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entitled ‘Women-Owned Small Business Program: Certifier Oversight and
Additional Eligibility Controls Are Needed’ which was released on
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
October 2014:
Women-Owned Small Business Program:
Certifier Oversight and Additional Eligibility Controls Are Needed:
GAO-15-54:
GAO Highlights:
Highlights of GAO-15-54, a report to congressional requesters.
Why GAO Did This Study:
In 2000, Congress authorized the WOSB program to increase contracting
opportunities for WOSBs by allowing contracting officers to set aside
procurements to such businesses. SBA, which administers the program,
issued implementing regulations that became effective in 2011. GAO was
asked to review the WOSB program. This report examines (1) how
businesses are certified as eligible for the WOSB program, (2) SBA’s
oversight of certifications, and (3) the effect the program has had on
federal contracting opportunities available to WOSBs or EDWOSBs. GAO
reviewed relevant laws, regulations, and program documents; analyzed
federal contracting data from April 2011 through May 2014; and
interviewed SBA, officials from contracting agencies selected to
obtain a range of experience with the WOSB program, third-party
certifiers, WOSBs, and organizations that represent their interests.
What GAO Found:
Businesses have two options to certify their eligibility for the women-
owned small business (WOSB) program. Whether self-certifying at no
cost or using the fee-based services of an approved third-party
certifier, businesses must attest that they are a WOSB or an
economically disadvantaged WOSB (EDWOSB). Businesses also must submit
documents supporting their attestation to a repository the Small
Business Administration (SBA) maintains (required documents vary
depending on certification type), and, if they obtain a third-party
certification, to the certifier.
SBA performs minimal oversight of third-party certifiers and has yet
to develop procedures that provide reasonable assurance that only
eligible businesses obtain WOSB set-aside contracts. For example,
* SBA generally has not reviewed certifier performance or developed or
implemented procedures for such reviews, including determining whether
certifiers inform businesses of the no-cost self-certification option,
a requirement in the agency’s agreement with certifiers.
* SBA also has not completed or implemented procedures to review the
monthly reports that third-party certifiers must submit.
Without ongoing monitoring and oversight of the activities and
performance of third-party certifiers, SBA cannot reasonably assure
that certifiers fulfill the requirements of the agreement. Moreover,
in 2012 and 2013, SBA found that more than 40 percent of businesses
(that previously received contracts) it examined for program
eligibility should not have attested they were WOSBs or EDWOSBs at the
time of SBA’s review. SBA officials speculated about possible reasons
for the results, including businesses not providing adequate
documentation or becoming ineligible after contracts were awarded, but
SBA has not assessed the results of the examinations to determine the
actual reasons for the high numbers of businesses found ineligible.
SBA also has not completed or implemented procedures to conduct
eligibility examinations. According to federal standards for internal
control, agencies should have documented procedures, conduct
monitoring, and ensure that any review findings and deficiencies are
resolved promptly. As a result of inadequate monitoring and controls,
potentially ineligible businesses may continue to incorrectly certify
themselves as WOSBs, increasing the risk that they may receive
contracts for which they are not eligible.
The WOSB program has had a limited effect on federal contracting
opportunities available to WOSBs. Set-aside contracts under the
program represent less than 1 percent of all federal contract
obligations to women-owned small businesses. The Departments of
Defense and Homeland Security and the General Services Administration
collectively accounted for the majority of the $228.9 million in set-
aside obligations awarded under the program between April 2011 and May
2014. Contracting officers, business owners, and industry advocates
with whom GAO spoke identified challenges to program use and suggested
potential changes that might increase program use, including allowing
sole-source contracts rather than requiring at least two businesses to
compete and expanding the list of 330 industries in which WOSBs and
EDWOSBs were eligible for a set-aside.
What GAO Recommends:
GAO recommends that SBA, among other things, establish and implement
procedures to monitor certifiers and improve annual eligibility
examinations, including by analyzing examination results. SBA
generally agreed with GAO’s recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-15-54]. For more
information, contact William Shear at (202) 512-8678 or shearw@gao.gov.
Contents:
Letter:
Background:
Businesses Can Use Two Methods to Certify Eligibility for WOSB Program:
SBA’s Oversight of Certifiers Has Been Minimal and Does Not Provide
Reasonable Assurance That Only Eligible Businesses Obtain Set-Aside
Contracts:
Program Set-Asides Have Had Minimal Effect on WOSB Contracting:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Small Business Administration:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Fees for Third-Party Certification for the Women-Owned Small
Business (WOSB) Program:
Table 2: Top Contracting Departments and Agencies, by Total
Obligations under the WOSB Program, from April 2011 through May 2014:
Table 3: Percentage of Contract Obligations Awarded to Women-Owned
Small Businesses, Fiscal Years 2011-2013:
Figure:
Figure 1: Percentage of Obligations for Contracts (Set-Aside and Not
Set-Aside) Awarded to Women-Owned Small Businesses (WOSB), from April
2011 through May 2014:
Abbreviations:
DHS: Department of Homeland Security:
DOD: Department of Defense:
EDWOSB: economically disadvantaged women-owned small business:
FPDS-NG: Federal Procurement Data System-Next Generation:
GSA: General Services Administration:
HUBZone: Historically Underutilized Business Zone:
NAICS: North American Industry Classification System:
SAM: System for Award Management:
SBA: Small Business Administration:
SDVOSBC: Service-Disabled Veteran-Owned Small Business Concern:
SOP: standard operating procedure:
WBENC: Women’s Business Enterprise National Council:
WOSB: women-owned small business:
[End of section]United States Government Accountability Office:
GAO:
441 G St. N.W.
Washington, DC 20548:
October 8, 2014:
The Honorable Maria Cantwell:
Chairwoman:
Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable Mary Landrieu:
United States Senate:
Women-owned businesses contribute significantly to the U.S. economy.
According to the most recent Census Survey of Business Owners, 28.7
percent, or 7.8 million, of all U.S. businesses in 2007 were women-
owned.[Footnote 1] Between 1997 and 2007, the number of women-owned
businesses grew by 44 percent (or twice as fast as businesses owned by
men) adding roughly 500,000 jobs nationwide, according to the U.S.
Department of Commerce.[Footnote 2] However, the federal government
has yet to meet its annual goal of awarding 5 percent of its
procurement to women-owned small businesses (WOSB).
Over the years, Congress has taken a number of actions to increase
opportunities for small business (including minority-owned and
economically disadvantaged) participation in federal contracting. In
1978, Congress amended the Small Business Act to require federal
agencies to negotiate with the Small Business Administration (SBA) to
establish prime and subcontracting goals for certain businesses, which
did not specifically include WOSBs until 1994.[Footnote 3] In 2000,
Congress authorized a contracting program to reserve contracts for
WOSBs in industries where the businesses were historically
underrepresented. Its purpose is to enable federal contracting
officers to identify and establish a sheltered market, or set-aside,
for competition among only WOSBs or economically disadvantaged WOSBs
(EDWOSB) to provide goods and services through contracts in designated
industries.[Footnote 4] On October 7, 2010, SBA issued a final rule to
implement the WOSB Federal Contract Program and the program started
operating in 2011.[Footnote 5] To establish WOSB program set-asides,
SBA conducted studies to identify industries in which WOSBs were
underrepresented and substantially underrepresented and published a
list of specific industries in which these businesses needed greater
access to federal contracts.[Footnote 6] EDWOSBs may receive contracts
in any industry SBA identified as eligible for the program, and WOSBs
may receive contracts in industries in which SBA deemed WOSBs to be
substantially underrepresented. According to SBA officials, program
staff have been planning a new study of underrepresented EDWOSBs and
substantially underrepresented WOSBs, which the agency expects to
complete by 2015.
You asked us to examine the WOSB program, including any effects it has
had on increasing contracting opportunities for WOSBs. This report (1)
describes how WOSBs and EDWOSBs are certified as eligible for the
program; (2) examines the extent to which SBA has implemented internal
control and oversight procedures of WOSB program certifications; and
(3) discusses the effect the program has had on federal contracting
opportunities available to WOSBs or EDWOSBs.
To describe how businesses are certified as eligible for the WOSB
program, we reviewed SBA’s policies and procedures to establish
program eligibility, including the responsibilities of businesses,
third-party certifiers, contracting officers, and SBA. To evaluate how
certification procedures may affect program participation, we obtained
data from SBA and the Federal Procurement Data System-Next Generation
(FPDS-NG) to determine the number of WOSBs that used third-party
certifiers from August 2011 through May 2014. Using electronic edit
checks and a review of data system documentation, we deemed these data
sufficiently reliable for this purpose.[Footnote 7] We interviewed SBA
officials, contracting officials at the Departments of Defense (DOD)
and Homeland Security (DHS), and the General Services Administration
(GSA); and interviewed selected WOSBs for perspectives on the program.
The agencies were selected to reflect varying levels of program
participation (based on contracts issued and program obligations from
2011 through 2013). To evaluate SBA’s internal controls and oversight
of certification methods, we reviewed the program regulation and
program documents, agreements with third-party certifiers, and monthly
reports submitted by third-party certifiers to SBA, among other
documents. We interviewed three of the four certifiers: El Paso
Hispanic Chamber of Commerce, the National Women Business Owners
Corporation, and the U.S. Women’s Chamber of Commerce. We were not
able to interview the fourth certifier, the Women’s Business
Enterprise National Council (WBENC). To evaluate the effect the
program has had on federal contracting opportunities for WOSBs, we
analyzed FPDS-NG data from April 2011 through May 2014 and identified
trends in program participation by agencies. Finally, we interviewed
SBA officials and contracting agency officials about the extent to
which the program has met its regulatory purpose of increasing
contracting opportunities for WOSBs. We deemed the FPDS-NG data
sufficiently reliable for our purposes. Appendix I contains additional
information on our scope and methodology.
We conducted this performance audit from August 2013 to October 2014
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Federal agencies conduct a variety of procurements that are reserved
for small business participation (through small business set-aside and
sole-source opportunities, hereafter called set-asides). The set-
asides can be for small businesses in general or be specific to small
businesses meeting additional eligibility requirements in the Service-
Disabled Veteran-Owned Small Business Concern (SDVOSBC), Historically
Underutilized Business Zone (HUBZone), 8(a) Business Development, and
WOSB programs.
The WOSB program, which started operating in 2011, has requirements
that pertain to the sectors in which set-asides can be offered as well
as eligibility requirements for businesses. That is, set-aside
contracts under the WOSB program can only be made in certain
industries in which WOSBs were substantially underrepresented and
EDWOSBs underrepresented, according to the program regulation.
Additionally, only certain businesses are eligible to participate in
the WOSB program. The business must be at least 51 percent owned and
controlled by one or more women. The owner must provide documents
demonstrating that the business meets program requirements, including
submitting a document in which the owner attests to the business’s
status as a WOSB or EDWOSB.
The program’s authorizing statute directs that each business either be
certified by a third party, or self-certified by the business owner.
SBA’s final rule includes these two methods. Self-certification is
free and businesses pay a fee for third-party certification.
A third-party certifier is a federal agency, state government, or
national certifying entity approved by SBA to provide certifications
of WOSBs or EDWOSBs. To be approved as certifiers, interested
organizations submit an application to SBA that contains information
on the organization’s structure and staff, policies and procedures for
certification, and attestations that they will adhere to program
requirements. SBA has approved four organizations to act as third-
party certifiers:
* El Paso Hispanic Chamber of Commerce;
* National Women Business Owners Corporation;
* U.S. Women’s Chamber of Commerce; and:
* Women’s Business Enterprise National Council.
The most active certifier is the Women’s Business Enterprise National
Council (WBENC), which completed about 76 percent of all WOSB third-
party certifications performed from August 2011 through May 2014. To
conduct the certifications, WBENC uses 14 regional partner
organizations.
The fees for certification vary depending on a WOSB’s gross annual
sales, membership status in the certifying organization, and
geographic location (see table 1). In the case of businesses that seek
a WOSB program certification through WBENC’s partner organizations,
businesses that pay for a Women’s Business Enterprise certification
(used for private-sector or some local, state, and federal
procurement, but not for the WOSB program) can receive WOSB program
certifications at no additional cost. We discuss the WOSB
certification process in greater detail later in this report.
Table 1: Fees for Third-Party Certification for the Women-Owned Small
Business (WOSB) Program:
El Paso Hispanic Chamber of Commerce;
Initial: $225;
Renewal: $100;
Member discount: None;
Fee based on gross annual sales: [Empty];
Other characteristics: Fee waiver in select cases.
U.S. Women’s Chamber of Commerce;
Initial: $275-$350;
Renewal: $275-$350;
Member discount: $75 off initial;
Fee based on gross annual sales: [Empty];
Other characteristics: [Empty].
National Women Business Owners Corporation;
Initial: $400;
Renewal: $200-300 based on gross annual sales;
Member discount: None;
Fee based on gross annual sales: $100 additional for renewals for
businesses with gross annual sales over $2 million;
Other characteristics: Women-owned small business (WOSB) and
economically disadvantaged WOSB certification offered as a package
certification for $700.
Women’s Business Enterprise National Council;
Initial: $350-$1,000. Fee varies by 14 regional partner organizations;
Renewal: $350-$1,000. Fee varies by 14 regional partner organizations;
Member discount: None;
Fee based on gross annual sales: Varies based on gross annual sales
with ranges from under $1 million to $100 million and over;
Other characteristics: A WOSB third-party certification is obtained as
part of a bundle including a Women’s Business Enterprise certification.
Source: GAO analysis of third-party certifier documents. GAO-15-54.
[End of table]SBA’s Office of Government Contracting administers the WOSB program by
publishing regulations for the program, conducting eligibility
examinations of businesses that received contracts under the WOSB or
EDWOSB set-aside, deciding protests related to eligibility for a WOSB
program contract award, conducting studies to determine eligible
industries, and working with other federal agencies in assisting WOSBs
and EDWOSBs. According to SBA officials, the agency also works at the
regional and local levels with its Small Business Development Centers,
district offices, and other organizations (such as Procurement
Technical Assistance Centers) to assist WOSBs and EDWOSBs to receive
contracts with federal agencies. The services SBA coordinates with
these offices and organizations include training, counseling,
mentoring, access to information about federal contracting
opportunities, and business financing.
Businesses Can Use Two Methods to Certify Eligibility for WOSB Program:
According to the program regulation, businesses may use self-or third-
party certification to demonstrate they are eligible for WOSB or
EDWOSB status. Both certification processes require signed
representations by businesses about their WOSB or EDWOSB eligibility.
For this reason, SBA has described all participants in the program as
self-certified. When using the self-certification option, businesses
must provide documents supporting their status to the online document
repository for the WOSB program that SBA maintains.[Footnote 8]
Required submissions include copies of citizenship papers (birth or
naturalization certificates or passports) and, depending on business
type, items including copies of partnership agreements or articles of
incorporation. Businesses must submit a signed certification on which
the owners attest that the documents and information provided are true
and accurate. Moreover, businesses must register and attest to being a
WOSB in the System for Award Management (SAM), the primary database of
vendors doing business with the federal government.[Footnote 9]
Businesses also must make representations about their status in SAM
before submitting an offer on a WOSB or EDWOSB solicitation.
For third-party certification, businesses submit documentation to
approved certifiers. According to third-party certifiers we
interviewed, they review documents (and some may conduct site visits
to businesses) and make determinations of eligibility. If approved,
businesses will receive a document showing receipt of third-party
certification. Business then can upload the certificate to the WOSB
program repository along with documents supporting their EDWOSB or
WOSB status.[Footnote 10] SBA does not track the number of businesses
that self certify and could not provide information on how many self-
certified businesses obtained contracts under the WOSB program. While
SBA can look at an individual business profile–which lists the
documents the business has uploaded to support its eligibility–in the
repository to determine if a certificate from a third-party certifier
is present, it has no corresponding mechanism to determine if a
business lacking such a certificate was self-certified.[Footnote 11]
That is, there are no data fields for certification type in any of the
systems used in the program and SBA cannot generate reports to isolate
information on certification type by business. According to SBA
officials, such information on certification type is not needed
because both certification options are treated equally under the
program and, because all businesses make an attestation of status as a
WOSB whether or not the business uses a third-party certifier.
Therefore, SBA considers this a self-certification program.
Contracting officers obtain a solicitation and conduct market research
to identify businesses potentially capable of filling contract
requirements. Once a contracting officer has determined that a
solicitation can be set aside under the WOSB program, the officer
obtains bids and selects an awardee for the contract. Only after
selecting an awardee, does the agency obtain access to the business’s
profile in the WOSB program repository, which lists the documents the
business has uploaded to support its eligibility (the business must
grant the contracting agency access). SBA’s Contracting Officer’s
Guide to the WOSB Program states that contracting officers must
determine that specified documents have been uploaded by the business
to the program repository, but the guide does not require contracting
officers to assess the validity of those documents. Only after viewing
the uploaded documents would the contracting officer be able to
determine if the business was likely self-certified or had a
certificate from a third-party certifier. Two groups we interviewed
that represent the interests of WOSBs said that contracting officers
prefer third-party over self-certified businesses when selecting an
awardee. A representative of one organization thought that contracting
officers tended to select businesses with third-party certifications
because they did not have to review as many documents in the program
repository as for self-certified businesses. However, the
certification method does not appear to influence contract awards.
According to officials from all contracting agencies with whom we
spoke and SBA officials, contracting staff are unaware of the
certification method used by a business until after an awardee is
selected.
SBA’s Oversight of Certifiers Has Been Minimal and Does Not Provide
Reasonable Assurance That Only Eligible Businesses Obtain Set-Aside
Contracts:
SBA generally has not overseen third-party certifiers and lacks
reasonable assurance that only eligible businesses receive WOSB set-
aside contracts. SBA has not put in place formal policies to review
the performance of third-party certifiers, including their compliance
with a requirement to inform businesses of the no-cost, self-
certification option. The agency has not developed formal policies and
procedures for reviewing required monthly reports submitted to SBA by
certifiers or standardized reporting formats for the certifiers, or
addressed most issues raised in the reports. Although SBA examinations
have found high rates of ineligibility among a sample of businesses
that previously received set-aside contracts, SBA has not determined
the causes of ineligibility or made changes to its oversight of
certifications to better ensure that only eligible businesses
participate in the program.
SBA Generally Has Not Reviewed Certifier Performance:
To date, SBA generally has not conducted performance reviews of third-
party certifiers and does not have procedures in place for such
reviews. According to federal standards for internal control, agencies
should conduct control activities such as performance reviews and
clearly document internal controls.[Footnote 12] Third-party
certifiers agree to be subject to performance reviews by SBA at any
time to ensure that they meet the requirements of the agreement with
SBA and program certification regulations–including requirements
related to the certification process, obtaining supporting documents,
informing businesses about the no-cost option for WOSB program
certification, and reporting to SBA on certifier activities.
Before beginning the certification process, SBA requires third-party
certifiers to inform businesses in writing (on an SBA-developed form)
that they can self certify under the program at no cost. Certifiers, a
WOSB advocacy group, and WOSBs had perspectives on fees for third-
party certification. Representatives of all three certifiers with whom
we spoke stated that fees their organization charged for
certifications were reasonable and affordable for a small business.
Staff from one WOSB advocacy organization told us that such fees could
deter some businesses from participating in the program, but owners of
WOSBs with which we spoke generally did not concur with this view.
Certifiers with whom we spoke told us that they inform businesses
about their option to self certify, but SBA does not have a method in
place to help ensure that certifiers are providing this information to
businesses and agency officials told us that they do not monitor
whether certifiers fulfilled the requirement. SBA officials said that
they believe that the no-cost option ameliorates the risk of excessive
fees charged to businesses or the risk that fees would deter program
participation and that because all certifiers must provide national
coverage, businesses can seek lower fees. Officials also told us that
they believed that businesses and advocacy groups would inform the
agency if certifiers were not providing this information. However,
they were not able to describe how SBA would learn from businesses
that certifiers had failed to provide this information. The
requirement is part of SBA’s agreement with third-party certifiers,
but SBA has not described the requirement on the program web-site or
made it part of informational materials to businesses. Thus,
businesses may not know of this requirement without being informed by
the certifier or know to inform SBA if the certifier had not fulfilled
the requirement.
The largest certifier, WBENC, has delegated the majority of
certification activity to other entities that SBA also has not
reviewed. WBENC has conducted about 76 percent of third-party
certifications through May 2014. However, WBENC delegates WOSB
certification responsibilities to 14 regional partner organizations.
SBA neither maintains nor reviews information about standards and
procedures at WBENC, including a compliance review process for each of
its 14 partner organizations that WBENC told SBA it uses. SBA
officials told us that they rely on information available on public
websites to determine the fee structures set by WBENC’s partner
organizations. SBA also does not have copies of compliance reviews
that WBENC told SBA it annually conducts for each partner
organization. SBA requested documents from WBENC, which included
information about WBENC’s oversight of its 14 partner organizations.
WBENC’s response was incomplete; WBENC referenced but did not provide
its standards and procedures to oversee partner organizations. SBA
told us it recognized that WBENC’s response was incomplete, and
indicated it had not followed up on WBENC’s response. Without this
information SBA cannot determine how WBENC has been overseeing the 14
entities to which it has delegated certification responsibilities.
Although SBA has not developed or conducted formal performance reviews
of certifiers, officials described activities they consider to be
certifier oversight. For example, when a business is denied third-
party certification but wishes to self-certify, it must subject itself
to an eligibility examination by SBA before doing so. In this case, or
during a bid protest, SBA conducts its own review of documentation the
business submitted to the certifier. SBA officials stated that these
reviews were not intended as a form of certifier oversight but
described them as de facto reviews of third-party certifier
performance. However, such reviews do not involve a comprehensive
assessment of certifiers’ activity or performance over time. An SBA
official acknowledged that the agency could do more to oversee
certifiers. SBA plans to develop written procedures for certifier
oversight to be included in the standard operating procedure (SOP) for
the program, which remains under development. But SBA has not yet
estimated when it would complete written procedures for certifier
oversight or the SOP.
Without ongoing monitoring and oversight of the activities and
performance of third-party certifiers, SBA cannot reasonably ensure
that certifiers have fulfilled the performance requirements of their
agreement with SBA–including informing businesses about no-cost
certification.
SBA Lacks Procedures for Reviewing Certifiers’ Reports and Has Not
Followed Up on Issues Reports Raised:
SBA has not yet developed written procedures to review required
monthly reports from certifiers and does not have a consistent format
for reports. In SBA’s agreement with third-party certifiers, the
agency requires each certifier to submit monthly reports that must
include:
* the number of WOSB and EDWOSB applications received, approved, and
denied;
* identifying information for each certified business, such as the
business name;
* concerns about fraud, waste, and abuse; and:
* a description of any changes to the procedures the organizations
used to certify businesses as WOSBs and EDWOSBs.
Internal control should include documented procedures and monitoring
or review activities that help ensure that review findings and
deficiencies are brought to the attention of management and resolved
promptly.[Footnote 13]
Based on our review of each monthly report submitted from August 2011
through May 2014 (135 in total), not all reports contained consistent
information. Some monthly reports were missing the owner names and
contact information for businesses that had applied for certification.
One certifier regularly identified potential fraud among businesses to
which it had denied certification, about one or two per month for 16
of the 34 reporting months included in our review. This certifier
provided detailed narrative information in its reports to SBA about
its concerns. The reporting format and level of detail reported also
varied among certifiers. One certifier listed detailed information on
its activities in a spreadsheet. Another described its activities
using narrative text and an attached list of applicants for
certification. One certifier included dates for certification,
recertification, and the expiration of a certification, while other
certifiers did not include this information.
According to SBA officials, the agency did not have consistent
procedures for reviewing monthly reports, including procedures to
identify and resolve discrepancies in reports or oversee how
certifiers collect and compile information transmitted to the agency.
SBA officials said that one official, who recently retired, was
responsible for reviewing all certifier monthly reports. Current
officials and staff were not able to tell us what process this
official used to assess the reports.
Finally, with one person responsible for reviewing monthly reports
until recently, SBA generally has not followed up on issues raised in
reports. Agency officials told us that early in the program they found
problems with the monthly report of one of the certifiers that
indicated that the certifier did not understand program requirements
and they contacted the certifier to address the issue. We found
additional issues that would appear to warrant follow up from SBA. For
example, two businesses were denied certification by one third-party
certifier and approved shortly after by another. SBA stated that it
had not identified these potential discrepancies but that it was
possible for businesses to be deemed ineligible, resolve the issue
preventing certification, and become eligible soon after. However,
according to the program regulation, if a business was denied third-
party certification and the owner believed the business eligible, the
owner would have to request that SBA conduct an examination to verify
its eligibility to represent the business as a WOSB. According to SBA
officials, the agency was unaware of this business or its
certification. And, as discussed previously, one certifier regularly
identified potential fraud among businesses to which it had denied
certification. SBA officials told us that they had not identified or
investigated this certifier’s concerns about potential fraud. When we
asked SBA officials how the agency addressed such concerns, an
official responded that fraudulently entering into a set-aside
contract was illegal and the business would be subject to prosecution.
However, without SBA following up on these types of issues, it is
unclear how businesses committing fraud in the program would be
prosecuted.
According to an SBA official, the agency has been developing written
procedures to review the monthly reports, but has not yet estimated
when the procedures would be completed. The procedures will be
included in SBA’s SOP for the program, which also remains under
development. As noted earlier, SBA could not estimate when it would
complete the SOP. Without procedures in place to consistently review
monthly reports and respond to problems identified in those reports,
SBA lacks information about the activities and performance of third-
party certifiers and leaves concerns raised by certifiers unaddressed.
SBA Found High Rates of Ineligibility among Businesses but Has Not
Developed Controls to Help Ensure Only Eligible Businesses Receive
Awards:
Methods to Assess the Eligibility of Set-Aside Contract Recipients:
SBA’s methods to verify the eligibility of businesses in its WOSB
program repository include annual examinations of businesses that
received set-aside contracts. SBA’s program responsibilities include
conducting eligibility examinations of WOSBs and EDWOSBs, according to
SBA’s compliance guide for the WOSB program and its regulation.
Section 8(m) of the Small Business Act sets forth eligibility criteria
businesses must meet to receive a contract under the WOSB program set-
aside. SBA examines a sample of businesses with a current attestation
in SAM and that received a contract during SBA’s examination year. SBA
does not include in its sample businesses that had not yet obtained a
WOSB program contract. According to SBA officials, staff conducting
the eligibility examination review the documents each business owner
uploaded to the WOSB program repository to support the representation
in SAM of eligibility for WOSB or EDWOSB status. For example, agency
officials said that reviewers ensure that all documents required have
been uploaded and review the contents of the documents to ensure that
a business is eligible. SBA said staff conducting the examination then
determine that the business has met the requirements to document its
status as a WOSB, or determine that information is missing or not
consistent with the program requirements and the business is not
eligible at the time of SBA’s review to certify itself as a WOSB. SBA
officials said the agency also uses the same process to investigate
the eligibility of businesses on an ad hoc basis in response to
referrals from contracting agencies or other parties, such as other
businesses, that question the eligibility of a business.
If a business has not sufficiently documented its eligibility
representation, SBA sends a letter directing the business to enter
required information or documents into the repository or remove its
attestation of program eligibility in SAM within 15 days. If SBA
receives no response after 15 days, it sends a second letter
instructing the business to remove its WOSB attestation in SAM within
5 days. In 2012 and 2013, SBA sent final 5-day letters to 44
businesses identified through annual examinations or examinations
following a referral. If the business does not do so, it may be
subject to enforcement actions including suspension or debarment from
federal contracting or criminal penalties, according to SBA officials.
An SBA official said that the agency is unaware of any such
enforcement actions as part of the WOSB program.
SBA also decides protests from contracting agency staff or any other
interested parties relating to a business’s eligibility. SBA considers
protests if there is sufficient, credible evidence to show that the
business may not be at least 51 percent owned and controlled by one or
more women, or if the business has failed to provide documents
required to establish eligibility for the program. Once SBA has
obtained a protest, it examines documents submitted in the case, makes
a determination of program eligibility based on the content of these
documents and notifies relevant parties–typically, the contracting
officer, protester (if not the same), and the business–of the
determination. If eligible for the set-aside, the contracting officer
may make an award to the business. Otherwise, the contracting officer
may not award a contract to the business in question. From program
implementation in April 2011 through July 2, 2014, SBA responded to 27
protests, and in 7 protests the businesses involved were found to be
ineligible for the WOSB program. In the remaining protests, the
businesses were found eligible, the party that filed the protest
withdrew it, or SBA dismissed the protest.[Footnote 14]
As described earlier in the report, contracting officers check for the
presence of documents in the repository when making a WOSB program
award. This could be considered part of SBA’s framework to oversee
certifications, but the requirement for contracting officers to review
documents is limited to ensuring that businesses have uploaded
documents listed in the regulation. Representatives from some of the
contracting offices we interviewed believed that they had to assess
the validity of the documents or did not think they had the necessary
qualifications to assess the documents. However, program guidance does
not require contracting officers to assess the validity of these
documents, and SBA officials told us contracting officers are not
expected to evaluate the eligibility of businesses.
SBA’s Approach to Eligibility Verification and Enforcement Has
Weaknesses:
SBA activities relating to eligibility verifications, particularly
examinations, have several weaknesses. For instance, SBA:
* has not yet developed procedures to conduct annual eligibility
examinations although such efforts are in process, according to
officials;
* has not evaluated the results of the eligibility examinations in the
context of how the actions of businesses, contracting agencies, and
third-party certifiers may have contributed to the high levels of
incomplete and inaccurate documentations found in examinations; and:
* has not assessed its internal controls or made procedural changes in
response to the findings of its eligibility examinations.
According to federal standards for internal control, agencies should
have documented procedures, conduct monitoring, and ensure that any
review findings and deficiencies are brought to the attention of
management and are resolved promptly.[Footnote 15] Corrective action
is to be taken or improvements made within established time frames to
resolve the matters brought to management’s attention. Also,
management needs to comprehensively identify risks the agency faces
from both internal and external sources, and management should
consider all significant interactions between the agency and all other
parties.
SBA conducted annual eligibility examinations in 2012 and 2013 on a
sample of businesses that received contracts under the WOSB program
and found that 42 percent of businesses in the 2012 sample were
ineligible for WOSB program contract awards on the date of its review,
and 43 percent in the 2013 sample were ineligible.[Footnote 16]
According to SBA officials, both self-and third-party certified
businesses were found ineligible at the time of review. SBA staff
reviewed the documents that each business in its sample had posted to
the program repository to ensure the businesses had sufficiently
supported their attestations as required in program regulations.
However, SBA could not provide documentation of a consistent procedure
to examine each business. SBA staff reviewing documentation in the
repository did not have guidelines describing how to conduct each
review. SBA officials told us that they have been developing written
procedures to conduct annual eligibility examinations, estimated a
completion date that the agency did not meet, and that the agency does
not have an estimation of completion.
SBA officials explained that they determined the eligibility of
businesses on a given date after the business received a contract.
According to SBA officials, a finding of ineligibility does not mean
the business was ineligible at the time of contract award because the
status of the business might have changed. Although SBA officials did
not know whether businesses examined were eligible at the time of
award, the high rate of ineligibility it found raises questions about
whether contracts may have been awarded to ineligible businesses.
According to SBA officials, information in its repository constantly
changes and SBA has yet to determine how or if a business was eligible
when it received a WOSB set-aside contract. SBA officials told us that
they believe they may be able to make such a determination but could
not describe exactly how they would conduct the review or confirm that
the business was an eligible WOSB or EDWOSB at the time of award. As
part of its annual examination, SBA only examines businesses at some
time after the business received a contract and, therefore, SBA’s
examination is limited in its ability to identify potentially
ineligible businesses prior to a contract award.
SBA officials said that after the annual examinations they did not
institute new controls to guard against ineligible businesses
receiving program contracts because they described the examinations
and the results as a method to gain insight about the program–
specifically, that WOSBs may lack understanding of program eligibility
requirements–and not a basis for change in oversight procedures.
According to SBA officials, the levels of ineligibility found during
the examinations were similar to those found in examinations of its
other socioeconomic programs. SBA officials said businesses were
deemed ineligible because they did not understand the documentation
requirements for establishing eligibility and also attributed the
ineligibility of third-party certified businesses to improper
uploading of documents by the businesses themselves. SBA officials
said they needed to make additional efforts to train businesses to
properly document their eligibility. However, SBA officials could not
explain how they had determined lack of understanding was the cause of
ineligibility among businesses and have not made efforts to confirm
that this was the cause. As a result, they have missed opportunities
to obtain meaningful insights into the program.
SBA regarded the bid protest as means of identifying ineligibility.
SBA officials referred to the program as a self-policing program,
because of the bid protest function through which competing
businesses, contracting officers, or SBA can protest a business’s
claim to be a WOSB or EDWOSB and eligible for contract awards under
the program. In addition, an SBA official stated that business owners
affirm their status when awarded a contract and are subject to
prosecution if they had done so and later were found to have been
ineligible at the time of contract award–which the official
considered a program safeguard.
However, without (1) developing program eligibility controls that
include procedures for conducting annual eligibility examinations; (2)
analyzing the results of the examinations to understand the underlying
causes of ineligibility; (3) developing new procedures for
examinations, including expanding the sample of businesses to be
examined to include those that did not receive contracts; and (4)
investigating businesses based on examination results, SBA may
continue to find high rates of ineligibility among businesses
registered in the WOSB program repository. In turn, this would
continue to expose the program to the risk that ineligible businesses
may receive set-aside contracts. Also, by reviewing the eligibility of
businesses that have not received program contracts, SBA may improve
the quality of the pool of potential program award recipients.
Program Set-Asides Have Had Minimal Effect on WOSB Contracting:
Set-asides under the WOSB program to date have had a minimal effect on
overall contracting obligations to WOSBs and attainment of WOSB
contracting goals. WOSB program set-aside obligations increased from
fiscal year 2012 to fiscal year 2013. The Department of Defense (DOD),
the Department of Homeland Security (DHS), and the General Services
Administration (GSA) accounted for the majority of these obligations.
The WOSB program set-asides represented less than 1 percent of total
federal awards to women-owned small businesses. Contracting officers,
WOSBs, and others with whom we spoke suggested a number of program
changes that might increase use of the WOSB program, including
increasing awareness, allowing for sole-source awards, and expanding
the list of eligible industries for the set-aside program.
WOSB Program Set-Aside Obligations Increased from Fiscal Year 2012 to
Fiscal Year 2013, with Three Agencies Accounting for the Majority of
Set-Asides:
WOSB program set-aside obligations increased from fiscal year 2012 to
fiscal year 2013.[Footnote 17] Obligations to WOSBs under the WOSB set-
aside program increased from $33.3 million in 2012 to $39.9 million in
2013, and obligations to EDWOSBs increased from $39.2 million in 2012
to $60.0 million in 2013. The National Defense Authorization Act for
Fiscal Year 2013 removed the dollar cap on contract awards eligible
under the WOSB set-aside program, which may account for some of the
increase in obligations from 2012 to 2013.[Footnote 18] SBA officials
told us that they expect increased use of the program in the future as
a result of this change.
As shown in table 2, three federal agencies–DOD, DHS, and GSA–
collectively accounted for the majority of the obligations awarded
under the set-aside program. DOD (Air Force, Army, Navy, and all other
defense agencies) accounted for 62.2 percent of obligations, DHS for
10.7 percent, and GSA for 4.0 percent of obligations. No other
individual agency accounted for more than 3.4 percent of obligations
awarded under the program.
Table 2: Top Contracting Departments and Agencies, by Total
Obligations under the WOSB Program, from April 2011 through May 2014:
Agency: Department of Defense (DOD);
Percentage of program: 62.2%.
Agency: Department of Defense (DOD); U.S. Army (DOD);
Economically disadvantaged women-owned small business set-aside:
$34,720,817;
Women-owned small business set-aside: $26,900,145;
Total program set-aside: $61,620,962;
Percentage of program: 26.9%.
Agency: Department of Defense (DOD); U.S. Air Force (DOD);
Economically disadvantaged women-owned small business set-aside:
$42,935,173;
Women-owned small business set-aside: $15,513,431;
Total program set-aside: $58,448,604;
Percentage of program: 25.5%.
Agency: Department of Defense (DOD); Other defense agencies (DOD);
Economically disadvantaged women-owned small business set-aside:
$5,259,021;
Women-owned small business set-aside: $6,356,298;
Total program set-aside: $11,615,318;
Percentage of program: 5.1%.
Agency: Department of Defense (DOD); U.S. Navy (DOD);
Economically disadvantaged women-owned small business set-aside:
$5,854,874;
Women-owned small business set-aside: $4,853,875;
Total program set-aside: $10,708,748;
Percentage of program: 4.7%.
Agency: Department of Homeland Security;
Economically disadvantaged women-owned small business set-aside:
$17,863,601;
Women-owned small business set-aside: $6,571,815;
Total program set-aside: $24,435,416;
Percentage of program: 10.7%.
Agency: General Services Administration;
Economically disadvantaged women-owned small business set-aside:
$5,259,176;
Women-owned small business set-aside: $3,879,886;
Total program set-aside: $9,139,063;
Percentage of program: 4.0%.
Agency: All other agencies;
Economically disadvantaged women-owned small business set-aside:
$11,258,193;
Women-owned small business set-aside: $41,683,849;
Total program set-aside: $52,942,043;
Percentage of program: 23.1%.
Agency: Total;
Economically disadvantaged women-owned small business set-aside:
$123,150,855;
Women-owned small business set-aside: $105,759,299;
Total program set-aside: $228,910,154;
Percentage of program: 100%.
Source: GAO analysis of Federal Procurement Data System-Next
Generation data. GAO-15-54.
Note: No other individual agency accounted for more than 3.4 percent
of total obligations awarded through the program. These figures do not
include the last 4 months of fiscal year 2014. According to SBA
officials, the last quarter of each fiscal year is the part of the
year when most federal contracts are awarded.
WOSB Program Set-Asides Accounted for Less Than 1 Percent of
Obligations Awarded to WOSBs:
From April 2011 through May 2014, WOSB program set-asides constituted
a very small percentage (0.44 percent) of all the contracting
obligations awarded to WOSBs (see figure 1). The majority of
obligations awarded to WOSBs were made under other, longer-established
set-aside programs. For example, if eligible, a WOSB could receive a
contracting award under the 8(a), HUBZone, or SDVOSBC programs, or
through a general small business set-aside.[Footnote 19] WOSBs also
can obtain federal contracts without set-asides (through open
competition).
Figure 1: Percentage of Obligations for Contracts (Set-Aside and Not
Set-Aside) Awarded to Women-Owned Small Businesses (WOSB), from April
2011 through May 2014:
WOSB Program set-aside: 0.44%;
No set-aside: 39.79%;
Other set-aside: 59.78%.
Source: GAO analysis of Federal Procurement Data System-Next
Generation data. GAO-15-54.
Based on our analysis of FPDS-NG data of federal contracting agencies,
contract obligations awarded through the WOSB set-aside totaled $228.9
million, or 0.44 percent, of the $52.6 billion in contract obligations
awarded to WOSBs from April 2011 through May 2014.
Additionally, the WOSB set-aside has had relatively little impact on
federal agency achievement of goals for contracting to WOSBs, because
the program set-asides represent a very small percentage of all
contracting awards to WOSBs. Since 2011, the overall percentage of
contracting obligations awarded to WOSBs (through any program or open
competition) has remained below the government-wide goal of 5 percent
(see table 3). Goal achievement by the three contracting agencies with
the highest amount of obligations through the set-aside program
varied. For example, DOD did not meet its 5 percent goal for
contracting obligations to WOSBs in any of the 3 years. DHS and GSA
met their goals in all 3 years. Excluding obligations made by DOD,
about 5.7 percent of total federal contracting obligations to small
businesses included in SBA’s fiscal year 2013 Small Business Goaling
Report were awarded to WOSBs.[Footnote 20] For the 24 agencies subject
to the Chief Financial Officers Act listed in SBA’s scorecards, 19 met
their WOSB contracting goal in fiscal year 2012 and 20 met their goal
in fiscal year 2013.[Footnote 21] One agency missed its goal in fiscal
year 2012 but met its goal in fiscal year 2013. Four agencies (the
same four each year) did not meet their goal for either year.
Table 3: Percentage of Contract Obligations Awarded to Women-Owned
Small Businesses, Fiscal Years 2011-2013:
Government-Wide:
2011: 3.98%;
2012: 4.00%;
2013: 4.32%.
Department of Defense:
2011: 3.43%;
2012: 3.38%;
2013: 3.57%.
Department of Homeland Security:
2011: 5.95%;
2012: 6.43%;
2013: 7.04%.
General Services Administration:
2011: 9.15%;
2012: 9.06%;
2013: 7.75%.
Source: SBA goaling reports (fiscal years 2011-2013). GAO-15-54.
[End of table]Contracting Officers, WOSBs, and Others Suggested Program Changes That
Might Increase Use of the Set-Aside:
Selected federal contracting officials, businesses that received a
WOSB or EDWOSB set-aside, third-party certifiers, and a WOSB advocacy
organization with which we spoke gave their perspectives on existing
challenges and possible changes to increase program usage.
Complexity and burdensome requirements. Contracting officers described
challenges to using the WOSB set-aside. Some contracting officers
noted that generally, all contracts awarded to WOSBs count for the
purposes of meeting agencies’ 5 percent goal and that from their
perspective it does not matter whether a contract is awarded to a WOSB
using the WOSB program, another set-aside program, or open
competition. Some contracting officers said that WOSB program
requirements were burdensome or complex relative to other SBA programs
with set-asides. Unlike the other programs, the WOSB program requires
the use of a separate electronic repository, maintained by SBA, to
collect and store certification documents. One contracting officer
noted that the contracting process slowed when officials had to seek
information from the repository. Another contracting officer told us
the role of the contracting officer included confirming that
businesses had uploaded required documents in the SBA repository based
on a list of required documents in the program regulation–but noted
this task was not required under other contracting programs.
Lack of awareness and agency commitment. Representatives from advocacy
groups also identified awareness of and commitment to the program as
another area for improvement. An advocacy group representative told us
that some of their member WOSBs had encountered confusion and
reluctance on the part of contracting officers to use the program.
Another advocacy group said that SBA should engender more commitment
to the program among contracting officers and agencies. Another
representative noted that there are no consequences for agency leaders
for failure to meet contracting goals for WOSBs or use the set-aside
program. SBA officials described to us consequences that included a
low rating in the publicly available SBA contracting scorecard, which
may draw negative attention to the agency. Also, the National Defense
Authorization Act for Fiscal Year 2013 includes the extent to which
agencies meet contracting goals as a competency by which members of
the senior executive service are rated. All of the businesses we
interviewed that received WOSB program contracts cited the need for
increased agency outreach or awareness of the program. For example,
one participant advocated increasing contracting officer awareness and
understanding of how an agency could benefit from using the WOSB set-
aside program.
Changes to increase use of program. Contracting officers also
identified changes they believe could increase use of the WOSB set-
aside. For example, some noted that allowing sole-source contracts
could increase program use. Currently, contract officers can establish
a set-aside only if there is a reasonable expectation that at least
two eligible WOSBs will submit a bid for the contract. Some
contracting officers suggested expanding the list of North American
Industry Association Classification System (NAICS) codes eligible for
use under the WOSB set-aside. For example, one contracting office said
that the designated NAICS for the set-aside program did not meet their
procurement needs. One representative pointed out that SBA had
designated some NAICS codes just for EDWOSB and others for WOSBs. SBA
officials told us the agency does not have the authority to change the
list of industry sectors eligible for program set-asides without
conducting a study of industries in which WOSBs were underrepresented
or substantially underrepresented. Representatives from all of the
WOSB advocacy groups, three of which are also third-party certifiers,
said that expanding the NAICS codes would improve the program. For
example, one advocacy group said that certain WOSBs would like to
obtain WOSB or EDWOSB set-asides but did not have NAICS codes that
were listed as eligible. Another said that they would not limit the
number of eligible industries under the program. Finally, the
businesses we interviewed also believed that allowing sole-source
awards or adding more NAICS codes would increase program use. Six
participants commented on the limitations for awarding sole-source
contracts through the WOSB set-aside. Five participants felt that the
NAICS codes under the program were limited.[Footnote 22] One program
participant mentioned that she felt that limiting set-asides for the
WOSB program to certain NAICS codes was inconsistent with other SBA
programs with set-asides, such as 8(a), HUBZone, and SDVOSBC. She gave
an example of an agency that issued a draft solicitation that sought
to award two contracts each to WOSB set-asides, HUBZone, and SDVOSBC
businesses. However when it became clear that the contract was not in
an eligible NAICS code for the WOSB program, the agency converted the
two contracts intended for WOSB set-aside to a general small business
category.
Some program participants also mentioned positive aspects of the
program. Five participants believed that the program provided greater
opportunities for their businesses and WOSBs in general. Furthermore,
five of the six businesses with whom we spoke that received only one
or two contracts felt that the program improved their ability to
compete for a federal contract. For example, one participant noted
that while she has not seen many set-aside solicitations for the NAICS
code under which her business primarily operates, the existence of the
program prompted her to bid on set-asides under other NAICS codes.
Conclusions:
As the only federal procurement set-aside specifically for women-owned
businesses, the WOSB program could play an important role in limiting
competition to certain federal contracts for WOSBs and EDWOSBs that
are underrepresented in their industries. However, weaknesses in
multiple areas of SBA’s management of the program hinder effective
oversight of the WOSB program. Specifically, SBA has limited
information about the performance of its certifiers and does not use
what information is available to help ensure certifiers adhere to
program requirements, a deficiency exacerbated by the highest-volume
certifier’s–about 76 percent of third-party certifications–
delegation of duties to 14 partner organizations. An incomplete
response to SBA’s request for information on WBENC’s certification
process demonstrates the need for an oversight framework to ensure
that certifiers adhere to agreements with SBA. SBA did not follow up
on the incomplete response from WBENC, which raises questions about
SBA’s commitment to oversight of the certifiers. Furthermore, the lack
of procedures for review and analysis of monthly certifier reports
means that SBA has forgone opportunities to oversee certifiers and
pursue concerns about fraud of individual businesses identified by one
certifier. According to federal standards for internal control,
agencies should conduct control activities such as performance reviews
and clearly document internal controls. Formalizing existing ad hoc
processes (by developing procedures) will help SBA obtain the
information necessary to better ensure that third-party certifiers
fulfill the requirements of their agreements with SBA-
-an effort SBA said it plans to undertake, although it has not
estimated a completion date. Additionally, SBA could use results and
insights from reviews of certifier reports–which are to include
concerns about businesses–to inform its processes for eligibility
verification, particularly examinations.
Weaknesses related to SBA’s examination of program participants and
approach to enforcement mean that the agency cannot offer reasonable
assurance that only eligible businesses participate in the program.
Although the agency’s examinations found high rates of ineligibility,
SBA has not yet formalized examination guidance for staff or followed
up on examination results to determine the status of ineligible
businesses at the time of contract award. SBA also has not focused on
identifying factors that may be causing businesses to be found
ineligible; rather, the agency appears to have determined that more
training for businesses about eligibility requirements could address
the issue. However, training alone would be a limited response to
examination results, and SBA officials could not say what analysis
determined training to be the relevant response. Additionally, the
sample of businesses that SBA examines includes only those businesses
that received WOSB set-aside contracts. All these factors limit SBA’s
ability to better understand the eligibility of businesses before
applying for and being awarded contracts. Rather than gather and
regularly analyze information related to program eligibility, SBA
relies on other parties to identify potential misrepresentation of
WOSB status (through bid-protest filings and less formal mechanisms)–
a reactive and limited approach to oversight. Federal standards for
internal control state that agencies should have documented
procedures, conduct monitoring, and ensure that any review findings
and deficiencies are brought to the attention of management and are
resolved promptly. Additionally, the standards state that management
needs to comprehensively identify risks the agency faces from both
internal and external sources. By expanding its examination of firms
and analyzing and following up on the results, SBA could advance the
key program goal of restricting competition for set-aside contracts to
WOSBs and EDWOSBs.
Recommendations for Executive Action:
We make the following recommendations to improve management and
oversight of the WOSB program.
To help ensure the effective oversight of third-party certifiers, the
Administrator of SBA should establish and implement comprehensive
procedures to monitor and assess performance of certifiers in accord
with the requirements of the third-party certifier agreement and
program regulations.
To provide reasonable assurance that only eligible businesses obtain
WOSB set-aside contracts, the Administrator of SBA should enhance
examination of businesses that register to participate in the WOSB
program, including actions such as:
* promptly completing the development of procedures to conduct annual
eligibility examinations and implementing such procedures;
* analyzing examination results and individual businesses found to be
ineligible to better understand the cause of the high rate of
ineligibility in annual reviews, and determine what actions are needed
to address the causes; and:
* implementing ongoing reviews of a sample of all businesses that have
represented their eligibility to participate in the program.
Agency Comments and Our Evaluation:
We provided a draft of this report to SBA, DHS, DOD, and GSA for
review and comment. SBA provided written comments that are described
below and reprinted in appendix II. The other agencies–DHS, DOD, and
GSA–did not provide comments on this report. SBA generally agreed
with our recommendations and said that the agency is already in the
process of implementing many of our recommendations.
While SBA generally agreed with our recommendations, the agency stated
that the report could be clearer about the program examination
process. Specifically, SBA stated that the agency has authority to
conduct eligibility examinations at any time for any firm asserting
eligibility to receive WOSB program contracts. We have added
information to the draft to clarify this point. The draft report we
sent to SBA for comment discussed the agency’s process of conducting
annual eligibility examinations and provided a description of SBA’s
current process. SBA also stated that “the report recommends that SBA
conduct ongoing annual eligibility examinations and implement such
procedures.” However, our report recommends that SBA complete the
development of procedures to conduct annual eligibility examinations
(which SBA has conducted for the past 2 years) and implement such
procedures. We separately recommend implementing ongoing reviews of a
sample of all businesses that have represented their eligibility to
participate in the program. We do not specify that these eligibility
reviews, which are eligibility examinations, should be annual. SBA
could choose to conduct these reviews more frequently if deemed
appropriate. Whether SBA conducts eligibility examinations annually or
more frequently, examinations should be consistently conducted by
following written procedures and the results assessed to determine the
causes of ineligibility.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to appropriate congressional committees and members, the Secretary of
DOD, the Secretary of DHS, the Administrator of GSA, the Administrator
of SBA, and other interested parties. This report will also be
available at no charge on our website at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions
to this report are listed in appendix III.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
Appendix I: Objectives, Scope, and Methodology:
This report examines the Women-Owned Small Business (WOSB) program of
the Small Business Administration (SBA). More specifically, the report
(1) describes how WOSBs and economically disadvantaged WOSBs (EDWOSBs)
are certified as eligible for the program, (2) examines the extent to
which SBA has implemented internal control and oversight procedures of
WOSB program certifications, and (3) discusses the effect the program
has had on federal contracting opportunities available to WOSBs or
EDWOSBs.
To describe how businesses are certified as eligible for the program,
we reviewed SBA policies and procedures to establish program
eligibility including the responsibilities of businesses, third-party
certifiers, contracting officers, and SBA. We interviewed SBA
officials from the Office of Government Contracting. To evaluate how
certification procedures may affect program participation, we obtained
from SBA monthly reports (from September 2011 through May 2014) from
each of the four third-party certifiers. We took steps to develop a
dataset we could use for our analyses, including creating and merging
monthly spreadsheets, identifying missing business names, and clearing
the list of duplicate entries. We compared this dataset with Federal
Procurement Data System-Next Generation (FPDS-NG) data for businesses
that received a WOSB program set-aside contract. We determined that
the data on how many third-party certified businesses received
contracts as part of the WOSB program were sufficiently reliable for
our purposes by corroborating a sample of businesses we identified as
third-party certified with documentation for the businesses in the
WOSB program repository. We were not able to determine how many self-
certified businesses obtained contracts under the program, because the
format of the documentation maintained in the SBA repository does not
include a record of documents that were present at the time of
contract award. We also interviewed a sample of contracting officers
from selected components in the Department of Defense (DOD),
Department of Homeland Security (DHS), and the General Services
Administration (GSA). We selected these three agencies to represent a
range of program participation based on the number and total
obligation amounts of active set-aside contracts awarded in 2011
through 2013. Within DOD and DHS, we selected two components from each
that demonstrated high-and mid-level program participation (based on
number of contracts and obligation amounts). For DOD, we selected the
U.S. Army and Defense Logistics Agency. For DHS, we selected the U.S.
Coast Guard, and Customs and Border Protection. Within each of the
components and GSA, we compared FPDS-NG data on program activity by
obligation amount, contract number, and North American Industry
Classification System (NAICS) codes for 2011 through 2013. For each,
we selected two contracting offices using the same criteria we used to
select agencies, which included identifying a high-and mid-level
program obligation amount and offices with multiple contracts and
under multiple NAICS codes. We excluded one Customs and Border Patrol
office because only one office awarded multiple contracts under
multiple NAICS codes.
We also interviewed three of the four SBA-approved third-party
certifiers (the El Paso Hispanic Chamber of Commerce, the National
Women Business Owners Corporation, and the U.S. Women’s Chamber of
Commerce). We were unable to interview the Women’s Business National
Enterprise Council (WBENC). SBA requested documentation of WBENC’s
oversight procedures for the certification activity and fee structures
of its regional partner organizations. WBENC provided a written
response to SBA, which was not fully responsive to the request, as
discussed in the report. We conducted semi-structured interviews with
a sample of 10 businesses that were certified for the program, 9 of
which had received a set-aside contract.
To evaluate SBA’s oversight of certification, we reviewed the program
regulation and program documents, agreements with third-party
certifiers, 135 monthly reports submitted by all four third-party
certifiers, and letters SBA sends to inform businesses when their WOSB
or EDWOSB status is in question, among other documents. We discussed
the agency’s procedures to monitor certifiers and ensure participant
eligibility with SBA officials from the Office of Government
Contracting. We compared officials’ descriptions of their oversight
activities with federal internal control standards.[Footnote 23] We
inquired about documentation and eligibility examinations conducted in
2012 and 2013, and a planned examination for 2014, and reviewed
reports of the 2012 and 2013 examination results. We also inquired
about ongoing plans to develop a standard operating procedure, and
future plans to evaluate the program.
To determine what effect, if any, the WOSB program has had on federal
contracting opportunities available to WOSBs, we identified set-aside
contract obligations in FPDS-NG from April 2011 through May 2014 to
identify trends in program participation by contracting agencies
included in both FPDS-NG and SBA goaling reports. Using a review of
FPDS-NG documentation and electronic edit checks, we deemed these data
sufficiently reliable for our purposes. We also analyzed SBA goaling
reports from 2011 through 2013 to describe progress made towards
meeting the 5 percent goal for federal contracting to WOSBs. We
conducted semi-structured interviews with a sample of 10 businesses
there were certified for the program, 9 of which had received a set-
aside contract. We selected this nongeneralizable sample of businesses
to reflect whether they had been certified by a third-party entity, or
had self-certified. While the results of these interviews could not be
generalized to all WOSB program participants, they provided insight
into the benefits and challenges of the program. We interviewed SBA
officials and contracting agency officials about the extent to which
the program has met its statutory purpose of increasing contracting
opportunities for WOSBs. Finally, we interviewed industry advocates,
including three of the four third-party certifiers (the El Paso
Hispanic Chamber of Commerce, the National Women Business Owners
Corporation, and U.S. Women’s Chamber of Commerce) and one other
industry advocate (Women Impacting Public Policy) actively involved in
promoting the program with WOSBs.
We conducted this performance audit from August 2013 to October 2014
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Appendix II: Comments from the Small Business Administration:
U.S. Small Business Administration:
Washington, DC 20416:
September 22, 2014:
William Shear:
Director:
Financial Markets and Community Investment:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Shear:
The US Small Business Administration (SBA) has reviewed the Government
Accountability Office’s (GAO) report entitled “Women-Owned Small
Business Program – Certifier Oversight and Additional Eligibility
Controls are Needed”. In this report, GAO states that SSA does not
have formal written procedures and guidelines for evaluating third-
party certifiers and for conducting eligibility examinations. GAO
recommends that SBA develop and implement procedures to conduct annual
eligibility examinations. analyze the results to better understand
and address ineligibility in the program, and implement ongoing
reviews of a sample of all businesses that have represented their
eligibility to participate in the program.
SBA generally agrees with the recommendations provided in the GAO
report, and as noted in the report, SBA is already in the process of
implementing many of the recommendations. However, SBA believes that
the report could be clearer about the program examination process.
Specifically. the report recommends that SBA conduct ongoing annual
eligibility examinations and implement such procedures. SBA notes that
it has the authority to conduct program examinations at any time, and
on any firm asserting eligibility. While SBA has conducted program
examinations on an annual basis in the past, SBA’s authority and SBA’s
regulations make clear that this authority is not limited to
performance of reviews on an annual basis.
Thank you for the opportunity to comment on this report and for taking
our views into consideration.
Sincerely,
Signed by:
[Illegible] for:John Shoraka:
Associate Administrator:
Office of Government Contracting and Business Development:
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, (202) 512-8678, or shearw@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Andrew Pauline (Assistant
Director), Julie Trinder-Clements (analyst-in-charge), Pamela
Davidson, Daniel Kaneshiro, Julia Kennon, Barbara Roesmann, Jessica
Sandler, and Jena Sinkfield made key contributions to this report.
Footnotes:
[1] U.S. Census, 2007 Survey of Business Owners Summaries of Findings(Washington, D.C.: 2010). [2] U.S. Department of Commerce Economics and Statistics
Administration, Women-Owned Business in the 21st Century (Washington,
D.C.: October 2010). [3] 15 U.S.C. § 644(g). The Small Business Act defines various
socioeconomic categories of businesses and SBA administers contracting
programs targeted to these groups. Small businesses are those that are
independently owned and operated and are not dominant in their field
of operations. 15 U.S.C. § 632(a). Women-owned small businesses must
have at least 51 percent female ownership and must be controlled by
one or more women who are U.S. citizens. The ownership must be direct,
not subject to conditions, and the woman must manage the day-to-day
operations of the business and make its long-term decisions. See 15
U.S.C. § 632(n); 13 C.F.R. § 127.102; 13 C.F.R. § 127.201; 13 C.F.R. §
127.202. [4] Although the statute requires SBA to conduct a study to identify
industries in which WOSBs are underrepresented, according to officials
SBA’s interpretation of the statute is that it requires the agency to
identify industries in which EDWOSBs are underrepresented and
industries in which WOSBs are substantially underrepresented.
Economically disadvantaged is a determination made if a woman can
demonstrate that her ability to compete in the free enterprise system
is impaired due to diminished capital and credit opportunities as
compared with others in the same or similar business. For example, a
woman can demonstrate disadvantage with a net worth of less than
$750,000 (with certain regulatory exclusions). Generally, a woman with
an adjusted gross income for the prior 3 years averaging $350,000 or
with assets of $6 million or more is not deemed economically
disadvantaged. Additionally, a spouse’s financial situation can be
considered. [5] Women-Owned Small Business Federal Contract Program, 75 Fed. Reg.
62258 (Oct. 7, 2010). WOSB program provisions were formally added to
the Federal Acquisition Regulations on April 1, 2011. [6] In 2006, SBA asked the RAND Corporation to compute disparity
ratios for WOSBs based on the number and dollar value of federal
contracts awarded to WOSBs. See Kauffman-RAND Institute for
Entrepreneurship Public Policy, The Utilization of Women-Owned Small
Businesses in Federal Contracting (Santa Monica, Calif.: 2007).
According to this study, underrepresentation in government contracting
has come to mean that the share of contracts awarded to a particular
type of business is small relative to the prevalence of such
businesses in the pool of businesses “ready, willing, and able” to
perform government contracts. This measure of underrepresentation is
typically referred to as a disparity ratio. The RAND study identified
83 North American Industry Classification System (NAICS) sectors,
which were published in the WOSB program final rule on October 7,
2010. In 2012, SBA updated four-digit NAICS codes to six-digit codes
to incorporate Office of Management and Budget modifications of the
classification system (identified as NAICS 2012) into its table of
small business size standards. According to SBA’s interim final rule
on August 20, 2012, the large majority of changes involve renumbering
or redefining codes (or both) without warranting change to the
agency’s size standards. On August 19, 2013, SBA published a list of
330 industry sectors (identified by six-digit codes) eligible for use
in the WOSB program, with some codes eligible for use under the WOSB
set-aside, and some under the EDWOSB set-aside. [7] We were not able to determine how many self-certified businesses
obtained contracts under the program because SBA does not maintain
this information. [8] According to the WOSB program regulation 13 C.F.R. § 127.300(e),
documents required of self-certified WOSBs include copies of birth
certificates, naturalization papers, or unexpired passports; joint
venture agreement, if applicable; for a sole proprietorship, an
assumed/fictitious name certificate; signed WOSB program certification
(an attestation by the business of its program eligibility); if a
limited liability company, articles of organization and operating
agreement; if a corporation, articles of incorporation, bylaws, and
any amendments, all issued stock certificates, stock ledger, voting
agreements, if any; and if a partnership, partnership agreements and
amendments. Self-certified EDWOSBs also must provide a personal
financial statement for each woman claiming economic disadvantage (SBA
Form 413) and a signed EDWOSB program certification. [9] Federal Acquisitions Regulations require all prospective vendors
to be registered in SAM before the award of a contract, basic
agreement, basic ordering agreement, or blanket purchase agreement.
SAM, which is maintained by the General Services Administration,
replaced the Central Contractor Registration database. [10] According to the WOSB program regulation, 13 C.F.R. § 127.300(d),
documents required of third-party certified WOSBs and EDWOSBs include
a copy of the third-party certification; joint venture agreement, if
applicable; and signed WOSB or EDWOSB program certification (an
attestation by the business of its program eligibility). [11] If the business had uploaded a third-party certificate, SBA could
determine that the business had used third-party certification to
establish its eligibility for the program. If a given business had not
uploaded a third-party certificate but uploaded all required documents
for self-certification, SBA might then presume the business to have
self certified. [12] See GAO, Standards for Internal Control in the Federal
Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999). [13] See [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. [14] SBA dismisses protests under the WOSB program for various
reasons. For example, in one case the party that submitted the protest
was not eligible to do so because no specific solicitation was
involved in the case. Therefore, SBA dismissed the protest without
determining whether the business in question would have been eligible
for the program. [15] See [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. [16] In 2012, SBA included 113 businesses in its annual eligibility
examination, and in 2013 it included 119 businesses in its
examination. SBA has statutory authority to conduct program
eligibility examinations at any time for any firm asserting
eligibility to receive a WOSB program contract. [17] The program awarded the first contract in April 2011. Fiscal year
2011 was not a full fiscal year for the program and full fiscal year
2014 data were not available at the time of our review. [18] Beginning in 2000, the Small Business Act set forth statutory
thresholds of $5 million for manufacturing and $3 million for all
other contracts for set-aside awards under the WOSB program. In an
interim final rule published on April 1, 2011, the Federal Acquisition
Regulatory Council (FAR Council) adjusted the statutory threshold so
that the anticipated award price of contracts awarded under WOSB
Program must not exceed $6.5 million in the case of manufacturing
contracts and $4 million in the case of all other contracts. [19] To participate in the 8(a) program, a business must be certified
as meeting several criteria, including being a small business as
defined by SBA; being unconditionally owned and controlled by one or
more socially and economically disadvantaged individuals who are U.S.
citizens; and showing potential for success. Under the HUBZone
program, contracting preferences are available to qualified small
businesses located in an area designated by SBA as a historically
underutilized business zone. The SDVOSBC program provides veterans who
incurred or aggravated disabilities in the line of duty with certain
sole-source and set-aside contracting opportunities. Finally,
contracting officers can set aside contracts to small businesses
(generally for contracts worth $3,000-$150,000 or for contracts worth
more than $150,000) as long as at least two small businesses are
likely to compete for the contract. [20] SBA’s FY2013 Small Business Goaling Report includes federal
contracting dollars obligated to small businesses, with some
exclusions including contracts that are funded with agency generated
sources; acquisitions by agencies on behalf of foreign governments,
entities, or international organizations; and contracts that are
performed outside of the United States or its territories. [21] The Chief Financial Officer and Federal Financial Reform Act of
1990, among other measures, created the position of Chief Financial
Officer in each executive department and in each major executive
agency in the federal government. Chief Financial Officer Act agencies
are defined in 31 U.S.C. § 901(b). [22] Before changing the list, SBA officials stated that the agency
interprets the statutory requirements to mandate that the agency first
must conduct a study to identify industries in which EDWOSBs are
underrepresented and WOSBs are substantially underrepresented. A study
could indicate the need for either an increase or a decrease in
eligible WOSB program industries, and SBA will continue to base their
NAICS list on such studies. In SBA’s final rule implementing the
program and establishing the NAICS codes, SBA addressed a number of
comments that advocated expanding the number of NAICS codes beyond the
83 that SBA determined based on its industry study of WOSB
underrepresentation. In the final rule, SBA explained that section
8(m) of the Small Business Act instructs SBA to conduct a study to
identify industries in which WOSBs are underrepresented in federal
procurement contracting. Therefore, the only way SBA could expand the
list of eligible NAICS was to conduct a new study. [23] See GAO, Standards for Internal Control in the Federal
Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999). [End of section]
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