WASHINGTON - Small Business Administration officials are bristling over a report that says the agency is not exercising enough due diligence over its principal loan program.

In a report issued Jan. 17, the General Accounting Office said that the agency is highly susceptible to fraud because it does not properly scrutinize the activities of preferred lenders under its 7(a) program and relies on outdated computer technology. The report was part of a series targeting government agencies as mismanaged and at high risk for waste and abuse.

"SBA is confronting several major performance and accountability challenges that affect its ability to efficiently deliver services," the report said. It added that "it is too early to tell" whether the internal improvement efforts under way "will help resolve SBA's performance and accountability issues."

But agency officials - without a leader until President Bush nominates a successor for Aida Alvarez, who has already left the job - said that the report was based on two-year-old data and that the agency has since created an office to perform detailed reviews of lenders that make SBA-guaranteed loans to small businesses.

"Their emphasis on old news undercuts the progress that we've made," said Kristine Marcy, the agency's chief operating officer. "The financial staff a long time ago recognized the need for these reviews."

Under the 7(a) general business loan guarantee program, the SBA backs as much as 85% of loans up to $150,000. Small businesses in a wide range of fields are eligible as long as they meet federal guidelines. Roughly 5,600 lenders participate in the program, including about 500 preferred lenders that are permitted to make loans without pre - approval of applicants by the SBA.

The GAO identified lender oversight, software and accounting practices, and budget management as problem areas.

Preferred lenders are permitted to approve SBA-backed loans on their own in more than 70% of cases, but the agency is supposed to conduct reviews to make sure the loans are not overly risky or violate program rules. That study said that about 96% of preferred lenders in five district offices had not been reviewed from 1993 to 1997, and that only three of 12 small-business lending companies had been audited.

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