This letter formally transmits and summarizes an oral briefing we gave on July 29, 2010, in response to Congress' request that we assess the extent to which the descriptions of the uses of American Recovery and Reinvestment Act of 2009 (Recovery Act) funds--published on Recovery.gov--enhance the public's understanding of how funds are being spent and what outcomes are expected. Our briefing focused on activities funded through the Small Business Administration (SBA). The Recovery Act, enacted in response to the economic crisis facing the nation, appropriated a total of $275 billion in funding for distribution by federal departments and agencies through contracts, grants, and loans. The Recovery Act contains numerous provisions to increase transparency and accountability over spending. Accordingly, Congress and the administration have emphasized the need for accountability and transparency in the expenditure of Recovery Act funds. In particular, Section 1512 of the act requires nonfederal recipients of Recovery Act funds through grants, contracts, or loans to provide quarterly reports containing certain information. For example, nonfederal recipients are required to report information on each project or activity, including descriptive information on the uses of Recovery Act awards. The Office of Management and Budget (OMB) and federal departments are responsible for issuing guidance to assist recipients fulfill the reporting requirements. Information recipients report, as well as other required information, can be found at Recovery.gov. This Web site was designed to track large sums of Recovery Act funds that are being disbursed to thousands of recipients, while also making these efforts more transparent to the public than previous efforts. SBA's loan guarantee programs, such as the 7(a) and 504 programs, received $630 million in appropriations under the Recovery Act but are not subject to the recipient reporting requirements. Under these programs, SBA, in exchange for fees, provides guarantees on a portion of the loan to lenders against potential losses on qualifying small business loans to encourage them to extend such financing. In general, the Recovery Act appropriations temporarily reduced or eliminated certain program fees and increased the guarantees. Of the $630 million that the Recovery Act appropriated to expand and support SBA's loan guarantee programs, $375 million went to the 7(a) and 504 programs. Further, the Recovery Act established a new temporary loan guarantee program--which SBA calls the American Recovery Capital (ARC) program--that received $255 million in appropriations. Under the ARC program, SBA guarantees loans of up to $35,000 to small businesses that are suffering immediate financial hardship. The loans must be used to make payments on an existing small business loan. According to SBA and OMB officials, small businesses that receive loans guaranteed by SBA are not subject to the recipient reporting requirement because they are not receiving Recovery Act funds. Instead, SBA uses the funds appropriated to these programs to cover its costs to guarantee the loans. However, OMB requires agencies to report aggregated information about their use of Recovery Act funds. For example, SBA must submit weekly reports that include funds it obligates to support its loan guarantee and microloan programs, as well as its contracting activities. In response to Congress' request, we (1) determined the extent to which information reported by SBA's microloan recipients on Recovery.gov fosters a basic understanding of award activities and expected outcomes, (2) determined the extent to which information reported by SBA's contractors on Recovery.gov fosters a basic understanding of award activities and expected outcomes, and (3) identified information available on Recovery.gov about SBA's 7(a), 504, and ARC loan guarantee programs that were supported by Recovery Act funds.

In summary, only a small portion of SBA microlender recipient reports included clear and complete information on how they were spending Recovery Act funds and the outcomes they expected. Specifically, GAO determined that 13 percent (8 of 61) of the descriptions in microlenders' recipient reports contained sufficiently clear and complete information on the project's purpose, activities, scope (the geographic areas in which businesses can apply for the microloans), cost, and expected outcomes, as well as the location of the award recipient and the status of the microlending. About 33 percent of microlender recipient reports partially met the criteria for providing useful information about the use of funds and expected outcomes. These recipient reports contained reasonably clear and specific information for some attributes. However, 54 percent of the microlender recipient reports did not meet the criteria for promoting public understanding of award activities and expected outcomes due to the brevity of the narrative descriptions. For example, many of these narrative descriptions simply stated "microloans" or "microloan program." Recipients likely provided such basic descriptions because SBA guidance, which was developed in consultation with OMB and issued in July 2009, directed microlenders to report "microloan" when describing the award. In developing the guidance, SBA officials told us that they had been trying to minimize the burden on microlenders, which generally are small nonprofit organizations. However, a senior SBA official said that the guidance to microlenders could be revised to direct recipients to include more specific information about the purpose and expected outcomes of the award. Until SBA microlenders are more clearly directed to provide this information, many such entities will likely continue to report information on their use of Recovery Act funds which does not foster public understanding of award activities and expected outcomes. In contrast, information on 35 percent (8 of 23) of SBA contractor's recipient reports met the criteria, 43 percent partially met them, and only 22 percent did not meet the criteria. SBA provided guidance to contractors that contains specific directions on reporting purposes and outcomes or results, as well as significant services and supplies provided--guidance that may have helped recipients report complete and clear information. While recipients of SBA's loan guarantees are not required to report award level information on Recovery.gov, SBA does report some aggregate financial information about these programs on the Web site. As of June 30, 2010, SBA had obligated about $557 million of the $630 million of Recovery Act appropriations to support and expand its 7(a), 504, and ARC loan guarantee programs, according to Recovery.gov. On November 23, 2009, SBA exhausted the $375 million appropriated to its 7(a) and 504 programs and, since then, it received $305 million in supplemental appropriations. However, as of May 26, 2010, SBA had exhausted these funds as well. We calculate that, the Recovery Act funds remaining, which total about $73 million, are to support SBA's ARC program. The administration faced an extensive undertaking in simultaneously putting in place ways to spend large sums of Recovery Act funds, while also seeking to make these efforts more transparent to the public than previous efforts. Although recipient reporting under the Recovery Act represents a step forward in federal spending transparency, opportunities exist to further improve the public's understanding of how Recovery Act funds are being spent and what outcomes are expected. We recommend that the Administrator of SBA, in consultation with OMB, remove the standard language in the guidance to microlenders and instruct them to include, as appropriate, more descriptive information on how the funds are being used and potential project outcomes or results.

Status Legend:

Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

• In Process
• Open
• Closed - implemented
• Closed - not implemented

Recommendation for Executive Action

Recommendation: The Administrator of SBA, in consultation with OMB, should remove the standard language in the guidance to microlenders and instruct them to include, as appropriate, more descriptive information on how the funds are being used and potential project outcomes or results.

Agency Affected: Small Business Administration

Status: In Process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.