THE FULL-SCALE AUDIT REQUIRED BY CONGRESS COVERED A WIDE RANGE OF SBA ACTIVITIES AND WAS CONDUCTED BY SEVERAL DIVISIONS WITHIN GAO. THE AUDIT QUESTIONED THE EFFECTIVENESS OF THE FOLLOWING PROGRAMS: THE AUTHORITY OF SBA TO OBTAIN PROCUREMENT CONTRACTS WITH FEDERAL AGENCIES AND SUBCONTRACT THEM TO DISADVANTAGED SMALL BUSINESSES, INVESTMENT COMPANIES OPERATED BY SBA TO PROVIDE FINANCIAL ASSISTANCE TO SMALL BUSINESSES THAT ARE AT LEAST 50 PERCENT OWNED AND MANAGED BY DISADVANTAGED BUSINESSMEN, AND LEASE GUARANTEES TO HELP SMALL BUSINESSES RENT COMMERCIAL AND INDUSTRIAL SPACE. A SURVEY OF SBA EMPLOYEES SHOWED THAT THE MAJORITY CONSIDERED PERSONNEL PROGRAMS TO BE GOOD OR FAIR, ALTHOUGH MANY FELT THAT POLITICAL INFLUENCE HAD PLAYED A ROLE IN FILLING CERTAIN JOBS. SBA'S BASIC AND LARGEST PROGRAM MAKES DIRECT LOANS TO SMALL BUSINESSES. THE AUDIT REVEALED PROBLEMS IN QUALIFYING BORROWERS AND INSURING REPAYMENT. A SHORTAGE OF PERSONNEL AT THE DISTRICT OFFICE LEVEL HINDERED THE ENTIRE LOAN PROCESS. ALTHOUGH SBA LOANS TO LOCAL DEVELOPMENT COMPANIES WERE INTENDED TO HELP THEM ATTRACT LOCAL SUPPORT, SUCH LOANS WERE POORLY MONITORED AND FAILED TO FULFILL THE ORIGINAL OBJECTIVES. THE AUDIT ALSO SUGGESTED IMPROVEMENTS IN SBA'S FINANCIAL MANAGEMENT AND MANAGEMENT CONTROL SYSTEMS. A TEAM OF BANK EXAMINERS ASSISTED IN THE APPRAISAL OF SBA'S LOAN PORTFOLIOS. GAO TESTIFIED TO SEVERAL CONGRESSIONAL COMMITTEES ON ITS REPORTS, BUT NO LEGISLATIVE ACTION WAS TAKEN. THE SBA DID TERMINATE ITS LEASE GUARANTEE PROGRAM AND INDICATED IT WOULD REVISE THE LOCAL DEVELOPMENT LOAN PROGRAM. IN RESPONSE TO A RULING BY THE COMPTROLLER GENERAL DESIGNED TO PROTECT THE GOVERNMENT'S INTERESTS, SBA REVISED ITS REGULATIONS ON PURCHASING GUARANTEED LOANS FROM BANKS WHICH HAVE NOT COMPLIED WITH ITS RULES REGARDING NOTIFICATION OF A BORROWER'S DELINQUENCY. (MJM)