Audit of SBA’s Suspension and Debarment Process

This audit report presents the results of our review of the Small Business Administration’s (SBA’s) suspension and debarment process, with objectives to determine whether SBA had sufficient controls in place to prevent suspended or debarred entities from receiving federal contracts through SBA’s preference contracting programs and small business loans. Suspension and debarment actions are designed to protect the federal government from potential harm posed by individuals or entities who demonstrate a lack of business integrity. Entities suspended, debarred, declared ineligible, or otherwise excluded from participating in government programs are maintained in the System for Award Management (SAM).

We found that SBA has not established sufficient controls over its suspension and debarment process to prevent ineligible individuals or entities from participating in small business programs or to control the risk presented by potentially irresponsible entities participating in federal government programs. Also, lending partners did not always review SAM to verify the eligibility of entities to participate in SBA’s loan programs prior to approving SBA-guaranteed loans valued at $3.8 million, nor did they maintain evidence to support they had reviewed the system. In addition, suspending and debarring officials’ delayed action to process referrals for debarment resulted in $80.3 million in contract awards to entities who demonstrated causes for debarment. We identified 15 referrals for suspension and debarment that had been pending review without action by suspending and debarring officials for an average of 620 days. During that time, federal agencies awarded contracts to three entities that were referred for debarment because they circumvented federal contracting rules to gain access to the 8(a) Business Development Program. Also, by not documenting the basis of their declinations of suspension or debarment referrals, including explanation for declinations, suspending and debarring officials could expose SBA to adverse legal action.

We made six recommendations to improve the oversight and management of SBA’s suspension and debarment program to prevent ineligible entities from participating in SBA’s contracting and loan programs. SBA management agreed with two of the six recommendations and partially agreed with the other four recommendations. SBA management’s planned actions resolve three recommendations; however, three other recommendations are pending resolution. The OIG will work with SBA management to resolve this recommendation through the audit followup process.