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Federal Market Intelligence for Small Business |
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SBA OIG finds $428M in errors in 8(a) and HUBZone contract reportsOIG did not evaluate if contractors or officials acted improperlyFederal agencies erroneously reported $428 million worth of contract actions in fiscal 2013 as having been awarded to participants in the 8(a) or HUBZone small business programs, according to a new audit from the Small Business Administration’s Office of Inspector General (OIG). Out of $2.9 billion in 8(a) contract actions reviewed, 31 actions, totaling $208 million, were incorrectly reported as having been awarded to 8(a) firms, the inspector general found. And out of $1.7 billion in HUBZone contract actions reviewed, 27 actions, valued at $219 million, were incorrectly reported as HUBZone contract actions, the report said. “The OIG identified over $400 million in contract actions that were awarded to ineligible firms, which may have contributed to the overstatement of small business goaling dollars (for 8(a)s and HUBZone firms) in fiscal 2013,” the report stated. The study is significant because it’s the first time in several years that the SBA inspector general has examined the problem of allegedly ineligible companies obtaining small business contracts in depth. In annual reports every year since fiscal 2006, the SBA OIG has stated that “procurement flaws” allow large companies to win small business awards, and those are erroneously counted toward small business goals. The SBA OIG has named that issue a top management challenge for the SBA each year. However, until now, the OIG had issued no new audits focusing on that subject since 2005. Limitations The new report offers a partial measurement of the problem. The OIG examined 524 8(a) contract actions totaling $2.9 billion and 246 HUBZone actions totaling $1.7 billion, valued at over $3 million each. The error rate was 7% for 8(a)s and 13% for HUBZones from that sample. But because the pool was not a statistically-random sample, the error rate cannot be extrapolated and assumed to apply to the 8(a) and HUBZones on the whole. Total contract awards to 8(a) and HUBZone firms in fiscal 2013 were about $23 billion and $7 billion, respectively. Furthermore, although the OIG report describes the firms that received the questionable contract awards as ‘ineligible,” an executive in the inspector general’s office, asking to speak on background, told Set-Aside Alert that “ineligible” in the context of the report does not necessarily mean any fraud, negligence or abuse occurred. It is not known whether those transactions were improper, because that would have required evaluating each contract, and the OIG did not do that, the executive said on background. Despite those limitations, the OIG said its investigation was meant to call attention to errors that “may have contributed to the overstatement of small business goaling dollars.” Asked if the OIG also looked for possible underestatements of goaling dollars, the agency source told Set-Aside Alert the OIG had not done so and that such a study would be difficult. “Ineligible” firms win awards The OIG report identified 58 contract actions for 8(a) and HUBZone firms as “ineligible” and erroneous for among the following reasons:
In one of the most egregious examples, the OIG report stated that a firm was awarded a $24 million sole-source contract a day after it exited the 8(a) program. The OIG report did not name any of the companies or the contracts involved in its report. Gaps in data In addition to finding errors in selected 8(a) and HUBZone contract actions, the OIG found many examples of gaps in federal procurement data and in how that data is shared among agency systems. Specifically, the OIG found that HUBZone and 8(a) certification information is not consistently transmitted to the DSBS and the System for Award Management (SAM.gov) systems. “As a result, the affected small businesses are not getting the visibility in the DSBS, especially the HUBZone firms, and may impact federal agencies in meeting their HUBZone procurement goals,” the OIG report stated. The gaps and inconsistencies in data are likely to be contributing to small business reporting errors, the OIG official said. When contracting officers do not have electronic access to correct information about a firm, they are presumably likely to pass on the same erroneous data when reporting on contract actions involving that firm. Awards post-graduation The OIG also identified over $1.5 billion dollars in contract actions for which the firms were in the 8(a) or HUBZone programs at the time of contract award, but in fiscal 2013 were no longer in the 8(a) or HUBZone programs. The OIG official told Set-Aside Alert that it was not clear that any fraud or impropriety had occurred because the contracts were not reviewed individually. Current federal regulations allow some 8(a) and HUBZone companies to continue performing on a contract after they leave the programs. There also are nuances in assessing eligibility for small companies that are acquired by a large firm mid-contract. Under current regulations, the SBA is allowed to count contract actions from 8(a) graduates and HUBZone firms that have left the program toward small business goals in some cases. However, the OIG report recommended that those regulations should be overhauled. “In our opinion, the amount of dollars the SBA reports to Congress and the public as being performed by 8(a) and HUBZone firms...is significantly impacted by the inclusion of contract actions performed by former program participants,” the report said. The OIG also recommended strengthening controls on SBA databases, and SBA managers agreed with that advice. The report is the latest in an ongoing debate on whether--and how many--large businesses are winning federal contracts intended for small businesses. Lloyd Chapman, a small business researcher in California, has issued several reports on the topic. On Oct. 3, Chapman and Government Executive newspaper publicly released an SBA database of more than 100,000 contract actions involving small businesses. The database includes some "not small" businesses. Set-Aside Alert is preparing an exclusive analysis and research on the subject for the Oct. 24 issue. More information: SBA OIG report http://goo.gl/3Cqcw9 .
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