Measuring Accomplishments Under the Business Development Assistance Program--More Accurate Verification Recommended

CED-79-117: Published: Sep 6, 1979. Publicly Released: Sep 13, 1979.

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The Economic Development Administration (EDA) attempts through its Business Development Assistance Program to create permanent jobs in areas of high unemployment by helping businesses to expand or locate new facilities in these areas. This help includes direct loans and guarantees of loans with private lending institutions. EDA has a goal that at least one permanent job will result for each $10,000 of assistance. As of June 30, 1979, EDA had made 736 direct loans valued at about $672 million and had guaranteed 235 loans totaling about $387 million. GAO reviewed the following issues relating to the effectiveness of the Business Development Assistance Program: whether EDA compares and evalutes the number of jobs actually saved and created through the program with those projected; how EDA verifies the jobs saved and created; and how EDA assures that the jobs resulting from the program benefit the unemployed.

The business loan program was effective in saving and creating jobs for the 48 loans that were reviewed by GAO. These loans contributed to the saving and creating of over 9,400 jobs. The average cost per job was $6,700, which was below the target maximum of $10,000 established by EDA for individual projects. EDA had not adequately monitored jobs resulting from the program, however, and its information system contained numerous errors on employment benefits derived from the 48 loans. Some jobs reported as saved and created were based on original projections rather than actual results; jobs were still being credited for liquidated loans on bankrupt companies; and certain businesses receiving more than one loan had their employment counted twice.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Assistant Secretary for Economic Development should develop and issue guidelines to be used by financial analysts in evaluating the reasonableness of job data submitted by loan applicants. These guidelines should be in addition to the criteria proposed for discounting applicant employment projections. The guidelines might include a provision requiring a comparison of the applicant's projected employment with actual employment of similar size companies in the same industry. The Assistant Secretary should also assign responsibility and develop procedures to monitor whether unemployed workers are benefiting from business loans. Consideration might be given to having businesses indicate on their loan applications or on their annual financial statements the total jobs filled by previously unemployed workers and the average duration of their unemployment. Businesses could provide this information by maintaining a simple log showing whether new employees were previously unemployed and the duration of their unemployment. Procedures should be established for periodically selecting a sample of projects to verify reported accomplishments. These procedures should specify which documents, such as payroll or tax records, to use in making this verification.

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