U.S. Small Business Administration

Office of Inspector General

_________________________________

Semiannual Report to Congress

Spring 2004

S

October 1, 2003 – March 31, 2004
Inspector General Act Statutory Reporting Requirements

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

Inspector General Act Amendments of 1988, are listed below.

Source Page

Section 4(a)(2 ) Review of Legislation and Regulations 17

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-16

Section 5(a)(2) Recommendations with Respect to Significant Problems, Abuses 9-16

And Deficiencies

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 30-31

Section 5(a)(4) Matters Referred to Prosecutive Authorities 26-29

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

 And 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 19

Section 5(a)(7) Summary of Significant Audits & Other Reports 9-16

Section 5(a)(8) Audit Reports with Questioned Costs 20

Section 5(a)(9) Audit Reports with Recommendations that Funds Be Put to Better Use 20

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

Where No Management Decision Was Made 22-23

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

Section 5(a)(12) Significant Management Decisions with Which the OIG Disagreed None
A Message From The Inspector General

I am pleased to present the Small Business Administration (SBA), Office of Inspector General (OIG), 

Semiannual Report covering activities from October 1, 2003 through March 31, 2004. 

During this reporting period, we issued 19 reports with significant recommendations for improving 

Agency operations, reducing fraud and unnecessary losses, and recovering funds. OIG investigations led 

to 17 indictments and 13 convictions of subjects who defrauded the Federal government. In addition, the 

Office collectively reviewed 72 legislative, regulatory, policy, procedural, and other proposals concerning 

the SBA and government-wide programs. With a staff of 100, the OIG continues to produce substantial 

savings and important program improvements. 

Equally important, the OIG continues to monitor and adjust to, SBA’s transformation into a new type of 

organization. The Agency seeks to leverage its limited resources by relying more on private and 

nonprofit sector partners, computer technology, and the consolidation of functions, including the new loan 

liquidation center in Herndon, Virginia. Nonetheless, while streamlining can reduce operational costs, the 

side effects can be increased risks for waste, fraud, and abuse, as well as diminished accountability, as 

fewer experienced employees are available to oversee programs.

Moreover, various types of fraud continue to plague the Agency. For example, the OIG, in conjunction 

with other Federal and state agencies, has demonstrated a pattern of borrowers falsely claiming to be U.S. 

citizens, with millions of dollars of loans at risk. Thus far during Fiscal Year 2004, a number of 

individuals have been convicted or indicted for this type of crime and more are expected. In response to 

the OIG’s efforts, SBA has begun to mitigate the vulnerabilities that enable such false claimants to 

receive funding. 

Another major challenge is SBA’s lack of an integrated financial accounting system and reporting 

process, which led to a disclaimer of an opinion on both the FY 2003 and restated FY 2002 Financial 

Statements. While the results of the audit were disappointing, SBA’s Administrator and Chief Financial 

Officer have expressed their commitment to improve SBA’s financial management process and related 

financial statements.

I would like to thank Administrator Barreto for his support of the OIG and our work. We will continue to 

make every effort to protect the interests of taxpayers and small businesses as we work closely with the 

Agency and the Congress. 

Harold Damelin

Inspector General
Table of Contents

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

Significant OIG Activities......................................................................................................... 3

Goal 1: Prevent Fraud and Unnecessary Losses in SBA Programs ............................... 3

Goal 2: Improve the Security Over and the Accuracy of SBA Accounting

 and Management Information...............................................................................11

Goal 3: Assist SBA in Improving its Small Business Development Programs

 and Government Contracting................................................................................13

Goal 4: Assist SBA Management in Identifying and Resolving Persistent

 and Emerging Management Issues........................................................................15

Other Significant Management Issues........................................................................................16

Statistical Highlights.................................................................................................................17

Appendix

I. OIG Reports Issued ...................................................................................................19

II. OIG Reports with Questioned Costs............................................................................20

III. OIG Reports with Recommendations that Funds Be Put to Better Use...........................20

IV. OIG Reports with Non-Monetary Recommendations ...................................................21

V. OIG Reports From Prior Semiannual Periods with Overdue Management

 Decisions as of March 31, 2004 .................................................................................22

VI. OIG Reports Without Final Action as of March 31, 2004 .............................................24

VII. 6-Month Legal Actions Summary...............................................................................26

VIII. Significant Recommendations From Prior Semiannual Reporting Periods

 Without Final Action as of March 31, 2004 ................................................................30
1

Overview of the SBA and the OIG

The Small Business Administration

The Small Business Administration (SBA) was established in 1953 to assist small businesses from startup 

through the many stages of growth. The SBA’s two major goals are to help small businesses succeed and 

to recover from disasters. The SBA offers many services to entrepreneurs through its Offices of Capital 

Access, Entrepreneurial Development,Government Contracting and Business Development, and Disaster 

Assistance. Services include assistance with developing business plans using counseling services and 

resource partners; obtaining financing through the Agency’s various business and disaster lending 

programs; marketing products and services; accessing Federal procurement opportunities; and addressing 

management issues. The SBA’s programs are delivered by a network of field offices in every state, the 

District of Columbia, the U.S. Virgin Islands, Guam, American Samoa, and Puerto Rico. The SBA has 

an FY 2004 appropriation of $756 million, and as of March 31, 2004, had 3,310 employees (number of 

employees includes the Office of Disaster Assistance and Office of Inspector General (OIG) personnel).

The Office of Inspector General

The SBA OIG was established by the Inspector General (IG) Act of 1978. Through its five divisions, the 

OIG performs the following functions nationwide, as mandated by Congress.

• The Auditing Division performs program performance reviews, internal control assessments, and 

financial, information technology, and mandated audits to promote the economical, efficient, and 

effective operation of SBA programs. 

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

activities involving SBA programs, operations, and personnel. The criminal investigative 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. The name check program provides SBA officials with charactereligibility information on loan applicants and other potential program participants.

• The Inspection and Evaluation Division conducts assessments of the effectiveness of SBA 

programs and activities, analyses of critical program issues, best practices studies, and research 

on matters concerning performance. 

• The Counsel Division provides legal and ethical 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, and processes subpoenas and Freedom of Information and Privacy Act 

requests.

• The Management and Policy Division is responsible for developing and executing the OIG 

budget; developing and supporting information systems and hardware; developing the OIG 

Human Resource (HR) policy and providing a full-service HR program to the OIG; providing 

support services to headquarters OIG employees; managing a nationwide facilities management 

function; providing communications services; authoring and publishing semi-annual, strategic, 

performance, and operating plans and reports; and reviewing and commenting on proposed 

Agency policy.
2

Overview of the SBA and the OIG

The OIG is headquartered in Washington, DC, and has field audit and investigation offices in Atlanta, 

Chicago, Dallas, Denver, Houston, Kansas City, Los Angeles, Philadelphia, New York, San Juan, and Seattle. 

As of March 31, 2004, the OIG’s on-board strength was 100. The OIG FY 2004 appropriation is $13.358

million, with a $495,000 transfer for disaster assistance oversight activities (net of rescissions).

The OIG’s responsibility is to improve SBA programs by identifying key issues facing the Agency, ensuring 

that corrective actions are taken, and promoting a high level of integrity. The OIG continues to focus on 

serving the needs of our customers and stakeholders and on safeguarding SBA resources from waste, fraud, 

and abuse. The five strategic goals we seek to achieve are to: (1) prevent fraud and unnecessary losses in 

SBA programs; (2) improve the security over and the accuracy of SBA accounting and management 

information; (3) assist SBA in improving its small business development programs and Government 

contracting; (4) assist SBA management in identifying and resolving persistent and emerging management 

issues; and (5) strengthen our ability to identify and have maximum impact on the most significant SBA 

issues.

 Office of Inspector General

Credit Programs Los Angeles Washington, DC Atlanta Chicago

Group

Business Development 

Programs Group

Washington, DC

Atlanta

Dallas

Los Angeles

Washington, DC Philadelphia

New York

Dallas

Houston

Puerto Rico

Denver

Kansas 

City

Seattle

Financial 

Management & IT 

Group

Washington, DC

Inspector 

General

Inspection and 

Evaluation Division

Auditing Division

Deputy Inspector 

General

Counsel Division

Management and Policy 

Division

Investigations Division

Chicago
3

Significant OIG Activities

Goal 1: Prevent Fraud and Unnecessary Losses in SBA Programs

The SBA has a wide range of programs designed to help small businesses gain access to capital, 

participate in the Federal procurement market, and better plan and manage their operations. Seventy-five 

percent of the SBA’s resources are devoted to providing financial assistance to qualified small businesses. 

The Section 7(a) Guaranteed Loan Program is the SBA’s largest lending program and the primary vehicle 

for providing small businesses access to credit they cannot obtain elsewhere. This program is vulnerable 

to fraud and unnecessary losses because it relies on numerous parties (including borrowers, loan agents, 

lenders, and the SBA) to complete loan transactions. The processes for loan approval are risky, and no 

party has complete knowledge of the activities of all of the other parties.

The Disaster Loan Program is another key SBA lending program. It is the primary form of direct Federal 

assistance for non-farm private sector disaster losses. This highly visible program is vulnerable to fraud 

and unnecessary losses due to the need to expedite processing of disaster loans.

All SBA programs have some vulnerability either because of insufficient internal controls or dishonest 

program participants who seek to take advantage of the program. As the SBA seeks to reengineer its 

business loan programs, vulnerabilities may increase. 

Fraud Detection and Prevention

During this semiannual reporting period, the efforts of the Investigations Division resulted in 

approximately $6.1 million in potential fines and recoveries, $13.5 million in loans/contracts not being 

approved, 17 indictments, and 13 convictions. During this reporting period, the Investigations Division 

opened 50 new cases and closed 62 cases. Investigations were initiated as a result of complaints and 

allegations received from both the Agency and the public. The basic underlying theme in almost all of 

the allegations comes down to one concept – a person or a company made misrepresentations to obtain 

money from the SBA or to qualify for participation in an SBA program. Generally the misrepresentation 

occurs before the approval, but some occur after the fact. 

Misrepresentations take several forms. They may be related to the applicant’s financial situation, the 

individual’s criminal history, the actual use of funding provided through an SBA program, or the person’s 

true identity or status of citizenship. The misrepresentations may involve elaborate plots with forged 

documents and corrupt employees of the lending institution or of the Government, or failure to admit to 

previous bankruptcy or to include the SBA loan on a new bankruptcy. The examples below demonstrate 

the types of misrepresentations that lead to a vulnerability for the Agency. Because the SBA relies so 

heavily upon the truthfulness of the applicants, this will remain an extremely vulnerable area that the OIG 

will continue to focus on.
4

Significant OIG Activities

False Claims of U.S. Citizenship Continue 

As discussed in the previous Semiannual Report, Operation Fleeced America, based in Texas, has led to 

legal actions against individuals who falsely claim to be U.S. citizens on the SBA Statement of Personal 

History (Form 912) and on applications for Texas alcoholic beverage licenses. The ongoing operation has 

shown a pattern of false citizenship claims on SBA loans, with some loans more than $1 million in size. 

This operation is part of a continuing joint effort among state and Federal agencie s to disrupt organized 

criminal enterprises that coordinate similar financial violations across the U.S. and to identify the final 

destinations of monetary proceeds. 

In the first four examples shown below, the SBA OIG conducted the investigations jointly with the 

Department of the Treasury’s OIG for Tax Administration, Department of Homeland Security (DHS), 

Social Security Administration (SSA), the Department of Agriculture, and the Texas Alcoholic Beverage 

Commission. In the third and fourth examples, the Texas Department of Public Safety also participated.

• The owner of a convenience store and service station in Grand Prairie , Texas, was sentenced to 

6 months incarceration and fined $2,500 for making a false statement to SBA. He had induced a

financial institution and SBA into funding a $675,000 guaranteed loan by falsely representing 

himself as a U.S. citizen. This investigation was initiated based on a referral from the former 

Immigration and Naturalization Service (INS).

• A convenience store owner in Fort Worth, Texas, was sentenced to 2 months incarceration and 

fined $5,000 for making a false statement to SBA. He had induced a bank and SBA to fund a 

$435,000 guaranteed loan by falsely representing himself as a U.S. citizen. This investigation 

was initiated based on a referral from INS. 

• A convenience store and service station owner in North Richland Hills, Texas, was indicted for a

false claim of U.S. citizenship and making a false statement to SBA. He had induced a bank and 

SBA into funding a $1,200,000 guaranteed loan by falsely representing himself as a U.S. citizen. 

• A convenience store and service station owner in Arlington, Texas, was indicted for a false claim 

of U.S. citizenship. His wife was indicted for inducing a financial institution and SBA to fund a 

$605,000 guaranteed loan by falsely representing herself as a U.S. citizen. 

In other parts of the Nation:

• Two Chicago business owners, a husband and wife, were indicted for conspiracy to submit false 

statements to a financial institution. In addition, the husband was charged with bribery of a 

public official, submitting false statements and reports to a financial institution, possession and 

use of a counterfeit U.S. Certificate of Naturalization, and aiding and abetting, in connection with 

his Section 504 loan application. The business owner was previously arrested and charged for 

bribery of a public official and for submitting a false statement to a financial institution, in 

connection with his Section 504 loan application. Although he claimed to be a U.S. citizen in his 
5

Significant OIG Activities

application, an OIG investigation revealed that he was not a citizen and was residing in the U.S. 

illegally. When the SBA requested that the Certified Development Company (CDC) obtain 

evidence of naturalization, he admitted that he was not a U.S. citizen and requested a meeting 

with an SBA official. At that meeting, he again admitted he was not a U.S. citizen, presented a 

counterfeit certificate of naturalization, and offered a $5,000 cash bribe to the SBA official who 

was cooperating with the OIG. The owner was arrested outside of the SBA Illinois District 

Office. This investigation also found that the wife had conspired with her husband to prepare and 

submit several application forms containing false statements; to meet with a CDC representative, 

a bank officer and a SBA official; and to conceal the acts to further their conspiracy. This 

investigation was based on an anonymous complaint. SBA OIG is conducting this ongoing 

investigation jointly with the DHS.

• The SBA received its previously paid guaranty of nearly $317,000 on a loan made to a Missouri 

business. The $405,000 SBA-guaranteed loan had defaulted almost immediately. The OIG 

investigation determined that the corporate president and part owner of the business was an illegal 

alien when this loan was made, having overstayed his 6-month visitor visa since January 1995. 

The corporate president indicated on a form that he was not a citizen of the U.S., but he provided 

no further immigration status information. Internal lender documents showed that the lender was 

aware of this, but apparently never verified his immigration status. Nonetheless, the lender still 

certified that the principals of the business were U.S. citizens or resident aliens and that capable 

and consistent management had been assured. After the OIG contacted the lender, the lender 

informed SBA that it was canceling and refunding the guaranty. Since SBA has suffered no loss, 

the U.S. Attorney declined criminal prosecution. The corporate president remains at large. The 

OIG will provide its findings to the Bureau of Customs and Immigration Enforcement. 

Small Business Investment Company (SBIC)-Related Fraud

• A former New York, NY, pension plan manager was sentenced to 12 months and 1 day 

incarceration, to be followed by 3 years of supervised release, and was ordered to pay $250,000 

in restitution for his embezzlement of employee benefit plan funds. The investigation revealed 

that he was responsible for recommending investments of pension funds made through various 

venture capital firms, including an SBA-licensed SBIC in receivership. This investigation was 

initiated based on a request by the U.S. Attorney’s Office. The SBA OIG conducted this 

investigation jointly with the Department of Labor OIG. 

Fraud in Obtaining Business Loans

• A former Norfolk, Virginia, businessman and management corporation director was sentenced to 

6 months in prison, 3 years of subsequent supervised release, and restitution of nearly $674,000 to 

SBA and $1,253,000 to a financial institution for conspiracy to commit wire fraud. He conspired

to inflate the purchase price of the management corporation’s properties by $1,148,000 to 

fraudulently obtain loan proceeds from two financial institutions. The scheme included having 

the corporation pay $550,000 from loan proceeds to another company he owned for repairs that 

were not to be done. The businessman also conspired to pay $200,000 each to the management 

corporation’s stockholders and to disburse $198,000 of the loan proceeds to purchase another 

motel. He submitted to the two institutions false financial information about management
6

Significant OIG Activities

corporation shareholders and deceitfully stated that he was giving a combined gift of 

$825,000 to the two shareholders of the management corporation to be used as capital injection, 

knowing that it was not a gift and that it had to be paid back to him from the loan proceeds. 

Consequently, he caused one of the financial institutions to wire nearly $2,300,000 and the other 

to wire nearly $1,000,000 in loan funds to the management corporation. 

In addition, a second business operator and an attorney were indicted in connection with the case. 

The operator had been charged with conspiracy to commit wire fraud and conspiracy to make 

false statements, and the attorney had been charged with conspiracy to make false statements as 

well as making material false statements. This is an on-going joint investigation with the Federal 

Bureau of Investigation (FBI). 

• A Forked River, New Jersey, property owner was indicted for conspiracy and making a material 

false statement relating to a guaranteed loan obtained by an automotive repair business. The 

investigation revealed that the business owner (not the property owner) obtained a $560,000 loan 

requiring a minimum capital injection of nearly $150,000. The business owner did not do so and 

conspired with the property owner to fraudulently misrepresent the injection. They entered into 

an $80,000 mortgage agreement, which was concealed from the lender, in lieu of the capital 

injection. The business owner defaulted on the entire loan balance, causing SBA to pay the 

guarantee. The OIG conducted this investigation based on a referral from the lender. 

• The SBA Delaware District Counsel denied the application of a business in Bear, Delaware, that 

had applied for a $350,000 guaranteed loan, due to issues of character ineligibility. Based on an

SBA Delaware District Office referral, the SBA OIG investigation determined that the applicant 

did not fully disclose his criminal history record. Further, the applicant, who was a permanent 

resident but not a U.S. citizen, had advised that he had two Social Security numbers because he 

had entered the U.S. twice and mistakenly completed the paperwork for a Social Security number 

both times. The Social Security Administration could not verify his explanation. Moreover, an

SBA Office of Financial Assistance character evaluation determined that the applicant could not 

be found “of good character.”

• The owner of a Laramie, Wyoming, sporting goods store was sentenced to 1 year and 1 day of 

incarceration, 3 years supervised release, and restitution of more than $147,000 after having pled 

guilty to making a false statement to SBA. The investigation found that he submitted two false 

personal financial statements to the bank to obtain two separate SBA loans totaling $250,000. He 

failed to disclose four debts totaling approximately $312,000 and faxed several loan documents to 

further his scheme. The investigation was conducted jointly with the FBI and was based on a 

referral from the SBA Wyoming District Office and the FBI.

• A San Antonio, Texas, man was sentenced to 19 months in a Federal correctional facility—

followed by 5 years of supervised release—and was ordered to pay more than $152,000 in 

restitution. He previously pled guilty to bank fraud, after having been indicted for bank fraud, 

conversion of collateral pledged to SBA, and money laundering. He had submitted inflated 

income statements to misrepresent his net worth in connection with a $213,000 guaranteed loan 

to start a Las Vegas, Nevada, ice cream business. He further misrepresented the source of his 

required equity injection by concealing personal loans obtained prior to funding. After his loan 
7

Significant OIG Activities

defaulted, he concealed pledged proceeds and converted collateral equipment to impede full 

liquidation. Based on a request from the FBI, the SBA OIG conducted this investigation jointly 

with the Bureau of Alcohol, Tobacco and Firearms, the FBI, and the Internal Revenue Service

(IRS).

• A Dallas, Texas, real estate proprietor pled guilty to bank fraud involving his 

packaging/brokering of 10 guaranteed loans. The investigation revealed that he recruited 

individuals and assisted them with submitting fraudulent documents to obtain loan approval. He 

artificially inflated the borrowers’ checking accounts, submitted fraudulent gift letters 

representing funds for required down payments, used loan proceeds to purchase cashiers checks 

in the names of the borrowers, and employed these checks to fraudulently represent the 

borrowers’ capital injections. In response to a referral from the participating lender, the OIG 

conducted this investigation jointly with the FBI.

• A former president of a Bloomington, Illinois, business was sentenced to 16 months incarceration

and 4 years supervised release, and ordered to pay nearly $218,000 in restitution and a special 

assessment. The business owner previously pled guilty to bank fraud and making false 

statements to a bank. The indictment related to a $375,000 guaranteed loan. The investigation 

revealed that the owner submitted fraudulent invoices to the financial institution in order to 

receive loan disbursements. After the loan closed, he took the $125,000 capital injection out of 

his business and paid off a personal loan that he previously secured to come up with the capital 

injection. This violated the loan agreement, which stated that the capital injection was to be used 

as working capital and to purchase inventory. This investigation was based on a referral from the

SBA Springfield Branch Office. 

• The president of an Edgemoor, South Carolina, business provided inaccurate and fraudulent

information to a CDC. The CDC withdrew its approval of a $688,000 SBA Section 504 

guaranteed loan, resulting in a $516,000 cost avoidance (SBA’s guaranteed debenture portion of 

the loan). The borrower allegedly inflated inventory and claimed assets that did not exist. He 

also allegedly had a criminal record that was not disclosed during the application process. A 

National Crime Information Center criminal history check determined that the president had three 

arrests on his record, although he marked “NO” to all application questions regarding arrests and 

convictions. The CDC withdrew its loan approval based on his false criminal history statements. 

This investigation resulted from an SBA Hotline call.

Fraud after Business Loan Approval

• A Lancaster, Pennsylvania, business owner was found guilty of mail fraud and making false 

statements to SBA. The owner obtained a $315,000 SBA-guaranteed loan in 1990, which

defaulted in 1991. He made offers of compromise from 1992 through 1995, stating that the only 

payment he could make was $60,000, his purported home equity. The scheme’s purpose was to 

induce SBA to accept the $60,000 and forgive the remaining estimated loan balance of $437,000. 

The owner was found guilty of concealing from SBA $551,000 obtained through an unrelated 

stock sale. To accomplish this, he opened bank accounts in his children’s names and prepared 
8

Significant OIG Activities

false stock certificates showing that his children and other entities owned the $551,000 in stock. 

However, the jury found that he had complete control of the stock and monies from its sale,

purchased a warehouse for $475,000 in 1994, and concealed this from SBA. He was also found 

guilty of submitting false financial information and stock certificates to SBA through the United 

States Postal Service and Federal Express. This case originated from an SBA Philadelphia 

District Office referral.

• A Berthoud, Colorado, man was sentenced to 6 months incarceration and 3 years supervised 

release after having pled guilty to bankruptcy fraud and conspiracy. The investigation determined 

that his wife (the business owner) obtained a $100,000 SBA-guaranteed LowDoc loan from a 

financial institution and, shortly thereafter, defaulted and filed for bankruptcy. The couple had 

conspired to hide assets of over $25,000 from the bankruptcy court. The man’s indictment was 

based on information obtained during the investigation of his wife, who had pled guilty to making 

a false statement to a financial institution and to bankruptcy fraud. This investigation was based 

on a referral from the Colorado District Office and was conducted jointly with the FBI.

Disaster Loan Fraud

• As part of our proactive review of disaster loans made in response to the September 11th tragedy, 

which was discussed in the previous semiannual report, two New York businessmen were 

convicted for false statements, conspiracy, mail fraud, and wire fraud. After the 

September 11, 2001, terrorist attacks, they applied for and received a $228,200 SBA disaster 

loan. Both stated, in writing and verbally, that their company had been located at 2 World Trade 

Center, that they were subleasing office space from their parent company (which had been

legitimately located at 2 World Trade Center), and that they lost approximately $94,000 worth of 

equipment, supplies, furniture, and fixtures, as well as the parent company’s financial backing

and their customer base. The investigation revealed that their business was not located at 2 

World Trade Center on September 11, 2001. Officials of their parent company stated that there 

had been no financial backing, that the two men had been fired, and that they did not own any 

office equipment. In addition to SBA disaster assistance, the men applied for and received aid 

from the New York State Empire State Development Corporation (funded by the Department of 

Housing and Urban Development), the New York City Economic Development Corporation, the 

Federal Emergency Management Agency (FEMA), the American Red Cross, and Safe Horizon, 

Inc. The total fraudulent gain was approximately $350,000. The SBA OIG initiated the case 

based on a Niagara Falls Disaster Office referral.

• Three individuals of St. Thomas, U.S. Virgin Islands, were indicted for conspiracy and mail fraud

involving FEMA and SBA disaster assistance. Two individuals were joint property owners and

falsely claimed on a FEMA application that this was their primary residence and that it had been 

damaged during 1996’s Hurricane Bertha, even though the property had actually been damaged in 

1995 by Hurricane Marilyn and purchased “as is” just before Hurricane Bertha . The result was a 

new roof costing FEMA $90,000. The third individual, an insurance loss adjuster, prepared the

owners’ Hurricane Bertha loss report. Based on the report, the owners received $95,000 in 

insurance proceeds. They were also approved for an $80,000 SBA disaster home loan as a result 

of 1998 hurricane damages, although they received only $45,000 because they failed to submit 

certain financial information. Finally, because of the adjuster’s multiple hurricane loss reports,
9

Significant OIG Activities

the two owners received $90,000 in insurance proceeds. The adjuster’s loss reports for two of the 

hurricanes were almost identical. Based upon a referral from the U.S. Attorney’s Office, the SBA 

OIG conducted this investigation jointly with the DHS OIG.

• A resort owner in Talofofo, Guam, pled guilty to making a material false statement. He was 

indicted after submitting a disaster loan application claiming damages to the resort resulting from 

typhoon Pongsana. Although he had been arrested, indicted, and convicted in 1998 for bribery of 

a public official, he stated on his application that he had no prior criminal history. In fact, he had 

attempted to bribe an SBA employee for $5,000 to approve a disaster loan after typhoon Paka in 

1997. The SBA OIG conducted this investigation jointly with the FBI.

Section 8(a) Program Fraud

• The president of a defunct Huntingdon Valley, Pennsylvania, construction company was found 

guilty of making a material false statement to SBA, mail fraud, wire fraud, making a false 

statement to a Federally-insured financial institution, and money laundering. He improperly 

transferred $495,000 from his construction business account to his personal offshore account in 

the Bahamas to hide the money from creditors, while closing the business and abandoning its 

contracts and subcontractors. He also falsely represented that he had relocated to Pennsylvania 

along with his SBA Section 8(a) certified business and that he controlled the firm’s day-to-day 

operations. In fact, he did not relocate and had another individual, who previously pled guilty to 

conspiracy and mail fraud, operate the business. The two individuals submitted false financial 

statements to a bonding company to obtain bonding for the construction company’s bids and 

contracts. Because of defaults on contracts, the bonding company lost almost $6 million. The 

president also falsely certified to the Department of Veterans Affairs (VA) that he was paying and 

intended to pay his subcontractors on a timely basis from the proceeds of a VA Medical Center 

contract. The president was also found guilty for submitting false financial statements to a bank 

to support a $300,000 construction company line of credit. Based upon a request from the Naval 

Criminal Investigative Service (NCIS), the SBA OIG conducted this investigation jointly with 

NCIS, VA OIG, and the Defense Criminal Investigative Service.

Identifying Potential Losses

Five OIG Audits Identify Loan Origination Problems on Early Defaulted SBA-Guaranteed Loans

Five audits of early defaulted guaranteed loans resulted in over $2.7 million in questioned costs due to 

loan origination problems. The loans were judgmentally selected for review as part of the OIG’s ongoing 

program to audit Section 7(a) loans charged off or transferred to liquidation with 24 months of approval, 

i.e., early defaults. The SBA is released from liability on a guaranty, in whole or in part, if the lender fails 

to comply materially with any provisions of the regulations or loan authorization, or does not make or 

handle the loan in a prudent manner. 
10

Significant OIG Activities

For example, one audit found that the loan did not meet SBA’s requirements for size, change in 

ownership, and repayment ability. After the loan defaulted, the lender agreed to a reduced guaranty 

payment. Because the problems identified by the district office and the OIG provide a basis to deny full 

liability on the guaranty, the OIG recommended that the district director seek to recover the $376,000 

made to honor the reduced guaranty. 

Another audit found that the lender made a material error in assessing the borrower’s repayment ability, 

resulting in a loan to a borrower having no repayment ability. The borrower defaulted after only one 

payment, resulting in an erroneous payment of over $777,000 when SBA purchased the guaranty. 

Originally, the borrower had projected gasoline sales of $3.4 million during the first year of operation, 

although a third party market analysis found that maximum annual sales could be only about $275,000. 

In response to the OIG recommendation, SBA has sought recovery of the payment from the lender. 

SBA Purchase Cards: Audit Identifies Internal Control Weaknesses—but No Apparent Fraud

An audit of SBA purchase cards identified five purchases over $2,500 that were split into multiple 

charges to keep each charge under the $2,500 micro-purchase threshold, thus circumventing Federal 

Acquisition Regulation requirements to set aside acquisitions over $2,500 for competition among small 

businesses. Moreover, a number of requisition forms were unsigned by the approving official, more than

half of the cardholder statements examined did not have the approving official’s certification, and four 

cardholder accounts remained open after the cardholders left SBA. Nonetheless, the audit found no 

fraudulent transactions. The SBA agreed with OIG recommendations, including that the Agency remind 

cardholders and approving officials of appropriate procedures for procurements costing over $2,500 and 

of possible penalties.

Character Eligibility

The SBA requires applicants for assistance to meet certain character standards before participating in 

Agency programs. The OIG’s Office of Security Operations (OSO) is responsible for ensuring that 

program participants meet these standards by processing name checks and, where appropriate, fingerprint

checks on applicants. OSO also assists the Agency in making character eligibility determinations through 

its on-line connection with the FBI’s Machine Readable Data system by referring applicants who appear 

to be ineligible to program officials for adjudication. During this reporting period, OSO made referrals 

that resulted in SBA business loan program managers declining 37 applications, and disaster loan 

program officials declining 14 applications, totaling $10,103,225 and $421,267 respectively. These 

actions made credit available to other applicants without character eligibility issues. 

In addition, based on the OIG character eligibility information, officials of the SBA’s Section 8(a) and 

surety bond programs declined, respectively, 10 applications for certification and three applications for 

guaranty. More than $238 million in loans have been declined during the last 10 years due to character 

eligibility.
11

Significant OIG Activities

The OSO also coordinates background investigations for Agency employees required to have security 

clearances. During this reporting period, OSO initiated 64 background investigations and issued 19

security clearances. The OSO also reviewed and adjudicated 44 background investigative reports in 

accordance with Executive Order 10450 and Office of Management and Budget (OMB) Circular A-130 

and coordinated with the SBA’s Office of Disaster Assistance to adjudicate 35 derogatory background 

investigative reports forwarded for review and appropriate action.

OIG Fraud Awareness Briefings

During this reporting period, the OIG conducted 3 briefings for more than 31 SBA employees, lenders, 

and other resource partners as part of its mission to heighten awareness of waste, fraud, and abuse.

Goal 2: Improve the Security Over and the Accuracy of SBA

Accounting and Management Information

The SBA depends on a complex information technology (IT) environment, which includes 38 mission 

critical systems running on a mix of legacy mainframe, client-server, and minicomputers. The SBA has 

difficulty producing reliable and timely financial and management information to support its operations, 

primarily because of reliance on outdated IT systems that are not integrated. The SBA is developing a 

new Disaster Credit Management system to modernize and improve its disaster loan-making activities. 

The SBA is also implementing a Loan Monitoring System to monitor its business loan portfolio. These 

efforts are critical to the SBA’s successful future operations. However, these efforts do not impact SBA’s

Loan Accounting System, which is sorely outdated and in need of replacement.

The Chief Financial Officers Act of 1990 requires each Federal agency to have annual audited financial 

statements. One of the OMB’s key initiatives is to have agencies improve their financial management 

activities, including providing financial statements and financial performance information in a timelier 

manner. Because of the lack of integrated financial and accounting systems, SBA has major challenges 

and uncertainties surrounding its ability to produce Fiscal Year (FY) 2004 financial statements by the 

accelerated date of November 15, 2004. For the past few years, and again for the FY 2003 financial 

statements, the auditors have been critical of the Agency’s reporting process and its ability to provide 

accurate, complete, and reliable financial data. 

In FY 2003, SBA undertook a major effort in developing new credit subsidy models for its disaster 

assistance loan program and the secondary market guaranty program and made significant changes to two 

other credit subsidy models. This should result in more accurate financial statement estimates for SBA’s 

credit programs. 

Audit of SBA’s Financial Statements Disclaims Opinions and Discloses Material Weaknesses

The OIG issued Cotton and Company’s Audit Report for SBA’s FY 2003 Financial Statements, which 

disclaimed an opinion on both the FY 2003 financial statements and the restated FY 2002 financial 

statements. The scope of the examination was limited because SBA was late in completing development 

and testing of certain credit program subsidy models, its credit program subsidy re-estimates, and its 
12

Significant OIG Activities

financial statements. One example of a major change in subsidy re-estimates is in the SBIC participating 

securities program, where SBA reported an estimated loss of more than $1.8 billion in its credit subsidy 

re-estimates. Consequently, the auditors were unable to apply all necessary auditing procedures or 

dispose of reservations identified during their work. This prevented them from expressing an opinion on 

the financial statements.

Reportable conditions included two material weaknesses: (1) credit reform controls and (2) financial

management and reporting controls. The remaining reportable condition related to the need for 

improvement in SBA's information system controls, particularly in addressing previously identified 

weaknesses and allocating sufficient resources to support the Office of the Chief Information Officer’s 

(OCIO) security programs. 

Moreover, the Agency was not in substantial compliance with the Federal Financial Management 

Improvement Act because of noncompliance with Federal financial systems requirements, Federal 

accounting standards, and the United States Standard General Ledger at the transaction level. Auditors 

also noted instances of noncompliance with the Prompt Pay Act and limitations on their examination’s 

scope, which prevented the completion of testing of SBA’s compliance with the Antideficiency Act. 

The Chief Financial Officer (CFO) generally agreed with the audit’s findings and recommendations. 

Acknowledging that SBA did not meet key milestone dates for some credit programs’ budgeting and 

accounting work and for preparing financial statements, he accepted responsibility for not providing 

sufficient time for the auditors to complete their work. The most important recommendations called for 

the CFO to (1) improve controls over SBA’s credit modeling processes, including documentation, data 

analysis, and reconciliation procedures; (2) improve controls and procedures surrounding SBA’s financial 

reporting process; (3) develop and enhance procedures for funds control management, Antideficiency Act 

compliance, and Prompt Pay Act compliance; and (4) direct a coordinated effort to investigate and 

explain unusual subsidy balances. 

Other Financial Weaknesses 

The OIG issued a management letter communicating to SBA management “non-reportable conditions” 

that came to Cotton & Company’s attention during their audit of FY 2003 financial statements. The 

conditions, which were reported last year, included problems with foreclosed property records and 

valuation, the general ledger, administrative costs, and intra-governmental reconciliations.

The management letter also noted new weaknesses, such as in the areas of Disaster Area Office travel 

authorizations, loan servicing center shipping costs, valuation of interest receivable, surety bond 

guarantee liability estimate documentation, completeness of performance data reporting, recording of

Master Reserve Fund cash held outside of Treasury, and inappropriate augmentation of appropriations 

involving methods of payment of contractors. The CFO generally agreed with the auditors’ findings and 

recommendations. 
13

Significant OIG Activities

SBA Information Technology Enterprise Architecture Not Adequately Enforced for Disaster 

Program System

Enterprise architecture establishes an Agency-wide roadmap for unifying what otherwise would be 

dissimilar and inefficient information systems. An OIG audit found that SBA did not adequately enforce 

its information technology enterprise architecture during the initial development phase of the Disaster 

Credit Management System project. The OIG recommended that the Chief Information Officer (CIO) 

perform reviews for large-scale development projects to ensure such enforcement occurs and formulate a 

related strategy for more proactive oversight of such projects. The CIO agreed with both 

recommendations.

Goal 3: Assist SBA in Improving its Small Business Development

Programs and Government Contracting

The SBA provides assistance to existing and prospective small businesses through a variety of counseling 

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

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

Business Centers (WBCs). The SBA also manages the Section 8(a) Business Development Program, 

which was established to provide business development assistance to small businesses owned by socially 

and economically disadvantaged individuals and to help them access the $200 billion Federal 

procurement market. Through its broader Government contracting program, the SBA works with Federal 

agencies to establish and implement procurement goals for contracting with small, small-disadvantaged, 

women-owned, service-disabled veteran-owned, and historically underutilized business zone (HUBZone)

small businesses. These programs demand effective and efficient management, outreach, and service 

delivery. Determining whether business development and Government contracting programs meet these 

demands depends on reliable internal and external data for effective monitoring and oversight. 

Inappropriate Cosponsorship Activities in Two District Offices 

The Small Business Act gives SBA statutory authority to sponsor a wide variety of training and 

counseling programs to assist small businesses. Section 8(b)(1)(a) of the Act authorizes SBA to plan and 

conduct activities jointly with public or private entities. These activities are referred to as cosponsorships, 

and the Act requires that they be evidenced by a written agreement between the parties. 

• An OIG audit on nine cosponsored events in the Los Angeles District Office concluded that the 

events were not planned and conducted in accordance with Federal laws and SBA policies and 

procedures. Cosponsorships are to be planned so they do not generate a profit. If profits occur, 

they should be applied to similar events. The cosponsors inappropriately accumulated $248,000 

in profits, used $121,000 for activities unrelated to the events, and received $7,500 from 

prohibited sources. In addition, district office employees solicited gift funds totaling $122,500 

from donors whose participation in cosponsored activity could result in a conflict of interest. 

Significant recommendations called for the Associate Administrator for Field Operations to 

(1) follow Federal law and SBA polic ies and procedures in conducting cosponsored events and in 

soliciting and accepting gifts for the Agency and (2) deposit all funds resulting from employee 

solicitations according to Agency Standard Operating Procedures (SOPs), with excess gift
14

Significant OIG Activities

funds to be deposited in the Business Assistance Trust (BAT) Fund or dispersed per the donor’s 

instructions. Management agreed with the recommendations. 

• Another audit—this time in the Puerto Rico and Virgin Islands District Office—determined that 

the district’s cosponsored activities and its Business Resource Center (BRC) did not comply with 

SBA policies and procedures and Federal law. Problems occurred in the preparation and 

approval of cosponsorship agreements, gift fund solicitation and disposition, the charging of fees, 

the use of cosponsor contributions, the planned use of Economy Act funds, procurement 

activities, BRC counseling services, recordkeeping, reporting, and asset accountability. The 

problems occurred because district office personnel did not follow existing guidance, regional 

and headquarters personnel did not provide sufficient oversight, and formal operating procedures 

did not thoroughly address cosponsorship operations and funds management. Although SBA 

officials agreed with some OIG recommendations, most recommendations will be handled during 

the audit resolution process. Significant recommendations called for the Associate Administrator 

for Field Operations and the Associate Administrator for Strategic Alliances to (1) remind district 

offices of the requirement to deposit all gift funds into the BAT Fund; (2) establish controls to 

prevent the solicitation and acceptance of funds from prohibited sources; and (3) ensure that 

sources requiring a conflict of interest case-by-case determination are submitted to the 

appropriate SBA official. Management has not formally responded to the recommendations.

SBA Circumvented Small Business Set-Aside Procurement Rules

The Asset Sale Program was initiated to sell SBA’s owned loan portfolio. For each sale, the Agency 

procured a contractor to review loan portfolios and provide accurate information to potential investors. 

An OIG audit found that procurement practices used to obtain such contractors’ services, which were 

“set-aside” for small businesses, did not benefit small businesses, as provided for in regulations. This is 

significant because SBA develops the regulations to promote and protect small businesses, and SBA 

circumvented these regulations. 

SBA’s use of the General Services Administration’s (GSA) Federal Supply Schedule did not ensure that 

the Agency received the best value in terms of cost and quality of services. SBA also did not ensure that 

its small business regulations on subcontracting were complied with, including the rule requiring 

contractors to perform at least 50 percent of the personnel costs of the procurement. Of $147 million in 

revenue received by contractors, over $81 million (55.5%) went to subcontractors, imaging specialists, 

third party report vendors, database contractors, and independent contractors, including potentially “other 

than small” businesses. 

The OIG made 30 recommendations and questioned nearly $1.7 million in contractors’ overcharges. The 

report’s recommendations included developing corrective procedures for reviewing procurement 

proposals, requiring contractors classified as small businesses to certify their size, and ensuring written 

acquisition plans are prepared for all future asset sales. SBA officials agreed with some recommendations 

and disagreed with others. 
15

Significant OIG Activities

Section 8(a) Program’s Primary Database is Ineffective 

An OIG inspection found that the Section 8(a) Business Development (BD) Program’s primary database, 

SACS/MEDCOR, has serious problems, including (1) missing, out-of-date, or inaccurate data; (2) lack of 

information needed for reporting to Congress; (3) poor reporting capability; and (4) an inability to be used 

to manage the 8(a) BD Program. In short, SACS/MEDCOR is an ineffective and inefficient program 

management tool. To effectively manage the 8(a) Program and assess its effectiveness, SBA needs 

quality data and a system that will (1) make data easily available; (2) track and evaluate firms’ progress, 

thereby supporting management reporting and analysis; and (3) help disseminate SBA products to 

stakeholders.

The report recommended that the Office of Government Contracting and Business Development 

(GC&BD) analyze its business processes to determine specific programmatic data needs and that 

GC&BD, in conjunction with OCIO, develop a management information system that will support the 

program, provide useful information, and enable the Agency to measure program results. GC&BD 

concurred with the OIG's findings and recommendations and is taking steps to implement the 

recommendations. 

Goal 4: Assist SBA Management in Identifying and Resolving

Persistent and Emerging Management Issues

Top Management Challenges

During this reporting period, the OIG issued its FY 2004 report on the most serious Management 

Challenges facing the SBA, as required by the Reports Consolidation Act of 2000. The report provides 

the OIG’s assessment of Agency programs or activities that pose significant risks, including those that are 

particularly vulnerable to fraud, waste, error, or mismanagement. For each management challenge, we 

provided recommended remedial actions along with our assessment of Agency progress on each item.

The SBA’s most serious Management Challenges in FY 2004 are as follows:

• SBA needs to improve its managing for results processes and performance data.

• SBA faces significant challenges in financial management and reporting which affects 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 needs better controls over the business loan purchase process.

• SBA needs to continue improving lender/participant oversight.

• The Section 8(a) Business Development program needs to be modified so that more participating 

companies receive access to business development and standards for determining economic 

disadvantage are clear and objective, so that more eligible companies receive 8(a) contracts.

• SBA needs to clarify its rules intended to deter Section 8(a) Business Development participants 

from passing through procurement activity to non-Section 8(a) Business Development firms.

• Preventing loan agent fraud requires additional measures.
16

Significant OIG Activities

• SBA needs to update its system of directives to provide proper guidance and control over its 

operations.

For more information on the OIG’s assessment of the SBA’s FY 2004 Management Challenges, please 

review the report at http://www.sba.gov/ig/challenges.html.

OIG Inspection Identifies Need for FAST Program Core Performance Measures

The purpose of SBA’s Federal and State Technology Partnership (FAST) program is to strengthen the 

technological competitiveness of small business concerns in the States by ensuring their participation in 

Federal research and development. A statutorily mandated inspection report assessed the extent to which 

program recipients have developed and utilized effective performance indicators to measure the results of 

their activities. It also discussed overall program management and effectiveness. The OIGrecommended 

that SBA refine its guidance to program participants on developing performance measures and take the 

lead to establish a core set of measures. Moreover, the OIG recommended that SBA vigorously enforce

its reporting requirements and take action against grantees who do not comply. The Agency agreed with 

all recommendations. 

Other Significant Management Issues

Increase in Overdue Management Decisions

Management decisions on OIG recommendations may take several forms. Program officials may agree to 

a recommendation as presented by the OIG, they may seek to negotiate a compromise agreement with the 

OIG, or they may disagree. The IG Act requires that Federal agencies make management decisions on all 

findings and recommendations within a maximum of 6 months of report issuance. During this reporting 

period, there has been a significant increase in the number of overdue management decisions—i.e., 

decisions which are not made within 6 months of report publication. As of March 31, 2004, management

decisions on 21 OIG reports were overdue (See Appendix V). This is the highest number of overdue 

management decisions for any single reporting period since March 1999. Moreover, in the 8 years prior 

to FY 2003, the average number of overdue management decisions was only five per reporting period. 

We are concerned that, while we continue to work with the Agency on these issues, they remain 

unresolved. 
17

Statistical Highlights

FY 2004 6-Month Productivity Statistics

October 1, 2003, through March 31, 2004

Office-wide Dollar Accomplishments Totals

A. Potential Investigative Recoveries and Fines ....................................................$6,135,984.00

B. Loans Not Made as Result of Investigations and Name Checks .......................$13,536,384.00

C. Disallowed Costs Agreed to by Management ....................................................$1,011,699.90

D. Recommendations that Funds Be Put to Better

 Use Agreed to by Management ...................................................................$535,470.18

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,219,538.08

Efficiency and Effectiveness Activities

A. Reports Issued ..............................................................................................19

B. Recommendations Issued ..............................................................................121

C. Dollar Value of Costs Questioned ........................................................$4,609,872.73

D. Dollar Value of Recommendations that Funds

Be Put to Better Use ...................................................................................... $7,000.00

E. Collections as a Result of Questioned Costs .....................................................$1,398,691.87

Follow-up Activities

A. Recommendations Closed ................................................................................................ 50

B. Disallowed Costs Agreed to by Management ....................................................$1,011,699.90

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

Agreed to by Management .........................................................................$535,470.18

D. Unresolved Recommendations ....................................................................................... 193

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

A. Legislation Reviewed ...................................................................................................... 42

B. Regulations Reviewed ..................................................................................................... 11

C. Standard Operating Procedures Reviewed ......................................................................... 10

D. Other Issuances Reviewed*.................................................................................................9

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

communications, which frequently involve the implementation of new programs and policies. 
18

Statistical Highlights

Summary of Indictments and Convictions

A. Indictments from OIG Cases ............................................................................17

B. Convictions from OIG Cases ............................................................................13

Summary of Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

OIG Investigations .................................................................................$ 6,135,984.00

B. Loans/Contracts Not Approved as a Result of OIG Investigations .....................$ 3,011,892.00

C. Loans/Contracts Not Approved as a Result of the Name 

 Check Program .....................................................................................$10,524,492.00

Total ............................................................................................$19,672,368.00

SBA Personnel Actions Taken as a Result of Investigations

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

B. Resignations/Retirements ...................................................................................................1

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

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

Program Actions Taken as a Result of Investigations

A. Suspensions ......................................................................................................................0

B. Debarments.......................................................................................................................0

C. Removals from Program ....................................................................................................0

D. Other Program Actions ......................................................................................................0

Summary of OIG Hotline Operation

A. Total Fraud Line Calls/Letters........................................................................................196*

B. Total Calls/Letters Referred to Investigations Division ....................................................... 19

C. Total Calls/Letters Referred to SBA or Other Federal Agencies........................................... 63

D. Total Calls/Letters Needing No Action ........................................................................... 114

*Total no longer includes hang-ups.
19

APPENDIX I

OIG Reports Issued

October 1, 2003, through March 31, 2004

Title Report 

Number

Issue 

Date

Questioned 

Costs

Funds for 

Better Use

Capital Access

Audit of an Early Defaulted Loan 4-01 11/10/03 $692,250.00

Audit of an Early Defaulted Loan 4-02 11/24/03 $376,106.00

Audit of an SBA Guarantied Loan 4-04 12/23/03 $105,000.00

Audit of a SBA Guaranteed Loan 4-06 1/8/04 $777,516.00

Audit of an Early Defaulted Loan 4-13 3/2/04 $767,049.00

Program Subtotal 5 Reports $2,717,921.00 $0

Agency Management

Advisory Memorandum Report on SBA’s Federal 

Intragovernmental Activity and Balances Data

4-08 1/23/04

Review of SBA Purchase Cards 4-09 1/26/04

Audit of SBA’s FY 2003 Financial Statements 4-10 1/30/04

Advisory Memorandum Report – Agreed-upon 

Procedures Report on SBA’s Federal Agencies’ 

Centralized Trial-Balance System (FACTS) Data

4-11 2/3/04

Enforcement of SBA’s Information Technology 

Enterprise Architecture During the Development of 

the Disaster Credit Management System

4-14 3/2/04

Audit of SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence Contracts and 

Task Orders

4-16 3/17/04 $1,690,838.00

Audit of SBA’s FY 2003 Financial Statements –

Management Letter 

4-17 3/23/04

Management Challenges Report 1/04

Program Subtotal 8 Reports $1,690,838.00 $0

Government Contracting and

Business Development

Cosponsorship Activities – Los Angeles District

 Office 

4-03 12/17/03

Audit of Puerto Rico & US Virgin Island District 

Office Cosponsored and SBA-Sponsored Activities

4-07 1/20/04 $201,113.73 $7,000.00

Independent Accountants’ Report on the Performance 

Audit of Farmington Casualty Company

4-12 2/20/04

SBA’s Federal and State Technology Partnership 

(FAST) Program (Inspection)

4-05 12/30/03

SACS/MEDCOR: Ineffective and Inefficient

(Inspection)

4-15 3/9/04

Program Subtotal 4 Reports $201,113.73 $7,000.00

TOTALS (all programs) 19 Reports $4,609,872.73 $7,000.00
20

APPENDIX II

OIG Reports with Questioned Costs

October 1, 2003, through March 31, 2004

Reports Recs* Questioned 

Costs***

Unsupported 

Costs***

A. For which no management decision 

had been made by

September 30, 2003 6 15 $3,623,654.27** $2,209,718.90**

B.

Which were issued during the period 7 7 $4,609,872.73 $376,106.00

Subtotals (A + B) 13 22 $8,233,527.00 $2,585,824.90

C. For which a management decision 

was made during the reporting period 5 5 $1,894,215.90 $28,593.90

(i) Disallowed costs 3 3 $1,011,699.90 $28,593.90

(ii) Costs not disallowed 2 2 $882,516.00 $0

D. For which no management decision 

had been made by March 31, 2004 8 17 $6,339,311.10 $2,557,231.00

* Recommendations; reports may have more than one recommendation.

** The beginning balance is different from the ending of the last SAR because several management decisions for report 3-14 were not reported 

 even though they had been signed before 9/30/03.

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

APPENDIX III

OIG Reports with Recommendations that Funds Be Put to Better Use

October 1, 2003, through March 31, 2004

Reports Recs* Recommended Funds 

For Better Use

A. For which no management decision had 

been made by September 30, 2003 5 5 $1,361,720.18

B. Which were issued during the period 1 1 $7,000.00

Subtotals (A + B) 6 6 $1,368,720.18

C. For which a management decision was 

made during the reporting period 2 2 $535,470.18

(i) Recommendations agreed to by 

SBA management 2 2 $535,470.18

(ii) Recommendations not agreed to 

by SBA management 0 0 $0

D. For which no management decision had 

been made by March 31, 2004 4 4 $833,250.00

* Recommendations; reports may have more than one recommendation.
21

APPENDIX IV

OIG Reports with Non-Monetary Recommendations

October 1, 2003, through March 31, 2004

Reports Recommendations

A. For which no management decision had been made by 

September 30, 2003 *28 *101

B. Which were issued during the period 9 113

Subtotals (A + B) 37 214

C. For which a management decision was made (for at 

least one recommendation in the report) during the 

reporting period 15 42

D. For which no management decision (for at least one 

recommendation in the report) had been made by

March 31, 2004 27 172

* The beginning balance is different from the ending of the last SAR because total number of reports and recommendations did 

not include a Program Vulnerability Memorandum (PVM). It is also different because one recommendation was listed more than 

once.
22

APPENDIX V

OIG Reports From Prior Semiannual Periods

with Overdue Management Decisions

as of March 31, 2004

Title Number Issued Status

PLP Oversight Process 1-19 9/27/01

One outstanding recommendation is to be 

submitted to the resolution process.

Borrowers with Prior Defaulted Loans 2-19 5/28/02

Mgmt states they have satisfied all open 

recommendations. Evidence of their actions 

should have been submitted to the OIG by 

10/31/03.

Georgia District Office Sponsorship 

Activities 2-25 8/26/02

Management proposals were to have been

provided to the OIG for evaluation by 10/24/03.

Internal Control Over Colson Services 

Corporation’s Contract as Central 

Servicing Agent for SBA’s Certified 

Development Company Loan Program 2-29 9/16/02

Awaiting management decision on outstanding 

recommendations; expected by 7/31/04.

SBA-Guaranteed Loan to Earth Treasures, 

Inc. 2-30 9/24/02

Appealing District Office decision to the Office 

of Financial Assistance. General Counsel is 

still reviewing the recommendation.

Impact of Loan Splitting on Borrowers 

and SBA 2-31 9/30/02

Awaiting management decision on outstanding 

recommendations.

Eligibility of 15 HUBZone Companies 

and a Review of the HUBZone 

Empowerment Contracting Program’s 

Internal Controls 3-05 1/22/03

Awaiting management decision on outstanding 

recommendation; expected by 7/31/04.

SBA’s Oversight of the Fiscal Transfer 

Agent for the 7(a) Loan Program 3-08 1/30/03

Awaiting management decision on outstanding 

recommendations; expected by 5/31/04.

Program Vulnerability Memorandum 

(PVM) – Pro-Net Registrant Data 

Integrity Warnings and Certification 3-09 2/7/03

Awaiting management decisions on outstanding 

recommendations.

TEP Consulting Inc. 3-14 3/14/03

Awaiting management decision on outstanding 

recommendations; expected by 4/30/04.

Guaranty Purchase Process 3-15 3/17/03

Awaiting management decision on outstanding 

recommendations.

Asset Sales Program 3-19 3/31/03

Awaiting management decision on outstanding 

recommendations.

SBA’s Information System Controls for 

FY 2002 3-20 3/31/03

Awaiting management decisions on outstanding 

recommendations; expected by 5/31/04.

Equity Injection in the SBA 7(a) Loan 

Guaranty Program 3-21 3/31/03

Three recommendations are in management 

resolution.

The Microloan Program: Moving Toward 

Performance Management (Inspection) 3-26 5/13/03

Awaiting management decisions on two 

outstanding recommendations.

SBA’s Acquisition, Development and 

Implementation of the Joint Accounting 

and Administrative Management System 3-32 6/20/03

Awaiting management decision on outstanding 

recommendations; expected by 7/31/04.
23

APPENDIX V

OIG Reports From Prior Semiannual Periods

with Overdue Management Decisions

as of March 31, 2004

Title Number Issued Status

SBIC Oversight 3-33 7/1/03

Awaiting management decision on outstanding 

recommendations.

Audit of the National Women’s Advisory 

Council 3-35 7/28/03

Awaiting management decision on outstanding 

recommendations; expected by 7/31/04.

Audit of an Early Defaulted Loan 3-41 9/29/03

Awaiting management decision on outstanding 

recommendation.

Travel Card and Purchase Card Controls 3-42 9/29/03

Awaiting management decision on outstanding 

recommendations; expected by 7/31/04.

Insufficient Proof of Citizenship Status 

for SBA Loans (Inspection) 3-43 9/30/03

Awaiting management decision on one 

outstanding recommendation.
24

APPENDIX VI

OIG Reports Without Final Action as of March 31, 2004

Report

Number

Title Date

Issued

Date of

Management

Decision

Final

Action

Target

43H006021 8(a) Continuing Eligibility Reviews 9/30/94 10/30/94 10/30/02

87H002017 NOAA Computer Workstation Contracts 6/19/98 3/1/99 3/31/03

9-23 Survey of Electronic Records Management 9/15/99 11/30/99 4/15/03

0-14 7(a) Service Fee Collections 3/30/00 8/22/00 9/30/03

0-19 SDB Certification Program Obligations and Expenditures 6/30/00 3/30/01 9/30/02

0-25 GPRA for the SBIC Program 9/7/00 12/27/00 3/31/04

0-28 Rhode Island District Advisory Council 9/29/00 *** **

0-29 MBELDEF 9/29/00 *** 1/31/03

0-30 SBA’s Administration of MBELEDF Cosponsorship 9/30/00 3/26/01 **

0-31 Boscart Construction, Inc. 9/30/00 *** **

1-01 GPRA for the 7(a) Business Loan Program 12/4/00 *** **

1-09 PDD 63 3/26/01 9/27/01 9/15/03

1-11 GPRA for the MSB&COD Program 3/27/01 9/28/01 7/31/03

1-12 SBA’s Information Systems Controls – FY 2000 3/27/01 *** **

1-16 SBA’s Follow-up on SBLC Examinations 8/17/01 9/25/01 12/31/03

1-19 PLP Oversight Process 9/27/01 8/27/02 12/31/03

1-20 Agreed-Upon Procedures Report on Sensitive Payments 9/28/01 12/18/01 11/30/03

A1-06 Evaluation of SBA’s Computer Security Program 9/28/01 *** **

2-12 Improvements in the SBLC Oversight Process 3/20/02 8/27/02 **

2-17 SBA’s FY 2001 Financial Statements – Management Letter 4/12/02 *** **

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

2-19 Borrowers with Prior Defaulted Loans 5/28/02 3/19/03 1/15/04

2-22 Travel of SBA’s Former Region VI Regional Administrator 8/7/02 9/26/02 **

2-27 SBA’s Experience with Defaulted Franchise Loans 9/16/02 12/19/02 6/30/03

2-29 Internal Control over Colson CSA for SBA’s CDC Program 9/16/02 12/12/02 12/15/03

2-33 7(j) Management & Technical Assistance Program 9/30/02 12/10/02 **

2-34 SBA’s Controls over the Access, Disclosure and Use of 

Social Security Numbers by Third Parties

9/30/02 7/23/03 9/15/03

3-02 Performance Measurement in the Federal and State 

Technology (FAST) Program

1/3/003 9/30/03 12/1/03

3-03 SBA’s Implementation of its CIPP 1/10/03 2/4/03 7/15/03
25

APPENDIX VI

OIG Reports Without Final Action as of March 31, 2004

Report

Number

Title Date

Issued

Date of

Management

Decision

Final

Action

Target

3-05 Eligibility of 15 HUBZone Companies and a Review of the 

HUBZone Empowerment Program’s Internal Controls

1/22/03 7/10/03 7/21/03

3-06 SBA’s FY 2002 Financial Statements 1/30/03 3/28/03 11/15/03

3-08 SBA’s Oversight of the FTA for the 7(a) Loan Program 1/30/03 *** **

3-09 Program Vulnerability Memorandum – Pro-Net Registrant 

Data Integrity Warnings and Certification

2/7/03 *** **

3-10 504 Loan Program Oversight 2/6/03 10/1/03 12/31/03

3-13 Economic Injury Disaster Loans 3/14/03 *** **

3-14 TEP Consulting, Inc. 3/14/03 4/10/03 6/30/03

3-15 Audit of Guaranty Purchase Process 3/17/03 11/6/03 12/31/03

3-18 Grants to the Texas Center for Women’s Business 

Enterprise

3/20/03 6/04/03 10/15/03

3-20 SBA’s Information System controls for FY 2002 3/31/03 *** **

3-22 OVBD’s Monitoring of Cooperative Agreement 4/2/03 5/8/03 10/15/03

3-23 Service Corps of Retired Executives Program 4/11/03 9/30/03 6/30/04

3-24 Audit of SBA’s FY 2002 Financial Statements 

Management Letter

4/14/03 *** **

3-26 The Microloan Program: Moving Toward Performance 

Management (Inspection)

5/13/03 *** **

3-29 SBA’s Acquisition, Development and Implementation of 

the Joint Accounting and Administrative Management 

System

6/30/03 *** **

3-32 SBA’s Acquisition, Development and Implementation of 

the Joint Accounting and Administrative Management 

System

6/30/03 9/11/03 9/30/04

3-33 SBIC Oversight 7/1/03 10/6/03 **

3-34 SBA’s Compliance with JFMIP Property Management

System Requirements

7/23/03 9/11/03 **

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

3-36 Audit of an Early Defaulted Loan 8/19/03 10/1/03 9/30/04

3-39 Monitoring of SBA’s Implementation of the Disaster Credit 

Management System

9/24/03 12/11/03 **

4-03 Cosponsorship Activities – Los Angeles District Office 12/17/03 1/15/04 3/20/04

** Target dates vary with different recommendations. *** Management decision dates vary with different recommendations.
26

APPENDIX VII

6-Month Legal Actions Summary

October 1, 2003, through March 31, 2004

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

CO BL Business owner obtained a $100,000 LowDoc loan, defaulted shortly 

after, and filed for bankruptcy. She and her husband conspired to 

hide assets from the bankruptcy court.*

Business owner and 

her husband pled 

guilty. He was 

sentenced to 6 

months incarceration, 

3 years probation and 

a $200 assessment 

fee

FBI

DE BL Applicant did not fully disclose his criminal history in connection 

with a $350,000 SBA guaranteed loan application.*

Application denied

due to character 

ineligibility

None

GU DL Resort owner failed to disclose his criminal history on his disaster 

loan application, when he had previously been convicted of bribery 

of a public official.*

Resort owner pled 

guilty

FBI

IL BL Businessman claimed he was a U.S. citizen, presented a counterfeit 

certificate of naturalization and offered a $5,000 bribe to the SBA 

official to close the $594,000 guaranteed SBA loan. Wife conspired 

to falsify documents.*

Both were indicted 

for conspiracy

INS

IL BL Business owner submitted fraudulent invoices to lender and paid off 

a personal loan with a business capital injection in connection with a 

$375,000 guaranteed loan.*

Business owner 

received 16 months 

incarceration, 4 years 

supervised release, 

and to pay $218,000

MO BL The corporate president indicated on a form that he was not a U.S. 

citizen, which the lender was aware of, but never verified his 

immigration status and certified the business principals’ citizenship 

status as that of U.S. citizen or resident alien.*

Lender canceled and 

refunded the 

guaranty of nearly 

$317,000 to SBA

SSA-OIG

MO BL President and secretary falsified the required $75,000 equity 

injection in connection with a $311,000 SBA guaranteed loan. 

Additionally, the owners conspired to submit false application forms.

Company president 

indicted, and 

company secretary 

pled guilty to an 

Information

None

NJ BL Businessman conspired with borrower to misrepresent the capital 

injection, by concealing an $80,000 mortgage agreement until 

months after the loan was disbursed.*

Businessman indicted None

NJ BL Businessman submitted a false invoice representing the purchase of 

equipment and failed to pay equipment leases with loan funds in 

connection with a $350,000 SBA guaranteed loan.

Businessman indicted USPI
27

APPENDIX VII

6-Month Legal Actions Summary

October 1, 2003, through March 31, 2004

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

NY DL Two businessmen received a $228,200 disaster loan after they 

falsely claimed they were located in 2 World Trade Center and lost 

M&E, and F&F, and financial backing from their parent company as 

a result of the 9/11 disaster. *

Businessmen found 

guilty by jury

None

NY IC Pension plan manager misused company credit cards, double and 

triple billed for expenses and used the monies for personal expenses.

*

Pension plan 

manager received 12 

months incarceration, 

3 years probation, 

and an order to pay 

$250,000 in 

restitution

DOL-OIG

OR BL Former loan broker submitted loan applications containing false 

client information and forged signatures, opened bank accounts in 

clients names to which loan funds were deposited, and used the 

funds for personal benefit.

Former loan broker 

indicted

FBI

PA GC Company president falsely represented in his 8(a) annual update that 

his business relocated to PA. Additionally, he created false financial 

statements to obtain bonding for the company’s bids and contracts, 

and to support a line of credit. *

Company president 

found guilty by jury

NCIS, VAOIG, DCIS

PA BL Business owner attempted to conceal $551,000 from a stock sale in 

order to induce SBA to accept a $60,000 offer in compromise in 

connection with a $315,000 SBA guaranteed loan which he 

defaulted on. *

Owner found guilty 

by jury

None

PR BL Business owner submitted a false real estate purchase agreement and 

paid an individual to pose as the president of his company in 

connection with a $946,000 Section 504 loan.

Business owner paid 

a total of $601,612 as 

part of a pre-trial 

diversion agreement

FBI, USPI

SC BL Company president inflated inventory and claimed assets that did 

not exist and did not disclose his criminal history on SBA Form 912, 

in connection with a $688,000 SBA guaranteed loan. *

CDC withdrew its

approval for 

company president’s 

loan resulting in a 

cost avoidance of 

$516,000

None

TX BL Defendant submitted inflated income statements and misrepresented 

the source of his equity injection, in connection with a $213,000 

SBA guaranteed loan. Additionally, he concealed and converted 

pledged proceeds and collateral to impede liquidation. *

Defendant received 

19 months 

confinement, 5 years 

probation, and an 

order to pay 

$152,529 restitution

BATF, FBI, 

IRS

TX BL Convenience store/service station owner falsely represented that he 

was a U.S. citizen on his SBA Form 912 in connection with a 

$675,000 SBA guaranteed loan. *

Owner received 6 

months incarceration, 

and a $2,500 fine

TIGTA, DHS, 

SSA-OIG, 

USDA-OIG, 

TEXAS-ABC
28

APPENDIX VII

6-Month Legal Actions Summary

October 1, 2003, through March 31, 2004

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

TX BL Convenience store/service station owner falsely represented that he 

was a U. S. citizen on his SBA Form 912 in connection with a 

$435,000 SBA guaranteed loan. *

Owner received 2 

months 

incarceration, and a 

$5,000 fine

TIGTA, DHS, 

SSA-OIG, 

USDA-OIG, 

TEXAS-ABC

TX BL Convenience store/service station owner falsely represented that he 

was a U. S. citizen on his SBA Form 912 in connection with a 

$1,200,000 SBA guaranteed loan. *

Business owner 

indicted

TIGTA, DHS, 

SSA-OIG, 

USDA-OIG, 

TEXAS-ABC

& DPS

TX BL Two business owners conspired to submit fraudulent personal 

financial statements, a false purchase contract and fraudulent copies 

of cashiers’ checks as proof of equity injection in connection with an 

attempt to purchase another business for $2.7 million.

Business owners 

pled guilty

FBI

TX BL Convenience store/service station owner and wife falsely represented 

that they were U. S. citizens on their SBA Form 912 in connection 

with a $605,000 SBA guaranteed loan. *

Business owner and 

wife indicted

TIGTA, DHS, 

SSA-OIG, 

USDA-OIG, 

TEXAS-ABC

& DPS

TX BL Packager assisted borrowers with submitting false and fraudulent 

documents in order to obtain loan approval, by inflating checking 

accounts, submitting false gift letters, and using loan proceeds to 

purchase cashiers checks, which were used to represent capital 

injections. *

Business owner pled 

guilty to an 

Information

FBI

VA BL A former management corporation director conspired to inflate the 

purchase price of the management corporation properties, submit 

false financial statements, and falsify capital injection to obtain 

loans. A second business operator and an attorney conspired in the 

scheme.

Former 

management 

corporation director 

received 6 months 

confinement, 3 

years probation, 

$674,000 restitution 

to SBA, $1,252,779 

restitution to 

financial institution. 

The second business 

operator and the 

attorney were 

indicted.

FBI
29

APPENDIX VII

6-Month Legal Actions Summary

October 1, 2003, through March 31, 2004

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

VI DL Two joint property owners and an insurance adjuster conspired and 

falsely claimed damages to the owners’ property, which they claimed 

were their primary residence, as a result of Hurricanes Bertha and 

Georges. *

Property owners and 

adjuster indicted

DHS OIG

VT BL Company president/owner submitted false invoices to the bank and 

collected receivables that were supposed to be turned over to the bank 

in connection with a $200,000 SBA guaranteed loan.

Company 

president/owner 

indicted

FBI

WY BL Sporting goods store owner submitted false personal financial 

statements, where he failed to disclose four debts totaling $312,000, 

to the bank in connection with two SBA guaranteed loans totaling 

$250,000. *

Sporting goods store 

owner received 1 

year and 1 day 

incarceration, 3 

years probation, and 

an order to pay 

$147,535 in 

restitution 

FBI

* This case is further discussed in the narrative section of this report.

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

Business Development; IC = Investment Company

Joint-investigation Federal agency acronyms: BATF=Bureau of Alcohol, Tobacco, and Firearms; DCIS=Defense Criminal 

Investigative Service; DHS=Department of Homeland Security; DOL/OIG=Department of Labor OIG; FBI=Federal Bureau of 

Investigation; IRS=Internal Revenue Service; IRS-CID=IRS Criminal Investigation Division; NCIS=Naval Criminal 

Investigative Service; SSA/OIG=Social Security Administration OIG; TEXAS-ABC=Texas Alcoholic Beverage Commission; 

TEXAS-DPS=Texas Department of Public Safety; TIGTA=Treasury Inspector General for Tax Administration; 

USDA/OIG=United States Department of Agriculture OIG
30

APPENDIX VIII

Significant Recommendations

From Prior Semiannual Reporting Periods

Without Final Action as of March 31, 2004*

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

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.

12/21/01 10/30/02

98-03-01 3/31/98 Establish a loan agent monitoring system. 7/21/98 9/30/99

87H002017 6/18/98 Provide definitive guidance and definitions to evaluate the 

manufacturing criteria shown in regulations.

11/19/01 3/31/03

0-25 9/7/00 Assert to the accuracy and completeness of performance 

data, or if data is not currently accurate and complete, 

explain how the Investment Division plans to overcome 

any quality problems in the future.

1/3/01 3/31/04

1-01 12/4/00 Develop Section 7(a) program indicators to gauge mission 

effectiveness, key outcomes and quality of services and the 

delivery process.

5/10/01 6/30/03

1-11 3/27/01 Ensure that performance plans include indicators for 

determining how effectively and efficiently the Section 8(a) 

program is operating.

9/28/01 7/31/03

1-19 9/27/01 Revise the scoring for the annual review process to ensure 

the volume and weighting of point values of other questions 

does not offset low scores for eligibility and credit quality.

3/27/02 12/31/03

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

and enforcement actions.

8/27/02 12/31/03

2-18 5/6/02 Develop an Agency-wide security plan to establis h 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 11/17/03

2-33 9/30/02 Ensure that cooperative agreements and grants are solicited 

to allow for proper planning and timely processing.

12/10/02 1/30/04

3-06 1/30/03 Develop a process for estimating SBA's ownership in 

earnings from the Master Reserve Fund (MRF) that 

provides accurate data for the financial statements. 

3/28/03 11/15/03

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

agent (FTA) activities and terminate the existing contract 

with the FTA when a new contract can be enacted.

12/10/03 3/31/06

*These are a subset of the universe of recommendations without final actions.
31

APPENDIX VIII

Significant Recommendations

From Prior Semiannual Reporting Periods

Without Final Action as of March 31, 2004*

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

3-08 1/30/03 Review FTA activities and identify contract costs for fees 

and services. Report these contract costs contract costs in 

proposed Master Reserve Fund (MRF) financial statements 

so future FTA contracts will have historical cost data for 

comparison purposes.

10/15/03 11/17/03

3-10 2/6/03 Design a review guide to incorporate performance aspects 

to address financial risk, address the specific requirements 

of the Section 504 loan program, and incorporate a 

performance-driven scoring system.

10/01/03 12/31/03

3-15 3/17/03 Establish a time frame for completing the training of all 

individuals involved with guaranty purchase processing.

11/6/03 12/31/03

3-26 5/13/03 Develop a comprehensive Microloan Program SOP and a 

systematic approach to disseminate guidance.

8/28/03 12/31/03

3-26 5/13/03 Ensure that Microloan Program goals are set and that 

outcome-oriented data is required of program participants.

Appeal pending Depends on 

appeal.

3-33 7/1/03 Revise SOP on Small Business Investment Companies 

(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 12/28/03

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