Set-Aside Alert news analysis:

SBA OIG questions 8(a)s’ eligibility

IG says 10 firms accepted into 8(a) without full documentation

      The criteria for participating in the Small Business Administration’s business development program for small disadvantaged firms already are considered strict--but may become even more stringent as a result of a recent audit report.

      The SBA Office of Inspector General (OIG) recently questioned the eligibility of 30 small businesses that had been certified as participants in the SBA 8(a) Business Development Program.

      SBA officials allegedly approved the 30 firms as 8(a) participants without fully documenting into SBA information systems how all concerns raised about their applications had been settled. However, the OIG subsequently determined that SBA resolved eligibility concerns for 20 of the 30 firms.

      10 firms’ eligibility challenged

      But the remaining 10 firms still raised eligibility concerns, the OIG said.

      Specifically the OIG reported:

• Seven of the 10 firms under question did not have the “potential for success” that is required under 8(a) rules. One firm had errors in its financial statements, and another had not operated in its primary industry for at least two years.
• Two of the 10 firms were lacking proof of their “good character” as required. One firm had multiple tax liens, but it was unclear whether those liens had been discharged in bankruptcy.
• Two of the 10 firms did not have proof that their owners were economically disadvantaged. In one of those cases, there were issues about a $71,000 loan from the applicant’s father that had not been resolved.
• Two of the 10 firms did not show that the firm was controlled by a disadvantaged individual. In one case, the applicant was judged to be financially reliant on another firm.
• Two of the 10 firms did not have sufficient proof of their size as small businesses. In one of those cases, there appeared to be affiliation with a larger business, the report said.

      Several of the 10 firms had multiple issues.

      The inspector general made three recommendations, based on the findings. SBA said it would continue reviewing the eligibility of the 10 8(a) firms, and also agreed to strengthen its oversight and to improve its documentation.

      8(a) eligibility may change

      Some observers predict potential ongoing impacts to small businesses.

      “The OIG’s report is worth reading, as it may lead to changes in the 8(a) Program’s eligibility criteria,” Steven Koprince, government contracting attorney, wrote in a recent blog entry.

      Additional industry sources also have told Set-Aside Alert that SBA contracting officials at public events recently have been talking about heightened oversight to rule out 8(a) fraud.

      The SBA OIG report noted that there were no indicators of fraud in the 30 firms reviewed.

More Information: SBA OIG report: http://goo.gl/TNWQHN
Koprince blog http://goo.gl/S5TN2v

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