SBA Vows Tighter Controls After Loan Error in Budget

Small Business Administration chief Aida M. Alvarez on Wednesday pledged to impose stricter internal financial controls at the agency following an embarrassing budget blunder.

The General Accounting Office's discovery in June that SBA had overstated the cost of guaranteeing 7(a) program loans by 24% damaged SBA's credibility, she admitted in testimony before the House Small Business Committee.

"I am taking very aggressive steps to assess what SBA must do next to ensure that we significantly reduce the probability of any future errors," Ms. Alvarez said.

Computer security and audit trails are being beefed up, and employee access to key financial systems is being limited, she said.

The error was caused by an SBA employee who in late 1995 input incorrect data into a program used to project the agency's subsidy rate, Ms. Alvarez said. That rate is the difference between the money the agency collects and pays out, and it determines the annual loan volume the agency can guarantee.

"This is a case of human error," said Rep. John J. LaFalce, D-N.Y. But committee Chairman James M. Talent, R-Mo., said the mistake did not explain the "ping-pong" of the 7(a) program's subsidy rate between 1% and 5% since 1992.

Ms. Alvarez said SBA's data base was not sophisticated enough to make accurate estimates until the current fiscal year. Prior estimates had understated loan default rates and overstated recoveries from loans in liquidation.