Looking outward

After taking nearly four years and spending millions to develop a loan monitoring system (LMS) — with no tangible results — the Small Business Administration is doing something many say it should have done a long time ago: seek private-sector help.

Bush administration officials ordered a "substantial review" of SBA's LMS program after coming on board in February, acting Administrator John Whitmore told Congress last month, and much of that involves finding out what systems the financial sector uses and how they could serve SBA.

"The SBA is not the only organization that has loans out there, and we need to take a good look at best practices in the private sector," said Steve Tupper, acting associate deputy administrator for management and administration. "I just don't believe we need to invent a loan monitoring system from scratch.... We can buy a good [commercial off-the-shelf] system and modify it slightly."

The agency has hired a consultant to help it determine what loan monitoring systems private financial firms use and whether they would fit SBA's needs, Tupper said. If, as expected, SBA finds an applicable off-the-shelf system, it could be deployed within 12 to 18 months, he said, instead of four more years — SBA's current pace.

"It's a change in administration, a change in focus and a change in priorities," said James Hamilton, assistant director of the General Accounting Office's information technology division. "You shouldn't build [a new system] if it already exists. What they're finding out is if it does exist and [if it] will fit their immediate and long-term needs."

SBA used to issue and manage its small business, disaster and home loans by itself, but when loan requests increased dramatically in the 1990s, Congress decided private lending institutions should become involved. Today, SBA has a loan portfolio of about $50 billion, and about 75 percent of its loans originate from 6,000 financial institutions.

To keep tabs on both borrowers and lenders, Congress directed SBA to develop an LMS in the Small Business Reauthorization Act of 1997. The goal: an electronic, agencywide system that provides accurate loan volume, delinquency, default and recovery information.

The LMS program became one of five prongs in SBA's Systems Modernization Initiative to replace aging legacy systems and improve its overall IT environment. LMS itself has received $32 million, and the cost of launching all five modernization elements has ballooned to $107 million — "just way beyond what Congress had heard and wanted," Tupper said.

"The original system ordered [by Congress] in 1997 has tended to attract more bells and whistles, and costs were growing," Tupper said. "[We] began looking at costs and realized that it was becoming more complicated than what Congress had ordered and wanted funded."

Congressional oversight committees have told Tupper that SBA should have been working with the private sector 18 months ago, he said.

Better late than never, said Nelson Crowther, counsel to the House Small Business Committee. "It's a wise move," he said. "I think it's part of the course of planning for your system. If [a COTS system] is cost-effective, it's certainly something you should explore."

Another Capitol Hill source who asked not to be identified wasn't as charitable.

"This program, as run by SBA, has been such an unmitigated disaster, until we see something much more concrete, I'm skeptical," the source said. "Nothing they've said on the project in the last three years has been worth a plugged nickel."

After receiving initial funding in fiscal 1998, the agency should have hired someone laden with systems development experience who could have looked to the private sector early on, according to the source. Instead, poor management has kept LMS off track, and the deadline for fielding the system — this month — will pass without a system close to being in place, the source said.

"Part of what they need is better leadership at the agency that's intent on getting the job done," the source said. "We haven't had that up until now."Reassessing SMI

The Small Business Administration's Systems Modernization Initiative, launched during the Clinton administration, included the congressionally mandated loan monitoring system (LMS) as one of five projects. Under President Bush, SBA leaders are taking a second look at the LMS program and the other SMI projects.

In addition to LMS, the Joint Accounting and Administrative Management System is a top priority because the Treasury Department financial system SBA uses now will be phased out next year. JAAMS should be operational by Sept. 30.

The three remaining SMI projects will either be transferred out of SMI or put on hold, said Steve Tupper, the agency's acting associate deputy administrator for management and administration.


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