Federal agencies overstated their successlast year in contracting with small businesses thatface socio-economic disadvantages, according to a watchdog report released Wednesday.

The Small Business Administration's inspectorgeneral's office said it identified $400 million worth of contracts thatagencies gave to ineligible firms but still counted toward their targets.

The findings are significant because 2013 wasthe first year that the Obama administration claimed to have met the federal government's small-businesscontracting goals. The flawed numbers led to inaccuratereports to Congress and the American people, according to the report.

Under current law, the federal governmentstrives to award 23 percent of its contracts to small businesses,with 3 percent intended for firms located in economicallystruggling areas known as Historically Underutilized Business Zones and 5percent for companies that face economic and social disadvantages.

Auditors found that contracting officersincorrectly claimed $208 million worth of contracts for HUB Zone firms and$219 million for companies facing economic and social disadvantages.

Some contracts went to firms that were notparticipating in the SBA programs that their awards were tied to, according tothe report. Auditors also found that agencies changed some awards tosole-source contracts to help meet their goals.

The report called for SBA to takesteps to ensure that its database for identifying eligible firms containsaccurate and up-to-date information. The agency agreed with therecommendations.

Rep. Sam Graves (R-Mo.) has proposed legislationthat would increase the government-wide goal for small-businesscontracting from 23 percent to 25 percent of all awards, but the watchdogreport raises questions about whether the administration can reach the existingtarget.

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