The Dayton Daily News has a solid investigative piece about how the federal Small Business Administration (SBA) is unwilling or unable to police its own preference programs. Read on:
Federal agencies have awarded tens of millions of dollars in taxpayer-funded contracts to businesses operating in Ohio that claimed to be owned and controlled by military veterans with service-related disabilities, only to conclude the companies lied to the government when they said a disabled veteran was in charge, a Dayton Daily News examination has found.
The businesses were part of the federal Service-Disabled Veteran-Owned Small Business program, which gives small companies owned and operated by America’s wounded warriors special preference in obtaining lucrative government contracts.
Government watchdogs say hundreds of millions of dollars in public funds have gone to ineligible companies under the program, which calls upon all federal agencies to award at least 3 percent of the value of their contracts to disabled-vet businesses.
Sometimes the companies getting special treatment have figurehead vets in place. Other times, reports the DDN, the supposed vets are simply scam artists pretending to be wounded warriors to get a leg up on competition. The results?
“We had a lot of businesses that were stealing the valor from those who were in fact service-disabled veterans,” said Bob Hesser of VET-Force, a veteran entrepreneur task force in the Washington, D.C., area.
Along with SBA, the Veterans Administration comes in for criticism due to its lackluster (read: basically nonexistent) verification of claims made by favored vendors.
Reason columnist and Mercatus Center economist Veronique de Rugy has long argued that SBA is an agency in search of a mission. The entrepreneurs it was designed to help are able to get loans via regular credit markets (the ones that can't get loans typically have bad business plans); SBA guarantees put taxpayers on the hook for bad businesses that don't actually generate much in the way of employment to boot.
Most recently, in a Wall Street Journal debate, de Rugy writes:
According to the Government Accountability Office, the SBA flagship loan program accounts for only a little more than 1% of total small-business loans outstanding. So, for the most part, SBA loans help a fraction of small businesses compete with unsubsidized small firms....
The SBA loan program is best understood as a subsidy to banks. Borrowers apply to an SBA-certified bank. The SBA guarantees 75% to 85% of the value of loans made in the flagship program. The banks then boost their earnings by selling the risk-free portion of the loans on a secondary market. Ironically, it's also the biggest banks that do the most business through the SBA.