This report on the activities of the Office of Inspector General (OIG) of the Small Business Administration (SBA) is submitted pursuant to Section 5(b) of P.L. 95-452, the Inspector General Act of 1978, as amended. It summarizes OIG activities for the 6-month period from April 1, 1994 to September 30, 1994.
OIG audits, inspections, and investigations during this 6-month period achieved $95,723,379 in potential dollar results, 52 indictments, and 35 convictions. The dollar results consist of: (1) $9,201,091 in potential recoveries, including judicially-awarded fines and restitution; (2) $16,541,271 in management avoidances resulting from investigations; (3) $69,579,000 in management commitments to use funds more efficiently; and (4) $402,017 in disallowed costs agreed to by SBA's management. As has been stated in previous Semiannual Reports, the OIG alone could not have achieved these accomplishments. The results for this period reflect the cooperation and support of other audit and investigative organizations such as the Federal Bureau of Investigation (FBI), and other Offices of Inspector General; the solid support of Department of Justice prosecutors; and, most importantly, the actions of key SBA program managers and employees. Indeed, much of our success is due to referrals made by conscientious Agency employees.
We are expanding our efforts to make optimal use of the Department of Justice's Affirmative Civil Enforcement (ACE) program. This program targets cases which would not be prosecuted criminally because of the amount of money involved, including cases with no dollar loss to the Government, or because other facts of the case would not support a criminal prosecution. Heretofore, our ACE results have come from individuals who made false statements on business loan applications to Federally-insured lenders in southern California. During this reporting period, our efforts to expand use of the program began to bear fruit. We obtained our first ACE results in other areas of the country (Pennsylvania, Texas, Montana) and in other SBA programs (Government Contracting, Minority Enterprise Development), by encouraging enforcement of the False Claims Act by the U.S. Attorneys. During the approximately 14 months we have been involved with the ACE program, we have had a total of 17 successful cases, resulting in $261,653 in civil penalties to the Government and $208,570 in related recoveries to SBA. Moreover, during the first 11 months of FY 1994, we presented 112 possible ACE matters to U.S. Attorneys' offices; they have agreed to pursue 30 cases and have declined 23 others. Decisions have not yet been made a on the remaining 59. Additional significant accomplishments were achieved in the agency management area. In partial resolution of previously issued audits of SBA's secondary market agent contract, the agency agreed to transfer interest earnings due to SBA from the agent's accounts to SBA accounts, making the funds available for 7(a) program financing activities. At the time of the audit, the SBA balance was $69 million. An estimated $1 million a month or more will now be transferred regularly. These interest earnings arise from balances in the secondary market master reserve fund.
We need to build greater awareness of the OIG mission with both SBA employees and the Agency's customers. If we improve our public relations and information dissemination activities, we will also increase our deterrent effect on fraud and raise SBA program managers' interest in management improvement. During FY 1994, we have pursued this goal through attendance at SBA- sponsored events, the development and use of more educational presentations and pamphlets, more creative use of key OIG reports and activities, and OIG staff involvement in other initiatives designed to make the OIG more visible with Agency and clientele groups. These are relatively economical methods which are having a substantial impact on our success in accomplishing our mission and goals.
For this semiannual reporting period, the Auditing Division focused on the minority enterprise development (MED) program. The findings contained in the division's audit reports were the primary basis for testimony provided by the Inspector General before the Senate Small Business Committee in July. These reports showed major abuses in the MED program concerning continued eligibility, contract splitting to avoid competition, and misrepresentation by a Section 8(a) participant in "brokering" laptop computers with the full knowledge of the Federal procuring agency and the encouragement of the SBA. These reports are discussed in greater detail in the MED chapter of this report. The Inspection and Evaluation Division conducted an extensive review of financially successful Small Business Investment Companies (SBIC) and identified common patterns for their success. The results of this "best practices" study--described in the SBIC chapter of this report--will be incorporated into Agency guidance for dissemination to all current and new SBIC licensees.
This 6-month period yielded results from an Investigations Division initiative to help detect and deter the submission of fraudulent tax returns in loan applications. An FY 1993 program vulnerability memorandum from the Inspector General to the Associate Administrator for Financial Assistance ultimately resulted in the Administrator's policy decision to require verification of all tax return information submitted in loan applications. Meanwhile, during this reporting period, OIG investigations of loan applicants who had submitted fraudulent tax returns produced 13 indictments or informations, 6 arrests, 4 guilty pleas, $94,571 in civil penalties (mostly from applicants whose false statements were detected before they received their loans), and $9,428 in recoveries to SBA from a borrower who had already received his loan when his fraud was discovered.
To become more aware of our customers' needs, the OIG completed its Survey on Effectiveness and Impact and issued a report on the results. See the Organization, Resources, and Management Initiatives chapter of this report for a broad description of the survey's findings.