TAILIEUCHUNG - Small Business Administration: Section 7(a) General Business Loans Credit Subsidy Estimates

It is University policy that expenses be charged directly to the account to which they pertain. It is recognized, however, that expenditure adjustments are occasionally necessary to correct bookkeeping or clerical errors in the original charges. It is also recognized that closely related work may be supported by more than one funding source and that in such cases an expenditure adjustment of costs from one funding source to another may be proper. This section details the conditions under which expenditure adjustments are appropriate. This section covers authority. | United States General Accounting Office Washington DC 20548 August 21 2001 The Honorable John F. Kerry Chairman The Honorable Christopher S. Bond Ranking Minority Member Committee on Small Business United States Senate The Honorable Donald A. Manzullo Chairman The Honorable Nydia M. Velazquez Ranking Minority Member Committee on Small Business House of Representatives Subject Small Business Administration Section 7 a General Business Loans Credit Subsidy Estimates In your May 4 2001 letter you expressed concerns about the Small Business Administration s SBA 7 a Business Loan Program subsidy rate calculations. As agreed with the staff of your committees we reviewed the subsidy rate estimation process and the data SBA uses in its calculation with a specific focus on defaults and recoveries. We identified differences between originally estimated defaults and recoveries and actual data and the causes of these differences. Additionally we assessed the implications of proposed changes to SBA s current approach to estimate defaults. On July 30 2001 we briefed your staff on the results of our review. This letter transmits the material from the briefing. In summary the process and types of data SBA uses to estimate the subsidy cost of the 7 a program are generally reasonable and comply with existing Office of Management and Budget OMB guidance. However our review of actual and originally estimated defaults and recoveries showed that on a cumulative basis since 1992 defaults were overestimated by approximately 2 billion and recoveries were overestimated by approximately 450 During this same period SBA overestimated the cost of the 7 a program by 958 million as evidenced from a trend 1Because SBA calculates estimated recoveries as a percent of estimated defaults most of the overstated recoveries resulted from the initial overestimate of defaults. When recoveries were calculated independent of the default overestimate the cumulative overstatement of recoveries was .

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