a

GAO

United States General Accounting Office

Report to Congressional Requesters

November 2001 LOAN MONITORING 

SYSTEM

SBA Needs to 

Evaluate Use of 

Software

GAO-02-188

Page i GAO-02-188 SBA Loan Monitoring System

Contents

Letter 1

Recommendation for Executive Action 2

Agency Comments 2

Appendixes

Appendix I: GAO’s October 9, 2001, Briefing on Small Business 

Administration’s Loan Monitoring System 4

Appendix II: Comments From the U.S. Small Business Administration 20

Abbreviations

LMS loan monitoring system

SBA Small Business Administration
Page 1 GAO-02-188 SBA Loan Monitoring System

United States General Accounting Office

Washington, D.C. 20548

A

November 30, 2001 Letr

The Honorable Donald Manzullo

Chairman, Committee on Small Business

House of Representatives

The Honorable Christopher S. Bond

Ranking Minority Member

Committee on Small Business and Entrepreneurship

United States Senate

The Small Business Reauthorization Act of 1997 mandated planning 

activities that the Small Business Administration (SBA) is required to 

complete before it begins to develop a loan monitoring system (LMS). In 

February 2000, we testified that SBA had made substantial progress in 

completing the mandated planning actions, and we made 

recommendations on additional steps needed for each action and for 

project management and control of LMS. In August 2000, we briefed your 

staff that SBA had made progress in addressing our LMS-specific 

recommendations; however, SBA had completed its work on only one 

recommendation. As you requested, for our current review, we evaluated 

SBA’s actions to develop and implement software for LMS. 

To fulfill this objective, we collected and analyzed information and 

documentation on planning actions that SBA has taken for LMS. We 

conducted interviews with SBA officials on the processes and 

methodologies used for planning. We also interviewed SBA officials to 

identify changes in LMS planning. In addition, we analyzed contract 

documents and agency records concerning the development and 

implementation of software for LMS. We conducted our review at SBA 

headquarters in Washington, D.C., from April 2001 through September 

2001, in accordance with generally accepted government auditing 

standards.

On October 9, 2001, we provided a detailed briefing to your office on the 

results of this work, which is included in appendix I. The purpose of this 

letter is to provide the briefing slides to you and to officially transmit our 

recommendation to the Administrator, Small Business Administration.

In summary, we reported that SBA’s actions to develop and implement LMS 

software were not consistent with the Small Business Reauthorization Act 

of 1997 and SBA’s agreement with the House Committee on Small Business 
Page 2 GAO-02-188 SBA Loan Monitoring System

not to acquire hardware or software before completing the mandated 

planning. We concluded that these actions could result in significant 

project cost increases and delays. We made a specific recommendation to 

address these risks. 

Recommendation for 

Executive Action

We recommend that the Administrator direct the Chief Information Officer 

to take the actions necessary to bring the LMS project in compliance with 

the Small Business Reauthorization Act and with SBA’s agreement with the 

House Committee on Small Business. Such actions should include an 

evaluation of prototype software and documentation in accordance with 

SBA’s system development methodology and generally accepted system 

development practices. The evaluation should consider the extent to which 

the software satisfies requirements already identified for the electronic 

processing of loan guarantee applications; the potential impact of changes 

in requirements, as business processes and requirements of lender 

oversight and risk management are identified; and the costs and benefits of 

alternative courses of action: whether the software should be (1) separated 

from LMS and implemented, (2) separated from LMS and further modified 

to meet mission needs, or (3) held in suspense until all LMS requirements 

and plans have been completed.

Agency Comments In commenting on a draft of this report (see appendix II for written 

comments), the Administrator of the Small Business Administration stated 

that the agency agreed with the recommendation and that he had requested 

the Office of the Chief Information Officer to implement it.

We are sending copies of this report to the Chairman, Senate Committee on 

Small Business and Entrepreneurship, and to the Ranking Minority 

Member, House Committee on Small Business. We are also sending copies 

of this report to the Director, Office of Management and Budget. Copies 

will also be made available to others upon request.
Page 3 GAO-02-188 SBA Loan Monitoring System

Should you or your staff have any questions concerning this report, please 

contact me at (202) 512-6240. I can also be reached by e-mail at 

koontzl@gao.gov. Key contributors to this assignment were Nabajyoti 

Barkakati, James R. Hamilton, E. Randolph Tekeley, and Daniel K. Wexler.

Sincerely yours,

Linda D. Koontz

Director, Information Management Issues 
Page 4 GAO-02-188 SBA Loan Monitoring System

Appendix I

GAO’s October 9, 2001, Briefing on Small Apendxies

Business Administration’s Loan Monitoring 

System ApendxiI
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 5 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 6 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 7 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 8 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 9 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 10 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 11 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 12 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 13 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 14 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 15 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 16 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 17 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 18 GAO-02-188 SBA Loan Monitoring System
Appendix I

GAO’s October 9, 2001, Briefing on Small 

Business Administration’s Loan Monitoring 

System

Page 19 GAO-02-188 SBA Loan Monitoring System
Page 20 GAO-02-188 SBA Loan Monitoring System

Appendix II

Comments From the U.S. Small Business 

Administration ApendxiI

(310335) Letr
GAO’s Mission The General Accounting Office, the investigative arm of Congress, exists to 

support Congress in meeting its constitutional responsibilities and to help improve 

the performance and accountability of the federal government for the American 

people. GAO examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of accountability, 

integrity, and reliability.

Obtaining Copies of 

GAO Reports and 

Testimony

The fastest and easiest way to obtain copies of GAO documents is through the 

Internet. GAO’s Web site (www.gao.gov) contains abstracts and full-text files of 

current reports and testimony and an expanding archive of older products. The 

Web site features a search engine to help you locate documents using key words 

and phrases. You can print these documents in their entirety, including charts and 

other graphics.

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site 

daily. The list contains links to the full-text document files. To have GAO E-mail 

this list to you every afternoon, go to our home page and complete the easy-to-use 

electronic order form found under “To Order GAO Products.”

Order by Mail or Phone The first copy of each printed report is free. Additional copies are $2 each. A check 

or money order should be made out to the Superintendent of Documents. GAO 

also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a single 

address are discounted 25 percent. Orders should be sent to:

U.S. General Accounting Office

P.O. Box 37050

Washington, D.C. 20013

To order by Phone: Voice: (202) 512-6000 

TDD: (301) 413-0006 

Fax: (202) 258-4066

Visit GAO’s Document 

Distribution Center

GAO Building 

Room 1100, 700 4th Street, NW (corner of 4th and G Streets, NW)

Washington, D.C. 20013

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm,

E-mail: fraudnet@gao.gov, or

1-800-424-5454 (automated answering system).

Public Affairs Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800

U.S. General Accounting Office, 441 G. Street NW, Room 7149, 

Washington, D.C. 20548
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Presorted Standard

Postage & Fees Paid

GAO

Permit No. GI00