Treasury Has Made Progress in Developing Compliance Guidance and Processes for SBLF and SSBCI

In response to our previous recommendation on SBLF compliance  procedures, Treasury has developed procedures for monitoring SBLF  participant compliance with legal and reporting requirements. SBLF-Funded Institutions and SSBCI-Funded States Have Begun to Support Small Business Lending, but Treasury’s Policy for Timely Use of SSBCI Funds Is Unclear

As of June 30, 2012, SBLF participants had increased their business  lending over the baseline from 2010. States had used about $154 million  (about 10 percent) of these funds through a variety of programs. SBLF participants increased both small business loans under $1 million  as well as total business lending. The act  provides Treasury’s discretionary authority to encourage the states to use  the funds in a timely manner, but without a formal written policy, how  Treasury would use this authority in a consistent manner is unclear. In addition, such guidelines could help states understand  the need to use the funds in a timely manner while meeting program  requirements and could provide clarity to states about the associated  consequences of not meeting the 2-year time frame. Treasury Could Enhance Its Reporting of Program Performance Information

Treasury has established performance measures to manage its programs  but could enhance its public reporting of program performance  information. Treasury  officials told us that they are continuing to consider different approaches  for evaluating SBLF. However, Treasury has not made any decisions on the  specific SSBCI performance information that it might publicly release. In its analysis, Treasury adjusted the comparison group  for a number of factors, including an institution’s asset size and  geography, thereby excluding institutions that fell outside the asset size  range of SBLF participants and that were headquartered in states that did  not have an institution participating in SBLF.helpful step in understanding the possible effects of SBLF funding. 6).SBLF participant had a 31 percent increase in total business lending,  compared with a 2 percent increase for the comparison group and a 6  percent increase for the peer group. Many  states did not receive their first SSBCI allocation until late 2011 and thus,  Treasury had limited data to evaluate SSBCI. Treasury’s performance measures  will rely on the data from these annual reports. Information on SSBCI’s performance measures regarding the amount of  small business loans or investments and the amount of private leveraging  resulting from SSBCI funds would provide Congress and SSBCI  participants with useful information on the progress of SSBCI and its  effectiveness in increasing small business lending. In response to our previous  recommendation on SBLF monitoring, Treasury has developed  procedures for monitoring SBLF participant compliance with legal and  reporting requirements. Treasury also issued the standards for  compliance to provide states with best practices for reviewing  participants’ compliance with SSBCI’s legal and policy requirements and  developed procedures for sampling transaction-level data to evaluate the  accuracy of the states’ annual reports. Although a Treasury official has publicly indicated that Treasury does not  currently plan to exercise the authority to terminate funds that have not  been allocated within 2 years from the states’ approval date, it retains the  authority to do so in the future. As we found in our December 2011 SBLF report,  Treasury has yet to finalize plans for assessing the performance of the  program, including measures that can isolate the impact of SBLF from  other factors that affect small business lending. Our own analysis using a peer group showed that  SBLF participants had increased their lending compared to peers, but  also showed that the difference in small business lending growth was  somewhat smaller than what Treasury’s analysis suggests. However, Treasury has not yet determined how and when it will  make this information public. Recommendations for Executive Action

We recommend that the Secretary of the Treasury take the following  three actions:
To help ensure that Treasury is transparent and accountable in its  decision making, Treasury should develop a written policy explaining  how it will use the Secretary’s discretionary authority to terminate the  availability of allocated funds to SSBCI participating states if funds  have not been transferred to the participant by the end of the 2-year  period beginning on the date that the Secretary approved the state for  participation. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine: (1) the status of the U.S. Department of  the Treasury’s (Treasury) efforts to monitor participants’ compliance with  program requirements under the Small Business Lending Fund (SBLF)  and the State Small Business Credit Initiative (SSBCI); (2) the status of  SBLF and SSBCI participants’ small business lending; and (3) the extent  to which Treasury evaluates and communicates SBLF and SSBCI  program outcomes. To examine the status of Treasury’s efforts to monitor participants’  compliance with program requirements under SBLF and SSBCI, we  analyzed Treasury’s documentation. To review SSBCI participants’ small business lending, we collected and  reviewed data from the Quarterly Report as of June 30, 2012—the most  recent quarter available.
Why GAO Did This Study

The Small Business Jobs Act of 2010 aimed to stimulate job growth by, among other things, establishing the SBLF and SSBCI programs within Treasury. SBLF uses capital investments to encourage community banks with assets of less than $10 billion to increase their small business lending. SSBCI provides funding to strengthen state and municipal programs that support lending to small businesses. Under the act, GAO is required to conduct an audit of both programs annually. GAO's first reports were on the programs' implementation and made recommendations. This second report examines (1) the status of Treasury's efforts to monitor participants' compliance with program requirements under SBLF and SSBCI, (2) the status of SBLF's and SSBCI's small business lending, and (3) Treasury's evaluation of SBLF and SSBCI and communication of outcomes to Congress and interested parties. GAO reviewed Treasury documents on SBLF and SSBCI procedures; analyzed the most recent available performance information for both programs and data on financial institutions; and interviewed officials from Treasury and nine states participating in SSBCI.

What GAO Found

The U.S. Department of the Treasury (Treasury) has made progress in developing guidance and procedures to monitor participants' compliance with requirements for the Small Business Lending Fund (SBLF) and the State Small Business Credit Initiative (SSBCI) programs. In response to GAO's previous recommendation on SBLF monitoring, Treasury has developed procedures for monitoring SBLF participant compliance with legal and reporting requirements. Treasury also issued standards to provide states with best practices for reviewing participants' compliance with SSBCI's legal and policy requirements and developed procedures for sampling transaction-level data to evaluate the accuracy of the states' SSBCI annual reports.
As of June 30, 2012, SBLF participants had increased their business lending over the 2010 baseline. The median SBLF participant had a 31 percent increase in total business lending and a 14 percent increase for small business loans under $1 million, according to GAO's analysis. For SSBCI, states had used about 10 percent of the funds as of June 30, 2012. The act provides Treasury with authority to terminate funds that have not been allocated to states within 2 years of Treasury's approval of the state's participation in SSBCI. However, Treasury has not yet developed a formal written policy explaining what actions it will take if SSBCI participants have not met the requirements to receive their full allocation of funds within the 2-year time frame. Treasury officials said that they currently have no plans to use this authority but retain the ability to do so in the future. Nevertheless, formal guidelines on how Treasury will use this authority could help ensure consistent use of the authority if used in the future and provide clarity to states about the consequences of not using the funds in a timely manner.
Treasury has taken steps to evaluate SBLF's and SSBCI's performance but could enhance public reporting of program outcome information. In a quarterly report to Congress, Treasury compares business lending in SBLF participants to a large comparison group that it adjusted for certain aspects of bank size and geography. GAO's analysis using a peer group that was adjusted for financial health as well geography and size showed that in nearly every case, the difference in total business lending growth was somewhat smaller than in Treasury's analysis. Treasury considered using a more refined peer group that adjusted for these factors but judged that the differences were not significant. However, Treasury did not disclose these options in the report or explain why the larger comparison group was chosen, which compromised the transparency of Treasury's methodology. Furthermore, Treasury's approach did not isolate the impact of SBLF from other factors that could affect lending, as GAO recommended in its first SBLF report. Treasury officials said they are continuing to explore evaluation approaches, including collecting additional data from a survey of SBLF institutions. In response to GAO's 2011 recommendation on SSBCI performance measures, Treasury has designed performance measures, such as the amount of private leverage states have achieved with SSBCI funds. However, Treasury has not yet developed a way to make this performance information public. Treasury shares information with the states through conferences and technical assistance, but performance information could help Congress and the states to better understand the effectiveness of SSBCI's various programs.

What GAO Recommends

Treasury should develop a policy on how it will use its authority to terminate SSBCI funds. Treasury should also expand its methodology discussion in SBLF reports and make the results of SSBCI performance measures public.