u.s. SMALL BUSINESS ADMINISTRATION 

OFFICE OF INSPECTOR GENERAL 

AUDITING DIVISION 

November 12, 2010 

U.S. Department ofthe Treasury 

Financial Management Services 

Room509B 

3700 East-West Highway 

Hyattsville, MD 20782 

Attention: Karen Hunter 

Subject: SBA OIG Audit Report No. 11-04 GFRSfor Fiscal Year 2010 

Pursuant to OMB Circular A-136, Financial Reporting Requirements (Circular A-136) 

and the Treasury Financial Manual, Part 2, Chapter 4700 (TFM 2-4700), attached is the 

Independent Auditors •Report on Special-Purpose Financial Statements, issued by KPMG 

LLP on the Small Business Administration's (SBA) reclassified balance sheet as of 

September 2010 and 2009, and the reclassified statements ofnet costs and changes in net 

position and Federal trading partner note for the year then ended (hereinafter referred to as 

the special-purpose financial statements). 

The auditor found that the statements, including the Federal trading partner note, present 

fairly in all material respects, the financial position ofSBA as of September 30,2010 

and 2009. Also, the results of operations and the changes in net position for the period 

then ended are in accordance with U.S. generally accepted accounting principles, and the 

presentation is in conformance with the requirements of TFM 2-4700. As requested, the 

following documents are attached: 

(1) reclassified financial statements; 

(2) GF004F Trading Partner Summary Note Report; 

(3) GF003G Closing Package Line Reclassification Summary Report; 

(4) GF006 FR Notes Report; 

(5) GF007 Other Data Report; 

(6) Management Representation Letter on the Closing Package, including the 

Summary ofUnadjusted Misstatement; and 

(7) Closing Package Independent Auditors •Report. 

We reviewed KPMG's report and related documentation and made necessary inquiries 

oftheir representatives. Our review was not intended to enable us to express, and we do not 

express, an opinion on the SBA's reclassified financial statements or on conclusions about 
internal control and the SBA's compliance with laws aIid regulations. However, our review 

disclosed no instances where KPMG did not comply, in all materials respects, with 

Generally Accepted Government Auditing Standards. 

We appreciate the cooperation and assistance ofSBA and KPMG representatives. · 	 20 [fOIA ex. 2] ffre ShOUld you or your s taff have any questions, please contact me at (202) 5- or Je y 

R. Brindle, Director, Information Technology and Financial Management Group at 

(202) 205- [FOIA ex. 2] 

Sincerely, 

[FOIA ex. 6] 

Debra S. Ritt 

Assistant Inspector General for Auditing 

Attachments 

Cc: 	 Department ofTreasury, Financial Management Services: 

financial.reports@fins.treas.gov 

Government Accountability Office: USCFS@gao.gov 

OMB, Office ofFederal Financial Management: Statements@omb.eop.gov 
KPMG LLP 

2001 M Street, NW 

Washington, DC 20036-3389 

Independent Auditors' Report 

Office of Inspector General 

U.S. Small Business Administration: 

We have audited the accompanying Closing Package Financial Statement Report - Balance Sheet of the 

U.S. Small Business Administration (SBA) as of September 30, 2010 and 2009; the related Closing 

Package Financial Statement Reports - Statement of Net Cost and Statement of Changes in Net Position, 

and the accompanying Financial Report (FR) Notes Reports (except for the information contained in the 

FR Notes Report entitled "Threshold") for the years then ended; the accompanying Additional Note No. 

30; the accompanying Trading Partner Summary Note Report - Balance Sheet as of September 30, 2010 

and 2009; and the related Trading Partner Summary Note Reports - Statements ofNet Cost and Statements 

of Changes in Net Position for the years then ended (hereinafter collectively referred to as the specialpurpose financial statements). These special-purpose financial statements are the responsibility of SBA's 

management. Our responsibility is to express an opinion on these special-purpose financial statements 

based on our audits. 

We conducted our audits in accordance with auditing standards generally accepted in the United States of 

America; the standards applicable to financial audits contained in Government Auditing Standards, issued 

by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin 

No. 07-04, Audit Requirements for Federal Financial Statements, as amended. Those standards and OMB 

Bulletin No. 07-04 require that we plan and perform the audits to obtain reasonable assurance about 

whether the special-purpose financial statements are free of material misstatement. An audit includes 

consideration of internal control over financial reporting as a basis for designing audit procedures that are 

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of 

SBA's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 

includes examining, on a test basis, evidence supporting the amounts and disclosures in the special-purpose 

financial statements and assessing the accounting principles used and significant estimates made by 

management, as well as evaluating the overall special-purpose financial statement presentation. We believe 

that our audits provide a reasonable basis for our opinion. 

The accompanying special-purpose financial statements have been prepared for the purpose of complying 

with the requirements of Chapter 4700 of the U.S. Department of the Treasury's Treasury Financial 

Manual (TFM), as described in Additional Note No. 30, solely for the purpose of providing financial 

information to the U.S. Department of the Treasury and the U.S. Government Accountability Office 

(GAO) to use in preparing and auditing the Financial Report ofthe u.s. Government, and are not intended 

to be a complete presentation of SBA's consolidated balance sheets as of September 30, 2010 and 2009, 

and the related consolidated statements of net cost and changes in net position, and combined statements of 

budgetary resources (hereinafter referred to as "general-purpose financial statements") for the years then 

ended. 

In accordance with TFM Chapter 4700, SBA prepared FR Notes Report Nos. 1 through 29B, except for FR 

Notes Report Nos. lOA, 16, 20, 21 , 23, and 24, which were not applicable to SBA. SBA included 
u.s. Small Business Administration 

November 12, 2010 

Page 2 of4 

Additional Note No. 30, to disclose other data not contained in the special-purpose financial statements, 

but which is necessary to make the special-purpose financial statements more informative. 

In our opinion, the special-purpose financial statements referred to above present fairly, in all material 

respects, the financial position of SBA as of September 30, 2010 and 2009, and its net costs and changes in 

net position for the years then ended in conformity with U.S. generally accepted accounting principles and 

the presentation pursuant to the requirements of TFM Chapter 4700, as described in Additional Note No. 

30. 

SBA also prepared Other Data Report Nos. 1 through 16, except for Other Data Report Nos. 3 through 8 

and 11 through 14, which were not applicable to SBA. The information included in the Other Data Report 

Nos. 9 (except for the information in the section entitled "Threshold"), 10, 15, and 16 is presented for the 

purpose of additional analysis and is not a required part of the special-purpose fmancial statements, but is 

supplementary information required by U.S. generally accepted accounting principles and TFM Chapter 

4700. We have applied certain limited procedures, which consisted principally of inquiries of management 

regarding the methods of measurement and presentation of this information. However, we did not audit this 

supplementary information, and accordingly, we express no opinion on it. 

Our audits were conducted for the purpose of forming an opinion on the special-purpose financial 

statements taken as a whole. The information included in the Other Data Report Nos. 1 and 2 is presented 

for purposes of additional analysis and is not a required part of the special-purpose financial statements. 

This information has been subjected to the auditing procedures applied in the audits of the special-purpose 

financial statements and, in our opinion, is fairly stated in all material respects in relation to the specialpurpose financial statements taken as a whole, except for the information in the sections entitled 

"Threshold," discussed in the next paragraph. 

The information entitled "Threshold" in Other Data Report No. 9 and the information in the sections 

entitled "Threshold" in FR Notes Report Nos. 2, 3, 4A, 4B, 8, 9, and 15; the information in the Closing 

Package Line Reclassification Summary Report - Balance Sheet; and the information in the Closing 

Package Line Reclassification Summary Report - Statements of Net Cost and Changes in Net Position are 

presented for purposes of additional analysis and are not a required part of the special-purpose financial 

statements. This information has not been subjected to the auditing procedures applied in the audits of the 

special-purpose financial statements, and accordingly, we express no opinion on it. 

The TFM Chapter 4700 requires agencies to use the Governmentwide Financial Reporting System to input 

certain data as described in Additional Note No. 30. Except as discussed in this report, we express no 

opinion on information maintained in that system. 

In accordance with Government Auditing Standards and OMB Bulletin No. 07-04, we have also issued a 

combined auditors' report dated November 12, 2010 which presents our opinion on SBA's general-purpose 

financial statements; our consideration of SBA's internal control over financial reporting; and the results of 

our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and 

other matters that are required to be reported under Government Auditing Standards. That report is an 

integral part of the audits of the general-purpose financial statements, performed in accordance with 

Government Auditing Standards and OMB Bulletin No. 07-04, and should be read in conjunction with this 

report in considering the results of our audits of the special-purpose financial statements. Our audit of the 

general-purpose financial statements of SBA as of and for the year ended September 30, 2010 disclosed the 

following significant deficiency and compliance matter: 
u.s. Small Business Administration 

November 12, 2010 

Page 3 of4 

Significant Deficiency: Improvement Needed in Information Technology (IT) Security Controls 

Compliance Matter: Noncompliance with the Debt Collection Improvement Act 

Management is responsible for establishing and maintaining effective internal control. In planning and 

performing our audit of the fiscal year 2010 special-purpose financial statements, we also considered 

SBA's internal control over financial reporting by obtaining an understanding of SBA's internal control 

and performing tests of controls as a basis for designing our auditing procedures for the purpose of 

expressing our opinion on the special-purpose financial statements, but not for the purpose of expressing an 

opinion on the effectiveness of SBA's internal control over financial reporting. Accordingly, we do not 

express an opinion on the effectiveness of SBA's internal control over financial reporting. 

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or 

detect and correct misstatements on a timely basis. A significant deficiency is a deficiency, or a 

combination of deficiencies, in internal control that is less severe than a material weakness, yet important 

enough to merit attention by those charged with governance. A material weakness is a deficiency, or a 

combination of deficiencies, in internal control such that there is a reasonable possibility that a material 

misstatement of the entity's fmancial statements will not be prevented, or detected and corrected on a 

timely basis. 

Our consideration of internal control over financial reporting for the special-purpose financial statements 

was for the limited purpose described above and was not designed to identify all deficiencies in internal 

control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. 

In our fiscal year 2010 audit, we did not identify any deficiencies in internal control over financial 

reporting for the special-purpose financial statements that we consider to be material weaknesses, as 

defined above. 

Management is responsible for complying with laws, regulations (including TFM Chapter 4700), contracts 

and grant agreements applicable to SBA. As part of obtaining reasonable assurance about whether SBA's 

fiscal year 2010 special-purpose financial statements are free of material misstatement, we performed tests 

of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, 

noncompliance with which could have a direct and material effect on the determination of fmancial 

statement amounts. However, providing an opinion on compliance with those provisions or on compliance 

with TFM Chapter 4700 requirements was not an objective of our fiscal year 2010 audit of the specialpurpose financial statements, and accordingly, we do not express such an opinion. 

The results of our tests of compliance with TFM Chapter 4700 disclosed no instances of noncompliance or 

other matters that are required to be reported under Government Auditing Standards or OMB Bulletin 

No. 07-04. 
u.s. Small Business Administration 

November 12, 2010 

Page 4 of4 

This report is intended solely for the information and use of SBA's management, SBA's Office of 

Inspector General, the U.S. Department of the Treasury, OMB, and GAO, in connection with the 

preparation and audit of the Financial Report ofthe u.s. Government, and is not intended to be and should 

not be used by anyone other than these specified parties. 

November 12, 2010