Small Business Compliance Issues Receive Increased Scrutiny

Article excerpt

* Fraud. Waste. Abuse. Three words repeated as often in Washington as "my good friend" or "lapse of judgment." The president and his administration, lawmakers, prosecutors, inspectors general, auditors, reporters, whistleblowers, company compliance officers, and industry watchdogs all seek to identify and eliminate fraud, waste and abuse from federal programs.

Recent attention aimed at fraud and abuse in small business contracting has resulted in increased prosecutions, congressional oversight, investigations, suspension, debarment and negative press.

The defense community--public and private sector participants alike--must therefore allocate compliance resources--training, monitoring, auditing--toward this high-risk area. Small and large businesses must monitor current legislative, regulatory and enforcement activity in small business contracting to verify that adequate measures exist to ensure compliance and, if necessary, identify and report suspected violations of small business rules.

Excessive subcontracting, where small businesses pass through disproportionate work and profits to large businesses, has been specifically targeted for increased scrutiny and enforcement. For instance, a former top-50 federal contractor continues to recover from a devastating suspension by the Small Business Administration. This was the result of a Washington Post investigation that focused on the large contractor teaming with 8(a) companies for set-aside contracts and performing most of the work and receiving a large proportion of the contract revenue.

On Capitol Hill, the House Small Business Committee recently introduced the Subcontracting Transparency and Reliability (STAR) Act that would bar small businesses from subcontracting more than 50 percent of the amount paid under a service or supply contract to a large business. FAR contract clauses require that small businesses perform at least 50 percent of the personnel costs with their own employees on service contracts and at least 50 percent of all manufacturing costs on supply contracts. Whether or not the STAR Act is passed, increased enforcement of the subcontracting limitations is here and will require increased attention on compliance.

Mother area of scrutiny in small business contracting is size certifications. Small Businesses promotion is one of the few bipartisan issues that has resulted in legislation. In April of this year, the president signed the Jumpstart Our Business Startups (JOBS) Act, a small business bill that received broad support from both parties and both houses. Earlier in this administration, Congress passed the Small Business JOBS Act, which included many antifraud provisions aimed at small business contracting with the federal government.

It is designed to ensure that only "small" businesses can be awarded set asides. That law presumes a "deemed certification" of size status, which is an "affirmative, willful, and intentional" representation of small size status in certain circumstances. For example, "deemed certification" would occur where a contractor competes for a small business set aside contract but does not affirmatively represent itself as a small business in its offer.

Another circumstance of "deemed certification" is registration in a federal electronic database for the purpose of being considered for award of a federal contract as a small business concern. …