Government reports faulty oversight at SBA

Troubles are mounting at the Small Business Administration (SBA). In the latest of a series of reports of poor oversight at the SBA, federal investigators published an internal memo last week that asks how the agency concluded that an affiliate of the security firm Blackwater fell within size limits for small business. The Blackwater affiliate has received more than $100 million in contracts reserved for small business. Questions about the SBA's Blackwater contracts followed Congressional hearings on a General Accountability Office (GAO) investigation of the troubled HUBZone program and a Department of the Interior (DOI) investigation into error and fraud in awarding small business contracts.

Internal SBA investigators charged in the memo that the SBA also disregarded evidence in its own records suggesting that "independent contractors" hired by Blackwater to do security work for the State Department in Iraq were actually under Blackwater's supervision.

It is unclear how or whether the SBA will follow up on the findings, according to commentary on

Anne Tyrrell, a Blackwater spokeswoman, called the SBA memo "unnecessarily speculative." She released a statement asserting that everyone working in Iraq on government contracts with Blackwater is "under the direct operational control of the United States government" and not working for Blackwater.

The GAO's investigating team, headed by Gregory Kutz, managing director of forensic audits and special investigations, found serious problems in monitoring and accountability in the SBA's HUBZone program, which awards $8 billion worth of federal contracts annually. One of the tests that highlighted weakness involved four bogus companies created by GAO investigators -- including one that shared the same address as a Starbucks coffee shop -- that were certified by the agency for the contracting breaks, bizjournal's Washington bureau reports.
"Anybody can get in who wants to," said Kutz,. "There's not a lot of sophistication necessary to beat the program at this point."

SBA Acting Administrator Jovita Carranza told the House Small Business Committee that the SBA is taking steps to remedy the problems, including replacing the manager of the HUBZone program, requiring site visits to companies that are awarded contracts, and barring companies that misrepresented their HUBZone eligibility from receiving federal contracts.

The SBA has also announced that it is contracting with an independent auditor to perform an in depth analysis of the entire program. "This audit will be the basis to make several more program improvements: introduce proper internal controls, make necessary policy changes, training, process improvements, IT modernization to handle the additional controls and processes, implement quality controls to ensure data integrity, and to identify the weaknesses in the program on an ongoing basis," according to the agency's memo.

Kutz said that it was "too early to tell" if these efforts would be successful.

"We haven't seen a fraud prevention plan yet," he said according to bizjournals.

The first of the government's recent reports of oversight weaknesses at the SBA was produced by the inspector general of the Department of the Interior (DOI) who found that contracts listed as going to small businesses went to Fortune 500 corporations including Xerox Corporation and the John Deere Company, The New York Times reports. While the results of that investigation, released on July 1, revealed only $5.7 million in misdirected contracts, Earl Devaney, the department's inspector general said that what his audit team uncovered was just the "tip of the iceberg" because they had reviewed only three-tenths of a percent of contracts.

"These are not just clerical mistakes that can be tagged on two little clerks," Devaney said. "This is not one single report, but our fourth in the contracting area."

The SBA had responded that errors in coding had been found in the contract files.

Xerox and John Deere said they were moving to correct the errors and Senator John F. Kerry (D-MA) who heads the Senate Committee on Small Business and Entrepreneurship called for all federal agencies to audit their small business contracting practices, The New York Times reports.

Molly Brogan, vice president of the National Small Business Association says that the situation is much better, however, than it was five years ago, according to a bizjournals report. "The SBA deserves some credit for reducing the number of miscoded contracts and holding contracting officers more accountable."

"Transparency has certainly increased," Brogan said. "At least they're being more open, honest, and candid about what their problems are and where they are, and what their plans are to fix them."


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