U.S. Small Business Administration 

Office of Inspector General 

_________________________________

Semiannual Report to Congress 

Spring 2008 

October 1, 2007 – March 31, 2008 
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 20 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 5-21 

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

 Abuses and Deficiencies 33-34 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 30-32 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 42-50 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 24 

Section 5(a)(7) Summary of Significant Audits & Other Reports 5-21 

Section 5(a)(8) Audit Reports with Questioned Costs 26 

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

 Better Use 26 

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

 Where No Management Decision Was Made 27 

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

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

 the OIG Disagreed None 

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

 Financial Management Improvement Act of 1996 N/A 


Table of Contents

i 

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

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

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

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

 Small Business Access to Capital..................................................................................................... 9 

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

 Agency Management...................................................................................................................... 17 

 Other Significant OIG Activities.................................................................................................... 19 

Statistical Highlights........................................................................................................................................... 23 

Appendices 

 I. OIG Reports Issued ........................................................................................................................ 25 

 II. OIG Reports with Questioned Costs .............................................................................................. 26 

 III. OIG Reports with Recommendations that Funds Be Put to Better Use ......................................... 26 

 IV. OIG Reports with Non-Monetary Recommendations .................................................................... 27 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of March 31, 2008.................................................................................................. 27 

 VI. OIG Reports Without Final Action as of March 31, 2008 ............................................................. 29 

 VII. Summary of Significant Recommendations from Prior Semiannual Reporting 

 Periods Without Final Action as of March 31, 2008................................................................... 31 

 VIII. Summary of Significant Recommendations, 

 October 1, 2007 through March 31, 2008................................................................................... 34 

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

 October 1, 2007 through March 31, 2008................................................................................... 36 

 X. Legal Actions Summary, October 1, 2007 through March 31, 2008.............................................. 43 

XI. OIG Organizational Chart .............................................................................................................. 53
Table of Contents

ii 

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

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

 Business Act, Section 4(h) ............................................................................................................. 18 

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

 SBA Gift Authority—Small Business Act, Section 4(g)(2)........................................................... 18 
Overview of SBA and the OIG

1 

The Small Business Administration 

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

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

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

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

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

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

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

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

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

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

accomplish the programmatic goals. 

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

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

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

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

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

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

SBA’s appropriation for FY 2008 is $571 million. As of March 31, 2008, SBA had 2,187 employees, 

including Office of Inspector General (OIG) personnel, but excluding disaster-funded employees and an 

additional 2,827 temporary and permanent disaster employees, excluding contractors. 

The Office of Inspector General 

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

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

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

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

integrity of SBA’s programs and operations. 

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

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

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

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

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

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

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

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

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

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

participants. 
Overview of SBA and the OIG

2 

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

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

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

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

procedures. 

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

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

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

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

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

Chicago, IL, Dallas/Fort Worth, TX, Detroit, MI, Denver, CO, Herndon, VA, Houston, TX, Kansas City, 

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

and Washington, DC. 

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

OIG Work During This Reporting Period 

As of March 31, 2008, the OIG had 106 staff on-board. The OIG’s FY 2008 appropriation is 

$15.5 million, including a $.5 million transfer for disaster assistance oversight activities. In addition, the 

OIG received a no-year supplemental appropriation in FY 2006 for auditing and investigative activities 

directly related to the Gulf Coast hurricanes. It is projected that the current balance of these funds will 

last through the middle of FY 2010. 

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

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

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

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

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

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

information technology and financial management systems and other internal operations. 

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

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

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

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

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

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

OIG efforts and accomplishments during the first six months of FY 2008 are summarized in this report. 

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

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

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

3 

FY 2008 Report on SBA’s Top Management Challenges 

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

serious management and performance challenges 

facing the Agency for inclusion in SBA’s Performance 

and Accountability Report. The Management 

Challenges represent areas that the OIG considers to 

be particularly vulnerable to fraud, waste, abuse, or 

mismanagement, or which otherwise pose significant 

risk to the Agency, its operations, or its credibility. 

Each Management Challenge generally has originated 

from one or more OIG or Government Accountability Office (GAO) report. For each Management 

Challenge, the OIG provides the Agency with recommended remedial actions together with an assessment 

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

The Management Challenges identified in the OIG’s FY 2008 report, issued on October 16, 2007, were as 

follows. 

• Procurement flaws allow large firms to obtain small business awards and agencies to count 

contracts performed by large firms towards their small business goals. 

• Information systems security needs improvement. 

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

and become a high-performing organization. 

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

process. 

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

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

business development assistance, standards for determining economic disadvantage are clear and 

objective, and SBA ensures that firms follow 8(a) regulations when completing contracts. 

• Insufficient and outdated SBA controls continue the excessive risk of the SBIC (Small Business 

Investment Company) program. 

• SBA needs to prevent loan agent fraud by systematically identifying all loan agents, tracking their 

association with individual loans, and enforcing relevant regulations. 

• SBA needs to continue updating its system of directives to provide proper guidance and control 

over its operations. 

The FY 2008 Management Challenges Report is available on the OIG’s website at 

http://www.sba.gov/ig/FY2008_Challenges.pdf. 

As in prior years, the FY 2008 report used a color-scoring scheme to show Agency progress in addressing 

the actions needed to resolve each Management Challenge. Following is a summary of the nine 

Management Challenges in the FY 2008 report, and the status of any progress by the Agency in 

addressing the Challenges. 

 

The Management Challenges represent areas

that the OIG considers to be particularly

vulnerable to fraud, waste, abuse, or

mismanagement, or which otherwise pose 

significant risk to the Agency, its operations, 

or its credibility.
Agency Management Challenges 

4 

Summary of SBA’s FY 2008 Management Challenges 

 Status Score Change in Status 

 Topic Green Yellow Orange Red Improved Worsened 

1 Small Business Contracts 2 2 1 

2 IT Security 2 5 1 4 

3 Human Capital 

4 Loan Guaranty Purchase 3 1 2 

5 Lender Oversight 1 3 2 3 

6 8(a) BD Program 1 1 4 1 3 

7 SBIC Program 1 3 2 5 

8 Loan Agent Fraud 1 2 3 3 

9 Policies and Procedures 3 1 3 

“Improved” refers to an action item that showed progress this year over last year’s score. 

“Worsened” refers to an action item that showed regression this year from last year’s score. 

While Agency progress on a number of the challenges has been encouraging, much more remains to be 

done. By their nature, these challenges require continued long-term commitment and effort by the 

Agency. 
Significant OIG Activities

5 

Disaster Loans

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

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

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

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

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

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

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

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

property in Florida and Texas. As of March 31, 2008, SBA had approved almost 120,000 disaster 

loans—totaling almost $7 billion1

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

almost 116,000 disaster loans—totaling over $6.1 billion. The Agency made full or partial disbursements 

on 99.6 percent of the approved loans, totaling almost $6.3 billion. 

OIG audits continue to focus on loan origination, disbursement, repayment, servicing, and liquidation 

activities related to the Gulf Coast hurricanes, including whether: loan applications were processed in 

accordance with SBA procedures; uses of loan proceeds were verified before loans were fully disbursed; 

duplicate benefits were appropriately identified and recovered; and loan servicing and liquidation 

activities were appropriately staffed and effectively managed. Working in conjunction with the Hurricane 

Katrina Fraud Task Force, the OIG also continues to investigate allegations of: unauthorized use of loan 

proceeds, overstatement of financial losses, material false statements in the application process, 

false/counterfeit supporting documentation, and false assertions regarding primary residency in affected 

areas at the time of the disaster. Given the scope and magnitude of SBA’s Gulf Coast hurricane disaster 

assistance efforts, the OIG expects to focus heavily on this area for the foreseeable future. 

Adequacy of Supporting Documentation for Disbursements 

On January 29, 2008, the OIG issued a report, Review of the Adequacy of Supporting Documentation for 

Disbursements. This report was the last in a series resulting from the OIG’s review of SBA’s efforts to 

expedite loan disbursements during its “90-in-45” campaign. The campaign was initiated in the fall of 

2006 to disburse funds on approximately 90,000 loans approved for the Gulf Coast hurricanes within 45 

days. The audit was undertaken in response to an employee complaint that loans processed during the 

campaign were disbursed without receiving the required supporting documentation. 

The OIG reviewed general information about 40 of 1,154 

statistically sampled loans disbursed by the 10 case 

managers within the Fort Worth Processing and 

Disbursement Center who had made the highest average 

daily disbursements during the “90-in-45” campaign. The 

review disclosed that nearly half (19) of the 40 loans reviewed were disbursed by SBA without securing 

 

1

 These numbers reflect original applications approved (160,751, totaling $10.9 billion) net of loans subsequently 

canceled, withdrawn, increased, and decreased. 

...nearly half of the loans reviewed were 

disbursed by SBA without securing the 

proper documentation needed to protect 

SBA’s interest... 
Significant OIG Activities

6 

the proper documentation needed to protect SBA’s interest in the collateral and to document that 

insurance proceeds were used to offset the SBA loans. In total, 55 documents were missing for the 19 

loans in question. Projecting the sample results to the universe of 1,154 loans, it was estimated that SBA 

disbursed 554 loans without securing all of the documents required to make disbursements. 

Three recommendations were made to the Associate Administrator for Disaster Assistance to correct the 

identified deficiencies. The Agency agreed with the findings and recommendations, and attempted to 

contact the borrowers to obtain missing documents associated with the 19 loans. The Agency also 

reviewed loan files associated with all of the 1,154 disbursements, and is continuing to work to obtain 

missing documents where possible. Additionally, the Agency developed and implemented written 

procedures to ensure that all required loan documents are obtained and noted in loan files prior to 

disbursements over $10,000 by establishing a new, more thorough file review process to resolve the 

issues identified by the audit. 

Annual Credit Reviews for Gulf Coast Hurricane Disaster Loan Disbursements 

On March 28, 2008, the OIG issued an audit report on Annual Credit Reviews for Gulf Coast Hurricane 

Disaster Loan Disbursements. The audit disclosed that SBA’s monitoring efforts were not adequate to 

ensure that the financial status of borrowers had not deteriorated to levels that would adversely impact 

their loan repayment ability. Generally, the audit 

found that the Office of Disaster Assistance (ODA) 

did not: (1) perform annual credit reviews before 

making loan disbursements, as required by Agency 

procedures; (2) obtain updated financial information 

on borrowers; and (3) cancel loans when borrowers 

had no repayment ability. Although SBA originally established annual credit reviews as a management 

control, internal ODA policy memos extended the period for credit reviews to two years, effectively 

eliminating reviews on 10,100 loans totaling over $1 billion in disbursements. After extending the dates, 

a universe remained of 1,117 loans in need of a credit review. Even with the extended review period, 

ODA disbursed $4.9 million on 110 (or about 70 percent) of 159 sampled loans (out of the universe of 

1,117) without verifying that loan recipients were creditworthy. Additionally, although disbursement 

deadlines for these loans were included in DCMS, funds were continually disbursed after the deadlines 

(this occurred in 74 of the 159 loans reviewed during the audit). 

While SBA may need to adjust its lending policies to more fairly serve Gulf Coast hurricane victims by 

adjusting lending policy requirements, it should not do so 

when it dilutes the Agency’s ability to collect on the loans 

disbursed. Further, providing loan funds to borrowers who 

cannot repay them ultimately harms borrowers as the loans 

may default, further weakening their credit standing. As 

noted in a previous OIG report on The Quality of Loans 

Processed Under the Expedited Disaster Loan Program, issued on September 27, 2008, an estimated 

$1.5 billion in loans were awarded to applicants who lacked repayment ability. Many of these applicants 

received additional disbursements even though they had no repayment ability. 

The OIG recommended that SBA reinstitute its requirement that updated financial records and credit 

reports be collected during annual credit reviews and ensure that the reviews are performed when 

...providing loan funds to borrowers who 

cannot repay them ultimately harms 

borrowers as the loans may default, further 

weakening their credit standing. 

...SBA’s monitoring efforts were not adequate 

to ensure that the financial status of borrowers 

had not deteriorated to levels that would

adversely impact their loan repayment ability.
Significant OIG Activities

7 

disbursements are made a year after loan authorization. The OIG also recommended that written 

justifications be provided for disaster assistance policy made outside of the Agency’s clearance process. 

In addition, the OIG recommended that internal controls be implemented to ensure that DCMS prevents 

the payment of loan proceeds after disbursement deadlines expire. ODA generally concurred with the 

audit findings, but disagreed with three of the four recommendations and commented on several issues 

raised in the report. ODA agreed that not all credit reviews were completed as required, but believed it 

had the authority to relax credit review requirements, even though such action circumvented SBA’s own 

regulations. 

Withdrawal of Disaster Loan Applications to Individuals and Businesses Impacted by the Gulf 

Coast Hurricanes 

On March 28, 2008, the OIG issued an audit report on the Withdrawal of Disaster Loan Applications to 

Individuals and Businesses Impacted by the Gulf Coast Hurricanes. The audit disclosed that SBA 

generally acted appropriately when withdrawing incomplete loan applications. However, for 30 of 96 

loan applications sampled, SBA withdrew the applications 

without providing applicants advance notice. When the 

results were projected to the universe, it was estimated that 

SBA inappropriately withdrew between 2,075 and 3,879 

loan applications. Of the 30 loans withdrawn without advance notice, 12 were withdrawn within 4 days 

of SBA’s attempted contact, 12 were withdrawn without sending a letter to applicants advising them of 

the necessary steps to have their applications reaccepted, and one was erroneously withdrawn. However, 

the OIG was unable to determine a significant impact upon applicants. Of the 30 applicants, the OIG was 

able to reach 7, only 1 of whom still desired the loan. 

The OIG recommended that SBA implement better internal controls, preferably through DCMS, to ensure 

that written advance notice is given to applicants, as required by SBA procedures. The OIG also 

recommended that SBA revise production goals to exclude loan application withdrawals. 

Combating Gulf Coast Hurricane Fraud 

Working in conjunction with other law enforcement organizations on the Hurricane Katrina Fraud Task 

Force, the OIG had made 33 arrests and had obtained 48 indictments and 31 convictions from the Task 

Force’s inception through March 31, 2008. As repayments for more disaster loans become due, the OIG 

anticipates more allegations of fraud and potential loss to SBA. OIG cases related to the Gulf Coast 

hurricanes include the following: 

• A Louisiana business owner conspired with a Certified Public Accountant to fraudulently obtain 

SBA disaster loans totaling approximately $3 million. He then destroyed a forged SBA financial 

document to impede the criminal investigation. The owner pled guilty to making false statements 

to federal agents. Due to investigative efforts and timely warnings to SBA, only $5,000 of the 

$3 million was disbursed. The OIG is conducting this joint investigation with the U.S. Secret 

Service. 

• A Louisiana woman falsified her primary residence when applying for Federal Emergency 

Management Agency benefits, food stamps, and an SBA loan of $121,000. She pled guilty to 

making false claims to the Government and was sentenced to 5 years probation, a $15,000 fine, 

...SBA inappropriately withdrew between 

2,075 and 3,879 loan applications.
Significant OIG Activities

8 

and restitution of $130,009. The OIG is conducting this joint investigation with the Louisiana 

State Police, the Department of Homeland Security OIG, and the U.S. Department of Agriculture 

OIG. 

• A Louisiana man allegedly transmitted facsimiles of altered building permits to induce SBA to 

release funds on both a $19,500 disaster home loan and a $49,600 disaster business loan. The 

investigation revealed that the building permits were for work performed prior to Hurricane 

Katrina. In addition, he allegedly kept insurance proceeds assigned to SBA and used loan 

proceeds to purchase a new home, car, and boat. He was indicted for wire fraud. This case was 

initiated based on an anonymous complaint through the OIG Hotline. 

Legal Actions Continue in Disaster Loan Fraud Related to the September 11th Terrorist Attacks 

SBA disbursed over $1.1 billion in disaster assistance loans in response to the September 11, 2001, 

terrorist attacks. As with other disasters, the need to 

disburse funds quickly to the victims of the terrorist 

attacks created opportunities for dishonest applicants to 

commit fraud. Because loan repayments have typically 

been deferred, problems often did not emerge 

immediately. The OIG has investigated and obtained the prosecution of numerous parties who took 

advantage of this national tragedy. 

For example, an Alabama aerospace company president, who co-owned a private charter plane company, 

obtained a disaster loan of nearly $178,000 for economic injuries resulting from the World Trade Center 

attacks. After the loan defaulted for non-payment, he produced four fraudulent documents indicating that 

SBA had released its liens against his personal and business properties. He then sold the two properties 

that were held as collateral on the SBA loan. As a result, he received over $92,000 that should have been 

paid to the SBA. He also embezzled almost $980,000 from a fraternity where he acted as an officer, and 

he failed to pay required federal income taxes. He was sentenced to 63 months confinement, 36 months 

probation, and over $1.3 million in restitution, which reflects the total amount by which he defrauded 

SBA, the Internal Revenue Service (IRS), and the fraternity. This case was based on a referral from a 

Santa Ana Liquidation Center. The OIG conducted this investigation jointly with the IRS and the Auburn 

(AL) Police Department. 

...the need to disburse funds quickly to the 

victims of the terrorist attacks created

opportunities for dishonest applicants to 

commit fraud.
Significant OIG Activities

9 

Small Business Access to Capital

SBA has a financial assistance portfolio of guaranteed and direct small business loans and financings of 

more than $84 billion. With over 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 that cannot be obtained elsewhere. This program is vulnerable to fraud 

and unnecessary losses because it relies on numerous third parties (e.g., borrowers, loan agents, and 

lenders) to complete loan transactions. Approximately 80 percent of loans guaranteed annually by SBA 

are made by lenders to whom SBA has delegated loan-making authority. Additionally, SBA has 

centralized many loan functions and reduced the number of staff performing these functions. Since 2001, 

SBA’s staffing has decreased by more than 25 percent while the Agency’s total loan portfolio has 

increased by almost 60 percent. As SBA has placed more responsibility and independence on its lenders, 

the need for OIG oversight has increased significantly. 

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

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

venture capital firms and SBA-guaranteed funding. Also, small and emerging contractors who cannot 

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

Surety Bond Guarantee program. 

Loan Classifications and Overpayments on Secondary Market Loans 

On March 26, 2008, the OIG issued an audit on Loan Classifications and Overpayments on Secondary 

Market Loans. The objectives of the audit were to determine if SBA (1) classified secondary market 

loans appropriately, (2) purchased loans from the secondary market in a timely manner, and (3) pursued 

lenders for overpayments it made to secondary market investors. The audit disclosed that an estimated 

$161 million in secondary market loans were reported as current even though loan payments were 60 days 

or more past due. Furthermore, the audit found that SBA did not purchase guaranties from the secondary 

market in a timely manner and, as a result, incurred 

$7.4 million of additional interest expense. While SBA 

generally pursued lenders for overpayments it made to 

secondary market investors, the OIG identified instances 

where SBA had overbilled lenders by $1.9 million on 

loans where transcripts either were not provided or were 

incomplete. Finally, the OIG identified approximately $1.1 million of income that SBA reported from 

ongoing guaranty fees it never collected from lenders. 

The report contained 10 recommendations addressed to the Director, Office of Financial Assistance and 

one recommendation addressed to the Chief Financial Officer. The Agency agreed with two of the 

recommendations, partially agreed with three, disagreed with four, and neither agreed nor disagreed with 

one recommendation. The Agency also indicated it had already taken the proposed action for one 

recommendation. 

...an estimated $161 million in secondary 

market loans were reported as current even 

though loan payments were 60 days or 

more past due. 
Significant OIG Activities

10 

Lender Compliance with 7(a) Lending Requirements 

On March 21, 2008, the OIG issued an audit on UPS Capital Business Credit’s (UPSC) Compliance with 

Selected 7(a) Lending Requirements. The objective of the audit was to determine whether UPSC 

materially complied with SBA’s requirements for documenting borrower equity injection, use of loan 

proceeds, and qualifications for debt refinancing. 

Using a statistical sample, the OIG reviewed 36 of 103 

loans originated by UPSC and purchased by SBA 

between October 2003 and March 2007. The OIG did 

not identify problems in the areas of equity injection 

and qualifications for debt refinancing. However, the 

audit determined that 16 (about 44 percent) of the 36 

loans in the sample did not have adequate supporting documentation to show how borrowers used the 

loan proceeds. These loans had an outstanding balance of about $4.3 million. When projected to the 103 

loans purchased by SBA, it was estimated that 44 percent of $11.2 million in guaranties purchased by 

SBA as of March 31, 2007, were made without the appropriate documentation showing how the borrower 

used the loan proceeds. 

The OIG recommended that the Director, Office of Financial Assistance, obtain the appropriate 

documentation for the use of loan proceeds for the 16 loans, establish a corrective action plan addressing 

the lender’s procedures for documenting the use of loan proceeds, and repair one loan for improper use of 

loan proceeds. The Director concurred with the OIG’s recommendations, and stated that actions are 

being taken to satisfactorily address the three report recommendations. 

Ongoing Fraud Investigation Results in Indictments, Guilty Pleas, and Convictions 

In January 2007, agents from the SBA OIG and the U.S. Secret Service arrested 18 individuals sought in 

connection with a scheme in which a lender’s former executive vice president and others conspired to 

fraudulently qualify loan applicants for SBA-guaranteed loans across several Midwestern states. The 

scheme involved at least 76 fraudulent loans totaling over $76 million. Thus far, the investigation has 

resulted in the indictment of 33 individuals. Three of those indicted are currently international fugitives. 

As a result of this investigation, the lender began to repay SBA for some loan guaranties and cancel other 

guaranties. Thus far, SBA recoveries from the lender, along with potential cost savings from the 

withdrawal of guaranties, total approximately $16 million. The investigation is continuing, with further 

indictments expected. Following are highlights of some of the actions related to the investigation that 

occurred during this reporting period. 

• The lender’s former executive vice-president—a key player in the scheme—pled guilty to 

conspiracy to defraud SBA and to lying to a federal grand jury. The plea related to his role in 

fraudulently qualifying loan applicants for SBA-guaranteed loans to be used primarily for the 

purchase of gas stations. He faces up to 10 years in prison. 

• A Michigan man allegedly conspired with others to defraud the government in connection with 

approximately $12.5 million in SBA-guaranteed loans made by two lenders in different states. 

Most of these loans have defaulted. Moreover, the co-conspirators fraudulently obtained SBAguaranteed loans, with the man allegedly supplying them with counterfeit bank statements and 

bank account verification letters. He also allegedly supplied them with counterfeit and forged 

...it was estimated that 44 percent of $11.2 

million in guaranties purchased by SBA...were 

made without the appropriate documentation 

showing how the borrower used the loan 

proceeds.
Significant OIG Activities

11 

official bank checks, which were used by the co-conspirators to falsely document equity 

injections. The man was indicted on charges of conspiracy, false statements, bank fraud, 

counterfeiting, and possession of a counterfeiting implement. 

• The former manager of a Michigan gas station and convenience store, along with the president of 

the company that owned the gas station, conspired with others to fraudulently obtain a $944,000 

loan by using the president as a “straw buyer.” They used false equity injection documents, 

including a phony gift affidavit. The business failed within months, and SBA purchased its 

guaranty of over $709,000. The former manager was sentenced to 30 months in prison, to be 

followed by 36 months of supervised release. The president was sentenced to two years in prison 

and 36 months supervised release. Both men were ordered to jointly pay over $868,000 in 

restitution to the lender. The two individuals had previously been indicted for conspiracy and 

false statements. The lender subsequently repaid the guaranty to SBA. 

• The buyer of a Michigan gas station and convenience store falsely stated that he would be the 

sole owner of the business when in fact he would only own 30 percent. In addition, he conspired 

with the seller to falsely represent that he was contributing $300,000 as his equity injection in 

order to obtain an $880,000 SBA-guaranteed loan. Both the buyer and the seller were indicted, 

and the buyer has pled guilty to making a false statement to the SBA. Although the loan is in 

default, the lender canceled the SBA guaranty during the course of this investigation. 

Consequently, SBA suffered no loss. 

• The former managing member of yet another Michigan gas station and convenience store was 

sentenced to 24 months probation for making false statements to obtain a $1,335,000 SBAguaranteed loan. He defaulted on the loans, and SBA paid a claim of nearly $1,020,000. 

However, the lender subsequently refunded this amount and canceled its guaranty pursuant to a 

settlement agreement with SBA. Indictment charges of conspiracy, false statements, and wire 

fraud remain in effect against his undisclosed partner and the seller of the property, both of whom 

are international fugitives. 

• The former president of a gas station and convenience store in Detroit allegedly conspired with 

others to make false statements regarding his education, employment history, net worth, required 

equity injection, and the percentage of the business that he owned. He defaulted on the $760,000 

loan and SBA paid a claim to the lender of over $570,000. The former president was charged 

with conspiracy to defraud the U.S. Government, false statements, and aiding and abetting. The 

lender has since refunded this money and canceled its guaranty pursuant to a settlement 

agreement with SBA. 

• A former Michigan state probation officer conspired with others to defraud SBA on an $825,000 

SBA-guaranteed loan by claiming to be the business owner, overstating her financial status, 

alleging that the source of a $250,000 equity injection was a gift from an uncle, making 

misrepresentations on the management resume, and obtaining the loan in her name only for her 

brother-in-law, who was the real owner and intended operator of the Detroit gas station and 

convenience store. She pled guilty to conspiracy. 
Significant OIG Activities

12 

SBA Loan Programs Remain Vulnerable to Dishonest Loan Agents 

A prospective borrower or a lender sometimes pays a loan 

agent to prepare the documentation for an SBA loan 

application and/or refer the borrower to a lender (or vice 

versa). Even though reputable loan agents have connected 

small businesses to sources of capital, dishonest loan 

agents have perpetrated frauds involving hundreds of millions of dollars in loans. Moreover, loans 

associated with such fraud often default for nonpayment, thus increasing losses in the loan guaranty 

program. 

For example, a suspended New Jersey attorney acted as a loan broker and assisted a borrower in obtaining 

a $993,000 SBA-guaranteed loan through a small business lender. In exchange for a 10 percent fee, the 

attorney conspired with the borrower to submit forged power of attorney documents, fraudulent tax 

records, and false cash injection documentation. The 

attorney pled guilty to wire fraud, money laundering, 

and aiding and abetting. The borrower was sentenced 

to six months home confinement, three years 

probation, and restitution of $993,000 to be paid 

jointly and severally with other defendants charged in this case. A third co-conspirator is awaiting 

sentencing. The OIG is conducting this investigation jointly with the Federal Bureau of Investigation 

(FBI). 

The OIG’s FY 2008 Management Challenges Report identified loan agent fraud as a top Agency 

challenge and made recommendations to minimize loan agent abuse of SBA programs. The Agency does 

not know the problem’s magnitude because thus far it collects little information about loan agent 

involvement with its portfolio. Accordingly, SBA needs to systematically identify all loan agents and 

track their association with individual loans. This is vital for identifying corrupt loan agents, especially 

since each agent can affect multiple lenders. Compounding the problem is the fact that lenders vary 

greatly in how well they monitor their loan processing and possible loan agent involvement with their 

portfolios. 

Criminals Use a Variety of Fraudulent Tactics in SBA’s Loan Guaranty Programs 

Criminals use various methods to fraudulently obtain, or induce others to obtain, SBA-guaranteed loans. 

These include submitting fraudulent documents; making fictitious asset claims; manipulating property 

values; and failing to disclose debts, prior criminal records, or their other SBA-backed loans. Borrowers 

may also use loan proceeds contrary to the terms of the loans. These activities increase the likelihood of 

financial loss to SBA and its lenders. The following examples demonstrate how people fraudulently 

acquire SBA loans. 

• A former escrow officer for a Texas title company and other co-conspirators devised a fraudulent 

land flip scheme to obtain a $2.4 million SBA-guaranteed loan from a Houston-area bank to fund 

the purchase of a warehouse. Once the loan was funded, she and her co-conspirators laundered 

approximately $473,000 of the proceeds. The officer was sentenced to 96 months in prison to be 

followed by five years of supervised release. She had been convicted of conspiracy, bank fraud, 

...dishonest loan agents have perpetrated 

frauds involving hundreds of millions of 

dollars in loans.

...the attorney conspired with the borrower to 

submit forged power of attorney documents, 

fraudulent tax records, and false cash injection 

documentation.
Significant OIG Activities

13 

and money laundering. The OIG conducted this joint investigation with the Texas Comptroller of 

Public Accounts, Criminal Investigation Division. 

• A California businessman originally applied for a $2 million Export Working Capital (EWC) 

loan. He managed and controlled two companies that exported cowhide to Korea and China, and 

started another business to import frozen seafood. After several years of lost revenue, the seafood 

company failed, forcing him to borrow from his other businesses to repay debts. To receive more 

cash advances from his EWC line of credit, he allegedly altered the companies’ purchasing 

documents and falsified one company’s financial statements and tax returns. The businessman 

was indicted for bank and loan fraud. This matter was referred to the OIG by the lender. 

• A Texas businessman falsely certified that he was “current” on all taxes in order to obtain a 

$1,701,000 SBA-guaranteed loan from a Texas lender. He was sentenced to ten years 

confinement, which was later changed to community supervision for ten years. He was also 

ordered to pay over $1,352,000 in restitution and perform 320 hours of community service. 

• An Illinois man and another individual allegedly devised a scheme to induce a lender to approve 

one SBA-guaranteed loan and two lender-direct loans totaling more than $4 million for the 

purchase of three Iowa gas stations. Both men allegedly enlisted “front” borrowers and provided 

the lender with false and fraudulent documentation on behalf of the borrowers to influence the 

approval of the loans. They were both indicted for conspiracy, wire fraud, and mail fraud. The 

OIG is conducting this joint investigation with the FBI. 

• The president of a Texas slaughtering business allegedly used false and fraudulent representations 

and documents to convince at least four lenders that he had sufficient collateral and income to 

repay over $1,236,000 in SBA-guaranteed loans and an additional $1,812,000 in non-SBA loans. 

He was indicted for wire fraud, aiding and abetting, and making a false statement to a bank. The 

OIG is conducting this investigation jointly with the FBI. 

Loan Applicants Continue to Falsely Claim Citizenship

Some loan applicants, either on their own or through dishonest loan agents, falsely claim U.S. citizenship 

when applying for SBA-guaranteed loans. Such loans often default quickly, with millions of dollars 

cumulatively at risk. Equally important, even small loans to such borrowers can deprive honest 

applicants (citizens as well as non-citizens legally residing in the U.S.) of SBA-backed financing. 

For example, a man helped lead an identity theft ring designed to obtain fraudulent SBAExpress lines of 

credit, conventional and/or residential loans, and credit cards. He falsely claimed to be a U.S. citizen and 

created three identities using others’ Social Security numbers, fictitious businesses, and credit cards. 

After pleading guilty to California state charges in 

connection with a fraudulent $35,000 SBAExpress and 

a $1,445,000 residential loan, he was sentenced to time 

served in prison (344 days), 3 years probation, 

restitutions of $34,650 to SBA and a lender and 

$1,445,000 to another lender, and a $200 fine. He was 

later indicted on federal charges including mail fraud, aiding and abetting, possession of unauthorized 

access devices, and aggravated identity theft. The OIG is conducting this investigation jointly with the 

...a man helped lead an identity theft ring 

designed to obtain fraudulent SBAExpress 

lines of credit, conventional and/or residential 

loans, and credit cards 
Significant OIG Activities

14 

Los Angeles Police Department, the California Department of Insurance, Immigration and Customs 

Enforcement, the Postal Inspection Service, and the Social Security Administration OIG. 

Falsified Capital Injection Persists in Loan Programs

Capital injection is a borrower’s own financial stake in a business. When the borrower has something 

personal to lose, he or she is less likely to default on a loan. SBA requires borrowers to inject available 

capital in projects financed by guaranteed loans. However, to circumvent this requirement, borrowers 

increasingly falsify the amount of the capital injection. 

For example, a former business owner allegedly provided a false bank account verification letter to 

persuade the lender and SBA to approve a $1.35 million guaranteed loan and provided fraudulent 

cashier’s checks at the loan closing. He also allegedly submitted false documentation to another lender to 

influence the approval of a $1.2 million home equity line of credit. Finally, while operating as a 

company, he brokered approximately 40 SBA-guaranteed loans through the lender, with fraudulent equity 

injection documentation provided in at least 25 separate instances. The owner has been indicted for bank 

fraud and falsifying financial records. In addition, a former finance company employee was indicted for 

wire fraud in connection with her role in inducing a lender and SBA to approve an $850,000 guaranteed 

loan. The OIG is conducting this joint investigation with the FBI. 

In another case, the owner/president of an investment and loan corporation helped buyers of Midwestern 

gas stations and hotels prepare applications for two SBA-guaranteed loans totaling $2,573,000. He 

allegedly used bank statements from his own accounts to create counterfeit statements showing that his 

clients possessed adequate cash for their required equity injections. He and three other individuals were 

indicted for wire fraud. Moreover, this ongoing investigation has revealed a broad pattern of fraud by this 

investment and loan corporation. 

SBIC Theft Results in Incarceration and Restitution 

The part owner of a Small Business Investment Company (SBIC) was sentenced to eight months 

confinement; three years supervised release, and nearly $159,000 in restitution in connection with her role 

in stealing more than $1.9 million from the SBIC. She and others stole SBIC funds by issuing checks, 

wire transfers, and other payments for their personal benefit through another firm. They concealed the 

thefts by falsifying the other firm’s records to make it appear that the payments were for salary or 

shareholder distributions. The OIG conducted this investigation jointly with the FBI based on a referral 

by SBA’s Investment Division. 
Significant OIG Activities

15 

...only about 25 percent of WBC payment 

requests...were disbursed within the...goal of 30 

days from receipt of payment request.

Small Business Development, Contracting, Education, and Training

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

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

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

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

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

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

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

contracts awarded each fiscal year. 

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

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

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

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

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

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

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

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

environment. 

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

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

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

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

management, outreach, and service delivery. 

Grant Disbursements to Women’s Business Centers 

On November 20, 2007, the OIG issued a report on its audit of Grant Disbursements to Women’s 

Business Centers (WBCs). The objectives of the audit were to (1) determine the extent of delays in the 

disbursement of grants to WBCs, and (2) identify 

improvements needed to expedite disbursements. 

The audit determined that only about 25 percent of 

WBC payment requests, involving both regular and 

sustainability grants, were disbursed within the 

Office of Management and Budget’s (OMB) goal of 30 days from receipt of the payment request. The 

audit found that delays in grant disbursements occurred because: 

• The Agency’s interpretations of the payment requirements sometimes changed and were not 

properly communicated to WBCs, which resulted in inaccurate or incomplete submissions by the 

WBCs. 

• Payment requests were rejected before both SBA’s Office of Management and Administration 

and Office of Entrepreneurial Development had performed complete reviews of the submissions, 

causing WBCs to submit their paperwork multiple times, and triggering restarts of the Agency’s 

payment approval process. 
Significant OIG Activities

16 

• When payment requests were rejected, the entire original package and corrected versions were 

mailed back and forth between SBA and the WBCs, instead of only correcting the document(s) 

affected. 

• The Agency lacked an integrated tracking mechanism to identify when a payment request was 

received, where it was in the review process, and whether a disbursement had been made within 

OMB’s 30-day requirement. 

The OIG made seven recommendations to the Associate Administrator for Entrepreneurial Development 

to work collaboratively with the Office of Management and Administration to make the WBC payment 

request process more efficient and transparent. In addition, while the OIG was reviewing disbursements, 

it noted opportunities to streamline SBA’s process for awarding WBC grants. These involved the 

timeliness of announcements of grant opportunities and the processing of awards for established WBCs at 

the same time as new entrants. The OIG made three recommendations to the Associate Administrator for 

Entrepreneurial Development to improve the WBC grant awarding process. 

The Offices of Entrepreneurial Development and Management and Administration reviewed and provided 

formal comments to this report, generally agreeing with the findings and recommendations. 

Contract Fraud Results in Major Monetary Penalties 

A court ordered a lithium power company and a Texas man to pay over $5,015,000 in civil penalties (plus 

post-judgment interest of 3.28%) to the U.S. Government because of contract fraud. The OIG began 

investigating the company and the Texas man after an allegation was received from the National 

Aeronautics and Space Administration (NASA) OIG and the Defense Criminal Investigative Service 

(DCIS) that the company had fraudulently obtained ten research contracts, totaling over $3 million, under 

the Small Business Innovative Research program. The court ruled that the company misrepresented its 

history, status, physical facilities, and previous work performed. The OIG is conducting this investigation 

jointly with the NASA OIG, DCIS, and the Army Criminal Investigation Division. 

Legislation Requires Approval of SBDC Surveys 

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

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

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

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

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

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

of such information shall be approved by the Inspector General, who shall include such approval in the 

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

OIG approval during this reporting period. 
Significant OIG Activities

17 

...SBA lacks the ability to monitor who was 

reviewing employee emails, or the frequency

or the purpose of such reviews...

... KPMG reported a significant deficiency 

related to information technology security 

controls,... 

Agency Management

Controls Over Access to Employee e-Mail 

On October 19, 2007, the OIG issued a report, Controls Over Access to Employee Emails by SBA 

Managers. The review examined whether management had improperly retrieved emails originating from 

an employee who was a confidential source to the OIG and a Congressional committee. The OIG 

determined that managers accessed an employee’s emails without seeking approval from or notifying the 

Chief Information Officer (CIO). The CIO advised that she and her staff were unaware of the 

circumstances or actions relating to review of the emails and that, as the Agency’s Chief Privacy Office, 

her authorization should have been obtained. 

The CIO also advised that her office had not issued any written guidance on how email reviews should be 

authorized. In the absence of a centralized authorization process and written guidance for conducting 

administrative review of employee emails, SBA had no assurance that appropriate safeguards were 

consistently employed. Moreover, SBA lacked the 

ability to monitor who was reviewing employee emails, 

or the frequency or the purposes of such reviews. 

Although review of employee emails may be justified in 

some instances, the absence of controls creates an environment where employee emails could be subject 

to unauthorized access or reviewed for illegitimate purposes. 

The report recommended that the CIO communicate to individuals who have system administrator rights 

that requests for email retrievals must be approved centrally by her office. The report also recommended 

that Standard Operating Procedure 90 49, Appropriate Use of SBA’s Automated Information Systems, be 

revised to establish appropriate protocols for conducting administrative inquiries and reviews of employee 

emails. The Agency generally agreed with the OIG’s recommendations. 

Audit of SBA’s FY 2007 Financial Statements 

On November 15, 2007, pursuant to the Chief Financial Officers Act of 1990, the independent auditors’ 

report and accompanying reports on internal control and compliance with laws and regulations were 

issued by KPMG LLP for the fiscal year ended September 30, 2007. The audit was performed under a 

contract with the OIG. 

The KPMG report concluded that SBA’s consolidated financial statements presented fairly, in all material 

respects, the financial position of SBA as of and for the years ended September 30, 2007 and 2006. They 

also presented fairly, in all material respects, SBA’s net costs, changes in net position, and combined 

statements of budgetary resources for the years then ended. With respect to internal controls over 

financial reporting, KPMG reported a significant 

deficiency related to information technology security 

controls, but did not consider this deficiency to be a 

material weakness. KPMG’s test for compliance with 

certain laws, regulations, contracts and grant agreements determined that the Agency did not fully comply 

with the Debt Collection Improvement Act (DCIA) of 1996 because SBA had not consistently followed 

Treasury guidelines when referring delinquent debts for collection. The auditors did not report any other 

instances or matters regarding noncompliance. 
Significant OIG Activities

18 

SBA’s Chief Financial Officer (CFO) concurred with the Independent Auditor’s findings and agreed to 

implement the recommendations. The CFO was pleased that SBA received an unqualified audit opinion 

with no reported material weaknesses and believed that these results accurately reflected the quality of the 

Agency’s financial statements and its improved accounting, budgeting and reporting processes. The CFO 

also acknowledged that SBA was not in compliance with the DCIA, and outlined Agency plans to 

improve standard operating procedures. 

FY 2007 Financial Statements Management Letter 

On December 14, 2007, KPMG LLP issued its Management Letter, which identifies non-reportable 

conditions that came to its attention during the audit of SBA’s FY 2007 financial statements. KPMG 

reported that improvements were needed in the guaranty loan purchase process; guaranty loan charge-off 

and lender follow-up processes; development and communication of standard operating procedures; 

review of the disaster program credit model calculations; undelivered orders; and payroll processing and 

controls over official personnel files. 

Increase in Overdue Management Decisions 

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

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

disagree, or seek alternative actions to the recommendations. In an attempt to reduce the number of 

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

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

time that it transmits its comments on the draft reports. However, during this semiannual reporting 

period, management decisions were made for only 38 (61 percent) of the 62 recommendations that were 

issued. In addition, the number of recommendations from prior reporting periods with overdue 

management decisions more than doubled, increasing from 6 as of September 30, 2007, to 14 as of 

March 31, 2008. 

SBA Gift Authority 

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

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

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

the information provided by SBA’s Office of Strategic Alliances, SBA did not accept any cash gifts 

during this semiannual reporting period. 

Cosponsorships and Fee-Based Administration Sponsored Events 

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

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

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

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

between October 1, 2007 and March 31, 2008, there were 45 cosponsored events. SBA reported that it 

did not conduct any fee-based Administration-sponsored events during this period. 
Significant OIG Activities

19 

As a result of OIG referrals during this reporting 

period, SBA business loan program managers declined 

35 applications totaling nearly $15.4 million, and 

disaster loan program officials declined 10 applications 

totaling almost $1.4 million. 

During this reporting period, the OIG submitted 8 

debarment recommendations to the Agency.

Other Significant OIG Activities 

Character Screening Diminishes Potential Program Fraud

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

certifications, surety bond guaranties, small business investment companies, and certified development 

companies must meet Agency character standards. To ensure that this occurs, the OIG’s Office of 

Security Operations utilizes name checks and, where appropriate, fingerprint checks to determine criminal 

background information. During this reporting period, the OIG processed 1,489 external name check 

requests for these programs. 

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

adjudication. The referrals are based on data 

from the OIG’s on-line connection with the 

FBI. As a result of OIG referrals during this 

reporting period, SBA business loan program 

managers declined 35 applications totaling 

nearly $15.4 million, and disaster loan 

program officials declined 10 applications 

totaling almost $1.4 million. Nearly $292 million in loans have been declined during the last 10 years 

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

Moreover, based on OIG efforts during this period, the Section 8(a) program declined 11 applications for 

admission, and the Small Disadvantaged Business program declined 1 application for admission. The 

OIG also initiated 209 background investigations and issued 35 required security clearances for Agency 

employees and contractors. In addition, the OIG adjudicated 53 background investigative reports and 

coordinated with the Office of Disaster Assistance to adjudicate 46 derogatory background investigation 

reports. Finally, the OIG processed 2,403 internal name check requests for Agency activities such as 

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

OIG Promotes Debarment and Administrative Enforcement Actions 

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

in fraud or have otherwise exhibited such a lack of business integrity that it is in the public interest to 

exclude them from receiving government contracts and other Federal benefits. The OIG regularly 

identifies candidates for debarment, and submits 

detailed recommendations with supporting 

documents to facilitate the efforts of the SBA 

debarment officials. During this reporting period, 

the OIG submitted 8 debarment recommendations to the Agency. Debarment statistics for the reporting 

period are provided in the Statistical Highlights section of this report. 

For example, the OIG recommended that SBA take action against an 8(a) contractor that had willfully 

failed to comply with Agency subcontracting limitations by permitting a non-disadvantaged business to 

perform the vast majority of a set-aside contract. The Agency agreed with the OIG’s recommendations 

and terminated the contractor from the program and initiated debarment proceedings. However, the 

Agency disagreed with another OIG debarment recommendation based upon evidence that an individual 
Significant OIG Activities

20 

...the OIG identified significant concerns and, through 

Agency adoption of OIG recommendations, prompted more

robust controls in and enhancements of a number of

Agency directives.

had set up a company purportedly being run by a service-disabled veteran in order to get a contract 

reserved for such companies. An OIG investigation determined that the veteran was not in day-to-day 

control over the company and that this arrangement was intended to allow an otherwise ineligible 

company to perform and get paid under the contract. 

The OIG also made a number of recommendations for debarment based upon fraudulent conduct in the 

SBA business loan programs. In one case, debarment was recommended against an individual that 

provided numerous falsified bank records and cashier’s checks (totaling over $2.8 million) to assist 

various individuals to fraudulently obtain SBA-guaranteed loans. The OIG also recommended that SBA 

debar three individuals who submitted false documents and made false statements in order to obtain an 

SBA-guaranteed loan. The OIG investigation determined that the individuals intentionally hid from SBA 

and the lender the fact that their company was delinquent on its payroll taxes. As of the close of the 

reporting period, the Agency was considering all of these recommendations. 

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

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

investigations have identified loan agent fraud on hundreds of millions of dollars of SBA-guaranteed 

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

privilege to conduct business with SBA. The regulations discuss the types of activities considered to be 

“good cause” for suspending or revoking an agent, but are silent on what procedures must be followed in 

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

OIG has recommended that the Agency issue regulations identifying the procedures that are to be used for 

these types of administrative enforcement actions. 

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

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

of SBA-proposed regulations, internal operating procedures and other directives to determine whether the 

Agency is implementing adequate controls and whether the proposed actions could lead to increased 

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

significant improvements in the quality of proposed actions. During the reporting period, the OIG 

reviewed 67 proposed actions and submitted comments on 43 of these initiatives. 

During this six-month period, the OIG identified significant concerns and, through Agency adoption of 

OIG recommendations, prompted more robust controls in and enhancements of a number of Agency 

directives. For example, the OIG made a significant number of comments to improve weaknesses with 

SBA’s proposed revision of SOP 50-10, which governs lender underwriting and closing of section 7(a) 

and 504 loans. Examples of OIGexpressed concerns were: (1) whether the 

SOP had sufficient controls to make sure 

that lenders undertake adequate efforts to 

verify that recipients of SBA assistance 

are U.S. citizens; (2) whether the SOP 

should limit lenders with high risk ratings from continuing to have delegated lending authority; and 

(3) whether the SOP should require that lenders seeking admission to the SBA business loan programs 

provide additional documentation so that SBA can perform an adequate due diligence review of the 

applicant’s lending policies and procedures. In addition, the OIG provided extensive comments on the 
Significant OIG Activities

21 

Agency’s proposal to implement a Rural and Small Lender Advantage program to promote SBA lending 

in rural communities. The OIG recommended that the Agency not place undue reliance on a borrower’s 

credit score in determining whether to approve the loan and made helpful recommendations to ensure that 

lenders are properly screening borrower eligibility. Another significant OIG effort involved an Agency 

notice establishing procedures and criteria for Agency managers to review their employee’s email, which 

the Agency proposed to issue in response to an OIG Audit Report. As a result of OIG’s review and 

recommendations, the Agency issued a notice that established clear guidance and effective controls. 

OIG Fraud Awareness Briefings 

During this reporting period, the OIG conducted four fraud awareness presentations for over 225 

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

Topics included loan agent and lender fraud, as well as fraud indicators in SBA’s loan, 8(a), government 

contracting, and surety bond programs. 
22 
Statistical Highlights

23 

6-Month Productivity Statistics 

October 1, 2007 through March 31, 2008 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ..................................................................... $18,765,990* 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $2,619,739 

C. Loans Not Made as a Result of Name Checks ..................................................................... $16,772,644 

D. Disallowed Costs Agreed to by Management ........................................................................ $5,051,676 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management ................................................................................................ $293,823 

 Total..................................................................................................................................... $43,503,872

Efficiency and Effectiveness Activities Related to Audits and Other Reports

A. Reports Issued ...................................................................................................................................... 11 

B. Recommendations Issued ..................................................................................................................... 62 

C. Dollar Value of Costs Questioned.......................................................................................... $4,317,000 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use ............................................................................................................ $37,700,000 

E. Collections as a Result of Questioned Costs ............................................................................. $450,818 

Audit and Report Follow-up Activities 

A. Recommendations for which Management Decisions were made 

 During the Reporting Period ................................................................................................................ 53 

B. Disallowed Costs Agreed to by Management ........................................................................ $5,051,676 

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

 Agreed to by Management ........................................................................................................ $293,823 

D. Recommendations without a Management Decision at End of Reporting Period ............................... 38 

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

A. Legislation Reviewed ............................................................................................................................. 0 

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

C. Standard Operating Procedures and Other Issuances** Reviewed ...................................................... 63 

 Total..................................................................................................................................................... 67 

* Includes $1,766,667 from civil settlements in prior periods that was not reported previously. 

** This category includes policy notices, procedural notices, action memoranda, and other Agency initiatives, which 

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

24 

6-Month Productivity Statistics 

October 1, 2007 through March 31, 2008 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases................................................................................................................ 43 

B. Convictions from OIG Cases............................................................................................................... 29 

C. Cases Opened ....................................................................................................................................... 49 

D. Cases Closed......................................................................................................................................... 28 

Investigations Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations ............................................................................................................ $18,765,990* 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $2,619,739 

C. Loans Not Approved as a Result of the Name 

 Check Program.................................................................................................................... $16,772,644 

 Total..................................................................................................................................... $38,158,373

SBA Personnel Actions Taken as a Result of Investigations

A Dismissals............................................................................................................................................... 1 

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

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 ..................................................................................................... 13 

C. Proposed Debarments Issued by the Agency ......................................................................................... 5 

D. Final Debarments Issued by the Agency ................................................................................................ 8 

E. Proposed Debarments Declined by the Agency ..................................................................................... 4 

OIG Hotline Operation Activities

A. Total Fraud Line Complaints................................................................................................................ 85 

B. Total Complaints Referred to Investigations Division......................................................................... 23 

C. Total Complaints Referred to SBA or Other Federal Investigative Agencies........................................ 7 

D. Total Complaints Referred to Other Entities........................................................................................ 22 

E. Total Complaints Needing No Action.......................................................................................33 

* Includes $1,766,667 from civil settlements in prior periods that was not reported previously. 
Appendices

25 

Appendix I 

OIG Reports Issued 

October 1, 2007 through March 31, 2008 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Disaster Loans 

Review of the Adequacy of Supporting 

Documentations for Disbursements 8-07 01/29/2008 $0 $0

Annual Credit Reviews for Gulf Coast 

Hurricane Disaster Loan Disbursements 8-10 03/28/2008 $0 $29,200,000

Withdrawal of Disaster Loans 

Applications to Individual and Businesses 

Impacted by the Gulf Coast Hurricanes 

8-11 03/28/2008 $0 $0

Program Subtotal 3 $0 $29,200,000

Small Business Access to Capital

Audit of UPS Capital Business Credits 

Compliance with Selected 7(a) Lending 

Requirements 

8-08 03/21/2008 $4,317,000 $0

Loan Classifications and Overpayments 

on Secondary Market Loans 8-09 03/26/2008 $0 $8,500,000

Program Subtotal 2 $4,317,000 $8,500,000 

Small Business Development, Contracting, Education, and Training

Audit of Grant Disbursements to 

Women’s Business Centers 8-05 11/20/2007 $0 $0

Program Subtotal 1 $0 $0 

Agency Management

Fiscal Year 2008 Report on the Most 

Serious Management and Performance 

Challenges Facing the Small Business 

Administration 

8-01 10/16/2007 $0 $0 

Controls Over Access to Employee 

Emails by SBA Managers 8-02 10/19/2007 $0 $0

Audit of SBA’s Fiscal Year 2007 

Financial Statements 8-03 11/15/2007 $0 $0

GFRS for Fiscal Year 2007 8-04 11/17/2008 $0 $0

Audit of SBA’s Fiscal Year 2007 

Financial Statements – Management 

Letter 

8-06 12/14/2007 $0 $0

Program Subtotal 5 $0 $0 

TOTALS (all programs) 11 $4,317,000 $37,700,000 
Appendices

26 

Appendix II 

OIG Reports with Questioned Costs 

 Reports Recommendations* 

Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision made 

by September 30, 2007*** 3 3 $ 1,107,934 $1,073,715 

B. Issued during this reporting 

period 1 2 $17,000 $4,300,000 

Universe from which 

management decisions could be 

made in this reporting period – 

Subtotals 

4 5 $ 1,124,934 $5,373,715 

C. Management decision(s) made 

during this reporting period 3 4 $751,676 $5,373,715 

 (i) Disallowed costs 2 3 $751,676 $4,300,000 

 (ii) Costs not disallowed 1 1 $0 $1,073,715 

D. No management decision 

made by March 31, 2008 1 1 $373,258 $0 

* Reports may have more than one recommendation. 

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

 proper but lack documentation. 

 *** Information is different from what was previously reported due to database corrections. 

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

 

Reports Recommendations* 

Recommended 

Funds For Better 

Use 

A. No management decision made by 

September 30, 2007 ** 1 1 $293,823 

B. Issued during this reporting period 2 4 $37,700,000 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals 

3 5 $37,993,823 

C. Management decision(s) made during this 

reporting period 1 1 $293,823 

(i) Recommendations agreed to by SBA 

management 1 1 $293,823 

(ii) Recommendations not agreed to by 

SBA management 0 0 $0 

D. No management decision made by 

March 31, 2008 2 4 $37,700,000 

* Reports may have more than one recommendation. 

 ** Information is different from what was previously reported due to database corrections. 
Appendices

27 

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

Reports Recommendations 

A. No management decision made (for at least one 

recommendation in the report) by September 30, 2007 ** 9 26 

B. Issued during this reporting period 9 56 

Universe from which management decisions could be made in 

this reporting period – Subtotals 18 82 

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

recommendation in the report) during this reporting period 12 49 

D. No management decision made by March 31, 2008* 8 33 

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

recommendations that fall under both C. & D. 

** Information is different from what was previously reported due to database corrections. 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue* Management Decisions as of March 31, 2008 

Title Report

Number

Date 

Issued Status 

Audit of the Contract Bundling 

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

Audit of an SBA-Guaranteed Loan 6-22 5/17/06 Agency has not responded to one 

recommendation in the report. 

SBA’s Use of the Loan and Lender 

Monitoring System 7-21 5/2/07 Agency has not responded to five recommendations in the report. 

SBA’s Oversight of Business Loan 

Center, LLC 7-28 7/11/07 Agency has not responded to one recommendation in the report. 

Quality Assurance Reviews of Loss 

Verifications 7-29 7/23/07 Agency has not responded to two 

recommendations in the report. 

Review of SBA’s Subcontracting 

Assistance Program 7-33 9/28/07 Agency has not responded to one 

recommendation in the report. 

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

28 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2008

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

2-29 

Audit of Internal Control Over Colson 

Services Corporation’s Contract as Central 

Servicing Agent for SBA’s Certified 

Development Company Loan Program 

9/16/02 12/12/02 8/15/08 

3-08 SBA’s Oversight of the Fiscal Transfer 

Agent for the 7(a) Loan Program 1/30/03 4/15/07 ** 

3-30 Early Default Card Systems, Inc 6/19/03 12/21/04 6/30/07 

3-34 SBA's Compliance with JFMIP Property 

Management System Requirements 7/23/03 9/11/03 12/31/07 

3-35 National Women’s Business Council 7/28/03 3/31/05 12/31/05 

4-13 Audit of an Early Defaulted Loan 3/2/04 4/6/04 6/30/07 

4-16 

SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence 

Contracts and Task Orders 

3/17/04 *** 9/1/08 

4-22 Business Development Provided by SBA’s 

8(a) Business Development Program 6/2/04 7/14/04 ** 

4-34 

Audit of SBA's Process for Complying with 

the Federal Managers' Financial Integrity 

Act Reporting Requirements 

7/29/04 *** ** 

4-40 

Audit of a SBA-guaranteed Loan to Elatec 

Technology Corporation and HK 

Equipment, Inc. 

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

4-41 Audit of Selected SBA General Support 

Systems 9/10/04 *** ** 

4-42 Audit of SBA's Email System 9/10/04 12/31/06 12/31/06 

4-44 SBA-Sponsored and Cosponsored Events 

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

5-04 Review of the Small Disadvantaged 

Business Certification Program 11/4/04 4/1/05 9/30/05 

5-12 Audit of SBA’s Information Systems 

Controls – FY 2004 2/24/05 4/18/05 4/15/05 

5-14 SBA Small Business Procurement Awards 

are not Always Going to Small Business 2/24/05 8/17/06 6/30/07 

5-20 Audit of the Contract Bundling Process 5/20/05 5/23/06 12/30/06 

5-23 SBA’s Administration of its Special 

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

** Target dates vary with different recommendations. 

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

29 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2008 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final Action 

Target Date 

5-24 Criteria For Overcoming The Presumption 

of Social Disadvantage is Needed 9/28/05 3/9/06 7/31/06 

5-28 Review of SBA Procedures For Cash Gifts 9/30/05 6/30/06 9/1/08 

6-01 Independent Evaluation of SBA’s 

Information Security Program 10/7/05 *** ** 

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

Statements 11/14/05 5/10/06 ** 

6-07 The 1502 Reporting Process 12/9/05 *** 12/31/07 

6-09 

Audit of SBA's Administration of the 

Supplemental Terrorist Activity Relief 

(STAR) Loan Program 

12/22/05 *** ** 

6-10 FY 2005 Financial Statements Management 

Letter 1/18/06 *** 6/30/07 

6-15 

Monitoring Compliance With 8(a) BD 

Regulations During 8(a) BD Contract 

Performance 

3/16/06 9/29/06 12/30/07 

6-18 The Central Contractor Registration Needs 

To Be Modified 3/21/06 4/3/06 9/30/06 

6-26 Survey of the Quality Assurance Review 

Process 7/12/06 4/6/07 3/31/08 

6-32 Economically Disadvantaged Status of an 

8(a) Program Participant's Owner 9/25/07 9/25/06 9/30/07 

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

Statements 11/15/06 12/30/06 6/30/07 

7-08 

Audit of the SBAExpress and Community 

Express Loan Purchase and Liquidations 

Process 

12/29/06 12/4/06 ** 

7-11 Audit of SBA's Fiscal Year 2006 Financial 

Statements Management Letter 1/16/07 4/6/07 9/30/07 

7-13 

Review of the Small Business 

Administration's Protection of Sensitive 

Agency Information 

2/9/07 6/6/07 ** 

7-14 Evaluation of SBA's Information Security 

Program 3/15/07 3/6/07 9/30/07 

7-16 Vulnerability Technology Security 

Assessment 3/6/07 2/28/07 ** 

7-19 

Audit of Two 8(a) Sole-Source Contracts 

Awarded to Contractors in the 

Mentor/Protégé Program 

3/30/07 *** ** 

** Target dates vary with different recommendations. 

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

30 

Appendix VI 

OIG Reports Without Final Action as of March 31, 2008 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final Action 

Target Date 

7-23 

Audit of the Guaranty Purchase Process for 

Section 7(a) Loans at the National Guaranty 

Purchase Center 

5/8/07 4/27/07 9/30/07 

7-26 Audit of Liquidation of Disaster Loans 10/23/07 10/23/07 11/22/07 

7-27 Size Determinations Made by District 

Offices 6/27/07 7/18/07 7/30/07 

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

LLC 7/11/07 9/27/07 ** 

7-31 Audit of the E-Application System 8/20/07 10/16/07 ** 

7-33 Review of SBA’s Subcontracting 

Assistance Program 9/28/07 9/30/07 9/30/07 

8-03 Audit of SBA's FY 2007 Financial 

Statements 11/15/07 11/12/07 ** 

8-06 Audit of SBA's FY 2007 Financial 

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

8-08 

Audit of UPS Capital Business Capital 

Compliance with Selected 7(a) Lending 

Requirements 

3/21/07 *** ** 

8-10 Annual Credit Reviews for Gulf Coast 

Hurricane Disaster Loan Disbursements 3/28/08 3/28/08 4/25/08 

8-11 

Withdrawal of Disaster Loan Applications 

to Individuals and Business Impacted by the 

Gulf Coast Hurricanes 

3/28/08 3/28/08 4/28/08 

** Target dates vary with different recommendations. 

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

31 

 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2008* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

transfer agent activities and terminate the 

existing contract with the fiscal transfer 

agent when a new contract can be enacted. 

12/10/03 6/30/07 

3-08 1/30/03 Review fiscal transfer agent activities and 

identify contract costs for fees and services. 

Report these contract costs in proposed 

Master Reserve Fund financial statements 

so future fiscal transfer agent contracts will 

have historical cost data for comparison 

purposes.

10/15/03 12/31/07

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

monitor contractor compliance with the 50 

percent rule when applicable. 

5/12/04 9/1/08 

4-16 3/17/04 Ensure the amount of subcontracting is 

reviewed and documented in the contract 

file for awards of 8(a) and small business 

set-aside contracts and task orders to small 

businesses. 

5/12/04 9/1/08 

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

Management as soon as possible, 

incorporate policies to address the 

outstanding items described above within 

six months of the issuance of this report. 

5/12/04 9/1/08 

5-04 11/4/04 Develop and implement procedures to 

ensure that Small Disadvantaged Business 

reviewers properly apply all four criteria for 

determining economic disadvantage, per 

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

thresholds for maximum income and total 

assets, and industry financial performance 

comparisons. 

4/1/05 9/30/05 

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

32 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2008* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

supported general support systems and 

major applications, e.g., Egan Mainframe, 

SBA and Corio UNIX, Network and 

Windows 2000; Loan Accounting System 

(LAS), Sybase, Mainframe, Joint 

Accounting and Administration 

Management System (JAAMS) Oracle, and 

related application functions: (1) develop 

and document policies and procedures 

clearly outlining what activities should be 

logged, who should be responsible for 

reviewing logs, what the logs should be 

reviewed for, how often logs should be 

reviewed, and how long logs should be 

retained; (2) assign responsibility within the 

Office of the Chief Information Officer for 

the review of application and general 

support system security logs; and (3) retain 

audit logs for a sufficient period of time (at 

least 90 days). 

4/13/05 4/15/06 

7-03 11/15/06 Ensure that system owners for DCMS, 

FRIS, JAAMS and LAS standardize 

software change requests and that software 

change testing documentation is developed 

in a more consistent and complete manner. 

6/29/07 10/30/07 

7-08 12/29/06 Determine if lender actions warrant a denial 

of liability on $14,232 in guaranties 

associated with the two loans that were 

either missing a Form 1919 or where the 

form was incomplete; and $9,015 on 

guaranty. 

12/4/07 5/31/07 

7-08 12/29/06 Determine if loan proceeds on the 45 loans 

sampled during the audit were used in 

accordance with the terms of the loan 

authorizations, and take appropriate 

corrective actions. 

12/4/07 5/31/07 

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

33 

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of March 31, 2008* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

7-08 12/29/06 Recover $7,414 from a lender that awarded 

an SBA loan to an ineligible company. 

12/4/07 5/31/07 

7-08 12/29/06 Review the 2,729 loans for compliance with 

SBA rules and regulations and improper 

payments. 

12/4/07 5/31/07 

7-08 12/29/06 Recover $27,134 for the two purchased 

SBA Express loans reviewed for which the 

lender failed to disclose material facts. 

12/4/07 5/31/07 

7-23 5/8/07 Seek recovery of $36,407 on the guaranties 

paid on the 6 loans listed in the report. 

4/27/07 9/30/07 

7-26 6/1/07 Develop and implement procedures to 

ensure that all the names and identification 

numbers of delinquent borrowers are 

entered into the SBA database and 

transferred to Treasury. 

10/23/07 11/22/07 

7-26 6/1/07 Follow up on the 88 loans that were 

miscoded or which did not identify all 

responsible parties to ensure that Treasury 

was sent the correct or missing information. 

12/4/07 5/31/07 

7-28 7/11/07 Take further action to mitigate the risk 

posed and to promote consistent and 

uniform enforcement actions by developing 

standard operating procedures to 

complement revised 13 CFR that describe 

circumstances under which it will suspend 

or revoke PLP authority or how it will do 

so. 

9/27/07 10/31/07 

7-31 9/27/07 Establish appropriate controls to ensure data 

entered into E-Application is accurately 

transferred to the Electronic 8(a) Review 

System. 

10/16/07 6/30/09 

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

34 

Appendix VIII

Summary of Significant Recommendations 

October 1, 2007 through March 31, 2008 

Report 

Number Title Date Issued Recommendation 

8-02 

Controls Over Access to 

Employee Emails by SBA 

Managers 10/19/07 

Immediately communicate to individuals 

having system administrator rights that 

requests for email retrievals must be 

approved by the Chief Information Officer. 

8-02 

Controls Over Access to 

Employee Emails by SBA 

Managers 10/19/07 

Revise internal policies and procedures to 

establish appropriate protocols for 

conducting administrative inquiries and 

reviews of employee emails. 

8-03 

Audit of SBA's FY 2007 

Financial Statements 11/15/07 

Implement a formal sanctioning policy for 

these personnel and contractors who do not 

complete the required annual computer 

security training program. 

8-03 Audit of SBA's FY 2007 

Financial Statements 11/15/07 

Develop and implement specific policies and 

procedures outlining the day-today actions 

performed by data center employees. 

8-03 Audit of SBA's FY 2007 

Financial Statements 11/15/07 

Develop and implement policies for end user 

computing, specifically enforcing user-level 

access controls over existing programs and 

data objects. 

8-09 

Loan Classifications and 

Overpayments on 

Secondary Market Loans 3/23/08 

Revise current procedures for classifying 

loans in the Loan Accounting System to 

ensure that loan currency is not solely based 

on the next installment due date. 

8-09 

Loan Classifications and 

Overpayments on 

Secondary Market Loans 3/23/08 

Ensure that SBA is in compliance with the 

1086 agreement by actively monitoring the 

Fiscal and Transfer Agent’s monthly default 

reports, adhering to all requirements, and 

taking appropriate action on the reported 

loans. 

8-09 

Loan Classifications and 

Overpayments on 

Secondary Market Loans 

3/23/08 

Modify the 1086 agreement to require 

lenders to request guaranty purchase when 

interest is 120 days or more days past due 

and seek reimbursement from lenders for 

interest accrued in excess of 120 days on 

loans SBA purchases directly from the 

secondary market. 
Appendices

35 

Appendix VIII

Summary of Significant Recommendations 

October 1, 2007 through March 31, 2008 

Report 

Number Title Date Issued Recommendation 

8-09 

Loan Classifications and 

Overpayments on 

Secondary Market Loans 

3/23/08 

Discontinue the practice of including the 

amount of SBA’s ongoing guaranty fees in 

the purchase payment to the Fiscal and 

Transfer Agent. 

8-10 

Annual Credit Reviews for 

Gulf Coast Hurricane 

Disaster Loan 

Disbursements 

3/28/08 

Reinstitute the requirement that updated 

income tax returns and financial documents 

be collected along with updated credit reports 

during annual credit reviews. 

8-10 

Annual Credit Reviews for 

Gulf Coast Hurricane 

Disaster Loan 

Disbursements 

3/28/08 

Rescind Notice 07-53 to ensure that credit 

reviews are performed for loans that are 

disbursed 12 months beyond the original loan 

authorization date. 

8-10 

Annual Credit Reviews for 

Gulf Coast Hurricane 

Disaster Loan 

Disbursements 

3/28/08 

Require written justification for disaster 

assistance policy that is made outside of the 

Agency’s required policies and procedures 

clearance process. 

8-10 

Annual Credit Reviews for 

Gulf Coast Hurricane 

Disaster Loan 

Disbursements 

3/28/08 

Implement internal system controls into 

DCMS that ensure disbursements do not 

occur after expired deadlines. 
Appendices

36 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Emerging 200 Small 

Business Program 04/01/08 12/31/08 Memphis, TX 

Memphis Shelby County Office of 

Economic Development, Office of the 

Mayor City of Memphis, TN and 

Office of the Mayor Shelby County 

Conference and Small 

Business Week Awards 

Luncheon 

05/01/08 05/01/08 Carmel, IN 

National Federation of Independent 

Business, Indianapolis SCORE Chapter 

#6, The Central Indiana Women’s 

Business Center, Indiana Small 

Business Development Center Network

Small Business 

International Trade 

Symposium Series 

03/27/08 3/27/08 Miami, FL U.S. Dept. of Commerce, ASBDC's 

How to Grow your 

Business Internationally 04/03/08 04/03/08 Middletown, CT 

Liberty Bank, Middlesex Chamber of 

Commerce, US Department of 

Commerce, Department of Economic 

and Community Development 

Business Essentials; 

Business Blueprints; Web 

Design and 

Development/E-Commerce; 

Finding Money You Need 

for Your Business 

04/29/08 04/29/10 Fayetteville, 

GA Fayette County Public Library 

Santa Ana District Small 

Business Week Awards 

Program 2008 

09/27/08 09/27/08 Anaheim, 

CA 

SCORE Association, Rancho Santiago 

Community College District 

Small Business Week 

Awards Dinner 05/19/08 05/19/08 Newark, DE

Delaware Community Development 

Corporation, DelVal Business Finance 

Corporation and MidAtlantic Business 

Finance Corporation 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG.
Appendices

37 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Indiana Small Business 

Week Seminars 4/29/08 4/30/08 Fort Wayne, IN 

Office of Senator Richard Lugar, Ft. 

Wayne Indiana SCORE Chapter 50, Ft. 

Wayne Women's Bureau, Women's 

Enterprise, Northeast Indiana SBDC 

20th Annual High Tech 

Conference for Small 

Business 

3/3/08 5/5/08 Los Angeles, 

CA Jet Propulsion Laboratory/NASA 

3rd Annual Export 

Training Assistance 

Partnership 

3/26/08 5/21/08 Newport 

Beach, CA 

SCORE Chapter 114, US Commercial 

Service, Center for International Trade 

Development, Orange County SBDC, 

Orange County Hispanic Chamber of 

Commerce 

Celebrate Success Awards 

Luncheon 5/22/08 5/22/08 Hyannis, MA Cape Business Publishing 

Small Business Week 

Breakfast & Awards 

Ceremony 

4/30/08 4/30/08 San Juan, PR Puerto Rico Bankers Association 

Small Business Excellence 

Award Recognition 5/5/08 5/9/08 

Albany & 

Syracuse, 

NY 

New York Business Development 

Corporation 

Small Business Awards 

Program 4/17/08 4/17/08 Mason, OH

EMTEC Southwest Central Ohio 

Procurement Technical Assistant 

Center, Greater Cincinnati SCORE 

Chapter 34 

Matchmaker Primer 

Workshop and Minimatchmaker 9/08 10/08 Wallingford, 

CT Quinnipiac Chamber of Commerce 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet been 

held. This information has not been verified by the OIG.
Appendices

38 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

National Entrepreneurship 

Week Kickoff 2/25/08 2/25/08 Washington, DC 

Consortium for Entrepreneurship 

Education 

Small Business Workshop 3/27/08 3/27/08 Gary, IN 

Centier Bank, Hammond Development 

Corporation, Indiana Minority 

Enterprise Center 

Business Women's Forum 9/1/08 9/1/08 Hartford, CT Waterbury Regional Chamber of 

Commerce 

Procurement Workshop 

Series 9/08 6/09 New Haven

Gateway Community College Business 

Resource Center and New Haven 

SCORE Chapter 66 

Small Business Week 

Recognition Program 5/20/08 5/20/08 Berlin, CT Connecticut Small Business-Key to the Future 

Federal Contracting 

Matchmaking Event 3/28/08 3/28/08 San Juan, PR Colegio de Ingenieros y Agrimensores de Puerto Rico 

SBA Day & Procurement 

Fair 4/17/08 4/17/08 Ontario, CA

County of San Bernardino/Economic 

Development Agency, Inland Empire 

WBC, Inland Empire SBDC 

2008 Inner City Capital 

Connections Program TBD TBD TBD Initiative for a Competitive Inner City, Banc of America Capital Access Funds

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG.
Appendices

39 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Government Contracting 

Forum 2/1/08 2/1/08 Reston, VA Greater Reston Chamber of Commerce

Series of GC/BD 

Workshops & Matchmaker 

Events 

1/24/08 12/31/08 Providence, 

RI 

Rhode Island Procurement Technical 

Assistance Center 

Small Business Week 

Event 2008 5/19/08 5/23/08 Providence, RI 

Joseph G.E. Knight SCORE Chapter 

#13 

Small Business Week 

Event 6/4/08 6/4/08 Burlington, VT Vermont Business Magazine 

Small Business Week 

Event 5/22/08 5/22/08 Portland, OR

Score Chapter, West Coast Bancorp, 

Resource Capital, Oregon Business 

Development Corp. and Cascades West 

Financial Services 

Financing for Veterans and 

the Military Community 01/23/08 1/23/08 Warwick, RI Joseph G.E. Knight SCORE Chapter #13, Webster Bank NA 

Small Business Week 2008 5/5/08 5/9/08 St. Louis, 

MO 

Small Business Week of Eastern 

Missouri, Inc. 

Black Business Conference 2/26/08 2/27/08 Detroit, MI Chase Bank and Alpha Phi Alpha 

Fraternity, Inc. 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG.
Appendices

40 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Small Business Leadership 

Forum 1/30/08 1/30/08 Tempe, AZ National Football League 

Native American Business 

Association Seminar 2/23/08 2/23/08 Indianapolis, IN Native American Business Association

Straight Talk 2008 & 

Straight Talk Series 1/26/08 4/8/08 Buffalo, NY SCORE Buffalo Niagara - Chapter #45

Salute to Small Business, 

Regulatory Fairness 

Hearing & Roundtable 

4/1/08 4/1/08 Columbia, 

SC 

South Carolina Chamber of Commerce, 

Small Business Development Center of 

South Carolina, South Carolina 

Department of Commerce, South 

Carolina Export Consortium, Service 

Corps of Retired Executives, South 

Carolina Manufacturing Extension 

Partnership, South Carolina Women’s 

Business Center, U.S. Department of 

Agriculture – Rural Development, U.S. 

Department of Commerce, SC Launch!, 

State Board for Technical and 

Comprehensive Education 

Oklahoma Small Business 

Awards Luncheon 3/27/08 3/27/08 Midwest City, OK 

Rose State College Small Business 

Development Center, Oklahoma City 

SCORE Chapter, Oklahoma Center for 

the Advancement of Science and 

Technology, Oklahoma Department of 

Commerce, The Journal Record 

Publishing Company 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG.
Appendices

41 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Annual Celebration of 

Small Business in Virginia 5/2/08 5/2/08 Richmond, VA 

Small Business Awards Foundation, 

Inc. 

Your Future Conference 

for Women 2/26/08 2/27/08 Mountain View, CA Invent Your Future Enterprises 

Small Business Training 

Conference & 

Matchmaking Summit 

1/30/08 1/30/08 Miami, FL 

U.S. Department of Veterans Affairs, 

City of Miami, FL and City of North 

Miami, FL Community Redevelopment 

Agency 

New Mexico Small 

Business Week Awards 

Celebration 2008 

5/9/08 5/9/08 Albuquerque, 

NM 

Santa Fe Community College thru NM 

SBDC 

Mid-America Lender's 

Conference for SBA 

Lenders 

8/10/08 8/13/08 San Antonio, 

TX 

The University of Texas at San 

Antonio, South West Texas Border 

SBDC, Central Texas Association of 

Government Guaranteed Lenders 

Disaster Preparedness 

Guide 11/1/07 4/30/08 Washington, DC 

Nationwide Mutual Insurance 

Company 

Women's Business 

Roundtables 10/23/07 10/30/08 Worland, WY 

Big West Auto Plex, Northwest 

College 

Small Business Resource 

Days 11/14/07 9/30/09

Rhode Island 

Public 

Libraries 

Center for Women & Enterprise, RI 

Coalition for Minority Investment, RI 

SBDC, SCORE 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG.
Appendices

42 

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

October 1, 2007 through March 31, 2008 

Name/Subject of Event Event 

Start Date

Event 

End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Online Training Module 11/1/07 10/31/09 World Wide 

Web FranNet, LLC 

* The Agency provided this information based on approved cosponsorship agreements. Some events have not yet 

been held. This information has not been verified by the OIG.
Appendices

43 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

AL DL An individual altered a bill of sale for his 

houseboat, which was used as his 

primary residence, in order to secure an 

SBA disaster loan of $21,800. He also 

made false statements to the SBA 

regarding the use of loan proceeds. 

Individual indicted 

and pled guilty. 

None 

AL DL The owner of a charter plane company 

produced fraudulent documents showing 

that SBA had released its lien against 

two properties being held as collateral on 

his $177,800 SBA disaster loan. The 

owner received $92,526 from the sale of 

the properties, which should have been 

paid to the SBA as collateral for his 

September 11 economic injury loan. 

Owner sentenced to 63 

months in prison, 36 

months probation, and 

over $1.3 million in 

restitution. 

IRS, AAPD 

CA BL The owner of a cowhide company is 

alleged to have falsified purchase orders, 

invoices, contracts, financial statements, 

and tax returns in order to receive more 

cash advances from his $2 million SBA 

Export Working Capital line of credit. 

The additional funds were used to pay 

off debts from a failed seafood import 

company started by the owner. 

Owner indicted. FBI 

CA BL The owner of a dry cleaning business 

allegedly falsified his capital injection 

and failed to disclose his prior criminal 

record on his application for a $650,000 

SBA-guaranteed loan. 

Owner indicted. None 

CA BL An individual falsely claimed to be a 

U.S. citizen on his application for a 

$35,000 SBA Express loan and a 

$1,445,000 residential loan. It is alleged 

that he also operated a sophisticated 

identity theft ring for the purpose of 

obtaining fraudulent SBA Express lines 

of credit, conventional and/or residential 

loans, and credit cards. 

Individual pled guilty 

in state court and was 

sentenced to prison 

time served (344 

days), 3 years 

probation, restitution 

of $1,479,650 and a 

$200 fine. Federal 

charges involving the 

identity theft ring have 

also been filed. 

LAPD, 

CDOI, 

DHS/ICE, 

USPIS, 

SSA/OIG 
Appendices

44 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

CO BL The former office manager for a plastic 

surgeon allegedly used the doctor’s 

personal information and signature stamp 

without his authorization to fraudulently 

obtain two SBA-guaranteed Express 

loans, totaling $150,000, and an 

additional $180,948 in non-SBA loans. 

Office manager 

charged in state court 

via criminal 

complaint. 

DDAO 

DC BL The part owner of a Small Business 

Investment Company (SBIC) stole over 

$1.9 million from the SBIC by issuing 

checks, wire transfers, and other 

payments for her personal benefit 

through another firm. The SBIC was 

licensed and funded by SBA to lend 

money to start-up technology businesses.

Part owner sentenced 

to 8 months 

confinement, 3 years 

supervised release, 

and $153,658 in 

restitution. 

FBI 

DE GC A state employee conspired with another 

individual to fraudulently obtain 

abandoned stock certificates from the 

Department of Unclaimed Property. The 

co-conspirator then applied for a 

$309,000 SBA-guaranteed loan through 

the Small Business Loan Source, to 

purchase a tanning franchise and used 

the funds obtained from the fraudulently 

obtained stock certificates for the equity 

injection. 

Both indicted; 

employee pled guilty. 

FBI, IRS 

FL DL An individual falsely claimed that his 

apartment in New Orleans had been 

damaged as a result of Hurricane Katrina 

in order to receive a $40,000 SBA 

disaster loan. 

Individual indicted 

and pled guilty. 

None 

IA BL Two individuals allegedly enlisted 

“front” borrowers and provided 

fraudulent documentation to a lender in 

order to influence the approval of an 

SBA-guaranteed loan and two other 

direct loans totaling over $4 million. 

Both individuals 

indicted. 

FBI 
Appendices

45 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

IL BL The owner of an investment corporation 

allegedly created counterfeit statements 

as evidence that his clients possessed 

adequate funds to use as equity injections 

for two SBA-guaranteed loans to 

purchase a hotel and gas station. Three 

other individuals are alleged to have 

applied for and received over $2.5 

million in loans, which they knew they 

were not qualified to receive. 

Four individuals 

indicted. 

None 

IL BL The former owner and a former 

employee of a finance company are 

alleged to have provided fraudulent 

equity injection documentation to a 

lender in order to influence the approval 

of at least 25 SBA-guaranteed loans for 

businesses seeking to purchase gas 

stations and convenience stores. 

Former owner and 

employee indicted. 

FBI 

IL BL A businessman applied for two SBAguaranteed loans totaling $860,000 and 

allegedly neglected to disclose that he 

had been arrested and faced theft and 

fraud charges related to another business. 

Businessman indicted. None 

LA DL A business owner conspired with his 

CPA to fraudulently obtain disaster loans 

totaling approximately $3 million and 

then destroyed a forged SBA financial 

document in order to impede the 

investigation. 

Business owner 

indicted and pled 

guilty. CPA 

previously pled guilty 

and is awaiting 

sentencing. 

USSS 

LA DL An individual is alleged to have provided 

altered building permits in order to 

induce SBA to release Hurricane Katrina 

disaster funds for a $19,500 home loan 

and a $49,600 business loan. 

Individual indicted. None 
Appendices

46 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

LA DL An individual falsified her primary 

residence when applying for a $142,600 

SBA disaster assistance loan. 

Individual pled guilty 

and was sentenced to 5 

years probation, a 

$15,000 fine, and 

restitution of 

$130,009. 

LSPD, 

DHS/OIG, 

USDA/OIG 

MI BL The former manager of a gas station and 

convenience store conspired with others, 

including the former president of the gas 

station, to fraudulently obtain a $944,000 

SBA-guaranteed loan. The fraud 

involved numerous false equity injection 

documents, including a phony gift 

affidavit signed by the former manager. 

Former manager 

sentenced to 30 

months in prison, 36 

months supervised 

release, and restitution 

of $868,456. This 

restitution is to be paid 

jointly with the former 

president, who 

received 24 months in 

prison and 36 months 

supervised release. 

USSS 

MI BL The former executive vice president of 

an SBA non-bank lender conspired with 

a loan broker and others to fraudulently 

qualify loan applicants for SBAguaranteed loans, totaling over $76 

million, primarily for the purchase of gas 

stations. The scheme involved using 

false and counterfeit documents to verify 

the borrowers’ required equity injections. 

Former executive vice 

president pled guilty. 

USSS 

MI BL An individual allegedly provided false 

information concerning her financial 

status and the required equity injection to 

obtain an $825,000 SBA-guaranteed 

loan, in name only, for her brother-inlaw who was the owner and intended 

operator of the business. 

Individual pled guilty. USSS 

MI BL A seller conspired with two separate 

borrowers to falsify equity injections so 

each borrower could obtain an SBAguaranteed loan to purchase a gas 

station/convenience store from him. The 

loans totaled over $2.7 million. 

All three individuals 

have pled guilty and 

are awaiting 

sentencing. 

USSS 
Appendices

47 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL The president of a gas station and 

convenience store falsely stated that he 

did not have a criminal record in order to 

assume an existing SBA-guaranteed loan 

of $640,000. 

President sentenced to 

6 months in prison, 3 

years probation, and 

$197,000 in 

restitution. 

USSS 

MI BL A former bank official participated in a 

scheme to defraud the SBA by supplying 

false verifications of deposit for loan 

applicants. The official also gave a loan 

broker unfunded official bank checks 

totaling more than $2.8 million to be 

used in connection with fraudulent loan 

closings. 

Former bank official 

sentenced to 2 years in 

prison, 5 years 

supervised release, 

and restitution of over 

$3.9 million. 

USSS 

MI BL An individual conspired with a loan 

broker and multiple borrowers to obtain 

20 SBA-guaranteed loans totaling $12.5 

million for purchases of gas stations, oil 

change businesses, restaurants, and a 

laundromat. The broker provided the 

borrowers with counterfeit documents 

and checks in order to make the 

borrowers appear more creditworthy and 

assist them in providing the required 

equity injection documentation. 

Individual indicted. 

Loan broker pled 

guilty to a criminal 

information. 

USSS 

MI BL The buyer and the seller of a gas 

station/mini mart conspired to falsely 

represent that a $300,000 equity injection 

was being made in order to secure an 

$880,000 SBA-guaranteed loan for the 

buyer. 

Buyer and seller 

indicted. Buyer pled 

guilty. 

USSS 

MI BL The former president of a gas station and 

convenience store conspired with others 

to make false statement about his 

education, employment history, net 

worth, required equity injection, and the 

percentage of the business that he owned 

in order to qualify for a $760,000 SBAguaranteed loan. 

The former president 

charged via a criminal 

information. 

USSS 
Appendices

48 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL An individual conspired with others to 

obtain a $1,335,000 SBA-guaranteed 

loan from a non-bank lender to purchase 

a gas station and convenience store. The 

individual claimed he was going to be 

the sole owner of the business when, in 

fact, he had an undisclosed partner. 

Individual sentenced 

to 24 months 

probation. Two coconspirators have been 

charged but remain 

international fugitives. 

USSS 

MS DL A man and his wife provided false 

statements regarding their residency in 

an attempt to receive Gulf Coast 

hurricane benefits to which they were not 

entitled. The couple received $50,000 of 

the approved $112,500 loan from the 

SBA. 

Wife sentenced to 36 

months probation and 

a $500 fine. Husband 

sentenced to 18 

months in prison, 36 

months probation, a 

$4,000 fine. Both 

ordered to pay joint 

restitution of $47,078 

to the SBA. 

FBI, MSAO 

MS DL An individual caused physical damage to 

his own residence in order to 

fraudulently receive SBA disaster 

assistance of $40,000. 

Individual indicted 

and pled guilty. 

FBI, USPIS 

NY BL The owner of a trading company 

received a $250,000 SBA-guaranteed 

loan and secured it with his primary 

residence. The owner sold the property 

and hid the sale from the bank and SBA 

in order to keep a profit of approximately 

$487,000. 

Owner indicted and 

pled guilty. 

None 

NY DL A financial consultant received a 

$140,600 SBA working capital disaster 

loan pursuant to the 2001 terrorist attacks 

in New York City. The funds were 

deposited into the trust account of the 

consultant’s attorney and were later 

disbursed to the financial consultant, 

another company that he owned, and the 

attorney. 

Financial consultant 

entered into a nonprosecution agreement 

and agreed to repay 

the loan. Attorney 

convicted of fraud 

involving misuse of 

his escrow account 

and sentenced to four 

years in prison. 

None 
Appendices

49 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

PA BL A businessman fraudulently obtained a 

$993,000 SBA-guaranteed loan by 

pledging collateral not belonging to him 

and falsely claiming to have made a 

$250,000 cash injection. In support of 

the loan application, an accountant 

prepared a fraudulent tax record, at the 

direction of the loan broker, to increase 

the likelihood of the loan being 

approved. 

Loan broker indicted 

and pled guilty. 

Accountant previously 

pled guilty and is 

awaiting sentencing. 

Businessman 

sentenced to six 

months home 

confinement, three 

years probation, and 

restitution of 

$993,000, to be paid 

jointly with the other 

defendants in this 

case. 

FBI 

TX DL The president of a lumber company and 

her husband purported to own several 

vacant lots, which they knew did not 

belong to them. The couple offered these 

lots to SBA as collateral in order to 

obtain a $25,800 Economic Injury 

Disaster Loan. 

Couple convicted by 

jury trial. 

None 

TX GC The president of a research and 

development company fraudulently 

obtained ten research contracts totaling 

over $3 million under the Small Business 

Innovative Research program. The 

president misrepresented his company’s 

history, status, physical facilities, and 

previous work performed. 

The company and its 

president ordered to 

pay civil penalties of 

over $5 million. 

NASA/OIG, 

DCIS, 

USA/CID 

TX BL Three family members conspired to 

submit fraudulent documentation relating 

to the capital injections required to 

obtain two SBA-guaranteed loans. The 

loans, totaling $1.6 million, were for the 

purchase of two gas stations/convenience 

stores. 

Two of the defendants 

sentenced to 36 

months probation; 

one, to 24 months. All 

three ordered to pay 

joint restitution of 

$492,187. 

FBI 
Appendices

50 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX BL A business owner falsely stated that he 

was “current” on all taxes in order to 

obtain an SBA loan of $1,701,000 

Owner pled guilty and 

was placed on 

community 

supervision for ten 

years. He was ordered 

to pay $1,352,300 in 

restitution and perform 

320 hours of 

community service. 

FBI 

TX GC Six individuals conspired in a 

multimillion dollar fraud scheme to steer 

fixed Department of Defense contracts to 

a company owned by one of the 

defendants. 

The final three 

defendants pled guilty. 

FBI, IRS, 

USA/CID, 

GSA/OIG, 

DOI/OIG, 

DCIS 

TX BL The president of a slaughtering business 

allegedly used false representations and 

documents to convince at least four 

different lenders that he had sufficient 

collateral and income to repay 

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

$1,812,000 in non-SBA loans. 

President indicted. FBI 

TX BL A former escrow officer of a title 

company conspired with others to devise 

a scheme to fraudulently obtain an SBAguaranteed loan of $2.4 million to 

finance the purchase of a warehouse. The 

scheme involved misrepresenting the 

purchase price of the property, falsifying 

part of the equity injection, and 

laundering approximately $473,000 of 

the loan proceeds. 

Former escrow officer 

sentenced to 96 

months in prison, 5 

years supervised 

release. 

TCPA/CID 

WA BL The former owner of a hauling business 

made false statements to the bank and 

SBA regarding his company’s tax 

liability in order to obtain a $750,000 

SBA-guaranteed loan. He then sold SBA 

collateral, hid the proceeds of the sale, 

and laundered those proceeds. 

Former owner 

sentenced to 2 years in 

prison, 5 years 

supervised release, 

and ordered to pay a 

monetary judgment of 

$157,756. 

FBI, IRS 
Appendices

51 

Appendix X

Legal Actions Summary 

October 1, 2007 through March 31, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

WA SB A now defunct construction company 

obtained SBA surety bonds in order to 

perform public works contracts for state 

agencies and city municipalities. The 

president of the company is alleged to 

have falsely stated that he paid his 

subcontractors and suppliers and that his 

company was out of funds when, in fact, 

he was diverting contract proceeds of 

about $87,000 to his personal use. 

President charged in a 

superseding 

indictment with three 

additional counts. 

FBI, NICB 

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

Business Development; SBDC=Small Business Development Center; SB=Surety Bond Guarantee 

Joint-investigation Federal Agency Acronyms: AAPD=Auburn Alabama Police Department; CDOI=California 

Department of Insurance; DCIS=Defense Criminal Investigative Service; DDAO=Denver District Attorney’s 

Office; DHS/ICE=Department of Homeland Security/Immigration and Customs Enforcement; 

DHS/OIG=Department of Homeland Security/OIG; DOI/OIG=Department of Interior/OIG; FBI=Federal Bureau of 

Investigation; GSA/OIG=General Services Administration/OIG; IRS=Internal Revenue Service; LAPD=Los 

Angeles Police Department; LSPD=Louisiana State Police Department; MSAO=Mississippi State Auditor’s Office; 

NASA/OIG=National Aeronautics and Space Administration/OIG; NICB=National Insurance Crime Bureau; 

SSA/OIG=Social Security Administration/OIG; TCPA/CID=Texas Controller of Public Accounts/Criminal 

Investigative Division; USA/CID=United States Army/Criminal Investigations Division; USDA/OIG=U.S. 

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

Service 
52 
Appendix XI 

Small Business Administration 

Office of Inspector General 

Chicago, IL 

Herndon, VA 

Los Angeles, CA 

Washington, DC 

Atlanta, GA 

Inspector 

General 

Deputy Inspector 

General 

Auditing Division 

Counsel Division 

Ma

Business Development 

Programs Group

Washington, DC 

Financial Management 

& IT Group

Washington, DC 

Credit Programs 

Group

Security Operations 

Washington, DC 

Atlanta, GA 

Philadelphia, PA 

New York, NY 

Southern Region 

Miami, FL 

New Orleans, LA 

Investigations Division 

Eastern Region Central Region 

Dallas/Ft. Worth, TX 

Chicago, IL 

Houston, TX 

Kansas City, MO 

Detroit, MI 

Disaster Programs Group 

Dallas/Ft. Worth, TX 

New Orleans, LA 

Washington, DC 

Herndon, VA 

53

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 OIGHotline@SBA.GOV

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