Small Business Administration:

Steps Have Been Taken to Improve Administration of the 8(a) Program, but Key Controls for Continued Eligibility Need Strengthening

GAO-10-353: Published: Mar 30, 2010. Publicly Released: Apr 29, 2010.

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The Small Business Administration's (SBA) 8(a) program helps eligible socially and economically disadvantaged small businesses compete in the economy by providing business development activities, such as counseling and technical assistance, and providing opportunities to obtain federal contracts on a set-aside basis. GAO was asked to review SBA's internal control procedures for determining 8(a) eligibility. Specifically, we (1) evaluated the procedures and processes that SBA has implemented to ensure that only eligible firms participate in the 8(a) program, and (2) assessed the extent to which SBA uses external mechanisms such as complaint information in helping to ensure that only eligible firms participate. To address these objectives, GAO reviewed SBA guidance and prior reports, interviewed SBA officials, and conducted site visits and file reviews of 123 randomly sampled 8(a) firms covering the most recent 2 years of annual reviews at five SBA locations.

SBA relies primarily on its annual review of 8(a) firms to ensure their continued eligibility in the program, but inconsistencies and weaknesses in annual review procedures limit program oversight. GAO's review of a random sample of 8(a) firms identified an estimated 55 percent in which SBA staff failed to complete required annual review procedures intended to assess fundamental eligibility criteria, such as being economically disadvantaged. Multiple factors appear to have contributed to the inconsistencies identified, including the lack of specific criteria in SBA's current regulations and procedures that relate to some eligibility requirements such as determining whether firms exceed program thresholds for industry size averages, personal compensation, and personal asset limits. As a result, firms that may have outgrown the program continued to receive 8(a) program benefits. For example, GAO estimated that 17 percent of the firms we reviewed had exceeded one or more eligibility criteria for 2 consecutive years, but were recommended by SBA for retention. SBA has taken steps to clarify some, but not all, of these rules in recent proposed rule changes. SBA is required by statute to perform annual reviews on 100 percent of 8(a) firms but staff spent significant amounts of time trying to obtain annual review documents from firms--especially firms that did not have 8(a) contracts--which affected the timeliness of reviews. GAO identified a significant number of instances in which firms failed to submit annual review documents as required but still were recommended for retention. The Business Development Specialists' (BDS) dual role of advocacy for and monitoring of the firms may have contributed in part to the retention of ineligible firms. SBA has been addressing some data integrity and compatibility issues by enhancing its primary electronic system for annual review information. Finally, SBA did not maintain an accurate inventory of 8(a) Mentor-Prot?g? Program participant data, which limited the agency's ability to monitor these firms. SBA's program offices did not maintain comprehensive data on or have a system in place to track complaints on the eligibility of firms participating in the 8(a) program. District staff were not aware of the types and frequency of complaints across the agency. As a result, SBA staff lacked information that could be used with other information to help identify issues relating to program integrity and help improve the effectiveness of SBA oversight. Although complaint data are not a primary mechanism to ensure program eligibility, continuous monitoring is a key component in detecting and deterring fraud.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the monitoring of and procedures used in assessing the continuing eligibility of firms to participate in and benefit from the 8(a) program, and to better manage and monitor participation in the Mentor-Protege Program, including compliance with the number of allowable mentor and protege firms, SBA should develop a centralized process to collect and maintain up-to-date and accurate data on 8(a) firms participating in the Mentor-Protege Program. SBA should consider incorporating information on Mentor-Protege approvals, extensions, and dissolutions in existing electronic data systems used for the annual review process.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve the monitoring of and procedures used in assessing the continuing eligibility of firms to participate in and benefit from the 8(a) program, and to reduce the practice of retaining firms that fail to submit annual review documentation as required, SBA should monitor the implementation of regulations relating to termination to see if they are achieving their purpose or whether business development staff need further guidance in interpreting the regulations. SBA should consider providing specific examples of what might be considered a pattern of failure to submit documentation as required.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve the monitoring of and procedures used in assessing the continuing eligibility of firms to participate in and benefit from the 8(a) program, and to help address competing demands on 8(a) resources, SBA should assess the workload of business development specialists to ensure that they can carry out all their responsibilities. As part of this assessment, SBA should review the roles and responsibilities of the BDSs to minimize or mitigate to the extent possible the potentially conflicting roles of advocacy for firms in the program with the responsibility of ensuring that only eligible firms are allowed to continue to participate in the program. In addition, SBA should review the size of the 8(a) portfolio for all business development specialists and, if necessary, determine what mechanisms should be used to prioritize or redistribute their workload.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve the monitoring of and procedures used in assessing the continuing eligibility of firms to participate in and benefit from the 8(a) program, and to help reduce inconsistencies between districts and BDS staff in annual review procedures requiring judgment, SBA should review its existing 8(a) program regulations and its proposed changes with the intent of providing additional criteria and examples for staff when assessing key areas of program eligibility and determining whether a firm should be graduated from the program when it exceeds size standards, industry averages (such as total assets, net sales, working capital, or pretax profit), and limits for personal compensation and assets, and excessive withdrawals.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve the monitoring of and procedures used in assessing the continuing eligibility of firms to participate in and benefit from the 8(a) program, and to help ensure greater consistency in carrying out annual review procedures and improve the overall quality of these reviews, the SBA Administrator should monitor, and provide additional guidance and training to, district offices on the procedures used to determine continuing eligibility, including (1) taking appropriate action when firms exceed four of seven industry size averages, including notifying firms the first year and enforcing procedures relating to early graduation of firms that exceed industry averages for 2 consecutive years, (2) obtaining appropriate supervisory signatures to finalize annual review decisions, (3) submitting remedial action or a waiver for firms in the transition phase that did not meet business activity targets, (4) graduating firms that exceed the net worth threshold of $750,000, (5) performing timely eligibility reviews in required cases, and (6) completing required annual reviews.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve the monitoring of and procedures used in assessing the continuing eligibility of firms to participate in and benefit from the 8(a) program, and to more fully utilize and leverage third-party complaints to identify potentially ineligible firms participating in the 8(a) program, the SBA Administrator should design and implement a standard process for documenting and analyzing complaint data.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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