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Small-firm funds go wrong way

By Karen Robinson-Jacobs
Los Angeles Times

Large companies are improperly getting billions of dollars in government contracts meant for small business, a preliminary investigation by the U.S. General Accounting Office has found.

Although the GAO probe is not complete, agency officials have advised staffers with the House Committee on Small Business that the amount of improperly awarded contracts is in the “billions of dollars,” Wendy Belzer, a spokeswoman for Rep. Nydia Velazquez of New York, the ranking Democratic committee member, said Tuesday.

The GAO is the investigative arm of Congress. The agency launched the probe last year amid complaints by a California small-business group to Sen. Barbara Boxer, D-Calif., and Rep. Juanita Millender-McDonald, D-Calif.

“We are looking into this matter, we’ve been looking at the contract awards and we are seeing that there is a problem,” GAO spokesman David Cooper said.

Under a 1997 revision to the Small Business Act, Congress urged the federal government to spend at least 23 percent of its procurement dollars with small companies. Although there is no uniform definition for a small business, many federal agencies consider companies to be small if they have fewer than 500 employees.

Although the 23 percent procurement goal is not mandatory, a company can face severe criminal penalties for knowingly misrepresenting its small-business status in procurement programs, according to the Small Business Administration.

Many procurement officers rely on listings contained in two databases — one maintained by the SBA and one by the General Services Administration — to identify small businesses. But critics charge that the databases are littered with large corporations.

The size of the company is not always apparent, however, because the company listed may be a small, relatively unknown subsidiary of large corporation. In some cases, businesses that once genuinely qualified as small remain on the database after being acquired by larger companies.

“They’re listing companies as small businesses when they’re really not,” the GAO’s Cooper said. “It’s bad data that’s being relied on to make decisions about small-business awards. Why these databases aren’t being adjusted and fixed is the issue.”

The GAO report is expected to be completed by March. But based on the preliminary findings, Millender-McDonald has urged the House Committee on Small Business to schedule hearings on the problem.

“If we’re talking about a weak economy, we all have to do our due diligence on behalf of small business,” Millender-McDonald said in an interview. “Where is the oversight of this?”

Velazquez said the hearings are expected to be convened once the GAO report is completed.

“We will bring the appropriate individuals before the committee to answer why this has happened and why it has not yet been fixed,” she said. “If SBA is unable or unwilling to solve the problem on their own, Congress will step in to help them.”

Small businesses have long complained that loopholes in federal law, sloppy government record-keeping and, in some cases, outright fraud can result in large corporations getting federal contracts that Congress meant to go to small businesses.

“Federal contracts meant for small businesses are going to some of the largest businesses in America,” said Lloyd Chapman, who heads the Novato, Calif.-based Micro Computer Industry Suppliers Association, which alerted Boxer and Millender-McDonald to the issue.

Since the Los Angeles Times first reported on the issue last fall, the SBA and the GSA have taken steps to purge large companies from their small-business rolls. The SBA eliminated about 110,000 companies whose profiles were out of date, and removed up to 20 businesses that no longer qualify as small, according to Gary Jackson, assistant administrator for size standards. Another 60 companies are under scrutiny.

In addition, the GSA has changed its rules to require businesses to recertify that they are small when their contracts come up for renewal, at least every five years.

At Boxer’s request, the U.S. attorney’s office in Washington has agreed to examine the contracts issue.