Small Business Administration

The Small Business Administration's (SBA) 8(a) program is intended to develop and promote businesses that are owned and controlled by socially and economically disadvantaged persons. Members of Congress have raised concerns that weaknesses in program management and administration may make the 8(a) program vulnerable to exploitation by individuals or corporations that have used illegal or improper means to participate in and benefit from the program. To develop case studies, GAO initially selected four firms for investigation on the basis of indicators, or "red flags," of potential regulatory violations and criminal misconduct. Due to time constraints and the destruction of records resulting from the Oklahoma City bombing, this report focuses on the following two firms: I-NET, Inc. of Bethesda, Maryland, and Technical and Management Services Corporation of Calverton, Maryland.

GAO found that: (1) the two firms studied were initially recommended for nonacceptance into the 8(a) program because of eligibility questions about who actually controlled the firms; (2) SBA justification for accepting the firms was questionable, since the questions about the firms' ownership were never fully answered; (3) one firm's owner misrepresented her personal qualifications, her equity in the firm, and ownership changes, but SBA took no action when it found out about the misrepresentations; (4) the firm received millions of dollars worth of 8(a) contracts after it had grown too large to participate in the program; (5) although the firm hid its size by excluding items from its financial statements, understating its total revenue, and representing itself as a company at financial risk, it had considerable access to credit; (6) SBA allowed the firm to remain in the program and receive new 8(a) contracts even after it had determined that the firm had grown too large for continued program participation; (7) the Coast Guard awarded a sole-source IDIQ contract to the second firm by changing the contract's classification code to one for which the firm was eligible and altering the contract's original minimum value below the minimum threshold for mandatory 8(a) competitive procurements; and (8) the Coast Guard believed that competitive 8(a) procurements hindered its mission and viewed the contract as a graduation present to the firm.