oversight

Results Act: Observations on the Small Business Administration's Draft Strategic Plan

Published by the Government Accountability Office on 1997-07-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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

                     Resources, Community, and
                     Economic Development Division

                     B-277425

                     July 11, 1997

                     The Honorable Richard K. Armey
                     Majority Leader
                     House of Representatives

                     The Honorable John Kasich
                     Chairman, Committee on the Budget
                     House of Representatives

                     The Honorable Dan Burton
                     Chairman, Committee on Government Reform
                       and Oversight
                     House of Representatives

                     The Honorable Bob Livingston
                     Chairman, Committee on Appropriations
                     House of Representatives

                     Subject: Results Act: Observations on the Small Business Administration’s
                     Draft Strategic Plan

                     On June 12, 1997, you asked us to review the strategic plans submitted by
                     the cabinet departments and selected major agencies for consultation with
                     the Congress as required by the Government Performance and Results Act
                     of 1993 (the Results Act). This report is our response to your request
                     concerning the strategic plan of the Small Business Administration (SBA).


                     Specifically, you asked us to review SBA’s draft plan and assess (1) whether
Objectives, Scope,   it fulfills the requirements of the Results Act and to provide our views on
and Methodology      its overall quality; (2) whether it reflects SBA’s key statutory authorities;
                     (3) whether it reflects interagency coordination for crosscutting programs,
                     activities, or functions that are similar or complementary to other federal
                     programs; (4) whether it addresses major management problems that we
                     have previously identified; and (5) the adequacy of SBA’s data and
                     information systems for providing reliable information for measuring
                     results.

                     We obtained the March 5, 1997, draft strategic plan that SBA provided to
                     congressional committees. It is important to recognize that SBA’s final plan
                     is not due to the Congress and the Office of Management and Budget (OMB)




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             until September 1997. Furthermore, the Results Act anticipated that it may
             take several planning cycles to perfect the process and that the final plan
             will continue to be refined as future planning cycles occur. Thus, our
             comments reflect a snapshot of the plan at this time. We recognize that
             developing a strategic plan is a dynamic process and that SBA is continuing
             work to revise the draft with input from OMB, congressional staff, and other
             stakeholders.

             Our overall assessment of SBA’s draft strategic plan was generally based on
             our knowledge of SBA’s operations and programs, our reviews of SBA, and
             other existing information available at the time of our assessment.
             Specifically, the criteria we used to determine whether SBA’s strategic plan
             complied with the requirements of the Results Act were the Results Act
             and the Office of Management and Budget’s (OMB) guidance on developing
             the plans (OMB Circular A-11, Part 2). To make judgments about the overall
             quality of the plan, we used our May 1997 guidance for congressional
             review of the plans (GAO/GGD-10.1.16) as a tool. To determine whether the
             plan contained information on interagency coordination and addressed
             management problems, and whether SBA had adequate systems in place to
             provide reliable information on performance, we reviewed reports on
             audits of SBA’s fiscal year 1995 and 1996 financial statements and the
             agency’s fiscal year 1996 Federal Managers’ Financial Integrity Act (FMFIA)
             report. We also relied on our general knowledge of SBA’s operations and
             programs and on the results of our previous work. In determining whether
             SBA’s draft strategic plan reflects major statutory responsibilities, as you
             requested, we coordinated our review with the Congressional Research
             Service and relied on our independent analysis of the statutory provisions
             applicable to SBA. Our work was performed in June and July 1997. We
             obtained comments from SBA on a draft of this report.


             SBA is an independent agency created in 1953 to aid, counsel, assist, and
Background   protect the interests of small businesses. With a permanent staff of about
             4,400 employees and an annual operating budget of about $800 million, SBA
             administers loan and other programs that annually provide over $10 billion
             in small business financing. SBA provides new and established small
             businesses with financial assistance, including venture capital and
             financing for long-term assets; provides management training, technical
             assistance, and procurement opportunities to both small businesses and
             small businesses owned by disadvantaged individuals; and assists small
             contractors in obtaining bid, performance, and payment surety bonds for
             construction and other contracts. In addition, SBA provides financial



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assistance to the owners of homes and businesses that are damaged or
destroyed by natural disasters, such as hurricanes and floods.

SBA’s  March 5, 1997, draft strategic plan defines SBA’s mission as follows:
“It is the Mission of the Small Business Administration (SBA) to serve
America’s small businesses to (1) help preserve free competition,
(2) contribute to strengthening the Nation’s economy, and (3) assist
disaster-ravaged communities recover from their losses.” SBA’s strategic
plan presents seven goals for accomplishing the agency’s mission. These
goals are to (1) improve access to capital for small businesses to start and
grow; (2) reduce burdensome regulations and unnecessary paperwork;
(3) enhance education, counseling, and information for small businesses;
(4) serve as the President’s “eyes and ears,” reporting back to him on the
needs of small businesses, and function as an advocate for small
businesses; (5) provide a “lifeline” to disaster-ravaged communities;
(6) exercise effective and efficient executive management of the agency’s
activities; and (7) through the Office of Inspector General (OIG), improve
SBA’s management. The section of the plan outlining the objectives,
strategies, and measures for achieving the last goal is presented as, in
effect, a strategic plan for SBA’s OIG.

In January 1994, OMB designated the entire SBA as a performance planning
and reporting pilot under the Results Act (portions of other agencies were
also designated). In addition, SBA was required to prepare performance
plans for several fiscal years. In March 1994, SBA entered into a
performance agreement with the President that set forth the President’s
policy goals for SBA and established a basis for measuring the agency’s
progress in achieving those goals. This agreement with the President has
played a major role in fashioning the strategic goals in SBA’s draft strategic
plan. Three of the four policy goals explicitly outlined in the agreement
between SBA and the President—to increase capital access, reduce the
regulatory burden, and be the President’s eyes an ears for small
businesses—are among the seven goals in SBA’s draft strategic plan.

The Results Act requires that an agency’s strategic plan contain the
following six critical elements: (1) a comprehensive mission statement;
(2) agencywide long-term goals and objectives for all major functions and
operations; (3) approaches (or strategies), and the various resources
needed, to achieve the goals and objectives; (4) a relationship between the
long-term goals and objectives and annual performance goals;
(5) identification of key factors, external to the agency and beyond its
control, that could significantly affect the achievement of the strategic



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                   goals; and (6) a description of how program evaluations were used to
                   establish or revise strategic goals and a schedule for future program
                   evaluations.


                   A significant amount of work remains to be done by SBA before its draft
Results in Brief   strategic plan can fulfill the requirements of the Results Act. The plan
                   lacks two required critical elements: (1) a discussion of the relationship
                   between the long-term goals and objectives and the annual performance
                   goals and (2) a description of how program evaluations were used to
                   establish or revise strategic goals and a schedule for future program
                   evaluations. Furthermore, the four elements that the plan contains could
                   better conform to the act’s requirements and OMB’s guidance. Many of the
                   goals and objectives appear less outcome-oriented (directed at the
                   long-term results that SBA wants to achieve), but rather process-oriented,
                   such as serving as the President’s eyes and ears. The strategies, which
                   consist entirely of one-line statements, are too vague to enable an
                   assessment of whether they would help achieve the goals and objectives in
                   SBA’s plan. Furthermore, because of the way in which the information is
                   presented, the linkage between specific performance measures, strategies,
                   and objectives is not clear. Also, while the plan identifies certain key
                   external factors, it does not yet include a discussion of how the external
                   factors will be taken into account when assessing progress toward goals.
                   Because the plan is incomplete, the Congress may be missing critical
                   information for its consultation with SBA.

                   SBA’sdraft strategic plan reflects consideration of the key statutory
                   provisions authorizing SBA’s programs and activities. The plan could
                   benefit from more explicit references to the agency’s major statutes and a
                   clearer linkage between the authorities and the agency’s mission, goals,
                   and objectives.

                   SBA’s draft strategic plan does not explicitly address the relationship of
                   SBA’s activities to similar activities in other agencies and provides no
                   evidence that SBA coordinated with other agencies in developing its plan.
                   For example, the plan does not identify how SBA’s programs are
                   coordinated with the Department of Commerce’s Minority Business
                   Development Agency (MBDA), even though MBDA offers the same types of
                   assistance as SBA to clients (minority small businesses) that are often the
                   prime focus of SBA’s assistance. In addition, SBA’s strategic plan might
                   benefit by an explicit acknowledgement of the extent to which SBA must
                   rely on other federal agencies in carrying out its federal



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                       procurement-related responsibilities, such as the 8(a) minority enterprise
                       development program.

                       Because the plan’s strategies are vague, the extent to which the plan
                       addresses management problems that we have previously identified is
                       unclear. For example, we have identified problems with SBA’s liquidation
                       of guaranteed loans and of small business investment companies (SBIC).
                       SBA’s plan proposes improving its liquidation processes, but it does not
                       describe the specific strategies that will help achieve the objectives. The
                       plan also does not directly address other identified problems. For
                       example, independent audits of SBA’s financial statements have identified
                       internal control weaknesses, including SBA’s failure to reconcile certain
                       fund balances with those of the Treasury Department.

                       SBA’s capacity to provide reliable information on the achievement of
                       strategic goals is uncertain. Not all of the goals and objectives in the plan
                       are stated in a manner that is measurable. Therefore, it is unclear as to
                       what information will be needed and how SBA will assemble and store the
                       information. However, the plan identifies a number of potential
                       performance measures for which obtaining reliable and accurate data
                       could be difficult, expensive, or both. Also, the plan does not clearly
                       address how to correct problems with existing information systems that
                       have been identified by SBA and its independent auditors, nor does it
                       identify the sources of other information that would logically be needed
                       for the identified performance measures.


                       SBA’sdraft strategic plan does not reflect the six requirements of the
SBA’s Strategic Plan   Results Act, and a significant amount of work remains to be done by SBA
Does Not Yet Fulfill   before its draft strategic plan can fulfill those requirements.
the Requirements of
the Results Act
SBA’s Plan Does Not    SBA’s draft plan does not discuss the relationship between strategic goals
Contain All Critical   and annual performance goals. While strategic plans are not required to
Elements               identify specific performance measures, OMB Circular A-11 recommends
                       that the plans briefly outline (1) the type, nature, and scope of the
                       performance goals to be included in subsequent annual performance
                       plans; (2) the relationship between the performance goals and the general
                       goals and objectives; and (3) the relevance and use of the performance
                       goals in helping determine the achievement of goals and objectives.




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                             Furthermore, SBA’s draft strategic plan does not describe how program
                             evaluations were used to establish or revise strategic goals or include a
                             schedule for future program evaluations to help measure progress toward
                             strategic goals, as required by the Results Act. The section of the plan
                             concerning the SBA’s OIG references future audit work and evaluations that
                             will be done by that office to help improve SBA’s management, but this
                             information does not appear to meet the Results Act’s requirements for
                             substantive program evaluations.


Observations on the          Overall, SBA’s draft strategic plan is not yet sufficient to achieve the
Overall Quality of SBA’s     purposes of the Results Act and improve management and make programs
Plan                         more effective. Our specific observations are discussed in the following
                             sections.


Mission Statement            SBA’s mission statement is results-oriented in that it articulates the
                             intended results of SBA’s efforts to assist small businesses: preserving free
                             competition, strengthening the nation’s economy, and helping
                             disaster-ravaged communities. In accordance with the guidance in OMB
                             Circular A-11, the mission statement could be improved by more directly
                             incorporating key aspects of SBA’s legislative mandate to aid, counsel,
                             assist, and protect the interests of small businesses. In addition, because it
                             mentions assisting only small businesses, the mission statement does not
                             encompass one significant activity of SBA’s—making loans to individuals
                             who have suffered disaster losses. As of May 1997, disaster loans to
                             individuals accounted for more than 50 percent of the $767 million in
                             disaster loans made by SBA during fiscal year 1997.


Strategic Goals/Objectives   OMB  Circular A-11 suggests that strategic plans should set out the
                             long-term programmatic, policy, and management goals of the agency and
                             that the goals and objectives should elaborate on how the agency is
                             carrying out its mission.

                             SBA’sdraft strategic plan lists seven strategic goals for accomplishing its
                             mission. In addition, the plan lists from two to four policy or program
                             objectives for each goal—a total of 24 objectives for the seven goals.
                             Generally, the goals cover the major functions and operations of SBA.
                             However, not all of the goals elaborate on how SBA carries out its mission.
                             Only the first and third goals in SBA’s plan—to improve access to capital
                             for small businesses to start and grow and to enhance education,



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                              counseling, and information for small businesses—describe outcomes
                              logically linked to fulfilling SBA’s statutory mission. The remaining goals
                              are expressed as processes—reducing burdensome regulations and
                              unnecessary paperwork, serving as the President’s eyes and ears,
                              providing a lifeline to disaster-ravaged communities, exercising efficient
                              executive management, and improving SBA’s management through the OIG’s
                              operations—rather than as long-term results that SBA wants to achieve.

                              Similarly, some of the objectives associated with the goals are expressed
                              more as processes than as results, making linkage to mission less clear.
                              For example, the objectives listed under the fifth goal—to provide a
                              lifeline to disaster-ravaged communities—describe the characteristics of
                              the assistance (“customer-focused” and “cost-efficient”) rather than a
                              result that SBA intends to achieve.

                              Some of the goals and objectives lend themselves to performance
                              measurement; that is, data could be gathered that would allow SBA and/or
                              the Congress to assess the extent to which the goals or objectives are
                              being achieved. However, the plan does not clearly indicate how progress
                              would be measured. It could be difficult, for example, to measure a real
                              reduction in the paperwork burden on small businesses. Moreover, some
                              objectives are not outcome-oriented and do not imply a target that might
                              be measured. (As discussed below, the Results Act does not require that
                              strategic plans identify specific performance measures; however, in
                              accordance with the guidance in OMB Circular A-11, plans should briefly
                              describe the type, nature, and scope of the performance goals to be
                              included in subsequent annual performance plans and recognize the
                              relevance and use of performance goals in helping determine the
                              achievement of goals and objectives.) For example, the first goal—to
                              improve access to capital—includes the objective “offer specialized capital
                              access by providing bonding opportunities, venture capital, and export
                              financing.” Because SBA currently offers these services to small businesses,
                              the plan might more usefully state their intended outcome in a way that is
                              directed at achieving the goal.


Strategies to Achieve Goals   Under the Results Act, the strategic plans’ sections on strategies are to
and Objectives                briefly describe the operational processes; the technologies; and the
                              human, capital, information, or other resources needed to achieve goals
                              and objectives. Additionally, OMB Circular A-11 recommends that strategies
                              outline how agencies will communicate strategic goals throughout the
                              organization and hold managers and staff accountable for achieving these



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                       goals. With the exception of the plan dealing with the OIG’s efforts, SBA’s
                       plan does not meet these requirements.

                       The strategies outlined in SBA’s draft plan consist entirely of one-line
                       statements. Because they lack detail, most are too vague or general to
                       enable an assessment of whether or not they would help achieve the goals
                       and objectives in the plan. For example, it is unclear from SBA’s plan how
                       establishing a risk management database or completing a Certified
                       Development Company loan liquidation pilot will help SBA to improve
                       small businesses’ access to credit.

                       OMB Circular A-11 states that strategies should include schedules for
                       initiating or completing “significant” actions. Because of their brevity, it is
                       difficult to assess whether the proposed strategies in SBA’s plan might be
                       considered significant. However, those that might be deemed significant in
                       terms of the time and resources required—for example, developing and
                       expanding on-line services for small businesses or implementing a small
                       and disadvantaged business procurement reform program—lack
                       schedules as well as resource estimates.

                       SBA’s plan could also be improved by making the linkage between the
                       strategies and goals/objectives more explicit. In SBA’s draft plan, the
                       objectives are listed as a group, followed by the strategies, which are also
                       listed as a group. While the objectives and strategies may be linked, the
                       linkage is not easy to follow, which reduces the plan’s value to users in
                       SBA, the administration, and the Congress. One way that SBA could improve
                       the linkage would be to clearly describe the key strategies, objective by
                       objective, that it intends to use to accomplish each of its goals. This
                       structure would help make the plan meaningful to employees throughout
                       the agency, including those delivering services.


Relationship Between   Under the Results Act, each general goal must be linked to annual
General and Annual     performance goals. A performance goal is the target level of performance
Performance Goals      expressed as a tangible, measurable objective against which actual
                       achievement is to be compared. An annual performance goal is to consist
                       of two parts: (1) the measure that represents the specific characteristic of
                       the program used to gauge performance and (2) the target level of
                       performance to be achieved during a given fiscal year for the measure.
                       While strategic plans are not required to identify specific performance
                       measures, OMB Circular A-11 recommends that the plans briefly relate
                       general goals and objectives to annual performance goals.



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                       While SBA’s draft strategic plan lists 66 potential performance measures
                       (excluding those for the OIG), it does not appear to meet the guidance set
                       forth in the circular. Examples of target levels for some performance
                       measures and a brief explanation of how achieving those target levels will
                       help achieve the strategic goal could help to meet these requirements.

                       In addition, SBA’s strategic plan could be improved by making the linkage
                       between the proposed performance measures, strategies, and objectives
                       more explicit. In the draft plan, the performance measures are listed as a
                       group following the strategies (which, as noted above, are also listed as a
                       group following the objectives). Consequently, the plan is unclear as to
                       which of the measures SBA proposes to use to assess its progress in
                       achieving each of the objectives. Such a linkage is important because it
                       will allow the Congress and SBA to judge whether or not the agency is
                       achieving its goals.

                       The annual performance plans required by the Results Act should help the
                       Congress and the executive branch make informed decisions by providing
                       a simple, straightforward linkage between plans, budgets, and
                       performance results. The Results Act attempts to establish this linkage by
                       requiring agencies to base the goals in their annual performance plans on
                       the program activity structures used in their budget submissions. SBA’s
                       draft plan does not explicitly recognize the need to link the identified
                       objectives or measures in the plan to the program activity structure in
                       SBA’s budget.



Key External Factors   OMB Circular A-11 recommends that strategic plans briefly describe each
                       key external factor—economic, demographic, social, or environmental
                       conditions—and how each may influence the achievement of goals and
                       objectives. SBA’s draft plan lists a number of such factors associated with
                       each strategic goal. But the plan does not yet include a discussion of how
                       the external factors will be taken into account when assessing progress
                       toward goals. Furthermore, as discussed below, the plan does not make
                       clear the extent to which the success of many SBA programs depends on
                       the actions of other federal agencies.




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                              SBA’sdraft strategic plan reflects consideration of the key statutory
The Plan Reflects             provisions authorizing SBA’s programs and activities. However, while not
SBA’s Key Statutory           required by the Results Act, the plan might benefit from a discussion that
Authorities                   explicitly references SBA’s major statutes and links the authorities to the
                              agency’s goals and objectives.1 This linkage is provided, for example,
                              under the goal of being a lifeline to disaster-ravaged communities: The
                              plan discusses SBA’s role under section 7(b) of the Small Business Act in
                              providing financial assistance to victims of natural disasters. The other six
                              goals do not explicitly reference a statutory authority. Such express
                              linkage throughout the strategic plan would help to ensure that the
                              agency’s stated goals and objectives include consideration of the entire
                              spectrum of the agency’s key statutory authorities.

                              The draft plan does not discuss mandated programs or duties that either
                              are ancillary functions for key program responsibilities (such as SBA’s
                              adjudicative functions that support its key contracting and loan programs)
                              or that potentially are subsumed under other key program functions in the
                              plan. The plan should mention these activities if their resource
                              requirements will affect the achievement of goals and objectives in the
                              plan.


                              SBA’s draft strategic plan does not explicitly address the relationship of
Crosscutting Program          SBA’s activities to similar activities in other agencies and provides no
Activities Are Not            evidence that SBA coordinated with other agencies in developing its plan.
Sufficiently Identified       For example:

                          •   The Minority Business Development Agency, located in the Department of
                              Commerce, operates a network of centers throughout the country that
                              provide management and technical assistance to minority businesses.
                              There is no mention of coordination with MBDA in SBA’s draft strategic plan,
                              even though MBDA offers the same type of assistance as SBA, and to clients
                              (minority small businesses) that are often the prime focus of SBA’s
                              assistance.
                          •   The Federal Emergency Management Agency (FEMA) is the lead federal
                              agency for assisting victims of hurricanes, floods, and other natural
                              disasters. As described, the SBA plan includes in the mission statement
                              “assist disaster-ravaged communities recover from their losses” and has as
                              one its strategic objectives to “provide a ’lifeline’ to disaster-ravaged
                              communities.” While SBA’s plan briefly mentions promoting better

                              1
                               OMB Circular A-11 suggests that an agency’s mission statement may include a brief discussion of the
                              agency’s enabling or authorizing legislation; this suggestion, however, does not extend to the
                              statement of goals and objectives.



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                            cooperation with FEMA and other agencies, the plan does not indicate how
                            SBA’s efforts relate strategically to those of FEMA.
                        •   There is no mention in SBA’s plan of the “harmonization” efforts for the
                            export program activities of SBA and the Export-Import Bank. In 1993, the
                            Trade Promotion Coordinating Committee, an interagency group,
                            recommended that the bank and SBA harmonize their working capital
                            guarantee programs to make them more customer-focused and take
                            advantage of the agencies’ respective strengths. As we recently reported,
                            the harmonization efforts between these two agencies are not complete.2
                            Among other things, the lack of harmonization has caused increased
                            paperwork and processing delays for lenders and exporters.

                            In addition, SBA’s strategic plan might benefit by an explicit
                            acknowledgement and discussion that the agency must, by necessity, rely
                            on other federal agencies in carrying out much of its federal
                            procurement-related activities. For example, SBA’s 8(a) minority enterprise
                            development program provides procurement opportunities to businesses
                            that are owned and controlled by disadvantaged individuals, and one
                            performance measure listed by SBA is the increase in the number of 8(a)
                            firms with developmental experiences. However, SBA must depend on the
                            other federal agencies to award contracts and, usually, to select the
                            contractors.

                            A similar situation exists with SBA’s Small Business Innovation Research
                            (SBIR) program, under which small businesses propose innovative ideas
                            that meet the specific research and research and development (R&D) needs
                            of the federal government. A performance objective of SBA is to increase
                            the commercialization of research and ensure that small businesses
                            participate in federal R&D efforts. Because the SBIR program is administered
                            by other federal agencies, SBA’s ability to achieve this performance
                            objective will not be solely in the control of SBA.


                            Two of the goals in SBA’s draft plan are directed at better managing the
Plan Does Not Clearly       agency. For example, the plan outlines actions by the OIG to improve the
Address Previously          accuracy of SBA’s accounting and management information. The plan also
Identified                  acknowledges the challenge of managing a growing workload with fewer
                            employees. However, the plan is vague on how SBA intends to correct
Management                  specific problems that we and others have previously identified. For
Problems                    example:

                            2
                             See Export Finance: Federal Efforts to Support Working Capital Needs of Small Business
                            (GAO/NSIAD-97-20, Feb.13, 1997).



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•   In 1991, we reported that SBA was incurring significant losses on liquidated
    loans in the agency’s 7(a) program, in part because of overvalued or
    nonexistent collateral and a failure to make the most of recoveries when
    collateral existed.3 We noted that at the time of our report, SBA’s
    monitoring of private lenders’ liquidation activities was limited. One of the
    draft strategic plan’s objectives is to improve the loan liquidation process
    and rely on lenders to assist in liquidation activities, and the plan identifies
    “recoveries on defaulted loans” as a performance measure. However, the
    plan does not describe a strategy that will help achieve the objective.
•   In 1995, we testified that weaknesses in SBA’s management and oversight
    had contributed to losses in the liquidation of SBICs, which obtain funds
    through SBA-guaranteed loans and/or selling preferred stock to SBA.4 While
    SBA’s draft plan calls for improving the SBIC liquidation process, it does
    not describe the actions that SBA plans to take to achieve the objective.
•   Over the past few years, we have reported and testified often on the
    difficulties that SBA has had in implementing many of the changes to the
    8(a) minority business development program mandated by the Congress.5
    Among other things, we reported that SBA had not developed an
    information system able to provide the basic data needed to manage the
    8(a) program and—of particular relevance to the Results Act—to evaluate
    its effectiveness. A September 1995 report by SBA’s Inspector General also
    concluded that SBA could not determine whether the 8(a) program was
    accomplishing its intended purpose. One strategy in SBA’s draft plan calls
    for improving the automated tracking system for the 8(a) program, and the
    plan identifies as a potential performance measure “increased numbers of
    disadvantaged firms helped by the 8(a) program.” However, the plan is not
    clear on the specific actions SBA intends to take in order to obtain the
    information needed for the performance measure.
•   The 1996 independent audit of SBA’s financial statements identified a
    number of internal control weaknesses, including one deemed to be a
    material weakness. The material weakness related to SBA’s failure to
    reconcile certain fund balances with those of the Treasury Department.

    3
     Small Business: Improving SBA Loan Collateral Liquidations Would Increase Recoveries
    (GAO/RCED-92-5, Dec. 19, 1991).
    4
     Small Business Administration: Status of Small Business Investment Companies
    (GAO/T-RCED-95-145, Mar. 28, 1995) and Small Business Administration: Better Oversight of SBIC
    Programs Could Reduce Federal Losses (GAO/T-RCED-95-285, Sept. 28, 1995).
    5
     For example, see Small Business: Status of SBA’s 8(a) Minority Business Development Program
    (GAO/T-RCED-96-259; Sept. 18, 1996); Small Business Administration: 8(a) Is Vulnerable to Program
    and Contractor Abuse (GAO/OSI-95-15, Sept. 7, 1995); Small Business: SBA Cannot Assess the Success
    of Its Minority Business Development Program (GAO/T-RCED-94-278; July 27, 1994); Small Business:
    Problems Continue With SBA’s Minority Business Development Program (GAO/RCED-93-145; Sept. 17,
    1993); and Small Business: Problems in Restructuring SBA’s Minority Business Development Program
    (GAO/RCED-92-68, Jan. 31, 1992).



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                         Without accurate and complete reconciliations, SBA can neither fully
                         support its fund balances with Treasury or ensure proper asset
                         accountability and control and proper matching of revenues and expenses.

                         In addition, SBA—like many federal agencies—faces a major challenge in
                         managing information resources to ensure that information technology
                         tools and resources are consistent with the agency’s mission. While SBA’s
                         draft plan cites information technology initiatives as part of the strategies
                         for achieving several objectives, the plan does not yet contain a discussion
                         of SBA’s information technology strategy. This strategy should include how
                         SBA plans to address the “year 2000 problem,” which involves the need for
                         computer systems to be changed to accommodate dates beyond 1999, as
                         well as any significant information security weaknesses—two issues that
                         we have identified as high risk across the government. (The report on the
                         audit of SBA’s fiscal year 1995 and 1996 financial statements cited the
                         agency’s failure to provide adequate protection of computer users’ security
                         codes, which negates the control of separation of duties and provides an
                         opportunity for unauthorized transactions.) In addition, the information
                         technology strategy should contain information on how SBA plans to
                         comply with the Clinger-Cohen Act of 1996. The act calls for agencies to
                         implement a framework of modern technology management based on the
                         practices followed by leading private-sector and public-sector
                         organizations that have successfully used technology to dramatically
                         improve performance and meet strategic goals.


                         To measure progress in achieving goals, SBA needs reliable data. SBA’s draft
SBA’s Capacity to        strategic plan has not yet been developed sufficiently to identify all of the
Provide Reliable         data needed to measure performance because not all of the goals and
Information on the       objectives in the plan are stated in a manner that is measurable. However,
                         the plan identifies a number of performance measures for which obtaining
Achievement of           reliable and accurate data could be difficult, expensive, or both because of
Strategic Goals Is       weaknesses with SBA’s current information systems.
Uncertain                A number of problems have been identified with SBA’s existing information
                         systems:

                     •   According to an assessment by SBA’s Office of Information Resources
                         Management, in addition to developing new systems to meet the needs of
                         evolving program operations, SBA needs to resolve problems with
                         incompatible systems and data and inadequate access to data in order for
                         the information systems to adequately support the management of



                         Page 13                               GAO/RCED-97-205R SBA’s Draft Strategic Plan
    B-277425




    program operations. Our past work has shown that in some cases SBA has
    not established the controls to ensure that information systems contain
    timely and accurate information.6
•   SBA received an unqualified audit opinion on its fiscal year 1996 financial
    statements. Notwithstanding this, as previously mentioned, a number of
    internal control weaknesses continued to be reported by the auditors. For
    example, the auditors found that SBA did not maintain comprehensive
    inventory records of acquired property and noted that complete and
    reliable data were difficult to obtain from SBA’s loan accounting databases.
•   SBA’s Federal Managers’ Financial Integrity Act reports have cited
    weaknesses with the agency’s data systems. For example, the agency’s
    fiscal year 1996 FMFIA report cited as a material weakness the data system
    for SBA’s surety bond guarantee program, noting that the system “is
    outdated and does not meet the needs of management” and that its reports
    “are inaccurate and unreliable.” The report also noted a need for an
    improved system for tracking the lenders participating in the agency’s
    lending programs.

    Furthermore, many of the objectives and performance measures cited in
    the draft plan would require information from sources other than SBA’s
    existing information systems. For example, the plan cites measures such
    as the increased number of businesses created, maintained, or expanded;
    the increased numbers of jobs; the increased taxes paid; and the increased
    sales of client small businesses. In order for these to be effective
    performance measures for SBA’s strategies, SBA would need not only
    information on the number of businesses, jobs, etc., but also information
    that would enable it to attribute the changes in these numbers to its
    programs. SBA’s Inspector General has reported on the difficulty of
    measuring job creation for just one program—the 7(a) guaranteed loan
    program. In its November 1994 report, the OIG concluded that the more
    direct the correlations made between the information collected and the
    success of the program, the greater the need for accuracy and that
    regardless of the methodology used, the actual number of jobs attributable
    to a 7(a) loan would be difficult to measure definitively because many
    other variables can affect job creation.

    Because of these factors, SBA’s draft strategic plan would benefit from a
    discussion of (1) what it has done, is doing, or plans to do to address
    previously cited problems with its existing information systems and (2) the
    ease or difficulty it foresees in obtaining additional data with which to


    6
     Small Business Administration: Better Planning and Controls Needed For Information Systems
    (GAO/AIMD-97-94, June 27, 1997).



    Page 14                                         GAO/RCED-97-205R SBA’s Draft Strategic Plan
                  B-277425




                  measure results. Once SBA develops its final performance measures, it may
                  need to consider appropriate system modifications to capture needed
                  data. Key requirements of the Chief Financial Officers Act of 1990 are the
                  development of cost information to enable the systematic measurement of
                  performance and the integration of systems—program, accounting, and
                  budget systems.


                  We provided SBA with a draft of this report for review and comment. While
Agency Comments   SBA agreed with our observations, it pointed out that our report is based on
                  a version of its strategic plan that the agency prepared in March 1997 and
                  that it had made a number of changes to its plan since that time that
                  address issues raised in our report. (See enc. I.)

                  In addition, SBA outlined a number of other actions that will strengthen the
                  agency’s strategic planning process, improve the report that the agency
                  ultimately transmits to the Congress, and go a long way in addressing the
                  issues raised in our report. Among other actions, SBA noted that it will
                  address the management weaknesses not identified in its strategic plan,
                  including improving the agency’s internal controls. SBA also noted that
                  program evaluation functions are an important element for effective
                  management of any organization and that it will incorporate program
                  evaluation efforts into its strategic plan. SBA stated that although it has
                  numerous collaborative program efforts ongoing with other federal
                  agencies, it also clearly recognizes that agencies need to coordinate their
                  plans. Therefore, SBA stated it has developed a schedule for ensuring
                  crosscutting reviews of its strategic plan and will share the next draft of its
                  plan and discuss mutual issues with its partner agencies. Finally, SBA
                  stated that management of the agency will be based on strategic objectives
                  and performance goals and that evaluations of senior managers’
                  performances will be based on how well goals in the annual plans are
                  achieved.


                  As arranged with your offices, unless you publicly announce its contents
                  earlier, we plan no further distribution of this letter until 30 days from its
                  issue date. At that time, we will send copies of this letter to the Minority
                  Leader of the House of Representatives; Ranking Minority Members of
                  your Committees; the Chairmen and Ranking Minority Members of the
                  House and Senate Committees on Small Business; the Administrator, SBA;
                  and the Director, Office of Management and Budget.




                  Page 15                                GAO/RCED-97-205R SBA’s Draft Strategic Plan
B-277425




Please call me at (202) 512-7632 if you or any of your staff have any
questions about this report. Major contributors to this report include Dave
Wood, Stan Ritchick, Scott Riback, and James Hamilton.




Judy A. England-Joseph
Director, Housing and Community
  Development Issues

Enclosure




Page 16                              GAO/RCED-97-205R SBA’s Draft Strategic Plan
Page 17   GAO/RCED-97-205R SBA’s Draft Strategic Plan
Enclosure I

Comments From the Small Business
Administration




              Page 18      GAO/RCED-97-205R SBA’s Draft Strategic Plan
Enclosure I
Comments From the Small Business
Administration




Page 19                            GAO/RCED-97-205R SBA’s Draft Strategic Plan
           Enclosure I
           Comments From the Small Business
           Administration




(385690)   Page 20                            GAO/RCED-97-205R SBA’s Draft Strategic Plan
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