By Patricia Guadalupe
October 2000 - Responding to recent reports indicating that fewer contracts are being awarded to minority firms and that funds for a federal certification program were misappropriated, legislators are promising a renewed emphasis on minority business programs in the coming months.
A July audit of the Small Business Administration program to certify minority contractors revealed that nearly half the program's funds were used for other purposes, including the purchase of office equipment for other programs. The findings have emboldened agency critics, including Missouri Senator Christopher "Kit" Bond, chair of the Senate Small Business Committee.
"The agency seems to think these funds are a honey pot they can dip into to sweeten other programs," he said in a statement. "Should taxpayers ever want to see how a government agency can look the other way while tax money is used for everything but its intended purpose, all they have to do is read the report."
The report noted that while the SBA has spent $22 million on the certification program over the past two years, it has certified only about 3,000 firms, a fraction of the number projected when the program was initiated.
Since last year, small, minority-owned businesses seeking contracting and subcontracting opportunities with the federal government have had to receive formal certification by the SBA before being listed in the agency's online database, PRO-NET. Ironically, the new program was implemented in response to the potential for fraud under the previous self-certification system.
Funding comes from federal agencies in proportion to their contracting needs. The Department of Defense is the program's largest federal participant. Perhaps underscoring the potential for problems, most of the 19 participating agencies have said they would prefer to run their own certification programs.
The program has been criticized for not keeping pace with the number of firms seeking certification and not spending enough time and money on advertising. In fact, last year the SBA was forced to extend the deadline for the new certification rules to allow firms more time to comply.
Investigators, reportedly alerted by an agency whistle-blower, examined a sample of $13 million and found that almost half was spent on unrelated items. They also found that more than $3 million was spent on building offices and hiring staff never used for the program. During the audit, the SBA canceled a $410,000 construction project after investigators questioned its relevance to the certification program.
According to the report, other SBA programs received certification funding – in abundance because the agency overestimated the number of minority firms that would participate – for computers, cell phones, and staff training. It also noted that the SBA could not account for an additional $3.2 million earmarked for the program.
Auditors ordered the SBA to repay the federal agencies for any misused funds, which SBA administrator Aida Alvarez says will be done "at no cost to taxpayers." Ms. Alvarez says funding problems had been reported to her earlier by the agency's chief financial officer and that she had ordered a review of the program.
The SBA report is not the only matter causing alarm in the minority business community. A "procurement report card" released over the summer by Rep. Nydia Velázquez (D-NY), the ranking Democrat on the House Small Business Committee and a minority business advocate, found that the number of federal contracts granted to small businesses has dropped at least 20 percent in recent years.
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