[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
REDUCING DUPLICATION AND PROMOTING
EFFICIENCY AT THE SBA: THE INSPECTOR GENERAL'S VIEW
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 5, 2013
__________
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Small Business Committee Document Number 113-020
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESS
Hon. Peggy Gustafson, Inspector General, United States Small
Business Administration, Washington, DC........................ 3
APPENDIX
Prepared Statements:
Hon. Peggy Gustafson, Inspector General, United States Small
Business Administration, Washington, DC.................... 20
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
REDUCING DUPLICATION AND PROMOTING EFFICIENCY AT THE SBA: THE INSPECTOR
GENERAL'S VIEW
----------
WEDNESDAY, JUNE 5, 2013
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves [chairman
of the Committee] presiding.
Present: Representatives Graves, Chabot, Luetkemeyer,
Hanna, Collins, Velazquez, Schrader, Chu, Hahn, Schneider, and
Murphy.
Chairman GRAVES. Good afternoon. And we will call the
hearing to order.
Today's hearing is going to address an issue that first
seems unusual, which is Federal Government efficiency. Congress
established a framework for improving the operations of all
federal agencies. It is this framework that we are going to be
looking at in today's hearing.
Although the Small Business Administration's budget is
small, in the context of the overall Federal Government, its
$100 billion loan portfolio, presents a significant risk to the
taxpayer if it is not properly managed. The Inspector General's
statutory responsibility to investigate and recommend changes
in the SBA's operation of its lending programs provides
significant protection to the federal taxpayer, namely that
they will not have to absorb losses associated with
mismanagement of that loan portfolio.
The SBA's government contracting programs do not present
the same financial risk to the federal taxpayers of the
agency's capital access portfolio. However, improper insight of
the contracting programs can lead to the award of contracts to
other than eligible small businesses. This harms small
businesses that are eligible for such awards. The inspector
general's obligation to undercover fraud and abuse helps ensure
that the small business contracting programs assist those
businesses designated by Congress.
On April 23rd, this Committee heard testimony from the
Administrator concerning a number of new pilot programs that
she intended to create, even though they had not yet been
authorized by Congress. Absent appropriate measures of
performance, it is unclear whether these programs will be
effective. If they are not effective, then the SBA is simply
wasting taxpayer dollars.
To combat an effective use of federal funds, Congress
enacted the Government Performance and Results Act in 1993 and
strengthened the Act with amendments in 2010. The act requires
federal agencies to develop appropriate performance criteria to
determine whether the programs are effective. The Inspector
General, using her audit powers, assesses whether the agency
has appropriate performance measures to ensure that the SBA's
unauthorized pilot programs will be effective or a simple waste
of federal tax dollars.
Given the current deficit, it is imperative that SBA
operate in the most efficient manner possible. And I am glad to
welcome SBA's Inspector General, Peggy Gustafson, to further
expand on ensuring that the agency operates in a cost-effective
manner in reducing the possibility of fraud, waste, and abuse.
And with that I turn to Ranking Member Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
The Small Business Administration provides a wide range of
services to hundreds of thousands of entrepreneurs each year.
From loans to contracts to training, these programs are
critical to both start-ups seeking to build a future and to
existing companies trying to forge ahead. Making sure that
these initiatives function as Congress intended them to, while
also ensuring that they are free from fraud and abuse is
absolutely critical. This important job falls to the inspector
general. In this capacity, the IG functions as both an
evaluator and as an investigator. They assess performance
across the agency's operation, providing valuable insights into
what is working and what is not. As a result, SBA management
can take steps to improve its program and services. Similarly,
the IG also acts to investigate serious problems arising from
poorly written policies or improper personnel actions,
including potentially criminal behavior.
As a result of the IG's efforts, programmatic flaws are
remedied, while would-be fraudsters are put on notice that they
will be caught. Taken together, the IG's role is vital to the
SBA's ability to achieve its mission. Through its work, the IG
recovered and saved the agency $90 million last year. This
included issuing 22 reports and the indictment of 59
individuals, all of which were convicted. These actions show
that the IG has a full plate before it, which is great news if
you are employed there, but far more troubling if you are a
taxpayer. To this point, the Office of the IG is growing, while
the SBA itself is shrinking. This raises a serious question
about whether the agency is able to effectively implement its
programs, and I hope to gain a better understanding of this
from the IG's testimony today.
The agency's lending programs play a significant role in
allowing entrepreneurs to secure capital at affordable rates.
However, the SBA now makes the largest loans that it ever has
in its history, while also expanding its use of delegated
authorizations to lenders. Such moves are questionable policy
goals for an agency that is supposed to serve small businesses
and at the same time safeguard taxpayers' dollars.
They also raise programmatic administration issues. For
instance, larger loans may increase the likelihood that
criminals tried to obtain financing through the SBA
fraudulently. Delegated authority without sufficient oversight
raises similar questions, namely who is watching the piggy
bank. Ensuring that these policy changes are not Trojan horses
is a paramount concern to this committee.
On a similar note, SBA's procurement programs also play an
important role in helping speed our economic recovery. When
small and disadvantaged firms are awarded further contracts,
the additional revenue allows them to add staff, creating jobs.
Unfortunately, as we have seen time and again, front companies
and large corporations too often find ways to masquerade as
small businesses, depriving legitimate entrepreneurs of
promising work. The GAO has identified numerous instances where
firms failed to meet the appropriate standard and won
procurement work. It is my hope that together we can identify
ways to close these gaps and ensure this type of behavior is
curtailed.
While the SBA's lending and contracting programs are but
only two areas of the agency, the IG's efforts are critical
across the entire agency. Ensuring that all SBA initiatives are
well run and free of fraud and abuse is essential not only to
the small businesses they serve directly, but also to the
taxpayers who are responsible for footing the final bill. By
identifying how the SBA can improve in its function, the
inspector general is instrumental in the agency achieving its
mandate of assisting small businesses. Without a robust,
effective, and well-managed IG, it is doubtful that the Small
Business Administration could perform its mission of fostering
entrepreneurship, which is critical to our economy. I therefore
look forward to hearing the witness and thank her for being
here today.
I yield back.
Chairman GRAVES. Thank you. We would again like to thank
Inspector General Peggy Gustafson back to the Committee. And
please take as much time as you would like. We would love to
hear what you have to say.
STATEMENT OF PEGGY GUSTAFSON, INSPECTOR GENERAL, UNITED STATES
SMALL BUSINESS ADMINISTRATION
Ms. GUSTAFSON. Thank you very much. Chairman Graves,
Ranking Member Velazquez, and distinguished members of the
Committee, thank you for the opportunity to be here today and
for your continued support of our work. I am extremely proud to
represent the dedicated men and women of the SBA OIG.
As you know, we are an independent office within SBA that
conducts and supervises audits, inspections, and investigations
related to SBA programs and supporting operations. We seek to
detect and to prevent waste, fraud, and abuse, and promote
economy, efficiency, and effectiveness in the administration
and management of those programs.
I believe our investigations and report recommendations are
having a positive impact on the integrity of SBA programs and
that the results are measurable. During fiscal year 2012, as
already noted, and thank you very much, the OIG issued 22
reports, containing 126 recommendations for improving SBA
operations, reducing fraud and unnecessary losses, and
recovering funds. And again, thank you as noting our
investigations last fiscal year led to 59 indictments and 59
convictions of subjects who had defrauded the government.
In all, the OIG efforts resulted in more than $90 million
in office-wide dollar accomplishments during fiscal year 2012.
To put that into perspective, our fiscal year 2012 operating
budget was $17.3 million, which included a $1 million transfer
from the Agency's Disaster Loan Program account. The total
office-wide dollar accomplishments therefore represent a more
than five-fold return in the investment in the Office of
Inspector General to the American taxpayers.
Though these figures are reassuring that our work is
focused on areas of high risk within the Agency, they do point
to the fact that significant improvements are still needed in
SBA's planning, implementing, and assessing of programs
assisting small businesses across the nation. The GPRA
Modernization Act of 2010, the Act, was signed into law in
January 2011, and as noted, the Act emphasizes the use of goals
and measures to improve outcomes and requires the Federal
Government to adopt a limited number of cross-cutting goals
defined as objectives that cut across organizational
boundaries.
Now, currently, my office does have ongoing work to
determine the Agency's compliance with GPRA requirements, but
even while that work is ongoing, recently conducted reviews
have evidenced a concern relative to accountability and
performance management in SBA. Many of our recent reviews,
which are highlighted in the written statement that I have
asked to be introduced into the record, found SBA programs
lacking measurable performance goals. It is vital that
accountability and performance metrics be incorporated into
each of SBA's programs and activities so that managers can
appropriately assess their performance and make any necessary
adjustments to achieve efficiency of operations.
While SBA's programs are essential to strengthening
America's economy, the Agency does face a number of challenges
in carrying out its mission, including fraudulent schemes
affecting all SBA programs, significant losses from defaulted
loans, procurement flaws that allow large firms to obtain small
business awards, excessive improper payments in some of these
programs, and outdated legacy information systems. The Agency
also faces significant management challenges which, as you
know, we report on every year to the Congress in October. This
management challenge report represents our current assessment
of agency programs and/or activities that pose significant
risks, including those that are particularly vulnerable to
fraud, waste, error, mismanagement, or inefficiencies.
Overall, in fiscal year 2012, the Agency made improvements
across all of these management challenges, with the exception
of one of the recommended actions under Management Challenge 6
and three of the recommended actions under Management Challenge
8. Specifically, just to point out Management Challenge 8,
which was most concerning to us at the time of that report,
this is the challenge on SBA needing to modernize its loan
accounting system and migrated off the mainframe, the large
LMAS project. That, in our last management challenge report,
was downgraded from a rating of orange, which meant limited
progress, to a rating of red, which meant no progress.
Now, despite the two management challenges where there had
been a reduction or a lowering of the ratings, the progress
made on all the other management challenges in the last report
was notable. The effort made by agency staff and leadership
throughout fiscal year 2012 on the recommended actions
demonstrated commitment to improving the Agency's programs and
operations.
With the support of this Committee, the OIG will continue
to promote economy, efficiency, and effectiveness, and work to
deter and detect waste, fraud, and abuse in the Agency's
programs and operations. We certainly anticipate that our
ongoing work will be met with a significant return on
investment to the taxpayer and result in a better SBA.
Again, thank you very much for inviting me back. It has
been a while since I have been here, so thank you very much.
And I look forward to your questions.
Chairman GRAVES. Absolutely. I turn to Ranking Member
Velazquez to open up.
Ms. VELAZQUEZ. The sequester has taken effect and has not
spared the SBA IG's Office. In fact, the estimated cost is
going to be $800,000. How will this affect your ability to stop
further fraudulent practices at SBA?
Ms. GUSTAFSON. It has already affected our ability. As you
noted, we took a cut of over $800,000, which as you know, my
office is all people. We are salaries and expenses. We do not
have any programs. And so the net effect of that was basically
to take away the salary of, I believe we worked out to, 10
people for seven months that we could not sustain. Anticipating
that sequester was going to happen, we have been under a self-
imposed hiring freeze. I am not anticipating furloughing
employees, but the only way I was able to do that was as we
have lost people as normally happens, we have not replaced
them. So we are by the numbers lower than we were a year, year
and a half ago. And obviously, I am auditors and I am criminal
investigators with a little support staff. So the minute that I
lose those people I am losing some of our ability to do our
mission.
Ms. VELAZQUEZ. Can we talk about how the IG and GAO have
identified repeated occurrences of fraud in the SBA contracting
programs? Some of the reports were issued by GAO at my request.
Why does it seem to be a recurring problem with these programs?
And if there is one step that the agency could take right now
to reduce fraud and abuse, what would that be, what is your
recommendation?
Ms. GUSTAFSON. You are absolutely right. There is always--
--
Ms. VELAZQUEZ. Especially in the area of contracting.
Ms. GUSTAFSON. Yes, there is always a concern about the
contracting programs. As you know, the Federal Government has a
goal of 23 percent of all federal contract dollars are supposed
to be going to small business. SBA has several set aside
programs for 8(a), HubZone, programs like that that they
administer.
One of the reasons, of course, that there is always fraud
is there is always money. You know, where there is money and
there is federal dollars there are going to be people trying to
find a way to get that money even if they do not deserve it. As
you noted, the rules for each program are slightly different.
The way that you get into each program is slightly different,
but the key really is--and some of the concerns that we have
seen is they need to make sure that the wrong people are not
getting in this program. Pass-throughs, as you noted in your
opening statement, are always a problem. You know, the shell
companies put up specifically to get a big business--the small
business contracting dollars is an issue. Enforcement is the
key. Taking their role seriously as far as making sure the
wrong people do not get into the program is key.
For example, the HubZone. You know, they have made some
improvements. I will say in the HubZone program, that was a
series of very hard-hitting reports, and so I know that they
have upped their enforcement actions. They have to be very
serious, as do the procuring agencies. Everybody has a role in
this.
Ms. VELAZQUEZ. And do you believe that the site visits play
an important role?
Ms. GUSTAFSON. The site visits play a crucial role. So
absolutely. And on 8(a), the annual reviews. That can never be
left to the wayside because it will always be there.
Ms. VELAZQUEZ. Okay. Thank you.
The LMAS project seems to be the project that never ends,
costing taxpayers millions of dollars. Why is this taking so
long in your judgment?
Ms. GUSTAFSON. Well, the LMAS project has been going on a
very long time, and I think, for the record, that is a very
large IT project that we first noted--my office first noted
very strong concerns about the possibility that this project
was not going to work in 2005 when it was an even bigger
project and they were trying to do it all at once. I think the
LMAS project is kind of symbolic of a lot of very large
government IT projects in that back then not the best planning
was happening. There were things--it has been scrapped a couple
times and started over. I think, to be fair, the LMAS project
seems to be on the right track now. One of the things, the
Agency has scaled it down. They have broken it down into more
doable components and are doing it in stages. I think it is,
unfortunately, just an example that I think a lot of agencies
have of a big IT project going off the rails and needed to be
reset.
Ms. VELAZQUEZ. So do you feel that SBA has the capability
to take on another IT project of this magnitude?
Ms. GUSTAFSON. I think the key for SBA--because we are very
pleased with the direction that LMAS is going. We are very
pleased at how they are doing it. I think that the key for SBA
is to take those lessons from LMAS--and there are a lot of
lessons to have been learned as far as the proper planning, the
proper scaling of that project, and you know, what you intend
for a project to do. If they take those lessons, I think--and
do it in that incremental process, there is no reason for me to
think that they could not do it.
Ms. VELAZQUEZ. Lessons at what cost? But that is a
discussion for another day.
Ms. GUSTAFSON. The cost, yes, I understand.
Ms. VELAZQUEZ. In 2010, changes were made to increase the
loan sizes of 7(a) and 504 loans. Are these larger loan sizes
making SBA products more attractive to criminals interested in
defrauding the government?
Ms. GUSTAFSON. The increase in loan size was a concern to
us when it happened simply because it just puts so much more of
taxpayer dollars at risk. I think it is, in fairness, premature
to see if this has caused an uptick in fraud. I do not think
that I am prepared to say that that has happened. Very often
the lending--even the fraudulent loans quite frankly tend to go
for a while before they default for numerous reasons, and so I
would not be prepared to say that. But it is something that we
have definitely emphasized to the Agency that they need to make
sure they are doing all they need to do as far as their
oversight of lenders to make sure that does not happen.
Ms. VELAZQUEZ. Responding to large scale disasters, like
Hurricanes Katrina and Sandy, is perhaps the most critical role
that SBA plays. In this regard, the IG reported in January that
the SBA did not have sufficient research staff and human
resources to effectively respond to such massive disasters. Do
you believe that this lack of trained staff is the reason that
SBA performance in the aftermath of Hurricane Sandy has been
below average?
Ms. GUSTAFSON. First off, I want to take this opportunity
to thank the Congress. My office has received additional
funding to perform----
Ms. VELAZQUEZ. I know $5 million----
Ms. GUSTAFSON.--oversight. So that we can perform oversight
of Sandy, which I think was absolutely crucial because Sandy,
as you know, is the first big task for SBA after Katrina. There
certainly have been large disasters between then and now but
nothing along this scale.
You are correct that we had some staffing concerns that
resulted in an audit in January. We are beginning our work. I
think there is a lot, you know, we are just now beginning our
work to see if they have learned those lessons from Sandy to
see if there were new challenges. And so I cannot say that that
is what happened, but it is certainly something that is on our
radar.
Ms. VELAZQUEZ. Well, I issued a report regarding the
decline rate by SBA of small businesses that were impacted by
Sandy. And the decline rate was much higher than during
Hurricane Katrina. So I just need to know if you are planning
to look into this area as well.
Ms. GUSTAFSON. We are. And I want to thank you for the
report, Representative Velazquez. It is going to be very
informative for us. There were several things in that report
that were very telling. The increase in the time. There was a
huge delay for a while there that the time in processing the
applications once again got pretty large and the denial rates
and also the withdrawal rates, which I believe is something GAO
is looking at. We are certainly coordinating with GAO. We are
not going to duplicate their work, but that is going to be
something very useful to us as we are doing our audit work.
Thank you.
Ms. VELAZQUEZ. Thank you.
Chairman GRAVES. Mr. Leutkemeyer.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
Ms. Gustafson, to follow up on what the ranking member was
talking about a minute ago with regards to some of the
contracting problems that were had, in today's Washington Post
there is an article about the inspector general for the GSA
that found a number of problems with some of the contracting
they were doing. And one of the comments that was made, the
staff members told investigators that they feared for their
jobs because they were trying to do the right thing and protect
taxpayers by whistleblowing on some of the pressure that was
being put on them with regards to giving some favorable
treatment to certain contractors. Did you find any of that with
regards to what was going on with the SBA and the contracting
problems that you found?
Ms. GUSTAFSON. Well, Representative Leutkemeyer, one of our
biggest criminal cases we have ever had is a contracting case
that was involving kickbacks actually with the Army Corps of
Engineer, which resulted in at least $20 million simply being
skimmed off the top by everybody being involved in steering the
contracts both--to certain small--to certain companies. And so
it is a very large issue. There are a lot of pressures in the
contracting industry or in the contracting arena that often do
not help us with fraud. Sometimes there is pressure steering.
Sometimes there is just a pressure to get the contract out.
Sometimes we often find, you know, the procuring agency wants
their stuff. You know, they want their stuff and they want it
now. Very often, going small business is faster because you do
not go through the whole full and open competition. That is
another pressure that happens very often. And so all of those
pressures I think add to it being a very lucrative area for
somebody to try to get.
Mr. LUETKEMEYER. In response to what you found, did you put
some recommendations--did you put out some recommendations or
did they put some recommendations in place that you suggested
to try and solve this problem or improve it?
Ms. GUSTAFSON. Well, as far as our investigation, they are
all going to prison for a very long time, so that is the best--
--
Mr. LUETKEMEYER. Good for you.
Ms. GUSTAFSON. That is the best result we could have.
Mr. LUETKEMEYER. We can keep you busy in a few other
agencies.
Ms. GUSTAFSON. But I do think that one of the key things,
especially in the 8(a) arena, which is one of the biggest small
business contracting programs, one of the things that we have
really focused on is making sure that somebody is taking
responsibility for making sure that these 8(a) companies are
legitimate. I think when you have that kind of divided among
the SBA has the program but the Army or the Navy or Ag has the
contract, a lot of times whether this company is legitimate
will sometimes fall through the cracks, which is a huge
problem. That has been something we have been focused on
certainly since I have been the inspector general. Because
although the government gets their stuff, first off, a lot of
times they get it at a much greater cost because there are
either kickbacks or, you know, there is no competition and
therefore, we are not getting the best deal. And quite frankly,
those programs are not doing what they are supposed to be
doing. If the money is not going to legitimate small
businesses, then the money is not doing the good that it is
supposed to be doing anyway. So, you know, I think it is a very
big problem.
And to your point I think the oversight has to be key and
the enforcement has to be key. And people need to go to jail.
And I am very proud of the fact that people are beginning to go
to jail, even though the government got their widgets. So I
think that is important.
Mr. LUETKEMEYER. Very good. Thank you.
Just also I have got a curious question here.
We found also in the last couple weeks that a lot of
directors of different agencies have multiple e-mail accounts.
Did you find that problem existed with the SBA director as
well?
Ms. GUSTAFSON. I have not found anything like that.
Mr. LUETKEMEYER. Okay. Just curious.
Also, in some of the information you gave us you talk about
unauthorized commitments by the SBA and what an extremely high
number it is compared to other agencies. Is there a problem
there or is it just some really, really small things that are
being overlooked? What is your analysis?
Ms. GUSTAFSON. The SBA Procurement office and their whole
procurement process, their method of buying things is actually
something that we added to the management challenges list
because that was a process that had kind of fallen apart and
was not going very well. And what you found in these
unauthorized commitments--and I would argue that it is an
important thing because in the end maybe it was not that much
money and maybe in the end we got our services. But there are
many internal controls. You are basically not supposed to
commit the government to paying money unless everything is in
place, you know, such that the money is rightfully committed.
That is what an unauthorized commitment is.
So when you are paying something when you have not really
done all of the work that needs to be done, it is an internal
control problem. You know, it is a problem that the auditors
get very worked up about because it could in theory lead to
things like violations of the Anti-Deficiency Act. You know,
because you are, by definition, not doing the planning and
having everything kind of all tied up before the money is going
out the door. And so that is why we issued the report.
The Procurement office has undergone a lot of changes. They
actually moved it from Washington, D.C., to Denver, so they are
kind of in a building period but they need to be showing--one
of the aspects of the report was to emphasize they need to be
showing progress now that they have kind of restarted, you
know, what they do on them.
Mr. LUETKEMEYER. To me this is a head scratcher from the
standpoint in the private sector, you know, if you have a
procurement procedure, you know, you can have somebody do the
work and have a supervisor sign off. I mean, it is very simple
to get this done, and yet that seemed like a procedure that is
not even in place here.
Ms. GUSTAFSON. I do not know that I would ever say that
federal procurement is simple. I think it can be amazingly
convoluted.
But to your point, absolutely. There is supposed to be the
process. And then, you know, then it becomes routine. I mean,
you are buying--you have a copier contractor, a BlackBerry
contract. It is all----
Mr. LUETKEMEYER. To me it blows my mind that we are having
this problem, that you can even find it. I mean, I can
understand a couple of oversights, but the numbers you cite
here are just off the charts. I mean, to me that just shows
incompetence up and down the procurement procedure process or
so.
My time is over. Thank you very much.
Ms. GUSTAFSON. Thank you.
Chairman GRAVES. Mr. Schrader.
Mr. SCHRADER. Thank you, Mr. Chairman. And thank you, Ms.
Gustafson, for being here.
At the outset, when the ranking member started talking
about reductions in budget and then sequester on top of
reductions in budget, how have you prioritized your audits and
investigations as a result of that? How have you changed what
you were doing to what you are going to be doing in the future?
Ms. GUSTAFSON. Well, we always have to prioritize, of
course, our audits, because I am basically at full staff. I am
about 102 people. And again, the loan portfolio is about $103
billion. Small business contracting is about 97 billion. And
then I have not even talked about all the other programs in
there. So we always go through a priority process looking at
high risk areas, areas of congressional interest, how long it
has been since we have been in a program. We naturally end up
not having to focus, but certainly, focusing on the contracting
and the loan programs because of the sheer volume of money that
goes through there.
Basically, what sequester has caused us to do is we always
go through that process but whereas maybe my list was this
long, was six long, maybe it is five long. You know, everything
is going to take longer to get to when I am smaller.
Mr. SCHRADER. And again, the ranking member talked about
the computer system, the antiquated and the long. Has the
Agency or has the IG, have you set targets for when this should
be done given all the new information, lessons learned that you
alluded to so that we could monitor this a little bit better?
Ms. GUSTAFSON. They definitely have set targets for LMAS,
which is the project that has been ongoing for many years. And
there are targets that are due for each step, which is exactly
what we wanted. They do not always meet them. They come close
but, I mean, that is definitely available. They are doing it.
We do interim reports on it. GAO is looking at it very
carefully, too, but they definitely do that. Yes.
Mr. SCHRADER. Okay, good.
The other thing that we learned to begin this new budget
coming forward that we are going to end up--it looks like SBA
is suggesting they reduce the number of site visits going
forward in order to fund some other programs that they feel are
more beneficial. You indicated a moment ago that the site
visits are extremely important for the contracting stuff, all
the fraud that goes on with regard to misrepresentation, being
a small business when indeed you are a shell. What do you think
about that reallocation?
Ms. GUSTAFSON. I think that in general--and there are
several different kinds of iterations of site visits that they
do and loan programs and the contracting programs. I think two
things are crucial. One, that they continue to happen. I
definitely think site visits need to continue to happen.
Mr. SCHRADER. Should they continue at a decreased level or
an increased level?
Ms. GUSTAFSON. Well, without getting into it, I am not
ready to say that they are doing too many. I certainly do not
think that they are doing too many. The other key is though----
Mr. SCHRADER. Therefore, a reduction would not be good?
Ms. GUSTAFSON. A reduction would probably not be helpful.
Mr. SCHRADER. Okay.
Ms. GUSTAFSON. The other key is I do think that they
definitely need to be targeted. You know, I think it is key
that the Agency always be taking in the lessons learned from
before. They are always going to have to do a risk-based
approach, and I think that is going to be the key, too, so that
when they are doing that they are going to the right places. I
think that is crucial, too.
Mr. SCHRADER. In this era of budget limitations that we all
have, you indicated that they were not doing very well on
setting up performance metrics, much less even achieving
certain outcomes. Certainly, I happen to be a fan of the recent
administrator and moved things along in the fraud, waste, and
abuse thing. But we have not made that progress in performance
outcomes. And to be that is critical. And in an era where we
theoretically are supposed to determine, not the administrator,
what the priorities are or at least with her or he, we should
be able to get into that. We do not have that at this point in
time. Are there certain metrics you would suggest to this body
that we should be focusing on and, you know, setting a target
like we did with the computer stuff? Setting some dates,
setting some intermediary dates, and some actual results by
then?
Ms. GUSTAFSON. I am not prepared to offer metrics. I think
that they are beginning to use metrics, you know, come up with
metrics. You know, some of our reports that I mentioned raise
some concerns about maybe some of the metrics listed. I think
you are absolutely right; that is your role. And in all
fairness to the Agency, that is their role as well. And so I
think, you know, as you said, they are beginning to do that.
You know, their metrics are coming out in the GPRA. I will be
looking at that but----
Mr. SCHRADER. Should not Congress help them? Should not
this Committee help them? I mean, theoretically, Congress is in
charge, you know, not the Agency. And they execute our design.
Should we not help them or be developing metrics that we think
are important as a group and suggesting to the administrator,
whoever he or she may be, about what they maybe want to look
at?
Ms. GUSTAFSON. First off, I certainly think that that is up
to you. Like you said, you are in charge, so you can do
whatever you want. I think that sometimes, for example, in the
STEP program, I think sometimes Congress does do that, or at
least it tells the administration or the administrator and the
Agency we want you to do metrics. We want you to report to us.
And then certainly it would behoove Congress to look at that
and see if you are hitting the right thing; if you are getting
the right measures and whether they are helpful. This is a
lengthy process, I think, because I think the next step will be
are they acting on those metrics and is it being run better?
And so this is a multi-year process, I think. But absolutely,
your role is crucial right now while they are doing it as well.
Mr. SCHRADER. Thank you.
I yield back my time.
Chairman GRAVES. Mr. Hanna.
Mr. HANNA. Thank you, Chairman.
Hi, thanks for being here.
A couple of things. You mentioned that you had 55 or 59
cases, 59 prosecutions. Along the notions that Mr. Schrader
mentioned and Ms. Velazquez, it is easy for Congress to be
penny wise and dollar foolish. What did you learn from those 59
cases? Is there a theme? Are there consequences for people who
spend government money outside of arms length transactions? In
other words, I like this guy. I am going to hire this guy.
Regardless of corruption or anything illegal, just generally,
are there consequences? And you talked about the payback for
the work that you do, which, you know, is interesting because
it is an investment if you want to look at it. I mean, that is
the way we should. I think we should look at it.
Can you talk generally about a theme along those lines and
why it is beneficial to fund your agency more and what we could
expect in return, along with the idea of if you have structural
consequences, which I do not know that we have now for
individuals who would be sloppy, for lack of a better word.
Maybe you can just get me up to speed.
Ms. GUSTAFSON. So as far as the results of our
investigations, you know, the investigations that make me
happiest are the ones that not only do they go to jail, and I
really like when they go to jail because that is a pretty
strong message. Of course, I also like when they are getting
hit hard with a really big fine because sometimes that hurts
people more.
But there are definitely times when as a result of some of
these investigations, especially some of the very complex ones
that we do, there are a lot of very complex schemes out there.
The ones that find where there are weaknesses in the system
that we can then go to the Agency and say these are things that
need to be shored up. Again, some of the contracting, some of
the contracting fraud cases will show where the weakness is at.
For example, in the HubZone program. You know, what is it? You
know, what part of the HubZone program are they kind of taking
advantage to get into the program when they should not be. You
know? Is it the attempt--is it the residency requirements for
the companies or things like that?
One of the biggest things that we have seen in the last
several years that had become a management challenge is the
fact that we were seeing a lot of very big loan fraud schemes
involving loan brokers. So people who were out there saying let
me help you package your loan and get it through. And I am
going to get you an SBA loan. And that broker was deeply
involved in getting the document falsified and making
everything pretty and getting a loan that never should have
been made that immediately defaulted. It was basically, you
know, a theft. And doing that dozens and dozens of times
because, you know, they just did that. And one of the things
that we had recommended to the Agency--it has been a management
challenge for a long time and they are beginning to make
progress on that--is let us track these guys. And let us make
sure that we know for each loan who this loan broker is such
that, you know, maybe if we begin to have a really bad case,
just an egregious case, let us see if this person has been
involved in other loans and let us see how the other loans are
doing.
Mr. HANNA. I understand that. It makes perfect sense.
But also, you mentioned that you have a number of problems
and a large number I think you said of people who are inside
the system just basically being sloppy. What are the
consequences for that, if any? I mean, one of the things that
works well is advertising; right? You know, we own a Helmsley
and tax evasion, all of those things that we remember. What do
you do along those lines? What can Congress help you in terms
of creating consequences for--you know, maybe well intentioned
but that is really kind of irrelevant when they are doing
something wrong--that we can help you with?
Ms. GUSTAFSON. Well, I think----
Mr. HANNA. And are there enough consequences?
Ms. GUSTAFSON. Yeah, I do not know that there are a lot of
consequences, for example, for contracting that is done
sloppily. You know, for contracting where maybe they did not do
quite the due diligence that they should have done as far as
what that company is. I actually do not know that there are
many consequences.
Mr. HANNA. But should there be? I guess that is the
question. Do you feel as though there is a lack of authority
and severity in terms of them taking their job seriously
enough? Or is this such a casual process that sloppiness goes
uncorrected?
Ms. GUSTAFSON. I think that maybe even the bigger issue
with that--and I will tell you sometimes some of the things
that we have encountered in cases that are very frustrating is
we have encountered cases when the Agency--our contracting
cases basically, they involve an SBA program but 99 times out
of 100 the contract was let by a different agency. And a lot of
times what we will find is that agency is not as nearly as
angry as we are that that company should not have been getting
that contract because they liked that company and they liked
what they got from that company. And that has sometimes been a
big roadblock for us because we would like, you know, Agency X
to come in and say we are as mad as SBA about this and we would
not have let this contract, if we had known this. And we do not
always get that response. And that is very frustrating. Maybe
that is where the consequences should be before you talk about
sloppy contracting.
Mr. HANNA. Thank you, Chairman. Thank you.
Chairman GRAVES. Mr. Murphy.
Mr. MURPHY. Thank you, Mr. Chair. Thank you, Ms. Gustafson.
In your testimony you spoke briefly about the Disaster
Assistance Loan Program. It looks like there have been some
improvements from 28 percent down to 18 percent of these that
have been fraudulent. What are you continuing to do to bring
this level down, and is there anything we can do to help you?
Ms. GUSTAFSON. So the numbers that you are referring to is
the rate of improper payments in the disaster loan program,
which is to say that payments that for one reason or another
should not have been made; so loans that should not have gone
out.
In all candor that is an extremely high number, but given
the nature of disaster loans, we are very pleased by the
progress that the Agency has made because those loans--there is
always a pressure kind of to get money out the door, but
especially, for understandable reasons, in the disaster arena.
And very often you are dealing with people whose records have
been washed away or something like that. And so while that is a
very high rate, that is a good example, actually, of where the
agency--that part of the management challenge has gone away.
They have set their quality assurance process and their
improper payment review process in the disaster loan arena is
something we are very pleased to see. That 28 to 17 percent;
that happened in the course of a year, I think.
So they are going in the right direction. I do not know
that anything needs to be done. Again, Sandy is going to be a
big test for them because that was a big influx of
applications. But I definitely think the Agency has done a good
job in the improper payments arena, especially in disaster
loans. So.
Mr. HANNA. Okay. So nothing specific there.
Ms. GUSTAFSON. No.
Mr. HANNA. To keep pushing.
Ms. GUSTAFSON. Right.
Mr. HANNA. The next question is on sort of priorities. I
guess your 2014 budget submission is around 20.4 million. This
is 3.1 million or about 20 percent higher than fiscal year
2012.
Ms. GUSTAFSON. Right.
Mr. HANNA. If you were to receive the full funding, you
know, what are the priorities there? What would receive more or
less funding?
Ms. GUSTAFSON. Yeah, so our budget request has been kind of
same request for the last couple years. We are still hopeful at
some point that we get it. But a couple of our priorities for
that, one of the things that we are--because we are as small as
we are, I think one of the places where I would like us to do
more work is to do some work, for example, on early defaulted
loans. We have a very good process. Early defaulted loans are
very often or more likely than not, an indicator that something
was very wrong, either in the way that loan was made, either
through fraud or just very bad--or bad underwriting.
Very often we see that indicator but we cannot do more with
that once we get there. We simply do not have enough. I think
that there is a lot to be learned if we were able to spend more
time looking at these early defaulted loans. I think we are
going to find a fair amount of fraud, which very often the
money gets back to the government that way. And I think we may
also find some process improvements. So that has been something
that is very on our kind of wish list, as is the hotline. One
of the things that I did, we have a hot line where this is very
often the only place where citizens will call with allegations
of waste, fraud, or abuse. That is their contact with my
office. When I got there it was my secretary, basically. That
was it. We are up to two people. I am very pleased about that
because, again, sometimes that is where we learn about the
fraud, and sometimes that is where the people who are directly
reaching out to us. That is how they reach out to us. And I
want to be sure that we are, again, learning what we need to
learn from there, and getting those allegations to the right
places. So that was something that was also in my budget
request.
Mr. HANNA. Excuse my ignorance here but are there any sort
of whistleblower programs?
Ms. GUSTAFSON. The whistleblowers report to the hotline.
We, as the inspector general, have a role under the
Whistleblower Protection Act. We certainly have a role. When
somebody comes with an allegation, we would investigate. And
the hotline plays a big role in that because everything gets
funneled through the hotline. But often the counselor
investigations will take over an actual investigation of a
whistleblower complaint.
Mr. HANNA. Okay. And just to the LMAS. It was brought up a
couple times. What have you done to get it sort of back on
track?
Ms. GUSTAFSON. Well, LMAS has again been a series of
reports. You know, we do not get it on track, of course, but we
have been paying a lot of attention to it. The Agency has
gotten it back on track. Again, we do interim reports on LMAS.
It is always a subject on our management challenges. And so
that is kind of a constant discussion with the Agency where we
kind of have a dedicated ``how is LMAS going'' kind of thing.
It is not just a function of one report and then we go. That is
something that we are always working on.
Mr. HANNA. Okay. All right. Thank you.
Chairman GRAVES. I have a question on these pilot programs.
The administrator has proposed some of these pilot programs in
her budget. Do you think that they have enough performance
standards to be able to evaluate these at this time or even
what are your thoughts on them implementing those given the
tight budget situation we are obviously in?
Ms. GUSTAFSON. In all candor, Chairman Graves, we are aware
of the pilot programs, obviously. We are aware of the budget
request. I guess I would phrase my answer more akin to my
opening statement. We are worried in general about performance
measures because some of the work that we have done in programs
already instituted have shown that they need to be strengthened
and more thought needs to be put into it. As far as looking at
any of those new programs, I have not done so, and so I am
really not ready to opine.
Chairman GRAVES. Mr. Schneider.
Mr. SCHNEIDER. Thank you, Mr. Chairman. And I thank you for
joining us here today with your testimony. I am sorry I had to
step out, if I am being redundant.
But I know we have seen an increase of 7(a) and 504 loans,
which is a good thing. But with the increase, and you touched
on it earlier, you mentioned these early default loans. What
impact is the growth of those programs having on your office's
ability to do proper oversight? What resources, if any, would
you need to push it further?
Ms. GUSTAFSON. Thank you for your question because, again,
we are worried about the risk associated with the $5 million--
with the much bigger loans. And I am the same size I was when
the loans were smaller so, you know, it is really a function of
that is certainly an area of concern for us. It is something we
are monitoring. Again, these loans tend to be--you do not know
if there is a problem right away so this is something that I
think if it is going to be a problem, we are going to be seeing
it soon. Loans are always a priority. Lending is always a very
big priority for us because of the $102 billion loan portfolio.
So I think it remains to be seen, but we anticipate, especially
given our concerns in the past about lender oversight. They
have made improvements, but lender oversight was a management
challenge for a long time. Quality control in the centers was a
concern and as part of our management challenges. We will be
there. We are going to be there. It is on our radar and if
something else falls by the wayside it will. It is a big
priority for us.
Mr. SCHNEIDER. As you make that case going forward, you
know, lack of oversight leading to waste, fraud, and abuse
here, are there metrics in place for the work that you do that
tracks the return on investment we are making in oversight that
captures fraud, that adding one more person would result in X
dollars of savings so to speak?
Ms. GUSTAFSON. Well, we, certainly, in our semi-annual
reports and every time I testify in front of you I am always
touting what our dollar accomplishments are and how it compared
to our size. Again, it was about a fivefold. If you want to do
the quick math, the math that I could do, it is about a
fivefold return on the investment when you look at our
appropriation and the money, the savings that we have.
You know, I kind of hate to break it down into one person
just because I do not know that that is the most accurate
thing. My audit at any given time, every auditor, you know,
every audit is three or four people. I try not to get too much
into that but there is absolutely no question that like every
IG office, I am very proud of our accomplishments and we
definitely can show a return on our investment. There is no
question in my mind that 103 people is small for the amount of
risk that is in SBA programs, and so the budget request, that
was my number. You see a lot of transparency in the IG's budget
and that is what we requested. We are hoping to grow because I
do think in general more oversight is needed and more return on
the money is not a bad thing.
Mr. SCHNEIDER. And this is my concern obviously with across
the board cuts, like sequester is where you lost I think you
said 10 people for seven months. But that is a direct savings
if you are on sequester, but the indirect cost of that could be
a lot of fraud and abuse that is not being captured, which is a
concern.
Changing subjects and real briefly on the LMAS system, and
you said you are getting, you know, you cannot change the
implementation but you get reports on progress. How frequently
are you getting reports on progress?
Ms. GUSTAFSON. The nice thing about SBA in a way is we are
all in one building and we are all kind of the headquarters. We
are co-located with headquarters, and my audit division is
basically three separate groups, one of which is an IT group.
And so it is not even a function of getting reports. It is
really a constant communication. They talk to the LMAS people
all the time. We do the interim reports. And so----
Mr. SCHNEIDER. But is there a formal oversight so you are
tracking progress against milestones?
Ms. GUSTAFSON. We do issue those interim reports, and so
that is how--and the management challenges, and when you will
look at our management challenge report, which has LMAS's
challenge number--I forget, but they are one of them--you know,
we have very specific things that we are looking at and we are
rating them on and they get a color grade. And so that is once
a year. The interim reports come when we have enough work to
show. There are some milestones coming up that I think they are
expected to--I think one of their milestones is in September of
2013. They are hoping to migrate almost everything off the
mainframe. That is something we will be looking at. And so we
do get the reports and then we issue them--when there is enough
to say we issue them. When we have enough to say we issue those
reports. And they are public and on our website.
Mr. SCHNEIDER. Great. Thank you.
Ms. GUSTAFSON. Thank you.
Mr. SCHNEIDER. Thank you. I appreciate your time here.
Chairman GRAVES. Mr. Collins.
Mr. COLLINS. Thank you. I am sorry I was late. I was at an
Immigration hearing.
I guess I may have missed some things. I am just more
curious when we talk about efficiency and waste, fraud, and
abuse as one piece, an important piece. If I walked into the
director's office or when the director comes to work, is there
a dashboard with colors like red, green, yellow? If there is 50
things to track that you might see 35 greens, you know, and
eight yellows and so many reds to know where we put our
attention that day? I mean, that level of metrics and dated,
does that exist?
Ms. GUSTAFSON. Well, in all candor, I have no idea what is
on the administrator's desk. I do not know what she has, so I
cannot really speak to actually how they track. I do know that,
for example, in our management challenges report, that is a
report that we issue annually with the color ratings of the
most serious management challenges and the specific things that
we need to see improvement that actually have red, green, and
yellow. I will tell you that those meetings do not happen at
the administrator level except for maybe when it is issued. But
those are meetings that happen often. Not daily. I am talking
more about my work, you know, where we will again stay in
contact with them and have kind of in-process meetings. Where
are we? Where do you think we are going? What is the next
report going to look like? But quite frankly, as far as what
she faces when she wakes up in the morning, I just do not know.
Mr. COLLINS. That would be interesting to know because we
would like to think the focus was on return.
Ms. GUSTAFSON. Right.
Mr. COLLINS. So on, you know, what we would call efficiency
or process mapping, does that go on or do you look at that to
say here is a department processing loan applications. You
know, I am thinking the Lien Six Sigma Model of process mapping
to take waste out or make it more efficient and therefore,
reduce the need for people so maybe we could do it with fewer
or do more with less?
Ms. GUSTAFSON. Well, I think that a lot of our audit
reports are focused on that type of--given the fact that one of
the things the IG Act says we are to promote economy and
efficiency I think in government programs. It says something
almost directly like that. That is something that we look at
very often, is whether the programs are running as efficiently.
So I do not know again how they do it but I certainly hope and
think that our audits will touch on that and talk about
efficiencies that can be had and whether the process needs to
be changed. Like any agency, you know, SBA is slow. You know, I
think there are some things being done at SBA that have been
done that way a long time, you know, and so I think they are--
that is always something that we try to look at and to see if
there are improvements that can be made.
Mr. COLLINS. You know, I think perhaps if you asked the
question and said give me a list of 50 processes and which ones
you can tackle, and then you go back in with an audit and say
how many steps does it take to process this loan application?
Now, first, they are probably going to say they do not know. So
then you make them process map it and it comes back that there
are 57 steps.
Ms. GUSTAFSON. Right.
Mr. COLLINS. And then you say, okay, we can cut that down
to 23. That makes it more efficient, less prone to mistakes.
And if you held them accountable for that----
Ms. GUSTAFSON. Right.
Mr. COLLINS.--over a period of time they would become more
efficient because they know you are asking the questions to
which initially they probably do not have the answers. Right?
Ms. GUSTAFSON. Just, you know, in looking at that piece of
efficiency where you can do more with less because people cost
a lot of money, you know, just a suggestion that that kind of
process mapping, process improvement could make it so they
could get their job done with less folks.
Ms. GUSTAFSON. Well, it is an interesting idea, and my head
of audits is right behind me and is probably chomping at the
bit. He loves that kind of stuff, so I am sure that we will
have a discussion further on what we can do.
Mr. COLLINS. Because I can tell you I have never yet seen a
buffet line that you cannot reorganize, make efficient. So
every process can be, I think, made more efficient. I think
there is a rule of thumb. You can probably reduce 22 percent of
the personnel costs and probably cut most of the steps almost
in half. But the key thing there is it takes the waste out and
also the errors. The more time someone touches that piece of
paper, the more opportunity is for someone to make a mistake.
Ms. GUSTAFSON. Right.
Mr. COLLINS. And sometimes you have to implement technology
to get rid of the people side, but technology, if it is done
right, is less prone to mistakes.
Ms. GUSTAFSON. Sure.
Mr. COLLINS. Just a couple suggestions. Thanks for keeping
your eye on our tax dollars.
Ms. GUSTAFSON. Well, thank you.
Mr. COLLINS. And keep up the good work. Thank you.
Ms. GUSTAFSON. Thank you.
Mr. COLLINS. I yield back.
Chairman GRAVES. With that I would like to thank the
Inspector General for coming in today, taking the time to
testify before the Committee.
Ms. GUSTAFSON. Thank you very much.
Chairman GRAVES. And I would ask unanimous consent that all
members have five legislative days to submit statements or
supporting materials for the record. Without objection that is
so ordered. And with that the hearing is adjourned. Thank you.
Ms. GUSTAFSON. Thank you.
[Whereupon, at 2:04 p.m., the Committee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED] T1420.001
INTRODUCTION
Chairman Graves, Ranking Member Velazquez, and
distinguished members of the Committee, thank you for giving
the Small Business Administration (SBA or Agency) Office of
Inspector General (OIG) an opportunity to discuss our oversight
activities of SBA programs and operations. The SBA was
established to maintain and strengthen the nation's economy by
protecting the interests of and assisting small businesses, and
by helping families and businesses recover from disasters.
The OIG was established within SBA by statute to promote
economy, efficiency, and effectiveness and to deter and detect
waste, fraud, and abuse in the Agency's programs and
operations. Every year, our staff of approximately 104
employees--which includes criminal investigators, auditors and
program analysts, attorneys, and support staff--conduct
criminal investigations, audits, and other reviews, resulting
in numerous indictments, convictions, debarments, monetary
payments by fraud perpetrators and many recommendations to the
Agency for improvement and elimination of wasteful or
inefficient practices.
During Fiscal Year (FY) 2012, the OIG issued 22 reports
containing 126 recommendations for improving SBA operations,
reducing fraud and unnecessary losses, and recovering funds in
FY 2012. In addition, OIG investigators obtained 59 indictments
and 59 convictions of subjects who defrauded the government. In
all, OIG efforts resulted in more than $90 million in office-
wide dollar accomplishments during FY 2012.
AGENCY PERFORMANCE
On January 4, 2011, the GPRA Modernization Act of 2010 (the
Act) was signed into law (Public Law 111-352). The Act
modernizes the Federal Government's performance management
framework, retaining and amplifying aspects of the Government
Performance and Results Act of 1993 (GPRA) while also
addressing some of its weaknesses. On April 9, 2013, the OIG
initiated a review of the SBA's compliance with GPRA
requirements as described in OMB Memorandum M-11-31, Delivering
an Efficient, Effective and Accountable Government and OMB
Circular A-11, Part 6, PReparation and Submission of Strategic
Plans, Annual Performance Plans, and Annual Program Performance
Reports. The review is in its preliminary stages, and we
anticipate publishing our findings later this year.
The Act emphasizes the use of goals and measures to improve
outcomes, and requires the Federal Government to adopt a
limited number of crosscutting goals, defined as objectives
that cut across organizations (such as agency) boundaries.
These goals are expected to focus on outcomes in a limited
number of crosscutting policy areas, as well government-wide
management objectives in the areas of financial management,
human capital, procurement and acquisition, information
technology, and real property. The Act also requires agencies
to report performance against those goals through a single
Federal website.
Effectively measuring performance is important to support
agency management resource allocation and other policy
decisions to improve service delivery, compliance monitoring
and program effectiveness. Importantly, performance
measurement, because of its ongoing nature, can serve as an
early warning system to management and as a vehicle for
improving accountability to the public.
Although we currently have ongoing work to determine the
Agency's compliance with GPRA requirements, recently conducted
reviews have evidenced concern relative to accountability and
performance measurement within certain programs:
Audit Report 13-15: Briefing Report for the
FY 2012 Federal Information Security Management Act
Review
This report presents the results of the OIG's Federal
Information Security Management Act (FISMA) review of
the SBA. Under FISMA, agencies report their compliance
with information security requirements. The OIG reports
on the effectiveness of the agency's information
security program in accordance with OMB criteria. For
Fiscal Year (FY) 2012, the OIG was required to report
on the following 11 areas: 1) continuous monitoring
management; 2) configuration management; 3) identity
and access management; 4) incident and response
reporting; 5) risk management, 6) security training; 7)
plan of actions and milestones; 8) remote access
management; 9) contingency planning; 10) contractor
systems, and 11) security capital planning.
The OIG found that the SBA continues to show
improvement in its IT Security Program. Specifically,
the SBA showed improvement in the areas of Incident
Response and Risk Management, continues to meet
requirements in the area of Security Capital Planning,
and needs to make significant improvement in the area
of Configuration Management. The OIG also recommended
the SBA update its Telework SOP, which contained
outdated technical procedures. However, significant
concerns remain regarding SBA's IT security operations,
and the OIG has a longstanding management challenge to
the Agency identifying key concerns.
Audit Report 13-14: The SBA's 417 Unauthorized
Commitments Impacted Mission-Related Services and
Increased Costs
This report presents the results of the OIG's audit
of the Small Business Administration's Unauthorized
Commitments. An unauthorized commitment occurs when a
government official agency procures goods or services
without the necessary authority. The audit objective
was to determine the extent and reasons unauthorized
commitments occurred. The OIG determined that the SBA
received invoices associated with 417 unauthorized
commitments, valuing more than $1.4 million between
November 2010 and May 2012. The OIG found that the
total number of unauthorized commitments at the SBA in
the last two fiscal years greatly exceeded the total
number of unauthorized commitments at six other federal
agencies of a similar size. Further, the OIG believes
that the 417 unauthorized commitments directly affected
the ability of the Agency to procure goods and services
for its daily operations legally and efficiently, and
limited its ability to provide needed support to small
businesses.
The SBA continues to improve its acquisition process
and preventing unauthorized commitments, however,
transformation of the culture needs to occur. In order
to implement a successful culture change, the SBA needs
to hold its employees accountable for their actions,
have detailed policy and guidance readily accessible to
all employees, and provide meaningful training to all
employees. The OIG recommended seven actions to improve
contract management at the SBA and significantly
decrease the total number of future unauthorized
commitments.
Audit Report 13-13: Evaulation of SBA's
Progress in Reducing Improper Payments in FY 2012
The objective of this audit was to determine the
adequacy of SBA's compliance with IPERA and OMB's
implementing guidance. To achieve the audit objective,
the OIG determined whether the SBA addressed required
provisions, and performed limited testing of compliance
with these provisions. The OIG also reviewed the
completeness of improper payments disclosures in the
SBA's Agency Financial Report for fiscal year (FY)
2012, and assessed the Agency's efforts to prevent and
reduce improper payments.
The OIG found that the SBA was generally compliant in
meeting the minimum requirements, in accordance with
OMB guidance. Further, the OIG found that the SBA's
efforts to prevent and reduce improper payments have
resulted in significant progress since the FY 2011
assessment. Specifically, the Disaster Assistance Loan
Program made progress through the deployment of
improved controls and process improvements, which
reduced their improper payments rate from 28.4 percent
in FY 2011 to 17.9 percent in FY 2012. In addition, the
7(a) and 504 programs improved their testing procedures
for loan guaranty approvals. The revised procedures
were more robust and led to the identification of more
improper payments during the testing process. As a
result, the improper payments estimate increased from
$0 in FY 2011 to $233 million and $105 million,
respectively, in FY 2012. Notwithstanding these
accomplishments, further improvement is still needed in
the effectiveness and development of SBA improper
payment controls and processes for all of the programs
or activities.
The OIG also assessed whether the SBA complied with
IPERA reporting requirements, as specified in OMB
guidance. This guidance requires a limited review of
controls over Agency reporting. This evaluation found
that the SBA generally met all the IPERA reporting
requirements. However, the Disaster Assistance Loan
program was not compliant because their improper
payment rate exceeded the 10 percent threshold. In
addition, three of the five programs or activities did
not achieve their annual reduction targets. The OIG was
unable to evaluate the accuracy and completeness of the
improper payments rate reported for the Acquisition
Program.
Audit Briefing Report 13-11: The SBA's Loan
Management and Accounting System-Incremental
Improvement Projects
This report presents the results of the OIG's review
of the SBA's efforts to modernize its loan management
system and migrate off the mainframe environment. Since
2004, a significant challenge facing the SBA is the
modernization of the loan accounting process.
Specifically, this report addresses issues identified
in the planning, management, and oversight of SBA's
ongoing migration efforts.
The OIG found that the SBA successfully migrated the
data-entry of over 44% of its loan and lending
transactions from mainframe data entry to web-based
data entry. This was the first step in fully migrating
off SBA's legacy mainframe and utilizing updated
technology. During the review, the OIG also found that
the:
SBA did not have an incremental improvement project
to migrate its newly created COBOL code into
production.
Root Cause Analysis Project was altered from its
initially approved project.
User Interface Migration Project screens were not
security tested and validated.
Quality Assurance and Independent Verification and
Validations programs did not exist.
The OIG identified five findings that put the development
of this project at risk for not meeting the needs and
expectations of the SBA, the Office of Management and Budget
(OMB), and Congress. The OIG also issued six recommendations.
As discussed below, the OIG has issued a management challenge
to SBA regarding LMAS system.
Audit Report 13-03: Benefits of Mentor
Protege Joint Ventures are Unknown: Robust Oversight is
Needed to Assure Success and Avoid Abuse
This report presents the results of the OIG's audit
on Protege Benefits from Joint Venture Agreements with
Mentors. The audit objectives were to (1) determine the
extent to which the joint venture agreement between a
mentor and protege resulted in substantial benefits to
the 8(a) participant, and (2) assess the SBA's
oversight of Mentor Protege Joint Venture Arrangements.
The OIG found that the SBA lacked performance
measurements for joint venture arrangements and did not
effectively oversee 8(a) firms that have joint venture
agreements. As a result, the SBA did not have the
information necessary to determine whether mentor
protege joint ventures benefitted the 8(a) participant.
This lack of information weakened SBA's ability to
effectively oversee and assess the development of 8(a)
participants with mentor and protege joint venture
agreements and increased the risk of program abuse by
participants. The OIG made six recommendations.
Audit Report 12-21: Review of SBA's State
Trade and Export Promotion (STEP) Grant Program
This report presents the results of our audit, Review
of SBA's State Trade and Export Promotion (STEP) Grant
Program, a three year pilot that will end in FY 2014.
We reviewed the five largest grants, awarded to
California, Pennsylvania, Washington, Michigan, and
Illinois, in order to determine whether grant
recipients were measuring program performance, as well
as the results of those measurements. In addition, we
reviewed the overall management and effectiveness of
the STEP grant program.
We found that grant recipients' performance measures
did not demonstrate whether STEP program goals were
achievable. Specifically, grant recipients' metrics
were not adequate to measure performance. In addition,
SBA personnel did not meet with Congress to identify
and clarify the FY 2011 STEP program measures for
success. Personnel from the SBA Office of International
Trade and the Office of Grant Management awarded a
grant to an ineligible applicant, provided untimely and
inaccurate responses to inquiries, and failed to
enforce grant terms and conditions. The audit team
recommended a total of nine specific actions that we
believe will improve the accountability and performance
of the STEP grant program.
Report 11-11 - Effectiveness of the Small
Business Administration's Surveillance Review Process
This report presents the results of our audit of the
effectiveness of the SBA's Surveillance Review Process.
Our audit objectives were to determine whether: (1)
SBA's small business and 8(a) surveillance reviews
adequately assessed the small business programs of
contracting activities; and (2) appropriate action was
taken to ensure that areas of non-compliance were
corrected in a timely manner.
SBA undertakes on-site visits, known as surveillance
reviews, to review procuring agency files to determine,
among other things, whether contracting offices are
properly awarding and monitoring preferential contracts
consistent with applicable regulations. Our review
found that SBA had only evaluated a limited number of
procuring offices over the past seven years, and did
not use a systematic, thorough, or consistent approach
in identifying which offices were reviewed or which
information was evaluated.
In addition, although SBA delegated its 8(a)
execution authority to procuring agencies over 10 years
ago, and said that it would monitor procuring agency
compliance with 8(a) requirements through its
surveillance reviews, our audit of surveillance reviews
found that this had not been done. Lastly, there are
regulatory limits on subcontracting which serve as an
important control to preclude small business set-aside
contracts from becoming ``pass-throughs'' to large
businesses. However, our audit found that the SBA
review teams generally did not evaluate whether small
businesses and 8(a) firms were performing the
percentage of work that is required by these
regulations. The OIG made 12 recommendations.
The policies and procedures that guide SBA officials in
considering OIG-issued reports are set forth in OMB Circular A-
50. This Circular appropriately indicates audit follow-up is an
integral part of good management and is a shared responsibility
of agency management officials and of auditors. For our part,
OIG officials are responsible for undertaking independent
audits and reviewing the agency's responses to recommendations
made in these reports. SBA management officials are responsible
for receiving and analyzing OIG reports, providing timely
responses, and taking corrective action, where appropriate. OMB
Circular A-50 indicates that management officials are
responsible for identifying and providing the OIG dates for
achieving corrective action as part of their written comments
on reported findings and recommendations. Significant
disagreements in this process are addressed with the audit
follow-up official--the SBA Deputy Administrator.
There are 47 open recommendations associated with the
reports highlighted above, several of which recommend
establishing meaningful performance metrics and periodically
assessing the same. We have noted the increased cooperative
efforts with SBA officials to root out fraud, waste, and abuse
in SBA programs, and timely implementation of corrective action
demonstrates commitment to improve the effectiveness and
efficiency of SBA programs, though challenges persist.
TOP MANAGEMENT CHALLENGES
While SBA's programs are essential to strengthening
America's economy, the Agency faces a number of challenges in
carrying out its mission, including fraudulent schemes
affecting all SBA programs, significant losses from defaulted
loans, procurement flaws that allow large firms to obtain small
business awards, excessive improper payments, and outdated
legacy information systems. The Agency also faces significant
management challenges.
In accordance with the Reports Consolidation Act of 2000,
the OIG released its Report on the Most Serious Management and
Performance Challenges Facing the Small Business Administration
in FY 2013 in October 2012. This report represents our current
assessment of Agency programs and/or activities that pose
significant risks, including those that are particularly
vulnerable to fraud, waste, error, mismanagement, or
inefficiencies. Our report is based on specific OIG, Government
Accountability Office (GAO), and other official reports, as
well as our general knowledge of SBA's programs and operations.
[GRAPHIC] [TIFF OMITTED] T1420.002
Overall, in FY 2012, the Agency made improvements across
all the challenges, with the exception of one of the
recommended actions under Management Challenge #6 and three of
the recommended actions under Management Challenge #8.
Specifically, Management Challenge #6--The Section 8(a)
Business Development program needs to be modified so more firms
receive business development assistance, standards for
determine economic disadvantage are justifiable, and the SBA
ensures that firms follow 8(a) regulations when completing
contracts--remains at a rating of Red or no progress.
Management Challenge #8--SBA needs to modernize its Loan
Accounting System and migrate it off the mainframe--was
downgraded from a rating of Orange, or limited progress, to a
rating of Red, or no progress.
The progress on most Management Challenges was notable. The
effort made by Agency staff and leadership throughout FY 2012
on the recommended actions demonstrated commitment to improving
the Agency's programs and operations. The Agency's efforts are
reflected in the overall elevation of Management Challenge
ratings.
CONCLUSION
The SBA OIG continues to focus on the most critical risks
facing the SBA. Our resources are directed at key SBA programs
and operations, to include financial assistance, government
contracting and business development, financial management and
information technology, disaster assistance, Agency management
challenges, and security operations. Using a risk-based
approach, we believe our reviews and investigations and ensuing
recommendations for corrective action will result in greater
effectiveness and efficiency of SBA programs and operations. We
value our relationship with this Committee, and with the
Congress at large, and look forward to working together to
address identified risks and the most pressing issues facing
the SBA.