Washington, D.C. - Today, the House Committee on Oversight and Reform Ranking Member James Comer and Chairwoman Carolyn B. Maloney sent a letter to Administrator of the Small Business Administration (SBA) Isabella Casillas Guzman requesting documents and information about SBA’s efforts to mitigate the longstanding problem of fraud in small business set-aside contracting programs and to improve the certification process of eligible businesses.
“Congress established set-aside programs to help eligible small businesses compete for federal contracts against larger and more established companies. Set-aside contracts also provide the government with a more diverse source of goods and services and help create jobs, raise wages, and distribute income more widely. Federal agencies awarded over $100 billion through set-aside programs in fiscal year 2020, which amounts to over 10% of the $665 billion spent on federal contracts that year," wrote Ranking Member Comer and Chairwoman Maloney.
Today’s bipartisan letter addresses longstanding concerns about fraud in small business set-asides, including the 8(a) Business Development, Women-Owned, Service-Disabled Veteran-Owned, and Historically Underutilized Business Zone (HUBZone) programs.
Bad actors have falsified information provided to the SBA, including using an eligible figurehead to conceal the entities or individuals who control a business and using “straw-owners" to pose as female, African-American, or service-disabled veteran business-owners. This fraud comes at the expense of taxpayers and disadvantaged small businesses who are unfairly deprived of the opportunity to participate in these programs.
“The extent of set-aside fraud and its fiscal impact governmentwide is difficult to estimate because programs can incur financial losses from fraud that are never identified," the Chairwoman and Ranking Member continued. “Extrapolating from the prevalence of set-aside fraud in the small number of cases reviewed in these studies, the extent of set-aside fraud governmentwide may be in the billions of dollars."
SBA’s information technology system that manages set-asides, called Certify, has had significant problems. SBA has struggled to develop Certify for eight years, relying on labor-intensive workarounds because the system lacks key functionalities and tools. The SBA Inspector General found that SBA’s manual processes to compensate for system failures doubled the time it took to review and process applications.
While SBA has recently required formal certification requirements for all set-aside programs, the continued concerns about fraud and weaknesses in the Certify system highlight the need for SBA to implement a comprehensive fraud risk program to combat set-aside contracting fraud.
