GAO finds $325M awarded to ineligible firms under SBA program

One firm owner had a yacht and Lamborghini while claiming disadvantage

The president of a federal contracting firm owned a $450,000 yacht, a $200,000 Lamborghini and a $2.5 million home but still qualified for Small Business Administration incentives for the disadvantaged — one of 14 cases of fraud and other misuses of the program outlined in a new report from the Government Accountability Office.

The GAO investigation found that federal agencies improperly awarded $325 million in small-business set-aside and sole-source contracts to firms not eligible for the small-business designation.

Most of the ineligible firms engaged in fraud to obtain the contracts under the SBA's 8(a) program, states the GAO report released April 29.

The 8(a) program assists firms that are at least 51 percent owned and controlled by an individual who meets criteria for being socially and economically disadvantaged. The firm also must qualify as a small business. Once certified, 8(a) firms are eligible to receive sole-source and set-aside contracts for up to nine years

In the 14 cases investigated by the GAO, firms made false statements to quality for the 8(a) program or to retain their certification.

In the case of the business owner who owned a yacht and a Lamborghini, the owner fraudulently represented assets used for purchasing his home, the GAO said. The owner’s IT consulting firm in Bethesda, Md., received $12.6 million in contracts from the Agriculture, Interior, Transportation and Veterans Affairs departments before graduating from the SBA program in March 2010.

In another case, a company that had grown too large for the 8(a) program used a series of smaller companies as fronts to continue getting contracts. The company won $48.3 million in contracts from the Agriculture, Commerce, Defense and Interior departments as well as the EPA, General Services Administration, and Social Security Administration, the GAO said.

Also, a firm that received $11.2 million in Defense and Homeland Security department small-business set-aside contracts was ineligible because its owner had a net worth that was greater than allowed, the GAO said. The president of the company fraudulently reported his adjusted net worth to be about 73 percent less than the actual amount, the report said.

“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 added.

“These cases show substantial vulnerabilities in SBA’s monitoring of eligibility for individuals and firms already in the program,” the watchdog agency concluded. “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 made six recommendations for improvements, and SBA officials agreed with five of the six and were evaluating the sixth.

About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

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Reader comments

Thu, May 13, 2010 Federal

The SBA program has good intentions. Too bad some unscrupulous people take advantage of it. But large businesses too can take the Government for a ride.We need oversight but the Government needs goods and services

Thu, May 13, 2010

This article beats up only on the 8a program. The phenomenon is not limited to 8a, SDVOSB, HubZone are all plagued with not having enough enforcement. Push for prosecution and debarment of the large primes that are also awarded small business contracts or even the large manufacturers of commodity hardware (such as EMC) that do small business set asides as pure pass through business,have the Contracting Officer protect them behind Non-manufacturer language and do not have a small business subcontracting plan to execute. They create corporate traps and manipulate partner channels to retain only pass through type partners, yet they collect 99.9% of money on the set aside contract by providing the hardware and the Professional Services. Enough reporting on what we know to be true, take action against this disgusting behavior.

Thu, May 6, 2010

All I can say is, the SBA is supposed to protect the interests and promote the growth of America's small businesses. Since the new leadership in the CIO and CTO office took power on a few months ago, we have witnessed the extinction of one 8(a) company's contract and our revenues at the agency are down 85%. So much for protecting America's small businesses. Most of the current focus is on Microsoft products for CRM and playing political ball with OMB and GSA to win favor (I suppose).

Thu, May 6, 2010 Paul Greenbelt

Why aren't these companies identified? I would like to see if our company lost any opptys because of this fraud as we work with the same agencies.

Thu, May 6, 2010 StrangeLoop

They should also prosecute the SBA employees who are supposedly overseeing fraud. We often hear that the Feds screw up, but how often are any of them made to pay a price for having done so?

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