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GAO-01-1095R 1 (2001-08-21)

handle is hein.gao/gaocrptamvi0001 and id is 1 raw text is: SGAO Accountability * Integrity * Reliability 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 million.' During this same period, SBA overestimated the cost of the 7(a) program by $958 million as evidenced from a trend 'Because 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 less than 1 percent of actual recoveries, or about $3 million. GAO-01-1095R SBA's 7(a) Credit Subsidy Estimates

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