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SBA Acknowledges Fraud in Contracting With New "Safe Harbor" Policy

PETALUMA, CA -- (Marketwired) -- 07/10/14 -- According to the American Small Business League (ASBL), the Small Business Administration (SBA) has finally acknowledged the existence of fraud in federal small business contracting programs. Based on the SBA's new policy that would create a "safe harbor" from penalties for firms that have committed fraud, it would appear the level of fraud is much more pervasive than the SBA has ever acknowledged.

For over 20 years a series of federal investigations have uncovered wide spread fraud in federal small business contracting programs. As early as 1995 the SBA Inspector General reported on what they called, "a particular fraudulent practice."

In 2004 the SBA Office of Advocacy released the Eagle Eye report that found large businesses were guilty of "vendor deception" to illegally receive federal small business contracts.

In 2005 the SBA Inspector General released report 5-15 that referred to the diversion of federal small business contracts to big businesses as, "One of the most important challenges facing the Small Business Administration (SBA) and the entire Federal Government today..."

In Report 5-16 the SBA Inspector General found large businesses had committed fraud by making "false certifications" and "improper certifications" to illegally land federal small business contracts.

SBA Inspector General Report 5-14 discovered the SBA was diverting small business contracts to large businesses including such firms as Buhrmann NV in Holland with 28,000 employees worldwide in 26 countries.

Every year since 2005 the SBA Inspector General has named the diversion of federal small business contracts to large businesses as the number one problem at the agency.

In 2009 after investigating the SBA, the Government Accountability Office released Report 10-108 that stated, "By failing to hold firms accountable, SBA and contracting agencies have sent a message to the contracting community that there is no punishment or consequences for committing fraud."

In 2012 NBC found 24 large businesses in northern California that had received 299 small business contracts worth over $77 million. The SBA responded with the statement, "SBA has no tolerance for fraud, waste and abuse and takes corrective steps when actionable information comes to light."

Section 16 (d) of the Small Business Act mandates a penalty of up to10 years in prison, a $500,000 fine, or both, for firms that misrepresent their status to illegally receive federal small business contracts.

Under the new SBA "safe harbor" policy, firms that are found to be fraudulently misrepresenting their status as a small business can avoid all penalties by simply claiming they "acted in good faith."

The SBA will be taking public comment on the proposed policy until August 15th.

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