New SBA "Safe Harbor" Policy Could Encourage More Contracting Fraud

PETALUMA, Calif., Aug. 11, 2014 /PRNewswire-USNewswire/ -- The American Small Business League (ASBL) is reporting that the Small Business Administration (SBA) is taking public comment on a new policy that would create a "safe harbor from fraud penalties" for large businesses that misrepresent themselves as small businesses to illegally receive federal small business contracts.

The SBA's "safe harbor from fraud penalties" is being strongly opposed by Chambers of Commerce around the country, Veterans business groups, Tea Party groups and the American Small Business League.

Every year for a decade the SBA Office of Inspector General has named the diversion of federal small business contracts to large businesses as the number one problem at the SBA. The SBA has consistently refused to adopt any policies to halt the rampant fraud.

The SBA even denied the widely reported fraud calling it a "myth" in a 2007 press release titled "Myth vs. Fact".

NBC, CBS, ABC, CNN, MSNBC and CNBC have all reported on the fraud and abuse at the SBA.

As early as 1995 the SBA Inspector General uncovered large businesses were continuing to misrepresent themselves as small business to illegally land federal small business contracts, even after they had lost formal size standard protests. The SBA Inspector General recommended the SBA produce a list of fraudulent firms and circulate it among federal agencies to halt the fraud.

The SBA declined the Inspector General's recommendation's responding that, "the risks outweighed the benefits" of producing such a list.

In 2003 an investigation by the Government Accountability Office (GAO) found over 5,000 large businesses were receiving federal small business contracts.

An investigation commissioned by the SBA Office of Advocacy found large businesses were continuing to receive federal small business contracts as a result of "vendor deception".

A 2005 investigation by the SBA Inspector General found large businesses were committing contracting fraud by making "false certifications" and "improper certifications".

Report 5-14 from the SBA Inspector General found the SBA was reporting awards to large businesses as small business awards in its own procurements. One of the firms the SBA reported, as a small business was Buhrmann NV, a firm located in Holland with over 26,000 employees around the world in 28 countries.

An investigation by the General Accounting Office essentially accused the SBA of encouraging fraud. GAO Report 10-108 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…"

Individuals can send comments to the SBA on the "safe harbor from fraud penalties" policy by going to the proposed rule on the Federal Register website and clicking on "Submit a formal comment" in the upper right hand corner. The comment period will end on August 25, 2014.

SOURCE American Small Business League