GAO investigation of SBA should prompt Congressional hearings

By Lloyd Chapman The Hill November 19, 2015

The GAO recently released a damming investigation of the SBA titled, “Leadership Attention Needed to Overcome Management Challenges,” that should prompt Congressional hearings on the GAO’s findings.

The most alarming statement in the investigation states the SBA has a “lack of compliance with laws and regulations.

I was pleased to see the GAO decided to investigate the SBA. Their findings were not a big shock to me. I have been sounding the alarm on the fact the SBA “is not complying with laws and regulations” for several years. I have released hundreds of press releases and blogs on the abuses at the SBA. I even produced a short documentary on the issue.

The GAO’s findings at the SBA were nothing new. In 2003, the GAO released an investigation of the SBA and federal small business contracting programs that found over 5,300 large businesses were receiving federal small business contracts. That investigation was based on information I provided to the GAO. I was invited by the House Small Business Committee to testify at that hearing. That investigation was based on FY 2001 data. Fiscal year 2015 is now the fifteenth year that billions of dollars in federal small business contracts have been diverted to big businesses.

In 2014, the GAO released a damming investigation of the SBA Office of Advocacy titled “Office of Advocacy Needs to Improve Controls over Research, Regulatory, and Workforce Planning Activities.” That investigation was extremely critical of the SBA Office of Advocacy and also found they were “not complying with the law and regulations.” The GAO exposed the fact they were essentially running a taxpayer-funded lobby for big business.

There have been a long series of federal investigations and investigative reports in the media that have exposed blatant fraud and abuse in virtually every program administered by the SBA. It’s time for Congress to get to the bottom of these issues, uncover the specific individuals at the agency that are responsible for the abuses and put an end to it once and for all.

In 2005, the SBA’s own Inspector General released Report 5-15 that stated, “One of the most important challenges facing the Small Business Administration (SBA) and the entire Federal Government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards.” For over ten years every SBA Inspector General has repeated that sentiment in their reports to Congress.

The diversion of federal small business contracts to Fortune 500 firms has been covered in numerous investigative reports by ABC, CBS, NBC and CNN. Virtually every major newspaper in the country has covered the issue.

In May, Public Citizen released their investigative report titled, “Slighted” on fraud and abuse in federal small business contracting programs.

The American Small Business League (ASBL) has released numerous reports based on information from the Federal Procurement Data System that has shown every year over one hundred Fortune 500 firms are receiving federal small business contracts. The largest of recipients was Verizon with over $108 million in federal small business contract awards in FY2015 through their wholly owned subsidiary Terremark.

A congressional hearing needs to be held on the SBA and it should focus on the three excuses the SBA has used for over a decade to try and explain the diversion of federal small business contracts to corporate giants.

The first is their typical excuse of miscoding, anomalies, data entry errors, simple human error and computer glitches. True random errors would have a random pattern of distribution like flipping a coin. We do not see this true random pattern with SBA data. At the SBA, every year for over fifteen years all the supposed errors always divert federal small business contracts to large businesses. Congress should end this ridiculous excuse the SBA has used countless times to obscure the blatant abuses in their programs.

Next is the SBA “grandfathering” or “five year rule.” This policy is indirect violation of the Small Business Act that specifically prohibits large business from acquiring small businesses and continuing to misrepresent those firms as legitimate small businesses.

Last, but not least, is the SBA “exclusionary rule.” This policy is also in direct violation of the Small Business Act. Under the SBA’s exclusionary rule, they dramatically inflate the percentage of federal contracts to small businesses by excluding billions of dollars in federal contracts from their calculations. Federal law mandates small businesses receive a minimum of 23% of the “total value of all prime contract awards.

If Congress were to hold a hearing on the GAO’s investigation of the SBA, it could end the rampant fraud and abuse in all federal programs administered by the SBA. This could redirect billions in federal small business contracts back into the hands of the 28 million small businesses were most Americans work. This would no doubt create millions of jobs and provide a significant boost to our nation’s middle class economy.

I would think President Obama would be in favor of ending the abuses at the SBA. As early as 2008 he stated, “It is time to end the diversion of federal small business contracts to corporate giants.

If Congress refuses to act on the GAO’s findings that the SBA is not complying with the laws and regulations, I think it would be tantalum to a tacit approval of the rampant fraud and abuse in federal small business contracting programs.

It would also indicate Congressional approval of the continuation of the fraud and abuse that has cheated American small businesses out of billions if not trillions of dollars in government contracts.

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