Capitol Hill’s two top lawmakers on small business have lashed out at President Bush for lapses at the Small Business Administration that exposed the agency to widespread fraud. The reaction was the latest fallout from two reports released over the past two weeks revealing startling shortcomings in the SBA’s oversight of government contracts.

Mismanagement of small business contracting programs has been a sore spot at the SBA for more than five years. Over that time, numerous reports have revealed that billions of dollars a year end up in the hands of large well known corporations. But the SBA has tended to minimize or deny the problem. Outgoing administrator Steven Preston even called it a myth. The latest reports, however, show a clear credibility gap at the agency.

The SBA compounded lawmakers’ frustrations -- and its own embarrassment -- when it issued a press release July 10 dismissing the findings of one report, only to issue a "clarification" later the same day, acknowledging the report’s conclusions. "Sorry for the confusion, folks, but our calculations were based on an incorrect assumption, and we wanted to fix it," SBA spokesman Mike Stamler wrote when he distributed the revised release.

The Democrats’ remarks came at the opening of a committee hearing last Thursday (July 17) into the SBA’s troubled HUBZone program. The hearing focused on a new Government Accountability Office (GAO) investigation that found widespread lapses in SBA monitoring and accountability, leaving the program vulnerable to fraud. Allbusiness.com was one of the first news organizations to reveal the investigation’s findings.

"During the past eight years, the Bush administration has missed every single one of its small business goals. In 2005 alone, entrepreneurs lost $4.5 billion in contracting opportunities," said House Small Business Committee Chairman Nadia Velazquez said in an uncharacteristically harsh statement,

In the Senate, Small Business committee Chairman John Kerry, D-Mass., was equally critical of the administration. "This latest report adds to the pile of evidence that the administration has failed to conduct adequate oversight of small business programs," he said.

The program is supposed to provide contract opportunities to companies that locate in economically distressed areas and employ local residents. But the GAO found that six of the 10 Washington, D.C., area companies it examined failed to meet goals. Yet collectively, they had received more than $100 million in federal HUBZone contracts.

To test the SBA’s oversight, the GAO set up four fictitious companies and easily won program certification for all of them. One of the companies listed a local Starbucks coffee shop as its headquarters. In one instance, the GAO submitted forged documents to meet program requirements. The SBA accepted them without question and never conducted follow-ups or site visits on any of the companies.

The GAO report came on the heels of yet another investigation into small business programs by the federal Department of Interior. The agency’s Office of Inspector General found that some of the nation’s top Fortune 500 companies, from Home Depot and John Deere to Weyerhaeuser and Waste Management, had raked in millions of dollars in DOI small business contracts over the past two years.

The report identified just $1.03 million in misdirected contracts and placed a large part of the blame on contracting officers who "consistently" failed to verify business size. The agency’s reaction to the report was all too typical of the Bush administration’s arrogance and dismissive attitude when it comes to shortcomings at the SBA.

Deputy Secretary of the Interior Lynn Scarlett noted that the amount identified in the report totaled just 0.06 percent of the $1.6 billion in Interior small business contracts for fiscal 2007. She attributed the discrepancy to "incorrect coding, data entry mistakes or insufficient verification of business size." In short, she blamed it on clerical errors.

The SBA also tried to minimize the findings. The DOI investigation it said, found only "a miniscule percentage of contracts held by large businesses have been miscoded by contracting officers as having been awarded to small businesses."

"It is also useful to note that the DOI office responsible for identifying waste, fraud and abuse reported none,” added Acting SBA Administrator Jovita Carranza in the same release.

Both statements mis-characterized the nature of the report. Interior’s OIG investigation was only intended to examine a sampling of contracts, not all small business contracts, and it was not conducted to ferret out fraud.

In response to the Interior Department report, the American Small Business League (ASBL) reviewed the top 100 recipients of Interior Department small business contracts for FY2006 and FY2007. It examination was based on data collected by Fedmine.us, which has direct access to federal contract information. ASBL Founder and President Lloyd Chapman has been a long-time critic of lax SBA contracting oversight.

The ASBL said it found that 22 large firms -- mostly Fortune 500 companies -- had received more than $200 million in federal small business contracts in 2006. The following year, 28 large firms received more than $230 million in small business contracts. The awards constituted 26.55 percent of all contract actions awarded to the top 100 for 2007, it noted.

Among the companies receiving small business contracts, a number were obviously ineligible, said Chapman. They included Booz Allen Hamilton, Sprint Communications Company, Perot Systems Government Services and Hewlett Packard Co. among others.

"The Bush Administration has tried to convince us for six years now that the diversion of hundreds of billions of dollars in federal small business contracts to Fortune 500 firms is the result of ‘miscoding’ or random data entry errors. It is simply not believable that for over six years every time a contract is ‘miscoded’ it just happens to inflate the Bush Administration’s small business contracting statistics," Chapman said.

The administration is in the process of seeking Senate confirmation for a new Small Business administrator. It has nominated Santanu "Sandy" K. Baruah, a career government bureaucrat who currently serves as Assistant Secretary for Economic Development at the Department of Commerce. He takes over from Steve Preston, who has been nominated Secretary of the Department of Housing and Urban Development.

Baruah has never run a company, and his r?sum? suggests limited experience with small businesses, but he does understand government. In order to be confirmed, the Senate should require him to pledge that he will address the SBA’s long-standing contract problems within the first 30 days of taking office. He should also pledge to close the SBA’s "credibility gap," which has grown significantly under the Bush administration and only gotten worse under outgoing administrator Preston.

Source:  http://www.allbusiness.com

WASHINGTON — Two government reports have uncovered millions of dollars in federal contracts that were supposed to go to small businesses but instead were awarded to companies that had not qualified or had obtained the contracts fraudulently.

In one report, the inspector general for the Interior Department found that contracts listed as going to small businesses went to a dozen Fortune 500 corporations, including the Xerox Corporation and the John Deere Company.

The report, based on a sampling of the department’s small business contract awards in fiscal years 2006 and 2007, uncovered no fraud but found that large businesses received the contracts because of data entry errors, incorrect data and failure by contracting officials to verify the actual size of the business.

The report also said that in several cases, corporations appeared to have misrepresented themselves as small businesses on the federal contractor data base.

Xerox and John Deere said they were moving to correct those errors, and Senator John F. Kerry, the Massachusetts Democrat who heads the Senate Committee on Small Business and Entrepreneurship, called for all federal agencies to audit their small business contracting practices.

The second report, by the Government Accountability Office, found that numerous private firms had tapped into the Small Business Administration’s set-aside program for small businesses in economically distressed areas by falsely claiming they were located in a Historically Underutilized Business Zone, or HUBZone.

Ten randomly selected companies in the Washington area, according to the agency, had set up virtual offices or rented mail boxes in poor communities solely to obtain a HUBZone business address. Over two years, those companies and others won more than $100 million in HUBZone contracts, according to the report presented to the House Committee on Small Business last week.

“You have to wonder about a system that lets individuals self-qualify for a program of this size,” said Nydia M. Velazquez, the New York Democrat who heads the committee.

In response, the S.B.A. released a statement that outlined the steps it planned to take to correct the problems and verify that companies are eligible.

Officials at the Interior Department said the inspector general’s report uncovered only $5.7 million in misdirected contracts. That was a small fraction of the agency’s overall small business contract awards, which totaled $1.39 billion in fiscal year 2006 and $1.6 billion in fiscal year 2007.

But Earl E. Devaney, the department’s inspector general, said what his audit team uncovered “was the tip of the iceberg” because it was based on a review of three-tenths of a percent of contracts from a cross-section of offices — ranging from Indian affairs to surface mining — in the huge department.

“These are not just clerical mistakes that can be tagged on two little clerks,” Mr. Devaney said. “This is not one single report, but our fourth in the contracting area.”

P. Lynn Scarlett, the Interior Department’s deputy secretary, said the department was “working to correct these issues.” Her office did not return further calls, and her statement was included in a response to the report by the S.B.A., which also monitors how well the federal government meets its small business contracting goals.

Congress has required that 23 percent of all federal contracts, which total more than $400 billion annually, be set aside for small businesses. Agencies are required to state whether they have met their annual contracting goals. But several inquiries, including one by the G.A.O. in 2003, have raised questions about the accuracy of the S.B.A.’s reporting.

The inspector general’s report “is the latest maddening evidence that big businesses are being handed federal contracts that should be going to small businesses,” Mr. Kerry said. He added that he would “be sending letters to every federal agency asking them to audit their small business contracts and report back to the committee.”

Steven C. Preston, the former administrator of the agency, adopted rules last year that small businesses recertify their size when they merge with a larger business or are at the five-year point in a contract.

The American Small Business League, a small business association, said the problems with small business contracts went far deeper than even the inspector general found. The league’s president, Lloyd Chapman, said large companies were getting the contracts not simply because of errors but because of “the intentional diversion of federal small business contract dollars to Fortune 500 firms.”

Two years ago, the Interior Department said it had awarded more than 55 percent of its contract dollars to small businesses. But the inspector general’s evaluation said that contracting officers acknowledged that some of the companies were not small and “were incorrectly coded as small.”

One of the companies cited, John Deere, won more than $617,000 in small business contracts from the Interior Department in 2006 and 2007. The company, with 52,000 employees and revenue nearing $23 billion last year, said that it was moving to correct the errors in the government database that listed it as having $2 million in annual revenue and under 500 employees. The government defines a small business as one with fewer than 500 employees.

“A marketing unit of Deere had correctly listed the number of employees in that small business unit on a government form, and this number has been used by government agencies to define the entire Deere enterprise as a small business,” said Ken Golden, a company spokesman.

The Interior Department report also found that contracting officers “failed to consistently check” the central contractors registry to determine the company’s true size.

A spokesman for Xerox, William McKee, said the company’s review of the central registry revealed “several errors where business size was entered incorrectly” from such agents, and said the company was going to correct the mistaken data.

“Xerox is not a small business, and has never attempted to portray itself as one,” he said.

Source:  http://www.nytimes.com