Audit Report 13-22: Improved Examination Quality Can Strengthen SBA’s Oversight of Small Business Investment Companies

On September 30, 2013, the OIG issued Audit Report 13-22, Improved Examination Quality Can Strengthen SBA’s Oversight of Small Business Investment Companies.  This report presents the results of that audit.  During survey work, the OIG identified deficiencies in the management of the SBIC examination process and as a result, the OIG developed a reporting objective to identify key challenges the Office of Investments and Innovation (OII) faced in executing its SBIC examination function.

The OIG found that improvements to SBA processes could enhance the extent to which the Office of SBIC Examinations identifies business conditions and practices prohibited by the Act and Agency policy.  Specifically, the OIG found that the SBA’s focus on the frequency of examinations as a strategy for reducing risk did not include a compensating control to ensure that examinations conducted would result in accurate assessments of regulatory compliance.  With a greater emphasis on quantity, the OSE runs the risk that the review of an SBIC may be inaccurate or incomplete.  To this point, the significant decrease in examination reports with findings could indicate that the quality of these assessments has suffered.  Outdated guidance and incomplete examination checklists also affected the quality of the SBIC examination process.  The examiners were impacted by challenges in the areas of strategic planning, training, technology, communication and funding.  These challenges, coupled with an emphasis on quantity resulted in examiners not identifying all findings.  The OIG made three recommendations.