January 2001 Major Managem

Challenges and 

Program Risks

Small Business Admini

GAO-01-260

Page 1 GAO-01-260 

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Products

Performance 

and 

Accountability 

Series
Page 2 GAO-01-260 SB
of th

Page 3 GAO-01-260 

United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the Smal

Administration (SBA) as it seeks to aid, co

and protect the interests of the nation’s sm

and help businesses and families recover 

disasters. It includes a summary of action

taken and that are under way to address t

challenges. It also outlines further action

believes are needed. This analysis should 

Congress and administration carry out the

responsibilities and improve government 

of the American people.

This report is part of a special series, first 

January 1999, entitled the Performance an

Accountability Series: Major Management 

and Program Risks. In that series, GAO a

Congress that it planned to reassess the m

and criteria used to determine which fede

government operations and functions sho

highlighted and which should be designat

risk.” GAO completed the assessment, co

comments provided on a publicly availabl

draft, and published its guidance docume

Determining Performance and Accountab

Challenges and High Risks (GAO-01-159SP

November 2000.

The full 2001 Performance and Accountab

contains separate reports on 21 agencies-

cabinet department, most major independ

and the U.S. Postal Service. The series als
Page 4 GAO-01-260 SB

governmentwide perspective on performanc

management challenges across the federal g

As a companion volume to this series, GAO i

update on those government operations and 

that its work identified as “high risk” becaus

their greater vulnerabilities to waste, fraud, a

mismanagement or major challenges associa

their economy, efficiency, or effectiveness.

David M. Walker

Comptroller General 

of the United States
Page 5 GAO-01-260 
Page 6 GAO-01-260 

The Small Business Administration (SBA) 

for aiding, counseling, assisting, and prote

interests of the nation’s small businesses a

businesses and families recover from natu

SBA is also a financial institution with sig

commitments and exposure. As of Septem

SBA’s total portfolio was about $52 billion

$45 billion in direct and guaranteed small 

and other guarantees and $7 billion in dis

Since its inception, SBA has, among other 

1.1 million small business loans and has a

million disaster loans to individual homeo

renters, and businesses of all sizes. At the 

SBA is confronting several major perform

accountability challenges that affect its ab

efficiently deliver services. To its credit, S

steps to address these challenges. Howev

SBA’s planned improvements hinge on its 

dollar, three-phase systems modernization 

point, it is too early to tell whether the sys

modernization effort will help resolve SBA

performance and accountability challenge
Page 7 GAO-01-260 

Improve Oversight of 

SBA’s Lending 

Partners

SBA’s oversight of its lending partners has 

important over the last decade as SBA has 

loan making and servicing responsibilities 

sector lenders. Private sector lenders are 

authority to determine eligibility and to ap

without prior SBA approval for over 70 pe

in SBA’s largest lending program, the $9.5 

guaranteed lending program. However, in 

found that SBA lacked a coordinated lend

program. For example, SBA’s operating p

the 7(a) program required on-site reviews 

SBA had not consistently reviewed lender

that they were complying with its 7(a) loa

procedures. The lack of review increased 

for program abuse and raised financial ris

agency. We recommended that SBA ensur

required 7(a) lender oversight reviews are 

and establish organizational responsibiliti

mechanism for ensuring that information 

• Continue to improve oversight of SBA's le

partners to correct oversight weaknesses 

• Focus the 8(a) program on helping firms o

contracts to increase procurement opport

• Streamline and automate disaster loan 

processing to improve timeliness

• Strengthen human capital, information 

technology, budget, and financial manage

practices to help modernize SBA
Page 8 GAO-01-260 SB

review process is collected, reported, and an

SBA recognizes the need to improve its over

lenders and has, among other things, embark

systems modernization program to permit be

collection, lender oversight, and risk manage

has begun regular reviews of lenders.

Focus the 8(a) 

Program on Contract 

Assistance 

In the case of SBA’s 8(a) business developme

we reported that most contract dollars conti

relatively few firms, assistance provided thro

program needs to be refocused, and the prog

information system does not support the pro

mission. For example, in fiscal year 1998, 20

6,000 firms in the program--less than 4 perce

50 percent of the 8(a) contract dollars, effec

limiting the developmental opportunities ava

other firms in the program. In addition, we f

almost all firms joined the program to obtain 

contracts, wanted SBA to provide contractin

assistance, and were more satisfied with the 

they received a contract. In providing assist

found that SBA had emphasized business ma

skills rather than providing contracting assis

SBA’s information system for the 8(a) progra

meet the information needs of headquarters 

officials and SBA remains unable to track th

and assistance it provides to 8(a) firms. We 

recommended that SBA take several actions 

better meeting the purpose of the program, a

needs and expectations of the firms in the pr

improving SBA’s ability to determine how we

program is working. SBA concurred with ou

recommendations, and has initiated some ch

However, the information systems changes t

needed will not take place until the final pha

agencywide systems modernization effort. S

to begin planning activities for this phase of 

modernization in 2002. 
Page 9 GAO-01-260 

Streamline Disaster 

Loan Processing

SBA also needs to continue its efforts to s

modernize its disaster loan processing if i

consistently provide timely assistance to 

victims. Because its disaster-related work

much over time, SBA needs to be able to q

its loan processing capabilities, including 

training damage inspectors, loan officers, 

to provide consistent timely assistance. W

processed 91 percent of loan applications 

standard of 21 days in fiscal year 2000, pe

other years has been highly variable. Our 

of SBA loan processing statistics for fisca

2000 showed, on average, that (1) SBA wa

process loans for homes and personal pro

quickly than loans to businesses, and (2) l

did not impact processing time. SBA offic

because business loans are more complic

home loans they often take longer to proc

processing times in general are lengthene

paperwork-intensive process. In June 200

using an expedited system that streamline

of certain home and personal property loa

its agencywide modernization efforts, SBA 

midst of a larger project to reengineer loa

overall, including increased use of automa

with the rest of SBA’s systems modernizat

significant work remains to be done. 

Modernize SBA As SBA continues to modernize itself, our 

that SBA needs to identify and address hu

information technology, and budgetary an

accountability challenges that have agenc

1

SBA’s human capital concerns can be seen as part of 

of human capital shortcomings that have eroded mis

across the federal government. See our High Risk Se

(GAO-01-263, Jan. 2001) for a discussion of human c

designated governmentwide high-risk area.
Page 10 GAO-01-260 SB

implications. Although SBA has begun to tak

better managing its human capital activities, 

undertaking various workforce planning acti

realigning and deploying some staff, our wor

that more needs to be done. SBA needs to (

its efforts to identify the knowledge, skills, a

other characteristics that its employees will 

perform successfully in SBA’s new business 

environment; (2) estimate the number of em

with those skills who will be needed; (3) dev

succession plan for senior leaders; and (4) e

employees receive adequate training to do th

well. Absent addressing these issues, SBA’s 

redesign its business processes and transfor

workforce is potentially at risk. SBA also rec

limitations of its current information system 

embarked on an agencywide systems moder

initiative, but our work has shown that SBA 

policies and procedures to control key inform

technology processes. To improve SBA’s info

systems management, we recommended tha

establish policies and procedures for manag

information technology and define and imple

processes in the areas of investment manage

information technology architecture, softwa

development and acquisition, information se

information technology human capital mana

SBA said that efforts are underway to addres

recommendations and has stated that it is co

improving its information technology manag

practices. 

SBA’s lack of integrated budget, accounting, 

performance information systems hinders th

spending and performance information to ad

performance issues. As a result, SBA cannot 

spending by agency goal and managers must 

own spreadsheets to reconcile actual to plan

spending. SBA is developing an activity-base

accounting structure to link costs to activitie
Page 11 GAO-01-260 

and goals. SBA also plans to begin implem

integrated budget, accounting, and perfor

information system beginning in October 

not yet determined how it will use the per

information capabilities of the new system

While SBA has made major strides in imp

financial management, as evidenced by its 

audit opinion on its fiscal year 1999 financ

the agency still faces major challenges to 

financial accountability. Two material int

weaknesses were identified in SBA’s fisca

financial statement audit: (1) SBA’s financ

process did not ensure that its financial st

free of material misstatements and (2) gen

control weaknesses in SBA’s information s

that SBA could not ensure that unauthoriz

such as the modification of data or softwa

prevented or detected. SBA hopes to reso

challenges through the second phase of it

modernization effort, scheduled for comp

year 2003. It is too soon to tell whether th

modernization will resolve SBA’s noncom
Page 12 GAO-01-260 

y g

SBA was created almost 50 years ago to h

strong and vibrant small business sector. 

with other federal agencies, also helps bu

families recover from natural disasters. A

small business, SBA represents the nation

small businesses that collectively employ 

the private nonfarm workforce. SBA prov

businesses with access to credit, primarily 

guaranteeing loans through its 7(a) progra

administers the 8(a) business developmen

which is designed to assist small disadvan

businesses in obtaining federal contracts. 

entrepreneurial assistance through partne

private entities that offer small business c

technical assistance. SBA also makes loa

businesses and families trying to rebuild i

aftermath of a disaster. SBA’s mission of h

nation’s small businesses to succeed, as w

as a financial entity with a total loan and l

portfolio of about $52 billion, makes its pe

and accountability challenges important t

a whole.

As with other agencies and departments, 

we have found at the SBA agencywide lev

areas such as human capital and informat

technology, are also found at the program 

contribute to SBA’s difficulties in effective

mission. SBA’s solution to many of its cur

hinges on its information systems modern

It is too soon to tell how much the moder

will help solve these problems.
Page 13 GAO-01-260 

Continued Oversight 

Improvements of 

SBA’s Small Business 

Lending Partners Are 

Key to Mitigating 

Risk to the Agency 

SBA’s need to oversee its lending partners 

more important over the last decade as SB

more loan-making and servicing responsib

private sector lenders. For the 7(a) progr

largest lending program and its primary v

providing small businesses with access to 

used to review the creditworthiness of ea

applicant and participate in the servicing a

of each loan that went into default. Howe

workforce has decreased and its loan por

increased, SBA has sought to modernize i

by relying more on the private sector. Pri

lenders are given authority to determine e

approve loans without previous SBA appr

70 percent of the 7(a) loans. 

As part of its July 31, 1999, business proce

reengineering study, a private firm hired b

reported that SBA did not have a coordina

oversight system.1

 Although a number of 

were in place, not all were consistently ad

throughout the organization. The study st

required that the field offices review lend

was no method of tracking the review pro

number of reviews completed. In addition

the lenders were not required to renew th

authority within a given time frame becau

to participate did not expire. The lack of 

increased the potential for program abuse 

SBA’s program risk, according to the study

1

 Business Process Reengineering of the Office of Ca

Access/Financial Assistance Loan Monitoring Progra

Hamilton (July 31, 1999).
Page 14 GAO-01-260 SB

In our 1998 review, we found that few review

had been conducted. Despite operating proc

requiring periodic reviews, about 96 percent 

lenders had not been reviewed in the prior 5 

through 1997−in the five district offices we v

addition, we found that SBA’s Inspector Gen

required to conduct periodic audits of Small 

Lending Companies under SBA regulation−h

conducted audits at only 3 of the 12 Small Bu

Lending Companies that were operating as p

lenders at that time.2

 Without such systemati

SBA could not ensure that participating lend

complying with its loan standards, thereby m

risks to the agency. In addition, SBA did not 

organizational responsibilities and mechanis

to ensure that information on the lender revi

was collected, reported, and analyzed. With

information, SBA could not measure and mo

impact of its oversight of lenders’ complianc

loan policies and procedures. In 1998, we rec

that the Administrator of SBA ensure that th

7(a) lender oversight reviews are conducted 

establish organizational responsibilities and 

mechanism for ensuring that information on 

review process is collected, reported, and an

also recommended that the Administrator de

implement a mechanism to satisfy its superv

examination function for Small Business Len

Companies. 

In response to our recommendations, SBA h

regular reviews of lenders, and created an O

Lender Oversight. As of March 2000, SBA ha

completed two annual compliance reviews o

preferred lenders and had begun implementi

2

 Small Business Lending Companies are nondepository 

licensed by SBA that are not subject to state or federal 

examination other than oversight conducted by SBA.
Page 15 GAO-01-260 

program for other lenders. SBA has also 

with the Farm Credit Administration for s

soundness examinations of Small Busines

Companies. In addition, SBA created and 

process of staffing an Office of Lender Ov

has also embarked on the creation of a lo

system as part of the first phase of its ove

modernization. The purpose of the loan m

system is to permit better data collection, 

evaluation of loans, and lender and progra

performance. In April 2000, we provided 

of 13 recommendations to help SBA comp

planning actions mandated for its loan mo

system and to strengthen SBA’s informatio

practices. In general, the recommendatio

completion of work for planning actions a

implementation of key functions, such as 

assurance and system security, to effective

development of the system. SBA is in the 

implementing each of these recommendat

Key Contacts Thomas J. McCool, Managing Director

Financial Markets and Community Invest

(202) 512-8678

mccoolt@gao.gov

Joel C. Willemssen, Managing Director

Information Technology

(202) 512-6408

willemssenj@gao.gov

SBA Could Better 

Focus Its 8(a) 

Program to Help 

Firms Obtain 

Contracts

As we reported in July 2000, firms’ access 

contracts—long considered the program’s 

benefit—remains a problem. A long-stand

cited in our previous reports and those of 

Inspector General is that relatively few fir

most of the 8(a) contracts, effectively lim

developmental opportunities available to 
Page 16 GAO-01-260 SB

the program. For example, in fiscal year 199

there were over 6,000 firms in the program, 2

received 50 percent of the 8(a) contract dolla

3,000 firms did not receive any contracts. Al

acknowledges this problem and has made so

to the program to address it, SBA officials sa

because of differences in firms’ skills and ex

and other factors, it is reasonable that not al

receive contracts from the program. In addi

relies on other federal agencies to make the 

awards, and federal procuring officials are c

with the competing objectives of accomplish

agencies’ missions at a reasonable cost and a

the 8(a) program’s business development go

Yet, our survey of 1,200 8(a) firms3

 showed t

needs to refocus the assistance it provides to 

the program from business management trai

federal contract proposal and marketing stra

shown in figure 1, our survey demonstrates t

all of the firms joined the program to obtain 

contracts and wanted SBA to provide contra

assistance. We found that 8(a) firms were mo

with the program if they had received a cont

reason that firms did not place a high priorit

learning to manage a business was because a 

majority of the firms had owners with over 1

experience in managing a business. In addit

firms themselves were not new; over half the 

surveyed had been in business 5 years or mo

joining the program. We found that firms tha

owners with less management experience ar

likely to obtain 8(a) contracts as firms with m

experienced owners. Yet, we found no signi

3

 We surveyed 1,200 firms randomly selected from SBA’s 

5,432 active firms. The survey response rate was 71 per

results can be generalized to the entire population of ac

as of September 30, 1999.
Page 17 GAO-01-260 

relationship between the amount of time a 

in business before joining the program an

obtaining a contract. In providing assista

that SBA had emphasized business manag

rather than providing contracting assistan

targeted its business management skill tra

with owners having less management exp

Figure 1: Major Reasons That Firms Joined the 8(a) Program

Source: GAO survey. 

0 10 20 30 40 50 60 70 

Obtain 8(a) contracts

 Broaden customer base to

the federal government

Overcome barriers

of discrimination

Increase net income

Improve chances of obtaining

contracts outside of the 8(a) program

Make it easier to be awarded

 state and local contracts

Have access to training

offered to 8(a) firms

Improve access to

credit/financing

Learn more about

managing a business

69%

68%

48%

39%

34%

33%

22%

Percent
Page 18 GAO-01-260 SB

In addition, in our July 2000 report, we found 

8(a) information system, while intended to b

comprehensive tool enabling SBA to monito

program, does not meet the information nee

headquarters or district officials. Potentially 

information, such as the amount of training a

assistance provided for participating firms, i

captured as part of SBA’s information-gatheri

This limits SBA’s ability to assess whether its 

an impact on the ultimate performance goal 

commercially viable and stable firms. The sy

difficult to use that most of the district office

had devised other methods—including main

redundant local systems—to obtain the infor

needed in a timely fashion. Although progra

have recognized the need to update the syste

1996 and have planned update efforts, none 

resulted in substantial progress in improving 

information system. The primary reason for 

according to program officials, is that leader

changes have contributed to an environment 

progress on the information system has lang

During the 4-year period from March 1996 to 

2000, the office under which the program is 

has been led by five different Associate Depu

Administrators. SBA plans to update the 8(a

information system as part of the final phase 

agencywide systems modernization effort. P

this phase is scheduled to begin in 2002. In t

meantime, SBA has begun to develop a strat

information technology plan for the 8(a) pro

combines and updates recommendations fro

agency’s earlier business process reengineer

We recommended that SBA take several acti

at better meeting the purpose of the program

needs and expectations of the firms in the pr

improving SBA’s ability to determine how we

program is working. These included instruc

offices to place their highest priority on help
Page 19 GAO-01-260 

firms about contracting opportunities; per

performing a nationwide survey of 8(a) fir

measurable program data; and designing a

8(a) information system. SBA concurred 

recommendations and is in the process of 

them. For example, SBA is developing dis

goals for fiscal year 2001 to encourage the 

more 8(a) firms obtain contracts. Howev

implementation of a number of our recom

will not occur until the final phase of SBA

modernization initiative. SBA expects to b

activities for this phase of the modernizat

Key Contact Thomas J. McCool, Managing Director

Financial Markets and Community Invest

(202) 512-8678

mccoolt@gao.gov

Modernization May 

Improve SBA’s 

Disaster Loan 

Processing 

Timeliness 

SBA’s efforts to streamline and modernize 

loan processing may help it to consistentl

timely assistance to disaster victims. SBA 

many federal agencies responsible for ass

victims. SBA’s Office of Disaster Assistanc

directly to (1) households to repair or rep

homes and personal property, and (2) bus

recover from both disaster-caused physica

economic losses. The Disaster Loan Prog

largest direct loan program and the agenc

assistance that is not limited to small busi

end of fiscal year 1999, SBA had almost $7 

disaster loans in its portfolio. In fiscal yea

made 29,000 loans to rebuild homes and 7

rebuild businesses. 

Disasters are inherently unpredictable; th

need for SBA disaster assistance is unpre

well. SBA faces a significant challenge in 
Page 20 GAO-01-260 SB

responsibility to provide consistent and time

assistance to households and businesses rec

from disasters. Because its disaster-related w

varies so much over time, SBA needs to be a

quickly expand its loan processing capabiliti

including hiring and training damage inspect

officers, and other staff to respond to the tim

is handling many applications for assistance 

Figure 2, shows the number of disaster loan a

that SBA processed per month in fiscal years 

2000.4

4

 The SBA statistics used in this report include only app

denied loan applications. These figures do not include 

applications i.e., those in which an applicant chose not t

application process.
Page 21 GAO-01-260 

Figure 2: Disaster Loans Processed in Fiscal Years 1999 and 2000, by Month

Source: GAO analysis of SBA data for approved an

applications.

0

5,000

10,000

15,000

20,000

25,000

October

November

December

Janurary

February

March

April

May

June

July

August

Sepember

October

November

December

January

February

March

April

May

Ju

Month and year

Number of loans

1998 1999 2000
Page 22 GAO-01-260 SB

One of SBA’s standards for disaster response 

is that the agency should establish a field pre

within 3 days of a disaster declaration. This 

entails placing SBA staff in the Disaster Reco

Centers and Disaster Field Offices opened b

Federal Emergency Management Agency.5

 T

staff help provide information about disaster 

assistance by briefing the media and state an

officials, taking calls from people seeking inf

about SBA loans, and providing assistance w

applications. SBA reported that it met its 3-d

presence standard 100 percent of the time du

years 1999 and 2000. SBA officials attribute 

success in meeting this standard to close coo

with the Federal Emergency Management Ag

Federal Emergency Management Agency off

both headquarters and the field told us that c

between their agency and SBA is very good. 

emergency management officials we contact

California, Colorado, New Mexico, Texas, Ut

West Virginia also believed that SBA respons

disasters in their states had been timely and 

A second SBA timeliness standard is to proc

applications within 21 days of receipt.6

 An S

said that it has been difficult to set a goal for 

percentage of loans it will process within its 

standard. SBA’s goal was originally set based 

performance during the previous year and w

adjusted as performance changed. For exam

because SBA processed almost 90 percent o

within 21 days in 1997, the initial goal was se

5

 The Federal Emergency Management Agency has the l

responsibility for the federal response to disasters.

6

 Processing loan applications includes inspecting physi

ensure that only disaster-caused damages are to be repa

replaced, determining applicants’ creditworthiness, and 

loan approval decision.
Page 23 GAO-01-260 

percent. When SBA’s success dropped to 

fiscal year 1998 and 64 percent in fiscal ye

goal was reduced to 70 percent. However

increased to 80 percent in SBA’s strategic 

years 2001 through 2006 because of indica

fiscal year 2000 performance had improve

year 2000, SBA met its 21-day processing 

percent of the time. Table 1 shows timelin

for fiscal years 1997 through 2000.

Table 1: SBA Disaster Assistance Loan Processing Times, Fiscal Years 1997 − 20

Source: GAO analysis of SBA data for approved an

applications.

We analyzed SBA loan processing data to 

what factors may have affected loan proc

We found three factors that appeared to in

processing time, while a fourth did not:

• As loan amount increases, loan proces

tends to increase. During fiscal years 

2000, the average processing time incr

consistently as loan dollar amount inc

• Business loans took longer to process 

than home and personal property loan

Fiscal year

Number of loans

processed

Average processing

time (days)

Pe

1997 91,929 12.6 

1998 62,259 15.6 

1999 79,301 22.0 

2000 50,360 13.0 

Four year average, 

fiscal years 1997-2000

70,962 15.9 
Page 24 GAO-01-260 SB

• Approved loans took somewhat longer to 

average than denied loans. 

• The volume of loans an office processed 

appear to influence timeliness. Our analy

monthly loan processing data showed no 

relationship between the number of loan

in a given month and the average number 

took to process the loans. 

SBA officials told us that some of these proc

differences can be explained by variations in 

that have to be followed for different loan ap

For example, on average, it takes longer to a

loan than to deny one because processing st

as the denial decision is made by SBA, while 

loans have processing steps remaining. Also

loans often take longer to process than hom

personal property loans because loan officer

business credit decisions have to consider ad

factors for businesses. According to SBA, th

explain, in part, the longer average times for 

dollar value loans, because business loans te

larger amounts. 

SBA officials acknowledged, however, that l

processing times are also lengthened by a pa

intensive process. For example, loss verifica

inspectors make their inspection reports on 

documents that they have to carry back to a 

Field Office for processing. In contrast, insp

the Federal Emergency Management Agency 

transmittable, electronic form on hand-held 

Also, few of the steps followed by SBA loan 

automated, according to area office officials

lack of automation increases processing tim

SBA has efforts under way to speed up its lo

processing. In June 2000, the agency implem

streamlined process for approving original h
Page 25 GAO-01-260 

personal property loans of $25,000 or less

office official told us that this process is m

than the standard process, with 1-day loan 

decisions possible for loan applications th

of their documentation. SBA is also enga

examination of loan processing in general

of creating automated processes for home 

loans. SBA needs to meet this goal of mo

loan processing if it is to consistently mee

goals. However, as with the rest of SBA’s 

modernization effort, significant work rem

SBA is ready to implement a new loan pro

system. SBA has also used a customer sur

identify and address loan processing prob

noted, however, that this survey only inclu

successful loan applicants. Future survey

more useful if they were to include applic

loans were denied.

Key Contact Thomas J. McCool, Managing Director

Financial Markets and Community Invest

(202) 512-8678

mccoolt@gao.gov

Human Capital, 

Information 

Technology, and 

Budget and Financial 

Accountability Need 

to Be Strengthened 

SBA has developed a vision of a “moderni

increasing opportunities for small busines

needs to be done in the human capital, inf

technology, budget and financial managem

SBA has communicated its vision in its va

planning documents prepared in accordan

Government Performance and Results Ac

we reported in September 2000, once an o

has defined and communicated its vision, 

organization should design a framework o

capital policies, programs, and practices t

organization toward achieving that vision

few years, as SBA’s business approach has 

changing, the agency has begun to take st
Page 26 GAO-01-260 SB

managing its human capital activities, includ

activities in workforce planning, leadership, 

performance culture, to meet this challenge. 

example, recognizing that in some geograph

had too many or too few employees or empl

lacked specific knowledge or skills, SBA con

the development of a staffing and resource m

realign and deploy its current district office s

the results of the model, SBA recently initiat

relocation and reassignment program to fill v

We reported in July 2000, that more remained 

in the human capital area at SBA. Absent ad

these issues, SBA’s attempt to redesign its bu

processes and transform its workforce is po

risk. For example, SBA had not used its staff

to project future staffing requirements becau

information on the average time it took to pe

certain tasks. As a result, the agency’s realig

efforts were limited to allocating staff to acc

current workload. In addition, SBA may not 

appropriate complement of leaders it will ne

it had not performed succession planning. S

also faced with the challenge of improving o

survey results which indicated that fewer SB

employees believed they had received adequ

to perform their jobs than did employees in 

departments and 8 independent agencies inc

survey. As of October 2000, SBA said that it h

several succession planning efforts. For exa

had identified a group of 7 District Director c

and was training them, was selecting candid

Senior Executive Service candidate developm

program, and had decided to support 10 Pre

Management Interns. SBA had also requeste

training funds and had developed a training 

for reengineered business practices that will 

widely to over 1,000 field and headquarters s

Sustained attention to these issues will be im

SBA continues to implement its new busines
Page 27 GAO-01-260 

and realign its human capital policies and 

support those new processes. 

Although SBA plans to improve its key inf

technology processes, at the time of our M

review many of SBA’s policies and proced

managing information technology were in 

not yet developed and current practices d

generally adhere to accepted industry stan

Specifically, SBA had not yet established p

manage information technology investmen

capital. Although standards and procedur

new software development were being ad

information technology guidance on softw

acquisition was obsolete. Procedures for 

SBA’s agencywide information technology 

and for implementing information security 

in draft form and incomplete. Investment 

activities were limited largely to reviewin

technology proposals and architecture-rel

were performed without a defined proces

capital management activities were limite

information technology specific training n

and a human capital assessment had not b

performed to identify short- and long-term 

technology knowledge and skills requirem

Software development and acquisition pra

predominantly ad hoc. Security assessme

been performed periodically on all missio

systems, and security training had not bee

employees and contractor staff. 

Without established information technolo

management policies and defined process

cannot ensure that consistent selection cr

to compare project proposals, effective gu

provided to efforts to migrate systems and 

interoperable, key activities are consisten

when project managers are faced with tim

or limited funding, the knowledge and ski
Page 28 GAO-01-260 SB

support its information technology managem

are identified, and critical information and a

protected from inappropriate use. To impro

information systems management, we have m

number of recommendations that SBA has a

SBA has stated that efforts are underway to 

them and has stated that it is committed to im

information technology management practic

SBA has made some progress in integrating 

performance management into its budget for

and initial resource allocation processes, but 

has not tracked spending according to goals 

budget and accounting systems are aligned w

organizational structure rather than by strate

For its fiscal year 2001 budget request, SBA to

link its budget formulation and performance 

management processes. Yet, no clear link ex

between past performance and requested fun

for fiscal year 2001. Furthermore, although 

reviewed the resources needed to maintain e

programs in fiscal year 2001, this review did 

into account planned fiscal year 2000 spendi

not likely to recur in fiscal year 2001. After a

funds for personnel−which make up about 7

SBA’s operating costs−and other relatively fi

expenses, such as rent, SBA structured the i

allocation of fiscal year 2000 funding for “oth

operating expenses” around achieving agenc

This process is not used for subsequent alloc

arising from unforeseen expenditures and ch

planned obligations. SBA lacks such a struc

address changing priorities during the fiscal 

SBA’s use of spending and performance infor

ensure results is hampered because financia

are not aligned with agency goals. For fiscal 

SBA has begun using activity-based costing s

link costs to activities, outputs, and goals. S

said they anticipate using this information to 
Page 29 GAO-01-260 

unit costs of loan activities within the age

addition SBA’s financial and related system

integrated or user friendly and, as a result, 

financial managers create their own sprea

reconcile actual to planned spending. To 

integration of its financial and performanc

systems and reporting, SBA plans to begin 

an integrated system beginning in Octobe

However, SBA has not yet determined how 

performance information capabilities of th

While SBA has made major strides in imp

financial management, as evidenced by its 

audit opinion on its fiscal year 1999 financ

the agency still faces major challenges bef

achieve financial accountability. Two mat

control weaknesses were identified in SB

1999 financial statement audit: (1) SBA’s f

reporting process did not ensure that its f

statements were free of material misstate

(2) general computer control weaknesses 

information systems meant that SBA coul

that unauthorized activities, such as the m

data or software, would be prevented or d

lack of an integrated general ledger for re

transactions during the year contributed t

deficiencies in SBA’s financial reporting p

used three separate accounting systems to 

various types of transactions. In addition, 

multiple, nonintegrated spreadsheets as w

and error-prone manual processes for rec

financial data. 

This resulted in an overly complex proces

financial statements and a lack of assuran

reliability of data. In addition, SBA lacked 

comprehensive plans and procedures for 

financial statements. Although SBA took 

positive steps in fiscal year 1999 toward im

general computer controls over its financ
Page 30 GAO-01-260 SB

management systems, the results of the audi

that significant deficiencies continued to exi

auditors found deficiencies in all six of the g

computer control categories that are include

audit process. For example, 11 percent of ac

accounts in SBA systems were for employee

contractor personnel no longer employed by 

These user accounts were not inactivated pr

upon termination or transfer of an employee

computer controls have an impact on the ov

effectiveness and security of computer oper

rather than on specific computer application

addition, they create the environment in whi

application systems and controls operate. SB

weaknesses increased the risk of unauthorize

data and software, and reduced assurance th

unauthorized activities would be prevented o

The deficiencies in SBA’s financial reporting 

coupled with its general computer control de

resulted in SBA’s lack of substantial complian

Federal Financial Management Improvemen

1996 (FFMIA). FFMIA is a measure of an ag

ability to incorporate into its financial manag

system accounting standards and reporting o

established for the federal government, so th

assets, liabilities, revenues, expenses, and th

of programs and activities can be consistent

accurately recorded, monitored, and uniform

Substantial noncompliance with FFMIA indi

agency financial management systems do no

provide reliable, useful, and timely financial 

to manage on a day-to-day basis. SBA’s over

to resolve its FFMIA noncompliance hinges 

systems modernization effort. Preliminary p

the second phase of this project, which will 

FFMIA noncompliance, started in fiscal year 

too soon to tell whether the system moderniz

will resolve SBA’s noncompliance. 
Page 31 GAO-01-260 

Key Contacts Linda Calbom, Director 

Financial Management and Assurance

(202) 512-9508

calboml@gao.gov

Carlotta Joyner, Director

Strategic Issues

(202) 512-7002

joynerc@gao.gov

Paul Posner, Managing Director

Strategic Issues 

(202) 512-9573

posnerp@gao.gov

Joel C. Willemssen, Managing Director

Information Technology

(202) 512-6408

willemssenj@gao.gov
Page 32 GAO-01-260 

Oversight of SBA’s 

Lending Partners 

Small Business Administration: 7(a) Progr

Characteristics and Summary of Issues

(GAO/RCED-00-158R, May 26, 2000).

SBA Loan Monitoring System: Substantial 

Key Risks and Challenges Remain (GAO/A

Apr. 25, 2000).

Small Business Administration: Few Revi

Guaranteed Lenders Have Been Conducte

(GAO/GGD-98-85, June 11, 1998).

Focus of the 8(a) 

Program

Small Business: SBA Could Better Focus I

Program to Help Firms Obtain Contracts

(GAO/RCED-00-196, July 20, 2000).

Small Business: SBA’s 8(a) Information Sy

Flawed and Does Not Support the Progra

(GAO/RCED-00-197, July 19, 2000).

Small Business: Status of SBA’s 8(a) Mino

Development Program (GAO/T-RCED-96-2

1996).

Small Business: Status of SBA’s 8(a) Mino

Development Program (GAO/T-RCED-95-

1995).

Small Business: SBA Cannot Assess the S

Minority Business Development Program

(GAO/T-RCED-94-278, July 27, 1994).

Small Business: Problems Continue With 

Business Development Program (GAO/RC

Sept. 17, 1993).
Page 33 GAO-01-260 

Small Business: Problems in Restructurin

Minority Business Development Program

(GAO/RCED-92-68, Jan. 31, 1992). 

Human capital, 

Information 

Technology, 

Budget, and 

Financial 

Management 

Practices 

Human Capital: A Self-Assessment Check

Leaders (GAO/OCG-00-14G, Sept. 2000).

Financial Management: Status of Financia

Issues at the Small Business Administratio

(GAO/AIMD-00-263, Aug. 29, 2000).

Small Business Administration: Steps Tak

Manage Its Human Capital, but More Nee

(GAO/T-GGD/AIMD-00-256, July 20, 2000)

Observations on the Small Business Admi

Fiscal Year 1999 Performance Report and 

2001 Performance Plan (GAO/RCED-00-20

2000).

Information Technology Management: SB

Establish Policies and Procedures for Key 

(GAO/AIMD-00-170, May 31, 2000).
Page 34 GAO-01-260 

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 35 GAO-01-260 

Major Management Challenges and Program 

Department of Transportation (GAO-01-253)

Major Management Challenges and Program 

Department of the Treasury (GAO-01-254)

Major Management Challenges and Program 

Department of Veterans Affairs (GAO-01-255

Major Management Challenges and Program 

Agency for International Development (GAO

Major Management Challenges and Program 

Environmental Protection Agency (GAO-01-2

Major Management Challenges and Program 

National Aeronautics and Space Administrat

(GAO-01-258)

Major Management Challenges and Program 

Nuclear Regulatory Commission (GAO-01-25

Major Management Challenges and Program 

Small Business Administration (GAO-01-260

Major Management Challenges and Program 

Social Security Administration (GAO-01-261)

Major Management Challenges and Program 

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263)
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