Report 2016-133 All Recommendation Responses

Report 2016-133: SAFE-BIDCO: 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 (Release Date: April 2017)

Recommendation for Legislative Action

To ensure that SAFE-BIDCO's operations are subject to appropriate oversight and to fulfill its mission of providing financing to small businesses, the Legislature should establish SAFE-BIDCO as a program within the Treasurer's Office.

Description of Legislative Action

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.

  • Legislative Action Current As-of: December 2017

California State Auditor's Assessment of 6-Month Status: No Longer Necessary


Recommendation for Legislative Action

To track SAFE-BIDCO's performance in fulfilling its mission to provide assistance to California small businesses, the Legislature should require SAFE-BIDCO to report to the Legislature annually on its revenue and expenses and the success of its programs.

Description of Legislative Action

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.

  • Legislative Action Current As-of: December 2017

California State Auditor's Assessment of 6-Month Status: No Longer Necessary


Recommendation #3 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

If it is not established as a program within a state entity, SAFE-BIDCO should by April 2018 research options to address its obligations, such as setting aside funds dedicated to its OPEB liabilities and take appropriate action based on the research performed to ensure that it has sufficient funding to fulfill its OPEB obligations to its employees and retirees.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

Several attorneys have been contacted to prepare trust documents needed to establish such a trust.

  • Estimated Completion Date: April 2018
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #4 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

If it is not established as a program within a state entity, SAFE-BIDCO should take steps to raise funds by seeking donations to obtain needed capital.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

This is an ongoing process. In addition to the recently assumed USDA loan portfolio and loan funds we have applied for a $50,000 grant (through Tri Counties Bank) for Loan Loss Reserves for our Tribal Loan program. We will continue to research other grant and/or loan opportunities.

  • Estimated Completion Date: on going effort
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #5 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

If it is not established as a program within a state entity, SAFE-BIDCO should by October 2017 take steps to increase participation on its subcommittees by its board members, such as by assigning board members to subcommittees, to receive the full range of experience and expertise of its board members.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

Per the corporation's bylaws, the Board of Directors' September meeting is when the Board elects Officers and makes committee appointments.

  • Estimated Completion Date: October 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #6 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

To obtain the best value for its limited funds, SAFE-BIDCO should by October 2017 establish a policy and related procedures requiring that it seek competitive bids for significant contracted services. The policy should establish a dollar threshold for what services SAFE-BIDCO considers significant.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

A finance policy amendment will be submitted to the Board in September 2017 for their consideration and adoption regarding contracted services and dollar thresholds.

  • Estimated Completion Date: October 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #7 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

Regardless of whether the Legislature establishes SAFE-BIDCO as a program within a state entity, it should do the following:
-To ensure that it spends its funds furthering its mission of helping California small businesses, SAFE-BIDCO should decrease its travel expenses by adopting a travel budget in consideration of its expenses and mission and limiting out-of-state travel.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

FY2017/2018 budget has restricted all conference attendance.

  • Completion Date: July 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Although SAFE-BIDCO's fiscal year 2017-18 approved budget does reduce its travel budget, there is no formal limitation or restriction on out-of-state travel. The notes on the budget indicate that the travel budget assumes no conference travel and the chief executive officer confirmed that there was no discussion at the board meeting.


Recommendation #8 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

SAFE-BIDCO should by October 2017 create one central report that includes revenue goals and actual performance for each program it operates to ensure that decision makers, such as the board of directors, Legislature, and other stakeholders have sufficient information to assess its performance.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

A single tracking report is being created and will be introduced at the September 2017 Board meeting for Board approval.

  • Estimated Completion Date: October 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #9 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

SAFE-BIDCO should by October 2017 establish policies and procedures for a supervisorial review process of its loan files to ensure that its loans comply with the requirements of its programs.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

Starting the second quarter of FY17/18 we will start using a new check off list for file content, to be signed off by the staff member assembling the file and the head underwriter, after the assembling is completed.

  • Estimated Completion Date: October 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #10 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

To ensure consistency of its reviews and approvals of loan applications, SAFE-BIDCO should establish a process to provide all loan committee members with its financing assistance policy.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

Once the Finance Policy is amended in September 2017, to incorporate the language required by item number 11 herein, copies of the amended policy will be distributed to all Loan Committee Members.

  • Estimated Completion Date: October 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending

In item 11, SAFE-BIDCO states that it will amend its Finance Policy to incorporate all statutory requirements and present the amended policy to its board for approval in September 2017.


Recommendation #11 To: State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE-BIDCO)

To make certain that loan committee members are aware of statutory requirements, SAFE-BIDCO should revise its financing assistance policy to ensure that it contains all required language, including emphasizing consideration of applications that will increase employment of disadvantaged, disabled, or unemployed persons or increase employment of youth residing in areas of high youth unemployment and delinquency.

6-Month Agency Response

SAFE-BIDCO did not provide a response for the reason noted below in the State Auditor's Assessment of Status.

  • Estimated Completion Date:
  • Response Date: December 2017

California State Auditor's Assessment of 6-Month Status: Resolved

SAFE-BIDCO was seized by the California Department of Business Oversight (Business Oversight) in September 2017 and is no longer in operation. Business Oversight in July 2017 required SAFE-BIDCO to prepare plans to liquidate the business. On September 15, 2017, citing our April 2017 audit in part, Business Oversight issued an order taking possession of SAFE-BIDCO and appointing an agent to assist in liquidating the entity. Business Oversight noted in its order many of the same concerns we identified in our audit, including SAFE-BIDCO's operating losses, declining capital, and declining loan production. In particular, Business Oversight found that SAFE-BIDCO had no viable plan for improving its sustainability or protecting its creditors. Business Oversight's action to liquidate SAFE-BIDCO has effectively resolved the need for our recommendations.


60-Day Agency Response

The Finance Policy will be amended to incorporate all language required by financing sources (now incorporated by reference) and other statutory requirements not already included. Said policy will be distributed to Loan Committee members after the review and approval of the Board of Directors at the September 2017 Board meeting.

  • Estimated Completion Date: October 2017
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending


All Recommendations in 2016-133

Agency responses received are posted verbatim.