U.S. Small Business Administration 

Office of Inspector General 

_________________________________ 

Semiannual Report to Congress 

Spring 2006 

October 1, 2005 – March 31, 2006 
Inspector General Act Statutory Reporting Requirements 

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

listed below. 

Source Page

Section 4(a)(2) Review of Legislation and Regulations 27-28 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 5-28 

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

 and Deficiencies 48-51 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 41-47 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 58-64 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 31-32 

Section 5(a)(7) Summary of Significant Audits & Other Reports 5-28 

Section 5(a)(8) Audit Reports with Questioned Costs 33 

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

 Better Use 33 

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

 Where No Management Decision Was Made 35 

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

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

 the OIG Disagreed None 

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

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

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

Semiannual Report summarizing activities from October 1, 2005, through March 31, 2006. 

Because I am new to the SBA OIG, having been sworn in on April 6, 2006, the work presented in this 

report was actually accomplished by my deputy, Peter McClintock, who was Acting Inspector General 

during this time, and the OIG staff. I appreciate their fine work in preparing this document. I look 

forward to the new challenges I face as the Inspector General and am greatly impressed with the 

accomplishments of this OIG. The OIG issued 20 reports with recommendations for improving Agency 

operations, reducing fraud and unnecessary losses, and recovering funds. OIG investigations led to 23 

indictments and 13 convictions of subjects who defrauded the Federal Government. 

During this reporting period, an increasing amount of the OIG’s audit and investigations work was 

directed toward the unprecedented devastation of the Gulf Coast hurricanes last year. By March 31, 

2006, SBA had approved over $7 billion in disaster assistance program loans for the Gulf Coast area. 

Using some of the $5 million Congress appropriated for OIG oversight of the Agency’s hurricane disaster 

effort, the OIG has begun audits of the loan application approval process, loan disbursement activities, 

and SBA’s Disaster Credit Management System (DCMS). Our investigators are focusing on allegations 

of wrongdoing, including the identification of false statements by loan applicants. The OIG has published 

three advisory memoranda on problems with the disaster program’s DCMS, and we are hiring additional 

auditors and investigators on term appointments to be located in the New Orleans area. 

In addition, the OIG reviewed the Supplemental Terrorist Activity Relief (STAR) loan program, under 

which SBA provided loan guaranties to assist small businesses that were affected by the September 11, 

2001, terrorist attacks and their aftermath. We found that SBA lacked sufficient controls to ensure that 

lenders properly determined borrower eligibility; we could not determine from a review of lender loan 

files whether 50 out of a random sample of 59 borrowers had been injured by the attacks or their 

aftermath. Many borrowers that we contacted were unaware that they had received special financing. 

The OIG also concluded several audits which show the impact of declining resources on the SBA’s 

oversight of several programs. An audit of the monthly Section 7(a) loan reporting for SBA lenders 

found that the Agency lacked sufficient controls and staffing to ensure accurate reporting by lenders 

regarding loan status and outstanding guaranty loan balances; this could potentially compromise SBA’s 

oversight of 7(a) lenders and risk management. Another audit found that neither SBA nor procuring 

agencies monitored whether participants in the 8(a) program were complying with program requirements. 

On the positive side, the Agency received an unqualified opinion on the Fiscal Year 2005 financial 

statement audit. The OIG continues to work with the Agency to correct the material weakness in SBA’s 

financial management and reporting controls. 

I would like to thank Administrator Barreto for his support of the OIG’s work. I look forward to working 

with SBA’s leadership in carrying out the OIG’s mission to fight waste, fraud and abuse and to promote 

greater governmental efficiency. 

Eric M. Thorson 

Inspector General

Table of Contents 

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

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

Significant OIG Activities ............................................................................................................................ 5 

 Disaster Loans........................................................................................................................ 5 

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

 Small Business Development, Contracting, Education, and Training ................................. 17 

 Agency Management ........................................................................................................... 22

 Other Significant OIG Activities. ........................................................................................ 26 

Statistical Highlights................................................................................................................................... 29 

Appendix 

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

 II. OIG Reports with Questioned Costs ....................................................................................... 33

 III. OIG Reports with Recommendations that Funds Be Put to Better Use .................................. 33 

 IV. OIG Reports with Non-Monetary Recommendations............................................................. 34 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of March 31, 2006 .............................................................................................. 35

 VI. OIG Reports Without Final Action as of March 31, 2006 ...................................................... 37 

 VII. Significant Recommendations from Prior Semiannual Reporting Periods 

 Without Final Action as of March 31, 2006............................................................................ 41 

 VIII. 6-Month Significant Recommendations Summary as of March 31, 2006 .............................. 48 

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

 Over the Last 6 Months........................................................................................................... 52 

 X. 6-Month Legal Actions Summary........................................................................................... 58 

XI. OIG Organizational Chart ....................................................................................................... 65 
Table of Contents 

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

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

 Business Act, Section 4(h) ...................................................................................................... 20 

 SBDC Surveys—Small Business Act, Section 21(a)(7) ....................................................20-21 

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

1 

The Small Business Administration 

The Small Business Administration (SBA) was established in 1953 to assist small businesses from startup through the many stages of growth. The Agency’s two major goals are to help small businesses 

succeed and to assist victims in recovering from disasters. SBA offers many services to entrepreneurs 

through its Offices of Capital Access, Entrepreneurial Development, Government Contracting and 

Business Development, and Disaster Assistance. Services provided include, but are not limited to: 

(1) expanding access to financing through the Agency’s various business and disaster lending programs; 

(2) promoting Federal procurement opportunities; and (3) providing counseling and other information to 

help small business growth. SBA’s programs are delivered by a network of field offices in every state, 

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

appropriation for Fiscal Year (FY) 2006 is $533 million (plus an additional $446 million from the disaster 

supplemental). As of March 31, 2006, SBA had 2,121 employees (including Office of Inspector General 

(OIG) personnel but excluding disaster-funded employees). There are 3,775 temporary and permanent 

disaster employees, excluding contractors. 

The Office of Inspector General 

The SBA OIG was established by the Inspector General (IG) Act of 1978. Pursuant to this authority, the 

OIG’s four divisions perform the following functions nationwide. 

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

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

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

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

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

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

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

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

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

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

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

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

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

procedures. 

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

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

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

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

The OIG is headquartered in Washington, DC, and has field audit staff in Atlanta, Chicago, Dallas, and 

Los Angeles. Investigative field staff are located in Atlanta, Chicago, Dallas, Denver, Houston, Kansas 
Overview of SBA and the OIG

2 

City, Los Angeles, Miami, New York, Philadelphia, Seattle, and Washington, DC. An organization chart 

for the OIG is located in Appendix XI. 

Work During This Reporting Period 

As of March 31, 2006, the OIG had 93 staff on-board. The OIG’s FY 2006 appropriation is $13.7 

million, including a $1.5 million transfer for disaster assistance oversight activities (net of rescissions). 

The OIG has a separate appropriation of $5 million for Gulf Coast disaster oversight. 

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

promoting a high level of integrity, and, if a deficiency is identified, ensuring that corrective action is 

taken. We continue to focus on serving the needs of our customers and stakeholders and on safeguarding 

SBA resources from waste, fraud, and abuse. 

This is the first semiannual report published under the OIG’s new FY 2006-2011 Strategic Plan. During 

this reporting period, OIG work focused on the new strategic goals of (1) improving the economy, 

efficiency, and effectiveness of SBA programs and operations; and (2) promoting and fostering integrity 

in SBA programs and operations. Using this framework, the OIG concentrated on critical risks facing 

SBA. These include (1) risks of financial losses due to SBA's downsizing, centralization, and limited 

oversight and controls; (2) risks to SBA's performance of its statutory mission to promote small business 

development and Government contracting; and (3) risks associated with SBA's information technology 

and financial management systems, and other internal operations. 

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

Coast hurricanes. The OIG has begun a series of audits on the management of SBA’s disaster assistance 

process, the loan application approval process, loan disbursement activities, use of proceeds, and SBA’s 

Disaster Credit Management System (DCMS). The Investigations Division is directing its efforts to 

detect and deter fraud related to the SBA disaster loan program. 

OIG efforts and accomplishments during the first half of FY 2006 are summarized in the following pages. 

All audit and other reports issued during this reporting period are listed in Appendix I. All investigative 

actions are summarized in Appendix X. 
Agency Management Challenges

3 

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

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

consolidated Performance and Accountability Report. 

This list of Management Challenges represents the 

areas that the OIG considers to be particularly 

vulnerable to fraud, waste, abuse, or mismanagement, 

or that otherwise pose significant risk to the Agency, 

its operations, or its credibility. Each Management 

Challenge generally has been the subject of one or 

more OIG or Government Accountability Office 

(GAO) reports, or has resulted from our general knowledge of Agency management issues. For each 

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

assessment of Agency progress on each action item during the preceding fiscal year. The OIG updates 

the Management Challenges each year so that they accurately reflect the current Challenges facing the 

Agency. 

In its FY 2006 Report, the OIG eliminated two Management Challenges that appeared in the FY 2005 

Report. These two Management Challenges were: “SBA needs to improve its managing for results 

processes and performance data;" and “SBA needs to enforce its rules to deter firms receiving small 

business set-aside, 8(a), or small disadvantaged business price evaluation preference contracts from 

passing through large portions of the procurement to other firms." 

This year’s report contains one new Management Challenge that was published in February 2005: "Flaws 

in the procurement process allow large firms to receive small business awards and agencies to receive 

small business credit for contracts performed by large firms." 

As in prior years, the OIG used a color scoring scheme to show Agency progress in addressing the actions 

needed to resolve the Management Challenges. For FY 2006, in addition to the color scores of red, 

yellow, and green, the OIG implemented a fourth score color—orange—which denotes that the Agency 

has made some progress on a particular "action needed” item in a Management Challenge. 

The most serious Management Challenges that face SBA during FY 2006 are as follows: 

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

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

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

provide reliable, timely and accurate financial information. 

• Information systems security needs improvement. 

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

a human capital management/transformation strategy. 

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

• SBA needs to continue improving lender/participant oversight. 

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

companies receive access to business development, standards for determining economic 

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

This list of Management Challenges 

represents the areas that the OIG considers to 

be particularly vulnerable to fraud, waste, 

abuse, or mismanagement, or that otherwise

pose significant risk to the Agency, its 

operations, or its credibility.
Agency Management Challenges

4 

• The current practices of the Small Business Investment Company (SBIC) program place too 

much risk on taxpayer money. 

• Preventing loan agent fraud requires additional measures. 

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

operations. 

While Agency progress on a number of the Management Challenges has been encouraging, much more 

remains to be done. By their nature, these 

Management Challenges require continued long-term 

commitment and effort by the Agency. For more 

information on the OIG’s assessment of SBA’s 

Management Challenges, please review the report at 

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

By their nature, these Management 

Challenges require continued long-term 

commitment and effort by the Agency.
Significant OIG Activities

5 

Disaster Loans

The disaster loan program, a major SBA lending program, is designed to respond to the long-term 

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

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

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

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

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

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

order to provide quick relief to disaster victims. 

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

Alabama. Katrina was the third most intense hurricane to hit the United States in recorded history, and 

the sixth strongest recorded in the Atlantic Basin. It was quickly followed by Hurricanes Rita and Wilma, 

creating further loss of lives and property in Florida and Texas. Given the broad scope of SBA’s Gulf 

Coast hurricane disaster assistance efforts, OIG audit and investigations work will focus heavily on this 

area for the foreseeable future. 

OIG Emphasizes Oversight of SBA Disaster Assistance 

As of March 31, 2006, SBA had approved over $7 billion in low-interest, taxpayer-backed disaster loans 

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

approve loans at a record rate, Congress has been critical of the timeliness of SBA’s disbursement of 

loans. SBA has reported that more than $500 million in disaster loans has been disbursed and that the 

Agency is attempting to expedite disbursement of additional loans. 

In December 2005 Congress appropriated $5 million for the OIG to conduct work on the Agency’s 

disaster loan program in the Gulf region. These funds will 

allow us to secure additional audit and investigative 

resources needed to provide effective oversight of SBA 

disaster assistance efforts in the Gulf region. Given the 

scope of SBA’s hurricane disaster response efforts, and the 

fact that many borrowers will not have to begin repaying 

disaster loans until 2007, we anticipate a considerable amount of work for a number of years to come. 

The OIG plans to establish an office in New Orleans to provide better access to critical locations. 

As discussed below, the OIG has begun audits to identify whether there are unnecessary delays in the loan 

application approval and disbursement process and to review SBA’s Disaster Credit Management System 

(DCMS), the Agency’s disaster loan database. The OIG has 

also planned a host of audits which will focus on the 

complete cycle of disaster loans relating to the Gulf 

hurricanes. Areas of focus include: SBA’s loan origination, 

closing and disbursement; whether borrower use of 

proceeds is consistent with SBA’s authorization; Agency 

loan servicing; and, after loan default, SBA’s efforts to recover the debt through liquidation. Processing 

reviews will include a focus on whether SBA has proper controls to provide reasonable assurance that 

In December 2005 Congress 

appropriated $5 million for the OIG to 

conduct work on the Agency’s disaster 

loan program in the Gulf region.

The OIG has also planned a host of 

audits which will focus on the 

complete cycle of disaster loans 

relating to the Gulf hurricanes.
Significant OIG Activities

6 

loans are made to eligible recipients and that the proceeds are used for the intended purposes. Heightened 

scrutiny will also be given to loans that go into default quickly (e.g., after the first payment becomes due), 

as early defaults are often indicative of origination and servicing problems by the Agency, as well as 

possible borrower fraud. In addition, reviews will be performed to ensure that SBA is devoting adequate 

resources, and has established sufficient controls, to maximize recovery of taxpayer dollars through the 

liquidation process. 

Also in the audit area, the OIG is working to ensure the integrity of the reporting process for the various 

hurricane-related contracts that Federal agencies report as being awarded to small businesses. The OIG 

has drafted and circulated for comment a review guide 

for other OIGs to use in the assessment of procuring 

agency compliance with small business contracting 

requirements. We have also coordinated with the GAO 

on its recently-initiated review of small business 

procurement in the Gulf region. 

The OIG’s Investigations Division is focusing on 

detecting and deterring fraud related to the SBA disaster loan program. This effort includes proactive 

measures to identify: entities wrongfully receiving duplicate payments; potential fraud through early 

review of loan data for fraud indicators; and character misrepresentations through random sampling of the 

criminal background information of loan recipients. 

Loan Approval and Disbursement. The OIG has an ongoing review of the Agency’s disaster loan 

approval and disbursement process to determine if disaster 

loans are being processed and disbursed in a timely manner 

and, if not, the cause of the delays. In addition, the OIG is 

looking at external impediments, such as local governments 

and other Federal Agency requirements that may unduly 

delay disaster loan funds that home and business borrowers 

need to initiate the rebuilding process. 

Review of DCMS. We are also looking at the disaster loan program’s DCMS application, which was 

designed for 1,500 concurrent users processing SBA disaster loans. SBA has upgraded the system to 

support in excess of 4,000 users and plans to implement a significant hardware and software upgrade to 

support approximately 10,000 users. The OIG will review the DCMS upgrade to ensure that forecasted 

needs are appropriately addressed and the application is developed in accordance with SBA’s System 

Development Life Cycle standards. We have already issued three management advisory reports 

identifying deficiencies, which are discussed in the next section. 

Criminal Investigations. The OIG is investigating multiple allegations of wrongdoing related to the Gulf 

hurricanes that were received during this reporting period. Thus far, allegations involve claims for 

property damage that never occurred or for property 

not owned by the borrower during the disaster; false 

statements about prior criminal records; wrongful 

collection of Federal Emergency Management Agency 

(FEMA) payments while applying for an SBA loan; 

attempted bribery of SBA officials; misuse of SBA 

The OIG has an ongoing review of the 

Agency’s disaster loan application and 

disbursement process to determine if 

disaster loans are being processed and 

disbursed in a timely manner and, if 

not, the cause of the delays.

...the OIG is working to ensure the 

integrity of the reporting process for the 

various hurricane-related contracts that 

Federal agencies report as being awarded 

to small businesses.

The OIG is investigating multiple allegations 

of wrongdoing related to the Gulf hurricanes 

that were received during this reporting 

period.
Significant OIG Activities

7 

loan funds for gambling or other unauthorized purposes; and overstatement of financial losses. Four 

cases have been referred for criminal prosecution. We expect instances of fraud to increase significantly 

as more loan disbursements are made to borrowers and when the 12-month deferment of principal and 

interest payments for many disaster loans comes to an end. 

The OIG has also initiated several proactive projects to identify criminal misconduct by disaster 

borrowers. One project is designed to identify 

borrowers who submit false statements on their 

SBA applications for disaster assistance business 

loans relating to past criminal records. The project 

seeks to ensure compliance with SBA’s policy of 

preventing assistance to persons of poor character. For this project, the OIG will conduct criminal history 

checks on a statistical sample of disaster loans. 

A second project is a joint effort with the Department of Homeland Security (DHS) OIG and other OIGs 

to identify applicants for disaster assistance loans who did not reside in the affected areas during the Gulf 

hurricanes. Initial steps include verifying employment records of certain subjects and examining names 

of persons currently residing in Texas who have applied for SBA and/or FEMA hurricane assistance for 

losses allegedly incurred in other states. 

A third project is early fraud detection for hurricane-related disaster assistance loans. Through datamining and analysis of DCMS data, an OIG team 

will proactively identify potential fraud in the 

disaster loans, seeking to prevent fraud whenever 

possible. Fraud indicators will be similar to those 

used by an OIG group examining regular business 

loans. Where indicators exist, the OIG will 

investigate and bring to prosecution culpable parties. 

The OIG is also working with the multi-agency PCIE Hurricane Katrina Fraud Task Force to identify 

potential duplication of benefits where victims may receive excess aid resulting from unreported or 

underreported income, unreported insurance 

compensation, or other fraudulent activities. We are 

coordinating with the DHS OIG to address error 

correction controls between FEMA’s National 

Emergency Management Information System 

(NEMIS) and SBA’s DCMS, and to prevent 

duplication of disaster benefits to disaster victims in 

accordance with Federal guidelines. The OIG is also 

coordinating data-sharing with the Department of Housing and Urban Development to identify recipients 

of duplicate benefits. 

Further, the OIG is coordinating with the Federal IG community on inter-agency Gulf hurricane audit and 

investigations efforts. Prior to Hurricane Katrina, the President’s Council on Integrity and Efficiency 

(PCIE) and the Executive Council on Integrity and Efficiency (ECIE) had established a Homeland 

Security Roundtable under the leadership of the DHS IG. This Roundtable took on the role of 

coordinating the submission of reports regarding Gulf hurricane recovery oversight by the IG community. 

The OIG has also initiated several proactive 

projects to identify criminal misconduct by 

borrowers.

Through data-mining and analysis of DCMS 

data, an OIG team will proactively identify 

potential fraud in the disaster loans, seeking to 

prevent fraud whenever possible.

The OIG is also working with the multiagency PCIE Hurricane Katrina Fraud Task 

Force to identify potential duplication of 

benefits where victims may receive excess aid 

resulting from unreported or underreported 

income, unreported insurance compensation 

or other fraudulent activities.
Significant OIG Activities

8 

The OIG contributed disaster work plans to the first PCIE/ECIE 90-day “Report to Congress on Oversight 

of Gulf Coast Hurricane Recovery” in December 2005. Subsequent to that report, we also provided 

Congress with results of completed reviews published.

Finally, the OIG has undertaken the following efforts: 

• The OIG’s Office of Security Operations has conducted background investigations on thousands 

of employees who have been hired for SBA’s loan processing and operations for the Gulf 

hurricane disasters. This office has also conducted name checks and FBI fingerprint checks on 

hundreds of borrowers whose disaster loan applications indicate a criminal history. The results of 

these checks are reported to SBA program officials for character eligibility determinations. 

• The OIG provided fraud awareness information briefings to over 700 employees at SBA’s Fort 

Worth (Texas) Disaster Center, and OIG fraud hotline posters were disseminated throughout SBA 

field disaster centers in the Gulf states so that SBA officials and the public could readily report 

fraud. 

• The OIG also issued an information notice to all SBA employees announcing the Hurricane 

Relief Fraud Hotline and requesting that they increase their awareness of fraudulent activities as 

they receive and process disaster-related loans and provide other disaster-related assistance, and 

to report any fraudulent activities to the hotline. 

Data Exchange Errors Between FEMA and SBA Hamper Efforts to Aid Disaster Victims 

Information systems within SBA and FEMA must interface properly to ensure timely and appropriate 

assistance to Gulf hurricane disaster victims. An individual 

requesting assistance initially registers in FEMA’s NEMIS 

and may be referred to DCMS based upon indications of 

income, household size or self-employment, and 

indications of loss of real or personal property. 

Currently, SBA’s DCMS provides daily file updates (for example, “loss verified,” “loan approved” or 

“loan disbursed”) to NEMIS. FEMA uses that information to update NEMIS and determine if the disaster 

victims are eligible for further FEMA 

assistance. Our audit work identified that 

during data transfers between DCMS and 

NEMIS complete data controls are not in 

place to: (1) identify that an error had 

occurred; (2) flag affected records; and 

(3) monitor and correct errors through a log 

and related feedback loop. SBA estimated that, since DCMS was implemented, it has had to review and 

correct roughly 83,000 update records. We recommended that SBA work with FEMA to improve and 

formalize the error resolution process between the two systems. Error correction delays have resulted in 

disaster victims not always receiving needed assistance in a timely manner. 

Information systems within SBA and 

FEMA must interface properly to ensure 

timely and appropriate assistance to Gulf 

hurricane disaster victims.

...during data transfers between DCMS and NEMIS 

complete data controls are not in place to: (1) identify 

that an error had occurred; (2) flag affected records; 

and (3) monitor and correct errors through a log and 

related feedback loop.
Significant OIG Activities

9 

Disaster Loan System Referral Procedures and System Errors Delay Assistance to Recent 

Hurricane Victims 

The magnitude of the 2005 Gulf hurricane disasters has resulted in an unprecedented need to provide 

relief to eligible victims in a timely and 

effective manner. The DCMS was 

implemented shortly before the outbreak of 

the Katrina disaster, resulting in an 

unparalleled volume of applications being 

processed in a new computer system. The 

DCMS application has a direct interface with NEMIS to provide disaster assistance. Generally FEMA 

registers disaster victims in NEMIS and refers them to SBA as part of its disaster relief and emergency 

assistance programs. 

In two reviews during this reporting period, the OIG found that SBA and FEMA need to reconsider 

procedures regarding automatic submission of disaster loan applications to DCMS. For example, 

FEMA’s Individual Assistance Center Online 

Registration forwarded to SBA disaster loan 

applications indicating “$0 Income,” or with the predisaster income field left blank, needlessly increasing 

the volume of referrals to SBA. We also found that 

SBA mailed loan applications to disaster victims that 

normally would not be referred to SBA’s disaster loan 

program, and that the increased application volume delayed responses to those applicants who actually 

were qualified for the program. 

Financial Statements and Information Systems Controls Audits for FY 2005 Address Disaster 

Program Issues 

SBA’s FY 2005 financial statement audit, which 

assesses the adequacy of internal controls over 

financial reporting, found that improvement was 

needed in the management of disaster program 

express mail expenses and employee time and 

attendance. The audit found that the Atlanta Area 

Disaster Office had inadequate controls over the approval of time and attendance for approximately 2,300 

temporary personnel working in remote locations of disaster sites. In addition, inadequate controls were 

in place regarding use and reconciliation of Federal Express shipping vouchers. The rapid increase in 

temporary personnel to administer disaster loans increases the importance of controls over these areas, 

because these processes are inherently at high risk for abuse, which may result in improper payments or 

misuse of funds or assets. 

The audit of SBA’s FY 2005 information systems 

controls determined that controls in the DCMS were not 

adequate to ensure that management had determined 

what activities and files were considered sensitive and 

The DCMS was implemented shortly before the 

outbreak of the Katrina disaster, resulting in an 

unparalleled volume of applications being processed in 

a new computer system.

In two reviews during this reporting period, 

the OIG found that SBA and FEMA need to 

reconsider procedures regarding automatic 

submission of disaster loan applications to 

DCMS.

...the Atlanta Area Disaster Office had 

inadequate controls over the approval of time 

and attendance for approximately 2,300 

temporary personnel working in remote 

locations of disaster sites. 

...controls in the DCMS were not adequate 

to ensure that management had determined 

what activities and files were considered 

sensitive and required logging.
Significant OIG Activities

10 

required logging. The audit report recommended independent management review of database and 

application logs to ensure that potential security violations are analyzed and investigated. The report also 

recommended that the number of individuals granted “SuperUser” access be reduced to the minimum 

number possible, and that procedures be established granting system access according to responsibilities 

and duties. 

OIG Finds Fraud Perpetrated by Recipients of September 11, 2001, Disaster Loans 

Part of the OIG effort to fight fraud involves 

examining the over $1.1 billion in disaster 

assistance loans disbursed in response to the 

September 11, 2001, terrorist attacks. As is the 

case with other disaster assistance loans, the 

emphasis on timely claim disbursements can create opportunities for unscrupulous applicants to commit 

fraud. In addition, problems with this type of disaster assistance loan are not immediately evident, 

because repayments are typically deferred. The 

OIG has investigated and obtained the prosecution 

of numerous parties that committed fraud to obtain 

9/11 disaster loans. 

In one recent case, two former co-owners of a New York City financial management firm had applied for 

a $1 million 9/11 disaster assistance loan. A joint investigation by the OIGs of SBA and the Social 

Security Administration determined that the firm was not located near the World Trade Center, and there 

was no evidence that the firm had been in business on the date of the attacks. Both co-owners were 

indicted for falsely claiming physical damage and economic injury. Thus far, one has pled guilty to 

conspiracy, false statements, and mail fraud. The loan, however, was denied because one co-owner never 

filed Federal income tax returns. 

In another recent 9/11 case, the former president of a New York business received a $646,900 disaster 

assistance loan for his company, which sold motor vehicles and parts to the United Nations. A total of 

$548,300 was to have been used to pay off vendors. In a joint investigation with the U.S. Postal 

Inspection Service, the OIG determined that the borrower forged vendors’ endorsements on two-party 

checks payable to his firm and to the vendors for a total of $131,600 and then transferred most of the 

funds to a new business. Moreover, the investigation found that he made false statements to SBA when 

he applied for additional funding, stating that he had used all previous funds according to the loan 

authorization. The individual was indicted for mail fraud, making material false statements, and forging 

endorsements on U.S. Treasury checks. In addition, the former president of a foreign mining company 

pled guilty to being an accessory after the fact by assisting the borrower in negotiating one of the 

fraudulently received two-party checks. 

Part of the OIG effort to fight fraud involves 

examining the over $1.1 billion in disaster 

assistance loans disbursed in response to the 

September 11, 2001, terrorist attacks.

...problems with...disaster assistance loan(s) are 

not immediately evident, because repayments are 

typically deferred. 
Significant OIG Activities

11 

Small Business Access to Capital

SBA has a financial assistance portfolio of small business loans and financings exceeding $61 billion. 

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

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

credit they cannot obtain elsewhere. This program is vulnerable to fraud and unnecessary losses because 

it relies on numerous third parties (including borrowers, loan agents, lenders, and SBA) to complete loan 

transactions. Approximately 80 percent of loans guarantied annually by SBA are made by lenders to 

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

and reduced the number of staff performing these functions. As SBA has placed more responsibility and 

independence on its lenders, the importance of OIG oversight has increased significantly. 

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

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

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

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

Surety Bond Guaranty Program. 

OIG Unable to Determine Whether Supplemental Terrorist Activity Relief Loans Were Directed 

Toward Small Businesses Affected by the 9/11 Terrorist Attacks 

In response to concerns about the impact of the terrorist attacks of 9/11 on small businesses, in January 

2002 Congress authorized SBA to guaranty up to $4.5 billion in Supplemental Terrorist Activity Relief 

(STAR) loans made by lenders to small businesses “adversely affected” by the 9/11 attacks and their 

aftermath. Several news articles published in September 2005 raised concerns about STAR loans that 

appeared to have been made to borrowers that were not affected by the 9/11 attacks. As a result, the SBA 

Administrator and the Chair of the U.S. Senate Committee on Small Business and Entrepreneurship 

requested an OIG audit to determine if STAR loans went to qualified borrowers. 

The audit found that eligibility could not be readily determined for 85 percent of the STAR loans 

reviewed because the lender files did not contain information sufficient to demonstrate that borrowers 

were adversely affected by the 9/11 attacks 

and their aftermath. Although SBA 

established criteria for documenting STAR 

loan eligibility, it did not establish adequate 

internal controls and oversight to ensure that 

only eligible borrowers obtained loans. SBA 

also did not require lenders to provide their 

written justifications for making STAR loans. As a result, funds appropriated for guaranties on loans 

made to small businesses adversely affected by the terrorist attacks may not have been used for that 

purpose. 

...eligibility could not be readily determined for 85 

percent of the STAR loans reviewed because the 

lender files did not contain information sufficient to 

demonstrate that borrowers were adversely affected by 

the 9/11 attacks and their aftermath. 
Significant OIG Activities

12 

In response to the audit report, SBA agreed to 

implement better procedures, internal controls, and 

oversight to reduce the potential for misuse of 

funds in future special programs where 7(a) loan 

funds are used for nationwide disaster relief. SBA also agreed to implement procedures to ensure that 

STAR loan justifications are adequately documented before a guaranty is honored. 

Dishonest Loan Agents Continue to Exploit SBA Loan Programs 

The OIG continues to identify loan agent fraud as a Management Challenge for the Agency. A loan agent 

is employed and compensated by an applicant or lender to prepare 

an SBA loan application and/or refer an applicant to a lender (or a 

lender to an applicant). Honest loan agents help small businesses 

gain access to capital, but dishonest agents have perpetrated 

fraudulent schemes involving millions of dollars in loans. Such 

fraudulent loans often default for non-payment, and, unless a lender was aware of the fraud, SBA must 

then purchase the guarantied portions of the loans. 

In addition, unscrupulous loan agents can conspire with others to commit crimes, sometimes for 

significant dollar amounts. For example, during this reporting period a loan broker who recruited 

borrowers in Texas as part of a conspiracy to falsely obtain nine SBA-guarantied convenience store loans 

totaling $9.5 million was sentenced to 41 months incarceration and 3 years probation, and ordered to pay 

$8,884,253 in restitution with four other co-conspirators. The broker had previously been indicted for 

bank fraud, conspiracy, and money laundering. The OIG is conducting this investigation jointly with the 

Federal Bureau of Investigation (FBI). 

The OIG’s “FY 2006 Report on the Most Serious Management Challenges Facing the Small Business 

Administration” discusses measures necessary to prevent loan agent fraud. SBA does not know the 

magnitude of the loan agent problem because it has little 

information on agent involvement with SBA loans. 

Accordingly, the Agency needs to systematically 

identify all loan agents and track their association with 

individual loans. Such measures take on added 

importance as general oversight of loans shifts to lenders who may vary significantly in their due 

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

Borrowers Falsify Equity Injections to Obtain Loans 

Agency requirements generally mandate that 

loan applicants inject their own assets into the 

project being financed. This “equity 

injection” gives the borrowers a tangible stake 

in the project’s success. Many OIG 

investigations have uncovered borrowers who 

falsely claim to have made equity injections in order to obtain SBA financing. 

...fraudulent loans often default 

for non-payment, and...SBA must 

then purchase the guarantied 

portions of the loans. 

SBA...agreed to implement procedures to ensure 

that STAR loan justifications are adequately 

documented before a guaranty is honored.

....the Agency needs to systematically 

identify all loan agents and track their 

association with individual loans. 

Agency requirements generally mandate that loan 

applicants inject their own assets into the project 

being financed. This “equity injection” gives the 

borrowers a tangible stake in the project’s success.
Significant OIG Activities

13 

For example, the owner of several Texas gas stations was arrested by OIG and Texas Alcoholic Beverage 

Commission (TABC) agents for alleged false statements and the unauthorized use of a TABC permit. 

After the owner’s arrest, he admitted to falsifying an equity injection to obtain a $640,000 SBAguarantied loan to purchase four food stores, and to transferring ownership of the properties without 

notifying SBA. A second man was also arrested for alleged false statements and for the unauthorized use 

of a TABC permit. The second man had entered into an agreement with the owner to purchase one of the 

food stores without disclosing the sale to either SBA or the lender. The second man then allegedly sold 

the store to a third party but continued to renew the TABC permit while claiming ownership of the store. 

The OIG is currently conducting this joint investigation with the TABC. Additional arrests and 

prosecutions are anticipated. 

In another case, an OIG investigation determined that two former owners of a Missouri day care center 

had falsified making a required $75,000 equity injection in order to obtain a $311,000 SBA-guarantied 

loan. The business never opened, and the loan 

quickly defaulted, resulting in a loss of over 

$154,000 after liquidation of collateral. One 

owner was sentenced to 5 years probation after 

pleading guilty to making false statements to 

the lender and SBA. The other owner was 

sentenced to 3 years probation after pleading guilty to being an accessory after the fact to fraud. Both 

owners were also sentenced to make restitution in the amount of the loss. SBA debarred the two 

individuals from participating in Federal programs or procurements for 3 years. 

SBA Loan Programs Remain Vulnerable to False Claims of Citizenship

Investigations by the OIG and other law enforcement agencies continue to uncover well-organized 

schemes by borrowers and loan agents in which borrowers falsely claim to be U.S. citizens to obtain 

SBA-guarantied loans. Such loans often default 

quickly, with millions of dollars at risk (an individual 

loan can exceed $1 million). Moreover, loans to 

ineligible borrowers can make financing unavailable to 

honest prospective borrowers. Compounding the 

problem is SBA’s increasing dependence on lenders to 

administer its loan programs. 

Recently, the president of a Michigan gas station and convenience store was indicted for making false 

statements to SBA and a lender in order to obtain a $1.175 million SBA-guarantied loan. He signed 

documents indicating he was a U.S. citizen; however, a joint investigation with the DHS determined that 

he was neither a U.S. citizen nor a lawful permanent resident when he applied for the loan. In addition, 

the president and secretary of the firm were indicted for allegedly misrepresenting that they had made an 

equity injection of $130,000. 

...an OIG investigation determined that two former 

owners of a Missouri day care center had falsified 

making a required $75,000 equity injection in order to 

obtain a $311,000 SBA-guarantied loan.

...loans to ineligible borrowers can make 

financing unavailable to honest prospective 

borrowers. Compounding the problem is 

SBA’s increasing dependence on lenders to 

administer its loan programs. 
Significant OIG Activities

14 

Variety of Fraudulent Schemes Used to Obtain SBA-Guarantied Loans 

In addition to the fraudulent schemes previously mentioned, criminals use a variety of tactics to obtain 

SBA-guarantied loans. These include 

false and fraudulent documents, fictitious 

asset claims, non-disclosure of prior 

criminal records or other SBA loans, 

misuse of loan proceeds, and manipulated 

property values. Such tactics increase the 

chances of monetary losses. 

For example, the owner of two Texas restaurants fraudulently obtained two SBA-guarantied loans and a 

line of credit totaling $1,078,500. In order to influence the financial institutions to approve the financing, 

the owner inflated his personal property values and net worth, and then utilized financial proceeds from 

the loans for personal expenses. He was sentenced to 5 years probation and ordered to pay over $1.1 

million in restitution. The OIG conducted this investigation jointly with the FBI and the Internal Revenue 

Service (IRS). 

In another case, a joint investigation with the FBI disclosed that the former owner of a California market 

falsified Federal income tax returns as part of his application for a $1 million SBA-guarantied loan. He 

also submitted altered Federal income tax returns to another bank in order to obtain a $580,000 home 

loan. None of the submitted tax returns matched the returns filed with the IRS. After his indictment in 

June 2000, the individual became a fugitive and was apprehended in 2002. He pled guilty to two counts 

of making false statements to a federally insured financial institution. During the reporting period, the 

individual was sentenced to over 12 months in prison, a $10,000 fine, restitution of $197,000, and 5 years 

supervised probation. 

In yet another type of fraud, the president of a Michigan gas station and convenience store was indicted 

for making false statements to a lender in order to assume an existing SBA-guarantied loan of about 

$640,000. He signed documents in which he stated he had never been arrested or convicted of any 

criminal offense other than a minor traffic violation. A joint investigation with the DHS determined that 

the businessman had, in fact, pled guilty to conspiracy to transport and sell stolen motor vehicles and had 

been sentenced to 4 years Federal probation. 

OIG Investigations Identify Wrongful Actions by SBIC Principals 

SBA licenses SBICs so that they, in turn, can provide assistance to small businesses, especially during 

growth stages. To accomplish this, the Agency supplements SBIC capital with Government-guarantied 

securities. Some SBIC executives have abused their positions of trust for personal enrichment. 

For example, during this reporting period, a 

manager of a New Jersey SBIC technology fund 

was sentenced to 70 months in prison and 5 

years supervised release, and ordered to pay 

over $1.9 million in restitution to SBA, in 

connection with making false entries in the 

...criminals use a variety tactics to obtain SBA-guarantied 

loans. These include false and fraudulent documents, 

fictitious asset claims, non-disclosure of prior criminal 

records or other SBA loans, misuse of loan proceeds, and 

manipulated property values.

...a manager of a New Jersey SBIC technology 

fund was sentenced to 70 months in prison and 5 

years supervised release, and ordered to pay over 

$1.9 million in restitution to SBA, in connection 

with making false entries in the SBIC’s records. 
Significant OIG Activities

15 

SBIC’s records. He had converted at least $5 million received from SBA for his personal benefit. His 

wife had previously pled guilty to interstate transportation of stolen or fraudulently obtained property in 

connection with her role in stealing more than $1.9 million from the SBIC. The OIG conducted this 

investigation jointly with the FBI. 

In another recent case, the former chief executive officer of a Missouri SBIC was served with a complaint 

and summons in connection with alleged breaches of fiduciary duty, including the improper conversion of 

funds for his personal benefit. The complaint seeks recovery of nearly $394,000 in actual damages plus 

interest. The OIG is conducting this investigation jointly with the FBI. 

The OIG Continues to Recommend Recovery of Improper Guaranty Purchases 

Reviews of several SBA-guarantied loans revealed that the lenders did not originate, close and/or service 

the loans in accordance with SBA’s policies. These included two “early default” loans, defined as a loan 

default or business failure that occurs prior to, or within 18 months after, final disbursement, and one 

“early problem” loan, defined as occurring when a borrower consistently makes late or partial payments, 

funds monthly payments through the sale of 

collateral, or has two or more consecutive scheduled 

payments deferred within 18 months of final 

disbursement. Reviews of early default and early 

problem loans have identified a high rate of lender 

deficiencies in originating, closing, and servicing 

loans, putting SBA’s guaranty at risk. When such deficiencies are identified, full or partial recovery of 

the SBA guaranty paid to the lender is generally recommended. The three loan reviews completed during 

this reporting period identified lender deficiencies involving disbursement limitations, equity injection, 

and use of loan proceeds. The reviews resulted in recommended recoveries of $133,404. Additional 

reviews of early default and early problem loans are in progress. 

Improvements are Needed in the 7(a) Lender Monthly Reporting Process 

Eighty percent of SBA loans guarantied annually are originated, serviced, and liquidated by private sector 

lenders, with limited SBA oversight. Thus, SBA has established a Lender/Loan Monitoring System 

(L/LMS) to manage risk associated with its loan portfolio. The L/LMS system uses data from SBA’s 

Loan Accounting System (LAS) to rate lenders and loans. Data within the LAS is updated through the 

1502 Reporting Process, a monthly loan status report submitted by the lenders to SBA’s transfer agent, 

Colson Services Corporation (Colson) for all Section 7(a) loans in their portfolios. The OIG reviewed the 

1502 Reporting Process as part of a review of the L/LMS to determine whether accurate, complete, and 

timely data was incorporated into the L/LMS. Based on our analysis of the process and a judgmental 

sample of lender reporting results, we found that SBA had not established a control environment to ensure 

data reliability. For example, a review 

of 217 loans reported by six lenders in 

December 2004, showed that the LAS 

had the wrong status for 86 (40 percent) 

of these loans. In addition, for the same 

six lenders, the outstanding guaranty balances in the LAS, applicable to 129 of their 217 loans were 

Inaccuracies in the status and outstanding guaranty loan 

balances reported by the lenders potentially compromise the 

Agency’s risk assessment of its loan portfolio.

Reviews of early default and early problem 

loans have identified a high rate of lender 

deficiencies in originating, closing, and 

servicing loans, putting SBA’s guaranty at risk.
Significant OIG Activities

16 

inaccurate. Reports from Colson covering November through January disclosed that Colson corrected 

only 10 to 15 percent of the errors that were identified in any given month. Inaccuracies in the status of 

loans and outstanding guaranty loan balances reported by the lenders potentially compromise the 

Agency’s risk assessment of its loan portfolio. 

The OIG recommended: (1) revisions in the existing Standard Operating Procedure to include greater 

controls and assign office responsibilities; (2) an assessment of the risks resulting from inaccuracies in the 

1502 Reporting Process; (3) appropriate training for SBA and lender personnel involved in the process; 

(4) an automated process to reclassify loans not reported monthly as delinquent; (5) modification of the 

Colson contract to improve Colson’s performance; and (6) improved monitoring efforts over SBA and 

Colson personnel. SBA agreed with those recommendations. 

The OIG also recommended that SBA cite the 

internal control deficiency as a material 

weakness in the annual Federal Managers 

Financial Integrity Act (FMFIA) assurance 

statement and in the Agency’s annual 

Performance and Accountability Report 

(PAR). Management disagreed, stating that 

they did not believe our sample was adequate 

to evaluate internal controls properly and, therefore, they do not believe there was a material weakness 

that should be reported under FMFIA and the PAR. However, it does not appear that SBA is undertaking 

its own analysis to determine the extent of the problem. 

Improvements are Needed in Human Capital Planning for the Office of Financial Assistance 

As part of its ongoing examination of SBA human capital and transformation efforts, the OIG reviewed 

the Office of Financial Assistance’s (OFA) human capital planning activities. We found that OFA does 

not have an up-to-date staffing plan or a 

documented training plan to ensure that its staff 

has, retains, and builds the skills and competencies 

needed for OFA to achieve its current and future 

goals. We also found that the current Associate 

Deputy Administrator for Capital Access has not 

taken action to ensure that OFA operates with an 

updated and approved staffing plan. The OIG also observed that OFA does not routinely monitor or 

measure quality assurance in the operations of its loan processing and service centers. OFA program 

officials indicated agreement with the OIG’s observations and concerns regarding human capital planning 

in OFA. 

The OIG...recommended that SBA cite the internal 

control deficiency as a material weakness in the 

annual Federal Managers Financial Integrity Act 

(FMFIA) assurance statement and in the Agency’s 

annual Performance and Accountability Report 

(PAR).

...the OFA does not have an up-to-date staffing 

plan or a documented training plan to ensure that 

its staff has, retains, and builds the skills and 

competencies needed for OFA to achieve its 

current and future goals. 
Significant OIG Activities

17 

Small Business Development, Contracting, Education, and Training

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

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

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

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

Certification Program. SBA also negotiates with Federal agencies to establish procurement goals for 

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

HUBZone small businesses. The current Government-wide goal is for 23 percent of the total value of all 

prime contract awards for each fiscal year to go to small businesses. 

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

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

economically disadvantaged individuals, and help them access the multi-billion dollar Federal 

procurement market. 

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

counseling and training services offered by Agency 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. All demand of SBA effective 

and efficient management, outreach, and service delivery. Determining whether business development 

and Government contracting programs meet these demands requires reliable internal and external data for 

effective monitoring and oversight. 

Federal Procurement Remains a Target for Fraud 

A serious government contracting issue involves companies which misrepresent themselves as small 

businesses to gain an unfair advantage in the Federal marketplace. Recently, an Arizona firm that 

provides technology products and services to the 

Government agreed to pay $1 million to settle 

allegations that a corporation it had purchased in 

2002 had falsely certified itself as a small business 

on its application for the General Services 

Administration’s (GSA) Multiple Award Schedule 

(MAS) listing products and vendors. The OIG 

received a complaint that the corporation had 

unfairly received a preference in the award of task orders under the MAS. A two-year investigation 

conducted jointly with the GSA OIG and the Department of Justice concluded that the purchased 

corporation had indeed misrepresented its size status on its 1996 application, and that the firm had 

unfairly benefited from the small business designation. The Arizona firm withdrew the small business 

certification in 2005. 

Recently, an Arizona firm that provides 

technology products and services to the 

Government agreed to pay $1 million to settle 

allegations that a corporation it had purchased in 

2002 had falsely certified itself as a small business 

on its application for the GSA MAS.
Significant OIG Activities

18 

A Lack of Monitoring Allows 8(a) Companies to Circumvent SBA Business Development 

Regulations 

SBA delegated its 8(a) BD contract execution authority to 26 Federal procuring agencies starting in 1998. 

At that time, SBA ceased to directly monitor compliance by 8(a) firms program regulations on awarded 

contracts, delegating that responsibility to the 

procuring agencies. However, the Agency 

apparently has not conducted any surveillance 

reviews since the delegation to ensure that the 

procuring agencies are effectively monitoring the 

contracts. An OIG review of 23 of the 26 procuring 

agencies found that none of them has procedures or 

other guidance in place to detect if companies are not complying with the 8(a) regulations. Because there 

is no evidence of compliance monitoring of 8(a) contracts by either SBA or the procuring agencies, 

companies could violate 8(a) regulations without detection by Federal officials. 

In one case, neither SBA nor the procuring agency was aware that an 8(a) company apparently 

subcontracted out 100 percent of its work on 13 8(a) contracts worth approximately $2 million. The firm 

appears to have been unduly dependent on subcontractors. It also appears to have falsified payroll 

records, and not to have met the requirements to perform out-of-state contracts. SBA has agreed to: (1) 

revise the partnership agreements it has with procuring agencies to require them to take certain actions; 

and (2) ensure that surveillance reviews are conducted on a regular basis. 

Ineligible 8(a) BD Company Receives $9.3 Million Contract 

A company and its owner(s) must meet numerous eligibility requirements in order to participate in the 

8(a) BD program. Firms value 8(a) status because it 

confers certain advantages in competing for Government 

contracts. Companies accepted to the 8(a) BD program 

can receive sole source awards and other awards 

available only to 8(a) participants. In some cases, 

business owners are willing to commit fraud to obtain admission to the 8(a) program. 

The OIG found that an 8(a) company with two owners – one disadvantaged, one not – that had received a 

$9.3 million 8(a) contract had provided false and misleading information to get into, and remain in, the 

program. The company’s disadvantaged owner violated 8(a) BD eligibility requirements concerning 

payment of Federal financial obligations, company 

control, and good character. He failed to make 

required IRS payments on 9 years of delinquent 

taxes, totaling over $270,000. The nondisadvantaged owner received the higher 

compensation of the two, and as such, should be 

considered to be in control of the company, which is also a violation of 8(a) requirements. During the 

application process, the company falsely led SBA to believe it had complied with all requirements, thus 

violating the obligation to be of good character. Moreover, after being admitted to the program, the 

company apparently did not inform SBA that its disadvantaged owner was not the highest compensated 

Firms value 8(a) status because it confers 

certain advantages in competing for 

Government contracts. 

During the application process, the company 

falsely led SBA to believe it had complied with 

all requirements, thus violating the obligation to 

be of good character.

Because there is no evidence of compliance 

monitoring of 8(a) contracts by either SBA or 

the procuring agencies, companies could violate 

8(a) regulations without detection by Federal 

officials.
Significant OIG Activities

19 

employee, although it is required to inform SBA of any changes affecting its eligibility. SBA has agreed 

with the OIG’s recommendation to initiate proceedings to terminate the company from the program. 

Improvements are Needed in the Central Contractor Registration Database to Prevent Large 

Businesses From Being Classified as Small Ones 

In the OIG’s “FY 2006 Report on the Most Serious Management Challenges Facing the Small Business 

Administration,” Management Challenge 1 addresses flaws in the procurement process that allow 

contracting agencies to count contracts awarded to large businesses towards their small business goals. 

The Central Contractor Registration (CCR) website was developed by the Department of Defense to 

provide a way for contractors to receive payments when contracting with the Federal Government. 

Subsequently, the database maintained on the CCR website also became a marketing tool for contractors. 

During this reporting period, we determined 

that a flaw in the CCR system allows 

contradictory information on a contractor’s 

size to be included, which can lead 

contracting officials and others to 

incorrectly identify contractors as small 

businesses and thus designate contracts 

awarded to large businesses as small 

business contracts. The OIG believes that the CCR database needs to be modified to include an edit 

check and additional instructions. SBA’s Office of Government Contracting agreed with the OIG’s 

recommendations for corrective action. 

Businesses Scheme to Maintain Section 8(a) Status 

The former president and vice president of a Virginia hazardous materials abatement and waste removal 

company conspired to make misrepresentations to SBA in order to maintain the firm’s 8(a) eligibility. 

They also violated Environmental Protection 

Agency (EPA) regulations by conspiring to 

falsify hazardous environmental training 

certificates on contracts. During this reporting 

period, the former president was sentenced to 

5 months in prison, 5 months home detention, 

3 years supervised release, a $1 million fine, and a special fee. Moreover, the vice president, who was 

also the president of a subcontractor firm that served the contractor, previously had pled guilty to 

conspiracy to defraud SBA and the EPA. The subcontractor firm and its president were later suspended 

from Government contracting by the U.S. Army Procurement Fraud Branch. Based on a Department of 

Justice request to join an ongoing investigation, the OIG worked jointly on this case with the FBI, the 

Defense Criminal Investigative Service, the EPA Criminal Investigation Division, the U.S. Army 

Criminal Investigation Division, the National Aeronautics and Space Administration (NASA) OIG, the 

Defense Contract Audit Agency, and the Virginia Department of Professional and Occupational 

Regulation. Additional defendants are awaiting sentencing. 

The former president and vice president of a Virginia 

hazardous materials abatement and waste removal 

company conspired to make misrepresentations to 

SBA in order to maintain the firm’s 8(a) eligibility. 

...a flaw in the CCR system allows contradictory 

information on a contractor’s size to be included, which 

can lead contracting officials and others to incorrectly 

identify contractors as small businesses and thus 

designate contracts awarded to large businesses as 

small business contracts.
Significant OIG Activities

20 

SBIR Fraud Affects Multiple Agencies 

The Small Business Innovation Research (SBIR) program helps a small business develop its 

technological potential by funding its startup and 

development stages and by encouraging the 

commercialization of its technology, product, or service. 

Fraud related to SBIR contracts can involve more than one Federal agency. 

In one case, the owner of a technology company allegedly billed multiple Federal agencies for the same 

work, billed for work that was not 

performed, and falsified time sheets and 

research logs to ensure optimum funding 

under each contract. Consequently, the 

U.S. Government overpaid the company 

approximately $2 million. The OIG 

investigators served the company and its 

owner with a civil complaint under the False Claims Act. The complaint alleged that the owner made 

false statements and engaged in a pattern of fraudulent conduct to improperly obtain funds from SBIR 

contracts awarded to the company by the U.S. Army, U.S. Air Force, and NASA. The OIG is conducting 

this investigation jointly with the NASA OIG, the U.S. Postal Inspection Service, the U.S. Army Criminal 

Investigations Division, and the Defense Criminal Investigative Service. 

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

Section 4(h) of the Small Business Act requires the OIG to report to Congress on a 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 Alliance (OSA) provided information to 

the OIG related to cosponsorships, including the names, dates and 

locations of the cosponsorships, and names of cosponsors. 

Between October 1, 2005, and March 31, 2006, there were 33 

cosponsorships, as shown in Appendix IX. SBA reported that it did not conduct any fee-based 

Administration-sponsored events during this period. 

Legislation Requires Approval of SBDC Surveys 

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

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

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

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

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

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

approval in the OIG’s semiannual report. 

Fraud related to SBIR contracts can involve 

more than one Federal agency.

...the owner of a technology company allegedly billed 

multiple Federal agencies for the same work, billed for 

work that was not performed, and falsified time sheets 

and research logs to ensure optimum funding under each 

contract. 

Between October 1, 2005, and

March 31, 2006, there were 33 

cosponsorships, as shown in 

Appendix IX.
Significant OIG Activities

21 

The Agency reported that there were no SBDC surveys requiring 

OIG approval during this reporting period. Although the 

statutory provision was enacted in December 2004, the Agency 

has not yet issued the required regulations regarding disclosures 

of client information. Agency officials advise that they continue 

to work on the regulations. 

The Agency reported that there were 

no SBDC surveys requiring OIG 

approval during this reporting 

period.
Significant OIG Activities

22 

Agency Management

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

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

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

performance information in a more timely manner. For several years, SBA’s external auditors have been 

critical of the Agency’s reporting process and its ability to provide accurate, complete, and reliable 

financial data. 

SBA depends on a complex information technology (IT) environment, which includes a number of 

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

Agency has had difficulty producing reliable and timely financial and management information to support 

its operations, primarily because of reliance on outdated IT systems that are not integrated. SBA recently 

implemented a new Disaster Credit Management System to modernize and improve its disaster loanmaking activities, and a Lender and Loan Monitoring System to monitor its business loan portfolio. The 

Agency is in the process of developing the requirements for a Loan Management and Accounting System 

(LMAS) that will eventually replace SBA’s Loan Accounting System, which is obsolete. 

SBA Makes Significant Progress in Overcoming Financial Management Challenge 

Various laws and regulations place significant responsibilities on Federal financial managers to manage 

public resources effectively and efficiently. In recent years, the OIG, GAO, and SBA’s external auditor 

all noted significant internal control weaknesses that resulted in the Agency being unable to produce 

reliable, timely, and accurate financial information, including its annual financial statements. Because of 

these weaknesses, SBA’s independent auditors were unable to render opinions on SBA’s financial 

statements from FY 2000 through FY 2003. 

Recognizing the importance of sound financial management, SBA’s Administrator has made improving 

financial management one of the Agency’s top 

priorities. SBA has worked diligently to identify and 

address the underlying causes of its financial 

management issues and the Agency has made 

significant progress towards improvement. Improved 

models for estimating the Agency’s subsidy costs and 

improved controls over financial statement preparation contributed significantly to permitting the external 

auditor to render an unqualified opinion on SBA’s FY 2005 Financial Statements. 

Despite the improvements in the quality, accuracy, and reliability of SBA’s FY 2005 financial reports and 

supporting documentation, SBA’s external auditor 

concluded that a material weakness continues to 

exist in SBA’s financial management and 

reporting controls. The OIG recently updated the 

financial Management Challenge to reflect the 

progress made and to emphasize the additional 

steps needed for SBA to resolve this Challenge. 

To be successful, SBA will need to further 

SBA has worked diligently to identify and 

address the underlying causes of its financial 

management issues and the Agency has made 

significant progress towards improvement.

Despite the improvements in the quality, accuracy, 

and reliability of SBA’s FY 2005 financial reports 

and supporting documentation, SBA’s external 

auditor concluded that a material weakness 

continues to exist in SBA’s financial management 

and reporting controls.
Significant OIG Activities

23 

improve financial reporting controls, enhance quality assurance procedures over financial reporting, 

submit quarterly and annual financial statements that are substantially free of errors, maintain the external 

auditor’s unqualified opinion on the Agency’s financial statements, have no reportable conditions related 

to financial management and reporting, and implement the requirements of OMB Circular A-123 (A123). 

A-123 provides updated internal control standards with an emphasis on integrating control assessments 

with other control-related activities. A-123 provides an excellent framework for SBA to evaluate its 

existing control environment and to determine where control deficiencies exist that prevent SBA from 

achieving the objectives of its financial management and reporting controls. The actions the OIG 

identifies as necessary for SBA to overcome its financial Management Challenge are consistent with the 

actions necessary for a successful A-123 implementation. Therefore, the OIG is providing SBA with 

internal control assessment tools, external auditor documentation of SBA’s key accounting and reporting 

cycles, and informal reviews of SBA’s OMB A-123 implementation plans and progress to date. 

The OIG is monitoring SBA’s continued progress by: increasing the resources devoted to the Agency’s 

annual financial statement audit; working 

closely with SBA to ensure the Agency 

incorporates needed corrective actions identified 

by the OIG and external auditors into its 

financial reporting plans; requiring review by 

the OIG of all final actions on recommendations related to SBA’s financial Management Challenge; and 

following SBA’s activities to implement the requirements of A-123. For FY 2006, a new external 

auditor, KPMG, will perform the financial statement audit and related work. 

SBA Shows Improvement in Accrediting its Major Information Systems but Needs Improvement in 

Addressing Identified System Vulnerabilities 

The confidentiality, integrity, and availability of SBA’s information systems are vital to the continued 

successful operation of the Agency. SBA’s effort to improve its computer security program during the 

past year has shown mixed results. SBA achieved a major milestone in certifying and accrediting 95 

percent of its major systems within the past year. However, recent OIG and external auditor reviews 

showed the need for continued focus and improvement in Information System Controls. Based on these 

audit results, the OIG has updated the information security Management Challenge to reflect the 

additional specific actions needed for SBA to overcome this Management Challenge. 

Our external auditor’s FY 2005 review of general and application controls was issued during this 

reporting period. This audit followed guidance provided in the GAO Federal Information System 

Controls Audit Manual (FISCAM) and 

concluded, as it did for FY 2004, that SBA 

needs to improve: (1) entity-wide security 

program controls; (2) access controls; 

(3) application software development and 

program change controls; (4) system 

software controls; (5) segregation of duty 

controls; and (6) service continuity 

The OIG is monitoring SBA’s continued progress 

by: increasing the resources devoted to the Agency’s 

annual financial statement audit...

The external auditor made six new recommendations, and 

specifically identified two of 26 unimplemented 

recommendations from previous audit reports that 

addressed significant risks to the integrity of the Agency’s 

information security program. 
Significant OIG Activities

24 

controls. The external auditor made six new recommendations, and specifically identified two of 26 

unimplemented recommendations from previous audit reports that addressed significant risks to the 

integrity of the Agency’s information security program. 

The OIG review of SBA’s FY 2005 Information Security Program, required by the Federal Information 

Security Management Act, revealed mixed results. SBA continued to have 19 of its 20 major systems (95 

percent) certified and accredited. However, 

SBA has not been able to quickly or sufficiently 

address 211 system risk assessment 

vulnerabilities and unresolved OIG audit 

findings. A number of these unimplemented 

audit recommendations and risk assessment weaknesses are significant to SBA’s information technology 

environment. Therefore, improvements continue to be needed in general and application controls in 

SBA’s IT general support and major application systems. 

SBA Improperly Accepted One Cash Gift for Travel-Related Purposes 

Section 4(g)(2) of the Small Business Act as amended by SBA’s most recent reauthorization 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 any 

findings to Congress. During this reporting period, the OIG reviewed one cash gift received by the 

Agency in June 2005 and found that the Office of General Counsel (OGC) had never been requested to 

perform the required conflict of interest determination for the donor. The OIG brought this matter to the 

attention of OGC, which, in turn, performed a conflict of interest determination and found that the cash 

gift was improperly received by the Agency to pay for travel. Agency officials plan to return the money 

to the donor. The Agency reported that no cash gifts were received during the period October 1, 2005 

through March 31, 2006. 

Also during this reporting period, the Agency’s final regulations for implementing the changes to SBA’s 

gift authority were published in the Federal Register. The OIG reviewed and provided comments noting 

certain deficiencies in the regulations, and the Agency made appropriate adjustments. In addition, final 

action was reached on four of the nine recommendations from our audit report, “Review of SBA 

Procedures for Cash Gifts,” issued September 30, 2005. 

The Number and Percentage of Overdue Management Decisions Has Decreased While the Number 

and Percentage of Overdue Final Implemented Actions Has Increased 

When the OIG presents a recommendation, the management decision can take several forms. Program 

officials may agree to the recommendation, disagree with the recommendation, or seek to negotiate a 

compromise agreement with the OIG. The IG Act requires that Federal agencies make management 

decisions on all findings and recommendations within a maximum of 6 months of report issuance. As of 

March 31, 2006, 25 management decisions on recommendations in OIG reports were overdue—

approximately 27 percent of all pending management decisions. This represents a decrease since 

September 30, 2005 in the number and percentage of overdue management decisions. The Offices of 

...SBA has not been able to quickly or sufficiently 

address 211 system risk assessment vulnerabilities 

and unresolved OIG audit findings.
Significant OIG Activities

25 

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

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

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

number and percentage of recommendations with 

overdue final implemented actions has 

substantially increased—by 20 percent—since 

September 30, 2005. As of the end of this 

reporting period, 61 percent of all pending final 

actions (134 actions) were overdue. The OCIO 

and Management and Administration were 

responsible for almost half of the overdue final 

actions. 

The number and percentage of recommendations 

with overdue final implemented actions has 

substantially increased—by 20 percent—since 

September 30, 2005. As of the end of this 

reporting period, 61 percent of all pending final 

actions...were overdue. 
Significant OIG Activities

26 

Other Significant OIG Activities 

Proactive Character Screening Reduces Potential Program Fraud

To ensure that participants in programs involving business loans, disaster assistance loans, Section 8(a) 

certifications, surety bond guaranties, SBICs, and certified 

development companies meet SBA character standards, 

the OIG’s Office of Security Operations conducts name 

checks and, when necessary, fingerprint checks. During 

this reporting period, the OIG processed 1,719 external 

name check requests for these programs. 

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

adjudication based on data from an on-line connection with the 

FBI. During this period, OIG referrals resulted in SBA 

business loan program managers declining 47 applications 

totaling nearly $20.1 million, and disaster loan program 

officials declining 14 applications totaling almost $1.4 million. 

Over $266.2 million in loans has been declined during the last 

10 years due to character eligibility issues, thus making credit 

available to more worthy applicants. 

Moreover, OIG efforts during this period resulted in the Section 8(a) BD program declining seven 

applications for admission, and the Surety Bond Guaranty Program declining one application. The OIG 

also initiated 145 background investigations and issued 19 security clearances for Agency employees and 

contractor personnel needing clearances, adjudicated 88 background investigative reports, and 

coordinated with SBA’s Office of Disaster Assistance to adjudicate 323 derogatory background 

investigative reports. Finally, the OIG processed 2,485 internal name check requests for Agency 

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

new hires. 

The OIG Recommends Debarments 

The OIG believes that it is in the public interest to debar parties that have engaged in fraudulent conduct 

or have otherwise shown a lack of business integrity. 

Debarred parties are precluded from conducting business 

or contracting with the Federal Government for a 

specified period of time, generally 3 years. The OIG has 

adopted a proactive program to identify current SBA 

program participants for whom debarment would serve 

the public interest and to make debarment 

recommendations to SBA. 

For example, during the reporting period, the OIG recommended that SBA debar two individuals who 

made false statements to obtain an SBA-guarantied loan to purchase a business. One of the individuals 

claimed that he would use personal assets to make an equity injection to pay part of the purchase price of 

During this reporting period, the OIG 

processed 1,719 external name check 

requests for these programs.

Over $266.2 million in loans has been 

declined during the last 10 years due 

to character eligibility issues, thus 

making credit available to more 

worthy applicants. 

The OIG has adopted a proactive program 

to identify current SBA program 

participants for whom debarment would 

serve the public interest and to make 

debarment recommendations to SBA.
Significant OIG Activities

27 

the business. An OIG investigation determined that a majority of the equity injection was actually loaned 

to the individual by his brother. In addition, the brother had previously received an SBA loan. If the 

affiliation of the two individuals had been disclosed, the two loans would have exceeded SBA’s statutory 

limit for total loans to a borrower. The two subjects pled guilty to conversion of government property and 

were sentenced to 3 years probation and fines. The Agency agreed with the OIG recommendation to 

debar the individuals. 

Also, during the reporting period, the OIG recommended that SBA debar an individual who defrauded the 

government to obtain a disaster loan for damage he claimed occurred as a result of the 9/11 terrorist 

attacks. The OIG’s recommendation to the Agency related 

that the individual claimed that his business was located 

near the World Trade Center and that, as a result of the 

attacks, his law firm’s revenues declined. The OIG 

investigation determined that the individual’s claims were 

false because his law firm never had an office located near 

the World Trade Center. The investigation resulted in the 

subject pleading guilty to wire fraud and money laundering in violation of 18 U.S.C. §§ 1343 and 1957. 

The Agency has not finished its evaluation to decide whether to debar the individual. 

Debarment statistics for the reporting period can be found in the Statistical Highlights section. 

OIG Reviews Legislation, Regulations, and Standard Operating Procedures to Identify Potential 

Problem Areas

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

reviews proposals to, among other things, identify 

program inefficiencies and areas susceptible to 

fraud, waste, and abuse. The OIG’s substantive 

comments frequently lead to marked improvement in 

legislation and regulations proposed by SBA or 

affecting SBA programs, new and revised Agency 

operating procedures, Agency reorganizations, and 

other matters requiring the Administrator’s 

signature. 

From October 1, 2005, through March 31, 2006, the OIG identified and recommended solutions to reduce 

potential management problems and inefficiencies in several areas of importance to the Agency. These 

included: Agency initiatives to expedite assistance to the victims of the Gulf hurricanes; regulations and 

office reorganizations regarding SBA’s oversight of lenders participating in business loan programs and 

the Agency’s planned centralization of certain SBA loan functions; regulations establishing a womanowned small business contracting program; and various initiatives governing admission to, and 

graduation from, the 8(a) BD program. During this period, the OIG reviewed 20 proposed legislative and 

regulatory changes, and 58 internal SBA operating procedures and other initiatives, covering a wide 

variety of Agency issues. 

...the OIG recommended that SBA debar 

an individual who defrauded the 

government to obtain a disaster loan for 

damage he claimed occurred as a result of 

the 9/11 terrorist attacks.

The OIG’s substantive comments frequently 

lead to marked improvement in legislation and 

regulations proposed by SBA or affecting SBA 

programs, new and revised Agency operating 

procedures, Agency reorganizations, and other 

matters requiring the Administrator’s signature.
Significant OIG Activities

28 

Regarding one such initiative, the OIG identified problems with a proposed expansion of the 

CommunityExpress Program, which is a pilot program of the 

7(a) loan guaranty program. Similar to the SBAExpress 

Program, lenders in the CommunityExpress Program are 

permitted to use their own forms and lending procedures rather 

than SBA processes. Unlike the SBAExpress Program, in which 

lenders receive a 50 percent guaranty, CommunityExpress 

lenders receive a 75 to 80 percent guaranty, depending upon the 

size of the loan. In exchange for the higher guaranty, lenders are required to direct loans to borrowers 

located in pre-designated geographic areas generally comprising low and moderate income areas, and to 

women, minorities and/or veterans, and to provide technical assistance to these borrowers. 

The Agency proposed to extend the term of the CommunityExpress Program, and to expand the universe 

of borrowers that were eligible to participate in the program. The OIG disagreed with this proposal 

because the CommunityExpress Program was 

established in March 1999 and the Agency has never 

issued any regulations, Standard Operating Procedures 

(SOPs), or any other guidance to govern this program. 

(A proposed program guide was circulated within the 

Agency for clearance several years ago, but was never 

officially cleared by all required clearing offices. Nevertheless, the Agency has posted this guide on its 

banking website as official program guidance.) The OIG believes that prior to extending the term of this 

pilot program, and prior to expanding the scope of the program, the Agency needs to develop regulations, 

SOP provisions or a program guide that is cleared as an appendix to an SOP. 

...the OIG identified problems with 

a proposed expansion of the 

CommunityExpress Program, which 

is a pilot program of the 7(a) loan 

guaranty program.

... the CommunityExpress Program was 

established in March 1999 and the Agency 

has never issued any regulations, SOPs, or 

any other guidance to govern this program.
Statistical Highlights

29 

FY 2006 6-Month Productivity Statistics 

October 1, 2005, through March 31, 2006 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines......................................................................... $19,671,209 

B. Loans/Contracts Not Made as Result of Investigations .................................................................. $6,200

C. Loans Not Made as a Result of Name Checks ....................................................................... $21,463,372 

D. Disallowed Costs Agreed to by Management............................................................................. $456,202 

E. Recommendations that Funds Be Put to Better 

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

Total ........................................................................................................................................... $41,621,983

Efficiency and Effectiveness Activities Related to Audits and Other Reports

A. Reports Issued........................................................................................................................................ 20 

B. Recommendations Issued....................................................................................................................... 60 

C. Dollar Value of Costs Questioned............................................................................................... $481,366 

D. Dollar Value of Recommendations that Funds 

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

E. Collections as a Result of Questioned Costs ............................................................................... $669,955 

Audit and Report Follow-up Activities 

A. Recommendations Closed...................................................................................................................... 70 

B. Disallowed Costs Agreed to by Management ............................................................................. $456,202 

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

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

D. Unresolved Recommendations............................................................................................................... 99 

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

A. Legislation Reviewed............................................................................................................................... 7 

B. Regulations Reviewed............................................................................................................................ 13 

C. Standard Operating Procedures and Other Issuances* Reviewed.......................................................... 58 

Total ........................................................................................................................................................... 78 

*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 

FY 2006 6-Month Productivity Statistics 

October 1, 2005, through March 31, 2006 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases............................................................................................................... 23* 

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

C. Cases Opened ........................................................................................................................................ 28 

D. Cases Closed ......................................................................................................................................... 29 

Investigations Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations......................................................................................................... $19,671,209 

B. Loans/Contracts Not Approved as a Result of OIG Investigations................................................ $6,200 

C. Loans Not Approved as a Result of the Name 

 Check Program .............................................................................................................. $21,463,372 

Total ........................................................................................................................................... $41,140,781

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

E. Other........................................................................................................................................................ 0 

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency ............................................................................................. 8 

B. Debarments Pending at the Agency ........................................................................................................ 9 

C. Proposed Debarments Issued by the Agency .......................................................................................... 6 

D. Final Debarments Issued by the Agency................................................................................................. 7 

OIG Hotline Operation Activities

A. Total Fraud Line Calls/Letters ............................................................................................................ 248 

B. Total Calls/Letters Referred to Investigations Division........................................................................ 28 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies .................................... 27 

D. Total Calls/Letters Referred to Other Entities....................................................................................... 31 

E. Total Calls/Letters Needing No Action ............................................................................................... 162 

*Includes four indictments/convictions that occurred in the last semiannual reporting period but were not reported. 
Appendix

31 

Appendix I 

OIG Reports Issued 

October 1, 2005, through March 31, 2006 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Capital Access

1502 Reporting Process 6-07 12/9/05 

Audit of SBA’s Administration of the 

Supplemental Terrorist Activity Relief 

(STAR) Loan Program 

6-09 12/22/05 

Audit of SBA-Guarantied Loan to Ford’s 

Plumbing 

6-14 3/2/06 $26,413 

Audit of SBA-Guarantied Loan to Furco, Inc. 6-16 3/20/06 $18,992 

Audit of SBA-Guarantied Loan to ScapeArt, 

Inc. 

6-17 3/20/06 $88,269 

Program Subtotal 5 $133,674 

Disaster Assistance 

Disaster Loan Application Declines Within 

DCMS 

6-11 2/2/06 

FEMA Online Registrations Increase DCMS 

Applications 

6-12 2/17/06 

Interface Error Correction Between NEMIS 

and DCMS 

6-20 3/31/06 

Program Subtotal 3 $0 

Agency Management 

Advisory Memorandum Report — 

Independent Evaluation of SBA’s Information 

Security Program 

6-01 10/7/05 

FY 2006 Management Challenges 6-02 10/14/05 

Single Audit of Greenpoint Manufacturing 

and Design Center 

6-03 10/17/05 $347,692 

Audit of SBA’s FY 2005 Financial 

Statements 

6-04 11/14/05 

Government-Wide Financial Report System 

for FY 2004 

6-05 11/18/05 

Agreed-Upon Procedures: SBA’s 

Intragovernmental Activity and Balances 

6-06 12/2/05 

Audit of SBA’s FY 2005 Information System 

Controls 

6-08 12/21/05 

Audit of SBA’s FY 2005 Financial 

Statements — Management Letter 

6-10 1/18/06 

Human Capital Planning in the Office of 

Financial Assistance 

6-13 3/2/06 

Program Subtotal 9 $347,692 
Appendix

32 

Appendix I (cont.) 

OIG Reports Issued 

October 1, 2005, through March 31, 2006 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Government Contracting and 

Business Development

 

Monitoring Compliance with 8(a) BD 

Regulations During 8(a) BD Contract 

Performance

6-15 3/16/06 

The Central Contractor Registration Needs to 

Be Modified 

6-18 3/21/06 

Review of a Company’s 8(a) Business 

Development Program Eligibility

6-19 3/30/06 

Program Subtotal 3 $0 

TOTALS (all reports) 20 $ 481,366
Appendix

33 

Appendix II 

OIG Reports with Questioned Costs 

 Report

s 

Recommendations* Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision made 

by September 30, 2005 7 9 $5,609,892.10 $3,086,077.13 

B. Issued during this reporting 

period 4 4 $481,366.00 $0 

 Universe from which 

management decisions could be 

made in this reporting period – 

Subtotals 11 13 $6,091,258.10 $3,086,077.13 

C. Management decision(s) made 

during this reporting period 3 3 $1,930,385.73 $0 

 (i) Disallowed costs 0 0 $0 $0 

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

D. No management decision 

made by March 31, 2006 8 10 $3,914,412.37 $3,086,077.13 

* Reports may have more than one recommendation. 

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

documentation. 

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

 Reports Recommendations* 

Recommended 

Funds For Better 

Use 

A. No management decision made by 

September 30, 2005 2 2 $318,823.00 

B. Issued during this reporting period 0 0 0 

 Universe from which management 

decisions could be made in this reporting 

period – Subtotals 2 2 $318,823.00 

C. Management decision(s) made during this 

reporting period 1 1 $25,000.00 

 (i) Recommendations agreed to by 

SBA management 1 1 $25,000.00 

 (ii) Recommendations not agreed to 

by SBA management 0 0 $0 

D. No management decision made by 

March 31, 2006 1 1 $293,823.00 

*Reports may have more than one recommendation. 
Appendix

34 

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

 Reports Recommendations 

A. No management decision made by September 30, 2005 25 86 

B. Issued during this reporting period 12 56 

 Universe from which management decisions could be 

made in this reporting period – Subtotals 37 142 

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

recommendation in the report) during this reporting 

period 18 66 

D. No management decision made (for at least one 

recommendation in the report) by 

March 31, 2006 * 24 77 

*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. 
Appendix

35 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions 

as of March 31, 2006 

Title Report 

Number

Date 

Issued 

Status 

Impact of Loan Splitting on Borrowers 

and SBA 

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

the recommendation. 

Audit of SBA's Information Systems 

Controls FY 2003 

4-19 4/29/04 Agency has not responded to two 

recommendations made in the report. 

Audit of San Francisco District Office 

Administrative Activities Related to the 

Silicon Valley Small Business 

Development Center 

4-27 6/29/04 Management has not responded to one 

recommendation made in the report. 

Audit of an SBA-Guarantied Loan to 

Elatec Technology Corporation and HK 

Equipment, Inc. 

4-40 9/13/04 Agency response does not fully address 

the recommendation. 

Audit of Selected SBA Computer General 

Support Systems 

4-41 9/10/04 Agency has not responded to one 

recommendation made in the report. 

Audit of SBA's E-mail System 4-42 9/10/04 Agency response does not fully address 

the three recommendations. 

Audit of Early Defaulted Loan to Big Z 

Travel Center 

4-43 9/17/04 Management has not responded to one 

recommendation in the report. 

Audit Report – Summary Audit of SBASponsored and Cosponsored Events 

Conducted by District Offices 

4-44 9/24/04 Management has not responded to two 

recommendations. 

Review of Indirect Cost Rate of the 

Walsh Group, P.A. 

5-03 10/25/04 Management has not responded to one 

recommendation made in the report. 

Single Audit of the Mountain Made 

Foundation 

5-08 1/6/05 Management has not responded to three 

recommendations made in the report. 

Review of a Cooperative Agreement to 

HP Small Business Foundation 

5-11 2/11/05 Agency has not responded to one 

recommendation made in the report. 

Audit of SBA's Information Systems 

Controls FY 2004 

5-12 2/24/05 One recommendation is in management 

resolution. 

SBA Small Business Procurement 

Awards are Not Always Going to Small 

Businesses 

5-14 2/24/05 Agency has not responded to five 

recommendations made in the report. 

Review of the Mentor-Protégé Program 5-18 4/18/05 Agency has not responded to four 

recommendations made in the report. 

Audit of the Contract Bundling Process 5-20 5/20/05 Agency has not responded to five 

recommendations made in the report. 

Audit of the SBIC Liquidation Process 5-22 7/28/05 Nine recommendations made in the 

report are awaiting management 

response and pending results of a 

contractor’s report. 
Appendix

36 

Appendix V (cont.) 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions 

as of March 31, 2006 

Title Report 

Number

Date 

Issued 

Status 

Criteria for Overcoming the Presumption 

of Social Disadvantage is Needed 

5-24 9/28/05 Management has not responded to one 

recommendation in the report. 

Audit of SBA’s Informs Electronics 

System 

5-25 9/22/05 Agency response does not fully address 

the recommendation. 

Management Advisory Memorandum: 

BLX PLP Processing Restrictions for 

Paying off Existing SBA Debt. 

5-27 9/28/05 Agency response does not fully address 

the recommendation. 

Review of SBA Procedures for Cash 

Gifts 

5-28 9/30/05 Agency has not responded to four 

recommendations made in the report. 

Defaulted 9/11 Disaster Loan to CLB 

Publishers Inc. 

CP 5-02 2/14/05 Agency response does not fully address 

the recommendation. 
Appendix

37 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2006

Report 

Number 

Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

43H0060 8(a) Continuing Eligibility Reviews 9/30/94 12/30/94 10/30/02 

0-14 7(a) Service Fee Collections 3/30/00 8/22/00 12/31/04 

0-19 SDB Certification Program Obligations and 

Expenditures 

6/30/00 3/30/01 9/30/02 

0-30 SBA’s Administration of MBELEDF 

Cosponsorship 

9/30/00 3/26/01 ** 

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

1-12 SBA’s Information Systems Controls – FY 

2000 

3/27/01 *** ** 

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

A1-06 

Evaluation of SBA’s Computer Security 

Program 9/28/01 1/9/02 ** 

2-12 Improvements in the SBLC Oversight Process 3/20/02 *** 9/30/05 

2-17 SBA’s FY 2001 Financial Statements – 

Management Letter 

4/12/02 12/12/02 9/30/03 

2-18 SBA’s Information Systems Controls – FY 

2001 

5/6/02 *** ** 

2-29 Internal Control Over Colson Services 

Corporation’s Contract as Central Servicing 

Agent for SBA’s CDC Program 

9/16/02 12/12/02 6/30/06 

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

for the 7(a) Loan Program 

1/30/03 *** ** 

3-10 504 Loan Program Oversight 2/6/03 10/1/03 6/30/05 

3-14 TEP Consulting, Inc. 3/14/03 4/10/03 12/31/03 

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

Business Enterprise 

3/20/03 6/4/03 10/15/03 

3-20 SBA’s Information System Controls for FY 

2002 

3/31/03 *** ** 

3-21 Equity Injection in the SBA 7(a) Loan Guaranty 

Program 

3/31/03 5/27/04 2/18/05 

** Target dates vary with different recommendations. 

***Management decision dates vary with different recommendations. 
Appendix

38 

Appendix VI (cont.) 

OIG Reports Without Final Action as of March 31, 2006

Report 

Number 

Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

3-26 Microloan Program: Moving Toward 

Performance Management 5/13/03 *** ** 

3-30 Audit of an Early Defaulted Loan 6/19/03 12/21/04 10/31/05 

3-32 SBA’s Acquisition, Development and 

Implementation of the Joint Accounting and 

Administrative Management System 

6/30/03 *** ** 

3-33 SBIC Oversight 7/1/03 *** 4/30/05 

3-34 SBA’s Compliance with JFMIP Property 

Management System Requirements 7/23/03 9/11/03 12/30/06 

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

3-36 Audit of an Early Defaulted Loan 8/19/03 10/01/03 9/30/04 

4-09 Review of SBA Purchase Cards 1/26/04 8/24/04 3/31/05 

4-13 Audit of an Early Defaulted Loan 3/2/04 4/6/04 1/31/05 

4-15 SACS/MEDCOR: Ineffective and Inefficient 3/9/04 5/11/04 9/30/05 

4-16 SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence 

Contracts and Task Orders 

3/17/04 *** ** 

4-17 SBA’s FY 2003 Financial Statements – 

Management Letter 

3/23/04 5/14/04 ** 

4-18 SBA’s Loan Application Tracking System 4/5/04 *** ** 

4-19 SBA’s Information Systems Controls – FY 

2003 

4/29/05 *** ** 

4-22 Business Development Provided by the 8(a) 

Business Development Program 

6/2/04 7/14/04 ** 

4-26 Audit of an Early Defaulted Loan 6/22/04 7/1/04 3/31/05 

4-27 Audit of San Francisco District Office 

Administrative Activities Related to the Silicon 

Valley Small Center 

6/29/04 12/29/04 

** 

4-28 Audit of SBA-Guarantied Loan 7/9/04 10/6/04 3/31/05 

4-29 Audit of an Early Defaulted Loan 7/12/04 10/6/04 3/31/05 

** Target dates vary with different recommendations. 

***Management decision dates vary with different recommendations. 
Appendix

39 

Appendix VI (cont.) 

OIG Reports Without Final Action as of March 31, 2006

Report 

Number 

Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

4-32 Audit of SBA-Guarantied Loan 7/29/04 10/6/04 3/31/05 

4-34 SBA’s Process for Complying with the FMFIA 

Reporting Requirements 7/29/04 9/9/04 4/30/05 

4-35 Single Audit of Federal Financial Assistance 

Program Service Corps of Retired Executives 

(SCORE) 

8/03/04 1/12/05 6/30/05 

4-36 Audit of an Early Defaulted Loan 8/10/04 10/6/04 3/31/05 

4-39 Memorandum Advisory Report – the Transfer 

of Operations to the National Guaranty 

Purchase Center 

8/31/04 *** 9/30/05 

4-41 Audit of Selected SBA General Support 

Systems 9/10/04 *** ** 

4-42 Audit of SBA’s E-mail System 9/10/04 *** ** 

4-44 SBA-Sponsored and Cosponsored Events 

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

5-02 Advisory Memorandum Report – Independent 

Evaluation of SBA’s Information Security 

Program 

10/7/04 2/4/05 9/30/05 

5-03 Review of Indirect Cost Rate of the Walsh 

Group, P.A. 10/25/04 1/12/05 6/30/05 

5-04 Review of the Small Disadvantaged Business 

Certification Program 11/4/04 4/1/05 ** 

5-09 Memorandum Advisory Report – Pre-Demand 

and Demand Letters for Delinquent 9/11 

Disaster Loans 

1/11/05 3/8/05 7/10/05 

5-12 Audit of SBA’s Information Systems Controls – 

FY 2004 2/24/05 *** ** 

5-13 SBA’s FY 2004 Financial Statements – 

Management Letter 2/23/05 *** ** 

5-17 SBA’s Continuity of Operations Planning 

Program 3/30/05 5/3/05 ** 

** Target dates vary with different recommendations. 

***Management decision dates vary with different recommendations. 
Appendix

40 

Appendix VI (cont.) 

OIG Reports Without Final Action as of March 31, 2006

Report 

Number 

Title Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

5-19 Advisory Memorandum Report – Consolidation 

of SBA’s Systems Subject to FISMA 5/20/04 *** 12/30/05 

5-23 SBA’s Administration of its Special 

Appropriation Grant 9/24/04 *** ** 

6-07 Review of the 1502 Reporting Process 12/9/05 1/9/05 

** Target dates vary with different recommendations. 

***Management decision dates vary with different recommendations. 
Appendix

41 

Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final 

Action 

Target 

Date 

43H006021 9/30/94 Establish procedures for determining 

whether Section 8(a) participants should no 

longer be considered economically 

disadvantaged based on their ownership 

interest in their 8(a) firm, the equity and 

market value of their primary residence, and 

the net worth of their spouses.

10/30/94 10/30/02

1-11 3/27/01 Ensure that 8(a) performance plans include 

indicators for determining how effectively 

and efficiently the Section 8(a) program is 

operating. 

9/28/01 7/31/03 

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

supervisory and enforcement actions for 

Small Business Lending Companies. 

8/27/02 9/30/06 

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 11/17/03 

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

and transfer agent (FTA) activities and 

terminate the existing contract with the FTA 

when a new contract can be enacted. 

12/10/03 3/31/06 

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

costs for fees and services. Report these 

contract costs in proposed Master Reserve 

Fund (MRF) financial statements so future 

FTA contracts will have historical cost data 

for comparison purposes.

10/15/03 11/17/03

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

42 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final 

Action 

Target 

Date 

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

performance aspects to address financial 

risk, address the specific requirements of 

the Section 504 loan program, and 

incorporate a performance-driven scoring 

system. 

10/01/03 12/31/03 

3-33 7/1/03 Revise Standard Operating Procedure (SOP) 

on Small Business Investment Companies 

(SBICs) to ensure it includes requirements 

to perform quarterly risk assessments for 

capitally impaired SBICs, include an 

analysis of potential for repayment of 

outstanding leverage, and determine what 

criteria should be used to recommend an 

SBIC be transferred to liquidation. 

10/6/03 4/5/05 

3-33 7/1/03 Revise SOP 10 06 to ensure that the 

implementation of restrictive operations 

addresses: (1) appropriate levels of 

impairment requiring restrictive operations; 

(2) time periods SBICs should remain in 

restrictive operations; (3) appropriateness of 

remedies or combination of remedies that 

should be used and under what 

circumstances; and (4) whether forbearance 

regulations preclude the application of 

restrictive operations. 

10/24/04 9/30/05 

3-36 8/19/03 Seek recovery of $282,447 from the 7(a) 

lender less any subsequent recoveries. 

10/1/03 9/30/04 

4-27 6/29/04 Direct the San Francisco District Director to 

instruct the San Jose SCORE Chapter to 

return all Silicon Valley SBDC program 

income that was generated at the e-Center 

and is being held at the e-Center Special 

Account to West Valley Community 

College. 

12/29/04 7/6/06 

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

43 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number 

Date 

Issued 

Recommendation Management 

Decision Date 

Final 

Action 

Target 

Date 

4-28 7/9/04 Seek recovery of $142,549 from the 7(a) 

lender. 

10/6/04 3/31/05 

4-36 8/10/04 That the Associate Administrator seek 

recovery of the SBA guaranty repair of 

$740,000 from the 7(a) lender. 

10/6/04 3/31/05 

4-39 8/31/04 Determine the appropriate number of loan 

officers, supervisors and attorneys to be 

assigned to the Herndon center by (1) 

establishing the elements of quality for the 

purchase and liquidation action review 

process; (2) determining how much time it 

takes to complete a quality review at each 

level (loan officer, supervisor, attorney); 

and (3) computing the staffing levels needed 

to complete the estimated annual purchase 

and liquidation action workloads at an 

acceptable level of quality. 

4/13/05 9/30/05 

5-04 11/4/04 That the Acting Associate Administrator for 

Business Development develop and 

implement procedures to ensure that Small 

Disadvantaged Business (SDB) reviewers 

properly apply all four criteria for 

determining economic disadvantage, per 13 

CFR 124.104(c), using 8(a) Program 

thresholds for maximum income and total 

assets, and industry financial performance 

comparisons. 

4/1/05 9/30/05 

5-04 11/4/04 That the Acting Associate Administrator for 

Business Development develop and 

implement procedures to ensure that 

eligibility reviewers recommend denial of 

SDB certification if a firm or any of its 

principals do not comply with 13 CFR 

124.108(e). 

4/1/05 9/30/05 

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

44 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number 

Date 

Issued 

Recommendation Management 

Decision Date 

Final 

Action 

Target 

Date 

5-09 1/11/05 Revise SOP 50 51 2 to direct servicing 

centers to send timely pre-demand and 

demand letters to delinquent borrowers. 

Such letters should be maintained in the 

loan file. 

3/8/05 7/10/05 

5-12 2/24/05 For all SBA internal and contractor 

supported general support systems and 

major applications, e.g., Egan Mainframe, 

SBA and Corio UNIX, Network and 

Windows 2000; Loan Accounting System, 

Sybase, Mainframe, JAAMS Oracle, and 

related application functions: (1) develop 

and document policies and procedures 

clearly outlining what activities should be 

logged, who should be responsible for 

reviewing logs, what the logs should be 

reviewed for, how often logs should be 

reviewed, and how long logs should be 

retained; (2) assign responsibility within the 

Office of the Chief Information Officer 

(OCIO) Security for the review of 

application and general support system 

security logs; and (3) retain audit logs for a 

sufficient period of time (at least 90 days). 

4/18/05 4/15/06 

5-12 2/24/05 For the Loan Accounting System (LAS): 

(1) provide software developers, testers, and 

IT management with ongoing training in 

software development, testing and 

acceptance procedures; (2) define sufficient 

documentation standards for LAS, and 

(3) define sufficient test standards and 

procedures for LAS. 

6/22/05 3/31/06 

5-17 3/30/05 Assign overall Continuity of Operations 

Program (COOP) Business Resumption 

Program oversight responsibilities to the 

Office of Chief Operating Officer. 

5/3/05 6/1/05 

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

45 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number 

Date 

Issued 

Recommendation Management 

Decision Date 

Final 

Action 

Target 

Date 

5-17 3/30/05 That the Chief Operating Officer require 

that personnel named in the SBA COOP 

and BRP participate in plan testing so that 

they understand their duties if plan 

activation is needed. 

5/3/05 12/31/05 

5-17 3/30/05 Annually test the SBA COOP and a 

percentage of all headquarters and field 

office BRP every year to ensure 

compliance, and therefore determine if the 

plans tested are adequate. Full testing of all 

SBA program and field office BRPs should 

occur at least every 4 years to ensure that all 

BRPs are sufficient and that program and 

field offices have viable, complete and 

tested BRPs. 

5/30/05 12/31/05 

5-22 7/28/05 Revise SOP 10 07 to require the 

development of meaningful goals and 

performance indicators that will measure 

the efficiency, effectiveness, and timeliness 

of the efforts of the Office of Small 

Business Investment Companies (SBIC) 

Liquidation and to include procedures to 

monitor periodically how well the Office of 

Liquidation (OL) is achieving its goals. 

8/27/05 1/24/06 

5-22 7/28/05 Revise SOP 10 07 to require the 

development of meaningful goals and 

performance indicators that will measure 

the efficiency, effectiveness, and timeliness 

of each liquidation method. 

8/27/05 1/24/06 

5-22 7/28/05 Incorporate the goals and performance 

indicators into the Agency’s annual 

performance plan and use them to monitor 

and assess the progress towards achieving 

SBIC liquidation goals. 

8/27/05 1/24/06 

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

46 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number 

Date 

Issued 

Recommendation Management 

Decision Date 

Final 

Action 

Target 

Date 

5-22 7/28/05 Restructure contracts with SBIC 

receivership agents to include performance 

standards that will be used to assess 

performance. 

8/27/05 1/24/06 

5-22 7/28/05 Revise SOP 10 07 to require periodic 

assessments of each SBIC receivership’s 

progress and operations by comparing the 

monthly invoices and periodic status 

meeting results to pre-set performance 

standards. 

8/27/05 1/24/06 

5-22 7/28/05 Ensure that each case file includes 

documented evidence that OL staff 

considered all liquidation methods. 

8/27/05 1/24/06 

5-22 7/22/05 Track the costs for each liquidation case and 

summarize all costs by liquidation method 

yearly. After a reasonable period of time, 

these historical costs should be used for cost 

analyses. 

8/27/05 1/24/06 

5-22 7/22/05 Revise SOP 10 07 to (1) require a 

documented cost analysis be included in the 

selection process for each SBIC liquidation 

case. An exception would be cases for 

which the suspicion of fraud is the 

motivating factor for selecting the 

liquidation method. If fraud is suspected, the 

case file should be appropriately 

documented; and (2) include the additional 

liquidation methods of: (a) using 

commission-based contractors to sell 

acquired assets and (b) selling SBA’s equity 

and debt interest in the SBICs. 

8/27/05 1/24/06 

5-22 7/22/05 Revise SOP 10 07 to require OL staff to 

obtain, for the sale of portfolio assets by an 

SBIC, verification that the sale was made at 

commercially reasonable terms. 

8/27/05 1/24/06 

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

47 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2006* 

Report 

Number 

Date 

Issued 

Recommendation Management 

Decision Date 

Final 

Action 

Target 

Date 

5-22 7/22/05 Revise SOP 10 07 to require OL staff to 

ascertain, for the sale of portfolio assets by 

an SBIC, whether the buyer was an 

associate of the SBIC. 

8/27/05 1/24/06 

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

48 

Appendix VIII

6-Month Significant Recommendations Summary 

as of March 31, 2006 

Report 

Number 

Title Date 

Issued 

Recommendation 

6-03 Single Audit of Greenpoint 

Manufacturing and Design 

Center 

10/17/05 That the Assistant Administrator for 

Administration take appropriate action in 

accordance with Office of Management and 

Budget guidance to recover questioned costs 

or obtain supporting documentation. 

6-07 1502 Reporting Process 12/9/05 That the Associate Deputy Administrator for 

Capital Access ensure that an automated 

process is initiated to identify and re-classify 

all loans not reported on the monthly SBA 

Form 1502 submission to delinquent status. 

6-09 Audit of SBA’s 

Administration of the 

Supplemental Terrorist 

Activity Relief (STAR) Loan 

Program 

12/22/05 For future special programs where 7(a) loans 

are used for nationwide disaster relief, require 

loan applications to justify how the business 

was harmed by the disaster. 

6-09 Audit of SBA’s 

Administration of the STAR 

Loan Program 

12/22/05 For future special programs where 7(a) loans 

are used for nationwide disaster relief, require 

lenders to obtain supporting documentation to 

verify applicant claims of injury and provide 

detailed justifications showing applicant 

eligibility. 

6-09 Audit of SBA’s 

Administration of the STAR 

Loan Program 

12/22/05 For future special programs where 7(a) loans 

are used for nationwide disaster relief, 

implement effective internal controls and 

program oversight to ensure borrower 

eligibility and lender compliance. 

6-09 Audit of SBA’s 

Administration of the STAR 

Loan Program 

12/22/05 That the Office of Capital Access establish 

criteria, in consultation with the Office of 

General Counsel (OGC) to provide more 

definitive guidance and examples for 

purchase reviewers to use in determining 

what constitutes an inadequate justification 

for STAR eligibility. 
Appendix

49 

Appendix VIII (cont.)

6-Month Significant Recommendations Summary 

as of March 31, 2006 

Report 

Number 

Title Date 

Issued 

Recommendation 

6-09 Audit of SBA’s 

Administration of the STAR 

Loan Program 

12/22/05 Review guaranties the Agency has already 

paid under the STAR loan program, obtaining 

additional records from lenders as necessary, 

to determine whether lenders were paid 

despite the absence of adequate borrower 

eligibility justifications. If lenders had 

inadequate justifications, determine, in 

consultation with the Office of General 

Counsel, whether SBA should reclassify the 

loans as 7(a) loans (if budget authority 

remains available) or seek recovery of the 

guaranties from the lenders. 

6-10 Audit of SBA’s FY 2005 

Financial StatementsManagement Letter 

1/18/06 That the Chief Financial Officer (CFO) 

coordinate with the Office of Field 

Operations (OFO) to train SBA field office 

administrative and accounting staff in 

procedures for requisitioning services and 

obligating funds. 

6-10 Audit of SBA’s FY 2005 

Financial StatementsManagement Letter 

1/18/06 That the CFO continue to enhance its quality 

assurance and review process to prevent and 

detect errors or misstatements in amounts 

recorded in SBA's financial accounting 

systems. Specifically, we recommend that the 

Office of Financial Assistance (OFA) clearly 

identify the loan programs and amount of 

estimate associated with each, and that the 

Accounting Liaison and Quality Assurance 

group (ALQA) strengthen its controls to 

ensure that the alignment entry is recorded 

correctly. 

6-10 Audit of SBA’s FY 2005 

Financial StatementsManagement Letter 

1/18/06 That the CFO retain and have readily 

available for review supporting 

documentation for all transactions recorded in 

the general ledger, including guaranty 

cancellation requests received from the 

lenders. 
Appendix

50 

Appendix VIII (cont.)

6-Month Significant Recommendations Summary 

as of March 31, 2006 

Report 

Number 

Title Date 

Issued 

Recommendation 

6-10 Audit of SBA’s FY 2005 

Financial StatementsManagement Letter 

 That the CFO coordinate with the Office of 

Administration and the OFO to implement 

controls to ensure that the accountable 

property system remains current and accurate 

throughout the year, not only after completion 

of the annual inventory. 

6-14 Audit of SBA-Guarantied 

Loan to Ford’s Plumbing 

3/2/06 That the Associate Administrator for 

Financial Assistance seek recovery of 

$26,143 from the lender on the guaranty paid, 

less subsequent recoveries, for loan to Ford’s 

Plumbing. 

6-15 Monitoring Compliance with 

8(a) Business Development 

(BD) Regulations During 

8(a) BD Contract 

Performance 

3/16/06 That the Associate Deputy Administrator for 

Government Contracting revise the 

partnership agreements so that procuring 

agencies are specifically required to: (1) 

monitor 8(a) BD companies’ compliance with 

specified contract and Federal Acquisition 

Regulations (FAR) requirements, and 8(a) BD 

regulations; 

(2) inform contracting officers and technical 

representatives of their responsibilities 

concerning 8(a) compliance; and 

(3) acknowledge that SBA can take back the 

delegation authority if it does not adequately 

monitor 8(a) BD company compliance with 

8(a) BD regulations. 

6-15 Monitoring Compliance with 

8(a) BD Regulations During 

8(a) BD Contract 

Performance 

3/16/06 That the Associate Administrator for Field 

Operations ensure surveillance reviews of 

procuring agencies are conducted on a regular 

basis. These surveillance reviews should 

ensure that procuring agencies are effectively 

monitoring for and enforcing compliance with 

specified 8(a) BD regulations. 

6-16 Audit of SBA-Guarantied 

Loan to Furco, Inc. 

3/20/06 That the Associate Administrator for 

Financial Assistance seek recovery of $18,922 

from the lender on the guaranty paid for loan 

to Furco, Inc. 
Appendix

51 

Appendix VIII (cont.)

6-Month Significant Recommendations Summary 

as of March 31, 2006 

Report 

Number 

Title Date 

Issued 

Recommendation 

6-17 Audit of SBA-Guarantied 

Loan to ScapeArt, Inc. 

3/20/06 That the Associate Administrator for 

Financial Assistance seek recovery of $88,269 

from the lender on the guaranty paid for loan 

to ScapeArt, Inc., less subsequent collections. 

6-19 Review of a Company’s 8(a) 

BD Program Eligibility 

3/30/06 That the Associate Administrator for Business 

Development take the necessary steps to 

remove the company from the 8(a) BD 

Program. 

6-20 Interface Error Correction 

between NEMIS and DCMS 

3/31/06 That SBA coordinate with the Federal 

Emergency Management Agency (FEMA) to 

establish a Configuration Change Control 

Board and updated National Emergency 

Management Information System (NEMIS)-

Individuals & Households & SBA Interface 

Requirements Specifications with defined 

responsibilities for data element ownership, 

data administration and data correction 

responsibilities within both SBA's Disaster 

Credit Management System (DCMS) and 

FEMA's NEMIS for all records transmitted 

between SBA and FEMA. 

6-20 Interface Error Correction 

between NEMIS and DCMS 

3/31/06 That SBA coordinate with FEMA to identify 

the conditions that will cause records to abort 

status update processing. Design appropriate 

program edits to prevent and report these 

conditions. Update the interface 

documentation to include these conditions. 

6-20 Interface Error Correction 

between NEMIS and DCMS 

3/31/06 That SBA coordinate with FEMA to develop 

a formalized error resolution process with 

trouble tickets and mechanisms to identify 

specific aborted record processing. 
Appendix

52 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2005, through March 31, 2006 

Name/Subject of 

Event 

Date 

Event 

Begins 

Date 

Event 

Ends 

Location of 

Event Name(s) of Cosponsor(s) 

B2B Matchmaker 

Primer Workshop 

and B2B 

Matchmaker 

Conference 

4/12/06 5/17/06 Fairfield, CT Greater Valley Chamber of 

Commerce 

Cyber Security Is 

Good Business 6/5/06 6/30/06 

Bismarck & 

Fargo, ND, Rapid 

City & Sioux 

Falls, SD, 

Minneapolis, MN, 

Colorado Springs 

& Denver, CO, 

Cheyenne & 

Casper, WY 

FBI, National Institute of Standards 

and Technology 

Small Business 

Training 3/16/06 7/31/06 San Jose, CA 

City of San Jose, San Jose State 

University Foundation, Cisco 

Systems, Inc., BAAGGL, Chevron 

Corporation, Greater Bay Bank 

Corporation, Microsoft Corporation, 

Sprint Nextel Corporation, Bridge 

Bank National Association 

Grow Your 

Business 

Workshops and 

San Bernardino 

County 2006 

Business 

Workshops 

3/21/06 11/21/06 Cucamonga, CA The County of San Bernardino 

Economic Development Agency 

Government 

Contracting 

Seminars 

3/14/06 9/26/06 Augusta, ME Maine Procurement Technical 

Assistant Center 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

53 

Appendix IX (cont.) 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2005, through March 31, 2006 

Name/Subject of 

Event 

Date 

Event 

Begins 

Date 

Event 

Ends 

Location of 

Event Name(s) of Cosponsor(s) 

10th Bi-Annual 

Small Business 

Procurement 

Fair/High Tech 

Matchmaker 

4/28/06 4/28/06 Upton, NY Brookhaven National Laboratory 

SBA Day 3/8/06 3/8/06 Victorville, CA Desert Community Bank 

VT 9th Annual 

Women’s 

Economic 

Opportunity 

Conference 

11/5/05 11/5/05 Randolph, VT 

Office of Senator Patrick Leahy, US 

Department of Labor, Women’s 

Bureau, VT Agency of 

Transportation, VT Commission on 

Women, VT Secretary of State, VT 

Women’s Business Center, Central 

VT Community Action Council, VT 

Attorney General, VT Department of 

Labor, VT Agency of Human 

Services, Economic Services 

Division, VT Interactive Television, 

VT Department of Economic 

Development, VT Manufacturing 

Extension Center and VT SBDC 

Mentor/Protégé 

Program and 

Smart Business 

Talk Workshops 

2/23/05 11/28/06 East Point, GA Women's Employment Opportunity 

Project, Inc. 

Free Surety 

Bonding/Working 

Capital Financing 

Conference 

3/2/06 3/2/06 New York, NY New York City Department of Small 

Business Services 

How to Start and 

Manage a Small 

Business 

2/18/06 2/18/06 Baltimore, MD Memorial Baptist Church, Central 

Region MD SBDC Subcenter 

The Black 

Business 

Conference 2006 

2/28/06 2/28/06 Detroit, MI Bank One, Alpha Phi Alpha 

Fraternity, Inc. 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

54 

Appendix IX (cont.) 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2005, through March 31, 2006 

Name/Subject of 

Event 

Date 

Event 

Begins 

Date 

Event 

Ends 

Location of 

Event Name(s) of Cosponsor(s) 

Business 

Planning Training 

Tutorial 

2/06 8/31/07 World Wide Web Palo Alto Software, Inc. 

Federal 

Contracting 

Matchmaking 

Event 

2/3/06 2/3/06 San Juan, PR Colegio de Ingenieros y 

Agrimensores de Puerto Rico 

Entrepreneurship 

& Revitalization 

in New Orleans 

& the Gulf 

Region 

4/11/06 4/11/06 New Orleans, LA The Kauffman Foundation and Public 

Forum Institute 

Publication of 

West Virginia 

Small Business 

Resource Guide 

and Website 

3/1/06 12/31/06 

State of Virginia 

and World Wide 

Web 

WV Publishing, LLC 

Small Business 

Week 2006 4/12/06 4/13/06 Washington, DC 

SCORE, Sam's Club, Raytheon 

Corporation, BAE Systems, Cisco 

Systems, Fiducial, Inc., Microsoft 

Corporation, Johnson & Johnson, 

Symantec Corporation, Verizon 

Communications, Inc., KBR, Intel 

Corporation, IBM Corporation, Aetna 

Foundation, Nationwide Financial 

Services, Administaff, U.S. Postal 

Service, The Ewing Marion 

Kauffman Foundation 

Minority 

Business 

Leadership 

Forum 

2/1/06 2/1/06 Detroit, MI National Football League, Detroit 

Urban League 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

55 

Appendix IX (cont.) 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2005, through March 31, 2006 

Name/Subject of 

Event 

Date 

Event 

Begins 

Date 

Event 

Ends 

Location of 

Event Name(s) of Cosponsor(s) 

Business 

Matchmaking and 

Business 

Matchmaking 

Online 

1/06 9/30/07 

San Francisco, 

CA, Houston, 

TX, Washington, 

DC and Miami, 

FL 

Hewlett Packard, SCORE, 

Administaff LP, MasterCard 

International, American Airlines, 

FedEx, eAgency, Aflac, AMD, 

Lockheed Martin Aeronautics, 

Chevron 

Project Restore 

HOPE/Small 

Business 

12/05 12/30/06 Call Centers Operation HOPE, Inc. 

Business 

Leadership 

Workshop Series 

12/1/05 2/7/06 Freeport, NY 

Nassau County Office of Minority 

Affairs, Office of Economic 

Development and Freeport Memorial 

Library 

Fundamentals of 

Retirement 

Income Planning 

11/29/05 5/18/06 Washington, DC Fidelity Brokerage 

Development of 

Educational 

Products; Loss 

Control Guide 

and Disaster 

Recovery Guide 

10/05 10/07 Columbus, OH Nationwide Mutual Insurance 

Company 

Minority 

Enterprise 

Development 

Week Brunch 

11/17/05 11/17/05 Los Angeles, CA U.S. Department of Commerce, 

MBDA City of Los Angeles 

HUBZONE 

Forums 11/05 12/2/05 

South Paris, 

Farmington, 

Skowhegan, 

Dover-Foxcroft, 

Presque Isle, 

Houlton, and 

Machias, ME 

The Office of Olympia Snowe 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

56 

Appendix IX (cont.) 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2005, through March 31, 2006 

Name/Subject of 

Event 

Date 

Event 

Begins 

Date 

Event 

Ends 

Location of 

Event Name(s) of Cosponsor(s) 

Federal 

Contracting 

Matchmaking 

Event 

11/14/05 11/14/05 San Juan, PR Municipality of San Juan 

MED Week 

Awards 

Reception, MED 

Week 

Presentation of 

Awards, A Series 

of Small Business 

Workshop and 

Business Expo 

11/14/05 11/18/06 Cranston, RI Hispanic American Chamber of 

Commerce 

Strategies for 

Winning 

Government 

Contracts: 

Practical Tips and 

Hands-On-Help 

for Small 

Business 

2/2/06 2/2/06 Burlington, VT 

VT Agency of Transportation, VT 

Dept. of Buildings and General 

Services, VT Department of 

Economic Development, VT Agency 

of Natural Resources, VT 

Manufacturing Extension Center, VT 

SBDC and the Federal Highway 

Administration 

Procurement 

Matchmaking 

Symposium and 

Awards 

Luncheon 

10/27/05 10/27/05 El Paso, TX 

El Paso Hispanic Chamber of 

Commerce and El Paso Community 

College 

Disaster 

Readiness 

Workshops for 

Small Business 

2/28/06 4/27/06 Cranston, RI 

Central Rhode Island Chamber of 

Commerce, Cranston Chamber of 

Commerce, Newport County 

Chamber of Commerce, Newport 

County Chamber of Commerce, Code 

Red Business Continuity Services, 

LLC 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

57 

Appendix IX (cont.) 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2005, through March 31, 2006 

Name/Subject of 

Event 

Date 

Event 

Begins 

Date 

Event 

Ends 

Location of 

Event Name(s) of Cosponsor(s) 

Disaster 

Recovery 

Assistance for 

Small Businesses 

Affected by 

Hurricanes 

Katrina and Rita 

10/05 9/30/06 New Orleans, LA 

University of Louisiana at Monroe, 

The Good Work Network, Urban 

League of Greater New OrleansWomen's Business Resource Center 

Small Business 

Symposium 10/22/05 10/22/05 Lynchburg, VA Liberty University 

SBA New York 

Monthly Small 

Business Success 

Series 

10/6/05 3/16/06 New York, NY KIP Business Report 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

58 

Appendix X

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

CA BL The former owner of a grocery market 

submitted altered Federal income tax 

returns as part of his loan application 

for a $1 million SBA-guarantied loan. 

Former owner 

sentenced to 

12 months and one 

day in prison, 5 years 

probation, a $10,000 

fine, and $197,463.76 

in restitution. 

FBI 

CA BL The owner of a telecommunications 

firm provided false information about 

his company’s financial condition, 

number of employees, and length of 

time in existence during the loan 

application process for a $50,000 SBA 

Express loan. 

Owner sentenced to 

5 years probation, 

$50,000 in 

restitution, and a 

$200 fine. 

GCPD 

DC SBIC The former manager of a Small 

Business Investment Company (SBIC) 

converted for personal use money 

received from the SBA. The SBIC was 

licensed and funded by SBA to lend 

money to start-up technology 

businesses.

Owner sentenced to 

70 months in prison, 

5 years supervised 

release, a $1,001 fine, 

and restitution of 

over $1.9 million. 

FBI 

DC GC A company, providing technology 

products and services to the 

Government, misrepresented its size 

status on its application for inclusion 

on GSA’s Multiple Award Schedule. 

Company paid a 

$1 million civil 

settlement. 

GSA/OIG 

IL BL The former president of a gas station/ 

convenience store, who obtained a 

$160,000 SBA-guarantied loan, was 

charged with falsely claiming to be a 

U.S. citizen on multiple loan 

application documents. 

Former president was 

indicted and 

subsequently 

arrested. 

DHS/ICE 

IL BL The former owner of an electrical 

supply store allegedly falsified a 

company tax return and forged his 

accountant’s signature. The former 

owner’s actions were done in an effort 

to assist the prospective buyers in 

securing an SBA-guarantied loan of 

$1.1 million to purchase the business. 

Owner charged by 

criminal information. 

FBI 
Appendix

59 

Appendix X (cont.)

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

IL BL An SBA loan packager and an attorney 

were involved in a multi-faceted fraud 

scheme relating to a $1.25 million SBA 

business loan for the purchase of an 

Illinois restaurant. 

Loan packager 

sentenced to 1 year 

probation with 

6 months home 

detention and 

electronic 

monitoring. He was 

also ordered to cease 

any further 

involvement in SBA 

programs and to pay 

a $2,400 fine. The 

attorney received 

12 months plus one 

day in prison, 2 years 

supervised release, 

and a $40,000 fine. 

FBI, IRSCID 

IL BL The president of a graphic art studio 

agreed to create a counterfeit U.S. 

Certificate of Naturalization for an 

SBA loan applicant. The applicant was 

attempting to secure a $594,000 SBA 

loan through the 504 loan program. 

The applicant and his wife were 

previously indicted. 

President pled guilty. DHS/ICE 

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 million SBA-guarantied loan. 

The president was previously charged 

with falsely claiming to be a U.S. 

citizen on his loan application. 

President and 

secretary pled guilty. 

DHS/ICE 
Appendix

60 

Appendix X (cont.)

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

MI BL The president and secretary of an auto 

service center and a former owner of a 

construction company allegedly 

conspired to obtain a $1.1 million 

SBA-guarantied loan for the service 

center. The three are charged with 

falsely claiming that the construction 

company had completed $210,000 in 

repairs and renovations to the auto 

service center prior to the loan closing. 

All three defendants 

indicted and warrants 

issued for their arrest. 

DHS/ICE 

MI BL The president of a gas station and 

convenience store allegedly failed to 

disclose his criminal record when 

applying to assume an existing SBAguarantied loan of about $640,000. 

President indicted. DHS/ICE 

MO BL The former president and secretary of a 

child care center falsified the required 

equity injection in order to obtain a 

$311,000 SBA-guarantied loan. 

Former president and 

secretary debarred 

from participating in 

Federal 

programs/procurement 

transactions for a 

period of 3 years. 

None 

NV BL Co-owners of four floral shops 

submitted fraudulent applications for 

six SBA Express loans using false 

identity information and financial data. 

Both owners ordered 

to pay joint 

restitution of 

$200,000. 

DSDS, 

LVPD, USSS 

NY DL In the wake of the 9/11 terrorist 

attacks, the owner of a New York 

business applied for, and received, a 

$646,900 SBA disaster loan for his 

company, a seller of motor vehicles 

and parts to the United Nations. 

Instead of paying off vendors as he had 

agreed to do, the borrower allegedly 

forged the endorsement of the vendors 

in order to use the funds for a new 

business he had started. 

Owner indicted. One 

vendor charged by 

criminal information. 

USPIS 
Appendix

61 

Appendix X (cont.)

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

NY DL A former attorney received an SBA 

disaster loan for $247,000 based on his 

claim of lost revenue as a result of the 

2001 terrorist attacks in New York 

City. The attorney claimed he was not 

able to utilize his downtown office for 

6 weeks due to its proximity to the 

World Trade Center. The investigation 

revealed that his firm was never 

located at the address he provided. 

Former attorney 

sentenced to 

18 months in prison, 

3 years supervised 

release, and ordered 

to pay $18,500 in 

outstanding 

restitution. 

IRS 

NY DL When applying for disaster loans of 

$216,800 and $80,000, the owner of 

two telecommunications firms 

misrepresented that his companies 

were located at the World Trade Center 

on September 11, 2001. 

Owner was sentenced 

to 3 years probation 

and ordered to pay 

$80,000 in 

restitution. 

USPIS 

NY DL A woman submitted disaster loan 

applications to SBA and FEMA, 

falsely representing that her furniture 

and car had been destroyed by debris 

from the World Trade Center terrorist 

attacks on September 11, 2001. 

Woman sentenced to 

4 months home 

confinement, 3 years 

probation, and 

$1,168 in restitution. 

DHS/OIG 

PR GC An attorney allegedly interfered with 

and obstructed the investigation into 

illegal kickback payments made by his 

client, an SBA 8(a) engineering 

contractor. His client previously pled 

guilty to paying kickbacks to a former 

restaurant manager in exchange for 

electrical contract jobs, and is awaiting 

sentencing. 

Attorney convicted 

by jury trial on 

conspiracy and 

obstruction charges. 

Restaurant manager 

convicted by jury 

trial and sentenced to 

1 year and 1day in 

prison and 2 years 

supervised release. 

GSA/OIG 
Appendix

62 

Appendix X (cont.)

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

SC DL The owner of a manufactured home 

sales dealership obtained a disaster 

loan for $487,600 for economic 

injuries resulting from the 9/11 

terrorist attacks. The owner is charged 

with falsely representing that his 

finance company was located in New 

York City and had stopped financing 

manufactured homes due to the 

attacks. 

Owner indicted. FBI 

TN BL The president of a pager and cellular 

telephone retailer induced a bank and 

SBA to fund a $100,000 SBAguarantied loan by submitting invoices 

that inflated the selling price of the 

business and the value of the equipment 

being purchased. She then pocketed the 

difference between the actual price and 

the reported sales price. 

President convicted 

by jury trial. 

None 

TX BL A borrower for a food mart 

fraudulently obtained with his brother a 

$1 million SBA-guarantied loan and a 

$390,000 companion loan. The 

borrower represented that he used 

personal assets to purchase real estate 

for the food mart. Bank records 

indicate the borrower received a 

majority of the money from his brother 

who already had an SBA-guarantied 

loan. 

Borrower sentenced 

to 3 years probation 

and a $5,000 fine. 

His brother was 

sentenced to 3 years 

probation and a 

$71,000 fine. Both 

have been debarred 

from doing business 

with SBA. 

DHS/ICE 

TX BL When applying for a $286,200 SBAguarantied loan, a borrower for a 

convenience store falsely claimed to be 

a U.S. citizen, failed to disclose a 

pending lawsuit, falsified the origin of 

the cash injection, and provided false 

documentation. 

Borrower sentenced 

to 18 months 

probation. 

DHS/ICE, 

TEXASABC 
Appendix

63 

Appendix X (cont.)

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

TX BL A restaurant owner inflated personal 

property values and net worth to 

influence financial institutions to 

approve two SBA-guarantied loans and 

a bank line of credit totaling 

$1.078 million. He then utilized 

financial proceeds from the loans for 

personal expenses. 

Owner sentenced to 

5 years probation and 

ordered to pay over 

$1.1 million in 

restitution. 

FBI, IRS 

TX BL A loan broker, an escrow company 

owner, a relative of a borrower, and 

several other co-conspirators falsely 

obtained nine SBA loans totaling 

$9.5 million for convenience stores. 

SBA’s guarantied portion was over 

$6.5 million. The investigation 

revealed a conspiracy in which 

borrowers would submit false and 

fraudulent documents, artificially 

inflate checking account deposits, and 

use loan proceeds to fund equity 

injections when applying for loans. 

Loan broker 

sentenced to 

41 months in prison 

and 3 years 

probation. Escrow 

company owner 

sentenced to 

60 months in prison 

and 3 years 

supervised release. 

The relative of 

borrower sentenced 

to 15 months in 

prison and 2 years 

supervised release. 

These defendants 

were ordered to pay a 

total of $11,813,127 

jointly with two other 

co-conspirators. 

FBI 

TX BL A business owner allegedly falsified 

the capital injection to obtain a 

$640,000 SBA-guarantied loan to 

purchase several food stores, and then 

transferred ownership of the properties 

without notifying the SBA. 

Owner and a coconspirator were 

charged in a criminal 

complaint. 

TEXASABC 

UT BL Three corporate officers of a landscape 

company allegedly failed to disclose 

owing delinquent payroll taxes when 

they applied for two separate SBA 

loans totaling $470,100. 

All three indicted. None 
Appendix

64 

Appendix X (cont.)

Legal Actions Summary 

October 1, 2005, through March 31, 2006 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With: 

VA GC The former president and vice 

president of a construction company 

conspired to make misrepresentations 

to SBA in order to maintain the 

company’s 8(a) eligibility status. They 

also conspired with the general 

manager of an environmental services 

company to provide false hazardous 

environmental training certificates to 

the government. 

Former president 

sentenced to 

5 months in prison 

and a $1 million fine; 

his construction 

company was ordered 

to pay a $500,000 

fine. Former vice 

president received 

21 months in prison 

and a $1.5 million 

fine. Former general 

manager received 

3 months in prison 

and a $10,000 fine. 

In addition, the vice 

president and the 

environmental 

services company 

have been suspended 

from future 

Government 

contracting. 

FBI, DCIS, 

EPA-CID, 

Army-CID, 

NASA/OIG, 

DCAA

VI DL The co-owners of a house located in 

the Virgin Islands falsely represented 

to the SBA and other government and 

insurance entities that their house had 

sustained hurricane damage. In reality, 

the house had been damaged by a 

previous hurricane, and they had 

purchased it with such damage in “as 

is” condition. 

First owner was 

sentenced to 

10 months in prison, 

3 years supervised 

release, and $150,000 

in restitution. The 

other owner received 

1 year of probation 

and a $100 fine. 

DHS/OIG 

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

Business Development Joint-investigation Federal Agency Acronyms: DCAA=Defense Contract Audit Agency; 

Army-CID=Army Criminal Investigation Division; DCIS=Defense Criminal Investigative Service; 

DHS/ICE=Department of Homeland Security/Immigration and Customs Enforcement; DHS/OIG=Department of 

Homeland Security OIG; DSDS=Department of State Diplomatic Security; EPA-CID=Environmental Protection 

Agency Criminal Investigation Division; FBI=Federal Bureau of Investigation; GCPD=Glendale California Police 

Department; GSA/OIG=General Services Administration OIG; IRS-CID=Internal Revenue Service Criminal 

Investigation Division; LVPD=Las Vegas Police Department; NASA/OIG=National Aeronautics and Space 

Administration OIG; TEXAS-ABC=Texas Alcoholic Beverage Commission; USPIS=United States Postal 

Inspection Service; USSS=United States Secret Service 
Appendix

65 

Appendix XI 

Small Business Administration 

Office of Inspector General 

 

Inspector 

General 

Auditing Division 

Deputy 

Inspector 

General 

Counsel Division 

Management and 

Policy Division Investigations Division

Business Development 

Programs Group 

Washington, DC 

Financial 

Management & IT 

Group 

Washington, DC 

Credit Programs 

Group 

Chicago 

Dallas 

Los Angeles 

Washington, DC 

Atlanta 

Los Angeles 

Denver 

Seattle 

Western Region

Dallas 

Chicago 

Houston 

Kansas City 

Central Region 

Washington, DC 

Atlanta 

Philadelphia 

New York 

Eastern Region 

Miami 

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.