SEMIANNUAL 

REPORT OF THE 

INSPECTOR GENERAL 

U.S. Small Business Administration 

Fall 2003 

A Report to Congress 

April 1, 2003 – September 30, 2003 
Inspector General Act Statutory Reporting Requirements 

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

Inspector General Act Amendments of 1988, are listed below. 

Source Page

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

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-17 

Section 5(a)(2) Recommendations with Respect to Significant Problems, Abuses 10-17 

 And Deficiencies 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 23 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 28-33 

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

 And 6(b)(2) 

Section 5(a)(6) Listing of Audit Reports 27 

Section 5(a)(7) Summary of Significant Audits 10-17 

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

Section 5(a)(9) Audit Reports with Recommendations that Funds Be Put to Better Use 22 

Section 5(a)(10) Summary of Reports Where No Management Decision Was Made 23 

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

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

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

Semiannual Report covering activities from April 1, 2003, through September 30, 2003. 

This reporting period, we issued 22 reports with significant recommendations for improving Agency 

operations, reducing fraud and unnecessary losses, and recovering funds. OIG investigations led to 13 

indictments and 17 convictions of subjects who defrauded the Federal Government. In addition, the 

Office collectively reviewed 124 legislative, regulatory, policy, procedural, and other proposals 

concerning the SBA and Government-wide programs. With about 100 staff, the OIG continues to 

produce substantial savings and important program improvements. 

Working with a number of other law enforcement agencies, the OIG has been an integral part of a 

continuing operation known as Operation Fleeced America. This effort has revealed an organized pattern 

of false U.S. citizenship claims on applications leading to SBA loans ranging from $.5 million to over $1 

million, many of which defaulted soon after the loan was made, with the SBA sustaining substantial 

losses. While only in Phase I, the operation has already resulted in a number of indictments and guilty 

pleas. We are working with the Agency to mitigate vulnerabilities that can allow false citizenship 

claimants to receive SBA funding. 

The SBA responded to the September 11th tragedy by dispersing over $1 billion in disaster relief loans. 

The vast majority of these loans were made to businesses and individuals that were entitled to receive 

them. However, some preliminary survey work conducted by the OIG has revealed that certain of these 

loans were obtained through fraudulent misrepresentations. We intend to devote substantial resources in 

pursuing those individuals who took advantage of this terrible tragedy by defrauding the Federal 

Government and obtaining money to which they were not entitled. 

During this period, the OIG issued two reports identifying the need for significant improvements in the 

oversight of the Small Business Investment Company and Microloan Programs, six reports concerning 

financial management and information systems development and security, and two reports for improving 

the management of the SBA’s business development programs. Other reports covered improper loan 

guarantee payments, travel and purchase card controls, and a faulty policy and procedure directives 

system. 

I would like to thank Administrator Barreto and his senior staff for their support of the OIG and the work 

we do. We will continue to be vigilant in protecting American taxpayers’ interests as we work with the 

Agency and the Congress to achieve measurable results. 

Harold Damelin 

Inspector General 
Table of Contents 

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

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

 Prevent Fraud and Unnecessary Losses in SBA Programs.............................................3 

 Improve Security Over and Accuracy of SBA Accounting 

 and Management Information.......................................................................................10 

 Assist the SBA in Improving its Small Business Development 

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

 Assist SBA Management in Identifying and Resolving Persistent 

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

Statistical Highlights..............................................................................................................18 

Appendix 

 I – OIG Reports Issued ...................................................................................................22 

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

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

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

 V – OIG Reports with Overdue Management Decisions................................................25 

 VI – OIG Reports Without Final Action as of September 30, 2003...............................26 

 VII – 6-Month Legal Actions Summary.........................................................................28 
1

Overview of the SBA and the OIG 

The Small Business Administration 

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

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

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

Access, Office of Entrepreneurial Development, Office of Government Contracting and Business 

Development, and Office of Disaster Assistance. Services include assistance with developing a business 

plan using counseling services and resource partners; obtaining financing through the Agency’s various 

business and disaster lending programs; marketing products and services; accessing Federal procurement 

opportunities; and addressing management issues. SBA programs are delivered by a network of field 

offices in every State, the District of Columbia, the U.S. Virgin Islands, Guam, American Samoa, and 

Puerto Rico. The SBA has an FY 2003 appropriation of $786 million and at the end of the reporting 

period has 3,671 employees (number of employees includes the Office of Disaster Assistance and the 

Office of Inspector General (OIG) personnel). 

The Office of Inspector General 

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

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

• The Auditing Division conducts audits to accomplish program performance reviews, internal 

control assessments, and financial and mandated audits to promote the economical, efficient, and 

effective operation of SBA programs. 

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

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

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

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

clearances for their duties. The name check program provides the SBA officials with charactereligibility information on loan applicants and other potential program participants. 

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

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

on matters concerning performance. 

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

litigation arising out of or affecting the OIG operations, and processes Freedom of Information 

and Privacy Act requests. 

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

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

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

support services to headquarters (HQ) OIG employees; managing a nationwide facilities 

management function; providing communications services; authoring and publishing semiannual, strategic, performance, and operating plans and reports; and reviewing and commenting 

on proposed Agency policy. 
2

Overview of the SBA and the OIG 

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

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

As of September 30, 2003, the OIG’s on-board strength was 97. The OIG FY 2003 appropriation is $12.4 

million, with a $500,000 transfer for disaster assistance oversight activities less a $3,250 rescission, and an 

additional $80,743 rescission from the OIG’s appropriation resulting from the government-wide rescission in 

FY 2003. 

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

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

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

abuse. The five strategic goals we seek to achieve under our new plan are to: (1) prevent fraud and 

unnecessary losses in SBA programs; (2) improve the security over and accuracy of SBA accounting and 

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

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

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

significant SBA issues. 

 Office of Inspector General 

Inspector 

General 

Inspection and 

Evaluation Division 

Auditing Division 

Deputy Inspector 

General 

Counsel Division 

Management and Policy 

Division 

Investigations Division 

Credit Programs Los Angeles Washington, DC Atlanta Chicago

Group

Business Development 

Programs Group

Washington, DC 

Atlanta 

Dallas 

Los Angeles 

Washington, DC Philadelphia

New York

Dallas

Houston

San Juan

Denver

Kansas 

City

Seattle
3

Significant OIG Activities 

Prevent Fraud and Unnecessary Losses in SBA Programs

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

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

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

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

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

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

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

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

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

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

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

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

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

business loan programs, their vulnerabilities may increase. 

Fraud Detection and Prevention 

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

approximately $2.3 million in potential fines and recoveries, $1.5 million in loans/contracts not being 

approved, 13 indictments, and 17 convictions. Investigations were initiated as a result of complaints and 

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

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

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

occurs before the approval, but some occur after the fact. While the Investigations Division closed 72 

cases during the reporting period, at the end of the fiscal year, the Division had 210 open investigations, 

involving 719 individuals or businesses. 

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

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

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

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

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

the thread of misrepresentations that leads to a vulnerability for the Agency. Because the SBA relies so 

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

will continue to focus on. 
4

Significant OIG Activities

Operation Fleeced America and False Claims of U.S. Citizenship 

Operation Fleeced America, based in Texas, has led to numerous legal actions against individuals for 

false claims to U.S. Citizenship on the SBA Personal History Statement (Form 912), and on applications 

for Texas Alcoholic Beverage Licenses. The operation revealed a pattern of false claims to U.S. 

Citizenship in support of applications leading to SBA loans ranging from $.5 million to more than $1 

million dollars. This operation was Phase I of a continuing joint effort with, and among others, the Texas 

Alcoholic Beverage Commission (TABC), U.S. Border Patrol, U.S. Social Security Administration (SSA) 

OIG, and the Bureau of Immigration and Custom Enforcement to: (1) identify, disrupt and/or destroy any 

organized criminal enterprise that may be coordinating similar financial violations across the United 

States; and (2) identify the final destination of loan proceeds. Some indictments and convictions, as 

described in the following examples, have already occurred in these cases. 

• The owner of a convenience store and service station in Fort Worth, Texas, pled guilty to one 

count of false statement to the SBA. The defendant induced a bank to fund a $435,000 SBAguaranteed loan by falsely representing himself as a U.S. citizen. 

• The owner of a convenience store and service station in Grand Prairie, Texas, obtained a 

$675,000 SBA-guaranteed loan from a non-bank participating lender by falsely representing 

himself as a U.S. citizen. He pled guilty to one count of false statement to the SBA. 

• The owner of a convenience store and service station in Fort Worth, Texas, was indicted for 

inducing a bank to fund a $1.1 million SBA-guaranteed loan by falsely representing himself as a 

U.S. citizen. 

• The owner of a convenience store and service station in Palestine, Texas, pled guilty to making a 

false statement to the SBA. He was indicted for falsely claiming U.S. Citizenship to obtain a 

$1,190,000 SBA-guaranteed loan. 

In addition, as part of Operation Fleeced America, State of Texas District Judges issued felony arrest 

warrants that resulted in 21 arrests of individuals for false U.S. Citizenship claims on applications for 

Texas Alcoholic Beverage Licenses. Ten of the individuals made false claims of U.S. Citizenship in 

obtaining SBA-backed loans. Individuals taken into custody during this operation were to be processed 

for deportation from the United States. 

As a result of recent investigative work involving misrepresentation of citizenship, the OIG issued an 

inspection report on Insufficient Proof of Citizenship for SBA Loans recommending actions to mitigate 

vulnerabilities in SBA loan guarantees. 
5

Significant OIG Activities

The report found that the SBA and its lenders have little assurance that prospective borrowers truthfully 

disclose their citizenship status. Recent OIG investigations have identified borrowers who 

misrepresented their citizenship status in order to obtain SBA guaranteed loans, despite the fact that noncitizens (i.e., aliens) can receive SBA loans if they meet certain requirements. The Agency cannot be 

 reasonably certain that its loan programs benefit only eligible citizens or legal aliens because of reliance 

on prospective borrowers’ honesty, concerns about loan origination delays, concern over the appearance 

of discriminatory practices, and the lack of a definitive national identification system for foreign 

nationals. We recommended that, consistent with the USA PATRIOT Act, the SBA issue an interim 

directive instructing its lenders to verify the identities of new customers involved with Agency programs. 

Financial institutions are expected to follow the recently issued Patriot Act regulations while SBA nonbank lenders should take steps similar to those in the regulations to verify eligibility. Accordingly, the 

SBA had drafted a notice that was in the clearance process as of September 30, 2003. 

The report also found that the SBA cannot readily determine how many loans go to citizens and how 

many to aliens. We recommended that the SBA collect citizenship status data, including available alien 

registration numbers, in its loan databases so that potential trouble spots in its portfolio can be identified 

and programmatic research can be performed. The Agency has not yet made a management decision on 

this recommendation. 

Loan Agent Fraud 

A Dallas, Texas, real estate proprietor was arrested for bank fraud involving his packaging/brokering of 

10 SBA-guaranteed loans. Specific charges are pending. A co-conspirator in this scheme pled guilty to 

submitting to the SBA a false gift letter for $250,000. He was sentenced to 5 years probation and ordered 

to pay restitution of $50,000. 

Fraud in Obtaining Business Loans 

The following are examples of fraud in obtaining business loans: 

• The former owner of a business in Cheney, Washington, pled guilty to making a false statement 

to the SBA and one count of bank fraud. The false statement charge pertained to statements made 

to obtain an $880,000 SBA-guaranteed loan. He concealed notes payable totaling $305,000, a 

$60,000 gambling debt, and the sale of 10 percent of his investment group for $100,000. The 

bank fraud count pertained to the submission of a false car loan application to a bank. In 

exchange for his plea, the Government dropped the remaining 24 counts of bank fraud for which 

he had been charged in a superseding indictment. He was previously indicted on seven counts of 

bank fraud against a financial institution and pled guilty to those charges. Later, however, he 

withdrew his plea, citing a conflict of interest on the part of his attorney. The indictment included 

the original seven counts of bank fraud, the false statement to the SBA count, and added 16 other 

bank fraud counts against another financial institution. 
6

Significant OIG Activities

• As a result of an ongoing joint investigation with the FBI, a director of two management 

corporations in Norfolk, Virginia, pled guilty to conspiracy to commit wire fraud. The 

management corporations were borrowers that obtained two SBA-guaranteed loans totaling 

$3,270,000 to purchase two adjacent motels in Norfolk, Virginia. The director conspired to: (1) 

inflate the purchase price of the properties by $148,000 to fraudulently obtain loan proceeds from 

a non-bank lender and a bank; (2) inflate the purchase price by a scheme to have the corporations 

pay $550,000 from the loan proceeds to a development corporation (owned by the director) for 

repairs that never took place; (3) pay $200,000 to each of the stockholders of the corporations and 

disburse $198,000 of the loan proceeds to purchase another motel; and (4) submit false statements 

to the non-bank lender and bank regarding the assets and liabilities of the shareholders of the 

corporations. The director caused the non-bank lender and the bank to wire loan funds to the 

management corporations. 

• The president of a vending service company in Marietta, Georgia, was sentenced to 18 months 

incarceration, 3 years probation, 300 hours of community service and was ordered to pay 

$350,000 restitution. He pled guilty to making material false statements and bankruptcy fraud. 

An earlier indictment alleged that he failed to disclose his criminal history on an SBA Form 912 

submitted to the financial institution with an application for a $500,000 SBA-guaranteed loan. 

He later testified in a bankruptcy hearing that the vending company had no contracts, no accounts 

receivable, and had not sold equipment or contracts within the previous 12 months. In fact, the 

company had sold numerous vending machines and accounts and at the time of bankruptcy was 

receiving undisclosed payments for the sold accounts and machines. 

• A Castaic, California, businessman altered and submitted Federal income tax returns as part of his 

loan application for a $1 million SBA-guaranteed loan. He defaulted on the loan. Subsequent 

investigation disclosed that he submitted two completely different altered Federal income tax 

returns to another financial institution in order to obtain a home loan. The defendant was indicted 

for making false statements to two Federally-insured financial institutions. He pled guilty. 

Fraud After Business Loan Approval

The following are examples of fraud after business loan approval: 

• Following an indictment related to an SBA-guaranteed loan for $375,000, a former president of a 

business in Bloomington, Illinois, pled guilty to bank fraud and making false statements to a 

bank. The purpose of the loan was to take over a heating/cooling/plumbing business from a 

family member. The defendant submitted a series of false and fraudulent invoices to the bank in 

order to receive disbursements from the loan. Within a week of the loan closing, he took the 

$125,000 capital injection out of his business and paid off a personal loan he previously secured 

in order to come up with the capital injection. This violated the Authorization and Loan 

Agreement, which provided that the capital injection was to be used as working capital and to 

purchase inventory. 
7

Significant OIG Activities

• A Federal jury in the Northern District of Ohio, Western Division, found a Lima, Ohio, man 

guilty of bankruptcy fraud and concealment of assets from a bankruptcy trustee. After being told 

that the SBA’s programs could not provide funding to assist in his business reorganization, he 

submitted a loan application to the Columbus, Ohio, District Office. To support his application, 

he falsified documentation detailing a non-existent $10.75 million SBA loan, including a 

mortgage on his rental properties. The defendant included these fraudulent documents with his 

“Plan of Arrangements” that he filed with the bankruptcy court in connection with his voluntary 

petition for relief under Chapter 11 of the Bankruptcy Code. 

• A Las Vegas, Nevada, business owner pled guilty to bank fraud after having been indicted for 

bank fraud, conversion of collateral pledged to the SBA, and money laundering. He submitted 

inflated income statements to misrepresent his net worth in connection with a $213,000 SBAguaranteed loan he obtained to start a business. It was further alleged that he misrepresented the 

source of his required equity injection by concealing personal loans he obtained prior to funding. 

After his loan went into default, he allegedly concealed proceeds and converted collateral 

equipment to impede full liquidation of collateral. The SBA sustained a loss of $136,326.51. 

Improper Actions by Lenders

The following are examples of improper actions by lenders: 

• In a settlement agreement, a small business lending company agreed to pay the SBA $200,000 to 

settle a civil suit filed by the U.S. Attorney’s Office, Western District of Pennsylvania. The SBA 

had guaranteed a $385,000 loan made by the lending company to a restaurant to purchase 

machinery, equipment, and fixtures. The borrower defaulted on the loan shortly thereafter, and 

the SBA purchased the guarantee for $290,047. At liquidation, however, the former owner of the 

restaurant purchased the equipment for only $11,000. An investigation initiated at the request of 

the SBA district office did not reveal any criminal violations but confirmed that the lending 

company did not administer the loan properly. The lending company had disbursed the entire 

amount of the loan for the purchase of machinery, equipment, and fixtures without having these 

items properly appraised. When the lending company refused to return any of the money SBA 

had paid to honor its guaranty, the U.S. Attorney’s Office filed the civil suit. 

• A former business banking associate for a Davenport, Iowa, bank pled guilty to making false 

statements to the SBA, admitting he made a false statement to secure a guarantee payment on a 

bank customer’s loan. To induce the SBA to pay the guarantee on the defaulted loan, he 

fabricated and submitted a letter to the SBA purportedly written by an SBA official which falsely 

indicated that an SBA LowDoc loan had been properly approved, when, in fact, it had not met 

SBA requirements. 
8

Significant OIG Activities

• The Associate Deputy Administrator for Capital Access concurred with the SBA New Jersey 

District Office and denied liability under its guaranty agreement with a bank in the amount of 

$110,022 for a loan made to a business in Delran, New Jersey. The applicants obtained a 

$149,000 SBA-guaranteed loan through the bank to purchase an existing business. Subsequently, 

the borrowers defaulted on their loan and the lender requested that the SBA honor its guaranty. 

The OIG’s investigation determined that the bank did not properly liquidate this loan. 

Specifically, the bank advised the SBA in a Liquidation Plan that the landlord had disposed of the 

equipment citing that it was in poor condition. The investigation disclosed the landlord had made 

numerous attempts to have the bank remove the loan collateral from the business site, to no avail. 

Disaster Loan Fraud

The OIG is conducting work to review abuses and improper payments in the Economic Injury Disaster 

Loans (EIDL) Program as a result of the September 11, 2001, terrorist attacks in New York City and on 

the Pentagon in Arlington, Virginia. As of September 11, 2003, the auditors have reviewed 55 defaulted 

EIDLs and have made 15 referrals to the Office of Investigations for further investigation and possible 

criminal prosecution. In addition, several systemic problems and the need for related improvements in 

SBA loan origination and processing controls have been identified. 

• The president of a Carolina Beach, North Carolina, music company was sentenced to 10 months 

confinement, 2 years probation, and a $5,000 fine after pleading guilty to money laundering. As 

part of the sentence, he was also ordered to forfeit $750,000. The president’s son was sentenced 

to 2 years probation and 120 hours community service for pleading guilty to an Information 

charging him with money laundering. The president, a former North Carolina Transportation 

Secretary, acting as attorney for his father, obtained two disaster loans totaling $617,200 for 

damages associated with Hurricanes Bonnie and Floyd. The OIG’s investigation disclosed that: 

(1) the music company was operating an illegal gambling business that would have made it 

ineligible for the disaster loans; (2) the company president claimed disaster damage for 

machinery and equipment that was not damaged by the storms; and (3) loan proceeds were used 

to improperly pay off pre-disaster debt. The son agreed to testify against his father and 

grandfather in lieu of being indicted on SBA charges. Although the president’s father was 

actively involved in the music company, he was not indicted due to an onset of Alzheimer’s 

disease. 

• The owner of a resort in Talofofo, Guam, was sentenced to 1 year probation and assessed a 

$5,000 fine after pleading guilty to one count of making a false statement. In submitting a 

disaster loan application for $200,000 to repair damage to his business caused by Typhoon Paka, 

he falsely stated that he had not been arrested, convicted, or indicted for any offense. In fact, he 

had been convicted for bribery of a public official. He also attempted to bribe an SBA employee 

with $5,000 to approve a disaster loan after Typhoon Paka. Further, on behalf of his company, he 

submitted as part of his disaster business loan package a series of false or altered invoices for 

work that he claimed was done after Typhoon Paka. 
9

Significant OIG Activities

Section 8(a) Fraud 

An Englewood, Colorado, man was indicted for bankruptcy fraud, money laundering, and forfeiture. The 

company was a certified SBA Section 8(a) company which generally sold computer equipment to the 

U.S. Government and was primarily controlled by a non-minority individual. While an officer of the 

company, the individual declared personal bankruptcy, receiving a discharge of approximately $135,000 

in debts. He directed company employees to divert company income to several bogus companies created 

in order to avoid paying creditors. He failed to disclose his income, other assets, and control of the 

company to the bankruptcy court and the SBA. 

Character Eligibility 

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

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

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

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

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

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

that resulted in SBA business loan program managers declining 18 applications, and disaster loan 

program officials declining 8 applications, totaling more than $3.6 million and nearly $604,100 

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

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

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

guaranty. More than $233 million in loans have been declined during the last 10 years due to character 

eligibility. 

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

clearances. During this reporting period, OSO initiated 138 background investigations and issued 15 

security clearances. OSO also reviewed and adjudicated 64 background investigative reports in 

accordance with Executive Order 10450 and OMB Circular A-130 and coordinated with the SBA’s Office 

of Disaster Assistance to adjudicate 46 derogatory background investigative reports forwarded for review 

and appropriate action. 

OIG Fraud Awareness Briefings 

During this reporting period, the OIG conducted 4 briefings to more than 74 SBA employees, lenders, and 

other resource partners as part of its mission to educate its customers on identifying waste, fraud, and 

abuse. 
10

Significant OIG Activities

Improper Payment Detection and Prevention

Loan Origination Problems and Improper Payments 

Audits of seven loans totaling more than $7.6 million found that lenders did not use prudent lending 

procedures. The SBA made improper payments totaling almost $2.5 million on six of the loans. The 

audits were judgmentally selected for review as a part of the OIG’s ongoing program to audit Section 7(a) 

loans charged off or transferred to liquidation within 24 months of approval—that is, early default loans. 

All of the audited loans were transferred to liquidation within 5 to 21 months of approval. 

The SBA is released from liability on a Section 7(a) guaranty, in whole or in part, if the lender fails to 

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

close, service or liquidate the loan in a prudent manner. In each of the seven cases, the lender was in noncompliance with SBA requirements. The audits found that lenders variously did not: secure adequate 

documentation of equity injection; verify financial data; ensure lawful operation of the business; protect 

collateral; or determine credit worthiness, repayment or management ability. One borrower had a history 

of law suits, liens, and outstanding past-due taxes. In the case of two loans, the borrowers made false 

statements. They were referred to the Investigations Division. 

One lender released the SBA from honoring the $750,000 guarantee as a result of the audit and, for five 

other loans, the relevant SBA management officials agreed with the recommendations to seek recoveries. 

Additionally, payments were resumed for one loan which was subsequently brought current. SBA 

management has agreed to not honor the guaranty if the loan defaults again. 

Improve Security Over and the Accuracy of SBA Accounting and

Management Information

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

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

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

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

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

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

efforts are critical to the SBA’s successful future operations. However, even with these efforts, the SBA 

will have a Loan Accounting System which is sorely outdated and in need of replacement. 

The SBA has also been slow to identify and develop reliable and appropriate management data to support 

implementation of the Government Performance and Results Act. As the Office of Management and 

Budget (OMB) moves the Federal Government toward performance budgeting by rating the effectiveness 

of all programs, the need for reassessing data requirements and collection activities to demonstrate 

accountability has become essential. 
11

Significant OIG Activities

Development, Acquisition, and Implementation of the SBA’s Joint Accounting and 

Administrative Management System (JA2MS) Was Seriously Flawed 

The audit of JA2MS disclosed that mistakes were made from the inception of the JA2MS concept. 

Initially, the SBA’s Business Technology Investment Committee (BTIC) received biased and misleading 

information on costs, benefits, and alternatives on which to base its decision to select a new financial 

accounting system. Because the SBA did not require a separation of duties by contractors in the system 

selection and requirements collection processes, and the design and implementation phase of the JA2

MS 

system, the JA2

MS selection process was not free of inherent bias or conflicts of interest toward one 

competing product. 

The SBA implemented an outdated version of the Oracle database management system and not the 

version that had been demonstrated and approved by the BTIC. Moreover, JA2

MS was placed into 

production without sufficient and complete testing of functions and interfaces. Additionally, the SBA 

purchased and bought license updates for software modules that it has never implemented. 

JA2

MS was not fully accredited by the Chief Financial Officer (CFO) prior to being put into production at 

its permanent site. Other aspects of JA2

MS may not allow for complete confidentiality of sensitive SBA 

personnel information. JA2

MS has not fully met Joint Financial Management Improvement Program 

(JFMIP) requirements, even though Oracle Federal Financials is certified as being JFMIP compliant. 

Finally, JA2

MS does not meet a number of major system requirements, including many aspects of an 

Enterprise Resource Planning (ERP) system. 

The OIG has reached agreement with the CFO and Chief Information Officer (CIO) on most of the 

recommendations in the report. 

Financial Statement Management Letter

As a result of the SBA’s FY 2002 financial statement audit, the OIG’s independent accountant, Cotton & 

Company LLP (Cotton), communicated certain conditions to SBA management in a management letter. 

The issues relate to: (1) fund balance with Treasury differences; (2) foreclosed property records and 

valuations; (3) allotment detail; (4) administrative undelivered orders; (5) administrative costs; 

(6) sampling for erroneous payments; (7) intra-governmental reconciliations; (8) Federal Managers 

Financial Integrity Act reporting; (9) alignment of strategic goals with the Statement of Net Cost; 

(10) transactional detail for prior-year obligations; (11) fund control over administrative costs; (12) the 

general ledger account for loan sales; and (13) cash flow modeling. With certain exceptions, SBA 

management generally concurred with the recommendations. 
12

Significant OIG Activities 

SBA Compliance with Joint Financial Management Improvement Program (JFMIP) –

Property Management System Requirements 

An audit of JFMIP’s Property Management System Requirements concluded that the SBA’s property 

management system complied with the requirements of the JFMIP in many areas. Nevertheless, we 

found that the SBA’s property management system was not compliant with requirements for feeding 

property data into the SBA’s core financial system and lacked necessary cost control and accountability 

features. The SBA’s property management systems are also fragmented and no single Agency-wide 

functional system is used. Agency property is managed at multiple locations, using different applications, 

each with varying degrees of accountability and control. As a result, the SBA does not fully comply with 

Federal property management requirements and is unable to ensure all of its assets are properly 

safeguarded. The CFO and the Assistant Administrator for Administration (AA/A) generally agreed with 

the recommendations. 

Travel Card and Purchase Card Controls Inadequate 

This audit found that the SBA lacked adequate controls to ensure that travel cards were used in 

accordance with applicable laws and regulations. We also found no evidence that purchase card 

statements in various SBA offices were reviewed by approving officials to ensure that the charges were 

for authorized purchases. 

The Denver Finance Center (DFC) had previously identified only 213 of the 1,968 inappropriate travel 

card transactions that we identified in our audit. When the DFC did identify potential misuse, the DFC 

did not always follow through to determine if actual misuse had occurred. As a result, supervisors were 

not always notified of the inappropriate transaction. We also found that the SBA’s internal controls did 

not ensure that individual accounts were always cancelled or deactivated when an employee left the 

Agency. There were 264 active travel card accounts maintained by separated employees on 

July 16, 2002. 

We made four recommendations to the CFO and one recommendation to the AA/A. The CFO disagreed 

with one recommendation and did not comment on two. Taking into consideration his staff’s concerns, 

we modified a fourth recommendation. The AA/A agreed with the one recommendation and has taken 

final action to resolve the matter. 

Disaster Credit Management System Security not Adequately Planned 

An audit report on SBA’s Implementation of the Disaster Credit Management System (DCMS) disclosed 

that the Office of the Chief Information Officer did not provide adequate oversight of the DCMS 

development project. The SBA failed to: (1) conduct a security risk analysis for the DCMS project; 

(2) fully determine security requirements for DCMS before important decisions were made as to selecting 

Commercial Off-The-Shelf (COTS) software; (3) prepare a security plan for DCMS in a timely manner; 

(4) plan for an Independent Verification and Validation of DCMS; and (5) plan to perform a certification 

and accreditation review of DCMS before it went into production. The Associate Administrator for 

Disaster Assistance and the CIO generally agreed with five recommendations and disagreed with one 

recommendation. 
13

Significant OIG Activities 

Microloan Program Effectiveness Data Limited 

The OIG issued an inspection report revealing that, although program management has made, and 

continues to make, improvements in the Microloan Program, sufficient information has not been 

developed to effectively monitor results beyond microloan volume information. Reporting requirements 

are not always met by participants or enforced by program staff. The microloan data currently required 

focuses more on activities than accomplishments and is not related to specific outcome-oriented annual 

and strategic goals. To demonstrate program effectiveness and increase efficiency, we recommended that 

program officials set program goals, improve the enforcement of reporting requirements, and use 

comparative cost data to determine participant viability. OIG recommendations also included, among 

others, the establishment of a role for the district offices in the marketing and oversight of the program, 

the development of a Standard Operating Procedure, an increase in the Intermediaries’ per year microloan 

minimum requirement, an automated grant reporting process, and a periodic grant competition for the 

Non-Lending Technical Assistance Providers (NTAPs). We have reached agreement with the Office of 

Financial Assistance on all but two of the recommendations. The Agency has one recommendation under 

consideration, and the OIG has appealed management’s decision on the other recommendation. 

Independent Evaluation of the SBA’s Information Security Program 

The OIG’s Independent Evaluation of the SBA’s Information Security Program found that, while the 

SBA’s Information Security Program continues to improve for high priority financial management and 

general support systems, it continues to have material weaknesses and security vulnerabilities. These 

weaknesses and vulnerabilities exist in: (1) computer intrusion detection and incident escalation 

procedures; (2) security controls in the systems development life-cycle; (3) system access controls; 

(4) system certification and accreditation; and (5) disaster recovery and contingency planning. This 

evaluation did not contain any recommendations and will be included as a part of the OIG’s Federal 

Information Security Management Act (FISMA) submission. 

Assist the SBA in Improving its Small Business Development and

Government Contracting Programs

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

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

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

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

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

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

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

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

women-owned, service-disabled veteran-owned, and HUBZone-located small businesses. These 

programs demand effective and efficient management, outreach, and service delivery. Determining 

whether business development and Government contracting programs meet these demands depends on 

reliable internal and external data for effective monitoring and oversight. 
14

Significant OIG Activities 

Inappropriate Activities of the National Women’s Business Council 

The OIG issued an audit report on the National Women’s Business Council (NWBC) disclosing that the 

former Executive Director and former Program Manager appeared to have violated Government ethics 

regulations. They continued to use their positions as Government employees to engage in matters related 

to Springboard venture capital forums for women after they developed a financial interest in Springboard 

2000 Enterprises, Inc., a non-profit entity they created to take over the Springboard forums. Inappropriate 

activities identified in the NWBC audit include: (1) violating Federal regulations when contracting for 

various services and activities; (2) allowing organizations to receive revenues from Government 

sponsored events without a properly executed contract and justification; (3) disbursing cash awards 

without proper authorization; (4) using the Government purchase card for unallowable purchases; 

(5) violating the Federal Travel Regulations; (6) misusing the Business Assistance Trust Fund; 

(7) misusing the Government-issued cellular phone for personal calls; (8) engaging in unlawful lobbying 

activities; (9) allowing a non-appointed individual to serve as a NWBC member; and (10) failing to 

prepare a required annual report to the President and Congress. 

We made 24 recommendations to the Administrator, the Office General Counsel (OGC), the CFO, and 

the NWBC’s Executive Director to correct deficiencies, implement new controls to prevent such 

occurrences in the future, determine whether some expended funds should be recovered, and recover 

inappropriate travel and other funds. We also recommended that the CFO recover $195,470 and seek 

justification, or recover from outside parties, $579,368 in unsupported revenues the organizations retained 

from the Springboard forums. 

SBA Management officials generally agreed with the recommendations presented in the report but stated 

that recommendations seeking recovery were not justified until OGC determines recovery is legally 

supportable, and SBA reviews its legal options and makes a final determination as to how to proceed. 

Office of Veterans Business Development (OVBD) Monitoring of Cooperative Agreement

A report on OVBD’s administrative oversight of TEP Consulting, Inc. found that OVBD did not address 

TEP’s possible noncompliance with cooperative agreement terms and conditions with TEP as the issues 

arose. OVBD staff lacked the necessary expertise and training and were overly cautious in notifying TEP 

of noncompliance issues. As a result, problems were not corrected and Federal funds may not have been 

used effectively and efficiently. OVBD agreed with the OIG’s recommendations and also decided not to 

extend the option year on the cooperative agreement. 

Report on the Service Corps of Retired Executives (SCORE) Program 

An audit of selected aspects of the SCORE Program found that, while the National SCORE Office (NSO) 

had an internal control structure in place to ensure appropriate use of Federal funds, the NSO did not: 

1) report program income earned by its chapters on SBA Form 269, “Financial Status Report,” as required 

by the terms and conditions of the Notice of Award; and (2) include its chapters’ financial activities in its 

financial statements in accordance with financial accounting standards. The report did not determine 

whether the established salary levels for the three highest paid salaried positions for FY 2002 
15

Significant OIG Activities 

were allowable and reasonable because the auditors concluded that the SBA does not have express 

legislative authority to provide funding to SCORE for its paid positions. The report also concluded that 

the SBA’s monitoring of the performance and financial aspects of the award should be strengthened. 

Program officials generally concurred with the recommendations. 

Assist SBA Management in Identifying and Resolving Persistent and

Emerging Management Issues

In May 1997, the OIG issued a report on “Critical Management Issues Facing SBA.” Since then the OIG 

has responded to successive congressional requests and the Reports Consolidation Act of 2000 by 

refining these into the most serious management challenges confronting the Agency each fiscal year. The 

list of challenges represents areas identified as vulnerable to fraud, waste, abuse, and mismanagement, or 

that otherwise pose significant risk. The challenges generally have been the subject of one or more OIG 

or GAO reports and/or are confirmed by the OIG’s investigations of fraud or abuse. The OIG continues 

to work with Agency management to make recommendations for quick and efficient corrective actions. 

The OIG is also committed to monitoring the SBA’s progress in addressing the five goals of the 

President’s Management Agenda: 1) Human Capital Management; 2) Competitive Sourcing; 3) Financial 

Management; 4) E-Government; and 5) Budget and Performance Integration. 

A key objective of OIG work is the early identification of risks to Agency programs so that appropriate 

strategies for minimizing potential losses can be developed. In addition, the OIG has also undertaken 

work to identify emerging and persistent operational problems that may hamper the SBA’s ability to 

effectively support small business. 

In FY 2003, the OIG updated the management challenges that had been identified the previous year. We 

continue to work with SBA program management to focus attention on the following critical issues. 

Agency-wide Challenges 

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

• SBA faces significant challenges in financial management and reporting which affects its ability 

to provide reliable, timely and accurate financial information. 

• Information systems security needs improvement. 

• Maximizing program performance requires that SBA fully develop and implement its human 

capital management strategy. 

Challenges in the Loan Programs 

• SBA needs better controls over the business loan purchase process. 

• SBA needs to continue improving lender oversight. 
16

Significant OIG Activities 

Section 8(a) Business Development Challenges 

• The Section 8(a) Business Development Program needs to be modified so that: (1) more 

participating companies receive access to business development, and (2) standards for 

determining economic disadvantage are clear and objective, so that more eligible companies 

receive 8(a) contracts. 

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

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

Fraud Deterrence and Detection Challenges 

• Preventing loan fraud requires additional measures, including new regulations and funding. 

For more information about the OIG’s assessment of the FY 2003 Agency Management Challenges, 

please review our report available electronically at the following address: 

http://www.sba.gov/IG.challenges.html

Other Significant Management Issues 

The SBA’s Directives System is Breaking Down 

An inspection memorandum on the SBA’s directives system found that the current status of the system 

has negative consequences for Agency staff, resource partners, and small businesses. Expired policy and 

procedural notices continue to be used, while drafts of proposed standard operating procedures are 

sometimes used before they are officially cleared and issued. The uncertainty created can result in an 

inefficient use of employee time, delay service delivery to small businesses, create a negative public 

image, and produce unforeseen legal issues. The Agency concurred with the substance of the 

recommendation, has established a working group, and is developing a plan for revising the fundamental 

structure of the directives system. 

Small Business Investment Company Oversight 

The OIG issued an audit report on the Small Business Investment Company (SBIC) Program that found 

unnecessary costs were incurred by the SBA because of inadequate and inconsistent oversight of the 

SBICs. The SBICs are private investment firms, licensed by the SBA, that make investments using 

private capital as well as borrowed funds guaranteed by the SBA. We found that the SBA needs to 

improve both the evaluation of each SBIC’s reported financial condition and the management actions 

taken to limit risk to the Federal Government from financially troubled SBICs.
17

Significant OIG Activities 

The OIG found that the SBA established the concept of forebearance, as published in regulations for the 

program, in such a way that it restricted the Agency’s ability to limit risk. The regulations set forth 

forebearance periods for determining when an SBIC has a condition of capital impairment (a financial 

condition occurring when an SBIC’s net realized and unrealized losses exceed its earnings and unrealized 

gains). The regulations also exempt certain levels of capital impairment from the remedies provided in 

CFR 107.1820 during the first eight years following an SBIC’s first issue of Participating Securities. As a 

result, the Agency delayed the liquidation of SBICs with inadequate capital, allowed the financially 

troubled SBICs’ assets to erode in value, and made unnecessary interest payments for these SBICs. 

Additionally, the SBA’s ability to limit risk was hindered by outdated program guidance that failed to: 

1) address current practices and procedures; 2) to require a financial analysis of SBIC financial data 

needed to enhance the recovery of SBA guaranteed funds; and 3) to ensure the consistent implementation 

of restricted operations for troubled SBICs. 

The OIG recommended that the SBA reassess the appropriateness of the forebearance regulations and 

obtain a legal opinion on whether it could use receiverships to liquidate financially troubled SBICs. 

Additionally, we recommended that the SBA revise guidance for the program to require financial 

analyses that could be used to recover funds, take into consideration the specific situation for each SBIC 

including the appropriateness of forebearance to the situation, and ensure a systematic approach to 

liquidations. We also recommended that the SBA explore the use of receiverships for the program. 

The Agency responded with a justification for its use of forebearance and agreed to obtain a legal opinion 

on receiverships; provide support for the established forebearance periods; and to revise program 

operating procedures. The Agency did not agree to other specific recommendations related to 

forebearance and consistent implementation of restricted operations. 

Increase in Overdue Management Decisions

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

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

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

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

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

decisions which are not made within 6 months of report publication. As of September 30, 2003, 

management decisions on 16 OIG reports were overdue (See Appendix V). This is the highest number of 

overdue management decisions for any single reporting period since March 1999. Moreover, in the eight 

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

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

unresolved. 
18

Statistical Highlights 

FY 2003 6-Month Productivity Statistics 

April 1, 2003, through September 30, 2003 

Office-wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ........................................................ $2,301,361.00 

B. Loans Not Made as Result of Investigations and Name Checks ........................... $5,412,093.00 

C. Disallowed Costs Agreed to by Management .......................................................... $973,545.00 

D. Recommendations that Funds Be Put to Better 

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

Total .............................................................................................$8,686,999.00

Efficiency and Effectiveness Activities

A. Reports Issued ..............................................................................................22 

B. Recommendations Issued ..............................................................................113 

C. Dollar Value of Costs Questioned ........................................................$2,596,451.00 

D. Dollar Value of Recommendations that Funds 

Be Put to Better Use .....................................................................$65,061.00 

E. Collections as a Result of Questioned Costs ......................................................... $4,874,253.00 

Follow-up Activities

A. Recommendations Closed ...................................................................................................... 102 

B. Disallowed Costs Agreed to by Management .......................................................... $973,545.00 

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

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

D. Unresolved Recommendations ................................................................................................. 49 

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

A. Legislation Reviewed ............................................................................................................... 74 

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

C. Standard Operating Procedures Reviewed ................................................................................. 4 

D. Other Issuances Reviewed*....................................................................................................... 35 

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

which frequently involve the implementation of new programs and policies. 
19

Statistical Highlights 

Summary of Indictments and Convictions

A. Indictments from OIG Cases ............................................................................13 

B. Convictions from OIG Cases ............................................................................17 

Summary of Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations ........................................................................................ $2,301,361.00 

B. Loans/Contracts Not Approved as a Result of OIG Investigations ....................... $1,501,063.00 

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

 Check Program ............................................................................................. $3,911,030.00

Total .............................................................................................$7,713,454.00

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

D. Reprimands ................................................................................................................................. 1 

Program Actions Taken as a Result of Investigations 

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

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

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

D. Other Program Actions .............................................................................................................. 1 

Summary of OIG Fraud Line Operation

A. Total Fraud Line Calls/Letters ............................................................................................... 279 

B. Total Calls/Letters Referred to Investigations Division ........................................................... 17 

C. Total Calls/Letters Referred to Program Offices or Other Federal 

 Investigative Agencies ....................................................................................................... 6 

D. Total Calls/Letters Needing No Action .................................................................................. 256 
20

Statistical Highlights 

FY 2003 Full Year Productivity Statistics 

October 1, 2002, through September 30, 2003 

Office-wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines......................................................... $7,300,829.00 

B. Loans Not Made as Result of Investigations and Name Checks.......................... $18,641,574.00 

C. Disallowed Costs Agreed to by Management ........................................................ $1,582,748.00 

D. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management...................................................................... $1,144,962.00

Total ............................................................................................$28,670,113.00

Efficiency and Effectiveness Activities

A. Reports Issued........................................................................................................................... 43 

B. Recommendations Issued........................................................................................................ 217 

C. Dollar Value of Costs Questioned.......................................................................... $5,485,564.00 

D. Dollar Value of Recommendations that Funds 

Be Put to Better Use ......................................................................................... $442,915.00 

E. Collections as a Result of Questioned Costs ......................................................... $4,874,253.00 

Follow-up Activities

A. Recommendations Closed...................................................................................................... 157 

B. Disallowed Costs Agreed to by Management ....................................................... $1,582,748.00 

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

 Agreed to by Management............................................................................. $1,144,962.00 

D. Unresolved Recommendations..........................................................................49 

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

A. Legislation Reviewed.............................................................................................................. 214 

B. Regulations Reviewed............................................................................................................... 27 

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

D. Other Issuances Reviewed* .................................................................................................... 133 

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

which frequently involve the implementation of new programs and policies. 
21

Statistical Highlights 

Summary of Indictments and Convictions

A. Indictments from OIG Cases ............................................................................44 

B. Convictions from OIG Cases ............................................................................32 

Summary of Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations ........................................................................................ $7,300,829.00 

B. Loans/Contracts Not Approved as a Result of OIG Investigations ....................... $6,059,059.00 

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

 Check Program .................................................................................................. $12,582,515.00

Total ............................................................................................$25,942,403.00

SBA Personnel Actions Taken as a Result of Investigations

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

B. Resignations/Retirements ........................................................................................................... 2 

C. Suspensions ................................................................................................................................ 1 

D. Reprimands ................................................................................................................................ 1 

Program Actions Taken as a Result of Investigations 

A. Suspensions ................................................................................................................................ 1 

B. Debarments ................................................................................................................................. 1 

C. Removals from Program ............................................................................................................ 1 

D. Other Program Actions .............................................................................................................. 1 

Summary of OIG Fraud Line Operation

A. Total Fraud Line Calls/Letters ............................................................................................... 701 

B. Total Calls/Letters Referred to Investigations Division ........................................................... 29 

C. Total Calls/Letters Referred to Program Offices or Other Federal 

 Investigative Agencies ..................................................................................................... 68

D. Total Calls/Letters with No Action Appropriate .................................................................... 604 
22

APPENDIX I 

OIG Reports Issued 

April 1, 2003, through September 30, 2003 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Capital Access

Advisory Report-Defaulted Loan 3-25 4/24/03 

The Microloan Program: Moving Toward 

Performance Management (Inspection) 

3-26 5/12/03 

Audit of an Early Defaulted Loan 3-27 5/22/03 

Audit of an Early Defaulted Loan 3-30 6/19/03 $630,224.00 

Audit of an Early Defaulted Loan 3-31 6/24/03 $225,324.00 

Audit of SBIC Oversight 3-33 7/1/03 

Audit of an Early Defaulted Loan 3-36 8/19/03 $282,447.00 

Audit of an Early Defaulted Loan 3-38 9/22/03 

Audit of an Early Defaulted Loan 3-40 9/24/03 $316,165.00 

Audit of an Early Defaulted Loan 3-41 9/29/03 $273,675.00 

Insufficient Proof of Citizenship Status for SBA 

Loans (Inspection) 

3-43 9/30/03 

Program Subtotal 11 reports $1,727,835.00 $0 

Entrepreneurial Development

OVBD’s Monitoring of Cooperative Agreement 3-22 4/2/03 

Service Corps of Retired Executives Program 3-23 4/11/03 

Program Subtotal 2 reports $0 $0 

Agency Management

Audit of SBA’s FY 2002 Financial Statements – 

Management Letter 

3-24 4/14/03 

Problems with SBA’s Directives System 

(Inspection) 

3-28 5/22/03 

Supplemental Report Related to Cotton Agreed 

Upon Procedures Report on Sensitive Payments 

3-29 5/29/03 

SBA’s Acquisition, Development and 

Implementation of JA2

MS

3-32 6/30/03 $93,776.00 $65,061.00 

SBA’s Compliance with JFMIP Property 

Management System Requirements 

3-34 7/23/03 

Audit of the NWBC 3-35 7/28/03 $774,840.37 

Independent Evaluation of SBA’s Information 

Security Program 

3-37 9/17/03 

SBA’s Implementation of the Disaster Credit 

Management System 

3-39 9/24/03 

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

Program Subtotal 9 reports $868,616.37 $65,061.00 

TOTALS (all programs) 22 reports $2,596,451.37 $65,061.00 
23

APPENDIX II 

OIG Reports with Questioned Costs 

April 1, 2003, through September 30, 2003 

 Reports Recs* Questioned 

Costs** 

Unsupported 

Costs**

A. For which no management decision 

had been made by March 31, 2003 

3 7 $2,27909.90 $2,247,791.90 

B. Which were issued during the period 7 15 $2,596,451.37 $0 

Subtotals (A + B) 10 22 $4,876,361.27 $2,247,791.90 

C. For which a management decision 

was made during the reporting period 

5 7 $973,544.90 $66,666.90 

(i) Disallowed costs 1 1 $37,002.90 $38,073.00 

(ii) Costs not disallowed 0 0 $0 $0 

D. For which no management decision 

had been made by September 30, 

2003 

6 15 $3,902,816.37 $2,181,125.00 

* Recommendations; 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 

April 1, 2003, through September 30, 2003 

 Reports Recs* Recommended Funds 

For Better Use

A. For which no management decision had 

been made by March 31, 2003 

4 4 $1,296,659.18 

B. Which were issued during the period 1 1 $65,061.00 

Subtotals (A + B) 5 5 $1,361,720.18 

C. For which a management decision was 

made during the 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. For which no management decision had 

been made by September 30, 2003 

4 5 $1,361,720.18 

* Recommendations; reports may have more than one recommendation.
24

APPENDIX IV 

OIG Reports with Non-Monetary Recommendations 

April 1, 2003, through September 30, 2003 

 Reports Recommendations 

A. For which no management decision had been made by 

March 31, 2003 

*22 *97 

B. Which were issued during the period 15 97 

Subtotals (A + B) 37 194 

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

least one recommendation in the report) during the 

reporting period 

19 94 

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

recommendation in the report) had been made by 

September 30, 2003 

28 100 

* The beginning balance is different from the ending of the last SAR because, beginning in FY 2003, the OIG began tracking 

recommendations made in all reports, not just audits. It is also different because several management decisions for report 2-18 

were not reported in the previous SAR even though they were signed before 9/30/02. 
25

APPENDIX V 

OIG Reports with Overdue Management Decisions 

as of September 30, 2003 

Title Number Issued Status 

PLP Oversight Process 1-19 9/27/01 

One outstanding recommendation is to be 

submitted to the resolution process. 

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

Mgmt states they have satisfied all open 

recommendations. Evidence of their actions 

should be submitted to the OIG by 10/31/03. 

Georgia District Office Sponsorship 

Activities 2-25 8/26/02 

Mgmt states that management proposals will be 

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

Internal Control Over Colson Services 

Corporation’s Contract as Central Servicing 

Agent for SBA’s Certified Development 

Company Loan Program 2-29 9/16/02 

Awaiting management decision on outstanding 

recommendations. 

SBA-Guaranteed Loan to Earth Treasures, 

Inc. 2-30 9/24/02 

Appealing District Office decision to the Office 

of Financial Assistance. General Counsel is 

still reviewing the recommendation. 

Impact of Loan Splitting on Borrowers and 

SBA 2-31 9/30/02 

Awaiting management decision on outstanding 

recommendations. 

Audit of SBA-Guaranteed Loan 2-32 9/30/02 

A check has been received; however, the OIG is 

awaiting the resolution of additional $80,250 

and other management decisions. 

Eligibility of 15 HUBZone Companies and a 

Review of the HUBZone Empowerment 

Contracting Program’s Internal Controls 3-05 1/22/03 

Awaiting management decision on outstanding 

recommendation. 

Audit of SBA-Guaranteed Loan 3-07 1/23/03 

Awaiting management decision on outstanding 

recommendation. 

SBA’s Oversight of the Fiscal Transfer 

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

Awaiting management decision on outstanding 

recommendations. 

Program Vulnerability Memorandum 

(PVM) – Pro-Net Registrant Data Integrity 

Warnings and Certification 3-09 2/7/03 

Awaiting management decisions on outstanding 

recommendations. 

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

Awaiting management decision on outstanding 

recommendations. 

Guaranty Purchase Process 3-15 3/17/03 

Awaiting management decision on outstanding 

recommendations. 

Asset Sales Program 3-19 3/31/03 

Awaiting management decision on outstanding 

recommendations. 

SBA’s Information System Controls for FY 

2002 3-20 3/31/03 

Awaiting management decisions on outstanding 

recommendations. 

Equity Injection in the SBA 7(a) Loan 

Guaranty Program 3-21 3/31/03 

Awaiting management decisions on outstanding 

recommendations. 
26

APPENDIX VI 

OIG Reports Without Final Action as of September 30, 2003

Report 

Number 

Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2-04 SBA’s FY 2001 Financial Statements 2/27/02 *** ** 

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

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

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

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

2-20 Modernizing Human Resource Management 5/31/02 2/24/03 ** 

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

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

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

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

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

Social Security Numbers by Third Parties 

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

3-03 SBA’s Implementation of its CIPP 1/10/03 2/4/03 7/15/03 
27

APPENDIX VI 

OIG Reports Without Final Action as of September 30, 2003

Report 

Number

Title Date 

Issued

Date of 

Management 

Decision

Final 

Action 

Target

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

HUBZone Empowerment Program’s Internal Controls 

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

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

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

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

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

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

Enterprise 

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

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

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

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

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

Management Letter 

4/14/03 *** ** 

3-26 The Microloan Program: Moving Toward Performance 

Management (Inspection) 

5/13/03 *** ** 

3-28 Problems with SBA’s Directives System 5/22/03 6/18/03 10/31/03 

3-31 Audit of an Early Defaulted Loan 6/24/03 8/12/03 12/31/03 

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

the Joint Accounting and Administrative Management 

System 

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

3-34 SBA’s Compliance with JFMIP Property Management 

System Requirements 

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

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

** Target dates vary with different recommendations. *** Management decision dates vary with different recommendations.
28

APPENDIX VII 

6-Month Legal Actions Summary 

April 1, 2003, through September 30, 2003 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

CA BL Business owner submitted altered federal income tax returns 

to a financial institution as part of his $1 million SBAguaranteed loan application. Subject submitted two 

completely different altered federal income tax returns (for 

the same years) to another financial institution in order to 

obtain a $580,000 home loan.* 

Business owner 

pled guilty 

FBI 

CO GC Company officer declared personal bankruptcy and received a 

discharge of $135,000 in debts. He directed company 

employees to divert $690,000 of company income to bogus 

companies he created to avoid paying creditors. He also 

failed to disclose his income and control of the company to 

the bankruptcy court and the SBA. Additionally, he hid other 

assets from the bankruptcy court, including a Mercedes 400 

SEL, Chevrolet Tahoe and a personal residence.* 

Company officer 

indicted 

FBI, IRS, 

DCIS 

GA BL Company president failed to disclose his criminal history on 

an SBA Form 912 submitted with an application for a 

$500,000 SBA-guaranteed loan. In a subsequent bankruptcy 

hearing, he testified that the company had no contracts or 

accounts receivable and had not sold equipment or contracts 

within the previous 12 months. In fact, the company had sold 

numerous vending machines and accounts and was receiving 

undisclosed payments for the sold items.* 

Company president 

pled guilty; 

received 18 months 

incarceration, 3 

years probation, 

300 hours of 

community 

service, and a $250 

assessment fee; 

made to pay 

$350,000 

restitution 

None 

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

disaster loan application. Additionally, he submitted false and 

altered invoices to the SBA in an attempt to secure loan 

proceeds in excess of $200,000.* 

Resort owner 

indicted and pled 

guilty; received 1 

year probation and 

a $5,000 fine 

FBI 

IA BL Former business banking associate submitted a letter to the 

SBA purportedly written by an SBA official that falsely 

indicated that an SBA LowDoc loan had been properly 

approved.* 

Former business 

banking associate 

charged by 

Information; pled 

guilty 

None 

IL BL Former business owner submitted invoices from a fictitious 

business for items that were never purchased and that far 

exceeded the amount of equipment that was actually 

purchased in connection with a $375,000 SBA-guaranteed 

loan. Additionally, he used the capital injection to pay off a 

personal loan secured for the capital injection instead of for 

working capital as designated by the loan agreement.* 

Former owner pled 

guilty 

None 
29

APPENDIX VII 

6-Month Legal Actions Summary 

April 1, 2003, through September 30, 2003

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

IL BL Former restaurant owners submitted false information to 

assist the purchaser of their restaurant in obtaining financing 

for a $954,000 SBA-guaranteed loan.

Former restaurant 

owners agreed to a 

settlement of 

$715,500 and to 

release claims to 

seized funds of 

$344,313 and 

$371,187 held by a 

writ of garnishment

FBI

MD BL Businessman failed to disclose numerous arrests and 

convictions on his application for a $65,000 LowDoc loan. 

Businessman 

indicted 

None 

MD BL Owner of a closed restaurant falsely stated he had never been 

involved in bankruptcy proceedings when he applied for a 

$440,000 SBA-guaranteed loan. He and the Secretary (his 

wife) concealed various assets and properties in the course of 

a bankruptcy filed earlier. 

President and 

Secretary pled 

guilty 

FBI 

MO BL Missouri man failed to appear on false claim and money 

laundering charges involving an SBA-guaranteed loan 

Missouri man 

arrested as a 

fugitive and 

indicted 

IRS-CID 

MO GC 8(a) company president was the subject of a civil suit that 

claimed he made false statements regarding his social and 

economic disadvantage. 

President agreed to 

a 3-year 

administrative 

settlement 

agreement where 

he and his 

company institute a 

Contractor 

Responsibility 

Program, retain an 

Ombudsman and 

pay the 

Government 

$20,000 as partial 

compensation for 

related 

administrative and 

investigative costs 

FBI, 

DOL/OIG 
30

APPENDIX VII 

6-Month Legal Actions Summary 

April 1, 2003, through September 30, 2003 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

NC DL Company president obtained two disaster loans totaling 

$617,200. Company was operating an illegal gambling 

business that would have made them ineligible for disaster 

assistance. President claimed machinery and equipment 

damage that had not been caused by the storms, and loan 

proceeds were used to pay off pre-disaster debt. This use 

violated the loan and authorization agreements.* 

Company 

president received 

10 months 

confinement, 2 

years probation, 

and a $5,000 fine; 

president’s son 

received 2 years 

probation, 120 

hours community 

service; Company 

received $750,000 

in asset forfeitures 

FBI 

NJ BL New Jersey bank advised the SBA in a liquidation plan for a 

$149,000 SBA-guaranteed loan that the landlord had disposed 

of collateral that was in poor condition, when in fact the 

landlord had made numerous attempts, to no avail, to have the 

bank remove the equipment from the business site.* 

Guaranty denied 

for New Jersey 

bank 

None 

NY BL As part of a $300,000 SBA-guaranteed loan, business owner 

received a $250,000 two party check for the purchase of 

equipment from the specified vendor. He forged the vendor’s 

endorsement and used the funds for various personal 

expenditures.

Business owner 

indicted

None

NV BL Business owner submitted inflated income statements in 

connection with a $213,000 SBA-guaranteed loan. 

Additionally, he misrepresented the source of his equity 

injection by concealing personal loans he obtained. Upon 

default, he also converted collateral equipment and concealed 

proceeds to impede full liquidation of the loan collateral.* 

Business owner 

pled guilty 

FBI, BATF, 

IRS 

OH BL Ohio man obtained blank copies of SBA loan documents and 

fraudulently completed and filed false mortgages and 

promissory notes with the Recorder’s Office that detailed a 

$10.75 million loan from the SBA. He included these false 

documents with his bankruptcy petition.* 

Ohio man found 

guilty by jury 

None 

OR BL Former restaurant owner used false Social Security numbers 

to obtain loans from two financial institutions. He also failed 

to disclose prior bankruptcies, judgments, other business 

interests and his criminal history. 

Former restaurant 

owner received 37 

months 

incarceration, 5 

years supervised 

release, and made 

to pay $306,451 

restitution 

FBI 
31

APPENDIX VII 

6-Month Legal Actions Summary 

April 1, 2003, through September 30, 2003 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

PA GC Construction company president transferred $495,000 from 

his construction company account to a personal account in the 

Bahamas, abandoned company contracts and subcontractors, 

and submitted false financial statements to a bank in support 

of a $300,000 line of credit for the company. He also falsely 

stated in his SBA 8(a) Annual Update Form that he and the 

company had relocated and controlled the day-to-day 

operations of the company. 

Construction 

company 

president indicted 

NCIS 

PA BL The SBA purchased the guaranty on an SBLC loan for 

$290,047. The SBA later questioned the gross disparity 

between the amount the business equipment was originally 

purchased for and sold for at liquidation. The SBLC had 

disbursed the entire loan amount to purchase machinery, 

equipment and fixtures without having items appraised. After 

the SBLC refused to reimburse the guaranty payment, the 

SBA filed a civil suit to obtain reimbursement* 

SBLC entered 

into a settlement 

agreement. SBLC 

agreed to pay the 

SBA $200,000 in 

connection with a 

$385,000 SBAguaranteed loan. 

None 

PA BL Law practice owner diverted funds from a $107,000 SBAguaranteed loan for his law practice to purchase a home, pay 

personal credit card bills, purchase stock and pay for a tractor. 

He transferred real estate purchased with loan proceeds into 

his parent’s name and hid $65,000 of other assets from 

creditors during bankruptcy proceedings. He falsely testified 

during bankruptcy proceedings that the lender was aware of, 

and had agreed to, his diversion of the loan proceeds. 

Owner of defunct 

law practice 

received 21 

months 

incarceration, 3 

years probation, a 

$5,000 fine, and a 

$30,000 special 

assessment; made 

to pay $172,000 

restitution 

($107,000 to 

SBA) 

None 

TX BL Convenience store/Service station owner falsely represented 

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

with a $1,115,000 SBA-guaranteed loan.* 

Business owner 

pled guilty 

TIGTA, 

DHS, 

SSA/OIG, 

TEXASABC, 

TEXAS-DPS 

TX BL Convenience store/Service station owner falsely represented 

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

with a $1,190,000 SBA-guaranteed loan.* 

Business owner 

pled guilty 

TIGTA, 

DHS, 

SSA/OIG, 

TEXASABC, 

TEXAS-DPS 
32

APPENDIX VII 

6-Month Legal Actions Summary 

April 1, 2003, through September 30, 2003 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

TX BL Businessman submitted inflated income statements that 

misrepresented his net worth in connection with a $213,000 

SBA-guaranteed loan. He also misrepresented the source of 

his equity injection by concealing personal loans obtained for 

this purpose. After default he concealed proceeds and 

converted collateral.

Businessman 

indicted

FBI, BATF, 

IRS

TX BL Real estate proprietor arrested for fraud involving his 

packaging/brokering of 10 SBA-guaranteed loans. Coconspirator submitted a false gift letter for $250,000.* 

Real estate 

proprietor 

arrested; Coconspirator pled 

guilty, received 5 

years probation 

and made to pay 

$50,000 

restitution 

FBI 

TX BL Convenience store/Service station owner falsely represented 

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

with a $435,000 SBA-guaranteed loan.* 

Owner pled guilty TIGTA, 

DHS, 

SSA/OIG, 

USDA/OIG, 

TEXASABC 

TX BL Convenience store/Service station owner falsely represented 

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

with a $675,000 SBA-guaranteed loan. 

Owner pled guilty TIGTA, 

DHS, 

SSA/OIG, 

USDA/OIG, 

TEXASABC 

VA BL Former corporation president falsely stated his date of birth, 

Social Security number and criminal history on an application 

for a $290,000 SBA-guaranteed loan. He also falsely certified 

value of collateral for the loan. 

Former 

corporation 

president received 

16 months 

incarceration and 

made to pay 

$178,629 

restitution 

None 

VA BL Management corporations obtained two SBA-guaranteed loans 

totaling $3,270,000 to purchase two adjacent motels. Director 

conspired to inflate the purchase price of the properties, have 

the corporation pay for repairs that never took place, pay 

stockholders, and submit false financial statements of 

shareholders. He also falsely stated that a loan was a gift to 

the shareholders.* 

Director of 

management 

corporations 

charged by 

Information; pled 

guilty 

FBI 
33

APPENDIX VII 

6-Month Legal Actions Summary 

April 1, 2003, through September 30, 2003 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated

Jointly With

WA BL Former business owner concealed notes payable, a gambling 

debt and the sale of 10 percent of his investment group in 

order to obtain an $880,000 SBA-guaranteed loan* 

Business owner 

indicted; pled 

guilty 

FBI 

WY BL Business owner submitted two false personal financial 

statements. He failed to list additional debts, totaling 

$312,000, to the bank in order to obtain two separate SBAguaranteed loans totaling $250,000. 

Business owner 

indicted; pled 

guilty 

FBI 

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

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

Business Development 

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

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

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

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

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

USDA/OIG=United States Department of Agriculture OIG