United States. Congress. House. Committee on Small.

The abuses in the SBA's 8(a) Procurement Program : hearing before the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, December 13, 1995 online

. (page 12 of 20)
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(3 firms). 6

These recommendations were overruled, in some cases by high-level sba
officials, despite the fact that some of the firms had not been
recommended for acceptance up to three times previously for the same
reasons. As of May 1995, 18 of these 25 firms had exited from the program;
yet at least 17 are still performing on contracts awarded while they were in
the program. According to sba, the total dollar value of contracts awarded



*These data, the most current available when we initiated our investigation, were compiled from the
Federal Procurement Database System, operated by the General Services Administration We did not
attempt to verify the data.

^BA could not provide the eligibility files for 3 of the 25 firms.

^e cited numbers exceed 15 because some firms were not recommended for acceptance for multiple



GAO/OSI 95 15 8(a) Vulnerability to Progri



nd Contractor Abus<



134



to the firms initially not recommended for participation in the program is
at least $2.9 billion.

An sba Office of Inspector General (oig) audit report (Sept. 1994) also
questioned the continued eligibility of large 8(a) firms in the program and
identified some of the same causes. In its report, it cited findings wherein

individuals in the program had overcome their economic disadvantage but

remained in the program by understating their net worth;

sba officials had miscalculated the net worth;

high personal income was also not considered in the evaluation of net

worth; and

individuals remained in the program because either the firm's equity, the

owner's personal residence, and/or the spouse's net worth were not

considered factors in determining the owners' net worth. Consequently,

individuals could remove equity from the firms and use it to purchase

expensive personal residences exempt from net worth evaluations.



SBA Admitted I-NET
and TAMSCO to the
8(a) Program
Although It
Questioned the Finns'
Negative Control



According to sba 8(a) regulations, negative control is the lack of power by
a program participant to control a firm's operations. For the 8(a) program,
sba regulations state that a program applicant must unconditionally own at
least 51 percent of the firm and control its operations. 7 Control is further
denned as a condition that would not allow a noneligible person to benefit
from the program or subjugate the control of the firm's operations, sba had
concerns about negative control issues at both I-NET and TAMSCO, but it
ultimately admitted both firms to the 8(a) program.



I-NET— Negative Control
Issues



sba officials recommended denying I-NET acceptance into the program in
four separate instances, but other sba officials overruled these
recommendations, sba officials had determined that I-NETs owner and
president, Mrs. Kavelle Bajaj, lacked the technical and managerial
experience to run a high technology computer firm. They also determined
that, rather than Mrs. Bajaj, Mr. Bajaj, a recognized expert in the field,
would actually control and run the firm's operations.

A former I-NET Vice President for Marketing and Operations told us that
Mrs. Bajaj lacked the technical and managerial skills needed to run a
computer company and that he was hired by Mr. Bajaj in January 1985 to
help start and run the firm and to "teach" Mrs. Bajaj how to run a business.

7 SBA regulations provide thai the program applicant shall control the 8(a) firm's board of directors
either in actual numbers of voting directors or through weighted voting 13 C F R. § 124 104 ( 1996).



GAO/OSI-95-15 8


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Online LibraryUnited States. Congress. House. Committee on SmallThe abuses in the SBA's 8(a) Procurement Program : hearing before the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, December 13, 1995 → online text (page 12 of 20)