The Small Business Administration came under fire Wednesday for how it accounts for "small businesses" getting government contracts and for allowing money earmarked for small companies to be diverted to some of the nation's largest corporations.

Petaluma-based American Small Business League says small businesses were "cheated" out of as much as $100 billion in federal contracts that went instead to large businesses last year.

Last year, the SBA Office of Advocacy reported that $119 billion was awarded to small businesses in prime and subcontracts.

But the American Small Business League says small businesses with 100 employees or less received no more than $20 billion that year.

"The remainder of the awards went to large businesses, including major defense contractors like Boeing, Lockheed, Northrop Grumman, Raytheon, Bechtel, and General Dynamics," ASBL says.

It bases its charge on its own research of federal contracts and on research performed by Eagle Eye Publishers of Arlington, Va., a company which compiles data on federal contracts

Former SBA Administrator Hector "Barreto is either comparing apples to oranges or else he has access to numbers that the general public does not," says Paul Murphy, president and CEO of Eagle Eye in an article published by Washington Technology on July 24 ("Smoke and Mirrors at SBA" by Ethan Butterfield).

The SBA says it relies on data provided by an outside company and is confident in the figures.

Meanwhile, a report by the Democratic members of the House Small Business Committee claims at least $12 billion the government claims when to small business in reality went to large corporations.

Federal law requires that 23 percent of federal contracts be awarded to small businesses. The committee Democrats claim this is the sixth year in a row that has not happened.

In addition to what the report calls miscoding of the businesses, some actual small businesses which got contracts either expanded beyond that size or were bought up by large businesses.

U.S. Rep. Nydia Velazquez, D-N.Y., has asked the Government Accountability Office as well as the Defense, Treasury and State departments to look into the issue.

A request to the Small Business Administration for comment regarding the charges failed to elicit any response.

WASHINGTON, July 26 (UPI) -- The Pentagon awarded 14 percent of its contracts to small businesses in 2005, about 10 percent below the government goal, an independent research company says.

It is part of a larger trend across the federal government that increasingly favors larger companies over small, according to Eagle Eye Publishing, a company that collects and analyzes federal market data. The 2005 totals were especially affected by contracts let to support the war in Iraq and the Hurricane Katrina relief effort.

The Federal Small Business Administration reported that $119 billion in federal contracts -- half of them by the Defense Department -- were awarded to small businesses in prime and subcontracts. But according to the American Small Business League, small businesses with 100 or fewer employees actually received less than $20 billion of that amount.

"The remainder of the awards went to large businesses, including major defense contractors like Boeing, Lockheed, Northrop Grumman, Raytheon, Bechtel, and General Dynamics," ASBL said in a press statement issued Wednesday.

Those companies are among the largest defense firms in the world. They often buy out small businesses, but keep those businesses intact and therefore qualify for small business contracts -- even while the profits pour into their bottom line.

(CBS/AP) Art Munn saw his business nearly fall victim to what congressional investigators say is a growing problem: Small firms on the verge of winning federal contracts lose out to well-connected corporate giants that also claim to be small companies.

Munn, a Maryland-based contractor, competed for a Marine Corps contract last year to build radar dome covers in Bahrain. However, a large company threatened to beat his small firm out for the award. Munn protested, and after several months, the other company was ruled ineligible for the contract.

"It gets ugly," he said. "This time, everything worked like it was supposed to work, and I got the contract. But it gets frustrating. I waste a lot of time and money."

It doesn't happen that way every time, Munn said. And a report released Wednesday by Democratic congressional investigators shows it's a growing trend. At least $12 billion in contracts the government claimed it gave to small companies last year wound up instead in the coffers of large companies like Microsoft and Rolls-Royce, investigators said.

When small business contracts with large companies are excluded, the government missed for a sixth straight year a requirement that 23 percent of its $314 billion in annual contracts go to small businesses, the report said.

There were two basic problems, the investigators said: Federal agencies miscoded thousands of contracts to big companies as small business awards. Also, many other companies that started small grew large or were purchased by corporate giants but continued to get small business contracts.

The big losers include tiny firms like Cindra Stolk's company Federal Edge in California, which has just eight employees, CBS News correspondent Sharyl Attkisson reports.

"Small business is actually a little bit too big of a name for us. I tend to call us micro-business," quips Stolk, the company's CEO.

Incredibly, her firm once lost out on a contract meant for a small business to a billion-dollar corporation with 700 employees. Stolk eventually won an expensive appeal – something most little firms can't afford to pursue, Attkisson reports.

"It's just unbelievable," said Rep. Nydia Velazquez of New York, the top Democrat on the House Small Business Committee. "We have just got to start holding agencies accountable."

Velazquez is asking the Government Accountability Office and internal watchdogs for the State, Treasury, Defense and Transportation departments to investigate their contracting procedures and see if criminal activity is involved.

Under federal law, representatives of large companies that falsely claim to be small firms can be punished with 10 years in prison, $500,000 in fines, and a permanent ban from doing government business.

Generally, the government defines a small business as one with fewer than 500 employees, though that limit can vary among industries. In general, retail firms can only have maximum average annual receipts of $6.5 million.

The Small Business Administration last month issued a report saying the government gave 25.4 percent of its contract dollars in 2005 to small firms. SBA said it relied on contracting figures provided by each federal agency. The Democrats' report said the accurate figure was 21.6 percent.

When asked about corporate giants appearing in the tally, SBA spokesman Raul Cisneros said, "That's the official information that agencies give us."

The House Democrats' report, however, said the administration's tally of small business contracts in 2005 included some of the world's largest companies:

Computer giant Microsoft won eight small business contracts worth $1.5 million. Five contracts, worth $475,000, came from the Pentagon. The others came from the Drug Enforcement Administration and the Bureau of Prisons.

Rolls-Royce received $2.2 million in 63 separate contract actions. The bulk came from the Navy, which spent $2 million on 53 Rolls contracts.

Wal-Mart, whose more than 1.5 million workers make it the nation's largest private employer, received three small business contracts totaling $14,232 from the Army.

ExxonMobil, with $370 billion in annual revenues in 2005, won a $63,855 contract from the Pentagon's Defense Logistics Agency and a $50,000 award from the Interior Department's Minerals Management Service. A spokesman said the company was investigating the issue but added that the Irving, Texas-based corporation has thousands of annual transactions with the government.

Google, the Internet search giant, won separate contracts from the Coast Guard ($41,800), the Peace Corps ($15,000) and the Federal Highway Administration ($2,995).

Tom Greer, a spokesman for Lockheed Martin, said it's a common problem. The Bethesda, Md.-based aeronautics giant has 135,000 employees and reported $37 billion in sales last year. The House panel, however, found that government agencies classified $8 million in Lockheed contracts as small business awards. Greer said the company has often had to ask federal agencies to correct records showing Lockheed as a small business.

"We don't compete with small businesses for federal contracts," he said.

John Simley, a spokesman for Wal-Mart, said it's likely the entry was the result of a clerical error by the government.

"We've been called a lot of things," he said, "but 'a small business' is not one of them."

Velazquez said she plans to write roughly 2,500 big companies, asking them to remove their names from a government list of approved small business firms, and also will seek legislation to punish agencies that cheat.

House Republicans said much of the controversy can be attributed to small businesses that have prospered under the Bush administration, either adding enough employees to become a large company or being acquired by large businesses.

Small businesses are getting less than 5 percent of federal contracts, though federal law mandates they receive at least 23 percent, the American Small Business League said in a statement Wednesday.

The Small Business Administration announced in June that in 2005 small business received $119 billion in prime and subcontracts, including a "record-breaking" $79.6 billion in prime federal contracts, or 25.4 percent. However, the ASBL said small businesses received less than $20 billion in prime and subcontracts.

The ASBL based its findings on U.S. Census Bureau statistics, which state 98 percent of firms have fewer than 100 employees, and these 23 million companies are where more than half of all Americans work.

"I don't know where they're getting their information from," said Ruben Garcia, district director for the U.S. Small Business Association office in San Diego.

According to Garcia, small businesses nationwide gained $79.6 billion in federal prime contracts last year, $10 billion more than the previous year. That represents 25.4 percent of federal contracts, surpassing the overall government statutory goal.

"Everything I look at shows increase," Garcia said.

A study on the government's data, conducted by Eagle Eye Publishers,reported $65 billion in prime contracts to small business, or 17 percent of total federal procurements for 2005. Eagle Eye president Paul Murphy told Washington Technology that the SBA is "either comparing apples to oranges" or else "has access to numbers that the general public does not." Murphy said the SBA is "manipulating the appearance of success."

"The data gets problematic in two ways," said Julie Meier Wright, CEO of the San Diego Regional Economic Development Corp. "There are inconsistent definitions of what constitutes a small business."

Wright said designation of a small business can be made by number of employees or by revenue.

"It leaves a litany of things open to interpretation," she said, adding that the role and revenue of the subcontractor is also not always thoroughly examined.

"These days, a small company could be $100 million dollar company, because it's competing with $100 billion dollar company," she said.

Though the SBA's June announcement cited a total procurement of $314 billion, the ASBL said this number excludes costs such as government credit card purchases, contracts outside the United States and contracts with agencies including the Transportation Security Administration and the Federal Aviation Administration. According to information obtained by the ASBL through the Freedom of Information Act, the total volume of federal contracts in 2005 was $380 billion, though the ASBL said if unreported defense contracts are included, it might be as high as $450 billion.

"It's time for small business owners to realize that business groups that have historically claimed to represent them are conspicuously silent on this issue," said Lloyd Chapman, president of ASBL. "The absence of any objections from these major groups in the face of the wholesale diversion of billions in contracts to large corporations is proof that they do not have the best interest of small business at heart."

"Agencies of the government don't always do their jobs as well as they should," said Scott Alevy, vice president of public policy and communication for the San Diego Regional Chamber of Commerce, whose membership consists of mostly small businesses.

Alevy attributed the lack of government contracts to small businesses as a possible bureaucratic mix-up, when small companies grow larger, yet continue to apply and gain preferencial contracts.

"These programs are all designed to help small companies become bigger and better companies," he said. "When they (first) applied, they were small companies. Not anymore."

Alevy does not expect the chamber to take any action in response to the ASBL allegations.

The federal government has failed to meet its small-business contracting goal for the sixth consecutive year, according to a new report released by the Democratic members of the House Small Business Committee.

The lawmakers issued Scorecard VII today, which found that in fiscal 2005 nearly $12 billion was coded as small-business awards when the contracts actually went to large businesses.

The score card, established in 1999, evaluates how small businesses are doing in the federal marketplace.

At a noon press briefing on Capitol Hill, the Democrats said the Bush administration claimed the federal government had achieved its goal of 25.36 percent small-business awards. But when the miscoding was taken into account, the percentage dropped to 21.57, or $4.5 billion in lost contracting opportunities.

"What we are seeing is a sheer lack of accountability from the administration that is resulting in these large businesses receiving small-business awards," said Rep. Nydia Velázquez (D-N.Y.), ranking member of the committee. "As a consequence, entrepreneurs are getting less and less contracting opportunities each year."

The American Small Business League said its calculations showed that small businesses with 100 or fewer employees received no more than $20 billion in contracts last year, far less than the $119 billion the Small Business Administration announced.

The Democrats called on the Government Accountability Office to investigate whether some large businesses are intentionally certifying themselves as small. In addition, the lawmakers are asking the inspectors general at the Treasury, Transportation, State and Education departments, which had the most incidents of miscoding, to determine if their contracting officers are using miscoding to meet small-business goals, according to a statement from the committee.

The committee said it is sending letters to 2,500 large businesses and other ineligible entities that received small-business awards, asking them to take responsibility and rectify the situation.

According to the statement, miscoding first became a major concern in 2004 when the SBA Office of Advocacy released a report showing that $2 billion had been miscoded in 2002. The analysis found that more than 2,500 large companies and ineligible entities had received contracts, including Fortune 500 companies, universities and not-for-profits. Only 3 percent of them were small businesses that had grown.

Scorecard VII gave 12 agencies a failing grade and the federal government an overall grade of D this year, the statement said. Education, Energy and USAID have received Fs every year since the inception of the report.

Velázquez said women-owned businesses lost $5.2 billion and minority-owned businesses lost $4.5 billion in contracts.