Audit hits companies on set-aside funds

Two Alaska Native Corporations (ANCs) violated federal program requirements by failing to tell the Small Business Administration about their business agreements and they also paid non-native managers more than $23 million in federal small business set-aside funds, according to a new audit report.

The ANC companies,  AMP and Goldbelt Raven, entered unapproved agreements that would send significant portions of their contract proceeds to managers who are not native Alaskans, according to the audit by the SBA's inspector general. The companies also didn’t disclose information to SBA officials or refused to hand over documents regarding their agreements, Debra Ritt, SBA's assistant inspector general for auditing, wrote in a report released Aug. 13.

Contracting regulations allow agencies to set aside contracts for companies owned by Alaska natives.

The companies received a combination of sole-source 8(a) contracts and some 8(a) contracts awarded competitively between fiscal 2003 and 2006, with a total value of more than $833 million, according to the report.

The companies did not return calls for comment.

APM, a construction management company, entered multiple agreements without prior SBA approval to pay firms separately owned by its non-native manager as much as 7.5 percent of its 8(a) contract billings, the report said. APM also agreed to pay 45 percent of its future income from more than $340 million in 8(a) contracts. As of December 2006, AMP had paid or owed these companies $7.5 million from 8(a) revenue, Ritt wrote.

Goldbelt, an information technology company, paid companies owned by its non-native manager $16.1 million, or 25 percent of the $65.6 million in 8(a) revenues earned over three years, as of April 2006 and also didn't tell SBA about its agreements, the report states.

The 8(a) program helps socially and economically disadvantaged small business find federal contracts, but small businesses wanting to join the program must sign participation agreements that accept the program’s terms and conditions in exchange for its benefits.

The program’s agreement stipulates that SBA officials must pre-approve all arrangements related to a company’s management and joint ventures. Refusing to agree is cause for dismissing the company from the program.

SBA officials said in the report that they have removed both companies from the 8(a) program.

The audit revealed flaws in the SBA’s oversight of the program’s participants; Ritt wrote that SBA should have had better coordination between its field offices.

Goldbelt Raven and AMP turned in financial statements and income tax returns as part of annual reports, and, as a result, SBA officials should have detected problems with the agreements, she wrote, adding that agency officials agreed. However, the SBA’s district office in Alaska, which handles the 218 ANC companies in the program, has two full-time and one part-time business-development specialists.

Ritt recommended that SBA conduct a workforce analysis to determine if the Alaska district office has enough employees.

Fay Ott, SBA's associate administrator for government contracting and business development, wrote that the agency will reinforce its procedures for reviewing companies' documents and statements.