Small Business:

Losses on Individual SBA Loan Programs Are Not Fully Disclosed

RCED-92-90: Published: Apr 17, 1992. Publicly Released: May 19, 1992.

Additional Materials:


Judy A. England Joseph
(202) 512-7631


Office of Public Affairs
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Pursuant to a congressional request, GAO: (1) provided information on how the Small Business Administration (SBA) accounts for acquired collateral in reporting 7(a) Loan Program losses; and (2) reviewed whether SBA assigns proper value to collateral from defaulted loans when making acquisition decisions.

GAO found that: (1) SBA does not include actual gains or losses on acquired collateral and costs associated with the management and sale of acquired collateral in its annual loan loss study; (2) SBA records the actual gains and losses realized from collateral sales in separate asset disposition accounts; (3) SBA uses separate accounts to record and account for the acquisition and final sale of acquired collateral because the final sale of collateral may take several months and SBA can more quickly resolve borrowers' loan accounts by using an assigned collateral value, rather than actual liquidation receipts; (4) SBA records the additional costs it incurs while managing and selling acquired collateral separately in general expense accounts; (5) SBA protective bids for acquiring collateral at foreclosure sales frequently do not reflect additional expenses associated with acquiring collateral and, as a result, SBA sometimes overvalues collateral and makes acquisition decisions that are not advantageous to the government; (6) inappropriate protective bid amounts can also improperly reduce a borrower's outstanding debt; (7) SBA does not consistently comply with its standard operating procedures for acquiring loan collateral at forced liquidation sales; and (8) from the 7(a) Program's inception through 1989, total actual losses from the sale of acquired collateral were about $168 million greater than SBA reported in the annual loss studies.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The SBA Office of the Comptroller has modified its annual loss study report based on the GAO report to include the losses or gains from the sale of acquired collateral and all expenses incurred from the management and sale of this collateral.

    Recommendation: To fully disclose individual loan program losses to Congress and others, the Administrator, SBA, should direct the Comptroller, SBA, to include the losses or gains from the sale of collateral in the annual loss study.

    Agency Affected: Small Business Administration

  2. Status: Closed - Not Implemented

    Comments: Because of SBA's reduced budget, the Office of Financial Assistance's requests in FY 1993 and FY 1994 for funds to conduct training for SBA liquidation personnel were approved by the SBA budget office and were not included in the SBA budgets sent to OMB.

    Recommendation: To increase compliance with SBA procedures for determining bid amounts and assigning collateral liquidation values, the Administrator, SBA, should ensure that all SBA liquidation personnel receive formal training in the valuation of collateral and SBA operating procedures.

    Agency Affected: Small Business Administration


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