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SBA in shambles

Barreto leaves legacy of abuse, fraud and plummeting morale

Published June 3, 2006 at midnight

The five-year reign of outgoing SBA Administrator Hector Barreto has left the agency a gutted shell of what it was when he took office in 2001. The SBA's dismal performance under Barreto's leadership has been chronicled in 10 federal investigations and two private studies that uncovered fraud, abuse and lack of proper oversight in virtually every major Small Business Administration program. And, as Barreto allowed the SBA's operating budget and staff to be cut every year, a governmentwide survey showed that the morale of SBA employees plummeted to the lowest level of any federal agency.

Barreto has drawn the ire of both houses of Congress and Republicans and Democrats alike. The small-business committees in both the House and Senate have grown accustomed to the false and misleading information he delivers on SBA performance. New York Rep. Nydia Velasquez was so angered by Barreto's attempts to mislead Congress that she publicly accused him of "being dishonest" in a congressional hearing last year.

A 2003 Government Accountability Office investigation found that Barreto had allowed federal small-business statistics to be inflated by reporting billions of dollars in contracts to large companies as small-business awards. After a subsequent congressional hearing on the matter, the SBA was forced to remove the names of 600 large businesses from its PRO-NET database, which at that time was the main source for government procurement officers to find small business contractors.

A 2004 report commissioned by the SBA Office of Advocacy found Barreto had permitted awards to firms such as Hewlett-Packard, Oracle, Raytheon and Northrop Grumman to be reported as small-business contracts. The same report found "vendor deception"- another term for fraud - was one reason for the illegal contracting activity. Barreto has refused to address the abuses.

In 2005, the SBA's own Office of Inspector General issued four reports that documented continuing cases of fraud and abuse. Report 5-15 stated, "One of the most important challenges facing the Small Business Administration and the entire federal government today is that large businesses are receiving small-business procurement awards and agencies are receiving credit for these awards."

Still, Barreto refused to take any action to address the problems.

Report 5-14 found that during Barreto's tenure, the SBA had falsified its own small business contracting statistics by reporting millions in awards to large businesses as small business contracts. In one instance, the SBA reported a large contract to Buhrmann NV - a Dutch firm with 18,000 employees worldwide - as a small-business award.

Report 5-16 found Barreto had allowed large businesses to receive millions in federal small-business contracts through "false certifications".

Report 5-20 found that under Barreto's guidance, the SBA had failed to properly monitor major federal "bundled" contracts to allow small companies a more equitable opportunity to compete for government business.

In a failed attempt to protect the SBA's dubious small-business contracting statistics, Barreto directed SBA attorneys to fight Freedom of Information Act requests that could prove the SBA had intentionally manipulated the numbers. The SBA lost two FOIA cases to the American Small Business League and, in both instances, it was forced to release information that proved the agency had extensive knowledge of fraud and abuse in the system.

Barreto's refusal to implement the women's procurement program that Congress enacted in 2000 has cost women entrepreneurs well over $33 billion in lost contracting opportunities. Frustrated with his lack of action, the U.S. Women's Chamber of Commerce successfully sued the SBA in order to compel Barreto to take action.

A Sept. 12, 2005, story by The Associated Press reported that the 9/11 disaster-recovery loan program had been completely mishandled and that less than 11 percent of the loans approved had actually gone to firms in New York.

In 2006, the SBA Office of Inspector General issued Report 6-15, which revealed the SBA has mismanaged the 8(a) contracting program to the point where it is rife with fraud and abuse. The Government Accountability Office released an additional report on abuse by Alaska Native Corporations in the 8(a) program that the SBA allowed through a significant lack of oversight.

Budget cuts and staff layoffs during Barreto's term resulted in a dramatic loss of knowledgeable and experienced staff. After the Gulf Coast hurricanes last year, the SBA was forced to take on thousands of temporary workers to compensate for the severe lack of experienced employees.

Furthermore, the gulf loan program has been so poorly handled that thousands of small-business owners have been forced into bankruptcy because they have been unable to get timely financial help. While Barreto has frequently touted record numbers of loans approved for hurricane victims, the reality is that only a small percentage of the loans have actually been dispersed. The New Orleans Times-Picayune cited a recent study by a post-Katrina advocacy group that found only about 21 percent of small businesses had received any assistance.

A recent article in Inc. magazine labeled Barreto "the disappointment" in the Bush administration. SBA insiders have acknowledged that he was forced to resign after the White House determined Barreto's handling of the SBA was a public relations nightmare and an embarrassment to President Bush. Barreto's removal as head of a federal agency to run a small and obscure Hispanic lobbying group marks a dismal end to his troubled political career.

Lloyd Chapman is president and founder of the American Small Business League. The ASBL monitors existing policies and proposed policy changes by the Small Business Administration and other federal agencies that affect its members.

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