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Report Number : 2016-133

At Risk of Insolvency, It Needs Increased Oversight if It Is to Receive State Funding and Continue to Help Small Businesses in California Gain Financing

April 27, 2017 2016-133


The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the operations and financial condition of the State Assistance Fund for Enterprise, Business and Industrial Development Corporation (SAFE-BIDCO). SAFE‑BIDCO, located in Santa Rosa, operates a variety of loan programs to assist small businesses in California obtain financing.

This report concludes that because of its declining financial position, SAFE-BIDCO could become insolvent as soon as June 2018. SAFE-BIDCO’s expenses have exceeded revenue in each of the last five fiscal years, and it has been unsuccessful in obtaining sufficient additional capital. Although SAFE-BIDCO is a nonprofit, it has not attempted to obtain capital from fundraising such as donations and sponsorships, and has been unsuccessful in obtaining additional funds from the State.

Despite its declining financial position, SAFE-BIDCO has imprudently spent its limited funds on questionable items such as continuing with a business development contractor that did not meet his performance milestones for several years. Additionally, during fiscal years 2011–12 through 2015–16, SAFE-BIDCO’s chief executive officer made 16 out-of-state trips and one international trip to Ireland. These expenses are particularly troubling as SAFE‑BIDCO’s mission is to act as a catalyst for economic development in California.

Finally, a lack of oversight and insufficient tracking of its performance obscured the issues now facing SAFE-BIDCO. Existing oversight by the State is limited to an annual examination by the Department of Business Oversight, and these examinations are confidential. SAFE-BIDCO’s board has been hampered because of the voluminious and inconsistent reports provided to it and a lack of information for use in tracking its loan program performance.

As a result of these issues, we are reluctant to recommend that the State appropriate funding without increased direct oversight to ensure adequate reporting and controlled expenses. We believe direct oversight could occur by establishing SAFE-BIDCO as a program within the State Treasurer’s Office.

Respectfully submitted,

State Auditor

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