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The S.B.A. Says Its Culture Has Changed

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Small Business Administration logo

In a recent post about the incidence of fraud in federal contracting programs for small businesses, the Small Business Administration came in for some criticism from the agency’s inspector general, Peggy E. Gustafson. Ms. Gustafson, whose office is independent from the rest of the agency, testified before Congress recently that the agency needed to “change its culture” and become more aggressive in punishing contractors who misrepresent themselves as small companies in order to win government work.

Joe Jordan, the agency’s associate administrator for government contracting and business development, sees it differently. He thinks the criticisms are out of date. “That may have been true two or three years ago,” he said, “but there is absolutely a culture throughout S.B.A. of ridding our programs of fraud, waste and abuse.” Government officials often try to disassociate themselves from the work of their predecessors, but Mr. Jordan does have some numbers on his side.

He began by discussing suspension and debarment, a process for banning businesses from receiving government contracts, often permanently, in cases of fraud or other misconduct. This was in fact what the inspector general was referring to when she called for a culture change — agency employees, she told legislators, were reluctant to pull this trigger. Mr. Jordan argued that the shift had already occurred.

In the three years beginning in 2009, Mr. Jordan said, the S.B.A. had pursued suspension and debarments for contracting fraud in 51 cases — compared with not more than seven instances over all of the previous decade. “We’re really focused on being more proactive and effective than ever before in terms of protecting our programs and the legitimate small businesses that benefit from them,” he said.

Mr. Jordan said the agency was trying to weed out fraud well before the banishment stage. He cited, for example, efforts to clean up the pool of businesses taking advantage of a preferential contracting program known as HubZones. HubZones are designated disadvantaged neighborhoods; the government sets aside contracts for businesses that have their principal office in a HubZone and employ HubZone residents. The program has been notorious as an opportunity for fraud by companies that falsely claim a HubZone headquarters.

One straightforward way to detect this sort of fraud is to visit a HubZone company’s stated headquarters. “In the first six months of fiscal year 2009,” which began two-and-a-half months before President Obama was sworn in, “S.B.A. had conducted seven HubZone site visits total,” Mr. Jordan said. “In the next six months of ’09, we conducted 700. In 2010, we conducted over a thousand.” One such investigation began when the S.B.A. noticed “multiple firms in the HubZone program that were located at the same address,” Mr. Jordan continued. “We sent a member of our team to do a site visit. She identified the address as a virtual office, so nobody was working there.”

The inspector general’s office began looking into those companies, which included a subcontractor to Eyak Technology, a small-business contractor now involved in an alleged $20 million bribery scheme. (An EyakTek official was one of four people indicted in the case last month, but the company itself was not accused of wrongdoing.) The subcontractor residing at the virtual office was not part of the bribery case, Mr. Jordan said, but that initial inquiry led to further investigations, which uncovered the alleged conspiracy.

Ms. Gustafson has acknowledged the agency’s progress cleaning up the HubZone program. “When S.B.A. started doing a very thorough review and seeing if everybody belonged in the program, people dropped out in droves,” she said at the Congressional hearing. But she made clear that the agency, and the entire federal government, should be even more zealous. She also cautioned that without barring those bad actors from all federal contracting, there was no way to know for certain that they haven’t found other government work elsewhere.

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