Federal agencies are inflating the number of economically-disadvantaged small businesses they say they’re contracting with, handing out more than $400 million to ineligible firms last year alone.
A report from the Small Business Administration’s inspector general found government agencies are collecting millions in credit for awarding contracts to firms that may not actually qualify for the funds they’re receiving.
Section 8(a) is a program designed to help small companies owned by disadvantaged women or minorities compete for government contracts.
Businesses that participate can remain in the program for up to nine years, at which point they are considered to have “graduated.”
Agencies must set aside a portion of their contracts for 8(a) businesses, as well as those that operate out of historically underutilized business zones, in order to receive credit from the government.
The federal government is required to award 23 percent of contract dollars to small businesses every fiscal year.
But contracting officers incorrectly listed scores of firms as program participants so their agencies could hit their contracting quotas.
Auditors discovered a number of agencies have continued to count contractors as 8(a) businesses long after their graduation from the program.
Some small businesses obtained contracts as HUBZone firms before receiving certification. Others secured HUBZone contracts weeks after de-certification.
The report says the ineligible companies that won contracts set aside for 8(a) and HUBZone firms likely shut out small businesses who actually qualified.
But Wednesday’s report was not the first time abuse of the small business programs came under fire.
In 2010, the Government Accountability Office issued a report saying 14 ineligible 8(a) firms took $325 million from various government agencies.
Most of the companies identified engaged in “fraudulent schemes” to earn their 8(a) classifications, from underreporting their assets to lying about the ethnicity of their owners.
A 2009 GAO report found $187 million in federal contracts went to ineligible HUBZone businesses, some of which had misrepresented the location of their offices to obtain the certification.
Auditors found the president of one such business had listed the address of his main office as a random trailer in a residential trailer park.
In all of these instances, federal agencies were not looking closely enough at the businesses before handing awarding them the contracts.
