WASHINGTON (AP) – The Small Business Administration is distributing an audit praising its post-Sept. 11 relief work, while omitting a second report by the same auditor that criticized a substantial part of SBA’s $5 billion lending effort.

The agency faces a congressional inquiry after The Associated Press reported it had made numerous loans to small businesses that neither wanted nor knew they were getting money earmarked for economic victims of the terrorist attacks.

The AP reported that companies hundreds of miles from the devastation of ground zero – from a Utah motorcycle dealer to an Ohio Subway sandwich shop- had received SBA-backed loans without being aware they had been drawn from the relief programs.

“After 9/11, the SBA was doing all it could to help small businesses, not only in the areas directly affected by the terrorist attacks, but across the country as well,” SBA chief Hector Barreto said. “We are confident the SBA implemented the program in the way Congress intended and did so in an open and aboveboard manner.”

Barreto described the AP report as “sensational and distorted,” without citing any specifics. But Sen. John Kerry, D-Mass., described the program as “a deliberate attempt to cover up White House budget gimmicks that left the SBA’s largest loan program underfunded and on the brink of shutting down.”

Kerry, the ranking Democrat on the Senate Small Business and Entrepreneurship Committee, has been joined in calling for an investigation by committee chairwoman Sen. Olympia Snowe, R-Maine, and Sen. Hillary Rodham Clinton, D-N.Y.

The SBA circulated an August 2004 report by the Government Accountability Office, Congress’ auditing arm, that concluded the SBA had followed its rules in one of the lending programs.

“No qualified loan applicants for SBA disaster relief after the 9/11 terrorist attacks were denied loans,” the SBA said.

But the audit it cited was undertaken in response to complaints that more should have been done for affected businesses.

The report only looked at lending procedures under SBA’s Economic Injury Disaster Loan (EIDL) program, which accounted for slightly more than $1.1 billion in direct government loans.

Many of the loans cited in the AP story came from the SBA’s Supplementary Terrorism Activity Relief (STAR) program, which accounted for roughly $3.7 billion in guaranteed loans that were distributed by banks.

The SBA’s news release also omitted a second GAO report, from January 2003, that rapped the agency for using “inconsistent and subjective measures” to gauge the success of its disaster-relief efforts.

“The inadequacies of SBA’s measures are especially evident when considered in light of the agency’s performance in responding to the Sept. 11 terrorist attacks,” the second report concluded.

That report also noted that “business owners testified that SBA’s existing disaster program did not have the ability to provide adequate loans to small businesses within the disaster areas.”

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Dirk Lammers contributed to this report from Sioux Falls, S.D.

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On the Net:

Small Business Administration: http://www.sba.gov/

AP-ES-09-14-05 0739EDT