Small Business Administration:

Better Planning and Controls Needed for Information Systems

AIMD-97-94: Published: Jun 27, 1997. Publicly Released: Jun 27, 1997.

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Pursuant to a congressional request, GAO reviewed the Small Business Administration's (SBA) efforts to develop a risk management database and a loan monitoring system, focusing on: (1) the status of SBA's development and implementation of the risk management database; (2) whether SBA has established adequate processes and controls to ensure that the database will contain complete and accurate loan data; and (3) whether SBA has performed the planning steps needed to serve as a basis for funding the development phase of the proposed loan monitoring system.

GAO noted that: (1) at the time of its review, SBA had completed development of a database structure and taken action to capture data and establish reporting capabilities to comply with the requirements of the Small Business Programs Improvement Act of 1996; (2) SBA officials expect that the system will be capturing the required data and that the reporting capabilities will be developed before the June 30, 1997, deadline mandated by the act; (3) while SBA expects the system to be operational on time, it has not yet established and implemented the controls needed to ensure that the risk management database contains timely and accurate data which are also required by the act; (4) at this time, the database has missing or incorrect data for about half the guaranteed loans because SBA has not yet effectively implemented controls over lender reporting; (5) SBA also has not yet established controls to identify missing or incorrect underwriting characteristics data on defaulted loans; (6) until it implements effective controls, SBA has no means of ensuring that the risk management database will be sufficiently timely and accurate for program management and decisionmaking purposes; (7) finally, SBA has not yet performed essential planning needed to serve as a basis for funding the development of the proposed loan monitoring system; (8) to implement the information systems investment requirements of the Clinger-Cohen Act of 1996, the Office of Management and Budget (OMB) established criteria that major information systems investments should meet for funding in the fiscal year (FY) 1998 budget; (9) SBA has not performed the planning needed to demonstrate that the loan monitoring system will meet three of the eight criteria, such as simplifying or redesigning work processes and demonstrating a positive return on investment; and (10) without performing essential planning, SBA increases the risk that the loan monitoring system will not effectively meet the agency's goals or provide the best return on investment.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: SBA is developing data quality standards as part of its efforts to develop a new loan monitoring system (LMS). In June 1999, it adopted a Loan Programs Data Quality Plan that provides a framework for the development and implementation of data quality standards. In February 2001, SBA developed a Data Requirements document that specifies high-level approaches to implement the data quality framework.

    Recommendation: The Administrator, SBA, should establish data quality standards for the risk management database and implement a system of controls to ensure compliance with the standards.

    Agency Affected: Small Business Administration

  2. Status: Closed - Implemented

    Comments: In December 1998, SBA completed benchmarking its business processes for loan management functions against similar organizations in government and private sectors. Based on the results of benchmarking, SBA initiated a business process reengineering (BPR) project, which it completed in July 1999. In the BPR, SBA examined simplifying and redefining work processes. In its BPR, SBA projected benefits that apply to all of the reengineered functional areas (major business processes) for its lending programs. Financial benefits include more efficient use of funds, decreased costs, and greater recoveries. In its May 2000 benefit-cost analysis for the reengineered loan monitoring system, SBA projected a 56 percent internal rate of return between FY 1998 and FY2006, with a payback by the beginning of FY2004. SBA projected a net present value of $80 million in savings using a discount rate of 10 percent. Other benefits identified in the BPR include improved information accuracy and timeliness, increased resource utilization, greater participation in SBA programs, more consistent policy application, and enhanced ability to quantify lender performance.

    Recommendation: For the proposed loan monitoring system, the Administrator, SBA, should not proceed with funding the system development until adequate plans are prepared in accordance with the Clinger-Cohen Act and OMB's criteria for FY 1998 information technology investments. In developing the plans, the Administrator should benchmark loan monitoring business processes and systems against comparable processes used by other organizations and, if appropriate, simplify or redesign work processes.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Comments: In FY 2000, SBA analyzed the benefits and costs of the alternatives to demonstrate a positive return on investment for its project to produce a loan monitoring system. SBA plans to periodically update these analyses as the project moves forward.

    Recommendation: For the proposed loan monitoring system, the Administrator, SBA, should not proceed with funding the system development until adequate plans are prepared in accordance with the Clinger-Cohen Act and OMB's criteria for FY 1998 information technology investments. In developing the plans, the Administrator should analyze the benefits and costs of the alternatives and use these to demonstrate that the project will have a positive return-on-investment.

    Agency Affected: Small Business Administration

  4. Status: Closed - Implemented

    Comments: In March 2000, SBA finalized its ITA with the inclusion of rules and standards for interoperability and maintainability. In its May 2000, LMS Project Plan SBA stipulates that the development of LMS must proceed and remain compliant with the ITA. By developing the LMS in compliance with the ITA, SBA should improve interoperability and maintainability between the LMS and other SBA systems developed using the ITA.

    Recommendation: For the proposed loan monitoring system, the Administrator, SBA, should not proceed with funding the system development until adequate plans are prepared in accordance with the Clinger-Cohen Act and OMB's criteria for FY 1998 information technology investments. In developing the plans, the Administrator should ensure that the proposed information system is consistent with the agency's information architecture.

    Agency Affected: Small Business Administration

 

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