Agency Financial Report, Fiscal Year 2021 — U.S. Small Business Administration

Summary

The U.S. Small Business Administration's Agency Financial Report for Fiscal Year 2021, which the report describes as an overview of the agency's financial and performance data for Congress, the President and the public. It opens with a highlights table in thousands of dollars and notes that the Annual Performance Report is scheduled for publication in February 2022. The table of contents lists a Summary of COVID-19 Financial Impacts, the Inspector General's Audit Report, the Independent Auditors' Report, unaudited financial statements and notes, the OIG Report on the Top Management and Performance Challenges, and Payment Integrity. The closing appendix pages give status updates on audit recommendations with an estimated completion date of November 19, 2021, and the acknowledgments 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

Cited in: Hannibal "Mike" Ware · Isabella Casillas Guzman · Jason Bossie · Patrick Kelley · Tami Perriello

Full text

SMALL BUSINESS ADMINISTRATION

Agency Financial
Report
FISCAL YEAR 2021

About This Report
The U.S. Small Business

FY 2021 Highlights
FY 2018

FY 2019

FY 2020
(Unaudited)

Principal Program Portfolio(1)

$ 142,315,295

$ 143,516,446

$ 835,987,031

financial and performance data

Total Assets

16,988,497

16,718,652

$ 897,533,990

$ 562,417,681

to help Congress, the President,

Total Liabilities

14,915,340

15,085,044

$ 718,056,018

$ 503,539,063

Total Net Position

2,073,157

1,633,608

$ 179,477,972

Total Net Cost of Operations

621,675

136,526

$ 554,231,547

$ 346,283,553

Total Budgetary Resources

17,114,677

12,342,598

$ 1,518,667,904

$ 1,347,118,849

Administration’s Agency Financial
Report (AFR) for FY 2021 provides
an overview of the Agency’s

and the public assess the SBA’s
stewardship over the resources
entrusted to it. The AFR is the first
of two required annual reports

(Dollars in Thousands)

FY 2021
(Unaudited)
713,196,138

58,878,618

for federal agencies. The FY 2021
Annual Performance Report (APR)
is the other report and is part

(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.

of the FY 2023 Congressional
Justification (CJ). The CJ/APR
is scheduled for publication in

For More Information

February 2022. The reports can
Information about the SBA’s programs is available at:

be found at:

www.sba.gov

www.sba.gov/performance

The SBA’s plans and reports are available at:
www.sba.gov/performance
Para información acerca de los programas de la SBA:
www.sba.gov  “ Translate”  “Select Language”

On the Cover

Questions and comments regarding the content, presentation and usefulness
of this report are welcome and may be addressed to:

The pictures presented on the

performancemanagement@sba.gov

front cover represent SBA success
stories. Their stories can be found
on the following corresponding
pages of this report. From top
left to bottom right, Jill ScarbroMcLaury (page 32), Alice
Kao (page 166), Efrem Fesaha
(page 166), Josh and Stephanie
Bevans (page 102), Pushpinder
Garcha (page 4), Nicole Carrier

Or, you may write to:

Or, you may call:

U.S. Small Business
Administration

Brittany Borg,
Acting Director

Office of Performance, Planning,
and the Chief Financial Officer

Office of Program Performance,
Analysis, and Evaluation

409 Third Street, S.W.
Washington, DC 20416

(202) 401-1354

and Annette Lee (page 102),
Christopher Finnick (page 32),
Morgan Baum (page 4), and
Richard Messina (page 32).

www.youtube.com/sba

Table of Contents
Message from the Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The SBA’s History, Goals, and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Primer of the SBA’s Principal Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Summary of COVID-19 Financial Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Analysis of Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Summary of Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Verification and Validation of Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operational Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Forward Looking Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Analysis and Highlights of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Highlights of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Analysis of Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Analysis of SBA’s Systems, Controls, and Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Internal Control Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Management Systems Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Management Assurances: FMFIA and FFMIA Assurance Statement for FY 2021 . . . . . . . . . . . . . . . . . . . . . . . . . 27

Financial Reporting (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Message From the Acting Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Inspector General’s Audit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Independent Auditors’ Report on FY 2021 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
CFO Response to Audit Report on FY 2021 Financial Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Financial Statements and Notes (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Other Information (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101

OIG Report on the Top Management and Performance Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Agency’s Response to the OIG Top Management and Performance Challenges Facing the
Small Business Administration in Fiscal Year 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Payment Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Summary of Financial Statement Audit and Management Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Grants Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Civil Monetary Penalty Adjustment for Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

165

Appendix 1 – Contact SBA: Useful Websites and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Appendix 2 – Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Appendix 3 – OIG Audit Follow-up Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Small Business Administration

173

Agency Financial Report Fiscal Year 2021

SBA’s Mission

How This Report Is Organized

Maintain and strengthen

The U.S. Small Business Administration’s FY 2021 Agency Financial Report (AFR)
provides financial and performance information for the fiscal year beginning
October 1, 2020 and ending September 30, 2021. This report presents the SBA’s
operations, accomplishments, and challenges. Following a message from the SBA
Administrator are four principal sections: Management’s Discussion and Analysis,
Financial Reporting, Other Information, and Appendices. “Success Stories” appear
throughout the report featuring a small business entrepreneur and highlighting
the impact of services provided by the SBA.

the nation’s economy
by enabling the
establishment and vitality
of small businesses
and by assisting in the
economic recovery

Management’s Discussion and Analysis

of communities after

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

disasters.

SBA’s
Mission

Financial Reporting

Agency Financial Report Fiscal Year 2021

The Financial Reporting section provides a detailed report of the SBA’s finances.
It includes the message from the Acting Chief Financial Officer, the audit
transmittal memorandum from the Inspector General, the Independent Auditors’
report, and the unaudited financial statements and notes. Additionally, the
required supplementary information provides a combined statement of budgetary
resources.

Other Information
The Other Information section includes the Inspector General’s report on the
Agency’s most serious management and performance challenges along with
recommended actions. This section also includes a summary of the financial
statement audit and management assurances.

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

U.S. Small Business Administration

Message from the Administrator

Message from the Administrator
November 15, 2021
On behalf of the dedicated and mission-driven team at the U.S. Small Business
Administration, I hereby present our FY 2021 Agency Financial Report.
This year’s report highlights the SBA’s substantial impact and extensive growth
helping our nation’s entrepreneurs continue to fight a once-in-a-lifetime global
pandemic and numerous natural disasters, while continuing to help small businesses
recover, start, and grow. The financial and performance data published in this report
Isabella Casillas Guzman
are reliable, complete, and in accordance with the U.S. Office of Management and
Budget Circulars A-136 and A-11. While the Agency has received a disclaimed
opinion from its auditor on its FY 2021 Consolidated Balance Sheet, the SBA
under my leadership has taken action to implement internal controls to ensure that all of the SBA’s programs are
carried out at the highest standard and with the utmost integrity. My team and I remain committed to ensuring
proper management of Agency resources by addressing the issues our auditor identified and continuing to strengthen
management controls.
America’s resilient small business owners and entrepreneurs are driving America’s economic recovery. To help the
small business sector stay viable during the economic shutdowns, the SBA continued to administer the Paycheck
Protection Program and COVID-19 Economic Injury Disaster Loans, while also launching the newly authorized
Shuttered Venues Operating Grant program, Restaurant Revitalization Fund, the COVID EIDL Targeted and
Supplemental Advances, and the Community Navigator Pilot Program.
The SBA also launched a direct forgiveness portal for Paycheck Protection Program loans of $150,000 or less. In
FY 2021, more than 1 million direct loan forgiveness applications were submitted by America’s smallest businesses,
most taking less than 10 minutes to complete. The SBA has fully forgiven more than 7 million loans, sending more
than $553 billion dollars back into the economy this fiscal year.
As the SBA Administrator, I have personally seen the commitment, energy, and initiative that our employees bring
to their jobs — especially this year, as small business recovery has been so critical. The dedication of our public
servants to the SBA’s mission is truly remarkable.
Access to capital is a vital aspect of economic development. At the SBA, we work with approved lenders and
community development organizations to guarantee loans to small businesses that are unable to obtain credit in the
conventional lending marketplace. While more work remains in closing lending gaps, in FY 2021, the SBA approved
more than 61,500 loans in the 7(a) and 504 loan programs, providing nearly $45 billion to small businesses and
supporting over 675,000 American jobs in the process.
In order for our nation to fully recover from the pandemic, all entrepreneurs must have equitable access to the
resources that they need to start, grow, and sustain their businesses. Minority business owners received $12.9
billion in combined 7(a) and 504 lending, or 26 percent of the SBA’s loan portfolio. The SBA’s 7(a) lending to
women-owned businesses was nearly $5 billion in FY 2021. Lending from the 504 loan program to women-owned
businesses was over $709 million. Lenders reported that loans to veterans totaled nearly $1.4 billion for the 7(a)
and 504 programs. The Small Business Investment Company program, in which the SBA partners with private
investors to finance small businesses through professionally managed investment funds, supported over 1,000 small
businesses with approximately $7.1 billion in financing. The SBA also increased SBIC financings to women-owned,

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Message from the Administrator

minority-owned, and veteran-owned small businesses by 36 percent this year. Additionally, the SBA’s microloan
program, which offers loans up to $50,000, approved nearly $74.7 million in new loans in FY 2021 underscoring
our commitment to helping the small businesses and start-ups that need assistance.
Entrepreneurship is a team effort, and the SBA ensures that our nation’s small business owners have the resources
to tackle the challenges they face every day. Our combined SBA network offers free or low-cost programs to help
entrepreneurs plan their business, research market trends, expand their customer base, and secure funding. These
efforts are powered by our 68 district offices and strong resource partner network made up of Small Business
Development Centers, Women’s Business Centers, Veterans Business Outreach Centers, SCORE chapters, Regional
Innovation Cluster, and Growth Accelerators. In FY 2021, hundreds of thousands of American small businesses took
advantage of counseling, mentoring, and training assistance through the SBA network.
Thanks to the SBA’s efforts, federal agencies collectively exceeded the federal small business contracting goal for
FY 2020, the latest year of data available. More than 26 percent of federal contracts totaling $145.7 billion went to
small businesses — an over $13 billion increase from the previous fiscal year. This marks the eighth consecutive year
in a row that the Federal Government has exceeded this goal and we know we need to do more to ensure equity
across socio-economic groups. Women-owned small businesses achieved contracting dollars of $27.1 billion —
4.85 percent of the five percent federal goal.
For 67 years, when disaster strikes, the SBA joins with our federal partners to respond by helping businesses,
nonprofits, homeowners, and renters recover from declared disaster events. Direct low-interest loans from the SBA
have enabled borrowers to replace or repair uninsured losses, whether through physical damage or economic injury.
The SBA is working with federal, state, and local partners to continually improve the disaster response and ensure we
are assisting the economic recovery as expediently as possible.
In FY 2021, the SBA approved over 139,000 direct disaster loans for natural disasters such as floods, hurricanes,
and tornadoes, totaling $2 billion. For those impacted by Hurricane Ida alone, in FY 2021 the SBA approved over
7,600 loans and over $353 million dollars in relief. Additionally, the SBA continued to deliver timely and necessary
relief to businessowners in response to the COVID-19 pandemic. During FY 2021, the SBA approved 250,000 new
COVID EIDL loans for over $30 billion.
The SBA is working to ensure that we are functioning as efficiently and effectively as possible for America’s
entrepreneurs while using modern technology and streamlined operations to eliminate waste and redundancy. As
we look toward FY 2022 and a future of possibilities, the SBA is devoted to delivering equitable results and the best
possible customer service to America’s small businesses.
Sincerely,

Isabella Casillas Guzman
Administrator

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion
and Analysis

Success Stories
CLAY COYOTE
Morgan Baum
Owner & CEO
Hutchinson, MN

GOLDEN TECH
SYSTEMS, INC.

Pushpinder Garcha is
originally from India and
came to the United States
on a student visa to further
his education. Following
graduation, he was granted
a work visa and went on to
become a naturalized citizen. Today, Pushpinder is the owner
and CEO of Golden Tech Systems. The business focuses on
digital capabilities such as cloud solutions, cyber operations,
and data science.

Clay Coyote is a pottery
studio and art gallery in
rural Minnesota owned and
operated by Morgan Baum.
The small family business has
worked with SBA microlender
Southwest Initiative Foundation
(SWIF) for many years and
gotten help from them in the form of a microloan and small
business training. In addition to the potters that work directly
through Clay Coyote’s studios, the art gallery provides a
space for 25 local artists to showcase their work. Although
they could continue their online work when the pandemic
began using existing inventory, they had to send their potters
home and could not immediately continue production. They
took advantage of the disaster relief programs and went back
to SWIF for more training and assistance.

At the start of the pandemic, Golden Tech Systems
was just beginning their first contract with the U.S. Air
Force. Pushpinder says that the SBA’s 8(a) program was
instrumental in allowing him to keep Golden Tech Systems
operating by opening doors to federal contracting at a time
when there was limited demand from the private sector, as
the 8(a) program allows small businesses from disadvantaged
groups to market their capabilities to federal agencies. “I
strongly feel that if it had not been for the 8(a) award that we
won with the Air Force, we would be in a different position,
just because commercial spending shrunk considerably
during COVID.”

To meet the challenges of the pandemic, Clay Coyote moved
from their rural location into downtown Hutchinson and grew
their online presence. “It helped us reach a new audience,
doubled our studio space, made it easier for us to do shipping
to all of our customers nationwide, and it gave the potters
more room, which was really helpful when we needed
to socially distance,” indicated Morgan. Morgan cited the
Paycheck Protection Program, COVID-EIDL program, and the
assistance SWIF provided in supporting and strengthening
her business. “The SBA helped us stay in business in the
pandemic. In fact, I believe that without their support we
wouldn’t be here today.”

Pushpinder Garcha
Owner & CEO
Charlotte, NC

In addition to becoming 8(a) certified and participating in
the SBA’s Emerging Leaders and Mentor-Protégé programs,
Pushpinder sought assistance from the SBA to weather the
impact of COVID-19 through the Economic Injury Disaster
Loan and Paycheck Protection Program.

Success Stories

Management’s Discussion and Analysis

The SBA’s History, Goals, and Organization
In 1953, Congress created the SBA to aid, counsel, assist, and protect the interests of small business. As the nation’s only
go-to resource and voice for small businesses, the SBA provides programs and services that help small businesses confidently
start, grow, expand, or recover. The SBA is backed by the strength of the federal government and is the only cabinet-level
federal agency fully dedicated to small business. The SBA’s headquarters is located in Washington, D.C., while its business
products and services are delivered through field personnel and a network of private sector and nonprofit partners in every
U.S. state and territory. Major SBA offices contribute to one or more Agency-wide strategic goals as outlined in the SBA’s
FY 2018–2022 Strategic Plan:

MISSION STATEMENT
Maintain and strengthen the nation's economy by enabling the establishment and vitality of small
businesses and by assisting in the economic recovery of communities after disasters.

GOAL 1

GOAL 2

GOAL 3

GOAL 4

Support small business
revenue and job growth

Build healthy entrepreneurial
ecosystems and create business
friendly environments

Restore small businesses and
communities after disasters

Strengthen SBA’s ability to
serve small businesses

1.1 Expand access to capital

2.1 Develop small businesses through technical
assistance

3.1 Deploy disaster
assistance effectively
and efficiently

4.1 Ensure effective and
efficient management of
Agency resources

1.2 Help small business
exporters succeed in
global markets
1.3 Ensure federal contract
and innovation set-aside
goals are met and/or
exceeded

2.2 Build healthy
entrepreneurial
ecosystems

4.2 Build a high-performing
workforce
4.3 Implement
enterprise-wide
information system
modernization and
cost-effective technology

2.3 Create a small business
friendly environment

Strategic Goal One:

The Office of International Trade enhances the ability of small
businesses to export and compete in the global marketplace
by facilitating access to capital, providing technical
assistance, ensuring the consideration of small business
interests in trade negotiations, and contributing to the
U.S. government’s international commercial and economic
agenda.

Support small business revenue and job growth

Strategic Goal One focuses on business formation,
job growth, and economic expansion through capital,
contracting, exporting, and innovation.
The Office of Capital Access assists small businesses with
obtaining capital via the 7(a), 504, and Microloan
programs, bonds through the Surety Bond Guarantee
program, Paycheck Protection Program Loans, Restaurant
Revitalization Fund grants, and COVID-19 EIDL loans in
support of pandemic relief.

The Office of Government Contracting and Business
Development assists small businesses in competing for federal
contracting opportunities through the government-wide
prime and subcontracting programs. The office also sets size
standards for small businesses, which determine the size a
business must be to be considered a small business.

The Office of Investments and Innovation assists small
businesses through initiatives such as the Small Business
Investment Company, Small Business Innovation Research,
Small Business Technology Transfer, and other tailored
programs that drive innovation and competitiveness.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

Strategic Goal Two:

Strategic Goal Three:

Build healthy entrepreneurial ecosystems and create
business friendly environments

Restore small businesses and communities after disasters

Strategic Goal Three focuses on helping restore communities
and return businesses to normal operations through direct
loans to repair, rebuild, and recover from physical damage
and economic losses.

Strategic Goal Two focuses on business startups, growth,
and expansion through technical assistance, SBA resource
partners, and creating a business-friendly environment to
reduce regulatory burdens.

The Office of Disaster Assistance provides affordable, timely,
and accessible financial assistance to homeowners, renters,
and businesses following a disaster. The Disaster Loan
program is the only form of SBA assistance that is not
limited to small businesses. The SBA also oversees the
Shuttered Venue Operator Grant program in support of
pandemic relief.

The Office of Government Contracting and Business
Development provides business development assistance to
small businesses seeking federal contracts. This assistance
includes the HUBZone, 8(a) business development, 7(j)
management and technical assistance, and Mentor-Protégé
programs.
The Office of Entrepreneurial Development provides
business advising, mentoring, and training assistance
through its resource partner network composed of small
business development centers, women’s business centers,
and SCORE, and through Entrepreneurship Education
programs.

Strategic Goal Four:
Strengthen SBA’s ability to serve small businesses

Strategic Goal Four focuses on streamlining business
processes and decision-making at all levels to ensure
efficiency and effectiveness.

The Office of Veterans Business Development ensures the
applicability and usability of all the Agency’s small business
programs for veterans, service-disabled veterans, reserve
component members, and their dependents or survivors
through veterans’ business outreach centers, Boots to
Business, and other grant programs.

The Office of Performance, Planning, and the Chief Financial
Officer leads the Agency’s performance management,
program evaluation, financial management, and acquisition
management functions.

The Office of the National Ombudsman works with all
federal agencies that regulate small businesses to provide a
means for businesses to comment on federal government
enforcement activity. The SBA also maintains a five-member
Regulatory Fairness Board in each of the 10 regions to hold
public hearings on small business concerns.

The Office of Executive Management, Installations, and
Support Services supports resource and core administrative
functions, including grant management, facilities, records
management, and personnel security.
The Office of Human Resources Solutions provides strategic
human capital solutions to workforce issues and strives
to create a work environment that attracts and retains a
talented and high-performing workforce.
The Office of the Chief Information Officer provides
information technology leadership, product services, and
operational support for the SBA in order to maximize
internal efficiency and responsiveness to small businesses.
Other offices that support the strategic goals and objectives
include the Office of Field Operations; Office of Diversity,
Inclusion, and Civil Rights; Office of Communications and
Public Liaison; Office of Congressional and Legislative Affairs;
Office of General Counsel; and Office of Hearings and Appeals.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

Executive Summary
America’s 32.5 million small businesses play a critical role
in job creation and retention. During the last two decades,
small businesses have been responsible for creating two out
of every three net new jobs. In turn, the U.S. Small Business
Administration’s assistance to those firms and entrepreneurs
helps drive a healthy economy.

portion of the SBA credit program portfolio increased in
FY 2021 from $183.0 billion to $245.1 billion. The spike in
loans receivable was caused by the increase in new COVID
EIDL loan disbursements in response to the COVID-19
pandemic.

The SBA employs a variety of methods to support America’s
small businesses. These methods include promoting
equitable access to capital, federal contracting, counseling,
and disaster assistance.

Performance Results
Capital: In FY 2021, the SBA approved nearly $45 billion
or more than 61,500 loans to small businesses. The SBA
supported nearly $8.2 billion in 504 loans, an increase of
around $2.3 billion from FY 2020. The SBA invested more
than $7.1 billion in 1,080 small businesses through the
Small Business Investment Company program.

Throughout FY 2021, four goals from the SBA’s FY 2018–
2022 Strategic Plan guided the Agency’s actions:
1. Supporting small business revenue and job growth

Contracting: The SBA continued to partner with agencies
across the Federal Government to expand small business
contracting opportunities. From FY 2016 through FY 2020,
small businesses were awarded just under $600 billion in
federal contracts (FY 2021 contracting numbers continue
to be collected and certified). The Federal Government
continues to exceed its small disadvantaged and servicedisabled, veteran-owned small business contracting goals but
faces challenges meeting its HUBZone and women-owned
small business contracting goals.

2. Building healthy entrepreneurial ecosystems and creating
business friendly environments
3. Restoring small businesses and communities after disasters
4. Strengthening SBA’s ability to serve small businesses
The following sections highlight financial and performance
results for the Agency. Additional information can be
found in the Analysis of Financial Results and Summary
of Performance Results sections. The complete set of
performance results will be reported in the Annual
Performance Report to be released in February 2022.

Counseling: The SBA provided mentoring, business advice,
and training assistance to nearly 1,134,000 entrepreneurs
and small businesses this year, which helped them start and
grow their businesses, and create or retain jobs. Additionally,
the SBA launched the Community Navigators Pilot
Program to provide technical assistance to small businesses.
Under the community navigator approach, traditional
business assistance organizations enlist trusted, culturally
knowledgeable partners to conduct targeted outreach to
specific sectors of the entrepreneurial community.

Financial Results
For FY 2021, the SBA’s total budgetary resources used for
staffing, operations, and loan subsidy costs were $348.4
billion. Total nonbudgetary resources for loan financing
used to make direct loans and purchase guarantied loans in
default were $699.5 billion. The SBA’s guarantied portion of
the outstanding loan principal decreased $186.4 billion in
FY 2021 to $435.3 billion. During FY 2021, new guaranties
disbursed by SBA participating banks were $304.0 billion,
a $234.0 billion decrease from last year. The decrease in
the SBA’s guarantied portion of outstanding loan principal
and new guaranties disbursed is a direct result of a $240.9
billion decrease in Paycheck Protection Program loans
offset by a $6.9 billion increase in 7(a) loans. In FY 2021,
purchases of defaulted guarantied loans decreased from
$1.2 billion last year to $874 million. The loans receivable

U.S. Small Business Administration

Disaster Assistance: Disaster loan applications remained
high even compared to the historic volume of FY 2020. The
SBA continued to provide disaster relief to every state and
territory during the COVID-19 pandemic. At the end of
FY 2021, the Agency managed 279 active disaster assistance
declarations and approved disaster loans totaling of $31
billion.

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

Agency Financial Report Fiscal Year 2021

SBA Organization Chart

Office of the Administrator

Office of Advocacy

Administrator
Chief of Staff

Deputy Administrator

Office of Inspector General

Office of
International Trade

Office of
Communications and
Public Liaison

Office of
Hearings and Appeals

Office of
Continuous Operations
and Risk Management

Office of
Human Resources
Solutions

Office of Government
Contracting and
Business Development

Office of Investment
and Innovation

Office of
General Counsel

Office of the
National Ombudsman

Office of Executive
Management,
Installations, and
Support Services

Office of
Diversity, Inclusion,
and Civil Rights

Office of
Disaster Assistance

Office of
Entrepreneurial
Development

Office of
Congressional and
Legislative Affairs

Office of Performance,
Planning, and the Chief
Financial Officer

Office of
Field Operations

Office of
Veterans Business
Development

Office of
Capital Access

U.S. Small Business Administration

Office of the
Chief Information
Officer

SBA Regions and Field Offices
U.S. Small Business Administration

Region 10
AK

Region 1

Region 8

ANC

Region 5
ANC

(In Region 10)

ANC
ANC

ANC

ANC
ANC

ID
SD

ANC

IL
KS

ANC

ANC
ANC

Region 3

ANC

Region 4

ANC

LA
ANC

HON

ANC
ANC

Region 9

FL
ANC

(In Region 9)

ANC

Region 7

Region 6

HAT

PR
USVI

(In Region 2)

Published by OCPL 11/2021

Management’s Discussion and Analysis

Agency Financial Report Fiscal Year 2021

ANC
ANC

Region 2

ANC

WVA

TN
OK

ANC

ANC
ANC
ANC

ANC
ANC

ANC

ANC
ANC

ANC

ANC
ANC

IA
IA

ANC

ANC
ANC

VT ANC

ANC

Management’s Discussion and Analysis

Primer of the SBA’s Principal Programs
Capital

These activities include participation in foreign trade
missions, foreign market sales trips, international marketing
campaigns, export trade shows, and training workshops.

7(a) Loans — The SBA offers government guaranties on
loans (up to $5 million) made by lenders to help expand
access to capital for business owners who face challenges
getting approved for financing. The SBA guaranties a
portion of 7(a) loans made and administered by commercial
lending institutions. Loans can be guarantied for a variety of
general business purposes.

Contracting
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:

504 Certified Development Company Loans — The SBA
works with CDCs, which are private nonprofit corporations,
and private lenders to provide long-term financing (up to
$5.5 million) to support investment in major assets, such
as real estate and heavy equipment. The SBA guaranties the
CDC’s portion of these loans.
Microloans — The SBA provides loans to nonprofit
intermediary lenders, which are community-based
organizations with experience in lending and providing
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.
Small Business Investment Companies — SBICs are
privately-owned and managed investment funds that use
their capital plus funds borrowed, with an SBA guaranty (up
to $150 million), to make equity and debt investments in
qualifying small businesses.

Exporting
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.

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 nine years, a firm is assisted in gaining
resources to compete for federal contracts and for
contracts in the private sector.

HUBZone Small Businesses — This program 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 servicedisabled 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.

Surety Bond Guarantees — A surety bond 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.

U.S. Export Assistance Centers — USEACs are staffed
by SBA, Department of Commerce, and Export-Import
Bank professionals. Together, their mission is to help smalland medium-sized businesses compete in today’s global
marketplace by providing export marketing and finance
assistance.

Innovation
Small Business Innovation Research — The SBIR
program stimulates high-tech innovation by reserving a
specific percentage of federal research and development
funds for small businesses.

State Trade Expansion Program — STEP provides grants
to states to assist small businesses with the information
and tools they need to succeed in export related activities.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

Learning Center and Ascent — The SBA Learning Center
is an online portal that hosts a variety of self-paced online
training courses, quick videos, web chats, and other helpful
tools to assist small business owners to explore and learn
about business ownership. Ascent is an online learning
portal with materials and tools for women entrepreneurs.

Small Business Technology Transfer — The STTR
program reserves a specific percentage of federal research
and development funding to award to small business and
nonprofit research institution partners.

Counseling and Training
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.

Disaster Assistance
Disaster Assistance — The SBA is the Federal
Government’s primary source of financing for the longterm 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.

Women’s Business Centers — WBCs provide advising
and training through more than 110 nonprofit educational
centers across the nation. Many WBCs provide multilingual
services, and a number offer flexible hours allowing mothers
with children to attend training classes.

Paycheck Protection Program — The CARES Act
established this loan of up to $10 million designed to
provide a direct incentive for small businesses to keep their
workers on the payroll because of the COVID-19 pandemic.
These loans can be forgiven if the funds are used for payroll
costs, interest on mortgages, rent, and utilities.

Boots to Business — B2B is an entrepreneurial education
and training program offered by the SBA as part of the
Department of Defense Transition Assistance Program
(TAP). The course provides an overview of entrepreneurship
and applicable business ownership fundamentals. Active
Duty Service members (including National Guard and
Reserve), veterans of all eras, and spouses are eligible to
participate.

COVID EIDL Loans — The CARES Act modified
the existing Economic Injury Disaster Loan within the
Disaster Assistance program. In response to the COVID-19
pandemic, small businesses owners, including agricultural
cooperatives and nonprofit organizations can apply for these
loans, which go up to $2 million and must be repaid.

Native American Outreach — The program supports
American Indians, Alaska Natives, and Native Hawaiians
seeking to create, develop, and expand small businesses. It
engages in outreach, technical assistance, and education,
formulates and administers training programs, and
coordinates entrepreneurial development opportunities
through co-sponsorship agreements with entities and other
federal agencies.

COVID EIDL Advance — These grants, up to $10,000
in value, went to small businesses that also applied for
COVID-19 EIDL Loans and are not repaid.
Restaurant Revitalization Fund — The American Rescue
Plan Act established the RRF to provide funding to help
restaurants and other eligible businesses keep their doors
open. This program provides restaurants with funding equal
to their pandemic-related revenue loss up to $10 million per
business and no more than $5 million per physical location.
Recipients are not required to repay the funding provided
funds are spent for eligible uses.

Veterans Business Outreach Centers — The SBA’s 22
VBOCs provide counseling and training services to veteranowned and service-disabled veteran-owned small businesses
and entrepreneurs, along with reserve component members
who have an interest in either starting a new small business
or expanding an established small business.

Shuttered Venues Operators Grant — The Economic Aid
to Hard-Hit Small Businesses, Nonprofits, and Venues Act
established funding to support shuttered venues because of
the COVID-19 Pandemic. Recipients are not required to
repay the funding provided that funds are spent for eligible
uses within established timeframes.

SCORE — SCORE is a nonprofit association comprising
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.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

Summary of COVID-19 Financial Impacts
The Shuttered Venue Operators Grant program was
established by the Economic Aid Act, and amended by
ARPA, includes over $16 billion in funding for shuttered
venues. Eligible applicants may qualify for funding equal
to 45 percent of their gross earned revenue, with a $10
million maximum amount available for a single award, and
with $2 billion reserved for eligible applications with up
to 50 full-time employees. In FY 2021, the SBA awarded
nearly 11 billion.

In FY 2021, the SBA continued to respond to the COVID19 pandemic and implement stimulus legislation to mitigate
its impact. The pandemic has severely disrupted the national
economy and led to a significant federal response that
continued this year. In FY 2020, the SBA implemented
Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) programs, including the Paycheck Protection
Program, debt relief, COVID EIDL loans, and EIDL
Advance grants for small businesses. These programs have
supported millions of jobs and helped small businesses stay
open.

The SBA continued to offer debt relief to existing SBA loan
borrowers. The Economic Aid Act provided additional relief
to businesses impacted by the pandemic and supported $3.5
billion in debt relief to 7(a) loan, 504 loan, and Microloan
borrowers by paying principal, interest, and fees on existing
loans. Additionally, the Economic Aid Act provided
additional relief for covered loans and for loans in hard hit
industries approved prior to March 27, 2020, as well as
payments for covered loans made between February 1, 2021
and September 30, 2021.

In addition to ongoing implementation of CARES Act
programs, the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act (Economic Aid Act) modified
the 7(a) Loan program by providing temporary higher
guaranty percentages, supporting fee relief on eligible 7(a)
loans, and increasing the maximum SBA Express loan
amount. The SBA also guaranteed additional PPP loans
to eligible borrowers through “second draw loans,” offered
an expedited process for loan forgiveness for smaller dollar
amounts (under $150,000) and created an online loan
forgiveness application portal.

While the SBA received the addition of ARPA and
Economic Aid Act funds, overall total assets decreased by
$335.1 billion for a FY 2021 total asset amount of $562.4
billion, due to a decrease in appropriations received for PPP,
among other items. Total liabilities in FY 2021 were $504.0
billion compared to FY 2020 of $718.1 billion. The SBA’s
net position and net cost of operations decreased compared
to FY 2020. Total budgetary resources decreased from
$1.5 trillion in FY 2020 to $1.3 trillion in FY 2021. More
information of the financial impacts can be found in the
Analysis of Financial Results section.

Additionally, the American Rescue Plan Act (ARPA)
modified existing and created new programs to support
small businesses and other entities affected by the pandemic.
The SBA awarded $28.6 billion through the Restaurant
Revitalization Fund, a new program to provide emergency
assistance for eligible restaurants, bars, bakeries, and other
qualifying businesses in the food and beverage service industry
impacted by COVID-19 equal to their pandemic-related
revenue loss up to $10 million.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

Analysis of Performance Results
Summary of Performance Results
The following section presents key FY 2021 performance data. The presentation is organized by strategic objective, which
follows the SBA’s FY 2018–2022 Strategic Plan. Detailed information on all SBA program performance data, including
explanations of variances, will be presented in the FY 2021 Annual Performance Report to be published in February 2022.
Strategic Goal 1: Support small business revenue and job growth
FY 2018
Actual

S.O.

Performance Indicator

1.1

Number of Lender and Small Business Connections Through
Lender Match

1.1

Number of Jobs Supported by 7(a) Loans, 504 Loans, Microloans,
and SBICs

1.21
1.32

FY 2019
Actual

FY 2020
Actual

FY 2021
Goal

FY 2021
Actual

N/A

197,961

86,000

553,964

725,180

667,222

644,054

796,750

854,701

Value of Small Business Export Sales (Billions)

N/A

3.2

3.3

4.7

Data N/A

Percent of Federal Contracts Awarded to Small Businesses

Data N/A

Strategic Goal 2: Build healthy entrepreneurial ecosystems and create business friendly environments
FY 2018
Actual

FY 2019
Actual

FY 2020
Actual

N/A

23,300

33,243

24,500

33,384

Number of Unique Clients Served through Partnerships, Virtual
Resources, and Targeted Outreach

N/A

1,059,752

1,523,359

989,000

1,133,757

Number of Outreach Events through Federal Agencies, Trade
Associations, and Resource Partners

119

FY 2019
Actual

FY 2020
Actual

S.O.

Performance Indicator

2.1

Number of Small Businesses Assisted by 8(a), 7(j), and HUBZone
Programs

2.2
2.3

FY 2021
Goal

FY 2021
Actual

Strategic Goal 3: Restore small businesses and communities after disasters
S.O.

Performance Indicator

3.1

Customer Satisfaction Rate for Disaster Loan Approvals

FY 2018
Actual
78

FY 2021
Goal
77

FY 2021
Actual
76

Strategic Goal 4: Strengthen SBA’s ability to serve small businesses

1
2
3

FY 2018
Actual

FY 2019
Actual

FY 2020
Actual

FY 2021
Goal

FY 2021
Actual

Customer Satisfaction Rate of Financial Management Services for
SBA Employees

4.0

4.4

4.6

4.0

4.7

4.23

Federal Employee Viewpoint Survey Job Satisfaction Rate

Data N/A

4.3

IT Cost Savings/Avoidance (Millions)

11.9

13.7

14.5

14.6

14.5

S.O.

Performance Indicator

4.1

1.2: At time of publication State Trade Expansion Program (STEP) data is not yet available. FY 2021 data will be published in the FY 2021 Annual Performance Report.
1.3: Federal contracting data continues to be certified, and FY 2021 data will be certified by the SBA in summer 2022.
4.2 At time of publication, the Office of Personnel Management has not yet administered the FY 2021 Federal Employee Viewpoint Survey. FY 2021 data will be
published in the FY 2021 Annual Performance Report.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

Verification and Validation of
Performance Data

Chart I: Makeup of the SBA’s Outstanding Loan
Portfolio

Outstanding Loans ($ Billions)

Managing for results and integrating performance, financial,
and budgetary information requires valid, reliable, and highquality performance measures and data. Improving data
quality continues to be a priority for the SBA. The SBA’s
performance analysts work with program office leads across
the Agency to acquire high-quality data. In addition to
using output data internally from its systems, the SBA relies
on data from resource partners, other federal agencies, and
other government entities to assess its accomplishments and
effectiveness.

900
800
700
600
500
400
300
200
100
0

FY 2017
7(a)

The SBA vigorously pursues the following strategies to
ensure data quality: ensuring the validity of performance
measures and data; fostering organizational commitment
and capacity for data quality; assessing the quality of existing
data; and responding to data limitations. For additional
information regarding SBA’s approach to verifying and
validating performance data, see the Congressional Budget
Justification and Annual Performance Report, updated each
February.

FY 2018
PPP

FY 2019

FY 2020

SBIC

Disaster

504

FY 2021
All Other

New Guarantied Loans
The quarterly average loan volume increased in FY 2021
with an average of $11.2 billion. Chart II demonstrates the
trend in loan approvals since FY 2016.
Chart II: Quarterly Gross 7(a) and 504 Loan Approvals

Operational Portfolio Analysis
20
Loan Approvals ($ Billions)

The Operational Portfolio Analysis provides information
on the SBA’s credit programs and does not reference the
financial statements. The SBA is the taxpayers’ custodian
of small business loan guaranties and direct loans with a
portfolio of more than $713.2 billion.4 During FY 2021,
the portfolio decreased by $122.8 billion, or 15 percent.
The largest decrease came through the reduction of the
Paycheck Protection Program (PPP), a new loan program
authorized in 2020 through the Coronavirus Aid, Relief
and Economic Security Act (CARES Act) in response to
the COVID-19 pandemic. The PPP portfolio decreased by
$194.8 billion (-38 percent), whereas the SBA’s 7(a) and 504
loan portfolios expanded by $6.6 billion (6.8 percent) and
$1.7 billion (6.4 percent), respectively. The SBIC portfolio
decreased by $448 million (-4 percent) and the Agency’s
disaster loan portfolio increased by $63.8 billion (34
percent), as the COVID-19 Economic Injury Disaster Loans
(EIDL) program continued to grow. All other portfolios
increased by $231 million (12.4 percent) (see Chart I).

Average
7.216

Average
7.615

Average
11.193
Average
7.531

Average
7.034

Average
7.094

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 2016

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

At least three main factors contributed to the loan guaranty
portfolio’s recent changes:
Continuous Growth in the Economy — Real Gross Domestic
Product in the United States increased at an annual rate of
6.7 percent in the second quarter of 2021, reflecting the
continued economic recovery, reopening of establishments,
and continued government response related to the COVID19 pandemic.5

The total portfolio consists of guarantied business loans outstanding, guarantied debentures, direct business loans, and direct disaster loans. The data
include all performing loans and defaulted loans that have not been charged-off.

U.S. Department of Commerce, Bureau of Economic Analysis: www.bea.gov/newsreleases/glance.htm.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

Changes in Market Volatility — Inflation remained low
throughout 2020 (on average 1.2 percent),6 however it has
picked up sharply in 2021 and is averaging 4 percent a
month through September 2021. In the current inflationary
environment, the prices of many goods and services have
increased. While the unemployment rate surged to a peak
of 14.8 in April 2020, it has decreased greatly throughout
2021 to 4.8 by the end of September 2021.7

prior SBA disaster lending combined as a result of the
COVID-19 pandemic. Chart IV illustrates the relative size
of disaster loans in FY 2021 by month, compared with the
prior two fiscal years.
Chart IV: Monthly Gross Disaster Assistance Loan
Approvals
80,000

Loan Approvals ($ Millions)

Market for Small Business Lending — According to data
from the Federal Deposit Insurance Corporation, the total
market for business loans increased between 2015–2020
by 31 percent ($920 billion). However, 76 percent ($697
billion) of this increase is accounted for by loans to nonsmall
businesses,8 whereas total small business loans increased by
nearly $224 billion. This means the ratio of small business
loans compared with the total bank market has only slightly
increased (see Chart III). Furthermore, there has been a
trend in the banking industry toward consolidation, which
is reflected in the reduction of commercial banks between
2015–2020 by 18 percent.9 This makes the SBA’s guaranty
products even more critical for growing small businesses that
may be denied credit in the private loan market.

Outstanding Loans ($ Billions)

2,303

2,601

2,796

2,888

Oct

Nov

Dec

Jan

Feb

Mar

FY 2019

Apr

May

June

July

FY 2020

Aug

Sept
FY 2021

Aside from the COVID-19 EIDL loans of the FY 2020–
2021 period, most of the Disaster Assistance loan portfolio
outstanding balance comprises lending from FY 2006
(hurricanes Katrina, Rita, and Wilma), FY 2013 (Hurricane
Sandy) and FY 2018 (hurricanes Harvey, Irma, and Maria).
The SBA will continue to make disaster loans an important
recovery tool for businesses, homeowners, and renters that
survive a disaster.

3,000

Portfolio Performance — Delinquencies

1,000
680

689

699

712

CY 2015

CY 2016

CY 2017

CY 2018

Small Business Loans

Delinquency rates (i.e., borrowers who are late on their
payments) are a leading indicator of the Agency’s chargeoff rate (i.e., the rate of dollars spent to cover loans that
defaulted). Thus, delinquency rates are a general indicator
of the Agency’s and taxpayers’ future liabilities for these
programs. A declining delinquency rate (see Chart V) is a
positive indicator for the financial performance of any loan
portfolio.

721

904

CY 2019 CY 2020
Nonsmall Business Loans

Strong economic growth, strong profit performance, and
tighter lending standards by financial institutions during
the past several years have reduced delinquency rates for
all business loans, which have been steadily declining
since reaching cyclical peaks in the latter part of 2009.
Delinquency rates for the Agency’s major loan programs
followed this national downward trend. Delinquency rates

New Direct Loans
In FY 2021, the SBA approved $31 billion in the Disaster
Assistance loan program. FY 2021 disaster loan activity
continued to increase, despite FY 2020’s increase of 8,736
percent compared with the FY 2019 total of $2.2 billion.
Disaster lending in FY 2021 has continued to exceed all

6
7
8
9

30,000
20,000

FY 2018

2,000

50,000
40,000

4,000
2,476

60,000

10,000

Chart III: Outstanding Commercial Loans to Small vs.
Nonsmall Businesses

3,000

70,000

U.S. Department of Labor, Bureau of Labor Statistics: www.bls.gov/cpi/home.htm.
U.S. Department of Labor, Bureau of Labor Statistics: data.bls.gov/timeseries/LNS14000000.
Nonsmall businesses are firms that have more than 500 employees.
https://www.fdic.gov/bank/statistical/stats/.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

for the 7(a) loan program declined from the 3.8 percent
peak in January 2009 to .84 percent in February 2020,
prior to the start of the COVID-19 pandemic. Similarly,
delinquency rates for the 504 loan program likewise
declined from the 5 percent peak in February 2010 to .9
percent in February 2020.

The 12-month charge-off rate for the 504 loan program
continuously increased from FY 2008 to FY 2013, peaking
at 4.4 percent in January 2013, but dropping to 0.2 percent
in July 2021. This trend is not surprising, since the 504
loan program is an economic development program with
a commercial real estate focus. As such, recovery rates of
defaulted 504 loans are, with some noticeable time lag,
significantly impacted by the pricing trend in this sector.
The upward trend in the 504 delinquency rate during
FY 2021 could impact the future trajectory of 504 chargeoff rates in coming fiscal years.

In the response to the pandemic, the CARES Act provided
debt relief to current borrowers of 7(a) and 504 loans,
authorizing the SBA to pay the principal, interest, and
associated fees on existing loans for six months. This led
to a delinquency rate of near 0 percent in the last six
months of FY 2020. With the expiration of CARES Act
funds, however, both programs have seen increases in the
delinquency rate during FY 2021.

Quarterly information on the status of the SBA’s loan
portfolio, including outstanding balances and approvals by
loan program and purchase rates, is available on the SBA’s
website at www.sba.gov/performance.

As of July 2021, the average FY 2021 YTD 7(a) delinquency
rate of 0.6 percent is slightly below than the FY 2020
average delinquency rate of 0.7 percent. The 7(a) rate
remained low during FY 2021, except for a brief surge
during the November–December 2020 period.

Chart V: Delinquency and Charge-Off Rates for the 7(a)
and 504 Loan Programs by Fiscal Year

Delinquency Rate (Percentage)

The 504 delinquency rate began to trend upward starting
in September 2020, and has continued to rise, except for
a brief lull during January–February 2021. The average
FY 2021 YTD 504 delinquency rate of 1.9 percent is
significantly above the FY 2020 average delinquency rate of
0.8 percent. The SBA will continue to review delinquency
rate over the coming months to develop a better
understanding of post-CARES Act delinquency.

4.0
3.0
2.0
1.0
0.0

FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21
7(a) Delinquency Rate

Portfolio Performance — Charge-Offs
The 12-month charge-off rate for the 7(a) loan program
sharply declined during the FY 2010–2013 period, falling
from 4.3 percent during the fourth quarter of 2010 to
1.2 percent in the third quarter of 2013. However, the
rate increased thereafter, until decreasing in July 2021 to
0.5 percent (see Chart V). The 7(a) loans not sold on the
secondary market become a charge-off only after all efforts
to recover a delinquent balance have been exhausted, such
as liquidating the underlying collateral. The latent rise of
the 7(a) charge-off rate in 2013 is attributable to recessionera loans that were charged-off after efforts to recover
delinquent balances had been exhausted. Now that this
effort to charge-off the recession-era loans is complete, the
charge-off rate closely trends with the delinquency rate in
FY 2021.

Agency Financial Report Fiscal Year 2021

7(a) Loans

5.0

504 Loans

Delinquency Rate (Percentage)

6.0
5.0
4.0
3.0
2.0
1.0
0.0

NBER Declared
Recession Ends
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21
504 Delinquency Rate

7(a) Past 12 Months Charge-Off Rate

504 Past 12 Months Charge-Off Rate

U.S. Small Business Administration

Management’s Discussion and Analysis

Forward Looking Analysis
Climate Crisis

The SBA maintains and strengthens the nation’s economy
by helping small businesses start, grow, expand, and recover.
The Agency will ensure that it can adapt to a changing
environment and deliver programs that meet the needs
of America’s entrepreneurs. The following areas serve as
both challenges and opportunities that will factor into the
SBA’s strategies for delivering on its outcomes and using
taxpayer resources efficiently. The Agency will continue to
review these factors as it implements its programs to ensure
optimal performance.

A natural disaster can destroy lives, businesses, and
communities. Moreover, natural disasters have become
more intense and more costly with 2020 being the sixth
consecutive year in which ten or more billion-dollar
weather and climate disaster events have impacted the
United States.10 Although the SBA has programs that can
respond to hurricanes, tornados, forest fires, and floods, the
growing threat and number of these occurrences remains a
serious concern. Disaster preparedness is a key component
of the SBA’s Disaster Assistance program and has helped
many small businesses prepare for the unexpected. In the
coming years, the SBA will increase promotion of its disaster
mitigation loan option in order to encourage more home
and business owners to invest in their own preparedness.
Furthermore, the SBA continues to modernize and respond
to the threats posed by the climate crisis by updating
technology and streamlining its ability to onboard staff.

Global Pandemic, Business
Adaptation, and Economic Recovery
America’s small businesses are only just beginning to recover
from the economic shock of the COVID-19 pandemic, and
many continue to experience challenges. The SBA continues
to administer programs that were implemented to lessen
the impact of the pandemic and may be called upon to
administer additional COVID-19 relief programs in the
years ahead. The Agency will build on the improvements
and advances made over the past two years in order to meet
the needs of small businesses more efficiently and equitably,
while also putting into place additional measures to reduce
and respond to fraud.

Technology and Automation
Technology has evolved so that entrepreneurs have greater
access to markets and more capabilities to start and
expand their businesses. Increased access to technology
also influences the way that entrepreneurs interact with
the SBA. However, not all entrepreneurs have access to
adequate markets, and some face challenges connecting to
resources. The SBA will continue adapting and developing
new platforms to reach entrepreneurs in emerging markets.
Virtual training platforms and online tools will allow the
SBA to reach more customers, and improvements that the
SBA has made and will continue to make to its platforms
will ensure that the agency is able to meet customer
expectations, including during periods of high demand.
Technological advancements will continue to shape how
small businesses operate and how the Agency responds to
the ever-changing environment.

Small businesses have made many rapid changes in
production, delivery mode, and operations in response
to the COVID-19 pandemic. Partnerships among small
businesses have promoted the sharing and bundling of
goods and services for sale while delivery service apps have
become more common. Some adaptations could lead to
long-term changes, such as the maintenance of curbside
and delivery services, increased rental of equipment, and
online streaming. U.S. cities and states are providing
funding for innovations, ensuring access to personal
protecting equipment, and exploring mortgage or eviction
moratoriums. The SBA continues to invest in business
innovation and in supporting innovative start-ups as part
of its comprehensive programming to support a healthy
business ecosystem.

Employment and Labor Market
Transformation
The U.S. workforce continues to transform as industries
modernize with new technology and market demands.
While unemployment continues to fluctuate, a large
percentage of rural America does not have the same access
to labor markets as urban areas. Small businesses must

10 www.ncdc.noaa.gov/billions/.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

recruit and retain top talent and often face challenges
finding the right candidates for the job. The SBA will
continue to expand its programs and services in rural areas
through enhanced partnerships with the U.S. Department
of Agriculture and with resource partners throughout the
country.

A Changing Federal Workforce
As a growing percentage of Agency employees become
retirement eligible, the SBA continues to search for ways
to recruit and retain the best talent. Competition with
private industry and other agencies is strong, and retention
is challenging. The Agency has identified mission critical
occupations and developed workforce plans to address
gaps. At the same time, the Agency seeks to ensure that its
workforce is representative of the public it serves and that
it can effectively communicate with, and meet the needs
of, entrepreneurs and small business owners. The SBA has
developed and aligned training for its field staff to ensure
that they have the tools to help small businesses succeed. By
providing SBA employees with the tools and resources they
need, the Agency will be able to better deliver resources to
America’s small businesses.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

Analysis and Highlights of Financial Results
Highlights of Financial Results (as of September 30)
(Dollars in Thousands)

2021

At End of Fiscal Year

2020

$ Change

CONDENSED BALANCE SHEET DATA
Fund Balance with Treasury
Credit Program Receivables and Related Foreclosed Property, Net
All Other Assets
Total Assets
Debt
Downward Reestimate Payable to Treasury
Liability for Loan Guaranties
All Other Liabilities
Total Liabilities
Unexpended Appropriations
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position

316,852,301
245,445,095
120,285
562,417,681
262,654,877
11,742,037
227,831,513
1,310,636
503,539,063
69,132,143
(10,253,525)
58,878,618
562,417,681

714,400,127
182,936,949
196,914
897,533,990
176,173,660
28,541,393
512,712,498
628,467
718,056,018
183,460,572
(3,982,600)
179,477,972
897,533,990

(397,547,826)
62,508,146
(76,629)
(335,116,309 )
86,481,217
(16,799,356)
(284,880,985)
682,169
(214,516,955)
(114,328,429)
(6,270,925)
(120,599,354)
(335,116,309)

For the Fiscal Year

STATEMENT OF NET COST BY STRATEGIC GOAL
Goal 1:

Support Small Business Revenue and Job Growth
Loan Subsidy Cost Including Reestimates
All Other Costs Net of Revenue
Goal 2: Build Healthy Entrepreneurial Ecosystems and
Create Business Friendly Environments
Goal 3: Restore Small Business and Communities after Disasters
Loan Subsidy Cost Including Reestimates
All Other Costs Net of Revenue
Goal 4: Strengthen SBA's Ability to Serve Small Businesses
Costs Not Assigned
Net Cost of Operations

CONDENSED STATEMENT OF NET POSITION

Beginning Unexpended Appropriations
Total Budgetary Financing Sources
Ending Unexpended Appropriations
Beginning Cumulative Results of Operations
Total Financing Sources
Less: Net Cost of Operations
Ending Cumulative Results of Operations
Ending Net Position

$
$
$

$
$

CONDENSED STATEMENT OF BUDGETARY RESOURCES

Unobligated Balance Brought Forward
Other Budgetary Resources, Net
Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority from Offsetting Collections
Total Budgetary Resources
Obligations Incurred, Budgetary
Obligations Incurred, Nonbudgetary
Unobligated Balances, Available and Unavailable
Total Status of Budgetary Resources

U.S. Small Business Administration

$
$

296,810,691
29,314,446

526,808,679
(1,543)

(229,997,988)
29,315,989

456,701

27,523

429,178

2,888,758
16,650,315
131,155
31,487
346,283,553

5,398,238
21,984,153
11,976
2,521
554,231,547

(2,509,480)
(5,333,838)
119,179
28,966
(207,947,994)

183,460,572
(114,328,429)
69,132,143
(3,982,600)
340,012,628
346,283,553
(10,253,525)
58,878,618

699,661,256
3,120,760
236,667,028
93,935,801
313,734,004
1,347,118,849
348,440,145
699,531,213
299,147,491
1,347,118,849

$
$
$

$
$

1,779,472
181,681,100
183,460,572
(145,864)
550,394,811
554,231,547
(3,982,600)
179,477,972

5,892,067
(591,758)
762,173,214
167,267,294
583,927,087
$ 1,518,667,904
$ 590,232,922
228,773,726
699,661,256
$ 1,518,667,904

$
$
$

$
$

181,681,100
(296,009,529)
(114,328,429)
(3,836,736)
(210,382,183)
(207,947,994)
(6,270,925)
(120,599,354)

693,769,189
3,712,518
(525,506,186)
(73,331,493)
(270,193,083)
(171,549,055)
(241,792,777)
470,757,487
(400,513,765)
(171,549,055 )

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

program and $75 million for outreach and training. These
programs are discussed further in Note 17 of the financial
statements.

Analysis of Financial Results
The principal financial statements have been prepared
to report the financial position and results of operations
of the entity, pursuant to the requirements of 31 U.S.C.
3515(b). Although the statements have been prepared from
the records of the entity in accordance with GAAP for
federal entities and the formats prescribed by the OMB,
the statements are in addition to the financial reports used
to monitor and control budgetary resources, which are
prepared from the same records. The statements should be
read with the realization that they are for a component of
the U.S. Government, a sovereign entity.

Background
The SBA is a major federal credit reform agency of the U.S.
Government and the vast majority of the Agency’s $1.3
trillion in budgetary resources support the SBA’s credit
programs. When apportioned by the OMB, budgetary
resources are available to enter into new obligations and
to liquidate them. Budgetary resources are made up of
new budget authority and unobligated balances of budget
authority provided in previous years. The loan financing
funds record all the cash flow activity resulting from post1991 direct loans and loan guaranties and are not budgetary
costs. The financing accounts are reported separately in the
Budget of the United States Government and are excluded
from the budget surplus/deficit totals.

This Analysis of Financial Results references numbers in the
Highlights of Financial Results that were derived from the
Financial Statements and Notes in this report. As a result,
the definitions of the loan and guaranty balances used in
this Analysis of Financial Results may differ somewhat from
the balances in the Operational Portfolio Analysis section.
For example, for the 7(a) loan program, the total amount
of guarantied loans is used in the Portfolio Analysis, but
only the SBA’s guarantied portion is used in the Analysis of
Financial Results because it ties to balances in the financial
statements.

The Federal Credit Reform Act (FCRA) governs the SBA’s
accounting for direct loans and loan guaranties made
in FY 1992 and thereafter. Under FCRA, direct loans
outstanding are reported net of an allowance using the
present value of forecasted cash flows in subsidy models that
are OMB-approved.

During Fiscal Year 2021, the SBA continued to support the
recovery of the American economy from the COVID-19
pandemic. The American Rescue Plan Act established the
Restaurant Revitalization Fund to provide funding to help
restaurants and other eligible businesses keep their doors
open. This program provides restaurants with funding equal
to their pandemic-related revenue loss up to $10 million per
business and no more than $5 million per physical location.
Recipients are not required to repay the funding as long
as funds are used for eligible uses no later than March 11,
2023. The Shuttered Venue Operators Grant program was
also established by the Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act, and amended
by the American Rescue Plan Act. The program includes
over $16 billion in funding to shuttered venues, which
is administered by SBA’s Office of Disaster Assistance.
Additionally, the Community Navigator pilot program was
established under Public Law 117-2 to make grants to, or
enter into contracts or cooperative agreements with, private
nonprofit organizations, resource partners, States, Tribes,
and units of local government to ensure the delivery of free
community navigator services to current or prospective
owners of eligible businesses in order to improve access to
assistance programs and resources made available because of
the COVID-19 pandemic by Federal, State, Tribal, and local
entities. This public law appropriated $100 million for the

Agency Financial Report Fiscal Year 2021

A Liability for Loan Guaranties is also reported using
subsidy models with forecasted cash flows from user fees
and defaulted guarantied loans. The direct loan allowance
and loan guaranty liability for each loan program cohort is
adjusted annually under FCRA through the subsidy model
reestimate process. The SBA’s FCRA accounting is discussed
further in this section and in Notes 1 and 6.A of the
financial statements.
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
SBA receives budget authority annually to fund its credit
programs. When loans are disbursed, the SBA records
subsidy expense for non-zero subsidy loan programs.
In accordance with the FCRA, the subsidy costs are
reestimated annually. Reestimates update original loan
program cost estimates to reflect actual experience and
changes in forecasts of future cash flows for each annual
cohort of loans. An upward reestimate occurs when the
present value of expected cash outflows exceeds the present
value of expected cash inflows. A downward reestimate
occurs when the present value of expected cash inflows
exceeds the present value of expected cash outflows.

U.S. Small Business Administration

Management’s Discussion and Analysis

Increased reestimated costs are funded in the following year
by permanent indefinite budget authority, while decreased
costs are returned by the SBA to a Treasury general fund.
The portion of the outstanding principal guaranteed by
the SBA was $435.3 billion as of September 30, 2021,
a decrease of $186.4 billion from the $621.7 billion
guaranteed as of September 30, 2020 (see Note 6.C in the
financial statements). As shown in Chart VI, new guaranties
disbursed by the SBA participating banks during FY 2021
were $304.0 billion, a $234.0 billion decrease compared
to the FY 2020 figure of $538.0 billion. This net $234.0
billion decrease resulted from a $240.9 billion decrease in
PPP loans combined with a $6.9 billion increase in 7(a)
loans. This net decrease in FY 2021 guaranty disbursements
contributed to the $186.4 billion decrease in outstanding
guarantied principal.

resulted from an increase of $62.7 billion in direct disaster
loans as a direct result CARES Act funded loans. The
amount of defaulted guarantied loans decreased by $0.2
billion as new guaranty purchases decreased. As reflected in
Chart VII, guarantied loan purchases decreased $0.5 billion
in FY 2021 to $0.7 billion.
Chart VII: Purchases of Guarantied Loans

1.19

($ Billions)

1.2

1.00

0.98

0.84

0.9

0.72

0.6
0.3

Chart VI: Guarantied Loans Disbursed

0.0

600

1.44

1.5

FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

538.0

($ Billions)

500

Financial Position

400
304.0

300

Assets
The SBA had total assets of $562.4 billion at the end of
FY 2021, down $335.1 billion from FY 2020. Total assets
decreased due to a $397.5 billion decrease in Fund Balance
with Treasury combined with a $62.5 billion increase
in Credit Program Receivables and Related Foreclosed
Property. The decrease in Fund Balance with Treasury is
a largely a result of PPP forgiveness payments made in
FY 2021 as well as a rescission of CARES act funding offset
by increases associated with EIDL grant funding received in
FY 2021. The increase in Credit Program Receivables and
Related Foreclosed Property was primarily due to the net
increase in direct disaster loan disbursements as a result of
CARES Act funded loans.

200
100
0

21.0

22.8

23.0

21.0

FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

Credit program receivables for the SBA comprise business
and disaster direct loans and defaulted business loans
purchased per the terms of the SBA’s loan guaranty
programs, which are offset by an allowance for the subsidy.
The allowance for the subsidy cost of the gross loans
receivable is recorded as a contra asset, and the net asset is
reported on the Balance Sheet. The subsidy allowance is
determined by modeling the projected future cash inflows
and outflows of SBA credit programs using discounted cash
flow methodology. The subsidy allowance for each loan
program cohort is reestimated annually. Increases are funded
by Treasury, whereas decreases are returned to Treasury by
the Agency. Loan losses, the costs of loan servicing, and loan
interest rates are factors that affect the subsidy allowance.

Liabilities
The SBA had total liabilities of $503.5 billion at the end of
FY 2021, down $214.5 billion from FY 2020. Liabilities
consist primarily of the Principal Payable to the Bureau
of the Fiscal Service, Liability for Loan Guaranties, and
Downward Reestimate Payable to Treasury.
The Principal Payable to the Bureau of the Fiscal Service
increased $86.5 billion in FY 2021 due to net borrowing
activity needed to cover disaster loan programs as a direct
result of the CARES Act. Note 9 in the financial statements

SBA credit program receivables were valued at $245.4
billion in FY 2021, an increase of $62.5 billion from
FY 2020. The change in the credit program receivables

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

provides additional detail on SBA’s Principal Payable to the
Treasury.

Net Costs of Operations
The Net Costs of Operations primarily reflects the costs of
SBA credit programs subsidy expenses during the year for
new loans and subsidy reestimates at year-end.

The Liability for Loan Guaranties is the estimate of the
net present value of the future amount the SBA will pay,
net of fee collections, to liquidate expected purchases of
guarantied loans under its guarantied loan programs. The
Liability for Loan Guaranties for each loan program cohort
is reestimated annually. Increases are funded by Treasury
while the Agency returns the decreases to Treasury. The
Liability for Loan Guaranties decreased $284.9 billion
primarily due to an increase in current year subsidy, loan
modifications and subsidy reestimates offset by an increase
in miscellaneous recoveries. Miscellaneous recoveries are
largely driven by PPP forgiveness expense of $557.6 billion
followed by $20.4 billion in PPP fees and $3.5 billion for
debt relief expense. These large fluxes are a direct result of
the PPP and Debt Relief programs. Note 6.E in the financial
statements provides additional detail.

The primary driver of the $207.9 billion decrease in net
cost is largely attributable to Goal 1, which had an overall
$200.7 billion decrease. The decrease is attributable to a
$230.0 billion decrease in loan subsidy costs, including
reestimates combined with an increase of $29 billion in
costs related to the Restaurant Revitalization Fund. These
decreased costs in FY 2021 are attributable to the PPP and
Debt Relief programs under the CARES Act.
Net reestimates for the business loan programs were upward
in FY 2021 comparatively to FY 2020 which was a net
downward reestimate, which affected Strategic Goal 1 costs.
Chart VIII reflects the change in the net subsidy reestimates
for the guarantied business and direct disaster loan
programs in FY 2021. The PPP program had a net upward
reestimate of $7.3 billion for FY 2021 and is attributable
to the FY 2021 cohort. The net downward reestimate in
the 7(a) program of $2.7 billion is mostly due to better
than expected loan performance in FY 2021 for cohorts
2015 through 2020. Further detail on subsidy reestimates
can be found in Note 6.I of the financial statements in the
Financial Reporting section of this report.

The Downward Reestimate Payable to Treasury decreased
$16.8 billion in FY 2021. The decrease was a direct result of
the Disaster Assistance program which had a net downward
reestimate of $3.8 billion compared to $18.9 billion in
FY 2020. This was the result of updates to the discount
rate which resulted in reduced borrowing costs for FY 2021
lending. In addition, there was a net upward reestimate of
$7.3 billion for the Paycheck Protection Program, a decrease
of $14.5 billion from the FY 2020 net downward reestimate
of $7.2 billion, as a result of updates to the discount rate
for the 2021 cohort among other factors. Note 6.I in the
financial statements provides additional detail.

Chart VIII: Credit Program Subsidy Reestimates
5

Net Position

0
($ Billions)

Cumulative Results of Operations is the accumulative
difference between expenditures and financing sources since
the inception of the Agency. This negative balance increased
$6.3 billion primarily because unfunded upward subsidy
reestimates at year-end for the Paycheck Protection Program
was higher for FY 2021 compared with FY 2020 while
7(a) loan and disaster loan programs were lower. Upward
subsidy reestimates determined at year-end are funded in the
following year when they are received.

-10
-15
-20

FY 2016

FY 2017

Guarantied Business Loans
(Strategic Goal 1)

Unexpended Appropriations decreased $114.3 billion
this year primarily because the amount of appropriations
received and expended was less than the appropriations
received and expended in FY 2021 for business, disaster,
and administrative activities combined with a rescission of
$146.5 billion. This affected Budgetary Financing Sources
and the Ending Net Position.

Agency Financial Report Fiscal Year 2021

-5

FY 2018

FY 2019

Direct Business Loans
(Strategic Goal 1)

FY 2020

FY 2021

Direct Disaster Loans
(Strategic Goal 3)

The overall decrease in net cost is also driven by a $7.8
billion dollar decrease in Goal 3. This decrease is attributable
to a $5.3 billion decrease in all other costs combined with
a $2.5 billion decrease in loan subsidy costs. The decrease
in all other costs is a result of a decrease in the FY 2020
CARES Act related Disaster Advance grant program offset

U.S. Small Business Administration

Management’s Discussion and Analysis

by a slight increase due to the Shuttered Venue Operators
Program. The decrease in loan subsidy is a result of
decreased subsidy costs associated with CARES Act funded
loans offset by a lower net downward reestimate. The
Disaster Assistance program had a net downward reestimate
of $3.8 billion in FY 2021 compared to $18.9 billion in
FY 2020. The downward reestimate is a result of updates
to the discount rate which results in reduced borrowing
costs for FY 2021 COVID EIDL funded lending. Further
detail on subsidy reestimates can be found in Note 6.I of the
financial statements in the Financial Reporting section of
this report.

Authority from Offsetting Collections decreased $270.2
billion in FY 2021. This decrease is primarily attributable
to a decrease in the amount of subsidy collected in both the
business and disaster programs.

Status of Budgetary Resources
The Total Status of Budgetary Resources decreased
$171.5 billion in FY 2020 to $1.3 trillion in FY 2021.
Nonbudgetary obligations increased by $470.8 billion,
mainly resulting from the PPP forgiveness payments, PPP
fees and increased downward reestimates for both disaster
and business programs. Budgetary obligations decreased
$241.8 billion largely in part due to decreased subsidy
obligations for the business subsidy associated with the PPP
program.

Budgetary Resources
For FY 2021, Total Budgetary Resources decreased from
$1.5 trillion in FY 2020 to $1.3 trillion in FY 2021. This
decrease was primarily due to a decrease in appropriations,
borrowing authority, and spending authority from offsetting
collections as well as other factors shown in the Highlights
table and following discussion.

Unobligated balances as of September 30, 2021 and 2020
were $299.1 billion and $699.7 billion, which included
$6.4 billion and $9.6 billion of unavailable unobligated
balances. These balances were unavailable because they
were unapportioned by the OMB. The SBA accumulates
the majority of unobligated balances in its nonbudgetary
financing accounts ($234.2 billion in FY 2021 and $525.3
billion in FY 2020) from subsidy estimates and reestimates
that are used primarily to pay default claims in future years.
The unobligated balances in the nonbudgetary accounts are
directly attributable to the PPP program and will be used to
make future forgiveness and default payments.

Appropriations (discretionary and mandatory) decreased
$525.5 billion in FY 2021 as a result of the year over year
decrease in appropriations to fund CARES Act programs.
Borrowing Authority decreased $73.3 billion in FY 2021
due to a decrease in borrowing needed to cover disaster loan
making. Borrowing authority initially granted to the SBA
was $272.8 billion in FY 2021. The SBA withdrew $178.8
billion at year-end FY 2021, as the excess authority was not
needed to fund future credit program operations. Spending

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

Analysis of SBA’s Systems, Controls, and Legal Compliance
Internal Control Environment

on the five components and 17 principles of internal control
framework prescribed in GAO’s Standards for Internal
Control in the Federal Government, known as the Green
Book.

The SBA believes that maintaining integrity and
accountability in all programs and operations is critical
for demonstrating consistent responsible stewardship over
assets and resources and is a sign of responsible leadership.
The SBA’s commitment to integrity, ethical values, and an
effective system of internal controls helps to ensure that
every employee remains dedicated to the efficient delivery
of services to customers and maximizes desired program
outcomes. Accordingly, the SBA has developed and
implemented management, administrative, and financial
system controls to reasonably ensure that:

programs and operations achieve intended results
efficiently and effectively;

resources are used in accordance with the mission of the
Agency;

programs and resources are protected from waste, fraud,
and mismanagement;

program and operation activities are in compliance with
laws and regulations; and

reliable, complete, and timely data are maintained and
used for decision-making at all levels.

The SBA Senior Management Council (SMC) was
established to oversee the Agency’s internal control system.
The SMC, chaired by the Deputy Chief Financial Officer
and composed of SBA managers from the major program
and support offices. The SMC plans and executes the
Agency’s internal control activities that includes assessing
and improving compliance with applicable guidance
(e.g., Office of Management and Budget Circular A-123,
Management’s Responsibilities for Enterprise Risk Management
and Internal Control), monitoring and remediation of
identified deficiencies, and communicating the results of
reviews to senior management.
SMC activities in FY 2021 included planning the annual
internal controls assessments; identifying key processes and
related control activities; documenting the scope, design,
and methodology of risk and internal control assessments;
testing of internal controls and monitoring corrective action
plans for remediation. In addition, the SMC discussed
any material information that should be considered for
the Administrator’s annual statement of assurance with the
Enterprise Risk Management Board.

Each office within the SBA is required to implement
or maintain effective internal controls over operations,
reporting, and compliance to achieve programmatic goals.
Each year, the SBA conducts an assessment of internal
control as required by the Federal Managers’ Financial
Integrity Act (FMFIA) of 1982 in accordance with the
Office of Management and Budget (OMB)’s Circular
No. A-123, Management’s Responsibility for Enterprise Risk
Management and Internal Control. The FMFIA requires
that the assessment results be reported to the President
and Congress in a statement of assurance. The SBA
Administrator provides the statement of assurance based on
the self-assessment of program managers, internal control
reviews, and audits and reviews done by the Government
Accountability Office (GAO) and SBA’s Office of the
Inspector General (OIG).

This year ICD developed and implemented a methodology
to address pandemic programs as a result of new legislation.
The methodology applied to all programs established by
the Economic Aid Act, the American Rescue Plan Act,
and subsequent legislation. ICD worked with applicable
Program Offices to conduct risk assessments for new
programs that reached a level of maturity in their program
processes. Risk assessments were conducted to assess the
impact and likelihood of different risk factors and identify
an overall risk rating of low, medium, or high risk. Risk
assessment will continue in FY 2022 for new programs that
have been established.
Furthermore, ICD continued with the development and
execution of the FY 2021 Annual Assessment Plan. Internal
control assessments were conducted for PPP Loan Fees,
Subsidy Payments, Service Center Guaranty and 504 Loans,
Grants Management, Procurement, and a limited scope
assessment of the Shuttered Venue Program. To support
the implementation of new programs, end-to-end process
documentation was developed to highlight key processes
and controls.

The Office of Performance, Planning, and the Chief
Financial Officer’s (OPPCFO) Internal Controls Division
(ICD) provides training and tools, including checklists
designed specifically for program support offices and district
offices, to aid management in assessing and documenting
the effectiveness of internal controls within their respective
area of responsibility. These assessments are performed based

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

The FY 2020 Financial Statement Audit results identified
weaknesses and deficiencies that required corrective actions.
For FY 2021 the ICD worked with responsible officials to
develop corrective actions and process documentation to
support the remediation of existing deficiencies. Efforts will
continue beyond FY 2021 until remediation is complete.

planning process, (2) strengthened the agency-wide risk
profile process, (3) developed agency-wide risk assessment
tools for pandemic programs, and (4) as directed by OMB,
approved the agency-wide risk profile, which resulted in
the identification of cross-cutting risks related to fraud,
technology, and reporting.

The remediation efforts have resulted in improvements;
however, internal controls continue to evolve since the
inception of PPP and COVID EIDL programs. During
the initial phase, time constraints required the SBA to
leverage existing loan program controls to disburse funds
to applicants with minimal checks and delays. In the
second issuance of PPP loans, the SBA began to introduce
additional fraud prevention controls for PPP by crossreferencing applicant information with the U.S. Treasury’s
Do Not Pay (DNP) list. The SBA also introduced a set
of automated screening rules prior to the release of the
SBA loan guarantee number. In the third issuance of PPP
loans, the SBA was not required to process the PPP loan
applications immediately upon their receipt, thus enabling
the SBA to introduce additional prevention controls to
review compliance and minimize ineligible and fraudulent
PPP loans.

The SBA builds, delivers, and continues to mature
resilient and robust Enterprise Cybersecurity Service
(ECS) capabilities that can be consistently implemented,
maintained, and leveraged throughout the agency. These
cover areas such as cyber threat intelligence, network
monitoring, penetration testing, risk management and
assessment, vulnerability scanning and remediation, event
log correlation, awareness training, and incident response.
Delivered at the enterprise level, the ECS allow the SBA
to better support the Small Business Community by
providing consistency of process, ensuring broad visibility,
and facilitating efficiency through program offices’ ability
to consume a single solution. Institutionalization of the
ECS has led to a steady increase in the Agency’s CAP Goal
Metrics and OMB Maturity Ratings over a multiyear
period. These ECS capabilities make the SBA wellpositioned to align to the initiatives outlined in Executive
Order 14028, Improving the Nation’s Cybersecurity, and
enable the SBA to rapidly respond to recent well-publicized
global cyber events with minimal impact and no indications
of compromise.

Like the PPP loan program, the SBA swiftly scaled its
operations to receive an unprecedented volume of COVID
EIDL applications. Since the program’s inception, the
SBA has worked to implement controls throughout the
COVID EIDL transaction lifecycle to minimize fraud
within the program. The SBA has implemented measures
that include system data and validation controls, automated
decision controls, access and workflow controls, credit check
requirements, and ineligibility or potential fraud flags that
require manual reviews and approval by team leads and loan
officers prior to the disbursement of a COVID EIDL loan.
To further support detection and response activities, the
SBA has fraud analysis teams to assist with the recovery of
fraudulent PPP and COVID EIDL loans funds.

Financial Management Systems
Strategy
The SBA’s financial management systems are designed to
support effective internal controls, produce reliable and
timely financial information, and ensure cost-effective
loan guaranty processing. Management remains focused
on robust financial management systems that support
the SBA’s ability to comply with laws and regulations.
SBA systems must also provide timely and accurate data
to support management analysis and decision-making,
enable the Agency to keep pace with its lending partners,
and effectively use automation to achieve operational
efficiency. As demonstrated throughout the FY 2021 Agency
Financial Report, the SBA seeks to comply with all federal
financial management system requirements, including the
Federal Financial Management Improvement Act of 1996,
which requires that the Agency’s financial management
systems comply with federal financial management systems

The SBA’s Enterprise Risk Management (ERM) Board,
which is chaired by the Deputy Administrator and/or
Chief of Staff, brings together senior leaders from the
SBA’s major program and support offices monthly to
collectively share risk management best practices and discuss
the management of the agency’s top risks. The Office of
Continuous Operations and Risk Management (OCORM)
facilitates the ERM Board meetings and is responsible
for implementing ERM, agency wide. This fiscal year,
SBA (1) integrated the ERM process with the strategic

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

requirements, applicable federal accounting standards, and
the U.S. Standard General Ledger at the transaction level.11

The SBA has taken steps to enhance its financial system
controls over lending programs and improve accessibility to
common information, financial and budget management,
and financial reporting. The SBA’s tightly integrated
financial systems allow the Agency to respond quickly to
both internal and external financial information inquiries
and requirements.

The SBA has continued to build on incremental
improvement projects designed to modernize the financial
management system environment, improve financial system
controls, reduce sustainment costs, provide additional
functionality for external lending partners, and improve
system reliability. In FY 2021, the SBA played a key role in
the continuing programs designed to bring emergency relief
for America’s small businesses such as additional funding for
Paycheck Protection Program, COVID-19 Economic Injury
Disaster Loans as well as implementing new programs such
as Shuttered Venue Operators Grant and the Restaurant
Revitalization Fund as a part of the American Rescue Plan
Act. SBA systems continued to process a historic volume of
transactions this fiscal year:

General ledger line item transactions increased from
11 million in FY 2019 to more than 262 million in
FY 2020 and 222 million in FY 2021.

Payment volume increased from 250,000 in FY 2019 to
more than 17.5 million in FY 2020 and 16.6 million in
FY 2021.

The Office of Performance, Planning, and the Chief Financial
Officer and the Office of Capital Access oversee the following
three core financial management systems:

Oracle Federal Financials — This system, the most
current release in its implementation of the Joint
Administrative Accounting Management System
(JAAMS), supports the SBA’s funding and expenditure
of administrative funds.

Loan Systems — This SBA-built system supports the
lifecycle of loan guarantee processing, loan program
funds control, management and accounting for loan
servicing, and loan-related expenses.

Financial Management System — This SBA-built
system consolidates administrative and loan activity,
manages cash and control funds, and supports financial
reporting.

11 The Federal Financial Management Improvement Act of 1996 promotes more effective federal financial management by ensuring that financial

management systems provide accurate, reliable, and timely financial management information to the government’s managers. Compliance with the
FFMIA provides the basis for the continuing use of reliable financial management information by program managers, the President, Congress, and
the public.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

Management Assurances: FMFIA and FFMIA Assurance Statement for
FY 2021
The Small Business Administration continued to strengthen its internal controls over core and COVID-related programs
and operations during FY 2021. Creating and sustaining a culture of responsibility and accountability while eliminating
and preventing waste, fraud, and abuse is critical to meeting our mission at the SBA. While the SBA continued to
strengthen internal controls, the SBA’s independent auditor has issued a disclaimed opinion on the Agency’s FY 2021
Consolidated Balance Sheet and is reporting material weaknesses in internal controls. Although the SBA believes that its
efforts to develop and implement controls for its COVID-related programs in FY 2021 would have remediated material
weaknesses identified from the FY 2020 audit, the SBA will continue to resolve findings next year. The SBA has provided
responses outlining proposed corrective actions for identified deficiencies to the auditor in an effort to remediate.
The SBA’s management is responsible for managing risks and maintaining effective internal controls and financial
management systems to meet the objectives of sections 2 and 4 of the Federal Managers Financial Integrity Act
(FMFIA). The SBA conducted its assessment of risk and internal controls in accordance with OMB Circular No. A-123,
Management’s Responsibility for Enterprise Risk Management and Internal Control. Agency managers have issued assertions
to me as to the status of the FY 2021 internal controls in their areas of responsibility. These assertions are supported by
internal testing, checklists, and other management reviews.
FMFIA section 2 requires that the head of each Executive Agency annually submit to the President and Congress (i) a
statement on whether there is reasonable assurance that the Agency’s controls are achieving their intended objectives and
(ii) a report on material weaknesses in the Agency’s controls. Based on the results of the Agency managers’ assessments,
I can provide modified assurance over the internal controls over operations, reporting, and compliance with applicable
laws and regulations, as of September 30, 2021. The internal controls over operations, reporting, and compliance
with applicable laws and regulations were operating effectively except for certain controls noted below. The SBA has
developed and implemented controls to remedy the material weaknesses identified in the FY 2020 audit but notes that
the material weaknesses identified through the prior year audit remain because of the timing of corrective action plan
implementation. The FY 2021 audit identified material weaknesses in the following areas:

Controls over Paycheck Protection Program (PPP) Loan Guarantees

Controls over COVID-19 EIDLs and Grants

Controls over the Subsidy Reestimate

Controls over the Evaluation of Service Organizations

Controls over Monitoring and Accounting of Restaurant Revitalization and Shuttered Venues Operators Grant
Programs

Entity Level Controls

FMFIA section 4 requires agencies to report on whether the Agency’s financial management systems comply with
government-wide requirements. The SBA evaluated its financial management system; however, the auditor noted
noncompliance with Federal Financial Systems Requirements and Federal Accounting Standards. As a result of this
audit assessment, the Agency’s financial management systems do not conform to the principles, standards, and related
requirements prescribed by Section 4 of FMFIA; therefore, the SBA provides a modified assurance.
The Federal Financial Management Improvement Act (FFMIA) requires federal agencies to implement and maintain
financial management systems that are in substantial compliance with federal financial management systems
requirements, federal accounting standards, and the United States Standard General Ledger. The SBA evaluated its
financial management systems to determine conformance; however, the auditor identified that it does not comply with
Federal Financial Systems Requirements and Federal Accounting Standards. Based on the FFMIA criteria and audit

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

report, the SBA provides a modified assurance that its financial management systems substantially comply with FFMIA
for FY 2021. The Agency is currently evaluating identified material weaknesses and non-conformances to make further
adjustments necessary to bring its programs into compliance.

Isabella Casillas Guzman
Administrator
November 15, 2021

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Management’s Discussion and Analysis

of SOC 1 reports over the fiscal transfer agent and
the financial service provider were not sufficient or
properly documented enough to aid in the SBA’s
assessment of internal controls over financial reporting
and do not enable the fair presentation of the Liability
for Loan Guarantees line item and related elements
in the consolidated financial statements Corrective
actions related to COVID EIDL transactions include
the development and implementation of a policy
requiring new service organizations to provide a SOC 1
report over the control environment that was relevant
and significant to the processing identified and that
evaluated relevant controls at the service organizations
that have had an impact on the SBA’s internal controls
over reporting. Corrective actions related to SOC 1
reports include the development of a SOC policy to
address SOC complementary design controls, exception
reporting, and impact analysis. The policy will include
the organizations required to provide SOC reports.

Summary of Material Weaknesses
1. Controls over PPP Loan Guarantees – The auditor
identified deficiencies in the PPP loan guarantees
process related to the approval, reporting, review, and
forgiveness of the PPP loan guarantees. Specifically,
the auditor identified deficiencies in: (a) the design
and implementation of controls to ensure PPP loan
guarantees approved were in conformance with
legislation, (b) the design and implementation of
controls to determine the status of PPP loan guarantees,
(c) the design and implementation of controls to review
and validate flagged PPP loan guarantees, and (d) the
design and implementation of controls to ensure
forgiveness process was accurate and in accordance with
legislation. The SBA continues to implement Corrective
Action Plan (CAP) that includes the development of a
Paycheck Protection Program Loan Review Plan with
a detailed review process to ensure the PPP Loans are
accurately reported.

5. Controls over Monitoring and Accounting of
Restaurant Revitalization and Shuttered Venues
Operators Grant Programs– The auditor determined
that SBA did not adequately design and implement
monitoring controls over the Restaurant Revitalization
Fund and Shuttered Venues Operators Grant (SVOG)
programs. The SBA will review and update where
necessary the existing framework for each program
and the design of the controls to ensure funds are used
in accordance with legislative requirements and to
ensure controls are monitored for accuracy of financial
reporting.

2. Controls over COVID-19 EIDLs and Grants – The
auditor determined that SBA did not adequately design
and implement controls to ensure approved COVID
EIDLs and grants were provided to eligible borrowers
and accurately recorded. The SBA implemented
corrective actions utilizing a quality assurance team to
manage the COVID EIDL loan and advance process
review. The team sampled reviews against COVID
legislation as well as SBA policy and provided results to
loan/advance processors, disbursers, and management
to determine which actions were made to ineligible
recipients.

6. Entity Level Controls – The auditor determined that
SBA did not properly design and implement entity
level controls to establish an internal control system
that produces reliable and accurate financial reporting.
Corrective actions include developing a detailed process
documentation describing CARES Act programs’
transaction lifecycles and related financial and internal
controls. The documentation will describe how
transactions are recorded in the financial system and the
internal controls in place to confirm that transactions
are recorded accurately and timely. In addition, an
assessment plan will provide an evaluation of internal
controls, and associated risk related templates will
support conducting a preliminary assessment of the
risks related to CARES Act business processes used to
manage the new funding. The assessments will provide
the SBA with information to determine the scope
and magnitude of additional reviews needed and help
maintain the overall control environment. Furthermore,

3. Controls over the Subsidy Reestimate – The auditor
determined that SBA did not adequately design and
implement controls over the review of the data inputs
and assumptions used in the subsidy reestimate to
determine that the portfolio of PPP loans was complete
and accurate. The SBA will review and evaluate
the reestimate of the PPP model, clarify elements
supporting the FY 2020 reestimate, and expand upon
the Assumption Development document to provide
a more robust support assumptions for use in the
FY 2021 reestimates.
4. Controls over the Evaluation of Service
Organization – The auditor determined that the
SBA did not obtain reasonable assurance on the
operating effectiveness of internal controls in the service
organization’s control environment relevant to the
processing of the SBA’s COVID EIDL transactions.
Additionally, the auditor determined that evaluations

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Management’s Discussion and Analysis

the assessment plan will outline guidance that identifies
SBA personnel responsible for overseeing the design,
implementation, and operation of the SBA’s internal
control system.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Reporting
(UNAUDITED)

Success Stories
MAMA’S SOUTHERN STYLE BBQ II
Christopher Finnick, CEO
Vauxhall, NJ

Mama’s Southern Style BBQ II is a family-owned southern
BBQ restaurant that recently expanded to a new space with
the assistance of an SBA-backed 504 loan and a microloan
from the Regional Business Assistance Corporation, a Certified
Development Company (CDC). CEO Christopher Finnick now
owns and operates the family business, which was started by
his uncle in 1997. In 2020, Mama’s Southern Style BBQ II was
named the SBA New Jersey Small Business of the Year.

SBA relief programs when they
became available. The Paycheck
Protection Program and COVID
EIDL loans he received ensured
that the restaurant did not
lose any employees during
the pandemic and allowed the
business to stay open.

Christopher was not sure how his restaurant would survive
when COVID-19 hit and business slowed down. He received
regular updates from Kean University’s Small Business
Development Center to help prepare his business and access

“Without [the SBA], I don’t know where I would have been,”
says Christopher. “It was like a guy sent from heaven to just
pick us up and carry us to the finish line.”

PLAY IT AGAIN
SPORTS

BRIGHT FUTURES
LEARNING SERVICES

Richard Messina

Jill Scarbro-McLaury

Owner/Operator
Omaha, NE

CEO
Winfield, WV

March is normally the busiest
time of year for Play It Again
Sports, a retail franchise in
Omaha, NE that buys, sells, and
trades new and used sporting
and fitness equipment. As the
pandemic shut down team
sports, the store pivoted to selling fitness equipment and yard
games, helping people stay active while socially distanced.

Bright Futures Learning
Services was one of the first
providers of Applied Behavior
Analysis therapy to children
with autism in the state of West
Virginia. “We provide early
intensive interventions, starting
with children as young as two, and work one-on-one with
them to really change their trajectory. To help them learn how
to learn, so that they can achieve their best outcome,” says Jill
Scarbro-McLaury, CEO.

Air Force Veteran Richard Messina, owner and operator of
Play It Again Sports, was no stranger to the SBA’s programs
when the pandemic hit. After retiring from the Air Force,
he participated in the Boots to Business training program
offered through the SBA and the DOD’s Transition Assistance
Program. Messina also received mentoring from SCORE, an
SBA resource partner that provides business counseling and
training services.
During the pandemic, Messina obtained a Paycheck
Protection Loan to keep his staff employed. Staying afloat
during the pandemic proved crucial to the business’s success.
“Because our business continued to take off, we got a 7(a)
loan through the SBA that helped us expand our footprint and
our inventory, and the services we were able to offer,” said
Richard.

The COVID pandemic had a devastating impact on the
families who relied on Bright Future’s intensive therapy
services. Because of Jill’s familiarity with SBA’s program, she
was able to act quickly when the pandemic threatened her
business. “Several of our SBA contacts will personally contact
me and make sure that I have information available to us, and
that we were one of the first in line for the Payroll Protection
Program because our banker knew how important it was to
keep us afloat.”
Bright Futures Learning now houses programs in two
locations, Foundations and McCoy Academy. The new
location opened in April, with the assistance of the SBA’s 504
loan program, after the pilot program was displaced for over a
year due to COVID-19.

Success Stories

Financial Results (Unaudited)

Message From the Acting Chief Financial Officer
November 15, 2021
I am pleased to issue the SBA’s FY 2021 Agency Financial Report as of
September 30, 2021. This report presents the Agency’s financial results in
accordance with U.S. Office of Management and Budget guidance, and the
financial statements have been developed within Generally Accepted Accounting
Principles.
This year the SBA continued to play a key role helping small businesses recover
from the COVID-19 pandemic and building back a more equitable economy for
all entrepreneurs through programs implemented in the American Rescue Plan
Act. While the SBA made substantial progress strengthening internal controls for
pandemic-focused programs implemented apace in FY 2020, the Agency continues to work on closures of material
weaknesses and resolve a disclaimer of opinion on the Agency’s FY 2021 Consolidated Balance Sheet.
Jason Bossie

The SBA has provided more than $1.1 trillion in economic relief since March 2020. With the passage of the
American Rescue Plan Act, the SBA helped businesses in key industries keep their doors open by providing nearly
$29 billion through the Restaurant Revitalization Fund and $10 billion through the Shuttered Venue Operator
Grant program. The Agency also played a key role approving $277 billion in Paycheck Protection Program loans,
forgiving more than $562 billion of them, and approving $74 billion in COVID EIDL loans in FY 2021. These
figures represent an immense undertaking by the SBA to save millions of small businesses.
While the SBA continued to focus attention protecting the economy, the Agency realizes the importance of controls
to prevent fraud, waste, and abuse. This year has been critical to establish robust procedures to ensure that taxpayer
dollars have been appropriately awarded. The Agency took action to develop a fraud risk assessment, establish new
checks to verify entities before making awards, and document processes for new programs.
In FY 2022, the Agency will continue to be a champion for small businesses as they recover from the pandemic and
strengthen management over its operations. To achieve these goals, the SBA has started laying the groundwork for its
FY 2022-2026 Strategic Plan to be published in February 2022. As an Agency dedicated to building robust evidence
to inform decision making, the Strategic Plan presents an opportunity to further the Administration’s vision to help
all entrepreneurs achieve their dreams.
I look forward to sharing those achievements next year. I also want to thank the dedicated SBA team that achieved
these great successes and developed the FY 2021 Agency Financial Report.
Sincerely,

Jason Bossie
Acting Associate Administrator for Performance, Planning,
and the Chief Financial Officer

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Inspector General’s Audit Report
U.S. Small Business Administration
Office of Inspector General
Washington, D.C. 20416

DATE:

November 15, 2021

TO:

Isabella Casillas Guzman
Administrator

FROM:

Hannibal “Mike” Ware
Inspector General

SUBJECT:

Independent Auditors’ Report on SBA’s FY 2021 Financial Statements
(Report 22-05)

I am pleased to present the attached independent auditors’ report on the U.S. Small Business Administration’s
(SBA’s) consolidated financial statements for fiscal years 2021 and 2020, as required annually by the Chief Financial
Officers Act of 1990, as amended.
We contracted with the independent certified public accounting firm KPMG LLP to conduct an audit of SBA’s
consolidated balance sheets as of September 30, 2021, and for 2020 and the related notes to these statements.
KPMG was also engaged to audit the consolidated statements of net cost and changes in net position and combined
statement of budgetary resources for the year ended September 30, 2020, as well as the related notes to those
statements.
KPMG was engaged to conduct the audit in accordance with U.S. Generally Accepted Auditing Standards. The
audit also complied with the applicable standards for financial audits in Government Auditing Standards issued by
the Comptroller General of the United States and Office of Management and Budget Bulletin No. 21-04, Audit
Requirements for Federal Financial Statements.
In the report, KPMG auditors found significant matters for which they were unable to obtain sufficient, appropriate
audit evidence to provide a basis for an audit opinion on SBA’s consolidated financial statements for the year ended
September 30, 2021. Accordingly, KPMG issued a disclaimer of opinion on the consolidated financial statements as
of and for the year ended September 30, 2021, and for 2020.
The basis for the disclaimer was that, due to inadequate processes and controls, SBA was unable to provide adequate
evidential matter in support of a significant number of transactions and account balances related to the expanded
Paycheck Protection and Economic Injury Disaster Loan programs and the newly implemented Restaurant
Revitalization and Shuttered Venues Operators Grant programs.
As a result, KPMG was unable to determine whether any adjustments might have been necessary with respect to the
following:

Loans Receivable (net)

Advances and Prepayments

Downward Reestimate Payable to Treasury

Liability for Loan Guaranties

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

For the year ended September 30, 2021, KPMG identified six material weaknesses and two significant deficiencies in
internal controls over financial reporting. Appendixes I and II of this report describe details of KPMG’s conclusions
about the material weaknesses and significant deficiencies. Appendix III describes instances of noncompliance or
other matters required to be reported under Government Auditing Standards or OMB Bulletin No. 21-04.
We reviewed KPMG’s report and related documentation and inquired of its representatives. Our review, as
differentiated from an audit of the financial statements in accordance with U.S. Generally Accepted Government
Auditing Standards, was not intended to enable us to express — and we do not express — opinions on SBA’s financial
statements or internal control over financial reporting or conclusions on SBA’s compliance with applicable laws and
other matters.
KPMG is responsible for the attached auditors’ report dated November 15, 2021, and the conclusions expressed.
However, OIG provides negative assurance of this audit.
Our oversight protocols include evaluation of major work products, attendance at critical meetings, review of
significant findings and examination of related evidential matter. Our review disclosed no instances where KPMG
did not comply in all material respects with U.S. Generally Accepted Government Auditing Standards.
We provided a draft of KPMG’s audit report to SBA’s Acting Chief Financial Officer, who did not concur with
the severity of five material weaknesses under “PPP Loan Guarantees,” “COVID-19 EIDLs and Grants,” “Subsidy
Reestimate,” “Restaurant Revitalization and Shuttered Venues Operators Grant program,” and “Entity Level
Controls.” SBA partially agrees with the material weakness under “Evaluation of Service Organizations.”
SBA’s responses, as communicated to KPMG during the audit, detail their concerns with the analysis and
conclusions drawn by the auditors. The Acting Chief Financial Officer’s response is included in Appendix IV, and
KPMG’s response to the Acting Chief Financial Officer’s response is included in Appendix V of this report.
We appreciate the cooperation and assistance of SBA and KPMG during the audit. Should you or your staff have
any questions, please contact me or Andrea Deadwyler, Assistant Inspector General for Audits, at (202) 205-6586.

cc:

Antwaun Griffin, Chief of Staff
Arthur Plews, Deputy Chief of Staff
Jason Bossie, Acting Associate Administrator, Office of Performance, Planning, and the Chief Financial Officer
Patrick Kelly, Associate Administrator, Capital Access
John Miller, Deputy Associate Administrator, Capital Access
James Rivera, Associate Administrator, Disaster Assistance
Erica Gaddy, Deputy Chief Financial Officer
Peggy Delinois Hamilton, General Counsel
Michael Simmons, Attorney Advisor, Office of General Counsel
Tonia Butler, Director, Office of Internal Controls
Rafaela Monchek, Director, Office of Continuous Operations and Risk Management

Attachment

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Independent Auditors’ Report on FY 2021 Financial
Statements

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

Independent Auditors’ Report
Inspector General
U.S. Small Business Administration
Administrator
U.S. Small Business Administration
Report on the Financial Statements
We were engaged to audit the accompanying consolidated balance sheets of the United States (U.S.) Small
Business Administration (SBA) as of September 30, 2021 and 2020, and the related notes to these statements.
We were also engaged to audit the consolidated statements of net cost and changes in net position, and
combined statement of budgetary resources for the year ended September 30, 2020 and the related notes to
these statements. These are referred to as 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 U.S. generally accepted accounting principles; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on conducting the
audit 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 Office of Management and Budget (OMB)
Bulletin No. 21-04, Audit Requirements for Federal Financial Statements. Because of the matter described in
the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion.
Basis for Disclaimer of Opinion
During fiscal years 2020 and 2021, the Coronavirus Aid, Relief, and Economic Security Act of 2020 and related
legislations authorized funding for SBA to expand or implement the Paycheck Protection Program, Economic
Injury Disaster Loan program, Restaurant Revitalization program, and Shuttered Venues Operators Grant
program. SBA was unable to provide adequate evidential matter in support of a significant number of
transactions and account balances related to these programs due to inadequate processes and controls. As a
result of these matters, we were unable to determine whether any adjustments might have been necessary
related to Loans Receivable, Net; Advances and Prepayments; Downward Reestimate Payable to Treasury;
and Loan Guarantee Liabilities.
Disclaimer of Opinion
Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have
not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
Accordingly, we do not express an opinion on these consolidated financial statements.

KPMG LLP, a Delaware limited liability partnership and a member firm of
the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Other Matters
Report on Certain Fiscal Year 2021 Information
We were not engaged to audit the consolidated statements of net cost and changes in net position, and
combined statement of budgetary resources for the year ended September 30, 2021 and the related notes to
these statements and, accordingly we express no opinion on them.
Interactive Data
Management has elected to reference to information on websites or other forms of interactive data outside the
U.S. Small Business Administration’s Fiscal Year 2021 Agency Financial Report to provide additional
information for the users of its consolidated financial statements. Such information is not a required part of the
consolidated financial statements or supplementary information required by the Federal Accounting Standards
Advisory Board. The information on these websites or the other interactive data has not been subjected to any
of our auditing procedures, and accordingly we do not express an opinion or provide any assurance on it.
Required Supplementary Information
U.S. generally accepted accounting principles require that the information in the Management’s Discussion and
Analysis and Required Supplementary Information sections be presented to supplement the consolidated
financial statements. Such information, although not a part of the 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 consolidated financial statements in an appropriate operational, economic, or historical
context. We were unable to apply certain limited procedures to the required supplementary information in
accordance with auditing standards generally accepted in the United States of America because of the
significance of the matters described in the Basis for Disclaimer of Opinion paragraph. We do not express an
opinion or provide any assurance on the information.
Other Information
We were engaged to audit the consolidated financial statements as a whole. The Table of Contents, How this
Report is Organized, Message from the Administrator, Message from the Acting Chief Financial Officer, Other
Information, and the Appendices are presented for purposes of additional analysis and are not a required part
of the consolidated financial statements. Such information has not been subjected to the procedures applied in
our engagement to audit the 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 connection with our engagement to audit the consolidated financial statements, we considered SBA’s
internal control over financial reporting (internal control) as a basis for designing procedures that are
appropriate in the circumstances for the purpose of expressing an 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.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant
deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been
identified. However, as described in the accompanying Appendices I and II, we did identify certain deficiencies
in internal control that we consider to be material weaknesses and significant deficiencies.
A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,

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misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies
described in Appendix I to be material weaknesses.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe
than a material weakness, yet important enough to merit attention by those charged with governance. We
consider the deficiencies described in Appendix II to be significant deficiencies.
Compliance and Other Matters
In connection with our engagement to audit SBA’s consolidated financial statements, we performed tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with
which could have a direct and material effect on the consolidated financial statements. However, providing an
opinion on compliance with those provisions was not an objective of our engagement to 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. 21-04, and
which are described in Appendix III.
We also performed tests of SBA’s compliance with certain provisions referred to in Section 803(a) of the
Federal Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on compliance with
FFMIA was not an objective of our engagement to audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed instances in which SBA’s financial management systems did not substantially
comply with the (1) Federal financial management systems requirements, and (2) applicable Federal
accounting standards. The results of our tests disclosed no instances in which SBA’s financial management
systems did not substantially comply with the United States Standard General Ledger at the transaction level.
Additionally, if the scope of our work had been sufficient to enable us to express an opinion on the basic
consolidated financial statements, other instances of noncompliance or other matters may have been identified
and reported herein.
SBA’s Response to Findings
SBA’s response to the findings identified in our engagement is described in Appendix IV. SBA’s response was
not subjected to the procedures applied in the engagement to audit the consolidated financial statements and,
accordingly, we express no opinion on the response.
Our response to SBA’s response is included in Appendix V.
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
results of that testing, and not to provide an opinion on the effectiveness of SBA’s internal control or
compliance. Accordingly, this communication is not suitable for any other purpose.

Washington, DC
November 15, 2021

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Appendix I
U.S. Small Business Administration
Material Weaknesses
The following deficiencies are considered to be material weaknesses in internal controls over financial
reporting.
1. Controls over Paycheck Protection Program (PPP) Loan Guarantees Need Improvement
2. Controls over COVID-19 Economic Injury Disaster Loans (EIDLs) and Grants Need Improvement
3. Controls over the Subsidy Reestimate Need Improvement
4. Controls over the Evaluation of Service Organizations Need Improvement
5. Controls over Accounting and Monitoring of Restaurant Revitalization and Shuttered Venues
Operators Grant Programs Need Improvement
6. Entity Level Controls Need Improvement
For purposes of presentation and as described below, material weaknesses (1) and (4) have multiple
components. Material weakness (1) Controls over PPP Loan Guarantees Need Improvement, is comprised of:
(A) Approval of PPP Loan Guarantees, (B) Reporting of PPP Loan Guarantees, (C) Review of PPP Loan
Guarantees, and (D) Forgiveness of PPP Loan Guarantees. Material weakness (4) Controls over the
Evaluation of Service Organizations Need Improvement, is comprised of: (A) Service Organization Used for
COVID-19 EIDLs and Grants; and (B) Service Organizations Used for Loan Guarantee Programs.
During fiscal year 2021, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act and the American Rescue Plan Act to continue providing emergency assistance in
response to the extensive effects of the public health and economic crisis arising from the Coronavirus
Disease 2019 (COVID-19) pandemic. In addition to implementing the new and expanded provisions of the
fiscal year 2021 referenced legislations, SBA processed forgiveness payments for the 2020 and 2021 cohort
PPP loan guarantees and continued to issue additional COVID-19 EIDLs. The fiscal year 2021 funding
expanded on the programs authorized by the Coronavirus Aid, Relief, and Economic Security Act of 2020
(CARES Act) and the Paycheck Protection Program and Health Care Enhancement Act during fiscal year
2020 specifically with additional PPP and COVID-19 EIDL Grants funding, and the authorization of the
Restaurant Revitalization and Shuttered Venues Operators Grants (SVOG) programs. The referenced
fiscal year 2020 and 2021 laws from this point forward are collectively referred to as the CARES Act and
related legislation.
1. Controls over PPP Loan Guarantees Need Improvement
A. Approval of PPP Loan Guarantees
Management did not adequately design and implement controls to ensure PPP loan guarantees approved
in fiscal year 2021 were in existence, accurate, and in conformance with CARES Act and related
legislation. Specifically, management identified approved loans disbursed by its third-party lenders that, in
many cases, were potentially not accurate and not in conformance with the CARES Act and related
legislation. Additionally, we tested a sample of 383 PPP loan guarantees from the 2021 cohort and were
unable to verify the existence and accuracy of 32 sampled items because we did not receive a confirmation
response from the respective lenders.
Also, SBA’s process was not designed to identify and resolve a complete list of potential noncompliance
flags that should have been addressed prior to approving the loan guarantees. As of September 30, 2021,
over 27,000 approved PPP loan guarantees (with an approximate total value of $488 million) were flagged

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by management in the loan repository system that potentially did not conform with the CARES Act and
related legislation. More specifically, SBA did not ensure the 2021 cohort of PPP loan guarantee
applications met select program eligibility requirements by verifying with all validation checks available
within its case management system. Instead, only a limited number of checks were performed.
Furthermore, for the flags that SBA identified for an application, SBA did not perform a sufficient review of
the application to ensure that lenders followed established procedures and adequately addressed the
eligibility concerns raised from the case management system’s automated screening.
The deficiencies were caused by an inadequate entity wide control environment to implement processes to
account for new and expanded programs under the CARES Act and related legislation with sufficiently
designed, implemented, and effectively operating controls.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

The Government Accountability Office’s (GAO’s) Standards for Internal Control in the Federal
Government (“Green Book”), Principle 10, Design Control Activities; and Principle 16, Perform
Monitoring Activities

•

Office of Management and Budget (OMB) Circular No. A-123, Management’s Responsibility for
Enterprise Risk Management and Internal Control

The deficiencies noted above may result in material misstatements to the Loan Guarantee Liabilities,
Downward Reestimate Payable to Treasury line items, and related elements in the consolidated financial
statements.
Recommendations – Approval of PPP Loan Guarantees
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
1. Perform a thorough review of PPP loan guarantee approvals in the 2021 cohort. Based on the
review, determine the impact on the outstanding loan guarantee and the eligibility for
forgiveness of loans that are determined to not be in conformance with the CARES Act and
related legislation and program requirements.
We also recommend the Administrator coordinate with the Acting Chief Financial Officer to:
2. Based on the results of the loan guarantee review process for the 2021 cohort of PPP loan
guarantees, assess the accounting considerations, including the impact on the consolidated
financial statements, and record any necessary adjustments for loans determined to not be in
conformance with the CARES Act and related legislation.
B. Reporting of PPP Loan Guarantees
Management did not adequately design and implement controls to determine that the status of PPP loan
guarantees was complete and accurate to enable the fair presentation of the Loan Guarantee Liabilities
and related elements in the consolidated financial statements. Specifically, management did not have
adequate processes and controls in place to review the status of PPP loan guarantees where lender loan
status reports had not been submitted, had been submitted incorrectly, or were not processed.
As of September 30, 2021, SBA reported approximately $2 billion of approved PPP loan guarantees, but
not disbursed due to unreported or unprocessed lender loan status reports. In addition, there were over 5
million errors during the fiscal year from lender loan status reports that were not reviewed or processed to
update the outstanding loan principal balance. The affected PPP loan guarantees comprised of 74 distinct
lender loan status report error codes (e.g., PPP loans must be fully disbursed, Lender not Reported, Loan
is in inactive status, Invalid Guarantee Service Status Code, Outstanding balance plus Total Amount
Undisbursed cannot exceed Loan Approval Amount, and Outstanding Balance must be less than or equal

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to Current Loan Approval Amount).
The deficiencies were caused by an inadequate entity wide control environment to implement processes, and
procedures to account for new and expanded programs under the CARES Act and related legislation with
sufficiently designed, implemented, and effectively operating controls.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; and Principle 10,
Design Control Activities

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above may result in material misstatements to the Loan Guarantee Liabilities,
Downward Reestimate Payable to Treasury line items and related elements in the consolidated financial
statements.
Recommendations – Reporting of PPP Loan Guarantees
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
3. Design and implement controls to identify and review PPP loan guarantees with incomplete or
inaccurate lender loan status reports.
4. Determine the correct PPP loan balances and ensure the loan repository system is updated
with the correct balance.
5. Develop and enforce a policy and controls that require the adequate training and monitoring of
lenders to execute their responsibilities in the PPP loan servicing process.
6. Develop and enforce a policy and controls to monitor incomplete or inaccurate PPP lender
loan status reports on an ongoing basis.
We also recommend the Administrator coordinate with the Acting Chief Financial Officer to:
7. Based on the results of the lender loan status reports review process for PPP loan
guarantees, design and implement controls to assess the accounting considerations, including
the impact on the consolidated financial statements, and record any necessary adjustments.
C. Review of PPP Loan Guarantees
Management did not adequately design and implement controls to ensure the 2020 cohort of PPP loan
guarantees were completely and accurately reviewed to address their respective eligibility flags and
ultimately determine their eligibility for forgiveness. Specifically, management did not demonstrate controls
over the review and validation of identified flags from the case management system. Additionally,
management did not demonstrate effective monitoring controls over the results from the key contractor
involved in the review process. The loan guarantees determined by the contractor as ‘No Further Action’
were not subsequently reviewed by SBA.
The deficiencies occurred because SBA did not have a policy in place to adequately review outputs of the case
management system and insufficient design and implementation of monitoring controls over the contractor’s
loan review process.
The following criteria were considered with respect to the matter described in the preceding paragraphs:

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•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 6,
Define Objectives and Risk Tolerances; Principle 7, Identify, Analyze, and Respond to Risks;
Principle 10, Design Control Activities; and Principle 16, Perform Monitoring Activities

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above may result in a material misstatement to the Loan Guarantee Liabilities and
Downward Reestimate Payable to Treasury line items, and the related elements in the consolidated
financial statements.
Recommendations – Review of PPP Loan Guarantees
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
8. Develop and enforce a policy and controls that require the adequate review and validation of
the outputs of the case management system.
9. Develop and enforce a policy and controls to monitor the results of the contractor’s loan review
process including a review of loans with a ‘No Further Action’ determination.
D. Forgiveness of PPP Loan Guarantees
Management did not adequately design and implement controls to ensure that forgiveness payments
processed for PPP loan guarantees were accurate and proper in accordance with the CARES Act and
related legislation. The forgiveness review process was insufficiently designed as only a limited number of
PPP forgiveness applications were actually reviewed. Specifically, the review process was not sufficient to
ensure the accuracy and appropriateness of forgiveness payments in accordance with the program terms
for the loan guarantees that were not actually sampled and reviewed. In addition, the review process for
the sample of forgiveness loan applications was not completed prior to the processing of forgiveness
payments. As such, the results of the sample would not effectively prevent forgiveness payments to be
processed for loan guarantees that did not meet the program requirements.
Additionally, management did not design and implement adequate controls to ensure the completeness of
loans in one of the categories that forgiveness applications would be subjected to manual review. The
category of loans subjected to manual review is dependent on the PPP loan review process. Due to the
deficiencies noted in the review of PPP loan guarantees process specific to the case management
system, the PPP loan guarantees in this category that is subject to review may not be complete.
Furthermore, from an analysis performed over the results of the PPP loan review process and forgiveness
payments, $49 billion was paid to lenders for forgiveness of PPP loan guarantees that were still being
reviewed to address alerts and flags indicative of eligibility concerns.
The deficiencies were caused by an insufficient design and implementation of the loan forgiveness review
process prior to the processing of payments, a lack of sufficient and timely coordination between the contractor
involved in the loan review process and SBA, the lack of a policy to adequately review outputs of the case
management system, and insufficient design and implementation of monitoring controls over the contractor’s
loan review process.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

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•

More than one COVID-19 EIDL or grant was approved and disbursed to the same borrower;

•

According to law enforcement agencies, COVID-19 EIDLs and grants were issued to
borrowers with fraudulent tax identification numbers;

•

COVID-19 EIDLs were issued that management flagged to be potentially fraudulent, a victim
of identity theft, or where the borrower or the bank was involved in an Office of Inspector
General investigation; and

•

COVID-19 EIDLs and grants with eligibility concerns were issued to borrowers.

As of September 30, 2021, over 500,000 approved and disbursed COVID-19 EIDLs (with an approximate total
value of over $30 billion) were flagged in the loan repository system as issued to potentially ineligible
borrowers. The loans were flagged for one or more of 20 different reasons (e.g., Data Anomaly Issue; General
Eligibility; Potential Fraud; Borrower or Lender is Involved in Office of Inspector General Investigation; Lender
Referrals; Duplicate Tax Identification Number; Business Identification Theft Flag; Federal Bureau of
Investigation- Identified as Fraudulent Tax Identification Number; EIDL Criminal Record; EIDL Bankruptcy;
EIDL Office of Foreign Assets Control; EIDL Potential Descendent; EIDL Inactive Business; EIDL Mismatch of
Tax Identification Number; EIDL Mismatch of Entity Name; Confirmed Fraud; Fraud; Potential Identity Theft;
Confirmed Identity Theft; and Pandemic Response Accountability Committee Fraud Referral). According to
management, a review plan was implemented and ongoing to address the COVID-19 EIDLs identified with
eligibility concerns.
Also, management did not implement adequate procedures and controls to address certain alerts within the
system. Specifically, the system’s Reference Guide that is used by loan officers during the approval process did
not have adequate procedures to address the following alerts: Public records search did not find business;
Bank account or routing number could not be verified; Bank account could not be confirmed to be associated
with the business; Deferred student loans; Foreclosure; and Outstanding lawsuit.
The deficiencies were caused by an inadequate entity wide control environment to implement processes and
procedures to account for the new and expanded programs under the CARES Act and related legislation with
sufficiently designed, implemented, and effectively operating controls.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; and Principle 10,
Design Control Activities

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Financial Results (Unaudited)

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above may result in a material misstatement of the Loan Receivables (net) and
Downward Reestimate Payable to Treasury line items, and related elements in the consolidated financial
statements.
Recommendations – Controls over COVID-19 EIDLs and Grants
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
11. Develop and execute a thorough, formal review plan of the COVID-19 EIDLs and grants
portfolios and determine which transactions were made to ineligible recipients and did not
conform with the CARES Act and related legislation.
12. Implement controls that prevent or detect COVID-19 EIDLs from being approved that are not
in conformance with the related legislation and program’s eligibility terms.
13. Update the Reference Guide to require a more thorough review to clear certain alerts and
enforce the actions recommended by the Reference Guide to adequately address and mitigate
the alerts prior to COVID-19 EIDLs approval.
14. Provide training for loan officers and team leads to reinforce their responsibilities in
accordance with established and updated guidance and standard operating procedures.
We also recommend the Administrator coordinate with the Acting Chief Financial Officer to:
15. Based on the results of the review process for COVID-19 EIDLs and grants, assess the
accounting considerations, including the impact on the consolidated financial statements, and
record any necessary adjustments for transactions determined not to be in conformance with
the CARES Act and related legislation.
3. Controls over the Subsidy Reestimate Need Improvement
Management did not adequately design and implement controls over the review of the data inputs used in
the PPP subsidy reestimate. Specifically, management did not consider and document the effects on the
reestimate methodology regarding:

•

PPP loan guarantees with lender loan status report errors that were not reviewed or
processed to update the outstanding loan principal balance. This includes lender loan status
reports that were not submitted, submitted incorrectly, or did not process due to an error. As
such, management did not have sufficient controls to ensure the unpaid principal balance of
loan guarantees within the portfolio, on which the reestimate is performed, is complete and
accurate.

•

The results from SBA’s loan review process that were used to develop a significant assumption
in the PPP reestimate model. However, there were not effective monitoring controls over the
performance of the loan review process. As such, management did not have sufficient controls
in place to ensure the completeness and accuracy of the data used to develop the significant
assumption.

•

The forgiveness transactions processed by SBA during the year that were also used to develop
another significant assumption. The forgiveness review process was not adequately designed to
assure that forgiveness transactions processed were appropriate and in accordance with the
program terms. As such, management did not have sufficient controls in place to ensure the

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Financial Results (Unaudited)

completeness and accuracy of the data used to develop forgiveness related significant
assumption.
In addition, management did not adequately design and implement controls to ensure the assumptions
used in the subsidy reestimate for the COVID-19 EIDLs were commensurate with their risks. Management
is in process of reviewing the COVID-19 EIDLs portfolio to address eligibility concerns on disbursed loans. This
review was not completed at the time of the year-end reestimate. As such, management does not have a
reasonable basis to determine whether the assumptions applied are appropriate to COVID-19 EIDLs in the
portfolio based on their specific risk characteristics.
Additionally, management did not design and implement sufficient review controls over the development
and application of the assumptions used in the subsidy reestimate for the COVID-19 EIDLs portfolio.
Specifically, management did not adequately address the relevancy of assumptions developed and
applied to the COVID-19 EIDLs portfolio. The risk profile of the COVID-19 EIDLs is different than that of
the traditional EIDLs where performance data was used to develop the assumptions. Therefore,
management is unable to sufficiently support the appropriateness of the assumptions applied to the
subsidy reestimate for the COVID-19 EIDLs.
The deficiencies were caused by an inadequate entity wide control environment related to the design,
implementation, and operating effectiveness of controls related to the review of the loan portfolio at a precision
level necessary to ensure the data inputs used for the reestimate models are complete and accurate. In
addition, the deficiencies were caused by the inherent challenges with the implementation and development of
subsidy reestimate models for new programs that do not have a significant volume of historical data or
precedence.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 10,
Design Control Activities; and Principle 13, Use Quality Information

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above may result in a material misstatement to the Loan Guarantee Liabilities, Loan
Receivables (net), and Downward Reestimate Payable to Treasury line items, and the related elements in
the consolidated financial statements.
Recommendations – Controls over the Subsidy Reestimate
We recommend the Administrator coordinate with the Acting Chief Financial Officer to:
16. Design and implement controls to continue accumulating relevant, complete, and accurate
data on which to base the subsidy reestimate models for the PPP and COVID-19 EIDLs
portfolios.
17. Ensure there are adequate review and approval controls over the reestimate models for the PPP
and COVID-19 EIDLs portfolios by appropriate levels of management, including review and
documentation of relevant data inputs, development of assumptions, and reasonableness for the
selected assumptions used and the resulting estimates.
4. Controls over the Evaluation of Service Organizations Need Improvement
A. Service Organization Used for COVID-19 EIDLs and Grants
Management did not obtain reasonable assurance on the operating effectiveness of internal controls in
the service organization’s control environment relevant to the processing of SBA’s COVID-19 EIDLs
transactions. The service organization control environment includes the operation of the system used for

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COVID-19 EIDLs and grants processing and the application controls within the system. In addition, the
relevant control environment includes the data transmissions over the internet between the system and
various third-party organizations.
In addition, management did not provide evidence of adequate monitoring activities performed over the
relevant internal control environment at the service organization, such as obtaining and reviewing an
attestation report on the design, implementation, and operating effectiveness of controls at the service
organization. Management also did not provide evidence whether adequate user entity controls were
designed, implemented, and operated effectively to complement the service organization’s controls.
Management’s assessment of internal controls over financial reporting is not complete without the sufficient
consideration of existing and non-existing controls at relevant service organizations and the effectiveness of
those controls.
Management did not hold the service organization accountable for the assigned internal control responsibilities
by obtaining reasonable assurance on the operating effectiveness of internal controls in the service
organization’s control environment (e.g., requiring a service organization control (SOC) 1 Type 2 report for the
control environment relevant to the processing of SBA’s COVID-19 EIDLs transactions).
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

GAO’s Green Book, Section 4, Additional Considerations: Service Organizations; Principle 5,
Enforce Accountability; Principle 10, Design Control Activities; and Principle 16, Perform Monitoring
Activities

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above prevented SBA from obtaining an understanding of relevant service organization
controls and any weaknesses that increase risks of misstatements in the Loans Receivable (net) and
Downward Reestimate Payable to Treasury line items, and related elements in the consolidated financial
statements.
Recommendations – Service Organization Used for COVID-19 EIDLs and Grants
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
18. Continually evaluate the established policy for SOC 1 reports that requires new service
organizations to provide a SOC 1 report over the control environment that is relevant and
significant to the processing and recording of SBA’s transactions. If a SOC 1 report cannot be
obtained, identify, and evaluate relevant controls at the service organizations that have an
impact on SBA’s internal controls over financial reporting.
19. Assess the risk posed by the service organization’s control environment and obtain sufficient
assurance over the operating effectiveness of relevant and significant controls to determine
the integrity of transactions processed on behalf of and recorded by SBA. If a SOC 1 report is
obtained for the relevant control environment at the service organization, determine and
document the following:

•

SOC 1 report is sufficiently scoped to cover transaction processing and related control
activities performed by the service organization on behalf of SBA (e.g., that services, business
applications and other information technology, service organization departments and locations,
control objectives and activities, and other aspects of scope that are relevant to SBA’s internal
controls over financial reporting are included in the scope of SOC 1 reports).

•

All exceptions noted in the SOC 1 report – not just those described in the independent service

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auditor’s report – are evaluated to determine applicability to SBA’s internal controls over
financial reporting, the potential impact to SBA’s financial statements, and mitigating controls
other considerations made during their risk assessment.

•

All complementary user entity controls described in the SOC 1 reports are evaluated using
current information and with consideration to their applicability to SBA’s internal controls over
financial reporting.

•

Evaluation procedures performed to assess whether complementary user entity controls and
other SBA-performed controls were tested and found effective and, if they are not, the impact
of such deficiencies on SBA’s internal controls over financial reporting.

•

All complementary subservice organization controls described in SOC 1 reports are evaluated
to determine whether they provided services and performed controls considered relevant to
SBA’s internal controls over financial reporting and, if relevant subservice organizations were
identified, an evaluation is performed to obtain an understanding of the subservice
organization(s) and their controls.

•

SOC 1 reports cover the appropriate period or corresponding gap letters provide sufficient
coverage to assess impacts on SBA’s internal controls over financial reporting.

B. Service Organizations Used for Loan Guarantee Programs
Management did not obtain reasonable assurance on the operating effectiveness of internal controls in
multiple service organizations’ control environments relevant to the financial service providers for the 7(a)
and 504 loan guarantee programs, and the PPP and Restaurant Revitalization program application intake
platform. With regards to the financial service providers for the 7(a) and 504 loan guarantee programs, the
relevant control environments include the facilitation, maintenance, and reporting of the account balances
for the respective secondary market programs. With regards to the application intake platform, the
relevant control environment includes the operation of the PPP loan forgiveness, PPP loan approval, and
Restaurant Revitalization program modules, the data transmissions over the internet between the relevant
modules and SBA systems used in the configured checks, the cloud-based infrastructure hosting provider,
and the application controls within the application intake platform.
In addition, management did not provide evidence of adequate monitoring activities performed over the
relevant internal control environments at the respective service organizations, such as obtaining and
reviewing an attestation report on the design, implementation, and operating effectiveness of controls at
the service organization. Management also did not provide evidence whether adequate user entity
controls were designed, implemented, and operated effectively to complement the service organization’s
controls. Management’s assessment of internal controls over financial reporting is not complete without the
sufficient consideration of existing and non-existing controls at relevant service organizations and the
effectiveness of those controls.
Also, management’s evaluation of SOC 1 reports for another 7(a) program financial service provider was not
sufficient or properly documented to aid in management’s assessment of internal controls over financial
reporting. Specifically, management did not provide documentation of the review performed over the SOC 1
reports. In addition, management did not obtain bridge letters for a relevant subservice organization mentioned
in the SOC 1 report that covered the appropriate gap period.
Management did not hold the service organizations accountable for the assigned internal control
responsibilities by obtaining reasonable assurance on the operating effectiveness of internal controls in the
service organizations’ control environments (e.g., by requiring a SOC 1 Type 2 report for the control
environment relevant to the processing of SBA’s transactions).
The following criteria were considered with respect to the matters described in the preceding paragraphs:

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above prevented SBA from obtaining an understanding of relevant service organization
controls and any weaknesses that increase risks of misstatements in the Loan Guarantee Liabilities line item
and related elements in the consolidated financial statements.
Recommendations – Service Organizations Used for Loan Guarantee Programs
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
20. Continually evaluate the established policy for SOC 1 reports that requires new service
organizations to provide a SOC 1 report over the control environment that is relevant and
significant to the processing and recording of SBA’s transactions. If a SOC 1 report cannot be
obtained, identify, and evaluate relevant controls at the service organizations that have an
impact on SBA’s internal controls over financial reporting.
21. Assess the risk posed by the service organizations’ control environments and obtain sufficient
assurance over the operating effectiveness of relevant and significant controls to determine
the integrity of transactions processed on behalf of and recorded by SBA. If a SOC 1 report is
obtained for the relevant control environment at the service organization, determine and
document the following:

•

All exceptions noted in the SOC 1 report – not just those described in the independent service
auditor’s report – are evaluated to determine applicability to SBA’s internal controls over
financial reporting, the potential impact to SBA’s financial statements, and mitigating controls
considerations made during their risk assessment.

•

SOC 1 reports cover the appropriate period or corresponding gap letters provide sufficient
coverage to assess impacts on SBA’s internal controls over financial reporting.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

5. Controls over Accounting and Monitoring of Restaurant Revitalization and Shuttered Venues
Operators Grant Programs Need Improvement
Management did not adequately design and implement monitoring controls over Restaurant Revitalization
and SVOG awards to ensure accurate financial reporting as of the fiscal year-end, and the funds were
used in accordance with the CARES Act and related legislation. Specifically, we noted that management
was unable to provide evidence that the accounting treatment and financial reporting for the Restaurant
Revitalization and SVOG awards were in accordance with U.S. generally accepted accounting principles. The
full amount of the awards was expensed immediately upon disbursement without evidence supporting the
existence, accuracy, and timely recognition of expenses, instead of advances, as they were incurred by the
recipients during the fiscal year.
In addition, management did not adequately design and implement controls to ensure the Restaurant
Revitalization program awards were approved and disbursed to eligible recipients in conformance with the
related legislation. Management approved and disbursed Restaurant Revitalization awards to recipients
that also had PPP loan guarantees that were flagged in SBA’s loan repository system. SBA placed flags
on PPP loan guarantees if the loans were indicative of potential noncompliance with select eligibility
requirements. As of September 30, 2021, we noted that numerous Restaurant Revitalization award
recipients also had a PPP loan guarantee with an alert or flag that were not cleared prior to the approval
of the Restaurant Revitalization award.
The deficiencies were caused by an inadequate entity wide control environment to identify and respond to risks,
and design and implement sufficient controls related to the Restaurant Revitalization and SVOG programs. In
addition, there was a lack of a sufficient analysis performed to determine the appropriate accounting treatment
for the newly established programs.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

GAO’s Green Book, Principle 10, Design Control Activities

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

The deficiencies noted above may result in a material misstatement to the Advances and Prepayments
line item and the related elements in the consolidated financial statements.
Recommendations – Controls over Accounting and Monitoring of Restaurant Revitalization and Shuttered
Venues Operators Grant Programs
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
22. Perform a thorough review of Restaurant Revitalization awards issued and identify recipients
that may not have been eligible to receive awards in accordance with the program’s terms,
especially for recipients with flagged PPP loan guarantees.
23. Design and implement effective monitoring controls, to ensure that Restaurant Revitalization
award recipients are complying with the program’s terms and to ensure complete, accurate, and
timely reporting for the use of the award.
We recommend the Administrator coordinate with the Associate Administrator for Office of Disaster
Assistance to:
24. Design and implement effective monitoring controls, to ensure that SVOG award recipients are
complying with the program’s terms and to ensure complete, accurate, and timely reporting for the
use of the award.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

We recommend the Administrator coordinate with the Acting Chief Financial Officer to:
25. Design and implement controls to ensure the accounting treatment established to record the
Restaurant Revitalization and the SVOG program related balances is in accordance with U.S.
generally accepted accounting principles and the basis for the appropriate treatment is
sufficiently documented.
6. Entity Level Controls Need Improvement
Due to the implementation of the new and expanded programs, management faced challenges in maintaining
an adequate entity level controls system that produces reliable and accurate financial reporting. The
significance of the internal control matters indicated several entity level control categories. We noted the
following conditions.
Control Environment: Management did not fully design and implement an effective control environment. For
example, the following matters were noted:
1. There was not a clear organizational structure which established the designated responsibilities as it
relates to the management and oversight of the COVID-19 EIDLs program including the timely
development of corrective actions to remediate recommendations related to review of the COVID-19
EIDLs portfolio.
2. Management did not adequately document the internal control system and processes related to the
implementation of significant new programs impacting SBA, including the Restaurant Revitalization and
SVOG programs.
Risk Assessment: Management did not design and implement an effective risk assessment process. For
example, the following matters were noted:
3. The materiality threshold developed and documented was not adequately considered and applied by
program offices when key decisions regarding controls and review processes were implemented. The
controls within the relevant offices were not designed, implemented, and operating effectively to a
sufficient precision level to ensure the reporting objective of preparing the financial statements free of
material misstatement could be achieved. For example, the 2021 cohort of PPP loan guarantees were
subject to a limited set of validation checks as compared to the 2020 cohort of PPP loan guarantees
without a documented risk assessment determining the rationale for why a lower response was
appropriate. Additionally, the PPP loan guarantee review and forgiveness review processes were not
designed to ensure the reviews performed were to a sufficient level of precision to ensure the related
balances were free of material misstatement.
4. New risks brought about by the CARES Act and related legislation that could significantly impact SBA’s
internal control system and the ability to achieve financial reporting objectives were not identified. For
example, evidence of adequate risk assessments related to the Restaurant Revitalization and SVOG
programs were not provided as processes were still being implemented and finalized.
Monitoring: Management did not design and implement effective monitoring processes. Specifically, the
following matters were noted:
5. There was not an adequate monitoring plan developed and implemented for lenders participating in the
PPP program.
6. There was not adequate monitoring of the effectiveness of internal control over processes performed
by service organizations.
7. There was not adequate monitoring performed for the Restaurant Revitalization and SVOG program
award recipients.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

8. There was not effective monitoring and evaluation performed of SBA’s entity level controls, manual
controls, general information technology controls, and system application controls for key financial
statement line items and risks. Specifically, evidence was not provided to substantiate that the testing
of controls was complete for significant new and expanded programs authorized from the CARES Act
and related legislation.
The deficiencies were primarily caused by the prioritization and the urgent need to implement the provisions of
the CARES Act and related legislation as quickly and efficiently as possible over internal control processes. In
addition, these deficiencies were primarily caused by the inherent challenges with the implementation of new
and expanded programs that do not have any historical precedence. The challenges included implementing
programs with evolving and complex guidance, inadequate systems to implement such large-scale programs,
and an insufficient number of personnel to assist in the implementation of the CARES Act and related
legislation. Finally, these deficiencies were primarily caused by the lack of established responsibilities for the
various offices and their duties for each program and the effective risk assessment and communication
processes to ensure financial statement reporting objectives were achieved.
The following criteria were considered with respect to the matters described in the preceding paragraphs:
•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; Principle 6,
Define Objectives and Risk Tolerances; Principle 7, Identify, Analyze, and Respond to Risks;
Principle 9, Identify, Analyze, and Respond to Change; Principle 10, Design Control Activities;
Principle 12, Implement Control Activities; and Principle 16, Perform Monitoring Activities

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

As a result of the deficiencies noted above, transactions for new and expanded programs were approved and
in certain cases disbursed to potentially ineligible entities and not in conformance with the CARES Act and related
legislation, and the Office of Chief Financial Officer placed reliance on controls not designed, implemented, and
operating effectively to ensure the financial statements are free from potential material misstatements. Without
the proper level of entity level controls in place and operating effectively, there is an increased risk that a
material misstatement exists in the consolidated financial statements, and noncompliance with the relevant
laws and regulations would not be prevented or detected and timely corrected.
Recommendations – Entity Level Controls
We recommend that the Administrator coordinate with the Associate Administrators for Offices of Capital
Access and Disaster Assistance to:
26. Document the internal control system and processes related to the implementation of new or
expanded programs from new legislation.
27. Develop and implement monitoring controls to ensure implementation of an effective internal
control environment.
We recommend that the Administrator coordinate with the Acting Chief Financial Officer to:
28. Perform and document a thorough risk assessment at the financial statement assertion level
to identify process level risks and communicate the results to relevant program offices.
29. In conjunction with relevant program offices, assess the effectiveness of key process level
controls to respond to the identified risks.
30. Develop and implement a sufficient plan to test and monitor the design, implementation, and
operating effectiveness of key, relevant controls that affect financial reporting and compliance
with relevant laws and regulations.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Appendix II
U.S. Small Business Administration
Significant Deficiencies
The following deficiencies are considered to be significant deficiencies in internal controls over financial
reporting.
1. Controls over Payments for Covered Loans under the Debt Relief Program Need Improvement
2. Controls over General Information Technology Need Improvement
1. Controls over Payments for Covered Loans under the Debt Relief Program Need Improvement
Management did not adequately design and implement controls to determine that payments made to lenders
for covered loans under the Debt Relief Program were accurate, reviewed, and approved prior to payment
to enable the fair presentation of the Loan Guarantee Liabilities. Specifically, management did not have a
documented process and sufficient controls in place to substantiate the accuracy of the payments made to
lenders.
The deficiency was caused by an inadequate entity wide control environment to implement processes, and
procedures to account for new and expanded programs under the CARES Act and related legislation with
sufficiently designed, implemented, and effectively operating controls.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority; and Principle 10,
Design Control Activities

The deficiency noted above may result in misstatements of the Loan Guarantee Liabilities line item and
related elements in the consolidated financial statements.
Recommendations – Payments for Covered Loans under the Debt Relief Program
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access
to:
31. Perform a review of the payments made by SBA for covered loans under the Debt Relief
Program to identify, review, and remediate any potential over or under payments made on the
related loans.
2. Controls over General Information Technology Need Improvement
Management had several control deficiencies that limited SBA’s ability to effectively manage its information
system risks. Collectively, these conditions increase the risk of unauthorized use, modification, or destruction of
financial data, which may impact the integrity of information used to prepare the financial statements. In the
sections below, we have omitted some technical details from the conditions and recommendations due to the
sensitivity of the information. These details were communicated to management in notices of findings and
recommendations.
The deficiencies were primarily caused by the prioritization and the urgent need to implement the provisions of
the CARES Act and related legislation as quickly and efficiently as possible over adherence to internal control
processes and requirements.
The following criteria were considered with respect to the matters described in the following paragraphs:

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

•

GAO’s Green Book, Principle 3, Establish Structure, Responsibility, and Authority

•

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

We have summarized the information technology control deficiencies by the following general information
technology control objectives: logical access controls and system configuration management.
Logical Access Controls
Management did not consistently follow established policy and procedure requirements for the timely removal
of access to SBA systems for separated employees and contractors.
The deficiency noted above increases the risk that unauthorized users may retain access to the system
resulting in unauthorized modification, destruction, or exposure to SBA systems and data.
Recommendations – Logical Access Controls
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access to:
32. Consider allocating resources to implement enforcement processes that ensure the accounts
of separated users are removed timely from SBA systems.
33. Validate that the identified accounts of separated users were not utilized after separation had
occurred.
34. Ensure individuals responsible for removing accounts of separated users are aware of the
process and periodically sent reminders of their responsibilities.
System Configuration Management
Management did not maintain supporting evidence to consistently demonstrate that database and operating
system patches were tested and approved prior to migration into the production environment. In addition,
management migrated application changes into the production environment without supporting evidence of
appropriate testing and approval.
The deficiencies noted above increase the risk that known vulnerabilities can be exploited and unauthorized
changes can be applied to the system, resulting in possible disclosure, modification, or destruction of SBA
system programs and data.
Recommendations – System Configuration Management
We recommend the Administrator coordinate with the Associate Administrator for Office of Capital Access to:
35. Implement controls and a monitoring process to ensure that patches applied to the database
and operating system and application changes are appropriately tested prior to being moved
into the production environment.
36. Update the system configuration management plan to require internal control documentation
for patch management and application changes as required by the Government Accountability
Office’s Standards for Internal Control in the Federal Government.
37. Periodically train personnel involved with the implementation of database and operating
system patches, and the review and approval of application changes, to follow the respective
controls and requirements of the patch management and application change management
processes in accordance with existing policies.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Appendix III
U.S. Small Business Administration
Compliance and Other Matters
A. Federal Managers’ Financial Integrity Act of 1982 (FMFIA)
Management performed an internal control assessment as required under FMFIA; however, management’s
assessment did not substantially comply with FMFIA and the related OMB Circular No. A-123 requirements.
Specifically, management did not:
1. Sufficiently identify or define risks related to new or expanded programs established by the CARES Act
and related legislation.
2. Perform, document, and demonstrate that they completed an internal control over financial reporting
evaluation regarding the new or expanded programs, including the evaluation and consideration of the
risks and controls of significant service organizations.
3. For the risks significant to financial reporting, consistently document financial statement risks and
assertions covered, testing procedures performed, extent of sampling performed, testing results,
corrective action plans to respond to deficiencies identified, and provide evidence of management
review. Additionally, management did not complete testing over significant areas and did not plan for
and test information technology controls as part of the internal control evaluation program.
4. Ensure there was an adequate review performed over the statement of assurances prepared by the
program offices as certain statements did not provide accurate or updated statuses of internal controls
as of the end of the fiscal year.
Management did not substantially meet FMFIA requirements due to the urgent need to implement the
provisions of the CARES Act and related legislation as quickly and efficiently as possible, the lack of historical
precedence, and other inherent challenges faced in implementing and expanding programs. In addition,
management did not consider all FMFIA and OMB Circular No. A-123 requirements when performing their
evaluation over internal controls.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
•

Section 2 of FMFIA

•

OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control

Management did not substantially comply with FMFIA and the related OMB Circular No. A-123
requirements, which may lead to not identifying the appropriate risks and key controls, and not detecting internal
control or compliance deficiencies. The risk of not detecting and correcting control deficiencies could result in
misstatements to the consolidated financial statements.
Recommendations – FMFIA
We recommend the Administrator coordinate with the Acting Chief Financial Officer to:
38. Update the risk assessment regarding the evaluation of internal controls to ensure it includes all
significant programs, key processes, and other material line items on the consolidated financial
statements.
39. In conjunction with relevant program offices, perform and document the internal control evaluation
over all programs. This should include entity level controls, manual controls, general information

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U.S. Small Business Administration

Financial Results (Unaudited)

technology controls, and system application controls covering key financial statement line items
and risks.
40. Update the existing policy and implement adequate controls to ensure that the statement of
assurances provided by the program offices are adequately documented and reviewed for
completeness and accuracy to provide a sufficient basis to support the Administrator’s statement of
assurance.
B. Federal Financial Management Improvement Act of 1996 (FFMIA)
Management did not establish and maintain financial management systems that substantially comply with the
following FFMIA requirements:
1. Federal Financial Management Systems Requirements. As discussed in Appendix I – Material
Weaknesses, control deficiencies over transactions arising from the implementation of the CARES Act
and related legislation do not enable reliable and accurate financial reporting and do not ensure
budgetary resources are safeguarded against waste, loss, and misuse. In addition, the deficiencies
may not support compliance objectives related to ensuring financial transactions are in conformance
with the CARES Act and related legislation are achieved.
2. Federal Accounting Standards. The deficiencies identified and reported in Appendix I – Material
Weaknesses, provide an indication that SBA’s financial management systems were substantially noncompliant with applicable federal accounting standards. Specifically, management was unable to
provide evidence that the accounting treatment and financial reporting for the Restaurant Revitalization
and SVOG awards were in accordance with U.S. generally accepted accounting principles. The full
amount of the awards was expensed immediately upon disbursement without evidence supporting the
existence, accuracy, and timely recognition of expenses, instead of advances, as they were incurred by
the recipients during the fiscal year.
Management did not substantially meet FFMIA requirements because of the reasons discussed in Appendix I –
Material Weaknesses and due to an inadequate entity wide control environment to implement the provisions of
the CARES Act and related legislation with sufficiently designed and implemented controls.
The following criteria were considered with respect to the matter described in the preceding paragraphs:
•

Section 803(a) of FFMIA

•

GAO’s Green Book, Section 2, Establishing an Effective Internal Control System

•

Appendix D to OMB Circular No. A-123, Compliance with the Federal Financial Management
Improvement Act of 1996

Management did not substantially comply with FFMIA increasing the risk that transactions are incorrectly
recorded to the general ledger, impacting the completeness, existence, and accuracy of the balances in the
consolidated financial statements.
Recommendations – FFMIA
We recommend the Administrator coordinate with the Acting Chief Financial Officer to:
41. Address the control deficiencies over transactions arising from the implementation of the
CARES Act and related legislation by working with the Office of Capital Access and the Office
of Disaster Assistance to implement the recommendations in Appendix I – Material
Weaknesses.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

CFO Response to Audit Report on FY 2021 Financial
Statement

Appendix IV

CFO Response to Audit Report
on FY 2021 Financial Statements
DATE:

November 15, 2021

TO:

Hannibal M. Ware, Inspector General

FROM:

Jason Bossie, Acting Associate Administrator for Performance, Planning and the Chief
Financial Officer

SUBJECT:

FY 2021 Financial Statement Audit

The Small Business Administration has reviewed the Independent Auditors’ Report from KPMG that includes
the auditors’ disclaimer of opinion on the Agency’s FY 2021 Consolidated Balance Sheet and the Report 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, and we are concerned by this outcome.
The FY 2021 Agency Financial Report includes the programs implemented under the American Rescue Plan
Act, in addition to those programs funded under the CARES Act and subsequent legislation. The expansion of
these programs, to include the Restaurant Revitalization program and Shuttered Venues Operators Grant
program, added to the unprecedented significance of serving small businesses under unprecedented times.
Most of SBA’s programs are governed by the Federal Credit Reform Act (FCRA), which requires estimation of
lifetime expected subsidy costs at program implementation and does provide for annual adjustment to original
subsidy cost estimates in future periods. The SBA believes the FY 2021 presentation of financial information is
materially correct.
The SBA has made substantial progress strengthening internal controls for pandemic-focused programs
although there are improvements that need to be made. The Agency continues its efforts to address material
weaknesses, strengthen processes, develop fraud risk assessments, and support requirements for auditability of
its financial statements. The SBA understands its obligations for providing accountability and transparency to
the American public and is working diligently to correct shortcomings for future audits.
The auditors identified material weaknesses related to the internal controls over six areas. The SBA has
reviewed the identified material weaknesses and does not concur with the severity of the five weaknesses
included in the report under PPP Loan Guarantees, COVID-19 EIDLs and Grants, Subsidy Reestimate,
Restaurant Revitalization and Shuttered Venues Operators Grant Program, and Entity Level Controls. The SBA
partially agrees with the weakness under Evaluation of Service Organizations. Our responses, as
communicated to KPMG during the audit, detail our concerns with the analysis and conclusions drawn by the
auditors. SBA has worked to establish internal controls, policies, and procedures to address the new legislative
programs as result of the pandemic and will take corrective actions to remediate weaknesses and strengthen
internal controls where necessary.
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 the 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 Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Appendix V
Auditors’ Response to Management’s Response
We acknowledge SBA management’s response to our Independent Auditors’ Report, presented in Appendix IV,
and commend their commitment to financial management and the accountability for and transparency of their
programs. SBA management partially agreed with the material weakness area entitled Controls over the
Evaluation of Service Organizations Need Improvement and did not agree with the severity of the remaining
material weakness areas included in our report in Appendix I. We evaluated the validity of management’s
responses communicated to us during the engagement and have determined that the material weaknesses in
internal control over financial reporting are appropriate.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Financial Statements and Notes (Unaudited)
The U.S. Small Business Administration prepares its financial statements as a critical aspect of ensuring accountability and
stewardship for the public resources entrusted to the SBA. Preparation of these statements is also an important part of SBA’s
financial management goal of providing accurate and reliable information that may be used to assess performance and allocate
resources.
SBA’s management is responsible for the accuracy and propriety of the information contained in the principal financial
statements and the quality of internal controls. The SBA prepares these financial statements from its records in accordance
with generally accepted accounting principles in the United States as well as formats prescribed by the Office of Management
and Budget. While these statements have been prepared from SBA’s records in accordance with generally accepted accounting
principles for federal entities and the formats prescribed by the OMB, they are in addition to the financial reports used to
monitor and control budgetary resources, which are prepared from the same records. The statements should be read with the
realization that they are a component of the U.S. Government.
The financial statements include the following reports.
The Consolidated Balance Sheet summarizes the assets, liabilities, and net position by major category as of the reporting
date. Intragovernmental assets and liabilities resulting from transactions between federal agencies are presented separately
from assets and liabilities resulting from transactions with the public.
The format of the Balance Sheet has changed to reflect more detail for certain line items, as required for all significant
reporting entities by OMB Circular A-136. This change does not affect totals for assets, liabilities, or net position and
is intended to allow readers of this Report to see how the amounts shown on the Balance Sheet are reflected on the
Government-wide Balance Sheet, thereby supporting the preparation and audit of the Financial Report of the United States
Government. The presentation of the FY 2020 Balance Sheet was modified to be consistent with the 2021 presentation.
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.
OMB Circular A-136 required a change in format for the Consolidated Statement of Changes in Net Position. The FY 2020
balances have been reformatted for comparability as required by Circular A-136.
The Combined Statement of Budgetary Resources provides information about funding and availability of budgetary
resources, and the status of those resources at the end of the reporting period. Data on the Combined Statement of Budgetary
Resources is consistent with information reflected on the Report on Budget Execution and Budgetary Resources (SF 133),
with the one exception of offsetting receipts. Offsetting receipts offset budget authority and outlays at the agency level in
the Budget of the United States Government but are not reflected in the SF 133. The SBA includes offsetting receipts in this
statement for the purpose of reconciling outlay information presented in the Budget of the United States Government.
The Notes to the Financial Statements provide information to explain the basis of the accounting and presentation used
to prepare the statements and to explain specific items in the statements. They also provide information to support how
particular accounts have been valued and computed.
The Required Supplementary Information presents a Combining Statement of Budgetary Resources report by principal
functional area.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

U.S. SMALL BUSINESS ADMINISTRATION

CONSOLIDATED BALANCE SHEET
As of September 30, 2021 and 2020

(Dollars in Thousands)

2021

2020

ASSETS
Intragovernmental
Fund Balance with Treasury (Note 2)
Advances and Prepayments
Total Intragovernmental

With the Public
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivables, net:
Credit Program Receivables and Related Foreclosed Property, Net (Note 6)
General Property, Plant and Equipment, Net (Note 7)
Advances and Prepayments
Total With the Public
Total Assets

316,852,301
969
316,853,270

714,400,127
2,301
714,402,428

3,746
69,395

10,572
112,082

245,445,095
25,276
20,899
245,564,411
562,417,681

182,936,949
27,503
44,456
183,131,562
897,533,990

LIABILITIES
Intragovernmental
Accounts Payable:
Accounts Payable, Capital Transfers:
Net Assets of Liquidating Funds Due to Treasury (Note 10)
Accounts Payable
Debt:
Interest Payable - Loans and Not Otherwise Classified (Note 9)
Loans Payable:
Principal Payable to the Bureau of the Fiscal Service (Note 9)
Advances from Others and Deferred Revenue
Other Liabilities:
Benefit Program Contributions Payable
Liability to the General Fund of the U.S. Government for Other Non-Entity Assets:
Downward Reestimate Payable to Treasury (Note 13)
Other (Note 11)
Total Intragovernmental

With the Public
Accounts Payable
Federal Employee Benefits Payable
Loan Guarantee Liabilities (Note 6)
Other Liabilities:
Accrued Grant Liability
Surety Bond Guarantee Program Future Claims (Note 8)
Other (Note 11)
Total With the Public
Total Liabilities

8,369
6,612

$15,922
14,745

251

160

262,654,877
1,901

176,173,660
2,172

13,858

10,803

11,742,037
3,856
274,431,761

28,541,393
3,395
204,762,250

932,184
72,440
227,831,513

337,528
70,386
512,712,498

103,138
60,054
107,973
229,107,302
503,539,063

66,496
60,060
46,800
513,293,768
718,056,018

69,132,143
(10,253,525)
58,878,618

183,460,572
(3,982,600)
179,477,972

NET POSITION
Unexpended Appropriations - Funds from Other Than Dedicated Collections
Cumulative Results of Operations - Funds from Other Than Dedicated Collections
Total Net Position
Total Liabilities and Net Position

562,417,681

897,533,990

The accompanying notes are an integral part of these statements.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

U.S. SMALL BUSINESS ADMINISTRATION

CONSOLIDATED STATEMENT OF NET COST
For the Years Ended September 30, 2021 and 2020

(Dollars in Thousands)

2021

2020

STRATEGIC GOAL 1:
Support Small Business Revenue and Job Growth
Gross Cost
Less: Earned Revenue
Net Cost of Strategic Goal 1

330,461,299
4,336,162
326,125,137

534,872,629
8,065,493
526,807,136

STRATEGIC GOAL 2:
Build Healthy Entrepreneurial Ecosystems and Create Business Friendly Environments
Gross Cost
Net Cost of Strategic Goal 2

456,701
456,701

27,523
27,523

23,502,517
3,963,444
19,539,073

34,993,696
7,611,305
27,382,391

131,155
131,155

11,976
11,976

31,487
31,487

2,521
2,521

STRATEGIC GOAL 3:
Restore Small Businesses and Communities after Disasters
Gross Cost
Less: Earned Revenue
Net Cost of Strategic Goal 3

STRATEGIC GOAL 4:
Strengthen SBA's Ability to Serve Small Businesses
Gross Cost
Net Cost of Strategic Goal 4

COST NOT ASSIGNED TO STRATEGIC GOALS

Gross Cost
Net Cost Not Assigned to Strategic Goals

$ 346,283,553

Net Cost of Operations

554,231,547

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

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

U.S. SMALL BUSINESS ADMINISTRATION

CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION
For the Years Ended September 30, 2021 and 2020

(Dollars in Thousands)

2021

2020

Funds from other than Dedicated Collections
Unexpended Appropriations:
Beginning balance, as adjusted
Appropriations Received
Other Adjustments:
Rescissions
Adjustment - Cancelled Authority
Return of Unrequired Liquidating Fund Appropriation
Other Adjustments
Appropriations Used

183,460,572
383,192,098

(146,524,623)
(20,784)
(447)
(140)
(350,974,533)

Total Unexpended Appropriations: Ending Balance
Cumulative Results of Operations:
Beginning Balance, as adjusted
Other Adjustments:
Current Year Liquidating Equity Activity
Other
Appropriations Used
Donations of Cash and Cash Equivalents
Transfers In/Out Without Reimbursement
Imputed Financing
Other:
Non-entity Activity
Net Cost of Operations
Net Change and Cumulative Results of Operation

1,779,472
762,191,631
(16,369)
(11,135)
(2,048)
(197)
(580,480,782)

69,132,143

183,460,572

(3,982,600)

(145,864)

5,572
(29)
350,974,533
–
202
35,092

(9,406)
–
580,480,782
12
–
19,508

(11,002,742)
346,283,553
(6,270,925)

(30,096,085)
554,231,547
(3,836,736)

Cumulative Results of Operations - Ending

(10,253,525)

(3,982,600)

Ending Net Position

58,878,618

179,477,972

The accompanying notes are an integral part of these statements.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

U.S. SMALL BUSINESS ADMINISTRATION

COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2021 and 2020

(Dollars in Thousands)

September 30, 2021
Nonbudgetary
Financing

Budgetary

Total

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority, net
(discretionary and mandatory)
Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority from Offsetting Collections
Total Budgetary Resources

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (total)
Unobligated Balance, end of year:
Apportioned, unexpired accounts
Unapportioned, unexpired accounts
Unexpired Unobligated Balance, end of year
Expired Unobligated Balance, end of year
Unobligated Balance, end of year (total)
Total Status of Budgetary Resources

OUTLAYS, NET

Net Outlays (discretionary and mandatory)
Distributed Offsetting Receipts
Agency Outlays, net (discretionary and mandatory)
Disbursements, net (total) (mandatory)

176,427,273

236,630,792
–
372,382
413,430,447

36,236
93,935,801
313,361,622
$ 933,688,402

236,667,028
93,935,801
313,734,004
$ 1,347,118,849

348,440,145

62,881,098
2,064,696
64,945,794
44,508
64,990,302
413,430,447

229,828,897
4,328,292
234,157,189
–
234,157,189
$ 933,688,402

$
$

526,354,743

699,531,213

350,558,986
(27,837,806)
322,721,180

1,047,971,358

292,709,995
6,392,988
299,102,983
44,508
299,147,491
$ 1,347,118,849

$
$
$

702,782,016

350,558,986
(27,837,806)
322,721,180

370,149,835

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

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

U.S. SMALL BUSINESS ADMINISTRATION

COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2021 and 2020

(Dollars in Thousands)

September 30, 2020
Nonbudgetary
Financing

Budgetary

Total

BUDGETARY RESOURCES

STATUS OF BUDGETARY RESOURCES

OUTLAYS, NET

Net Outlays (discretionary and mandatory)
Distributed Offsetting Receipts
Agency Outlays, net (discretionary and mandatory)
Disbursements, net (total) (mandatory)

1,529,176

3,771,133

762,084,837
–
957,307
764,571,320

88,377
167,267,294
582,969,780
754,096,584

762,173,214
167,267,294
583,927,087
$ 1,518,667,904

590,232,922

228,773,726

174,209,293
77,908
174,287,201
51,197
174,338,398
764,571,320

515,801,872
9,520,986
525,322,858
–
525,322,858
754,096,584

690,011,165
9,598,894
699,610,059
51,197
699,661,256
$ 1,518,667,904

$
$

579,936,314
(2,523,844)
577,412,470

$
$
$

5,300,309

819,006,648

579,936,314
(2,523,844)
577,412,470

(360,836,171)

The accompanying notes are an integral part of these statements.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 1.

Significant Accounting Policies

Reporting Entity
The Small Business Act of 1953 created the Small Business Administration as an independent federal agency. SBA’s
mission is to maintain and strengthen the nation’s economy by enabling the establishment and vitality of small businesses
and by assisting in the economic recovery of communities after disasters. The SBA operates through the execution of a
congressionally approved budget that funds its programs.
The SBA is a component of the U.S. Government. For this reason, some of the assets and liabilities reported by the entity may
be eliminated for Government-wide reporting because they are offset by assets and liabilities of another U.S. Government
entity. These financial statements should be read with the realization that they are for a component of the U.S. Government.

Basis of Accounting and Presentation
The SBA prepares financial statements to report its financial position, and results of its operations, as required by the Chief
Financial Officers Act of 1990 and the Government Management Reform Act of 1994. The financial statements are prepared
from the Agency’s records in accordance with generally accepted accounting principles using formats prescribed by the Office
of Management and Budget. As a federal agency, the SBA cannot incur obligations without authority from the Congress and
an apportionment by the OMB.
These financial statements reflect transactions recorded on both a proprietary accrual accounting basis and a budgetary
obligation basis in accordance with concepts and guidance provided by the OMB, the Federal Accounting Standards Advisory
Board, and the Department of the Treasury. Under the accrual method of accounting, revenues are recognized when earned
and expenses are recognized when incurred, without regard to receipt or payment of cash. Budgetary accounting recognizes
the legal commitment or obligation of funds in advance of the proprietary accruals and facilitates compliance with legal
constraints and controls over the use of federal funds.
The Federal Credit Reform Act of 1990 governs SBA’s accounting for direct loans and loan guaranties made in FY 1992 and
thereafter. Under the FCRA, the liability for loan guaranties is determined as the summarized discounted present value of
the estimated future net cash inflows and outflows for each fiscal year’s cohort of guaranties. For direct loans, the allowance
is the current outstanding FCRA loans receivable balance less the discounted present value of the estimated future net
cash flows for all the loan cohorts. A cohort of loans receivable or guarantied loans is all the direct loans obligated, or loan
guaranties committed, in a given fiscal year. Increases to individual loans in a cohort that are made in a subsequent fiscal year
are accounted for in the subsequent year’s loan cohort. Cohort cash flows include loan repayments, recoveries on defaulted
guaranties and loan fees received by the SBA that are due from the lenders and borrowers when the loan is made and during
the life of the loan cohort, as well as expenditures by the SBA for defaulted guaranties, loan servicing expenses, and other
required SBA expenditures. An initial allowance or liability for loan guaranties is established in the original year of the loan
cohort. The initial amount of the allowance and liability for each cohort is reestimated annually at fiscal year-end, and the
adjusted amount is included in SBA’s annual financial statements. Note 6 further describes FCRA accounting.

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

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Budgets and Budgetary Accounting for Loan Programs
SBA’s loan disbursements are financed by appropriations for long-term loan subsidy cost and borrowings from the Treasury’s
Bureau of the Fiscal Service for the remaining nonsubsidized portion of the loans. The Congress may provide one-year, multiyear, or no year appropriations to cover the estimated long-term costs of the loan programs. The non-subsidized portion of
each loan disbursement, financed initially under permanent indefinite authority to borrow funds from the Treasury, is repaid
from collections of loan fees, repayments, and default recoveries. The Congress authorizes the dollar amount of obligations
that can be made for the cost of direct loans and loan guaranties and establishes the maximum amount of loans the SBA can
guarantee in its annual Appropriation Act.
A permanent indefinite authority is available to fund any reestimated increase of subsidy costs that occurs after the year in
which a loan is disbursed. Reestimated reductions of subsidy costs are returned to the Treasury and are unavailable to the
SBA. As required by the FCRA, the SBA uses budgetary “program accounts” to account for appropriations in its credit
programs and nonbudgetary “financing accounts” to account for credit program cash flow. Estimates and reestimates of
credit program subsidy expenses are recorded in SBA’s program accounts. Financing accounts are used to account for Treasury
borrowings, the collection of loan fees, repayments and default recoveries, and the disbursement of loans and loan expenses.
As a component of the Government-wide reporting entity, the SBA is subject to the Federal budget process, which involves
appropriations that are provided annually and appropriations that are provided on a permanent basis. The financial
transactions that are supported by budgetary resources, which include appropriations, are generally the same transactions
reflected in agency and the Government-wide financial reports.
SBA’s budgetary resources reflect past congressional action and enable the entity to incur budgetary obligations, but they do
not reflect assets to the Government as a whole. Budgetary obligations are legal obligations for goods, services, or amounts
to be paid based on statutory provisions. After budgetary obligations are incurred, the Treasury will make disbursements
certified by the SBA to liquidate the budgetary obligations and finance those disbursements in the same way it finances all
disbursements, which, is to borrow from the public if there is a budget deficit.

Advances
Advances are cash outlays made by a Federal entity to its employees, contractors, grantees, or others to cover a part or all of
the recipients’ anticipated expenses or as advance payments for the costs of goods and services the entity receives. Prepayments
are payments made by a Federal entity to cover certain periodic expenses before those expenses are incurred. The SBA has
both intragovernmental advances and advances to the public. Intragovernmental advances are primarily to the Interior
Business Center of the Department of the Interior for contracting assistance on work not yet performed. Advances to the
public represent prepaid grants to counseling and training partners.

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

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

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

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 amounts reported reflect
timing differences between the recording of expenses and the recognition of resources. Most of this timing difference results
from subsidy reestimates which are funded in the following year. The SBA does not have funds from dedicated collections.

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

Classified Activities
Accounting standards require all reporting entities to disclose that accounting standards allow certain presentations and
disclosures to be modified, if needed, to prevent the disclosure of classified information.

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

Employee Benefits
Leave
A liability for employee annual leave is accrued as it is earned and reduced as leave is taken. Each year the balance of accrued
annual leave is adjusted to reflect current pay rates as well as forfeited “use or lose” leave. Annual leave earned but not taken,
within established limits, is funded from future financing sources. Sick leave and other types of non-vested leave are expensed
as taken.

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,

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

and they may contain early retirement or other special features. SBA’s contributions to both retirement plans, as well as to the
government-wide Federal Insurance Contribution Act administered by the Social Security Administration, are recognized on
the Consolidated Statement of Net Cost as current operating expenses.
Federal employee benefits also include the Thrift Savings Plan. For FERS employees the SBA matches employee contributions
to the plan, subject to limitations. The matching contributions are recognized as current operating expenses.

Imputed Financing Costs
The SBA recognizes the full cost of providing all employee benefits and future retirement benefits, including life and health
insurance, at the time employee services are rendered. Eligible retired SBA employees can continue to participate in health
and life insurance plans. The cost of these benefits is funded through Agency contributions, employee compensation to the
extent withheld from employee and retiree pay, from matching of employee withholding for Thrift Savings Plan and FICA,
and by the Office of Personnel Management, which administers the retirement programs for SBA employees.
The OPM calculates imputed costs as the actuarial present value of future benefits attributed to services rendered by covered
employees and eligible retired SBA employees during the accounting period, net of the amounts contributed by employees,
retirees, and the Agency. The SBA recognizes these imputed costs in the Statement of Net Cost and imputed financing in
determining SBA’s net position.

Federal Employees’ Compensation Act
The Federal Employees’ Compensation Act provides income and medical cost protection to covered federal civilian employees
injured on the job and to beneficiaries of employees whose deaths are attributable to job-related injury or disease. The FECA
program is administered by the Department of Labor.
The DOL pays valid claims as they occur, which are billed to the SBA annually and funded and paid approximately 15
months later. The DOL also calculates an estimated actuarial liability for future benefits based upon historical experience and
other economic variables. Projected annual benefit payments are then discounted to present value using the forecasted interest
rates for 10-year Treasury notes and bonds published by the OMB in its economic assumptions for the federal budget. The
SBA recognizes a current unfunded cost for the actual claims paid and the change in the FECA actuarial liability each year.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 2.

Fund Balance with Treasury

The Department of the Treasury processes cash receipts and disbursements on SBA’s behalf to pay liabilities and finance
loan program costs. Cash receipts are deposited into SBA’s account at the Treasury. SBA’s fund balances with the Treasury
are available to make expenditures to liquidate allowable obligations, except for the Non-entity Fund Balance which is not
available to the SBA to obligate or expend. Records are maintained for SBA’s program, financing, liquidating, suspense/
budget clearing accounts (awaiting disposition or reclassification), and other accounts at the fund level. Fund balances with
the Treasury include expired year amounts, which are unavailable for obligation, as well as amounts currently available for
new obligations.
FBWT is an asset to the SBA, but not to the Government as a whole, as it is a liability of the General Fund. The amounts
represent commitments by the Government to provide resources for programs, but they do not represent net assets to the
Government as a whole. When disbursements are made, the Treasury finances those disbursements in the same way it finances
all other disbursements, which is to borrow from the public if there is a budget deficit, and to use current receipts if there is a
budget surplus.
(Dollars in Thousands)

2021

As of September 30,
Appropriated Funds
Financing Funds
Liquidating Funds
Revolving Funds
Trust Fund
Total Entity Fund Balance with Treasury
Budget Clearing Account Balance
Total Fund Balance with Treasury

Status of Fund Balance with Treasury
Apportioned, unexpired accounts
Unapportioned, unexpired accounts
Obligated Balance Not Yet Disbursed
Expired Unobligated Balance
Borrowing Authority Not Converted to Funds
Nonbudgetary
Total Fund Balance with Treasury

70,066,412
246,630,128
544
105,047
175
316,802,306
49,995
316,852,301

292,709,995
6,392,988
21,267,716
44,508
(3,612,901)
49,995
316,852,301

2020
$

184,019,803
530,277,121
475
102,855
175
714,400,429
(302)
714,400,127

690,011,165
9,598,894
15,659,061
51,197
(919,888)
(302)
714,400,127

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.

Note 3.

Cash

The SBA field offices deposit collections from borrowers in SBA’s account at the Treasury using an electronic deposit system.
At the end of the fiscal year, collections temporarily held by SBA field offices pending deposit are recorded as Undeposited
Collections — Cash in Transit and totaled $3.7 million and $10.6 million as of September 30, 2021 and 2020.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

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 are required to be disclosed in the notes to SBA’s financial statements. SBA’s fiduciary balances are on deposit
in commercial banks.
The Master Reserve Fund is a fiduciary activity administered by SBA’s 7(a) Fiscal Transfer Agent. In FY 2021 SBA migrated
it’s 7(a) program systems and applications to its inhouse Capital Access Financial System. The balance in the MRF is invested,
according to SBA policy, entirely in Treasury securities. The MRF is an integral part of SBA’s 7(a) secondary market program.
The MRF was authorized by the Small Business Secondary Market Improvement Act of 1984 to facilitate the pooling of
7(a) guarantied loans that are purchased by secondary market investors. The MRF receives monthly payments from SBA
guarantied borrowers and disburses monthly to 7(a) secondary market pool investors based on a schedule of amounts due. In
FY 2021, the MRF also received $20.4 million in transfers from the SBA to support select cohort available balances, which
have absorbed changes in prepaid principal collections due to extended Debt Relief payment support introduced by the
Economic Aid Act. In FY 2020, the MRF received a $386 million in transfers from the SBA to support select cohort available
balances, which absorbed changes in prepaid principal collections as a result of Debt Relief payment support introduced by
the CARES Act. 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 $36.3 billion and $33.7 billion of outstanding SBA guarantied 7(a)
secondary market pool principal as of September 30, 2021 and 2020.
The Master Reserve Account is an SBA fiduciary activity administered by SBA’s 504 Central Servicing Agent. The balance
in the MRA is invested entirely in Treasury securities. The MRA facilitates the operation of the 504 Certified Development
Company secondary market program. The MRA was authorized by Section 505 of the Small Business Investment Act of 1958
as amended, as a vehicle to receive, temporarily hold, and distribute 504 program cash flows. The MRA receives monthly
payments from 504 borrowers and retains the payments until a semi-annual debenture payment is due to secondary market
investors. The 504 secondary market program includes SBA’s guaranty of timely payment, as well as a default guaranty, to
504 secondary market investors. The MRA supports $30.0 billion and $28.0 billion of SBA guarantied 504 debentures
outstanding in the secondary market as of September 30, 2021 and 2020.
The FY 2021 Contributions line item on the Reconciliation of Fiduciary Assets as of September 30, 2021 includes an
overpayment from the outgoing 7(a) Fiscal Transfer Agent to the Master Reserve Fund, which represents a projection to cover
the processing of SBA’s pooled loans prior to the transfer of servicing to the incoming FTA. In late August 2021, both the
outgoing FTA and incoming FTA determined the projected contribution was inadvertently overstated by $28,497,847.84
and a claim was initiated. Once the claim process is fully adjudicated and determined to be valid, SBA will return the funds to
the outgoing FTA.
The composition of the MRF and MRA and a reconciliation of the changes in the assets are included in the following table.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

(Dollars in Thousands)

FIDUCIARY ASSETS
2021
MRA

As of September 30,
MRF
Cash
Short Term Securities
Money Market Funds
Treasury Bills
Repurchase Agreements
Total Cash and Short Term Securities

–

2020
MRA

MRF
$

2,475

–

Total
$

2,475

745,406
224,985
–
970,391

878,654
–
–
878,654

1,624,060
224,985
–
1,849,045

23,965
29,977
359,108
415,525

542,818
–
–
542,818

566,783
29,977
359,108
958,343

1,123,152
1,123,152

–
–

1,123,152
1,123,152

1,655,943
1,655,943

–
–

1,655,943
1,655,943

2,972,197

$ 2,071,468

542,818

$ 2,614,286

2021
MRA

Total

MRF

2020
MRA

Total

542,818

$ 2,614,286

$ 3,039,847

722,797

$ 3,762,644

27,035
7,988,522
436
8,015,993

97
18,295,369
–
18,295,466

27,132
26,283,891
436
26,311,459

41,283
8,274,728
9,222
8,325,233

8,894
14,882,369
–
14,891,263

50,177
23,157,097
9,222
23,216,496

7,993,918
7,993,918

17,959,630
17,959,630

25,953,548
25,953,548

9,293,612
9,293,612

15,071,242
15,071,242

24,364,854
24,364,854

2,972,197

$ 2,071,468

542,818

$ 2,614,286

Long Term Securities
Treasury Notes/Bonds Including Interest
Total Long Term Securities
Net Assets

Total

$ 2,093,543

878,654

RECONCILIATION OF FIDUCIARY ASSETS
For the Years Ended September 30,
MRF
Beginning Net Assets
Receipts
Earned Income
Contributions
Net Realized Gain (Loss)
Total Receipts
Less Disbursements
Payments to Investors
Total Disbursements
Ending Net Assets

$ 2,071,468

$ 2,093,543

878,654

During the FTA transition, the incoming FTA acquired five bank accounts from the outgoing FTA. At September 30, 2021,
the balance amounted to $401,585,287. The accounts are non-MRF in nature and are maintained for administrative actions
and fees.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Note 5.

Accounts Receivable

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

2021

As of September 30,
Public
Guaranty Fees Receivable
Refunds
Other
Total Public
Allowance For Loss
Net Public

Note 6.

52,196
1,146
16,957
70,299
(904)
69,395

2020
$

74,243
1,253
37,321
112,817
(735)
112,082

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

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) was enacted to provide emergency
and immediate national economic relief and assistance across the American economy, including to small businesses, workers,
families, and the healthcare system, to alleviate the severe economic hardships and public health threat created by the 2019
Novel Coronavirus pandemic.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

The CARES Act expanded SBA’s disaster and 7(a) lending programs as well as required the SBA to make 6 months of
borrower payments for 7(a), 504 and Microloan borrowers in regular servicing.
For FY 2021, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) provided
temporary modifications to the 7(a) Loan Program including temporary higher guaranty percentages and fee reductions
on eligible 7(a) loans, and an increase in the maximum SBA Express loan amount. The American Rescue Plan Act of 2021
modified and extended existing programs to support small businesses and other entities that have been affected during the
COVID-19 pandemic.
SBA’s Disaster Assistance Loan program makes direct loans to disaster survivors under four categories: (1) physical disaster
loans to repair or replace damaged homes and personal property; (2) physical disaster loans to businesses of any size;
(3) economic injury disaster loans to eligible small businesses and nonprofit organizations without credit available elsewhere;
and (4) economic injury loans to eligible small businesses affected by essential employees called up to active duty in the
military reserves. The maximum interest rate is 4 percent for loan applicants without credit available elsewhere and 8 percent
for applicants with credit available elsewhere. The SBA offers low-interest Economic Injury Disaster Loans for working capital
to small businesses suffering substantial economic injury as a result of the COVID-19 pandemic. These EIDL loans may be
used to meet financial obligations and operating expenses that could have been met had the disaster not occurred. The interest
rate is 3.75 percent for small businesses and 2.75 percent for non-profits.
SBA’s business loan programs include its flagship 7(a) Loan Guaranty program in which the SBA guaranties up to 90 percent
of the amount of loans made by participating banks and other lending institutions to eligible small businesses not able to
obtain credit elsewhere. The CARES Act added the Paycheck Protection Program in the 7(a) loan program which is designed
to provide a direct incentive for small businesses to keep their workers on the payroll. Loans issued prior to June 5, 2020
have a maturity of 2 years while those issued after have a maturity of 5 years. All loans have an interest rate of 1 percent.
Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness
amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the
covered period for the borrower’s loan forgiveness (between 8 and 24 weeks). The Paycheck Protection Program (PPP) ended
on May 31, 2021.
The CARES Act also provided debt relief for 7(a) borrowers. The SBA paid 6 months of principal, interest, and any
associated fees owed by current 7(a) borrowers with loans in regular servicing status as well as new 7(a) loans disbursed prior
to September 27, 2020. Borrowers did not apply for this assistance; it was automatically provided. The Economic Aid Act
revised the eligibility criteria for assistance to include all 7(a) loans approved up to September 27, 2020, even if not fully
disbursed. All other provisions for initial debt relief remained the same. The Economic Aid Act also authorized additional
debt relief payments to 7(a) borrowers beyond the six-month period prescribed in the CARES Act. The level of assistance
varied based on when the loan was approved, and by borrower industry. Assistance began February 1, 2021. For 7(a) loans
approved beginning December 27, 2020, Section 326, 327, and 328 of the Economic Aid Act authorized and funded changes
to the authorized full upfront and on-going fee waivers, increased loan guarantee percentages, and extended temporary
maximum loan sizes for SBA Express loans.
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 CARES Act provided debt relief for 504 borrowers. The SBA paid 6 months of principal, interest, and any fees owed
by current borrowers who were in regular servicing status as well as new 504 loans disbursed prior to September 27, 2020.
Borrowers did not apply for this assistance; it was automatically provided. The level of assistance varied based on when the
loan was approved, borrower industry, and whether the loan was through the Community Advantage program and began
February 1, 2021. For 504 program loans approved beginning December 27, 2020, Section 326, 327, and 328 of the
Economic Aid Act changes include waiver of the third party lender participation fee, borrower processing fee waivers and SBA
reimbursements of those fees to CDC’s, introduction of the new ALP Express delivery method, and various changes to the
Debt Refinancing programs to include expanded eligibility.
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.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

The 7(m) Microloan program provides direct loans to nonprofit intermediaries, which use these funds to make loans up to
$50,000 to eligible small businesses. The CARES Act provided debt relief for Microloan borrowers. The SBA paid 6 months
of principal, interest, and any fees owed by current borrowers who were in regular servicing status as well as new Microloan
loans disbursed prior to September 27, 2020. The Economic Aid Act revised the eligibility criteria for assistance to include
all Microloans approved up to September 27, 2020, even if not fully disbursed. All other provisions for initial debt relief
remained the same. The Economic Aid Act also authorized additional debt relief payments to Microloan borrowers beyond
the six-month period prescribed in the CARES Act. The level of assistance varied based on when the loan was approved, and
by borrower industry, and began February 1, 2021.

Credit Subsidy Modeling
The SBA estimates future cash flows for direct and guarantied loans using economic and financial credit subsidy models.
These estimated cash flows are used to develop the subsidy funding required under the Federal Credit Reform Act of 1990.
The SBA has developed a customized credit subsidy model for each of its major loan programs.
SBA’s models vary in the specific methodologies employed to forecast future program cash flows. In general, however, models
for all major credit programs use historical data as the basis for assumptions about future program performance and then
translate these assumptions into nominal cash flow estimates by applying rules about program structure. Nominal cash flow
forecasts are discounted using the OMB’s Credit Subsidy Calculator that has both forecasted and actual Treasury interest rates.
Historical data are used as the basis for program performance assumptions. The historical data undergo quality review and
analysis prior to its use in developing model assumptions.
Key input to the subsidy models varies by program. Input includes items such as:

Contractual terms of the loan or guaranty such as loan amount, interest rate, maturity, and grace 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 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.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Direct loans and defaulted guaranties made prior to FCRA are valued at the current receivable balance net of an allowance for
uncollectible amounts calculated using historical loss experience.
The SBA advances payments semiannually to honor SBA’s timely payment requirement of principal and interest due for
debentures in SBA’s 504 Certified Development Company and Small Business Investment Company programs. The advances
are liquidated by receipt of the payments due from borrowers in these programs. Advance balances are reported as Other
Loans Receivable.
Interest receivable is comprised of accrued interest on loans receivable and purchased interest related to defaulted guarantied
loans. Interest income is accrued at the contractual rate on the outstanding principal amount and is reduced by the amount of
interest income accrued on nonperforming loans in excess of 90 days delinquent. SBA’s purchase of accrued interest is limited
to 120 days on the defaulted guaranty unless the loan has been sold in the secondary market. Purchased interest is carried at
cost, and an allowance is established for amounts in excess of 90 days delinquent.
Foreclosed property is comprised of real and personal property acquired through foreclosure on direct loans and defaulted
loan guaranties. Properties acquired as a result of defaulted loans committed after FY 1991 are shown at recoverable value,
which is adjusted to the present value of expected future cash flows for financial statement presentation through the allowance
for subsidy. Other foreclosed property is shown at the appraised value. At September 30, 2021 SBA’s foreclosed property
was $34.0 million related to 77 loans. The properties had been held for an average of 1,711days. At September 30, 2020
foreclosed property was $39.4 million related to 84 loans. The properties had been held for an average of 1,340 days.

Valuation Methodology for the Liability for Loan Guaranties under FCRA
FCRA also governs loan guaranties made after FY 1991. A liability for outstanding guaranties is included on SBA’s Balance
Sheet. The liability for guarantied loans committed after FY 1991 is based on the net present value of their expected future
cash flows, including guaranty fee inflows and the net cash outflows of defaulted guarantied loans purchased by the SBA.

Valuation Methodology for Pre-FCRA Liability for Loan Guaranties
The SBA values pre-credit reform direct and defaulted guarantied loans by estimating an allowance for loan losses. This
allowance is offset against gross loan receivables to obtain SBA’s expected net collections from these assets. The SBA establishes
a 100 percent allowance for pre-credit reform direct and guarantied loans that are past due more than 180 days.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

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

As of September 30, 2021
Direct Business Loans
Business Loans Receivable
Interest Receivable
Foreclosed Property
Allowance
Total Direct Business Loans

Pre-1992 Loans

Post-1991 Loans

Direct Disaster Loans
Disaster Loans Receivable
Interest Receivable
Foreclosed Property
Allowance
Total Direct Disaster Loans
Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans
Other Loans Receivable (see note below)
Interest Receivable
Foreclosed Property
Allowance
Total Defaulted Guarantied Business Loans & Other Loans Receivable

6,677
–
2,609
(6,664)
2,622

218,490
798
–
(31,266)
188,022

Direct Business Loans
Business Loans Receivable
Interest Receivable
Foreclosed Property
Allowance
Total Direct Business Loans

225,167
798
2,609
(37,930)
190,644

241
286
–
(129)
398

249,216,711
7,495,582
2,929
(12,633,871)
244,081,351

249,216,952
7,495,868
2,929
(12,634,000)
244,081,749

1,973
–
–
1,268
(1,695)
1,546

3,265,416
118,212
19,507
27,230
(2,259,209)
1,171,156

3,267,389
118,212
19,507
28,498
(2,260,904)
1,172,702
$ 245,445,095

Total Credit Program Receivables & Related Foreclosed Property, Net

As of September 30, 2020

Total

Pre-1992 Loans

Post-1991 Loans

1,236
–
2,609
(1,072)
2,773

217,150
809
–
(30,928)
187,031

Total
$

218,386
809
2,609
(32,000)
189,804

Direct Disaster Loans
Disaster Loans Receivable
Interest Receivable
Foreclosed Property
Allowance
Total Direct Disaster Loans

374
163
–
(150)
387

185,279,828
1,760,193
3,496
(5,641,474)
181,402,043

185,280,202
1,760,356
3,496
(5,641,624)
181,402,430

Defaulted Guarantied Business Loans & Other Loans Receivable
Defaulted Guarantied Business Loans
Other Loans Receivable (see note below)
Interest Receivable
Foreclosed Property
Allowance
Total Defaulted Guarantied Business Loans & Other Loans Receivable

1,071
1,894
(842)
2,123

3,440,378
61,975
23,347
31,398
(2,214,506)
1,342,592

3,441,449
61,975
23,347
33,292
(2,215,348)
1,344,715

Total Credit Program Receivables & Related Foreclosed Property, Net

$ 182,936,949

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

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

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

DIRECT LOANS
2021

New Loans Disbursed During the Year Ended September 30,
Business Direct Loan Program
Disaster Loan Program
Total Direct Loans Disbursed

$
$

37,044
73,739,456
73,776,500

2020
$
$

53,167
178,455,632
178,508,799

2021

Outstanding Loan Obligations as of September 30,
Business Direct Loan Program
Disaster Loan Program
Total Direct Loan Obligations

$
$

50,731
18,974,137
19,024,868

2020
$
$

41,703
13,808,399
$13,850,102

GUARANTIED LOANS
2021

New Loans Disbursed During the Year Ended September 30,
Total Principal Disbursed at Face Value
Total Principal Disbursed Guarantied by the SBA

308,925,787
304,023,895

2020
$

542,948,707
537,999,418

2021

Outstanding Loan Obligations as of September 30,
Business Guarantied Loan Programs

27,993,257

2020
$

22,270,996

2021

Loans Outstanding as of September 30,
Total Principal Outstanding at Face Value
Total Principal Outstanding Guarantied by the SBA

459,593,931
435,291,356

2020
$

646,028,326
621,677,390

D. Subsidy Cost Allowance Balances
(Dollars in Thousands)

2021

For the Years Ended September 30,

2020

Post-1991 Business Direct and Purchased Guarantied Loans
Beginning Balance of Allowance Account
Current Year's Subsidy (see 6.G for breakdown by component)
Loan Modifications
Loans Written Off
Subsidy Amortization
Allowance Related to Guarantied Loans Purchased This Year
Miscellaneous Recoveries and Costs
Balance of Subsidy Allowance Account before Reestimates
Reestimates
Ending Balance of Allowance Account

2,245,434
3,385
28,298
(563,931)
(2,829)
500,852
82,100
2,293,309
(2,834)
2,290,475

2,442,198
4,788
27,100
(573,108)
(2,513)
259,140
73,801
2,231,406
14,028
2,245,434

Post-1991 Disaster Direct Loans
Beginning Balance of Allowance Account
Current Year's Subsidy (see 6.G for breakdown by component)
Loans Written Off
Subsidy Amortization
Miscellaneous Recoveries and Costs
Balance of Subsidy Allowance Account before Reestimates
Reestimates
Ending Balance of Allowance Account

Agency Financial Report Fiscal Year 2021

5,641,474
6,669,771
(48,711)
4,120,155
32,195
16,414,884
(3,781,013)
12,633,871

1,265,374
24,303,168
(143,539)
(939,321)
60,722
24,546,404
(18,904,930)
5,641,474

U.S. Small Business Administration

Financial Results (Unaudited)

For Business Direct and Purchased Guarantied Loans, a Loan Modification was required for Debt Relief.

E. Liability for Loan Guaranties
(Dollars in Thousands)

2021

For the Years Ended September 30,

2020

Post-1991 Business Loan Guaranties
Beginning Balance of Liability for Loan Guaranties
Claim Payments to Lenders/Guarantee Payments
Fees
Interest Supplements Paid
Interest Revenue on Uninvested Funds
Interest Expense on Entity Borrowings
Current Year's Subsidy (see 6.G for breakdown by component)
Upward Reestimates
Downward Reestimates
Loan Modifications
Adjustment Due to Reestimate & Guarantied Loan Purchases
Miscellaneous Recoveries and Costs
Total Ending Balance of Liability for Loan Guaranties

512,712,498
(874,071)
1,118,670
(4,924,818)
4,271,118
(67,191)
287,046,480
8,990,144
(6,264,520)
7,009,738
373,219
(581,559,754)
227,831,513

2,000,420
(1,216,741)
1,329,264
(21,608)
7,957,891
(65,483)
525,917,920
2,571,375
(8,287,808)
6,561,276
957,601
(24,991,609)
512,712,498

For Business Direct and Purchased Guarantied Loans, a Loan Modification was required for the Debt Relief and PPP programs.
The large flux showing on the “Miscellaneous Recoveries and Costs” line comprises a $2.5 billion increase for PPP lender fees,
a $557.6 billion increase for PPP forgiveness, and a $3.2 billion decrease for Debt Relief. As PPP forgiveness started taking
place in FY 2021, the $557.6 billion for PPP forgiveness is the driver of the fluctuation increases for this line.
The large flux showing on the “Interest Supplements Paid” line is comprised of Forgiveness Payment activity during FY 2021.

F. 2021 Subsidy Rates by Program and Component
Loan Program

Total Subsidy

Financing

Default

Other

Fee

GUARANTY
7(a)

0.08%

0.00%

4.76%

0.00%

-4.68%

7(a) - COVID Support

5.40%

0.00%

5.78%

0.00%

-0.38%

504 CDC

0.00%

5.65%

0.43%

-6.08%

504 CDC - COVID Support

2.04%

0.00%

5.59%

0.43%

-3.98%

504 Refi

0.00%

5.83%

0.45%

-6.28%

504 Refi - COVID Support

2.12%

0.00%

5.85%

0.45%

-4.18%

SBIC Debentures

0.00%

4.69%

0.05%

-4.74%

Paycheck Protection Program

103.70%

0.00%

1.14%

97.65%

4.91%

DIRECT
Disaster (10-1-20 to 9-7-21)

8.92%

0.72%

11.22%

-3.02%

0.00%

Disaster (9-8-21 to 9-30-21)

9.18%

-0.08%

12.05%

-2.79%

0.00%

Microloan

8.99%

7.17%

2.22%

-0.40%

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

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

obligated in prior years. Subsidy expenses reported in Note 6.G result from the disbursement of loans obligated in the current
year as well as in prior years and include reestimates and modifications.

G. Subsidy Expense by Component
(Dollars in Thousands)

2021

For the Years Ended September 30,
Business Loan Guaranties
Defaults
Fees
Other
Subsidy Expense Before Reestimates and Loan Modifications
Loan Modifications
Components of Subsidy Reestimates
Technical Assumptions/Default Reestimates
Interest Rate Reestimates
Total of the Above Components of Subsidy Reestimates
Total Guarantied Business Loan Subsidy Expense

Business Direct Loans
Interest
Defaults
Other
Subsidy Expense Before Reestimates and Loan Modifications
Loan Modifications
Components of Subsidy Reestimates
Technical Assumptions/Default Reestimates
Interest Rate Reestimates
Total of the above Components of Subsidy Reestimates
Total Business Direct Loan Subsidy Expense

Disaster Direct Loans
Interest
Defaults
Other
Subsidy Expense Before Reestimates and Loan Modifications
Components of Subsidy Reestimates
Technical Assumptions/Default Reestimates
Interest Rate Reestimates
Total of the above Components of Subsidy Reestimates
Total Disaster Direct Loan Subsidy Expense

4,816,456
12,940,293
269,289,731
287,046,480
7,009,738
183,863
2,541,761
2,725,624
296,781,842
2,666
839
(120)
3,385
28,298
(1,191)
(1,643)
(2,834)
28,849
67,780
8,631,699
(2,029,708)
6,669,771
8,053,889
(11,834,902)
(3,781,013)
2,888,758

2020
$

34,275,918
21,394,301
470,247,701
525,917,920
6,561,276
(7,836,726)
2,120,293
(5,716,433)
526,762,763

3,732
1,219
(163)
4,788
27,100
14,029
(1)
14,028
45,916

$
$

13,514,459
18,477,601
(7,688,892)
24,303,168
(14,982,028)
(3,922,902)
(18,904,930)
5,398,238

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)

2021

For the Years Ended September 30,
Disaster Direct Loan Programs
Business Loan Programs
Total Administrative Expense

Agency Financial Report Fiscal Year 2021

$
$

275,450
159,993
435,443

2020
$
$

828,082
155,612
983,694

U.S. Small Business Administration

Financial Results (Unaudited)

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 2021 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 and the small loan programs.

Business Guarantied Loan Programs
Net subsidy reestimates for the business guarantied loan programs are shown in the following table.
(Dollars in Thousands)

2021

For the Years Ended September 30,
7(a)
7(a) - Recovery Act
7(a) - Jobs Act
7(a) - COVID Support
504 CDC
504 CDC - Recovery Act
504 CDC - Jobs Act
504 CDC - COVID Support
504 CDC - Debt Refinancing
504 CDC - Debt Refinancing - COVID Support
504 First Mortgage Loan Pooling - Recovery Act
SBIC Debentures
SBIC Participating Securities
Secondary Market Guaranty Program
Paycheck Protection Program
ARC - Recovery Act
All Other Guaranty Loan Programs
Total Guarantied Loan Program Subsidy Reestimates

(2,662,078)
(4,371)
(7,686)
(509,864)
(905,781)
(2,630)
(633)
(38,056)
(92,132)
(9,363)
3,338
(323,515)
(47,406)
(8,182)
7,328,120
(218)
6,081
2,725,624

2020
$

996,234
(6,471)
(4,018)
–
581,462
(10,671)
(853)
–
(46,889)
–
255
60,611
(52,335)
(34,679)
(7,204,524)
(367)
5,812
(5,716,433)

The 7(a) Loan Guaranty program, SBA’s flagship program, had a net downward reestimate of $2.6 billion in FY 2021. The
reestimate is mostly due to better than expected loan performance in FY 2021 for cohorts 2015 through 2020. This better
performance is likely due to a stronger economy, as evidenced by a lower unemployment rate and higher GDP growth rate in
FY 2021, than was projected last year, as well as the support received by borrowers via the extended Section 1112 debt relief
payments, as authorized by the Consolidated Appropriations Act of 2021.
The 7(a) Recovery Act program had a net downward reestimate of $4.4 million. The reestimate is mostly due to better than
expected loan performance in FY 2021.
The 7(a) Jobs Act cohort had a net downward reestimate of $7.7 million. The reestimate is mostly due to better than expected
loan performance in FY 2021.
Authorized by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the 7(a)
COVID Support program offered 90 percent fee relief and upfront and on-going fee waivers for eligible borrowers and
additional debt relief support. The 7(a) COVID Support program had a net downward reestimate of $509.9 million. The
reestimate is in part due to better projected loan performance for the program than originally estimated. The reestimate is also
in part due to lower than projected disbursements for the cohort, resulting in lower cash outflows for debt relief payments
than originally estimated.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

The 504 Certified Development Company program had a net downward reestimate of $905.8 million. The reestimate is
mostly due to better than expected loan performance in FY 2021 contributing to a downward reestimate in all but two
cohorts. Extension of Section 1112 debt relief payments, as authorized by the Consolidated Appropriations Act of 2021, and
a stronger economy than forecasted last year likely contributed to the improved loan performance. The reestimate is also in
part due to improved projections of future loan performance for the 2018-2021 cohorts.
The 504 Recovery Act program had a net downward reestimate of $2.6 million. The reestimate is mostly due to better than
expected loan performance in FY 2021.
The 504 Jobs Act program had a net downward reestimate of $0.6 million. The reestimate is mostly due to better than
expected loan performance in FY 2021.
Authorized by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the 504
COVID support program offered fee waivers of third-party lender fees and borrower CDC Processing fees, provided for CDC
reimbursements of Processing fees, and extended additional debt relief support. The 504 COVID support program had a net
downward reestimate of $38.1 million. The reestimate is mostly due to better projected loan performance for the program
than originally estimated.
The 504 Debt Refinancing program had a net downward reestimate of $92.1 million. The reestimate is mostly due to better
than expected loan performance in FY 2021 contributing to a downward reestimate in all but one cohort. The reestimate is
also in part due to improved projections of future loan performance for the 2018-2021 cohorts.
Authorized by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the 504
Debt Refinancing COVID support program offered fee waivers of third-party lender fees and borrower Processing fees,
provided for CDC reimbursements of Processing fees, and extended additional debt relief support. The COVID support
program had a net downward reestimate of $9.4 million. The reestimate is in part due to better projected loan performance
for the program than originally estimated. The reestimate is also in part due to lower than projected disbursements for the
cohort, resulting in lower cash outflows for debt relief payments than originally estimated.
The Section 504 First Mortgage Loan Pooling program had a net upward reestimate of $3.3 million. The reestimate is mostly
due to higher than projected default and advance payments in FY 2021.
The SBIC Debentures program had a net downward reestimate of $323.5 million. The reestimate is primarily driven by
higher than projected recoveries and lower than projected defaults in FY 2021. Notably, there were no defaults in the program
in FY 2021 which contributes to the downward reestimate.
The SBIC Participating Securities program had a net downward reestimate of $47.4 million. The reestimate is primarily due
to higher than projected recoveries in FY 2021 for the 2004 cohort.
The Secondary Market Guaranty program had a net downward reestimate of $8.2 million. The reestimate is primarily driven
by updated performance assumptions which resulted in higher projected prepayments, which lowers long term expected cash
outflows. This impact is partially offset by updated economic assumptions, which result in a decrease in expected investment
earnings relative to expected pool interest payments.
The Paycheck Protection Program had a net upward reestimate of $7.3 billion in FY 2021. The reestimate is attributed to the
2021 cohort and is primarily due to two factors. First, origination fee payments to participating PPP lenders for 2021 cohort
loans were higher than estimated. The second factor is a decrease to the 2021 cohort discount rate. The net cash outflows in
the PPP are discounted less due to the lower cohort discount rate, also contributing to the upward reestimate.
The America’s Recovery Capital program had a net downward reestimate of $0.2 million. The reestimate is primarily due to
higher than projected recoveries and lower than expected interest and default payments in FY 2021.
All Other Guaranty Loan programs includes the SBIC New Market Venture Capital program that had a net upward
reestimate of $6.1 million. The reestimate is s driven by lower than projected recoveries in FY 2021 and a reduction in
forecasted recoveries for the 2003 cohort.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Business Direct Loan Programs
Net subsidy reestimates for the business direct loan programs are shown in the following table.
(Dollars in Thousands)

2021

For the Years Ended September 30,
7(m) Microloan
7(m) Microloan - Recovery Act
Intermediary Lending Pilot Program
SBIC Preferred Stock
All Other Direct Loan Programs
Total Direct Loan Program Subsidy Reestimates

(2,841)
24
1
(14)
(4)
(2,834)

2020
$

13,937
47
49
–
(5)
14,028

The 7(m) Direct Microloan program had a net downward reestimate of $2.8 million. Actual Section 325 debt relief payments
were lower than anticipated in the Microloan program in FY 2021. This contributes to the downward reestimate as FY 2021
cash outflows in the program were lower than forecasted. The downward reestimate is partially offset by lower actual loan
repayments for cohorts 2015-2020 relative to prior year projections.
The 7(m) Direct Microloan Recovery Act program had a net upward reestimate of $0.02 million. The reestimate is primarily
due to lower than projected loan repayments in FY 2021.
The Intermediary Lending Pilot program had a net upward reestimate of $0.001 million. The reestimate is due to slightly
lower than projected net cash inflows in FY 2021.
The SBIC Preferred Stock program had a $0.01 million net downward reestimate. The downward reestimate is due to higher
than expected collections for the 1994 cohort.

Disaster Direct Loan Program
Net subsidy reestimates for the disaster direct loan programs are shown in the following table.
(Dollars in Thousands)

2021

For the Years Ended September 30,
Disaster
Total Disaster Direct Loan Program Subsidy Reestimates

$
$

(3,781,013)
(3,781,013)

2020
$
$

(18,904,930)
(18,904,930)

The Disaster Assistance program had a net downward reestimate of $3,781.0 million. The reestimate primarily is a result of
updates to the discount rate which results in reduced borrowing costs for FY 2021 COVID EIDL funded loans. The FY 2021
COVID EIDL funded cohort’s discount rate declined from a formulated rate of 2.08 percent to 1.28 percent. Due to the
high volume of COVID EIDL loans at a fixed 3.75 percent interest rate, the financing surplus offsets higher than formulated
defaults for this cohort.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 7.

General Property and Equipment, Net

The SBA capitalizes equipment with a cost of $100,000 or more per unit, and a useful life of 2 years or more, at full cost and
depreciates using the straight-line method over the useful life. The SBA expenses equipment not meeting the capitalization
criteria.
Leasehold improvements with modifications of $200,000 or more and a useful life of 2 years or more are capitalized and
amortized using the straight-line method over the useful life of the improvement or the lease term, whichever is shorter.
Leasehold improvements not meeting the capitalization criteria are expensed.
Software intended for internal use, whether internally developed, contractor developed, or purchased is capitalized at cost if
the unit acquisition cost is $500,000 or more and service life is at least 2 years. Capitalized software costs include all direct
and indirect costs incurred, including overhead to develop the software. Software for internal use is amortized using the
straight-line method over its useful life, not to exceed 5 years. Amortization begins when the software is put into production.
The costs of enhancements are capitalized when it is more likely than not that the enhancements will result in significant
additional capabilities. Costs that do not meet the capitalization criteria are expensed when incurred.
Assets meeting the capitalization thresholds are detailed in the following table.
(Dollars in Thousands)

2021

For the Years Ended September 30,
Leasehold Improvements
Amortization of Leasehold Improvements
Net

Software in Development
Software in Use
Amortization of Software in Use
Net

7,742
57,597
(40,089)
25,250
$

Total General Property and Equipment, Net

Note 8.

1,811
(1,785)
26

2020

25,276

1,811
(1,759)
52
27,451
35,863
(35,863)
27,451

27,503

Liabilities Not Covered by Budgetary Resources

Liabilities not covered by budgetary resources require future congressional action whereas liabilities covered by budgetary
resources reflect prior congressional action. Regardless of when the congressional action occurs, when the liabilities are
liquidated, Treasury will finance the liquidation in the same way that it finances all other disbursements, using some
combination of receipts, other inflows, and borrowing from the public (if there is a budget deficit).
These liabilities consisted of the following categories, as shown in the table.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

(Dollars in Thousands)

2021

For the Years Ended September 30,
Intragovernmental Liabilities - Benefit Program Contributions Payable
Unfunded Employment Taxes Payable
Federal Employees' Compensation Act Payable
Total Intragovernmental Liabilities - Benefit Program Contributions Payable

2,137
6,114
8,251

2020
$

905
5,548
6,453

With the Public Liabilities - Federal Employee Benefits Payable
Federal Employees' Compensation Act Actuarial Liability
Accrued Unfunded Annual Leave
Total With the Public Liabilities - Federal Employee Benefits Payable

30,128
41,504
71,632

30,576
39,064
69,640

Surety Bond Guarantee Program Future Claims

60,054

60,060

139,937
503,349,228
49,898
$ 503,539,063

136,153
717,920,066
(201)
718,056,018

Total Other Liabilities
Total Liabilities Not Covered by Budgetary Resources
Total Liabilities Covered by Budgetary Resources
Total Liabilities Not Requiring Budgetary Resources
Total Liabilities

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

Note 9.

Federal Debt and Interest Payable

Borrowings payable to the Treasury result from loans provided by the Treasury to fund the portion of direct loans not
covered by subsidy appropriations, 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)

2021

As of September 30,
Principal Payable to the Bureau of the Fiscal Service
Beginning Balance
New Borrowings
Repayments
Total Principal Payable to the Bureau of the Fiscal Service

Interest Payable
Change in Interest Payable - Liquidating Funds
Total Interest Payable
Ending Balance

U.S. Small Business Administration

176,173,660
91,242,787
(4,761,570)
262,654,877

251
251
262,655,128

2020
$

11,810,241
207,461,405
(43,097,986)
176,173,660

160
160
176,173,820

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 10.

Net Assets of Liquidating Funds Due to Treasury

Unobligated balances of liquidating funds are transferred to the Treasury general fund at the end of the fiscal year. Net Assets
of Liquidating Funds Due to Treasury is the residual of the book value of assets less liabilities in the Liquidating Funds for
loans made prior to FY 1992 that is not yet available for transfer.
(Dollars in Thousands)

2021

As of September 30,
Disaster Loan Fund
Business Loan and Investment Fund
Total Due to Treasury

Note 11.

$
$

396
7,973
8,369

2020
$
$

387
15,535
15,922

Other Liabilities

Other Liabilities are shown in the following table.
(Dollars in Thousands)

2021

As of September 30,
Other Liabilities - Intragovernmental
Employment Taxes Payable
Payable to Treasury
Total Other Liabilities - Intragovernmental

$
$

Other Liabilities - With the Public
Accrued Funded Payroll and Benefits
Suspense Accounts
Total Other Liabilities - With the Public

$
$

3,850
6
3,856

58,075
49,898
107,973

2020
$
$

$
$

3,389
6
3,395

47,001
(201)
46,800

Note: All liabilities reflected are current liabilities.

Note 12.

Leases

The SBA leases all of its facilities from the General Services Administration. The SBA enters into an Occupancy Agreement
with the GSA for each facility. The GSA, in turn, leases commercial facilities or provides space in federal buildings.
Agreements for space in federal buildings can be vacated with 120 to 180 days’ notice. However, the SBA anticipates
continuing the same or similar facilities leases in the future. These federal leases with the GSA are operating leases and are
expensed in the Statement of Net Cost when incurred. FY 2021 and FY 2020 historical facilities lease costs were $47.0
million and $48.0 million. Future lease payments are based on FY 2022 GSA base year estimates. Projections after the base
year assume a 3 percent inflation factor. Payments after 5 years reflect only current leases that will still be in effect, projected
to the end of each lease term. Lease Projections after 2026 increased due to the increase in the total number of Occupancy
Agreements still in effect until 2041.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

FUTURE FACILITIES OPERATING LEASE PAYMENTS
(Dollars in Thousands)

Fiscal Year

Lease Projections

2022

49,249

2023

50,726

2024

52,248

2025

53,816

2026

55,430

After 2026

126,106

Total

Note 13.

387,575

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)

2021

As of September 30,

ENTITY

Financing Fund Payable

NON-ENTITY

Miscellaneous Receipts Fund Receivable
Downward Reestimate Payable to Treasury

(11,742,037)

2020
$

11,742,037
(11,742,037)
$

Balance Sheet Reported Payable

(11,742,037)

(28,541,393)
28,541,393
(28,541,393)

(28,541,393)

See Note 6.I for information on the Downward Reestimate Payable.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 14.

Consolidated Statement of Net Cost

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

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

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

Reporting by Strategic Goal
The SBA reports net costs consistent with its four strategic goals on a full cost allocation basis. Strategic Goal 1 (Support
Small Business Revenue and Job Growth) includes expanding access to capital for small businesses through SBA’s loan and
other assistance programs, research set-asides for innovative entrepreneurship, and the small business contracting set-aside
program. Strategic Goal 2 (Build Healthy Entrepreneurial Ecosystems and Create Business Friendly Environments) works
to develop small businesses through technical assistance provided through SBA’s resource partner network, online learning,
and other specialized assistance programs like 8(a) Business Development, 7(j) Management and Technical Assistance, and
Mentor-Protégé. It also includes SBA’s efforts to create a small business friendly environment. Strategic Goal 3 (Restore
Small Businesses and Communities after Disasters) includes disaster preparedness and direct disaster loans. Strategic Goal
4 (Strengthen SBA’s Ability to Serve Small Businesses) ensures effective and efficient management of Agency resources.
Agency administrative overhead costs are fully allocated to the programs in Strategic Goals 1, 2, 3, and 4. The Management’s
Discussion and Analysis section of SBA’s annual Agency Financial Report includes additional detail on SBA’s strategic goals.
Costs Not Assigned to Strategic Goals are costs associated with the Office of the Inspector General. The OIG’s mission and
funding are a separate and independent part of the SBA and is therefore not assigned.
Intragovernmental Gross Cost is incurred by the SBA in exchange transactions with other federal agencies. Gross Cost with
the Public is incurred in exchange transactions with the public. Intragovernmental Earned Revenue is earned by the SBA in
exchange transactions with other federal agencies. Earned Revenue from the Public is earned in exchange transactions with
the public. The General Services Administration and the Treasury are SBA’s primary intragovernmental trading partners.
The classification as Intragovernmental Cost or Gross Cost with the Public relate to the source of goods and services
received by the SBA and not to the classification of related revenue. The classification of revenue or cost being defined as
“intragovernmental” or “public” is defined on a transaction by transaction basis. The purpose of this classification is to enable
the federal government to provide consolidated financial statements, and not to match the public and intragovernmental
revenue with costs that are incurred to produce public and intragovernmental revenue.
Goal 1 is primarily associated with PPP subsidy costs. Goal 3 is comprised of Disaster subsidy costs in addition to reestimates.
Goal 3 is also largely driven by the Shuttered Venue Operators Grant Program.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Gross Cost and Exchange Revenue
(Dollars in Thousands)

2021

For the Years Ended September 30,

2020

STRATEGIC GOAL 1:

Support Small Business Revenue and Job Growth
Intragovernmental Gross Cost
Gross Cost with the Public
Total Strategic Goal 1 Gross Cost

Intragovernmental Earned Revenue
Earned Revenue from the Public
Total Strategic Goal 1 Earned Revenue

168,841
330,292,458
330,461,299

4,208,498
127,664
4,336,162

76,153
534,796,476
534,872,629
7,916,787
148,706
8,065,493

STRATEGIC GOAL 2:

Build Healthy Entrepreneurial Ecosystems and Create Business Friendly Environments
Intragovernmental Gross Cost
Gross Cost with the Public
Total Strategic Goal 2 Gross Cost

52,903
403,798
456,701

3,582
23,941
27,523

4,105,521
19,396,996
23,502,517

7,875,157
27,118,539
34,993,696

STRATEGIC GOAL 3:

Restore Small Businesses and Communities after Disasters
Intragovernmental Gross Cost
Gross Cost with the Public
Total Strategic Goal 3 Gross Cost
Intragovernmental Earned Revenue
Earned Revenue from the Public
Total Strategic Goal 3 Earned Revenue

1,021,155
2,942,289
3,963,444

4,709,665
2,901,640
7,611,305

STRATEGIC GOAL 4:

Strengthen SBA's Ability to Serve Small Businesses
Intragovernmental Gross Cost
Gross Cost with the Public
Total Strategic Goal 4 Gross Cost

COST NOT ASSIGNED TO STRATEGIC GOALS

Intragovernmental Gross Cost
Gross Cost with the Public
Total Gross Cost Not Assigned to Strategic Goals

Net Cost of Operations

15,192
115,963
131,155

1,559
10,417
11,976

3,647
27,840
31,487

328
2,193
2,521

$ 346,283,553

554,231,547

Goal 1 Intragovernmental Earned Revenue decreased due to interest earned on uninvested funds in business loan programs.
The increase in Goal 2 Gross Cost with the Public is due to the expense received in FY 2021 compared to FY 2020. This also
applies to Goal 4 and Costs Not Assigned to Strategic Goals since those costs are spread across all goals.
Goal 3 Intragovernmental Gross Cost relates to a decrease in interest expense on borrowings. Intragovernmental Earned
Revenue decreased due to interest earned on uninvested funds.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 15.

Statement of Budgetary Resources

The Statement of Budgetary Resources presents information about total budgetary resources available to the SBA and
the status of those resources as of September 30, 2021 and 2020. SBA’s budgetary resources were $413.4 billion and
$764.6 billion for the fiscal years ended September 30, 2021 and 2020. Additionally, $933.7 billion and $754.1 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, 2021 and 2020.

Permanent Indefinite Appropriations
The SBA receives permanent indefinite appropriations annually to fund increases in the projected subsidy costs of loan
programs, as determined by the reestimation process required by the FCRA. The appropriations are received initially in the
SBA Program Funds, and then transferred to the Financing Funds, where they are used to fund obligations. SBA’s Liquidating
Funds also receive permanent indefinite appropriations to fund obligations. The Financing Funds are used to account
for credit program obligations made subsequent to FY 1991. Liquidating Funds are used to account for credit program
obligations made prior to FY 1992.
Decreases in projected subsidy costs in the Financing Funds are returned to the Treasury through SBA’s annual reestimation
process. The prior year’s ending unobligated balances in SBA’s Liquidating Funds are also transferred to the Treasury annually.

Borrowing Authority and Terms of Borrowing
The SBA is authorized to borrow from the Treasury’s Bureau of the Fiscal Service when funds needed to disburse direct loans
and purchase guarantied loans exceed subsidy costs and collections in the nonbudgetary loan financing funds. In FY 2021 and
FY 2020, the SBA received $93.9 billion and $167.3 billion of borrowing authority from the OMB. At the end of FY 2021,
the SBA had $3.6 billion of borrowing authority carried over to fund direct loans and default claims to be disbursed in
the future. At the end of FY 2020, the SBA had $0.9 billion in available borrowing authority. The SBA pays interest to the
Treasury based on Treasury’s cost of funds. The rate at which interest is paid to the Treasury on the amounts borrowed (or
received from the Treasury on uninvested cash balances) in a loan financing fund for a particular cohort is a disbursementweighted average discount rate for cohorts prior to FY 2001 and a single effective rate for cohorts beginning with FY 2001.
The SBA calculates and repays borrowings not needed for working capital at mid-year and at year-end for prior year cohorts.
The SBA uses the loan principal, interest, and fees collected from the borrowers in its loan financing funds to repay its
Treasury borrowings. The repayment maturity dates for borrowings from the Treasury are based on the loan maturities used
in the subsidy calculation. The maturities range from 16 years for direct business loans, 25 years for guarantied business loans
and 30 years for disaster loans.

Unobligated Balances
Unobligated balances at September 30, 2021 and 2020 are $299.1 billion and $699.7 billion, which include $6.4 billion and
$9.7 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 ($234.2 billion in FY 2021 and $525.3 billion in FY 2020) from fees and subsidy to fund default claims in
future years. In addition, unobligated balances are accumulated in budgetary accounts from appropriations ($65.0 billion in
FY 2021 and $174.3 billion in FY 2020) 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 consist of goods or services ordered and obligated which the SBA has not received. This includes any
orders that have been paid in advance, but for which delivery or performance has not yet occurred.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

(Dollars in Millions)

2021

As of September 30,
Intragovernmental
Unpaid
Paid
Total Intragovernmental
With the Public
Unpaid
Paid
Total With the Public
Total Undelivered Orders

2020

3,449.1
2.9
3,452.0

1,951.9
(43.6)
1,908.3

20,110.1
17.8
20,127.9
23,579.9

21,590.8
197.0
21,787.8
23,696.1

Differences between the Statement of Budgetary Resources and the Budget
of the U.S. Government
There was no material difference between the FY 2020 Statement of Budgetary Resources and the President’s FY 2022
budget submission. The President’s FY 2023 Budget with actual numbers for FY 2021 has not yet been published and will
be available at a later date at President’s Budget | The White House. The SBA expects no material differences between the
President’s Budget “actual” column and the FY 2021 reported results when the budget becomes available in February 2022.

Distributed Offsetting Receipts
Distributed offsetting receipts are amounts that an agency collects from the public or from other Government agencies that
are used to offset or reduce an agency’s budget outlays. Agency outlays are measured on both a gross and net basis, with net
outlays being reduced by offsetting receipts (and other amounts).

Note 16.

Reconciliation of Net Operating Cost and Net
Budgetary Outlays

Statement of Federal Financial Accounting Standards 53 amends requirements for a reconciliation between budgetary and
financial accounting information established by SFFAS 7. SFFAS 53 provides for the budget and accrual reconciliation to
replace the statement of financing. The BAR explains the relationship between the entity’s net outlays on a budgetary basis
and the net cost of operations during the reporting period.
Budgetary accounting is used for planning and control purposes and relates to both the receipt and use of cash. Financial
accounting is intended to provide a picture of the government’s financial operations and financial position and presents
information on an accrual basis. The accrual basis includes information about costs arising from the consumption of assets
and the incurrence of liabilities. The reconciliation of net outlays presented on a budgetary basis, and the net cost, presented
on an accrual basis, provides an explanation of the relations between budgetary and financial accounting information. The
reconciliation serves not only to identify costs paid for in the past and those that will be paid in the future, but also to assure
integrity between budgetary and financial accounting. The analysis illustrates this reconciliation by listing the key differences
between net cost and net outlays.
Reestimate expense is recorded at the end of the fiscal year and funded in the following fiscal year. SBA’s annual reestimate
process updates program costs based upon actual cash flow experience and forecasts of future cash flow. As a part of the
reestimate process there is an adjustment for the President’s Budget where expenses for downward adjustments are recorded
in the budgetary program funds and the outlays are from financing funds creating a difference between budgetary outlays and
net cost. Additional discussion of reestimates is in Note 6.I and referenced throughout Note 6.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Changes in assets recognize the timing differences between the recognition of income and the receipt of funds. These are
primarily non-federal advances.
Changes in liabilities recognize the timing difference between the recording and payment of expenses. These are related to
disbursements in transit for the new EIDL grants.
Other financing sources include SBA’s imputed cost for retirement benefits. This is an expense for the Agency that is funded
by the OPM.
Components of budget outlays that are not part of net operating cost include disbursements and receipts that are not a
revenue or expense.

Budget and Accrual Reconciliation
(Dollars in Thousands)

Federal

Non-federal

Total 2021

(883,549)

$ 347,167,102

$ 346,283,553

–

(2,227)

Year-end credit reform subsidy reestimates
President's Budget adjustment to downward reestimates
Downward Modification
President's Budget adjustment to upward reestimates
Modification Adjustment Transfer (MAT), net

1,266,370
(778,039)
24,134
569,892
–

–
–
–
–
(21,626)

1,266,370
(778,039)
24,134
569,892
(21,626)

Increase/(decrease) in assets not affecting Budget Outlays:
Accounts Receivable, net
Advances
Loans Receivable, net
Other assets

–
(1,332)
–
–

(1,584)
(23,557)
(721)
(6,826)

(1,584)
(24,889)
(721)
(6,826)

(Increase)/decrease in liabilities not affecting Budget Outlays:
Accounts Payable
Accrued Grant Liability
Federal Employee Benefits Payable
Surety Bond Guarantee Program Future Claims
Other Liabilities

8,042
–
–
–
(3,246)

(302,592)
(36,642)
(2,054)
6
(10,876)

(294,550)
(36,642)
(2,054)
6
(14,122)

Other Financing Sources:
Imputed Cost
Transfer out (in) without reimbursement

(35,092)
(202)

–
–

(35,092)
(202)

Net Operating Cost (SNC)

Components of Net Operating Cost not Part of the Budgetary Outlays
General Property, plant and equipment depreciation expense

Total Components of Net Operating Cost Not Part of the Budget Outlays

$ 1,050,527

Components of the Budget Outlays That Are Not Part of Net Operating Cost
Other Financing Sources:
Effect of prior year credit reform subsidy reestimates

3,633,605

Total Components of the Budget Outlays That Are Not Part of Net Operating
Cost

$ 3,633,605

Other Reconciling Items
Distributed Offsetting Receipts
Total Other Reconciling Items

(408,699)

–
$

–

(27,837,806)

–

$ (27,837,806)

641,828

3,633,605
$

3,633,605
(27,837,806)

(27,837,806)

Total Net Outlays

$ 322,721,180

Budgetary Agency Outlays, net (SBR)
Budgetary Agency Outlays, net

$ 322,721,180

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Budget and Accrual Reconciliation, Continued
(Dollars in Thousands)

Federal

Non-federal

Total 2020

(4,669,673)

$ 558,901,220

$ 554,231,547

–

27,300

24,337,896
230,406
1,266,424
39,034
–

–
–
–
–
(30,515)

24,337,896
230,406
1,266,424
39,034
(30,515)

Increase/(decrease) in assets not affecting Budget Outlays:
Accounts Receivable, net
Advances
Loans Receivable, net
Other assets

–
(16,175)
–
–

186
41,695
(356)
7,542

186
25,520
(356)
7,542

(10,090)
–
–
–
111

(245,946)
46
(1,782)
(2,805)
(39,075)

(256,036)
46
(1,782)
(2,805)
(38,964)

Other Financing Sources:
Imputed Cost

(19,508)

–

(19,508)

(243,710)

$ 25,584,388

Net Operating Cost (SNC)

Components of Net Operating Cost not Part of the Budgetary Outlays
General Property, plant and equipment depreciation expense
Year-end credit reform subsidy reestimates
President's Budget adjustment to downward reestimates
Downward Modification
President's Budget adjustment to upward reestimates
Modification Adjustment Transfer (MAT), net

Total Components of Net Operating Cost Not Part of the Budget Outlays

$ 25,828,098

Components of the Budget Outlays That Are Not Part of Net Operating Cost
Other Financing Sources:
Donation of Cash and Cash Equivalents

–

(12)

120,391

–

120,391

Effect of prior year credit reform subsidy reestimates
Total Components of the Budget Outlays That Are Not Part of Net
Operating Cost

Other Reconciling Items
Distributed Offsetting Receipts

120,391

–

Total Other Reconciling Items

–

(12)

(2,523,844)
$

(2,523,844)

120,379
(2,523,844)

(2,523,844)

Total Net Outlays

$ 577,412,470

Budgetary Agency Outlays, net (SBR)
Budgetary Agency Outlays, net

$ 577,412,470

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 17.

COVID-19 Activity

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act P.L. 116-136) was enacted to
provide emergency and immediate national economic relief and assistance across the American economy, including to small
businesses, workers, families, and the health-care system, to alleviate the severe economic hardships and public health threat
created by the 2019 Novel Coronavirus pandemic. The CARES Act was subsequently modified in legislation in April, June,
and July of 2020 to add funding and adjust programs for continued pandemic response. Agency disaster declarations were
announced for all states and six territories of the United States, enabling existing disaster response programs to respond to the
pandemic. CARES Act programs included:

Subsidy for Paycheck Protection Program

CARES Act Debt Relief

Economic Injury Disaster Loan Emergency Advance (EIDL) Grants

Subsidy for Coronavirus Disaster Assistance Loans

More funding and programs were specified in the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
(Economic Aid Act), PL 116-260. This Act included temporary modifications to the 7(a) Loan Program including temporary
higher guaranty percentages and fee reductions on eligible 7(a) loans, and an increase in the maximum SBA Express loan
amount.
The American Rescue Plan Act of 2021, PL 117-2, modified and extended existing programs and created new programs
to support small businesses and other entities that have been affected during the COVID-19 pandemic. Specific programs
included:

Modifications to the Paycheck Protection Program

Debt Relief

Targeted EIDL Grants

Restaurant Revitalization Program

Shuttered Venue Operators Grants

Community Navigator Pilot Program

Subsidy for Paycheck Protection Program
The Paycheck Protection Program (PPP) was established by the CARES Act. PPP is a loan designed to provide a direct
incentive for small businesses to keep their workers on payroll. First Draw PPP loans can be used to help fund payroll
costs, including benefits, and may also be used to pay for mortgage interest, rent, utilities, worker protection costs related
to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs
and expenses for operations. The SBA will forgive loans if all employee retention criteria are met, and the funds are used for
eligible expenses.
Under the Economic Aid Act additional funds were appropriated to make new First Draw PPP loans and for certain eligible
borrowers that previously received a First Draw PPP loan who suffered revenue declines of 25 percent or more in any quarter
in 2020 as compared to the same quarter in 2019 to apply for a Second Draw PPP loan with the same general loan terms as
their First Draw PPP loan. It also permitted borrowers that had not received a First Draw PPP loan in 2020 to be eligible
to apply for both a First and Second draw loan under certain circumstances. PPP allows certain eligible borrowers that
previously received a PPP loan to apply for a Second Draw PPP loan with the same general loan terms as their First Draw
PPP loan. Second Draw PPP loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay
for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused
by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

The Paycheck Protection Program ended on May 31, 2021.
PL 116-136 section 1107 appropriated $349 billion for subsidy (loan level – $343 billion)
PL 116-139 amended PL 116-136 section 1107 (a)(1) to $670.335 billion in appropriations for subsidy and section 1102 (b)
(1) to $659 billion in loan authority.
PL 116-260 appropriated $284.45 billion for subsidy (loan level – $271.6 billion).
A recission of $137.3 billion was recorded in 073 20/211154 (Business Loan Investment Fund – Program (CARES)) under
PL 116-260, sect 323(c).
PL 117-2, (Sec. 5001) provided FY 2021 funding of 7.25 billion (loan level - $6.97 billion) for and otherwise modifies the
Paycheck Protection Program (PPP).
Funds impacted are 073X4149 (Business Loan Investment Fund – Gty Credit Reform).

Debt Relief
As a part of the CARES Act, SBA is authorized to pay six months of principal, interest, and any associated fees that borrowers
owe for all 7(a), 504, and Microloans reported in regular servicing status (excluding Paycheck Protection Program loans). This
debt relief to borrowers was originally dependent on the loan being fully disbursed prior to September 27, 2020 and does not
apply to loans made under the Economic Injury Disaster Loan program.
“These original provisions were amended on December 27, 2020, through the Economic Aid to Hard-Hit Small Businesses,
Non-Profits and Venues Act (Economic Aid Act, or EAA). The Economic Aid Act revised the eligibility criteria for assistance
to include all 7(a), 504, and Microloans approved up to September 27, 2020, even if not fully disbursed. Additionally, the
Economic Aid Act provided additional relief for covered loans and for loans in hard hit industries approved prior to March
27, 2020, as well as payments for covered loans made between February 1, 2021 through September 30, 2021.
Existing SBA disaster loans approved prior to 2020 in regular servicing status as of March 1, 2020, received an automatic
deferment of principal and interest payments through December 31, 2020. This initial deferment period was subsequently
extended through March 31, 2021. An additional 12-month deferment of principal and interest payments will be
automatically granted to these borrowers. Borrowers will resume their regular payment schedule with the payment
immediately preceding March 31, 2022, unless the borrower voluntarily continues to make payments while on deferment.
Interest will continue to accrue on the outstanding balance of the loan throughout the duration of the deferment.
A recission of $9.175 billion was recorded in 073 20/211154 (Business Loan Investment Fund – Program (CARES)).
PL 116-260, Sec 325 appropriated $3.5 billion in funds for debt relief for covered loans through September 30, 2021 or until
expended.
Of the $3.5 billion appropriation, $3.499 billion was obligated for a cost modification to make loan payments on behalf of
borrowers. Under FCRA, recalculation of subsidy resulted in an upward Modification Adjustment Transfer (MAT) across the
cohorts of the three loan programs of $33.3 million of appropriations transferred to the Financing funds and a downward
MAT resulting in the amount of $14.2 million transferred from the Financing Fund to the general fund.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

The following fund symbols are impacted by the Cares Act Debt Relief.
Fund Symbol

Fund Name

Programs

073X4148

Business Loan Investment Fund - Direct Credit Reform

Microloans

073X4149

Business Loan Investment Fund - Gty Credit Reform

504, 7(a), SMG

073X4279

Business Loan Investment Fund - Direct Recovery Act

Microloans

073X4280

Business Loan Investment Fund - Gty Recovery Act

504, 7(a), SMG

0732814

Other Payments of Investments and Recoveries

073 20/211154

Business Loan Investment Fund - Program (CARES)

Economic Injury Disaster Loan Emergency Advance (EIDL) Grants
In response to the COVID-19 pandemic, small business owners in all U.S. states, Washington, D.C., and territories
were eligible to apply for an Economic Injury Disaster Loan of which up to $15,000 could be advanced as a grant to
provide economic relief to businesses experiencing a temporary loss of revenue. This loan advance will not have to be
repaid. Recipients do not have to be approved for a loan to receive the advance, but the amount of the loan advance will
be deducted from total loan eligibility in the calculation of Economic Injury. The SBA began processing EIDL grants
in early April 2020 from Economic Injury Disaster Loan and EIDL Advance applications to qualified small businesses and
U.S. agricultural businesses. The SBA provided 5.8 million EIDL Advances for a total of $20 billion and closed on July 10,
2020 when all program funds were fully obligated.
PL 116-260, Sec 331 appropriated $20 billion, in administrative fund 073X0500.
PL 117-2, Sec 5002 provided an additional $15 billion in FY 2021 funding for emergency grants under the EIDL Program.

Subsidy for Coronavirus Disaster Assistance Loans
Based on Agency disaster declarations, SBA offered disaster designated states and territories low-interest federal disaster loans
for working capital to small businesses suffering substantial economic injury as a result of COVID-19 under P.L 116-139,
Division B Title II.
This act provided an additional $50 billion in loan subsidy to remain available until expended for the “Disaster Loans
Program Account” for the cost of direct loans authorized by section 7(b) of the Small Business Act. For FY 2020, this subsidy
provided loan authority of $367.1 billion. For FY 2021, the carryover subsidy provided loan authority of $279.1 billion.
PL 117-2 (Sec. 5006) provided additional $70 million in FY 2021 funding for direct loans subsidy. While this funding is not
for COVID response, it is mentioned here since it was appropriated under the American Rescue Plan Act.
Funds impacted are 073X1152 (Disaster Program Fund) and 073X4150 (Disaster Loan Fund - Direct Credit Reform).

Restaurant Revitalization Fund
This program provides emergency assistance for eligible restaurants, bars, and other qualifying businesses impacted by
COVID-19.
The American Rescue Plan Act established the Restaurant Revitalization Fund (RRF) to provide funding to help restaurants
and other eligible businesses keep their doors open. This program will provide restaurants with funding equal to their
pandemic-related revenue loss up to $10 million per business and no more than $5 million per physical location. Recipients
are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.
A new fund symbol, 073X0800 (Restaurant Revitalization Fund) was created for this purpose.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

PL 117-2, Sec 5003 established FY 2021 funding of $28.6 billion for the Restaurant Revitalization Fund. The SBA must
make grants to eligible restaurants for specified costs such as payroll, operational expenses, and paid sick leave.

Shuttered Venue Operators Grant
This funding provides emergency assistance for eligible venues affected by COVID-19.
The Shuttered Venue Operators Grant (SVOG) program was established by the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act, and amended by the American Rescue Plan Act.
Eligible applicants may qualify for funding equal to 45 percent of their gross earned revenue, with the maximum amount
available for a single funding award of $10 million. The SBA has reserved $2 billion for eligible applications with up to 50
full-time employees.
A new fund symbol, 073X0700 (Shuttered Venue Grant Fund) was created for this purpose.
PL 116-260, Sec 324 appropriated $15 billion.
PL 117-2, Sec. 5005 provided additional FY 2021 funding of $1.25 billion for funding to shuttered venue operators, and it
reduced the amount of these funds by the total amount of any PPP or EIDL Program funds that the funding recipient has
received on or after December 27, 2020.

Community Navigator Pilot Program
PL 117-2, Sec. 5004 establishes a Community Navigator pilot program to make grants to, or enter into contracts or
cooperative agreements with, private nonprofit organizations, resource partners, States, Tribes, and units of local government.
These agreements ensure the delivery of free community navigator services to current or prospective owners of eligible
businesses in order to improve access to assistance programs and resources made available because of the COVID–19
pandemic by Federal, State, Tribal, and local entities.
This public law appropriated $100 million for the program and $75 million for outreach and training. The funding is
available until September 30, 2022, for carrying out this program. The authority of the Administrator to make grants under
this section shall terminate on December 31, 2025.

Salaries and Expenses Administrative Funding
PL 116-260, Sec 323 provided $2.775 million for the administrative expenses for CARES Act program implementation,
as well as to prevent, prepare for, and respond to COVID-19. This included $50 million to carry out reviews and audits
of loans under subsection (l) of section 7A of the Small Business Act, as redesignated, transferred, and amended by The
Economic Aid Act.
PL 117-2, Sec. 5006 provided additional funding in FY 2021 of $840 million to provide support for the administrative
expenses for the COVID-19 pandemic; the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; Target
EIDL Advances; and Restaurants Revitalization Grants under the American Rescue Plan.

Disaster Administrative Funding
PL 117-2, Sec. 5006 provided additional funding of $460 million to carry out the disaster loan program of which $70
million is for the cost of direct loans authorized by such section and $390 million is for administrative expenses to carry out
the program.

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Office of the Inspector General
PL 117-2, Sec 5006 provided $25 million to perform the necessary audit oversight of CARES Act and COVID-related loans
and activities, and the American Rescue Plan.

Entrepreneurial Development
PL 116-260, Sec 329 provided $50 million in funding for Microloan Technical Assistance Grants.
These programs impact the following lines on the financial statements.
Balance Sheet:

Fund Balance with Treasury

Credit Program Receivables and Related Foreclosed Property, Net

Debt

Downward Reestimate Payable to Treasury

Accounts Payable (with the public)

Loan Guarantee Liabilities

Unexpended Appropriations – Funds from Other Than Dedicated Collections

Cumulative Results of Operations – Funds from Other Than Dedicated Collections

Statement of Net Cost:

Strategic Goal 1 Gross Cost

Strategic Goal 1 Earned Revenue

Strategic Goal 3 Gross Cost

Strategic Goal 3 Earned Revenue

Strategic Goal 4 Gross Cost

Statement of Changes in Net Position:

Appropriations Received

Other Adjustments

Appropriations Used

Transfers-In/Out Without Reimbursement

Non-entity Activity

Statement of Budgetary Resources:

Appropriations

Borrowing Authority

Spending Authority from Offsetting Collections

New Obligations & Upward Adjustments

Apportioned, unexpired accounts

Unapportioned, unexpired accounts

Net Outlays

Distributed Offsetting Receipts

Footnotes 2, 6, 8, 9,13, 14, 15 and 16 are impacted.

Agency Financial Report Fiscal Year 2021

U.S. Small Business Administration

Financial Results (Unaudited)

Amounts related to CARES Act, EAA, and ARP programs are shown in the following tables.
(Dollars in Thousands)

Fund Symbol

Budgetary
Resouces
Available
FY 2021

Program Description

Budgetary
Resources
Used
FY 2021

25,051,621

7,023,384

Resources
Available
Beyond
FY 2021

Obligations
Incurred
FY 2021

073X1152

COVID EIDL Subsidy

073 20/21 0500

EIDL Advance

10,841

–

7,023,384
–

18,028,237
10,841 *

073X0500

EIDL Advance

46,292

–

46,292

073 20/21 1154

Paycheck Protection Program

2,548,228

685,762

1,862,466 *

073 20/21 0100

Supplemental COVID Salaries and Expenses

1,647,520

1,294,045

353,475 *

073 20/21 0400

CARES Act EDP Funding

11,611

–

11,611 *

073 20/24 0200

Supplemental COVID OIG

361

–

073X0200

Supplemental COVID OIG

24,623

3,223

21,400

073X1154

Paycheck Protection Program

291,700,000

284,715,090

6,984,910 *

073X1154

EAA - Small Business Debt Relief

3,500,000

–

073X1154

Guaranteed Loan Cost for Sec. 326, 327, and 328

1,918,000

1,759,118

158,882 *

073X1154

EAA - Microloan Subsidy

7,000

1,497

5,503

073X0100

No-Year S&E (PPP Audit & Fraud mitigation)

50,000

4,188

45,812

073X0400

EAA - EDP Microloan Technical Assistance

073X0500

Targeted EIDL Advance

073X0700

Shuttered Venue Operators Grants

16,250,000

073X0800

Restaurant Revitalization Fund

28,600,000

073X0100

ARP Act Salaries and Expenses

840,000

073 21/22 0400

Community Navigator

100,000

073 21/22 0400

Outreach and Education

073X0200

No-Year OIG ARPA

50,000

16,514

33,486

35,000,000

5,751,322

29,248,678

9,713,357

6,536,643

28,514,410

85,590

192,006

647,994

–

100,000

75,000

650

74,350

25,000

24,965

Budgetary
Resources
Available
FY 2020

Budgetary
Resources
Used FY 2020

Obligations
Incurred
FY 2020

* - expired funding or authority
(Dollars in Thousands)

Fund Symbol

073X1152

Description

CARES Act

EIDL Loan

CARES Act

Admin

50,000,000
582,000

25,101,240
582,000

Resources
Available
Beyond
FY 2020

24,898,760
–

073 20/210500

EIDL Grants

10,000,000

9,991,520

8,480

073X0500

EIDL Grants

10,000,000

9,965,795

34,205

670,334,800

532,324,952

138,009,848

7,824,286

–

CARES Act

2,775,000

1,131,407

1,643,593

073 20/210400

CARES Act

265,000

256,674

8,326

073 20/240200

CARES Act

25,000

24,984

073 20/211154
073 20/210100

Sect 1102

PPP

Sect 1112

Debt Relief

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Note 18.

Reclassification of Financial Statement Line Items
for Financial Report Compilation Process

To prepare the Financial Report of the U.S. Government (Financial Report), the Department of the Treasury requires agencies
to submit an adjusted trial balance, which is a listing of amounts by U.S. Standard General Ledger account that appear in the
financial statements. Treasury uses the trial balance information reported in the Government-wide Treasury Account Symbol
Adjusted Trial Balance System (GTAS) to develop a Reclassified Statement of Net Cost and a Reclassified Statement of
Changes in Net Position for each agency, which are accessed using GTAS. Treasury eliminates all intragovernmental balances
from the reclassified statements and aggregates lines with the same title to develop the Financial Report statements. This note
shows SBA’s financial statements and SBA’s reclassified statements prior to elimination of intragovernmental balances and
prior to aggregation of repeated Financial Report line items. A copy of the 2020 Financial Report can be found here: Bureau
of the Fiscal Service - Reports, Statements & Publications (treasury.gov) and a copy of the 2021 Financial Report will be
posted to this site as soon as it is released.
The term “intragovernmental” is used in this note to refer to amounts that result from other components of the Federal
Government.
The term “non-Federal” is used in this note to refer to Federal Government amounts that result from transactions with
non-Federal entities. These include transactions with individuals, businesses, non-profit entities, and State, local, and foreign
governments.
The SBA does not have funds from dedicated collections.
Line Items Used to Prepare FY 2021 Government-Wide
Statement of Net Cost

FY 2021 SBA Statement of Net Cost
STRATEGIC GOAL 1:
Support Small Business Revenue and Job Growth
Gross Cost
Less: Earned Revenue
Net Cost of Strategic Goal 1
STRATEGIC GOAL 2:
Build Healthy Entrepreneurial Ecosystems and
Create Business Friendly Environments
Gross Cost
Net Cost of Strategic Goal 2
STRATEGIC GOAL 3:
Restore Small Businesses and Communities after Disasters
Gross Cost
Less: Earned Revenue
Net Cost of Strategic Goal 3

$ 330,461,299
4,336,162
326,125,137

$ 350,237,054
350,237,054

Non-Federal Cost
Non-Federal Gross Cost
Total Non-Federal Cost

Intragovernmental Costs

456,701
456,701

23,502,517
3,963,444
19,539,073

112,928
35,093
98,946
4,036,986
62,151
4,346,104

Benefit Program Costs
Imputed Costs
Buy/Sell Costs
Borrowing and Other Interest Expense
Other Expenses (w/o Reciprocals)
Total Intragovernmental Costs

354,583,158

Total Reclassified Gross Cost

3,069,952

Non-federal Earned Revenue

STRATEGIC GOAL 4:
Strengthen SBA’s Ability to Serve Small Businesses
Gross Cost

131,155

1,774

Net Cost of Strategic Goal 4

131,155

5,227,879
5,229,653

Borrowing and Other Interest Revenue
Total Intragovernmental Earned Revenue

COST NOT ASSIGNED TO STRATEGIC GOALS
Gross Cost
Net Cost Not Assigned to Strategic Goals

31,487
31,487

8,299,605

Total Reclassified Earned Revenue

$ 346,283,553

Net Cost of Operations

Agency Financial Report Fiscal Year 2021

Intragovernmental Earned Revenue
Buy/Sell Revenue

Net Cost

U.S. Small Business Administration

Financial Results (Unaudited)

Line Items Used to Prepare FY 2021 Government-Wide
Statement of Changes in Net Position

FY 2021 SBA Statement of Changes in Net Position
Funds from other than Dedicated Collections
Unexpended Appropriations:
Beginning balance, as adjusted
Appropriations Received
Other Adjustments:
Rescissions
Adjustment - Cancelled Authority
Return of Unrequired Liquidating Fund Appropriation
Other Adjustments
Appropriations Used
Total Unexpended Appropriations: Ending Balance

$ 183,460,572
383,192,098

$ 183,460,572
236,646,104

(146,524,623)
(20,784)
(447)
(140)
(350,974,533)
$ 69,132,143

(350,974,533)
69,132,143

Cumulative Results of Operations:
Beginning Balance, as adjusted

(3,982,600)

Other Adjustments:
Current Year Liquidating Equity Activity
Other

(3,982,600)

Imputed Financing

350,974,533
5,543

Approriations Expended
Non-Expenditure Transfers-Out of Unexpended
Appropriations and Financing Sources

202

202
350,980,278

Expenditure Transfers-in of Financing Sources
Total Budgetary Financing Sources

35,092

Other:

(27,802,120)

Non-entity Activity

Net Cost of Operations
Net Change and Cumulative Results of Operation

Cumulative Results, Beginning Balance, as adjusted
Other Taxes and Receipts
Total Non-Federal Non-exchange Revenue

350,974,533

Transfers In/Out Without Reimbursement

Appropriations Used
Total Unexpended Appropriations

22
22

5,572
(29)

Appropriations Used

Unexpended Appropriations, Beginning Balance
Appropriations Received

(11,002,742)

16,799,356
(10,967,672)

346,283,553
(6,270,925)

346,283,553

Imputed Financing
Non-Entity Collections Transferred to the General Fund
of the U.S. Government
Accrual for Non-Entity Amounts to be Collected and
Transferred to the General Fund of the U.S. Government
Total Other Financing Sources

Net Cost of Operations

Cumulative Results of Operations - Ending

(10,253,525)

Cumulative Results of Operations - Ending

Ending Net Position

58,878,618

Ending Net Position

U.S. Small Business Administration

Agency Financial Report Fiscal Year 2021

Financial Results (Unaudited)

Required Supplementary Information
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2021 (Unaudited)

(Dollars in Thousands)

BLIF

DLF

SBGRF

OIG

Budgetary

Nonbudgetary
Financing

Budgetary

25,185,378

1,315,205

$ 102,745

BUDGETARY RESOURCES
Unobligated Balance from Prior Year Budget Authority, net
(discretionary and mandatory)

Budgetary

Nonbudgetary
Financing

$ 149,099,772

$ 525,039,538

Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority from Offsetting Collections
Total Budgetary Resources

152,860,940
–
–
$ 301,960,712

36,236
141,332
297,053,762
$ 822,270,868

2,206,494
–
–
$ 27,391,872

–
93,794,469
16,307,860
$ 111,417,534

$ 292,884,738

$ 594,846,455

9,090,756

7,212,711
1,863,263
9,075,974
–
9,075,974
$ 301,960,712

225,781,138
1,643,275
227,424,413
–
227,424,413
$ 822,270,868

18,199,877
101,239
18,301,116
–
18,301,116
$ 27,391,872

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total)
Unobligated Balance, end of year:
Apportioned, unexpired accounts
Unapportioned, unexpired accounts
Unexpired Unobligated Balance, end of year
Expired Unobligated Balance, end of year
Unobligated Balance, end of year (total)
Total Status of Budgetary Resources
OUTLAYS, NET
Net Outlays (discretionary and mandatory)
Distributed Offsetting Receipts
Agency Outlays, net (discretionary and mandatory)
Disbursements, net (total) (mandatory)

$ 296,303,524
–
$ 296,303,524

1,862,797

$ 35,865

–
–
17,622
$ 120,367

1,154,157
–
353,160
3,370,114

47,011
–
1,600
$ 84,476

$ 104,684,758

2,119,720

$ 28,386

4,047,759
2,685,017
6,732,776
–
6,732,776
$ 111,417,534

6,488
98,471
104,959
–
104,959
$ 120,367

1,227,137
1,690
1,228,827
21,567
1,250,394
3,370,114

52,929
–
52,929
3,161
56,090
$ 84,476

1,878,998
(27,837,806)
$ (25,958,808)

$ 26,130
–
$ 26,130

8,461,448
–
8,461,448

$ 292,592,645

15,408

(2,193)
–
(2,193)

77,557,190

(Dollars in Thousands)
ADVOCACY

EDP

EIDL

SVOG

RRF

WCF

BATF

TOTAL

Budgetary

Nonbudgetary
Financing

Total

175

$ 176,427,273

$ 526,354,743

$ 702,782,016

236,630,792

36,236

236,667,028

BUDGETARY RESOURCES
Unobligated Balance from Prior Year Budget
Authority, net (discretionary and mandatory)

Budgetary

Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and
mandatory)

9,190

497,000

35,000,000

16,250,000

28,600,000

6,000

–

93,935,801

Spending Authority from Offsetting Collections

–

372,382

313,361,622

313,734,004

Total Budgetary Resources

$ 9,848

$ 570,239

$ 35,057,133

$16,250,000

$28,600,000

$ 15,511

175

$ 413,430,447

$ 933,688,402

$ 1,347,118,849

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments
(total)

7,140

$ 307,663

$ 5,751,322

$ 9,713,357

$ 28,514,410

$ $7,245

–

$ 348,440,145

$ 699,531,213

$ 1,047,971,358

Apportioned, unexpired accounts
Unapportioned, unexpired accounts

2,708
–

242,785
11

29,305,811
–

6,536,643
–

85,590
–

8,244
22

175
–

62,881,098
2,064,696

229,828,897
4,328,292

292,709,995
6,392,988

Unexpired Unobligated Balance, end of year
Expired Unobligated Balance, end of year

2,708
–

242,796
19,780

29,305,811
–

6,536,643
–

85,590
–

8,266
-

175
–

64,945,794
44,508

234,157,189
–

299,102,983
44,508

658

73,239

Budgetary

57,133

Budgetary

–

Budgetary

9,511

Unobligated Balance, end of year:

Unobligated Balance, end of year (total)

2,708

262,576

29,305,811

6,536,643

85,590

8,266

175

64,990,302

234,157,189

299,147,491

Total Status of Budgetary Resources

$ 9,848

$ 570,239

$ 35,057,133

$16,250,000

$28,600,000

$ 15,511

175

$ 413,430,447

$ 933,688,402

$ 1,347,118,849

7,520
–

$ 234,439
–

$ 5,481,842
–

$ 9,696,487
–

$ 28,466,759
–

$ 4,032
–

–
–

$ 350,558,986
(27,837,806)

$ 7,520

$ 234,439

$ 5,481,842

$ 9,696,487

$ 28,466,759

$ 4,032

–

$ 322,721,180

OUTLAYS, NET
Net Outlays (discretionary and mandatory)
Distributed Offsetting Receipts
Agency Outlays, net (discretionary and
mandatory)

$ 350,558,986
(27,837,806)
$ 322,721,180
$ 370,149,835

Agency Financial Report Fiscal Year 2021

100

U.S. Small Business Administration

Other Information
(UNAUDITED)

Success Stories
DESIGN TO PRINT
Josh Bevans, CTO
Stephanie Bevans, CEO
St. George, UT

From a small town in southern Utah, Design to Print has
provided graphic design and printing for events around the
globe, including for entities in England, Australia, France,
Belgium, Greece, and China. They have produced work for
Fortune 500 companies, as well as the NBA, NASCAR, and the
Olympic Committee.
The COVID-19 pandemic hit Design to Print hard—most of
their business came from events that halted in March of 2020.
Co-owners Josh and Stephanie Bevans credit a strong
relationship with their SBA lender as part of the reason they
were able to remain open while only operating on 20 percent
of their normal revenue. With their prior knowledge of SBA’s
programs and assistance from their lender, Design to Print was
able to be the first applicant for the SBA’s Paycheck Protection
Program in the state of Utah.

Design to Print brainstormed and, using funding from SBA,
kept their team onboard and transitioned to interior design
and decorative metalwork. The found work in hotels, casino
remodels, and large commercial building.
“Without the help of the SBA, we would have been in a bad
place,” says Josh.

THROWBACK BREWERY
Nicole Carrier, Co-Founder
Annette Lee, Co-Founder
North Hampton, NH

In 2011, co-founders Nicole Carrier and Annette Lee decided
to use their background in business, engineering, and
homebrewing to open Throwback Brewery. The sustainable
vision of Throwback Brewery is to create beer that is sourced
100 percent from local ingredients and enjoyed in the local
New England area. After starting in a small warehouse, they
now operate out of a 12-acre farm and opened a sustainable
restaurant after obtaining both an SBA 504 loan and 7(a) loan
to invest in and expand their business. “This property took a lot
to renovate, and we definitely needed the capital. The SBA has
helped us out tremendously,” says Nicole.
COVID-19 caused Throwback Brewery to completely rethink
their business model, and the team used the SBA’s Paycheck
Protection Program, Economic Injury Disaster Loan program,
and Restaurant Revitalization Fund to maintain their business.

Speaking of how Throwback Brewery responded to these
challenges, Nicole noted, “It was pretty dramatic for us and for
other restaurants. For us particularly, we went from a business
that maybe did 5 percent takeout to all of a sudden we had
to close our doors and move to a 100 percent takeout model.
When things started opening up again, we had to completely
transform our way of doing business and it was really the
Paycheck Protection Program that helped us keep our really
dedicated, committed team fully on staff throughout the entire
pandemic.”

Success Stories

Other Information

U.S. Small Business Administration
Office of Inspector General

Top Management and Performance Challenges
Facing the Small Business Administration
in Fiscal Year 2022

October 15, 2021
Report 22-02

Small
U.S.
Small
Business
Business
Administration
Administration

103

Agency Financial Report Fiscal Year 2021

OIG Report

OIG Report on the Top Management and Performance
Challenges

OIG Report

Other Information

Contents

Message from the Inspector General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Challenge 1: SBA’s Economic Relief Programs Are Susceptible to Significant Fraud Risks and Vulnerabilities . . . . 109
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Issue: Paycheck Protection Program Susceptible to Abuse and Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Issue: Paycheck Protection Program Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Issue: Paycheck Protection Program Data Reliability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Issue: COVID-19 Economic Injury Disaster Loan Program Susceptible to Fraud . . . . . . . . . . . . . . . . . . . . . 115
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Challenge 2: Inaccurate Procurement Data and Eligibility Concerns in Small Business Contracting
Programs Undermine the Reliability of Contracting Goal Achievements . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Issue: Agencies Receive Credit for Ineligible Firms or Those No Longer in the HUBZone or
8(a) Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Issue: Women-Owned Small Business Federal Certification Program Susceptible to Abuse . . . . . . . . . . . . . 119
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Challenge 3: SBA Faces Significant Challenges in IT Investment, System Development, and Security Controls . . . 120
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Issue: SBA’s IT Investment Controls Need Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Issue: Existing System Development Controls Do Not Reflect Changing IT Application Landscape . . . . . 121
Issue: Additional Progress Needed on Security Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Challenge 4: SBA Risk Management and Oversight Practices Need Improvement to Ensure the
Integrity of Loan Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Issue: SBA’s Oversight of High-Risk Lending Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Issue: Increased Risk Introduced by Loan Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Issue: Increased Risk Introduced by Lender Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Agency Financial Report Fiscal Year 2021

104

U.S. Small Business Administration

Other Information

OIG Report

Challenge 5: SBA’s Management and Monitoring of the 8(a) Business Development Program Needs
Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Issue: SBA Continues to Address Its Ability to Develop Firms in the 8(a) Program and Measure Results . 127
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Issue: Streamlined Application Process May Expose the 8(a) Program to Higher Fraud Risk . . . . . . . . . . . . 128
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Issue: Corrective Actions Are Needed to Improve Continuing Eligibility Processes and
Reduce Risks of Ineligible Firms Participating in the 8(a) Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Issue: Economically Disadvantaged Determination Criteria Should Be Based on Sound Methodology . . . 129
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Challenge 6: Identification of Improper Payments in SBA’s Loan Programs Remains a Challenge . . . . . . . . . . . . . . . 131
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Issue: Improvements Needed to Ensure High-Risk 7(a) Loan Reviews Reduce the Risk of Losses . . . . . . . . 131
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Challenge 7: SBA’s Disaster Assistance Program Must Balance Competing Priorities to Deliver
Prompt Assistance but Prevent Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Issue: Reserve Staff Need Training to Sustain Productivity During Mobilization . . . . . . . . . . . . . . . . . . . . . . . 133
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Issue: Improper Payment Quality Assurance Process Needs Strengthening . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Issue: Inadequate Verification of Cause and Extent of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Issue: Unprecedented Increase in Servicing COVID-19 EIDLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Challenge 8: SBA Needs Robust Grants Management Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Why This Is a Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Issue: SBA’s Grants Management System Needs Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Agency Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Issue: Better Performance Measurements Needed to Monitor Grant Program Achievements . . . . . . . . . . . . 139
Issue: Serious Concerns Over SBA’s Risk Assessment Used for Payment Distributions and
Audits for the Shuttered Venue Operators Grant Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Issue: Leveraging SBA’s Workforce to Ensure Effective Administration of New and
Significantly Expanded Grant Programs to Aid Small Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

U.S. Small Business Administration

105

Agency Financial Report Fiscal Year 2021

Other Information

OIG Report

Message from the Inspector General

I am pleased to present the Office of Inspector General (OIG) Report on the Top
Management and Performance Challenges Facing the Small Business Administration in Fiscal
Year 2022, as required by the Reports Consolidation Act of 2000.
In March 2020, the Coronavirus Disease 2019 (COVID-19) pandemic catapulted the
U.S. Small Business Administration (SBA) into the spotlight as the primary agency
responsible for providing nationwide assistance to small businesses. Since then, SBA has
faced a steady stream of unprecedented new challenges.
Hannibal ‘Mike’ Ware

However, even before the pandemic, SBA faced major challenges in managing enormous
financial lending programs, information technology, and other areas. This report discusses
eight major performance challenge areas and the issues that contribute to the challenges,
many of which we have discussed in previous OIG reports (see Table 1).
I believe managing COVID-19 stimulus lending is the greatest overall challenge facing
SBA, and it may likely continue to be for many years as the agency grapples with fraud in
the programs, particularly in the COVID Economic Injury Disaster Loan Program, and
the process of Paycheck Protection Program loan forgiveness. Pandemic response has, in
many instances, magnified the challenging systemic issues in SBA’s mission-related work.
Overall, the agency has made progress addressing this year’s list of management
challenges. We are even retiring some issues we identified last year within major challenge
areas because the agency has made such significant progress that the problem has either
been resolved or no longer rises to the level of systemic challenge.
This progress is in large part attributed to the agency’s concerted effort to address
outstanding internal control recommendations reflected in many of the component
challenge corrective action areas.
OIG remains committed to spurring the agency to correct problems that endanger
taxpayer assets. However, our audits and investigations continue to find the agency facing
significant risks of fraud because of the size and scope of its loan programs and related
internal control environment; oversight of statutory programs, such as the 8(a) Business
Development Program; and information technology security.

Agency Financial Report Fiscal Year 2021

106

U.S. Small Business Administration

Other Information

Challenge

CHALLENGE 1
SBA’s Economic Relief Programs Are Susceptible to
Significant Fraud Risks and Vulnerabilities

CHALLENGE 2
Inaccurate Procurement Data and Eligibility
Concerns in Small Business Contracting Programs
Undermine the Reliability of Contracting Goal
Achievements

CHALLENGE 3
SBA Faces Significant Challenges in IT Investment,
System Development, and Security Controls

CHALLENGE 4
SBA Risk Management and Oversight Practices
Need Improvement to Ensure the Integrity of Loan
Programs

CHALLENGE 5
SBA’s Management and Monitoring of the
8(a) Business Development Program Needs
Improvement

CHALLENGE 6
Identification of Improper Payments in SBA’s Loan
Programs Remains a Challenge

CHALLENGE 7
SBA’s Disaster Assistance Program Must Balance
Competing Priorities to Deliver Prompt Assistance
but Prevent Fraud

CHALLENGE 8
SBA Needs Robust Grants Management Oversight

U.S. Small Business Administration

Issues
Paycheck Protection Program Susceptible to Abuse and Fraud
Paycheck Protection Program Eligibility
Paycheck Protection Program Data Reliability
COVID-19 Economic Injury Disaster Loan Program Susceptible to Fraud

Agencies Receive Credit for Ineligible Firms or Those No Longer in the HUBZone or 8(a)
Programs
Women-Owned Small Business Federal Certification Program Susceptible to Abuse

SBA’s IT Investment Controls Need Improvement
Existing System Development Controls Do Not Reflect Changing IT Application
Landscape
Additional Progress Needed on Security Controls
SBA’s Oversight of High-Risk Lending Participants
Increased Risk Introduced by Loan Agents
Increased Risk Introduced by Lender Service Providers
SBA Continues to Address Its Ability to Develop Firms in the 8(a) Program and Measure
Results
Streamlined Application Process May Expose the 8(a) Program to Higher Fraud Risk
Corrective Actions Are Needed to Improve Continuing Eligibility Processes and Reduce
Risks of Ineligible Firms Participating in the 8(a) Program
Economically Disadvantaged Determination Criteria Should Be Based on Sound
Methodology
Improvements Needed to Ensure High Risk 7(a) Loan Reviews Reduce the Risk of
Losses
Reserve Staff Need Training to Sustain Productivity During Mobilization
Improper Payment Quality Assurance Process Needs Strengthening
Inadequate Verification of Cause and Extent of Damages
Unprecedented Increase in Servicing COVID-19 EIDLs
SBA’s Grants Management System Needs Improvement
Better Performance Measurements Needed to Monitor Grant Program Achievements
Serious Concerns over SBA’s Risk Assessment Used for Payment Distributions and
Audits for the Shuttered Venue Operators Grant Program
Leveraging SBA’s Workforce to Ensure Effective Administration of New and
Significantly Expanded Grant Programs to Aid Small Businesses

107

Agency Financial Report Fiscal Year 2021

OIG Report

Table 1. Top Management and Performance Challenges Facing SBA in FY 2022

Other Information

OIG Report

Color Coding the Challenges
Identification of an issue as a top challenge does not necessarily denote significant deficiencies or lack of attention on SBA’s
part. Many of the top management challenges are longstanding, inherently difficult, and may likely continue to be challenges
in the coming years.
Some of the challenges encompass new issues that have arisen. Resolving the challenges will require consistent, focused
attention from agency management and ongoing engagement with Congress, the public, and other stakeholders.
It is also important to note that the top challenges are not listed in order of importance or magnitude, except for the
COVID-19 challenge, which we address first in this report. We also view the other challenges as critically important to SBA
operations.
Similar to last year’s report, this report uses a color gauge as a visual indicator of the agency’s progress in confronting the issues
that make a particular function a top management challenge. Each issue that contributes to the main challenge includes a
small color gauge image that indicates whether the agency has made little, no, or significant progress on the issue to date. (See
Table 2).
The management challenges report is an important tool to help the agency prioritize its work to improve program
performance and enhance operations. These challenges will guide OIG work in the coming year. We look forward to
continuing to work with SBA’s leadership team to address the agency’s top management and performance challenges.

Table 2. Color Code Definitions
Color

Definition

Green

Issue Resolved or Appropriately Reduced

Yellow

Substantial Progress

Orange

Moderate or Limited Progress

Red

No Progress

N/A

New, not rated

N/A

Not rated (extenuating circumstances)

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Other Information

Why This Is a Challenge

ore than 30 million small businesses in the United States have been adversely affected by COVID-19. The President
signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27, 2020, to provide
economic relief to our nation.
Under the CARES Act, SBA-guaranteed relief loans for eligible small businesses, individuals, and nonprofit organizations can
be forgiven if loan proceeds were used in accordance with law. Eligible expenses include payroll, rent, utility payments, and
other limited uses.
The speed of lending through these programs is unmatched by anything in SBA’s history and necessitates the establishment
of proper controls to mitigate risk and ensure that the programs operate as intended. As of August 2021, we had received
more than 215,000 Hotline fraud complaints in the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan
(EIDL) program combined and 1.2 million EIDL loan complaints of identity theft.
OIG’s EIDL and PPP oversight and investigative work resulted in 307 indictments, 205 arrests, and 69 convictions related
to PPP or EIDL by August 2021, with associated amounts totaling more than $460 million. Additionally, OIG collaboration
with SBA and the U.S. Secret Service has resulted in the seizure of more than $995 million stolen by fraudsters in the EIDL
program. We also played a key role in assisting financial institutions in the return of another $3.1 billion to SBA’s EIDL
program.
OIG has actively engaged SBA leadership throughout the duration of the pandemic to notify them of preliminary findings so
they could respond in real time to prevent loss to the taxpayer. Our PPP and EIDL reviews have revealed alarming findings.
We published a flash report on PPP in May 2020 that led to legislative changes to the program. In FY 2021, we also
published reports on the agency’s implementation of the PPP, the U.S. Department of the Treasury’s Do Not Pay List, SBA’s
handling of identity theft in the EIDL program, and the agency’s initial response to the pandemic. Our findings led the
agency to strengthen controls to prevent fraud.

Paycheck Protection Program
The CARES Act appropriated $349 billion for the PPP under the 7(a) small business lending program. In early April 2020,
SBA launched the $349 billion PPP in collaboration with the U.S. Department of the Treasury. On April 24, 2020, Congress
appropriated an additional $310 billion for PPP through the Paycheck Protection Program and Health Care Enhancement
Act, bringing the total for the program to $659 billion.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was enacted on December 27, 2020 to
continue assistance under the PPP. Under the Economic Aid Act, the PPP was extended to provide more than $284 billion in
guaranteed SBA loans.
As of May 31, 2021, SBA had processed 11.8 million guaranteed PPP loans, totaling $799.8 billion, through more than
5,400 private lenders, far more than all of SBA’s combined lending under the 7(a) program from 1990 to 2019. In contrast,
from FYs 2000-19, SBA made about 1.2 million 7(a) loans totaling $333 billion. During that 20-year period, SBA made
about 62,000 loans a year totaling about $16.7 billion on average.
Once the laws were in place, SBA moved quickly to establish the new nationwide relief programs. But the agency eased
controls required in its lending programs to do so, increasing the risk of rampant fraud.

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OIG Report

Challenge 1: SBA’s Economic Relief Programs Are Susceptible to
Significant Fraud Risks and Vulnerabilities

Other Information

OIG Report

Economic Injury COVID-19 Disaster Loan Program
In FY 2020, the CARES Act and the Paycheck Protection Program and Healthcare Enhancement Act provided $470 billion
for disaster assistance and $20 billion for emergency grants for eligible entities.
In FY 2021, the Economic Aid Act and the American Rescue Act combined provided an additional $30 billion in Targeted
EIDL Advances and $5 billion in Targeted Supplemental EIDL Advances to eligible entities that met additional criteria.
SBA’s existing application portal and processing system were initially overwhelmed by the 4.5 million loan applications by
April 10, 2020, for COVID-19 EIDL and Emergency EIDL grants. SBA turned to a contractor that had previously assisted
SBA in streamlining processing to manage initial processing of COVID-19 EIDL applications. However, setting up a new
application processing system presented significant internal control risks.
SBA relaxed internal controls to speed funds to affected businesses, significantly increasing the risk of program fraud. The
unprecedented demand for COVID-19 EIDLs and the challenges of quickly responding to the pandemic brought about the
lowering of internal controls, added significant stress to the system, and created opportunities for unscrupulous people to
commit fraud.
SBA had approved 2.2 million disaster loans for $66.7 billion in its entire history since 1953. By contrast, between March
and the end of December 2020, SBA had received more than 17.7 million COVID-19 EIDL applications and approved 3.7
million loans totaling $197.2 billion.
During prior large-scale disasters, SBA brought on new loan officers to match the volume of loan applications and prevent
processing backlogs that delay the delivery of disaster assistance. In its COVID-19 response, SBA increased its permanent and
temporary trained staff size to more than 9,000, significantly more than any other previous disaster.

Issue: Paycheck Protection Program Susceptible to Abuse and Fraud
Our oversight revealed fraudsters took aim at the program and identified opportunities
for prevalent potential abuse and fraud in the PPP. Since the PPP began, OIG has had a
major increase in reports of suspected fraud.

Yellow

These reports of suspected fraud have come from various sources, including OIG Hotline
complaints, contacts from financial institutions, and other law enforcement agencies.

We have launched numerous investigations based on these reports. Examples of fraud schemes include the following:

False statements on applications

Fraudulent supporting documents (such as payroll and tax forms)

Accounts established using stolen identities

Corporate and personal identity theft

Inflation of payroll

Misuse of proceeds

Unqualified borrowers

Lender fraud

As of August 2021, OIG had received more than 40,000 Hotline complaints of potential PPP fraud and the numbers
continue to rise. Complaints of potential fraud or scams include scenarios including the following:

Loan applicants asserting business ownership that did not exist

Business owners who received loan funds but did not use the loan money for their business

Business owners who laid off employees to reduce employment numbers to qualify for a PPP loan

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Other Information

Business owners who have refused to allow employees to return to work, telling them to continue on unemployment
assistance instead

Online fraudsters who offered to prepare applications for a fee

Business owners and individuals reporting identity theft because the SBA made loans in their names that they did not
apply for or receive

OIG has identified trends in the high number of complaints that indicate the potential for widespread fraudulent activity in
the PPP. These trends mirror the arrests and ongoing investigations our agents and other government agencies are pursuing.
As of January 2021, the Justice Department had filed 79 PPP fraud cases, bringing charges against more than 140 defendants.
Defendants are charged with bilking taxpayers out of $341 million dollars.
Changes SBA made to expand access to the program for certain borrowers appear to have been exploited by unscrupulous
individuals. In March 2021, SBA issued an interim final rule to better align with the intent of Congress. The rule allowed
individuals who file an IRS Form 1040, Schedule C, to calculate their maximum loan amount using gross income rather than
net income.
This change led to a significant increase in the number of loans of $20,833 or less, the maximum allowable loan amount for a
Schedule C business with no employees.
In addition to Hotline complaints, multiple financial institutions have contacted OIG about a significant number of PPP
deposits in personal accounts or made to people whom the financial institutions believe do not own businesses.
Many of the Schedule C loans were made by lenders that rely exclusively on third-party loan processing or software
platform vendors they hire to complete loan processes. SBA does not contract the third-party vendors and they do not have
relationships with SBA, only with the lenders.
The lenders used third parties to increase PPP loan volume. PPP volume data shows that 7 of the top 15 lenders made more
than 2.4 million loans in 2021, or more than 18,000 loans per day, after having made fewer than 22,000 PPP loans combined
in 2020.
Based on our previous work and analysis of SBA’s loan data, we identified 70,835
loans totaling over $4.6 billion in potentially fraudulent PPP loans. These figures stem
from three audit projects about indicators and red flags for potential fraud, including
duplicate loans, businesses created after February 15, 2020, and loans that match Do
Not Pay data sources.
These loans can only be considered potentially fraudulent because OIG has not
completed a document-by-document review of loan files to confirm or resolve the
suspicious activity; however, our investigations have substantiated these concerns on
a case-by-case basis. We believe this is the tip of a much larger iceberg, and we are
working to identify the full extent of PPP fraud.

We identified 70,835
loans totaling more
than $4.6 billion in
potentially fraudulent
PPP loans

OIG has seen an increase in inquiries from financial institutions seeking guidance on how to address potentially fraudulent
loans. The loan forgiveness process could evidence or potentially trigger more fraud.
SBA should provide financial institutions sufficient guidance on dealing with potentially fraudulent transactions. The agency
should clarify how to return SBA program-related funds in instances of suspected fraud and how to report that fraud to SBA.
Strong controls will help reduce fraud risk and enhance program integrity for the PPP and similar programs enacted in the
future.

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OIG Report

Other Information

OIG Report

Agency Progress
SBA has made substantial progress to reduce fraud risks and prevent further losses. When the PPP launched in 2020, SBA’s
fraud risk management approach for PPP loans was intentionally developed with more fraud and eligibility controls at the
loan forgiveness phase rather than the application stage.
SBA was mandated by Congress to swiftly pay out, or disburse, funds to millions of struggling small businesses. Speed became
the highest priority in complying with the mandate. SBA implemented fraud and eligibility controls as a part of the loan
forgiveness phase and took additional corrective actions to reduce the amount of fraud in the PPP, including the following:

Developing and implementing Master Review Plan establishing guidelines for loan and forgiveness reviews (October
2020)

Developing and implementing SBA and contractor’s fraud risk management policy and framework

Increasing post-disbursement antifraud controls for loans that originated in 2020

Increasing antifraud controls for loans originating in 2021

Commencing manual loan and forgiveness reviews for loans that originated in 2020

Using a contractor’s automated review tool and the Paycheck Protection Platform to analyze loans for fraud and
eligibility

Implementing machine learning functionality to focus on areas of higher risk

Providing outreach and training

Remaining Challenges
Although SBA has made substantial progress to reduce fraud risks and prevent further losses, difficulties and challenges
remain.
SBA’s approach in 2020 to fraud risk management allowed funds to disburse quickly but presented risks of fraud when a loan
was originated. The method essentially relies on the post-origination controls to identify and report instances of fraud and
abuse that has already occurred, with funds also already disbursed. Fraudsters are not likely to seek forgiveness, resulting in
defaulted loans at the expense of the taxpayer. During loan origination, lenders are required to report suspected or known
cases of fraud to OIG and SBA’s Office of Credit Risk Management.
SBA faced challenges when developing an automated screening process because the PPP is the first program of its kind, and it
required disbursing a high volume of loan funds over a short time. In addition, loans must be reviewed quickly because of the
statutory timeframe for forgiveness. SBA has revised the manual loan review process and procedures to reduce risks associated
with loans that have alerts or “flags.”
SBA’s plans and actions to reduce fraud risks and prevent further losses will determine how this challenge will be rated in the
future. Our investigations into suspected fraud and suspicious activities continue. We have an ongoing review of the handling
of potentially fraudulent PPP loans and SBA loan reviews.
We anticipate future audit work on PPP loan eligibility, loan forgiveness, and lender activities to determine the effectiveness
of agency implemented controls, and we will continue to monitor agency actions to assess and reduce fraud risk and address
vulnerabilities in the PPP.

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Other Information

Issue: Paycheck Protection Program Eligibility

Yellow

For example, SBA lenders inappropriately approved loans for businesses that

exceeded maximum loan amounts for the number of employees,

were in the government’s Do Not Pay database,

exceeded the maximum size allowed, and

obtained a Taxpayer Identification Number after the program began in February 2020, which means the business was
likely not operational before the onset of the pandemic, a CARES Act requirement.

Approving loans for ineligible borrowers reduces the amount of critical program capital available to eligible borrowers.

Businesses Exceeding Maximum Loan Amounts
We found tens of thousands of approved and disbursed loans were made to borrowers for amounts that exceeded the loan
maximum based on the number of employees and compensation rates, as defined in the CARES Act (Report 21-07).

Borrowers on Do Not Pay Database
We coordinated with the U.S. Department of Treasury to compare Taxpayer Identification Numbers and name data provided
in SBA data files for 2020 PPP loans against Do Not Pay debt, exclusions, and death data sources. We found tens of
thousands of loans that matched a Do Not Pay data source record indicating potential loan ineligibility (Report 21-06). SBA
flagged these loans to be reviewed for PPP eligibility.
The Treasury Department Do Not Pay system helps agencies fulfill the obligation to deny federal loans, loan insurance, and
loan guarantees to businesses delinquent on federal debts and obligations. To be eligible to receive PPP funds, a business must
not have any current federal debarments or suspensions, and the applicant must not have delinquent federal loans or have
defaulted on any federal loans in the last seven years.

Businesses that Exceeded Maximum Size Standards
Under the CARES Act, an eligible business cannot exceed the greater of 500
employees or the SBA size standard for number of employees in the industry, if
applicable. We found hundreds of businesses obtained PPP loans that may have
been erroneously approved (Report 21-07). These businesses exceeded both
500 employees and the applicable employee-based size standard for the business
industry.

Taxpayer Identification Number Registered after
February 15, 2020
The CARES Act requires that businesses must have been in operation before
February 15, 2020 to be eligible for a PPP loan. We found thousands of businesses
obtained PPP loans with identification numbers that were not registered until after
that date (Report 21-07). The businesses would have been ineligible for PPP loans
because they likely did not meet the CARES Act eligibility requirement of being
in operation before February 15.

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Swift management
action to identify and
review potentially
ineligible loans could
prevent improper
payments to lenders
because loan forgiveness
may still be in process

Agency Financial Report Fiscal Year 2021

OIG Report

OIG’s inspection of SBA’s implementation of the PPP and coordination with the
Treasury Department have revealed systemic issues. Our results found indications of
deficiencies with internal controls related to eligibility of borrowers. Our review of SBA’s
implementation of PPP identified thousands of loans to potentially ineligible borrowers.

Other Information

OIG Report

Agency Progress
SBA has made substantial progress in strengthening controls to validate eligibility and ensure eligibility requirements. SBA
initiated several corrective actions to enhance and develop additional controls to address loan reviews, loan forgiveness, and
fraud, including:

Developing the Master Review Plan establishing guidelines for loan and forgiveness reviews (October 2020)

Developing and implementing SBA and contractor fraud risk management policy and framework

The fraud control framework also includes a variety of antifraud controls in place designed to detect and mitigate possible
instances of eligibility fraud. These controls include approved lender lists, verification with the Treasury Do Not Pay list, and
compliance checks.
SBA also integrated affiliation data which shows business affiliation through ownership and maximum number of employees,
as well as maximum loan amount. SBA instituted an affiliation worksheet for PPP loan and forgiveness reviews. Swift
management action to identify and review potentially ineligible loans could prevent improper payments to lenders because
the associated loan forgiveness may still be in process.
As we complete current reviews and conduct future audit work, SBA’s plans and actions to reduce and prevent improper
payments will determine how we will rate this challenge in the future.

Issue: Paycheck Protection Program Data Reliability
OIG’s inspection of SBA’s 2020 implementation of the PPP found the data SBA
reported and the loan-level PPP data were inaccurate and incomplete. Without accurate
and complete data, SBA cannot reliably and accurately inform SBA management and
Congress about program effectiveness and measures needed to inform program decisions.
Yellow

Underserved Market Data Was Incomplete
In our May 2020 flash report, we found that SBA’s demographic information for underserved markets for PPP borrowers was
incomplete (Report 20-14). SBA’s borrower application for PPP did not include standard SBA fields to request demographic
information. One week after we issued our flash report, SBA issued the initial PPP loan forgiveness application, which
included an optional page for borrower demographic information. Notwithstanding, sufficient data may still not be collected.
Some borrowers may not apply for loan forgiveness while others may choose not to complete the optional page. Although
ethnic demographic information is optional for SBA’s traditional loan programs and the PPP, SBA generally requests the
demographic information as a section on a mandatory form. Borrowers have the option to decline to provide the information.

North American Industry Classification System Data Was Incomplete
We found SBA’s loan-level data on PPP North American Industry Classification System codes was incomplete
(Report 21-07). SBA did not require the borrower to provide the industry classification code on the application, so lenders
did not have the information to put in the loan processing platform. As of June 30, 2020, there were 222,096 loans totaling
approximately $9.9 billion that were identified as “Unclassified Establishments” because there was no industry classification
data on the application.

Job Statistics Were Inaccurate and Incomplete
We found SBA’s loan-level data for job statistics was inaccurate and incomplete (Report 21-07). We also found that 191,003
loans totaling approximately $11 billion did not include employment information in the required job field for the number of
current employees.

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Other Information

Of the 191,003 applications that did not have data for the number of current employees, 83,374 were approved during
the first week of the second round of funding. Because SBA removed the control to check data in the “number of current
employees” field, these loans totaling approximately $4 billion were not validated before approving and issuing loan numbers
to PPP lenders.

Agency Progress
SBA made substantial progress to ensure the integrity of data and has added controls including the following:

Adding mandatory fields in borrower and lender application processes, including North American Industry
Classification System identification, demographic data, and number of employees.

Updating controls to ensure data accuracy and completeness of lender-reported data.

Instituting a procedure for lenders and borrowers to correct publicly available PPP loan data provided to SBA by
delegated PPP lenders.

Adding controls for Taxpayer Identification Number data submission at origination and Do Not Pay-LexisNexis data
validation at origination

We have an ongoing evaluation of SBA’s loan review processes and anticipate future audit work to review PPP loan eligibility,
loan forgiveness, and lender activities. We will continue to monitor the agency’s efforts to improve data reliability.

Issue: COVID-19 Economic Injury Disaster Loan Program Susceptible to Fraud

Orange

From the beginning of the COVID-19 EIDL program in March 2020 until August
2021, OIG received 215,000 Hotline complaints which alleged fraudulent activity in the
COVID-19 EIDL program and PPP. Thousands of complaints came from banks about
potentially fraudulent activity, and OIG has steadily received hundreds of additional
complaints per day from other sources.

OIG has launched numerous investigations into this fraudulent activity. In addition, our October 2020 inspection report of
SBA’s initial disaster assistance response to COVID-19 identified $78.1 billion in potentially fraudulent loans and loans and
grants to ineligible entities (Report 21-02). Our May 2021 inspection report of SBA’s handling of identity theft allegations in
the COVID-19 EIDL Program (Report 21-15) found $6.7 billion in loan and grants related to identity theft allegations. The
recommendations in both reports remain open.
In October 2020, we found significant problems with the EIDL process that could lead to fraud (Report 21-02). It is
essential that internal controls are balanced to prevent fraud and include processes to address concerns identified by the
internal controls. Examples of internal control concerns include the following:

Potentially Fraudulent Loans to Accounts that Differed from the Original Bank Accounts
Listed on Applications
SBA had approved $14.3 billion in COVID-19 EIDLs and Emergency EIDL grants to applicants who later changed the bank
account number to pay out the loan to a different account. For these applications, additional funds were disbursed in advance
grants.

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OIG Report

SBA officials said because of a backlog of loan applications before the beginning of the second round of PPP funding, lenders
were allowed to submit loan applications in bulk. The officials said they turned off system controls to allow faster approval
times.

OIG Report

Other Information

Although there are reasons an applicant might need to change a bank account number during the loan process, the number
of applicants who changed their bank account numbers or accounts to an entirely different bank before loan disbursements is
concerning as a potential fraud indicator.

Potentially Fraudulent Loans Made to Applicants Using Duplicate Information
We found SBA had approved $62.7 billion in multiple COVID-19 EIDLs and Emergency EIDL grants to applicants
who used the same internet provider (IP) addresses, email addresses, business addresses, or bank accounts. There are some
legitimate reasons for individual occurrences of applicants using the same addresses or accounts to apply for loans. For
example, any time an applicant uses a loan packager there will be duplications in addresses and contact info. Multiple
occurrences, however, are a strong indicator of fraud.

Potentially Fraudulent Loans Made to Ineligible Entities
We found SBA approved $1.1 billion, in COVID-19 EIDLs and Emergency EIDL grants to potentially ineligible entities. In
our July 2020 management alert, we warned SBA that we had already found approximately $250 million in approved loans to
ineligible entities. These entities had Employer Identification Number registration dates after the date entities were required to
be in business to qualify for relief funding in the CARES Act.

COVID-19 Applications Related to Identity Theft Allegations
In a May 2021 inspection (Report 21-15), OIG reported that SBA had referred more than 840,000 COVID-19 applications
to OIG for suspected identity theft. SBA disbursed 112,196 COVID-19 EIDLs totaling $6.2 billion and 98,613 advance
grants for $468 million that were associated with identity theft. The numbers continue to grow.

Agency Progress
SBA has enhanced system controls and validations. Some of the major control changes include

requiring evidence that loan officers addressed issues identified and flagged by the subcontractor’s processing system,

enabling fund holding at any stage,

invalid corporate owner Employer Identification Number check,

obtaining Internal Revenue Service tax transcripts for all loan approvals, and

validation against the Treasury Do Not Pay List.

Despite the control enhancements, the sheer volume of loans and advances will continue to pose a challenge for the agency to
reduce the ongoing risk of fraud in these programs. OIG will continue to monitor these issues and conduct oversight work to
assess the effectiveness of the agency’s controls and identify areas for improvement.

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Other Information

Why This Is a Challenge

he Small Business Act government-wide goal is to ensure that 23 percent of all prime contracts be awarded to small
businesses each fiscal year. Since FY 2013, the SBA has reported in its annual Small Business Procurement Scorecard that
the federal government has met or exceeded that goal.
Over the years, Congress has expressed concerns about the accuracy of the report. OIG and Government Accountability
Office (GAO) audits have revealed a widespread problem of misreporting by agencies that award contracts to small firms with
provisions or other contract language that allows larger companies to do most of the work.
As the federal government’s primary advocate for small business, SBA must continue to strive to ensure federal agencies award
small business contracts only to eligible entities counted in the assessment of this measure. However, SBA’s achievement
reports do not portray federal contract dollars obligated only to small businesses, reducing the ability of Congress and other
federal policymakers to determine whether the government is maximizing contracting opportunities for small businesses.

Issue: Agencies Receive Credit for Ineligible
Firms or Those No Longer in the HUBZone or 8(a) Programs
SBA has made some program eligibility requirements less focused on disadvantaged
businesses and historically underused business zones, deviating from congressional intent.
OIG continues to find that SBA does not consistently detect ineligible firms in its small
business contracting certification programs.
Yellow

Agency contracting officers have reported ineligible firms as certified either in the HUBZone or 8(a) programs in the Federal
Procurement Data System–Next Generation. In 2020, the General Services Administration Office of Inspector General
found $89 million in procurements erroneously recorded as small business in the Federal Procurement Data System–Next
Generation.
Historically, OIG audits have found that SBA did not consistently detect ineligible firms in its preference contracting
programs. In 2018 and 2019, we found SBA did not ensure only eligible firms entered the HUBZone program or consistently
detect ineligible firms in the 8(a) program.
In 2020, SBA changed a HUBZone requirement, allowing certified businesses to have employees who are not current
HUBZone residents. Under the new requirements, the business continues to meet the requirement as long as the employee
lived in a HUBZone for at least 180 days after the business was first certified.
HUBZone businesses could have no employees residing in the HUBZone at all and still qualify because employees initially
hired as HUBZone residents moved out of the HUBZone after the 180-day period. The requirements of the rule are clearly
inconsistent with legislative intent.
SBA program success and integrity could be reduced if the agency admits ineligible firms into programs intended for
disadvantaged small businesses. Before 2008, SBA certified small, disadvantaged businesses. SBA terminated its small,
disadvantaged certification program in 2008, and since then, firms have self-certified. The awards made to these firms count
toward the agency’s contracting goals.

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OIG Report

Challenge 2: Inaccurate Procurement Data and Eligibility Concerns
in Small Business Contracting Programs Undermine
the Reliability of Contracting Goal Achievements

OIG Report

Other Information

The goals require that 5 percent of all prime and subcontracts for the federal government be awarded with special
considerations for contractors with small, disadvantaged business subcontractors. Participants in the 8(a) program are
considered small, disadvantaged businesses and awards made to them are also counted toward agency goals.
As of September 2021, SBA’s Dynamic Small Business Search database included 153,126 firms that self-certified as small,
disadvantaged businesses. Firms that falsely certify they are socially and economically disadvantaged may receive federal
contracts counted toward the agency’s goal achievements.
Although self-certification is inherently risky, SBA removed regulations allowing for protests of a firm’s disadvantaged business
status in FY 2020. While firms are still subject to protests related to their small business size, business owners’ status as a
socially and economically disadvantaged individual cannot be challenged.

Agency Progress
SBA has made substantial progress in adding controls to detect ineligible firms in the 8(a) and HUBZone programs. In
FY 2020, SBA updated and trained staff on its HUBZone policy directives to standardize analysis and oversight. SBA also
required that HUBZone firms annually recertify that they meet program eligibility requirements. Further, SBA instituted
procedures to ensure program officials justified their recommendations to admit firms applying to the 8(a) program. The
agency is now tracking complaints about firms’ eligibility to participate in the program.
SBA should continue to strengthen its oversight of these contracting programs to ensure only eligible firms participate.
The new employee residency requirement may reduce the HUBZone program’s ability to meet legislative intent. Allowing
certified businesses to count employees who are not current HUBZone residents to meet employee residency requirements
does not ensure continual employment of individuals who live in distressed areas. Consequently, full economic benefits may
not be realized in these areas.
Similarly, SBA’s termination of the small, disadvantaged business certification program and removal of regulations allowing
for protest of a firm’s disadvantaged business status jeopardizes the integrity of the small, disadvantaged business goaling
achievements. According to contract data retrieved from SAM.gov, in FY 2020, as much as $11.6 billion of prime contracts
were awarded to small, disadvantaged businesses that were not certified as either 8(a) firms, Woman Owned Small Businesses,
Economically Disadvantaged Woman Owned Small Businesses, HUBZones, Service-Disabled Veteran Owned Small
Businesses, or a joint venture that included a firm with one of these designated contracting program certifications. Given the
sheer amount of the federal contract dollars awarded to these self-certified businesses, it is crucial for SBA to ensure that only
eligible firms benefit from these contracting opportunities.
As SBA expands procurement activities to deliver on the President’s goal of increasing the share of federal contracts awarded
to small, disadvantaged businesses from 5 to 15 percent by 2025, program officials should consider the impact this regulatory
void could create on the accuracy of the small, disadvantaged business goal achievements.

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Other Information

Yellow

SBA’s Women-Owned Small Business (WOSB) program is intended to give eligible
companies greater access to federal contracting opportunities, ensuring a level playing
field for women business owners. Both OIG and GAO have reported weaknesses in
SBA’s controls intended to ensure only eligible firms receive federal contracts set aside for
WOSBs.

The federal government’s annual contracting goal for WOSBs is set at 5 percent of all federal contracting dollars. The WOSB
Program is a subset of this larger goal but not the sole driver. The government limits competition for set-aside WOSB and
Economically Disadvantaged WOSB federal contracts to participants in the WOSB Federal Contracting Program.
Some contracts are awarded directly with no competitive bidding . Such contracts are known as sole source awards. This
means significant contracting dollars and taxpayer funds are at stake, beginning with program eligibility and certification of
the designation.
The National Defense Authorization Act of FY 2015 required qualifying small businesses to be certified by a federal agency, a
state government, SBA’s Administrator, or a national certifying entity approved by the Administrator.
Women business owners seeking to participate in the WOSB Program may submit an application and supporting documents
to SBA at no cost using the website beta.Certify.sba.gov or pay a fee to use one of four approved third-party certifiers. As
mandated in FY 2015, SBA has four approved third-party certifiers that are allowed to charge a fee to certify the WOSB or an
Economically Disadvantaged Women-Owned Small Business.
In 2014, GAO recommended that SBA establish procedures to assess the performance of the SBA-approved third-party
certifiers.
Government contracting officers have a history of improperly awarding WOSB contracts because of certification complexities.
In a 2018 audit (Report 18-18), OIG found contracting officers at various federal agencies made sole-source awards without
having the necessary documentation to determine WOSB eligibility.

Agency Progress
SBA has made substantial progress toward addressing this challenge. In July 2020, SBA launched a new free, online portal for
WOSB and economically disadvantaged WOSB self-certification.
In October 2020, SBA began conducting WOSB certification determinations. SBA hired additional WOSB analysts and a
program director and increased the number of staff supporting the program.
Beta.Certify.sba.gov, is the live and operational platform for the WOSB Program certification process. This new system is used
to manage the certification process for the Women-Owned Small Business and Economically Disadvantaged Women-Owned
Small Business programs. The program office is partnering with the Office of the Chief Information Officer to find a viable
information technology solution or platform for all of the certification programs.
The agency intends for the new beta.Certify.sba.gov certification management portal to modernize a process that has been
difficult for decades. However, the system has been plagued by technical challenges which could result in failing to reach
program objectives.
Launched in 2020, beta.Certify.sba.gov received about 15,000 WOSB and Economically Disadvantaged WOSB applications.
The WOSB Program has approved 3,242 into the program and denied 87. Additionally, as part of SBA’s review process,
12,000 applications were screened and returned to the applicant for more information. The slow progress in issuing prompt
certifications affects SBA’s ability to adequately serve the needs of women-owned businesses.

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Issue: Women-Owned Small Business
Federal Certification Program Susceptible to Abuse

OIG Report

Other Information

Challenge 3: SBA Faces Significant Challenges in IT Investment,
System Development, and Security Controls

Why This Is a Challenge

ver the past decade, the agency has struggled with big, high-dollar information technology (IT) projects. OIG has
published a number of reports documenting problems and management missteps during efforts to develop new IT
systems, including Certify.sba.gov, a 5-year, $30 million system that was so unsuccessful that the agency had to replace it. The
new system is currently being tested (see Challenge 2).
The dramatic chain of events caused by the COVID-19 relief funding the agency received last year highlighted the significant
need for the agency to invest in IT upgrades to improve the portal interfaces for small businesses. Portal interfaces are digital
entryways into computer systems via websites. SBA must establish effective IT investment controls to ensure IT investments
meet functional requirements, projected schedules, and estimated costs.
Portals should also be designed to handle significant growth in user transactions and be developed according to guidance
in federal laws and regulations. The agency also must ensure portals address numerous IT needs and are developed in a
reasonable timeframe
Program demands may result in testing protocols not being fully addressed within the limited timeframes needed to deliver
taxpayer assistance. For example, the agency stated the cause for the month delay in the Shuttered Venue Operators Grant
program was the contractor production environment did not fully mirror agency the test environment. This risk would have
normally surfaced in a limited parallel production test where all requirements were confirmed to be operational.
SBA enterprise systems need constant maintenance to prevent security vulnerability to multiple types of threats. SBA must
maintain and establish IT security control baselines essential to protect information and preserve data integrity. The agency
will need to develop guidance that requires continuous monitoring of controls over high-risk transactions.

Issue: SBA’s IT Investment Controls Need Improvement
Growth in program requirements and increasing transaction volumes require SBA to
make significant investments in its IT systems.

Yellow

The Certify system was intended to improve small business access to SBA contracting and
assistance programs. Certify was also to be the single gateway to all of SBA’s contracting
programs, streamlining the applicant certification process, and improving management
productivity.

In July 2020, we reported the Certify project lacked planning and performance oversight during its development
(Report 20-17). Certify.sba.gov did not meet its original goal of improving SBA’s small business certification processes.
The $30-million investment in this project did not yield the intended results. Our recommendations from this review were
intended to improve enterprise-wide investment controls and beta.Certify.sba.gov is the agency’s most recent endeavor in this
program area.
Since our review, SBA has taken steps to improve oversight of beta.Certify.gov. For example, beta.Certify.gov is included
on the agency’s high-risk list, and the agency IT investment board is monitoring cost, schedule, and performance baselines.
The agency continues to complete work on revising the project’s scope but still needs to improve several management areas,
including baseline reviews and completing functionality.
The agency expects to have these efforts complete by the end of 2021. OIG will monitor the agency’s progress and review the
results in FY 2022.

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Other Information

SBA’s system development policy is a roadmap for the purchase, launching, and
management of software and related application development activities. This guidance
helps ensure appropriate risk management, security and application development activities
are consistently used throughout the agency’s systems.
However, the existing policy dates to 2009 and does not fully address changes in the IT
development landscape, including extensive use of third-party application service providers. A third-party service provider is
an external entity that performs wide ranging activities under a contract for the agency.
The scope of these activities and related software applications varies. In all cases, the agency is responsible for maintaining
internal control over operations, reporting, and compliance with laws and regulations over these services and related data.
Updated system guidance is crucial for monitoring third-party applications used to process transactions integral to the mission
of SBA, primarily, delivery of COVID assistance. Currently, the agency uses such applications for PPP loan forgiveness,
EIDLs, the Shuttered Venue Operators Grant program, and the Restaurant Revitalization Fund. Federal guidance requires
that data processed by the third-party services be subject to the same controls as internally developed systems.
Federal guidance also requires financial and related reporting controls be designed and tested in third-party applications that
process financial activity. The external financial auditor found that critical financial controls for the EIDL application were
not documented and tested by an independent third party.
The agency must produce a System and Organization Controls Report, commonly known as a SOC 1, to validate financial
controls have been properly designed and tested. This report assesses a service provider’s internal controls over financial
processes and reporting.
To meet the challenges of rapidly delivering financial assistance and reduce risks, the agency must update its guidance
for purchasing and related system development to validate essential controls exist before an application may be placed in
production. At the same time, continuous monitoring procedures should be established over production activities to address
potential security vulnerabilities.

Issue: Additional Progress Needed on Security Controls
Inspectors General are required by the Federal Information Security Modernization Act
(FISMA) to assess the effectiveness of information security programs on a maturity model
spectrum and assess security capability in eight domains.
The current benchmark for an effective program within the context of the maturity model
is level 4, “Managed and Measurable.” In the maturity model, domain performance that
scores below the level of managed and measurable, such as ad hoc, defined, or consistently implemented, means IT security is
ineffective.
Yellow

Our most recent evaluation indicated SBA continued to achieve level 4 in the area of incident response but is at level 2
“Defined” or level 3 “Consistently Implemented” in the remaining seven areas. Consequently, SBA is at an overall level of
“not effective.” At the same time, however, progress is being made toward an “effective” level under FISMA requirements.

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OIG Report

Issue: Existing System Development Controls
Do Not Reflect Changing IT Application Landscape

Other Information

OIG Report

Agency Progress
COVID-19 relief efforts diverted SBA resources from some daily compliance activities. As a result, SBA continues to
experience security challenges in areas of user access, configuration management, and security training.
Although COVID-19 assistance activity increased transaction volumes, SBA made progress in automated security control
testing and protection of personal identifiable information. Continued improvement is needed in risk management and
configuration management controls. The agency should update authorizations to operate for systems, promptly correcting
vulnerabilities.
In addition, areas for improvement include tracking of plans of action and milestones. The agency should also update software
and hardware inventories. Challenges also remain in the areas of access control and security training.

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Other Information

Why This Is a Challenge

BA’s Office of Credit Risk Management manages lender oversight, credit and compliance risk for the agency’s loan
portfolio of more than $744 billion including loans made through the Paycheck Protection Program. However,
those loans are originated by lenders and non-bank lenders that have various degrees of expertise in SBA loan program
requirements.
Lenders often rely on the services of loan agents and lender service providers to help originate, close, service, and liquidate
SBA loans of traditional SBA 7(a) and 504 Certified Development Company loans are originated by lenders with delegated
approval authority. Our previous audits have found SBA has not adequately recognized or managed significant lender
weaknesses. In FY 2020, in an audit of SBA’s oversight of high-risk lenders, we identified additional internal control
weaknesses in lender oversight. SBA has worked to address these issues and strengthen its oversight of lenders, in part by
incorporating our audit recommendations.
We note that SBA has implemented several actions to create a more structured lender oversight methodology and address
recommendations made in the 2020 audit that should improve SBA’s oversight of lenders in the 7(a) program. However,
SBA still needs to make improvements, including developing effective oversight policies and procedures and implementing a
workflow management tool to interact with its comprehensive portfolio management data warehouse to manage oversight of
high-risk lenders.
Previous OIG audits have also shown that SBA did not effectively identify and track third-party agent involvement in its 7(a)
and 504 loan portfolios. Tracking such agents is crucial to manage portfolio risk because many lenders rely on the services of
fee-based and other third-party agents to help originate, close, service, and liquidate SBA loans.

Issue: SBA’s Oversight of High-Risk Lending Participants

Orange

The risks inherent in delegated lending require effective oversight to monitor compliance
with SBA policies and procedures and corrective actions to address noncompliance.
However, OIG’s 2020 audit of SBA’s oversight of high-risk lenders found that the SBA
Office of Credit Risk Management did not always effectively oversee high-risk lenders to
identify and mitigate risks (Report 20-03).

SBA did not always

conduct planned high-risk lender reviews,

recommend appropriate and consistent risk mitigation actions for the deficiencies identified during the oversight
reviews of high-risk lenders, or

communicate loan deficiencies noted during high-risk lender reviews to SBA approval and purchase loan centers.

Agency Progress
In FY’s 2020 and 2021, SBA took actions to improve its ability to oversee high-risk lenders, including:
1. Issuance of the Final 7(a) Lending Oversight Rule
2. Publication of the SOP 50 53 2 for Supervision and Enforcement (January 2021). This SOP has been instrumental in
facilitating supervision and enforcement actions.

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Challenge 4: SBA Risk Management and Oversight Practices Need
Improvement to Ensure the Integrity of Loan Programs

OIG Report

Other Information

3. Realignment of the organizational structure of the Office of Credit Risk Management to strengthen lender oversight
and add resources to the review teams for effective oversight.
4. Quarterly meetings to assess high-risk lender activity and review results and develop risk mitigation alternatives.
5. Enhanced quarterly analysis using historical and forward-looking metrics to identify high risk lenders.
6. Revising Standard Operating Procedure (SOP) 51 00 2 – Examinations and updating the process for Risk-Based
Reviews and Safety and Soundness Examinations.
The Office of Credit Risk Management has made progress by communicating deficiencies identified during loan file reviews
and sharing this information with the SBA loan servicing and purchase centers and other internal stakeholders. The office
continues to work with SBA leadership to define the requirements for the workflow management system, and how it will
utilize the data Loan and Lender Monitoring System and authorize its funding. SBA reports that its goal is to develop this
technology in FY 2022.
Although SBA has made progress by increasing and improving its use of data to identify and manage lenders with elevated
risk profiles. as noted above with the publication of the SOP 50 53 2 for Supervision and Enforcement, agency management
has indicated it needs time to finalize and implement policies and procedures to document its Risk-Based Review and Safety
and Soundness Examination processes, including SOP 51 00 2.
This SOP will provide specific guidance to Reviewers in Charge and Financial Analysts on appropriate and consistent
corrective actions for lenders whose reviews result in findings that require monitoring and implementation of corrective
actions to attain compliance. SBA also needs to provide documentation showing the agency is conducting periodic overall
assessments of the high-risk lender review results and recommended risk mitigation actions during the High-Risk Lender
Quarterly Meeting.
In FY 2022 SBA plans to develop the database to manage oversight of high-risk lenders. We will continue to monitor SBA’s
ongoing efforts to address open recommendations in Report 20-03, including developing effective oversight policies and
procedures and a workflow management system to help manage oversight of high-risk lenders

Issue: Increased Risk Introduced by Loan Agents

Green

Previous OIG audits and investigations have shown SBA could not effectively identify
and track loan agent involvement in its 7(a) and 504 loan portfolios. OIG investigations
have also revealed a pattern of fraud by loan packagers and other fee-based agents in the
7(a)-loan program involving hundreds of millions of dollars. This all reinforces the need
for SBA to update its enforcement regulations.

Despite the prevalence of fraud in its loan portfolios, SBA’s oversight of loan agents was limited. Over the course of a decade,
OIG investigated at least 22 cases of confirmed loan-agent fraud, totaling approximately $335 million (Report 15-16). The
audit determined that loan agents were involved in approximately 15 percent of all 7(a) loans, increasing the risk of default.
SBA reports this percentage decreased to approximately 7 percent in FY 2020.

Form 159
SBA requires lenders to provide a loan agent disclosure form (Form 159) to SBA’s fiscal and SBA requires lenders to provide a
loan agent disclosure form (Form 159) to SBA’s fiscal and transfer agent for 7(a) loans that involve a loan agent. The fiscal and
transfer agent is a contractor who supports SBA by serving as paying agent for all investor payments, processes lender loan
reporting, and payment remittance reconciliations.
The fiscal and transfer agency also serves as the central registry for all guaranteed secondary-market interests. The fiscal and
transfer agent must enter the data into a database accessible to SBA.

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Other Information

Agency Progress
In response to our 2015 report on SBA’s oversight of loan agents, SBA managers stated the agency would explore the
feasibility of implementing a registration system for the 7(a) loan program. SBA determined the best way to gather
information on loan agents was by improving Form 159. The enhanced Form 159 was approved by the Office of
Management and Budget and rolled out with official notification and lender training.
Beginning in January 2020, SBA initiated targeted Form 159 reviews of lenders to determine compliance with SBA
requirements. The improved Form 159 allows SBA to aggregate and report on loan agent activity to analyze the lender’s
portfolio.
In FY 2019, SBA also undertook a new, more effective method of disclosing and tracking loan agent involvement in the 504loan program. SBA requires 504 lenders to electronically submit Form 159 directly into SBA’s electronic lending system.
In addition, SBA awarded a new fiscal and transfer agent contract. The contract requires the fiscal and transfer agent to
develop application and follow-up controls over 7(a) lender submissions to ensure critical fields on each form are completed.
With assistance from the fiscal and transfer agent, the agency implemented Form 159 controls to only allow lenders to
electronically submit Form 159s through the Capital Access Financial System.
Lenders put information into the system, such as broker name, service provided, and the amount of compensation paid,
which then populates Form 159. The lender signs the form and may upload the form into the system.
Form 159 controls are now fully in place. Our review of the Form 159 data from the beginning of the new controls in
2021 shows loan agent information is generally tracked and should give SBA more complete data to evaluate loan agent
performance.
Because loan agent involvement in the 7(a) program is significant, it is important for SBA to have oversight tools in place to
identify and track loan agent involvement in this sizeable program. SBA also needs to effectively manage the risk introduced
by high-risk loan agents. OIG will continue to monitor risks in this area and SBA’s oversight of loan agents and conduct
audits and reviews as necessary.

Issue: Increased Risk Introduced by Lender Service Providers
In 2019, five former officers and employees at one of the largest lender service providers
were charged for their alleged roles in a 13-year conspiracy to defraud SBA in connection
with programs to guarantee loans made to small businesses. In August 2021, the
individuals were convicted on all charges.
Yellow

The officers fraudulently obtained guarantees for loans SBA deemed ineligible. The
officers hid signs of ineligibility from the SBA by misrepresenting the use of SBA loan proceeds and unlawfully diverting
previously denied loan applications into expedited approval channels. The officers originated dozens of loans, totaling more
than $10 million in disbursements, that were not eligible for SBA guarantees.
SBA has had to contend with the issue of risks introduced by lender service providers for some time. In a March 2015 audit
(Report 15-06), we noted that the outsourcing of traditional lender functions to lender service providers, a type of loan agent,
had significantly increased.

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In our 2015 report on SBA’s loan agent oversight, we identified significant issues in the data quality of Form 159. We also
found that SBA had not begun tracking Form 159 in the 504-loan program.

OIG Report

Other Information

Since then, the number of SBA-approved lender service provider agreements has grown significantly, in part because of SBA’s
effort to better control access to its systems by lender service providers. SBA assigns an identifying number for all lender
service providers that access SBA systems and records all SBA-approved agreements.
Use of the identification number has made it possible for the Office of Credit Risk Management to develop initial statistics
on provider participation in SBA’s 7(a) program, but the agency’s oversight is still limited. SBA’s analysis of the performance
of loan agents does not include loan-level information from lenders to make it possible to identify high-risk lender service
providers.

Agency Progress
In response to our 2015 report on SBA’s oversight of lender service providers, SBA established a method to track lender
service provider involvement at the loan level. However, this information was not analyzed to evaluate performance.
In FY 2020, SBA worked with a contractor to develop a performance analysis report for lender service provider portfolios to
identify any high-risk lender service providers. SBA managers said the agency is working with the contractor to determine if
the information from the analysis can signal whether the lender service provider adds to the risk in the lender’s portfolio of
loans. OIG plans to review the analysis as soon as it is available, anticipated in FY 2021.
As lender service provider involvement in the 7(a) program increases, it will be especially important for SBA to evaluate
performance and effectively reduce the incurred risks. OIG will continue to monitor SBA’s oversight of lender service
providers, assess risks, and conduct audits and reviews as necessary.

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Why This Is a Challenge

BA’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, which means small businesses do not have to
compete against large businesses that may have an industry advantage.
Sole-source awards are contracts proposed for award without competition. A set-aside award is a proposed contract with
competition limited to small businesses.
SBA has had two significant challenges with the program. The agency has struggled to provide effective business development
assistance to 8(a) firms and ensure 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 also deemed to be economically disadvantaged.

Issue: SBA Continues to Address Its Ability to
Develop Firms in the 8(a) Program and Measure Results

Orange

In the past, SBA emphasized business development to enhance the ability of 8(a) firms to
better compete for federal contracts. SBA offers individualized development assistance to
program participants and also makes referrals to its resource partners, the Small Business
Development Centers; SCORE, a volunteer mentor network composed of retired
executives and entrepreneurs; Women’s Business Centers; Veterans Business Outreach
Centers; and affiliate Procurement Technical Assistance Centers.

Despite these improvements, SBA has not fully established an IT system to perform regular performance monitoring and
reporting for 8(a) participants to ensure progress with their business plans. Without an effective IT system to monitor 8(a)
participant progress in meeting individualized business development goals, SBA may not be able to consistently determine if
8(a) participants have demonstrated the ability to compete in the marketplace without 8(a) assistance.
SBA has made previous unsuccessful attempts to revamp its IT systems. The agency partially implemented an IT system,
Certify, that was intended to be a comprehensive approach to service delivery for all SBA contracting certification programs.
Certify fell short of expectations because of serious challenges to needed features, such as searchability, data collection, and
reporting (see challenges 2 and 3 for more discussion about the unsuccessful Certify system).
Certify did not include tools to track, measure, and monitor 8(a) participant progress and outcomes. To bridge the gap,
SBA created the Business Opportunity Specialist Annual Review Workbook in FY 2020. This tool is not automated and still
exploratory. This workbook helps specialists determine continuing eligibility and summarizes current financial conditions for
each firm during annual reviews.
When used, the Business Opportunity Specialist maintains the workbook in the participant’s case file on the Certify platform.

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Challenge 5: SBA’s Management and Monitoring of the 8(a)
Business Development Program Needs Improvement

Other Information

OIG Report

Agency Progress
Program officials began monthly phone calls to discuss questions raised by SBA’s business opportunity specialists. The agency
conducted training sessions for business opportunity specialists as all types of issues from the district offices were raised.
To respond to emerging issues related to COVID-19 economic response, SBA issued regulations and provided prompt
guidance allowing 8(a) participants to suspend program participation for up to an additional year. These options allowed
participants to recoup development and contracting opportunities that may have been lost during a time when business was
not operating as usual.
However, the poor and unworkable IT system is only a factor, not the reason the agency has not improved 8(a) program
business development.
Business Opportunity Specialists are encouraged but not required to use the annual review workbook. The workbook focuses
on assessing firms’ eligibility to continue in the program instead of business development.
SBA does not have an effective system to measure and monitor 8(a) participants’ progress from year to year to assess whether
they were receiving effective business development help throughout the 9-year term.
As a result, there is no assurance that participants received the business development assistance necessary for them to become
viable competitors in the federal marketplace.

Issue: Streamlined Application Process May
Expose the 8(a) Program to Higher Fraud Risk
From 2010 to 2016, the number of firms participating in the 8(a) program steadily
decreased from about 7,000 to approximately 4,900. In FY 2016, SBA leadership
developed a growth plan to increase the number of participants by 5 percent for 2016 and
2017 using a streamlined application process.
Green

However, the plan did not reach its goal.

Participation numbers continued to decline through 2020. As of August 2021, program participation is back to 2016
numbers with SBA reporting 4,906 firms in the program.
According to SBA officials, the streamlined application process is less burdensome for applicants. As part of this modified
process, various documents previously used to determine an applicant’s eligibility would no longer be requested or would be
required in a modified version. For example, SBA no longer required that applicants submit information about the applicant
firm’s business structure and information on tax liens, judgements, or lawsuits.
However, shortening the review process by eliminating documents may erode core safeguards that prevent questionable
firms from entering the program. At the request of SBA’s former Deputy Administrator, we followed up on a report issued
in FY 2016 (Report 16-13) to determine whether SBA resolved eligibility concerns for the 30 firms we had reviewed.
We determined SBA resolved eligibility concerns for 20 of the 30 firms, but we still questioned the eligibility of 10 firms
(Report 17-15).

Agency Progress
SBA took corrective actions, reducing the risks OIG found in previous audits. In 2020, we verified SBA added controls to
the application review process and implemented corrective actions to address recommendations from previous audits of
SBA’s initial eligibility review procedures (Report 20-09). SBA updated its 8(a) program policies and procedures to include a
statement in the review notes of each application when a final decision differs from a lower-level reviewer recommendation, a
risk we reported in Report 16-13 and Report 17-15).

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Other Information

In response to our recent work (Report 21-12), SBA published procedures to verify 8(a) business owners who claim socially
disadvantaged eligibility as members of a federally or state-recognized tribe. We found SBA admitted two firms in the 8(a)
program although the owners were members of unrecognized tribes, which resulted in questioned costs of $10.9 million in
8(a) set-aside contracts. SBA finalized the procedures in a desk guide, developed a list of recognized tribes, and trained staff to
use objective, consistent, documented processes and official information to verify eligibility and ensure that enrolled members
are from federally or state-recognized Indian tribes.

Issue: Corrective Actions Are Needed to Improve Continuing Eligibility
Processes and Reduce Risks of Ineligible Firms Participating in the 8(a) Program
In FY 2018, we reported SBA did not sufficiently ensure that 8(a) Business Development
Program participants met continuing eligibility requirements (Report 18-22).

Green

We found SBA did not consistently identify ineligible firms in the program and did not
always act to remove firms that had been determined no longer eligible. SBA also did
not log all complaints or perform required continuing eligibility reviews when it received
specific and credible complaints.

Agency Progress
During FY 2020, SBA implemented corrective actions to appropriately reduce the risk that ineligible firms continue to
participate in the 8(a) program. SBA updated and implemented its 8(a) program policies and procedures governing its
continuing eligibility review process and evaluation standards in December 2020. The agency also updated its process for
removing firms deemed ineligible for program assistance.
SBA implemented the Business Development Hotline Complaints Tracker as the official system to track 8(a) eligibility
complaints and actions taken to address them. Since launching the tracker in FY 2019, SBA has determined two businesses
were ineligible and terminated them from the program.

Issue: Economically Disadvantaged Determination
Criteria Should Be Based on Sound Methodology
The Small Business Act requires that 8(a) participants be socially and economically
disadvantaged. The Act defines economic disadvantage as diminished capital and credit
opportunities compared to owners of similar businesses that are not disadvantaged.
However, SBA has not adequately determined what constitutes diminished capital and
credit opportunities.
Section 8(a)(6)(A) of the Small Business Act states: “In determining the degree of diminished credit and capital opportunities,
the Administration shall consider, but not be limited to, the assets and net worth of such socially disadvantaged individual[s].”
According to SBA regulations, when considering diminished capital and credit opportunities, SBA is to review such factors as
personal income, personal net worth, and the fair market value of all assets. SBA also compares the financial condition of the
company with other small businesses in the same primary industry classification.

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SBA updated its policies and procedures to require business opportunity specialists to submit a request to the Internal
Revenue Service for the tax transcripts to verify the applicant’s financial information. SBA also updated its internal policies
and procedures and the corresponding regulations to make these recent changes mandatory, effective November 2020. Tax
records are now required to verify applicant financial information.

OIG Report

Other Information

SBA evaluates several factors when determining economic disadvantage, including the applicant’s adjusted gross income, net
worth, and total assets. Assets (including net income) and net worth do not accurately reflect diminished capital and credit
opportunities.
In 1989, SBA set limits that applicants needed personal net worth of less than $250,000 (excluding ownership in the 8(a)
firm and equity in his or her primary residence) at the time of entry into the program, and less than $750,000 for continuing
eligibility. In 2011, SBA started excluding funds invested in an official retirement account from the net worth calculation.
More recently, in 2020, SBA issued a final rule that defined an economically disadvantaged individual as having a net worth
of less than $750,000 (excluding ownership interest in the applicant’s business, equity in their primary personal residence
and funds invested in an official retirement account), no more than $350,000 in average adjusted gross income during the
previous 3 years, and no more than $6 million in assets (excluding funds invested in an official retirement account).
SBA’s economic disadvantage definition should be based on justifiable, objective, and supportable data to ensure that the
program benefits the small businesses that Congress had intended. An objective definition is fundamental for ensuring the
agency has designed a system of controls that safeguard the program from firms participating in the program that are not truly
economically disadvantaged.

Agency Progress
In FY 2018, a contractor issued a draft report of its study to assist SBA in setting criteria to determine what constitutes
economic disadvantage. The study determined, based on a review of available literature, that there have been no attempts at
the federal, state, or municipal level to define economic disadvantage beyond referencing the SBA 8(a) program. The study
developed three estimated thresholds using separate methodologies to set the thresholds for economic disadvantage.
A year later, the contractor issued a final report that revised the three separate methodologies for calculating net worth
thresholds, which at the time of the study resulted in thresholds of $59,100, $65,650, and $183,900 with exclusions. SBA
excludes business and primary residence equity and retirement accounts. These amounts were revised from the contractor’s
draft report that recommended SBA use the methodology that concluded that individuals with an adjusted net worth of
$375,000 — or $1.1 million without adjustments — should be considered economically disadvantaged.
SBA published a proposed rule in May 2019 to revise economic disadvantage to adopt $750,000 as a net worth for eligibility
for all economically disadvantaged programs.
SBA solicited comments to the proposed rule on whether the $375,000 or $750,000 net worth standard should be used for
entry into the 8(a) program. SBA considered the 146 comments that supported the $750,000 adjusted net worth standard to
be representative of all public opinion.
SBA concluded that the $375,000 net worth was not appropriate as the standard for determining economic disadvantage. The
agency determined the net worth figure was only a benchmark for entering the 8(a) program, as opposed to participating in
the free enterprise system as an economically disadvantaged business owner.
On July 15, 2020, SBA finalized the rule and used the $750,000 adjusted net worth figure it had established for other small
business contracting programs. This amount has been part of SBA’s definition for economic disadvantage since 1989, with
adjustments to increase the assets to be excluded for calculating the individual business owners net worth.
SBA’s determination of net worth is a critical starting point for many programs. The 8(a) program is intended to benefit
eligible small, disadvantaged businesses. When crafting a program that strives to benefit a select demographic group, the
financial limits to determine eligibility should be based on verifiable empirical analysis to ensure the intended population of
small, disadvantaged businesses benefit from this program.
We are currently planning an audit of the agency’s procedures used to define economic disadvantage in 2022. Currently, the
Government Accountability Office is reviewing the impact SBA’s net worth limits have on program participants and plans to
report on the findings in 2022. We did not rate the agency’s progress on defining economic disadvantage for the 8(a) program
this year.

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Why This Is a Challenge

n FY 2019, the dollar amount of SBA’s 7(a) loan approvals totaled $23.6 billion. Most of these loans were made by lenders
with delegated approval authority. When a loan goes into default, SBA reviews the lender’s actions on the loan to determine
if it is appropriate to pay the lender the guaranty, which SBA refers to as a “guaranty purchase.” (“Guaranty” is a variant of
“guarantee” used in financial terminology.)
In FY 2014, OIG established a High-Risk 7(a) Loan Review Program to evaluate lender compliance with SBA requirements
for high-dollar, early defaulted 7(a) loans. High-dollar, early defaulted loans are $500,000 or more and default within the first
18 months of initial disbursement.
During FY 2019, OIG found lenders were out of compliance for 5 of the 8 loans we reviewed, totaling approximately $8.7
million in questioned costs. Although SBA completed purchase and quality control reviews on all the loans, the agency did
not identify or fully address the material deficiencies noted in the OIG review.
We continue to communicate with the agency about previous recommendations for recoveries as part of the audit follow-up
process.

Issue: Improvements Needed to Ensure
High-Risk 7(a) Loan Reviews Reduce the Risk of Losses
OIG audits and reviews have identified 7(a) loans that were ineligible, given to borrowers
who did not have the ability to repay, or were not properly closed, resulting in improper
payments. Improper payments occurred in part because SBA did not adequately review
related loans.
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The OIG High-Risk 7(a) Loan Review Program uses an internal scoring system to prioritize loans for review by level of risk.
This evaluation includes a review of high-risk loans purchased by SBA to determine whether lenders complied with SBA
requirements and identify suspicious activity.
Since FY 2014, we have recommended recoveries on 17 loans totaling more than $19.3 million. In addition, we identified
suspicious activity on 5 loans totaling nearly $4 million, which were ultimately referred to our Investigations Division.
Our reviews of high-risk loans have consistently identified issues regarding eligibility, repayment ability, size standards,
franchise agreements, business valuations, appraisals, equity injection, and debt refinance. Our review program also has helped
us identify concerns with change of ownership transactions and SBA’s identification of improper payments.

Agency Progress
In FY 2020, SBA began to allow loan specialists more time to review complex early defaulted loans. In addition, the agency
improved its review of loans, training loan specialists, and updating the loan review checklist.
In FY 2020, SBA internally evaluated its purchase process and quality control reviews for 7(a) guaranteed loans to determine
why the loan center reviews did not identify or correct lenders’ noncompliance with SBA requirements, as has also been noted
in OIG reports.

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Challenge 6: Identification of Improper Payments in SBA’s Loan
Programs Remains a Challenge

OIG Report

Other Information

In FY 2021, SBA held a training session at the loan center that focused on the requirements and SBA review of
documentation related to the source of funds used for equity injection, which was a continuing issue in our reviews and the
agency’s internal evaluation.
SBA has begun drafting a revision to the 7(a) loan servicing and liquidation requirements. For continual progress, SBA should
finalize and issue its revised requirements designed to reduce improper payments. We will continue to monitor risks in this
area and conduct audits and reviews as necessary.

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Why This Is a Challenge

he disaster loan program plays a vital role in the aftermath of disasters by providing long-term, low-interest loans to
affected homeowners, renters, businesses of all sizes, and nonprofit organizations. SBA must continually balance the
priority of quickly assisting disaster survivors in the immediate aftermath of a devastating life event with the need to ensure
program integrity and mitigate the risk of fraud. To do so, the agency faces challenges in staffing, quality assurance, and
financial controls.

Staff
During large-scale disasters such as COVID-19, SBA must hire enough loan officers to match the volume of loan applications
and prevent processing backlogs. When the COVID-19 pandemic began, SBA increased the permanent and temporary
trained staff size to more than 9,000, which was significantly more than any other previous disaster. SBA has been challenged
to hire and train large numbers of staff.

Quality Assurance
In February 2020 (Report 20-07), we found weaknesses in the improper payment quality assurance process. Although the
improper payment quality assurance appeal process appeared to be working as intended, the initial review process needed
strengthening.

Controls
In September 2019 (Report 19-23), we found the desktop loss verification process helped SBA meet its timeframe goals for
disaster applications, but controls needed strengthening to reduce the risk of fraud and ensure program integrity. We also
identified significant fraud risks due to internal control weaknesses in the COVID-19 EIDL program, which we describe in
Challenge 1.
Although we have not completed recent work in the loan servicing area, based on the recent surge in EIDLs because of the
COVID-19 pandemic, the number of loans requiring servicing will increase to unprecedented levels.

Issue: Reserve Staff Need Training to Sustain Productivity During Mobilization
SBA management has dealt with this issue for several years but has recently made
progress. The magnitude of the COVID-19 pandemic (21.7 million applications received
as of May 31, 2021) required SBA to rapidly increase and train staff, and numbers rose to
historic levels.
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The number of personnel needed to serve during the pandemic was almost twice the previous record high staff total. In
addition, the agency had to develop the needed training to address the new criteria for COVID-19 EIDLs.
SBA’s Office of Disaster Assistance increased its trained staff from 800 to more than 5,000 employees in December 2017 to
respond to hurricanes Harvey, Irma, and Maria. In response to the COVID-19 pandemic, SBA increased its permanent and
temporary staff size to more than 9,000.

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Challenge 7: SBA’s Disaster Assistance Program Must Balance
Competing Priorities to Deliver Prompt Assistance but
Prevent Fraud

OIG Report

Other Information

SBA outsourced the COVID-19 EIDL processing to a subcontractor to make recommendations for approval or denial of loan
applications. SBA staff made the final decision to approve or deny COVID-19 EIDLs. SBA had to train the existing staff and
the newly hired employees on the new contractor’s system, a tremendous undertaking.

Agency Progress
SBA had previously made progress in this area by implementing a cross-functional training plan, as well as online and
automated tutorials, a change that resulted from an after-action report’s findings on SBA’s response to prior major disasters.
The COVID-19 pandemic required SBA to train and mobilize the largest number of new employees ever in its history. A
similar after-action evaluation will be needed to determine how SBA can better respond to future declared disasters.
The Office of Disaster Assistance was drafting a new staffing strategy during the summer of 2021. At the end of June 2021,
management of the COVID-19 EDIL Program transitioned from the Office of Disaster Assistance to the Office of Capital
Access. The agency moved the program to revise staffing, operations, and other aspects of the program, which will also affect
staff training. The Office of Disaster Assistance will continue to manage the agency’s other disaster programs.
Bringing on a large temporary staff in response to a major natural disaster may always be a management challenge for SBA.
To address this challenge, the agency needs to develop training that is comprehensive and reoccurring to improve the overall
customer experience, reduce applicant processing times, and increase the number of loans and grants designated for approval,
resulting in eligible applicants receiving the federal assistance they need and deserve in a timely manner.

Issue: Improper Payment Quality Assurance Process Needs Strengthening

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SBA received a historic number of loan applications in FY 2020 when COVID relief
programs were established. SBA tests a statistical sample of these loans for improper
payments. Because the total number of number of loans that have been approved and
disbursed is so large, the statistical sample is also large, which has highlighted issues in
SBA’s improper payment process.

An improper payment is any federal government payment made to an ineligible recipient or for an ineligible good or service,
duplicate payment, or payment for goods or services not received (except for such payment authorized by law).
The Payment Integrity Information Act of 2019 requires agencies to evaluate fraud risks and use a risk-based approach for
financial and administrative controls to counter identified fraud risks. The law reinforces the requirement for agencies to
review prepayment and pre-award procedures.
SBA removed typical initial controls in the EIDL program and relied on self-certification by the applicants to get funding out
quickly to struggling businesses at the beginning of the pandemic. This led to significant fraudulent activity in the program.
We published two reports in FY 2021 detailing a significant number of potentially fraudulent loans (Reports 21-02 and
21-15). SBA’s improper payment rate could increase dramatically over that of previous years.
COVID-19 EIDLs had different requirements than other SBA disaster assistance loans. EIDLs typically represent a small
percentage of the SBA’s disaster loans. However, COVID-19 EIDLs have changed the ratio significantly; EIDLs are now the
predominant loan type in SBA’s disaster assistance portfolio.
The deadline to apply for COVID-19 EIDLs was extended to December 31, 2021. SBA will continue to process these loan
applications as well as other disaster relief. EIDLs are more complicated for loan specialists to calculate properly, so the
agency faces many challenges that could easily result in improper payments. The agency will need to stringently apply the
improper payments process to the entire EIDL portfolio to ensure no funds have been paid out to people or entities on the
government’s Do Not Pay list.

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Agency Progress
SBA has made numerous changes in response to our February 2020 report to strengthen improper payment quality assurance,
including:

Creating guidance for the quality assurance leadership team on the quarterly improper payment audit review process.

Providing team training based on the guidance, as well as additional specific training to keep staff abreast of updated
changes to processing systems.

Developing detailed auditing checklists for accounts and loan processing to ensure consistency.

Updating the quality assurance database.

Hiring additional staff to handle increased workflow and creating two separate groups within quality assurance, one for
COVID-19 lending and one for other lending.

Changing to weekly reviews instead of monthly to provide immediate feedback to departments.

Although these improvements address the weaknesses identified in our February 2020 report, OIG has serious concerns
about how the rate of improper payments of COVID-19 EIDLs is measured. According to SBA management, the agency has
implemented a multitiered approach to prevent improper payments.
These processes use internal and independent third-party resources. Agency managers say the new approach will allow SBA to
minimize the number of fraud and improper payments effectively and efficiently when an application is submitted or before
funds are awarded. In addition, agency managers said the Office of Disaster Assistance has trained four groups of quality
control specialists, leads, and a supervisor to ensure they know how to identify improper payments.
We have not reviewed to determine whether SBA’s multitiered approach and the training has been effective and efficient to
prevent fraud and additional improper payments. We have, however, identified additional potential fraud that indicates the
agency needs to do more to prevent fraud and reduce the likelihood of improper payments.
In an October 2020 report, OIG identified numerous instances of potential fraud in COVID-19 EIDLs and Emergency
EIDL advances resulting from a lack of controls that allowed multiple loans to duplicate internet provider addresses or the
same physical addresses, changes to bank account numbers before disbursement, and other activities that have led to massive
fraud.
In May 2021, we reported more than $6.2 billion in potentially fraudulent loans from applicants who allegedly stole
identities and then used that information to apply for disaster assistance loans.
We have concerns that the agency’s current approach ignores whether sufficient internal controls exist to identify and prevent
improper payments.
OIG contends that payments to fraudulent applicants are always an improper payment if this fact is known at time of
improper payment review, regardless of the circumstances that allowed the fraud to occur.
By restricting improper payment identification to cases in which program staff made an error during the processing or
disbursement of the loan, SBA risks understating the COVID-19 EIDL improper payment rate by a significant margin.

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In February 2020, we reported on weaknesses we found in the improper payment quality assurance process (Report 20-07).
We found the improper payments appeal process effectively assessed improper payments, but the initial review process was
inefficient.

Other Information

OIG Report

Issue: Inadequate Verification of Cause and Extent of Damages
A critical part of the disaster lending process is evaluating the cause and extent of property
damage to establish eligibility for disaster loan funds.

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Verifying loss claims used to be done solely through on-site inspections. But in early
2017, the agency adopted a new desktop loss verification process to speed financial help
to disaster survivors.

Desktop loan verification is a two-part process with an initial desktop verification used to estimate the cost of repairs followed
by a post-desktop review to confirm the estimates in the initial phase. For loans of $25,000 or less, SBA’s loss verifiers can
do the post-desktop verification using information from the Federal Emergency Management Agency’s (FEMA’s) on-site
inspection reports. However, if FEMA did not inspect the disaster site, SBA must do an on-site inspection or use documents
from the applicant deemed to be acceptable to verify the loss.
In 2019, we reported on the desktop loss verification process (Report 19-23). We found SBA did not always validate the
cause and extent of damages and repair and replacement costs before disbursing loan funds. SBA simply relied on FEMA
reports without enough information to validate damages and losses reported in the initial loss verification. In addition, loan
files did not contain sufficient documentation to support loan-making decisions.
As a result, SBA paid out more than 36,400 loans totaling more than $585,000,000 without validating damages and losses.
We recommended SBA strengthen controls to reduce the risk of fraud and ensure program integrity for the loss verification
process.

Agency Progress
The agency has made substantial progress strengthening the controls to reduce the risk of fraud and ensure program integrity.
In FY 2020, the agency updated its policies and controls to prevent loan disbursement before a post-desktop review.
The agency also stopped basing post-desktop verification reviews on FEMA and has confirmed that all post-desktop reviews
will be done onsite. In September 2020, SBA began requiring all approved loans to have an on-site verification before paying
out any loan funds. In addition, on June 7, 2021, SBA expanded its efforts by launching the automated damage estimation
pilot and is actively monitoring the system.
We believe the agency’s progress is substantial and this issue is no longer a contributing factor to the overall management
challenge. We plan to remove this issue from the challenge in future reports.

Issue: Unprecedented Increase in Servicing COVID-19 EIDLs
SBA has two Disaster Loan Servicing Centers, one in Birmingham, Alabama, and
the other in El Paso, Texas, servicing disaster loans that have been approved and fully
disbursed. The two centers manage the portfolio and provide customer service, including
accepting and processing loan payments; making routine collection efforts by phone,
email, and postal letters; and any loan-related issues such as insurance, title, or lien
matters.
After a disaster loan becomes 90 days delinquent, it is transferred to a third center known as the National Disaster Loan
Resolution Center in Santa Ana, California. The loan resolution center manages the portfolio of defaulted disaster loans with
increased collection efforts, including foreclosure when necessary.

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Treasury has the authority to take stronger efforts to collect, including offset of other federal payments. In this context, offset
means diverting federal payments to satisfy the delinquent loan.
Before the COVID-19 pandemic, SBA was servicing about 263,000 outstanding disaster loans, totaling approximately $9
billion, across the three servicing centers. By July 31, 2021, as a result of the unprecedented number of pandemic relief loans,
SBA has 4 million outstanding disaster loans totaling approximately $216.3 billion that must be serviced.
This increase in the number of loans is 15.2 times and the dollar amount is 24 times the size of the pre-pandemic disaster
loan portfolio. By the end of 2021, SBA could have a disaster loan portfolio size of $470 billion. The demand on the current
servicing centers is going to increase dramatically. We anticipate the agency will face significant challenges in managing this
volume.
Lending billions in pandemic relief loans now means that SBA has millions of additional loans in its portfolio that must
be serviced unless they are forgiven. However, SBA does not have the staff or infrastructure to manage the unprecedented
volume.

Agency Progress
SBA told us the agency contracted with a vendor on May 3, 2021, to determine the most effective way to service the
COVID-19 EIDL portfolio. Potential options include use of a third-party servicer, asset sales, or having SBA manage the
servicing.
The contractor’s preliminary analysis is due on August 31, 2021, with the final recommendation due on September 31, 2021.
SBA officials told us the agency has added additional staffing resources across the disaster servicing and liquidation centers
to accommodate the corresponding increase in borrower inquiries and requests. The COVID-19 EIDL program allows a
24-month deferment of the first payment due date. As a result, SBA officials said they intend to evaluate the contractor’s
recommendation and establish a plan before the end of that two-year deferment period.

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The center also handles other loan servicing activities, such as processing loan payments. When disaster loans are deemed
ultimately uncollectable and charged-off, or removed from the agency’s loan portfolio, the borrowers and guarantors are
referred the U.S. Treasury Department.

Other Information

OIG Report

Challenge 8: SBA Needs Robust Grants Management Oversight

Why This Is a Challenge

n FY 2021, pandemic relief legislation authorized new, multibillion-dollar grant programs in addition to the SBA’s
entrepreneurial development grant program portfolio. The new laws provided supplemental funds that nearly doubled the
amount and value of SBA technical assistance grant programs. Congress authorized $45.3 billion for SBA to administer as
grants to provide economic relief and technical assistance.
In light of the government-wide emphasis on grants-management reform, it is SBA’s responsibility to maximize the value of
its grant funding to ensure its programs accomplish program objectives. In recent OIG audits, we found systemic issues with
SBA’s accuracy of grant data for both financial and performance reporting and ineffective oversight of its grant recipients.

Issue: SBA’s Grants Management System Needs Improvement

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Previous OIG reports found that SBA used an inefficient and error-prone system
to manage its grant awards. The federal Procurement Request Information System
Management (PRISM) that SBA used to award, monitor, and report on technical
assistance programs required substantial manual data entry, which can lead to input
errors.

Data inaccuracies inhibit the ability to effectively track federal spending. Errors also affect the agency’s ability to report
complete and accurate information on time, as required by the Digital Accountability and Transparency Act of 2014. In
March 2018, we issued an advisory memorandum (Report 18-15) on material weaknesses identified by an independent
accounting firm in SBA’s controls over the accuracy of grant award data reported in USASpending.gov.
Immediately after the alert was issued, program officials requested an internal A-123 review on the grant management process
to assess and verify OIG’s findings. SBA’s internal auditors found that all 45 of the sampled awards included inaccuracies and
reported a number of deficiencies per award.
PRISM also was not completely integrated with SBA’s financial system and required additional manual entry to obligate
funds and authorize payments to grant recipients. Those problems increased the number of manual entries required by
grants management personnel. Reliable data in a grants management system ensures the federal funds are awarded to eligible
recipients, disbursements are accurate, and that management can make informed decisions to effectively administer programs.

Agency Progress
SBA has made substantial progress in modernizing its grants management system. In 2019, SBA entered into an interagency
agreement with the U.S. Department of Health and Human Services for transition analysis, infrastructure setup, and training
services to launch GrantSolutions.gov. SBA will spend $2.5 million over 5 years to help the agency

improve funding management, awarding of grants, processing payments, and closeouts;

enhance ability to develop accurate performance metrics reporting;

reduce compliance violations; and

increase auditability, accountability, and transparency.

During FYs 2020 and 2021, the SBA Office of Grants Management implemented the GrantSolutions system for program
office use. Although most of the program offices adopted the system in 2021, the Shuttered Venue Operators Grant (SVOG)

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SBA is working to integrate the SBA’s Joint Accounting and Administrative Management financial system with
GrantSolutions.gov. SBA continues to make progress implementing the system despite the competing priorities of managing
the CARES Act programs. The next phase is to include the financial interface in GrantSolutions.
Until the agency integrates the financial interface, program offices are still required to use the PRISM system, which is not
completely integrated with SBA’s financial system and requires manual entry to obligate funds and authorize payments
to grant recipients. Without an effective grants management system, the agency must continue manual and burdensome
processes to manage compliance requirements, which may continue to hinder its ability to effectively oversee and manage
SBA grant programs.

Issue: Better Performance Measurements
Needed to Monitor Grant Program Achievements
Recent OIG reviews of SBA’s administration of the SVOG program (Report 21-13) found
SBA did not establish performance goals and measurements for the grant recipients.
We also found in our review of CARES Act entrepreneurial development cooperative
agreements and grants (Report 2111) the agency did not establish clearly defined goals
with targets for the grant recipients. SBA cannot effectively measure and accurately report
performance results to assess whether the grant recipient’s performance met objectives, ensuring the pandemic relief programs
were effective.
Federal regulations require awards to include performance goals. The agency must provide a standard to effectively measure
performance of nonfederal entities, such as the estimated number of jobs saved or created, tax revenue generated, or entity
operational status.
Without specific grantee performance reporting measures and requirements, SBA may disburse $16.25 billion for the
SVOG program without knowing whether the program successfully aided small businesses in the live arts and entertainment
industry.
Program officials did establish performance goals and indicators for the supplemental CARES Act funds provided to Small
Business Development Centers, Women’s Business Centers, and the Resource Partner Training Portal. But SBA should have
clearly defined the performance goals and set targets to more effectively ensure performance goals are achieved as intended.
We first identified oversight of grant program performance as a top management challenge in FY 2019. To address these
weaknesses, SBA updated its grant management policies and procedures.
The agency required grant officers to enforce performance requirements and verify reported information as well as to ensure
applicants’ proposals include plans to measure performance in a way that will help SBA achieve program goals.
The Office of Entrepreneurial Development had until September 2020 to fully adopt the updated policies, which are not
reflected in the CARES Act Entrepreneurial Development grants. Without clearly defined performance goals and targets, SBA
cannot effectively measure and accurately report performance results.
The authorizing language for the SVOG program included no specific performance measurements, so SBA worked with the
Office of Performance, Analysis, and Evaluation in the Office of Chief Financial Officer to create a logic model in March
2021. The model helped identify outputs and outcomes for the program.
Using this logic model, SBA is developing an end-of-program survey to be sent when the grantee initiates the closeout
process. The was still in development when this report was published in mid-October. SBA plans to record metrics, including
whether the grant helped the entity reopen sooner, find additional funding sources, or hire or rehire employees.

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program opted to use another system to manage the SVOG grants, Salesforce. Officials must ensure the system is customized
to meet each program’s needs.

OIG Report

Other Information

Issue: Serious Concerns Over SBA’s Risk Assessment Used for Payment
Distributions and Audits for the Shuttered Venue Operators Grant Program
We alerted SBA management of concerns over the program office’s initial plans for
assessing applicants risks and setting payment disbursements. The SVOG program could
be vulnerable to fraud or misuse of taxpayer funds because of initial plans for assessing
applicant risks and setting payment disbursements. We recommended that the agency
conduct mandatory oversight to require additional documentation and audit SVOG
program recipients.
Since the majority of SVOG grant awards will be under a certain dollar threshold, they will be categorized as low risk. These
awards will be disbursed in lump sum payments with minimal financial reporting requirements and expectations for postaward accountability.
As of September 15th, awards under $1 million totaled $2.27 billion of the $9.68 billion awarded funds. Recently SBA noted
that 70 percent of the 11,928 grants awarded were valued at $500,000 or less. The sheer volume of these smaller grants poses
a risk of fraud that could have been reduced if proper controls had been put in place from the start.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act of 2020 required SBA to submit the policies
and procedures used to conduct oversight and audits of the grants to Congress. It also required metrics, or measurement
standards, to determine which grants would undergo audit. The SBA Office of Disaster Assistance based its audit plan for
this program on the risk level established for the payment distributions and financial reporting requirements for the grant
recipients.
All grant recipients receiving $10 million, which is the maximum amount for any single award, will be audited. It’s likely only
a minimal number of recipients will be subject to an audit.
The office’s audit plan exposed the $16.25 billion grant program to potential misuse of funds because the bulk of grant funds
will not be subject to a reasonable degree of scrutiny. SBA is currently revising its oversight plan to include monitoring,
audit, and closeout strategies that address the agency’s obligation to uphold federal grant regulations and other applicable
requirements.
SBA management is planning a number of actions to improve award oversight and grant closeout, including the following:

A risk-based monitoring strategy for intensive reviews of shuttered venue grantees

A multifaceted audit approach of ongoing fraud and improper payment reviews

Guidance and controls to verify grantee single audit compliance

Technical help to communicate program instructions, grant compliance, and the grant closeout process

The office’s audit plan exposes this $16.25 billion grant program to potential misuse of funds because the bulk of grant funds
will not be subject to a reasonable degree of scrutiny.

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Although the SVOG program started with only one official and temporary staff, SBA has
since trained a substantial workforce to review and approve applications.
As of September 15, 2021, SBA has awarded 11,928 grants, totaling $9.7 billion. With
more than $6.5 billion of authorized funds remaining, SBA will need to leverage and
maintain a skilled workforce to meet the demands of ongoing grant management and
administration of new awards.
Approving and awarding federal funds is an inherently governmental function. According to SBA’s federal assistance directive,
only warranted grant officers can commit the agency to enter into a federal assistance agreement, such as a grant, obligating
federal funds.
Despite the federal assistance directive, the SBA acting Chief Operating Officer waived several of the criteria necessary for
new grants management staff, including training and certification requirements. This may expedite hiring for COVID19 emergency grant programs, but it could also open these programs up to mismanagement. SBA established the grants
management requirements and the training plan to address the systemic weaknesses OIG found in previous audits of SBA’s
grants management.
Since SBA will make lump sum advance payments with minimal financial reporting requirements and agency oversight, it
is important that the application reviewing officials carefully review the applicants’ proposed budgets to ensure funds will
be used for allowable, allocable, and reasonable expenses. Insufficient oversight of the SVOG program increases the risk that
funds will be misspent, inadequately monitored, or improperly paid.

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Issue: Leveraging SBA’s Workforce to Ensure Effective Administration of
New and Significantly Expanded Grant Programs to Aid Small Businesses

Other Information

Agency’s Response to the OIG Top Management and
Performance Challenges Facing the Small Business
Administration in Fiscal Year 2022
OFFICE OF THE ADMINISTRATOR

U.S. Small Business Administration
Washington, D.C. 20416

Agency’s Response to the OIG Top Management and Performance Challenges
Facing The Small Business Administration in Fiscal Year 2022
We thank the Office of the Inspector General (OIG) for its efforts to identify the top management and performance
challenges facing the U.S. Small Business Administration (SBA). The OIG’s investigation and analysis provide important
insight into the threats and challenges to our enterprise objectives. We believe the SBA’s substantial progress can be attributed
in no small measure to our continued communication, collaboration, and coordination with the OIG leadership and staff.
Our program offices remain dedicated to continuing the SBA’s efforts to address existing Management Challenges. The
insights of the 2022 Management Challenges Report (Report) have been shared throughout the SBA so that our leadership at
every level can better evaluate risks and effectively prioritize resources and oversight efforts.
The challenges brought on by the COVID-19 pandemic have tested the capabilities of the entire Agency. The SBA has
effectively delivered economic assistance to tens of millions of small business owners who collectively serve as the bedrock
of our nation’s economy. Economic Injury Disaster Loans and Advances (EIDL Program) and the Paycheck Protection
Program (PPP) have been a critical part of that relief. Undaunted by the unprecedented circumstances, the SBA has served
small businesses as efficiently and effectively as possible while being a responsible steward of taxpayer funds. The SBA remains
deeply committed to managing the risk of waste, fraud, and abuse in all SBA programs.
In this letter, the SBA highlights some of the Agency’s concerns and factual errors previously shared with the OIG before the
publication of the Final Report but that were unfortunately not incorporated. In addition, information the OIG gathered
through its most recent audits, unfortunately, did not inform the OIG’s assessment of Agency progress on several of the
Management Challenge Issues.
We request the OIG’s careful review and consideration of these areas as we move forward in addressing the challenges during
FY 2022 and appreciate the SBA’s ongoing collaboration with the OIG.
Sincerely,

Isabella Casillas Guzman
Administrator
Attached: Discussion of Select 2022 Management Challenge Concerns

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Discussion of Select 2022 Management Challenge Concerns
Challenge 1 – SBA’s Economic Relief Programs Are Susceptible to Significant Fraud Risks and
Vulnerabilities
Issue: COVID-19 Economic Injury Disaster Loan Program Susceptible to Fraud

Concern
The SBA disagrees with the OIG that the EIDL program is still susceptible to high levels of fraudulent activity.
Discussion
Since 2020, the SBA has deployed sophisticated technology to create a robust set of internal controls for the EIDL Program,
resulting in heightened fraud risk detection and a noteworthy reduction in system vulnerabilities. For example, the SBA has
strengthened and created controls to ensure that:
1. Loan deposits are made to legitimate bank accounts for eligible borrowers;
2. Duplicate loans to IP addresses, email addresses, business addresses, and bank accounts are verified and that funds are
suspended until the duplicate loans are addressed for eligibility;
3. Multiple loans are provided only to eligible applicants, preventing the erroneous duplication of loans; and
4. Data integrity was enhanced to reduce inaccurate information from ineligible entities, thus strengthening SBA’s ability
to service loans more effectively.
The SBA’s loan processing system runs extensive rule sets per the SBA EIDL Program parameters with respect to loan
sizing and system decision recommendations, which include credit criteria, business and owner eligibility criteria, as well as
suspicious activity and potential fraud indicators. There are more than 70 rules related to loan qualification criteria. When
identified, potential fraud indicators are flagged for Loan Officer application file review. In addition to the owner identity
and bank account validation steps previously described, suspicious activity and potential fraud indicators are obtained from
various sources including credit report information, profiles of electronic devices interacting with the system, and phone
number and email validation services. When present, these indicators are displayed in the system to Loan Officers who review
them, evaluate the data, and gather follow-up information and documentation prior to making their loan decision.
Moreover, within the client portal where applicants accept their loan amount, there is another identity validation check
requiring applicants to correctly answer questions relating to items that are not likely to be correctly answered by someone
other than the true identity holder (e.g., who is your mortgage servicer, what make of car did you register in Georgia in
2012, etc.).The Loan Officer online interface also has a “related applications” feature that flags other applications received in
the program with common data elements, including application information (e.g., business, name, owner name, taxpayer
identification number [TIN], phone numbers), as well as device information (e.g., IP address, device profile) to enable
efficient cross reference with other applications that may have previously been identified as invalid or fraudulent.
The SBA has provided OIG with a full list of applicable controls and detailed explanations on how the SBA mitigates risk
and fraud. This list goes beyond the cited enhancements in the Report and demonstrates the SBA’s commitment to protecting
taxpayer dollars and ensuring program integrity.

Concern
The OIG discounted the SBA’s extensive activities to minimize fraud and identity theft.
Discussion
As discussed in the SBA’s response in October 2020, our duplicate application check is rigorous. Applications are evaluated
to determine if a prior application has been submitted from the same business. If an application is deemed to be duplicative,

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it is not approved for an SBA EIDL or SBA EIDL Targeted Advance. Duplicate applications are identified by matching TINs
or bank account information (routing and account numbers) or through a combination of data elements (including business
name, addresses, phone numbers, ownership information, and other data points). Nearly 5.9 million applications representing
nearly $261.6 billion (as of May 31, 2021) in potential loan volume have been declined based on the duplicate identification
logic.

Concern
The SBA disagrees that despite new control enhancements, the sheer volume of loans and advances will continue to pose a
challenge for the Agency to reduce the ongoing risk of fraud in these programs.
Discussion
As of May 31, 2021, the SBA rejected nearly 8.9 million applications associated with fraudulent or suspicious behavior.
Due to the SBA’s internal controls, this represents over $369 billion in funds that were prevented from being disbursed,
demonstrating high efficacy of the SBA’s internal controls and enhancements in dealing with a large volume of applications.
Relevant documentation was already provided to OIG. This specifically addresses the relevant controls as well as the training
that individuals received.
Concern
The SBA proposed to include the language “Consistent with congressional mandates” during the draft report reviewing
process, but OIG did not include it in the final report.
Discussion
The SBA was congressionally mandated to disburse funds rapidly. Once the legislation was passed, the SBA had roughly one
week to prepare its systems. Controls were relaxed to satisfy the mandate and to quickly help small businesses.
Issue: Paycheck Protection Program Eligibility

Concern
The OIG indicates that businesses on the Do Not Pay (DNP) Treasury list are ineligible for PPP benefits.
Discussion
In the 7(a) program, and as confirmed by Treasury, the placement of an entity on the DNP list cannot be a standalone reason
for denying credit. As reported by OIG, the PPP eligibility pool identified was 1.1 percent of 11 million loans, with 67
percent of those considered conclusive.

Challenge 2 – Inaccurate Procurement Data and Eligibility Concerns in the Small Business
Contracting Programs Undermine the Reliability of Contracting Goal Achievements
Issue: Agencies Receive Credit for Ineligible Firms or Those No Longer in the HUBZone or 8(a)
Programs
The OIG report stated, “SBA has made some program eligibility requirements less focused on disadvantaged businesses and
historically underused business zones, deviating from congressional intent…In 2020, SBA changed a HUBZone requirement,
allowing certified businesses to have employees who are not current HUBZone residents. Under the new requirements,
the business continues to meet the requirement as long as the employee lived in a HUBZone for at least 180 days after
the business was first certified. HUBZone businesses could have no employees residing in the HUBZone at all and still
qualify because employees initially hired as HUBZone residents moved out of the HUBZone after the 180-day period. The
requirements of the rule are clearly inconsistent with legislative intent. SBA program success and integrity could be reduced if
the agency admits ineligible firms into programs intended for disadvantaged small businesses.”

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Concern
The SBA OIG’s assertion that a regulatory change to allow legacy employees is not in line with legislative intent and that it
will potentially allow ineligible firms to participate in the program.
Discussion
The purpose of the HUBZone Program (Program) is to provide Federal contracting assistance for qualified small business
concerns located in historically underutilized business zones to increase employment opportunities, investment, and economic
development in those areas. (13 CFR 126.100). SBA proposed and implemented these regulations to reduce barriers to entry
and participation, in order to foster job opportunities, investment, and economic development in HUBZone areas, which is
directly in line with the spirit and intent of the Program. Concurrently, to maintain Program integrity, the SBA also updated
the continuing eligibility requirements to require all HUBZone-certified firms to undergo annual recertification, which was
previously only a triennial requirement. In addition, each firm is subject to a program examination at least every three years,
with the depth of the examination being determined using risk-based criteria. This change increases Program oversight.
Additionally, we have narrowed the scope of who can qualify as “legacy employees” and published this information in our
FAQs. (HUBZone Program Improvements: FAQs (sba.gov)) In the Management Challenges Report, the SBA OIG asserts
that changes made to the HUBZone regulations are not in line with congressional intent, and that the change affects the
government’s ability to enforce the residency requirement. However, the analysis SBA OIG presents does not include context
regarding the SBA’s reasoning for the change or internal controls and oversight currently in place to monitor the impact of the
provision, which was provided in the rulemaking.
Even with the addition of the legacy employee rule, the HUBZone regulations still require firms to have at least 35 percent
HUBZone residents at the time they are certified into the program. Moreover, OIG’s assertion that this regulation could
result in a HUBZone firm having zero employees residing in a HUBZone is unlikely. This could only happen if a HUBZone
small business rarely hired new employees and employees rarely left the company’s employment. Based on the observations
of the HUBZone program office, small businesses hire new employees and lose employees all the time. This is the entire basis
of the “attempt to maintain” rule, which by statute allows a HUBZone firm to drop below 35 percent HUBZone residency
when that firm is awarded a HUBZone contract and necessarily must hire new employees to perform the work. Thus, SBA
believes it is unrealistic to assert that a HUBZone firm could have zero employees residing in HUBZones and remain in the
Program.
Issue: Agencies Receive Credit for Ineligible Firms or Those No Longer in the HUBZone of 8(a)
Programs
The OIG report states, “Agency contracting officers have reported ineligible firms as certified either in the HUBZone or 8(a)
programs in the Federal Procurement Data System – Next Generation. In 2020, the General Services Administration Office
of Inspector General found $89 million in procurements erroneously recorded as small business in the Federal Procurement
Data System–Next Generation.”

Concern
Contracting Officers are responsible for verifying that a HUBZone firm is eligible at the time of offer by checking the
Dynamic Small Business Search System and/or SAM.gov (13 CFR 126.607 and 126.608).
Discussion
GSA owns and is responsible for the Federal Procurement Data System – Next Generation (FPDS-NG) system. This issue
is related to the management of FPDS-NG and oversight of contracting offices across the government, which is not in the
purview of either the HUBZone or 8(a) Program to check and verify. As mentioned in the GSA OIG report, FPDS-NG
currently has system limitations related to reporting. The SBA does not have the authority to address these limitations directly

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Issue: Agencies Receive Credit for Ineligible Firms or Those No Longer in the HUBZone or 8(a)
Programs
The OIG report states, “OIG continues to find that SBA does not consistently detect ineligible firms in its small business
contracting certification programs…Historically, OIG audits have found that SBA did not consistently detect ineligible
firms in its preference contracting programs. In 2018 and 2019, we found SBA did not ensure only eligible firms entered the
HUBZone program or consistently detect ineligible firms in the 8(a) program.”

Concern
By inclusion, the SBA OIG implies this is an ongoing issue and does not recognize the issues that were resolved.
Discussion
OIG characterizes this as an ongoing issue but does not include reference to the audit report. Three firms were initially
identified as potentially ineligible; however, after a program exam was conducted, two were deemed eligible, and the third was
decertified as non-responsive.
Additionally, OIG mischaracterizes findings from its report related to the 8(a) Program and implies that the SBA does
not have effective controls in place to detect ineligible 8(a) firms. The SBA has successfully closed all the SBA OIG audit
recommendations from that report. Furthermore, the SBA OIG inspected the SBA’s corrective actions to reduce 8(a) firms’
eligibility risks in its Report 20-19. The SBA OIG verified the corrective actions the SBA implemented to effectively ensure
that program officials justified recommendations to admit firms applying to the 8(a) program, and program officials tracked
complaints received about firms’ participating in the 8(a) Program. The SBA OIG acknowledges these actions and the SBA’s
implementation of 8(a) Program policies and procedures governing the continuing eligibility review process and the process
for removing firms deemed ineligible for program assistance in its Management Challenge 5, Issues “Streamlined Application
Process May Expose the 8(a) Program to Higher Fraud Risk” and “Corrective Actions Are Needed to Improve Continuing
Eligibility Processes and Reduce Risks of Ineligible Firms Participating in the 8(a) Program.” These controls are implemented
and remain active and effective.
Issue: Agencies Receive Credit for Ineligible Firms or Those No Longer in the HUBZone or 8(a)
Programs
The OIG report states, “Similarly, SBA’s termination of the small, disadvantaged business certification program and removal
of regulations allowing for protest of a firm’s disadvantaged business status jeopardizes the integrity of the small, disadvantaged
business goaling achievements. According to contract data retrieved from SAM.gov, in FY 2020, as much as $11.6 billion
of prime contracts were awarded to small disadvantaged businesses that were not certified as either 8(a) firms, Woman
Owned Small Businesses, Economically Disadvantaged Woman Owned Small Businesses, HUBZones, Service-Disabled
Veteran Owned Small Businesses, or a joint venture that included a firm with one of these designated contracting program
certifications. Given the sheer amount of the federal contract dollars awarded to these self-certified businesses, it is crucial for
SBA to ensure that only eligible firms benefit from these contracting opportunities.”

Concern
The SBA OIG inaccurately suggests that self-certified small, disadvantaged businesses (SDBs) receive special contracting
opportunities, when they do not. The United States District Court, Western District of Texas, San Antonio, enjoined the
government from applying the then-existing preferences for SDBs on February 27, 2009, and no new preferences have been
introduced since. As such, self-certified SDBs do not benefit from any particular contracting opportunities. Further, without
evidence of any inaccurate certifications, OIG concludes that a Federal Acquisition Regulation (FAR) Council rule from seven
years ago — brought about by a ruling of the U.S. Court of Appeals for the Federal Circuit’s ruling in November 2008 —
jeopardizes the integrity of SDB goaling achievements in FY 2020.

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Discussion
The FAR Council changed the SBA protest process for SDBs to a “review” process in a final rule effective October 2014
(79 FR 61746). The FAR Council stated that its changes to the SDB program were based on the Federal Circuit’s decision
in Rothe, which found unconstitutional 10 U.S.C. 2323 and resulted in agencies halting set-asides and price preferences for
SDBs. The protest process is no longer applicable because agencies do not provide set-asides or price preferences for SDBs.
SBA brought its own regulations up to date in 2020 by removing references to an SDB protest, but the actual regulatory
change to eliminate the protest process was enacted by the FAR Council in 2014. It is important to note that SBA did not
receive a single request for review under the FAR Council’s process since the change in 2014. If SBA were to conduct a review
under the FAR process, the SBA potentially could recommend a firm to be considered for the remedies in 15 U.S.C. 645.
It is not at all clear why the OIG is challenging the 2014 change from protest to review today, in 2021. OIG suggests that
the challenge is related to the President’s commitment to increase SDB contracting to 15 percent by 2025. The challenge
fails to recognize, however, that, in our view, introducing a protest process where none has existed since 2014 impedes the
accomplishment of the President’s important initiative by creating a new barrier to entry and a new regulatory cost borne
solely by disadvantaged businesses.
Issue: Women-Owned Small Business Federal Certification Program Susceptible to Abuse
The OIG report states, “Both OIG and GAO have reported weaknesses in SBA’s controls intended to ensure only eligible
firms receive federal contracts set aside for WOSBs…Government contracting officers have a history of improperly awarding
WOSB contracts because of certification complexities. In a 2018 audit (Report 18-18), OIG found contracting officers
at various federal agencies made sole-source awards without having the necessary documentation to determine WOSB
eligibility.”

Concern
By inclusion, the SBA OIG implies this is an ongoing issue and does not recognize the implementation of the new formal
certification process.
Discussion
OIG characterizes this as an ongoing issue but does not include that the referenced audit reports relate to the program’s
previous self-certification process, which no longer exists. The SBA successfully closed all recommendations related to OIG
Report 18-18 and implemented its women-owned small business (WOSB) and economically disadvantaged women-owned
small business (EDWOSB) certification program. While the awarding of set-aside contracts is not directly an SBA issue, by
establishing and implementing regulation changes and a means for contracting officers to verify eligible WOSB Program
participants, contracting officers’ due diligence has been simplified to reduce contract award complexity.

Challenge 4 – SBA Risk Management and Oversight Practices Need Improvement to Ensure the
Integrity of Loan Programs
Issue: SBA’s Oversight of High-Risk Lending Participants

Concern
An additional accomplishment by OCRM was not appropriately noted in the final report.
Discussion
In February of 2021, SBA implemented changes to the Risk Rating System. The Risk Rating System is an internal risk
management tool to assist SBA in assessing the risk of the SBA loan operations and loan portfolio of each active 7(a) Lender
and Certified Development Company (CDC). Consistent with industry best practices, SBA redeveloped the model used to
calculate the composite Risk Ratings of lenders and the risk associated with each SBA loan to ensure that the Risk Rating

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System remains current and predictive as technologies, the economy, and available data evolve. In conjunction with the
redevelopment of the Lender Risk Rating, SBA updated the Lender Portal.

Challenge 5 – SBA’s Management and Monitoring of the 8(a) Business Development Program
Needs Improvement
Issue: Streamlined Application Process May Expose the 8(a) Program to Higher Fraud Risk

Concern
The OIG report states, “For example, SBA no longer required that applicants submit information about the applicant firm’s
business structure and information on tax liens, judgements, or lawsuits” is an inaccurate statement.
Discussion
While OIG correctly acknowledges program efforts and updated this Challenge’s issue to “Green: Issue Resolved or
Appropriately Reduced,” this statement and the example provided within the OIG report are inaccurate. The SBA has always
required that applicants submit this information. Within the Certify system there are specific questions that applicants are
required to answer for each of the examples mentioned in the Report.
Issue: Streamlined Application Process May Expose the 8(a) Program to Higher Fraud Risk

Concern
OIG continues to disregard the Program’s nonoccurrence to the recommendation or the questioned costs. The SBA OIG
implies this is an ongoing issue and does not recognize that the issues were resolved. Therefore, the finding that “SBA
admitted two firms in the 8(a) program although the owners were members of unrecognized tribes, which resulted in
questioned costs of $10.9 million in 8(a) set-aside contracts” lacks validity.
Discussion
The SBA did not concur with the OIG recommendation to review two firms they identified that were owned by individuals
who were members of Indian tribes not federally or state recognized. OIG also recommended that the SBA determine
whether those firms were eligible to participate in the 8(a) program. The determination of eligibility for the two firms was
made based on SBA’s interpretation of applicable regulations at the time of application approval. The SBA determined that
the two firms cited by OIG met eligibility criteria for social disadvantage. OIG closed both recommendations prior to the
issuance of its Management Challenges Report.
Issue: Economically Disadvantaged Determination Criteria Should Be Based on Sound
Methodology
The OIG report states, “SBA’s economic disadvantage definition should be based on justifiable, objective, and supportable
data to ensure that the program benefits the small businesses that Congress had intended. An objective definition is
fundamental for ensuring the agency has designed a system of controls that safeguard the program from firms participating in
the program that are not truly economically disadvantaged.”
The OIG report states, “SBA’s determination of net worth is a critical starting point for many programs. The 8(a) program
is intended to benefit eligible small, disadvantaged businesses. When crafting a program that strives to benefit a select
demographic group, the financial limits to determine eligibility should be based on verifiable empirical analysis to ensure the
intended population of small, disadvantaged businesses benefit from this program. We are currently planning an audit of
the agency’s procedures used to define economic disadvantage in 2022. Currently, the Government Accountability Office is
reviewing the impact SBA’s net worth limits have on program participants and plans to report on the findings in 2022.”

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Concern
This issue is a recommendation on the policy-making authority of the Administrator of the SBA, one the SBA OIG has made
before, and that was previously rejected during the rulemaking process.
Discussion
The SBA has implemented a policy decision by issuing a final rule following the rulemaking process and is adhering to the
rule. The SBA does not plan to take any further action in response to this issue. The SBA OIG has attempted to explain
its policy objection as a challenge to the SBA’s use of empirical data by mispresenting the findings of an empirical study;
however, the SBA OIG cannot point to any law or rule that the SBA did not follow in enacting this policy. The SBA OIG
analysis for this issue is misleading in its presentation of the findings of the study and in its implied assertion that the SBA
ignored the study as part of its policy-making. The SBA adopted the $750,000 standard by following the proper procedures
for rulemaking. Further, the SBA explained what the study found and how those findings were incorporated into its policy
making during the rulemaking process.
The SBA conducted the independent study in response to the SBA OIG request and constituent concerns about the validity
of the prior size standard. The study was thorough and considered a wide range of issues related to small business access to
contract opportunities and the acquisitions’ regulatory environment complexities. The study concluded that the available
data support an economic disadvantage threshold between $375,000 and $1.2 million. This range considers the ability of
disadvantaged business owners to compete in the free enterprise system, as well as those individuals’ access to credit and
capital. The $750,000 standard is within that range and is entirely supported by the study.
The SBA did not ignore the study in its policy making as implied by the SBA OIG’s Management Challenge, which is further
evidenced by the language included in the rule:
SBA commissioned a study to assist the Office of Business Development in defining or establishing criteria
for determining what constitutes “economic disadvantage” for purposes of firms applying to the 8(a) BD
program. The study concluded that the available data support an economic disadvantage threshold between
$375,000 and $1.2 million. This range reflects the complexity of establishing a threshold that considers the
ability of disadvantaged business owners to compete in the free enterprise system, as well as those individuals’
access to credit and capital. That inherent complexity is evident in the varied economic disadvantage thresholds
established by other Federal and state programs.
The SBA specifically sought and received input during the policymaking process, in response to SBA’s proposal to change the
threshold for 8(a) initial eligibility to match the 8(a) continuing eligibility standards, and the EDWOSB Standard. As noted
in the SBA’s final rule, the SBA received 146 comments supporting the proposed policy of $750,000. Zero public comment
was received supporting the SBA OIG’s policy position.
The SBA OIG policy position also does not take into consideration the confusion that would ensue if the SBA had a
different economic disadvantage threshold for EDWOSB certification and 8(a). A policy position that supports a common
standard that will allow businesses to apply for both programs at the same time has merit, and during rulemaking the public
appreciated that consideration.
It should further be noted that the SBA OIG objected to the policy choice during the rulemaking process and believed that
the SBA should have adopted the lowest number on the range found by the study. The SBA did not agree, and this policy
disagreement was settled during rulemaking, with a decision by the Administrator to sign the rule and OMB accepting SBA’s
final rule for publication.
The SBA OIG does not clearly state what is problematic in their concerns with the 8(a) economic disadvantage net worth
amount being in line with other preference contracting programs. The Management Challenges Report acknowledges that the
SBA reviews several factors but presents a mischaracterization that the SBA did not base the change on “justifiable, objective,
and supportable data.” According to the regulations, the SBA can and does review personal income, personal net worth, and
fair market value of all assets.

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The SBA conducts its policy making consistent with the Administrative Procedures Act and with recent Supreme Court
precedent (FCC v. Prometheus) regarding empirical studies and the rulemaking/policymaking process. The case holds that
agencies are not required by law to support their policies with studies or statistics as it is probably impossible, and almost
never the case, that the government has “perfect empirical or statistical data.” The SBA OIG insistence that the SBA must put
any study, particularly one that self identifies as being imperfect, above all other considerations in policymaking is improper,
and is a policy position the SBA has continually rejected.
Currently, there is an ongoing GAO audit focused on the SBA’s net worth limits for the 8(a) Program. As part of this audit
engagement the SBA shared information in response to GAO’s question about the study we commissioned to address
economic disadvantage thresholds.

Challenge 6 – Identification of Improper Payments in SBA’s Loan Programs Remains a
Challenge
Issue: Improvements Needed to Ensure High-Risk 7(a) Loan Reviews Reduce the Risk of Losses
The SBA OIG audits and reviews have identified 7(a) loans that were ineligible, given to borrowers who did not have the
ability to repay, or were not properly closed, resulting in improper payments. Improper payments occurred in part because the
SBA did not adequately review related loans.
The OIG High-Risk 7(a) Loan Review Program uses an internal scoring system to prioritize loans for review by level of risk.
This evaluation includes a review of high-risk loans purchased by the SBA to determine whether lenders complied with SBA
requirements and identify suspicious activity. Since FY 2014, we have recommended recoveries on 17 loans totaling more
than $19.3 million. In addition, the SBA identified suspicious activity on five loans totaling nearly $4 million, which were
ultimately referred to our Investigations Division.
The SBA’s reviews of high-risk loans have consistently identified issues regarding eligibility, repayment ability, size standards,
franchise agreements, business valuations, appraisals, equity injection, and debt refinance. Our review program also has helped
us identify concerns with change of ownership transactions and the SBA’s identification of improper payments.

Concern
The SBA OIG conducted its assessment of the SBA’s progress on this Management Challenge before improper payment rates
for FY 2021 were estimated and finalized.
Discussion
In order to reduce and/or eliminate the occurrence of improper payments, the SBA developed a Corrective Action Plan for
the 7(a) loan guaranty purchase centers that specifically addresses the root cause of the improper payments, and includes the
following:

Internal training for purchase processors, reviewers, and approvers for determining eligibility, repayment ability, size
standards, business valuations, appraisals, equity injections, and others, in order to ensure proper recommendation of
loan guarantee purchase or loan guaranty denial.

Recovery of lender expenses that were either withheld from recovery proceeds the lender remitted to SBA or paid to the
lender but were not fully justified or determined to be ineligible.

As a result of internal training and through recoveries, in FY 2021, OFPO was able to address and clear six of the loan issues
identified by the OIG in its High Dollar Early Default audits with four audits remaining. Additionally, as evidenced by the
reduction in the improper payment rate for 7(a) guaranty purchase from 5.51 percent in 2020 to 3.35 percent in 2021, the
SBA was successful in decreasing improper payments for FY 2021.

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Challenge 7 – SBA’s Disaster Assistance Program Must Balance Competing Priorities to Deliver
Prompt Assistance but Prevent Fraud
Issue: Reserve Staff Need Training to Sustain Productivity During Mobilization

Concern
The OIG report states that the with the massive number of staff needed to complete COVID activities, staff are not properly
trained.
Discussion
The ODA respectfully disagrees with this determination and believes this issue is resolved. The ODA must always be ready
to respond timely to disasters of any size, even as the mission continues to evolve, and the key to an effective response is the
availability of staff who are experienced and ready to provide the assistance upon need. ODA reserve staff are an essential
part of its staffing strategy and allow for immediate activation and deployment during a declared natural disaster. During
onboarding and throughout an employee’s time at the SBA, the ODA provides staff with substantial training to enable
them to effectively execute their role within the agency. Training is extensive and dependent on the individual’s role within
the organization. That training investment is retained because once a staff member’s contract ends with the ODA, these
individuals then become essential to the ODA’s cadre of reserve staff who can be effectively mobilized on short notice due to a
natural disaster or declared event.
All reserve staff are provided with the SBA’s Standard Operating Procedures (SOP) and have access to the SBA’s Disaster
Assistance Portal which allows for easy access to the agency’s Numbered Memos. The SBA also implements a “just in time”
training model dependent on how major any changes are to its procedures or programs.
Reserve staff training is available for a number of positions, including Loan Officers and Team Leads (Supervisory Loan
Officers), Loss Verification, Public Information Officers, and Customer Service specialists. The training is consistent with the
position responsibilities in accordance with established guidance and SOPs. Subsequent training is provided as the program
establishes additional guidance.
Additionally, the SBA would like to reiterate that it continuously hires new staff to ensure that the agency can respond at any
moment to a natural or economic disaster. At the onset of the COVID-19 pandemic (March 2020), ODA had approximately
1,200 employees. By December 2020, the ODA’s staff increased to more than 11,500 trained and prepared individuals. This a
profound increase in qualified staff for any federal entity and should not be overlooked. These individuals continue to expand
the ODA’s pool of reserve staff that can be activated for future disasters.
Issue: Improper Payment Quality Assurance Process Needs Strengthening

Concern
The OIG report states that the SBA received a historic number of EIDL applications, which puts the Agency at risk of higher
levels of improper payments due to loan complexity and resources.
Discussion
The SBA disagrees with OIG on their assertion that identifying improper payments remains a challenge for the EIDL
Program. The ODA has four extensive review processes put in place to minimize and mitigate fraud and improper payments.
Additionally, the ODA has updated its procedures, training guides, and checklists, and explored additional tools that can be
utilized by staff to ensure consistency and depth in identifying improper payments and fraud.
The ODA’s review process includes:
1. A second and potentially tertiary internal review of all processed loans completed by the program office before
disbursement.

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2. An external question and answer (Q&A) process that takes place monthly on all loans awarded. This independent
process reviews processed files and provides a feedback loop to make sure that, if any errors are identified, they do not
happen again or become habitual.
3. Quarterly improper payment reviews completed by the external party, using an approved sample size based off
production levels of that quarter. The improper payment reviews look at all improper payments and, if fraud is
suggested, potential cases are sent to the ODA fraud review team. The spot check findings are shared with the Quality
Control (QC) Specialists, QC Supervisor, and Internal Controls Director, as well as staff across ODA, and they are used
to develop targeted training to mitigate the risk of misidentified improper payments and inaccurate reporting of the
improper payment rate.
4. An ODA fraud review team. ODA has a third-party fraud review team that looks at any potential fraud activities. Files
can be sent at any time in the process and from anyone, including the program office, Q&A team, Improper Payment
review team, or whistleblowers from the community that note a concern. All reviews take place independently and
outside of the loan processing process to ensure impartiality.
This multi-tiered approach allows the ODA to minimize the number of fraud and improper payments effectively and
efficiently, during or shortly after an application is submitted or funds are awarded. Additionally, the ODA has provided
targeted training to groups of QC Specialists, QC Leads, and the QC Supervisor based on examples of overturned improper
payments to ensure they possess the knowledge necessary to accurately identify improper payments.

Challenge 8 – SBA Needs Robust Grants Management Oversight
Issue: Better Performance Measurements Needed to Monitor Grant Program Achievements

Concern
Recent OIG reviews of the SBA’s administration of the Shuttered Venue Operators Grant (SVOG) program (Report 21-13)
found that the SBA did not establish performance goals and measurements for the grant recipients and the SBA disagrees with
this assertion.
Discussion
Although the authorizing language for the SVOG program included no specific performance measurements, the SBA worked
with the Office of Program Performance, Analysis, and Evaluation in the Office of the Chief Financial Officer to create a logic
model in March 2021. The model assisted the SVOG program in identifying outputs and outcomes. Using this logic model,
the SBA is developing a survey to be deployed when an SVOG grantee initiates the closeout process in Salesforce. Although
still in development, the survey is designed to capture key metrics, to include whether the grant assisted the venue entity to
reopen sooner, leverage additional funding sources, and hire or re-hire employees.
Issue: Serious Concerns Over SBA’s Risk Assessment Used for Payment Distributions and Audits
for the Shuttered Venue Operators Grant Program

Concern
The OIG report states that the SVOG program could be vulnerable to fraud or misuse of taxpayer funds because of initial
plans for assessing applicant risks and setting payment disbursements.
Discussion
Since the OIG’s last SVOG report in April 2021 (Report 21-13), the SBA has invested substantial resources into enhancing
the oversight of the SVOG program and accelerating the speed and efficiency of award making. SVOG is an emergency
needs- and eligibility-based grant program responding to the imminent need for cash support to sustain performing arts
businesses adversely impacted by COVID-19 pandemic shutdowns. The SBA has designated an SVOG management team

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and staffed up the SVOG program to review nearly 17,000 applications. The SVOG management has created an operations
team that has formalized application review policies and procedures, conducts reviewer trainings, and tracks team lead
designations and staffing. The SBA has implemented the SVOG program controls to ensure that applications are properly
reviewed and pathways are open and staffed to process legal and/or fraud review concerns prior to making an award decision.
The SBA has implemented key internal controls and audit measures in the SVOG program including:

Integration of an SVOG Fraud Investigation Team (FIT) into the application review and awarding process.

Partnering with ODA Internal Controls (OIC) to complete monthly Quality Assurance reviews.

Completing quarterly ODA OIC SVOG improper payment review.

To satisfy the urgency in providing emergency response, the SBA has placed a strong emphasis on award-making under
SVOG. With the majority of SVOG initial round award decisions made, the SBA is creating the framework for a
comprehensive MAC (Monitoring, Audit, and Closeout) strategy that addresses the Agency’s obligation in upholding the
Uniform Guidance and other applicable requirements, while also balancing the reality that the SVOG program is providing
emergency support to businesses, most of which have no prior experience as Federal grantees.
Through this SVOG MAC strategy, the SBA is planning to take the following actions to timely implement award oversight
and close out:

Leverage a risk-based monitoring strategy to engage in intensive reviews of SVOG grantees.

Implement a multi-faceted audit approach to include ongoing fraud and improper payment reviews, as well as guidance
and controls to verify grantee single audit compliance.

Deploy technical assistance activities to communicate program instructions, grant compliance, and the grant closeout
process.

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Payment Integrity
Payment Reporting

As required by the Payment Integrity Information Act of
2019 (PIIA), and OMB Circular No. 123, Appendix C,
Requirements for Payment Integrity Improvement, the
SBA reviews programs identified as susceptible to improper
payments.

To provide more clarity for the reader, this section is
organized by the four programs and activities subjected
to review for improper payments and provides statistical
sampling information and review results coupled with
corrective actions.

Improper payment reviews are a multi-layered process
that start with a risk assessment. If an assessment indicates
a program is susceptible to improper payments, then
testing is performed using a statistically valid sampling
technique. Based upon the testing results, a corrective action
plan is developed to prevent and remediate the types of
errors uncovered. If testing finds a significant amount of
recoverable dollars, the SBA considers the appropriateness of
performing a recapture audit.

7(a) Loan Guaranty Purchases
Statistical Sampling
Sample cases were chosen for 7(a) purchase reviews using
Probability Proportional to Size (PPS) Sampling with
replacement from all purchases approved during the
12-month period ended March 31, 2021. The purchase
population was divided into four strata based on the
following factors: 1) which servicing office processed the
purchase, and 2) whether the loan was considered an early
default, regardless of servicing office. The SBA determined
the appropriate total sample size to be 228 loans from
the population. The sample included aggregate purchase
outlays of $175,015,164 and an absolute value of improper
payments of $7,613,208 within the sample. Using the
Hansen-Hurwitz estimation method, the estimated
improper payment rate for the 7(a) guaranty purchase
population is 3.35 percent for the annual period ending
March 31, 2021. This rate represents a decrease from
5.51 percent reported in FY 2020. The decrease was due
to correction of administrative/process errors cited in the
FY 2020 report. Further, the FY 2021 improper payment
rate estimate of 3.35 percent for this program is less than
the target reduction rate of 5.41 percent published in the
FY 2020 AFR.

The detection and remediation of improper payments is a
priority for the Agency. SBA staff monitor and review for
improper payments and implement improvements that will
reduce improper payment rates. The SBA also continually
seeks opportunities to enhance and implement internal
controls to reduce the risk for improper payments.
In FY 2021, the SBA reviewed four programs and activities
that were deemed susceptible to significant improper
payments. The four programs reviewed are major credit
programs mandated by OMB. The four programs are:

7(a) business loan program, which includes both
guaranty purchases and guaranty approvals;

504 certified development company (CDC) loan
guaranty approvals; and

Disaster direct loan disbursements.

In conformance to OMB Circular No. A-123, Appendix C,
the SBA conducts risk assessments on a three-year rotation
cycle for programs not deemed susceptible to significant
improper payments, or earlier if a program was subjected to
significant change in legislation or funding level. Significant
improper payments are defined as gross annual improper
payments exceeding (1) both 1.5 percent of program
outlays and $10,000,000, or (2) $100,000,000. The last risk
assessment cycle was conducted in FY 2020. As such, no risk
assessments were conducted in FY 2021.

The SBA’s sampling methodology is a statistically valid and
rigorous plan, with a 95 percent confidence interval, plus
or minus a 3 percent margin of error, the upper and lower
bounds of the confidence interval. Because the lower bound
of its confidence interval, 2.65 percent, is lower than the
reduction target rate of 5.41 percent, in accordance with
OMB Appendix C to Circular A-123 (March 2021), the
7(a) loan guaranty purchase program is considered to have
met its reduction target.
The 7(a) loan guaranty purchase reviews were conducted to
determine whether lenders complied materially with the 7(a)
loan program origination requirements including statutory
provisions, SBA regulations, any agreement the lender
executed with the SBA, standard operating procedures, loan

The next sections discuss SBA efforts and results related to
improper payment assessments and reviews. More detailed
information on improper payments and information
previously reported in the AFR that is not included in the
FY 2021 AFR can be found at https://paymentaccuracy.gov/.

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authorizations, and official SBA notices and forms applicable
to the 7(a) loan program. The reviewers determined whether
the lender (1) originated, serviced, and liquidated the loan
in a prudent and commercially reasonable manner, (2)
misrepresented or failed to disclose a material fact to the
SBA, and/or (3) put the SBA’s financial interest at risk.

verifying proper lien positions, assessing existence of
lender preference, ensuring documentation for account
reconciliation is complete, and verifying proper use
of proceeds and reviewing expenses for eligibility of
reimbursement.

Corrective Action
The root cause categories for 7(a) loan guaranty purchase
improper payments were (1) Data/Information Needed
Does Not Exist, (2) Unable to Determine Whether Proper
or Improper, (3) Statutory Requirements of Program Were
Not Met, and (4) Failure to Access Data/Information.
Improper payments generally arose when purchase
processors failed to identify lenders’ deficiencies in the
handling of an SBA guaranteed loan. The primary reasons
for purchase improper payments included:

Recovery of lender expenses that were withheld from
recovery proceeds or paid, but not fully justified and
deemed ineligible.

Internal feedback was provided to center staff regarding the
specific loan-level deficiency upon detection.

Reimbursement of lender liquidation expenses were
ineligible, not fully justified, or not approved by SBA;

Inability to determine borrower eligibility;

Data entry errors resulting in overpayments and
underpayments;

Corrective actions are tracked at the loan level through a
centralized database. The Quality Control Specialists for
the 7(a) guaranty purchase centers monitor errors from
identification through completion of the corrective action.
Headquarters management provides oversight to ensure
milestones are met. Improper payments identified as a
result of the FY 2021 PIIA reviews have been resolved
through obtaining additional documentation, referral
for denial review, collection of funds from the lender,
or reimbursement to the lender. Corrective actions were
generally completed at the loan level within 60 days, and all
actions were taken by the end of the fiscal year.

Inaccurate interest rate calculation resulting in
overpayments and underpayments;

7(a) Loan Guaranty Approvals

Lender failing to record/perfect the lien required by the
Loan Authorization;

Inappropriate loan structure creating a preference in
favor of the lender;

Inaccurate/missing data resulting in an inability to
reconcile transcripts of account;

Source of equity injection not verified;

Ineligible use of proceeds; and

Lack of sufficient or correct supporting documentation.

Statistical Sampling
For 7(a) approval reviews, the sample cases were chosen
using PPS Sampling with replacement from all loan
guaranties approved during the 12-month period ended
March 31, 2021. The approval population was divided
into two strata based on whether the loan was SBA Express
or not. The SBA determined the appropriate total sample
size to be 215 loans from the population. The sample
included net guaranteed approvals of $312,222,288 and
improper payments of $8,302,935 within the sample. Using
the Hansen-Hurwitz estimation method, the estimated
improper payments rate for the annual period ending March
31, 2021, was calculated as 2.03 percent. This rate is a slight
decrease from the FY 2020 rate of 2.06 percent.

In order to reduce and/or eliminate the occurrence of
future improper payments, a Corrective Action Plan has
been developed for the 7(a) loan guaranty purchase centers.
Specific corrective actions are determined based upon the
primary reason for the error to prevent recurrence of the
reason for the improper payment. The Corrective Action
Plan includes:

The FY 2021 improper payment rate estimate of 2.03
percent for the 7(a) loan guaranty approval program is
slightly more than the target reduction rate of 1.96 percent
published in the FY 2020 AFR. The SBA’s sampling
methodology is a statistically valid and rigorous plan,
with a 95 percent confidence interval, plus or minus a
3 percent margin of error, the upper and lower bounds
of the confidence interval. Because the lower bound of
its confidence interval, 0.27 percent, is lower than the

Internal training for purchase processors, reviewers,
and approvers to determine proper recommendation of
guarantee purchase or denial, ensuring that liquidation
expenses are appropriate and/or approved, verifying
the documentation and accuracy of calculations,
reviewing documentation for source of equity injection,

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reduction target rate of 1.96 percent, in accordance with
OMB Appendix C to Circular A-123 (March 2021), the
7(a) loan guaranty approval program is considered to have
met its reduction target.

The Office of Financial Program Operations (OFPO) will
share the loan level and lender deficiencies identified during
the reviews with OCRM and OFA and will continue its
efforts throughout the upcoming fiscal year to ensure lender
deficiencies are monitored and potentially incorporated into
OCRM’s Risk Based Reviews and OFA’s policy rewrites and
updates.

The 7(a) loan guaranty approval reviews were conducted
to determine whether lenders complied materially with
the 7(a) loan program origination requirements, including
statutory provisions, SBA regulations, any agreement the
lender executed with SBA, Standard Operating Procedures,
Loan Authorizations, and official SBA notices and forms
applicable to the 7(a) loan program. The reviews were
conducted in order to determine if lenders (1) originated
the loan in a prudent and commercially reasonably manner,
(2) mispresented or failed to disclose a material fact to the
SBA, and/or (3) put the SBA’s financial interest at risk.

Corrective actions for specific loans are tracked at the loan
level through a centralized database. The Quality Control
Specialist for 7(a) loan guaranty approvals monitors errors
from identification through completion of the corrective
actions. OFPO management headquarters provides
oversight to ensure milestones are met. All improper
payment identified as a result of the FY 2021 PIIA reviews
have been resolved through recommendations to reduce
or cancel the loan guaranty and/or referral to other offices.
Corrective actions were generally completed without having
to refer the loan for further review. Corrective actions are
initiated within 120 days and all corrective actions are
generally taken within the fiscal year.

Corrective Action
Approximately 80 percent of all 7(a) loan guarantee
approvals are performed by lenders with delegated authority
to evaluate, process, close, and disburse 7(a) loans. Lenders
with delegated authority were responsible for all identified
improper payments for 7(a) loan program approvals in
FY 2021. The most prevalent root cause stemmed from
the delegated lenders’ failure to authenticate borrowers’
eligibility in compliance with loan program requirements.
The primary reasons for 7(a) approval errors in FY 2021
included:

Lenders’ failures to determine borrowers’ eligibility;

Lender’s improper structure of a change of ownership;

Lender’s improper identification of a conflict of interest;

Lender’s improper structure of the loan resulting in
creation of preference in favor of the lender.

504 CDC Loan Guaranty Approvals
Statistical Sampling
For 504 CDC approval reviews, the sample cases were
chosen using PPS Sampling with replacement from all loan
guaranties approved during the 12-month period ended
March 31, 2021. The approval population was not stratified.
The SBA determined the appropriate total sample size to
be 202 loans from the population. The sample included net
approval outlays of $323,833,000 and improper payments
of $10,982,564 within the sample. Using the HansenHurwitz estimation method, the estimated improper
payments rate for the annual period ending March 31,
2021, was calculated as 3.07 percent.

As a means to reduce and/or eliminate the occurrence of
future improper payments, a Corrective Action Plan has
been developed for the 7(a) loan guaranty approval centers.
Specific corrective actions are determined based upon the
primary reason for the error with the purpose of both
remedying the error and to prevent recurrence. Plans for
improvement include the following:

Collaborating with the Office of Credit Risk
Management (OCRM) to inform the office of specific
lender deficiencies for further monitoring and potential
incorporation into Risk Based Reviews;

Collaborating with the Office of Financial Assistance
(OFA) to inform the office of deficiencies identified
for potential incorporation into policy, regulatory, or
standard operating procedure rewrite or update; and

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External training for lenders on policy requirements
governing eligibility, change of ownership, conflicts of
interest, and preferences in favor of the lender.

The FY 2021 improper payment rate estimate of 3.07
percent for this program is less than the target reduction
rate of 3.71 percent published in the FY 2020 AFR.
The SBA’s sampling method is a statistically valid and
rigorous plan, with a 95 percent confidence interval, plus
a 3 percent margin of error, the upper and lower bounds
of the confidence interval. Because the lower bound of
its confidence interval, 0.72 percent, is lower than the
reduction target of 3.71 percent, in accordance with OMB
Appendix C to Circular A-123 (March 2021), the 504 loan

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guaranty approval program is considered to have met the
reduction target.

Plans for improvement include the following:

For instances in which the SBA was unable to determine
whether a payment was proper or improper, the SBA
categorized these payments as “Unknown”.12 In FY 2021,
one loan approval in the amount of $3,553,000 was
categorized as an unknown payment, which translated to an
Unknown Payment rate of 0.50 percent.
The 504 CDC approval reviews were conducted to
determine whether CDCs complied materially with the
program’s origination requirements, including statutory
provisions, SBA regulations, any agreement the CDC
executed with the SBA, standard operating procedures,
loan authorizations, and official SBA notices and forms
applicable to the 504 loan program. The reviews were
conducted to determine whether CDCs (1) originated the
loans in a prudent and commercially reasonable manner,
(2) misrepresented or failed to disclose a material fact to the
SBA, and/or (3) put the SBA’s financial interest at risk.

Ineligible use of proceeds;

Overstated project costs;

Ineligible project costs;

Non-compliance with Eligible Passive Company policy
requirements;

CDC’s failure to verify franchise eligibility;

Collateral shortfall; and

Borrower injection shortfall.

External training for lenders to ensure appropriate
documentation is obtained and analyzed prior to loan
approval and to ensure that policy requirements are met.

Because 504 loans are reviewed prior to monies being
disbursed, resolution of an identified improper payment
is usually through obtaining additional documentation
from the CDC to remedy the potential improper
payment or through cancellation of the loan. There is
no monetary outlay at approval, and thus no loss to the
federal government. Specific corrective actions on loans
reviewed are tracked at the loan level through a centralized
database. The Quality Control Specialist for 504 approvals
monitors errors from identification through completion of
the corrective action. Headquarters management provides
oversight to ensure milestones are met. All improper
payments identified as a result of the FY 2021 PIIA
reviews have been resolved through obtaining additional
documentation, loan modification, or cancellation of the
loan. Corrective actions were generally completed at the
loan level within 180 days with all actions taken by the end
of the fiscal year.

The most prevalent root cause stemmed from the CDC’s
failure to authenticate borrower’s eligibility at origination in
compliance with loan program requirements. The primary
reasons for 504 approval improper payments in FY 2021
included:
Ineligible borrower when loan was structured;

Collaborating with the Office of Credit Risk
Management (OCRM) to recommend specific lender
deficiencies be monitored and incorporated into Risk
Based Reviews;

The corrective actions are currently in process. OFPO will
continue to share the loan level and lender deficiencies
identified during the reviews with OFA and OCRM. OFPO
will also continue its efforts to ensure CDC deficiencies
are monitored and incorporated into lenders’ Risk Based
Reviews. External training will be provided in FY 2022.

Corrective Action

Disaster Direct Loan Program

As a means to reduce and/or eliminate the occurrence
of future improper payments, a Corrective Action Plan
has been formalized for the 504 approval center. Specific
corrective actions are determined based upon the primary
reason for the improper payment with the purpose of
both remedying the improper payment and preventing
recurrence.

Statistical Sampling
The SBA Office of Disaster Assistance performs a Quality
Assurance Review (QAR) of the approved loan portfolio
annually. A part of the QAR is to identify any deficiency
that would result in an improper payment. The scope
of the review covers three primary compliance areas:

12 The Payment Integrity Information Act of 2019, §3552 (c)(2)(A) states that when an agency cannot determine, due to lacking or insufficient documentation, whether a
payment is proper or not, the payment shall be treated as improper.

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(1) basic eligibility; (2) adherence to relevant laws, rules,
regulations, and standard operating procedures; and (3)
credit worthiness. For FY 2021, the reporting period
covered April 1 through March 31. The review population
consisted of disaster loan disbursements made during
the 12-month period ending March 31, 2021, with total
disbursements of approximately $544,975,000. A sample
of 503 payments were selected for testing, which yielded
a weighted estimated improper payment rate of 13.4
percent, the estimated amount of improper payments was
approximately $72,844,000. Due to the broad variance level
of 95 percent, there was no statistical difference between the
ODA’s FY 2020 rate of 11.9 percent and the 13.4 percent
calculated for FY 2021.

instances, the loan is referred to the Guaranty Denial Team
for further action. Determination of a course of action is
made on a case-by-case basis, depending on the specific
details of the reason for the improper payment. Refer to
Part I above for corrective action plans to prevent future
improper payments.

7(a) Loan Program Approvals and
504 Loan Guaranty Approvals
Overpayments recaptured outside payment recapture
audits are not applicable to 7(a) loan guaranty approval and
504 loan approval as no payment is made at the time of
approval. Improper payments identified through the annual
improper payment reviews in 504 loan program approvals
are resolved through obtaining additional documentation,
loan modification, or cancellation of the loan. Improper
payments identified as a result of the FY 2021 PIIA
reviews have been resolved through obtaining additional
documentation, or cancellation or reduction of the loan
guaranty and/or referral to other offices within the Office of
Capital Access, as appropriate. Determination of a course
of action is made on a case-by-case basis, which varies
substantially depending on the circumstances of the loan
approval and lender’s authority.

The Disaster Direct Loan program had a monetary improper
payment rate of 5.8 percent. The loans captured in the
remaining rate are loans made to the right recipient and for
the correct amount that would have been made regardless.
The loans were missing paperwork or documentation and
thus were not financial mistakes.

Corrective Action
In FY 2021, the most prevalent root cause for the disaster
direct loan improper payments stemmed from missing
required documentation, making up 58 percent of the
improper payment rate.

Disaster Direct Loan Program

In FY 2022, the SBA will complete a comprehensive analysis
to ensure that all documents required are relevant to the
loan process. The SBA expects this will provide us a more
realistic non-monetary improper payment rate in the future.

Overpayments are the result of the borrower receiving both
an SBA loan and insurance payments or other benefits
as a result of the disaster. If the duplication of benefit is
recognized prior to the final disbursement, the loan amount
is modified to reflect a lower amount and no repayment is
required. If the duplication of benefit is identified after the
final disbursement of the loan, then the borrower is given
30 days to provide evidence to prove that the disaster loan
was not over-disbursed. For example, the borrower can
provide documentation demonstrating that insurance funds
received did not duplicate the disaster loan purpose. If the
borrower has not provided the appropriate evidence within
the 30-day period, a demand is made for the over-disbursed
funds. Collection efforts continue at the Disaster loan
servicing centers, but if these efforts fail, the borrower will
still be liable for the over-disbursed amount in the form of
monthly payments in accordance with the loan agreement.
Thus, any actual loss is the cost of funds related to the over
disbursement.

The SBA acknowledges the current statistical model is too
broad at 95 percent. These large ambiguities in sampling
procedures cause higher variabilities in the improper
payment rates and have little correlation to causations. The
SBA currently has an RFP for a new statistician who will
better determine our sampling improper payment process as
well as our ultimate improper payment rate.

Payment Recovery Effort
Agency efforts to recapture improper payments are discussed
by program or activity.

7(a) Loan Program Purchases
Overpayments identified in the improper payments’ reviews
are recaptured from the lender. The Quality Control staff
tracks and collects any monetary overpayment. In some

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Supplemental Disaster Relief
Administrative Funds – Payroll and
Travel

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

The improper payment for the Supplemental Disaster Relief
Administrative Funds – Payroll and Supplemental Disaster
Relief Administrative Funds – Travel for FY 2020 were
below the statutory threshold. As such, in FY 2021, these
programs moved from Phase 2 back to Phase 1 of payment
integrity reporting.

Disaster direct loans recapture audits would not be cost
effective. Improper payments due to loan documentation
errors do not result in a disaster survivor receiving funds
for which they are not eligible; therefore, these improper
payments are not eligible for recovery.
Supplemental Disaster relief administrative payroll
expenses recapture audits would not be cost effective. In
FY 2020, it was determined that the associated cost and
labor hours to conduct a review exceeded the amount of
improper payments identified. As such, the cost of the
recapture audit exceeded the return.

Payment Recapture Audits
On September 15, 2011, the SBA submitted a Payment
Recapture Audit Cost-Effective Analysis to the Office
of Management and Budget. The analysis discussed the
7(a) Business Loan Guaranty Program, the 504 Certified
Development Company Loan Guaranty Program, the
Disaster Direct Loan Program, Disbursements for Goods
and Services, the Small Business Investment Company
Financing Guaranty Program, the Surety Bond Guaranty
Program, and Grants, which included all grant programs.
The analysis described the program, the controls over
financial disbursements, and the size of the program and
concluded for each program that recapture audits would
not be cost effective due to low error rates, complexity of
the program, or limited amount of outlays. A subsequent
cost analysis for the 7(a) loan guaranty purchase program
was submitted to OMB on September 13, 2017, to include
the results of a payment recapture audit performed in
2015, which again concluded that such an audit is not cost
effective.

Supplemental Disaster relief administrative travel
expenses recapture audits would not be cost effective. In
FY 2020, it was determined that the associated cost and
labor hours to conduct a review exceeded the amount of
improper payments identified. As such, the cost of the
recapture audit exceeded the return.

Agency Improvement of Payment
Accuracy with the Do Not Pay
Initiative
The SBA has implemented the Do Not Pay Initiative (DNP)
and incorporated the use of the DNP post payment services
using the data source Death Master File. The Agency
has also implemented limited use of the online portal
for processing of manual 7(a) loan applications as part
of pre-award eligibility and will be implementing a preaward eligibility for the Surety Bond Guarantee program.
The SBA is working to enhance its use of the DNP data
sources by exploring an interface with SBA systems to
identify ineligible recipients at the time of pre-award in lieu
of manually entering requests for information as is done
currently.

The specific justification and analysis are discussed by
program.
7(a) loan guaranty purchase improper payment reviews,
continuous Quality Control Reviews, and OMB Circular
A-123 Appendix A reviews in FY 2014 warranted a
reconsideration of the cost effectiveness of a payment
recapture audit for the 7(a) Loan Guaranty Purchase
program. As a result, in FY 2015, the SBA performed a
payment recapture audit, 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 the OIG to support
this decision.

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Information Systems and Other
Infrastructure
7(a) loan guaranty purchases are supported by E-Tran, the
SBA’s electronic loan processing/servicing system, and the
Guaranty Purchase Tracking System (GPTS). These systems
are continually updated to enhance the overall integrity of
the purchase process. Resources as they relate to human
capital are currently adequate.

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7(a) loan guaranty approvals and 504 CDC loan
guaranty approvals have adequate internal controls and are
supported by E-Tran, the SBA’s electronic loan processing/
servicing system. Both the SBA and delegated lenders
process applications through the system and lenders may
also handle unilateral servicing actions electronically. The
system provides increased efficiency and decreased costs
in the loan guaranty origination and servicing processes.
The loan programs are also supported by SBA One, an
automated lending platform, which helps to streamline the
lending process. Resources as they relate to human capital
are currently adequate.
The Disaster Direct Loan Program has the information
systems and other infrastructure it needs to reduce
improper payments to targeted levels. For example, the
Office of Disaster Assistance has an integrated, electronic
loan processing system, the Disaster Credit Management
System (DCMS), to streamline, enhance and improve
the loan-making process. This system supports workflow
management, electronic file management and document
generation functions. Many of the business rules governing
DCMS have been designed to improve the quality assurance
process by incorporating internal controls policy measures.
In fact, the ODA quality assurance team works continually
with the DCMS development team to improve the quality
assurance process with a goal to minimize future improper
payments as much as possible. The Disaster Direct Loan
Program has adequate human capital to maintain its internal
controls.

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Summary of Financial Statement Audit and Management
Assurances
As required by OMB Circular A-136, Section II.4.4, the following summarizes the SBA’s Financial Statement Audit and
Management Assurances:

Summary of Financial Statement Audit
Audit Opinion

Modified

Restatement

Material Weaknesses

Beginning Balance

New

Approval of PPP Loan Guarantees

Resolved

Consolidated Ending Balance
1

Reporting of PPP Loan Guarantees

Controls over the Subsidy Reestimate13

N/A

Controls over COVID-19 EIDLS and Grants

N/A

Service Organization Used for COVID EIDLs and Grants

Service Organizations Used for Loan Guarantee Programs

Entity Level Controls

N/A

Controls over Restaurant Revitalization Program and Shuttered
Venues

N/A

Controls over PPP Loan Guarantees

N/A

Controls over the Evaluation of Service Organizations

N/A

Total Material Weaknesses

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

Modified

Material Weaknesses

Beginning
Balance

New

Resolved

Controls over PPP Loan Guarantees

N/A

Controls over COVID-19 EIDLs and Grants

N/A

Controls over the Subsidy Reestimate

N/A

Controls over the Evaluation of Service Organizations

N/A

Controls over Monitoring and Accounting of Restaurant
Revitalization and Shuttered Venues Operators Grants Programs

N/A

Entity Level Controls

N/A

Total Material Weaknesses

N/A

Consolidated Reassessed

Ending
Balance

13 Material weakness was titled “Subsidy Reestimate of PPP Loan Guarantees” in FY 2020 AFR.
14 Material weakness was titled “Approval of COVID EIDLs and Grants” in FY 2020 AFR.
U.S. Small Business Administration

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Other Information

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

Unmodified

Material Weaknesses

Beginning
Balance

New

Resolved

None

N/A

Total Material Weaknesses

N/A

Consolidated Reassessed

Ending
Balance

Conformance with Financial Management System Requirements (FMFIA § 4)
Statement of Assurance

Federal Systems do not conform to financial management system
requirements.

Non-Conformances

Beginning
Balance

New

Resolved

Federal Financial Management System Requirements

N/A

Federal Accounting Standards

N/A

Total Non-conformances

N/A

Consolidated Reassessed

Ending
Balance

Compliance with Section 803(a) of the Federal Financial Management Improvement Act
(FFMIA)
Item

Agency

Auditor

1. Federal Financial Management System Requirements

Lack of compliance noted

2. Applicable Federal Accounting Standards

Lack of compliance noted

3. USSGL at Transaction Level

No lack of compliance noted

Agency Financial Report Fiscal Year 2021

162

U.S. Small Business Administration

Other Information

Grants Programs
Category
Number of Grants/Cooperative Agreements with Zero Dollar Balances

2–3 Years
FYs 2018–19

3–5 Years
FYs 2016–18

More than 5 Years
Before FY 2016

203

Number of Grants/Cooperative Agreements with Undisbursed Balances

Total Amount of Undisbursed Balances

The SBA has used the following procedures to assess risk in the Agency’s grant closeout process and improve closeout rates:

Evaluating the nature and type of grants issued to recipients

Examining Agency policy and procedures related to grant closeout

Reviewing the consistency of procedures with federal regulation, industry standards, other guidance, including but not
limited to evaluating the complexities of procedures in the grant closeout process; assessing the population of expired
grant accounts; reviewing information systems used to process grant data; assessing challenges; and assessing internal
controls

To maintain 100 percent accuracy in the closeout rate, the Agency developed a second-tier approval mechanism to ensure all
grant awards are in compliance and accurately closed in its grants management information technology systems. The closeout
team reviews procedures, including the number of grants by period of expiration, the number with zero-dollar balances, and
the number with undisbursed balances.

U.S. Small Business Administration

163

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Other Information

Civil Monetary Penalty Adjustment for Inflation
The Federal Civil Penalties Inflation Adjustment Act of 1990 (Act), as amended, requires agencies to make regular and
consistent inflationary adjustments of civil monetary penalties to maintain their deterrent effect. A civil monetary penalty
is defined as any penalty, fine, or other sanction that is for a specific monetary amount as provided by federal law or has a
maximum amount provided for by federal law, is assessed or enforced by an agency pursuant to federal law, and is assessed or
enforced pursuant to an administrative proceeding or a civil action in the federal courts. To improve compliance with the Act
and in response to multiple audits and recommendations, agencies must report the most recent inflationary adjustments to
civil monetary penalties to ensure penalty adjustments are both timely and accurate. Pursuant to the Act, the SBA reviewed
each of the penalty amounts under its statutes and adjusted them for inflation when required under the law. The SBA applied
a prescribed formula from the Act for calculating the penalty.
The following table reflects the authorities imposing the penalties, the basis for imposing the penalties, the year the penalties
were authorized, the current penalty levels, the program offices responsible for imposing the penalties, and the citation for the
most recent publication of the penalty updates.
SBA Federal Civil Penalties
Penalty (Name or
Description)

Year
Enacted

Latest Year of
Adjustment
(via Statute or
Regulation)

Small Business Investment Act,
15 U.S.C. 687g

Failing to File Report
Timely for a Small Business
Investment Company
(SBIC)

1966

2021

$274

Office of
Investment
and
Innovation

86 F.R. 52955
(9/24/21)

Small Business Act, 15 U.S.C.
650(j)(1)

Failing to File Report
Timely for a Small Business
Lending Company (SBLC)

2004

2021

$6,820

Office of
Capital
Access

86 F.R. 52956
(9/24/21)

Small Business Act,
15 U.S.C. 657t(e)(2)(B)

Types of Formal
Enforcement Actions

2020

2021

$250,000 to
$252,955

Office of
Credit Risk
Management

86 F.R. 52956
(9/24/21)

Small Business Act,
15 U.S.C. 634(b)(6) and Program
Fraud Civil Remedies Act
31 U.S.C. 3802(d)

Administrative Remedies
for False Statements and
Claims

1986

2021

$11,803

Multiple
offices

86 F.R. 52956
(9/24/21)

Small Business Act,
15 U.S.C. 634(b)(6) and Program
Fraud Civil Remedies Act
31 U.S.C. 1352

Penalty for Violation of
Lobbying Restrictions

1990

2021

not less than
$20,731 and
not more than
$207,314

Multiple
offices

86 F.R. 52956
(9/24/21)

Statutory Authority

Agency Financial Report Fiscal Year 2021

164

Current
Penalty Level
($ Amount or
Range)

Sub-Agency/
Bureau/Unit

Location for
Penalty Update
Details

U.S. Small Business Administration

Appendices

Success Stories
SENDER ONE
CLIMBING

BOON BOONA
COFFEE

Alice Kao

Efrem Fesaha

Co-Founder and CEO
Santa Ana, CA

CEO and founder
Renton, WA

Alice Kao discovered climbing
while living in London during
a challenging time in her life.
Through the sport and the
community she found around
it, Kao rediscovered herself and
connected with others. In 2011,
Kao returned to the U.S. and continued climbing. For Kao
and her co-founders, climbing served as an avenue for selfdiscovery and a wellspring for community during transitional
times in their lives. Together, they started Sender One
Climbing. They now have two locations, one of which hosted
the 2020 Pan American Championships, where two athletes
qualified for the 2020 Tokyo Olympics.

After his initial business plan
to open an East African coffee
shop was rejected by banks,
Efrem Fesaha didn’t give
up. Instead, he pivoted to
sourcing quality green coffee
from Ethiopia for East African
communities in the U.S. He sought mentorship and advising
through the SBA’s SCORE program which assisted him
with his business plan and financial projections. With this
assistance, he was able to obtain a microloan to open his
coffee shop, Boon Boona Coffee, in Renton, WA.

Sender One Climbing closed three times between March
2020 and 2021. The first time they closed, they furloughed
135 of their 159 staff members. Alice contacted her banker
to look for solutions to keep her business going. At the time,
she didn’t know funding was available to help businesses
impacted by COVID-19. Her banker notified her as soon as
PPP funding was available and helped guide her through
the application process. During the time that her business
was closed, Alice invested in making the improvements and
repairs that would have been difficult while the gym was
open.
Of the SBA’s assistance, Alice says, “Without my first 7(a)
[loan], I wouldn’t have been able to do this. Without the
pandemic funding, I wouldn’t have been able to keep my
employees on. I wouldn’t have been able to do the upgrades
that I did to help me reopen my business.” Sender One
Climbing is preparing to open its third location in 2023 and
plans to access the support of the SBA once again in that
venture.

During the pandemic, Efrem accessed the SBA’s Paycheck
Protection Program, Economic Injury Disaster Loan, and
Restaurant Revitalization Fund assistance programs to keep
his business afloat and to continue to employ his team.
Despite attempts to transition to a curbside pickup model,
Boon Boona’s sales dropped significantly as COVID-19
mitigation restrictions went into place in March of 2020. “I
was forced to lay a lot of my team off, which as a first-time
employer, was the toughest decision and toughest experience
of mine,” Efrem indicated. “The SBA was successful in helping
us because it was the only way we would be able to bring
back our team. The only way we could weather the storm.”
With the assistance of these COVID-19 relief programs, Boon
Boona Coffee was able to pivot their business as demand
once again rose, upgrading their website in response to an
increase in online orders, creating a monthly subscription box
with nationwide shipping, and taking on wholesale clients.

Success Stories

Appendices

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/about-sba

SBA Performance, Budget & Finances

www.sba.gov/performance

Small Business USA

www.usa.gov/business

Local Assistance

www.sba.gov/local-assistance

Qualifying as a Small Business

www.sba.gov/size

Starting a business?

www.sba.gov/business-guide

Capital
Small Business Loans & Grants

www.sba.gov/funding-programs

Lender Resources

www.sba.gov/lenders

Surety Bonds

www.sba.gov/funding-programs/surety-bonds

Export Products

www.sba.gov/exporting

Fund Your Business

www.sba.gov/business-guide/plan/fund-your-business

Contracting
Government Contracting

www.sba.gov/federal-contracting

www.sam.gov

Contracting Certifications

https://certify.sba.gov/

Counseling
SBA Learning Center

www.sba.gov/training

Small Business Development Centers

www.sba.gov/local-assistance/sbdc

Women’s Business Centers

www.sba.gov/local-assistance/wbc

SCORE

www.sba.gov/local-assistance/score

Veterans Business Outreach Centers

www.sba.gov/local-assistance/vboc

Disaster Assistance
Disaster Assistance

www.sba.gov/disaster

COVID-19 Relief Options

www.sba.gov/coronavirus

Disaster Assistance Customer Service Center (Toll Free)

(800) 659-2955

SBA Information
SBA National Answer Desk (Toll Free)

(800) 827-5722

Facebook

https://www.facebook.com/SBAgov

Twitter

https://www.twitter.com/sbagov

YouTube

https://www.youtube.com/sba

Blogs

https://www.sba.gov/blogs

Instagram

https://www.instagram.com/sbagov

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Appendices

Appendix 2 – Glossary
504 Loan

504 Certified Development Loan Program
The 504 loan program provides small businesses
with long-term, fixed-rate financing for the
purchase of land, buildings, and long-life capital
equipment.

B2B

Boots to Business
An entrepreneurial education and training
program offered by the U.S. Small Business
Administration as part of the Department of
Defense Transition Assistance Program.

7(a)

7(a) Loan Guaranty Program
The 7(a) loan program is the SBA’s primary loan
program; it provides general loan financing for a
wide variety of purposes.

BATF

Business Assistance Trust Fund
A revolving trust fund in which all donated funds
are to be deposited.

7(j)

7(j) Management and Technical Assistance
Program
The 7(j) program provides specialized assistance to
underserved small businesses.

BLIF

Business Loan and Investment Fund
The BLIF assists eligible small businesses through
various loan programs.

7(m)

8(a)

A-123

7(m) Microloan Program
The microloan program provides small, shortterm loans to small businesses and certain types of
nonprofit childcare centers.

CARES Act Coronavirus, Aid, Relief and Economic
Security Act
A $2.2 trillion economic stimulus bill passed
in response to the economic fallout of the
COVID-19 pandemic in the United States.

8(a) Business Development Program
The 8(a) program assists firms owned and
controlled by socially and economically
disadvantaged individuals compete for federal
contracts.
Designation for OMB Circular on Internal
Control Systems
The A-123 guidance prescribes policies and
procedures to be followed by federal agencies in
establishing, maintaining, evaluating, improving,
and reporting on internal controls in their
program and administrative activities.

AFR

Agency Financial Report
The AFR is an annual report that provides to
OMB, Congress, and the public an overview of
the Agency’s financial and performance data.

AGA

Association of Government Accountants
The AGA is the member organization for
government financial management professionals.

APG

Agency Priority Goal
GPRAMA requires federal agencies to establish
a set of 2-year APGs that reflect the highest
priorities of agency leadership.

APR

Annual Performance Report
The APR is required by the Government
Performance and Results Act and presents a
federal agency’s progress in achieving the goals in
its strategic plan and performance budget.

ARP(A)

CAP Goals Cross-Agency Priority Goals
CAP Goals are a limited number of Presidential
priority areas where implementation requires
active collaboration among multiple agencies.

Congressional Justification
The CJ is a federal agency’s annual budget request
to Congress.

CDC

Certified Development Company
CDCs are nonprofit corporations, certified
and regulated by the SBA, that work with
participating lenders to provide financing to small
businesses.

CEAR

Certificate of Excellence in Accountability
Reporting
The CEAR is awarded to federal agencies that are
considered to have excellent Agency Financial
Reports.

CFO

Chief Financial Officer
The CFO is the financial leader whose duties
include overseeing all Agency disbursements,
management and coordination of Agency
planning, budgeting, analysis, and accountability
processes.

COVID-19 Coronavirus Disease, 2019
Highly contagious respiratory disease caused by
the SARS-CoV-2 virus.

American Rescue Plan (Act)
The American Rescue Plan Act of 2021 provides
relief to individuals and businesses affected by the
COVID-19 pandemic.

Agency Financial Report Fiscal Year 2021

168

CTI

Cyber Threat Intelligence
Information an organization uses to understand
the cyber threats that have, will, or are currently
targeting the organization.

DATA Act

The Digital Accountability and Transparency Act
The DATA Act is a law that aims to make
information on federal expenditures more easily
accessible and transparent.

U.S. Small Business Administration

Appendices

DCMS

Disaster Credit Management System
DCMS is the electronic system used to process
loan applications for all new disaster declarations.

FAST

Federal and State Technology Grants
One year funding opportunity to help increase
the number of SBIR and STTR proposals.

DLF

Disaster Loan Fund
The DLF assists eligible small businesses impacted
by disasters.

FBO

DNP

Do Not Pay Initiative
The DNP was established by IPERIA to support
federal agencies with their efforts to prevent and
detect improper payments.

FedBizOps
FBO is the Federal Government’s website that
posts all federal procurement opportunities with a
value over $25,000.

FCRA

District Office
The SBA’s District Offices are responsible for the
delivery of the SBA’s many programs and services
throughout the country.

Federal Credit Reform Act
The FCRA is a law enacted to provide a more
realistic picture of the cost of U.S. Government
direct loans and loan guaranties.

FEMA

DoD

Department of Defense
The DOD is the federal agency charged with
coordinating national security and the armed
services.

Federal Emergency Management Agency
The primary purpose of FEMA is to coordinate
the response to a disaster that has occurred in the
United States.

FEVS

DTI

Debt-to-Income
DTI ratio is derived by dividing monthly debt
payments by monthly gross income

Federal Employee Viewpoint Survey
An OPM survey administered to federal employees
that measures perceptions of whether, and to
what extent, conditions characteristic of successful
organizations are present in their agencies.

FFMIA

Economic Aid to Hard-Hit Small Businesses,
Non-Profits and Venues Act
The Economic Aid Act authorizes the U.S. Small
Business Administration to guarantee additional
loans under the temporary Paycheck Protection
Program and adds a second temporary program
to SBA’s 7(a) Loan Program titled, “Paycheck
Protection Program Second Draw Loans.”

Federal Financial Management Improvement
Act
FFMIA is a law that requires each federal agency to
implement and maintain financial management
systems that comply substantially with federal
financial management system requirements,
applicable federal accounting standards, and the
United States Standard General Ledger.

FISMA

Federal Information Security Management Act
FISMA is a law that defines a comprehensive
framework to protect government information,
operations, and assets against natural or manmade threats.

FITARA

Federal Information Technology Acquisition
Reform Act
FITARA is legislation to improve the acquisition
and management of federal information
technology assets.

FMFIA

Federal Managers Financial Integrity Act
FMFIA is a law that primarily requires ongoing
evaluations and reports on the adequacy of the
internal accounting and administrative control
systems of executive agencies. It also requires
evaluations and reports on the conformance of
financial management systems.

Financial Report of the U.S. Government
A record of the United States government’s
financial activities.

FTA

Fiscal Transfer Agent
The central registry for all guaranteed individual
loan and SBA pool certificate interests.

EAA

EDAP

Expedited Disaster Assistance Loan Program
The EDAP is a loan guarantied by SBA for up to
$150,000.

EDP

Entrepreneurial Development Program
The EDP account reports entrepreneurial
development expenses.

ECS

Enterprise Cybersecurity Services
Cybersecurity strategies designed to safeguard data
as it travels between distant wireless devices and
onto cloud servers.

EIDL

Economic Injury Disaster Loan
A grant to provide economic relief to businesses
experiencing a temporary loss of revenue due to
the COVID-19 pandemic.

ELA

Enterprise Learning Agenda
The ELA is a plan that aligns with the Agency’s
strategic goals to identify where evaluations could
provide insights about program effectiveness.

ERM

Enterprise Risk Management
The ERM provides a framework to manage risks
and seize opportunities related to the achievement
of their objectives.

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Appendices

FTE

Full-Time Equivalent
FTE indicates the workload of an employed
person. An FTE of 1.0 means that the person is
equivalent to a full-time worker while an FTE of
0.5 means that the worker is half-time.

ICOR

Internal Control Assessment Over Reporting
A reporting methodology that manages assets
(including data), improves data quality, and
reduces compliance-oriented burdens shifting
activities to support attaining high quality data.

Fiscal Year
The Federal Government fiscal year begins October 1
and ends the following September 30.

IDAP

GAAP

Generally Accepted Accounting Principles
GAAP is the standard framework of guidelines
for financial accounting generally known as
accounting standards or standard accounting
practice.

Immediate Disaster Assistance Program
IDAP is a guaranteed disaster loan program for
small businesses that have suffered physical damage
or economic injury due to a Declared Disaster.

IPERA

GAO

U.S. Government Accountability Office
The GAO is an independent, nonpartisan agency
that investigates how the federal government
spends taxpayer dollars and reports their findings
to Congress.

Improper Payments Elimination and Recovery
Act
IPERA requires that agencies examine the risk of, and
feasibility of, recapturing improper payments in all
programs and activities.

IPERIA

GPRAMA

Government Performance and Results Act
(GPRA) Modernization Act
The GPRAMA modernizes the federal
government’s performance management
framework, retaining and amplifying some aspects
of the Government Performance and Results Act
(GPRA) of 1993 while also addressing some of its
weaknesses.

Improper Payments Elimination and Recovery
Improvement Act
IPERIA is an act to intensify efforts to identify,
prevent, and recover payment error, waste, fraud,
and abuse within federal spending.

IPIA

Improper Payment Information Act
The IPIA is a law enacted in 2002 to identify and
reduce erroneous payments in the government’s
programs and activities.

ISS

Industrial Specialists for Size
Specialists who perform size determinations for
protests.

Information Technology
IT refers to matters concerned with the design,
development, installation, and implementation of
information systems and applications.

JAAMS

Joint Administrative Accounting Management
System
Also known as the Oracle Administrative
Accounting System, JAAMS is a financial
management system used to keep records of the
SBA’s administrative funding and expenditures.

LGPC

Loan Guarantee Processing Center
The 7(a) LGPC has two physical locations (one
in Hazard, Kentucky, and one in Citrus Heights,
California) that are linked technologically into
one process for efficiency and optimal staff
utilization.

LSP

Lender Service Provider
An LSP carries out functions in originating,
dispersing, servicing, or liquidating a specific SBA
business loan or loan portfolio for compensation
from the lender.

MAFD

Maximum Accepted Fixed Debt
MAFD are standards used to calculate the risk of
loan approvals.

GSA

General Services Administration
The GSA is a federal agency of the Executive
Branch whose mission is to deliver the best value
real estate, acquisition, and technology services to
government agencies.

GTAS

Governmentwide Treasury Account
Symbol Adjusted Trial Balance System: A system
used by government entities to provide proprietary
financial reporting and information about budget
execution to the Department of the Treasury.

HHS

U.S. Department of Health and Human
Services
The goal of HHS is to protect the health of all
Americans and provide essential human services.

HIM

Hurricanes Harvey, Irma, and Maria
The HIM Hurricanes caused significant physical
damage to Texas, Louisiana, Florida, Puerto Rico,
and the U.S. Virgin Islands.

HUBZone Historically Underutilized Business Zone
HUBZone is an SBA program that encourages
economic development by the establishment
of federal contract award preferences for small
businesses located in historically underutilized
business zones.
ICD

Internal Controls Division
The ICD ensures managers comply with internal
control standards.

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170

U.S. Small Business Administration

Appendices

MAT

Modification Adjustment Transfer
A transfer made between the financing account as
the general fund.

MRA

Master Reserve Account
The SBA’s fiscal agent maintains this escrow
fund to facilitate the operation of the Certified
Development Company program.

OFPO

Office of Financial Program Operations
The OFPO leads the financial services industry
in quality products and services to SBA partners
and customers and protects the integrity of SBA
programs.

OGC

Office of General Counsel
The OGC provides comprehensive legal services to
the Administrator and all Agency offices.

OGCBD

Office of General Contracting and Business
Development
The Office of Government Contracting and
Business Development works to create an
environment for maximum participation by small,
disadvantaged, and woman-owned businesses
in federal government contract awards and large
prime subcontract awards.

MRF

Master Reserve Fund
The SBA’s fiscal and transfer agent maintains this
reserve fund to facilitate the operation of the 7(a)
secondary market program.

OBD

Office of Business Development
The OBD assists small, disadvantaged businesses
to gain access to federal and private procurement
markets.

OCA

Office of Capital Access
The OCA is responsible for small business loans,
lender oversight, and the Surety Bond Guaranty
program.

OIG

Office of Inspector General
The OIG conducts and supervises audits,
inspections, and investigations relating to SBA
programs and operations.

OPPCFO

Office of Performance, Planning, and the Chief
Financial Officer
The OPPCFO is responsible for the financial
leadership of the Agency, including all disbursements,
management, and coordination of planning,
budgeting, analysis, and accountability processes.

OMB

U.S. Office of Management and Budget
The OMB is the White House office that oversees
preparation of the federal budget and supervises
its administration in Executive Branch agencies.

OPM

U.S. Office of Personnel Management
The OPM is the Federal Government’s human
resources agency.

OPSM

Office of Performance and Systems
Management
The OPSM manages the Capital Access Financial
System (CAFS), Lender Loan Management
System (LLMS), Central Servicing Agent system,
and Fiscal Transfer Agent system.

OSDBU

Office of Small Disadvantaged Business
Utilization
OSDBUs located within each federal agency enable
small disadvantaged businesses to gain access to
economic opportunity through federal contracts.

PPP

Paycheck Protection Program
A loan designed to provide a direct incentive for
small businesses to keep their workers on the
payroll.

PPS

Probability Proportional to Size
PPS is a method of sampling that takes the varying
size of each item within the population into
account when selecting the audit sample.

QAR

Quality Assurance Review
The QAR is a review to identify any deficiencies,
to include improper payments.

OCIO

Office of the Chief Information Officer
The OCIO is responsible for the management of
information technology for the Agency, including
the design, implementation, and continuing
successful operation(s) of information programs
and initiatives.

OCRM

Office of Credit Risk Management
The OCRM manages program credit risk,
monitors lender performance, and enforces
lending program requirements.

OCORM

ODA

OFA

Office of Continuous Operations and Risk
Management
OCORM ensures enterprise-wide disaster
planning, readiness, and implementation of ERM
best practices for the SBA.
Office of Disaster Assistance
The ODA is the SBA’s office that promotes
economic recovery in disaster-ravaged areas. Disaster
loans are the Agency’s primary form of federal
assistance for non-farm, private sector disaster losses
for individuals and businesses.
Office of Financial Assistance
Oversees the SBA’s credit programs that provide
capital alternatives for small businesses not
adequately served by conventional lending.

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Appendices

Recovery Improvements for Small Entities After
Disaster Act
This law amends the Small Business Act to
authorize a small business, homeowner, nonprofit
entity, or renter that was located within a declared
major disaster area during Superstorm Sandy in
2012 to apply for an SBA loan.

Salaries and Expense
Operating expenses of the Agency.

SMC

Senior Management Council
SMC was established by the Administrator to
ensure the SBA had an effective system of internal
controls.

RRF

Restaurant Revitalization Fund
The RRF is COVID-19 relief program authorized
under the American Rescue Plan.

SOP

Standard Operating Procedure
An SOP is the primary source of the Agency’s
internal control.

SBA

U.S. Small Business Administration
The SBA is the federal agency whose 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.

STEP

State Trade Expansion Program
STEP is a program that makes matching fund
awards to states to help small businesses enter and
succeed in the internal marketplace.

SVOG

Shuttered Venues Operator Grant
SVOG is a COVID-19 relief program authorized
under the American Rescue Plan.

TAP

Transition Assistance Program
A collaborative program between federal agencies
to assist active duty service members’ transition
to civilian life through access to employment
workshops and other services.

USEAC

U.S. Export Assistance Center
USEACs are located nationwide and help firms
grow internationally by assisting in developing
a plan of action with solutions tailored to their
needs.

USSGL

The United States Standard General Ledger
USSGL provides a uniform chart of accounts
and technical guidance for standardizing federal
agency accounting.

VBOC

Veterans Business Outreach Center
VBOCs provide entrepreneurial development
services such as business training, counseling,
and mentoring, and referrals for eligible veterans
owning or considering starting a small business.

WBC

Women’s Business Center
WBCs provide long-term training and advising to
women who own or manage a business, including
financial, management, marketing, and technical
assistance and procurement.

WCF

Working Capital Fund
Fund for IT modernization efforts.

WOSB

Women-Owned Small Businesses
The WOSB program allows federal agencies to
set aside certain contracts for competition only
among small businesses owned and controlled by
women.

RISE

SBDC

SBG

SBGRF

SBIC

SBIR

Small Business Development Center
SBDCs provide management and technical
assistance, economic development, and
management training to existing and prospective
small businesses through cooperative agreements
with universities and colleges and government
organizations.
Surety Bond Guarantee
The SBG program provides guaranties, bid,
performance, and payment bonds for contracts
up to $2 million for eligible small businesses
that cannot obtain surety bonds through regular
commercial channels.
Surety Bond Guaranty Revolving Fund
All the contractor and surety fees collected by
the SBA are deposited in the SBGRF at the U.S.
Department of the Treasury, which is used to pay
claims.
Small Business Investment Company
An SBIC provides long-term loans, debt-equity
investments, and management assistance to small
businesses, particularly during their growth stages.
Small Business Innovation Research
The SBIR is a highly competitive SBA program
that encourages domestic small businesses
to engage in federal research/research and
development that has the potential for
commercialization.

SBLC

Small Business Lending Company
SBLCs are non-depository small business lending
companies listed by the SBA Office of Capital
Access.

SDB

Small Disadvantaged Business
A firm that is owned or controlled by one or
more disadvanted persons and qualifies as small
according to the SBA’s size standards.

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Appendices

Appendix 3 – OIG Audit Follow-up Activity
Throughout the year, the Office of Inspector General conducts audits of the 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 the SBA’s management. If SBA management
disagrees with an OIG recommendation, the OIG may revise the recommendation or refer the issue to a higher level of
SBA 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 OPPCFO maintains a database to track the recommendations through to the conclusion, or Final Action. During
FY 2021 there were 86 Final Actions, resulting from 1 monetary and 85 non-monetary recommendations.
The following tables depict the SBA’s Final Action activity for FY 2021 and the status of corrective action plans not
implemented within one year:

Table I: Final Action on Audit Recommendations with Disallowed or Questioned Costs.

Table II: Final Action on Audit Recommendations with Funds Put to Better Use.

Table III: Final Action on Audit Recommendations Not Completed within One Year.

Table I

Final Action on Audit Recommendations with Disallowed or Questioned Costs
October 1, 2020 – September 30, 2021
Number of
Recommendations

Recommendations

Disallowed Costs

A. Recommendations with management decisions on which final action had not been taken
at the beginning of the period.

$301,165,018

B. Recommendations on which management decisions were made during the period.

$10,800,476

C. Total recommendations pending final action during period.

$311,965,494

$855,116

2. Write-Offs

$91,160,589

3. Total

$92,015,705

$219,940,789

D. Recommendations on which final action was taken during the period.
1.

Recoveries:
(a) Collections and Offsets
(b) Property
(c) Other

E. Recommendations needing final action at the end of the period.

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Table II

Final Action on Audit Recommendations with Funds Put to Better Use
October 1, 2020 – September 30, 2021
Number of
Recommendations

Funds to be Put to
Better Use

A. Recommendations with management decisions on which final action had not been taken
at the beginning of the period.

B. Recommendations on which management decisions were made during the period.

C. Total recommendations pending final action during period.

2. Value of recommendations that management concluded should not or could not
be implemented or completed.

3. Total

Recommendations

D. Recommendations on which final action was taken during the period.
1.

Value of recommendations implemented (completed).

E. Recommendations needing final action at the end of the period.

Table III Final Action on Audit Recommendations Not Completed within One Year
As of September 30, 2021
Report # 17-19, Audit of SBA’s Microloan Program
Program: OCA
Date Issued: 9/28/17
Management Decision Date: 1/4/18
Explanation: For the two remaining recommendations planned activities are Recommendation 1—to integrate Microloan portfolio performance
into the PAC Report, as microlender performance and compliance is now overseen by OCRM. The OPSM and OCRM worked together to develop
automated Microloan reporting that mirrors current 7(a) and 504 deliverables. Microloan portfolio performance is integrated into the PAC Report.
Additionally, microlender performance and compliance is monitored by OCRM via the Microloan Lender Performance report and the Microloan
Reporting report. Recommendation 4—to sync timing of the updated manual with the implementation of the reporting system as noted above.
The OPSM and OCRM worked together to develop automated Microloan reporting that mirrors current 7(a) and 504 deliverables. Microloan
portfolio performance is integrated into the PAC Report. Additionally, microlender performance and compliance is monitored by OCRM via the
Microloan Lender Performance report and the Microloan Reporting report. The estimated completion date is December 31, 2021.
Report # 18-03, FY 2017 Financial Statement Audit
Program: OCA
Date Issued: 11/14/17
Management Decision Date: 1/10/18
Explanation: The one remaining recommendation requires the Office of Capital Access (OCA) monitor and perform procedures over the service
organization’s attestation report regarding user control considerations. The systems and operational transition between the outgoing Fiscal
Transfer Agent (FTA) and the incoming FTA were completed at the end of August 2021. The FTA will submit a report next year after having 12
months of operational track record detailing user control considerations. The estimated completion date is September 30, 2022.
Report # 18-13, Evaluation of SBA 7(a) Loans Made to Poultry Farmers
Program: OCA
Date Issued: 3/6/18
Management Decision Date: 3/1/18
Explanation: Revised regulations were published and subsequently rescinded under the CARES Act that addressed the arrangements between
poultry integrators and growers on appropriate affiliation determinations. Due to the Final Rule rescission, the current due date was extended to
provide additional time to reconsider and conduct a new rule making. The estimated completion date is March 31, 2022.

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Report # 19-08 SBA’s HUBZone Certification Process
Program: OGCBD
Date Issued: 3/28/2019
Management Decision Date: 3/29/2019
Explanation: The SBA is in the process of re-baselining Certify. GCBD has worked closely with OCIO and has a time frame to begin and
complete system development and implementation. The OCIO is reviewing the Certify modules carefully to ensure proper steps are followed
and has been communicating with the GCBD team. The revised dates for commencing and completing a complete HUBZone system
replacement are June 2022 – December 2023. GCBD has provided a justification and an extension request to OIG for estimated completion date
of December 31, 2023..
Report # 19-15 7(a) High Risk Loan
Program: OFPO
Date Issued: 7/10/2019
Management Decision Date: 7/11/2019
Questioned Costs: 3,000,297.00
Explanation: Loan remains open due to complex financial issues related to business appraisals and franchise agreements. The SBA has
requested documentation from the lender related to appraisal valuations and to specific clauses within the borrower’s franchise agreement.
Once documentation is received and reviewed, the SBA will document resolution of the issue and close this audit item. The estimated
completion date is December 1, 2021.
Report # 19-16 7(a) High Risk Loan
Program: OFPO
Date Issued: 8/14/2019
Management Decision Date: 8/15/2019
Questioned Costs: 1,367,417.00 and 691,715.00
Explanation: Loan remains open due to complex financial issues related to the use of proceeds from the sale of a business the source of a
borrower’s equity injection. The SBA has requested documentation from the lender related to borrower’s personal bank accounts and source
of the equity injection. Once documentation is received and reviewed, the SBA will document resolution of this issue. If not resolved through
documentation, the SBA will bill the lender to close this audit item. The estimated completion date is December 1, 2021.
Report # 19-17 SBA’s All Small Mentor-Protege Program
Program: OGCBD
Date Issued: 9/17/2019
Management Decision Date: 9/17/2019
Explanation: Recommendation 3—On May 27, 2020, GCBD provided the OIG with the May 2020 BTIC presentation for Certify. System
developments are pending. On March 15, 2021, GCBD issued a request to the OIG for a one-year extension to March 30, 2022. On March 24, 2021,
the OIG requested supporting documentation in order to review the extension request. GCBD provided a revised milestone on implementation
of the M/P Certify module to the OIG on June 17, and they have agreed to extend the action due date to September 30, 2022. Recommendation
4—the SBA is taking these steps to fulfill functional requirements for the ASMPP: 1) revalidating functional and data requirements for the
program by documenting them and providing to ASMPP Director for staff coordination and approval, 2) performing development to deliver a
complete end-to-end workflow that delivers the approved functional requirements and ASMPP-specific analysis criteria, and 3) performing
development of case management reporting to enhance management’s ability to monitor quality and throughput. GCBD currently awaiting an
update from the Certify Working Group. The estimated completion date is September 30, 2022.

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Report # 20-03 Audit of SBA’s Oversight of High-Risk Lenders
Program: OCA
Date Issued: 11/12/2019
Management Decision Date: 11/15/2019
Explanation: Six recommendations. Recommendation 1—OCRM will include the recommended changes in the revised SOP 51 00 2, which is
currently being finalized. The estimated completion date is December 13, 2021. Recommendation 2—OCRM is working with OPSM to develop a
database/workflow management tool to more effectively manage the oversight of high-risk Lenders. It is currently in development, awaiting a
source of funding and is expected to be implemented by the end of FY 2022. Recommendation 3—OCRM submitted requested documentation
to OIG for closure on September 28, 2021. Recommendation 4—OCRM conducts quarterly meetings to discuss high-risk lenders and is
preparing quarterly meeting minutes for submission to the OIG. The estimated completion date is December 13, 2021. Recommendation 5—the
communications protocol will be included in the revised SOP 51 00 2, which is currently being finalized. The estimated completion date is
December 13, 2021. Recommendation 6—OCRM has the Loan File Review Team reviewing the loans to determine if deficiencies exist and were
corrected. The estimated completion date is December 31, 2021.
Report # 20-05 KPMG Management Letter Communicating Matters Relative to SBA’s FY 2019 FSA
Program: OCA
Date Issued: 12/10/2019
Management Decision Date: 3/10/2020
Explanation: Two recommendations. Corrective Actions completed. Closed by OIG October 27, 2021.
Report # 20-08 Audit of the SBA’s Community Advantage Pilot Program
Program: OCA
Date Issued: 3/18/2020
Management Decision Date: 3/9/2020
Explanation: Six recommendations. Recommendation 1—the SBA has encouraged CA lenders to participate in the PPP Program. The SBA
has also implemented and executed the CA Recovery Loan Program with CA lenders. With the passage of the Economic Aid Act, the SBA
implemented the 2nd round of PPP loans, initially opening this program only to Community Financial Institutions (CFIs), which include many
CA lenders in an effort to increase smaller loans to underserved borrowers. The SBA is continuing to evaluate options for expanding access to
capital in underserved areas through the CA Pilot program. The estimated completion date is December 31, 2021. Recommendation 2—the OFA
has determined that aligning the rates is feasible and is in the process of publishing a final rule that will align the variable rates for CA loans with
all 7(a) loans up to $250,000. OFA is currently drafting and clearing the final rule and expects to be able to publish the final rule in Q1 FY 2022.
The estimated completion date for this recommendation is December 31, 2021. Recommendation 3—the OFA has complied and requested
closure for Recommendation 3. Recommendation 4—the OCRM is evaluating a management interview to be conducted as part of its RiskBased Reviews that will be used to assess a CA Lender’s provision of M&TA and will consider the frequency in which a Lender provides M&TA
as a factor in the determination of whether the CA Lender’s expertise is adequate. The estimated completion date for this recommendation
is December 31, 2021. Recommendation 5—the OFA and OCRM have requested additional time to collect and review CA Lender reported
M&TA information to determine possible enhancements to the annual CA performance analysis. The estimated completion date for this
recommendation is December 31, 2021. Recommendation 6—the OFA has complied and requested closure for Recommendation 6.
Report # 20-17 Evaluation of Certify.SBA.gov
Program: CIO
Date Issued: 3/18/2020
Management Decision Date: 3/9/2020
Explanation: Five recommendations. The OCIO is in the process of collaborating with the GCBD to determine the next steps in satisfying the
recommendations. A contract has been awarded for the assessment of certify.sba.gov to determine the path forward. The estimated completion
January 15, 2022.

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Appendices

Report # 20-18 High Risk 7(a) Loan Review Program
Program: OCA
Date Issued: 8/25/2020
Management Decision Date: 4/16/2021
Explanation: Loan remains open due to complex financial issues related to documentation of the source of a borrower’s equity injection. The
SBA requested a legal opinion for this loan. Once the legal opinion is received and reviewed, the SBA will document resolution of the issue and
close the audit item. The estimated completion date is December 1, 2021.
Report # 20-20 Compliance with the Debt Collection Act
Program: OCA
Date Issued: 9/30/2020
Management Decision Date: 9/30/2020
Explanation: 10 recommendations.
Recommendation 1—the SBA received an exemption from the mandatory notice and transfer provisions and a suspension of debt collection until
December 31, 2021, from the Department of Treasury. After this suspension expires, the SBA will review loans assigned to the Resolution Center
that are 180 days or more delinquent and transfer debts to Treasury Cross-Servicing as appropriate. The OFPO requested the OIG extension to
November 19, 2021. Recommendation 2—the OFPO drafted revisions to SOP 50 52 2, Disaster Loan Servicing and Liquidation. Revisions include
the evaluation of all loans with collateral for foreclosure and placement into foreclosure before they are 180 days delinquent. In June 2021, the
OFPO drafted an additional chapter for COVID EIDL. The SOP is currently in Agency clearance. The estimated date for completion is November
19, 2021. Recommendation 3—the OFPO drafted revisions to SOP 50 52 2, Disaster Loan Servicing and Liquidation. Revisions include clear
communication that all debts 180 days delinquent be transferred to Treasury Cross-Servicing unless the debts meet a valid transfer exemption.
In June 2021, OFPO drafted an additional chapter for COVID EIDL. The SOP is currently in Agency clearance. The estimated date for completion
is November 19, 2021. Recommendation 4—the OFPO submitted documentation to close this recommendation to the OIG on August 23, 2021.
The estimated date for completion is November 19, 2021. Recommendation 5—the OFPO submitted to OIG for final closure May 11, 2021. The
estimated date for completion is November 19, 2021. Recommendation 6—the transition of COVID EIDL to the OCA has delayed progress. The
estimated date for completion is November 19, 2021. Recommendation 7—SBA received an exemption from the mandatory notice and transfer
provisions and a suspension of debt collection until December 31, 2021, from the Department of Treasury. After this suspension expires, the SBA
will review loans currently assigned to the Center, and designated as exempt, the Agency will verify obligors’ exempt status and transfer debts
to Treasury Cross-Servicing as appropriate. The estimated date for completion is November 19, 2021. Recommendation 8—the OFPO submitted
1824 to OIG for final closure May 11, 2021. The estimated date for completion is November 19, 2021. Recommendation 9—the OFPO will issue
an internal memorandum to the Center reinforcing the requirements of workout agreements to ensure compliance with the Debt Collection
Improvement Act. The estimated date for completion is November 19, 2021. Recommendation 10—the transition of COVID EIDL to the OCA has
delayed progress. The estimated date for completion is November 19, 2021.

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Acknowledgments
This Agency Financial Report was produced with the energies
and talents of the SBA staff. To all these dedicated individuals
listed below, and those not listed, the Office of Performance,
Planning, and the Chief Financial Officer would like to offer
sincere thanks and acknowledgment.
Melissa Atwood

Terri Luebs

Anne Barnes

Maureen Moore-Vellucci

Rachel Beasley

Christine O’Neill

Dorothy Bell

Mathew Pascarella

Rory Berges

Tony Paul

Brittany Borg

Andrea Peoples

Jason Bossie

Mike Peterson

Johnathan Brame

Janette Porter

Tonia Butler

Trevor Postlethwaite

Jeffrey Davis

Steve Ramey

Krzysztof Fizyta

Marjorie Rudinsky

Erica Gaddy

AnnMarie Schaef

Leslie Godsey

Michael Simmons

Kathleen Graber

Deron Smallwood

Blake Hoing

Scott Stilmar

Scott Holland

Zahid Syed

Angela Inmon

Yvonne Walters

Natalie Kiser

Lucine Willis

Emily Knickerbocker

Hellen Wong

We would also like to acknowledge the Office of Inspector General
and KPMG LLP for their professionalism while conducting the
audit of the Fiscal Year 2021 Financial Statements. We offer our
special thanks to Schatz Publishing Group and Omnidigital
Studio, Inc. for contributions in producing this report.

Office of Performance, Planning,
and the Chief Financial Officer
409 Third Street, S.W. Washington, DC 20416

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