Participants in SBA's Microloan Program Could Provide Additional Information to Enhance the Public's Understanding of Recovery Act Fund Uses and Expected Outcomes

GAO-10-1032R Published: Sep 29, 2010. Publicly Released: Oct 20, 2010.
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This letter formally transmits and summarizes an oral briefing we gave on July 29, 2010, in response to Congress' request that we assess the extent to which the descriptions of the uses of American Recovery and Reinvestment Act of 2009 (Recovery Act) funds--published on the public's understanding of how funds are being spent and what outcomes are expected. Our briefing focused on activities funded through the Small Business Administration (SBA). The Recovery Act, enacted in response to the economic crisis facing the nation, appropriated a total of $275 billion in funding for distribution by federal departments and agencies through contracts, grants, and loans. The Recovery Act contains numerous provisions to increase transparency and accountability over spending. Accordingly, Congress and the administration have emphasized the need for accountability and transparency in the expenditure of Recovery Act funds. In particular, Section 1512 of the act requires nonfederal recipients of Recovery Act funds through grants, contracts, or loans to provide quarterly reports containing certain information. For example, nonfederal recipients are required to report information on each project or activity, including descriptive information on the uses of Recovery Act awards. The Office of Management and Budget (OMB) and federal departments are responsible for issuing guidance to assist recipients fulfill the reporting requirements. Information recipients report, as well as other required information, can be found at This Web site was designed to track large sums of Recovery Act funds that are being disbursed to thousands of recipients, while also making these efforts more transparent to the public than previous efforts. SBA's loan guarantee programs, such as the 7(a) and 504 programs, received $630 million in appropriations under the Recovery Act but are not subject to the recipient reporting requirements. Under these programs, SBA, in exchange for fees, provides guarantees on a portion of the loan to lenders against potential losses on qualifying small business loans to encourage them to extend such financing. In general, the Recovery Act appropriations temporarily reduced or eliminated certain program fees and increased the guarantees. Of the $630 million that the Recovery Act appropriated to expand and support SBA's loan guarantee programs, $375 million went to the 7(a) and 504 programs. Further, the Recovery Act established a new temporary loan guarantee program--which SBA calls the American Recovery Capital (ARC) program--that received $255 million in appropriations. Under the ARC program, SBA guarantees loans of up to $35,000 to small businesses that are suffering immediate financial hardship. The loans must be used to make payments on an existing small business loan. According to SBA and OMB officials, small businesses that receive loans guaranteed by SBA are not subject to the recipient reporting requirement because they are not receiving Recovery Act funds. Instead, SBA uses the funds appropriated to these programs to cover its costs to guarantee the loans. However, OMB requires agencies to report aggregated information about their use of Recovery Act funds. For example, SBA must submit weekly reports that include funds it obligates to support its loan guarantee and microloan programs, as well as its contracting activities. In response to Congress' request, we (1) determined the extent to which information reported by SBA's microloan recipients on fosters a basic understanding of award activities and expected outcomes, (2) determined the extent to which information reported by SBA's contractors on fosters a basic understanding of award activities and expected outcomes, and (3) identified information available on about SBA's 7(a), 504, and ARC loan guarantee programs that were supported by Recovery Act funds.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Small Business Administration The Administrator of SBA, in consultation with OMB, should remove the standard language in the guidance to microlenders and instruct them to include, as appropriate, more descriptive information on how the funds are being used and potential project outcomes or results.
Closed – Implemented
Consistent with our recommendation, SBA expanded recipient reporting requirements under the Microloan Program. Specifically, SBA requires Microloan recipients to provide more specific information on how the funds are being used and potential project outcomes or results. For example, in 2009, recipients were required to enter information into the Microloan Program Reporting System (MPERS) which contained a field titled "Award Description" for which microloan recipients were instructed to input "Microloans". However, MPERS now contains a "loan purpose" field where recipients are required to identify what the funds will be used for, including: materials, equipment, supplies, inventory, or working capital. Additionally, if the microloan is for technical assistance, recipients are required to identify quarterly and annual milestones, such as: the number of people expected to receive one-on-one counseling. Recipients are also required to report quarterly on budget expenditures for personnel services, travel, equipment, and supplies, among other things. SBA's revised Standard Operating Procedures for the Microloan Program, which included the additional recipient reporting requirements, became effective in March 2013 which would have included reporting on Recovery Act funds. Congress ended Recovery Act recipient reporting requirements after the fourth quarter of 2013 (to coincide with the end of Recovery Act funds) but the improved Microloan Program reporting requirements remain in place for new program recipients who receive non Recovery Act program funding.

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