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Highlights

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.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Small Business Administration
Priority Rec.
This is a priority recommendation.
1. 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, and to help ensure greater consistency in carrying out annual review procedures and improve the overall quality of these reviews, the SBA Administrator should monitor, and provide additional guidance and training to, district offices on the procedures used to determine continuing eligibility, including (1) 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, (2) obtaining appropriate supervisory signatures to finalize annual review decisions, (3) submitting remedial action or a waiver for firms in the transition phase that did not meet business activity targets, (4) graduating firms that exceed the net worth threshold of $750,000, (5) performing timely eligibility reviews in required cases, and (6) completing required annual reviews.
Closed - Implemented
SBA has conducted various training sessions starting on April 27, 2010, for personnel responsible for the delivery of the 8(a) program. The training is being conducted in an effort to provide guidance that will improve consistency and compliance with applicable rules and regulations, as well as the quality of annual reviews. According to SBA, the training addresses areas related to determining a participant's continued 8(a) eligibility (e.g., taking appropriate action to recommend firms for graduation when the firms exceed four of the seven industry size averages). Additionally, SBA indicated that it has set up a database on its share portal to closely monitor and daily track the status of annual reviews processed by the field offices. SBA also has a Field Accountability Review (FAR) program as an internal control mechanism to fulfill oversight requirements. According to SBA, one of the areas covered by the FAR onsite visits is the 8(a) annual compliance reviews conducted of participating firms. The FAR reviews are conducted on SBA district offices using audit-like steps to measure performance and compliance regarding federal statutory mandates, regulations, and SBA policy and procedures. The FAR process is intended to identify challenges that need to be addressed by management (and respective program offices).
Small Business Administration 2. 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, and to help reduce inconsistencies between districts and BDS staff in annual review procedures requiring judgment, SBA should review its existing 8(a) program regulations and its proposed changes with the intent of providing additional criteria and examples for staff when assessing key areas of program eligibility and determining whether a firm should be graduated from the program when it exceeds size standards, industry averages (such as total assets, net sales, working capital, or pretax profit), and limits for personal compensation and assets, and excessive withdrawals.
Closed - Implemented
SBA has subsequently issued revised regulations that provide additional 8(a) program continued eligibility requirements and criteria related to size standards, indicators of economic disadvantage (e.g., net worth, personal income, fair market value of assets), and other thresholds businesses must meet to remain eligible for the 8(a) program.
Small Business Administration 3. 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, and to help address competing demands on 8(a) resources, SBA should assess the workload of business development specialists to ensure that they can carry out all their responsibilities. As part of this assessment, SBA should review the roles and responsibilities of the BDSs to minimize or mitigate to the extent possible the potentially conflicting roles of advocacy for firms in the program with the responsibility of ensuring that only eligible firms are allowed to continue to participate in the program. In addition, SBA should review the size of the 8(a) portfolio for all business development specialists and, if necessary, determine what mechanisms should be used to prioritize or redistribute their workload.
Closed - Implemented
SBA stated that its Office of Field Operations (OFO) conducted a Workforce Analysis to determine staffing levels and resources needed to adequately serve 8(a) participants. In 2011 and 2012, the district director working group established the optimum number of firms to be assigned each BOS, revised position descriptions to clarify expactations, and developed new performance standards. Additionally, these changes were intended to improve overall 8(a) program delivery and enhance the provision of business development assistance by linking expecations directly to employee perfromance requirements.
Small Business Administration
Priority Rec.
This is a priority recommendation.
4. 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, and to reduce the practice of retaining firms that fail to submit annual review documentation as required, SBA should monitor the implementation of regulations relating to termination to see if they are achieving their purpose or whether business development staff need further guidance in interpreting the regulations. SBA should consider providing specific examples of what might be considered a pattern of failure to submit documentation as required.
Closed - Implemented
Effective September 21, 2016, SBA adopted updated Standard Operating Procedures (SOP) that detail specific steps and timeframes governing a firm's failure to comply with annual review requirements and termination. The updated SOPs directly address the issue of a firm's failure to submit required documentation for the annual review process. According to SBA officials, SBA will monitor the implementation of the updated SOPs as part of its annual Field Accountability Reviews.
Small Business Administration 5. 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, and to better manage and monitor participation in the Mentor-Protege Program, including compliance with the number of allowable mentor and protege firms, SBA should develop a centralized process to collect and maintain up-to-date and accurate data on 8(a) firms participating in the Mentor-Protege Program. SBA should consider incorporating information on Mentor-Protege approvals, extensions, and dissolutions in existing electronic data systems used for the annual review process.
Closed - Implemented
SBA has established a centralized process to collect and maintain accurate data on the firms participating in the Mentor-Protege Program. SBA maintains a list of offically approved mentor-protege agreements in an electronic data system for use by the SBA staff during their annual review process. Additionally, SBA has revised the 8(a) annual update form (Form 1450) to require firms to provide information on their mentor-protege program participation, which can be used by SBA staff during the annual review process.
Small Business Administration 6. 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, and to more fully utilize and leverage third-party complaints to identify potentially ineligible firms participating in the 8(a) program, the SBA Administrator should design and implement a standard process for documenting and analyzing complaint data.
Closed - Implemented
SBA, in coordination with its Office of Inspector General (OIG), has established a hotline and an online mechanism to capture and record complaints about potentially ineligible firms participating in the 8(a) program, as well as other allegations involving fraud, waste, and abuse of SBA programs. According to SBA, monitoring of the hotline has been assigned to its Office of Program Review. SBA also noted that its Office of Business Development works with its OIG in resolving hotline complaints and referrals are made to the Office of Continuing Eligibility for further action, if necessary.

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