The Small Business Administration (SBA) is again under pressure for failing to eliminate abuses of its contract set-aside programs. In the past few years, the Government Accountability Office (GAO) has issued a series of investigative reports (see here and here) that revealed widespread fraud in these programs. Most recently, at a Senate Small Business and Entrepreneurship Committee hearing, on June 16, 2011, SBA Inspector General Peggy Gustafson was called to explain “the vulnerabilities plaguing the small business contracting programs.”
Congress is currently considering independent efforts to tackle small business program abuse. Most recently, Senators Mary Landrieu (D-LA) and Olympia Snowe (R-ME) have co-sponsored the Small Business Contracting Fraud Prevention Act of 2011 (S. 633), which addresses the penalties for the misrepresentation of small business status. Among other provisions, the Act would amend the False Claims Act to establish a damages amount equal to the amount the federal government paid to the person/contractor that received the contract, grant, cooperative agreement under false pretenses. This would allow prosecutors to quantify the harm to the Government – an amount that is often difficult to define under current law.
There are also signs that the SBA is taking independent action to curb abuse. Heeding calls to more aggressively investigate program misconduct, the SBA appears to have stepped-up its enforcement activities. At the June 16th hearing, SBA Administrator Karen Mills said her agency has been “aggressively pursuing misconduct” through loan/contract recipient site visits. She also reported that SBA has conducted over 1,000 site visits and debarred 14 firms in the last year. In addition, the SBA is increasingly asking the Department of Justice to prosecute individuals and firms that violate the rules.