reestimates.
During the year, these general fund accounts contain SBA’s prior year reestimates. At year-end, the funds are swept by the
Treasury. Also at year-end, the SBA accrues the current year’s reestimates, including downward reestimates as applicable. For
the downward reestimates, in the loan financing funds, the SBA records an accrual adjustment that records a transfer out to
the non-entity fund, a reduction of subsidy allowance or loan guaranty liability, and an account payable to the non-entity
fund. In the loan program funds, the SBA records a reduction of loan subsidy expense and the associated impact on the net
cost. The non-entity Treasury general funds contain a corresponding account receivable in anticipation of the receipt of the
downward reestimates in the following year and a Downward Reestimate Payable to the Treasury.

For consolidated financial statement presentation, the SBA eliminates the payable to the non-entity fund and the non-
entity Treasury general fund receivable from the financing funds, since both are included in SBA’s reporting entity. The
Downward Reestimate Payable to the Treasury in the non-entity Treasury general fund is not eliminated, and is reflected
on the Balance Sheet as a liability line item.

(Dollars in Thousands)

As of September 30, 2017 2016
Entity
Financing Fund Payable $ (1,215,102) $ (1,239,814)

Non-entity
Miscellaneous Receipts Fund Receivable 1,215,102 1,239,814
Downward Reestimate Payable to Treasury (1,215,102) (1,239,814)
Balance Sheet Reported Payable $ (1,215,102) $ (1,239,814)

AGENCY FINANCIAL REPORT • FY 2017 79
F I N A N C I A L R E PO R TI N G

NOTE 14 CONSOLIDATED STATEMENT OF NET COST
Federal cost accounting standards require the SBA to report operating costs by strategic goal activity. Full costs include
all direct and indirect costs for a strategic goal. Full costs are reduced by exchange (earned) revenues to arrive at the net
operating cost.

Operating Cost
The full and net operating costs of SBA’s major strategic goals are presented in the Consolidated Statement of Net Cost.
Full costs are comprised of all direct costs for the strategic goals and those indirect costs which can be reasonably assigned
or allocated to the strategic goals, including employee pension and other retirement benefit costs paid by the OPM and
charged to the SBA.

Earned Revenue
Earned revenue arises from exchange transactions, and is deducted from the full cost of SBA’s major strategic goals to
arrive at net strategic goals costs. The SBA recognizes earned revenue when reimbursements are payable from other federal
agencies and the public, as a result of costs incurred or services performed. A major source of earned revenue includes
interest earned on SBA’s outstanding business and disaster loan portfolios and interest earned on uninvested funds in the
credit reform financing accounts.

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

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

The classification as Intragovernmental Costs or Gross Cost with the Public relate to the source of goods and services
received by the SBA and not to the classification of related revenue. The classification of revenue or cost being defined
as “intragovernmental” or “public” is defined on a transaction by transaction basis. The purpose of this classification
is to enable the federal government to provide consolidated financial statements, and not to match the public and
intragovernmental revenue with costs that are incurred to produce public and intragovernmental revenue.

SBA’s Gross Cost with the Public in Strategic Goal 1 is largely determined by estimates and reestimates of its credit
program costs (see Note 6.I).

80 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUE
(Dollars in Thousands)
For the Years Ended September 30, 2017 2016
STRATEGIC GOAL 1:
Growing Businesses and Creating Jobs
Intragovernmental Gross Cost $ 526,209 $ 497,377
Gross Cost with the Public (227,424) 100,306
Total Strategic Goal 1 Gross Cost 298,785 597,683

Intragovernmental Earned Revenue 158,457 136,824
Earned Revenue from the Public 282,031 320,679
Total Strategic Goal 1 Earned Revenue 440,488 457,503

STRATEGIC GOAL 2:
Serving as the Voice for Small Business
Intragovernmental Gross Cost $ 23,109 $ 30,378
Gross Cost with the Public 63,177 92,773
Total Strategic Goal 2 Gross Cost 86,286 123,151

STRATEGIC GOAL 3:
Building an SBA that Meets the Needs of Today’s and Tomorrow’s
Small Businesses
Intragovernmental Gross Cost $ 9,823 $ 10,194
Gross Cost with the Public 26,855 31,132
Total Strategic Goal 3 Gross Cost 36,678 41,326

COST NOT ASSIGNED TO STRATEGIC GOALS
Intragovernmental Gross Cost $ 6,066 $ 8,589
Gross Cost with the Public 16,583 26,231
Total Gross Cost Not Assigned to Strategic Goals 22,649 34,820

Net Cost of Operations $ 3,910 $ 339,477

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, 2017 and 2016. SBA’s total budgetary resources were $3.7 billion and
$2.8 billion for the fiscal years ended September 30, 2017 and 2016. Additionally, $8.6 billion and $8.1 billion of
nonbudgetary resources (including borrowing authority and collections of loan principal, interest, and fees in financing
funds) were reported for the fiscal years ended September 30, 2017 and 2016.

Permanent Indefinite Appropriations
The SBA receives permanent indefinite appropriations annually to fund increases in the projected subsidy costs of
loan programs, as determined by the reestimation process required by the Federal Credit Reform Act of 1990. The
appropriations are received initially in the SBA Program Funds, and then transferred to the Financing Funds, where
they are used to fund obligations. SBA’s Liquidating Funds also receive permanent indefinite appropriations to fund
obligations. The Financing Funds are used to account for credit program obligations made subsequent to FY 1991.
Liquidating Funds are used to account for credit program obligations made prior to FY 1992.

AGENCY FINANCIAL REPORT • FY 2017 81
F I N A N C I A L R E PO R TI N G

Decreases in projected subsidy costs in the Financing Funds are returned to the Treasury through SBA’s annual
reestimation process. The prior year’s ending unobligated balances in SBA’s Liquidating Funds are also transferred to the
Treasury annually.

Borrowing Authority and Terms of Borrowing
The SBA is authorized to borrow from the Treasury’s Bureau of the Fiscal Service when funds needed to disburse direct
loans and purchase guarantied loans exceed subsidy costs and collections in the nonbudgetary loan financing funds. In
FY 2017 and FY 2016, the SBA received $1.5 billion and $1.6 billion of borrowing authority from OMB. At the end
of FY 2017, the SBA had $0.4 billion in borrowing authority carried over to fund direct loans and default claims to be
disbursed in the future. At the end of FY 2016, the SBA had no available borrowing authority. The SBA pays interest
to the Treasury based on Treasury’s cost of funds. The rate at which interest is paid to the Treasury on the amounts
borrowed (or received from the Treasury on uninvested cash balances) in a loan financing fund for a particular cohort
is a disbursement-weighted average discount rate for cohorts prior to FY 2001, and a single effective rate for cohorts
beginning with FY 2001. The SBA calculates and repays borrowings not needed for working capital at midyear and at
year-end for prior year cohorts. The SBA uses the loan principal, interest, and fees collected from the borrowers in its loan
financing funds to repay its Treasury borrowings. The repayment maturity dates for the borrowings from the Treasury are
based on the loan maturities used in the subsidy calculation. The maturities range from 16 years for direct business loans,
25 years for guarantied business loans, and 30 years for disaster loans.

Apportionment Categories of Obligations Incurred
During FY 2017 and FY 2016, the SBA incurred $6.367 billion and $5.911 billion of direct and reimbursable obligations,
of which $0.459 billion and $0.016 billion were apportioned in category A, and $5.908 billion and $5.895 billion
were apportioned in category B. Category A apportionments are restricted by quarter and program, while category B
apportionments are restricted by purpose and program.

Unobligated Balances
Unobligated balances as of September 30, 2017 and 2016 are $5.9 billion and $5.0 billion, which include $4.2
billion and $3.0 billion of unavailable unobligated balances. These balances are unavailable primarily because they
are unapportioned by the OMB. The SBA accumulates the majority of the unobligated balances in its nonbudgetary
financing accounts during the fiscal year ($4.6 billion in FY 2017 and $3.9 billion in FY 2016) from fees and subsidy
to fund default claims in future years. In addition, unobligated balances are accumulated in budgetary accounts from
appropriations ($1.3 billion in FY 2017 and $1.1 billion in FY 2016) that are used to finance SBA’s ongoing program
operations. The SBA requests OMB apportionments as needed, and after OMB approval, apportioned amounts are
available for obligation.

Undelivered Orders
Undelivered orders are obligations that have not yet been disbursed by the SBA. Undelivered orders for the periods ended
September 30, 2017 and 2016 were $1.3 billion and $1.3 billion.

82 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

Differences between the Statement of Budgetary Resources and the Budget
of the U.S. Government
There was no material difference between the FY 2016 Statement of Budgetary Resources and the President’s FY 2018
Budget submission. The President’s FY 2019 Budget with actual numbers for FY 2017 has not yet been published. The
SBA expects no material differences between the President’s Budget “actual” column and the FY 2017 reported results
when the budget becomes available in February 2018.

NOTE 16 RECONCILIATION OF BUDGETARY OBLIGATIONS
INCURRED TO NET COST OF OPERATIONS
The SBA presents the Statement of Net Cost using the accrual basis of accounting. This differs from the obligation-based
measurement of total resources supplied, both budgetary and from other sources, on the Statement of Budgetary Resources.

The Federal Financial Accounting Standard No. 7 requires “a reconciliation of proprietary and budgetary information
in a way that helps users relate the two.” The focus of this presentation is to reconcile budgetary net obligations to the
net cost of operations. The objective of this information is to categorize the differences between budgetary and financial
(proprietary) accounting.

AGENCY FINANCIAL REPORT • FY 2017 83
F I N A N C I A L R E PO R TI N G

CONSOLIDATED RECONCILIATION OF BUDGETARY OBLIGATIONS TO NET COST
(Dollars in Thousands)

For the Years Ended September 30, 2017 2016
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred $ 6,367,242 $ 5,911,456
Less: Spending Authority from Offsetting Collections and Recoveries 5,296,461 4,183,257
Obligations Net of Offsetting Collections and Recoveries 1,070,781 1,728,199
Less: Offsetting Receipts 1,201,195 1,650,432
Net Obligations (130,414) 77,767
Other Resources
Imputed Financing 12,162 18,158
Other Financing Sources (1,168,891) (1,294,974)
Net Other Resources Used to Finance Activities (1,156,729) (1,276,816)
Total Resources Used to Finance Activities (1,287,143) (1,199,049)

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 47,183 (725,222)
Resources that Fund Expenses Recognized in Prior Periods (655,332) (263,873)
Budgetary Offsetting Collections and Receipts that Do Not Affect Net Cost of Operations
Credit Program Collections 4,156,180 3,641,970
Offsetting Receipts 1,201,195 1,650,432
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (3,615,895) (3,430,648)
Other - Current Year Liquidating Equity Activity (7,463) 4,639
Other Resources that Do Not Affect Net Cost of Operations 174 (95)
Total Resources that Do Not Finance Net Cost of Operations 1,126,042 877,203

Total Resources Used to Finance the Net Cost of Operations (161,101) (321,846)

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 653 823
Upward Reestimates of Credit Subsidy Expense 148,831 655,303
Change in Revenue Receivable from Public 8,871 (3,012)
Provision for Losses on Estimated Guaranties 1,513 (249)
Change in Unfunded Employee Benefits 3,579 1,136
Total Components Requiring or Generating Resources in Future Periods 163,447 654,001

Components Not Requiring or Generating Resources
Depreciation or Amortization 320 1,737
Change in Bad Debt Expense - Pre-1992 Loans 827 5,525
Other (Income) Expenses Not Requiring Budgetary Resources 417 60
Total Components Not Requiring or Generating Resources 1,564 7,322

Total Components of the Net Cost of Operations that Will Not
Require or Generate Resources in the Current Period 165,011 661,323
Net Cost of Operations $ 3,910 $ 339,477

84 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

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; 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, 2017 2016
Current Year Liabilities Not Covered By Budgetary Resources $ 114,582 $ 108,838
Less: Prior Year 108,838 107,128
Change in Liabilities Not Covered By Budgetary Resources 5,744 1,710
Upward Reestimates of Credit Subsidy Expense 148,831 655,303
Change in Revenue Receivable from Public 8,871 (3,012)
All Other 1 –
Components (of Net Cost) Generating Resources in Future Periods
(Per Reconciliation Above) $ 163,447 $ 654,001

NOTE 17 SIGNIFICANT EVENTS
In late August and September 2017, hurricanes Harvey, Irma, and Maria struck the continental United States, Puerto Rico,
and the U.S. Virgin Islands. When disaster strikes the United States, SBA’s loans are the sole form of federal credit assistance
for damage to non-farm, private-sector homeowners, renters, businesses, and private nonprofit organizations.

At fiscal year-end, the SBA is uncertain as to the full future effect of the three hurricanes. The SBA has granted deferments
to SBA-serviced disaster and business loan borrowers in the Harvey, Irma, and Maria disaster-declared areas, and has
encouraged 7(a) lenders, Certified Development Companies, 504 third-party lenders, and Microlenders to provide similar
deferment relief. The SBA has provided similar relief in past disasters, and no adverse impact is expected from this relief.
However, the SBA could experience future variations in the performance of existing disaster and business loan portfolios as
businesses in the affected areas strive to recover.

The SBA has begun to increase its rate of administrative spending as it conducts its disaster response. This spending
is consistent with the Agency’s experience responding to prior disasters and primarily takes the form of increased
expenditures for travel and temporary personnel. In addition, the SBA has arranged for the reassignment of existing
disaster and nondisaster staff to assist in the disaster-affected areas.

The provisions of the Federal Credit Reform Act of 1990 govern the valuation of SBA’s portfolio of existing business and
disaster loans as well as the determination of the appropriate subsidy rate for the disaster loans that the SBA will approve
in response to hurricanes Harvey, Irma, and Maria. The FCRA provides permanent indefinite authority for reestimates of
subsidy cost for existing loans to the extent necessary. Any initiatives that would change program terms or conditions for
existing or new loans would require additional appropriations to fund subsidy costs before implementation. Therefore, any
additional significant expenses associated with the hurricanes will be covered by additional appropriations, and would not
have an adverse impact on SBA’s financial condition.

AGENCY FINANCIAL REPORT • FY 2017 85
F I N A N C I A L R E PO R TI N G

REQUIRED SUPPLEMENTARY INFORMATION
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2017 (Unaudited)

(Dollars in Thousands) BLIF DLF SBGRF

Nonbudgetary Nonbudgetary
Budgetary Financing Budgetary Financing Budgetary

BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 116,183 $ 3,477,097 $ 568,105 $ 411,458 $ 88,348

Recoveries of Prior Year Obligations 9,818 4,123 55,582 459,607 –

Other Changes in Unobligated Balance (3,799) (5,465) – (650,315) 2,505
Unobligated Balance from Prior Year Budget
122,202 3,475,755 623,687 220,750 90,853
Authority, Net
Appropriations (discretionary and mandatory) 743,983 – 646,121 – –
Borrowing Authority (discretionary and mandatory) – 270,620 – 1,277,956 –
Spending Authority from Offsetting Collections – 2,986,516 – 354,251 16,637
Total Budgetary Resources $ 866,185 $ 6,732,891 $ 1,269,808 $ 1,852,957 $ 107,490

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 798,976 $ 2,304,050 $ 582,301 $ 1,729,237 $ 15,543
Unobligated Balance, end of year:
Apportioned, unexpired accounts 7 1,085,338 44,892 49,958 17,457
Unapportioned, unexpired accounts 67,202 3,343,503 642,615 73,762 74,490
Unexpired Unobligated Balance, end of year 67,209 4,428,841 687,507 123,720 91,947
Expired Unobligated Balance, end of year – – – – –
Total Unobligated Balance, end of year 67,209 4,428,841 687,507 123,720 91,947
Total Status of Budgetary Resources $ 866,185 $ 6,732,891 $ 1,269,808 $ 1,852,957 $ 107,490

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 42,643 $ 70,173 $ 102,870 $ 856,038 $ 388
New Obligations and Upward Adjustments 798,976 2,304,050 582,301 1,729,237 15,543
Gross Outlays (807,466) (2,302,875) (514,849) (1,319,393) (15,643)
Recoveries of Prior Year Unpaid Obligations (9,818) (4,123) (55,582) (459,607) –
Unpaid Obligations, end of year 24,335 67,225 114,740 806,275 288
Uncollected Payments:
Uncollected Payments, Federal Sources
– (41,936) – (103,100) –
Brought Forward, October 1
Change in Uncollected Payments, Federal Sources – 18,344 – (11,848) –

Uncollected Payments, Federal Sources, end of year – (23,592) – (114,948) –

Memorandum (non-add) Entries:
Obligated Balance, start of year $ 42,643 $ 28,237 $ 102,870 $ 752,938 $ 388

Obligated Balance, end of year $ 24,335 $ 43,633 $ 114,740 $ 691,327 $ 288

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross (discretionary and mandatory) $ 743,983 $ 3,257,136 $ 646,121 $ 1,632,207 $ 16,637

Actual Offsetting Collections (4,054) (3,087,433) (881) (1,068,747) (19,143)
(discretionary and mandatory)
Change in Uncollected Customer Payments from – 18,344 – (11,848) –
Federal Sources (discretionary and mandatory)
Recoveries of Prior Year Paid Obligations 2,016 – – – 2,505
(discretionary and mandatory)
$ 741,945 $ 188,047 $ 645,240 $ 551,612 $ (1)
Budget Authority, Net (discretionary and mandatory)
$ 807,466 $ 2,302,875 $ 514,849 $ 1,319,393 $ 15,643
Gross Outlays (discretionary and mandatory)
Actual Offsetting Collections (4,054) (3,087,433) (881) (1,068,747) (19,143)

(discretionary and mandatory) 803,412 (784,558) 513,968 250,646 (3,500)
Net Outlays (discretionary and mandatory)
– (1,033,457) – (167,609) –
Distributed Offsetting Receipts $ 803,412 $ (1,818,015) $ 513,968 $ 83,037 $ (3,500)
Agency Outlays, Net (discretionary and mandatory)

86 AGENCY FINANCIAL REPORT • FY 2017
F INANCIAL RE PORTING

REQUIRED SUPPLEMENTARY INFORMATION (continued)
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2017 (Unaudited)

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

Nonbudgetary
Budgetary Budgetary Budgetary Budgetary Budgetary Budgetary Financing Total
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1 $ 277,542 $ 12,495 $ 756 $ 14,396 $ 176 $ 1,078,001 $ 3,888,555 $ 4,966,556
Recoveries of Prior Year Obligations 22,621 489 109 8,868 3 97,490 463,730 561,220

Other Changes in Unobligated Balance (27,859) (354) – 142 1 (29,364) (655,780) (685,144)
Unobligated Balance from Prior Year Budget
272,304 12,630 865 23,406 180 1,146,127 3,696,505 4,842,632
Authority, Net
Appropriations (discretionary and mandatory) 269,500 19,900 9,220 245,100 – 1,933,824 – 1,933,824
Borrowing Authority (discretionary and mandatory) – – – – – – 1,548,576 1,548,576
Spending Authority from Offsetting Collections 559,610 1,001 – 1 106 577,355 3,340,767 3,918,122
Total Budgetary Resources $ 1,101,414 $ 33,531 $ 10,085 $ 268,507 $ 286 $ 3,657,306 $ 8,585,848 $ 12,243,154

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total) $ 681,565 $ 20,875 $ 8,113 $ 226,569 $ 13 $ 2,333,955 $ 4,033,287 $ 6,367,242
Unobligated Balance, end of year:
Apportioned, unexpired accounts 392,148 5,091 1,972 29,851 266 491,684 1,135,296 1,626,980
Unapportioned, unexpired accounts 439 – – 406 7 785,159 3,417,265 4,202,424
Unexpired Unobligated Balance, end of year 392,587 5,091 1,972 30,257 273 1,276,843 4,552,561 5,829,404
Expired Unobligated Balance, end of year 27,262 7,565 – 11,681 – 46,508 – 46,508
Total Unobligated Balance, end of year 419,849 12,656 1,972 41,938 273 1,323,351 4,552,561 5,875,912
Total Status of Budgetary Resources $ 1,101,414 $ 33,531 $ 10,085 $ 268,507 $ 286 $ 3,657,306 $ 8,585,848 $ 12,243,154

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 $ 153,273 $ 2,816 $ 1,617 $ 203,747 $ 32 $ 507,386 $ 926,211 $ 1,433,597
New Obligations and Upward Adjustments 681,565 20,875 8,113 226,569 13 2,333,955 4,033,287 6,367,242
Gross Outlays (644,265) (20,207) (8,202) (213,973) (42) (2,224,647) (3,622,268) (5,846,915)
Recoveries of Prior Year Unpaid Obligations (22,621) (489) (109) (8,868) (3) (97,490) (463,730) (561,220)
Unpaid Obligations, end of year 167,952 2,995 1,419 207,475 – 519,204 873,500 1,392,704
Uncollected Payments:
Uncollected Payments, Federal Sources
– – – – – – (145,036) (145,036)
Brought Forward, October 1
Change in Uncollected Payments, Federal Sources – – – – – – 6,496 6,496

Uncollected Payments, Federal Sources, end of year – – – – – – (138,540) (138,540)

Memorandum (non-add) Entries:
Obligated Balance, start of year $ 153,273 $ 2,816 $ 1,617 $ 203,747 $ 32 $ 507,386 $ 781,175 $ 1,288,561

Obligated Balance, end of year $ 167,952 $ 2,995 $ 1,419 $ 207,475 $ – $ 519,204 $ 734,960 $ 1,254,164

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross (discretionary and mandatory) $ 829,110 $ 20,901 $ 9,220 $ 245,101 $ 106 $ 2,511,179 $ 4,889,343 $ 7,400,522

Actual Offsetting Collections
(560,218) (1,013) – (142) (106) (585,557) (4,156,180) (4,741,737)
(discretionary and mandatory)
Change in Uncollected Customer Payments from
– – – – – – 6,496 6,496
Federal Sources (discretionary and mandatory)
Recoveries of Prior Year Paid Obligations
606 13 – 142 1 5,283 – 5,283
(discretionary and mandatory)
Budget Authority, Net
(discretionary and mandatory) $ 269,498 $ 19,901 $ 9,220 $ 245,101 $ 1 $ 1,930,905 $ 739,659 $ 2,670,564

Gross Outlays (discretionary and mandatory) $ 644,265 $ 20,207 $ 8,202 $ 213,973 $ 42 $ 2,224,647 $ 3,622,268 $ 5,846,915
Actual Offsetting Collections
(560,218) (1,013) – (142) (106) (585,557) (4,156,180) (4,741,737)
(discretionary and mandatory)
Net Outlays (discretionary and mandatory) 84,047 19,194 8,202 213,831 (64) 1,639,090 (533,912) 1,105,178
Distributed Offsetting Receipts (129) – – – – (129) (1,201,066) (1,201,195)
Agency Outlays, Net (discretionary and mandatory) $ 83,918 $ 19,194 $ 8,202 $ 213,831 $ (64) $ 1,638,961 $ (1,734,978) $ (96,017)

AGENCY FINANCIAL REPORT • FY 2017 87
F I N A N C I A L R E PO R TI N G

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION
STEWARDSHIP INVESTMENTS IN HUMAN CAPITAL
(Unaudited)
Human Capital investments are expenses included in net cost for education and training programs that are intended to increase or
maintain national economic productive capacity, and that produce outputs and outcomes that provide evidence of 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 outreach locations. SBDCs deliver professional business advising and training in key management areas to small business
clients throughout the United States, which generates business revenue, creates and retains jobs, and enhances local and regional economies.

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

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

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

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

Veterans Outreach includes comprehensive outreach through Veterans Business Outreach Centers and technical assistance and training
to transitioning veterans that are interested in starting a new or growing an existing business through programs such as Boots-to-Business,
Veteran Women Igniting the Spirit of Entrepreneurship, and Entrepreneurship Boot Camp for Veterans with Disabilities. Consistent with
the new strategic plan, VBOCs were separately itemized in FY 2014, whereas previously they were included in All Other Training and
Assistance Programs.

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

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

Significant Human Capital investments occur within the following programs:

(Dollars in Thousands)

For the Five Years Ended September 30, 2017 2016 2015 2014 2013

Small Business Development Centers $ 118,839 $ 94,196 $ 89,225 $ 154,400 $ 93,427
SCORE 11,737 2,749 19,615 5,758 10,894
Women’s Business Centers 24,300 17,135 18,658 24,842 21,049
Microloan Technical Assistance 23,658 28,864 19,216 21,552 16,525
SBA's Consulting and Training Programs 22,191 52,871 51,510 54,620 44,313
Veterans Outreach 22,924 22,999 27,031 13,244 –
All Other Training and Assistance Programs 8,620 16,402 9,010 12,832 6,924

Total $ 232,269 $ 235,216 $ 234,265 $ 287,248 $ 193,132

88 AGENCY FINANCIAL REPORT • FY 2017
DID
YOU DISASTER Since 1953, the SBA has approved more than 2 million
KNOW disaster loans for over $56 billion to businesses of all sizes, private
nonprofit organizations, homeowners, and renters.

SUCCESS Phoenix Award for Outstanding Small
Business Disaster Recovery
STORY Ember Industries, Inc.
San Marcos, Texas

Ember Industries, Inc. builds, tests, and calibrates electronic devices and wire and cable
assemblies. Its products are used to build oil field above-ground tank level monitors and
Lockheed Martin military aircraft drones.

Rob Leonardis, President of Ember Industries, Inc., was forced to close his business
when the nearby Blanco River crested, destroying about one-third of Ember’s raw material inventory, as well as office
furniture, computers and servers, and its high-tech production equipment.

Immediately, Rob’s core crew of employees, some of whom had lost their homes in the flood, came to the Ember
building after the flood waters receded and worked with Rob to clean up the debris. He became a cheerleader and
coach, encouraging his workers not to give up and to visualize the day when they could resume production. Within
2 months, Ember Industries, Inc. was approved for a $2 million SBA disaster loan and 3 months later, 60 of its 68
employees were rehired. It took Ember Industries just 6 weeks to resume production. Rob and his team have since
revamped their business continuity plan to offset any losses from future disasters.
OTHER
INFORMATION
DID
YOU JOBS CREATED Small businesses create American jobs and account
for about 65 percent of private-sector net job creation. Millions of
KNOW middle class families are working for small businesses that depend on
SBA’s ability to facilitate access to capital, counseling, and contracting
opportunities.

SUCCESS Dynamic Duo is SBA Small Business
Persons of the Year
STORY Maui Brewing Company
Kihei, Hawaii

Garrett and Melanie Marrero started Maui Brewing Company in 2005 as a
small seven-barrel brewpub restaurant in Kahana on Maui with the help of SBA
financing. Today, it is the largest craft beer producer in the state of Hawaii.

By 2007, increasing demand led Garrett and Melanie to open a second location in Lahaina with a 25-barrel capacity,
giving them the ability to provide brewery tours, making it a tourist destination as well. Soon, they were producing
more than 19,000 barrels, increasing revenue to more than $10 million per year. This boosted the confidence of the
two entrepreneurial partners to move ahead with an aggressive expansion strategy.

There was further growth for the Maui Brewing Company in January 2016 as they opened a restaurant on Oahu. The
new brewpub employs 240 people. Two more restaurants opened in 2017 in Kailua and Kihei. By the end of 2018,
Maui Brewing Company will employ a workforce of 700.
OT HE R I N FO R M ATI ON

OIG REPORT ON THE MOST SERIOUS
MANAGEMENT AND PERFORMANCE CHALLENGES

REPORT ON THE MOST SERIOUS
MANAGEMENT AND PERFORMANCE
CHALLENGES IN FISCAL YEAR 2018

October 14, 2017 REPORT NUMBER 17-02

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

Memorandum
Management Challenges

DATE: October 12, 2017

TO: Linda E. McMahon
Administrator

FROM: Hannibal "Mike" Ware
Acting Inspector General

SUBJECT: Report on the Most Serious Management and Performance Challenges Facing
the Small Business Administration in Fiscal Year 2018

In accordance with the Reports Consolidation Act of 2000, we are providing you with the Office of
Inspector General’s (OIG’s) Report on the Most Serious Management and Performance Challenges
Facing the Small Business Administration in Fiscal Year 2018. The overall goal is to focus attention on
significant issues with the objective of working with Agency managers to enhance the effectiveness of
the Small Business Administration’s (SBA’s) programs and operations. We have prepared similar
reports since fiscal year (FY) 2000.

Within each management challenge is a series of recommended actions to enhance the effectiveness
of Agency programs and operations. Each recommended action is assigned a color score to indicate
its status. The scores are as follows: green for “implemented,” yellow for “substantial progress,”
orange for “limited progress,” and red for “no progress.” If a recommended action was added since
last year’s report, no color score was assigned, and the recommended action has been designated as
“new.” Actions that were scored green last year, and 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 4 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. In addition, an arrow
in the color box indicates that the color score went up or down from the prior year.

The following table provides a summary of the most serious management and performance
challenges facing SBA in FY 2018.

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Table 1. Summary of the Most Serious Management and Performance Challenges
Facing the SBA in FY 2018
Color Scores
Status at End of FY 2017 Change from Prior Year
Challenge Green Yellow Orange Red Up á Down â
1 Small Business Contracting 2 1 1
2 IT Leadership 5 1 5
3 Human Capital 1 1 1
4 SBA Loan Program Risk Management and Oversight 1 3 a
1 1
5 8(a) Business Development Program 2 1 3
6 Ensuring Quality Deliverables and Reducing Improper
1 2 1
Payments at SBA Loan Operation Centers
7 Disaster Assistance Program 4 1
8 Acquisition Management 4 4
TOTAL 9 17 4 17 0
a For Management Challenge number 4 recommendation 3, 7(a) was rated yellow, while 504 was rated orange. For simplicity, it is reflected as yellow in this table.

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

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TABLE OF CONTENTS

Challenge 1: Weaknesses in Small Business Contracting Programs and Inaccurate Procurement
Data Undermine the Reliability of Contracting Goal Achievements ......................................................... 96
Agencies Receive Goaling Credit for Firms No Longer in the 8(a) or HUBZone Programs ...................... 96
Exclusions From the Small Business Goaling Report Impact the Overall Prime Contract Goal ................... 97
Women-Owned Small Business Federal Contracting Program Susceptible to Abuse................................. 97
SBA Needs the Full Range of Federal Program Enforcement Tools to Address Fraud ............................... 97
Challenge 2: SBA’s Information Technology Leadership Capabilities Need Strengthening
to Address Operational Risks and Challenges ............................................................................................ 99
OCIO Made Significant Progress in Deploying Key Components of FITARA ......................................... 99
Long-Standing Weaknesses in IT Security Controls Are Being Addressed,
but Accelerated Progress Is Needed to Meet Growing Cybersecurity Threats ............................................ 99
Challenge 3: SBA Needs Effective Human Capital Strategies to Carry Out Its Mission Successfully
and Become a High-Performing Organization ............................................................................................ 101
SBA Made Progress to Update Human Capital SOPs and Guidance ...................................................... 101
Challenge 4: SBA Needs to Improve Its Risk Management and Oversight Practices to Ensure
Its Loan Programs Operate Effectively and Will Continue to Benefit Small Businesses............................. 102
SBA Improved Oversight of Lending Participants.................................................................................. 102
SBA Improved Portfolio Risk Management Program ............................................................................. 102
Increased Risk Introduced by Loan Agents ............................................................................................ 103
Challenge 5: SBA Needs to Ensure That the Section 8(a) Business Development Program Identifies
and Addresses the Needs of Program Participants, Only Eligible Firms Are Admitted Into the Program,
and Standards for Determining Economic Disadvantage Are Justifiable ................................................. 105
SBA Continues to Address Its Ability to Deliver an Effective 8(a) Program ............................................ 105
Streamlined Application Process May Expose the 8(a) Program to a Higher Risk of Fraud ..................... 105
SBA Dollar Threshold for Economic Disadvantage Not Justified ........................................................... 106
Challenge 6: SBA Can Improve Its Loan Programs by Ensuring Quality Deliverables and Reducing
Improper Payments at SBA Loan Operation Centers ............................................................................... 107
SBA Improved Its Quality Control Program to Ensure Timely
Implementation of Corrective Actions ................................................................................................... 107
Inadequate Staffing, Training, and Supervision Have Resulted
in Material Underwriting Deficiencies ................................................................................................... 108
Improvements Are Needed in the Identification of Improper Payments ................................................. 108
Challenge 7: Disaster Assistance Must Balance Competing Priorities to Deliver Timely Assistance
and Reduce Improper Payments ................................................................................................................ 109
Private Lender Programs Intended to Quickly Disburse Disaster Funds Not Implemented .................... 109
Express Recovery Opportunity Loan Program Not Implemented .......................................................... 110
Maximum Allowable Fixed Debt May Be Exceeded, Limiting Borrower’s Ability
to Repay Disaster Loans ........................................................................................................................ 110
Reserve Staff Require Training to Sustain Productivity During Mobilization .......................................... 111
Improper Payment Rate Remains Above IPERA Significance Threshold ................................................ 111
Challenge 8: SBA Needs to Effectively Manage Its Acquisition Program ................................................................. 112

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

The Small Business Act established a Governmentwide goal that 23 percent of all prime contracts be awarded to small
businesses each fiscal year. In its annual Small Business Goaling Report, the Small Business Administration (SBA) has
reported since fiscal year (FY) 2013 that the Federal Government met or exceeded its goal of awarding 23 percent
of Federal contracting dollars to small businesses. However, over the years, Congress has expressed concerns about
the accuracy of the report. These concerns have been substantiated by SBA Office of Inspector General (OIG) audits
and other Government studies that have shown widespread misreporting by procuring agencies, since many contract
awards that were reported as having gone to small firms have actually been substantially performed by larger companies.
Specifically, in certain circumstances SBA’s regulations allow firms that are not small to be counted as small businesses.
As a result, agencies continue to receive Small Disadvantaged Business and Historically Underutilized Business Zone
(HUBZone) goaling credit for contracts awarded to firms no longer in SBA’s preference programs. In addition, SBA has
opted to exclude certain procurements such as those awarded by the Department of Defense (DoD) for overseas work
from the small business goaling baseline, an exclusion that leads to overstatement of small business goaling achievements.
Furthermore, SBA has not implemented a certification process for the Women-Owned Small Business Federal
Contracting Program (WOSBP), which can affect the accuracy of the goaling achievements. Finally, SBA restricted how
it can use the Program Fraud Civil Remedies Act of 1986 (PFCRA) for small business contracting cases, which can result
in large businesses obtaining small business contracts, which falsely increases goaling numbers.

As the advocate for small business, SBA should strive to ensure that only eligible small firms obtain and perform small
business awards to ensure goaling statistics portray Federal contract awards made only to small businesses. Further,
SBA should ensure that procuring agencies accurately report contracts awarded to small businesses when representing
their progress in meeting small business contracting goals. Counting firms in categories in which they are no longer
eligible misrepresents actual small business contracting goals achievements. While some contractors may misrepresent
or erroneously calculate their size, the incorrect reporting also results from errors made by Government contracting
personnel, including the misapplication of small business contracting rules. Moreover, without reliable data, SBA cannot
accurately measure the Federal Government’s small business procurement goals achievements, which in turn weakens
the ability of Congress and other Federal policymakers to determine whether the Government is maximizing contracting
opportunities for small businesses.

Agencies Receive Goaling Credit for Firms No Longer in the 8(a) or HUBZone Programs
In Report 14-18, we identified over $400 million in FY 2013 contract actions that may have been awarded to ineligible firms.
We also found that over $1.5 billion dollars in FY 2013 contract actions were included towards small business contacting goals,
even though the firms were no longer in the 8(a) Business Development or HUBZone programs. Furthermore, we determined
that of approximately $3.1 billion in contracts awarded to the top 100 firms in the 8(a) program in FY 2016, approximately $1.5
billion was awarded to firms no longer in the program. SBA revised its regulations in 2004 to permit procuring agencies to claim
small disadvantaged business and HUBZone goaling credit on certain contract actions, even after firms have left the program.
SBA added these regulations in order to codify the existing “practice” of the agencies to include these firms even though they were
no longer in a program. According to SBA officials, if they remove this provision, Federal agencies would be reluctant to use SBA
programs, or would be required to award new contracts in order to obtain small disadvantaged business credit. They also believe
that by awarding new contracts, agencies would incur additional administrative costs, and doing so would be inefficient and
would not benefit the Government or businesses. However, more proactive acquisition planning by the agencies would help offset
inefficiencies in the procurement cycle.

Citing administrative inconvenience as the rationale to include firms no longer in a program undermines one of the main missions
of SBA which is to help Americans start, build, and grow businesses. Counting firms no longer in the 8(a) and HUBZone
programs weakens the very intent of these programs and does not maximize opportunities for all small businesses. Additionally,
by counting firms no longer in the 8(a) and HUBZone programs, SBA cannot accurately reflect or measure true program impact.

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Federal agencies contracting officers also have little incentive to award 8(a) or HUBZone set-aside contracts to new firms if they
can attain goals by counting previously awarded contracts to firms no longer in a program.

Exclusions From the Small Business Goaling Report Impact the Overall Prime Contract Goal
SBA’s goaling guidelines exclude certain types of contracts from the overall dollar baseline used to calculate achievement of
small business goals. For example, the goaling guidelines exclude contracts that were both awarded and performed abroad
and those performed entirely abroad. In addition, the National Defense Authorization Act for FY 2017 authorized SBA to
remove certain DoD contracts from the procurement baseline when reporting Governmentwide small business contracting
goals and achievements. As a result, SBA excludes these contracts notwithstanding the fact that in FYs 2008 and 2015,
SBA’s own Office of General Counsel stated that “the Small Business Act, including its goaling provisions, applies to
acquisitions conducted by Federal agencies overseas and the Act applies to Federal procurements contracts performed
overseas.” Although the DoD can remove certain contracts from the baseline for DoD-specific reporting requirements, the
congressional mandate does not exclude these categories of prime contracts from the Governmentwide goal of 23 percent.

These exclusions, which are not mandated by statute, weaken the ability of Congress and other Federal policymakers
to determine whether the Government is maximizing contracting opportunities for small businesses and meeting small
business goals. In our opinion, by excluding certain types of contracts from the goaling baseline, SBA overstates the Federal
Government small business goal achievements. Including the appropriate universe of Federal procurement opportunities
into the goaling guidelines baseline will ensure policymakers and other interested parties receive the most accurate picture
of small business participation in Federal contracting.

Women-Owned Small Business Federal Contracting Program Susceptible to Abuse
SBA’s WOSBP provides greater access to Federal contracting opportunities to women-owned small businesses (WOSBs)
and economically-disadvantaged WOSBs that meet the WOSBP requirements. OIG and Government Accountability
Office (GAO) have both reported weaknesses in SBA’s controls that would ensure only eligible firms receive WOSBP
set-aside contracts.

The National Defense Authorization Act for 2015 granted contracting officers the authority to award sole-source awards
to firms in WOSBP and required firms to be certified by a Federal agency, a State government, the Administrator,
or a national certifying entity approved by the Administrator. However, SBA implemented the sole-source authority
provision first without a certification program. We believe allowing sole-source contracting authority in WOSBP, without
implementing the contemporaneously required certification program, was inconsistent with SBA’s statutory authorization.
In the meantime, this continues to be a risk that exposes the program to abuse by having firms incorrectly self-certify as a
woman-owned small business, which overstates goaling for women-owned firms. SBA began addressing this shortcoming
in FY 2017 by drafting a proposed rule for implementing a certification process for the WOSBP. Currently, SBA’s Office of
General Counsel is reviewing the proposed rule after which it will be provided to the Administrator for review.

SBA Needs the Full Range of Federal Program Enforcement Tools to Address Fraud
Having a robust enforcement program is crucial to deterring fraud in small business programs, and by extension, ensuring
reliability of reported goaling numbers. Agencies need to have, and use, the full range of available remedies to protect federal
procurement effectively. The Program Fraud Civil Remedies Act of 1986 (PFCRA), for example, was enacted to address
smaller dollar value frauds. SBA has, however, restricted how it can use the PFCRA for small business contracting cases. The
Agency should modify its PFCRA regulations so that SBA can pursue any small business contracting program violations,
subject to the PFCRA’s jurisdictional limits, under that statute. SBA has started preliminary discussions about implementing
this change, but it has not yet proposed a rule. Independent of the PFCRA changes recommended above, SBA has increased
its PFCRA penalty level, along with several other civil penalties, as mandated by the Federal Civil Penalties Inflation
Adjustment Improvements Act of 2015.

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Number of Actions Accomplished (Green Status) During Last 4 Fiscal
2013: 0 2014: 1 2015: 0 2016: 1
Years (Challenge first reported in FY 2005)
Status at end
Recommended Actions for FY 2018
of FY 2017
1. Strengthen controls to ensure the accuracy of the Federal Government’s annual small business procurement goals achievements reported
Yellow
in the Small Business Goaling Report
2. Implement a certification process for WOSBP. Yellow á
4. Revise SBA’s Program Fraud Civil Remedies Act regulations so that SBA can pursue violations of its Federal contracting programs and
Orange
demonstrate a capacity for taking enforcement actions under that statute.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 2. SBA’s Information Technology Leadership Capabilities Need Strengthening
to Address Operational Risks and Challenges

During the past year, the Office of the Chief Information Officer (OCIO) made significant progress in improving its oversight
of information technology (IT) investments and deploying other key components of the Federal Information Technology
Acquisition Reform Act (FITARA). Policies and related governance protocols have been revised to ensure OCIO plays a major
role in the entire IT investment cycle, from strategic planning to implementation. Critical OCIO human resources have
been augmented with the hiring of a Deputy CIO and nine other key IT personnel. Consequently, OCIO is more effectively
applying governance principles to better assess, communicate, and mitigate risk throughout the enterprise.

However, like most Federal agencies, SBA continues to experience a growing risk of outside cybersecurity threats. In FY 2016,
one SBA program office experienced a ransomware incident that adversely affected its operations; the OCIO prepared an
After Action Review outlining causes, lessons learned, and future changes concerning this incident on May 26, 2017. These
IT security threats increase the importance of improving risk management procedures, continuously monitoring internal
networks, deploying effective incident response strategies, and implementing effective contingency plans.

OCIO Made Significant Progress in Deploying Key Components of FITARA
FITARA was enacted in December 2014. The goal of this legislation was to realize long-term cost savings through improved
IT risk management, transparency, and more effective IT investment oversight. During this past year, OCIO incorporated
many of the FITARA requirements into its organizational structure. Some examples include re-initiation of the Investment
and Architecture Review Boards, issuance of an Agency-wide standard operating procedure (SOP) that outlines the CIO
role in IT acquisitions and periodic meetings of its IT investment oversight governance board, the Business Technology
Investment Council. In addition, the digital service system development group was realigned to report directly to OCIO,
providing improved oversight of this group’s development efforts.

In order to realize the long-term cost savings and operational benefits of FITARA, OCIO needs to improve implementation
of key baseline criteria outlined in the legislation. For example, human resource planning, investment oversight, and
enterprise architecture need to be implemented on an enterprise-wide basis. In addition, OCIO’s investment transparency
needs to be improved through improved project planning, i.e., periodic updates of project activity against pre-established
baselines, and consistent and timely reporting of project results.

Long-Standing Weaknesses in IT Security Controls Are Being Addressed, but Accelerated Progress Is
Needed to Meet Growing Cybersecurity Threats
Our evaluations of SBA’s systems and networks indicate significant improvement in information security and continuous
monitoring practices, contractor systems, configuration management, and identity and access management. This
improvement reflects an IT control enhancement program initiated by the Agency. During this fiscal year, the Agency
closed at least 34, or approximately 60 percent, of its outstanding IT recommendations. Notwithstanding these efforts,
significant vulnerabilities remain. The results of our annual evaluations of SBA’s systems and networks indicate there are
approximately 23 open recommendations, some dating back to FY 2011. Also, many are indicative of enterprisewide
vulnerabilities or risks requiring infrastructure investment or more effective monitoring of contractor hosted systems.
These general control areas include the following:

• Information security and continuous monitoring that require validation of compliance with security requirements
through auditing, periodic reviews, and implementing continuous monitoring strategies.
• Risk management, contingency planning, and incident response that monitors the selection, implementation, and
assessment of security controls, and authorization to operate both internal and hosted systems.
• Configuration management and identity and access management controls that document and manage baselines
establish a comprehensive personally identifiable information data loss prevention program, and require full
implementation of system access procedures.

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OCIO has made significant progress by initiating continuous diagnostic and mitigation capabilities in the cloud and
will complete Phase 1 deployment in FY 2017. However, to show significant improvement in these areas, OCIO should
resolve existing vulnerabilities and continue to implement risk management and system improvement initiatives such as
continuous diagnostic and mitigation deployment, the Advanced Threat Protection pilot, data loss prevention for email
traffic, data rights management for email and attachments, and its cloud migration strategy.

Number of Actions Accomplished (Green Status) During Last 4 Fiscal
2013: 1 2014: 0 2015: 0 2016: 0
Years (Challenge first reported in FY 1999, revised in FY 2016)
Status at end
Recommended Actions for FY 2018
of FY 2017
1. Establish an OCIO human resource planning process that allows full deployment of FITARA. Yellow á
2. The OCIO performs independent oversight of IT investments consistent with guidance. Yellow á
3. The OCIO facilitates enterprise architecture and demonstrates accountability for IT investments. Yellow á
4. The OCIO establishes and implements information security and continuous monitoring practices, and contractor systems policies and
Yellow á
standards to ensure ongoing effectiveness of information systems.
5. The OCIO maintains effective risk management, contingency planning, and incident response practices to minimize vulnerabilities. Orange
6. The OCIO establishes configuration management and identity and access management controls and procedures. Yellow á
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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

Over a decade ago, we identified human capital management as a top challenge for SBA. Since that time, SBA has
made substantial progress to address this long-standing challenge. Specifically, during FY 2016 SBA completed a skills
assessment, last performed in 2006, that focused on core and leadership competencies. As a result, the Office of Human
Resources Solution (OHRS) issued a new Strategic Workforce Plan for 2017–2020 with strategies and metrics to address
challenges, recruit and retain the right workforce, and track progress. In conjunction, OHRS issued a 2017–2018
Talent Development Plan designed to address the unique developmental needs of SBA’s program offices workforce
and address skills gaps in SBA’s mission critical positions. As part of its talent development plans, SBA participates in
Governmentwide rotational programs to develop future leaders and actively recruits candidates through the Presidential
Management Fellows Program. Additionally, OHRS continues to follow the 2013–2016 Leadership Succession Plan to
transfer knowledge for key positions. These plans are essential for obtaining and maintaining a workforce with the skills
necessary to achieve SBA’s mission.

Although substantial progress has been made, SBA has not fully implemented our recommendation to update human
resources guidance. OIG believes it is necessary to update and establish critical procedures in support of its long-
term goals and objectives and Governmentwide human capital management initiatives to become a high-performing
organization. In FY 2015, GAO reported that the reason SBA has not mitigated this and other management challenges
is, in part, due to the lack of sustained priority attention over time and frequent turnover of leadership.

SBA Made Progress to Update Human Capital SOPs and Guidance
In FY 2017, OHRS continued to make significant progress in updating and establishing SOPs for human capital
management as recommended by OIG in this long-standing management challenge. OHRS published its Discipline
and Adverse Actions, Senior Executive Service Management, and Senior Leaders SOPs. Additionally, OHRS submitted
three SOPs to SBA’s clearance process and are finalizing a draft to update the last remaining human resource SOP it had
identified as critical.

In addition to updating and establishing SOPs, OHRS took steps to update its internal policies with more
comprehensive guidance for Executive Resources personnel. Specifically, OHRS disseminated updated guidance to all
OHRS personnel and developed a desk guide as an action to remedy the improper pay setting practices identified in a
series of three OIG management advisories (Report 16-20, 17-08, and 17-16). These guides, if utilized correctly, provide
OHRS staff with integral knowledge needed to achieve its mission.

Number of Actions Accomplished (Green Status) During Last 4 Fiscal
2013: 1 2014: 0 2015: 1 2016: 0
Years (Challenge first reported in FY 2001, revised FY 2007)
Status at end
Recommended Actions for FY 2018
of FY 2017
1. Ensure the Agency has an effective, comprehensive workforce and succession plan that aligns talent needs and capabilities with SBA’s FY
2011-2016 strategic plan. SBA’s workforce and succession planning goals should reflect the need to recruit and retain the appropriate Green á
talent, and should establish appropriate metrics to gauge SBA’s success at having the right people, in the right jobs, at the right time.
2. Ensure that human capital management SOPs are updated and appropriately structured to support the Agency’s long-term goals and
Yellow
objectives and Governmentwide human capital management initiatives.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 4. SBA Needs to Improve Its Risk Management and Oversight Practices to Ensure
Its Loan Programs Operate Effectively and Will Continue to Benefit Small Businesses

SBA’s Office of Credit Risk Management (OCRM) manages credit risk for a nearly $142 billion loan portfolio originated by
over 2,500 active lenders and Certified Development Companies (CDCs) that have various degrees of expertise regarding
SBA loan program requirements. The majority of SBA loans are originated by lenders with delegated approval authority,
resulting in limited SBA oversight and quality control reviews until a default occurs. Many lenders rely on the services of
“for-fee” and other third-party agents to assist in the origination, closing, servicing, and liquidation of SBA loans.

Previous OIG audits identified that SBA did not recognize significant lender weaknesses, develop an effective portfolio risk
management program, or effectively identify and track third-party agent involvement in its 7(a) and 504 loan portfolios.
Since the audits, SBA has significantly improved its oversight of lenders and made progress in implementing a portfolio risk
management program. However, SBA made limited progress in identifying and tracking third-party agents.

While SBA improved its oversight of lenders and the risk management program, SBA still faces challenges demonstrating
that identified lender weaknesses are addressed by monitoring and verifying lenders’ corrective actions. Also, SBA needs to
show that the portfolio risk management program is used to support risk-based decisions and implement additional controls
to mitigate risks. Moreover, SBA needs to develop an effective method for tracking loan agents, update regulations on loan
agents, and implement a loan agent registration system.

SBA Improved Oversight of Lending Participants
The risks inherent in delegated lending require an effective oversight program to monitor compliance with SBA policies and
procedures and take corrective actions when a material noncompliance is detected. However, in a September 2012 audit
report (Report 12-20R), OIG found that SBA did not always recognize the significance of lender weaknesses or determine the
risks lender weaknesses posed to the Agency during its onsite reviews. The report also found that SBA did not link the risks
associated with the weaknesses to the lenders’ corresponding risk ratings and assessments of operations. Further, SBA did not
require lenders to correct performance problems that could have exposed SBA to unacceptable levels of financial risk.

Since the time of the audit, SBA improved its oversight of lending participants. In FY 2013, SBA developed risk profiles
and lender performance thresholds, developed a select analytical review process to allow for virtual risk-based reviews,
updated its lender risk rating model to better stratify and predict risk, and conducted test reviews under the new risk-based
review protocol. During FYs 2014 and 2015, OCRM revised its review methodologies for 7(a) and 504 program lenders
and engaged contractor support to expand on its corrective action follow-up process. During FY 2016, OCRM stated that
it successfully reviewed 281 corrective action follow-up assessments and issued its FY 2017 Risk Management Plan. In FY
2017, SBA monitored and verified implementation of corrective actions to ensure effective resolution prior to closeout. As a
result, SBA implemented recommendation 1 and needs to continue to demonstrate in FY 2018 that it monitors and verifies
implementation of corrective actions.

SBA Improved Portfolio Risk Management Program
A July 2013 OIG report (Report 13-17) found that SBA traditionally focused on loan approval volume and loss rates to
evaluate overall program performance with risk being assessed at the lender level. As a result, SBA had not developed an
effective portfolio risk management program that monitored portfolio segments to identify risk based on default statistics.
Our limited analysis showed that SBA continued to guarantee loans to high-risk franchises and industries without
monitoring risks, and where necessary, implementing controls to mitigate those risks. OIG reports have also found that SBA
did not establish measures to evaluate the performance of pilot loan programs or evaluate performance when performance
measures were established. For example, SBA’s Community Express loan program was maintained as a pilot program
for over 10 years without SBA performing an evaluation of the program. The pilot had been dominated by two lenders
employing questionable credit practices and charging higher interest rates that ultimately led to SBA ending the program.

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Since that time, SBA has made substantial progress in demonstrating that information from the portfolio risk management
program is used to support risk-based decisions and implementing additional controls to mitigate risks in SBA loan
programs. In 2016 SBA established performance measures and risk mitigation goals applicable to each loan program and
the entire lending portfolio. OCRM also conducted portfolio analyses of problem lenders with heavy concentrations in SBA
7(a) lending and sales on the secondary market. In response, OCRM proposed actions to mitigate SBA exposure on the
secondary market. In FY 2017, SBA began an ongoing study of lender compliance with SBA Form 1502 reporting. SBA
identified deficiencies with certain types of reporting and subsequently issued Information Notice 5000-1945, reminding
lenders of the reporting requirements.

SBA maintains that the current program tracks performance to support risk-based decisions at the portfolio, sub-program,
and lender level, and that identified risk issues are presented to SBA executive leadership at Lender Oversight Committee
meetings. SBA will need to continue to demonstrate during FY 2018 that information from this program is used to support
risk-based decisions and implement additional controls to mitigate risks.

Increased Risk Introduced by Loan Agents
Prior OIG audits and investigations identified that SBA did not have a way to effectively identify and track loan agent
involvement in its 7(a) and 504 loan portfolios and had outdated enforcement regulations. Additionally, OIG investigations
have revealed a pattern of fraud by loan packagers and other for-fee agents in the 7(a) Loan Program, involving hundreds
of millions of dollars. Since 2005, OIG has investigated at least 22 cases with confirmed loan agent fraud, totaling at least
$335 million. Further, OIG has determined that loan agents were involved in approximately 15 percent of all 7(a) loans and
resulted in increased risk of default. Despite the prevalence of fraud in its loan portfolios, SBA’s oversight of loan agents has
been limited.

In response to this challenge, SBA has made limited progress. To track loan agent activity on 7(a) program loans, SBA
decided to have lenders fax a loan agent disclosure form (Form 159) to SBA’s fiscal and transfer agent (FTA) and require the
FTA to enter the data into a database accessible to SBA. SBA also began linking 7(a) loan Form 159 information with its
loan data. However, a September 2015 OIG report on SBA’s loan agent oversight (Report 15-16) identified significant issues
in the data quality on the Form 159. While SBA has implemented an automated Form 159 within the SBA One system, an
automated lending platform that assists lenders with everything from determining loan eligibility through closing their loan,
SBA will likely need to make further modifications to this process. In 2016, SBA issued a notice to lenders reiterating its
requirements for loan agent disclosures and submission of the Form 159 to its FTA.

Additionally, in response to OIG concerns that SBA loan agent enforcement regulations are outdated, SBA prepared
the Final Rule for Agent Revocation and Suspension Procedures, which was submitted to and approved by the SBA
Administrator. However, due to the Presidential Executive Order on Reducing Regulation and Controlling Regulatory
Costs, SBA has not submitted the final regulation to the Office of Management and Budget (OMB).

OIG maintains that SBA also needs to develop a system to assign a unique identifier to loan agents that participate in the
7(a) Loan Program. The lack of a unique identifier limits SBA’s ability to perform effective oversight. In response to our loan
agent’s report, SBA stated that it will explore the feasibility of implementing a registration system. To date, no solutions have
been implemented.

In addition, a March 2015 audit (Report 15-06) noted that the outsourcing of traditional lender functions to Lender Service
Providers (LSPs), a type of loan agent, has significantly increased in recent years. Specifically, in 2014, over 770 lenders—or
approximately 28 percent of the active 7(a) lenders—had an approved agreement with at least one LSP. Additionally, SBA
loan portfolios associated with the three largest LSPs exceeded that of many of the top 100 active SBA 7(a) program lenders.

Since our 2015 report, the number of SBA-approved LSP agreements has reached over 2,200, due in part to SBA’s effort
to better control access by LSPs to its systems. Specifically, SBA assigns an identifying number for all LSPs that access SBA
systems and records all SBA-approved LSP agreements. This trend has enabled OCRM to develop initial performance
metrics on LSP performance, but oversight is still limited. This audit also noted that a number of referrals regarding

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improper loan agent activities had not been acted upon by OCRM. In response, OCRM developed and now maintains a
tracking system on referrals.

As loan agent involvement in the 7(a) program continues to increase, it will become especially important for SBA to have
oversight tools in place to identify and track loan agent involvement in this sizeable program.

Number of Actions Accomplished (Green Status)During Last 4 Fiscal Years 2013 2014 2015 2016
(Challenge first reported in FY 2001) 7(a) loans: 2 7(a) loans: 0 7(a) loans: 1 7(a) loans: 0
504 loans: 2 504 loans: 0 504 loans: 1 504 loans: 0

Status at end of FY 2017
Recommended Actions for FY 2018
7(a) 504

1. Monitor and verify implementation of corrective actions to ensure effective resolution prior to closeout. Green á Green á
2. Demonstrate that information from the portfolio risk management program is used to support risk-based decisions
Yellow Yellow
and implement additional controls to mitigate risks in SBA loan programs.
3. Develop an effective method of disclosing and tracking loan agent involvement in SBA business loan programs. Yellow Orange
4. Update regulations (13 CFR Part 103) regarding loan agents to provide effective enforcement procedures. Yellow Yellow
5. Implement a loan agent registration system, including the issuance of a unique identifying number for each agent. Orange Orange
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

104 AGENCY FINANCIAL REPORT • FY 2017
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Challenge 5. SBA Needs to Ensure That the Section 8(a) Business Development Program Identifies
and Addresses the Needs of Program Participants, Only Eligible Firms Are Admitted Into the
Program, and Standards for Determining Economic Disadvantage Are Justifiable

SBA’s 8(a) Business Development Program was created to provide business development assistance to eligible small
disadvantaged businesses seeking to compete in the American economy. A major benefit of the 8(a) program is that
8(a) firms can receive sole source, as well as set-aside, competitive Federal contracts so that small businesses do not need
to compete with large businesses that may have an industry advantage. SBA’s challenge has been to ensure that it is
providing effective business development assistance to 8(a) firms and that only eligible firms are admitted into and remain
in the program. Additionally, SBA faces the challenge of developing objective and reasonable criteria for determining at
which point socially disadvantaged individuals are deemed economically disadvantaged.

SBA Continues to Address Its Ability to Deliver an Effective 8(a) Program
SBA has made its assistance more readily available to program participants by using resource partners, such as small business
development centers, SCORE, and procurement technical assistance centers. SBA also has taken steps to ensure business
opportunity specialists assess program participants’ business development needs during site visits. Additionally, in September
2016, SBA issued its 8(a) program SOP to reflect the March 2011 regulatory changes.

While SBA took a positive step by issuing the 8(a) program SOP, SBA has made limited progress in its monitoring efforts
to track participants’ progress. For example, although SBA awarded a $1.9 million contract in December 2011 to develop
and deploy a new IT system to assist in monitoring 8(a) program participants, in 2014, SBA decided not to deploy this new
system. Instead, SBA is now developing and implementing another IT system, Certify.sba.gov, that is broader in scope than
just the 8(a) program to include the WOSB, HUBZone, and Mentor-Protégé programs. SBA plans to implement the 8(a)
program functions later in 2017. As of August 2017, SBA has spent $6.8 million on this system.

Streamlined Application Process May Expose the 8(a) Program to a Higher Risk of Fraud
Since 2010, there had been a steady decline in the number of firms participating in the 8(a) program from about 7,000 in 2010
to about 4,900 as of August 2016. Consequently, in FY 2016, SBA leadership developed an aggressive growth plan to increase
the number of participants in the 8(a) program by 5 percent over the previous year through a streamlined application process.
As of March 2017, SBA reported the 8(a) program includes 5,260 firms.

According to SBA officials, the streamlined application process is less burdensome for firms applying to the 8(a) program.
As part of this modified process, various documents previously used to determine an applicant’s eligibility to participate in
the 8(a) program would no longer be requested or would be required in a modified version. However, shortening the review
process by eliminating documents may erode core safeguards that prevented questionable firms from entering the 8(a) program.
Furthermore, in FY 2016, we initially reported that SBA did not fully document that 30 of 48 firms were eligible for the
8(a) program. As a result, it was not clear whether these 30 firms should have been approved into the 8(a) program (Report
16-13). At the request of SBA’s former Deputy Administrator, we conducted a follow-on audit to determine whether SBA
resolved eligibility concerns for the 30 firms. We determined that SBA resolved eligibility concerns for 20 of the 30 firms that
we reviewed. However, we continued to question the eligibility of 10 of the 30 firms (Report 17-15). Based on the audit, SBA
agreed to add additional controls to the process.

Although SBA’s efforts to increase the participation in the 8(a) program is consistent with its mission, SBA still needs to ensure
that only eligible firms are admitted into and remain in the program, and that the documentation supporting 8(a) program
application approvals is maintained in a method ensuring clear eligibility of the applicant. A lack of documentation clearly
demonstrating eligibility of applicants or a lack of due diligence by SBA program managers can present evidentiary challenges
when pursuing fraud against SBA and its program participants.

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SBA Dollar Threshold for Economic Disadvantage Not Justified
In March 2011, SBA revised its regulations and established additional standards to address the definition of “economic
disadvantage.” Although the March 2011 regulations establish the threshold for “economic disadvantage,” we have
concerns that SBA’s standards for determining economic disadvantage are not justified or objective because they are not
based on economic analysis.

Agency officials stated that the comments they received to the revised regulations served as an adequate proxy to
objectively and reasonably determine effective measures for economic disadvantage, and they were not aware of any
reliable sources of data to determine economic disadvantage. OIG contends that public comment, while valuable, cannot
replace the expert and independent analysis that Congress entrusted SBA to provide when implementing this program.
The Agency should develop objective and reasonable criteria for determining the threshold where socially disadvantaged
individuals face economic disadvantage due to diminished credit and capital opportunities. In September 2017, SBA
awarded a contract to conduct a study to assist them in defining or establishing criteria for determining what constitutes
“economic disadvantage.”

Number of Actions Accomplished (Green Status) During Past 4 Fiscal
2013: 0 2014: 0 2015: 0 2016: 0
Years (Challenge first reported in FY 2003)
Status at end
Recommended Actions for FY 2018
of FY 2017
1. Develop and implement a plan, including SOP provisions, which ensures that the 8(a) Business Development Program identifies and
Green á
addresses program participants’ business development needs on an individualized basis.
2. Update and issue the 8(a) Business Development SOP to reflect the March 2011 regulatory changes. Green á
3. Establish objective and reasonable criteria that effectively measure “economic disadvantage” and implement the new criteria. Orange á
4. Augment and Implement controls that ensure only eligible firms are admitted into the 8(a) program. New
5. Develop and implement a system to assist program officials in monitoring participants’ progress in the 8(a) Business Development Program
New
and providing business development needs on an individualized basis.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

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Challenge 6. SBA Can Improve Its Loan Programs by Ensuring Quality Deliverables and
Reducing Improper Payments at SBA Loan Operation Centers

In FY 2016, the dollar amount of SBA’s 7(a) loans approvals reached record highs of $24.1 billion. The majority of these loans
are made by lenders with delegated approval authority. When a loan goes into default, SBA will conduct a review of the lender’s
actions on the loan to determine whether it is appropriate to pay the lender the guaranty, which SBA refers to as a “guaranty
purchase.” For loans sold on the secondary market, SBA is obligated to purchase the guarantee from the investor and performs
a review of the lenders actions after payment is made. Pursuing recovery from a lender on sold loans is generally a more difficult
task for SBA. In FY 2016, the amount of loans sold on the secondary market reached record highs of $9.4 billion.

Previous OIG audits noted that quality control activities were not being performed at the Centers in accordance with
SBA’s overall Quality Control and Center specific guidance, and SBA management emphasized quantity over quality
for 7(a) loan origination reviews and loan specialists were not provided adequate guidance or training. In addition, OIG
identified 7(a) loans that were ineligible, lacked repayment ability, or were not properly closed, resulting in improper
payments. These improper payments occurred in part because SBA did not adequately review loans.

Since the audits, the Office of Capital Access (OCA) improved the quality control program for its loan centers and took
actions to accurately report and reduce improper payments. Also, OCA modified the structure of a key loan center to allow
for appropriate supervision and revised production standards for loan specialists. Further, OCA is also in the process of
hiring additional staff.

While OCA made substantial improvements, it needs to continue to demonstrate in FY 2018 that its process over
disputed cases ensures adequate and timely resolution. In addition, OCA needs to provide evidence that the developed
corrective action plans are effective in reducing improper payments. OCA will also need to demonstrate that its loan
centers are staffed with qualified resources that are appropriately trained and supervised.

SBA Improved Its Quality Control Program to Ensure Timely Implementation of Corrective Actions
OCA has made significant progress in developing and implementing a quality control program for all of its loan centers to
verify and document compliance with the loan process, from origination to closeout. Additionally, OCA has taken actions
to accurately report and reduce improper payments in SBA’s 7(a) Loan Program. OCA has formalized its improper payment
sampling, demonstrated that its improper payments review process is effective for 7(a) loan approvals, formalized its process
to review disputed cases, formalized the recovery process and time standards for 7(a) purchases, developed corrective action
plans for 7(a) loans, established repayment ability review requirements that are effective at identifying improper payments,
revised improper payment review checklists, and demonstrated recovery from lenders in a timely manner during FY 2016.

To improve effectiveness, OCA revised its dispute resolution process and established a committee of senior leaders that meets
regularly to discuss disputed cases and reach consensus. This committee includes directors from key OCA offices, including the
Office of Credit Risk Management. In FY 2017, OCA created a specialized team to triage loans in inventory, dedicated a staff
member to work on denial cases involving origination issues, and resolved 125 denial cases. In addition, SBA noted that there
were no disputed loans in the last 3 years between the National Guaranty Purchase Center and Office of Portfolio Management.
To further improve reviews of loans, OCA is working on assigning analysts based on the primary denial issues and age of the
loans. OCA is also completing its “triage project,” which it believes will help resolve issues by obtaining additional information
from lenders.

In FY 2017, OCA developed enhanced improper payments reporting to monitor root causes and identify operational
risk. These reports inform management on training opportunities and improvements needed in policies and procedures.
Further, the quality control team recommended policy changes in the SOP 50 10 rewrite to reduce improper payments.

OCA needs to continue to demonstrate in FY 2018 that its process over disputed cases ensures adequate and timely
resolution. Further, OCA needs to provide evidence that the developed corrective action plans are effective in reducing
improper payments.

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Inadequate Staffing, Training, and Supervision Have Resulted in Material Underwriting Deficiencies
The need to deliver timely SBA loan approval, servicing, and purchase decisions while ensuring they meet reasonable
standards for quality and accuracy is often a difficult balance for program management. In addition, SBA processing
centers often have to meet high demands for production with limited resources, resulting in inventory backlogs and
a focus on production activities. For example, a 2014 report (Report 14-13) noted that SBA management emphasized
quantity over quality for 7(a) loan origination reviews at the Loan Guaranty Processing Center (LGPC) and that loan
specialists were not provided adequate guidance or training to conduct their 7(a) loan review activities. SBA addressed
our recommendations to revise production standards, improve internal guidance, develop a training plan, and allocate
resources to ensure risk is mitigated and quality is emphasized. In doing so, SBA modified the structure of the LGPC
to allow for appropriate supervision. Additionally, the center revised production standards for loan specialists related to
screen outs. SBA will need to continue to demonstrate that the LGPC is appropriately staffed with qualified resources
that are appropriately trained and supervised.

Improvements Are Needed in the Identification of Improper Payments
As noted above, OCA has taken actions to accurately report and reduce improper payments in SBA’s 7(a) Loan Program.
However, OIG audits have identified 7(a) loans that were ineligible, lacked repayment ability, or were not properly closed,
resulting in improper payments. These improper payments occurred in part because SBA did not adequately review loans.

OIG reviews high-risk loans purchased by SBA to determine whether lenders materially complied with SBA requirements
or identify suspicious activity. Results to date (Report 16-22) have found that both SBA purchase and quality control
operations continue to miss material lender underwriting deficiencies, resulting in improper payments. Specifically, we
have recommended recoveries of nearly $5 million on six loans. In addition, we identified suspicious activity on tow loans
totaling $1.4 million, resulting in formal referrals to our Investigations Division. While previous audits have noted that the
application of increased scrutiny was necessary on high-dollar loans that default early, further improvements are needed
for SBA to ensure that the risk of improper payments on these loans is sufficiently mitigated. For example, the 7(a) loans
we review are often complex and require additional time and research to validate the appropriateness of lender actions. We
observed that in some cases, SBA loan specialists questioned lenders on material compliance issues; however, these loan
specialists ultimately accepted explanations and documentation from lenders that did not cure the deficiencies. We noted
that loan specialists are generally required to complete loan file reviews within 6 hours. We recommended that SBA evaluate
the time National Guaranty Purchase Center loan specialists have to review complex early-defaulted loans.

In FY 2017, OCA modified the production standards to allow loan specialists more time to review complex early-defaulted
loans. In addition, OCA made the decision to increase the staffing level at the NGPC and is in the process of hiring staff.
OCA needs to demonstrate in FY 2018 that the additional time allotted to loan specialists on complex early-defaulted loans,
is sufficient to identify complex improper payments. Further, OCA needs to provide comprehensive training plans.

Number of Actions Accomplished (Green Status) During Last 4 Fiscal Years 2013 2014 2015 2016
(Challenge first reported in FY 2010) 7(a) Approvals: 1 7(a) Approvals: 1 7(a) Approvals: 0 7(a) Approvals: 0
7(a) Purchases: 0 7(a) Purchases: 1 7(a) Purchases: 1 7(a) Purchases: 0
Status at end
Recommended Actions for FY 2018 of FY 2017
7(a) Approvals 7(a) Purchases
1. Reassign responsibility for final approval of disputed denial, repair, and improper payment decisions to the Office of
N/A Green á
Credit Risk Management (OCRM) to ensure an adequate and timely resolution.
2. Demonstrate that corrective action plans are effective in reducing improper payments in the 7(a) Loan Program. Yellow Yellow
3. Ensure that centers are appropriately staffed with qualified resources that are appropriately trained and supervised and
Yellow Yellow
that the quality of Center resource deliverables is appropriately balanced against their production requirements.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

108 AGENCY FINANCIAL REPORT • FY 2017
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Challenge 7. Disaster Assistance Must Balance Competing Priorities to Deliver Timely
Assistance and Reduce Improper Payments

The disaster loan programs play a vital role in the aftermath of disasters by providing long-term, low-interest loans to
affected homeowners, renters, businesses of all sizes, and non-profit organizations. SBA’s FY 2016 year-end disaster
assistance loan portfolio balance was $6 billion. SBA must balance the priority of delivering timely assistance to disaster
survivors in the immediate aftermath of a devastating life event against the need to ensure program integrity.

Following Hurricane Katrina, in 2008, new private sector disaster loan programs were statutorily authorized and were
intended to assist in disbursing funds quickly and effectively. SBA has not fully implemented all of these programs. The
authorizing legislation required SBA to implement guaranteed disaster loan programs in partnership with private lenders.
SBA only has promulgated regulations to implement two of the three new private sector disaster loan programs, which
were intended to facilitate more timely assistance to disaster survivors by leveraging private sector resources. The Recovery
Improvements for Small Entities (RISE) After Disaster Act of 2015 also authorized another private lender disaster
loan program, which SBA has not implemented. The ability to provide low-interest disaster loans in a timely manner
is necessary to help small businesses and homeowners recover from a declared disaster, which is a key tenet of SBA’s
mission—to assist in the economic recovery of communities after disasters.

We also are concerned that SBA does not limit the proportion of a borrower’s gross income that may be relied on to
service debt, potentially leaving borrowers with insufficient income to cover living expenses, taxes, and loan payments.
Loans to borrowers with high debt burdens are more likely to default. Additionally, prior audits performed by OIG and
GAO have found that because SBA had not taken sufficient steps to prepare for large-scale disasters, such as properly
preparing and training a new workforce for high application volumes, the program has often been unable to provide
timely assistance in the aftermath of major disasters.

Finally, disaster loans are vulnerable to improper payments, fraud and default because loan transactions are often expedited
in order to provide quick relief to disaster survivors, lending personnel hired in connection with a disaster declaration may
lack sufficient training or experience, and the volume of loan applications may overwhelm SBA’s resources and its ability to
exercise careful oversight of lending transactions. SBA has greatly reduced its reported improper payment rate from prior
years, but because of the need to mobilize a new workforce to respond to large-scale disasters such as Hurricane Harvey, SBA
is continually challenged to maintain a low improper payment rate in this program.

Private Lender Programs Intended to Quickly Disburse Disaster Funds Not Implemented
In the wake of disasters like Hurricane Sandy, congressional representatives expressed concern that SBA did not
effectively develop and utilize programmatic innovations intended to assist in disbursing funds quickly and effectively.
In particular, SBA has not implemented two of the three private lender disaster loan programs mandated by the Small
Business Disaster Response and Loan Improvements Act of 2008. Through these mandates, Congress sought to expand
steps taken by SBA after Hurricane Katrina and require new measures to help ensure that SBA would be prepared for
future disasters. The act included three provisions requiring SBA to issue regulations to establish new guaranteed disaster
programs using private sector lenders—the Economic Injury Disaster Assistance Program (EDAP), the Private Disaster
Assistance Programs (PDAP), and the Immediate Disaster Assistance Program (IDAP). Together, these programs are
collectively known as the “Guaranteed Disaster Assistance Programs.”

SBA established regulations and procedures to deliver IDAP, but has not done so for the EDAP and PDAP. In July 2016,
SBA notified Congress that it had sought advance public comment on proposed rulemaking for EDAP and PDAP and
received limited public responses, the majority of which were opposed their implementation. SBA also reports that
its partner lenders have chosen not to participate in IDAP. That aside, SBA indicates that it has improved its disaster
assistance delivery channel and is now better equipped to provide more timely disaster assistance. SBA asserts that larger
unsecured disaster loan limits, now $25,000, allow more funds to be disbursed quickly following a disaster.

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In FY 2017, SBA continued to refine internal procedures to account for IDAP loans. However, SBA also has requested
Congress to rescind the program in its FY 2018 Budget Justification. Correspondingly, the House Appropriations
markup includes permanent cancellation of $2.6 million in unobligated funding for IDAP and EDAP in FY 2018. OIG
notes GAO has closed all audit recommendations related to these programs. Without congressional action to rescind the
Guaranteed Disaster Assistance Programs, SBA should seek lender participation in IDAP and conclude the rulemaking
process to establish regulations implementing EDAP and PDAP in compliance with the law.

Express Recovery Opportunity Loan Program Not Implemented
The RISE After Disaster Act, enacted November 25, 2015, introduced the Express Recovery Opportunity Loan Program
that was intended to leverage private sector resources to quickly provide up to $150,000 loans to disaster survivors. The
Act required SBA to promulgate regulations for the loan program within 270 days, which SBA has not yet accomplished.

In FY 2017, SBA studied this proposed program and concluded that it duplicates the existing SBA Express Loan
Program, cannot be delivered as designed without subsidy costs, and puts the entire SBA Express Loan Program at risk
due to an extended eligibility period. SBA determined that this program could not be delivered at zero subsidy with
the fee structure that was enacted. The Act provides for loans with an 85 percent guarantee with a fee equivalent to 50
percent guarantee; we note, however, that the Act provides an exception to this fee structure in years where the program
cost is greater than zero and this cost can be attributed to Express Recovery Opportunity Loans. SBA also believes that
the 5-year disaster eligibility period will cause lenders to shift ordinary Express loans to Recovery Express loans due to
the higher guarantee rate, exposing SBA to greater risk and endangering the program. SBA stated that it plans to request
rescission of this program in its FY 2019 Budget Justification and for this reason, it has deferred creation of program
regulations. Without congressional action on its request to rescind the Express Recovery Opportunity Loan Program,
SBA must promulgate regulations in compliance with the law.

Maximum Allowable Fixed Debt May Be Exceeded, Limiting Borrower’s Ability to Repay Disaster Loans
SBA’s disaster assistance loan officers work diligently to provide eligible disaster survivors with the maximum available
financial assistance on attractive terms. On occasion, in order to facilitate widespread program delivery of disaster
home loan benefits, SBA exceeds its normal home loan debt-to-income lending parameters, potentially straining and/
or limiting the borrowers’ ability to repay the disaster loans. SBA’s disaster assistance home loan rules do not specify an
upper limit to the proportion of a borrower’s gross income that may be relied upon to service debt. Allocating too much
of the borrower’s income for debt servicing could result in the borrower having insufficient income to cover unavoidable
living expenses, such as health insurance, utility bills, and taxes. This practice also results in more defaulted loans and
additional financial distress to disaster survivors.

The revised disaster assistance SOP, issued in 2015, permits approval of home loans with greater than normal debt-to-
income ratios; however, the SOP did not establish an upper threshold to income allocated for home loan debt service
under this provision. While SBA’s disaster assistance SOP does provide a formula for determining the minimal amount
of income reserved for living expenses and taxes when evaluating disaster business loan guarantors’ repayment ability, the
disaster home loan program rules do not include a similar required reserve of income to meet necessary living expenses.

An August 2016 report (Report 16-18) on early-defaulted Hurricane Sandy loans found that loans to borrowers who did
not otherwise have repayment ability were approved by allocating high proportions of borrower income to service debt.
Home loans with higher than normal debt service ratios given to borrowers with low incomes and poor credit histories
appeared especially vulnerable to default. SBA should determine when the borrower’s proposed debt service ratio creates
an unacceptable financial burden to the disaster survivor and train its loan officers to safeguard loan affordability.

In FY 2017, SBA continued to train loan processing personnel on repayment ability and provide guidance to make
appropriate credit decisions. In FY 2018, SBA should establish policy that limits the percentage of income that may be
relied upon to service debt and provide a reasonable percentage of income remaining to meet essential needs.

110 AGENCY FINANCIAL REPORT • FY 2017
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Reserve Staff Require Training to Sustain Productivity During Mobilization
During large-scale disasters such as Hurricanes Sandy and Harvey, SBA must bring on new loan officers and loss verifiers
in order to match the volume of loan applications and prevent processing backlogs that delay the delivery of disaster
assistance. A prior Hurricane Sandy GAO audit found that new loan officers were not adequately trained to quickly
respond to the backlog of loan applications and took longer than expected to learn how to correctly process loans. SBA
has since adjusted its training approach, but Hurricane Harvey is the first large-scale mobilization since Hurricane Sandy
in 2012.

In FY 2017, SBA conducted loan officer and loss verification training and developed just-in-time training for new staff.
This training imparts required knowledge and skills for immediate application at the time staff are mobilized. SBA
believes that because staff will immediately use the material taught, they will be motivated and focused to learn it. SBA
has trained 100 loan officers and 100 loss verifiers who can be quickly mobilized in the event of a disaster. In FY 2018,
SBA should monitor its results and refine its training approach, if needed, depending on the results of the Hurricanes
Harvey and Irma disaster cycles.

Improper Payment Rate Remains Above IPERA Significance Threshold
In FY 2016, the Disaster Assistance Program’s improper payment rate decreased to 5.32 percent from the 8.13 percent
reported in FY 2015.11 However, it remains above the threshold for significant improper payments defined by IPERA
($10 million and 1.5 percent of program outlays)—improper payments were $18.35 million of the $345 million in
program outlays in FY 2016. To reduce disaster loan improper payments, SBA’s Office of Disaster Assistance (ODA)
should strengthen controls related to verification and documentation of loan eligibility, insurance coverage, and other
program requirements that have been identified as the most prevalent errors in the program. If properly addressed, SBA
can effectively reduce the improper payment rate in future years. While SBA has made progress in reducing improper
payments in the disaster loan programs, our ongoing audit work indicates that further improvements are needed. In FY
2018, SBA needs to continue to meet its improper payment reduction targets.

Actions Accomplished (Green Status) During Past 4 Fiscal Years
2013: N/A 2014: N/A 2015: N/A 2016: N/A
(Challenge first reported FY 2015)
Status at end of
Recommended Actions for FY 2018
FY 2018
1. Promulgate regulations for the new guaranteed disaster loan programs mandated by Congress in 2008. OCA
Yellow á
2. Promulgate regulations for the Express Recovery Opportunity loan program provided by the RISE After Disaster Act. OCA
Yellow
3. Demonstrate that the Agency has adequately trained loan processing resources that can be quickly mobilized in the event of a disaster. ODA
Yellow
4. Establish policies that limit borrower debt burdens to affordable levels and train loan processing personnel in the application of those policies. ODA
Yellow
5. Reduce the improper payment rate to 4.78 percent or lower in FY 2018, in accordance with the reduction targets established in the FY ODA
2016 Agency Financial Report.
Yellow
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

11 The most current improper payment data available at this time are for FY 2016.

AGENCY FINANCIAL REPORT • FY 2017 111
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Challenge 8. SBA Needs to Effectively Manage Its Acquisition Program

Annually, SBA spends over $100 million on contracts for goods and services required to meet its mission. With
decreasing budgets, it is essential that SBA manages its acquisition program in an efficient, effective, and accountable
manner to ensure the Agency obtains quality goods and services on time and at a fair price. However, prior OIG audits
have identified instances where this was not the case. For example, SBA did not always comply with Federal regulations
when determining whether using interagency acquisitions was the best procurement approach, and it inadequately
planned its requirements for procuring IT products and services.

During FY 2017, SBA took appropriate actions to address challenges in its acquisition program. SBA hired a Senior
Procurement Executive, responsible for managing and directing the Agency’s acquisition system, including implementing
unique acquisition policies, regulations, and standards. SBA also implemented actions to address the deficiencies
identified in its assessment of the acquisition program’s internal controls by, among other things, revising and issuing the
Government Acquisition Program SOP, streamlining the hiring process for contracting officers, and making significant
improvements to its information systems. Though OMB recently suspended its requirement for agencies to conduct
such reviews, SBA plans to continue to conduct internal control reviews of its acquisition program. As a result, these
implemented improvements fully address the concerns in this challenge.

Actions Accomplished (Green Status) During Past 4 Fiscal Years
2013: 0 2014: 0 2015: 1 2016: 0
(Challenge first reported FY 2013)
Status at end of
Recommended Actions for FY 2018
FY 2017
1. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that has
measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the organizational alignment and Green á
leadership assessment area.
2. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that has
measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the acquisition policies and processes Green á
assessment area (i.e., acquisition management SOP).
3. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that
has measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the acquisition workforce Green á
assessment area.
4. Create and implement a comprehensive improvement plan—based on the results of the acquisition function assessment—that has
measurable goals, objectives, prioritized actions, and timeframes to address deficiencies identified in the knowledge management and Green á
information systems assessment area.
Green-Implemented Yellow-Substantial Progress Orange-Limited Progress Red-No Progress

112 AGENCY FINANCIAL REPORT • FY 2017
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PAYMENT INTEGRITY
As required by the Improper Payment Information Risk Assessments
Act of 2002 (IPIA), as amended, and OMB Circular
No. 123, Appendix C, Management’s Responsibility for In addition to the annual assessment of the five programs
Internal Control: Requirements for Effective Estimation and activities susceptible to significant improper
and Remediation of Improper Payments, the SBA reviews payments, OMB Circular No. A-123, Appendix C
programs identified as susceptible to improper payments. requires risk assessments at least once every 3 years for
programs not deemed susceptible to significant improper
Improper payment reviews are a multi-layered process that payments, or earlier if a low-risk program was subjected
starts with a risk assessment. If an assessment indicates a to a significant change in legislation or funding level.
program is susceptible to improper payments, then testing Significant improper payments are defined as gross annual
is performed using a statistically valid sampling technique. improper payments exceeding (1) both 1.5 percent of
Based upon the testing results, a corrective action plan program outlays and $10 million, or (2) $100 million. In
is determined for the types of errors uncovered. If a FY 2017, due to the expiration of the 3-year assessment
significant amount of recoverable dollars is found, the period, the SBA reviewed 27 programs and activities, and
SBA considers the appropriateness of performing a conducted the risk assessments for 10 of those programs
recapture audit. and activities that had outlays exceeding $10 million to
determine whether they were susceptible to significant
The SBA reviewed five programs and activities deemed
improper payments, as that term is defined. The SBA
susceptible to significant improper payments, which
evaluated the nine OMB risk factors in performing
included three major credit programs as mandated by
the risk assessments as detailed in the Circular, and
OMB, as well as disbursements for goods and services.
determined that no additional programs or activities are
The three major credit programs are:
susceptible to significant improper payments.
• 7(a) business loan program that includes guaranty
The next sections discuss SBA efforts and results related to
purchases and guaranty approvals;
improper payment assessments and reviews. More detailed
• 504 Certified Development Company (CDC) loan information on improper payments and information
guaranty approvals; and previously reported in the AFR that is not included in the
• Disaster direct loan disbursements. FY 2017 AFR can be found at paymentaccuracy.gov.

The Disaster Relief Appropriations Act, 2013 provided
funding for disaster relief in response to Hurricane Sandy Parts I and VII - Payment Reporting and
to certain agencies, including the SBA. The Act deemed Statistical Sampling
all Hurricane Sandy funds as susceptible to significant
improper payments and, regardless of risk assessment Payment Reporting
results, mandated that agencies report an improper Table 1 presents a summary of SBA’s improper payment
payment estimate for the funds. The SBA received review results and reduction outlook. There is no improper
Hurricane Sandy Disaster Relief funds for the disaster payment made by the recipients of federal money under
direct loan program and certain grant programs as well SBA programs, as the SBA does not have an intermediary.
as administrative expenses of payroll, purchase cards, and
travel related to the disaster direct loan program. Since
2014, the SBA has conducted improper payment reviews
and reported the results for such programs and activities
to comply with the Disaster Relief Appropriations Act,
2013. In FY 2017, the SBA obtained relief from reporting
from OMB, as the SBA successfully demonstrated the low
occurrence of improper payments in those programs and
activities for at least two consecutive years.

AGENCY FINANCIAL REPORT • FY 2017 113
OT HE R I N FO R M ATI ON

TABLE 1 IMPROPER PAYMENT REPORTING AND REDUCTION OUTLOOK ($ IN MILLIONS)
FY 2016 FY 2017 FY 2018
Program Outlays 1
IP IP Outlays 1
IP IP Over-paid Under-paid Over-paid Under-paid Outlays 1
IP IP
$ % $ $ % $ % % $ $ $ % $

7(a) Guaranty
576.92 2.32 13.37 655.56 4.32 28.35 3.31 1.01 21.69 6.66 615.54 4.22 25.98
Purchases1, 2
7(a) Guaranty
17,457.04 0.96 166.77 18,115.96 1.29 233.87 1.29 0.00 233.87 0.00 21,017.29 1.19 250.11
Approvals1,2,3
504 CDC Guaranty
4,594.81 2.60 119.59 4,947.60 1.20 59.16 1.20 0.00 59.16 0.00 5,095.97 1.10 56.06
Approvals1, 2
Disaster Loan
344.91 5.32 18.36 903.88 13.65 123.38 12.87 0.78 116.28 7.10 2,500.00 9.00 225.00
Disbursements1, 4
Disbursements for
112.43 10.35 11.64 110.21 4.99 5.49 4.98 0.01 5.48 0.01 116.24 4.89 5.68
Goods and Services2

Hurricane Sandy
Disaster Relief 5.57 0.074 0.004 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Grants5
Hurricane Sandy
Disaster Relief
27.11 0.24 0.066 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Administrative Funds
- Payroll5, 6
Hurricane Sandy
Disaster Relief
0.27 0.06 0.0002 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Administrative Funds
- Travel5, 6
Hurricane Sandy
Disaster Relief
0.15 0.61 0.0009 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Administrative Funds
- Purchase Cards5, 6
Total7, 8
23,119.21 1.43 329.80 24,733.21 1.82 450.25 1.76 0.06 436.48 13.77 29,345.04 1.92 562.83

1 Outlays in this report represent the base amount of the program activity related to SBA improper payments; and this amount will differ from the amount reported as outlays
in SBA’s President’s Budget submissions because they include reestimates of subsidy cost, reimbursements to SBA administrative funds and other costs. Outlays for 7(a) loan
guaranty purchases are the amount of disbursements for the purchase of defaulted guarantied loans. Outlays for 7(a) loan guaranty approvals are the amount of new guaranty
approvals by banks and other SBA lending partners. Outlays for 504 CDC loans guarantied are approvals irrespective of disbursement, net of approval increases, decreases,
reinstatements, and cancellations for the current year. Outlay figures for Disaster are loan disbursements on current year approvals.
2 Outlay projections do not match the President’s Budget as the timeframe is not the fiscal year. Outlays are estimated by taking the average growth rate in outlays for the previous
3 years and applying it to the current level of outlays to project outlays in future years.
3 For 7(a) loan guaranty approvals, amounts reported are based on the guarantied amount only.
4 Outlay projection does not match the President’s Budget as the timeframe is not the fiscal year. The FY 2018 outlay is estimated based on the historical disbursement rate of 54
percent and applying it to the estimated loan approvals. The FY 2018 loan approvals are based on actual fourth quarter 2017 loan approvals and projected quarterly loan approv-
als for the rest of the year due to the extremely active 2017 hurricane disasters (hurricanes Harvey, Irma, and Maria).
5 In 2017, the SBA was granted relief from reporting Hurricane Sandy Disaster Relief funds by OMB.
6 Data reported is for period March 1, 2014, through February 28, 2015, due to inadvertent lack of reporting in FY 2014.
7 Total improper payment estimates and improper payment percentages do not represent a true statistical estimate for the Agency.
8 Total does not include Hurricane Sandy Disaster Relief Indirect Expenses of $9.5 million; SBA recorded funds with regular indirect administrative disaster program
funds as was allowed by appropriation law. Improper payments for Hurricane Sandy Disaster Relief direct funds for administrative expenses of payroll, travel, and
purchase cards were reported above.

Table 2 presents a summary of the root causes of SBA’s 7(A) LOAN GUARANTY PURCHASES
improper payments.
Statistical Sampling
To provide more clarity for the reader, this section is
Using Probability Proportional to Size sampling with
organized by the five programs subjected to review
replacement, the 7(a) purchase sample cases were chosen
for improper payments and provides statistical
from all purchases approved during the 12-month period
sampling information and review results coupled with
ending March 31, 2017. The purchase population was
corrective actions.
divided into four strata based on the following factors:

114 AGENCY FINANCIAL REPORT • FY 2017
OT H ER INF ORMATI ON

TABLE 2 IMPROPER PAYMENT ROOT CAUSE CATEGORIES BY PROGRAM MATRIX ($ IN MILLIONS)
7(a) Guaranty 7(a) Guaranty 504 CDC Guaranty Disaster Direct Loan Disbursements for
Purchases Approvals Approvals Disbursements Goods and Services
Reason for Improper Payment
Over Under Over Under Over Under Over Under Over Under
payment payment payment payment payment payment payment payment payment payment

Program Design or Structural Issue

Inability to Authenticate Eligibility 233.87 59.16 2.05 7.10

Death Data
Financial Data

Excluded Party Data
Failure to Verify:
Prisoner Data

Other Eligibility Data

Federal Agency 21.69 6.66 4.69 0.01
Administrative/Process Error
Made by: State or Local Agency

Other Party
Medical Necessity

Insufficient Documentation to Determine 114.23 0.79

Other Eligibility Data

Total Estimated Improper Payments 21.69 6.66 233.87 0.00 59.16 0.00 116.28 7.10 5.48 0.01

1) whether the loan was considered an early default, to the 7(a) loan program. The reviews were to determine
regardless of servicing office, and 2) which servicing office if the lender (1) originated, serviced, and liquidated the
processed the purchase among three locations. The SBA loan in a prudent and commercially reasonable manner, (2)
determined the appropriate total sample size to be 200 misrepresented or failed to disclose a material fact to the
loans from the population. The sample included aggregate SBA, and/or (3) put the SBA’s financial interest at risk.
purchase outlays of $135,468,315 and an absolute value of
improper payments of $5,268,025 within the sample. Using Corrective Action
the Hansen-Hurwitz estimation method, the estimated The root cause for all 7(a) loan guaranty purchase
improper payment rate for the 7(a) guaranty purchase improper payments were administrative/process errors
population was calculated as 4.32 percent. This represents made by the Agency. Improper payments generally arose
a considerable increase from the 2.32 percent reported in when new purchase processors failed to identify material
FY 2016. The increase is primarily due to new center staff lender deficiencies in the handling of an SBA guaranteed
making administrative and process errors, including the loan, and made administrative errors in the purchasing
purchase of ineligible loans, reimbursement of ineligible process. The primary reasons for purchase errors included:
expenses, incorrect calculation of the number of days
interest that was owed, and selection of an inaccurate • Ineligible purchases due to legal requirements,
interest rate. These errors should have been prevented by environmental due diligence, and use of proceeds
supervisory review; however, the supervisors were new in to pay ineligible debt;
their role and did not identify the errors prior to purchase.
• Reimbursement of lender expenses that were not
The 7(a) loan guaranty purchase reviews were conducted fully justified or ineligible;
to examine if the lender complied materially with the 7(a)
loan program origination requirements, including statutory • Incorrect payment of interest due to a
provisions, SBA regulations, any agreement the lender miscalculation of days owed; and,
executed with the SBA, standard operating procedures, loan
• Inaccurate interest rate.
authorizations, and official SBA notices and forms applicable

AGENCY FINANCIAL REPORT • FY 2017 115
OT HE R I N FO R M ATI ON

As a means to reduce and/or eliminate the occurrence payment rate remains well below the targeted rate of 3.90
of future improper payments, a Corrective Action Plan percent for FY 2017.
has been formalized for the 7(a) loan guaranty purchase
centers. Specific corrective actions are determined based The 7(a) loan guaranty approval reviews were conducted
upon the primary reason for the error, with the purpose of to examine if the lender complied materially with the
both remedying the error and ensuring the error does not 7(a) loan program origination requirements, including
occur in the future. Plans for improvement include: statutory provisions, SBA regulations, any agreement
the lender executed with the SBA, standard operating
• Internal training for purchase processors, reviewers, procedures, loan authorizations, and official SBA notices
and approvers to determine proper eligibility and forms applicable to the 7(a) loan program. The
for guarantee loan purchases, appropriate lender reviews were to determine if the lender (1) originated the
expenses, the appropriate number of days interest loan in a prudent and commercially reasonable manner,
owed, and the proper interest rate; and, (2) misrepresented or failed to disclose a material fact to
the SBA, and/or (3) put the SBA’s financial interest at risk.
• Recovery of lender expenses that were not fully
justified and deemed ineligible. Corrective Action
The corrective actions are currently underway. Internal Approximately 80 percent of all 7(a) loan guarantee
feedback was provided to center staff regarding the specific approvals are performed by lenders with delegated authority;
loan level deficiency upon detection; internal training will these lenders were responsible for all identified improper
be provided by the end of the first quarter of FY 2018. payment approvals in FY 2017. The most prevalent
root cause stemmed from the delegated lenders’ failure
Corrective actions are tracked at the loan level through a to authenticate borrowers’ eligibility at origination, in
centralized database. The Quality Control Specialists for compliance with loan program requirements. The primary
the 7(a) guaranty purchase centers monitor errors from reasons for 7(a) approval errors in FY 2017 included:
identification through completion of the corrective action.
Headquarters management provides oversight to ensure • Change of ownership policy requirements not
milestones are met. All improper payments identified as a satisfied; and
result of the FY 2017 IPERIA reviews have been resolved
through obtaining additional documentation, collection • Lack of evidence of repayment ability.
of funds from the lender, or reimbursement to the lender. As a means to reduce and/or eliminate the occurrence
Corrective actions were generally completed at the loan of future improper payments, a Corrective Action Plan
level within 60 days, with all actions taken by the end of has been formalized for the 7(a) loan guaranty approval
the fiscal year. centers. Specific corrective actions are determined based
upon the primary reason for the error, with the purpose of
7(A) LOAN GUARANTY APPROVALS
both remedying the error and ensuring the error does not
Statistical Sampling occur in the future. Plans for improvement include:

Using PPS sampling with replacement, the 7(a) approval • Collaborating with the Office of Credit Risk
sample cases were chosen from all loan guaranties Management to ensure specific lender deficiencies
approved during the 12-month period ending March are monitored and incorporated into Risk-based
31, 2017. The approval population was divided into two Reviews; and
strata based on whether the loan was SBA Express or not.
The SBA determined the appropriate total sample size to • External training for lenders to ensure appropriate
be 239 loans from the population. The sample included documentation is obtained and analyzed prior
net guaranteed approvals of $317,316,635 and improper to loan approval, policy governing change of
payments of $867,750. Using the Hansen-Hurwitz ownership requirements is properly followed,
estimation method, the estimated improper payments and the repayment ability of the borrower is
rate for the 7(a) Loan Guaranty Approvals was calculated adequately assessed.
as 1.29 percent. Although this represents a slight increase
The corrective actions are currently underway. OFPO
from the FY 2016 rate of 0.96 percent, the improper
intends to share the loan level and lender deficiencies

116 AGENCY FINANCIAL REPORT • FY 2017
OT H ER INF ORMATI ON

identified during the reviews with OCRM in October upcoming events. Thus, the use of this tool by SBA
2017, and will continue its efforts to ensure lender lenders facilitates loan eligibility and lender compliance
deficiencies are monitored and incorporated into lenders’ throughout the loan approval process.
Risk-based Reviews. External training will be provided by
the end of the first quarter of FY 2018. The supplemental measure for the 7(a) Loan Guaranty
Approval program is based on the number of loans
Specific corrective actions on loans reviewed are tracked at submitted utilizing the SBA One tool. In FY 2016,
the loan level through a centralized database. The Quality non-delegated lenders processed 2,977 loans using
Control Specialist for 7(a) loan guaranty approvals the SBA One tool, which increased to 4,744 loans in
monitors errors from identification through completion of FY 2017. In total, there were 15,182 loans submitted
the corrective action. Headquarters management provides through the SBA One tool by both delegated and
oversight to ensure milestones are met. All improper non-delegated lenders in FY 2017, or 24 percent of all
payments identified as a result of the FY 2017 IPERIA loans, which exceeds the Supplemental Measure target
reviews have been resolved through obtaining additional of 13,846 loans.
documentation, loan modification, or cancellation of
the loan guaranty. Corrective actions were generally 504 CDC LOAN GUARANTY APPROVALS
completed at the loan level within 60 days, with all
Statistical Sampling
actions taken by the end of the fiscal year.
Using PPS sampling with replacement, the 504 CDC
High-Priority Program approval sample cases were chosen from all loan
guaranties approved during the 12-month period ending
In FY 2015, the OMB designated the 7(a) Loan
March 31, 2017. The approval population was not
Guaranty Approvals program as a high-priority
stratified. The SBA determined the appropriate total
program due to reported improper payments of $848
sample size to be 180 loans from the population. The
million, which exceeds the OMB’s high-priority
sample included net approval outlays of $307,651,000
threshold of $750 million. In both FY 2016 and FY
and improper payments of $3,347,500. Using the
2017, the improper payment amount fell below the
Hansen-Hurwitz estimation method, the estimated
threshold, and SBA will be seeking a rescission of the
improper payments rate for the 504 CDC loan
designation of high-priority for this program in FY
guaranty approvals was calculated as 1.20 percent,
2018.
for an estimated total of $59 million. This represents
Approximately 80 percent of 7(a) Loan Guaranty a significant decrease from the FY 2016 rate of 2.60
Approvals are made by participating lenders. With this percent and $120 million. The root cause of the
in mind, the SBA identified the use of SBA One by improper payments was due to lack of documentation to
lenders as a supplemental measurement of improper support the repayment analysis and eligibility.
payments. SBA One, released in October 2015, was
The 504 CDC loan approval reviews were conducted
designed to streamline and simplify the 7(a) lending
to examine if the lender complied materially with the
process by creating a single portal addressing loan
program’s origination requirements, including statutory
eligibility, underwriting, closing, loan modification,
provisions, SBA regulations, any agreement the CDC
servicing, and guaranty purchase. Furthermore, the
executed with the SBA, standard operating procedures,
tool is designed to automate document uploads, form
loan authorizations, and official SBA notices and forms
generation, credit scoring, and electronic signatures.
applicable to the 504 CDC loan program. The reviews
It promotes a guided path including numerous
were to determine if the CDC (1) originated the loan
validations and additional requests for inputs on
in a prudent and commercially reasonable manner, (2)
behalf of the lenders as a means to ensure all required
misrepresented or failed to disclose a material fact to the
loan documents are completed in compliance with
SBA, and/or (3) put the SBA’s financial interest at risk.
SBA’s loan program requirements. It also contains
built-in features to alert lenders throughout the loan
Corrective Action
approval process of any applications returned due to
errors, awaiting signatures, and missing documents, The improper payment rate of 1.20 percent does not
as well as loan approvals. It also notifies lenders of exceed the 1.5 percent threshold for reporting a corrective
required actions at various stages, important dates, and action plan.

AGENCY FINANCIAL REPORT • FY 2017 117
OT HE R I N FO R M ATI ON

DISASTER DIRECT LOAN PROGRAM The ODA plans to perform the following corrective
actions to remediate the above root causes and to reduce
Statistical Sampling the improper payment rate within the targeted rate:
The Office of Disaster Assistance performs a Quality
• Increase the MAFD percentage limits to validated
Assurance Review of the approved loan portfolio
acceptable income-to-debt ratios by December 31,
annually. A part of the QAR is to identify any deficiency
2017. For the past 24 months, ODA has worked
that would result in an improper payment. The statistical
closely with an independent data analysis firm
methodology used followed widely accepted practices
that monitors the ODA loan portfolio quarterly.
and was approved by the Office of Management and
This firm has validated that the increased MAFD
Budget in 2012. The review population consisted of
percentage limits will have an insignificant impact
disaster loan disbursements made during the 12-month
on the loan portfolio’s loss rate. This will lessen the
period ending June 30, 2017, with total disbursements
need to provide justifications outside ODA’s stated
of $903,883,752. A sample of 532 payments was
limits. In addition, ODA will provide training to
selected for testing, which yielded a weighted estimated
loan officers and supervisory loan officers to ensure
improper payment rate of 13.65 percent. Based on
that justifications are present when required.
the sample results, the estimated amount of improper
payments was $123,389,000. The primary reason for an • Consider a change to ODA’s policy to include an
increase from the FY 2016 rate of 5.32 percent is due to analysis of a borrower’s existing homeowner’s policy
a lack of justification of repayment ability outside SBA coverage to meet the requirement of insurance on
guidelines, lack of documenting insurance coverage, temporary quarters by January 31, 2018.
and eligible loan amounts not properly determined as
a result of insurance or other payments received by the • Consider a possible simplification to ODA’s policy
borrower related to the disaster. requiring personal property coverage at temporary
quarters by January 31, 2018.
The scope of the ODA’s review covers three primary
compliance areas: (1) basic eligibility; (2) adherence to • Re-examine how and at what stage of the loan
relevant laws, rules, regulations, and standard operating process duplicate benefits are determined and
procedures; and (3) credit worthiness. ensure all duplicate benefits are identified prior to a
loan’s final disbursement by January 31, 2018.
Corrective Action
Corrective actions will be monitored on a monthly basis,
The significant increase in the improper payment rate with the results reported to the Associate Administrator
indicates stronger corrective measures must be taken to for Disaster Assistance to ensure compliance with
ensure the improper payment rate decreases to pre-2017 policy and to assess the soundness of increased MAFD
levels. The root causes for the disaster direct loan program percentage limits.
improper payments in FY 2017 include:
DISBURSEMENTS FOR GOODS AND
• Lack of appropriate justifications for assistance
SERVICES
made to borrowers who may not have had a
repayment ability based on their Maximum Statistical Sampling
Accepted Fixed Debt (MAFD) percentage
Disbursements for goods and services samples were chosen
exceeding ODA’s stated limits;
using PPS, with replacement methodology from payments
• Failure to validate personal property insurance completed during the 12-month period ending March
coverages on disaster survivors’ temporary housing 31, 2017. The total number of disbursements was 3,118
locations; and, and the total dollar amount was $110,209,945. The SBA
determined the appropriate sample size to be 382 unique
• Disbursements made in excess of eligible loan invoices having total outlays of $53,958,701. Based upon
amount due to duplication of benefits, such as the sample results, the estimated FY 2017 disbursements
when the borrower receives insurance proceeds for for goods and services improper payment rate is 4.99
the same disaster damage. percent, for an estimated total of $5,494,624. This
represents a significant reduction in the improper payment

118 AGENCY FINANCIAL REPORT • FY 2017
OT H ER INF ORMATI ON

rate and dollars over the last fiscal year, which reported a benefits received as a result of the disaster. If the
rate of 10.35 percent and $12 million. The primary reason duplication of benefit is recognized prior to the final
for the reduction was the implementation of an automated disbursement, the loan amount is modified to reflect
interface between SBA’s financial system and the System a lower amount and no repayment is required. If
for Award Management (SAM) in January 2016, which the duplication of benefit is identified after the final
ensured that the SBA used only the most current vendor disbursement of the loan, then the borrower is given 30
information when making payments. days to provide evidence to prove that the disaster loan
was not over-disbursed. For example, the borrower can
The scope of the review covered three areas: invoice provide documentation demonstrating that insurance
accuracy, compliance with contract terms, and accuracy of funds received did not duplicate the disaster loan purpose.
invoice processing. If the borrower has not provided the appropriate evidence
within the 30-day period, a demand is made for the
Corrective Action over-disbursed funds. Collection efforts continue at the
The improper payment amount of $5,494,624 does not disaster loan servicing centers, but if these efforts fail, the
exceed the $10 million threshold for reporting a corrective borrower will still be liable for the over-disbursed amount
action plan. in the form of monthly payments in accordance with the
loan agreement. Thus, any actual loss, if any, is the cost of
funds related to the over disbursement.
Part II - Recapture of Improper Payments
Reporting DISBURSEMENTS FOR GOODS AND
SERVICES
Payment Recovery Effort
The SBA thoroughly analyzed the condition of each
Agency efforts to recapture improper payments are improper payment identified during the improper
discussed by program. payment review of the disbursements for goods and
services, and issued demand letters or requested credit
7(A) LOAN PROGRAM PURCHASES memos on future invoices to the responsible vendors to
Overpayments identified in the improper payments recoup the overpayments as applicable. The SBA will
reviews are recaptured from the lender. The Quality continue to monitor internal controls in place to further
Control staff tracks and collects any monetary reduce the improper payment rate.
overpayment. Refer to Part I above for corrective action
plans to prevent future improper payments. Payment Recapture Audits
On September 15, 2011, the SBA submitted a Payment
7(A) LOAN PROGRAM APPROVALS AND Recapture Audit Cost-Effective Analysis to the Office of
504 LOAN GUARANTY APPROVALS Management and Budget. The analysis discussed the
Overpayments recaptured outside of payment recapture 7(a) Business Loan Guaranty Program, the 504 Certified
audits are not applicable to 7(a) loan guaranty approval Development Company Loan Guaranty Program, the
and 504 CDC loan approval as no payment is made at the Disaster Direct Loan Program, Disbursements for Goods
time of approval. Improper payments identified through and Services, the Small Business Investment Company
both the annual improper payment and continuous Financing Guarantee Program (SBIC), the Surety Bond
quality control reviews are remediated through the Guarantee Program, and Grants, which included all
cancellation of the SBA guaranty, reduction in loan grant programs. The analysis described the program, the
guaranty percentage, or loan modification, as appropriate. controls over financial disbursements, and the size of the
This determination is made on a case-by-case basis, which program, and concluded for each program that recapture
varies substantially depending on the circumstances of the audits would not be cost effective due to low error rates,
loan approval and lender authority. complexity of the program, or limited amount of outlays.
A subsequent cost analysis for the 7(a) loan guaranty
DISASTER DIRECT LOAN PROGRAM purchase program was submitted to OMB on September
Overpayments are the result of the borrower receiving 13, 2017, to include the results of a payment recapture
both an SBA loan and insurance payments or other

AGENCY FINANCIAL REPORT • FY 2017 119
OT HE R I N FO R M ATI ON

audit performed in 2015, which again concluded that is clear that further expenditures for a separate recovery
such an audit is not cost effective. audit is not cost effective.

The specific justification and analysis are discussed Disbursements for goods and services recapture audits
by program. would not be cost effective. The improper payment testing
required 674 labor hours at a cost of $42,347. Payments
7(a) loan guaranty purchase improper payment reviews, identified during the improper payment review as eligible
continuous Quality Control Reviews, and OMB Circular for recapture totaled $5,419; thus, the cost of the review
A-123, Appendix A reviews in FY 2014 warranted a exceeds the return.
reconsideration of the cost effectiveness of a payment
recapture audit. In FY 2015, the SBA performed a Table 3 presents a summary of Improper Payment
payment recapture audit for the 7(a) Loan Guaranty Recaptures without Audit Programs.
Purchase program, and the results revealed that the cost
of labor hours for performing and reporting the payment
recapture audit exceeded the actual overpayments
identified. This was reported in the FY 2015 AFR with
the statement that no additional payment recapture
audits would be performed. In September 2017, the SBA
submitted a cost analysis to OMB and OIG to support
this decision.

7(a) loan guaranty approval and 504 CDC loan
approval are not subject to payment recapture audits, as
no payment is made at the time of approval.

Disaster direct loans recapture audits would not be
cost effective, as improper payments are generally the
result of loan documentation errors and do not result
in a disaster survivor receiving funds for which they
are not eligible. Improper payments are not recovered
upon discovery; they are realized as the borrower
makes each payment on the loan.
Further, the majority of loans are
collateralized, which promotes TABLE 3 IMPROPER PAYMENT RECAPTURES WITHOUT AUDIT PROGRAMS ($ IN MILLIONS)
maximum recovery. Less often is
the identification of duplication Overpayments Recaptured Outside of Payments Recapture Audits
of benefit, which occurs when
a borrower receives insurance Program or Activity Amount Identified $ Amount Recaptured $ Source
or another benefit related to
the disaster in addition to the 7(a) Guaranty Purchase1 Statistical samples
3.54 3.54
conducted under IPIA
SBA loan. Only one ineligible
disbursement was identified,
Disaster Loan Statistical samples
in the amount of $19,500. The 0.02 0.01
Disbursements2 conducted under IPIA
improper payment audit was
completed using 4,400 hours of Disbursemtents for Goods Statistical samples
0.005 0.002
staff time at an approximate labor and Services 1
conducted under IPIA
cost of $185,850. Based on the
Total 3.565 3.556
cost to audit versus the estimated
dollars of recovery of $19,500, it
1 Period of review is for the 12-month period ending March 31, 2017.
2 Period of review is for the 12-month period ending June 30, 2017.

120 AGENCY FINANCIAL REPORT • FY 2017
OT H ER INF ORMATI ON

Part III - Agency Improvement of Payment 7(a) loan guaranty approvals have adequate internal
controls and are supported by E-Tran, SBA’s electronic
Accuracy with the Do Not Pay Initiative
loan processing/servicing system. Both the SBA and
The SBA has implemented the Do Not Pay Initiative and delegated lenders process applications through the system
incorporated the use of DNP post-payment services using and lenders may also handle unilateral servicing actions
the data sources Death Master File and the Excluded electronically. The system provides increased efficiency
Parties List System. The Agency has also implemented and decreased costs in the loan guaranty origination
limited use of the online portal for processing of manual and servicing processes. The loan programs are also
7(a) loan applications as a part of pre-award eligibility. supported by SBA One, an automated lending platform
The SBA is working to enhance its use of DNP data to streamline the lending process. Resources as they relate
sources by exploring an interface with SBA systems to to human capital are currently adequate.
identify ineligible recipients at the time of pre-award, in
Disaster direct loan program has the information
lieu of current practices to manually enter requests for
systems and other infrastructure it needs to reduce
information.
improper payments to targeted levels. For example,
the Office of Disaster Assistance has an integrated,
Part IV - Statutory or Regulatory Barriers electronic loan processing system, the Disaster Credit
Management System, to streamline, enhance, and
The SBA does not have any statutory or regulatory
improve the loan-making process. This system supports
barriers limiting improvement to its performance on the
workflow management, electronic file management, and
improper payments initiative.
document generation functions. Many of the business
rules governing DCMS have been designed to improve
Part V – Accountability the quality assurance process. In fact, the ODA quality
assurance team works continually with the DCMS
The focus of SBA’s Strategic Goal 3 is to build an
development team to improve the quality assurance
SBA that meets the needs of today’s and tomorrow’s
process, with a goal to minimize future improper
small businesses. Strategic Objective 3.1 is designed
payments as much as possible. The disaster direct loan
to strengthen SBA’s core programs and operations to
program has adequate human capital to maintain its
ensure that they are high-performing, effective, and
internal controls.
relevant to the needs of the small business community.
SBA’s strategic goals are included in annual performance
plans for all of its programs as business objectives, and Part VII – Sampling and Estimation
these are also included in employee performance plans.
To provide more clarity for the reader, the Sampling
SBA management monitors accomplishments of these
and Estimation section was coupled with the Payment
business objectives and takes action when progress
Reporting information in Part I, organized by the five
toward goal achievement is not on target. Executive and
programs subjected to review for improper payments.
management bonuses are based on the accomplishment
of business objectives included in employee annual
performance plans. This management process helps assure
accountability for the reduction of improper payments.

Part VI – Information Systems and Other
Infrastructure
7(a) loan guaranty purchases are supported by the
Guaranty Purchase Tracking System. It is continually
updated to enhance the overall integrity of the purchase
process. Resources as they relate to human capital are
currently adequate.

AGENCY FINANCIAL REPORT • FY 2017 121
OT HE R I N FO R M ATI ON

SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT
ASSURANCES
As required by OMB Circular A-136, Section II.5.4, the following summarizes SBA’s Financial Statement Audit and
Management Assurances:

Summary of Financial Statement Audit
Audit Opinion Unmodified
Restatement No

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

Summary of Management Assurances
Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)
Statement of Assurance Unmodified

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

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

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

Compliance with Federal Financial Management System Requirements (FMFIA § 4)
Statement of Assurance Federal Systems conform to financial management system requirements.

Non-Compliance Beginning Balance New Resolved Consolidated Reassessed Ending Balance
None 0 0 N/A N/A N/A 0

Compliance with Section 803(a) of the Federal Financial Management Improvement Act (FFMIA)
Agency Auditor
1. Federal Financial Management System Requirements No lack of compliance noted No lack of compliance noted
2. Applicable Federal Accounting Standards No lack of compliance noted No lack of compliance noted
3. USSGL at Transaction Level No lack of compliance noted No lack of compliance noted

122 AGENCY FINANCIAL REPORT • FY 2017
OT H ER INF ORMATI ON

FRAUD REDUCTION REPORT Reduce the Footprint policy implementing guidance, all
CFO Act entities must set annual targets to reduce the
Based on leading industry and government practices, the total square footage of domestic office and warehouse
SBA is in the process of developing an enterprise-wide inventory compared to the FY 2015 baseline.
fraud risk management process that will be integrated Within the SBA, effective real property asset management
into its enterprise risk management framework. This begins with an accurate inventory that is verified and
comprehensive approach to risk management will validated on a continual basis to ensure real-time data
provide greater assurance that fraud risk is being addressed is available for timely, quality decision making. As a
throughout the organization and not just in silos. To date, fully-leased agency, close coordination between GSA and
SBA senior leadership has identified key programs that the SBA is required regarding cyclical lease expirations,
are highly susceptible to fraud, identified an individual to space requests related to program activities and missions,
lead the Agency’s fraud risk management activities, and has security assessments, and facility-related deficiencies and
held discussions focused on fraud at ERM Board meetings. emergencies. The SBA maintains an ongoing verification
SBA senior leadership has made a strong commitment and validation process to assess the Agency’s lease holdings
to fraud prevention, which will be reflected in the and ensure functionally appropriate right-sizing using
Administrator’s attitude statement. There are planned series appropriate space design standards.
of detailed presentations from program managers, which
will help guide the development of the Agency’s fraud risk The SBA is aggressively moving to reduce leased holdings
assessment process. The SBA also plans to hold the Agency’s by 1 percent annually by adopting federal space standards
first-ever fraud detection and prevention workshop. As the at all locations, where possible. The SBA will make every
SBA moves toward further implementation of its fraud risk effort to consolidate, co-locate, and share resources
management process, the Agency will continue to apply best wherever functional requirements align, with an emphasis
practices found in GAO’s A Framework for Managing Fraud on occupying federal space. For example, SBA’s office in
Risks in Federal Programs and other related guidance. Casper, Wyoming transitioned from a large space to a
smaller one within the same federal building, and the new
space also houses HUD personnel for additional efficiency
REDUCE THE FOOTPRINT REPORT and collaboration.

REDUCE THE FOOTPRINT POLICY BASELINE COMPARISON
CIVIL MONETARY PENALTY
FY 2015 2016 Change (FY 2015 ADJUSTMENT FOR INFLATION
Baseline (CY-1) Baseline - 2016 (CY))
The Federal Civil Penalties Inflation Adjustment Act of
Square Footage 1990, as amended, requires agencies to make regular and
1.363 1.238 0.125
(SF in Millions)
consistent inflationary adjustments of civil monetary
penalties to maintain their deterrent effect. A civil monetary
REPORTING OF O&M COSTS – OWNED AND DIRECT LEASE BUILDINGS
penalty is defined as any penalty, fine, or other sanction that
FY 2015 2016 Change is for a specific monetary amount as provided by federal law
Reported Cost (CY-1) (FY 2015 - 2016 (CY-1)) or has a maximum amount provided for by federal law; and
is assessed or enforced by an agency pursuant to federal law;
Operation and and is assessed or enforced pursuant to an administrative
Maintenance Costs $0 $0 $0
proceeding or a civil action in the federal courts. To
($ in Millions)
improve compliance with the Act, and in response to
The SBA only occupies buildings that are leased by the U.S. General Services multiple audits and recommendations, agencies must report
Administration and subject to occupancy agreements between the GSA and the SBA. the most recent inflationary adjustments to civil monetary
penalties to ensure penalty adjustments are both timely and
According to Section 3 of Office of Management and accurate. Pursuant to the Act, the SBA reviewed each of the
Budget Memorandum M-12-12 Promoting Efficient penalty amounts under its statutes and penalty amounts for
Spending to Support Agency Operations and OMB inflation when required under the law. The SBA applied a
Management Procedures Memorandum 2013-03 the prescribed formula from the Act for calculating the penalty.

AGENCY FINANCIAL REPORT • FY 2017 123
OT HE R I N FO R M ATI ON

SBA FEDERAL CIVIL PENALTIES

Latest Year of Current
Location for
Penalty Year Adjustment Penalty Level Sub-Agency/
Statutory Authority Penalty Update
(Name or Description) Enacted (via Statute ($ Amount Bureau/Unit
Details
or Regulation) or Range)

Failing to File Report
Office of Federal Register 81
Small Business Investment Act, Timely for a Small
1966 2017 $254 Investment and (9 February 2017):
15 USC 687(g) Business Investment
Innovation 31489-31492.
Company (SBIC)
Failing to File Report
Federal Register 81
Small Business Investment Act, Timely for a Small Office of Capital
2004 2017 $6,331 (9 February 2017):
15 USC 650(j) Business Lending Access
31489-31492.
Company (SBLC)
Small Business Act, 15 USC 634(b)(6) Administrative Remedies Federal Register 81
and Program Fraud Civil Remedies for False Statements and 1986 2017 $10,957 Multiple offices (9 February 2017):
Act 31 USC 3802(d) Claims 31489-31492.

Small Business Act, 15 USC 634(b)(6) Federal Register 81
Penalty for Violation of $19,246
and Program Fraud Civil Remedies 1990 2017 Multiple offices (9 February 2017):
Lobbying Restrictions to $192,459
Act 31 USC 1352 31489-31492.

The following table reflects the authorities imposing the management system may show that a grant award has
penalties, the civil penalties, the adjustment years, the expired when, in fact, the performance end date has
current penalty levels, the offices of the program, and the been extended in the grants management system. In
locations for the penalty updates. addition, program management elements may directly
impact the effective financial management of grants. For
example, program managers may sometimes not alert
GRANTS OVERSIGHT AND NEW the grants management officer that the award has been
EFFICIENCY (GONE) ACT REPORT prepared and ready to close. The SBA is taking steps to
address these challenges.
The Grants Oversight and New Efficiency Act was passed
The following table summarizes GONE Act data.
by Congress with a goal of closing expired grants. The
GONE Act requires the Office of Management and
Category 2–3 years >3–5 years > 5 years
Budget, in coordination with the U.S. Department of
Health and Human Services, to submit to Congress and
Number of Grants/
HHS a report that provides a status on an agency’s grants. Cooperative
163 41 2
Agreements with Zero
The SBA Office of Grants Management has established Dollar Balances
an internal team to reduce the number of expired
grants that are not closed. The team reviews applicable Number of Grants/
administrative actions and required paperwork to ensure Cooperative
67 19 32
Agreements with
that procedures are followed. The team reviews for Undisbursed Balances
prompt payment of allowable costs, immediate refund
by the recipient of any unexpended funds, submission Total Amount of
$1,591,458.80 $327,104.23 $232,360.70
of final financial and program reports and proper Undisbursed Balances
disposition of property acquired because of the award,
and any outstanding audits.

As a challenge, SBA grants must be closed in a grants
administration system and a financial system. However,
the two systems often do not interface. The financial

124 AGENCY FINANCIAL REPORT • FY 2017
DID CONTRACTING For the fourth consecutive year, in FY 2016, the federal
YOU government exceeded the 23 percent small business contracting goal,
KNOW purchasing $99.96 billion in goods and services from small businesses
through prime contract procurements. This total represented 24.34 percent
of all eligible federal spending, and supported more than 587,000 jobs in
the American economy.

SUCCESS 8(a)-certified Firm Credits Success to the
8(a) Business Development Program
STORY Gemini Industries, Inc.
Burlington, Massachusetts

At the age of 4, Victoria Bondoc was diagnosed with a rare condition that
permanently left her with 20/200 vision, meaning that she had an extreme
sensitivity to light and colorblindness. But Victoria was a girl with an attitude: “The only disability in life is a bad
attitude. Life does not care about what you want, what you need, or what you deserve. The will to fight and the will
to succeed helps you create the future that you choose, and to achieve your goals.”

That no-fail, no-excuses approach is the driving force behind the success of Gemini Industries, Inc., the 8(a)-
certified firm founded by Victoria more than 30 years ago that has created more than 1,360 jobs through more than
$200 million in contracts supporting national defense programs. Under Victoria’s determined leadership, Gemini’s
operations have expanded to 12 locations across the United States and overseas. Over the 3-year period ending
December 2015, she increased sales from $51 million to $468 million in contract awards.
APPENDICES
DID
YOU COUNSELING The SBA provides mentorship, counseling, and strategic
advice to more than 1 million small business owners annually through
KNOW Small Business Development Centers, Women’s Business Centers, Veterans
Business Outreach Centers, SCORE, the online SBA Learning Center, and
through 68 SBA district offices.

SUCCESS SBA Resources Partners Help
Entrepreneurs Realize Dreams
STORY Oscarware, Inc.
Road Bonnieville, Kentucky

Oscarware, Inc. is a family-owned manufacturing business founded in 1989 by Debra
and Reg Dudley. Sensing the anything-can-be-grilled trend, they invented a new
product called the Grill Topper, making it possible to cook a variety of meals on an
outdoor grill.

When Reg Dudley passed away unexpectedly in 2006, it was both a personal and a business loss, and the
responsibility of the manufacturing-side of the business fell on Debra’s shoulders.

It became difficult to grow the business due to insufficient cash flow. Debra began working with the Western
Kentucky University Small Business Development Center (SBDC) in Bowling Green. She and her SBDC counselor
developed a business plan that enabled the company to obtain several commercial bank loans. Now, Oscarware, Inc.
has 32 employees and distributes products across the United States, Europe, Canada, and Mexico. In the past 3 years,
revenue has rapidly grown and cash flow and liquidity have improved, all with the help of the SBA.
AP P EN D I C ES

APPENDIX 1—CONTACT SBA: USEFUL WEBSITES AND NUMBERS

The SBA home page is www.sba.gov. Information on SBA programs may be accessed from this website. Several of the
more frequently visited websites are listed here:

SBA and BUSINESS INFORMATION
About the SBA www.sba.gov/aboutsba
SBA Performance, Budget & Finances www.sba.gov/performance
Small Business USA https://business.usa.gov
Local Assistance www.sba.gov/local-assistance
Qualifying as a Small Business www.sba.gov/content/am-i-small-business-concern
Starting a Business www.sba.gov/thinking-about-starting

CAPITAL
Small Business Loans & Grants www.sba.gov/financialassistance
Lender Resources www.sba.gov/lender_resources
Surety Bonds www.sba.gov/content/surety-bonds-explained
Export Products www.sba.gov/exporting
Fund Your Business www.sba.gov/business-guide/plan/fund-your-business

CONTRACTING
Government Contracting www.sba.gov/contracting
Register as a Contractor www.sam.gov
Contracting Certifications https://certify.sba.gov

COUNSELING
SBA Learning Center www.sba.gov/training
Small Business Development Centers www.sba.gov/sbdc
Women’s Business Centers www.sba.gov/tools/local-assistance/wbc
SCORE www.sba.gov/score
Veterans Business Outreach Centers www.sba.gov/tools/local-assistance/vboc

DISASTER ASSISTANCE
Disaster Assistance www.sba.gov/disaster
Disaster Center Office Locations www.sba.gov/about-offices-list/4

SBA INFORMATION
SBA National Answer Desk (800) 827-5722 (Toll Free)
Disaster Assistance Customer Service Center (800) 659-2955 (Toll Free)
Facebook www.facebook.com/SBAgov
Twitter www.twitter.com/sbagov
YouTube www.youtube.com/sba
SBA blog www.sba.gov/blogs
Instagram https://www.instagram.com/sbagov

128 AGENCY FINANCIAL REPORT • FY 2017
APPE NDI C E S

APPENDIX 2—GLOSSARY
Available at: www.sba.gov/performance, FY 2017 Agency Financial Report

504 Loan 504 Certified Development Loan APG Agency Priority Goal
Program GPRAMA requires federal agencies to
The 504 loan program provides small busi- establish a set of 2-year APGs that reflect the
nesses with long-term, fixed-rate financing for highest priorities of agency leadership.
the purchase of land, buildings, and long-life
capital equipment. APR Annual Performance Report
The APR is required by the Government
7(a) 7(a) Loan Guaranty Program Performance and Results Act and presents a
The 7(a) loan program is SBA’s primary loan federal agency’s progress in achieving the goals
program; it provides general loan financing in its strategic plan and performance budget.
for a wide variety of purposes.
ARC 506 America’s Recovery Capital Loan Program
7(j) 7(j) Management and Technical ARC 506 loans are part of the 2009 American
Assistance Program Recovery and Reinvestment Act Section 6 that
The 7(j) loan program provides specialized provided loans up to $35,000 for short-term
assistance to underserved small businesses. relief to businesses experiencing immediate
financial hardship.
7(m) 7(m) Microloan Program
The microloan loan program provides small, BATF Business Assistance Trust Fund
short-term loans to small businesses and cer- BATF is a trust fund in the U.S. Department
of the Treasury maintained to receive and
tain types of nonprofit child care centers.
account for donations made by private entities
for activities to assist small businesses.
8(a) 8(a) Business Development Program
The 8(a) program assists firms owned and BLIF Business Loan and Investment Fund
controlled by socially and economically disad-
BLIF is a fund operated by the U.S.
vantaged individuals to enter and succeed in
Department of the Treasury to maintain the
the economic mainstream.
accounting records of loans approved prior to
1992.
A-123 Designation for OMB Circular on
Internal Control Systems CBJ Congressional Budget Justification
The A-123 guidance prescribes policies and The CBJ is a federal agency’s annual budget
procedures to be followed by executive depart- request to Congress.
ments and agencies in establishing, main-
taining, evaluating, improving, and reporting CDC Certified Development Company
on internal controls in their program and
CDCs are nonprofit corporations, certified
administrative activities.
and regulated by the SBA, that work with
participating lenders to provide financing to
AFR Agency Financial Report
small businesses.
The AFR is an annual report that provides to
OMB, Congress, and the public, an overview CEAR Certificate of Excellence in
of the Agency’s financial and performance
Accountability Reporting
data.
CEAR is awarded to agencies that are con-
AGA Association of Government Accountants sidered to have excellent Agency Financial
Reports.
AGA is the member organization for
government financial management CFO Chief Financial Officer
professionals. The CFO is the financial leader of the OCFO,
whose duties include overseeing all Agency
disbursements, management, and coordina-
tion of Agency planning, budgeting, analysis,
and accountability processes.

AGENCY FINANCIAL REPORT • FY 2017 129
AP P EN D I C ES

CIO Chief Information Officer ERM Enterprise Risk Management
The CIO is the senior executive for the in- The ERM provides a framework to manage
formation technology and computer systems risks and seize opportunities related to the
that support enterprise goals. achievement of their objectives.

DATA Act The Digital Accountability and FBWT Fund Balance with Treasury
Transparency Act of 2014 The FBWT is an asset account that shows the
The DATA Act is a law that aims to make available budget spending authority of federal
information on federal expenditures more agencies.
easily accessible and transparent.
FCRA Federal Credit Reform Act
DCIA Debt Collection Improvement Act of 1996 FCRA is a law enacted to provide a
DCIA provides federal agencies with new more realistic picture of the cost of U.S.
and enhanced delinquent debt collection Government direct loans and loan guaranties.
tools.
FECA Federal Employees’ Compensation Act
DCMS Disaster Credit Management System FECA provides compensation benefits
DCMS is the electronic system used to to federal civilian employees and to their
process loan applications for all new disaster surviving dependents for work-related
declarations. injuries or illnesses.

DLF Disaster Loan Fund FEMA Federal Emergency Management Agency
DLF assists eligible small businesses impacted The primary purpose of FEMA is to
by disasters. coordinate the response to a disaster that has
occurred in the United States.
DNP Do Not Pay Initiative
DNP was established by IPERIA to support FERS Federal Employees Retirement System
federal agencies with their efforts to prevent FERS is a three-tiered retirement plan
and detect improper payments. for federal employees hired after 1984,
composed of Social Security benefits, a basic
DoD Department of Defense benefit plan, and contributions to a Thrift
The DoD is America’s oldest and largest Savings Plan.
government agency.
FFMIA Federal Financial Management
DOL Department of Labor Improvement Act
DOL’s mission is to foster, promote, and FFMIA is a law that requires each agency
develop the welfare of the wage earners, job to implement and maintain financial
seekers, and retirees of the United States; management systems that comply
improve working conditions; advance substantially with federal financial
opportunities for profitable employment; and management system requirements,
assure work-related benefits and rights. applicable federal accounting standards, and
the United States Standard General Ledger.
EDAP Expedited Disaster Assistance Loan
Program FICA Federal Insurance Contributions Act
EDAP is a loan guaranteed by SBA for up to FICA is a federal payroll (or employment) tax
$150,000. imposed on both employees and employers
to fund Social Security and Medicare federal
EDP Entrepreneurial Development Program programs that provide benefits for retirees,
The EDP account reports entrepreneurial disabled people, and children of deceased
development expenses. workers.

ELA Enterprise Learning Agenda FIPS Federal Information Processing Standards
FIPS are publicly announced standards
The ELA is a plan that aligns with the
developed by the federal government for
Agency’s strategic goals to identify where
use in computer systems by non-military
evaluations could provide insights about
government agencies and government
program effectiveness.
contractors.

130 AGENCY FINANCIAL REPORT • FY 2017
APPE NDI C E S

FISMA Federal Information Security GCBD Office of Government Contracting and
Management Act Business Development
FISMA is a law that defines a comprehensive GCBD works to create an environment
framework to protect government for maximum participation by small,
information, operations, and assets against disadvantaged, and women-owned businesses
natural or man-made threats. in federal government contract awards and
large prime subcontract awards.
FITARA Federal Information Technology
Acquisition Reform Act GONE Act Grants Oversight and New Efficiency Act
FITARA is legislation to improve the The goal of the GONE Act is to close out
acquisition and management of federal expired grants.
information technology assets.
GPRAMA Government Performance and Results
FMFIA Federal Managers Financial Integrity Act Act (GPRA) Modernization Act of 2010
FMFIA is a law that primarily requires ongoing The GPRAMA modernizes the federal
evaluations and reports on the adequacy of the government’s performance management
internal accounting and administrative control framework, retaining and amplifying some
systems of executive agencies. It also requires aspects of the Government Performance
evaluations and reports on the conformance of and Results Act (GPRA) of 1993 while also
financial management systems. addressing some of its weaknesses.
FPDS-NG Federal Procurement Data System – GSA General Services Administration
Next Generation GSA is a federal agency of the Executive
FPDS-NG is a single source for U.S. Branch whose mission is to deliver the best
government-wide procurement data. value real estate, acquisition, and technology
services to government agencies.
FTA Fiscal Transfer Agent
The FTA is the SBA agent tasked with the HHS U.S. Department of Health and Human
responsibility to administer each SBA Pool Services
or Individual Certificate. This maintains
The goal of HHS is to protect the health of
a registry of Registered Holders and other
all Americans and provide essential human
information as the SBA requires.
services.
FTE Full-Time Equivalent
FTE indicates the workload of an employed HUBZone Historically Underutilized Business Zone
person. An FTE of 1.0 means that the person HUBZone is an SBA program that
is equivalent to a full-time worker while an encourages economic development by the
FTE of 0.5 means that the worker is only establishment of federal contract award
preferences for small businesses located in
half-time.
historically underutilized business zones.
FY Fiscal Year
HUD U.S. Department of Housing and Urban
The Federal Government fiscal year begins
Development
October 1 and ends the following September 30.
HUD develops and executes policies on
GAAP Generally Accepted Accounting housing and metropolises.
Principles
IDAP Immediate Disaster Assistance Program
GAAP is the standard framework of
IDAP is a guaranteed disaster loan program
guidelines for financial accounting generally
for small businesses that have suffered
known as accounting standards or standard
physical damage or economic injury due to a
accounting practice.
Declared Disaster.
GAO U.S. Government Accountability Office
GAO is an independent, nonpartisan agency IPERA Improper Payments Elimination and
that investigates how the federal government Recovery Act
spends taxpayer dollars and reports their IPERA requires that agencies examine the risk of,
findings to Congress. and feasibility of, recapturing improper payments
in all programs and activities.

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AP P EN D I C ES

IPERIA Improper Payments Elimination and MRF Master Reserve Fund
Recovery Improvement Act of 2012 SBA’s fiscal and transfer agent maintains this
IPERIA is an act to intensify efforts to reserve fund to facilitate the operation of the
identify, prevent, and recover payment 7(a) secondary market program.
error, waste, fraud, and abuse within federal
spending. NAICS North American Industry Classification
System
IPIA Improper Payment Information Act NAICS classifies business establishments
IPIA is a federal law enacted in 2002 to for the purpose of collecting, analyzing, and
identify and reduce erroneous payments in publishing statistical data related to the U.S.
the government’s programs and activities. economy. The NAICS industry codes define
establishments based on the activities in which
IRS Internal Revenue Service they are primarily engaged.
IRS is the U.S. tax collection agency that
administers the Internal Revenue Code NBER National Bureau of Economic Research
enacted by Congress. A private, nonprofit, nonpartisan
organization dedicated to conducting
ISCM Information Security Continuous economic research and providing findings
Monitoring to academics, public policy makers, and
business professionals.
An ISCM is a strategy designed to provide
a roadmap that focuses on a near-real-time
NDAA National Defense Authorization Act
approach to SBA risk remediation, operational
The United States federal law specifying
awareness, and long-term risk management.
the budget and expenditures of the U.S.
Department of Defense.
IT Information Technology
IT refers to matters concerned with the NGPC National Guaranty Purchase Center
design, development, installation, and
The NGPC, located in Herndon, Virginia,
implementation of information systems and
was created to centralize SBA’s 7(a) loan
applications.
guaranty purchase function into a single
national location.
LAN/WAN Local Area Network/Wide Area Network
LAN/WAN provides office automation NIST National Institute of Standards
capabilities for government and contractor
and Technology
personnel.
NIST is a measurement standards laboratory,
and a non-regulatory agency of the U.S.
LGPC Loan Guarantee Processing Center
Department of Commerce. Its mission
The 7(a) LGPC has two physical locations is to promote innovation and industrial
(one in Hazard, Kentucky and one in competitiveness.
Citrus Heights, California) that are linked
technologically into one process for efficiency OBD Office of Business Development
and optimal staff utilization.
OBD assists small, disadvantaged businesses
to gain access to federal and private
LSP Lender Service Provider
procurement markets.
An LSP carries out functions in originating,
dispersing, servicing, or liquating a specific
OCA Office of Capital Access
SBA business loan or loan portfolio for
compensation from the lender. OCA is responsible for small business loans,
lender oversight, and the Surety Bond
MAFD Maximum Accepted Fixed Debt Guarantee program.
MAFD are standards used to calculate the
OCFO Office of the Chief Financial Officer
risk of loan approvals.
OCFO is responsible for the financial
MRA Master Reserve Account leadership of the Agency, including all Agency
disbursements, management, and coordination
SBA’s fiscal agent maintains this escrow fund
of Agency planning, budgeting, analysis, and
to facilitate the operation of the Certified
accountability processes.
Development Company program.

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OCIO Office of the Chief Information Officer OSDBU Office of Small Disadvantaged Business
OCIO is responsible for the management Utilization
of information technology for the Agency, OSDBU’s mission is to enable small
including the design, implementation, disadvantaged businesses to gain access
and continuing successful operation(s) of to economic opportunity through federal
information programs and initiatives. contracts.

OCRM Office of Credit Risk Management PDAP Private Disaster Assistance Program
OCRM manages program credit risk, PDAPs help residents, businesses,
monitors lender performance, and enforces organizations and communities recover from
lending program requirements. natural disasters.

ODA Office of Disaster Assistance PFCRA Program Fraud Civil Remedies Act of 1986
ODA is SBA’s office that promotes economic A statute that provides an administrative
recovery in disaster-ravaged areas. Disaster remedy to Executive Branch agencies related
loans are the Agency’s primary form of federal to false, fictitious, or fraudulent claims and
assistance for non-farm, private sector disaster statements.
losses for individuals and businesses.
PPS Probability Proportional to Size
OFPO Office of Financial Program Operations PPS is a method of sampling that takes
OFPO leads the financial services industry in the varying size of each item within the
quality products and services to SBA partners population into account when selecting the
and customers, and protects the integrity of audit sample.
SBA programs.
QAR Quality Assurance Review
OGC Office of General Counsel QAR is a review to identify any deficiencies, to
OGC provides comprehensive legal services to include improper payments.
the Administrator and all Agency offices.
RGDP Real Gross Domestic Product
OHRS Office of Human Resources Solutions RGDP is an inflation-adjusted measure that
OHRS develops and provides innovative reflects the value of all goods and services
human capital strategies. The office advises produced in a given year, expressed in base-
SBA management with respect to selecting, year prices.
developing, and managing a high-quality,
productive workforce. RISE Recovery Improvements for Small
Entities After Disaster Act of 2015
OIC Office of Internal Controls This bill amends the Small Business Act
OIC, an office within the Office of the Chief to authorize a small business, homeowner,
Financial Officer, has the lead in ensuring nonprofit entity, or renter that was located
managers comply with internal control within a declared major disaster area during
standards. Superstorm Sandy in 2012 to apply for a
Small Business Administration
OIG Office of Inspector General (SBA) loan.
OIG conducts and supervises audits,
inspections, and investigations relating to SAM System for Award Management
SBA programs and operations. SAM is the federal government system that
tracks grant awards.
OMB U.S. Office of Management and Budget
OMB is the White House office that oversees SAT Senior Assessment Team
preparation of the federal budget and SBA’s SAT is chaired by the Chief Financial
supervises its administration in Executive Officer and comprised of SBA managers from
Branch agencies. the major programs and support offices to
oversee the assessment of internal controls for
OPM U.S. Office of Personnel Management financial reporting performed by the Office
OPM is the federal government’s human of Internal Controls.
resources agency.

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SBA U.S. Small Business Administration SE Salaries and Expenses
The SBA is the federal agency of the Executive The SE account reports salaries and
Branch whose mission is to maintain and administrative costs.
strengthen the nation’s economy by enabling the
establishment and vitality of small businesses SMG Secondary Market Guarantee
and by assisting in the economic recovery of SMG is an SBA loan that provides SBA
communities after disasters. lenders with an efficient process through
which to sell their SBA backed loans, which
SBDC Small Business Development Center significantly increases their liquidity and
SBDCs provide management and technical enables them to make additional SBA loans.
assistance, economic development, and
management training to existing and SOP Standard Operating Procedure
prospective small businesses through An SOP is the primary source of the Agency’s
cooperative agreements with universities and internal control.
colleges and government organizations.
STEP State Trade and Export Promotion
SBG Surety Bond Guarantee Program
The SBG program provides guaranties, STEP is a pilot export initiative to make
bid, performance, and payment bonds for matching fund awards to states to help
contracts up to $2.0 million for eligible small businesses enter and succeed in the
small businesses that cannot obtain international marketplace.
surety bonds through regular commercial
channels. USEAC U.S. Export Assistance Center
USEACs are located nationwide and help
SBGRF Surety Bond Guaranty Revolving Fund
firms grow internationally by assisting in
All the contractor and surety fees collected by developing a plan of action with solutions
the SBA are deposited in the SBGRF at the
tailored to their needs.
U.S. Department of the Treasury, which is
used to pay claims. VBOC Veterans Business Outreach Center
VBOCs provide entrepreneurial development
SBIC Small Business Investment Company
services such as business training, counseling
An SBIC provides long-term loans, debt- and mentoring, and referrals for eligible
equity investments, and management veterans owning or considering starting a
assistance to small businesses, particularly small business.
during their growth stages.
WBC Women’s Business Center
SBIR Small Business Innovation Research WBCs provide long-term training and
The SBIR is a highly competitive SBA advising to women who own or manage a
program that encourages domestic small business, including financial, management,
businesses to engage in federal research/ marketing, and technical assistance and
research and development that has the procurement.
potential for commercialization.
WOSB Women-Owned Small Businesses
SBLC Small Business Lending Company The WOSB program allows federal agencies
SBLCs are non-depository small business to set aside certain contracts for competition
lending companies listed by the SBA Office only among small businesses owned and
of Capital Access. controlled by women.
SBPAC Small Business Procurement Advisory WOSBP Women-Owned Small Business Federal
Council Contracting Program
SBPAC was established by Section 7104(b) The WOSB Federal Contracting Program was
of the Federal Acquisition Streamlining Act implemented in February 2011 with the goal
of 1994 to develop positions on proposed of expanding the number of industries where
procurement regulations affecting the small WOSB were able to compete for business with
business community. the federal government.

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APPENDIX 3—OIG AUDIT FOLLOW-UP ACTIVITY
Throughout the year, the Office of Inspector General conducts audits of SBA’s processes, procedures, and programs, and
makes recommendations for improvement. Many of these recommendations are not material, relative to their dollar impact
on SBA’s financial and administrative operation, but are beneficial to SBA’s management. If SBA management disagrees with
an OIG recommendation, the OIG may revise the recommendation or refer the issue to a higher level of SBA management.
When both SBA management and the OIG agree on the recommendation, SBA management develops a corrective action
plan, including a target date for completion. This recommendation is identified as having a “Management Decision.”
When the corrective action plan is implemented and the recommendation has been fully addressed, the recommendation is
identified as having a “Final Action.”

The OCFO maintains a database to track the recommendations through to the conclusion, or Final Action. During FY
2017 there were 119 Final Actions, resulting from 9 monetary and 110 non-monetary recommendations.

The following tables depict SBA’s Final Action activity for FY 2017 and the status of corrective action plans not
implemented within 1 year:

• Table I: Final Action on Audit Recommendations with Disallowed or Questioned Costs.
• Table II: Final Action on Audit Recommendations with Funds Put to Better Use.
• Table III: Final Action on Audit Recommendations Not Completed within One Year.

TABLE I: FINAL ACTION ON AUDIT RECOMMENDATIONS WITH DISALLOWED OR QUESTIONED COSTS
OCTOBER 1, 2016 – SEPTEMBER 30, 2017
Number of Disallowed Costs
Recommendations (Rounded to Thousands)
A. Recommendations with Management Decisions on which Final Action had not been 8 $4,761
taken at the beginning of the period.
B. Recommendations on which Management Decisions were made during the period. 6 $4,398
C. Total recommendations pending Final Action during the period. 14 $9,159
D. Recommendations on which Final Action was taken during the period.
1. Recoveries:
(a) Collections and Offsets 2.5 $545
(b) Property
(c) Other 5.0 $5,304
2. Write-Offs 1.5 $240
3. Total 9.0 $6,089
E. Recommendations needing Final Action at the end of the period. 5 $3,070

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TABLE II: FINAL ACTION ON AUDIT RECOMMENDATIONS WITH FUNDS PUT TO BETTER USE
OCTOBER 1, 2016 – SEPTEMBER 30, 2017
Number of Funds to be Put to Better Use
Recommendations (Rounded to Thousands)
A. Recommendations with Management Decisions on which Final Action had not been 0 $0
taken at the beginning of the period.
B. Recommendations on which Management Decisions were made during the period. 0 $0
C. Total recommendations pending Final Action during the period. 0 $0
D. Recommendations on which Final Action was taken during the period.
1. Value of recommendations implemented (completed): 0 $0
2. Value of recommendations that management concluded should not or could not be
implemented or completed
3. Total 0 $0
E. Recommendations needing Final Action at the end of the period. 0 $0

TABLE III: FINAL ACTION ON AUDIT RECOMMENDATIONS NOT COMPLETED WITHIN ONE YEAR
AS OF SEPTEMBER 30, 2017

Report #12-04, Audit of Annual Small Business Procurement Calculations
Program: GCBD
Date Issued: 12/06/11
Management Decision Date: 09/23/15
Explanation: The four remaining recommendations are to the Office of Government Contracting and Business
Development and require 1) revision of the Goaling Guidelines for the Small Business Preference Programs to include
contracts awarded and/or performed overseas; 2) revision of the Goaling Guidelines based on the Office of the General
Counsel’s (OGC’s) final opinion on the exemptions from goaling; 3) notification of the GSA, Federal Procurement
Data Center of any necessary programming updates to the FPDS-NG resulting from the changes to goaling guidance;
and 4) revision of Goaling Guidelines in the Federal Register notifying participating agencies of any changes. Relative
to the recommendations:
• The GCBD revised the Goaling Guidelines for the Small Business Preference Programs to include contracts
awarded and/or performed overseas in the small business goaling baseline beginning with FY 2016. The
Department of Defense requested and was granted a partial waiver for FY 2016 and FY 2017. In FY 2018, the
DoD will have a blanket waiver for overseas contracts as provided in NDAA 2017.
• The GCBD revised the Goaling Guidelines for the Small Business Preference Programs to include contracts
awarded and/or performed overseas based on the OGC’s final opinion on the Exemptions from Goaling that
acknowledged the agency could provide exemptions for policy reasons.
• The GCBD notified the GSA, Federal Procurement Data Center of necessary programming updates to the
FPDS-NG resulting from changes to goaling guidance on contract exclusions.
• The GCBD issued revised Goaling Guidelines at the SBPAC after discussion with participating agencies’
OSDBUs. The GCBD posted the changes to goaling guidance on the GSA FPDS-NG website in lieu of a
separate and unnecessary Federal Register notice.
The GCBD has determined that further research and discussion with the OIG is required for all recommendations.
The estimated completion date is 09/30/18.

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Report #12-15, Audit of FY 2011 Federal Information Security Management Act Review
Program: OCIO
Date Issued: 07/16/12
Management Decision Date: 08/16/12
Explanation: The two remaining recommendations are to the Office of the Chief Information Officer and require the
office to 1) perform recertification reviews of agency general support systems or design compensating controls, and 2)
continuously monitor remote access audit logs for unauthorized activity. The OCIO states: 1) Resource constraints
have delayed the administration of the data call to supervisors to validate and re-certify all LAN/WAN users; and 2) A
customized solution is required to automate the import of log data and the OCIO is evaluating the cost and feasibility
to implement. The estimated completion date is 03/31/18.

Report #13-01, Audit of SBA’s Section 8(a) Program’s Use of Internal Revenue Service Tax Verification
form 4506T
Program: OBD
Date Issued: 10/04/12
Management Decision Date: 03/11/13
Explanation: The four recommendations are to the Office of Business Development and require changes to SOP 80 05 A
to ensure 1) completion of Form 4506T and prompt submission; 2) completion of Form 4506T prior to the start of the
annual review and prompt submission; 3) suspension of the firm if tax returns submitted to the SBA do not agree with those
submitted to the IRS; and 4) comparison of IRS transcripts with the tax return and advise the OIG of discrepancies. The
Acting Associate Administrator for Business Development is actively reviewing each recommendation and intends to take
action by 12/31/17.

Report #13-03, Audit of Mentor-Protégé Joint Ventures
Program: GCBD
Date Issued: 10/23/12
Management Decision Date: 01/24/13
Explanation: The three remaining recommendations are to the Office of the Government Contracting and Business
Development and require a review of the Mentor-Protégé program to 1) develop specific measurements to evaluate the benefits
of joint venture agreements, 2) assess the risk of the program, and 3) verify information submitted by 8(a) firms as part of the
annual review. The Acting Associate Administrator for Business Development is actively reviewing each recommendation and
intends to take action by 12/31/17.

Report #13-04, Audit of SBA’s FY 2012 Financial Statements
Program: OCIO
Date Issued: 11/14/12
Management Decision Date: 03/08/13
Explanation: The one remaining recommendation is to the Office of the Chief Information Officer and requires
procedures to ensure system access is removed for terminated or transferred users in a timely manner. The OCIO is
coordinating with the Office of Human Resources Solutions and other program offices to redesign and improve the
separation process to ensure a timely removal of system access. This project has been delayed due to the scope of access
rights that need to be reviewed. The estimated completion date is 09/30/18.

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Report #13-06i, Audit of SBA’s Section 8(a) Annual Review
Program: OBD
Date Issued: 11/13/12
Management Decision Date: 03/11/13
Explanation: The two recommendations are to the Office of Business Development and require that SOP 80 05 3
be revised to extend time for annual reviews, subject firms to termination if information is not provided, and allow
the SBA to place an 8(a) firm in a “decision pending” category during the additional period. The Acting Associate
Administrator for Business Development is actively reviewing each recommendation and intends to take action by
12/31/17.

Report #13-08, Audit of SBA’s 8(a) Information Technology Contracts
Program: OCFO
Date Issued: 12/03/12
Management Decision Date: 01/18/13
Explanation: The one remaining recommendation requires the Office of the Chief Financial Officer to establish and
implement an invoice approval procedure that includes attaching and reviewing a receiving report to each invoice prior
to payment processing. The implementation has been delayed due to the required coordination among all offices in the
SBA. The estimated completion date is 09/30/18.

Report # 14-04, Audit of SBA’s FY 2013 Financial Statements
Program: OCIO
Date Issued: 12/16/13
Management Decision Date: 04/09/14
Explanation: The remaining two recommendations require the Office of the Chief Information Officer to 1)
implement procedures to periodically review user access, and 2) enforce a network security baseline across the network.
Resolution activities include 1) documentation of procedures for account authorization, creation, and periodic access
reviews; and 2) the OCIO has enforced a security baseline across the LAN/WAN, and the supporting evidence is
being generated to close this recommendation. Both final actions are delayed due to resource constraints; in addition,
the latter is delayed due to differing types of logging and auditing. The estimated completion dates are 09/30/18 and
03/31/18, respectively.

Report # 14-12, FY 2013 Federal Information Security Management Act Review
Program: OCIO
Date Issued: 04/30/14
Management Decision Date: 04/30/14
Explanation: The one remaining recommendation requires that the Office of the Chief Information Officer improve
Security Authorization Packages and retain all documentation. Resolution activity includes reviewing and correcting
each system Assessment and Authorization package as they are scheduled for re-assessment. The estimated completion
date is 9/30/18.

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Report # 14-15, Audit of Non-Manufacturer Rules Waiver Program
Program: GCBD
Date Issued: 08/14/14
Management Decision Date: 08/11/14
Explanation: The two remaining recommendations require the Office of Government Contracting and Business
Development to publish a Standard Operating Procedure for the Non-Manufacturer Rules Waiver Program and
establish procedures to ensure all data and memorandums are complete, accurate, and up-to-date. The GCBD has
developed an SOP for the Non-Manufacturer Rules Waiver Program, which includes procedures for maintaining file
documentation. The SOP has gone through clearance and will be published shortly. The estimated completion date
is 10/31/17.

Report # 14-19, Audit of the District of Columbia Small Business Development Center
Program: SBDC
Date Issued: 09/29/14
Management Decision Date: 09/29/14
Explanation: The two remaining recommendations require the Office of Small Business Development Centers to 1)
update their Standard Operating Procedures to address statutory and regulatory changes and to establish corresponding
internal controls, and 2) implement Lead Center controls to exclude excess sub-recipient costs when computing
indirect costs. The updating of the SOP was delayed, due to waiting for the issuance of revised regulations. The SOP
has been updated to include statutory and regulatory changes, has been cleared by all offices for publication, and is
awaiting final signature. The estimated completion date for both recommendations is 12/31/18.

Report # 15-07, Audit of SBA’s FY 2014 Federal Information Security Management Act
Program: OCIO
Date Issued: 03/13/15
Management Decision Date: 03/03/15
Explanation: The two remaining recommendations require the Office of the Chief Information Officer to 1)
implement Information Security Continuous Monitoring (ISCM) program requirements; and 2) ensure general
support systems and major applications have valid and up-to-date authorizations to operate while those systems are in
production. Resolution activities include 1) developing an agency-wide ISCM program implementation guide, and 2)
ensuring an Assessment and Authorization package is completed for each IT system. The estimated completion dates
are 12/31/17 and 09/30/18, respectively.

Report # 15-12, Audit of Separation Controls and Procedures
Program: OCIO
Date Issued: 05/26/15
Management Decision Date: 05/04/15
Explanation: The one remaining recommendation requires the Office of the Chief Information Officer to ensure
network oversight includes enabled network accounts which have never been accessed. Resolution activities include
OCIO documentation of procedures for account authorization and creation, including requesting and granting
elevated privilege account access and performing user access reviews. The estimated completion date is 12/31/17.

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Report # 15-16, Audit of Oversight of Loan Agents
Program: OCA
Date Issued: 09/25/15
Management Decision Date: 01/07/16
Explanation: The four remaining recommendations require 1) feasibility of a report determined to provide lenders
with information on loan agents and their performance, 2) benchmarks developed for contractor performance and
controls to ensure integrity of the Form 159 database, 3) a process implemented to uniquely identify loan agents,
and 4) a method developed for CDCs to electronically report loan agent compensation. Agreement has not been
reached between the program office and the OIG as to the resolution of recommendations 2 and 3. The program
office is working with the Office of General Counsel to review the audit, and an additional discussion with the OIG is
forthcoming. The estimated completion date is 09/30/18.

Report # 16-02, Audit of SBA FY 2015 Financial Statements
Program: OCIO
Date Issued: 11/16/15
Management Decision Date: 02/24/16
Explanation: The two remaining recommendations require the Office of the Chief Information Officer to coordinate
with SBA program offices to 1) implement procedures to ensure that user access is reviewed periodically, and 2)
improve the SBA’s administration of logical system access. Resolution activities include 1) performing an annual user
recertification of all LAN/WAN users, and 2) improving or clarifying policies on authentication, remote access, and
multifactor authentication. The estimated completion date is 03/31/18.

Report # 16-10, Audit of FY 2015 Federal Information Security Management Act Review
Program: OCIO
Date Issued: 03/10/16
Management Decision Date: 03/10/16
Explanation: The one remaining recommendation requires that information system contingency plans are tested
and consistent with the National Institute of Standards and Technology guidance. Resolution activities include
coordination with all program offices to ensure that all FISMA systems perform annual contingency plan tests. The
estimated completion date is 12/31/17.

Report # 16-11, Audit of a High Risk 7(a) Loan
Program: OFPO
Date Issued: 03/17/16
Management Decision Date: 03/10/16
Explanation: The one remaining recommendation requires that a lender bring a loan into compliance or that OFPO
seek recovery of the guaranty paid. Complex legal and financial issues pertaining to equity injection, construction
contracts, leases and lawsuits have delayed the resolution of this issue. The estimated completion date is 12/31/17.

140 AGENCY FINANCIAL REPORT • FY 2017
APPE NDI C E S

Report # 16-13, Audit of SBA 8(a) Business Development Program Eligibility
Program: GCBD
Date Issued: 04/07/16
Management Decision Date: 04/07/16
Explanation: The one remaining recommendation requires GCBD management to clearly document justifications for
approving or denying applicants into the 8(a) program. The Acting Associate Administrator for Business Development
is actively reviewing this recommendation and intends to take action by 12/31/17.

Report # 16-19, Audit of a High-Risk 7(a) Loan
Program: OFPO
Date Issued: 08/16/16
Management Decision Date: 08/23/16
Explanation: The one remaining recommendation requires that a lender bring a loan into compliance or that OFPO
seek recovery of the guaranty paid. The lender has provided additional information which is being reviewed by OFPO
and the Office of General Counsel. Additional information may be required. The estimated completion date is
12/31/17.

Report # 16-23, Audit of SBA 504 Loan Liquidation Process
Program: OFPO
Date Issued: 09/30/16
Management Decision Date: 10/05/16
Explanation: The one remaining recommendation requires OFPO to review internal guidance, systems, and practices
to ensure that 504 loans are liquidated consistently nationwide. The OFPO has reviewed the guidance and submitted
information to close this recommendation to the OIG on 09/21/17.

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AP P EN D I C ES

ACKNOWLEDGEMENTS
This Agency Financial Report was produced with the energies and talents of the SBA staff. To all these
dedicated individuals listed below, as well as those not listed, the Office of Performance Management and the
Chief Financial Officer would like to offer sincere thanks and acknowledgement.

Melissa Atwood Leslie Godsey Mike Peterson
Lola Bailey Linda Grabe Trevor Postlethwaite
Tolu Bamwo Timothy Gribben Janette Porter
Cassandra Barnes Joseph Henry Steve Ramey
Rory Berges Blake Hoing Nathaniel Reboja
Rachel Beasley Scott Holland Dorrice Roth
Brittany Borg Cheryl Holmes Marjorie Rudinsky
Jason Bossie John Kushman Charles Senseney
Kay Chae Terell Lasane Deron Smallwood
Brian Cloud Luan Loerch-Wilson Scott Stilmar
Martin Conrey Maureen Moore-Velluci LaNae Twite
Tamara Dollarhite Mathew Pascarella Yvonne Walters
Krzysztof Fizyta Tony Paul Donna Wood

We would also like to acknowledge the Office of Inspector General and KPMG LLP for the professional
manner in which they conducted the audit of the Fiscal Year 2017 Financial Statements. We offer our special
thanks to FedWriters and Corporate Visions, Inc. for contributions in producing this report.

CERTIFICATE OF EXCELLENCE IN ACCOUNTABILITY REPORTING
For the past 11 years, FY 2006 to FY 2016, the U.S. Small Business
Administration is proud to have received the prestigious Certificate of
Excellence in Accountability Reporting award from the Association of
Government Accountants for its Agency Financial Report. The CEAR
program was established by the AGA in conjunction with the Chief
Financial Officers Council. The award recognizes high-quality Performance
and Accountability Reports and Annual Financial Reports that effectively
illustrate and assess financial and program performance, accomplishments
and challenges, and cost and accountability.

The SBA is also the proud recipient of four CEAR Special/Best-in-class
awards:

2016 — Presentation of Performance
2015 — Presentation of Forward Looking Information
2013 — Inspector General’s Summary of Management and Performance Challenges
2011 — Improper Payments Elimination and Recovery Act Detail

142 AGENCY AGENCY
FINANCIAL
FINANCIAL
REPORT • FY
REPORT
2017
• FY 2017 142
Office of Performance Management
and Chief Financial Officer
409 Third Street, S.W.
Washington, DC 20416

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