By Doug Caldwell
Central Valley Business Times
August 9, 2010
• Says there are some controls, but more are needed
• ‘Most were obtained through fraudulent schemes’
American taxpayers have given $325 million in set-aside and sole-source contracts to firms not eligible for the Small Business Administration’s “Historically Underutilized Business Zone” (HUBZone) programs, the Government Accountability Office says.
“Most were obtained through fraudulent schemes,” the GAO says.
In the 14 cases investigated by the government’s watchdog agency, “numerous instances” were found of false statements, such as underreporting income or assets, to either qualify for the program or retain certification, the GAO says.
GAO also found cases where ineligible companies used certified firms to secure set-aside and sole-source contract work. For instance, a West Virginia company that graduated from the program in 2001 used a series of three certified companies as pass-throughs to continue obtaining the government money.
“In some cases, SBA did not detect the false statements and misrepresentations made by certified firms. In others, SBA became aware of the firms’ ineligibility but failed to take action,” the GAO says.
Not all was bad, the inspectors say.
GAO’s proactive testing found several strengths in SBA’s 8(a) application process that helped prevent three bogus applicants from being certified for the program. Examples of the strengths included validation of data with third-party credit bureaus and the Excluded Parties List System.
“These controls and effective review appropriately raised questions about income and assets of GAO’s bogus applicants that would have made them ineligible,” it says.
However, GAO says it obtained certification for one bogus firm using fabricated documentation and owner information. Certification of GAO’s bogus firm shows vulnerabilities in the process such as the lack of any face to face contact that could allow ineligible individuals or pass through companies to enter the program.
“Although we were unable to determine whether all 14 cases were ineligible at application, these cases show substantial vulnerabilities in SBA’s monitoring of eligibility for individuals and firms already in the program. The lack of a consistent enforcement strategy or any real consequences for fraud and abuse is a further weakness in SBA’s fraud prevention program,” the GAO says.
“This latest investigation stands as another example of a complete lack of oversight over small business programs by the SBA,” says the American Small Business League of Petaluma.
“Despite the fact that small businesses create nearly 100 percent of net new jobs, they have received virtually none of the stimulus money and the Obama Administration has turned a blind eye to billions of dollars in fraud in small business programs,” says ASBL President Lloyd Chapman.