BizSugar.com › News and Politics › SBA's 'Cookie Jar Capitalism' Still Flourishes in Wake of Scandal

Loan fraud has been a long-standing, widespread problem within the Small Business Administration and has cost taxpayers literally hundreds of millions of dollars. But when a senior executive of Business Loan Express engineered a particularly brazen $76 million loan scam early last year, it was widely thought the SBA had finally learned its lesson.

The caper was dubbed "Cookie Jar Capitalism," but two years later it appears the cookie jar is still wide open and unguarded. Indeed, the agency has done little if anything to protect taxpayers from losses on bad loans, according to a new report by the SBA's Office of Inspector General.

In more than 60 OIG reports over the past five years, the SBA has been hammered about poor lender oversight and the potential for loan fraud. But in an outcome that's all too familiar, the agency has failed repeatedly to follow up on OIG recommendations. To the contrary, in the face of withering Bush administration budget cuts (reducing SBA staff by 25%), the agency has delegated almost all oversight to the major lenders themselves, or to third parties, and dragged its feet on reforms.

When problem loans did surface, OIG investigators found that preferred lenders such as BLX received favorable treatment.