This memorandum presents the results of the initial phase of our audit of the Small Business Administration's (SBA) administration of the Microloan program under the American Recovery and Reinvestment Act of 2009 (Recovery Act). Under the Recovery Act, SBA received $6 million for direct loans and $24 million for the marketing, management, and technical assistance grants for the Microloan program. These funds were in addition to the $22.5 million that SBA was appropriated for the Microloan program in fiscal year (FY) 2009.
The audit was initiated in response to Recovery Act language directing Offices of Inspectors General (OIG) to perform audits of their respective agencies to determine whether safeguards exist over the use of Recovery Act funds. The objectives for the initial phase of the audit were to determine the adequacy of SBA's (1) oversight of intermediaries, (2) performance data, and (3) program metrics for managing the Recovery Act funds authorized for the Microloan program. The next phase of the audit will determine the quality of microloans made with Recovery Act funds and SBA's progress in addressing the oversight weaknesses identified in this report.
To determine the adequacy of SBA's oversight, we reviewed a judgmental sample of intermediary loan files and interviewed SBA officials from the Offices of Capital Access and General Counsel. To assess the adequacy of microloan performance data, we analyzed historical data maintained in the Microloan Program Electronic Reporting System (MPERS). To determine the sufficiency of program measurement, we also reviewed performance metrics established for the program both prior and subsequent to the Recovery Act. Lastly, we reviewed a judgmental sample of microloan borrower loan files to determine compliance with SBA's policies and procedures. We conducted our review from June 2009 to September 2009 in accordance with Government Auditing Standards prescribed by the Comptroller General of the United States.
We found that SBA had not conducted adequate program oversight, validated the reliability of program data, accurately reported program performance, or established meaningful outcome-oriented performance measures. To ensure that microloans made with Recovery Act funds are properly monitored and the program has meaningful performance measures, we recommended that the Associate Administrator for Capital Access: (1) revise the review process to include an analysis of the sources and uses of MRF and LLRF funds based on monthly financial statements; (2) examine, verify, and test microloan data reported in MPERS; (3) develop a staffing plan and hire and train the additional staff required to provide an adequate level of program oversight; (4) correct the processes for calculating the number of small businesses assisted and jobs created and retained; (5) develop additional performance metrics; and (6) collect and analyze technical assistance data.
Management agreed with all six recommendations and stated that it was committed to effective administration of the Microloan program. Management stated that since January 2009, it has made significant progress toward drafting Standard Operating Procedures, launching an automation initiative to provide standardization and consistency of data reported by intermediaries, and developing a risk mitigation plan for the Microloan program. In addition, SBA recently awarded contracts to: (1) obtain advice on program and performance metrics; (2) conduct training for intermediaries on proper data collection and reporting; and (3) train intermediaries on assisting microloan borrowers in establishing credit histories.
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