SBA lacks effective controls on mentors and proteges, IG says

SBA has OK’d 891 All Small Mentor-Protege agreements

      The inspector general of the Small Business Administration issued a critical report on Sept. 17 finding that the SBA is not effectively managing its All Small Mentor-Protege program.

      The result is that the SBA potentially is allowing unqualified participants in the program and reducing the benefits to the small business proteges, IG Hannibal “Mike” Ware wrote.

      The report is one of the first studies providing insight into the performance of the popular All Small Mentor-Protege program that started in 2016. While the SBA has approved nearly 900 All Small mentor-protege agreements to date, the IG report could cast some doubt on the program’s success.

      The IG made three critical findings:

• SBA lacks the “key controls” needed to prevent unqualified mentors from receiving the program benefits. The application review process, and annual evaluations, do not adhere to what is required in the regulations, the IG said.
• SBA program controls were not effective. While some program controls were in place, they were not implemented properly. SBA staffing and resource shortages affected the ability of the agency to effectively monitor the program, and managers did not prioritize staffing and IT systems.
• SBA did not effectively measure the benefits of the All Small Mentor-Protege Program.

      “As a result, SBA’s program may not be developing small businesses as it intended and unqualified businesses, including large businesses, may improperly benefit from the program,” the report concluded.

      The IG made four recommendations for improvements to better align the processes with regulations, and the SBA has resolved three of them. However, the SBA disagreed with the recommendation about staff and resource allocations and it is not yet resolved.

Program history

      The All Small Mentor-Protege program has been in demand since its inception three years ago.

      Under the program, the SBA approves agreements between small business proteges and larger mentors. The agreements allow the firms to enter into joint ventures together to win federal contracts. Previously, such benefits were available mainly to participants in SBA’s 8(a) Business Development program.

      But while mentor-protege arrangements and related joint ventures are popular, there are challenges. For example, a law firm recently called attention to a “gap in the law” allegedly creating uncertainty in structuring mentor-protege joint ventures (See related story).

Recent statistics

      The SBA initiated the All Small program in October 2016, allowing any small business to participate with a mentor.

      As of Aug. 1, there were 891 active All Small mentor-protege agreements.

      Of those, 191 were based in Virginia, 92 in Maryland and 27 in the District of Columbia. Florida, California, Texas and Alabama have significant numbers of active agreements as well.

      Further details were made available from an analysis by Aron Beezley, partner, of the Bradley Arant Boult Cummings LLP law firm. Consider these statistics from his analysis:

• There were 807 active agreements in the All Small mentor-protege program as of June 30;
• Of these, 51 were signed in 2016; 300 signed in 2017; 351 signed in 2018; and 135 signed from Jan.1 to June 30, 2019.

As of June 30:

• 280 of the participants were 8(a) small businesses;
• 313 of the participants were SDVOSBs (service-disabled veteran-owned small businesses);
• 138 of the participants were EDWOSBs (Economically-Disadvantaged Women-Owned Small Businesses);
• 132 of the participants were small businesses without any other set-aside status;
• 109 of the participants were HUBZone companies;
• 174 of the agreements were approved under the protégé’s secondary – rather than primary – NAICS code.

      SBA officials were not immediately available to comment.

More information:
OIG report 19-17: https://www.sba.gov/oig/searchable-list-oig-reports
SBA Mentor-Protege agreements list: https://bit.ly/2kNGdYZ
Aron Beezley column: https://bit.ly/2kL8EH7

SBA lacks effective controls on mentors and proteges, IG says

DUNS change raises issues

Category management small biz share drops

Employer of blind workers cuts 47 jobs; judge backs SDVOSBs

Gaps in mentored joint ventures?

Column: Put a Time for a Check-Up on Your Calendar Now

Washington Insider: