SBA Cutting Corners to Sign Up New "8(a)" Business Development Firms

The Small Business Administration (SBA) 8(a) business development program provides economically and socially disadvantaged, small business owners with business development assistance and preference-based Federal contracts. The SBA has established stringent eligibility criteria for entrance into the program including (i) American citizenship, (ii) majority owned controlled and managed by socially and economically disadvantaged individuals, (iii) a potential for success, and (iv) showing good character. From January through May 2015, the SBA approved 249 firms applications for the 8(a) program.

The SBA's Office of Inspector General (OIG) recently published an audit report on its assessment of whether the 8(a) applicants met the SBA's eligibility criteria for the program. The results were not encouraging. Of the 249 firms approved for the 8(a) program, the OIG selected 48 of them to determine whether they qualified. Of the 48 selected, reviewers recommended not approving 46 of them because the firms did not meet one or more criteria for eligibility. These concerns included potential for success, economic disadvantaged, whether the disadvantaged individuals exerted control of the company among others. In two cases, the reviews questioned whether the applicants demonstrated good character. Some of the applicants approved were previously rejected by SBA.

Not to be undone, the director of the Office of Certification and Eligibility (OCE) and the Associate Administrator for Business Development (AA/BD) gathered  additional information for 18 of the 46 firms and based on this information, approved the 18 firms for entrance into the 8(a) program. However, for the remaining 28 firms (or 30 firms if you trust the OIG's math), the AA/BD approved the firms without documenting how the areas of concern raised by lower-level reviewers were resolved. As a result, the OIG concluded that it was not clear whether those 28 firms (or 30 firms) should have been approved into the 8(a) program.

The OIG noted that during the past year within SBA, the 8(a) program has experienced a change in leadership, identified an aggressive growth plan for the coming years, began testing a streamlined application process, and shifted responsibilities for continuing eligibility reviews. This new emphasis on expanding the program most likely contributed to the management override of lower-level concerns and recommendations.

The OIG recommended that the SBA improve its documentation of 8(a) eligibility. The SBA, of course, concurred, promising to do a better job of documenting applicants' qualifications.

You can read the entire OIG report here.