Committee accuses DHS of double-counting small business figures

In 2007, the Homeland Security Department was one of the few federal agencies to meet each of the government's small business contracting goals.

But House lawmakers now have suggested those figures might have been boosted by creative double dipping, in which small firms that fall into more than one socio-economic category are counted more than once for each contract they were awarded.

"This simultaneous counting renders the picture of small, minority, and disadvantaged business participation in federal procurement hazy and can create a perception of robust participation by small, minority and disadvantaged businesses that may be misleading," according to a report issued on May 20 by the majority staff of the House Homeland Security Committee.

In fiscal 2007, DHS spent $12.2 billion -- or 35 percent of its budget -- on contracts with the private sector for goods and services. Approximately one-third of those contracting funds went to small businesses.

Federal law encourages agencies to award at least 23 percent of their prime contracting dollars to small businesses. These goals, which are rarely enforced and are met inconsistently, also include targets for a number of subcategories.

Agencies are expected to award 5 percent of their prime contracts to small disadvantaged firms and women-owned businesses; 3 percent should go to Historically Underutilized Business Zone (HUBZone) small businesses and companies owned by service-disabled veterans. There is no specific statutory goal for 8(a) minority-owned businesses.

DHS exceeded each of these targets last year but lawmakers suggest they might have used fuzzy math. Firms can be certified in any category for which they meet the criteria, including several groups simultaneously. For example, a women-owned business that is located in a HUBZone could be counted twice for that contract, once in each category.

"While the department has technically met its goals for small, minority and disadvantaged business contracting, the means by which they've met these goals raises serious questions," said Committee Chairman Bennie Thompson, D-Miss., who has asked the Government Accountability Office to investigate the issue. "We cannot allow this numbers game to continue. Small, minority and disadvantaged businesses deserve the same opportunities as other businesses. The federal government cannot attain true transparency in contracting until the numbers game ceases."

DHS, however, said its methods are transparent and well accepted.

"We use governmentwide procedures, which are established by the Small Business Administration and put into the Federal Procurement Data System in the small business goaling report," said agency spokesman Larry Orluskie. "Numbers aside, we put forth a great effort to work with small business and have numerous programs to help small business get into DHS. We've been recognized by the Small Business Administration for being one of the top performing agencies."

The committee also raised other concerns about the department's small business contracting operations.

Nearly 40 percent of DHS' procurements were obligated in the fourth quarter of fiscal 2007, while the remaining contracting dollars were split relatively equally among the first three quarters.

The committee suggested that the increased volume of procurements late in the year indicates that contracting officials are being pressured to complete purchases or execute projects that have not been effectively studied before a new funding cycle begins.

"A drastically increased volume of transactions decreases the likelihood of adequate internal review and audit oversight of the nature, purpose, cost and utility of the item to be purchased or the service to be procured," the report stated. "In an atmosphere of decreased internal review and audit oversight, the potential for fraud, waste and abuse increases exponentially."

Lawmakers also are troubled by what they view as an unequal distribution of small business contracts to a limited number of companies. In the service-disabled veteran-owned category, nearly 95 percent of the contracts went to just 10 firms; for women-owned companies, more than 63 percent of contracts went to 10 firms.

Alaska Native Corporations, which are not bound by the same size and profit restrictions imposed on other small businesses, dominated the 8(a) category, accounting for more than 28 percent of the contract dollars intended for economically and socially disadvantaged firms.

The committee has requested that Homeland Security Secretary Michael Chertoff examine the ANC disparity and the concentration of contracts awarded during the fourth quarter of fiscal 2007.