A small business advocacy group that has complained loudly that the government short-changes small businesses when it comes to contracting now has even bigger worries.

Lloyd Chapman, head of The American Small Business League, says he's worried President Barack Obama plans to follow through on a Bush-era plan to fold the Small Business Administration into the Commerce Department.

Chapman cites what he calls are a string of broken promises regarding the SBA -- that the director would be a cabinet-level post, that a 5 percent set-aside program for women-owned firms would be implemented, and that funds would no longer be diverted from small businesses to giant firms.

"I don't trust President Obama. He has lied to me, and he has lied to every small business in America by breaking every promise he has made to the small business community," Chapman said. "I am very concerned that he may try to dismantle all small business programs by combining the SBA with the Commerce Department."

In August, Chapman's group argued with the government's reckoning of small-business contracts. The government claimed $93.3 billion worth of contracts went to small businesses in 2008, up $10 billion from 2007. That still fell short of a Congressional mandate that 23 percent of contracts go to small businesses. Only 21 percent went to those businesses, according to the government's estimate.

But Chapman's group said the number's more like 7 percent of government contracts going to small businesses. The ASBL claims the government excludes vast contracts as not being small business eligible, and that it counts such giants as Lockheed-Martin and Boeing among small businesses.

Source:  http://www.portfolio.com/views/blogs/daily-brief/2009/09/09/will-obama-do-away-with-sba/

The new head of the Small Business Administration, a former Chicago-area executive at a decidedly big business, said his agency must do a better job of helping minority, rural and inner-city companies grow.

"That's a huge social opportunity for us," said Steven Preston, a Hinsdale, Ill., resident preparing to move to his new job in Washington, D.C. He became the SBA's administrator in June.

Preston, 46, is taking on a small agency with vocal critics who claim that too many federal contracts are going to giant businesses when they should be allocated to small companies. Some minorities also believe that they are shortchanged when it comes to winning government work.

The SBA, best known as the financier of last resort, guarantees loans to small businesses that could otherwise not obtain credit. Last year, for example, the SBA backed about 100,000 loans worth $19 billion.

The default rate on loans ranges up to 7 percent in any given year. Because of the fees it charges, the agency breaks even.

People familiar with the SBA say its more important role is advocating the interests of small businesses to other federal agencies, in everything from regulation to contracts.

Harry C. Alford, president of the National Black Chamber of Commerce, said the SBA needs to be more aggressive in pushing other government agencies to offer business to small companies, especially those that are minority-owned.

"African-Americans account for 2 percent or 3 percent of SBA loans and we are 13 percent of the population," Alford said.

Working on issues

"We are looking at his numbers now," Preston said. He said SBA data show that blacks account for about 7 percent of the loans, still substantially lower than their percentage of the population.

Preston has been meeting with black and other minority organizations to see what the SBA can do to serve small businesses in depressed neighborhoods. He said he is also working to ensure that rural small businesses are served.

Preston said he plans to work on a chronic SBA problem: A federally maintained database of contracts awarded to small businesses, notorious for its inaccuracy, keeps turning up the names of transnational companies that are decidedly not small.

Lloyd Chapman, president of the American Small Business League, said, "Democrats and Republicans alike need to realize that when the president allows billions of dollars in small-business awards to be diverted to large corporations, it hurts every American, no matter what their political affiliation."

A Korean War-era law says that 23 percent of government contract expenditures should go to small businesses.

Preston said the problem is the way contract data are recorded.

He said that a small business that wins a contract and then grows remains listed as a small business until the contract expires. In other instances, he said, a small company with a government contract is acquired by a large one, which is then listed as a small business in federal records as long as the contract runs.

Necessity questioned

Some people question whether the SBA should even exist.

"The SBA is kind of a ridiculous agency," said Chris Edwards, director of tax policy for the libertarian Cato Institute. "Its basic mission is incoherent.

"If they make loans to healthy businesses that are prosperous, that makes no sense because they could go to banks to get money."

On the other hand, if the SBA funds marginal businesses that no other lender would touch, Edwards said, it is apt to misallocate money that could be put to better use elsewhere.

Preston said that argument is weak. There are some viable businesses that cannot get conventional bank loans but do need money to expand.

Nor is the government wasting the public's money, he said.

CHICAGO - The new head of the Small Business Administration, a former Chicago-area executive at a decidedly big business, says his agency must do a better job of helping minority, rural and inner-city small companies grow.

"That's a huge social opportunity for us," said Steven Preston, a Hinsdale resident preparing to move to his new job in Washington. He became the SBA's administrator in June.

Preston is taking on a small agency with vocal critics, who claim that too many federal contracts are going to giant businesses when they should be allocated to small companies. Meanwhile, some minorities believe they are shortchanged when it comes to winning government work.

The SBA, best known as the financier of last resort, guarantees loans to small businesses that could otherwise not obtain credit. Last year, for example, the SBA backed about 100,000 loans worth $19 billion. The default rate on loans ranges up to 7 percent in any given year. Because of fees it charges, the agency breaks even.

People familiar with the SBA say its more important role is advocating the interests of small businesses to other federal agencies in everything from regulation to making contracts available.

Harry C. Alford, president of the National Black Chamber of Commerce, said the SBA needs to be more aggressive in pushing other government agencies to offer business to small companies, especially those that are minority-owned.

"African-Americans account for 2 or 3 percent of SBA loans and we are 13 percent of the population," Alford said.

"We are looking at his numbers now," Preston said. He said SBA data show that blacks account for about 7 percent of loans, a figure still substantially lower than their percentage of the population.

"They make up 13 percent of the population," Preston said. "They do not make up 13 percent of businesses."

Preston has been meeting with black and other minority organizations to see what the SBA can do to better serve small businesses in depressed neighborhoods. He said he is also working to ensure that rural small businesses are served.

Preston said he plans to work on a chronic SBA problem. A federally maintained database of contracts awarded to small businesses, notorious for its inaccuracy, keeps turning up the names of transnational companies that are decidedly not small.

Lloyd Chapman, president of The American Small Business League, said, "Democrats and Republicans alike need to realize that when the president allows billions of dollars in small-business awards to be diverted to large corporations, it hurts every American no matter what their political affiliation." A Korean War-era law says 23 percent of government contract expenditures should go to small businesses.

Preston said the problem is more with the way contract data are recorded than it is big companies getting work meant for small businesses.

He said that a small business that wins a contract and then grows big remains listed as a small business until the contract expires. In other instances, he said, a small company with a government contract is acquired by a large one but the acquiring company is listed as a small business in federal records as long as the contract runs.

Some people question whether the SBA should even exist.

"The SBA is kind of a ridiculous agency," said Chris Edwards, director of tax policy for the libertarian Cato Institute. "Its basic mission is incoherent.

"If they make loans to healthy businesses that are prosperous, that makes no sense because they could go to banks to get money."

On the other hand, if the SBA funds marginal businesses that no other lender would touch, Edwards said, it is apt to misallocate money that could be put to better use elsewhere.

Preston said that argument is weak. There are some viable businesses that cannot get conventional bank loans, but do need money to expand.

Nor is the government wasting the public's money, he said.

"The government does not lose money on these loans," he said. "We break even."

Preston, 46, would appear to be in for the long run. A triathlete, he spent time last summer bicycling through the French Pyrenees.

That endurance may serve him well, because he cannot count on his own experience as a small businessman. He doesn't have any.

He was formerly executive vice president of ServiceMaster Co., which earned $198.9 million on sales of $3.24 billion last year. Before that, he was an investment banker with Lehman Brothers.

Preston said his personal lack of experience in small business is no barrier to doing a good job.

The Small Business Administration claims it does not have the names of firms they reported as small businesses in 2004 and which received federal contracts totaling $119 billion, the American Small Business League says.

ASBL President Lloyd Chapman of Petaluma says he believes the SBA is attempting to withhold information that will prove the SBA has dramatically overstated small business procurement figures by reporting billions in contracts to some of the largest firms in the U.S. and Europe as small business awards.

But the SBA doesn't agree, saying the figures are available.

"Mr. Chapman is asking for data that is available for the asking to anyone from the Federal Procurement Data System, where government-wide contracting statistics are kept," says SBA spokeswoman Anne Marie Frawley in an e-mail response to a CVBT query. "The FPDS is not a part of the SBA."

But Mr. Chapman disagrees, saying what figures are available "are inconsistent with their (SBA) public statements."

((Mr. Chapman expands on his thoughts in a CVBT interview. Click on the link below to listen.))

The ASBL is preparing to file its third federal lawsuit against the SBA to force them to release the names of the firms, Mr. Chapman says.

"I am confident the information we obtain will prove the SBA and the GSA have diverted billions in small business contracts to Fortune 1000 companies," Mr. Chapman says. "It's unacceptable that we have to go to court over and over just to get the most basic information from the SBA. Clearly they are trying to hide damaging information."

During the past 12 months, the ASBL has won two similar Freedom of Information cases against the SBA. The Justice Department has been directed to pay the ASBL over $54,000 in legal fees due to the SBA's refusal to release records that are supposed to be available to the public.

"These lawsuits are a waste of taxpayer dollars," Mr. Chapman says.

The headline on the news release was what caught my attention.

It read:

"Buried report proves SBA knew about fraud.''

Some history.

It seems the Small Business Administration Inspector General's office conducts internal investigations regularly.

And, to make a long story short, a 1995 probe entitled "Government Contracting Programs: Activities to Enhance Fraud Detection and Deterrence'' proved that executives at the SBA have known for almost 10 years that intentional fraud existed in federal small business contracting programs.

The assertion is admittedly a bit on the wordy side, but the information is telling.

Let's jump ahead of all the findings with this tidbit of data: The Center for Public Integrity found the Pentagon alone had awarded $47 billion in federal small business contracts to some of the nation's largest defense contractors.

Mind you, that's with a B.

SBA Administrator Hector Baretto told the House Committee on Small Business in February the billions in abuses were the result of "data entry errors.''

His explanation didn't fly.

It didn't even reach taxying status.

Rep. Nydia Velasquez, D-New York, accused Baretto of being "dishonest.''

Harsh words?

Absolutely.

Too harsh?

Maybe.

Maybe not.

The SBA's own Inspector General, according to a report out of American Small Business League's office in Petaluma, Calif., released three separate damaging reports in February and March on the subject. The reports found large firms were still intentionally misrepresenting themselves as small businesses to illegally receive federal small business contracts.

Many of the documents were uncovered by the ASBL, which has launched a national campaign to end fraud and other abuses in federal small business contracting programs.

The results speak for themselves, according to ASBL President Lloyd Chapman.

"This report and the most recent investigations by the SBA's own Inspector General clearly show the SBA has known about this rampant fraud for 10 years,'' he said.

"And, they have lied to Congress, the media and the public,''

The ASBL's Web site said that seven separate government and private studies have found billions in U.S. government small business contracts have been awarded to some of the largest firms in the world.

One of the probes conducted by the SBA Inspector General was sought at the request of Sen. John Kerry, D-Mass., who lost the 2004 presidential election to George W. Bush. That might explain Kerry accusing the Bush Administration of "fostering an atmosphere of fraud and abuse in federal small business contracting programs.''

If true, that would account for five of the 10 years.

So that would place the rest of the blame squarely on the Clinton Administration for the previous five years.

Fraud is an equal opportunity participant.

Not only has the SBA angered members of Congress and the small business community nationwide by offering lame excuses, it hasn't been very original in its defense.

Words like "computer glitches and miscoding'' stand out.

For the record, misrepresenting a firm as a small business is a felony under federal law with a 10-year prison term and a $500,000 fine.

That sounds tough enough.

Except, there is one small factor worth mentioning. The SBA has never taken any action against any firm for fraudulently claiming to be a small business.