U.S. Small Business Administration 

Office of Inspector General 

_________________________________

Semiannual Report to Congress 

Fall 2007 

April 1, 2007 – September 30, 2007 
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 26 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-26 

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

 Abuses and Deficiencies 40-42 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 36-39 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 47-55 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 31 

Section 5(a)(7) Summary of Significant Audits & Other Reports 3-26 

Section 5(a)(8) Audit Reports with Questioned Costs 32 

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

 Better Use 32 

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

 Where No Management Decision Was Made 33 

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 

Overview of SBA and the OIG

i 

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

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

 Disaster Loans .................................................................................................................................. 3 

 Small Business Access to Capital................................................................................................... 11 

 Small Business Development, Contracting, Education, and Training............................................ 19 

 Agency Management...................................................................................................................... 23 

 Other Significant OIG Activities.................................................................................................... 25 

Statistical Highlights........................................................................................................................................... 27 

Appendices 

 I. OIG Reports Issued ........................................................................................................................ 31 

 II. OIG Reports with Questioned Costs .............................................................................................. 32 

 III. OIG Reports with Recommendations that Funds Be Put to Better Use ......................................... 32 

 IV. OIG Reports with Non-Monetary Recommendations .................................................................... 33 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of September 30, 2007 ........................................................................................... 33 

 VI. OIG Reports Without Final Action as of September 30, 2007....................................................... 34 

 VII. Summary of Significant Recommendations from Prior Semiannual Reporting 

 Periods Without Final Action as of September 30, 2007............................................................ 36 

 VIII. Summary of Significant Recommendations, 

 April 1, 2007 through September 30, 2007................................................................................. 40 

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

 April 1, 2007 through September 30, 2007................................................................................. 43 

 X. Legal Actions Summary, April 1, 2007 through September 30, 2007 ........................................... 47 

XI. OIG Organizational Chart .............................................................................................................. 57 
Overview of SBA and the OIG

ii 

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

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

 Business Act, Section 4(h) ............................................................................................................. 24 

 SBDC Surveys—Small Business Act, Section 21(a)(7) ................................................................ 22 

 SBA Gift Authority—Small Business Act, Section 4(g)(2)........................................................... 24 
Overview of SBA and the OIG

1 

The Small Business Administration 

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

maintain and strengthen the Nation’s economy by enabling the establishment and vitality of small 

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

Year (FY) 2008 – 2013 Strategic Plan has three programmatic strategic goals that broadly define what the 

Agency and its programs are trying to accomplish: The strategic goals are “Expand America’s ownership 

society, particularly in underserved markets”; “Provide timely financial assistance to homeowners, 

renters, nonprofit organizations and businesses affected by disaster”; and “Improve the economic 

environment for small business.” A fourth strategic goal, “Ensure management and organizational 

excellence to increase responsiveness to customers, streamline processes, and improve compliance and 

controls,” defines the responsibility of the Agency’s executive leadership and support functions to help 

accomplish the programmatic goals. 

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

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

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

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

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

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

SBA’s appropriation for FY 2007 is $571 million. As of September 30, 2007, SBA had 2,181 employees, 

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

were 2,849 temporary and permanent disaster employees, excluding contractors. 

The Office of Inspector General 

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

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

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

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

integrity of SBA’s programs and operations. 

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

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

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

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

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

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

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

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

clearances for their duties. They also conduct the name check program, which provides SBA 

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

participants. 
Overview of SBA and the OIG

2 

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

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

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

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

procedures. 

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

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

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

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

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

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

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

Washington, DC. 

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

OIG Work During This Reporting Period 

As of September 30, 2007, the OIG had 105 staff on-board. The OIG’s FY 2007 appropriation was 

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

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

Coast hurricane disaster oversight. 

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

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

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

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

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

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

information technology and financial management systems and other internal operations. 

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

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

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

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

Management System (DCMS). The OIG has also directed significant investigative efforts toward 

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

OIG efforts and accomplishments during the second half of FY 2007 are summarized in this report. Audit 

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

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

on the OIG’s website at http://www.sba.gov/ig/igreadingroom.html. 
Significant OIG Activities

3 

Disaster Loans

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

loans: (1) physical disaster loans for permanent rebuilding and replacement of uninsured disasterdamaged privately-owned real and/or personal property, and (2) economic injury disaster loans to provide 

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

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

The Disaster Loan program is particularly vulnerable to fraud and unnecessary losses because loan 

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

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

Alabama. It was quickly followed by Hurricanes Rita and Wilma, creating further loss of lives and 

property in Florida and Texas. As of September 30, 2007, SBA had approved almost 120,000 disaster 

loans – totaling almost $7 billion1

 – in the aftermath of the Gulf Coast hurricanes, and had fully disbursed 

more than 110,000 disaster loans – totaling almost $5.7 billion. Including loans that had been partially 

disbursed, the Agency made full or partially disbursements on 98.8 percent of the approved loans, for a 

total of almost $6.1 billion. 

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

investigative work will focus heavily on this area for the foreseeable future. 

$1.5 Billion in Loans Were Awarded to Applicants Who Lacked Repayment Ability 

The magnitude of the Gulf Coast hurricane disasters significantly increased the need for SBA disaster 

loan assistance. SBA received over 400,000 disaster loan 

applications, which created a considerable backlog and 

resulted in loan processing delays. In response to the 

delays, SBA authorized the Expedited Loan Program as a 

pilot in November 2005 to accelerate the underwriting of 

disaster loans. The program was extended four times. The 

program used credit scores and a series of critical questions to underwrite loans and make general loan 

approvals. Nearly 45 percent of all Gulf Coast disaster loans made by SBA were approved under the 

expedited procedures. 

The OIG initiated an audit to determine whether the expedited loan application process resulted in 

appropriate loan approvals. Loan decisions under the Expedited Loan Program were not based on cash 

flow analyses, as required under standard processing procedures. Instead, loan approvals were based 

primarily on credit scores, regardless of an applicant’s income level and expenses. 

A statistical sample of 76 loans found that 32 percent were 

made to applicants who lacked repayment ability. Based 

on these results, the OIG projected that 21,802 loans, 

totaling $1.5 billion, were awarded to high-risk applicants 

 

1

 These numbers reflect original applications approved (160,513, totaling $10.9 billion) net of loans subsequently 

canceled, withdrawn, increased, and decreased. 

A statistical sample of 76 loans found that 

32 percent were made to applicants who 

lacked repayment ability. 

In response to the delays, SBA authorized

the Expedited Loan Program as a pilot in 

November 2005 to accelerate the 

underwriting of disaster loans.
Significant OIG Activities

4 

who may not be able to repay their loans. These loan applications would not have been approved if they 

had been processed under standard loan processing procedures. For example, a $36,700 home loan was 

approved for a borrower who had a negative cash flow, which would have disqualified him under 

standard loan processing procedures. The sample results were similar to a Quality Assurance Review 

(QAR) conducted by the Agency in June 2006, which found 

that 28 percent of the applicants processed under the 

Expedited Loan Program potentially could not repay their 

loans. Consequently, there is a high probability that a 

significant number of loans processed under expedited 

procedures will default. In addition, had these borrowers been declined for loans, SBA would have 

referred them to the Federal Emergency Management Agency (FEMA) for possible grant assistance. 

The OIG recommended that SBA review all canceled loans that were approved under expedited 

procedures to identify applicants who lacked repayment ability, notify those applicants of their potential 

eligibility for FEMA assistance, and make the appropriate FEMA referrals. The OIG also recommended 

that the Agency review the creditworthiness of borrowers associated with undisbursed home loans and 

refer those borrowers to FEMA, as appropriate. SBA agreed to contact as many of these borrowers as 

possible. 

SBA Did Not Secure Its Interest in Collateral on $368 Million in Disaster Loans 

In response to a complaint, the OIG initiated an audit to determine whether SBA secured its interest in 

collateral prior to disbursing loan proceeds. At the time of the audit, SBA’s Disaster Assistance 

Processing and Disbursement Center in Fort Worth, Texas, had a backlog of 4,970 unprocessed checks 

from borrowers for collateral and filing fees. A review of a statistical sample of the unprocessed checks 

disclosed that SBA disbursed approximately $7.3 million on 76 percent of the loans reviewed without 

properly securing all of the loan collateral. Based on the sample results, the OIG projected that about 

$368 million was disbursed without proper collateralization. Not perfecting liens in a timely manner 

increases the Agency’s risk of losing its lien position to other creditors. 

A variety of problems led to the under-collateralization of loans. 

These problems included the acceptance of documents that were 

subsequently determined to be legally insufficient, the separation 

of documents from checks received from borrowers to pay for 

lien filing fees that could not be re-matched once the documents 

were ready for filing, and a backlog of checks that were too old to process or had incorrect information. 

For example, approximately 52 percent of the checks in the backlog were over 90 days old and needed to 

be replaced by the borrowers. In other instances, checks were written either for the wrong amount or to 

the wrong payee. As a result, checks had to be returned to 

borrowers and replacement checks issued before the 

collateral could be secured. While the audit was limited to 

unprocessed checks on hand as of January 18, 2007, the 

OIG believed that improperly securing collateral was a systemic issue that extended beyond those loans 

examined in the audit as many of the underlying reasons for the problems relate to how the Processing 

and Disbursement Center processes loan disbursements. 

...approximately 52 percent of the 

checks in the backlog were over 90 

days old and needed to be replaced by 

the borrowers 

...checks had to be returned to borrowers

and replacement checks issued before the 

collateral could be secured.

...there is a high probability that a

significant number of loans processed

under expedited procedures will default.
Significant OIG Activities

5 

The OIG recommended that SBA perfect the collateral on the loans identified during the audit, review all 

loans associated with the backlog of checks to ensure that collateral on these loans was perfected, ensure 

that required legal sufficiency reviews of appropriate security instruments and other closing documents 

are conducted prior to disbursements, and pursue an automated means of securing borrower payment for 

collateral recording and filing fees. Overall, the Agency was responsive to the audit recommendations, 

reporting that it had perfected collateral on the loans identified during the audit, reduced the number of 

checks on hand to 440 as of October 14, 2007, and implemented a title check tracking and accountability 

system to more accurately record and monitor the status of in-house checks. 

SBA Terminated Nearly 8,000 Approved Loans without Notifying Borrowers in Advance 

In response to complaints received from two former SBA employees, the OIG conducted an audit of 

SBA’s cancellation of approved disaster assistance loans to victims of the Gulf Coast hurricanes. The 

complainants alleged that SBA unnecessarily canceled approved loans to meet production standards for 

either closing or disbursing loans. 

The OIG reported that SBA’s Customer Service Center in Buffalo, New York, canceled 11,893 loans 

during the first two weeks of September 2006. Of those, 7,752 loan were canceled without providing 

borrowers advance notice of the pending cancellation and 

without contacting them by phone. SBA’s Customer Service 

Center canceled the loans, in most cases, after making only 

one attempt to contact the borrowers, instead of the three 

attempts they were instructed to make by SBA’s Fort Worth Processing and Disbursement Center. When 

borrowers could not be reached and their loans were canceled, SBA incorrectly annotated its records to 

show that the borrowers requested the cancellations (the incorrect entries were caused by limitations on 

how entries could be coded in DCMS.) SBA then sent the borrowers cancellation notices after the fact, in 

some cases stating that the borrowers directed SBA to cancel their loans. 

After the initial cancellations, SBA made another attempt in October 2006 to contact borrowers who had 

not previously been reached. Of the borrowers who were successfully contacted, 1,195 requested that 

their loans be reinstated. 

The OIG contacted borrowers associated with 66 canceled loans to obtain their perspective on the loan 

cancellations. Several of the borrowers were upset with their loans 

being canceled and felt SBA pushed them into making on-the-spot 

decisions. They believed that they were not given adequate time to 

produce loan closing documents to prevent their loans from being 

canceled and ultimately were pressured into canceling. Although 

borrowers were later notified that their loans could be reinstated, reinstatement could not occur unless the 

borrowers could show that SBA’s cancellation action was in error or could provide justification that SBA 

should reinstate the loans. Additionally, borrowers were required to submit all of the required documents 

for loan closing. This was problematic for some borrowers because they still did not have all the needed 

closing documents, were relocating and didn’t have mortgages on the new property, or were waiting for 

infrastructure to be restored to areas where they planned to rebuild their homes or businesses. 

The audit also identified borrowers who were approved for loans even though they lacked repayment 

ability and may have been eligible for FEMA grants. These individuals subsequently had their loans 

...7,752 loan were canceled without 

providing borrowers advance notice... 

Several of the borrowers... felt

SBA pushed them into making onthe-spot decisions.
Significant OIG Activities

6 

canceled, but because they were approved for SBA loans, 

could not apply for FEMA assistance. Consequently, these 

individuals received neither SBA loans nor FEMA grants. 

In the absence of SBA action to refer them to FEMA, these 

borrowers could be precluded from receiving all of the 

Federal assistance to which they may have been entitled. 

The OIG recommended that SBA reconsider its loan policy on reinstatement deadlines for the 6,557 

canceled Gulf Coast hurricane loans that were not reinstated and notify the borrowers that extensions may 

be granted for reinstatement, as appropriate. Also, the OIG recommended that SBA review the four 

canceled loans identified in the report where the borrowers did not have repayment ability, notify the 

borroweres, and refer them to FEMA for grant assistance, if appropriate. The SBA agreed to review 

canceled loans that should have been declined and refer them to FEMA where appropriate. 

Results of Quality Assurance Reviews Were Altered 

Applications for physical disaster loans require on-site inspections to verify disaster losses. These 

inspections are referred to as loss verifications. The initial damage estimates for disasters that occur 

within the continental United States are conducted by loss verifiers assigned to Office of Disaster 

Assistance (ODA) Field Inspection Teams. In February 2005, a group of SBA employees assigned to 

ODA was determined to be the Most Efficient Organization (MEO) under an A-762

 competition and was 

awarded a 5-year “contract” to conduct initial loss verifications. The OIG initiated a review of a 

complaint from an employee that QARs of individual loss verifications conducted by the MEO were 

inappropriately altered so that required performance metrics could be met. 

The review found that 72 of 246 QARs conducted in July 2006 had been materially altered. As a result, 

the exception rate for the QARs significantly decreased – from an unacceptable rate of 4.8 percent to an 

acceptable rate of 0.6 percent. In addition, while copies of the 

original QARs were available from the complainants, SBA 

could not produce the originals, which may have been 

destroyed. The OIG concluded that the QAR process was 

compromised when a senior official was allowed to alter the 

results in order for the MEO to avoid penalties and to retain work under the A-76 contract. Also, because 

ODA both managed the MEO and performed the QAR, it lacked the independence needed to fairly 

evaluate the MEO’s performance. 

The OIG recommended that responsibility for conducting QARs be reassigned to an SBA organization 

outside of ODA, guidance be developed to require QAR officials to document reasons for exceptions and 

any changes to the initial QAR results, and the MEO’s involvement in the QAR process be limited to the 

resolution of issues associated with the final QAR results. Finally, the OIG recommended that a new 

QAR be performed. The Agency reported that it is taking steps to improve the QAR process and has 

performed a new QAR of the loss verification process. 

 

2

 Refers to OMB Circular A-76, Performance of Commercial Activities. 

...the QAR process was compromised

when a senior official was allowed to 

alter the results...

...these borrowers could be precluded from 

receiving all of the Federal assistance to 

which they may have been entitled. 
Significant OIG Activities

7 

SBA Generally Did Not Disburse Funds Contrary to Borrowers’ Wishes 

On October 2, 2006, SBA initiated a “90-in-45” campaign with a goal of disbursing funds and reducing a 

backlog of 90,000 Gulf Coast Hurricane loans within 45 days. As part of the “90-in-45” campaign, SBA 

established production goals to monitor employees’ performance. The OIG received multiple complaints 

about the expedited loan processing activities at Fort Worth Processing and Disbursement Center. One 

complaint alleged that loan proceeds were disbursed contrary to borrowers’ wishes and without necessary 

documentation. The complainant also alleged that SBA pressured case managers to rapidly make 

disbursements to meet production goals and gave cash awards to teams with the greatest number of 

disbursements. 

 

Regarding the first complaint, the OIG contacted 208 borrowers and found only 7 instances where 

disbursements were made contrary to borrowers’ wishes. In two instances, checks were mailed to the 

borrowers without any prior notification. In the other five instances, borrowers asked SBA not to 

disburse the funds or to delay the disbursements, but the funds were disbursed by SBA anyway. Six 

borrowers returned the loan disbursements. Only one borrower decided to keep the funds. In all cases 

when borrowers returned the checks, loan balances were appropriately reduced. 

Regarding the second complaint, the OIG found that SBA established daily production goals and 

distributed awards to recognize and reward employees who made the largest number of disbursements, 

but had not performed an analysis to determine whether the 

Processing and Disbursement Center could reasonably meet 

the production goals without sacrificing customer service and 

adherence to SBA loan requirements. While the goals were 

intended to get disaster funds in the hands of borrowers more 

quickly, they may have inappropriately influenced case 

managers to disburse funds that borrowers did not want. Because many case managers held temporary 

positions, production goals became an issue of job security. For example, one temporary case manager 

stated that most case managers were fearful that if they did not disburse enough loans, they would be 

replaced.

The OIG recommended SBA ensure, where borrowers are undecided about the loan or have not been in 

recent contact, that an attempt is made to contact the borrower prior to disbursement to determine whether 

disaster funds are still needed. The OIG also recommended that SBA ensure, in future campaigns, that 

performance goals and associated awards are based on reasonable time frames that consider customer 

service and legal requirements. The Agency generally agreed with the recommendations. 

SBA Properly Identified and Modified Most Disaster Loans that Duplicated Benefits Provided by 

HUD Grants 

The SBA OIG, in coordination with the Department of Housing and Urban Development (HUD) OIG, 

conducted an audit to determine whether SBA loans related to the 2005 Gulf Coast hurricanes that 

duplicated disaster benefits provided by HUD Community Development Block Grants were properly 

identified and modified to prevent or detect duplication of benefits. The audit focused on SBA’s 

processing of modifications to disaster loans that were made to reduce loan balances by amounts awarded 

through HUD grants administered by the Louisiana Road Home Program and the Mississippi 

Homeowners Assistance Grant Program. As of May 2007, SBA had processed 3,681 modifications – 

SBA established production goals 

...which may have inappropriately 

influenced case managers to disburse 

funds that borrowers did not want.
Significant OIG Activities

8 

...31 of the 60 contracts awarded were either 

not reported to SBA or were reported, but had 

not been entered by district office staff into 

the Agency's database...

totaling $172 million – to reduce disaster loan amounts as a result of the HUD grant program. SBA had 

also received remittances totaling $131 million from both the Louisiana Road Home Program and the 

Mississippi Homeowners Assistance Grant Program to reduce SBA loan balances. 

The OIG reviewed 172 grants and found that SBA generally complied with provisions of the Stafford Act 

related to preventing or detecting duplicate benefits within SBA’s Disaster Loan program. Of the 172 

grants, 108 duplicated benefits provided by SBA disaster loans. All but two of those loans were correctly 

modified. One loan was erroneously reduced by SBA. After the funds had been received, SBA realized 

that it had requested the remittance in error and re-disbursed the funds to the borrower. The second loan 

was erroneously reduced through a remittance that was incorrectly sent to SBA by Mississippi. After the 

OIG brought this to SBA’s attention, SBA reinstated the loan. 

The OIG concluded that the relatively few loans that were incorrectly modified did not constitute a major 

breakdown in internal controls. Consequently, no recommendations were made. 

8(a) Contracts Were Either Not Reported to SBA or Reported but Not Recorded by District Offices 

The OIG conducted an audit of 8(a) contracts related to Gulf Coast reconstruction as a result of 

congressional interest in determining whether small, minority-owned businesses were receiving Gulf 

Coast contracts. The OIG reviewed 8(a) contracts from the two largest Federal agencies procuring 

contracts for Gulf Coast reconstruction: the Department of Homeland Security (DHS) and the Department 

of Defense (DoD). As of September 30, 2006, DHS and DoD accounted for approximately 80 percent of 

the contract dollars obligated to 8(a) firms for Gulf Coast reconstruction, or about $548 million. 

The OIG reviewed 60 8(a) contracts over $1 million from DHS and DoD to determine if approvals were 

received from SBA to accept 8(a) contracts and whether agencies were reporting the procurements to 

SBA as required by their partnership agreements 

with SBA. Based on limited information available 

in the 60 contract files, the OIG could not determine 

whether DHS and DoD were properly offering the 

contracts, or whether SBA was properly accepting 

them. However, the OIG found that 31 of the 60 

contracts awarded were either not reported to SBA or were reported, but had not been entered by district 

office staff into the Agency's database – the Servicing and Contracting System/Minority Enterprise 

Development Center Office Repository (SACS/MEDCOR). The validity of 8(a) contract data continues 

to be at risk because SACS/MEDCOR ceased operation on April 30, 2007, and now resides in an interim 

system. The integrity of the information contained within the interim system is unknown by the OIG. 

The OIG recommended that SBA notify agencies with partnership agreements that they are required to 

provide a copy of any contract, as defined in FAR 2.101, including basic contracts, orders, modifications, 

and purchase orders, to the SBA servicing district office within 15 days of the date of the award. The 

SBA agreed and reported that it has revised its partnership agreements with procuring agencies to include 

appropriate language. The OIG also recommended that SBA provide training to Business Development 

Specialists on how to enter information into the successor database(s) to SACS/MEDCOR, and ensure 

that all data in the current database is accurate and verified before migrating to its successor database(s). 
Significant OIG Activities

9 

SBA Did Not Maximize Recovery on at least $360.3 million in Delinquent Disaster Loans 

The OIG conducted an audit to determine if the SBA maximized its recovery of delinquent pre-Katrina 

disaster loans through collateral liquidations and by referral to the U.S. Treasury for debt collection. The 

audit disclosed that SBA did not maximize recovery on a projected $360.3 million in delinquent disaster 

loans. SBA did not actively pursue a projected $261.5 million in delinquent loans because of conflicting 

guidance in its operating procedures and did not transfer a projected $24.7 million in delinquent loans to 

Treasury because the loans were improperly coded. The OIG also determined that SBA did not refer to 

Treasury all responsible parties on a projected $74.1 million of charged-off loans because the loans were 

not coded properly and that loan details, such as the name and identification numbers, were not entered 

into the Portfolio Management Treasury Offset System database.

The OIG recommended that SBA revise its Standard Operating Procedures (SOPs) and clarify existing 

guidance to better explain the requirements of the Debt Collection Act. The OIG further recommended 

that SBA implement controls to ensure that the liquidation of collateral and assets are actively pursued to 

the fullest extent possible at the Disaster Loan Liquidation Center, and that loans are properly coded and 

transferred to Treasury and/or the Liquidation Center in accordance with the Debt Collection Act. 

Multi-Agency Task Force Pursues Gulf Coast Hurricane Fraud 

Largely as a result of participation with other law enforcement entities on the Hurricane Katrina Fraud 

Task Force, the OIG has made 26 arrests and has obtained 29 indictments and 22 convictions from the 

task force’s inception through September 30, 2007. As disaster loans come due after the initial 12-month 

deferral of payments, the OIG anticipates more allegations of fraud and potential loss to SBA. OIG cases 

related to the Gulf Coast hurricanes include the following. 

• A certified public accountant (CPA) made false statements to several lenders in Louisiana so that 

they would approve four non-SBA loans totaling approximately $2.9 million. She impersonated 

an SBA employee and falsely represented that SBA disaster loans had been approved and 

committed for businesses controlled by her employer. The CPA pled guilty to making false 

statements relating to loan and credit applications. This case was referred by the DHS OIG. The 

OIG is conducting this investigation jointly with the U.S. Secret Service. 

• An individual fraudulently represented an address as his primary residence on disaster assistance 

applications filed with four government agencies in 

order to receive funds to which he was not entitled. 

He was approved for a nearly $79,000 loan from SBA, 

of which $10,000 was disbursed. He also received 

nearly $9,600 from FEMA, and about $300 from the 

U.S. Department of Agriculture (USDA). The man 

was sentenced to five months incarceration, five months home confinement, two years supervised 

release, a $3,000 fine, and restitution of over $20,000, of which over $8,000 will be used to pay 

off the remainder of his SBA loan. Based on a DHS OIG referral, the OIG conducted the 

investigation jointly with the DHS OIG, the USDA OIG, and the Mississippi State Auditor’s 

Office. 

An individual fraudulently represented

an address as his primary residence on 

assistance applications filed with four

government agencies...
Significant OIG Activities

10 

• A Florida couple provided false statements on their disaster assistance application and during the 

loss verification inspection. As a result, they received $50,000 of an approved $112,500 loan 

from SBA. They had stated that their primary residence was in Mississippi when in fact they 

lived in Florida and were not affected by any of the hurricanes. The couple also received over 

$6,700 from FEMA. The husband and wife pled guilty to making false claims and statements. 

The OIG is conducting this joint investigation with the Federal Bureau of Investigation (FBI) and 

the Mississippi State Auditor’s Office. 

• A California couple allegedly provided false statements regarding the location of their primary 

residence in an attempt to receive undeserved benefits from various agencies. The couple was 

approved for a nearly $122,000 SBA disaster loan, a $100,000 Mississippi state grant, and over 

$12,000 from FEMA. They were indicted for conspiracy, fraudulent claims, false statements, 

theft of public funds, wire fraud, submitting a false loan and credit application, and civil 

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

State Grant Authority. 

Inspector General Testifies on SBA’s Efforts after Hurricanes Rita and Katrina 

On July 25, 2007, the Inspector General (IG) testified before the Senate Committee on Small Business 

and Entrepreneurship on the effectiveness of SBA’s efforts to cope with the aftermath of Hurricanes Rita, 

Wilma and Katrina. The testimony covered several of the audits and reviews discussed above, including 

Improperly Canceled Disaster Loans, QARs of Loss Verifications, and the Expedited Loan Program. 
Significant OIG Activities

11 

Small Business Access to Capital

SBA has a financial assistance portfolio of small business loans and financings of almost $84 billion. 

With more than 4,900 lenders authorized to make SBA loans, the Section 7(a) Loan Guaranty program is 

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

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

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

transactions. Approximately 87 percent of loans guaranteed annually by SBA are made by lenders to 

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

and reduced the number of staff performing these functions. Between 2001 to 2006, SBA’s staffing 

decreased by more than 29 percent while the number of direct and guaranteed loans increased by more 

than 50 percent. As SBA has placed more responsibility and independence on its lenders, the need for 

OIG oversight has increased significantly. 

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

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

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

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

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

Surety Bond Guarantee program. 

Ongoing Investigation of Major Loan Fraud 

During the previous reporting period, arrest warrants were issued for 19 individuals in connection with a 

scheme in which a lender’s former executive vice president and others conspired to fraudulently qualify 

loan applicants for SBA-guaranteed loans. The scheme involved as many as 76 fraudulent loans totaling 

over $76 million. A common aspect to a number of these cases was the falsification of equity injection. 

During this reporting period, this joint investigation with the U.S. Secret Service resulted in the following 

guilty pleas and judicial actions. 

• A company president conspired with his brother and others to fraudulently qualify himself for a 

$990,000 SBA-guaranteed loan to be used to purchase 

a gas station and convenience store from his brother’s 

company in Detroit. The object of the scheme was to 

refinance and consolidate the financially troubled 

Detroit company’s delinquent debts by using proceeds 

from the loan made to the “straw buyer.” To accomplish this, the conspiracy used a false sales 

agreement, an inflated purchase price, and a bogus down payment. The loan defaulted, and SBA 

paid over $719,000 to the lender. The company president was sentenced to one year and one day 

in federal prison and ordered to pay almost $659,000 in restitution to an SBA lender. The 

restitution will be a joint obligation with his brother, who has pled guilty but has not yet been 

sentenced. 

• Two borrowers and a seller were indicted for conspiracy, false statements, and aiding and 

abetting in connection with a scheme to present false equity injection documents to a lender in 

order to obtain SBA-guaranteed loans for the purchase of two different businesses. The first 

borrower allegedly used false equity injection documents to obtain a $1.4 million SBA-

...the conspiracy used a false sales 

agreement, an inflated purchase price, 

and a bogus down payment.
Significant OIG Activities

12 

guaranteed loan. The seller verified the false documents, thus allowing the borrower to obtain the 

loan. The loan defaulted and SBA paid a claim of nearly $1,038,000. The second borrower 

allegedly used false equity injection documents to obtain a $1,310,000 SBA-guaranteed loan to 

purchase a different business. The seller again verified 

the false equity injection documents, which allowed the 

borrower to obtain the loan. This defaulted loan resulted 

in the SBA paying a claim of nearly $877,000. 

• A former assistant vice president of a bank supplied false verifications of deposit for loan 

applicants and gave a loan broker unpaid-for cashier’s checks to be used for loan closings. She 

pled guilty to conspiracy and misapplication of bank funds and admitted giving the loan broker 

four unfunded official checks totaling more than $2.8 million. 

• The owner of an oil company was charged with making false statements related to a $1,212,000 

SBA-guaranteed loan. The false statements concerned his employment history, the ownership of 

the oil company, the amount of cash he had on hand, and the fact that his brother had given him a 

gift of $363,000 to satisfy the equity injection requirement for the loan. 

• The president and the secretary of a gas station and convenience store were each sentenced to one 

year probation and a $2,500 fine in connection with falsely representing that they had made a 

$130,000 equity injection in order to obtain a $1,175,000 SBA-guaranteed loan. Despite the 

falsified equity injection, the individuals continued to make payments on their loan, and the 

collateral was appraised for more than the outstanding loan balance, resulting in the court viewing 

this as a “no loss” case. 

• An individual was indicted for conspiracy, false statements, and aiding and abetting. She 

allegedly conspired with others to defraud SBA by obtaining an $825,000 SBA-guaranteed loan 

for her brother-in-law, who was the owner and intended operator of the business. She also 

allegedly overstated her financial status, provided false information about the source of a 

$250,000 equity injection, and made misrepresentations on the management resume. The OIG is 

conducting this joint investigation with the U.S. Secret Service. 

SBA’s Oversight of Business Loan Center, LLC 

As a result of the OIG investigation mentioned in the previous article, the OIG initiated an audit of the 

SBA’s oversight of Business Loan Center, LLC (BLX). The OIG investigation resulted in the arrest of a 

BLX Executive Vice President and 18 other individuals, not employed by BLX, for allegedly making 

over $76 million in fraudulent loans to unqualified loan applicants. 

The audit identified problems with the manner in 

which SBA addressed performance and compliance 

issues with BLX’s lending activities and SBA’s 

actions to protect government funds once deficiencies 

were identified. Since 2001, SBA’s oversight 

activities identified recurring and material issues 

related to BLX’s performance. Despite these recurring problems, SBA continued to renew BLX’s 

delegated lender status and SBA took no actions to restrict BLX’s ability to originate loans or to mitigate 

The loan defaulted and SBA paid a 

claim of nearly $1,038,000.

The audit identified problems with the manner 

in which SBA addressed performance and 

compliance issues...and SBA’s actions to 

protect government funds once deficiencies 

were identified. 
Significant OIG Activities

13 

financial risks through the purchase review process. The audit also determined that the organizational 

placement of SBA’s Office of Lender Oversight (OLO) presented a potential conflict because OLO did 

not have compatible goals with the organization to which it reports, and that SBA lacked clear 

enforcement policies. The OIG recommended that SBA take certain actions to mitigate the risk posed by 

BLX, identify actions to address the potential organizational conflict, and develop more definitive 

guidance on enforcement actions. 

SBA Has Not Fully Realized the Benefits of the Loan and Lender Monitoring System or Used the 

Data to Drive Risk-Based Decisions 

In 1996, Congress passed the Small Business Programs Improvement Act, which required SBA to 

establish a risk management database that provides timely and accurate information to identify loan 

underwriting, collections, recovery, and liquidation problems. In FY 2003, SBA contracted with Dun & 

Bradstreet for the Loan and Lender Monitoring System (L/LMS) to provide the Agency with the 

information necessary to assess and manage risk in its loan portfolio. SBA uses predictive financial 

models to develop composite ratings that reflect SBA’s assessment of the potential risk to the government 

from lenders’ SBA portfolio performance. 

The OIG initiated an audit to determine whether the L/LMS generates lender ratings that correspond to 

actual lender performance and the extent to which SBA uses lender ratings to manage the risk in the 

section 7(a) program. The audit disclosed that, 

although the rating system generates the 

information needed by SBA to assess lender risk, 

the Agency’s method of assigning risk based on 

lender scores is inadequate for conducting 

effective portfolio and lender oversight. Because SBA arbitrarily limits the number of lenders that could 

be considered “high-risk” to no more than 10 percent of the lenders in each peer group, it excluded large 

groups of lenders with poor historical performance from being considered a priority for oversight 

attention. In addition, the Agency conducted on-site reviews of only those lenders with guaranteed loan 

portfolios of $10 million or more, regardless of their 

risk ratings. Consequently, smaller lenders with 

high-risk ratings were not reviewed on-site. The 

Agency also had not shared lender risk ratings with 

SBA offices responsible for purchasing loan 

guaranties. The ratings would help purchase officials identify those lenders with above-average default 

rates and high-risk lending practices whose purchase requests require closer scrutiny. 

The OIG also found that the Agency had not yet developed or implemented comprehensive loanmonitoring policies and procedures to: (1) define acceptable lender performance and risk tolerance levels 

that require corrective actions be taken by the lenders: (2) identify enforcement actions that will be taken 

when the risk tolerance limits are violated; or (3) describe how data generated by L/LMS will be 

incorporated into mission activities agency-wide and reflected in credit models used by the Agency for 

financial reporting. 

The OIG recommended that SBA: (1) establish a method for assigning risk ratings that more accurately 

reflect the risk profiles of the lenders; (2) develop an on-site review plan for all high-risk 7(a) lenders with 

guaranteed loan portfolios in excess of $4 million; distribute L/LMS data to offices involved in 

...the Agency’s method of assigning risk based on 

lender's scores was inadequate for conducting

effective portfolio and lender oversight.

...it excluded large groups of lenders with poor 

historical performance from being considered a 

priority for oversight attention. 
Significant OIG Activities

14 

...SBA made approximately $36 million in 

erroneous payments on loans with purchase 

reviews completed between October 1, 2004 and

May 31, 2005...

...staffing problems and an overly aggressive 

emphasis on expediting and increasing purchase 

production...adversely impacted the quality of 

purchase decisions. 

purchasing loan guaranties; (3) share lender risk ratings with SBA offices that make guaranty purchase 

decisions; and (4) develop loan-monitoring policies and procedures that define acceptable lender 

performance and risk tolerance levels. 

SBA Purchased Guaranties without Determining Whether Lenders Had Originated, Serviced, and 

Liquidated Loans in Accordance With SBA Requirements and Prudent Lending Procedures 

Section 7(a) loan purchase reviews are performed by the National Guaranty Purchase Center (NGPC) in 

Herndon, Virginia. The guaranty purchase process involves a review of the purchase request and relevant 

documentation to evaluate whether a lender materially complied with program rules and regulations in 

determining whether to honor a guaranty. These reviews help ensure that SBA does not make improper 

payments. Under the Improper Payments Information Act, SBA must annually examine and report the 

rate of improper payments. In FY 2006, SBA estimated this rate to be 1.56 percent. 

The OIG examined purchase procedures used by the 

NGPC to determine whether they were effective in 

identifying lender deficiencies in order to prevent 

erroneous payments. The audit disclosed that SBA 

purchased guaranties without adequately analyzing 

documentation or obtaining sufficient information needed to assess whether lenders originated, serviced, 

and liquidated loans in accordance with SBA requirements and prudent lending practices. Based on the 

results of sampled loans, the OIG projected that SBA made approximately $36 million in erroneous 

payments on loans with purchase reviews completed between October 1, 2004, and May 31, 2005. These 

erroneous payments equated to an improper payment rate of 17 percent, a rate significantly higher than 

the 1.56 percent reported by SBA. The major deficiencies identified involved lenders not verifying 

borrower equity injection, not adequately documenting the use of proceeds, not properly securing 

collateral, and not verifying repayment ability. 

The audit also disclosed that staffing problems and an overly aggressive emphasis on expediting and 

increasing purchase production at the NGPC had adversely impacted the quality of purchase decisions. A 

high rate of staff turnover in FY 2006 left the NGPC with unfilled vacancies and largely inexperienced 

loan officers to review purchase requests. The NGPC had only three individuals to perform supervisory 

oversight of nearly 3,000 purchase reviews. As a result, supervisors either did not review purchase 

requests performed by inexperienced loan officers or 

did not identify deficiencies the loan officers missed. 

The task of performing adequate purchase reviews is 

expected to become more challenging in the future 

because the Agency established a goal to increase its 

loan production by 15 percent by the end of FY 

2007 without identifying the additional resources to handle the increased loan production and resulting 

increases in purchase requests. 

The OIG recommended that SBA perform more thorough reviews on selected purchase requests using a 

sample-based approach. The sampling plan would need to consider each lender’s performance, and the 

dollar value of the errors found in the sample would need to be projectable to the lender’s portfolio as a 

basis for recovery for all loans in the lender’s universe. In addition, the OIG recommended that SBA 

ensure future purchase decisions receive the proper supervisory review and that an evaluation is made of 
Significant OIG Activities

15 

...a loan agent, a corporate secretary...and the 

corporate president conspired to fraudulently

obtain a $1.1 million SBA-guaranteed loan.

the quality of decisions made under the new process to assess the level of risk associated with 

streamlining efforts and its impact on the improper payment rate reported in the Agency’s budget. 

Dishonest Loan Agents Continue to Harm SBA Loan Programs 

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

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

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

of millions of dollars in loans. Moreover, loans associated with loan agent fraud often default for 

nonpayment, thus increasing losses in the loan guaranty program. 

For example, in the $77 million scheme described 

previously, an OIG investigation determined that a 

loan agent, a corporate secretary of an auto service 

center, and the corporate president conspired to 

fraudulently obtain a $1.1 million SBA-guaranteed 

loan. The three individuals made or caused false statements to be made to SBA by claiming that 

$210,000 in repairs and renovations to the auto service center had been completed prior to loan closing. 

The business defaulted on the loan and SBA paid a claim of over $789,000 to the lender. The loan agent 

is a fugitive and is believed to have returned to his native country. The corporate secretary pled guilty to 

conspiracy, and charges against the corporate president and the loan agent are pending. 

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

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

not currently know the magnitude of the loan agent problem because it collects little information about 

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

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

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

greatly among lenders. 

SBA Official Violates Ethics Rules and Allegedly Commits Fraud in Obtaining SBA-Guaranteed 

Loan 

An SBA branch office manager was indicted for making false statements to an SBA lender and to SBA. 

He allegedly submitted a false personal financial statement to a lender in connection with an $80,070 loan 

application, purporting to own $235,000 in stock when he knew the stock had little value. He also 

allegedly made false statements to SBA on his financial disclosure report by failing to disclose both the 

SBA-guaranteed loan and his management role in the business for which the loan was obtained. These 

omissions were significant because conflict of interest and ethics rules would have prohibited his 

receiving the SBA-guaranteed loan due to his position with the Agency. The OIG is conducting this joint 

investigation with the FBI. 

OIG Investigations Uncover a Variety of Fraudulent Tactics in SBA’s Loan Guaranty Programs 

To fraudulently obtain – or induce others to obtain – SBA-guaranteed loans, criminals resort to a variety 

of methods, such as: submitting fraudulent documents; making fictitious asset claims; manipulating 

property values; and failing to disclose debts, prior criminal records, or other SBA-backed loans. In 
Significant OIG Activities

16 

OIG Investigative efforts disclosed that the 

business plans were worthless and that only one 

or two businesses ever received an SBAguaranteed loan.

addition, borrowers sometimes use loan proceeds contrary to the terms of the loans. These practices 

increase the likelihood of financial loss to SBA and its lenders. The following examples, in addition to 

those discussed above, reveal the techniques individuals use to fraudulently acquire SBA loans. 

• An Internet-based company in Virginia 

induced over 900 people to fall victim to a 

major scam by promising, among other 

things, to provide a comprehensive business 

plan and an SBA-guaranteed loan in 

exchange for a fee of at least $3,500. OIG 

Investigative efforts disclosed that the business plans were worthless and that only one or two 

businesses ever received an SBA-guaranteed loan. The company’s former owner was sentenced 

to 84 months in prison and 3 years supervised release, and was ordered to pay over $2,755,000 in 

restitution along with a co-defendant. The owner was also ordered to pay, independently from 

the co-defendant, nearly $218,000 to the Internal Revenue Service (IRS) and was prohibited from 

engaging in any financial businesses. He had previously pled guilty to mail fraud, engaging in a 

monetary transaction in criminally derived property, and tax evasion. This case was based on a 

referral from SBA’s Richmond District Office. The OIG conducted this joint investigation with 

the U.S. Postal Inspection Service and the IRS. 

• An OIG investigation found that most of a $1 million SBA-guaranteed loan made to a now 

defunct electronic imaging company, for the purpose of purchasing equipment from a machinery 

company, was instead used for unauthorized purposes, including buying out a former partner, 

paying taxes, and making unauthorized payments to the two principals of the machinery 

company. All three individuals agreed to enter into the Pre-Trial Intervention program. The 

imaging company principal agreed to 200 hours of community service and $25,000 restitution to 

SBA, and the two machinery company principals each agreed to 100 hours of community service 

and $50,000 restitution to SBA. 

• A joint investigation by the OIG and FBI revealed that a New York business owner used a false 

Social Security number when applying for SBA-guaranteed loans for two of his businesses and 

failed to disclose over $257,000 in outstanding Federal and state tax liens. Based on this false 

information, a loan of $1,550,000 was approved for one business, and a loan of $100,000 was 

approved for the second business. The owner pled guilty to bank fraud and bankruptcy fraud. 

The bankruptcy charge relates to the owner’s false statements on a bankruptcy document. The 

OIG is conducting this joint investigation with the FBI. 

• The former owner of a dump truck hauling business in the State of Washington made false 

statements to SBA and to a federally-insured bank regarding his company’s tax liability in order 

to obtain a $750,000 SBA-guaranteed loan. He hid the proceeds from converted collateral and 

avoided payments to the IRS for past due payroll taxes by failing to disclose assets. He pled 

guilty to bank fraud, bankruptcy fraud, and evasion of payments to the IRS. Per the plea 

agreement, he agreed to forfeit the proceeds from the unlawful activity (including an 

approximately $68,000 investment account) and to pay a monetary judgment of nearly $158,000. 

After receiving a referral from the participating lender, the OIG conducted this joint investigation 

with the FBI and IRS. 
Significant OIG Activities

17 

...some prospective borrowers, either individually 

or with the help of dishonest loan agents, falsely 

claim U.S. citizenship when applying for SBAguaranteed loans. 

...borrowers are increasingly falsifying the 

amount of their capital injection.

False Claims of Citizenship Persist in SBA Loan Programs 

As discussed in previous semiannual reports, some prospective borrowers, either individually or with the 

help of dishonest loan agents, falsely claim U.S. citizenship when applying for SBA-guaranteed loans. 

These loans often default quickly, with millions of 

dollars at risk. Moreover, loans to such borrowers 

can deprive honest loan applicants (citizens as 

well as non-citizens who legally reside in the U.S.) 

of access to SBA-backed financing. 

For example, a part owner of a deli caterer in Utah falsely claimed to be a U.S. citizen and used a false 

Social Security number to obtain a $135,000 SBA-guaranteed loan. In addition, the owner of a Mexican 

restaurant in Utah falsely claimed to be a U.S. citizen to obtain a $30,000 SBA-guaranteed loan. Both 

men entered into pretrial diversion for making a false statement on a loan application and each are 

required to make payments on their SBA loans and to notify their pretrial diversion supervisor before 

acquiring any additional debt. The OIG is conducting this joint investigation with Immigration and 

Customs Enforcement and the Social Security Administration OIG. 

Fraud Results in Major Surety Bond Loss 

As a result of an OIG investigation, the president of a now defunct construction firm in the State of 

Washington was indicted for mail fraud and false statements on a loan application. The construction 

company obtained SBA-guaranteed surety bonds in order to perform public works contracts for state and 

city governments. The president defrauded SBA and a surety company by falsely stating that his 

company was out of funds when, in fact, he had diverted contract proceeds of approximately $87,000 to 

his personal use. This apparent shortfall forced the surety company to pay contract owners on defaulted 

jobs. In turn, because SBA’s surety bond program guarantees 70 percent of the surety company’s losses, 

the Agency suffered losses of over $500,000. The company president also made false statements to a 

financial institution regarding the source of the down payment on his home. The National Insurance 

Crime Bureau (NICB) referred this case to the OIG, which is conducting this investigation jointly with 

the FBI and NICB. 

Falsified Capital Injection Remains a Serious Problem 

According to SBA procedures, borrowers are required to inject available capital towards a project being 

financed by an SBA-guaranteed loan. Capital injection represents a borrower’s own financial stake in a 

business, in addition to the loan. Because a borrower 

has something personal to lose, he or she is less likely to 

default on a loan. Unfortunately, to circumvent SBA’s 

capital injection requirement, borrowers are increasingly 

falsifying the amount of their capital injection. 

For example, to obtain $500,000 and $1,100,000 SBA-guaranteed loans, a Texas businessman conspired 

with two family members by submitting fraudulent business loan applications and supporting documents 

that falsified their total required capital injection of $260,000. Thus far, the two family members have 

pled guilty to conspiracy to commit wire fraud after having been charged in connection with fraudulent 
Significant OIG Activities

18 

The notice identifies indicators of fraud 

involving both borrowers and loan agents. 

wire transfers of money from two federally-insured banks to two title companies. The OIG conducted 

this joint investigation with the FBI. 

OIG Alerts Agency and Lenders about Organized SBAExpress Fraud 

The OIG issued an information notice to alert SBA employees and lenders about the increase in 

potentially fraudulent SBAExpress loans. The notice identifies indicators of fraud involving both 

borrowers and loan agents. For example, loan agents 

may focus on a particular ethnic group or recent 

immigrants in order to recruit prospective borrowers. In 

addition, the agent and/or borrower may submit multiple 

loan applications simultaneously to different lenders for the same borrower. To help reduce fraud, the 

notice discusses actions that lenders can take, including verifying the existence of business borrowers 

through various listings of commercial entities and making a positive identification of the borrowers. 
Significant OIG Activities

19 

...district offices surveyed generally did not

follow SBA regulations in making both employee 

and revenue-based size determinations...

Small Business Development, Contracting, Education, and Training

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

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

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

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

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

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

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

awarded each fiscal year. 

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

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

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

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

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

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

maintain a balance between their commercial and government business. The overall program goal is to 

graduate firms which experience sufficient success to be able to thrive in a competitive business 

environment. 

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

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

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

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

management, outreach, and service delivery. 

SBA District Offices Did Not Follow SBA Regulations When Determining Whether Companies 

Qualified as Small for 8(a) Procurements 

The OIG conducted an audit of 8(a) size determinations made by SBA’s district offices. Size 

determinations are a key control for ensuring that only small businesses are considered for government 

preference contracts. Reports by the OIG, congressional staff, and the Government Accountability Office 

have continued to identify instances where large businesses received contracts intended for small 

businesses. 

The OIG surveyed SBA district offices to determine if they followed SBA regulations when determining 

whether companies qualified as small for 8(a) 

procurements. Under SBA regulations, size 

determinations must be based on payroll records 

from the preceding 12 months for employee-based 

size standards, and on tax returns for revenuebased standards. The OIG’s review, however, determined that the district offices surveyed generally did 

not follow SBA regulations in making both employee and revenue-based size determinations. Of those 

surveyed, 68 percent relied instead on data contained in SBA’s Servicing and Contracting System (SACS) 

or from annual reviews to determine the size of companies under employee-based standards. This was 

because reviewing payroll records was time consuming and 8(a)’s use of manual payroll systems made it 
Significant OIG Activities

20 

...SBA performed only limited oversight of large 

prime contractors’ subcontracting plans, which 

resulted in billions of subcontracts escaping 

oversight. 

difficult to determine the average number of employees. In addition, 83 percent of district offices 

surveyed reported using tax returns just 62 percent of the time when making revenue-based 

determinations. District offices instead relied on financial statements, as tax returns are frequently not 

available when companies filed late. Also, 28 percent of the district offices were improperly calculating 

revenues for companies that were in business for less than 3 years. Instead of averaging a business 

concern’s receipts based on the method specified in SBA regulations, district offices relied on revenue 

information in SACS that did not accurately estimate average revenues. 

The OIG recommended that SBA: simplify the method and data used to calculate a business concern’s 

average number of employees; require certified statements from the 8(a) company’s accountant, financial 

officer, or similar official as to its revenues, along with supporting financial statement data, when a 

company has not filed a Federal income tax return to determine the size of the 8(a) company based on 

revenue; and ensure that district office QARs include an examination of a sample of size determinations 

to ensure that district offices are properly performing them. The Agency generally concurred with the 

recommendations. 

SBA’s Oversight of Contractor Compliance with Subcontracting Plans is Limited 

The OIG initiated a review of SBA’s Subcontracting Assistance Program to evaluate SBA’s effectiveness 

in ensuring that large contractors comply with applicable laws in developing and implementing their 

subcontracting plans. The review also assessed the extent to which SBA, through its Commercial Market 

Representatives (CMRs), was adequately identifying, developing, and marketing small businesses to large 

contractors to assist them in obtaining contracts. 

The OIG surveyed all six of SBA’s Government Contracting area offices to determine the results of the 

compliance reviews conducted for FY 2006. The review focused on the CMRs’ on-site compliance 

reviews because they are the main focus of the CMRs and can significantly impact the way a large 

contractor administers its small business program. The review also examined each office’s efforts to 

market small businesses to large contractors. 

The review found that SBA performed only limited oversight of large prime contractors’ subcontracting 

plans, which resulted in billions of subcontracts 

escaping oversight. In FY 2006, only 968 of an 

estimated 2,200 large prime contractors were 

reviewed. Of the 968 reviews SBA performed, 24 

percent were performed on-site, and the rest were 

desk reviews of prime contractors’ self-reported 

achievements or other off-site reviews. While off-site reviews save the Agency time and resources, they 

are not the best tool for ensuring that small businesses receive subcontracts because SBA does not review 

underlying documentation supporting the prime contractor’s claims. 

In addition, SBA has sharply curtailed the ancillary subcontracting assistance activities of its CMRs. The 

declining number of CMRs and increasingly part-time nature of their role has restricted the Agency’s 

activities under the Subcontracting Assistance Program. The number of full-time CMRs decreased from 

24 in 1992 to 5 in 2006, while the number of part-time CMRS increased from 3 to 35 over the same 

period. The review disclosed that CMRs were not strategically deployed based on the volume of 
Significant OIG Activities

21 

...one official allegedly used his influence to steer

over $1.6 million in equipment and support contracts 

to the 8(a) company in exchange for a share of the 

contract proceeds.

A National Archives and Records Administration 

(NARA) property management official and a 

contractor allegedly conspired to embezzle over 

$958,000... 

contracting activity in each geographic area, which further impeded SBA’s ability to effectively provide 

oversight of prime contractors’ subcontracting plans. 

SBA also lacked a strategic or annual performance plan for the program, as required by the Government 

and Performance Results Act, to establish performance goals for measuring the effectiveness of the 

program and assign responsibilities for goal achievement. 

The OIG recommended that SBA develop an annual performance plan for the Subcontracting Assistance 

Program that establishes performance goals for measuring effectiveness of all key program activities, and 

assigns responsibility for achieving the goals. The plan should also address how CMRs will be deployed 

and the percentage of time that part-time CMRs are expected to devote to the program to ensure adequate 

coverage of prime contractors. The OIG also recommended that SBA submit annual reports on the 

Federal government’s subcontracting goal achievements more timely, including the number and dollar 

value of subcontracts awarded to small businesses, as required by law. 

Bribery Scheme Results in Multiple Indictments 

Six individuals were indicted for conspiracy, bribery, kickbacks in a public contract, wire fraud, 

disclosure of confidential bid information, money laundering, and other charges in connection with a 

multimillion dollar bribery scheme involving fixed contracts between DoD and SBA certified 8(a) firms.. 

The defendants – an 8(a) firm’s owner and an employee, three government officials, and an official’s son 

– allegedly committed these acts to ensure that 

the 8(a) company received government 

contracts. For example, five defendants 

allegedly derived approximately $1 million in 

graft from a contract for computer cable 

upgrades, and the sixth defendant allegedly was 

paid $200,000 for accounting services. Moreover, one official allegedly used his influence to steer over 

$1.6 million in equipment and support contracts to the 8(a) company in exchange for a share of the 

contract proceeds. In addition to criminal charges, the indictment also seeks a $1.2 million judgment. 

The OIG is conducting this joint investigation with the FBI, IRS, U.S. Army Criminal Investigation 

Division, General Services Administration OIG, Department of Interior OIG, and the Defense Criminal 

Investigative Service as part of an FBI task force investigating 8(a) firms that illegally act as pass-through 

companies for larger firms that perform the actual work on 8(a) contracts. 

Embezzlement Includes Use of Phony 8(a) Firms 

A National Archives and Records Administration (NARA) property management official and a contractor 

allegedly conspired to embezzle over $958,000 

from a NARA facility in Maryland. The official 

allegedly used his NARA government purchase 

card to pay three businesses purportedly 

operated by the contractor for goods and 

services that were never provided or were provided at inflated prices. The businesses were listed on 

contracting documents as 8(a) firms, but there was no record of 8(a) certification with SBA. Moreover, 

the businesses did not have any offices or employees. The official and the contractor were each indicted 
Significant OIG Activities

22 

for theft of government property, aiding and abetting, and conspiracy. This case was initiated based on a 

referral from NARA. The OIG is conducting this investigation jointly with the NARA OIG. 

Multi-Agency Effort Uncovers SBDC Kickback Scheme 

A former assistant state director for the organization that administered the Small Business Development 

Center (SBDC) program for California was sentenced to sixty months probation, six months house arrest, 

1,500 hours of community service, and over $98,000 in restitution as a result of her guilty plea for false 

statements and deprivation of right to honest services. In addition, SBA previously submitted a claim to 

the State of California for over $1.2 million in reimbursement because of this official’s activities. The 

assistant director had been responsible for disbursing federal funds to the network of SBDCs in southern 

California. Between 1999 and 2003, she received kickbacks from SBDC contractors, who in turn 

received contracts without competitive bids. She also diverted monies intended for SBDC projects to her 

own benefit. The SBA OIG conducted this investigation jointly with the HUD OIG and the FBI. 

Legislation Requires Approval of SBDC Surveys 

In December 2004, Congress amended Section 21(a)(7) of the Small Business Act to restrict the 

disclosure of information regarding individuals or small businesses that have received assistance from an 

SBDC, and further restrict the Agency’s use of such information. The provision also requires the Agency 

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

SBDC client surveys. To date, however, SBA has not issued these regulations. In addition, paragraph 

21(a)(7)(C)(iii) states that, until the issuance of such regulations, any client survey and the use of such 

information shall be approved by the Inspector General, who shall include such approval in the OIG’s 

Semiannual Report to Congress. The Agency reported that there were no SBDC surveys requiring OIG 

approval during this reporting period.

Assistant Inspector General Testifies on SBA’s Grant Program for Women’s Business Centers 

On September 20, 2007, the Assistant Inspector General (AIG) for Auditing testified before the Senate 

Committee on Small Business and Entrepreneurship regarding the SBA’s grant program for Women’s 

Business Centers (WBC). Under this program, eligible organizations can obtain Federal grants to create 

and operate centers that provide training and counseling services to women who own businesses or 

contemplating business ownership. The WBCs have voiced significant concerns about delays in grant 

payments made by the SBA. 

At the Committee’s request, the OIG reviewed the timeliness of SBA grant disbursements. The testimony 

covered preliminary findings regarding the extent of payment delays, their causes, and possible solutions. 

The OIG has found that payment delays were largely attributable to the lack of coordination and 

communication between SBA’s program and grants offices. The AIG discussed opportunities that exist 

to streamline the grant award process to enable WBCs to apply for funding earlier in the year. 
Significant OIG Activities

23 

...SBA lacked assurance that complete and 

accurate data was transferred from Eapplications to SBA’s Electronic 8(a) Review 

System. 

...the system’s security safeguards over

sensitive government data were 

inadequate...

Agency Management

E-applications System Lacks Adequate Security Operating Procedures and Backup Capability 

The OIG initiated an audit of SBA’s E-applications system, an internet-based system that processes 

applications for the 8(a) and Small Disadvantaged Business (SDB) certification programs. The purpose 

of this audit was to determine (1) whether data stored in E-applications complied with applicable laws, 

rules, and regulations governing security of government data and Personally Identifiable Information, and 

(2) whether controls over data transferred between E-applications and SBA’s Electronic 8(a) Review 

System were sufficient to ensure the complete and accurate transfer of information. The E-applications 

system, which was implemented in November 2004, is contractor-owned and operated, and interfaces 

with SBA’s Electronic 8(a) Review System. The goal of the system is to reduce the application 

processing time by allowing applicants to receive and submit 8(a) and SDB applications electronically, 

and by providing 8(a) program personnel with a tool to quickly evaluate and approve applications and 

identify those applications which require further review. 

The OIG’s review determined that the system’s security safeguards over sensitive government data were 

inadequate and did not meet Federal Information Security 

Management Act (FISMA), Federal Information 

Processing Standards (FIPS) Publication 200, or National 

Institute of Standards and Technology (NIST) 

requirements. For example, SBA had not developed or 

implemented standard security operating procedures for E-applications. Also, the contractor that operates 

the system lacked data backup and recovery capability, leaving SBA data vulnerable to loss or misuse. 

System controls were also insufficient to ensure the complete and accurate transfer of information from 

E-applications to SBA’s Electronic 8(a) Review System. For example, system interfaces did not have 

sufficient data validation and verification controls to 

ensure the integrity of data transferred. These controls 

were not required in the contract to build the Eapplications system. As a result, SBA lacked assurance 

that complete and accurate data was transferred from Eapplications to SBA’s Electronic 8(a) Review System. 

FISMA and FIPS Publication 200 require formalized system security plans for Federal information 

systems, including contractor hosted systems. However, reviews performed by SBA since 2004 have 

identified significant unresolved security vulnerabilities in the E-applications system. For example, SBA 

conducted a review prior to deployment of the E-applications system which disclosed that the vendor had 

not defined and implemented standard operating procedures to ensure the security of the system. SBA 

reported this condition as a vulnerability and required the vendor to develop procedures to implement 

SBA’s security policies by December 31, 2005. As of the end of the reporting period, security procedures 

had not been developed or implemented, and SBA had not held the contractor accountable. 

Following a site visit in 2006, SBA identified several unremediated data backup and disaster recovery 

vulnerabilities, which placed E-applications data at risk of misuse or loss. 
Significant OIG Activities

24 

The OIG recommended that SBA: modify the existing contract with the vender to require the 

development of security procedures to implement SBA’s security policies, a disaster recovery plan, a 

backup data storage site, and an alternate data processing site; establish controls to ensure data entered 

into E-applications is accurately transferred to the Electronic 8(a) Review System; and validate the 

accuracy of data already transferred to the system. The Agency generally concurred with the 

recommendations and stated that it would migrate the E-Applications system from the vendor site to an 

Agency system within 60 to 90 days in order to place the system in an environment that is compliant with 

security, data backup, and disaster recovery requirements. 

Number of Overdue Management Decisions has Decreased 

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

recommendations within a maximum of six months of report issuance. Program officials may agree, 

disagree, or seek alternative actions to the recommendations. To reduce the number of overdue 

management decisions, the OIG revised its final audit and recommendation reporting process to require 

that the Agency provide management decisions on recommendations made in OIG reports at the time that 

it transmits its comments on the draft reports. During this reporting period, management decisions were 

made for all but 6 of the 37 recommendations for which management decisions were overdue as of 

March 31, 2007 – a reduction in overdue management decisions of almost 84 percent. In all, management 

decisions were made for 81 recommendations during this reporting period. 

SBA Identified and Addressed Improper Acceptance of Cash 

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

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

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

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

SBA did not accept any cash gifts. 

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

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

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

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

names of the cosponsors. As shown in Appendix IX, between April 1, 2007 and September 30, 2007, 

there were 35 cosponsored events. SBA reported that it did not conduct any fee-based Administrationsponsored events during this period. 
Significant OIG Activities

25 

As a result of OIG referrals during this reporting 

period, SBA business loan program managers 

declined 42 applications totaling over $17 million 

and disaster loan program officials declined 16 

applications totaling over $1 million. 

During this reporting period, the OIG

submitted 11 debarment

recommendations to the Agency.

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, small business investment 

companies, and certified development companies meet SBA character standards. To accomplish this, the 

security staff utilizes name checks and, where appropriate, fingerprint checks to determine criminal 

background information. During this semiannual reporting period, the OIG processed 1,775 external 

name check requests for these programs. 

Based on 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. As a result of OIG 

referrals during this reporting period, SBA 

business loan program managers declined 42 

applications totaling over $17 million and disaster loan program officials declined 16 applications totaling 

over $1 million. Approximately $288 million in loans have been declined during the last 10 years due to 

character eligibility issues, thus making credit available to other applicants who had no such issues. 

In addition, based on OIG efforts during this period, the Section 8(a) program declined 6 applications for 

admission, and the Surety Bond Guarantee program declined 1 application for admission. The OIG also 

initiated 169 background investigations and issued 29 security clearances for Agency employees and 

contractor personnel required to have clearances, adjudicated 33 background investigative reports, and 

coordinated with the Office of Disaster Assistance to adjudicate 149 derogatory background investigation 

reports. Finally, the OIG processed 1,284 internal name check requests for Agency activities such as 

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

OIG Recommends Debarments 

The OIG believes that it is in the public interest to debar 

parties who have a history of fraud, or otherwise lack 

business integrity, from conducting business with the 

Federal Government. Accordingly, the OIG has adopted a 

proactive program to identify SBA program participants that 

have demonstrated a lack of business integrity and submit debarment recommendations to the SBA. 

During this reporting period, the OIG submitted 11 debarment recommendations to the Agency. 

The OIG recommended that SBA debar an individual who devised a scheme to fraudulently obtain money 

from the government following the September 11, 2001 terrorist attacks. The OIG investigation 

determined that the individual falsely claimed to have lived in the vicinity of the World Trade Center and 

that the individual’s belongings were destroyed by debris when the Center towers collapsed. In reality, 

the individual never resided at the claimed residence and, at the time of the attacks, no longer owned 

some of the belongings claimed to have been destroyed. Based on the OIG’s recommendation, the 

Agency issued a notice of proposed debarment to the individual. 
Significant OIG Activities

26 

...the OIG submitted comments identifying key 

recommendations to promote accountability and 

oversight in proposed procedures... 

The OIG also recommended that SBA debar an individual for submitting false statements on a Personal 

Financial Statement (PFS) when applying for a $1.5 million SBA guaranteed loan. The OIG investigation 

determined that the individual substantially overvalued the assets claimed on the PFS and falsely claimed 

to have never filed for bankruptcy. The Agency also agreed with this OIG recommendation and issued a 

notice of proposed debarment. 

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

As part of its oversight of Agency programs and operations, each year the OIG reviews a large number of 

SBA-proposed regulations, operating procedures and other directives to determine whether the Agency is 

implementing adequate controls and whether the proposed action could lead to increased waste, fraud, 

abuse or inefficiencies. Frequently, OIG comments identify material weaknesses and lead to significant 

improvements in the quality of the proposed action. During the reporting period, the OIG reviewed 77 

proposed actions and submitted comments on 38 of these initiatives. 

During this reporting period, the OIG identified significant concerns and, through agency adoption of 

OIG recommendations, prompted more robust controls in and enhancements of various agency directives. 

For example, OIG comments led to strengthening of proposals arising under the 7(a) program, such as the 

Patriot Express and Lender Advantage pilot initiatives, and improvements to proposed revisions of SBA 

lender oversight regulations. In addition, the OIG noted material weaknesses in commenting on several 

important procurement directives, such as proposed revisions to SBA’s size and 8(a) program regulations, 

and intended modifications to 8(a) program 

operating procedures regarding the mentor-protégé 

program, the annual review process, and 

performance of surveillance reviews of procuring 

agency oversight of 8(a) program compliance. As 

another example, the OIG submitted comments identifying key recommendations to promote 

accountability and oversight in proposed procedures governing the acceptance of cash gifts from external 

parties and the administration of cosponsored events. 

OIG Fraud Awareness Briefings 

During this reporting period, the OIG conducted 13 fraud awareness presentations for over 1,000 

representatives of lending institutions, SBA, other federal and local agencies, and law enforcement 

organizations. Topics included loan agent and lender fraud, as well as fraud indicators in SBA’s loan, 

8(a), government contracting, and surety bond programs. 
Statistical Highlights

27 

6-Month Productivity Statistics 

April 1, 2007, through September 30, 2007 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ......................................................................... $7,123,781 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $3,304,724 

C. Loans Not Made as a Result of Name Checks ..................................................................... $18,079,468 

D. Disallowed Costs Agreed to by Management ........................................................................... $356,643 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management .......................................................................................... $31,980,000 

 Total..................................................................................................................................... $60,844,616

Efficiency and Effectiveness Activities Related to Audits and Other Reports

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

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

C. Dollar Value of Costs Questioned............................................................................................... $36,407 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use........................................................................................................... $31,980,000 

E. Collections as a Result of Questioned Costs ................................................................................ $41,666 

Audit and Report Follow-up Activities 

A. Recommendations for which Management Decisions were made 

 During the Reporting Period.............................................................................................................. 81 

B. Disallowed Costs Agreed to by Management ........................................................................... $356,643 

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

 Agreed to by Management ................................................................................................. $31,980,000 

D. Recommendations without a Management Decision at End of Reporting Period ............................... 28 

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

A. Legislation Reviewed ............................................................................................................................. 2 

B. Regulations Reviewed............................................................................................................................ 4 

C. Standard Operating Procedures and Other Issuances* Reviewed ........................................................ 71 

 Total..................................................................................................................................................... 77

 * 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

28 

6-Month Productivity Statistics 

April 1, 2007, through September 30, 2007 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases................................................................................................................ 53 

B. Convictions from OIG Cases.............................................................................................................. 42∗

C. Cases Opened ....................................................................................................................................... 43 

D. Cases Closed......................................................................................................................................... 34 

Investigations Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations ............................................................................................................... $7,123,781 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $3,304,724 

C. Loans Not Approved as a Result of the Name 

 Check Program................................................................................................................... $18,079,468

 Total..................................................................................................................................... $28,507,973

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 ..................................................................................................... 17 

C. Proposed Debarments Issued by the Agency ......................................................................................... 8 

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

E. Proposed Debarments Declined by the Agency ..................................................................................... 0 

OIG Hotline Operation Activities

A. Total Fraud Line Calls/Letters............................................................................................................ 204 

B. Total Calls/Letters Referred to Investigations Division ....................................................................... 31 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies.................................... 45 

D. Total Calls/Letters Referred to Other Entities...................................................................................... 38 

E. Total Calls/Letters Needing No Action................................................................................................ 90 

 

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

29 

Full Year Productivity Statistics 

October 1, 2006, through September 30, 2007 

Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ....................................................................... $20,791,370 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $9,717,113 

C. Loans Not Made as a Result of Name Checks ..................................................................... $39,680,038 

D. Disallowed Costs Agreed to by Management ...................................................................... $27,567,922 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management .......................................................................................... $31,980,000 

 Total................................................................................................................................... $129,736,443 

Efficiency and Effectiveness Activities 

A. Reports Issued ...................................................................................................................................... 34 

B. Recommendations Issued ................................................................................................................... 138 

C. Dollar Value of Costs Questioned........................................................................................ $28,009,202 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use........................................................................................................... $31,980,000 

E. Collections as a Result of Questioned Costs .......................................................................... $1,057,423 

Follow-up Activities 

A. Recommendations for which Management Decisions were made 

 During the Reporting Period............................................................................................................ 155 

B. Disallowed Costs Agreed to by Management ...................................................................... $27,567,922 

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

 Agreed to by Management ................................................................................................. $31,980,000 

D. Recommendations without a Management Decision at End of Reporting Period ............................... 28 

Legislation/Regulations/ SOPs/Other Reviews 

A. Legislation Reviewed ............................................................................................................................. 6 

B. Regulations Reviewed.......................................................................................................................... 17 

C. Standard Operating Procedures and Other Issuances* Reviewed ...................................................... 113 

 Total................................................................................................................................................... 136

 * 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

30 

Full Year Productivity Statistics 

October 1, 2006, through September 30, 2007 

Summary of Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases.............................................................................................................. 80* 

B. Convictions from OIG Cases.............................................................................................................. 62* 

C. Cases Opened ....................................................................................................................................... 99 

D. Cases Closed......................................................................................................................................... 65 

Summary of Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations ............................................................................................................. $20,791,370 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $9,717,113 

C. Loans Not Approved as a Result of the Name 

 Check Program................................................................................................................... $39,680,038

 Total..................................................................................................................................... $70,188,521

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 .......................................................................................... 17 

B. Debarments Pending at the Agency ..................................................................................................... 23 

C. Proposed Debarments Issued by the Agency ....................................................................................... 12 

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

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

OIG Hotline Operation Activities

A. Total Fraud Line Calls/Letters............................................................................................................ 370 

B. Total Calls/Letters Referred to Investigations Division ....................................................................... 61 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies.................................... 55 

D. Total Calls/Letters Referred to Other Entities.................................................................................... 101 

E. Total Calls/Letters Needing No Action.............................................................................................. 153 

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

 ** Includes two convictions that occurred in a previous period but were not reported. 
Appendices

31 

Appendix I 

OIG Reports Issued 

April 1, 2007 through September 30, 2007 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Disaster Loans 

Audit of Borrower Acceptance of 

Disbursements 7-20 4/17/07 $0 $0

Securing Collateral for Disaster Loan 

Disbursements 7-22 5/9/07 $0 $0

Duplicate Benefit Adjustments to Disaster 

Assistance Loans Associated with Housing 

and Urban Development Grants 

7-25 5/15/07 $0 $0

Audit of Liquidation of Disaster Loans 7-26 6/1/07 $0 $0

Quality Assurance Reviews of Loss 

Verifications 7-29 7/23/07 $0 $0

Report of the Cancellation of Approved 

Disaster Loans to Individuals and Businesses 

Impacted by the Gulf Coast Hurricanes 

7-30 9/7/07 $0 $0

The Quality of Loans Processed Under the 

Expedited Disaster Loan Program 7-34 9/28/07 $0 $31,980,000

Program Subtotal 7 $0 $31,980,000

Small Business Access to Capital

SBA's Use of the Loan and Lender Monitoring 

System 7-21 5/2/07 $0 $0

Guarantee Purchase Process for Section 7(a) 

Loans at the National Guaranty Purchase 

Center 

7-23 5/8/07 $36,407 $0

SBA's Oversight of Business Loan Center, 

LLC 7-28 7/11/07 $0 $0

ICW Group 7-32 9/27/07 $0 $0

Program Subtotal 4 $36,407 $0

Small Business Development, Contracting, Education, and Training

Review of SBA's Monitoring and Support of 

8(a) Procurements Related to the Gulf Coast 

hurricanes of 2005 

7-24 5/10/07 $0 $0

Size Determinations Made By District Offices 7-27 6/27/07 $0 $0

Review of SBA's Subcontracting Assistance 

Program 7-33 9/28/07 $0 $0

Program Subtotal 3 $0 $0

Agency Management

Audit of E-Application System 7-31 9/27/07 $0 $0

Program Subtotal 1 $0 $0

TOTALS (all programs) 15 $36,407 $31,980,000
Appendices

32 

Appendix II 

OIG Reports with Questioned Costs 

 Reports Recommendations* 

Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision made 

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

B. Issued during this reporting 

period 2 2 $36,407 $0 

Universe from which 

management decisions could be 

made in this reporting period – 

Subtotals

6 6 $1,390,801 $1,073,715 

C. Management decision(s) made 

during this reporting period 4 4 $356,643 $0 

 (i) Disallowed costs $356,643 $0 

 (ii) Costs not disallowed $0 $0 

D. No management decision 

made by September 30, 2007 2 2 $1,034,158 $1,073,715 

 * Reports may have more than one recommendation. 

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

 lack documentation. 

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

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

 

Reports Recommendations* 

Recommended 

Funds For Better 

Use 

A. No management decision made by 

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

B. Issued during this reporting period 1 1 $31,980,000 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals

2 2 $32,273,823 

C. Management decision(s) made during this 

reporting period 1 1 $31,980,000 

(i) Recommendations agreed to by SBA 

management 1 1 $31,980,000 

(ii) Recommendations not agreed to by 

SBA management 0 0 $0 

D. No management decision made by 

September 30, 2007 1 1 $293,823 

 * Reports may have more than one recommendation. 

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

33 

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

Reports Recommendations 

A. No management decision made by September 30, 2006*** 17 56 

B. Issued during this reporting period 14 45 

Universe from which management decisions could be made in 

this reporting period – Subtotals 31 101 

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

recommendation in the report) during this reporting period 22 76 

D. No management decision made (for at least one 

recommendation in the report) by September 30, 2007 * 9 25 

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

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

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

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions as of September 30, 2007 

Title Report

Number

Date 

Issued Status 

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. 

Audit of the Contract Bundling 

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

Audit of an SBA-Guaranteed Loan 6-22 5/17/06 Agency has not responded to one 

recommendation in the report. 
Appendices

34 

Appendix VI 

OIG Reports Without Final Action as of September 30, 2007

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

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

0-30 

SBA’s Administration of Minority Business 

Enterprise Legal Defense and Education Fund 

Cosponsorship 

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

2-18 SBA’s Information Systems Controls – 

FY 2001 5/6/02 6/1/03 12/1/03 

2-29 

Audit of Internal Control Over Colson Services 

Corporation’s Contract as Central Servicing 

Agent for SBA’s Certified Development 

Company Loan Program 

9/16/02 12/12/02 8/15/08 

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

for the 7(a) Loan Program 1/30/03 4/15/07 6/30/07 

3-20 SBA’s Information System Controls for 

FY 2002 3/31/03 9/30/03 4/30/04 

3-30 Early Default Card Systems, Inc 6/19/03 12/21/04 6/30/07 

3-34 SBA's Compliance with JFMIP Property 

Management System Requirements 7/23/03 *** ** 

3-35 National Women’s Business Council 7/28/03 *** 12/31/05 

4-13 Audit of an Early Defaulted Loan 3/2/04 4/6/04 6/30/07 

4-16 

SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence 

Contracts and Task Orders 

3/17/04 *** 5/2/05 

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

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

4-28 Audit of an SBA-Guaranteed Loan 7/9/04 10/6/04 6/30/07 

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 4/15/07 6/30/07 

4-40 

Audit of a SBA Guarantied Loan to Elatec 

Technology Corporation and HK Equipment, 

Inc. 

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

4-41 Audit of Selected SBA General Support 

Systems 9/10/04 *** ** 

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

4-43 Audit of Early Defaulted Loan to Big Z Travel 

Center 9/17/04 4/5/07 6/30/07 

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

35 

Appendix VI 

OIG Reports Without Final Action as of September 30, 2007 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

4-44 SBA-Sponsored and Cosponsored Events 

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

5-04 Review of the Small Disadvantaged Business 

Certification Program 11/4/04 4/1/05 9/30/05 

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

FY 2004 2/24/05 *** ** 

5-14 SBA Small Business Procurement Awards are 

not Always Going to Small Business 2/24/05 8/17/06 6/30/07 

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

5-23 SBA’s Administration of its Special 

Appropriation Grants 9/24/04 *** ** 

5-24 Criteria For Overcoming The Presumption of 

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

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

6-01 Independent Evaluation of SBA’s Information 

Security Program 10/7/05 *** ** 

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

6-10 FY 2005 Financial Statements Management 

Letter 1/18/06 *** ** 

6-18 The Central Contractor Registration Needs To 

Be Modified 3/21/06 4/3/06 9/30/06 

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

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

7-03 Audit of SBA's FY 2006 Financial Statements 11/15/06 12/15/06 6/30/07 

7-06 Audit of an SBA-Guaranteed Loan to Just a Cut 

Lawn Care, Inc 12/28/07 1/30/07 6/30/07 

7-08 

Audit of the SBAExpress and Community 

Express Loan Purchase and Liquidations 

Process 

12/29/06 12/4/06 ** 

7-11 Audit of SBA's F/S Management Letter 1/17/07 *** ** 

7-13 Review of the Small Business Administration's 

Protection of Sensitive Agency Information 2/09/07 *** ** 

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

7-27 Size Determinations Made by District Offices 6/27/07 7/18/07 ** 

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

36 

 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2007* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

security plan to establish and implement 

the policies, procedures and practices for 

the following: (1) full integration of the 

information security approach and 

implementation process; (2) coordination 

among program offices to support their 

security needs; (3) guidance to the 

program office to implement information 

system security controls; and (4) methods 

to monitor the effectiveness of each part 

of information technology security. 

6/28/02 3/1/05 

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

fiscal transfer agent activities and 

terminate the existing contract with the 

fiscal transfer agent when a new contract 

can be enacted. 

12/10/03 3/31/06 

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

identify contract costs for fees and 

services. Report these contract costs in 

proposed Master Reserve Fund financial 

statements so future fiscal transfer agent 

contracts will have historical cost data for 

comparison purposes.

10/15/03 3/31/06

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

monitor contractor compliance with the 

50 percent rule when applicable. 

5/12/04 5/02/05 

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

reviewed and documented in the contract 

file for awards of 8(a) and small business 

set-aside contracts and task orders to 

small businesses. 

5/12/04 5/02/05 

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

Management as soon as possible, 

incorporate policies to address the 

outstanding items described above within 

six months of the issuance of this report. 

5/12/04 5/02/05 

4-28 7/9/04 Seek recovery of $142,549 from the 7(a) 

lender. 

10/6/04 3/31/05 

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

37 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2007* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

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

10/6/04 3/31/05 

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

officers, supervisors and attorneys to be 

assigned to the Herndon center by 

(1) establishing the elements of quality for 

the purchase and liquidation action review 

process; (2) determining how much time it 

takes to complete a quality review at each 

level (loan officer, supervisor, attorney); 

and (3) computing the staffing levels 

needed to complete the estimated annual 

purchase and liquidation action workloads 

at an acceptable level of quality. 

4/13/05 9/30/05 

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

ensure that Small Disadvantaged Business 

reviewers properly apply all four criteria 

for determining economic disadvantage, 

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

thresholds for maximum income and total 

assets, and industry financial performance 

comparisons. 

4/1/05 9/30/05 

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

38 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2007* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final 

Action 

Target Date 

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

supported general support systems and 

major applications, e.g., Egan Mainframe, 

SBA and Corio UNIX, Network and 

Windows 2000; Loan Accounting System 

(LAS), Sybase, Mainframe, Joint 

Accounting and Administration 

Management System (JAAMS) Oracle, and 

related application functions: (1) develop 

and document policies and procedures 

clearly outlining what activities should be 

logged, who should be responsible for 

reviewing logs, what the logs should be 

reviewed for, how often logs should be 

reviewed, and how long logs should be 

retained; (2) assign responsibility within the 

Office of the Chief Information Officer for 

the review of application and general 

support system security logs; and (3) retain 

audit logs for a sufficient period of time (at 

least 90 days). 

4/13/05 3/31/06 

7-03 11/15/06 Ensure that system owners for DCMS, 

FRIS, JAAMS and LAS standardize 

software change requests and that software 

change testing documentation is developed 

in a more consistent and complete manner. 

6/29/07 10/30/07 

7-06 12/28/06 Seek recovery $28,660 from the lender on 

the guaranty paid. 

1/30/07 6/30/07 

7-08 12/29/06 Determine if lender actions warrant a denial 

of liability on $14,232 in guaranties 

associated with the two loans that were 

either missing a Form 1919 or where the 

form was incomplete; and $9,015 on 

guaranty. 

12/4/07 5/31/07 

7-08 12/29/06 Determine if loan proceeds on the 45 loans 

sampled during our audit were used in 

accordance with the terms of the loan 

authorizations, and take appropriate 

corrective actions. 

12/4/07 5/31/07 

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

39 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2007* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

7-08 12/29/06 Recover $7,414 from a lender that awarded 

an SBA loan to an ineligible company. 

12/4/07 5/31/07 

7-08 12/29/06 Review the 2,729 loans for compliance with 

SBA rules and regulations and improper 

payments. 

12/4/07 5/31/07 

7-08 12/29/06 Recover $27,134 for the two purchased 

SBA Express loans reviewed for which the 

lender failed to disclose material facts. 

12/4/07 5/31/07 

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

40 

Appendix VIII

Summary of Significant Recommendations 

April 1, 2007 through September 30, 2007 

Report 

Number Title Date Issued Recommendation 

7-20 Audit of Borrower 

Acceptance of Disbursements 4/17/07 

Ensure in future campaigns that performance 

goals and associated awards are based on 

reasonable time frames that consider customer 

service and legal requirements. 

7-21 SBA's Use of the Loan and 

Lender Monitoring System 5/2/02 

Establish a method, based on a specific standard 

or other metrics, for assigning risk ratings that 

more accurately reflect the risk profiles of 

lenders. 

7-21 SBA's Use of the Loan and 

Lender Monitoring System 5/2/02 

Develop an on-site review plan or agreed-uponprocedures for all high-risk 7(a) lenders with 

guaranteed loan portfolios in excess of $4 

million. 

7-23 

Guarantee Purchase Process 

for Section 7(a) Loans at the 

National Guaranty Purchase 

Center 

5/8/07 

Seek recovery of $36,407 on the guaranties paid 

on the 6 loans listed in the report. 

7-23 

Guarantee Purchase Process 

for Section 7(a) Loans at the 

National Guaranty Purchase 

Center 

5/8/07 

Develop a plan to improve the quality of 

purchase reviews performed by the National 

Guaranty Purchase Center and ensure purchase 

decisions undergo adequate supervisory review. 

7-23 

Guarantee Purchase Process 

for Section 7(a) Loans at the 

National Guaranty Purchase 

Center 

5/8/07 

Include in its A-123 report on management 

controls the level of risk associated with the 

purchase review process and describe the risk in 

reporting its estimate of improper payments in 

the Agency’s budget. 

7-24 

Review of SBA's Monitoring 

and Support of 8(a) 

Procurements Related to the 

Gulf Coast hurricanes of 2005

5/10/07 

Notify procuring agencies that have partnership 

agreements with SBA that, according to those 

partnership agreements, they are required to 

provide a copy of any contract, as defined in 

FAR 2.101, including basic contracts, orders, 

modifications, and purchase orders, to the SBA 

servicing district office within 15 working days 

of the date of award. 

7-26 Audit of Liquidation of 

Disaster Loans 6/1/07 

Develop and implement procedures to ensure 

that all the names and identification numbers of 

delinquent borrowers are entered into the SBA 

database and transferred to Treasury. 
Appendices

41 

Appendix VIII

Summary of Significant Recommendations 

April 1, 2007 through September 30, 2007 

Report 

Number Title Date Issued Recommendation 

7-26 Audit of Liquidation of 

Disaster Loans 6/1/07 

Follow up on the 88 loans that were miscoded 

or which did not identify all responsible parties 

to ensure that Treasury was sent the correct or 

missing information. 

7-28 SBA's Oversight of Business 

Loan Center, LLC 7/11/07 

Take further action to mitigate the risk posed 

and to promote consistent and uniform 

enforcement actions by developing standard 

operating procedures to complement revised 13 

CFR that describe circumstances under which it 

will suspend or revoke PLP authority or how it 

will do so. 

7-28 SBA's Oversight of Business 

Loan Center, LLC 7/11/07 

Take further action to mitigate the risk posed 

and to promote consistent and uniform 

enforcement actions by identifying actions 

needed to address the potential conflict resulting 

from Office for Lender Oversight’s and Office 

of Financial Assistance’s placement in Office of 

Capital Access. 

7-29 Quality Assurance Reviews 

of Loss Verifications 7/23/07 

Pursue a reassignment of Quality Assurance 

Reviews (QAR) responsibilities to an SBA 

organization outside of Office of Disaster 

Assistance. 

7-29 Quality Assurance Reviews 

of Loss Verifications 7/23/07 Consider disciplinary action against the SBA supervisor who altered the QAR results. 

7-30 

Report of the Cancellation of 

Approved Disaster Loans to 

Individuals and Businesses 

Impacted by the Gulf Coast 

Hurricanes 

9/27/07 

Reconsider the Agency’s loan policy on the 

reinstatement deadline for the 6,557 canceled 

Gulf Coast hurricane loans that were not 

reinstated (7,752 loans canceled less the 1,195 

that were reinstated) and notify the borrowers 

that extensions may be granted for 

reinstatement, as appropriate. 

7-31 Audit of E-Application 

System 9/27/07 

Establish appropriate controls to ensure data 

entered into E-Application is accurately 

transferred to the Electronic 8(a) Review 

System. 

7-33 

Review of SBA's 

Subcontracting Assistance 

Program 

9/28/07 

Submit annual reports on the Federal 

government’s subcontracting goal achievements 

more timely, including the number and dollar 

value of subcontracts awarded to small 

businesses, as required by law. 
Appendices

42 

Appendix VIII

Summary of Significant Recommendations 

April 1, 2007 through September 30, 2007 

Report 

Number Title Date Issued Recommendation 

7-34 

The Quality of Loans 

Processed Under the 

Expedited Disaster Loan 

Program 

9/28/07 

Review all 20,708 canceled loans that were 

approved under expedited procedures to identify 

applicants who lacked repayment ability, notify 

those applicants of their potential eligibility for 

FEMA assistance, and make the appropriate 

FEMA referrals 

7-34 

The Quality of Loans 

Processed Under the 

Expedited Disaster Loan 

Program 

9/28/07 

Initiate proposed action to review the 

creditworthiness of borrowers associated with the 

615 undisbursed home loans and refer those 

borrowers to FEMA, as appropriate. 
Appendices

43 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

4/1/2007 through 9/30/2007 

Name/Subject of Event Event 

Start Date

Event 

End Date 

Location of 

Event Name(s) of Cosponsor(s) 

Translation from English to 

Chinese & Printing of the 

Small Business Start-Up 

Kit 

4/13/07 5/24/07 San Francisco, 

CA United Commercial Bank 

Recognizing Excellence in 

Small Business 4/19/07 4/17/07 Columbus, OH

Business Development Finance 

Corp, Huntington National Bank, 

JP Morgan Chase 

Small Pharmaceutical 

Business Educational 

Forum 

4/25/07 4/10/07 College Park, 

MD 

Food and Drug Administration's 

Center for Drug Evaluation and 

Research (FDA) 

SBA Expo, Business 

Matchmaker & Small 

Business Week Awards 

Luncheon Buffalo/Niagara 

5/9/07 5/7/07 Buffalo, NY SCORE Buffalo Niagara, Business 

First 

SBA/VA Small Business 

Summit 5/15/07 5/14/07 Miami, FL U.S. Department of Veterans Affairs 

National Technology 

Leadership Summit 5/21/07 5/15/07 Washington, 

DC 

Association of Women's Business 

Centers 

Small Business Week 

Breakfast and Awards 

Ceremony 

5/23/07 4/24/07 Hato Rey, PR Puerto Rico Bankers Association 

Small Business Week 

Awards Dinner 5/23/07 5/16/07 Claymont, DE 

 Wilmington Local Development 

Corp., DelVal Business Finance 

Corp. and Chesapeake Business 

Finance Corp. 

Small Business Week 

Awards Luncheon 5/30/07 5/30/07 Los Angeles, CA 

Los Angeles Chamber of 

Commerce 

Connecticut XPO For 

Business 6/7/07 5/29/07 Hartford, CT 

Connecticut Business and Industry 

Association; Connecticut Small 

Business Development Center, 

Central Connecticut State 

University Institute of Technology 

& Business Development 

SBA Comes to Suffolk 

County 6/15/07 5/21/07 Stony Brook, NY 

Small Business Development 

Center at Stony Brook University, 

Long Island High Technology 

Incubator, Inc. 

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

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

44 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

4/1/2007 through 9/30/2007 

Name/Subject of Event Event 

Start Date

Event 

End Date

Location of 

Event Name(s) of Cosponsor(s) 

Disaster Preparedness 

Workshop 7/13/07 6/28/07 Richmond, VA Greater Richmond Chapter, American Red Cross 

SBA/HOBY International 

Business and 

Entrepreneurship Program 

7/22/07 5/14/07 Washington, 

DC 

Hugh O'Brian Youth Leadership 

(HOBY) 

8th Annual Small Business 

Resource Fair 8/16/07 7/25/07 Denver, CO 

Denver Public Library, Minority & 

Women Chambers' Coalition, CO 

SBDC, CO Minority & WomenOwned Business Office, Denver 

SCORE Chapter 

Spirit of Small Business 07 

Awards Luncheon 8/16/07 7/30/07 Santa Barbara, CA Pacific Coast Business Times 

Business Women’s Forum 9/20/07 5/24/07 Hartford, CT Waterbury Regional Chamber of 

Commerce and Post University 

Operation SAVE: Serving 

America's Veteran 

Entrepreneurs 

9/27/07 9/7/07 Flint, MA 

Citizen's First State Bank, MI 

SBDC at Macomb County and 

VetBizCentral of Flint MI 

Franchising Workshop 10/12/07 9/24/07 Culpeper, VA Culpepper County Chamber of 

Commerce 

Mt. Gilead Full Gospel 

International Ministries 

Symposium 

10/20/07 9/24/07 Richmond, VA Mt. Gilead Full Gospel 

International Ministries 

Vermont’s 11th Annual 

Women’s Economic 

Opportunity Conference 

11/3/07 7/30/07 Randolph, VT 

The Office of US Senator Patrick 

Leahy, VT SBDC, US Department 

of Labor, Women’s Bureau, VT 

Agency of Transportation, VT 

Commission on Women, Women's 

Agricultural Network, VT 

Department of Economic 

Development, VT WBC, VT 

Attorney General, VT Department 

of Labor, VT Manufacturing 

Extension Center, VT Works for 

Women, VT Business Education 

Corporation, VT Agency of Human 

Services, Office of Economic 

Opportunity, VT Interactive 

Television, US Department of 

Agriculture 

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

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

45 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

4/1/2007 through 9/30/2007 

Name/Subject of Event Event 

Start Date

Event 

End Date

Location of 

Event Name(s) of Cosponsor(s) 

The Presidents FORUM 11/14/07 7/11/07 Washington, 

DC The Entrepreneurship Institute 

NY XPO For Business 

Trade Show 11/28/07 7/31/07 New York, NY Event Management 

Lunch and Learn (Brown 

Bag) Seminars 

4/07 - 

12/07 4/26/07 Fargo, ND West Fargo Chamber of Commerce and West Fargo Public Library 

AMERICAN EAST 

Conference for SBA 

Lenders 

8/26/07 -

8/28/07 7/25/07 Newport, RI 

RI Small Business Development 

Center at Johnson & Wales 

University 

Business Basics for 

Entrepreneurs 

8/28/07, 

9/6/07, 

9/12/07, 

9/17/07, 

9/25/07 

7/19/07 Decatur, GA DeKalb County Public Library 

3rd Annual Service 

Disabled & VeteranOwned Small Business 

Conference – Contacts for 

Contract Opportunities 

8/29/07-

8/31/07 5/24/07 Albuquerque, NM 

Santa Fe Community College thru 

NM SBDC, NM Department of 

Veterans Services 

Business Basics for 

Entrepreneurs 

6/19/07 - 

8/21/07 6/15/07 Atlanta, GA The Atlanta-Fulton Public Library System 

Lunch and Learn (Brown 

Bag) Seminars 

6/26/07 - 

12/18/07 6/22/07 Fargo, ND Homebuilders Association of 

Fargo-Moorhead 

Smart Business Talk 

WNET Roundtable 

Workshops; Business 

Exchange Matchmaking 

Event 

6/26/07 - 

11/27/07 6/15/07 Atlanta, GA Women's Employment Opportunity Project, Inc. 

Hispanic Small Business 

Development Conference 

5/2/07, 

5/9/07, 

5/16/07, 

5/23/07, 

5/30/07, 

6/6/07 

4/26/07 Elmont, NY 

Circulo de la Hispanidad, Inc., La 

Fuerza Unida CDC, Nassau County 

on behalf of the Office of Minority 

Affairs 

The Government 

Contractor Workshop 

Series 

5/23/07, 

6/13/07, 

9/19/07 

5/11/07 Baltimore, MD Greater Baltimore Urban League 

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

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

46 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

4/1/2007 through 9/30/2007 

Name/Subject of Event Event 

Start Date

Event 

End Date

Location of 

Event Name(s) of Cosponsor(s) 

Women’s Network for 

Entrepreneurial Training 

Roundtables 

9/1/07 - 

8/31/08 7/25/07 Powell & Cody, WY First National Bank & Trust 

Los Angeles Regional 

Business Preparedness 

Summit 

9/11/07 - 

9/12/07 9/10/07 

Studio City & 

Los Angeles, 

CA 

Los Angeles County Department of 

Public Health, Los Angeles 

Chamber of Commerce, Valley 

Industry & Commerce Association 

Block Island Small 

Business Day 

9/25/07 - 

9/30/09 8/22/07 Block Island, RI 

Block Island Chamber of 

Commerce, Block Island Tourism 

Council 

Your Small Business 

Resources 

9/6/07, 

9/25/07 7/31/07 Daly City, CA 

City of Daly City and Community 

Development, Daly City Business 

Enterprise Center, Daly City Public 

Library- Westlake and San 

Francisco Small Business 

Development Center 

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

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

47 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

AL DL The owner of a charter plane company 

produced fraudulent documents showing 

that SBA had released its lien against 

two properties being held as collateral on 

his $177,800 SBA disaster loan. The 

owner received $92,526 from the sale of 

the properties, which should have been 

paid to the SBA as collateral for his 

September 11 economic injury loan. 

Owner pled guilty. IRS/CI, 

AAPD 

CA BL A borrower allegedly provided a false 

social security number and false 

citizenship information when applying 

for a $35,000 SBA Express loan, as well 

as for two real estate loans. 

Borrower charged in 

state court via a felony 

complaint. 

LAPD, 

CDOI, 

DHS/ICE 

CA SBDC A former high-ranking state official, who 

administered the Small Business 

Development Center (SBDC) program 

for the SBA in California, received 

kickbacks from SBDC contractors. In 

return, the contractors were awarded 

contracts without competitive bids. 

Former official 

sentenced to 60 

months probation, 6 

months house arrest, 

and $98,376 in 

restitution. One 

contractor sentenced 

to 60 months 

probation and a $2,000 

fine. Second contactor 

sentenced to 60 

months probation and 

30 days in a halfway 

house. All three 

ordered to perform 

1000 hours or more of 

community service. 

FBI, 

HUD/OIG 

FL BL When applying for a $1.5 million 7(a) 

loan, a former hotel owner neglected to 

disclose on his SBA Statement of 

Personal History that he was a convicted 

felon. 

Former owner 

sentenced to 3 years 

supervised release, 6 

months home 

detention, and 

$269,000 restitution. 

None 
Appendices

48 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

IL BL A husband and wife conspired to bribe 

an SBA official in order to influence the 

award of a $594,000 SBA 504 loan for 

their interstate trucking firm. The 

husband offered the official a $5,000 

bribe in exchange for overlooking the 

fact that he falsely claimed to be a U.S. 

citizen on his loan application. 

Wife pled guilty and 

was sentenced to one 

year probation. 

Husband pled guilty 

and is awaiting 

sentencing. 

DHS/ICE 

IL BL The former owner of an electrical supply 

firm provided false tax returns for his 

company in order to induce a lender and 

the SBA to approve a $1.1 million loan 

to a couple wanting to purchase the 

business. 

Former owner 

sentenced to one year 

and one day in prison, 

three years supervised 

release, and $512,464 

in restitution. 

FBI 

LA DL A certified public accountant (CPA) 

impersonated an SBA employee and 

provided false documentation in order to 

obtain non-SBA loans totaling 

approximately $2.9 million for her 

employer. 

CPA indicted, pled 

guilty, and is awaiting 

sentencing. 

USSS 

MD GC A government employee is alleged to 

have used his government purchase card 

to pay for goods and services that were 

never provided or provided at inflated 

prices. The three businesses, from which 

purchases were made, were all 

purportedly operated by the same 

contractor and listed on contracting 

documents as being 8(a) certified, but 

SBA has no record of such certifications. 

Government employee 

and contractor both 

indicted. 

NARA/OIG 

MD GC A former West Virginia state official 

allegedly provided confidential bid 

information to an SBA 8(a) firm, in 

exchange for money and other things of 

value, in order to influence the awarding 

of contracts. A project supervisor of 

that 8(a) firm allegedly allowed 

improper removal and storage of 

asbestos containing material on 

government contracts.

State official and 

project supervisor of 

8(a) firm charged by 

criminal information. 

FBI, NCIS, 

IRS/CI, 

EPA/CID 
Appendices

49 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL Three individuals allegedly presented 

false equity injection documents to a 

non-bank lender as a condition of 

obtaining two SBA-guaranteed loans for 

the purchase of gas stations/convenience 

stores. The two loans total over $1.7 

million. 

Three individuals 

indicted. 

USSS 

MI BL An individual made false statements 

concerning his employment history, 

financial resources, and the source of his 

equity injection when applying for a 

$1,212,000 SBA-guaranteed loan. 

Individual charged by 

criminal information 

and pled guilty. 

USSS 

MI BL An individual conspired with his brother 

and others to fraudulently acquire a 

$990,000 SBA-guaranteed loan issued by 

a non-bank lender. The conspiracy was 

furthered through the use of a false sales 

agreement, an inflated purchase price, 

and a bogus equity injection. The 

purpose of the scheme was to refinance 

and consolidate delinquent debts owed 

by one brother’s business using proceeds 

from the loan made to the other brother 

who acted as a “straw buyer.” 

One brother pled 

guilty and was 

sentenced to one year 

and one day in federal 

prison, 24 months 

probation, and 

restitution of 

$658,809. This 

restitution is to be paid 

jointly with the other 

brother, who has pled 

guilty but has not yet 

been sentenced. 

USSS 

MI BL The president and the secretary of an auto 

service center conspired with a loan 

broker to fraudulently acquire a $1.1 

million SBA-guaranteed loan issued by a 

non-bank lender. In order to falsely satisfy 

the loan’s equity injection requirement, 

the individuals claimed that $210,000 in 

repairs and renovations had been made to 

the auto repair center before the loan 

closing. 

President pled guilty 

and was sentenced to 2 

years probation. 

Secretary pled guilty 

and was sentenced to 3 

years probation. Both 

were ordered to pay 

joint restitution of 

$529,591. The loan 

broker is a fugitive 

and charges against 

him remain pending. 

USSS 
Appendices

50 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL An individual allegedly provided false 

information concerning her financial 

status and the required equity injection to 

obtain an $825,000 SBA-guaranteed loan, 

in name only, for her brother-in-law who 

was the owner and intended operator of 

the business. 

Individual indicted. USSS 

MI BL A former bank official participated in a 

scheme to defraud the SBA by supplying 

false verifications of deposit for loan 

applicants and giving a loan broker 

unfunded official checks totaling more 

than $2.8 million. 

Former bank official 

pled guilty. 

USSS 

MI BL An individual conspired with others to 

obtain a $1,335,000 SBA-guaranteed 

loan from a non-bank lender to purchase 

a gas station and convenience store. The 

individual claimed he was going to be 

the sole owner of the business when, in 

fact, he had an undisclosed partner. 

Individual pled guilty. 

Two co-conspirators 

have been charged but 

remain fugitives. 

USSS 

MI BL The owner of a gas station and 

convenience store conspired with others 

to fraudulently obtain a $944,000 SBAguaranteed loan by acting as a “straw 

purchaser” and using counterfeit bank 

statements, cashier’s checks, a certificate 

of deposit, and a gift affidavit to 

document a bogus capital injection. 

The owner and a coconspirator pled 

guilty. 

USSS 

MI BL The president and secretary of a gas 

station and convenience store falsely 

represented that they made an equity 

injection of $130,000 in order to obtain a 

$1,175,000 SBA-guaranteed loan. 

Each sentenced to one 

year probation and a 

$2,500 fine. No 

restitution ordered 

since the loan remains 

current. 

USSS 
Appendices

51 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MO IA An SBA branch manager is alleged to 

have submitted a false Personal Financial 

Statement in connection with an 

application for an $80,070 SBA Express 

loan and to have failed to disclose this 

SBA loan on his Confidential Financial 

Disclosure Report. Agency conflict of 

interest and ethics rules should have 

prohibited the manager from receiving 

this SBA Express loan due to his 

position with SBA. 

Manager arrested, 

indicted, and placed 

on administrative 

leave. 

FBI 

MS DL An individual provided false statements 

regarding the location of his primary 

residence and his marital status in an 

attempt to receive duplicate benefits. He 

received $12,000 from the SBA. 

Individual indicted 

and pled guilty. 

DHS/OIG, 

USDA/OIG, 

MSAO 

MS DL When applying for an SBA personal 

property disaster loan, an individual 

falsely stated that property in his rented 

room had sustained damage as a result of 

Hurricane Katrina. 

Loan denied due to 

poor credit history. 

Individual indicted 

and pled guilty. 

DHS/OIG, 

USDA/OIG 

FBI 

MS DL An individual made false statements 

regarding his residency in an attempt to 

receive a $208,300 loan from the SBA 

for Gulf Coast Hurricane benefits to 

which he was not entitled. 

The individual only 

received the initial 

disbursement of 

$10,000 and has pled 

guilty. 

DHS/OIG, 

MSAO 

MS DL A man and his wife provided false 

statements regarding their residency in 

an attempt to receive Gulf Coast 

Hurricane benefits to which they were 

not entitled. The couple received 

$50,000 of the approved $112,500 loan 

from the SBA. 

Couple indicted and 

pled guilty. 

FBI, MSAO 

MS DL A husband and wife are alleged to have 

provided false statements regarding the 

location of their primary residence in an 

attempt to receive disaster benefits to 

which they were not entitled. They were 

approved for a $121,900 SBA disaster 

loan, as well as benefits from other 

agencies. 

Couple indicted. DHS/OIG, 

MSGA 
Appendices

52 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MS DL An individual claimed his secondary 

address as his primary residence in an 

attempt to fraudulently receive disaster 

assistance funds. He was approved for a 

$78,900 loan from SBA, of which the 

initial $10,000 had been disbursed. 

Individual pled guilty 

and was sentenced to 5 

months in prison, 5 

months home 

confinement, 2 years 

supervised release, a 

$3,000 fine, and 

restitution of $20,011. 

DHS/OIG, 

USDA/OIG, 

MSAO 

NJ BL A principal of a now defunct electronic 

imaging company obtained a. $1 million 

SBA-guaranteed loan for the purpose of 

purchasing machinery. The investigation 

found that instead of purchasing 

machinery, he used most of the proceeds 

for unauthorized purposes, including 

buying out a former partner, paying 

taxes, and making unauthorized 

payments to the two owners of the 

machinery dealer. 

The principal of the 

imaging company, as 

well as the owners of 

the machinery dealer, 

entered the Pretrial 

Intervention Program 

requiring them to 

perform community 

service and pay 

restitution totaling 

$125,000. 

NJAG 

NY BL An individual used a false Social 

Security number and failed to disclose 

outstanding tax liens when applying for 

two SBA-guaranteed loans totaling 

$1,650,000. 

Individual pled guilty FBI 

NY BL Fifteen individuals allegedly used false 

identification documents to obtain bank 

loans, mortgage loans, credit cards, and 

sell and transport stolen vehicles. Some 

of the loans obtained in this scheme 

included SBAExpress loans. 

Fifteen individuals 

indicted and arrested. 

FBI, 

NYSAGO 

OH BL A former restaurant owner falsely stated 

that he was a U.S. citizen on his 

application for a $50,000 SBAExpress

loan. 

Former owner 

sentenced to 1 year 

and 1 day in prison, 3 

years supervised 

release, a $3,000 fine, 

and forfeiture of the 

restaurant property or 

$100,000. 

DHS/ICE 
Appendices

53 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

SD BL The part-owner of a marina provided 

false tax returns in support of an 

application for a $239,000 SBA 504 loan 

to purchase property and build a new 

marina. 

Part-owner pled guilty 

to IRS charges. 

IRS/CI 

TX GC Six individuals are involved in a 

multimillion dollar bribery scheme 

centered on fixed contracts between the 

Department of Defense and SBAcertified 8(a) firms. 

Six individuals 

charged in a 47-count 

indictment. The 

indictment also seeks 

a monetary judgment 

of $1.2 million. Three 

of the six have pled 

guilty. 

FBI, IRS/CI, 

USA/CID, 

GSA/OIG, 

DOI/OIG, 

DCIS 

TX BL Seven individuals conspired to devise a 

scheme to fraudulently obtain an SBAguaranteed loan of $2.4 million to 

finance the purchase of a warehouse. The 

scheme involved misrepresenting the 

purchase price of the property, falsifying 

part of the equity injection, and 

laundering approximately $473,000 of 

the loan proceeds. 

One individual 

sentenced to 60 

months in prison, 3 

years supervised 

release, and a $3,000 

fine; another 

sentenced to 1 year 

probation. Three have 

fled the country and 

remain fugitives. One 

has been previously 

sentenced, and another 

awaits sentencing. 

TCPA/CID 

TX BL The president of a lumber company and 

her common-law husband are alleged to 

have falsely claimed ownership of 

several vacant lots and offered these lots 

to SBA as collateral in order to obtain a 

$25,800 Economic Injury Disaster Loan. 

Couple arrested and 

indicted. 

HCSO 

SLPD 

TX BL Three family members conspired to 

submit fraudulent documentation relating 

to the capital injections required to 

obtain two SBA-guaranteed loans 

totaling $1.6 million. 

Three individuals 

indicted; two pled 

guilty. 

FBI 
Appendices

54 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX BL The owner of a convenience store used 

an alias name when applying for and 

receiving a $1,070,000 SBA guaranteed 

loan. 

Owner indicted, pled 

guilty, and was 

sentenced to time 

already served and 

deportation to his 

home country. 

DHS/ICE, 

SSA/OIG 

UT BL Four individuals were involved in three 

separate schemes in which they provided 

false identity information when applying 

for SBA loans, totaling over $200,000, to 

purchase or build restaurants. 

Four individuals 

entered into the 

Pretrial Diversion 

Program and are 

required to keep 

payments current on 

their SBA loans. 

DHS/ICE, 

SSA/OIG 

VA BL The former president of a consulting firm 

and his wife were involved in an internet 

scam to lure business owners into 

applying for SBA loans. For a fee of at 

least $3,500, the firm guaranteed to 

provide a comprehensive business plan 

and an SBA-guaranteed loan to its 

customers. 

Former president 

sentenced to 84 

months in prison, 3 

years supervised 

release, and restitution 

of $2,755,281, to be 

paid jointly with his 

wife, and an additional 

$217,779, to be paid 

individually. Wife 

sentenced to 36 

months in prison and 3 

years supervised 

release. 

USPIS, IRS 

WA SB The president of a now defunct 

construction firm falsely stated to a 

surety company that his firm was out of 

funds when, in reality, he had diverted 

contract proceeds of approximately 

$87,000 for his personal use. This 

resulted in the surety company paying 

the firm’s subcontractors and suppliers 

on defaulted jobs. SBA suffered a loss of 

over $500,000 since it guarantees 70% of 

the surety company’s losses. 

President indicted. FBI, NICB 
Appendices

55 

Appendix X

Legal Actions Summary 

April 1, 2007 through September 30, 2007 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

WA BL The former owner of a hauling business 

made false statements to the bank and 

SBA regarding his company’s tax 

liability in order to obtain a $750,000 

SBA-guaranteed loan. He then sold 

SBA collateral, hid the proceeds of the 

sale, and laundered those proceeds. 

Former owner pled 

guilty. 

FBI, IRS/CI 

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

Development; SBDC=Small Business Development Center; SB=Surety Bond Guarantee 

Joint-investigation Federal Agency Acronyms: AAPD=Auburn Alabama Police Department; CDOI=California 

Department of Insurance; 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; EPA/CID=Environmental Protection Agency/Criminal Investigations 

Division; FBI=Federal Bureau of Investigation; GSA/OIG=General Services Administration/OIG; HCSO=Hardin 

County Sheriff’s Office; HUD/OIG=Department of Housing and Urban Development/OIG; IRS/CI=Internal 

Revenue Service/Criminal Investigations; LAPD=Los Angeles Police Department; MSAO=Mississippi State 

Auditor’s Office; MSGA= Mississippi State Grant Authority; NARA/OIG=National Archives and Records 

Administration/OIG; NCIS=Naval Criminal Investigative Service; NICB=National Insurance Crime Bureau; 

NJAGO=New Jersey Attorney General’s Office; NYSAGO=New York State Attorney General’s Office; 

SLPD=Sour Lake Police Department; SSA/OIG=Social Security Administration/OIG; TCPA/CID=Texas Controller 

of Public Accounts/Criminal Investigative Division; USA/CID=United States Army/Criminal Investigations 

Division; USDA/OIG=U.S. Department of Agriculture/OIG; USPIS=United States Postal Inspection Service; 

USSS=United States Secret Service 
56 
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 

57

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.