SBA Loan Monitoring System

The Small Business Administration (SBA) increasingly needs to monitor the activities of lenders that help deliver its programs. Annual loan approvals for the 7(a) General Business Loan Guarantee Program and the section 504 Certified Development Company Debenture Program have nearly doubled since 1992, and the loan portfolio for all its programs now exceeds $40 billion. During that same period, SBA cut its staff by 20 percent and shifted to lenders the responsibility for key loan origination, servicing, and liquidation functions. Lenders now originate about 75 percent of new loans with little or no SBA involvement in the eligibility and credit approval processes. To improve its ability to monitor loans and lenders, SBA has proposed a loan monitoring system to help manage its loan portfolios, identify and mitigate the risks incurred through loans guaranteed by SBA, implement oversight of internal and external operations, and calculate subsidy rates. GAO reported in June 1997 that SBA had not undertaken the essential planning needed to develop the proposed system. (See GAO/AIMD-97-94.) Congress later required SBA to perform eight planning actions that would serve as the basis for funding the system's development and implementation. This testimony (1) examines SBA's progress in completing the mandated actions, (2) evaluates SBA's products completed so far, (3) discusses the processes used to develop these products and manage key activities, and (4) outlines steps that the agency needs to take to manage risks.

GAO noted that: (1) SBA has made substantial progress in completing the eight mandated planning actions, but must still complete work for some actions and implement key functions to effectively manage the development of the loan monitoring system; (2) SBA has benchmarked its business processes against those of leading organizations and has conducted a reengineering study to identify and select new processes to improve its operations; (3) using the results of these efforts, SBA has also started identifying the data needed for the proposed loan monitoring system, defining data quality standards, developing the information architecture, determining an acquisition strategy, defining system requirements, and estimating the costs to complete the project; (4) SBA has reported that all of the eight mandated planning actions are complete, except for two concerning the information architecture and systems requirements; (5) GAO's analyses of SBA products for the planning actions have shown that SBA has made substantial progress; (6) at the same time, some of the products lack one or more important elements, and there are critical steps that SBA has not performed; (7) several key functions--such as configuration management, quality assurance, and system security--need to be established and implemented to effectively manage the project; (8) before beginning systems design and development, SBA will need to complete key planning actions--such as performing benefit and cost analyses of business process and system alternatives--for the mandated planning actions; (9) it should also implement critical project management controls--such as those needed to ensure that system design addresses the security challenge posed by Internet-based access; (10) actions will be needed in such areas as these if SBA is to effectively manage the risks it will encounter in the systems development process; (11) the deputy administrator and other SBA officials commented to GAO that they recognize the benefit of the actions that GAO suggests to improve project management; (12) however, they said that the risks from not fully completing such actions before system development should be weighed against the risks and opportunity costs associated with delaying the implementation of a system that would help oversee SBA's guaranteed loan portfolio; and (13) the deputy administrator and other SBA officials added that the first system increment they plan to develop will assist them in further defining the requirements for the entire system, and therefore they need to proceed with it expeditiously.