U.S. Small Business Administration 

Office of Inspector General 

_________________________________ 

Semiannual Report to Congress 

Fall 2005 

April 1, 2005 – September 30, 2005 
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 18 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-20 

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

 and Deficiencies 36-38 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 31-35 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 41-46 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 25 

Section 5(a)(7) Summary of Significant Audits & Other Reports 3-20 

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 28 

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

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

 the OIG Disagreed None 

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

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

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

Semiannual Report summarizing activities from April 1, 2005, through September 30, 2005. 

As an independent, objective reviewer and evaluator of the operations and activities of the SBA, the OIG seeks 

to target potential financial vulnerabilities and fraud in SBA programs, promote effective program 

management, ensure sound Agency financial and management information, and improve information security 

management. During this reporting period, we issued 12 reports with recommendations for improving Agency 

operations, reducing fraud and unnecessary losses, and recovering funds. OIG investigations led to 26 

indictments and 22 convictions of subjects who defrauded the Federal Government. In addition, the Office 

collectively reviewed 77 legislative, regulatory, policy, procedural, and other proposals concerning the SBA 

and Government-wide programs. With a staff of approximately 100, the OIG produces sizeable savings and 

important program improvements. 

We continued to review small business Government contracting issues, focusing on contract bundling in this 

semiannual reporting period. Bundled contracts in the Executive Branch have raised increased concerns 

because they can result in fewer small businesses receiving Federal contracts, and a reduced supplier base for 

the Federal Government. We found that SBA was not reviewing the majority of procurements reported by 

agencies as bundled, and that SBA did not have a bundling database as required by the Small Business 

Reauthorization Act of 2000. 

The OIG also identified two additional areas within the Section 8(a) Business Development (8(a)BD) Program 

where criteria to effectively manage the program have not been developed. SBA needs to develop criteria for 

overcoming the presumption of social disadvantage for 8(a) BD Program purposes, and a definition of success 

for the 8(a) Mentor-Protégé Program and its participants. The lack of criteria for overcoming the presumption 

of social disadvantage allows people who may not be socially disadvantaged, despite their status as members 

of a designated group, to enter the 8(a) BD program without question. As a result, someone who is not 

socially disadvantaged could unfairly reap the benefits of the program. Due to the lack of definitions in the 

Mentor-Protégé Program, SBA has no mechanism to determine if the program or its participants have 

succeeded or whether protégés are receiving benefits and gains. 

The OIG has developed a new Strategic Plan for FY 2006-2011, which focuses on the implications of SBA’s 

continuing transformation and the vulnerabilities associated with the substantial changes being made through 

downsizing and centralization. The plan emphasizes the importance of the Agency maintaining effective 

oversight of its programs and ensuring the integrity of its operations during this period of transition and budget 

cutbacks. The OIG’s report on the most serious Management Challenges facing SBA and a number of recent 

audits indicate that SBA’s resources are not sufficient for effective oversight. The OIG will need to continue 

to be vigilant regarding oversight issues. In addition, during the coming fiscal year we will need to 

concentrate on SBA’s disaster relief assistance efforts, and on identifying opportunities to assist SBA in 

preventing waste, fraud, and abuse in its operations and programs. 

I would like to thank Administrator Barreto for his support of the OIG’s work. We are committed to 

protecting the interests of American taxpayers as we work with SBA and the Congress to achieve needed 

changes and improvements in SBA’s programs and activities. 

 

 Peter L. McClintock 

 Acting Inspector General

Table of Contents

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

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

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

 

 Goal: Improve the Security Over and the Accuracy of SBA Accounting 

 and Management Information................................................................................................ 9 

 Goal: Assist SBA in Improving its Small Business Development and 

 Government Contracting Programs...................................................................................... 12 

 Goal: Assist SBA Management in Identifying and Resolving Persistent 

 and Emerging Management Issues....................................................................................... 16 

Goal: Strengthen our Ability to Identify and Have Major Impact on the Most 

 Significant SBA Issues......................................................................................................... 20 

Statistical Highlights................................................................................................................................... 21 

Appendix 

 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 September 30, 2005........................................................................................ 28 

 VI. OIG Reports Without Final Action as of September 30, 2005................................................ 29 

 VII. Significant Recommendations from Prior Semiannual Reporting Periods 

 Without Final Action as of September 30, 2005 ..................................................................... 31 

 VIII. 6-Month Significant Recommendations Summary as of September 30, 2005........................ 36 

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

 Over the Last 6 Months........................................................................................................... 39 

 X. 6-Month Legal Actions Summary........................................................................................... 41 

XI. OIG Organizational Chart ....................................................................................................... 47 
Table of Contents

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

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

 Business Act, Section 4(h) ................................................................................................ 19, 39 

 SBDC Surveys—Small Business Act, Section 21(a)(7) ......................................................... 15 

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

1 

The Small Business Administration 

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

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

entrepreneurs through its Offices of Capital Access, Entrepreneurial Development, Government 

Contracting and Business Development, and Disaster Assistance. Services include providing 

(1) assistance using counseling services and resource partners; (2) financing through the Agency’s various 

business and disaster lending programs; and (3) access to Federal procurement opportunities; and (4) 

other products and services. The SBA’s programs are delivered by a network of field offices in every 

state, the District of Columbia, the U.S. Virgin Islands, Guam, American Samoa, and Puerto Rico. The 

SBA had an FY 2005 appropriation of $611.2 million (excluding $929 million from the disaster 

supplemental) and, as of September 30, 2005, had 2,274 employees (including Office of Inspector 

General (OIG) personnel but excluding disaster-funded employees). 

The Office of Inspector General 

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

through its four divisions, the OIG performs the following functions nationwide. 

• The Auditing Division performs program performance reviews, internal control assessments, and 

financial, information technology and mandated audits, 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 investigative staff 

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

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

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

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

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

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

enforcement matters, processes subpoenas and Freedom of Information and Privacy Act requests, 

and reviews and comments on proposed Agency policies, regulations, legislation, and procedures. 

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

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

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

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

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

Los Angeles. Investigative field staff are located in Atlanta, Chicago, Dallas, Denver, Houston, Kansas 

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

for the OIG is located in Appendix XI.
Overview of SBA and the OIG

2 

As of September 30, 2005, the OIG had 95 staff on-board. The OIG’s FY 2005 appropriation was $13.3 

million, including a $493,000 transfer for disaster assistance oversight activities (net of rescissions). The 

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

that corrective actions are taken, and promoting a high level of integrity. We continue to focus on serving 

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

abuse. During recent reporting periods our five strategic goals have been to: (1) prevent fraud and 

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

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

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

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

the most significant SBA issues. 

OIG efforts and accomplishments during the second half of Fiscal Year (FY) 2005 are summarized in the 

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

All investigative actions are summarized in Appendix X.
Significant OIG Activities

3 

As of September 30, 2005, there were 122 

SBICs in liquidation with outstanding 

leverage totaling $1.8 billion. 

...due to inadequate goals, performance 

indicators, controls, and oversight, SBA 

had no assurance that SBICs were 

liquidated for maximum recovery in the 

shortest possible time. 

Goal: Prevent Fraud and Unnecessary Losses in SBA Programs

SBA has a financial assistance portfolio of small business loans and financings exceeding $55 billion. 

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

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

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

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

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

under delegated authority. Additionally, SBA has centralized many loan functions, and reduced the 

number of staff performing these functions. As SBA has placed more responsibility and independence on 

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

The Disaster Loan Program is another key SBA lending program, which provides direct Federal 

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

fraud and unnecessary losses because loan transactions are expedited in order to provide quick relief to 

disaster victims. In addition, the Small Business Investment Company (SBIC) program was established 

in 1958 to stimulate and supplement the flow of private equity capital and long-term debt to small 

business concerns using private venture capital firms and SBA-guarantied funding. 

Improvements Are Needed in the SBIC Liquidation Process 

As of September 30, 2005, there were 412 SBICs operating nationwide, and SBA’s total financial 

exposure was about $11.5 billion. If these firms become severely financially troubled, SBA can transfer 

them to liquidation status and attempt to recover the 

guarantied funding provided. As of September 30, 

2005, there were 122 SBICs in liquidation with 

outstanding leverage totaling $1.8 billion. 

In response to a request from the Associate Administrator for Investment, the OIG audited the liquidation 

process to determine if it was conducted in an effective and efficient manner. We concluded that due to 

inadequate goals, performance indicators, controls, and oversight, SBA had no assurance that SBICs were 

liquidated for maximum recovery in the shortest possible time. We recommended that performance goals 

and indicators be established to show how well SBA and 

the liquidation agents were performing; better controls 

be used in selecting liquidation methods and accounting 

for funds; and oversight of receivership agents, the sale 

of assets by SBICs, and the reporting of payments to 

service providers to the Internal Revenue Service (IRS) 

be improved. The OIG also recommended that Standard 

Operating Procedure (SOP) 10 07, SBIC Liquidation Program, be revised to reflect the recommended 

changes. SBA agreed to consider costs when selecting the liquidation method, provide better oversight of 

the sale of assets by SBICs, and improve controls and oversight of accounting for funds and reporting 

payments to service providers to the IRS. SBA was noncommittal for the remaining recommendations, 

but stated that a contractor would be hired to review the liquidation process. The contractor’s 

recommendations and our remaining recommendations will be considered together. 
Significant OIG Activities

4 

... the OIG and other law enforcement 

agencies find borrowers and loan agents in 

well-organized schemes to misrepresent 

citizenship and gain loan approval.

A Texas businessman falsely 

represented himself as a U.S. citizen in 

order to induce a bank and the Agency 

into funding an $875,000 SBAguarantied loan.

Some applicants are able to use the disaster as 

an opportunity to commit fraud because 

emergencies dictate that loans be made 

quickly. The problem is likely to grow in the 

aftermath of a rash of hurricanes in 2004, and 

the devastating Hurricanes Katrina and Rita 

in 2005.

Borrowers Continue to Make False Claims of Citizenship

In a continuing pattern, some borrowers falsely claim to be U.S. citizens to obtain SBA-guarantied loans. 

Often, investigations by the OIG and other law enforcement agencies find borrowers and loan agents in 

well-organized schemes to misrepresent citizenship and 

gain loan approval. These loans then quickly default. 

Millions of dollars are at risk and unavailable to honest 

prospective borrowers because ineligible borrowers have 

accessed loans which can individually exceed $1 

million. This type of fraud may escalate, as a resource-constrained SBA depends more on lenders to 

administer its loan programs. 

The facts in a Texas case that the OIG investigated illustrate the pattern. A Texas businessman falsely 

represented himself as a U.S. citizen in order to induce a bank and the Agency into funding an $875,000 

SBA-guarantied loan. During this reporting period, he 

was sentenced to incarceration, a fine, and deportation to 

his native Pakistan. The legal actions resulted from a 

joint investigation involving the OIG, the Department of 

Homeland Security, the Texas Department of Public 

Safety, and the Texas Alcoholic Beverage Commission. 

Unscrupulous Applicants Defraud the Disaster Assistance Program

To help victims recover from disasters, SBA’s disaster assistance program provides low-interest loans. 

Some applicants are able to use the disaster as an opportunity to commit fraud because emergencies 

dictate that loans be made quickly. The problem is 

likely to grow in the aftermath of a rash of 

hurricanes in 2004, and the devastating Hurricanes 

Katrina and Rita in 2005. In response to the 

Florida hurricanes in the Fall of 2004, the OIG 

recently established an investigative resident 

office in Miami, Florida. 

One example of disaster loan fraud involved two co-owners of a house in the Virgin Islands. They 

allegedly represented to SBA, the Federal Emergency Management Agency (FEMA), the Home 

Protection Roofing Program (funded by FEMA), and insurance companies that their house had sustained 

hurricane damage. In reality, the house had been damaged by a previous hurricane and had been 

purchased by the individuals in an “as is” damaged condition. During this reporting period, they pled 

guilty to fraud-related charges and have also been charged with conspiracy and mail fraud. The OIG is 

conducting this ongoing investigation jointly with the Department of Homeland Security. 
Significant OIG Activities

5 

Because repayments were typically deferred 

for several years, problems with these loans 

have been slow to surface. 

These fraudulent loans often default for 

non-payment, and SBA purchases the 

guarantied portions of the loans.

A relative handful of dishonest loan 

agents can be involved with large 

dollar amounts of loans.

...loan agents sometimes conspire with 

others to commit crimes.

9/11 Disaster Loan Fraud Presents Special Challenges 

After the September 11, 2001, terrorist attacks, SBA disbursed over $1.1 billion in additional disaster 

assistance loans. As of August 2005, over $269 million in disaster loans had been transferred to 

liquidation. Because repayments were typically deferred 

for several years, problems with these loans have been 

slow to surface. 

For example, in this reporting period, the owner of a business was arrested and charged with mail fraud in 

connection with his application for, and receipt of, a disaster assistance loan for nearly $647,000. He 

allegedly forged the endorsement of two vendors on checks totaling almost $132,000, deposited the funds 

in a business account, and transferred most of the funds to a new business. The OIG is conducting this 

investigation jointly with the U.S. Postal Inspection Service. 

Loan Agent Fraud Remains a Serious Vulnerability 

SBA remains vulnerable to fraud committed by loan agents. Consequently, the OIG continues to identify 

it as a Management Challenge for the Agency. A loan agent is employed and compensated by an 

applicant or lender to prepare an SBA loan application 

and/or refer the applicant to a lender (or vice versa). 

Honest loan agents can perform a valuable function, 

helping small businesses access capital. However, 

dishonest agents have perpetrated fraudulent schemes involving hundreds of millions of dollars in loans. 

These fraudulent loans often default for non-payment, and SBA purchases the guarantied portions of the 

loans. 

A relative handful of dishonest loan agents can be involved with large dollar amounts of loans. For 

example, during this reporting period, a loan agent in Texas was indicted in connection with a scheme in 

which he represented that he could assist customers in 

locating properties and obtaining SBA business financing. 

He provided forged purchase contracts to his customers, 

knowing that the properties in question were already under 

contract with another client or were not even for sale. The 

case resulted from a joint investigation by the OIG and the Federal Bureau of Investigation (FBI) into 

nine defaulted SBA convenience store loans totaling $9.5 million. 

In addition, loan agents sometimes conspire with others to commit crimes. In another recent case, a loan 

agent, a title company escrow officer, two borrowers, and three others caused fraudulent loan application 

documents to be submitted to a lender to secure a $2.4 

million SBA-guarantied loan. They also laundered 

about $473,000 of the proceeds for their personal 

benefit. The scheme included inflating the purchase 

price of a warehouse from $1.5 million to $2.2 million, and falsifying part of the required equity capital 

injection. During this reporting period, the individuals were indicted on various charges, including 

conspiracy, bank fraud, and money laundering. 
Significant OIG Activities

6 

...the Agency needs to systematically 

identify all loan agents and track their 

association with individual loans.

Examples of various criminal tactics used to obtain 

SBA-guarantied loans and commit general business 

loan fraud include: submission of false and 

fraudulent documents; fictitious asset claims; failure 

to disclose other SBA loans; misuse of loan 

proceeds; manipulated property values; and false 

claims of equity injections.

In our FY 2005 report on the Agency’s Management Challenges, we discussed measures required to 

prevent loan agent fraud. Because SBA has little information on loan agents involved with its loans—and 

thus does not know the magnitude of the problem—the Agency needs to systematically identify all loan 

agents and track their association with individual 

loans. Such measures are especially important as SBA 

continues to centralize loan processing and liquidation 

and shift general oversight of loans to lenders, who 

may vary significantly in the quality of the oversight 

they provide. 

Lenders Continue to Violate SBA’s 7(a) Loan Policies 

During this reporting period, reviews of two loans ending in early default demonstrated that the loans 

were not processed or closed in accordance with SBA’s policies. An early default is defined as a default 

or business failure that occurs prior to final disbursement of the loan or within 18 months from the date of 

final disbursement. Prior reviews of loans with early defaults have identified a high rate of lender 

deficiencies in making and closing loans that put SBA’s 

guaranty at risk. Full recovery of the paid SBA guaranty 

is recommended when such deficiencies are identified. 

Therefore, the OIG continues to perform reviews of 

these loans in order to identify and recover improper 

payments and correct lender deficiencies. The two loan 

reviews completed during this reporting period found 

lender deficiencies related to the verification of equity injection, securitization of loan collateral, and 

compliance with disbursement limitations. The reviews resulted in recommended recoveries of $564,048. 

The lender for one loan has repaid the $308,960 guaranty purchase amount. Additional reviews of loans 

with early defaults are in progress. 

Criminal Tactics Vary in SBA Loan Fraud 

Examples of various criminal tactics used to obtain SBA-guarantied loans and commit general business 

loan fraud include: submission of false and fraudulent documents; fictitious asset claims; failure to 

disclose other SBA loans; misuse of loan 

proceeds, manipulated property values; and 

false claims of equity injections. Collusion 

between borrowers and other perpetrators—

such as loan agents—is another scheme which 

maximizes the chances of obtaining SBA 

loans and may increase monetary losses. 

For example, a New Jersey bank withdrew its request for SBA to honor its guaranty of over $846,000 on 

a $1,210,000 loan after discovery that the borrowers sold their business one day after receiving the loan. 

The borrowers defaulted on the loan. An OIG investigation disclosed a conflict of interest between the 

borrowers and the loan officer. SBA also found that the bank failed to verify the borrower’s tax 

information and did not perfect liens on collateral. The loan officer in this case resigned. 

The two loan reviews ... found lender 

deficiencies related to the verification of 

equity injection, securitization of loan 

collateral, and compliance with 

disbursement limitations. 
Significant OIG Activities

7 

In another case, a New Jersey business owner obtained a $560,000 SBA-guarantied loan by conspiring 

with another individual to misrepresent the required capital injection of nearly $150,000. In lieu of the 

required injection, the individuals entered into an $80,000 mortgage agreement, which they concealed 

from the lender. They were sentenced to probation, home confinement, fines, and over $724,000 in 

restitution to the lender and SBA. 

The OIG Recommends Debarments 

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

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

has adopted a proactive program to identify 

current SBA program participants for whom 

debarment would serve the public interest and 

make debarment recommendations to the SBA. 

For example, the OIG recommended that SBA debar a doctor based on the her guilty plea to two 

misdemeanor counts of fraudulently demanding, or endeavoring to obtain, money from the United States 

in connection with her applications for SBA and FEMA disaster relief. The doctor claimed damage to her 

mother's home resulting from Hurricane Floyd and 

allegedly executed disaster applications in her name 

and on behalf of her mother. The doctor claimed 

that a piece of her medical equipment stored at her 

mother’s home had been damaged by Hurricane 

Floyd. The OIG investigation revealed that there 

was never any medical equipment stored at her 

mother’s residence. In furtherance of her fraud scheme, the doctor also submitted a false lease agreement. 

As a result of the OIG recommendation, the Agency issued a notice of proposed debarment. This matter 

is still pending before the Agency. 

Character Screening Diminishes Potential Program Abuse 

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

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

development companies meet SBA character standards 

through name checks and, where appropriate, 

fingerprint checks. During this reporting period, the 

OIG processed 1,296 external name check requests for 

these programs. 

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

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

referrals resulted in SBA business loan 

program managers declining 34 applications 

totaling $16,395,861, and disaster loan 

program officials declining 20 applications, 

Nearly $251.2 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.

The OIG’s Office of Security Operations 

ensures that participants... meet SBA 

character standards through name checks, 

and, where appropriate, fingerprint checks. 

...the OIG has adopted a proactive program to 

identify current SBA program participants for 

whom debarment would serve the public interest 

and make debarment recommendations to the SBA. 

...the OIG recommended that SBA debar a 

doctor based on ...[a] guilty plea to two 

misdemeanor counts of fraudulently 

demanding or endeavoring to obtain money... 

in connection with her applications for SBA 

and FEMA disaster relief.
Significant OIG Activities

8 

Fraud awareness briefings are one tool to 

help leverage scarce resources by training 

SBA staff and non-governmental service 

providers to identify and act upon early 

signs of fraud. 

...OIG special agents provided... briefings to over 

600 participants from banks and other lending 

institutions in Puerto Rico, Texas, and Colorado.

totaling $919,159. Nearly $251.2 million in loans have been declined during the last 10 years due to 

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

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

applications for admission, and the Surety Bond Guarantee Program declined 1 application. The OIG 

also initiated 118 background investigations and issued 21 security clearances for Agency employees and 

contractor personnel required to have clearances, adjudicated 85 background investigative reports, and 

coordinated with SBA’s Office of Disaster Assistance to adjudicate 98 derogatory background 

investigative reports. Finally, the OIG processed 1,895 internal name check requests for Agency 

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

new hires. 

Fraud Awareness Briefings Emphasize Preventing and Deterring Crime 

Because SBA is shifting the processing, liquidation, and oversight of loans to private financial 

institutions, it is essential that the OIG develops strong working relationships with lenders and other 

resource partners who can report indicators of potential 

fraud, and thus minimize losses. Fraud awareness 

briefings are one tool to help leverage scarce resources 

by training SBA staff and non-governmental service 

providers to identify and act upon early signs of fraud. 

During this reporting period, OIG special agents provided fraud awareness briefings to over 600 

participants from banks and other lending institutions in Puerto Rico, Texas, and Colorado. The 

presentations focused on identifying fraud 

indicators and coordinating efforts to deter fraud. 
Significant OIG Activities

9 

SBA’s most important accomplishments 

have been improved models for estimating 

the Agency’s subsidy costs and improved 

controls over financial statement 

Goal: Improve the Security Over and the Accuracy of SBA

Accounting and Management Information

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

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

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

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

implemented a new Disaster Credit Management system to modernize and improve its disaster loanmaking activities. The SBA has also implemented a Lender and Loan Monitoring System to monitor its 

business loan portfolio. These efforts are critical to SBA’s successful future operations; however, they do 

not impact SBA’s Loan Accounting System, which is outdated and in need of replacement. 

The Chief Financial Officers Act of 1990 requires each Federal agency to have annual audited financial 

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

financial management activities, including providing financial statements and financial performance 

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

Agency’s reporting process and its ability to provide accurate, complete, and reliable financial data. 

SBA Makes Significant Progress in Overcoming Financial Management Challenge 

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

whether they are managing public resources effectively and efficiently. In recent years, the OIG, 

Government Accountability Office (GAO), and SBA’s external auditors all noted significant internal 

control weaknesses that resulted in the Agency being unable to produce reliable, timely, and accurate 

financial information, including its annual financial statements. 

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

financial management one of the Agency’s top priorities, and the Agency made significant progress in 

this direction. SBA’s most important accomplishments have been improved models for estimating the 

Agency’s subsidy costs, and improved controls over 

financial statement preparation. These improvements 

contributed significantly to permitting the external 

auditors to render a qualified opinion on the SBA’s FY 

2004 financial statements. 

Despite these improvements, SBA’s financial management issues persist, and the OIG continues to 

identify financial management as one of the Agency’s top Management Challenges. SBA must further 

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

cost estimation techniques, and obtain an unqualified opinion on the Agency’s financial statements. SBA 

must demonstrate that it can accomplish these objectives while implementing new reporting and internal 

control requirements in an effective and timely manner. 
Significant OIG Activities

10 

We are providing internal control assessment 

tools, independent auditor documentation of 

SBA’s key accounting and reporting cycles, 

and an informal review of SBA’s OMB 

Circular A-123 implementation plans.

OMB Circular A-123 provides an excellent opportunity for SBA to demonstrate, and for OIG to assess, 

the Agency’s ability to incorporate new reporting and internal control requirements into its current 

financial management activities. A-123, which becomes effective in FY 2006, updates internal control 

standards, strengthens the requirements for conducting 

management’s assessment of internal control over 

financial reporting, and emphasizes the need to 

integrate and coordinate internal control assessments 

with other internal control-related activities. Actions 

necessary for successful implementation of A-123 are 

similar to, or support, actions needed to resolve the 

Agency’s financial Management Challenge. Thus, during this reporting period, the OIG has worked with 

SBA to ensure successful implementation of A-123. We are providing internal control assessment tools, 

the external auditor’s documentation of SBA’s key accounting and reporting cycles, and an informal 

review of SBA’s A-123 implementation plans. 

 

The OIG continues to monitor SBA’s progress in this area by: (1) increasing the resources devoted to the 

Agency’s annual financial statement audit; (2) working closely with SBA to ensure the Agency 

incorporates corrective actions identified by the OIG, external auditors, and others into its financial 

reporting plans; and (3) requiring OIG review of all final actions on recommendations related to SBA’s 

financial Management Challenge. 

SBA Needs to Address its Legacy Mainframe Migration Problem 

SBA has identified the modernization of the loan accounting process, where the Loan Accounting System 

(LAS) is the central hub, as the single biggest operational challenge facing the Agency. This mainframebased system has been in place for approximately 30 years and is virtually obsolete. LAS includes 19 

subsystems and serves as the principal data 

processing and data collection tool for SBA’s loan 

servicing, monitoring, and accounting processes. In 

FY 2004, LAS serviced a loan portfolio which 

totaled approximately $60 billion. While LAS has 

supported the Agency’s loan servicing, monitoring, 

and accounting processes for many years, SBA’s Office of Chief Information Officer noted in a 

December 2004 modernization proposal that “there are several significant drawbacks of the current 

platform including extremely high-cost, obsolete technology, and serious security holes that cannot easily 

be addressed.” In addition, the existing contract with SBA’s LAS-outsourced services provider will 

expire effective on February 17, 2007. Lack of attention to its legacy mainframe problem threatens 

SBA’s ability to meet day-to-day business operating needs. 

The OIG determined that SBA needs to immediately develop and deploy an effective migration or 

modernization plan for LAS. A major impediment to making needed changes is that LAS is “owned” by 

multiple SBA Offices including: Office of Financial 

Assistance, Office of Disaster Assistance, Office of 

Field Operations and the Office of Chief Financial 

Officer. The multiple SBA Offices that “own” LAS 

have disparate organizational goals and objectives, 

SBA has identified the modernization of the 

loan accounting process, where the Loan 

Accounting System (LAS) is the central hub, as 

the single biggest challenge facing the SBA. 

The multiple SBA Offices that “own” LAS have 

disparate organizational goals and objectives, 

making prioritization and implementation of 

remediation efforts challenging.
Significant OIG Activities

11 

...the Informs system was susceptible to 

unauthorized disclosure of personal or Privacy 

Act information...includ[ing] individual SBA 

employee names, employee identifiers or social 

security numbers, addresses, phone numbers,

and dates of birth. 

making prioritization and implementation of remediation efforts challenging. We recommended that 

SBA adopt a plan using good financial and project management principles to migrate off of the legacy 

LAS, and obtain such budget and resource authority as needed to ensure the success of the project. SBA 

agreed to begin the process of developing a new system as a replacement for the LAS. 

Cost Savings are Possible in Consolidating SBA’s Systems, Subject to the FISMA Requirements

The Federal Information Security Management Act (FISMA) requires the OIG to perform an independent 

evaluation of SBA’s information security program. SBA is required to carry out an information 

security program to ensure that its assets and ability to operate are free from areas of vulnerability that 

could disrupt operations and the delivery of program services. 

In our May 2005 evaluation of SBA’s information security program, we concluded that SBA could 

achieve economies of scale by consolidating its existing 39 systems subject to FISMA reporting into 20 

systems without reducing the underlying security of 

SBA information within any of those systems. 

Additionally, SBA may be able to increase its security 

efforts by concentrating on the residual risks in the 

remaining 20 systems. This review identified that SBA 

could potentially save $475,000 every three years by not 

performing certifications and accreditations on systems 

which are really subsystems, feeder systems, or nonmajor systems. SBA agreed with our recommendations to reduce its number of major systems subject to 

FISMA from 39 to 20. 

SBA’s Electronic Forms System Violates the Privacy Act 

SBA maintains an automated forms database which is available to employees throughout the Agency, and 

facilitates access to SBA and Government-wide Standard Forms. The OIG reviewed SBA’s Informs 

system to determine whether employee personal identifying information is protected from improper 

disclosure. We concluded that the Informs system 

was susceptible to unauthorized disclosure of 

personal or Privacy Act information. This 

information included individual SBA employee 

names, employee identifiers or social security 

numbers, addresses, phone numbers, and dates of 

birth. The lack of controls to prevent unauthorized 

disclosure of these records was determined to be a violation of the Privacy Act. SBA agreed to migrate 

away from the Informs system and convert to a system of fillable Adobe Acrobat forms which cannot be 

saved with personally identifiable information on Agency file servers or other storage devices. 

SBA could achieve economies of scale by 

consolidating its existing 39 systems 

subject to FISMA reporting into 20 

systems without reducing the underlying 

security of SBA information within any of 

those systems. 
Significant OIG Activities

12 

SBA is “responsible for reviewing all 

acquisitions not set-aside for small businesses to 

determine whether a set-aside is appropriate 

and to identify alternative strategies to maximize 

the participation of small businesses in the 

procurement.” 

Goal: Assist SBA in Improving its Small Business Development and

Government Contracting Programs

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

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

awards. These programs include, among others, the HUBZone Empowerment Contracting Program and 

the Small Disadvantaged Business (SDB) Certification Program. The SBA also negotiates with Federal 

agencies to establish procurement goals for contracting with small, small disadvantaged, women-owned, 

service-disabled veteran-owned, and HUBZone small businesses. The current Government-wide small 

business goal is 23 percent of the total value of all prime contract awards for each fiscal year. 

SBA also manages the Section 8(a) Business Development (8(a) BD) program, which was established to 

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

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

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

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

Business Development Centers (SBDCs), the Service Corps of Retired Executives (SCORE), and 

Women’s Business Centers (WBCs). Most of these are grant programs. All demand effective and 

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

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

effective monitoring and oversight. 

The OIG Identifies Additional Impediments to Small Business Access to the Federal Procurement 

Process and Needed Improvement in SBA Oversight 

After issuing a new Management Challenge during the last reporting period concerning Federal 

procurement as it relates to small business—“Flaws in the Federal procurement process allow large firms 

to receive small business awards and agencies to receive small business credit for contracts performed by 

large firms,”—the OIG conducted additional Federal procurement projects during this reporting period. 

As noted in the Management Challenge and in recent reviews, SBA has not taken all the steps needed to 

be an effective advocate for small business. 

In a 2002 report, the President publicly expressed his concerns about contract bundling, noting that not 

only are substantially fewer small businesses receiving Federal contracts, but the Federal Government is 

suffering from a reduced supplier base. According 

to the Small Business Act, “bundling of contract 

requirements” is the consolidation of two or more 

procurement requirements for goods or services 

previously provided or performed under separate 

smaller contracts into a solicitation of offers for a 

single contract that is likely to be unsuitable for 

award to a small business concern due to (1) the 

diversity, size, or specialized nature of the elements of the performance specified; (2) the aggregate dollar 

value of the anticipated award; (3) the geographical dispersion of the contract performance sites; or any 
Significant OIG Activities

13 

...the OIG completed an audit survey of the 

contract bundling process and found that SBA 

was not reviewing the majority of procurements 

reported by agencies as bundled. 

...SBA did not have a bundling database as 

required by the Small Business Reauthorization 

Act of 2000, and had not disseminated a best 

practices guide as required by OMB’s Office of 

Federal Procurement Policy bundling strategy. 

The Small Business Act provides that the 

Federal Government should protect the 

interests of small businesses and ensure that a 

fair and representative share of Government 

contracts are placed with small businesses. 

combination of the preceding three factors. Procuring agencies are required to notify SBA of all proposed 

contracts that would be considered bundled. SBA is “responsible for reviewing all acquisitions not setaside for small businesses to determine whether a set-aside is appropriate and to identify alternative 

strategies to maximize the participation of small businesses in the procurement.” 

During this reporting period, the OIG completed an audit survey of the contract bundling process and 

found that SBA was not reviewing the majority of procurements reported by agencies as bundled. Eighty 

seven percent of the reported potential bundlings we 

identified during the survey were not reviewed by 

SBA. Procuring agencies acknowledged that they 

did not always notify SBA of the bundlings. 

According to an SBA official, procuring agencies do 

not always understand what constitutes bundling, so 

many of the reported bundled contracts may not actually be bundled. Although SBA stated that they did 

not have adequate resources to provide direct oversight, compensating controls were not implemented to 

ensure that SBA reviewed all bundlings reported to other sources, such as OMB. 

Further, SBA did not have a bundling database as required by the Small Business Reauthorization Act of 

2000, and had not disseminated a best practices guide as required by OMB’s Office of Federal 

Procurement Policy bundling strategy. According to an SBA official, the database has not been 

developed because the Department of Defense, 

which accounts for over 50 percent of the 

procurement actions, is not required to supply 

certain bundling information needed for the 

database. The SBA indicated general agreement 

with the report’s recommendations. 

The OIG Recommends Debarring Government Contractor

The Small Business Act provides that the Federal Government should protect the interests of small 

businesses and ensure that a fair and representative share of Government contracts are placed with small 

businesses. In June 2005, the OIG recommended 

that SBA debar a company for misrepresenting that 

it was a small business concern in obtaining a 

Government contract which was set-aside for a small 

business. The OIG's recommendation to the Agency 

related that the company had exceeded the 

applicable size standards identified in the relevant 

solicitation at the time that it bid on the contract. 

The Small Business Act provides that debarment is appropriate if a business misrepresents its size 

standard in order to obtain a small business set-aside contract (15 USC §645(d)). The Agency has not 

finished its evaluation to decide whether to debar the company. 
Significant OIG Activities

14 

...criteria for overcoming the presumption of 

social disadvantage for 8(a) Program 

purposes are needed.

Program officials have not defined success for 

the 8(a) Mentor-Protégé Program and its 

participants, and do not track performance 

statistics for mentor-protégé relationships 

SBA Needs to Develop More Explicit Criteria for the Section 8(a) BD Program 

During this reporting period, the OIG identified two additional areas within the 8(a) Program where 

criteria to effectively manage the program have not been developed. For FY 2005, OIG Management 

Challenge 7 was partially based on the lack of criteria defining business success, and the need to redefine 

economic disadvantage using objective, quantitative, and qualitative criteria. By the end of FY 2005, the 

Agency had defined business success and included values to be used when analyzing each of the elements 

of economic disadvantage which, when fully implemented, should lead to improvement in the 

management of the 8(a) Program. Criteria are also needed in other 8(a) program areas. 

The 8(a) Mentor-Protégé Program is intended to enhance the capability of 8(a) participants to compete 

more successfully for Federal Government contracts. The program encourages private-sector 

relationships and expands SBA’s efforts to identify and respond to the developmental needs of 8(a) 

participants. Mentor and protégé firms are required to enter into a written agreement setting forth the 

protégé’s needs and describing the assistance the mentor is committed to provide to address those needs. 

During this reporting period, the OIG completed an 

audit survey of the 8(a) Mentor-Protégé Program 

and found that program officials cannot determine if 

either the Mentor Protégé Program or its participants 

have succeeded. Program officials have not defined 

success for the 8(a) Mentor-Protégé Program and its 

participants, and do not track performance statistics for mentor-protégé relationships. Most of the seven 

agreements we reviewed followed a standard template using “boilerplate” language that was not specific 

in addressing the needs of the individual protégés. Also, the agreements did not propose any specific 

actions to be undertaken during the agreement period. SBA agreed with the OIG’s recommendations and 

provided comments indicating certain steps have already been taken to implement the recommendations. 

 

The OIG also issued a report which concluded that criteria for overcoming the presumption of social 

disadvantage for 8(a) Program purposes are needed. In order to participate in the 8(a) Program, the 

majority owner(s) of the company seeking admittance must, among other things, be socially 

disadvantaged, i.e., be an individual who has “been subjected to racial or ethnic prejudice or cultural bias 

within American society because of their identities as 

members of groups and without regard to their 

individual qualities.” The regulations specify that 

there is a rebuttable presumption that Black 

Americans, Hispanic Americans, Native Americans, 

Asian Pacific Americans, and Subcontinent Asian Americans are socially disadvantaged. This 

presumption can be overcome with “credible evidence to the contrary.” However, SBA has not 

developed criteria for what constitutes credible evidence. Although SBA did not provide formal 

comments, program officials agreed with the OIG’s recommendations. 
Significant OIG Activities

15 

During this reporting period, an assistant 

district director for SBA’s 8(a)BD Program was 

indicted on conspiracy and bribery charges. 

We reviewed ... two surveys and determined 

that they did not raise any issues of concern 

relating to disclosure of private or personal 

information. 

SBA Official Allegedly Violates Public Trust 

As part of a continuing effort to ensure that those entrusted with the power to spend or direct public funds 

carry out their duties honestly, the OIG investigates allegations of public corruption. During this 

reporting period, an assistant district director for 

SBA’s 8(a)BD Program was indicted on conspiracy 

and bribery charges. Specifically, he allegedly used 

his position to obtain over $20,000 for his personal 

benefit from a contractor who received over $3 

million in 8(a) contracts. This investigation was based on a referral from the FBI. The OIG is conducting 

this ongoing investigation jointly with the FBI and the General Services Administration OIG. 

SBDC Surveys Require OIG Approval 

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

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

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

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

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

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

approval in the OIG’s Semiannual Report. 

The Agency requested the OIG’s approval of an Initial Impact Survey and a Follow-up Economic Impact 

Survey during this reporting period. We reviewed the two surveys and determined that they did not raise 

any issues of concern relating to disclosure of 

private or personal information. The surveys were 

to be used for the OMB Program Assessment Rating 

Tool process and to assist program managers to 

better manage the SBDC program. The surveys 

were approved by the OIG in April 2005. Agency 

officials continue to work on the required regulations regarding disclosures of client information and 

expect these regulations to be circulated for clearance in the near future. 

 
Significant OIG Activities

16 

Goal: Assist SBA Management in Identifying and Resolving

Persistent and Emerging Management Issues

A key OIG objective has been to identify emerging and persistent programmatic and operational problems 

that may hamper SBA’s ability to effectively support small business. Many of these problems have been 

identified by the OIG as major Management Challenges, and are set forth in the OIG’s annual report on 

Management Challenges. The OIG updates the Management Challenges each year so that they accurately 

reflect the current Challenges facing the Agency. 

SBA Addresses Its Top Management Challenges 

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

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

consolidated Performance and Accountability Report. This list of Management Challenges represents the 

areas that the OIG considers to be particularly vulnerable to fraud, waste, abuse, or mismanagement, or 

that otherwise pose significant risk to the Agency, its operations, or its credibility. Each Challenge 

generally has been the subject of one or more OIG or GAO reports, or has resulted from our general 

knowledge of Agency management issues. For each Management Challenge, we provide the Agency 

with recommended remedial actions together with our assessment of Agency progress on each action item 

during the preceding fiscal year. 

The most serious Management Challenges that faced SBA during FY 2005 were as follows: 

• SBA needs to improve its managing for results processes and performance data. (To be 

eliminated for FY 2006.) 

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

to provide reliable, timely and accurate financial information. 

• Information systems security needs improvement. 

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

a human capital management/transformation strategy. 

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

• SBA needs to continue improving lender/participant oversight. 

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

access to business development, standards for determining economic disadvantage are clear and 

objective, and more eligible companies receive 8(a) contracts. 

• SBA needs to enforce its rules to deter firms receiving small business set-aside, 8(a), or small 

disadvantaged business (SDB) price evaluation preference contracts from passing through large 

portions of the procurement to other firms. (To be eliminated for FY 2006.) 

• Preventing loan agent fraud requires additional measures. 

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

operations. 

• The current structure and oversight practices of the Small Business Investment Company (SBIC) 

program place too much risk on taxpayer money. 

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

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

17 

If considered a distinct program, SBA’s 

portfolio of special appropriation grants 

would rank as the Agency’s second largest 

funded non-credit program. 

...the grant administration process for 

special appropriations grants was ineffective 

and exposed SBA to the risk that grant funds 

may be used for activities other than their 

intended purpose. 

Because the Management Challenge process is evolutionary, the OIG believes it is important that they be 

updated as appropriate so that they accurately reflect the current Challenges facing the Agency. During 

this reporting period the OIG continued to appraise 

the current Challenges to identify revisions needed 

to keep them forward-looking in the light of 

additional work, or no changed circumstances. The 

results of this review will be reflected in the FY 

2006 Management Challenges. 

While SBA has made progress on most of the Challenges, much more remains to be done. By their 

nature, these Challenges require continued long-term commitment and effort by the Agency, and we 

continue to work with the Agency to resolve them. 

For more information on the OIG’s assessment of 

the SBA’s Management Challenges, please review 

the report at http://www.sba.gov/ig/challenges.html. 

SBA’s Administration of Its Special Appropriation Grants Has Not Been Effective 

The number and total dollar amount of special appropriation grants administered by SBA has been 

significant over the past 3 years. The number of SBA special appropriation grants was 66 grants totaling 

$58 million in FY 2003, and 91 grants totaling $40 

million in FY 2005. If considered a distinct program, 

SBA’s portfolio of special appropriation grants would 

rank as the Agency’s second largest funded noncredit program. Unlike discretionary grants, SBA 

program offices are not involved in the administration 

of special appropriation grants. Moreover, they are not necessarily related to any SBA program. 

Administration of these grants is currently managed by two divisions within SBA’s Office of 

Administration (OA)—the Office of Financial and Administrative Operations (OFAO), and the Office of 

Procurement and Grants Management (OPGM). 

An OIG audit of SBA’s administration of a small selected sample of special appropriations grants found 

that OA (1) did not exercise adequate oversight of the three grants reviewed and did not ensure that 

grantees followed applicable policies and procedures; (2) approved and paid grantee reimbursement 

requests without requiring evidence that expenditures 

were allocable, allowable, and reasonable; (3) did not 

require documentation from the grantees that clearly 

identified key personnel before awarding the grant; (4) 

did not enforce the financial and performance 

reporting requirements of the grants, thereby ensuring 

grantees are delivering the services promised in their proposals; and (5) did not have formal written 

procedures to guide the review, monitoring, and oversight of SBA’s portfolio of special appropriations 

grants. The OIG concluded that the grant administration process for special appropriations grants was 

ineffective and exposed SBA to the risk that grant funds may be used for activities other than their 

intended purpose. 

Because the Management Challenge process is 

evolutionary, the OIG believes it is important 

that they be updated as appropriate so that they 

accurately reflect the current Challenges facing 

the Agency. 

By their nature, these Challenges require 

continued long-term commitment and effort by 

the Agency and we continue to work with the 

Agency to resolve them.
Significant OIG Activities

18 

We found that although cash gifts were 

properly held in a separate account (the 

Business Assistance Trust Fund), SBA did not 

perform certain required procedures for 

soliciting, accepting, and utilizing cash gifts. 

The OIG report contained three findings and seven recommendations for strengthening oversight of the 

Agency’s grant administration process. OA indicated agreement with one of the findings, but did not 

address or provide comments on the remaining two findings or any of the report recommendations. 

OIG Reviews Lead to Improvements in Legislation, Regulations and Agency Initiatives 

Through review of many SBA regulations and initiatives, the OIG plays an important role in identifying 

and proposing corrective action to address program inefficiencies and areas of potential fraud, waste, and 

abuse. The OIG’s substantive comments 

frequently lead to marked improvement in 

legislation and regulations proposed by SBA or 

affecting SBA programs, new and revised Agency 

internal operating procedures, Agency 

reorganizations, and other matters requiring the 

Administrator’s signature. 

From April 1, 2005, through September 30, 2005, the OIG reviewed four proposed legislative and 

regulatory changes and 73 internal SBA operating procedures and other initiatives, covering a wide 

variety of Agency initiatives. The OIG was able to identify problems and recommend solutions in several 

areas of considerable importance to the Agency: the Agency’s transformation initiatives; regulations 

affecting Government-wide procurement 

procedures; restructuring of the Agency’s loan 

programs; and, numerous critical personnel 

procedures. For example, the OIG's review of 

SBA's proposed regulations on cosponsorship and 

gift acceptance authority identified a number of 

significant deficiencies. These included regulatory 

language that could have permitted SBA to promote 

the products or services of private parties that had made donations to the Agency. Other problems could 

have resulted in the misuse of SBA's logo by private parties and confusion among agency and small 

business personnel over fees for cosponsored events. As a result of OIG's recommendations, the Agency 

made numerous revisions to the proposed regulations. 

SBA Did Not Perform Certain Gift Authority Procedures 

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

any gift, devise, or bequest of cash accepted by the Administrator under Section 4(g) shall be held in a 

separate account and shall be subject to semiannual audits by the IG who shall report his findings to 

Congress. The OIG met this requirement during the 

reporting period by conducting an audit and issuing 

a report. We found that although cash gifts were 

properly held in a separate account (the Business 

Assistance Trust Fund), SBA did not perform certain 

required procedures for soliciting, accepting, and 

utilizing cash gifts. The report contained five 

Through review of many SBA regulations and 

initiatives, the OIG plays an important role in 

identifying and proposing corrective action to 

address program inefficiencies and areas of 

potential fraud, waste, and abuse. 

...OIG’s review of SBA’s proposed regulations 

on cosponsorship and gift acceptance 

authority identified a number of significant 

deficiencies... As a result of OIG’s 

recommendations, the Agency made numerous 

revisions to the proposed regulations.
Significant OIG Activities

19 

findings and nine recommendations for improving those procedures. Additionally, by the end of the 

reporting period, the Agency’s final regulations for implementing the changes to SBA’s gift authority had 

been developed and were going through the internal clearance process. 

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

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

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

Administration-sponsored events. SBA’s Office of 

Strategic Alliances provided information to the OIG 

related to cosponsorships, including the name, dates, and 

locations of the co-sponsorships, and names of 

cosponsors. From April 1, 2005, through September 30, 2005, there were 21 cosponsorships as shown in 

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

during this period.

Percentage of Overdue Final Implemented Actions Has Increased While the Number of Overdue 

Management Decisions has Decreased 

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

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

disagree with the recommendation. The IG Act requires that Federal agencies make management 

decision on all findings and recommendations within a maximum of six months of report issuance. As of 

September 30, 2005, 39 management decisions on 

recommendations in OIG reports were overdue—

approximately 40 percent of all pending management 

decisions. This represents a small decrease in the 

number of overdue management decisions since 

March 31, 2005. The Office of Field Operations, the 

Office of the Chief Information Officer (OCIO), and 

Government Contracting were responsible for over 

half of the overdue management decisions. The percentage of recommendations with overdue final 

implemented actions has substantially increased—by 44 percent—since March 31, 2005. As of the end of 

this reporting period, 52 percent of all pending final actions were overdue. The OICIO and the Office of 

Management and Administration are responsible for almost half of these overdue final actions. 

The percentage of recommendations with 

overdue final implemented actions has 

substantially increased—by 44 percent—

since March 30, 2005. As of the end of this 

reporting period, 52 percent of all pending 

final actions were overdue. 

From April 1, 2005, through September 30, 

2005, there were 21 cosponsorships... 
Significant OIG Activities

20 

the OIG has developed this Strategic Plan based 

on recent significant changes in SBA operations 

and on our assessment of risks associated with 

delivering SBA programs in this changed 

environment.

Goal: Strengthen our ability to identify and have maximum impact

on the most significant SBA issues

To successfully implement our strategic goals, the OIG must ensure the efficiency and effectiveness of 

our internal operations. The OIG must manage its human capital and other resource allocation processes 

to maximize the impact of our efforts to improve Agency programs and operations. Moreover, we must 

be quick to respond to the changes currently taking place in SBA. 

New Information System Will Maximize Investigators’ Effectiveness 

Criminal investigators traditionally have relied on paper documents and files to report their activities and 

case results. Investigators encountered several limitations when working with hard copy files: (1) 

retrieving case information was often slow, (2) sharing information with other investigators depended 

upon proximity to paper files, and (3) detecting patterns of criminal activity from multiple cases was 

difficult. 

During this reporting period, the OIG implemented a new Investigations Management Information 

System (IMIS). Once data is loaded into the system, IMIS functions like a portable case file, enabling 

investigators to electronically retrieve all related documents. Investigators are able to perform nationwide cross checks on information (such as the names of 

subjects of investigations). The Investigations Division 

will be able to analyze IMIS data to determine patterns of 

criminal activity and retrieve and report performance 

measurement data more quickly, accurately, and 

consistently. 

New OIG Strategic Plan Focuses on SBA's Major Systemic Problems 

The OIG has developed a new Strategic Plan, covering Fiscal Years 2006-2011, under the Government 

Performance and Results Act. This Strategic Plan reflects a rethinking and refinement of our earlier 

strategic goals and planning framework in order to focus OIG efforts on identifying the larger systemic 

problems in SBA’s programs and operations. In 

an era of tight budgets, the OIG must focus on the 

most significant risks to the SBA and taxpayers, 

and on the most critical problems with SBA 

programs and operational processes. Thus, the 

OIG has developed this Strategic Plan based on 

recent significant changes in SBA operations and 

on our assessment of risks associated with delivering SBA programs in this changed environment. This 

plan is designed to assist SBA in meeting the challenges it faces, and help the Agency to accomplish its 

mission in the most effective, efficient, and economical manner possible. Under the new plan, the OIG 

identifies two Strategic Goals: (1) Improve the economy, efficiency, and effectiveness of SBA programs 

and operations; and (2) Promote and foster integrity in SBA programs and operations.

Once data is loaded into the system, IMIS 

functions like a portable case file, 

enabling investigators to electronically 

retrieve all related documents. 
Statistical Highlights

21 

FY 2005 6-Month Productivity Statistics 

April 1, 2005, through September 30, 2005 

Office-wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines........................................................................... $1,414,183 

B. Loans Not Made as Result of Investigations and Name Checks............................................ $18,830,252 

C. Disallowed Costs Agreed to by Management ............................................................................. $308,960 

D. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management........................................................................................... $457,000

Total ........................................................................................................................................... $21,010,395

Efficiency and Effectiveness Activities

A. Reports Issued........................................................................................................................................ 12 

B. Recommendations Issued....................................................................................................................... 69 

C. Dollar Value of Costs Questioned............................................................................................ $2,038,232 

D. Dollar Value of Recommendations that Funds 

Be Put to Better Use............................................................................................................ $475,000 

E. Collections as a Result of Questioned Costs ............................................................................ $1,712,687 

Follow-up Activities

A. Recommendations Closed...................................................................................................................... 98 

B. Disallowed Costs Agreed to by Management ............................................................................. $308,960 

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

 Agreed to by Management.................................................................................................. $457,000 

D. Unresolved Recommendations............................................................................................................... 98 

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

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

B. Regulations Reviewed.............................................................................................................................. 2 

C. Standard Operating Procedures Reviewed ............................................................................................. 14 

D. Other Issuances Reviewed*................................................................................................................... 59

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

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

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

22 

FY 2005 6-Month Productivity Statistics (cont.) 

April 1, 2005, through September 30, 2005 

Summary of Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases................................................................................................................. 25 

B. Convictions from OIG Cases ................................................................................................................ 21 

C. Cases Opened ........................................................................................................................................ 29 

D. Cases Closed ......................................................................................................................................... 40 

Summary of Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations........................................................................................................... $1,414,183 

B. Loans/Contracts Not Approved as a Result of OIG Investigations......................................... $1,515,232 

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

 Check Program .............................................................................................................. $17,315,020

Total ........................................................................................................................................... $20,244,435

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

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

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency ............................................................................................. 7 

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

C. Proposed Debarments Issued by the Agency .......................................................................................... 1 

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

Summary of OIG Hotline Operation

A. Total Fraud Line Calls/Letters ............................................................................................................ 134 

B. Total Calls/Letters Referred to Investigations Division........................................................................ 26 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies .................................... 73 

D. Total Calls/Letters Needing No Action................................................................................................. 35 
Statistical Highlights

23 

FY 2005 Full Year Productivity Statistics 

October 1, 2004, through September 30, 2005 

Office-wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines........................................................................ $21,946,963 

B. Loans Not Made as Result of Investigations and Name Checks........................................... $31,333,272 

C. Disallowed Costs Agreed to by Management ......................................................................... $1,965,492

D. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management........................................................................................... $599,549

Total ........................................................................................................................................... $55,845,276

Efficiency and Effectiveness Activities

A. Reports Issued....................................................................................................................................... 30 

B. Recommendations Issued.................................................................................................................... 171 

C. Dollar Value of Costs Questioned............................................................................................. 3,290,153 

D. Dollar Value of Recommendations that Funds 

Be Put to Better Use............................................................................................................ $475,000 

E. Collections as a Result of Questioned Costs ........................................................................... $2,584,551 

Follow-up Activities

A. Recommendations Closed................................................................................................................... 241 

B. Disallowed Costs Agreed to by Management ......................................................................... $1,965,492

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

 Agreed to by Management.................................................................................................. $599,549 

D. Unresolved Recommendations.............................................................................................................. 98 

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

A. Legislation Reviewed............................................................................................................................ 37 

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

C. Standard Operating Procedures Reviewed ............................................................................................ 21 

D. Other Issuances Reviewed*.................................................................................................................. 94

Total ......................................................................................................................................................... 156

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

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

24 

FY 2005 Full Year Productivity Statistics (cont.) 

October 1, 2004, through September 30, 2005 

Summary of Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases............................................................................................................. 50** 

B. Convictions from OIG Cases ............................................................................................................ 41** 

C. Cases Opened .................................................................................................................................... 58** 

D. Cases Closed ..................................................................................................................................... 69** 

Summary of Recoveries and Management Avoidances

A. Potential Recoveries and Fines as a Result of 

 OIG Investigations......................................................................................................... $21,946,963 

B. Loans/Contracts Not Approved as a Result of OIG Investigations......................................... $4,010,232 

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

 Check Program .............................................................................................................. $27,323,040

Total ........................................................................................................................................... $53,280,235

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

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

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency ............................................................................................. 7 

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

C. Proposed Debarments Issued by the Agency .......................................................................................... 4 

D. Final Debarments Issued by the Agency................................................................................................. 4 

Summary of OIG Hotline Operation

A. Total Fraud Line Calls/Letters ........................................................................................................ 310** 

B. Total Calls/Letters Referred to Investigations Division........................................................................ 61 

C. Total Calls/Letters Referred to SBA or Other Federal Investigative Agencies .................................. 196 

D. Total Calls/Letters Needing No Action................................................................................................. 53 

**Corrections were made for October 1, 2004, through March 31, 2005, period. 

. 
Appendix

25 

Appendix I 

OIG Reports Issued 

April 1, 2005, through September 30, 2005 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Capital Access

Audit of SBA-Guarantied Loan to L.I.C. Auto 

Sales, Inc. dba King Bear 

5-21 7/15/2005 $308,960 

Audit of SBIC Liquidation Process 5-22 7/28/2005 

Audit of Early Defaulted Loan to Hansen 

Enterprises 

5-26 9/28/2005 $255,088 

Management Advisory Report PLP Processing 

Restrictions for Paying off Existing SBA Debt in a 

Change of Ownership Transaction 

5-27 9/28/2005 $1,474,184 

Program Subtotal 4 $2,038,232 

Agency Management 

Advisory Memorandum Report – Consolidation of 

SBA’s Systems Subject to FISMA 

5-19 5/20/2005 $475,000 

Audit of SBA’s Informs Electronic Forms System 5-25 9/23/2005 

Review of SBA Procedures for Cash Gifts 5-28 9/30/2005 

Management Advisory Report – SBA Needs to 

Implement a Viable Solution to Its Loan 

Accounting System Migration Problem 

5-29 9/30/2005 

Program Subtotal 4 $475,000 

Government Contracting and 

Business Development

 

Review of the Mentor-Protégé Program 5-18 4/18/2005 

Audit of the Contract Bundling Process 5-20 5/20/2005 

Audit of SBA's Administration of Its Special 

Appropriation Grants 

5-23 9/21/2005 

Criteria for Overcoming the Presumption of Social 

Disadvantage is Needed 

5-24 9/28/2005 

Program Subtotal 4 

TOTALS (all programs) 12 Reports $2,038,232 $475,000 
Appendix

26 

Appendix II 

OIG Reports with Questioned Costs 

Reports Recs* Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision made by 

March 31, 2005 5 7 $3,880,620.10 $3,086,077.13 

B. Issued during this reporting period 3 3 $2,038,232.00 $0 

Universe from which management 

decisions could be made in this 

reporting period – Subtotals 8 10 $5,918,852.10 $3,086,077.13 

C. Management decision(s) made 

during this reporting period 1 1 $308,960.00 $0 

(i) Disallowed costs 1 1 $308,960.00 $0 

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

D. No management decision made by 

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

* Reports may have more than one recommendation. 

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

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

 Reports Recs* Recommended Funds 

For Better Use

A. No management decision made by March 

31, 2005** 2 2 $300,823.00 

B. Issued during this reporting period 1 6 $475,000.00 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals 3 8 $775,823.00 

C. Management decision(s) made during this 

reporting period 2 6 $457,000.00 

(i) Recommendations agreed to by 

SBA management 2 6 $457,000.00 

(ii) Recommendations not agreed to 

by SBA management 0 0 $0 

D. No management decision made by 

September 30, 2005 2 2 $318,823.00 

* Reports may have more than one recommendation. 

**March 31, 2005, closing balance was corrected. 
Appendix

27 

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

 Reports Recommendations 

A. No management decision made by March 31, 2005** 23 118 

B. Issued during this reporting period 10 60 

Universe from which management decisions could be 

made in this reporting period – Subtotals 33 178 

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

recommendation in the report) during this reporting 

period 16 91 

D. No management decision made (for at least one 

recommendation in the report) by 

September 30, 2005 25 87 

*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. 

**March 31, 2005, closing balance was corrected. 
Appendix

28 

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue Management Decisions 

as of September 30, 2005 

Title Number Issued Status 

Impact of Loan Splitting on Borrowers and 

SBA 

2-31 9/30/2002 Two recommendations are in management 

resolution. 

SBA Oversight of Due Diligence Contractor for 

Asset Sales 

3-19 3/31/2003 Agency has not responded to two 

recommendations made in the report. 

SBA’s Acquisition, Development and 

Implementation of the Joint Accounting and 

Administrative Management System 

3-32 6/30/2003 Agency has not responded to two 

recommendations made in the report. 

Audit of Puerto Rico & US Virgin Islands 

District Office Cosponsored and SBAsponsored Activities 

4-07 1/20/2004 Four recommendations are in management 

resolution. 

Audit of SBA's Information Systems Controls 

Fiscal Year 2003 

4-19 4/29/2004 Agency has not responded to three 

recommendations made in the report. 

Audit of San Francisco District Office 

Administrative Activities Related to the Silicon 

Valley Small Business Development Center 

4-27 6/29/2004 Management has not responded to two 

recommendations made in the report. 

Audit of Selected SBA Computer General 

Support Systems 

4-41 9/10/2004 Agency has not responded to one 

recommendation made in the report. 

Audit of SBA's Email System 4-42 9/10/2004 Agency has not responded to one 

recommendation made in the report. Two other 

recommendations are in management resolution.

Audit of a SBA Guarantied Loan to Elatec 

Technology Corporation and HK Equipment, Inc.

4-40 9/13/2004 One recommendation is in management 

resolution. 

Audit of Early Defaulted Loan to Big Z Travel 

Center 

4-43 9/17/2004 Management has not responded to one 

recommendation in the report. 

Audit Report - Summary Audit of SBASponsored and Cosponsored Events Conducted 

by District Offices. 

4-44 9/24/2004 Two recommendations are in management 

resolution. 

Review of Indirect Cost Rate of the Walsh 

Group, P.A 

5-03 10/25/2004 Management has not responded to one 

recommendation made in the report. 

Review of the Small Disadvantaged Business 

Certification Program 

5-04 11/4/2004 One recommendation is in management 

resolution. 

Single Audit of the Mountain Made Foundation 5-08 1/6/2005 Management has not responded to three 

recommendations made in the report. 

Review of a Cooperative Agreement to HP 

Small Business Foundation 

5-11 2/11/2005 Agency has not responded to one 

recommendation made in the report. 

Defaulted 9/11 Disaster Loan to CLB Publishers Inc. CP 5-02 2/14/2005 One recommendation is in management 

resolution. 

Audit of SBA's FY 2004 Financial Statements -

Management Letter 

5-13 2/23/2005 One recommendation made in the report is in 

management resolution. 

SBA Small Business Procurement Awards are 

not Always Going to Small Businesses 

5-14 2/24/2005 Agency has not responded to five 

recommendations made in the report. 

Audit of SBA's Information Systems Controls 

FY 2004 

5-12 2/24/2005 One recommendation is in management 

resolution. Agency has not responded to one 

other recommendation made in the report. 
Appendix

29 

Appendix VI 

OIG Reports Without Final Action as of September 30, 2005

Report 

Number Title 

Date 

Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

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

9-23 Survey of Electronic Records Management 9/15/99 11/30/99 9/30/05 

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

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

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

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

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

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

A1-06 Evaluation of SBA’s Computer Security Program 9/28/01 1/9/02 ** 

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

2-17 SBA’s FY 2001 Financial Statements – Management Letter 4/12/02 12/12/02 9/30/03 

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

2-27 SBA’s Experience with Defaulted Franchise Loans 9/16/02 12/19/02 6/30/04 

2-29 Internal Control Over Colson Services Corporation’s Contract as 

Central Servicing Agent for SBA’s CDC Program 9/16/02 12/12/02 6/30/06 

3-08 SBA’s Oversight of the Fiscal Transfer Agent for the 7(a) Loan 

Program 

1/30/03 *** ** 

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

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

3-18 Grants to the Texas Center for Women’s Business Enterprise 3/20/03 6/4/03 10/15/03 

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

3-21 Equity Injection in the SBA 7(a) Loan Guaranty Program 3/31/03 5/27/04 2/18/05 

3-26 Microloan Program: Moving Toward Performance Management 5/13/03 *** ** 

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

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

Accounting and Administrative Management System 6/30/03 *** ** 

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

3-34 SBA’s Compliance with JFMIP Property Management System 

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

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

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

3-41 Audit of an Early Defaulted Loan 9/29/03 4/22/04 5/31/05 

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

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

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

30 

Appendix VI (cont.) 

OIG Reports Without Final Action as of September 30, 2005

Report 

Number Title 

Date 

Issued

Date of 

Management 

Decision

Final 

Action 

Target

4-16 SBA’s Administration of the Procurement Activities of Asset Sale 

Due Diligence Contracts and Task Orders 3/17/04 *** ** 

4-17 SBA’s FY 2003 Financial Statements – Management Letter 3/23/04 5/14/04 ** 

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

4-19 SBA’s Information Systems Controls – FY 2003 4/29/05 *** ** 

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

Program 

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

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

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

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

4-31 Audit of Expenses for Meals and Refreshments Incurred by the 

Latino Coalition Foundation on an SBA 7(j) Cooperative Agreement 

7/19/04 1/12/05 9/30/05 

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

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

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

4-35 Single Audit of Federal Financial Assistance Program Service Corps 

of Retired Executives (SCORE) 8/03/04 1/12/05 6/30/05 

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

4-39 Memorandum Advisory Report on the Transfer of Operations to the 

National Guaranty Purchase Center 8/31/04 *** 9/30/05 

4-41 Audit of Selected SBA General Support Systems 9/10/04 *** ** 

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

4-44 SBA-Sponsored and Cosponsored Events Conducted by District Offices 9/24/04 *** 9/30/05 

5-02 Advisory Memorandum Report – Independent Evaluation of SBA’s 

Information Security Program 10/7/04 2/4/05 9/30/05 

5-03 Review of Indirect Cost Rate of the Walsh Group, P.A. 10/25/04 1/12/05 6/30/05 

5-04 Review of the Small Disadvantaged Business Certification Program 11/4/04 4/1/05 ** 

5-05 Audit of SBA’s Fiscal Year 2004 Financial Statements 11/15/04 *** ** 

5-09 Memorandum Advisory Report – Pre-Demand and Demand Letters 

for Delinquent 9/11 Disaster Loans 1/11/05 3/8/05 7/10/05 

5-12 Audit of SBA’s Information Systems Controls – FY 2004 2/24/05 *** ** 

5-13 SBA’s FY 2004 Financial Statements – Management Letter 2/23/05 *** ** 

5-17 SBA’s Continuity of Operations Planning Program 3/30/05 5/3/05 ** 

5-21 SBA Guarantied Loan to L.I.C. Auto Sales, Inc. 7/15/05 8/16/05 8/30/05 

** Target dates vary with different recommendations. 

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

31 

Appendix VII 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2005* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

43H006021 9/30/94 Establish procedures for determining whether Section 8(a) 

participants should no longer be considered economically 

disadvantaged based on their ownership interest in their 

8(a) firm, the equity and market value of their primary 

residence, and the net worth of their spouses.

10/30/94 10/30/02

1-11 3/27/01 Ensure that performance plans include indicators for 

determining how effectively and efficiently the Section 

8(a) program is operating. 

9/28/01 7/31/03 

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

and enforcement actions. 

8/27/02 12/31/03 

2-18 5/6/02 Develop an Agency-wide security plan to establish and 

implement the policies, procedures and practices for the 

following: (1) full integration of the information security 

approach and implementation process; (2) coordination 

among program offices to support their security needs; (3) 

guidance to the program office to implement information 

system security controls; and (4) methods to monitor the 

effectiveness of each part of information technology 

security. 

6/28/02 11/17/03 

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

agent (FTA) activities and terminate the existing contract 

with the FTA when a new contract can be enacted. 

12/10/03 3/31/06 

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

and services. Report these contract costs in proposed 

Master Reserve Fund (MRF) financial statements so 

future FTA contracts will have historical cost data for 

comparison purposes.

10/15/03 11/17/03

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

to address financial risk, address the specific requirements 

of the Section 504 loan program, and incorporate a 

performance-driven scoring system. 

10/01/03 12/31/03 

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

Business Investment Companies (SBICs) to ensure it 

includes requirements to perform quarterly risk 

assessments for capitally impaired SBICs, include an 

analysis of potential for repayment of outstanding 

leverage, and determine what criteria should be used to 

recommend an SBIC be transferred to liquidation. 

10/6/03 4/5/05 

3-36 8/19/03 Seek recovery of $282,447 from the lender less any 

subsequent recoveries. 

10/1/03 9/30/04 
Appendix

32 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2005* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

3-41 9/29/03 Require the lender to repay SBA $273,675. 4/22/04 5/31/05 

4-13 3/2/04 Request the District Director to seek recovery from the 

lender of principal, interest, and expenses totaling 

$767,049 paid. 

4/06/04 1/31/05 

4-17 3/23/04 That the Chief Financial Officer (CFO) develop a 

methodology, utilizing representative samples if 

necessary, to verify the completeness and accuracy of 

performance measure data reported by program offices. 

5/14/04 10/22/04 

4-19 4/29/04 That the Chief Information Officer (CIO) revise and 

enhance existing policies and procedures to ensure: 

control weaknesses identified in certification and 

accreditation reviews and audit reports are resolved in a 

timely manner and ensure senior management is provided 

timely information regarding the progress towards 

implementing corrective actions; OCIO monitoring 

controls are effective to preclude reoccurrence of 

previously noted weaknesses; technical personnel are 

provided technical training to enable personnel to 

successfully carry out their duties and responsibilities; 

technical skills are sufficient to meet new technical 

requirements prior to implementing new hardware and 

software; and OCIO effectively participates in all phases 

of system development in a timely manner so that system 

controls are properly designed and developed to provide 

adequate security, and reliability, completeness, and 

accuracy for all significant system initiatives both within 

and outside of OCIO. 

8/12/04 1/31/05 

4-19 4/29/04 That the CIO, in conjunction with system owners: develop 

policies and procedures to require system owners to 

provide plans of action to OCIO for correcting weaknesses 

identified from audits, management reviews, and 

certification and accreditation reviews; ensure that plans 

adequately address management actions to resolve or 

minimize weaknesses in the short term while 

implementing longer term system corrective actions; 

develop reporting processes to follow up on system owner 

corrective action plans; and ensure that sufficient 

resources are made available to monitor system owner 

corrective action plans. 

8/13/04 1/31/05 
Appendix

33 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2005* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

4-19 4/29/04 That the CIO: implement procedures to ensure compliance 

with Procedural Notice 9000-1406 "Removal of Old 

Computer User Accounts;" require network security 

administrators to review all current network accounts to 

identify and eliminate unnecessary accounts; require 

periodic documented reviews of all generic network 

accounts to ensure that they are authorized and needed; 

provide resources sufficient to monitor and assess network 

administration activities to ensure compliance with 

Federal laws and regulations, SBA policies and 

procedures, National Institute of Standards and 

Technology guidance, and industry best practices; and in 

coordination with program directors, develop procedures 

for controlling contractor personnel access to the network 

and applications. Procedures should also be established 

to: require Contracting Officers' Technical Representatives 

(COTRs) to notify security administrators in writing of 

each contractor personnel needing a network and 

application account along with privileges to assign to the 

account; and require all network and application accounts 

established for contractor personnel to be established with 

a renewal or termination date not to exceed one year or the 

length of the contract, whichever is less. In coordination 

with the Office of Human Capital Management, 

procedures should be developed for network and 

application security administrators to receive notification 

of termination of SBA employees. 

8/4/04 11/30/04 

4-19 4/29/204 That the CIO in consultation with OHCM, develop 

procedures for escalating administrative consequences for 

personnel identified as not compliant, such as: advise firsttime offenders to immediately change their passwords to 

conform to the policy; temporarily disable accounts for a 

second offense, and notify the account owner and 

immediate supervisor; and suspend accounts for a third 

offense, and send a request for adverse personnel action to 

the office director OHCM, and the account holder. 

2/04/05 9/30/05 

4-26 6/22/04 That the Associate Administrator seek recovery of the 

SBA guaranty repair of $235,008. 

7/01/04 3/31/05 

4-28 7/9/04 Seek recovery of $142,549 from the lender. 10/06/04 3/31/05 

4-29 7/12/04 That the Associate Administrator seek recovery of the 

SBA guaranty repair of $373,760. 

10/06/04 3/31/05 

4-32 7/29/04 Seek recovery of $542,663 from the lender. 10/06/04 3/31/05 
Appendix

34 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2005* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

4-36 8/10/04 That the Associate Administrator to seek recovery of the SBA 

guaranty repair of $740,000. 

10/06/04 3/31/05 

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

Development develop and implement procedures to ensure 

that SDB reviewers properly apply all four criteria for 

determining economic disadvantage, per 13 CFR 124.104(c), 

using 8(a) Program thresholds for maximum income and total 

assets, and industry financial performance comparisons. 

4/1/05 9/30/05 

5-04 That the Acting Associate Administrator for Business 

Development develop and implement procedures to ensure 

that eligibility reviewers recommend denial of SDB 

certification if a firm or any of its principals do not comply 

with 13 CFR 124.108(e). 

4/1/05 9/30/05 

5-05 11/15/04 That the CFO: (1) continue to develop new quality assurance 

review procedures and enhance existing procedures to ensure 

that all financial transactions are properly reflected in the 

financial statements, and that footnote disclosures are 

accurate and logical and contain comprehensive information 

essential to the fair presentation of SBA's financial condition; 

(2) perform additional analytical procedures monthly or 

quarterly; (3) develop and complete additional checklists; (4) 

perform studies of best practices; and (5) have an independent 

review conducted by individuals not associated with SBA's 

daily financial management and reporting responsibilities, 

such as an outside peer reviewer. 

12/20/04 12/15/05 

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

pre-demand and demand letters to delinquent borrowers. 

Such letters should be maintained in the loan file. 

3/8/05 7/10/05 

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

systems and major applications, e.g., Egan Mainframe, SBA 

and Corio UNIX, Network and Windows 2000; Loan 

Accounting System, Sybase, Mainframe, JAAMS Oracle, and 

related application functions: (1) develop and document 

policies and procedures clearly outlining what activities 

should be logged, who should be responsible for reviewing 

logs, what the logs should be reviewed for, how often logs 

should be reviewed, and how long logs should be retained; 

(2) assign responsibility within OCIO Security for the review 

of application and general support system security logs; and 

(3) retain audit logs for a sufficient period of time (at least 90 

days). 

4/18/05 4/15/06 
Appendix

35 

Appendix VII (cont.) 

Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2005* 

Report 

Number

Date 

Issued

Recommendation Management 

Decision Date

Final Action 

Target

5-12 2/24/05 For the Loan Accounting System (LAS): (1) provide 

software developers, testers, and IT management with 

ongoing training in software development, testing and 

acceptance procedures; (2) define sufficient 

documentation standards for LAS, and (3) define sufficient 

test standards and procedures for LAS. 

6/22/05 3/31/06 

5-17 3/30/05 Assign overall Continuity of Operations Program (COOP) 

Business Resumption Program oversight responsibilities to 

the Office of Chief Operating Officer. 

5/3/05 6/1/05 

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

named in the SBA COOP and BRP participate in plan 

testing so that they understand their duties if plan 

activation is needed. 

5/3/05 12/31/05 

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

headquarters and field office BRP every year to ensure 

compliance, and therefore determine if the plans tested are 

adequate. Full testing of all SBA program and field office 

BRPs should occur at least every 4 years to ensure that all 

BRPs are sufficient and that program and field offices 

have viable, complete and tested BRPs. 

5/30/05 12/31/05 

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

36 

Appendix VIII 

6-Month Significant Recommendations Summary 

as of September 30, 2005 

Report 

Number Title 

Date 

Issued Recommendation 

5-18 Review of the Mentor-Protégé 

Program 

4/18/05 Ensure that the Mentor-Protégé agreements are specific 

enough that SBA can monitor and determine whether 

each protégé will be in receiving/has received "material 

benefits" and "developmental gains" using the 

definition of success adopted when the action in 

Recommendation 1A is completed.

5-18 Review of the Mentor-Protégé 

Program 

4/18/05 Define success for the Mentor-Protégé Program and its 

participants, as well as what is meant by "material 

benefits" and "developmental gains." 

5-20 Audit of the Contract Bundling 

Process 

5/20/05 That the ADA for GC&BD implement current operating 

plans in accordance with SOP 60 02 and establish 

procedures with each of the 23 major procurement 

agencies Offices of Small and Disadvantaged Business 

Utilization. These procedures should identify what 

constitutes possible bundling, when and where proposed 

procurements must be referred to SBA for review, and 

consequences for procuring agencies that do not notify 

SBA of proposed acquisitions involving contract 

bundling.

5-21 Audit of Early Default King Bear 7/15/05 That the Associate Administrator for Financial 

Assistance seek recovery of $308,960 from the lender 

on the guaranty paid. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Revise SOP 10 07 to require the development of 

meaningful goals and performance indicators that will 

measure the efficiency, effectiveness, and timeliness of 

the efforts of the Office of SBIC Liquidation (OLO) and 

to include procedures to monitor periodically how well the 

OLO is achieving its goals. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Revise SOP 10 07 to require OLO staff to obtain, for 

the sale of portfolio assets by an SBIC, verification that 

the sale was made at commercially reasonable terms.

5-22 Audit of SBIC Liquidation Process 7/28/05 Track the costs for each liquidation case and 

summarize all costs by liquidation method yearly. 

After a reasonable period of time, this historical cost 

should be used for cost analyses. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Revise SOP 10 07 to require periodic assessments of 

each receivership’s progress and operations by 

comparing the monthly invoices and periodic status 

meeting results to pre-set performance standards. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Restructure contracts with receivership agents to 

include performance standards that will be used to 

assess performance. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Revise SOP 10 07 to require the development of 

meaningful goals and performance indicators that will 

measure the efficiency, effectiveness, and timeliness of 

each liquidation method. 
Appendix

37 

Appendix VIII (cont.) 

6-Month Significant Recommendations Summary 

as of September 30, 2005 

Report 

Number Title 

Date 

Issued Recommendation 

5-22 Audit of SBIC Liquidation Process 7/28/05 Revise SOP 10 07 to require OLO staff to ascertain, for 

the sale of portfolio assets by an SBIC, whether the 

buyer was an associate of the SBIC. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Designate formally one person to be the OLO cashier 

and another as alternate. Provide training to designees 

concerning the requirements listed in SOP 10 07. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Revise SOP 10 07 to: (1) require a documented cost 

analysis be included in the selection process for each 

SBIC liquidation case. An exception would be cases for 

which the suspicion of fraud is the motivating factor for 

selecting the liquidation method. If fraud is suspected, 

the case file should be appropriately documented. (2) 

include the additional liquidation methods of: (a) using 

commission-based contractors to sell acquired assets and 

(b) selling SBA’s equity and debt interest in the SBICs. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Ensure that each case file includes documented 

evidence that OLO staff considered all liquidation 

methods. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Determine the disposition of the two missing checks. 

If the checks were lost, efforts should be made to seek 

replacements from the makers. If improperly cashed, a 

referral should be made to the OIG/Investigations. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Incorporate the goals and performance indicators into 

the Agency’s annual performance plan and use them to 

monitor and assess the progress towards achieving 

SBIC liquidation goals. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Incorporate revised procedures for filing IRS Forms 

1096 and 1099 into SOP 10 07. 

5-22 Audit of SBIC Liquidation Process 7/28/05 Determine through coordination with the IRS and the 

service providers whether IRS Forms 1099 and 1096 were 

filed accurately for calendar year 2003. If not filed 

accurately, implement actions to file the forms, as 

required.

5-23 Audit of SBA's Administration of 

Its Special Appropriation Grants 

9/21/05 That the Assistant Administrator for Administration 

develop policies and procedures to guide the review, 

monitoring and oversight process of the Agency’s 

growing portfolio of special appropriations grants for 

inclusion in the forthcoming SOP 00 11 2 and ensure that 

adequate resources are deployed to implement the new 

policies and ensure they are followed. 

5-24 Criteria for Overcoming the 

Presumption of Social 

Disadvantage is Needed 

9/28/05 That the Associate Deputy Administrator for Government 

Contracting and Business Development either (1) develop 

and implement criteria on what constitutes "credible 

evidence" for overcoming the presumption of social 

disadvantage, or (2) develop and implement criteria for 

social disadvantage that applies equally to all applicants. 
Appendix

38 

Appendix VIII (cont.) 

6-Month Significant Recommendations Summary 

as of September 30, 2005 

Report 

Number Title 

Date 

Issued Recommendation 

5-26 Audit of Early Defaulted Loan to 

Hansen Enterprises 

9/28/05 Seek recovery of $255,088, less any subsequent 

recoveries, from the lender. 

5-29 Management Advisory Report – 

SBA Needs to Implement a Viable 

Solution to its Loan Accounting 

System Migration Problem 

9/30/05 That the Chief Operating Officer take concrete steps to 

improve the computing environment and potentially 

eliminating the security vulnerabilities identified for its 

legacy mainframe operating system. 

5-29 Management Advisory Report – 

SBA Needs to Implement a Viable 

Solution to its Loan Accounting 

System Migration Problem 

9/30/05 That the Acting Deputy Administrator in coordination 

with affected component offices of the Agency, adopt a 

plan to expedite migration or modernization of SBA’s 

Loan Accounting System off the current UNISYS legacy 

mainframe and make this the highest priority of the SBA 

going forward using good project management practices 

and financial management of the project. 

5-29 Management Advisory Report – 

SBA Needs to Implement a Viable 

Solution to its Loan Accounting 

System Migration Problem 

9/30/05 That the Acting Deputy Administrator ensure the adopted 

migration or modernization plan for the SBA Loan 

Accounting System include such budgets and resources to 

ensure success of the project and if possible, be included 

in the FY 2007 Capital Asset Plan submission to OMB 

and Congress. 

5-29 Management Advisory Report – 

SBA Needs to Implement a Viable 

Solution to its Loan Accounting 

System Migration Problem 

9/30/05 That the Chief Information Officer in conjunction with 

OCFO explore the feasibility of charging each individual 

office for legacy applications which only those offices use 

when newer and more economical alternate computing 

capabilities exist. 

5-29 Management Advisory Report – 

SBA Needs to Implement a Viable 

Solution to its Loan Accounting 

System Migration Problem 

9/30/05 We recommend that the Chief Information Officer and 

any potential LAS modernization project review the 1999 

Booz, Allen and Hamilton – Loan Monitoring System 

Business Process Reengineering study and other materials 

from the previous Systems Modernization Initiative 

project as a beginning to updating the work processes 

around the SBA legacy systems. 
Appendix

39 

Appendix IX 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2005, through September 30, 2005 

Name/Subject 

of Event 

Date 

of 

Event Start 

Date 

of 

Event End 

Location 

of 

Event 

Type of 

Activity Names of Cosponsors 

Business Web 

Training 

4/4/05 8/31/05 World Wide 

Web 

Cosponsorship Education to Go, Inc. 

"Go Global" Training 

Workshops 

4/11/05 3/31/07 Washington, DC Cosponsorship Trade Center Management 

Associates d/b/a The 

International Trade Center 

Utah Small Business 

Awards Luncheon 

4/11/05 6/9/05 Salt Lake City, 

UT 

Cosponsorship Utah Small Business 

Lenders, Inc. 

Women's Business 

Roundtable: 

Marketing on a 

Shoestring 

4/11/05 5/29/05 Annapolis, MD Cosponsorship Business and Professional 

Women of Maryland 

(BPW/md) 

2005 Montana Small 

Business Week 

Advertorial 

4/13/05 5/29/05 Montana Cosponsorship Big Sky Business Journal

Regional Small 

Business Week 

5/5/05 6/16/05 Los Angeles, 

CA 

Cosponsorship Los Angeles Chamber of 

Commerce 

Small Business Week 

Awards Reception, 

Presentation of 

Awards and Expo 

5/13/05 6/30/05 Lincoln, 

Warwick, 

Providence & 

Smithfield, RI 

Cosponsorship SCORE and Central 

Rhode Island Chamber of 

Commerce 

Small Business Week 

Awards Dinner 

5/19/05 6/24/05 Claymont, DE Cosponsorship Delaware Economic 

Development Office 

(DEDO) 

2nd Annual Small 

Business Forum 

5/24/05 7/2/05 Dayton, OH Cosponsorship Central State University - 

College of Business and 

Industry 

The 2005 Small 

Business Community 

Resource Fair 

6/3/05 7/8/05 Centennial, CO Cosponsorship Smoky Hill Library, South 

Metro Denver SBDC and 

SCORE 

Internet Marketing 

Seminar "Is Your 

Website Increasing 

Sales" What 

Industrial 

Manufacturers and 

Distributors Need to 

Know 

6/10/05 7/21/05 Newark, DE Cosponsorship Thomas Industrial 

Network, Inc. 

Enhancing 

Entrepreneurship 

Using the Internet 

and SBA 

6/13/05 6/30/07 World Wide 

Web 

Cosponsorship National Women’s 

Business Center and eBay 

Inc. 

Symposium: "Small 

Business and 

Regulation" 

6/28/05 10/19/05 Washington, DC Cosponsorship Public Forum Institute 

(Lead Cosponsor). 
Appendix

40 

Appendix IX (cont.) 

List of Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2005, through September 30, 2005 

Name/Subject 

of Event 

Date 

of 

Event Start 

Date 

of 

Event End 

Location 

of 

Event 

Type of 

Activity Names of Cosponsors 

2005 Annual Small 

Business Resource 

Fair 

6/29/05 9/18/05 Denver, CO Cosponsorship Denver Public Library, 

Minority/Women 

Chambers’ Coalition, 

Colorado Small Business 

Development Center, 

Downtown Denver 

Partnership, Inc., 

Colorado Association of 

Government Guaranty 

Lenders 

Employee Planning, 

Recruiting, Selection 

and Hiring 

7/20/05 11/26/05 Atlanta, GA Cosponsorship Monster 

The Impact of 

Second Stage 

Companies in a 

Growing Economy 

8/1/05 12/11/05 Big Rock 

Valley, 

Cassopolis, MI 

Cosponsorship Edward Lowe Foundation 

Spirit of Small 

Business Awards 

8/11/05 9/12/05 Santa Barbara, 

CA 

Cosponsorship Pacific Coast Business 

Times (Los Angeles 

Chamber of Commerce 

Women's Network 

for Entrepreneurial 

Training (WNET) 

Roundtables 

9/7/05 10/31/07 Casper, WY Cosponsorship First Interstate Bank 

SBA Hispanic Small 

Business Fair and 

Seminars 

9/23/05 6/9/06 Atlanta, GA Cosponsorship Peachtree DeKalb 

Crossing, LLC/dba Plaza 

Fiesta 

Minority Business 

Recognition 

Luncheon 

9/27/05 11/19/05 Indianapolis, IN Cosponsorship Indiana State Hispanic 

Chamber of Commerce, 

Indianapolis Black 

Chamber of Commerce, 

NAWBO, Indiana 

Business Diversity 

Council, NFIB, Asian 

American Alliance, Inc., 

SCORE Chapter #6 and 

the Indiana SBDC 

Seminar: Federal 

Contracting for 

Veterans 

9/29/05 10/30/05 Washington, DC Cosponsorship The Veterans Enterprise 

Training and Services 

Group, In. (VETS Group) 

* The Agency provided this information. It has not been verified by the OIG. 
Appendix

41 

Appendix X 

6-Month Legal Actions Summary 

April 1, 2005, through September 30, 2005 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

CA BL A liquor and convenience store owner allegedly 

conspired to misrepresent the true seller and 

true buyer of a business in order to qualify for 

an SBA-guarantied loan in the amount of 

$275,000. 

Owner charged by a 

criminal information. 

FBI, IRS, 

ICE, 

USDA/OIG, 

CA-ABC 

CA BL The owner of a now defunct insurance business 

solicited and received money from investors 

based on his false representations that his 

company had a Government contract subsidized 

by various Federal Government entities, 

including the SBA. 

Owner pled guilty 

and was sentenced to 

3 years probation and 

ordered to pay $639 

in fines and 

restitution. 

USSS 

CA BL The owner of a telecommunications firm 

allegedly provided false information about his 

company’s financial condition, number of 

employees, and length of time in existence 

during the loan application process for a 

$50,000 SBA Express Loan. 

Owner charged in 

state court. 

GCPD 

NJ BL The owners of an x-ray diagnostic business sold 

their business one day after receiving a 

$1,210,000 SBA-guarantied loan. The 

borrowers defaulted on their loan, and the bank 

requested SBA to honor its guarantee in the 

amount of $846,232. 

Due to a conflict of 

interest and failure to 

verify tax liability, 

the bank withdrew its 

request that SBA 

honor its guaranty, 

resulting in a cost 

avoidance of 

$846,232. 

None 

NJ BL The owner of a video and graphics production 

company submitted false invoices and receipts 

totaling $180,000 as part of the application 

process to obtain a $375,000 SBA-guarantied 

loan. 

Owner pled guilty 

and was sentenced to 

2 years probation and 

a fine of $1,000. 

USPIS 
Appendix

42 

Appendix X (cont.) 

6-Month Legal Actions Summary 

April 1, 2005, through September 30, 2005 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

NJ BL The owner of a window manufacturing 

business, his former partner, the partner’s 

attorney, and a loan broker conspired to falsely 

represent a required $700,000 capital injection 

for a $1,750,000 SBA-guarantied loan. 

All sentenced to pay 

restitution, jointly 

and severally, of 

$106,827.78. 

Attorney and loan 

broker fined $5,000. 

Broker sentenced to 2 

years in prison, 3 

years supervised 

release. Others 

sentenced to 

probation and home 

confinement. 

None 

NJ BL The owner of an automotive repair business 

obtained a $560,000 SBA-guarantied loan to 

purchase land. The business owner conspired 

with the property owner to misrepresent the 

capital injection to the lender. In lieu of the 

capital injection, they entered into an $80,000 

mortgage agreement, which they concealed 

from the lender. 

Both men were 

sentenced to 5 years 

probation, 6 months 

home confinement, 

$3,000 fines, and 

ordered to pay 

restitution of 

$721,263.62. 

None 

NV BL The owner of several florist shops conspired 

with his partner to provide false company 

information, including the length of time in 

business and yearly gross revenues, during the 

loan application process for six SBA Express 

Loans totaling $300,000. 

Owner pled guilty to 

a criminal 

information. 

LVPD, USSS, 

DSDS 

NY DL When applying for disaster loans of $216,800 

and $80,000, the owner of two 

telecommunications firms misrepresented that 

his companies were located at the World Trade 

Center on September 11, 2001. The 

investigation revealed that the businesses had 

relocated prior to the terrorist attacks. 

Owner pled guilty. USPIS 

NY DL A former attorney, who claimed his firm had 

been located in downtown New York City on 

September 11, 2001, received an SBA disaster 

loan for $247,000. The investigation revealed 

that his firm was never located at that address. 

Former attorney pled 

guilty to criminal 

charges and is 

awaiting sentencing. 

Civil settlement of 

$300,000 reached. 

IRS 
Appendix

43 

Appendix X (cont.) 

6-Month Legal Actions Summary 

April 1, 2005, through September 30, 2005 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

NY DL The owner of a business that sells motor 

vehicles and parts allegedly forged the 

endorsement of two vendors on SBA issued 

two-party checks totaling $131,600. Instead of 

using the majority of his SBA-guarantied loan 

to pay off outstanding vendor debts, as 

specified, he used the funds for a new business 

he had started. 

Owner arrested. USPIS 

NY DL A woman submitted an application for a disaster 

home loan and falsely stated that she had been 

residing near the World Trade Center on 

September 11, 2001, and her furniture and car 

had been destroyed by debris. 

Woman pled guilty. DHS 

OH BL The former general manager of a food 

manufacturing business and his wife were 

involved in a scheme to falsify application 

documents and misuse loan proceeds in 

connection with a $700,000 loan made to the 

business. 

Both pled guilty. 

The former manager 

was sentenced to 6 

months homeconfinement, 5 years 

probation, and 

ordered to pay 

$115,500 in 

restitution. His wife 

was fined $100. 

None 

OH BL The former president of a now defunct jewelry 

business failed to disclose a civil judgment filed 

against him and his extensive criminal history 

during the loan application process for a 

$99,500 SBA-guarantied loan. 

Former president was 

sentenced to 

5 months in prison, 3 

years supervised 

release, and was 

ordered to pay 

$66,575.13 in 

restitution. 

FBI 

PR BL The owner of an import/export business—

denied an SBA Micro-loan because of poor 

credit history—conspired with two other 

individuals who each applied for and received 

$25,000 SBA Micro-loans on his behalf. 

One individual 

sentenced to 2 years 

probation. Owner 

pled guilty to a 

criminal information. 

Prosecution 

continuing. 

FBI 
Appendix

44 

Appendix X (cont.) 

6-Month Legal Actions Summary 

April 1, 2005, through September 30, 2005 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

PR GC An SBA employee allegedly used his position 

to obtain over $20,000 for his personal benefit 

from an 8(a) contractor who received over 

$3 million in contracts. 

Employee was 

indicted. 

FBI, 

GSA/OIG 

TX BL A restaurant owner inflated personal property 

values and net worth to influence financial 

institutions to approve two SBA-guarantied 

loans and a bank line of credit totaling 

$1,078,000. He then utilized financial proceeds 

from the loans for personal expenses. 

Owner pled guilty. FBI, IRS 

TX BL Seven individuals—a loan broker, escrow 

officer, two borrowers, and three others—

allegedly caused false and fraudulent loan 

application documents to be submitted to an 

SBA lender to secure a $2,400,000 international 

trade loan guarantied by SBA. The seven then 

laundered approximately $473,000 of the 

proceeds for their personal benefit. 

Seven individuals 

indicted. 

None 

TX BL The co-owner of a service station allegedly 

misrepresented ownership of real estate on his 

loan application in order to secure a $669,000 

SBA-guarantied 504 loan from the Texas 

Certified Development Company (TCDC). 

Co-owner indicted. 

Due to 

misrepresentations by 

the co-owner, SBA 

and the TCDC 

canceled the loan 

debenture request, 

resulting in a cost 

avoidance of 

$669,000. 

TEXAS-ABC 

TX BL An attorney involved in the SBA 7(a) loan 

program was suspended by the Associate 

Administrator for Lender Oversight due to 

information that the attorney was continuing to 

participate in the 7(a) Program after his 

conviction on fraud and money laundering 

charges. 

Debarment action 

will be considered 

upon sentencing. 

FBI 
Appendix

45 

Appendix X (cont.) 

6-Month Legal Actions Summary 

April 1, 2005, through September 30, 2005 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX BL As a result of information obtained during an 

investigation into nine defaulted SBA 

convenience store loans in the amount of 

$9,500,000, the OIG investigated charges that 

the owner of an alleged SBA loan brokerage 

company made false representations to 

customers. 

Owner indicted. FBI 

TX BL A borrower for a food market and his brother 

conspired to fraudulently obtain a $1,000,000 

SBA-guarantied loan and a $390,000 

companion loan. The borrower misrepresented 

that he used personal assets for the capital 

injection and to purchase real estate for the 

business. In reality, he received the majority of 

these funds from his brother. 

Both pled guilty. DHS, ICE, 

TEXAS-ABC 

TX BL When applying for a $286,200 SBA-guarantied 

loan to buy a convenience store, the borrower 

falsely claimed to be a U.S. citizen, failed to 

disclose a pending lawsuit, falsified the origin 

of the cash injection, and provided false 

documentation. 

Borrower pled guilty. DHS, ICE, 

TEXAS-ABC 

TX BL A borrower, his loan broker, and three other 

individuals allegedly made misrepresentations 

during the loan application process to secure a 

$1,000,000 SBA-guarantied loan for the 

purchase of a gas station. Once the loan was 

funded, they allegedly laundered about 

$183,519 of the proceeds for their personal 

benefit. 

All five individuals 

indicted. 

None 

VA BL The president and vice-president of a now 

defunct asphalt company made 

misrepresentations regarding the financial 

solvency of their company and the intended 

purpose of the loan on the application for a 

$100,000 SBA-guarantied loan. They also 

spent the loan proceeds on personal items 

instead of purchasing paving equipment that 

was to serve as collateral for the loan. 

Both found guilty by 

jury trial. Both 

sentenced to 18 

months in prison, 3 

years supervised 

release, and ordered 

to pay restitution of 

$86,277.48, jointly 

and severally. 

FBI 
Appendix

46 

Appendix X (cont.) 

6-Month Legal Actions Summary 

April 1, 2005, through September 30, 2005 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

VA GC The president and vice president of a 

construction company conspired to make 

misrepresentations to SBA in order to maintain 

their company’s 8(a) eligibility status. They 

also conspired with an environmental services 

company to provide false hazardous 

environmental training certificates to the 

government. 

Both men and both 

companies indicted 

and pled guilty. 

FBI, DCIS, 

EPA-CID, 

Army-CID, 

NASA/OIG 

VI DL Co-owners of a house located in the Virgin 

Islands falsely represented to the SBA and other 

Government and insurance entities that it had 

sustained hurricane damage. In reality, the 

house had been previously damaged by a 

hurricane, and they had purchased it with such 

damage in “as is” condition. 

Both pled guilty to a 

criminal information. 

DHS 

WA SBA 

General 

A woman falsely claimed to be affiliated with 

the SBA and submitted two Federal grant 

applications to the Washington State Office of 

Juvenile Justice as an SBA “Director.” 

Woman arrested and 

indicted. 

None 

Program codes: BL=Business Loans; DL=Disaster Loans; GC=Government Contracting and Business 

Development/Section 8(a) Business Development 

Joint-investigation Federal agency acronyms: Army CID=Army Criminal Investigation Division; CA-ABC=State 

of California Alcohol and Beverage Control; DCIS=Defense Criminal Investigative Service; DHS=Department of 

Homeland Security; DSDS=Department of State Diplomatic Security; EPA-CID=Environmental Protection Agency 

Criminal Investigation Division; FBI=Federal Bureau of Investigation; GCPD=Glendale California Police 

Department; GSA/OIG=General Services Administration OIG; ICE=Immigration and Customs Enforcement; 

IRS=Internal Revenue Service; LVPD=Las Vegas Police Department; NASA/OIG=National Aeronautics and 

Space Administration OIG; TEXAS-ABC=Texas Alcoholic Beverage Commission; USDA/OIG=United States 

Department of Agriculture OIG; USPIS=United States Postal Inspection Service; USSS=United States Secret 

Service. 
Appendix

47 

Appendix XI 

Small Business Administration 

Office of Inspector General

 

Inspector 

General 

Auditing Division 

Deputy 

Inspector 

General 

Counsel Division 

Management and 

Policy Division Investigations Division

Business Development 

Programs Group 

Washington, DC 

Financial 

Management & IT 

Group 

Washington, DC 

Credit Programs 

Group 

Chicago 

Dallas 

Los Angeles 

Washington, DC 

Atlanta 

Los Angeles 

Denver 

Seattle 

Western Region

Dallas 

Chicago 

Houston 

Kansas City 

Central Region 

Washington, DC 

Atlanta 

Philadelphia 

New York 

Eastern Region 

Miami 
Make A Difference 

To promote integrity, economy, and efficiency, we encourage you to report 

instances of fraud, waste, or mismanagement to the SBA OIG HOTLINE.* 

CALL 

1-800-767-0385 (Toll Free) 

Write or Visit 

U.S. Small Business Administration 

Office of Inspector General 

Investigations Division 

409 Third Street, SW. (5th Floor) 

Washington, DC 20416 

Or E-mail Us at OIG@SBA.GOV

*Upon request, your name will be held in confidence.