Financial Management: Status of Financial Management Issues at the Small
Business Administration (Letter Report, 08/29/2000, GAO/AIMD-00-263).

Pursuant to a congressional request, GAO reviewed the status of the
Small Business Administration's (SBA) financial management issues,
focusing on: (1) useful information Congress can obtain from SBA's
fiscal year (FY) 1999 financial statements; (2) the major internal
control deficiencies in SBA's FY 1999 financial statement audit and the
major causes and implications; and (3) ramifications of SBA's lack of
substantial compliance with the requirements of the Federal Financial
Management Improvement Act of 1996 (FFMIA).

GAO noted that: (1) SBA's unqualified audit opinion on its FY 1999
financial statements means that the information contained in those
statements is fairly stated and therefore can be used as a tool for
congressional oversight of the agency; (2) among other things, properly
prepared and audited financial statements that include information on
the status of budgetary resources, obligations, and outlays help provide
some assurance of the reliability of numbers reported in the President's
Budget as actual amounts; (3) for a credit agency such as SBA, the audit
of financial statements is essential to assessing the reliability of the
estimated cost of credit programs and can provide additional information
that can be used by decisionmakers to supplement credit cost information
included in the budget; (4) despite receiving an unqualified opinion,
SBA faces major challenges before it can fully achieve financial
accountability; (5) there were two material internal control weaknesses
identified in SBA's FY 1999 financial statement audit: (a) SBA's
financial reporting process did not ensure that its financial statements
would be free of material misstatements; and (b) general computer
control weaknesses in SBA's information systems did not ensure that
unauthorized activities, such as the modification of data or software,
would be prevented or detected; (6) SBA's lack of an integrated general
ledger for recording its transactions during the year contributed to:
(a) the deficiencies in SBA's financial reporting process; (b) its
reliance on multiple, nonintegrated spreadsheets as well as complex and
error-prone manual processes for recording financial data; and (c) the
lack of comprehensive plans and procedures for preparing its financial
statements; (7) the deficiencies in SBA's financial reporting process,
coupled with its general computer control deficiencies, resulted in
SBA's lack of substantial compliance with FFMIA; (8) FFMIA is a measure
of an agency's ability to incorporate into its financial management
systems the accounting standards and reporting objectives established
for the federal government, so that all assets, liabilities, revenues,
expenses, and the full costs of programs and activities can be
consistently and accurately recorded, monitored, and uniformly reported;
(9) substantial noncompliance with FFMIA is one of the factors that
indicate that agency financial management systems do not routinely
provide reliable, useful, and timely financial information to manage on
a day-to-day basis; and (10) SBA has developed a remediation plan which
the Office of Management and Budget has approved.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-00-263
     TITLE:  Financial Management: Status of Financial Management
	     Issues at the Small Business Administration
      DATE:  08/29/2000
   SUBJECT:  Congressional oversight
	     Accounting standards
	     Financial management
	     Small business assistance
	     Financial statement audits
	     Internal controls
	     Federal agency accounting systems
	     Noncompliance
	     Accountability
	     Reporting requirements
IDENTIFIER:  SBA Systems Modernization Initiative
	     SBA Disaster Loan Program
	     SBA 7(a) General Business Loan Program

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO/AIMD-00-263

A

Report to the Chairman, Committee on Small Business, U. S. Senate

August 2000 FINANCIAL MANAGEMENT

Status of Financial Management Issues at the Small Business Administration

GAO/ AIMD- 00- 263

Accounting and Information Management Division

Lett er

B- 284835 August 29, 2000 The Honorable Christopher S. Bond Chairman,
Committee on Small Business United States Senate

Dear Mr. Chairman: You asked that we assist you in your monitoring and
oversight efforts by performing a body of work that would provide you with
an assessment of the Small Business Administration's (SBA) ability to
effectively achieve its mission of serving the small business sector of the
economy and helping businesses and families recover from disasters. Your
request identified several programmatic and operational areas you wished us
to review in that regard, including financial management at SBA.

Despite receiving an unqualified audit opinion on its fiscal year 1999
financial statements, SBA faces several challenges before it will be able to
provide useful, relevant, reliable day- to- day financial information to
support ongoing management and accountability. To address your concerns
about the status of financial management at SBA, this report provides
information on the following questions:

1. What useful information can Congress obtain from SBA's fiscal year 1999
financial statements?

2. What were the major internal control deficiencies identified in SBA's
fiscal year 1999 financial statement audit and what are the major causes and
implications of these deficiencies?

3. What are the ramifications of SBA's lack of substantial compliance with
the requirements of the Federal Financial Management Improvement Act of 1996
(FFMIA)? 1

1 FFMIA requires auditors for each of the 24 major departments and agencies
named in the Chief Financial Officers (CFO) Act to include in the audit
report on the agencies' annual financial statements information to indicate
whether the agencies' financial management systems comply substantially with
three requirements: (1) federal financial management systems requirements,
(2) applicable federal accounting standards, and (3) the U. S. Government
Standard General Ledger( SGL) at the transaction level.

Results in Brief SBA's unqualified audit opinion on its fiscal year 1999
financial statements means that the information contained in those
statements is fairly stated

and therefore can be used as a tool for congressional oversight of the
agency. Among other things, properly prepared and audited financial
statements that include information on the status of budgetary resources,
obligations, and outlays help provide some assurance of the reliability of
numbers reported in the President's Budget as actual amounts. These actual
amounts show how the resources provided were spent and can be helpful in
evaluating the need for future funding. For a credit agency such as SBA, in
which 75 percent of total appropriations for fiscal year 1999 related to
credit programs, the audit of financial statements is essential to assessing
the reliability of the estimated cost of credit programs and can provide
additional information that can be used by decisionmakers to supplement
credit cost information included in the budget. In addition, the financial
statements provide valuable information on SBA's activities and, ultimately,
in conjunction with measurements of the agency's outputs, will provide the
means to address the agency's performance in terms of what the taxpayers got
for their money.

Despite receiving an unqualified opinion, SBA faces major challenges before
it can fully achieve financial accountability. There were two material
internal control weaknesses identified in SBA's fiscal year 1999 financial
statement audit: (1) SBA's financial reporting process did not ensure that
its financial statements would be free of material misstatements and (2)
general computer control weaknesses in SBA's information systems did not
ensure that unauthorized activities, such as the modification of data or
software, would be prevented or detected.

SBA's lack of an integrated general ledger for recording its transactions
during the year contributed to the deficiencies in SBA's financial reporting
process. SBA used three separate accounting systems to record various types
of transactions. In addition, SBA relied on multiple, nonintegrated
spreadsheets as well as complex and error- prone manual processes for
recording financial data. This resulted in an overly complex process for
preparing financial statements and a lack of assurance about the reliability
of the data. In addition, SBA lacked comprehensive plans and procedures for
preparing its financial statements. Therefore, an extensive amount of manual
processing and significant adjustments to the financial statements were
required to enable SBA to achieve an unqualified opinion. SBA is currently
undertaking steps to address the identified weakness in the financial
reporting process.

Although SBA took significant, positive steps in fiscal year 1999 toward
improving the general computer controls 2 over its information systems, the
results of the audit showed that significant security deficiencies continued
to exist in its information systems. SBA's auditors found deficiencies in
all six of the general computer control categories that are included in the
audit process. General computer controls have an impact on the overall
effectiveness and security of computer operations rather than specific
computer applications. In addition, they create the environment in which
application systems and controls operate. SBA's control weaknesses increased
the risk of unauthorized modification of data and software and reduced
assurance that the unauthorized activities would be prevented or detected.

The deficiencies in SBA's financial reporting process, coupled with its
general computer control deficiencies, resulted in SBA's lack of substantial
compliance with FFMIA. FFMIA is a measure of an agency's ability to
incorporate into its financial management systems the accounting standards
and reporting objectives established for the federal government, so that all
assets, liabilities, revenues, expenses, and the full costs of programs and
activities can be consistently and accurately recorded, monitored, and
uniformly reported. Substantial noncompliance with FFMIA is one of the
factors that indicate that agency financial management systems do not
routinely provide reliable, useful, and timely financial information to
manage on a day- to- day basis. SBA agreed with the auditor's findings of
noncompliance with FFMIA and developed a remediation plan which the Office
of Management and Budget (OMB) has approved.

SBA's overall strategy to resolve all FFMIA noncompliance hinges on its
Systems Modernization Initiative (SMI). This initiative is a three- phase,
long- range, comprehensive, overall systems modernization program that will
replace and modernize SBA's current financial systems. Phase I focuses on
systems for lender monitoring and oversight, Phase II on financial
management systems and disaster loan processing, and Phase III on

2 General computer controls are the policies, procedures, and technical
controls that apply to all or a large segment of an entity's information
systems and help ensure their proper operation. GAO has issued the Federal
Information System Controls Audit Manual (FISCAM) to provide guidance to
auditors in reviewing general computer controls. The

FISCAM identifies six major categories of general computer controls: (1)
entitywide security program planning and management, (2) access controls,
(3) application software development and program change controls, (4) system
software controls, (5) segregation of duties controls, and (6) service
continuity controls.

information technology infrastructure improvements and additional
application support systems.

Phase II will be the primary project that addresses FFMIA noncompliance.
Preliminary planning for Phase II started in late fiscal year 1998. Many of
SBA's policies and procedures for managing information technology are
currently in the early stages of development or not yet developed. Thus, it
is too early to tell whether SBA's system modernization effort will resolve
SBA's noncompliance.

SBA's achievement of a clean audit opinion is an important milestone along
the road to financial accountability. However, until SBA improves financial
reporting and information system controls, it will not be in a position to
provide reliable, timely information on a day- to- day basis, an ultimate
goal of financial management initiatives in the federal government.
Implementation of a fully integrated financial management system is key to
these improvements. However, SBA has several steps it needs to take to be in
a position to effectively undertake such an effort.

Background Laws and Standards That

The Chief Financial Officers (CFO) Act of 1990 laid the legislative Guide
the Preparation of

foundation for requiring federal agencies to provide taxpayers, Congress,
Financial Statements

and agency program managers with reliable financial information through
audited financial statements. In addition to requiring annual audited
financial statements, the CFO Act sets expectations for agencies to build
effective financial management organizations and systems and to routinely
produce sound cost and operating performance information throughout the
year. Additionally, the Government Performance and Results Act of 1993
(GPRA) requires agencies to establish missions, goals, and performance
measures for assessing the effectiveness and efficiency of agency programs
and services.

Under the CFO Act some of the government's 24 major agencies, including SBA,
started preparing annual financial statements, beginning with those

for fiscal year 1991. 3 The agency financial statements are subjected to
independent audit. These audits (1) determine the reliability of financial
information reported, (2) provide information on the adequacy of systems and
controls used to ensure accurate financial reports and safeguard assets, and
(3) report on agencies' compliance with laws and regulations.

In an effort to improve the integrity of financial information reported by
federal agencies, in 1990 the OMB, the Department of the Treasury
(Treasury), and GAO established the Federal Accounting Standards Advisory
Board (FASAB) to develop accounting standards for the federal government. In
1999, the American Institute of Certified Public Accountants recognized the
standards developed by FASAB as being generally accepted accounting
principles (GAAP) for the federal government.

Because SBA is a credit agency, it has been required to estimate the cost of
its loan programs in accordance with the Federal Credit Reform Act of 1990
(FCRA) 4 and FASAB's accounting standard for credit reform, Statement of
Federal Financial Accounting Standards (SFFAS) No. 2, Accounting for Direct
Loans and Loan Guarantees, as amended, since fiscal years 1992 and 1994,
respectively. The FASAB standard established guidance for estimating the
cost of direct and guaranteed loan programs, as well as for recording direct
loans and the liability for loan guarantees for financial reporting
purposes. SFFAS No. 2 states that actual and expected costs of federal
credit programs should be fully recognized in both budgetary and financial
reporting. To accomplish this, agencies first predict or estimate the future
performance of direct and guaranteed loans when preparing their annual
budgets. The data used for these budgetary estimates are generally updated
after the fiscal year- end to reflect any changes in loan performance since
the budget was prepared as well as any expected changes in future loan
performance. This reestimated data is then used in financial reporting in
calculating the allowance for subsidy on direct loans, the liability for
loan guarantees, and the net cost of the program. In the

3 Under the CFO Act as expanded in 1994, beginning with fiscal year 1996 all
of the government's 24 major agencies are required to prepare annual
financial statements. 4 FCRA changed the budgetary treatment of credit
programs so that their costs could be compared more appropriately with each
other and with other federal spending. FCRA requires that the agencies have
budget authority in advance to cover the program's cost to the government.
The agencies are required to estimate the cost of extending or guaranteeing
credit over the life of the loan.

financial statements, the actual and expected costs of direct loans
disbursed and guaranteed loans committed as part of a credit program are
recorded as “Program Cost” on SBA's Statement of Net Costs.

How Audit Opinions Are In an audit of an agency's basic financial
statements, the auditor must

Determined consider the results of all audit procedures to determine whether
an

opinion can be expressed on the fairness of the information presented and,
if so, what type of opinion. In this regard, there are four possibilities:

Table 1: Types of Audit Opinions Type of audit opinion What it means

Unqualified opinion Basic statements and the accompanying notes are fairly
stated in accordance with GAAP.

Qualified opinion Overall the financial statements are fairly stated.
However, one of the following conditions exist for one or more major
accounts:

1. limitation on audit scope 2. failure to follow GAAP 3. uncertainty over
whether certain

information was fairly presented. Disclaimer of opinion The auditor is
unable to obtain satisfaction

that the financial statements are fairly presented and does not express an
opinion. Possible causes:

1. severe limitation on the audit scope 2. material uncertainties about
amounts

or outcomes. Adverse Financial statements are materially

misstated and do not fairly present financial position.

While unqualified audit opinions are essential to providing an annual public
scorecard, they do not guarantee that agencies have the financial systems
needed to dependably produce reliable financial information. Modern systems
and good internal controls are essential to reach the end goal of useful,
relevant, reliable day- to- day financial information to support ongoing
management and accountability.

Internal Control Over The study and evaluation of the system of internal
control over financial

Financial Information reporting are important to the auditor and are
specifically included as part

of the financial statement audit under generally accepted auditing
standards. GAO's Standards for Internal Control in the Federal Government 5
defines internal control as an integral component of an agency's management
that provides reasonable assurance that the following objectives are being
achieved: (1) effectiveness and efficiency of operations, (2) reliability of
financial reporting, and (3) compliance with applicable laws and
regulations. Internal control serves as the first line of defense in
safeguarding assets and in preventing and detecting errors and fraud. As
federal policymakers and program managers continually seek to better achieve
agencies' missions and program results, they seek ways to improve
accountability. A key factor in achieving these outcomes and minimizing
operational problems is the implementation of appropriate internal control.

Internal control over financial information is evaluated during the audit,
and professional auditing standards require the auditor to communicate to
the agency any condition that represents a significant deficiency in
internal controls - referred to as a reportable condition. 6 A material
internal control weakness is a reportable condition that does not reduce to
a relatively low level the risk that errors, fraud, or noncompliance
involving significant amounts may occur and not be detected in a timely
manner by employees in the normal course of performing their assigned
functions.

Scope and To assess financial management issues at SBA, we reviewed reports

Methodology prepared by SBA's Independent Public Accountant (IPA) under the

direction of SBA's Office of Inspector General (OIG) concerning (1) SBA's
fiscal year 1999 financial statement audit, (2) SBA's financial reporting
system performance, and (3) SBA's information system security. We
coordinated with representatives and analyzed workpapers and documents from
the independent auditor relating to these reports. In addition, we met

5 Standards for Internal Control in the Federal Government( GAO/ AIMD- 00-
21.3.1, Nov. 1999) 6 A reportable condition is a significant deficiency in
the design or operation of internal controls that could adversely affect the
organization's ability to provide reasonable assurance on the reliability of
its financial reporting, performance reporting, and compliance with laws and
regulations.

with officials from SBA's Office of the CFO and OIG to obtain more
information about issues raised in the reports and to gain a better
understanding of the audit work performed and its results. We assessed SBA's
financial management systems and financial reporting with regard to the
agency's adherence to federal standards including the CFO Act; GPRA; FFMIA;
OMB Circular No. A- 127, Financial Management Systems; OMB Bulletin 97- 01,
Form and Content of Agency Financial Statements; FASAB Statements of Federal
Financial Accounting Concepts and Statements of Federal Financial Accounting
Standards; and GAO's Federal Information System Controls Audit Manual(
FISCAM).

To determine the extent that SBA's financial statements provide some
assurance over the amounts reported in the President's Budget, we compared
budgetary figures in SBA's financial statements with corresponding accounts
in the President's Budget and identified any significant differences. For
the two largest credit programs, we determined whether the cash flow models
and assumptions used to estimate the cost of SBA's loan programs for
financial statement purposes were also used to calculate SBA's budget
estimate.

To identify useful information in SBA's fiscal year 1999 financial
statements, we reviewed applicable accounting standards and described what
type of information is included in each of the financial statements and the
accompanying notes and how that information could be useful to Congress. To
assess the status of SBA's noncompliance with FFMIA, we obtained and
reviewed information about the current status of SBA's remediation plan to
resolve its noncompliance with FFMIA.

Our work was conducted in Washington, D. C., from March to June 2000 in
accordance with generally accepted government auditing standards. We
requested written comments on a draft of this report from the Administrator
of Small Business or her designee. The Chief Financial Officer provided us
with written comments that are reprinted in appendix II and discussed in the
“Agency Comments” section of this report.

SBA's Financial SBA's unqualified audit opinion on its fiscal year 1999
financial statements

Statements Are a means that the information contained in those statements is
fairly stated

and, therefore, can be used as a tool for congressional oversight of the
Valuable Tool for

agency. Among other things, properly prepared and audited financial
Congressional

statements that include information on the status of budgetary resources,
Oversight

obligations, and outlays help provide some assurance on the reliability of
numbers that are reported in the President's Budget as actual amounts. These
actual amounts show how the resources provided were spent and can be helpful
in evaluating the need for future funding. For a credit agency, such as SBA,
where 75 percent of its total appropriations for fiscal year 1999 related to
credit programs, the audit of its financial statements is essential for
assessing the reliability of the estimated cost of credit programs and can
provide additional information on the cost of credit programs that can be
used to supplement credit cost information included in the budget.
Additionally, the financial statements provide valuable information on SBA's
activities and, ultimately, in conjunction with measurements of the agency's
outputs will provide the means to address the agency's performance in terms
of what the taxpayers got for their money. In addition to the discussion
that follows, in appendix I, we have reproduced portions of SBA's financial
statements and explained the information that can be obtained about SBA's
operations from each component of the financial statements.

Testing the Reliability of Assurances over the reliability of SBA's actual
amounts included in the

Budgetary Amounts President's Budget are provided through the Statement of
Budgetary

Resources (SBR). The SBR provides information on the status of budgetary
resources at the fiscal year- end and the obligations and outlays during the
year. Preparation of the SBR requires agencies to reconcile obligations
recorded in budgetary records with their cash outlays.

Because SBA's SBR was subjected to the rigors of a financial audit and
received an unqualified opinion, information contained in SBA's SBR provides
useful information for congressional oversight. For example, the outlay
information in SBA's SBR is the same as the outlay amounts reported in the
President's Budget. Certain other amounts reported in SBA's SBR differ from
actual amounts reported in the President's Budget. The identified
differences were generally due to timing or other justifiable

reasons. 7 Notwithstanding these differences, the audit provides some level
of assurance over the actual amounts presented in the President's Budget.

Reliable reports of actual amounts reported in the President's Budget are
important not only for demonstrating accountability over resources provided,
but also for assisting in evaluating the amount of funding needed in the
future. By providing some assurance that funds were spent for the purposes
for which they were appropriated, the audit helps decisionmakers know how
much was actually spent on a particular program during the fiscal year. In
addition, since obligated and unobligated balances are reviewed as part of a
financial statement audit, the audit can help determine whether obligated
funds are properly recorded and whether there has been a buildup of
unobligated balances. These, plus other relevant factors, can contribute to
decisions about the appropriate amounts of funding for an agency's programs
in the future.

In addition to the assurance it provides over actual amounts in the
President's Budget, the audit's validation of SBA's compliance with credit
reform in preparing its financial statements provides some additional
assurance on the reliability of budgeted amounts for credit program cost
estimates. This is particularly important at SBA, because such a significant
portion of SBA's total appropriations relate to credit programs. When FASAB
developed accounting standards for loan programs, it recognized that
financial accounting should support the budget and that accounting standards
for credit reform should be consistent with budgeting under credit reform.
This mirroring helps provide for integrity in the budget process through the
financial statement audit. As part of the fiscal year 1999 SBA financial
statement audit, the cash flow models and assumptions used to estimate the
cost of SBA's loan programs were reviewed by the auditors and found to be
reasonable. Assuming that these same models were used for budgetary
purposes, the results of the financial statement audit can be extended to
the budget process.

7 Because the President's Budget and the SBR are prepared using separate
reporting systems and the President's Budget is required to be submitted
several months before the SBR, differences in the amounts reported often
occur.

To determine whether SBA used the same cash flow models to calculate its
fiscal year 2001 8 budget estimates, we compared the cash flow assumptions
in the budget estimate to the assumptions in the financial statement
estimate for the two largest credit programs [Disaster Loan Program and 7(
a) General Business Loan Program] at SBA. Although we found some differences
between the cash flow assumptions in the budget model and the audited
assumptions in the financial statement model, these differences had little
or no budgetary impact. This general consistency between the budget and
financial statement model helps provide assurance to Congress that the loan
program cost estimates included in the fiscal year 2001 President's Budget
are reasonable.

Since SBA is a large federal lender, providing reasonable credit program
cost estimates based on reliable data is critical to effective program
stewardship and accountability. Because economic and other conditions that
affect loan programs can change rapidly, SBA and other federal credit
agencies are required to update or “reestimate” loan program
costs periodically for differences between (1) estimated loan performance
and related cost and (2) the actual program cost recorded in the accounting
records, as well as for expected changes in future economic performance.
Because of the timing of the preparation and audit of these reestimates,
SBA's fiscal year 1999 reestimates were included in the financial statements
but not in the actual amounts in the budget. Thus, the financial statements
included additional information on the cost of credit programs that can be
used by decisionmakers to supplement credit cost information included in the
budget.

When the loan program costs were updated for fiscal year 1999, SBA's revised
estimate showed the programs costing less than previously anticipated for
direct loans and guaranteed loans. This is referred to as a downward
reestimate. The downward reestimates, which relate to all previously
disbursed and committed loans and which are disclosed in the notes to SBA's
financial statements, totaled $360 million. The notes show that the downward
reestimates of loan program cost for prior years more than offset the
subsidy expense recognized for the current year

8 Because the President's Budget is prepared 2 years in advance, the fiscal
year 2001 budget estimates of loan program costs were prepared during the
same time period as the fiscal year 1999 financial statement estimates of
loan program costs, generally using the same data.

disbursements. 9 SBA's downward reestimates were primarily the result of
changes in economic activity and program performance as well as refinements
in the credit subsidy modeling process. Over time as agencies improve their
ability to forecast costs through better modeling and more and better
historical data, it is anticipated that the variability in the subsidy rate
will diminish. However, some level of variability will continue to exist.

Focusing on Key Activities In addition to helping provide assurance over
certain amounts in the

of the Fiscal Year President's Budget, SBA's audited financial statements
provide useful

information on the agency's activities during the fiscal year. For example,
SBA held a pilot loan sale in fiscal year 1999. The notes inform the reader
that SBA expects to sell the majority of its loan portfolio within the next
3 or 4 years.

According to the information in SBA's notes, SBA's fiscal year 2001 budget
request for subsidy costs did not include the results of the pilot sale.
However, the notes do let the reader know that the effect of the pilot sale,
as well as the other sales planned, will be factored into the calculations
of SBA's subsidy costs for the fiscal year 2002 budget request. 10 Thus,
since the amount of money SBA receives for its loans from the loan sales
will most likely continue to differ from the amount SBA expected to receive
by holding and servicing the loans, inclusion of the effect of the loan
sales in the 2002 budget request can be expected to affect future subsidy
costs. Whether future subsidy costs increase or decrease will depend on the
actual cash SBA ultimately ends up receiving on these loan sales.

Reliable Cost Information In the 1990s Congress and the federal government
laid out a statutory and

Will Help Assess Agency management framework that provides the foundation
for strengthening

Performance government management and accountability. GPRA requires agencies
to

establish missions, goals, and performance measures for assessing the
effectiveness and efficiency of agency programs and services. Previously,
the CFO Act had established a structure for more businesslike management

9 For a more detailed discussion of the costs of SBA's loan programs, see
appendix I. 10 Subsequent to the issuance of the fiscal year 1999 financial
statements, SBA's asset sales schedule changed. As a result, SBA officials
stated that the results of the pilot sale and the one sale currently planned
for fiscal year 2000 do not provide the predictive data or reliability
needed to include the results of the sale in the subsidy calculation for its
budget request.

and reporting of the government's finances. The effective implementation of
the statutory framework, although important, is not an end in itself.
Rather, the implementation of the framework is the means to an end- improved
federal performance through enhanced agency and congressional decision-
making and oversight.

The first step towards this goal is to have reliable cost information. SBA
has achieved, by virtue of its unqualified opinion, basic accountability
over the fiscal year end amounts reported in its financial statements. The
next step will be to link financial information to performance measures. For
example, one of SBA's performance goals is to increase opportunities for
small business success. A number of performance indicators, such as
increasing the numbers of business loans approved and increasing the number
of start- up businesses, are associated with this goal. Ultimately, SBA
should be able to determine not only if the goal was achieved but also the
cost associated with achievement of the goal. Certain of SBA's performance
indicators, such as the default rate on its loans, are currently reviewed
for reasonableness as part of the financial statement audit. Once SBA has
fully developed the ability to link costs to outcomes, taxpayers can be
better apprised of what they receive for their money.

Despite Unqualified Although SBA has realized an important objective in
obtaining a timely,

Opinion, SBA's Audit unqualified opinion on its financial statements,
financial accountability

goes well beyond an unqualified opinion. The key to financial Report
Discloses

accountability is to improve internal controls and underlying financial and
Significant Financial

management information systems to the point where timely, accurate, and
Management

useful information is generated on an ongoing basis, not just at the end of
the fiscal year. Strong financial management systems and internal control

Deficiencies are essential to ensure the end goal of useful, relevant,
reliable day- to- day

financial information to support ongoing management and accountability.
SBA's auditors identified two material internal control deficiencies that
indicated that SBA had yet to fully achieve financial accountability: (1)
SBA's financial reporting process did not ensure that its financial
statements would be free of material misstatements and (2) general computer
control weaknesses in SBA's information systems did not ensure that
unauthorized activities, such as the modification of data or software, would
be prevented or detected. Because of these weaknesses, an extensive amount
of manual processing and significant adjustments to the financial statements
were required.

Weakness in the Financial SBA's financial reporting system did not ensure
that SBA's financial

Reporting Process management activities were consistently and accurately
recorded, and

timely and uniformly reported. Specifically, SBA did not have a single
integrated general ledger. Rather, it relied heavily on complex, error prone
manual processes and lacked comprehensive plans and procedures for preparing
financial statements. Without changing its current processes, SBA will
continue to experience difficulties in preparing timely, accurate financial
information. SBA is currently undertaking steps to address the identified
weaknesses in the financial reporting process.

OMB Circular A- 127 requires that each federal agency have an integrated
financial management system designed to provide for effective and efficient
interrelationships between software, hardware, and personnel. Ideally, each
transaction would be entered into a financial management system once, and
all records and reports would accurately reflect the impact of the
transaction. This was not the case at SBA because it did not have an
integrated general ledger system but instead used three separate accounting
systems to record transactions. Consequently, transactions had to be entered
into more than one system in order to prepare financial statements. For
example, a loan disbursement would be entered into the loan accounting
system when the loan was disbursed. Summarized transactions from the loan
accounting system would also be manually entered onto an Excel spreadsheet
to reflect the impact on budgetary accounting. In addition, the general
ledger balances affected by the loan disbursement transaction would be
rekeyed several times into various spreadsheets prior to the preparation of
the financial statements.

FFMIA, as well as OMB Circular A- 127, requires agencies to comply with the
U. S. Government Standard General Ledger( SGL) 11 at the transaction level.
Although SBA's system did not follow the SGL, SBA had developed a crosswalk
to it. In order to prepare its consolidated trial balances, SBA combined
data from all of its funds. 12 However, SBA's chart of accounts was not
consistent among funds. This inconsistency resulted in the need for
conversion and data manipulation in the preparation of the consolidated

11 The SGL provides a standard chart of accounts that agencies are to use in
their financial statements. 12 SBA's financial statements involve funds in
seven categories: salary and expenses, surety bond guarantees, disaster
loans, business loans, the Business Assistance Trust Fund, the Pollution
Control Equipment Fund Liquidating Account, and the Office of the Inspector
General.

trial balances. The inconsistency stems from the fact that although progress
has resulted in a number of SBA's funds using SGL- based accounts, the
remaining funds do not. The additional manipulation of the data not only
took time but also increased the likelihood of error in the consolidated
trial balances.

Because of its multiple systems for recording financial data and its
extensive manual recording, SBA's process for preparing its financial
statements was overly complex. It also lacked sufficiently detailed
documentation of these complex procedures. For example, SBA's budget office
used a system to monitor the budget authority for new loans. This system,
however, was not completely linked with the accounting system. Therefore,
SBA had developed a separate process to include the activity for loans made
in prior years when determining budgetary account balances. For fiscal year
1999, SBA updated and maintained more than 50 spreadsheets, each containing
over 150,000 cells of data, to determine the budgetary account balances for
its loan programs. The complex processes that SBA had developed were
cumbersome, labor intensive, and heavily reliant on manual keying and
rekeying of data and account balances, which increased the risk of errors.

Additionally, during fiscal year 1999, SBA moved its primary financial
reporting responsibilities from Washington, D. C., to Denver, Colorado.
Fiscal year 1999 was the first year that Denver staff was given
responsibility for preparing the financial statements. This change created
challenges since SBA's financial reporting process was complex and the
procedures for preparation of its financial statements were not sufficiently
detailed. Also, SBA held its first loan asset sale in fiscal year 1999 and
this, combined with the accounting complexities of the sale, affected the
financial statement preparation.

All of these factors led to the identification of problems in SBA's
financial reporting process during the fiscal year 1999 audit. Therefore, in
conjunction with the audit process, SBA made numerous adjustments to the
year- end financial statements. These adjustments were necessary to remedy
problems identified by the auditors such as amounts incorrectly classified,
line items that were not labeled consistently between funds, unusual and
abnormal balances that were undetected, and trial balances and financial
statements that were not prepared consistently between funds.

To address these issues, the Inspector General (IG) included the following
recommendations, with which we concur, in its audit report on the fiscal
year 1999 financial statements:

Ensure that adequate resources are provided to implement an effective
internal control system over the financial reporting processes. Provide
additional training to both staff and management responsible

for the financial reporting process. Develop detailed procedures for
activities, such as preparing journal

vouchers, calculating loss allowances, preparing and updating trial
balances, and preparing financial statements and notes. Require each fund
accountant to process and maintain trial balances

and reports in a consistent manner. Reduce the manual rekeying of data
through automation. To the extent

possible, automate the roll- up of data from the off- line and on- line
trial balances to the combined and consolidated trial balances and the
resulting financial statements.

In addition to performing the audit of the fiscal year 1999 financial
statements, the IPA was engaged by SBA's OIG to review the integrity of
SBA's internal financial management systems. In conjunction with this
review, the auditors made the following recommendations, with which we
concur:

Require preparation of quarterly consolidated agencywide financial
statements. With quarterly financial statements, SBA will be better prepared
for an accurate and timely year- end consolidation process. Implement an
integrated standard general ledger to account for and

report on all SBA fund transactions. According to the IPA's report, SBA has
undertaken a significant system project that, if fully implemented, may
overcome the identified weaknesses in the financial reporting process. As of
June 2000, SBA was working to complete a redesign and implementation of a
new automated financial reporting consolidation system. This redesign was to
include a consolidated general ledger, crosswalks to activity in the SGL
accounts, and feeder systems that would eliminate most of the manual
applications and rekeying. In addition, SBA has hired a contractor to help
assemble documentation on reporting procedures into a comprehensive
reporting plan.

While implementation of the recommendations should improve SBA's yearend
financial reporting process, the lack of an integrated financial management
system hinders SBA from generating complete, reliable, consistent, timely,
and useful financial management information on its dayto- day operations.
Achieving this goal would require that SBA implement an integrated financial
management system designed to provide effective and efficient
interrelationships between software, hardware, personnel, procedures,
controls, and data contained within the system. SBA's efforts toward
developing such a system are discussed later in this report.

Weaknesses in Information The other major internal control weakness
identified in SBA's fiscal year

Systems Controls 1999 Independent Auditor's Report on Internal Controlis in
SBA's

information systems controls. While SBA took several steps during fiscal
year 1999 to improve its general computer controls, many of its initiatives
were in the initial stages of implementation and development. Weaknesses
were reported in all six categories of general computer controls (general
computer controls create the environment in which application systems and
controls operate).

During a financial statement audit, the auditor focuses on general controls
for the agency's major computer facilities and systems supporting a number
of different computer applications, such as major data processing
installations or local area networks. If general computer controls are weak,
they severely diminish the reliability of controls associated with
individual applications. The IPA, under contract with SBA's OIG, used GAO's
FISCAM to guide the review of SBA's computer information systems environment
for the financial statement audit. The following section discusses each of
the six categories of general computer controls, examples of the weaknesses
identified by SBA's IPA in each category, and the impact those weaknesses
have on SBA's general computer controls.

Entitywide security program planning and management provide a framework and
continuing cycle of activity for managing risk, developing security
policies, assigning responsibilities, and monitoring the adequacy of
computer- related controls. These are the fundamental activities that allow
an organization to manage its information security risks cost effectively,
rather than react to individual problems only after a violation has been
detected or an audit finding has been reported.

SBA has established a senior management group responsible for developing and
implementing an ongoing agencywide information

systems security program. However, the basic requirements related to general
computer controls were either not in place or not fully effective at the
time of the fiscal year 1999 audit. For example, formal agencywide security
policies and procedures had not been established. A draft standard operating
procedure for information system security was in clearance but not yet
established as official agency policy. Also, security plans with acceptable
risk levels and rules for each system had not been developed and security
awareness training had not been provided.

Without a well- designed program, security controls may be inadequate;
responsibilities may be unclear, misunderstood, and improperly implemented;
and controls may be inconsistently applied. Such conditions may lead to
insufficient protection of sensitive or critical resources and
disproportionately high expenditures for controls over low- risk resources.

Access controls limit or detect access to computer resources such as data
files, application programs, and computer- related facilities and equipment.
Access controls should provide reasonable assurance that these computer
resources are protected against unauthorized modification, disclosure, loss,
or impairment. Such controls include physical controls, such as keeping
computers in locked rooms to limit physical access, and logical controls,
such as security software programs designed to prevent or detect
unauthorized access to sensitive files.

Audit testing conducted by the IPA revealed that 11 percent (199 out of
1,819) of active users' accounts in SBA systems were for employees and
contractor personnel no longer employed by the agency. These user accounts
were not inactivated promptly upon the termination or transfer of an
employee. Also, a network server for the Office of General Counsel was not
physically secured. Both examples demonstrate SBA's lack of adequate access
controls.

Without adequate access controls, unauthorized individuals, including
outside intruders or terminated employees, can read and copy sensitive data
and make undetected changes or deletions for malicious purposes or personal
gain. In addition, authorized users can unintentionally modify or delete
data or execute changes that are outside their authority.

Application software development and program change controls

prevent implementation of unauthorized programs or modification to existing
programs. Key aspects of such controls are ensuring that (1) software
changes are properly authorized by the managers responsible for the agency
program or operations that the applications support, (2) new and modified
software programs are tested and approved prior to their implementation, and
(3) approved software programs are maintained in carefully controlled
libraries to protect them from unauthorized changes and to ensure that
different versions are properly labeled.

Application control weaknesses were noted by the IPA in several of SBA's
systems. For example, SBA's Automated Loan Control System (ALCS) 13 controls
did not ensure that all program changes were authorized, tested, and
reviewed before being placed into production. In addition, no procedures
were developed to ensure that server- based programs developed by and for
various field and program offices followed system development and program
change control procedures. This situation existed because SBA had not
implemented controls to restrict and monitor programmer access and had not
developed the criteria necessary to assess and justify access needs for
application software development and program change. Application software
development and program change control procedures are critical to ensure
that the applications and programs work as intended and provide accurate and
reliable information for decision- making and reporting purposes.
Consequently, SBA could not be assured that programmers were performing only
authorized activities.

Application software development and program change control focuses on
controlling the changes that are made to software systems in operation. This
is an important area because operational systems produce the financial
statements, and the majority of program changes are made to maintain
operational systems. Without proper controls, there is a risk that security
features could be inadvertently or deliberately omitted or turned off or
that processing irregularities or malicious code could be introduced.

13 ALCS is a minicomputer system maintained and operated at each of SBA's
four Disaster Area Offices. ALCS is used to track and process disaster loan
applications.

System software 14 controls limit and monitor access to powerful programs
and sensitive files that (1) control computer hardware and (2) secure
applications supported by the system. Controls over access to and
modification of system software are essential in providing reasonable
assurance that operating system- based security controls are not compromised
or impaired. Control concerns for system software are similar to the access
control issues and the application software change controls issues discussed
earlier. However, because of the high level of risk associated with system
software activities, a separate set of control procedures apply to them.

As part of the audit, the IPA reviewed and tested the highest- level system
software privileges for one of SBA's systems. These privileges provide
access that allows programmers to shut down the system or run unauthorized
programs. Audit testing conducted by the IPA identified 12 user accounts
that did not have documentation showing security officer approval, 24
unnecessary accounts, 15 users that had multiple accounts, 6 accounts that
belonged to unknown individuals, and 3 accounts that belonged to a previous
vendor. Procedures and criteria were not in place to ensure on an ongoing
basis that access to system software was properly restricted. Because system
software programmers are often more technically qualified than other data
processing personnel (thus, having a greater ability to perform unauthorized
actions if controls in this area are weak), adequate system software
controls are essential.

Inadequate controls in this area could lead to unauthorized individuals
using system software to circumvent security controls to read, modify, or
delete critical or sensitive information and programs. Inadequate controls
could also provide the opportunity for authorized users of the system to
gain unauthorized privileges to conduct unauthorized actions and for systems
software to be used to circumvent edits and other controls built into
application programs. Such weaknesses seriously diminish the reliability of
information produced by all of the applications supported by the computer
system and increase the risk of fraud and sabotage.

14 A set of programs designed to operate and control the processing
activities of computer equipment. These programs help control and coordinate
the input, processing, output, and data storage associated with all of the
applications that run on a system.

Segregation- of- duty controls provide policies, procedures, and an
organizational structure to prevent a single individual from controlling key
aspects of computer- related operations and thereby conducting unauthorized
actions or gaining unauthorized access to assets or records without being
detected. Key areas of concern involve the segregation of duties between
major operating and programming activities, including duties performed by
users, application programmers, and data center staff. Policies outlining
the responsibilities of these groups and related individuals should be
documented, communicated, and enforced.

To help reduce the potential for unauthorized activities, SBA has a Rule of
Two policy that requires two individuals to sign certain documents and
approve certain transactions or perform specific transactions within a
computer application. Although SBA has acted on a fiscal year 1998 audit
recommendation that it enforce the Rule of Two, it is important to note that
SBA has assessed only one of the critical system functions and access
controls to identify incompatible duties. User privileges in the other
systems have not been reviewed and assessed. For example, programmers at the
Office of the CFO had access to both financial data records and software
that provide the ability to initiate transactions. The primary reason that
users were provided with these system privileges was lack of training.
Security administrators and supervisory personnel at SBA lacked
understanding of the activities associated with certain privileges and were
not provided systemspecific training.

Although segregation of duties, alone, will not ensure that only authorized
activities occur, inadequately segregated duties increase the risk that
erroneous or fraudulent transactions could be processed, improper program
changes could be implemented, and computer resources could be damaged or
destroyed.

Service continuity controls ensure that when unexpected events occur,
critical operations continue without interruption or are promptly resumed
and critical and sensitive data are protected. SBA had a disaster recovery
plan in place for one of the accounting systems. However, further work was
needed. The IPA audit found that the Denver Finance Center (among its
responsibilities is processing and maintaining disbursement and collection
records for SBA) and each SBA Disaster Area Office had only partial plans in
place, and the plans had not been tested. This reduced SBA's assurance that
it would be able

to provide congressionally mandated services to disaster victims and the
small business community if a significant disruption occurred.

While SBA took several steps during fiscal year 1999 to improve its general
computer controls, many of its initiatives were in the initial stages of
implementation and development. SBA took the following actions:

A senior management group, the Information System Control Committee (ISCC),
was established composed of the Chief Information Officer (CIO), the CFO,
and the Associate Administrator for Disaster Assistance responsible for
addressing the issue of information system security. This committee will
oversee the agency's efforts to address the OIG audit recommendations. A
draft certification and accreditation (C& A) handbook 15 and a schedule

for conducting C& A reviews were developed. Guidelines for software
development and program change controls

were improved. Disaster recovery tests for the Loan Accounting System were

conducted. A risk assessment of the Federal Financial System (FFS) access

privileges was conducted to reduce exposure and strengthen segregation- of-
duty controls; system development and program change control procedures and
a security plan were drafted. New procedures for conducting inventories of
existing systems and

applications were issued, system development controls were improved, and a
security plan was drafted. Funding to increase the security administration
staff and obtain

contractor support was provided. To address the remaining information
systems control issues, the OIG made the following recommendations, with
which we concur, in its audit report on the fiscal year 1999 financial
statements: (1) that SBA continue its efforts toward implementing an
agencywide information systems security program and (2) that SBA establish
responsibilities and milestones for developing and implementing policies and
procedures to:

15 The C& A handbook is an agencywide certification and accreditation effort
that focuses on a process for management review and approval to ensure that
adequate controls are provided for applications that process sensitive or
classified data.

assign responsibility for the security of each major application to a
management official knowledgeable in the nature of the program supported by
the application; provide annual security training for all SBA employees and
contractor

personnel on their information system security responsibilities; notify
security administrators of changes in the employment status of all

personnel, promptly eliminate unnecessary user accounts, and notify security
administrators in advance when personnel are being discharged under adverse
conditions; develop a consolidated listing of all user accounts and
privileges granted

for all SBA employees and contractor personnel; revise position descriptions
for personnel with security administration

responsibilities to include specific responsibilities, technical
requirements, and appropriate performance measures in their annual
performance plans; ensure the use of Office of the CIO approved System
Development Life

Cycle standards and techniques for all new systems, system enhancements, and
program changes; perform quality control for all test plans and results for
new systems,

system enhancements, and program changes to ensure that results are
documented, the system operates as intended, and test- support documentation
is retained; limit and monitor programmer access to operating systems,
system

utilities, application software, and production data; assess critical system
functions and access controls to identify

incompatible duties and enforce SBA's Rule of Two; complete the agency's
disaster recovery and business continuity plans

and perform annual testing of major portions of the plans; obtain approval
by senior management and program officials of security

plans and risk assessments. Implementation of these recommendations should
improve SBA's general controls over its information systems by assuring that
(1) data is safeguarded, (2) computer application programs are protected,
(3) unauthorized access to system software is prevented, and (4) continued
computer operations are ensured in case of unexpected interruptions.

Lack of Compliance SBA's financial management systems in fiscal year 1999
did not

With FFMIA Further substantially comply with (1) federal financial
management systems

requirements, (2) federal accounting standards, or (3) the U. S. government
Indicates

SGL at the transaction level as required by FFMIA. One of the purposes of
Accountability

FFMIA is to ensure that agency financial management systems can Challenges

routinely provide reliable, useful, and timely financial information. As
noted previously, causes of FFMIA noncompliance at SBA were attributed to
its material weakness in information systems controls (federal financial
management systems requirement) and its material weakness in the financial
reporting process (federal accounting standards and the SGL requirements).

Federal Financial In conducting the fiscal year 1999 audit, the IPA found
that for federal

Management Systems management systems requirements, SBA did not provide
security over

financial information in accordance with OMB Circular A- 130, Management of
Federal Information Resources, appendix 3, “Security of Federal
Automated Information Resources.” As previously discussed, general
computer control weaknesses in SBA's financial management systems were
reported in a variety of areas.

Federal Accounting The IPA also concluded that SBA's financial management
systems did not

Standards substantially comply with federal accounting standards. According
to OMB

Bulletin 98- 08, appendix D, “The Federal Financial Management
Improvement Act of 1996, OMB Implementation Guidance for CFOs and
IGs,” an indicator of substantial compliance with federal accounting
standards is that the audit disclosed no material weaknesses in internal
controls that affect the agency's ability to prepare auditable financial
statements and disclosures. As previously discussed, SBA had a material
weakness in its financial reporting process since it did not ensure that
financial statements would be free of material misstatements. Consequently,
the IPA concluded that SBA was not in substantial compliance with this
element.

U. S. Government Standard Finally, the IPA discovered that SBA's financial
systems did not capture

General Ledger at the information using the same description and posting
rules as those

Transaction Level contained in the SGL. FFMIA requires agencies to comply
with the SGL at

the transaction level. 16 As previously mentioned, SBA does not have an
integrated general ledger system but instead uses three separate accounting
systems to record transactions. SBA's chart of accounts was not consistent
across funds as a result of progress made toward the implementation of SGL-
based accounting. A number of SBA's funds use the SGL, and the remainder
will do so as systems are revised.

SBA's Plan for Resolving FFMIA requires that in addition to auditors
reporting on FFMIA

FFMIA Noncompliance compliance in their financial statement audits, the head
of each agency

must determine whether the agency's financial management systems comply with
FFMIA based on a review of the audit results and any other applicable
information. If the agency agrees with the auditor's findings of
noncompliance, a remediation plan must be developed in consultation with
OMB. The IG is required to report on agency progress in achieving
compliance.

According to OMB guidance, remediation plans should contain corrective
actions and target dates and the resources necessary to implement those
actions and achieve substantial compliance with FFMIA within 3 years of the
date noncompliance is determined. If, with the concurrence of the Director
of OMB, the agency head determines that substantial compliance cannot be
reached within 3 years, the remediation plan must specify the most feasible
date by which the agency will achieve compliance and designate an official
responsible for effecting the necessary corrective actions. SBA agreed with
the auditor's findings of noncompliance for FFMIA and developed a
remediation plan that OMB has approved.

SBA's overall strategy to resolve all FFMIA noncompliance hinges on its
Systems Modernization Initiative (SMI). This initiative is a three- phase,
long- range, comprehensive, overall systems modernization program that will
replace and modernize SBA's current financial systems. SMI was originally
estimated to cost approximately $40 million, to begin in fiscal year 1998,
and to take 5 years to complete. Phase I focuses on the systems

16 An agency's core financial system general ledger management function
should be in full compliance with the SGL chart of accounts descriptions and
posting rules. This means that transactions from feeder systems are
summarized and fed into the core financial system's general ledger following
SGL requirements through an interface (automated or manual). The detail
supporting the interface transactions can be traced back to the source
transactions in the feeder systems, and the feeder systems process
transactions that are consistent with SGL account descriptions and posting.

for lender monitoring and oversight, Phase II focuses on financial
management and accounting systems and paperless disaster loan processing,
and Phase III on information technology infrastructure improvements and
additional application support systems. While SBA's efforts during fiscal
years 1998 and 1999 have been focused on Phase I, preliminary planning for
Phase II started in late fiscal year 1998.

Although SBA has begun to undertake another project to redesign and
implement a new automated consolidation system for their financial reporting
process, Phase II will be the primary project that addresses FFMIA
noncompliance. This phase of the project involves modernizing SBA's
financial management and administrative activities, including information
technology; procurement and grants management; human resources; and
financial functions, especially accounting, budget reporting, and financial
operations.

The main purpose of Phase II is to migrate to a new Core Accounting System
(CAS) that will serve as the central repository for all of SBA's general
ledger activity and consolidated reporting. SBA officials stated that this
system will be effective for fiscal year 2002. One of the primary goals of
SBA's SMI is to replace its existing outdated systems. As previously
mentioned, SBA's systems are not effectively integrated and thus provide
limited information sharing. SBA hopes to begin to rectify this problem by
implementing a new CAS. SBA envisions that this new CAS will be one of the
basic building blocks for a fully integrated financial management system.

However, according to our recently completed evaluation of SBA's management
of information technology (IT), 17 many of SBA's policies and procedures for
managing information technology are currently in the early stages of
development or not yet developed. To improve SBA's IT management, we made
several recommendations in this report, with which SBA concurred. Therefore,
because SBA's strategy to resolve FFMIA noncompliance depends on the
successful completion of the SMI, until the recommendations are implemented
it is too early to tell whether SBA's system modernization effort will
resolve its noncompliance. We recognize that it will take time, investment,
and sustained emphasis on correcting deficiencies to improve SBA's financial
management systems to the level

17 Information Technology Management: SBA Needs to Establish Policies and
Procedures for Key IT Processes( GAO/ AIMD- 00- 170, May 2000).

required by FFMIA and necessary for effectively managing government funds.

Conclusion SBA's achievement of a clean audit opinion is an important
milestone along the road to financial accountability. However, until SBA
improves financial

reporting and information system controls, it will not be in a position to
provide reliable, timely information on a day- to- day basis, an ultimate
goal of financial management initiatives in the federal government.
Implementation of a fully integrated financial management system is key to
these improvements. However, SBA needs to take several steps to be in a
position to effectively undertake such an effort.

Agency Comments We obtained oral comments on a draft of this report from SBA
officials and incorporated the comments where appropriate. We also received
written

comments from SBA's Chief Financial Officer which are reprinted in appendix
II. SBA generally agreed with the findings in our report, and the comments
provided further details on the progress that SBA has made in improving its
financial management. For example, SBA indicates that it has now reassigned
two personnel to the financial reporting team and staff, and management
responsible for the financial reporting process have completed training in
specific technical aspects of report preparation. In addition, SBA has
engaged a contractor to document its accounting and reporting processes.
However, these, as well as the other efforts discussed by SBA in its
comments, generally occurred after the end of our fieldwork or are currently
in process, and thus we have not evaluated these actions.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
date of this letter. At that time we will send copies to Senator John Kerry,
Ranking Minority Member of your Committee and the Honorable Aida Alvarez,
Administrator, Small Business Administration. Copies will also be made
available to others upon request.

Please contact me at (202) 512- 9508 if you or your staff have any questions
concerning this report. Key contributors to this assignment were Shirley
Abel, Julia Duquette, Doris Yanger, Carol Browder, and Maria Zacharias.

Sincerely yours, Linda M. Calbom Director, Resources, Community, and
Economic Development

Accounting and Financial Management Issues

Appendi xes Analysis of SBA's Financial Statement

Appendi xI

Components This appendix provides an analysis of each component of the
financial statements with a general discussion of its purpose, followed by a
reproduction of the component taken from SBA's fiscal year 1999
Accountability Reportand an explanation of the information that can be
obtained about SBA's operations from it.

Components of a The first component of an agency's financial statements is
the balance

Federal Agency's sheet. The balance sheet summarizes the assets and
liabilities of a federal

agency as of a specific point in time, usually the end of the fiscal year.
Financial Statements

Assets and liabilities shown on the balance sheet are classified as either
intragovernmental (transactions among federal entities) or governmental
(transactions of the federal government with nonfederal entities). Also, the
balance sheet separates those liabilities for which funds have been
appropriated (liabilities covered by budgetary resources) from those that
have not yet been funded (liabilities not covered by budgetary resources).
Figure 1 shows SBA's balance sheet as of the end of fiscal year 1999.

Figure 1: Balance Sheet

A

The components of this

B

amount appear in Note 7

C D This same amount

E

appears in Note 7 This same amount appears on the Statement of Changes in
Net Position

SBA provides guaranteed loans to small businesses unable to secure financing
in the commercial market without SBA's guarantee and direct loans to victims
of federally declared disasters. Thus, the assets and liabilities on SBA's
Balance Sheet are mostly the result of its credit program activities.

Instead of maintaining cash in a commercial bank account, SBA, like most
federal agencies, uses the Department of Treasury to process its cash
receipts and disbursements. SBA's fund balances with Treasury (see item A in
figure 1), which totaled $8. 2 billion at the end of fiscal year 1999, are
obtained through appropriations as well as borrowings from Treasury and
receipts from SBA's program and administrative activities. Fund balances
with Treasury are used to make disbursements of direct loans, to purchase
defaulted loan guarantees, to pay SBA's expense of servicing and liquidating
loan receivables, and to administer credit and business assistance programs.

Loans and defaulted guaranteed loans are accounted for as credit program
receivables (see item B in figure 1) at the time SBA disburses the funds. As
of September 30, 1999, SBA had $7. 1 billion in credit program receivables.
This amount represents the ultimate amount of cash the government expects to
collect on SBA loans- primarily repayments of loan principal and interest
less an allowance for the estimated long- term cost to the government of the
outstanding loans. As discussed below, more detailed information about SBA's
credit program receivables can be found in note 7 (see figure 7) to SBA's
financial statements.

SBA is required to estimate the net cost of extending or guaranteeing
credit, called subsidy cost. The subsidy cost is measured as the present
value 1 of estimated net cash flows, excluding administrative costs. In
estimating cash flows, SBA and other credit agencies are required to predict
borrower behavior- how many borrowers will pay early, pay late, or default
on their loans and at what point in time. The subsidy costs are financed
with appropriated funds. The portion of SBA's disaster and other direct
loans that SBA predicts will ultimately be collected is financed by
borrowings from Treasury. For example, a hypothetical disaster loan of $100
may have a subsidy cost of $20 (the amount SBA expects to lose),

1 Present value is the worth of the future stream of returns or costs in
terms of money paid immediately. In calculating present value, prevailing
interest rates provide the basis for converting future amounts into their
“money now” equivalents.

which is financed with appropriated funds, and the remaining $80 is financed
by Treasury borrowings (the amount SBA expects to be repaid). These Treasury
borrowings are labeled as debt on the balance sheet (see item D in figure
1). At approximately $10 billion, this debt owed to Treasury at the end of
fiscal year 1999 is the largest liability on SBA's balance sheet.

Accounts payable (see item C in figure 1) is primarily interest owed on
Treasury debt which is payable in the upcoming year.

Liabilities for loan guarantees (see item E in figure 1) represents the
amount estimated to be payable in the future to the holders of defaulted SBA
guaranteed loans. This primarily includes payments SBA estimates it will
make on defaulted guaranteed loans less estimated fees paid to SBA for
providing the guarantee. As with the credit program receivables, more
detailed information about SBA's loan guarantees can be found in note 7 (see
figure 7) to SBA's financial statements.

The Statement of Net Cost (see figure 2) shows, by major program, how much
it cost SBA to provide its services for the fiscal year. Net cost is
calculated by subtracting any earned revenues, such as guarantee or user
fees, from gross cost, including program cost as well as administrative
costs such as payroll, health, and retirement benefits. The “bottom
line”( net cost of operations) discloses to the reader, at a summary
level, what it cost taxpayers to operate the agency's programs for the
fiscal year.

Figure 2: Consolidated Statement of Net Cost

F

This same amount appears on the Statement of Financing

The net costs shown on SBA's statement include the gross cost of each of the
identified programs, including any subsidy costs and administrative costs,
less any earned revenues. SBA's net cost of operations for fiscal year 1999
was $515 million. The largest portions of SBA's net costs are related to
disaster and business loans. SBA's net cost in fiscal year 1999 for the

Development Company Program (see item F in figure 2) reflects a negative
cost due to an update in program cost for previously disbursed and committed
loans. SBA is required to periodically update or “reestimate”
loan program costs for differences between (1) estimated loan performance
and related cost and (2) the actual program cost recorded in the accounting
records, as well as expected changes in future economic performance. When
the loan program cost for the Development Company Program were updated,
SBA's revised estimate showed the programs costing less than previously
anticipated. 2 The other costs associated with this program were not enough
to offset this downward reestimate.

2 This is generally referred to as a downward reestimate.

Additional information about the subsidy costs of SBA's business and
disaster programs can be found in note 7 of the financial statements (see
figure 7). In addition, note 12 shows SBA's net cost of operations by budget
functional classification 3 and also shows the breakout of gross cost and
earned revenue for these budget classifications (see figure 8).

The Statement of Changes in Net Position (see figure 3) shows how the
agency's net cost of operations was funded. It also shows the agency's net
position at the beginning of the fiscal year, the major inflows and outflows
of funds that caused the net position to change during the year, and the
ending net position. The ending net position, the last line of the
statement, discloses to the reader, at a summary level, the current amount
of funding available 4 to that agency at the end of the audited year for
future operations. This amount is the same as the “Total Net
Position” on the Balance Sheet.

3 The budget functional classification presents costs in terms of the
national needs being addressed, in much the same way as the President's
Budget, i. e., commerce and housing credit, or community and regional
development.

4 Funds available may include unobligated funds as well as unliquidated
obligations (i. e., undelivered orders).

Figure 3: Consolidated Statement of Changes in Net Position

This same amount appears on the

G

Statement of Financing H

This same amount appears on the Balance Sheet

As can be seen from SBA's Statement of Changes in Net Position, SBA receives
the majority of the funding needed to support its programs through
appropriations. The $637 million transfers- out (see item G in figure 3) is
the return of money to Treasury as a result of a downward reestimate of the
cost of SBA's loan programs during fiscal year 1999. When the loan program
costs were updated, SBA's revised estimate showed the programs costing less
than previously anticipated. Therefore, the excess was returned to Treasury.
In addition, SBA's Statement of Changes in Net Position shows that SBA's net
position increased during fiscal year 1999 due to an increase in SBA's
unexpended appropriations (see item H in figure 3).

The Statement of Budgetary Resources (SBR) (see figure 4) is a relatively
new addition to the federal financial statements, having been required
starting with fiscal year 1998. It provides a link between actual amounts
reported in the President's Budget for SBA and the audited financial
statements, thus exposing the budgetary actuals to the rigors of a financial
audit. SBA's SBR is presented on a consolidated basis, unlike the

statements that appear in the President's Budget which are presented by
account. Figure 4 shows SBA's SBR for fiscal year 1999. 5

The SBR provides detailed information on the status of budgetary resources
at the fiscal year- end and obligations and outlays during the year.
Preparation of the SBR requires agencies to reconcile obligations recorded
in budgetary records with their cash outlays.

Because the President's Budget and the SBR are prepared using separate
reporting systems and the President's Budget is required to be submitted
several months before the SBR, differences in the amounts reported often
occur. These differences may be because of timing or other justifiable
reasons. For example, adjustments made to amounts reflected on the SBR may
be based on information available only after the President's Budget has been
submitted.

In the Statement of Budgetary Resources, the caption Status of Budgetary
Resources, Category A, Direct refers to funds that are apportioned for each
calendar quarter in the fiscal year and Category B, Direct refers to funds
that are apportioned on a basis other than calendar quarters. In general,
Category A includes funds related to Salaries and Expenses and the Office of
the Inspector General, and Category B includes funds related to SBA programs
such as the Business Loan and Investment Fund and the Disaster Loan Fund.

5 In addition to this SBR, SBA's financial statements also include a
consolidating SBR that provides a breakout of amounts by fund (e. g., the
Business Loan and Investment Fund and the Disaster Loan Fund).

Figure 4: Combined Statement of Budgetary Resources

Each amount appears on the Statement of Financing

The sum of these three numbers, $4,221,655, appears on the Statement of
Financing

(The Combined Statement of Budgetary Resources continues on the next page)

Figure 4 (continued)

For fiscal year 1999, certain amounts reported in SBA's SBR differed from
actual amounts for SBA reported in the President's Budget. However, because
the identified differences are justifiable, as explained below, the audit
provides some level of assurance over the actual amounts presented in the
President's Budget. Additionally, because of the timing of the preparation
and audit of credit program cost reestimates, SBA's fiscal year 1999
reestimates were included in the financial statements but not in the actual
amounts in the President's Budget. Thus, the financial statements include
additional information on the cost of credit programs that can be used by
decision makers to supplement credit cost information included in the
budget.

Differences in SBA's actual amounts recorded in the President's Budget and
the same items reflected in the SBR can be attributed to audit adjustments
and inconsistencies in account classifications between the financial and

budget offices. For example, actual figures related to budget authority,
obligations, and outlays for the preceding fiscal year are submitted to OMB
from November to January for inclusion in the President's Budget for the
upcoming fiscal year. At the time that these figures are submitted, many
end- of- year audit adjustments that will be reflected in the SBR when the
financial statements are issued several months later are not available. In
other cases, differences between amounts reported in SBA's SBR and the
President's Budget exist because the instructions for preparing the SBR
require that balances for expired accounts 6 are included, while the
President's Budget includes only actual year information. Other differences
are attributable to credit subsidy reestimates and end- of- year loan sales
figures that were not available until after the budget submission.
Notwithstanding these types of differences, preparation and audit of the SBR
provides for the first time a mechanism for determining the reasonableness
of agency actual amounts presented in the President's Budget.

The primary purpose of the Statement of Financing (see figure 5) is to
explain the difference between obligations of budget authority, as reported
in the President's Budget and the SBR, and the net cost of operations as
shown in the Statement of Net Cost. It clarifies the relationship between
budgetary accounting, where obligations are recorded when goods and services
are ordered, and financial accounting, where expenses are recorded when
goods and services are received. Various amounts in the Statement of
Financing can be linked to amounts reported in other components of the
financial statements. Since a number of the significant amounts contained in
the Statement of Financing can be obtained from other statements, one of the
real benefits of the statement is that it demonstrates that the budgetary
and financial accounting information in an agency's financial management
systems are commensurate with each other.

6 Expired accounts are an appropriation or fund account in which the balance
is no longer available for incurring new obligations because the time
available for incurring such obligations has expired.

Figure 5: Combined Statement of Financing

The components of this amount appear on the Statement of Budgetary Resources

Each Each of of these these

amounts appears amounts on the appears Statement

on

of Budgetary Resources

the Statement of

This same amount appears on the Statement of Changes in Net Position

(The Combined Statement of Financing continues on the next page.)

Figure 5 (continued)

This same amount appears on the Statement of Net Cost

The fact that SBA was able to prepare the Statement of Financing and
received an unqualified opinion gives the reader comfort that SBA was able
to reconcile its budgetary and financial accounting information. The reader
can also link amounts reported in the Statement of Financing back to other
components. For example, the $4.2 billion in budgetary resources obligated
for orders and services to be received or benefits to be provided to others
is the sum of the first three amounts in the SBR “Status of Budgetary
Resources” section. The last number on the Statement of Financing is
the net cost of operations which is the same as the net cost of operations
on the Statement of Net Costs.

Footnotes are used at the end of financial statements to offer a fuller
understanding of the information presented. Footnotes may be used to
identify accounting methods used for major expenses and other transactions
or to provide supplementary information and details about significant assets
and liabilities.

For example, note 1, Significant Accounting Policies (see figure 6),
describes SBA's accounting methods and also discloses that SBA initiated a
pilot program in fiscal year 1999 to sell rather than service loans from its
portfolio. SBA also indicates that its fiscal year 2001 budget request for
subsidy allowance did not reflect any cash flow or gains or losses from the
pilot sale.

Figure 6: Footnotes to Principal Financial Statements, Note 1

*** ***

Further details on the loan sale, as well as an abundance of other
information, are disclosed in note 7, Loans and Loan Guarantees, Non-
Federal Borrowers, which is presented in figure 7 under part K.

Figure 7: Footnotes to Principal Financial Statements, Note 7

(Note 7 continues on the next page.)

Figure 7 (continued)

This same amount appears on the Balance Sheet

(Note 7 continues on the next page.)

Figure 7 (continued)

Figure 8: Footnotes to Principal Financial Statements, Note 12

Figure 9: Summary of Part B Through Part E in SBA's Note 7 (In thousands of
dollars)

Loans Interest

Foreclosed Gross total

Subsidy Net direct Direct loans receivable receivable property assets
qllowance loan assets

Pre- 1992 direct loans 1,448,947 19,558 10,902 1, 479,407 (142,864)
1,336,543 Post- 1991 direct loans 5, 777,062 41,165 1, 283 5,819,510
(960,517) 4,858,993 Acquired pre- 1992 direct loans 719,303 44,400 11,181
774,884 (355,616) 419,268 Acquired post- 1991 direct loans 592,350 20,774
19,159 632,283 (160,636) 471,647

Total 8,537,662 125,897 42,525 8, 706, 084 (1,619, 633) 7,086,451 This same
amount appears on the Balance Sheet

Part A of note 7 (see figure 7) lists the loan and loan guarantee programs
operated by SBA and explains the basic method of accounting for them. Parts
B through E display the assets related to direct loans and defaulted
guaranteed loans. 7 Although only the net amount of credit reform
receivables was reported in SBA's balance sheet, a reader can calculate the
gross amount of loans receivable and the allowance by adding the numbers in
Parts B through E, as shown in figure 9. The gross amount of loans
receivable is useful to know because it shows the total amount of loans
outstanding, and the allowance shows the long- term cost to the

7 When a borrower defaults on a guaranteed loan, SBA purchases the loan from
the lending institution. At this point the loan is recorded on SBA's
financial statement as part of credit program receivables.

government of those outstanding loans. The gross amount of loans receivable
as of September 30, 1999, was approximately $8.7 billion and the subsidy
allowance was about $1.6 billion. By subtracting the subsidy allowance from
the gross amount of loans receivable of $8. 7 billion, we calculate the net
amount of loan assets of approximately $7. 1 billion, which agrees with the
amount reported on the balance sheet.

Parts F and G (see figure 7) of the footnote provide data on SBA's
guaranteed loans outstanding and liability for loan guarantees. Part F shows
that the total amount or face value of guaranteed loans outstanding as of
September 30, 1999, was approximately $39.6 billion. Of that amount almost
$32 billion or approximately 80 percent is guaranteed by SBA, i. e.,
represents a risk to the government. Part G shows that the liability for
loan guarantees is $1.4 billion, which is the amount reported on SBA's
balance sheet. It is based on estimated defaults on guaranteed loans and
therefore represents the estimated cost to the government of the guaranteed
loans.

The subsidy expenses reported by SBA in parts H and I (see figure 7)
represent the estimated losses for the direct and guaranteed loans disbursed
during the current reporting year. 8 The Federal Credit Reform Act of 1990
requires that these estimates be based on the present value of projected net
cash flows over the life of the direct and guaranteed loans, taking into
account interest subsidies, projected defaults, fee receipts, and all other
factors that may affect the cash flows. The subsidy expenses are subjected
to reestimates on an annual basis.

For direct loans disbursed in fiscal year 1999, SBA incurred a subsidy
expense of $152 million, as shown in part H. Of that amount, $96 million was
due to interest subsidy costs and $64 million was due to the costs of
projected defaults. For guaranteed loans disbursed in fiscal year 1999, SBA
incurred a subsidy expense of $127 million, as shown in part I. The expense
equals the costs of the estimated defaults of $456 million, minus projected
fee receipts and other offsets of $329 million.

In fiscal year 1999, SBA made downward reestimates for the subsidy allowance
for direct loans and the liability for loan guarantees, as shown in figure
10. For direct loans, the downward reestimate was $153 million. For

8 This differs from the subsidy estimate made for budgetary purposes, which
includes the estimated cost for loans and guarantees for a particular fiscal
year, regardless of the year in which they are disbursed.

loan guarantees, the downward reestimate was $207 million. In total, the
downward reestimates, which relate to loans disbursed and committed in prior
years, more than offset the expenses recognized for the loans disbursed and
committed in the current year. As a result, SBA reported a negative expense
of $80 million for its direct loans and loan guarantees for fiscal year
1999. In the Statement of Net Costs these amounts offset other loan program
costs, such as administrative expenses.

Figure 10: Subsidy Expense and Reestimates (In thousands of dollars)

Expense for loans disbursed in 1999 Reestimates Total

Direct loans 152,244 (152,691) (447) Loan guarantees 127,242 (206,910)
(79,668)

Total 279,486 (359,601) (80,115)

Part J (see figure 7) of the footnote provides data on administrative
expenses 9 for direct loans and loan guarantees. The total administrative
expense was $263 million. Of that amount, $166 million was for direct loans
and $97 million was for loan guarantees.

Finally, SBA provides information on its loan sale in part K (see figure 7).
SBA held its first loan sale in fiscal year 1999, and the majority of the
loans sold were from the 7( a) program. SBA expects to sell the majority of
its loan portfolio within the next 3 or 4 years. Additional sales have been
planned for fiscal year 2000, and these sales will include disaster loans.
About $1.5 billion of loans is expected to be sold in each of the future
sales.

As stated previously, note 1 (see figure 6) informed the reader that SBA's
fiscal year 2001 budget request for subsidy allowance did not include the
results of the loan sale. In note 7 (see part K in figure 7), it is noted
that the effect of the small sale in fiscal year 1999 and the planned sales
in fiscal

9 Costs for administering credit activities, such as salaries, legal fees,
and office costs, that are incurred for credit policy evaluation, loan and
loan guarantee origination, closing, servicing, monitoring, maintaining
accounting and computer systems, and other credit administrative purposes
are administrative costs. Administrative costs are not included in
calculating subsidy costs.

year 2000 will be factored into the subsidy expense and allowance
calculations included in the fiscal year 2000 financial statements. 10

These are just a few examples of the types of detailed information included
in the footnotes to the financial statements that provide insight into the
agency's activities.

10 According to agency officials, SBA's asset sale schedule has changed and
only one sale will be held during fiscal year 2000. Due to the lateness of
this sale in the fiscal year, and the financial transactions related to it,
SBA officials have indicated that fiscal year 2000 financial statements will
only include the results of the pilot sale held in fiscal year 1999.

Comments From the Small Business

Appendi xII Administration

Now on p. 16. See comment 1.

Now on p. 16. See comment 1.

Now on p. 16. See comment 1.

The following is GAO's comment on the Small Business Administration's letter
dated August 4, 2000.

GAO Comment 1. See “Agency Comments” section.

(913884) Lett er

Ordering Information The first copy of each GAO report is free. Additional
copies of reports are $2 each. A check or money order should be made out to

the Superintendent of Documents. VISA and MasterCard credit cards are
accepted, also.

Orders for 100 or more copies to be mailed to a single address are
discounted 25 percent.

Orders by mail: U. S. General Accounting Office P. O. Box 37050 Washington,
DC 20013

Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW)
U. S. General Accounting Office Washington, DC

Orders by phone: (202) 512- 6000 fax: (202) 512- 6061 TDD (202) 512- 2537

Each day, GAO issues a list of newly available reports and testimony. To
receive facsimile copies of the daily list or any list from the past 30
days, please call (202) 512- 6000 using a touchtone phone. A recorded menu
will provide information on how to obtain these lists.

Orders by Internet: For information on how to access GAO reports on the
Internet, send an e- mail message with “info” in the body to:
info@ www. gao. gov or visit GAO's World Wide Web home page at: http:// www.
gao. gov

To Report Fraud,

Contact one:

Waste, or Abuse in

Web site: http:// www. gao. gov/ fraudnet/ fraudnet. htm

Federal Programs

e- mail: fraudnet@ gao. gov 1- 800- 424- 5454 (automated answering system)

GAO United States General Accounting Office

Page 1 GAO/ AIMD- 00- 263 Financial Management at SBA United States General
Accounting Office

Washington, D. C. 20548 Page 1 GAO/ AIMD- 00- 263 Financial Management at
SBA

B- 284835 Page 2 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 3 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 4 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 5 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 6 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 7 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 8 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 9 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 10 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 11 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 12 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 13 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 14 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 15 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 16 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 17 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 18 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 19 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 20 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 21 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 22 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 23 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 24 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 25 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 26 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 27 GAO/ AIMD- 00- 263 Financial Management at SBA

B- 284835 Page 28 GAO/ AIMD- 00- 263 Financial Management at SBA

Page 29 GAO/ AIMD- 00- 263 Financial Management at SBA

Page 30 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I

Appendix I Analysis of SBA's Financial Statement Components

Page 31 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 32 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 33 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 34 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 35 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 36 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 37 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 38 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 39 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 40 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 41 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 42 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 43 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 44 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 45 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 46 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 47 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 48 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 49 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix I Analysis of SBA's Financial Statement Components

Page 50 GAO/ AIMD- 00- 263 Financial Management at SBA

Page 51 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix II

Appendix II Comments From the Small Business Administration

Page 52 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix II Comments From the Small Business Administration

Page 53 GAO/ AIMD- 00- 263 Financial Management at SBA

Appendix II Comments From the Small Business Administration

Page 54 GAO/ AIMD- 00- 263 Financial Management at SBA

United States General Accounting Office Washington, D. C. 20548- 0001

Official Business Penalty for Private Use $300

Address Correction Requested Bulk Rate

Postage & Fees Paid GAO Permit No. GI00
*** End of document. ***