Results Act: Observations on SBA's September 30, 1997, Strategic Plan

Published by the Government Accountability Office on 1997-10-29.

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

                   United States General Accounting Office

GAO                Testimony
                   Before the House Committee on Small Business

For Release
on Delivery
Expected at
                   RESULTS ACT
11:00 a.m. EST
October 29, 1997
                   Observations on SBA’s
                   September 30, 1997,
                   Strategic Plan
                   Statement by Stanley J. Czerwinski
                   Associate Director, Housing and
                   Community Development Issues
                   Resources, Community, and Economic
                   Development Division

Mr. Chairman and Members of the Committee:

We are pleased to be here today to provide our views on the September 30,
1997, strategic plan developed by the Small Business Administration (SBA),
pursuant to the Government Performance and Results Act of 1993 (the
Results Act). As you know, the Results Act is one of the major steps the
Congress has taken in recent years to fundamentally change the way
federal agencies go about their work. The Results Act requires agencies to
clearly define their missions, set goals, measure performance, and report
on their accomplishments.

SBA is an independent agency created in 1953 to aid, counsel, assist, and
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. The agency also provides management
training, technical assistance, and procurement opportunities to small
businesses and financial assistance to the owners of homes and businesses
that are damaged or destroyed by natural disasters. My statement today
will address the progress SBA has made in developing its strategic plan and
the challenges SBA continues to face in implementing the Results Act. My
observations are based on our review of the strategic plan that SBA issued
to the Congress and the Office of Management and Budget (OMB) on
September 30, 1997, as well as our review of an earlier version of SBA’s
plan dated March 5, 1997.1

SBA’s September 30, 1997, plan represents an improvement over its
March 5, 1997, version. The September plan contains the six elements
required by the Results Act; the strategic goals, as a group, are more
clearly linked to SBA’s mission and are more amenable to measurement;
and the strategies and performance measures are more clearly linked to
the objectives that they are intended to achieve and measure. Other
improvements in the September plan encompass a mission statement that
now includes the disaster loan program for families and more accurately
reflects SBA’s statutory authorities; a better recognition that SBA’s success
in achieving certain goals and objectives in the plan is dependent on the
actions of others; and the addition of a section that discusses how SBA’s
programs and activities interact with those of other federal agencies.

 Results Act: Observations on the Small Business Administration’s Draft Strategic Plan
(GAO/RCED-97-205R, July 11, 1997).

Page 1                                                                          GAO/T-RCED-98-31
                      At the same time, the September plan could be further improved to better
                      meet the purposes of the Results Act. The relationship of one of the plan’s
                      goals—leading small business participation in the welfare-to-work
                      effort—to SBA’s mission is unclear. In addition, SBA’s September plan does
                      not discuss the human, capital, and other resources needed by SBA to carry
                      out the strategies identified in the plan; does not include comprehensive
                      schedules of future program evaluations for major SBA programs; and does
                      not consistently link identified external factors to the particular goal or
                      goals they could affect or describe how each factor could affect the
                      achievement of the goal. In a departure from the March version, SBA’s
                      September plan includes as appendices separate strategic plans for SBA’s
                      Office of Inspector General and Office of Advocacy; however, the
                      relationship between the goals and objectives in the plans included in the
                      appendices and those in SBA’s plan is not explicit.

                      The Results Act is the centerpiece of a statutory framework to improve
Purpose and           federal agencies’ management activities.2 The Results Act was designed to
Requirements of the   shift the focus of attention of federal agencies from the amount of money
Results Act           they spend, or the size of their workloads, to the results achieved by their
                      programs. Agencies are expected to base goals on their results-oriented
                      missions, develop strategies for achieving their goals, and measure actual
                      performance against the goals.

                      The Results Act requires agencies to consult with the Congress in
                      developing their strategic plans. This consultation gives the Congress the
                      opportunity to help ensure that the agencies’ missions and goals are
                      focused on results, are consistent with the programs’ authorizing laws, and
                      are reasonable in light of fiscal constraints. The products of these
                      consultations are to be clearer guidance to agencies on their missions and
                      goals, which should lead to better information to help the Congress
                      choose among programs, consider alternative ways to achieve results, and
                      assess how well agencies are achieving them.

                      The Results Act required SBA and other executive agencies to complete
                      their first strategic plans and submit them to the Congress and OMB by
                      September 30, 1997. The act also requires that agencies submit their first
                      annual performance plans, which set out measurable goals that define
                      what will be accomplished during a fiscal year, to the Congress after the
                      President submits his fiscal year 1999 budget to the Congress. OMB

                      Other parts of the framework include the Chief Financial Officers Act of 1990, the Paperwork
                      Reduction Act of 1995, and the Clinger-Cohen Act of 1996.

                      Page 2                                                                         GAO/T-RCED-98-31
                         requested that agencies integrate, to the extent possible, their annual
                         performance plans into their fiscal year 1999 budget submissions. OMB, in
                         turn, is required to include a governmentwide performance plan in the
                         President’s fiscal year 1999 budget submission to the Congress.

                         SBA’s September 30, 1997, strategic plan is an improvement over the
Improvements in          March 5, 1997, version of the plan. The September plan includes the two
SBA’s September 30       required elements that were lacking in the March version. First, the
Strategic Plan           September plan includes a section on how program evaluations were used
                         to develop the plan and mentions some specific evaluations that SBA plans
                         in the future, such as those for business information centers. Second, it
                         includes a section entitled “Linkages to Annual Performance Plans” that
                         recognizes the need to link (1) the strategic goals in the plan to annual
                         performance goals and (2) SBA’s annual budget submissions to annual
                         performance goals.

                         In addition, the five goals in the September plan—which are to
                         (1) increase opportunities for small business success, (2) transform SBA
                         into a 21st century, leading edge financial institution, (3) help businesses
                         and families recover from disasters, (4) lead small business participation
                         in welfare-to-work, and (5) serve as the voice of America’s small
                         businesses—are, as a group, more clearly linked to SBA’s statutory mission
                         than the goals in the March version of the plan.

                         Also, the inclusion of date-specific performance objectives to help
                         measure performance makes the strategic goals and objectives in the
                         September plan more amenable to a future assessment of SBA’s progress.
                         For example,

                     •   Under the goal of increasing opportunities for small business success, one
                         of SBA’s performance objectives is as follows: “By the year 2000, SBA will
                         help increase the share of federal procurement dollars awarded to small
                         firms to at least 23 percent.”
                     •   Under the goal of transforming SBA into a 21st century, leading edge
                         financial institution, one of SBA’s performance objectives is as follows: “By
                         the year 2000, SBA will expand the Chief Financial Officer (CFO) annual
                         financial audit to include a separate opinion on whether SBA’s internal
                         control structure meets Committee of Sponsoring Organizations (COSO) of

                         Page 3                                                       GAO/T-RCED-98-31
    the Treadway Commission standards for financial reporting.3 By the year
    2002, SBA will receive an unqualified opinion on its internal control
    structure for financial reporting.”

    SBA also improved its strategic plan by more clearly and explicitly linking
    the strategies in the September plan to the specific objectives that they are
    intended to achieve. Also, some of the strategies are more detailed and
    more clearly indicate how they will enable SBA to accomplish its goals and
    objectives. For example, under the objective of “implementing effective
    oversight” of lenders and other resource partners, SBA’s strategies include
    (1) establishing loan program credit, service, and mission standards to
    measure lenders’ performance and (2) developing a scoring system, based
    on objective criteria, that measures and determines whose performance is
    consistent with the laws and regulations governing SBA programs.
    Furthermore, certain strategies recognize the crosscutting nature of some
    activities; for example, a strategy for achieving SBA’s strategic goal to “help
    businesses and families recover from disasters” is to combine SBA’s home
    loss verification with that of the Federal Emergency Management Agency’s
    home inspections.

    We also observed certain other changes which we believe have improved
    SBA’s strategic plan:

•   The mission statement in SBA’s September plan appears to incorporate
    observations we made in our July report: It is concise and reflects SBA’s
    key statutory authorities of aiding, counseling, and assisting small
    businesses and of providing disaster assistance to families and businesses.
•   In general, the September plan does a better job of recognizing that SBA’s
    success in achieving certain goals and objectives in its plan is dependent
    on the actions of others. For example, one of the strategies under the
    objective “expanding small business procurement opportunities” calls for
    SBA to “work with other federal agencies to set higher small business
    procurement goals and assist these agencies in meeting those goals.”
•   SBA significantly improved its September plan by more clearly and
    explicitly linking performance measures to the specific objectives that
    they are intended to assess. Performance measures are directly linked to
    11 of the 14 performance objectives in the plan. An exception is SBA’s fifth
    goal of serving as a voice for America’s small business, where the

     COSO, a private-sector initiative jointly sponsored by the American Accounting Association, the
    American Institute of Certified Public Accountants, the Financial Executives Institute, the Institute of
    Internal Auditors, and the Institute of Management Accountants provides, among other things, a
    standard against which entities can assess their internal control systems.

    Page 4                                                                             GAO/T-RCED-98-31
                       performance measures are listed as a group at the end of the discussion of
                       the goal’s three objectives.

                       While SBA’s September 30, 1997, strategic plan is an improvement over the
SBA’s Strategic Plan   March 1997 version that we reviewed, we believe that further revisions to
Can Be Further         the plan as SBA continues to implement the Results Act and build on
Improved               current efforts would enable SBA’s plan to better meet the purposes of the
                       Results Act.

                       As noted earlier, while the five goals in the September plan are more
                       clearly linked to SBA’s statutory mission, the relationship of one
                       goal—leading small businesses’ participation in the welfare-to-work
                       effort—to SBA’s mission is unclear. While the performance objective for
                       this goal places emphasis on helping small businesses meet their
                       workforce needs, the subsequent discussion implies a focus on helping
                       welfare recipients find employment; for example, the plan states that
                       “SBA’s goal is to help 200,000 work-ready individuals make the transition
                       from welfare to work . . . .” It is not clear in the plan why SBA is focusing on
                       welfare recipients and not on other categories of potential employees to
                       help meet small businesses’ workforce needs.

                       Under the Results Act, strategy sections in the strategic plans are to briefly
                       describe items, such as the human, capital, information, or other resources
                       needed to achieve goals and objectives. The strategy sections in SBA’s
                       September plan lack such a discussion. At the same time, the plan
                       recognizes the need for information on resources needed to achieve the
                       goals and objectives, and states that accountable program managers will
                       develop an annual business plan that contains a set of program activities,
                       milestones, and resources for each objective and strategy in the plan.

                       The Results Act requires that strategic plans include a schedule of future
                       program evaluations. SBA’s plan mentions certain program evaluations
                       planned by SBA for future fiscal years; for example, the plan states that in
                       fiscal 1998, SBA will (1) assess the results of counseling services provided
                       by two pilot Women Business Centers and (2) conduct an assessment of
                       the effectiveness and efficiency of existing United States Export
                       Assistance Centers. The plan also states that SBA will continue its goal
                       monitoring of field and headquarters offices. However, the September plan
                       does not contain schedules of future comprehensive program evaluations
                       for SBA’s major programs, such as the 7(a) loan program, which is SBA’s
                       largest small business lending program, and the 8(a) business development

                       Page 5                                                         GAO/T-RCED-98-31
program, which supports the establishment and growth of small firms by
providing them with access to federal procurement opportunities. In
addition, while SBA acknowledges in the September plan that it needs a
more systematic approach for using program evaluations for measuring
progress toward achieving its goals and objectives, the plan does not
outline how SBA will develop and implement such an approach. It should
be noted that the IG’s plan references future audits and evaluations that the
IG plans to conduct as part of its effort to improve SBA’s management.

Under OMB’s Circular A-11, strategic plans are to briefly describe key
external factors and how each factor may influence achievement of the
goals and objectives. A section added to the September plan identifies four
external factors—the state of the economy, continued congressional and
stakeholder support, public-private cooperation, and interagency
coordination—that could affect the achievement of the plan’s goals.
However, with the exception of the “interagency coordination” factor, the
plan does not link these factors to particular goals or describe how each
could affect achievement of the plan’s goals and objectives. Also, the plan
does not articulate strategies that SBA would take to mitigate the effects of
these factors. The added section also discusses how SBA’s programs and
activities interact with other federal agencies’ programs and activities.
While SBA states that it will work with other federal agencies to coordinate
its activities, the section does not provide evidence that SBA coordinated
with the other agencies in the plan’s development.

The September plan, while recognizing the need for reliable information to
measure progress toward the plan’s goals and objectives, notes that SBA
currently does not collect or report many of the measures that it will
require to assess performance. The plan would benefit from brief
descriptions of how SBA plans to collect the data to measure progress
toward its goals and objectives. Similarly, a section in the September plan
discusses SBA’s efforts to improve internal controls and to obtain an
unqualified opinion on its internal control structure for financial reporting
by the year 2002. While this section implies that SBA will address
management problems identified by GAO and others, such as SBA’s failure to
reconcile certain fund balances with those of the Department of Treasury
and the problem of overvalued or nonexistent collateral on liquidated 7(a)
loans, specific strategies to address the identified management problems
are not described.

Unlike the March version that we reviewed, SBA’s September plan includes,
as appendices, separate strategic plans for SBA’s Office of Inspector

Page 6                                                      GAO/T-RCED-98-31
           General (IG) and Office of Advocacy. In the March version of the plan, the
           IG material was presented under one of the plan’s seven goals, while the
           Office of Advocacy material did not appear at all. Generally, the goals and
           objectives in the IG and Advocacy plans appear consistent with, and may
           contribute to the achievement of, the goals and objectives in SBA’s plan,
           but the relationship is not explicit. SBA’s plan makes little mention of the IG
           and Advocacy plans and does not indicate if or how the IG and Advocacy
           activities are intended to help SBA achieve the agency’s strategic goals.
           Similarly, the IG and Advocacy plans do not make reference to the goals
           and objectives in the SBA plan. These plans could be more useful to
           decisionmakers if their relationships were clearer.

           In summary, SBA has made progress in its strategic planning efforts, based
           in part on its consultation with the Congress. As I noted earlier, SBA’s
           September 1997 strategic plan includes several improvements that make it
           more responsive to the requirements of the Results Act. However, as is the
           case with many other agencies, SBA’s development of a plan that conforms
           to the requirements of the Results Act and to OMB’s guidance is an evolving
           process. As my testimony notes, there are still several areas where
           improvements need to be made to SBA’s strategic plan in order to meet the
           purposes of the Results Act.

           This concludes my statement. I would be pleased to respond to any
           questions you or members of the Committee may have.

(385701)   Page 7                                                        GAO/T-RCED-98-31
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:


or visit GAO’s World Wide Web Home Page at:


United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested