Loan Monitoring System:

SBA Needs to Evaluate Use of Software

GAO-02-188: Published: Nov 30, 2001. Publicly Released: Nov 30, 2001.


Linda D. Koontz
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The Small Business Reauthorization Act of 1997 requires the Small Business Administration (SBA) to complete mandated planning activities before developing a loan monitoring system (LMS). In February 2000, GAO testified that SBA had made substantial progress in completing the mandated planning actions and made recommendations on additional steps needed for each action, and for project management and control of LMS. In August 2000, GAO found that SBA had completed its work on only one recommendation. SBA's actions to develop and implement LMS software were not consistent with the Small Business Reauthorization Act of 1997 and SBA's agreement with the House Committee on Small Business not to acquire hardware or software before completing the mandated planning. These actions could result in significant project cost increases and delays.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendation for Executive Action

    Recommendation: The Administrator should direct the Chief Information Officer to take the actions necessary to bring the LMS project in compliance with the Small Business Reauthorization Act and with SBA's agreement with the House Committee on Small Business. Such actions should include an evaluation of prototype software and documentation in accordance with SBA's system development methodology and generally accepted system development practices. The evaluation should consider the extent to which the software satisfies requirements already identified for the electronic processing of loan guarantee applications; the potential impact of changes in requirements, as business processes and requirements of lender oversight and risk management are identified; and the costs and benefits of alternative courses of action: whether the software should be (1) separated from LMS and implemented, (2) separated from LMS and further modified to meet mission needs, or (3) held in suspense until all LMS requirements and plans have been completed.

    Agency Affected: Small Business Administration

    Status: Closed - Implemented

    Comments: SBA changed its strategy regarding the Loan Monitoring System. In 2003 SBA stopped the development of that system and contracted with Dun & Bradstreet to provide loan and lender monitoring services. Our 2004 review of the services SBA is receiving found that the service provided by Dun and Bradstreet reflects many credit risk management best practices and can facilitate a new level of sophistication in SBA's oversight efforts. The service provides a means to obtain various measures of financial risk posed by SBA's lending partners and opportunities to analyze loans and lending patterns efficiently and effectively.

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