Audit of SBA’s Suspension and Debarment Process
Archived source: SBA OIG Report 19 18 Pdf 5664bb6bb41050a3. Captured from www.sba.gov.
Cited in: John W. Klein · Martin "Sparky" Conrey
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AUDIT REPORT
AUDIT OF SBA’S
SUSPENSION AND DEBARMENT PROCESS
SEPTEMBER 18, 2019 REPORT NUMBER 19-18
EXECUTIVE SUMMARY Report No.
19-18
AUDIT OF SBA’S SUSPENSION AND DEBARMENT September
18, 2019
PROCESS
What OIG Reviewed they circumvented federal contracting rules to gain
access to the 8(a) Business Development Program.
Suspension and debarment actions are designed to
protect the federal government from potential Also, by not documenting the basis of their
harm posed by individuals or entities who declinations of suspension or debarment referrals,
demonstrate a lack of business integrity. Entities including explanation for declinations, SDOs could
suspended, debarred, declared ineligible, or expose SBA to adverse legal action. We identified
otherwise excluded from participating in four cases involving an entity who used a qualified
government programs are maintained in the 8(a) participant to act as a passthrough to obtain
System for Award Management (SAM). Our audit an 8(a) contract. However, despite a state court
objective was to determine whether the Small finding of misrepresentation, the SDO decided not
Business Administration (SBA) had sufficient to suspend or debar the entities and did not
controls in place to prevent suspended or debarred document the basis of the decision. Finally, SDO’s
entities from receiving federal contracts through inaction affected the federal government’s ability
SBA’s preference contracting programs and small to collect a $100,000 settlement in monetary
business loans. To accomplish our objective, we penalties. In February 2019, OIG referred to the
analyzed contracts, grants, and loan data to SDO an entity and an individual who were
determine whether suspended or debarred entities negotiating a civil settlement with the federal
participated in SBA programs. We also reviewed government and had agreed to pay $100,000 to
loan files to determine whether lending partners resolve the allegations. The SDO had until the end
maintained evidence to support a review of SAM of March 2019 to assess whether an administrative
prior to approving SBA-guaranteed loans. Lastly, agreement was appropriate. However, in May
we reviewed 223 cases referred to SBA’s 2019, the United States Attorney’s Office (USAO)
suspending and debarring officials (SDOs) from informed OIG that the SDO had neither made nor
December 2012 to September 2018. communicated the status of that assessment. The
USAO closed the matter due to SBA’s inaction.
What OIG Found
SBA has not established sufficient controls over its OIG Recommendations
suspension and debarment process to prevent We made six recommendations to improve the
ineligible individuals or entities from participating oversight and management of SBA’s suspension
in small business programs or to control the risk and debarment program to prevent ineligible
presented by potentially irresponsible entities entities from participating in SBA’s contracting and
participating in federal government programs. loan programs.
Specifically, an entity convicted of a Clean Water
Act violation and included on the exclusion list
Agency Response
received an SBA 7(a) loan valued at $2.9 million.
Also, lending partners did not always review SAM SBA management agreed with two of the six
to verify the eligibility of entities to participate in recommendations and partially agreed with the
SBA’s loan programs prior to approving SBA- other four recommendations. Management‘s
guaranteed loans valued at $3.8 million nor did planned actions resolved three recommendations.
they maintain evidence to support they had Management plans to revise and finalize internal
reviewed the system. In addition, SDOs’ delayed suspension and debarment policies, review the
action to process referrals for debarment resulted appropriateness of rescinding the loan guaranty,
in $80.3 million in contract awards to entities who dedicate resources to monitor and process
demonstrated causes for debarment. We identified referrals, and improve the tracking system. We did
15 referrals for suspension and debarment that not reach resolution on recommendations 2, 3, and
had been pending review without action by SDOs 6. While SBA agreed or partially agreed with the
for an average of 620 days. During that time, three recommendations, the proposed actions did
federal agencies awarded contracts to three not fully address the recommendations.
entities that were referred for debarment because
U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
WASHINGTON, D.C. 20416
Final Report Transmittal
Report Number: 19-18
DATE: September 18, 2019
TO: Christopher M. Pilkerton
Acting Administrator and General Counsel
FROM: Hannibal “Mike” Ware
Inspector General
SUBJECT: Audit of SBA’s Suspension and Debarment Process
This report presents the results of our audit on the Small Business Administration’s suspension and
debarment process. We considered management comments on the draft of this report when
preparing the final report. Management partially agreed to address all six recommendations
identified in the report.
We appreciate the courtesies and cooperation extended to us during this audit. If you have any
questions, please contact me at (202) 205-6586 or Andrea Deadwyler, Assistant Inspector General
for Audits, at (202) 205-6616.
cc: Robb N. Wong, Associate Administrator, Office of Government Contracting
and Business Development
William Manger, Associate Administrator, Office of Capital Access
Susan Streich, Director of Credit Risk Management Office of Capital Access
John Klein, Attorney Advisor, Office of General Counsel
Martin Conrey, Attorney Advisor, Legislation and Appropriations
Kyong Chae, Internal Control Analyst, Office of Internal Controls
Table of Contents
Introduction ............................................................................................................................................................................... 1
Prior Work ............................................................................................................................................................................. 2
Objective ................................................................................................................................................................................. 2
Finding 1: SBA Lending Partners Approved $6.7 Million in Loans to Entities Without Reviewing the
System for Award Management ........................................................................................................................................ 3
An SBA Lending Partner Disbursed a $2.9 Million Loan to an Entity Convicted of a Clean Water
Act Violation.......................................................................................................................................................................... 3
Lending Partners Did Not Always Verify the Eligibility of Entities Before Approving SBA-
Guaranteed Loans Valued at $3.8 Million ................................................................................................................. 4
Finding 2: Suspending and Debarring Officials’ Delayed Action Resulted in $80.3 Million in
Contracts to Entities Who Demonstrated Causes for Debarment ....................................................................... 5
Suspending and Debarring Officials Did Not Timely Update the System for Award Management .. 5
Present Responsibility Referrals Were Pending Review for an Average of 620 Days ........................... 5
Finding 3: Failure to Document Suspension and Debarment Decisions Could Expose SBA to Legal
Action............................................................................................................................................................................................ 8
Other Matters: SBA’s Inaction Impacted the Government’s Ability to Collect a $100,000 Settlement 9
Analysis of Agency Response............................................................................................................................................ 10
Summary of Actions Necessary to Close the Recommendations .................................................................. 10
Response to Agency’s Comments on the Audit Findings.................................................................................. 11
Appendix I: Objective, Scope, and Methodology ....................................................................................................... 13
Use of Computer-Processed Data............................................................................................................................... 13
Review of Internal Controls.......................................................................................................................................... 13
Appendix II: Questioned Costs ......................................................................................................................................... 14
Appendix III: Agency Comments ..................................................................................................................................... 15
Introduction
Suspension and debarment are tools designed to protect the federal government from potential
harm posed by individuals or business entities whose conduct indicates a lack of honesty, integrity,
or poor performance. Suspension is an action taken by a federal agency to immediately prohibit a
recipient from participating in federal procurement and nonprocurement transactions for a
temporary period pending completion of an investigation or judicial or administrative proceeding. 1
Debarment is an action taken by a federal agency to prohibit a recipient from participating in
procurement and nonprocurement transactions. The System for Award Management (SAM)
maintains entities activities involving contracts, grants, past performance reporting and suspension
and debarment.
The federal government has two sets of regulations that control suspension and debarment
matters. These regulations are similar, but not identical. Exclusions under either set of regulations
have the same general, governmentwide effect.
The Federal Acquisition Regulation (FAR) establishes procedures related to procurement matters.
According to the FAR, agencies shall create appropriate procedures to implement the debarment,
suspension, and ineligibility procedures. The FAR also requires contracting officers to review SAM,
after receiving contractors’ bids or proposals and prior to awarding contracts. Contractors
debarred, suspended, or proposed for debarment are excluded from receiving contracts, and
agencies shall not solicit offers from, award contracts to, or consent to subcontracts with these
contractors, unless the agency head determines that there is a compelling reason for such action.
Contractors debarred, suspended, or proposed for debarment are also excluded from conducting
business with the government as agents or representatives of other contractors.
The Nonprocurement Common Rule refers to the procedures used by federal executive agencies to
suspend, debar, or exclude individuals or entities from participation in nonprocurement
transactions. Some examples of nonprocurement transactions include grants, loans, and loan
guarantees. Entities suspended or debarred are prohibited from receiving contracts, grants, and
loans unless the agency head determines that there is a compelling reason for such action.
Section 4 of Executive Order 12549 on debarment and suspension directed the establishment of the
Interagency Suspension and Debarment Committee (ISDC) to monitor implementation of the
Order. 2 This Order mandates Executive departments and agencies to do the following:
• Participate in a governmentwide system for debarment and suspension from programs and
activities involving federal financial and nonfinancial assistance and benefits.
• Issue regulations with governmentwide criteria and minimum due process procedures
when debarring or suspending participants.
• Enter debarred and suspended participants’ identifying information in the system that
evolved into the General Services Administration Excluded Parties List System, now
included in SAM. Agencies issuing the suspension or debarment are responsible for
information placed on SAM.
1 Recipient means any individual, corporation, partnership, association, unit of government (except a federal agency), or
legal entity, however organized, that receives an award directly from a federal agency.
2 Executive Order 12549 (February 18, 1986).
1
The ISDC reports to Congress annually on the status of the federal suspension and debarment
system, pursuant to section 873 of Public Law 110-417. 3 ISDC must submit to Congress an annual
report on the
• progress and efforts to improve the suspension and debarment system,
• member agencies’ active participation in the committee’s work, and
• a summary of each agency’s activities and accomplishments in the governmentwide
debarment system.
In FY 2017, federal agencies awarded over $105 billion to small businesses through small business
prime contracting. In addition, SBA managed small business loan guaranties and a direct loan
portfolio valued at nearly $132 billion. SBA designated two suspending and debarring officials
(SDOs) to process suspension and debarment referrals.
Prior Work
GAO 14-513, Federal Grants and Contracts: Agencies Have Taken Steps to Improve Suspension and
Debarment Process (May 21, 2014). GAO was asked to review actions taken to implement the
recommendations in a report issued in August 2011. 4 This report examined (1) actions taken by six
agencies to incorporate characteristics of active suspension and debarment programs; 5 (2) changes
in the level of suspension and debarment activity; and (3) actions taken to improve oversight and
governmentwide efforts. GAO found that agencies took action to incorporate characteristics
associated with active suspension and debarment programs. Also, suspension and debarment
activity at agencies had increased. In addition, the Office of Management and Budget and the ISDC 6
had acted to strengthen governmentwide suspension and debarment efforts.
Objective
Our audit objective was to determine whether SBA had sufficient controls in place to prevent
suspended or debarred entities from receiving federal contracts through SBA’s preference
contracting programs and small business loans.
3 Public Law 110-417.
4 GAO 11-739, Suspension and Debarment: Some Agency Programs Need Greater Attention, and Governmentwide
Oversight Could Be Improved (August 31, 2011).
5 SBA was not one of the six agencies included in the GAO report.
6 ISDC’s mission is to help agencies build and maintain the expertise necessary to manage effective suspension and
debarment programs.
2
Finding 1: SBA Lending Partners Approved $6.7 Million in Loans to
Entities Without Reviewing the System for Award Management
SBA has not established sufficient controls over its suspension and debarment process to prevent
ineligible individuals or entities from participating in small business programs. Specifically, an
entity convicted of a Clean Water Act violation and included on the excluded parties list in SAM
received a loan valued at $2.9 million. SBA’s standard operating procedure (SOP) states that
individuals and entities suspended, debarred, revoked, or otherwise excluded under SBA or
governmentwide debarment regulations are not permitted to conduct business with SBA. 7 We
examined 14 additional loan files and found that 11 files did not have documentation to support
that lending partners reviewed SAM for exclusions prior to loan approval. For two loans, the
lending partners reviewed SAM after the loans were approved. According to an SBA official, lenders
routinely retained and provided a printout of SAM to SBA representatives responsible for verifying
a review of the system during the lender review process. However, the SOP does not explicitly
require lenders to review SAM to determine whether potential borrowers are suspended, debarred,
or otherwise excluded, or to document their review. As a result, SBA does not have assurance that
lenders consistently verify the present responsibility of entities participating in SBA loan programs.
An SBA Lending Partner Disbursed a $2.9 Million Loan to an Entity Convicted of a Clean
Water Act Violation
During the loan review process, an entity falsely certified that neither it nor its principals were
presently debarred, suspended, declared ineligible, or otherwise excluded from participation in the
SBA loan program by any federal department or agency. However, the entity was convicted of a
Clean Water Act violation and listed on the exclusion list.
The Clean Water Act 8 forbids federal agencies from entering into any contract, loan, or benefit to
any person or company who
• has been convicted of an offense under the Clean Water Act;
• intends to use the place where or from which the offense happened for the contract, loan, or
benefit; and
• owns, leases, or supervises the facility where or from which the offense occurred at the time
when a decision about the contract, loan, or benefit is made.
We determined that all three conditions of the Clean Water Act exclusion were present at the time
of the loan approval and the entity was ineligible to receive the loan. Specifically,
• according to SAM, the entity was convicted of the Clean Water Act violation on July 30,
2012;
• the entity’s address in SAM was identical to the address submitted in the loan file; and
• at the time of loan approval, the entity owned, leased, or supervised the violating facility.
In addition, according to the Nonprocurement Common Rule, a federal agency official may not enter
into a covered transaction with an excluded person without an exception or waiver. 9 Also, a federal
agency official must check if a person is excluded or disqualified before entering or approving
7 SOP 50 10 5 (J), Lender and Development Company Loan Programs, effective January 1, 2018.
8 33 U.S.C. § 1251, et seq.
9 2 CFR § 180.400
3
others to enter into covered transactions. 10According to the lending partner, during the
underwriting process there was no mention or reference to [reviewing] the entity’s name [in] SAM
to confirm the prospective borrower‘s status. As a result, the lending partner disbursed a
$2.9 million SBA-guaranteed loan to an ineligible entity. SBA’s loan portfolio is valued at nearly
$132 billion. In addition, SBA guarantees up to 85 percent of 7(a) loans; therefore, lending partners
must exercise due diligence to ensure the eligibility of entities participating in SBA loan programs.
Because the lender disbursed a loan to an ineligible entity, we consider the $2.9 million as
questioned costs. 11 We referred the entity to the OIG Investigations Division for further review and
provided the lender’s information to the SBA SDO.
Lending Partners Did Not Always Verify the Eligibility of Entities Before Approving SBA-
Guaranteed Loans Valued at $3.8 Million
According to an SBA official, lenders routinely retained and provided a printout of SAM to SBA
representatives responsible for verifying a review of the system during the lender review process.
However, we determined that lenders did not always maintain documentation to support their
review of SAM for the additional 14 loan files we reviewed. Three files showed sufficient evidence
of review; however, for two of the loans, lenders generated a screen print of their SAM search
results after the loan approvals. The remaining nine lenders did not include any evidence to
support a review of the system. The 11 loan files that did not have evidence of a review of SAM
totaled $3.8 million.
The SOP states that individuals and entities suspended, debarred, revoked, or otherwise excluded
under SBA or governmentwide debarment regulations are not permitted to conduct business with
SBA. However, the SOP does not explicitly require lenders to review SAM to determine whether
potential borrowers are suspended, debarred, or otherwise excluded, or to document their review.
Therefore, SBA officials do not have assurance that lenders consistently verify the present
responsibility of entities participating in SBA loan programs.
Recommendations
We recommend that the Administrator require the Associate Administrator for the Office of Capital
Access to:
1. Update SOP 50 10 5 (J) to include an express requirement for lending partners to review the
System for Award Management for applicants’ and borrowers’ eligibility and to maintain
documentation in the loan file to support their review.
2. Rescind the SBA loan guaranty for the $2.9 million loan and assess the lender’s eligibility for
continued participation in the SBA lending program.
10 2 CFR §§ 180.425 and 180.430.
11 A cost that is questioned because of an alleged violation of a provision of a law, regulation, contract, grant, cooperative
agreement, or other agreement or document governing the expenditure of funds.
4
Finding 2: Suspending and Debarring Officials’ Delayed Action Resulted
in $80.3 Million in Contracts to Entities Who Demonstrated Causes for
Debarment
SDOs did not always timely update SAM to ensure that only responsible individuals or entities
participated in SBA small business contracting and loan programs or promptly address present
responsibility referrals. In 2011, OMB directed agencies to maintain effective internal controls and
tracking capabilities; 12 however, SBA officials did not establish procedures to outline their internal
suspension and debarment referral processes as required by the procurement and
nonprocurement regulations and did not follow OMB directives to develop a tracking system to
effectively monitor referrals. Consequently, SBA SDOs, by not promptly addressing suspension and
debarment referrals, exposed the federal government to potential harm from individuals or
business entities who lacked present responsibility.
Suspending and Debarring Officials Did Not Timely Update the System for Award
Management
We identified two cases involving debarred entities where the SDO did not update SAM timely after
closing the official record. According to the SDO, the referenced entities were debarred on
November 30, 2018. However, the SDO did not update SAM until December 6, 2018. As a result of
the delay to update SAM, other federal agencies would not have been aware of the entities’
debarment status and could have awarded contracts and grants or approved loans to the debarred
entities. According to the Nonprocurement regulations, the SDO must update SAM within
3 business days after agreeing with or declining a proposal to debar an entity. 13
Present Responsibility Referrals Were Pending Review for an Average of 620 Days
We analyzed 223 cases referred to the SDOs from December 2012 to September 2018 and
determined 15 cases remained open and had been pending action for an average of 620 days as of
March 8, 2019. 14 During that time, federal agencies awarded $80.3 million in contracts to three of
the entities involved in these cases.
• One entity, which was pending review for 604 days, was referred for soliciting an
8(a) program participant to act as a passthrough to gain access to the 8(a) program. As of
March 8, 2019, the entity received $1.8 million in contract awards from other federal
agencies.
• A second entity, which was pending review for 556 days, was referred for making false
certifications regarding its size to gain access to 8(a) contracts. After the SDO received the
referral, the entity received $40.8 million in contract awards from federal agencies as of
March 8, 2019. The Department of the Army subsequently assumed responsibility for the
case after SBA received the referral. On May 22, 2019, the Department of the Army
suspended the entity.
12 OMB Memorandum M-12-02 (November 15, 2011).
13 2 CFR §180.520(c), Nonprocurement Common Rule.
14 These cases have been pending review with the procurement SDO between 162 to 1568 days.
5
• A third entity, which was pending review for 396 days, was referred for misrepresenting
the nature of its withdrawals in response to the SBA’s Early Graduation proceedings from
the 8(a) program. As a result of the entity’s misrepresentation, the firm remained in the
8(a) program, to the detriment of other program beneficiaries. As of March 8, 2019, the
entity received $37.7 million in federal contract awards.
During the exit conference, SBA officials stated that for two cases, they declined to suspend or debar
the referred entities. For the other case, SBA officials said that they declined the referral, but later
stated that they had deferred action on the referral because they found the information
accompanying the referral to be insufficient and was waiting for the completion of an ongoing
investigation. However, prior to the exit conference, SBA officials had not conveyed their decisions
or concerns to OIG. In addition, twice a year, OIG requests information from the SDOs in
preparation for OIG’s semiannual reports, which include the Agency’s present responsibility
activities, including any declined referrals. The SDOs reported zero declinations from April 1, 2017,
to September 30, 2018. Further, SBA submits information concerning its SDO actions to the ISDC for
the annual report to Congress required by section 873 of Public Law 110-417. SBA did not report
any declinations to the ISDC for the 2017 and 2018 reports to Congress.
According to the FAR, agencies shall establish appropriate procedures to implement suspension
and debarment policies. 15 Further, according to the OMB Memorandum 12-02, agencies shall
ensure that they maintain effective internal controls and tracking capabilities, taking into
consideration the agency‘s mission, organizational structure, and level of procurement activities. 16
Also, the ISDC reports to Congress annually on the status of the federal government’s suspension
and debarment system. The report describes governmentwide progress in improving the
suspension and debarment process and provides a summary of each agency’s suspension and
debarment activities.
SBA officials had not established official procedures to define their suspension and debarment
referral processes and did not develop a tracking system. According to an SBA official, due to
limited resources, referred cases were prioritized based on immediate risk to SBA’s programs.
However, the SBA official needed to take into consideration the governmentwide risk. As a result,
other federal agencies awarded $80.3 million in contracts to three entities who circumvented the
requirements to gain access to the 8(a) program. Because the three entities did not follow the 8(a)
program requirements, we questioned the value of the contracts awarded to the entities. 17
Management Action
During the audit, both SBA officials took corrective action to develop and implement tracking
mechanisms to monitor referrals. In addition, SBA officials developed and provided the OIG their
internal policies; however, the policies need to be finalized.
15 FAR § 9.402(e).
16 OMB Memorandum M-12-02 (November 15, 2011).
17 A cost that is questioned because of an alleged violation of a provision of a law, regulation, contract, grant, cooperative
agreement, or other agreement or document governing the expenditure of funds.
6
Recommendations
We recommend that the Administrator require the suspending and debarring officials to:
3. Finalize internal suspension and debarment policies and include guidelines for timely
processing of referrals and updating the System for Award Management.
4. Dedicate resources to monitor and process suspension and debarment referrals.
5. Establish and implement controls to ensure the accuracy of reporting on suspension and
debarment actions to OIG, Interagency Suspension and Debarment Committee, and
Congress.
7
Finding 3: Failure to Document Suspension and Debarment Decisions
Could Expose SBA to Legal Action
We identified four cases based on civil judgment that the SDO decided not to suspend or debar but
did not document the basis of the decision. The SDO told us that there was no requirement to
document the declination decision. According to the FAR, agencies shall establish procedures
governing the debarment decision making process that are consistent with principles of
fundamental fairness. 18
Furthermore, according to the Nonprocurement regulations, an indictment, conviction, civil
judgment, or other official findings by federal, state, or local bodies that determine factual or legal
matters, constitutes adequate evidence for purpose of suspension actions. 19 In instances where the
SDO decides not to suspend an entity in the face of an indictment or civil judgment, the SDO should
document the basis of the decision. If SBA SDOs cannot demonstrate consistent application of
procedures in their decisions, SBA could be exposed to legal actions by entities who believe they are
arbitrarily suspended and debarred.
Management Action
During the audit, on April 4, 2019, the SDO instructed the personnel under his purview to document
their declination decisions; however, to ensure continuity and consistency in the process, the
instructions need to be included in an official policy.
Recommendation
We recommend that the Administrator require the suspending and debarring officials to:
6. Establish and implement formal policy requiring SBA suspending and debarring officials to
document and retain their declination decisions.
18 FAR Subpart 9.406-3, Procedures.
19 2 CFR § 180.705(b), Nonprocurement Common Rule.
8
Other Matters: SBA’s Inaction Impacted the Government’s Ability to
Collect a $100,000 Settlement
On February 6, 2019, OIG referred to the SDO an entity and an individual that had agreed to pay the
federal government a settlement of $100,000 pending the execution of an administrative agreement
by SBA. The entity and the individual allegedly made false statements to gain access to the 8(a)
program. According to the United States Attorney’s Office (USAO), the parties were prepared to end
negotiations if SBA did not take action to process the administrative agreement and concur with the
settlement. On March 19, 2019, OIG informed the SDO that according to the USAO, unless SBA took
action to process the administrative agreement by March 31, 2019, the USAO would drop the
settlement. On May 20, 2019, the USAO informed OIG that the SDO did not act. Consequently, the
USAO closed the case and declined taking further action.
The suspension and debarment process is intended to protect the federal government from fraud,
waste, and abuse by using several tools to avoid doing business with non-responsible entities.
Suspensions, proposals for debarment, and debarments are the most widely known tools as these
actions are visible to the public through SAM. To increase accountability and ensure consistency in
the governmentwide suspension and debarment program, it is essential for SBA suspending and
debarring officials to take prompt action to process referrals and effectively coordinate with other
agencies.
9
Analysis of Agency Response
SBA management provided formal comments, which are included in their entirety in appendix III.
SBA management agreed with recommendations 1 and 6 and partially agreed with
recommendations 2, 3, 4, and 5. Management’s proposed corrective actions resolved
recommendations 1, 4, and 5; however, their proposed corrective actions for recommendations 2,
3, and 6 did not fully address the recommendations. In accordance with our audit followup policy,
we will attempt to reach agreement with SBA management on the unresolved recommendations
within 60 days after the date of this final report. If we do not reach agreement, OIG will notify the
audit followup official of the disputed issues. SBA management also provided comments on the
audit findings that we considered in preparing our final report.
Summary of Actions Necessary to Close the Recommendations
The following provides the status of the recommendations and the necessary actions to close them.
1. Resolved. SBA management agreed with our recommendation, stating that it will update
the SOP 50 10 5 (J) to include a requirement for lending partners to review SAM for
applicants’ and borrowers’ eligibility and to maintain documentation in the loan file to
support their review. Management plans to complete final action on this recommendation
by January 31, 2020. This recommendation can be closed once management provides
evidence that it has updated the SOP to include the recommended changes.
2. Unresolved. SBA management partially agreed with our recommendation, stating that it
will work with the lender to gather additional documentation to determine if it is
appropriate to rescind the loan guaranty for the $2.9 million loan. Management plans to
complete final action on this recommendation by January 31, 2020. Management’s response
did not address the part of the recommendation pertaining to assessing the lender’s
eligibility for continued participation in the SBA lending program. This recommendation
can be closed when management provides evidence that it completed its review to
determine whether to rescind the loan guaranty and when management provides evidence
that it assessed the lender’s eligibility to continue participation in the SBA lending program.
3. Unresolved. SBA management partially agreed with our recommendation.
SBA agreed with our recommendation relative to the Suspension and Debarment Official for
All Other Programs (SDO-AOP), stating that the SDO-AOP will finalize their internal
suspension and debarment policies. Management also stated that the SDO-AOP will revise
their SOP to address timely processing of referrals and updating SAM.
However, SBA disagreed with our recommendation relative to the Suspension and
Debarment Official for Financial Assistance Programs (SDO-FAP), stating that the SDO-FAP
already had sufficient policies and tracking mechanisms in place, including guidelines for
timely processing of referrals and updating SAM. In addition, the SDO-FAP stated that they
had revised and approved their suspension and debarment desk manual on August 2, 2019,
to include adding the 3 business-day timeframe requirement in 2 CFR 180.520, and
provided a copy to OIG. The desk manual that SDO-FAP provided, however, did not include
an effective date or signature. SBA management also did not agree with the $80.3 million in
questioned costs but did not provide an explanation.
10
Management plans to complete final action on this recommendation by January 31, 2020.
This recommendation can be closed when management provides evidence that the SDO-
AOP and the SDO-FAP finalized their internal suspension and debarment policies. In
addition, management must demonstrate how the associated entities that were awarded
the $80.3 million through the 8(a) program were eligible to receive those contracts.
4. Resolved. SBA management partially agreed with our recommendation, stating that the
SDO-AOP had added a new paralegal to oversee many suspension and debarment functions
and procedures. Management also stated that the SDO-FAP has dedicated resources already
in place to monitor and process suspension and debarment referrals and did not need
additional resources. Management plans to complete final action on this recommendation
by October 31, 2019. This recommendation can be closed once management provides
evidence that SDO-AOP hired a new paralegal whose duties include monitoring and
processing suspension and debarment.
5. Resolved. SBA management partially agreed with our recommendation. Management
stated that the SDO-AOP already developed and deployed a new tracking system and will
continue to make improvements to the system. In addition, SDO-AOP stated that the new
procedures they will implement should lead to more timely and more accurate reports. The
SDO-FAP stated that while OIG did not raise concerns with their accuracy of reporting on
suspension and debarment during the audit, they will submit an annual status report of the
suspension and debarment actions directly to ISDC. Management plans to complete final
action on this recommendation by January 31, 2020. This recommendation can be closed
once management provides evidence that the SDO-AOP implemented the new procedures.
6. Unresolved. SBA management agreed with our recommendation. The SDO-AOP stated that
they sent a formal memo to staff implementing the policy to document and retain
declination decisions and it will add this requirement their updated SOP. The SDO-FAP
stated they revised their desk manual to require documentation and retention of the
declination decisions effective August 2, 2019. However, the desk manual that the SDO-FAP
provided to OIG did not include an effective date or signature. Management plans to
complete final action on this recommendation by January 31, 2020. This recommendation
can be closed once management provides evidence that the SDO-AOP updated and finalized
the SOP. In addition, SBA must provide a copy of the SDO-FAP desk manual that includes a
signature and effective date.
Response to Agency’s Comments on the Audit Findings
The following provides our response to the Agency’s comments detailed in appendix III.
1. Inaccurate depiction of the facts
SBA believes that the statement on page 5 of the draft audit report that “SBA’s SDOs, by not
promptly addressing suspension and debarment referrals, exposed the federal government to
potential harm from individuals or business entities who lacked present responsibility” is an
inaccurate depiction of the facts. SBA management asserted that they promptly concluded that the
referrals did not substantiate the imposition of an exclusionary action. SBA also contended that it
held the cases open awaiting additional facts that might warrant a debarment or suspension action
but did not receive additional evidence. Further, SBA management took exception with the title of
finding 2 asserting that it was not any “delayed action” that caused harm, and it disagrees that the
11
referrals “demonstrated causes for debarment.” SBA concluded that the referrals from OIG did not
adequately support debarment or suspension.
As previously stated in the report, until the exit conference, OIG had no knowledge of the SDO-
AOP’s deferrals or expectation of additional evidence to supplement OIG’s referrals. 20 The OIG had
sent several followup emails to the SDO-AOP’s office regarding the open cases and was told the
cases were under consideration. Further, based on SBA’s written comments on the draft report,
because OIG had no record or recollection of a request for additional evidence on those referrals,
we sought clarification from the SDO-AOP. We asked the SDO-AOP to specify when and from whom
his office requested any additional evidence in support of the referrals. The SDO-AOP responded
that his office did not specifically request additional evidence from OIG, but leaving the cases open
implicitly informed OIG the SDO-AOP’s office hoped for additional information at some point. OIG
does not view this expectation as reasonable given the fact that the SDO-AOP’s office repeatedly
told OIG the cases were under consideration whenever OIG requested status updates.
2. Other matters
SBA management asserted that the issue raised in the “Other Matters” section is inappropriate
because the alleged settlement is outside the scope of the audit. It noted that the draft audit report
specifies that our audit covered the period of December 2012 to September 2018 and that the
action discussed occurred in February 2019. The OIG conducted this audit from November 2018 to
June 2019, in accordance with generally accepted government auditing standards. Although this
action was outside the original scope of the audit, it occurred during our fieldwork phase. We
deemed this action as a breach of SBA’s internal controls over the suspension and debarment
process and elected to report it.
20 OIG’s present responsibility referrals include a cover sheet containing pertinent background information and a draft
notice for action along with supporting evidence such as copies of indictments, convictions, civil judgments, and other
pertinent documents.
12
Appendix I: Objective, Scope, and Methodology
This report presents the results of our audit of SBA’s suspension and debarment process. Our
objective was to determine whether SBA has sufficient controls in place to prevent suspended or
debarred entities from receiving federal contracts through SBA’s preference contracting programs
and small business loans. To accomplish the audit objective, we:
• Obtained and reviewed SBA’s policies, procedures, and guidance pertaining to the
suspension and debarment process.
• Obtained and analyzed data from USASpending.gov, 21 Federal Procurement Data System-
Next Generation, 22 Capital Access Financial System (CAFS), 23 OIG Office of Counsel Referrals
Tracking System, and System for Award Management to determine whether ineligible
entities were participating in government programs.
• Obtained and reviewed loan files from SBA lending partners.
• Analyzed 223 procurement- and nonprocurement-related cases referred to the SDOs from
December 2012 to September 2018.
• Interviewed SBA suspending and debarring officials and members of the ISDC.
We conducted this audit from November 2018 to June 2019, in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objective.
Use of Computer-Processed Data
We relied on computer-processed data from USASpending.gov to obtain contracts, loans, and grants
awarded by SBA for FYs 2015–2018. We verified the accuracy of the information by using Thomson
Reuters CLEAR, 24 CAFS, and Federal Procurement Data System. We also verified the loan data by
comparing the loan information to the source documents obtained from the lending partners. Since
we were able to verify the USASpending.gov data in each system and were able to validate the loan
information to the source files, we considered the information sufficiently reliable for the purposes
of our audit.
Review of Internal Controls
SBA’s internal control systems SOP provides guidance on implementing and maintaining effective
internal control systems, as required by OMB Circular A-123. 25 OMB Circular A-123 provides
guidance to federal managers on improving the accountability and effectiveness of federal
programs and operations by establishing, assessing, correcting, and reporting on internal
controls. 26 Accordingly, we assessed internal controls and compliance with laws and regulations to
the extent necessary to satisfy the audit objective. Specifically, we interviewed SBA officials
responsible for oversight and management of the suspension and debarment process and reviewed
policies and procedures to understand the suspension and debarment process.
21 A government source for data on federal grants, contracts, loans, and other financial assistance.
22 The federal government’s primary repository for procurement data.
23 A web-based application suite encompassing several systems that support the loan accounting process.
24 A collection of public and proprietary records related to people, businesses, assets, and affiliations.
25 SOP 00 02, Internal Control Systems (January 1986).
26 OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control (July 15,
2016).
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Appendix II: Questioned Costs
OIG Schedule of Monetary Impact
Description Amount Explanation
Questioned Costs 27 $80,300,000 Federal agencies awarded contracts
to entities who demonstrated causes
for debarment because SBA’s SDOs
did not take prompt action to address
the referrals for proposed suspension
or debarment.
Questioned Costs $2,900,000 An SBA lender approved and
disbursed a loan to an ineligible
entity.
Total $83,200,000
Source: OIG analysis of suspension and debarment referrals, SAM, and Federal Procurement Data System – Next
Generation contract and loan data.
27 Costs questioned because of an alleged violation of a provision of a law, regulation, contract, grant cooperative
agreement, or other agreement or document governing the expenditure of funds.
14
Appendix III: Agency Comments
SBA RESPONSE TO AUDIT REPORT
15
DATE: September 10, 2019
TO: Hannibal “Mike” Ware
Inspector General, Office of Inspector General (OIG)
FROM: William M. Manger
Associate Administrator, Office of Capital Access (OCA)
Susan Streich
Suspension and Debarment Official for Financial Assistance Programs (SDO-
FAP), Office of Credit Risk Management, Office of Capital Access
John W. Klein
Suspension and Debarment Official for All Other Programs (SDO-AOP),
Office of General Counsel (OGC)
SUBJECT: SBA Response - Audit of SBA’s Suspension and Debarment Process, Project No.
19003
Thank you for the opportunity to respond to OIG’s Draft Report entitled, “SBA’s Suspension
and Debarment Process (Project Number 19003) dated July 8, 2019. OIG’s audit objective for
this report was to determine whether SBA had sufficient controls in place to prevent
suspended or debarred entities from receiving federal contracts through SBA’s preference
contracting programs and small business loans. The Agency disagrees with some of the
findings, analysis and conclusions found in the Audit Report.
For example, SBA believes that the statement on page 5 of the Audit Report that “SBA SDOs,
by not promptly addressing suspension and debarment referrals, exposed the federal
government to potential harm from individuals or business entities who lacked present
responsibility” is an inaccurate depiction of the facts. OIG believed that certain individuals or
entities lacked present responsibility. SBA’s SDO-AOP disagreed. The SDO-AOP promptly
concluded that the referrals did not substantiate the imposition of an exclusionary action.
The SDO-AOP held the case open awaiting additional facts that might warrant a debarment or
suspension action, but no additional facts were ever received. Moreover, the title of the
finding under which this statement appears is itself misleading. The title of Finding 2 on page
5 of the Report states that “Suspending and Debarring Officials’ Delayed Action Resulted in
$80.3 Million in Contracts to Entities Who Demonstrated Causes for Debarment.” (Emphasis
added). It was not any “delayed action” that caused harm, and SBA disagrees that the
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referrals “demonstrated causes for debarment.” Again, the SDO-AOP concluded that the
referrals from OIG did not adequately support debarment or suspension.
In addition, the section of the draft Audit Report referred to as “Other Matters” on page 9
raises an issue with regard to an alleged settlement that the SDO-AOP purportedly prevented.
SBA believes that the inclusion of this section in the draft Audit Report is inappropriate as
being outside the scope of the audit. The draft Audit Report specifies that its review covers
the period December 2012 to September 2018. The action discussed occurred in February
2019. It seems that recommendations pertaining to such action should be dealt with
separate and apart from this Audit Report.
The table below summarizes OCA’s and OGC’s clear responses on whether they agree or
disagree with the recommendations. {Note: The SDO-FAP is in OCA. The SDO-AOP is in OGC.}
Below the table are OCA’s and OGC’s responses to the recommendations with planned
corrective actions for each to include target dates for completion, where applicable.
Recommendation Program Agree/Disagree Program Agree/Disagree Final Action
Number Office Office Date
1 OCA Agree OGC N/A – applies 1/31/2020
only to OCA
2 OCA Partially Agree OGC N/A – applies 1/31/2020
only to OCA
3.1 OCA Disagree OGC Agree 1/31/2020
3.2 OCA Agree OGC Agree 1/31/2020
4-1 OCA N/A – Disagree OGC Agree 10/31/2019
5-1 OCA N/A – Disagree OGC Agree 1/31/2020
6-1 OCA Agree OGC Agree 1/31/2020
Recommendation 1 – SBA Agrees
Update SOP 50 10 5 (J) to include an express requirement for lending partners to review the
System for Award Management (SAM) for applicants’ and borrowers’ eligibility and to
maintain documentation in the loan file to support their review.
OCA/Office of Financial Assistance (OFA) Response - Agrees
OCA will include the recommended changes in SOP 50 10, when it is next amended.
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Recommendation 2 – SBA Partially Agrees
Rescind the SBA loan guaranty for the $2.9 million loan and assess the lender’s eligibility for
continued participation in the SBA lending program.
OCA Response – Partially Agrees
OCA will work with the lender to gather additional documentation to determine if it is
appropriate to rescind the guaranty for the identified loan.
Recommendation 3 – SBA Partially Agrees
3.1. Finalize internal suspension and debarment policies; and
3.2. Include guidelines for timely processing of referrals and updating the System for Award
Management.
SBA Response for Recommendation 3– Partially Agree
3.1. – Partially Agree. SBA agrees to finalize internal suspension policies applicable to
the All Other Programs suspension and debarment office (“SDO-AOP”); however, SBA
does not agree to finalize such policies for the Financial Assistance Programs
suspension and debarment office (“SDO-FAP”) because there are already sufficient
policies and tracking mechanisms in place for the SDO-FAP. SBA does not agree with
the $80.3 million amount shown as questioned costs in Appendix II.
3.2. - Agree. For the SDO-AOP, SBA will revise standard operating procedures to
address timely processing of referrals and SAS updates. The SDO-FAP has guidelines
for timely processing of referrals and updating the System for Award Management.
Attached is the updated Suspension and Debarment Desk Manual, which was
approved by the SDO-FAP on 8/02/2019. It includes the three business day timeframe
in 2 CFR 180.520.
Recommendation 4 – SBA Partially Agrees
Dedicate resources to monitor and process suspension and debarment referrals.
OCA Response - Disagree
The premise for Recommendation 4 is not accurate. The draft Audit Report states:
“SBA officials did not establish procedures to outline their internal suspension and
debarment referral processes as required by the procurement and non-procurement
18
regulations and did not follow OMB directives to develop a tracking system to
effectively monitor referrals.”
OCA has dedicated resources already in place to monitor and process suspension and
debarment referrals. Furthermore, during the audit, three members of OCA
completed the Interagency Suspension and Debarment Committee (ISDC)
recommended Suspension and Debarment Training provided by the Department of
Homeland Security.
OGC Response – Agree
The SDO-AOP has recently added a new paralegal to oversee many of the functions
and procedures recommended by OIG. As a result, we anticipate that communication
between the two offices will greatly improve.
Recommendation 5 – SBA Partially Agrees
Establish and implement controls to ensure the accuracy of reporting on suspension and
debarment actions to OIG, Interagency Suspension and Debarment Committee, and
Congress.
OCA Response - Disagree
Recommendation 5 does not appear to be relevant for OCA as a non-procurement
office. This issue was never raised with the non-procurement office during the audit.
OCA contends that it has sufficient controls in place to ensure the accuracy of
reporting on suspension and debarment actions to all required stakeholders. Based
on the Audit Exit Conference meeting, it does not appear that inaccuracies in reporting
is an issue that OIG has identified at OCA.
Henceforth, OCA will annually submit a status report of the suspension and
debarment system for financial assistance programs directly to ISDC, which will then
report to Congress on behalf of SBA (reporting required pursuant to Section 873 of
Public Law 110-417).
OGC Response - Agree
OGC has already developed and deployed a new tracking system, which has been
shared with OIG. OGC will continue to provide updates as the system is improved and
19
welcome any feedback from OIG on how to improve it. The office’s new procedures
will be treating referrals and cases differently going forward, especially those referrals
that are part of ongoing investigations. This should lead to few items being open for
long periods of time, thereby making accurate reporting timelier.
The basics of the new procedures will be that the SDO-AOP will evaluate all referrals
on the strength of the evidence provided and make a timely decision on next steps. If
it is decided that the information as presented does not warrant an exclusionary
action at that time, the SDO-AOP will issue a declination rather than wait for more
evidence to supplement the record. If new evidence does become available or can be
shared with the SDO-AOP, a new referral/case can be opened and the SDO-AOP will
consider the new evidence and make a new determination.
Recommendation 6 – SBA Agrees
Establish and implement formal policy requiring SBA suspending and debarring officials to
document and retain their declination decisions.
OCA Response - Agree
OCA Agrees. OCA has revised the Desk Manual effective August 2, 2019, to reflect this
new requirement.
OGC Response - Agree
SBA agrees. The SDO-AOP has already sent a formal memo to staff implementing the
policy. The office will also be adding this requirement to the updated SOP.
Changing the policy to immediately decline a referral that does not present a sufficient
basis to initiate an exclusionary action (instead of keeping a case open and allowing
additional information to be gathered to support an exclusionary action) will
eliminate the disconnect between the OIG tracking a case as 'pending' for an
indefinite period of time, and giving the impression that no action has been or is being
taken, and SBA believing that it is taking appropriate actions regarding the case.
Attachment:
SBA Forms 1824 for Recommendations 1, 2, 3, 4, 5 and 6.
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