Earlier this year, the Small Business Administration announced that the federal government had reached its goal of awarding at least 23 percent of its total contracts to small businesses—the highest percentage in nearly eight years.
This was a big deal for the federal government—as Washington is always happy to tout its support for small firms.
But a scathing new report from the SBA’s inspector general casts doubts on the government’s commitment to small businesses—and claims that the agency’s numbers were significantly inflated—by as much as $2 billion.
The IG reviewed federal contracts intended for companies eligible for the HubZone program, which benefits companies in low-income communities, as well as the 8(a) program, which benefits minority-owned firms.
Auditors concluded that inaccurate reporting practices and lax oversight resulted in some $428 million intended for disenfranchised groups going to ineligible firms. They added that another $1.5 billion went to business that used to be eligible for the programs—but are no longer qualified.
“In addition to overstating the small business “goal” dollars, this may have also prevented other eligible firms from being awarded these contract actions,” the report says.
The auditors said information for the HubZone and 8(a) programs wasn’t consistently transmitted to the System for Award Management, “As a result the affected small businesses—especially HubZone firms—are not getting the visibility” in the system, which “may impact federal agencies in meeting their procurement goals.”
The auditors only reviewed contracts worth more than $3 million, so it’s likely that even more money was awarded to ineligible companies.
The IG recommended that SBA create a streamlined process to more accurately award contracts. Agency officials agreed with the recommendations.
This isn’t the first time federal grants for small businesses have gotten in the wrong hands. Earlier this year, an investigation by the American Small Business League revealed that only 16 of 100 companies receiving small business grants were actually small firms. The rest of the money was going to behemoth corporations like Apple, Bank of America and General Electric.
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