Ex-Im Generally Classifies Companies’ Small Business Status Correctly, but Weaknesses Limit Its Ability to Accurately Measure Small Business Financing

While Ex-Im generally classifies companies’ small business status correctly,  weaknesses in its data systems and data limit Ex-Im’s ability to accurately  determine its small business financing amounts and share. Ex-Im’s methodology for calculating its  small business financing is based on directly counting the value of small  business financing for transactions where the exporter can be identified  and estimating the small business value of transactions where the exporter  cannot be identified at the time Ex-Im authorizes the transaction. In addition,  in its required reporting on the number—as opposed to the value—of  transactions benefiting small business, Ex-Im includes transactions which  do not directly benefit small business. For most transactions, Ex-Im can identify the exporter at the time the  transaction is authorized and, in those cases, it bases its calculation on  whether the exporter qualifies as a small business under the SBA  definition. Second, Ex-Im’s data systems sometimes contain conflicting information  for the same company. Ex-Im’s Interpretation of the Small Business Financing Mandate

Prior to the enactment of credit reform legislation, Ex-Im interpreted the  mandate as requiring it to make available for financing small business  exports an amount equal to the legislatively established percent of the  aggregate principal amount of loans, guarantees and insurance specified by  Congress for that fiscal year. Given changes in law over time, Ex-Im  currently interprets the small business financing mandate as requiring Ex- Im to attempt to ensure that 20 percent of the value of its transactions is  provided directly to small business. Recommendations for Executive Action

To improve the reliability of Ex-Im Bank reporting on its direct support for  small business we recommend that the Chairman of the Export-Import  Bank take the following four steps:  improve the completeness, accuracy, and consistency of the data Ex-Im  maintains on its customers, especially with regard to their small  business status;  improve the system for estimating the value and proportion of direct  small business support for those transactions where the exporter is not  known at the time Ex-Im authorizes the transaction;  more accurately determine and clearly report the number of  transactions that directly benefit small business; and  have its external auditor audit Ex-Im’s annual legislatively-mandated  reporting of its direct support for small business as a part of its review  of Ex-Im’s compliance with laws and regulations. This report (1) analyzes Ex-Im’s  methodology for calculating its direct support of small business and the  reliability of Ex-Im’s data used in the methodology and (2) describes Ex- Im’s legal interpretation of its requirement under the statutory 20 percent  small business mandate.
Why GAO Did This Study

The Export-Import Bank (Ex-Im) provides loans, loan guarantees, and insurance to support U.S. exports. Its level of support for small business has been a long-standing issue of congressional interest. Most recently in 2002, Congress increased the proportion of financing Ex-Im must make available for small business to 20 percent. GAO examined legal and policy issues related to Ex-Im's small business financing. Specifically, GAO (1) analyzes Ex-Im's methodology for calculating its direct support of small business and the reliability of Ex-Im's data used in the methodology and (2) describes Ex-Im's legal interpretation of its obligations under the statutory 20 percent small business mandate.

What GAO Found

While Ex-Im generally classifies companies' small business status correctly, weaknesses in its data systems and data limit its ability to accurately determine its small business financing. Ex-Im uses a combination of direct counts and estimates to calculate its small business financing, based on the authorized value of individual transactions. For most transactions, Ex-Im can identify the exporter and thus bases its determination of the small business financing share on whether the exporter qualifies as a small business. For other transactions, Ex-Im cannot identify the exporter at the time it authorizes the transaction and estimates the small business share based on shipment patterns in an earlier period. GAO determined that Ex-Im generally classifies companies' small business status correctly. However, GAO identified weaknesses in Ex-Im's process for calculating its small business support. For transactions where Ex-Im can identify the exporter, GAO found internal control weaknesses such as Ex-Im's data systems containing conflicting records for the same company. For transactions where Ex-Im cannot identify the exporter when it authorizes the transaction, a weakness is not including a large value of shipments in its calculations. GAO also determined that Ex-Im's reporting on the number of transactions--as opposed to the value of transactions--that directly benefit small business includes transactions that do not benefit small business. Prior to the enactment of credit reform legislation, Ex-Im interpreted the mandate as requiring it to make available for financing small business exports an amount equal to 10 percent of the aggregate principal amount of loans, guarantees and insurance specified by Congress for that fiscal year. Given changes in law including federal credit reform and the removal of specific financing authority limits, Ex-Im currently interprets its statutory small business financing mandate as requiring it to attempt to ensure that 20 percent of the authorized value of its transactions during a year directly benefits small business.