Wednesday, October 24, 2007

Kerry Questions Bush Administration’s Decision to Withhold Fraud Findings; Seeks Explanation on Agency’s Decision to Heavily Redact IG's Report

Today, Sen. John Kerry [D-Mass.] called on the Bush administration to provide a detailed explanation as to why they chose to withhold from public scrutiny large portions of a recent Inspector General’s report on fraudulent loans made by Business Loan Center, LLC. The Small Business Administration [SBA] took the highly unusual step of requesting that the Inspector General redact large portions of its report -- including the majority of its recommendations, the agency’s responses to those recommendations, and the Inspector General’s comments on the agency’s response.

“The Bush administration’s failure to provide proper oversight of this lender, or take wise action when they detected problems, resulted in years of undetected fraud,” said Kerry, who serves as chairman of the Committee on Small Business and Entrepreneurship. “We can’t get to the heart of the problem if the administration keeps hiding the facts from public view.

“The administration must explain their rationale for suppressing the Inspector General’s recommendations and their response. In order to combat future fraud and protect the integrity of this vital small-business loan program, the American people need access to all the relevant information.”

According to the Inspector General’s report, 19 individuals -- including a former executive vice president of the Business Loan Center [BLX] -- were charged with fraud for allegedly making more than $76 million in fraudulent loans to unqualified borrowers. After the SBA Inspector General conducted an audit of the agency’s oversight of BLX from 2001 to 2006, the SBA asserted that the Inspector General can’t fully disclose parts of the report because of exemptions in the Freedom of Information Act [FOIA] that protect trade secrets, deliberative process privilege, and banking examinations.

In his letter to the SBA Administrator Steven Preston, Sen. Kerry requested that the agency provide their “handbook,” or documents, that guide the agency on FOIA exemptions; fully explain the basis of each redaction; and give details about how the agency will respond to the report’s recommendations. In the near future, Kerry will also hold a hearing on this issue.


The full text of Sen Kerry's letter to SBA Administrator Steven Preston follows:

October 23, 2007


The Honorable Steven C. Preston
U.S. Small Business Administration
409 Third Street, SW, Room 7000
Washington, DC 20416

Re: U.S. Small Business Administration’s Inspector General’s Report No. 7-28 on SBA’s Oversight of Business Loan Center, LLC

Dear Administrator Preston:

As you know, the U.S. Small Business Administration’s Office of Inspector General issued Report No. 7-28 on SBA’s Oversight of Business Loan Center, LLC [OIG’s report] on July 11, 2007. The report resulted from an audit performed due to an OIG investigation of allegations regarding fraudulent loans originated by Business Loan Center, LLC. The OIG report was posted last week on the OIG Web site so the public could have access to it, but was heavily redacted at the request of SBA. In response to the redacted report, I am writing to request the following documents:

* Any Freedom of Information Act [FOIA] handbook or guidance that SBA utilizes;

* A detailed explanation of the FOIA exemption and basis of the assertion of such exemption for each redaction made to the IG’s report.

I understand that SBA is asserting three exemptions — trade secrets, deliberative process privilege, and banking examination — to deny full public disclosure of the IG report. The OIG has stated that it does not necessarily agree with the extent of the redactions, and I am inclined to agree. For example, it is surprising to see that the first three of the OIG’s recommendations, and both the agency response to the OIG recommendations and the OIG’s comments on the response, were redacted. What is the justification for those redactions?

Other examples of questionable redactions include: large portions of the “Results in Brief” section; the titles of some sections in the full “Results” portion of the report; and the entire Chronology of Events [Appendix III]. Please provide the exemptions you are citing and detailed justifications for those and all other redactions in the report.

Furthermore, please explain what the SBA is doing to respond to the recommendations in the report to improve lender oversight in order to mitigate any further fraud.

I request that you provide these documents no later than October 30, 2007. Thank you for your timely attention to this matter.


John F. Kerry

GoodBiz113's take: Thank you, Sen. Kerry, for holding federal agencies' feet to the fire. Please keep doing so until all agencies and the Bush administration “get it”: When the 110th Congress gavelled into session in January, a “new sheriff” suddenly took the reins; i.e., one that will boldly speak truth to power in the interest of promoting transparency, integrity, accountability and fairness for all.

Source: U.S. Senate Committee on Small Business and Entrepreneurship

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