More Fraud Uncovered at the Small Business Administration

Press Release

More Fraud Uncovered at the Small Business Administration

January 31, 2006

PETALUMA, Calif., January 31, 2006 /PRNewswire/ -- The most recent report to Congress from the Small Business Administration's Office of Inspector General has recommended debarment of a major government contractor for "misrepresenting that it was a small business concern in obtaining a Government contract which was set-aside for a small business." As of today, the SBA has taken no action against the contractor. In addition, the agency has refused to release the name of the firm.

Section 16(d) of the Small Business Act makes it a criminal offense to misrepresent in writing the status of any concern as a "small business concern" in order to obtain for oneself or another any prime contract. Violations of 16(d) are punishable by a fine of not more than $500,000 or by imprisonment for not more than ten years or both, and can result in certain administrative remedies, including suspension and debarment.

The report also cites additional occurrences of fraud. In one, an employee of the SBA allegedly used his position to obtain over $20,000 for his personal benefit in exchange for funneling $3 million in contracts to an 8 (a) contractor. The employee has been indicted. The other case involved company officers making misrepresentations to the SBA in order to maintain their 8(a) eligibility status. The officers were indicted and pled guilty.

The SBA has been widely criticized for refusing to take any action to address what some critics believe to be widespread fraud and abuse in Federal small business contracting. As early as 1995, the SBA's Office of Inspector General discovered fraud in contracting programs. During a recent investigation in 2005, it was revealed that large firms were guilty of false certifications to illegally receive Federal small business contracts.

Furthermore, the SBA's own Office of Advocacy released a study in 2005 that found "vendor deception" as one of the reasons why billions of dollars in small business set-asides were actually diverted to large businesses.

In spite of the evidence of fraud presented seven government investigations, SBA Administrator Hector Barreto continues to deny the existence of any wrongdoing. In a recent interview with the Dallas Morning News, Mr. Barreto stated, "There has been some criticism that large companies get contracts that were meant for small businesses, and we disagree with that. There are a lot of protections in place, and if that were happening, there would be serious repercussions for that big company."

"I think House Representative Nydia Velasquez hit it right on the head when she accused Barreto of being dishonest during a Congressional hearing," stated Lloyd Chapman, President of the American Small Business League. "I think it's time for the Justice Department to launch an investigation to get to the bottom of this and find out how many more companies are guilty of contract fraud and how many government employees are involved or trying to cover it up. It's an outrage that the SBA's Inspector General has documented fraud in small business contracting for ten years and nothing is being done to stop it."

About the ASBL
The American Small Business League was formed to promote and advocate policies that provide the greatest opportunity for small businesses - the 98% of U.S. companies with less than 100 employees. The ASBL is founded on the principle that small businesses, the backbone of a vital American economy, should receive the fair treatment promised by the Small Business Act of 1951. Representing small businesses in all fields and industries throughout the United States, the ASBL monitors existing policies and proposed policy changes by the Small Business Administration and other federal agencies that affect its members.


For more information contact
Lloyd Chapman



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