Participants in SBA's Microloan Program Could Provide Additional Information to Enhance the Public's Understanding of Recovery Act Fund Uses and Expected Outcomes
Gao ID: GAO-10-1032R September 29, 2010This letter formally transmits and summarizes an oral briefing we gave on July 29, 2010, in response to Congress' request that we assess the extent to which the descriptions of the uses of American Recovery and Reinvestment Act of 2009 (Recovery Act) funds--published on Recovery.gov--enhance the public's understanding of how funds are being spent and what outcomes are expected. Our briefing focused on activities funded through the Small Business Administration (SBA). The Recovery Act, enacted in response to the economic crisis facing the nation, appropriated a total of $275 billion in funding for distribution by federal departments and agencies through contracts, grants, and loans. The Recovery Act contains numerous provisions to increase transparency and accountability over spending. Accordingly, Congress and the administration have emphasized the need for accountability and transparency in the expenditure of Recovery Act funds. In particular, Section 1512 of the act requires nonfederal recipients of Recovery Act funds through grants, contracts, or loans to provide quarterly reports containing certain information. For example, nonfederal recipients are required to report information on each project or activity, including descriptive information on the uses of Recovery Act awards. The Office of Management and Budget (OMB) and federal departments are responsible for issuing guidance to assist recipients fulfill the reporting requirements. Information recipients report, as well as other required information, can be found at Recovery.gov. This Web site was designed to track large sums of Recovery Act funds that are being disbursed to thousands of recipients, while also making these efforts more transparent to the public than previous efforts. SBA's loan guarantee programs, such as the 7(a) and 504 programs, received $630 million in appropriations under the Recovery Act but are not subject to the recipient reporting requirements. Under these programs, SBA, in exchange for fees, provides guarantees on a portion of the loan to lenders against potential losses on qualifying small business loans to encourage them to extend such financing. In general, the Recovery Act appropriations temporarily reduced or eliminated certain program fees and increased the guarantees. Of the $630 million that the Recovery Act appropriated to expand and support SBA's loan guarantee programs, $375 million went to the 7(a) and 504 programs. Further, the Recovery Act established a new temporary loan guarantee program--which SBA calls the American Recovery Capital (ARC) program--that received $255 million in appropriations. Under the ARC program, SBA guarantees loans of up to $35,000 to small businesses that are suffering immediate financial hardship. The loans must be used to make payments on an existing small business loan. According to SBA and OMB officials, small businesses that receive loans guaranteed by SBA are not subject to the recipient reporting requirement because they are not receiving Recovery Act funds. Instead, SBA uses the funds appropriated to these programs to cover its costs to guarantee the loans. However, OMB requires agencies to report aggregated information about their use of Recovery Act funds. For example, SBA must submit weekly reports that include funds it obligates to support its loan guarantee and microloan programs, as well as its contracting activities. In response to Congress' request, we (1) determined the extent to which information reported by SBA's microloan recipients on Recovery.gov fosters a basic understanding of award activities and expected outcomes, (2) determined the extent to which information reported by SBA's contractors on Recovery.gov fosters a basic understanding of award activities and expected outcomes, and (3) identified information available on Recovery.gov about SBA's 7(a), 504, and ARC loan guarantee programs that were supported by Recovery Act funds.
In summary, only a small portion of SBA microlender recipient reports included clear and complete information on how they were spending Recovery Act funds and the outcomes they expected. Specifically, GAO determined that 13 percent (8 of 61) of the descriptions in microlenders' recipient reports contained sufficiently clear and complete information on the project's purpose, activities, scope (the geographic areas in which businesses can apply for the microloans), cost, and expected outcomes, as well as the location of the award recipient and the status of the microlending. About 33 percent of microlender recipient reports partially met the criteria for providing useful information about the use of funds and expected outcomes. These recipient reports contained reasonably clear and specific information for some attributes. However, 54 percent of the microlender recipient reports did not meet the criteria for promoting public understanding of award activities and expected outcomes due to the brevity of the narrative descriptions. For example, many of these narrative descriptions simply stated "microloans" or "microloan program." Recipients likely provided such basic descriptions because SBA guidance, which was developed in consultation with OMB and issued in July 2009, directed microlenders to report "microloan" when describing the award. In developing the guidance, SBA officials told us that they had been trying to minimize the burden on microlenders, which generally are small nonprofit organizations. However, a senior SBA official said that the guidance to microlenders could be revised to direct recipients to include more specific information about the purpose and expected outcomes of the award. Until SBA microlenders are more clearly directed to provide this information, many such entities will likely continue to report information on their use of Recovery Act funds which does not foster public understanding of award activities and expected outcomes. In contrast, information on 35 percent (8 of 23) of SBA contractor's recipient reports met the criteria, 43 percent partially met them, and only 22 percent did not meet the criteria. SBA provided guidance to contractors that contains specific directions on reporting purposes and outcomes or results, as well as significant services and supplies provided--guidance that may have helped recipients report complete and clear information. While recipients of SBA's loan guarantees are not required to report award level information on Recovery.gov, SBA does report some aggregate financial information about these programs on the Web site. As of June 30, 2010, SBA had obligated about $557 million of the $630 million of Recovery Act appropriations to support and expand its 7(a), 504, and ARC loan guarantee programs, according to Recovery.gov. On November 23, 2009, SBA exhausted the $375 million appropriated to its 7(a) and 504 programs and, since then, it received $305 million in supplemental appropriations. However, as of May 26, 2010, SBA had exhausted these funds as well. We calculate that, the Recovery Act funds remaining, which total about $73 million, are to support SBA's ARC program. The administration faced an extensive undertaking in simultaneously putting in place ways to spend large sums of Recovery Act funds, while also seeking to make these efforts more transparent to the public than previous efforts. Although recipient reporting under the Recovery Act represents a step forward in federal spending transparency, opportunities exist to further improve the public's understanding of how Recovery Act funds are being spent and what outcomes are expected. We recommend that the Administrator of SBA, in consultation with OMB, remove the standard language in the guidance to microlenders and instruct them to include, as appropriate, more descriptive information on how the funds are being used and potential project outcomes or results.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: William B. Shear Team: Government Accountability Office: Financial Markets and Community Investment Phone: (202) 512-4325GAO-10-1032R, Participants in SBA's Microloan Program Could Provide Additional Information to Enhance the Public's Understanding of Recovery Act Fund Uses and Expected Outcomes
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GAO-10-1032R:
United States Government Accountability Office:
Washington, DC 20548:
September 29, 2010:
The Honorable Mitch McConnell:
Republican Leader:
United States Senate:
Subject: Participants in SBA's Microloan Program Could Provide
Additional Information to Enhance the Public's Understanding of
Recovery Act Fund Uses and Expected Outcomes:
Dear Senator McConnell,
This letter formally transmits and summarizes an oral briefing we gave
on July 29, 2010, in response to your request that we assess the
extent to which the descriptions of the uses of American Recovery and
Reinvestment Act of 2009 (Recovery Act) funds--published on
Recovery.gov--enhance the public's understanding of how funds are
being spent and what outcomes are expected.[Footnote 1] Our briefing
focused on activities funded through the Small Business Administration
(SBA). We also updated the enclosed briefing slides after the date of
our briefing.
The Recovery Act, enacted in response to the economic crisis facing
the nation, appropriated a total of $275 billion in funding for
distribution by federal departments and agencies through contracts,
grants, and loans.[Footnote 2] The Recovery Act contains numerous
provisions to increase transparency and accountability over spending.
Accordingly, Congress and the administration have emphasized the need
for accountability and transparency in the expenditure of Recovery Act
funds. In particular, Section 1512 of the act requires nonfederal
recipients of Recovery Act funds through grants, contracts, or loans
to provide quarterly reports containing certain information. For
example, nonfederal recipients are required to report information on
each project or activity, including descriptive information on the
uses of Recovery Act awards. The Office of Management and Budget (OMB)
and federal departments are responsible for issuing guidance to assist
recipients fulfill the reporting requirements. Information recipients
report, as well as other required information, can be found at
Recovery.gov. This Web site was designed to track large sums of
Recovery Act funds that are being disbursed to thousands of
recipients, while also making these efforts more transparent to the
public than previous efforts. Implementing this system was an
extensive undertaking across the federal government that needed to be
designed and implemented under tight time constraints.
While the SBA received $705 million in Recovery Act appropriations to
expand and support initiatives facilitating small business lending, no
more than $75 million (about 10 percent) is subject to the recipient
reporting requirements. Specifically, the Recovery Act appropriated
$30 million for SBA's microloan program, which is subject to the
reporting requirements. Under this program, SBA makes direct loans to
qualified community-based nonprofit intermediary lenders
(microlenders). The maximum loan amount to a microlender is $750,000
in the first year. The act appropriated $6 million for this activity,
and according to SBA, it can finance about $50 million in lending to
microlenders with this appropriation.[Footnote 3] As of March 31,
2010, SBA had awarded 61 direct loans to microlenders totaling about
$35 million. More than half of these loans totaled $750,000, and the
average of the remaining loans was $317,931. Microlenders then use
these funds to provide microloans to eligible small businesses. These
loans cannot exceed $35,000 and small businesses must use these loans
for working capital and acquisition of materials, supplies, furniture,
fixtures, and equipment. SBA's microloan program also makes grants to
microlenders to provide marketing, management, and technical
assistance to microloan borrowers and prospective microloan borrowers.
The act appropriated $24 million for such assistance. As of March 31,
2010, SBA had not awarded any grants. Further, the Recovery Act
appropriated $45 million to SBA to improve its information systems and
to support other activities. To the extent that these appropriations
are used to obtain goods and services from contractors, these funds
are also subject to the act's recipient reporting requirements. As of
March 31, 2010, SBA had awarded 38 contracts to vendors, totaling
about $8.3 million.
SBA's loan guarantee programs, such as the 7(a) and 504 programs,
received $630 million in appropriations under the Recovery Act but are
not subject to the recipient reporting requirements. Under these
programs, SBA, in exchange for fees, provides guarantees on a portion
of the loan to lenders against potential losses on qualifying small
business loans to encourage them to extend such financing.[Footnote 4]
In general, the Recovery Act appropriations temporarily reduced or
eliminated certain program fees and increased the guarantees.[Footnote
5] Of the $630 million that the Recovery Act appropriated to expand
and support SBA's loan guarantee programs, $375 million went to the
7(a) and 504 programs.[Footnote 6] Further, the Recovery Act
established a new temporary loan guarantee program--which SBA calls
the American Recovery Capital (ARC) program--that received $255
million in appropriations. Under the ARC program, SBA guarantees loans
of up to $35,000 to small businesses that are suffering immediate
financial hardship. The loans must be used to make payments on an
existing small business loan. According to SBA and OMB officials,
small businesses that receive loans guaranteed by SBA are not subject
to the recipient reporting requirement because they are not receiving
Recovery Act funds. Instead, SBA uses the funds appropriated to these
programs to cover its costs to guarantee the loans. However, OMB
requires agencies to report aggregated information about their use of
Recovery Act funds. For example, SBA must submit weekly reports that
include funds it obligates to support its loan guarantee and microloan
programs, as well as its contracting activities.
In response to your request, we (1) determined the extent to which
information reported by SBA's microloan recipients on Recovery.gov
fosters a basic understanding of award activities and expected
outcomes, (2) determined the extent to which information reported by
SBA's contractors on Recovery.gov fosters a basic understanding of
award activities and expected outcomes, and (3) identified information
available on Recovery.gov about SBA's 7(a), 504, and ARC loan
guarantee programs that were supported by Recovery Act funds. To
address these objectives, we did the following:
* We reviewed data available on Recovery.gov as of March 31, 2010, as
well as data available on [hyperlink, http://www.USAspending.gov] and
SBA's Web site.[Footnote 7]
* We utilized a methodology developed for our May 2010 report on
Recovery Act transparency.[Footnote 8] We further reviewed the
Recovery Act, the Federal Funding Accountability and Transparency Act
of 2006, OMB guidance, and the Federal Acquisition Regulation and
identified expectations for transparency in SBA activities.[Footnote
9] Based on these documents and professional judgment we developed
transparency criteria for SBA, which consisted of seven attributes,
including: the project's purpose, activities, cost, scope, and
expected outcomes, as well as, location of the award recipient and the
status of work.
* We conducted an assessment of all recipient reports submitted by SBA
microlenders and contractors for the third round of reporting (i.e.,
January 1 through March 31, 2010).[Footnote 10] To do so, we compared
these recipient reports to the transparency criteria.
* We reviewed SBA documents, and interviewed agency officials at SBA
and its Office of Inspector General.
* We interviewed officials from OMB and the Recovery Accountability
and Transparency Board.
We conducted this performance audit from February through July 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. As part of our
work, we assessed the reliability of certain Recovery Act data that
were pertinent to our effort. We determined that the data elements
were sufficiently reliable for our purposes.
In summary, only a small portion of SBA microlender recipient reports
included clear and complete information on how they were spending
Recovery Act funds and the outcomes they expected. Specifically, GAO
determined that 13 percent (8 of 61) of the descriptions in
microlenders' recipient reports contained sufficiently clear and
complete information on the project's purpose, activities, scope (the
geographic areas in which businesses can apply for the microloans),
cost, and expected outcomes, as well as the location of the award
recipient and the status of the microlending. The following paragraph
provides an example of narrative in a microlender recipient report
that met our transparency criteria:
"To provide Microloan[s] to small businesses in Charleston,
Dorchester, and Berkeley counties of South Carolina. Funds are
expected to fund approximately twenty loans over the next two years
resulting in the establishment of new businesses and the support of
existing businesses. Total job impact should result in approximately
60 positions being either created or retained."
About 33 percent of microlender recipient reports partially met the
criteria for providing useful information about the use of funds and
expected outcomes. These recipient reports contained reasonably clear
and specific information for some attributes. However, 54 percent of
the microlender recipient reports did not meet the criteria for
promoting public understanding of award activities and expected
outcomes due to the brevity of the narrative descriptions. For
example, many of these narrative descriptions simply stated
"microloans" or "microloan program." Recipients likely provided such
basic descriptions because SBA guidance, which was developed in
consultation with OMB and issued in July 2009, directed microlenders
to report "microloan" when describing the award. In developing the
guidance, SBA officials told us that they had been trying to minimize
the burden on microlenders, which generally are small nonprofit
organizations. However, a senior SBA official said that the guidance
to microlenders could be revised to direct recipients to include more
specific information about the purpose and expected outcomes of the
award. Until SBA microlenders are more clearly directed to provide
this information, many such entities will likely continue to report
information on their use of Recovery Act funds which does not foster
public understanding of award activities and expected outcomes.
In contrast, information on 35 percent (8 of 23) of SBA contractor's
recipient reports met the criteria, 43 percent partially met them, and
only 22 percent did not meet the criteria. Generally, contractors
effectively described how they were spending the funds and the
outcomes they expect--for example, "...Provide web and print ads,...
to publicize Recovery Act programs for entrepreneurs and small
business owners,..". SBA provided guidance to contractors that
contains specific directions on reporting purposes and outcomes or
results, as well as significant services and supplies provided--
guidance that may have helped recipients report complete and clear
information.
While recipients of SBA's loan guarantees are not required to report
award level information on Recovery.gov, SBA does report some
aggregate financial information about these programs on the Web site.
As of June 30, 2010, SBA had obligated about $557 million of the $630
million of Recovery Act appropriations to support and expand its 7(a),
504, and ARC loan guarantee programs, according to Recovery.gov. On
November 23, 2009, SBA exhausted the $375 million appropriated to its
7(a) and 504 programs and, since then, it received $305 million in
supplemental appropriations. However, as of May 26, 2010, SBA had
exhausted these funds as well.[Footnote 11] We calculate that, the
Recovery Act funds remaining, which total about $73 million, are to
support SBA's ARC program.
The administration faced an extensive undertaking in simultaneously
putting in place ways to spend large sums of Recovery Act funds, while
also seeking to make these efforts more transparent to the public than
previous efforts. The administration expects that achieving this
degree of visibility will be an iterative process in which the
reporting process and information improve over time. Although
recipient reporting under the Recovery Act represents a step forward
in federal spending transparency, opportunities exist to further
improve the public's understanding of how Recovery Act funds are being
spent and what outcomes are expected. We recommend that the
Administrator of SBA, in consultation with OMB, remove the standard
language in the guidance to microlenders and instruct them to include,
as appropriate, more descriptive information on how the funds are
being used and potential project outcomes or results.
We provided a draft of the correspondence to SBA for its review and
comment. We received written comments from SBA's Associate
Administrator of the Office of Capital Access, which are reprinted in
enclosure II. SBA also provided technical comments, which we
incorporated as appropriate.
In its letter, SBA stated that it worked with OMB to develop guidance
designed to assist microlenders report on their use of Recovery Act
funds. SBA also stated that our work indicates that 100 percent of
microloan intermediaries met the reporting requirements developed by
OMB and SBA. In one of its technical comments, SBA stated that all of
the microloan intermediaries met the reporting requirements. Further,
SBA stated that GAO established additional reporting criteria that
went beyond existing reporting requirements, and summarized our
findings that 13 percent of microlenders reports fully met our
criteria, 33 percent partially met the criteria, and 54 percent did
not meet the criteria. Finally, SBA commented that all microlender
reports that partially met or failed to meet our criteria did not
contain extra information that GAO deemed necessary to help ensure
that such reporting is clear and complete.
Our review did not include an assessment of microlenders' compliance
with SBA's supplemental reporting guidance or OMB's reporting
requirements, and therefore, we are not in a position to comment on
SBA's view that all microlenders complied with existing guidance and
reporting requirements. As described in the draft correspondence, two
of the key objectives of our review were to determine the extent to
which information reported by microlenders and SBA contractors on
Recovery.gov fosters public awareness about the uses of Recovery Act
funds. To conduct our work, we reviewed the Recovery Act, OMB
guidance, the Federal Funding Accountability and Transparency Act of
2006, and the Federal Acquisition Regulation and identified
expectations for transparency in SBA activities. Based on these
documents and professional judgment, we developed transparency
criteria for SBA, which consisted of seven attributes, including: the
project's purpose, activities, cost, scope, and expected outcomes, as
well as, location of the award recipient and the status of work. In
our view, these criteria provide a reasonable basis for assessing the
extent to which information in the recipient reports enhances the
public's understanding of the use of Recovery Act funds to support
SBA's microloan program. In contrast, we determined that SBA's
supplemental guidance is of limited value because, among other things,
it only directs microlenders to report the word "microloan" to
describe the award and does not direct microlenders to report
information about the award's purpose and expected outcomes. As a
result, even if all microlenders complied with SBA's supplemental
guidance, such uniform compliance would not necessarily have fostered
the public's understanding about the use and expected outcomes of
Recovery Act funds used to support the microloan program. We further
note that, using our criteria, we concluded that many SBA contractors
either fully or partially included clear and complete information that
facilitates understanding about their use of Recovery Act funds and
expected outcomes. SBA's guidance to contractors, unlike its guidance
to microlenders, is more consistent with our criteria and clearly
directs contractors to report information which fosters public
awareness about the uses of Recovery Act funds. For example, SBA's
guidance to contractors directs them to report on the contracts'
purpose and expected outcomes.
SBA further stated that in implementing the Recovery Act, the SBA
Administrator intended to be fully transparent throughout the process.
In that regard, SBA said it appreciated our recommendations to improve
the clarity and completeness of microloan intermediary recipient
reports. However, SBA did not specifically agree with our
recommendation to issue new guidance directing microlenders to
include, as appropriate, more descriptive information on how the funds
are being used and potential project outcomes or results, which would
improve the clarity and completeness of microlender reports. Instead,
SBA said that it plans to share best practices, regarding recipient
reporting, with its microloan intermediaries, which will begin with
the reporting period ending on September 30, 2010. SBA stated that the
sharing of best practices among microlenders will help ensure the
transparency of microlender reports as contemplated in our
recommendation.
We acknowledge that SBA has faced challenges in assisting recipients
of Recovery Act funds to fulfill the reporting requirements. Further,
SBA's plans to share best practices with microlenders has the
potential to enhance the clarity and completeness of information
available on Recovery.Gov regarding SBA's microloan program. The
potential exists that some microlenders will review the information
provided by SBA and revise their recipient reports to be consistent
with the best practices that the agency identifies. However, in the
absence of new guidance that applies to all microlenders, the
variability in microlenders' recipient reports in terms of their
clarity and completeness is likely to continue. As a result, we
continue to believe that SBA, in consultation with OMB, should remove
the standard language in the guidance to microlenders and instruct
them to include, as appropriate, more descriptive information on how
the funds are being used and potential project outcomes or results.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issuance date. At that time, we will send copies of this
report to the appropriate congressional committees, Administrator of
SBA, Director of OMB, and to other interested parties. This report
will also be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at 202-512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Major contributors to this report were
Wesley Phillips, Assistant Director; Anne Akin; Emily Chalmers; Tania
Calhoun; and Carl Ramirez.
Sincerely yours,
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
Enclosures-2:
[End of section]
Enclosure I: Briefing slides:
Information on Recovery Act Awards Made by the Small Business
Administration:
July 29, 2010:
Note: slides have been updated since the July briefing.
Introduction:
The American Recovery and Reinvestment Act of 2009 (Recovery Act)
appropriated $705 million to the Small Business Administration (SBA)
to expand and support initiatives that facilitate small business
lending.
* $630 million to SBA loan guarantee programs:
- $375 million to expand and support the 7(a) and 504 loan guarantee
program&;
- $255 million to create the new American Recovery Capital (ARC) loan
program;
* $30 million to expand and support the microloan program;
* $20 million to improve the agency's information systems related to
lender processes and lender oversight;
* $25 million to support other activities.
Recipient Reporting: The Recovery Act requires certain nonfederal
recipients of funds to report specific information about their use of
funds.
* Recipients of direct loans and contracts are subject to this
reporting requirement. For example, participants in SBA's microloan
program and SBA contractors must submit reports that include
descriptive information on the purpose and expected outcomes of their
loans or contracts funded by the Recovery Act. Information that
recipients report can be found at Recovery.gov.[Footnote 13]
* However, recipients of loan guarantees as well as individuals awarded
contracts and grants are not subject to this reporting requirement.
* Of SBA's $705 million in appropriations to expand and support
Recovery Act initiatives, up to $75 million (about 10 percent) is
subject to the recipient reporting requirements. (see table on next
slide)
Agency Reporting: The Office of Management and Budget (OMB) requires
agencies to report aggregated information about their use of Recovery
Act funds. For example, SBA must submit weekly reports of its
obligations and expenditures of funds used to support its loan
guarantee and microloan programs as well as its contracting activities.
Table:
SBA program or activity: 7(a)
Description: SBA guarantees a portion of a loan to a small business;
Loans may be used for working capital and other general business
purposes;
Recovery Act funds: $375 million[Footnote 14];
Recipient reporting: Not required;
Agency reporting: Required[Footnote 15].
SBA program or activity: 504;
Description: SBA guarantees a portion of a loan to a small business;
Loans may be used to finance expansion or modernization, primarily of
real estate;
Recovery Act funds: $375 million[Footnote 14];
Recipient reporting: Not required;
Agency reporting: Required[Footnote 15].
SBA program or activity: ARC;
Description: SBA guarantees a portion of a loan to a small business;
Loans may be used to make payments on an existing small business loan;
Recovery Act funds: $255 million;
Recipient reporting: Not required;
Agency reporting: Required[Footnote 15].
SBA program or activity: Microloan;
Description: SBA makes direct loans to microlenders, who then make
microloans to small businesses, and provides grants to microlenders to
provide business counseling to borrowers;
Recovery Act funds: $30 million;
Recipient reporting: Required;
Agency reporting: Required.
SBA program or activity: Contracting;
Description: Improve SBA's information systems and support other
activities;
Recovery Act funds: Up to $45 million;[Footnote 16]
Recipient reporting: Required;
Agency reporting: Required.
[End of table]
Objectives:
* Determine the extent to which information reported by SBA's
microloan recipients on Recovery.gov fosters a basic understanding of
award activities and expected outcomes.
* Determine the extent to which information reported by SBA's
contractors on Recovery.gov fosters a basic understanding of award
activities and expected outcomes.
* Identify information available on Recovery.gov about SBA's 7(a),
504, and ARC loan guarantee programs supported by Recovery Act funds.
Summary:
Information on a small portion (13 percent) of SBA loans to
microlenders met criteria for providing clear and complete information
about award activities and expected outcomes.[Footnote 17] About a
third (33 percent) partially met and more than half (54 percent) did
not meet the criteria. The fact that more than half of microlenders
did not meet the criteria is likely due to the guidance provided to
microlenders, which did not clearly direct them to report key
information about the use of the direct loans, such as their expected
outcomes (e.g., the number of new jobs expected).
In contrast, information on about a third (35 percent) of SBA
contractors' recipient reports met criteria for providing clear and
complete information, almost half (43 percent) partially met, and
about a fifth (22 percent) did not meet the criteria. SBA has provided
guidance to contractors about the reporting requirements, including
that they report on the expected outcomes of the use of such funds.
While recipients of SBA's loan guarantee programs are not required to
report award level information on Recovery.gov, per OMB requirements,
SBA does report some aggregate financial information about these
programs on the Web site. As of June 30, 2010, SBA had obligated about
$557 million (of the $630 million appropriated) to support and expand
its loan guarantee programs. We calculate that the funds remaining,
which total about $73 million, are to support SBA's ARC program.
[Footnote 18]
Background: Reporting Requirements:
Recipient Reporting:
* OMB and federal departments are responsible for issuing guidance to
assist recipients in fulfilling the reporting requirements. OMB issued
general guidance and SBA issued guidance tailored to its Recovery Act
activities.
* The Recovery Act and OMB guidance require prime recipients to
provide:
- A detailed list of all projects or activities for which recovery
funds were obligated;
- Information on sub awards.
* Descriptions must be sufficiently clear to facilitate the general
public's understanding.
* As of August 2010, recipients have submitted four reports covering
the following periods:
- 1st round: February 17 through September 30, 2009;
- 2nd round: October 1 through December 31, 2009;
- 3rd round: January 1, 2010 through March 31, 2010;
- 4th round: April 1, 2010 through June 30, 2010.
Agency Reporting:
* OMB requires agencies to submit weekly reports on the obligation and
expenditure of Recovery Act funds.
Background: Microloan Program:
SBA makes direct loans to microlenders, which are community-based,
nonprofit intermediary lenders.
* Maximum loan amount to an intermediary is $750,000 in the first year.
* Microlenders use SBA funds to make microloans to eligible small
businesses:
- Maximum loan amount is $35,000;
- Loans must be used for working capital and acquisition of materials,
supplies, furniture, fixtures and equipment.
SBA also awards grants to microlenders to provide marketing,
management, and technical assistance to microloan borrowers or
prospective borrowers.
SBA received $6 million in Recovery Act funds to support direct loans
to microlenders.
* These appropriated funds can finance up to $50 million in loans,
according to SBA.[Footnote 19]
* As of March 31, 2010, SBA had awarded 61 direct loans to
microlenders totaling about $35 million.
* Regarding the award amounts, more than half (37) totaled $750,000,
and the average of the remaining awards (24) was $317,931.
* Microlenders are required to submit the quarterly recipient reports
for 3 years after obtaining the loan from SBA.
SBA received $24 million in Recovery Act funds to provide grants to
microlenders. As of June 30, 2010, SBA had awarded 73 grants to
microlenders to provide business counseling to borrowers. These grants
ranged from $81,220 to $843,939.
Background: Contracts:
SBA received $20 million in Recovery Act funds to improve, streamline,
and automate its information systems and $25 million to support other
activities.
* As of March 31, 2010, SBA had awarded 38 contracts to vendors,
totaling about $8.3 million:
- Regarding the award amounts, awards averaged $224,364, and ranged
between $151 and $1.95 million.[Footnote 20]
* As of June 30, 2010, about $19 million of the original appropriation
remained.
Background: SBA's Loan Guarantee Programs:
Table:
SBA program: 7(a);
Description: SBA guarantees loans made by commercial lenders to small
business borrowers for whom credit is not otherwise available. SBA's
guarantee assures the lender that if a borrower defaults on a loan,
the lender will receive an agreed-upon portion of the outstanding
balance, generally between 50 percent and 85 percent;
Purpose of loan: Provide working capital and other general business
purposes;
Recovery Act provisions: Reduced the fees associated with these loans,
and increased the amount SBA guarantees;
2009 and 2010 Loan volume[A]: $8.7 billion.
SBA program: 504;
Description: Financing is delivered through certified nonprofits. In a
typical 504 loan project, a third-party lender provides 50 percent or
more of the financing; a nonprofit provides up to 40 percent of the
financing through a debenture that is fully guaranteed by SBA; and a
borrower contributes at least 10 percent of the financing;
Purpose of loan: Finance expansion or modernization, primarily of real
estate;
Recovery Act provisions: Reduced the fees associated with and these
loans, amount SBA increased the guarantees;
2009 and 2010 Loan volume[A]: $3.6 billion.
SBA program: ARC;
Description: SBA guarantees loans made by commercial lenders to small
businesses that in the past were profitable but are currently
struggling. These loans can be up to $35,000 and are interest-free to
the borrower. SBA's guarantee assures the lender that if a borrower
defaults on a loan, the lender will receive 100 percent of the
outstanding balance;
Purpose of loan: Make payments on an existing small business loan;
Recovery Act provisions: New program;
2009 and 2010 Loan volume[A]: $355 million.
Source: OMB, Federal Credit Supplement: Budget of the U.S. Government
Fiscal Year 2010 (Washington, DC).
[A] The loan volume equals the amount supported by Recovery Act
appropriations. The 7(a) and 504 programs have additional, non-
Recovery Act appropriations. In fiscal years 2009 and 2010, non-
Recovery Act appropriations supported $18.8 billion of 7(a) loans and
$11.4 billion of 504 loans.
[End of table]
Scope and Methodology:
We were asked to assess the extent to which the descriptions of the
uses of funds, published on Recovery.gov, enhance the public's
understanding of how funds are being spent and what outcomes are
expected.
Our briefing today focuses on activities funded through SBA.
To determine information available about SBA's microloan program and
contracting activities supported with Recovery Act funds, we reviewed
data available on Recovery.gov as of March 31, 2010, as well as data
available on [hyperlink, http://www.USAspending.gov] and SBA's Web
site.
To determine SBA's actions we reviewed agency documents, and
interviewed agency officials at SBA and its Office of Inspector
General (OIG).
To determine OMB's actions, we reviewed OMB memorandums and guidance,
and interviewed agency officials at OMB and the Recovery
Accountability and Transparency Board.
To assess the descriptions in recipient reports for SBA loans to
microlenders and contracts:
* We utilized a methodology developed for our May 2010 report on
Recovery Act transparency.[Footnote 21] We further reviewed the
Recovery Act, the Federal Funding Accountability and Transparency Act
of 2006, OMB guidance, and the Federal Acquisition Regulation and
identified expectations for transparency in SBA activities. Based on
these documents and professional judgment we developed transparency
criteria for SBA, which consisted of seven attributes, including: the
projects purpose, activities, cost, scope, and expected outcomes, as
well as, location of the award recipient (i.e., address of microlender
or contractor) and the status of work.[Footnote 22]
* We identified all of the recipient reports submitted by SBA
microlenders and contractors for the third round of reporting (i.e.,
January 1, 2010 through March 31, 2010).
* Two analysts, using the criteria and their professional judgment,
independently considered the information in the reports holistically
and assessed the completeness and understandability of the
descriptions. Each analyst decided whether the award description
information met, partially met, or did not meet the criteria.
- Met: Overall, contained complete and clear information.
- Partially met: Contained reasonably clear and specific information
for some attributes.
- Did not meet Overall, did not contain reasonably clear and specific
information.
* The analysts compared independent assessments, discussed
discrepancies in assessments, and reached a consensus on which
information was missing, unclear, or nonspecific as well as the
overall score.
* Our assessment did not determine compliance with the law,
regulations or guidance.
To determine information available about SBA's loan guarantee programs
supported with Recovery Act funds, we:
* Reviewed data available on Recovery.gov, [hyperlink,
http://www.USAspending.gov], and SBA's website.
* Interviewed SBA, OMB, and Recovery Accountability and Transparency
Board officials.
More than Half of Microloans Did Not Include Clear and Complete
Information About Award Activities and Expected Outcomes:
Many recipient reports for SBA loans to microlenders did not meet the
criteria.[Footnote 23] Specifically,
* Met: 13 percent (8 awards), totaling $4,990,000;
* Partially met: 33 percent (20 awards), totaling $10,550,000;
* Did not meet: 54 percent (33 awards), totaling $19,840,333.
Recipient Reports that Met the Criteria:
Thirteen percent (8 awards) of SBA's loans to microlenders included
information describing the purpose and expected outcomes of the award,
and geographic areas in which businesses could apply for the
microloans. For example:
* "To provide Microloan[s] to small businesses in Charleston,
Dorchester, and Berkeley counties of South Carolina. Funds are
expected to fund approximately twenty loans over the next two years
resulting in the establishment of new businesses and the support of
existing businesses. Total job impact should result in approximately
60 positions being either created or retained."
Recipient Reports that Partially Met the Criteria:
Almost a third, 33 percent (20 awards), of SBA's loans to microlenders
included some specific information, such as describing the purpose of
the award. For example:
* ...provide small business loans to businesses that would not
otherwise have access to capital through conventional commercial
financing;"
* "Loan to capitalize a microloan fund to provide capital to
entrepreneurs to start, stabilize or expand their business ventures
and create jobs;"
* "...funds will be lent to qualifying ... small businesses to assist
in economic development and job creation."
However, these reports did not include some specific information, such
as expected outcomes of the award and geographic areas in which
businesses could apply for the microloans.
Recipient Reports that Did Not Meet the Criteria:
A large portion, 54 percent (33 awards), of SBA's loans to
microlenders did not include information about the purpose of the
award, geographic areas in which businesses could apply for the
microloans, and expected outcomes of the award. The following are
examples of the limited descriptions of these microloans:
* "Microloans;"
* "loan to microloan intermediary;"
* "Supplemental Loan under the U.S. SBA;"
* "Microloan Program;"
* "Microloan Program/loan for $250,000.00;"
* "Loan;"
* "Microloan Revolving Loan Program;"
* "SBA Micro-Loan Intermediary;"
* "micro lending."
Guidance Was Not Always Clear:
OMB issued guidance to assist recipients in fulfilling the Recovery
Act's reporting requirements, however, as we reported in May 2010, the
guidance on two narrative fields, "Award Description" and "Quarterly
Activities/Project Description," was not always clear.[Footnote 24]
Similarly, SBA issued supplemental guidance, which was approved by
OMB, to further assist microlenders in fulfilling the Recovery Act's
reporting requirements.[Footnote 25] This supplemental guidance,
however, did not clearly direct microlenders to report certain
descriptive information about the award.
* The supplemental guidance, which was in the form of a "Procedural
Notice" issued in July 2009, identified the new reporting requirements
and provided guidance to assist microlenders in completing data
entries.
* However, the supplemental guidance directed microlenders to report
standard language to describe the award. Specifically, it directed
microlenders to enter "Microloans" in the "Award Description" field.
In addition, this supplemental guidance did not clearly direct
microlenders to provide information about the purpose of the award or
expected outcomes. SBA officials told us that they had been trying to
minimize the burden on microlenders, which generally are small non-
profit organizations.
Our May 2010 report recommended that OMB (1) revise its recipient
reporting guidance to provide recipients with clearer general
instructions and examples for narrative fields and (2) work with
executive departments and agencies to determine whether that
supplemental guidance (like SBA's procedural notice) dealing with
narrative descriptions of awards provides for transparent descriptions
of funded activities.[Footnote 26] OMB agreed with these
recommendations and reported that they are developing plans to address
these recommendations.
As of July 2010, SBA and OMB do not have specific plans to clarify
SBA's existing supplemental guidance or issue additional guidance to
improve microlenders understanding about the Recovery Act's recipient
reporting requirements.
A senior SBA official said that the guidance to microlenders could be
revised to direct recipients to include more specific information
about the purpose of the award and expected outcomes.
Until microlenders are more clearly directed to provide information
about the purpose of the award and expected outcomes, many such
entities will likely continue to report information on their use of
Recovery Act funds which does not foster public understanding about
award activities.
Generally, SBA Contractors Either Fully or Partially Included Clear
and Complete Information About Award Activities and Expected Outcomes:
About a third of the recipient reports for SBA contracts met the
criteria while about a fifth did not meet the criteria.[Footnote 27]
Specifically,
* Met: 35 percent (8 awards), totaling $2,976,309;
* Partially met: 43 percent (10 awards), totaling $1,680,833;
* Did not meet: 22 percent (5 awards), totaling $837,943.
Recipient Reports that Met the Criteria:
About a third (8 awards) of SBA's contracts included information
describing the purpose, scope, and expected outcomes of the award. For
example:
* "...provide training and technical assistance to SBA Microloan
Intermediaries to help them report data to the major credit bureaus...
. The training will enable ... Intermediaries to better assist
entrepreneurs...;"
* "Contractor shall verify if the Small Business Administration's
internal controls are effective for approving, servicing, and
purchasing loans issued under the American Recovery and Reinvestment
Act...;"
* "Provide web and print ads, to publicize Recovery Act programs for
entrepreneurs and small business owners,..."
Recipient Reports that Partially Met the Criteria:
Almost half, 43 percent (10 awards), of SBA's contracts included some
specific information, such as describing the purpose of the award. For
example:
* "contract to install WAN technology;"
* "Microsoft BING software/services to the CRM suite of applications;"
* "Contract for the installation of new electrical distribution
equipment;"
* "Maintenance & Repairs of Office Building."
However, these reports did not include some specific information, such
as expected outcomes and scope of the award.
Recipient Reports that Did Not Meet the Criteria:
About a fifth (5 awards) of SBA's contracts did not include
information about the purpose, scope, and expected outcomes of the
award. However, these reports did include a limited description of the
activity, for example:
* "Credit Bureau Reports;"
* "Loan Examination Technical Support Services."
SBA's Reporting Guidance to Contractors:
As of October 2009, SBA had not issued guidance to its contractors
regarding fulfilling the recipient reporting requirements.
However, prior to the second and third round of reporting (December
31, 2009 and March 31, 2010, respectively), SBA sent letters to
contractors outlining the reporting requirements. These letters
directed contractors to describe the "...overall purpose and expected
outcomes, or results of the contract..." as well as "significant
services performed/supplies delivered...". This guidance may have
increased recipients' awareness about providing this information, and
helped recipients report complete and clear information.
Loan Guarantee: Information Reported by SBA on Recovery.gov:
Pursuant to OMB's agency reporting requirements, SBA submits weekly
reports on aggregated financial information about its use of Recovery
Act funds.
The following table illustrates SBA's use of funds at the end of each
reporting round, on a cumulative basis.
Guaranteed loans (including SBA‘s 7(a), 504, and ARC loan programs):
Reporting Round 1 (Feb. 1–Sept. 30, 2009):
Total obligations: $311,444,659;
Total gross outlays: $111,991,072;
Reporting Round 2 (Oct. 1–Dec. 31, 2009):
Total obligations: $520,910,875;
Total gross outlays: $242,656,715;
Reporting Round 3 (Jan. 1–Mar. 30, 2010):
Total obligations: $535,043,951;
Total gross outlays: $362,705,382;
Reporting Round 4 (Apr. 1–June 30, 2010):
Total obligations: $557,139,598[A];
Total gross outlays: $437,439,417.
Direct loans (including SBA‘s microloan program):
Reporting Round 1 (Feb. 1–Sept. 30, 2009):
Total obligations: $1,795,290;
Total gross outlays: $0;
Reporting Round 2 (Oct. 1–Dec. 31, 2009):
Total obligations: $3,318,350;
Total gross outlays: $320,009;
Reporting Round 3 (Jan. 1–Mar. 30, 2010):
Total obligations: $4,110,983;
Total gross outlays: $805,845;
Reporting Round 4 (Apr. 1–June 30, 2010):
Total obligations: $5,043,552;
Total gross outlays: $1,432,239.
Contracts:
Reporting Round 1 (Feb. 1–Sept. 30, 2009):
Total obligations: $6,160,968;
Total gross outlays: $2,508,567;
Reporting Round 2 (Oct. 1–Dec. 31, 2009):
Total obligations: $6,546,722;
Total gross outlays: $4,679,326;
Reporting Round 3 (Jan. 1–Mar. 30, 2010):
Total obligations: $8,098,879;
Total gross outlays: $6,246,448;
Reporting Round 4 (Apr. 1–June 30, 2010):
Total obligations: $14,123,417;
Total gross outlays: $7,839,223.
[A] The Recovery Act appropriated a total of $630 million to SBA's
loan guarantee programs. On November 23, 2009, SBA had exhausted the 26
$375 million appropriated to its 7(a) and 504 programs. As a result,
we calculate that the Recovery Act funds remaining, which total about
$73 million, are to support SBA's ARC program.
[End of table]
Loan Guarantee: Information about Recipients is on Recovery.gov's
Agency Data Portal:
SBA's Recovery Act appropriations that support its loan guarantee
programs are not subject to the recipient reporting requirement.
* According to SBA and OMB officials, recipients of loans guaranteed
by SBA are not subject to the recipient reporting requirement because
they never receive Recovery Act funds. Instead, Recovery Act funds are
used by SBA to cover its costs to guarantee the loan.
However, the "Agency Data" portal of Recovery.gov contains information
about recipients of SBA guaranteed loans.
* The types of information available include, the recipient's name and
address, as well as the "funding amount," which is the total value of
loan financed by the private lending institution. For example, Ardmore
Pharmacy in Los Angeles, California obtained a loan for $373,000.
* These data are on Recovery.gov because the Recovery Accountability
and Transparency Board uses data agencies report to [hyperlink,
http://www.USAspending.gov] on all Federal awards to populate the
"Agency Data" portal of Recovery.gov, which includes both direct and
guaranteed loans. The board is able to use this data because the data
agencies report identifies if the award is supported by Recovery Act
funds.
Conclusions:
The administration faced an extensive undertaking in simultaneously
putting in .place ways to spend large sums of Recovery Act funds,
while also seeking to make these efforts more transparent to the
public than previous efforts. The administration expected that
achieving this degree of visibility would be an iterative process in
which the reporting process and information improve over time.
Although recipient reporting under the Recovery Act represents a step
forward in federal spending transparency, opportunities exist to
further improve the public's understanding of how Recovery Act funds
are being spent and what outcomes are expected.
OMB and SBA have joint responsibility for ensuring that recipients of
Recovery Act funds, such as microlenders, understand what information
they need to include in their recipient reports to ensure they contain
clear and complete descriptions of funded activities and expected
outcomes.
Recommendation:
In order to provide the public with more useful information on how
Recovery Act funds are being used, we recommend that SBA, in
consultation with OMB, remove the suggested standard language for the
"award description" field from its guidance and instruct microlenders
to include, as appropriate, more descriptive information on how the
funds are being used and potential project outcomes or results.
[End of Enclosure I: Briefing Slides]
Enclosure II: Comments from the Small Business Administration:
U.S. Small Business Administration:
Washington, DC 20416:
September 19, 2010:
Mr. William B. Shear:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: "Participants in SBA's Microloan Program Could Provide Additional
Information to Enhance the Public's Understanding of Fund Uses and
Expected Outcomes" (GAO-10-1032R):
Dear Mr. Shear:
Thank you for the opportunity to comment on your recent report,
"Participants in SBA's Microloan Program Could Provide Additional
Information to Enhance the Public's Understanding of Fund Uses and
Expected Outcomes" (GAO-10-1032R). We appreciate your thoughtful
review of the progress we have made in the implementation of Recovery
Act programs.
As stated on page 2 of your draft letter, "the Office of Management
and Budget (OMB) is responsible for issuing general guidance governing
recipient and other reporting regarding the use of Recovery Act Funds,
while federal departments and agencies, such as SBA, can issue
guidance tailored to their specific programs."
SBA and OMB worked together to develop the SBA-related reporting
requirements discussed in the report. SBA provided guidance to its
Microloan Program intermediary lenders (intermediaries) in accordance
with the resultant OMB Guidance. GAO indicates that one-
hundred percent of the reports submitted by the microloan
intermediaries met the reporting requirements developed by OMB and
SBA. As part of its audit, GAO developed additional criteria for
evaluating the report by SBA's microloan intermediaries that went
beyond the OMB reporting requirements. While all of the intermediaries
met the reporting requirements, 13 percent also fully met GAO's
criteria for "clear and complete information," 33 percent met the
requirements and partially provided information you deemed "clear and
complete," and 54 percent met the requirements but did not add extra
information to meet the "clear and complete" criteria.
The GAO recommends that to improve the public's understanding of how
Recovery Act funds are being spent and what outcomes are expected, the
standard reporting language in the reporting guidance be removed, and
new requirements be provided to require the microlenders to be more
descriptive of the ultimate beneficiaries.
In implementing the Recovery Act, the Administrator made clear SBA's
intention to be fully transparent throughout the process. Pursuant to
that goal, SBA appreciates the Draft Report and the suggestions made
regarding possible improvements to the clarity and completeness of
microloan intermediary Recovery Act reporting beyond the OMB
requirements. SBA understands that the microlending intermediaries in
our program exhibit a broad range of quality in reporting, as
demonstrated in the GAO findings. This reflects the range of capacity
among our microlenders--which range from two-person operations to loan
funds that manage hundreds of millions of dollars.
To address GAO's concern and to encourage a higher level of reporting
quality, SBA will share best practices regarding reporting with its
microloan intermediaries. The sharing of best practices will begin for
the reporting period ending September 30, 2010. This will provide the
direction that GAO seeks for the microlenders as indicated in the
Draft Report.
In addition, we appreciate GAO's comments about contractor recipient
reporting. GAO noted that "generally, contractors effectively
described how they were spending the funds and the outcomes they
expect," reflecting compliance with requirements jointly developed by
SBA and OMB. These requirements were distinct from those governing
microlender reporting.
SBA would also like to suggest several corrections to the report, as
follows:
* Page three of the Draft Report indicates that the microloan program
"makes grants to microlenders and other qualified non-profit
entities...." ARRA funding was provided to microlenders only. No
grants were provided to "other qualified non-profit entities" under
the Microloan Program during FY2009 or 2010.
* Slide four of the PowerPoint document states, in the Description of
the Microloan Program, that SBA "provides grants to microlenders and
potential microlenders...." The SBA Microloan Program does not provide
grants to potential microlenders, only to microlenders participating
in the program.
* Finally, we feel that slide 15 of the PowerPoint could be misleading
and could be clarified. We feel it should be recognized that all of
the microloan intermediaries met the reporting criteria established by
OMB and communicated by SBA. There is an opportunity to further
improve the clarity of reporting by expanding the reporting
requirements, using the criteria established by GAO.
Sincerely,
Signed by:
Eric Zarnikow:
Associate Administrator:
Office of Capital Access:
[End of Enclosure II]
Recently enacted legislation provided an additional $505 million to
further support SBA's 7(a) and 504 loan guarantee program; these funds
are available through December 31, 2010.
Footnotes:
[1] The Recovery Act established the Recovery Accountability and
Transparency Board to coordinate and conduct oversight of Recovery Act
funds. Furthermore, the act directed this board to establish and
maintain a user-friendly, public Web site (i.e., Recovery.gov) to
foster greater accountability and transparency in the use of Recovery
Act funds.
[2] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[3] SBA can finance about $50 million in lending to microlenders with
an appropriation of $6 million because, under credit reform
procedures, the cost of SBA's loans to microlenders is the net present
value of all expected cash flows, excluding administrative costs. For
loans to microlenders, cash flows may include loan disbursements,
borrower repayments of principal, and other payments adjusted for
estimated defaults. When the net present value of estimated cash
outflows exceed estimated cash inflows, the program is said to have a
positive credit subsidy rate--and therefore requires appropriations.
For fiscal year 2010, SBA assumed a positive credit subsidy rate of
12.04 percent for loans to microlenders. ($49,833,887 X .1204 =
$6,000,000).
[4] Under the 7(a) loan program, SBA guarantees loans made by
commercial lenders to small businesses that cannot otherwise obtain
credit on reasonable terms from nonfederal sources and that do not
have the resources to provide financing themselves. Loan proceeds may
be used for working capital and other general business purposes. To
offset some of the costs of the program, SBA assesses 7(a) lenders an
up-front guarantee fee that may be passed on to the borrower and an
annual servicing fee. The 504 loan program provides long-term, fixed-
rate financing to small businesses for expanding or modernizing,
primarily of real estate. Financing is delivered through certified
development companies, which are private nonprofits established to
contribute to the economic development of their communities. Like the
7(a) program, lenders, small business borrowers, and certified
development companies in the 504 program are required to pay various
fees to offset program costs.
[5] For example, the Recovery Act temporarily increased the maximum
7(a) guarantee from 85 percent to 90 percent.
[6] Subsequent to the Recovery Act, SBA received supplemental
appropriations, totaling $305 million, to support and expand Recovery
Act initiatives for SBA‘s 7(a) and 504 loan guarantee programs.
Recently enacted legislation provided an additional $505 million to
further support SBA's 7(a) and 504 loan guarantee program; these funds
are available through December 31, 2010.
[7] The Web site [hyperlink, http://www.USAspending.gov] includes
information about all federal awards, such as the name of the entity
receiving the award as well as the amount of the award. The Federal
Funding Accountability and Transparency Act of 2006 directed OMB to
establish this Web site.
[8] GAO, Recovery Act: Increasing the Public's Understanding of What
Funds Are Being Spent on and What Outcomes Are Expected, [hyperlink,
http://www.gao.gov/products/GAO-10-581] (Washington, D.C.: May. 27,
2010)
[9] Federal Funding Accountability and Transparency Act of 2006, Pub.
L. No. 109-282, 120 Stat. 1186 (2006).
[10] As of June 30, 2010, SBA had awarded 73 grants to microlenders
(all awarded after March 31, 2010) which ranged from $81,220 to
$843,939. SBA awarded these grants (and the reports became available)
after we completed our transparency assessment.
[11] Recently enacted legislation provided an additional $505 million
to further support SBA's 7(a) and 504 loan guarantee program; these
funds are available through December 31, 2010.
[12] On November 23, 2009, SBA had exhausted the $375 million
appropriated to its 7(a) and 504 programs. Since then, SBA has received
$305 million in supplemental appropriations. Recently enacted
legislation provided an additional $505 million to further support
SBA's 7(a) and 504 loan guarantee program; these funds are available
through December 31, 2010.
[13] The Recovery Act established the Recovery Accountability and
Transparency Board to coordinate and conduct oversight of Recovery Act
funds. The act also directed this board to establish and maintain a
user-friendly, public Web site (i.e., Recovery.gov) to foster greater
accountability and transparency in the use of Recovery Act funds.
Implementing this system was an extensive undertaking across the
federal government.
[14] The Recovery Act appropriated $375 million, however,
subsequently, Congress appropriated an additional $810 million.
[15] Although Recovery Act appropriations are subject to OMB's weekly
agency reporting requirements, agencies are not to include supplemental
appropriations in their weekly reports, according to OMB officials.
[16] To the extent that these funds are used to obtain goods and
services from contractors, they are subject to the Act's recipient
reporting requirements.
[17] Based on information posted on Recovery.gov on the use of
Recovery Act funds from Jan. 1 2010 through March 31, 2010.
[18] On November 23, 2009, SBA had exhausted the $375 million
appropriated to its 7(a) and 504 programs. We calculate that the
Recovery Act funds remaining, which total about $73 million, are to
support SBA's ARC program.
[19] SBA can finance about $50 million in lending to microlenders with
an appropriation of $6 million because, under credit reform
procedures, the cost of SBA's loans to microlenders is the net present
value of all expected cash flows, excluding administrative costs. For
loans to microlenders, cash flows may include loan disbursements,
borrower repayments of principal, and other payments adjusted for
estimated defaults. When the net present value of estimated cash
outflows exceed estimated cash inflows, the program is said to have a
positive credit subsidy rate”and therefore requires appropriations.
For fiscal year 2010, SBA assumed a positive credit subsidy rate of
12.04 percent for loans to microlenders. ($49,833,887 X .1204 =
$6,000,000).
[20] This smallest contract, for $151.00, was for "office supplies,"
according to Recovery.gov.
[21] GAO, Recovery Act: Increasing the Public's Understanding of What
Funds Are Being Spent on and What Outcomes Are Expected, [hyperlink,
http://www.gao.gov/products/GAO-10-581] (Washington, D.C.: May. 27,
2010).
[22] For the purposes of this review, we defined scope for the
microloan program as the geographic areas in which businesses can
apply for the microloans. For SBA contracts, we defined scope as
providing information about the SBA office (e.g., Division of
Procurement and Grants Management), program (e.g., 7(a) and
microloan), or function e.g., information technology, internal
controls) that obtained the contracting goods and/or services.
[23] All of these recipient reports were associated with SBA direct
loans to microlenders. As of March 31, 2010, SBA had not awarded any
grants to microlenders, as such, none of the recipient reports we
reviewed were associated with grants funded by Recovery Act
appropriations.
[24] [hyperlink, http://www.gao.gov/products/GA0-10-581].
[25] SBA, Procedural Notice: Recovery Act ” Microloan Recipient
Reporting, Control No.: 5000-1119, (Washington, D.C.: July 31, 2009).
[26] [hyperlink, http://www.gao.gov/products/GAO-10-581].
[27] As of March 31, 2010 SBA had awarded 37 contracts funded with
Recovery Act funds. We assessed the 23 recipient reports submitted
for the March 31, 2010 reporting period. This assessment does not
consider the final reports for 14 additional contracts which were
submitted in a prior reporting period.
[End of section]
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