Administration, and in one of these the University of Syracuse worked with us, and in the other case Bradley University in Peoria, Ill., worked with us, for which a very nominal fee is charged. We do not charge it. The university which is cosponsoring usually makes the charge to cover expenses, lunches, and something of that sort. So far as the Government agencies' making charges, we do not do so. We held these two tax clinics as pilot clinics. We had good attendance at both. The small business people seemed to be exceptionally well satisfied. Publicity was given to these through press releases, and so forth. We now have several requests.

This is an effort to answer your question, I think, by pointing out that we do work with Government agencies in areas where we think greater assistance can be given by joint effort than if we try to do it by ourselves. We have to be careful not to get into someone else's operation from the standpoint of dictating or trying to take over. We want to go into it from the cooperative standpoint. This helps to protect the small businessman. We found some small business people actually pay taxes that they legally are not supposed to pay, because some of them do not have the means and the facilities to get all the help that the large businessman can get so far as his tax returns are concerned. The small businessman is careful. He would rather pay too much than not pay enough and get caught not paying enough. We think these tax clinics have a good potential.

Another area where our legislation specifically authorizes us to do it but still does not give us mandatory control, is to work with the procuring agencies to make sure that the ASPR's, that the procedures which are used in advertising for contracts, the procedure to be used in buying from manufacturers, are done in such a manner that the small businessman does know about it and also has an opportunity to bid and compete for Government business.

Mr. WALLHAUSER. This is the important area I was thinking of. In other words, you do everything posible to see that everyone has a fair chance to bid, and you atest to the reliability of the small business concerns?

Mr. HORNE. Yes. We attest to it in two respects. If he is low bidder and his capacity to perform is questioned, he may come to us for a certificate of competence. We also do it another way. Through our inventory facilities, which we are now trying to improve, we like to keep on record qualified small business manufacturers that we know through experience or through facilities can manufacture particular items. We like to help get them on bidders' lists so they will have a chance to bid.

Mr. WALLHAUSER. What is a rough approximation of the time needed to secure a direct loan as of now? I note you say you have a pilot operation in being designed to speed it up. Your feeling, in other words, was that it was taking too long or is taking too long. Where is this pilot operation at the moment?

Mr. HORNE. We have one going in Atlanta, Ga.

Mr. WALLHAUSER. Have you any comparative figure as to how you. are proceeeding to find the answer?

89028-62-pt. 2-3

Mr. HORNE. I cannot answer that very well, because we have not gotten far enough along with the pilot operation to determine what improvements we shall be able to make. Also, this was halted to some extent when our money was exhausted. We were getting into this pilot operation when our funds were exhausted.

Mr. WALLHAUSER. What is the key reason it takes so long to get a direct loan?

Mr. HORNE. It varies, Congressman. If I may backtrack for just a second, you asked how much time it takes. It actually varies from 3 to 6 weeks and sometimes 8 weeks. It depends on how difficult the case is, how much additional information we may have to get. Sometimes they ask for reconsideration and we give reconsideration. This is the standard procedure. This, of course, will take more time. So, you cannot say that every loan will be processed at the same speed. I would say it would run from 3 to 8 weeks, usually, between the time a direct loan application is applied for and we actually complete our work on it.

Under this SBLP plan, the applicant goes to his bank and the bank makes out his application. They have our forms, and so forth, which we have been able to reduce considerably. The bank must take at least 25 percent under the SBLP plan. Where the bank will take 25 percent of the loan, in other words, he takes this much more of the risk. He may take more and some of them do take more. We then depend more on the bank than where the bank takes a small percentage. We do not have to take the time to get the information. The bank gets it for us.

Mr. WALLHAUSER. Is there any ceiling as to what the bank participation is? The minimum is 25 percent.

Mr. HORNE. The minimum is 25.

Mr. WALLHAUSER. Is there a maximum?

Mr. HORNE. No, sir. He can go up as high as he wants to. In some of these cases, Congressman, we have actually processed the loan application in 7 days. We do not believe our average would exceed 2 weeks, and we think that is somewhat an excessive average. It should be around 10 days.

Mr. WALLHAUSER. The target you are shooting for is 10 days?
Mr. HORNE. That is correct.

Mr. WALLHAUSER. In the area of small business investment companies, what action do you take to protect the Government from fraud?

Mr. HORNE. We check thoroughly into the people who are going to be on the board of directors, and who make up the officers. We check the past record, the past character. In that manner we think we exercise caution. Then we check their record at intervals throughout the year to make sure they are living up to our regulations. These are privately owned and privately operated institutions, as you know, and there is a limit to which we try to go or a limit to which we should try to go.

Mr. WALLHAUSER. Is any certification required by you of them as to their activities?

Mr. HORNE. We have the agency check, and then we have regulations. If they do not act in accordance with our regulations, we now have legislation which Congress gave us last year so we now can easily withdraw the charter without having to go through a long procedure, where they might continue in the meantime making the same abuses we found them making in the first place.

Mr. WALLHAUSER. You have a right to lift their charter if they do not comply with the regulations?

Mr. HORNE. Yes. We also have the right to make an annual audit of each of them.

Mr. WALLHAUSER. Your activities in some areas might run in conflict with the Community Facilities Administration. Is it not possible that they could duplicate?

Mr. HORNE. I do not see offhand, Congressman, wherein our activities would conflict with theirs.

Mr. WALLHAUSER. If you made loans to State and local development companies, would you not have to coordinate with the Community Facilities Administration so there would not be any duplication?

Mr. HORNE. In the case of State development companies, we make a loan to them and they take our money and relend it to qualified, bona fide small businesses, which are defined in our regulations as being small business. So far as our loans to local development companies are concerned, they are always made in relationship to a specific company. It may be to modernize a company or to expand a company or to help a new company get established in a particular community. It is for a specified, particular small business company. It does not get over into the operation of community facilities, as I understand it, which have to do with sewerage, waterworks, and things of that sort. I do not believe there would be any duplication. I have had no complaint at all registered as to our operations and the operations of the community facilities duplicating one another.

Mr. WALLHAUSER. Thank you.

Mr. BROOKS. Mr. Horne, under management counseling responsibilities, you state that you make available "practical publications on a wide range of management and technical subjects." What concerns me a little bit about that is, when they go in, do they just give them a stack of pamphlets, or do you have somebody there who can counsel with them who knows something about it? What is the actual situation in a field office?

Mr. HORNE. The latter description, Congressman, is the way it is supposed to operate and the way I think, for all practical purposes, it does operate. I agree with you completely, if we are not operating that way, then we are making a mistake, because to give a man a pamphlet on procurement when his problem is related entirely to financing would be a sort of slipshod way to operate a shop.

Mr. BROOKS. He cannot procure very much if he has no financing, that is right.

Mr. Administrator, have you ever visited any of the SBA field offices unannounced, without any particular schedule known to your own office here in Washington?

Mr. HORNE. I do not think so, Congressman. I have not done so myself.

Mr. BROOKS. Have you any questions, Mr. Schweiker?
Mr. SCHWEIKER. No questions.

Mr. WALLHAUSER. I have one more.

year includes additional employees? Mr. HORNE. Yes, sir.

Mr. WALLHAUSER. To what extent?

Your budget request for this

Mr. HORNE. I have that information. The total number, Mr. Congressman, would come to 478.

Mr. WALLHAUSER. Additional employees?

Mr. HORNE. Additional employees; yes, sir.

Mr. WALLHAUSER. For what purpose would they have been employed?

Mr. HORNE. Some of them come in procurement and technical assistance, some of them in management assistance, some of them in financial assistance, and some of them would come in legal, accounting, administrative, and other miscellaneous services.

Mr. WALLHAUSER. Was it because you were understaffed or because your program had expanded, or what, for this increase?

Mr. HORNE. It probably was a combination of both, Congressman. Our workload had increased tremendously. Most of it would have to do with trying to give increased services to meet the increased demands made on the agency. There were some places that we felt we were just not adequately staffed, even for the present workload.

Mr. WALLHAUSER. Did the Subcommittee on Appropriations approve your request?

Mr. HORNE. The House has taken action on our request. The Senate has not taken action. The House for all practical purposes approved our request, Congressman. There were two respects in which the House made a reduction of what was requested for the Small Business Administration. They made one reduction which would affect our research program. In other words, they would leave it to us whether we reduced the research program or reduced personnel in the procurement and technical assistance program. It has been my inclination to make the reduction in research. For administrative help, and personnel in the financial assistance program, they reduced the budget by about $500,000. I did not recommend to the Senate that this $500,000 be restored, because this hiatus of not having funds affected the demands made on the agency to some extent in the area of financial assistance. I felt we could get by without asking the Senate to restore the $500,000 reduction made by the House. So, in my response to the Senate, I did not ask for this restoration.

Another request that we had in the House was for $300 million additional capital for the revolving fund. The House granted that entire amount. Of course, I have asked the Senate to go along with the House in that respect.

Mr. WALLHAUSER. Apparently you asked for a total of 478 additional employees, and the House approved 408. Is that the figure you have?

Mr. HORNE. I believe that is approximately correct.

Mr. WALLHAUSER. This would be approximately 20 percent that the House removed from the request.

Mr. HORNE. Yes, sir.

Mr. WALLHAUSER. You did not ask the Senate to add these employees that had been cut by the House?

Mr. HORNE. No, sir; I did not.

Mr. WALLHAUSER. You feel that you can operate without them? Mr. HORNE. I feel that I can; yes, sir.

Mr. WALLHAUSER. Thank you very much.

Mr. BROOKS. We have been joined by our very distinguished assistant to the majority whip, Mr. John Moss, whom I think you have met earlier, Mr. Horne. I wish to yield at this point to Mr. Jones. Mr. JONES. No questions, Mr. Chairman.

Mr. BROOKS. Mr. Moss.

Mr. Moss. No questions.

INTERNAL AUDIT

Mr. BROOKS. Then I should like to ask some questions on the internal audit system. Mr. Horne, will you briefly describe the organizational structure of the internal audit system now existing in the Small Business Administration?

Mr. HORNE. Congressman, perhaps the best way to do it is simply to say that our auditing of finances comes under Mr. Hanna, who is Assistant Administrator (Controller), reporting directly to me, who has under his jurisdiction budgeting, financial auditing, and accounting. Our program analysis and organization and management comes under Mr. Carr, who is the Assistant Administrator for Management, reporting directly to me, and who has under his supervision personnel, organization and management, program analysis, and size standards. That, briefly, sir, is the organizational chart.

Mr. BROOKS. I would like to put in the record exhibit 1, the Office of Audits and the Office of Program Analysis, both of which are reflected in the statement of yours.

(Exhibits 1A and 1B follow :)