SBA's disadvantaged-biz program plagued with inefficiencies - report

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(CNNMoney.com) -- For a look at just one of the many problems besetting the Small Business Administration, check out the Government Accountability Office's recent report on its yearlong audit of the SBA's 8(a) program, a business development program intended to aid socially and economically disadvantaged small firms.

Years behind in its monitoring targets and crippled by staffing shortages, the SBA is failing to meet many of the program's goals, according to the GAO. One of the report's most glaring findings: Terminating non-compliant firms is so bureaucratically fraught that many remain in the program and even receive contracts despite their ineligibility.

Of the 80 8(a) firms whose participants files were reviewed by GAO investigators, 31% were out of compliance. But the SBA's rigid termination procedure is so time-consuming and complex that staffers are discouraged from pursuing terminations. For example, after repeated attempts to contact one non-compliant firm, an SBA employee visited the company's listed location but found no facility. However, the employee was unable to terminate the firm because the SBA is required to communicate with a company at least twice before kicking it out of the program.

The GAO found three examples of this scenario, and pointed out in its report that the SBA has to continue expending the resources to complete annual reviews of the nonexistent firms until they are formally removed.

The GAO also found that the SBA is not satisfying its commitment to host business development activities and to routinely review the government agencies that provide contracts to small businesses.

Asked why so many of the 8(a) program's goals are going unmet, the SBA pointed to a workload that has its employees stretched too thin. Like any downsized business, the government agency is asking fewer employees to accomplish more work: Since 2000, the SBA's workforce has shrunk 26%, to 2,350 full time employees today.

In a written reply, the SBA agreed with all of the GAO's recommendations for various reforms intended to eliminate inefficiencies and realign staff priorities.

SBA Acting Administrator Sandy Baruah, who will leave his post once a successor is chosen by President-elect Obama and confirmed by the Senate, said the agency is working on a plan to streamline its termination procedures and improve its business-assistance offerings. Additionally, the SBA has recently deployed a new information-management system that it believes will help employees complete annual reviews of 8(a) participants more quickly. The SBA's next report on its progress is due to the GAO in late January.

This is the ninth time this year that the GAO has reported on conditions at the SBA. This most recent report, published in November, follows a series of earlier audits identifying problems at the agency, including a July report that focused on abuses in the SBA's HUBZone program.