TRANSMITTAL MEMORANDUM

Report No. 12-03

DATE: NOVEMBER 15, 2011 

TO: JON I. CARVER 

 Chief Financial Officer

 /S/ 

FROM: JOHN K. NEEDHAM

 Assistant Inspector General for Auditing 

SUBJECT: AUDIT OF THE SBA’S FY 2011 SPECIAL-PURPOSE FINANCIAL STATEMENTS 

The attached report presents the results of the audit of the Small Business Administration’s (SBA) 

reclassified balance sheet as of September 2011 and 2010, and the reclassified statements of net 

costs and changes in net position and Federal trading partner note for the year then ended 

(hereinafter referred to as the special-purpose financial statements). The audit was performed by 

an independent public accounting firm, KPMG LLP, under a contract with the Office of Inspector 

General and in accordance with Office of Management and Budget (OMB) Circular A-136, Financial 

Reporting Requirements and the Treasury Financial Manual, Part 2, Chapter 4700 (TFM 2-4700).

The auditor found that the statements, including the Federal trading partner note, present fairly 

in all material respects, the financial position of SBA as of September 30, 2011 and 2010. Also, 

the results of operations and the changes in net position for the period then ended are in 

accordance with U.S. generally accepted accounting principles, and the presentation is in 

conformance with the requirements of TFM 2-4700. As requested, the following documents are 

also attached: 

(1) GF0003F Closing Package Financial Statement Report;

(2) GF003G Closing Package Line Reclassification Summary Report;

(3) GF004F Federal Trading Partner Summary Note Report;

(4) GF006 FR Notes Report;

(5) GF007 Other FR Data Report; 

(6) Management Representation Letter on the Closing Package, including the Summary of 

Uncorrected Misstatement; and

(7) Management Representation Letter on the audited financial statements, including the 

Summary of Uncorrected Misstatement.

 

We reviewed KPMG’s report and related documentation and made necessary inquiries of their 

representatives. Our review was not intended to enable us to express, and we do not express, an 

opinion on the SBA’s reclassified financial statements or on conclusions about internal control and 

U.S. SMALL BUSINESS ADMINISTRATION

OFFICE OF INSPECTOR GENERAL

WASHINGTON, D.C. 20416
2 

the SBA’s compliance with laws and regulations. However, our review disclosed no instances 

where KPMG did not comply, in all materials respects, with Generally Accepted Government 

Auditing Standards. We appreciate the cooperation and assistance of SBA and KPMG 

representatives. Should you or your staff have any questions, please contact me at (202) 205-7390 

or Jeffrey R. Brindle, Director, Information Technology and Financial Management Group at (202) 

205-7490.

Attachment
Independent Auditors’ Report

Office of Inspector General

U.S. Small Business Administration: 

We have audited the accompanying Closing Package Financial Statement Report – Balance Sheet of the 

U.S. Small Business Administration (SBA) as of September 30, 2011 and 2010; the related Closing 

Package Financial Statement Reports – Statement of Net Cost and Statement of Changes in Net Position, 

and the accompanying Financial Report (FR) Notes Reports (except for the information in the FR Notes 

Reports entitled “threshold”) for the years then ended; the accompanying Additional Note No. 31; the 

accompanying Trading Partner Summary Note Report – Balance Sheet as of September 30, 2011 and 2010; 

and the related Trading Partner Summary Note Reports – Statement of Net Cost and Statement of Changes 

in Net Position for the years then ended (hereinafter collectively referred to as the special-purpose financial 

statements). These special-purpose financial statements are the responsibility of the SBA’s management. 

Our responsibility is to express an opinion on these special-purpose financial statements based on our 

audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of 

America; the standards applicable to financial audits contained in Government Auditing Standards, issued 

by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin 

No. 07-04, Audit Requirements for Federal Financial Statements, as amended. Those standards and OMB 

Bulletin No. 07-04 require that we plan and perform the audits to obtain reasonable assurance about 

whether the special-purpose financial statements are free of material misstatement. An audit includes 

consideration of internal control over financial reporting as a basis for designing audit procedures that are 

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of 

the SBA’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 

includes examining, on a test basis, evidence supporting the amounts and disclosures in the special-purpose 

financial statements and assessing the accounting principles used and significant estimates made by 

management, as well as evaluating the overall special-purpose financial statement presentation. We believe 

that our audits provide a reasonable basis for our opinion.

The accompanying special-purpose financial statements have been prepared for the purpose of complying 

with the requirements of Chapter 4700 of the U.S. Department of the Treasury’s Treasury Financial 

Manual (TFM), as described in Additional Note No. 31, solely for the purpose of providing financial 

information to the U.S. Department of the Treasury and the U.S. Government Accountability Office (GAO) 

to use in preparing and auditing the Financial Report of the U.S. Government, and are not intended to be a 

complete presentation of the consolidated balance sheets of the SBA as of September 30, 2011 and 2010, 

and the related consolidated statements of net cost, and changes in net position, and combined statements 

of budgetary resources (hereinafter referred to as “general-purpose financial statements”) for the years then 

ended. 

In accordance with TFM Chapter 4700, the SBA prepared FR Notes Report Nos. 1 through 30, except for 

FR Notes Report Nos. 10A, 16, 20, 21, 23, 24, and 30, which were not applicable to the SBA. The SBA 

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036-3389 

KPMG LLP is a Delaware limited liability partnership, 

the U.S. member firm of KPMG International Cooperative 

(“KPMG International”), a Swiss entity. 
U.S. Small Business Administration 

November 15, 2011 

Page 2 of 4 

included Additional Note No. 31, to disclose other data not contained in the special-purpose financial 

statements, but which is necessary to make the special-purpose financial statements more informative.

In our opinion, the special-purpose financial statements referred to above present fairly, in all material 

respects, the financial position of the SBA as of September 30, 2011 and 2010, and its net costs and 

changes in net position for the years then ended in conformity with U.S. generally accepted accounting 

principles and the presentation pursuant to the requirements of TFM Chapter 4700, as described in 

Additional Note No. 31. 

The SBA also prepared Other Data Report Nos. 2 through 16, except for Other Data Report Nos. 3 through 

8, and 11 through 14, which were not applicable to the SBA. The information included in the Other Data 

Report Nos. 9 (except for the information in the section entitled “Threshold”), 10, 15, and 16 is presented 

for the purpose of additional analysis and is not a required part of the special-purpose financial statements, 

but is supplementary information required by U.S. generally accepted accounting principles and TFM 

Chapter 4700. We have applied certain limited procedures, which consisted principally of inquiries of 

management regarding the methods of measurement and presentation of this information. However, we did 

not audit this supplementary information, and accordingly, we express no opinion on it.

Our audits were conducted for the purpose of forming an opinion on the special-purpose financial 

statements taken as a whole. The information included in the Other Data Report No. 2 is presented for 

purposes of additional analysis and is not a required part of the special-purpose financial statements. This 

information has been subjected to the auditing procedures applied in the audits of the special-purpose 

financial statements and, in our opinion, is fairly stated in all material respects in relation to the specialpurpose financial statements taken as a whole.

The information entitled “Threshold” in Other Data Report No. 9 and the information in the sections 

entitled “Threshold” in FR Notes Report Nos. 3, 4A, 4B, 6, 8, 9, 11, 15, and 19; the information in the 

Closing Package Line Reclassification Summary Report – Balance Sheet; and the information in the 

Closing Package Line Reclassification Summary Reports – Statement of Net Cost and Statement of 

Changes in Net Position are presented for purposes of additional analysis and are not a required part of the 

special-purpose financial statements. This information has not been subjected to the auditing procedures 

applied in the audits of the special-purpose financial statements and, accordingly, we express no opinion on 

it.

The TFM Chapter 4700 requires agencies to use the Governmentwide Financial Reporting System to input 

certain data as described in Additional Note No. 31. Except as discussed in this report, we express no 

opinion on information maintained in that system.

In accordance with Government Auditing Standards and OMB Bulletin No. 07-04, we have also issued a 

combined auditors’ report dated November 14, 2011 which presents our opinion on the SBA’s generalpurpose financial statements; our consideration of the SBA’s internal control over financial reporting; and 

the results of our tests of its compliance with certain provisions of laws, regulations, contracts, and grant 

agreements and other matters that are required to be reported under Government Auditing Standards. That 

report is an integral part of the audits of the general-purpose financial statements, performed in accordance 

with Government Auditing Standards and OMB Bulletin No. 07-04, and should be read in conjunction with 

this report in considering the results of our audits of the special-purpose financial statements. Our audit of 
U.S. Small Business Administration 

November 15, 2011 

Page 3 of 4 

the general-purpose financial statements of the SBA as of and for the year ended September 30, 2011, 

disclosed the following significant deficiency and compliance and other matter: 

Significant Deficiency: Improvement Needed in Information Technology (IT) Security Controls 

Compliance Matter: Noncompliance with the Debt Collection Improvement Act 

Other Matter: Potential Federal Acquisition Regulation Documentation Retention Violation 

Management is responsible for establishing and maintaining effective internal control. In planning and 

performing our audit of the fiscal year 2011 special-purpose financial statements, we also considered the 

SBA’s internal control over financial reporting by obtaining an understanding of the SBA’s internal control 

and performing tests of controls as a basis for designing our auditing procedures for the purpose of 

expressing our opinion on the special-purpose financial statements, but not for the purpose of expressing an 

opinion on the effectiveness of the SBA’s internal control over financial reporting. Accordingly, we do not 

express an opinion on the effectiveness of the SBA’s internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or 

detect and correct misstatements on a timely basis. A significant deficiency is a deficiency, or a 

combination of deficiencies, in internal control that is less severe than a material weakness, yet important 

enough to merit attention by those charged with governance. A material weakness is a deficiency, or a 

combination of deficiencies, in internal control such that there is a reasonable possibility that a material 

misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a 

timely basis. 

Our consideration of internal control over financial reporting for the special-purpose financial statements 

was for the limited purpose described above and was not designed to identify all deficiencies in internal 

control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses.

In our fiscal year 2011 audit, we did not identify any deficiencies in internal control over financial 

reporting for the special-purpose financial statements that we consider to be material weaknesses, as 

defined above. 

Management is responsible for complying with laws, regulations (including TFM Chapter 4700), contracts 

and grant agreements applicable to the SBA. As part of obtaining reasonable assurance about whether the 

SBA’s fiscal year 2011 special-purpose financial statements are free of material misstatement, we 

performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant 

agreements, noncompliance with which could have a direct and material effect on the determination of 

financial statement amounts. However, providing an opinion on compliance with those provisions or on 

compliance with TFM Chapter 4700 requirements was not an objective of our fiscal year 2011 audit of the 

special-purpose financial statements and, accordingly, we do not express such an opinion.

The results of our tests of compliance with TFM Chapter 4700 disclosed no instances of noncompliance or 

other matters that are required to be reported under Government Auditing Standards or OMB Bulletin 

No. 07-04.
U.S. Small Business Administration 

November 15, 2011 

Page 4 of 4 

This report is intended solely for the information and use of the SBA’s management, the SBA’s Office of 

Inspector General, U.S. Department of Treasury, OMB, and GAO, in connection with the preparation and 

audit of the Financial Report of the U.S. Government, and is not intended to be and should not be used by 

anyone other than these specified parties.

November 15, 2011