TABLE OF CONTENTS

Page

Organization Chart............................................................................................................................ 1

A Message From The Chief Financial Officer .................................................................................. 2

Management Discussion and Analysis .............................................................................................. 4

Introduction..................................................................................................................................... 4

Mission............................................................................................................................................ 4

Strategic Goals/Planning.................................................................................................................. 5

Background and Highlights.............................................................................................................. 7

Agency Accomplishments ........................................................................................................... 7

Agency Program Highlights ........................................................................................................ 9

Agency Fees And Charges......................................................................................................... 12

Office of the Chief Financial Officer............................................................................................... 13

Organization Chart.................................................................................................................... 13

Accomplishments...................................................................................................................... 13

Impact Of Federal Credit Reform.............................................................................................. 15

Credit Management................................................................................................................... 16

Budget Summary/ Human Resources............................................................................................. 16

Agency Funds........................................................................................................................... 16

Agency Financial Position ......................................................................................................... 17

New Programs............................................................................................................................... 18

Pre Disaster Mitigation Loans................................................................................................... 18

Military Reserve Economic Injury Loans................................................................................... 18

Y2K Loans............................................................................................................................... 18

Capital Access............................................................................................................................... 18

Business Loan Program............................................................................................................. 18

Certified Development Company Assistance (Section 504)........................................................ 22

Small Business Investment Company Program .......................................................................... 25

Surety Bond Assistance............................................................................................................. 28

International Trade.................................................................................................................... 30

Disaster Assistance ........................................................................................................................ 32

Entrepreneurial Development......................................................................................................... 36

Business Initiatives.................................................................................................................... 36

Veterans’ Affairs....................................................................................................................... 37

Women’s Business Ownership................................................................................................... 38

Small Business Development Centers........................................................................................ 39

Welfare to Work Initiative......................................................................................................... 39

One Stop Capital Shop.............................................................................................................. 39

Native American Affairs............................................................................................................ 40
Government Contracting & Minority Enterprise Development ....................................................... 41

Government Contracting........................................................................................................... 41

Minority Enterprise Development.............................................................................................. 44

Technology............................................................................................................................... 45

Size Standards .......................................................................................................................... 45

HUBZone ................................................................................................................................. 45

Small Disadvantaged Business Certification and Eligibility......................................................... 46

Small Business Advocacy .............................................................................................................. 47

Management Integrity and Accountability..................................................................................... 49

FMFIA.......................................................................................................................................... 49

Inspector General Audits – Management’s Final Action Report ..................................................... 53

Best Practices, BPRs, QSRs .......................................................................................................... 54

COSO Internal Controls ................................................................................................................ 59

Assurance Statement ..................................................................................................................... 62

Acronyms.......................................................................................................................................... 64

Financial Statements and Related Notes......................................................................................... 65

Financial Statement Analysis.......................................................................................................... 65

Appendix A - Management's Semiannual Report On Final Actions....................................................... i
Page 1
Page 2

A MESSAGE FROM

THE CHIEF FINANCIAL OFFICER

Joseph P. Loddo

The SBA is pleased to submit its first Accountability Report. The

Chief Financial Officer of the SBA has prepared an audited report of

entity-wide financial results since fiscal 1991 as part of the CFO Act

requirements. This Accountability Report for fiscal 1999 provides

additional information on the status of the SBA’s internal controls

required under the Financial Managers Financial Integrity Act.

Information on the SBA’s performance results required under the

Government Performance and Results Act is provided in a separate

report.

The SBA has been a leader in Federal financial management since

the 1980s in the areas of credit and cash management and was a leader in the implementation of Federal

Credit Reform requirements in the 1990s. The SBA was the first Federal credit agency to receive an

unqualified opinion on its financial statements for fiscal 1996. I am very pleased that for the fourth

straight year the SBA has achieved an unqualified opinion on its financial statements from its

independent auditor. This accomplishment is unmatched by any other Federal credit agency.

Additionally, I am especially proud that with the support of SBA management, improvements have

been made, so that for fiscal 1999 our auditor has reported that the SBA’s financial management

activities have only two material weakness, down from three last year.

The Office of the Chief Financial Officer’s staff has worked with other Agency managers during fiscal

1999 to proactively improve the SBA’s financial management. We aggressively implemented the

provisions of the Debt Collection Improvement Act of 1996, including extending our use of electronic

commerce to the SBA’s credit program partners, in addition to our major suppliers, improved our

lockbox operation, established local deposit and electronic update for collections and supported a new

guaranteed fee billing system. We dramatically improved our internal planning, budget and evaluation

processes, including an enhanced modeling of our compensation and benefits – the single largest cost in

our operating budget. The SBA undertook the first Federal Government effort to implement the

internal control framework recommended by COSO, and we will expand our audit for fiscal 2000 to

include an evaluation of the COSO internal controls. Supported by SBA top management, we worked

aggressively with other SBA offices to finalize a number of the outstanding audit recommendations

made by our Inspector General and the General Accounting Office. We made visible progress in the

modernizing our systems through the completion of Business Process Re-engineering and benchmarking

studies for our credit programs. We are now finishing the planning efforts in financial management

areas and we are prepared to begin systems development and implementation of the complete overhaul

of SBA’s financial and program systems. We were successful in transitioning to 2000 with no Y2K

problems, and assisted the small business community in this transition through our nationwide outreach

and education efforts. The SBA led the Joint Financial Management Improvement update of Federal
Page 3

guaranteed loan system requirements. Finally, we executed a very successful first asset sale in SBA’s

program to sell its $8.5 billion loan portfolio.

The 21st century presents many challenges for Federal financial management, and at SBA we are

strategically poised to meet these challenges. One of the SBA’s principal goals is to be a leading edge

21st century institution. With our progress to date as discussed here, and our planned activities, we will

lead the Federal Government in financial management. Our financial systems will be modernized; our

business processes will be re-engineered; our financial information will be timely, accurate and useful;

and our staff will represent the highest degree of professionalism and expertise possible. We pledge

first-class financial management to support the SBA’s programs that provide assistance to the country’s

24 million small businesses, helping them start, grow and succeed in supporting our Nation’s economy.
Page 4

MANAGEMENT

DISCUSSION AND

ANALYSIS

Introduction The SBA is proud to present its first Accountability Report. Prior

to FY 1999 and since FY 1991, the SBA presented its status and

financial report in its CFO report. This Accountability Report

includes additional information on the SBA’s internal controls and

reports required under the Financial Manager’s Financial Integrity

Act. Information on SBA’s performance results under the

Government Performance and Results Act are included in SBA’s

performance report that will be issued by March 31, 2000. The

report also includes the results of SBA’s credit and business

assistance programs for small businesses and disaster victims as

well as the Agency’s financial statements and audit report. The

SBA’s financial statements were developed under the financial

requirements issued by the Office of Management and Budget.

This is the second year that the SBA has provided the additional

financial reports required under OMB Bulletin 97-01, including

the status of budget and financing activities and the consolidated

statement of net cost.

Mission The SBA helps maintain and strengthen the Nation’s economy by

counseling, assisting, and protecting the interests of small

businesses and by helping businesses and families recover from

disasters.

The SBA helps create opportunities for small business success

through its credit and business assistance programs. The critical

success factor for SBA is a more vibrant and healthy small

business sector. The responsibility for achieving this outcome is

not only the SBA’s, but is shared by many programs, often by

several levels of government, and by the Agency’s small business

customers themselves. SBA’s measures of success are directly

related to those small businesses that are started, expanded, and

maintained using the Agency’s products and services.
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Strategic

Goals/Planning

To accomplish its mission, the SBA has adopted the following

strategic goals to guide its management and program decisions

over the period: FY 1998 – FY 2002.

1. Increase opportunities for small business success.

2. Transform SBA into a 21st century leading edge institution.

3. Help businesses and families recover from disasters.

4. Lead small business participation in welfare-to-work.

5. Serve as a voice for America’s small businesses.

The Agency has implemented a strategic planning process as part

of its implementation of the Government Performance and Results

Act. This planning process is linked to the performance

management process for all employees and managers. This

process translates the Administrator’s goals and objectives into

workable plans. The Agency’s goals are supported by strategic

objectives and performance goals having measurable targets. The

strategic objectives for the SBA goals are as follows:

Goal 1. Increase opportunities for small business success,

includes strategic objectives to 1) increase access to capital and

credit, 2) expand small business procurement opportunities, and 3)

enhance entrepreneurial development assistance.

Goal 2. Transform SBA into a 21st century leading edge

financial institution is supported by strategic objectives to

1) expand and strengthen the SBA’s internal controls, and to

2) establish an integrated risk management system to identify and

measure risk and to allocate resources to manage risks that are

identified.

Goal 3. Help businesses and families recover from disasters

has strategic objectives to 1) establish a field presence within three

days of a disaster declaration in 98 percent of disasters, 2) process

90 percent of loans within seven-21 days, 3) make loan

disbursements with three days of receiving closing documents for

90 percent of loans, and to 4) substantially reduce errors in loan

processing by improving the quality of disaster loan underwriting.

Goal 4. Lead small business participation in welfare-to-work

through setting a performance goal to help small businesses hire

200,000 work-ready former welfare recipients and to assist those

former recipients who wish to become self-employed or start their

own businesses.
Page 6

Goal 5. Serve as a voice for America’s small business has a

strategic objective to 1) develop an analytical capacity to assess

and measure the economic effects of regulatory, legislative, and

other policy changes, and to 2) show material improvements for

small business from these changes.

The SBA’s strategic goals are achieved through an annual

performance plan. The annual goals in the performance plan are

evaluated against performance indicators.

The SBA’s five year strategic plan included performance goals to:

- Increase the aggregate number of general business loans;

Certified Development Company equity capital, export

working capital and surety bond guarantees.

- Increase the number and percentage of underserved small

businesses and entrepreneurs receiving direct SBA assistance

or help through our business partners.

- Increase the number, dollar volume, and percentage of Federal

contracts awarded to small businesses, women-owned

businesses, and small and disadvantaged businesses.

- Increase the number and percentage of start-up businesses

receiving SBA assistance.

- Expand the number of partners and tailor their programs to the

needs of special populations, as well as new entrepreneurs and

those expanding their businesses.

- Improve coordination among SBA partners and other

community resources, and among SBA resources with other

Federal programs.

- Develop a comprehensive Agency wide internal control plan

that is guided by COSO standards and assign responsibility for

managing and implementing the plan.

- Educate the entire organization about internal controls and

ensure that all managers are accountable for implementing and

managing the internal control system.

- Establish protocol for lender oversight, establish loan program

credit standards, service standards, and mission standards to

measure lender performance.
Page 7

- Maintain accurate current data on small businesses from the

U.S. Bureau of the Census and other sources.

- Analyze and disseminate research to policy makers and small

business stakeholders on small business characteristics that are

relevant to the formulation of public policy.

- Ensure improved, across-the-board, Federal agency compliance

with the Regulatory Flexibility Act; meaningful small business

participation in the regulatory and the legislative process, and

improve coordination between Federal and state regulatory

agencies to reduce the burden on small businesses.

Background and

Highlights

The SBA was established in 1953 as an independent Agency of

the Federal Government. Since its inception, the SBA’s

assistance has been to small businesses that employee 54 percent

of the private work force in the United States and are responsible

for 51 percent of the private and domestic product. Currently, the

SBA is involved in assisting small businesses gain their fair share

of foreign exports.

The SBA is a decentralized organization with more than

100 locations nationwide, including field office locations in all

50 states, the District of Columbia, Puerto Rico, the Virgin

Islands, and Guam. A number of smaller branch offices and

central office duty stations also supplement the larger geographic

areas. The SBA has 10 regional offices, 70 district offices, and

15 branch offices. The Agency also has a number of centers that

approve disaster or business loans, and provide servicing to its

disaster or business loan portfolios. In FY 1999, the Agency

employed 3,218 full-time equivalent (FTE) personnel and had an

annual operating budget of $403 million, excluding disaster.

Agency

Accomplishments

The SBA’s FY 1999 accomplishments reflect the Agency’s

continued role in providing greater access to capital for the

Nation’s entrepreneurs who in turn are creating the jobs that are

the heart of today’s healthy economy.
Page 8

As the table below shows, the SBA’s lending has increased for

America’s small businesses since 1992.

Number of Loans %

FY 92 FY 99 Increase

Total Lending 26,381 48,919 85%

Women 3,588 10,244 186%

African American 739 2,176 194%

Hispanic American 1,356 3,747 176%

Asian American 1,583 5,574 252%

Native American 129 535 315%

Veterans 3,720 5,477 47%

The geographic distribution of the SBA’s business and

development company loan guaranty programs is depicted on the

following chart.

SBA Financial Assistance By Region

FY 1999 Total Lending - Business

X $354

VIII $504

IX $3,956

VI $2,631

VII $323

IV $1,003

V $1,165

III $507

II $557

I $383

Total SBA Lending for Fiscal Year: $14,416

(Dollars in Millions)

IX $6,989
Page 9

Agency Program

Highlights

7(a) Loan Program In FY 1999, the SBA guaranteed a total of

40,470 7(a) loans providing $9.54 billion in financing to our

Nation’s small businesses. FY 1999 total dollar volume was the

second largest in the history of the program. The program has

more than doubled its number of loans during the last seven years.

504 Development Company Program SBA’s 504 program

grew from $894 million in debentures financed in FY 1992 to

$2.45 billion in FY 1996. After a decrease in FY 1997 to

$1.4 billion, the 504 program increased to $1.77 billion in

FY 1998 and to $1.98 billion in FY 1999. Overall, the program

has more than doubled during the last seven years.

Small Business Investment Company Program The SBIC

program continues to attract record levels of private capital. In

FY 1999, SBIC’s made 3,096 investments to small businesses

with a record dollar amount of $4.2 billion.

Government Contracting/Minority Enterprises Development

These SBA programs provide Federal contracting opportunities

and research and development assistance to small businesses.

These programs are administered by SBA offices including

Government Contracting, Minority Enterprise Development,

Technology, Size Standards, HUBZone, and SDB Certification

and Eligibility.

Disaster Assistance Program In FY 1999 SBA’s Disaster

Assistance program provided $936.6 million in loans to small

businesses and individuals for rebuilding after disasters struck.

International Trade In FY 1999 the SBA sponsored trade

missions to Ireland, Mexico, and Canada to promote exporting

opportunities for U. S. small businesses and to foster improved

cooperation and global business opportunities for U.S. small

businesses in these markets.

Small Business Innovation and Research and Small Business

Technology Transfer programs Small businesses participating in

the SBA’s SBIR and STTR programs support Federal research

and development efforts contributing to America’s national

defense programs and safety and health projects. Under SBIR, 10

participating agencies have made more than 46,000 awards

totaling more than $7.5 billion to small business concerns.
Page 10

Women’s Business Ownership The Office of Women’s

Business Ownership provides assistance to women business

owners. The Women’s Business Center program serves the

Nation’s nearly 9.1 million women-owned businesses through

technical, financial and management information, training and

counseling. In FY 1999, the WBO provided managerial,

marketing and procurement assistance to more than 30,000

women through its 59 physical funded sites. In FY 1999, $1.6

billion SBA loans were made to women.

Counseling and Training. An estimated 1.18 million small

business entrepreneurs received management training and

counseling from SBA’s national network of business education

and assistance programs. This network includes the Service

Corps of Retired Executives, and more than 1,000 Small Business

Development Centers, and Business Information Centers sites,

including one in every state, the District of Columbia, Puerto

Rico, the U.S. Virgin Islands, American Samoa, and Guam.

Internet Access. The SBA’s home page, SBA OnLine, received

more than 2 million hits per week by fiscal year end, and continues

to grow. This service benefits the Agency’s customers by making

useful information readily available. The SBA also has an inhouse intranet available to its employees.

One Stop Capital Shop. The One Stop Capital Shop is the

SBA’s Empowerment Zone/Enterprise Community signature

contribution. It is an alternative delivery mechanism for the

Agency’s products to areas that have been underserved by SBA.

OSCSs are cost effective, customer friendly and represent a

working model of the public/private partnership.

Veterans’ Affairs. The Office of Veterans Affairs oversees the

Agency’s assistance to veterans and works with SBA program

offices to provide special consideration to veterans. The OVA

coordinates national veterans’ programs such as the Veterans

Business Training, Outreach and the Transition Assistance

Program for military personnel. In FY 2000, SBA will implement

requirements of The Veterans Entrepreneurship and Small

Business Development Act (Public Law 106-50).

Welfare to Work. The SBA has played a leadership role in the

President's welfare to work initiative over the last 3 years. In each

SBA district office across the country, the SBA has used its

network of field offices and partners to connect and educate

thousands of small business owners who planned to hire
Page 11

new employees with local training programs. In FY 1999, the

SBA received more than 101,000 commitments from small

businesses to hire welfare recipients. In FY 2000, the SBA will

continue to be a resource on welfare to work issues to small

employers across the country.

Performance Results and

Indicators

The SBA’s report of performance results has been issued as a

separate report and is not included in this Accountability Report.

We plan to include GPRA performance results in future editions

of the Accountability Report.

Since 1992 the SBA has used a number of specific program

performance indicators to measure its performance. These

indicators are a subset of the measures in the SBA’s performance

report and are included in the description and analysis section of

this report using asterisks on charts and shading on tables.

As part of its performance objectives, the SBA places special

emphasis on directing its assistance efforts to those small business

groups who are most under-represented in the marketplace;

particularly veterans, women and minorities.

The following chart indicates the percentage of business and

development company loans approved for different types of

businesses.

Note: Percentages based on dollar value of loans approved in FY 1999.

77%

18%

5%

Corporations 77%

Individuals 18%

Partnerships 5%

35%

29%

16%

8%

12% Service Industries 35%

Retail Trade 29%

Manufacturing 16%

W holesale Trade 8%

Others 12%

75%

25% Existing Businesses 75%

New Businesses 25%

26%

13%

16%

45%

Racial Minorities 26%

Veterans 13%

Women 16%

Others 45%
Page 12

In accordance with the CFO Act, 31 U.S.C.§902(a)(8), the SBA

biennially assesses its level of user fees and other charges. As an

integral part of the President’s budget process, the SBA annually

assesses and calculates the current and future costs of programs

and activities. The SBA evaluates the level of current revenues in

terms of their sources and amounts, increasing or decreasing these

revenues through adjustments to the level of user fees charged

interest rates charged, or other means. As part of the President’s

budget, the SBA proposed the following adjustments to current

revenue sources:

Agency Fees And Charges

1. For 2001, SBA is proposing simplification of its fee structure

for the 7(a) program so that the guaranty fee will be 2 percent

on loans up to $150,000 and 3 percent on loans more than

that amount. A similar proposal was made for FY 2000, but

was not enacted by the Congress. The largest loans

($500,000 or more) would also pay a funding fee to allow the

subsidy cost of the program to remain the same. The

proposed fee is $925.00.

2. As part of the development of the Small Disadvantaged

Business program proposed in FY 1998, businesses seeking

SDB certification would pay a fee to have their ownership and

control attested by private-sector businesses under contract

with the SBA. The fees would be set to cover the costs of

these contracts.

3. For the FY 1999 and FY 2000 President’s budgets, the fees

for the 504 Certified Development Company debenture

program are set to equal a 0 percent subsidy rate. Therefore,

for FY 1999, the fee to the loan borrowers was reduced from

0.775 percent to 0.729 percent. For FY 2000, this fee was

further reduced to 0.60 percent. For FY 2001 SBA has

proposed this fee be reduced to 0.472 percent.

4. In order to increase credit and capital into the Administrator’s

“new markets” areas, fees and costs in most of SBA’s credit

and capital programs were reviewed to determine any

necessary changes needed to give incentive to participants. In

some cases, regulatory changes were proposed in lieu of fee

changes.

5. SBA proposed in FY 2000 and again proposed for FY 2001

that the SBDCs develop a plan to assess a copayment fee for

counseling service. They already charge a fee for training

services.
Page 13

Office Of The

Chief Financial

Officer

Mission Statement. We will influence the future of the Agency

financial management through ethical and effective leadership;

serve as a catalyst for constructive change to ensure the integrity

of financial information needed for decision making; and measure

program and financial performance to achieve desirable results.

Vision Statement. We will work to shape an environment in

which SBA officials use high quality financial and performance

information to make and implement effective policy, management,

stewardship, and program decisions.

Organization Chart The Chief Financial Officer reports directly to the Office of the

Administrator. The office includes the essential financial

management functions shown in the following chart.

Office of

Planning and

Budget

Office of

Financial

Administration

Office of

Financial

Systems

Office of

Financial

Analyses

Denver

Finance

Center

Chief

Financial Officer

SBA

Administrator

Accomplishments Recent financial management improvements made by the Office

of the Chief Financial Officer follow.

• Subsidy Rates – Working with the Federal Credit Policy

Working Group, we formed a new interagency group

specializing in subsidy rate issues and best practices. We

were recognized by the General Accounting Office and the

Association of Government Accountants for best practices in

our field for subsidy rate preparation and analysis.

• CFO Report – The SBA received an unqualified opinion on

its FY 1999 financial statements from the independent

auditors. The SBA has received an unqualified opinion for

the past four years and is the only major Federal credit

agency with this accomplishment.

• Electronic Commerce – Established lockbox addresses for

east and west coasts, converted paper to electronic

payments, converted participant payments process to

electronic commerce and implemented various automated

reconciling systems.
Page 14

• SBA Internal Controls – One of the Administrator’s

initiatives is to transform SBA into a leading edge Agency for

the 21st century. This includes focusing on stronger internal

controls by implementing a system developed by the

Committee of Sponsoring Organizations of the Treadway

Commission (COSO). We have implemented the COSO

internal control system and begun the management

assessment process as part of the Agency’s COSO program.

• Contracting Out of Servicing – Supported the outsourcing

of 30 percent of disaster home loan servicing.

• Guarantee Fee Receivables – This project was initiated to

analyze and correct weaknesses in the Agency’s collection of

about $45 million of delinquent guarantee fees. Assisted in

the development of a new guaranty fee billing system.

• Asset Sales – Supported the Agency’s first asset sale.

Implemented a model to produce predicted government hold

values.

• Systems Development – Established a local depository for

Federal Reserve Bank deposits to improve operational

efficiency, converting paper processing to electronic.

Implemented a new model for forecasting compensation and

benefits. This provides the Agency better control of

employee expenditures and forecasting budget requirements.

• Y2K – Successfully met all Y2K deadlines as established by

the Office of the Chief Information Officer. Improved the

information technology environment and implemented a Web

application environment for the OCFO.
Page 15

Impact Of Federal

Credit Reform

The passage of the Federal Credit Reform Act has significantly

affected budgeting and accounting for the Agency’s credit

programs since FY 1992. The FCRA provides an estimate of the

costs of the Agency’s financial assistance programs.

Under the FCRA, the SBA is required to calculate a subsidy rate

for each loan program. This rate estimates the net present value

of all cash outflows and inflows. The rate calculation takes into

consideration such factors as the expected repayments on the

loans and the interest rate differential between the rate charged

the borrower on SBA held loans and the rate at which funds are

borrowed by the Treasury. The final product is a rate that reflects

the percentage of each dollar approved which is subsidized by the

Federal Government. This subsidy rate is the cost of assistance

efforts to the taxpayer, excluding administrative costs. A

summary table of SBA loan programs showing subsidy rates and

other information follows:

LOAN PROGRAM SUMMARY - FY 1999 BUDGET

Dollars in Thousands

Program Level

1/

Subsidy Rate 2/

Subsidy Budget

Authority

Subsidy Cost Per

Loan Made 3/

Average Loan

Amount 4/

Business Direct Loans:

Microloans 14,351 9.54 1,369 $40 $422

Business (Gty)

7(a) Business 9,471,094 1.39 131,648 $3.3 $235

7(a) Delta 36,641 2.08 762 $15 $718

Microloans Gty. 1,157 7.97 92 $46 $579

Development Company (Gty)

504 Dev. Co. 1,979,136 0.00 0.00 0.00 $384

504 Delta 3,350 1.29 43 $9 $670

Investment Company (Gty)

SBIC Debentures 352,030 1.38 4,858 $113 $8,186

SBIC Participating Securities 1,015,190 2.19 22,233 $353 $16,114

Disaster Assistance (Dir.) 762,198 22.36% 170,428 $4.7 $21

Note: SBA performance indicators are shaded.

1/ Net of increases/decreases, cancellations and reinstallation.

2/ This subsidy rate is determined in the SBA budget process to be the cost of loans and guarantees

expressed as a percentage of the gross approval amount.

3/ This figure is calculated by multiplying the subsidy rate and the average loan amount.

4/ This figure is calculated by dividing the dollar value of loans made for each program by the total

number of loans made in FY 1999.
Page 16

Credit Management The SBA has been actively improving its credit management and

debt collection practices to collect all delinquent debt in a costeffective manner. The debt collection tools utilized include: the

use of SBA attorneys appointed as Special Assistant United

States Attorneys to augment the Department of Justice collection

efforts, the IRS tax refund offset, On-line Payment and

Collection / Treasury Offset Programs, and Federal salary offset.

For FY 1999, these four tools were responsible for the collection

of a total of $14.9 million in delinquent Federal debt as

summarized by the following chart:

Dollars Collected in FY 1999 By Debt Collection Tool*

Department of Justice / SAUSA Collections $13,908,615

IRS Tax Refund Offset $40,795

Treasury Offset (TOP) $925,263

Federal Salary Offset $16,369

*SBA performance indicator, business loans.

Budget Summary/

Human Resources

Agency Funds The SBA’s programs and operations are financed through the

following appropriation accounts: Salaries and Expenses; Office

of Inspector General; Business Loans Program Account; Disaster

Loans Program Account and Surety Bond Guarantees Revolving

Fund. For budget reporting purposes, SBA funds are maintained

in the following accounts:

• Business Loans Program Account

• Business Direct Loan Financing Account

• Business Guaranteed Loan Financing Account

• Business Loan Fund Liquidating Account

• Disaster Loans Program Account

• Disaster Direct Loan Financing Account

• Disaster Loan Fund Liquidating Account

• Surety Bond Guarantees Revolving Fund

• Business Assistance Trust Fund

• Salaries and Expenses Account

• Office of Inspector General Salaries and Expenses Account
Page 17

The two Salaries and Expense Accounts generally receive annual

appropriations. The other SBA accounts generally utilize annual

appropriations, multi-year and no-year appropriations, and

indefinite appropriations. Since FY 1992, the credit program

activities of the SBA have been subject to the FCRA. New

program and financing accounts were established in FY 1992

under FCRA to finance all credit activities occurring after

September 30, 1991.

The program accounts receive appropriations to the extent of

anticipated credit program levels. The financing accounts include

payments from credit program accounts and other cash flows

resulting from direct loan obligations or loan guarantee

commitments.

The Business Assistance Trust Fund is a “gift authority” account

and does not receive any appropriated funds.

Agency Financial

Position

The financial position of the Agency at FY 99 year-end is

summarized as follows:

• Total assets $16.2 billion

• Total liabilities $15.7 billion

• Total loan portfolio $48.1 billion

• Total reserves for losses $3.0 billion

The following chart illustrates SBA’s operational costs over the

past 10 years in both constant (using 1987 as a benchmark) and

nominal dollars (actual expenditure).

1. Excludes Disaster Program.

PROGRAM & STAFFING TRENDS

0

100,000,000

200,000,000

300,000,000

400,000,000

89 91 93 95 97 99

0

2000

4000

6000

Dollars 

Employees ( FTEs)
Page 18

New Programs

Pre Disaster

Mitigation Loans

A five year pilot program of loans to small businesses in Project

Impact areas (to be designated by the Federal Emergency

Management Agency) to finance mitigation measures before

disaster strikes.

Military Reserve

Economic Injury

Loans

Working capital loans to small businesses that suffer substantial

economic injury as a result of the military call up of an essential

employee.

Y2K Loans The Y2K Action Loan Program provides funding for small firms

to replace or repair non-Y2K compliant computers and/or

software and to recover from economic injury caused by Year

2000 computer-related problems.

Capital Access The programs under the Office of Capital Access provide a

comprehensive array of financial assistance to small businesses,

from the smallest start-up businesses to those businesses that have

difficulty getting credit elsewhere, including those that have been

in business for a number of years and need new capital to expand.

The SBA’s programs are designed to complement the private

sector in providing loans, guarantees, bonding, and other forms of

financial assistance to this critical sector of our economy.

Capital Access includes the following five program areas:

1. Business Loan Program

2. Development Company Assistance

3. Investment Company Assistance

4. Surety Bond Assistance

5. International Trade

Business Loan

Program

Program Description The business loan program, authorized by Section 7(a) of the

Small Business Act, is SBA’s largest financial assistance program.

Banks and certain non-bank lenders make loans, which are

guaranteed at percentages, varying from 50 percent to 90 percent.
Page 19

The SBA is authorized to make direct and guaranteed loans under

several specific loan programs. In FY 1996, direct loans under

the general business loan program were eliminated, except for

Microloan direct lending. Under the general business loan

program, business loans are guaranteed by the SBA for varying

amounts (up to 90 percent of the total loan amount or a maximum

of $750,000). An initial guarantee fee ranging from 2 percent to

3 7/8 percent is charged, depending on the size of the loan.

The SBA has three types of programs through which private

lenders may make SBA-guaranteed business loans: the regular

program, the certified lenders program and the preferred lenders

program. Under the regular program, the private lender accepts

the loan application; the SBA performs the credit analysis and

retains final loan-approval authority. The CLP operates like the

regular program except that the SBA promises a decision within

three days. Under PLP, the lender performs the credit analysis

and makes the credit decision. The CLP and PLP are of great

benefit to lenders and loan applicants, as well as the SBA, which

is able to leverage its resources more effectively to allow for

quicker assistance to more small businesses.

In response to the President’s effort to make government more

efficient, the SBA has taken great strides to streamline several of

its lending programs. Implementation of the LowDoc program,

which simplifies the application process for guaranty assistance on

loans of $150,000 or less, has significantly reduced the amount of

time and resources required. In FY 1995, the SBA centralized the

processing of PLP loans. Loan packages are now given a 24-hour

turnaround to the participating lender. This has reduced the

number of SBA personnel necessary to process PLP loans and has

resulted in a more uniform program. In FY 1995, the SBA began

a pilot program called FA$TRAK with 18 lenders. Under this

streamlined and expedited loan program, lenders use mostly their

own forms and procedures to process smaller SBA guaranteed

loans. In exchange for the increased authority and flexibility,

lenders accept a 50 percent guarantee. In FY 1998, the SBA

renamed this program SBAExpress, increased the maximum loan

amount under this program to $150,000, and opened the program

to additional lenders. In FY 1999, we partnered with the National

Community Investment Coalition to initiate the Community

Express loan program to make loans to businesses in New Market

areas using procedures similar to our SBA Express program.
Page 20

In addition to these guaranteed loans, the SBA Microloan

program provides small scale financing ($25,000 maximum) on a

short term basis for equipment, inventory, supplies and working

capital through Microloan intermediaries. The SBA makes direct

loans, and on a pilot basis, provides loan guarantees to

intermediaries who in turn make direct loans to small businesses.

Program Performance The following highlights significant developments for the business

loan program:

• The number of loan approvals grew steadily from FY 1986 to

FY 1995 with a prominent rise from FY 1991 through

FY 1995, when it peaked at 58,000 loans. Approvals declined

in FY 1996 to around 45,000 loans and have been at the

40,000 level for FY 1998 and FY 1999.

• Purchases increased slightly in the 7(a) program for FY 1999.

• Charge-offs also increased in the 7(a) program for FY 1999.

The PLP, CLP and SBAExpress programs that rely heavily on

lender credit analysis have been growing steadily in the past

several years. LowDoc loans represented 26 percent of the

number of loan approvals and 19 percent of gross dollar amount

of approvals in FY 1999. The following chart depicts each

program’s share as a percentage of total amount of loans made in

FY 1999.

PERCENTAGE SHARE OF BUSINESS LOAN PROGRAMS

13%

9%

55%

19%

4%

Standard 13%

CLP 9%

PLP 55%

LowDoc 19%

SBAExpress 4%
Page 21

During FY 1999, SBA guaranteed 40,470 loans for $9.54 billion,

(net of decreases and cancellations). Historical loan approval

information is summarized in the following graph.

BUSINESS LOANS

0

2,000,00 0, 000

4,000,00 0, 000

6,000,00 0, 000

8,000,00 0, 000

10,000,000,000

12,000,000,000

90 91 92 93 94 95 96 97 98 99

0

1 0, 000

2 0, 000

3 0, 000

4 0, 000

5 0, 000

6 0, 000

Guaranteed Loans in $

Approvals in #

Annual Approvals in Dollars and Numbers*

* SBA pe rformance i ndica tor

The following table shows an increase in loan approvals in both

number and dollar volume from FY 1998 to FY 1999. The data

shows that the portfolio currency rate increased to 92.2 percent in

FY 1999 from 91.8 percent in FY 1998. We believe the primary

reason for this change is the increased accuracy and timeliness in

reporting by lenders.

BUSINESS LOANS FY 1998 FY 1999 CHANGE %

CHANGE

Net Approvals ($) 8.6B 9.54B 0.94B 10.9%

Net Approvals (#) 38,974 40,470 1,496 3.8%

Portfolio Current (%) 91.8% 92.2% 0.4% 0.04%

Portfolio PastDue/Delinquent(%) 3.9% 3.5% (0.4%) (10.2%)

Portfolio in Liquidation (%) 4.3% 4.3% 0.00 0.00

Purchases ($) 409.7M 438.8M 29.1 7.1%

Purchases (#) 4,526 4,910 384 8.5%

Charge-Offs ($) 264.9M 357M 92.1 34.8%

Charge-Offs (#) 4,018 5,253 1235 30.7%

Charge-offs as a % of

Disbursements 7.52% 7.4% (0.12%) (1.6%)

Charge-offs as a % of

Outstanding Portfolio 1.16% 1.57% 0.41% 35.4%

Note: SBA performance indicators are shaded in the table.
Page 22

During FY 1999, 4,910 loans for a total of $438.8 million were

purchased from the lenders and 5,253 loans representing $357

million were charged off. This is an increase over FY 1998 due to

the growth in the business program since FY 1992. The portfolio

currency rate has improved from 84 percent to 92 percent over

the 90’s (1997 is a data aberration from a new reporting system).

Historical loan purchases and charge-off information as well as the

portfolio currency rate is summarized in the following graph.

BUSINESS LOANS

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

90 91 92 93 94 95 96 97 98 99

75.0

80.0

85.0

90.0

95.0

Charge-Offs in $

Purchases in $

Portfolio Currency

Rate in %

Currency Rate* and Charge-Offs Compared

* SBA performance indicator

Charge off and purchase dollars represent gross as opposed to SBA share.

Certified Development

Company Assistance

(Section 504)

Program Description The SBA’s Development Company program was created to give

small business owners the means to expand, modernize and

compete in the economy by providing long-term, fixed asset

financing.

The program, also known as the Section 504 program, permits

loans to be made to small businesses by Certified Development

Companies. CDCs are generally non-profit organizations

sponsored by private interests, or by state or local governments.

CDCs are certified by the SBA and are focused on economic

development in their community or region.

Each loan package must be approved by the SBA and the CDC

certifies that the assistance will have a significant economic impact

on the community in which the project is located, primarily

through job creation or retention. Each package includes at least

a 10 percent equity injection by the small firm, generally a 50

percent bank loan and a 40% CDC loan. The bank and the CDC

obtain a lien in the fixed asset purchased with the 504 financing.

The bank’s lien is ahead of the CDC’s lien. The CDC obtains the

money to make the CDC loan by selling a debenture that is 100%
Page 23

guaranteed by the SBA. To receive SBA’s guaranty, the CDC

must agree to assign the loan documents to SBA at closing. The

average SBA exposure was $384 thousand per debenture in

FY 1999.

Program Performance The following highlights significant developments for the

Section 504 program:

• Lending increased steadily from FY 1990 to FY 1996.

However, there was a decline in FY 1997 due to decreased

demand, possibly resulting from increased fees imposed that

year that resulted in a zero subsidy rate. In FY 1998, volume

rebounded somewhat, exceeding FY 1997 possibly due to

decrease in the fees. The trend continued in FY 1999, the

dollar amount and the number of approvals increased in

FY 1999. Fees were again reduced for borrowers in FY 1998

and FY 1999.

• Purchases, both in dollars and numbers, decreased in FY 1999

over FY 1998.

• Charge-offs, both in dollars and numbers, increased in FY 1999

over FY 1998.

CDCs have provided more than $14 billion in 504 financing to

assist more than 40,000 small businesses in total projects of about

$32 billion, including equity and bank financing. Based on criteria

used to estimate job creations, CDCs have reported that

approximately 890,000 jobs have been created or retained as a

result of projects funded by the 504 program.

During FY 1999, 5,159 loans were approved through the

504 program for a total gross dollar amount of $1.98 billion. The

following graph illustrates that, after steadily increasing since

FY 1990, there was a drop in the number and dollar volume of

development company approvals in FY 1997. The FY 1999

numbers show an increase in the number and dollar volume of

loan approvals over FY 1998.
Page 24

The following table shows the increase in volume and dollar

amount of Section 504 loan approvals in FY 1999 over FY 1998.

The table also shows that the purchases and charge-offs increased

in FY 1999.

DEVELOPMENT

COMPANY LOANS FY 1998 FY 1999 CHANGE %CHANGE

Net Approvals ($) 1,769M 1,982M 213 12%

Net Approvals (#) 4,847 5,159 312 6.4%

Purchases ($) 62.2M 83.1M 20.9M 33.6%

Purchases (#) 233 220 (13) (5.6%)

Charge-Offs ($) 27.7M 37.7M 10M 36.1%

Charge-Offs (#) 127 192 65 51.18%

Charge-offs as a % of

Disbursement 3.13% 3.06% (0.07%) (2.24%)

Charge-offs as a % of

Outstanding Portfolio 0.39% 0.47% 0.08% 20.51%

Note: SBA performance indicators are shaded in the table.

The following graph shows that SBA’s development company

purchase and charge-off dollars increased in FY 1999 compared

to FY 1998 as a result of recent years’ program increases.

DEVELOPMENT COMPANY LOANS

 Charge-Offs and Purchases

0

50,000,000

100,000,000

90 91 92 93 94 95 96 97 98 99

Charge-Offs in $

Purchases in $ 

DEVELOPMENT COMPANY LOANS

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

90 91 92 93 94 95 96 97 98 99

0

2,000

4,000

6,000

8,000

Approvals in $

Approvals in #

Annual Approvals* in Dollars and Numbers

*SBA performance Indicator
Page 25

Small Business

Investment Company

Program

Program Description The Small Business Investment Company program was

established to address the need for venture capital by small

emerging enterprises and to improve their opportunities for

growth, modernization, and expansion. The program provides

financing through SBICs, which use their own capital, along with

funds obtained through the sale of SBA-guaranteed debentures

and participating securities.

SBICs provide equity capital, long-term loans, debt-equity

investments and management assistance to qualifying small

businesses. The SBICs share in the success of the small

businesses as they grow and prosper.

As of September 1999, the SBA portfolio of active companies

was composed of 289 SBICs with committed capital resources of

$11.8 billion and 65 Specialized SBICs with capital resources of

$274 million.

Program Performance The following highlights significant trends or developments for

this program:

• SBIC leverage approvals continued to increase as interest in

the participating securities program remained high.

• Licensing activity also remained high, especially among

potential participating securities issuers.

• The amount of leverage in liquidation as a percentage of total

outstanding program leverage has continued to decline from 39

percent in FY 1994 to 9.7 percent in FY 1998 and to 6.2

percent in FY 1999.

• A new interim funding process, just-in-time funding, provides

SBICs with the flexibility to time their takedowns of leverage

based on expected financing of small businesses.

• The terms of the SBA’s leverage commitments to SBICs were

extended so that the funds can be drawn down over a 5 year

period, similar to the investment cycle of the SBICs.

During FY 1999, SBICs made 3,096 investments in small

businesses for a total of approximately $4.2 billion.
Page 26

The following graph displays the financing activity for the SBIC

program over the past 10 years. This financing is in the form of

debentures, preferred stock and participating securities. The

participating securities program, initially authorized in FY 1992

and implemented in FY 1994, defers the SBIC’s obligation for

interest payments and allows SBA to participate in the earnings of

the SBIC’s portfolio attributable to the participating securities

financings. As of September 1999, the SBA received more than

$42 million in profit participation from SBICs. The number of

SBIC licenses granted remained high in FY 1999 with 53 new

licenses.

The total private capital of SBICs licensed in FY 1999 was

$747 million. Of the $1.367 billion in SBIC funding approvals

(obligations) in FY 1999, the participating security program

accounted for $1.015 billion (74.25 percent) and the debenture

program accounted for $352.0 million (25.75 percent). The SBA

no longer makes preferred stock purchases under this program.

SBICs used private funding along with SBA guarantees to

provide a total of $4.2 billion of investments in small businesses.

SBIC FINANCIAL ASSISTANCE

0

500,000,000

1,000,000,000

1,500,000,000

90 91 92 93 94 95 96 97 98 99

0

50

10

15

20

Guarantees

Approvals

Annual Approvals in Dollars and Numbers*

* SBA performance Indicator
Page 27

The following table shows improved performance of the portfolio

during FY 1999, as evidenced by an improvement in the portfolio

currency rate, a reduction in the number and size of purchases,

and an improvement in the portfolio liquidation percentage and in

charge-offs of completed liquidation cases.

INVESTMENT

COMPANY LEVERAGE FY 1998 FY 1999 CHANGE %CHANGE

Approvals ($) 1,161.6M 1,367M 205.4 17.7%

Approvals (#) 144 106 (38) (26.4%)

Portfolio Current ($) 90.3% 93.6% 3.3% 3.6%

Portfolio PastDue/Delinquent (%) 0.0% 0.2% 0.2% --

Portfolio Liquidation ($) 9.7% 6.2% (3.5%) (36.1%)

Purchases ($) 12.6M 6.1M (6.5M) (106.56%)

Purchases (#) 16 4 (12) (75%)

Charge-Offs ($) 36.4M 35.8M (0.6M) (1.65%)

Charge-Offs (#) 48 32 (16) (33.33%)

Charge-offs as a % of

Disbursement 8.62% 8.18% (0.44%) (5.1%)

Charge-offs as a % of

Outstanding Portfolio 1.86% 1.57% (0.29%) (15.59%)

Note: SBA performance indicators are shaded in the table.

The following graph indicates investment company trends over the

past 10 years. In FY 1997, charge-offs rose significantly as prioryear losses resulting from the legislatively mandated preferred

stock buyback and liquidation charge-offs were recognized. The

portfolio currency rate includes the SBA’s purchased and

guaranteed loans. This rate increased from 90.3 percent in

FY 1998 to 93.6 percent in FY 1999.

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

90 91 92 93 94 95 96 97 98 99

0.0

20.0

40.0

60.0

80.0

100.0

Charge-Offs in $

Purchases in $

Portfolio Currency Rate in %

INVESTMENT COMPANY LOANS

Currency Rate* and Charge-Offs Compared

* SBA performance indicator

Charge off and purchase dollars represent gross as opposed to SBA share.
Page 28

Surety Bond

Assistance

Program Description The Surety Bond Guarantee program assists certain small business

contractors in obtaining the required bid, performance, and

payment bonds for construction, service, and supply contracts. A

surety bond is a three-way agreement between the surety

company, the contractor and the project owner. It binds the

contractor to comply with the terms of the contract. If the

contractor is unable to do so, the surety assumes the responsibility

and ensures that the project is completed. The SBA guarantees

surety companies against a percentage of losses sustained as a

result of a contractor’s default on a guaranteed bid, payment or

performance bond. Both the surety company and the contractor

pay a fee for an SBA surety bond guaranty.

The SBG program is not considered a credit program under the

guidelines of the Federal Credit Reform Act because there is no

guarantee of principal and/or interest payments. Therefore, no

subsidy calculations are made for this program.

Program Performance The following highlights trends or developments for the SBG

program:

• Approvals have fluctuated over a 10 year period with a

decrease in the last 5 years. FY 1999 continued this trend and

showed a decrease over the previous year.

• In FY 1999, 2,399 final bonds were guaranteed for

$426 million in contract amount.

$12.4 million in claims were paid, and $3.7 million was recovered

in FY 1999.

In FY 1999, SBA approved 7,000 bid bond applications

representing potential contracts worth nearly $1.6 billion. The

Agency guaranteed 2,399 final bonds amounting to $426 million

in contract value of which SBA’s share was $328 million.

The following chart shows SBA’s dollar volume of surety bond

approvals over the last 10 years. The SBG volume usually tracks

with the construction industry.
Page 29

The average contract amount of final bond approvals decreased

from $185,492 in FY 1998 to $177,602 in FY 1999 indicating

that SBA assistance is going to smaller contractors.

The following table compares FY 1999 program volume and

claims with FY 1998 results.

SURETY BOND

GUARANTEE FY 1998 FY 1999 $

CHANGE

%

CHANGE

Approvals $ 531M 426M (105M) (19.8%)

Approvals # 2,860 2,399 (461) (16.1%)

Claims $ 16.6M 12.4M (4.2M) (25.3%)

Recoveries $ 5.9M 3.7M (2.2M) (37.3%)

Note: Reflects gross approvals.

As the following graph shows, recoveries decreased in FY 1999

over the two previous fiscal years resulting from intensified

recovery efforts.

SURETY BOND GUARANTEES

0

500,000,000

1,000,000,000

1,500,000,000

90 91 92 93 94 95 96 97 98 99

0

2,000

4,000

6,000

8,000

10,000

12,000

Dollar Amount

# of Bonds

Annual Approvals in Dollars and Numbers

Data obtained from Surety Bond Guarantee Report of Surety Bonds and Allotments

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

90 91 92 93 94 95 96 97 98 99

Recoveries

Claims

SURETY BOND GUARANTEES

Annual Recoveries and Claims
Page 30

International

Trade

Program Description The Office of International Trade oversees the Agency’s programs

designed to help U.S. small businesses export their products. The

Agency delivers both business development and financial

assistance programs.

The SBA initiated partnership agreements with its counterparts in

Mexico and Argentina to foster improved cooperation and

business opportunities for small businesses in these markets in

FY 1999. The SBA remains a member of the GoreChernomyrdin Commission and is actively working with the

banking and small business communities to encourage American

small businesses to explore exporting opportunities in the Russian

Federation. The SBA is also working with Egypt to assist its

effort to develop small businesses through the Gore-Mubarak

Commission. During FY 1999, the SBA sponsored trade missions

to Ireland, Mexico, and Canada to promote increased exporting

opportunities for U.S. small business.

With more than 202,000 small businesses nationwide holding a 31

percent market share of export sales and accounting for 97

percent of exporters, small businesses are making a major

contribution to the economic health of the global community by

contributing to the stabilization and growth of our own

communities here at home.

Recent statistics on small businesses and exporting show that in

the last 10 years, the number of SME exporters has tripled; in the

last five years, the dollar value of SME exports grew by 300

percent; and of all the SME exporters, the most dynamic growth

was seen by companies that employed fewer than 20 people.

These small businesses represented two thirds of U.S. exporting

companies, showed a 40 percent growth in export value in the last

10 years and their average export dollars represented $650,000

per company.

Delivering the appropriate assistance to U.S. small businesses

helps them increase their export potential. The SBA calls this

assistance their SBA Export Continuum consisting of educational

initiatives and tools, technical assistance programs and services,

risk management and trade finance products.
Page 31

The SBA Export

Continuum

SBA has developed products and services that coincide with the

growth stages of small businesses as they enter the international

marketplace. These stages of growth and expansion form the

international trade continuum: beginning with an educational

training component; moving on to technical assistance ranging

from business and marketing plan assistance to product and

market adaptation help; and progressing to risk management and

financial assistance for production of the product or financing of

foreign accounts receivable once a transaction is obtained.

Educational Products Trade Finance Training - Trade finance training for lenders.

Export Training – A basic course on exporting available for

trainers or for courses in exporting.

Marketing Training – A basic marketing course for U.S. Export

Assistance Center (USEAC) personnel as well as other SBA

partners.

Overseas Marketing & Business Plan – Training materials and

formatted templates for use in designing customized overseas

marketing and business plans.

Publications & Books – “Breaking Into the Trade Game” and

“Bankable Deals.”

TradeNet – An interactive, international trade “tool kit” (onestop-shop or “virtual USEAC”) on the Internet.

Technical Assistance

Products

E-TAP (Export Technical Assistance Program). - A formal

training program for potential small business exporters, usually

co-sponsored with public and private-sector providers of

education and training for the exporter. These are offered at U.S.

Export Assistance Centers nationwide.

E-LAN (Export Legal Assistance Network). - Initial, free legal

advice for existing and potential exporters offered in partnership

with the Federal Bar Association.

Risk Management

Products:

EXport Risk Analysis Online (EXR-Online) is a new tool that

utilizes interactive Internet technology to allow lenders to quickly

determine whether or not an export transaction is eligible for

funding under the Export Working Capital Program.

Finance Products The SBA is consistently working to make its export finance

assistance programs more user-friendly and relevant to the small

business community by making them more accessible and making

it more profitable for lenders to participate in its guaranty

programs. This has been accomplished through a reduction in

paperwork and streamlining the application and review process

for small business export loans.
Page 32

EWCP (Export Working

Capital Program)

Finances short-term export working capital needs of small

businesses. SBA can guarantee up to 90 percent of a secured

loan, up to $750,000.

International Trade Loan Provides short-term and long-term financing for small businesses

involved in exporting. Guarantee can be up to $1.25 million for a

combination of fixed-asset financing and working capital.

U.S. Export Assistance

Centers (USEACs)

Working with the Department of Commerce and the ExportImport Bank, the SBA is a fully committed partner and has

representatives in the network of 19 U.S. Export Assistance

Centers across the country to provide in a single location, handson export marketing and trade finance counseling. The SBA uses

the U.S. Export Assistance Centers (USEACs) network as its

primary vehicle for the delivery of all of its programs to small

business exporters.

Disaster

Assistance

Program Description The SBA assists victims of physical disasters such as earthquakes,

floods and hurricanes by extending direct loans to individuals and

businesses. Loans are made at favorable terms and conditions for

uninsured losses of real and personal property, and economic

injury caused by a disaster. The Disaster Loan program is the

primary form of Federal assistance for non-farm, private sector

losses and is the only form of SBA financial assistance not limited

to small businesses.

Three major types of disaster assistance are:

Home Disaster Loans - Loans to homeowners or renters to

repair or replace damage to homes or personal property owned by

the applicant. Renters are eligible only for personal property

loans.

Business Physical Disaster Loans - Loans to businesses of all

sizes to repair property owned by the businesses, including

damaged inventory and supplies.

Economic Injury Disaster Loans - Working capital loans to

small businesses and small agricultural cooperatives to assist them

through recovery from the disaster.
Page 33

In FY 1999, Congress mandated the following disaster loan

programs. Both programs will be implemented in FY 2000.

Pre Disaster Mitigation Loans – A 5 year pilot program of loans

to small businesses in project impact areas (to be designated by

the Federal Emergency Management Agency) to finance

mitigation measures before disaster strikes.

Military Reserve Economic Injury Loans – Working capital

loans to small businesses that suffer substantial economic injury as

a result of the military call up of an essential employee.

The program is administered through four area offices. These

areas and their share of disaster assistance are depicted on the

chart below.

Note: The above dollar amounts represent “net loan approvals” (after increases, decreases and cancellations).

Program Performance The following highlights significant trends or developments for the

Disaster Assistance program.

• Loan approvals have fluctuated significantly from year to year,

due to the nature of the program. For FY 1999, 36,176 loans

were approved for $936.6 million.

Area I

$198.3

Area II

$314.7 Area III

$339.9

Area IV

$83.7

FY 1999 SBA Disaster Assistance By Area

(Dollars in Millions)
Page 34

• Portfolio currency rate increased to 88.7 percent from 87.9

percent in FY 1998.

• Charge-offs increased for FY 1999 reflecting past increases in

program activity.

The following graph shows that SBA’s dollar volume of disaster

loan approvals fluctuates from year to year. From FY 1991

through FY 1993, approvals significantly increased in response to

Hurricane Hugo, Hurricane Andrew, Hurricane Iniki, Typhoon

Omar, the Los Angeles riots, the great Midwest floods and severe

coastal storms on the east coast. During FY 1994, in the

aftermath of the Northridge earthquake, the SBA approved more

than 125,000 loan applications at a value of more than $4.1

billion. The continuing activity from Northridge, together with

floods and hurricanes, caused the high activity in FY 1995.

Floods and hurricanes in FY 1996, FY 1997, FY 1998, and FY

1999 kept the level of activity at just around $1 billion for those

years.

DISASTER LOANS

0

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

90 91 92 93 94 95 96 97 98 99

0

50,000

100,000

150,000

Dollar Amount

Number of Loans

Annual Approvals* in Dollars and Numbers

* SBA performance indicator
Page 35

Since the inception of the program in 1953, the Agency has

approved 1,452,340 disaster loans for more than $27 billion. As

can be seen from the following table, SBA approved

36,167 disaster loans for $936.6 million in FY 1999. SBA

continued to streamline the disaster loan process, achieving

unprecedented response times.

DISASTER ASSISTANCE FY 1998 FY 1999 CHANGE %

CHANGE

Approvals ($) 728.1M 936.6M 208.5M 28.64%

Approvals (#) 30,154 36,176 6,022 19.97%

Portfolio Current ($) 87.9% 88.7% 0.8% 0.91%

Portfolio PastDue/Delinquent ($) 4.5% 4.3% (0.2%) (4.44%)

Portfolio Liquidation ($) 7.7% 6.9% 0.8% 10.39%

Charge-Offs ($) 119.7M 169.9M 50.2M 41.94%

Charge-Offs (#) 7,493 7199 (294) (3.92%)

Charge-offs as a % of

Disbursement 8.55% 8.98% 0.43% 5.03%

Charge-offs as a % of

Outstanding Portfolio 1.70% 2.48% 0.78% 45.88%

Note: SBA performance indicators are shaded in the table.

The following graph shows that the SBA’s disaster portfolio

currency rate remained relatively constant over most of the

10 year period. Charge-offs declined in the early 1990s and

increased in the second half of the 1990s. Aggressive charge-off

policies were implemented in FY 1989 and these efforts have

resulted in a relatively high currency rate during the 1990’s.

Significant increases in the number of new loans starting in

FY 1990 increased charge-off activity in the years since 1994.

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

90 91 92 93 94 95 96 97 98 99

84

85

86

87

88

89

90

91

Charge-Offs in $

Currency Rate in %

DISASTER LOANS

Currency Rate and Charge-Offs Compared

* SBA performance indicator
Page 36

The SBA has been actively improving its credit management and

debt collection practices. Five successful debt collection tools are

used for outstanding disaster loans including use of SBA attorneys

appointed as Special Assistant United States Attorneys to

augment the Department of Justice collection efforts, the IRS

offset, OPAC/TOPS offset, referrals to Treasury for the use of

private collection agencies and Federal salary offset. The

following chart shows the disaster dollars collected by each debt

collection tool for FY 1999.

Disaster Dollars Collected Per Debt Collection Tool*

Department of Justice / SAUSA Collections $2,308,499

Internal Revenue Service Offset $859,872

Treasury Offset (TOP) $3,113,334

Federal Salary Offset $240,930

*SBA performance indicator.

Entrepreneurial

Development

The SBA provides management assistance in the form of

training and counseling programs. The program offices

overseeing SBA’s primary management assistance programs

are:

• Business Initiatives

• Veterans’ Affairs

• Women’s Business Ownership

• Small Business Development Centers

• Welfare to Work Initiative

• One Stop Capital Shop

• Native American Affairs

Business Initiatives Business Initiatives encompasses a diverse mix of business

information, training and counseling resources offered to the

public. The BI program oversees the operation of 62 Business

Information Centers and the Service Corps of Retired Executives

counseling and training program. BI also provides business

information to small businesses through cosponsorships with

private sector entities.
Page 37

BICs are often established through partnerships between the SBA

and for-profit entities, other Federal agencies, and non-profit

organizations. BICs offer clients the latest computer technology,

hardware and software, an extensive small business library of hard

copy books and publications and management videotapes to help

entrepreneurs plan their business, expand an existing business or

venture into new business areas. In addition to premier business

management tools, all BICs feature on-site counseling by SCORE

counselors.

SCORE counsels and trains the largest number of start-up

business owners each year. Through one-on-one counseling and

workshops, SCORE makes approximately 384,000 contacts with

business owners annually. With some 390 chapters and 11,400

volunteers, the services of a SCORE volunteer are readily

available within a few hours drive of most businesses. All

counseling is provided free of charge to the client. SCORE also

counsels small businesspersons via e-mail through SCORE Online.

Veterans’ Affairs The Office of Veterans’ Affairs oversees the Agency’s assistance

to veterans and works with other SBA program offices to provide

special consideration to veterans. The office designs procurement

and management training programs specifically for veterans and

coordinates veterans’ training and counseling with other agencies

or departments.

The OVA coordinates national veterans’ programs such as the

Veterans Business Outreach and the Transition Assistance

program for military personnel. The OVA promotes

entrepreneurship and assists small businesses affected by base

closings and military downsizing.

The SBA is establishing an outreach program to provide enhanced

business development assistance to eligible veterans in accordance

with SBA’s Reauthorization Act of 1997. In FY 1999, the SBA

awarded legislatively mandated outreach grants to assist eligible

veterans with entrepreneurial training and developed a

comprehensive guide to assist veterans in the start-up and

expansion of their businesses. In FY 2000, SBA will implement

requirements of The Veterans Entrepreneurship and Small

Business Development Act of 1999 (Public Law 106-50).
Page 38

Women’s

Business

Ownership

The Office of Women’s Business Ownership provides assistance

to the increasing number of women business owners and acts as

their advocate in the public and private sectors. It serves the

Nation’s nearly 9.1 million women-owned businesses through

technical, financial and management information, training, and

counseling.

OWBO manages the Women’s Business Center Program, a

public-private partnership which supports a network of

80 women’s business centers in 47 states, the District of

Columbia, Virgin Islands, and Puerto Rico. Of these centers,

59 are currently funded physical sites. For FY 1999, the

59 funded sites provided financial, managerial, marketing and

procurement assistance to more than 30,000 women.

The on-line Women’s Business Center, found on the Internet at

http://www.onlinewbc.org, is an interactive business skills web

site that brings together the public and private sectors to the

further empowerment of women entrepreneurs. Launched in

January 1998, this free Web site offers business counseling,

training, mentoring and live chats in English and Spanish and is

accessible in Russian. It also details the wide range of programs

and services offered by the SBA to women entrepreneurs. It

receives more than 1 million hits per month from more than 100

countries.

All WBCs are linked electronically through an intranet,

OWBOZONE, to provide a free flow of information. The

OWBO has also established a Women’s home page on the SBA

Web site, http://www.sba.gov/womeninbusiness .

The Women’s Network for Entrepreneurial Training is a

mentoring program for women business owners. The WNET

program links seasoned entrepreneurs with women whose

businesses are poised for growth. Links are made at

150 roundtables held nationwide throughout the year. This

program has shown a 30 percent increase since FY 1998.

The Women’s Prequalification Pilot Loan program is a nationwide

program that enables women to prequalify for an SBA loan

guaranty before going to the bank. Since June 1995, more than

$116 million in loans have been made to women under this

program.
Page 39

Small Business

Development Centers

The Small Business Development Center program plays a major

role in delivering management and technical assistance, economic

development and management training to existing and prospective

small businesses. This is accomplished through cooperative

agreements with lead SBDC centers working with universities,

colleges and state agencies to conduct small business counseling

and training.

The SBDC network includes about 1,000 sites, including one in

every state (four in Texas), the District of Columbia, Puerto Rico,

the U.S. Virgin Islands American Samoa and Guam. In FY 1999,

SBDCs reported that they counseled 331,464 individuals and

provided 22,450 training sessions.

Welfare to Work

Initiative

The SBA has played a leadership role in the President's welfare to

work initiative. In each city and state across the country, the

SBA has used its extensive network of field offices and resource

partners to connect thousands of small business owners planning

to hire employees, with local service providers who train welfare

recipients. In FY 1999, the SBA received more than 101,000

commitments from small businesses to hire welfare recipients.

One Stop Capital Shop The One Stop Capital Shop is SBA’s contribution to the

Empowerment Zone (EZ)/Enterprise Community. It is an

alternative delivery mechanism for the Agency’s products to areas

that have been underserved by the SBA. OSCS are cost effective,

customer friendly and serve as a working model of public/private

partnership.

The OSCS brings the SBA's business development and capital

resources together in one location with other Federal, state, local

and private sector resources to leverage and complement those

resources and provide customer convenience. The OSCS

provides the economic tools for sustained economic development

and growth.

Local communities are required to be stakeholders in the process

to determine goals, mission, partners and day to day operations.

The SBA’s presence does not duplicate, rather it complements

and leverages other available financial and technical assistance

resources. The SBA provides the equipment and reference

materials for a Business Information Center and up to two SBA

full-time employees. In general, the communities house and

maintain the BIC as well as the OSCS and bring together the

other partners.
Page 40

There are a total of 18 One Stop Capital Shops in operation. The

first EZ/EC OSCS opened Nov. 6, 1995, in Boston. During

FY 1999, the OSCSs served more than 53,000 clients; OSCS

referrals resulted in 531 loans for more than $92 million, created

more than 1,300 new jobs and retained more than 2,600 existing

jobs within Empowerment Zone/Enterprise communities.

Native

American Affairs

The SBA’s Office of Native American Affairs is the only office in

the Federal Government that solely assists American Indians,

Native Alaskans, and Native Hawaiian small business clients,

tribally owned small businesses and small businesses located in

Native American communities. The primary focus of ONAA is

economic development and job creation through small business

ownership and education.

The ONAA formulates policy and develops legislative and

program initiatives to ensure Native American individuals have

access to business development resources, training and services.

SBA coordinates the delivery of services to Native Americans

with other SBA program offices, SBA resource partners (SBDC

& SCORE), Federal and state agencies, tribal governments,

National Native American organizations, and tribal colleges to

educate, develop and expand Native-American owned businesses.

SBA’s accomplishments in the Native American community:

• Provided operational funding for 17 Tribal Business

Information Centers in Arizona, California, North Carolina,

Minnesota, North Dakota, South Dakota and Montana.

• In FY 1999, reservation-based TBICs served 3,951 clients,

provided 8,433 hours of business counseling, held

291 workshops, and assisted in the completion of 196 business

plans and 136 loan packages, and were instrumental in the

startup of 212 new businesses.

• At the end of FY 1999 there were 405 Native American

owned and 29 Native Hawaiian business concerns

participating in the 8(a) Business Development program.

• The SBA made 534 loans totaling $82.8 million to Native

American-owned businesses in FY 1999.

• Hosted a conference “Doing Business in Indian Country.”

The purpose of the conference was to cultivate support from

Federal Government and private sector. The goal was to

sharpen and enhance the skills and knowledge of SBA’s

program offices by the TBIC facilitators. The ultimate result

of this type of training is providing more effective services to

Native-American clientele.
Page 41

Program Budget and

Performance

Program information on Entrepreneurial Development programs

is shown in the table below.

ENTREPRENEURIAL

DEVELOPMENT FY 1998 FY 1999 CHANGE %CHANGE

SCORE:

Training Events (#) 5,079 5,921 842 16.58%

Training Attendees (#) 107,532 118,806 11,274 10.48%

New Counseling Cases (#) 169,696 187,237 17,541 10.34%

Counseling Hours (#) 393,434 424,554 31,120 7.91%

 BIC Clients Served 108,918 123,264 14,346 13.17%

Veterans:

Guarantee Loans (#) 5,913 5,477 (236) (4.13%)

Guarantee Loans ($) 1,371M 1,380M 9.0 0.66%

Exporting:

Guarantee Loans (#) 961 1,097 136 14.15%

Guarantee Loans ($) 312M 390M 78M 25.00%

SBDC:

Training Events (#) 19,634 22,450 2,816 14.34%

Training Attendees (#) 309,382 331,284 21,902 7.08%

Counseling Cases(#) 237,655 263,824 26,169 11.01%

Counseling Hours(#) 1,271,412 1,446,996 175,584 13.81%

Government

Contracting &

Minority

Enterprise

Development

These offices administer SBA’s programs to provide Federal

contracting opportunities and research and development

assistance to small businesses. These offices include:

• Government Contracting

• Minority Enterprise Development

• Technology

• Size Standards

• HUBZone

• SDB Certification and Eligibility

Government

Contracting

The Office of Government Contracting ensures that small

businesses receive a fair share of Government contracts and

subcontracts. This objective is carried out through various

component programs, including the Prime Contracts,

Subcontracting Assistance, Natural Resources Sales Assistance,

Certificate of Competency, Procurement Policy and Liaison,

PRO-Net, Women-Owned Small Business Procurement, and the

Small Business Procurement Preference Goaling Programs.
Page 42

The Prime Contracts program is carried out primarily by

Procurement Center Representatives. PCRs monitor Federal

buying offices and promote small business participation at major

nationwide Federal procurement activities. Breakout Program

PCRs review sole source requirements to breakout components

and other items for competition. This provides new opportunities

for small business participation in Federal procurements.

Through the Subcontracting Assistance Program, the SBA ensures

that small businesses receive maximum practicable opportunity to

participate as subcontractors on Federal contracts. The SBA's

Commercial Market Representatives perform compliance reviews

to ensure that prime contractors adhere to contract requirements

to provide applicable subcontracting opportunities to small

businesses. Also, CMRs conduct needs assessments to identify

products and services sought by prime contractors and refer

specific small businesses to the prime contractors to satisfy those

needs. These activities are reflected in the chart below under

"Needs Assessments" and "Specific Referrals."

The Natural Resources Sales Assistance program aids and assists

small businesses in obtaining their fair share of Federal property

offered for sale or disposal in accordance with public law. Efforts

have been concentrated on the sale of Federal timber, royalty oil,

coal leases and other mineral leases.
Page 43

The SBA also maintains an online, interactive, electronic gateway

of procurement information, for and about small businesses called

the Procurement and Access Network. PRO-Net is a virtual onestop procurement shop for government contracting officials to

find small businesses interested in providing products and services

to the Federal Government. Small business profiles in PRO-Net

can be accessed by Federal, state and local government

contracting officers, as well as private-sector businesses looking

for contractors, subcontractors, teaming arrangements or

partnerships. The electronic profile of each registered small

business includes the identification of the business, organization or

ownership, products, services and performance history. The

system provides an electronic gateway to the Commerce Business

Daily, Agency home-pages and other sources of procurement

opportunities. PRO-Net also serves as a central on-line register

that identifies firms officially certified as 8(a) program

participants, HUBZone small business, small disadvantaged

businesses as well as other designated classifications such as

women-owned small business, veteran, and Native-American

Programs.

The Certificate of Competency program authorizes the SBA to

certify a small company’s “capability, competency, credit,

integrity, perseverance and tenacity” to perform a specific

government contract. This certification provides contracting

opportunities to small businesses.

The Small Business Procurement Preference Goaling program

requires the SBA to coordinate annually with each of the major

Federal agencies to ensure that the small business goals

established by the President and Congress are obtained. The SBA

requests each agency to establish, prior to the beginning of the

fiscal year, proposed prime contract and subcontract goals for

small business, small disadvantaged business, women-owned small

businesses, and HUBZone small business concerns. SBA also

requests agencies to establish prime contract goals for awards to

8(a) firms under the 8(a) Business Development Program. The

SBA negotiates the proposed goals with the Agency and

establishes final goals for each goaling category. At the end of the

fiscal year, each agency submits its goal achievements to the SBA.
Page 44

Program Budget

and Performance Information for this program is shown in the table below:

GOVERNMENT CONTRACTING FY 1998 FY 1999 CHANGE %

CHANGE

Subcontracting Compliance Reviews (#) 1,436 1337 (99) (6.9%)

Needs Assessments (#) 250 301 51 20.4%

Specific Referrals (#) 1,841 1135 (706) (38.8%)

Firms Counseled (#) 14,000 13,000 (1,000) (7.1%)

PRO-Net - Firms Registered (#) 178,056 184,000 5,944 3.3%

PRO-Net - Demonstrations (#) 55 250 195 355%

Small Business Set-Asides 11.5B $10.5B ($1.0B) (8.7%)

Savings through BPCR & COC programs 52.5M $70.0M 17.5M 33.3%

Minority Enterprise

Development

Program Description The Office of Minority Enterprise Development assists small

disadvantaged businesses because of their demonstrated potential

for success through certification for participation in the

Section 8(a) program. Once in the program, MED provides them

with marketing support and other assistance through the provision

of business development, and management and technical

assistance.

MED provides business development support to program

participants through: (1) annual reviews and development of

business plans that establish targets for sustainable growth;

(2) identification of procurement opportunities and marketing

assistance; and (3) assistance in negotiating provisions and awards

of sole source and limited competitive Federal contracts, pursuant

to Section 8(a) of the Small Business Act. Through these tools,

MED provides a logical, systematic approach to market access

and enterprise growth to small businesses owned and controlled

by socially and economically disadvantaged individuals. Section

8(a) firms participate in this program over a maximum 9 year

period, during which their progress is planned and monitored.

Under Section 7(j) of the Small Business Act, MED provides

specialized training, professional consultant assistance and highlevel executive development to 8(a) program participants, other

small disadvantaged businesses and small businesses in laborsurplus areas.
Page 45

Technology The SBA’s Small Business Innovation and Research program was

created in 1982 to meet the research and development needs of

the Federal Government while providing small innovative

companies with opportunities to compete for research and

development awards and to commercialize the resulting new

technology. The program was reauthorized by Congress in 1992

and also included approval for the Small Business Technology

Transfer program. The STTR program encourages small

businesses and research institutions to cooperatively propose

innovative solutions to Agency high tech initiatives.

Ten Federal agencies presently participate in the SBIR program

and five Federal agencies participate in the STTR program. Since

1982, these agencies have made more than 46,000 awards through

the SBIR program, totaling more than $7.5 billion to small

business concerns. The STTR program, in its first four years of

operation, made 1,133 awards worth $126.3 million.

Size Standards Small business status is required for a business to be eligible for

any of the SBA assistance programs (except physical disaster

loans), for a business to receive small business set-aside contracts

from Federal agencies, and for a small disadvantaged business to

receive certain preference on Federal contracts. Size standards

define what businesses are eligible for SBA assistance. They are

usually stated in terms of number of employees or average annual

receipts, with small business status eligibility limited to those firms

at or below one applicable size standard. The SBA’s size

standards are also used by other Federal agencies and state and

local governments for various small business programs. There is a

separate size standard for each industry in the economy as defined

under the Standard Industrial Classification system. For several

programs, a separate size standard has been established, such as

the Surety Bond Guarantee Program and the Small Business

Innovation and Research Program.

HUBZone The HUBZone Empowerment Contracting Program (HUBZone

Program) was launched March 22, 1999. This program provides

Federal contracting assistance for qualified small business

concerns located in historically underutilized business zones in an

effort to increase employment opportunities, investment and

economic development in these areas. The program provides for

set-asides, sole source awards, and price evaluation preferences

for HUBZone small business concerns and establishes goals for

awards to these businesses. To qualify for the program, a small

business must meet all of the following:
Page 46

• The company’s principal office must be located within a

“HUBZone” which includes lands on federally recognized

Native-American reservations;

• The company must be owned and controlled by one or more

U.S. citizens; and

• At least 35percent of the firm’s employees must be HUBZone

residents.

Special computer mapping software is available on the HUBZone

website to allow firms to determine if they are located in a

HUBZone. To apply, companies may use the electronic

application on the website or download a paper version of the

application and submit it to the HUBZone program office. Once

approved, eligible firms are listed on PRO-Net. As of the close of

FY 1999, there were 327 approved HUBZone firms.

Small Disadvantaged

Business Certification

And Eligibility

The Office of Small Disadvantaged Business Certification and

Eligibility assists small disadvantaged businesses by certifying

them as an SDB eligible firm. In response to the Supreme Court’s

Adarand decision, which now calls for strict judicial scrutiny, any

Federal procurement program that considers race in its contract

decision making must narrowly tailor its efforts to serve a

compelling Government interest. The Adarand decision gave rise

to major procurement reforms in Federal procurement programs

that assist SDBs in order to remedy the effects of past and

ongoing discrimination. The procurement reforms provide for

price credits to SDBs bidding on prime contracts and evaluation

credits to non-SDB prime contractors that use SDBs in contract

performance.

A key component of the procurement reforms was the

establishment of a formal certification process to ensure that only

eligible SDBs benefit from these procurement mechanisms. SBA

certifies small business concerns that meet specific social,

economic, ownership and control eligibility criteria as SDBs. To

be certified as an SDB, a small business must be at least 51

percent owned and controlled by one or more individual(s)

determined to be socially and economically disadvantaged. In

addition, the SDB Certification and Eligibility Program office

conducts training, marketing and outreach and oversees the

private certifiers that assist with ownership and control

determinations. Once SDBs are certified, they are listed in PRONet. As of FY 1999, there were more than 6,500 certified SDBs.
Page 47

Small Business

Advocacy

Program Description Established by Public .Law. 94-305 of 1976, the general mission

of the Office of Advocacy is to research the role of small business

in the economy and report on its contribution to competition;

evaluate financial markets and craft solutions to barriers that are

limiting credit and equity investment in small business; measure

the costs and effects of Government regulatory proposals on

small business and suggest alternatives that are equally effective in

achieving public policy objectives; develop programs/services that

address market imperfections and recommend public policy

initiatives that promote the development and growth of small

business. The OA has three offices and regional advocates in each

regional office.

The Office of Interagency Affairs monitors the Regulatory

activity of all Federal regulatory agencies, including independent

agencies, to ensure compliance with the Regulatory Flexibility

Act, as amended by the Small Business Regulatory Enforcement

Fairness Act. The office comments on agency analyses of

regulatory impacts on small business entities and of regulatory

alternatives considered and rejected by agencies. The regulatory

issues reviewed range from environment to taxes to health and

safety to securities to telecommunications to banking, etc. The

Chief Counsel, supported by OA staff, is a statutory member of

OSHA’s and EPA’s Small Business Advocacy Review Panels

mandated by SBREFA to review regulatory proposals having

significant impacts on small business entities. Staff maintains a

continuous dialogue with small business trade associations and

small entities throughout the country on public policy issues.

Staff also responds to congressional requests for information and

comments from a small business perspective on legislative

proposals.

The Office of Economic Research has sole statutory

responsibility to generate and publish studies and reports on small

business characteristics and trends in the economy. These studies

provide information invaluable to congressional and administrative

policy makers. The office also contracts with independent

researchers for studies on emerging issues, bank lending trends

and jog generation by small business. In addition, it analyzes the

economic impact of specific regulation on small business; as part

of the office’s responsibilities under Regulatory Flexibility Act.
Page 48

Unique small business data, by firm size, is obtained by OA under

a contract with the Bureau of Census, which is updated annually.

The data is the only such data in the Federal Government and is

made available through OA’s home page to the public. In

addition, a new database has been developed – Business

Information Tracking Series – that tracks the growth of individual

firms and also allows OA to publish irrefutable data on job

generation by small firms. Such data is not otherwise available in

the marketplace and is producing invaluable information on the

dynamics of small business in the economy.

The Office of Information publishes OA’s research and

information, disseminating it to key decision-makers who can use

it to address and craft solutions to the concerns of the Nation’s

small businesses. Two primary publications are the monthly Small

Business Advocate and the annual State of Small Business: A

Report of the President.

Regional Advocates are located in each of SBA’s regional

offices. They work closely with Headquarters staff to identify

small entities in their respective regions, which should participate

in public policy deliberations such as OSHA’s and EPA’s Small

Business Advocacy Review Panels (which can be done by phone).

They work closely with community business leaders to identify

emerging problems and to affect changes in state policies that will

promote the growth of small business. They also maintain close

liaison with elected officials to keep them informed of OA’s

research.
Page 49

MANAGEMENT

INTEGRITY AND

ACCOUNTABILITY

This section includes the “Federal Manager’s Financial Integrity

Act Report”, Management’s Final Action Report, Best Practices,

BPRS, QSRS, COSO initiatives, and the “Administrator’s

Assurance Letter.” The Administrator’s assurance letter is based

on the management activities included in this section. Input from

regional administrators, district directors and program managers

served as the primary basis for the Administrator’s assurance on

management controls within the Agency. The Agency’s use of the

internal control framework developed by the Committee of

Sponsoring Organizations of the Treadway Commission provided

various tools for SBA manger’s use including checklists, risk

assessment models, Management Assessment Process workshops

and assessment by program managers. Additional assistance was

provided to mangers by GAO and Inspector General reviews and

audits.

The SBA continues to approach internal control system by

building appropriate emphasis on the “control environment” under

the COSO framework because it provides the most useful

information to decision makers to integrate controls with other

management improvement initiatives. The SBA uses

improvements in its operations and technology in order to provide

quality assistance to small businesses in an era of reduced Federal

resources.

FMFIA The Financial Managers Financial Integrity Act of 1982 requires

that Federal agencies provide annually 1) an assurance statement

from agency heads on the status of internal controls 2) a report on

internal controls and the status of management’s actions to

correct these weaknesses and 3) an annual statement on whether

the Agency’s financial management systems confirm with

government wide requirements. The SBA Administrator’s

assurance letter is provided below in this section of our

accountability report. This section on FMFIA discusses the

SBA’s internal control weaknesses and management’s action on

these reported weaknesses.

The SBA has emphasized the importance of addressing

improvements needed in its management that have been identified

in its previous reports required by FMFIA. The following is the

Small Business Administration's report on actions in FY 1999.
Page 50

FMFIA Summary of Material Weaknesses

FY 1999

#

Carryover New Corrected Balance

90-15 1 1 0

90-19 1 1

90-25 1 1 0

94-01 1 1

94-03 1 1

97-01 1 1 0

98-02 1 1 0

99-01 1 1 0

99-02* 1 1

99-03* 1 1

Total 7 3 5 5

*SBA closed 99-02 and 99-03 by December 1999

The SBA has made great strides and closed five of the material

weaknesses and continues to work on the remaining five.

90-15 - Revision of the Surety Bond Guarantee Program

Standard Operating Procedures and related regulations.

The Office of Surety Guarantees resolved weaknesses in its

system of management control, program SOPs and regulations.

Policy and operational changes in program areas and the pilot

Preferred Surety Bond Program have now been incorporated into

SOPs. SBA’s internal policies and procedures are now consistent

with the program regulations contained in CFR 115.

90-19 - Need procedures and regulations to implement the provision

of Public Law 100-656 which authorizes the loan of Federal

surplus equipment to 8(a) firms.

New regulations for the 8(a) program became effective in

July 1998. These regulations revised and updated various aspects

of the 8(a) Business Development program. Procedures for

implementing the Federal Surplus Property program for eligible

8(a) portfolio firms are contained in Section 124.405, which

precludes specific procedural guidance for implementation of this

program. The results of these new regulations are still being

validated, therefore this weakness remains open.
Page 51

90-25 - Small Business Development Centers lack internal controls

and accounting methods to track receipt and disposition of

program income.

Due to a lack of examiners, there was a delay in completing

validation of the corrective actions. A new examiner was hired,

training completed and a normal program of examinations was

resumed. This weakness was resolved during FY 99.

94-01 - SBA does not have a single integrated accounting system.

The Agency is progressing toward standard general ledger (SGL)

and credit reform compliance. An interim solution was devised to

use the Federal Financial System (FFS) administrative accounting

system as the primary accounting system. The Surety Bond

Guarantee system, other off-line and loan program systems have

been converted to SGL using crosswalks and the initial

development of an interface from the loan accounting system to

the primary accounting system was completed. Various processes

have been reengineered and automated to facilitate development

of new program systems and the migration to a new Core

Accounting System. The SBA is working to develop the

requirements for a new Core Accounting system. System

implementation is scheduled for FY 01-02. This weakness

remains open.

94-03 - Concentration of contract awards to a limited number of

program participants.

New regulations for the 8(a) program became effective in

July 1998. We are still assessing the corrective action based on

quarterly reviews of contract awards. This weakness remains

open.

97-01 - Fund balance with Treasury reconciliation.

Current cash reconciliation reports show that the reconciliation of

fund balances with Treasury balances is maintained and the

Statement of Difference items are at an all time low. The

reconciliation of FFS-G/L was accomplished at the transaction

level for the first time. This weakness was resolved during FY 99.

98-02 - Develop and implement a comprehensive plan for financial

reporting.

A financial reporting plan was prepared and implemented.

Technical training of the Denver staff responsible for financial

reporting was completed. This weakness was resolved during

FY 99.
Page 52

99-01 - Develop and implement a comprehensive plan for financial

reporting.

This is a repeat of a finding in the FY 98 audit of the Agency’s

financial statements. A financial reporting plan was prepared and

implemented. Technical training of the Denver staff responsible

for financial reporting was completed. This weakness was

resolved during FY 99.

99-02 - Develop better internal controls over the credit subsidy and

re-estimate processes.

We continue to refine the quality assurance process to ensure that

peer and supervisory reviewers have the experience, training and

time to perform reviews commensurate with the inherent risk

associated with the SBA existing credit subsidy and re-estimate

processes. The Agency conducts an in-house review and requires

an independent review of the subsidy models to ensure they

produce reliable and reasonable re-estimates prior to submitting

the re-estimates for audit. This weakness remained open at the

end of FY 1999, however, these recommendations were

implemented for the FY 1999 re-estimates.

99-03 - Information System Controls.

The Administrator funded an Agency wide information systems

security program and also included the improvement of the

information systems controls as one of her strategic goals. A

senior management group responsible for developing and

implementing an ongoing, agency wide information systems

security program was established. This group will develop, fund

and execute an annual budget for an ongoing, Agency wide

information systems security program. This weakness remained

open at the end of FY 99.

For the last two years Congressmen Dick Armey and Dan Burton

has asked the Offices of Inspector General (OIG) to identify and

give a current assessment of the 10 most serious management

challenges facing each agency. The following challenges were

identified by the SBA OIG:

1. District Offices do not consistently apply guarantee purchase

requirements.

2. SBA needs to improve loan monitoring.

3. SBA needs an effective oversight process for Small Business

Lending Companies.

4. More participating companies need to obtain contracting

opportunities in the Section 8(a) program.
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5. Participants who become wealthy are allowed to remain in the

Section 8(a) program and be considered economically

disadvantaged.

6. SBA does not enforce its rules to limit pass-through

procurement activity to non-Section 8(a) participants.

7. SBA needs to develop and implement a program-based cost

accounting system.

8. Information system controls need improvement.

9. Preventing loan agent fraud requires greater emphasis.

10. Borrowers in SBA’s business loan program need to have

criminal history background checks.

The SBA agrees these are all important issues. These issues have

all been identified by the OIG in the audit reports. Several actions

have been completed and actions addressing the open issues are

addressed above in the write-ups for each recommendation. The

SBA will ensure each challenge identified by the OIG continues to

receive close management scrutiny.

Inspector General

Audits –

Management’s Final

Action Report

Throughout the year, the Office of the Inspector General conducts

audits of the Small Business Administration’s management and

programs, and makes recommendations for improvement. SBA

management has the option to agree or disagree with the OIG's

recommendations. Agreement places responsibility on the

manager to implement those recommendations, which is referred

to as “final action.” The Office of the Chief Financial Officer is

responsible for monitoring the implementation of audit

recommendations and reporting on the status of audit

recommendations including final actions. The following table

summarizes final actions taken during FY 1999.
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FINAL ACTIONS ON AUDIT RECOMMENDATIONS

October 1, 1998 – September 30, 1999

(Dollars Rounded to Thousands)

Disallowed Costs Funds Put To

Better Use

NonMonetary Total

Recs Dollars Recs Dollars Recs Recs Dollars

Beginning

Balance 3 $208 1 $96 17 21 $304

New 35 2,318 16 8,930 84 135 11,248

Total 38 2,526 17 9,026 101 156 11,552

Final

Action 23 1,525 15 8,543 70 108 10,068

Ending

Balance 15 $1,001 2 $483 31 48 $1,484

There were 21 recommendations at the beginning of the fiscal year

requiring action, with potential benefits of $304,000. The OIG issued

135 new recommendations with an associated dollar amount of

$11.2 million. Final action was taken on 108 recommendations

during the period with an associated dollar amount of $10.1 million,

leaving an ending balance of 48 recommendations and an associated

dollar amount of $1.5 million still requiring resolution.

The April 1, 1999 – September 30, 1999 report is located in

Appendix A. Beginning in the 2000 Accountability report the

SBA will includ an “Annual Management Final Action Report” in

lieu of providing semiannual reporting.

Best Practices, BPRs,

QSRs

Best Practices As part of the SBA’s management accountability and integrity

program, it identifies “best practices” that can be used to improve

Agency operations to better serve the small business community.

The SBA identifies a "best practice" as a practice developed by a

functional unit that has been proven to produce superior results in

another unit or the agency as a whole. The SBA recognizes there

is no single best practice for any given activity. Every activity is
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different in some way—different missions, cultures, environments,

and/or technologies. What is best for one office may not be best

for others. However, a true best practice can be adapted to fit any

organization. Some of the best practices developed by SBA

offices are:

Employee Manual

The SBA’s Office of Disaster Assistance responds to disasters,

and ODA personnel must be ready to travel on very short notice.

Many of their employees are new and unfamiliar with their jobs

and Government travel regulations. The ODA provides each new

employee with an employee manual having more than 100 pages

and containing information designed to answer most new

employee questions on employment and travel. There are

chapters in on pay, leave, benefits, performance, different types of

appointments, information on filling out forms, and separation

from employment. The manual is updated yearly.

Employee Video

When a disaster strikes, the SBA’s ODA must hire temporary

staff in a hurry. It is critical to get new employees on board and

ready to work in a matter of days. Because there are different

regulations governing the employment of temporary staff, ODA

put together a 15-minute video for newly hired staff. The video

describes the SBA’s role in disasters, explains about temporary

employment, and outlines some of the different types of

temporary positions.

Employees – Morale Builders

To ensure that all employees are treated fairly and know they are

treated fairly, the SBA’s ODA annually distributes a memorandum

outlining the guidelines for issuing performance awards. Attached

to the memorandum is a table showing exactly how much the

award will be for each grade level at each of the three highest

performance levels, provided no extraordinary circumstances,

such as unresolved conduct issues, exist. ODA employees work

all over the country. By publishing the award guidelines, ODA

ensures that employees in each of the area offices are treated

equally.
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Working with Customers

The primary goal of the Office of Surety Guarantees program

assists those contractors who are considered to be too risky to

bond without the guarantee and who could not otherwise compete

in the contracting industry. The SBA’s OSG routinely trains its

partners as an effective means of strengthening their business

relationships. The OSG administers the Surety Bond Guarantee

program through private-public partnerships with surety

companies that issue bonds for construction, service and supply

contracts. OSG conducts an orientation and training program that

is available to all new business partners (surety companies) and to

current partners, as needed. OSG provides hands on training and

instructs their partners on every aspect of the guarantee program.

This training strengthens the business relationship, builds rapport,

and provides the Surety Companies with a better understanding of

the day-to-day operations of the program. The training also helps

clearly define each partner’s expectations for the business

relationship.

Risk Management – Control Activities

The "rule of two" is a great check and balance for the OSG. OSG

uses the "rule of two" in approving guarantee applications and in

processing claims. SBG personnel can approve or decline surety

bond guarantee applications and claims for reimbursements within

their delegated monetary authority using this rule. The system

ensures that each applicant or business partner receives fair and

equitable treatment and that the SBA processes each request

accurately.

Business Process Reengineering (BPRs)

The SBA is constantly seeking better ways to take advantage of

the latest technological advances available. The SBA management

recognized the critical need to improve its business process as part

of its systems modernization initiative. To accomplish this, they

adopted the Business Process Re-engineering concept. The BPR

concept is a fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements in SBA’s

operations.
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The BPR focuses on why business processes are done rather than

on the details of how they are done. It has challenged our

organizational structure, rules, work flows, job descriptions,

management procedures, controls, and organizational values and

culture. It includes completely reshaping organizational work

practices and information flows to take advantage of technological

advancements. The two factors that enable a BPR to work are

technology and human potential. SBA fully supports reviews of

its key functional areas.

SBA benefits from a BPR in three ways: cost savings, time

savings, and reductions in defects. A BPR can result in business

processes and regulations being streamlined, providing faster,

more user-friendly services to the public at a reduced cost to the

Government; and the knowledge and expertise of SBA specialists

SBA benefits from a BPR in three ways: cost savings, time

savings, and reductions in defects. A BPR can result in business

processes and regulations being streamlined, providing faster,

more user-friendly services to the public at a reduced cost to the

Government; and the knowledge and expertise of SBA specialists

can also be captured and made available to others. One BPR in

the Office of Disaster Assistance improved its loan application

approval process to such an extent that now applications are

processed requiring less documentation and fewer staff and the

process provides more timely service to the disaster victims.

Quality Service Reviews

(QSRs)

The SBA began Quality Service Reviews in 1998. The QSR is a

management review of field office activities; and the SBA has

used this new management tool as a systematic, cost-effective and

proactive review of the field offices. It is much broader than a

compliance review because of its design.

A QSR is designed to ensure:

• critical program risk areas are reviewed;

• employees are motivated, informed, and treated fairly;

• customers are satisfied with the delivery of programs; and

• relationships with our partners are healthy.
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QSR informs SBA program offices of any problems, identifies

"Best Practices" of an office and shares those with the other

offices resulting in a more efficient and effective work

environment.

The SBA Office of Field Operations manages the QSR program

and establishes the teams of reviewers. The team leader selects

specific team members from a list of reviewers chosen from

district offices because of expertise in their respective program

areas. Each team consists of seven or eight field employees (QSRs

are peer reviews).

This review gathers as much information as possible about the

review areas, including program goals, EEO issues, audits, lender

surveys, business plans, OCIO reports, rejected processing

documents, etc. through on-site observations, employee

interviews and reviewing of specific loan files and other

documentation.

To ensure consistency, each team uses the QSR Review Guide to

conduct reviews and collect the required information. The team

leader compiles a narrative QSR report, summarizing the findings,

best practices and recommendations. Each recommendation

requires follow-up corrective action. Some findings do not

warrant recommendations because they are the result of a specific

review requested by the office for its own program improvement.

The team leader provides the final QSR Report to FO after the

conclusion of the on-site review. These reports have proven to be

excellent management tools identifying system weaknesses that

have resulted in corrective action. But, the important

accomplishment of this program has been the identification of best

practices that have been implemented throughout regions and

often throughout the Agency. SBA conducts five-10 of these

reviews annually.
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COSO Internal

Controls

SBA’s No.1 goal is to “Help Small Businesses Succeed” through

the Agency’s programs. To support this goal the SBA updated

its second goal for FY 2001 to “Modernize the SBA” through its

work force, electronic tools, information systems and its oversight

program. Part of a modern SBA is the increased emphasis on

strong internal controls with a standardized approach within the

Agency. The SBA is a leader in the Federal Government in the

implementation of the integrated framework for internal controls

that was developed by the Committee of Sponsoring

Organizations (COSO) of the Treadway Commission that is a

governmentwide standard supported by the General Accounting

Office. The GAO standards incorporate the COSO concepts and

establish standards for the Federal Government. The SBA’s

COSO implementation was facilitated by coordination between

the offices of the CFO and the IG.

Strong internal controls have historically been emphasized by the

SBA to overcome the risks associated with attaining Agency

goals. The SBA’s adoption of the COSO framework enhances

the standardization of its internal controls, improves internal

control procedures and the documentation of our internal

controls, and maintains a heightened awareness of internal

controls in the Agency.

The SBA began a strong awareness campaign in 1999 through

the use of:

- the SBA intranet “YES” home page;

- production of a monthly in-house newsletter;

- posters;

- brochures;

- a bulletin board; and

- creation of an icon “Charlie COSO” (we have shared Charlie

while networking with the Department of Defense (DOD),

Department of the Interior (DOI), Federal Reserve Bank

(FRB) and Federal Deposit Insurance Corporation (FDIC)).

The SBA provided internal control training classes, materials

and tools during 1999:
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- management/supervisor training classes (more than 200

individuals trained);

- a reference and hand guide;

- a training video containing open captioning for the hearing

impaired;

- a computer-based training package on the SBA “Yes” home

page; and

- Tele-conferences;

And the SBA developed its internal control tools during 1999

including:

- a Management Assessment Process using a facilitated

workshop for a specific control environment (functional or

organizational). The workshops assist managers to identify

or clarify objectives, risks and controls and to document them

through the use of a tallying device called OptionFinder and a

word processing package Four MAPs were held in 1999 and

five were scheduled for the first 5 weeks in 2000.

- a “Tone at the Top” survey to evaluate the control culture in

the Agency. It provided a scorecard for senior management

and established risk control agendas (results were above the

“mean” on satisfaction, confidence and competency);

- checklists completed by all directorate-level managers to

evaluate internal controls;

- risk assessment models completed for information technology;

- databases for audit status (OIG, GAO and MAP for

recommendation tracking);

- enhanced follow-up of audit recommendations (reducing old

open audit recommendations reported to Congress from 100

to 50, including closing 18 recommendations that had been

open for 3 years);

- updated the internal control SOP; and

- enhanced the assertion letter process for directorate-level

managers.
Page 61

The SBA strives to deliver efficient, effective programs with

integrity. Many accomplishments have been achieved to

modernize the SBA. The SBA is cognizant of the many related

efforts within a sound internal control system including:

- the Federal Managers Financial Integrity Act (FMFIA)

requirements;

- the Chief Financial Officers (CFO) Act of 1990, OMB

Circulars A-50, A-76, A-123, A-127 and A-130;

- the responsibility to support results-oriented management as

defined in the GPRA;

- the establishment of a risk management process;

- program reviews; and

- effective management processes including credit subsidy rate,

credit risk management, lender monitoring, program

oversight, and reviews by the SBA’s IG.

The SBA will continue to aggressively create an internal control

system that fits the COSO integrated framed work resulting in

COSO auditable financial statements by the year 2000.
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Assurance Statement As result of the activities described above on the SBA’s management

integrity and accountability programs, the SBA Administrator has issued

the following statement on the status of the Agency’s management

controls.

The President

The White House

Washington, DC 20500

Dear Mr. President:

The Federal Managers' Financial Integrity Act (Public Law 97-255) requires each Federal agency

to submit an annual report to the President and the Congress on the state of its internal controls over

financial and administrative activities. Enclosed is the Small Business Administration's (SBA) report for

fiscal 1999.

In my efforts to transform the SBA into a 21st century, leading edge institution I have ensured

state-of-the-art internal controls. SBA has taken the lead in the Federal Government through the

implementation of the integrated framework for internal controls that was developed by the Committee

of Sponsoring Organizations of the Treadway Commission that is a government wide standard

supported by the General Accounting Office. Internal control is an important part of my responsibility

that depends on SBA management and other personnel, and is designed to provide reasonable assurance

regarding the effectiveness and efficiency of operations, compliance with applicable laws and

regulations, and reliability of financial reporting. The COSO system is the highest standard to which

financial institutions now aspire. Under COSO, the risks and controls for the SBA’s program activities

are documented in a standardized manner that can be reviewed by outside auditors. The SBA’s financial

statements have received unqualified opinion from fiscal 1996 through fiscal 1999 from the independent

auditor. Three material findings were identified in the FY 1999 audit and the SBA is working diligently

to correct these weaknesses.

The SBA also has taken other initiatives to identify weaknesses and strengthen internal controls and

operations including: Quality Service Reviews that are in-house reviews of operations conducted by

experts in the area being reviewed and Business Process Reengineering that are studies to evaluate and

improve internal controls and operations. As strengths are identified, the processes are evaluated for

adoption in other areas of operation as best practices.

I have initiated new areas of operation to improve the financial status of the Agency and to improve

SBA’s assistance to small businesses. The SBA conducted its first asset sale in August 1999 as part of

its program to sell its $8.5 billion loan portfolio. The SBA has centralized the processing of over 75

percent of the loans in two locations to improve credit management and consistency, as well as to

improve turn-around times for loan decisions.

The Federal Financial Management Improvement Act requires Federal agencies financial system comply

with the requirements under the Joint Financial Management Improvement Program and Agency

accounting to comply with the Standard General Ledger accounting structure. The SBA is working to
Page 63

develop a plan to improve its core accounting system and to include the Standard General Ledger at the

detailed transaction level. Finally, the SBA has embarked on a multi-year systems modernization

program that will provide better data collection and analysis, lead to Federal Financial Manager’s

Integrity Act compliance, and improve the timeliness and accuracy of financial reports.

During fiscal 1999 we made tremendous progress in resolving audit findings of the Agency’s Inspector

General. At the beginning of the fiscal year there were 21 unresolved findings. During the year 135

new findings were added. As of Sep. 30, 1999, there were only 48 unresolved audit findings. I am

particularly proud that of the 48 findings outstanding at the end of fiscal 1999, only 12 are over a year

old. During fiscal 1999, we made a concerted effort to clear older recommendations still outstanding

and as a result, 108 recommendations were closed.

As a result of the aforementioned actions, I have reasonable assurance that the SBA has met its stated

internal control objectives for our operations. I will ensure that all weaknesses not corrected at the time

of this report are monitored and corrected in a timely manner. The SBA has established internal

accounting and administrative controls that reasonably ensure that: obligations and costs comply with

applicable laws; all assets are safeguarded against waste, loss, unauthorized use and misappropriation;

and revenues and expenditures applicable to Agency operations are recorded and accounted for

properly so reliable financial and statistical reports may be prepared and accountability of the assets be

maintained. I provide this statement of assurance, qualified only by the exceptions explicitly identified in

this section of the fiscal 1999 Accountability Report.

In the year 2000, we will expand our annual financial audit to enhance the opinion incorporating the

SBA’s internal control structure under the COSO standards for financial reporting. This plan includes,

by the year 2002, correction of all material weaknesses in the SBA’s internal control structure for

financial reporting. The SBA is continually striving to strengthen its internal controls and improve

operations.
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ACRONYMS

APIC – America’s Private Investment Corporation

BIC – Business Information Centers

CBD – Commerce Business Daily

CDC – Certified Development Company

CDSI – Computer Data Systems Incorporated

CFO – Chief Financial Officer

CLP – Certified Lender Program

CMR – Commercial Market Representatives

COC – Certificate of Competency

CODS – Central Office Duty Station

COSO – Committee of Sponsoring Organizations of

the Treadway Commission

D&A – Description and Analysis

DFC – Denver Finance Center

EC – Enterprise Community

EFT – Electronic Funds Transfer

EIDL – Economic Injury Disaster Loan

EWCP – Export Working Capital Program

EZ – Empowerment Zone

FCRA – Federal Credit Reform Act

FFS – Federal Financial System

FMFIA – Federal Managers Financial Integrity Act

FTE – Full Time Equivalent

GAO – General Accounting Office

GC – Government Contracting

GL - General Ledger

GPRA – Government Performance and Results Act

HUBZone - HUBZone Empowerment Contracting

Program

IG – Inspector General

MAP – Management’s Assessment Process

MARS - Management and Administrative Reports

System

MED – Minority Enterprise Development

OA – Office of Advocacy

ODA – Office of Disaster Assistance

OIG – Office of the Inspector General

OIT – Office of International Trade

OMB – Office of Management and Budget

ONAA – Office of Native American Affairs

OPAC – On-line Payment and Collection

OSCS – One Stop Capital Shop

OVA – Office of Veterans Affairs

OWBO – Office of Women’s Business Ownership

PCR – Procurement Center Representative

PLP – Preferred Lender Program

QSR – Quality Service Review

RFA – Regulatory Flexibility Act

S&E – Salaries and Expenses

SBA – Small Business Administration

SBDC – Small Business Development Center

SBG – Surety Bond Guarantee

SBIC – Small Business Investment Company

SBIR – Small Business Innovation and Research

SBREFA – Small Business Regulatory Enforcement

Fairness Act

SCORE – Service Corps of Retired Executives

SDB – Small Disadvantaged Business

SSBIC – Specialized Small Business Investment

Company

STTR – Small Business Technology Transfer

Program

TBIC – Tribal Business Information Center

TOPs – Treasury Offset Programs

USEAC – U.S. Export Assistance Center

WBC – Women’s Business Center Program

WNET – Women’s Network for Entrepreneurial

Training
Page 65

FINANCIAL

STATEMENTS

AND RELATED

NOTES

Financial Statement

Analysis

Introduction These financial statements for the SBA have been prepared to

report the financial position and results of operations pursuant to

the CFO Act of 1990. This is the second year that these financial

statements have been in full compliance with the requirements of

OMB Bulletin 97-01 including the additional requirements for

reports on the status of budget and financing and including a

consolidated statement of net cost.

The SBA’s assets and liabilities are mostly the result of its credit

program activities. As further explained in footnote 1 to the

financial statements, SBA’s loans and guarantees are financed by a

combination of two sources: one for the long-term cost of the

loan and another for the remaining, non-subsidized portion.

Congress provides appropriations, to cover the estimated

long-term costs of SBA loans that are defined as the net present

value of the estimated cash outflows associated with the loans less

the estimated cash inflows. The remaining portion of each loan or

guarantee that does not represent long-term cost is financed under

permanent indefinite authority to borrow funds from the

U.S. Department of the Treasury.

While the financial statements have been prepared from the books

and records of the Agency, they are different from the financial

reports used to monitor and control budget execution.

The responsibility for the accuracy and propriety of the

information contained in the principal financial statements and the

quality of internal controls rests with management.

Liabilities not covered by budgetary resources cannot be

liquidated without an enactment of an appropriation by Congress.

This subject is further described in footnote 9.

Financial Statements The Balance Sheet has a number of significant items in SBA’s

assets and liabilities and the following is a discussion of these

items.
Page 66

The SBA’s fund balances with Treasury are further explained

under footnotes 1 and 2. The SBA does not maintain cash in

commercial bank accounts. Cash receipts and disbursements are

processed by the U.S. Department of the Treasury. Fund balances

with Treasury are obtained from appropriations and borrowings

from the Treasury and from receipts on the SBA’s program and

administrative activities. They are used to make disbursements of

direct loans, purchase defaulted loan guarantees, for the SBA’s

expense of servicing and liquidating loan receivables and the

administration of credit and business assistance programs.

Credit program receivables for the SBA are comprised of the

following loan and guarantee programs:

(1) Business, Direct

(2) Business, Guarantee

(3) Disaster, Direct

(4) Pollution Control, Guarantee

(5) Surety Bond, Guarantee

As discussed further in footnotes 1 and 7, loans are accounted for

as credit program receivables at the time funds have been

disbursed. For loans obligated prior to Oct. 1, 1991, loans

receivable are reduced by an allowance for estimated uncollectible

amounts. The allowance is estimated based on historical

experience, present market conditions, and an analysis of

outstanding balances. For loans obligated on or after October 1,

1991, the loans receivable are reduced by an allowance equal to

the present value of the subsidy costs (due to the interest rate

differential between the loans and Treasury borrowing, the

estimated delinquencies and defaults net of recoveries, the offset

from fees, and other estimated cash flows) associated with these

loans. This allowance is re-estimated on an annual basis.

Accounts Payable under Intragovernmental Liabilities is

primarily interest owed on Treasury debt that is payable currently.

Debt owed to Treasury is the largest intra-governmental liability

on the SBA’s financial statement, and detail on this item is

provided in footnote 9. The unsubsidized portion of the SBA’s

disaster loans and its other direct loans are financed by Treasury

borrowings. For example, a disaster loan of $100 with a subsidy

cost of $20 (subsidy rate of 20 percent), is financed by $80 of

Treasury borrowings.
Page 67

Other liabilities (intra-governmental) consist primarily of the net

assets of business and disaster liquidating fund receivables. These

balances on loans made prior to FY 1992 are payable to Treasury

and are returned to Treasury when they are collected.

Liabilities on loan guaranty represent the amount estimated to

be payable to the holders of defaulted guaranteed loans in the

future. Further details on this item are provided in footnote 7.

The Consolidated Statement of Net Cost was prepared first for

FY 1998 results and is shown again for FY 1999. A study of

FY 99 administrative costs in SBA’s field and Headquarters’

offices was conducted. The direct and indirect costs for SBA’s

operations were assigned to the SBA’s major program activities.

ß Business loans and guarantees

ß Development company guarantees

ß Disaster loans

ß Investment company guarantees

ß Surety bond guarantees

ß Government contracting

ß Minority enterprise development

ß Entrepreneurial development

Administrative costs are included with the program costs for the

above major program activities in the Consolidated Statement of

Net Cost that is presented in this Accountability Report.
Page 68

U.S. Small Business Administration

Balance Sheet

as of September 30, 1999

(Rounded to the Thousands)

ASSETS

Intragovernmental Assets:

Fund Balances with Treasury (Note 2) $8,223,656

Accounts Receivable, Net (Note 5) 343,894

Advances (Note 6) 3,629

Governmental Assets:

Investments (Note 4) 350,586

Accounts Receivable, Net (Note 5) 27,860

Credit Program Receivables and Related Foreclosed Property, Net (Note 7) 7,086,451

Cash (Note 3) 2,677

General Property and Equipment, Net (Note 8) 740

Advances (Note 6) 129,218

Total Entity Assets $16,168,711

Total Non-Entity Assets $0

Total Assets $16,168,711

LIABILITIES

Liabilities Covered by Budgetary Resources:

Intragovernmental Liabilities:

Accounts Payable (Note 10) $1,532,415

Debt (Note 9) 10,019,644

Other (Note 10) 2,326,987

Governmental Liabilities:

Accounts Payable (Note 10) 52,322

Liabilities for Loan Guarantees (Note 7) 1,404,688

Other (Note 10) 400,254

Total Liabilities Covered by Budgetary Resources $15,736,309

Liabilities Not Covered by Budgetary Resources:

Intragovernmental Liabilities:

Debt (Note 9) $0

Other (Note 10) 16,585

Governmental Liabilities:

Other (Note 10) 27,498

Total Liabilities Not Covered by Budgetary Resources $44,083

Total Liabilities $15,780,392

NET POSITION

Unexpended Appropriations (Note 11) $671,527

Cumulative Results of Operations (283,208)

Total Net Position $388,319

Total Liabilities and Net Position $16,168,711

The accompanying notes are an integral part of this statement.
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U.S. Small Business Administration

Consolidated Statement of Changes in Net Position

for the period ended September 30, 1999

(Rounded to the Thousands)

Net Cost of Operations $514,946

Financing Sources:

Appropriations Used 1,213,781

Changes to Resources Payable to Treasury (64,027)

Donations 131

Imputed Financing 17,328

Transfers-out (637,102)

Net Results of Operations $15,165

Prior Period Adjustments 0

Net Change in Cumulative Results of Operations $15,165

Increase (Decrease) in Unexpended Appropriation 348,741

Change in Net Position $363,906

Net Position - Beginning of the Period 24,413

Net Position - End of Period $388,319

The accompanying notes are an integral part of this statement.
Page 70

U.S. Small Business Administration

Combined Statement of Budgetary Resources (Note 13)

for the period ended September 30, 1999

(Rounded to the Thousands)

BUDGETARY RESOURCES

Budget Authority:

Appropriations $1,207,872

Borrowing Authority 915,742

Net Transfers, Current Year Authority (20,905)

Unobligated Balance:

Brought Forward October 1 6,699,756

Spending Authority from Offsetting Collections:

Earned

Collected 3,457,975

Receivable from Federal Sources (161,624)

Adjustments:

Recoveries of Prior Year Obligations 189,359

Permanently Not Available

Cancellations of Expired and No Year Accounts (10,699)

Enacted Rescissions of Prior Year Balances (6,000)

Capital Transfers and Redemption of Debt (1,006,976)

Total Budgetary Resources $11,264,500

STATUS OF BUDGETARY RESOURCES

Obligations Incurred:

Category A, Direct $648,346

Category B, Direct 3,332,559

Direct, Not Subject to Apportionment 240,750

Reimbursable 1,642

Unobligated Balances Available:

Apportioned 21,341

Other 16,708

Unobligated Balances Not Yet Available:

Apportioned for Subsequent Periods 500

Other 7,002,654

Total, Status of Budgetary Resources $11,264,500

The accompanying notes are an integral part of this statement.
Page 71

U.S. Small Business Administration

Combined Statement of Budgetary Resources (Note 13)

for the period ended September 30, 1999

(Rounded to the Thousands)

OUTLAYS

Obligations Incurred:

Category A, Direct $648,345

Category B, Direct 3,332,559

Direct, Not Subject to Apportionment 240,750

Reimbursable 1,643

Less: Spending Authority from Offsetting Collections and Adjustments:

Earned

 Collected 3,457,974

 Receivable from Federal Sources (161,624)

Actual Recoveries of Prior Year Obligations 189,359

Obligated Balance, Net – Beginning of the Period: 1,492,712

Less: Obligated Balance, Net - End of Period:

Accounts Receivable (1,294,656)

Undelivered Orders 881,405

Accounts Payable 1,730,763

Total Outlays $912,788

Disbursements $4,370,762

Collections ($3,457,974)

The accompanying notes are an integral part of this statement.
Page 72

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

(Rounded to the Thousands)

Resources Used to Finance Activities:

Budgetary

Budgetary resources obligated for orders and services to be received or

 benefits to be provided to others

$4,221,655

Less: Offsetting collections, recoveries of prior-year authority

Earned reimbursements

Collected 3,457,974

Receivable from Federal sources (161,624)

Transfers from Trust Funds (1,643)

Recoveries of prior-year obligations 189,359

Net budgetary resources used to finance activities $737,589

Non-Budgetary

Costs incurred by others for the entity without reimbursement $17,328

Net non-budgetary resources used to finance activities $17,328

Total resources used to finance activities $754,917

Relationship of total resources to net cost of operations:

Deduct resources used to fund items not part of the net cost of operations

Increase in budgetary resources obligated to order goods and services not

 yet received or benefits not yet provided

177,471

Budgetary offsetting collections that do not increase exchange revenue or

 decrease expenses

Collections that decrease assets unrelated to exchange revenue 1,338,376

Credit program collections that increase liabilities for loan guarantees or

 allowances for subsidy

473,051

Other 343,320

Adjustments other than collections made to compute net budgetary resources

 that do not affect net cost of operations

Recoveries of prior-year authority 28,890

Resources that fund expenses recognized in prior periods 14,020

Resources that finance the acquisition of assets or liquidation of liabilities

General property, plant and equipment 196

Loans Receivable 1,143,178

Collateral Acquired (4,974)

Other resources used to fund items not part of the net cost of operations (518,049)

Total resources used to fund items not part of the net cost of operations ($1,371,795)

Resources used to finance the net cost of operations $2,126,712

The accompanying notes are an integral part of this statement.
Page 73

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

(Rounded to the Thousands)

Components of net cost of operations that do not require or generate resources

during the reporting period

Expenses or exchange revenue related to the disposition of assets or liabilities,

 or allocation of their costs over time:

Expenses related to the use of assets $413

Gains or (losses) from revaluation of assets and liabilities (7,167)

Decrease in exchange revenue receivable from the public (46,806)

Interest revenue from amortization of credit program allowance for subsidy (206,416)

Other (847,665)

Subtotal ($1,107,641)

Expenses that will be financed with budgetary resources recognized in future

 periods

 Other ($1,556)

Subtotal ($1,556)

Other net cost components that do not require or generate resources during

 the reporting period

(502,568)

Total components of net cost of operations that do not require or generate

 resources during the reporting period

($1,611,765)

Net cost of operations $514,946

The accompanying notes are an integral part of this statement.
Page 74

U.S. Small Business Administration

Consolidated Statement of Net Cost

for the period ended September 30, 1999

(Rounded to the Thousands)

PROGRAMS

Business Loans $154,685

Development Company (84,242)

Disaster Loans 194,996

Small Business Investment Company 4,918

Surety Bond Guarantees 9,470

Minority Enterprise Development 71,485

Government Contracting 19,685

Entrepreneurial Development 144,311

Total Program Costs $515,308

Cost not assigned to programs 12,351

Less: Earned revenue not attributed to programs (12,713)

Net Cost of Operations (Note 12) $514,946

The accompanying notes are an integral part of this statement.
Page 75

U.S. Small Business Administration

Footnotes to Principal Financial Statements

September 30, 1999

NOTE 1. Significant Accounting Policies

A. Basis of Presentation

These financial statements have been prepared to report the financial position and results of operations of the

Small Business Administration (SBA) as required by the Chief Financial Officers Act of 1990. They have been

prepared from the books and records of SBA in accordance with the form and content for entity financial

statements specified by the Office of Management and Budget (OMB) in OMB Bulletin No. 97-01, and SBA’s

accounting policies which are summarized in this note. These statements are therefore different from the

financial reports, also prepared by SBA pursuant to OMB directives, which are used to monitor and control

SBA’s use of budgetary resources.

B. Reporting Entity

SBA was created by the Small Business Act of 1953. Its mission is to aid, counsel, assist, and protect, insofar

as is possible, the interests of small business concerns to preserve free competitive enterprise, and to help

businesses and families recover from disasters.

The accompanying consolidated financial statements of SBA include the accounts of all funds under SBA

control:

Fund Title Fund Number

Salaries and Expenses (S&E) 0100

Office of Inspector General (OIG) 0200

Disaster Loans Program Account 1152

Business Loans Program Account 1154

Pollution Control Equipment Fund Liquidating Account (PCECGRF) 4147

Business Direct Loan Financing Account 4148

Business Guaranteed Loan Financing Account 4149

Disaster Direct Loan Financing Account 4150

Disaster Loan Liquidating Account (DLF) 4153

Business Loan Liquidating Account (BLIF) 4154

Surety Bond Guarantees Revolving Fund (SBGRF) 4156

Business Assistance Trust Fund (BATF) 8466

C. Budgets and Budgetary Accounting

Each SBA loan disbursement is financed by a combination of two sources: one for the long-term cost of the loan

and another for the remaining non-subsidized portion of the loan. Congress provides one year, multi year, and

no year appropriations, to cover the estimated long-term costs of SBA loans. The long term costs are defined as

the net present value of the estimated cash outflows associated with the loans less the estimated cash inflows.

The portion of each loan disbursement that does not represent long-term cost is financed under a permanent

indefinite borrowing authority to borrow funds from the U.S. Department of the Treasury. Congress also

annually adopts an appropriation bill limitation limiting the dollar amount of obligations that can be made for

direct loans.

A permanent indefinite appropriation is available to finance the costs of re-estimates that occur after the year in

which the loan is disbursed. A modification requires that budget authority for the additional cost is

appropriated, or is available out of existing appropriations or from other budgetary resources.
Page 76

D. Basis of Accounting

Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the accrual method,

revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard

to receipt or payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls

over the use of federal funds.

E. Revenues and Other Financing Sources

The SBA receives the majority of the funding needed to support the accounts and funds through appropriations.

The Agency receives one year, multi-year, and no year appropriations that may be used, within statutory limits,

for operating expenditures. Additional amounts are obtained from fees for guarantees provided. Also, SBA

receives gifts from donors and interest on fund balances with Treasury.

Appropriations are recognized as used at the time the related program or administrative expenses are incurred.

Appropriations expended for property and equipment are recognized as used when the asset is consumed in

operations. Revenues are recognized when earned, i.e., goods have been delivered or services rendered.

F. Fund Balances with Treasury and Cash

The SBA does not maintain cash in commercial bank accounts. Cash receipts and disbursements are processed

by the U.S. Department of the Treasury. Fund Balances with Treasury and Cash are comprised primarily of

appropriated, revolving, and trust funds, which are available to pay current liabilities and finance authorized

purchase commitments. Cash balances held outside the U.S. Treasury are not significant.

G. Loans Receivable and Related Interest Receivable

Loans are accounted for as credit program receivables at the time funds have been disbursed. For loans

obligated prior to October 1, 1991, loans receivable are reduced by an allowance for estimated uncollectible

amounts. The allowance is estimated based on historical experience, present market conditions, and an analysis

of outstanding balances. For loans obligated on or after October 1, 1991, the loans receivable are reduced by an

allowance equal to the present value of the subsidy costs (due to the interest rate differential between the loans

and Treasury borrowing, the estimated delinquencies and defaults net of recoveries, the offset from fees, and

other estimated cash flows) associated with these loans.

Interest receivable is comprised of accrued interest on accounts and loans receivable and purchased interest on

loan guarantee purchases. Interest income is accrued at the contractual rate on the outstanding principal

amount and is reduced by the amount of interest income accrued to non-performing loans (those in excess of 90

days delinquent). Purchased interest is carried at cost. A 100% allowance is established for all purchased

interest on non-performing loans.
Page 77

H. General Property and Equipment

The buildings in which SBA operates are provided by the General Services Administration, which charges SBA

rent that approximates the commercial rental rates for similar properties. Equipment is capitalized at cost if the

initial unit acquisition cost is $5,000 or more and service life is five years. Equipment with an acquisition cost

of less than $5,000 or less than five years of life is expensed when purchased. Equipment is depreciated using

the straight-line method over five years. Computer related equipment and software (ADP) is capitalized at cost

if the initial unit acquisition cost is $5,000 or more and has a service life of three years. ADP with an

acquisition cost of less than $5,000 or less than three years of life is expensed when purchased. ADP is

depreciated using the straight-line method over three years.

I. Asset Sales

During fiscal year 1999, the SBA initiated a pilot program to sell pools of loans from its loan portfolio rather

than servicing such loan itself. It is expected that if the program results in additional funds received by the

Agency over the amounts expected to be received if such loans were serviced by the SBA and held to maturity,

the loan sale program will continue.

 

Gains and losses loan-by-loan were recognized as cost of operations for the pre-1992 loans in the sale.

This year, calculation of the budget request for loan subsidy allowance for FY 2001 7(a) and direct loans, did

not reflect any cash flows or gains and losses from this pilot sale. OMB granted the SBA permission to

calculate its expected cash flows from loans using only the first 3 quarters of the fiscal year, for timeliness

concerns, rather than a full year. The loan sale occurred in the 4th quarter, and any cash flow changes

requiring additional subsidy or reducing future subsidy, which would be reflected in the subsidy expense for the

year, were not determinable at year-end. Showing this completely neutral effect upon future cash receipts and

disbursements is a more conservative approach than speculation about positive future sale results based upon

one pilot sale.

J. Advances

Advances are made to cover principal and interest due for debentures in SBA’s Section 503, Section 504, and

SBIC programs, to subcontractors for goods to be delivered as part of SBA’s 8(a) program, and for travel

expenses.

K. Governmental Investments

The 7(a) secondary market program is administered by an agent of the Small Business Administration. The

agent receives collections from banks on 7(a) loans guaranteed by the SBA, and makes payments to secondary

holders who have investments in pools of 7(a) guaranteed loans. This accumulated interest is the property of

the SBA, but future payments, required to the holders of 7(a) secondary market securities, could exceed the

principal amount of the trust fund. The interest, as well as the principal in the trust fund, is invested in short

term Treasury securities. The SBA’s policy is to carry the value of the interest in the 7(a) trust fund as

“securities” on its financial statements, offset by an equal amount of “deferred credits.” This accounting

treatment recognizes the nature of the investment, and the existence of a possible future claim on interest

invested in the securities.

L. Borrowings Payable to the Treasury

Borrowings payable to the Treasury result from loans from the Treasury to fund the credit reform financing

accounts. These funds are required to make periodic principal payments to Treasury based on the collections of

loans receivable.
Page 78

M. Liability for Loan Guarantees

There are two components to the Agency’s liability for guaranteed loans: liabilities for losses on pre-1992

loans, and liabilities on post-1991 loans made under the Federal Credit Reform legislation. For pre-1992

guarantees, the amount is an estimate of losses on guarantees outstanding based on historical experience. For

post-1991 loans, the liability is based on the present value of future cashflows on the loans.

N. Contingencies

The SBA is a party in various administrative proceedings, legal actions, environmental suits, and claims

brought by or against it. In the opinion of SBA management and legal counsel, the ultimate resolution of these

proceedings, actions, suits and claims will not materially affect the financial position or results of SBA

operations.

O. Annual, Sick and Other Leave

Annual leave is accrued as it is earned and the accrual is reduced as leave is taken. Each year, the balance in

the accrued annual leave is adjusted to reflect current pay rates. To the extent current or prior year

appropriations are not available to fund annual leave earned but not taken, funding will be obtained from future

financing sources.

Sick leave and other types of non-vested leave are expensed as taken.

P. Federal Employees' Compensation Act

The future workers’ compensation estimates are generated from an application of actuarial procedures

developed to estimate the liability for Federal Employees’ Compensation Act (FECA) benefits. The actuarial

liability estimates for FECA benefits include the expected liability for death, disability, medical, and

miscellaneous costs for approved compensation cases. The liability is determined using the paid losses

extrapolation method calculated over the next 23 year period. This method utilizes historical benefit payment

patterns related to a specific incurred period to predict the ultimate payments related to that period. These

annual benefit payments have been discounted to present value.

Q. Retirement Plan

The SBA’s employees participate in one of two retirement systems, the Civil Service Retirement System

(CSRS), or the Federal Employees Retirement System (FERS). On January 1, 1987, the FERS went into effect

pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are automatically covered by

FERS and Social Security. Employees hired prior to January 1, 1984, elected to either join FERS and Social

Security or remain in CSRS. A primary feature of FERS is that it offers a savings plan to SBA employees

which automatically contributes 1% of pay, matches any employee contributions dollar for dollar for the first

3% of basic pay, and for each dollar of the next 2% of pay contributions are matched 50 cents on the dollar.

For most employees hired since December 31, 1983, SBA also contributes the employer’s matching share for

Social Security. The SBA does not report CSRS or FERS assets, accumulated plan benefits, or unfunded

liabilities, if any, applicable to its employees. Reporting such amo

R. Combined Statements

SBA’s Statement of Budgetary Resources and Statement of Financing were prepared as combined statements.

As such, intra-entity transactions have not been eliminated.
Page 79

NOTE 2. Fund Balances with Treasury:

Fund Balances:

Entity Assets Non-Entity Assets Total

(1) Trust Funds $285,839 $0 $285,839

(2) Revolving Funds 1,045,090,165 0 1,045,090,165

(3) Appropriated Funds 7,178,280,569 0 7,178,280,569

Total $8,223,656,573 $0 $8,223,656,573

NOTE 3. Cash:

The cash balance held outside the U.S. Treasury was $2,676,639. This balance was composed primarily of cash on

hand.

NOTE 4. Investments:

Investments are comprised of marketable federal securities held by an agent of the U. S. Small Business

Administration. These securities are valued on a cost basis and maintain a balance of $350,586,269 as of

September 30, 1999. Cost basis and market value are the same.

NOTE 5. Accounts Receivable:

Entity Assets Account Balance

Intragovernmental

Account Balance

Governmental

Business Loan and Investment Fund $40,368,19 $25,696,974

Disaster Loan Fund 297,983,048 (21,324)

Pollution Control 0 0

Surety Bond Guaranty Program 0 1,733,210

Business Assistance Trust Fund 0 0

Salaries and Expenses 5,169,587 450,529

Office of Inspector General 373,066 1,145

Total $343,893,893 $27,860,534

Other Information:

Accounts Receivable - Intragovernmental represents reimbursements from other agencies and funds. The amounts

shown for the Business Loan and Investment Fund and the Disaster Loan Fund are comprised entirely of interest

due from Treasury on cash held by Treasury.

Accounts Receivable – Governmental primarily represents amounts due from participating financial institutions for

guarantee fees. The balances in the Salaries and Expenses and the Office of Inspector General funds represent

receivables due from Agency employees or vendors.

Based upon historical experience, a collection policy and the ability to offset against the participant’s share of loan

collections, no allowance for unrecoverable accounts is provided. No allowance for unrecoverable accounts for

administrative activity is necessary because employee accounts may be recovered through an offset process and

vendor receivables are generally offset against disbursements made to the vendor.
Page 80

NOTE 6. Advances:

Entity Assets Account Balance

Intragovernmental

Account Balance

Governmental

Sec. 503 Debentures $3,628,752 $0

Sec. 504 Debentures 0 5,140,226

SBIC 0 116,915,463

8(a) Program Subcontractors 0 7,145,236

Travel Advances 0 16,919

Total $3,628,752 $129,217,844

NOTE 7. Loans and Loan Guarantees, Non-Federal Borrowers:

A. SBA operates the following loan and/or loan guarantee programs:

(1) Business, Direct

(2) Business, Guarantee

(3) Disaster, Direct

(4) Pollution Control, Guarantee

Direct loan obligations or loan guarantee commitments made prior to FY 1992, and the resulting direct loans or

loan guarantees, are reported net of an allowance for estimated uncollectible loans or estimated losses. Loss

allowances represent estimates of what SBA does not expect to recover on its loans receivable obligated prior to

FY 1992. These allowances are based upon historical experience, current market conditions and an analysis of

individual assets. They are non-funded and merely attempt to reflect the anticipated unrecoverable loans

receivable.

Direct loan obligations or loan guarantee commitments made after FY 1991, and the resulting direct loans or

loan guarantees, are governed by the Federal Credit Reform Act. The Act provides that the present value of the

subsidy costs (i.e., interest rate differentials, interest subsidies, estimated delinquencies and defaults, fee

offsets, and other cash flows) associated with direct loans and loan guarantees be recognized as a cost in the

year the loan or loan guarantee is made.

An analysis of loans receivable, loan guarantees, liability for loan guarantees, and the nature and amounts of

the subsidy and administrative costs associated with the loans and loan guarantees is provided in the following

sections.

An analysis of loans receivable, loan guarantees, liability for loan guarantees, and the nature and amounts of

the subsidy and administrative costs associated with the loans and loan guarantees is provided in the following

sections.

B. Direct Loans Obligated Prior to FY 1992:

Liquidating

Loan

Programs

Loans Receivable,

Gross

Interest

Receivable

Allowance for

Loan Losses

Foreclosed

Property

Value of Assets

Related to

Direct Loans

(1) Business $332,501,401 $1,870,879 ($62,863,703) $10,313,436 $281,822,013

(2) Disaster 1,116,446,128 17,687,237 (80,000,757) 589,035 1,054,721,644

Total $1,448,947,529 $19,558,116 ($142,864,460) $10,902,471 $1,336,543,657
Page 81

C. Direct Loans Obligated After FY 1991:

Credit

Reform

Programs

Loans Receivable,

Gross

Interest

Receivable

Foreclosed

Property

Allowance for

Subsidy Cost

(Present Value)

Net Present Value

of Assets Related

to Direct Loans

(1) Business $118,453,746 $2,356,534 $250,654 ($31,160,445) $89,900,489

(2) Disaster 5,658,607,878 38,808,366 1,032,638 (929,356,794) 4,769,092,088

Total $5,777,061,623 $41,164,900 $1,283,292 ($960,517,239) $4,858,992,577

D. Defaults on Pre-1992 Guaranteed Loans:

Liquidating

Loan

Guarantee

Programs

Defaulted

Guaranteed Loans

Receivable, Gross

Interest

Receivable

Allowance for

Loan Losses

Foreclosed

Property

Defaulted

Guaranteed Loans

Receivable, Net

(1) Business $671,897,499 $44,056,753 ($323,599,891) $11,180,537 $403,534,898

(2) Pollution 47,405,266 342,935 (32,016,345) 0 15,731,856

Total $719,302,766 $44,399,687 ($355,616,236) $11,180,537 $419,266,754

E. Defaults on Post-1991 Guaranteed Loans:

Credit

Reform Loan

Guarantee

Program

Defaulted

Guaranteed Loans

Receivable, Gross

Interest

Receivable

Foreclosed

Property

Allowance for

Subsidy Cost

(Present Value)

Net Present Value

of Assets Related

to Defaulted

Guarantee Loans

Receivable

Business $592,349,812 $20,774,168 $19,159,378 ($160,635,766) $471,647,592

F. Guaranteed Loans Outstanding:

Loan Programs Outstanding Principal, Guaranteed

Loans Receivable, Gross

Amount of Outstanding Principal

Guaranteed

(1) Business $39,551,704,489 $31,924,382,912

(2) Pollution 0 45,140,146

Total $39,352,382,622 $31,969,523,058

G. Liability for Loan Guarantees:

Loan Programs

Liabilities for Losses on

Pre-1992 Guarantees

Liquidating

Liabilities for Loan

Guarantees for Post-1991

Guarantees (Present Value)

Total Liabilities for

Loan Guarantees

(1) Business $17,621,222 $1,380,126,392 $1,397,747,614

(2) Pollution 6,940,886 0 $6,940,886

Total $24,562,108 $1,380,126,392 $1,404,688,501
Page 82

H. Subsidy Expense for Post-1991 Loans:

1. Current Year's Direct Loans

Loan Programs Interest

Differential Defaults Fees Other Total

(1) Business $1,128,798 ($55,694) $1,326 ($21,371) $1,053,060

(2) Disaster 94,900,742 64,337,989 (66,591) (7,981,489) 151,190,651

Total $96,029,541 $64,282,296 ($65,265) ($8,002,860) $152,243,712

2. Direct Loan Modification and Re-estimates

Loan Programs Modifications Re-estimates Total

(1) Business $0 $0 $0

(2) Disaster 0 (152,690,680) (152,690,680)

Total $0 ($152,690,680) ($152,690,680)

3. Total Direct Loan Subsidy Expenses

Loan Program Total

(1) Business $1,053,060

(2) Disaster (1,500,029)

Total ($446,969)

I. Subsidy Expense for Post-1991 Loans Guarantees:

1. Current Year's Loan Guarantees

Loan Program Interest

Supplement Defaults Fees Other Total

Business $0 $455,956,442 ($292,584,272) ($36,129,792) $127,242,379

2. Loan Guarantee Modifications and Re-estimates

Loan Program

Modifications Re-estimates Total

Business $0 ($206,909,581) ($206,909,581)

3. Total Loan Guarantee Subsidy Expenses

Loan Program Total

Business ($79,667,202)

J. Administrative Expense:

Direct Loans

Loan Programs Total Loan GuaranteesLoan Program Total

(1) Business $18,800,000 Business $96,966,563

(2) Disaster 146,750,000

Total $165,550,000
Page 83

K. Other Information:

The liability in Part G of this note, for pre-1992 business loans, relates to outstanding gross amounts guaranteed

of $2,585,509,735. Of this amount, the Agency’s share is $2,262,737,540. For Pollution Control Equipment

Contract Guarantees, the outstanding guarantees total $45,140,146. This amount is both gross and Agency

share. For post-1991 loans, the gross amount guaranteed for business loans is $36,966,194,754. The Agency’s

share is $29,661,645,372.

The Foreclosed Property referred to in Parts B through E is comprised of $38,574,920 of Real Estate

outstanding on 261 loans and $3,950,758 of Other Property outstanding on 50 loans.

The majority of loans sold in FY 1999 were from the 7(a) program. Under this program, the SBA guarantees a

percentage of business loans which are actually made and disbursed by participating banks. Loans with unpaid

principal balances totaling $332 million were sold to two successful bidders for $195 million before costs.

Since SBA expected to net less than $195 million by holding and servicing the loans itself, the sale was deemed

successful. Book value of the loans after consideration of various subsidy allowances and allowances for

doubtful accounts totaled $270 million.

For FY 2000, additional sales have been planned. About $1.5 billion of SBA’s loan portfolio, to include

disaster loans, is expected to be sold in each of the future anticipated sales. The effect of the smaller pilot loan

sale in FY 1999, and the effects of the two larger sales planned, will be factored into the calculations of the

subsidy expense and allowance next year. At that point, we will determine what the impact may be from future

asset sales. If there is no future positive impact to the agency, loan sales will not continue. However, based

upon the positive impact of the first sale, we expect to sell the bulk of the SBA’s loan portfolio within the next

three or four years.

NOTE 8. General Property, Plant and Equipment, Net:

Classes of Fixed Assets

(1)

Depreciation

Method

(2)

Service

Life

(3)

Acquisition

Value

(4)

Accumulated

Depreciation

(5)

Net Book

Value

A. ADP Software S/L 3 years $367,168 $229,814 $137,354

B. Equipment S/L 5 years 1,776,895 1,174,135 602,760

Total $2,144,063 $1,403,949 $740,114

NOTE 9. Debt:

Liabilities Covered by Budgetary Resources:

Beginning Balance New Borrowings Repayments Ending Balance

A. Intragovernmental

Debt:

(1) Borrowing from

the Treasury $9,035,041,014 $790,740,255 $0 $9,825,781,269

(2) Borrowing from

Federal

Financing Bank

233,437,352 0 (39,574,390) 193,862,962

Total

Intragovernmental

Debt

$9,268,478,366 $790,740,255 ($39,574,390 $10,019,644,231
Page 84

NOTE 10. Other Liabilities:

A. Other Liabilities Covered by Budgetary Resources:

Non-Current Liabilities Current Liabilities Total Liabilities

1. Intragovernmental

(1) Business Loan and

Investment Fund $1,087,921,170 $0 $1,087,921,170

(2) Disaster Loan Fund 1,228,471,847 1,228,471,847

(3) Salaries and Expenses 0 (12,782) (12,782)

(4) Pollution Control

Guarantee Fund 10,594,059 0 10,594,059

Total $2,326,987,076 $0 $2,326,987,076

2. Governmental

(1) Business Loan &

Investment Fund $350,459,321 ($21,536,377) $328,922,944

(2) Disaster Loan Fund 0 22,018,990 22,018,990

(3) Salaries and Expenses 0 14,638,136 14,638,136

(4) Office of Inspector

General 0 482,010 482,010

(5) Surety Bond Guarantee

Fund 34,956,328 (764,832) 34,191,495

Total $385,415,649 ($14,837,927) $400,253,576

B. Other Information Related to 10.A.:

Amounts shown as Intragovernmental under “Non-Current Liabilities” consists primarily of the net assets of

liquidating funds due to Treasury in the amounts of $1,083,636,823 for BLIF, $1,251,932,605 for DLF, and

$10,594,059 for the Pollution Control Guarantee Fund. A lesser amount of the BLIF balance consists of

amounts due FFB.

The amount shown as Governmental under “Non-Current Liabilities” consists of contingent liabilities for the

Surety Bond Guarantee Fund, and primarily deferred credits for BLIF.

C. Other Liabilities not Covered by Budgetary Resources:

Non-Current Liabilities Current Liabilities Total Liabilities

1. Intragovernmental

(1) FECA – Workers

Compensation Liability $0 $16,585,000 $16,585,000

2. Governmental

(1) Accrued Unfunded

Annual Leave $0 $24,506,919 $24,506,919

(2) Prior Liens – Real Estate 0 2,990,996 2,990,996

Total Governmental $0 $27,497,915 $27,497,915
Page 85

D. Accounts Payable Covered by Budgetary Resources:

Liabilities

Account Balance

Intragovernmental

Account Balance

Governmental

Business Loan and Investment Fund $372,069,564 $43,436,757

Disaster Loan Fund 1,155,027,057 329,687

Surety Bond Guaranty Program 0 2,729,518

Business Assistance Trust Fund 0 4,512

Salaries and Expenses 5,190,330 5,790,254

Office of Inspector General 127,602 30,901

Total $1,532,414.553 $52,321,629

E. Other Information Related to 10.D.:

The amounts shown as Intragovernmental consist primarily of interest payable to Treasury in the amount of

$74,768,068 for BLIF and $630,382,094 for DLF, and a payable to the Special Receipt Fund per downward

subsidy re-estimates in the amount of $279,395,271 for BLIF and $509,266,321 for DLF.

The amount shown as Governmental for BLIF consists primarily of payables in the amount of $38,753,604 due

to participating banks.

NOTE 11. Unexpended Appropriations:

Revolving Funds Trust Funds Appropriated

Funds Total

A. Unexpended Appropriations:

(1) Unobligated:

a. Available $278,202,392 $110,468 $197,437,125 $475,749,985

b. Unavailable 0 0 0 0

(2) Undelivered Orders 0 20,300 197,757,048 195,777,348

Total $278,202,392 $130,768 $393,194,173 $671,527,333

NOTE 12. Gross Cost and Earned Revenue by Budget Functional Classification:

Functional Classification Gross Cost Earned Revenue Net Cost

Commerce and Housing Credit $478,472,183 ($176,773,834) $301,698,350

Community and Regional Development 957,875,950 (744,628,667) 213,247,283

Total $1,436,348,133 ($921,402,501) $514,945,633

NOTE 13. Footnote Disclosures Related to the Statement of Budgetary

Resources:

SBA had no available borrowing or contract authority at the end of the FY 1999 reporting period. Repayments of

borrowings are made annually from collections received through SBA's credit reform portfolio. Borrowing

repayments are calculated using the guidance provided by OMB. SBA has access to permanent indefinite

appropriations for the purpose of funding liquidating fund obligations and upward subsidy re-estimates.
Page 86

Legend:

BLIF Business Loan and Investment Fund

DLF Disaster Loan Fund

SBGRF Surety Bond Guarantees Revolving Fund

PCECGRF Pollution Control Equipment Contract Guarantees Revolving Fund

S&E Salaries and Expenses

OIG Office of Inspector General

BATF Business Assistance Trust Fund
Page 87

U.S. Small Business Administration

Balance Sheet

as of September 30, 1999

ASSETS BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Intragovernmental Assets:

Fund Balances with Treasury

(Note 2)

$2,143,487,943 $5,789,772,048 $40,658,336 $1,803,089 $245,428,930 $2,220,388 $285,839 $8,223,656,573

Investments (Note 4) 0 0 0 0 0 0 0 0

Accounts Receivable, Net

Note 5)

40,368,193 297,983,048 0 0 5,169,587 373,066 0 343,893,893

Advances (Note 6) 3,628,752 0 0 0 0 0 0 3,628,752

Governmental Assets:

Investments (Note 4) 350,586,269 0 0 0 0 0 0 350,586,269

Accounts Receivable, Net

(Note 5)

25,696,974 (21,324) 1,733,210 0 450,529 1,145 0 27,860,534

Credit Program Receivables

and Related Foreclosed

Property, Net (Note 7)

1,246,904,992 5,823,813,732 0 15,731,856 0 0 0 7,086,450,580

Cash and Other Monetary

Assets (Note 3)

2,605,682 0 0 0 70,957 0 0 2,676,639

General Property and

Equipment, Net (Note 8)

0 0 0 0 713,761 26,353 740,114

Advances (Note 6) 129,200,925 0 0 0 16,919 0 0 129,217,844

Total Entity Assets $3,942,479,730 $11,911,547,504 $42,391,546 $17,534,945 $251,850,682 $2,594,599 $312,192 $16,168,711,197

Total Non-Entity Assets $0 $0 $0 $0 $0 $0 $0 $0

Total Assets $3,942,479,730 $11,911,547,504 $42,391,546 $17,534,945 $251,850,682 $2,594,599 $312,192 $16,168,711,197

The accompanying notes are an integral part of this schedule. Details may not add to totals due to rounding.
Page 88

U.S. Small Business Administration

Balance Sheet

as of September 30, 1999

LIABILITIES BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Liabilities Covered by

Budgetary Resources:

Intragovernmental Liabilities:

Accounts Payable $372,069,564 $1,155,027,057 $0 $0 $5,190,330 $127,602 $0 $1,532,414,553

Debt (Note 9) 615,224,097 9,404,420,135 10,019,644,231

Other (Notes 10) 1,087,921,170 1,228,471,847 10,594,059 2,326,987,076

Governmental Liabilities:

Accounts Payable 43,436,757 329,687 2,729,518 5,790,254 30,901 4,512 52,321,629

Liabilities for Loan

Guarantees (Note 7)

1,397,747,614 6,940,886 0 0 1,404,688,501

Other (Note 10) 328,922,944 22,018,990 34,191,495 14,638,136 482,010 400,253,576

Total Liabilities Covered by

Budgetary Resources

$3,845,322,146 $11,810,267,716 $36,921,013 $17,534,945 $25,618,720 $640,513 $4,512 $15,736,309,566

Liabilities Not Covered by

Budgetary Resources:

Intragovernmental Liabilities:

Debt (Note 9) $0 $0 $0 $0 $0 $0 $0 $0

Other (Note 10) 16,585,000 16,585,000

Governmental Liabilities:

Other (Note 10) 2,715,229 275,767 23,824,675 682,244 27,497,915

Total Liabilities Not

Covered by Budgetary

Resources

$2,715,229 $275,767 $0 $0 $40,409,675 $682,244 $0 $44,082,915

Total Liabilities $3,848,037,375 $11,810,543,483 $36,921,013 $17,534,945 $66,028,395 $1,322,757 $4,512 $15,780,392,480

The accompanying notes are an integral part of this schedule. Details may not add to totals due to rounding.
Page 89

U.S. Small Business Administration

Balance Sheet

as of September 30, 1999

NET POSITION BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Unexpended Appropriations

(Note 11)

$99,093,704 $101,004,021 $278,202,392 $191,577,127 $1,519,321 $130,768 $671,527,333

Cumulative Results of

Operations

(4,651,349) 0 (272,731,860) (5,754,840) (247,479) 176,912 (283,208,616)

Total Net Position $94,442,355 $101,004,021 $5,470,532 $0 $185,822,287 $1,271,842 $307,680 $388,318,717

Total Liabilities and Net

Position

$3,942,479,730 $11,911,547,504 $42,391,546 $17,534,945 $251,850,682 $2,594,599 $312,192 $16,168,711,197

The accompanying notes are an integral part of this schedule. Details may not add to totals due to rounding.
Page 90

U.S. Small Business Administration

Consolidated Statement of Changes in Net Position

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Net Cost of Operations $3,515,635 $213,247,284 $3,967,761 $1,359,397 $282,530,755 $10,173,242 $151,559 $514,945,633

Financing Sources:

 Appropriations Used 279,629,137 634,970,059 8,094,492 280,294,547 10,641,030 151,667 1,213,780,932

 Changes to Resources

Payable to Treasury

(42,701,986) (22,684,070) (1,359,397) (64,026,659)

 Donations 130,768 130,768

 Imputed Financing 17,327,517 17,327,517

 Transfers-out (238,062,865) (399,038,705) (637,101,570)

Net Results of Operations $4,651,349 $0 $4,126,731 $0 $15,091,309 $467,788 $130,876 $15,165,355

Prior Period Adjustments 0 0 0 0 0 0 0 0

Net Change in Cumulative

Results of Operations

($4,651,349) $0 $4,126,731 $0 $15,091,309 $467,788 $130,876 $15,165,355

Increase (Decrease) in

Unexpended Appropriation

16,343,771 331,535,566 (4,794,492) 0 6,367,704 (559,875) (151,666) 348,741,008

Change in Net Position $11,692,421 $331,535,566 ($667,761) $0 $21,459,013 ($92,087) ($20,790) $363,906,363

Net Position - Beginning of the

Period

82,749,934 (230,531,546) 6,138,293 0 164,363,274 1,363,929 328,470 24,412,354

Net Position - End of Period $94,442,355 $101,004,021 $5,470,532 $0 $185,822,287 $1,271,842 $307,680 $388,318,717

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 91

U.S. Small Business Administration

Combined Statement of Budgetary Resources (Note 13)

for the period ended September 30, 1999

RESOURCES BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Budget Authority:

Appropriations $266,397,735 $630,235,132 $3,300,000 $4,000,000 $293,139,604 $10,800,000 $0 $1,207,872,471

Borrowing Authority 36,894,633 878,847,400 915,742,033

Net Transfers, Current Year

Authority

(39,574,390) 5,000,000 13,668,904 (20,905,486)

Unobligated Balance:

Brought Forward October 1 2,345,149,702 4,246,762,340 41,171,857 14,044,901 51,227,762 1,161,884 237,990 6,699,756,435

Net Transfers Prior-Year

Balance, Actual

Spending Authority from

Offsetting Collections:

Earned

 Collected 1,376,392,360 1,807,267,584 4,192,875 590,036 268,900,041 500,794 130,768 3,457,974,459

 Receivable from Federal

Sources

(153,798,781) (12,054,840) 3,856,674 373,066 (161,623,880)

Adjustments:

Recoveries of Prior Year

Obligations

37,320,322 104,498,855 47,324,220 215,193 189,358,590

Temporarily Not Available

Pursuant to Public Law

Permanently Not Available

 Cancellations of Expired and

No Year Accounts

(6,470,965) (4,121,331) (106,554) (10,698,850)

 Enacted Rescissions of Prior

Year Balances

(6,000,000) (6,000,000)

 Capital Transfers and

Redemption of Debt

(287,571,755) (705,359,302) (14,044,901) (1,006,975,958)

Total Budgetary Resources $3,568,738,862 $6,955,197,169 $48,664,732 $4,590,036 $673,995,874 $12,944,383 $368,758 $11,264,499,814

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 92

U.S. Small Business Administration

Combined Statement of Budgetary Resources (Note 13)

for the period ended September 30, 1999

STATUS BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Obligations Incurred:

Category A, Direct $0 $0 $0 $0 $636,207,927 $12,029,905 $107,742 $648,345,574

Category B, Direct 1,909,172,474 1,411,653,647 8,946,179 2,786,947 3,332,559,248

Direct, Not Subject to

Apportionment

94,000,000 146,750,000 240,750,000

Reimbursable 1,642,528 1,642,528

Unobligated Balances Available:

Apportioned 21,080,403 261,016 21,341,419

Other 16,707,544 16,707,544

Unobligated Balances Not Yet

Available:

Apportioned for Subsequent

Periods

499,536 499,536

Other 1,563,923,860 5,396,793,522 39,718,552 1,803,089 414,942 7,002,653,964

Total, Status of Budgetary

Resources

$3,568,738,862 $6,955,197,169 $48,664,732 $4,590,036 $673,995,874 $12,944,383 $368,758 $11,264,499,814

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 93

U.S. Small Business Administration

Combined Statement of Budgetary Resources (Note 13)

for the period ended September 30, 1999

OUTLAYS BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Obligations Incurred:

Category A, Direct $0 $0 $0 $0 $636,207,927 $12,029,905 $107,742 $648,345,574

Category B, Direct 1,909,172,474 1,411,653,647 8,946,179 2,786,947 3,332,559,248

Direct, Not Subject to

Apportionment

94,000,000 146,750,000 240,750,000

Reimbursable 1,642,528 1,642,528

Less: Spending Authority

from Offsetting

Collections and

Adjustments:

Earned

Collected 1,376,392,360 1,807,267,584 4,192,875 590,036 268,900,041 500,794 130,768 3,457,974,459

Receivable from Federal

Sources

(153,798,781) (12,054,840) 3,856,674 373,066 (161,623,880)

Actual Recoveries of Prior

Year Obligations

37,320,322 104,498,855 47,324,220 215,193 189,358,590

Obligated Balance, Net –

Beginning of the Period:

214,198,879 1,114,922,409 1,187,813 161,890,339 448,510 64,225 1,492,712,175

Less: Obligated Balance, Net -

End of Period:

Accounts Receivable (391,660,274) (897,453,142) (5,169,255) (373,066) (1,294,655,737)

Undelivered Orders 519,195,206 166,432,737 194,969,818 787,230 20,300 881,405,291

Accounts Payable 454,634,822 1,249,000,721 939,784 25,543,061 640,513 4,512 1,730,763,413

Total Outlays $376,930,224 $255,634,141 $5,001,334 $2,196,911 $262,673,708 $10,334,685 $16,387 $912,787,391

Disbursements $1,753,322,585 $2,062,901,725 $9,194,209 $2,786,947 $531,573,749 $10,835,479 $147,155 $4,370,761,849

Collections ($1,376,392,360) ($1,807,267,584) ($4,192,875) ($590,036) ($268,900,041) ($500,794) ($130,768) ($3,457,974,459)

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 94

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Resources Used to Finance

Activities:

Budgetary

Budgetary resources obligated

for orders and services to be

received or benefits to be

provided to others

$2,003,172,474 $1,558,403,647 $8,946,179 $2,786,947 $636,207,927 $12,029,905 $107,742 $4,221,654,823

Less: Offsetting collections,

recoveries of prior-year

authority

 Earned reimbursements

 Collected 1,376,392,360 1,807,267,584 4,192,875 590,036 268,900,041 500,794 130,768 3,457,974,459

 Receivable from Federal

sources

(153,798,781) (12,054,840) 3,856,674 373,066 (161,623,880)

 Transfers from Trust Funds (1,642,528) (1,642,528)

 Recoveries of prior-year

obligations

37,320,322 104,498,855 47,324,220 215,193 189,358,590

Net budgetary resources used

to finance activities

$744,901,100 ($341,307,952) $4,753,305 $2,196,911 $316,126,992 $10,940,852 ($23,026) $737,588,182

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 95

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Non-Budgetary

Costs incurred by others for

the entity without

reimbursement

17,327,517 17,327,517

Net non-budgetary resources

used to finance activities

$0 $0 $0 $0 $17,327,517 $0 $0 $17,327,517

Total resources used to

finance activities

$744,901,100 ($341,307,952) $4,753,305 $2,196,911 $333,454,509 $10,940,852 ($23,026) $754,915,699

Relationship of total resources

to net cost of operations:

Deduct resources used to fund

items not part of the net

cost of operations

Increase in budgetary resources

obligated to order goods

and services not yet

received or benefits not yet

provided

64,107,829 15,025,068 96,452,524 1,929,024 (43,814) 177,470,631

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 96

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Budgetary offsetting

collections that do not

increase exchange revenue

or decrease expenses

 Collections that decrease

assets unrelated to exchange

revenue

$582,523,871 $755,324,691 $0 $527,192 $0 $0 $0 $1,338,375,754

 Credit program collections

that increase liabilities for

loan guarantees or

allowances for subsidy

(15,044,574) 488,095,301 473,050,726

 Other 339,104,489 22,355 4,192,875 343,319,719

Adjustments other than

collections made to compute

net budgetary resources that

do not affect net cost of

operations

 Recoveries of prior-year

authority

(9,010,443) 85,439,480 (47,324,220) (215,193) 28,889,623

Resources that fund expenses

recognized in prior periods

12,883,619 1,135,975 14,019,594

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 97

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Resources that finance the

acquisition of assets or

liquidation of liabilities

 General property, plant and

equipment

$0 $0 $0 $0 $195,698 $0 $0 $195,698

 Loans Receivable 378,796,797 763,656,753 (350,431) 1,075,304 1,143,178,422

 Collateral Acquired (4,297,140) (677,175) (4,974,315)

Other resources used to fund

items not part of the net

cost of operations

(14,545,116) (509,460,739) 5,274,172 682,244 (518,049,440)

Total resources used to fund

items not part of the net

cost of operations

($460,627,354) ($1,060,337,919) ($3,407,331) $548,112 $149,246,614 $2,826,461 ($43,814) ($1,371,795,232)

Resources used to finance the

net cost of operations

$1,205,528,455 $719,029,967 $8,160,636 $1,648,799 $184,207,895 $8,114,391 $20,788 $2,126,710,931

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 98

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Components of net cost of

operations that do not

require or generate

resources during the

reporting period

Expenses or exchange revenue

related to the disposition of

assets or liabilities, or

allocation of their costs

over time:

Expenses related to the use of

assets

$0 $0 $0 $0 $413,297 $0 $0 $413,297

Gains or (losses) from

revaluation of assets and

liabilities

(6,445,960) (721,385) (7,167,344)

Decrease in exchange revenue

receivable from the public

(295,054,943) 252,544,946 (4,192,875) (103,532) (46,806,403)

Interest revenue from

amortization of credit

program allowance for

subsidy

(23,652,303) (182,764,025) (206,416,328)

Other (294,777,147) (552,888,203) 270 (847,665,080)

Subtotal ($619,930,353) ($483,828,666) ($4,192,875) ($103,532) $413,567 $0 $0 ($1,107,641,859)

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 99

U.S. Small Business Administration

Combined Statement of Financing

for the period ended September 30, 1999

BLIF DLF SBGRF PCECGRF S&E OIG BATF TOTAL

Expenses that will be

financed with budgetary

resources recognized in

future periods

 Other (26,950,014) 8,809,481 16,585,000 (1,555,533)

Subtotal ($26,950,014) $8,809,481 $0 $0 $16,585,000 $0 $0 ($1,555,533)

Other net cost components

that do not require or

generate resources

during the reporting

period

(555,132,452) (30,763,498) (185,870) 81,324,292 2,058,852 130,771 (502,567,905)

Total components of net

cost of operations that

do not require or

generate resources

during the reporting

period

($1,202,012,819) ($505,782,683) ($4,192,875) ($289,402) $98,322,859 $2,058,852 $130,771 ($1,611,765,297)

Net cost of operations $3,515,635 $213,247,284 $3,967,761 $1,359,397 $282,530,754 $10,173,243 $151,559 $514,945,633

The accompanying notes are an integral part of this statement for current year data. Details may not add to totals due to rounding.
Page 100

U.S. Small Business Administration

Required Supplementary Stewardship Information

for the period ended September 30, 1999

Stewardship Investments in Human Capital Cost for Fiscal Year

Office of Small Business Development Centers $79,077,992

Office of Women’s Business Ownership 12,085,761

Service Corp of Retired Executives 9,236,519

Business Information Centers 7,832,769

Office of International Trade 5,769,800

One Stop Capital Shops 5,137,447

HubZones Program 4,872,103

Other Business Initiatives 4,255,922

Small Business Innovation and Research 3,597,365

Ombudsman 3,396,153

Welfare to Work 2,988,173

Office of Veteran Affairs 2,862,847

Office of Native American Affairs 2,504,968

Women's Business Council 693,518

Total $144,311,336

A detailed description of the programs may be found in the SBA Program Description and Analysis portion of this document.
Page 101

U.S. Small Business Administration

Required Supplementary Information

for the period ended September 30, 1999

Intragovernmental Assets and Liabilities

ASSETS LIABILITIES

Trading Partner Fund Balance With

Treasury

Accounts

Receivable Advances Accounts Payable Debt/Borrowings

from Other Agencies Other

Federal Financing Bank $0 $0 $3,628,752 $10,274,378 $193,862,962 $0

Department of the Treasury 8,223,656,573 343,893,894 1,500,177,509 9,825,781,269 2,326,987,076

Office of Personnel Management 21,962,666 16,585,000

Total $8,223,656,573 $343,893,894 $3,628,752 $1,532,414,553 $10,019,644,231 $2,343,572,076












Appendix A

MANAGEMENT'S SEMIANNUAL

REPORT ON FINAL ACTIONS

For the Period:

April 1, 1999 – September 30, 1999
Appendix A

i

EXECUTIVE SUMMARY

INTRODUCTION

The Inspector General Act of 1978, as amended, requires the head of each Federal agency to report,

semiannually, on the status of management’s action on audit recommendations made by the Office of

Inspector General (OIG). Throughout the year, the OIG conducts audits of the Small Business

Administration’s (SBA) management and programs and makes recommendations for improvement.

SBA management has the option to agree or disagree with the OIG's recommendations. Agreement

places responsibility on the manager to implement those recommendations, which is referred to as

“final action.” The Office of the Chief Financial Officer is responsible for monitoring the

implementation of audit recommendations and reporting on the status of audit recommendations

including final actions. This report, as a supplement to the Semiannual Report of the Inspector

General, summarizes the final actions taken from April 1 through September 30, 1999.

FINAL ACTIONS

Recommendations made by the OIG and subsequent final actions taken by management may be of

either a monetary or non-monetary nature. Monetary recommendations may take the form of

“disallowed costs” or “funds put to better use.” Disallowed costs are those which management agrees

are a violation of regulations, contracts or other agreements with the SBA, and should not be incurred

by the Government. Funds put to better use represent opportunities to reduce operating inefficiencies

and to use Agency funds for better purposes. In general, both categories represent the Agency's intent

to make the optimum use of its resources. Non-monetary recommendations are those which do not

necessarily have any immediate monetary effect; but would, nonetheless, enhance program operations

and management capabilities.

The tables in this report summarize the monetary final actions taken over the past semiannual period

(Tables I and II) and identify those recommendations awaiting final actions which have been

outstanding in excess of 1 year (Table III). Table III serves to prioritize those outstanding

recommendations, to identify the circumstances surrounding their delay and to expedite their eventual

completion. These tables are summarized as follows:

TABLE I. Final Actions with Disallowed Costs

This table provides statistics on 34 recommendations with disallowed costs and 19 final actions with

collections of $1,384,301.
Appendix A

ii

TABLE II. Final Actions to Put Funds to Better Use

This table indicates actions taken on the recommendations concerning putting funds to better use.

During the period, there were eight recommendations and six final actions having cost savings of

$7,195,556.

TABLE III. Final Actions Not Completed Within 1 Year

This table provides information on nine audits containing 15 recommendations where final action was

not taken by SBA management within 1 year of the management decision date of an audit

recommendation.

CONCLUSION

The details of final action activity related to monetary recommendations are included after the three

tables. In addition to the 25 monetary final actions reported in the three statutorily required categories,

SBA management completed 32 final actions on 58 non-monetary recommendations during the

semiannual period ending September 30, 1999. (The 58 non-monetary recommendations include

43 recommendations on audits completed during the reporting period.) The SBA has an active

program to monitor and follow up on OIG audit recommendations. Our outstanding actions remain at

a low level. The Agency expects future reports will continue to show the results of its prompt

attention to concerns raised in the Inspector General’s audit reports.
Appendix A

1

TABLE I

FINAL ACTION ON AUDIT RECOMMENDATIONS

WITH DISALLOWED COSTS

For The 6 Month Period Ending September 30, 1999

Number of

Recommendations

Disallowed Costs

(Rounded to

Thousands)

A. Recommendations with management decisions on

which final action had not been taken at the

beginning of the period.

6 $970

B. Recommendations on which management

decisions were made during the period. 28 $1,434

C. Total recommendations pending final action

during period. 34 $2,405

D. Recommendations on which final action was taken

during the period.

1. Recoveries:

(a) Collections and Offsets 18 $1,384

(b) Property 0 $0

(c) Other 0 $0

2. Write-Offs 1 $19

3. Total 19 $1,403

E. Recommendations needing final action at the end

of the period.

15 $1,001
Appendix A

2

U.S. SMALL BUSINESS ADMINISTRATION

TABLE II

FINAL ACTION ON AUDIT RECOMMENDATIONS

WITH FUNDS PUT TO BETTER USE

For The 6 Month Period Ending September 30, 1999

Number of

Recommendations

Funds to be Put to

Better Use

(Rounded to

Thousands)

A. Recommendations with management decisions on

which final action had not been taken at the

beginning of the period.

3 $600

B. Recommendations on which management

decisions were made during the period.

5 $7,082

C. Total recommendations pending final action

during period.

8 $7,681

D. Recommendations on which final action was taken

during the period.

1. Value of recommendations implemented

(completed).

6 $7,196

2. Value of recommendations that management

concluded should not or could not be

implemented or completed.

0 $2

3. Total 6 $7,198

E. Recommendations needing final action at the end

of the period.

2 $483
Appendix A

3

U.S. SMALL BUSINESS ADMINISTRATION

TABLE III

FINAL ACTION ON AUDIT RECOMMENDATIONS

NOT COMPLETED WITHIN 1 YEAR

For The 6 Month Period Ending September 30, 1999

Report Program Date Issued Management

Decision Date

Questioned Cost

Disallowed

Funds Put To

Better Use Explanation

32C002033

8(a) Work

Performance

Requirements

8(a) 3/31/93 9/30/95 Two recommendations

remain open. The 8(a)

program is working with the

OIG to develop a Procedural

Notice to guide the field on

how to comply with the intent

of the Walsh-Healey Public

Contracts Act. The program

is also working with the OIG

to determine the extent of

applicability for a more

active role by SBA in

monitoring work performance

requirements after contract

award. We estimate these

recommendations will be

finalized by June 30, 2000.
Appendix A

4

Report Program Date Issued Management

Decision Date

Questioned Cost

Disallowed

Funds Put To

Better Use Explanation

43H006021

8(a) Continuing

Eligibility Reviews

8(a) 9/30/94 1/31/95 Four recommendations

remain open. (1) The 8(a)

program is drafting changes

to procedures requiring

program participants to

annually submit personal

financial statements.

(2) Changes were

implemented in the annual

review process to help

determine whether 8(a)

participants should be

considered economically

disadvantaged. The program

is still reviewing this issue

with the OIG. (3) The

development of a standard

form to report the adjusted

personal net worth of 8(a)

participants is in process.

(4) Due to the statutorily

defined date for program year

and the SBA’s lack of control

over a firm’s tax year, the

program feels that a

recommendation to realign

8(a) firms’ program years

with their fiscal years and the

tax years of the owners

cannot be implemented. The

program is working with the

OIG on this issue. We

estimate these

recommendations will be

finalized by June 30, 2000.
Appendix A

5

Report Program Date Issued Management

Decision Date

Questioned Cost

Disallowed

Funds Put To

Better Use Explanation

53E010021

8(a) Competitive

Business Mix

Requirements

8(a) 9/29/95 3/29/97 Three recommendations

remain open.

(1) Implementation of

mandatory limits on the

dollar value of 8(a) contracts

for every 8(a) company not

meeting its competitive mix

requirement was affected by

changes in 8(a) regulations

that eliminated sole source

contracts for these

companies. It is still too

early to tell whether these

changes have had the desired

effect. (2) The 8(a) program

has implemented a plan that,

to the maximum extent

practicable, tracks former

8(a) companies after they

have completed the program

and determine whether they

are still in business. The 8(a)

program is again reviewing

this and will make

appropriate implementable

changes. (3) The 8(a)

program is making necessary

changes to the computer

system to ensure that data

needed to track former 8(a)

companies is maintained. We

estimate these

recommendations will be

finalized by June 30, 2000.
Appendix A

6

Report Program Date Issued Management

Decision Date

Questioned Cost

Disallowed

Funds Put To

Better Use Explanation

53H004006

SBA Loan

Servicing & Debt

Collection

Activities –

evaluate

effectiveness

7(a) 3/31/95 4/30/95 The remaining open

recommendation is to revise

bank agreements requiring

that guaranty fees be remitted

by Electronic Funds

Transfer. The Office of

Financial Assistance is

working closely with the

Office of the General

Counsel on a revised version

of SBA form 750 bank

agreement. We anticipate

this recommendation will be

finalized by

December 31, 1999.

65E001021

Basic Ordering

Agreements

8(a) 9/25/96 2/10/97 The remaining open audit

recommendation concerns

limiting assigned SIC codes

to one major group. The

program office continues to

work with OIG to have this

recommendation restated and

included in a technical

correction to regulations.

Anticipated completion is

June 30, 2000.
Appendix A

7

Report Program Date Issued Management

Decision Date

Questioned Cost

Disallowed

Funds Put To

Better Use Explanation

76H006015

FY 1996 Financial

Statements –

Management Letter

Chief Information

Officer

4/29/97 1/26/98 A system to ensure that field

computer security officers

are made aware of all failed

access attempts is being

handled through an operating

system security upgrade. We

anticipate implementation by

December 31, 1999.

77F007021

LowDoc Loan

Program

7(a) 7/18/97 10/20/97 $23,677.00 One recommendation remains

open. The SBA

Administrator has approved

litigation against the bank for

repayment of the amount the

Agency disbursed to

purchase the guaranty. The

case is now with Office of the

General Counsel to initiate

the lawsuit after they try one

last time to get the bank to

voluntarily repay.
Appendix A

8

Report Program Date Issued Management

Decision Date

Questioned Cost

Disallowed

Funds Put To

Better Use Explanation

77H001011

Grant Closeout

Procedures

Management &

Administration

3/26/97 10/20/97 One recommendation remains

open. An SOP revision has

been written that includes

grant closeout followup

procedures. The OGC

conditionally approved the

SOP, but required another

rewrite of the grants section.

SOP changes are expected to

be completed by

December 30, 1999. In the

meantime, a Procedural

Notice is being issued to

address the open audit issue.

77S918018

User Technology

Associates Incurred

Costs For CY 92,

93 & 94

Management &

Administration

6/6/97 3/26/98 $79,371.94 The one recommendation

concerns whether indirect

rates reflect rates acceptable

by the Defense Contract

Audit Agencies. The SBA

requested payment from User

Technology Associates. No

funds have been collected to

date, but settlement is

expected by

December 31, 1999.
Appendix A

Page 9

DETAIL OF FINAL ACTION ACTIVITY

DISALLOWED COSTS

Report #: 65H002019

Audit Title: Business Loan Center

Amount: $627,039.00 collected

Issue Date: 9/20/96

Summary: The purpose of this audit was to determine whether the Business Loan Center’s (BLC)

procedures were consistent with SBA’s requirements for: (1) originating and servicing loans

repurchased by SBA, (2) charging fees and screening loan applicants for eligibility, (3)

monitoring delinquent debt, and (4) implementing required internal controls. The audit

found that originating and servicing of SBA guaranteed loans deviated from SBA’s

requirements. It was recommended that BLC reimburse the SBA for originating and

servicing errors, if actual losses exist after full liquidation of each loan.

Final Action: The SBA agreed that existing loan purchase procedures already require a review at the time

of purchase by the field office.

Report #: 66H002011

Audit Title: Population and Marketing Analysis Center's Subrecipient Awards to Geo Demographics,

Ltd.

Amount: $105,431.00 collected

Issue Date: 3/29/96

Summary: The objective of this audit was to determine whether awards made to Geo Demographic,

Ltd. (GDL) complied with procurement standards. The audit found that the Population and

Marketing Analysis Center (PMAC) paid GDL from SBA funds for software and training

services which involved a conflict of interest. Because GDL received the awards contrary to

procurement standards, GDL was unjustly enriched. The audit recommended that the SBA

require PMAC to remit their profit on these awards.

Final Action: The SBA notified PMAC of the audit finding and requested reimbursement for unjust fees

paid to GDL.
Appendix A

Page 10

Report #: 85W003009

Audit Title: Loan Liquidations

Amount: $493,034.00 written off

Issue Date: 2/27/98

Summary: The audit objective was to determine whether the liquidation process in FY 1994 maximized

recoveries. The audit found that there were deficiencies in seven of the 31 loans liquidated

by lenders and recommended SBA initiate recovery action, if the statute of limitations has

not expired, for these seven loans.

Final Action: The SBA determined that there is no legal basis to initiate suit on six of the loans and

insufficient information to form an opinion on the remaining loan.

Report #: 88H009026

Audit Title: Safeco / First National Surety Company

Amount: $8,800.00 collected

Issue Date: 9/30/98

Summary: The primary objectives of this audit were to determine if: (1) Safeco / First National

complied with SBA’s and its own policies and procedures in applying for bond guarantees

for which SBA paid claims, (2) claims and expenses paid by the SBA were allowable,

allocable and reasonable, and (3) fees due SBA were accurately calculated and remitted in a

timely manner. The audit found that Safeco / First National did not always comply with

SBA’s policies and procedures for underwriting bonds. Safeco / First National paid losses

and expenses under performance and payment bonds issued to the Clave Company when the

contractor defaulted. SBA required Safeco / First National to reimburse the SBA for these

questioned costs. The SBA later determined that all but $8,800 of the costs associated with

the Clave Company bond were the result of questionable decisions by the surety after the

obligee called the default under the bond. These decisions are not a basis for the SBA to

demand recovery of its guarantee payments.

Final Action: The SBA collected $8,800 from Safeco / First National Surety Company.

Report #: 9-01

Audit Title: WV High Technology Consortium Foundation - Indirect Costs

Amount: $18,966.00 written off

Issue Date: 10/27/98

Summary: The purpose of this audit was to determine whether indirect costs claimed by the West

Virginia High Technology Consortium Foundation for two SBA grants were allowable. The

audit found that the Foundation had not fully complied with regulations and should refund

$18,966 to the SBA.

Final Action: The SBA has requested a full refund of these unallowable costs, to date, no funds have been

collected.
Appendix A

Page 11

Report #: 9-03

Audit Title: CNA Surety Companies Chicago, IL

Amount: $630.00 collected

Issue Date: 1/29/99

Summary: The purpose of this audit was to determine whether CNA Financial Corporation (CNA)

surety companies complied with SBA’s policies and procedures in applying for bond

guarantees, submitting allowable claims, and remitting fees timely and accurately. The audit

found that for 11 of 24 bonds reviewed, policies and procedures were not consistently

followed by CNA. CNA issued one bond to a contractor for more than the value of the

contract, a violation of SOP 50-45. The audit recommended that CNA reimburse the SBA

for the amount overpaid on this performance bond.

Final Action: The SBA requested and received $630 from CNA.

Report #: 9-06

Audit Title: Fidelity and Deposit Company of Maryland

Amount: $376,841.00 collected

Issue Date: 3/22/99

Summary: The objectives of this audit were to determine whether: (1) the Fidelity and Deposit

Company of Maryland (F&D) complied with SBA underwriting policies, (2) F&D claims,

expenses and recoveries were in accordance with SBA requirements, and (3) F&D fee

remittances and refunds were timely and accurate. The audit found that F&D did not always

follow SBA procedures for underwriting and did not always follow requirements related to

claims, expenses and recoveries. The audit recommended F&D remit: (1) $1,005 to SBA

due to an incorrect recovery amount remitted to the SBA, (2) $21,350 for the uncollected

portion of a note, (3) $635 due to the improper allocation of expenses, (4) $192,620 for

SBA’s portion of losses paid to indemnitors of Greg Williams, and (5) $166 representing the

remaining amount of fees due SBA that were in the SBA suspense account.

Final Action: The SBA notified F&D to remit these amounts to the SBA.

Report #: 9-07

Audit Title: On-Line Women's Business Center

Amount: $3,822.00 collected

Issue Date: 3/22/99

Summary: The objective of this audit was to determine whether claimed costs were allowable. The

audit found that the On-Line Women's Business Center inappropriately charged a computer

to Federal funds.

Final Action: The SBA requested reimbursement of these funds.
Appendix A

Page 12

Report #: 9-10

Audit Title: Contractors Bonding and Insurance Company

Amount: $0.00 collected and $0.00 written off

Issue Date: 3/31/99

Summary: The primary objectives of this audit were to determine if: (1) claims and expenses paid by

the SBA were allowable, allocable and reasonable, (2) Contractors Bonding and Insurance

Company (CBIC) complied with SBA’s and its own policies and procedures in applying for

bond guarantees for which the SBA paid claims, and (3) fees due to the SBA were

accurately calculated and remitted in a timely manner. The audit found that CBIC issued

invalid powers of attorney for three bonds and requested that CBIC provide a written

document or other support indicating the attorney was indeed an attorney-in-fact for CBIC’s

agent when the bonds were executed or ratify the powers of attorney for these bonds.

Final Action: The SBA requested the surety provide an affidavit indicating that the attorneys were

authorized to issue the bonds in question.

Report #: 9-13

Audit Title: Gulf Insurance Group

Amount: $142,284.00 collected

Issue Date: 7/28/99

Summary: The objectives of this audit were to determine if: (1) Gulf complied with SBA’s and its own

policies and procedures in applying for bond guarantees for which the SBA paid claims,

(2) claims and expenses paid by the SBA were allowable, allocable and reasonable, and

(3) fees due the SBA were accurately calculated and remitted in a timely manner. The audit

found that Gulf did not always comply with SBA’s requirements for issuing SBA guaranteed

bonds. A review of ten defaulted bonds disclosed that one bond was executed after work

under contract had started without SBA’s approval. The auditors also determined that Gulf

submitted legal expenses that were not allocable to the bonded contract for one bond,

remitted salvage to SBA in an untimely manner for two bonds and pursued indemnification

against a principal determined to have no viable assets for another bond.

Final Action: The SBA notified Gulf to remit SBA its share of losses and not submit any further claims

due to the commencement of work prior to a bond extension. Gulf was also notified to

remit SBA its share of expenses related to the investigation of the agent’s underwriting

practices.
Appendix A

Page 13

Report #: 9-16

Audit Title: Kansas City District Office 7(a) Loans

Amount: $118,330.00 collected

Issue Date: 8/4/99

Summary: The objective of this audit was to determine whether 7(a) loans (excluding special programs

with modified requirements) were processed and proceeds disbursed and used in accordance

with SBA requirements. The audit found that proceeds for one loan were used for

unauthorized purchases and capital improvements, and the proceeds of another loan were

used to repay debt rather than purchase machinery as agreed to in the loan authorization.

The audit recommended the Kansas City District Office deny guarantees on the first loan and

reduce the guarantee on the second.

Final Action: For the first loan, the SBA agreed that, if we are asked to honor our guarantee and purchase

our portion of the loan, we will recommend denial of liability. For the second loan, the SBA

agreed that, if we are asked to honor our guarantee, we will propose a repair of the

guarantee.

Report #: 9-17

Audit Title: Insurance Company of the West / Explorer Insurance Company

Amount: $1,124.00 collected

Issue Date: 8/19/99

Summary: The objectives of this audit were to determine if: (1) Insurance Company of the West /

Explorer Insurance Company (ICW) complied with SBA’s and its own policies and

procedures in applying for bond guarantees for which the SBA paid claims, (2) claims and

expenses paid by the SBA were allowable, allocable and reasonable, and (3) fees due the

SBA were accurately calculated and remitted in a timely manner. The audit found that ICW

failed to remit to SBA its share of recoveries in a timely manner for four bonds.

Final Action: The SBA requested and received the additional amount.
Appendix A

Page 14

FUNDS PUT TO BETTER USE

Report #: 77H001014

Audit Title: Evaluation of Grant Proposal for West Virginia High Technology Consortium Foundation

Amount: $463,905.00 implemented

Issue Date: 4/25/97

Summary: The objectives of this review were to determine whether: (1) proposed costs were

reasonable, current, accurate and complete, and (2) the accounting system was adequate to

accumulate and allocate costs under Government awards. The audit recommended the

Associate Administrator for Administration require the Foundation to prepare a

supplemental to the revised proposal that (a) removes all depreciation costs from the indirect

cost pool and, (b) reprograms the amounts for the business training center space,

contingency costs, general and administrative costs, and unsupported overhead.

Final Action: The Foundation submitted a revised budget reprogramming the questioned costs and the

SBA issued an amendment to their contract approving the budget revision.

Report #: 87F020022

Audit Title: Wisconsin DO 7(a) Loans

Amount: $615,000.00 implemented

Issue Date: 7/22/98

Summary: The objective of this audit was to determine whether 7(a) loans (excluding special loan

programs such as LowDoc and FA$TRAK) were processed and proceeds disbursed and

used in accordance with SBA requirements. The audit recommended that we require the

lender to obtain copies of financial statements prepared by an independent accountant or the

supporting schedules for the consolidated tax return from the seller for one loan to

determine the accuracy of the financial information. Additionally, cancel the guarantee for a

second loan because the loan was not disbursed within the specified time limit.

Final Action: For the first loan, neither the recommending official nor the reviewing official felt the data

was either unreliable nor out of line and felt that the projections formulated from that

information was conservative. The second loan was cancelled.
Appendix A

Page 15

Report #: 87H003011

Audit Title: Disbursement Processing - C and W Schedules

Amount: $93,692.55 implemented and $2,307.45 not implemented

Issue Date: 3/11/98

Summary: The objectives of this audit were to determine whether SBA’s fiscal year 1996 “C” and “W”

schedule disbursements were: (1) made to satisfy established liabilities, (2) sent to

appropriate payees and addresses, (3) recorded timely and accurately in the Loan

Accounting System, and (4) not duplicates of other disbursements. The audit recommended

that SBA recover funds due the Agency because of duplicate and inappropriate

disbursements.

Final Action: The SBA established receivables, set up repayment plans and is pursuing collection of these

amounts due.

Report #: 88H006025

Audit Title: GSA Kansas City 8(a) Sole Source "IDIQ" Contracts Awarded Under GSA's FAST

Program

Amount: $6,000,000.00 implemented

Issue Date: 9/29/98

Summary: The purpose of this review was to determine whether sole source 8(a) contracts awarded by

the Federal Telecommunications Service of the General Services Administration (GSA) in

Kansas City, Missouri complied with the Federal Acquisition Regulation, SBA regulations

and statutory requirements. The audit recommended that we not accept two additional GSA

offerings for sole source 8(a) IDIQs.

Final Action: These procurement actions were not accepted.

Report #: 9-05

Audit Title: Colorado DO 7(a) Loans

Amount: $22,958.00 implemented

Issue Date: 2/24/99

Summary: The objective of the audit was to determine whether 7(a) loans (excluding special loan

programs with modified requirements such as LowDoc) were processed and proceeds

disbursed and used in accordance with SBA requirements. The audit found that one loan

was approved to repay a note, but the lender did not verify that the borrower had injected

the entire amount. The borrower admitted he had injected only part of the required amount.

A second loan was approved to purchase land and a building. The loan agreement required

the borrower to make an equity injection to pay the SBA guarantee fee. There was no

evidence that the borrower had injected the funds. The audit recommended that each of

these borrowers inject the remaining equity, as required by their loan agreements.

Final Action: Each of the borrowers made the required equity injections.