prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: The Railroad Retirement Board (RRB), an independent federal agency, administers retirement, survivor, disability, unemployment, and sickness insurance for railroad workers and their families under the Railroad Retirement Act (RRA) and the Railroad Unemployment Insurance Act (RUIA)  These acts cover workers who are employed by railroads engaged in interstate commerce and related subsidiaries, railroad associations, and railroad labor organizations  Lifelong railroad workers receive railroad retirement benefits instead of Social Security benefits; railroad workers with nonrailroad experience receive benefits either from railroad retirement or Social Security, depending on the length of their railroad service  The number of railroad workers has been declining since the 1950s, although the rate of decline has been irregular and recent years have seen increases in railroad employment after reaching an all-time low of 215,000 workers in January 2010  Recently, railroad employment peaked in April 2015 to 253,000 workers, the highest level since November 1999, and then declined through FY2017, falling to 221,000 workers  The total number of beneficiaries under the RRA and RUIA decreased from 623,000 in FY2008 to 574,000 in FY2017, and total benefit payments increased from $10 1 billion to $12 6 billion during the same time  During FY2017, the RRB paid nearly $12 5 billion in retirement, disability, and survivor benefits to approximately 548,000 beneficiaries  Almost $105 4 million in unemployment and sickness benefits were paid to approximately 28,000 claimants  This report explains the programs under RRA and RUIA, including how each program is financed, the eligibility rules, and the types of benefits available to railroad workers and family members  It also discusses how railroad retirement relates to the Social Security system  For a quick overview of this topic, see CRS In Focus IF10481, Railroad Retirement Board: Retirement, Survivor, Disability, Unemployment, and Sickness Benefits   The RRA authorizes retirement, survivor, and disability benefits for railroad workers and their families  In December 2017, there were a total of 526,100 RRA beneficiaries, decreasing from 672,400 in 2001  This decline might partly result from the decline in railroad employment in the past five decades  The average monthly benefit for each beneficiary was about $1,986 in 2017, which increased from $1,043 in 2001, reflecting the growth in average wages and prices (see Figure 1 )  The railroad retirement, disability, and survivor program is mainly financed by payroll taxes, financial interchanges from Social Security, and transfers from the National Railroad Retirement Investment Trust (NRRIT) (see Figure 2 ), all of which accounted for 93 9% of the $12 7 billion gross funding of the RRA program during FY2017  The remaining 6 1% of the program was financed by federal income taxes levied on railroad retirement benefits, interest on investment and other revenue, and general appropriations to pay the costs of phasing out vested dual benefits  Payroll taxes, which provided 47 0% of gross RRA funding in FY2017, are the largest funding source for railroad retirement, survivor, and disability benefits  Railroad retirement payroll taxes are divided into two tiers—Tier I and Tier II taxes  The Tier I tax is the same as the Social Security payroll tax: railroad employers and employees each pay 6 2% on earnings up to $132,900 in 2019  The Tier II tax is set each year based on the railroad retirement system's asset balances, benefit payments, and administrative costs  In 2019, the Tier II tax is 13 1% for employers and 4 9% for employees on earnings up to $98,700  Tier II taxes are used to finance Tier II benefits, the portion of Tier I benefits in excess of Social Security retirement benefits (such as unreduced early retirement benefits for railroad employees with at least 30 years of railroad service), and supplemental annuities  Tier I payroll taxes are deposited in the Social Security Equivalent Benefit Account (SSEBA), which pays the Social Security level of benefits and administrative expenses allocable to those benefits  The SSEBA also receives or pays the financial interchange transfers between the railroad retirement and Social Security systems  The financial interchange with Social Security provided 32 6% of gross RRA funding in FY2017  The purpose of the financial interchange is to place the Social Security trust funds in the same position they would have been in, if railroad employment had been covered under Social Security since that program's inception  Tier II tax revenues that are not needed to pay current benefits or associated administrative costs are held in the National Railroad Retirement Investment Trust (NRRIT), which is invested in both government securities and private equities  NRRIT transfers provide another revenue source for railroad benefits, and they were 14 3% of gross RRA funding in FY2017  Prior to the Railroad Retirement and Survivors' Improvement Act of 2001 ( P L  107-90 ), surplus railroad retirement assets could only be invested in U S  government securities—just as the Social Security trust funds must be invested in securities issued or guaranteed by the U S  government  The 2001 act established the NRRIT to manage and invest the assets in the Railroad Retirement Account in the same way that the assets of private-sector and most state and local government pension plans are invested  The remainder of the railroad retirement system's assets, such as assets in SSEBA, continues to be invested solely in U S  government-issued or -granted securities  The combined fair market value of Tier II taxes and NRRIT assets is designed to maintain four to six years' worth of RRB benefits and administrative expenses  To maintain this balance, the Railroad Retirement Tier II tax rates automatically adjust as needed  This tax adjustment does not require congressional action, according to Section 204 of the 2001 act  To be insured for railroad benefits, a worker must generally have at least 10 years of covered railroad work or 5 years performed after 1995 and "insured status" under Social Security rules (generally 40 earnings credits) based on combined railroad retirement and Social Security-covered earnings  An insured railroad worker's family may be entitled to receive railroad retirement benefits  If a worker does not qualify for railroad retirement benefits, his or her railroad work counts toward Social Security benefits  Of the total $12 5 billion benefit payments during FY2017, 60 0% (or $7 5 billion) were paid in retirement annuities to retired workers, 8 0% (or $1 0 billion) in disability annuities, 14 4% (or $1 8 billion) in spouse annuities, and 16 8% (or $2 1 billion) in survivor annuities  Tier I annuities are designed to be nearly equivalent to Social Security Old Age, Survivors, and Disability Insurance benefits  Tier I annuities are calculated using the Social Security benefit formula and are based on both railroad retirement and Social Security-covered employment  However, Tier I annuities are more generous than Social Security benefits in certain situation  For example, at the age of 60, railroad workers with at least 30 years of covered railroad work may receive unreduced retirement annuities  At the full retirement age (FRA), which is gradually increasing from 65 to 67 for Social Security and railroad retirement beneficiaries, insured workers with fewer than 30 years of service may receive full retirement ann uities  Alternatively, workers with fewer than 30 years of service may, starting at the age of 62, receive annuities that have been reduced actuarially for the additional years the worker is expected to spend in retirement  Tier I benefit reductions for early retirement are similar to those in the Social Security system  As the FRA rises, so will the reduction for early retirement  If a railroad employee delays retirement past FRA, Tier I annuities are increased by a certain percentage for each month up until the age of 70, which is identical to the benefit increase provided by Delayed Retirement Credits under the Social Security system  In general, Social Security benefits are subtracted from Tier I annuities, because work covered by Social Security is counted toward Tier I annuities  Beneficiaries insured by both systems receive a single check from the RRB  Railroad retirement annuities may also be reduced for certain pensions earned through federal, state, and local government work that is not covered by Social Security  For early retirees who continue to work for a nonrailroad employer while receiving the retirement benefit during the year prior to FRA, Tier I benefits are reduced by $1 for every $2 earned above an exempt amount ($17,040 in 2018)  After Tier I benefits are first paid, they increase annually with a cost-of-living adjustment (COLA) in the same manner as Social Security benefits  Retirement annuities are not payable to workers who continue to work in a covered railroad job or who return to railroad work after retirement  Tier II retirement annuities are paid in addition to Tier I annuities and any private pension and retirement saving plans offered by railroad employers  They are similar to private pensions and based solely on covered railroad service  Tier II annuities for current retirees are equal to seven-tenths of 1% of the employee's average monthly earnings in the 60 months of highest earnings, times the total number of years of railroad service  Tier II annuities are increased annually by 32 5% of the Social Security COLA  Tier II annuities are not (in contrast to Tier I annuities) reduced if a worker receives Social Security benefits or a government pension that was not covered by Social Security  For railroad retirees and spouses who work for their last pre-retirement nonrailroad employer while receiving retirement benefits, Tier II annuities are reduced by $1 for every $2 earned, capped at 50% of the Tier II annuity  There is no cap to the earnings-related reduction in railroad Tier I or Social Security benefits  In addition, the earnings-related reduction applies to all Tier II beneficiaries regardless of age, whereas for railroad Tier I and Social Security benefits, the earnings-related reduction applies only until the beneficiary reaches FRA  Tier II payroll taxes also finance a supplemental annuity program  Supplemental annuities are payable to employees first hired before October 1981, aged 60 with at least 30 years of covered railroad service or aged 65 and older with at least 25 years of covered railroad service, and a current connection with the railroad industry  In addition, general revenues finance a vested dual benefit for those who were insured for both railroad retirement and Social Security in 1974 when the two-tier railroad retirement benefit structure was established  Neither supplemental annuities nor vested dual benefits are adjusted for changes in the cost of living during retirement  Supplemental annuities are subject to the same earnings reductions as Tier II benefits; vested dual benefits are subject to the same earnings reductions as Tier I benefits  Railroad workers may be eligible for disability annuities if they become disabled regardless of whether the disability is caused by railroad work  The RRB determines whether a worker is disabled based on the medical evidence provided during the application process  Railroad workers found to be totally and permanently disabled from all work may be eligible for Tier I benefits at any age if the worker has at least 10 years of railroad service  Totally disabled workers may also receive Tier II benefits at the age of 62 if they have 10 or more years of service  Occupational disability annuities are also payable to workers found to be permanently disabled from their regular railroad occupations, if the worker is at least 60 years old with 10 years of service (or any age with 20 years of service), and with a current connection to the railroad industry  A five-month waiting period after the onset of disability is required before any disability annuity can be payable  Disability annuities are not payable if a worker is currently employed in a covered railroad job  Disability benefits are suspended if a beneficiary earns more than a certain amount after deducting certain disability-related work expenses  The Tier I portion of disability benefits may be reduced for the receipt of workers compensation or government disability benefits  In any month that a worker collects a railroad retirement or disability annuity, his or her spouse may also be eligible for a spousal annuity equal to or greater than the benefit he or she would have received if the worker's railroad work had been covered by Social Security  A spouse is eligible for a spousal annuity when he or she reaches the same minimum age required for the worker (i e , either at the age of 60 or 62, depending on years of the worker's service)  At any age, a spouse may be eligible for a spousal annuity if he or she cares for the worker's unmarried child under the age of 18 (or a child of any age that was disabled before the age of 22)  An individual must have been married to the railroad worker for at least one year before he or she applies for the spousal annuities, with certain exceptions  A qualifying spouse receives 50% of the worker's Tier I benefit before any reductions (or, if higher, a Social Security benefit based on his or her own earnings)  Spouses may also receive 45% of the worker's Tier II benefit before any reductions  Divorced spouses of retired or disabled railroad workers may also be eligible for spousal annuities  A divorced spouse may receive 50% of the worker's Tier I benefit before reductions, but no Tier II benefits  To qualify, the former spouse must have been married to the worker for at least 10 years and must not currently be married (remarriages if any must have terminated); both the worker and former spouse must be at least 62 years old  For spouses, as for railroad workers, Social Security benefits are subtracted from Tier I annuities  The Tier I portion of a spouse annuity may also be reduced for receipt of any pension from government employment not covered by Social Security based on the spouse's own earnings  Spouses are subject to reductions based on the primary worker's earnings as well as on their own earnings  For example, for early retirement, spouses are subject to different benefit reductions from workers  Finally, spouse annuities are reduced by the amount of any railroad benefits earned based on their own work  After the worker's death, surviving spouses, former spouses, children, and other dependents may be eligible to receive survivor annuities, which are paid in addition to any private life insurance offered by railroad employers  To be insured for survivor annuities, the worker must have had a current connection with the railroad industry at the time of death  Railroad survivor annuities are generally higher than comparable Social Security benefits because railroad workers' families may be entitled to Tier II annuities as well as Tier I annuities (as noted above, Tier I annuities are equivalent to Social Security benefits)  In cases where no monthly survivor annuities are paid, a lump-sum payment may be made to certain survivors  The widows and widowers of railroad workers may be eligible to receive survivor annuities  At FRA, a surviving spouse may be eligible for 100% of the worker's Tier I annuity (or his or her own Social Security or railroad retirement Tier I benefit, if higher)  The widow(er) may also receive up to 100% of the worker's Tier II annuity  As early as the age of 60 (or age 50, if disabled), widows and widowers may receive reduced survivor annuities  A qualifying widow(er) must have been married to the deceased railroad worker for at least nine months, with certain exceptions  At any age, a widow(er) caring for a deceased worker's child under the age of 18 may receive a survivor annuity equal to 75% of the worker's Tier I annuity, as well as up to 100% of the worker's Tier II annuity  Widow(er)s who are the natural or adoptive parent of the deceased worker's child do not have to meet the length of marriage requirement  Survivor annuities may also be payable to a surviving divorced spouse or remarried widow(er)  To qualify for benefits, a surviving divorced spouse has to be married to the employee for at least 10 years and is unmarried or remarried after age 60 (age 50 for disabled surviving divorced spouse)  A surviving divorced spouse who is unmarried can qualify for benefits at any age if caring for the employee's child who is under age 16 or disabled  Benefits are limited to the amounts Social Security would pay (Tier I only) and therefore are less than the amount of the survivor annuity otherwise payable  Railroad workers' children may also receive survivor annuities  To qualify, a child must be unmarried and under the age of 18 (or 19 if still in high school)  Disabled adult children may qualify if their disability began before the age of 22  Eligible children receive 75% of the worker's Tier I annuity and 15% of the worker's Tier II annuity  In addition, if a worker's parent was dependent on the worker for at least half of the parent's support, he or she may receive 82 5% of the worker's Tier I annuity and 35% of the worker's Tier II annuity after reaching age 60  Survivor annuities are not payable to a current railroad employee, and survivor annuities are reduced by any railroad retirement benefit the survivor has earned through his or her own railroad work  Survivors receive the same reductions as retired workers for Social Security benefit receipt; they also have reductions from government pension receipts that are not covered by Social Security  A family maximum applies to survivor benefits, usually applicable when three or more survivors receive benefits on a worker's record (not counting divorced spouses)  In summary, Table 1 provides data on railroad retirement, survivor, and disability annuities as of June 2018  Railroad workers may qualify for daily unemployment and sickness benefits under the Railroad Unemployment Insurance Act (RUIA)  These monetary benefits are paid in addition to any paid leave or private insurance an employee may have  For sickness benefits, a worker must be unable to work because of illness or injury  Sickness benefits are distinct from disability benefits because they are intended to cover a finite, temporary period of time  Workers may not earn any money while receiving unemployment or sickness benefits  Figure 3 displays the monthly number of beneficiaries with unemployment and sickness benefits from January 2002 to July 2018, respectively  Although the number of sickness beneficiaries stayed relatively stable over time, the number of unemployment insurance beneficiaries increased significantly during and after the most recent economic recession from 2007 to 2009  Railroad unemployment and sickness benefits are financed solely by railroad employers' payroll taxes, based on the taxable earnings of their employees  Employers' tax rates depend on the past rates of unemployment and employees' sickness claims  For calendar year 2018, the employer tax rate ranges from 2 2% to 12 0% on the first $1,560 of each employee's monthly earnings  The payroll tax proceeds not needed immediately for unemployment and sickness insurance benefits or operating expenses are deposited in the Railroad Unemployment Insurance Account maintained by the Treasury  This account, together with similar unemployment insurance accounts for each state, forms a Federal Unemployment Insurance Trust Fund whose deposits are invested in U S  government securities, and the Railroad Unemployment Insurance Account receives interest based on these deposits  During FY2017, payroll tax contributions from railroad employers totaled $126 4 million and interest income was about $4 million  The RUIA provides for employers to pay a surcharge if the Railroad Unemployment Insurance Account falls below an indexed threshold amount  The surcharge is added to the employer's tax rate  However, the total tax rate plus the surcharge cannot exceed the maximum rate of 12 0%, unless the surcharge is 3 5%, in which case the maximum tax rate is increased to 12 5%  From 2004 through 2010, the surcharge was 1 5%  The surcharge in 2011 was 2 5% and 1 5% in 2012 with no surcharges in 2013 or 2014  The surcharge in 2018 was 1 5%, the same as the level in the past three years  Eligibility for railroad unemployment and sickness benefits is based on recent railroad service and earnings  The annual benefit year begins on July 1  Eligibility is based on work in the prior year, or the base year  To qualify in the benefit year beginning July 1, 2018, railroad workers must have base year earnings of $3,862 50 in calendar year 2017, counting no more than $1,545 per month  New railroad workers must also have at least five months of covered railroad work in the base year  To receive unemployment benefits, a worker must be ready, willing, and able to work  The maximum daily unemployment and sickness benefit payable in the benefit year that began July 1, 2018, is $77, and the maximum benefit for a biweekly claim is $770  However, due to sequestration pursuant to the Budget Control Act of 2011 ( P L  112-25 , as amended), the maximum daily benefit of $77 is reduced by 6 2% to $72 23 and the maximum biweekly benefit is reduced by 6 2% to $722 26 through September 30, 2019  Railroad workers receive these benefits only to the extent that they are higher than other benefits they receive under the RRA, the Social Security Act, or certain other public programs, including workers compensation  Unemployment and sickness beneficiaries may receive normal benefits for up to 26 weeks in a benefit year or until the benefits they receive equal their creditable earnings in the base year if sooner  Employees with at least 10 years of covered railroad service may qualify for extended benefits for 13 weeks after they have exhausted normal benefits  Table 2 displays the number and average weekly amount of RUIA benefits paid in June 2018  Workers who apply for unemployment benefits are automatically enrolled in a free job placement service operated by railroad employers and the RRB  


Report 2: Under SBA’s 7(a) loan program, SBA guarantees loans made by commercial lenders to small businesses for working capital and other general business purposes  These lenders are mostly banks, but some are non-bank lenders, including small business lending companies— lenders whose lending activities are not subject to regulation by any federal or state regulatory agency, but were previously licensed by SBA and authorized to provide 7(a) loans to qualified small businesses  The guarantee assures the lender that if a borrower defaults on a loan, the lender will receive an agreed-upon portion (generally between 50 percent and 85 percent) of the outstanding balance  For a majority of 7(a) loans, SBA relies on lenders with delegated authority to approve and service 7(a) loans and to ensure that borrowers meet the program’s eligibility requirements  To be eligible for the 7(a) program, a business must be an operating for-profit small firm (according to SBA’s size standards) located in the United States and must meet the credit elsewhere requirement  Because the 7(a) program is required to serve borrowers who cannot obtain conventional credit at reasonable terms, lenders making 7(a) loans must take steps to ensure that borrowers meet the program’s credit elsewhere requirement  Because SBA relies on lenders with delegated authority to make these determinations, SBA’s oversight of these lenders is particularly important  However, we found in a 2009 report that SBA’s lack of guidance to lenders on how to document compliance with the credit elsewhere requirement was impeding the agency’s ability to oversee compliance with the credit elsewhere requirement  To improve SBA’s oversight of lenders’ compliance with the credit elsewhere requirement, we recommended in 2009 that SBA issue more detailed guidance to lenders on how to document their compliance with the credit elsewhere requirement  As a result, SBA revised its standard operating procedure to state that each loan file must contain documentation that specifically identifies the factors in the present financing that meet the credit elsewhere test, which we believe met the spirit of our recommendation  SBA’s current credit elsewhere criteria for determining 7(a) loan eligibility include the following factors: 1  the business needs a longer maturity than the lender’s policy permits; 2  the requested loan exceeds the lender’s policy limit regarding the amount that it can lend to one customer; 3  the collateral does not meet the lender’s policy requirements; 4  the lender’s policy normally does not allow loans to new businesses or businesses in the applicant’s industry; or 5  any other factors relating to the credit which, in the lender’s opinion, cannot be overcome except for the guarantee  When the 7(a) program was first implemented, borrowers were generally required to show proof of credit denials from banks that documented, among other things, the reasons for not granting the desired credit  Similar requirements remained in effect until 1985, when SBA amended the rule to permit a lender’s certification made in its application for an SBA guarantee to be sufficient documentation  This certification requirement remained when the rule was rewritten in 1996  SBA stated that it believed requiring proof of loan denials was demoralizing to small businesses and unenforceable by SBA  SBA and lender roles vary among 7(a) program categories—including regular 7(a), the Preferred Lenders Program, and SBA Express  Under the regular (nondelegated) 7(a) program, SBA makes the loan approval decision, including the credit determination  Under the Preferred Lenders Program and SBA Express, SBA delegates to the lender the authority to make loan approval decisions, including credit determinations, without prior review by SBA  For each 7(a) program category, lenders are required to ensure that borrowers meet the credit elsewhere requirement for all 7(a) loans  The maximum loan amount under the SBA Express program is $350,000, as opposed to $5 million for other 7(a) loans  The program allows lenders to utilize, to the maximum extent possible, their own credit analyses and loan underwriting procedures  In return for the expanded authority and autonomy provided by the program, SBA Express lenders agree to accept a maximum SBA guarantee of 50 percent  Other 7(a) loans generally have a maximum guarantee of 75 percent or 85 percent, depending on the loan amount  In fiscal year 2016, 1,991 lenders approved 7(a) loans, of which 1,321 approved at least one loan with some form of delegated authority  SBA’s Office of Credit Risk Management is responsible for overseeing 7(a) lenders, including those with delegated authority  SBA created this office in fiscal year 1999 to help ensure consistent and appropriate supervision of SBA’s lending partners  The office is responsible for managing all activities regarding lender reviews; preparing written reports; evaluating new programs; and recommending changes to existing programs to assess risk potential  Generally, the office oversees SBA lenders to identify unacceptable risk profiles using its risk rating system and enforce loan program requirements  According to SBA’s standard operating procedures, one of the agency’s purposes of its monitoring and oversight activities is to promote responsible lending that supports SBA’s mission to increase access to capital for small businesses  In the federal budget, the 7(a) program is generally required to set fees that it charges to lenders and borrowers at a level to cover the estimated cost of the program associated with borrower defaults (in present value terms)  To offset some of the costs of the program, such as default costs, SBA assesses lenders two fees on each 7(a) loan  First, depending on the term of the loan, the guarantee fee must be paid by the lender within either 90 days of loan approval or 10 business days of the SBA loan number being assigned  This fee is based on the amount of the loan and the level of the guarantee, and lenders can pass the fee on to the borrower  Second, the servicing fee must be paid annually by the lender and is based on the outstanding balance of the guaranteed portion of the loan  The 7(a) program accounts for a small portion of total small business lending  According to a May 2017 report by the Consumer Financial Protection Bureau, the total debt financing available to small businesses was estimated to be $1 4 trillion  Of that amount, the Consumer Financial Protection Bureau estimated that about 7 percent was SBA loans, including 7(a) loans  SBA and some other researchers have suggested that there may be disparities in credit access among small businesses, based on characteristics of the borrower and firm  SBA lists as a strategic objective to “ensure inclusive entrepreneurship by expanding access and opportunity to small businesses and entrepreneurs in communities where market gaps remain ” In 2007, we reported that some studies had noted disparities among some races and genders in the conventional lending market, but the studies did not offer conclusive evidence on the reasons for those differences  Much of the research we reviewed in 2007 relied on the Board of Governors of the Federal Reserve System’s Survey of Small Business Finance, which was last implemented in 2003  Although this survey is no longer available, recently the 12 Federal Reserve Banks conducted the Small Business Credit Survey  In a series of reports based on the more recent survey, researchers found disparities in credit availability based on gender, the age of the firm, and minority status  From fiscal years 2007 through 2016, a majority of loan dollars guaranteed under the 7(a) program went to small businesses that were new, partially or wholly owned by women, or located in a distressed area  As previously mentioned, recent studies we reviewed by the Federal Reserve Banks and other researchers suggest that certain small business borrowers—including businesses that are new or owned by women—have difficulty obtaining conventional small business loans, which may put them at a disadvantage  As shown in figure 1, almost two-thirds of loan dollars guaranteed under the 7(a) program for this period went to small businesses that were in these two categories or located in a distressed area  The remaining 37 percent of 7(a) loan dollars went to businesses that were established, solely male-owned, and not located in economically distressed areas  See appendixes II and III for additional data on 7(a) loans, such as the total volume, percentage of lending provided by year and by state, and other borrower characteristics, including SBA’s loan- and lender-level Small Business Risk Portfolio Solutions score (predictive score) information  In the following figures, we present more detailed data on 7(a) loans to small businesses based on their status as a new business; gender of ownership; location relative to economically distressed areas; and minority ownership for fiscal years 2007 through 2016  New businesses  As shown in figure 2, the percentage of 7(a) loans that went to new businesses decreased from 36 percent in fiscal year 2007 to 23 percent in fiscal year 2011 before increasing to 35 percent by 2016  Gender  From fiscal years 2007 through 2016, the share of the total value of approved 7(a) loans by gender of owner remained fairly consistent (see fig  3)  An average of 70 percent of the total loan value went to male- owned businesses, and the remaining 30 percent went to businesses that were majority (more than 50 percent) or partially (50 percent or less) owned by women  Economically distressed areas  SBA did not provide data on whether 7(a) loans go to businesses located in economically distressed neighborhoods  However, we used data from the American Community Survey for 2011 through 2015, the most recent version available at the time of our analysis, along with zip code information provided by SBA to determine the average poverty rate by zip code (see fig  4)  From fiscal years 2007 through 2016, the proportion of the total value of 7(a) loans approved that went to borrowers in economically distressed areas remained between 23 percent and 26 percent  We defined distressed areas as zip codes where at least 20 percent of the households had incomes below the national poverty line  Minority/Nonminority status of borrower  From fiscal years 2007 through 2016, the proportion of the total value of 7(a) loans approved that went to minority borrowers decreased overall—from 43 percent to 30 percent—with the lowest share at 24 percent in fiscal year 2010 (see fig  5)  The share of approved loan dollars that went to nonminority borrowers varied, increasing to 69 percent in fiscal year 2010 before decreasing to 56 percent in fiscal year 2016  Notably, the share of the total value of loans approved that went to borrowers whose race/ethnicity was categorized as undetermined increased from 5 percent in fiscal year 2007 to 13 percent in fiscal year 2016  This increase does not fully account for the declined share for minority borrowers  However, according to SBA officials, borrowers voluntarily provide self-reported information on race and ethnicity and therefore the associated trend data should be viewed with caution  SBA relies on on-site reviews as its primary mechanism for evaluating lenders’ compliance with the credit elsewhere requirement  The reviews are performed by third-party contractors with SBA staff participation and additional oversight from SBA  According to SBA’s standard operating procedures, these reviews are generally conducted every 12 to 24 months for all 7(a) lenders with outstanding balances on the SBA- guaranteed portions of their loan portfolios of $10 million or more, although SBA may conduct on-site reviews of any SBA lender at any time as it considers necessary  In fiscal year 2016, SBA conducted 40 on-site reviews of 7(a) lenders, representing approximately 35 percent of SBA’s total outstanding 7(a) loan portfolio  As part of SBA’s on-site reviews, reviewers judgmentally selected a sample of approximately 30 to 40 loan files using a risk-based approach  These loan files accounted for approximately 6 percent to 19 percent of each lender’s total gross SBA dollars in fiscal year 2016  For each lender, approximately 70 percent to 90 percent of the loan files in the sample were reviewed to evaluate compliance with the credit elsewhere requirement  According to SBA’s contractors, loans that were selected for other reasons, such as issues related to liquidation, were not required to be reviewed for credit elsewhere compliance  SBA requires lenders to provide a narrative to support the credit elsewhere determination in the credit memorandum included in each loan file  SBA’s standard operating procedures state that lenders must substantiate that credit is not available elsewhere by (1) discussing the criteria that demonstrate an identifiable weakness in a borrower’s credit and (2) including the specific reasons why the borrower does not meet the lender’s conventional loan policy requirements  In keeping with SBA’s documentation requirement, third-party contractors and SBA staff who conduct on-site reviews are supposed to assess whether lenders have adequately documented the credit elsewhere criteria and provided specific reasons supporting the criteria in the credit memorandum  According to SBA’s contractors, adequate documentation of the credit elsewhere determination in the credit memorandum would include not just which of the criteria a borrower met but also a discussion of the basis or justification for the decision  For example, if a lender determined that a borrower needed a longer maturity, the lender should explain in the credit memorandum the reasons why a longer maturity was necessary  SBA’s contractors also told us that they carefully review a lender’s loan policies in preparation for on-site reviews and refer to a lender’s policies throughout the reviews  Reviewers do not attempt to verify the evidence given in support of the credit elsewhere reason beyond the information provided in the credit memorandum  Based on our review of fiscal year 2016 reports, on-site reviews can result in three levels of noncompliance response: Finding: This is the most severe result and is associated with a corrective action for the lender to remedy the issue  Observation: This is a deficiency recorded in the review’s summary but may not warrant a corrective action for the lender  Deficiency Noted: This is the lowest level of response  It is a deficiency noted as part of the review that is not included in the review’s summary and also may not warrant a corrective action  According to SBA officials, SBA’s policy has been that any noncompliance with SBA loan program requirements results in a finding  However, according to SBA officials and our review of the fiscal year 2016 on-site review reports, if a single instance of noncompliance was identified in fiscal year 2016, SBA generally would not issue a finding  Instead, SBA’s contractors said they would attempt to determine whether that instance was an inadvertent error, such as by examining additional loan files  Lenders that are subject to corrective actions are generally required to submit a response to SBA within 30 days to document how they have addressed or plan to address the identified issues  SBA subsequently asks for documentation to show that the lender has remedied the issue, and in some cases will conduct another review that usually includes an assessment of 5 to 10 additional loan files to determine whether the credit elsewhere reason has been adequately documented  According to SBA officials, SBA may also review lenders’ compliance with corrective actions from recent on-site reviews during targeted reviews (discussed below) and delegated authority renewal reviews (for lenders with delegated authority)  In addition to on-site reviews, SBA also monitors lenders’ compliance with the credit elsewhere requirement through targeted reviews (performed on- or off-site)  Targeted reviews of a specific process or issue may be conducted for a variety of reasons at SBA’s discretion, including assessing a lender’s compliance with the credit elsewhere requirement  In fiscal year 2016, SBA conducted 24 targeted reviews that included an examination of lenders’ compliance with the credit elsewhere documentation requirement  For these reviews, SBA examined loan files for 5 judgmentally selected loans that were provided to SBA electronically, as well as copies of the credit elsewhere reasoning (among other underwriting documentation) for 10 additional recently-approved loans  SBA also conducts periodic off-site reviews that use loan- and lender- level portfolio metrics to evaluate the risk level of lenders’ 7(a) portfolios  According to agency officials, SBA also began using off-site reviews to evaluate lenders’ compliance with the credit elsewhere requirement in fiscal year 2016  In that year, SBA conducted off-site reviews of 250 lenders and required these lenders to report the credit elsewhere justification for a sample of 10 loans per lender that were identified by SBA’s selection process  Lenders were not required to provide supporting documentation, and SBA did not follow up with lenders or review loan files to ensure the validity of the self-reported reasons  According to SBA, off-site reviews followed the same procedures in fiscal year 2017 as in 2016 and that the agency planned to use the same procedures for these reviews in the future  According to the agency, it also routinely evaluates and revises its review processes and procedures  In addition, SBA’s Loan Guaranty Processing Center and National Guaranty Purchase Center conduct Improper Payments Elimination and Recovery Act and quality control reviews at the time of loan approval and at the time of guaranty purchase, respectively  These reviews examine the credit elsewhere requirement, among other issues  Lastly, since 2014 SBA’s Office of Inspector General has also examined whether high-dollar or early-defaulted 7(a) loans were made in accordance with rules; regulations; policies; and procedures, including the credit elsewhere requirement  Our review of the on-site reviews conducted in fiscal year 2016 found that 17 of the 40 reviews—more than 40 percent—identified compliance issues with the credit elsewhere documentation requirement  Of those 17 reviews, 10 reviews resulted in a Finding (all with associated corrective 3 reviews resulted in an Observation (none with associated corrective actions or requirements), and 4 reviews resulted in a Deficiency Noted (one with an associated requirement)  For all of the 17 on-site reviews that identified an instance of noncompliance, the issue was related to the lender’s documentation of the credit elsewhere criteria or justification  For example, one review found that the lender’s “regulatory practices demonstrate material noncompliance with SBA Loan Program requirements regarding documentation of the Credit Elsewhere Test ” Another review found that the lender “failed to demonstrate with adequate documentation that credit was not available elsewhere on reasonable terms and conditions ” For 2 of the 17 reviews, the issue was partly related to a discrepancy between the credit elsewhere justification used for some of the sample loan files and the lender’s own loan policy limits  With regard to SBA’s targeted reviews, 7 of 24 reviews (29 percent) conducted in fiscal year 2016 found a compliance issue with the credit elsewhere requirement  Of those 7 reviews, 6 reviews resulted in a Finding (all with associated corrective actions), 1 review resulted in an Observation (without an associated corrective no reviews resulted in a Deficiency Noted  For all of the 7 targeted reviews that identified a compliance issue, the issue was wholly related to the lender’s documentation of the credit elsewhere reason or justification  For example, 4 reviews found that for at least one loan reviewed, “the Lender failed to document justification that credit was unavailable elsewhere ” Another review found that for “three SBA Express loans and one Small Loan Advantage loan reported “other factors relating to the credit that in the lender’s opinion cannot be overcome except for the guaranty’ without specific identification of the factors ” Based on our review of on-site review reports and an interview with one reviewer, the key factors underlying lenders’ high rate of noncompliance with the credit elsewhere documentation requirement were lenders’ lack of proper internal controls and procedures and lack of awareness of the credit elsewhere documentation requirement  In fiscal year 2016, SBA’s corrective actions related to the credit elsewhere requirement required the lenders to establish or strengthen their policies; procedures; underwriting processes; or internal controls  In addition, contractors conducting the on- site reviews with whom we spoke stated that some lenders appeared to be unfamiliar with SBA’s standard operating procedures or were unclear on how to interpret them  For the 11 on-site reviews conducted in 2016 that included corrective actions, SBA generally required lenders to improve controls or procedures  For example, one lender was required to “correct its policy, modify its procedure, and amend its internal controls to ensure that its consideration and documentation of credit unavailable elsewhere identifies the specific fact(s) which are applicable to the specific loan and the determination is rendered and accurate for each individual SBA loan that it originates ” Another lender was required to “improve underwriting processes and controls to ensure that the borrower meets the [credit elsewhere] requirement” and to “document the loan file with the reasons for the determination ” Similarly, for the six targeted reviews in 2016 that included corrective actions, SBA issued a general requirement for the lender to “identify the causes for the Findings and implement corrective actions ” Based on our review of these targeted reviews, lenders generally remedied or intended to remedy the issue by amending their internal controls or procedures  For example, one lender stated that the “Credit Elsewhere test will be incorporated into the Credit Department process ” Another lender stated that it would “centralize all SBA underwriting and has developed an SBA addendum that will be utilized for all SBA-guaranteed loans ” Although some of SBA’s on-site reviews for fiscal year 2016 identified factors leading to noncompliance, they generally did not document reviewers’ assessment of lenders’ policies and practices for complying with the credit elsewhere documentation requirement  SBA’s standard operating procedures state that the on-site reviewers should determine whether or not lenders’ policies and practices adhere to the requirement, but they do not require them to document their assessment of these policies and practices  Only 4 of the 40 fiscal year 2016 review reports that we examined included such an assessment  As a result, although SBA required corrective actions by the lender to address deficiencies, there usually was no record of the underlying factors that resulted in the lender’s noncompliance  Federal internal control standards state that management should design control activities to achieve objectives and respond to risks, including appropriate documentation of transactions and internal control  Because SBA does not require reviewers to document their assessment of lenders’ policies and practices for complying with the credit elsewhere documentation requirement, the agency does not have good information to help explain why so many lenders are not in compliance  This hinders SBA’s ability to take informed and effective actions to improve lender compliance with the requirement and ensure that the program is reaching its intended population  SBA does not routinely collect information on the criteria lenders use in their credit elsewhere justifications  As previously discussed, lenders are required to maintain documentation of borrower eligibility (including the credit elsewhere justification) in each loan file for loans approved through lenders’ delegated authority  However, SBA cannot readily aggregate information on lenders’ credit elsewhere justifications for both delegated and nondelegated loans: For delegated loans, lenders are required to certify the loan’s credit elsewhere eligibility on E-Tran, SBA’s online portal for origination of delegated and nondelegated loans  However, lenders are only required to check a box to certify that the loan file contains the required credit elsewhere justification and are not required to submit any additional information, including which of the criteria was used to make the determination  According to SBA officials, delegated loans account for loans approved by approximately 70 percent of lenders  For nondelegated loans, lenders are required to submit credit elsewhere documentation to be reviewed by SBA’s Loan Guaranty Processing Center  For these loans, which comprise loans approved by the remaining 30 percent of lenders, SBA might maintain paper records of data on borrowers’ eligibility but does not compile such data electronically and thus cannot readily aggregate the data for analysis  Instead, SBA relies on on-site reviews or lender-reported information to review lenders’ credit elsewhere justifications and collects limited data from these reviews  For its on-site reviews, SBA does not collect sample data on lenders’ use of the credit elsewhere criteria  For its off-site reviews, SBA collected sample data on lenders’ use of the credit elsewhere criteria based on 250 such reviews conducted in fiscal year 2016  For these reviews, SBA asked lenders to self-report a short description of the credit elsewhere justifications used for an SBA-selected sample of 10 loans  However, as discussed earlier, SBA did not request or examine loan files as part of these off-site reviews and did not follow up with lenders or review loan files to ensure the validity of the self- reported reasons  One reason why SBA does not routinely collect complete information on lenders’ use of the credit elsewhere criteria is that SBA’s loan origination system, E-Tran, is not equipped to record or tabulate this information  In addition, according to an SBA official, on-site reviews do not collect data on the credit elsewhere criteria because the loans reviewed are judgmentally selected and would not accurately represent the larger population  Federal internal control standards state that management should use quality information to achieve the entity’s objectives  To do so, management should identify the information needed to achieve the objectives and address the risks, obtain relevant data from reliable internal and external sources in a timely manner, and process the obtained data into quality information  More robust information on lenders’ credit elsewhere justifications, including the credit elsewhere criteria, would allow SBA to evaluate patterns in lender practices related to the credit elsewhere requirement and, in turn, help the agency ensure compliance with the requirement  In this context, generalizable data, which can be collected through random sampling, or complete data through required reporting for every loan would allow SBA to better understand patterns in lender practices across the 7(a) program  Further, nongeneralizable data, which are available through SBA’s current off- and on-site review processes, would allow SBA to examine specific groups of lenders and could help SBA determine if it is necessary to collect additional data  SBA does not analyze the limited data it collects to help it monitor lenders’ compliance with the credit elsewhere requirement  According to agency officials, SBA has not performed lender-level analyses of the criteria lenders use for their credit elsewhere justifications  Additionally, SBA has not analyzed 7(a) lenders’ use of the “other factors” criterion— that is, factors not specified in the other criteria that, in the lender’s opinion, cannot be overcome except for the guarantee—for example, by collecting data on the frequency of its use or examining why lenders rely on it  While some 7(a) lenders told us they avoided relying on the “other factors” criterion because it was vague and open to interpretation, some lenders have used it when a borrower’s profile did not meet any of the other criteria  For example, one lender stated that this criterion was used for a borrower who was no longer a start-up but had experienced fluctuations in cash flow due to relocation or change in ownership  Another lender stated that the criterion was used more frequently during the 2007-2009 financial recession to extend financing to borrowers whose owners had experienced a home foreclosure but were otherwise sound  Federal internal control standards state that management should establish and operate monitoring activities to monitor the internal control system and evaluate the results  Analyzing data on lenders’ use of the credit elsewhere criteria as part of its monitoring procedures could help SBA determine whether there are patterns in lender practices related to the criteria that could predict lender noncompliance  For example, SBA could analyze lenders’ use of the criteria along with lender review results and other data on loan characteristics and performance to determine whether certain patterns indicate that a lender might be applying the requirement inconsistently  Additionally, such analysis could inform SBA’s selection of which lenders to review by improving its ability to identify lenders at risk of noncompliance with the credit elsewhere requirement  Better selection criteria for its lender reviews could, in turn, improve identification and remediation of such noncompliance, helping ensure that the 7(a) program serves its target population  Representatives at 8 of the 11 lenders that we contacted said they believed that SBA’s current credit elsewhere criteria are adequate in targeting small business borrowers who cannot obtain credit at reasonable terms  Representatives of these lenders also agreed that the criteria generally serve the types of small businesses that would otherwise have trouble obtaining conventional credit, such as new businesses or those with a shortage of collateral  One lender representative told us its most commonly used criterion related to the overall time in business because of the higher risk of failure  Another lender representative cited the lack of collateral as the most common criterion used  Additionally, representatives at an industry association told us that one of the most commonly used criteria was the one related to loan maturity and many small businesses seek 7(a) loans because they offer repayment terms of up to 10 years, compared to 1 to 3 years for conventional loans  Representatives of two other lenders suggested that the credit elsewhere criteria should not be overly prescriptive, which could limit lenders’ ability to make 7(a) loans to some businesses  For example, one representative said the credit elsewhere criteria should remain flexible because banks have different lending policies  In addition, representatives at three lenders indicated that they were hesitant to use the “other factors” criterion  One lender believed the requirement was open to interpretation and could be used inappropriately with lenders determining their own individual conventional loan policies  Another lender commented that the criterion was vague and rarely used by his institution, noting that SBA should provide some additional guidance on its use  Lenders consider multiple factors in determining whether to offer small businesses a conventional loan or a 7(a) loan, according to stakeholders with whom we spoke  For example, representatives at an industry association stated that a bank goes through several analyses to determine what loan product to offer the borrower  These representatives stated that the credit elsewhere requirement is embedded in the analysis a bank performs, such as whether the borrower qualifies for a loan and has a financial need for an SBA loan and whether the 7(a) program is right for that borrower  Representatives at two other lenders also stated that many small businesses have already been turned down for conventional loans before they seek a 7(a) loan  One representative noted that the “reasonable rates and terms” component of the 7(a) program was important as it allows lenders to look more broadly at a borrower’s needs  For instance, the representative explained, lenders can assess whether repayment terms are reasonable given a particular borrower’s situation and the resources the borrower will have to repay the loan  Economic conditions also affect lending policies, including whether borrowers qualify for a conventional loan, according to representatives at seven lenders with whom we spoke  For example, during the recent economic downturn, banks tightened their underwriting standards for small businesses and were less willing to lend without a government guarantee, according to one lender representative  SBA has issued revised primary operational guidance for the 7(a) program, effective January 1, 2018  As discussed previously, lenders are required to make a determination that the desired credit is not available to the applicant from nonfederal sources  Under the previous guidance, the lender had to determine that some or the entire loan was not available from nonfederal sources or the resources of the applicant business  However under the revised guidance, the scope of nonfederal sources a lender must review was further defined to include sources both related and unrelated to the applicant  The updated guidance states that lenders must consider: Nonfederal sources related to the applicant, including the liquidity of owners of 20 percent or more of the equity of the applicant, their spouses and minor children, and the applicant itself; or Nonfederal sources unrelated to the applicant, including conventional lenders or other sources of credit  Representatives of five lenders told us they have been determining how to interpret the new procedures with a few stating they would like additional guidance, including what information to retain in the file  Representatives of two lenders stated that there is some ambiguity in how to determine nonfederal resources and how to assess whether small business owners have too many available liquid resources to qualify for a 7(a) loan  One representative said that lenders can have different interpretations of what constitutes “available resources,” which is not specified in the new SOP  As a result, he said, there may be some confusion about how to assess family members of the borrower who have high net worths and whether the borrower should decline a family member contribution to qualify for an SBA loan  A representative of one lender stated that lenders will not know what SBA expects until loans are approved under the new procedures, default, and are then reviewed  Another lender’s representative suggested additional guidance on documentation, such as whether the bank must obtain a personal financial statement for each owner of the business  A SBA staff told us SBA has provided multiple training presentations to SBA staff, lenders, and trade associations on the statutory changes to the credit elsewhere requirements and standard operating procedure updates  These have included a presentation at a trade association conference, four monthly conference calls for SBA staff, and two conference calls for SBA lenders  SBA staff said SBA also plans to hold monthly training sessions with SBA field offices, quarterly training sessions with the industry, and at least four training sessions in 2018 at lender trade conferences  Additionally, a representative from an industry association told us it is providing industry training on SBA’s revised procedures, including the credit elsewhere liquidity requirement  SBA’s 7(a) loan program is required to serve creditworthy small business borrowers who cannot obtain credit through a conventional lender at reasonable terms, and SBA largely relies on lenders with delegated authority to make credit elsewhere determinations  However, although there is a high rate of lender noncompliance with the credit elsewhere documentation requirement, SBA does not require its reviewers to document their assessment of the policies and procedures lenders use to meet the requirement  Without better information from lender reviews on how lenders are implementing the requirement to document their credit elsewhere decisions, SBA may be limited in its ability to promote compliance with requirements and, in turn, use such information to help ensure that 7(a) loans are reaching their target population  Furthermore, SBA does not routinely collect or analyze information on the criteria used for credit elsewhere justifications to evaluate patterns in lender practices  SBA recently began collecting some information on lenders’ use of the criteria, but this information is limited, and SBA does not analyze the information that it does collect to better understand lenders’ practices  Without more robust information and analysis, SBA may be limited in its ability to understand how lenders are using the credit elsewhere criteria and whether 7(a) loans are reaching borrowers who cannot obtain credit from other sources at reasonable terms  We are making the following three recommendations to SBA  The Administrator of SBA should require reviewers to consistently document their assessments of a lender’s policies and practices  (Recommendation 1) The Administrator of SBA should use its on-site and off-site reviews to routinely collect information on lenders’ use of credit elsewhere criteria as part of its monitoring of lender practices related to the credit elsewhere requirement  (Recommendation 2) The Administrator of SBA should analyze information on lenders’ use of credit elsewhere criteria obtained from its reviews to identify lenders that may be at greater risk of noncompliance and to inform its selection of lenders for further review for credit elsewhere compliance  (Recommendation 3) We provided a draft of this report for review and comment  SBA’s written comments are reprinted in appendix IV  SBA generally agreed with the recommendations  SBA also provided additional comments on certain statements in the draft report, which are summarized below with our responses  SBA noted that the draft Highlights did not discuss how credit elsewhere is determined for nondelegated loans  We have not revised the Highlights in response to this comment because our review focused on delegated lenders  In the body of the report we note that approximately 70 percent of 7(a) loans are approved under delegated authority  We also refer to SBA’s nondelegated loans in the report for additional context  According to SBA, the statement on our draft Highlights did not fully reflect its monitoring of lender compliance  SBA identified a variety of reviews it uses in addition to on-site reviews by third party contractors, which we discuss in the body of the report  We have modified the Highlights to reflect these other reviews  Also in reference to the draft Highlights, SBA stated that it provides oversight on every on-site lender review and that an SBA employee is present as a subject-matter expert on every review  We revised the Highlights by adding that SBA provides oversight to the on-site reviews conducted by third-party contractors  In response to a statement in our draft report that SBA guarantees loans to small businesses for working capital and other general business purposes, SBA commented that working capital generally is not the primary purpose for SBA-guaranteed loans  We did not revise the statement because SBA’s SOP 50 10 5 (version J) specifies that SBA’s 7(a) loan proceeds may be used for permanent working capital and revolving working capital, among other things  In relation to a footnote in our report that mentions two lender reviews for which we did not receive documentation, SBA stated that on February 15, 2018, it provided documentation to us related to the reviews and that we had confirmed its receipt  However, the text in the footnote in question refers to two targeted lender reviews from 2016 that included corrective actions  The information SBA provided to us on February 15, 2018, was related to on-site reviews conducted in 2016  As a result, we did not revise the footnote  SBA’s letter also contained technical comments that we incorporated as appropriate  We are sending copies of this report to congressional committees, agencies, and other interested parties  In addition, this report will be available at no charge on our website at http://www gao gov  If you or your staff members have any questions about this report, please contact me at (202) 512-8678 or shearw@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix V  This report discusses (1) 7(a) lending to selected categories of small business borrowers from fiscal years 2007 through 2016; (2) how the Small Business Administration (SBA) monitors lenders’ compliance with the credit elsewhere requirement; (3) the extent to which SBA evaluates trends in lender practices related to the credit elsewhere requirement; and (4) lenders’ views on the criteria used to determine eligibility for 7(a) loans and other issues related to the 7(a) program  For background on the 7(a) program and the credit elsewhere requirement, we reviewed the legislative history of the 7(a) program and our previous reports  We also interviewed officials from SBA’s Office of Credit Risk Management on guidance provided to 7(a) lenders  For background on constraints in the small business credit market, we reviewed recent academic literature on the characteristics of small businesses that historically have had more difficulty accessing credit  In addition, we reviewed recent studies published by the Federal Reserve Banks of Atlanta; Cleveland; Kansas City; and New York  To describe the population of borrowers served by the 7(a) program, we selected characteristics (such as gender, minority status, and percentage of new business) that we used in our 2007 report and that were the subject of the recent studies by Federal Reserve Banks  We obtained and analyzed SBA loan-level data to describe 7(a) loans and borrowers  Specifically, SBA provided us with 581,393 records from its administrative data systems, which contained information on all loans approved and disbursed in fiscal years 2007 through 2016  The SBA data included various types of information describing each loan, including the total gross approval amount; the amount guaranteed by SBA; the loan term; and the interest rate; delivery method; and status of the loan  The SBA data also included information on borrower characteristics: Age of business  Firms were classified as new (less than 2 years in operation) or existing  Gender  Firms were classified as 100 percent male-owned; 50 percent or greater women owned; 50 percent or less women-owned; or “unknown ” Information on gender was voluntarily provided by borrowers  Economically distressed area  We identified borrowers in economically distressed areas by matching borrower zip codes provided by SBA to those in the 2011 through 2015 American Community Survey  We defined distressed areas as zip codes where at least 20 percent of households had incomes below the national poverty line  In about 1 percent of the cases, we were unable to classify a lender because a zip code had changed or had insufficient population to report a poverty rate  We consider 1 percent of unmatched cases to be low by data reliability standards  Race/ethnicity  Borrowers were placed in one of nine categories of race/ethnicity, including an “unknown” category  We aggregated these to create minority, nonminority, and undetermined categories  The minority category included all borrowers who reported being a race/ethnicity other than white  The nonminority category included borrowers who reported being white  Information on race was voluntarily provided by borrowers  Industry  Firms were assigned a North American Industrial Classification code  These six-digit codes begin with a two-digit sector code that we used to draw more general conclusions about industries  Geographic information  The data provided the state where the borrower is located  In addition, we obtained information from SBA on loan- and lender-level Small Business Risk Portfolio Solution scores (predictive scores) provided by Dunn & Bradstreet and Fair Isaac Company, for loans approved in fiscal year 2016, the latest available  We were able to obtain predictive scores for approximately 81 percent of the loans for which SBA had provided other information  According to SBA, some loans may not have been disbursed at the time we obtained the predictive scores and, as a result, we do not have scores associated with these loans  We analyzed the information to determine the range of predictive scores and the range of average predictive scores by lender  To assess the reliability of loan-level data on borrower and loan characteristics and predictive scores we received from SBA, we interviewed agency officials knowledgeable about the data and reviewed related documentation  We also conducted electronic testing, including checks for outliers, missing data, and erroneous values  We determined that the data were sufficiently reliable for the purposes of describing the characteristics of borrowers who received 7(a) loans and the distribution of predictive scores  To assess how SBA monitors lenders’ compliance with the credit elsewhere requirement and criteria, we reviewed SBA’s standard operating procedures and other guidance on 7(a) program regulations and lender oversight  Specifically, we reviewed SOP 50 10 5 (versions I and J) on Lender and Development Company Loan Programs, SOP 50 53(A) on Lender Supervision and Enforcement, and SOP 51 00, On-Site Lender Reviews/Examinations, as well as information and policy notices related to the credit elsewhere requirement  Additionally, we interviewed representatives including those at SBA’s Office of Capital Access and Office of Credit Risk Management on lender oversight and lender review processes  We reviewed all the on-site lender review reports (40 reviews), including corrective actions or requirements related to the credit elsewhere requirement (documentation for 11 lenders), and targeted review reports that had credit elsewhere findings (7 reviews) that SBA conducted in fiscal year 2016  We also interviewed officials and reviewed recent reports from SBA’s Office of Inspector General  To assess the extent to which SBA evaluates trends in lender practices related to the credit elsewhere requirement, we interviewed SBA officials and reviewed documentation for SBA’s online portal for loan origination  We also incorporated information from interviews with a nongeneralizable, nonrepresentative sample of 7(a) lenders, which we discuss below  To obtain lenders’ views on the criteria used to determine eligibility for 7(a) loans and other program-related issues, we interviewed SBA staff including from the Office of Capital Access, and representatives of the National Association of Government Guaranteed Lenders; American Bankers Association; Independent Community Bankers Association; and National Federation of Independent Businesses  We also interviewed 11 banks (one bank provided written responses) in order to obtain the lender perspective of credit elsewhere  Nine of the banks were selected by us using a random process that concentrated on larger lenders  These nine lenders selected by us represent about 13 percent of the loans approved and 16 percent of the dollars approved in 2016  In addition, we interviewed two additional banks that represented an industry group – one larger bank and one small bank  Although we partially selected at random, the lenders we interviewed should not be considered generalizable because of the small number  We conducted this performance audit from August 2017 to June 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In this appendix, we provide information on the total amount and number of approved 7(a) loans and the top eight industry sectors receiving 7(a) loans  Data are also presented on fiscal year 2016 loan volume by state and per capita  As shown in figure 6 below, the total amount of approved 7(a) loans decreased during the period associated with the Great Recession (2007 through 2009)  From fiscal year 2009 on, the total amount of approved 7(a) loans increased until a decline in fiscal year 2012  During this timeframe, the American Recovery and Reinvestment Act of 2009 and the Small Business Jobs Act of 2010 provided fee relief and higher guaranties  The Small Business Jobs Act of 2010 also provided a temporary increase in Small Business Administration (SBA) Express loan limits to $1 million (instead of $350,000)  These programs have since expired  7(a) Loans by North American Industry Classification System (NAICS) code  Table 1 shows the largest eight industrial sectors by proportion of the total amount of 7(a) loans approved, using the NAICS code  The combined share of the top eight sectors declined slightly from 85 percent to 80 percent of the total lending from fiscal years 2007 through 2016, with an average of 82 percent  During this period, the Accommodation and Food Services sector had the largest average share of total loan amount at 17 percent, followed by the Retail Trade sector at 15 percent  Approved loan amount and per capita dollars by state  As shown in figure 7, California; Texas; Florida; Georgia; and New York received the highest total of approved loan dollars in fiscal year 2016  The average approval amount across all loans was $380,619  Georgia and Arkansas had the largest average approval amount in 2016  Also, during this period, Utah; Colorado; Georgia; California; and Washington received the highest per capita approved loan dollars  In fiscal-year 2016, creditworthiness varied widely among 7(a) program borrowers  We analyzed creditworthiness using the Small Business Administration’s (SBA) Small Business Risk Portfolio Solution score (predictive score), which ranges from 70 to 300, with 300 indicating the least risky loan  According to SBA, loans with scores above 180 are considered “lower risk,” scores between 140 and 179 are considered “moderate risk,” and scores 139 and lower are considered “higher risk ” There did not appear be differences in score based on the gender of the borrower or the age of the business  While SBA relies on the Predictive Score data to identify lenders that may pose excessive risk to the SBA 7(a) portfolio, the data also provide potential insights related to lender implementation of the credit elsewhere requirement  Variation  We found that some 7(a) borrowers were much more creditworthy than others  In 2016, the only year for which we obtained data, the predictive score at origination varied widely among borrowers  In 2016, the scores of borrowers ranged from a low of 91 to a high of 246  However, most scores were between 171 and 203, and the median score was 188  Race/ethnicity  We found that there were slight differences in creditworthiness by race/ethnicity, with median scores ranging from 180 to 189 depending on the category  Specifically, loans to African Americans in 2016 had a median score of 180, and loans to Hispanics had a median score of 183  In contrast, loans to whites had a median score of 188, and loans to Asian and Pacific Islanders had a median score of 189  Lender size  We found that lenders with larger numbers of SBA loans tended to have slightly more creditworthy borrowers  The top 5 percent of lenders had a median average score of 187, whereas the bottom 75 percent of lenders had a median average score of 182 5  Among the top 5 percent of lenders (with 374 loans per lender on average, collectively representing about 70 percent of the loans approved), the average score ranged from 171 to 195  Among all lenders, the average score ranged from 116 to 233  However, because many lenders only approved one or two loans in 2016, the average may reflect very few borrowers for that lender, making it difficult to tell whether the scores reflect a real difference between lenders  In addition to the contact named above, Harry Medina (Assistant Director); Janet Fong (Analyst in Charge); Benjamin A  Bolitzer; Gita DeVaney; David S  Dornisch; Amanda D  Gallear (intern); Marc W  Molino; Jennifer W  Schwartz; and Tyler L  Spunaugle made key contributions to this report 

ground_truth: The Railroad Retirement Board (RRB), an independent federal agency, administers retirement, survivor, disability, unemployment, and sickness insurance for railroad workers and their families. During FY2017, the RRB paid nearly $12.5 billion in retirement, disability, and survivor benefits to approximately 548,000 beneficiaries and paid $105.4 million in unemployment and sickness benefits to approximately 28,000 claimants. Of the total $12.5 billion benefit payments in the same fiscal year, 60.0% was paid to retired workers, 8.0% to disabled workers, 14.4% to spouses, and 16.8% to survivors. The Railroad Retirement Act (RRA) authorizes retirement, disability, and survivor benefits for railroad workers and their families. RRA is financed primarily by payroll taxes, financial interchanges from Social Security, and transfers from the National Railroad Retirement Investment Trust (NRRIT). Railroad retirement payroll taxes have two tiers: the Tier I tax is essentially the same as the Social Security payroll tax and the Tier II tax is set each year based on the railroad retirement system's asset balances, benefit payments, and administrative costs. In FY2017, the gross RRA funding was about $12.7 billion. Railroad retirement annuities are also divided into two tiers. Tier I annuities are designed to be nearly equivalent to Social Security benefits and are based on both railroad retirement and Social Security-covered employment. However, Tier I annuities are more generous than Social Security benefits in certain situations. For example, at the age of 60, railroad workers with at least 30 years of covered railroad work may receive unreduced retirement annuities. Tier II annuities are similar to private pensions and based solely on covered railroad service. Tier II annuities are paid in addition to Tier I annuities. Railroad disability annuities may be payable to totally disabled railroad workers who are permanently disabled from all work and occupational disabled workers who are found to be permanently disabled from their regular railroad occupations. Eligible spouses and survivors of railroad workers may receive a certain portion of Tier I and Tier II benefits, but divorced spouses and surviving divorced spouses are eligible for only a certain portion of Tier I benefits. The Railroad Unemployment Insurance Act (RUIA) authorizes unemployment and sickness benefits for railroad workers. RUIA is financed solely by railroad employers, whose contributions are based on the taxable earnings of their employees. Eligibility for railroad unemployment and sickness benefits is based on recent railroad service and earnings. The maximum daily unemployment and sickness benefit payable in the benefit year that began July 1, 2018, is $77, and the maximum benefit for a biweekly claim is $770. Normal benefits are paid for up to 26 weeks in a benefit year. The railroad unemployment and sickness system remains affected by sequestration, as unemployment benefits will continue to be reduced through at least September 30, 2019.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: Since January 2017, the Navy has suffered four significant mishaps at sea that have resulted in serious damage to Navy ships and the loss of 17 sailors (see figure 1)  Three of the four at sea mishaps that have occurred—two collisions and one grounding—have involved ships homeported overseas in Yokosuka, Japan  Appendix II provides a summary of major mishaps for Navy ships at sea in fiscal years 2009 through 2017  The Navy currently has 277 ships, a 17 percent reduction from the 333 ships it had in 1998  Over the past two decades, as the number of Navy ships has decreased, the number of ships deployed overseas has remained roughly constant at about 100 ships; consequently, each ship is being deployed more to maintain the same level of presence  We reported in September 2016 that the Navy, along with the other military services, had been reporting persistently low readiness levels  The Navy attributes these, in part, to the increased deployment lengths needed to meet the continuing high demand for its aircraft carriers, cruisers, destroyers, and amphibious ships  For example, the deployment lengths for carrier strike groups had increased from an average of 6 4 months during the period of 2008 through 2011 to a less sustainable 9 months for three carrier strike groups that were deployed in 2015  In 2016, the Navy extended the deployments of the Harry S Truman and Theodore Roosevelt Carrier Strike Groups to 8 and 8 5 months, respectively  In addition, the Navy has had to shorten, eliminate, or defer training and maintenance periods to support these high deployment rates  These decisions have resulted in declining ship conditions across the fleet and have increased the amount of time required for the shipyards to complete maintenance on these ships  Lengthened maintenance periods, in turn, compress the time that ships are available for training and operations  As we previously reported, to help meet the operational demands using its existing inventory of ships, the Navy has assigned more of its surface combatants and amphibious ships to overseas homeports  Since 2006, the Navy has doubled the percentage of the fleet assigned to overseas homeports  In 2006, 20 ships were homeported overseas (7 percent of the fleet); today, 40 ships are homeported overseas (14 percent of the fleet) in Japan, Spain, Bahrain, and Italy; and an additional destroyer will be homeported in Yokosuka, Japan in 2018 (see figure 2)  According to the Navy, homeporting ships overseas is an efficient method for providing forward presence and rapid crisis response  Our prior work confirms that having ships homeported overseas provides additional presence, but it comes at a cost  For example, we found in May 2015 that homeporting ships overseas results in higher operations and support costs than homeporting ships in the United States  In addition, the operational schedules the Navy uses for overseas-homeported ships limit dedicated training and maintenance periods, resulting in difficulty keeping crews fully trained and ships maintained  In fact, the primary reason that Navy ships homeported overseas provide more deployed time than ships homeported in the United States is that the Navy reduces their training and maintenance periods in order to maximize their operational availability  Ships homeported overseas do not operate within the traditional fleet response plan cycles that apply to U S -based ships  Since the ships are in permanent deployment status during their time homeported overseas, they do not have designated ramp-up and ramp- down maintenance and training periods built into their operational schedules (see figure 3)  Navy officials told us that because the Navy expects these ships to be operationally available for the maximum amount of time, their intermediate and depot-level maintenance are executed through more frequent, shorter maintenance periods or deferred until after they return to a U S  homeport—generally after 7 to 10 years overseas  In May 2015, we also found that high operational tempo for ships homeported overseas limits the time for crew training when compared with training time for ships homeported in the United States  Navy officials told us that U S -based crews are completely qualified and certified prior to deploying from their U S  homeports, with few exceptions  In contrast, the high operational tempo of ships homeported overseas had resulted in what Navy personnel called a “train on the margins” approach, a shorthand way to say there was no dedicated training time set aside for the ships so crews trained while underway or in the limited time between underway periods  We found that, at the time of our 2015 review, there were no dedicated training periods built into the operational schedules of the cruisers, destroyers, and amphibious ships homeported in Yokosuka and Sasebo, Japan  As a result, these crews did not have all of their needed training and certifications  We recommended that the Navy develop and implement a sustainable operational schedule for all ships homeported overseas  DOD concurred with this recommendation and reported in 2015 that it had developed revised operational schedules for all ships homeported overseas  However, when we contacted DOD to obtain updated information in August 2017, U S  Pacific Fleet officials stated that the revised operational schedules for the cruisers and destroyers homeported in Japan were still under review and had not been employed  As of June 2017, 37 percent of the warfare certifications for cruiser and destroyer crews homeported in Japan had expired, and over two-thirds of the expired certifications—including mobility-seamanship and air warfare—had been expired for 5 months or more  This represents more than a fivefold increase in the percentage of expired warfare certifications for these ships since our May 2015 report  The Navy’s Surface Force Readiness Manual states that the high operational tempo and frequent tasking of ships homeported overseas requires that these ships always be prepared to execute complex operations and notes that this demand for continuous readiness also means that ships homeported overseas should maintain maximum training, material condition, and manning readiness  With respect to the material condition of the ships, we found in May 2015 that casualty reports—incidents of degraded or out-of-service equipment—nearly doubled over the 2009 through 2014 time frame, and the condition of overseas-homeported ships decreased even faster than that of U S -based ships (see figure 4)  The Navy uses casualty reports to provide information on the material condition of ships in order to determine current readiness  For example, casualty report data provide information on equipment or systems that are degraded or out of service, the lack of which will affect a ship’s ability to support required mission areas  In 2015, Navy officials acknowledged an increasing number of casualty reports on Navy ships and a worsening trend in material ship condition  They stated that equipment casualties require unscheduled maintenance and have a negative effect on fleet operations, because there is an associated capability or capacity loss  In our May 2015 report, we recommended that the Navy develop a comprehensive assessment of the long-term costs and risks to its fleet associated with the Navy’s increasing reliance on overseas homeporting to meet presence requirements; make any necessary adjustments to its overseas presence based on this assessment; and reassess these risks when making future overseas homeporting decisions  DOD concurred with this recommendation, but, as of August 2017, it has not conducted an assessment, even though it has continued to increase the number of ships homeported overseas  In the early 2000s, the Navy made several changes to its process for determining the size and composition of ship crews that may contribute to sailor overwork and create readiness and safety risks  These changes were intended to drive down crew sizes in order to save on personnel costs  However, as we reported in May 2017, these changes were not substantiated with analysis and may be creating readiness and safety risks  With fewer sailors operating and maintaining surface ships, the material condition of the ships declined, and we found that this decline ultimately contributed to an increase in operating and support costs that outweighed any savings on personnel (see figure 5)  The Navy eventually reassessed and reversed some of the changes it had made during this period—known as “optimal manning”—but it continued to use a workweek standard that does not reflect the actual time sailors spend working and does not account for in-port workload—both of which may be leading to sailors being overworked  Additionally, we found that heavy workload does not end after ships return to port  Crews typically operate with fewer sailors while in port, so those crew members remaining must cover the workload of multiple sailors, causing additional strain and potential overwork  In 2014, the Navy conducted a study of the standard workweek and identified significant issues that could negatively affect a crew’s capabilities to accomplish tasks and maintain the material readiness of ships, as well as crew safety issues that might result if crews slept less to accommodate workload that was not accounted for  The Navy study found that sailors were on duty 108 hours a week, exceeding their weekly on-duty allocation of 81 hours  This on-duty time included 90 hours of productive work—20 hours per week more than the 70 hours that are allotted in the standard workweek  This, in turn, reduced the time available for rest and resulted in sailors spending less time sleeping than was allotted, a situation that the study noted could encourage a poor safety culture  Moving forward, the Navy will likely face manning challenges, especially given its current difficulty in filling authorized positions, as it seeks to increase the size of its fleet by as much as 30 percent over its current size  Navy officials stated that even with manpower requirements that accurately capture all workload, the Navy will be challenged to fund these positions and fill them with adequately trained sailors at current personnel levels  Figure 6 shows the Navy’s projected end strength and fleet size  In our May 2017 report, we found that the Navy’s guidance does not require that the factors it uses to calculate manpower requirements be reassessed periodically or when conditions change, to ensure that these factors remain valid and that crews are appropriately sized  We made several recommendations to address this issue, including that the Navy should (1) reassess the standard workweek, (2) require examination of in- port workload, (3) develop criteria to reassess the factors used in its manpower requirements process, and (4) update its ship manpower requirements  DOD concurred with our recommendations, stating that it is committed to ensuring that the Navy’s manpower requirements are current and analytically based and will meet the needs of the existing and future surface fleet  As of August 2017, DOD had not yet taken any actions to implement these recommendations  We believe that, until the Navy makes the needed changes, its ships may not have the right number and skill mix of sailors to maintain readiness and prevent overworking its sailors  To address its persistently low readiness levels, the Navy began implementing a revised operational schedule in November 2014, which it referred to as the optimized fleet response plan  This plan seeks to maximize the employability of the existing fleet while preserving adequate time for maintenance and training, providing continuity in ship leadership and carrier strike group assignments, and restoring operational and personnel tempos to acceptable levels  The Navy’s implementation of the optimized fleet response plan—and readiness recovery more broadly—is premised on adherence to deployment, training, and maintenance schedules  However, in May 2016, we found that the Navy was having difficulty in implementing its new schedule as intended  Both the public and private shipyards were having difficulty completing maintenance on time, owing primarily to the poor condition of the ships after more than a decade of heavy use, deferred maintenance, and the Navy’s inability to accurately predict how much maintenance they would need  We reported that in 2011 through 2014 only 28 percent of scheduled maintenance for surface combatants was completed on time and just 11 percent was completed on time for aircraft carriers  We updated these data as of August 2017 to include maintenance availabilities completed through the end of fiscal year 2016 and found continued difficulty completing maintenance on time for key portions of the Navy fleet (see figure 7): Aircraft Carriers (CVNs): In fiscal years 2011 through 2016, maintenance overruns on 18 of 21 (86 percent) aircraft carriers resulted in a total of 1,103 lost operational days—days that ships were not available for operations—the equivalent of losing the use of 0 5 aircraft carriers each year  Surface Combatants (DDGs and CGs): In fiscal years 2011 through 2016, maintenance overruns on 107 of 169 (63 percent) surface combatants resulted in a total of 6,603 lost operational days—the equivalent of losing the use of 3 0 surface combatants each year  Submarines (SSNs, SSBNs, and SSGNs): In fiscal years 2011 through 2016, maintenance overruns on 39 of 47 (83 percent) submarines resulted in a total of 6,220 lost operational days—the equivalent of losing the use of 2 8 submarines each year  Navy officials are aware of the challenges faced by both the public and private shipyards and have taken steps to address the risks these pose to maintenance schedules, including hiring additional shipyard workers and improving their maintenance planning processes  However, Navy officials have told us that it will take time for these changes to bring about a positive effect  For example, as of May 2016, data on the public shipyards’ workforce showed that 32 percent of all employees had fewer than 5 years of experience  According to Navy officials, this workforce inexperience negatively affects the productivity of the shipyards, and it will take several years for them to attain full productivity  Just last week, we issued another report, prepared in response to direction from this committee, examining the ability of the Navy’s public shipyards to support the Navy’s readiness needs  We found that capacity limitations as well as the poor condition of the shipyards’ facilities and equipment contributed to the maintenance delays we discussed earlier and were hindering the shipyards’ ability to support the Navy  Specifically, we found that the shipyards will be unable to support 73—or about one-third—of 218 maintenance periods planned over the next 23 years  In addition, this estimate did not factor in planned increases to the fleet  We made three recommendations, with which the Navy agreed to take steps to improve its management of capital investment in the shipyards  However, we noted that at current average funding levels it would take at least 19 years and a Navy-estimated $4


Report 2: 86 billion to clear the backlog of restoration and modernization projects at the shipyards  Furthermore, this estimate does not include the $9 billion that the Navy estimates it will need for capacity and capability upgrades over the next 12 years to support maintenance operations for the current fleet  In September 2016, we found that although DOD has stated that readiness rebuilding is a priority, implementation and oversight of department-wide readiness rebuilding efforts did not fully include key elements of sound planning, and the lack of these elements puts the overall rebuilding efforts at risk  The Navy states that its overall goal for readiness recovery is to reach a predictable and sustainable level of global presence and surge capacity from year to year  The Navy identified carrier strike groups and amphibious ready groups as key force elements in its plan for readiness recovery and had set 2020 for reaching a predictable and sustainable level of global presence and surge capacity by implementing the optimized fleet response plan  However, we found in 2016 that the Navy faced significant challenges, such as delays in completing maintenance and emerging demands, in achieving its readiness recovery goals for carrier strike groups and amphibious ready groups, and projections show that the Navy will not meet its time frames for achieving readiness recovery  As a result, we recommended that DOD and the services establish comprehensive readiness goals, strategies for implementing them, and associated metrics that can be used to evaluate whether readiness recovery efforts are achieving intended outcomes  DOD generally concurred with our recommendations and, in November 2016, issued limited guidance to the military services on rebuilding readiness; it has also started to design a framework to guide the military services in achieving readiness recovery but has not yet implemented our recommendations  The Navy has since extended its time frame for readiness recovery to at least 2021, but it still has not developed specific benchmarks or interim goals for tracking and reporting on readiness recovery  Navy officials cited several challenges to rebuilding readiness, chief among them the continued high demand for its forces, the unpredictability of funding, and the current difficulty with beginning and completing ship maintenance on time  In January 2017, the President directed the Secretary of Defense to conduct a readiness review and identify actions that can be implemented in fiscal year 2017 to improve readiness  DOD and Navy officials told us that, as part of this readiness review, the Navy prioritized immediate readiness gaps and shortfalls  These officials added that this review would guide the Navy’s investment decisions in future budget cycles, with the intention to rebuild readiness and prepare the force for future conflicts  However, high demand for naval presence will continue to put pressure on a fleet that is already stretched thin across the globe  Looking to the future, the Navy has plans to grow its fleet by as much as 30 percent, but it has not yet shown the ability to adequately man, maintain, and operate the current fleet  These readiness problems need to be addressed and will require the Navy to implement our recommendations—particularly in the areas of assessing the risks associated with overseas basing, reassessing sailor workload and the factors used to size ship crews, managing investments in its shipyards, and applying sound planning and sustained management attention to its readiness rebuilding efforts  In addition, continued congressional oversight will be needed to ensure that the Navy demonstrates progress in addressing its maintenance, training, and other challenges  Chairmen McCain, Ranking Member Reed, and Members of the Committee, this concludes my prepared statement  I would be pleased to respond to any questions you may have at this time  If you or your staff have questions about this testimony, please contact John Pendleton, Director, Defense Capabilities and Management at (202) 512-3489 or pendletonj@gao gov  Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this statement  GAO staff who made key contributions to this testimony are Suzanne Wren, Assistant Director; Steven Banovac, Chris Cronin, Kerri Eisenbach, Joanne Landesman, Amie Lesser, Felicia Lopez, Tobin McMurdie, Shari Nikoo, Cody Raysinger, Michael Silver, Grant Sutton, and Chris Watson  Over the past three years, we issued several reports related to Navy readiness cited in this statement  Table 1 summarizes the status of recommendations made in these reports, which contained a total of 14 recommendations  The Department of Defense generally concurred with all of these recommendations but has implemented only one of them to date  For each of the reports, the specific recommendations and their implementation status are summarized in tables 2 through 5  The Navy defines a class A mishap as one that results in $2 million or more in damages to government or other property, or a mishap that resulted in a fatality or permanent total disability  We analyzed data compiled by the Naval Safety Center for fiscal years 2009 through 2017 to provide a summary of major Navy mishaps at sea (see table 6)  Report numbers with a C or RC suffix are Classified  Classified reports are available to personnel with the proper clearances and need to know, upon request  Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operation  GAO-17-548  Washington, D C : September 12, 2017  Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet  GAO-17-798T  Washington, D C : September 7, 2017  Department of Defense: Actions Needed to Address Five Key Mission Challenges  GAO-17-369  Washington, D C : June 13, 2017  Military Readiness: Coastal Riverine Force Challenges  GAO-17-462C  Washington, D C : June 13, 2017  (SECRET) Navy Force Structure: Actions Needed to Ensure Proper Size and Composition of Ship Crews  GAO-17-413  Washington, D C : May 18, 2017  Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan  GAO-16-841  Washington, D C : September 7, 2016  Navy and Marine Corps: Services Face Challenges to Rebuilding Readiness  GAO-16-481RC  Washington, D C : May 25, 2016  (SECRET//NOFORN) Military Readiness: Progress and Challenges in Implementing the Navy’s Optimized Fleet Response Plan  GAO-16-466R  Washington, D C : May 2, 2016  Navy Force Structure: Sustainable Plan and Comprehensive Assessment Needed to Mitigate Long-Term Risks to Ships Assigned to Overseas Homeports  GAO-15-329  Washington, D C : May 29, 2015  Military Readiness: Navy Needs to Assess Risks to Its Strategy to Improve Ship Readiness  GAO-12-887  Washington, D C : September 21, 2012  Force Structure: Improved Cost Information and Analysis Needed to Guide Overseas Military Posture Decisions  GAO-12-711  Washington, D C : June 6, 2012  Military Readiness: Navy Needs to Reassess Its Metrics and Assumptions for Ship Crewing Requirements and Training  GAO-10-592  Washington, D C : June 9, 2010  This is a work of the U S  government and is not subject to copyright protection in the United States  The published product may be reproduced and distributed in its entirety without further permission from GAO  However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately 

ground_truth: SBA's 7(a) program is required to serve creditworthy small business borrowers who cannot obtain credit through a conventional lender at reasonable terms. The Joint Explanatory Statement of the Consolidated Appropriations Act, 2017 includes a provision for GAO to review the 7(a) program. This report discusses, among other things, (1) how SBA monitors lenders' compliance with the credit elsewhere requirement, (2) the extent to which SBA evaluates trends in lender credit elsewhere practices, and (3) lenders' views on the credit elsewhere criteria for 7(a) loans. GAO analyzed SBA data on 7(a) loans approved for fiscal years 2007–2016, the latest available, and reviewed literature on small business lending; reviewed standard operating procedures, other guidance, and findings from SBA reviews performed in fiscal year 2016; and interviewed lender associations and a nonrepresentative sample of 7(a) lenders selected that concentrated on larger lenders. For its 7(a) loan program, the Small Business Administration (SBA) has largely delegated authority to lenders to make 7(a) loan determinations for those borrowers who cannot obtain conventional credit at reasonable terms elsewhere. To monitor lender compliance with the “credit elsewhere” requirement SBA primarily uses on-site reviews conducted by third-party contractors with SBA participation and oversight, and other reviews. According to SBA guidance, lenders making 7(a) loans must take steps to ensure and document that borrowers meet the program's credit elsewhere requirement. However, GAO noted a number of concerns with SBA's monitoring efforts. Specifically, GAO found the following: Over 40 percent (17 of 40) of the on-site lender reviews performed in fiscal year 2016 identified lender noncompliance with the requirement. On-site reviewers identified several factors, such as weakness in lenders' internal control processes that were the cause for lender noncompliance. Most on-site reviewers did not document their assessment of lenders' policies or procedures, because SBA does not require them to do so. As a result SBA does not have information that could help explain the high noncompliance rate. Federal internal control standards state that management should design control activities, including appropriate documentation, and use quality information to achieve the entity's objectives. Without better information on lenders' procedures for complying with the documentation requirement, SBA may be limited in its ability to promote compliance with requirements designed to help ensure that the 7(a) program reaches its target population. SBA does not routinely collect or analyze information on the criteria used by lenders for credit elsewhere justifications. SBA recently began collecting some information on lenders' use of the criteria, but this information is limited, and SBA does not analyze the information that it does collect to better understand lenders' practices. Federal internal control standards state that management should use quality information to achieve the entity's objectives. Without more robust information and analysis, SBA may be limited in its ability to understand how lenders are using the credit elsewhere criteria and identify patterns of use by certain lenders that place them at a higher risk of not reaching borrowers who cannot obtain credit from other sources at reasonable terms. In general, representatives from 8 of 11 lenders that GAO interviewed stated that SBA's credit elsewhere criteria are adequate for determining small business eligibility for the 7(a) program. These criteria help them target their lending to small businesses that would otherwise have difficulty obtaining conventional credit because they are often new businesses or have a shortage of collateral. However, they also said that other factors—such as lender policies and economic conditions—can affect their decisions to offer 7(a) loans. In January 2018, SBA issued revised guidance for the 7(a) program and has provided training on this new guidance to lenders and trade associations. Lenders told GAO they are still in the process of understanding the new requirements. GAO recommends that SBA (1) require its on-site reviewers to document their assessment of lenders' policies and procedures related to the credit elsewhere documentation requirement, (2) collect information on lenders' use of credit elsewhere criteria, and (3) analyze that information to identify trends. SBA generally agreed with the recommendations.