U.S. Small Business Administration 

Office of Inspector General 

_________________________________

Semiannual Report to Congress 

Spring 2007 

October 1, 2006 – March 31, 2007
Inspector General Act Statutory Reporting Requirements 

The specific reporting requirements prescribed in the Inspector General Act of 1978, as amended, are 

listed below. 

Source Page

Section 4(a)(2) Review of Legislation and Regulations 18-19 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-18 

Section 5(a)(2) Recommendations with Respect to Significant Problems, 

 Abuses and Deficiencies 35-38 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 30-34 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 43-47 

Sections 5(a)(5) Summary of Instances Where Information Was Refused None

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 21-22 

Section 5(a)(7) Summary of Significant Audits & Other Reports 4-18 

Section 5(a)(8) Audit Reports with Questioned Costs 23 

Section 5(a)(9) Audit Reports with Recommendations that Funds Be Put to 

 Better Use 23 

Section 5(a)(10) Summary of Reports From Prior Semiannual Reports 

 Where No Management Decision Was Made 25-26 

Section 5(a)(11) Significant Revised Management Decisions None 

Section 5(a)(12) Significant Management Decisions with Which 

 the OIG Disagreed None 

Section 5(a)(13) Information Described Under Section 05(b) of the Federal 

 Financial Management Improvement Act of 1996 N/A 


Table of Contents 

Overview of SBA and the OIG............................................................................................................................. 1 

Agency Management Challenges ......................................................................................................................... 2 

Significant OIG Activities .................................................................................................................................... 5 

 Disaster Loans .................................................................................................................................. 5 

 Small Business Access to Capital..................................................................................................... 7 

 Small Business Development, Contracting, Education, and Training............................................ 13 

 Agency Management...................................................................................................................... 15 

 Other Significant OIG Activities.................................................................................................... 17 

Statistical Highlights........................................................................................................................................... 19 

Appendices 

 I. OIG Reports Issued ........................................................................................................................ 21 

 II. OIG Reports with Questioned Costs .............................................................................................. 23 

 III. OIG Reports with Recommendations that Funds Be Put to Better Use ......................................... 23 

 IV. OIG Reports with Non-Monetary Recommendations .................................................................... 24 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of March 31, 2007.................................................................................................. 25 

 VI. OIG Reports Without Final Action as of March 31, 2007 ............................................................. 27 

 VII. Summary of Significant Recommendations from Prior Semiannual Reporting 

 Periods Without Final Action as of March 31, 2007................................................................... 30 

 VIII. Summary of Significant Recommendations, 

 October 1, 2006 through March 31, 2007................................................................................... 35 

 IX. Events/Activities Where SBA Used its Cosponsorship Authority, 

 October 1, 2006 through March 31, 2007................................................................................... 39 

 X. Legal Actions Summary, October 1, 2006 through March 31, 2007.............................................. 43 

XI. OIG Organizational Chart .............................................................................................................. 48 
Table of Contents 

Additional Semiannual Legislative Reporting Requirements from the Small Business Act, as Amended: 

 SBA Cosponsorship and Fee-Based Administration-Sponsored Events—Small 

 Business Act, Section 4(h) ............................................................................................................. 14 

 SBDC Surveys—Small Business Act, Section 21(a)(7) ................................................................ 14 

 SBA Gift Authority—Small Business Act, Section 4(g)(2)........................................................... 16 
Overview of SBA and the OIG

1 

The Small Business Administration 

The mission of the Small Business Administration (SBA) under the Small Business Act, as amended, is to 

maintain and strengthen the Nation’s economy by promoting the development and growth of small 

businesses and by assisting in the economic recovery of communities after disasters. To fulfill its 

mission, SBA has three programmatic strategic goals that broadly define what the Agency and its 

programs are trying to accomplish These goals are to “Improve the economic environment for small 

businesses”; “Increase small business success by bridging competitive opportunity gaps facing 

entrepreneurs”; and “Restore homes and businesses affected by disaster.” A fourth strategic goal, 

“Ensure that all SBA programs operate at maximum efficiency and effectiveness by providing them with 

high quality executive leadership and support services,” defines the responsibility of the Agency’s 

executive leadership and support functions to help accomplish the programmatic goals. 

SBA is organized around four key functional areas: financial assistance (e.g., loan programs); contracting 

assistance; technical assistance (e.g., entrepreneurial development); and disaster assistance. The Agency 

also represents small businesses through an independent advocate and an ombudsman. SBA headquarters 

is located in Washington, D.C., while its business products and services are delivered with the help of 

10 regional offices, 68 district offices, 4 Disaster area offices, and a vast network of resource partners in 

all 50 States, the District of Columbia, Puerto Rico, American Samoa, the U.S. Virgin Islands, and Guam. 

SBA’s appropriation for Fiscal Year (FY) 2007 is $571 million. As of March 31, 2007, SBA had 

2,240 employees, including Office of Inspector General (OIG) personnel, but excluding disaster-funded 

employees. There were 2,434 temporary and permanent disaster employees, excluding contractors. 

The Office of Inspector General 

Pursuant to the Inspector General Act of 1978, as amended, the OIG adds value to SBA programs and 

operations by providing auditing, investigative, and other services to support and assist the Agency in 

achieving its statutory mission. The OIG strives to identify significant issues and offer recommendations 

to correct or eliminate problems and fraudulent schemes that adversely impact the efficiency, 

effectiveness, or integrity of SBA’s programs and operations. 

The OIG has four divisions that perform the key functions described below. 

• The Auditing Division performs financial, information technology and other mandated audits, 

program performance reviews, and internal control assessments, and oversees audits by 

contractors to promote the economical, efficient, and effective operation of SBA programs. 

• The Investigations Division manages a program to detect and deter illegal and/or improper 

activities involving SBA programs, operations, and personnel. The criminal investigations staff 

carries out a full range of traditional law enforcement functions. The security operations staff 

ensures that all Agency employees have the appropriate background investigations and security 

clearances for their duties, and conducts the name check program, which provides SBA officials 

with character-eligibility information on loan applicants and other potential program participants. 

• The Counsel Division provides legal and ethics advice to all OIG components, represents the 

OIG in litigation arising out of or affecting OIG operations, assists with the prosecution of civil 

enforcement matters, processes subpoenas, responds to Freedom of Information and Privacy Act 
Overview of SBA and the OIG

2 

requests, and reviews and comments on proposed Agency policies, regulations, legislation, and 

procedures. 

• The Management and Policy Division provides business support (e.g., budget/financial 

management, human resources, information technology, and procurement) for the various OIG 

functions, coordinates the preparation of the Semiannual Report to Congress and the Report on 

SBA’s Management Challenges, and develops OIG strategic and performance plans. 

The OIG’s headquarters is located in Washington, DC., and has field staff located in Atlanta, GA, 

Chicago, IL, Dallas, TX, Detroit, MI, Denver, CO, Herndon, VA, Houston, TX, Kansas City, MO, 

Los Angeles, CA, Miami, FL, New Orleans, LA, New York, NY, Philadelphia, PA, Tacoma, WA, and 

Washington, DC. 

An organization chart for the OIG can be found in Appendix XI. 

OIG Work During This Reporting Period 

As of March 31, 2007, the OIG had 101 staff on-board. The OIG’s FY 2007 appropriation is 

$15.3 million, including a $1.5 million transfer for disaster assistance oversight activities. In addition, a 

supplemental appropriation during FY 2006 provided the OIG with $5 million in “no-year” funds for Gulf 

Coast hurricane disaster oversight. 

During this reporting period, OIG activities focused on the two strategic goals in our FY 2006-2011 

Strategic Plan: “Improving the economy, efficiency, and effectiveness of SBA programs and operations,” 

and “Promoting and fostering integrity in SBA programs and operations.” Using this framework, the OIG 

concentrated on critical risks facing SBA, including: risks of financial losses due to SBA's downsizing, 

centralization, and limited oversight and controls; risks to SBA's performance of its statutory mission to 

promote small business development and Government contracting; and risks associated with SBA's 

information technology and financial management systems and other internal operations. 

The challenges and risks facing the Agency increased significantly with the devastation from the 

hurricanes that hit the Gulf Coast during 2005. The OIG has undertaken a series of reviews of the 

management of SBA’s disaster assistance process, the loan application approval process, loan 

disbursement activities, use of proceeds, and SBA’s loan processing system, known as the Disaster Credit 

Management System (DCMS). The OIG is also directing significant investigative efforts toward 

detecting and deterring fraud related to the SBA Disaster Loan program. 

OIG efforts and accomplishments during the first six months of FY 2007 are summarized in this report. 

Audits and related activities during this reporting period are listed in Appendix I. Investigative actions 

are summarized in Appendix X. Copies of this report and other OIG reports and work products are 

available on the OIG’s website at http://www.sba.gov/ig/igreadingroom.html. 
Agency Management Challenges

3 

OIG Issues FY 2007 Report on SBA’s Top Management Challenges 

In accordance with the Reports Consolidation Act of 2000, 

each fiscal year the OIG identifies the most serious 

management and performance challenges facing the 

Agency for inclusion in SBA’s Performance and 

Accountability Report. The Management Challenges 

represent areas which the OIG considers to be particularly 

vulnerable to fraud, waste, abuse, or mismanagement, or 

which otherwise pose significant risk to the Agency, its 

operations, or its credibility. Each Management Challenge generally has originated from one or more 

OIG or Government Accountability Office (GAO) report. For each Management Challenge, the OIG 

provides the Agency with recommended remedial actions together with our assessment of Agency 

progress on each recommended action during the preceding fiscal year. 

The Management Challenges identified in the OIG’s FY 2007 report, issued on October 16, 2006, were as 

follows. 

• Procurement flaws allow large firms to obtain small business awards and agencies to count 

contracts performed by large firms towards their small business goals. 

• SBA faces significant challenges in financial management and reporting, which affect its ability to 

provide reliable, timely and accurate financial information. 

• Information systems security needs improvement. 

• Maximizing program performance requires that SBA fully develop, communicate, and implement a 

human capital management/transformation strategy. 

• SBA’s National Guaranty Purchase Center needs better controls over the business loan purchase 

process. 

• SBA needs to effectively implement its participant oversight plan. 

• The Section 8(a) Business Development (BD) program needs to be modified so more firms receive 

business development assistance, standards for determining economic disadvantage are clear and 

objective, and SBA ensures that firms follow 8(a) regulations when completing contracts. 

• The current practices of the SBIC (Small Business Investment Company) program place too much 

risk on taxpayer money. 

• Preventing loan agent fraud requires additional measures. 

• SBA needs to continue its efforts to update its system of directives to provide proper guidance and 

control over its operations. 

The FY 2007 Management Challenges Report is available on the OIG’s website at 

http://www.sba.gov/ig/FY2007_management_challenges.pdf. 

As in prior years, the FY 2007 report used a color-scoring scheme to show Agency progress in addressing 

the actions needed to resolve each Management Challenge. Following is a summary of the ten 

Management Challenges in the FY 2007 report, and the status of any progress by the Agency in 

addressing the Challenges. (As discussed below, the second Challenge has since been eliminated.) 

 

The Management Challenges represent

areas which the OIG considers to be 

particularly vulnerable to fraud, waste, 

abuse, or mismanagement, or which

otherwise pose significant risk to the 

Agency, its operations, or its credibility.
Agency Management Challenges

4 

SBA has made improving financial management 

one of its top priorities.... The Agency’s 

demonstrated progress in this area has resulted in 

two successive unqualified audit opinions on its 

financial statements. 

Summary of SBA’s FY 2007 Management Challenges 

 Status Score Change in Status 

 Topic Green Yellow Orange Red Improved Worsened 

1 Small Business Contracts 3 

2 Financial Reporting 4 2 4 

3 IT Security 8 2 1 4 

4 Human Capital 4 2 1 

5 Loan Guaranty Purchase 1 4 1 2 

6 Lender Oversight 3 5 4 2 6 

7 8(a) BD Program 1 2 3 1 1 

8 SBIC Program 1 1 4 1 2 1 

9 Loan Agent Fraud 2 3 1 2 1 

10 Policies and Procedures 1 3 3 

“Improved” refers to an action item that showed progress this year over last year’s score. 

“Worsened” refers to an action item that showed regression this year from last year’s score. 

While Agency progress on a number of the challenges has been encouraging, much more remains to be 

done. By their nature, these challenges require continued long-term commitment and effort by the 

Agency. 

SBA Overcomes Financial Management and Reporting Challenge 

SBA has made improving financial management one of its top priorities. The Agency has worked 

diligently to identify and address the underlying causes of its financial management issues, improve its 

models for estimating the Agency’s subsidy 

costs, improve controls over financial statement 

preparation, and adhere to all reporting 

deadlines. The Agency’s demonstrated progress 

in this area has resulted in two successive 

unqualified audit opinions on its financial 

statements. Therefore, subsequent to issuance of 

the FY 2007 Management Challenges report, the OIG eliminated Challenge 2, “SBA faces significant 

challenges in financial management and reporting, which affect its ability to provide reliable, timely, and 

accurate financial information.” 
Significant OIG Activities

5 

One complaint...alleged that...loans were 

disbursed contrary to borrowers’ wishes and

without necessary documentation.

Disaster Loans

The Disaster Loan program plays a vital role in the aftermath of disasters by providing long-term, lowinterest loans to affected homeowners, renters, and businesses of all sizes. There are two types of disaster 

loans: (1) physical disaster loans for permanent rebuilding and replacement of uninsured or underinsured 

disaster-damaged privately-owned real and/or personal property, and (2) economic injury disaster loans to 

provide necessary working capital to small businesses until normal operations resume after a disaster. 

Physical disaster loans are available to homeowners, renters, businesses of all sizes, and nonprofit 

organizations. The Disaster Loan program is particularly vulnerable to fraud and unnecessary losses 

because loan transactions are expedited in order to provide quick relief to disaster victims. 

On August 29, 2005, Hurricane Katrina devastated the Gulf Coast regions of Louisiana, Mississippi, and 

Alabama. Katrina was the third most intense hurricane to hit the United States in recorded history, and 

the sixth strongest recorded in the Atlantic Basin. It was quickly followed by Hurricanes Rita and Wilma, 

creating further loss of lives and property in Florida and Texas. As of March 31, 2007, SBA had 

approved almost 120,000 disaster loans, totaling $7.13 billion, in the aftermath of the Gulf Coast 

hurricanes, and had fully disbursed more than 100,000 disaster loans, totaling $4.8 billion. Including 

loans that have been partially disbursed, the Agency has made full or partial disbursements on 98 percent 

of the approved loans, for a total of $5.3 billion. 

Given the broad scope of SBA’s Gulf Coast hurricane disaster assistance efforts, OIG audit and 

investigations work will focus heavily on this area for the foreseeable future. The OIG has a number of 

audits and reviews underway or planned. 

OIG Receives Complaints About Expedited Loan Processing 

The OIG received multiple complaints about expedited loan processing activities at SBA’s Loan 

Processing and Distribution Center in Fort Worth, Texas. One complaint, which was made in 

October 2006, alleged that during the SBA’s “90-in45” loan disbursement campaign1

 loans were 

disbursed contrary to borrowers’ wishes and without 

necessary documentation. The complaint also stated 

that loan quality standards were relaxed, original 

mortgage documents needed to secure collateral were destroyed, and staff and resources were poorly 

utilized. Subsequent complaints alleged that SBA improperly canceled approved loans during four 

separate campaigns in FY 2006. The complaints also alleged that borrowers withdrew their applications 

due to a lack of assistance from SBA, and that loan officers were not allowed to assist borrowers in 

obtaining required documentation or to maintain loan files beyond a week’s time. The OIG has initiated 

several reviews in response to these complaints and will issue reports addressing the issues raised. 

 

1

 Because rebuilding efforts had progressed slowly, questions arose about whether SBA’s disbursement process was 

too slow. To reduce the backlog of loans, on October 2, 2006, SBA initiated the “90-in-45” campaign. The 

campaign’s name referred to the goal of disbursing funds on the backlog of 90,000 plus loans associated with 

Hurricanes Katrina, Rita, and Wilma within 45 days. 
Significant OIG Activities

6 

When the loan went into liquidation for 

non-payment, he sold two properties held as 

collateral for the loan by producing 

fraudulent documents... 

...the OIG had 27 open cases and

obtained 19 indictments and 8 convictions 

as of March 31, 2007.

Agencies Combine Efforts to Target Gulf Coast Hurricane Fraud 

In concert with other law enforcement entities on the Hurricane Katrina Fraud Task Force, the OIG had 

27 open cases and obtained 19 indictments and 

8 convictions as of March 31, 2007. The 27 open cases, 

involving loan amounts totaling nearly $6 million, relate to 

allegations of false statements involving residency at the 

time of the Gulf Coast hurricanes, nonexistent property damage to homes and businesses, and misuse of 

loan proceeds. As additional loan amounts are disbursed, and the 12-month deferral of principal and 

interest payments for disaster loans comes to an end, the OIG anticipates an increase in both fraud 

referrals and loss exposure to SBA. Examples of OIG cases related to the Gulf Coast hurricanes include 

the following. 

• A Louisiana woman filed applications for SBA and Federal Emergency Management Agency 

(FEMA) disaster benefits falsely claiming to have suffered damages from Hurricane Katrina. 

Based on her claim using a nonexistent address, she received an initial disbursement of $10,000 

of a $40,000 SBA disaster loan, as well as FEMA benefits. She pled guilty and was sentenced to 

60 months probation and $10,000 in restitution. The OIG conducted the investigation jointly with 

the Department of Homeland Security (DHS) OIG. 

• An individual was indicted for claiming his primary residence was in Mississippi at the time of 

the Gulf Coast hurricanes, when he actually resided in Maryland. He was approved for an SBA 

loan of $208,300, of which $10,000 was disbursed. He also received nearly $16,000 from 

FEMA. The OIG conducted this investigation jointly with the DHS OIG and the Mississippi 

State Auditor’s Office. 

Fraud Persists in 9/11 Disaster Loans Made to Small Business Victims 

Over $1.1 billion in SBA disaster assistance loans went to small business victims of the September 11th 

terrorist attacks. Unfortunately, as in other disasters, dishonest applicants took advantage of the need to 

disburse funds quickly to legitimate victims to fraudulently obtain Federal funds. Frequently, these 

schemes are not discovered quickly because loan repayments are typically deferred. 

OIG investigations have resulted in the prosecution of numerous individuals who used this national 

tragedy to commit fraud for personal gain. For example, the co-owner of a charter plane company in 

Alabama was indicted for wire fraud, personal income 

tax evasion, fraudulent conversion of SBA collateral, 

and forgery of a government seal in connection with a 

nearly $178,000 economic injury disaster loan that he 

obtained after the terrorist attacks. When the loan went 

into liquidation for non-payment, he sold two properties 

held as collateral for the loan by producing fraudulent documents indicating that SBA had released its lien 

against the properties. As a result, he received over $92,000 that should have been paid to SBA. This 

case resulted from a referral by SBA’s Santa Ana Liquidation Center. The OIG is conducting this joint 

investigation with the Internal Revenue Service (IRS) and the Auburn Alabama Police Department. 
Significant OIG Activities

7 

...SBA purchased up to $130.6 million in 

guaranties...without obtaining information needed to 

assess whether lenders verified borrower use of loan 

proceeds and financial information or properly 

determined their eligibility and creditworthiness. 

Small Business Access to Capital

SBA has a financial assistance portfolio of small business loans and financings exceeding $67 billion. 

With more than 5,000 lenders authorized to make SBA loans, the Section 7(a) Loan Guaranty program is 

SBA’s largest lending program and the principal vehicle for providing small businesses with access to 

credit which cannot be obtained elsewhere. This program is vulnerable to fraud and unnecessary losses 

because it relies on numerous third parties (e.g., borrowers, loan agents, and lenders) to complete loan 

transactions. Approximately 80 percent of loans guaranteed annually by SBA are made by lenders to 

whom SBA has delegated loan-making authority. Additionally, SBA has centralized many loan functions 

and reduced the number of staff performing these functions. Since 2001, SBA’s staffing has decreased by 

more than 25 percent while the number of SBA-guaranteed loans funded has more than doubled. As SBA 

has placed more responsibility and independence on its lenders, the need for OIG oversight has increased 

significantly. 

Another vehicle for capital, the SBIC program, was established in 1958 to stimulate and supplement the 

flow of private equity capital and long-term debt to small business concerns using private venture capital 

firms and SBA-guaranteed funding. The program is being revamped because it cost about $2 billion 

more than anticipated from FY 1993 to FY 2004. Finally, small and emerging contractors who cannot 

obtain surety bonds through regular commercial channels can apply for SBA bonding assistance under the 

Surety Bond Guarantee program. 

SBAExpress and CommunityExpress Loan Purchase Process Did Not Detect Material Lender 

Deficiencies 

After an SBA-guaranteed loan goes into default and the lender requests SBA to pay (or “purchase”) the 

guaranty, SBA procedures call for an agency review of lender documentation to determine whether the 

lender properly administered the loan. During this reporting period, the OIG conducted an audit of the 

Agency’s guaranty purchase review process for loans made under the SBAExpress and 

CommunityExpress programs. The purpose 

of the audit was to determine whether SBA 

properly identified lender deficiencies that 

would have affected purchase decisions and 

adequately monitored efforts made by lenders 

to recovery the debt through liquidation of the 

collateral. The OIG’s review disclosed that 

SBA purchased up to $130.6 million in guaranties on SBAExpress and CommunityExpress loans without 

obtaining information needed to assess whether lenders verified borrower use of loan proceeds and 

financial information or properly determined their eligibility and creditworthiness. SBA also erroneously 

paid approximately $304,000 in additional guaranties on CommunityExpress loans where borrowers may 

not have been provided with the required technical assistance. In addition, the OIG identified two lenders 

who did not disclose material facts on two loans that were purchased for $27,134 that would have 

impacted the purchase decisions. Finally, SBA did not refer timely to the Department of Treasury for 

collection $25 million in purchased loans that were over 180 days delinquent, as required by the Debt 

Collection Act. 

The OIG recommended that SBA: (1) review all loans approved after January 1, 2000, and purchased 

before February 1, 2005, to ensure that lenders complied with program requirements; (2) revise program 
Significant OIG Activities

8 

Of the 350 lenders subject to on-site 

reviews, only 125 were reviewed during 

FYs 2005 and 2006. 

...he fraudulently caused the lender to 

originate as many as 76 loans totaling 

almost $77 million...

...the lender repaid SBA over $9.6

million for 19 fraudulent loans 

identified in the investigation.

guidance to ensure that lenders provide adequate documentation at the time of purchase request and that 

Agency personnel review this information; (3) seek recovery of erroneous payments made to lenders; and 

(4) properly monitor purchased loans and make timely referrals to the Department of Treasury. SBA 

agreed or proposed alternative corrective actions that were responsive to the OIG’s recommendations. 

Joint Investigation Uncovers Massive Loan Fraud 

In January 2007, agents from the OIG and the U.S. Secret Service arrested 18 individuals sought in 

connection with a scheme in which a non-bank lender’s 

former executive vice president and others conspired to 

fraudulently qualify loan applicants for SBA-guaranteed 

loans. The loans were primarily for the purchase of gas 

stations. The executive vice president was indicted for 

conspiracy, wire fraud, tampering with witnesses, and making false declarations to a grand jury and a 

bank. The indictment alleged that he fraudulently caused the lender to originate as many as 76 loans 

totaling almost $77 million, and that SBA had already paid claims totaling approximately $28.4 million 

on these loans. Three other individuals were indicted for conspiracy and making false statements. The 

first two allegedly obtained a $944,000 SBA-guaranteed loan through fraud, and the third allegedly 

facilitated the fraud by providing phony bank documentation to verify the required equity injection. SBA 

paid over $709,000 on this defaulted loan. In addition, a former assistant vice president of another 

financial institution was indicted for conspiracy and misapplication of bank funds. She allegedly supplied 

false verifications of deposits for loan applicants and gave a loan broker unfunded cashier’s checks to be 

used in the loan closings. 

As a result of this investigation, the non-bank lender repurchased 

guaranties from SBA on three fraudulent loans, resulting in 

administrative recoveries of over $1.8 million, and terminated its 

guaranties on two other fraudulent loans that SBA had not yet 

purchased, resulting in cost savings of over $1.4 million. In 

addition, the lender repaid SBA over $9.6 million for 19 fraudulent loans identified in the investigation. 

Consequently, as of March 31, 2007, SBA recoveries and cost savings totaled over $12.9 million. 

This ongoing investigation was based on information from the U.S. Attorney’s Office in Detroit, 

Michigan, and is being conducted jointly with the U.S. Secret Service.

SBA’s Corrective Action Process Resulted in On-Site Reviews of Only a Small Percentage of Large 

Lenders 

 

The OIG issued an audit report that addressed whether SBA had fully and timely implemented 

appropriate actions to correct lender deficiencies identified 

during on-site examinations or by other means. The audit 

determined that SBA had strengthened its oversight 

process by expanding the scope of lenders to be reviewed, 

providing more detailed reports to lenders, and requiring corrective actions when deficiencies were 

identified. However, the process had not been fully implemented. Of the 350 lenders subject to on-site 

reviews, only 125 were reviewed during FYs 2005 and 2006. Also, SBA did not notify lenders in a 

timely manner of deficiencies noted in the reviews, taking an average of 6 to 12 months after the end of 
Significant OIG Activities

9 

...SBA may have inappropriately honored

guaranties totaling $734,676...

These reports identified material lender 

deficiencies in originating, servicing and 

liquidating SBA loans...

...the lender did not comply with SBA 

requirements in determining the value of

the business being purchased...

the reviews to transmit the results. Lastly, because 

deficiencies noted during on-site reviews for 113 loans 

either were not recorded in the Delinquent Loan Collection 

System, or were not recorded timely, SBA may have 

inappropriately honored guaranties totaling $734,676 for 8 of these loans. 

The OIG recommended that SBA: (1) ensure that all large lenders receive on-site reviews and 

examinations every 12 to 24 months, and that lender deficiencies identified during the reviews be 

recorded in a timely manner, and (2) seek recovery of the inappropriately honored guaranties. SBA 

responded that actions had been taken or were in process to address the recommendations, including 

evaluating the purchased guaranties that were identified for recovery. 

SBA Purchased Guaranties for Loans that Were Not Properly Originated or Serviced By Lenders. 

As part of an ongoing review of SBA’s guaranty purchase process, the OIG randomly selected purchased 

loans to assess the accuracy of the guaranty purchase process and project the overall level of erroneous 

payments. The OIG will issue a report on this review 

during the next semiannual reporting period. In addition, 

when the OIG finds that SBA has purchased a loan 

guaranty despite material lender deficiencies, a loanspecific audit report is issued so that SBA can recover the 

identified erroneous payment. The OIG issued individual audit reports on eight such loans during this 

reporting period. These reports identified material lender deficiencies in originating, servicing and 

liquidating loans that were not identified by SBA during the guaranty purchase process, and 

recommended recovery of the more than $800,000 in overpayments. The lender deficiencies identified in 

the audits included failure to: substantiate the use of loan proceeds; correctly apply loan payments on 

loans in liquidation status; verify borrower equity injection; verify borrower repayment ability; properly 

determine the value of a business being purchased; conduct timely site visits; inventory, assess, and 

secure collateral; and consider character issues during loan origination. 

For example, one lender disbursed $358,071 directly to 

the borrower to purchase inventory, but did not obtain 

copies of paid receipts, vendor invoices, or other 

documentation showing that the borrower actually used 

the proceeds as intended. On another loan, the lender did not comply with SBA requirements in 

determining the value of the business being purchased even though the selling price was questionable and 

the change of ownership was not at arm’s length. The equity injection that was required of the borrower 

was actually provided by the seller and, therefore, the lender may have provided 100 percent financing, 

which SBA procedures prohibit. Lastly, the lender did not consider all of the borrower’s consumer debt 

and, as a result, improperly calculated repayment ability. 

SBA has Limited Role in Identifying International Trade Constraints 

In response to a congressional request, the OIG undertook a review of SBA’s international trade 

facilitation activities and issued a report on the results of this review. The review found that, in the 

general course of its work, SBA had identified key international trade constraints confronting small 

businesses seeking markets abroad for their products and services, but had not attempted to formally 
Significant OIG Activities

10 

...a former title company escrow officer, a 

mortgage broker, and others intended to 

defraud SBA and a lender of more than 

$1.8 million in connection with the 

purchase of a warehouse. 

...SBA had identified key international trade 

constraints confronting small businesses...but

had not attempted to formally survey small

businesses or conduct any other structured

information-gathering activities.

survey small businesses or conduct any other structured information-gathering activities. Instead, it 

looked to the Department of Commerce as the lead 

Federal agency in disseminating trade promotion 

information, developing business leads, and 

facilitating matchmaking for all sizes of U.S. 

businesses. The review also found that SBA has 

focused its modest resources on assisting small 

businesses mostly with export finance assistance. Finally, although SBA is a member of the Trade 

Committee, it plays only a minor role, has a minimal share of the total budget authority as compared with 

other members of the committee, and does not have its annual accomplishments and upcoming trade plans 

sufficiently described in the Trade Committee’s most recent annual strategic document, The 2006 

National Export Strategy. 

The OIG recommended that SBA’s Associate Administrator for International Trade work with the U.S. 

Trade Representative (USTR) to fill, on a permanent basis, a vacant SBA position assigned to USTR to 

ensure that small business trade constraints continue to be communicated to USTR negotiators in an effort 

to secure needed relief in new multilateral and bilateral trade agreements. The OIG also recommended 

that the SBA work with other Trade Committee member agencies to ensure greater integration with the 

National Export Strategy of performance measures for international trade activities as reported by those 

agencies in their respective Performance and Accountability Reports. Finally, the OIG recommended that 

an electronic matchmaking portal be created through the Office of International Trade’s Web site, which 

would match U.S. small businesses seeking export markets with importing concerns abroad. SBA agreed 

with the report recommendations. 

Loan Agent Fraud Continues to Harm SBA Loan Programs 

A loan agent is employed by a prospective borrower or a lender to prepare the documentation for a SBA 

loan application and/or refer the borrower to a lender (or vice versa). Honest loan agents have linked 

small businesses to sources of capital, while dishonest agents have perpetrated frauds involving hundreds 

of millions of dollars in loans. Moreover, loans associated with loan agent fraud often default for nonpayment, which increases loses in the loan guaranty program. 

In one case, a former title company escrow officer, a 

mortgage broker, and others intended to defraud SBA 

and a lender of more than $1.8 million in connection 

with the purchase of a warehouse. The co-conspirators’ 

land-flip scheme involved the false representation of a 

$2.2 million sales price and false documentation of a 

$375,000 equity injection. The defendants also laundered approximately $473,000 of the loan proceeds. 

The escrow officer and broker were found guilty of conspiracy, bank fraud, and money laundering. Two 

of the other co-conspirators previously pled guilty and three others have been charged but remain 

fugitives. The OIG conducted this investigation with assistance from the Texas Comptroller of Public 

Accounts/Criminal Investigations Division. 

The OIG’s FY 2007 Management Challenges Report identifies loan agent fraud as one of the top 

challenges for the Agency and makes recommendations to deter loan agent abuse. For example, SBA 

does not currently know the magnitude of the loan agent problem because it collects little information 
Significant OIG Activities

11 

...the business owner again admitted he was 

not a U.S. citizen, but presented a counterfeit 

certificate of naturalization and offered a 

$5,000 cash bribe to the SBA official. 

He submitted false documentation showing a 

$250,000 cash injection into the business, and

provided forged power of attorney documents to 

improperly pledge collateral not belonging to him.

about loan agent involvement with its loans. The Agency needs to systematically identify all loan agents 

and track their association with individual loans. This is critical to identifying corrupt loan agents, since 

loan agents have opportunities for contacts with multiple lenders and due diligence in loan processing 

varies greatly among lenders. 

Borrowers Increasingly Falsify Capital Injection 

SBA procedures require that borrowers inject available capital towards a project being financed by an 

SBA-guaranteed loan. Capital injection represents a borrower’s own financial stake in a business, in 

addition to the loan. A borrower who has something personal to lose is less likely to default on a loan. 

Unfortunately, borrowers increasingly are falsifying the amount of their capital injection. The following 

examples illustrate this problem. 

• The business manager of a now-defunct Pennsylvania supermarket obtained a $993,000 SBAguaranteed loan to assist his business in purchasing another company, which happened to belong 

to his mother. He submitted false documentation showing a $250,000 cash injection into the 

business and provided forged power of 

attorney documents to improperly 

pledge collateral not belonging to him. 

The manager pled guilty to wire fraud 

and aiding and abetting. The OIG 

conducted this joint investigation with 

the Federal Bureau of Investigation 

(FBI). 

• The owner of a small California airplane parts business and the previous owner of another small 

airplane parts business were indicted for wire fraud and aiding and abetting. The investigation 

found that the first company obtained a $999,000 SBA-guaranteed loan to purchase the latter 

company. The owner of the first company failed to disclose that he had borrowed the $125,000 

cash injection from an associate of the seller of the second company. The loan defaulted, and 

SBA purchased the loan guaranty. This case was referred by the U.S. Attorney’s Office in Boise, 

Idaho. The OIG is conducting this investigation jointly with the FBI. 

Borrowers Continue to Falsely Claim Citizenship 

Some prospective borrowers, either individually or with the help of dishonest loan agents, use wellplanned schemes to falsely claim U.S. citizenship when applying for SBA-guaranteed loans. Such loans 

often default quickly, with millions of dollars at risk. Equally troubling is the fact that loans to such 

ineligible borrowers can deprive honest loan applicants of access to reasonable SBA-backed financing. 

In one case, a Chicago area business owner applied for a $594,000 loan under SBA’s Section 504 loan 

program, claiming on the application to be a U.S. 

citizen. When SBA requested evidence of 

naturalization, the owner admitted he was not a U.S. 

citizen, but requested a meeting with an SBA official. 

The official contacted the OIG and agents from the 

OIG videotaped the meeting at which the business 
Significant OIG Activities

12 

A former...business owner inflated his 

personal financial statement and failed to 

disclose a prior bankruptcy when applying for

a $1.5 million SBA-guaranteed loan...

owner again admitted he was not a U.S. citizen, but presented a counterfeit certificate of naturalization 

and offered a $5,000 cash bribe to the SBA official. The applicant had hired a graphic artist to create the 

counterfeit certificate. The applicant pled guilty to bribery of a public official, and the graphic artist was 

convicted of possession of fictitious or fraudulent identification cards. This ongoing investigation is 

being conducted jointly with the Department of Homeland Security/Immigration and Customs 

Enforcement. The Illinois District Office provided significant cooperation in this case. 

Criminals Use a Variety of Fraudulent Tactics to Obtain SBA-Backed Loans 

Criminals use a variety of methods in attempts to fraudulently obtain SBA-guaranteed loans, or to induce 

others to obtain such loans. These methods include: submitting fraudulent documents; making fictitious 

asset claims; manipulating property values; and failing to disclose debts, prior criminal records, or the fact 

that they have obtained other SBA-backed loans. In addition, borrowers use loan proceeds contrary to the 

terms of the loans. Such practices increase the chances of financial loss to SBA and its lenders. The 

following examples, in addition to those discussed above, demonstrate how far individuals will go to 

fraudulently obtain SBA loans. 

• A Texas man secured a $1 million loan by submitting an inflated purchase contract that showed a 

sales price of $1,320,000 for a convenience store, when the actual price was under $789,000. The 

lender disbursed loan proceeds of $1 million based on these and other misrepresentations. The 

man was sentenced to 6 months home confinement, 3 years probation, and over $624,000 in 

restitution for conspiracy to commit bank fraud. The OIG conducted this investigation jointly 

with the Texas Alcohol and Beverage Commission. 

• A former Washington State business owner inflated his personal financial statement and failed to 

disclose a prior bankruptcy when applying for 

a $1.5 million SBA-guaranteed loan to 

purchase a cabinet-making business. He also 

submitted the same false financial statement to 

a financial institution to obtain a $400,000 

business line of credit. The individual was 

sentenced to 12 months and 1 day in prison, and 5 years supervised release, and was ordered to 

pay restitution of over $886,000, for making false statements to SBA and a bank. This case was 

originally referred to the OIG by a lender. 

• A Virginia Internet-based company victimized at least 600 people in a scam that promised to 

provide a comprehensive business plan and an SBA-guaranteed loan in exchange for a $3,500 

fee. The company lauded a 90 percent success rate in obtaining loans for its customers, and 

advertised that it was a member in good standing with the Ethical Internet Buyers Bureau (EIBB). 

The investigation disclosed that the business plans were worthless, that only one or two 

businesses ever received an SBA loan, and that the founders and operators of EIBB were in fact 

co-conspirators in the fraud. The former president of the firm pled guilty to mail fraud, tax 

evasion, and engaging in a monetary transaction in criminally derived property. This case was 

based on a referral from SBA’s Richmond District Office. The OIG conducted this joint 

investigation with the U.S. Postal Inspection Service and the IRS. 
Significant OIG Activities

13 

...large businesses performed 86 to 98 

percent of the dredging work and materially

benefited from contracts that were solesourced to 8(a) participants.

Small Business Development, Contracting, Education, and Training

Through its government contracting programs, SBA works to maximize opportunities for small, women, 

and minority-owned and other disadvantaged businesses to obtain Federal contract awards. These 

programs include, among others, the Historically Underutilized Business Zone (HUBZone) 

Empowerment Contracting program, and the Small Disadvantaged Business (SDB) Certification 

program. SBA also negotiates with other Federal agencies to establish procurement goals for contracting 

with small, disadvantaged, women-owned, service-disabled-veteran-owned, and HUBZone businesses. 

The current government-wide goal is for small businesses to receive 23 percent of the total value of prime 

contracts awarded each fiscal year. 

SBA’s Section 8(a) Business Development program offers a broad scope of assistance to socially and 

economically disadvantaged firms. Regulations permit 8(a) companies to form beneficial teaming 

partnerships, and allow Federal agencies to streamline the contracting process. SBA has also 

implemented the Mentor-Protégé program to allow new 8(a) companies to learn from experienced 

businesses. These businesses teach 8(a) and other small companies how to compete in the Federal 

contracting arena and how to take advantage of greater subcontracting opportunities available from large 

firms as a result of public-private partnerships. Program goals require 8(a) firms to maintain a balance 

between their commercial and government business. There is also a limit on the total dollar value of solesource contracts that a company can receive while in the program – $100 million or 5 times the value of 

its primary Standard Industrial Classification (SIC) code. The overall program goal is to graduate firms 

which experience sufficient success to be able to thrive in a competitive business environment. 

In addition, SBA provides assistance to existing and prospective small businesses through a variety of 

counseling and training services offered by partner organizations. Among these are Small Business 

Development Centers (SBDCs), the Service Corps of Retired Executives (SCORE), and Women’s 

Business Centers (WBCs). Most of these are grant programs that require effective and efficient 

management, outreach, and service delivery. 

SBA Accepted Contracts That Did Not Meet 8(a) Requirements 

The OIG reviewed two 8(a) sole-source dredging contracts to determine the validity of allegations that the 

contracted work was performed by large contractors in 

violation of small business procurement laws and 

contrary to 8(a) program requirements. The audit 

substantiated the allegations, determining that large 

businesses performed 86 to 98 percent of the dredging 

work and materially benefited from contracts that were 

sole-sourced to 8(a) participants. 

The OIG recommended that SBA take steps to: ensure that procurements are not accepted for 8(a) 

awards without sufficient information to determine whether the 8(a) participants are performing the 

required percentage of work; perform required reviews of procuring agencies; provide sufficient oversight 

resources to its district offices; and revise the size standard for dredging companies. The OIG also 

recommended that SBA determine whether its inability to effectively monitor the 8(a) and Mentor 

Protégé programs should be reported as a material weakness in the Administrator’s FY 2007 internal 

control assurance statement. SBA generally agreed with the report recommendations, but did not provide 
Significant OIG Activities

14 

...he accepted monthly cash payments 

totaling over $30,000 in exchange for 

awarding over $16 million in SBA 8(a) sole 

source contracts to a contractor. 

target dates or propose fully responsive actions for some of the recommendations. Consequently, 

additional information was requested from the Agency. 

Former SBA Official Violated the Integrity of the 8(a) Program 

As part of a continuing effort to ensure that SBA 

officials who are entrusted with the power to spend or 

direct public funds carry out their duties honestly, the 

OIG investigates allegations of public corruption. 

During this reporting period, the former head of the 

SBA’s 8(a) division in Puerto Rico was sentenced to 

4 years in prison and 2 years supervised release. A joint SBA OIG, General Services Administration 

(GSA) OIG, and FBI investigation found that he accepted monthly cash payments totaling over $30,000 

in exchange for awarding over $16 million in SBA 8(a) sole source contracts to a contractor. The 

contractor pled guilty and was sentenced in a separate bribery case. This investigation was based on a 

referral from the FBI. 

OIG Reports on SBA’s Cosponsorships and Fee-Based Administration Sponsored Events 

Section 4(h) of the Small Business Act, as amended, requires the OIG to report to Congress on a semiannual basis regarding the Agency’s use of its authority in connection with cosponsorships and fee-based 

Administration-sponsored events. SBA’s Office of Strategic Alliances provided information to the OIG 

related to cosponsorships, including the names, dates, and locations of the cosponsored events, and the 

names of cosponsors. As shown in Appendix IX, between October 1, 2006 and March 31, 2007, there 

were 26 cosponsored events. SBA reported that it did not conduct any fee-based Administrationsponsored events during this period. 

Legislation Requires Approval of SBDC Surveys 

Section 21(a)(7) of the Small Business Act, as amended, imposes restrictions on the disclosure of 

information regarding individuals or small businesses that have received assistance from an SBDC, and 

further restricts the Agency’s use of such information. The provision also requires the Agency to issue 

regulations regarding disclosures of such information for use in conducting financial audits or SBDC 

client surveys. In addition, paragraph 21(a)(7)(C)(iii) states that, until the issuance of such regulations, 

any client survey and the use of such information shall be approved by the Inspector General, who shall 

include such approval in the OIG’s Semiannual Report to Congress. 

The Agency reported that there were no SBDC surveys requiring OIG approval during this reporting 

period. Although the statutory provision was enacted in December 2004, the Agency has not yet issued 

the required regulations regarding disclosures of client information. Agency officials advised that they 

were continuing to work on the regulations. 
Significant OIG Activities

15 

...SBA was vulnerable to unauthorized

disclosure of personally identifiable 

information, particularly information

stored on mobile computers and devices.

...KPMG reported a material weakness 

related to SBA’s controls over financial 

reporting. 

Agency Management

SBA Receives Unqualified Opinion on FY 2006 Financial Statements 

The Chief Financial Officers Act of 1990 requires each Federal agency to have its financial statements 

audited annually. The audit of SBA’s FY 2006 financial statements, conducted by KPMG under a 

contract with the OIG, concluded that SBA’s consolidated financial statements presented fairly, in all 

material respects, the financial position of SBA as of and for the fiscal year which ended September 30, 

2006. The financial statements also presented fairly, in all material respects, SBA’s net costs, changes in 

net position, budgetary resources, and reconciliation of net 

costs to budgetary obligation for the year. However, 

KPMG reported a material weakness related to SBA’s 

controls over financial reporting. While SBA continued to 

implement various reconciliation and data quality 

improvement procedures, the Agency did not timely identify a $10 billion overstatement in the 

disclosures concerning guaranteed loans. The overstatements were identified by SBA and occurred 

because SBA’s subsidiary ledger was not in agreement with its general ledger. SBA personnel also did 

not timely analyze the reason for the variances in these general ledger memorandum accounts. As such, 

the system reconciliation procedures used from FY 2003 through the third quarter of FY 2006 were 

ineffective with respect to these accounts. The overstatements did not impact other amounts included in 

the consolidated financial statements. 

The audit also noted two reportable conditions related to Information Technology (IT) security controls 

and budgetary controls surrounding travel vouchers. Further, the OIG reported that SBA did not fully 

comply with the Federal Information Security Management Act (FISMA) or Office of Management and 

Budget (OMB) Circular A-130, Management of Federal Information Resources, because the Agency 

needed to further improve its entity-wide security program. The Agency concurred with the findings and 

agreed to implement the recommendations. 

Continued Concerns with SBA’s Information Security Program 

Following numerous incidents involving the compromise or loss of sensitive personal information, OMB 

issued Memorandum 06-16 Protection of Sensitive Agency 

Information, which required Federal agencies to take 

actions to protect sensitive information entrusted to them. 

In reviewing SBA’s implementation of OMB 

requirements, the OIG determined that, because of the 

relatively short implementation time frame and its failure to purchase the necessary capabilities, including 

encryption software, SBA did not fully implement the required data protection safeguards by the 

established deadline. As a result, the OIG determined that SBA was vulnerable to unauthorized 

disclosure of personally identifiable information, particularly information stored on mobile computers and 

devices. The Office of the Chief Information Officer (OCIO) concurred with the findings and 

recommendations. 

In addition, FISMA requires the OIG to annually assess SBA’s progress in correcting weaknesses 

identified in the previous year’s review of its information security program. The OIG tested 11 of SBA’s 

19 major IT systems and found that SBA had fully certified and accredited 9 of these systems and had 
Significant OIG Activities

16 

...the OIG received management decisions for at

least one recommendation in each report issued

during this reporting period. However...40 

management decisions from previous reporting

periods were still overdue...

...SBA had not classified the sensitivity of 

information in 80 of the 82 non-major systems. 

Thus...the OIG could not assess the adequacy of 

the security protection for these systems. 

interim certifications and accreditations for the 

2 remaining systems. The OIG also attempted, to 

review SBA’s non-major systems for compliance 

with the certification and accreditation provisions 

of FISMA, but SBA had not classified the 

sensitivity of information in 80 of the 82 nonmajor systems. Thus, it could not be determined which of the systems should be certified and accredited 

and the OIG could not assess the adequacy of the security protection for these systems. 

The OIG also contracted with KPMG to assess the security controls for key SBA network devices and 

related device operating software in support of SBA’s FY 2006 financial statement audit. KPMG 

performed a limited vulnerability assessment which identified numerous external and internal 

vulnerabilities in SBA’s network. 

OIG Works to Reduce the Number of Overdue Management Decisions and Final Actions 

The Inspector General Act requires Federal agencies to make decisions on all audit findings and 

recommendations within a maximum of six months of report issuance. As of September 30, 2006, 

41 percent of all pending SBA management 

decisions were overdue. To reduce the number of 

overdue management decisions, the OIG revised 

its final audit and recommendation reporting 

process to require that the Agency provide 

management decisions on recommendations made 

in OIG reports at the time that it transmits its 

comments on the draft reports. As a result, the OIG received management decisions for at least one 

recommendation in each report issued during this reporting period. However, as of March 31, 2007, 

40 management decisions from previous reporting periods were still overdue, and the OIG continues to 

work with the responsible SBA managers to obtain these decisions. Further, as of March 31, 2007, the 

OIG had closed 82 recommendations – 43 percent more than it did as of September 30, 2006 – reducing 

by 30 percent the volume of overdue final actions reported on September 30, 2006. As of the end of this 

reporting period, 55 percent of all pending final actions (125 actions) were overdue. The OCIO and the 

Office of Management and Administration were responsible for over half of the overdue final actions. 

SBA Identified and Addressed Improper Acceptance of Cash 

Section 4(g)(2) of the Small Business Act, as amended, provides that any gift, devise, or bequest of cash 

accepted by the Administrator under Section 4(g) shall be held in a separate account and shall be subject 

to semiannual audits by the Inspector General, who shall report his findings to Congress. According to 

the information provided by SBA’s Office of Strategic Alliances, during this semi-annual reporting period 

SBA accepted a cash gift in the amount of $1,000 from Business Loan Express, which is a conflict of 

interest. The Agency reports that it took appropriate action to address this issue and is in the process of 

returning the funds to the donor. The OIG will follow-up and ensure that this is done. SBA reported that 

it did not receive any additional cash gifts during this reporting period. 
Significant OIG Activities

17 

Over $288 million in loans have been declined 

during the last 10 years due to character eligibility 

issues, thus making credit available to other 

applicants who had no such issues. 

Other Significant OIG Activities 

Character Screening Diminishes Potential Program Fraud

Participants in SBA programs that involve business loans, disaster assistance loans, Section 8(a) 

certifications, surety bond guarantees, small business investment companies, and certified development 

companies must meet SBA character standards. To ensure that this occurs, the OIG’s Office of Security 

Operations utilizes name checks and, where appropriate, fingerprint checks to determine criminal 

background information. During this reporting period, the OIG processed 1,569 external name check 

requests for these programs. 

 

The OIG also refers applicants who appear ineligible because of character issues to program officials for 

adjudication based on data from its on-line 

connection with the FBI. As a result of OIG 

referrals during this reporting period, SBA 

business loan program managers declined 

41 applications totaling nearly $12.1 million, 

and disaster loan program officials declined 

132 applications totaling over $9.5 million. Over $288 million in loans have been declined during the last 

10 years due to character eligibility issues, thus making credit available to other applicants who had no 

such issues. 

Moreover, based on OIG efforts during this period, the Section 8(a) program declined 3 applications for 

admission, the Surety Bond Guarantee program declined 1 application for admission, and the Small 

Disadvantaged Business program declined 2 applications for admission. The OIG also initiated 

122 background investigations and issued 25 security clearances for Agency employees and contractor 

personnel required to have clearances, adjudicated 62 background investigative reports, and coordinated 

with the Office of Disaster Assistance to adjudicate 409 derogatory background investigation reports. 

Finally, the OIG processed 2,384 internal name check requests for Agency activities such as success 

stories, Small Business Person of the Year nominees, and disaster assistance new hires. 

OIG Recommends Debarments 

The OIG believes that it is in the public interest to debar parties who have a history of fraud or otherwise 

lack business integrity from conducting business with the Federal Government. Accordingly, the OIG 

has adopted a proactive program to identify current SBA program participants for whom debarment 

would serve the public interest and make debarment recommendations to the SBA. The OIG 

recommended that SBA debar an individual for devising a scheme that permitted numerous borrowers to 

fraudulently obtain SBA-guaranteed loans totaling $9.5 million. The OIG investigation determined that 

the individual assisted borrowers in providing inflated checking account information and false gift letters 

to support their loan applications. The individual also devised a way to transfer loan proceeds from the 

escrow company into cashier’s checks in the name of various borrowers. These checks were then 

submitted to the lender as evidence of the borrower’s required capital injection. The Agency reviewed 

the OIG recommendation and debarred the individual for three years. 
Significant OIG Activities

18 

OIG Reviews Proposed Agency Regulations and Initiatives and Recommends Statutory 

Amendments to Deter Fraud 

During this reporting period, the OIG identified significant inefficiencies and concerns as to a number of 

SBA initiatives, including: proposed revisions to size regulations; proposed revisions to lender oversight 

and enforcement regulations; proposed expansions of existing lending programs; a proposal relating to 

SBA oversight of procuring agency responsibilities to ensure that 8(a) contractors are complying with 

regulations governing contract performance; a proposed reorganization of the Office of Lender Oversight; 

a proposed streamlining of closing procedures for the Section 504 program; proposed procedures 

regarding the disclosure of personal information; and various proposals relating to IT security. In 

addition, the OIG recommended several legislative amendments to Congress to increase the penalties for 

fraud under SBA programs, promote the debarment of companies that fraudulently obtain small business 

contracts, and facilitate tracking of loan agents in order to reduce fraud in the SBA financial assistance 

programs. 

OIG Fraud Awareness Briefings 

During this reporting period, the OIG conducted 4 fraud awareness briefings for approximately 

95 representatives of lending institutions and 1 Katrina fraud briefing for 60 bank security officers and 

members of law enforcement agencies. 
Statistical Highlights

19 

6-Month Productivity Statistics 

October 1, 2006, through March 31, 2007 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ....................................................................... $13,667,589 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $6,412,389 

C. Loans Not Made as a Result of Name Checks ..................................................................... $21,600,570 

D. Disallowed Costs Agreed to by Management ...................................................................... $27,211,279 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management.......................................................................................................... $0

 Total..................................................................................................................................... $68,891,827

Efficiency and Effectiveness Activities Related to Audits and Other Reports

A. Reports Issued ...................................................................................................................................... 17 

B. Recommendations Issued ..................................................................................................................... 91 

C. Dollar Value of Costs Questioned........................................................................................ $27,972,795 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use........................................................................................................................... $0 

E. Collections as a Result of Questioned Costs ............................................................................ $1,015,757 

Audit and Report Follow-up Activities 

A. Recommendations Closed .................................................................................................................... 82 

B. Disallowed Costs Agreed to by Management ...................................................................... $27,211,279 

C. Dollar Value of Recommendations that Funds Be Put to Better Use 

 Agreed to by Management ................................................................................................................. $0 

D. Unresolved Recommendations........................................................................................................... 287 

Legislation/Regulations/Standard Operating Procedures (SOPs)/Other Reviews 

A. Legislation Reviewed ............................................................................................................................. 4 

B. Regulations Reviewed.......................................................................................................................... 13 

C. Standard Operating Procedures and Other Issuances* Reviewed ........................................................ 42 

 Total..................................................................................................................................................... 59

 * This category includes policy notices, procedural notices, Administrator’s action memoranda, and other Agency 

 initiatives, which frequently involve the implementation of new programs and policies. 
Statistical Highlights

20 

6-Month Productivity Statistics 

October 1, 2006, through March 31, 2007 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases.............................................................................................................. 27* 

B. Convictions from OIG Cases.............................................................................................................. 20* 

C. Cases Opened ....................................................................................................................................... 56 

D. Cases Closed......................................................................................................................................... 31 

Investigations Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations ............................................................................................................ $13,667,589 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $6,412,389 

C. Loans Not Approved as a Result of the Name 

 Check Program................................................................................................................... $21,600,570

 Total..................................................................................................................................... $41,680,548

SBA Personnel Actions Taken as a Result of Investigations

A Dismissals............................................................................................................................................... 0 

B. Resignations/Retirements....................................................................................................................... 0 

C. Suspensions ............................................................................................................................................ 0 

D. Reprimands............................................................................................................................................. 0 

E. Other....................................................................................................................................................... 0 

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency ............................................................................................ 6 

B. Debarments Pending at the Agency ....................................................................................................... 6 

C. Proposed Debarments Issued by the Agency ......................................................................................... 4 

D. Final Debarments Issued by the Agency ................................................................................................ 6 

E. Proposed Debarments Declined by the Agency ..................................................................................... 1 

OIG Hotline Operation Activities

A. Total Fraud Line Calls/Letters............................................................................................................ 166 

B. Total Calls/Letters Referred to Investigations Division ....................................................................... 30 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies.................................... 10 

D. Total Calls/Letters Referred to Other Entities...................................................................................... 63 

E. Total Calls/Letters Needing No Action................................................................................................ 63 

* Includes one indictment/conviction that occurred in a previous period but was not reported. 
Appendices

21 

Appendix I 

OIG Reports Issued 

October 1, 2006 through March 31, 2007 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Disaster Loans 

 $0 $0

Program Subtotal $0 $0

Small Business Access to Capital

Audit of an SBA-Guaranteed Loan 7-02 10/23/2006 $256,933 $0

SBA-Guaranteed Loan to Palmarejo Service 

Station 7-05 12/20/2006 $31,463 $0

Audit of an SBA-Guaranteed Loan to Just a 

Cut Lawn Care, Inc. 7-06 12/28/2006 $28,660 $0

Audit of an SBA-Guaranteed Loan to One 

One Nine Consulting Corp. DBA ADOBEST 7-07 12/29/2006 $34,608 $0

The SBA Express and Community Express 

Loan Purchase and Liquidation Process 7-08 12/29/2006 $26,401,375 $0

Audit of an SBA-Guaranteed Loan, San 

Francisco, California 7-09 1/9/2007 $141,689 $0

Audit of an SBA-Guaranteed Loan, Grand 

Rapids, Michigan 7-10 1/16/2007 $183,297 $0

Efforts to Assist Small Businesses Compete 

in International Trade 7-12 1/29/2007 $0 $0

Audit of an SBA-Guaranteed Loan, Malta, 

Montana 7-15 2/12/2007 $82,411 $0

Audit of an SBA-Guaranteed Loan to Irom 

CNC Machining, Inc. and Irom Imaging, Inc. 7-17 3/12/2007 $77,683 $0

Audit of the Office of Lender Oversight 

Corrective Action Process 7-18 3/14/2007 $734,676 $0

Program Subtotal 11 $27,972,795 $0

Small Business Development, Contracting, Education, and Training

Audit of Two 8(a) Sole-Source Contracts 

Awarded to Contractors in SBA’s Mentor 

Protégé Program 

7-19 03/30/2007 $0 $0

Program Subtotal 1 $0 $0
Appendices

22 

Appendix I

OIG Reports Issued 

October 1, 2006 through March 31, 2007 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Agency Management

Audit of SBA's FY 2006 Financial Statements 7-03 11/15/2006 $0 $0

GFRS for Fiscal Year 2006 7-04 12/20/2006 $0 $0

Audit of SBA's FY 2006 Financial - 

Management Letter 7-11 1/17/2007 $0 $0

Review of SBA's Protection of Sensitive 

Information 7-13 2/9/2007 $0 $0

Evaluation of the SBA's Information Security 

Program 7-14 02/22/2007 $0 $0

KPMG Technical Vulnerability Assessment 7-16 3/6/2007 $0 $0

Program Subtotal 6 $0 $0

TOTALS (all programs) 17 $27,972,795 $0
Appendices

23 

Appendix II 

OIG Reports with Questioned Costs 

 Reports Recommend

-actions* 

Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision made 

by September 30, 2006*** 3 3 $619,718 $1,073,715 

B. Issued during this reporting 

period 10 15 $1,605,968 $26,366,827 

Universe from which 

management decisions could be 

made in this reporting period – 

Subtotals

13 18 $2,225,686 $27,440,542 

C. Management decision(s) made 

during this reporting period 9 14 $871,292 $26,366,827 

 (i) Disallowed costs 7 12 $858,684 $0 

 (ii) Costs not disallowed 2 2 $12,608 $14,232 

D. No management decision 

made by March 31, 2007 4 4 $1,354,394 $1,073,715 

 * Reports may have more than one recommendation. 

 ** Questioned costs are those which are found to be improper, whereas unsupported costs may be proper but lack 

documentation. 

*** Information is different from what was previously reported due to database corrections. 

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

 

Reports Recommendations* 

Recommended 

Funds For Better 

Use 

A. No management decision made by 

September 30, 2006*** 1 1 $293,823 

B. Issued during this reporting period 0 0 $0 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals

1 1 $293,823 

C. Management decision(s) made during this 

reporting period 0 0 $0 

(i) Recommendations agreed to by SBA 

management 0 0 $0 

(ii) Recommendations not agreed to by 

SBA management 0 0 $0 

D. No management decision made by 

March 31, 2007 1 1 $293,823 

 * Reports may have more than one recommendation. 

*** Information is different from what was previously reported due to database corrections. 
Appendices

24 

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

Reports Recommendations 

A. No management decision made by September 30, 2006*** 24 41 

B. Issued during this reporting period 9 75 

Universe from which management decisions could be made in 

this reporting period – Subtotals 33 116 

C. Management decision(s) made (for at least one 

recommendation in the report) during this reporting period 17 60 

D. 

No management decision made (for at least one 

recommendation in the report) by 

March 31, 2007 *

17 56 

 * Adding the number of reports for C. & D. will not result in the subtotal of A. & B. because any single report 

may have recommendations that fall under both C. & D. 

*** Information is different from what was previously reported due to database corrections. 
Appendices

25 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions as of March 31, 2007 

Title Report

Number

Date 

Issued Status 

Impact of Loan Splitting on Borrowers 

and SBA 2-31 9/30/02 Agency response does not fully address the recommendation. 

Audit of San Francisco District Office 

Administrative Activities Related to 

the Silicon Valley Small Business 

Development Center 

4-27 6/29/04 

Agency has not responded to one 

recommendation made in the report. 

Audit of an SBA-Guaranteed Loan 4-40 9/13/04 Agency response does not fully 

address the recommendation. 

Audit of Early Defaulted Loan 4-43 9/17/04 Agency has not responded to one 

recommendation made in the report. 

Review of a Cooperative Agreement 

to HP Small Business Foundation 5-11 2/11/05 Agency has not responded to one recommendation made in the report. 

Defaulted 9/11 Disaster Loan to CLB 

Publishers Inc. CP 5-02 2/14/05 Agency response does not fully address the recommendation. 

Audit of the Contract Bundling 

Process 5-20 5/20/05 Agency has not responded to four recommendations made in the report. 

Audit of the SBIC (Small Business 

Investment Company) Liquidation 

Process 

5-22 7/28/05 

Four recommendations are in 

management resolution. 

Review of the 1502 Reporting Process 6-07 12/9/05 Two recommendations made in the 

report are in management resolution. 

SBA’s Administration of the 

Supplemental Terrorist Activity Relief 

(STAR) Loan Program 

6-09 12/23/05 

One recommendation made in the 

report is in management resolution. 

SBA’s FY 2005 Financial Statements 

Management Letter 6-10 1/18/05 Agency has not responded to one 

recommendation in the report. 

Human Capital Planning in SBA’s 

Office of Financial Assistance 6-13 3/02/06 Agency has not responded to one 

recommendation made in the report. 

Improvement is Needed in Interface 

Error Correction Between SBA’s 

DCMS (Disaster Credit Management 

System) and FEMA’s (Federal 

Emergency Management Agency) 

NEMIS (National Emergency 

Management Information System) 

6-20 3/31/06 

Agency has not responded to three 

recommendations made in the report. 

Audit of an SBA-Guaranteed Loan 6-22 5/17/2006 Agency has not responded to one 

recommendation in the report. 

Review of DCMS - Performance Test 

Plan 6-24 6/8/2006 Agency has not responded to one 

recommendation in the report. 

Survey of the Quality Assurance 

Review Process 6-26 7/12/2006 Agency has not responded to five 

recommendations in the report. 
Appendices

26 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions as of March 31, 2007 

Title Report

Number

Date 

Issued Status 

Preliminary Assessment of Controls 

Over the Automated Coordination of 

Disaster Assistance Benefits 

Distributed by Mississippi 

Development Authority’s Grant 

Assistance Program 

6-28 9/19/2006

Agency has not responded to three 

recommendations in the report. 

Office of the Chief Information 

Officer Contract Awards for Agency 

Mission-Critical Services 

6-30 9/25/2006

Agency has not responded to one 

recommendation in the report. 

Flexible Staffing of SBA Personnel 

During Times of Emergencies or 

Catastrophes to Aid Disaster Loan 

Processing 

6-31 9/25/2006

Agency has not responded to two 

recommendations in the report. 

Deficiencies in OFA’s (Office of 

Financial Assistance) Purchase 

Review Process for Backlogged Loans 

6-35 9/25/2006

Agency has not responded to two 

recommendations in the report. 
Appendices

27 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2007

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

43H0060 8(a) Continuing Eligibility Reviews 9/30/94 12/30/94 10/30/02 

0-14 7(a) Service Fee Collections 3/30/00 8/22/00 12/31/04 

0-30 

SBA’s Administration of Minority Business 

Enterprise Legal Defense and Education Fund 

Cosponsorship 

9/30/00 3/26/01 ** 

1-11 

Results Act Performance Measurement for the 

Minority Small Business & Capital Ownership 

Development Program 

3/27/01 9/28/01 7/31/03 

A1-06 SBA’s Computer Security Program 9/28/01 1/9/02 ** 

2-17 SBA’s FY 2001 Financial Statements – 

Management Letter 4/12/02 12/12/02 9/30/03 

2-18 SBA’s Information Systems Controls – FY 2001 5/6/02   

3-08 SBA’s Oversight of the Fiscal Transfer Agent for 

the 7(a) Loan Program 1/30/03 **  ** 

3-20 SBA’s Information System Controls for 

FY 2002 

3/31/03   

3-26 Microloan Program: Moving Toward Performance 

Management 5/13/03 **  ** 

3-33 SBIC Oversight 7/1/03 ** 4/30/05 

3-35 National Women’s Business Council 7/28/03   

4-09 Review of SBA Purchase Cards 1/26/04 8/24/04 3/31/05 

4-13 Audit of an Early Defaulted Loan 3/2/04 4/6/04 1/31/05 

4-16 

SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence Contracts 

and Task Orders 

3/17/04 **  ** 

4-19 SBA’s Information Systems Controls – FY 2003 4/29/05   

4-22 Business Development Provided by SBA’s 8(a) 

Business Development Program 6/2/04 7/14/04 **  

4-28 Audit of an SBA-Guaranteed Loan 7/9/04 10/6/04 3/31/05 

4-32 Audit of an SBA-Guaranteed Loan 7/29/04 10/6/04 3/31/05 

4-34 

SBA’s Process for Complying with the Federal 

Managers’ Financial Integrity Act (FMFIA) 

Reporting Requirements 

7/29/04 9/9/04 4/30/05 

 ** Management decision or target dates vary for different recommendations. 
Appendices

28 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2007

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

4-35 

Single Audit of Federal Financial Assistance 

Program Service Corps of Retired Executives 

(SCORE) 

8/03/04 1/12/05 6/30/05 

4-36 Audit of an Early Defaulted Loan 8/10/04 10/6/04 3/31/05 

4-39 

Memorandum Advisory Report – the Transfer 

of Operations to the National Guaranty 

Purchase Center 

8/31/04 ** 9/30/05 

4-41 Audit of Selected SBA General Support 

Systems 9/10/04   

4-42 Audit of SBA's Email System 9/10/04 **  12/31/06 

4-44 SBA-Sponsored and Cosponsored Events 

Conducted by District Offices 9/24/04 ** ** 

5-03 Review of an Indirect Cost Rate 10/25/04 1/12/05 6/30/05 

5-04 Review of the Small Disadvantaged Business 

Certification Program 11/4/04 4/1/05 ** 

5-09 

Memorandum Advisory Report – Pre-Demand 

and Demand Letters for Delinquent 9/11 

Disaster Loans 

1/11/05 3/8/05 7/10/05 

5-12 Audit of SBA’s Information Systems Controls – 

FY 2004 2/24/05   

5-17 SBA’s Continuity of Operations Planning 

Program 3/30/05 5/3/05 **  

5-20 Audit of the Contract Bundling Process 5/20/05 5/23/06 12/30/06 

5-22 Audit of SBIC Liquidation Process 7/28/05 ** ** 

5-23 SBA’s Administration of its Special 

Appropriation Grants 9/24/04   

5-24 Criteria For Overcoming The Presumption of 

Social Disadvantage is Needed 9/28/05 **  ** 

5-26 Audit of SBA-Guaranteed Loan 9/25/05 2/6/06 5/31/06 

5-28 Review of SBA Procedures For Cash Gifts 9/30/05 2/23/06 6/30/06 

6-01 Independent Evaluation of SBA’s Information 

Security Program 10/7/05   

6-04 Audit of SBA's FY 2005 Financial Statements 11/14/05 5/10/06 **  

 ** Management decision or target dates vary for different recommendations. 
Appendices

29 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2007

Report 

Number Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

6-07 Review of the 1502 Reporting Process 12/9/05   

6-08 SBA's Information Systems Controls For 

FY 2005 12/22/05 8/14/06 9/29/06 

6-09 

Audit of SBA's Administration of the 

Supplemental Terrorist Activity Relief (STAR) 

Loan Program 

12/22/05 **  ** 

6-14 Audit of an SBA-Guaranteed Loan 3/2/06 6/21/06 7/3/06 

6-19 Review of A Company's 8(A) Business 

Development Program Eligibility 3/30/06 8/16/06 9/30/06 

6-23 HUBZone Program Examination and Recertification Process 5/23/06 6/14/06 11/30/06 

6-33 

Concerns Related to SBA's Acquisition 

Personnel Education and Training 9/29/06 10/05/06 1/30/07 

7-03 Audit of SBA's FY 2006 Financial Statements 11/15/06 12/15/06 3/30/07 

7-06 

Audit of an SBA-Guaranteed Loan to Just a Cut 

Lawn Care, Inc 12/28/07 1/30/07 3/15/07 

7-13 

Review of the Small Business Administration's 

Protection of Sensitive Agency Information 2/09/07   

7-16 Vulnerability Technology Security Assessment 3/6/07 3/7/07 **  

 ** Management decision or target dates vary for different recommendations. 
Appendices

30 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2007* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

43H006021 9/30/94 Establish procedures for determining 

whether Section 8(a) participants should no 

longer be considered economically 

disadvantaged based on their ownership 

interest in their 8(a) firm, the equity and 

market value of their primary residence, and 

the net worth of their spouses.

10/30/94 10/30/02

1-11 3/27/01 Ensure that 8(a) performance plans include 

indicators for determining how effectively 

and efficiently the Section 8(a) program is 

operating. 

9/28/01 7/31/03 

2-12 3/20/02 Develop a formal policy regarding effective 

supervisory and enforcement actions for 

Small Business Lending Companies. 

8/27/02 3/31/07 

2-18 5/6/02 Develop an Agency-wide information 

security plan to establish and implement the 

policies, procedures and practices for the 

following: (1) full integration of the 

information security approach and 

implementation process; (2) coordination 

among program offices to support their 

security needs; (3) guidance to the program 

office to implement information system 

security controls; and (4) methods to 

monitor the effectiveness of each part of 

information technology security. 

6/28/02 3/1/05 

3-08 1/30/03 Initiate a new procurement action for fiscal 

transfer agent activities and terminate the 

existing contract with the fiscal transfer 

agent when a new contract can be enacted. 

12/10/03 3/31/06 

3-08 1/30/03 Review fiscal transfer agent activities and 

identify contract costs for fees and services. 

Report these contract costs in proposed 

Master Reserve Fund financial statements 

so future fiscal transfer agent contracts will 

have historical cost data for comparison 

purposes.

10/15/03 3/31/06

 * These are a subset of the universe of recommendations without final action. 
Appendices

31 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2007* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

3-33 7/1/03 Revise the Standard Operating Procedure (SOP) 

on SBICs to ensure it includes requirements to 

perform quarterly risk assessments for capitally 

impaired SBICs, include an analysis of potential 

for repayment of outstanding leverage, and 

determine what criteria should be used to 

recommend an SBIC be transferred to 

liquidation. 

10/6/03 6/30/06 

3-33 7/1/03 Revise SOP on SBICs to ensure that the 

implementation of restrictive operations 

addresses: (1) appropriate levels of impairment 

requiring restrictive operations; (2) time periods 

SBICs should remain in restrictive operations; 

(3) appropriateness of remedies or combination 

of remedies that should be used and under what 

circumstances; and (4) whether forbearance 

regulations preclude the application of 

restrictive operations. 

10/20/04 6/30/06 

4-16 3/17/04 Develop and implement procedures to monitor 

contractor compliance with the 50 percent rule 

when applicable. 

5/12/04 5/02/05 

4-16 3/17/04 Ensure the amount of subcontracting is 

reviewed and documented in the contract file 

for awards of 8(a) and small business set-aside 

contracts and task orders to small businesses. 

5/12/04 5/02/05 

4-16 3/17/04 Revise SOP on Procurement and Grants 

Management as soon as possible, incorporate 

policies to address the outstanding items 

described above within six months of the 

issuance of this report. 

5/12/04 5/02/05 

4-28 7/9/04 Seek recovery of $142,549 from the 7(a) lender. 10/6/04 3/31/05 

4-36 8/10/04 Seek recovery of the SBA guaranty repair of 

$740,000 from the 7(a) lender. 

10/6/04 3/31/05 

 * These are a subset of the universe of recommendations without final action. 
Appendices

32 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2007* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target Date 

4-39 8/31/04 Determine the appropriate number of loan 

officers, supervisors and attorneys to be 

assigned to the Herndon center by 

(1) establishing the elements of quality for 

the purchase and liquidation action review 

process; (2) determining how much time it 

takes to complete a quality review at each 

level (loan officer, supervisor, attorney); and 

(3) computing the staffing levels needed to 

complete the estimated annual purchase and 

liquidation action workloads at an acceptable 

level of quality. 

4/13/05 9/30/05 

5-04 11/4/04 Develop and implement procedures to ensure 

that Small Disadvantaged Business reviewers 

properly apply all four criteria for 

determining economic disadvantage, per 

13 CFR 124.104(c), using 8(a) Program 

thresholds for maximum income and total 

assets, and industry financial performance 

comparisons. 

4/1/05 9/30/05 

5-09 1/11/05 Revise SOP 50 51 2 to direct servicing 

centers to send timely pre-demand and 

demand letters to delinquent borrowers. 

Such letters should be maintained in the loan 

file. 

3/8/05 7/10/05 

 * These are a subset of the universe of recommendations without final action.
Appendices

33 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2007* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target Date 

5-12 2/24/05 For all SBA internal and contractor 

supported general support systems and 

major applications, e.g., Egan Mainframe, 

SBA and Corio UNIX, Network and 

Windows 2000; Loan Accounting System 

(LAS), Sybase, Mainframe, Joint 

Accounting and Administration 

Management System (JAAMS) Oracle, and 

related application functions: (1) develop 

and document policies and procedures 

clearly outlining what activities should be 

logged, who should be responsible for 

reviewing logs, what the logs should be 

reviewed for, how often logs should be 

reviewed, and how long logs should be 

retained; (2) assign responsibility within 

the Office of the Chief Information Officer 

for the review of application and general 

support system security logs; and (3) retain 

audit logs for a sufficient period of time (at 

least 90 days). 

4/13/05 3/31/06 

5-17 3/30/05 Require that personnel named in the SBA 

Continuity of Operations Plan (COOP) and 

Business Resumption Plan (BRP) 

participate in plan testing so that they 

understand their duties if plan activation is 

needed. 

5/3/05 12/31/05 

5-22 7/28/05 Revise SOP 10 07 to require periodic 

assessments of each SBIC receivership’s 

progress and operations by comparing the 

monthly invoices and periodic status 

meeting results to pre-set performance 

standards. 

7/19/06 10/31/06 

5-22 7/28/05 Ensure that each case file includes 

documented evidence that Office of SBIC 

Liquidation (OL) staff considered all 

liquidation methods. 

11/14/05 10/31/06 

 * These are a subset of the universe of recommendations without final action. 
Appendices

34 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2007* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target Date 

5-22 7/28/05 Revise SOP 10 07 to require OL staff to 

obtain, for the sale of portfolio assets by an 

SBIC, verification that the sale was made 

at commercially reasonable terms. 

7/19/06 10/31/06 

6-23 5/23/2006 Set a maximum acceptable timeframe for 

decertifying firms and removing them from 

SBA's list once a decision has been made 

that such firms no longer meet the criteria 

for HUBZone participation. 

6/14/06 3/30/07 

6-33 9/29/2006 Develop a plan for meeting the 

requirements of Policy Letter 05-01 that 

assigns responsibility and establishes 

timeframes for identifying the workforce, 

assessing skill levels and training needs, 

and provides for the tracking and reporting 

of workforce data. 

10/05/06 1/30/07 

 * These are a subset of the universe of recommendations without final action.
Appendices

35 

Appendix VIII

Summary of Significant Recommendations 

October 1, 2006 through March 31, 2007 

Report 

Number Title Date Issued Recommendation 

7-02 Audit of an SBAGuaranteed Loan 10/30/06 Seek recovery of $256,933, less any subsequent 

recoveries, from the lender on the guaranty paid. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Ensure that policies are implemented regarding 

segregation of duties for Financial Reporting 

Information System (FRIS), JAAMS, DCMS, 

and LAS. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Obtain the needed storage capacity to store 

security logs for an adequate period of time and 

ensure that potential security violations are 

reviewed for possible inappropriate use of IT 

equipment. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Ensure that each user within the Field 

Cashiering System has only one role in the 

system. In cases where this may not be feasible 

given work assignments, then additional 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Ensure that system owners for DCMS, FRIS, 

JAAMS and LAS standardize software change 

requests and that software change testing 

documentation is developed in a more consistent 

and complete manner. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Coordinate with program offices to implement 

policies for end-user computing, specifically 

enforcing user-level access controls over 

existing programs and data, 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Enhance SBA’s quality assurance processes 

related to amounts recorded in SBA’s various 

financial systems. Control policies should ensure 

that all reconciling items are pursued and fully 

investigated. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Requests an in-depth analysis of information 

presented in the consolidated financial 

statements be performed each quarter including 

the footnotes for the third and fourth quarter 

consolidated financial statements. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Requests that relevant personnel reconcile loan 

guaranty data recorded in the general ledger 

periodically with information reported by SBA’s 

fiscal transfer agent to ensure that the amounts 

recorded are accurate. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Implement technical access controls to address 

the vulnerabilities. 
Appendices

36 

Appendix VIII

Summary of Significant Recommendations 

October 1, 2006 through March 31, 2007 

Report 

Number Title Date Issued Recommendation 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Implement a more robust vulnerability 

assessment scanning program, to include, at a 

minimum, periodic scanning of production 

devices in accordance with the Vulnerability 

Assessment Team policy, and scanning of new 

devices during the testing process and prior to 

the new devices being implemented. 

7-03 Audit of SBA's FY 2006 

Financial Statements 

11/15/06 Coordinate with program offices to ensure that 

system Plans of Actions and Milestones 

(POA&M) are fully completed. 

7-05 Audit of an SBAGuaranteed Loan to 

Palmarejo Service Station 

12/20/06 Seek recovery of $31,463 from the lender on the 

guaranty paid. 

7-06 Audit of an SBAGuaranteed Loan to Just a 

Cut Lawn Care, Inc. 

12/28/06 Seek recovery $28,660 from the lender on the 

guaranty paid. 

7-07 Audit of an SBAGuaranteed Loan to One 

One Nine Consulting Corp. 

12/29/06 Seek recovery of $34,608 in collateral and 

interest, less any subsequent recoveries, from the 

lender on the guaranty paid. 

7-08 Audit of the SBAExpress

and CommunityExpress

Loan Purchase and 

Liquidations Process 

12/29/06 Determine if lender actions warrant a denial of 

liability on $14,232 in guaranties associated 

with the two loans that were either missing a 

Form 1919 or where the form was incomplete; 

and $9,015 on guarantee. 

7-08 Audit of the SBAExpress

and CommunityExpress

Loan Purchase and 

Liquidations Process 

12/29/06 Determine if loan proceeds on the 45 loans 

sampled during our audit were used in 

accordance with the terms of the loan 

authorizations, and take appropriate corrective 

actions. 

7-08 Audit of the SBAExpress

and CommunityExpress

Loan Purchase and 

Liquidations Process 

12/29/06 Recover $7,414 from a lender that awarded an 

SBA loan to an ineligible company. 

7-11 Audit of SBA's FY 2006 

Financial Statements – 

Management Letter 

1/17/07 Enhance Quality and Assurance process to 

ensure proper documentation is maintained in 

disaster loan files. 

7-11 Audit of SBA's FY 2006 

Financial Statements – 

Management Letter 

1/17/07 Continue the Quality Assurance Review 

activities over loan modifications to ensure 

SBA’s SOPs are properly followed. 
Appendices

37 

Appendix VIII

Summary of Significant Recommendations 

October 1, 2006 through March 31, 2007 

Report 

Number Title Date Issued Recommendation 

7-11 Audit of SBA's FY 2006 

Financial Statements – 

Management Letter 

1/17/07 Implement or enhance quality and assurance 

procedures to ensure that “post-purchase” 

reviews are performed timely. 

7-11 Audit of SBA's FY 2006 

Financial Statements – 

Management Letter 

1/17/07 Coordinate with the Directors of the Disaster 

offices to establish formal disposition and 

monitoring procedures to ensure that incoming 

checks are processed timely. 

7-11 Audit of SBA's FY 2006 

Financial Statements – 

Management Letter 

1/17/07 Implement training for SBA personnel involved 

in the Field Cashiering processing to improve 

the consistency with which the various SBA 

officer personnel process and deposit checks. 

7-11 Audit of SBA's FY 2006 

Financial Statements – 

Management Letter 

1/17/07 Implement or enhance quality and assurance 

procedures to ensure that defaulted loan 

guaranty purchases are recorded timely and in 

the proper fiscal year in accordance with SBA 

requirements. 

7-13 Review of the SBA's 

Protection of Sensitive 

Agency Information 

2/9/07 Install encryption software on all mobile 

computers and devices and develop policies and 

procedures on their use. 

7-13 Review of the Small 

Business Administration's 

Protection of Sensitive 

Agency Information 

2/9/07 Implement two-factor authentication over all 

remote access connections to the Agency 

network where one of the factors is provided by 

a device separate from the computer gaining 

access. 

7-08 Audit of the SBAExpress 

and CommunityExpress

Loan Purchase and 

Liquidations Process 

12/29/06 Review the 2,729 loans for compliance with 

SBA rules and regulations and improper 

payments. 

7-08 Audit of the SBAExpress

and CommunityExpress

Loan Purchase and 

Liquidations Process 

12/29/06 Recover $27,134 for the two purchased SBA 

Express loans reviewed for which the lender 

failed to disclose material facts. 

7-09 Audit of an SBAGuaranteed Loan, San 

Francisco, California 

1/9/07 Seek recovery of $141,689, less any subsequent 

recoveries. 

7-10 Audit of an SBAGuaranteed Loan, Grand 

Rapids, Michigan 

1/16/07 Seek recovery of $183,297, less any subsequent 

recoveries. 

7-15 Audit of an SBAGuaranteed Loan, Malta, 

Montana 

2/12/07 Seek recovery of $82,411, less any subsequent 

recoveries. 
Appendices

38 

Appendix VIII

Summary of Significant Recommendations 

October 1, 2006 through March 31, 2007 

7-17 Audit of SBA-Guaranteed 

Loan to IROM CNC 

Machining, Inc. and IROM 

Imaging, Inc. 

3/12/07 Seek recovery of $77,683 from GE Capital 

Small Business Finance Corp. on the guaranty 

paid by SBA. 

7-18 Audit of the Office of 

Lender Oversight 

Corrective Action Process 

3/14/07 Seek recovery through repairs or denials of the 

$734,676 in guaranties. 

7-19 Audit of Two 8(a) SoleSource Contracts Awarded 

to Contractors in the 

Mentor/Protégé Program 

3/30/07 Determine whether SBA's inability to effectively 

monitor the 8(a) and Mentor Protégé programs 

should be reported as a material weakness in the 

Administrator's FY 2007 internal control 

assurance statement. 
Appendices

39 

 Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2006 though March 31, 2007 

Name/Subject of Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

5th Lighting the 

Community Conference 

11/13/06 11/14/06 Los Angeles, 

CA 

Korean Churches for Comm. 

Dev. and the WH Initiative on 

Asian-Americans & Pac. Isl. 

Online training module to 

educate small businesses 

12/1/06 11/31/08 World Wide 

Web 

Trump University, Inc 

Congressional Breakfast, 

MED Week Awards 

Reception and Dinner, 

MED Week Presentation of 

Awards, Business Expo, 

Series of Small Business 

Workshops and 

Matchmaker Event 

11/13/06 11/17/06 Providence, 

RI 

Hispanic American Chamber of 

Commerce 

New England 

Entrepreneurship Summit 

and Economic Outlook 

Conference 

11/14/06 Westborough, 

MA 

New England Economic 

Partnership, Bank of America 

Publication and 

Distribution of The Small 

Business Primer 

12/1/06 10/31/07 Distribution: 

SCORE 

Chapters, 

SBDC’s, 

SBA District 

Offices, 

Business 

Schools and 

Business 

School 

Libraries 

The Signage Foundation for 

Communications Excellence 

Small Business Week 4/23/07 4/24/07 Washington, 

DC 

SCORE (Additional 

Cosponsors 

Federal Contracting 

Matchmaking Event 

2/16/07 San Juan, PR Colegio de Ingenieros y 

Agrimensores de Puerto Rico 

Cyber Security Is Good 

Business 

1/22/07 1/23/07 San Jose, CA 

San 

Francisco, 

CA 

National Institute of Standards 

and Technology, Federal 

Bureau of Investigation 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG. 
Appendices

40 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2006 though March 31, 2007 

Name/Subject of Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

New Mexico Small 

Business Week Awards 

Celebration 2007 

4/27/07 Albuquerque, 

NM 

Santa Fe Community College 

thru New Mexico SBDC 

Straight Talk and the 

Straight Talk Series 

1/20/07 

3/6/07 

2/27/07 

4/10/07 

Buffalo, NY SCORE Buffalo Niagara 

BSA/SBA Software Asset 

Management Educational 

Campaign 

2/1/07 12/31/08 World Wide 

Web 

Business Software Alliance 

Financial Recordkeeping 

for Small Business 

3/07 11/08 San Antonio, 

TX 

The San Antonio CPA Society, 

a Chapter of the Texas Society 

of CPAs 

Small Business Awards 

Luncheon 

4/07 or 

5/07 

 Richmond, 

VA 

Small Business Awards 

Foundation, Inc. 

Small Business Person of 

the Year Awards and 

Matchmaking Workshop 

4/11/07 Columbia, 

SC 

SC Chamber of Commerce, 

Small Business Development 

Center of SC, SC Department 

of Commerce, SC Export 

Consortium, Service Corps of 

Retired Executives, SC 

Manufacturing Extension 

Partnership, SC Women’s 

Business Center, U.S. 

Department of Agriculture, 

Rural Development 

Faith-Based Small Business 

Symposium 

4/21/07 Virginia 

Beach, VA 

Regent University 

Minority Enterprise 

Development Week 

Awards Dinner 

2/2/07 Los Angeles, 

CA 

U.S. Dept of Commerce, 

Minority Business 

Development Agency, City of 

Los Angeles, Office of 

Economic Development and the 

Minority Business Opportunity 

Center 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG. 
Appendices

41 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2006 though March 31, 2007 

Name/Subject of Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Salute to Small Business 

Lenders & Hall-of-Fame 

Kick-Off Networking 

Breakfast, SBA Finance 

Workshop, Annual SBA 

Exhibit Gala and Annual 

SBA Awards Dinner 

5/7/07 5/10/07 St. Louis, 

MO 

2007 Small Business Week of 

Eastern Missouri, Inc. 

Gateway Community 

College Procurement 

Workshop Series and 

Matchmaker 

9/06 6/07 New Haven, 

CT 

Gateway Community College, 

Business Resource Center, 

SCORE 

Entrepreneurial Training 1/1/07 12/30/07 Washington, 

DC 

National Women's Business 

Center 

A series of entrepreneurial 

training programs offered 

during IYF’s two-day 

Entrepreneurial Skills 

Conference 

2/8/07 2/9/07 Mountain 

View, CA 

Invent Your Future Enterprises 

Government Contracting 

Seminars 

3/6/07 

6/26/07 

4/24/07 

9/13/07 

Augusta, ME Maine Procurement Technical 

Assistance Center 

The expansion and 

promotion of the cobranded SBA/JA website 

www.mindyourownbiz.org

aimed at youth 

entrepreneurs; date-specific 

activities including an SBA 

Job Shadow Day 

3/07 1/31/09 World Wide 

Web 

JA Worldwide® 

Publication and distribution 

of the Signage Source Book 

– Second Edition 

3/07 9/08 Small 

Businesses 

Resource 

Libraries 

The Signage Foundation for 

Communications Excellence 

2007 SBA Maryland Small 

Business Awards Breakfast 

and Trade Show 

5/11/07 Woodlawn, 

MD 

Maryland Small Business Week 

Awards Program, Inc. 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG. 
Appendices

42 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2006 though March 31, 2007 

Name/Subject of Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Small Business Week 

Recognition Program 

5/07 or 

6/07 

 New Haven, 

CT 

Connecticut Small Business - 

Key to the Future 

Vermont Small Business 

Award Winners 2007 

6/6/07 Burlington, 

VT 

Vermont Business Magazine 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG. 
Appendices

43 

Appendix X

Legal Actions Summary 

October 1, 2006 through March 31, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

AL DL The co-owner of a charter plane 

company is alleged to have produced 

fraudulent documents indicating that 

SBA had released its lien against his 

property on a defaulted September 11 

disaster loan for $177,800. This 

allowed him to receive $92,526, from 

the sale of two properties, which 

should have been paid to the SBA as 

collateral on the loan. 

Co-owner indicted. IRS, AAPD 

CA BL The owner of a small airplane parts 

business obtained a $999,000 SBAguaranteed business loan to purchase 

another parts business. The buyer 

allegedly failed to disclose that he had 

borrowed the $125,000 cash injection 

from an associate of the seller. 

Buyer and seller 

indicted. 

FBI 

CA SBDC The owner of a time management 

company gave numerous cash gifts to a 

State official in exchange for receiving 

over $310,000 in SBDC contracts. 

Another business owner is alleged to 

have paid the same official over 

$61,000 in return for being awarded 

over $527,000 in contracts. 

Owner of time 

management 

company pled guilty. 

Other business owner 

indicted. State 

official previously 

pled guilty and is 

awaiting sentencing. 

FBI 

FL BL A former hotel owner failed to disclose 

a prior drug conviction when 

completing an SBA Form 912, 

Statement of Personal History, to apply 

for a business loan. 

Hotel owner indicted 

and pled guilty. 

None 

IL BL The former owner of an electrical 

supply store provided false tax returns 

in order to make the company appear 

more profitable. This action 

influenced the approval of a 

$1.1 million SBA loan to the 

purchasers of the business. 

Former owner pled 

guilty. 

FBI 
Appendices

44 

Appendix X

Legal Actions Summary 

October 1, 2006, through March 31, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

IL BL A Chicago area business owner falsely 

claimed to be a U.S. citizen on his 

application for a $594,000 loan 

through SBA’s 504 loan program. 

When asked to provide evidence of 

naturalization, he offered a $5,000 cash 

bribe to an SBA official in order to 

influence an official act. 

Business owner pled 

guilty. 

DHS/ICE 

LA DL An individual filed applications for 

SBA and FEMA disaster benefits 

falsely claiming to have suffered 

damages from Hurricane Katrina. 

Based on her claim using a nonexistent 

address, she received an initial 

disbursement of $10,000 of a $40,000 

SBA disaster loan, as well as FEMA 

benefits. 

Individual pled guilty 

and was sentenced to 

60 months probation 

and ordered to pay 

restitution of 

$10,000. 

DHS/OIG 

MI BL Five individuals are alleged to be 

involved in a multi-faceted scheme in 

which borrowers are being fraudulently 

qualified for SBA-guaranteed loans to 

purchase gas stations. At least 76 

loans, totaling almost $77 million, are 

thought to be affected. 

Five individuals 

indicted. To date, 

administrative 

recoveries total 

$11,517,075. 

USSS 

MS DL An individual claimed that his primary 

residence was in Mississippi at the 

time of the Gulf Coast hurricanes when 

he allegedly resided in Maryland. He 

was approved for an SBA loan of 

$208,300, of which he received 

$10,000. 

Individual indicted. DHS/OIG 

MS DL An individual allegedly claimed his 

secondary address as his primary 

residence in an attempt to fraudulently 

receive disaster assistance funds. He 

was approved for a $78,900 loan from 

SBA, of which the initial $10,000 had 

been disbursed. 

Individual indicted. DHS/OIG, 

USDA/OIG, 

MSAO 
Appendices

45 

Appendix X

Legal Actions Summary 

October 1, 2006, through March 31, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

NJ BL The former secretary of a now-defunct 

seafood wholesaler and the owner of a 

Maryland seafood business conspired 

to prepare and submit false invoices to 

induce a financial institution to lend 

the wholesaler $219,504 from a 

$400,000 SBA-guaranteed line of 

credit. 

Former secretary pled 

guilty and sentenced 

to 3 years probation 

and restitution of 

$143,618. Other 

subject sentenced to 

6 months home 

confinement, 5 years 

probation and 

restitution of 

$73,344. 

None 

OH BL A business owner falsely represented 

that he was a citizen of the United 

States on his SBA loan application. 

He was also charged with nine other 

counts for immigration related 

offenses. 

Business owner pled 

guilty. 

DHS/ICE 

PA BL A businessman fraudulently obtained a 

$993,000 SBA-guaranteed loan by 

pledging collateral not belonging to 

him and falsely claiming to have made 

a $250,000 cash injection. In support 

of the loan application, an accountant 

prepared a fraudulent tax record to 

increase the likelihood of the loan 

being approved. 

Both pled guilty. FBI 

PR GC The head of the SBA’s 8(a) division in 

Puerto Rico accepted monthly cash 

payments totaling over $30,000 in 

exchange for awarding over 

$16 million in SBA 8(a) sole-source 

contracts to an engineering firm. 

SBA official 

sentenced to 

48 months in prison 

and 2 years 

supervised release. 

FBI, 

GSA/OIG 

TX BL A loan broker recruited unqualified 

borrowers to falsely obtain nine SBAguaranteed loans, totaling $9,500,000, 

for convenience stores. 

Broker was sentenced 

to 5 years probation 

and restitution of 

$8,884,253 to be paid 

jointly with four 

other defendants. 

FBI 
Appendices

46 

Appendix X

Legal Actions Summary 

October 1, 2006, through March 31, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX DL An individual filed applications for 

SBA and FEMA benefits falsely 

claiming to have incurred damages as a 

result of the 2005 Gulf Coast 

hurricanes. The SBA loan was 

declined, but the individual received 

approximately $35,000 in FEMA 

benefits. 

Individual was 

sentenced to 

39 months in prison, 

3 years supervised 

release, and 

restitution of 

$34,948. 

DHS/OIG, 

SSA/OIG, 

USPIS, 

DOL/OIG, 

HUD/OIG 

TX BL Two individuals were involved in a 

fraudulent scheme to secure a 

$1 million SBA-guaranteed loan by 

submitting an inflated purchase 

contract. The contract showed a sales 

price of $1,320,000 for a convenience 

store when the true purchase price was 

only $788,617. 

One individual 

sentenced to 

18 months in prison 

and 3 years 

supervised release. 

The other sentenced 

to 6 months home 

confinement and 

3 years probation. 

Both ordered to pay 

joint restitution of 

$624,565. 

TABC 

TX BL An escrow officer, the owner of a 

mortgage company, and the owner of a 

used clothing business misrepresented 

the property purchase price and 

falsified part of the equity injection in 

order to secure a $2.4 million SBAguaranteed loan to finance the purchase 

of a warehouse. The defendants also 

laundered approximately $473,000 of 

the $1,846,469 of loan proceeds. 

Owner of used 

clothing business 

pled guilty. Other 

two subjects 

convicted in a jury 

trial. Three other coconspirators remain 

fugitives. 

TCPA/CID 

TX BL An applicant misrepresented his 

educational background, provided 

fraudulent tax returns, and provided 

another person’s social security 

number when applying for a $150,000 

SBA business loan. 

Applicant sentenced 

to 27 months in 

prison, 3 years 

supervised release, 

and restitution of 

$27,810. 

USPIS, 

SSA/OIG 
Appendices

47 

 Appendix X

Legal Actions Summary 

October 1, 2006, through March 31, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

UT BL Three corporate officers of a landscape 

design firm submitted false loan 

documentation in order to obtain two 

separate SBA loans totaling $470,100. 

The officers failed to disclose in their 

loan application that they owed 

delinquent payroll taxes. 

All three officers 

received 12 months 

of home confinement 

and supervised 

release and were 

ordered to pay total 

restitution of 

$326,144. 

None 

VA BL The former president of a consulting 

firm and his wife were involved in an 

internet scam to lure business owners 

into applying for SBA loans. For a fee 

of at least $3,500, the firm promised to 

provide a comprehensive business plan 

and an SBA-guaranteed loan to its 

customers. 

Both pled guilty. USPIS, IRS 

WA BL The former owner of a hauling 

business allegedly made false 

statements regarding his company’s 

tax liability to the SBA and to a 

financial institution in order to obtain 

an SBA-guaranteed loan of $750,000. 

Former owner 

indicted. 

FBI, IRS 

WA BL The former owner of a cabinet making 

business inflated his Personal Financial 

Statement and failed to disclose a prior 

bankruptcy when he applied for a 

$1.5 million SBA-guaranteed loan to 

purchase the cabinet making business. 

Former owner 

sentenced to 

12 months and a day 

in prison, 5 years 

supervised release, 

and restitution of 

$886,506. 

None 

Program Codes: BL=Business Loans; DL=Disaster Loans; GC=Government Contracting and Section 8(a) 

Business Development; SBDC=Small Business Development Center Joint-investigation Federal Agency 

Acronyms: AAPD=Auburn Alabama Police Department; DHS/ICE=Department of Homeland 

Security/Immigration and Customs Enforcement; DHS/OIG=Department of Homeland Security/OIG; 

DOL/OIG=Department of Labor/OIG; FBI=Federal Bureau of Investigation; GSA/OIG=General Services 

Administration/ OIG; HUD/OIG=Housing and Urban Development/OIG; IRS=Internal Revenue Service; 

MSAO=Mississippi State Auditor’s Office; SSA/OIG=Social Security Administration/OIG; TCPA/CID=Texas 

Controller of Public Accounts/Criminal Investigative Division; TABC=Texas Alcoholic Beverage Commission; 

USDA/OIG=Department of Agriculture/OIG; USPIS=United States Postal Inspection Service; USSS=United States 

Secret Service 
Appendix XI 

Small Business Administration 

Office of Inspector General 

Chicago, IL 

Herndon, VA 

Los Angeles, CA 

Washington, DC 

Atlanta, GA 

Inspector 

General 

Deputy Inspector 

General 

Auditing Division 

Counsel Division 

Ma

Business Development 

Programs Group

Washington, DC 

Financial Management 

& IT Group

Washington, DC 

Credit Programs 

Group

Security Operations 

Washington, DC 

Atlanta, GA 

Philadelphia, PA 

New York, NY 

Southern Region 

Miami, FL 

New Orleans, LA 

Investigations Division 

Eastern Region Central Region 

Dallas, TX 

Chicago, IL 

Houston, TX 

Kansas City, MO 

Detroit, MI 

Disaster Programs Group 

Dallas, TX 

New Orleans, LA 

Washington, DC 

Herndon, VA 

48
Make A Difference 

To promote integrity, economy, and efficiency, we encourage you to report 

instances of fraud, waste, or mismanagement to the SBA OIG HOTLINE.* 

CALL 

1-800-767-0385 (Toll Free) 

Write or Visit 

U.S. Small Business Administration 

Office of Inspector General 

Investigations Division 

409 Third Street, SW. (5th Floor) 

Washington, DC 20416 

Or E-mail Us at OIG@SBA.GOV

*Upon request, your name will be held in confidence.