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SBA Fraud Hearing Discusses Loan Agent Abuses, Enforcement, Set Asides, Agency Abolition

By Anthony Critelli
June 16, 2011

Sen. Mary Landrieu (D-La.), chairwoman of the Senate Committee on Small Business & Entrepreneurship, chaired a hearing earlier today called "An Examination of SBA Programs: Eliminating Inefficiencies, Duplications, Fraud and Abuse" (archived video available).

Loan Agent Problems

The first panel of the hearing focused on inappropriate loan agent actions in the 7(a) loan program, Small Business Administration (SBA) enforcement of the problem and other fraud issues.

SBA Inspector General Peggy Gustafson noted that inappropriate actions by loan agents was a large problem in the 7(a) loan program, suggesting that a central database of the large network of such figures would help alleviate the situation.

Administrator Karen Mills noted that the loan officer problem involves eliminating “bad actors.” She asserted that aggressive enforcement would be made against these bad actors.

Increasing Program Oversight

Mills also cited two other categories of improvements to SBA loan program performance: ensuring eligibility of applicants and general oversight.

While asserting that oversight of contractors in its programs is a responsibility of the SBA, Mills noted the importance of training agency procurement partners to help in the process. She pointed out more than once that the government has 30,000 contracting agents and handles 8 million contracts a year.

Gustafson agreed that the SBA must take on more enforcement actions. She revealed that the agency is in the process of overhauling its suspension and debarment procedures.

In response, committee ranking member Sen. Olympia Snowe (R-Maine) called on Gustafson and Mills to employ consistent standards and proper training in SBA enforcement activity. Snowe cited that less than one percent of small business contracts are reviewed by the SBA and asked if the agency had the proper manpower.

Mills noted the agency is under no obligation to review every contract, but did point out that 24 new employees were being brought in to combat fraud, waste and abuse.

Polar Opposite Set-Aside Views

Perhaps the most interesting aspect of the second panel to contractors was the dichotomy of the American Small Business League (ASBL) calling for improved oversight of set-aside programs while the Cato Institute stumped for abolition of the SBA and a level playing field for all contractors.

Though the second panel featured five witnesses, ASBL Director of Government Affairs Kevin Baron and Cato Institute budget analyst Tad DeHaven made what are likely the most relevant comments to the GovCon community.

Baron started off by saying that small business contracting is vital to the national economy, and could create over 1 million new jobs. He described the problem of large businesses claiming small business set-aside contracts, with the agency getting credit for helping a small business. He estimated that the problem costs small businesses billions of dollars.

Noting that some observers feel the federal goal of awarding 23 percent of procurement dollars to small businesses is impossible, Baron insisted it could be achieved through initiatives such as the Fairness and Transparency in Contracting Act and the establishment of small business set-asides on General Services Administration Schedule contracts and other government-wide acquisition contracts.

On the other side of the spectrum, DeHaven called for abolition of the SBA and a totally level playing field for contract competition in his opening statement. He said that the SBA has been known as the “Small Scandal Administration” and does not have the incentive to eliminate fraud and abuse like a business would.

DeHaven said that finding a government program without fraud would be like finding a McDonald’s Happy Meal without a toy. He must have been hungry, as he later said that seeing a letter thanking the SBA for its loan help in an Indiana pizza joint made him think of the unfairness of other pizza places in the area not receiving similar help.

Landrieu seemed to be speaking to DeHaven in her closing statement by noting that eliminating the SBA would save $900 million, much less of an effect than simple tweaks to the $649 billion DOD budget.

Pro-Set-Aside Argument

During the question-and-answer period, Landrieu asked Baron to give specific arguments as to why small business set-asides are a good thing. Baron said that small businesses are able to offer high quality at a cheap price and are perfectly suited for the approximately 20 percent of government contracts under $100,000.

Pointing to the Air Force tanker contract, Baron also explained that small businesses serve valuable roles as subcontractors on larger programs.

The number one problem small businesses cite, according to Baron, is a need for demand, which could be fueled through more government contracts. He claimed that small business work has a multiplier effect through local communities.

Campaign Donation Disclosure Issue

Sen. James Risch (R-Idaho) was especially interested in the seemingly hot-button contractor issue of President Obama’s proposed executive order to disclose political contributions. While admitting the ASBL does not have an official position, Baron said he does favor efforts to increase transparency. He feels that the superior product should win over a contractor’s connections.

DeHaven did not have an official position either, but did not think that the Obama administration is continuing a tradition of abuse of government power. The other panelists did not offer any type of opinion. The noncommittal responses of this small sample pool could indicate that contractors do not care as much about the issue as the media depicts.

In Closing

In closing, Landrieu said that while the SBA is a comparably lightly-funded agency, she is still committed to stamping out waste and fraud. She noted that programs that work well will be kept, while others will be discarded.

Anthony Critelli follows the latest GovCon developments as news editor for GovWin, a Deltek network that helps government contractors win new business every day. He can be reached at anthonycritelli@govwin.com.

Source: http://govwin.com/anthonycritelli_blog/sba-fraud-hearing-discusses-loan/137510



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