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Betrayed: Federal Audit Criticizes Small Business Administration for Excluding Small Businesses

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The Small Business Administration's Office of the Inspector General (SBA-OIG) released an audit report this month, criticizing the SBA's practice of misrepresenting the true percentage of federal small business contracts awarded.

The SBA designates certain types of federal contracts as ineligible for small business when calculating the federal government's dollar baseline, despite the fact that the Small Business Act mandates 23 percent of total federal prime contract dollars go to small businesses. For example, the total federal acquisitions budget was listed at $545 billion for 2010, yet small businesses were only eligible for $433 billion, due to SBA exclusions. This practice of excluding over $100 billion from the small business baseline allows the SBA to release a small business procurement report every year that makes the percentage of federal contract awards to small businesses appear higher than the actual amount.

Ironically, the SBA promotes a misleading advertising campaign to prospective small business contractors, which suggests that small businesses are eligible to receive contracts from $500 billion worth of federal spending every year.

The SBA-OIG is heavily critical of the SBA's unwillingness to revise its Goaling Guidelines to no longer exclude certain kinds of contracts from the federal government's dollar baseline when calculating small business goals, or in the alternative, offer an explanation for why certain types of contracts are excluded.

The SBA-OIG's greatest concern was that the SBA does not include contracts that are awarded and/or performed overseas in its goaling baseline. "Based on a study cited in the House of Representatives Report No. 110-111, Part 1 (2007), inclusion of foreign contract opportunities in the Federal prime contracts baseline would have reduced small business participation to 19.3 percent of all Federal contracts," the SBA-OIG audit states.

In the conclusion of the report, the SBA-OIG's Assistant Inspector General for Auditing, John K. Needham, urged the SBA to complete its rationale on the legal basis for contract exclusions and revise the Goaling Guidelines to explain the rationale to the public.

"SBA's analyses on goaling guidance remain unclear and incomplete. Additionally, some procurement actions may be inappropriately excluded from the small business goaling calculation," Needham wrote. "Incomplete data weakens the ability of Congress and other Federal policy makers to determine whether the Government is maximizing contracting opportunities for small businesses."

Of course, this isn't the first time the SBA has exaggerated the percentage of federal contracts awarded to small businesses.


This audit is just one more drop in the bucket-- as a federal agency with the sworn mandate to protect and foster the interest of small business concerns, the SBA has been doing an alarmingly inadequate job-- not just this year, but for the past decade.

"The bottom line is that there is a real societal cost when ineligible companies improperly profit from preferential contracting through fraud and illegal conduct," SBA-OIG Inspector General Peggy Gustafson told the Senate in June. "This fraud thwarts congressional intent behind these programs and deprives legitimate small businesses of contracting opportunities."

In conclusion, by relying on flawed statistics, the SBA rendered small businesses ineligible to receive $112 billion dollars in federal contracts last year -- simultaneously robbing small businesses of significant income and falsifying reports to appear as if the federal government is awarding more contracts to small businesses than they actually do.