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



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

Report 1: 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 


Report 2:  For example, helpful factors to consider when developing a proposed reward amount may include (1) the number of hours the source dedicated to the case, (2) the risk the source took in providing the information, (3) the significance of the information provided by the source, and (4) the amount of fines or other penalties collected as a result of the information  Two stakeholders expressed concern that some of FWS’s reward payments were insufficient, especially when comparing the amount of time and effort or the risk a source faced in providing the information  A couple of stakeholders also said that without a policy that specifies factors for agents to consider, reward amounts may be subjective and could vary depending on which agent develops the reward proposal  Another stakeholder said that it was important to specify factors for agents to consider when developing proposed reward amounts so that the agency has a reasonable and defensible basis for the reward amounts it pays across cases  According to federal standards for internal control, management should internally communicate the necessary quality information to achieve an agency’s objectives  For example, management communicates quality information down and across reporting lines to enable personnel to make key decisions  FWS officials said they believe that their reward policy is sound, indicating they believe that law enforcement agents have the information they need to develop proposals for reward amounts in cases where rewards are warranted  However, they also agreed that it may be helpful to review their policy but did not commit to doing so  By augmenting its policy to specify factors for agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Based on our review of the agencies’ websites and other communications, we found that FWS and NOAA communicate little information to the public on financial rewards for reporting information on wildlife trafficking, such as the potential availability of rewards and eligibility criteria  Specifically, some FWS and NOAA law enforcement websites provided information to the public on ways to report violations of the laws that the agencies are responsible for enforcing, such as via tip lines  Some of the websites also provided examples of the types of information the public can report, such as photos or other documentation of illegal activities  However, most of the agencies’ websites did not indicate that providing information on illegal activities could result in a reward  In contrast, the FWS Alaska regional office’s website provided information on the potential availability of rewards and ways the public may submit information for a potential reward  For example, this website provided phone numbers and an e-mail address for the public to use when submitting information  Figure 1 shows the information available on FWS’s and NOAA’s national and regional websites relevant to reporting violations of the laws the agencies enforce in general and on receiving rewards in particular  In addition, FWS and NOAA headquarters officials said their field agents have used other means to communicate the potential availability of rewards in specific cases when the agents had no other information that could help solve those cases  For example, a FWS field official said that the agency advertised a reward offer for information on a case of bald eagle killings by distributing reward posters and posting news releases in the vicinity where the killings occurred  Similarly, NOAA officials said they have advertised reward offers through various means, including circulating reward posters in specific geographic areas after an illegal activity has occurred  Figure 2 shows a reward poster that NOAA distributed in Guam in 2017 advertising a $1,000 reward for information leading to the arrest and conviction of sea turtle poachers  Instead of having a plan for communicating general information to the public on rewards, FWS and NOAA grant discretion to their regional offices and law enforcement agents to determine the type and level of communication to provide, according to FWS and NOAA policies  FWS officials explained that because they typically use financial rewards to thank individuals who come forward on their own accord—rather than using rewards to incentivize individuals with information to come forward—they have not seen the need to communicate more information to the public on the potential availability of rewards  NOAA officials said they have targeted their communications on rewards by publicizing reward offers for specific cases where they do not have leads  They added that they want to receive quality information and already receive a substantial amount of information from sources who reach out to them proactively, so NOAA has not seen the need to communicate more information to the public on the potential availability of rewards  Sixteen of the 20 stakeholders we interviewed said that it would be useful for FWS and NOAA to advertise the potential availability of financial rewards  Several stakeholders said that if the public does not know about the possibility for rewards, then some people with information may not be incentivized to come forward  Two stakeholders added that agencies should carefully consider how and which reward information to communicate to the public so that people who are most likely to have information on illegal wildlife trafficking learn about the potential for rewards  For example, one stakeholder suggested advertising rewards at ports where international shipments are offloaded or placing advertisements at wildlife trafficking nodes, such as entrances to African wildlife refuges  This stakeholder suggested advertising rewards along with wildlife trafficking awareness-raising posters that nongovernment organizations place in some airports  In addition, 14 stakeholders suggested that it would be useful for FWS and NOAA to provide information to the public on the process for submitting information to potentially receive rewards  Several other stakeholders said that it is important for the public to understand whether they may be eligible for a reward, how to submit information, and whether or to what extent their confidentiality will be protected  Another stakeholder provided examples of how other agencies provide information about their reward programs on their websites  SEC and IRS, for instance, use their websites to communicate information to the public on the process for reporting illegal activity for financial rewards  This information includes the types of information to report, confidentiality rules, eligibility criteria, and the process for submitting information to obtain a reward  In addition, the Department of State posts instructions on its websites on how to submit information on an illegal activity and potentially receive a reward  Federal internal control standards say that management should externally communicate the necessary quality information to achieve an agency’s objectives  For example, using appropriate methods to communicate, management communicates quality information so that external parties, such as the public, can help the agency achieve its objectives  This could include communicating information to the public on the types of information and eligibility requirements for potentially receiving rewards for reporting information on wildlife trafficking  FWS officials said that making more reward information available could lead to a significant increase in the amount of information the agency receives, which, in turn, could strain FWS’s resources in following up on that information  However, FWS officials also agreed that it was reasonable to consider making more reward information available to relevant members of the public, particularly in targeted circumstances, but did not commit to doing so  Similarly, NOAA officials said they had some concerns about the additional resources it might take to investigate potentially unreliable or false tips that may result if they make reward information broadly available to the public, but they agreed that it would be reasonable for the agency to consider doing so  NOAA officials also said they may consider making more reward information publicly available at the conclusion of our audit but provided no plans for doing so  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website on the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a tool for combating wildlife trafficking  FWS officials said their agency has not reviewed or considered changes to its use of rewards because the agency has not prioritized the use of rewards  NOAA officials said their agency has not focused on using rewards or identified the need to review its use of this tool, particularly in light of other, higher mission priorities  Nine of the 20 stakeholders we interviewed said that FWS and NOAA should review the effectiveness of their use of rewards and consider potential improvements  Several stakeholders said that it would be useful for FWS and NOAA to compare their respective approaches to those of federal agencies that use rewards in contexts outside of wildlife trafficking to identify best practices or lessons learned that might be applicable in the context of combating wildlife trafficking  For example, one stakeholder said that SEC has an effective whistleblower program and may have lessons learned that are relevant for FWS and NOAA to consider  Another stakeholder we interviewed separately indicated that in 2010, before SEC had a whistleblower program that publicized rewards and provided detailed instructions on how members of the public could report information on illegal activities, SEC received few tips  Once SEC implemented a whistleblower program that publicized rewards and provided detailed instructions on its public website, the agency’s use of the program grew substantially, according to the stakeholder  Other stakeholders said it would be useful for the agencies to consider potential improvements to their use of rewards, such as making a standing reward offer for information on wildlife trafficking targeted at high-priority endangered species or particular criminal networks  Two of these stakeholders said such an offer might improve FWS’s and NOAA’s use of rewards by generating more tips than reward offers focused on individual cases  At the same time, they said such an offer would likely filter out some of the false or unproductive tips that the agencies might receive if they made an untargeted standing reward offer  Federal internal control standards state that management should design control activities to achieve objectives and respond to risks by, for example, conducting reviews at the functional or activity level by comparing actual performance to planned or expected results and analyzing significant differences  Further, under the standards, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving an agency’s objectives or addressing related risks  FWS and NOAA officials agreed that reviewing the effectiveness of their use of rewards would be worthwhile  Specifically, FWS officials said that it would be useful to compare their approach to those of other federal agencies that use rewards in investigating crimes that involve interstate and foreign smuggling of goods  Similarly, NOAA officials said that reviewing the agency’s use of financial rewards would be worthwhile but cautioned that such a review would need to be balanced against the agency’s constrained resources and many mission requirements  FWS and NOAA officials said they may consider conducting such a review at the conclusion of our audit but provided no plans for doing so  By reviewing the effectiveness of their use of rewards, FWS and NOAA can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  Wildlife trafficking is a large and growing transnational criminal activity, with global environmental, security, and economic consequences  The federal government has emphasized strengthening law enforcement efforts to combat wildlife trafficking, and using financial rewards to obtain information on illegal activities is one tool that some federal agencies have used  However, to date, FWS and NOAA have not prioritized the use of rewards and were unable to provide sufficient assurance that the 27 rewards they paid during fiscal years 2007 through 2017 represented all of the rewards they provided during that period  By tracking reward information so that it is clearly documented and readily available for examination, FWS and NOAA can better ensure that they have complete information on the rewards they have paid to help manage their use of rewards as a law enforcement tool  Additionally, FWS and NOAA have policies outlining the processes their law enforcement agents are to use in making reward payments, and NOAA’s policy specifies factors for its agents to consider in developing proposed reward amounts, such as the risk the individual took in collecting the information  FWS’s policy does not specify such factors that could inform agents in achieving the agency’s objectives, which is not consistent with federal internal control standards  By augmenting its policy to specify factors for its agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Both agencies have also advertised the potential for rewards in specific cases when agents had no other information, but FWS and NOAA have otherwise communicated little information to the public on the potential availability of rewards  If the public does not know about the possibility of rewards, then some people with information may not be incentivized to come forward  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website about the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  Finally, FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a law enforcement tool  By undertaking such reviews, the agencies can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  We are making a total of seven recommendations, including four to FWS and three to NOAA  Specifically: The Assistant Director of the FWS Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 1) The Director of the NOAA Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 2) The Assistant Director of the FWS Office of Law Enforcement should augment FWS’s financial reward policy to specify factors law enforcement agents are to consider when developing proposed reward amounts  (Recommendation 3) The Assistant Director of the FWS Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 4) The Director of the NOAA Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 5) The Assistant Director of the FWS Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 6) The Director of the NOAA Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 7) We provided a draft of this report for review and comment to the Departments of Commerce and the Interior  The departments transmitted written comments, which are reproduced in appendixes IV and V of this report  The Department of Commerce concurred with the three recommendations directed to NOAA and stated that NOAA is developing procedures to ensure that its rewards are closely tracked, clearly documented, and better communicated  In written comments from NOAA, NOAA stated the report fairly and thoroughly reviews NOAA’s use of financial rewards  NOAA outlined the steps it plans to take in response to our recommendations, including developing a procedure to track financial reward information, reviewing information currently disseminated to the public and evaluating whether additional information may be useful, and reviewing the agency’s reward policy to determine whether changes are needed to enhance reward effectiveness  In its written comments, the Department of the Interior concurred with the four recommendations directed to FWS  Interior stated that it appreciated our review of the challenges faced by FWS’s Office of Law Enforcement in combating wildlife trafficking and identifying areas where FWS and NOAA can improve the use of financial rewards as a tool for combating wildlife trafficking  Interior also provided technical comments, which we incorporated as appropriate  As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretaries of Commerce and the Interior, and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-3841 or fennella@gao gov  Contact points for our Offices of Congressional Relations and of Public Affairs may be found on the last page of this report  GAO staff who made major contributions to this report are listed in appendix VI  The objectives of our review were to (1) identify laws that authorize the U S  Fish and Wildlife Service (FWS) and the National Oceanic and Atmospheric Administration (NOAA) to pay financial rewards for information on wildlife trafficking and the extent to which these agencies paid such rewards from fiscal years 2007 through 2017, (2) evaluate FWS’s and NOAA’s policies on financial rewards, (3) evaluate the information available to the public on financial rewards, and (4) determine the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking  To address these objectives, we reviewed academic literature on the use of financial rewards to combat illegal activities and United Nations Environment Programme reports on the scope and scale of wildlife trafficking  We also interviewed officials from federal agencies that play a role in combating wildlife trafficking or manage programs that pay financial rewards for information on illegal activities  Specifically, we interviewed officials from the Departments of Agriculture, Commerce, Homeland Security, the Interior, Justice, and State, as well as officials from the Internal Revenue Service, the U S  Securities and Exchange Commission, and the U S  Agency for International Development  In addition, we reviewed documentation that the Department of the Treasury provided on its role in paying financial rewards  We did not compare FWS’s and NOAA’s use of financial rewards in combating wildlife trafficking to federal agencies’ use of financial rewards in other contexts because the different contexts are not directly comparable  However, we reviewed information on other federal agencies’ use of financial rewards as examples of how financial rewards are used in contexts outside of wildlife trafficking  In addition, we interviewed representatives of six nongovernmental organizations that we selected based on those organizations’ knowledge or experience in combating wildlife trafficking  Specifically, we interviewed representatives from the Elephant Action League, the Environmental Investigation Agency, the National Association of Conservation Law Enforcement Chiefs, the National Whistleblower Center, TRAFFIC, and the World Wildlife Fund  To identify laws that authorize FWS and NOAA to pay financial rewards for information on wildlife trafficking, we asked FWS and NOAA attorneys to compile a list of laws that each of their agencies implements or enforces that prohibit wildlife trafficking and authorize the agency to pay rewards for providing information about trafficking  We then compared that list to the results of our search of the United States Code for such laws  We also reviewed FWS and NOAA documentation for accounts where the fines, penalties, and proceeds from forfeited property that are used to pay rewards are deposited as well as the accounts where appropriations available to pay rewards were deposited  To identify the extent to which FWS and NOAA have paid financial rewards for information on wildlife trafficking, we analyzed FWS and NOAA data on financial rewards the agencies reported paying from fiscal years 2007 through 2017  The data included information on, among other things, the fiscal years in which rewards were paid, laws under which rewards were paid, types of wildlife involved in those cases, the amounts of civil penalties or criminal fines imposed in those cases, the numbers of arrests and convictions as a result of those cases, and whether reward recipients were individuals or groups and U S  or foreign citizens  To assess the reliability of the data FWS and NOAA provided on financial rewards, we interviewed agency officials knowledgeable about the data and compared the data to case records the agencies provided  Specifically, FWS and NOAA officials said they track all expenditures, including reward payments, in their financial databases, but they are not able to readily identify reward payments because their financial systems do not include a unique identifier for such payments and their reward information is located in multiple databases and formats  As a result, FWS and NOAA officials said they identified the rewards that they reported to us by manually reviewing their financial and law enforcement records, and officials said the information was complete to the best of their knowledge  Based on these steps, we found the data that the agencies provided to us to be sufficiently reliable for reporting information on the rewards the agencies reported paying  However, as we discuss in the report, FWS and NOAA officials could not provide sufficient assurance that the data included all the financial rewards that they had paid from fiscal years 2007 through 2017  To obtain additional detail about cases where financial rewards were paid, we reviewed a nongeneralizable sample of 10 wildlife trafficking cases  We selected these cases based on the agency that investigated the case (to include both FWS and NOAA cases), the amount of the reward paid in the case (to reflect both low and high amounts), the year in which the reward was paid (to include rewards paid more recently), and the type of wildlife trafficked in the case (to include both fish and wildlife cases—there were no plant trafficking cases to select)  While the findings from our review cannot be generalized to cases we did not select and review, they illustrate how FWS and NOAA have used financial rewards in wildlife trafficking cases  To evaluate FWS and NOAA policies on financial rewards, we reviewed relevant FWS and NOAA policies and compared them to each other; interviewed FWS and NOAA officials about those policies; and compared the information in the policies with federal internal control standards on information and communication  To evaluate information available to the public on rewards, we reviewed relevant FWS and NOAA publications and examples of communications to the public on the availability of rewards in specific cases and interviewed FWS and NOAA officials  We also reviewed information available on FWS’s and NOAA’s national and regional websites as of December 2017 and January 2018, respectively, relevant to reporting violations of the laws that the agencies enforce in general and on receiving rewards in particular  We compared the agencies’ public communications on rewards with federal internal control standards on information and communication  To evaluate the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking, we interviewed FWS and NOAA officials and requested any reviews the agencies had conducted regarding their use of financial rewards to compare with federal internal control standards on control activities  FWS and NOAA did not have any such reviews to provide  In addition, for all four objectives, we interviewed a nongeneralizable sample of 20 stakeholders who had experience investigating wildlife trafficking or expertise in the use of financial rewards as a law enforcement tool  To select stakeholders to interview, we first identified a list of stakeholders by reviewing (1) FWS and NOAA data on law enforcement agents with at least 5 years of experience who had investigated wildlife trafficking cases and used financial rewards, (2) Department of Justice data on federal prosecutors who had prosecuted wildlife trafficking cases since fiscal year 2014, (3) literature search results identifying academics with expertise in the use of financial rewards as a law enforcement tool and federal programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking, (4) the biographies of members of the federal Advisory Council on Wildlife Trafficking, and (5) recommendations from stakeholders we interviewed  From this list, we then used a multistep process to select the 20 stakeholders to interview  To ensure coverage and a range of perspectives, we selected stakeholders from the following groups: FWS and NOAA law enforcement agents, including field and federal prosecutors responsible for prosecuting wildlife trafficking cases; federal officials responsible for programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking; academics with expertise in the use of financial rewards as a law members of the federal Advisory Council on Wildlife Trafficking; and representatives of nongovernmental organizations that investigate wildlife trafficking  We conducted semistructured interviews with the 20 selected stakeholders using a standard set of questions  We asked questions about stakeholder views on the usefulness of financial rewards in combating wildlife trafficking; the strength and weaknesses of the statutory provisions that authorize federal agencies to pay financial rewards for information on wildlife trafficking; FWS’s and NOAA’s use of financial rewards to combat wildlife trafficking; and how, if at all, the two agencies could improve their use of financial rewards to combat wildlife trafficking  We analyzed the stakeholders’ responses to our questions, grouping the responses into overall themes  We summarized the results of our analysis and then shared the summary with relevant FWS and NOAA officials to obtain their views  Views from these stakeholders cannot be generalized to those whom we did not select and interview  We conducted this performance audit from February 2017 to April 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  The Department of the Interior’s U S  Fish and Wildlife Service (FWS) and the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) implement or enforce multiple laws that specifically authorize the payment, under specified circumstances, of financial rewards to persons for information about violations of laws that prohibit wildlife trafficking  The laws that FWS officials identified are listed and summarized in table 3, and the laws that NOAA officials identified are listed and summarized in table 4  In addition, as noted above, the reward provisions in the Magnuson- Stevens Fishery Conservation and Management Act as amended and the Fish and Wildlife Improvement Act as amended authorize the payment of rewards for information about violations of multiple laws  Specifically, the Magnuson-Stevens Fishery Conservation and Management Act as amended authorizes the payment of rewards for information about violations of the act as well as any other marine resource law that the Secretary of Commerce enforces  Further, the Fish and Wildlife Improvement Act as amended authorizes the payment of rewards for information about violations of any law administered by NOAA’s National Marine Fisheries Service relating to plants, fish, or wildlife  NOAA officials identified 14 such laws that prohibit wildlife trafficking (see table 5)  If a violation of the laws listed in table 5 occurs, NOAA officials said they could use the Magnuson-Stevens Fishery Conservation and Management Act or Fish and Wildlife Improvement Act reward provision to pay a reward for information on the violation  None of the laws listed in table 5 specifically authorize the payment of financial rewards  Table 6 provides information on U S  Fish and Wildlife Service and National Oceanic and Atmospheric Administration cases where these agencies reported paying rewards for information on wildlife trafficking from fiscal years 2007 through 2017  In addition to the contact named above, Alyssa M  Hundrup (Assistant Director), David Marroni (Analyst-in-Charge), Cindy Gilbert, Keesha Luebke, Jeanette Soares, Sheryl Stein, Sara Sullivan, and Judith Williams made key contributions to this report 

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.

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



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



Report 2: The Federal Reserve's (the Fed's) responsibilities as the nation's central bank fall into four main categories: monetary policy, provision of emergency liquidity through the lender of last resort function, supervision of certain types of banks and other financial firms for safety and soundness, and provision of payment system services to financial firms and the government  Congress has delegated responsibility for monetary policy to the Fed, but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate of "maximum employment, stable prices, and moderate long-term interest rates " The Fed has defined stable prices as a longer-run goal of 2% inflation—the change in overall prices, as measured by the Personal Consumption Expenditures (PCE) price index  By contrast, the Fed states that "it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision " Monetary policy can be used to stabilize business cycle fluctuations (alternating periods of economic expansions and recessions) in the short run, while it mainly affects inflation in the long run  The Fed's conventional tool for monetary policy is to target the federal funds rate —the overnight, interbank lending rate  This report provides an overview of how monetary policy works and recent developments, a summary of the Fed's actions following the financial crisis, and ends with a brief overview of the Fed's regulatory responsibilities  In December 2008, in the midst of the financial crisis and the "Great Recession," the Fed lowered the federal funds rate to a range of 0% to 0 25%  This was the first time rates were ever lowered to what is referred to as the zero lower bound   The recession ended in 2009, but as the economic recovery consistently proved weaker than expected in the years that followed, the Fed repeatedly pushed back its time frame for raising interest rates  As a result, the economic expansion was in its seventh year and the unemployment rate was already near the Fed's estimate of full employment when it began raising rates on December 16, 2015  This was a departure from past practice—in the previous two economic expansions, the Fed began raising rates within three years of the preceding recession ending  Since then, the Fed has continued to raise rates in a series of steps to incrementally tighten monetary policy  The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0 25 percentage points each time  The Fed has stated that "some further gradual increases in     the federal funds rate" are necessary to fulfill its mandate  The Fed describes its plans as "data dependent," meaning they would be altered if actual employment or inflation deviate from its forecast  Although monetary policy is now less stimulative than it had been at the zero lower bound, the Fed is still adding stimulus to the economy as long as the federal funds rate is below what economists call the "neutral rate" (or the long-run equilibrium rate)  To illustrate, the federal funds rate is currently similar to the inflation rate, meaning that the real (i e , inflation-adjusted) federal funds rate is around zero  However, there is uncertainty as to what constitutes a neutral rate today  By historical standards, a zero real interest rate would be well below the neutral rate, but the neutral rate appears to have fallen following the financial crisis, so that current rates may be close to the neutral rate today  Typically, the Fed keeps interest rates below the neutral rate when the economy is operating below full employment, at neutral levels when the economy is near full employment, and above the neutral rate when the economy is at risk of overheating  Indeed, the Fed identifies this as one of its "three key principles of good monetary policy " Because of lags between changes in interest rates and their economic effects, in the past, the Fed has often preemptively changed its monetary policy stance before the economy reaches the state that the Fed is anticipating  In this business cycle, the Fed has maintained a (progressively less) stimulative monetary policy throughout the expansion, boosting economic activity  In one sense, this policy could be viewed as having successfully delivered on the Fed's mandated goals of full employment and stable prices  The unemployment rate has been below 5% since 2015 and is now lower than the rate believed to be consistent with full employment  Other labor market measures are also consistent with full employment, with the possible exception of the still-low labor force participation rate  Economic theory posits that lower unemployment will lead to higher inflation in the short run, but inflation has not proven responsive to lower unemployment in recent years  After remaining persistently below the Fed's 2% target from mid-2012 to early 2018 as measured by core PCE, inflation has remained around 2% in 2018 as measured by headline or core PCE  Economic growth has also picked up beginning in the second quarter of 2017, after being persistently low by historical standards throughout the expansion  Contributing to the 2018 growth acceleration, a more expansionary fiscal policy (larger structural budget deficit) added more stimulus to the economy in the short run  Two notable policy changes contributing to fiscal stimulus in 2018 were the 2017 tax cuts ( P L  115-97 ) and the boost to discretionary spending in FY2018 and FY2019 agreed to in P L  115-123   The Fed did little to offset this fiscal stimulus, as the pace of monetary tightening in 2018 was only slightly faster than in 2017  Despite strong economic data (which is only available with a lag), the Fed announced in January 2019 that it would be "patient" before raising rates again in light of increased economic uncertainty and financial volatility  The Fed's intended policy path poses risks  If the Fed waits too long to raise rates again, the economy could overheat, resulting in high inflation and posing risk to financial stability  As an example of how overly stimulative monetary policy can lead to the latter, critics contend that the Fed contributed to the precrisis housing bubble by keeping interest rates too low for too long during the economic recovery starting in 2001  Critics see these risks as outweighing any marginal benefit associated with monetary stimulus when the economy is already so close to full employment  Raising rates more quickly would also provide more "headroom" for the Fed to lower rates more aggressively during the next economic downturn  The potential percentage point reduction in rates before hitting the zero bound is currently smaller than the rate cuts that the Fed has undertaken in past recessions  Alternatively, there is uncertainty about whether strong growth, low unemployment, inflation around 2%, and the generally benign economic environment will continue  Economic expansions do not "die of old age"; nevertheless, the current expansion is already the second longest on record and cannot last forever  The flattening of the yield curve (i e , long-term Treasury yields are similar to short-term Treasury yields) is seen by some as a warning signal that rates are too high  Although there is a risk of stimulative monetary policy causing the economy to overheat, there is also a risk that tightening too quickly could be harmful if the economy slows  Some critics would prefer clear evidence that inflation is above the Fed's target or financial conditions are unstable before the Fed raises rates again  Monetary policy refers to the actions the Fed undertakes to influence the availability and cost of money and credit to promote the goals mandated by Congress, a stable price level and maximum sustainable employment  Because the expectations of households as consumers and businesses as purchasers of capital goods exert an important influence on the major portion of spending in the United States, and because these expectations are influenced in important ways by the Fed's actions, a broader definition of monetary policy would include the directives, policies, statements, economic forecasts, and other Fed actions, especially those made by or associated with the chairman of its Board of Governors, who is the nation's central banker  The Fed's Federal Open Market Committee (FOMC) meets every six weeks to choose a federal funds target and sometimes meets on an ad hoc basis if it wants to change the target between regularly scheduled meetings  The FOMC is composed of the 7 Fed governors, the President of the Federal Reserve Bank of New York, and 4 of the other 11 regional Federal Reserve Bank presidents serving on a rotating basis  The Fed targets the federal funds rate to carry out monetary policy  The federal funds rate is determined in the private market for overnight reserves of depository institutions (called the federal funds market)  At the end of a given period, usually a day, depository institutions must calculate how many dollars of reserves they want or need to hold against their reservable liabilities (deposits)  Some institutions may discover a reserve shortage (too few reservable assets relative to those they want to hold), whereas others may have reservable assets in excess of their wants  These reserves can be borrowed and lent on an overnight basis in a private market called the federal funds market  The interest rate in this market is called the federal funds rate  If it wishes to expand money and credit, the Fed will lower the target, which encourages more lending activity and, thus, greater demand in the economy  Conversely, if it wishes to tighten money and credit, the Fed will raise the target  The federal funds rate is linked to the interest rates that banks and other financial institutions charge for loans  Thus, whereas the Fed may directly influence only a very short-term interest rate, this rate influences other longer-term rates  However, this relationship is far from being on a one-to-one basis because longer-term market rates are influenced not only by what the Fed is doing today, but also by what it is expected to do in the future and by what inflation is expected to be in the future  This fact highlights the importance of expectations in explaining market interest rates  For that reason, a growing body of literature urges the Fed to be very transparent in explaining what its policy is, will be, and in making a commitment to adhere to that policy  The Fed has responded to this literature and is increasingly transparent in explaining its policy measures and what these measures are expected to accomplish  The Federal Reserve uses two methods to maintain its target for the federal funds rate: The Fed can also change the federal funds rate by changing reserve requirements, which specify what portion of customer deposits (primarily checking accounts) banks must hold as vault cash or on deposit at the Fed  Thus, reserve requirements affect the liquidity available within the federal funds market  Statute sets the numerical levels of reserve requirements, although the Fed has some discretion to adjust them  Currently, banks are required to hold 0% to 10% of customer deposits that qualify as net transaction accounts in reserves, depending on the size of the bank's deposits  This tool is used rarely—the percentage was last changed in 1992  Each of these tools works by altering the overall liquidity available for use by the banking system, which influences the amount of assets these institutions can acquire  These assets are often called credit because they represent loans the institutions have made to businesses and households, among others  The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly  The Fed directly controls the monetary base , which is made up of currency (Federal Reserve notes) and bank reserves  The size of the monetary base, in turn, influences broader measures of the money supply, which include close substitutes to currency, such as demand deposits (e g , checking accounts) held at banks  The Fed's definition of monetary policy as the actions it undertakes to influence the availability and cost of money and credit suggests two ways to measure the stance of monetary policy  One is to look at the cost of money and credit as measured by the rate of interest relative to inflation (or inflation projections), and the other is to look at the growth of money and credit itself  Thus, it is possible to look at either interest rates or the growth in the supply of money and credit in coming to a conclusion about the current stance of monetary policy—that is, whether it is expansionary (adding stimulus to the economy), contractionary (slowing economic activity), or neutral  During the high inflation experience of the 1970s the Fed placed greater emphasis on money supply growth, but since then, most central banks including the Fed have preferred to formulate monetary policy in terms of the cost of money and credit rather than in terms of their supply  The Fed conducts monetary policy by focusing on the cost of money and credit as proxied by the federal funds rate  A simple comparison of market interest rates over time as an indicator of changes in the stance of monetary policy is potentially misleading, however  Economists call the interest rate that is essential to decisions made by households and businesses to buy capital goods the real interest rate  It is often proxied by subtracting from the market interest rate the actual or expected rate of inflation  If inflation rises and market interest rates remain the same, then real interest rates have fallen, with a similar economic effect as if market rates (called nominal rates) had fallen by the same amount with a constant inflation rate  The federal funds rate is only one of the many interest rates in the financial system that determines economic activity  For these other rates, the real rate is largely independent of the amount of money and credit over the longer run because it is determined by the interaction of saving and investment (or the demand for capital goods)  The internationalization of capital markets means that for most developed countries the relevant interaction between saving and investment that determines the real interest rate is on a global basis  Thus, real rates in the United States depend not only on U S  national saving and investment but also on the saving and investment of other countries  For that reason, national interest rates are influenced by international credit conditions and business cycles  How do changes in short-term interest rates affect the overall economy? In the short run, an expansionary monetary policy that reduces interest rates increases interest-sensitive spending, all else equal  Interest-sensitive spending includes physical investment (i e , plant and equipment) by firms, residential investment (housing construction), and consumer-durable spending (e g , automobiles and appliances) by households  As discussed in the next section, it also encourages exchange rate depreciation that causes exports to rise and imports to fall, all else equal  To reduce spending in the economy, the Fed raises interest rates and the process works in reverse  An examination of U S  economic history will show that money- and credit-induced demand expansions can have a positive effect on U S  GDP growth and total employment  The extent to which greater interest-sensitive spending results in an increase in overall spending in the economy in the short run will depend in part on how close the economy is to full employment  When the economy is near full employment, the increase in spending is likely to be dissipated through higher inflation more quickly  When the economy is far below full employment, inflationary pressures are more likely to be muted  This same history, however, also suggests that over the longer run, a more rapid rate of growth of money and credit is largely dissipated in a more rapid rate of inflation with little, if any, lasting effect on real GDP and employment  Economists have two explanations for this paradoxical behavior  First, they note that, in the short run, many economies have an elaborate system of contracts (both implicit and explicit) that makes it difficult in a short period for significant adjustments to take place in wages and prices in response to a more rapid growth of money and credit  Second, they note that expectations for one reason or another are slow to adjust to the longer-run consequences of major changes in monetary policy  This slow adjustment also adds rigidities to wages and prices  Because of these rigidities, changes in the growth of money and credit that change aggregate demand can have a large initial effect on output and employment, albeit with a policy lag of six to eight quarters before the broader economy fully responds to monetary policy measures  Over the longer run, as contracts are renegotiated and expectations adjust, wages and prices rise in response to the change in demand and much of the change in output and employment is undone  Thus, monetary policy can matter in the short run but be fairly neutral for GDP growth and employment in the longer run  In societies in which high rates of inflation are endemic, price adjustments are very rapid  During the final stages of very rapid inflations, called hyperinflation, the ability of more rapid rates of growth of money and credit to alter GDP growth and employment is virtually nonexistent, if not negative  Either fiscal policy (defined here as changes in the structural budget deficit, caused by policy changes to government spending or taxes) or monetary policy can be used to alter overall spending in the economy  However, there are several important differences to consider between the two  First, economic conditions change rapidly, and in practice monetary policy can be more nimble than fiscal policy  The Fed meets every six weeks to consider changes in interest rates and can call an unscheduled meeting any time  Large changes to fiscal policy typically occur once a year at most  Once a decision to alter fiscal policy has been made, the proposal must travel through a long and arduous legislative process that can last months before it can become law, whereas monetary policy changes are made instantly  Both monetary and fiscal policy measures are thought to take more than a year to achieve their full impact on the economy due to pipeline effects  In the case of monetary policy, interest rates throughout the economy may change rapidly, but it takes longer for economic actors to change their spending patterns in response  For example, in response to a lower interest rate, a business must put together a loan proposal, apply for a loan, receive approval for the loan, and then put the funds to use  In the case of fiscal policy, once legislation has been enacted, it may take some time for authorized spending to be outlayed  An agency must approve projects and select and negotiate with contractors before funds can be released  In the case of transfers or tax cuts, recipients must receive the funds and then alter their private spending patterns before the economy-wide effects are felt  For both monetary and fiscal policy, further rounds of private and public decisionmaking must occur before multiplier or ripple effects are fully felt  Second, monetary policy is determined based only on the Fed's mandate, whereas fiscal policy is determined based on competing political goals  Fiscal policy changes have macroeconomic implications regardless of whether that was policymakers' primary intent  Political constraints have prevented increases in budget deficits from being fully reversed during expansions  Over the course of the business cycle, aggregate spending in the economy can be expected to be too high as often as it is too low  This means that stabilization policy should be tightened as often as it is loosened, yet increasing the budget deficit has proven to be much more popular than implementing the spending cuts or tax increases necessary to reduce it  As a result, the budget has been in deficit in all but five years since 1961, which has led to an accumulation of federal debt that gives policymakers less leeway to potentially undertake a robust expansionary fiscal policy, if needed, in the future  By contrast, the Fed is more insulated from political pressures, as discussed in the previous section, and experience shows that it is willing to raise or lower interest rates  Third, the long-run consequences of fiscal and monetary policy differ  Expansionary fiscal policy creates federal debt that must be serviced by future generations  Some of this debt will be "owed to ourselves," but some (presently, about half) will be owed to foreigners  To the extent that expansionary fiscal policy crowds out private investment, it leaves future national income lower than it otherwise would have been  Monetary policy does not have this effect on generational equity, although different levels of interest rates will affect borrowers and lenders differently  Furthermore, the government faces a budget constraint that limits the scope of expansionary fiscal policy—it can only issue debt as long as investors believe the debt will be honored, even if economic conditions require larger deficits to restore equilibrium  Fourth, openness of an economy to highly mobile capital flows changes the relative effectiveness of fiscal and monetary policy  Expansionary fiscal policy would be expected to lead to higher interest rates, all else equal, which would attract foreign capital looking for a higher rate of return, causing the value of the dollar to rise  Foreign capital can only enter the United States on net through a trade deficit  Thus, higher foreign capital inflows lead to higher imports, which reduce spending on domestically produced substitutes and lower spending on exports  The increase in the trade deficit would cancel out the expansionary effects of the increase in the budget deficit to some extent (in theory, entirely if capital is perfectly mobile)  Expansionary monetary policy would have the opposite effect—lower interest rates would cause capital to flow abroad in search of higher rates of return elsewhere, causing the value of the dollar to fall  Foreign capital outflows would reduce the trade deficit through an increase in spending on exports and domestically produced import substitutes  Thus, foreign capital flows would (tend to) magnify the expansionary effects of monetary policy  Fifth, fiscal policy can be targeted to specific recipients  In the case of normal open market operations, monetary policy cannot  This difference could be considered an advantage or a disadvantage  On the one hand, policymakers could target stimulus to aid the sectors of the economy most in need or most likely to respond positively to stimulus  On the other hand, stimulus could be allocated on the basis of political or other noneconomic factors that reduce the macroeconomic effectiveness of the stimulus  As a result, both fiscal and monetary policy have distributional implications, but the latter's are largely incidental whereas the former's can be explicitly chosen  In cases in which economic activity is extremely depressed, monetary policy may lose some of its effectiveness  When interest rates become extremely low, interest-sensitive spending may no longer be very responsive to further rate cuts  Furthermore, interest rates cannot be lowered below zero so traditional monetary policy is limited by this "zero lower bound " In this scenario, fiscal policy may be more effective  As is discussed in the next section, some argue that the U S  economy experienced this scenario following the recent financial crisis  Of course, using monetary and fiscal policy to stabilize the economy are not mutually exclusive policy options  But because of the Fed's independence from Congress and the Administration, the two policy options are not always coordinated  If Congress and the Fed were to choose compatible fiscal and monetary policies, respectively, then the economic effects would be more powerful than if either policy were implemented in isolation  For example, if stimulative monetary and fiscal policies were implemented, the resulting economic stimulus would be larger than if one policy were stimulative and the other were neutral  Alternatively, if Congress and the Fed were to select incompatible policies, these policies could partially negate each other  For example, a stimulative fiscal policy and contractionary monetary policy may end up having little net effect on aggregate demand (although there may be considerable distributional effects)  Thus, when fiscal and monetary policymakers disagree in the current system, they can potentially choose policies with the intent of offsetting each other's actions  Whether this arrangement is better or worse for the economy depends on what policies are chosen  If one actor chooses inappropriate policies, then the lack of coordination allows the other actor to try to negate its effects  When the United States experienced the worst financial crisis since the Great Depression, the Fed undertook increasingly unprecedented steps in an attempt to restore financial stability  These steps included reducing the federal funds rate to the zero lower bound, providing direct financial assistance to financial firms, and "quantitative easing " These unconventional policy decisions continue to have consequences for monetary policy today, as the Fed embarks on monetary policy "normalization " The bursting of the housing bubble led to the onset of a financial crisis that affected both depository institutions and other segments of the financial sector involved with housing finance  As the delinquency rates on home mortgages rose to record numbers, financial firms exposed to the mortgage market suffered capital losses and lost access to liquidity  The contagious nature of this development was soon obvious as other types of loans and credit became adversely affected  This, in turn, spilled over into the broader economy, as the lack of credit soon had a negative effect on both production and aggregate demand  In December 2007, the economy entered a recession  As the housing slump's spillover effects to the financial system, as well as its international scope, became apparent, the Fed responded by reducing the federal funds target and the discount rate  Beginning on September 18, 2007, and ending on December 16, 2008, the federal funds target was reduced from 5 25% to a range between 0% and 0 25%, where it remained until December 2015  Economists call this the zero lower bound to signify that once the federal funds rate is lowered to zero, conventional open market operations cannot be used to provide further stimulus  The Fed attempted to achieve additional monetary stimulus at the zero bound through a pledge to keep the federal funds rate low for an extended period of time, which has been called forward guidance or forward commitment   The decision to maintain a target interest rate near zero was unprecedented  First, short-term interest rates have never before been reduced to zero in the history of the Federal Reserve  Second, the Fed waited much longer than usual to begin tightening monetary policy in the current recovery  For example, in the previous two expansions, the Fed began raising rates less than three years after the preceding recession ended  With liquidity problems persisting as the federal funds rate was reduced, it appeared that the traditional transmission mechanism linking monetary policy to activity in the broader economy was not working  Monetary authorities became concerned that the liquidity provided to the banking system was not reaching other parts of the financial system  As noted above, using only traditional monetary policy tools, additional monetary stimulus cannot be provided once the federal funds rate has reached its zero bound  To circumvent this problem, the Fed decided to use nontraditional methods to provide additional monetary policy stimulus  First, the Federal Reserve introduced a number of emergency credit facilities to provide increased liquidity directly to financial firms and markets  The first facility was introduced in December 2007, and several were added after the worsening of the crisis in September 2008  These facilities were designed to fill perceived gaps between open market operations and the discount window, and most of them were designed to provide short-term loans backed by collateral that exceeded the value of the loan  A number of the recipients were nonbanks that are outside the regulatory umbrella of the Federal Reserve; this marked the first time that the Fed had lent to nonbanks since the Great Depression  The Fed authorized these actions under Section 13(3) of the Federal Reserve Act, a seldom-used emergency provision that allowed it to extend credit to nonbank financial institutions and to nonfinancial firms as well  The Fed provided assistance through liquidity facilities, which included both the traditional discount window and the newly created emergency facilities mentioned above, and through direct support to prevent the failure of two specific institutions, American International Group (AIG) and Bear Stearns  The amount of assistance provided was an order of magnitude larger than normal Fed lending, as shown in Figure 1   Total assistance from the Federal Reserve at the beginning of August 2007 was approximately $234 million provided through liquidity facilities, with no direct support given  In mid-December 2008, this number reached a high of $1 6 trillion, with a near-high of $108 billion given in direct support  From that point on, it fell steadily  Assistance provided through liquidity facilities fell below $100 billion in February 2010, when many facilities were allowed to expire, and support to specific institutions fell below $100 billion in January 2011  The last loan from the crisis was repaid on October 29, 2014  Central bank liquidity swaps (temporary currency exchanges between the Fed and central foreign banks) are the only facility created during the crisis still active, but they have not been used on a large scale since 2012  All assistance through expired facilities has been fully repaid with interest  In 2010, the Dodd-Frank Act changed Section 13(3) to rule out direct support to specific institutions in the future  From the introduction of its first emergency lending facility in December 2007 to the worsening of the crisis in September 2008, the Fed sterilized the effects of lending on its balance sheet (i e , prevented the balance sheet from growing) by selling an offsetting amount of Treasury securities  After September 2008, assistance exceeded remaining Treasury holdings, and the Fed allowed its balance sheet to grow  Between September 2008 and November 2008, the Fed's balance sheet more than doubled in size, increasing from less than $1 trillion to more than $2 trillion  The loans and other assistance provided by the Federal Reserve to banks and nonbank institutions are considered assets on this balance sheet because they represent money owed to the Fed  With the federal funds rate at its zero bound and direct lending falling as financial conditions began to normalize in 2009, the Fed faced the decision of whether to try to provide additional monetary stimulus through unconventional measures  It did so through two unconventional tools—large-scale asset purchases (quantitative easing) and forward guidance  With short-term rates constrained by the zero bound, the Fed hoped to reduce long-term rates through large-scale asset purchases, which were popularly referred to as quantitative easing (QE)  Between 2009 and 2014, the Fed undertook three rounds of QE, buying U S  Treasury securities, agency debt, and agency mortgage-backed securities (MBS)  These securities now comprise most of the assets on the Fed's balance sheet  To understand the effect of quantitative easing on the economy, it is first necessary to describe its effect on the Fed's balance sheet  In 2009, the Fed's emergency lending declined rapidly as market conditions stabilized, which would have caused the balance sheet to decline if the Fed took no other action  Instead, asset purchases under the first round of QE (QE1) offset the decline in lending, and from November 2008 to November 2010, the overall size of the Fed's balance sheet did not vary by much  Its composition changed because of QE1, however—the amount of Fed loans outstanding fell to less than $50 billion at the end of 2010, whereas holdings of securities rose from less than $500 billion in November 2008 to more than $2 trillion in November 2010  The second round of QE, QE2, increased the Fed's balance sheet from $2 3 trillion in November 2010 to $2 9 trillion in mid-2011  It remained around that level until September 2012, when it began rising for the duration of the third round, QE3  It was about $4 5 trillion (comprised of $2 5 trillion of Treasury securities, $1 7 trillion MBS, and $0 4 trillion of agency debt) when QE3 ended in October 2014, and has remained at that level since  Table 1 summarizes the Fed's QE purchases  In total, the Fed's balance sheet increased by more than $2 5 trillion over the course of the three rounds of QE, making it about five times larger than it was before the crisis  This increase in the Fed's assets must be matched by a corresponding increase in the liabilities on its balance sheet  The Fed's liabilities mostly take the form of currency, bank reserves, and cash deposited by the U S  Treasury at the Fed  QE has mainly resulted in an increase in bank reserves, from about $46 billion in August 2008 to $820 billion at the end of 2008  Since October 2009, bank reserves have exceeded $1 trillion, and they have been between $2 5 trillion and $2 8 trillion since 2014  The increase in bank reserves can be seen as the inevitable outcome of the increase in assets held by the Fed because the bank reserves, in effect, financed the Fed's asset purchases and loan programs  Reserves increase because when the Fed makes loans or purchases assets, it credits the proceeds to the recipients' reserve accounts at the Fed  The intended purpose of QE was to put downward pressure on long-term interest rates  Purchasing long-term Treasury securities and MBS should directly reduce the rates on those securities, all else equal  The hope is that a reduction in those rates feeds through to private borrowing rates throughout the economy, stimulating spending on interest-sensitive consumer durables, housing, and business investment in plant and equipment  Indeed, Treasury and mortgage rates have been unusually low since the crisis compared with the past few decades, although the timing of declines in those rates does not match up closely to the timing of asset purchases  Determining whether QE reduced rates more broadly and stimulated interest-sensitive spending requires controlling for other factors, such as the weak economy, which tends to reduce both rates and interest-sensitive spending  The increase in the Fed's balance sheet has the potential to be inflationary because bank reserves are a component of the portion of the money supply controlled by the Fed (called the monetary base ), which grew at an unprecedented pace during QE  In practice, overall measures of the money supply have not grown as quickly as the monetary base, and inflation has remained below the Fed's goal of 2% for most of the period since 2008  The growth in the monetary base has not translated into higher inflation because bank reserves have mostly remained deposited at the Fed and have not led to increased lending or asset purchases by banks  Another concern is that by holding large amounts of MBS, the Fed is allocating credit to the housing sector, putting the rest of the economy at a disadvantage compared with that sector  Advocates of MBS purchases note that housing was the sector of the economy most in need of stabilization, given the nature of the crisis (this argument becomes less persuasive as the housing market continues to rebound); that MBS markets are more liquid than most alternatives, limiting the potential for the Fed's purchases to be disruptive; and that the Fed is legally permitted to purchase few other assets, besides Treasury securities  On October 29, 2014, the Fed announced that it would stop making large-scale asset purchases at the end of the month  Now that QE is completed, attention has turned to the Fed's "exit strategy" from QE and zero interest rates  The Fed laid out its plans to normalize monetary policy in a statement in September 2014  It plans to continue implementing monetary policy by targeting the federal funds rate  The basic challenge to doing so is that the Fed cannot effectively alter the federal funds rate by altering reserve levels (as it did before the crisis) because QE has flooded the market with excess bank reserves  In other words, in the presence of more than $2 trillion in bank reserves, the market-clearing federal funds rate is close to zero even if the Fed would like it to be higher  The most straightforward way to return to normal monetary policy would be to remove those excess reserves by shrinking the balance sheet through asset sales  The Fed does not intend to sell any securities, however  Instead, it is gradually reducing the balance sheet by ceasing to roll over securities as they mature, which began in September 2017—almost three years after QE ended  Initially, it allowed only $6 billion of Treasuries and $4 billion of MBS to run off each month, which was gradually increased to $30 billion of Treasuries and $20 billion of MBS per month, where it will remain until normalization is completed  The Fed believes that it would only cease shrinking the balance sheet or use QE again in the future if it its ability to stimulate the economy using reductions in the federal funds rate were insufficient  The Fed intends to ultimately reduce the balance sheet until it holds "no more securities than necessary to implement monetary policy efficiently and effectively " The Fed has stated that it foresees a balance sheet size that is consistent with this goal will be larger than it was before the crisis  In part, that is because other liabilities on the Fed's balance sheet are larger—there is more currency in circulation now than there was before the crisis, and the Treasury has kept larger balances on average in its account at the Fed  But the balance sheet will also be significantly larger because the Fed decided in January 2019 to continue using its new method of targeting the federal funds rate even after normalization is completed  Under the new method, the federal funds rate is not determined by supply and demand in the market for bank reserves, and the Fed would prefer to maintain abundant bank reserves so that it does not have to use open market operations to respond to changes in banks' demand for reserves  By contrast, if it went back to the pre-crisis method of targeting the federal funds rate, only minimal excess reserve balances would be necessary (but perhaps more than before the crisis), so its balance sheet could be much smaller  The Fed has not yet announced when the wind-down will be completed or how large the balance sheet would be upon completion, but the January 2019 FOMC minutes noted the wind-down could be completed as soon as this year  In that case, the balance sheet would not be much smaller than its current size of $4 trillion when normalization is completed—more than four times larger than its pre-crisis size  Although the Fed has stated that it intends to eventually stop holding MBS, the Fed would still have sizable MBS holdings in 2025, according to projections from the New York Fed  In order to raise the federal funds rate in the presence of large reserves, the Fed has raised the two market interest rates that are close substitutes—it has directly raised the rate it pays banks on reserves held at the Fed and used large-scale reverse repurchase agreements (repos) to alter repo rates  In 2008, Congress granted the Fed the authority to pay interest on reserves  Because banks can earn interest on excess reserves by lending them in the federal funds market or by depositing them at the Fed, raising the interest rate on bank reserves should also raise the federal funds rate  In this way, the Fed can lock up excess liquidity to avoid any potentially inflationary effects because reserves kept at the Fed cannot be put to use by banks to finance activity in the broader economy  In practice, the interest rate that the Fed has paid banks on reserves has been slightly higher than the federal funds rate, which some have criticized as a subsidy to banks  Reverse repos are another tool for draining liquidity from the system and influencing short-term market rates  They drain liquidity from the financial system because cash is transferred from market participants to the Fed  As a result, interest rates in the repo market, one of the largest short-term lending markets, rise  The Fed has long conducted open market operations through the repo market, but since 2013 it has engaged in a much larger volume of reverse repos with a broader range of nonbank counterparties, including the government-sponsored enterprises (such as Fannie Mae and Freddie Mac) and certain money market funds, through a new Overnight Reverse Repurchase Operations Facility  The Fed is currently not capping the amount of overnight reverse repos offered through this facility  There has been some concern about the potential ramifications of the Fed becoming a dominant participant in this market and expanding its counterparties  For example, will counterparties only be willing to transact with the Fed in a panic, and will the Fed be exposed to counterparty risk with nonbanks that it does not regulate? The Fed has distinct roles as a central bank and a regulator  Its main regulatory responsibilities are as follows: B ank regulation   The Fed supervises bank holding companies (BHCs) and thrift holding companies (THCs), which include all large and thousands of small depositories, for safety and soundness  The Dodd-Frank Act requires the Fed to subject BHCs with more than $50 billion in consolidated assets to enhanced prudential regulation (i e , stricter standards than are applied to similar firms) in an effort to mitigate the systemic risk they pose  The Fed is also the prudential regulator of U S  branches of foreign banks and state banks that have elected to become members of the Federal Reserve System  Often in concert with the other banking regulators, it promulgates rules and supervisory guidelines that apply to banks in areas such as capital adequacy, and examines depository firms under its supervision to ensure that those rules are being followed and those firms are conducting business prudently  The Fed's supervisory authority includes consumer protection for banks under its jurisdiction that have $10 billion or less in assets  P rudential regulat ion of nonbank systemically important financial institutions   The Dodd-Frank Act allows the Financial Stability Oversight Council (FSOC) to designate nonbank financial firms as systemically important (SIFIs)  Designated firms are supervised by the Fed for safety and soundness  Since enactment, the number of designated firms has ranged from four, initially, to none today  R egulation of the payment system   The Fed regulates the retail and wholesale payment system for safety and soundness  It also operates parts of the payment system, such as interbank settlements and check clearing  The Dodd-Frank Act subjects payment, clearing, and settlement systems designated as systemically important by the FSOC to enhanced supervision by the Fed (along with the Securities and Exchange Commission and the Commodity Futures Trading Commission, depending on the type of system)  M argin requirements   The Fed sets margin requirements on the purchases of certain securities, such as stocks, in certain private transactions  The purpose of margin requirements is to mandate what proportion of the purchase can be made on credit  The Fed attempts to mitigate systemic risk and prevent financial instability through these regulatory responsibilities, as well as through its lender of last resort activities and participation on the FSOC (whose mandate is to identify risks and respond to emerging threats to financial stability)  The Fed has focused more on attempting to mitigate systemic risk through its regulations since the financial crisis, and has also restructured its internal operations to facilitate a macroprudential approach to supervision and regulation 
Report 2:  For example, helpful factors to consider when developing a proposed reward amount may include (1) the number of hours the source dedicated to the case, (2) the risk the source took in providing the information, (3) the significance of the information provided by the source, and (4) the amount of fines or other penalties collected as a result of the information  Two stakeholders expressed concern that some of FWS’s reward payments were insufficient, especially when comparing the amount of time and effort or the risk a source faced in providing the information  A couple of stakeholders also said that without a policy that specifies factors for agents to consider, reward amounts may be subjective and could vary depending on which agent develops the reward proposal  Another stakeholder said that it was important to specify factors for agents to consider when developing proposed reward amounts so that the agency has a reasonable and defensible basis for the reward amounts it pays across cases  According to federal standards for internal control, management should internally communicate the necessary quality information to achieve an agency’s objectives  For example, management communicates quality information down and across reporting lines to enable personnel to make key decisions  FWS officials said they believe that their reward policy is sound, indicating they believe that law enforcement agents have the information they need to develop proposals for reward amounts in cases where rewards are warranted  However, they also agreed that it may be helpful to review their policy but did not commit to doing so  By augmenting its policy to specify factors for agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Based on our review of the agencies’ websites and other communications, we found that FWS and NOAA communicate little information to the public on financial rewards for reporting information on wildlife trafficking, such as the potential availability of rewards and eligibility criteria  Specifically, some FWS and NOAA law enforcement websites provided information to the public on ways to report violations of the laws that the agencies are responsible for enforcing, such as via tip lines  Some of the websites also provided examples of the types of information the public can report, such as photos or other documentation of illegal activities  However, most of the agencies’ websites did not indicate that providing information on illegal activities could result in a reward  In contrast, the FWS Alaska regional office’s website provided information on the potential availability of rewards and ways the public may submit information for a potential reward  For example, this website provided phone numbers and an e-mail address for the public to use when submitting information  Figure 1 shows the information available on FWS’s and NOAA’s national and regional websites relevant to reporting violations of the laws the agencies enforce in general and on receiving rewards in particular  In addition, FWS and NOAA headquarters officials said their field agents have used other means to communicate the potential availability of rewards in specific cases when the agents had no other information that could help solve those cases  For example, a FWS field official said that the agency advertised a reward offer for information on a case of bald eagle killings by distributing reward posters and posting news releases in the vicinity where the killings occurred  Similarly, NOAA officials said they have advertised reward offers through various means, including circulating reward posters in specific geographic areas after an illegal activity has occurred  Figure 2 shows a reward poster that NOAA distributed in Guam in 2017 advertising a $1,000 reward for information leading to the arrest and conviction of sea turtle poachers  Instead of having a plan for communicating general information to the public on rewards, FWS and NOAA grant discretion to their regional offices and law enforcement agents to determine the type and level of communication to provide, according to FWS and NOAA policies  FWS officials explained that because they typically use financial rewards to thank individuals who come forward on their own accord—rather than using rewards to incentivize individuals with information to come forward—they have not seen the need to communicate more information to the public on the potential availability of rewards  NOAA officials said they have targeted their communications on rewards by publicizing reward offers for specific cases where they do not have leads  They added that they want to receive quality information and already receive a substantial amount of information from sources who reach out to them proactively, so NOAA has not seen the need to communicate more information to the public on the potential availability of rewards  Sixteen of the 20 stakeholders we interviewed said that it would be useful for FWS and NOAA to advertise the potential availability of financial rewards  Several stakeholders said that if the public does not know about the possibility for rewards, then some people with information may not be incentivized to come forward  Two stakeholders added that agencies should carefully consider how and which reward information to communicate to the public so that people who are most likely to have information on illegal wildlife trafficking learn about the potential for rewards  For example, one stakeholder suggested advertising rewards at ports where international shipments are offloaded or placing advertisements at wildlife trafficking nodes, such as entrances to African wildlife refuges  This stakeholder suggested advertising rewards along with wildlife trafficking awareness-raising posters that nongovernment organizations place in some airports  In addition, 14 stakeholders suggested that it would be useful for FWS and NOAA to provide information to the public on the process for submitting information to potentially receive rewards  Several other stakeholders said that it is important for the public to understand whether they may be eligible for a reward, how to submit information, and whether or to what extent their confidentiality will be protected  Another stakeholder provided examples of how other agencies provide information about their reward programs on their websites  SEC and IRS, for instance, use their websites to communicate information to the public on the process for reporting illegal activity for financial rewards  This information includes the types of information to report, confidentiality rules, eligibility criteria, and the process for submitting information to obtain a reward  In addition, the Department of State posts instructions on its websites on how to submit information on an illegal activity and potentially receive a reward  Federal internal control standards say that management should externally communicate the necessary quality information to achieve an agency’s objectives  For example, using appropriate methods to communicate, management communicates quality information so that external parties, such as the public, can help the agency achieve its objectives  This could include communicating information to the public on the types of information and eligibility requirements for potentially receiving rewards for reporting information on wildlife trafficking  FWS officials said that making more reward information available could lead to a significant increase in the amount of information the agency receives, which, in turn, could strain FWS’s resources in following up on that information  However, FWS officials also agreed that it was reasonable to consider making more reward information available to relevant members of the public, particularly in targeted circumstances, but did not commit to doing so  Similarly, NOAA officials said they had some concerns about the additional resources it might take to investigate potentially unreliable or false tips that may result if they make reward information broadly available to the public, but they agreed that it would be reasonable for the agency to consider doing so  NOAA officials also said they may consider making more reward information publicly available at the conclusion of our audit but provided no plans for doing so  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website on the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a tool for combating wildlife trafficking  FWS officials said their agency has not reviewed or considered changes to its use of rewards because the agency has not prioritized the use of rewards  NOAA officials said their agency has not focused on using rewards or identified the need to review its use of this tool, particularly in light of other, higher mission priorities  Nine of the 20 stakeholders we interviewed said that FWS and NOAA should review the effectiveness of their use of rewards and consider potential improvements  Several stakeholders said that it would be useful for FWS and NOAA to compare their respective approaches to those of federal agencies that use rewards in contexts outside of wildlife trafficking to identify best practices or lessons learned that might be applicable in the context of combating wildlife trafficking  For example, one stakeholder said that SEC has an effective whistleblower program and may have lessons learned that are relevant for FWS and NOAA to consider  Another stakeholder we interviewed separately indicated that in 2010, before SEC had a whistleblower program that publicized rewards and provided detailed instructions on how members of the public could report information on illegal activities, SEC received few tips  Once SEC implemented a whistleblower program that publicized rewards and provided detailed instructions on its public website, the agency’s use of the program grew substantially, according to the stakeholder  Other stakeholders said it would be useful for the agencies to consider potential improvements to their use of rewards, such as making a standing reward offer for information on wildlife trafficking targeted at high-priority endangered species or particular criminal networks  Two of these stakeholders said such an offer might improve FWS’s and NOAA’s use of rewards by generating more tips than reward offers focused on individual cases  At the same time, they said such an offer would likely filter out some of the false or unproductive tips that the agencies might receive if they made an untargeted standing reward offer  Federal internal control standards state that management should design control activities to achieve objectives and respond to risks by, for example, conducting reviews at the functional or activity level by comparing actual performance to planned or expected results and analyzing significant differences  Further, under the standards, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving an agency’s objectives or addressing related risks  FWS and NOAA officials agreed that reviewing the effectiveness of their use of rewards would be worthwhile  Specifically, FWS officials said that it would be useful to compare their approach to those of other federal agencies that use rewards in investigating crimes that involve interstate and foreign smuggling of goods  Similarly, NOAA officials said that reviewing the agency’s use of financial rewards would be worthwhile but cautioned that such a review would need to be balanced against the agency’s constrained resources and many mission requirements  FWS and NOAA officials said they may consider conducting such a review at the conclusion of our audit but provided no plans for doing so  By reviewing the effectiveness of their use of rewards, FWS and NOAA can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  Wildlife trafficking is a large and growing transnational criminal activity, with global environmental, security, and economic consequences  The federal government has emphasized strengthening law enforcement efforts to combat wildlife trafficking, and using financial rewards to obtain information on illegal activities is one tool that some federal agencies have used  However, to date, FWS and NOAA have not prioritized the use of rewards and were unable to provide sufficient assurance that the 27 rewards they paid during fiscal years 2007 through 2017 represented all of the rewards they provided during that period  By tracking reward information so that it is clearly documented and readily available for examination, FWS and NOAA can better ensure that they have complete information on the rewards they have paid to help manage their use of rewards as a law enforcement tool  Additionally, FWS and NOAA have policies outlining the processes their law enforcement agents are to use in making reward payments, and NOAA’s policy specifies factors for its agents to consider in developing proposed reward amounts, such as the risk the individual took in collecting the information  FWS’s policy does not specify such factors that could inform agents in achieving the agency’s objectives, which is not consistent with federal internal control standards  By augmenting its policy to specify factors for its agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Both agencies have also advertised the potential for rewards in specific cases when agents had no other information, but FWS and NOAA have otherwise communicated little information to the public on the potential availability of rewards  If the public does not know about the possibility of rewards, then some people with information may not be incentivized to come forward  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website about the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  Finally, FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a law enforcement tool  By undertaking such reviews, the agencies can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  We are making a total of seven recommendations, including four to FWS and three to NOAA  Specifically: The Assistant Director of the FWS Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 1) The Director of the NOAA Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 2) The Assistant Director of the FWS Office of Law Enforcement should augment FWS’s financial reward policy to specify factors law enforcement agents are to consider when developing proposed reward amounts  (Recommendation 3) The Assistant Director of the FWS Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 4) The Director of the NOAA Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 5) The Assistant Director of the FWS Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 6) The Director of the NOAA Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 7) We provided a draft of this report for review and comment to the Departments of Commerce and the Interior  The departments transmitted written comments, which are reproduced in appendixes IV and V of this report  The Department of Commerce concurred with the three recommendations directed to NOAA and stated that NOAA is developing procedures to ensure that its rewards are closely tracked, clearly documented, and better communicated  In written comments from NOAA, NOAA stated the report fairly and thoroughly reviews NOAA’s use of financial rewards  NOAA outlined the steps it plans to take in response to our recommendations, including developing a procedure to track financial reward information, reviewing information currently disseminated to the public and evaluating whether additional information may be useful, and reviewing the agency’s reward policy to determine whether changes are needed to enhance reward effectiveness  In its written comments, the Department of the Interior concurred with the four recommendations directed to FWS  Interior stated that it appreciated our review of the challenges faced by FWS’s Office of Law Enforcement in combating wildlife trafficking and identifying areas where FWS and NOAA can improve the use of financial rewards as a tool for combating wildlife trafficking  Interior also provided technical comments, which we incorporated as appropriate  As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretaries of Commerce and the Interior, and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-3841 or fennella@gao gov  Contact points for our Offices of Congressional Relations and of Public Affairs may be found on the last page of this report  GAO staff who made major contributions to this report are listed in appendix VI  The objectives of our review were to (1) identify laws that authorize the U S  Fish and Wildlife Service (FWS) and the National Oceanic and Atmospheric Administration (NOAA) to pay financial rewards for information on wildlife trafficking and the extent to which these agencies paid such rewards from fiscal years 2007 through 2017, (2) evaluate FWS’s and NOAA’s policies on financial rewards, (3) evaluate the information available to the public on financial rewards, and (4) determine the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking  To address these objectives, we reviewed academic literature on the use of financial rewards to combat illegal activities and United Nations Environment Programme reports on the scope and scale of wildlife trafficking  We also interviewed officials from federal agencies that play a role in combating wildlife trafficking or manage programs that pay financial rewards for information on illegal activities  Specifically, we interviewed officials from the Departments of Agriculture, Commerce, Homeland Security, the Interior, Justice, and State, as well as officials from the Internal Revenue Service, the U S  Securities and Exchange Commission, and the U S  Agency for International Development  In addition, we reviewed documentation that the Department of the Treasury provided on its role in paying financial rewards  We did not compare FWS’s and NOAA’s use of financial rewards in combating wildlife trafficking to federal agencies’ use of financial rewards in other contexts because the different contexts are not directly comparable  However, we reviewed information on other federal agencies’ use of financial rewards as examples of how financial rewards are used in contexts outside of wildlife trafficking  In addition, we interviewed representatives of six nongovernmental organizations that we selected based on those organizations’ knowledge or experience in combating wildlife trafficking  Specifically, we interviewed representatives from the Elephant Action League, the Environmental Investigation Agency, the National Association of Conservation Law Enforcement Chiefs, the National Whistleblower Center, TRAFFIC, and the World Wildlife Fund  To identify laws that authorize FWS and NOAA to pay financial rewards for information on wildlife trafficking, we asked FWS and NOAA attorneys to compile a list of laws that each of their agencies implements or enforces that prohibit wildlife trafficking and authorize the agency to pay rewards for providing information about trafficking  We then compared that list to the results of our search of the United States Code for such laws  We also reviewed FWS and NOAA documentation for accounts where the fines, penalties, and proceeds from forfeited property that are used to pay rewards are deposited as well as the accounts where appropriations available to pay rewards were deposited  To identify the extent to which FWS and NOAA have paid financial rewards for information on wildlife trafficking, we analyzed FWS and NOAA data on financial rewards the agencies reported paying from fiscal years 2007 through 2017  The data included information on, among other things, the fiscal years in which rewards were paid, laws under which rewards were paid, types of wildlife involved in those cases, the amounts of civil penalties or criminal fines imposed in those cases, the numbers of arrests and convictions as a result of those cases, and whether reward recipients were individuals or groups and U S  or foreign citizens  To assess the reliability of the data FWS and NOAA provided on financial rewards, we interviewed agency officials knowledgeable about the data and compared the data to case records the agencies provided  Specifically, FWS and NOAA officials said they track all expenditures, including reward payments, in their financial databases, but they are not able to readily identify reward payments because their financial systems do not include a unique identifier for such payments and their reward information is located in multiple databases and formats  As a result, FWS and NOAA officials said they identified the rewards that they reported to us by manually reviewing their financial and law enforcement records, and officials said the information was complete to the best of their knowledge  Based on these steps, we found the data that the agencies provided to us to be sufficiently reliable for reporting information on the rewards the agencies reported paying  However, as we discuss in the report, FWS and NOAA officials could not provide sufficient assurance that the data included all the financial rewards that they had paid from fiscal years 2007 through 2017  To obtain additional detail about cases where financial rewards were paid, we reviewed a nongeneralizable sample of 10 wildlife trafficking cases  We selected these cases based on the agency that investigated the case (to include both FWS and NOAA cases), the amount of the reward paid in the case (to reflect both low and high amounts), the year in which the reward was paid (to include rewards paid more recently), and the type of wildlife trafficked in the case (to include both fish and wildlife cases—there were no plant trafficking cases to select)  While the findings from our review cannot be generalized to cases we did not select and review, they illustrate how FWS and NOAA have used financial rewards in wildlife trafficking cases  To evaluate FWS and NOAA policies on financial rewards, we reviewed relevant FWS and NOAA policies and compared them to each other; interviewed FWS and NOAA officials about those policies; and compared the information in the policies with federal internal control standards on information and communication  To evaluate information available to the public on rewards, we reviewed relevant FWS and NOAA publications and examples of communications to the public on the availability of rewards in specific cases and interviewed FWS and NOAA officials  We also reviewed information available on FWS’s and NOAA’s national and regional websites as of December 2017 and January 2018, respectively, relevant to reporting violations of the laws that the agencies enforce in general and on receiving rewards in particular  We compared the agencies’ public communications on rewards with federal internal control standards on information and communication  To evaluate the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking, we interviewed FWS and NOAA officials and requested any reviews the agencies had conducted regarding their use of financial rewards to compare with federal internal control standards on control activities  FWS and NOAA did not have any such reviews to provide  In addition, for all four objectives, we interviewed a nongeneralizable sample of 20 stakeholders who had experience investigating wildlife trafficking or expertise in the use of financial rewards as a law enforcement tool  To select stakeholders to interview, we first identified a list of stakeholders by reviewing (1) FWS and NOAA data on law enforcement agents with at least 5 years of experience who had investigated wildlife trafficking cases and used financial rewards, (2) Department of Justice data on federal prosecutors who had prosecuted wildlife trafficking cases since fiscal year 2014, (3) literature search results identifying academics with expertise in the use of financial rewards as a law enforcement tool and federal programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking, (4) the biographies of members of the federal Advisory Council on Wildlife Trafficking, and (5) recommendations from stakeholders we interviewed  From this list, we then used a multistep process to select the 20 stakeholders to interview  To ensure coverage and a range of perspectives, we selected stakeholders from the following groups: FWS and NOAA law enforcement agents, including field and federal prosecutors responsible for prosecuting wildlife trafficking cases; federal officials responsible for programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking; academics with expertise in the use of financial rewards as a law members of the federal Advisory Council on Wildlife Trafficking; and representatives of nongovernmental organizations that investigate wildlife trafficking  We conducted semistructured interviews with the 20 selected stakeholders using a standard set of questions  We asked questions about stakeholder views on the usefulness of financial rewards in combating wildlife trafficking; the strength and weaknesses of the statutory provisions that authorize federal agencies to pay financial rewards for information on wildlife trafficking; FWS’s and NOAA’s use of financial rewards to combat wildlife trafficking; and how, if at all, the two agencies could improve their use of financial rewards to combat wildlife trafficking  We analyzed the stakeholders’ responses to our questions, grouping the responses into overall themes  We summarized the results of our analysis and then shared the summary with relevant FWS and NOAA officials to obtain their views  Views from these stakeholders cannot be generalized to those whom we did not select and interview  We conducted this performance audit from February 2017 to April 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  The Department of the Interior’s U S  Fish and Wildlife Service (FWS) and the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) implement or enforce multiple laws that specifically authorize the payment, under specified circumstances, of financial rewards to persons for information about violations of laws that prohibit wildlife trafficking  The laws that FWS officials identified are listed and summarized in table 3, and the laws that NOAA officials identified are listed and summarized in table 4  In addition, as noted above, the reward provisions in the Magnuson- Stevens Fishery Conservation and Management Act as amended and the Fish and Wildlife Improvement Act as amended authorize the payment of rewards for information about violations of multiple laws  Specifically, the Magnuson-Stevens Fishery Conservation and Management Act as amended authorizes the payment of rewards for information about violations of the act as well as any other marine resource law that the Secretary of Commerce enforces  Further, the Fish and Wildlife Improvement Act as amended authorizes the payment of rewards for information about violations of any law administered by NOAA’s National Marine Fisheries Service relating to plants, fish, or wildlife  NOAA officials identified 14 such laws that prohibit wildlife trafficking (see table 5)  If a violation of the laws listed in table 5 occurs, NOAA officials said they could use the Magnuson-Stevens Fishery Conservation and Management Act or Fish and Wildlife Improvement Act reward provision to pay a reward for information on the violation  None of the laws listed in table 5 specifically authorize the payment of financial rewards  Table 6 provides information on U S  Fish and Wildlife Service and National Oceanic and Atmospheric Administration cases where these agencies reported paying rewards for information on wildlife trafficking from fiscal years 2007 through 2017  In addition to the contact named above, Alyssa M  Hundrup (Assistant Director), David Marroni (Analyst-in-Charge), Cindy Gilbert, Keesha Luebke, Jeanette Soares, Sheryl Stein, Sara Sullivan, and Judith Williams made key contributions to this report 

ground_truth: Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation's central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of "maximum employment, stable prices, and moderate long-term interest rates." To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation. The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed has been raising interest rates and expects to gradually raise rates further. The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0.25 percentage points each time. In light of increased economic uncertainty and financial volatility, the Fed announced in January 2019 that it would be "patient" before raising rates again. The Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. The Fed's relative independence from Congress and the Administration has been justified by many economists on the grounds that it reduces political pressure to make monetary policy decisions that are inconsistent with a long-term focus on stable inflation. But independence reduces accountability to Congress and the Administration, and recent legislation and criticism of the Fed by the President has raised the question about the proper balance between the two. While the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed's balance sheet was $4.5 trillion—five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools—by paying banks interest on reserves held at the Fed and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. In January 2019, the Fed announced that it would continue using these tools to set interest rates permanently, in which case the balance sheet may not get much smaller than its current size of $4 trillion. With regard to its mandate, the Fed believes that unemployment is currently lower than the rate that it considers consistent with maximum employment, and inflation is close to the Fed's 2% goal by the Fed's preferred measure. Even after recent rate increases, monetary policy is still considered expansionary. This monetary policy stance is unusually stimulative compared with policy in this stage of previous expansions, and is being coupled with a stimulative fiscal policy (larger structural budget deficit). Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly at full employment will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.