President Barack Obama and Congress are pushing for passage of the Small Business Jobs Act, which contains a dangerous loophole that could encourage billions of dollars in fraud in small business contracting programs.

Section 1341 of H.R. 5297, the Small Business Jobs Act, contains provisions that would allow the Small Business Administration (SBA) to develop policies and procedures that would protect large businesses that have misrepresented themselves as small businesses from prosecution for felony contracting fraud.

Since 2003, over a dozen federal investigations have found billions of dollars a month in federal small business contracts have been diverted to Fortune 500 firms, large businesses throughout the U.S., and some of the largest companies in Europe.

In 2005, the SBA Office of Inspector General (SBA IG) referred to the diversion of federal small business contracts to large businesses as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documents/05-15.pdf)  

In Report 5-16, the SBA IG found that large businesses had received federal small business contracts fraudulently by making “false certifications” and “improper certifications.” (https://www.asbl.com/documents/05-16.pdf)  

According to the U.S. Census Bureau, small businesses create over 90 percent of all net new jobs. (http://www.sba.gov/advo/research/rs359.pdf) Recent surveys conducted by small business organizations such as the American Small Business League (ASBL) and the National Federation of Independent Businesses (NFIB) show that the most important issue for small businesses is an increase in demand.

“If President Obama and Congress were serious about creating jobs, they would not have included language in this bill that will make it more difficult to prosecute fraudulent contractors,” ASBL President Lloyd Chapman said. “The focus must be on ending fraud and abuse in federal small business contracting programs so that they can be utilized as a means of driving demand into the hands of the small business community. That is how we must create jobs.”