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Originally Broadcast Saturday, August 19, 2006
Mr. Morales: Good morning, and welcome to The Business of Government Hour. I'm Albert Morales, your host and managing partner of The IBM Center for The Business of Government. We created the center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the center by visiting us on the web at businessofgovernment.org.
The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is Jennifer Main, Chief Financial Officer at the Small Business Administration. Good morning, Jennifer.
The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is Jennifer Main, Chief Financial Officer at the Small Business Administration. Good morning, Jennifer.
Ms. Main: Good Morning.
Mr. Morales: And joining us in our conversation is Steve Watson, partner in IBM's financial management practice. Good morning, Steve.
Mr. Watson: Good morning, Al, and good morning, Jenny. Thanks for joining us.
Ms. Main: It is good to be here. Thanks for having me.
Mr. Morales: Jenny, let's start at the beginning. Could you tell us a little bit about the mission and the history of the Small Business Administration?
Ms. Main: Sure. The Small Business Administration was founded in the 1950s -- 1953 to be exact. So we just had our 50th birthday. And the mission has really been the same since the agency began, which is to serve the needs of small businesses, particularly in the United States. We do a little bit of outreach across the world, but the United States small businesses are our focus.
And the programs that we provide have also essentially been the same since the beginning of the agency, which is to provide credit opportunities. We used to do direct loans. Now we usually are partnering with the banking community to provide guarantees on loans that they are doing for small businesses around the country. We provide a lot of entrepreneurial development assistance, technical assistance you might call it, through partners across the country, the biggest program in that area, the small business development corporation program. There are over a 1,000 SBDCs -- they're called small business development corporations -- across the country, tend to be in colleges and universities that support entrepreneurs in their areas of local resources
And also procurement -- obviously the SBA's 8(a) program, which was named for the section of the act, but it's to assist small businesses, and particularly economically disadvantaged small businesses to get procurement opportunities, particularly with the federal government. We have a goal of ensuring that 23 percent of the federal contracts go to small businesses across the country.
So those are the main programs, particularly for small business assistance. We also advocate on behalf of small businesses within the federal government, for example, regulatory issues that come up that could have a particularly burdensome impact on small businesses.
And we also have a major role in disaster recovery across the country. And that one is not just small businesses, but homeowners as well. And that's the long-term economic rebuilding in an area after a disaster has struck. We provide long-term loans at very reduced rates. They tend to be -- right now, probably around 3 percent, which is a nice rate to get. For homeowners and businesses that have suffered physical damage or for businesses that have suffered economic injury, losses of -- there are no customers for the business and it shuts down, for example, so they can get recovery for those type of things.
So those are the main programs and the main areas that we've been working in. And really, although the programs have, you know, sort of, modernized over the years, they've really stayed the same in terms of their core purposes, and who they're -- they intended to serve.
Mr. Morales: That's great. That's certainly a very broad mission. Can you give our listeners a sense of the scale of the operations over at SBA? How many businesses are supported by your organization?
Ms. Main: Well, currently we're doing about over a 100,000 guaranteed loans through our main business programs each year. That totals a portfolio of about $60 billion right now in our primary lending program, again named for the section of the act that it was made under, 7(a), as the loan program that most people are -- the most familiar with. Between that and our Section 504 real estate development program, we have over a $60 billion loan portfolio. And of course we actually have a venture capital program as well, which some people are familiar with.
And then separately, our entrepreneurial development programs -- we reach, we believe, over a million businesses every year, and of course some of them are existing businesses, some of them are startups -- people who are considering going into business and trying to make that decision. And on the procurement front, I don't -- I'm not sure we have a good measure of how many we've assisted.
We have a lot of different things we try to do. We do business matchmaking opportunities, for example, where we've reached thousands of small businesses that are meeting up with either large contractors or potential government agencies or other entities that could be looking for small businesses to help them. So it's in the -- well over millions range that we've helped; certainly, you know, aggregate, you know, it's over 20 million over the years.
Mr. Morales: Can you tell us about the mission scope of your office specifically within SBA? Give us a sense of the number of employees, the size of the budget that you manage.
Ms. Main: I'll tell you, the whole agency is about 2,100 people -- our regular staff. We have disaster staff that can range -- 400 or so is our typical baseline. In the Katrina situation over the last year, the disaster employee base actually grew to about 4,000, which is, you know, twice the agency's size. So you have to, you know, kind of -- the core regular agency is 2,100. So it's a fairly small agency. The CFO's office is about 107 of those. And our budget in the CFO's office is, you know, $1-1/2 to 2 million range. It's pretty small. For my discretionary, you know, things that we need to get done. With the staff included, it's over 10 million in terms of their salaries.
The overall agency budget is just over maybe $650 million on average. Of course, the big factor's disaster. This past year we're going to spend a couple of billion dollars at least lending to victims in the disaster in the Gulf area. So our budget, if you looked at it at any one time it really is dependant on disaster.
Mr. Morales: It's just a variable component too.
Ms. Main: Right. If you exclude disaster, we are in the $600 million range.
Mr. Watson: Jenny, can you tell us a little bit about your responsibilities as the CFO, and how you support the mission of the SBA?
Ms. Main: Sure. I kind of think of what we do on two different fronts. On the one hand we're the financial operations, which means we have to work through the budget process, ensure that we get the funds, and just properly track them and account for them, make sure that everyone knows how much they get, what they are authorized to spend, that we don't spend a dime that we don't have all the paperwork properly in place for, and track that all the way through and do the financial reporting that's required.
We're one of the 24 CFO Act agencies -- we're one of the smallest -- but that means we're required to do anything that a CFO Act agency is required to do. So we have audited financial statements and quarterly reporting, et cetera. So the CFO's office covers all of those basic operations. And we certainly I think are typical in that sense in terms of what our role is.
The other side, in my mind of what we do is performance management, performance measurement, really trying to help support the agency in achieving its goals, ensuring that the funds that we spend are accomplishing what we intended them to accomplish.
In that regard I think of us a bit -- the program offices I think are very focused on serving their customer, identifying with their customer's need and making sure that they are doing everything they can to create creative products and interesting tools to help support their customer. And in the CFO's office, I feel a bit responsible, sort of, for the shareholder if you will. The taxpayer. Is the taxpayer getting, for the funds that are going into our agency, the best that it can get?
And ideally we have strong alignment between what we're trying to do for the customer and what we're trying to do for the taxpayer. That's the best scenario and usually it's the case and we're all in alignment. But sometimes you have a conflict there. You might have to look at them, and obviously, there are a lot of people who would have been very pleased if we could have just given out grants in the Gulf coast to people who had such disastrous events impact their lives. But from a taxpayer perspective, we don't have a program that budgets to give grants to everyone; we have a long-term loan program, and that means we can only make loans to people who meet our standards for the likelihood that they will pay those back. So in the CFO's office, I tend to think of myself as the one who's trying in our office. It's our job to make sure that the taxpayer's voice is at the table when the agency is making some of these kinds of decisions.
Mr. Watson: You know, responsibilities for CFOs differ across the 24 agencies. What responsibilities do you have as the CFO of SBA? Do you budget, for example?
Ms. Main: Yes. Yes, I have. Specifically, I have budget, accounting, financial reporting; I have internal controls. We also have performance management. And that's something new that we created in office about two or three years ago within the CFO's office that's called the Office of Accountability, Planning, and Analysis, with an emphasis on ensuring that we are measuring the results that we're getting from the funds that we're spending, that we're tracking outcomes, that we're tracking outputs and using that feedback to influence the business decisions we're making in terms of the funds that we request and how we spend the money that we get.
Mr. Watson: That's a broad scope of responsibilities. I know in reading your background before the show started that you had some private sector experience as well. How has that private sector experience prepared you for this role as CFO of SBA?
Ms. Main: Well, it's interesting. I actually -- and my private sector experience kind of spans a wide range. I worked at a very large consulting firm, multinational, huge place. And I actually worked in several small businesses, one of which I started with two other people, so from the very biggest to the very smallest. And I would say that I got some good experience in both of those places to work in an organization like the one I'm in.
From working -- having started my own business, the thing you have to do if you start a small business is be prepared to wear any hat. You could do every job in the business during one day. So you have to be ready to roll up your sleeves, no job is too big or too small to tackle. And the CFO's office that I came into almost four years ago now at SBA was really struggling. We were in a disclaimed audit opinion and we had a lot of challenges in front of us. And I think one of the things that helped me a lot personally, and helped me create a good rapport with our staff, was that I was willing to roll up my sleeves, get out my pencil and my calculator, and sit down and go through all the issues and really understand what was happening, why it was happening, and what was going on, and I think that earned me respect from my staff, which was -- is very important for a lot of reasons. And it just gave me an understanding of what was going on and helped me come up with better solutions, and provided opportunities for leadership.
So that's on the one hand. On the other hand, working at a very big firm I got an opportunity there to see that people have different skill sets, different styles, different roles. And that's what a team is made up of, that you're going to have different things coming to the table, and as the leader of the team, my goal is to leverage, bring out the best in all those skills in people that we have. And frankly, in some cases, try to minimize some of the weaknesses, you know, find a way to not have them impact the team while you work on making improvements, for example.
So between the two of them I really do feel like I used some of the skills that I got from those two different kinds of experiences in my regular work at SBA.
Mr. Morales: Jenny, we only have about a minute left, but I do also want to get to some other public sector experience that you've had outside of SBA. I understand that you spent a portion of your career as an expert in credit programs at OMB. How has this experience at OMB affected your perspective now at SBA?
Ms. Main: I think a couple of things on that front. The main one is certainly having been at OMB I really have an -- obviously an inside understanding of what they're looking for. So when we get into issues that OMB is going to be concerned about, and it happens very regularly, I have a pretty good sense of anticipating what their concerns will be, and that helps us be more prepared.
The other thing is, I really feel like I recognize that OMB is the policy entity for budget and financial management. We are the operations, so it helps me sort of frame issues with them sometimes that they may have a goal of what they want, but on the operational side it may just not really work that way. And so it's a nice opportunity. I have a lot of colleagues who still work at OMB that I have good relationships with, and I think it's been helpful on both sides to be able to engage in a sort of a knowledgeable dialogue about the issues.
Mr. Morales: Great. What are the Small Business Administration financial priorities? We will ask Chief Financial Officer Jenny Main to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Small Business Administration Chief Financial Officer Jennifer Main. Also joining our conversation is Steve Watson, partner in IBM's financial management practice.
Jenny, can you describe for us what are the goals for your office in 2006?
Ms. Main: Sure. Probably the primary goal is the maintaining our unqualified audit opinion that we were able to achieve in 2005. I'm very optimistic about that, but I also have a new auditor this year, so that just by its nature brings a new set of folks looking at the issues and having different perspectives. So certainly we are anticipating that we'll get feedback that, you know, of a different nature than we've gotten in the past. So maintaining the unqualified opinion is our top priority.
We also have had a repeat material weakness for several years now. And that is really our target to get rid of that material weakness. We've taken a lot of action over the last few years, and I'm hoping that the cumulative effect of those is going to pay off this year in terms of eliminating that.
And the other big item that's on my radar screen is the implementation of the Sarbanes-Oxley type work for the federal government, the OMB Circular A-123. We started that last year like everyone else did, and I really want to get something valuable for the agency out of that. I don't want it to be a paperwork exercise. I want it to be something meaningful. And I think we're on track to do that. But that's been a real goal this year, is to make that add value at the agency, and not be something that people are just feeling they have to do.
Mr. Morales: I wanted to go into this audit opinion, because I think there's a wonderful story here. We understand that -- I believe it was in 2002, in your audit, you did have a disclaimer, but by 2005, you went back to an unqualified audit status. Can you describe some of the steps that SBA had to take to improve controls to get to unqualified?
Ms. Main: Sure. The cornerstone kind of the problem of the disclaimed audit opinion was that SBA had done a series of asset sales where we sold loans, primarily defaulted, but in some cases performing loans. And over time -- the sales were between '99, and 2002 -- and over time it became clear that the books that we were keeping, the accounting books, were not reflecting that we were making money on the sales. And yet the budget tools that we were using, the budget models, were showing that we were making money on the sales.
And I have to add that we were following the guidance that OMB has in its circular for how you do this type of thing. But it was complicated. It was a difficult problem and it was complicated and we were not -- by late 2002 when I got there it was clear that our accounting situation was very out of whack. I mean in effect the loans that were left on the books had to be valued at more than a 100 percent of the return. In other words, borrowers were going to pay us $120 for every $100 they owed us, which simply couldn't be true.
So that was kind of the cornerstone of the issue that got the disclaimer. And we had to resolve that issue itself, which we did through a team effort. We brought in experts from consulting firms. I obviously from my experience at OMB and credit accounting had a lot of expertise to add, and we worked with OMB. We actually asked them to be a partner with us in resolving that issue. So we worked through that and got those things resolved.
And then separately I really felt like we also had to look at what was it that allowed this to happen. And really we needed to address the culture in the CFO's office. So we did it primarily by creating teams. We created two teams, one for all loan programs credit issues in the CFO's office, and really anyone who works on credit issues within the CFO's office is a member of the credit team. And then we met biweekly. And I could give you a lot of details about exactly how we did it and what we did, but our goal was to expand communication and accountability.
Collectively we identified what the key issues were, and then we divided ourselves up into sub teams, and held ourselves responsible for getting those issues resolved. And that meant that everyone who was there had a role in finding solutions. And I think it really worked well just at a lot of levels in terms of getting folks involved in a constructive way to solve problems, empowering ourselves that we could solve problems and address the issues, and communication. If something was going on and someone knows about it in a pocket of our organization and two or three months later -- and they don't say anything -- and two or three months later it comes back as an issue, the whole group was willing to hold that person accountable for not having communicated and participated and worked through the issues.
So we really -- we broke down the silos. The budget, you know, team, the accounting team, the financial reporting team would -- you know, when I got there were sort of pointing fingers at each other. We broke those silos down and we said we're all on the CFO's team. Collectively we have to figure out how to solve these issues. So that was really to me the way that we moved from, over a three-year period from 2002, with a disclaimed opinion all the way up to the 2005.
Mr. Morales: A specific question. We understand that you also had to -- aside from the asset sales valuation method, which I think you needed to work on, was that you improved the cash and tracking of loan performance. Can you describe that a little bit?
Ms. Main: Sure. When I got there, we really didn't have adequate reports on what was happening. Particularly, as I mentioned, we had the $60 billion loan portfolio. And what that means is we have cash coming in every month, fees and repayments of loans, all sorts of different potential sources of funds that are coming in to our account there, as well as funds that are going out. Payment of defaults, payment for care and preservation of collateral, for example. And the fund that these loans are in, it's called a financing account in budget terms, and it's technically a non-budgetary account, because you've accounted for the cost on the budget front in the -- what's called the program account.
So these financing accounts don't have all the same controls on them that a traditional budget account would have. And the problem was that they were -- the team that was there at the time didn't have adequate knowledge of what was coming in and what was going out. In fact, when I got there that summer -- I'm happy to say it happened a month or two before I got there -- we overdrew the account by $50 million that they paid out. And so they clearly did not have enough knowledge about that.
And so we instituted a really tight monthly report -- I would say it took us literally a year and a half to get the report to where it should have been, you know, honing and improving it. But we have a really tight monthly report now that everyone takes a look at and understands exactly what's coming in each month, what's going out. And if you do that and you break it down by your loan programs, you can really understand, are we on track for the defaults that we expected to occur this year? Are we on track for the fees that we expected to get? How are we doing on recoveries? And you can do that by every program that you have. And that's really helped us in our long-term modeling that we have to do to understand what the costs of these programs are.
Obviously, loan programs by their nature -- you make a loan today, you expect to get paid back, but you don't know until year three, four, five, whether the borrower was really going to do that. So we're constantly modeling these long-term liabilities. And having much better data, much more accessible, has really improved the models that we have. And I think that's also been a big part of eliminating our disclaimed audit opinion. And we also had a mature weakness in that area, and that was eliminated in 2005 as well.
Mr. Watson: Jenny, I read your auditor's report before coming here. And they had strong praise for the corrective actions that you've implemented and the financial improvements you've made. Yet SBA's still not at the green status on the PMA. What additional improvements are needed to get to green?
Ms. Main: Well, the last remaining item is this repeat material weakness in financial reporting. And there were a number of items in our audit recommendation list particularly setting up, for example, change control process around accounting -- that's an example. I feel like we should have had some miscellaneous weaknesses last year, certain items that the auditors found that they weren't comfortable with. My hope is that we've addressed all of those. And we really feel like we have a solid quality assurance process in place.
They recommended that we continue to improve our quality assurance. We did hire an additional credit accountant this year. And with the A-123 internal control initiative, we've also done more of our own testing and our own analysis in the financial reporting front.
Another thing we've been doing is -- most agencies have been doing this, to meet the accelerated financial statement deadlines -- is quarterly -- the level of quality assurance and analysis that you're doing quarterly has really increased. Things we used to just do at the end of the year, now we're doing quarterly, you catch a problem much easier earlier in the year than you had before.
I don't think we have a pervasive weakness that I can see. So I think we have some smaller issues that last year our auditor felt like we had enough small ones that they added up to enough of a big thing that they didn't want to say okay, the material weakness is gone. I've been of the view that we're there. And we'll see. We have a new auditor coming in, and I'm actually very much looking forward to getting their views on how we're doing, and in comparison to the other agencies they worked with.
Mr. Watson: Well, good luck with moving to green this year. Moving away now from the audit and the financial reporting to your additional responsibilities to work with program managers better support the business. What steps are you taking there to help the program managers better operate at SBA?
Ms. Main: Best way I can answer that is to sort of tell you my philosophy about that role, which is, I feel very strongly that the CFO's office is a support office, and I'm excited -- you read articles today about CFOs getting a seat at the table. And I'm excited about being, you know, perceived as having a strong role in an agency. But I really want us to use that to empower the program offices to be responsible for their programs, and to ensure that they are getting results that they have established.
I don't want to be the one setting up goals, then telling them that they have to meet them, and then hearing from them that they don't believe in the goals. I want them to establish the goals, and then we'll help hold them accountable. We'll give them tools, try to give them resources. The whole point is to have -- they're the program managers, they know the programs best, and I want to support and help them in achieving what they've identified as the best way to achieve the agency's mission.
So that's really my philosophy about it. Again, the best example I have is this year with the A-123, the internal control situation. We did a sit down kind of qualitative assessment with each of the managers in the main program areas and said, what's keeping you up at night? What's happening in your area that makes you worried? And we identified a couple critical ones. And we've used the contractor that the CFO's office had hired to do this implementation, to go in and do extra testing and create recommendations for them about what they could do to address some of those issues.
So really to make it practical and valuable for them, that they'd have something additional to say when the IG or someone else comes in and says, "What have you done about this?" And we've helped them solve a real tangible problem that they identified that they were worried about. It's a big thing for me. I want them to have ownership of those types of things, the goals and the issues.
Mr. Watson: Following up on that, did ownership of data change, or processes, or the way the CFO interacts with the program offices?
Ms. Main: Well, it's interesting. The data ownership -- we were actually -- the last couple of years the CFO's office has expanded the amount of data that we kind of are tracking for our performance and accountability report, to the annual report that the agency has to do like all federal agencies. And one of my big goals this year is to trim back that data that we all say we're going to track. And if the program officers want to use the data that we've been collecting for their own management purposes, then great. But if they don't, then we shouldn't be tracking it. I think we've accumulated some data in the last few years that we've taken on ownership of, and I'm trying to push it back out. I want them to be the owners of it, because that's where the quality's going to come from. If they use it, the data quality will be good, because they care about it, and they'll notice when something is askew. If they don't use it, it could take a long time for someone to notice that there's a problem with the data, if no one's using it, keeping an eye on it.
Mr. Watson: Moving beyond basic scorekeeping, do you work with the organization to actually help them achieve their goals?
Ms. Main: Definitely. SBA's a very small agency. And literally, the headquarters, the whole management team is in one building on four floors -- five floors. So I see the folks that I work with, I see them at the management meetings, and I see them down at the lunch counter. And I've developed, I think, pretty good relationships with them as I'm working through them -- with them, and trying to keep my eye on what tools do they need, what things do they need that I can help them with.
Mr. Morales: Jenny, we talk with many of our guests about this topic of ownership, of about working together in collaboration. What kinds of partnerships are you developing now to improve the operations or the outcomes at SBA? And how will partnerships with other federal agencies, or the private sector for that matter, change over time?
Ms. Main: I guess I have two different answers for that question. In the first answer, SBA is very much about delivering its products through its partners. Almost all of our programs are delivered through the lending community, and as I mentioned, the small business development companies around the country. Partnership with the private sector is really what we're about. We can't afford to be having a lot of one-on-one relationships with small businesses. So the entire model of the agency's delivery mechanisms has changed to this partnership notion. And we actually engaged in some discussions internally about, is the customer the lending community, or is the customer the small business? And obviously the small business is the ultimate customer, but we recognize that those partners in the private sector are the ones really delivering the services. So we're focused on both. So it's been -- that's a big area for SBA.
In the CFO's office in particular, I would also add -- and I think this is also happening across other federal agencies -- we are recognizing that there are areas of expertise that we can just leverage private sector expertise. We don't to have to do it ourselves.
This notion of outsourcing, hosting -- SBA moved to -- shifted its administrative accounting system to -- we outsourced it to a -- through a competitive bidding process. And that has worked out very well for us. And I think we'll continue to do that, and we're looking for more opportunities to outsource the hosting of our major systems. And potentially, even some of the core functions that repeat commercial operations that could be done anywhere in this budget environment, which is just extremely tight, and anyone who pays attention to what's happening to the budget can see that 10 years from now it's going to be -- it's only going to get worse. We have to be finding ways to lower our costs. And the outsourcing, working with the private sector, is absolutely a top priority for us.
Mr. Morales: How is SBA integrating budget and performance information? We will ask CFO Jenny Main to share the details with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Small Business Administration CFO Jenny Main. Also joining us in our conversation is IBM's partner in financial management, Steve Watson. Jenny, many agencies are working to implement the budget and performance integration aspect of the PMA. And we've talked a little bit about the PMA in our last segment. What is the status of SBA's plan for this effort?
Ms. Main: I'm really pleased to be able to say that SBA has been green on the budget and performance integration in President's management agenda item since a quarter or two after they started the PMA. We were one of the first agencies to be green. And I think the reason for this is that the agency has had a lot of experience that probably since 1998, we've had an activity-based cost model that we used to identify the cost across the agency of the activities that we do. And we've been pretty successful at linking our whole budget environment to -- you know, having a strategic plan that's the baseline that identifies the key outcomes we're trying to achieve.
Our budget itself is mapped to those, and then includes the activity-based cost results in terms of what things cost us, and then our performance and accountability report reports against those same things with the costs identified all the way through.
So that framework has really helped us demonstrate that we're focused on budget and performance integration. And actually, if you went to the culture within the agency, we have what we call -- it makes me laugh -- it's called the execution scorecard.
I always wanted to call it the executive scorecard, but it's the execution scorecard that the chief operating officer uses to manage the program managers and all the managers throughout the agency. And the items that are in there are the same things that are in our budget, on our performance accountability report. He meets monthly with the major office heads to go over the results and how they're doing to date, against those things. So you can really kind of show that we have an integrated performance culture. And I think those different components all put together have helped us achieve green in the first place, and then sustain it going forward.
One thing that concerns me though in this march towards budget and performance integration, which I wholly support, is that there are really two sides to what you have here. You have the cost side, and we're getting better and better. The tools, the data, are more readily available. It's cheaper to track data and keep it and look at it. So we're getting really good at identifying what it costs us to do things. The other side though was the benefits. Unfortunately, particularly in a lot of the programs that the federal government is involved in -- we're involved in them because for some reason the private sector isn't doing them, but collectively our government and our country have decided that they're important activities for us to do.
So there's a benefit there. And it's very hard though for us sometimes to figure out what the benefit is. We have a range, as I mentioned, of different loan programs at SBA. What's the benefit of a small business getting a loan on the terms and conditions that a private sector bank wouldn't provide them? That's the criteria for our primary loan program that the lender wouldn't provide that loan on the same terms and conditions. So figuring out exactly what benefit -- how much revenue we add to the economy.
Well, did, you know, the business retained a person or two, a job or two, or maybe even the whole company that they wouldn't have otherwise. Figuring out how to measure the incremental effect of that is really challenging. We've been working on it a lot, and it's not new to folks who follow this type of issue in the social services world. Because we're so focused on costs and benefits, and because our benefit data isn't so great, we're driving to the lowest cost products.
And I think maybe, especially since I'm in the -- I'm the CFO, I'm the one who's supposed to keep my eye on the budget, I worry that if we keep doing our jobs so well, we're just going to have all the low-cost programs funded, and anything that's higher cost, because we haven't shown what the -- that the benefit is commensurate with the higher cost, you know, we're not going to be able to do those things. So that scenario I've been struggling with. Our office has been leading a large multiyear program evaluation trying to quantify the benefits of some of our loan programs.
But it's challenging. I know when we're done there'll be, you know, a potential for people that, well, you didn't have a prefect comparison sample, because you can't.
Mr. Watson: Jenny, shifting gears here a little bit, the internal control requirements of Sarbanes-Oxley have moved into the public sector in the form of an expanded circular A-123. How is SBA implementing the new A-123 requirements?
Ms. Main: Well, we've really done what I would call, sort of, a traditional A-123 implementation, and I'll confess in the government you're allowed to do this. We just took OMB's guidance that they provided us last summer and used it as the basis of our plan. We just went section by section and said, "Okay, OMB wants us to do these things, let's put them in our plan." So we're kind of trying to do the baseline traditional version of it. And it's actually worked well for us in the sense that I think everyone's clear about the goals, there's a lot of documentation for exactly what we're doing and why we're doing it.
But as I mentioned earlier, from my perspective, the number one thing is to bring this back to the actual issues the agency is facing, and allow it to give us a few solutions to problems that we know we have. SBA has literally a couple hundred open IG audit recommendations, and we are not alone in that. Any agency you go to is going to have a lot of open audit recommendations. We have unresolved issues. If there are issues around that the resources we're using under A-123 can help solve some of these problems then my view is let's do that.
Rather than going finding more new things, let's make it really hands-on and practical and solve a few of those problems. So we picked to go deep, if you will, in a couple of key places. Rather than 10 miles wide and an inch deep, we said we'll go five miles wide and pick two or three and really drill down. And that's how we've done it. And I feel like I've gotten some really good feedback from our program managers, because they're going to have something tangible that they can use in a response to the IG, for example, on a problem they've been working on.
Mr. Morales: As a result of your efforts, are there any lessons learned you will apply for next year, or could provide to other government agencies that are going through the A-123 process?
Ms. Main: Well, certainly the most practical one that we're learning right now is because we spent the whole year planning, and this is the first year of it, we're testing the exact same time that the auditors are testing. It's frustrating on a number of fronts. We certainly wish that we would -- could and hopefully next year will test -- you know, February-March range. It'll separate the sampling process. Right now, we have program offices getting request for samples of loans from our internal management's auditor, and which is -- because we hired a firm to help us -- and from the IG's external auditor.
And they don't know the difference. You know, we can try to tell them, and I've tried, believe me. But when all is said and done, you know, they're auditors, whatever, you know. So hopefully if we push our testing back a few months, maybe February-March, and then I would say we'll have the results earlier. And if there are issues that you can address and get them solved, that's the ideal situation. At least by September 30th you might be able to show that you've cleaned up whatever the problem was, and that you have a practice in place that the auditor, then when they test it in June or July they'd see something that they're comfortable with.
Mr. Watson: Do you envision being able to integrate that testing going forward so that there's not the A-123 auditors and then the traditional financial statement auditors both testing and looking at data?
Ms. Main: Well, from everything I can tell, the intention is that they want us to test for ourselves, and have the auditors test on top of it. That's my understanding of where they're headed. I think they're willing to let us document -- you know, the first year they want us to test every -- a baseline of the key processes, and then going forward it seems like there's some opportunity to show, hey, we have a really strong track record that we don't have any issues. We have these processes in place that would tell us if there's an issue, and therefore we're only going to -- we're going to sample a smaller number, we're going to sample less frequently in a sort of a multiyear kind of thing. But I think the notion that management has to have something of its own to stand behind the assertion where we have to assert as to the quality of our controls that are in place -- in the past you could make that assertion based on whatever your --- process would let you get away with in a sense.
You know, you had to write a letter, and it said, "Yeah I've looked things over. I've checked it out. Based on my management judgment, I think we're fine." And my understanding is now you have to say, "Hey, I feel good about the internal controls, and I tested them. And we didn't have any exceptions." Or, "The exception I had I could understand and explain it away," you know, whatever the case may be. But you have to have that testing, I think, to make the assertion that you have things under control.
Mr. Morales: Jenny, how has SBA handled the accelerated financial reporting requirements implemented in '05 and '06, and what steps is your office taking to ensure the deadlines will be met?
Ms. Main: This one I -- near and dear to my heart. We actually had a disclaimed audit opinion the first year that they -- that was actually in '04, the first year that they were -- we had to meet the November 15th. The number one that was one word, "planning." And we literally planned down to the day who was doing what, when. We had plans and sub-plans because our auditor -- and of course our auditor was nervous about making November 15th too, it's a lot of work for us, it's a lot of work for them.
Our IG and OMB, we had so many planning meetings and discussions, we had literally almost 100 pages of planning documents of exactly what was going to happen when we tracked every component of the financial reporting process down. And then the audit process, I think they did the same thing on top of it. And that's how we made it. And it served us very well because we could just update those plans in subsequent years.
Mr. Morales: What does the future hold for SBA? We will ask CFO Jenny Main to discuss this with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with SBA's chief financial officer, Jenny Main. Also joining us in our conversation is Steve Watson, partner in IBM's financial management practice.
Mr. Watson: Jenny, in the last segment we were talking about various OMB initiatives for internal controls and accelerated reporting. I want to talk to you a little bit about the line of business initiatives. Where is SBA with respect to implementing lines of business?
Ms. Main: We're very supportive of the lines of business initiative. I can tell you as again, one of the smallest of the CFO Act agencies, we are constantly looking for opportunities to team up with a bigger agency who has gone the path of getting all of the standards and requirements in place for some sort of technology that we can just piggyback on. But we're just too small to be developing our own things. That said, we had just outsourced our administrative accounting system in 2003, right when the line of business initiative was kicking off for the financial management side.
And so we're anticipating when that contract is up -- we have a very, very good contract that has been very cost effective for the agency. So we don't want to move away from that in the short run. But when that contract is up in a couple more years we'll be anticipating transitioning to one of the existing centers of excellence or, you know, our service provider is actually I think becoming a center of excellence. So that will be a competitive opportunity that we'll look at. We are a small entity that benefits from others who want to do this. I don't anticipate us becoming a center of excellence because we're a small fry in the mix.
Mr. Morales: Jenny, I want to transition, now, to the future. What trends will have the largest impact on SBA, say, in the next five to ten years?
Ms. Main: I think it continues to be technology. We're primarily a wholesale provider of services to the small business community. We're working through our partners as I mentioned. And technology -- you know, the number of people who have computers and Internet and access to things -- we really want to move to 100 percent electronic transactions with everyone that we deal with. Obviously, aside from training and counseling type of activities where although you can do a lot of that through the Internet, and we've been expanding our presence on that front, you know, person-to-person is still I believe an important part of like a training or a counseling program.
But lending and those types of things -- the lenders are going to be the ones that interface directly with the small businesses, and we really will just interact electronically with our lenders. And we're using technology now to monitor our lenders much more effectively. We can get data. We have over 4,000 lenders. We need to know very quickly which ones are high risk, and you can use data to do that today. And we'll just become more efficient and proficient at that in the future.
The other area that, unfortunately, I'm not so optimistic about -- I know it's going to impact us, but it's not in a good way, is the budget. As a small domestic agency, very small, we have already shrunk almost, well, over 30 percent as our -- what our budget has declined over the last five years. Our staff has gone down 20 percent. We haven't given up any programs or any major programs at least, and our loan portfolio only grows. When you make loans, it creates a liability that can be 5 to 10 to 15 years down the road that you're still working on it.
So we have to maintain sufficient infrastructure. As a steward of the taxpayer's dollars, it is penny wise and pound foolish not to be maintaining an adequate infrastructure to manage that portfolio. In this current budget environment we're looking at cuts, you know, across all the agencies. I'm not the only one, you know, singing this problem. But I -- when I look at the impact of that on our agency it makes me very nervous, and we've been working hard for the last few years to try to figure out strategies. But you get to a point where you can't tighten the belt anymore, there's bone there, and just need a different approach.
Mr. Morales: Certainly a challenge. I want to transition back to some comments you made earlier in the show around disaster and disaster planning. And we've talked to many of our guests about what their organization's role is in this area. What role does SBA play in national efforts to support businesses and the economy during a disaster response?
Ms. Main: Well, SBA has one major disaster program. It's a loan program. We provide long-term recovery loans for rebuilding either homes or businesses after a disaster. And that's -- it's been a bit of a challenge. And over the past year with the extreme nature of the disaster in the Gulf, I think folks really wanted, for example, a bridge loan type of thing. Something that could keep them going for a few months while they were trying to figure out how they were going to salvage their business, or whether they were going to be able to return to the area.
And unfortunately, SBA doesn't have a statutory program that provides a short-term bridge loan product. And that was a source of, I think, a lot of frustration. But what we really have is the long-term recovery program. And in fact, most of the loans are 30 years. We will extend the payment term out as long as it takes for the borrower to be able to make the payments on their forecasted, you know, income that's available. So that's our primary program. It's been around for more than 30 years.
And overall, I would call it a very successful program. Folks who have used it -- Northridge earthquakes, for example, we did about $4 billion there in Southern California. We've gotten, over the years, a lot of positive feedback about it. But in such a dire circumstance like the Gulf, I think we found that that program alone was challenging. It caused a lot of frustration that there weren't more things. And, you know, today you can find that Mississippi and Louisiana are actually giving out grants to homeowners who have gotten SBA loans, and we're going to use -- and we're coordinating with them to coordinate that benefit.
But the devastation has been so bad that the federal government responses said, you know, we want to go a step further. So we've been working with them to make that happen.
Mr. Morales: Great. Jenny, you've enjoyed successes both in the private and now in the public sector as well as starting up your own business. What advice could you give to a person who's interested in a career in public service?
Ms. Main: Well, certainly, I've always loved being a public servant. I actually have a master's degree in public policy. So I really enjoy the challenges, the issues that you face. I mean, I kind of define the issues that the government frequently is looking at, or the things that didn't get taken care of in the private sector. There are issues that people care about, but the for-profit bottom-line isn't making them happen. So that by its nature I think makes it interesting. And I would certainly offer encouragement.
And we're looking at a huge demographic shift in the federal workforce in the next 15 years -- 40 -- 45 percent of SBA staff are eligible to retire in the next 5 years. So we need good people. So I would very much encourage anyone who's interested in public service. I would say that it's a -- it can be very challenging. There's a lot of tough things about it. But I personally feel like I make a difference every day. Personally being there, helping to make a decision or change something that otherwise would have gone a different way, I feel like I make a difference everyday, and that's very rewarding.
Mr. Morales: Great. Excellent. Jenny, unfortunately that -- we've run out of time here, and that'll have to be my last question. I do want to thank you for fitting us into your busy schedule today. But more importantly, Steve and I would like to thank you for your dedicated service to the public in our country in the various roles you've held at OMB and now at SBA.
Ms. Main: Thank you very much. I really appreciated the opportunity to be here. And I just want to make sure that all of your listeners know that if they're interested in the Small Business Administration and the products and services that we offer, particularly if they're considering starting up a small business, you can go to our website, which is www.sba.gov, and take a look at all the many great programs that we have.
Mr. Morales: Great. Thank you. This has been The Business of Government Hour featuring a conversation with Chief Financial Officer of the Small Business Administration, Ms. Jennifer Main. Be sure to visit us on the web at businessofgovernment.org. There you can learn more about our programs, and get a transcript of today's conversation. Once again, that's businessofgovernment.org.
As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who can't hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support. For The Business of Government Hour, I am Albert Morales. Thank you for listening.