The new year has not started out well for the beleaguered Small Business Administration, which has listed among its 2003 goals a significant increase in participation by credit unions in SBA lending.
Already facing potentially significant cuts to its annual budget, it now must address some serious questions raised by the General Accounting Office about the oversight of its preferred lenders and the accounting for its successful loan sales program.
A prominent lawmaker, in fact, warned that the accounting problems in particular could be severe enough to threaten future SBA funding. And its auditor, Cotton & Co. of Alexandria, Va., was so concerned about the analysis that it withdrew its audit opinion of the agency's financial statements for fiscal years 2000 and 2001 and called them unreliable.
In the first of two reports released this month, the GAO concluded that the SBA has been dragging its feet in adopting recommendations made five years ago for improving oversight of its preferred lenders. The delay poses "unacceptable and unnecessary risks" to the SBA's popular 7(a) loan program, the report said. A day later, on Jan. 3, another GAO report recommended that the SBA put future asset sales on hold until it corrects "accounting and budgeting errors and misstatements."
Since 1999 the SBA has been selling pools of disaster and small-business loans to private-sector investors in an effort to reduce the number of loans on its books. It has disposed of about 140,000 loans, valued at about $5.1 billion, in six sales that netted the agency hundreds of millions of dollars.
Disagreement Over Conclusions
But in a 67-page report, the GAO questioned the financial models the SBA uses to determine the value of the loans on a year-to-year basis and said that it may be overstating the benefits of the sales. The SBA, for its part, disputed the conclusions on its lender oversight and argued that it has already made the improvements that the GAO recommended in 1998.
Moreover, Janet Tasker, the SBA's associate administrator for lending oversight, said that there is no need for it to "duplicate efforts" of regulators by monitoring its preferred lenders-many of which are banks-for safety and soundness. "What we are looking at is their SBA portfolio and how they mange that portfolio," she said. "They are already subject to regulators that look at their lending practices."
The SBA did not dispute the findings on the accounting for asset sales, but its chief financial officer, Thomas A. Dumaresq, asked the GAO in a letter last month not to publish the report until the SBA could complete an internal review. He argued that the issues were extremely complex and would take time to resolve.
"Given that the GAO itself could not identify the cause of budget and accounting anomalies, but instead suggested that additional analysis was needed, we are concerned that readers may reach potentially premature and inaccurate conclusions," Dumaresq wrote in the Dec. 13 letter. The GAO's response: "It is not our policy to delay issuance of our reports until problems we have identified are resolved." Lawmakers quickly weighed in on the findings. Sen. Olympia J. Snowe (R-ME), who chairs the Senate Small Business Committee, said in a news release that she would review the report on lender oversight to determine if legislative action is needed. Meanwhile, Sen. Christopher "Kit" Bond (R- MO), a senior member and former chairman of the committee, said that resolving the accounting problems "must be a priority of the highest order." Proper accounting "is the very foundation for congressional review of SBA appropriations needed to fund the agency and serve the small-business community," Sen. Bond said in a recent statement.
Funding has been a major concern at the SBA since the Bush administration released its fiscal 2003 budget proposal nearly a year ago. The proposed budget would reduce the agency's funding to a level where it would be able to back only $4.85-billion of loans this fiscal year, compared with the roughly $12-billion it backed last fiscal year.
Though the current fiscal year began Oct. 1, the SBA and most other agencies are still awaiting final budget appropriations.