Small Business Administration:

Leadership Attention Needed to Overcome Management Challenges

GAO-15-347: Published: Sep 22, 2015. Publicly Released: Oct 28, 2015.

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GAO has a related report that discusses SBA’s organizational structure with a focus on its regional offices. See Small Business Administration: Views on the Operational Effects of Closing Regional Offices, GAO-15-369 (Washington, D.C.: Sept. 22, 2015).

What GAO Found

The Small Business Administration (SBA) has not resolved many of its long-standing management challenges due to a lack of sustained priority attention over time. Frequent turnover of political leadership in the federal government, including at SBA, has often made sustaining attention to needed changes difficult (see figure below). Senior SBA leaders have not prioritized long-term organizational transformation in areas such as human capital and information technology (IT). For example, at a 2013 hearing on SBA's budget, the committee Chairman stated that SBA's proposed budget focused on the agency's priorities but ignored some long-standing management deficits. This raises questions about SBA's sustained commitment to addressing management challenges that could keep it from effectively assisting small businesses.

Turnover in Senior-Level Positions at SBA, 2005 through 2015

Turnover in Senior-Level Positions at SBA, 2005 through 2015

Many of the management challenges that GAO and the SBA Office of Inspector General (OIG) have identified over the years remain, including some related to program implementation and oversight, contracting, human capital, and IT (see figure below). SBA has generally agreed with prior GAO recommendations that were designed to address these issues and other challenges related to the lack of program evaluations. The agency has made limited progress in addressing most of these recommendations but has recently begun taking some steps. A senior SBA official told us that improving human capital management, IT, and the 8(a) program (a business development program) were priorities for the new administrator. For example, he stated that SBA was exploring creative ways to recruit staff and plans to expand SBA One—a database currently used to process loan applications—to include the 8(a) program. Also, SBA has begun addressing some internal control weaknesses that GAO and the SBA OIG identified as contributing to the agency's management challenges. SBA officials noted that the agency had begun to update its standard operating procedure (SOP) on internal controls and planned more revisions after the Office of Management and Budget (OMB) updated its Circular A-123, which is expected to include guidance on implementing GAO's 2014 revisions to federal internal control standards. OMB issued a draft of the revised circular in June 2015 and is reviewing comments it received.

Duration of SBA Management Challenges Identified by the SBA OIG, as of Fiscal Year 2015

Turnover in Senior-Level Positions at SBA, 2005 through 2015

Note: Loan guarantee purchases occur when SBA purchases guarantees from lenders following loan liquidations or delinquencies. Loan agents are sometimes used to prepare documentation for an SBA loan application and refer borrowers to lenders. The Loan Management and Accounting System is a project to upgrade existing financial software and application modules and remove them from the mainframe environment.

GAO identified management areas in which SBA had not incorporated key principles or made other improvements.

  • Strategic planning and program evaluation: The strategic planning activities that GAO reviewed met most federal requirements. But SBA did not describe how it used results from the few program evaluations it had completed to help develop its current strategic plan, as required by the Government Performance and Results Act Modernization Act of 2010. OMB has encouraged agencies to increase their use of program evaluations, but SBA has not routinely conducted them and still lacks evaluations for 10 of 19 programs GAO reported on in 2012. Without evaluations, SBA lacks critical information for ensuring the validity and effectiveness of (1) its goals, objectives, and strategies and (2) both new and existing programs.
  • Human capital management: SBA improved its human capital plan by developing goals and objectives. SBA also conducted early retirement programs in fiscal years 2012 and 2014 to begin addressing long-standing skill imbalances, but fewer people than expected retired. SBA risked compromising these efforts because it did not first conduct a skills assessment or develop a workforce plan that would allow it to target its hiring and retention efforts. As of May 2015, SBA had not yet developed a workforce plan, and as of June 2015 it had not conducted a skills assessment or determined training goals. As a result, SBA cannot provide reasonable assurance that its workforce has the skills the agency requires.
  • Organizational structure: SBA's organizational structure has created complex overlapping relationships among offices that have contributed to challenges in program oversight. Although a contractor assessed SBA's organizational structure in March 2015, SBA has not documented its assessment of the contractor's work. Until SBA documents its assessment, it will not have an institutional record of its actions, and it will be difficult for SBA or a third party to validate that SBA's current organizational structure is contributing effectively to its mission objectives and programmatic goals.
  • Enterprise risk management: Given the range of programs SBA manages and oversees, having a robust enterprise risk management (ERM) system is critical to effectively managing risks. SBA initiated efforts to implement ERM in 2009 and developed a framework to guide its ERM approach in 2012. But the agency has not incorporated elements of a risk management framework, such as goals and specific actions. Without incorporating these elements, SBA cannot reasonably ensure that its ERM efforts fully identify, assess, and manage risks.
  • Procedural guidance: As of March 2015, SBA had determined that 74 of its 165 SOPs needed to be revised, 31 needed to be canceled, and 60 required no revision. An additional 9 needed to be issued. Federal internal control standards state that documentation must be properly managed and maintained, yet SBA has generally not set time frames for periodically reviewing and completing needed revisions or updates. Without such time frames, SBA staff and their partners may lack the guidance they need to effectively deliver program services in accordance with laws and regulations.
  • Information technology: SBA has not implemented more than 30 SBA OIG recommendations related to IT security but has recently increased its emphasis on improvements, according to a senior official. Further, SBA has only partially implemented several required IT management initiatives. For instance, SBA established policies to consolidate the number of its data centers and manage software licenses for IT investments. However, contrary to OMB guidance SBA has not conducted regular reviews of its operational IT investments to ensure that they continue to meet agency needs. Until SBA fully implements all of the required IT management initiatives, the agency cannot provide reasonable assurance that its IT investments are cost-effective, meet agency goals, or are effectively managed.

Why GAO Did This Study

SBA has provided billions of dollars in loans and guarantees to small businesses. As of March 31, 2015, SBA’s total loan portfolio was about $116.9 billion, including $110.3 billion in direct and guaranteed loans and $6.6 billion in disaster loans. GAO has previously reported on management challenges at SBA. GAO was asked to review SBA management, including whether those challenges were ongoing. This report discusses SBA’s efforts to address management challenges related to specific programs and internal controls. It also looks at challenges in strategic planning, human capital, organizational structure, enterprise risk, procedural guidance, and IT. To do this work, GAO reviewed SBA policies and compared them with federal requirements, key principles for human capital management, and internal control standards. GAO also interviewed officials at SBA headquarters, all 10 regional offices, and 10 of 68 district offices selected on the basis of location and size.

What GAO Recommends

GAO makes eight new recommendations designed to improve SBA's program evaluations, strategic and workforce planning, training, organizational structure, ERM, procedural guidance, and oversight of IT investments. SBA generally agreed with these recommendations and provided additional context. In response, GAO clarified one of its recommendations. GAO also maintains that 69 recommendations it made in prior work have merit and should be fully implemented.

For more information, contact William Shear at (202) 512-8678 or shearw@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve management of the Small Business Administration and to ensure that SBA assesses the effectiveness of its programs, the SBA Administrator should prioritize resources to conduct additional program evaluations.

    Agency Affected: Small Business Administration

  2. Status: Open

    Priority recommendation

    Comments: SBA officials stated that, as of October 2016, the agency had taken several steps to prioritize resources and establish an implementation plan for future evaluations, including hiring its first lead program evaluator to develop a long-term evaluation agenda and initiating four program evaluations. They stated that once completed, the evaluations would be incorporated into the agency's fiscal year 2018-2022 strategic plan. As of May 2017, SBA had started reviewing guidance on drafting this plan, which is due in February 2018.

    Recommendation: To improve management of the Small Business Administration and to ensure that SBA fully meets GPRAMA requirements, the SBA Administrator should use the results of additional evaluations it conducts in its strategic planning process and ensure the agency's next strategic plan includes required information on program evaluations, including a schedule of future evaluations.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Priority recommendation

    Comments: In response to this recommendation, SBA completed a strategic workforce plan for fiscal years 2017-2020 that complies with key principles. The plan, which was finalized in December 2016, explains SBA's workforce planning model, documents its workforce analysis, includes strategies it will employ to address workforce skill gaps, and describes plans to monitor progress. According to the plan, SBA initiated a skills assessment to identify and close any gaps in core and leadership competencies as part of the agency's workforce planning effort. This assessment was completed in fiscal year 2016 and identified competency gaps for five mission critical occupations. The plan also includes recruitment and retention strategies to address these gaps. Some of the recruitment strategies mentioned include short-term staffing options such as term appointments and details within the agency and alternative staffing options such as hiring interns and veterans. Some of the retention strategies cited include talent development (training and education related to an employee's official duties, executive development plans, individual development plans, and mentoring), employee engagement (selecting the right leaders, coaching leaders and holding them accountable for their employees' engagement, and developing a broad and diverse employee recognition program), and work/life policies (phased retirement, beginning employment with a comprehensive orientation/on boarding process, and developing metrics to track separation losses). The final section of the plan describes SBA's plans to monitor progress against workforce plan milestones and objectives, such as using metrics from Office of Personnel Management guidance and employee survey results. Taking these steps should help SBA manage its workforce planning efforts.

    Recommendation: To improve management of the Small Business Administration and to improve SBA's human capital management, the SBA Administrator should complete a workforce plan that includes key principles such as a competency and skill gap assessment and longterm strategies to address its skill imbalances.

    Agency Affected: Small Business Administration

  4. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve management of the Small Business Administration and to improve SBA's human capital management, the SBA Administrator should incorporate into its next training plan key principles such as goals and measures for its training programs and input on employee development goals.

    Agency Affected: Small Business Administration

  5. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve management of the Small Business Administration and to ensure that SBA's organizational structure helps the agency meet its mission, the SBA Administrator should document the assessment of the agency's organizational structure, including any necessary changes to, for example, better ensure areas of authority, responsibility, and lines of reporting are clear and defined.

    Agency Affected: Small Business Administration

  6. Status: Closed - Implemented

    Priority recommendation

    Comments: In response to this recommendation, SBA developed additional guidance on its enterprise risk management process. This guidance, dated June 2016, outlines a 6-phase process that is consistent with GAO's risk management framework. For instance, SBA added a new first phase ("Strategic Goals and Objectives") that is similar to the first phase of GAO's framework. The guidance also describes actions to be taken during each phase of the process, something that SBA did not provide for our September 2015 report. In addition, SBA provided other documentation showing that it had implemented additional phases of its process. Specifically, SBA provided the template that offices use to assess their risks, the template used to strategize responses to risks, and the risk scoring criteria used to determine risk severity. According to the June 2016 guidance, SBA's Enterprise Risk Management Board is to review each office's draft risk profile before the office implements any planned actions. Taking these steps should help SBA ensure that its efforts effectively identify, assess, and manage risks before they adversely affect SBA's ability to achieve its mission.

    Recommendation: To improve management of the Small Business Administration and to ensure that SBA can effectively identify, assess, and manage risks, the SBA Administrator should develop its enterprise risk management consistent with GAO's risk management framework and document the specific steps that the agency plans to take to implement its enterprise risk management process.

    Agency Affected: Small Business Administration

  7. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve management of the Small Business Administration and to improve SBA's program and management guidance, the SBA Administrator should set time frames for periodically reviewing and updating its SOPs as appropriate.

    Agency Affected: Small Business Administration

  8. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve management of the Small Business Administration and to help ensure that SBA's IT operations and maintenance investments are continuing to meet business and customer needs and the agency's strategic goals, the SBA Administrator should direct the appropriate officials to perform an annual operational analysis on all SBA investments in accordance with OMB guidance.

    Agency Affected: Small Business Administration

 

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