GAO Highlights SBA Oversight Issues with WOSB Certification and Lack of Use of WOSB Set-Asides

This is our second blog on GAO’s recent report on SBA’s management of the Woman-Owned Small Business program. Here is our initial post.

In the report, GAO analyzes SBA’s oversight of the current certification program, and reports on its study of why contracting officers don’t use the WOSB set-asides as much as one might think.

GAO reviewed the following three questions in its report: ” (1) the extent to which SBA has implemented changes to the WOSB program made by the 2015 NDAA; (2) the extent to which SBA has implemented changes to address previously identified oversight deficiencies; and (3) changes in WOSB program use since 2011 and stakeholder views on its use, including since the 2015 implementation of sole-source authority.” In our initial post, we discussed the background of the WOSB program and point 1. Below, we discuss GAO’s findings with respect to points 2 and 3.

To conduct the study, GAO talked to SBA officials, three of the WOSB program’s four private third-party certifiers, and eight selected contracting offices within certain components of DHS, the Coast Guard, DOD, and GSA.

Oversight Issues

What are the oversight issues that GAO identified?

First, SBA has still not corrected a number of deficiencies in its review of third-party certifiers that GAO identified in October 2014. For instance, SBA does not have formal policies for reviewing the performance of the four approved third-party certifiers, such as reviewing the monthly reports submitted by third-party certifiers.

These monthly reports include the following information:

  • 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 or EDWOSBs.

In connection with this report, “SBA officials stated that SBA still does not use the third-party certifiers’ monthly reports to regularly monitor the program. Specifically, SBA does not review the reports to identify any trends in certification deficiencies that could inform program oversight.”

GAO provided some examples of concerning issues with certifiers:

a third-party certifier told us it has regularly reported firms it suspected of submitting potentially fraudulent applications in its monthly reports and that SBA has not followed up with them. In addition, two third-party certifiers said that if SBA is not cross-checking the list of firms included in their monthly reports, a firm deemed ineligible by one certifier may submit an application to another certifier and obtain approval.

GAO’s conclusion was that “[w]ithout procedures to regularly monitor and oversee third-party certifiers, SBA cannot provide reasonable assurance that certifiers are complying with program requirements and cannot improve its efforts to identify ineligible firms or potential fraud.”

Besides issues with third-party certifiers, SBA “has not fully addressed deficiencies found in our 2014 review related specifically to eligibility examinations.” In 2014, GAO compiled a number of recommendations for SBA to enhance its review of WOSB participants.

Specifically, we suggested that SBA consider (1) completing the development of procedures to conduct annual eligibility examinations and implementing such procedures; (2) 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 (3) implementing ongoing reviews of a sample of all businesses that have represented their eligibility to participate in the program.

SBA has taken steps to address these issues, including creating “written policies and procedures for WOSB program eligibility examinations.” These WOSB examinations consistently identify ineligible businesses. “[A]ccording to documentation SBA provided during this review, in fiscal year 2017, SBA found that about 40 percent of the businesses in its sample were not eligible.”

Per this report, WOSB status protests are probably not enough to police the WOSB program, because there are few of them:

11 status protests were filed under the WOSB program in fiscal year 2018. Of these, four firms were deemed ineligible for the WOSB program, four were deemed eligible, and three status protests were dismissed. In fiscal year 2017, 9 status protests were filed; of these, three firms were found ineligible, two were found eligible, and four status protests were dismissed.

GAO concluded that SBA should “enhance its WOSB eligibility examination procedures” in accordance with GAO’s earlier guidance.

Why so few WOSB set-asides?

GAO notes that federal contracts for WOSB set-asides remain small. As one way to understand this, the report points out that “[f]rom fiscal years 2012 through 2017, 98 percent of total dollars obligated for contracts to all women-owned small businesses in WOSB-program eligible industries were not awarded under the WOSB program. Instead, these contracts were awarded without a set-aside or under other, longer established socioeconomic contracting programs, such as HUBZone, the SDVOSB, and 8(a).”

In other words, WOSB set-asides are not used nearly as much as they might be. So what is causing this underutilization?

One issue is that sole-source authority is different under the WOSB program than other under set-aside programs. “For example, the FAR’s requirement that contracting officers justify, in writing, why they do not expect other WOSBs or EDWOSBs to submit offers on a contract is stricter under the WOSB program than it is for the 8(a) program. Further, staff from one contracting office noted that justifications for WOSB set-asides must then be published on a federal website.”

There were a few other explanations contracting staff offered for why they don’t use the WOSB program. One concern is that the contracting officer has to verify WOSB documentation, which is not the case with 8(a) and HUBZone applicants. Other interviewees noted that SBA should modernize and improve its WOSB compliance guides.

SBA’s response was that “the WOSB compliance guide was removed from their public website in March 2016 because it was difficult to keep the document current and officials did not want to risk publishing a guide that was out-of-date. SBA officials also said that there are no plans to issue an updated guide as the FAR is sufficient.”

Conclusions

GAO’s conclusion was that the weaknesses in SBA’s management of the WOSB program limit its effectiveness. In particular,

[a]s of February 2019, SBA had not fully implemented comprehensive procedures to monitor the performance of the WOSB program’s thirdparty certifiers and had not taken steps to provide reasonable assurance that only eligible businesses obtain WOSB set-aside contracts, as recommended in our 2014 report. . . . [L]imitations in SBA’s procedures for conducting, documenting, and analyzing eligibility examinations inhibit its ability to better understand the eligibility of businesses before they apply for and potentially receive contracts, which exposes the program to unnecessary risk of fraud.

Oddly enough, GAO’s only recommendation was to develop processes for reviewing whether agencies are using set-asides under ineligible NAICS codes and to provide additional training to agencies to avoid using ineligible NAICS codes. While other things were mentioned in the report, there was no mention in the recommendation section with respect to the oversight over third-party certifiers, lack of guidance for contracting officers about the WOSB program, or steps SBA should take to “enhance its WOSB eligibility examination procedures.” In part, that is because GAO already made the recommendations and SBA already accepted them.

We’ll keep you updated on what steps SBA takes to modify and enhance the WOSB program, especially with respect to certification and oversight, with the hope that use of the program by agencies will increase.