Major Management Challenges at the Small Business Administration
Overall, the Small Business Administration (SBA) has made good progress in addressing five of the six key management challenges GAO identified in 2003: oversight of lenders, the business development and contracting program, the disaster loan program, human capital management, and financial management. SBA made some progress in addressing information technology, but challenges remain in this and other areas. Since 2003, GAO has done work in all of these areas except the business development and contracting program.
In acquiring a loan monitoring service under contract with outside experts to oversee its lenders , SBA took an important step that should help it monitor its lending partners and their portfolios and manage the risk inherent in its $45 billion business loan portfolio. SBA's newly obtained service provides a credit risk management infrastructure and methodology that appear to be on par with those of many private sector lenders. Although the service is useful, GAO made several recommendations to help ensure the potential benefits of the service will be realized, such as recommending that SBA consider the applicability of best practices for risk management as it develops comprehensive policies for using the service.
SBA's business development and contracting program for socially and economically disadvantaged small businesses, known as the 8(a) program, reports that it is making progress in providing training to firms, automating its annual review processes, and that it completed automating its 8(a) application in September 2004. SBA's Office of Inspector General also reports progress in providing training. Both SBA and its Inspector General agree that the program still needs a management information system to support its mission and objectives. As part of its continuing efforts to implement a more effective program management tool and information system, SBA recently completed a comprehensive review of the business processes and data requirements needed to support and manage the program . GAO has not assessed the 8(a) program since January 2003.
SBA's Office of Disaster Assistance made good progress in developing a better performance plan for the disaster loan program and in measuring customer satisfaction. The revised strategic plan includes expanded, long-term performance goals and measures, as well as outcome measures for the short and long term. It also developed one new automated tool and has another in process that it anticipates will enable it to better measure outcome and to assess more significant outputs. GAO has not assessed these new tools. The office measured customer satisfaction by surveying applicants who were approved or denied disaster loans. Information from the survey is intended to enable the office to prioritize and make improvements in its disaster loan processes. GAO found that SBA followed appropriate policies and procedures for September 11 disaster business loan applications.
Regarding SBA's efforts to strengthen human capital management , the agency began implementing a 5-year workforce transformation plan to realign its organizational structure and processes. SBA applied some key practices important to successful organizational change, such as involving top leadership, but it overlooked key aspects that emphasize transparency and communication. GAO made recommendations related to those key aspects. For example, it recommended that SBA finalize its draft transformation plan and share it with stakeholders and employees and that it develop a communication strategy that facilitates and promotes frequent two-way communication between senior managers and employees and between SBA and its stakeholders, such as the Congress and SBA's lenders. SBA made progress in centralizing its loan purchase and liquidation processes at one location, thereby allowing district office staff to concentrate on servicing small business customers. GAO has not evaluated the effects of these changes.
The agency continues to improve its information technology management practices in the areas of investment management, enterprise architecture, software development and acquisition management, information security, and human capital. For example, SBA completed a guide on conducting cost-benefit risk analyses to be used for information technology investments, implemented policies and procedures for architecture development and maintenance, and expected to institutionalize policies and procedures for software acquisition by the end of 2004. It has also addressed information security and human capital by conducting risk assessments of its major applications systems and developing plans to achieve the new information technology staffing model. Yet SBA's Inspector General reported last October that the agency's information systems do not have the necessary controls to fully ensure its security. SBA also needs to update its information security policies and procedures and align its workforce transformation strategy with its strategic plan. While steps taken by the agency should improve management of its information technology resources, more remains to be done to institutionalize these processes. GAO made recommendations in 2004 to improve SBA's information technology strategic planning, performance measurement and investment management processes.
SBA improved its financial management with good progress towards addressing issues related to its loan activity. For example, SBA developed a new cash flow model to estimate the costs of its disaster loan program and implemented standard operating procedures that address several GAO recommendations that SBA improve its accounting and budgeting for the costs of its loan portfolio. SBA also improved the timeliness of the issuance of its audited financial statements, meeting the November 15, 2004, deadline set by the Office of Management and Budget. SBA's audit opinion, while qualified on the majority of its fiscal year 2004 financial statements, is an improvement over the opinions SBA received for fiscal years 2003 and 2002. SBA's external auditor continued to report material internal control weaknesses related to SBA's credit programs and financial management and reporting. In each of these areas, SBA's auditor reported that SBA's quality assurance processes need improvements to further ensure that SBA prepares reasonable budget and accounting estimates for its credit programs and accurate financial statements.
Related GAO Products
Small Business Administration: New Service for Lender Oversight Reflects Some Best Practices, but Strategy for Use Lags Behind. GAO-04-610 . Washington, D.C.: June 8, 2004.
Disaster Loan Program
Small Business Administration: SBA Followed Appropriate Policies and Procedures for September 11 Disaster Loan Applications. GAO-04-885 . Washington, D.C.: August 31, 2004.
Human Capital Management
Small Business Administration: Progress Made, but Transformation Could Benefit from Practices Emphasizing Transparency and Communication. GAO-04-76 . Washington, D.C.: October 31, 2003.
Information Technology Management: Governmentwide Strategic Planning, Performance Measurement, and Investment Management Can Be Further Improved. GAO-04-49 . Washington D.C.: January 12, 2004.
Information Technology: Leadership Remains Key to Agencies Making Progress on Enterprise Architecture Efforts. GAO-04-40 . Washington D.C.: November 17, 2003.
Budgeting and Financial Accountability
Small Business Administration: Model for 7(a) Program Subsidy Had Reasonable Equations, but Inadequate Documentation Hampered External Reviews. GAO-04-9 . Washington, D.C.: March 31, 2004.