Small Business Administration: Enhancements Needed for Loan Monitoring
System Benchmark Study (Letter Report, 05/14/99, GAO/AIMD-99-165).
Pursuant to a congressional request, GAO reviewed a benchmark study
conducted by a contractor comparing the Small Business Administration's
(SBA) loan monitoring business processes to those of selected public and
private sector organizations.
GAO noted that: (1) the benchmark study was an important first step in
SBA's efforts to develop a loan monitoring system; (2) it identified
wide gaps between SBA's practices and its benchmark partners; (3)
however, the study would be more useful if it included a better
definition of processes associated with best practices, addressed
monitoring processes for important activities delegated to lenders,
collected measurement data on SBA's and the benchmark partners'
processes, identified goals for reengineering, and identified potential
outsourcing and candidate systems for purchase; and (4) SBA agreed with
this analysis and stated that it plans to act on each of these items.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-99-165
TITLE: Small Business Administration: Enhancements Needed for
Loan Monitoring System Benchmark Study
DATE: 05/14/99
SUBJECT: Loan accounting systems
Comparative analysis
Small business loans
Private sector practices
Reengineering (management)
Performance measures
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AI99165.book GAO United States General Accounting Office
Report to Congressional Requesters
May 1999 SMALL BUSINESS ADMINISTRATION
Enhancements Needed for Loan Monitoring System Benchmark Study
GAO/AIMD-99-165
GAO/AIMD-99-165
United States General Accounting Office Washington, D. C. 20548
Lett er
Page 1 GAO/AIMD-99-165 SBA Benchmark Study
GAO
Accounting Information and Management Division
B-280910 Letter May 14, 1999 The Honorable James M. Talent
Chairman Committee on Small Business House of Representatives
The Honorable Roscoe G. Bartlett Chairman Subcommittee on
Government
Programs and Oversight Committee on Small Business House of
Representatives
The Small Business Reauthorization Act of 1997 required the Small
Business Administration (SBA) to complete eight planning actions
to serve as a basis for funding the development and implementation
of a proposed loan monitoring system. At your request, we
evaluated the report produced for SBA's first planning action a
benchmark study by a contractor that compared SBA's loan
monitoring business processes to those of selected
public and private sector organizations. On April 6, 1999, we
briefed your offices on the results of our work. The briefing
slides are included in appendix I.
This report provides a high- level summary of the information
presented in the briefing, including the background, methodology
and findings of the benchmark study, and our observations on the
benchmark report. This report also presents the suggestions we
made to enhance the usefulness of
the benchmark study as well as SBA's comments. Results in Brief
The benchmark study was an important first step in SBA's efforts
to develop a loan monitoring system. It identified wide gaps
between SBA's
practices and its benchmark partners. However, the study would be
more useful if it included a better definition of processes
associated with best practices, addressed monitoring processes for
important activities delegated to lenders, collected measurement
data on SBA's and the benchmark partners' processes, identified
goals for reengineering, and identified potential outsourcing and
candidate systems for purchase. SBA agreed with this analysis and
stated that it plans to act on each of these items.
B-280910 Page 2 GAO/AIMD-99-165 SBA Benchmark Study
Background The purpose of SBA's proposed loan monitoring systems
is to use technology and new processes to manage portfolios of
small business
loans, identify and effectively mitigate risks incurred through
loans guaranteed by SBA, implement oversight of internal and
external operations, and calculate subsidy rates. The Small
Business Reauthorization Act of 1997 required SBA to complete
eight planning actions to serve as a basis for funding the
development and implementation of the loan monitoring system. One
of these requirements was that SBA benchmark loan monitoring
business processes and systems against comparable industry
processes and, if appropriate, simplify and/ or
redefine its work processes based on these benchmarks.
Benchmarking is the comparison of core process performance with
other components of the agency (internal benchmarking) and/ or
with leading organizations (external benchmarking). Through this
comparison, best practices are identified for adaptation into the
agency's operations. Best practices include the processes,
practices, and systems that perform
exceptionally well in specific areas of public and private
organizations. Benchmarking provides a means of establishing a
compelling business case for change. It should identify more
efficient and effective processes for achieving intended results
and suggest goals for program output, product and service quality,
and process improvement.
Methodology and Findings of the Benchmark Study
SBA's contractor used a seven- step benchmarking process to
evaluate SBA business gaps with similar organizations for five
loan management functions. The functions benchmarked included risk
management, lender
oversight, guaranty procedures, subsidy rate calculation, and
asset sales. These functions were benchmarked against the
practices at 11 federal and private sector organizations. The
benchmark report, issued in December 1998, showed a significant
gap between SBA's and benchmark partners' practices for each of
the management functions. The report also suggested that senior
management needs to buy into the reengineering process,
communications plans need to be developed, system requirements
should be preliminary defined, and training plans should be
examined.
B-280910 Page 3 GAO/AIMD-99-165 SBA Benchmark Study
Observations on the Benchmark Report
In general, the benchmarking methods used were consistent with
accepted practices and the benchmarking methodology was followed
at a high level. The benchmark report identified standard industry
or good' practices. It also pointed out wide gaps between SBA's
practices and those of and its benchmark partners. The benchmark
study was an important first step in SBA's efforts to develop a
loan monitoring system. However, there were areas where
enhancements would make the benchmark study report more useful as
SBA decides which processes it will reengineer and proceeds with
the reengineering. The report would be more useful if it included
the criteria used to determine and validate best- in- class
processes, 1 the monitoring processes, practices, and systems for
activities delegated
to lenders for preventing delinquencies, mitigating losses on
delinquencies, and liquidating defaulted loans, candidates for
the outsourcing of functions and the extent of outsourcing by
benchmark partners, and
quantative measurements of SBA's and benchmark partners'
processes, measurable improvement goals, and guidelines and
parameters for the reengineering of processes.
Suggested Actions and Agency Comments
We suggested that SBA define processes associated with best
practices and relate these to SBA's
current processes, address activities delegated to lenders and
develop monitoring processes concerning lenders to prevent
delinquencies, mitigate losses on delinquencies, and liquidate
defaulted loans,
collect measurement data to allow comparisons between SBA's
current processes and the processes of benchmark partners, set
stretch goals for reengineering, and identify from benchmark
partners potential outsourcing and candidate systems for purchase.
1 According to SBA, the contractor used criteria to select
benchmark partners and determine best practices but did not
present this information in the benchmark report. SBA plans to
have the report modified to specify these criteria.
B-280910 Page 4 GAO/AIMD-99-165 SBA Benchmark Study
SBA agreed with our analysis of the benchmark study and stated
that it plans to implement these suggested actions. Appendix II
contains the agency comments.
Objective, Scope, and Methodology
Our objective was to determine if SBA had completed the
benchmarking activities required by the Small Business
Reauthorization Act of 1997 in accordance with generally accepted
practices. We analyzed SBA's benchmark report to determine if it
was completed in accordance with the principles specified by the
Council for Continuous Improvement 2 and our business process
reengineering (BPR) guidance. We performed our work between
January 1999 and March 1999 in accordance with generally
accepted government auditing standards. We are sending copies of
this report to The Honorable Nydia M. Velazquez, Ranking Minority
Member of the Committee on Small Business; The Honorable Aida
Alvarez, Administrator, Small Business Administration;
The Honorable Jacob J. Lew, Director, Office of Management and
Budget; and other interested parties. Copies will also be made
available to others upon request. If you have any questions on
matters discussed in this report, please contact me at (202) 512-
6253 or James Hamilton, Assistant Director, at (202) 512- 6271.
Major contributors to this report are listed in appendix III.
Joel C. Willemssen Director, Civil Agencies Information Systems
2 The Council is a nonprofit consortium of companies whose purpose
is to develop a comprehensive system for implementing continuous
product and process improvement using state- of- the- industry
methods and tools.
Page 5 GAO/AIMD-99-165 SBA Benchmark Study
Page 6 GAO/AIMD-99-165 SBA Benchmark Study
Contents Letter 1 Appendix I Briefing on the Benchmark Study for
SBA's Loan Monitoring System
8 Appendix II Comments From the Small Business Administration
38 Appendix III Major Contributors to This Report
48
Abbreviations
BPR business process reengineering SBA Small Business
Administration
Page 7 GAO/AIMD-99-165 SBA Benchmark Study
Page 8 GAO/AIMD-99-165 SBA Benchmark Study
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System Appendi x I
Accounting and Information Management Division
Small Business Administration's Loan Monitoring System
Briefing on the Benchmark Study
April 6, 1999
Presented to the House Committee on Small Business and its
Subcommittee on Government Programs and Oversight.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 9 GAO/AIMD-99-165 SBA Benchmark Study
2
Briefing Purpose & Outline
Briefing purpose is to present results of our review of a
benchmark report on the development of Small Business
Administration's (SBA) loan monitoring system (LMS).
Briefing outline: Objective & Scope Background Benchmarking
methodology and findings Suggestions SBA comments
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 10 GAO/AIMD-99-165 SBA Benchmark Study
3
Objective & Scope
Our objective is to determine if SBA is completing planning
actions required by the Small Business Reauthorization Act of 1997
in accordance with required and generally accepted system
development practices.
This part of the review pertains to our evaluation of SBA's
benchmark report.
We analyzed the benchmark report to determine if it was completed
in accordance with the principles specified by the Council for
Continuous Improvement and GAO's Business Process Reengineering
(BPR) guidance. We performed our work between January 1999 and
March 1999 in accordance with generally accepted government audit
standards.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 11 GAO/AIMD-99-165 SBA Benchmark Study
4
Background
Purpose of LMS Use of technology and new processes to
manage portfolios of small business loans identify and
effectively mitigate risks incurred through
loans guaranteed by SBA implement oversight of internal and
external operations calculate subsidy rates
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 12 GAO/AIMD-99-165 SBA Benchmark Study
5
Background
Planning actions for LMS The Small Business Reauthorization Act of
1997 required SBA to complete eight planning actions to serve as a
basis for funding the development and implementation of the loan
monitoring system Benchmark loan monitoring business processes
and systems
against comparable industry processes and, if appropriate,
simplify and/ or redefine work processes based on these benchmarks
Define system requirements using on- line, automated capabilities
to the extent feasible
Identify all data inputs and outputs necessary for timely report
generation
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 13 GAO/AIMD-99-165 SBA Benchmark Study
6
Background
Planning actions for LMS (continued) Determine data quality
standards and control systems for ensuring
information accuracy Identify an acquisition strategy and work
increments to completion Analyze the benefits and costs of
alternatives and use to
demonstrate the advantage of the final project Ensure that the
proposed information system is consistent with the
agency's information architecture Estimate the cost to system
completion
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 14 GAO/AIMD-99-165 SBA Benchmark Study
7
Background
Benchmarking definition Benchmarking is the comparison of core
process performance
with other components of the agency (internal benchmarking) or
with leading organizations (external benchmarking). Through this
comparison, best practices are identified for adaptation into the
agency's operations.
Best practices include the processes, practices, and systems that
perform exceptionally well in specific areas of public and private
organizations.
Benchmarking provides a means of establishing a compelling
business case for change. It should
identify more efficient and effective processes for achieving
intended results, and suggest goals for program output, product
and service
quality, and process improvement.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 15 GAO/AIMD-99-165 SBA Benchmark Study
8 Contractor's Benchmarking
Methodology SBA's contractor used a seven- step benchmarking
process to evaluate SBA business gaps with similar organizations.
2 Identify Key Performance
Variables to Measure 3 Identify
Companies to Benchmark 1 Determine whichfunctions
to benchmark
5 4
6 7 Compare benchmarks/
pinpoint causes Measure performance of
own company Specify
improvement goals and monitor results Measure
performance of benchmarked
company
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final Benchmark Report, Booz Allen & Hamilton, December 1998
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 16 GAO/AIMD-99-165 SBA Benchmark Study
9 Lender and SBA Activities for
Guaranteed Loans
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final Benchmark Report, Booz Allen & Hamilton, December 1998
Lender and SBA
loan activities that were to be addressed in the benchmark study
SERVICING PAYMENT
IN FULL LIQUIDATION
PROGRAM DEVELOPMENT & ADVOCACY
Lender Activities
Direct potentially eligible borrowers to programs
Guarantor Activities
Determine Credit Policy Design lending programs Advocate
programs to
lenders and recipients Monitor program results
Lender Activities
Evaluate eligibility Evaluate credit risk Underwrite loans
Disburse loans
Guarantor Activities
Monitor/ approve eligibility Capture credit risk
information and update portfolio risk management Capture
underwriting
and eligibility information Track disbursements
Lender Activities
Bill recipients Receive and process
payments Update loan status info. Send delinquency notices
Sell/ purchase loans
Guarantor Activities
Monitor subsidy rate( s) against repurchases Monitor portfolio
status
through loan updates Take corrective action
where needed
Lender Activities
Liquidate and collect on bad loans Clean- up liquidation for
resale Close loans paid in- full Perform work- out agree ments
and refinance loans
Guarantor Activities
Monitor liquidation Ensure fair treatment Re- evaluate credit
policy Monitor program results
ORIGINATING
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 17 GAO/AIMD-99-165 SBA Benchmark Study
10 Loan Management Functions
Benchmarked Risk management -- use captured information to
determine
optimal underwriting criteria and portfolio exposure Lender
oversight -- use captured information to ensure lenders
are acting in the best interest of the SBA Guaranty procedures --
approve loan guaranties and collect
origination and servicing data Subsidy rate calculation -- use
captured information to predict
accurately future cash flows Asset sales -- use captured
information to determine optimal
value for a portfolio of loans and guaranties
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final Benchmark Report, Booz Allen & Hamilton, December 1998
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 18 GAO/AIMD-99-165 SBA Benchmark Study
11 Organizations Selected as
Benchmarking Partners
ORGANIZATION LENDER OVERSIGHT
RISK MANAGEMENT
LENDING PROCEDURES
SUBSIDY RATE
ASSET SALES
Freddie Mac XX XX XX
Fannie Mae XX XX XX
NationsBankCorp XX XX
FirstUnionCorp. XX XX
CitibankCorp. XX XX
HiberniaCorp. XX XX
The Money Store XX
Federal Housing Authority
XX XX
VeteransAdministration XX XX XX
Comptrollerof Currency XX XX
Office of Management AndBudget
XX XX DenotesBestPractices Source: Benchmarking Capital Access/
Financial Assistance Program, Final BenchmarkReport, Booz Allen&
Hamilton, December1998
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 19 GAO/AIMD-99-165 SBA Benchmark Study
12 Gap Between SBA and Benchmark Partners'
Practices for Risk Management
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
DIMENSION Below Average
Average Above Average
COMMENTS Definition of Risk Management l s No definition has been
agreed
upon within the organization Understanding Different Risks l s
Risk are understood only by
responsible parties Strategies For Defined Risks l s No
Strategies exist to measure,
monitor or mitigate risks Point at which risk is Incurred l s
Risk is incurred when guaranties
are purchased from lenders
Organizational Placement of Risk Management Function l s Risk
Management group has
been loosely defined Risk Management Coordinator l s A
coordinator has been assigned
but risks have not been defined Power to Induce Change l s
Management has authorized
power but it has not been tested
How Much Information is Collected & When? l s Information is
gathered at time of
guaranty purchase
Is Information Used to Mitigate Risk? l s Possible risks are not
understood until they materialize
l Current Level s Best in Class Gap
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 20 GAO/AIMD-99-165 SBA Benchmark Study
13 Gap Between SBA and Benchmark Partners'
Practices for Risk Management (continued)
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
DIMENSION Below Average
Average Above Average
COMMENTS Risk Information Used in Program Development l s Risk
Information is not
available for use Program Eligibility l s Comprehensive data on
eligibility is not collected Underwriting Criteria l s
Origination data is not
collected from lenders Guaranty Fee Calculations l s Fees are
based on public
policy only Program Subsidy Rate l s Subsidy Rate is based on
historical data
Information Used in Developing Program Strategy l s Lack of
information makes it
difficult to develop strategies Additional Risks in Regions
Explained l s Regional risks are understood
but not quantified Overall Effectiveness of Program l s
Indicators are not managed
but are used for performance
Seamless and Consistent Transfer of Information l s Information
is mainly paper
based with some use of online transfers
l Current Level s Best in Class Gap
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 21 GAO/AIMD-99-165 SBA Benchmark Study
14 Gap Between SBA and Benchmark Partners'
Practices for Lender Oversight
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
DIMENSION Below Average
Average Above Average
COMMENTS Communication to Lenders l s The lender review process
has been communicated effectively to the lenders Program Goals l s
Program goals and
objectives are communicated regularly Program Procedures l s
Procedures can be easily
found on the Internet
Effective Lender Review Process l s Lender review process does
not review all aspects of a lenders operations Process
Communicated l s Lenders have no say in
determining optimal schedule Understanding & Compliance l s
Lenders comply with the
process but do not provide extra assistance Includes All Lenders l
s Only PLP lenders are
included in the process
l Current Level s Best in Class Gap
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 22 GAO/AIMD-99-165 SBA Benchmark Study
15 Gap Between SBA and Benchmark Partners'
Practices for Lender Oversight (continued)
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
l Current Level s Best in Class Gap DIMENSION Below
Average Average Above
Average COMMENTS
Ensuring SBA's Best Interests l s Lender Oversight attempts to
balance SBA needs while protecting lender operations Timely &
Efficient l s Reviews are done efficiently
by an independent team on an annual basis for PLP only Lenders'
Treatment of Loans l s Only SBA loans are reviewed Procedure
Review l s Underwriting, servicing and
liquidating are reviewed Credit Analysis Review l s Reviewers
rely on
examination of historical data
Reason For Lender Inclusion l s Only PLP lenders are included in
review process Portfolio Analysis l s Past portfolio performance
is
used to determine if an onsite review will occur
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 23 GAO/AIMD-99-165 SBA Benchmark Study
16 Gap Between SBA and Benchmark Partners'
Practices for Lender Oversight (continued)
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
DIMENSION Below Average
Average Above Average
COMMENTS
Current Lending Process l s Loan information is only reviewed at
the annual review for PLP lenders
Frequency of Lender Review l s PLP lenders are reviewed on an
annual basis. Non- PLP are not reviewed at all Selection of
Lenders for review l s Only PLP lenders are chosen
and special consideration is given to lenders with high levels of
defaults Responsibility for Lender selection l s The Lender
Oversight group
determines which lenders will be reviewed but only examine PLP
lenders Use of Review Information throughout the program
l s There is no central repository for information obtained
during lender reviews
l Current Level s Best in Class Gap
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 24 GAO/AIMD-99-165 SBA Benchmark Study
17 Gap Between SBA and Benchmark Partners'
Practices for Guaranty Procedures
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
l Current Level s Best in Class Gap DIMENSION Below
Average Average Above
Average COMMENTS
Effective Guaranty Underwriting l s The program is effective in
determining the ability to pay but not the ability to collect
information on the borrowers Automated for large lenders l s The
main form of communication
between the program and lenders is the fax Simple for small
lenders l s Small program lenders are
required to perform the same tasks as large, high exposure lenders
Effective Underwriting Criteria l s SOPs require that ability to
pay is analyzed but no specifications are found for determining
ability to pay Repayment Ability l s Income of the business is
analyzed but the overall ability to pay is not necessarily
determined Credit Scoring l s No Credit scores are being
tested in the LowDoc Program Other Measures & Indicators l s Some
additional information is
captured to indicate which industries and ethnic groups are being
served by the program
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 25 GAO/AIMD-99-165 SBA Benchmark Study
18 Gap Between SBA and Benchmark Partners'
Practices for Guaranty Procedures (cont.)
DIMENSION Below Average
Average Above Average
COMMENTS Relevant Information Captured l s Inadequate information
is
captured during the origination and loan approval process Proper
Data Collected l s Relevant risk data from the
origination process is not captured for future use Information
Used for Tracking l s Loan information is entered into
the accounting system for tracking purposes Data Used for Risk
Management l s No relevant risk management
information is captured Data Used for Lender Oversight l s No
data is captured to review
the lenders' underwriting effectiveness
Centralization of Approval & Underwriting Processes l s The PLP,
FA$ TRAK and
LowDoc processes centralized Credit Criteria Sets Guaranty Level l
s Guaranty levels are set through
public policy Credit Criteria Sets Guaranty Fees l s Guaranty
fees are set through
public policy
Efficient Approval System l s The loan approval system provides
timely approval with little underwriting of loans
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
l Current Level s Best in Class Gap
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 26 GAO/AIMD-99-165 SBA Benchmark Study
19 Gap Between SBA and Benchmark Partners'
Practices for Subsidy Rate
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
l Current Level s Best in Class Gap DIMENSION Below
Average Average Above
Average COMMENTS
Subsidy Rate Model l s Current model uses 10- year cohort with
estimated cash flows Structural Changes Are Considered l s
Changes are only made with
large scale program adjustments Macro- Economic Changes Are
Accounted For l s Macro- economic changes can
not be added into the model
Risk Management & Origination Data is Used in Calculation l s Any
risk management
information is used to determine validity of the calculation
Frequent Subsidy Rate Calculation l s Quarterly analysis of the
calculation is possible
Comparison of Subsidy Rate to Actual Program Cash Flows l s
Examination of actual program
expenditures is done often Actions Are Taken if Program Exceeds
Budget l s Program changes must be
approved by governing bodies Program Changes Are Timely l s
Program changes can be made
but not frequently
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 27 GAO/AIMD-99-165 SBA Benchmark Study
20 Gap Between SBA and Benchmark Partners'
Practices for Asset Sales
DIMENSION Below Average
Average Above Average
COMMENTS Primary Purpose l s The Asset Sales mission has
not been clearly defined Revenue Enhancer l s SBA is attempting
to reduce
servicing and liquidating responsibilities
Mitigate Credit Risk l s No attempt is made to mitigate credit
risk
Underlying Assets Fairly Valued l s SBA does attempt to value the
loans using an independent contractor
Types of Assets Sold l s Only Loan Assets are currently in the
sale process (Disaster Loans Only) High or Low Risk l s Risk is
not examined prior to the
sale of the assets Performing or Performing Nonl s Loans are not
examined to
determine if they are performing or non- performing prior to sale
Asset Sales Process an Efficient Use of SBA Resources l s The
overall value creation can
not be determined until an actual sale takes place
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final BenchmarkReport, Booz Allen& Hamilton, December1998
l Current Level s Best in Class Gap
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 28 GAO/AIMD-99-165 SBA Benchmark Study
21
Actions Suggested by Contractor
Senior management needs to buy- in to the process Communications
plans need to be developed System requirements should be
preliminarily defined Training plans should be examined
Source: Benchmarking Capital Access/ Financial Assistance Program,
Final Benchmark Report, Booz Allen & Hamilton, December 1998
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 29 GAO/AIMD-99-165 SBA Benchmark Study
22
Observations on Report
In general, the benchmarking methods were consistent with
accepted practices.
The benchmarking methodology was followed at a high level.
The benchmark report identified standard industry or good'
practices.
The report pointed out wide gaps between SBA's practices and its
benchmark partners.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 30 GAO/AIMD-99-165 SBA Benchmark Study
23
Observations on Report (continued) Selecting benchmark partners
No evidence on how partners were selected No validation that
partners had best- in- class processes
Determining best practices No criteria specified No criteria
cited to compare between practices-- only a
determination of whether or not SBA uses the practices This
benchmarking effort was an important first step.
There are a number of areas where enhancements would have made the
report more useful.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 31 GAO/AIMD-99-165 SBA Benchmark Study
24
Observations on Report (continued) Addressing activities
delegated to lenders - the study
did not address the processes, practices, and information systems
for
preventing delinquencies mitigating losses such as follow- up
actions on
delinquencies liquidating defaulted loans
Outsourcing functions criteria for outsourcing were not
specified candidates for outsourcing functions were not
identified the extent of outsourcing by benchmark partners was
not
identified
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 32 GAO/AIMD-99-165 SBA Benchmark Study
25
Observations on Report (continued) Using measurements
quantitative measurements of SBA and benchmark partners were not
presented measurable improvement goals for operational services
and
products were not cited guidelines and parameters for
reengineering were not
defined
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 33 GAO/AIMD-99-165 SBA Benchmark Study
26
Suggested Actions
SBA should define processes associated with best practices and
relate to SBA's current processes.
In its benchmarking and reengineering, SBA should address
activities delegated to lenders and develop monitoring processes
concerning lender actions to
prevent delinquencies, mitigate losses such as follow- up
actions on delinquencies,
and liquidate defaulted loans.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 34 GAO/AIMD-99-165 SBA Benchmark Study
27
Suggested Actions (continued) SBA should collect measurement data
to allow
comparisons between SBA's current processes and the processes of
benchmark partners.
Measurement of current SBA operations can enable a clear
demonstration of the benefits of adopting best practices and
reengineering Measurement of benchmark partners' processes to
compare and select among alternatives SBA should set stretch
goals for reengineering.
Goals for each loan monitoring activity Goals to serve as
objectives of reengineering Goals based on measurement data
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 35 GAO/AIMD-99-165 SBA Benchmark Study
28
Suggested Actions (continued) SBA should identify from benchmark
partners
potential outsourcing and candidate systems for purchase.
business activities information processing services commercial-
off- the- shelf software
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 36 GAO/AIMD-99-165 SBA Benchmark Study
29
Agency Comments
SBA agreed with our analysis of the benchmark study and plans to
implement the suggested actions. SBA plans to
Review the benchmark project information to identify those
organizations with best practices for critical loan monitoring
processes and contact them to request a continuation of the
benchmark process to collect measurement data.
Identify improvement goals for loan guaranty procedures and
lender oversight processes.
Define and document processes of benchmark partners to assist in
comparing and selecting new processes that best meet SBA's
business needs.
Appendix I Briefing on the Benchmark Study for SBA's Loan
Monitoring System
Page 37 GAO/AIMD-99-165 SBA Benchmark Study
30
Agency Comments (continued) Specifically address outsourcing as
SBA performs
quantitative analysis of the benchmark information. SBA plans to
identify and evaluate information systems for purchase while
completing the benchmark and business process reengineering.
Contact other government agencies to identify their lender
oversight procedures for loan servicing, loss mitigation, and
liquidations actions, and address these during business process
reengineering efforts.
Page 38 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Appendi x I I
Appendix II Comments From the Small Business Administration
Page 39 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 40 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 41 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 42 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 43 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 44 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 45 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 46 GAO/AIMD-99-165 SBA Benchmark Study
Appendix II Comments From the Small Business Administration
Page 47 GAO/AIMD-99-165 SBA Benchmark Study
Page 48 GAO/AIMD-99-165 SBA Benchmark Study
Appendix III Major Contributors to This Report Appendi x I I I
Accounting and Information Management Division, Washington, D. C.
E. Randolph Tekeley, Technical Assistant Director Anh Q. Le,
Senior ADP/ Telecommunications Analyst John T. Christian, Senior
Business Process Analyst
(511471) Let t er
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