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Office of Inspector General
Small Business Administration
Semiannual Report to Congress
Spring 2014
October 1, 2013-March 31, 2014
Small Business Administration
Office of Inspector General
Washington, DC 20416
I am pleased to present the U.S. Small Business Administration (SBA or Agency) Office of Inspector Gen-
eral’s (OIG) Spring 2014 Semiannual Report to Congress. The report provides a summary of the OIG’s ac-
tivities from October 1, 2013—March 31, 2014. The OIG continues to focus on the most critical risks facing
the SBA. Our resources are directed at key SBA programs and operations, to include financial assistance,
government contracting and business development, financial management and information technology,
disaster assistance, Agency management challenges, and security operations.
During this reporting period, the OIG issued 9 reports containing 60 recommendations for improving SBA
operations and reducing fraud and unnecessary losses in the Agency’s programs. In addition, OIG investi-
gations resulted in 52 indictments and 40 convictions, and 20 recommendations for suspension and/or
debarment. Overall, the OIG achieved monetary recoveries and savings of $124,190,903 from recommen-
dations that funds be put to better use agreed to by management; disallowed costs agreed to by manage-
ment; court-ordered and other investigative recoveries, fines, and forfeitures; and loans or contracts not
made as a result of investigations and name checks.
In accordance with the Reports Consolidation Act of 2000, the OIG released its Report on the Most Seri-
ous Management and Performance Challenges Facing the Small Business Administration in FY 2014 in Oc-
tober 2013. This report represents our current assessment of Agency programs and/or activities that pose
significant risks, including those that are particularly vulnerable to fraud, waste, error, mismanagement, or
inefficiencies. Our report is based on specific OIG, Government Accountability Office, and other official
reports, as well as our general knowledge of SBA’s programs and operations.
We found the Agency made improvements across six of the challenges in FY 2013. For one recommended
action under management challenge #2—Weaknesses in Information Systems Security Controls Pose Sig-
nificant Risks to the Agency, the lack of corrective action resulted in a reduction in status—from Orange
(i.e., Limited Progress) to Red (i.e., No Progress). Overall, the effort made by Agency staff and leadership
throughout FY 2013 on most of the recommended actions demonstrated commitment to improving pro-
grams and operations.
I would like to thank the OIG’s employees for their outstanding efforts to promote economy, efficiency,
effectiveness, and integrity in SBA programs and operations. We welcome Administrator Maria Contreras
-Sweet to the SBA and look forward to working with her and SBA’s management to address the issues and
challenges facing the Agency.
/s/
Peggy E. Gustafson
Inspector General
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Table of Contents
Overview of the SBA and the OIG ........................................................................................ ...1
Management Challenges ...................................................................................................... ...2
Small Business Access to Capital ......................................................................................... ...3
Disaster Loan Program ........................................................................................................... 10
Procurement Assistance ........................................................................................................ .13
Agency Management ............................................................................................................. 20
Other Significant OIG Activities ........................................................................................... 22
Statistical Highlights: October 1, 2013-March 31, 2014 ....................................................... .25
Appendix I: OIG Reports Issued October 1, 2013-March 31, 2014 ....................................... 28
Appendix II: OIG Reports with Questioned Costs ............................................................. 30
Appendix III: OIG Reports with Recommendations that Funds Be Put to Better Use ..... 31
Appendix IV: OIG Reports with Non-Monetary Recommendations ................................ 32
Appendix V: Reports from Prior Periods with Overdue Management Decisions .............33
Appendix VI: Reports Without Final Action as of March 31, 2014 ..................................... 34
Appendix VII: Summary of Significant Recommendations from Prior Reporting
Periods Without Final Action of as March 31, 2014 ............................................................ 49
Appendix VIII: Summary of Significant Recommendations
October 1, 2013-March 31, 2014……………………………………………………….………………………………..56
Appendix IX: Cosponsored and Other Activities October 1, 2013-March 31, 2014 ............ 60
Appendix X: Legal Actions Summary .................................................................................. 69
Appendix XI: Results of External Peer Reviews .................................................................. 76
Appendix XII: Office of Inspector General Organization .................................................. 77
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Overview
The Small Business Administration The Office of Inspector General
The mission of the Small Business Administration Pursuant to the Inspector General Act of 1978 (the IG
(SBA or the Agency) under the Small Business Act, as Act), as amended, the Office of Inspector General
amended, is to maintain and strengthen the Nation’s (OIG) provides independent, objective oversight to
economy by enabling the establishment and vitality improve the integrity, accountability, and perfor-
of small businesses and assisting in the economic mance of the SBA and its programs for the benefit of
recovery of communities after disasters. To meet its the American people. While SBA’s programs are es-
mission, the SBA is organized around four key func- sential to strengthening America’s economy, the
tional areas. These areas include financial assistance, Agency faces a number of challenges in carrying out
contracting assistance, technical assistance (e.g., en- its mission. Challenges include fraudulent schemes
trepreneurial development), and disaster assistance. affecting SBA programs, significant losses from de-
The Agency also represents small businesses through faulted loans, procurement flaws that allow large
an independent advocate and an ombudsman. firms to obtain small business awards, excessive im-
proper payments, and outdated legacy information
Through the four functional areas, the SBA provides systems.
small businesses the tools they need to strengthen
our economy, drive American innovation and in- The OIG plays a critical role in addressing these and
crease our global competitiveness. In order to accom- other challenges by conducting audits, evaluations,
plish these goals, the SBA has developed a five-year and investigations related to SBA programs and oper-
strategic plan. The Agency’s Fiscal Years 2014-2018 ations. These activities help to identify wasteful ex-
Strategic Plan has three overarching goals: penditures, weaknesses in program management,
and potential fraud and other wrongdoing. Lastly,
Grow businesses and create jobs through these reviews, the OIG recommends actions
Serve as the voice for small business to the Agency to better deter and detect waste, fraud,
Build an SBA that meets the needs of to- abuse, and inefficiencies in SBA programs and opera-
day’s and tomorrow’s small businesses tions to improve overall service to small businesses
and taxpayers.
The SBA has also identified its Priority Goals for
Fiscal Years 2014-2015, which include: expanding The OIG’s activities also help to ensure that SBA em-
access to capital, maximizing small business partici- ployees, loan applicants, and program participants
pation in federal government contracting and reduce possess a high level of integrity. This is critical to the
participation by ineligible firms, expanding access to proper administration of the SBA’s programs because
export financing, and increasing the return rate for it helps ensure that SBA resources are used by those
disaster survivor loan applications by 10 percent who deserve and need them the most.
points.
Appendix I contains information regarding audit and
The SBA’s headquarters office is located in Washing- other reports issued by the OIG during this reporting
ton, D.C. with staff in 10 regional offices, 68 district period. Appendix X contains summaries of investiga-
offices, their corresponding branch offices, and tive actions. Copies of OIG reports and other work
4 disaster field offices to deliver business products products are available on the OIG’s website at
and services. There are also six government con- http://www.sba.gov/office-of-inspector-general.
tracting area offices. The SBA also maintains a vast
network of resource partners in all 50 states, the Dis-
***
trict of Columbia, Puerto Rico, American Samoa, the
U.S. Virgin Islands, and Guam.
***
Management Challenges
Each year the OIG identifies the most serious man- For each management challenge, the OIG provides
agement and performance challenges facing the SBA. the Agency with recommended remedial actions to-
In accordance with the Reports Consolidation Act of gether with an assessment of Agency progress on
2000 and Office of Management and Budget (OMB) each recommended action during the preceding fiscal
Circular A-136, the SBA reports this information in its year. If sufficient progress occurs during the previous
Agency Financial Report (AFR). The management fiscal year, the OIG awards a higher color score and
challenges represent areas that the OIG considers the arrow indicator shows upward movement.
particularly vulnerable to fraud, waste, abuse, or mis-
management, or which otherwise pose significant risk On October 31, 2013, the OIG issued its Report on the
to the Agency, its operations, or its credibility. Each Most Serious Management and Performance Challeng-
management challenge generally has originated from es Facing the SBA in FY 2014. The following table pro-
one or more reports issued by the OIG or the Govern- vides a summary of those challenges:
ment Accountability Office (GAO).
Number Challenge Green Yellow Orange Red Up # Down#
1 Small Business Contracting 2 2
2 IT Security 1 2 1 1 1 1
3 Human Capital 1 3 3
4 Loan Guaranty Purchase 1
5 Lender Oversight 4 2 2
6 8(a) Business Development Program 1 1 1
7 Loan Agent Fraud 1
8 Loan Management and Accounting System 1 3 3
9 Improper Payments– 7(a) Program 1 5 4
10 Improper Payments-Disaster Loan Program 1
11 Acquisition Management 5
TOTAL 7 17 12 2 15 1
2
Small Business Access to Capital
The SBA has a financial assistance portfolio of guar- Various Techniques Used to Defraud Loan Pro-
anteed and direct loans over $95 billion. The Agency’s grams
largest lending program, the Section 7(a) Loan Guar-
anty Program, is the SBA’s principal vehicle for Criminals use a wide variety of methods to fraudu-
providing small businesses with access to credit that lently obtain—or induce others to obtain—SBA-
cannot be obtained elsewhere. Proceeds from a 7(a) guaranteed loans. These include submitting fraudu-
loan may be used to establish a new business or to lent documents, making fictitious asset claims, ma-
assist in the acquisition, operation, or expansion of an nipulating property values, using loan proceeds con-
existing business. This program relies on numerous trary to the terms of the loans, and failing to disclose
outside parties (e.g., borrowers, loan agents, and lend- debts or prior criminal records. Consequently, there
ers) to complete loan transactions, with the majority is a greater chance of financial loss to the Agency and
of loans being made by lenders to whom the SBA has its lenders. Some of these methods are described
delegated loan-making authority. Additionally, the below.
SBA has centralized many loan functions and reduced
the number of staff performing these functions, plac- A former bank executive in Illinois was indicted
ing more responsibility on, and giving greater inde- for bank fraud, and a seller of multiple gas sta-
pendence to, its lenders. The OIG continues to iden- tions was indicted for bank fraud, bribing a bank
tify weaknesses in the SBA’s lender oversight process- official, and filing a false tax return. The seller’s
es. business partner and a former accountant were
each charged with bank fraud. The indictment
The SBA’s Section 504 Loan Program provides small also seeks forfeitures of over $10 million in pro-
businesses with long-term, fixed-rate financing for the ceeds from the scheme. The bank executive and
purchase of land, buildings, machinery, and other the seller allegedly worked to get unqualified SBA
fixed assets. Local economic development organiza- borrowers approved to purchase gas stations that
tions approved by the SBA are known as Certified seller would “flip” with his business partner. The
Development Companies (CDCs). The CDCs package, bank executive and seller also allegedly utilized
close, and service these loans, which are funded the accountant to create false tax returns needed
for the loan files. The seller and his partner alleg-
through a mix of funds from private sector lenders,
proceeds from the sale of SBA-guaranteed debentures, edly provided the bank executive “kickbacks,”
with a cash value exceeding $150,000 in return for
and borrower equity investment.
his help in getting the loans approved. Moreo-
ver, the business partner’s brother was charged
The Microloan Program provides small ($50,000 or
with failing to file a tax return. The bank paid
less), short-term loans and technical assistance to
loan commissions to the brother because the
small business concerns, as well as non-profit child-
executive listed him as a loan broker on multiple
care centers, through SBA-funded intermediary lend-
loans, even though the brother performed no
ers. These lenders are non-profit, community-based
work. After receiving $340,000 for doing noth-
organizations with experience in lending and provid-
ing, the brother then failed to claim that income
ing management and technical assistance to business-
on his taxes. This is a joint investigation with the
es.
Federal Bureau of Investigation (FBI), Internal
Revenue Service Criminal Investigation (IRS CI),
Through the Small Business Investment Company
and the Federal Deposit Insurance Corporation
(SBIC) Program, the SBA licenses and makes funds
(FDIC) OIG.
available to venture capitalists known as SBICs. The
SBICs lend or otherwise invest in small businesses
using participating securities made up of contribu- A Chicago-area real estate attorney was indicted
tions from SBA and private investors or funds gener- for wire fraud in connection with two residential
ated through the sale of SBA-guaranteed debentures. mortgage-fraud schemes having a combined val-
ue of $492,303. The investigation revealed that
3
the attorney conspired with the seller and a buy- cash reserves, fixed assets, accounts receivable,
er to falsify the buyer’s down payment. He pre- and inventory, while also showing reduced exist-
pared a bogus will for a man already deceased, ing liabilities. The man submitted the false state-
which purported to leave a $200,000 inheritance ments to a bank on a regular basis. The bank
to the man’s son, the buyer. He also signed the relied upon the false documents in assessing the
will as the father’s attorney and as the executor extension of credit and other services to the busi-
of the father’s estate. The attorney, who repre- ness, including the approval of a $750,000 SBA-
sented the buyer in these real estate transactions, guaranteed loan. This is a joint investigation with
then forwarded these documents to the lender as the FBI.
evidence of the source of the buyer’s down pay-
ments. This case was referred by the OIG’s Early A California man pleaded guilty to making false
Fraud Detection Working Group. It is part of an statements to a bank and the government. The
ongoing investigation of loan agent fraud in con- investigation revealed that the man had previous-
nection with multiple residential and commer- ly obtained three loans from a bank and was in
cial loan fraud schemes, including a $1.76 million default for approximately $700,000 when he ob-
SBA loan for the purchase of a gasoline station tained two SBA Section 7(a) loans and one SBA
and convenience store. This is a joint investiga- Section 504 loan. All of his SBA loans defaulted
tion with the U.S. Postal Inspection Service early and left losses to the banks and the SBA of
(USPIS). nearly $1,839,360. This joint investigation with
the FBI was initiated on a referral from the OIG’s
A California man was indicted for making false Early Fraud Detection Working Group.
statements in connection with loan and credit
applications. The man allegedly made false
False Equity Injection Increases Business Loan
statements and submitted false documents to
Risk
obtain two SBA loans totaling $400,000 from two
different banks. He also allegedly committed In many circumstances, lenders require borrowers to
fraud to obtain a $150,000 line of credit and a infuse personal funds into the business, commonly
$100,000 term loan from a third bank. The inves- referred to as an equity injection. If he or she person-
tigation revealed that the man allegedly used one ally has something at risk in the business, that person
Social Security nmber to apply for SBA loans, is less likely to default on a loan. When lenders re-
bank credit cards, and other financial assistance. quire an injection of such money into projects fi-
However, prior to applying for the SBA loans, he nanced by guaranteed loans, some borrowers try to
had allegedly filed bankruptcy by using a differ- avoid this obligation by falsifying the amount or
ent Social Security number. He also allegedly source of this capital, as shown by the following exam-
failed to respond truthfully on his SBA loan ap- ples.
plications about his criminal history. The inves-
tigation also uncovered evidence of misuse of an A Texas husband and wife were each sentenced to
Internal Revenue Stamp, bankruptcy fraud, and 12 months and one day in prison followed by
Social Security fraud. This is a joint investigation three years supervised release after having pled
with the Treasury Inspector General for Tax Ad- guilty to conspiracy. They were also ordered to
ministration and the FBI. pay $281,672 in joint restitution, which was the
full outstanding balance of the SBA loan. The
A Wisconsin man pleaded guilty to making false
couple paid an additional $150,000 in restitution
statements on a loan and credit application. The
prior to sentencing. The investigation revealed
investigation determined that from December
that the couple applied for and received a
2006 until July 2010, this owner and chief execu-
$420,000 SBA-guaranteed loan to purchase a con-
tive officer of a business provided financial state-
venience store. The husband purported to the
ments that falsely represented the business’s
lender that most of the cash injection was coming
profitability. He did so by showing increased
from the sale of a previously owned convenience
4
store. In reality, the couple had depleted the construction bids prior to their submission to
majority of those funds prior to closing on the the SBA. Finally, one contractor alleged that the
loan. The wife secured lines of credit from two man forged his signature on draws submitted to
banks by using different company names, from the lender. This claim was later supported by a
which at least $91,269 of the $146,359 cash injec- notarized affidavit from the contractor. This
tion was derived. When dealing with the SBA joint investigation with the FBI is based on a
lender, the couple did not disclose these addi- referral from SBA’s Little Rock Commercial
tional debts, and they certified the accuracy of Loan Servicing Center.
false personal and business financial statements.
They later filed for bankruptcy and listed the
Legal Actions Continue in $100 Million Scheme
above referenced lines of credit as part of their
$456,806 in unsecured debts. Over $100 million in losses have resulted thus far
from a scheme to obtain, fraudulently, SBA-
A former Washington State bank loan officer guaranteed loans. The scheme includes a loan bro-
pled guilty to bank fraud. This investigation kerage company, two brothers who owned the com-
was based upon a referral from a bank, which pany, a former owner of a Maryland title company,
reported potential fraud on a $1,853,000 SBA- and an attorney who owns a Virginia title company.
guaranteed loan made by the loan officer to a The conspirators encouraged prospective borrowers
business. The investigation revealed that the to apply for Section 7(a) business loans. Once bor-
man, who was also an owner of the business, rowers applied, the conspirators submitted loan ap-
submitted false information in order for the plications and supporting documentation containing
bank to approve and disburse the SBA loan. He fraudulent personal financial information to loan
used false personal information to hide his own- originators and underwriters on behalf of their cli-
ership in the business, used a real estate agent ents, thereby falsely enhancing the creditworthiness
to amend the business’s appraisal from $1.7 mil- of the borrowers and their businesses. This is a joint
lion to $2.1 million in order to gain additional investigation with the FBI and the USPIS. The fol-
funding, and falsified the required $385,000 eq- lowing related actions occurred during this report-
uity injection. This is a joint investigation with ing period.
the FDIC OIG.
A Maryland man who was an SBA borrower was
indicted for conspiracy to commit bank fraud,
An Alabama man pled guilty to wire fraud and bank fraud, aiding and abetting, and criminal
bank fraud. He had obtained a Section 504 loan
forfeiture. He and others allegedly encouraged
for $1,760,000 for his grocery store on the condi-
prospective borrowers to use the services of the
tion that he pay at least $736,920 in cash injec-
loan brokerage firm to apply for 7(a) business
tion. After making only one payment, he de-
loans. He and others are alleged to have falsely
faulted on the loan. To help prove that he had
represented the ownership of the small busi-
paid his cash injection, he submitted copies of
nesses and the amounts of the equity injections.
six cancelled checks totaling $564,745. When
these copies were compared with copies of the A deferred prosecution agreement (DPA) was
checks obtained from his financial institution, signed for the owner of the Maryland title com-
the investigation discovered that checks with pany. The DPA requires that the owner pay a
the same check numbers had a combined face $75,000 monetary penalty to the United States
value of approximately $16,700. This amount and agree to refrain from conducting any resi-
was far less than the $564,745 reported to the dential or commercial loan closings during the
SBA, and the checks were payable to different agreement’s pendency.
entities than those identified on the checks sup-
plied to the SBA. Not only was the evidence of
cash injection fraudulent, but the man inflated
5
Missouri Bank Fraud Pleas and Sentencings were approximately $628,000 when the actual
figure was approximately $310,000. After receiv-
All 18 individuals involved in a complex conspiracy ing the SBA loan, the company continued to
to defraud a Missouri bank and the SBA have pled struggle and was 85 days past due within a few
guilty to various charges, with some having been months. To inject cash into the firm, the bank’s
sentenced. This is a joint investigation with the FBI. executive vice president and others originated a
The following actions occurred during the reporting fraudulent loan to another person. The pro-
period. ceeds were disbursed to other defendants in this
investigation, including the alleged operator of
The president of a construction company was the company.
sentenced to one year of probation after having
pled guilty to aiding and abetting the misappli-
The owner of a consulting business pled guilty
cation of bank funds. He had signed a $300,105
to conspiracy to defraud the United States. He
promissory note for a line of credit from the
conspired with the previously mentioned bank
bank stating that the purpose of the credit was
executive vice president to originate nominee
to provide business funds for his firm. On that
loans to provide funding for struggling firms. In
same day, he aided and abetted a former bank
November 2006, and prior to the execution of a
executive vice-president and others by obtaining
promissory note, the executive vice president
a $262,647 draw on the line of credit and caus-
initiated a $125,000 deposit into the consulting
ing a wire transfer of the same amount to a sec-
business owner’s account at the bank, which
ond bank to benefit parties connected to the
cured an overdraft of $21,508. The remaining
first bank.
portion was disbursed to make delinquent loan
payments for the consulting firm and another
The former owner of a saloon pled guilty to aid- business, and was distributed to other defend-
ing and abetting the misapplication of bank ants. Approximately two weeks later, the bank
funds. He aided and abetted the former execu- official originated and executed the paperwork
tive vice president of the bank in connection for the $125,000 loan. The consulting business
with four SBA loans that the banker made to the owner signed a third person’s name to the
owner and his daughter. Although the loans’ promissory note. That person had consented to
stated purpose was for working capital, the the use of his name and credit to obtain the
funds were used to pay the owner’s delinquent loan. Although the stated purpose of the loan
debt at the bank. The funds were also used to was to pay business expenses and a real estate
conceal the issuance of unfunded cashier’s deposit, the loan was made to benefit others.
checks at the bank and to benefit unrelated
businesses and persons who held accounts at
The former owner of an appliance business was
the bank.
sentenced to 24 months of probation. He had
aided and abetted the above executive vice pres-
The former executive vice president of the bank ident of a bank by diverting loan proceeds from
pled guilty to conspiracy to defraud the United his business to a restaurant owned by his
States. He had submitted false information to daughter.
the SBA in connection with a defaulted $1.6 mil-
lion SBA-guaranteed loan to a borrower doing
The former president of a wireless firm pled
business as a Missouri firm. The borrower was
guilty to using a false document in connection
identified as the operator of the company when
with a defaulted $695,000 SBA loan to his busi-
he had actually moved to North Carolina to
ness. He had applied for an SBA guaranteed
work for a restaurant chain in October 2005 and
loan by stating that seven individuals owned
no longer participated in the day-to-day man-
shares of his firm, in the aggregate of 20 percent
agement of the business. Moreover, income
of the company’s total value, when in reality,
figures for 2005 stated that the firm’s gross sales
6
none of these individuals owned any interest in President of Michigan Construction Firm Pleads
or portion of his business. The SBA loan de- Guilty
faulted within a few months after approval.
The president of a Michigan construction and man-
agement firm pled guilty to misprision of a felony.
A former SBA branch manager pled guilty by He had been aware that others made false state-
entering a nolo contendere plea for submitting a ments on an application to obtain a $1.1 million SBA
false document to the SBA. He had falsely re- loan for an auto service center from a now defunct
ported on his confidential financial disclosure lender. The loan defaulted and was charged off for
report that he had no reportable liabilities and $789,186. He knew of the false statements on the
no reportable outside positions when, in fact, he loan application but remained in his native country,
was the managing member of a Texas custard thus concealing the information from U.S. authori-
stand. He had also obtained an $80,000 SBA ties. This is a joint investigation with the U.S. Secret
loan for this business. The manager had been Service and the Department of Homeland Security
previously indicted for bank fraud, making false (DHS), Immigration and Customs Enforcement.
statements, money laundering, and conspiracy.
Microloan Fraud Results in Guilty Plea
The owner of a business was sentenced to three
years of probation and was ordered to pay A Florida firm’s director pled guilty to committing
$2,000 in restitution after having been charged wire fraud and aggravated identity theft. As a local
with aiding and abetting the misapplication of intermediary in the SBA Microloan program, the
bank funds. He had allowed a former official at firm received large loans from the Agency and in
a Missouri bank to use him and his business turn, made smaller loans to small businesses. The
bank account as a conduit to transfer funds director provided escrow agreements with forged
from one fraudulent loan to pay off the remain- signatures and false bank statements to the SBA to
ing balance of a separate fraudulent loan. He secure a $200,000 loan and a $550,000 loan to the
kept $2,000 of the funds for personal use. firm, of which only $192,500 of the second loan was
disbursed. To induce the SBA to disburse the ap-
proved loans further, the director submitted false
Large Civil Settlement in Loan Fraud Case information indicating that the firm had made 21
local small loans using the Agency’s loan proceeds.
A $1,125,000 civil settlement agreement was reached In reality, the firm only provided a total of $25,000 to
with a Texas firm that submitted or caused to be two businesses, one of which the director owned,
submitted false information relating to SBA 7(a) while her boyfriend controlled the other. She also
loans. The firm routinely packaged loan applications submitted false reconciliation statements and bank
and other materials for individuals seeking to pur- statements to the SBA. The investigation deter-
chase its lube centers and dry cleaning stores. It was mined that the SBA disbursed $392,500 to the firm,
asserted that the firm, acting through an employee, of which about $362,000 was transferred to the bank
fraudulently induced the SBA to guarantee loans for account of another company controlled by the direc-
purchasers by representing to lenders and the SBA tor. She and the second firm used the SBA loan pro-
that the purchasers had provided the required cash ceeds to purchase an apartment building. This is a
injection payment when they had not. For each loan joint investigation with the IRS CI and the Depart-
closed, the employee received from one to three per- ment of Justice (DOJ).
cent of the loan value. She pled guilty to conspiracy
to commit bank fraud and was sentenced to 36
months in prison, 36 months of supervised release,
and restitution of $8,581,970. This is a joint investi-
gation with the FBI.
7
Multiple Parties Involved in California Loan tion, the bank allegedly was misled into believing
Schemes that the phony owner made a $2.1 million down pay-
ment to purchase the two gas stations, even though
The president of a California gas station and car
there was no down payment. After the loans were
wash pled guilty to bank fraud. Her daughter pled
funded, the first man received $250,000. Finally, the
guilty to wire fraud. The president previously had
father and daughter allegedly skimmed large por-
been indicted for mail fraud, bank fraud, false state-
tions of cash from the business for personal expens-
ments, making false statements in a loan application,
es, including payments to criminal defense attorneys
making false statements to obtain an SBA loan, and
who were representing them in the first case. This is
aiding and abetting. The indictment alleged that the
a joint investigation with the FBI.
president, her daughter, her husband, and another
man executed a scheme to defraud the SBA, a bank, Louisiana Man Illegally Sells Collateral
and a financing corporation by making false state-
ments to obtain loans for the business. A Louisiana man pled guilty to wire fraud and mak-
ing a false statement to the SBA. According to a
The investigation found that the president and her referral from the SBA National Guaranty Purchase
daughter made false statements on an application Center, the man’s business made an offer in compro-
for an SBA guaranteed loan from the bank. They mise of a $10,000 lump sum payment to satisfy a
falsely reported that neither they nor their business- $511,400 balance on an SBA loan. He allegedly sold
es were involved in any bankruptcies or pending the collateral business personal property without the
lawsuits and did not have a controlling interest in lender’s knowledge. Moreover, the sale of the busi-
other businesses. The four individuals also made ness and property may not have been arms-length
material false statements to obtain another business transactions, and he allegedly falsified personal fi-
loan for the gas station from the financing corpora- nancial statements. The investigation determined
tion. The loss to the financing corporation was ap- that he misrepresented the value of the collateral for
proximately $1.65 million and the loss to the bank this loan and then sold it to another furniture store
and the SBA was approximately $1.45 million. Of the he owned. The man also falsely represented that he
$1.45 million, the SBA-guaranteed portion was ap- sold the second store and provided false financial
proximately $931,368. information to the lender and the SBA when submit-
ting the offer in compromise.
A subsequent superseding indictment charged that,
***
while the original case was pending trial, the hus-
band, the daughter, and others engaged in a new Improvement is Needed to Ensure Effective Quality
scheme to defraud yet another bank and the SBA. Control at Loan Operation Centers
They allegedly paid a former attorney with a good
credit history $100,000 plus $3,000 per month to This report presented the results of the OIG’s review
pose as the owner of a petroleum business and apply of quality control at the SBA’s Loan Operations Cen-
for $4.5 million in SBA loans to purchase two South- ters. The evaluation was designed to determine the
ern California gas stations. status of the Quality Control Program and whether
all elements of the program were being completed.
The real owners of the petroleum business would be
two men, one of whom would later plead guilty to The OIG determined that while the SBA had made
wire fraud. The second man allegedly did not want significant progress in implementing a quality con-
the lender to discover his poor credit standing and a trol program for its loan centers, quality control ac-
previous indictment. The parties allegedly agreed tivities were not being performed as required. The
that, after the loans to purchase the gas stations OIG determined that Centers omitted required qual-
were completed, ownership of the firm would be ity control reviews of significant functions. Addition-
transferred to the man with the poor credit. In addi- ally, the OIG determined that the SBA discontinued
regularly scheduled quality reviews at the National
8
Guaranty Purchase Center during FY 2012 to focus
on reviews required by the Improper Payments Elim-
ination and Recovery Act (IPERA) of 2010. Further,
the OIG determined that corrective actions on defi-
ciencies identified by the Center quality control
teams were not appropriately tracked until resolu-
tion, as required. Finally, the OIG determined that
the SBA’s quality assurance program, responsible for
ensuring that quality control activities at loan opera-
tion centers are working as intended, had not been
established.
The OIG recommended three actions that will help
strengthen the SBA’s quality control and assurance
activities at its loan operation centers. The Agency
generally agreed with the OIG’s findings and recom-
mendations, and has recently taken steps to address
long-standing deficiencies within the existing quality
control program.
Purchase Reviews Allowed $3.1 Million in Im-
proper Payments on 7(a) Recovery Act Loans
This report presented the results of the OIG’s review
of the SBA’s purchase review process for 7(a) Recov-
ery Act Loans. This report is the second in a series
resulting from the OIG’s audit of purchased 7(a)
Recovery Act loans and presents the results of an
audit of the SBA purchase reviews on nine additional
7(a) Recovery Act Loans. The OIG found that three 7
(a) Recovery Act loans purchased by the SBA were
not originated and closed in accordance with SBA
rules and regulations. The deficiencies included
loans approved and disbursed by lenders with ques-
tionable eligibility, inadequate assurance of repay-
ment ability, and equity injection issues. The three
loans had inappropriate or unsupported disburse-
ments of approximately $3.1 million. The OIG rec-
ommended that the SBA seek recovery of $3.1 million
from the three lenders associated with these loans
on the guaranties paid by the SBA for the loans (less
any amounts received from liquidation). The SBA
agreed with the OIG’s recommendations and each
case is progressing through the Office of Capital Ac-
cess’ (OCA) Denial Review Process, with appropriate
action to be taken upon final resolution.
***
9
Disaster Loan Program
The Disaster Loan Program plays a vital role in the The president and owner of an Arkansas bottled
aftermath of disasters by providing long-term, water firm was indicted in connection with a
low-interest loans to affected homeowners, renters, scheme to fraudulently obtain a $703,300 SBA
businesses of all sizes, and non-profit organiza- disaster assistance loan. Specifically, he was
tions. The SBA’s current disaster financial assistance indicted for false statements, wire fraud, money
portfolio is over $7 billion. laundering, and false and fraudulent claims.
The man allegedly made false statements and
There are two primary types of disaster loans: representations concerning his financial condi-
(1) physical disaster loans for permanent rebuilding tion and the location of integral business equip-
and replacement of uninsured disaster-damaged ment during a 2008 tornado. The investigation
privately-owned real and/or personal property, and found that the company’s equipment was not
(2) economic injury disaster loans to provide neces- present at certain locations and not subsequent-
sary working capital to small businesses until nor- ly scrapped, as specified by the president during
mal operations resume after a disaster. As part of a his application for disaster relief. He also por-
massive aid effort from Federal agencies, the SBA trayed a successful and profitable global busi-
approves billions of dollars in disaster assistance ness operation and a positive cash flow when
loans. Unfortunately, the need to disburse such cash flows were actually negative. The president
loans quickly may create opportunities for dishonest inflated 2008 income, reported a bogus contract
applicants to commit fraud. with a major U.S. retailer, and inflated income
projections. He also reported that all business
Fraud Related to Natural Disasters Continues debts were current and concealed over $4.5 mil-
lion of additional business debt at three finan-
Over the past decade, various natural disasters have cial institutions. These false representations
resulted in a major loss of life and property in the and claims induced the SBA to approve the dis-
U.S. As part of massive aid efforts from Federal aster loan to his firm. The investigation showed
agencies, the SBA approved billions of dollars in that significant portions of loan proceeds were
disaster assistance loans. Unfortunately, the need to used for purposes unrelated to the bottled water
disburse such loans quickly may have created op- company and were transferred to other busi-
portunities for dishonest applicants to commit nesses under the president’s control. Moreover,
fraud. the indictment specifies three large transfers in
March and April 2009 as money laundering
A Texas man was sentenced to three years’ pro- transactions. This is a joint investigation with
bation and ordered to pay restitution of $34,964 the IRS CI.
after he pled guilty to forgery of contracts,
deeds, or powers of attorney. He had forged A Louisiana woman was charged with theft of
signatures of his estranged wife and others on government funds. She had been approved for a
SBA loan documents in order to obtain two SBA $98,700 home disaster assistance loan to repair
disaster loans related to Hurricane Katrina. her residence, which had incurred damages
The SBA approved a $95,600 home loan to re- from Hurricane Isaac. However, she and her
pair his alleged residence and a $71,800 business contractor allegedly submitted false repair in-
loan to repair the other half of the same duplex, voices. The investigation found that she sub-
which he purported as rental property. He used mitted false documents to the SBA to obtain
the loan proceeds for personal living expenses, loan proceeds and that her contractor provided
and none went to repair the real property, false repair verifications to the SBA Disaster
which actually belonged to his estranged wife. PDC. The contractor subsequently admitted to
The SBA suffered a loss of approximately falsifying $84,121 in bids, invoices, and repairs at
$54,000. This case originated from an SBA Dis- the woman’s request. She received $50,000 in
aster Processing and Disbursement Center SBA loan proceeds before the fraud was detect-
(PDC) referral.
10
ed. The investigation originated from a referral of Community Affairs (DCA), the DHS OIG, the De-
by the PDC. partment of Housing and Urban Development
(HUD) OIG, and the New Jersey Office of the Attor-
The former owner of a Texas bowling center ney General.
pleaded guilty to conspiracy to commit offenses
against and to defraud the United States. The A New Jersey man allegedly claimed that his
investigation revealed that he had been ap- storm-damaged home on the Jersey Shore was
proved for a $998,500 disaster loan for damages his primary residence when it was not. He re-
allegedly caused by Hurricane Humberto and a ceived $2,820 in Federal Emergency Manage-
$885,600 loan for damages allegedly caused by ment Agency (FEMA) rental assistance, and a
Hurricane Ike. Both loans were disbursed in $10,000 grant under the HUD Homeowner Re-
full, despite the absence of actual damage. This settlement Program administered by the New
is a joint investigation with the FBI. Jersey State DCA. The investigation disclosed
that about one month after Superstorm Sandy,
Agency Avoids Superstorm Sandy Cost but before he filed the applications for storm
aid, he changed the address on his driver’s li-
During this reporting period, the SBA Disaster PDC cense to the damaged property address. He also
notified the OIG that the owner of a New York distri- applied for a $94,400 SBA home disaster assis-
bution firm repaid a $19,000 disaster claim to the tance loan that was cancelled because he pro-
SBA. The SBA originally approved the owner of the vided the SBA with false information concern-
firm for a $734,700 disaster loan, of which $19,000 ing his primary residence.
was disbursed. During this investigative review, the
OIG determined that the borrower was not eligible A Colorado man received $20,358 in FEMA
for the full loan amount, resulting in a cost avoid- grants, including a $16,685 home repair grant
ance of $715,700. and smaller rental assistance and personal prop-
erty grants. He had filed applications claiming
Initially the owner claimed that he had personally that a storm-damaged property in New Jersey
paid for the renovation of his leased business space, was his primary residence when the home had
but could not provide supporting documentation to actually been damaged by a fire in May 2009
the OIG or the PDC. He had provided the PDC with and had since been uninhabited with no utility
a list of Superstorm Sandy-related lost inventory service. He was also charged with third-degree
with what the OIG later determined were corre- attempted theft by deception in connection
sponding retail values, not wholesale values. The with applications for HUD funds that were de-
OIG also learned that the man was disputing his nied by the DCA. The SBA had declined his
insurance company’s findings with regard to his loss- home disaster loan application.
es. Because the owner did not provide sufficient
documentary proof of his losses and because of the
A New York woman received $22,410 in FEMA
related OIG investigation, the PDC did not make any
grants, including a $16,230 home repair grant
additional disbursements on this loan.
and $6,180 in rental assistance. She claimed a
storm-damaged house in New Jersey as her pri-
Four Charged in Superstorm Sandy Fraud
mary residence when it was really a vacation
rental property. The SBA declined her SBA
Four individuals have been charged with theft by
home disaster loan application because she had
deception and unsworn falsification in connection
provided the Agency with false information con-
with claims for assistance in the aftermath of Super-
cerning her primary residence.
storm Sandy. These charges resulted from joint in-
vestigations with the New Jersey State Department
11
A New Jersey woman received $21,128 in FEMA be ineligible for a loan increase because it had al-
grants, including $18,858 for repairs and $2,270 ready recovered from the losses it incurred due to
for rental assistance. She claimed a storm- the disaster.
damaged house on the Jersey Shore was her pri-
mary residence, when the vacant home was ac- While reviewing the loan files, the OIG observed
tually owned by the family of her deceased hus- that the SBA had received multiple inquiries from
band, from whom she had been separated. As elected officials on behalf of the two applicants. The
administrator of his estate, she deeded herself a OIG found no evidence that the loan decisions were
50 percent interest in the home after receiving the result of the external contacts, but auditors
the FEMA grants. The SBA had declined her could not confirm this because the loan files were
home disaster loan application. incomplete and did not explain how the prior denial
factors were addressed or mitigated. The SBA’s man-
*** agement disagreed with the OIG’s findings, but con-
curred with the recommendation to implement new
Two Economic Injury Disaster Loans Defaulted After procedures that require justification and supporting
the SBA Made Approval Decisions Totaling $1.4 Mil- documentation to address all prior denial factors
lion without Mitigating the Reasons for Prior Denials when a previous denial decision on a loan is over-
turned.
This report is the first of two reports resulting from
the OIG’s audit of the Economic Injury Disaster Loan ***
(EIDL) Program. The overall audit objective was to
determine whether the SBA had sufficient controls
to ensure working capital loans under the EIDL Pro-
gram were approved to eligible borrowers for the
correct amount. During the audit, the OIG identified
three large defaulted EIDLs that involved inquiries
by elected officials and loan reconsiderations. As a
result, the OIG reviewed these loans to determine if
SBA Processing and Disbursement Center (PDC)
staff adequately addressed or mitigated prior loan
denial factors when it approved the loans. This re-
port addresses SBA’s approval decisions on two of
the large defaulted EIDLs.
The OIG determined that the PDC made two EIDL
approval decisions that, in effect, reversed previous
denial decisions. Further, the OIG found that the
PDC did not adequately address or mitigate the prior
denial factors or obtain supporting documentation
to overcome deficiencies. The decisions involved a
$736,300 working capital disaster loan and a $671,900
loan increase to separate businesses, totaling approx-
imately $1.4 million. One of the businesses appeared
to be ineligible for working capital disaster funds
because it lacked repayment ability and the appli-
cant intended to use the funds to relocate, not for
working capital. The other business also appeared to
12
Procurement Assistance
Small Business Development & Contracting Programs
The SBA works to maximize opportunities for small, bribery, conspiracy, money laundering, and other
woman or minority-owned, and other disadvantaged charges. They include government officials, execu-
businesses to obtain federal contract awards through tives of 8(a) contractors, and employees of the ANC
its government contracting programs. These pro- contractor. This is a joint investigation with the FBI,
grams include, among others, the Historically Un- the IRS CI, the U.S. Army Criminal Investigation
derutilized Business Zone (HUBZone) Empowerment Command, and the Defense Criminal Investigative
Contracting Program and the Section 8(a) Business Service (DCIS).
Development Program.
During the reporting period, the chief financial
officer (CFO) of a Virginia technology firm was sen-
The SBA also negotiates with other federal agencies to
tenced to 46 months in prison and ordered to pay
establish agency-specific goals for small business con-
$1,188,500 in restitution and a forfeiture of the same
tracting with small, disadvantaged, women-owned,
amount. He had previously pled guilty to bribery,
service-disabled veteran-owned, and HUBZone busi-
conspiracy to commit bank fraud, and willful failure
nesses. The current government-wide goal is for
to file a tax return. The investigation revealed that,
small businesses to receive 23 percent of the total val-
from roughly February 2009 through October 2011,
ue of prime contracts awarded each fiscal year.
the CFO engaged in bribery of government officials.
He gave, offered, and promised over $200,000 for a
To help small disadvantaged businesses gain access to U.S. Army public official’s benefit. In return, the
federal and private procurement markets, the SBA’s CFO would receive the official’s assistance in direct-
Section 8(a) Business Development Program offers a ing subcontracts to his firm and providing preferen-
broad range of business development support, such as tial treatment on potential U.S. Army contracts. In
mentoring, procurement assistance, business counsel- addition, he engaged in a scheme to defraud and
ing, training, financial assistance, surety bonding, and obtain money and property from financial institu-
other management and technical assistance. tions through false and fraudulent pretenses, repre-
sentations, and promises. Finally, he willfully failed
The SBA also provides assistance to existing and pro- to file an income tax return related to over $100,000
spective small businesses through a variety of coun- in income earned in calendar year 2010.
seling and training services offered by partner organi-
zations. Among these partners are Small Business
Development Centers (SBDCs), the Service Corps of Firms Gain Contracting Preferences by Falsify-
Retired Executives (SCORE), and Women’s Business ing Eligibility
Centers (WBCs). Most of these are grant programs
that require effective and efficient management, out- Investigations by the OIG and other federal agencies
reach, and service delivery. have identified schemes in which companies owned
or controlled by non-disadvantaged persons falsely
More Legal Actions Stem from $2 Billion Contract claim to be firms eligible for the Service-Disabled
Bribery Case Veteran-Owned Small Business (SDVOSB) Con-
cern, Historically Underutilized Business Zone
Ten individuals have been sentenced and 16 individu- (HUBZone), Section 8(a) Business Development, and
als and 1 company either have been charged or have ANC programs. The following cases illustrate the
pled guilty in a scheme involving more than $30 mil- extent of this problem.
lion in bribes and kickback payments. A multi-agency
investigation uncovered a conspiracy that included
the use of a $1.3 billion Alaska Native Corporation
The SBA, and a graduated 8(a) firm, and its own-
(ANC) sole source contract to pay for the bribes and er entered into a $300,211 settlement agreement.
The government alleged that the owner of a
the planned steering of a $780 million government
contract to a favored Section 8(a) program participant. Pennsylvania firm had participated in the 8(a)
The individuals involved have thus far pled guilty to program as the qualifying disadvantaged indi-
13
vidual in the 1980s, but had failed to disclose A man pled guilty to bribery of public officials
this fact in 2001 when applying as the disadvan- and conspiracy to bribe public officials. He
taged individual seeking 8(a) status for her was ordered to forfeit property including mon-
company. The government alleged this violated ey worth $106,964. The man had been a DoD
the rule that would have rendered the firm inel- supervisor for construction and service con-
igible for the program because the owner had tracts at a military base in California and used
previously exhausted her eligibility. This is a his position to extort bribes from companies
joint investigation with the FBI. seeking to do business there, including two
firms associated with the 8(a) program. After
A Texas man pled guilty to wire fraud after hav- allegedly referring to himself as the
ing been indicted for wire fraud and aggravated
“Godfather” at the base and receiving thou-
identity theft. According to the U.S. Govern-
sands of dollars in cash payments and remod-
ment Accountability Office (GAO) referral, the
eling work on his condominium, the man was
GAO received an anonymous letter alleging that
arrested by federal agents.
the man’s firm, an architectural and engineer-
ing company, was falsifying documents to es-
tablish its status as an SDVOSB. The firm re- The owner of a construction prime contractor
portedly falsified its engineers’ credentials, their in the 8(a) program pled guilty to violating the
office locations, the number of employees, and Anti-Kickback Act and making a false tax re-
past projects. The investigation determined turn. He also pled guilty for his business’s role
that the man did not have a Department of Vet- in violating the Anti-Kickback Act. The owner
erans Affairs (VA) disability rating or service- of a second construction prime contractor and
connected disability. Thus, his firm was not a former participant in the 8(a) program also
legitimate SDVOSB. The firm submitted a qual- pled guilty to conspiracy to bribe public offi-
ifications form to the VA Contracting Office in cials and to violating the Anti-Kickback Act.
San Antonio, TX, which included example pro- He also pled guilty for his firm’s role in the
jects on which the firm did not actually work. same crimes. The two men had conspired to
Moreover, at least three of the company’s “key pay bribes to the above DoD contracting su-
personnel” shown in the documentation had pervisor. They made the bribe payments with
never worked with or even heard of the man or the understanding that their respective busi-
his firm. He confessed to these findings during ness would be awarded 8(a) contracts at a mil-
an OIG interview. The VA awarded the firm an itary installation. One man made at least
SDVOSB set-aside contract and ten related task $74,000 in cash bribes and directed the other
orders worth $1,587,952. This is a joint investi- man to pay at least an additional $20,000 to
gation with VA OIG. the contracting supervisor. In addition, one
firm painted the supervisor’s residence at no
cost and remodeled his personal property.
Kickbacks Uncovered in Defense Contracting The combined value of these free services was
A multi-agency investigation involving the 8(a) pro- around $8,000. Finally, one of the business
gram and the U.S. Department of Defense (DoD) owners accepted a kickback in the form of a
determined that 8(a) contractors in California were subcontractor’s $15,000 cashier’s check made
receiving kickbacks from subcontractors. Addition- payable to his son but for his benefit.
al allegations of bribery of a public official have de-
veloped during the investigation, and the Depart- Two brothers—the president and vice presi-
ment of the Navy has suspended seven individuals dent of a subcontractor—pled guilty to violat-
and six companies. This is a joint investigation with ing the Anti-Kickback Act. From at least 2009
the FBI, Naval Criminal Investigative Service (NCIS), through 2010, the subcontractor worked on
IRS CI, DCIS, and General Services Administration various 8(a) contracts for one of the previously
(GSA) OIG. The following are the legal actions that mentioned prime contractors. During that
occurred during the reporting period.
14
time, the two brothers paid over $44,000 in A different former employee of a Virginia-based con-
kickbacks to the owner of the prime contractor. tractor that claimed SDVOSB status was sentenced to
The kickbacks consisted of cash and checks sixteen months in prison, followed by two years of
drawn on subcontractor accounts issued to the supervised release, for conspiracy to commit wire
son of the owner of the other previously men- fraud and major fraud against the government. He
tioned prime contractor. The checks were for was also ordered to forfeit $1,065,104 in personal pro-
the benefit of that owner. Other kickbacks to ceeds from the conspiracy. Not only did he perform
the owner consisted of the subcontractor per- the same actions as the previously mentioned person,
forming work at the personal residences of the but he also worked with co-conspirators within the
owner’s relatives for no profit. The subcontrac- government to gain access to internal documents in
tor made the kickbacks to obtain favorable advance of bidding on contracts. These internal doc-
treatment in the awarding of current and future uments included the Independent Government Cost
federal subcontracts. Estimates (IGCE). He also drafted portions of govern-
ment procurement documents. Finally, he agreed to
The owner of an architectural firm was charged pay co-conspirators working within the government
with violating the Anti-Kickback Act. The for his competitive advantage on contracts that to-
charge relating to fraud involving two prime taled approximately $33 million. He gained at least
contractors associated with the 8(a) program. $1,065,104 because of his participation in the conspira-
Specifically, the owner was charge with know- cy. This is a joint investigation with the DHS OIG, VA
ingly and willfully providing a $5,000 kickback OIG, GSA OIG, and DOJ.
check to a prime contractor.
Texas Man Pleads Guilty
Contractor Employees Manipulate Bidding
A Texas man pled guilty to making false statements to
A former employee of a Virginia-based government federal agencies. He had recruited a service-disabled
technology contractor that claimed status as an veteran to be a partner in an SDVOSB. The veteran,
SDVOSB was sentenced to three months incarcera- believing he was to be a silent partner, agreed to be
tion and two years of probation upon release. He part of the SBVOSB. In reality, the veteran had no
also was ordered to forfeit $80,000 and was assessed financial investment in the firm, performed no work
a $5,000 fine. The sentencing followed a guilty plea for the company, and did not exercise a controlling
in connection with his role in conspiring with other interest in it. The man used the firm’s fraudulently
SDVOSBs to obtain federal government contracts obtained SDVOSB status to secure nearly $1,329,000
through fraud and misrepresentation. in funds through VA contracts.
The man and employees of other SDVOSBs con-
Woman Indicted for Fraud
spired to submit what appeared to be competing
bids for government contracts, when in fact they A North Carolina woman was indicted for major
knew the bids were not competitive. They identified
fraud against the government, making false state-
government contracts to bid on and prepared bids
ments, wire fraud, mail fraud, and aggravated identity
for one another using the bid templates of the other.
theft. The woman, as the owner of a masonry firm,
The man then directed another firm’s employees to
allegedly created a construction company in order to
submit the completed bids to the government as
obtain two small business subcontracts on a Depart-
their own. This practice restricted legitimate com-
ment of Navy contract. She created the construction
petition by creating the false impression that the
company after a $14 million subcontract was awarded
government had already received multiple compet-
to her masonry firm. She allegedly also offered the
ing bids. The employee made at least $80,900 from
use of the construction company to replace the ma-
his participation in the conspiracy.
sonry firm in exchange for a two percent fee. In 2010,
she mailed an apparently falsified North Carolina
15
HUBZone application, with fraudulently altered During a 26-day trial, the government presented evi-
supporting documents, on behalf of the construc- dence that she omitted, deleted, altered, and miscate-
tion company. She also allegedly forged another gorized entries in her firm’s financial records. She
person’s signature on documents related to that also concealed her role or relationship in other busi-
company. This is a joint investigation with the ness entities that dealt with her company. Conse-
DCIS and the NCIS. quently, the firm received more than $2.5 million in
federal government contracts based on the company's
President of Idaho Firm Sentenced fraudulently obtained 8(a) status. The firm received
more than $15 million in state government contracts
based on the company's fraudulently obtained DBE
The former president and majority shareholder of an
status in Idaho and Utah. The government also pre-
Idaho construction firm was sentenced to 84
sented evidence that she and the minority sharehold-
months in prison followed by three years of super-
er conspired to obstruct justice by fabricating docu-
vised release for conspiracy, wire fraud, and mail
ments and making false statements to impede an IRS
fraud. She was also sentenced to 24 months in pris-
audit of the firm, and a criminal investigation of her.
on for tax fraud and obstruction of justice followed
The woman and the shareholder intended for these
by three years of supervised release. The sentences
fabricated documents to conceal the true nature,
will run concurrently. In addition, she was ordered
source, and extent of property belonging to her. This
to pay $98,825 in restitution to the IRS, $32,575 to
was a joint investigation with the IRS CI, DOT OIG,
the Idaho Disadvantaged Business Enterprises (DBE)
and the FBI.
Program, and $22,859 in prosecution costs. She
paid a $3,084,038 forfeiture prior to sentencing. She
had previously been convicted of filing false individ- Florida Man Sentenced for Fraud against NASA
ual and corporate tax returns, conspiracy to defraud and Others
the United States, wire fraud, mail fraud, making a
false statement, interstate transportation of property A Florida man was sentenced in Virginia to 60
taken by fraud, conspiracy to obstruct justice, and months incarceration followed by 24 months of su-
obstruction of justice. Moreover, an Idaho man and pervised release, and was ordered to pay a $12,500 fine
minority shareholder in her business was sentenced and a forfeiture of $2,960,697. He had pled guilty to
to three months in prison followed by two years of major fraud against the government. He admitted
supervised release. He was also ordered to pay a that, in 2005, he learned that an executive at a securi-
$5,000 fine and perform 100 hours of community ty service consulting firm illegally controlled another
service after having been found guilty of obstruction such company that participated in the 8(a) program.
of justice and conspiracy to obstruct justice. Although the executive at the first company con-
trolled the second company, the second firm had ob-
tained its 8(a) status based on a nominal owner’s dis-
The former president had taken steps to lower, arti-
advantaged status. The Florida man admitted that he
ficially, her personal net worth, such as placing as-
agreed to pay the executive and the second firm a fee
sets into the names of nominees in order to appear
in exchange for that firm allowing him to use its 8(a)
economically disadvantaged. This allowed her firm
status to obtain National Aeronautics and Space Ad-
to qualify for the Department of Transportation’s
ministration (NASA) and other U.S. government con-
(DOT) DBE and the 8(a) programs. She also caused
tracts. Although the second firm was required to per-
false and fraudulent tax returns to be filed for herself
form at least 50 percent of the work on the contracts
and the company, which did not report all income
and had represented that it would do so, no employ-
received. The false returns and financial statements
ees performed any work. Instead, the Florida man
were submitted to support the firm’s applications to
and others did all of the work as independent con-
the 8(a) program and the DBE program for Idaho
tractors but concealed that fact from the government.
and Utah.
He also submitted fraudulent proposals and invoices
16
to hide the scheme, used a third-party company’s space and many of the same employees. The man
Federal Employer Identification Number to prevent conspired to defraud the SBA by concealing on the
reporting of his contractor income to the IRS, and second firm’s 8(a) application and on annual updates
did not pay income taxes on the income he received that:
from the second firm. This is a joint investigation
(1) he exercised control over the second
with the NASA OIG, the DCIS, and the DHS OIG.
firm’s operations;
Utah Firm Agrees to Large Settlement
(2) he had previously supervised the former
A Utah-based construction company entered into roofer at the first firm;
settlement agreements with the DOJ and the SBA.
In the settlement agreement with the DOJ, the com- (3) he owned more than 10 percent of the
first firm and was related to an owner of the
pany agreed to pay $928,000 to the United States.
second firm;
The DOJ alleged that the company improperly ob-
tained and worked on contracts awarded to an 8(a)
(4) he and his wife had personally guaran-
firm, thus violating the False Claims Act by know-
ingly submitting, or causing to be submitted, false teed bonding, bank loans, and lines of credit
for the second firm; and
claims to the United States. The construction com-
pany did not concur with DOJ’s position but agreed, (5) no non-disadvantaged individual member
without admission, to the settlement agreement. of the second firm’s management received
compensation in any form that exceeded the
The firm also entered into an administrative agree- former roofer’s compensation.
ment with the SBA as a result of the DOJ settlement.
The firm agreed to refrain from participation in the The second firm paid millions of dollars to the Mary-
SBA 8(a) program and any SBA mentor-protégé pro- land man, including salary and other payments to
grams for five years. The SBA alleged that the firm bank accounts in his and his wife’s names. There
knowingly submitted, or caused to be submitted, were also payments to the first firm and to casinos on
false, or fraudulent claims. The firm did not concur behalf of the couple, as well as personal charges to the
with SBA’s position but agreed, without admission, second firm’s credit cards. Because of the fraudulent
to the administrative agreement. application and updates, the second firm received
more than $50 million in 8(a) program contracts to
which it was not entitled. Further, the first company
Maryland Man Pleads Guilty to 8(a) Fraud recorded, falsely, more than $1 million in transfers to
bank accounts and casinos in company records as
corporate expenses paid for subcontractors, which he
A Maryland man pleaded guilty to conspiracy to
concealed from his tax preparer. As a result, the tax
defraud the United States following an indictment
preparer produced corporate tax returns for the first
for schemes to seek, fraudulently, federal contracts
under the 8(a) program. He owned less than half of firm, which overstated the company’s expenses. The
a roofing and construction company while it partici- preparer also produced personal income tax returns
pated in the program. In March 2002, his firm grad- for the man that understated his taxable income,
thereby falsely understating the taxes owed to the
uated from the program, and he became the compa-
ny’s president and sole owner. Prior to that, in IRS. This is a joint investigation with the DCIS, GSA
August 1999, he had caused a second roofing and OIG, and IRS CI.
construction company to be incorporated and ar-
Civil Settlement Results from Contracting
ranged for a member of an underrepresented
group—who was a former roofer and project manag- Scheme
er at the first firm—to own 60 percent of the second
company. He also arranged for his son to own the Five masonry firms and the presidents of two of the
remaining 40 percent while he received the title of firms paid $698,250 as part of a civil settlement in
connection with a contracting scheme. This payment
senior vice president. The two firms shared office
17
was based on the sale of a president’s personal resi- recommended four actions directed to the Chief Fi-
dence and is in addition to an earlier civil settlement nancial Officer to improve financial and contract
of $1,175,000. The total settlement now stands at management at the SBA and significantly decrease
$1,873,250. the total number of future improper payments.
In early 2011, a military command in Virginia issued Opportunities Exist to Further Improve Quality
a “Solicitation, Offer and Award” for a series of con- and Timeliness of HUBZone Certifications
struction projects at a military base. In August 2011,
the contract for over $67 million was awarded to a This report presented the results of the OIG’s audit to
large construction company. One masonry firm determine whether the SB’s HUBZone Program certi-
submitted a $9.4 million bid to do masonry work as fication process provided assurance to limit program
a subcontractor. An employee of the construction certification to eligible firms.
company subsequently told the president of that
masonry firm that his firm would receive the sub- The OIG found that in recent years, the HUBZone
contract if it used a minority-owned company. The certification process had been reengineered from self-
president agreed to use an affiliated company that certification to a full document review and that the
he controlled as a front to receive the subcontract. SBA properly certified 9 of 12 firms reviewed. Howev-
All of the work on the subcontract was subsequently er, the OIG identified three firms the SBA certified
passed through to the original masonry firm. This is even when the firms did not meet all of the eligibility
a joint investigation with the NCIS and DCIS. criteria. Ineligible firms that obtained certification
distorted the small business HUBZone goaling num-
*** bers by at least $1.3 million and possibly took con-
tracting opportunities away from eligible firms. Addi-
The SBA’s FY 2012 Reported Improper Payment tionally, certifying ineligible firms detracted from the
Rate for Disbursements and Contracting was economic benefits the program intends to promote in
Inaccurate and Incomplete the disadvantaged HUBZone areas. The SBA also did
not meet the required 30-calendar day timeline for
This report presented the results of the OIG’s review any of the 12 firms we reviewed, nor did it meet the
of the SBA’s FY 2012 invoice payments for contract- proposed deadline of 90 days for five firms. For firms
ing activities. The OIG found that the SBA made who are certified, the amount of time the SBA takes
significant progress in reducing the improper pay- to review the application directly inhibits their oppor-
ment rate for disbursements and contracting from tunities to obtain federal contracts. The OIG made
89 percent in FY 2011 to 9.6 percent in FY 2012. three recommendations to improve the HUBZone
However, the OIG determined that the information certification process and decrease the likelihood of
presented in the SBA’s FY 2012 Agency Financial ineligible firms receiving HUBZone certification.
Report was inaccurate and the reported improper
payment rate for FY 2012 disbursements and con- The SBA Did Not Follow Regulations and Guid-
tracting was incomplete. Specifically, the 9.6 per- ance in the Acquisition of the OneTrack System
cent improper payment rate included only a portion
of the errors identified as the SBA did not report This report presented the results of the OIG’s review
errors that it determined to be the result of inade- of the SBA’s acquisition of the OneTrack System. The
quate or missing documentation. Further, the OIG objective of the audit was to assess the SBA’s compli-
found that SBA personnel did not consistently apply ance with Federal contracting regulations and guid-
the FY 2012 Improper Payment Test Plan for dis- ance over Information Technology systems acquisi-
bursements and contracting. Consequently, they tion and project oversight. The OIG determined that
classified a number of payments as having met the the SBA did not follow federal regulations and guid-
test plan criteria. In addition, they tested payments ance in its acquisition of the OneTrack system for use
not related to contracting disbursements. The OIG by the Business Development (BD), Historically Un-
18
derutilized Business Zone (HUBZone), and three Legislation Requires SBA Regulations and
new Mentor-Protégé Programs. As a result, the SBA Approval of SBDC Surveys
did not receive a system with full capabilities as
originally designed. The original OneTrack system
In December 2004, Congress amended section 21(a)
should have been completed in a 12-month period at
(7) of the Small Business Act (15 U.S.C. 648(a)(7)) to
a total cost of around $1.17 million. Instead, the SBA
restrict the disclosure of information regarding indi-
modified the task order to receive a system with the
viduals or small businesses that have received assis-
same, limited functions as the existing system in
tance from a Small Business Development Center
use, the Business Development Management Infor-
(SBDC) and to limit the Agency’s use of such infor-
mation System (BDMIS). However, the SBA still did
mation. The provision also required the SBA to issue
not have a tested and approved system—that in-
regulations regarding disclosures of such information
cluded existing BDMIS capabilities—to put into
for use in conducting financial audits or SBDC client
production when the task order expired. To date,
surveys. In 2009, the Agency represented to the OIG
the SBA has increased the total cost of the system by
that it would issue regulations as required by the stat-
approximately $734,000 and extended the perfor-
ute. During the reporting period, the SBA prepared a
mance of the acquisition by 14 months. The OIG
revised draft, and sent the proposed regulations to
made four recommendations.
the Federal Register so they could be published for
public comment.
***
In addition, section 21(a)(7) of the Small Business Act
states that, until the issuance of these SBDC infor-
mation disclosure regulations, any SBDC client survey
and the use of such information shall be approved by
the Inspector General, who shall include such approv-
al in the OIG’s Semiannual Report to Congress. Ac-
cording to a report from the Agency, the SBA did not
conduct any surveys of SBDC clients during the first
half of FY 2014.
***
19
Agency Management
Agency management includes activities of the Offic- tion Improvement Act of 1996, which is also a
es of the Chief Financial Officer (CFO), the Chief repeat condition.
Information Officer (CIO), and Management and
Administration. These activities encompass finan- Details regarding the auditor’s conclusions are in-
cial reporting and performance management, hu- cluded in the “Compliance and Other Matters” sec-
man resources, procurements and grants, space and tion, and Exhibit I of the Independent Auditors’ Re-
facilities, and maintenance of the SBA’s information port.
systems and related security controls.
Independent Auditors’ Report on the SBA’s
*** FY 2013 Special-Purpose Financial Statements
Independent Auditors’ Report on the SBA’s This report presented the results of the independent
FY 2013 Financial Statements auditors’ report on the SBA’s FY 2013 Special-
Purpose Financial Statements. In accordance with
This report presented the results of the independent the Office of Management and Budget Circular No.
auditors’ report on the SBA’s FY 2013 Financial State- A-136, Financial Reporting Requirements and the
ments. The OIG contracted with an independent Treasury Financial Manual, Part 2, Chapter 4700
public accounting firm to audit the SBA’s consolidat- (TFM 2-4700), the independent auditor issued its
ed financial statements as of September 30, 2013, and report on the Small Business Administration’s (SBA)
2012, and for the years then ended. The contract reclassified balance sheet as of September 2013 and
required that the audits be conducted in accordance 2012, and the reclassified statements of net costs and
with Generally Accepted Government Auditing changes in net position and Federal trading partner
Standards; the Office of Management and Budget note for the year then ended.
Bulletin No.14-02, Audit Requirements for Federal
Financial Statements; and the U.S. Government Ac- The auditor found that the statements, including the
countability Office’s Financial Audit Manual and Federal trading partner note, presented fairly in all
Federal Information System Controls Audit Manual. material respects, the financial position of the SBA
This audit is an annual requirement of the Chief as of September 30, 2013, and 2012. Also, the results
Financial Officers Act of 1990. of operations and the changes in net position for the
period then ended are in accordance with U.S. gen-
The auditor’s report includes an opinion on SBA’s erally accepted accounting principles, and the
financial statements, internal control over financial presentation is in conformance with the require-
reporting, and compliance and other matters that ments of TFM 2-4700.
have a direct and material effect on the financial
statements. The auditor issued an unmodified opin- Management Letter-SBA’s FY 2013 Financial
ion on SBA’s fiscal year 2013 consolidated financial Statement Audit
statements. In summary, the auditor found that:
This report presented the results of the independent
The financial statements were fairly presented, auditors’ report on the Management Letter-FY 2013
in all material aspects, in conformity with U.S. Financial Statement Audit. The management letter
generally accepted accounting principles. includes information related to non-reportable find-
There were no material weaknesses in internal ings discovered during the audit of SBA’s FY 2013
control. financial statements.
There is a significant deficiency related to SBA’s
In this letter, the auditor noted seven matters in-
information technology security controls, which
volving internal controls and other operational mat-
is a repeat condition.
ters that included: (1) improvement needed in the
There is one instance of noncompliance with documentation of the obligations review process; (2)
laws and regulations related to the Debt Collec- missing loan file documentation; (3) untimely post-
20
purchase and charge-off reviews and untimely processing Cosponsorships and Fee-Based Administration-
of charge-off transactions; (4) lack of required sign-offs on Sponsored Events
guaranty purchases and charge-offs; (5) incorrect amount
paid at the time of purchase guaranty; (6) inadequate re- Section 4(h) of the Small Business Act, as amended,
view of Star and Attendance Reports; and (7) improve- requires the OIG to report to Congress on a semi-
ment needed in the employee separation process. The au- annual basis regarding the Agency’s use of its authori-
ditor made 21 recommendations to which agency offi- ty in connection with cosponsorships and fee-based
cials or designees agreed to implement or have al- Administration-sponsored events. The SBA’s Office
ready taken action to address the underlying condi- of Strategic Alliances provided information to the
tions. OIG related to co-sponsorships, including the names,
dates, and locations of the cosponsored events and
*** the names of the cosponsors. This information was
SBA Gift Authority not verified by the OIG. As shown in Appendix IX,
between October 1, 2013, and March 31, 2014, the Ad-
Section 4(g)(2) of the Small Business Act, as amended, ministrator—through her approved designees—fully
provides that any gift, devise, or bequest of cash ac- executed 87 cosponsorship agreements.
cepted by the Administrator under Section 4(g) shall
be held in a separate account and shall be subject to ***
semiannual audit by the Inspector General, who shall
report his findings to Congress.
During the October 1, 2013 and March 31, 2014, report-
ing period, the SBA’s Office of Strategic Alliances did
not report any cash gifts.
***
21
Other Significant OIG Activities
Character Screening Reduces Potential payer funds from parties who have engaged in fraud
Program Fraud or otherwise exhibited a lack of business integrity.
The OIG regularly identifies individuals and organi-
zations for debarment and other enforcement ac-
Participants in SBA programs involving business
tions, and submits detailed recommendations with
loans, disaster assistance loans, Section 8(a) certifica-
supporting evidence to the responsible SBA officials.
tions, surety bond guarantees, SBICs, and CDCs must
Most OIG administrative referrals involve the abuse
meet Agency character standards. To help ensure
of SBA’s loan and preferential contracting programs.
that this occurs, the OIG’s Office of Security Opera-
Where appropriate, the OIG recommends that the
tions utilizes name checks and, where appropriate,
SBA suspend the subject of an ongoing OIG investi-
fingerprint checks to determine criminal background
gation given program risk presented by the continued
information. During this reporting period, the OIG
participation of those individuals and entities.
processed 1,705 external name check requests for
these programs.
During this reporting period, the OIG sent 22 suspen-
sion and debarment referrals to the SBA. Additional-
The OIG also refers applicants who appear ineligible
ly, OIG investigations resulted in 35 suspension or
because of character issues to program officials for
debarment referrals that went to other agencies. The
adjudication. The referrals are based on data from
OIG also referred several other entities for program
the OIG’s on-line connection with the FBI. As a re-
termination and other administrative enforcement
sult of OIG referrals during this reporting period,
actions. (See the Statistical Highlights section of this
SBA business loan program managers declined 13
report for additional suspension and debarment re-
applications totaling $7,067,405 and disaster loan
program officials declined 19 applications totaling sults.)
$2,737,100. In addition, the Section 8(a) program de-
clined 9 applications for admission and the Surety The following provides examples of OIG referrals for
Bond Guaranty program declined 1 application for administrative enforcement actions during this re-
admission. porting period:
During this reporting period, the OIG also initiated Government Contractor and its President Re-
99 background investigations and issued 6 security ferred for Suspension Based on Alleged HUBZone
clearances for Agency employees and contractors. Fraud
The OIG also adjudicated 40 background investiga-
tive reports and coordinated with SBA’s Office of The OIG referred a Government contractor and the
Disaster Assistance to adjudicate 51 derogatory back- president of that contractor for suspension. The pres-
ground investigation reports. Finally, the OIG pro- ident and contractor appear to have made multiple
cessed 1,986 internal name check requests for Agency false and misleading statements to the SBA regarding
activities such as success stories, “Small Business the location of their principal place of business in
Person of the Year” nominees, and disaster assistance order to qualify for a HUBZone certification. Sepa-
new hires. rately, the OIG is working with the Department of
Justice on a civil False Claims Act case related to this
*** matter.
Owner and Government Contractor Referred for
The OIG Promotes Debarment and Other
Suspension Based on Alleged Disaster Loan Fraud
Administrative Enforcement Actions
The OIG referred the indicted owner of a Govern-
As a complement to the its criminal and civil fraud ment contractor, who also served as a bank president
investigations, the OIG continually promotes the use and CEO, for suspension. That individual is currently
of suspensions, debarments, and other administra- under indictment for wire fraud and other crimes
tive enforcement actions. These actions protect tax- related to an SBA disaster loan. The bank where the
22
indicted individual serves as president and CEO is a claims of up to $150,000 administratively rather than
lender participating in SBA’s guaranteed loan pro- initiating a case in Federal court. A report issued by
grams. the Government Accountability Office based upon a
survey of OIGs found that many Federal agencies
Loan Officer Referred for Suspension after Falsi- were making limited or no use of the PFCRA. As
fying SBA Form previously reported, the OIG established a PFCRA
Working Group with representatives from multiple
The OIG referred a loan officer for suspension based OIGs to examine the issue and develop solutions to
on allegations of falsifying an applicant’s signature on expand use of the statute. During the reporting peri-
an SBA form designed to elicit an applicant’s criminal od, the Working Group completed a PFCRA Practi-
record. The loan officer falsely indicated the subject tioner’s Guide, which provides a “cradle to grave”
of the form did not have a criminal record when, in overview of initiating and litigation a PFCRA case.
fact, that individual had a felony conviction. The The CIGIE approved this Guide in November 2013.
loan officer claimed not to have known the applicant The Working Group also began developing a training
had a felony conviction when confronted with the program and prepared a report summarizing the
apparent forgery. results of a survey the Working Group undertook on
use of the PFCRA and offering suggested practices
The OIG Provides Training to Multiple Agencies OIGs can take to promote use of that act to deter
to Promote Debarment and other Remedies fraud. The SBA OIG appreciates the significant con-
tributions from OIGs at the Department of Housing
During the reporting period, OIG representatives and Urban Development, the National Science Foun-
continued to provide suspension and debarment dation, the Department of the Interior, the Depart-
training to auditors, inspectors, evaluators, and attor- ment of Health and Human Services, the Nuclear
neys throughout Federal OIGs in coordination with Regulatory Commission, and the Environmental Pro-
the Council of the Inspectors General on Integrity tection Agency. The Working Group’s efforts will
and Efficiency (CIGIE) Training Institute. The CIGIE continue into the next reporting period.
Training Institute held one training session with
practical exercises teaching OIG employees how to ***
prepare suspension and debarment referrals from
audits. OIG Reviews Lead to Improved Program
Controls to Reduce Fraud, Waste, Abuse
Representatives of the OIG also moderated and and Inefficiencies
served on two panels at a workshop sponsored by the
CIGIE and the Interagency Suspension and Debar- As part of the OIG’s proactive efforts to promote
ment Committee. This workshop, Total Accountabil- accountability and integrity and reduce inefficien-
ity: Suspension, Debarment and Beyond, focused on cies in SBA programs and operations, the OIG re-
advanced suspension, debarment, and remedies co- views changes that the SBA proposes to make to its
ordination issues. program directives. Such proposals relate to regula-
*** tions, internal operating procedures, agency policy
notices, and SBA forms that the public can access
The OIG Continues Leadership Role in CIGIE and complete. Through the review process, the OIG
Project to Promote Use of the Program Fraud often identifies material weaknesses in the proposals
Civil Remedies Act and works with the Agency to implement recom-
mended revisions to promote more effective controls
The OIG is heading a project that the CIGIE estab- and deter waste, fraud or abuse. During the report-
lished in November 2012, to promote government- ing period, the OIG reviewed 38 proposed revisions
wide use of the Program Fraud Civil Remedies Act of these program directives and submitted com-
(PFCRA). The PFCRA provides an administrative ments to improve 20 of these initiatives.
remedy so that agencies may seek recovery for false
23
Specifically, the OIG provided extensive comments The OIG Hotline
on several internal procedures governing the 8(a)
Business Development Program to promote better The OIG Hotline reviews allegations of waste, fraud,
oversight of program participants. The OIG also abuse, or serious mismanagement in the SBA or its
recommended revisions to the application form for programs from employees, contractors, and the pub-
this program to promote more robust screening lic. A preliminary review of all complaints is conduct-
processes to prevent ineligible firms from being ad- ed to determine the appropriate course of action. As
mitted to the program. With respect to SBA’s small part of the review process, Hotline staff may coordi-
business financial assistance programs, the OIG pro- nate reviews of allegations with Investigations, OIG
vided comments on critical procedures and pro- Counsel, Auditing, and SBA Program Offices. Out-
posed regulations to enhance SBA’s oversight of, comes of investigations initiated as a result of a Hot-
and enforcement capabilities regarding loan agents line complaint are monitored by Hotline staff. During
in the 7(a) loan guaranty program. As set forth in the first half of FY 2014, the Hotline received 271 com-
the OIG’s Fiscal Year 2014 Report on the Most Seri- plaints requiring additional analysis or referral.
ous Management and Performance Challenges Facing
the Small Business Administration, ongoing fraudu- Of the 271 complaints requiring additional analysis or
lent schemes by loan agents represent one of the referral, 45 were addressed and closed by the Hotline,
most significant challenges facing the Agency. The 32 were referred to SBA Program Offices, 30 were re-
OIG also issued recommendations that led to im- ferred to OIG Investigations, 4 were referred to OIG
provements in proposed regulations governing the Counsel, 3 were referred to OIG Audit Division, and 2
percentage of work performed by small business were referred to outside Agencies. There are 155 com-
contractors. Finally, the OIG provided extensive plaints currently under review by the Hotline Staff.
comments on a large number of other SBA internal
procedures and public use forms to promote greater During the first half of FY 2014, Hotline staff contin-
accountability and effectiveness in SBA programs ued to review and monitor complaints received dur-
and operations. ing previous reporting periods. They also closed 303
such complaints. Specifically, 172 were referred to
*** OIG investigations, 52 were addressed and closed by
Hotline staff, 67 were referred to SBA Program Offic-
es, 5 were referred to outside agencies, 6 were referred
to OIG Audit, and 1 was referred to OIG Counsel.
***
24
Statistical Highlights:
October 1, 2013-March 31, 2014
Summary of Office-Wide Dollar Accomplishments
As a Result of Investigations & Related Activities
–Potential Investigative Recoveries & Fines $8,377,751
–Asset Forfeitures Attributed to OIG Investigations $7,590,739
–Loans/Contracts Not Approved or Canceled as a Result of Investigations $715,700
–Loans Not Made as a Result of Name Checks $9,804,505
Investigations Sub-Total $26,488,695
*
As a Result of Audit Activities
–Disallowed Costs Agreed to by Management $7,902,208
–Recommendations that Funds Be Put to Better Use Agreed to by Management $89,800,000
Audit Sub-Total $97,702,208
TOTAL $124,190,903
*
The numbers in these cells represent reclassification of previously reported amounts from questioned/unsupported costs to recommended
funds for better use. The dollars shown are the amounts reported to management. The actual amounts may change during final resolution.
Efficiency and Effectiveness Activities Related to Audit, Other Reports, and Follow-Up Activities
Reports Issued 9
Recommendations Issued 60
Dollar Value of Costs Questioned $3,292,224
Dollar Value of Recommendations that Funds be Put to Better Use $0
Recommendations for which Management Decisions Were Made 58
Recommendations Without a Management Decision 57
Collections as a Result of Questioned Costs 0
25
Indictments, Informations, Convictions, and Other Case Actions
Indictments/Informations from OIG Cases 52
Convictions from OIG Cases** 40
Cases Opened 16
Cases Closed 21
SBA Personnel Actions Taken as a Result of Investigation
Dismissals 0
Resignations/Retirements 0
Suspensions 0
Reprimands 0
Other 0
Hotline Complaints Received and Related Referral Actions
Investigations 172
Audit 6
Counsel 1
Program Offices 67
Other Agencies 5
Closed at Intake by Hotline Staff* 52
TOTAL 303
*These are complaints closed at intake by the Hotline staff when no action was taken or no referral was required.
26
Program Actions Taken During the Reporting Period as a Result of Investigations
Legislation, Regulations, Standard Operating Procedures, and Other Issuances Reviewed 38
Suspensions and/or Debarments Recommended to the Agency* 22*
—Pending at the Agency as of March 31, 2014** 58
Suspensions Issued by the Agency 8
Proposed Debarments Issued by the Agency 8
Final Debarments Issued by the Agency 9
Proposed Debarments Declined by the Agency 0
Administrative Agreements Entered by the Agency in Lieu of Debarment 3
Suspension and Debarment Actions by Other Agencies 35
Program Actions
—Termination from SBA Programs 1
—Termination from Other Government Programs 0
—Size Determination 0
* The SBA agreed to allow another agency to take lead agency status on one matter before the SBA OIG officially referred the case to the SBA.
Under Federal debarment procedures, when more than one agency has an interest in pursuing a debarment, those agencies confer and deter-
mine which agency will take the action.
* *Some of these referrals have been pending for more than six months. As of March 31, 2014, the SBA had initiated action, or had some form of
exclusion in place, on 33 of the 58 pending referrals from the OIG.
27
Appendix I: OIG Reports Issued
October 1, 2013-March 31, 2014
Small Business Access to Capital
Report Issue Questioned Funds for
Title
Number Date Costs Better Use
Improvement is Needed to Ensure Effective Quality
14-08 1/17/2014 $0 $0
Control at Loan Operation Centers
Purchase Reviews Allowed $3.1 Million in Improper
14-09 1/29/2014 $3,056,552 $0
Payments on 7(a) Recovery Act Loans
Program Subtotal 2 $3,056,552 $0
Agency Management
Report Issue Questioned Funds for
Title
Number Date Costs Better Use
The SBA’s FY 2012 Reported Improper Payment Rate
for Disbursements and Contracting was Inaccurate 14-02 10/24/2013 $235,672 $0
and Incomplete
Audit of SBA’s FY 2013 Financial Statements
14-04 12/16/2013 $0 $0
dated 11/16/13
Audit of SBA’s FY 2013 Special-Purpose Financial
14-05 12/17/2013 $0 $0
Statements dated 11/16/13
Management Letter – SBA’s FY 2013 Financial State-
14-07 1/15/2014 $0 $0
ments Audit
The SBA Did Not Follow Regulations and Guidance 14-10 2/12/2014 $0 $0
Program Subtotal 5 $235,672 $0
28
Small Business Development, Contracting, Education and Training
Report Issue Questioned Funds for
Title
Number Date Costs Better Use
Opportunities Exist to Further Improve Quality and
14-03 11/19/2013 $0 $0
Timeliness of HUBZone Certifications
Program Subtotal 1 $0 $0
Disaster Loans
Funds for
Report Issue Questioned
Title Better
Number Date Costs
Use
Two Economic Injury Disaster Loans Defaulted
After the SBA Made Approval Decisions Totaling
14-06 12/20/2013 $0 $0
$1.4 Million without Mitigating the Reasons for
Prior Denials
Program Subtotal 1 $0 $0
TOTALS (All Programs) 9 $3,292,224 $0
29
Appendix II: Reports
With Questioned Costs
Questioned Unsupported
Reports Recommendations*
Costs** Costs***
No management
A. decision made by 2 8 $6,340,544A $1,730,560A
September 30, 2013
Issued during this report- 2 5 $3,292,224 $362
B.
ing period
Universe from which
management decisions
could be made in this 4 13 $9,632,768 $1,730,922
reporting period –
Subtotals
Management decision(s)
C. made during this report- 3 11 $7,902,208 $362
ing period^
(i) Disallowed costs 0 0 $7,902,208 $362
(ii) Costs not disallowed 0 0 0 0
No management
D. decision made by 1 2 $1,730,560 $1,730,560
March 31, 2014
* Reports may have more than one recommendation.
** Questioned costs are those that are found to be improper.
*** Unsupported costs may be proper, but lack documentation. Unsupported costs are a subset of questioned costs.
A
The numbers in these cells represent reclassification of previously reported amounts from questioned/unsupported costs to
recommended funds for better use.
^ The dollars shown are the amounts reported to management. The actual amounts may change during final resolution.
30
Appendix III: Reports
With Recommendations that Funds Be Put to Better Use
Recommended
Reports Recommendations* Funds For Better
Use
No management decision made
A. 3 7 $89,800,000
by September 30, 2013**
Issued during this reporting
B. period 0 0 $0
Universe from which management
decisions could be made in this 3 7 $89,800,000
reporting period – Subtotals
Management decision(s) made dur-
C. 3 7 $89,800,000
ing this reporting period
(i) Recommendations agreed to
3 7 $89,800,000^
by SBA management
(ii) Recommendations not agreed
to by SBA 0 0 $0
management
No management decision made
D. 0 0 $0
by March 31, 2014
* Reports may have more than one recommendation.
** The numbers in these cells represent reclassification of amounts previously reported as questioned/unsupported costs to recommended
funds for better use.
^
For one recommendation management has agreed to the recommendation but has not made a final decision on the full amount of funds for
better use. The dollars shown are the amounts reported to management. The actual amounts may change during final resolution
31
Appendix IV: Reports
With Non-Monetary Recommendations
Reports Recommendations
A. No management decision made by September 30, 2013* 14 42**
B. Issued during this reporting period 7 55
Universe from which management decisions could be made
21 97
in this reporting period – Subtotals
Management decision(s) made (for at least one recommen-
C. 12 40
dation in the report) during this reporting period
D. No management decision made by March 31, 2014* 12 55
* Adding the number of reports for C. & D. will not result in the subtotal of A. & B. because any single report may have
recommendations that fall under both C. & D.
** Information is different from what was previously reported due to database corrections.
32
Appendix V: Reports
From Prior Periods with Overdue* Management Decisions**
Report Date
Title Status
Number Issued
SBA's Funding of Information Technology Con- Management has not responded to
11-14 6/2/2011
tracts Awarded to ISIKA Technologies, Inc. one recommendation in the report.
Small Business Administration’s Rationale for
Excluding Certain Types of Contracts from the Management has not responded to
12-04 12/6/2011
Annual Small Business Procurement Calcula- five recommendations in the report.
tions Needs to be Documented
The Small Business Administration's Improper
Management has not responded to
Payment Rate for 7(a) Guaranty Purchases Re- 13-07 11/15/2012
two recommendations in the report.
mains Significantly Underestimated
The SBA Mismanaged Certain 8(a) Information Management has not responded to
13-08 2/3/2012
Technology Contracts two recommendations in the report.
The SBA’s Loan Management and Accounting Management has not responded to
13-11 3/12/2013
System Incremental Improvement Projects two recommendations in the report.
SBA’s Inappropriate Contracting Practices to
Management has not responded to
reconfigure Space for the Office of International 13-12 3/26/2013
one recommendation in the report.
Trade
The SBA’s 417 Unauthorized Commitments Im-
Management has not responded to
pacted Mission-Related Services and Increased 13-14 3/28/13
three recommendations in the report.
Costs
Evaluation of SBA’s Implementation of the Management has not responded to
13-19 9/27/2013
GPRA Modernization Act of 2010 one recommendation in the report.
Management has not responded to
Evaluation of SBA 2012 Cash Gifts 13-20 9/26/2013
one recommendation in the report.
SBA’s Enterprise-wide Controls Over Cospon- Management has not responded to
13-21 9/26/2013
sored Activities two recommendations in the report.
Improved Examination Quality Can Strengthen
Management has not responded to
SBA’s Oversight of Small Business Investment 13-22 9/30/2013
three recommendations in the report.
Companies
*“Overdue” is defined as more than 180 days from the date of issuance.
**Overdue as of March 31, 2014.
33
Appendix VI: Reports
Without Final Action as of March 31, 2014
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The two recommendations remaining
open are to the Office of the Chief Finan-
cial Officer (OCFO) to revise, clear and
issue the draft SOP 00 02 3 and clearly
Audit of
define material weakness as it relates to
SBA's Process
SBA and at the different levels of man-
for Comply-
agement within the Agency. The current
ing with the
SOP was substantially rewritten in FY
4-34 Federal Man- 7/29/04 9/9/04 6/30/13
2013; however, it was not completed due
agers' Finan-
to the Office of Management and Budg-
cial Integrity
et’s announcement that their guidance
Act Reporting
will be updated in FY 2014 to align with
Requirements
the GAO’s new guidance in the Green
Book. The anticipated completion date is
9/30/14, dependent on the issue date of
OMB’s new guidance.
There is one open recommendation to
the Office of the Chief Financial Officer
to update the accounting SOP to include
SBA’s policies and procedures to reflect
the GL accounts and data field updated
for each transaction. The accounting Pro
FY 2005 forma on LAS transactions is available in
Financial “table format” in the CGL, but data field
6-10 Statements - 1/18/06 3/7/06 9/30/13 updates are not shown. SBA will work
Management with OCA to develop this documentation
Letter through an automated process. Work on
this project will not start until FY 2014
after the OCA/OCIO completion of the
Loan Management and Accounting Sys-
tem project. This audit recommendation
is expected to have a final action by
09/30/2014.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
34
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
One recommendation remains open
to the Office of Capital Access
(OCA) to establish risk mitigation
goals applicable to each loan pro-
gram and the entire lending portfo-
lio. OCA will develop program level
performance benchmarks and risk
mitigation goals for each 7(a) loan
program and the entire 7(a) portfo-
Oversight of
lio based on OCRM’s PARRiS frame-
8-12 SBA Supervised 5/9/08 6/20/08 12/31/14
work. The PARRiS assessment sys-
Lenders tem is designed to measure the level
of risk at the lender, program and
portfolio level. The program and
portfolio risk mitigation goals will
focus on Performance, Asset man-
agement and Regulatory perfor-
mance – utilizing the current met-
rics framework. Expected comple-
tion of this final action is 12/31/2014.
The two open recommendations are
to the Office of Financial Assistance
to reinforce the importance of
the collateral analysis in an updated
SOP and ensure the revised Disaster
Audit of SBA’s
Loan SOP identifies procedures re-
Fiscal Year 2008
lated to the disposition of collateral.
Financial State-
9-05 12/17/08 2/18/09 12/31/13 OFPO issued a collateral release
ments –
memorandum to staff in June 2011
Management
reinforcing this information. SOP
Letter
50 52 in final draft and is being pre-
pared for Agency Clearance by the
end of the calendar year. The final
action due date for this recommen-
dation is 12/31/13.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
35
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The remaining recommendation for
this audit is to the Office of the Ad-
ministrator to require the LMAS
Adequacy of
Quality Assurance plan to incorpo-
Quality Assur-
rate all the components required by
ance Oversight of
the enterprise-wide QA plan. The
10-14 the Loan Man- 9/13/10 10/21/10 6/13/10
ITQA SOP was updated and SBA has
agement and
demonstrated significant progress in
Accounting Sys-
implementing a quality assurance
tem Project
process by conducting QA reviews.
The expected final action is expected
by September 2014.
The remaining recommendation on
this audit is to the Office of Capital
Access to require the lenders have
25 purchased loans to bring the
Material Defi- loans into compliance or recover the
ciencies Identi- $375,259 in paid guaranties. Twenty
fied in Early- -four out of 25 loans have been re-
ROM
Defaulted and 9/24/10 4/1/11 1/31/13 solved. The final loan is currently in
10-19
Early-Problem the dispute resolution process and a
Recovery Act decision is being reviewed by the
Loans Office of Financial Assistance to
ensure policy compliance. Once the
review is completed, a determina-
tion on the loan and potential repair
will be instated.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
36
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The eight recommendations are to
the Office of the Chief Information
officer to (1) require an updated list
of Major Systems and their interfac-
es; (2) manage, control, and monitor
system interconnections throughout
their lifecycle; (3) develop configura-
tion management policies and pro-
cedures; (4) develop and maintain a
centralized inventory of all Agency
hardware and software; (5) develop
and document baseline configura-
tion for each information system;
and (6) develop and test disaster
recovery plans. Status for these rec-
ommendations include (1) A total
count of all interconnections was
completed and Interconnection Ser-
Weaknesses
vice Agreements (ISAs) for FISMA-
Identified During
11-06 1/28/11 3/28/11 9/30/11 reportable systems are being ob-
the FY 2010 FIS-
tained. Estimated completion of the
MA Review
final action is 9/30/14. (2) SOP 90 47
3, published 10/10/12, requires sys-
tem owners to manage system inter-
connections in accordance with
NIST requirements. SBA personnel
had one year to implement the re-
quirements of the SOP. OCIO is
working with the OIG to close this
recommendation. The final action
completion date is estimated to be
12/31/13. (3) Configuration Manage-
ment policy is being developed to
incorporate enterprise change con-
trol. The final action completion
date is estimated to be 9/30/13. (4)
An enterprise-wide asset manage-
ment tool will be procured to cen-
trally manage assets.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
37
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
(5) A gap analysis was conducted to
determine which applications need
to have a baseline established. A
project is underway to establish
baselines for all systems agency
hardware and software. Final action
completion is estimated to be
9/30/14. (6) For externally hosted
moderate impact and high-impact
systems, disaster recovery tests were
performed. There currently is no
disaster recovery solution for inter-
nally-hosted systems and therefore
only table top tests were performed.
A solution is being identified to
meet the disaster recovery tests per
NIST requirements. The final com-
pletion date is estimated to be
9/30/14.
The recommendation is to the
Office of Capital Access to revise the
SOP to provide detailed instructions
for processing insurance recovery
checks. OFPO developed and issued
Processing of
a duplication and benefits logic tree
Insurance Recov-
and narrative to assist in the pro-
11-07 ery Checks at the 2/10/11 4/7/11 6/30/14
cessing of insurance recovery
Disaster Loan
checks. Additionally, SOP 50 52 in
Servicing Centers
final draft and is being prepared for
Agency Clearance by the end of the
calendar year. The final action due
date for this recommendation is
12/31/13.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
38
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The six recommendations are to the
Office of the Chief Financial Officer
to determine if awards were made or
funds should be de-obligated on 66
purchase requisitions; to perform
routine reconciliation of executed
awards to FPDS-NG.gov; to deploy
an independent statistical verifica-
tion and validation of all SBA trans-
actions; to determine if Recovery
Act funds were used to fund 13 con-
tracts; to develop a data quality
Quality of SBA's
plan; and to monitor contractor re-
ROM Recovery Act
3/22/11 10/6/11 ** ported information and prime con-
11-04 Data on Public
tractor information for accuracy.
Websites
The OCFO is researching data to
resolve the contract funding issues
and is developing procedures to en-
sure data accuracy in the future.
The independent verification and
validation of SBA transactions and
the revision of the data quality plan
have been implemented; follow-up
with the OIG should close these
issues. Final actions for all recom-
mendations are estimated to be
9/30/14.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
39
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The two recommendations are to
the Office of Financial Programs to
(1) develop record designation re-
quirements for all loan servicing
documents and incorporate the
guidance into SOP 50 52 and (2) to
revise the SOP to preserve the anal-
yses performed to conduct all servic-
ing actions. (1) Electronic record-
Management
keeping guidelines internal desk
Advisory Report
document was developed and issued
on Records Man-
to center personnel in February
agement and
11-10 3/29/11 6/20/11 6/30/14 2012. Additionally, SOP 50 52 in final
Documentation
draft and is being prepared for
Process at the
Agency Clearance by the end of the
Disaster Loan
calendar year. The final action due
Servicing Centers
date for this recommendation is
12/31/13. (2) A memorandum was
issued to staff and has been rein-
forced with training. Additionally,
SOP 50 52 in final draft and is being
prepared for Agency Clearance by
the end of the calendar year. The
final action due date for this recom-
mendation is 12/31/13.
The two remaining recommenda-
tions are to the Office of the Chief
Financial Officer and require a re-
view of funding to ensure SBA did
not violate the Anti-Deficiency Act
SBA's Funding of
during a Continuing Resolution in
Information
2011 and a review of SBA’s funding
Technology Con-
11-14 6/2/11 8/1/11 12/31/11 procedures. The OCFO is research-
tracts Awarded
ing the funding issue to ensure
to ISIKA Tech-
funds were not inappropriately obli-
nologies, Inc.
gated and will review written poli-
cies and procedures to ensure work
is performed in compliance with the
FAR. Final action completion date is
estimated to be 9/30/14.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
40
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
Explanation: The six open recom-
mendations are to the Office of
the Chief Information Officer
and require (1) coordination with
SBA program offices to enhance
security vulnerability manage-
ment processes; (2) prevent users
from connecting unauthorized
devices by implementing manda-
tory domain authentication for
Internet Protocol address issu-
ance; (3) ensure that information
systems hosted by third parties
comply with SBA policy and
NIST guidance; (4) Oversee the
review and validation of financial
system accounts quarterly; (5)
monitor the audit logs of all fi-
nancial applications regularly;
Independent
and (6) create, implement, and
Auditors' Report
test system specific and the HQ
12-02 on the SBA's FY 11/14/11 12/22/11 **
COOP. Resolution activities in-
2011 Financial
clude (1) OCIO hired contractors
Statements
to assist in the security manage-
ment process; estimated comple-
tion date is 9/30/14; (2) (3) The
802.1x solution has been fully
implemented and the OCIO is
working with the OIG to close
this recommendation. Estimated
completion date is 12/31/13. (4)
Remediation activities are in pro-
cess. Estimated completion date
is 9/30/14. (5) A project is under-
way to implement a centralized
audit logging tool. Procedures
will be developed to periodically
review system audit logs. Esti-
mated completion date is 9/15/15.
(6) Remediation activities are in
process. Estimated completion
date is 9/30/14.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
41
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The two remaining recommenda-
tions are to the Office of Capital
Access and require that (1) loan
officers evaluate the creditwor-
thiness of borrowers on early
default loans during the purchase
FY 2011 Review of
and improper payment review
12-10 SBA’s Improper 3/15/12 5/15/12 4/30/14
processes; and (2) OCA conduct
Payments
a cost/benefit analysis for pay-
ment recapture audits of 7(a)
purchases. For (1) OCA made
improvements to the purchase
checklist but OIG identified addi-
tional items.
The two remaining recommenda-
tions are to the Office of Capital
Access and require that (1) a loan
be reviewed for potential recov-
High-Dollar Ear- ery of $1,330,708 plus interest;
ly-Defaulted and (2) trained loan specialists
Loans Require an perform purchase reviews on
Increased Degree early defaulted loans above the
of Scrutiny and purchase amount of $500,000.
12-11R 3/23/12 9/4/13 12/31/13
Improved Quali- The loan in (1) is currently in
ty Control at the review by portfolio management
National Guar- and undergoing the dispute reso-
anty Purchase lution process. For (2) OFPO
Center agreed to modify its process and
will incorporate repayment abil-
ity guidance as indicated in the
new issuance SOP 50-10 5F, effec-
tive January 1, 2014.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
42
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The remaining recommendation
is to the Office of General Coun-
sel and recommends collabora-
tion with the Offices of Strategic
Alliances and the Chief Financial
Officer to issue SOP 90.53. OIG
recommends four specific in-
Review of the
12-13 3/30/12 6/19/12 6/30/13 clusions to SBA’s policies and
SBA’s Cash Gifts
procedures. The SOP was com-
pleted for review in November
2012; OGC is now evaluating the
comments to ensure compliance
with various laws and policies.
Estimated completion date is
9/30/14.
The four recommendations are
to the Office of Capital Access
and recommends that (1) specific
actions be taken for loans over
180 days delinquent that are se-
cured by collateral; (2) immedi-
ately charge-off loans over 180
days delinquent not secured by
collateral; 3) Update SOP’s to
include Debt Collection Im-
The Small Busi-
provement Act and Treasury
ness Administra-
Managing Federal Receivables
tion did not
Guide requirements; and (4) pro-
Maximize Recov-
vide training on DCIA and Treas-
12-14 ery for $171.1 Mil- 7/2/12 * **
ury’s guide. OCA is currently
lion in Delin-
working with the Department of
quent Disaster
Treasury to develop a process for
Loans In Liqui-
referring collateralized debt un-
dation
der a new Agency Profile that
will allow SBA to maintain com-
promise authority. Training in
DCIA has been provided and will
be again, in addition to training
provided by the Department of
Treasury. Additionally, SOP 50
52, which provides DCIA guid-
ance, is in its final draft form.
Estimated completion is 12/31/13.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
43
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The three remaining rec-
ommendations are to the
Office of the Chief Infor-
mation Officer and re-
quire (1) development of
an overall strategy to im-
plement OIG recommen-
dations on FISMA securi-
ty requirements; (2) per-
form recertification re-
views of agency general
support systems or design
compensating controls;
and (3) continuously
Weaknesses Identi-
monitor remote access
fied During the FY
audit logs for unauthor-
2011 Federal Infor-
12-15 7/16/12 8/16/12 ** ized activity. OCIO will
mation Security
(1) hold weekly meetings
Management Act
to prioritize and monitor
Review
remediation progress on
OIG recommendations
and provide a report to
the CIO; (2) perform
recertification reviews for
users of the general sup-
port systems; and (3) im-
plement a process to re-
view VPN logs on an on-
going basis to timely
identify and mitigate un-
authorized activity. Esti-
mated completion date is
9/30/14.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
44
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The two recommenda-
tions are to the Office of
the Chief Financial
Officer and require that
purchase cardholders
have current delegation
The Small Business letters that reflect limita-
Administration's tions and approving offi-
Inappropriate Use cials and that training be
12-16 of the Government 8/6/12 9/11/12 ** provided by OCFO on the
Purchases Card for proper use of government
Construction purchase cards to include
Purchases the definition of construc-
tion. The OCFO has com-
pleted both actions and
will work with the OIG to
close these recommenda-
tions. Estimated comple-
tion date is 4/30/14.
The three recommenda-
tions are to the Office of
Capital Access and re-
quire (1) revision of the
purchase process to verify
lender’s compliance with
SBA’s repayment ability
requirements; (2) training
A Detailed Repay- of purchase staff on re-
ment Ability Analy- payment ability require-
sis is Needed on ments; and (3) perform a
12-18 High-Dollar Early- 8/16/12 * ** cost/benefit analysis for
Defaulted Loans to detailed reviews of early
Prevent Future Im- defaulted loans of less
proper Payments than $500,000. OFPO
agreed to modify the pro-
cess and incorporate re-
payment ability guidance
as indicated in the SOP 50
-10 5F, effective January 1,
2014. The estimated com-
pletion date is March 31,
2014.
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
45
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
OFPO will also produce a
determination on the
funds for better use calcu-
lation developed by the
OIG. In addition, staff is
being trained with a com-
pletion date of 11/30/13.
Further, a risk assessment
is being performed with a
completion date of 11/5/13.
The two recommenda-
tions are to the Office of
the Chief Financial
Officer and require that a
review of previously rati-
fied unauthorized com-
mitments and remaining
The SBA’s Ratifica- ratification actions for
tion Process Could Anti-Deficiency Act viola-
12-22 Lead to Possible 9/28/12 10/12/12 3/31/13 tions. The OCFO re-
Anti-Deficiency Act viewed the ratified com-
Violations mitments and confirmed
that no Anti-Deficiency
violations occurred. The
OCFO is working with the
OIG to close these recom-
mendations. Anticipated
completion date is
4/30/14.
Benefits of Mentor
Protégé Joint Ven-
tures are Un-
known: Robust
13-03 10/23/12 1/24/13 9/30/13 Not Reported in AFR
Oversight is Need-
ed to Avoid Abuse
and Assure Suc-
cess
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
46
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
Independent Audi-
tor's Report on the
13-04 11/14/12 * ** Not Reported in AFR
SBA's FY 2012 Fi-
nancial Statements
The Small Business
Administration's
Improper Payment
13-07 Rate for 7(a) Guar- 11/15/12 3/12/13 4/30/14 Not Reported in AFR
anty Purchases Re-
mains Significantly
Underestimated
The SBA Misman-
aged Certain 8(a)
13-08 12/3/12 * ** Not Reported in AFR
Information Tech-
nology Contracts
Audit of the SBA’s
FY 2012 Financial
13-09 12/11/12 * ** Not Reported in AFR
Statements - Man-
agement Letter
The SBA’s Loan
Management and
13-11 Accounting System 3/12/13 * ** Not Reported in AFR
Incremental Im-
provement Projects
The SBA’s Portfolio
Risk-Management
13-17 7/2/2013 9/30/2013 ** Not Reported in AFR
Program Can be
Strengthened
Purchase Reviews
Allowed $4.6 mil-
lion in Improper
13-16R 6/14/13 3/28/14 ** Not Reported in AFR
Payments on 7(a)
Recovery Act
Loans
The SBA’s Portfo-
lio Risk-
13-17 Management Pro- 7/2/13 9/30/13 8/1/14 Not Reported in AFR
gram Can be
Strengthened
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
47
Final
Date of Explanation as
Report Date Action
Title Management Submitted in
Number Issued Target
Decision* FY 2013 AFR
Date**
The SBA Did Not
Effectively Manage
Defaulted Disaster
13-18 9/27/13 3/30/14 3/24/15 Not Reported in AFR
Loans to Maximize
Recovery From
2006-2011
SBA’s Enterprise-
wide Controls
13-21 9/26/13 1/23/14 12/12/14 Not Reported in AFR
Over Cosponsored
Activities
* Management decision dates vary with different recommendations.
**Target dates vary with different recommendations.
48
Appendix VII: Significant Recommendations
From Prior Reporting Periods Without Final Action as of March 31, 2014
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
Revise the LMAS QA plan to incorporate all
10-14 9/13/10 the components required by the enterprise- 10/21/10 6/13/10
wide QA plan.
Require the lenders to bring the 25 pur-
ROM chased loans with material deficiencies into
9/24/10 4/1/11 1/31/13
10-19 compliance and recover the $375,259 in guar-
anties paid.
Update the list of Major Systems to include
all the interfaces between each system and all
other systems and networks, including those
not operated by, or under the control of the
11-06 1/28/11 3/28/11 9/30/11
agency and obtain written Interconnection
Security Agreements for every SBA system
that has an interconnection to another sys-
tem.
Establish a program at SBA to manage, con-
trol and monitor system interconnections
throughout their lifecycle. The program
11-06 1/28/11 should encompass planning, establishing, 3/28/11 9/30/11
maintaining, and terminating system inter-
connections, including enforcement of secu-
rity requirements.
Develop and maintain a centralized invento-
11-06 1/28/11 ry of all agency hardware and software. 3/28/11 9/30/11
Research the $21,627,140 in this report to de-
termine whether the award has been made or
ROM
3/22/11 the funds should be deobligated. This re- 10/6/11 6/30/12
11-04
search should result in these actions being
posted to FPDS.gov.
Deploy an independent statistical verification
ROM
3/22/11 and validation of all SBA transactions award- 10/6/11 6/30/12
11-04
ed and subsequently reported to FPDS.gov.
Research the $695,157 in this report to deter-
mine the disposition of these awards and
ROM whether Recovery Act funds were actually
3/22/11 10/6/11 1/31/12
11-04 used to fund the awards. If not, these awards
need to be corrected in PRISM, FPDS.gov,
and the contract files.
Develop and implement a data quality plan
ROM that documents processes to ensure timely,
3/22/11 10/6/11 6/30/12
11-04 accurate, and complete submission of con-
tracts data to USASpending.gov.
49
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
Implement continuous monitoring procedures
to ensure that contractor-reported infor-
ROM
3/22/11 mation is correct and accurate, and that all 10/6/11 12/31/11
11-04
prime contractors are accurately reporting the
use of subcontractors.
Develop record designation and retention
requirements for all loan servicing documents
and coordinate with the Office of Manage-
ment & Administration to incorporate this
11-10 3/29/11 6/20/11 6/30/14
guidance into SOP 50 52. The requirements
should specify which documents should be
designated as records, and therefore retained,
and for how long.
Revise SOP 50 52 to include a requirement to
preserve the analyses performed to conduct all
servicing actions. A summary of the analysis
should be present on the Form 327 and the
11-10 3/29/11 detail of the analysis should accompany the 6/20/11 6/30/14
SBA Form 327 action. The analysis should
include sufficient detail to permit an outside
party, not connected with the transaction, to
verify the accuracy of the decision.
Establish procedures to discontinue SBA's
11-14 6/2/11 practice of inappropriately obligating funds on 8/1/11 12/31/11
contracts in anticipation of future needs.
Recommend the CIO coordinate with the SBA
program offices to enhance security vulnera-
bility management processes. Specifically, the
SBA should: (a) redistribute procedures and
train employees on the process for reviewing
and mitigating security vulnerabilities, (b)
periodically monitor the existence of unneces-
sary services and protocols running on their
servers and network devices, (c) perform vul-
nerability assessments with administrative
12-02 11/14/11 credentials and penetration tests on all SBA 12/22/11 3/31/12
offices from a centrally managed location with
a standardized reporting mechanism that al-
lows for trending, on a regularly scheduled
basis in accordance with NIST guidance, (d)
develop a more thorough approach to track
and mitigate configuration management vul-
nerabilities identified during monthly scans,
and (e) monitor security vulnerability reports
for necessary or required configuration chang-
es to their environment.
50
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
Coordinate with SBA program offices to ensure
that information systems hosted by third par-
12-02 11/14/11 12/22/11 9/29/12
ties comply with SBA policy and NIST guid-
ance.
Coordinate with SBA program offices to over-
12-02 11/14/11 see the review and validation of financial sys- 12/22/11 4/30/12
tem accounts on a quarterly basis.
Coordinate with SBA program offices to imple-
12-02 11/14/11 ment a process to monitor the audit logs of all 12/22/11 3/30/12
financial applications on a regular basis.
Revise the Goaling Guidelines for the Small
Business Preference Programs to include con-
Target date not
12-04 12/16/11 tracts awarded and/or performed overseas in Overdue
established.
the small business goaling baseline beginning
with fiscal year 2011.
Require loan officers to thoroughly evaluate
creditworthiness (including repayment ability)
12-10 3/15/12 5/15/12 4/30/14
on early default loans during both guaranty
purchase and improper payment reviews
Upon completing the revised improper pay-
ment rate projection for 7(a) purchases, con-
12-10 3/15/12 duct a detailed and objective cost/benefit anal- 9/26/12 10/4/13
ysis for payment recapture audits of 7(a) pur-
chases.
Establish a specialized unit of well-trained,
highly experienced loan specialists to perform
purchase reviews with the level of scrutiny
12-11R 3/23/12 10/19/12 5/30/14
necessary to identify all material deficiencies
on early-defaulted loans approved for $500,000
or more.
51
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
Take the following actions for disaster loans in
liquidation status delinquent over 180 days that
are secured by collateral, but not specifically
exempt from referral to Treasury:
• Evaluate whether prompt foreclosure is feasi-
ble.
12-14 7/2/12 • Initiate foreclosure proceedings promptly on 3/31/14 3/24/15
loan collateral for which the NDLRC has de-
termined that foreclosure is feasible.
• Charge off loans for which the NDLRC has
determined that foreclosure on the collateral
is not feasible and ensure transfer of the debts
to Treasury FMS for cross servicing.
Immediately charge off all disaster loans in liqui-
dation status delinquent over 180 days and not
12-14 7/2/12 3/31/14 3/24/15
secured by collateral, or specifically exempt from
referral to Treasury.
Develop an overall strategy to timely implement
12-15 7/16/12 audit recommendations issued by the the OIG 8/16/12 10/30/12
relating to FISMA security requirements.
Direct the NGPC to revise its purchase process
for high-dollar early-defaulted loans approved
by lenders to verify compliance with SBA’s re- Target date not
12-18 8/16/12 Overdue
payment ability requirements, including the established.
performance of a detailed analysis of the lenders’
computation of repayment ability.
Develop specific, measurements (outputs and
13-03 10/23/12 outcomes) to evaluate benefits of the joint ven- 1/24/13 9/30/13
ture agreements to the protégé.
Ensure that database administrator and system
administrator access is restricted through role-
13-04 11/14/12 based segregation of duties and managed 3/8/13 3/1/14
through an effective audit log review process.
Enforce an organization-wide configuration
management process, to include policies and
13-04 11/14/12 procedures for maintaining documentation that 3/8/13 9/30/14
supports testing and approvals of software
changes.
Create a more comprehensive improper pay-
ment detection checklist for reviewing 7(a) guar-
13-07 11/15/12 anty purchases to address the many require- 3/12/13 4/30/14
ments that reviewers must be familiar with
when conducting improper payment reviews.
52
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
Seek recovery of $1,016,116, less subsequent
liquidation recoveries from American Busi-
Target date not
13-07 11/15/12 ness Lending, Inc. for loan number Overdue
established.
3646765010 to Gregory L. Ratcliff (Pioneer
Discount Furniture, Inc.).
Seek recovery of $714,444, less subsequent
liquidation recoveries from Community South Target date not
13-07 11/15/12 Overdue
Bank for loan number 3076325004 to Water- established.
Well Investments (Splash and Dash).
Recover $12,073 from iTechnologies for pay-
13-08 12/3/12 2/5/13 9/30/13
ments the contractor received in duplicate.
Initiate debarment proceedings for TLE and
its officials to prohibit future contracting with
13-08 12/3/12 1/18/13 4/1/13
any agency of the Executive Branch of the
United States government.
Conduct an internal control review of SBA’s
acquisition function in compliance with OMB
Target date not
13-08 12/3/12 Circular A-123 and OMB Memorandum, Con- Overdue
established.
ducting Acquisition Assessments under OMB
Circular A-123.
Adopt a new IIP under LMAS to facilitate the
13-11 3/12/13 transfer of data and move its new COBOL 9/12/13 4/11/14
code to a full production environment
Ensure that the Root Cause Analysis IIP be
revised so that it conforms to the scope origi-
nally approved by the BTIC. The Root Cause
Analysis should identify the most critical
13-11 3/12/13 business needs of the SBA, analyze remaining 6/28/13 4/15/14
issues when each LMAS-IIP is completed, and
develop plans to prioritize additional projects
to address SBA’s most important business
needs.
Implement an Independent Verification and
Validation program for the LMAS-IIP that
13-11 3/12/13 9/12/13 9/20/15
tests and validates that each IIP meets its
program and functional requirements.
For purchase order SBAHQ-11-M-0018, review
all invoices and make a determination of
Target date not
13-12 3/26/13 whether all the work that was billed to the Overdue
established.
SBA was actually performed. If not, the CO
should take appropriate action.
53
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
Seek recovery of $1,425,247 from Compass
13-16R 6/14/13 Bank on the guaranty paid by SBA for the loan 3/28/14 3/31/15
to Christopher W. Risenhoover.
Seek recovery of $669,963 from The Washing-
ton Trust Company on the guaranty paid by
13-16R 6/14/13 3/28/14 3/31/15
the SBA for the loan to Bernie’s Fuel Oil Com-
pany
Seek recovery of $967,869 from High Trust
13-16R 6/14/13 Bank on the guaranty paid by SBA for the loan 3/28/14 3/31/15
to Metalflex Manufacturing
Seek recovery of $555,368 from Monadnock
13-16R 6/14/13 Community Bank on the guaranty paid by SBA 3/28/14 3/25/15
for the loan to PCL Group, LLC.
Seek recovery of $310,637 from Plaza Bank on
13-16R 6/14/13 the guaranty paid by SBA for the loan to Tiger 3/28/14 3/31/15
Manufacturing.
Seek recovery of $680,900 from American
Bank of Commerce on the guaranty paid by
13-16R 6/14/13 3/28/14 3/31/15
SBA for the loan to RedCastle Manufacturing
LLC.
Implement a portfolio risk-management pro-
13-17 7/2/2013 gram that analyzes risk across portfolio seg- 9/30/13 8/1/14
ments.
We recommend the Office of Strategic Alli-
ances establish controls, such as a reporting
system, to ensure that all activities are timely
13-21 9/26/2013 and properly closed out, and that all required 1/23/14 12/1/14
documents and reports, as specified in SOP 90
75 3, are obtained.
We recommend the Associate Administrator,
under the provisions of FMFIA, perform peri-
odic quality service reviews to include cospon- Target date not
13-21 9/26/2013 Overdue
sorship files and funds disposition, verifying established.
any expenses paid out of cosponsored income
are appropriate.
We recommend that the Director, Office of
Financial Program Operations, mandate that
the NDLRC comply with the DCIA and, devel-
op, and implement management controls and
13-18 9/27/2013 processes related to debts, to ensure 3/31/14 3/24/15
a. That all eligible charged off loans now des-
ignated with loan status comment code “66”
are transferred to Treasury for cross servicing
promptly.
54
Date of
Report Date Final Action
Recommendation Management
Number Issued Target Date
Decision
We recommend that the Director, Office of
Financial Program Operations, mandate that
the NDLRC comply with the DCIA and, devel-
op, and implement management controls and
processes related to debts, to ensure
13-18 9/27/2013 3/30/14 3/24/15
a. That the NDLRC does not designate loans
charged off in the future to block their trans-
fer to Treasury for cross servicing because the
loans have un-liquidated real estate collateral.
We recommend that the Director, Office of
Financial Program Operations, mandate that
the NDLRC comply with the DCIA by devel-
oping and implementing management con-
trols and processes related to debts, to ensure
13-18 9/27/2013 3/30/14 3/24/15
a. The Transfer of all legally enforceable
debts already charged off, to Treasury for
cross servicing. (Note: $6.36 m via cross ser-
vicing plus $5.98 m via offset.)
We recommend that the Director, Office of
Financial Program Operations, mandate that
the NDLRC comply with the DCIA by devel-
oping and implementing management con-
trols and processes related to debts, to ensure
13-18 9/27/2013 b. That all debtors associated with charged 3/31/14 3/27/15
off legally enforceable debts, required to be
transferred to Treasury for cross servicing and
offset, are successfully transferred. (Over the
next two years: $2.54 m from transferring non
-66 coded loans to cross servicing plus $2.39
m from transferring debts to offset.)
55
Appendix VIII: Significant Recommendations
October 1, 2013-March 31, 2014
Report Date
Title Recommendation
Number Issued
Include all improper payment errors reportable
The SBA’s FY 2012 Reported
under Office of Management and Budget
Improper Payment Rate for
(OMB) guidance in the improper payment rate
14-02 Disbursements and Con- 10/24/2013
calculation for FY 2013 or obtain OMB approval
tracting was Inaccurate and
before excluding errors such as those identified
Incomplete
in Appendix IV to this report.
The SBA’s FY 2012 Reported
Conduct a review of all invoices pertaining to
Improper Payment Rate for
contract number SBAHQ-11-F-0027 (sample
14-02 Disbursements and Con- 10/24/2013
item 39) and recover all unauthorized overage
tracting was Inaccurate and
charges and insurance fees from the vendor.
Incomplete
Determine whether the charges for the CPICA
The SBA’s FY 2012 Reported CPIC Analyst labor category pertaining to con-
Improper Payment Rate for tract number SBAHQ-10-D-0010 were proper
14-02 Disbursements and Con- 10/24/2013 and within the scope of the contract. If not, take
tracting was Inaccurate and appropriate action(s), including pursuing reim-
Incomplete bursement from the vendor, to protect the in-
terest of the government.
Opportunities Exist to Fur- Review the HUBZone certification process and
ther Improve Quality and identify a means to meet the deadlines estab-
14-03 11/19/2013
Timeliness of HUBZone Cer- lished by regulation, through an improved busi-
tifications ness process.
Opportunities Exist to Fur-
Review the certification of the three firms iden-
ther Improve Quality and
14-03 11/19/2013 tified by the OIG in this report for possible de-
Timeliness of HUBZone Cer-
certification.
tifications
Update HUBZone guidance based on the cur-
rent certification process, which includes the
full supporting documentation review. Consid-
Opportunities Exist to Fur-
er incorporating into the guidance a search of
ther Improve Quality and
14-03 11/19/2013 FPDS-NG database to ensure the firm is not
Timeliness of HUBZone Cer-
receiving contracts with HUBZone status during
tifications
the HUBZone application review and a method
to maintain a complete history of the firm's
status in the DSBS.
KPMG recommends that the Chief Information
Officer coordinates with SBA program offices to
Audit of SBA’s FY 2013 Fi- address the existing configuration management
14-04 nancial Statements dated 12/16/2013 vulnerabilities noted during our assessment to
11/16/13 be in compliance with SBA policy and SBA Vul-
nerability Assessment Team (VAT) Internal
Operating Procedures, Version 1.4.
56
Report Date
Title Recommendation
Number Issued
In addition, implement procedures to ensure the
consistent implementation and monitoring of
SBA approved security configuration baselines
across SBA’s workstations, servers, databases,
network devices, and other security relevant ap-
pliances.
KPMG recommends that the Chief Financial
Officer and the Associate Administrator, Office
Audit of SBA’s FY 2013 Finan-
14-04 12/16/2013 of Disaster Assistance, implement scans of finan-
cial Statements dated 11/16/13
cial systems in its production environment using
privileged access authorization.
KPMG recommends that the Chief Information
Officer coordinates with SBA program offices to
enforce a network access security baseline(s)
Audit of SBA’s FY 2013 Finan-
14-04 12/16/2013 across the network, consistent with SBA security
cial Statements dated 11/16/13
policy, Office of Management and Budget direc-
tives, and United States Government Configura-
tion Baseline requirements.
KPMG recommends that the Chief Information
Officer coordinates with the SBA program offices
Audit of SBA’s FY 2013 Finan- to review the list of individuals with HQ data
14-04 12/16/2013
cial Statements dated 11/16/13 center access permissions periodically, to ensure
that only authorized personnel retain access to
the HQ data center.
KPMG recommends that the Chief Information
Officer coordinates with SBA program offices to
improve SBA’s administration of logical system
access by taking the following actions:
1) Implement an effective off-boarding process
and verify periodically that controls to remove
logical access for separated employees from SBA
systems are implemented and operating as de-
Audit of SBA’s FY 2013 Finan- signed;
14-04 12/16/2013
cial Statements dated 11/16/13
2) Establish a process for the identification and
removal of separated contractors in order to help
ensure that access is timely removed upon con-
tractor separation; and
3) Remove access to the general support systems
and major applications (including development
and test environments) timely when terminated
employees and contractors are identified.
57
Report Date
Title Recommendation
Number Issued
KPMG recommends that the Chief Information
Officer coordinates with the SBA program offices
to address the vulnerabilities noted during the
FY 2013 audit, to be in compliance with SBA poli-
cy and SBA Vulnerability Assessment Team
Audit of SBA’s FY 2013 Finan-
14-04 12/16/2013 (VAT) Internal Operating Procedures, Version
cial Statements dated 11/16/13
1.4. In addition, implement procedures to ensure
the consistent identification, tracking, and reso-
lution of security vulnerabilities across SBA’s
workstations, servers, databases, network devic-
es, and other security relevant appliances.
KPMG recommends that the Chief Information
Officer coordinates with SBA program offices to
grant elevated network privileges per business
Audit of SBA’s FY 2013 Finan- needs only and enforce the concept of least privi-
14-04 12/16/2013
cial Statements dated 11/16/13 lege or implement mitigating controls to ensure
that activities performed using privileged net-
work accounts (including service accounts) are
properly monitored.
KPMG recommends that the Associate Adminis-
trator, Office of Capital Access, in coordination
with the Chief Information Officer, designs and
implements a combination of preventative and
Audit of SBA’s FY 2013 Finan-
14-04 12/16/2013 detective controls to address the issues and relat-
cial Statements dated 11/16/13
ed risks in the condition above, and ensure an
auditable trail of software changes is maintained
to prevent and detect unauthorized changes to
production programs.
Quality Control Program at Ensure the proper allocation of resources and
the National Guaranty Pur- scoping of the quality control program to com-
14-08 1/17/2014
chase Center and Loan Ser- plete required quality control activities at the
vicing Centers for 7(a) loan operation centers.
Purchase Reviews Allowed #1 - Seek recovery of $1,473,770 (less any amounts
$3.1 Million in Improper Pay- received from liquidation) from TD Bank on the
14-09 1/29/2014
ments on 7(a) Recovery Act guaranty paid by the SBA for the loan to Emer-
Loans son Holdings, Corp.
Purchase Reviews Allowed #3 - Seek recovery of $897,091 (less any amounts
$3.1 Million in Improper Pay- received from liquidation) from Liberty Bank on
14-09 1/29/2014
ments on 7(a) Recovery Act the guaranty paid by the SBA for the loan to
Loans Dinh V. Luong d/b/a Old Matt's Guesthouse.
58
Report Date
Title Recommendation
Number Issued
#2 - Seek recovery of $685,691 (less any amounts
Purchase Reviews Allowed
received from liquidation) from Florida Com-
$3.1 Million in Improper Pay-
14-09 1/29/2014 munity Bank (formerly First Peoples Bank) on
ments on 7(a) Recovery Act
the guaranty paid by the SBA for the loan to TJ
Loans
Truss Corp.
The SBA Did Not Follow Reg- Conduct a requirements analysis in addition to
ulations and Guidance in the a cost assessment of the system to determine
14-10 2/12/2014
Acquisition of the OneTrack what still needs to be developed to achieve the
System objectives of the final system.
The SBA Did Not Follow Reg- Ensure all appropriate provisions (e.g. testing,
ulations and Guidance in the conversion, and installation procedures) of the
14-10 2/12/2014
Acquisition of the OneTrack SDM guidance are met prior to placing
System OneTrack into production.
The SBA Did Not Follow Reg- Ensure that only Government employees - not
ulations and Guidance in the Government contractors - provide oversight of
14-10 2/12/2014
Acquisition of the OneTrack any additional contracts used to develop and
System implement the OneTrack system.
59
Appendix IX: Cosponsored & Other Activities
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
Government Contracting Vermont DO - Vermont Small Business
Vermont
Workshop Series Development Center, Vermont Procure- 10/30/2013
Statewide
ment Technical Assistance Center
SBA Annual Meeting Vermont DO - Vermont Small Business
Montpelier,
Development Center 11/6/2013
VT
New Hampshire DO Lend- New Hampshire DO - New Hampshire
Concord, NH 11/6/2013
ers Awards Ceremony Bankers Association
Capital Access Portland DO - Oregon Banker's Association
Portland, OR 11/7/2013
Business Roundtables Wyoming DO - Atlantic City Federal Credit
Fort
Union, Wind River Development Fund 11/15/2013
Washakie, WY
2013 Lender Awards Event New Jersey DO - Trenton Business Assis-
tance Corporation East Windsor,
11/27/2013
NJ
Finding New International West Virginia DO - U.S. Commercial
Customers Workshop Service-U.S. Export Assistance Center of
Elkins, WV 11/27/2013
West Virginia, West Virginia Development
Office- International Division
Affordable Care Act Week- HQ/OCPL-Small Business Majority World Wide
12/1/2013
ly Webinar Series Web
Business Development Columbus DO - Ohio University Procure-
Columbus,
Workshops ment Technical Assistance Center, Law-
Cincinnati,
rence Economic Development Corporation 12/11/2013
Athens, South
Procurement Outreach Center aka South-
Point, OH
ern Ohio Procurement Outreach Center
Small Business Boot Camp New York DO - Brooklyn Public Library
Brooklyn, NY 12/11/2013
Seminar Series
Entrepreneur Assistance New York DO - Carroll Gardens
Workshop Series 2014 Association, Inc. Brooklyn, NY 12/11/2013
SBA & Zhejiang Chamber New York DO - Zhejiang Chamber of
of Commerce of America Commerce of America
Flushing, NY 12/16/2013
Business Success Series
2014
SBA & Monroe College New York DO - Monroe College King
King Graduate School Graduate School Queens Extension Site Flushing, NY 12/16/2013
Business Seminars 2014
Accounting and Bookkeep- North Dakota DO - DFC Consultants, Ltd. World Wide
ing Webinar Series 12/16/2013
Web
60
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
Changes in Federal and San Diego DO -
State Employment Laws, California Employers Association
San Diego, CA 12/17/2013
Rules and Regulations
Workshops
SBA Day in Alpine San Diego DO -
Alpine Chamber of Commerce Alpine, CA 12/17/2013
2014 Ohio Business Columbus DO - SBDC, Inc. Springfield and
Matchmaker Clark County, Ohio Development Services
Agency - Office of Business Assistance -
Small Business Development Center, Office
Dayton, OH 12/19/2013
of Business Assistance - Procurement Tech-
nical Assistance Center, Minority Business
Enterprise Division - Minority Contractor
Business Assistance Program
Vermont Entrepreneur- Vermont DO - Johnson State College -
ship Week 2014 Department of Business and Economics,
Vermont Agency of Commerce and
Community Development, Vermont Career Montpelier, VT 12/19/2013
and Technical Student Organizations,
Vermont Small Business Development
Center
How to Manage Your HQ/OCPL – Yelp
New York, NY,
Small Business Online 12/24/2013
World Wide Web
Reputation
New Mexico SBA and New Mexico DO - New Mexico Small
New Mexico SBDC PTAP Business Development Center Procurement
Workshops Technical Assistance Program, New Mexico New Mexico 1/8/2014
Small Business Development
Center Network
Affordable Care Act Portland DO - Small Business Majority -
World Wide Web 1/8/2014
Webinar Series Oregon
Los Angeles District Los Angeles DO - Business Resource
Office Lender Training Group, Inc. Los Angeles, CA 1/8/2014
and Awards
Encore Entrepreneur West Virginia DO - Charleston West
Virginia SCORE Chapter 256, West Virginia
Charleston, WV 1/10/2014
State University Community & Economic
Development Center, AARP West Virginia
Lender Recognition Utah DO - Mountain West Small Business
Award Breakfast and Finance, Utah Certified Development Salt Lake City, UT 1/17/2014
Training Company
61
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
Series of Government Rhode Island DO - Rhode Island Commerce Cor-
Contracting & Business poration-Rhode Island Procurement Technical
Providence,
Development Work- Assistance Center 1/17/2014
RI
shops and Matchmaker
Events
Small Business Washington DC DO - Washington, DC Economic Washington,
Educational Series Partnership, Venable, LLP 1/23/2014
DC
Small Business Washington DC DO - DC Department of Small Washington
1/23/2014
Educational Series and Local Business Development DC
Small Business Award Utah DO - Mountain West Small Business Fi-
Salt Lake
Luncheon and Training nance, Utah Certified Development Company 1/23/2014
City, UT
2014 Vermont Vermont DO - Office of U.S. Senator Patrick
Matchmaker Leahy, Vermont Chamber of Commerce,
Vermont Agency of Transportation, Vermont
Department of Building and General Services, Burlington,
1/23/2014
Vermont Department of Economic Development, VT
Vermont Small Business Development Center,
Vermont Manufacturing
Extension Center
Small Business Work- Rhode Island DO - City of Providence Depart-
shop Series ment of Planning and Development, SCORE Jo- Providence,
1/27/2014
seph G.E. Knight Chapter 13, Center for Women & RI
Enterprise
Doing Business with the Hawaii DO - State of Hawaii Department of
Honolulu,
Government Workshops Transportation, Honolulu Minority Business 1/27/2014
Hilo, HI
Center
SBA/SBS Entrepreneurial New York DO - NYC Business Solutions, Upper New York,
Workshops Manhattan Center 1/27/2014
NY
Access To Capital for New York DO - Harlem Community Develop- New York,
1/27/2014
Small Business ment Corporation NY
Small Business Work- Rhode Island DO-Office of Mayor Donald R.
shop Series Grebien, City of Pawtucket, Pawtucket
Pawtucket,
Foundation, Joseph G.E. Knight SCORE Chapter 1/28/2014
RI
13, Center for Women & Enterprise, TD Bank,
Northern Rhode Island Chamber of Commerce
SBA/NACC Youth Small New York DO - New American Chamber of
Business Boot Camp Commerce Brooklyn, NY 1/30/2014
Series
62
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
SBA/NACC Adult Small New York DO - New American Chamber of
Brooklyn,
Business Boot Camp Commerce 1/30/2014
NY
Series
Start Small Think Big New York DO - Start Small Think Big
Bronx, NY 1/30/2014
Business Seminars
Starting Your Business Massachusetts DO - Operation A.B.L.E. of Greater
Boston, MA 1/31/2014
Program Boston, Inc., AARP
Small Business Excellence Syracuse DO - New York Business Development Syracuse,
1/31/2014
Award Recognition Corporation Albany, NY
OPERATION: Start Up Syracuse DO - New York Business Development
and Grow Corporation, M&T Bank, Onondaga Community
College, Onondaga Small Business Development
Center, Institute for Veterans and Military Families,
WISE Women’s Business Center, The Tech Garden, Syracuse, NY 2/4/2014
Syracuse SCORE Chapter 98, Martin J. Whitman
School of Management-Department of
Entrepreneurship & Emerging Enterprises-Falcone
Center for Entrepreneurship at Syracuse University
Emerging Leaders Syracuse DO-CenterState Corporation for Economic
Initiative Opportunity, Central New York Technology
Development Organization, Inc., City of Syracuse
Office of Neighborhood and Business Development,
Manufacturers Association of Central New York,
Onondaga Small Business Development Center, Syracuse, NY 2/4/2014
SCORE Syracuse, State University of New York
College of Environmental Science and Forestry,
Syracuse University, The Downtown Committee of
Syracuse, Inc., The Falcone Center for Entrepreneur-
ship, The Tech Garden, The WISE Center
2014 International New York DO - Zhejiang Chamber of Commerce of
Business Expo America Flushing, NY 2/11/2014
Small Business Workshop Rhode Island DO - Center for Women & Enterprise, Providence,
Series SCORE Joseph G.E. Knight Chapter 13 2/11/2014
RI
Opening Doors to Gov- Syracuse DO-Mohawk Valley Small Business
ernment Contracting for Development Center, Women’s Business Center of New York,
2/11/2014
Women & Minorities NYS, Utica SCORE, North Country Procurement NY
Technical Assistance Center
63
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
2014 SBA Great Lakes Michigan DO - SCORE Detroit
Detroit, MI 2/11/2014
Lenders’ Conference Chapter 18
Emerging Leaders St. Louis DO - Commerce Bank, Grace Hill Women’s
Initiative Business Center, Midwest Regional Bank, Procurement
Technical Assistance Center, SCORE St. Louis Chapter
St. Louis,
21, Small Business & Technology Development Center, 2/20/2014
MO
St. Louis Economic Development Partnership, Veter-
an’s Business Resource
Center
Emerging Leaders Tennessee DO - Economic Development Growth
Initiative Engine Industrial Development Board of the City of
Memphis and County of Shelby Tennessee, Office of Memphis,
2/20/2014
the Mayor of the City of Memphis, Office of the Mayor TN
of Shelby County, Southwest Tennessee Community
College
Small Business Devel- Santa Ana DO- Orange County Small Business Mission Vie-
2/20/2014
opment Seminar Series Development Center, City of Mission Viejo jo, CA
Small Business Semi- Santa Ana DO-Orange County Small Business
nar Series Development Center, City of Cypress Redevelopment Cypress, CA 2/20/2014
Projects Office
Women in Business West Virginia DO- Fairmont,
2/20/2014
Round Table Marion County Chamber of Commerce WV
Emerging Leaders Dallas/Ft. Worth DO-City of Dallas Office of Economic
Initiative Development, Dallas Black Chamber of Commerce,
DFW Minority Supplier Development Council, Greater
Dallas Asian American Chamber of Commerce, North
Texas Association of Government Guaranteed Lenders,
Dallas, TX 2/20/2014
North Texas Small Business Development Center
Network, Regional Hispanic Contractors Association,
SCORE Dallas Chapter 22, SCORE Fort Worth Chapter
120, Tri-County Regional Hispanic Chamber, US Pan
Asian American Chamber of Commerce SW
64
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
The Value of the Public HQ/Office Veterans Business Development- Syra-
Washington,
Private Partnership: cuse University Institute for Veterans and Military 2/20/2014
DC
VWISE a case study Families
Series of Three Demo Day HQ/Office of Investment and Innovation - Global
Events for High Growth Accelerator Network Austin, TX 2/21/2014
Accelerators
Export Trade Assistance Santa Ana DO-City Riverside, Riverside County
Riverside,
Partnership Program Economic Development Agency Office of Foreign 2/28/2014
CA
Trade
Export Training Workshop Hawaii DO - State of Hawaii Department of Hawaii
2/28/2014
Events Agriculture Statewide
Emerging Leaders Wichita DO-Beechcraft Corporation, Cargill Meat
Initiative Solutions, City of Wichita Purchasing Office,
Intrust Bank, Kansas Leadership Center, Kansas
Procurement Technical Assistance Center, Kansas
Small Business Development Center, Mid America
Minority Supplier Development Council, Rose Hill Wichita, KS 2/28/2014
Bank, SCORE Wichita Chapter 0143, USD 259
Wichita Public Schools, Westar Energy, Wichita
State University, Center for Entrepreneurship,
Wichita State University, Center for Innovation,
Wichita Metro Chamber of Commerce
Emerging Leaders Wisconsin DO-BizStarts, City of Milwaukee,
Initiative Greater Milwaukee Committee, Manpower, Inc.,
Metropolitan Milwaukee Sewerage District,
Milwaukee County, Community B+C63siness
Milwaukee,
Development Partners, Small Business 2/28/2014
WI
Development Center, UW-Milwaukee, WI Business
Development Finance Corporation, WI Economic
Development Corporation, WI Women’s Business
Initiative Corporation
Emerging Leaders Illinois DO-Wintrust Financial Corporation,
Chicago, IL 2/28/2014
Initiative SCORE Chicago
Emerging Leaders Oklahoma DO-Oklahoma Small Business
Initiative Development Centers, Rose State College, Rural Midwest
2/28/2014
Enterprises of Oklahoma, Inc., SCORE Oklahoma City, OK
City Chapter 212
65
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
5 Steps to Building Business HQ/OCPL-Dun & Bradstreet Credibility
Credit and Access to Capi- Corporation World Wide
2/28/2014
tal: Preparing to Meet Your Web
Lender
Emerging Leaders Initiative South Florida DO-ICABA Media Holdings, LLC,
Minority Business Development Agency Business
Center-Miami, SCORE Miami, Small Business
Development Center at Florida International Miami, FL 3/7/2014
University, South Florida Minority Supplier
Development Council, City of Miami, Women’s
Business Development Council of Florida
Emerging Leaders Initiative Arizona DO-American Indian Chamber Education
Fund Procurement Technical, Assistance Center,
Phoenix, AZ 3/7/2014
American Indian Chamber of Commerce of
Arizona
Emerging Leaders Initiative Georgia DO-Minority Business Development
Agency Business Center - Atlanta, Georgia
Institute of Technology, SCORE Atlanta Chapter, Atlanta, GA 3/7/2014
Atlanta Development Authority dba Invest
Atlanta
Emerging Leaders Initiative Fresno DO-Central California Hispanic Chamber
of Commerce, Fresno Area Hispanic Chamber of
Commerce, Fresno Metro Black Chamber of
Fresno, CA 3/7/2014
Commerce, Minority Business Development
Agency Business Center- Fresno, SCORE Fresno
Chapter 380
The Importance of Getting HQ/Office of Women's Business
More Women to Start Busi- Ownership- 1776 Washington,
3/10/2014
nesses in STEM Fields DC
U.S. Small Business Admin- Wisconsin DO-SCORE Southeast Wisconsin
istration 2014 Awards Chapter 28, Reinhart Boerner Van Deuren s.c., Milwaukee,
3/11/2014
Breakfast Milwaukee Business Journal WI
Small Business Workshops Baltimore DO - Business and Professional Woman Cockeysville,
3/11/2014
MD
Affordable Healthcare Act: Hawaii DO-Kaiser Permanente, Hawaii Region Hawaii 3/11/2014
66
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
Small Business Management North Dakota DO - Sitting Bull College
Yates, ND 3/11/2014
Workshop
2014 Albany Matchmaker Syracuse DO - New York Business Develop-
ment Corporation, University at Albany Small
Albany, NY 3/11/2014
Business Development Center, New York
State Contract Reporter
SBA Day at the Ballpark 2014 Philadelphia DO - Constant Contact Philadelphia,
3/14/2014
PA
Meet Your Northern Maine Maine DO-Northern Maine Development
Kent, Caribou,
Lenders and Resource Part- Commission, Maine Centers for Women, 3/14/2014
Houlton, ME
ners Work and Community
Small Business Week Break- Puerto Rico DO-Puerto Rico Bankers
San Juan, PR 3/14/2014
fast and Awards Ceremony Association
Small Business Workshop Rhode Island DO - Office of the Mayor Lisa
Series Baldelli-Hunt City of Woonsocket, Center for
Women & Enterprise, SCORE Joseph G.E. Woonsocket, RI 3/14/2014
Knight Chapter 13, Northern Rhode Island
Chamber of Commerce
For Her Entrepreneurship- HQ/Office Veterans Business Development -
Resources, Opportunities, The American Legion, Syracuse University Washington,
3/14/2014
Experience & Support (For Institute for Veterans and Military Families DC
HEROES)
SBA Weekly News Segment Los Angeles DO - Noticias MundoFox Los Angeles,
3/20/2014
with Noticias MundoFox CA
Small Business Week 2014 St. Louis DO-Small Business Week of Eastern
St. Louis, MO 3/20/2014
Missouri, Inc.
Salute to Small Business South Carolina DO-South Carolina Chamber
of Commerce, University of South Carolina -
Small Business Development Center of South
Carolina, South Carolina Department of
Columbia, SC 3/20/2014
Commerce, ECI/Find New Markets, U.S.
Department of Agriculture - Rural Develop-
ment Administration, SCORE Midlands
Chapter 230
67
Name/Subject Name of Event Date
of Event Cosponsor(s) Location Fully
Executed
Oregon Small Business Portland DO -Albina Community Bank, Columbia
Week Award Event 2014 State Bank, Evergreen Business Capital, Howard S.
Wright, KBNP Radio 1410, KeyBank, NW Business
Development Association, Oregon Bankers Associa- Portland, OR 3/20/2014
tion , Port of Portland, SCORE Portland Chapter 11,
Oregon Small Business Development Center
Network, Umpqua Bank, U.S. Bank, Wells Fargo
National Encore Entre- HQ/Office of Entrepreneurial Development- AARP
preneur Month, Tele- Multiple
3/21/2014
Townhalls & Webinar Cities
Series
Monthly Small Business Washington DC DO-Sage Solutions GTM, LLC
Washington,
University Educational 3/25/2014
DC
Series
Monthly Business Forum New York DO-White Plains Public Library, White
Women’s Enterprise Development Center, Inc. 3/28/2014
Plains, NY
Monthly Small Business Washington DC DO-Greater McLean Chamber of
McLean, VA 3/28/2014
Educational Series Commerce
Monthly Small Business Washington DC DO-Montgomery Community
Rockville,
University Educational Television, Mid-Atlantic Federal Credit Union 3/28/2014
MD
Series
Emerging Leaders New Jersey DO-African American Chamber of
Initiative Commerce of New Jersey, Brick City Development
Corporation of Newark, Greater Newark Enterprises
Corporation, Morris County Hispanic-American
Newark, NJ 3/28/2014
Chamber of Commerce, New Jersey Business and
Industry Association, New Jersey Chamber of
Commerce, New Jersey Small Business Develop-
ment Center
Emerging Leaders Colorado DO-City of Aurora, Aurora Small Business
Initiative Development Center, Denver Hispanic Chamber of
Commerce, Colorado Small Business Development Aurora, CO 3/31/2014
Center, Colorado Black Chamber of Commerce,
Colorado National Bank
Advancing Women in Richmond DO-City of Chesapeake Department of
Business Series: Taking it Economic Development Chesapeake,
3/31/2014
to the Next Level VA
Conference
68
Appendix X: Legal Actions Summary
October 1, 2013-March 31, 2014
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
A borrower of a $1,760,000 loan provided false re- Individual indicted
AL BL FBI
ceipts related to his equity injection requirement. and pled guilty.
DCIS, A borrower of a $40,000 loan submitted false income Individual sen-
Army and employment information. The borrower mis- tenced to 12 month’s
AL BL
CID, IRS/ used the loan proceeds to pay off her boyfriend’s probation.
CI debt.
A borrower received a $703,300 disaster loan. He Individual indicted.
made false statements related to his financial condi-
AR DL IRS/CI tion and the location of integral business equipment
at the time of the disaster.
A borrower made false statements relating to his fail- Individual was in-
CA BL FBI ure to disclose three existing loans already in default dicted and pled
as he received loans totaling $1,839,359. guilty.
An individual made false statements related to the Individual was
deposit of fraudulent SBA loan proceeds into an un- charged by infor-
CA BL FBI authorized business account. It was determined she mation and pled
had stolen approximately $362,875. guilty.
Two individuals, while under indictment, paid a Two individuals
straw borrower $100,000 to pose as the owner of a charged under a
business and apply for a $4,500,000 loan to purchase superseding indict-
CA BL FBI two gas stations. False statements were made relat- ment.
ing to the down payment to purchase the gas stations
and the individuals also misused the loan proceeds
for personal expenses.
Two individuals made false statements related to Two individuals
their previous bankruptcies, pending law suits, and pled guilty.
CA BL FBI lack of controlling interest in the business as they
applied for a $1,450,000 loan.
A borrower made false statements relating to prior Individual indicted.
bankruptcies, criminal history, misuse of a SSN and
TIGTA misuse of an IRS stamp as he applied for loans total-
CA BL
FBI ing $400,000. He also used fraudulent means to ob-
tain a $150,000 line of credit and a $100,000 term loan
from other banks.
In a complex public corruption scheme involving Three individuals
multiple defendants, contractors provided kick-backs pled guilty. One
to public officials and other prime contractors in or- individual and his
FBI, der to receive contracts in the 8(a) program on a Na- company pled
NCIS, vy base. Instances of corruption include bribe pay- guilty. One individ-
CA GC IRS/CI, ments and remodeling of public official’s personal ual charged by in-
DCIS, residences at no charge. formation. The
GSA/OIG Department of the
Navy also suspend-
ed seven individuals
and six companies.
69
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
An 8(a) firm provided false information on the com- Company terminat-
pany’s application. It also failed to disclose the ex- ed from the 8(a)
CO None GC tent to which non-8(a) persons or firms participated program.
in its management.
Government officials received bribes from partici- Individual sen-
pants in SBA programs (i.e. 8(a), Alaska Native Cor- tenced to 46
poration, Service-Disabled/Veteran- Owned (SDVO), months in prison
FBI etc.) in return for the award of contracts. The same and ordered to pay
IRS/CI government officials then certified receipt of goods $1,888,500 in resti-
DC GC Army/ and services and authorized payment of fraudulent tution/asset forfei-
CID invoices submitted by the contractors. The contrac- ture.
DCIS tors then provided a portion of the proceeds to the
government officials, paid kickbacks to other con-
tractors, and retained portions for themselves. The
bribe and kickback payments exceed $30 million.
SBA’s Microloan program makes larger loans to in- Individual pled
termediary companies who, in turn, provide training guilty.
and make smaller loans (maximum of $50,000) to
local small businesses. The director of one of these
intermediary companies provided false documenta-
FL BL IRS/CI tion to the SBA to induce it to make loans of
$200,000 and $550,000 to the company. In addition,
the director allegedly reported that the company had
made 21 local small loans using the SBA loan pro-
ceeds, when, in fact, it had only provided a total of
$25,000 to two businesses.
The owners and officers of two firms colluded to mis- Two companies and
represent the status of one of its firms when bidding four individuals
FL GC DHS/OIG on contracts set aside for SDVOSBs. False statements suspended from
were also made to the SBA in response to a protest federal contracting.
determination.
The president of a construction company artificially Individual sen-
lowered her personal net worth in order to appear to tenced to 84
be economically disadvantaged. She did this by ac- months in prison
quiring, holding, and transferring assets into the and three years’
names of nominees. This allowed her company to supervised release.
quality for the SBA 8(a) program and the Depart- She was ordered to
IRS/CI ment of Transportation’s Disadvantaged Business pay restitution of
ID GC DOT/OIG Enterprises (DBE) program. Based on the company’s almost $154,000 and
FBI fraudulent participation in these programs, it re- forfeit $3,084,038.
ceived more than $2.5 million in 8(a) federal govern- A second individual
ment contracts and $15 million in DBE state govern- was sentenced to
ment contracts. In addition, an investor in the com- three months in
pany was charged with obstruction of justice. prison, two years
supervised release,
and a $5,000 fine.
70
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
Loan agents sought out unqualified borrowers to pur- Four individuals
chase gas stations. These individuals provided false indicted.
FBI, IRS/
documents to SBA such as false tax returns, and
IL BL CI, FDIC/
offered kick-backs to lending officials in order to
OIG
have the loans approved. The loans involved in this
case may exceed $10 million.
Loan agent sought out an unqualified borrower in- Individual indicted.
volving a loan for $1,760,000 to purchase a gas station
and convenience store. The loan agent, buyer and
IL BL USPSIS
seller conspired to create false documents associated
with an alleged $200,000 inheritance used for the
down payment.
The wife of a business owner was used as a nominee Two individuals
FDIC/
borrower to obtain a $163,924 loan for the husband’s indicted.
KS BL OIG, IRS/
business. The proceeds of the loan were diverted to
CI, USSS
pay off other loans and for personal expenses.
During an offer in compromise to satisfy a $511,400 Individual pled
balance on a loan, the borrower misrepresented the guilty.
LA BL None value of the collateral for the loan and sold it to an-
other company he owned. He also provided false
financial information to the lender and SBA.
Working in collusion with a private contractor, a bor- Individual charged
LA DL None rower submitted false documents (repair receipts) to by information.
the SBA to receive a $98,700 disaster loan.
VA/OIG, Pursuant to the issuance of a subpoena related to an Individual sen-
GSA/OIG, SDVOSB investigation, an individual deleted docu- tenced to 12
MA GC
Army ments on his computer which were responsive to the months’ probation
CID, subpoena and relevant to the pending investigation. and a $5,000 fine.
A borrower obtained a series of loans including two Individual pled
SBA loans. He submitted numerous financial state- guilty.
ments and records that did not reflect $2.6 million of
MA BL IRS/CI
his business funds which were actually used for per-
sonal expenses. He also altered his financial books
and records to conceal this information.
The owners of a loan brokerage company and others Individual indicted.
encouraged prospective borrowers to apply for SBA 7 A second individual
(a) business loans using the services of that company. signed a deferred
The individuals submitted fraudulent SBA loan appli- prosecution agree-
cations and supporting documentation (e.g. bank ment and was or-
FBI statements, cashier’s checks, IRS documents) on be- dered to pay
MD BL
USPSIS half of their clients. These fraudulent documents $75,000.
falsely enhanced the creditworthiness of the borrow-
ers and made it appear that they had more money for
their equity injections than they actually did. To
date, the conspiracy has resulted in losses of over
$100 million to the SBA.
71
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
The owner of an 8(a) company provided false state- Individual pled
ments to the SBA by concealing his control and relat- guilty.
DCIS ed improper financial arrangements with an affiliated
MD GC GSA/OIG company. He also concealed the use of over $1 mil-
IRS/CI lion in personal expenses which he recorded as a
business expense. The affiliated company received
over $50 million in federal contracts.
A borrower provided false statements to the SBA re- Individual pled
USSS
MI BL lated to the required equity injection as he obtained a guilty.
DHS/ICE
$1.1 million loan
To date, a total of 18 defendants have been charged Five individuals
and pled guilty in a complex scheme to defraud the pled guilty. One
SBA. These defendants conspired to assist failing individual was sen-
businesses which had significant outstanding/past tenced to three
due loans with a bank. Lending officials organized years’ probation
limited liability companies solely as nominee borrow- and $2,000 in resti-
MO BL FBI ers to funnel SBA loan proceeds back to them. This tution. One indi-
was done to conceal failing loans and to cure over- vidual was sen-
draft issues at the bank. The lending official(s) at tenced to one year
this bank caused false statements to be made in ap- probation. One
proximately $10 million in loans, approximately $7 individual was sen-
million of which were guaranteed by the SBA. tenced to 24
months’ probation.
The president of a masonry company and his chief Five companies
financial officer used an affiliated company as a and the presidents
“front” in order to receive a $9.4 million subcontract of two of the com-
NCIS
NC GC to do masonry work at a military base. panies involved in
DCIS
this scheme agreed
to a $1,873,250 civil
settlement.
After being awarded a $14 million contract, the owner Individual indict-
created a construction firm to obtain two small busi- ed.
NCIS ness subcontracts on a Navy contract. The owner
NC GC
DCIS controlled both businesses. She also provided false
documents to the SBA in support of her claim that
this business was eligible for HUBZone status.
NJ/Office Four individuals applied for SBA loans claiming their Four individuals
of primary residences were damaged by Superstorm indicted.
Attorney Sandy. In fact, they were not their primary residenc-
General, es.
NJ DL
DHS/
OIG,
HUD/
OIG
72
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
The owner of a company claimed SDVSOB status Individual charge in
VA/OIG
when she was not eligible to receive this status. Her a criminal com-
NJ GC GSA/OIG
company received over $1 million in federal con- plaint.
IRS/CI
tracts.
A borrower was approved for a $734,700 disaster The SBA discontin-
loan. The borrower provided conflicting information ued additional dis-
NY DL None to SBA and could not provide sufficient documentary bursements result-
proof of his losses. ing in a cost avoid-
ance of $715,700.
A construction firm provided false statements to the Civil complaint filed
SBA in order to receive certification as a HUBZone against the owner
OH GC DCIS company. As a result, this company received mil- and company.
lions of dollars in contracts using their HUBZone
certification.
The owner of an 8(a) firm failed to disclose to the Individual paid a
SBA that her company had previously participated in civil settlement of
the 8(a) program in the 1980s when she applied for 8 $300,211.99.
PA GC FBI
(a) status in 2001. Under SBA regulations, this com-
pany had exhausted her eligibility to participate
again in the 8(a) program.
A borrower forged signatures of his estranged wife Individual sen-
and others on SBA loan documents in order to apply tenced to three
TX DL None for two Hurricane Katrina SBA disaster loans totaling years’ probation and
$167,400. The borrower misused the loan proceeds. $34,964 in restitu-
tion.
A franchise company submitted false information to Company paid a
TX BL FBI the SBA indicating borrowers had provided the re- civil settlement of
quired equity injection to receive the loans. $1,125,000.
A husband and wife obtained a $420,000 SBA- Both individuals
guaranteed loan. The borrowers provided false infor- received 12 months
mation related to the source of their equity injection. and one day in pris-
They also secured lines of credit under different com- on and restitution of
TX BL None pany names and did not disclose these additional $281, 672.90. The
debts to the lender. couple paid presen-
tencing restitution
of $150,000.
A company provided false information to the SBA Individual pled
related to their SDVOSB status. The firm falsified its guilty.
TX GC VA/OIG credentials, office locations, number of employees,
and past completed projects. The company received
over $1.5 million in contracts.
73
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
A company recruited a disabled veteran as a front in Individual pled
order to receive federal contracts under their SDVOSB guilty.
status. In fact, the disabled veteran had no financial
TX GC VA/OIG
investment in the firm, performed no work for the
company, and did not exercise a controlling interest in
the company
A borrower conspired with a contractor to submit false Individual pled
and inflated invoices to the SBA in support of two dis- guilty.
TX DL FBI
aster loans he received in the amount of $1,884,100.
Bank employees provided false borrower information Bank paid a civil
on loan applications to meet underwriting criteria for settlement of
UT BL FBI
three SBA loans. Borrowers misused the loan proceeds $212,920.
which benefited certain bank employees.
A business in a mentor/protégé agreement with a Business paid a
small business took control of the small businesses’ civil settlement of
UT GC None
ownership and government contracts. The small busi- $1,014,000.
ness effectively acted as a front for this large business
An employee of a company with SDVOSB status con- Employee pled
spired with other SDVOSB certified companies in a bid guilty and was sen-
-rigging scheme. The employee received over $80,000 tenced to three
for his participation in this scheme. A second employ- months in jail, two
ee received over $1 million for his participation in this years of probation,
scheme. Value of the contracts involved in this case and ordered to
DHS/OIG was $33 million. forfeit $80,000 and
a $5,000 fine. An-
VA GC VA/OIG,
other employee
GSA/OIG
pled guilty and was
sentenced to 16
months in prison
two years super-
vised release and
ordered to forfeit
$1,065,103.
Individuals falsely represented to the government that Individual sen-
NASA/ a particular security contractor was eligible for the 8 tenced to 60
(a) program when, in reality, the company was con- months in jail, 24
OIG
trolled by a second security contractor. Over $31 mil- months of super-
VA GC
DCIS lion in 8(a) and small business set-aside contracts vised release, a
were fraudulently obtained. $12,500 fine and
DHS/OIG forfeiture of
$2,960,697.
74
Jointly
State Program Alleged Violation(s) Prosecuted Legal Action
with
A borrower provided false information related to per- Individual pled
FDIC/ sonal information, appraisal documents and the re- guilty.
WA BL
OIG quired equity injection to receive a loan for $1,853,000.
The prime contractor claimed small businesses would A civil complaint
perform the sub-contracting work on a multi-million was filed against
DOE/
WA GC DOE contract. The small businesses were determined the contractor.
OIG
by SBA to be other-than-small and were identified as
being affiliated with the prime contractor.
A former bank president withdrew funds from ac- Individual sen-
counts of unsuspecting commercial customers and tenced to 30 days
deposited them into the accounts of another commer- in jail and three
FBI cial customer who had reached his maximum borrow- years’ supervised
WI BL FDIC/ ing limit. The president also allegedly made notations release.
OIG falsely indicating that the customers had authorized
the transactions. The funds withdrawn totaled ap-
proximately $250,000 including $72,000 is SBA loan
funds.
A borrower made false statements by providing false Individual pled
financial information related to the businesses’ profita- guilty.
WI BL FBI
bility, fixed assets, and existing liabilities on a $750,000
loan.
A bank made false statements in order to conceal in- Civil complaint
formation that a borrower was delinquent on his bank filed against the
WY BL None
debts and in financial distress. The borrower received bank.
a $2 million loan.
Legal Actions Summary Program Codes:
Business Loans (BL)
Disaster Loans (DL)
Government Contracting and Section 8(a) Business Development (GC)
Integrity Assurance (IA)
Small Business Investment Company (SBIC)
Joint-investigation Agency Acronyms:
Defense Criminal Investigative Service (DCIS)
Department of Homeland Security-Immigration and Customs Enforcement ( DHS-ICE)
Department of Homeland Security Office of Inspector General (DHS/OIG)
Department of Housing and Urban Development Office of Inspector General (HUD/OIG)
Department of Veterans Affairs Office of Inspector General (VA/OIG)
Federal Bureau of Investigation (FBI)
Federal Deposit Insurance Corporation Office of Inspector General (FDIC/OIG)
General Services Administration Office of Inspector General (GSA/OIG)
Internal Revenue Service -Criminal Investigation (IRS/CI)
National Aeronautics and Space Administration Office of Inspector General (NASA/OIG)
Naval Criminal Investigative Service (NCIS)
United States Army Criminal Investigation Division (
Army CID)
United States Department of Transportation Office of Inspector General (DOT/OIG)
United States Postal Inspection Service (USPIS)
United States Secret Service (USSS)
75
Appendix XI: External Peer Reviews
Section 5(a) of the IG Act provides the requirements Investigations
for reporting the results of peer reviews in OIG Semi-
annual Reports to Congress. The following infor- Section 6(e)(7) of the IG Act, Attorney General
mation is provided in accordance with these require- Guidelines for Offices of Inspector General with Stat-
ments. utory Law Enforcement Authority, and the CIGIE
*** Quality Standards for Investigations require exter-
Auditing nal peer reviews of OIG investigative functions be
conducted every three years. As such, the OIG will
Generally Accepted Government Auditing Standards receive its review in August 2014, which will be
(GAGAS) issued by the Government Accountability conducted by the US Department of the Interior,
Office (GAO) require that audit organizations per- Office of Inspector General.
forming audits and attestation engagements in ac- ***
cordance with GAGAS must have an external peer
review performed by reviewers independent of the The OIG was not subject to a peer review during
audit organization being reviewed at least once every this semiannual reporting period. The Department
three years. The OIG will receive its review during the of Veteran’s Affairs (VA) OIG conducted the last
Spring 2015 reporting period. peer review of the OIG, and issued its final report
December 21, 2011. The VA OIG found the system
The OIG was not subject to a peer review during this of internal safeguards and management procedures
semiannual reporting period. The National Aero- for the investigative function of the OIG Compliant
nautics and Space Administration (NASA) Office of with the quality standards established by the CIGIE
Inspector General conducted the last peer review of and the applicable Attorney General Guidelines
the OIG, and issued its final report on September 27, (OIGs can be assessed as either Compliant or Non-
2012. The OIG received a rating of “Pass” in that re- compliant). No recommendations were offered.
port (federal audit organizations can receive a rating
of Pass, Pass with Deficiencies, or Fail). There are no ***
outstanding recommendations from previous peer Peer Reviews Conducted
reviews of the OIG.
The OIG conducted a peer review of the General
*** Services Administration Office of Inspector General
in May of 2013. On July 26, 2013, the OIG issued its
Peer Reviews Conducted final report. The OIG found the system of internal
safeguards and management procedures for the
The OIG conducted a peer review of the Railroad investigative function of the OIG Compliant with
Retirement Board Office of Inspector General in the the quality standards established by the CIGIE and
Fall 2012 reporting period. On October 18, 2012, the the applicable Attorney General Guidelines (OIGs
OIG issued its final report. The Railroad Retirement
can be assessed as either Compliant or Noncompli-
Board OIG received a rating of “Pass” in that report
ant). No recommendations were offered.
(federal audit organizations can receive a rating of
Pass, Pass with Deficiencies, or Fail).
***
76
Appendix XII: Organization
The OIG is comprised of the Inspector General’s
immediate office and four divisions: Auditing, In-
vestigations, Counsel, and Management and Policy.
The Auditing Division performs and oversees
audits and reviews to promote the economical,
efficient, and effective administration of SBA pro-
grams and operations.
The Investigations Division manages a program
to detect and deter illegal and improper activities
involving SBA programs, operations, and person-
nel. The criminal investigations staff carries out a
full range of traditional law enforcement functions.
The security operations staff ensures that SBA em-
ployees and contractors have appropriate back-
ground investigations and security clearances to
achieve a high level of integrity in the Agency’s
workforce, and that loan applicants and other po-
tential program participants are of good character.
The Counsel Division provides legal and ethics
advice to all OIG components; represents the OIG
in litigation arising out of or affecting OIG opera-
tions; assists with the prosecution of criminal, civil
fraud, and administrative enforcement matters;
processes subpoenas, responds to Freedom of In-
formation and Privacy Act requests; and reviews
and comments on proposed policies, regulations,
legislation, and procedures.
The Management and Policy Division provides
business support (e.g., budget and financial man-
agement, human resources, IT, and procurement)
for the various OIG functions; coordinates prepara-
tion of the OIG’s Semiannual Report to Congress,
and other OIG-wide reports and documents; main-
tains the OIG website; and operates the OIG’s Hot-
line.
The OIG headquarters is located in Washington,
DC, and has field staff located in Atlanta, GA; Chi-
cago, IL; Dallas-Fort Worth, TX; Detroit, MI; Den-
ver, CO; Herndon, VA; Houston, TX; Kansas City,
MO; Los Angeles, CA; Miami, FL; New York, NY;
Philadelphia, PA; Tacoma, WA; and Washington,
DC.
***
77
Make a Difference!
To promote integrity, economy, and efficiency, we encourage you to report
instances of fraud, waste, or mismanagement to the OIG Hotline.*
Online:
http://www.sba.gov/office-of-inspector-general/2662
Call:
1-800-767-0385 (Toll Free)
Write or Visit:
U.S. Small Business Administration
Office of Inspector General
Investigations Division
409 Third Street, SW (5th Floor)
Washington, DC 20416
**In accordance with Sections 7 and 8M of the Inspector General Act, the Small Business Administration Office
of Inspector General does not disclose a complainant’s identity without consent, unless the Inspector General
determines such disclosure is unavoidable during the course of the investigation.