Alaska Native Corporations:

Oversight Weaknesses Continue to Limit SBA's Ability to Monitor Compliance with 8(a) Program Requirements

GAO-16-113: Published: Mar 21, 2016. Publicly Released: Mar 21, 2016.

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Seto Bagdoyan
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What GAO Found

GAO has reported in the past that the Small Business Administration's (SBA) ability to enforce regulations prohibiting the award of follow-on, sole-source contracts to 8(a) subsidiary firms of the same Alaska Native Corporation (ANC) relies on contract information from other federal agencies that is sometimes incomplete. SBA's regulations prohibit program participants from receiving an 8(a) sole-source contract that immediately follows another 8(a) contract with the same requirements performed by another participant owned by the same ANC. Other federal agencies offering 8(a) contracts must generally submit offer letters to SBA that include information about a contract's procurement history and name of any prior small business contractors. SBA relies on this information to determine whether a firm is eligible to receive a particular 8(a), follow-on, sole-source contract. However, GAO's analysis of a selection of contracts for this review found that agencies are not required to directly identify whether a sole-source contract is also a follow-on contract in these letters. One SBA office has begun taking action to address this limitation by asking agencies to specifically report whether contracts are follow-on, sole-source awards in offer letters, but the change has not been broadly adopted. SBA would be better positioned to limit the award of follow-on, sole-source contracts by ANC-owned subsidiaries if it requested that other federal agencies specifically state whether contracts are follow-ons in offer letters.

GAO found in past reports and this review and in that SBA's ability to enforce its regulation prohibiting subsidiaries owned by the same ANC from operating in the same primary line of business as reported to SBA is hindered by limited tracking and sharing of information across SBA's 68 district offices. ANC-owned firms must register a primary line of business with SBA, but are allowed to pursue multiple other lines of business. In this review, GAO found 5 of 39 ANCs owned subsidiaries that generated a greater portion of revenues in secondary lines of business than their registered primary line of business. Additionally, those secondary lines of business were the same lines of business as the primary lines for other subsidiaries owned by the same ANC. Such activity could potentially conflict with the regulation's intent. SBA proposed a rule designed to limit and track this activity, but lacks plans and timelines associated with this effort. Regarding limited information-sharing, different district offices service different firms that are subsidiaries of the same ANC. Oversight staff in these offices cannot access or share relevant data from other district offices. Without better data sharing, SBA cannot monitor whether firms owned by the same ANC and serviced by different district offices are complying with program rules.

As GAO reported in the past, SBA's staffing for its data collection and program guidance activities contributed to weak program oversight and monitoring of 8(a) ANC-owned firms. SBA took some recent actions to enhance oversight, such as conducting an accountability review in October 2014 of the Alaska District Office. SBA has established an office to improve compliance with 8(a) rules by verifying self-reported information supplied by firms. However, SBA does not have plans that detail the office's roles and responsibilities for its activities. With the oversight weaknesses GAO identified in this review, SBA has an opportunity to enhance its oversight by finalizing plans for this office.

Why GAO Did This Study

Federal obligations under SBA's 8(a) Business Development Program totaled about $4 billion for 344 ANC-owned firms in 2014. In 2011, SBA updated program regulations to address prior oversight challenges identified by GAO. GAO was asked to follow-up on past reports and examine SBA's current oversight processes. This report discusses, among other things, SBA's ability to (1) enforce regulations prohibiting the award of follow-on, sole-source 8(a) contracts to subsidiaries of the same ANC; (2) limit subsidiaries of the same 8(a) ANC from operating in the same primary line of business, and (3) address challenges, if any, to SBA's oversight of 8(a) ANC-owned firms. To do this work, GAO analyzed fiscal year 2011 through 2014 data from a federal contracting database using separate nongeneralizable samples for each objective, conducted site visits, reviewed 8(a) sole-source contracts, and ANC-owned firm annual updates, and interviewed relevant SBA officials.

What GAO Recommends

GAO recommends that, among other things, SBA asks other federal agencies to specifically identify whether a contract is a follow-on in their letters to SBA; develop plans and timelines for tracking ANC-owned firms' revenues across lines of business; and enable its staff to access and share relevant revenue data. SBA agreed with two recommendations and reported actions taken to implement two others. SBA disagreed with the final two, stating they were unnecessary. Based on a review of actions taken, GAO believes all six recommendations are still warranted.

For more information, contact Seto Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: SBA provided training to its staff in 2015 and 2016 that emphasized the regulations governing the requirement for procuring agencies to specifically state whether a contract is a follow-on in its offer letter. Additionally, at various trainings held in 2016, SBA provided written guidance to field staff officials on the enforcement of follow-on sole source contract regulations. Although SBA has not requested that a procuring agency offer letter specifically state whether a contract is a follow-on in its offer letter, by providing additional training and guidance documents to SBA staff on how to monitor for prohibited follow-on, sole source contracts, SBA has enhanced its ability to identify and enforce prohibitions on these contracts, which addresses the intent of the overall recommendation.

    Recommendation: To establish an effective compliance oversight process for ANC-owned firms in the SBA 8(a) program as part of SBA's efforts to develop a more comprehensive oversight strategy, the Administrator of SBA should direct District Office staff implementing the program to improve SBA's ability to prohibit follow-on, sole-source contracts from being awarded to ANC-owned sister subsidiaries participating in the program by (1) requesting that procuring agencies specifically state whether a contract is a follow-on in its offer letter, (2) providing additional training to SBA staff that specifically address how to monitor for follow-on, sole source contracts, and (3) providing additional guidance to SBA officials on the enforcement of related policies.

    Agency Affected: Small Business Administration

  2. Status: Closed - Implemented

    Comments: On February 17, 2016, SBA Officials provided documentation of training and mentoring to SBA employees on separation of duties and supervisor or administrator approval of ANC transactions. Additionally, on October 20, 2016, SBA Officials provided documentation of monitoring the implementation and enforcement of policies in 2016. By providing additional training and continued monitoring, SBA has enhanced its internal controls and oversight of ANC-owned firms in the 8(a) program serviced in the Alaska District Office.

    Recommendation: To establish an effective compliance oversight process for ANC-owned firms in the SBA 8(a) program as part of SBA's efforts to develop a more comprehensive oversight strategy, the Administrator of SBA should direct District Office staff implementing the program to enhance internal controls and oversight of ANC-owned firms in the 8(a) program serviced in the Alaska District Office by enforcing policies regarding the separation of duties and supervisor or Administrator approval in order to improve supervisory review of ANC-owned firm transactions and related documentation.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Comments: On September 27, 2016, SBA Officials provided documentation to support SBA?s long-term staffing strategy and personnel actions taken thus far, which include succession planning and managing attrition. SBA began implementing its staffing strategy by hiring additional Business Opportunity Specialists (BOS) for its Alaska District Office. By developing a long-term staffing strategy for its Alaska District Office, SBA has enhanced its ability to improve program oversight of ANC 8a firms.

    Recommendation: To establish an effective compliance oversight process for ANC-owned firms in the SBA 8(a) program as part of SBA's efforts to develop a more comprehensive oversight strategy, the Administrator of SBA should direct District Office staff implementing the program to develop a comprehensive approach to staffing its Alaska District Office to include succession planning and managing attrition and retirements in order to improve the agency's capacity to keep pace with oversight activities.

    Agency Affected: Small Business Administration

  4. Status: Open

    Comments: GAO is reviewing documentation that SBA provided regarding actions that it has taken to address this recommendation and is currently determining whether these actions fully address the recommendation.

    Recommendation: The Administrator of SBA should direct the Associate Administrator of Business Development to document its planned method for tracking revenue generated under subsidiaries' primary and secondary lines of business, with milestones and timelines for when and how the method will be implemented.

    Agency Affected: Small Business Administration

  5. Status: Open

    Comments: GAO is reviewing documentation that SBA provided regarding actions that it has taken to address this recommendation and is currently determining whether these actions fully address the recommendation.

    Recommendation: The Administrator of SBA should direct the Associate Administrator of Business Development to provide the appropriate level of access to and sharing of relevant subsidiary data across district offices, including primary and secondary North American Industry Classification System codes and revenue data, once SBA develops a database with the capabilities of collecting and tracking this revenue data as we recommended in 2012.

    Agency Affected: Small Business Administration

  6. Status: Closed - Implemented

    Comments: In response to our recommendation, in 2015 and 2016, SBA provided training to its employees on 8(a) file documentation and updated its Standard Operating Procedures for the 8(a) program to include guidance in areas that we identified as needing better controls. The updated Standard Operating Procedures, which went into effect September 23, 2016, included guidance on the collection of documents related to follow-on sole-source contracts, benefits distributions reports, compensation data, information about excessive withdrawals and the submission of the annual reviews. Further, SBA stood up a Continuing Eligibility Review Unit within the Office of Certification and Eligibility in 2015 and defined the functions of the Office of Certification and Eligibility in reviewing firms' continued compliance and eligibility in its 2016 Standard Operating Procedure. By providing training on the documentation needed to support the review ANC firm's 8(a) program compliance, and further establishing and documenting the oversight role of Office of Certification and Eligibility in the continued eligibility review process, SBA has enhanced its program controls for overseeing ANCs in the 8(a) program.

    Recommendation: The Administrator of SBA should direct the Associate Administrator of Business Development to enhance internal controls and oversight of ANC-owned firms in the 8(a) program by: (1) ensuring that all ANC-owned firm files contain all relevant documents in accordance with SBA program requirements to help facilitate SBA's review of compliance with applicable program regulations and guidance, including the collection of documents related to follow-on, sole-source contracts, benefits distributions reports, compensation data, information about excessive withdrawals that do not benefit the ANC or the native or shareholder community, as well as the submission of the annual reviews themselves; and (2) finalizing the agency's plans to fully launch a new continuing eligibility review unit, including identifying policies and procedures such as specific tasks, milestones, and timelines for the full launch of the office.

    Agency Affected: Small Business Administration

 

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