In 2002,  Congress established several new requirements for Ex-Im relating to small  business, including increasing from 10 to 20 percent the proportion of Ex- Im’s aggregate loan, guarantee, and insurance authority that must be made  available for the direct benefit of small businesses. Trends in Ex-Im’s Small Business Financing

Between fiscal years 2002 and 2007, Ex-Im increased the percentage of its  financing for small businesses and continued to finance most small  business transactions through insurance or working capital guarantees. Ex-Im Small Business Financing Share Has Recently Exceeded 20 Percent

Ex-Im met the Congressional requirement to make available not less than  20 percent of its financing authority for small businesses in 2006 and 2007. While the small business financing  value slowly increased between fiscal years 2001 and 2007, the value for  non-small business financing was noticeably lower in 2006 and 2007,  compared to 2005. Weaknesses Limited Ex-Im’s Ability to Measure Small Business Financing; Ex-Im Has Implemented Improvements

In our 2006 report, we found weaknesses in Ex-Im’s data and data systems  for tracking small business financing and made recommendations for  improvement, and Ex-Im has taken steps to address those weaknesses. We  reported that, while Ex-Im generally classified companies’ small business  status correctly, weaknesses in its data and data systems limited its ability  to accurately determine its small business financing amounts and share. In  implementing “Ex-Im Online” and certain internal control measures, Ex-Im  has improved its ability to accurately measure small business financing. Most notably, Ex-Im replaced its  previous data systems with Ex-Im Online, an interactive, web-based  process that allows exporters, brokers, and financial institutions to  transact with Ex-Im electronically. Weaknesses Existed in Ex-Im’s System for Estimating Small Business Financing When the Exporter Is Not Immediately Knowable

We reported two weaknesses in Ex-Im’s system for estimating small  business financing when the exporter is not known at the time Ex-Im  authorizes the transaction, which applied to about one-third of Ex-Im’s  total small business financing for fiscal year 2004. Also, we found that Ex-Im classified the small business status of a  significant portion of the companies making shipments as “unknown” and  excluded them from its calculation of the estimate of its small business  support. GAO recommended that Ex-Im improve its 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. Ex-Im’s Reporting on the Number of Transactions Directly Benefiting Small Business

Ex-Im is statutorily required to report on the number of its authorized  transactions that directly benefit small business; in our 2006 report we  found that Ex-Im’s method of determining this number included some  transactions that did not directly benefit small business. GAO recommended that Ex-Im more accurately determine and clearly  report the number of transactions that directly benefit small business;  however Ex-Im officials disagreed with this recommendation and have not  changed their methodology.
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. In 2002, Congress increased the proportion of financing Ex-Im must make available for small business to 20 percent. In 2006, Congress directed Ex-Im to make organizational changes related to small business and to better evaluate its small business efforts. This statement discusses (1) trends in Ex-Im's small business financing since fiscal year 2000 and (2) the weaknesses GAO found in the tracking and reporting of Ex-Im's small business financing and the steps Ex-Im has taken to address them. This testimony is based primarily on GAO's March 2006 report (GAO-06-351) concerning Ex-Im's small business program. In that report, we recommended that Ex-Im (1) improve the data it maintains on its customers with regard to their small business status; (2) improve its system for estimating the value and proportion of direct small business support for those transactions where the exporter is not known at the time of authorization; (3) more accurately determine and clearly report the number of transactions that directly benefit small business; and (4) have its auditor audit Ex-Im's reporting of its direct support for small business. Ex-Im agreed with three of the four recommendations. We discuss the actions Ex-Im has taken to implement our suggestions in this statement.

What GAO Found

The share of Ex-Im financing directly benefiting small business has increased over recent years, surpassing the required 20 percent in 2006 and 2007. The percentage increase reflects a slow increase in Ex-Im financing for small businesses, while financing for non-small businesses was noticeably lower in 2006 and 2007 compared to 2005. Ex-Im continues to finance most small business transactions through insurance or working capital guarantees. In our 2006 report, we found weaknesses in Ex-Im's data and data systems for tracking small business financing and made recommendations for improvement, and Ex-Im has taken steps to address those weaknesses. We reported that while Ex-Im generally classified companies' small business status correctly, weaknesses limited its ability to accurately determine small business financing values. For transactions where Ex-Im can identify the exporter at the time it authorizes the transaction, we found that internal control weaknesses in Ex-Im's data systems limited its ability to accurately determine small business financing amounts and share. For transactions where Ex-Im cannot identify the exporter up-front, we found that weaknesses in its system for estimating small business financing also limited its ability to accurately measure and report on such financing. We also reported some limitations in Ex-Im's calculation of the number--as opposed to the value--of transactions benefiting small business. GAO made four recommendations. Ex-Im has taken several steps in response to those recommendations. Most notably, Ex-Im replaced its previous data systems with "Ex-Im Online," an interactive, web-based process that allows exporters, brokers, and financial institutions to transact with Ex-Im electronically. According to Ex-Im, this has resulted in more timely and accurate information on Ex-Im's financing.