SBA’s Inspector General Urges SBA To Verify Small Business Status of Certification Applicants

The SBA’s Office of Inspector General is doubling down on advice it has previously given the SBA: verify that companies applying for an SBA certification (that is, 8(a), WOSB/EDWOSB, VOSB/SDVOSB or HUBZone) are small businesses. In a recent report, the SBA OIG says that the SBA’s practice of accepting self-certifications of small business status in connection with certification applications “sets up a system that enables ineligible businesses and unscrupulous business owners to obtain funds for which they are not entitled.”

Perhaps you’re thinking, “wait a second--I thought all these SBA programs now required formal certifications! Didn’t the SBA do away with self-certification for WOSBs/EDWOSBs and VOSBs/SDVOSBs?"

If this thought crossed your mind, you’re absolutely right. All of the SBA’s major socioeconomic contracting programs now require formal certifications. However, when it processes these certifications, the SBA generally accepts the applicant’s word that it meets a key requirement for each certification: that is, that the applicant is a small business.

For example, if a company submits an application for certification as an SDVOSB, the SBA will carefully review a variety of documentation, to verify whether the applicant is at least 51% unconditionally owned by service-disabled veterans, as required by 13 C.F.R. 128.202, and controlled by service-disabled veterans, as called for by 13 C.F.R. 128.203. However, the SBA generally accepts the applicant’s word—as represented by its self-certification in SAM—that it meets the requirement set forth in 13 C.F.R. 128.200 that the applicant be “[a] small business concern . . . under the size standard corresponding to any NAICS code listed in its SAM profile.”

The SBA OIG objects to the SBA’s longstanding practice of accepting an applicant’s small business self-certification in connection with an application for a socioeconomic certification. In its recent report, the SBA OIG says that “we continue to believe Congress intended for SBA to certify these businesses eligibility for set-aside contracts.” As I noted at the outset, the SBA OIG says that accepting small business self-certification opens the door to fraud and abuse within the SBA’s socioeconomic certification programs.

The recent report isn’t the first time that the SBA OIG has raised this concern. In 2022, the SBA OIG raised this issue in a report on the SBA’s implementation of WOSB certification. And earlier this year, the SBA OIG raised similar concerns in a report on the SBA’s administration of the HUBZone Program.

Despite the SBA OIG’s repeated concerns, it does not appear that change is imminent. The SBA rejects the SBA OIG’s position and believes that accepting SAM representations is the correct approach. In an official response to the 2022 WOSB report, the SBA said, in part:

As SBA has informed the OIG on this and past audits, the size program is by statute and regulation a self-certification program, and therefore the appropriate verification is for procurement officials, whether SBA, contracting officers, or others, to verify the certification in SAM.gov (previously CCR and ORCA). Requiring extra documentation to support self-certification means the program is no longer a self-certification program. This substantial change, transforming a self-certification program into government reviewed verification/certification program, would require regulatory and possibly statutory changes.

The SBA disagrees that Congress intended the SBA to verify small business status in connection with socioeconomic certification applications. The SBA also explains that, in its view, imposing such a requirement would make certification applications more burdensome for applicants. Per the SBA, were small business size status to be evaluated as a component of each application, the applicant would be required to submit additional documentation and the time to process each application would lengthen. The SBA also notes that, in cases where the SBA becomes aware of information that could call an applicant’s small business status into question, the SBA may refer the company to SBA’s size specialists for a formal small business size determination.

Unless the SBA or the SBA OIG has a change of heart, it appears that the matter will remain at a stalemate—unless, Congress decides to intervene and insist that the SBA implement a formal size verification process in connection with applications to the SBA’s socioeconomic certification programs. I’ll keep my eyes peeled for any hints that Congress may be considering such a step.

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Boring but important disclaimer: The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.