U.S. Small Business Administration 

Office of Inspector General 

_________________________________

Semiannual Report to Congress 

Fall 2008 

April 1, 2008 – September 30, 2008 
Inspector General Act Statutory Reporting Requirements

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

listed below. 

Source Page

Section 4(a)(2) Review of Legislation and Regulations 20 

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 3-21 

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

Abuses and Deficiencies 34-35 

Section 5(a)(3) Prior Significant Recommendations Not Yet Implemented 31-33 

Section 5(a)(4) Matters Referred to Prosecutive Authorities 45-53 

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

 and 6(b)(2) 

Section 5(a)(6) Listing of OIG Reports 26 

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

Section 5(a)(8) Audit Reports with Questioned Costs 27 

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

 Better Use 27 

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 

Table of Contents

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

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

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

 Small Business Access to Capital..................................................................................................... 7 

 Small Business Development, Contracting, Education, and Training............................................ 13 

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

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

Statistical Highlights........................................................................................................................................... 22 

Appendices 

 I. OIG Reports Issued ........................................................................................................................ 26 

 II. OIG Reports with Questioned Costs .............................................................................................. 27 

 III. OIG Reports with Recommendations that Funds Be Put to Better Use ......................................... 27 

 IV. OIG Reports with Non-Monetary Recommendations .................................................................... 28 

 V. OIG Reports from Prior Semiannual Periods with Overdue Management 

 Decisions as of September 30, 2008 ........................................................................................... 28 

 VI. OIG Reports Without Final Action as of September 30, 2008....................................................... 29 

 VII. Summary of Significant Recommendations from Prior Semiannual Reporting 

 Periods Without Final Action as of September 30, 2008............................................................ 31 

 VIII. Summary of Significant Recommendations, 

 April 1, 2008 through September 30, 2008................................................................................. 34 

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

 April 1, 2008 through September 30, 2008................................................................................. 36 

 X. Legal Actions Summary, April 1, 2008 through September 30, 2008 ........................................... 45 

XI. OIG Organizational Chart .............................................................................................................. 55 

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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) ............................................................................................................. 17 

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

 SBA Gift Authority—Small Business Act, Section 4(g)(2)........................................................... 17 

ii 
Glossary of Abbreviations

ANC ................................................................................................................. Alaska Native Corporation 

ATF ........................................................................................Bureau of Alcohol, Tobacco, and Firearms 

BOS .........................................................................................................Business Opportunity Specialist 

CID ......................................................................................................... Criminal Investigation Division 

CIO ................................................................................................... Office of Chief Information Officer 

CPA ............................................................................................................... Certified Public Accountant 

DCIS ............................................................................................. Defense Criminal Investigative Service 

DCMS ..................................................................................................Disaster Credit Management System 

DHS ..................................................................................................... Department of Homeland Security 

DoD .......................................................................................................................Department of Defense 

DOI ........................................................................................................................ Department of Interior 

DOJ ................................................................................................................. U.S. Department of Justice 

EPA ......................................................................................................Environmental Protection Agency 

FBI ..........................................................................................................Federal Bureau of Investigation 

FEMA ..........................................................................................Federal Emergency Management Agency 

GSA ........................................................................................................General Services Administration 

HUBZone .......................................................................................... Historically Underutilized Business Zone 

HUD .............................................................................. Department of Housing and Urban Development 

ICE .............................................................................................Immigration and Customs Enforcement 

IRS ....................................................................................................................Internal Revenue Service 

LAS ....................................................................................................................Loan Accounting System 

LLMS ................................................................................................. Loan and Lender Monitoring System 

LMAS ....................................................................................... Loan Management and Accounting System 

LSC .......................................................................................................................Loan Servicing Centers 

NCIS .................................................................................................Naval Criminal Investigative Service 

NGPC ....................................................................................................National Guaranty Purchase Center 

NICB ...................................................................................................... National Insurance Crime Bureau 

ODA ..............................................................................................................Office of Disaster Assistance 

OFA ............................................................................................................Office of Financial Assistance 

PDC ................................................................. Disaster Assistance Processing and Disbursement Center 

SBDC ..................................................................................................Small Business Development Center 

SBIC .................................................................................................Small Business Investment Company 

SCORE .................................................................................................. Service Corps of Retired Executives 

SDB ........................................................................................................... Small Disadvantaged Business 

SSA ...........................................................................................................Social Security Administration 

USDA ..........................................................................................................U.S. Department of Agriculture 

USPIS ............................................................................................................U.S. Postal Inspection Service 

USSS ............................................................................................................................. U.S. Secret Service 

VA .........................................................................................................Department of Veteran's Affairs 

WBC .................................................................................................................Women's Business Centers 

iii 
Overview of SBA and the OIG

The Small Business Administration 

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

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

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

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

Agency and its programs are trying to accomplish: “Expand America’s ownership society, particularly in 

underserved markets”; “Provide timely financial assistance to homeowners, renters, nonprofit 

organizations and businesses affected by disaster”; and “Improve the economic environment for small 

business.” A fourth strategic goal, “Ensure management and organizational excellence to increase 

responsiveness to customers, streamline processes, and improve compliance and controls,” defines the 

responsibility of the Agency’s executive leadership and support functions to help accomplish the 

programmatic goals. 

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

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

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

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

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

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

As of September 30, 2008, SBA had 2,259 employees, including Office of Inspector General (OIG) 

personnel, but excluding a total of 3,288 disaster-funded employees for disaster loan making and disaster 

loan servicing. 

The Office of Inspector General 

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

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

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

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

integrity of SBA’s programs and operations. 

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

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

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

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

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

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

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

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

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

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

participants. 

1 
Overview of SBA and the OIG

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

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

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

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

procedures. 

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

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

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

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

The OIG is headquartered in Washington, DC, and has field staff located in Atlanta, GA; Chicago, IL; 

Dallas/Fort Worth, TX; Detroit, MI; Denver, CO; Herndon, VA; Houston, TX; Kansas City, MO; 

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

Washington, DC. As of September 30, 2008, the OIG had 102 staff on board. 

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

OIG Work During this Reporting Period 

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

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

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

concentrated on critical risks facing SBA, including: risks of financial losses due to limited oversight and 

controls; risks to SBA's performance of its statutory mission to promote small business development and 

Government contracting; and risks associated with SBA's information technology and financial 

management systems and other internal operations. 

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

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

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

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

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

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

OIG efforts and accomplishments during the second half of FY 2008 are summarized in this report. Audit 

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

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

website at http://www.sba.gov/ig/igreadingroom.html. 

2 
Significant OIG Activities

Disaster Loans

The Disaster Loan program plays a vital role in the aftermath of disasters by providing long-term, 

low-interest loans to affected homeowners, renters, and businesses of all sizes. There are two types of 

disaster loans: (1) physical disaster loans for permanent rebuilding and replacement of uninsured 

disaster-damaged privately-owned real and/or personal property, and (2) economic injury disaster loans to 

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

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

organizations. The Disaster Loan program is particularly vulnerable to fraud and unnecessary losses 

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

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

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

property in Florida and Texas. As of September 30, 2008, SBA had approved almost 120,000 disaster 

loans - totaling $6.7 billion - in the aftermath of the Gulf Coast hurricanes, and had fully disbursed over 

118,000 totaling $6.4 billion. OIG audits continue to focus on loan origination, disbursement, repayment, 

servicing, and liquidation activities related to these loans, including whether: loan applications were 

processed in accordance with SBA procedures; uses of loan proceeds were verified before loans were 

fully disbursed; duplicate benefits were appropriately identified and recovered; and loan servicing and 

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

the Hurricane Katrina Fraud Task Force, the OIG also continues to investigate allegations of unauthorized 

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

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

affected areas at the time of the disaster. 

Given the scope and magnitude of SBA’s Gulf Coast hurricane disaster assistance efforts, as well as the 

more recent impact of the Midwest floods and Hurricanes Ike and Gustav during 2008, the OIG expects to 

focus heavily on the disaster assistance area for the foreseeable future. 

Disaster Loss Verification Process 

An OIG audit of the Disaster Loss Verification Process determined that some loss verification reports did 

not accurately estimate the replacement value of 

damaged property, due to both overstatements and 

understatements of damages. Of the 315,000 Gulf 

Coast hurricane loss verification reports completed as 

of July 2006, the OIG estimated that 16,272 overstated 

damages by at least $367 million, and 6,709 

understated damages by at least $4 million. This 

occurred because loss verifiers: (1) incorrectly calculated the square footage of the damaged property; 

(2) were not properly trained; (3) did not always meet with borrowers on-site; and (4) did not enter all 

required data into DCMS, which calculates loss estimates. 

Also, SBA’s Office of Disaster Assistance (ODA) did not 

effectively monitor the quality of the loss verifications 

completed between October 1, 2005 and March 31, 2006, 

nor implement its required loss verification Quality 

Assurance Surveillance Plan. In addition, between October 2005 and March 2006, ODA spent 

Of the 315,000 Gulf Coast hurricane loss 

verification reports completed as of July 2006, 

the OIG estimated that 16,272 overstated 

damages by at least $367 million, and 6,709 

understated damages by at least $4 million. 

SBA’s Office of Disaster Assistance did not

effectively monitor the quality of the loss 

verifications.

3 
Significant OIG Activities

$10.3 million for 88,692 loss verifications on loan applications that were declined during pre-processing 

due to applicants’ creditworthiness or lack of repayment ability. 

Early-Defaulted Gulf Coast Hurricane Disaster Loans 

In response to the increasing number of defaulted Gulf Coast disaster loans, the OIG initiated an audit to 

determine whether loans that failed within 18 months of the due date of the first loan payment: 

(1) received adequate screening and credit evaluation during the application process; and (2) were 

serviced in accordance with loan provisions and regulations. 

The OIG reviewed a statistical sample of 117 loan files from a universe of 4,985 loans that were at least 

90 days delinquent or charged-off as of September 

30, 2007. All but 4 of the 117 loans reviewed were 

either improperly originated or inadequately 

serviced. Approximately 63 percent of the loans 

reviewed were approved even though the applicants 

lacked repayment ability or were not creditworthy, 

and 

79 percent were inadequately serviced after becoming delinquent. Projecting the sample results to the 

universe of early-defaulted loans, the OIG estimated that approximately 4,815 loans, totaling 

$98.4 million, defaulted early due to loan origination or servicing issues. These deficiencies occurred 

because the ODA overstated income and/or understated debt when computing borrowers’ repayment 

ability. In cases where borrowers’ credit was found to be unsatisfactory, ODA did not provide adequate 

justification for applicants’ existing unpaid debt, bankruptcies, or unpaid collections. 

Approximately 63 percent of the loans reviewed 

were approved even though the applicants lacked 

repayment ability or were not creditworthy, and 

79 percent were inadequately serviced after 

becoming delinquent. 

To ensure that applicant repayment ability and creditworthiness are adequately evaluated, the OIG 

recommended that ODA’s training program re-emphasize that supervisory loans officers must thoroughly 

review applicant repayment ability to ensure accuracy and address all derogatory credit issues before loan 

approval. ODA concurred with this recommendation and 

has taken actions to enhance its training program for loan 

processing staff, has revised its procedures to review loan 

applications for both creditworthiness and repayment 

ability, and is conducting additional quality assurance reviews, as needed. The OIG did not make 

recommendations regarding loan servicing activities as the Agency addressed identified deficiencies 

during the audit. 

...approximately 4,815 loans, totaling

$98.4 million, defaulted early due to loan 

origination or servicing issues.

Disaster Loan File Transfer and Servicing Delays 

During the audit of early-defaulted loans discussed above, the OIG identified two areas of concern related 

to the transfer of files from the Disaster Assistance 

Processing and Disbursement Center (PDC) to Loan 

Servicing Centers (LSC). First, due to the inadequate 

and untimely collection and filing of loan 

documentation, the PDC had not transferred either 

paper or electronic collateral files for 25,352 fully 

disbursed loans, many of which had been fully disbursed for at least a year. Second, 5,325 loans that 

were transferred to the El Paso LSC without physical collateral files had not been serviced. Instead, they 

...the PDC had not transferred either paper or 

electronic collateral files for 25,352 fully 

disbursed loans... [and] ...5,325 loans that 

were transferred to the El Paso LSC without 

physical collateral files were not serviced. 

4 
Significant OIG Activities

were held in suspense pending receipt of the physical collateral files. Because the loans were not properly 

serviced and collection activities were not initiated timely, an increase in loan defaults and loss to the 

Agency could ultimately occur. 

The OIG recommended that the Associate Administrator for Disaster Assistance: (1) transfer all 

electronic loan files held by the PDC to the appropriate LSC for timely servicing and collection activities 

once loans are fully disbursed; (2) revise current 

policy to identify specific time requirements for the 

transfer of physical electronic files from the PDC to 

the LSCs; and (3) adopt current servicing standards 

used by the El Paso and Birmingham LSCs for loans 

that have not been transferred from the PDC. The 

report also recommended that the Director, Office of Financial Assistance: (1) direct the El Paso LSC to 

automatically assign all loans to a servicing team upon receipt of electronic loan files from the PDC and 

complete servicing of the 5,325 unassigned loan files; and (2) revise current policy to include specific 

time requirements for collection actions on delinquent loans. 

Because the loans were not properly serviced 

and collection activities were not initiated 

timely, an increase in loan defaults and loss to 

the Agency could ultimately occur. 

The ODA implemented the OIG’s recommendations by adopting an alternative method for servicing the 

loans and revised its procedures and processes accordingly. The OIG agreed that adoption of these new 

procedures, to include specific time requirements for loan file transfers, should remedy the deficiencies 

that were noted in the audit. Additionally, during the audit, when the OIG brought the findings to the 

attention of the Office of Financial Assistance (OFA), that office implemented the OIG’s 

recommendations to ensure that loans are automatically assigned to a servicing team when electronic loan 

files are received. It also substantially reduced the number of loans that needed servicing. 

Hurricane Katrina Fraud Task Force Continues to Fight Gulf Coast Fraud 

The OIG, along with other law enforcement organizations participating in the interagency Hurricane 

Katrina Fraud Task Force, made 45 arrests and obtained 57 indictments and 51 convictions from the task 

force’s inception through September 30, 2008. The OIG anticipates more allegations of fraud and 

potential loss to SBA as repayments for disaster loans come due. The following are examples of OIG 

cases related to the Gulf Coast hurricanes. 

• A certified public accountant (CPA) employed by an unethical businessman knowingly made false 

statements to several Louisiana lenders to influence them to approve four loans totaling 

approximately $2.9 million. The CPA impersonated an SBA employee and falsely represented that 

SBA disaster loans had been approved and committed for local businesses. Due to investigative 

efforts, only $5,000 of the $2.9 million was disbursed. The CPA was sentenced to 10 years in prison, 

5 years supervised release, and restitution of over $505,000 for making false statements relating to 

loan and credit applications. The businessman pled guilty to making false statements and is awaiting 

sentencing. This case was referred by the Department of Homeland Security (DHS). The OIG 

conducted this investigation jointly with the U.S. Secret Service (USSS). 

• A Louisiana pastor was sentenced to 17 months in prison, 36 months of supervised release, nearly 

$35,000 in restitution, and a $100 special assessment after having pled guilty to mail fraud. He 

misused his position to apply for a $252,000 SBA physical disaster loan and a $35,000 Bush-Clinton 

Katrina Fund grant to supposedly rebuild his church. The pastor caused SBA to wire transfer 

5 
Significant OIG Activities

$10,000, which he intended to use for his own benefit, to a bank account that he controlled. He also 

caused the $35,000 grant to be sent to his home address and used for his personal benefit. The pastor 

further admitted receiving $13,000 in furniture company kickbacks for falsely claiming that the 

company delivered items to the church. This investigation is being conducted jointly with the Federal 

Bureau of Investigation (FBI). 

• The operator of a Texas seafood company was indicted for making false statements in connection 

with his SBA disaster loan application, in which he claimed that the business had a Louisiana location 

that sustained an estimated $2.8 million in Hurricane Rita-related damage. He allegedly submitted a 

false commercial lease agreement to show that the seafood company occupied real property in 

Louisiana during the hurricane. The man also allegedly submitted an invoice to SBA that falsely 

showed more than $1.9 million in hurricane-related repair expenses. The OIG conducted this 

investigation jointly with the Bureau of Alcohol, Tobacco, and Firearms and the DHS OIG. 

• A Mississippi man allegedly made false statements on his claims for Hurricane Katrina disaster 

benefits by indicating that his primary residence was in an area affected by the storm when it was not. 

He received over $179,000 from SBA and over $14,000 from the Federal Emergency Management 

Agency (FEMA). He also applied for a Mississippi Development Authority Homeowner Assistance 

Program Grant, which was suspended pending the investigation’s results. The man has been indicted 

for making false claims and false statements, theft of government funds, fraud involving an SBA 

loan, wire fraud, and mail fraud. The OIG conducted this investigation jointly with the DHS OIG, the 

Department of Housing and Urban Development (HUD) OIG, and the Mississippi State Auditor’s 

Office. 

Legal Actions Continue in the Aftermath of 9/11 Disaster Loan Fraud 

SBA disbursed over $1.1 billion in disaster assistance loans in response to the terrorist attacks on 

September 11, 2001. As with other disasters, the need to disburse funds quickly created opportunities for 

dishonest applicants to commit fraud. The OIG has investigated and obtained prosecution of numerous 

parties who took advantage of this national tragedy. For example, the former president and owner of a 

firm that sold Hyundai motor vehicles and parts to the United Nations was sentenced to 12 months and 

1 day in prison, 60 months probation, and nearly $647,000 in restitution to SBA. In the wake of the 

terrorist attacks, he applied for and received an SBA disaster loan of nearly $647,000 for his firm. He 

then received a series of two-party checks from SBA that were to be used to pay off creditors. Instead, he 

forged endorsements on several checks and deposited them into the firm’s account. He also conspired 

with a Florida man to obstruct the investigation. The Florida man pled guilty and is awaiting sentencing. 

The OIG investigated this case jointly with the U.S. Postal Inspection Service (USPIS) based on a referral 

by former employees of the firm. 

6 
Significant OIG Activities

Small Business Access to Capital

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

more than $87 billion. The Section 7(a) Loan Guaranty program is SBA’s largest lending program and 

the principal vehicle for providing small businesses with access to credit that cannot be obtained 

elsewhere. This program is vulnerable to fraud and unnecessary losses because it relies on numerous 

third parties (e.g., borrowers, loan agents, and lenders) to complete loan transactions. Approximately 

80 percent of loans guaranteed annually by SBA are made by lenders to whom SBA has delegated loanmaking authority. Additionally, SBA has centralized many loan functions and reduced the number of 

staff performing these functions. Since 2001, SBA’s regular staffing has decreased by about 25 percent 

while the Agency’s total loan portfolio has increased by almost 75 percent. As SBA has placed more 

responsibility and independence on its lenders, the need for OIG oversight has increased significantly. 

Recent audit reports, including one issued during this reporting period that is discussed below, have 

identified weaknesses in SBA’s lender oversight efforts. 

Another financial assistance program, 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-guaranteed funding. In addition, 

small and emerging contractors who cannot obtain surety bonds through regular commercial channels can 

apply for SBA bonding assistance under the Surety Bond Guarantee program. 

Legal Actions Continue to Result from Ongoing Investigation 

In 2007, SBA OIG and USSS agents arrested 18 individuals for their involvement in a scheme in which a 

lender’s former executive vice president and others 

conspired to fraudulently qualify loan applicants for 

SBA-guaranteed loans across several Midwestern 

states. This investigation has gone on to identify 

91 fraudulent loans totaling about $85 million and, 

thus far, has resulted in the indictment of 

45 individuals. Four of those indicted are now international fugitives. Because of this investigation, the 

lender agreed to repay SBA for some loan guaranties 

and cancel other guaranties. SBA recoveries from the 

lender, cost savings from the withdrawal of guaranties, 

and court-ordered restitution total approximately $22.8 

million thus far. The investigation is continuing, with more indictments expected. The following cases 

are part of this ongoing joint investigation with the USSS. 

This investigation has gone on to identify 91 

fraudulent loans totaling about $85 million 

and, thus far, has resulted in the indictment of 

45 individuals. 

...the lender agreed to repay SBA for some 

loan guaranties and cancel other guaranties.

• The former president of a Detroit, Michigan, gas station was sentenced to 36 months probation and 

ordered to pay—along with his brother, the former president of another gas station—$958,000 in 

restitution to an SBA lender. The investigation found that they conspired with others to fraudulently 

qualify the second brother for a $990,000 SBA-guaranteed loan used to purchase a gas station and 

convenience store from the first brother. The object was to refinance delinquent debts owed by the 

first brother’s financially-troubled gas station by using proceeds from the loan made to the “straw 

buyer” (i.e., the second brother’s gas station). The conspiracy used a false sales agreement, an 

inflated purchase price, and a bogus down payment. 

7 
Significant OIG Activities

• Two individuals were indicted for conspiracy, conspiracy to commit wire fraud, false statements, and 

aiding and abetting on twelve SBA loans. The first individual allegedly acted as a broker and 

recruited “straw buyers” to falsely obtain SBA-guaranteed loans. The second, an escrow agent who 

later became the owner of a title company, allegedly conducted the loan closings and falsified 

information on settlement statements regarding loan disbursements and equity injections. The 

fraudulent loan proceeds were then wire transferred from the lender’s account to the title company’s 

account. 

Dishonest Loan Agents Continue to Harm SBA Loan Programs 

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

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

versa). Reputable loan agents connect small businesses to 

sources of capital, but dishonest agents have perpetrated 

frauds involving hundreds of millions of dollars in loans. 

Loans associated with such fraud often default for 

nonpayment. The OIG has numerous criminal investigations of suspected loan agent fraud underway 

throughout the country. 

In one case, a suspended New Jersey attorney acting as a loan broker helped a businessman obtain an 

SBA-guaranteed loan to supposedly purchase a supermarket owned by the businessman’s mother. The 

attorney knew that there was no sale of a business, but in exchange for a ten percent fee he submitted 

false documents to obtain the loan. He and the businessman provided forged documents to pledge 

collateral not belonging to the businessman and falsified a $250,000 cash injection. The suspended 

attorney also directed an accounting business owner to 

prepare a fraudulent tax record to make the 

businessman’s company appear stronger than it 

actually was. He illegally received about $80,000 of 

his fee from the loan proceeds and laundered that fee 

by having it sent to the accounting business owner. The suspended attorney was sentenced to 30 months 

in jail, 3 years supervised release, and restitution of $993,000 (to be paid jointly with the businessman 

who was previously sentenced). The owner of the accounting business was sentenced to 3 years 

probation, a $3,000 fine, and $40,000 in restitution. The OIG conducted this investigation jointly with the 

FBI. 

...dishonest loan agents have perpetrated 

frauds involving hundreds of millions of 

dollars in loans.

...the attorney conspired with the borrower to 

submit forged documents, and false cash 

injection documentation.

Various Tactics Are Used to Defraud SBA’s Loan Guaranty Programs 

Criminals use a wide variety of methods to fraudulently obtain—or induce others to obtain—SBAguaranteed loans. These methods include: submitting fraudulent documents; making fictitious asset 

claims; manipulating property values; and failing to disclose debts, prior criminal records, and other 

SBA-backed loans. Borrowers may also use loan proceeds contrary to the terms of the loans. These 

activities increase the likelihood of financial loss to SBA and its lenders. 

The following examples demonstrate how people fraudulently acquire SBA loans. 

• Two individuals from the Washington, DC area committed extensive mortgage fraud involving two 

residential properties, resulting in losses to lending institutions of over $3.6 million. The properties 

8 
Significant OIG Activities

were sold or refinanced despite liens and judgments, including a judgment related to a defaulted SBA 

loan. Whenever a property was sold or refinanced, they created bogus documents to dismiss the 

encumbrances and then diverted the loan proceeds for personal use. One of the individuals also made 

a false statement under oath in a 

bankruptcy proceeding. During this 

reporting period, he was sentenced to 70 

months imprisonment, 36 months 

supervised release, and nearly 

$3,926,000 in joint and several restitution, after previously pleading guilty to mail fraud and making 

false oaths. The other individual was sentenced to 16 months in prison, 3 years supervised release, 

and is jointly and severally responsible for up to $650,614 of the restitution ordered. The OIG 

conducted this investigation jointly with the FBI, the USPIS, and the USSS. 

Two individuals committed extensive mortgage fraud 

involving two residential properties, resulting in 

losses to lending institutions of over $3.6 million. 

• A mother and her son conspired to defraud two banks and SBA of $550,000 by submitting false 

purchase orders for supplies, equipment, and other manufacturing expenses from “shell” businesses 

they created prior to submitting SBA loan applications. After the loans were approved, the banks 

issued disbursement checks payable to the shell vendors. The mother and son deposited the funds 

into bank accounts opened for the shell businesses and funneled the money to an offshore bank 

account in St. Kitts. The U.S. Attorney’s Office and the U.S. Department of Justice (DOJ) froze a 

bank account in 2002, and during this reporting period the St. Kitts government wired over $149,000 

from the account to the U.S. Treasury Forfeiture Fund. The mother and son fled to Greece to avoid 

prosecution and remain fugitives. The OIG conducted this investigation jointly with the Internal 

Revenue Service (IRS) Criminal Investigation Division (CID). 

• A computer services company and a Montana bank attempted to circumvent SBA regulations 

regarding refinancing bank debt. Originally, SBA’s Montana District Office declined the company’s 

request through the bank for a $1.8 million line of credit because existing bank debt cannot be 

refinanced with an SBA loan. However, the bank then submitted a new application to an SBA loan 

processing center requesting a $1.8 million loan to purchase equipment and software for the 

company. The bank did not reveal the earlier loan request, and the new loan was approved. 

Moreover, the bank and the company submitted a false settlement sheet showing that loan proceeds 

were used for equipment and software when they were actually used to repay company debts owed to 

the bank. The bank agreed to settle the U.S. Attorney’s civil litigation and to waive any claim to 

SBA’s $999,900 loan guaranty and the guaranty loan fee rebate of nearly $35,000. The bank was 

also required to pay over $15,000 to the DOJ. 

False Claims of Citizenship Continue in SBA Loan Programs 

A number of dishonest loan applicants, sometimes with the help of corrupt loan agents, falsely claim U.S. 

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

dollars cumulatively at risk. Even small loans to such borrowers can deprive honest applicants (i.e., 

citizens as well as non-citizens legally residing in the U.S.) access to SBA-backed credit. 

For example, a Chicago-area business owner submitted a Section 504 loan application for $594,000 for 

his interstate trucking firm. Although he claimed to be a U.S. citizen, an investigation revealed that he 

was in the U.S. illegally. When SBA requested evidence of naturalization, he presented a counterfeit 

certificate of naturalization and offered a $5,000 cash bribe to an SBA official. During this reporting 

9 
Significant OIG Activities

period, he was sentenced to 24 months in prison, 2 years 

supervised release, and a $7,500 fine pursuant to a previous 

plea agreement. The OIG conducted this joint investigation with DHS/Immigration and Customs 

Enforcement (ICE). The SBA Illinois District Office provided significant cooperation. 

...he presented a counterfeit certificate 

of naturalization and offered a $5,000 

cash bribe to an SBA official.

Identity Theft Involving Foreign Nationals 

One of the fastest-growing crimes is identity theft for monetary gain. The following examples show how 

SBA loan programs are being exploited by identity thieves from other countries. 

• Three foreign nationals were indicted for bank fraud, and two of them were also indicted for 

conspiracy to commit bank fraud. They allegedly belonged to an organized group that obtained credit 

cards and loans by using false identities, documents, and businesses. Thirty SBAExpress loans, 

totaling approximately $1.2 million, have been identified as having been obtained by this group, and a 

large percentage of these loans are in default. The OIG conducted this investigation jointly with the 

USPIS. 

• A man was indicted in California for bank fraud, mail fraud, aggravated identity theft, and forgery 

and false use of a passport. One count of criminal forfeiture was also filed, thus making any property 

derived from his scheme subject to forfeiture upon conviction. The individual was allegedly involved 

in a sophisticated foreign identity theft fraud ring in which he served as an interpreter. He allegedly 

used a forged U.S. passport to fraudulently obtain a SBAExpress loan and a home equity line of 

credit, resulting in losses of approximately $1.5 million. The OIG conducted this investigation jointly 

with the FBI, ICE, USPIS, and the Social Security Administration OIG. 

Borrowers Continue to Use False Equity Injection 

Equity (or capital) injection is the borrower’s own financial stake in a business. If a borrower personally 

has something at risk, the business is less likely to default on a loan. Accordingly, SBA requires 

borrowers to inject money into projects financed by guaranteed loans. However, to circumvent this 

requirement, borrowers continue to falsify the amount or source of such injections, as demonstrated by 

the following examples. 

• The owner of a now-defunct California airplane parts business pled guilty to wire fraud in connection 

with false statements he made to a lender and SBA in order to obtain a $999,000 SBA-guaranteed 

loan to purchase a company from a second man. The owner failed to disclose that he had borrowed 

the $125,000 cash injection from an associate of the second man. The loan defaulted and SBA 

purchased its guaranty at a cost of over $708,000. This case was based on a referral by the U.S. 

Attorney’s Office in Boise, Idaho. The OIG conducted this investigation jointly with the FBI. 

• A woman conspired with others to defraud SBA by: (1) falsely claiming to be the 100 percent owner 

of a business; (2) overstating her financial status; (3) alleging that the source of a $250,000 equity 

injection was a gift from an uncle; (4) making misrepresentations on the management resume; and 

(5) obtaining an $825,000 SBA-guaranteed loan—in her name only— for her brother-in-law, who 

was in fact the owner and intended operator of the business. She was sentenced in Michigan to 

3 months incarceration and a $5,000 fine. The OIG conducted this investigation jointly with the 

USSS. 

10 
Significant OIG Activities

Fraud Against Surety Bond Program Ends in Guilty Plea 

The president of a now defunct Washington State construction company pled guilty to making false 

statements on a loan application and to SBA. The president: falsely stated that he had paid subcontractors 

and suppliers; falsely claimed to the surety company that his firm was out of funds when he really had 

diverted approximately $87,000 to personal use; made false statements about a mortgage loan; and falsely 

stated to SBA that he had not defaulted on prior bonds. The firm had obtained SBA-guaranteed surety 

bonds to perform public works contracts and SBA suffered a loss of over $500,000 due to the firm’s 

defaults. This matter was referred to the OIG by the National Insurance Crime Bureau (NICB). The OIG 

conducted this investigation jointly with the FBI and the NICB. 

Oversight of SBA Supervised Lenders 

 During this reporting period, the OIG issued a report on a review of four other SBA-supervised lenders. 

Although SBA determined the lenders posed a higher risk of financial loss than other 7(a) lenders, it did 

not take sufficient enforcement actions to mitigate this increased risk. Specifically, the lenders were 

consistently rated as high-risk, had actual loan purchase rates exceeding those of other large lenders, were 

reported as having recurring performance and compliance issues during onsite examinations, and, in the 

case of at least two of the lenders, consistently did not meet performance benchmarks established by 

SBA. As of September 2007, SBA had incurred a cumulative net loss from the four lenders of $329 

million, and between September 2005 and September 2007 purchased over $239 million in guaranties 

from the lenders. 

The OIG determined that SBA continued to renew and expand delegated authorities, allowing the lenders 

to make loans without prior SBA approval. Although SBA met with lender management and reduced 

delegated lending authority periods when renewals 

were granted, it did not take progressively more 

stringent enforcement actions when lender 

performance did not improve or, in some cases, 

deteriorated. SBA did not take adequate risk mitigation measures because: (1) there was a conflict 

between SBA’s lender advocacy and oversight roles, which impacted SBA’s treatment of lenders; (2) 

SBA lacked clear policies describing the circumstances under which enforcement actions would be taken; 

and (3) loan production goals made it difficult to maintain a proper balance between SBA’s lender 

advocacy and oversight roles. 

...SBA continued to renew and expand delegated 

authorities, allowing the lenders to make loans 

without prior SBA approval.

The OIG also identified weaknesses that further impacted SBA’s supervision of the lenders, including 

untimely reviews of purchased loans at the National Guaranty Purchase Center (NGPC) in Herndon, 

Virginia, poorly timed and scoped on-site examinations, inconsistent implementation of corrective action 

plans, and SBA’s inability to notify lenders of high risk loans identified by SBA’s Loan and Lender 

Monitoring System (LLMS) for remediation. 

To strengthen SBA’s oversight of its supervised lenders, the OIG made seven recommendations that 

addressed establishing oversight and enforcement criteria and risk mitigation goals, improving onsite 

examinations, sharing of high risk loan information with lenders, and staffing of the NGPC. 

11 
Significant OIG Activities

Six SBA Guaranteed Loans Improperly Charged Off 

As part of an ongoing review of loan liquidation activities at the NGPC, the OIG identified six loans that 

were improperly charged off when full denial of the guaranties should have been pursued due to material 

lender non-compliance with SBA requirements. The deficiencies included: (1) non-disclosure of 

contaminated property; (2) inadequate evidence of equity injection; (3) inadequate evidence of IRS tax 

verifications; (4) inadequate appraisals; (5) questionable repayment ability; (6) inappropriate broker fees; 

(7) unreported adverse events; (8) unsecured collateral; and (9) unapproved and insufficient offers in 

compromise. While all but one of the six loans received a complete purchase review and all six received 

a comprehensive charge-off review, the deficiencies were not identified or adequately resolved by SBA. 

As a result, the OIG recommended that approximately $1.2 million of improper payments be recovered 

from the lenders. 

12 
Significant OIG Activities

Small Business Development, Contracting, Education, and Training

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

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

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

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

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

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

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

contracts awarded each fiscal year. 

To help small disadvantaged businesses gain access to Federal and private procurement markets, SBA’s 

Section 8(a) Business Development program offers a broad range of business development support, such 

as mentoring, procurement assistance, business counseling, training, financial assistance, surety bonding 

and other management and technical assistance. SBA also provides assistance to existing and prospective 

small businesses through a variety of counseling and training services offered by partner organizations. 

Among these are Small Business Development Centers (SBDCs), the Service Corps of Retired 

Executives (SCORE), and Women’s Business Centers (WBCs). Most of these are grant programs that 

require effective and efficient management, outreach, and service delivery. 

Improper Acceptance of Company Into the 8(a) Program 

 

An OIG review of a company’s acceptance into the 8(a) program and a subsequent contract award to the 

company for training services found that SBA granted 8(a) 

certification without ensuring that the company met all of 

the Agency’s requirements. With approximately 4 months 

in business, the company had the least amount of 

experience of any of the firms accepted into the 8(a) 

program during the 2-year timeframe reviewed. In 

addition, the company’s only completed contract was just 11 days in duration and outside the primary 

industry for which it was approved. 

...SBA granted 8(a) certification without 

ensuring that the company met all of the 

Agency’s requirements for acceptance into 

the 8(a) program. 

In making its decision to accept the company into the 8(a) program, SBA relied heavily on contracts the 

company claimed to have with the U.S. Department of Agriculture (USDA). A more thorough 

examination would have disclosed that the company did not have the claimed contracts or the related 

income. The company’s owner also falsely certified that he was not a Federal employee. However, a 

review of USDA personnel records showed that the owner was a Federal employee at the time of 

application. Records of bank deposits submitted to evidence the contracts with USDA were redacted by 

the owner to disguise that the deposits were for his Federal salary. 

Finally, SBA awarded the company a sole source contract without assessing its ability to comply with 

SBA regulations limiting subcontracting by 8(a) firms. At the time of award, the company only had two 

employees and informed the Agency that it planned to rely heavily on the subcontractors who had 

provided training under the previous contract. 

The OIG recommended that SBA: (1) immediately suspend the company from the 8(a) program and 

initiate termination proceedings; (2) initiate proceedings to debar the company; (3) initiate termination 

13 
Significant OIG Activities

proceedings on the company training contract as soon as practicable; (4) establish additional guidelines on 

when it is appropriate to waive the 2-years in business rule, and strengthen controls for ensuring that 

applicant firms granted 8(a) certification have adequate records of performance to succeed in the 

program; (5) take appropriate action to address the breach of access controls over the 8(a) and SDB 

Certification System committed by the San Francisco Division of Program Certification and Eligibility, 

and reinforce the importance of adhering to the Agency’s policy on maintaining password integrity; 

(6) review a sample of other 8(a) certifications made by the San Francisco Division of Program 

Certification and Eligibility since June 2006, with a focus on those that involved a waiver of the 2-years 

in business rule, to ensure that they were properly made; and (7) require an assessment of contractor 

ability to comply with subcontracting limitations at time of contract award, and require sufficient labor 

cost detail be obtained to properly evaluate continued compliance. 

As a result of this audit, the SBA suspended the company from the 8(a) program and initiated termination 

proceedings. The Agency is also taking steps to address the remainder of the OIG’s recommendations. 

Review of Company’s Compliance with Small Business Laws 

In response to a request from the House Committee on Oversight and Government Reform, which was 

referred to the OIG by the Agency, the OIG conducted a 

review to determine whether a company that was 

providing security services for various agencies in Iraq 

and its affiliated companies complied with Federal small 

business laws. The review found that from FY 2005 to 

FY 2007, the company or an affiliate thereof obtained 39 

contracts that were set aside for small businesses even 

though the bidder may not have qualified as a small business under the contracts. The SBA OIG referred 

these contracts to the OIGs at the Departments of Defense (DoD) and Veterans Affairs (VA) to determine 

whether the contracts were awarded based upon misrepresentations. 

...from FY 2005 to FY 2007, the company or

an affiliate obtained 39 contracts that were 

set aside for small businesses even though 

the bidder may not have qualified as a small

business under the contract.

A review of statements made by an affiliate of the company to SBA for a 2006 size determination raised 

questions about SBA’s conclusion that the affiliate was a small business. The key issue was whether 

personnel hired by the company to provide security services for various agencies in Iraq and elsewhere 

were employees of the company (which would have meant that the protested firm was not a small 

business) or independent contractors. The OIG found that SBA: (1) did not adequately explain its reasons 

for concluding that the security personnel on the contract were independent contractors; (2) did not follow 

up on or attempt to reconcile conflicting information in its files that the total number of employees—even 

excluding the security personnel hired under federal contracts—exceeded the applicable size standard; 

(3) apparently did not consider certain contractual terms that appear to be inconsistent with its conclusion 

that the company had little knowledge of the activities of the security personnel performing the contract 

and exercised little supervision over these personnel once they were deployed; and (4) did not appear to 

have considered information that the company was the employer of the security personnel for purposes of 

the Defense Base Act. As data made it appear likely that the company and its affiliates would bid on 

future small business set-aside contracts, the OIG noted that SBA may want to examine its size decision 

to confirm whether it made the proper finding and determine whether it is appropriate for affiliates to 

continue receiving small business set aside contracts. However, SBA has taken no action in response to 

this report. 

14 
Significant OIG Activities

Non-Native Managers Secured Millions of Dollars from 8(a) Firms Owned by Alaska Native 

Corporations through Unapproved Agreements

An OIG audit identified two Alaska Native Corporation (ANC)-owned 8(a) participants that repeatedly 

violated the terms and conditions of their Participation Agreements with SBA by failing to obtain 

approval for management and other agreements that 

eventually enriched their non-native managers. The nonAlaska native managers were able to secure over 

$23 million in 8(a) contract revenues through these 

agreements over a 3-year period. One ANC also 

misrepresented its ownership structure and knowingly provided false information to SBA. The other 

repeatedly failed to comply with SBA’s requests for full disclosure of its business structure. 

...non-Alaska native managers were able 

to secure over $23 million in 8(a) 

contract revenues... 

Violating any one clause of the 8(a) Participation Agreement, such as failing to obtain pre-approval of 

business agreements or submitting false information, is cause for termination from the 8(a) program. 

Because the two ANC-owned firms repeatedly violated their Participation Agreements, the OIG 

recommended that SBA immediately suspend them from 

the 8(a) program and initiate termination proceedings. The 

OIG also recommended that SBA establish additional 

procedures to require disclosure of business agreements in 

annual updates and closer review of participant financial 

statements to identify relationships that could affect participant size and eligibility. Finally, the OIG 

recommended that SBA review other 8(a) firms owned by the two ANC’s for compliance and affiliation 

issues. As a result of the audit, the Agency has initiated action to suspend and terminate the two ANCowned firms from the 8(a) program. 

...the Agency has initiated action to 

suspend and terminate the two ANC-owned

firms from the 8(a) program.

Section 8(a) Program Fraud Results in Major Penalties 

Six people were sentenced in Texas after pleading guilty to bribery, kickbacks, and disclosure of bid 

information. The six were involved in a scheme to ensure that a certified 8(a) firm located in San Antonio 

received numerous multi-million dollar DoD contracts. Those sentenced included a coordinator/project 

officer at the military base who received 7 years imprisonment and 3 years supervised release, a civilian 

contracting officer who received 7 years imprisonment and 3 years supervised release, and the son of the 

civilian contracting officer who received 5 years and 6 months imprisonment and 3 years supervised 

release. In addition, the owner of the 8(a) firm was sentenced to 5 years and 2 months imprisonment and 

3 years supervised release, and a contractor consultant employed by the 8(a) firm was sentenced to 

7 years imprisonment and 3 years supervised release. These five individuals were ordered to pay 

restitution of $2.7 million jointly and severally. A contract employee received 5 years imprisonment and 

3 years supervised release and is jointly and severally liable for up to $265,560 of the restitution ordered 

to be paid by the other 5 defendants. This case resulted from an FBI task force’s investigation of 

8(a) firms that act as “pass-through” companies for other firms that actually do the work on contracts. 

The SBA OIG conducted this investigation jointly with the FBI, IRS, the U.S. Army CID, General 

Services Administration OIG, Department of Interior OIG, and the Defense Criminal Investigative 

Service (DCIS). 

15 
Significant OIG Activities

Company Owner and Co-Conspirators Defraud 8(a) Program 

To maintain his company’s 8(a) eligibility, the owner of a Maryland environmental services company 

failed to disclose that non-disadvantaged individuals were providing critical financial support and control 

over the company. The company participated in the 

8(a) program from April 1999 until the summer of 2007, 

based on the owner’s qualification as a disadvantaged 

individual. The non-disadvantaged individuals received 

approximately $900,000 more in bonuses and salaries 

than the company’s owner between 2002 and 2004. The owner pled guilty to conspiracy to defraud SBA, 

and two non-disadvantaged co-conspirators pled guilty to the same charge. One of the co-conspirators 

also pled guilty to a money laundering conspiracy. Both non-disadvantaged individuals conspired to hide 

their actual financial support, control, and ownership of this company as well as one other company. The 

OIG conducted this investigation jointly with the Environmental Protection Agency CID, the Naval 

Criminal Investigative Service, the FBI, and the IRS CID. 

...the Agency has initiated action to suspend 

and terminate the two ANC-owned firms 

from the 8(a) program. 

HUBZone Business Consultant Convicted 

A business consultant to a Kentucky architectural services company was found guilty of making false 

statements to SBA. In order to influence SBA to certify the firm as a HUBZone business, the consultant 

submitted, on behalf of the company, two HUBZone 

applications with false statements about the company’s 

address and the number of employees living in the 

HUBZone. The company subsequently received a 

HUBZone set-aside contract for over $1 million for 

construction of a courthouse. The OIG conducted this 

investigation jointly with the DCIS. 

...the consultant submitted two HUBZone 

applications with false statements about the 

company’s address and the number of

employees living in the HUBZone...

Legislation Requires Approval of SBDC Surveys 

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

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

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

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

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

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

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

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

OIG approval during this reporting period. 

16 
Significant OIG Activities

...SBA was unable to replace the system prior to 

the expiration of the mainframe contract in 

February 2007, causing it to renew costly

contracts for mainframe and application support

services for another 5 years.

Agency Management

Planning for the Loan Management and Accounting System Modernization and Development 

Effort

The OIG reviewed SBA’s planning for its Planning for the Loan Management and Accounting System 

(LMAS) modernization and development effort. This effort was initiated in November 2005 to 

modernize SBA’s mainframe-based Loan 

Accounting System (LAS) and make it independent 

from the mainframe, which is inflexible, presents 

security risks, and is based on obsolete technology. 

The review disclosed that, despite the urgency of 

addressing LAS security vulnerabilities, SBA was 

unable to replace the system prior to the expiration 

of the mainframe contract in February 2007, causing it to renew costly contracts for mainframe and 

application support services for another 5 years. These services are expected to cost approximately 

$6 million per year. Also, by delaying its mainframe migration, SBA is not adhering to Federal guidance 

that requires timely remediation of information security risks. The OIG also found that SBA lacked both 

an enterprise-wide and project-level quality assurance function to ensure that LMAS adheres to quality 

standards, and an approved quality plan for the project to establish the standards and procedures to ensure 

adherence to requirements of the Office of the Chief Information Officer (CIO). 

All But One Overdue Management Decisions Were Addressed 

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

recommendations within 6 months of report issuance. Agency officials may agree, disagree, or propose 

alternative actions to the recommendations. In an attempt to reduce the number of overdue management 

decisions, the OIG revised its reporting process by requesting that the Agency transmit decisions on audit 

recommendations at the same time that it provides management comments to the draft report. During this 

reporting period, management decisions were made for 35, or 81 percent, of the 43 recommendations that 

were issued. In addition, only one overdue management decision from prior reporting periods remained 

at year end. 

SBA Gift Authority 

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

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

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

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

during this semiannual reporting period. 

Cosponsorships and Fee-Based Administration Sponsored Events 

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

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

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

17 
Significant OIG Activities

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

between April 1, 2008 and September 30, 2008, there were 62 cosponsored events. 

18 
Significant OIG Activities

Other Significant OIG Activities 

Character Screening Reduces Potential Program Fraud 

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

certifications, surety bond guarantees, SBICs, and certified development companies must meet Agency 

character standards. To help ensure that this occurs, the OIG’s Office of Security Operations utilizes 

name checks and, where appropriate, fingerprint checks to determine criminal background information. 

During this reporting period, the OIG processed 1,372 external name check requests for these programs. 

As a result of OIG referrals during this reporting 

period, SBA business loan program managers declined 

48 applications totaling nearly $19.5 million, and 

disaster loan program officials declined 9 applications 

totaling almost $1.9 million. 

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

adjudication. The referrals are based on data from the OIG’s on-line connection with the FBI. As a result 

of OIG referrals during this reporting period, 

SBA business loan program managers 

declined 48 applications totaling nearly 

$19.5 million, and disaster loan program 

officials declined 9 applications totaling nearly 

$1.9 million. In addition the Section 8(a) 

program declined ten applications for admission and the Surety Bond Guaranty program declined one 

application for admission. 

Also during this reporting period, the OIG also initiated 158 background investigations and issued 

34 security clearances for Agency employees and contractors. In addition, the OIG adjudicated 

108 background investigative reports and coordinated with the ODA to adjudicate 

49 derogatory background investigation reports. Finally, the OIG processed 1,001 internal name check 

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

disaster assistance new hires. 

OIG Promotes Debarment and Administrative Enforcement Actions 

During this reporting period, the OIG

submitted 12 debarment

recommendations to the Agency.

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

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

exclude them from receiving government contracts and other 

Federal benefits. The OIG regularly identifies candidates for 

debarment, and submits detailed recommendations with 

supporting documents to facilitate the efforts of SBA 

debarment officials. During this reporting period, the OIG submitted 12 debarment recommendations to 

the Agency. Debarment statistics for the reporting period are in the Statistical Highlights section later in 

this Report. 

Recently, the OIG has made a number of recommendations for debarment based upon fraudulent conduct 

in SBA business loan programs. As part of a long-term OIG investigation, numerous individuals have 

been identified as submitting falsified proof of equity injections, making false claims of U.S. citizenship, 

and submitting false financial information in order to obtain SBA-guaranteed loans. As of the close of the 

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

19 
Significant OIG Activities

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

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

investigations have identified loan agent fraud involving hundreds of millions of dollars of SBA loans. 

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

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

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

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

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

for these types of administrative enforcement actions. 

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

As part of its oversight of Agency programs and operations, the OIG reviews and provides comments on a 

large number of SBA-proposed regulations, agency operating procedures and notices, public-use forms, 

agency reorganizations, and other initiatives to determine whether the Agency is implementing adequate 

controls to limit waste, fraud, abuse and/or inefficiencies. Frequently, the OIG identifies material 

weaknesses and works with the Agency to make revisions that promote greater efficiency and 

effectiveness in the proposed action. During the reporting period, the OIG reviewed 67 proposed actions 

and submitted comments on 31 of these initiatives. The OIG also provided comments on 6 legislative 

proposals. 

...the OIG identified significant concerns and, through 

Agency adoption of OIG recommendations, prompted

more robust controls in and enhancements of a wide 

variety of Agency directives.

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

OIG recommendations, prompted more robust controls in and enhancements to a wide variety of agency 

directives. For example, the OIG reviewed and commented on material weaknesses in proposed 

regulatory changes to the HUBZone, SDB, and 8(a) Business Development programs. The OIG 

comments focused on improving regulatory controls over these programs to promote accountability 

among, and prevent fraud and abuse by, 

program participants, and to establish clearer 

eligibility requirements. As another example, 

the OIG provided extensive comments to help 

improve noted deficiencies with various 

regulatory proposals that are part of the 

Agency’s wholesale revision of its size standards. Additionally, the OIG worked with the Office of 

Capital Access on a proposal to revise SBA’s rural lender pilot initiative to promote underwriting based 

upon the borrower’s ability to repay the loans, rather than just on credit scores. As a final example, the 

OIG worked extensively with SBA’s ODA and Business Development Office on the development of 

electronic application systems to see that effective controls were implemented to limit applicant fraud. 

OIG Fraud Awareness Briefings 

During this reporting period, the OIG conducted seven fraud awareness presentations for approximately 

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

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

contracting, and surety bond programs. The OIG also gave a presentation on fraud in the small and 

disadvantaged contracting programs at the DOJ National Procurement Fraud Conference in Richmond, 

Virginia. 

20 
Significant OIG Activities

OIG Legislative Efforts 

During the reporting period, the OIG was involved in several activities to develop legislative amendments 

to help deter waste, fraud and abuse. The OIG developed a series of legislative proposals to change 

provisions in the Small Business Act to increase penalties for fraud in SBA programs and to help SBA 

develop adequate processes to track loan agent involvement in SBA-guaranteed loans. In addition, the 

OIG participated on the Legislation Committee of the President’s Council on Integrity and Efficiency, 

working with that Committee in discussions with congressional staff-members on legislation affecting the 

IG community, and on the Legislation Committee of the DOJ National Procurement Fraud Task Force, 

working on legislative proposals to enhance the investigation and prosecution of procurement fraud. On 

the latter Committee, the OIG was instrumental in developing proposals to enhance pursuit of fraud under 

the Program Fraud Civil Remedies Act, which were included in a white paper that the Committee issued 

in June 2008. 

21 
Statistical Highlights

6-Month Productivity Statistics 

April 1, 2008 through September 30, 2008 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ....................................................................... $21,353,864 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $7,131,300 

C. Loans Not Made as a Result of Name Checks ..................................................................... $21,349,351 

D. Disallowed Costs Agreed to by Management ........................................................................... $373,258 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management ........................................................................................... $77,500,000 

 Total................................................................................................................................... $127,707,773

Efficiency and Effectiveness Activities Related to Audits and Other Reports

A. Reports Issued ........................................................................................................................................ 9 

B. Recommendations Issued ..................................................................................................................... 43 

C. Dollar Value of Costs Questioned.......................................................................................... $1,216,003 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use ............................................................................................................ $79,300,000 

E. Collections as a Result of Questioned Costs ........................................................................................ $0 

Audit and Report Follow-up Activities 

A. Recommendations for which Management Decisions were made 

 During the Reporting Period ................................................................................................................ 72 

B. Disallowed Costs Agreed to by Management ........................................................................... $373,258 

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

 Agreed to by Management ................................................................................................... $77,500,000 

D. Recommendations without a Management Decision at End of Reporting Period ................................. 9 

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

A. Legislation, Regulations, Standard Operating Procedures, and Other Issuances ** Reviewed ........... 73 

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

 frequently involve the implementation of new programs and policies. 

22 
Statistical Highlights

6-Month Productivity Statistics 

April 1, 2008 through September 30, 2008 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases................................................................................................................ 33 

B. Convictions from OIG Cases............................................................................................................... 30 

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

D. Cases Closed......................................................................................................................................... 30 

Investigations Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations .............................................................................................................. $21,353,864 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $7,131,300 

C. Loans Not Approved as a Result of the Name 

 Check Program.................................................................................................................... $21,349,351 

 Total..................................................................................................................................... $49,834,515

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

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

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency .......................................................................................... 12 

B. Debarments Pending at the Agency ....................................................................................................... 1 

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

D. Final Debarments Issued by the Agency .............................................................................................. 11 

E. Proposed Debarments Declined by the Agency ..................................................................................... 2 

OIG Hotline Operation Activities

A. Total Fraud Line Complaints................................................................................................................ 48 

B. Total Complaints Referred to Investigations Division......................................................................... 31 

C. Total Complaints Referred to SBA or Other Federal Investigative Agencies........................................ 8 

D. Total Complaints Referred to Other Entities.......................................................................................... 9 

E. Total Complaints Needing No Action.........................................................................................0 

23 
Statistical Highlights

Full Year Productivity Statistics 

October 1, 2007 through September 30, 2008 

Summary of Office-Wide Dollar Accomplishments Totals 

A. Potential Investigative Recoveries and Fines ....................................................................... $40,119,854 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $9,751,039 

C. Loans Not Made as a Result of Name Checks ..................................................................... $38,121,995 

D. Disallowed Costs Agreed to by Management ........................................................................ $5,424,934 

E. Recommendations that Funds Be Put to Better 

 Use Agreed to by Management ........................................................................................... $77,793,823 

 Total................................................................................................................................... $171,211,645

Efficiency and Effectiveness Activities Related to Audits and Other Reports

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

B. Recommendations Issued ................................................................................................................... 105 

C. Dollar Value of Costs Questioned.......................................................................................... $5,533,003 

D. Dollar Value of Recommendations that Funds 

 Be Put to Better Use .......................................................................................................... $117,000,000 

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

Audit and Report Follow-up Activities 

A. Recommendations for which Management Decisions were made 

 During the Reporting Period .............................................................................................................. 125 

B. Disallowed Costs Agreed to by Management ........................................................................ $5,424,934 

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

 Agreed to by Management ................................................................................................... $77,793,823 

D. Recommendations without a Management Decision at End of Reporting Period ................................. 9 

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

A. Legislation, Regulations, Standard Operating Procedures, and Other Issuances ** Reviewed ......... 140 

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

 frequently involve the implementation of new programs and policies. 

24 
Statistical Highlights

Full Year Productivity Statistics 

October 1, 2007 through September 30, 2008 

Indictments, Convictions, and Case Activity

A. Indictments from OIG Cases................................................................................................................ 76 

B. Convictions from OIG Cases............................................................................................................... 59 

C. Cases Opened ....................................................................................................................................... 80 

D. Cases Closed......................................................................................................................................... 58 

Investigations Recoveries and Management Avoidances

A Potential Recoveries and Fines as a Result of 

 OIG Investigations .............................................................................................................. $40,119,854 

B. Loans/Contracts Not Approved or Canceled as Result of Investigations............................... $9,751,039 

C. Loans Not Approved as a Result of the Name 

 Check Program.................................................................................................................... $38,121,995 

 Total..................................................................................................................................... $87,992,888

SBA Personnel Actions Taken as a Result of Investigations

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

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

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

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

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

Program Actions Taken as a Result of Investigations 

A. Debarments Recommended to the Agency .......................................................................................... 20 

B. Debarments Pending at the Agency ..................................................................................................... 14 

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

D. Final Debarments Issued by the Agency .............................................................................................. 19 

E. Proposed Debarments Declined by the Agency ..................................................................................... 6 

OIG Hotline Operation Activities

A. Total Fraud Line Complaints.............................................................................................................. 133 

B. Total Complaints Referred to Investigations Division......................................................................... 54 

C. Total Complaints Referred to SBA or Other Federal Investigative Agencies...................................... 15 

D. Total Complaints Referred to Other Entities........................................................................................ 31 

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

25 
Appendices

Appendix I 

OIG Reports Issued 

April 1, 2008 through September 30, 2008 

Title Report 

Number 

Issue 

Date 

Questioned 

Costs 

Funds for 

Better Use 

Disaster Loans 

Disaster Loss Verification Process 8-15 06/20/2008 $0 $10,300,000

Audit of the Disaster Loan File Transfer 

and Servicing Delays 8-17 07/18/2008 $0 $0

Early-Defaulted Gulf Coast Disaster 

Hurricane Loans 8-19 09/12/2008 $0 $69,000,000

Program Subtotal 3 $0 $79,300,000

Small Business Access to Capital

Oversight of SBA Supervised Lenders 8-12 05/09/2008 $0 $0

Audit of Six SBA Guarantied Loans 8-18 09/12/2008 $1,216,003 $0

Program Subtotal 2 $1,216,003 $0 

Small Business Development, Contracting, Education, and Training

Acceptance of VBP Group Into the 8(a) 

Program and Subsequent Contract Award 

by SBA 

8-16 07/18/2008 $0 $0

Review of Blackwater Compliance with 

Small Business Laws As Requested by 

Cong. Waxman 

07/25/2008 $0 $0

Non-Native Managers Secured Millions 

of Dollars from 8(a) Firms Owned by 

Alaska Native Corporations through 

Unapproved Agreements that Jeopardized 

the Firms’ Program Eligibility 

8-14 08/07/2008 $0 $0

Program Subtotal 3 $0 $0 

Agency Management

Planning for the Loan Management and 

Accounting System Modernization and 

Development Effort 

8-13 05/14/2008 $0 $0 

Program Subtotal 1 $0 $0 

TOTALS (all programs) 9 $1,216,003 $79,300,000 

26 
Appendices

Appendix II 

OIG Reports with Questioned Costs 

Reports Recommendations* 

Questioned 

Costs** 

Unsupported 

Costs**

A. No management decision 

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

B. Issued during this reporting 

period 

1 6 $1,216,003 $0

Universe from which 

management decisions could be 

made in this reporting period – 

Subtotals 

2 7 $ 1,589,261 $0

C. Management decision(s) made 

during this reporting period 

(i) Disallowed costs 1 1 $373,258 $0

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

D. No management decision 

made by September 30, 2008 1 6 $1,216,003 $0 

* Reports may have more than one recommendation. 

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

 proper but lack documentation. 

Appendix III 

OIG Reports with Recommendations that Funds Be Put to Better Use 

Reports Recommendations* 

Recommended 

Funds For Better 

Use 

A. No management decision made by 

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

B. Issued during this reporting period 2 2 $79,300,000 

Universe from which management 

decisions could be made in this reporting 

period – Subtotals 

4 6 $ 117,000,000 

C. Management decision(s) made during this 

reporting period 

(i) Recommendations agreed to by SBA 

management 

2 4 $77,500,000 

(ii) Recommendations not agreed to by 

SBA management 2 2 $ 39,500,000 

D. No management decision made by 

September 30, 3008 0 0 $0 

* Reports may have more than one recommendation. 

27 
Appendices

Appendix IV 

OIG Reports with Non-Monetary Recommendations 

Reports Recommendations 

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

B. Issued during this reporting period 6 35 

Universe from which management decisions could be made in 

this reporting period – Subtotals 14 68 

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

recommendation in the report) during this reporting period 14 65 

D. No management decision made by September 30, 2008* 3 3 

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

recommendations that fall under both C. & D. 

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

Appendix V 

OIG Reports From Prior Semiannual Periods 

with Overdue* Management Decisions as of September 30, 2008 

Title Report

Number

Date 

Issued Status 

Annual Credit Reviews for Gulf Coast 

Hurricane Disaster Loan 

Disbursements 

8-10 03/28/2008 The Agency has not responded to one 

recommendation in the report. 

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

28 
Appendices

Appendix VI 

OIG Reports Without Final Action as of September 30, 2008 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

0-14 7(a) Service Fee Collections 3/30/00 8/22/00 10/11/08 

2-29 

Audit of Internal Control Over Colson 

Services Corporation’s Contract as Central 

Servicing Agent for SBA’s Certified 

Development Company Loan Program 

9/16/02 12/12/02 8/15/09 

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

for the 7(a) Loan Program 1/30/03 4/15/07 11/30/09 

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

4-16 

SBA’s Administration of the Procurement 

Activities of Asset Sale Due Diligence 

Contracts and Task Orders 

3/17/04 *** ** 

4-34 

Audit of SBA's Process for Complying with 

the Federal Managers' Financial Integrity Act 

Reporting Requirements 

7/29/04 *** ** 

4-40 

Audit of a SBA-guaranteed Loan to Elatec 

Technology Corporation and HK Equipment, 

Inc. 

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

4-41 Audit of Selected SBA General Support 

Systems 9/10/04 11/9/04 9/30/05 

4-42 Audit of SBA's Email System 9/10/04 11/15/04 1/12/07 

4-44 SBA-Sponsored and Cosponsored Events 

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

5-12 Audit of SBA’s Information Systems Controls 

– FY 2004 2/24/05 4/18/05 4/15/05 

5-23 SBA’s Administration of its Special 

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

5-28 Review of SBA Procedures For Cash Gifts 9/30/05 2/23/06 2/29/08 

6-01 Independent Evaluation of SBA’s Information 

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

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

Statements 11/14/05 5/10/06 6/30/07 

6-07 The 1502 Reporting Process 12/9/05 *** 11/14/08 

6-10 FY 2005 Financial Statements Management 

Letter 1/18/06 *** ** 

6-26 Survey of the Quality Assurance Review 

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

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

Statements 11/15/06 1/4/2007 12/31/2007 

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations.

29 
Appendices

Appendix VI 

OIG Reports Without Final Action as of September 30, 2008 

Report 

Number Title Date Issued 

Date of 

Management 

Decision 

Final 

Action 

Target 

Date 

7-08 

Audit of the SBAExpress and Community 

Express Loan Purchase and Liquidations 

Process 

12/29/06 1/11/07 ** 

7-16 Vulnerability Technology Security Assessment 3/6/07 3/7/07 3/30/07 

7-21 SBA’s Use of the Loan and Lender Monitoring 

System 5/2/2007 5/2/07 ** 

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

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

LLC 7/11/07 9/27/07 12/31/2009 

7-29 Quality Assurance Reviews of Loss 

Verification 07/23/07 *** ** 

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

8-06 Audit of SBA's FY 2007 Financial Statements - 

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

8-08 

Audit of UPS Capital Business Capital 

Compliance with Selected 7(a) Lending 

Requirements 

3/21/07 8/1/08 ** 

8-09 Loan Classification and Overpayments of 

Secondary Loans 3/26/08 *** ** 

** Target dates vary with different recommendations. 

*** Management decision dates vary with different recommendations.

30 
Appendices

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2008* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

monitor contractor compliance with the 50 

percent rule when applicable. 

5/12/04 9/1/08 

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

reviewed and documented in the contract 

file for awards of 8(a) and small business 

set-aside contracts and task orders to small 

businesses. 

5/12/04 9/1/08 

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

Management as soon as possible, 

incorporate policies to address the 

outstanding items described above within 6 

months of the issuance of this report. 

5/12/04 9/1/08 

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

supported general support systems and 

major applications, e.g., Egan Mainframe, 

SBA and Corio UNIX, Network and 

Windows 2000; Loan Accounting System 

(LAS), Sybase, Mainframe, Joint 

Accounting and Administration 

Management System (JAAMS) Oracle, and 

related application functions: (1) develop 

and document policies and procedures 

clearly outlining what activities should be 

logged, who should be responsible for 

reviewing logs, what the logs should be 

reviewed for, how often logs should be 

reviewed, and how long logs should be 

retained; (2) assign responsibility within the 

Office of the Chief Information Officer for 

the review of application and general 

support system security logs; and (3) retain 

audit logs for a sufficient period of time (at 

least 90 days). 

4/13/05 4/15/06 

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

** Recommendation does not have a management decision. 

31 
Appendices

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2008* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

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

sampled during the audit were used in 

accordance with the terms of the loan 

authorizations, and take appropriate corrective 

actions. 

1/11/07 5/31/07 

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

SBA rules and regulations and improper 

payments. 

1/11/07 6/30/07 

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

that all the names and identification numbers 

of delinquent borrowers are entered into the 

SBA database and transferred to Treasury. 

10/23/07 12/31/08 

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

or which did not identify all responsible 

parties to ensure that Treasury was sent the 

correct or missing information. 

10/23/07 12/31/07 

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

and to promote consistent and uniform 

enforcement actions by developing standard 

operating procedures to complement revised 

13 CFR that describe circumstances under 

which it will suspend or revoke PLP authority 

or how it will do so. 

9/16/07 12/31/09 

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

entered into E-Application is accurately 

transferred to the Electronic 8(a) Review 

System. 

9/3/08 9/3/09 

8-09 3/23/08 Revise current procedures for classifying 

loans in the Loan Accounting System to 

ensure that loan currency is not solely based 

on the next installment due date. 

9/3/08 9/3/09 

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

** Recommendation does not have a management decision. 

32 
Appendices

Appendix VII 

Summary of Significant Recommendations 

From Prior Semiannual Reporting Periods 

Without Final Action as of September 30, 2008* 

Report 

Number 

Date 

Issued Recommendation 

Date of 

Management 

Decision 

Final Action 

Target Date 

8-09 3/23/08 Ensure that SBA is in compliance with the 

1086 agreement by actively monitoring the 

Fiscal and Transfer Agent’s monthly default 

reports, adhering to all requirements, and 

taking appropriate action on the reported 

loans. 

9/3/08 3/31/09 

8-09 3/23/08 Modify the 1086 agreement to require lenders 

to request guaranty purchase when interest is 

120 days or more days past due and seek 

reimbursement from lenders for interest 

accrued in excess of 120 days on loans SBA 

purchases directly from the secondary market. 

9/3/08 3/31/09 

8-09 3/23/08 Discontinue the practice of including the 

amount of SBA’s ongoing guaranty fees in the 

purchase payment to the Fiscal and Transfer 

Agent. 

9/3/08 3/31/09 

8-10 3/28/08 Require written justification for disaster 

assistance policy that is made outside of the 

Agency’s required policies and procedures 

clearance process. 

** ** 

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

** Recommendation does not have a management decision. 

33 
Appendices

Appendix VIII

Summary of Significant Recommendations 

April 1, 2007 through September 30, 2008 

Report 

Number Title Date Issued Recommendation 

8-12 Oversight of SBA 

Supervised Lenders 5/9/2008 

Establish risk mitigation goals applicable to 

each loan program and the entire lending 

portfolio, and performance measures to 

indicate the progress in achieving the goals. 

8-13 

Planning for the Loan 

Management and 

Accounting System 

Modernization and 

Development Effort 

5/14/2008 

Make cost-effective remediation of mainframe 

vulnerabilities a priority and ensure that 

migration of LAS occurs before the current 

mainframe contract expires in 2012 to reduce 

SBA's mainframe costs and timely mitigate 

associated security risks. 

8-13 

Planning for the Loan 

Management and 

Accounting System 

Modernization and 

Development Effort 

5/14/2008 

Design an implement an Enterprise-wide QA 

function that fully addresses the risk and 

scope of the LMAS project and ensures the 

OCIO can fulfill responsibilities under the 

Clinger-Cohen Act to provide independent 

quality assurance and oversight of 

Information Technology investments. 

8-14 

Non-Native Managers 

Secured Millions of Dollars 

from 8(a) Firms Owned by 

Alaska 

8/7/2008 

Immediately initiate actions to suspend and 

terminate the two participants from the 8(a) 

program based on their repeated noncompliance with their participation 

agreements, and ongoing refusal to provide 

truthful and complete information. 

8-15 The Disaster Loss 

Verification Process 6/20/2008 

Reinforce the requirement for loss verifiers to 

meet applicants at damaged properties, note 

the visit dates in DCMS, and ensure that 

future QARs determine the extent to which 

loss verifiers are making site visits. 

8-15 The Disaster Loss 

Verification Process 6/20/2008 

Ensure that the MEO adheres to monitoring 

requirements specified in the Letter of 

Obligation by finalizing and executing the 

Quality Assurance Surveillance Plan and 

holding formal performance evaluation 

meetings. 

8-15 The Disaster Loss 

Verification Process 6/20/2008 

Issue a notice to loan officers instructing them 

not to assign applications to loss verifiers that 

have been declined during pre-processing of 

the applications. 

34 
Appendices

Appendix VIII

Summary of Significant Recommendations 

April 1, 2007 through September 30, 2008 

Report 

Number Title Date Issued Recommendation 

8-16 

Acceptance of VBP Group 

into the 8(a) Program and 

Subsequent Contract 

Award by SBA 

7/18/2008 

Initiate debarment proceedings for the 

participant under either SBA’s 

nonprocurement debarment and suspension 

procedures or the FAR. If immediate action is 

necessary to protect the Government’s 

interest, impose suspension under those rules. 

8-17 Disaster Loan File Transfer 

and Servicing Delays 

8/17/2008 

Adopt current servicing standards used by the 

El Paso and Birmingham Servicing Centers 

for loans that have not been transferred from 

the PDC. 

8-18 Audit of Six SBA 

Guarantied Loans 9/8/2008 Seek recovery of $339,643, plus interest on the guaranty paid by SBA. 

8-18 Audit of Six SBA 

Guarantied Loans 9/8/2008 Seek recovery of $639,717, plus interest on 

the guaranty paid by SBA. 

8-18 Audit of Six SBA 

Guarantied Loans 9/8/2008 Seek recovery of $133,713, plus interest on 

the guaranty paid by SBA. 

8-18 Audit of Six SBA 

Guarantied Loans 9/8/2008 Seek recovery of $40,000, plus interest Rico on the guaranty paid by SBA 

8-18 Audit of Six SBA 

Guarantied Loans 9/8/2008 Seek recovery of $41,766, plus interest on the guaranty paid by SBA. 

8-18 Audit of Six SBA 

Guarantied Loans 9/8/2008 Seek recovery of $21,164, plus interest on the guaranty paid by SBA. 

8-19 Early-Defaulted Gulf Coast 

Disaster Hurricane Loans 9/12/2008 

Develop an enhanced training program for all 

loan officers and supervisory loan officers that 

emphasizes how to properly evaluate 

applicant repayment ability and 

creditworthiness. 

35 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Emerging 200 

Small Business 

Program 

03/2008 11/2008 Boston, MA Massachusetts District Office 

Emerging 200 

Small Business 

Program 

04/2008 12/2008 Des Moines, IA Iowa District Office 

Veterans 

Procurement 

Business 

Conference 

05/22/2008 05/22/2008 Portsmouth, VA City of Portsmouth Department 

of Economic Development 

OPERATION: 

Start Up and 

Grow 

04/10/2008 04/10/2008 Syracuse, NY 

New York Business 

Development Corporation, 

Onondaga Community 

College, Onondaga Small 

Business Development Center 

9th Annual 

Small Business 

Resource Fair 

09/17/2008 09/17/2008 Denver, CO 

Denver Public Library, 

Minority/Women Chambers’ 

Coalition, Denver SCORE 

Chapter, Colorado Small 

Business Development Center, 

Colorado Minority Business 

and Women’s Office 

Emerging 200 

Small Business 

Program 

06/2008 12/2008 Albuquerque, NM New Mexico District Office 

Series of Small 

Business 

Leadership 

Webcasts 

Various 

dates 

Various 

dates Online Liminal Group, LLC 

Small Business 

Expo, Business 

Matchmaker 

and Small 

Business Week 

Awards 

Luncheon 

05/14/2008 05/14/2008 Buffalo, NY 

SCORE Buffalo Niagara - 

Chapter #35, Business First 

Inc. 

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

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

36 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject of 

Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Government 

Contracts, 

Software 

Licensing and 

Consulting 

Services Training 

06/2008 06/2010 Washington, DC J.M. George, P.C. 

Emerging 200 

Small Business 

Program 

05/2008 12/2008 Atlanta, GA Georgia District Office 

Emerging 200 

Small Business 

Program 

05/2008 12/2008 Chicago, IL Illinois District Office 

Emerging 200 

Small Business 

Program 

04/2008 12/2008 Milwaukee, WI Wisconsin District Office 

AMERICA 

WEST 

Conference for 

SBA Lender 

06/09/2008 06/11/2008 Spokane, WA Evergreen Community 

Development Association 

Matchmaking/2nd 

Annual 

Government 

Small Business 

Conference 

05/08/2008 05/08/2008 Tampa, FL 

University of South Florida 

Small Business 

Development Center 

Small Business 

Economic Summit 06/09/2008 06/09/2008 New York, NY National Minority Business 

Council, Inc. 

Series of events 

celebrating 

HR5050 

04/24/2008 04/24/2008 New York, NY National Women's Business 

Council and SCORE 

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

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

37 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date 

Location of 

Event Name(s) of Cosponsor(s) 

Small Business 

Week Event 05/22/2008 05/22/2008 Portland, OR 

Portland Score Chapter, West 

Coast Bancorp, Resource Capital 

CDC, Oregon Business 

Development CDC, Cascades 

West Financial Services CDC, 

Oregon Community Economic 

Development, KBNP Radio, Key 

Bank, Evergreen CDC, United 

Western Bank, US Bank, Capital 

Pacific Bank, Albina Bank, 

Oregon Business Magazine, Port 

of Portland-Municipal Agency, 

Microsoft Corp., Schwabe, 

Williamson & Wyatt 

The 

Government 

Contractor 

Workshop 

Series 

05/14/2008 09/092008 Baltimore, MD Greater Baltimore Urban League 

US SBA 

Awards 

Luncheon 

06/05/2008 06/05/2008 Charleston, WV West Virginia Chamber of 

Commerce 

Fullerton SBA 

Day 06/21/2008 06/21/2008 Fullerton, CA 

City of Fullerton Economic 

Development Department, 

Fullerton Chamber of Commerce, 

Santa Ana Regional SBDC 

Network 

Emerging 200 

Small Business 

Program 

05/2008 10/2008 Baltimore, MD Maryland District Office 

Connecticut 

XPO for 

Business 

06/05/2008 06/05/2008 Hartford, CT Connecticut Business and Industry 

Association 

Emerging 200 

Small Business 

Program 

06/2008 10/2008 Philadelphia, 

PA Pennsylvania District Office 

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

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

38 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Business and 

Economic 

Development. 

Conference. 

05/29/2008 05/29/2008 San Juan, PR Department of the Interior, 

National Park Service 

Workshops on 

Pre Business 

Planning, How 

To Start a Small 

Business; 

Writing a 

Business Plan, 

SBA Loan 

Programs; & 

How To Market 

Your Program 

05/2008 07/30/2008 Norcross, GA City of Hope Community 

Development Corporation 

Cyber Security 

is Good 

Business 

07/01/2008 09/20/2008 

Buffalo, NY, 

Houston, TX, 

Kansas City, MO, 

Sacramento, CA, 

Honolulu, HI, 

Milwaukee, WI, 

Springfield, IL, 

Chicago, IL, St. 

Louis, MO 

Federal Bureau of 

Investigation, National 

Institute of Standards & 

Technology 

Business 

Workshop and 

Matchmaking 

Event 

06/10/2008 06/10/2008 Portland, OR 

ASTRA Women's Business 

Alliance, The Minority 

Business Opportunity 

Committee 

Annual SBA 

Small Business 

Newspaper 

Insert 

05/24/2008 05/24/2008 Denver, CO The Denver Business Journal 

Small Business 

Week Breakfast 06/20/2008 06/20/2008 Washington, DC Business Development Assistance Group, Inc. 

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

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

39 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Ongoing series 

of Small 

Business 

courses in 

Spanish 

03/2008 10/2008 

Los Angeles, 

Orange, Ventura, 

Riverside, CA 

La Opinion, L.P., Comerica, 

LA SBDC and Santa Ana 

SBDC 

Emerging 200 

Small Business 

Program 

06/2008 10/2008 New Orleans, LA Louisiana District Office 

4th Annual 

Service 

Disabled and 

Veterans Small 

Business 

Conference - 

Contacts for 

Contracts 

Opportunities 

09/17/2008 09/18/2008 Albuquerque, NM 

Santa Fe Community College 

thru NM SBDC, New Mexico 

Department of Veterans' 

Services 

Small Business 

Resource 

Activities 

06/2008 06/2010 Des Moines, IA Greater Des Moines 

Partnership 

SBW Awards 

Luncheon 06/4/2008 06/4/2008 Los Angeles, CA Los Angeles Chamber of Commerce 

SBA/HOBY 

International 

Business & 

Entrepreneurshi

p Program 

07/28/2008 07/28/2008 Washington, DC Hugh O'Brian Youth 

Leadership 

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

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

40 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

First State Bank 

of Newcastle 09/2/2008 05/9/2009 Newcastle, WY Women's Business Roundtables 

Annual 

American 

Indian 

Conference 

9/29/2008 10/01/2008 Worley, ID American Indian Alaska 

Native Tourism Association 

Vermont's 12th 

Annual 

Women's 

Economic 

Opportunity 

Conference 

10/25/2008 10/25/2008 Randolph, VT 

The Office of U.S. Senator 

Patrick Leahy, Vermont Small 

Business Development Center, 

U.S. Department of Labor, 

Women’s Bureau, Vermont 

Agency of Transportation, 

Vermont Commission on 

Women, Vermont Commission 

on Women Education and 

Research Foundation, 

Women’s Agricultural 

Network, Vermont Department 

of Economic Development, 

Vermont Women’s Business 

Center, Vermont Department 

of Labor, Vermont 

Manufacturing Extension 

Center, Vermont Works for 

Women, Vermont Agency of 

Human Services, Office of 

Economic Opportunity, 

Vermont Interactive 

Television, Central Vermont 

Community Action Council, 

Office of the Vermont State 

Treasurer 

BYOB - Be 

Your Own Boss 

Workshop 

07/14/2008 09/23/2008 

Southern Oaks, 

Village, MWC, 

Warr Acres, 

Choctaw, Belle 

Isle, OK 

Oklahoma Metropolitan 

Library System, Oklahoma 

City Chapter SCORE 

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

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

41 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Spirit of Small 

Business 

Awards 

08/17/2008 08/17/2008 Santa Barbara, CA Pacific Coast Business Times 

2008 Post 

Awards 

Training 

06/23/2008 06/25/2008 Washington, DC Association of Women's 

Business Centers 

Lunch and 

Learn Seminars 

Various 

dates in 

2008 

West Fargo, ND West Fargo Chamber of 

Commerce 

Lunch and 

Learn 

Workshops 

06/2008 11/2008 Fargo, ND Homebuilders Association of 

Fargo-Moorhead 

2008 

Congressional 

Briefing 

07/23/2008 07/23/2008 Columbia, SC 

USDA Rural Development, US 

Department of Housing and 

Urban Development 

SBA Tri-County 

Faith Based 

Financing 

Conference 

10/09/2008 10/09/2008 Ontario, CA AmPac Tristate CDC, Inland 

Empire WBC 

Survive the 

Economic 

Storm Small 

Business Forum 

08/21/2008 08/21/2008 Honolulu, HI Pacific Business News, Altres 

HR 

Grow Your 

Business-Small 

Business 

Seminar 

07/24/2008 07/25/2008 San Mateo, CA 

World Journal, San Mateo 

Public Library, City of San 

Mateo 

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

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

42 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Hispanic 

Business 

Development 

Conference 

09/29/2008 09/29/2008 Garden City, NY 

County of Nassau Office of 

Minority Affair, Verizon 

Communications, Inc., New 

York Business Development 

Corporation 

Grow Your 

Business 

Seminar 

10/2008 06/2009 West Hartford, Ct The West Hartford Chamber of 

Commerce 

SBA Key 

Business 

Resources for 

Women & the 

Ohio Keys to 

Success Award 

Ceremony 

09/30/2008 09/30/2008 Fairfield, OH 

Ohio Department of 

Development Entrepreneurship 

& Small Business Division, 

Ohio Business Connection 

Women's 

Business Forum 09/15/2008 09/15/2008 Media, PA Congressman Joe Sestak 

2008 Albany 

Matchmaker 09/05/2008 09/05/2008 Albany, NY 

New York Business 

Development Corporation, 

University of Albany SBDC 

ABC's of 

Pitching your 

Venture to 

Investors 

10/07/2008 11/05/2008 Columbus, OH 

The National CEO Leadership 

Institute, Inc., SCORE 

Columbus Chapter 

Watch Your 

Small Business 

Grow 

Workshop 

09/22/2008 09/22/2008 Culpeper, VA Congressman Eric Cantor 

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

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

43 
Appendices

Appendix IX 

Events/Activities Where SBA Used its Cosponsorship Authority* 

Small Business Act, Section 4(h) 

April 1, 2008 through September 30, 2008 

Name/Subject 

of Event 

Event Start 

Date 

Event End 

Date Location of Event Name(s) of Cosponsor(s) 

Fact Sheet 08/19/2008 08/19/2008 Washington, DC Environmental Protection 

Agency 

MEDWeek 

Awards 

Program 

Symposium 

09/05/2008 09/05/2008 Indianapolis, IN The City of Indianapolis 

Fact 

Sheet/Online 

Training 

Module 

09/08/2008 09/08/2008 Washington, DC U.S. Treasury 

Growth 

Opportunities 10/08/2008 03/05/2008 Amherst, NY 

SCORE Buffalo Niagara, 

Amherst Industrial 

Development Agency, 

Business First, Inc. 

Business 

Workshops 10/09/2008 10/09/2010 Atlanta, GA Asian Indian Chamber of Commerce 

Doing Business 

with the GSA: 

Selling to the 

Federal 

Government 

10/23/2008 10/23/2008 Burlington, VT 

Vermont Department of 

Economic Development 

(PTAC) 

Rhode Island 

Minority 

Enterprise 

Development 

Week 2008 

10/14/2008 10/17/2008 Warwick, RI Hispanic American Chamber 

of Commerce 

Trade Secrets, 

an ETAP 

program 

10/22/2008 02/18/2009 Santa Ana, CA 

Orange County Hispanic 

Chamber of Commerce, U.S. 

Commercial Service, Orange 

County Center for International 

Trade Development, ExIm 

Bank 

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

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

44 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

AL DL An individual altered a bill of sale for a 

houseboat that he used as his primary 

residence in order to secure an SBA 

disaster loan of $21,800. He also made 

false statements to the SBA regarding the 

use of loan proceeds. 

Individual sentenced 

to 5 years probation, 

and $17,790 in 

restitution. 

None 

CA BL The former owner of a rawhide export 

business applied for an SBA Export 

Working Capital line of credit for 

$2 million. In order to receive more cash 

advances from this line of credit, the 

owner altered purchase orders, supplier 

invoices, and contracts. He also falsified 

financial statements and tax returns that 

he submitted to the bank. 

Owner pled guilty. FBI 

CA BL Three individuals were involved in a 

identity theft ring operated for the 

purpose of fraudulently obtaining SBA 

Express lines of credit, conventional 

and/or residential loans, and credit cards. 

One individual pled 

guilty to a criminal 

information and was 

sentenced to 12 

months and 1 day in 

prison, 5 years 

supervised release, 

and $79,790 in 

restitution. Another, 

who had previously 

been convicted in state 

court, pled guilty in 

federal court. The 

third has been 

indicted. 

LAPD, 

CDOI, 

DHS/ICE, 

UPSIS, 

SSA/OIG 

CA BL Three individuals are alleged to be 

involved in a sophisticated organized 

fraud ring using fraudulent documents to 

create false identities in order to apply 

for SBA Express loans, as well as other 

types of credit. 

Three individuals 

indicted. 

FBI, 

DHS/ICE, 

USPIS, 

SSA/OIG 

45 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

CA BL A woman and her son defrauded the 

SBA and two banks of $550,000 by 

creating “shell” businesses and applying 

for SBA loans for these businesses. 

Their scheme enabled them to acquire 

SBA loan funds, which they then 

funneled to an offshore bank account in 

St. Kitts. 

The government of St. 

Kitts wired $149,213 

to the U.S. Treasury 

Forfeiture Fund as a 

result of DOJ freezing 

the assets of the 

mother and son. Both 

fled to Greece to avoid 

prosecution and 

remain fugitives. 

IRS/CID 

CA BL The owner of a now-defunct airplane 

parts business obtained a $999,000 SBAguaranteed business loan to purchase 

another parts business. The purchaser 

failed to disclose that he had borrowed 

the $125,000 cash injection from an 

associate of the seller. 

Owner pled guilty. FBI 

CO BL The former office manager for a plastic 

surgeon used the doctor’s personal 

information and signature stamp without 

his authorization to fraudulently obtain 

two SBA-guaranteed Express loans, 

totaling $150,000, and an additional 

$180,948 in non-SBA loans. 

Office manager pled 

guilty and was 

sentenced to 60 

months in prison and 5 

years supervised 

release. Restitution 

will be determined at a 

later date. 

DDAO 

DC BL Two individuals facilitated the creation 

of a technology company as an improper 

investment vehicle for an SBIC by 

assisting the SBIC manager and others 

conceal material information and selfdealing from SBA. They also helped the 

manager structure other entities that he 

controlled so as to conceal relationships 

that violated SBA regulations. 

The defendants 

entered into a 

settlement agreement. 

They agreed to pay 

$7,950,000 to the SBA 

receivership and $2 

million to DOJ. 

SBA/OGC 

46 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

DE BL A state of Delaware employee and a 

business owner obtained a $309,000 

SBA-guaranteed loan by providing false 

documents pertaining to the ownership 

of abandoned stock certificates and 

making false statements regarding the 

source of the required equity injection. 

State employee 

sentenced to 60 

months in prison, 

3 years supervised 

release, and restitution 

of $1,245,248 to be 

paid jointly with the 

business owner. 

Business owner 

sentenced to 51 

months in prison, 

3 years supervised 

release, and is jointly 

responsible for up to 

$1,191,200 of the 

restitution ordered. 

FBI, 

IRS/CID 

FL DL An individual falsely claimed that his 

apartment in New Orleans had been 

damaged as a result of Hurricane Katrina 

in order to receive a $40,000 SBA 

disaster loan. 

Individual sentenced 

to 4 months in prison, 

3 years supervised 

release, and restitution 

of $40,415. 

None 

IL BL A husband and wife conspired to bribe 

an SBA official in order to influence the 

award of a $594,000 SBA 504 loan for 

their interstate trucking firm. The 

husband offered the official a $5,000 

bribe in exchange for overlooking the 

fact that he falsely claimed to be a U.S. 

citizen on his loan application. 

Husband sentenced to 

24 months in prison, 2 

years supervised 

release, and a fine of 

$7,500. Wife 

previously sentenced 

to one year probation. 

None 

KY GC A business consultant misrepresented the 

location of his company’s main office, as 

well as the number of employees living 

in a HUBZone, in order to influence 

SBA to certify his company as a 

HUBZone business. 

Consultant indicted 

and found guilty in a 

jury trial. 

DCIS 

LA DL An individual provided altered building 

permits in order to induce SBA to release 

Hurricane Katrina disaster funds for a 

$19,500 home loan and a $49,600 

business loan. 

Individual pled guilty. None 

47 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

LA DL A pastor applied for a $252,000 SBA 

physical disaster loan and a $35,000 

grant from the Bush/Clinton Katrina 

Fund to rebuild his church, but instead 

used a portion of the funds for his own 

personal benefit. 

Pastor pled guilty and 

was sentenced to 17 

months in prison, 3 

years supervised 

release, and restitution 

of $34,754. 

FBI 

 LA BL A certified public accountant (CPA) 

impersonated an SBA employee and 

provided false documentation in order to 

obtain SBA-guaranteed loans, totaling 

approximately $2.9 million, for her 

employer as part of the Hurricane 

Katrina relief effort. 

CPA sentenced to 120 

months in prison, 5 

years supervised 

release, and restitution 

of $505,008. Due to 

investigative efforts, 

only $5,000 of the 

$2.9 million was 

disbursed. 

USSS 

LA DL An individual applied for two SBA 

disaster loans to repair damages related 

to Hurricane Katrina: a home loan for her 

primary residence and a business loan for 

her rental property. She received the 

home loan in the amount of $150,000 but 

not the business loan. It is alleged that 

she used the proceeds of the SBA 

disaster home loan to make repairs to her 

rental property. 

Individual indicted. HUD/OIG 

LA DL A licensed real estate agent is alleged to 

have falsely claimed an address in the 

hurricane area as her primary residence 

when applying for a $125,600 SBA 

disaster home loan and a $291,600 SBA 

disaster business loan. She is also 

suspected of submitting bogus repair 

receipts and residential leases. 

Real estate agent 

indicted. 

DHS/OIG 

MD GC Three individuals conspired to violate 

SBA requirements relating to control and 

ownership of firms participating in the 

SBA 8(a) program. The owner of an 8(a) 

asbestos abatement company failed to 

disclose that two non-disadvantaged 

individuals were providing critical 

bonding, insurance, financial support, 

and control over the company. 

The company and 

three individuals pled 

guilty to criminal 

informations. 

EPA/CID, 

NCIS, 

IRS/CID, 

FBI 

48 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL An individual conspired with his brother 

and others to fraudulently acquire a 

$990,000 SBA-guaranteed loan issued by 

a non-bank lender. The conspiracy was 

furthered through the use of a false sales 

agreement, an inflated purchase price, 

and a bogus equity injection. The 

purpose of the scheme was to refinance 

and consolidate delinquent debts owed 

by one brother’s business using proceeds 

from the loan made to the other brother 

who acted as a “straw buyer.” 

One brother sentenced 

to 36 months 

probation and ordered 

to pay restitution of 

$658,809 jointly with 

the other brother who 

was previously 

sentenced. 

USSS 

MI BL A former personal banker issued a 

$1,680,000 cashier’s check based on a 

non-sufficient funds credit card check 

written by a bank customer. This 

unfunded check was used to close on the 

purchase of a house with the intent to 

promptly resell or “flip” the property to a 

straw buyer. The personal banker 

worked for a bank vice president who 

previously pled guilty to charges relating 

to fraud against SBA. 

Former personal 

banker pled guilty. 

USSS 

MI BL A loan broker allegedly solicited straw 

purchasers to apply for 12 fraudulent 

loans, while conspiring with a title 

company co-owner to defraud the SBA. 

Because these real estate transactions 

overstated the actual value of the 

properties and misrepresented the terms 

of the sales in supporting paperwork, 

excess proceeds were generated from the 

sales. These funds were then diverted to 

the two co-conspirators and others. 

Both indicted. USSS 

MI BL The buyer and the seller of a gas 

station/mini mart conspired to falsely 

represent that a $300,000 equity injection 

was being made in order to secure an 

$880,000 SBA-guaranteed loan for the 

buyer. 

Buyer sentenced to 

5 years probation and 

restitution, which after 

liquidation of property 

amounted to $577,004. 

Seller named in a 

superseding 

indictment. 

USSS 

49 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

MI BL A straw buyer provided false information 

concerning her financial status and the 

required equity injection to obtain an 

$825,000 SBA-guaranteed loan, which 

was actually for her brother-in-law who 

was the true owner and intended operator 

of the business. 

Individual sentenced 

to 3 months in prison, 

3 years supervised 

release, and a $5,000 

fine. 

USSS 

MS DL An individual allegedly indicated that his 

primary residence was in an area affected 

by Hurricane Katrina when it was not. 

He received a $179,400 SBA loan as 

well as assistance from FEMA. 

Individual indicted. DHS/OIG, 

HUD/OIG, 

MSAO 

MS DL An individual claimed her primary 

residence was in Bay St. Louis, MS, 

when she was actually living in Houston, 

TX. She and her husband received 

$80,600 in Hurricane Katrina disaster 

assistance from the SBA and $11,000 

from FEMA. 

Both pled guilty. DHS/OIG, 

HUD/OIG, 

USDA/OIG

MSAO 

MT BL A bank failed to reveal to the SBA that a 

company applying for a 

$1.8 million line of credit had been 

previously turned down by the SBA. 

The initial denial was due to the fact that 

a large portion of the loan was going to 

be used to pay off an existing line of 

credit with the same bank. 

Bank agreed to waive 

claim to SBA’s loan 

guarantee worth 

$999,900 and SBA’s 

fee rebate worth 

$34,996. The bank 

was required to pay 

$15,003 to the DOJ. 

None 

NY BL Three individuals are alleged to be 

members of an organized group of 

foreign nationals who obtained credit 

cards and loans from various financial 

institutions using false identities, 

documents, and businesses. The 

individuals are suspected of obtaining a 

total of 11 SBA Express loans totaling 

$440,000. 

All three indicted. USPIS 

50 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

NY DL The owner of a business that sells motor 

vehicles and parts forged endorsements 

on SBA issued two-party checks totaling 

$131,600. The owner was supposed to 

use the checks to pay off creditors, but 

instead, he deposited them into the 

business account. 

Owner sentenced to 12 

months and 1 day in 

prison, 5 years 

supervised release, 

and was ordered to 

pay restitution of 

$646,900 to the SBA. 

USPIS 

NY BL The owner of a realty company allegedly 

failed to disclose that he had other 

outstanding loans when he applied for 

two SBA-guaranteed Express lines of 

credit totaling $142,800. 

Owner indicted. None 

PA BL A businessman fraudulently obtained a 

$993,000 SBA-guaranteed loan by 

pledging collateral not belonging to him 

and falsely claiming to have made a 

$250,000 cash injection. In support of 

the loan application, an accountant 

prepared a fraudulent tax record, at the 

direction of the loan broker, to increase 

the likelihood of the loan being 

approved. 

The loan broker was 

sentenced to 

30 months in jail, 

3 years supervised 

release, and restitution 

of $993,000 to be paid 

jointly and severally 

with the business-man 

who was previously 

sentenced. The 

accountant was 

sentenced to 3 years 

probation, a $3,000 

fine, and $40,000 in 

restitution. 

FBI 

SD BL The part-owner of a marina provided 

false tax returns in support of an 

application for a $239,000 SBA 504 loan 

to purchase property and build a new 

marina. 

Part-owner sentenced 

to 36 months in 

prison, 1 year 

supervised release, 

and restitution of 

$89,041. 

IRS/CID 

TX DL An individual allegedly submitted a 

disaster loan application to SBA on 

behalf of a seafood company falsely 

claiming that the company had sustained 

$2.8 million in disaster damage resulting 

from Hurricane Rita. 

Individual indicted. DHS/ATF, 

DHS/OIG 

51 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

TX DL The president of a lumber company and 

her husband purported to own several 

vacant lots, which they knew did not 

belong to them. The couple offered 

these lots to SBA as collateral in order to 

obtain a $25,800 Economic Injury 

Disaster Loan. 

The couple was 

ordered to jointly pay 

$25,185 in restitution. 

The president was 

sentenced to 60 days 

home confinement and 

4 years probation. Her 

husband was 

sentenced to 60 days 

in prison, 60 days 

home confinement, 

and 3 years supervised 

release. 

None 

TX GC Six individuals participated in a 

multimillion-dollar fraud scheme to steer 

fixed Department of Defense contracts to 

a company owned by one of the 

defendants. 

Six individuals 

sentenced to between 

60 and 84 months in 

prison and 3 years 

supervised release. 

Collectively the six 

were ordered to pay 

$2.7 million in 

restitution. 

FBI, 

IRS/CID, 

USA/CID, 

GSA/OIG, 

DOI/OIG, 

DCIS 

VA BL Two individuals engaged in an extensive 

mortgage fraud scheme involving selling 

or refinancing residential properties 

despite the presence of a number of liens 

and judgments, including a judgment 

related to a defaulted SBA-guaranteed 

loan. 

 

One individual pled 

guilty to an 

information and was 

sentenced to 70 

months in prison, 

3 years supervised 

release, and restitution 

of $3,925,597 to be 

paid jointly and 

severally with the 

other defendant. 

Second individual 

sentenced to 16 

months in prison, 

3 years supervised 

release, and is jointly 

and severally 

responsible for up to 

$650,614 of the 

restitution ordered. 

FBI, USPIS, 

USSS 

52 
Appendices

Appendix X

Legal Actions Summary 

April 1, 2008 through September 30, 2008 

State Program Alleged Violation(s) Prosecuted Legal Action Investigated 

Jointly With 

WA SB A now defunct construction company 

obtained SBA surety bonds in order to 

perform public works contracts for state 

agencies and city municipalities. The 

president of the company falsely stated 

that he paid his subcontractors and 

suppliers and that his company was out 

of funds when, in fact, he was diverting 

contract proceeds of about $87,000 to his 

personal use. 

President pled guilty. FBI, NICB 

Program Codes: BL=Business Loans; DL=Disaster Loans; GC=Government Contracting and Section 8(a) Business 

Development; SBDC=Small Business Development Center; SB=Surety Bond Guarantee 

Joint-investigation Federal Agency Acronyms: CDOI=California Department of Insurance; DCIS=Defense 

Criminal Investigative Service; DDAO=Denver District Attorney’s Office; DHS/ATF=Department of Homeland 

Security/Alcohol, Tobacco and Firearms; DHS/ICE=Department of Homeland Security/Immigration and Customs 

Enforcement; DHS/OIG=Department of Homeland Security/Office of Inspector General; DOI/OIG=Department of 

Interior/OIG; EPA/CID=Environmental Protection Agency/Criminal Investigations Division; FBI=Federal Bureau 

of Investigation; GSA/OIG=General Services Administration/OIG; HUD/OIG=Housing and Urban 

Development/OIG; IRS/CID=Internal Revenue Service/CID; LAPD=Los Angeles Police Department; 

MSAO=Mississippi State Auditor’s Office; NCIS=Naval Criminal Investigative Service; NICB=National Insurance 

Crime Bureau; SBA/OGC=Small Business Administration/Office of General Counsel; SSA/OIG=Social Security 

Administration/OIG; USA/CID=United States Army/CID; USDA/OIG=U.S. Department of Agriculture/OIG; 

USPIS=United States Postal Inspection Service; USSS=United States Secret Service 

53 
54 
Appendix XI 

Small Business Administration 

Office of Inspector General 

Chicago, IL 

Herndon, VA 

Los Angeles, CA 

Washington, DC 

Atlanta, GA 

Inspector 

General 

Deputy Inspector 

General 

Auditing Division 

Counsel Division 

Ma

Business Development 

Programs Group

Washington, DC 

Financial Management 

& IT Group

Washington, DC 

Credit Programs 

Group

Southern Region 

New Orleans, LA 

Miami, FL 

Security Operations 

Washington, DC 

Atlanta, GA 

Philadelphia, PA 

New York, NY 

Investigations Division 

Central Region 

Dallas/Ft. Worth, TX 

Kansas City, MO 

Houston, TX 

Chicago, IL 

Detroit, MI 

Eastern Region 

Herndon, VA 

Disaster Programs Group 

Dallas/Ft. Worth, TX 

New Orleans, LA 

55

Washington, DC 

Make A Difference! 

To promote integrity, economy, and efficiency, we encourage you to report instances of 

fraud, waste, or mismanagement to the SBA OIG HOTLINE.* 

Call: 

1-800-767-0385 (Toll Free) 

Write or Visit: 

U.S. Small Business Administration 

Office of Inspector General 

Investigations Division 

409 Third Street, SW. (5th Floor) 

Washington, DC 20416 

Or E-mail Us at OIGHotline@SBA.GOV

*Upon request, your name will be held in confidence.