SBA’s 8(a) program is delivered collaboratively by two departments of  SBA. While SBA Has Made Improvements to Its 8(a) Annual Reviews, Internal Control Weaknesses and Other Challenges Limit Program Oversight

SBA relies primarily on its annual reviews of 8(a) firms to ensure the  continued eligibility of firms enrolled in the program, but we observed  inconsistencies and weaknesses in annual review procedures related to  determining continued eligibility for the program. The lack of specific criteria in the  current regulations and procedures may have contributed to the  inconsistencies that we observed, and SBA has taken steps to clarify some,  but not all, of these requirements in a recent proposed rule change. Finally, we found that SBA did not maintain an accurate  inventory of Mentor-Protégé Program participants and did not document  some annual oversight activities of these firms. SBA’s Staff Did Not Follow Required Annual Review Procedures Related to Continuing Program Eligibility in about Half of the Files We Reviewed

In a substantial number of cases we reviewed, SBA staff failed to complete  required annual review procedures intended to assess fundamental  eligibility conditions, such as the firm’s net worth, used to determine if  participants continue to meet the criteria for being economically  disadvantaged. More specifically, we estimate that 17 percent of the firms had exceeded  one or more eligibility criteria for 2 consecutive years, indicating that the  firms may have been outgrowing the program, but were recommended by  SBA for retention. The agency has been planning to address some data  integrity and compatibility issues with BDMIS and E-8(a), a database that  provides business status and business contract activity for each  participant in the 8(a) program. As a result, unauthorized partnerships could receive 8(a)  set-aside contracts. However, because district staff do not collect and maintain comprehensive  complaint information involving 8(a) firms, staff are not aware of the types  and frequency of complaints across the agency, including potential  eligibility concerns. Without a standard process for  collecting and analyzing complaints, SBA staff—and the agency as a  whole—lack information that could be used to help identify issues relating  to program integrity and help improve the effectiveness of SBA oversight. Although complaint data are not a  primary mechanism to ensure program eligibility, continual monitoring is  a key component in detecting and deterring fraud. Recommendations for Executive Action

To improve the monitoring of and procedures used in assessing the  continuing eligibility of firms to participate in and benefit from the 8(a)  program, we recommend that the Administrator of SBA take the following  six actions:    To help ensure greater consistency in carrying out annual review  procedures and improve the overall quality of these reviews, we  recommend that the SBA Administrator monitor, and provide additional  guidance and training to, district offices on the procedures used to  determine continuing eligibility, including  taking appropriate action when firms exceed four of seven industry  size averages, including notifying firms the first year and enforcing  procedures relating to early graduation of firms that exceed industry  averages for 2 consecutive years;    obtaining appropriate supervisory signatures to finalize annual review    submitting remedial action or a waiver for firms in the transition phase  that did not meet business activity targets;    graduating firms that exceed the net worth threshold of $750,000;    performing timely eligibility reviews in required cases; and    completing required annual reviews. Appendix I: Scope and Methodology

Our objectives were to (1) evaluate the procedures and processes that the  Small Business Administration (SBA) has implemented to ensure that only  eligible firms remain in the 8(a) program, and (2) assess the extent to  which SBA used external mechanisms, such as complaints by other 8(a)  firms, to help ensure that only eligible firms participate in the program.
Why GAO Did This Study

The Small Business Administration's (SBA) 8(a) program helps eligible socially and economically disadvantaged small businesses compete in the economy by providing business development activities, such as counseling and technical assistance, and providing opportunities to obtain federal contracts on a set-aside basis. GAO was asked to review SBA's internal control procedures for determining 8(a) eligibility. Specifically, we (1) evaluated the procedures and processes that SBA has implemented to ensure that only eligible firms participate in the 8(a) program, and (2) assessed the extent to which SBA uses external mechanisms such as complaint information in helping to ensure that only eligible firms participate. To address these objectives, GAO reviewed SBA guidance and prior reports, interviewed SBA officials, and conducted site visits and file reviews of 123 randomly sampled 8(a) firms covering the most recent 2 years of annual reviews at five SBA locations.

What GAO Found

SBA relies primarily on its annual review of 8(a) firms to ensure their continued eligibility in the program, but inconsistencies and weaknesses in annual review procedures limit program oversight. GAO's review of a random sample of 8(a) firms identified an estimated 55 percent in which SBA staff failed to complete required annual review procedures intended to assess fundamental eligibility criteria, such as being economically disadvantaged. Multiple factors appear to have contributed to the inconsistencies identified, including the lack of specific criteria in SBA's current regulations and procedures that relate to some eligibility requirements such as determining whether firms exceed program thresholds for industry size averages, personal compensation, and personal asset limits. As a result, firms that may have outgrown the program continued to receive 8(a) program benefits. For example, GAO estimated that 17 percent of the firms we reviewed had exceeded one or more eligibility criteria for 2 consecutive years, but were recommended by SBA for retention. SBA has taken steps to clarify some, but not all, of these rules in recent proposed rule changes. SBA is required by statute to perform annual reviews on 100 percent of 8(a) firms but staff spent significant amounts of time trying to obtain annual review documents from firms--especially firms that did not have 8(a) contracts--which affected the timeliness of reviews. GAO identified a significant number of instances in which firms failed to submit annual review documents as required but still were recommended for retention. The Business Development Specialists' (BDS) dual role of advocacy for and monitoring of the firms may have contributed in part to the retention of ineligible firms. SBA has been addressing some data integrity and compatibility issues by enhancing its primary electronic system for annual review information. Finally, SBA did not maintain an accurate inventory of 8(a) Mentor-Prot?g? Program participant data, which limited the agency's ability to monitor these firms. SBA's program offices did not maintain comprehensive data on or have a system in place to track complaints on the eligibility of firms participating in the 8(a) program. District staff were not aware of the types and frequency of complaints across the agency. As a result, SBA staff lacked information that could be used with other information to help identify issues relating to program integrity and help improve the effectiveness of SBA oversight. Although complaint data are not a primary mechanism to ensure program eligibility, continuous monitoring is a key component in detecting and deterring fraud.