Small Business Administration: Recent Changes to the 8(a) Program's Financial Thresholds Need Evaluation
Fast Facts
We looked at SBA's 8(a) Business Development Program, which helps socially and economically disadvantaged small businesses. We found:
- SBA didn't submit any of its required annual 8(a) program reports to Congress on time in 2016—2021. For example, it submitted reports for 2016 and 2017 in 2020. SBA also hasn't developed a plan to address delays for future reporting.
- In July 2020, SBA began allowing businesses with higher net worth, income, and asset levels to participate in the 8(a) program. But, SBA has no plans to assess the potential impacts of these changes on the program.
Our recommendations address these issues.
Highlights
What GAO Found
The Small Business Administration (SBA) annually must report to Congress on the 8(a) Business Development Program. But SBA did not submit the 2016–2021 reports when they were due (April 30 of the following year). SBA submitted the 2016 and 2017 reports in February of 2020. SBA expects to submit the 2018 report in August 2022 and complete the 2019—2021 reports by December 2022. According to SBA officials, multiple factors, including manual data collection and data validation, implementation of a new data system, and the timing of certification for federal contract data contributed to delays in submitting prior reports. Many of these factors likely will continue to affect the timeliness of future reports. But SBA has not documented procedures for producing the reports or assessed its report process for operational efficiencies, and does not have a plan to address report delays. By not doing so, SBA faces the risk that staff may not implement reporting procedures appropriately, reports will continue to be long delayed, and Congress will not receive timely information on the 8(a) program.
In July 2020, SBA changed the 8(a) financial thresholds for determining whether an individual qualifies as economically disadvantaged, but did not conduct any empirical analyses before making the changes.
- SBA increased the threshold for net worth from $250,000 (for program entry and $750,000 for continued participation) to $750,000 (for entry and continued participation); for income from $250,000 (for program entry and $350,000 for continued participation) to $350,000 (for entry and continued participation); and for total assets from $4 million (for program entry and $6 million for continued participation) to $6 million (for entry and continued participation).
- SBA officials said they wanted 8(a) thresholds to match those of the agency's Women-Owned Small Business program.
GAO found the new financial thresholds might increase program participation. Higher numbers of participants also might increase the competition for 8(a) contracts, which have been declining in number in recent years. However, SBA does not plan to assess the potential effects of the new thresholds. Federal standards for internal control state agencies should identify and address risks to achieving their objectives, including significant changes to external and internal conditions. Performing such an assessment could help SBA determine any effects on the ability of the 8(a) program to accomplish its mission—to help eligible small businesses develop over the program's 9-year period—and address any unintended consequences resulting from the new thresholds.
Why GAO Did This Study
SBA's 8(a) Business Development Program is one of the federal government's primary vehicles for developing socially and economically disadvantaged small businesses. SBA determines whether 8(a) firms are economically disadvantaged by assessing the net worth, total assets, and average income of the individuals who own the firms.
GAO was asked to examine the 8(a) program's thresholds for determining economic disadvantage. This report addresses (1) SBA's compliance with the reporting requirement for the 8(a) program, and (2) SBA's revision of the economic disadvantage requirements for the program. GAO analyzed financial data on 8(a) applicants and federal contracting data, reviewed 8(a) program reports, and interviewed SBA officials and small business groups. GAO also held discussions with four groups of program participants.
Recommendations
GAO recommends that SBA (1) document procedures for the report process, (2) assess the process and develop a plan to address report delays, and (3) evaluate the effects of the changes to the 8(a) program's thresholds. SBA concurred with the recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Small Business Administration | The Associate Administrator of SBA's Office of Government Contracting and Business Development should document the procedures for the Section 408 report process. (Recommendation 1) |
In March 2024, SBA stated that its Office of Government Contracting and Business Development and Office of Performance, Planning, and the Chief Financial Officer were working to document the procedures for the Section 408 report process. SBA plans to develop standard procedures, a process map, and a desk guide to document the procedures identified to gather data used for the Section 408 report. SBA stated that the agency anticipates completing these actions by the fourth quarter of fiscal year 2024. GAO will continue to monitor SBA's efforts to implement the recommendation.
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| Small Business Administration |
Priority Rec.
The Associate Administrator of SBA's Office of Government Contracting and Business Development should assess the process for producing Section 408 reports in light of identified delay-causing factors and use the results of the analysis to identify potential operational efficiencies and develop a plan to address report delays, including revising procedures as needed and developing time frames for report submission. (Recommendation 2) |
In March 2024, SBA stated that the agency had assessed the current Section 408 process to develop revisions that reduce or eliminate reporting delays. In addition, SBA stated that the agency had completed and obtained Office of Management and Budget (OMB) approval for the fiscal year 2018 Section 408 report. SBA also stated that the agency the Section 408 reports for fiscal years 2019-2022 were drafted and pending OMB approval. SBA stated that the agency anticipates completing these actions by the fourth quarter of fiscal year 2024. GAO will continue to monitor SBA's efforts to implement the recommendation.
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| Small Business Administration | The Associate Administrator of SBA's Office of Government Contracting and Business Development should conduct an assessment of the 2020 changes to the economic disadvantage thresholds for the 8(a) program. (Recommendation 3) |
In December 2023, SBA completed a study that assessed the impact of the 2020 changes to the economic disadvantaged thresholds for the 8(a) program. SBA provided documentation of the study, which assessed 1,137 participants added to the program between July 15, 2020, and September 30, 2022. The study found that changes to the economic disadvantage thresholds in 2020 allowed more firms to become eligible for the 8(a) Program, as about one in five firms approved for the program since the threshold changes were implemented would not have been eligible if the thresholds had not been increased. In addition, the study found that changes to the economic disadvantage thresholds did not create a significant competitive advantage for firms with higher adjusted net worth, as there was no significant difference in the number of set-aside contracts awarded to 8(a) firms within the first year of program participation, regardless of their adjusted net worth. Finally, the study found no evidence that the new thresholds had led to an increase in early exits from the program, as the occurrence of early exits from the program decreased since the new thresholds went into effect.
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