GAO uses uses covert testing scheme to assess SBA screening processes

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The Government Accountability Office sent applications from four fake firms to the Small Business Administration's 8(a) program to see whether SBA had made progress addressing long-standing oversight issues.

The Small Business Administration was found to have made progress addressing long-standing oversight challenges for tribal firms participating in its 8(a) business development program after an independent congressional watchdog conducted a covert testing scheme to assess the agency's screening process. 

The Government Accountability Office released a report this week which said SBA "took steps" to verify businesses participating in the 8(a) program were associated with federally or state-recognized Indian tribes, although it did not yet have any documented formal verification procedure to ensure those companies were in fact associated with recognized tribes.

GAO sent four applications from fake businesses claiming association to fictitious Indian tribes during fiscal year 2021, the report said. SBA denied all of the alleged firms from participating in the program, which aims to provide resources and development opportunities to socially and economically disadvantaged businesses. 

As noted in the report, small businesses with 8(a) status can be eligible for certain federal procurement set asides and other preferences. 

The report also examined 133 applications for the 8(a) program sent between 2018 and 2020 from businesses claiming association to federally or state-recognized Indian tribes. SBA approved 122 businesses for participation in the program, while denying 11 for failing to meet requirements. 

Only one of the firms SBA approved to participate in the program was not actually associated with any of the Department of Interior's Bureau of Indian Affairs (BIA) annual list of federally-recognized tribes, or others recognized by state governments, according to the report. 

After GAO alerted SBA of the finding, the agency said it was "initiating steps to terminate that one business's participation in the 8(a) program." 

"Further, GAO's illustrative covert testing results demonstrated that SBA took steps to verify the recognition status of fictitious Indian tribes, despite not yet documenting formal procedures for verifying tribal recognition," the report read.

While previous reports indicated some steps had been taken to address these issues in recent years, another GAO study published in 2019 found the agency had not yet implemented recommendations which it said would "significantly improve oversight of the 8(a) program."