U.S. Small Business Administration 

Office of Inspector General 

_________________________________ 

Semiannual Report to Congress 

Fall 2006 

April 1, 2006 – September 30, 2006
Inspector General Act Statutory Reporting Requirements 

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

listed below. 

Source Page

Section 4(a)(2) Review of Legislation and Regulations 24 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-24 

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

 Abuses and Deficiencies 43-46 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 38-42 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 56-62 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 29-30 

Section 5(a)(7) Summary of Significant Audits & Other Reports 4-24 

Section 5(a)(8) Audit Reports with Questioned Costs 31 

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

 Better Use 31 

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

 Where No Management Decision Was Made 33-34 

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

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

 the OIG Disagreed None 

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

 Financial Management Improvement Act of 1996 N/A 
A Message From The Inspector General 

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

Semiannual Report summarizing activities from April 1, 2006, through September 30, 2006. 

As an independent, objective reviewer of SBA’s operations and programs, the OIG seeks to target 

potential financial vulnerabilities and fraud, promote effective program management, ensure complete 

and accurate financial reporting, and improve information security. During this reporting period, we 

issued 15 reports with recommendations for improving Agency operations, reducing fraud and 

unnecessary losses, and recovering funds. OIG investigations led to 32 indictments and 19 convictions of 

subjects who defrauded the Federal Government. Also, the OIG collectively reviewed 83 legislative, 

regulatory, policy, procedural, and other proposals concerning the SBA and Government-wide programs. 

With a staff of about 100, the OIG continues to produce sizeable savings and important program 

improvements. 

This reporting period, we continued to direct efforts toward the 2005 Gulf Coast hurricanes. As of 

September 30, 2006, SBA approved over $10 billion in Gulf Coast disaster loans. To provide proper 

oversight, we opened an office in New Orleans and developed a 5-year work plan to focus available 

resources on programs, operations, and activities that expose SBA to significant risks in providing Gulf 

Coast assistance. We also issued reports on loan disbursements, controls relating to duplication of 

benefits, SBA’s Disaster Credit Management System (DCMS), and SBA staffing during times of 

emergencies or catastrophes. Our investigators continue to work with the multi-agency Hurricane Katrina 

Fraud Task Force to target individuals who have made false claims to obtain hurricane-related 

government benefits. Allegations to date have included unauthorized use of loan proceeds, overstatement 

of financial loss, and false statements regarding prior criminal records and financial liabilities. 

This summer, I testified before the Senate Committee on Small Business and Entrepreneurship regarding 

problems with governmental procurement activity intended for small businesses. The Small Business Act 

provides that annually 23 percent of all government contracts be awarded to small businesses. To meet 

this goal, SBA negotiates annual goals for small business contracts with other Federal agencies. 

However, a number of Federal reports have shown that many contracts counted towards these small 

business goals are actually being performed by firms that do not meet SBA’s criteria to be considered 

small. This was due to three factors: (1) regulatory loopholes that allow this miscounting; (2) errors by 

government contracting personnel; and (3) fraud or negligence by companies in attempting to obtain 

small business set aside contracts. My testimony also focused on the need for regulatory and legislative 

changes to address these challenges, and the need for SBA to take a more aggressive approach towards 

working with other agencies to eliminate these flaws. Lastly, OIG has initiated a task force to focus on 

the issues of integrity in small business contracting and accuracy of reporting by Federal agencies on 

small business procurement activity. 

I would like to thank SBA’s new Administrator, Steven Preston, for the support he has shown for the 

OIG’s work in his short time with the Agency. I look forward to continuing to work with the 

Administrator and his leadership team in carrying out the OIG’s mission to fight waste, fraud, and abuse 

and promote greater government efficiency. 

Eric M. Thorson 

Inspector General
Table of Contents 

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

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

Significant OIG Activities .................................................................................................................................... 4 

 Disaster Loans............................................................................................................................... 4 

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

 Small Business Development, Contracting, Education, and Training ........................................ 15 

 Agency Management .................................................................................................................. 20 

 Other Significant OIG Activities. ............................................................................................... 23 

Statistical Highlights........................................................................................................................................... 25 

Appendices 

 I. OIG Reports Issued ........................................................................................................................ 29 

 II. OIG Reports with Questioned Costs .............................................................................................. 31 

 III. OIG Reports with Recommendations that Funds Be Put to Better Use ......................................... 31 

 IV. OIG Reports with Non-Monetary Recommendations .................................................................... 32 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of September 30, 2006............................................................................................... 33 

 VI. OIG Reports Without Final Action as of September 30, 2006....................................................... 35 

 VII. Significant Recommendations from Prior Semiannual Reporting Periods 

 Without Final Action as of September 30, 2006 ............................................................................ 38 

 VIII. 6-Month Significant Recommendations Summary as of September 30, 2006............................... 43 

 IX. List of Events/Activities Where SBA Used its Cosponsorship Authority 

 Over the Last 6 Months.................................................................................................................. 47 

 X. 6-Month Legal Actions Summary.................................................................................................. 56 

XI. OIG Organizational Chart .............................................................................................................. 63 
Table of Contents 

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

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

 Business Act, Section 4(h) ............................................................................................................. 19 

 SBDC Surveys—Small Business Act, Section 21(a)(7) ................................................................ 19 

 SBA Gift Authority—Small Business Act, Section 4(g)(2)........................................................... 21 
Overview of SBA and the OIG

1 

The Small Business Administration 

The mission of the SBA pursuant to the Small Business Act is to maintain and strengthen the Nation’s 

economy by enabling the establishment and viability of small businesses and by assisting in the economic 

recovery of communities after disasters. The SBA has three programmatic strategic goals that broadly 

define what the Agency and its programs are trying to accomplish: (1) improve the economic 

environment for small businesses; (2) increase small business success by bridging competitive 

opportunity gaps facing entrepreneurs; and (3) restore homes and businesses affected by disaster. SBA is 

organized around four key functional areas: capital access, government procurement opportunities, 

management and business skills development, and small business and homeowner disaster assistance. 

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

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

the help of 10 regional offices, 68 district offices and a vast network of resource partners in all 50 States, 

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

appropriation for Fiscal Year (FY) 2006 was $533 million, plus an additional $1,700 million from 

supplemental appropriations for disaster relief. As of September 30, 2006, SBA had 2,156 employees 

(including Office of Inspector General (OIG) personnel but excluding disaster-funded employees). There 

were 4,184 temporary and permanent disaster employees, excluding contractors. 

The Office of Inspector General 

Under the authority and in fulfillment of the Inspector General Act of 1978, as amended, the SBA OIG 

adds value to Agency programs and operations by providing auditing, investigative, and other services to 

support and assist SBA in achieving its statutory mission. We strive to identify significant issues and 

offer recommendations to correct or eliminate problems and fraudulent schemes that adversely impact the 

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

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

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

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

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

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

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

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

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

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

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

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

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

enforcement matters, processes subpoenas, responds to Freedom of Information and Privacy Act 

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

procedures. 
Overview of SBA and the OIG

2 

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

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

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

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

The OIG’s headquarters is located in Washington, DC. Field staff are located in the following locations: 

Atlanta, GA; Chicago, IL; Dallas, TX; Detroit, MI; Denver, CO; Herndon, VA; Houston, TX; Kansas 

City, MO; Los Angeles, CA; Miami, FL; New Orleans, LA; New York, NY; Philadelphia, PA; Tacoma, 

WA; and Washington, DC. 

Appendix XI contains an organization chart for the OIG. 

OIG Work During This Reporting Period 

As of September 30, 2006, the OIG had 100 staff on-board. The OIG’s FY 2006 appropriation was 

$13.7 million, including a $1.5 million transfer for disaster assistance oversight activities (net of 

rescissions). In addition, a supplemental appropriation during FY 2006 provided the OIG with $5 million 

in “no-year” funds for Gulf Coast hurricane disaster oversight. 

During this reporting period, OIG work focused on the two strategic goals in the OIG’s FY 2006-2011 

Strategic Plan: (1) improving the economy, efficiency, and effectiveness of SBA programs and 

operations; and (2) promoting and fostering integrity in SBA programs and operations. Using this 

framework, the OIG concentrated on critical risks facing SBA, which include: (1) risks of financial losses 

due to SBA's downsizing, centralization, and limited oversight and controls; (2) risks to SBA's 

performance of its statutory mission to promote small business development and Government contracting; 

and (3) risks associated with SBA's information technology and financial management systems, and other 

internal operations. 

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

Coast hurricanes during 2005. The OIG has begun a series of reviews of the management of SBA’s 

disaster assistance process, the loan application approval process, loan disbursement activities, use of 

proceeds, and SBA’s Disaster Credit Management System (DCMS). The OIG is also directing 

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

OIG efforts and accomplishments during the second half of FY 2006 are summarized in this document. 

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

summarized in Appendix X. OIG reports and other work products are available on the OIG’s website at 

http://www.sba.gov/ig/igreadingroom.html. 
Agency Management Challenges

3 

In accordance with the Reports Consolidation Act of 2000, each fiscal year the OIG identifies the most 

important management and performance challenges facing the Agency for inclusion in SBA’s 

Performance and Accountability Report (PAR). The 

Management Challenges represent areas that the OIG 

considers to be particularly vulnerable to fraud, waste, 

abuse, or mismanagement, or that otherwise pose 

significant risk to the Agency, its operations, or its 

credibility. Each Management Challenge generally has 

originated from one or more OIG or Government 

Accountability Office (GAO) report. For each 

Management Challenge, we provide the Agency with recommended remedial actions together with our 

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

The SBA’s most serious Management Challenges for FY 2006 were as follows: 

• Flaws in the Federal procurement process allow large firms to receive small business awards and 

agencies to receive small business credit for contracts performed by large firms. 

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

provide reliable, timely and accurate financial information. 

• Information systems security needs improvement. 

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

human capital management/transformation strategy. 

• The Guaranty Purchase Center needs better controls over the business loan purchase process. 

• SBA needs to continue improving lender/participant oversight. 

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

companies receive access to business development, standards for determining economic 

disadvantage are clear and objective, and more eligible companies receive contracts. 

• The current practices of the SBIC program place too much risk on taxpayer money. 

• Preventing loan agent fraud requires additional measures. 

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

operations. 

The OIG updates the Management Challenges each year to accurately reflect the current challenges facing 

the Agency. During this reporting period, the OIG continued to evaluate the Management Challenges to 

assess Agency progress in resolving them and identify revisions needed to keep them forward-looking. 

The results of this process will be reflected in the FY 2007 Management Challenges to be included in the 

Agency’s FY 2006 PAR. 

While Agency progress on a number of the Management 

Challenges has been encouraging, much more remains to be 

done. By their nature, these Challenges require continued 

long-term commitment and effort by the Agency. 

The Management Challenges represent 

areas that the OIG considers to be 

particularly vulnerable to fraud, waste, 

abuse, or mismanagement, or that 

otherwise pose significant risk to the 

Agency, its operations, or its credibility.

By their nature, these Challenges require 

continued long-term commitment and 

effort by the Agency.
Significant OIG Activities

4 

Disaster Loans

The Disaster Loan program, a major SBA lending program, is designed to respond to the long-term 

recovery needs of disaster victims. By law, SBA is authorized to make two types of disaster assistance 

loans: (1) physical disaster loans, which are a primary source of funding for permanent rebuilding and 

replacement of uninsured real and personal property belonging to homeowners, renters, businesses of all 

sizes, and nonprofit organizations; and (2) economic injury disaster loans, which provide necessary 

working capital to small businesses until normal operations can be resumed after a disaster. This highly 

visible program is vulnerable to fraud and unnecessary losses because loan transactions are expedited in 

order to provide quick relief to disaster victims. It is also an area susceptible to improper payments as 

disaster loans may duplicate benefits provided to disaster victims by other Federal agencies. 

On August 29, 2005, Hurricane Katrina devastated the 

Gulf Coast regions of Louisiana, Mississippi, and 

Alabama. Katrina was the third most intense hurricane 

to hit the United States in recorded history, and the sixth 

strongest recorded in the Atlantic Basin. It was quickly 

followed by Hurricanes Rita and Wilma, creating further 

loss of lives and property in Florida and Texas. As of 

September 30, 2006, SBA had approved over $10 billion in low-interest, taxpayer-backed disaster loans 

to homeowners, renters, and businesses affected by the Gulf Coast hurricanes. 

OIG Emphasizes Oversight of SBA Disaster Assistance 

In December 2005, Congress appropriated $5 million for necessary expenses of the OIG related to the 

consequences of the 2005 Gulf Coast hurricanes. With these funds, the OIG has established a new office 

in New Orleans and has dedicated additional audit and investigative personnel to provide oversight of 

SBA disaster assistance efforts related to the Gulf 

Coast hurricanes. Given the scope of SBA’s hurricane 

disaster response efforts, and the fact that many 

borrowers will not have to begin repaying disaster 

loans until 2007, we anticipate a considerable amount 

of work for years to come. Therefore, as discussed 

below, the OIG has developed a 5-year work plan 

which identifies anticipated reviews of SBA’s programs and operations and other OIG projects related to 

the Gulf Coast hurricanes. 

Inspector General Testifies on SBA’s Efforts to Assist Hurricane Victims 

On May 10, 2006, the Inspector General testified before the House Committee on Government Reform, 

Subcommittee on Government Management, Finance, and Accountability, on SBA’s efforts to assist 

victims of the Gulf Coast hurricanes. At that time, SBA had approved over $9 billion in disaster relief 

loans to hurricane victims. The Inspector General told the Members of the Subcommittee that, given the 

considerable potential for program inefficiencies and fraudulent attempts to obtain Federal assistance, 

oversight of the Agency’s relief efforts was a top OIG priority. The OIG had already issued several 

reports, including an analysis of problems with SBA’s disaster loan computer system and 

incompatibilities between the SBA and Federal Emergency Management Agency (FEMA) computer 

...the OIG established a new office in New 

Orleans and has secured additional audit and 

investigative resources to provide effective 

oversight of SBA disaster assistance efforts in 

the Gulf Coast region. 

As of September 30, 2006, SBA had 

approved over $10 billion in low-interest, 

taxpayer-backed disaster loans to 

homeowners, renters, and businesses 

affected by the Gulf Coast hurricanes.
Significant OIG Activities

5 

systems. The Inspector General also discussed proactive and aggressive approaches being taken by OIG 

investigators to identify instances of fraud in obtaining disaster loans, as well as the OIG’s participation in 

various government-wide initiatives to provide oversight of the Federal Government’s response to the 

Gulf Coast hurricanes. 

OIG Develops Comprehensive Disaster Assistance Work Plan 

The size and magnitude of SBA’s Gulf Coast hurricane disaster relief effort require that the OIG provide 

proactive and substantive oversight of hurricane disaster loans to minimize potential fraud, waste and 

abuse. In June 2006, the OIG issued a “Work Plan for 

2005 Gulf Coast Hurricane Disasters” to focus available 

resources on issues, programs, operations, and activities 

that expose SBA to significant risks in providing 

assistance to victims of the Gulf Coast hurricanes. This 

work plan summarizes anticipated projects based on 

risks identified in past disasters and our current 

understanding of specific risks arising from the unique 

aspects of the 2005 hurricanes. For example, SBA’s practice of attempting to process disaster loans 

quickly, using significant numbers of newly-hired employees, places the Disaster Loan program at risk. 

The timing and severity of the 2005 Gulf Coast hurricanes, together with operational changes in SBA’s 

Office of Disaster Assistance that occurred just prior to, or concurrently with, the relief effort, presented 

additional risks. 

The OIG has already completed a number of audits and reviews covering loan disbursements, controls 

relating to duplication of benefits, SBA’s Disaster Credit Management System (DCMS), and SBA 

staffing during times of emergencies or catastrophes. On-going and planned reviews conducted 

throughout the loan cycle (i.e., origination, disbursement, use of proceeds, servicing, and liquidation) will 

focus on prevention of problems, including reviewing internal controls, monitoring and advising agency 

officials on precedent-setting decisions, and assessing the quality of loans. 

The unprecedented volume of SBA disaster loans, coupled with the external pressure on the Agency to 

make loans quickly, also opens the door to potential widespread fraud in obtaining benefits. The OIG has 

undertaken a number of proactive investigative efforts, including fraud awareness briefings, and has a 

number of ongoing investigations. 

Delays in Disaster Loan Disbursements Primarily Borrower Driven 

Although, as of May 27, 2006, SBA had approved over $9 billion in disaster loans for victims of the Gulf 

Coast hurricanes, SBA reported that it had disbursed only $1.4 billion (14 percent) of the loans approved. 

To determine the reasons for this low rate of disbursement, 

and to identify any impediments in the loan closing and 

disbursement processes that were affecting SBA’s ability to 

provide timely assistance to disaster victims, we reviewed 

220 approved loans – totaling $16.1 million – that were in 

various stages of closing and disbursement. Our review revealed that no problems were encountered for 

81 (37 percent) of the loans. The remaining 139 loans (63 percent) experienced processing issues that 

were primarily attributed to the borrowers. These issues included: delays by the borrowers in filing loan 

...the OIG issued a “Work Plan for 2005 

Gulf Coast Hurricane Disasters” to focus 

available resources on issues, programs, 

operations, and activities that expose SBA 

to significant risks in providing assistance 

to victims of the Gulf Coast hurricanes... 

...63 percent of loans reviewed 

experienced processing issues that were 

primarily attributed to the borrowers.
Significant OIG Activities

6 

closing documents (49 loans); indecision or reluctance on the part of the borrowers to proceed with the 

loans (47 loans); and delays by SBA in processing loan modifications filed by borrowers to change the 

terms and conditions of the loans or to update borrower information, because SBA was processing new 

loan requests ahead of modifications (40 loans). Because disbursement delays were largely borrowerdriven, the OIG made no recommendations. However, the OIG has initiated an audit of SBA’s loan 

modification process to determine whether improvements are needed to more expeditiously process such 

actions. In response to the OIG’s report, the Agency stated that it had realigned work assignments to 

dedicate staff to the processing of loan modifications. 

DCMS Upgrade Project Needs to Be Reaccredited 

In December 2005, SBA initiated an upgrade of DCMS to expand user capacity, provide a more a reliable 

disaster recovery environment, and improve the test environment for fine tuning and upgrading 

application modules over the long-term. Because the upgrade involved significant changes to DCMS, the 

OIG reviewed the upgrade project to determine whether SBA had completed a security reaccreditation of 

the system as required by Federal Standards issued by the National Institute of Standards and Technology 

(NIST). The OIG determined that the project did not include a reaccreditation and recommended that a 

full reaccreditation of the DCMS upgrade project be made before placing the system upgrade into 

production. The Agency concurred and stated it would perform an interim accreditation before the 

system was deployed in June 2006 and a full accreditation no later than October 2006. 

Changes Needed in DCMS Upgrade Project Performance Test Plan 

The OIG also reviewed SBA’s performance test plan for DCMS to identify any disparities between 

system requirements approved by the Agency’s Business Technology Investment Council and the 

performance test success criteria in the DCMS Upgrade 

Performance Test Plan. The review disclosed that system 

acceptance was not based on testing for the maximum number of 

expected users – the Agency was only planning to test the system 

for a maximum of 2,000 concurrent users before accepting it, although the system was supposed to 

support 10,000 concurrent users. We recommended that the SBA modify its test plans and continue to 

improve and fine tune future system upgrades and enhancements. 

Flexible Staffing Could Aid Disaster Loan Processing 

During catastrophic events, SBA should have the flexibility and capability to redeploy and expand 

personnel resources to ensure timely loan processing assistance is provided to disaster victims. However, 

SBA was not able to fully use its regional, district and 

branch offices to help process the large volume of Gulf 

Coast disaster loans because these offices did not have 

access to DCMS. DCMS also could not accommodate more 

than 1,500 concurrent users, and SBA personnel working 

outside of SBA’s Forth Worth, Sacramento, and Buffalo 

facilities did not have access to the system. Given the planned increases in DCMS capacity, the OIG 

believes that SBA should further enhance DCMS capability to allow access to other SBA personnel and 

third-party contractors to provide disaster assistance and process disaster loans. Therefore, the OIG 

recommended that the Agency: (1) establish a catastrophic disaster plan that includes flexible staffing of 

...system acceptance was not 

based on testing for the maximum 

number of expected users... 

SBA was not able to fully use its 

regional, district and branch offices to 

help process...Gulf Coast disaster loans 

because these offices did not have 

access to DCMS.
Significant OIG Activities

7 

SBA personnel assets Agency-wide, and (2) identify the infrastructure requirements that would be needed 

in the event of full activation of the flexible staffing catastrophic disaster plan. The Agency concurred 

with the recommendations. 

Better Controls Needed to Prevent Duplication of Benefits 

In September 2006, the OIG issued an advisory report on a preliminary assessment of controls to prevent 

the duplication of disaster assistance benefits being disbursed under a Department of Housing and Urban 

Development (HUD) program by the Mississippi Development 

Authority (MDA). Federal law mandates that recipients of 

Federal disaster assistance not receive overlapping or duplicative 

payments. Therefore, SBA must be able to identify disaster 

loans that may be impacted by grant assistance and take appropriate action to ensure that individuals do 

not receive assistance for losses for which they have been compensated by other programs or sources. 

MDA is distributing HUD grants of up to $150,000 to Gulf Coast residents to rebuild their hurricanedamaged homes. Approximately $500 million in SBA loans could be affected by the MDA grants, and 

similar grant distribution programs are planned by other Gulf Coast States. 

The OIG found that SBA had not taken adequate steps to: 

(1) coordinate aid distribution efforts with MDA; (2) identify 

disaster loans to be impacted by the HUD grants; or 

(3) adequately test data transfer mechanisms to ensure that 

information shared between agencies is safeguarded and that 

duplicate benefit transactions are properly recorded for 

financial reporting purposes. Consequently, controls are needed to ensure that material financial 

transactions are properly executed in accordance with Federal guidance and regulations. 

The OIG recommended that SBA: (1) establish key tasks and time frames for coordinating disaster 

assistance; (2) ensure that a Memorandum of Understanding (MOU) is completed with all States planning 

to distribute HUD grants; (3) complete an assessment of SBA loans to be impacted by State-administered 

HUD grants; and (4) execute test plans and procedures to ensure that data transferred between agencies is 

processed correctly, loans are accurately adjusted before grant funds are disbursed, and financial 

transactions are properly initiated, recorded, processed, and reported in the Agency’s financial statements. 

The Agency generally agreed with the OIG’s recommendations, but took the position that the entity 

providing the additional funding is responsible for assuring there is no duplication of benefits. SBA’s 

Office of Disaster Assistance is also completing necessary MOUs with States receiving HUD grants to 

establish necessary data exchange protocols needed to determine the amount of any duplicate benefits, 

and issuing operational procedures for the processing of loan modifications resulting from State 

programs. 

OIG Issues Small Business Contracting Review Guide 

The Stafford Act recognizes that the local economy is stimulated when contracts are awarded to small, 

disadvantaged and local businesses. Also, the Small Business Act requires the President to establish 

annual government-wide goals where 23 percent of all Federal procurements are awarded to small 

businesses. Hence, the Federal Government is committed to providing preference to locally-owned 

... controls are needed to ensure that 

material financial transactions are 

properly executed in accordance with 

Federal guidance and regulations. 

...SBA must be able to identify 

disaster loans that may be impacted 

by grant assistance...
Significant OIG Activities

8 

businesses when agencies enter into contracts in response to a disaster. Following the 2005 Gulf Coast 

hurricanes, Members of the House and Senate Small Business Committees, Members of Congress from 

the Gulf Coast region, and Gulf area local leaders all 

expressed concern over whether small businesses were 

receiving a sufficient number of Federal disaster contracts, 

and whether agencies were accurately reporting on small 

business contract awards. To address these issues, the 

OIG, as part of the PCIE Contracting Subgroup, issued a 

“Small Business Review Guide” to aid other OIGs in reviewing small business contracts related to the 

Gulf Coast hurricanes. This guide, which is designed to supplement contract reviews conducted by 

agencies that are participating in the disaster recovery, will help verify and validate compliance with 

small business requirements in the awarding of Gulf Coast hurricane relief contracts. 

Multi-Agency Effort Identifies Gulf Coast Hurricane Fraud 

The OIG is participating in a multi-agency Hurricane Katrina Fraud Task Force, headed by the 

Department of Justice’s Criminal Division, which targets individuals who have made false claims to 

obtain hurricane-related government benefits. By identifying individuals who have defrauded even one 

government program, the task force is able to prevent fraud 

by the same individuals in other programs. In one case, a 

joint task force investigation resulted in the indictment of a 

Texas man for wire fraud, mail fraud, and identity theft. He 

had filed multiple applications for FEMA benefits as a result 

of Hurricanes Katrina and Rita, fraudulently claiming to 

have resided at multiple locations in the disaster areas when the hurricanes struck. In reality, he was 

residing in the Houston, Texas area. As a result of these false claims, he received approximately $35,000 

in cash benefits from FEMA. These false claims also caused the man to be eligible for SBA disaster loan 

benefits. 

OIG Continues to Uncover Fraud in Disaster Loans made to Small Business Victims of the 

September 11th Terrorist Attacks 

SBA disbursed over $1.1 billion in disaster assistance loans in response to the September 11th terrorist 

attacks. As with other disasters, the need to disburse funds quickly to the victims of the September 11th 

attacks created opportunities for dishonest applicants to commit fraud. Because loan repayments are 

typically deferred, problems often do not emerge immediately. 

The OIG has investigated and obtained the prosecution of numerous parties who took advantage of this 

national tragedy. For example, the owner of a manufactured home sales dealership obtained a $487,600 

SBA disaster loan for economic injury allegedly resulting 

from the September 11th terrorist attacks. He claimed that 

the finance company he used was located in New York and 

had stopped financing manufactured homes because of the 

tragedy. However, our investigation disclosed that the 

finance company was actually located in Vermont and that 

the company’s decision to stop financing manufactured homes in September 2001 had nothing to do with 

the terrorist attacks. Moreover, the investigation found that the business owner used the proceeds to pay 

This guide...will help verify and validate 

compliance with small business 

requirements in the awarding of Gulf 

Coast Hurricane relief contracts. 

...a multi-agency Hurricane Katrina 

Fraud Task Force...targets individuals 

who have made false claims to obtain

hurricane-related government benefits.

The OIG has investigated and obtained 

the prosecution of numerous parties 

who took advantage of this national 

tragedy. 
Significant OIG Activities

9 

himself $405,000 – allegedly as repayment for an officer loan. The owner was sentenced to 30 months 

imprisonment and 5 years probation, and was ordered to pay restitution of nearly $835,000 as a result of 

his earlier guilty plea to mail fraud and bank fraud. The Federal Bureau of Investigation (FBI) handled 

the bank fraud charge, which involved defrauding a lender of more than $347,000. 

Inspector General Testifies About “Lessons Learned” from Response to the September 11th 

Terrorist Attacks 

On July 13, 2006, the Inspector General testified before the House Committee on Homeland Security, 

Subcommittee on Management, Integration and Oversight, about (1) an OIG audit of a special SBA loan 

program intended to assist small businesses harmed by the 9-11 terrorist attacks, and (2) the OIG’s 

proactive efforts to detect and prosecute fraud by persons who wrongfully obtained financial assistance in 

connection with the terrorist attacks. 

Under the Supplemental Terrorist Activity Relief (STAR) loan program, SBA guarantied loans by private 

lenders to assist small businesses affected by the 9-11 attacks. The OIG’s audit of this program, which 

was issued in December 2005, found that the Agency did not 

implement adequate internal controls and oversight to ensure 

that only borrowers who had actually been harmed by the 

terrorist attacks obtained STAR loans. The OIG reviewed 

bank files for a sample of the STAR loans and could not 

determine from the lenders’ documentation for 85 percent of 

these loans whether the borrowers had actually been injured 

by the terrorist attacks. In addition, borrowers on many of these loans, when interviewed by the OIG, 

could not recall being asked whether they had ever been harmed by the terrorist attacks. The OIG audit 

recommended corrective measures to prevent similar problems in the event of a comparable program in 

the future. 

The Inspector General also testified about OIG efforts to investigate and prosecute loan fraud related to 

the terrorist attacks. The OIG opened 51 cases relating to 9-11 loan fraud. As of the date of the hearing, 

these investigations had resulted in 10 indictments, 10 convictions, and over $1 million in restitution and 

settlements.

...the Agency did not implement 

adequate internal controls and 

oversight to ensure that only borrowers 

who had actually been harmed by the 

terrorist attacks obtained STAR loans.
Significant OIG Activities

10 

Small Business Access to Capital

SBA has a financial assistance portfolio of small business loans and financings exceeding $58 billion. 

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

SBA’s largest lending program and the principal vehicle for 

providing small businesses with access to credit they cannot 

obtain elsewhere. This program is vulnerable to fraud and 

unnecessary losses because it relies on numerous third parties 

(including borrowers, loan agents, and lenders) to complete 

loan transactions. Approximately 80 percent of loans 

guarantied annually by SBA are made by lenders to whom SBA has delegated loan-making authority. 

Additionally, SBA has centralized many loan functions and reduced the number of staff performing these 

functions. As SBA has placed more responsibility and independence on its lenders, the importance of 

OIG oversight has increased significantly. 

The Small Business Investment Company (SBIC) program was established in 1958 to stimulate and 

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

venture capital firms and SBA-guarantied funding. Small and emerging contractors who cannot obtain 

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

Surety Bond Guaranty program. 

Quality Assurance Reviews of Guaranty Purchase Decisions Need Strengthening 

In January 2004, SBA established the National Guaranty Purchase Center (NGPC) in Herndon, Virginia, 

to centralize the 7(a) loan guaranty purchase process. The guaranty purchase process involves an 

assessment of lender compliance with SBA loan requirements to determine whether payment of a 

guaranty on a defaulted loan is appropriate. Purchase reviews are intended to minimize erroneous 

payments by ensuring that SBA purchases only those loans which were originated, closed, serviced, and 

liquidated in accordance with loan authorizations, prudent lending standards, SBA regulations, and other 

requirements. 

The NGPC’s Quality Assurance Review (QAR) process is intended to provide SBA with additional 

assurance that guaranty purchase decisions made by the Center are consistent and accurate, thereby 

minimizing any losses the Agency might otherwise have 

experienced. An OIG review of the QAR process found 

that, while the NGPC was reviewing loan purchase 

decisions, it was not examining an adequate volume of loans 

in the high-risk categories identified in its Quality Assurance 

Plan. In addition, we found that only one senior staff 

member was assigned to the QAR process on a part-time basis, a checklist used in the QAR process was 

not complete, and procedures to address identified deficiencies had not been developed. The OIG made 

five recommendations to correct these problems. In response to the report, SBA agreed to take steps to 

strengthen the QAR process. 

As SBA has placed more 

responsibility and independence on 

its lenders, the importance of OIG 

oversight has increased significantly. 

...the NGPC...was not examining an 

adequate volume of loans in the highrisk categories identified in its Quality 

Assurance Plan.
Significant OIG Activities

11 

SBA’s Purchase Review Process for Backlogged Loans Resulted in Improper Payments to Lenders 

From the time the NGPC was established in January 2004, until it began processing lender purchase 

requests in March 2004, a backlog of 1,039 purchase requests accrued. In order to eliminate this backlog, 

the Agency detailed Headquarters personnel to the Center in April 2004 to perform purchase reviews of 

the backlogged purchase requests. The OIG reviewed 13 out of 115 backlogged loans that had been 

transferred to liquidation within 18 months of approval, and had a purchase review prior to August 31, 

2004. The purpose of our audit was to evaluate the quality of the Agency’s purchase review process to 

determine whether it was sufficient to reduce improper payments to lenders. We identified deficiencies in 

the purchase reviews of 9 of the 13 loans sampled, 2 of which had multiple deficiencies. Deficiencies 

included: failure to identify over-disbursements on 2 CAPLines 

loans and missing information needed to accurately determine the 

guaranty purchase amount on another CAPLines loan; inadequate 

support for equity injection on 4 loans; unsupported use of 

proceeds on 3 loans; and unsecured collateral and a lender’s overaccrual of interest on 1 loan. While the problems identified by our audit were not reflective of the 

NGPC’s current purchase review procedures, the significant number of deficiencies identified indicated 

that a high rate of improper payments may have occurred for the backlogged loans transferred to 

liquidation within 18 months of loan approval. Therefore, we recommended that SBA re-examine 

backlogged loans with a high risk of improper payments and develop a purchase review form for 

CAPLines loans to ensure these types of loans are adequately reviewed in the future. 

We issued individual audit reports on 5 of the 13 loans, which we determined collectively had resulted in 

more than $1 million in improper payments. One of these reports, which was issued during this reporting 

period, revealed that the lender did not disclose a material 

fact to SBA regarding the lack of independence of the 

company that performed the valuation of the assets 

purchased with the loan proceeds. The lender also made a 

false statement to SBA regarding the same company in 

connection with the asset injection valuation. These 

deficiencies were not detected during the guaranty purchase process. As a result, SBA erroneously paid 

$373,258 on the loan guaranty, which we recommended be recovered from the lender. 

OIG Identifies Problems with Policies and Procedures for SBA’s Largest Guarantied Loan 

Program 

The OIG issued an advisory memorandum identifying concerns with the policies and procedures of the 

SBAExpress and CommunityExpress programs. The majority of SBA loans are made under the 

SBAExpress program (72 percent of 7(a) loans in FY 2005); therefore, the problems identified were 

significant. The report raised five concerns about the 

Express programs: (1) although the SBAExpress program 

has been in existence for over 11 years, SBA had not issued 

any regulations to govern the program; (2) the Agency’s 

program guide contained provisions that conflicted with 

SBA regulations, and possibly the Small Business Act; (3) the program guide lacked sufficient criteria to 

allow SBA to identify whether an applicant lender presented an undue risk to the Agency, and appeared to 

impose more stringent requirements on lenders with previous SBA program experience; (4) certain 

...although the SBAExpress program 

has been in existence for over 11 years, 

SBA had not issued any regulations to 

govern the program...

We identified deficiencies in the 

purchase reviews of 9 of the 13 

loans sampled...

...the lender did not disclose a material 

fact to SBA regarding the lack of 

independence of the company that 

performed the valuation of the assets... 
Significant OIG Activities

12 

provisions in the program guide were ambiguous and did not provide sufficient guidance to lenders that 

SBA could rely on for enforcement actions; and (5) the Agency was relying on a program guide for the 

CommunityExpress program that was never officially cleared or issued by SBA, but that had been posted 

on the SBA lending website as official SBA policy. 

Dishonest Loan Agents Continue to Exploit SBA Loan Programs 

Applicants or lenders may employ loan agents to prepare SBA loan applications and/or refer applicants to 

lenders (or lenders to applicants). While honest loan agents can help small businesses gain access to 

capital, dishonest agents have perpetrated fraud involving 

hundreds of millions of dollars in loans. Loans involving 

loan agent fraud often default for non-payment. Unless a 

lender was aware of the fraud, SBA must then purchase the 

guarantied portions of the loans. Unscrupulous loan agents 

can also conspire with others to commit crimes, sometimes for significant financial gain. 

In one case, a joint investigation with the FBA disclosed that a loan agent and several co-conspirators 

falsely obtained nine SBA-guarantied loans totaling $9.5 million for convenience stores in Texas. All of 

the loans subsequently defaulted, and SBA’s 

guarantied portion was nearly $6.6 million. The 

investigation revealed a conspiracy in which 

borrowers would submit false and fraudulent 

documents, artificially inflate checking account 

deposits, and use loan proceeds to fund equity 

injections. The loan agent was sentenced to 6 months 

of home confinement, 200 hours of community service, and 5 years of supervised release, and was 

ordered to pay over $7.3 million in restitution. He cooperated with investigators by providing information 

about additional SBA loan fraud and testified against other participants in the scheme. 

The OIG’s “FY 2006 Report on the Most Serious Management Challenges Facing SBA” describes 

measures necessary to prevent loan agent fraud. Because SBA has little information about loan agent 

involvement with its loans, it simply does not know the 

magnitude of the loan agent problem. To remedy this, the 

Agency needs to systematically identify all loan agents and 

track their association with individual loans. This is 

particularly important as general oversight of loans shifts to lenders who may vary significantly in their 

due diligence, and because each loan agent has opportunities for contact with multiple lenders. 

Borrowers Conspire to Obtain SBA Loans 

OIG investigations have found that borrowers sometimes work together to defraud both SBA and a 

participating lender. Most of the fraud involves providing false information when applying for a loan or 

misusing the proceeds of the loan. For example, as a result of a joint investigation with the Department 

of Homeland Security, three indictments were filed alleging that six individuals were involved in a 

conspiracy to provide false information when applying for SBA-guarantied loans. The cases below, 

involving three different gas stations/convenience stores, illustrate the tactics used to defraud SBA and 

participating lenders. 

...a loan agent and several co-conspirators 

falsely obtained nine SBA-guarantied loans 

totaling $9.5 million... All of the loans 

subsequently defaulted, and SBA’s 

guarantied portion was nearly $6.6 million.

...dishonest agents have perpetrated 

fraud involving hundreds of millions of 

dollars... 

... the Agency needs to systematically 

identify all loan agents and track their 

association with individual loans.
Significant OIG Activities

13 

• A part owner of a gas station/convenience store, his wife, and a loan broker were indicted on 

charges of conspiracy and false statements in order to obtain a $1.35 million SBA-guarantied loan. 

The owner and loan broker allegedly claimed that the owner made an equity injection of at least 

$240,000 prior to loan disbursement. Moreover, his wife, a credit union employee, allegedly 

falsely reported that the company had a credit union account balance of over $63,000. The loan 

defaulted, and SBA paid a claim of over $1 million in June 2003. Arrest warrants have been issued, 

and all three defendants are fugitives. It is believed that the part owner and his wife have fled to 

Australia, and the loan broker has returned to his native Qatar. 

• A part owner of a gas station/convenience store, his undisclosed partner, and the seller of the 

property were indicted on charges of conspiracy, false statements, and wire fraud in connection 

with a $1.165 million SBA-guarantied loan used to purchase the property. The three individuals 

allegedly conspired to falsely claim that the part owner was a U.S. citizen, a former gas station 

manager, and the business’ sole owner. Two checks were allegedly altered to make it appear that 

he had made a $250,000 down payment toward the purchase of the property. He defaulted on the 

loan, and SBA paid a claim of over $1 million in November 2002. 

• A company president and his brother, who was the president of a second company, were charged 

with false statements, conspiracy, and aiding and abetting in connection with a $990,000 SBAguarantied loan made to the first company. The approved purpose of the loan was to assist in the 

purchase of a gasoline station/convenience store. However, the actual object of the alleged scheme 

was to merely refinance and consolidate delinquent debts owed by the seller using proceeds from 

the loan made to the “straw buyer.” The loan defaulted and SBA purchased its guaranty for over 

$719,000 in November 2003. 

False Claims of Citizenship Continue in SBA Loan Programs 

Borrowers and loan agents continue to use well-organized schemes in which prospective borrowers 

falsely claim to be U.S. citizens in order to obtain SBA-guarantied 

loans. These loans often default quickly, with millions of dollars at 

risk (an individual loan can exceed $1 million). In addition, loans to 

such ineligible borrowers can make financing unavailable to honest 

loan applicants. 

In one case, an investigation revealed that a business owner applied for a $308,000 SBA-guarantied loan 

to purchase a convenience store and falsely indicated that he 

was a U.S. citizen. He later applied for an additional $870,000 

SBA-guarantied loan and failed to disclose the prior 

outstanding loan to the lender. The man pled guilty to making 

false statements. In another case, a businessman falsely 

reported that he was a U.S. citizen and made other 

misrepresentations in order to secure a $1 million SBA-guarantied loan. He and others, including a loan 

agent, submitted to the lender an inflated purchase contract falsely showing a price of $1.32 million for a 

convenience store, when the true price was under $789,000. The businessman agreed to inject $150,000 

cash into the business when, in fact, at least $134,000 was not from him. Moreover, a bill of sale falsely 

showed that he had sold a New York gift shop for $150,000. The businessman defaulted on the loan 

These loans often default 

quickly, with millions of dollars 

at risk.... 

...a businessman falsely reported that 

he was a U.S. citizen and made other 

misrepresentations in order to secure 

a $1 million SBA-guarantied loan.
Significant OIG Activities

14 

within 1 year, and the lender lost over $900,000. After paying its guaranty, SBA lost over $686,000. In 

conjunction with pleading guilty to bank fraud, the businessman was sentenced to time served, followed 

by 3 years of supervised release, and was ordered to pay over $624,000 in restitution. The OIG 

conducted this investigation jointly with the Texas Alcoholic Beverage Commission. 

Fraudulent Schemes Used to Obtain SBA-Guarantied Loans 

Criminals use many different tactics to fraudulently obtain SBA-guarantied loans, including false and 

fraudulent documents, fictitious asset claims, non-disclosure of prior criminal records or other SBA loans, 

misuse of loan proceeds, and manipulated property values. 

These tactics increase the likelihood of monetary losses to 

SBA and lenders. In addition to the cases previously 

discussed, the following examples illustrate the lengths to 

which prospective borrowers will go to fraudulently obtain 

SBA loans. 

• The president of an electrical company pled guilty to a filing a false Federal income tax return that 

fraudulently represented $430,500 as part of the company’s cost of goods sold. The investigation 

disclosed that the man’s cousin falsely represented to SBA that his business made $430,500 in 

electrical supply sales to the electrical company, which then falsely claimed the purchases on the 

company’s tax return. This scheme contributed to the approval of a $1.1 million SBA loan to the 

purchasers of the cousin’s business by making that business appear more profitable than it actually 

was. The cousin was charged with wire fraud. 

• A part owner of a vitamin and herb company obtained a $905,000 SBA-guarantied loan by falsely 

representing that he had authorization and a guarantee from the Board of Directors. He used the 

loan to buy a building, represented to the Board of Directors that the company would be leasing the 

building from a disinterested third party, and collected excessive lease payments under a fabricated 

name. Moreover, the investigation determined that he diverted over $1.5 million in company funds 

to purchase property and pay personal expenses. He pled guilty to forgery and money laundering 

and was sentenced to probation and community service and ordered to pay a fine and restitution. 

OIG Issues Fraud Alert 

The OIG proactively issued a notice alerting SBA employees and lenders about fraudulent schemes 

affecting the SBAExpress loan program. Although an 

individual SBAExpress loan amount may be small, the total 

dollar value can be large when multiple borrowers are involved 

in a fraudulent scheme. In one case referred by a bank, the 

OIG is investigating a loan agent scheme involving 57 smaller 

loans (generally under $50,000) in which the business 

applicants either did not exist or presented false business histories. The bank became aware of the fraud, 

so not all of the loans were made. Similar schemes are being perpetrated against other lenders. The OIG 

is working with lenders and will seek criminal prosecution where appropriate. 

Criminals use many different tactics 

to fraudulently obtain SBAguarantied loans...

Although an individual SBAExpress 

loan amount may be small, the total 

dollar value can be large when 

multiple borrowers are involved in the 

scheme. 
Significant OIG Activities

15 

Small Business Development, Contracting, Education, and Training

Through its government contracting programs, SBA works to create an environment for maximum 

participation by small, disadvantaged, and women-owned businesses in Federal Government contract 

awards. These programs include, among others, the Historically Underutilized Business Zone 

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

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

for contracting with small, small disadvantaged, women-owned, service-disabled-veteran-owned, and 

HUBZone small businesses. The current government-wide goal is for small businesses to receive 

23 percent of the total value of prime contracts awarded each fiscal year. 

SBA also manages the Section 8(a) Business Development program. This program was established to 

provide business development assistance to small businesses owned by socially and economically 

disadvantaged individuals and to help them access the multi-billion dollar Federal procurement market. 

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

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

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

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

management, outreach, and service delivery. 

A High Percentage of Approved HUBZone Applicants Are Subsequently Decertified

The OIG continues to be concerned about SBA’s efforts to ensure that only eligible firms participate in 

the HUBZone program. This program provides Federal contracting assistance to qualified small 

businesses located on Indian reservations and in areas where 

high unemployment rates or low-income levels predominate. 

In 2003, the OIG reviewed the program and found that controls 

were inadequate to ensure that only eligible firms were 

certified and remain certified. The OIG recommended that 

SBA implement a plan to ensure that an adequate number of 

participating companies are examined to ensure their 

eligibility. A program examination plan was subsequently developed and implemented, and the Agency 

reported that final action on the OIG’s recommendation was completed in November 2004. 

During this reporting period, the OIG conducted a follow-up review and found that, while eligibility 

examination and recertification processes had been 

implemented, the results of those processes contrasted 

sharply with the relatively high 70 percent approval rate of 

initial applications. Specifically, we found that: (1) over 

56 percent of firms were decertified or proposed for 

decertification as a result of program examinations; (2) over 

81 percent of firms were decertified or proposed for 

decertification as a result of the 3-year recertification 

process; (3) firms proposed for decertification as a result of program examinations were not processed 

timely; (4) recordkeeping practices related to the program examination and recertification processes were 

lacking; (5) a request to the Federal Acquisition Regulation Council to revise HUBZone contract 

In 2003 the OIG reviewed the 

[HubZone] program and found that 

controls were inadequate to ensure 

that only eligible firms were certified 

and remain certified. 

...while examination and 

recertification processes had been 

implemented, the results of those 

processes contrasted sharply with the 

relatively high 70 percent approval rate 

of initial applications.
Significant OIG Activities

16 

certifications was not being processed in a timely manner; and (6) system modification requests in the 

Federal Procurement Data System-Next Generation (FPDS-NG) needed to measure HUBZone program 

performance were not implemented. While the implementation actions in findings 5 and 6 are outside of 

SBA’s direct control, SBA needs to monitor progress to encourage timely implementation. 

We recommended that SBA improve recordkeeping, management, and monitoring of the HUBZone 

program. The Associate Administrator for the HUBZone program expresses concerns about some of the 

OIG’s conclusions, but generally agreed with the report’s recommendations. 

Loophole Allows Company Owned by Non-Disadvantaged Individual to Obtain 8(a) Contracts 

The OIG received an anonymous complaint regarding the owner of a company in the 8(a) Business 

Development program. To be eligible for the program, participant owners need to be both socially and 

economically disadvantaged. An economically disadvantaged individual’s ability to compete is impaired 

due to diminished capital and credit opportunities. Among other things, after admission to the program, 

the owner’s net worth must be less than $750,000 to be considered economically disadvantaged. 

While researching this complaint, the OIG determined that the company’s owner was the future 

beneficiary of a trust, a portion of which was valued at well over 

$750,000. SBA was unaware of the trust’s existence when 

making initial and continuing eligibility determinations for the 

company. The trust had provided the owner with $100,000 in 

capital and the company with $865,000 in credit. Despite the 

fact that capital and credit opportunities were available to the 

owner, the trust was not considered a current asset since the company’s owner did not have access to the 

funds without the trustees’ authorization. A loophole exists in SBA’s regulations because the trust was 

not considered an asset. This loophole allowed a company owned 

by an individual who had access to capital and credit (i.e., a nondisadvantaged person) to obtain 8(a) contracts. Participation by 

non-disadvantaged individuals reduces the opportunities available 

to those who are legitimately disadvantaged, diverts the energy and efforts of the SBA, and could 

undermine public support for the program. 

The OIG recommended that the Agency perform a review to reassess the owner’s economically 

disadvantaged status after he receives an upcoming payment from the trust, determine whether contingent 

assets such as trusts should be considered when assessing economic disadvantage, and determine whether 

any regulation changes are needed to address this issue. The Agency agreed to implement the 

recommendations. 

Company Inappropriately Awarded 8(a) Contract 

In response to another complaint, the OIG reviewed a 

sole source 8(a) set aside contract awarded to a dredging 

company to determine if the contract was awarded and 

performed in compliance with 8(a) Business 

Development program laws and regulations. The review 

disclosed that the company did not perform the required 

...the company violated SBA’s small 

business procurement requirements, failed 

to comply with the terms of its contract, and 

provided inaccurate information...

Despite the fact that capital and 

credit opportunities were available 

to the owner, the trust was not 

considered a current asset...

This loophole allowed a company 

owned by...a non-disadvantaged 

person...to obtain 8(a) contracts. 
Significant OIG Activities

17 

percentage of work or meet the applicable size standard for the contract in question. Therefore, the 

company violated SBA’s small business procurement requirements, failed to comply with the terms of its 

contract, and provided inaccurate information to the Federal Government in order to obtain the dredging 

contract. We recommended that SBA initiate termination proceedings and immediately suspend the 

company from the 8(a) Business Development program, which the Agency agreed to do. 

Businesses Make Illegal Payments to Obtain 8(a) and Other Contracts 

An advantage of being a Section 8(a) firm is the ability to receive sole source government contracts, i.e., 

contracts that are awarded without competition from other vendors. Unfortunately, bribery is sometimes 

used to obtain 8(a) and regular business contracts. 

A joint SBA OIG, General Services Administration (GSA) OIG, 

and FBI investigation found that an 8(a) contractor and president 

of an engineering corporation made monthly cash payments 

totaling over $30,000 to the head of the 8(a) division in an SBA 

district office from 2000 to 2003. In return, the SBA official used his authority to award over $16 million 

in SBA 8(a) sole source contracts to the 8(a) firm. The SBA official was found guilty of illegally 

receiving bribes. 

Moreover, a joint SBA OIG and GSA OIG investigation revealed that the same 8(a) contractor made 

approximately $31,000 in illegal payments to a former manager of a firm operating restaurant franchises. 

The payments were made in exchange for the restaurant firm manager awarding the engineering 

corporation more than $1 million in electrical contracts. In addition, the attorney for the engineering 

corporation’s president interfered with and obstructed the investigation into illegal kickback payments 

made by his client. 

The engineering corporation was sentenced to 4 years probation, a $150,000 fine and a $400 special 

assessment fee, and was ordered to initiate a compliance program and an audit. The president of the 

corporation was sentenced to 12 months home confinement with electronic monitoring, 4 years probation, 

400 hours of community service, a $150,000 fine, and a $100 special assessment fee. The president’s 

attorney was sentenced to 33 months in prison, 3 years supervised probation, 120 hours of community 

service, a $300 special assessment fee, and the surrender of his law license. Finally, the former manager 

of the restaurant firm was sentenced to 1 year and 1 day imprisonment, 2 years of supervised release, and 

a $100 special assessment fee. 

Inspector General Testifies on Small Business Contracting 

On July 12, 2006, the Inspector General testified before the Senate Committee on Small Business and 

Entrepreneurship regarding problems with governmental procurement activity intended for small 

businesses. The Small Business Act provides that 23 

percent of all government contracts be awarded to small 

businesses every year. To meet this goal, every agency 

individually negotiates annual goals for small business 

contracts with SBA. However, a number of Federal 

reports have shown that many contracts that are counted 

towards these small business goals are actually being 

The SBA official was found guilty 

of illegally receiving bribes. 

...reports have shown that many 

contracts that are counted towards these 

small business goals are actually being 

performed by firms that do not meet 

SBA’s criteria to be considered small. 
Significant OIG Activities

18 

performed by firms that do not meet SBA’s criteria to be considered small. The Inspector General 

testified that this was due to three factors: (1) regulatory loopholes that allow this miscounting; (2) errors 

by government contracting personnel; and (3) fraud or negligence by companies in attempting to obtain 

small business set aside contracts. His testimony also focused on the need for regulatory and legislative 

changes to address these challenges, and the need for SBA to take a more aggressive approach towards 

working with other agencies to eliminate these flaws. 

Multi-Agency Probe Examines Federal Contracting Abuse

Because some firms commit fraud to gain access to the lucrative Federal contracting market, ongoing 

investigations are being conducted by multiple Federal agencies. In one case, the president of two 

construction firms submitted false references to the U.S. Coast Guard to obtain a HUBZone contract for 

one of the firms, which was a HUBZone certified company at the time. He pled guilty to making a 

material false statement and was sentenced to 3 years probation and a $5,000 fine. 

OIG Establishes a Small Business Procurement Integrity Task Force

The OIG has established a task force made up of auditors, investigators and attorneys to focus on the 

issues of integrity in small business contracting and accuracy of reporting by Federal agencies on small 

business procurement activity. The Task Force, which is headed by the Deputy Inspector General, was 

formed, in part, in response to the numerous complaints that have been received over the years regarding 

ineligible businesses obtaining small business contracts. In addition, a significant number of large 

businesses were recently reported as receiving small business awards in the Federal Procurement Data 

System–Next Generation (FPDS–NG). The OIG Task Force will coordinate and focus audit and 

investigative efforts to identify reasons for, and taking appropriate actions to deter, agency misreporting 

and to identify fraud or lack of due diligence by contractors in bidding on small business contracts. This 

task force is reviewing complaints and past size determinations that found businesses to be other than 

small, and identifying issues for future audits. 

OIG Requests Change in Federal Sentencing Guidelines 

The Inspector General, joined by the SBA Associate Deputy Administrator for Government Contracting 

and Business Development, wrote to the United States Sentencing Commission requesting a change in the 

Federal Sentencing Guidelines. The letter asked the Commission to revise the sentencing guidelines to 

include provisions relating to the Government’s loss when a contractor misrepresents either that it meets 

small business criteria or is disadvantaged in order to wrongfully obtain a set-aside government contract. 

This initiative is an effort to address a longstanding problem in seeking prosecutions for such fraud. The 

sentencing guidelines provide that, in determining the extent of loss to the Government, the value of the 

goods or services the Government received must be subtracted 

from the amount the Government paid as a result of fraud. 

Unfortunately, in small or disadvantaged contract fraud cases, 

this analysis results in no governmental loss because the 

Government has obtained the goods or services that it 

contracted for. Accordingly, some prosecutors have been reluctant to prosecute these types of cases. The 

letter requested a revision to the sentencing guidelines so that, in such cases, the loss to the Government 

would be considered equal to the amount paid to the contractor. Similar provisions already exist to 

This initiative is an effort to address a 

longstanding problem in seeking 

prosecutions for such fraud.
Significant OIG Activities

19 

address other criminal wrongdoing, such as violations of the Davis Bacon Act. Federal prosecutors have 

advised that this change would make it more likely that size and disadvantaged status fraud cases would 

be accepted for prosecution, thus deterring such fraudulent activity. 

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

Section 4(h) of the Small Business Act requires the OIG to report to Congress on a semi-annual basis 

regarding the Agency’s use of its authority in connection with cosponsorships and fee-based 

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

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

cosponsors. As shown in Appendix IX, between April 1 and September 30, 2006, there were 60 

cosponsorships. SBA reported that it did not conduct any fee-based Administration-sponsored events 

during this period. 

Legislation Requires Approval of SBDC Surveys 

Section 21(a)(7) of the Small Business Act imposes restrictions on the disclosure of information 

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

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

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

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

any client survey and the use of such information shall be approved by the IG who shall include such 

approval in the OIG’s Semiannual Report. 

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

period. Although the statutory provision was enacted in 

December 2004, the Agency has not yet issued the required 

regulations regarding disclosures of client information. 

Agency officials advised that they continue to work on the 

regulations and expect to have them in clearance by the first 

quarter of FY 2007. 

The Agency reported that there were 

no SBDC surveys requiring OIG 

approval during this reporting period. 
Significant OIG Activities

20 

Agency Management

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

audited annually. A key Office of Management and Budget (OMB) initiative is to have agencies improve 

their financial management activities, including providing financial statements and financial performance 

information in a more timely manner. For several years, the OIG, GAO, and external auditors all noted 

weaknesses in SBA’s financial management and reporting controls that resulted in SBA being unable to 

produce reliable, timely, and accurate financial information. SBA has responded by making sound 

financial management and reporting a top priority, and has taken steps to make improvements. These 

efforts have focused primarily on improving SBA’s models for estimating subsidy costs, improving 

controls over financial statement preparation, and correcting accounting errors in prior periods related to 

loan sales and subsidy cost allowances. SBA’s financial management and reporting controls, however, 

continue to need improvement in the areas of funds management, financial accounting transactions, 

review of account balances, financial statement preparation, and quality assurance. The Agency must also 

ensure it complies with laws and regulations related to its financial management and reporting 

responsibilities, and ensure that it can implement new reporting and internal control requirements in an 

effective and timely manner. 

SBA Lacks Consistent Method for Assessing the Risk of Improper Payments 

The Improper Payments Act of 2002 requires Federal agencies to report on erroneous payments and the 

progress made in reducing them. The OIG examined the Agency’s efforts to identify, correct, and report 

on erroneous payments and determined whether management could rely on the existing erroneous 

payment activities to provide several of the basic 

components of an effective internal control program required 

by OMB Circular A-123. We found that, although the 

Agency was performing improper payment reviews, it had 

not established uniform Agency-wide processes and 

procedures for the full range of erroneous payment risk 

assessment and reporting activities. For example, program 

offices did not consistently identify high-risk areas of 

vulnerability and did not maintain documentation to support whether their programs were susceptible to 

erroneous payments. We recommended, and the Agency agreed, to engage in more systematic risk 

assessments and to require program offices to submit complete improper payment estimates and status 

reports to improve Agency reporting. 

 

SBA Made Limited Progress in Implementing a Strategy for Building a Skilled Acquisition 

Workforce 

An OIG review of SBA’s implementation of OMB policy directives pertaining to development of its 

acquisition workforce found that SBA had not completed the 

basic steps necessary to comply with OMB policy. SBA had 

not identified its acquisition workforce, collected experiential 

and training information on its workforce, or assessed 

workforce skill levels. Consequently, SBA’s progress is 

behind that of other agencies. The OIG reported that SBA will 

have difficulty meeting the required deadline for having complete and current training, education, and 

SBA had not identified its acquisition 

workforce, collected experiential and 

training information...or assessed 

workforce skill levels. 

...although the Agency was performing 

improper payment reviews, it had not 

established uniform Agency-wide 

processes and procedures for the full 

range of erroneous payment risk 

assessment and reporting activities.
Significant OIG Activities

21 

experience data on its employees in the Federal Acquisition Institute’s database. Further, without a plan 

detailing how SBA will meet OMB’s requirements, the Agency risks not having a highly-qualified and 

well-trained acquisition staff that possess the core competencies specified by OMB. 

The OIG recommended, and the Agency agreed to develop a detailed plan to assist the Agency in 

ensuring compliance with OMB requirements. 

Contract Awards for IT Services Were Not Properly Re-competed. 

As a result of two anonymous complaints, the OIG conducted an audit of contract awards for IT services. 

We found that SBA did not properly plan for the re-competition 

of replacement contracts for IT services as the original contracts 

approached their expiration dates. As a result, the original 

contracts were extended beyond their performance periods. 

While this was not in violation of the Federal Acquisition Regulations or SBA policies because the 

services were deemed mission-critical, the extensions were clearly not the best option, nor a desirable 

contracting practice. 

In addition, our audit report expressed concern that SBA would not complete the steps needed to recompete the interim contracts before their expiration in March 2007. The OIG also found that the 

awardees could have difficulty meeting certain 8(a) requirements 

related to the amount of work required to be performed due to their 

teaming relationships with much larger firms. Finally, the OIG 

found that SBA should have requested a current size certification for 

one firm prior to executing a task order for services as it appeared the 

firm no longer met the applicable size standard. 

The OIG recommended that SBA’s Chief Operating Officer ensure that a plan is developed for recompeting the four interim replacement contracts prior to their expiration on March 31, 2007, and that 

increased scrutiny be provided over the awardees to ensure continued compliance with 8(a) regulations. 

SBA Improperly Accepted Two Cash Gifts Prior to Obtaining a Conflict of Interest Determination 

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

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

to semiannual audits by the Inspector General who shall report his findings to Congress. During this 

reporting period, SBA received six cash gifts totaling $10,700 for a Small Business Week awards event. 

Contrary to SBA policy, two of the cash gifts were accepted by district offices without a conflict of 

interest determination being made by SBA’s Office of General Counsel (OGC) for each donor. As of our 

reporting deadline, we had requested that OGC make a conflict of interest determination for the two 

donors and those determinations were still pending. 

Number and Percentage of Overdue Management Decisions and Final Implemented Actions Have 

Decreased 

The IG Act requires that Federal agencies make management decisions on all findings and 

recommendations within a maximum of 6 months of report issuance. Such decisions can take several 

...SBA did not properly plan for the 

re-competition of replacement 

contracts for IT services... 

...the awardees could have 

difficulty meeting certain 8(a) 

requirements... 
Significant OIG Activities

22 

forms. Program officials may agree, disagree, or seek alternative actions to the recommendations. As of 

September 30, 2006, 25 management decisions on recommendations in OIG reports were overdue – 

approximately 41 percent of all pending management decisions. This represents a slight decrease since 

March 31, 2006 in the number and percentage of overdue management decisions. The Offices of Capital 

Access, Government Contracting and Business Development, Management and Administration, and 

Strategic Alliances were responsible for over half of the overdue management decisions. 

A management decision includes a target date for implementing the agreed-to management decision. The 

number and percentage of recommendations with overdue final implemented actions has decreased – by 

7 percent—since March 31, 2006. As of the end of this reporting period, 46 percent of all pending final 

actions were overdue. The Office of the Chief Information Officer and the Office of Management and 

Administration were responsible for almost half of the overdue final actions. 
Significant OIG Activities

23 

Other Significant OIG Activities 

Character Screening Diminishes Potential Program Fraud

The OIG’s Office of Security Operations ensures that participants in programs involving business loans, 

disaster assistance loans, Section 8(a) certifications, surety bond guarantees, SBICs, and certified 

development companies meet SBA character standards through name checks and, where appropriate, 

fingerprint checks. During this reporting period, the OIG processed 2,257 external name check requests 

for these programs. 

Using data from its on-line connection with the FBI, the OIG also refers applicants who appear ineligible 

because of character issues to program officials for adjudication. During this reporting period, OIG 

referrals resulted in SBA business loan program managers 

declining 36 applications totaling over $12.6 million, and 

disaster loan program officials declining 140 applications 

totaling nearly $8.1 million. Over $280.5 million in loans 

have been declined during the last 10 years due to 

character eligibility issues, thus making credit available to 

other applicants who had no such issues. 

In addition, based on OIG efforts during this semiannual period, the Section 8(a) program declined 5 

applications for admission. The OIG also initiated 161 background investigations and issued 26 security 

clearances for Agency employees and contractor personnel required to have clearances, adjudicated 108 

background investigative reports, and coordinated with SBA’s Office of Disaster Assistance to adjudicate 

334 derogatory background investigative reports. Finally, the OIG processed 1,654 internal name check 

requests for Agency activities such as success stories, Small Business Person of the Year nominees, and 

disaster assistance new hires. 

OIG Recommends Debarments 

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

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

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

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

The OIG recommended that SBA debar two individuals for making false statements made in connection 

with an SBA-guarantied loan in excess of three quarters 

of a million dollars. The OIG’s investigation determined 

that the individuals failed to disclose that approximately 

70 percent of the money they claimed they were 

injecting into the project from their own funds was 

borrowed and would have to be repaid. Use of borrowed 

funds was prohibited by the loan documents. As a result of the excessive debt, the loan defaulted and the 

borrower filed for bankruptcy months after closing the loan, resulting in considerable losses of taxpayer 

dollars. The Agency agreed with the OIG recommendation and debarred both individuals for 3 years. 

...OIG referrals resulted in SBA business 

loan program managers declining 36 

applications totaling over $12.6 million, 

and disaster loan program officials 

declining 140 applications totaling nearly 

$8.1 million.

... individuals failed to disclose that 

approximately 70 percent of the money they 

claimed they were injecting into the project 

from their own funds was borrowed...
Significant OIG Activities

24 

The OIG also recommended the debarment of a borrower who fraudulently obtained two SBA-guarantied 

loans valued at over $1.2 million. To support his loan applications, the individual submitted false 

information and fictitious documents to SBA lenders about his personal property value and net worth. 

The OIG’s investigation resulted in the individual pleading guilty to multiple counts of bank fraud, 

submitting false loan applications, and money laundering in violation of 18 U.S.C. §§ 1344, 1014, and 

1957. The Agency was considering the OIG’s recommendation at the close of the reporting period. 

OIG Reviews Agency Proposal to Centralize 7(a) Loan Processing 

The OIG plays an important role in reviewing SBA’s proposed regulations and initiatives. The OIG 

reviews proposals to, among other things, identify program inefficiencies and areas susceptible to fraud, 

waste, and abuse. The OIG’s substantive comments frequently lead to marked improvement in legislation 

and regulations proposed by SBA or affecting SBA programs, new and revised Agency operating 

procedures, Agency reorganizations, and other matters requiring the Administrator’s signature. 

After reviewing an Agency proposal to centralize all 7(a) guaranty loan processing into two Loan 

Processing Centers, the OIG expressed concerns about the absence of adequate staffing analysis, and the 

absence of important planning elements in the proposed 

centralization documents. The OIG believed that the initial 

proposal did not adequately address review and processing 

of 7(a) loans with reduced staffing. Furthermore, the OIG 

was concerned that reduced loan processing times could 

result in poor loan origination decisions and more defaulted 

loans. In response to the OIG’s initial concerns and comments, the Agency revised the proposal to 

provide clearer rationale and analysis for the planned changes. 

The OIG believed that the initial 

proposal did not adequately address 

review and processing of 7(a) loans 

with reduced staffing. 
Statistical Highlights

25 

6-Month Productivity Statistics 

April 1, 2006, through September 30, 2006 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ......................................................................... $9,993,916 

B. Loans/Contracts Not Made as Result of Investigations............................................................. $110,000 

C. Loans Not Made as a Result of Name Checks ..................................................................... $20,715,939 

D. Disallowed Costs Agreed to by Management ........................................................................... $107,261 

E. Recommendations that Funds Be Put to Better 

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

 Total..................................................................................................................................... $30,927,116

Efficiency and Effectiveness Activities Related to Audits and Other Reports

A. Reports Issued ...................................................................................................................................... 15 

B. Recommendations Issued ..................................................................................................................... 48 

C. Dollar Value of Costs Questioned............................................................................................. $373,258 

D. Dollar Value of Recommendations that Funds 

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

E. Collections as a Result of Questioned Costs ............................................................................... $529,488 

Audit and Report Follow-up Activities 

A. Recommendations Closed .................................................................................................................... 52 

B. Disallowed Costs Agreed to by Management ........................................................................... $107,261 

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

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

D. Unresolved Recommendations............................................................................................................. 37 

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

A. Legislation Reviewed ........................................................................................................................... 28 

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

C. Standard Operating Procedures and Other Issuances* Reviewed ........................................................ 44

 Total..................................................................................................................................................... 83

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

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

26 

6-Month Productivity Statistics 

April 1, 2006, through September 30, 2006 

Indictments, Convictions, and Case Activity

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

B. Convictions from OIG Cases ................................................................................................................ 19 

C. Cases Opened ........................................................................................................................................ 31 

D. Cases Closed ......................................................................................................................................... 24 

Investigations Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations........................................................................................................... $9,993,916 

B. Loans/Contracts Not Approved as a Result of OIG Investigations............................................ $110,000 

C. Loans Not Approved as a Result of the Name 

 Check Program .............................................................................................................. $20,715,939

 Total..................................................................................................................................... $30,819,855

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

E. Other........................................................................................................................................................ 1 

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency ............................................................................................. 3 

B. Debarments Pending at the Agency ........................................................................................................ 7 

C. Proposed Debarments Issued by the Agency .......................................................................................... 7 

D. Final Debarments Issued by the Agency................................................................................................. 5 

OIG Hotline Operation Activities

A. Total Fraud Line Calls/Letters ............................................................................................................ 160 

B. Total Calls/Letters Referred to Investigations Division........................................................................ 11 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies ...................................... 4 

D. Total Calls/Letters Referred to Other Entities....................................................................................... 23 

E. Total Calls/Letters Needing No Action ............................................................................................... 122 
Statistical Highlights

27 

Full Year Productivity Statistics 

October 1, 2005, through September 30, 2006 

Office-wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ....................................................................... $29,665,125 

B. Loans/Contracts Not Made as Result of OIG Investigations .................................................... $116,200 

C. Loans Not Made as Result of Name Checks ........................................................................ $42,179,311 

D. Disallowed Costs Agreed to by Management ........................................................................... $563,463 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management............................................................................................. $25,000

 Total..................................................................................................................................... $72,549,099

Efficiency and Effectiveness Activities

A. Reports Issued ...................................................................................................................................... 35 

B. Recommendations Issued ................................................................................................................... 108 

C. Dollar Value of Costs Questioned............................................................................................. $854,624 

D. Dollar Value of Recommendations that Funds 

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

E. Collections as a Result of Questioned Costs .......................................................................... $1,199,443 

Follow-up Activities

A. Recommendations Closed .................................................................................................................. 122 

B. Disallowed Costs Agreed to by Management ............................................................................. 562,463

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

 Agreed to by Management.................................................................................................... $25,000 

D. Unresolved Recommendations........................................................................................................... 136 

Legislation/Regulations/SOPs/Other Reviews 

A. Legislation Reviewed ........................................................................................................................... 35 

B. Regulations Reviewed.......................................................................................................................... 24 

C. Standard Operating Procedures and Other Issuances* Reviewed ...................................................... 102

 Total................................................................................................................................................... 161

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

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

28 

Full Year Productivity Statistics 

October 1, 2005, through September 30, 2006 

Summary of Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases...................................................................................................................55** 

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

C. Cases Opened ......................................................................................................................................... 59 

D. Cases Closed .......................................................................................................................................... 53 

Summary of Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations......................................................................................................... $29,665,125 

B. Loans/Contracts Not Approved as a Result of OIG Investigations........................................... $116,200 

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

 Check Program .............................................................................................................. $42,179,311

 Total..................................................................................................................................... $71,960,636

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

E. Other....................................................................................................................................................... 1 

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency .......................................................................................... 11 

B. Debarments Pending at the Agency ....................................................................................................... 7 

C. Proposed Debarments issued by the Agency........................................................................................ 13 

D. Final Debarments issued by the Agency .............................................................................................. 12 

Summary of OIG Hotline Operation

A. Total Fraud Line Calls/Letters............................................................................................................ 408 

B. Total Calls/Letters Referred to Investigations Division ....................................................................... 39 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies.................................... 31 

D. Total Calls/Letters Referred to Other Entities ..................................................................................... 54 

E. Total Calls/Letters Needing No Action.............................................................................................. 284 

** Includes four indictments/convictions that occurred in the prior fiscal year but were not previously reported. 
Appendices

29 

Appendix I 

OIG Reports Issued 

April 1, 2006, through September 30, 2006 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Disaster Loans 

DCMS Upgrade Needs a System Certification 

and Accreditation. 6-21 4/27/06 $0 $0

DCMS- Performance Test Plans 6-24 6/8/06 $0 $0

Preliminary Assessment of Controls over the 

Coordination of Disaster Assistance Benefits 

Distributed by Mississippi Development 

Authority’s Grant Assistance Program 

6-28 9/25/2006 $0 $0

Loan Disbursements Following the 

2005 Gulf Coast Hurricanes 6-29 9/19/06 $0 $0

Flexible Staffing of SBA Personnel During 

Times of Emergencies or Catastrophes to Aid 

Disaster Loan Processing 

6-31 9/25/06 $0 $0

Program Subtotal 5 $0 $0

Small Business Access to Capital

Audit of an SBA Guarantied Loan 6-22 5/17/06 $373,258 $0

Survey of the Quality Assurance Review 

Process 6-26 7/12/06 $0 $0

Management Advisory Report- Policies and 

Procedures for the SBAExpress and 

Community Express Loan Programs 

6-34 9/29/06 $0 $0

Audit of Deficiencies in OFA’s Purchase 

Review Process for Backlog Loans 6-35 9/29/06 $0 $0

Program Subtotal 4 $373,258 $0

Small Business Development, Contracting, Education, and Training

HUBZone Program Examination and Recertification Processes 6-23 5/23/06 $0 $0

Concerns Related to a Company’s 

Compliance with 8(a) Business Development 

Program Requirements 

6-27 9/8/06 $0 $0

Economically Disadvantaged Status of an 8(a) 

Program Participant’s Owner 6-32 9/25/06 $0 $0

SBA’s Acquisition Personnel Education and 

Training 6-33 9/29/06 $0 $0

Program Subtotal 4 $0 $0
Appendices

30 

Appendix I

OIG Reports Issued 

April 1, 2006, through September 30, 2006 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Agency Management

SBA’S Implementation of the Improper 

Payments Information Act 6-25 6/13/06 $0 $0

Office of the Chief Information Officer 

(OCIO) Contract Awards for Agency 

Mission-Critical Services 

6-30 9/25/06 $0 $0

Program Subtotal 2 $0 $0

TOTALS (all programs) 15 $ 373,258 $0
Appendices

31 

Appendix II 

OIG Reports with Questioned Costs 

 Reports Recommend

-ations* 

Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision made 

by March 31, 2006 7 9 $4,134,459 $3,086,077 

B. Issued during this reporting 

period 1 1 $373,258 $0 

Universe from which 

management decisions could be 

made in this reporting period – 

Subtotals

8 10 $4,507,717 $3,086,077 

C. Management decision(s) made 

during this reporting period 3 3 $2,288,386 $2,181,125 

 (i) Disallowed costs 2 2 $107,261 $0 

 (ii) Costs not disallowed 1 1 $0 $2,181,125 

D. No management decision 

made by September 30, 2006 5 7 $2,219,331 $904,952 

* Reports may have more than one recommendation. 

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

documentation. 

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

 

Reports Recommendations* 

Recommended 

Funds For Better 

Use 

A. No management decision made by 

March 31, 2006 1 1 $293,823 

B. Issued during this reporting period 0 0 $0 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals

1 1 

$293,823 

C. Management decision(s) made during this 

reporting period 0 0 $0 

(i) Recommendations agreed to by SBA 

management 0 0 $0 

(ii) Recommendations not agreed to by 

SBA management 0 0 $0 

D. No management decision made by 

September 30, 2006 1 1 $293,823 

*Reports may have more than one recommendation. 
Appendices

32 

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

Reports Recommendations 

A. No management decision made by September 30, 2005 26 83 

B. Issued during this reporting period 13 47 

Universe from which management decisions could be 

made in this reporting period – Subtotals 39 130 

C. 

Management decision(s) made (for at least one 

recommendation in the report) during this reporting 

period 17 55 

D. 

No management decision made (for at least one 

recommendation in the report) by 

March 31, 2006 * 29 75 

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

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

33 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions 

as of September 30, 2006 

Title Report

Number

Date 

Issued Status 

Impact of Loan Splitting on Borrowers 

and SBA 2-31 9/30/02 Agency response does not fully 

address the recommendation. 

Audit of SBA's Information Systems 

Controls FY 2003 4-19 4/29/04 Agency has not responded to one 

recommendation made in the report. 

Audit of San Francisco District Office 

Administrative Activities Related to 

the Silicon Valley Small Business 

Development Center 

4-27 6/29/04 

Management has not responded to one 

recommendation made in the report. 

Audit of an SBA-Guarantied Loan to 

Elatec Technology Corporation and 

HK Equipment, Inc. 

4-40 9/13/04 

Agency response does not fully 

address the recommendation. 

Audit of Early Defaulted Loan to Big 

Z Travel Center 4-43 9/17/04 Management has not responded to one recommendation made in the report. 

Audit Report – Summary Audit of 

SBA-Sponsored and Cosponsored 

Events Conducted by District Offices 

4-44 9/24/04 

Management has not responded to two 

recommendations made in the report. 

Review of Indirect Cost Rate of the 

Walsh Group, P.A. 5-03 10/25/04 Management has not responded to one 

recommendation made in the report. 

Single Audit of the Mountain Made 

Foundation 5-08 1/6/05 

Management has not responded to 

three recommendations made in the 

report. 

Review of a Cooperative Agreement 

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

Defaulted 9/11 Disaster Loan to CLB 

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

Audit of SBA's Information Systems 

Controls FY 2004 5-12 2/24/05 One recommendation is in management resolution. 

SBA Small Business Procurement 

Awards are Not Always Going to 

Small Businesses 

5-14 2/24/05 

Agency has not responded to one 

recommendation made in the report. 

Review of the Mentor-Protégé 

Program 5-18 4/18/05 Agency has not responded to four recommendations made in the report. 

Audit of the Contract Bundling 

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

Audit of the SBIC Liquidation Process 5-22 7/28/05 Four recommendations are in 

management resolution. 
Appendices

34 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions 

as of September 30, 2006 

Title Report

Number

Date 

Issued Status 

Review of SBA Procedures for Cash 

Gifts 5-28 9/30/05 Agency has not responded to three recommendations made in the report. 

Independent Evaluation of SBA’s 

Information Security Program 6-01 10/7/05 Agency has not responded to one recommendation made in the report. 

Single Audit of Greenpoint 

Manufacturing and Design Center 6-03 10/18/05 Agency has not responded to one recommendation made in the report. 

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

report are in management resolution. 

SBA’s Information System Controls 

for FY 2005 6-08 12/22/05 

One recommendation made in the 

report is in management resolution. 

Agency has not responded to one 

recommendation made in the report. 

SBA’s Administration of the 

Supplemental Terrorist Activity Relief 

(STAR) Loan Program 

6-09 12/23/05 

One recommendation made in the 

report is in management resolution. 

SBA’s FY 2005 Financial Statements 

Management Letter 6-10 1/18/05 

Management has not responded to 

three recommendations made in the 

report. 

Human Capital Planning in SBA’s 

Office of Financial Assistance 6-13 3/02/06 Agency has not responded to one recommendation made in the report. 

Improvement is needed in Interface 

Error Correction Between SBA’s 

DCMS and FEMA’s NEMIS 

6-20 3/31/06 

Management has not responded to one 

recommendation made in the report. 
Appendices

35 

Appendix VI 

OIG Reports Without Final Action as of September 30, 2006

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

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

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

0-19 SDB Certification Program Obligations and 

Expenditures 

6/30/00 3/30/01 9/30/02 

0-30 SBA’s Administration of MBELEDF 

Cosponsorship 

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

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

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

A1-06 Evaluation of SBA’s Computer Security 

Program 9/28/01 1/9/02 ** 

2-17 SBA’s FY 2001 Financial Statements – 

Management Letter 

4/12/02 12/12/02 9/30/03 

2-18 SBA’s Information Systems Controls – FY 

2001 

5/6/02 *** ** 

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

for the 7(a) Loan Program 

1/30/03 *** ** 

3-10 504 Loan Program Oversight 2/6/03 10/1/03 6/30/05 

3-14 TEP Consulting, Inc. 3/14/03 4/10/03 12/31/03 

3-20 SBA’s Information System Controls for 

FY 2002 

3/31/03 *** ** 

3-26 Microloan Program: Moving Toward 

Performance Management 5/13/03 *** ** 

3-30 Audit of an Early Defaulted Loan 6/19/03 12/21/04 9/30/06 

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

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

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

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

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations. 
Appendices

36 

Appendix VI 

OIG Reports Without Final Action as of September 30, 2006

Report 

Number Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

4-15 SACS/MEDCOR: Ineffective and Inefficient 3/9/04 5/11/04 9/30/05 

4-16 

SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence 

Contracts and Task Orders 

3/17/04 *** ** 

4-17 SBA’s FY 2003 Financial Statements – 

Management Letter 

3/23/04 5/14/04 ** 

4-19 SBA’s Information Systems Controls – FY 

2003 

4/29/05 *** ** 

4-22 Business Development Provided by the 8(a) 

Business Development Program 

6/2/04 7/14/04 ** 

4-27 

Audit of San Francisco District Office 

Administrative Activities Related to the Silicon 

Valley Small Center 

6/29/04 12/29/04 

** 

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

4-29 Audit of an Early Defaulted Loan 7/12/04 10/6/04 4/26/06 

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

4-34 SBA’s Process for Complying with the FMFIA 

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

4-35 

Single Audit of Federal Financial Assistance 

Program Service Corps of Retired Executives 

(SCORE) 

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

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

4-39 

Memorandum Advisory Report – the Transfer 

of Operations to the National Guaranty 

Purchase Center 

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

4-41 Audit of Selected SBA General Support 

Systems 9/10/04 *** ** 

4-44 SBA-Sponsored and Cosponsored Events 

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

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations. 
Appendices

37 

Appendix VI 

OIG Reports Without Final Action as of September 30, 2006

Report 

Number Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

5-02 

Advisory Memorandum Report- Independent 

Evaluation of SBA’s Information Security 

Program 

10/7/04 2/4/05 9/30/05 

5-03 Review of Indirect Cost Rate of the Walsh 

Group, P.A. 10/25/04 1/12/05 6/30/05 

5-04 Review of the Small Disadvantaged Business 

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

5-09 

Memorandum Advisory Report – Pre-Demand 

and Demand Letters for Delinquent 9/11 

Disaster Loans 

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

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

FY 2004 2/24/05 *** ** 

5-17 SBA’s Continuity of Operations Planning 

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

5-23 SBA’s Administration of its Special 

Appropriation Grant 9/24/04 *** ** 

5-24 Criteria For Overcoming The Presumption of 

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

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

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

6-01 Independent Evaluation Of SBA’s Information 

Security Program 10/7/05 *** ** 

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

6-08 SBA's Information Systems Controls For FY 

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

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

6-16 Audit of SBA-Guarantied Loan 3/20/06 4/24/06 6/30/06 

6-17 Audit of SBA-Guarantied Loan 3/20/06 4/24/06 6/30/06 

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations. 
Appendices

38 

Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2006* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

43H006021 9/30/94 Establish procedures for determining 

whether Section 8(a) participants should no 

longer be considered economically 

disadvantaged based on their ownership 

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

market value of their primary residence, and 

the net worth of their spouses.

10/30/94 10/30/02

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

indicators for determining how effectively 

and efficiently the Section 8(a) program is 

operating. 

9/28/01 7/31/03 

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

supervisory and enforcement actions for 

Small Business Lending Companies. 

8/27/02 3/31/07 

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

security plan to establish and implement the 

policies, procedures and practices for the 

following: (1) full integration of the 

information security approach and 

implementation process; (2) coordination 

among program offices to support their 

security needs; (3) guidance to the program 

office to implement information system 

security controls; and (4) methods to 

monitor the effectiveness of each part of 

information technology security. 

6/28/02 3/1/05 

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

and transfer agent (FTA) activities and 

terminate the existing contract with the FTA 

when a new contract can be enacted. 

12/10/03 3/31/06 

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

costs for fees and services. Report these 

contract costs in proposed Master Reserve 

Fund (MRF) financial statements so future 

FTA contracts will have historical cost data 

for comparison purposes.

10/15/03 3/31/06

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

39 

Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2006* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

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

performance aspects to address financial 

risk, address the specific requirements of 

the Section 504 loan program, and 

incorporate a performance-driven scoring 

system. 

10/01/03 6/30/06 

3-33 7/1/03 Revise SOP on SBICs to ensure it includes 

requirements to perform quarterly risk 

assessments for capitally impaired SBICs, 

include an analysis of potential for 

repayment of outstanding leverage, and 

determine what criteria should be used to 

recommend an SBIC be transferred to 

liquidation. 

10/6/03 6/30/06 

3-33 7/1/03 Revise SOP 10 06 to ensure that the 

implementation of restrictive operations 

addresses: (1) appropriate levels of 

impairment requiring restrictive operations; 

(2) time periods SBICs should remain in 

restrictive operations; (3) appropriateness of 

remedies or combination of remedies that 

should be used and under what 

circumstances; and (4) whether forbearance 

regulations preclude the application of 

restrictive operations. 

10/20/04 6/30/06 

4-28 7/9/04 Seek recovery of $142,549 from the 7(a) 

lender. 

10/6/04 3/31/05 

4-36 8/10/04 That the Associate Administrator seek 

recovery of the SBA guaranty repair of 

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

10/6/04 3/31/05 

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

40 

Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2006* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

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

officers, supervisors and attorneys to be 

assigned to the Herndon center by (1) 

establishing the elements of quality for the 

purchase and liquidation action review 

process; (2) determining how much time it 

takes to complete a quality review at each 

level (loan officer, supervisor, attorney); 

and (3) computing the staffing levels needed 

to complete the estimated annual purchase 

and liquidation action workloads at an 

acceptable level of quality. 

4/13/05 9/30/05 

5-04 11/4/04 That the Acting Associate Administrator for 

Business Development develop and 

implement procedures to ensure that Small 

Disadvantaged Business (SDB) reviewers 

properly apply all four criteria for 

determining economic disadvantage, per 13 

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

thresholds for maximum income and total 

assets, and industry financial performance 

comparisons. 

4/1/05 9/30/05 

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

centers to send timely pre-demand and 

demand letters to delinquent borrowers. 

Such letters should be maintained in the 

loan file. 

3/8/05 7/10/05 

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

41 

Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2006* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

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

supported general support systems and 

major applications, e.g., Egan Mainframe, 

SBA and Corio UNIX, Network and 

Windows 2000; Loan Accounting System, 

Sybase, Mainframe, JAAMS Oracle, and 

related application functions: (1) develop 

and document policies and procedures 

clearly outlining what activities should be 

logged, who should be responsible for 

reviewing logs, what the logs should be 

reviewed for, how often logs should be 

reviewed, and how long logs should be 

retained; (2) assign responsibility within the 

Office of the Chief Information Officer 

(OCIO) Security for the review of 

application and general support system 

security logs; and (3) retain audit logs for a 

sufficient period of time (at least 90 days). 

4/18/05 4/15/06 

5-17 3/30/05 That the Chief Operating Officer require 

that personnel named in the SBA COOP 

and BRP participate in plan testing so that 

they understand their duties if plan 

activation is needed. 

5/3/05 12/31/05 

5-22 7/28/05 Incorporate the goals and performance 

indicators into the Agency’s annual 

performance plan and use them to monitor 

and assess the progress towards achieving 

SBIC liquidation goals. 

7/19/06 9/30/06 

5-22 7/28/05 Restructure contracts with SBIC 

receivership agents to include performance 

standards that will be used to assess 

performance. 

7/19/06 9/30/06 

 

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

42 

 Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2006* 

Report 

Number 

Date 

Issued Recommendation Management Decision Date 

Final 

Action 

Target 

Date 

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

assessments of each SBIC receivership’s 

progress and operations by comparing the 

monthly invoices and periodic status 

meeting results to pre-set performance 

standards. 

7/19/06 10/31/06 

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

documented evidence that OL staff 

considered all liquidation methods. 

11/14/05 10/31/06 

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

obtain, for the sale of portfolio assets by an 

SBIC, verification that the sale was made at 

commercially reasonable terms. 

7/19/06 10/31/06 

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

43 

Appendix VIII

6-Month Significant Recommendations Summary 

as of September 30, 2006 

Report 

Number Title Date Issued Recommendation 

6-21 DCMS Upgrade Needs a 

System Certification and 

Accreditation 

4/27/2006 That the Assistant Administrator for Disaster 

Assistance complete a full re-accreditation of 

the DCMS Upgrade Project before it is 

placed into production in accordance with 

NIST 800-37 and SBA SOP 90-47.2. Or, 

complete an Interim Authorization to Operate 

(IATO) accreditation of the DCMS Upgrade 

Project in accordance with NIST 800-37 and 

SBA SOP 90-47.2. The IATO will only be in 

use for a limited time frame while a full 

scope certification and accreditation of the 

DCMS Upgrade Project is performed at the 

new production location. 

6-22 Audit of SBA Guarantied 

Loan to RR Fox, Inc. 

5/17/2006 That the Associate Administrator for 

Financial Assistance seek recovery of 

$373,258 from Chase on the guaranty paid, 

less any subsequent recoveries, for loan 

number 589-029-4005. 

6-23 HUBZone Program 

Examination and Recertification Process 

5/23/2006 That the Associate Administrator for the 

HUBZone set a maximum acceptable 

timeframe for decertifying firms and 

removing them from SBA's list once a 

decision has been made that such firms no 

longer meet the criteria for HUBZone 

participation. 
Appendices

44 

Appendix VIII

6-Month Significant Recommendations Summary 

as of September 30, 2006 

Report 

Number Title Date Issued Recommendation 

6-24 The Disaster Credit 

Management System 

Performance Test Plan

6/8/2006 That the Associate Administrator for Disaster 

Assistance modify the DCMS Upgrade 

Performance Test Plan to add scenarios for 

10,000 concurrent users and further test for a 

22 percent reserve margin for the DCMS 

upgraded environment. Or, through 

additional analysis including projections of 

test results and extrapolation of test data 

collected; estimate the potential concurrent 

users with applicable reserve margins as a 

part of systems acceptance for the June 2006 

Upgrade. The resulting information should 

be provided to the BTIC to determine the 

extent the DCMS Upgrade Project has met 

system requirements as identified in the 

“Needs Statement” approved by the BTIC in 

December 2005. 

6-26 Survey of the Quality 

Assurance Review Process 

7/12/2006 That the Associate Administrator for 

Financial Assistance consult a statistician to 

develop procedures for selecting samples of 

all loans purchased at the Center and specific 

loan categories to be tested in the Quality 

Assurance plan. 

6-26 Survey of the Quality 

Assurance Review Process 

7/12/2006 That the Associate Administrator for 

Financial Assistance develop procedures to 

be followed when a deficiency is identified 

during a quality assurance review to (1) 

notify purchase reviewers of the deficiency, 

(2) provide training, and (3) implement 

revisions to the guaranty purchase process as 

necessary. 

6-28 Audit of Duplication of 

Benefits relating to the 

Mississippi Development 

Authority's Homeowner 

Grant Program 

9/19/2006 That the Assistant Administrator for Disaster 

Assistance execute test plans and procedures 

with State agencies and HUD to ensure that 

data transferred electronically or entered 

manually into SBA's disaster loan systems are 

correctly processed and SBA disaster loans 

are accurately adjusted before grant funds are 

disbursed to disaster loan victims. 
Appendices

45 

Appendix VIII

6-Month Significant Recommendations Summary 

as of September 30, 2006 

Report 

Number Title Date Issued Recommendation 

6-28 Audit of Duplication of 

Benefits relating to the 

Mississippi Development 

Authority's Homeowner 

Grant Program 

9/19/2006 That the Assistant Administrator for Disaster 

Assistance define critical tasks, identify 

deliverables and responsible parties, and 

establish key project time frames for 

executing either system interface activities or 

processing manual transactions for each State 

which plans to participate in the HUD 

Community Development Block Grant 

program for Gulf Coast hurricanes. 

6-28 Audit of Duplication of 

Benefits relating to the 

Mississippi Development 

Authority's Homeowner 

Grant Program 

9/19/2006 That the Assistant Administrator for Disaster 

Assistance complete an assessment of SBA 

loans impacted by MDA and other Stateadministered HUD grants. 

6-28 Audit of Duplication of 

Benefits relating to the 

Mississippi Development 

Authority's Homeowner 

Grant Program 

9/19/2006 That the Assistant Administrator for Disaster 

Assistance ensure that a Memorandum of 

Understanding is completed for States 

planning to participate in the HUD 

Community Development Block Grant 

program for Gulf Coast hurricanes, before the 

grant funds are disbursed. 

6-31 Flexible Staffing of SBA 

Personnel During Times of 

Emergencies or Catastrophes 

to Aid Disaster Loan 

Processing 

9/25/2006 That the Chief Operating Officer extend the 

Disaster Credit Management System across 

to SBA staff and outside the Ft. Worth, 

Sacramento, and Buffalo facilities and to 

third-parties that SBA contracts with for 

supplemental disaster assistance. 

6-31 Flexible Staffing of SBA 

Personnel During Times of 

Emergencies or Catastrophes 

to Aid Disaster Loan 

Processing 

9/25/2006 That the Chief Operating Officer establish a 

Agency-wide flexible staffing plan to respond 

to increased loan processing needs from a 

catastrophic disaster. This plan should 

consider the cost and benefits of fully 

utilizing SBA personnel short term versus 

solely utilizing SBA's Office of Disaster 

Assistance when catastrophic disasters occur. 
Appendices

46 

Appendix VIII

6-Month Significant Recommendations Summary 

as of September 30, 2006 

Report 

Number Title Date Issued Recommendation 

6-32 Economically Disadvantaged 

Status of an 8(a) Program 

Participant's Owner 

9/25/2006 That the Associate Administrator for Business 

Development determine whether contingent 

assets such as trusts should be considered 

when assessing economic disadvantage and 

whether any regulation changes on this are 

needed. 

6-33 SBA’s Acquisition 

Personnel Education and 

Training 

9/29/2006 That the Associate Deputy Administrator for 

Management and Administration, in his role 

as SBA’s Chief Acquisition Officer develop a 

plan for meeting the requirements of Policy 

Letter 05-01 that assigns responsibility and 

establishes timeframes for identifying the 

workforce, assessing skill levels and training 

needs, and provides for the tracking and 

reporting of workforce data. 

6-35 Deficiencies in OFA’s 

Purchase Review Process for 

Backlogged Loans 

9/29/2006 That the Associate Administrator for 

Financial Assistance perform a risk analysis 

of the backlog loan portfolio to identify loans 

with a high-risk of improper payment (for 

example, early defaulted loans with large 

purchase amounts) and perform thorough 

purchase reviews of these loans to identify 

improper purchases and seek recovery from 

the lenders as necessary. 
Appendices

47 

 Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Santa Ana 

District Small 

Business Week 

Awards 

Ceremony 

4/20/06 4/20/06 Anaheim, CA California State University Fullerton, 

Comerica Bank, Southland EDC, 

CDC Small Business Finance 

Corporation and Advantage CDC 

Public Workshop: 

Small 

Pharmaceutical 

Business 

Education Forum 

4/25/06 5/24/06 Washington, DC Food and Drug Administration for 

Drug and Evaluation and Research 

(FDA) 

OC E-Biz 2006 4/28/06 4/28/06 Fullerton, CA Asian Women in Business-Southern 

California Chapter 

Small Business 

Person of the 

Year (SBPY) 

Newspaper Insert 

5/06 6/30/06 Maine The Bangor Daily News 

Small Business 

Week 2006 

5/8/06 5/11/06 St. Louis, MO Small Business Week Of Eastern 

Missouri, Inc. 

Series of (6) 

televised 

interviews (for 

cable) with SBA 

staff and 

Resource Partners 

and Success 

Stories 

5/10/06 6/14/06 Chesterfield 

County, VA 

Sharing It With Bee Bee, Inc. 

SBA Expo, 

Business 

Matchmaker and 

Small Business 

Week Awards 

Luncheon 

Buffalo/Niagara 

5/10/06 5/10/06 Buffalo, NY SCORE Buffalo Niagara, Business 

First 

Small Business 

Awards 

Luncheon 

5/12/06 5/12/06 Richmond, VA Small Business Awards Foundation, 

Inc. 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

48 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Small Business 

Week 

Proclamation and 

SBA’s 50th 

Anniversary in 

Puerto Rico 

5/15/06 5/15/06 San Juan, PR Puerto Rico Chamber of Commerce 

Port Washington 

Small Business 

Development 

Series 

4/26/06 

5/17/06 

4/26/06 

5/17/06 

Port Washington, 

NY 

The Greater Port Washington 

Business Improvement District, The 

Port Washington Chamber of 

Commerce, The Port Washington 

Public Library 

Small Business 

Week Breakfast 

and Awards 

Ceremony 

5/19/06 5/19/06 Hato Rey, PR Puerto Rico Bankers Association 

Hispanic 

Business 

Conference 

5/20/06 6/20/06 Detroit, MI Chase 

Small Business 

Week Awards 

Dinner 

5/24/06 6/24/06 Dover, DE Delaware Economic Development 

Office 

Small Business 

Week Awards 

Luncheon 

5/31/06 6/16/06 Los Angeles, CA Los Angeles Chamber of Commerce 

4th Annual 

Convention of 

Mexicans Abroad 

5/31/06 6/2/06 Universal City, 

CA 

The Asociacion Mundial de 

Mexicanos en el Exterior (AMME) 

(The Worldwide Association of 

Mexicans Abroad) 

Dan River Region 

Veterans 

Conference 

6/1/06 6/1/06 Danville, VA Dan River Business Development 

Center, Dan River SBDC - Longwood 

University, Virginia Center for 

Innovative Technology 

Connecticut XPO 

For Business 

6/1/06 6/1/06 Hartford, CT Connecticut Business & Industry 

Association, Connecticut Small 

Business Development Center 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

49 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Small Business 

Week 

Recognition 

Program 

6/15/06 6/15/06 New Haven, CT Connecticut Small Business - Key to 

the Future 

2nd Annual 2006 

Statewide Small 

Business & FaithBased & 

Community 

Initiatives 

Conference 

6/15/06 6/16/06 Anchorage, AK State of Alaska Department of 

Commerce, Community and 

Economic Development 

Franchising 

Event 

6/17/06 7/16/06 Columbus, OH Business Development Finance 

Corporation, Ohio SBDC, Ohio 

Procurement Technical Assistance 

Centers, Ohio Minority Contractor’s 

Business Assistance Program, 

Buckingham, Doolittle & Burroughs, 

LLP and City of Columbus 

Training 

Workshops 

6/20/06 

6/27/06 

8/26/06 Los Angeles, CA Metropolitan Water District and Long 

Beach City College – Small Business 

Development Center 

How to Start and 

Manage a Small 

Business 

7/11/06 7/11/06 Baltimore, MD Woodlawn Public Library, Central 

Region MD SBDC Subcenter 

Internet 

Marketing 

Seminar 

7/18/06 7/18/06 Columbus, OH Thomas Industrial Network, Inc. and 

the Ohio Manufacturers’ Association 

SBA/VA Small 

Business Summit 

7/26/06 7/30/06 Miami, FL U.S. Department of Veterans Affairs 

2006 PROCONTECHCON 7/26/06 7/26/06 Fullerton, CA The Asian Business Association of 

Orange County 

SBA/HOBY 

International 

Business and 

Entrepreneurship 

Program 

7/30/06 9/30/06 Washington, DC Hugh O’Brian Youth Leadership 

(HOBY) 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

50 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

7th Annual 

Business 

Resource Fair 

8/17/06 9/16/06 Denver, CO Denver Public Library, 

Minority/Women Chambers’ 

Coalition, Colorado Small Business 

Development Center (through the 

State of Colorado) and Denver 

SCORE Chapter 

Spirit of Small 

Business 2006 

Awards 

Luncheon 

8/18/06 9/18/06 Santa Barbara, 

CA 

Pacific Coast Business Times 

SBA Programs & 

Services and 

Federal 

Procurement and 

Legal and Tax 

Seminar 

8/24/06 8/24/06 Honolulu, HI Chaminade University Tax 

Foundation 

Capital Access 

2006 

8/30/06 9/30/06 Columbus, OH Office of Congressman Pat Tiberi, 

Columbus State Community College 

though Ohio SBDC, State of Ohio 

Department of Development through 

Minority Contractors Business 

Assistance Program 

Online Training 

Module 

8/31/06 8/31/06 World Wide Web Image Publishing, Inc. 

Small Business 

Video Success 

Stories 

9/06 9/06 World Wide Web U.S. Postal Service 

Financial 

Communication 

for Small 

Business 

9/06 9/08 Washington, DC Accounting Comes Alive 

Signage For Your 

Business 

9/1/06 9/30/08 World Wide Web The Signage Foundation for 

Communications Excellence/Website 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

51 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Gateway 

Community 

College 

Procurement 

Workshop Series 

and Matchmaker 

9/8/06 6/8/07 New Haven, CT Gateway Community College 

Business Resource Center and New 

Haven SCORE Chapter #66 

Workshop: 

Publicity 101 – 

Meet the Press 

9/20/06 10/20/06 Claymont, DE National Association of Women 

Business Owners (NAWBO) 

Delaware Chapter 

The Government 

Contractor 

Workshop Series: 

SBA Surety Bond 

Workshop, 

Contract 

Financing 

Workshop and 

the Government 

Cost Proposal 

Process 

Workshop 

8/16/06 

9/20/06 

8/16/06 

9/20/06 

Baltimore, MD Greater Baltimore Urban League 

Business 

Women’s Forum 

9/21/06 10/21/06 Southbury, CT Waterbury Regional Chamber of 

Commerce 

Employee Stock 

Ownership 

Training Program 

(ESOP) 

9/26/06 9/26/08 Washington, DC The Society for Financial Awareness 

Series of training 

initiatives 

targeting urban 

entrepreneurs 

9/30/06 9/30/06 Kansas City, 

Cleveland, 

Jacksonville, 

Cincinnati, 

Atlanta, 

Baltimore, 

Milwaukee and 

Baton Rouge 

Urban Entrepreneur Partnership, Inc. 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

52 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Training and 

assistance to 

small business 

entrepreneurs in 

the Gulf Coast 

region of the U.S. 

9/30/06 9/30/08 UEP Gulf Coast, 

Inc. Centers 

UEP Gulf Coast, Inc. 

Event Series: 

Webinars, CDROM and 

Managing Your 

Business Credit 

Brochure 

10/1/06 9/30/09 Nationwide Dun & Bradstreet, Inc. (D & B) 

2006 National 

Signage Research 

Symposia 

10/5/06 10/6/06 Las Vegas, NV The Signage Foundation for 

Communications 

Excellence/Symposia 

Capital Access 

Workshop – 

Where is the 

Money? 

10/7/06 12/31/06 Granada Hills, 

CA 

Valley Economic Development 

Corporation 

Research & 

Development 

Grants, SBIR & 

SBA Financing 

Programs 

10/12/06 10/12/06 New York, NY Industrial & Technology Assistance 

Corporation 

Matchmaker 

Primer Workshop 

and Minimatchmaker 

9/19/06 

10/17/06 

11/16/06 Wallingford, CT Quinnipiac Chamber of Commerce 

Women’s 

Business 

Roundtable: 

Marketing on a 

Shoestring 

10/19/06 10/19/06 Timonium, MD Business and Professional Women of 

Maryland (BPW/MD) 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

53 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

MED Week 

Procurement 

Matchmaking 

Symposium and 

Awards 

Luncheon 

10/26/06 10/26/06 El Paso, TX El Paso Hispanic Chamber of 

Commerce and El Paso Community 

College 

SBIR Conference 

10/27/06 10/27/06 

Garden Grove Asian Women In Business, Southern 

California 

Vermont’s 10th

Annual Women’s 

Economic 

Opportunity 

Conference 

10/28/06 11/28/06 

Randolph, VT The Office of U.S. Senator Patrick 

Leahy, Vermont Small Business 

Development Center, U.S. 

Department of Labor – Women’s 

Bureau, Vermont Agency of 

Transportation, Vermont Commission 

on Women, Women’s Agricultural 

Network, Vermont Department of 

Economic Development, Vermont 

Women’s Business Center, Central 

Vermont Community Action Council, 

Vermont Attorney General, Vermont 

Dept. of Labor, Vermont 

Manufacturing Extension Center, 

Vermont Works for Women, Vermont 

Business Education Corporation, 

Vermont Agency of Human Services 

Office of Economic Opportunity, 

Vermont Interactive Television and 

U.S. Dept. of Agriculture 

NY XPO For 

Business Trade 

Show 

11/29/06 11/29/06 

New York, NY Event Management 

Business Start-up 

Workshop Series 

10/4/06 

11/8/06 

12/6/06 

10/4/06 

11/8/06 

12/6/06 

Santa Ana, CA Templo Calvario Community 

Development Corporation 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

54 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

SBA New York 

Monthly Small 

Business Success 

Series 

10/19/06 

11/16/06 

12/14/06 

1/18/07 

2/15/07 

3/15/07 

4/19/07 

5/17/07 

10/19/06 

11/16/06 

12/14/06 

1/18/07 

2/15/07 

3/15/07 

4/19/07 

5/17/07 

New York, NY KIP Business Report 

Strategies for 

Winning 

Government 

Contracts: 

Practical Tips and 

Hands on Help 

for Small 

Business 

2/1/07 3/1/07 Burlington, VT Vermont Agency of Transportation, 

Vermont Department of Buildings 

and General Services, Vermont 

Department of Economic 

Development, Vermont Agency of 

Natural Resources, Vermont 

Manufacturing Extension Center, 

Vermont Small Business 

Development Center through the 

Vermont State Colleges Network and 

Federal Highway Administration 

Colorado Women 

Business Owners 

Conference: In 

Good 

Company/Strategi

es & Tactics for 

Entrepreneurial 

Women 

2/22/07 3/24/07 Denver, CO National Association of Women 

Business Owners (NAWBO) 

Denver Chapter 

Black Business 

Conference 2007 

2/27/07 3/28/07 Detroit, MI Chase Bank and Alpha Phi Alpha 

Fraternity, Inc. 

Building a Better 

Small Business 

Climate: State 

Regulatory 

Flexibility Best 

Practices 

3/28/07 3/28/07 Kansas City, MO Ewing Marion Kauffman Foundation, 

Public Forum Institute 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

55 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2006, through September 30, 2006 

Name/Subject of 

Event 

Event 

Start 

Date 

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Michigan 

Celebrates Small 

Business 

4/12/07 4/12/07 East Lansing, MI Michigan Small Business & 

Technology Development, Small 

Business Assn of Michigan 

Foundation, Michigan Economic 

Development Corporation, Edward 

Lowe Foundation 

E-Business 

Conference 

4/27/07 4/27/07 Fullerton, CA Asian Women In Business, Southern 

California 

Small Business 

Awards Breakfast 

5/24/07 5/22/08 Washington, DC Creative Learning, Inc. 

* The Agency provided this information. It has not been verified by the OIG. 
Appendices

56 

Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

AZ GC The owner of two construction 

companies submitted false references 

to the U.S. Coast Guard to obtain a 

Federal HUBZone contract. 

Owner pled guilty 

and was sentenced to 

3 years probation and 

a $5,000 fine. 

DHS/OIG, 

USDA/OIG, 

DOI/OIG, 

GSA/OIG, 

VA/OIG, 

DCIS, 

TIGTA 

CA BL The owners of a trucking company 

allegedly failed to disclose a $184,000 

payroll tax liability when applying for 

a $137,000 SBA-guarantied loan. 

Owners indicted and 

have formally agreed 

to repay the loan 

prior to sentencing. 

None 

IA BL Two individuals associated with an 

Iowa motel allegedly provided false 

account balance verification letters 

during the loan application process in 

order to induce a financial institution 

and the SBA to approve a $1.2 million 

SBA-guarantied loan. 

Two individuals 

indicted. 

FBI 

IL BL Seven individuals were named in a 

civil complaint for their involvement in 

a fraud scheme relating to a 

$1.25 million SBA guarantied loan for 

the purchase of an Illinois restaurant. 

The individuals conspired to provide 

an unqualified borrower with the funds 

for the required capital injection. 

Four individuals have 

settled their claims 

with the government 

resulting in a total 

settlement amount of 

$235,000. 

FBI, IRS 

IL BL The president of an electrical supply 

company and his cousin allegedly 

conspired to make the business appear 

more profitable than it actually was by 

filing a false tax return. This scheme 

affected the approval of a $1.1 million 

SBA loan to the purchasers of the 

business. 

President pled guilty 

to criminal 

information. The 

president’s cousin 

was previously 

charged. 

FBI 

MI BL The president of a gas station and 

convenience store falsely stated that he 

did not have a criminal record in order 

to assume an existing SBA guarantied 

loan of $640,000. 

President pled guilty. DHS/ICE 
Appendices

57 

Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL Six individuals obtained over 

$3.5 million in SBA guarantied loans 

to purchase gas stations/convenience 

stores. They have been charged for 

their roles in alleged schemes to 

defraud the SBA and a participating 

lender by providing false information 

relating to equity injections and 

misusing the proceeds of the loans. 

Six individuals 

indicted. 

DHS/ICE 

MO SBIC A civil complaint alleged that the 

former CEO of an SBIC breached his 

fiduciary duty by improperly 

converting funds for his own personal 

benefit to the detriment of the SBIC. 

The former CEO 

settled the 

government’s claim 

against him in 

exchange for cash 

payments to the SBA 

totaling $175,000. 

None 

NY DL Former co-owners of a New York 

financial firm falsely claimed physical 

damage and economic injury as a result 

of the September 11th terrorist attacks 

when applying for a $1 million SBA 

disaster loan as well as aid from 

charitable organizations. The SBA 

denied the loan request because one of 

the owners had never filed U.S. 

Federal tax returns. 

Both owners pled 

guilty. They were 

each sentenced to 

2 years in prison and 

order to pay 

combined restitution 

of over $19,000 to 

the charitable 

organizations. 

SSA/OIG 

NY DL The owner of a motor vehicle and parts 

business obtained a $646,900 SBA 

disaster loan for losses resulting from 

the September 11th terrorists attacks. 

The owner forged the endorsements of 

vendors on SBA issued two-party 

checks totaling $131,600 and used the 

funds for a new business. 

Owner pled guilty. USPIS 
Appendices

58 

Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

NY BL The owner of a now-defunct wholesale 

company obtained an SBA guarantied 

loan in the amount of $1,550,000 on 

behalf of his company. It is alleged 

that the owner failed to disclose this 

loan when he became a guarantor on 

another SBA loan and that he diverted 

cash from the company to himself and 

other entities that he owned or 

controlled. 

Owner indicted. FBI 

PA BL A businessman fraudulently obtained a 

$993,000 SBA-guarantied loan by 

pledging collateral not belonging to 

him and falsely claiming he had made 

a $250,000 cash injection. 

Businessman charged 

by criminal 

information. 

FBI 

PA BL The SBA Early Fraud Detection 

Working Group discovered that an 

attorney had applied for three SBA 

Express Loans totaling $115,000. One 

of the two loans that had already been 

dispersed was in default. One loan had 

not yet been disbursed. 

Bank cancelled undisbursed loan due to 

prior default. 

None 

PA BL An unknown individual delivered an 

SBA Express Loan application for a 

$100,000 loan to a bank. The 

application contained false identifying 

information about the borrower, the 

owner of an auto body shop. The 

owner had never communicated with 

the bank. 

The bank cancelled 

the loan resulting in a 

cost avoidance of 

$100,000. 

None 

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

Puerto Rico accepted monthly cash 

payments totaling over $30,000 in 

exchange for awarding over 

$16 million in SBA 8(a) sole source 

contracts to an engineering firm. 

SBA official found 

guilty in a jury trial. 

FBI, 

GSA/OIG 
Appendices

59 

Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

PR BL A Puerto Rican businessman, who had 

been denied an SBA Micro-loan 

because of a poor credit history, 

conspired with his brother and another 

co-conspirator to apply for and receive 

a $25,000 SBA Micro-loan on his 

behalf. The applicants falsely stated 

how the loan proceeds were to be used. 

The businessman was 

sentenced to 

3 years probation and 

$43,591 in 

restitution. Judicial 

proceedings against 

his brother are 

continuing. The 

other co-conspirator 

was sentenced to 

2 years probation. 

FBI 

PR GC The president of an 8(a) engineering 

firm made illegal payments to a former 

restaurant manager in exchange for 

awarding over $1 million in electrical 

contracts to his company. It was also 

determined that the president’s 

attorney interfered with and obstructed 

the investigation into the illegal 

kickback payments. 

The attorney was 

sentenced to 

33 months in prison 

and was made to 

surrender his law 

license. The other 

defendants were 

sentenced to varying 

amounts of home 

confinement, 

probation, and 

community service. 

The company and its 

president were each 

fined $250,000. 

GSA/OIG 

SC DL The owner of a manufactured home 

sales dealership obtained a disaster 

loan for $487,600 for economic 

injuries resulting from the September 

11th terrorist attacks. The owner 

falsely represented that the finance 

company he used was located in New 

York City and had stopped financing 

manufactured homes due to the 

terrorist attacks. 

Owner pled guilty 

and was sentenced to 

30 months in prison, 

5 years probation, 

and restitution of 

$834,942. 

FBI 

SD BL A guarantor on a 504 loan to a marina 

submitted false Personal Financial 

Statements and false tax returns 

representing that he had filed tax 

returns and that he had no tax liability. 

Guarantor indicted. IRS 
Appendices

60 

 Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TN BL The president of a pager and cellular 

telephone retailer induced a bank and 

SBA to fund a $100,000 SBAguarantied loan by submitting invoices 

that inflated the selling price of the 

business and the value of the 

equipment being purchased. She then 

pocketed the difference between the 

actual price and the reported sales 

price. 

President sentenced 

to 6 months home 

confinement, 

2 years probation, 

and restitution of 

$90,421. 

None 

TX DL Seven individuals allegedly filed 

fraudulent applications for FEMA 

benefits claiming to have incurred 

damages as a result of the 2005 Gulf 

Coast hurricanes. These false claims 

resulted in the individuals being 

eligible for SBA disaster loan benefits. 

Seven individuals 

have been indicted 

and two have pled 

guilty as a result of 

work done by the 

multi-agency task 

force. 

DHS/OIG, 

SSA/OIG, 

USPIS, 

DOL/OIG, 

HUD/OIG 

TX BL A borrower, along with a loan broker 

and three other individuals, 

participated in a fraudulent scheme to 

secure a $1 million SBA-guarantied 

loan to purchase a convenience store. 

The scheme involved the submission 

of an inflated purchase price contract 

to the lender. 

Four defendants have 

pled guilty. One of 

the four has been 

sentenced to 10 

months in prison, 3 

years probation, and 

restitution of 

$624,565. An arrest 

warrant remains 

outstanding for the 

fifth defendant. 

None 

TX BL A real estate broker/loan packager and 

several co-conspirators falsely 

obtained nine SBA-guarantied loans 

totaling $9.5 million for convenience 

stores. The borrowers submitted false 

documentation, artificially inflated 

account deposits, and used loan 

proceeds to fund equity injections. 

The broker/loan 

packager pled guilty 

and was sentenced to 

6 months home 

confinement, 

5 years supervised 

release, 200 hours 

community service, 

and restitution of 

$7,311,874. 

FBI 
Appendices

61 

Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX BL A borrower falsely indicated he was a 

U.S. citizen when applying for a 

$308,000 SBA-guarantied loan to 

purchase a convenience store. He later 

applied for an additional $870,000 

SBA-guarantied loan and falsely 

indicated that he had no previous SBA 

debt. 

Borrower pled guilty. DHS/ICE, 

TEXASABC 

TX BL An applicant misrepresented his 

educational background, provided 

fraudulent tax returns, and provided 

another person’s social security 

number when applying for a $150,000 

SBA business loan. 

Applicant charged by 

criminal information. 

USPIS 

TX BL Two brothers and their cousin 

allegedly conspired to falsely represent 

that the required equity injections had 

been made in order to obtain SBAguarantied loans for $500,000 and 

$1.1 million to purchase convenience 

stores. 

Two brothers and 

cousin indicted. 

FBI 

UT BL The part owner of a vitamin and herb 

production company obtained a 

$905,000 SBA loan in his company’s 

name by falsely representing that he 

had authorization from the Board of 

Directors and that board members were 

guaranteeing the loan. 

The part owner pled 

guilty and was 

sentenced to 

2 years probation, 

100 hours of 

community service, a 

$1,160 fine, and 

$36,866 in 

restitution. 

UCSO 

UT BL Three corporate officers of a landscape 

design firm submitted false loan 

documentation in order to obtain two 

separate SBA loans totaling $470,100. 

The officers failed to disclose in their 

loan application that they owed 

delinquent payroll taxes. 

Three corporate 

officers pled guilty 

None 
Appendices

62 

Appendix X

Legal Actions Summary 

April 1, 2006, through September 30, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

VI DL Co-owners of a house located in the 

Virgin Islands falsely represented to 

the SBA and other government and 

insurance entities that their house had 

sustained hurricane damage. In reality, 

the house had been damaged by a 

previous hurricane, and they had 

purchased it with such damage in “as 

is” condition. 

Both owners were 

debarred by the SBA 

from participating in 

Federal financial and 

non-financial 

assistance programs. 

DHS/OIG 

WA BL The former owner of a cabinet making 

business inflated his Personal Financial 

Statement and failed to disclose a prior 

bankruptcy when he applied for a 

$1.5 million SBA-guarantied loan to 

purchase the cabinet making business. 

Former owner pled 

guilty to criminal 

information. 

None 

Program Codes: BL=Business Loans; DL=Disaster Loans; GC=Government Contracting and 

Section 8(a) Business Development Joint-investigation Federal Agency Acronyms: 

DCIS=Defense Criminal Investigative Service; DHS/ICE=Department of Homeland 

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

OIG; DOI/OIG=Department of Interior/OIG; DOL/OIG=Department of Labor OIG; 

FBI=Federal Bureau of Investigation; GSA/OIG=General Services Administration OIG; 

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

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

Commission; TIGTA=Treasury Inspector General for Tax Administration; UCSO=Utah County 

Sheriff’s Office; USDA/OIG=Department of Agriculture/OIG; USPIS=United States Postal 

Inspection Service; VA/OIG=Veterans Administration/OIG.
Appendix XI 

Small Business Administration 

Office of Inspector General 

Chicago, IL 

Herndon, VA 

Los Angeles, CA 

Washington, DC 

Atlanta, GA 

Inspector 

General 

Deputy Inspector 

General 

Auditing Division 

Counsel Division 

Ma

Business Development 

Programs Group

Washington, DC 

Financial Management 

& IT Group

Washington, DC 

Credit Programs 

Group

Security Operations 

Washington, DC 

Atlanta, GA 

Philadelphia, PA 

New York, NY 

Southern Region 

Miami, FL 

New Orleans, LA 

Investigations Division 

Eastern Region Central Region 

Dallas, TX 

Chicago, IL 

Houston, TX 

Kansas City, MO 

Detroit, MI 

Disaster Programs Group

Dallas, TX 

New Orleans, LA 

Washington, DC 

Herndon, VA 
Make A Difference 

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

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

CALL 

1-800-767-0385 (Toll Free) 

Write or Visit 

U.S. Small Business Administration 

Office of Inspector General 

Investigations Division 

409 Third Street, SW. (5th Floor) 

Washington, DC 20416 

Or E-mail Us at OIG@SBA.GOV

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