Earlier this year, the Small Business Administration announced that thefederal government had reached its goal of awarding at least 23 percent of itstotal contracts to small businesses—the highest percentage in nearly eightyears.

This was a big deal for the federalgovernment—as Washington is always happy to tout its support for small firms.

Related: Small Business Contracts Flow toMega Corporations

But a scathing new reportfrom the SBA's inspector general casts doubts on the government's commitment tosmall businesses—and claims that the agency's numbers were significantlyinflated—by as much as $2 billion.

The IG reviewed federal contractsintended for companies eligible for the HubZone program, which benefitscompanies in low-income communities, as well as the 8(a) program, whichbenefits minority-owned firms.

Auditors concluded that inaccuratereporting practices and lax oversight resulted in some $428 million intendedfor disenfranchised groups going to ineligible firms. They added that another$1.5 billion went to business that used to be eligible for the programs—but areno longer qualified.

"In addition to overstating the smallbusiness "goal" dollars, this may have also prevented other eligible firms frombeing awarded these contract actions," the report says.

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The auditors said information for theHubZone and 8(a) programs wasn't consistently transmitted to the System forAward Management, "As a result the affected small businesses—especially HubZonefirms—are not getting the visibility" in the system, which "may impact federalagencies in meeting their procurement goals."

The auditors only reviewed contractsworth more than $3 million, so it's likely that even more money was awarded toineligible companies.

The IG recommended that SBA create astreamlined process to more accurately award contracts. Agency officials agreedwith the recommendations.

This isn't the first time federalgrants for small businesses have gotten in the wrong hands. Earlier this year, an investigation bythe American Small Business League revealed that only 16 of 100 companiesreceiving small business grants were actually small firms. The rest of themoney was going to behemoth corporations like Apple, Bank of America andGeneral Electric.

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