Small Business Administration:

SBA Monitoring Problems Identified in Case Studies of 12 SBICs and SSBICs

OSI-96-3: Published: Apr 3, 1996. Publicly Released: Apr 3, 1996.

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Pursuant to a congressional request, GAO reviewed the improper management practices of 12 companies participating in the Small Business Administration's (SBA) Small Business Investment Company (SBIC) and Specialized Small Business Investment Company (SSBIC) programs.

GAO found that: (1) all of the companies engaged in improper management practices that violated program regulations, including providing loans to associates, making prohibited real estate purchases, and making loans to ineligible individuals; (2) infrequent SBA examinations of the companies resulted in the late discovery of violations, which often placed SBA funds at risk; (3) the companies seldom took timely action to correct identified violations; (4) SBA failed to take appropriate action when it identified violations or ensure that companies timely took corrective action; (4) such violations may have contributed to some companies' liquidation or bankruptcy, with the resultant loss of millions of dollars to the government; (5) SBA has improved its SBIC and SSBIC programs by decreasing the period of time between examinations and requiring examiners to make site visits; and (6) SBA asserts that its competing roles in supporting small business make it difficult to determine the most appropriate action to take in response to program violations, but it did not conduct adequate oversight to ensure that companies corrected improper management practices.

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