U.S. Small Business Administration 

Office of Inspector General 

_________________________________

Semiannual Report to Congress 

Spring 2009 

October 1, 2008 – March 31, 2009 
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 23 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-23 

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

 Abuses and Deficiencies 34-36 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 31-33 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 45-53 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 26 

Section 5(a)(7) Summary of Significant Audits & Other Reports 3-23 

Section 5(a)(8) Audit Reports with Questioned Costs 27 

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

 Better Use 27 

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

Where No Management Decision Was Made 28 

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 

Management Challenges....................................................................................................................................... 3 

Recovery Oversight .............................................................................................................................................. 5 

Disaster Loans ...................................................................................................................................................... 6 

Small Business Access to Capital....................................................................................................................... 10 

Small Business Development, Contracting, Education, and Training ................................................................ 16 

Agency Management .......................................................................................................................................... 18 

Other Significant OIG Activities. ....................................................................................................................... 22 

Statistical Highlights........................................................................................................................................... 24 

Appendices 

 I. OIG Reports Issued ........................................................................................................................ 26 

 II. OIG Reports with Questioned Costs .............................................................................................. 27 

 III. OIG Reports with Recommendations that Funds Be Put to Better Use ......................................... 27 

 IV. OIG Reports with Non-Monetary Recommendations .................................................................... 28 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of March 31, 2008.................................................................................................. 28 

 VI. OIG Reports Without Final Action as of March 31, 2009 ............................................................. 29 

 VII. Summary of Significant Recommendations from Prior Semiannual Reporting 

 Periods Without Final Action as of March 31, 2009................................................................... 31 

 VIII. Summary of Significant Recommendations, 

 October 1, 2008 through March 31, 2009................................................................................... 34 

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

 October 1, 2008 through March 31, 2009................................................................................... 37 

 X. Legal Actions Summary, October 1, 2008 through March 31, 2009.............................................. 45 

XI. OIG Organizational Chart .............................................................................................................. 55 

 i 
Table of Contents

 ii 

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) ............................................................................................................. 20 

 SBDC Surveys—Small Business Act, Section 21(a)(7) ................................................................ 16 

 SBA Gift Authority—Small Business Act, Section 4(g)(2)........................................................... 20 
Glossary of Abbreviations

ATF .................................................................... Bureau of Alcohol, Tobacco, Firearms, and Explosives 

C&A ...........................................................................................................Certification and Accreditation 

CDC ....................................................................................................... Certified Development Company 

CFO .......................................................................................................................Chief Financial Officer 

CID ..........................................................................................................Criminal Investigative Division 

CIO ...................................................................................................................Chief Information Officer 

COC ..................................................................................................................Certificate of Competency 

COTR .................................................................................Contracting Officer’s Technical Representative 

DCMS ..................................................................................................Disaster Credit Management System 

DHS ..................................................................................................... Department of Homeland Security 

DOJ ......................................................................................................................... Department of Justice 

EPA ......................................................................................................Environmental Protection Agency 

EVM .................................................................................................................Earned Value Management 

FBI ..........................................................................................................Federal Bureau of Investigation 

FISMA ................................................................................. Federal Information Security Management Act 

GAO .................................................................................................... Government Accountability Office 

HHS ....................................................................................... Department of Health and Human Services 

HSPD ..........................................................................................Homeland Security Presidential Directive 

HUBZone .......................................................................................... Historically Underutilized Business Zone 

HUD ...................................................................................................... Housing and Urban Development 

IDMS ............................................................................................................. Identity Management System 

IPIA .................................................................................................. Improper Payments Information Act 

IRS ....................................................................................................................Internal Revenue Service 

IT ..................................................................................................................... Information Technology 

NCIS .................................................................................................Naval Criminal Investigative Service 

NGPC ....................................................................................................National Guaranty Purchase Center 

OCA .....................................................................................................................Office of Capital Access 

ODA ..............................................................................................................Office of Disaster Assistance 

OIG ................................................................................................................ Office of Inspector General 

OGC ..................................................................................................................Office of General Counsel 

OMB .....................................................................................................Office of Management and Budget 

PIV .............................................................................................................Personal Identity Verification 

POA&M ............................................................................................................Plan of Action and Milestones 

SBA ...........................................................................................................Small Business Administration 

SBDC ..................................................................................................Small Business Development Center 

SBIC .................................................................................................Small Business Investment Company 

SCORE .................................................................................................. Service Corps of Retired Executives 

SDB ........................................................................................................... Small Disadvantaged Business 

SOP .......................................................................................................... Standard Operating Procedures 

WBC .................................................................................................................. Women's Business Center 

 iii 
 
Overview of SBA and the OIG 

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 enabling the establishment and vitality of small 

businesses and assisting in the economic recovery of communities after disasters. The Agency’s current 

strategic plan has three programmatic strategic goals that broadly define what the Agency and its 

programs are trying to accomplish. 

 Expand America’s ownership society, particularly in underserved markets. 

 Provide timely financial assistance to homeowners, renters, nonprofit organizations and 

businesses affected by disaster. 

 Improve the economic environment for small business. 

A fourth goal in SBA’s strategic plan defines the responsibility of the Agency’s executive leadership and 

support functions to help accomplish the three programmatic goals. 

 Ensure management and organizational excellence to increase responsiveness to customers, 

streamline processes, and improve compliance and controls. 

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 field 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. 

As of March 31, 2009, SBA had 2,193 employees, including Office of Inspector General (OIG) 

personnel, but excluding a total of 2,982 disaster-funded employees for disaster loan making and disaster 

loan servicing. 

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 mission. In addition to its responsibilities under the IG Act, the OIG carries out other 

significant statutory responsibilities and Government-wide mandates, including responsibilities under the 

Small Business Act and the Small Business Investment Act. 

The OIG seeks to improve SBA programs by identifying key issues facing the Agency, following up to 

ensure that corrective actions are taken, and promoting a high level of integrity. The Office’s efforts and 

accomplishments during the first half of FY 2009, which are summarized in this report, focused on the 

two strategic goals in the OIG’s strategic plan. 

 Improving the economy, efficiency, and effectiveness of SBA programs and operations. 

 Promoting and fostering integrity in SBA programs and operations. 

1 
Overview of SBA and the OIG 

2 

Using this framework, the OIG concentrated on critical risks facing SBA, including (1)risks of financial 

losses due to limited oversight and controls; (2) risks to SBA's performance of its statutory mission to 

promote small business development and Government contracting; and (3) risks associated with SBA's 

information technology and financial management systems and other internal operations. 

Audit and other reports issued during this reporting period are listed in Appendix I. Investigative actions 

are summarized in Appendix X. Copies of OIG reports and other work products are available on the 

OIG’s website at http://www.sba.gov/ig. 
Agency Management Challenges 

Overview 

In accordance with the Reports Consolidation Act of 2000, the OIG each year 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 that 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 an assessment 

of Agency progress on each recommended action during the preceding fiscal year. 

The Management Challenges represent areas

that 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.

FY 2009 Report on SBA’s Top Management Challenges 

The Management Challenges identified in the OIG’s FY 2009 report, issued on October 20, 2008, 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. 

 Information systems security needs improvement. 

 Effective human capital strategies are needed to enable SBA to successfully carry out its mission 

and become a high-performing organization. 

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

process. 

 SBA needs to further strengthen its oversight of lending participants. 

 The Section 8(a) Business Development (BD) program needs enhanced business development 

processes, objectively defined eligibility standards, upgraded training and information systems, 

improved graduation procedures, and better oversight of contractor compliance with program 

regulations. 

 Insufficient and outdated SBA controls continue the excessive risk of the Small Business 

Investment Company (SBIC) program. 

 Effective tracking and enforcement would reduce financial losses from loan agent fraud. 

As in prior years, the FY 2009 report used a color-scoring scheme to show the Agency’s progress in 

addressing the actions needed to resolve each Management Challenge. The chart on the next page 

provides a summary of SBA’s progress for each of the eight Management Challenges in the FY 2009 

report. While 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. 

 

3 
Agency Management Challenges 

4 

Summary of SBA’s FY 2009 Management Challenges 

Status Score Change in Status 

Topic Green Yellow Orange Red New Improved Worsened 

1 Small Business Contracts 1 1 2 1 

2 IT Security 2 4 3 

3 Human Capital 3 

4 Loan Guaranty Purchase 2 1 1 2 

5 Lender Oversight 4 2 4 4 

6 8(a) BD Program 1 3 1 1 3 

7 SBIC Program 1 4 3 

8 Loan Agent Fraud 1 2 1 

Green-Implemented Yellow-Substantial progress Orange-Limited Progress Red-No progress 

“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. 
Recovery Oversight

Overview 

The American Recovery and Reinvestment Act of 2009 (Recovery Act), which was signed into law on 

February 17, 2009, contains a number of SBA provisions intended to help unlock credit markets and 

promote economic recovery for the nation’s small business sector. These include reduced loan fees, 

higher guaranties, new SBA credit programs, secondary market incentives, and enhancements to current 

SBA programs. In order to provide enhanced levels of transparency and accountability, the Recovery Act 

and related implementation guidance require increased reporting and oversight to deter and detect fraud, 

waste, and abuse and ensure that program goals are met. 

Given the severity of recent economic circumstances, there will be significant pressure on SBA to 

expedite and maximize financial assistance to small businesses in implementing Recovery Act programs. 

Past experience, such as SBA’s response to the 9-11 terrorist attacks and the 2005 Gulf Coast hurricanes, 

has shown that this pressure can increase the vulnerability of SBA’s programs to fraud and unnecessary 

losses. Therefore, the OIG’s oversight efforts will focus heavily on assessing the adequacy of internal 

controls and detecting and deterring fraud, waste, and abuse in Recovery Act programs. 

The OIG is devoting considerable effort to providing effective recovery oversight. OIG staff has met 

regularly with responsible SBA officials and communication processes have been established to monitor 

and provide recommendations regarding the Agency’s Recovery Act actions before they are 

implemented. Two examples of OIG’s accomplishments during the six-week period between 

February 17, 2009, and the end of the reporting period, are discussed below. Additional information 

regarding recovery oversight activities can be found on the OIG’s website at www.sba.gov/ig/recovery. 

OIG Oversight Framework 

The OIG has developed an oversight framework that identifies risks associated with SBA’s 

implementation of the Recovery Act, together with potential OIG oversight activities to address each of 

the risks. The OIG will use this framework to guide its oversight activities, including both immediate and 

long-term actions. The framework is available on the OIG’s website. 

Phishing Scam 

Soon after the Recovery Act became law, the OIG learned that small businesses across the country were 

receiving faxed letters on SBA letterhead offering assistance in obtaining tax rebates under the legislation. 

Businesses were requested to fax back bank account information to a number provided in the letter. The 

letters were not authorized by the SBA, but were fraudulent attempts to obtain financial information. In 

response, the OIG: (1) worked with the Agency to quickly issue a press release and Information Notice 

advising small businesses of the scam; (2) located the telecommunications company that was providing 

the fax number referenced in the letter, requested that the number be terminated, and received 

confirmation that this had occurred; and (3) informed other OIG’s of the scam so they could look out for 

similar scams in their agencies. 

5 
Disaster Loans

Overview 

The Disaster Loan program plays a vital role in the aftermath of disasters by providing long-term, 

low-interest 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 

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. 

In 2005, Gulf Coast Hurricanes Katrina, Rita, and Wilma caused more than $118 billion in estimated 

property damage; as of March 31, 2009, SBA had disbursed nearly $6.6 billion in loans to assist the 

victims of these disasters. More recently, as of March 31, 2009, SBA had approved nearly 15,000 

disaster loans, totaling almost $674 million, as a result of Hurricanes Gustav and Ike and flooding in the 

Midwest during 2008. The OIG’s audits and reviews continue to focus on loan origination, disbursement, 

repayment, servicing, and liquidation activities related to these loans, including whether loan applications 

were processed in accordance with SBA procedures; uses of loan proceeds were verified before loans 

were fully disbursed; duplicate benefits were appropriately identified and recovered; and loan servicing 

and liquidation activities were effectively staffed and managed. The OIG also continues to investigate 

allegations of unauthorized use of loan proceeds, overstatement of financial losses, material false 

statements in the application process, false/counterfeit supporting documentation, and false assertions 

regarding primary residency in affected areas at the times of the disasters. 

Use of Proceeds from Gulf Coast Disaster Loans 

An OIG review found that SBA’s Office of Disaster Assistance (ODA) did not have adequate controls in 

place to reasonably ensure that proper documents were secured from borrowers and that borrower receipts 

were sufficiently reviewed before making subsequent loan disbursements. As a result, ODA processed 

questionable claims, including some with potential fraud. 

The OIG reviewed a statistical sample of 127 loan disbursements and found that 69, or 54 percent, 

totaling $10.1 million, were made without proper documents and certifications. Rather, ODA processed 

disbursements with incomplete and unsigned certifications from borrowers. For example, case workers 

relied on vendor quotes and contractor proposals as evidence of work completed, receipts were of 

questionable authenticity, or no supporting documentation was provided. This occurred because ODA 

made procedural changes that eliminated review of borrower documentation supporting how prior 

proceeds were used for disbursements under 

$50,000 on secured loans, and provided case 

workers with discretion regarding which 

documents to review when making disbursements 

over $50,000 in aggregate. Through discussions 

with vendors associated with 31 of the 

disbursements reviewed, the OIG determined that ODA accepted inadequate support for $350,000 in 

expenditures on four loans which, upon further analysis, appeared to be false claims made by borrowers. 

Despite the questionable nature of the support submitted by these borrowers, case workers did not follow 

up with contractors and/or inspect damaged property to verify whether proceeds were used as claimed. 

The OIG reviewed a statistical sample of 127 loan 

disbursements and found that 54 percent were 

made without proper documents and certifications 

from borrowers 

6 
Disaster Loans

Further, because ODA had not secured borrower certifications for these expenditures, the Agency may 

have weakened its ability to pursue criminal penalties as well as civil remedies from these borrowers 

under the False Claims Act. 

The OIG recommended that the ODA reject unsigned or incomplete Borrower’s Progress Certification 

forms. Further, because “use of proceeds” reviews are an important control to detect fraudulent claims 

and ensure that repairs are being made, the OIG also recommended that ODA revise its Standard 

Operating Procedures (SOP) to (1) require review of either all, or a sample of, disbursements over 

$10,000 to provide assurance that prior proceeds were properly used, and (2) require that Borrower’s 

Progress Certification forms and supporting receipts be reviewed and signed by ODA to document that 

reviews were made. Finally, the OIG recommended that ODA reemphasize to reviewers that they should 

conduct site visits or contact vendors to confirm expenditures when questionable contractor receipts are 

submitted by borrowers. 

Borrower Eligibility for Gulf Coast Disaster Loans 

An OIG review found that ODA did not have adequate controls in place to prevent ineligible applicants 

from receiving disaster loans for properties that were not 

their primary residences. The OIG reviewed a sample of 

35 loans disbursed between October 2005 and October 

2008 and found that 29 loans, or 83 percent, were 

approved by ODA without adequately verifying whether 

the properties were the primary residences of the 

applicants. In addition, ODA did not obtain proof of ownership for one loan applicant. Further review 

determined that for 8 of the 29 loans, on which ODA disbursed $683,200, the properties may not have 

been the applicants’ primary residences. Another borrower received a Housing and Urban Development 

(HUD) Road Home Grant for approximately $19,000 after receiving an SBA disaster loan, resulting in a 

duplicate benefit. The OIG made two recommendations to address weaknesses associated with 

identifying borrowers’ primary residences, and a third recommendation that ODA request remittance 

from HUD for the Road Home Grant that duplicated disaster benefits awarded under the SBA loan. 

Improper Payment Rate for the Disaster Loan Program 

The Improper Payments Information Act (IPIA) of 2002 requires federal agencies to review their 

programs and activities annually, identify programs that 

may be susceptible to significant improper payments, 

estimate amounts improperly paid, and report on the 

amounts of improper payments and actions to reduce them. 

Since implementation of the IPIA, SBA has reported a low 

improper payment rate for the Disaster Loan program; 

however, an OIG review disclosed that SBA’s estimate for FY 2007 significantly understated the level of 

improper payments and was not statistically valid. SBA reported that improper payments were about 

$4.5 million, or 0.55 percent of the $819.7 million in loans approved in FY 2007. In contrast, the OIG 

estimated the improper payment rate to be at least 46 percent, or approximately $1.5 billion of $3.4 billion 

in loans disbursed in FY 2007. 

...ODA did not have adequate controls in 

place to prevent ineligible applicants from 

receiving disaster loans for properties that 

were not their primary residences. 

...the OIG estimated the improper payment 

rate to be at least 46 percent, or 

approximately $1.5 billion of $3.4 billion in 

loans disbursed in FY 2007. 

7 
Disaster Loans

SBA did not properly estimate the rate because of major sampling design errors, flaws in measurement 

methodology, and inadequate reviews of loan files. In 

preparing its estimate, the Agency employed attribute 

sampling, when it should have used variable sampling. 

The Agency also did not properly calculate the error rate 

or apply it when projecting the total value of FY 2007 

improper payments because it did not consult with a 

statistician, as required by Office of Management and Budget (OMB) guidance. In addition, SBA’s 

improper payment reviews did not adequately detect significant errors during loan origination and 

disbursement. The OIG’s review of 30 of the 210 loans sampled by SBA revealed nine improper 

payments, whereas the Agency had only identified two. Finally, loan reviewers did not have clear 

instructions regarding what constituted improper payments. 

SBA did not properly estimate the rate 

because of major sampling design errors, 

flaws in measurement methodology, and

inadequate reviews of loan files.

The OIG made seven recommendations to address the identified deficiencies. The Agency generally 

concurred with the recommendations, but commented on several issues raised in the report. ODA 

disagreed with OIG’s assertion that, to be accurate, improper payment reviews must be based on 

disbursements rather than approvals, but agreed to revisit the issue with OMB to obtain clear guidance for 

the Disaster Loan program. ODA also responded that payments involving a borrower’s lack of repayment 

ability or creditworthiness should not be considered improper because the Agency’s policy in effect at the 

time allowed such payments. The OIG contended that loans to borrowers lacking repayment ability 

constituted improper payments despite the approval process followed and ultimately conflicted with the 

intent of the IPIA. The Agency promised to work with OMB to clarify guidance and ensure issuance of 

appropriate disclosures for previously reported improper payment rates. 

Task Force Continues to Battle Gulf Coast Hurricane Fraud 

In conjunction with other law enforcement organizations on the Hurricane Katrina Fraud Task Force, the 

OIG had made 54 arrests and obtained 65 indictments and 59 convictions from the task force’s inception 

through March 31, 2009. The following are some examples of OIG cases related to the Gulf Coast 

hurricanes. 

 A Mississippi couple was indicted for conspiracy and theft of government funds based on an 

allegation that they received $300,000 in disaster relief funds, including $152,000 from an SBA 

disaster home loan, for an address that was not their primary residence. This case originated from a 

referral by the U.S. Attorney’s Office for the Southern District of Mississippi. The OIG is conducting 

this investigation jointly with the HUD OIG, the Mississippi State Auditor’s Office, the U.S. 

Department of Homeland Security (DHS) OIG, and the U.S. Department of Health and Human 

Services (HHS) OIG. 

 A Louisiana couple pled guilty to wire fraud. They received a $94,000 SBA disaster home loan and a 

$125,500 SBA disaster business loan, claiming damages from Hurricane Katrina to both their 

residence and a day care business located at the same address. The couple transmitted to SBA, via 

facsimile, false inflated receipts as supporting documentation for repairs completed. Based upon 

these receipts, SBA approved additional disbursements on the approved loans. The OIG is 

conducting this investigation jointly with DHS OIG and HUD OIG. 

8 
Disaster Loans

9 

 The operator of a Texas seafood business pled guilty to making a false and fraudulent statement. He 

had submitted a disaster loan application to SBA in which he claimed that the company had a 

Louisiana business location that sustained an estimated $2.8 million in damage from Hurricane Rita. 

In addition, he submitted a false commercial lease agreement showing that the company occupied real 

property in the Louisiana town during the hurricane, as well as fraudulent invoices showing more 

than $1.9 million in hurricane-related repair expenses. In fact, at no time did he own or operate a 

business in the Louisiana town. The OIG conducted this joint investigation with the Bureau of 

Alcohol, Tobacco, Firearms and Explosives (ATF) and DHS OIG. 

Aftermath of 9/11 Disaster Loan Fraud Results in Further Legal Actions 

In response to the September 11, 2001, terrorist attacks, SBA disbursed over $1.1 billion in disaster 

assistance loans. Unfortunately, as with other disasters, the need to disburse funds quickly created 

opportunities for dishonest applicants to commit fraud. OIG investigations have resulted in the 

prosecution of numerous parties who took advantage of this tragedy. For example, the former president 

of a foreign mining company was sentenced to 3 months in prison and 5 years supervised release after 

pleading guilty to being an accessory after the fact for helping a co-conspirator, the former owner of an 

auto supply company, to fraudulently negotiate an SBA-issued two-party check. After the attacks on 

New York City, the co-conspirator obtained an SBA 

disaster loan of nearly $647,000 for his company to pay 

outstanding debts. As part of the loan, he received a twoparty check from SBA for over $86,000 payable jointly to 

his company and the mining company. At the co-conspirator’s request, the mining company’s president 

deposited the check into his company’s account, kept $12,000 that the mining company was actually 

owed, and wire transferred the balance to the co-conspirator. The OIG is conducting this investigation 

jointly with the U.S. Postal Inspection Service. 

...the need to disburse funds quickly 

created opportunities for dishonest 

applicants to commit fraud. 
Small Business Access to Capital

Overview 

As of March 31, 2009, SBA had a financial assistance portfolio of guaranteed and direct loans of more 

than $90 billion. SBA’s largest lending program, and the principal vehicle for providing small businesses 

with access to credit that cannot be obtained elsewhere, is the Section 7(a) Loan Guaranty program. 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. As SBA has placed more responsibility and independence on its lenders, the 

need for OIG oversight has increased significantly. OIG reviews have continued to identify weaknesses 

in SBA’s lender oversight efforts. 

SBA’s 504 Loan program provides small businesses with long-term, fixed-rate financing, in the form of 

government-guaranteed loans, for the purchase of land, buildings, machinery, and other fixed assets. 

These loans are issued through a partnership with Certified Development Companies (CDC) and private 

sector third-party lenders and are funded through the issuance of government-guaranteed debentures. The 

CDC’s are non-profit corporations that are certified and regulated by SBA to package, process, close, and 

service loans under the 504 program. 

Another financial assistance program, the SBIC program, was established in 1958 to stimulate and 

supplement the flow of private equity capital and long-term debt financing to small business concerns 

using private venture capital firms and SBA-guaranteed funding. In addition, 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. 

Review of Liquidation Process at the National Guaranty Purchase Center 

SBA guarantees loans that are made by participating lenders. Upon default, SBA authorizes lenders to 

continue servicing the account and, should liquidation become necessary, completely liquidate or sue 

upon the loan instrument. During the liquidation process, SBA’s National Guaranty Purchase Center 

(NGPC) in Herndon, Virginia, reviews and approves lender actions, if necessary. When no further 

recovery is expected on a loan, the NGPC also performs a review to determine if the lender materially 

complied with SBA’s liquidation requirements. 

The OIG reviewed the liquidation processing for defaulted 7(a) loans at the NGPC to determine whether 

(1) the Center’s liquidation process, which culminates in loan charge-off, identified and addressed lender 

noncompliance with SBA’s procedures to mitigate 

losses, and (2) the Center adequately managed loans in 

liquidation status. Based on a statistical sample of 54 

of 7,120 loans charged-off between October 2005 and 

July 2007, the OIG found that the NGPC’s purchase 

and liquidation processes did not identify or address 

lender deficiencies meriting repair or denial of guaranties for 21 of the loans, totaling $1.4 million (the 

OIG recommended recovery of all but $.2 million of these payments in a prior reporting period). Based 

on these results, the OIG estimated that SBA made at least $23 million in improper payments on loans 

charged-off during the time period reviewed. 

Based on these results, the OIG estimated

that SBA made at least $23 million in 

improper payments on loans charged-off

during the time period reviewed.

10 
Small Business Access to Capital

The OIG also reviewed a sample of 60 charged-off loans out of 9,143 loans that were in liquidation 

between July 2006 and July 2007. Seventy-seven percent were in liquidation for an average of three 

years, and were not properly monitored. As a result, the NGPC did not timely recover approximately 

$2.6 million in improper payments and liquidation proceeds, timely charge-off or remove 44 loans from 

the liquidation portfolio, or correctly report the outstanding balances on two loans. Based on these 

results, the OIG estimated that at least 6,034 loans in liquidation as of July 31, 2007, had overstated 

values of at least $324 million. 

The OIG made six recommendations for mitigating the deficiencies found in the NGPC’s liquidation 

process, developing better management of the Center’s liquidation portfolio, and improving lender 

oversight. 

Review of SBA-Serviced Liquidation of Certified Development Company Loans 

Certified Development Company (CDC) loans are placed into liquidation when SBA purchases the 

debentures that guarantee the loans. Currently SBA processes most of the liquidations, while others are 

processed by Premier Certified Lenders (PCL) and Authorized CDC Liquidators (ACL). In 

February 2007, SBA centralized all of its CDC liquidations by shifting liquidation responsibilities from 

its district offices to two commercial loan service centers in Fresno, California and Little Rock, Arkansas. 

The OIG conducted a review of CDC liquidations to determine (1) whether SBA’s liquidation efforts 

maximized recoveries of outstanding balances on purchased CDC loans, and (2) whether centralization 

improved the liquidation process. 

The OIG reviewed a sample of 95 loans that were in liquidation as of July 29, 2007, having outstanding 

loan balances totaling of $29.3 million, and found 

that SBA did not maximize opportunities to recover 

$12.7 million on 30 of the loans. Based on the 

sample results, the OIG estimated that SBA missed 

opportunities to collect at least $106 million on 

1,427 loans in liquidation as of July 29, 2007, that had recorded purchase dates. Missed collection 

opportunities were attributed to deficiencies found in all of the key areas of the liquidation process. 

Specifically, SBA did not: 

...the OIG estimated that SBA missed 

opportunities to collect at least $106 million on 

1,427 loans in liquidation... 

 Conduct adequate or timely protective bid analyses; 

 Obtain current appraisals; 

 Perfect liens; 

 Identify and pursue all available assets; 

 Attempt and reach compromises reflective of obligors’ repayment ability; 

 Properly charge-off loans; or 

 Refer charged-off loans to Treasury. 

The OIG also found that, in the first 6 months after centralization, there was no measurable improvement 

in the percentage of fully liquidated loans at the service centers because the two centers inherited a large 

number of incomplete loans files and focused resources on reducing a backlog of older loans awaiting 

charge-off; by April 2008, SBA had reduced the backlog from as high as 509 to 153. SBA has since reengineered the liquidation process and increased staffing at the two centers. These improvements are 

11 
Small Business Access to Capital

expected to expedite referral of loans to Treasury for further debt collection. The Agency agreed with 

OIG’s recommendation to evaluate whether these improvements have enabled the centers to complete all 

required liquidation actions and, if not, make appropriate staffing and process adjustments to do so. 

Ongoing Investigation Continues to Generate Prosecutorial Actions 

Eighteen individuals were arrested in 2007 by OIG and U.S. Secret Service agents for a scheme in which 

a lender’s former executive vice president and others conspired to fraudulently qualify loan applicants for 

SBA-guaranteed loans, primarily for the purchase of gas stations, across several Midwestern states. The 

scheme involved at least 89 fraudulent loans issued before the fraud was discovered and the lender’s 

office was subsequently closed. The loans totaled approximately $85 million. Thus far, 37 individuals 

have been indicted or otherwise charged and 24 

have been convicted. Four of those individuals are 

international fugitives. To date, court-ordered 

restitution, SBA recoveries of loan guaranties 

from the lender, and potential cost savings from the withdrawal of loan guaranties total approximately 

$56.5 million. The investigation is continuing, with more indictments expected. The following cases are 

part of the ongoing joint investigation with the U.S. Secret Service, except for the case involving the 

owner of an Illinois finance company, which is a joint effort with the Federal Bureau of Investigation 

(FBI). 

This investigation has identified 89 fraudulent 

loans totaling about $85 million and has, thus far, 

resulted in the indictment of 37 individuals. 

 

 The former executive vice president mentioned above was sentenced to 120 months incarceration 

and 2 years supervised release, and was ordered to pay $30 million in restitution to the lender, 

nearly $3 million to a bank, and over $800,000 to SBA. He previously pled guilty to conspiracy 

to defraud SBA and to lying to a federal grand jury. 

 A former employee of a Michigan bank was sentenced to 9 months home confinement and 

5 years probation for misapplication of bank funds. She had issued a $1,680,000 cashier’s check 

based on a non-sufficient funds credit card check written by a bank customer. The investigation 

found that the unfunded cashier’s check was used by a Michigan man and his co-conspirators to 

purchase a house with the intent to promptly resell (or “flip”) the property to a straw buyer. 

 The former owner of an Illinois finance company pled guilty to bank fraud as well as fraud 

involving bank entries, reports, and transactions. The bank fraud charge related to his submitting 

a false account verification letter and bogus tax returns to influence a bank’s approval of a 

$1.2 million home equity line of credit. The second charge related to a scheme to induce a nonbank lender and SBA to approve a $1.35 million SBA-guaranteed loan to one of his companies. 

He also provided fraudulent cashier’s checks at loan closing. In addition to his own SBA loan, he 

brokered SBA-guaranteed loans for others through the non-bank lender involved in the 

investigation. Fraudulent equity injection documentation was provided to the lender in at least 

20 instances. The total loss, including loans charged off and loans now in liquidation, is over 

$9 million. 

 A Michigan man pled guilty to making a false statement for the purpose of influencing the action 

of SBA. He signed a HUD settlement statement that falsely represented that he paid a $510,000 

deposit for the purchase of two gas stations. The total amount of the two SBA loans involved in 

the transactions was $1.35 million. 

12 
Small Business Access to Capital

Corrupt Loan Agents Harm SBA Loan Programs 

A prospective borrower or a lender may pay a loan agent to prepare documentation for an SBA loan 

application and/or refer the borrower to a lender (or vice versa). Although honest loan agents connect 

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

millions of dollars in SBA-guaranteed loans. Such loans often default for nonpayment, thus increasing 

losses in the loan guaranty program. 

In one case, a loan broker, a business associate of the broker, and a broker-created Texas corporation 

allegedly defrauded a Texas bank by fraudulently 

procuring a $980,000 SBA-guaranteed loan to 

purchase three convenience stores. The loan broker 

had wanted to purchase only one store, but the stores 

were not being sold individually. He recruited two 

additional borrowers to purchase the three stores under another name, knowing that the borrowers were 

not able to pay the required capital injection. The bank’s business development officer allegedly accepted 

a $1,500 check from the loan broker in exchange for influencing the award of the loan. The officer’s wife 

allegedly negotiated the check, which was made out to her. The broker, the bank officer, the bank 

officer’s wife, the broker’s business associate, and the corporation were all indicted on various counts of 

aiding and abetting and criminal forfeiture. In addition, the broker, his associate, and the corporation 

were indicted for bank fraud. Finally, the broker was indicted for bribing a financial institution officer, 

while the bank officer and his wife were indicted for accepting a bribe by a financial institution officer. 

The OIG is conducting this investigation jointly with the FBI. 

...disreputable agents have perpetrated frauds 

involving hundreds of millions of dollars in 

SBA-guaranteed loans

Criminals Use an Array of Methods to Defraud Loan Guaranty Programs 

Criminals use an assortment of tactics to fraudulently obtain–or induce others to obtain–SBA-guaranteed 

loans. Such tactics include submitting fraudulent documents; making fictitious asset claims; manipulating 

property values; using loan proceeds contrary to the terms of the loans; and failing to disclose debts, prior 

criminal records, or other SBA-backed loans. These actions make financial loss to SBA and its lenders 

more likely. The following examples illustrate what people are willing to do to fraudulently obtain SBA 

loans. 

 The former owner of a Virginia grocery store was sentenced to 2 years probation, over $188,000 

in restitution, and a $100 special assessment fee after previously pleading guilty to wire fraud in 

connection with a $690,000 SBA-guaranteed business loan secured by her home. In order to 

obtain cash through her collateralized home, she downloaded a bank letterhead from the Internet 

and created a fraudulent release of lien. As a Virginia notary, she notarized the fraudulent release 

of lien and then posed as a bank official to record it at the county land record office. She then 

refinanced her home and received a cash payout of approximately $158,000. During a routine 

asset check, bank officials discovered the fraudulent release of lien and reported their findings to 

SBA and the OIG. She defaulted on the loan, resulting in a loss of nearly $318,000 to the 

Agency. 

 Between 2002 and 2005, the president of a Texas slaughtering business received $1,236,500 in 

SBA-guaranteed loans and an additional $1,712,000 in non-SBA loans. He used numerous 

13 
Small Business Access to Capital

fraudulent representations and documents to convince multiple lenders that he had sufficient 

collateral and income to repay the amounts borrowed. He was sentenced to 37 months in prison, 

5 years supervised release, a $10,000 fine, nearly $2.4 million in restitution, and a $600 special 

assessment fee after pleading guilty to wire fraud, aiding and abetting, and making a false 

statement to a bank. The OIG is conducting this investigation jointly with the FBI. 

 An Illinois man was involved in a scheme to induce a non-bank lender to approve three separate 

loans (one SBA-guaranteed loan and two non-SBA loans)–totaling more than $4 million–to 

purchase three gas stations in Iowa. Along with a co-conspirator, he enlisted “front” borrowers 

and provided the lender with fraudulent documentation on behalf of the borrowers in order for the 

three loans to be approved. The man pled guilty to bank fraud and fraud involving bank entries, 

reports, and transactions. The co-conspirator previously pled guilty to making false statements. 

The OIG is conducting this investigation jointly with the FBI. 

 A Colorado man was indicted for submitting a false loan application. He received two SBAguaranteed loans totaling $1.35 million but allegedly hid his criminal history, which would have 

precluded him from receiving the loans. Criminal history records showed that he had pled guilty 

to embezzling over $115,000 from an organization while he was its executive director. He had 

also pled guilty to a third degree assault charge. The estimated loss on the loans is $970,000. 

This case was initiated based on a referral from the FBI. The OIG is working this investigation 

jointly with the FBI. 

 An Illinois man pled guilty to wire fraud in connection with two SBA-guaranteed loans from two 

lenders in the amounts of $660,000 and $200,000 for the nearly simultaneous purchases of two 

construction-related businesses. At the time of his loan applications, he had been arrested and 

faced theft and fraud charges related to a third business that he owned. He concealed the felony 

arrest, as well as pending charges from the SBA lenders, in order to qualify for the loans. In 

addition, he falsified the required equity injections for both loans. 

 A Colorado woman was ordered to pay over $1.7 million in restitution to various parties, 

including SBA, a non-bank lender, the physician who employed her, a health care group, and an 

insurance company. She previously had been sentenced to 60 months incarceration and 

60 months of parole for felony theft. While employed as an office manager, she used her 

employer’s personal information and signature stamp to fraudulently obtain two SBA loans 

totaling $150,000, a non-SBA loan of nearly $181,000, as well as other funds, primarily for her 

personal benefit. The OIG worked this investigation jointly with the Denver District Attorney’s 

office based on a referral from the lender. 

False Equity Injection Continues to Affect Loan Programs 

A borrower’s own financial stake in a business is known as equity (or capital) injection. An individual is 

less likely to default on a loan if he or she personally has something at risk in the business. SBA requires 

that borrowers inject such available money into projects financed by guaranteed loans. Some borrowers 

circumvent this requirement by falsifying the amount or source of such injections. 

For example, an investigation disclosed that a company obtained a $1 million SBA-guaranteed loan 

through a non-bank lender and a $300,000 non-SBA loan from a bank to purchase a convenience store 

14 
Small Business Access to Capital

15 

from another company. It is alleged that the defendants falsely represented to the bank that the purchaser 

provided funds at closing. Consequently, four individuals in Texas were indicted for conspiracy, false 

statements on a loan application, aiding and abetting, mail fraud, and wire fraud. Two of the individuals 

were the president and vice president of a business that owned convenience stores. The third individual 

owned a business that purchased convenience stores, and the fourth individual owned a title company. 

The OIG is conducting this investigation jointly with the FBI. 
Small Business Development, Contracting, Education, and Training

Overview 

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

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. 

To help small disadvantaged businesses gain access to federal and private procurement markets, SBA’s 

Section 8(a) Business Development program offers a broad range of business development support, such 

as mentoring, procurement assistance, business counseling, training, financial assistance, surety bonding, 

and other management and technical assistance. SBA also 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. 

8(a) Fraud Investigation Results in Sentencing 

The Section 8(a) Business Development program for small businesses operated by socially and 

economically disadvantaged individuals provides preferences in obtaining federal contracts. Such 

preferences can be an incentive for a firm to falsely claim 8(a) status. Although the program requires that 

a disadvantaged individual have control and ownership of an 8(a) company, this sometimes is not the 

case. The OIG is conducting the following interrelated investigations jointly with the Environment 

Protection Agency (EPA) Criminal Investigative Division (CID), the Naval Criminal Investigative 

Service (NCIS), the Internal Revenue Service (IRS) CID, and the FBI. 

 

 A non-disadvantaged businessman involved with three Maryland SBA 8(a)-certified demolition 

and asbestos abatement companies conspired with others by not disclosing that nondisadvantaged individuals provided critical bonding, insurance, financial support, and control 

over the companies. Between 2002 and 2004, and without SBA’s knowledge and approval, the 

businessman and his co-conspirators received approximately $900,000 more in bonuses and 

salaries than the president of one of the 8(a) firms. The businessman was sentenced to 30 days in 

jail, 6 months home confinement, 18 months supervised release, a $20,000 fine, and a $100 

special assessment fee after previously pleading guilty to conspiracy to defraud SBA. 

 Another non-disadvantaged Maryland man conspired with one of the above companies and other 

individuals by not disclosing critical support and control that he provided to that company and the 

two other 8(a) firms. The company concealed the fact that non-disadvantaged individuals 

exercised significant control over the contracts bid upon and the selection and payment of 

subcontractors. The man was sentenced to 18 months in prison, 3 years supervised release, a 

$400,000 fine, $300,000 in restitution, and a $200 special assessment fee for conspiracy to 

defraud SBA and participation in a money laundering conspiracy. The company was sentenced 

to 3 years probation, a $75,000 fine, and a $400 special assessment fee for conspiracy to defraud 

16 
Small Business Development, Contracting, Education, and Training

17 

SBA. Moreover, SBA suspended the company from the 8(a) program and suspended the 

company and its owner from any federal procurement or non-procurement programs and 

activities. 

 Finally, the president and owner of a Maryland demolition and asbestos abatement company 

conspired with others to maintain a company’s 8(a) eligibility by not disclosing that nondisadvantaged individuals provided start-up money for the company, exercised significant control 

over the contracts bid upon, and directed the selection and payment of subcontractors. Although 

this person was the qualified disadvantaged individual, the non-disadvantaged individuals 

received the additional $900,000 in bonuses and salaries mentioned above. The owner was 

sentenced to 2 months in jail, 3 years probation, a $100,000 fine, and a $100 special assessment 

fee for conspiracy to defraud SBA. 

Legislation Requires Approval of SBDC Surveys 

In December 2004, Congress amended Section 21(a)(7) of the Small Business Act to restrict 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. To date, however, SBA has not issued these regulations. 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. 
Agency Management

Audit of SBA’s FY 2008 Financial Statements 

On November 14, 2008, pursuant to the Chief Financial Officers Act of 1990, KPMG LLP issued the 

independent auditors’ report and accompanying reports on internal control and compliance with laws and 

regulations for the fiscal year ended September 30, 2008. The audit was performed under a contract with 

the OIG. 

...the independent auditor again reported a 

significant deficiency related to information 

technology (IT) controls

The independent auditors’ report concluded that SBA’s consolidated financial statements presented the 

financial position of SBA fairly, in all material respects, including net costs, changes in net position, and 

combined statements of budgetary resources, for the 

years ending September 30, 2008 and 2007. The report 

did not find any instances of noncompliance with 

applicable laws and regulations; however, with respect 

to internal control over financial reporting, the 

independent auditor again reported a significant deficiency related to information technology (IT) 

controls, but did not consider the deficiency to be a material weakness. It noted that, while SBA has 

made progress in its efforts to address prior IT internal control deficiencies since last year’s report, 

deficiencies continue to exist for security access controls, software program changes, and end-user 

computing. The Agency concurred with the independent auditors’ findings and agreed to implement their 

recommendations. 

In its Management Letter, dated December 17, 2008, KMPG identified non-reportable conditions that 

came to its attention during this audit. It commented on internal controls over financial reporting and 

other operational matters that were not considered reportable for the purposes of this audit, recognizing a 

need for improvement in the following areas: 

 Timely charge-off of delinquent loans; 

 Adherence to IT general control procedures and review of payments; 

 Development of procedures to track loan files; 

 Loan guaranty approval processes and prevention of duplicate loans; 

 On-site lender reviews and examinations; and 

 Congressional grant monitoring. 

Issues recognized in the FY 2007 Financial Statement audit that still needed improvement included: 

 Guaranty loan charge-off and lender follow-up processes; 

 Development and communication of standard operating procedures; 

 Undelivered orders; and 

 Payroll processing and controls over official personnel files. 

Resolved issues from the FY 2007 Financial Statement audit included: 

 Loan guaranty purchase process; and 

 Review of the disaster program credit model calculations 

The Agency concurred with these findings and agreed to, or had already begun implementing, KPMG’s 

recommendations. 

18 
Agency Management

HSPD-12 Card Issuance System 

...SBA had not fully satisfied any of three OMB 

requirements for 2007 and would not meet a 

fourth in 2008. 

Homeland Security Presidential Directive 12 (HSPD-12) requires federal agencies to implement a system 

for Personal Identity Verification (PIV) cards. To comply with this Directive, SBA developed an Identity 

Management System (IDMS) to maintain the 

personal identity information of its employees. An 

OIG review of this system found that SBA had not 

fully satisfied any of three OMB requirements for 

2007 and would not meet a fourth in 2008. 

Specifically, SBA was not a certified organization capable of developing or operating an HSPD-12 

compliant system, did not ensure that the development contractors were GSA-approved, and did not 

perform a security review of IDMS to ensure privacy data maintained was adequately protected. 

Moreover, SBA did not follow systems development protocol or conduct acceptance testing when 

introducing major software and hardware changes. Consequently, IDMS experienced server freezes, data 

integrity issues, user processing bottlenecks, and problems capturing and verifying fingerprints, as well as 

other issues. SBA also did not follow its own capital investment policy for IT investments costing more 

than $200,000 in a single year or more than $500,000 over three years. To ensure that IDMS was 

managed within budget and schedule, and complied with OMB requirements for project funding, the 

Agency should have used Earned Value Management (EVM) techniques to manage the project. 

...SBA did not consistently ensure that 

contractors were properly vetted prior to granting 

them access to sensitive SBA systems and data...

...the OIG recommended that SBA immediately

cease IDMS operations until the system is deemed

capable of protecting the privacy data it contains. 

Based on the significant risk of maintaining personal identity information in a system that has not 

undergone required security reviews, the OIG recommended that SBA immediately cease IDMS 

operations until the system was deemed capable 

of protecting the privacy data contained therein. 

The OIG also recommended that SBA comply 

with Certification and Accreditation (C&A) 

requirements to secure HSPD-12 and IDMS operations, conduct tests to ensure IDMS meets functional 

requirements, use EVM techniques to manage project performance, and report a baseline plan for 

accomplishing the project’s objectives to OMB, as required. 

System Access by Contractors Without Security Clearances 

The OIG is required to annually assess SBA’s compliance with the Federal Information Security 

Management Act (FISMA). To supplement the FY 2008 assessment, the OIG conducted a review of 

system access by contractors without security 

clearances. The OIG found that SBA did not 

consistently ensure that contractors were properly 

vetted prior to granting them access to sensitive 

SBA systems and data and did not consistently report and track this vulnerability in its Plan of Action and 

Milestones (POA&M). 

The OIG recommended that the Chief Information Officer (CIO) require system owners to confirm that 

all contractor personnel with access to sensitive systems and data have background investigations and 

clearances commensurate with SBA policy and immediately suspend system access for any contractors 

not in compliance. The OIG also recommended measures to heighten or clarify notification, review, selfassessment, rating, reporting, and documentation requirements to ensure compliance. 

19 
Agency Management

 

National Guaranty Purchase Center Furniture Contract 

The OIG initiated a review in response to allegations that SBA made an advance payment for the 

purchase and installation of workstation furniture at the NGPC in Herndon, Virginia, that was not 

delivered. The OIG found that: 

 The original award was inappropriately sole-sourced to a small business contractor. In addition, 

shortly thereafter, the contract was inappropriately modified, doubling the value of the original 

award. 

 SBA violated federal regulations by (1) advancing a $226,678 payment to the contractor prior to 

delivery of the furniture, and (2) making two additional payments totaling $78,856 that were 

unrelated to the contract. 

 The Contracting Officer’s Technical Representative (COTR) inappropriately certified that the 

contractor should be paid and did not inform the contracting officer that the furniture had not 

been delivered. The contractor failed to use the advance to pay the vendor, resulting in 

repossession of the furniture. 

 SBA inappropriately reduced the contractor’s debt for the undelivered furniture based solely on 

un-validated contractor invoices. 

 The vice president of the contractor was also the owner of the subcontractor; therefore, the 

subcontractor may not have acted independently in repossessing the furniture. 

 Two SBA contracting officers involved in the contract did not follow applicable rules or 

regulations. They signed documents without full knowledge of what they were approving and 

made decisions without informing superiors or requesting assistance from SBA’s Office of 

General Counsel (OGC). 

The OIG recommended that SBA establish controls to prevent inappropriate contract modifications; 

revise its SOP to require proof of delivery of goods and services with payment requests; determine 

whether $239,030 in payments to the contractor were proper and, if not, seek reimbursement; and 

determine whether disciplinary actions should be taken against the SBA contracting officers who 

managed the contract. The Agency agreed with most of the recommendations, but planned further legal 

consultation before determining whether debarment action against the contractor was feasible, 

appropriate, and warranted. 

Agency Management Decisions 

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

recommendations within 6 months of report issuance. Agency officials may agree, disagree, or propose 

alternative actions to the recommendations. In an attempt to reduce the number of overdue management 

decisions, the OIG revised its reporting process by requesting that the Agency transmit decisions on audit 

recommendations at the same time that it provides management comments to the draft report. During this 

reporting period, management decisions were made for 62, or 73 percent, of the 85 recommendations that 

20 
Agency Management

21 

were issued. At the end of the semi-annual reporting period, SBA had not made decisions on 

8 recommendations that were made in prior reporting periods. 

SBA Gift Authority 

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, SBA did not accept any cash gifts 

during this semiannual reporting period. 

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 the cosponsors. This information was not verified by the OIG. As shown in Appendix IX, 

between October 1, 2008 and March 31, 2009, there were 51 cosponsored events. 
Other Significant OIG Activities

Character Screening Lessens Potential Program Fraud 

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

certifications, surety bond guarantees, SBICs, and Certified Development Companies must meet Agency 

character standards. To help 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 1,423 external name check requests for these programs. 

As a result of OIG referrals during this reporting 

period, SBA business loan program managers declined 

25 applications totaling nearly $8.6 million, and 

disaster loan program officials declined 14 applications 

totaling over $1.1 million. 

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

adjudication. The referrals are based on data 

from the OIG’s on-line connection with the 

FBI. As a result of OIG referrals during this 

reporting period, SBA business loan program 

managers declined 25 applications totaling 

nearly $8.6 million, and disaster loan program 

officials declined 14 applications totaling over 

$1.1 million. In addition, the Section 8(a) program declined 11 applications for admission. 

During this reporting period, the OIG also initiated 184 background investigations and issued 

16 security clearances for Agency employees and contractors. The OIG also adjudicated 88 background 

investigative reports and coordinated with the ODA to adjudicate 136 derogatory background 

investigation reports. Finally, the OIG processed 2,166 internal name check requests for Agency 

activities such as success stories, “Small Business Person of the Year” nominees, and disaster assistance 

new hires. 

OIG Promotes Debarment and Administrative Enforcement Actions 

The OIG regularly identifies candidates for

debarment and submits detailed recommendations 

with supporting documents to facilitate the efforts 

of the SBA debarment officials.

The OIG has aggressively promoted debarments by SBA as deterrence against parties that have engaged 

in fraud or have otherwise exhibited such a lack of 

business integrity that it is in the public interest to 

exclude them from receiving government contracts 

and other federal benefits. The OIG regularly 

identifies candidates for debarment and submits 

detailed recommendations with supporting 

documents to facilitate the efforts of the SBA debarment officials. Debarment statistics for the reporting 

period are in the Statistical Highlights section of this report. 

The OIG has recently made a number of recommendations for debarment based upon fraudulent conduct 

in the SBA business loan programs. As a result of several OIG investigations, numerous individuals have 

been identified as submitting falsified proof of equity injections, making false claims of U.S. citizenship, 

and submitting false financial information in order to obtain SBA-guaranteed loans. The OIG also 

recommended debarment of an individual and his company for submitting false financial information as 

part of a Certificate of Competency (COC) application. The COC was needed in order for the company 

to be awarded a $2.3 million federal contract. As of the close of the reporting period, the Agency was 

considering these various recommendations. 

22 
Other Significant OIG Activities

23 

The OIG has also recommended that SBA develop better procedures for taking administrative 

enforcement actions against loan agents and packagers that commit fraud or other wrongdoing. Past OIG 

investigations have identified loan agent fraud on hundreds of millions of dollars of SBA loans. SBA’s 

regulations at 13 C.F.R. Part 103 authorize the Agency to suspend or revoke a loan agent’s privilege to 

conduct business with SBA. The regulations discuss the types of activities considered to be “good cause” 

for suspending or revoking an agent but are silent on what procedures must be followed in order to 

undertake a revocation or suspension action. To help deter fraud by loan agents and packagers, the OIG 

has recommended that the Agency issue procedures to be used for these types of administrative 

enforcement actions. 

OIG Reviews of Proposed Agency Regulations and Initiatives Lead to Improved Program Controls 

The internal controls that an organization puts into place are integral to the detection and deterrence of 

waste, fraud, abuse, and inefficiencies. Additionally, federal agencies enforce integrity and accountability 

through the regulations they issue to govern their programs. As part of its oversight of Agency programs 

and operations, the OIG each year reviews and provides comments on a large number of proposed 

revisions to SBA regulations and internal control documents, such as SOPs, policy notices, forms, and 

plans for Agency reorganizations. Frequently, the OIG identifies material weaknesses and provides the 

Agency with recommendations and proposed revisions to promote more effective controls. During this 

reporting period, the OIG reviewed 55 proposed revisions of internal control documents and submitted 

comments on 32 of these initiatives. 

The Agency’s adoption of OIG recommendations has resulted in more robust controls in and 

enhancements to a wide variety of Agency directives. For example, the OIG reviewed and commented on 

material weaknesses in various proposed revisions of regulations and internal controls for the 8(a) 

Business Development program, which has historically experienced weaknesses in its oversight 

capabilities. The OIG comments focused on improving controls over these programs in order to promote 

accountability among, and prevent fraud and abuse by, program participants. In addition, OIG comments 

focused on strengthening SBA’s oversight of the performance of federal procurement actions by 8(a) 

companies to ensure compliance with subcontracting limitations. 

Other examples of OIG efforts in this area concerned several regulatory and procedural revisions for the 

business loan programs, including comments recommending that SBA (1) strengthen its oversight of 

lenders participating in these programs during the Agency’s reviews of lender requests for payment of 

loan guaranties, and (2) clarify SOPs governing underwriting by lenders. At the end of the reporting 

period, the OIG also provided comments on proposed internal control documents and regulations 

prepared by the Agency in connection with its implementation of the Recovery Act. Finally, the OIG 

provided extensive comments on a proposed revision of internal operating procedures regarding the 

acceptance of gifts by SBA employees, so as to limit the potential for bribes and conflicts of interest, and 

a proposed revision of the Agency’s internal control procedures. 

Fraud Awareness Briefings 

During this reporting period, the OIG conducted 6 fraud awareness presentations for approximately 980 

representatives of lending institutions, federal and local agencies, and law enforcement organizations. 

Topics included loan agent and lender fraud, as well as fraud indicators in other SBA loan programs. 
Statistical Highlights

6-Month Productivity Statistics 

October 1, 2008 through March 31, 2009 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ................................................................... $41,653,389**

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $2,157,000 

C. Loans Not Made as a Result of Name Checks ....................................................................... $9,695,653 

D. Disallowed Costs Agreed to by Management ........................................................................ $2,929,457 

E. Recommendations that Funds Be Put to Better 

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

 Total..................................................................................................................................... $56,435,499

Efficiency and Effectiveness Activities Related to Audits and Other Reports

A. Reports Issued ...................................................................................................................................... 12 

B. Recommendations Issued ..................................................................................................................... 85 

C. Dollar Value of Costs Questioned.......................................................................................... $4,274,033 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use ............................................................................................................ $46,367,586 

E. Collections as a Result of Questioned Costs ........................................................................................ $0 

Audit and Report Follow-up Activities 

A. Recommendations for which Management Decisions were made 

 During the Reporting Period ................................................................................................................ 62 

B. Disallowed Costs Agreed to by Management ........................................................................ $2,929,457 

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

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

D. Recommendations without a Management Decision at End of Reporting Period ............................... 27 

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

A. Legislation, Regulations, Standard Operating Procedures, and Other Issuances * Reviewed ............. 55 

** Includes $89,641 in restitution/recovery funds not reported in the previous semiannual period. 

24 
Statistical Highlights

25 

6-Month Productivity Statistics 

October 1, 2008 through March 31, 2009 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases................................................................................................................ 32 

B. Convictions from OIG Cases.............................................................................................................. 27* 

C. Cases Opened ....................................................................................................................................... 37 

D. Cases Closed......................................................................................................................................... 61 

Investigations Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations .......................................................................................................... $41,653,389** 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $2,157,000 

C. Loans Not Approved as a Result of the Name 

 Check Program...................................................................................................................... $9,695,653 

 Total..................................................................................................................................... $53,506,042

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 .......................................................................................... 16 

B. Debarments Pending at the Agency ..................................................................................................... 24 

C. Proposed Debarments Issued by the Agency ....................................................................................... 26 

D. Final Debarments Issued by the Agency ................................................................................................ 0 

E. Proposed Debarments Declined by the Agency ..................................................................................... 2 

OIG Hotline Operation Activities

A. Total Fraud Line Complaints.............................................................................................................. 231 

B. Total Complaints Referred to Investigations Division......................................................................... 41 

C. Total Complaints Referred to SBA or Other Federal Investigative Agencies........................................ 2 

D. Total Complaints Referred to Other Entities.......................................................................................... 4 

E. Total Complaints Needing No Action..................................................................................... 184 

* Includes one conviction that occurred in the last semiannual reporting period that was not reported. 

** Includes $89,641 in restitution/recovery funds not reported in the previous semiannual period. 
Appendices

Appendix I 

OIG Reports Issued 

October 1, 2008 through March 31, 2009 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Disaster Loans 

Audit of Use of Proceeds from Gulf 

Coast Hurricane Disaster Loans 9-06 01/15/2009 $0 $10,147,500

Review of Borrower Eligibility for 

Gulf Coast Disaster Loans 9-09 03/31/2009 $19,000 $683,200

Audit of Improper Payments in the 

Disaster Assistance Program 9-10 03/26/2009 $0 $0

Program Subtotal 3 $19,000 $ 10,830,700

Small Business Access to Capital

Audit of the Liquidation Process at 

the National Guaranty Process Center 9-08 01/30/2009 $2,800,000 $22,836,886

SBA-Serviced Liquidation of 

Certified Development Company 

(CDC) Loans 

9-11 03/30/2009 $0 $0

Program Subtotal 2 $2,800,000 $22,836,886

Agency Management

SBA’s Implementation of an HSPD12 Card Issuance System 9-01 10/06/2008 $0 $0

Fiscal Year 2009 Report on the Most 

Serious Management and 

Performance Challenges Facing the 

Small Business Administration 

9-02 10/10/2008 $0 $0

Audit Of SBA’s Fiscal Year 2008 

Financial Statements 9-03 11/14/2008 $0 $0

GFRS for Fiscal Year 2008 9-04 11/14/2008 $0 $0

Audit of SBA’s Fiscal Year 2008 

Financial Statements - Management 

Letter 

9-05 12/17/2008 $0 $0 

System Access By Contractors 

Without Security Clearances 9-07 1/26/2009 $0 $0

Review of SBA National Guaranty 

Purchase Center Furniture Contract 9-12 3/31/2009 $239,030 $0

Program Subtotal 7 $239,030 $0

TOTALS (all programs) 12 $ 3,058,030 $ 33,667,586 

26 
Appendices

Appendix II 

OIG Reports with Questioned Costs 

Reports Recommend

-ations* 

Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision 

made by September 30, 

2008 

1 6 $1,216,003 $0 

B. Issued during this reporting 

period 

3 4 $19,000 $3,039,030 

Universe from which 

management decisions could 

be made in this reporting 

period – Subtotals 

4 10 $1,235,003 $3,039,030 

C. 

Management decision(s) 

made during this reporting 

period 

2 3 $0 $3,039,030

(i) Disallowed costs 2 3 $0 $2,929,457

(ii) Costs not disallowed 1 1 $0 $109,573 

D. No management decision 

made by March 31, 2009 6 12 $1,235,003 $10,147,500 

* 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. 

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, 2008 1 1 $12,700,000 

B. Issued during this reporting period 3 3 $33,667,586 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals 

4 4 $46,367,586 

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, 2009 4 4 $46,367,586 

* Reports may have more than one recommendation. 

27 
Appendices

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

Reports Recommendations 

A. No management decision made by September 30, 2008** 2 2 

B. Issued during this reporting period 10 78 

Universe from which management decisions could be made in 

this reporting period – Subtotals 12 80 

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

recommendation in the report) during this reporting period 7 58 

D. No management decision made by March 31, 2009* 8 22 

* 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. 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue* Management Decisions as of March 31, 2009 

Title Report

Number

Date 

Issued Status 

Annual Credit Reviews for Gulf Coast 

Hurricane Disaster Loan 

Disbursements 

8-10 3/28/08 The Agency has not responded to one 

recommendation in the report. 

Disaster Loan File Transfer and 

Service Delays 8-17 8/17/08 The Agency has not responded to one recommendation in the report. 

Audit of Six SBA Guarantied Loans 8-18 9/08/08 The Agency has not responded to six 

recommendations in the report. 

* “Overdue” is defined as more than 180 days from the date of issuance. 

28 
Appendices

Appendix VI 

OIG Reports Without Final Action as of March 31, 2009 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

0-14 7(a) Service Fee Collections 3/30/00 8/22/00 10/11/08 

2-29 

Audit of Internal Control Over Colson 

Services Corporation’s Contract as Central 

Servicing Agent for SBA’s Certified 

Development Company Loan Program 

9/16/02 12/12/02 8/15/09 

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

for the 7(a) Loan Program 1/30/03 4/15/07 11/30/09 

4-16 

SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence 

Contracts and Task Orders 

3/17/04 *** ** 

4-34 

Audit of SBA's Process for Complying with 

the Federal Managers' Financial Integrity Act 

Reporting Requirements 

7/29/04 *** ** 

4-40 

Audit of a SBA-guaranteed Loan to Elatec 

Technology Corporation and HK Equipment, 

Inc. 

9/13/04 4/5/06 6/30/07 

4-41 Audit of Selected SBA General Support 

Systems 9/10/04 11/9/04 9/30/05 

4-44 SBA-Sponsored and Cosponsored Events 

Conducted by District Offices 9/24/04 *** 9/30/05 

5-12 Audit of SBA’s Information Systems Controls 

– FY 2004 2/24/05 4/18/05 4/15/05 

5-23 SBA’s Administration of its Special 

Appropriation Grants 9/24/04 *** 9/1/08 

5-28 Review of SBA Procedures For Cash Gifts 9/30/05 2/23/06 2/29/08 

6-04 Audit of SBA's Fiscal Year 2005 Financial 

Statements 11/14/05 5/10/06 6/30/07 

7-03 Audit of SBA's Fiscal Year 2006 Financial 

Statements 11/15/06 1/4/2007 12/31/2007 

7-16 Vulnerability Technology Security 

Assessment 3/6/07 3/7/07 3/30/07 

7-21 SBA’s Use of the Loan and Lender 

Monitoring System 5/2/2007 5/2/07 ** 

7-26 Audit of Liquidation of Disaster Loans 10/23/07 10/23/07 ** 

7-28 SBA's Oversight Of Business Loan Center, 

LLC 7/11/07 9/27/07 12/31/2009 

7-29 Quality Assurance Reviews of Loss 

Verification 07/23/07 *** ** 

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations.

29 
Appendices

Appendix VI 

OIG Reports Without Final Action as of March 31, 2009 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

8-06 Audit of SBA's FY 2007 Financial Statements - 

Management Letter 12/14/07 12/18/07 ** 

8-09 Loan Classification and Overpayments of 

Secondary Loans 3/26/08 *** ** 

8-12 Oversight of SBA Supervised Lenders 5/9/08 6/20/08 12/31/09 

8-13 

Planning for the Loan Management and 

Accounting System Modernization and 

Development Effort 

5/14/08   

8-14 Non-Native Managers Secured Millions of 

Dollars from 8(a) Firms Owned by Alaska 8/7/08 8/18/08 3/31/09 

8-16 

Acceptance of VBP Group into the 8(a) 

Program and Subsequent Contract Award by 

SBA 

7/18/08 8/11/08 **  

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations.

30 
Appendices

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2009* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

monitor contractor compliance with the 50 

percent rule when applicable. 

5/12/04 9/1/08 

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 9/1/08 

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

Management as soon as possible, 

incorporate policies to address the 

outstanding items described above within 6 

months of the issuance of this report. 

5/12/04 9/1/08 

 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). 

4/18/05 4/15/06 

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

** Recommendation does not have a management decision. 

31 
Appendices

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2009* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

8-09 3/23/08 

Revise current procedures for classifying 

loans in the Loan Accounting System to 

ensure that loan currency is not solely based 

on the next installment due date. 

9/3/08 9/30/09 

8-09 3/23/08 

Ensure that SBA is in compliance with the 

1086 agreement by actively monitoring the 

Fiscal and Transfer Agent’s monthly default 

reports, adhering to all requirements, and 

taking appropriate action on the reported 

loans. 

9/3/08 3/31/09 

8-09 3/23/08 

Modify the 1086 agreement to require lenders 

to request guaranty purchase when interest is 

120 days or more past due and seek 

reimbursement from lenders for interest 

accrued in excess of 120 days on loans SBA 

purchases directly from the secondary market. 

9/3/08 3/31/09 

8-09 3/23/08 

Discontinue the practice of including the 

amount of SBA’s ongoing guaranty fees in the 

purchase payment to the Fiscal and Transfer 

Agent. 

9/3/08 3/30/09 

8-13 5/14/08 

Design and implement an Enterprise-wide QA 

function that fully addresses the risk and 

scope of the LMAS project and ensures the 

OCIO can fulfill responsibilities under the 

Clinger-Cohen Act to provide independent 

quality assurance and oversight of 

Information Technology investments. 

8/26/08 4/30/09 

8-13 5/14/08 

Make cost-effective remediation of 

mainframe vulnerabilities a priority and 

ensure that migration of LAS occurs before 

the current mainframe contract expires in 

2012 to reduce SBA's mainframe costs and 

timely mitigate associated security risks. 

8/27/08 3/31/09 

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

** Recommendation does not have a management decision. 

32 
Appendices

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2009* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

8-16 7/18/08 

If immediate action is necessary to protect the 

Government’s interest initiate debarment 

proceedings for the participant under either 

SBA’s non-procurement debarment and 

suspension procedures or the FAR. 

8/11/08 8/30/09 

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

** Recommendation does not have a management decision. 

33 
Appendices

Appendix VIII

Summary of Significant Recommendations 

October 1, 2008 through March 31, 2009 

Report 

Number Title Date Issued Recommendation 

9-01 

SBA’s Implementation of 

an HSPD-12 Card Issuance 

System 

10/6/08 

Develop and execute a test strategy to ensure 

that IDMS meets all of the HSPD-12 

functional requirements, including reading 

and authenticating the digital certificates on 

identity cards. 

9-06 The Use of Proceeds from 

Gulf Coast Disaster Loans 1/15/09 

Revise SOP 50 30 6 to require that a review 

be conducted of how prior proceeds were used 

on a sample of disbursements exceeding 

$10,000 to provide the Agency with some 

assurance that borrowers used prior proceeds 

appropriately. The SOP should also require 

that the Borrower’s Progress Certification 

form and supporting receipts be reviewed and 

signed by ODA to document that a review 

was made. 

9-06 The Use of Proceeds from 

Gulf Coast Disaster Loans 1/15/09 

Require site visits or follow-up with vendors 

when questionable invoices, including quotes 

for large dollar amounts with no receipts, 

unsigned certifications or vendor quotes, 

inadequate certifications, or no official 

documents, are submitted to verify the 

accuracy of what the borrower has reported. 

9-08 

Audit of the Liquidation 

Process at the National 

Guaranty Purchase Center 

1/30/09 

Recover approximately $2.8 million of 

improper payments and liquidation proceeds 

from lenders on the 24 loans identified in 

Appendices IV and V. 

9-08 

Audit of the Liquidation 

Process at the National 

Guaranty Purchase Center 

1/30/09 

Direct the Center to ensure that charge-off 

reviews are properly supervised and all 

required documentation is obtained from 

lenders. 

9-08 

Audit of the Liquidation 

Process at the National 

Guaranty Purchase Center 

1/30/09 

Revise liquidation recovery rates in SOP 50 

51 (2) to reflect the forced sale liquidation 

values related to the various types of collateral 

used to secure SBA loans. 

9-08 

Audit of the Liquidation 

Process at the National 

Guaranty Purchase Center 

1/30/09 

Further enhance the Center’s newly designed 

portfolio management system to include the 

appropriate controls and ensure the 

appropriate resources are assigned to address 

loans needing action. 

34 
Appendices

Appendix VIII

Summary of Significant Recommendations 

October 1, 2008 through March 31, 2009 

Report 

Number Title Date Issued Recommendation 

9-09 

Audit of the Liquidation 

Process at the National 

Guaranty Purchase Center 

1/30/09 

Perform periodic reviews of non-purchased 

loans in liquidation when appropriate to 

ensure they are removed from the portfolio 

and their outstanding balances are correct. 

9-09 

Audit of Borrower 

Eligibility for Gulf Coast 

Disaster Loans 

3/31/09 

Revise current procedures for verifying an 

applicant’s primary residence to ensure that a 

more reliable method is used than that 

provided in the SOP. 

9-10 

Audit of Borrower 

Eligibility for Gulf Coast 

Disaster Loans 

3/31/09 

Request remittance from HUD for the 

$19,000 associated with the Road Home grant 

that duplicated disaster benefits awarded 

under the SBA loan. 

9-10 

SBA’s FY 2007 Improper 

Payment Rate for the 

Disaster Loan Program 

3/26/09 

Revise the sampling design methodology for 

estimating improper payments to ensure that 

the sample is based on disbursements versus 

loan approvals in accordance with OMB 

guidance, and employs variable sampling 

procedures. 

9-10 

SBA’s FY 2007 Improper 

Payment Rate for the 

Disaster Loan Program 

3/26/09 

Require that a statistician be consulted when 

developing the sample error rate and 

projection methodology to ensure that the 

estimate derived is statistically valid, as 

required by OMB guidance. 

9-10 

SBA’s FY 2007 Improper 

Payment Rate for the 

Disaster Loan Program 

3/26/09 

Implement a corrective action plan to reduce 

improper payments in the Disaster Assistance 

Loan Program. 

9-10 

SBA’s FY 2007 Improper 

Payment Rate for the 

Disaster Loan Program 

3/26/09 

Recalculate the FY 2008 estimate of improper 

payments and if different from the original 

estimate of improper payments, provide the 

revised estimate to the Acting Chief Financial 

Officer. 

9-10 

SBA’s FY 2007 Improper 

Payment Rate for the 

Disaster Loan Program 

3/26/09 

Report the improper rate calculated by the 

OIG for FY 2007 to OMB. 

9-10 

SBA’s FY 2007 Improper 

Payment Rate for the 

Disaster Loan Program 

3/26/09 

Ensure the correct FY 2008 improper payment 

estimate is reported to OMB. 

35 
Appendices

Appendix VIII

Summary of Significant Recommendations 

October 1, 2008 through March 31, 2009 

Report 

Number Title Date Issued Recommendation 

9-12 

SBA-Serviced Liquidation 

of Certified Development 

Company Loans 

3/30/09 

Evaluate whether staffing and process 

improvements introduced after the audit was 

completed have enabled the centers to 

complete all required liquidation actions, and, 

if not, make appropriate staffing and process 

adjustments as necessary to ensure that loans 

are properly liquidated. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Establish internal controls that ensure that 

OBO and DPGM are unable to modify 

contracts without the appropriate supporting 

documentation, including a statement of work. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Revise SOP 00 11 1 to require that COTRs 

submit supporting documentation with their 

payment requests, such as a receiving report, 

to show that the contractor has delivered the 

goods or services that are being submitted for 

payment. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Determine whether the $78,856 in invoices 

for Task Order #1 – Nashville, TN was paid 

under the proper contract or purchase order, 

and if a duplicate payment was made, recover 

any funds from the contractor as necessary. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Determine whether the contractor performed 

the work supporting SBA’s $160,174 offset 

and whether the invoices were already paid. 

Seek reimbursement where work was not 

performed or duplicate payments were made. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Terminate SBA’s contractual relationship 

with the company involved. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Initiate proceedings to debar the company 

involved from receiving future Government 

contracts. 

9-12 

Review of SBA’s National 

Guaranty Purchase Center 

Furniture Contract 

3/31/09 

Determine whether actions taken by the 

contracting officers warranted unsatisfactory 

performance, and require disciplinary actions, 

including terminating their contract authority, 

if appropriate. 

36 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

SBA Lenders 

Conference 

April 21, 

2009 

April 21, 

2009 Charlotte, NC Charlotte Chamber of Commerce 

NEO Connects TBA 2009 Cleveland, OH 

The Cleveland Clinic 

Foundation, Urban League of 

Greater Cleveland SBDC, 

Commission on Economic 

Inclusion, Greater Cleveland 

Partnership 

MED Week 

Award Program 

March 18, 

2009 

March 18, 

2009 Los Angeles, CA 

City of Los Angeles, Mayor's 

Office of Housing and 

Economic Development, US 

Department of commerce 

Minority Business 

Development Agency 

Series: GC/BD 

Workshops & 

Matchmaker 

Events 

March 1, 

2009 

December 

31, 2009 Providence, RI Rhode Island Procurement Technical Assistance Center 

2009 Albany 

Matchmaker 

September 

10, 2009 

September 

10, 2009 Albany, NY 

New York Business 

Development Corporation, 

University at Albany thru the 

Small Business Development 

Center, The Business Review, 

The Albany-Colonie Chamber 

of Commerce 

2009 Ohio 

Business 

Matchmaker 

March 18, 

2009 

March 18, 

2009 Dayton, OH 

Ohio Department of 

Development, Ohio Business 

Connection, Southern Ohio 

Procurement Outreach Center, 

Aeronautical Systems Center 

Small Business Office, 

Defense Logistics Agency 

Annual SBA 

Small Business 

Newspaper 

Insert 

May 22, 

2009 

May 22, 

2009 Denver, CO The Denver Business Journal 

* 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. 

37 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject of 

Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Small Business 

Week Breakfast 

Awards Ceremony 

May 15, 

2009 

May 15, 

2009 San Juan, PR Puerto Rico Bankers Association 

Small Business 

Expo, Business 

Matchmaker, 

Small Business 

Week Awards 

Luncheon 

May 6, 2009 May 6, 2009 Buffalo, NY 

SCORE Buffalo Niagara 

Chapter #45, Business First 

Inc. 

Tiger Team 

Assessment 

Program 

March 2009 December 

31, 2009 Santa Ana, CA 

Orange County SBDC, 

Institute for Women 

Entrepreneurs, SCORE 

Chapter 114 

Export Trade 

Assistance 

Partnership: The 

New Basic Guide 

to Exporting 

May 11, 

June 8, July 

13, August 

10, 

September 

14, 2009 

May 11, 

June 8, July 

13, August 

10, 

September 

14, 2009 

Newport Beach, CA U.S. Commercial Service 

SBA Tri-County 

Faith Based 

Financing 

Conference 

October 8, 

2009 

October 8, 

2009 Ontario, CA 

AmPac Tristate CDC, 

Inland Empire Women's 

Business Center 

Series: Youth 

Entrepreneurial 

Workshop 

April 10, 24; 

May 8, 22; 

June 12, 26, 

2009 

April 10, 24; 

May 8, 22; 

June 12, 26, 

2009 

Baltimore, MD Woodlawn Library 

Oklahoma Small 

Business Awards 

Luncheon 

Program 

April 7, 

2009 

April 7, 

2009 Midwest City, OK 

Rose State College thru 

SBDC, The Journal Record 

Publishing Company, 

Oklahoma Center for the 

Advancement of Science 

and Technology, Oklahoma 

Department of Commerce 

E-200 April 2009 November 

2009 Portland, OR Oregon DO 

* 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. 

38 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

21st Annual 

High-Tech 

Conference for 

Small Business 

March 3, 

2009 

March 4, 

2009 

Los Angeles, 

CA Jet Propulsion Laboratory/NASA 

E-200 April 2009 November 

2009 

Jacksonville, 

FL North Florida DO 

SBA's 2009 

Small Business 

Awards 

Reception 

May 19, 

2009 

May 19, 

2009 

West Hartford, 

CT Event Management 

E-200 April 2009 November 

2009 Detroit, MI Michigan DO 

Small Business 

Excellence 

Award 

Recognition 

May 4, 

2009; May 

8, 2009 

May 4, 

2009; May 

8, 2009 

Albany, NY; 

Syracuse, NY 

New York Business Development 

Corporation 

E-200 April 2009 November 

2009 Des Moines, IA Des Moines DO 

E-200 April 2009 November 

2009 Boston, MA Boston DO 

SBA/IRS Small 

Business 

Webinar 

March 19, 

June 2009, 

August 

2009 

March 19, 

June 2009, 

August 

2009 

Columbia, SC U.S. Department of Treasury - 

Internal Revenue Service 

Invent Your 

Future 

Conference for 

Woman 

March 31, 

2009 

April 1, 

2009 Santa Clara, CA Invent Your Future Enterprises 

E-200 April 2009 November 

2009 Atlanta, GA Georgia DO 

E-200 April 2009 November 

2009 Dallas, TX Dallas/Fort Worth DO 

New Mexico 

Small Business 

Week Awards 

Celebration 

2009 

May 5, 2009 May 5, 2009 Albuquerque, 

NM 

Santa Fe Community College thru 

New Mexico SBDC 

* 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. 

39 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

E-200 April 2009 November 

2009 Albuquerque, NM Albuquerque DO 

E-200 April 2009 November 

2009 Memphis, TN Tennessee DO 

Operation: Start 

up and Grow 

March 19, 

2009 

March 19, 

2009 Syracuse, NY 

New York Business 

Development Corporation, 

Onondaga Community 

College, Onondaga SBDC, 

M&T Bank 

Small Business 

Workshops 

March 19, 

April 16, 

May 21, 

June 18, 

September 

17, October 

15, 

November 

19, 

December 

31, 2009 

March 19, 

April 16, 

May 21, 

June 18, 

September 

17, October 

15, 

November 

19, 

December 

31, 2009 

New York, NY The Duchess County Regional 

Chamber of Commerce 

Small Business 

Series: How to 

Start a Business, 

How to Finance 

Your Business, 

Minority 

Certification, 

Meet The 

Professionals 

Roundtable 

March 14, 

April 18, 

May 2, June 

13, 2009 

March 14, 

April 18, 

May 2, June 

13, 2009 

Baltimore, MD 

The New David Baptist 

Church of Christ, The 

Transforming East Baltimore 

Community Development 

Corporation 

* 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.

40 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Business For 

Breakfast 

Jan. 23, Feb. 

27, March 

27, April 24, 

May 22, 

June 26, 

July 24, 

Aug. 28, 

Sept. 25, 

Oct. 23, 

2009 

Jan. 23, Feb. 

27, March 

27, April 24, 

May 22, 

June 26, 

July 24, 

Aug. 28, 

Sept. 25, 

Oct. 23, 

2009 

Charleston, WV SCORE, The State Journal 

The Black 

Business 

Conference 

2009 

March 24, 

2009 

March 24, 

2009 Detroit, MI Chase, Alpha Phi Alpha Fraternity, Inc. 

Annual 

Celebration of 

Small Business 

in Virginia 

May 8, 2009 May 8, 2009 Richmond, VA Small Business Awards 

Foundation, Inc 

Federal 

Contracting 

Matchmaking 

April 3, 

2009 

April 3, 

2009 San Juan, PR Colegio de Ingenieros y Agrimensores de Puerto Rico 

Small Business 

Week 2009 

May 11, 

2009; May 

14, 2009 

May 11, 

2009; May 

14, 2009 

St. Louis, MO Small Business Week of 

Eastern Missouri, Inc. 

Business 

Matchmaker May 1, 2009 May 1, 2009 Vermont Vermont DO 

Surviving the 

Economic 

Storm 

February 26, 

2009 

February 26, 

2009 Honolulu, HI 

Pacific Business News, Altres 

HR, Hilton Waikki Prince 

Kuhio, the Chamber of 

Commerce of Hawaii 

5th Annual 

Connecting 

Businesses With 

Contracts 

Procurement 

Conference 

March 24, 

2009 

March 24, 

2009 Baton Rouge, LA 

Southern University Rural 

Small Business Center thru 

Southern University and A&M 

College, Louisiana 

Procurement Technical 

Assistance 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. 

41 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Cyber Security 

Is Good 

Business 

January 27, 

February 3, 

February 5, 

2009 (6 

additional 

dates TBA) 

January 27, 

February 3, 

February 5, 

2009 (6 

additional 

dates TBA) 

Mangilao, GU, 

Wailuku, Hilo, 

Maui, HI 

Federal Bureau of 

Investigation, National 

Institute of Standards and 

Technology 

SBA/IRS 

Telephone/Inter

net Tax 

Workshop 

January 22, 

2009 

January 22, 

2009 Charlotte, NC U.S. Department of Treasury – Internal Revenue Service 

Straight Talk 

2009 & Straight 

Talk Series 

January 24, 

February 10, 

February 17, 

February 24, 

March 3, 

March 10, 

March 17, 

March 24, 

March 31, 

April 7, 

2009. 

January 24, 

February 10, 

February 17, 

February 24, 

March 3, 

March 10, 

March 17, 

March 24, 

March 31, 

April 7, 

2009. 

Buffalo, NY SCORE Buffalo Niagara - 

Chapter #45 

SBA Online 

Training Course 

January 8, 

January 26; 

February 8, 

February 23, 

2009 

January 8, 

January 26; 

February 8, 

February 23, 

2009 

Web 

Southern State Community 

College Enterprise Center, 

WorkForce Connection 

Business 

Resource Day 

January 15, 

2009 

January 15, 

2009 Burlington, VT 

City of Burlington Community 

and Economic Development 

Office 

* 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. 

42 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Salute to Small 

Business 

April 29, 

2009 

April 29, 

2009 Columbia, SC 

South Carolina Chamber of 

Commerce, Small Business 

Development Center of South 

Carolina, South Carolina 

Department of Commerce, 

ECI/Find New Markets, 

SCORE, South Carolina 

Manufacturing Extension 

Partnership, South Carolina 

Women’s Business Center, 

U.S. Department of 

Agriculture – Rural 

Development, U.S. Department 

of Commerce, SC Launch! 

SBA/USDA 

Lender Forums 

December 3, 

9, 2008; 

January 8, 

15, 2009 

December 3, 

9, 2008; 

January 8, 

15, 2009 

Florence, 

Columbia, 

Charleston & 

Greenville, SC 

Small Business Development 

Center of South Carolina, 

SCORE, South Carolina 

Women’s Business Center, 

U.S. Department of 

Agriculture – Rural 

Development 

Closing 

Reception, 

Global 

Entrepreneurshi

p Week/USA 

November 

21, 2008 

November 

21, 2008 Washington, DC The Public Forum Institute 

Joint Event November 

12, 2008 

November 

12, 2008 Washington, DC MBDA 

Immigrant 

Entrepreneurs 

Conference 

November 

15, 2008 

November 

15, 2008 Des Moines, IA 

Community CPA & 

Associates, Inc., Drake 

University, Iowa Department 

of Economic Development, 

Iowa Women's Enterprise 

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. 

43 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2008 through March 31, 2009 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Pennsylvania 

Small Business 

Success Stories: 

How to Survive 

& Thrive in a 

Slowdown 

November 

17, 2008 

November 

17, 2008 Philadelphia, PA Office of Senator Arlen Specter 

* 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. 

44 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

CA BL The owner of two cowhide companies 

falsified purchase orders, invoices, 

contracts, financial statements, and tax 

returns in order to receive more cash 

advances from his $2 million SBA 

Export Working Capital line of credit. 

The additional funds were used to pay 

off debts from a failed seafood import 

company started by the owner. 

Owner sentenced to 12 

months and one day in 

prison followed by 5 

years supervised 

release. 

FBI 

CA BL An individual allegedly used a false 

identity to obtain a $100,000 SBA 

Express loan for a business that never 

existed. 

Individual charged in 

state court. 

FBI, SSA 

OIG, LASD 

CA BL Two individuals were principals in a 

sophisticated identity theft ring. They 

assumed fictitious identities and applied 

for various types of credit, including 

SBA Express loans, conventional and/or 

residential loans, and credit cards. 

One individual was 

sentenced to 28 

months in prison, 2 

years supervised 

release, and $27,000 

in restitution. The 

other was sentenced to 

4 months in prison, 4 

months home 

detention, 5 years 

supervised release, 

and $46,998 in 

restitution. 

LAPD, 

CDOI, 

DHS/ICE, 

USPIS, 

SSA/OIG 

CO BL The part owner of a construction 

company allegedly hid his criminal 

history in order to qualify for two SBAguaranteed loans totaling $1.35 million. 

Criminal history records revealed that he 

had previously pled guilty to 

embezzlement and a third degree assault 

charge. 

Part owner indicted. FBI 

45 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

CO BL The former office manager for a plastic 

surgeon used the doctor’s personal 

information and signature stamp without 

his authorization to fraudulently obtain 

two SBA-guaranteed Express loans, 

totaling $150,000, and an additional 

$180,948 in non-SBA loans. 

Office manager 

sentenced previously. 

During this reporting 

period, restitution of 

$1,736,514 was 

ordered. This amount 

includes restitution 

payable to SBA, as 

well as other victims 

affected by the fraud. 

DDAO 

FL DL The president of a consulting firm 

claimed that her company had suffered 

economic injury from Hurricane Wilma 

and received a $95,000 SBA disaster 

business loan to be used as working 

capital for the business. Instead of 

injecting the funds into the business, she 

used a substantial portion of the money 

at gaming establishments. 

President pled guilty 

and was sentenced to 1 

month home 

detention, 3 years 

probation, and 

$95,000 in restitution. 

None 

IA BL An individual enlisted “front” borrowers 

and provided false and fraudulent 

documentation on behalf of the 

borrowers in order to influence the 

approval of three loans by a non-bank 

lender. The loans, one SBA-guaranteed 

and two direct, totaled over $4 million. 

Individual pled guilty. FBI 

IL BL The former owner of a finance company 

provided fraudulent equity injection 

documentation to a lender in order to 

influence the approval of a $1.35 million 

SBA-guaranteed loan for one of his 

companies and at least 20 SBAguaranteed loans for other businesses. 

Most of these loans involved the 

purchase of gas stations and convenience 

stores. 

Former owner pled 

guilty. 

FBI 

46 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

IL GC A former associate director of a federal 

government outpatient pharmacy and his 

wife created a company to provide 

temporary pharmacists to the 

government. The company received 

SBA certification as a woman-owned, 

minority-owned, and 8(a) program 

participant. The couple allegedly 

allowed other companies to masquerade 

as their company and qualify for setaside contracts. This scheme resulted in 

the government being billed for more 

than $8 million in services. 

Criminal information 

filed against the 

couple and their 

company. 

VA/OIG, 

DCIS, USSS 

IL BL An individual concealed a felony arrest 

and pending theft/fraud charges in order 

to qualify for two SBA-guaranteed loans 

totaling $860,000 for the purchase of two 

construction-related businesses. He also 

falsified the required equity injections 

for both loans. 

Individual pled guilty. None 

IL BL An individual conspired with a loan 

agent to falsely represent to the SBA that 

he possessed adequate equity injection 

funds to qualify for $2,540,000 in SBAguaranteed and conventional loans to 

purchase a hotel property. In actuality, 

the individual formed and used a “shell” 

company to obtain loan funds to secretly 

consolidate and refinance delinquent 

debts and avoid foreclosure of business 

properties and his personal residence. 

Individual pled guilty None 

KY GC A business consultant submitted two 

HUBZone applications to SBA on behalf 

of a company. The applications 

contained false statements concerning 

the address of the company and the 

number of employees living in a 

HUBZone. The company 

subsequently received a $1.2 million 

government contract based on its 

HUBZone status. 

Business consultant 

sentenced to 2 years 

probation and a $1,000 

fine. 

DCIS 

47 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

LA DL An individual provided altered building 

permits in order to induce SBA to release 

Hurricane Katrina disaster funds for a 

$19,500 home loan and a $49,600 

business loan. In addition, he used loan 

proceeds to purchase a new home, car, 

and boat. 

Individual sentenced 

to 4 months in prison, 

4 months home 

confinement, and 

restitution of $69,100. 

None 

LA DL A business owner conspired with his 

CPA to fraudulently obtain disaster loans 

totaling approximately $3 million and 

then destroyed a forged SBA financial 

document in order to impede the 

investigation. Due to investigative 

efforts, only $5,000 was actually 

dispersed. 

Business owner 

sentenced to 51 

months in prison, 3 

years supervised 

release, and $505,008 

in restitution, to be 

paid jointly and 

severally with the 

CPA, who was 

previously sentenced. 

USSS 

LA DL An individual and his wife submitted 

fraudulent receipts in support of an SBA 

disaster home loan and an SBA disaster 

business loan totaling approximately 

$220,000. 

Husband and wife 

pled guilty. 

DHS/OIG, 

HUD/OIG 

LA DL An individual is alleged to have used 

$46,000 of fraudulently acquired 

Louisiana Road Home funds to partially 

pay off an SBA loan in the amount of 

$105,000. 

Individual indicted. HUD/OIG 

LA DL An individual falsely claimed her 

primary residence to be in an area 

damaged by Hurricane Katrina; 

fraudulently represented that building 

permits authorized repairs; and submitted 

fictitious repair receipts and fraudulent 

residential leases. She was approved for 

a home loan of $125,600 and a business 

loan of $291,600; however, only a total 

of $60,000 was disbursed. 

Individual sentenced 

to 5 years probation, 

200 hours community 

service, a $15,000 

fine, and total 

restitution of $61,960. 

DHS/OIG 

48 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

LA DL An individual applied for two SBA 

disaster loans to repair damages related 

to Hurricane Katrina: a home loan for her 

primary residence and a business loan for 

her rental properties. She only qualified 

for one of the loans and chose the loan 

for her primary residence because the 

interest rate was lower. She then used 

part of the $150,000 home loan to make 

repairs to her rental properties. 

Individual pled guilty 

and was sentenced to 2 

years probation and 

restitution of $67,597. 

HUD/OIG 

MD GC Multiple individuals conspired to violate 

SBA requirements relating to control and 

ownership of firms participating in the 

SBA 8(a) program. The owner of an 8(a) 

asbestos abatement company failed to 

disclose that two non-disadvantaged 

individuals were providing critical 

bonding, insurance, financial support, 

and control over the company. 

The disadvantaged 

owner of one company 

was sentenced to 2 

months in jail, 3 years 

probation, and a 

$100,000 fine. One of 

the non-disadvantaged 

co-conspirators was 

sentenced to 18 

months in prison, 3 

years supervised 

release, a $400,000 

fine, and $300,000 in 

restitution. The other 

was sentenced to 30 

days in prison, 6 

months home 

confinement, 18 

months supervised 

release, and a $20,000 

fine. Another 8(a) 

company was 

sentenced to 3 years 

probation and a 

$75,000 fine. 

EPA/CID, 

NCIS, 

IRS/CID, 

FBI 

MD BL The owner of a custom cycle shop 

submitted false documentation regarding 

the source of the $30,000 cash injection 

required to support his application for a 

$120,000 SBA-guaranteed loan. 

Owner indicted and 

pled guilty. 

None 

49 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL A bank employee issued a $1,680,000 

cashier’s check based on a non-sufficient 

funds credit card check written by a bank 

customer. This unfunded check was 

used by co-conspirators to close on the 

purchase of a house with the intent to 

promptly resell or “flip” the property to a 

straw buyer. 

Bank employee 

sentenced to 9 months 

home confinement and 

5 years probation. 

USSS 

MI BL A former executive vice president of an 

SBA non-bank lender conspired with 

loan brokers and others to fraudulently 

qualify loan applicants for SBAguaranteed loans, primarily for the 

purchase of gas stations. At least 89 

fraudulent loans, totaling approximately 

$85 million, were issued before the fraud 

was discovered and the office closed. 

The scheme involved using false and 

counterfeit documents to verify the 

borrowers’ required equity injections. 

Former executive vice 

president sentenced to 

10 years in prison, 2 

years supervised 

release, and over 

$33.7 million in 

restitution. 

USSS 

MI BL An individual falsely represented that he 

had paid $510,000 as a cash injection for 

two SBA-guaranteed loans totaling 

$1,350,000. The loans were being used 

for the purchase of two gas stations. 

Individual pled guilty. USSS 

MI BL When applying for a $80,070 SBA 

Express loan, an individual falsely 

indicated that she had never been arrested, 

charged, or convicted of any crime other 

than a minor motor vehicle violation. In 

reality, she had four prior drug 

convictions and had been arrested and 

charged with passing bad checks. 

Individual pled guilty. FBI 

MS DL An individual caused physical damage to 

his own residence in order to 

fraudulently receive SBA disaster 

assistance of $40,000. 

Individual sentenced 

to 16 months 

incarceration, 36 

months supervised 

release, and $49,641 

in restitution. 

USPIS, FBI 

50 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MS DL A husband and wife received $152,000 in 

SBA disaster relief funds based on a claim 

for Hurricane Katrina damages to a 

property they alleged to be their primary 

residence. 

Couple indicted. HUD/OIG, 

MSAO, 

DHS/OIG, 

HHS/OIG 

MS DL An individual claimed her primary 

residence was in Bay St. Louis, MS, 

when she was actually living in Houston, 

TX. She and her husband received 

$80,600 in Hurricane Katrina disaster 

assistance from the SBA and $11,000 

from FEMA. 

Wife sentenced to 24 

months in prison and 

60 months supervised 

release. Husband 

sentenced to 4 months 

in prison, 4 months 

home confinement, 

and 36 months 

supervised release. 

Wife ordered to pay 

restitution of 

$116,504; of that 

amount $91,890 is to 

be paid jointly and 

severally with her 

husband. 

DHS/OIG, 

HUD/OIG, 

USDA/OIG

MSAO 

NY DL An individual assisted the former owner 

of an automotive business to fraudulently 

negotiate an $86,200 two-party check, 

which was intended to pay off creditors. 

The check was one of several payments 

from a $646,900 SBA disaster loan that 

the owner received for economic injuries 

sustained after the 2001 terrorist attacks. 

Individual sentenced 

to 3 months in prison 

and 5 years supervised 

release. 

USPIS 

NY BL An individual used a false Social 

Security number when applying for two 

SBA business loans totaling over $1.6 

million. He also failed to disclose his 

outstanding federal and state tax liens. 

Individual sentenced 

to 37 months in prison 

and ordered to pay 

$1,135,082 in 

restitution. 

FBI 

NY BL Members of an organized group of 

foreign nationals obtained credit cards 

and loans, including SBA loans totaling 

$150,000, from various financial 

institutions using false identities, 

documents, and businesses. 

Two individuals pled 

guilty. 

USPIS 

51 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX BL A loan broker, a corporation he created, 

and his business associate are charged 

with conspiring with two bank 

employees (a husband and wife) to 

influence the award of a $980,000 SBAguaranteed loan to purchase three 

convenience stores. The loan broker had 

wanted to buy only one of the stores, but 

they were not being sold individually. 

He recruited two additional borrowers to 

purchase the three stores under another 

name, allegedly knowing that the 

borrowers were not able to pay the 

required capital injection. 

Four individuals and 

the corporation 

indicted. 

FBI 

TX BL The president of a slaughtering business 

used false representations and documents 

to convince numerous lenders that he had 

sufficient collateral and income to repay 

$1,236,500 in SBA-guaranteed loans and 

$1,712,000 in non-SBA loans. 

President pled guilty 

and was sentenced to 

37 months in prison, 5 

years supervised 

release, a $10,000 

fine, and $2,363,291 

in restitution. 

FBI 

TX BL Four individuals conspired to receive a 

$1 million SBA-guaranteed loan to 

finance the purchase of a convenience 

store. They allegedly represented that 

equity injection funds had been received 

at closing from the borrower when in 

fact they knew no money was 

exchanged. 

Four individuals 

indicted. 

FBI 

TX DL An individual submitted a disaster loan 

application to SBA on behalf of a 

seafood company falsely claiming that 

the company had sustained $2.8 million 

in disaster damage resulting from 

Hurricane Rita. 

Individual pled guilty. DHS/ATF, 

DHS/OIG 

VA BL A former grocery store owner used her 

home to secure a $690,000 SBAguaranteed loan. After the loan was 

dispersed, she arranged for a fraudulent 

release of lien to be filed. She then 

refinanced her home and received a cash 

payout of approximately $158,000. 

Former owner pled 

guilty and was 

sentenced to 2 years 

probation and 

$188,332 in 

restitution. 

None 

52 
Appendices

Appendix X

Legal Actions Summary 

October 1, 2008 through March 31, 2009 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

WA SB A now defunct construction company 

obtained SBA surety bonds in order to 

perform public works contracts for state 

agencies and city municipalities. The 

president of the company falsely stated 

that he had paid his subcontractors and 

suppliers and that his company was out 

of funds when, in fact, he was diverting 

contract proceeds of about $87,000 to his 

personal use. 

President sentenced to 

30 days in a residential 

re-entry center, 90 

days home 

confinement, 5 years 

supervised release, 

and restitution of 

$197,566. 

FBI, NICB 

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

Business Development; SB=Surety Bond Guarantee 

Joint-investigation Federal Agency Acronyms: CDOI=California Department of Insurance; DCIS=Defense 

Criminal Investigative Service; DDAO=Denver District Attorney’s Office; DHS/ATF=Department of Homeland 

Security/Alcohol, Tobacco, Firearms, and Explosives; DHS/ICE=Department of Homeland Security/Immigration 

and Customs Enforcement; DHS/OIG=Department of Homeland Security/Office of Inspector General; 

EPA/CID=Environmental Protection Agency/Criminal Investigations Division; FBI=Federal Bureau of 

Investigation; HHS/OIG=Health and Human Services/OIG; HUD/OIG=Housing and Urban Development/OIG; 

IRS/CID=Internal Revenue Service/CID; LAPD=Los Angeles Police Department; LASD=Los Angeles Sherriff’s 

Department; MSAO=Mississippi State Auditor’s Office; NCIS=Naval Criminal Investigative Service; 

NICB=National Insurance Crime Bureau; SSA/OIG=Social Security Administration/OIG; USDA/OIG=U.S. 

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

Service; VA/OIG=Department of Veterans Affairs/OIG 

53 
Appendices

54 

Appendix XI 

Small Business Administration 

Office of Inspector General 

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

 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. They also conduct 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 

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 is headquartered in Washington, DC, and has field staff located in Atlanta, GA; Chicago, IL; 

Dallas/Fort Worth, 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 on the next page. 
Appendix XI 

Small Business Administration 

Office of Inspector General 

Counsel Divisi

Inspector 

General

Deputy Inspector 

General

55

Central Region 

Chicago, IL 

Herndon, VA 

Los Angeles, CA 

Washington, DC 

Atlanta, GA 

Auditing Division 

Business Development 

Programs Group

Washington, DC 

Financial Management 

& IT Group 

Washington, DC 

Credit Programs 

Group 

Washington, DC 

New O

Detroit, MI 

Kansas City, MO 

Chicago, IL 

Dallas, TX 

Hou

Souther

Atlanta, GA 

Philadelphia, PA 

New York, NY 

Miami, FL 

Herndon, VA 

Dallas/Fort Worth, TX 

New Orleans, LA 

Washington, DC 

Washington, DC 

Recovery Oversight 

Group

Disaster Assistance Group 

Eastern Region 

Investigations Division Security Operations 

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.* 

Online: 

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

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 

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