**U.S. SMALL BUSINESS
ADMINISTRATION**![](media/image1.png){width="1.3979166666666667in"
height="1.2895833333333333in"}

**OFFICE OF INSPECTOR GENERAL**

**WASHINGTON, D.C. 20416**

  -----------------------------------------------------------------------
  **AUDIT REPORT**
  -----------------------------------------------------------------------
  **Issue Date: March 2, 2000**

  **Number: 0-07**
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**To:** Thomas E. Bergdoll, Jr.

![](media/image2.png){width="1.35in" height="0.3173611111111111in"}
District Director, Boise District Office

**From:** Robert G. Seabrooks

Assistant Inspector General for Auditing

**Subject:** Audit of the Idaho Falls Regional Small Business
Development Center

We completed an audit of the Idaho Falls Regional Small Business
Development Center (the Center) as a result of a former employee's
complaint alleging management improprieties. The Center provides
counseling, training and specialized support to small businesses as part
of the Idaho Small Business Development Center (ISBDC) network. The
Center is a tenant of the Idaho Innovation Center (IIC), a local
incubator for small business ventures. Idaho State University (ISU)
partially funds the Center in its capacity as the Center's host
institution. ISU's records show that the Center received Federal funds
totaling \$38,675 and \$39,514, for 1996 and 1997, respectively.

**OBJECTIVE AND SCOPE**

The objective of the audit was to determine whether the Center's
activities were in conformance with applicable laws, regulations and
policies. During the audit, we reviewed accounting records, program
reports, and client files. We also interviewed Center, ISBDC, IIC and
ISU officials. We were unable to obtain adequate supporting
documentation for some training and accordingly, could not determine if
the Center's activities with regards to the training were in conformance
with applicable laws, regulations and policies. We were also unable to
trace training revenue to account deposits and as a result, could not
determine if the Center's revenue collections and deposits were in
conformance with applicable laws, regulations and policies. The audit
covered Center operations from 1996 through 1998. Fieldwork was
performed from November 1998 through July 1999 at the ISBDC lead center
in Boise, Idaho and at the Center in Idaho Falls, Idaho. The audit was
performed in accordance with Government Auditing Standards.

**RESULTS OF AUDIT**

We identified \$31,892 of claimed costs that were unallowable because
they were not in accordance with the cooperative agreement and Office of
Management and Budget (OMB) Circulars. We also found that the Center
overstated training and counseling accomplishments, performed untimely
client follow-up, and made various errors in reporting program income.
In addition, the Center did not maintain complete records for training
activities, revenue deposits and conference room rental agreements.

**FINDING 1: Unallowable Costs**

The Center claimed costs totaling \$31,892 that were unallowable because
they were unallocable, unreasonable or unsupported. These costs included
(1) inadequately supported in-kind contributions, (2) inadequately
supported consulting payments, and (3) an improper travel reimbursement.
OMB Circular A-21 Costs Principles for Educational Institutions states
that costs must be reasonable and allocable in order to be allowable.
The cooperative agreement requires the ISBDC to maintain complete and
accurate records, as well as supporting documentation to support and
facilitate any thorough financial and/or program audit. The ISBDC was
required to provide matching funds equal to the amount of SBA funding,
and at least 50 percent of the matching funds were required to be in the
form of cash. Due to the \$413,698 and \$517,952 reported cash overmatch
of the ISBDC in 1996 and 1997, respectively, this report will not
include recommendations that funds be remitted to SBA for unallowable
costs.

*Inadequately Supported In-kind Contributions*

The Center claimed donated services of \$9,921 and \$12,487 as in-kind
match that were not adequately supported for 1996 and 1997,
respectively. OMB Circular A-110 Uniform Administrative Requirements for
Grants and Agreements with Institutions of Higher Education, Hospitals,
and Other Non-Profit Organizations requires that all contributions,
including cash and third party in-kind, be verifiable from the
recipient's records. The Circular also states that the basis for
determining the valuation for personal service shall be documented. We
found that the support for the claimed donated services was inadequate
because it did not contain a sufficient description of the services
provided, the basis used to determine the value of the services, and
supporting data on the contributors. We also found that \$1,255 of the
donated services claimed in 1996 were actually allocable to 1995.

SBA previously noted that the ISBDC's 1995 in-kind match was
insufficiently supported in an examination report dated September 25,
1996. In response to that

examination, the ISBDC State Director stated that support for all future
in-kind match would include:

-   Name and phone number of the contributor

-   Basis for valuation of goods or services

• Description of goods or services provided

As discussed above, support for in-kind contributions after the date of
the examination report still contained some of the same problems that
the State Director had previously agreed to correct.

*Inadequately Supported Consulting Payments*

The Center made payments totaling \$9,225 to a consultant, \[FOIA Ex. 4
& 6\], which were inadequately supported. Of this amount, \$7,925 was
charged to Federal funds and \$1,300 was charged to program income. The
cooperative agreement requires the ISBDC to maintain complete and
accurate records, as well as supporting documentation to support and
facilitate any thorough financial and/or program audit. \[FOIA Ex. 4&6\]
provided consulting services for Nx Level training programs to the
Center in 1996 and 1997. The Center did not have a written agreement
with the consultant describing the services to be provided and/or
payment terms. The description of services provided on each invoice was
vague, and we were unable to determine the exact type of service
provided. Some of the monthly invoices did not specify the days and
hours per day that consulting/training was provided.

Additionally, it appeared that the Center may have been double billed
and may have made double payments for services provided from January to
May of 1997. Due to the lack of clarity and supporting documentation for
the specific dates and hours of services provided, there was no
assurance that the Center did not make double payment for services
provided during these months.

*Improper Travel Reimbursement*

The Center paid a travel reimbursement totaling \$259 that was not
justified. The Center Director approved separate mileage reimbursements
for two people when they traveled in the same vehicle.

The Center Director and 2 business counselors traveled to Boise, Idaho
and Salt Lake City, Utah in November 1997. All 3 individuals traveled
together in 1 vehicle to Boise and Salt Lake City. Accordingly, only one
mileage claim should have been submitted for reimbursement. The Center
Director and one of the counselors both submitted mileage claims and
were each reimbursed \$259. The Center Director approved the mileage
reimbursement for the one counselor even though she also submitted the
same mileage claim.

**Recommendations**

We recommend that the District Director of the SBA Boise District Office
require the ISBDC State Director to:

1A. Submit a written plan to SBA explaining how he plans to ensure that
all future in-kind match will be adequately supported.

1B. Direct the Center to develop written signed agreements with all paid
consultants describing the services to be provided and payment terms.

**Auditee Comments**

The ISBDC State Director agreed the travel reimbursement was improper
and recovered the \$259. Although the State Director agreed that the
supporting documentation form for in-kind contributions could be
improved by adding more detailed information about the donor, he did not
agree with the recommendation to submit a written plan to SBA explaining
how in-kind match would be adequately supported. The State Director did
not agree that the payments to the consultant were inadequately
supported, but he agreed with the recommendation to develop written
agreements with paid consultants. The State Director's comments are
included as Attachment 1. His reasons for disagreement follow.

• In-kind contributions -- The ISBDC does have a written policy that
requires adequate documentation of in-kind contributions and the state
office is in the process of developing a systematic, on-site review of
all financial documentation to ensure documentation meets standards.

• Consulting payments - Center time reports show the consultant actually
worked 359.35 hours, but only billed for 154.5 hours. The training
classes taught by the consultant and the related consulting with small
business clients clearly support the reasonableness of the invoices.

**Evaluation of Auditee Comments**

We continue to support our findings that in-kind contributions and
consulting payments were inadequately supported. We also believe that
our recommendations are valid for the following reasons.

• In-kind contributions - Although the ISBDC may have a written policy
that requires adequate documentation of in-kind contributions and the
state office may be in the process of developing a review of all
financial documentation, our audit and a previous SBA examination
determined that the support for in-kind contributions was not in
accordance with OMB Circular A-110. Additionally, during the exit
conference, the State Director admitted he was unable to accomplish
everything he agreed to as a result of the previous SBA examination.
Accordingly, we believe the submission of a written plan to SBA
explaining how the State Director plans to ensure that all future
in-kind match will be adequately supported will assist the ISBDC in
complying with OMB Circular A-110.

• Consulting payments - While Center time reports generally support the
number of hours billed by the consultant, the vagueness of the invoices,
and the lack of a written agreement between the Center and the
consultant, prevented the auditors from tracing the invoiced hours to
the time reports to verify the adequacy of the consulting payments. The
supporting documentation was not adequate to support the reasonableness
of the consulting payments and therefore, we continue to support our
position that written, signed agreements with all paid consultants
should be developed.

# **FINDING 2: Overstated Training Accomplishments**

# 

Training provided to Center and IIC employees was incorrectly reported
to SBA on Form 888 as training provided to small business persons and
entities. Title 13 CFR 130.340 states that the SBDC network shall
provide prospective and existing small business persons and entities
with counseling, training and specialized services. The Center reported
to SBA that Microsoft Satellite Downlink Training was given on April 18,
1996 and May 16, 1996. The attendance lists for the sessions indicated
that all the attendees were SBDC and IIC employees. As a result, the
training accomplishments for 1996 were overstated.

**Recommendation**

2A. We recommend that the District Director of the SBA Boise District
Office require the ISBDC State Director to implement controls to prevent
employee training from being counted as training to the small business
community on SBA Form 888.

### Auditee Comments

The ISBDC State Director agreed with our finding and recommendation and
stated that the State Office would instruct the Centers on the proper
criteria for reporting training and to implement oversight procedures.

**Evaluation of Auditee Comments**

The ISBDC State Director's planned actions are responsive to our
recommendation.

### FINDING 3: Overstated Counseling Accomplishments and Untimely Client Follow-up

Counseling hours reported by the Center were overstated and client file
follow-up was not performed within the required time frame.

# Overstated Counseling Hours 

The Center overstated its counseling hours by 69 hours (3%) in 1997 and
by 98.25 hours (4%) in 1998. The Center reported that it rendered
approximately 2,356 hours of counseling in 1997, and approximately 2,270
hours of counseling in 1998. Counseling hours were overstated due to the
reasons cited below:

-   Visits to an Economic Development Officer (EDO) and a Business
    Information Center Director (BICD) were reported as counseling
    although the EDO and BICD are not small business persons.
    Specifically, 65 hours and 51.75 hours were reported as counseling
    in 1997 and 1998, respectively. Title 13 CFR 130.340 states that the
    SBDC network shall provide prospective and existing small business
    persons and entities with counseling, training and specialized
    services.

```{=html}
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```
-   Time expended by secretaries closing client files was reported as
    counseling. Specifically, 4 hours and 46.5 hours were reported as
    counseling in 1997 and 1998, respectively.

> In addition to the above, we made the following observations:
>
> • A counselor allegedly rendered more than 24 hours of counseling in a
> single day on four days in 1996. For example, counseling records
> indicated that the counselor provided 48.5 hours and 36 hours of
> counseling on June 11, 1996 and August 22, 1996, respectively.

-   Travel time was claimed two or more times if more than one client
    was visited in the same location. For example, on June 10, 1996, a
    counselor visited five different clients in Arco, Idaho. Although a
    roundtrip to Arco is 139 miles, travel time of 2.5 hours was
    recorded 5 different times for a total of 12.5 hours. Likewise, the
    same counselor visited eight different clients in Mackay, Idaho on
    June 11, 1996. Although a roundtrip to Mackay is 193 miles, the
    counselor recorded travel time of 3 hours seven different times for
    a total of 21 hours. The Center Director stated that travel time
    should be divided among the clients.

*Client Follow-up Not Performed Within 120 Days*

The Center allowed 56 out of 128 client files to remain open for more
than 120 days without a documented follow-up review or counseling
session during 1998. The cooperative agreement states that SBDC client
files shall not remain open more than 120 days without a documented
follow-up review or counseling session. The Center Director stated that
the Center's policy was to close files at the end of the year. As a
result, the Center had an unnecessary amount of stagnant client files.

**Recommendations**

We recommend that the District Director of the SBA Boise District Office
require the ISBDC State Director to:

3A. Reiterate to the Center the importance of including as counseling
only those hours rendered to small business entities.

3B. Implement internal controls to prevent counselors from recording an
unreasonable number of counseling hours in one day.

3C. Reiterate to the Center the importance of accurately reporting
travel when several clients are visited in the same geographic location.

3D. Reiterate to the Center that time expended on closing client files
should not be counted towards the center's counseling accomplishments.

3E. Implement internal controls to ensure that client files do not
remain open more than 120 days without a required follow-up review or
counseling session.

**Auditee Comments**

The ISBDC State Director did not agree that time expended on closing
client files should not be reported as counseling. The counting of
administrative time in consulting was directed by the State Office to
better account for the true cost of serving a small business client. The
administrative time accounts for providing closing letters to the
clients and for collecting evaluation and impact data.

The ISBDC State Director agreed with all other deficiencies and
recommendations cited under Finding 3 and has already implemented
procedures to ensure that client cases are reviewed after 120 days with
activity to determine if the client case should be closed.

**Evaluation of Auditee Comments**

An official of SBA's Office of Small Business Development Centers
informed the auditors that SBDCs should not count secretarial time spent
closing files toward counseling accomplishments. Accordingly, we
continue to support our position.

The ISBDC State Director's planned and implemented actions are
responsive to all other recommendations cited under Finding 3.

**FINDING 4: Errors in Reporting Program Income**

Program income reported by the Center was inaccurate and did not
reconcile to the accounting records. The Center inaccurately reported
program income because (1) \$970 of program income received during 1996
and 1997 was not recorded in one of the two accounts used to record and
report program income and (2) \$5,000 received from the lead center for
the promotion of the "TechHelp" program in 1997 was mistakenly reported
as program income when it should have been accounted for as cash
matching funds. In addition, \$3,400 of reported 1997 program income
expenditures were not recorded in the accounting system. The cooperative
agreement defines program income as gross income earned by the SBDC that
is directly generated by a grant supported activity or earned as a
result of the cooperative agreement with SBA. It also requires all
program income to be reported to SBA.

In an examination report dated August 26, 1998, SBA noted that another
ISBDC center's 1997 reported program income did not reconcile with the
host institution's accounting records. As a result of that examination,
SBA recommended that the ISBDC ensure that all centers timely reconcile
program income accounts. Accordingly, this report will not include that
same recommendation.

**Recommendations**

We recommend that the District Director of the SBA Boise District Office
require the ISBDC State Director to:

4A. Implement controls to ensure that all program income is reported.

4B. Reiterate to the Center the definition of program income.

### Auditee Comments

The ISBDC State Director agreed with the finding and recommendations and
stated the Center would act to strengthen training and procedural
controls to ensure the proper classification of revenues and expenses is
made.

**Evaluation of Auditee Comments**

The ISBDC State Director's planned actions are responsive to our
recommendations.

### FINDING 5: Incomplete Records for Training Activities, Revenue Deposits and Conference Room Rental Agreements

The Center did not (1) maintain sufficient support for non-SBA approved
training, (2) provide an audit trail that allowed training fee revenue
to be traced to account deposits, and (3) provide support for rental
rates paid to the IIC. The cooperative agreement requires the ISBDC to
maintain complete and accurate records, as well as supporting
documentation to support and facilitate any thorough financial and/or
program audit.

# Insufficient Support for Non-SBA Approved Training

Conference room rental invoices indicated the Center conducted at least
two non-SBA approved training sessions in 1996. The Center did not
maintain a database for non-SBA approved training and did not maintain
other adequate documentation to verify that non-SBA approved training
occurred. The Center provided the IIC conference room scheduling book
and the instructor's planners as support for all questioned training,
and provided a press release and partial roll sheet for one session.
This documentation alone did not provide the support to facilitate a
thorough audit of all Center training activities.

## Incomplete Revenue Deposit Records 

The Center did not maintain complete records to allow training revenue
to be traced to account deposits. The Center maintained a payment record
for each training session; however, the record was destroyed upon
receipt of payment from all attendees. A single deposit covered multiple
training sessions, and the deposit records did not provide a break down
of the amount allocated to each session. Accordingly, the auditors were
prevented from verifying the amount of revenue collected and deposited
for a particular session.

## Insufficient Support for Rental Rates Paid

The Center paid \$90 and \$75 per day for use of the IIC's conference
room during 1996 and 1997, respectively. Undated conference room
guidelines, provided during the audit, stated the conference room rental
rate was \$45 for a full day. During the exit conference, the auditors
were informed that (1) the rate schedule provided did not cover the
dates in question, and (2) the Center Director and the IIC Director had
a verbal adjusted rate agreement. The Center did not provide sufficient,
written, supporting documentation for the adjusted rate agreement and
conference room rental payments.

**Recommendations**

We recommend that the District Director of the SBA Boise District Office
require the ISBDC State Director to:

5A. Direct the Center to maintain all non-SBA approved training records
and maintain a database of all training conducted by the Center.

5B. Direct the Center to develop a financial transaction page for each
training session that lists all deposits and expenses and ensure that
each item is easily traceable to the accounting records.

5C. Direct the Center to enter into a written memorandum of
understanding with the IIC that outlines at a minimum, negotiated
charges for conference room rental, equipment rental, office space, and
any other items shared in common.

**Auditee Comments**

Finding 5 was developed as a result of discussions during the exit
conference. Consequently, the ISBDC State Director did not have the
opportunity to respond directly to the cited deficiencies and
recommendations. He did, however, state that he would work with the
Center to ensure strong systems are in place to ensure that
documentation is improved. He also agreed that a formal agreement is
needed between the IIC and ISU to describe the use of facilities,
equipment, and shared items. He further stated that he would take an
active role in the process to ensure an agreement is in place by May of
2000.

**Evaluation of Auditee Comments**

The ISBDC State Director's planned actions are responsive to our
recommendations.

**SBA Management's Response and OIG Evaluation**

The District Director of the SBA Boise District Office concurred with
the findings and recommendations. His comments are included as
Attachment 2 and are responsive to our recommendations.

**\* \* \***

The findings included in this report are the conclusions of the Auditing
Division based upon the auditors' testing of the auditee's operations.
**The findings and recommendations are subject to review and
implementation of corrective action by your office following the
existing Agency procedures for audit follow-up and resolution.**

Please provide us your management decisions for the recommendations
within 80 days. Record your management decisions on the attached SBA
Forms 1824, Recommendation Action Sheet, and show either your proposed
corrective action and target date for completion, or an explanation of
your disagreement with our recommendations.

This report may contain proprietary information subject to the
provisions of 18 USC 1905. Do not release to the public or another
agency without permission of the Office of Inspector General.

Should you or your staff have any questions, please contact Robert G.
Hultberg, Acting Director, Business Development Programs Group at (202)
205-7204.

Attachments

![](media/image3.png){width="6.49375in" height="8.360416666666667in"}

> November 12, 1999
>
> Finding 1E & F. We believe we have the documentation that adequately
> supports the expenditures of funds to provide for NxLevel training and
> consulting.

Finding 1G. We agree with the finding and have recovered the \$259.

> Finding 1H. We believe we have the documentation that adequately
> supports the expenditure of funds to provide for NxLevel training and
> is consistent with Idaho State University policy.
>
> Finding 2A. The State Director will develop a training program to
> ensure the accurate completion of all SBA report forms, including SBA
> Form 888s.
>
> Finding 2B. We believe that all training provided by the ISBDC is
> reasonably priced.
>
> Finding 2C. The State Office will instruct regional offices on the
> proper criteria for reporting training and to implement oversight
> procedures.
>
> Finding 3A. The State Director will ensure only consulting to
> for-profit businesses is reported.
>
> Finding 3D. We agree that time expended outside of the SBDC time
> should not be counted in consulting hours. The review of NxLevel
> business plans is certainly part of the NxLevel program to serve our
> clients. Unlike most training events, NxLevel is a marriage of
> training and consulting to take advantage of the strength of each. We
> present material in the classroom that is applicable to all and
> provide individual consulting to provide tailored solutions. The
> counting of administrative time in consulting was directly by the
> State Office to better account for the true cost in hours of serving a
> small business client. The administrative time accounts for providing
> closing letters to the clients and for collecting evaluation and
> impact data.
>
> Finding 3E. Idaho State University is confident that BERT tasks were
> not performed on SBDC time. (See Idaho State University comments.)
>
> Finding 3F. We have implemented procedures to ensure client cases are
> reviewed after 120 days with activity to determine if the client case
> should be closed.
>
> Finding 4A B. As stated in Finding 1D, the State Office is in the
> process of developing a systematic, on-site review of all financial
> documentation by Boise State University Grants Accounting to ensure
> documentation meets standards. This review will include the proper
> reporting of program income.

I would like to suggest that we meet in Idaho Falls to resolve the
issues where we believe the documentation is available to support our
findings which are not consistent with yours. This provides an
opportunity to resolve any differences. My goal is to ensure the Idaho
Small Business Development Center is responsive and meeting the needs of
our partner-the U.S. Small Business Administration.

November 12, 1999

If I can provide any further assistance, please call at 426-3799.

Best regards,

/s/

Jim Hogge

State Director

Atch: ISU Idaho Small Business Development Center Audit

November 10, 1999

To: Jim Hogge, State Director

Idaho Small Business Development Center

From: Kenneth Smith Ph.D., CPA

Associate Dean, College of Business

Cc: Ken Prolo, Financial Vice President

Roger Egan, Director of Auditing Services

Bill Stratton, Dean -- College of Business

Subject: Idaho Small Business Development Center Audit

I reviewed the draft report from the Office of Inspector General and
believe that most of the findings and recommendations are without merit.
As a CPA and professor specializing in auditing, I am disappointed that
the auditors came to these conclusions without seeking better
explanations from the Idaho Falls SBDC management and staff.

Many of the recommendations result from lack of documentation in the
SBDC files. These recommendations are appropriate and require immediate
attention. The Idaho Falls SBDC director has determined that she must
place greater emphasis on record keeping and staff training. Proper
records have been maintained, be source documents are not easy to find.
Many of these problems occurred because the SBDC secretary left in April
of 1996 and the limited budget caused the SBDC to rely on part-time
student work-study secretarial help. The auditor recommendations to
strengthen internal controls for record keeping are valid and are being
acted upon.

My specific conclusions follow in the order of each finding.

[Finding 1: Unallowable Costs]{.underline}

(1-1) Questionable payments for conference room, equipment, and
instructors:

The auditors that \$3,775 was paid for training that did not occur. They
do not explain how this conclusion was reached, but my review of SBDC
records shows that ample evidence exists that training did, in fact,
occur on the days in question. The conference room scheduling book shows
the room was reserved, instructors' log books show they taught the
courses on those days, there are roll sheets for business people who
attended, ISU records indicate that revenue was received and deposited
and expenditures made. It is not clear how the auditors reached their
conclusion, but the SBDC director, the Idaho Innovation Center director,
and the secretaries for both organizations tell me that the auditors
never requested any of the corroborative information.

In addition, the auditors indicate that \$1,825 of excessive charges was
made for conference room rentals for other meetings. This is apparently
based on an incorrect understanding that the IIC rate was \$45 for a
full day. In fact, the IIC\` charges in 1995 were \$45 for a half day,
\$75 for a full day, and an additional \$15 cleaning fee. Equipment
charges and refreshments add4d \$42.50. In September 1996, the room
charges were increased to \$55 per half day and \$100 for full day.
Equipment charges are \$40 and refreshments are \$15.

The SBDC classes were 4 hours in length, but the program included
consulting with the attendees prior to and I immediately after the
class. The instructor would present material during the class period and
then meet with the attendees individually to help each of them to
incorporate the material into a specific business plan. Thus, the
typical commitment for room time was 6 hours per day. The SBDC and IIC
directors negotiated a special fee of \$125, including equipment, which
seems very reasonable. This rate is especially reasonable when compared
to costs of renting similar classroom space elsewhere in Idaho Falls (or
anywhere else), where a typical rental rate for similar meeting rooms is
\$150 without equipment.

The auditors note that IIC and SBDC have an informal agreement allowing
free use of the room for co-sponsored training programs, but none of
these Fast Trac or NxLevel program were co-sponsored functions. The
Board of Directors of the ICC requires that a rental fee to be charged
for any organization using the facilities for a revenue generating
function. The IIC does make the conference room available to the SBDC
for operational functions other than training at no charge, an
arrangement that has allowed the SBDC to deliver more services to small
businesses with a very small budget. The agreement between the SBDC and
IIC has been very advantageous to us because the IIC provides us with
free office space and an opportunity to share clerical costs.

(1-2) Inadequately Supported in-kind Contributions:

The auditors indicate that donated services used for in-kind match were
not adequately supported. After the 1995 audit, the Idaho SBDC State
Director instituted a new reporting form that supports in-kind match
donations. The Idaho Falls center gets these forms signed by the donor
and submits them to the Idaho State University Grants and Contracts
offices as support for the in-kind match. These records are retained by
Dan Wolfley in Pocatello. The records available at ISU do support the
in-kind match. The auditors do have a valid point in that the supporting
documentation form could be improved by adding more detailed information
about the donor to justify the reasonableness of the donation valuation.

(1-3) Inadequately Supported Consulting Payments:

The auditors indicate that payments to a consultant \[FOIA Ex. 4&6\]
should not be allowed because of inadequate support. They suggest that
double billings may have been paid for the period from January to May of
1997. In fact, SBDC time report submitted

by consultants and forwarded to the State SBDC show that \[FOIA Ex.
4&6\] actually worked 359.35 hours during the period from January
through May of 1997, but only billed for 154.5 hours. The training
classes taught by Mr. \[FOIA Ex. 4&6\] and the related consulting with
small business clients that is part of the NxLevel program clearly
support the reasonableness of those invoices. Again, the auditors did
not request any of this corroborating information that was available in
the computer information system.

The auditors indicate that 52 hours of NxLevel consulting was provided
in July 1997 while no training courses were held during that period.
Apparently the auditors do not understand the nature of the NxLevel
program. The purpose of the training classes was followed by consulting
services to assist the business people in implementing the coursework.
The specific consulting during July 1997 was to help those business
people who participated in the June courses to implement the new
knowledge into effective business plans. The NxLevel program and the
SBDC mission required consulting with these business people to
supplement the material taught in class sessions.

(1-4) Improper Travel Reimbursements:

This finding is correct. The Idaho Falls SBDC director has reimbursed
the University for this error of paying mileage twice on the same trip.
The error arose because of part-time secretarial staff and delayed
reporting of travel expenses. New internal reporting forms have been
instituted (in 1998) to insure timely reporting by travelers to the
secretaries and prompt preparation of reimbursement requests.

5.  Unallowable Salaries:

This finding results from finding (1) above. Faculty salary payments are
disallowed because the auditor concluded that no meetings took place
between July and September, 1996. As explained above, there is ample
evidence that the meetings did take place. The fact that the Grants and
Contracts Director at ISU paid the salary and stated to the auditor that
the amounts were reasonable is additional evidence that the meetings
took place during that period.

[My Conclusions:]{.underline}

Recommendations C, D, and G are valid and should be acted upon. The
Idaho Falls SBDC will enter into a written memorandum of understanding
with the Idaho Innovation Center clearly showing the service and cost
arrangements for use of the IIC space. Increased attention will be
placed on training of staff to insure that in-kind donations are clearly
documented. The statewide documents for in-kind donations should be
modified to include more detailed information about the donor that will
support the claimed valuation.

The other recommendations suggesting that funds be recovered are
rejected as not supported by the facts.

[Findings 2: Training Irregularities]{.underline}

(2-1) Reported Training Fees and Disclosures of a Co-sponsor:

As indicated on the SBA Form 888s, the four training programs (January
through October) reported that NxLevel training did occur. This training
was sponsored solely by the SBDC and all of the revenues were allocated
to the SBDC. The Idaho Innovation Center (which is not related to the
SBDC) had a subsequent contract with \[FOIA Ex. 4&6\] beginning in
October of 1997. The IIC assisted the SBDC in presenting the October 21
session and the Form 888 shows that assistance. However, the IIC was not
a co-sponsor and all of the revenue went to the SBDC.

The fact that the IIC subsequently charged \[FOIA Ex. 4&6\]
approximately \$11,000 is totally irrelevant. The IIC training under
that contract occurred after the SBDC courses and did not involve the
SBDC. The auditor states that the SBDC charged excess fees of \$6,785.
In fact, the ICC charged \[FOIA Ex. 4&6\] for training that was
unrelated to the SBDC and the IIC, not the SBDC, charged the \$11,000.
The auditor seems to be confusing the IIC with the SBDC. The IIC is the
SBDC's landlord.

(2-2) Inappropriate Reporting of Training:

The auditors conclude that a training program attended only by SBDC and
IIC employees should not have been reported on Form 888 as training
provided to small business persons and entities. I am not aware of the
specific technicalities for reporting sessions under different
categories. However, the training program was set up as a service to
small business entities served by the SBDC. The fact that nobody signed
up for the program other than IIC and SBDC does not change the purpose
of the training. The session had been arranged in advance and could not
be cancelled at the last moment. In addition, it seems to me that
training the consultants provides training to other small business
entities served by those consultants.

[My Conclusions:]{.underline}

The SBDC does not charge excessive fees for training and therefore,
there is no need to strengthen controls in that area. The auditors may
be right about whether this particular training program should be
reported on form 888. I am not qualified in the specific regulations
involved in this reporting. Recommendations to strengthen controls
concerning proper filing of Form 888 will be addressed.

[Finding 3: Overstated Counseling Hours]{.underline}

The auditors state that counseling hours were overstated by 3% in 1997
and 4% in 1998. Their rational is that visits with a rural Economic
Development Officer and a Business

Information Center Director do not qualify as consulting. That is an
extremely narrow view. These individuals are the liaisons between the
SBDC and client businesses in the rural areas. The consulting with them
is passed on to the businesses as direct assistance in most cases. The
consultants work with several businesses in the areas through the EDOs
in that area. The time spent visiting these individuals is necessary in
setting up the NxLevel training sessions and enrolling small businesses.
Similarly, secretarial time maintaining consulting files is a necessary
part of the consulting effort.

The SBDC Director and staff recognize that it is important to develop
the most accurate information possible a data entry controls in the
software or a review process should be implemented to catch clerical
errors. However, the 3% or 4% overstatement of hours in this case is
probably not significant since the reported consulting hours are
maintained to demonstrate that the SBDC has hit targets set up by the
state SBDC. In fact, the targets were exceeded by more than 10%.

The auditors note that travel time was being improperly reported in some
cases where one trip served multiple clients. This observation is
correct and the consultants now report travel time by allocating among
the clients. It should be noted that this reporting of travel time did
not affect reimbursements or other expenses.

The auditors note that time spent by the counselors reviewing NxLevel
training course participants homework was reported as consulting, while
is should be prep time. That conclusion again indicates that the
auditors misunderstand the NxLevel program. The clients learn to prepare
a business plan in the classes and the counselors then follow up with
consulting help to refine and implement those plans.

The auditors indicate that consulting was claimed by the SBDC for
services provided to clients by an SBDC counselor under a separate
non-SBA program (Business Expansion and Retention Fund -- BERT). The
counselor did work for an external organization that had contracts with
BERT. Those hours were accounted to that organization, which paid the
consultant. The SBDC also provides services to the small businesses,
including NxLevel training and consulting. The SBDC mission is to serve
small businesses in the region and these consulting services were
entirely appropriate, as they would be to any other small business
requesting assistance. The hours counted toward the Regional Office
milestones were these additional consulting hours and did not include
the separate hours worked for the external organization under the BERT
program. It is not clear whether the auditors are objecting to the SBDC
serving small businesses that are also served by the Idaho Falls BERT
fund, or whether they are claiming the same hours are counted twice. The
first objection would be inappropriate and the second objection is not
correct.

The auditors note that many client files remain open for more than the
120 days without a follow-up review. That is a correct observation that
surprised the SBDC director and staff. The information system has been
corrected to flag those files for more timely processing.

[My Conclusions:]{.underline}

All of the recommendations concerning system improvements are being
implemented currently. The recommendation about seeking reimbursement
from the counselor for performing BERT tasks on the SBDC time is
inappropriate since that did not occur.

[Finding 4: Inaccurate Reporting and Accounting of Program
Income]{.underline}

The auditors report that some program income was recorded in other
accounts in 1996 and 1997 and that some grant income for "TechHelp" was
mistakenly recorded as program income. The SBDC was in a period of
transition during that period and staff training has now improved so
that such errors should not occur.

[My Conclusions:]{.underline}

The auditors are correct and we will act to strengthen training and
procedural controls to insure that proper classification of revenues and
expenditures is made.

![](media/image4.png){width="6.49375in" height="8.32013888888889in"}

## **Attachment 3**

# 

# **REPORT DISTRIBUTION**

[Recipient]{.underline} [No. of Copies]{.underline}

Associate Deputy Administrator for Entrepreneurial Development 1

Associate Administrator for Field Operations 1

Associate Administrator for Small Business Development Centers 1

District Director, Boise District Office 1

General Counsel 2

Office of the Chief Financial Officer

Attention: Jeff Brown 1

##