Update on GAO Report Issued Today
Today, the GAO issued a report specifically dealing with firms owned by Alaska Native Corporations that participate in the 8(a) Program. The main thrust of the report is additional compliance and oversight. It contains a lot of information and 6 recommendations.
The SBA took issue with the recommendations and I have summarized both the recommendations and the SBA response in this report:
GAO Report Analysis
March 21, 2016
For Informational Purposes Only GAO Report:
ALASKA NATIVE CORPORATIONS
Oversight Weaknesses Continue to Limit SBA’s Ability to Monitor Compliance with 8(a) Program Requirements Background According to the GAO, Federal obligations under the SBA’s 8(a) Program totaled $4 billion for 344 ANC-owned firms in 2014. In 2011, the SBA updated program regulations to address previous GAO concerns. Now, the GAO has been asked to follow up on those past reports and examine the SBA’s current oversight practices. GAO analyzed fiscal years 2011 through 2014 data from a federal contracting data base using separate nongeneralizable samples for each objective, conducted site visits, reviewed 8(a) sole source contracts, and ANC-owned firms annual updates, and interviewed relevant SBA officials. The 8(a) Program is referred to as the Program or the 8(a) Program. Brief Analysis The GAO’s report seems to be focused on the recommendation of providing more back up documentation and personnel to the 8(a) Program. In some instances, the GAO recommended a paperwork requirement that already has a paperwork requirement for the procuring agency. Along this same line, in examining 30 contracts for any follow-on sole source violations, the GAO did not find one, as it noted in footnote 33. Additionally, the GAO noted, the Alaska District Office adopted a form specifically asking the contracting officers whether or not the contract was sole source follow-on, even though this oversight responsibility resides with the contracting officers, according to the Federal Acquisition Regulations. Other recommendations seemed largely at staffing as well as monitoring new requirements for tracking work in the primary and secondary NAICS Codes of a firm. Interestingly, the SBA took issue with some of the GAO report’s recommendations and the GAO appended that as Appendix V, which proves to be quite a read. Executive Summary of GAO Recommendations and SBA Response (Appendix V) The GAO made six recommendations and the SBA took issue with two of them, according to the report. The SBA response seems to disagree with more than two and is summarized below. The recommendations from GAO and the SBA’s responses are as follows:
GAO Identified Issue and Recommendation 1 GAO Recommendation: To establish effective compliance and oversight to prohibit sole source follow-on contracts by a sister subsidiary. The GAO proposes that (1) the requesting procuring agencies state whether a contract is a follow-on in its offer letter; (2) the SBA provide additional training to SBA staff that addresses 8(a) sole source follow-on contracts to the sister subsidiary (recall immediately previously performed by sister subsidiary is the regulation); and (3) the SBA provide additional guidance to SBA officials on the enforcement of related policies. SBA Response: The procuring agency is already required in FAR 19.804-2 and 13 CFR 124.502 to specifically state whether a contract is a follow-on contract. The SBA has significantly addressed this and other requirements with additional training. This includes the training of 5 Federal agencies in fiscal year (FY) 2014 with 210 contracting professionals in attendance as well as training 19 different Federal agencies in FY 2015 with over 860 contracting personnel in attendance. The SBA also provided additional training to its staff including materials submitted to the GAO in response to a previous report. SBA notes that the GAO found no violations of the sole source regulation and that the SBA conducts random sampling throughout the year to monitor compliance. GAO Identified Issue and Recommendation 2 GAO Recommendation: The Administrator of the SBA should direct District Office staff implementing the Program to enhance internal controls and oversight of ANC-owned firm in the Program serviced in the Alaska District Office by enforcing policies regarding the separation of duties and supervisor of Administrator approval in order to improve supervisory review of ANC-owned firm transactions and related documentation. SBA Response: SBA disagrees with this recommendation stating effective measures are already in place. The Alaska District Office staff, senior District Officials, and the OFO arranged and provided for 10 legal and other 8(a) ANC training provided by subject matter experts, including the office of general counsel, business development-program certification, and field office headquarters. The team has worked closely with the Alaska office to identify 8(a) procedures that must be followed, which include secondary reviews/approvals, file management, and annual review requirements. This on-going training will continue in 2016. (Annual review approval is addressed in the technical requirements.)
GAO Identified Issue and Recommendation 3 GAO Recommendation: The SBA Administrator should direct District Office staff implementing the Program to develop a comprehensive approach to staffing its Alaska District Office to include succession planning and managing attrition and retirements in order to improve the agency’s capacity to keep pace with oversight activities. SBA Response: SBA disagrees with this recommendation to develop a new comprehensive approach to staffing because the SBA already addressed and mitigated the potential for reoccurrence of this issue through new hires and training. There has been increased staffing and training in the Alaska District Office including the training addressed in response to recommendation 2. Additionally, the SBA addressed succession planning in its response to GAO Report GAO-15-347, recommendations 3-5, pages 123-124. GAO Identified Issue and Recommendation 4 GAO Recommendation: The SBA should direct the Associate Administrator of Business Development to document its planned method for tracking revenue generated under subsidiaries’ primary and secondary lines of business, with milestones and timelines for when and how the method will be implemented. SBA Response: The SBA has already started process improvements including the ability of the SBA to change a firm’s primary NAICS Code and implementing data bases that will track awards according to a firm’s primary and secondary NAICS Codes. The tracking mechanism will be updated annually and training will occur. Once the new regulations are finalized, the SBA will post the tracking system for access by the Business Opportunity Specialists (BOS). GAO Identified Issue and Recommendation 5 GAO Recommendation: The Associate Administrator of Business Development should be directed to provide the appropriate level of access to and sharing of relevant subsidiary data across district offices. This information should include primary and secondary North American Industry Classification System codes and data, once the SBA develops a database with the capabilities of collecting and tracking this revenue data as GAO recommended in 2012. SBA Response: The SBA has already started process improvements. Additionally, once the new regulations are finalized, as noted in SBA Response to Recommendation 4, the tracking mechanism will be in place that will provide the appropriate level of access to and sharing of relevant subsidiary data. GAO Identified Issue and Recommendation 6 GAO Recommendation: The Associate Administrator of Business Development should enhance internal controls and oversight of ANC-owned firms in the 8(a) Program by: (1) ensuring that all ANCowned firm files contain all relevant documents in accordance with SBA program requirements to facilitate SBA’s review of compliance, including the documents relating to follow-on sole source contracts, benefits distribution reports, compensation data, information about excessive withdrawals that do not benefit the ANC or the Native or shareholder community, as well as the submission of annual reviews themselves; and (2) finalizing the agency’s plans to fully launch a new continuing eligibility review unit. SBA Response: The SBA believes it has recently addressed this recommendation. As detailed in previous responses, the Alaska District Office received detailed training on the 8(a) procedures that must be followed that include secondary review/approvals, file management, and annual review requirements. Additionally, in 2015, the SBA stood up a continuing eligibility review unit within its Office of Certification and Eligibility, and performed the required continuing eligibility reviews for ANC-owned firms. The office completed 100% of the assigned reviews for FY 2015. The team is adequately staffed and will continue to fulfill its function. Conclusion The GAO report contained six recommendations for oversight and compliance for the SBA in regards to ANC-owned firms. The GAO did not seem to identify any concrete instances of failure in general or in areas that were not already being addressed by the SBA. About the Author: Christine V. Williams is an adjunct law professor on government contracting at Seattle University School of Law’s Alaska Campus, as well as an adjunct master’s instructor on government contracting and the 8(a) Program at Alaska Pacific University. She concentrates her practice on Government Contracting from counseling on qualifications and administration to disputes and companies in crisis. She is often involved in sensitive internal investigations and frequently interacts with Government agencies when a company faces a tough situation. She represents clients in defending against federal investigations, including investigations/reports by the Office of the Inspector General, the Department of Justice, and the GAO. Despite having a national practice, as a born and raised Alaskan, she understands unique challenges that may be faced by Alaska and Tribal companies as well as other businesses when it comes to Government Contracting on a national basis. Christine is widely recognized for her expertise in government contracting and speaks nationally several times a year on the subject. Christine also counsels companies on the procurement and administration of government contracts across all agencies. She has especially deep experience in the SBA and Section 8(a) Programs.
Alaska Native Corporations: Oversight Weaknesses Continue to Limit SBA’s Ability to Monitor Compliance with 8(a) Program Requirements.
GAO-16-113, March 21