Small Business Administration: Review of Selected Personnel Practices
(Letter Report, 04/23/99, GAO/GGD-99-68).

Pursuant to a congressional request, GAO reviewed events related to
personnel reassignments, appointments, and activities at the Small
Business Administration (SBA).

GAO noted that: (1) SBA made hundreds of appointments during the 1990s
using competitive procedures for career appointments, special
noncompetitive hiring authority for the Office of Advocacy, and
political appointment procedures for other appointments; (2) for the
appointments that GAO reviewed, GAO found that SBA adhered to the
different procedural requirements; (3) for example, although 6 of the 42
District Director appointees were hired from outside SBA to the career
positions, and 2 of them had political backgrounds, GAO found nothing
procedurally amiss in the hiring process; (4) GAO determined, however,
that in several cases SBA did not follow applicable federal regulations
when setting the starting salary at a rate higher than the minimum rate
for the grade; (5) SBA could not provide the documentation required by
federal regulations to support the advanced salary settings; (6) SBA has
developed draft procedures that, if properly implemented, should help
prevent such situations from recurring; (7) GAO also determined that SBA
poorly controlled its interagency detailing of employees, with the
result that cost reimbursements were not always being collected; and (8)
SBA officials advised GAO that they are developing new procedures to
better control interagency details and collections of reimbursements.

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

 REPORTNUM:  GGD-99-68
     TITLE:  Small Business Administration: Review of Selected
	     Personnel Practices
      DATE:  04/23/99
   SUBJECT:  Personnel management
	     Federal agency reorganization
	     Human resources utilization
	     Federal downsizing
	     Reductions in force
	     Federal employees
	     Hiring policies
	     Civil service appointments
	     Compensation
IDENTIFIER:  National Performance Review

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SMALL BUSINESS ADMINISTRATION: Review of Selected Personnel
Practices (GAO/GGD-99-68) SMALL BUSINESS ADMINISTRATION

Review of Selected Personnel Practices

United States General Accounting Office

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

April 1999 

GAO/GGD-99-68

April 1999   GAO/GGD-99-68

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

General Government Division Page 1 GAO/GGD-99-68 SBA Personnel
Practices

GAO B-278977 April 23, 1999 The Honorable Christopher S. Bond
Chairman, Committee on Small Business United States Senate

Dear Mr. Chairman: The 1990s have been a time of rapid and
sweeping change at the Small Business Administration (SBA). In
response to the Clinton administration's initiative to reinvent
the federal government, SBA underwent a major reorganization and
downsizing. From August 1993 to March 1997, SBA's workforce was
cut by about 15 percent. The regional office structure, a layer of
management between SBA headquarters and district offices, was a
prime target of this reduction. In addition, new administrators
were appointed at the agency in 1993, 1994, and 1997, which
brought about further changes in SBA's executive offices, and
following the change in control of Congress in 1995, SBA provided
noncompetitive, career appointments to some displaced
congressional staff members under the Ramspeck Act then in effect.

Because of the changes that were occurring, the reorganization and
downsizing in particular, the 1990s have been turbulent times for
SBA employees. Questions arose that improper personnel practices--
such as political favoritism and the improper hiring of district
office directors and improper salary setting for political
appointees-- had taken place at the agency. In response, the
Committee asked us to examine several events related to personnel
reassignments, appointments, and activities at SBA.

SBA made hundreds of appointments during the 1990s using
competitive procedures for career appointments, special
noncompetitive hiring authority for the Office of Advocacy, and
political appointment procedures for other appointments. For the
appointments that we reviewed, we found that SBA adhered to the
different procedural requirements. For example, although 6 of the
46 District Director appointees were hired from outside SBA to the
career positions, and 2 of them had political backgrounds, we
found nothing procedurally amiss in the hiring process.

We determined however, that in several cases SBA did not follow
applicable federal regulations when setting the starting salary at
a rate higher than the minimum rate for the grade; SBA could not
provide the Results In Brief

B-278977 Page 2 GAO/GGD-99-68 SBA Personnel Practices

documentation required by federal regulations to support the
advanced salary settings. SBA has developed draft procedures that,
if properly implemented, should help prevent such situations from
recurring.

We also determined that SBA poorly controlled its interagency
detailing of employees, with the result that cost reimbursements
were not always being collected. SBA officials advised us that
they are developing new procedures to better control interagency
details and collections of reimbursements. Recommendations to the
SBA Administrator on these matters are included at the end of this
letter.

SBA, an independent agency within the executive branch, offers
numerous programs and services to owners of small businesses in
the United States and in U. S. territories. The programs and
services are meant to help aid, counsel, assist, and protect the
interests of small business concerns and include a variety of loan
guarantee programs, surety bond guarantees, technical assistance,
and other services targeted to small businesses in general and to
women- owned and minority- owned businesses in particular.

SBA's headquarters is in Washington, D. C., but SBA's programs and
services are delivered through 97 regional, district, branch, or
post- of- duty offices located throughout the United States and in
Guam, Puerto Rico, and the Virgin Islands. These 97 offices are
organized within 10 geographic regions.

Just prior to reorganizing and downsizing, SBA employed about
5,600 fulland part- time employees, of whom about 1,000 were
employed in the Washington, D. C., metropolitan area. By March
1997, as the major portion of reorganizing and downsizing ended,
SBA employed about 4,750 full- and part- time employees, of whom
about 750 were employed in the Washington, D. C., metropolitan
area.

As agreed with your office, our specific objectives were to
determine the following:

 What was the status of SBA regional office employees following
reorganization, and were SBA employees shifted to regional offices
after those offices were downsized?

 Did SBA follow applicable policies and procedures when
appointing-- and setting the starting salaries of-- individuals
hired during the period January 1, 1993, through December 31,
1998, from outside of SBA for the position of District Director,
and what procedures did SBA's Office of Advocacy Background

Objectives, Scope, and Methodology

B-278977 Page 3 GAO/GGD-99-68 SBA Personnel Practices

use in hiring Regional Advocates and Assistant Advocates during
calendar year 1998?

 Did SBA follow applicable federal laws and regulations to set the
salaries of, and provide salary increases to, political appointees
and former congressional (Ramspeck Act) employees hired between
October 1, 1991, and September 30, 1998? 1

 Did SBA adequately control the interagency detailing of its
employees during fiscal years 1992 through 1998?

 What positions were newly created or abolished between March 1996
and March 1998 in SBA's Office of the Administrator, Office of the
Deputy Administrator, Office of the Chief of Staff, Office of the
Chief Operating Officer, and Office of the Associate Administrator
for Field Operations; and what were the sources of appointees to
the newly created positions and the status of those employees in
the abolished positions?

 What was the status of SBA's response to a December 1997
congressional mandate to establish a Senior Executive Service
(SES) position within SBA's Office of Women's Business Ownership?
and

 Did SBA Regional Advocates attend a White House- sponsored
political appointee meeting during fiscal year 1997?

In addressing our seven objectives, we

 relied extensively on personnel listings provided to us by
officials of SBA's Office of Human Resources;

 examined SBA's records of personnel actions, position
descriptions, and vacancy announcements;

 conducted numerous interviews of SBA officials; and

 relied heavily on records and employment application material in
the official personnel folders (OPFs) of those present and former
SBA employees who were within the scope of our review.

SBA provided us the names of (1) SBA field personnel and the
offices to which they were assigned, both before and after SBA's
reorganization and downsizing; (2) district directors who were
appointed between January 1,

1 For purposes of this review, we defined political appointees as
those receiving appointments to executive schedule positions,
those appointed to noncareer Senior Executive Service positions,
those appointed under excepted service schedules A and C
authorities, and those appointed to positions involving
administratively determined (AD) pay rates. The Ramspeck Act of
1940 (5 U. S. C. 3304( c)) permitted former congressional
employees who met certain eligibility requirements to obtain
noncompetitive, career appointments in the executive branch of
government. Appointment eligibility requirements included, among
other things, that the former congressional employee must have (1)
been separated from his or her congressional employment
involuntarily, such as when an employing Member of Congress
retired or was defeated for reelection; and (2) obtained a career
appointment under the Ramspeck Act hiring authority within 1 year
of being separated from congressional employment. The Ramspeck Act
was repealed by Congress effective December 19, 1997.

B-278977 Page 4 GAO/GGD-99-68 SBA Personnel Practices

1993, and December 31, 1998; (3) political and Ramspeck Act
appointees who were appointed between October 1, 1991, and
September 30, 1998; and (4) employees detailed from SBA to other
federal agencies during the period October 1, 1991, through
September 30, 1998.

Some of the personnel action records we examined came from SBA's
personnel records database, which is managed and maintained for
SBA by the U. S. Department of Agriculture's National Finance
Center in New Orleans, LA. We also examined travel authorizations
and vouchers of SBA Regional Advocates to identify those who might
have attended a political meeting at the White House. These
authorizations and vouchers were for fiscal year 1997 and part of
fiscal year 1998.

We interviewed officials from the Office of Human Resources (HR)
at SBA headquarters and from SBA's Denver Human Resource office
about many topics and issues, such as the reasons for certain
personnel actions. We interviewed current and former officials
from SBA's Office of Advocacy about that Office's hiring authority
and procedures as well as to identify employees hired by the
Office in calendar year 1998.

For the current and former SBA employees who were within the scope
of our review, we obtained the OPFs of

 current employees from SBA; and

 former employees from either the National Personnel Records
Center in St. Louis, MO, or from the federal agencies where they
were then working. In the rare cases in which we were unable to
locate a former employee's OPF, we relied instead on personnel
records contained in SBA's personnel database. (App. I contains a
detailed description of our objectives, scope, and methodology.)

We did our work in Washington, D. C.; Denver, CO; and St. Louis,
MO; from March 1997 through January 1999 in accordance with
generally accepted government auditing standards. We requested
comments on a draft of this report from the Administrator of SBA.
The comments are discussed at the end of this letter and are
reprinted in appendix VI.

B-278977 Page 5 GAO/GGD-99-68 SBA Personnel Practices

Regional offices were greatly affected by reorganization and
downsizing. Staffing was drastically reduced, and some
responsibilities that regional offices once held were transferred
to SBA headquarters and district offices. 2 Between September 1993
and April 1997, the 10 regional offices together lost 94 percent
of their employees. Most of these employees were either reassigned
to nonregional offices or retired. As a result of the significant
reduction of employees in regional offices, employees from
district offices have, from time to time, been temporarily
assigned to regional offices.

According to data SBA's HR officials provided, a total of 504
employees were assigned to the 10 regional offices as of September
2, 1993, which was shortly before the reorganization and
downsizing began. Of these 504 employees, we found after
reorganizing and downsizing had ended that

 10 employees remained with their regional offices; 3

 306 employees remained with SBA but had transferred to district,
branch, and other nonregional offices; and

 163 employees had separated from SBA, most of whom retired.
Information on the employment status of the remaining 25 employees
was not available. The status of the 504 employees was as of April
1997, and we determined their status from personnel records.
Appendix II provides further details on the status of the 504
employees.

After the downsizing, according to SBA's HR officials and
officials from some of the regional offices we spoke with,
district office administrative employees were shifted from time to
time to colocated regional offices for temporary periods to
provide administrative support. Most of the regional offices were
located in the same buildings as the district offices. These
officials explained that this shifting usually occurred when the
regional office Staff Assistant was temporarily out of the office;
that is, when sick or on vacation. In one case, however, a
district office employee obtained a temporary promotion to the
position of Public Affairs Specialist and was assigned to the
colocated regional office. According to SBA's HR officials, this
was only a temporary measure because SBA wanted whoever would

2 The responsibility for providing oversight of some programs and
services and for providing all administrative services was
transferred from the regional offices to SBA headquarters or to
district offices.

3 In addition to the 10 employees who remained, Regional
Administrators were later appointed to each of the regional
offices; 9 other employees were either reassigned to, or hired
for, positions within the regional offices. As of April 1997, the
10 regional offices together had 29 employees, or an average of
about 3 employees each generally consisting of a Regional
Administrator, a Public Affairs Specialist, and a Staff Assistant.
Status of Regional

Employees After Reorganization and Shifting of Personnel to
Regional Offices

B-278977 Page 6 GAO/GGD-99-68 SBA Personnel Practices

fill the then- vacant Regional Administrator position to
participate in selecting the permanent Public Affairs Specialist.

Unlike Regional Administrator positions, which are held by
political appointees, SBA's District Director positions are filled
through career appointments. Normally, SBA fills vacant District
Director positions by reassigning current SBA District Directors
or by appointing graduates of the District Director candidate
development program. However, at times, SBA hires new District
Directors from sources outside of SBA.

SBA made 46 appointments to the position of District Director
between January 1, 1993, and December 31, 1998. Forty of these
appointments went to SBA employees. For six appointments, SBA
hired individuals from outside the agency to fill the positions.
In two of these cases, the individuals' application materials made
reference to elected officials, thus introducing the possibility
of political favoritism in the hiring process. However, SBA
officials denied the use of favoritism. On the basis of available
evidence, SBA appeared to have properly followed federal
regulations in hiring all six individuals. However, we did note a
problem with how SBA set the starting salary in one case.

The six outside individuals were hired to fill District Director
positions in Washington, D. C.; Cleveland, OH; Puerto Rico;
Denver, CO; New Orleans, LA; and Sacramento, CA. They were not all
hired at the same time-- two were hired in 1994, one was hired in
1996, another was hired in 1997, and two were hired in 1998. Four
were either employed by the federal government when they applied
for the SBA position or had been federal employees some time
earlier.

We examined the steps SBA took in the appointment process and
determined that SBA appeared to follow all relevant federal laws
and regulations in making the appointments. SBA used a competitive
examination process to hire each appointee. Under this process,
SBA publicized the vacancy announcements for all six positions.
SBA compiled lists of best- qualified applicants from among those
who applied, and SBA management selected those hired (the
appointees) from among the applicants who were on the best-
qualified lists. The competitive examination process, it should be
noted, does not preclude persons who have political experience and
support from applying and being selected for open career
positions.

During our review, we became aware of possible political overtones
in two cases, the Denver District Director position and the New
Orleans District Appointments of

Individuals From Outside SBA to District Director Positions and
the Setting of Their Starting Salaries

B-278977 Page 7 GAO/GGD-99-68 SBA Personnel Practices

Director position. There were allegations that the individual
appointed to the Denver position obtained the appointment through
her political connections. She had worked for a governor of
Colorado and, at the time of her appointment to the District
Director position, the governor chaired the Democratic National
Committee. According to an SBA memorandum, a panel of six
officials interviewed her along with two other best- qualified
applicants, and each interviewer found her to be the top
candidate. One of the panel members, the Assistant Administrator
for Human Resources, told us that there was no pressure on the
panel to recommend this individual for selection.

The application material submitted by the individual appointed to
the New Orleans position cited the names of members of Congress
and local politicians as references and contained letters of
recommendation from local politicians. SBA HR officials said that
except for the names in the application material, they were
unaware of any political connections the individual had within the
administration, and they were under no pressure of any kind to
recommend this individual for selection.

In neither of these cases did we find evidence of political
favoritism and improper hiring. However, the question of whether
such political favoritism or support has an impact on the
selection of an individual from among other applicants is
extremely difficult to determine and requires that the intent and
motivation of the selecting official be known.

Appendix III provides more information on each of the six cases.
It also provides information about the appointments of SBA
employees to District Director positions.

Federal regulations govern the salary- setting process for new
appointees. We determined that SBA HR officials properly followed
regulations in setting the starting salaries of five of the six
outside hired District Directors. However, in one of the six
cases, SBA did not consider the use of a recruitment bonus when it
set the District Director's salary at a level higher than the
minimum rate for the pay grade.

Title 5 of the Code of Federal Regulations, part 531, section 203
(5 C. F. R. 531.203) states that new appointments are to be made
at the minimum step of the pay grade. However, provisions exist
for making an appointment above the minimum step. For example, a
new employee's salary can be set above the minimum step when the
employee possesses superior qualifications or the agency has a
special need for the employee's services. The C. F. R. refers to
an appointment under these circumstances as a Setting the Starting
Salaries

for the Six Directors

B-278977 Page 8 GAO/GGD-99-68 SBA Personnel Practices

superior qualifications appointment. However, the regulations also
state that in determining whether a candidate should receive a
superior qualifications appointment and, if so, at what level the
employee's pay should be set, the agency must consider the
possibility of authorizing a recruitment bonus. The regulations
also state that each agency that makes superior qualifications
appointments must establish documentation and record- keeping
procedures sufficient to allow reconstruction of the action taken
in each case. According to the regulations, documentation must
include the superior qualifications of the individual or the
special need of the agency that justified use of the superior
qualifications authority; the factors considered in determining
the individual's existing pay; and the reasons for authorizing an
advanced rate instead of, or in addition to, a recruitment bonus.

An appointee who has previously worked for the federal government
is also eligible to receive a salary that is above the minimum
step of the pay grade. According to regulations, the salary can be
set above the minimum step in order to match the appointee's
previous highest federal salary or pay grade level.

In the five cases where SBA followed federal pay- setting
regulations, two cases involved appointments at the minimum step
of the pay grade. Another case involved an SES appointment for
which there is greater latitude in setting pay. A fourth case
involved an appointment of a former SES member to a lower graded
District Director position. And the fifth case involved the
transfer of an employee from another federal agency to SBA with
SBA matching his previous highest federal salary.

In the one case in which SBA did not follow regulations, it set
the individual's salary above the minimum step of the pay grade.
But in doing so, it did not consider the use of a recruitment
bonus as required by applicable regulations. In commenting on a
draft of this report, SBA said that it had made a policy decision
not to offer recruitment bonuses. After we discussed this matter
with SBA officials, however, SBA decided to implement a
recruitment bonus policy.

The Assistant Administrator for Human Resources told us that her
Office had drafted a new standard operating procedure (SOP) that
would cover the procedures for setting advanced salaries and
considering use of recruitment bonuses. We obtained a copy of the
draft procedures, which said that SBA would offer a recruitment
bonus or a superior qualifications appointment only in those rare
situations where, after extensive recruitment, SBA determined that
an incentive was necessary to attract

B-278977 Page 9 GAO/GGD-99-68 SBA Personnel Practices

qualified applicants or to compete with nonfederal employers. The
draft SOP also stated that SBA would always consider using a
recruitment bonus before considering a superior qualifications
appointment because a one- time payment was more economical than a
higher salary that is paid every year. The draft SOP also states
that information supporting the action is to remain on file for 3
years. According to SBA's comments on the draft of this report,
the SOP is now in SBA's clearance process and is expected to be
published this spring.

According to information provided to us by Office of Advocacy
officials, the Office hired four Assistant Advocates and five
Regional Advocates in calendar year 1998. All nine advocates were
hired under the special hiring authority that federal statute
provides to the Chief Counsel for Advocacy. 4 Under this special
authority, the Office can hire individuals without having to use a
formal competitive process.

According to the Chief and Deputy Chief Counsels for Advocacy,
candidates for the nine positions were identified either through
word- ofmouth recommendations or through their personal knowledge
of the individuals. Because all of the positions were excepted
service positions being filled under the Chief Counsel for
Advocacy's special hiring authority, it was not necessary for SBA
to publicly advertise the positions or to follow the other
appointment procedures that apply when positions in the
competitive service are filled. Because the individuals in all
nine cases received excepted service, term appointments, they
effectively served at the pleasure of the Chief Counsel for
Advocacy. 5 In addition, SBA set the salaries of all nine
appointees in accordance with the administratively determined (AD)
pay- setting authority provided by law to the Chief Counsel for
Advocacy.

In order to examine SBA's salary setting and salary increase
practices for political and former congressional (Ramspeck Act)
employees, we reviewed available information regarding the
appointments and salaries of all 310 political or Ramspeck Act
appointees hired by SBA during the period October 1, 1991, through
September 30, 1998. Of the 310 cases, 289 involved appointments of
political appointees, and 21 involved appointments of former
congressional employees hired by SBA under the Ramspeck Act.

4 Section 204 of Pub. Law 94- 305, June 4, 1976 (15 U. S. C. 634d(
1)). 5 The nine Office of Advocacy appointees received term
appointments, which means their appointments were for only
specified periods of time. In each of the nine cases, the term was
13 months. The Chief Counsel for Advocacy may reappoint
individuals. Office of Advocacy

Hired Nine Regional or Assistant Advocates During 1998

SBA's Salary Setting and Salary Increase Practices for Political
Appointees and Former Congressional Employees

B-278977 Page 10 GAO/GGD-99-68 SBA Personnel Practices

In 169 (55 percent) of the 310 appointments that we reviewed, SBA
set the appointees' starting salaries at the minimum step of the
pay grades for the positions they accepted. 6 In each case, on the
basis of available evidence, it appeared that SBA followed
appropriate salary- setting procedures. In 141 (45 percent) of 310
appointments we reviewed, SBA set the salaries at levels higher
than the minimum step of the pay grades. In several of those cases
SBA did not consider the use of recruitment bonuses and could not
provide the documentation for the actions taken in each case as
required by regulations. In another of those cases SBA set the
advanced starting salary incorrectly and in still another case
insufficient documentation was available for us to determine the
basis SBA used in setting the salary. For essentially all of the
310 political and Ramspeck appointments, SBA appeared to have
followed applicable rules in awarding periodic salary increases.
Rules on setting salaries for, and providing salary increases to,
career appointees are also generally applicable to political and
Ramspeck Act appointees.

Federal regulations permit agencies to provide appointees with
advanced starting salaries on the basis of superior qualifications
or highest previous pay. Furthermore, agencies have flexibility to
set pay in cases involving SES appointments and in cases where AD
pay authority is provided, e. g., the Office of Advocacy. Of the
141 cases in which advanced starting salaries were set, 69
involved SES appointments or involved appointments in which AD pay
rates were authorized. In each of those cases, based on available
evidence, it appeared that SBA set the starting salaries
appropriately.

In 43 cases the advanced pay rates were authorized by regulations
on the basis of highest previous pay rates. In 1 of those 43
cases, discussed later, SBA set the starting salary incorrectly.

In 28 cases the advanced pay rates were made on the basis of
superior qualifications. In 11 of the 28 cases, however, SBA was
unable to provide the documentation required by regulations to
allow reconstruction of the action taken in each case. (In
commenting on a draft of this report, SBA said it is conceivable
the documentation that it had prepared was either misplaced or
destroyed as the agency downsized.)

6 Three of these appointments involved executive level positions
for which the pay levels for the positions are determined by law.
Analysis of 141 Cases

Involving Advanced Starting Salaries

B-278977 Page 11 GAO/GGD-99-68 SBA Personnel Practices

Finally, in one case insufficient information was available for us
to determine the basis SBA used when setting the advanced salary.
7

For the 28 superior qualifications appointments that SBA made,
SBA, as a matter of practice, did not consider on an individual
case basis the possibility of authorizing a recruitment bonus. As
stated earlier, SBA reported to us in its agency comments on a
draft of this report that it had decided as a matter of policy not
to offer recruitment bonuses. In a followup conversation with an
SBA HR official we were told that this was an unwritten policy.
The official believed the policy decision was made sometime after
October 1990 but didn't remember the precise date. Also, no
substantial rationale for the decision was offered beyond that
regulations require a recruitment bonus plan be established before
paying a recruitment bonus and SBA did not have such a plan. One
of the benefits of a recruitment bonus compared to an advanced
salary is that the former is a one time expense and in the long
term should be less expensive than a permanent advanced salary
rate. During our review SBA revisited the issue of recruitment
bonuses and developed a draft SOP covering recruitment bonuses, as
well as salary- setting procedures, and documentation
requirements.

One of the 43 cases in which the advanced salaries were set on the
basis of highest previous pay rates involved a former employee of
SBA. In that instance, SBA officials-- during our review--
determined that the salary had been set incorrectly. This
appointee had previously worked for SBA, resigned to accept a
position with another federal organization, rejoined SBA, then
resigned again. According to SBA officials, when the appointee
rejoined SBA, HR staff apparently based her new SBA salary on her
highest previous federal salary as reported in her application
rather than on her highest previous salary as reported in her
official salary transcript. The salary she reported in her
application was $18,000 higher than the salary reported in the
transcript. SBA determined that using her higher reported salary
caused HR staff to set her SBA salary at a higher level than they
would otherwise have done, resulting in an overpayment of
approximately $6,000 for the affected period.

7 In a draft of this report we stated that there were 31 cases for
which there was either no documented evidence or insufficient
documented evidence for us to make a determination as to whether
SBA followed appropriate procedures when setting the advanced
salaries. During the period when SBA was reviewing the draft
report and preparing written comments, SBA officials provided us
with additional evidence that supported the advanced salary
setting for several of those cases, leaving 12 cases in which no
justifying documentation could be provided.

B-278977 Page 12 GAO/GGD-99-68 SBA Personnel Practices

In a memorandum to SBA's Chief Financial Officer, the Assistant
Administrator for Human Resources requested, and obtained, a
waiver of the erroneous overpayment. According to SBA's HR
officials, they believed the salary- setting error was their fault
and not the appointee's fault.

In addition to examining the procedures used in initial pay
settings, we also examined the procedures that SBA used in later
providing periodic salary increases to the 310 political and
Ramspeck Act appointees. According to federal pay rules, GS pay
grade employees are eligible for pay step increases based on their
satisfactory work performance and their amount of time in the pay
grade. These rules also permit step increases, regardless of time
in grade, in recognition of quality performance. On the basis of
the records we reviewed that pertained to salary increases, SBA
appeared to have followed applicable federal laws and regulations
in providing salary increases in 309 of the 310 cases. For the
remaining case, the information available was not sufficient for
us to make a determination. The periodic salary increases included
within grade step increases due to either performance awards or
time in grade.

An interagency detail is the temporary assignment of an employee
to a different agency for a specified period, with the employee
returning to his or her regular duties at the end of the detail.
In accordance with principles of appropriation law, the receiving
agency should generally reimburse the loaning agency for the
salary and expenses of the detailed employee.

This rule was enunciated in a 1985 decision by the Comptroller
General of the United States. He concluded that except under
limited circumstances, nonreimbursable details (1) violate the law
that appropriations must be spent only for the purposes for which
they are appropriated and (2) unlawfully augment the
appropriations of the receiving agency. Specifically, the
Comptroller General held that nonreimbursable details are improper
except where the detail (1) involves a matter related to the
loaning agency's appropriations or (2) will have a negligible
impact on the loaning agency's appropriations. An additional
exception to the reimbursement requirement is provided by 3 U. S.
C. 112, which permits nonreimbursable details of up to 180 days in
a fiscal year to five Executive Office of the President (EOP)
agencies the White House Office, the Executive residence at the
White House, the Office of the Vice President, the Office of
Policy Development, and the Office of Administration.

SBA records showed that 20 SBA employees were on interagency
details at some time during fiscal years 1992 through 1998. Ten of
the 20 employees SBA Lacked Adequate

Procedures to Obtain Reimbursement and Record Ending Dates for
Interagency Details

B-278977 Page 13 GAO/GGD-99-68 SBA Personnel Practices

were assigned to reimbursable details and 10 were assigned to
nonreimbursable details. SBA had not taken action to obtain
reimbursement for the services of 7 of the 10 employees assigned
to reimbursable details until we brought the matter to its
attention. Further, the actual lengths of the details were not
adequately documented, which, for reimbursable details, makes it
difficult to accurately determine the amount of reimbursement that
is due. SBA officials acknowledged the need to improve the
agency's procedures for obtaining reimbursement and said steps
would be taken to make improvements.

For the 10 employees who were assigned to reimbursable details,
the total potential reimbursable value amounted to more than
$873,000. 8 However, SBA records indicated that the agency had not
sought reimbursement for the services of 7 of the 10 employees. 9

According to SBA, officials from SBA's finance office in Denver
were responsible for seeking reimbursements from other agencies
for details arranged on a reimbursable basis. Officials from that
office told us that they overlooked their collection
responsibilities in the seven cases because they were not aware
that the employees had been detailed. They said they did not
receive copies of the interagency agreements that authorized the
details. An SBA official surmised that the interagency agreements,
which are prepared by HR in Washington, D. C., with a copy going
to the SBA finance office in Washington, D. C., were not being
sent to the Denver office, which initiates the actual billing.

After we brought these seven cases to the attention of the finance
officials, the finance center began to make efforts to bill the
appropriate agencies. Officials from the finance center have since
told us that SBA has received reimbursement for the services of
six of the seven employees and in its comments on a draft of this
report, SBA said it has collected all but a small amount in the
seventh case. The amounts of reimbursement SBA received were based
on limited or incomplete information on each detail, did not
always include amounts for employee benefits, and therefore were
likely different from the amounts that should have been
reimbursed.

8 Although nearly all of the interagency agreements called for
reimbursement of salaries and benefits, the agreements usually
provided values only for the salaries. Therefore, this figure
represents potential salary costs only.

9 In addition to employees who SBA detailed to other agencies,
nine employees from other agencies were detailed to SBA during
fiscal years 1992 through 1998. Seven of those details were on a
reimbursable basis. SBA reported that, as of March 1999, it had
contacted the agencies asking them to bill for the reimbursable
details and had paid the one bill it had received to date. SBA Had
Not Requested

Reimbursement for All Reimbursable Details

B-278977 Page 14 GAO/GGD-99-68 SBA Personnel Practices

Although we found documentation indicating when details began, we
noted that no systematic process existed to record the actual
ending dates of the details. For example, in one case involving a
nonreimbursable detail, SBA determined the actual duration of the
detail on the basis of a handwritten notation in which an unknown
source wrote the ending date of the detail in the bottom margin of
a document evidencing the detail. Actual ending dates of details
are important because although the interagency agreements contain
the planned beginning and ending dates, the actual detail may be
of a longer or shorter duration.

During our review SBA officials said that a special project would
be undertaken to examine how the reimbursable process should work,
what appropriate paperwork requirements are needed, and what
controls will be needed to ensure that interagency details are
properly controlled in the future. In commenting on a draft of
this report, SBA said that the not- toexceed date is clearly
stated in the documentation of the detail and that there is no
requirement to document details that end on their not- toexceed
date. SBA said that it documents extensions of details and the
termination date of details that end early, although it recognized
that it failed to do so in one of the cases we reviewed. SBA said
that it is revising its procedures to ensure program managers know
extensions and terminations of interagency details are to be
documented on a Notification of Personnel Action (SF- 50) and that
the new procedure will ensure that SBA's personnel/ payroll system
provides automated ticklers to help eliminate the possibility of
any funds from reimbursable details not being collected.

SBA's comments are unclear as to whether the new requirement to
document terminations on a SF- 50 will apply to all details or
just to those that are extended or end early. If this requirement
applies to all details, then we believe it should help serve as a
reminder that reimbursement should be sought. However, if the
requirement applies only to cases where details are extended or
end early, then we believe the potential to overlook collections
will continue to exist.

SBA had interagency agreements or other documentation specifying
the planned duration for each of its 10 employees assigned to
nonreimbursable details. However, it was unable to determine the
actual duration of the details for 4 of the 10 employees. In the
other six cases, actual ending dates were supported by handwritten
notations to the file in five cases, and by documentation provided
by the borrowing agency in the sixth case. As in the case for the
reimbursable details, SBA officials said they will Actual Length
of Most

Nonreimbursable Details Also Unknown

B-278977 Page 15 GAO/GGD-99-68 SBA Personnel Practices

determine the appropriate paperwork requirements and controls
needed for nonreimbursable details as well.

Six of the 10 employees were detailed to EOP offices included in
Public Law 95- 570, which permits nonreimbursable details of up to
180 days in a fiscal year.

Five of the six were career employees who were detailed to the
Office of the Vice President to participate in the National
Performance Review. 10 The sixth was a political employee who was
detailed to the White House Office. This employee had been working
at SBA for about 1 year at the time of the detail. SBA
documentation did not indicate an expected length of the detail,
although it did indicate the detail was to begin on April 16,
1995. After discussing this case with SBA officials, they
determined that the employee resigned from the SBA position and
transferred to the White House on July 29, 1995.

Of the remaining four employees assigned to nonreimbursable
details, SBA used the allowable exception in two cases that the
employees would be performing duties related to SBA's
appropriations. In the other two cases SBA used the allowable
exception that the details would have negligible impacts on SBA's
appropriations.

Additional information on the interagency details is contained in
appendix IV.

10 The National Performance Review is a major management reform
initiative begun by the President in 1993 and placed under the
direction of the Vice President to make the government work better
and cost less. In January 1998, the name of the initiative was
changed to the National Partnership for Reinventing Government.

B-278977 Page 16 GAO/GGD-99-68 SBA Personnel Practices

During the 1996 through 1998 time frame, several personnel changes
occurred in key SBA management offices in which both the number of
positions and the number of political appointees increased. These
changes are summarized in table 1.

Positions (P) a Office Eliminated Added

Executive Assistant (P) Executive Assistant White House Liaison
Project Director for Lender Oversight (P)

Special Assistant (P) Office of the Administrator

Staff Assistant Office of the Deputy Administrator Senior Advisor
(P) Program Support

Special Assistant Deputy Chief of Staff (P) Receptionist Special
Assistant (P)

Staff Assistant Office of the Chief of Staff

Staff Assistant Office of the Chief Operating Officer Chief
Operating Officer

Program Support Specialist Associate Director (P) Program Analyst
Office Automation Assistant Office of the Associate Administrator
for

Field Operations Program Analyst Note: Additional personnel
changes may have occurred during this period. This table reflects
positions identified from SBA's 1996 and 1998 telephone books. a
(P) Denotes the position was held by a political appointee.

Source: SBA telephone books for March 1996 and 1998 and GAO
analysis.

Table 1 reflects a net increase of four positions and three
political appointees. It is not unusual for key personnel changes
to occur when a new head of an agency is appointed. Generally,
political appointees serve at the pleasure of the agency head;
when the head of the agency changes, the political appointees
often change as well.

The incumbents of the eight positions that were eliminated either
were transferred to other SBA positions or resigned. Those
individuals who were appointed to the 12 new positions transferred
into SBA from another federal agency, were reassigned from other
SBA positions, or were newly hired. (See app. V for descriptions
of these 20 position changes.) Position Changes in

SBA Headquarters Offices

Table 1: Personnel Changes Made in Key SBA Offices From 1996 to
1998

B-278977 Page 17 GAO/GGD-99-68 SBA Personnel Practices

The Small Business Reauthorization Act of 1997, which became law
on December 2, 1997, mandated that the position of Assistant
Administrator for SBA's Office of Women's Business Ownership was
to be upgraded to the SES level and held by a noncareer SES
appointee. 11 The legislative history of the Small Business
Reauthorization Act of 1997 does not elaborate on the mandate to
upgrade the Assistant Administrator position to the SES level.
Neither the statute nor its legislative history set a time frame
for upgrading the position. The position was filled with a
noncareer SES appointee on April 5, 1999.

During our review, we asked SBA officials to explain why the
position had not been upgraded earlier, especially considering
that during fiscal year 1998-- when the act was passed-- SBA had
established and filled at least nine other SES positions,
including two noncareer (political) positions. SBA officials we
interviewed told us that the Assistant Administrator position was
already filled with a Schedule C, GS- 15 political appointee, and
other critical need positions existed and had to be filled.

According to an SBA document, the position of Assistant
Administrator for SBA's Office of Women's Business Ownership had
previously existed as an SES position; however, after the position
became vacant in 1993, it was not refilled at the SES level. In
1994 the Clinton administration-- as part of its early efforts to
reduce the size of the federal government-- directed that the
total allocation of SES positions in the executive branch
departments and agencies be reduced by 10 percent.

According to SBA's HR officials, in SBA's case, the directive
resulted in OPM reducing SBA's total SES position allocation from
60 to 55, and the position of Assistant Administrator for Women's
Business Ownership was 1 of the positions that SBA downgraded as a
result of the reduced SES allocation. According to SBA officials,
during fiscal year 1998, SBA's total SES allocation remained at
55, of which 10 could be filled by noncareer (political) SES
appointments.

SBA's HR officials told us that in April 1998 SBA management
officials began reevaluating the agency's SES needs. This exercise
resulted in a June 18, 1998, letter from the SBA Administrator to
the Director, OPM, requesting an increase in SBA's SES allocation
from 55 to 60. The SBA Administrator made a case for establishing
five new SES positions, including an upgraded position of
Assistant Administrator for Women's Business Ownership. By letter
dated October 29, 1998, OPM's Director

11 Public law 105- 135, Dec. 2, 1997 (15 U. S. C. 656( g)). Status
of Legislatively

Mandated Position in Office of Women's Business Ownership

B-278977 Page 18 GAO/GGD-99-68 SBA Personnel Practices

responded to SBA's request by increasing SBA's allocation from 55
to 58. One of the three new allocations OPM provided was
specifically for the position of Assistant Administrator for
Women's Business Ownership. However, at the end of December 1998,
the appointment had not been made. According to SBA officials, all
noncareer (political) SES appointments are controlled by the White
House; and, although OPM had approved the position as part of the
increased SES allocation, SBA officials were awaiting clearance by
the White House before requesting OPM's approval of the individual
expected to receive the appointment. Clearance was received and
OPM approved the individual's appointment on April 5, 1999. The
appointee was the same employee who had been been serving as the
Assistant Administrator in the Schedule C, GS- 15 position.

During our review, we received information-- and confirmed-- that
some Regional Advocates employed by the Office of Advocacy had
attended a political appointee meeting that was sponsored by the
White House during fiscal year 1997. Regional Advocates are not
political appointees and, according to SBA, have a mission that is
significantly different than that of political appointees.
Nevertheless, Regional Advocates share many of the characteristics
of political appointees. For example, like political appointees,
Regional Advocates can be hired noncompetitively. Also like
political appointees, Regional Advocates serve at the pleasure of
the head of their agencies-- in this case, the Chief Counsel for
Advocacy. One additional factor that would further demonstrate the
similarity of Regional Advocates and political appointees is that
according to (1) the Chief Counsel for Advocacy, (2) a former
Regional Advocate, and (3) a current Regional Advocate, new
Regional Advocate appointees are frequently cleared though the
White House personnel office before being appointed. The Chief
Counsel for Advocacy said, however, that this is done more as a
courtesy to the White House than because it is a requirement to
obtain the White House's concurrence on the appointment.

The Office of Advocacy has 1 Regional Advocate stationed in each
of the 10 cities in which SBA has a regional office. These 10
Regional Advocates report directly to the Chief Counsel and the
Deputy Chief Counsel for Advocacy. The Regional Advocate's role
is, in part, to help identify issues affecting small businesses in
their respective regions of the country.

According to the Chief and Deputy Chief Counsels for Advocacy, the
Office of Advocacy views itself as being independent of both the
administration and Congress. The Deputy Chief Counsel told us that
this is an important notion because to successfully mitigate
issues affecting small businesses, the Office of Advocacy has to
work effectively with Regional Advocates

Participated in White House Political Appointee Meeting

B-278977 Page 19 GAO/GGD-99-68 SBA Personnel Practices

administrations and Congress. On the other hand, she said that
Regional Advocates, when they are in Washington, D. C., are
encouraged to attend political appointee meetings at the White
House or at other locations in order to gain and maintain a broad
awareness of the administration's initiatives in many areas,
including small business.

Several times a year the Regional Advocates, individually and
collectively, visit Office of Advocacy headquarters in Washington,
D. C., to discuss small business concerns. While in Washington,
according to the Deputy Chief Counsel for Advocacy, they may
attend political appointee meetings. This official said that such
meetings are often sponsored by SBA officials, and attendees
include only SBA political appointees and other key SBA officials.
But, on occasion, wider scope political appointee meetings are
sponsored by the White House and are attended by political
appointees from numerous executive branch departments and
agencies, including SBA. According to the Deputy Chief Counsel for
Advocacy, although Regional Advocates are encouraged by the Chief
Counsel for Advocacy to attend such meetings, their attendance is
nevertheless voluntary.

By examining copies of Regional Advocates' travel authorizations
and travel vouchers for fiscal year 1997 and for part of fiscal
year 1998, we identified eight Regional Advocates who had visited
the White House on the same date. We confirmed their visit with
the White House Office. We were able to contact six of these
Advocates, some of whom no longer work for SBA. They each
confirmed that on that date they attended a political appointee
meeting at the White House. The meeting, they said, was for
executive branch political appointees who were stationed outside
of Washington, D. C.

According to these six Regional Advocates, the White House meeting
was primarily an opportunity to receive briefings from high- level
administration officials-- including the President and the Vice
President-- on the administration's initiatives. One former
Regional Advocate told us that this meeting also served as a
morale booster to the political appointees who attended. The six
current or former Regional Advocates we contacted told us that
they had not received instructions of any kind from officials who
attended the White House meeting and did not believe their
independence in carrying out their duties was affected by
attending the meeting.

Each of the six Advocates pointed out, however, that they had ties
to either the Clinton administration or to the Democratic party
before they received their Regional Advocate appointments. For
example, several of

B-278977 Page 20 GAO/GGD-99-68 SBA Personnel Practices

them told us that they had worked on either the Clinton- Gore 1992
presidential campaign or the 1996 reelection campaign. Another
told us she had worked with the Democratic party in Colorado
during 1996.

Significant personnel changes have occurred at SBA since the early
1990s, some of which resulted from the considerable reorganization
and downsizing that SBA experienced. Regional offices were
reorganized and drastically downsized, with most regional
employees transferring to other SBA offices or retiring. During
the period, SBA hired outsiders for 6 of the 46 District Director
positions it filled and did so following applicable federal hiring
procedures. With the exception of one case, SBA also followed
applicable federal laws and regulations when setting the starting
salaries. The Office of Advocacy used informal processes for
identifying and selecting persons to fill Regional and Assistant
Advocate positions, which was in keeping with its special hiring
authority. In other SBA executive offices, the number of positions
and political appointees increased somewhat from 2 years earlier.
There was also one position change-- upgrading (and filling) the
position of head of the Office of Women's Business Ownership to
the SES level-- that Congress said should occur but SBA had not
done until over a year later. In fiscal year 1997, at least six
Regional Advocates attended a political appointee meeting at the
White Office, which was in keeping with an Office of Advocacy's
policy of encouraging attendance at political meetings.

Over the greater part of the 1990s, SBA hired 310 political and
Ramspeck Act employees, and, as far as we can tell, SBA HR staff
usually followed applicable laws and regulations in setting their
salaries and later in providing them periodic salary increases.
However, the documentation necessary to support certain pay
settings could not always be found. According to SBA, it had not
considered providing recruitment bonuses on a case by case basis
because it had made a policy decision not to offer such bonuses.
This reason, however, was not documented as required for those
cases where employees received advanced salary levels. SBA has
recognized that its HR staff need further guidance on pay setting
and recruitment bonuses and has drafted a new set of procedures to
provide that guidance.

SBA participates in interagency details of employees but did not
have adequate procedures to (1) accurately identify when it should
bill agencies for the reimbursable details of SBA employees and
(2) monitor the actual length of details. SBA officials agree that
an improved system of internal controls is necessary and have
taken steps in that direction. Conclusions

B-278977 Page 21 GAO/GGD-99-68 SBA Personnel Practices

We recommend that the SBA Administrator finalize and issue
standard operating procedures that include procedures for
considering recruitment bonuses, setting salaries, and documenting
those actions when SBA establishes starting salaries for newly
appointed employees at levels above the minimum step of a pay
grade.

We recommend that the SBA Administrator identify and establish
appropriate procedures for better controlling the interagency
detailing of its employees. Such procedures should ensure that the
specifics of each detail are appropriately documented and
monitored and that in the case of cost- reimbursable details, all
costs are accounted for and promptly reimbursed.

By letter dated April 1, 1999, the SBA Administrator's designee--
the Assistant Administrator for Human Resources-- commented on a
draft of this report. Although the Assistant Administrator did not
address our two recommendations directly, she noted actions that
SBA had taken or was taking that were associated with those
recommendations. In connection with the recommendation that SBA
finalize and issue standard operating procedures for considering
recruitment bonuses, setting salaries, and documenting starting
salaries that are above the minimum step of a grade, the Assistant
Administrator said SBA had finalized a policy document
establishing procedures for, and requiring consideration of,
recruitment bonuses, which it expected to publish during this
spring (1999). We believe this new policy as well as the guidance
SBA is developing on pay setting should, if effectively
implemented, meet the intent of our recommendation.

In connection with our recommendation that SBA identify and
establish appropriate procedures for better controlling
interagency details, the Assistant Administrator said SBA was
revising its detail procedures to ensure program managers know
that extensions and terminations of interagency details must now
be documented by a formal Notification of Personnel Action (SF-
50). This new procedure, she said, will insure that SBA's
personnel/ payroll system provides automated ticklers and the
combination of these actions should eliminate the possibility of
any funds from reimbursable details not being collected. It is
unclear from SBA's comments whether this new procedure is to apply
to all details or to only those details that are extended or
terminate early. If the former, then we believe such a procedure,
if effectively implemented, should meet the intent of our
recommendation. If the latter, then we believe the potential will
still exist for overlooking collections. Recommendations to

the Administrator, SBA Agency Comments and Our Evaluation

B-278977 Page 22 GAO/GGD-99-68 SBA Personnel Practices

Although the Assistant Administrator said SBA was taking these
actions, she also said SBA found the draft misleading. Most of her
letter addresses that statement, conveying SBA's problems with the
draft or providing additional information. Apparently, SBA
officials considered certain conclusions that we drew from the
facts to be overstated and certain facts that we presented to be
incorrect. For example, the Assistant Administrator cited our
conclusion that SBA usually followed appropriate laws and
regulations in setting the salaries and later in providing salary
increases for 310 political and Ramspeck Act employees. The
Assistant Administrator indicated that the term usually was
misleading because elsewhere in the report we said SBA appeared to
have followed applicable laws and regulations in providing salary
increases in 309 of the 310 cases. Information was not available
to make a determination in the remaining case.

Regarding this example, we recognize that for 309 of the 310
appointments we conclude that SBA appeared to have appropriately
provided salary increases. However, we also report a number of
cases in which SBA could not provide documentation allowing a
determination as to whether SBA followed appropriate procedures
when setting advanced salaries at the time the employees were
hired. Since receiving our draft report for comment, SBA sent
further information to us on specific cases. The cases were of
employees for whom SBA had been unable to provide documentation to
support an advanced pay setting. In the draft report, these cases
numbered 31 of the political and Ramspeck Act appointments that we
reviewed in which the starting salaries were set above the minimum
step of the grade. SBA has since found and provided us with the
information justifying the advanced pay setting for several of
these cases and we modified the report as appropriate. We now
report that justifying documentation was not available for 12
cases. Because our overall conclusion encompasses both the initial
salary setting and the periodic salary increases, we believe our
characterization that SBA usually followed applicable laws and
regulations is both fair and accurate.

Regarding recruitment bonuses, the Assistant Administrator said
that SBA had at one time considered recruitment bonuses, but had
decided as a matter of policy not to offer any. Consequently, SBA
had not developed a recruitment bonus plan, as required by
regulations. Without such a plan, the Assistant Administrator said
recruitment bonuses could not be offered. As indicated earlier,
SBA has since decided to initiate a recruitment bonus policy.

B-278977 Page 23 GAO/GGD-99-68 SBA Personnel Practices

SBA's policy decision and rationale for not using recruitment
bonuses were never mentioned by SBA officials during the course of
our work. Had the policy decision and rationale been mentioned, we
would have included those facts in the draft report. On the basis
of SBA's comments, we have reflected that information in this
report. The important point, in our opinion, is that recruitment
bonuses can be an effective and cost efficient alternative to
advanced pay setting, and we commend SBA for revisiting the issue
at our suggestion.

SBA's written comments and our further responses to them are in
appendix VI.

As agreed with the Committee, unless you publicly announce the
report's contents earlier, we plan no further distribution of it
until 30 days after the date of this letter. We will then send
copies to Senator Barbara Milkulsi and to Representative James M.
Talent, Representative Nydia M. Velazquez, Representative James T.
Walsh, and Representative Alan B. Mollohan in their capacities as
Chair or Ranking Minority Member of Senate and House Committees
and Subcommittees. We will also then send copies to the Honorable
Aida Alvarez, Administrator of SBA and to the Honorable Janice R.
Lachance, Director of OPM. Also, at that time, we will make copies
available to others on request.

Major contributors to this report are listed in app. VII. Please
contact me at (202) 512- 8676 if you or your staff have any
questions.

Sincerely yours, Michael Brostek Associate Director, Federal
Management and

Workforce Issues

Page 24 GAO/GGD-99-68 SBA Personnel Practices

Contents 1 Letter 26 Appendix I Objectives, Scope, and Methodology

31 Appendix II Status of Regional Office Employees Following
Reorganization

32 SBA Hired Six District Directors From Outside the

Agency 32

Two Cases in Which SBA Employees Were Appointed to District
Director Positions

43 Appendix III

Appointments of SBA District Directors

47 Appendix IV Additional Information on Interagency Details

49 Office of the Administrator 49 Office of the Deputy
Administrator 50 Office of the Chief of Staff 50 Office of the
Chief Operating Officer 51 Office of the Associate Administrator
for Field

Operations 51 Appendix V

Additional Information on Position Changes in Key SBA Offices

52 GAO Comments 56 Appendix VI Comments From the

Small Business Administration

Contents Page 25 GAO/GGD-99-68 SBA Personnel Practices

58 Appendix VII Major Contributors to This Report

60 Related GAO Products Table 1: Personnel Changes Made in Key SBA
Offices

From 1996 to 1998 16

Table II. 1: Status of 504 Regional Employees as of April 1997

31 Table IV. 1: Reimbursable Details From SBA to Other

Agencies During the Period FY 1992 Through FY 1998 47

Table IV. 1: Nonreimbursable Details From SBA to Other Agencies
During the Period FY 1992 Through FY 1998

48 Tables

Abbreviations

AD Administratively determined pay rate CEO chief executive
officer C. F. R. Code of Federal Regulations DOD Department of
Defense EOP Executive Office of the President ERB Executive
Resources Board HR Office of Human Resources NFC National Finance
Center OFHEO Office of Federal Housing Enterprise Oversight OPF
Official Personnel Folder OPM Office of Personnel Management RIF
reduction- in- force SBA Small Business Administration SES Senior
Executive Service SF- 50 Standard form 50, Notification of
Personnel Action SOP Standard operating procedure

Appendix I Objectives, Scope, and Methodology

Page 26 GAO/GGD-99-68 SBA Personnel Practices

Our first objective was to determine the status of Small Business
Administration (SBA) regional office employees following SBA's
reorganization and whether SBA employees were shifted to regional
offices after those offices were downsized. In addressing the
first part of this objective-- the status of regional office
employees-- we identified all employees assigned to an SBA
regional, district, or branch office as of September 2, 1993,
(which was prior to the reorganizing and downsizing efforts), and
as of April 1997 (which was after the regional offices had been
downsized.) 1 We obtained this data from SBA's Office of Human
Resources (HR) database. We then entered each employee's name, and
the office to which he or she was assigned as of those dates, into
a database that we developed specifically for this purpose. Using
our database, we sorted the information alphabetically by employee
name and manually searched for name matches. In cases where (1)
there was a name match; and (2) that employee had been assigned to
a regional office as of September 2, 1993, we were able to
determine that employee's employment status as of April 1997. In
cases where (1) there was no name match; and (2) that employee had
been assigned to a regional office as of September 2, 1993, we
took additional steps to determine the employee's status. In those
cases, we provided each name to SBA's HR officials and asked that
information on the status of each be determined. HR officials
provided us with documents from their database on each of those
employees for whom a record existed. The documents showed that the
employees resigned, retired, died, or were otherwise separated
from the agency during the period September 2, 1993, through April
1997. In some cases employees' records were no longer in the
database, and their status could not be determined.

In addressing the second part of this objective-- the shifting of
personnel- we determined that SBA officials do not usually
document the temporary shifting of employees from one office to
another. So, in order to obtain information on such shifting, we
interviewed cognizant HR officials. These officials, on our
behalf, also canvassed appropriate regional and district office
staff for specific instances in which personnel were shifted to
the regional offices and provided that information to us. In some
cases we discussed specific instances of personnel shifts directly
with district office officials.

1 We did not consider SBA's small number of post- of- duty offices
because typically only 1 SBA employee was assigned to a post- of-
duty office. According to SBA Human Resources officials, the
downsizing of the regional offices had little, if any, effect on
the employees assigned to the post- of- duty offices.

Appendix I Objectives, Scope, and Methodology

Page 27 GAO/GGD-99-68 SBA Personnel Practices

Our second objective was to determine whether SBA followed
applicable policies and procedures when appointing-- and setting
the starting salaries of-- individuals hired during the period
January 1, 1993, through December 31, 1998, from outside of SBA
for the position of District Director, and the procedures SBA's
Office of Advocacy used in hiring Regional Advocates and Assistant
Advocates during calendar year 1998. In addressing the first part
of this objective-- the procedures used to hire District Directors
from outside SBA and to set their salaries-- we asked HR officials
to identify all District Director changes that occurred between
January 1, 1993, and December 31, 1998. We then focused upon six
cases in which the District Director positions were filled by
outside hires. We identified the starting salaries set by SBA in
each of the six cases and, using previous employment and salary
information contained in the individual's application materials,
referenced that information to the applicable federal laws and
regulations regarding salary setting to determine if SBA complied
with the laws and regulations. We also determined where the other
individuals who were appointed to District Director positions
since January 1, 1993, had come from; and we focused upon two
cases involving individuals who had held non- District Director
SBA positions before being appointed as District Directors. For
each of the eight cases, we reviewed available information,
including available competitive examination process case files. In
some cases the appointments were made over 2 years before our
review began, and SBA did not have a complete case file on the
examination and appointment process. We examined available records
and compared the examination and appointment procedures used to
the competitive examination and appointment requirements contained
in the Code of Federal Regulations (C. F. R.) and contained in
SBA's merit staffing plan.

In addressing the second part of the objective-- the procedures
used by SBA's Office of Advocacy to hire Regional Advocates and
Assistant Advocates during 1998-- we first obtained a copy of, and
reviewed, the federal statute that provides unique hiring
authority to the Chief Counsel for Advocacy. We then interviewed
the Deputy Chief Counsel for Advocacy and obtained information on
nine employees hired during calendar year 1998. We examined
information contained in each of their official personnel folders
(OPFs), including the appointment authorities that were cited and
the period of their appointments. Because the Chief Counsel for
Advocacy has special hiring authority that is exempt from
competitive examination procedures, case files and other
documentation that is required under competitive examination
procedures did not exist in these cases. As a result, we had to
rely principally upon interviews with

Appendix I Objectives, Scope, and Methodology

Page 28 GAO/GGD-99-68 SBA Personnel Practices

the Chief and Deputy Chief Counsels for Advocacy in determining
the recruiting and hiring processes that were used in these cases.

Our third objective was to determine if SBA followed applicable
federal laws and regulations to set the salaries of, and provide
salary increases to, political appointees and former congressional
(Ramspeck Act) employees hired between October 1, 1991, and
September 30, 1998. We first identified those employees by
obtaining an accession list from HR officials of political
appointees and former congressional employees hired under the
Ramspeck Act since October 1, 1991. 2 We then obtained the OPF of
each of those employees and reviewed standard forms 50B (SF- 50s)
that were filed in the OPFs. SF- 50s contained salary setting and
salary increase information on each employee and are supposed to
be a permanent part of an employee's OPF. We examined the salaries
that SBA set for those employees and the salary increases SBA
provided to them for compliance with the regulations governing
salary setting and salary increases contained in the C. F. R. and
in SBA's policies. Because OPFs are to be maintained by the
agencies for which the employees work, we obtained OPFs from (1)
SBA's HR officials in cases in which the employee was still
working for SBA at the time of our review, (2) HR officials of
other agencies in cases where the employees had transferred from
SBA to another agency, and (3) officials of the National Archives
and Records Administration's National Personnel Records Center in
cases in which the employees were no longer working for the
government and their OPFs had been archived. In some cases, we
were unable to locate and obtain OPFs of former SBA employees. In
those cases we relied instead on personnel records contained in
SBA's personnel database.

Our fourth objective was to determine whether SBA adequately
controlled the interagency detailing of its employees during
fiscal years 1992 through 1998. We obtained information from SBA's
HR officials that identified the SBA employees who were detailed
to other agencies and the agencies to which they were detailed
during that time period. (SBA officials also provided us with
information on other agency employees who were detailed to SBA.)
We searched federal regulations, Comptroller General decisions,
and the Federal Personnel Manual (now no longer in use) to
ascertain what governmentwide guidance was available to SBA on the

2 For purposes of this review, we defined political appointees as
those receiving appointments to executive schedule positions,
those appointed to noncareer Senior Executive Service (SES)
positions, those appointed under excepted service schedules A and
C authorities, and those appointed to positions involving
administratively determined (AD) pay rates. Regarding former
congressional employees, we examined the salary setting and salary
increases only for those hired under authority provided by the
former Ramspeck Act of 1940 (5 U. S. C. 3304( c)), which was
repealed by Congress effective December 19, 1997.

Appendix I Objectives, Scope, and Methodology

Page 29 GAO/GGD-99-68 SBA Personnel Practices

matter of interagency details. We also obtained from SBA's HR
officials agency personnel guidance regarding the detailing of
employees and the interagency agreements that were used to effect
and set the terms of the details. We examined the OPFs of those
SBA employees who were detailed and searched for relevant
documentation supporting the details. Using all available
documented information, as well as information obtained from
interviews of officials from SBA's Office of Human Resources, we
compared the circumstances of each detail to the criteria for
details included within SBA's personnel guidance. Using available
documented information, as well as information obtained from
interviews with officials from SBA's Office of the Chief Financial
Officer, we examined (1) the status of recovering costs associated
with the reimbursable interagency details and (2) the length of
time each detail was to last and actually lasted.

Our fifth objective was to determine what positions were newly
created or abolished between March 1996 and March 1998 in SBA's
Office of the Administrator, Office of the Deputy Administrator,
Office of the Chief of Staff, Office of the Chief Operating
Officer, and Office of the Associate Administrator for Field
Operations and what were the sources of appointees to the newly
created positions and the status of those employees in the
abolished positions. We first determined the staffing changes that
had occurred in each of those offices by comparing the
organizational section of SBA's telephone books for 1996 and 1998.
Those organizational sections identified specific employees of
each of those offices by name and title. For those positions that
were newly established since 1996, we obtained position
descriptions from SBA's HR officials. We then interviewed SBA's HR
and Chief of Staff officials to discuss establishing and making
appointments to those new positions. We also discussed with them
the circumstances related to positions being abolished. We
examined information contained in the official personnel folders
or examined relevant personnel information otherwise available and
maintained by SBA's Office of Human Resources to determine the
status of those employees whose positions were abolished.

Our sixth objective was to determine the status of SBA's response
to a December 1997 congressional mandate to establish a Senior
Executive Service (SES) position within SBA's Office of Women's
Business Ownership. We first researched the law mandating that the
position be established. We then obtained information from SBA's
HR officials on all executive level positions that had been
established and filled during the fiscal year the legislative
mandate became effective. We interviewed cognizant SBA officials
and obtained their explanation, as well as relevant

Appendix I Objectives, Scope, and Methodology

Page 30 GAO/GGD-99-68 SBA Personnel Practices

documents, as to the status of the establishment and filling of
the mandated position. We compared this information to information
we obtained from SBA on how it established and filled other Senior
Executive Service positions during the period after the
congressional mandate but prior to compliance with the mandate.

Finally, our seventh objective was to determine whether SBA
Regional Advocates attended a White House- sponsored political
appointee meeting during fiscal year 1997. Our first step in
determining which Regional Advocates attended the White House-
sponsored meeting was to obtain their travel vouchers and review
them for evidence that they traveled to the White House. We then
contacted White House officials and confirmed that the Regional
Advocates had visited the White House on the date the meeting
occurred. We prepared a summary schedule of each instance we found
and then contacted six former or current Regional Advocates by
telephone to discuss the circumstances of their visits to the
White House. We also interviewed the Chief and Deputy Chief
Counsels for Advocacy and obtained their perspectives on why the
Regional Advocates may have attended the White House- sponsored
meeting.

In addressing our seven objectives, we relied extensively upon
personnel records provided to us by SBA's HR officials. Some of
the information contained in those records dated back to before
October 1991. A significant portion of the records came from SBA's
personnel records database. This database is contained on
computers maintained by the U. S. Department of Agriculture's
National Finance Center (NFC) in New Orleans, LA. NFC provides
computer- based payroll and personnel services to many federal
agencies, and the system is periodically examined for reliability
by government and outside auditors.

We did our work in Washington, D. C.; Denver, CO; and St. Louis,
MO; from March 1997 through January 1999 in accordance with
generally accepted government auditing standards. We obtained
written comments on a draft of this report from SBA. These
comments are discussed on page 37 of this letter and are reprinted
in appendix VI.

Appendix II Status of Regional Office Employees Following
Reorganization

Page 31 GAO/GGD-99-68 SBA Personnel Practices

On the basis of personnel- related data as of September 2, 1993,
and as of April 1997, and provided to us by SBA Office of Human
Resources (HR) officials, we determined that the total number of
employees assigned to SBA's 10 regional offices was reduced from
504 to 29. We examined additional individual records that were
available and determined the status-- following SBA's reorganizing
and downsizing efforts-- of all but 25 of the 504 employees. In
the 25 cases, individual employee records were not readily
available, so the status of those employees could not be
determined. Table II. 1 below shows the status by the regional
offices to which the 504 employees were assigned.

Status Regional office

Employees assigned as

of 9/ 93 Employees

assigned as of 4/ 97 Transferred/

remained a Retired Resigned Removed b Died Appt. expired Unacct'd
for

Atlanta 77 3 44 17 11 2 3 Boston 41 2 27 6 5 3 Chicago 68 3 36 17
6 4 1 4 Dallas/ Ft. Worth 60 4 38 13 7 2 Denver 41 3 23 9 3 2 4
Kansas City 36 3 22 10 1 1 2 New York City 7 3 4 2 1 Philadelphia
74 3 55 14 3 1 1 San Francisco 64 3 45 9 8 2 Seattle 36 2 22 8 2 1
3 Total 504 29 c 316 105 46 7 3 2 25

a 10 employees remained assigned to their regional offices. b
According to SBA HR officials, these employees were removed from
their positions and employment with SBA after they refused to
participate in (1) SBA's transfer program or (2) SBA's separation
incentives program. c Includes 19 newly assigned employees
consisting of 10 Regional Administrators and 9 staff.

Source: SBA personnel database.

Table II. 1: Status of 504 Regional Employees as of April 1997

Appendix III Appointments of SBA District Directors

Page 32 GAO/GGD-99-68 SBA Personnel Practices

SBA had 69 district offices in 1998 located throughout the United
States and in Puerto Rico. During the period January 1, 1993,
through December 31, 1998, SBA appointed 46 District Directors to
39 district offices .1 In 6 of the 46 cases, the District
Directors were newly hired and appointed to their positions from
outside SBA after participating in a competitive examination
process. In the other 40 cases, the individuals appointed were
employees of SBA. This appendix provides case information on the
six cases where the District Directors came from outside SBA. It
also provides information about the appointments of SBA employees
to District Director positions.

During calendar years 1994, 1996, 1997, and 1998, SBA filled six
vacant District Director positions with outside hires under
competitive examination processes. In each of the six cases, to
the extent that relevant documentation was available to review, we
examined the steps SBA followed in the appointment process and
determined that SBA appeared to have followed all relevant federal
laws and regulations. In each case the individual selected was
listed among the best- qualified candidates. In one case, we
received allegations that the appointee benefited from favoritism
through use of political connections in obtaining her career
appointment as a District Director. We identified information that
indicated that the appointee had worked for the Office of the
Governor of Colorado. The Governor of Colorado also served as the
Chairman of the Democratic National Committee at the time the
appointee obtained her District Director position in Denver,
Colorado. Despite obvious political connections to the Democratic
party, we did not identify factors that we believe would prove
favoritism was involved in the appointment process in this case.
Determining whether or not favoritism was used in such a case is
extremely difficult and can be done only if the intent and
motivation of the selecting officials were known. Each of the six
cases we reviewed is presented separately below.

Case 1: On May 26, 1994, a former SBA employee was appointed to
the position of District Director of the Washington, D. C.,
District Office. Most District Director positions in SBA are at
the GS- 14 or GS- 15 grade level. However, this position was
advertised in the vacancy announcement as an SES career position
and was open to all qualified federal employees.

1 The number of appointments exceeded the number of offices
because some individuals received multiple appointments during the
time period; e. g., they were reassigned from one District
Director position to another. SBA Hired Six District

Directors From Outside the Agency

Appendix III Appointments of SBA District Directors

Page 33 GAO/GGD-99-68 SBA Personnel Practices

During the years 1985 through 1988 the appointee served in a
noncareer SES capacity at SBA as Associate Administrator for
Minority Small Business. Since then, he had held other high- level
positions at the Departments of Commerce and State as well as in
the private sector. Information contained in his application
materials showed that he had received a Bachelor of Arts degree in
sociology from the University of Puerto Rico. Also, information
contained in his application materials showed that his salary had
progressed from about $23,000 per year in 1976 when employed by
the former U. S. Department of Health, Education, and Welfare, to
$68,000 per year in 1985 when initially employed by SBA; to
$90,000 per year in 1994 when employed by the Department of
Commerce; and finally, to about $112,000 when appointed by SBA to
the SES District Director of Washington, D. C. position .2

Relevant documentation regarding the other applicants and the
competitive examination process used to fill this District
Director position was unavailable. According to SBA's HR
officials, there was no requirement to retain such information
beyond 2 years and it is possible that the information was
destroyed before we began our review .3

Case 2: On June 19, 1994, an individual experienced in banking and
mortgage lending was appointed to the position of District
Director of the Cleveland, OH, District Office. Information in his
resume showed that he received a Bachelor of Science degree in
International Affairs from Georgetown University and a Master of
Business Administration degree from the University of Notre Dame.
Also, information contained in his resume showed that his salary
had progressed from about $38,000 per year in 1978 as a Vice
President of a bank, to about $75,000 per year in 1991 as a Vice
President of a different bank. This individual's salary decreased
to about $68,000 when he was appointed by SBA to the GS- 15, step
1, District Director of Cleveland, OH, position.

This individual was selected through a competitive examination
process that began with a vacancy announcement advertising the job
as a GS- 14/ 15

2 SES appointments are not subject to the rules and regulations of
title 5 of the U. S. Code that pertain to competitive service
appointments, and heads of agencies have greater discretion in
setting the salaries of SES appointees.

3 According to 5 C. F. R. 335.103( b)( 5) such records may be
destroyed after 2 years or after the agency's merit promotion
program has been formally evaluated by the U. S. Office of
Personnel Management (OPM).

Appendix III Appointments of SBA District Directors

Page 34 GAO/GGD-99-68 SBA Personnel Practices

position open to all qualified applicants in the United States.
Information obtained from SBA showed that before the position was
advertised, an SBA employee who had graduated from SBA's District
Director Candidate Development Program had expressed interest in
being appointed to the position. According to SBA's HR officials,
successful graduates of SBA's District Director Candidate
Development Program can be noncompetitively appointed to District
Director positions. HR officials told us they conveyed to the SBA
Administrator the employee's interest in being appointed to the
position. However, according to the HR officials, without
explanation the SBA Administrator directed that the position be
advertised to the public.

Information obtained from the Office of Human Resources showed at
least 37 individuals applied for the position. After evaluating
the qualifications of the 37 applicants, SBA's Office of Human
Resources established two certificates of numerically rank-
ordered applicants from which a selection could be made. One
certificate contained the names of five applicants eligible for
appointment at the GS- 15 grade level. The other certificate
contained the names of five applicants eligible for appointment at
the GS14 grade level. According to federal personnel regulations,
an individual selected from a rank- ordered certificate should be
among the top three highest- ranked applicants on the certificate,
and a preference- eligible veteran should not be bypassed. In this
case, the appointee was selected from the GS- 15 certificate. He
was tied with another applicant in having the highest numerical
ranking of those listed on that certificate, and both of them were
awarded 5 extra points because they provided evidence of being
preference- eligible veterans. The appointee was ranked second
highest on the GS- 14 certificate. The highest ranking applicant
on that certificate claimed to be a preference- eligible veteran
and was awarded 10 extra points because he claimed to be at least
10- percent disabled.

Information regarding the SBA employee who had graduated from the
District Director Candidate Development Program and who had
indicated an interest in being appointed to the position showed
that he was serving as a GS- 13 Financial Analyst in SBA. The
information also showed that he had received a Bachelor degree in
Business Administration from Howard University.

Documentation on the other applicants who applied under the
vacancy announcement was not available. According to officials
from the Office of Human Resources, given that the case was over 3
years old at the time of our review, most of the documentation
regarding those applicants was likely destroyed.

Appendix III Appointments of SBA District Directors

Page 35 GAO/GGD-99-68 SBA Personnel Practices

Case 3: On May 29, 1996, an individual who had previously served
as an SBA Regional Administrator, and who had since worked as an
executive in banking and communications and in the Government of
Puerto Rico, was appointed to the position of District Director of
the Hato Rey, PR, District Office. According to information
contained in his application materials, he received a Bachelor of
Arts degree in government and economics from the University of
Puerto Rico and had met the credit requirements for a Master of
Public Administration degree at New York University. Also,
information contained in his application materials showed that his
salary had progressed from about $16,000 per year in 1970 when
employed as an Assistant Vice President of a bank; to about
$50,000 in 1977 when employed as a GS- 17 SBA Regional
Administrator for New York; to about $86,000 in 1996 as the Deputy
Administrator for Economic Development Administration, Government
of Puerto Rico; and finally to about $90,000 when appointed by SBA
to the GS- 15, step 10, District Director of Hato Rey, PR,
position .4

This individual was selected for the District Director position
through a competitive examination process that began with a
vacancy announcement advertising the job as a GS- 14/ 15 position
open to all qualified applicants. Information obtained from SBA's
Office of Human Resources showed that at least 27 people applied
for the position. After evaluating the qualifications of the 27
applicants, SBA's Office of Human Resources established two
certificates of numerically rank- ordered applicants from which a
selection could be made. One certificate contained the names of
six applicants eligible for appointment at the GS- 15 grade level.
The other certificate contained the names of 12 applicants
eligible for appointment at the GS- 14 grade level. The appointee
was selected from the GS- 15 certificate on which he was the
highest- ranking applicant. He provided evidence of being a
preference- eligible veteran and was awarded 5 extra points. He
was also the highest- ranking applicant on the GS- 14 certificate.

Application materials from other applicants for this position were
available for our review. We reviewed the employment histories and
education information contained in those application materials.
The applicant who was ranked second highest on the GS- 15
certificate had served as Secretary of the Treasury of the
Government of Puerto Rico in the 1980s.

4 The SES, established in 1978, incorporated the GS pay grades of
GS- 16, 17, and 18. Therefore, this individual's pay grade during
the period when he was Regional Administrator of SBA's New York
Office was equivalent to today's SES pay grades.

Appendix III Appointments of SBA District Directors

Page 36 GAO/GGD-99-68 SBA Personnel Practices

Also, she had served in executive positions with a major bank, a
State of New York finance agency, and in a private sector
securities corporation. This applicant received a Bachelor of
Business Administration degree from the University of Puerto Rico
and a Master of Business Administration degree from the Wharton
School of Business. She would have been the highest- ranked
applicant on the GS- 15 certificate had the appointee not
benefited from 5 extra points awarded under provisions of veteran
preference laws. The third highest- ranked applicant on the GS- 15
certificate was employed by SBA as a GS- 14 Supervisory Attorney
in a District Office. He too had received a Bachelor's degree from
the University of Puerto Rico. In addition, he claimed he had met
all credit requirements for a Master of Public Administration
degree from that same University and a Juris Doctorate degree from
the Inter- American University.

Case 4: On February 3, 1997, an individual who had previously
worked in the State of Colorado Governor's Office was appointed to
the position of District Director of the Denver, CO, District
Office. According to her application materials, at the time she
applied for the District Director position, she was serving as the
Director for Citizen Advocacy and Outreach and as the Colorado
State Diversity Coordinator for the Government of Colorado State.
Before that, she was in business for herself as a human resources
consultant and had worked for OPM as a GS- 11 Personnel Management
Specialist. Her application materials indicated that she had
earned college credits in business administration courses from the
University of Albuquerque and from the University of New Mexico.
However, there was no indication that she had earned a college
degree. None of the vacancy announcements for District Director
positions we reviewed stated that a college degree was required.
Also, her application materials showed her salary had progressed
from about $14,000 per year in 1974 when she was employed as a GS-
9 Administrative Assistant working at the Caribou National Forest;
to about $31,000 per year in 1984 when employed as a Personnel
Management Specialist by OPM; to $100,000 per year in 1990 as a
self- employed human resources consultant. This individual's
salary decreased to about $77,000 when she was appointed by SBA to
the GS- 14, step 7, District Director of Denver, CO, position.

She was selected for the District Director position through a
competitive examination process that began with a vacancy
announcement advertising the job as a GS- 14/ 15 position open to
all recruiting sources. At least 45 other applicants had applied
for the position. After reviewing the application materials of all
of the applicants, SBA's HR officials prepared several
certificates and rosters of eligibles from which a selection could
be

Appendix III Appointments of SBA District Directors

Page 37 GAO/GGD-99-68 SBA Personnel Practices

made .5 One certificate contained the names of eight applicants,
in numerically ranked order, eligible for appointment at the GS-
15 level. Another certificate contained the names of 18
applicants, in numerically ranked order, eligible for appointment
at the GS- 14 level. The appointee was selected from a separate
roster of applicants eligible for appointment at the GS- 14 level
under SBA's Merit Promotion and Placement Program. This was an
alphabetical listing of 11 qualified applicants who already had
competitive service status in the government. The appointee had
acquired competitive service status from her previous employment
with the federal government and was therefore eligible to be
reinstated into the competitive service. According to 5 C. F. R.
335.103( b)( 4), agencies may consider applicants eligible for
reinstatement into the competitive service as part of the agency's
merit promotion program.

We became aware of allegations that the appointee obtained this
District Director position through her political connections. We
noted that the appointee's application materials showed that at
the time she applied for the position, she was working for the
Office of the Governor of Colorado. The Governor was also serving
at the time as the Chairman of the Democratic National Committee.
Through this position, he had dealings with other Democratic party
leaders, including President Clinton. We also noted that a key
official in the selection process was the Regional Administrator
of SBA's Denver Regional Office. The person selected as the
District Director of the Denver, CO, District Office would be
reporting to the Regional Administrator. The Denver Regional
Administrator, as well as the other nine SBA Regional
Administrators, were political appointees. However, despite these
facts, and the appearance they give that favoritism could have
been involved in the selection process, we did not identify other
factors that would conclusively demonstrate that favoritism was in
fact used in the appointment process in this case. According to a
memorandum from the Chairman of SBA's Executive Resources Board
(ERB) to the SBA Administrator, the ERB Chairman and the Regional
Administrator of SBA's Denver Regional Office, the Assistant
Administrator of SBA's Office of Human Resources, and three other
SBA officials had interviewed the appointee and two other
candidates.

5 A certificate of eligibles is used when the applicants do not
have competitive service status and their qualifications must
therefore be examined and rated numerically against other
nonstatus applicants. The selecting official is required to select
from the top three rated applicants on the certificate and may not
pass over a preference- eligible for a nonpreference- eligible
without sufficient justification. A roster of eligibles is
prepared for applicants who do have competitive service status and
whose qualifications meet the minimum requirements for the
position. These applicants are listed in alphabetical order, and
the selecting official may select anyone on the alphabetical list.

Appendix III Appointments of SBA District Directors

Page 38 GAO/GGD-99-68 SBA Personnel Practices

According to the memo, they determined that the appointee was
clearly the top choice of each of the interviewers. They said that
the appointee had demonstrated the requisite ability, energy, and
enthusiasm needed for the position.

Employment histories and education information contained in the
application materials of the other two candidates who were
interviewed showed that one was a GS- 14 Supervisory Contract
Specialist at another federal government agency. This applicant
received a Bachelor of Science degree in Human Resource Management
from the University of Wyoming and a Master of Business
Administration degree from California State University. The other
applicant who was interviewed was the Acting District Director of
the Denver District Office. He had obtained a temporary promotion
to the GS- 15 level as the Acting District Director. His
application materials indicated he had taken college courses in
accounting, but there was no indication that he had earned a
college degree.

Information contained in the application materials of the two
highestranking applicants on the GS- 15 certificate showed that
the highest- ranked applicant had been the Deputy Director for
Economic Development for the State of Ohio. He received a Bachelor
of Science degree from Tennessee State University in 1969 and a
Master of Administration degree from Central Michigan University
in 1979. The second highest- ranked applicant on this certificate
had been a Credit Specialist with the Federal Deposit Insurance
Corporation. Before that he was an executive level Subsidiary
Program Manager at the Resolution Trust Corporation and had served
as a Vice President of two different banks. He received a Bachelor
of Science degree from California State Polytechnic University in
1968 and a Master of Business Administration degree from that same
university in 1972.

Information contained in the application materials of the two
highestranking applicants on the GS- 14 certificate showed that
the highest- ranked applicant had been a GS- 13 (equivalent)
Supervisory Management Analyst with the Department of the Army. He
received a Bachelor of Arts degree in sociology from the
University of the State of New York in 1976. He also received a
Master of Business Administration degree from Pepperdine
University in 1987. The second highest- ranked applicant on this
certificate had been an executive level Director of Asset
Management at the Resolution Trust Corporation. Prior to that he
had served as General Counsel and Senior Vice President of a
savings and loan association. He received a Bachelor of Science
degree in public administration from Florida State University in
1957, and a Juris Doctorate degree from Florida State University
in 1973.

Appendix III Appointments of SBA District Directors

Page 39 GAO/GGD-99-68 SBA Personnel Practices

Case 5: On August 11, 1998, an individual who had previously been
an entrepreneur in the home health services field was appointed to
the position of District Director of the New Orleans, LA, District
Office. According to information contained in his application
materials, as an entrepreneur the individual had participated in
many of the SBA's programs. The individual's application materials
cited the names of U. S. and local politicians who could be
contacted as references for the individual and contained letters
of recommendation from local politicians. According to information
contained in his application materials, the individual obtained a
Master of Business Administration degree from the University of
New Orleans and a Bachelor of Science degree from Xavier
University of New Orleans. The application materials also showed
that his salary had progressed from about $14,000 per year in 1974
when employed as a Vice President of an oil fields drilling fluids
and service company; to $65,000 per year in 1992 as the Chief
Executive Officer (CEO) of a precision machine shop; to $75,000 in
1997 as President and CEO of his own home health care company; and
finally to about $76,000 when appointed by SBA to the GS- 15, step
1, District Director of New Orleans, LA, position.

This individual was selected for the District Director position
through a competitive examination process that began with a
vacancy announcement advertising the job as a GS- 14/ 15 position
open to all recruiting sources. According to a SBA HR official who
initially reviewed all application packages for this position,
between 60 and 70 people applied for the position. Information
obtained from SBA's Office of Human Resources showed that 5
selection certificates and rosters were prepared that contained
the names of 21 applicants found to be best qualified for the
position. Two certificates contained the names of best- qualified
applicants in numerically ranked order, and three rosters
contained the names of best- qualified applicants in alphabetical
order. Of the two numerically ranked certificates, one contained
the names of three individuals, including the appointee, who were
eligible for appointment at the GS- 14 level. The appointee ranked
third on this certificate. The other numerically ranked
certificate contained the names of three individuals, including
the appointee, who were eligible for appointment at the GS- 15
level; the appointee was ranked second on this certificate and was
appointed from it. However, the original certificate did not
contain the appointee's name, and the certificate was amended to
include it. According to the SBA HR official who handled the case,
he was initially unaware that the appointee's application package
contained both an abbreviated resume and a more substantive
resume. The HR official told us that he examined the abbreviated
resume and determined the appointee was eligible for

Appendix III Appointments of SBA District Directors

Page 40 GAO/GGD-99-68 SBA Personnel Practices

appointment only at the GS- 14 level. According to the HR
official, when the appointee learned that he was selected for
appointment at the GS- 14 level, the appointee appealed for
reconsideration for appointment at the GS- 15 level. The official
told us that during a discussion of the matter with the appointee,
the appointee referred to the substantive resume that he had
submitted as part of his application materials. The HR official
told us that he reexamined the appointee's application materials
and found that the more substantive resume had been overlooked. On
the basis of the HR official's reexamination of the application
materials including the more substantive resume and on the basis
of an independent examination of the same application materials by
a second HR official, a determination was made that the appointee
did qualify for appointment at the GS- 15 level. As a result, an
amended certificate was prepared to include the appointee's name.

The SBA HR official who conducted the initial examination and the
reexamination told us that such mistakes sometimes occur because
of the overwhelming number of applicants and the volume of
materials each applicant submits for District Director positions.
He also said that new procedures have recently been put into place
that require a second HR official to also examine all application
packages for the District Director positions. He believes the use
of two independent examiners should help prevent the reoccurrence
of such mistakes.

Of the three rosters from which a selection could have been made,
one contained the names of two individuals in alphabetical order
who had indicated interest in being transferred to the position at
the GS- 15 level. A second roster contained the names of two
individuals in alphabetical order who were found eligible for
promotion to the position at the GS- 15 level. And the third
roster contained the names of 11 individuals in alphabetical order
who were found eligible for promotion to the position at the GS-
14 level.

We noted that the appointee's application materials contained the
names of two U. S. Senators and two U. S. Representatives, all
from Louisiana, who could be contacted as references for the
applicant. Also cited as references were the names of the mayors
of the cities of New Orleans and Alexandria, LA. The application
materials also included letters of recommendation from the mayors
of the cities of Slidell and Opelousas, LA, as well as from
several councilmen of the city of New Orleans. On the basis of
these cited references and letters of recommendation, we
questioned SBA's HR officials about any political connections that
may have been used in the competitive examination process. SBA HR
officials from both

Appendix III Appointments of SBA District Directors

Page 41 GAO/GGD-99-68 SBA Personnel Practices

headquarters and from the SBA Denver, CO, personnel processing
center told us that other than the information that was contained
in the application package, they were not aware of any political
connections the appointee may have had within SBA or elsewhere
within the administration. They also claimed that they did not
contact the cited references and that there was absolutely no
pressure of any kind placed upon them as they conducted the
competitive examination process in this case. Other than the
information contained in the application materials, we did not
identify any other information that would indicate the use of
political connections in this case. We did inquire about whether
or not the appointee remained involved with any prior business
that may be participating in SBA programs. SBA's HR officials told
us that the appointee was completely out of all prior businesses
at the time that he was appointed to the District Director
position.

Our review of the application packages of the other best-
qualified applicants is summarized below.

Of the two other individuals who were listed on the numerically
ranked GS- 15 certificate from which the appointee was selected,
both were SBA employees. One had been serving as the Acting
District Director of the New Orleans District Office since
December 17, 1997; and the other was serving as the District
Director of SBA's Detroit, MI, District Office. The Acting
District Director was formerly the Assistant District Director for
Economic Development, Finance, and Investment. According to his
application materials, he obtained a Bachelor of Science degree in
Personnel Management in 1961 from Louisianna State University.
According to the other individual's application materials, he had
been serving as the District Director of the Detroit, MI, District
Office since June 1995 and obtained a Bachelor of Science degree
in Mathematics from Howard University in 1968.

Of the other two individuals who were listed on the numerically
ranked GS- 14 certificate, one was a GS- 13 Supervisory Business
Marketing Executive with the Defense Reutilization and Marketing
Service. According to his application materials, he obtained a
Bachelor of Arts degree in Business Administration from the
University of Maryland in 1975 and a Master of Arts degree in
Management Supervision and Personnel Management from Central
Michigan University in 1981. According to application materials
from the other individual, he was president and owner of a steel
cleaning, coating, and fabrication company. His application
materials showed he obtained a Bachelor of Arts degree in
engineering sciences from Dartmouth College in 1975 and had taken

Appendix III Appointments of SBA District Directors

Page 42 GAO/GGD-99-68 SBA Personnel Practices

master- level courses in finance and engineering at the University
of Pittsburgh and at the Illinois Institute of Technology.

Application materials from applicants listed alphabetically on the
rosters showed they had acquired levels of experience and
education that ranged from being a GS- 15 director of another
agency federal program and having a doctorate degree in
engineering, to current SBA employees serving in positions of a
lesser grade and responsibility than that of District Director and
having various levels of formal education.

Case 6: On August 30, 1998, an individual who had previously been
a GS- 15 Industrial Production Officer in the Department of the
Air Force was appointed to the position of District Director of
the Sacramento, CA, District Office. Information contained in the
appointee's application materials showed that this individual
obtained a Bachelor of Science degree from Wayland College in
1979. The information also showed that the individual's salary
progressed from about $46,000 per year in 1990 when he retired
from the Air Force at the rank of Captain; to about $51,500 per
year in 1995 as a GS- 13 civilian employee of the Air Force; to
$75,000 per year in 1997 as a GS- 15 Division Chief in the Air
Force; and finally to about $82,000 when appointed by SBA to the
GS- 14, step 8, District Director of the Sacramento, CA, position.

SBA conducted a competitive examination in filling this position
that began with a vacancy announcement advertising the job as a
GS- 14/ 15 position open to all sources. Information regarding the
total number of applicants for this position was not included in
the materials we reviewed. However, available information showed
that SBA established 6 certificates and rosters containing the
names of 17 applicants whom SBA had determined to be the best-
qualified applicants for the position. The appointee already had
competitive service status from his previous employment with the
Air Force, and SBA found him qualified for appointment to the
District Director position at the GS- 14 level. His name was
listed on the GS- 14 roster in alphabetical order with the names
of other status applicants found to be qualified for appointment
at that level. The appointee's application materials included (1)
a letter from him to SBA advising that he was to be adversely
affected by a reduction in force (RIF) action due to the upcoming
closure of his Air Force base and (2) a copy of a memorandum to
him from the Air Force advising him of the impending RIF.

Of the six certificates and rosters from which a selection could
have been made, one was a certificate that contained the names of
seven individuals

Appendix III Appointments of SBA District Directors

Page 43 GAO/GGD-99-68 SBA Personnel Practices

in numerically ranked order who were eligible for appointment to
the position at the GS- 14 level. The top three candidates on that
list included a GS- 13 Project Manager employed by the Department
of Defense (DOD); a Chief Administrative Officer of a California
university school of medicine; and the owner of the steel
cleaning, coating, and fabrication company who was also identified
as a top candidate for the position discussed in case 5 above.
Application materials from the GS- 13 DOD Project Manager showed
that he obtained a Bachelor of Science degree in journalism from
Northwestern University and a Master of Arts degree in economic
development from the University of Wisconsin. The dates these
degrees were awarded were not shown. The application materials
from the Administrative Officer of a California university school
of medicine showed that he obtained a Bachelor of Science degree
from the University of California in 1972, a Master of Business
Administration degree from UCLA in 1976, and a Master in Public
Health degree from UCLA in 1976. The materials also showed that he
was working on a doctoral degree in public policy when he applied
for the District Director position.

Five rosters contained the names of 13 individuals, in
alphabetical order, including the appointee, who were eligible for
promotion to either the GS14 or GS- 15 level, were eligible for
transfer at either the GS- 14 or GS- 15 level, or were eligible
for noncompetitive appointment at the GS- 14 level due to Peace
Corps service. Application materials from the nonselected
applicants on these rosters showed they had acquired levels of
experience and education that ranged from being a former GS- 15
Deputy Regional Manager at SBA and having a Master of Public
Administration degree; to the former Peace Corps Volunteer who
also had been a partner in a law firm and, in addition to her
Juris Doctorate degree in law, had obtained a Master of Business
Administration degree from the University of California at
Berkeley in 1983, a Master of Arts degree in Special Education
from the University of Northern Colorado in 1975, and a Bachelor
of Arts degree in Sociology from Colorado College in 1972.

As noted earlier in this appendix, 40 appointments of SBA
employees were made to District Director positions between January
1, 1993, and December 4, 1998. In 14 of these appointments, the
individuals had recently graduated from SBA's District Director
Candidate Development Program and were noncompetitively appointed
to their District Director positions. In nine of these
appointments, the individuals had been reassigned from District
Director positions in other district offices. In the remaining 17
cases, the individuals had held various other positions at SBA and
had either competed for, or were reassigned to, their District
Director positions. Two Cases in Which

SBA Employees Were Appointed to District Director Positions

Appendix III Appointments of SBA District Directors

Page 44 GAO/GGD-99-68 SBA Personnel Practices

In order to understand how some of these latter appointments to
District Director were made, we examined the circumstances in 2 of
the 17 cases. In both cases, on the basis of the information
available for our review, it appeared that SBA followed procedures
consistent with federal laws and regulations in filling the
District Director positions.

Case 1: On July 23, 1995, the SBA Deputy Regional Administrator
for region I in Boston, MA, was reassigned to the position of
District Director of the Boston District Office. The previous
District Director retired. According to an SBA HR official
familiar with this case, there were two principal reasons for
reassigning the Deputy Regional Administrator to the position of
District Director of the Boston office. First, as part of SBA's
reorganization and downsizing effort, the number of employees at
each of the 10 SBA Regional Offices was being significantly
reduced. As a result, there was a need to reassign the Deputy
Regional Administrator to another position within SBA. Second, the
HR official told us that the Boston District Director vacancy had
been advertised to the public, but SBA management was not happy
with the quality of the applicants and determined that reassigning
the Deputy Regional Administrator to that position was the best
option.

According to information contained in her application materials
for the Deputy Regional Administrator position, this individual
had worked for Senator George Mitchell's Office since 1989 and was
losing her job due to the Senator's retirement. Using her Ramspeck
Act eligibility, she obtained a career appointment at SBA as a GS-
15, step 6, ($ 84,791) Deputy Regional Administrator. Her
appointment was made on January 22, 1995, just 6 months before she
was reassigned to the position of District Director of the Boston
District Office. Her grade level and salary remained unchanged
when she was reassigned to the District Director position. Since
then, this individual has been reassigned again, this time to the
position of District Director of the Augusta, ME, District Office.
Her application materials showed that she obtained a Bachelor of
Arts degree from Merrimack College in 1963. Her replacement as
District Director in Boston was an individual who was holding the
position of Boston Regional Advocate. This individual was selected
for the position of District Director of the Boston office through
a competitive examination process after having applied for the
position which was advertised as being open to all sources.

Case 2: On August 26, 1996, the Regional Advocate for King of
Prussia (Philadelphia) was selected for, and appointed to, the
position of District Director of the Clarksburg, WV, District
Office. In this case, the position was filled through a
competitive examination process that began with a

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