WASHINGTON – At least $12 billion in contracts the government claimed it gave to small companies last year wound up instead in the coffers of corporate giants like Microsoft and Rolls Royce, greatly inflating the Bush administration's record of help to small businesses, Democratic congressional investigators say.

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, House Democrats conclude in a report to be released Wednesday.

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

"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 Corp. 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 plc 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 Department of the Army.
• Exxon Mobil Corp., 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.
• Google Inc., the Internet search giant, won separate contracts from the U.S. Coast Guard ($41,800), the Peace Corps ($15,000) and the Federal Highway Administration ($2,995).

Executives at the companies were not immediately able to comment without researching the contracts.

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.

"Should the firm be penalized for success?" asked Rich Carter, a GOP spokesman for the House Small Business Committee. "Should the agency not be given credit for taking a risk by placing their initial confidence in this small business to perform this type of work? Maybe (Democrats) believe this company should have never received the contract in the first place to satisfy some accounting standard."

But Art Munn, a California, Md.-based contractor who said he lost several contracts to larger firms, said it's not just an accounting issue.

Munn said earlier this year he had to lodge a formal protest with the SBA to save a Marine Corps contract he'd been awarded for a radar dome installation in Bahrain. Munn said he was competing with a large company that had bought out a much smaller competitor.

"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."

The issue of big businesses getting more than their fair share of federal contract dollars is not new.

Lloyd Chapman, head of the Petaluma, Calif.-based American Small Business League, noted that government investigators have released more than a dozen reports on the issue over the last decade, but nothing has changed.