SBA changes anti-suspension, debarment culture, IG says

The Small Business Administration earned slightly better marks today from its inspector general, who has been pushing the agency to get tough on crime.

In the past, many SBA officials believed suspending or even debarring a small business that scams the government out of contracts was anathema to the agency’s mission, Peggy Gustafson, SBA’s IG, told the Senate Small Business and Entrepreneurship Committee.

Some officials "are terrified at the thought of suspensions and debarments,” she said. “I was kind of amazed at that.”

By suspending a company, officials believed they might be denying it access to the contracts it needed to survive, said Gustafson, who’s been IG since October 2009.

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However, other small businesses suffer as a result of fraud, she said.

SBA officials’ views are changing, albeit slowly. “It’s a big battleship to turn,” she said.

Last October, SBA suspended GTSI and two other contractors that were involved in pass-through contracts issued by the Homeland Security Department. The suspension rattled the IT contracting community. Industry experts were taken aback by SBA’s decision because the move was so rare.

SBA lifted the suspension a month later when the company agreed to some tough stipulations. Among other actions, SBA demanded that several senior officials resign, including CEO Scott Friedlander.

Suspension and debarment protect taxpayers’ money, and SBA has to use that authority as a precondition to pursuing a conviction and proving fraud beyond a shadow of a doubt, Gustafson said.

In 2010, SBA Administrator Karen Mills told the House Small Business Committee that her agency was becoming more aggressive in combating fraud in its business development program.

Although attitudes are gradually changing, Gustafson said, SBA has avoided establishing a strong suspension and debarment program of the type her office proposed last year. Officials applied parts of the proposal, such as training employees, but little more, she added.

“In particular, SBA has not yet issued a notice to its employees emphasizing the importance of identifying and pursuing suspension and debarment,” Gustafson said in written testimony.