Small Business Administration: Inadequate Oversight of Capital Management
Services, Inc.--an SSBIC (Letter Report, 03/21/94, GAO/OSI-94-23).

Failure of the Small Business Administration (SBA) to recognize signs
that Capital Management Services, Inc., a specialized small business
investment company in Little Rock, was operated improperly led to the
loss to federal taxpayers of $3.4 million. David Hale, then a municipal
court judge, ran Capital Management in an improper manner by entering
into prohibited transactions, including loans to business associates and
loans for real estate purchases. By taking advantage of flexible SBA
guidelines for determining socially or economically disadvantaged
persons, Hale was able to make loans to persons with questionable claims
to program eligibility. GAO was unable to fully analyze transactions
with Susan McDougal, Castle Sewer and Water, and Southloop Construction
because key participants were unavailable for interview and records were
incomplete. Nevertheless, the loan to Susan McDougal, who along with her
husband had a reported net worth of $2.2 million, is an example of loans
made to someone with questionable eligibility.

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

 REPORTNUM:  OSI-94-23
     TITLE:  Small Business Administration: Inadequate Oversight of 
             Capital Management Services, Inc.--an SSBIC
      DATE:  03/21/94
   SUBJECT:  Small business assistance
             Disadvantaged persons
             Loan defaults
             Small business loans
             Federal regulations
             Compliance
             Eligibility determinations
             Small business investment companies
             Financial records
             Lending institutions
IDENTIFIER:  SBA Specialized Small Business Investment Companies Program
             Arkansas
             
************************************************************************

We regret that the full text of this item is presently unavailable.

See the GAO FAQ - Section 2.0 for printed copy ordering information.
The FAQ is automatically retrieved with all WAIS search results or 
can be obtained by sending e-mail to: [email protected]