GAO Report: Forty-Percent of Women-Owned Small Business Set-Aside Contracts Were Awarded to Ineligible Firms in FY 2012 and 2013

GAOThe U.S. Women’s Chamber of Commerce (www.uswcc.org) announced today a critical challenge to the President, Small Business Administration (SBA) and Congress to act immediately to bring real accountability in contracting to women-owned and all small business federal contracting programs.

This call to action follows the publishing of results from a long awaited Government Accountability Office report (GAO 15-54), released on November 17, 2014, on accountability in the SBA oversight of the women-owned small business federal contracting program. The GAO report, which was provided to Senators Maria Cantwell and Mary Landrieu, Chair and Former Chair of the Senate Committee on Small Business and Entrepreneurship, details systemic and costly failures by the SBA in the oversight of the women-owned small business set-aside program and of socioeconomic programs extending across the entire federal marketplace.

“The U.S. Women’s Chamber of Commerce was alarmed to find the GAO report included the disclosure that more than 40% of women-owned set-aside contracts were awarded to ineligible firms in FY 2012 and 2013,”[1],[2] stated Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce. “And, this lack of accountability does not end with just women-owned set-asides. Per the GAO, statements made by SBA officials disclose that the levels of ineligibility found during their examination of the women’s program were similar to those found in examinations of its other socioeconomic programs,” adds Dorfman. “The GAO report also reveals the SBA is doing very little to prevent ineligible firms from attesting their status as women-owned in the federal database of contractors, receiving set-aside contracts and being counted toward government-wide women-owned small business annual contract goaling reports.”

“It is clear, the SBA’s support of women in business is not what is so consistently purported in SBA press releases,” continues Dorfman. “When assessing the financial results of ineligible firms receiving women-owned set-asides (and the federal government erroneously counting ineligible firms as ‘women-owned’ for federal goaling reports with or without set-asides), the extent of the inaccuracies and subterfuge translates into billions of dollars which have been misattributed as contracts awarded to women-owned firms every year.  In FY 2014, the potential real dollar losses for legitimately women-owned firms, as the SBA misreported the actual dollars awarded to women-owned firms, may be over $5B,” adds Dorfman.

“The SBA’s report of 4.37% federal-wide contracting with women-owned firms in FY 2014 is a gross misrepresentation of the facts; per this recent disclosure that 40% of the firms are ineligible, the SBA should adjust their report for contracting with women in FY 2014 down to be in the range of just 2.62%,” says Dorfman. “Knowing what we know now about the ineligibility of more than 40% of the firms being awarded federal contracts as "women-owned," between FY 2000 and FY 2014, the real opportunity loss for women-owned firms (as the federal government failed to achieve the 5% goal for contracting with women) could be a staggering $150B instead of the already reported $78.72B,”[3] concludes Dorfman. “Each year the federal government fails to reach the paltry five-percent goal for contracting with women, women business owners lose billions of dollars.”

“While the GAO report focused on women-owned firms, the SBA’s disclosure regarding ineligible firms in the federal database across all socioeconomic sectors combined with the GAO’s observations regarding the gross lack of oversight by the SBA should be a call to arms for the President, the Administrator of the SBA and Congress to step up strongly and swiftly to protect the rights and opportunities of women-owned and all small businesses,” adds Dorfman.

“The GAO report on women’s contracting comes on the heels of the SBA Inspector General’s October 17, 2014, “Report on the Most Serious Management and Performance Challenges Facing the Small Business Administration in Fiscal Year 2015,” which states the top challenge for the SBA is, “Procurement flaws allow large firms to obtain small business awards and allows agencies to count contracts performed by large firms towards their small business goals.”[4] “As procurement flaws continue to enable large firms to obtain small business awards – while still being counted as small business awards, the accuracy of the data reported for contracting with women-owned firms is further suspect for overstatement of small business goaling achievements,” states Dorfman.

The GAO report has many more important disclosures, including:

(1) Oversight Failure: The SBA performs minimal oversight for third-party certifiers and has yet to develop procedures that provide reasonable assurance that only eligible businesses obtain women-owned set-aside contracts. The SBA has no procedure completed or implemented to review monthly reports from third-party certifiers. [The U.S. Women’s Chamber of Commerce is a third-party certifier for the women-owned business program and responded to GAO inquiries during the investigative process.]

(2) Lack of Responsiveness: The GAO reports it was unable to interview the largest third-party certifier in the women’s program, stating: “We were unable to interview the Women’s Business National Enterprise Council (WBENC). SBA requested documentation of WBENC’s oversight procedures for the certification activity and fee structures of its regional partner organizations. WBENC provided a written response to SBA, which was not fully responsive to the request, as discussed in the report.” And, the GAO states, “SBA did not follow up on the incomplete response from WBENC, which raises questions about SBA’s commitment to oversight of the certifiers.”

(3) Lack of Action: The SBA has not taken action to rectify the lack of cooperation from WBENC or remove WBENC as a third-party certifier for the program. WBENC’s board of directors include senior executives from some of America’s largest firms – many of which are also federal prime contractors.  WBENC board members include executives from Raytheon, Ernst & Young, Dell, UPS, BP America, Pitney Bowes, WW Grainger, Bank of America, Johnson & Johnson, Microsoft, Accenture, Motorola, ADP, Office Depot, Alcatel-Lucent, Altria Group, PepsiCo, Pfizer, AT&T, Avis Budget Group, Shell, Robert Half, Chevron, The Coca-Cola Company, The Home Depot, Proctor Gamble, Time Warner, Exxon Mobile, United Airlines, Ford Motor Company, Verizon, IBM, WalMart, Johnson Controls, JP Morgan Chase, KPMG, Macy’s and Marriott.[5]

(4) Reports of Potential Fraud Ignored by SBA: A review of the monthly reports from third-party certifiers found one certifier listed one or two reports of potential fraud among businesses denied certification in sixteen of the thirty-four months reviewed. However, the SBA did not take action to investigate these reports of potential fraud.[6] The GAO states, “When we asked SBA officials how the agency addressed such concerns, an official responded that fraudulently entering into a set-aside contract was illegal and the business would be subject to prosecution. However, without SBA following up on these types of issues, it is unclear how businesses committing fraud in the program would be prosecuted.”

“For too long, the SBA has issued press releases expounding their devotion to women-owned firms while not matching their rhetoric with a real commitment to insuring small businesses, including women-owned firms, that ‘a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government be placed with small-business enterprises,’ as per SBA’s federal charter,”[7] claims Dorfman.

“It’s time for the President, SBA Administrator Contreras-Sweet and Congress to step up and fix these problems. Women business owners are watching,” concludes Dorfman.

NOTES:

[1] Government Accountability Office. (Published October 18, 2014. Publicly Released: November 7, 2014.) U.S. GAO-15-54.  Women-Owned Small Business Program: Certifier Oversight and Additional Eligibility Controls Are Needed. Retrieved from  http://www.gao.gov/products/GAO-15-54

[2] Disclosure: The U.S. Women’s Chamber of Commerce is a recognized third-party certifier for the women-owned set-aside program reviewed in the GAO report referenced in this release. The U.S. Women’s Chamber of Commerce was interviewed and provided documents used by the GAO for their investigation and findings.

[3] This assessment was derived by using federal data available at http://smallbusiness.data.gov/ and deducting 40% from the reported actual dollars spent with women-owned firms between FY 2000 and FY 2014.

[4] Small Business Administration Office of Inspector General (October 17, 2014). Report Number: 15:01. Report on the Most Serious Management and Performance Challenges Facing the Small Business Administration in Fiscal Year, 2015. Retrieved fromhttp://www.sba.gov/oig/report-most-serious-management-and-performance-challenges-facing-small-business-administration

[5] Women’s Business Enterprise National Council, Board of Directors list retrieved fromhttp://www.wbenc.org/About-WBENC/Board-of-Directors/

[6] The U.S. Women’s Chamber of Commerce, as a third-party certifier for the WOSB program included potential fraud reports as stated by the GAO and must assume that the GAO is referring to our reports of potential fraud among denied firms.

[7] 15 U.S. Code § 631. Retrieved fromhttp://www.sba.gov/sites/default/files/files/Small%20Business%20Act.pdf

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