Federal and state-recognized Indian tribes and members of such tribes are presumptively socially disadvantaged, and if tribal association is verified, no further information is needed to verify social disadvantage for a Small Business Association (SBA) 8(a) program application. However, in 2021, the SBA Office of Inspector General (OIG) reported that, although the process for awarding 8(a) program status involves a multi-level eligibility review, the SBA does not have a formal verification procedure for verifying the federal or state-recognized status of Indian tribes associated with tribal applications. As such, GAO was asked to evaluate the SBA’s verification of 8(a) applications claiming federal or state-recognized tribal association. The following is a summary of those findings.
The GAO report provides a good summary of the 8(a) Program. As many of our readers know, the SBA 8(a) program is designed to assist eligible socially and economically disadvantaged owners of small businesses through business development opportunities. Assistance to approved participants involves management and technical assistance, business training, counseling, marketing assistance, and executive development. This assistance is designed to make the small businesses more competitive in the economy upon graduation from the program, which is generally a nine-year program. Many 8(a) program participants also benefit from federal government set asides, with roughly 10% of all federal government awards going to 8(a) participants. Between 2018 and 2020, there were 1,392 businesses admitted into the 8(a) program. Of those, 122, or approximately 9%, were owned by a federally or state-recognized Indian tribe or one of their members.
As previously mentioned, federally and state-recognized Indian tribes and their members are presumed socially disadvantaged, but there is no documented verification procedure, which concerned SBA OIG because it could lead to inconsistent decisions depending on the discretion of the SBA employee that completes each review. As a result, OIG recommended the SBA document its verification procedures, and planning and implementation was to have occurred in December 2021. In addition to the recommendation to document verification procedures, GAO was asked to evaluate SBA’s verification performance. To do so, GAO looked to two areas. First, they looked at applicants that were certified based on their association with a recognized tribe in fiscal years 2018-2020 to determine accuracy of the certifications. Then GAO tested SBA’s verification of tribal recognition for fiscal year 2021 via covert testing.
SBA’s Standard Operating Procedures (SOP) require documentation to support tribal recognition. For individuals, tribal membership cards are required to establish federal or state recognition of the tribe. Tribal owned businesses must submit evidence of federal or state recognition of the tribe. After all documents are submitted for the 8(a) application, an SBA Business Opportunity Specialist (BOS) reviews the application for completeness, advising applicants within 15 days completeness or whether additional information is required. Completed applications are processed within 90 days. Processing includes a review by the Office of General Counsel, the Director of Office of Certification and Eligibility, and the Associate Administrator for Business Development, with the last individual making the final decision of approval or denial. SOP refers the BOS to the Bureau of Indian Affairs list for verification of federally recognized Indian tribes, and state websites for state recognized Indian tribes.
While looking at the certified applicants for 2018-2020, GAO compared the tribal name from SBA’s 8(a) online application system to the 2020 list of federally recognized Indian tribes and the state-recognized Indian tribes from a GAO report from 2012. Additionally, GAO “review[ed] relevant documentation, interview[ed] knowledgeable SBA officials, and perform[ed] electronic testing of relevant data fields.” In its review, GAO examined 133 8(a) program applications from 2018-2020 of businesses claiming to be owned by individual members of federally or state-recognized Indian tribes. Of those 133, 122 were admitted to the program. GAO found only one of the 122 admitted to the program was not federally recognized as the applicant had claimed. At the time of the report, SBA was taking steps to terminate the entity’s participation in the program.
For the covert testing, GAO created four fictitious applicants who claimed to be members of fictitious tribes that are not listed on any federal or state recognition list. To assess the efficacy of SBA’s tribal status verification, GAO looked at whether the SBA took steps to verify federal or state-recognition by submitting the four applications with fictitious tribal names via SBA’s online application process. Each application included information that would clearly disqualify application based on tribal recognition status such as copies of fake tribal membership cards with fictitious tribal names. Of the four applicants, three applicants were asked for more evidence that they met the socially disadvantaged requirement for 8(a) participation. For the fourth applicant, BOS determined the fictitious Indian tribe was not federally or state recognized. In all four cases, SBA took the steps they had described during investigative stages of the study.
Though GAO’s reporting showed SBA is overall accurate with its verification, not having uniform and documented procedures could result in awards being awarded to unqualified recipients over those who are well-qualified. In an industry with $19.7 billion in contract obligations which were awarded to 3,364 8(a) Participants in 2020, consistency is crucial. Hopefully those reviewing any SBA program applications will stick closely to the guidance now that they are armed with the knowledge that a fictitious application designed to test procedures could be the next to land on their desk.
To view the full report, visit https://www.gao.gov/assets/gao-22-104146.pdf.
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