C-Suite Wednesday — California Small Biz Lender Operations in Jeopardy — Insufficient Capital and Excessive Travel Costs Cited
August 2, 2017
By Bob Coleman
Editor, C-Suite Wednesday
C-Suite Wednesday — California Small Biz Lender Operations in Jeopardy — Insufficient Capital and Excessive Travel Costs Cited
After a highly-critical audit by the state of California in April, SAFE-BIDCO has received a letter from a state agency to prepare a self-liquidation plan.
SAFE-BIDCO is a nonprofit that operates the following loan programs for small businesses in California:
The audit summary
In the past five years, SAFE-BIDCO has spent more than it has earned, and its net assets have declined from $3.7 million to $1.3 million.
SAFE-BIDCO needs additional capital to make loans to continue its operations; otherwise it could become insolvent as soon as June 2018.
Although SAFE-BIDCO is a nonprofit, unlike similar entities it has not attempted to obtain capital from fundraising activities, and it has been unsuccessful in obtaining additional funding from the State.
Despite its declining financial position, SAFE-BIDCO has imprudently spent its limited funds on questionable activities.
It continued to use a business development contractor even though he did not achieve his performance goals, and it continued with this contract without a competitive bidding process.
The chief executive officer made 16 out-of state trips and a trip to Ireland.
A lack of oversight and insufficient tracking of performance obscured the issues now facing SAFE-BIDCO.
Out-of State Travel
The auditor slammed the CEO’s travel, even creating this nice chart.
During fiscal years 2011–12 through 2015–16, the CEO made 16 out‑of‑state trips, more than half of which were to Washington, D.C. She also made one international trip to Ireland. The expenses for these trips totaled more than $43,000. Figure 5 on the following page displays the numerous out‑of‑state trips made by the CEO and paid for by SAFE‑BIDCO. Given SAFE‑BIDCO’s mission—to act as a catalyst for economic development in California—and the fact that almost half of SAFE‑BIDCO’s programs focus on counties in Northern California, we question the prudence of the CEO’s quantity of out‑of‑state travel.
We [also] question the prudence of the CEO’s trip to Ireland. Although the trip’s total cost may be small in comparison to SAFE‑BIDCO’s overall budget for the year in which the trip occurred, this kind of spending raises questions about SAFE‑BIDCO’s efforts to do all it can to reduce its expenses.
A rebuttal from the North Bay Business Journal:
Both Stanley (Chairman of the Board) and Dutra (President/CEO) insisted all travel included in the auditor’s report was taken for research or the development of additional sources of funding, a contention the auditor’s staff specifically disputed in a follow-up to Dutra’s April 6 written response.
The trips either were to attend annual conventions or to learn about programs that might help bring more business to the nonprofit, Dutra said.
Such travel is “not a whole lot of fun,” she said, but “it’s the fastest way to get information that you can’t get elsewhere.” Moreover, she maintained, the amount of money in question was small in relation to the nonprofit’s overall expenses — totaling $1.2 million in 2015-16, according to the audit — and the auditor’s office was “making a mountain out of a molehill.”
SBA Loan Stats
As background I ran the stats. SAFE-BIDCO has an excellent SBA 7(a) performance record the past five years:
Loans approved — 30 for $4.8 million
Loans charged off — 1 for $39,000