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Audits

SBA Launches New Audit of Economically Disadvantaged Women-Owned Small Businesses

The Small Business Administration (SBA) has expanded its review of socio-economic contracting programs to include the Economically Disadvantaged Women-Owned Small Business (EDWOSB) program. (Federal News Network June 12, 2026)

Earlier this week, SBA emailed EDWOSB participants and requested that they complete a survey and submit personal and business tax returns for the past three years by June 30. (ibid)

In the email, SBA explained the purpose of the review:

“Pursuant to 13 C.F.R. § 127.400, SBA is conducting a program examination to verify that your firm continues to meet the requirements of the Economically Disadvantaged Women-Owned Small Business (EDWOSB) program,” wrote the agency’s compliance division within the Office of Government Contracting and Business Development. “Specifically, SBA will be verifying that your firm continues to meet the requirement that the woman or women that own at least 51% of the firm are economically disadvantaged, as set forth in 13 CFR 127.203.” (ibid)

Similarities to the 8(a) Program Audit

This review follows SBA’s recent audit of the 8(a) Business Development Program.

In December, SBA requested information from more than 4,300 8(a) firms, including employee lists, bank statements from the previous three fiscal years, and copies of all 8(a) contracts. As a result of that review, SBA suspended more than 1,100 firms and ultimately terminated 154 companies from the program. (ibid)

SBA Proposes Changes to 8(a) Eligibility Requirements

SBA continues to revise the 8(a) Business Development Program. The agency recently released a proposed rule that would change how individuals qualify for the program.

Under the proposal:

“SBA says ‘individuals will no longer be considered” “socially disadvantaged,” and therefore eligible for the 8(a) program, simply because they are a member of a racial minority group. Likewise, no individual may be barred from the 8(a) program simply because they are white. Instead, all applicants will be required to prove their social disadvantage status by submitting verifiable, fact-based evidence.’” (ibid)

The proposed changes would apply only to individually owned firms. SBA would not change eligibility standards for businesses owned by Indian tribes, Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), or Community Development Corporations (CDCs). (ibid)

Current individually owned 8(a) participants would not be affected. (ibid)

Comments on the proposed rule are due by July 13.

Reactions to the Proposed Rule

Sen. Ed Markey (D-Mass.), ranking member of the Senate Small Business and Entrepreneurship Committee, criticized the proposal. (ibid)

“The SBA’s proposed rule grossly diminishes the history of systemic racial and ethnic discrimination in the United States. Congress created the 8(a) Business Development Program nearly half a century ago to provide entrepreneurs who have faced historic and present-day discrimination with opportunities to partner with the federal government and support to help grow their businesses,” Markey said. (ibid)

“To be clear, the 8(a) program has always been open to anyone that can prove they’ve experienced prejudice or cultural bias, including in education, employment and entrepreneurship. Now, the SBA proposes to define discrimination based on its political whims and allow applicants to self-certify their eligibility. Instead of fighting to right historic wrongs and enable more job creators to grow and thrive, this administration is once again choosing to distort reality to perpetuate its hateful — and harmful — agenda.” (ibid)

Shane McCall, partner at Koprince McCall Pottroff, noted that SBA’s proposal builds on the 2023 Ultima decision. (ibid)

“However, the proposed rule includes a big change in standards for social disadvantage that mostly stem from racial quotas from government or private entities,” McCall said. (ibid)

“Examples include ‘unlawful diversity, equity, and inclusion programs or policies; unlawful affirmative action programs or policies; race-based quotas, set-asides, or hiring targets; or, any government or private entity policies or programs that favored some groups over others on the basis of race.’ We also need to know how SBA will apply these rules.” (ibid)

Questions About the EDWOSB Audit Process

Industry participants have raised concerns about the audit process.

One executive, who requested anonymity, said the review seemed unexpected because the company had recently renewed its certification and remained certified for another three years. (ibid)

The executive also questioned SBA’s use of SurveyMonkey to collect sensitive financial information, including:

  • Cash balances in savings and checking accounts
  • Retirement account information
  • Stock, bond, and mutual fund holdings
  • Life insurance policies with cash surrender value
  • Home ownership, mortgage balances, and property values (ibid)

The survey also asks:

• Has the Qualifying Owner transferred any assets to any immediate family member for less than fair market value in the last two years?

• Do you have any retirement accounts? And if so, provide a list and how much money is in each account.

• Do you have any stocks, bonds or mutual funds? And if so, provide a list, a corresponding number of shares you own and total dollar value for each.

• Do you have a life insurance policy that has a cash surrender value?

• Do you own your primary residence? If so, what is the mortgage of your residence and what is the current value of your residence? (ibid)

The executive said:

“It makes me wonder how much time and effort has been put into this and makes me question the credibility of whatever results we are provided post-evaluation. Will the SBA feed my data into an algorithm or artificial intelligence to determine program eligibility? Or will a human evaluate? Are they comparing our new information with the information provided at application? Or is this a separate examination completely?” (ibid)

SBA did not respond to requests for comment.

Growth of the Women-Owned Small Business Program

The Women-Owned Small Business (WOSB) program has grown significantly during the last decade.

Federal data shows:

  • 1,410 new WOSB firms entered the federal market in fiscal 2023.
  • 1,183 entered in 2022.
  • 1,276 entered in 2021. (ibid)

Although agencies failed to meet the governmentwide 5% contracting goal between 2020 and 2024, contract dollars awarded to WOSBs increased substantially. (ibid)

According to SBA’s June 2025 procurement scorecard:

  • Agencies awarded a record $31.7 billion to WOSBs in fiscal 2024.
  • Agencies awarded $27.1 billion in fiscal 2020.(ibid)

Leadership Connect reports that contracting activity with EDWOSBs has declined so far in fiscal 2026:

  • 17 awards totaling $2.3 million during the first eight months of FY 2026.
  • 35 awards totaling $8.7 million during the same period in FY 2024.
  • 29 awards totaling $4.7 million during the same period in FY 2025. (ibid)

Certification and Audit Outcomes

Concerns about program abuse prompted SBA to strengthen certification requirements in 2020. The agency now requires firms to obtain certification through SBA’s online platform or an approved third-party certifier and to recertify every three years. (ibid)

SBA identified two possible outcomes for the current audit:

Continued Certification

“If SBA determines that the firm continues to meet program eligibility requirements, SBA will provide a written notice of continued certification in your firm’s record within MySBA Certifications, and the firm will maintain its certified EDWOSB status in SBS.” (ibid)

Proposed Decertification

“If you fail to submit your program examination response within the required timeframe or SBA determines the firm no longer meets program eligibility requirements, SBA will notify you that your firm has been proposed for decertification from the EDWOSB program in accordance with 13 CFR 127.405.”

The notice will explain the reasons for proposed decertification and require a written response within 20 calendar days. SBA may draw adverse conclusions if a firm fails to cooperate or provide requested information. (ibid)

SBA also stated that firms may voluntarily withdraw from the program before the audit concludes.

McCall summarized the significance of the review:

“While I’ve seen nothing official, it appears that SBA is auditing the economic disadvantage for all EDWOSB participants. This means those companies will have to provide backup documentation showing they meet the EDWOSB economic disadvantage requirements. Those rules are basically the same as the 8(a) economic rules. So, this could represent a shift towards more scrutiny on the EDWOSB program, similar to the 8(a) program.” (ibid)

Legislative Efforts to End the Program

The audit comes as some lawmakers seek to eliminate the Women-Owned Small Business program entirely.

In April, Sen. Mike Lee (R-Utah) and Rep. Glenn Grothman (R-Wis.) introduced the Ending Discrimination in Government Contracting Act. The legislation would eliminate contracting preferences for women-owned and socially and economically disadvantaged businesses. (ibid)

Neither bill has advanced beyond committee review. (ibid)

The Navy is looking to end Small Business subcontractor baiting

The Department of the Navy (DoN) has exceeded all of its small business goals for fiscal year 2021, spending more than $17 billion with small business prime contractors. The Navy is, however, wrestling with small business subcontractors getting their fair share. (Federal News Network October 21, 2021)

An updated effort to enforce small business contracting plans is in the works, according to Jimmy Smith, the director of the Office of Small Business Programs for the Department of the Navy. (ibid)

According to Smith, “the Navy executed a Navy audit, service audit on subcontracting on our 10 major buying commands. The Naval Sea Systems Command was the first of those 10 audits. The audit has concluded. We’ve already seen the results of that and now we’re sharing that information across the entire enterprise to go off and correct problems. We don’t think we’re going to learn anything more from going over the same information in the other audits, so now is the time to get into corrective actions and the steps that we need in order to execute solutions to problems instead of continuing to admire problems.” (ibid)

The first audit has provided some changes to be made Navy-wide, according to Smith. “First is reporting back to our industry partners. We have to make that something that’s pretty standard, maybe use a machine learning technology to help contracting officers identify problems that are in contractor performance assessment reporting (CPARs) when it comes to how well our industry partners are doing meeting their own subcontract and goals, that they can communicate it to us. We would love to have a system that flashed bright red lights when an industry partner wasn’t living up to the plan in the document that they provide to us about the health of their effort. Right now, it’s all hand-over-hand reading to see if you find that someone is off and then go do the analysis. I think we have to come up with a mechanism that brings the importance level of subcontract and compliance up to a higher level to raise it to the attention that it’s deserved.” (ibid)

Government agencies and prime contractors, need to hold up their side of the bargain and be held accountable. In 2018, the Inspector General for the Defense Department found it to be a challenge for five contracting commands to monitor prime contractors’ compliance with individual subcontracting plans. He told the House Small Business Committee the individual contractors who held subcontracting plans, did not meet their small business subcontracting goals. (ibid)

The Federal Acquisition Regulations Council issued a final rule in August. The rule requires large businesses to make “good faith efforts” to meet subcontracting goals. A few examples of actions that are a failure to make a good-faith effort can be found in the SBA’s guidance list. (ibid)

The final rule spells out what encompasses not making a “good faith effort”. The rule includes turning in subcontracting plan reports late, not designating an employee to monitor the subcontracting plan, and not completing market research. (ibid)

Smith said the Navy has met all of its small business goals for the past four years. He added, the Navy’s goals are not just the numbers, but providing the correct capability to the warfighter at the best value. (ibid)

Smith noted that the Navy is finding small businesses that meet their needs by an extended outreach effort. The move to virtual events has also extended their outreach. Virtual events are more cost-effective and reach more people. Smith plans to continue to do some live events, however, webinars will complement these and hopefully reach even more small business contractors. (ibid)

Questions about your small business subcontract plan? Give us a call.

 

 

Small Business? Better be able to prove it

The Small Business Administration has contracting assistance programs, in place, to help small businesses by limiting competition for certain government contracts. Additionally, they work to ensure at least 23 percent of all federal contracting dollars goes to small businesses. (JD Supra August 13, 2021)

The current SBA programs are:

  • The small business set-aside program
  • 8(a) Business Development (8(a)) Program)
  • Service-Disabled Business (WOSB) Program
  • Historically-Underutilized Business Zone (HUBZone) Program (ibid)

It has come to light that some of these programs have had issues certifying and monitoring participants of the programs. Recently, two inspectors general audited the HUBZone and SDVOSB programs. The audits showed 15 of 39 firms receiving HUBZone certification and a HUBZone contract. Of the 15, three were improperly certified to participate in the program. The SBA had not made an eligibility determination for four others participating in the program. (ibid)

The Department of Defense (DoD) Office of Inspector General (DoD-OIG) recently issued a report that turned up concerns with how DoD confirms eligibility for SDVOSB contract awards. In the report, 29 SDVOSB contractors were audited. 16 contractors at issue received 27 contracts, together with values at $827.8 million. Those 16 contractors “did not have a service-disabled veteran as the owner and the highest-ranking officer of the company or whose publically available information and contract documentation did not support that the contractor met the requirements for SDVOSB status.” (ibid)

Since the issues have come out, both criminal and civil enforcement has increased. There have been four federal indictments or guilty pleas from business owners who misrepresented their status as a small business, women-owned business, service-disabled veteran-owned business, or minority-owned business. These are all clear-cut cases of misrepresentation and fraud. Recently, a construction company obtained $250 million in government contracts set aside for SDVOSBs. The owner of the company put a disabled veteran as the apparent owner of the construction company to qualify the company as an SDVOSB. The true owner turned out to be a non-service-disabled business partner who controlled both the financial and operational control of the company. This type of fraud is known as a “rent a vet” scheme. (ibid)

The government may use the False Claims Act (FCA) (31 U.S.C 3729-3733) to root out contractors who violate small business compliance laws. The FCA has a whistleblower aspect allowing for whistleblowers to obtain a percentage of the government’s recovery from a successful resolution of the matter. The FCA is a civil enforcement statute that does not require specific intent to defraud. The reach of the FCA is broad and not to be taken lightly. (ibid)

In 2020, there were 8 key settlements, rulings, and filings regarding various small business fraud scheme allegations and five settlements in 2021 already. Just last month a Virginia-based consulting group and the president of the company agreed to pay a $4.8 settlement regarding FCA allegations. The recent civil enforcement should be a flashing light of warning to small business government contractors that inspectors general and the DOJ are actively pursuing contractors who know their actions are in violation of small business contracting rules. (ibid)

To stay compliant and reduce risk, the following guidelines should be followed:

  • Establish a company culture of compliance, with every employee understanding the rules
  • Work with subject matter experts to stay informed
  • Continuously verify the company eligibility in the program
  • Assess the eligibility of subcontractors or affiliates
  • Perform comprehensive and thorough compliance risk assessments (ibid)

Following the guidelines will allow small businesses to spend their resources on participating in government contracts and not on criminal/civil violations.

Trying to determine if you meet the guidelines? Give us a call.

 

 

 

What the new Minimum Wage Executive Order means

In late April, President Biden signed an executive order, requiring government contractors to increase the minimum wage to $15 per hour by 2022. Censeo Consulting Group analyzed the effect of the federal worker minimum wage increase. They determined that approximately 30,520 contracts will require modification. In addition, they expect the modifications to add 450,000 additional contracting office, workload hours. This equates to about 240 additional full-time positions. (ExecutiveGov May 27, 2021)

The executive order will impact federal spending from between $1 and $2 billion. Agencies can prepare by:

  • Segmenting contract portfolio by delivery location and spend category, highlighting impacted contracts
  • Developing a policy and process for addressing impacted contracts
  • Analyze internal pricing to identify contracts requiring modifications (ibid)

The departments of Veterans Affairs, Defense, Agriculture, and State are most impacted by the executive order and are likely preparing to make their contract modifications on or before the 2022 deadline.

Do you need to modify your contract? Give us a call.

 

Not everyone is sold on the Transactional Data Reporting (TDR) pilot

Almost five years ago GSA launched the Transactional Data Reporting (TDR) pilot to replace the Price Reduction Clause (PRC). GSA’s goal is to use the data received, to obtain better pricing from contractors. GSA calls TDR a success, critics are not so quick to agree. (Federal News Network May 10, 2021)

Jeff Koses, GSA’s senior procurement executive said, “GSA has successfully demonstrated the value of TDR under the existing scope of the pilot. It has shown steady progress over the past four years, met most of the pilot’s objectives in the most recent year, and has made the necessary investments to leverage TDR’s potential in the years to come. We will continue to make improvements, especially in contracting officer usage.” However, Koses made no mention of using the TDR information in 2019 or 2020 (ibid).

Some argue that TDR works on paper, but not in reality. Many contracting officers are reluctant to use the data for decision-making. One industry expert went so far as to say, “I have not experienced any negotiations based on TDR data in order to form an opinion.” Others have suggested that the data is incomplete and that GSA has no strategy to back the pilot. (ibid)

One consultant pointed out that as more companies participate in TDR, the IG’s ability to audit prices before an award is made is more difficult. She noted, “under the TDR pilot, the population of auditable contracts has ostensibly been cut in half. When you remove the major resellers and the integrators, what remains are largely professional service contractors and products companies under Schedules 84 (Law Enforcement), 71 (Furniture), and 66 (Scientific). The audit threshold for annual sales is also reduced due to the smaller pool of contracts from which the OIG is selecting. Small businesses who would never have been a blip on the OIG’s radar are now at much higher risk of pre-award audit.” (ibid)

Another complication is GSA’s move toward unpriced contracts under Section 876 of the 2018 National Defense Authorization Act. The Act makes the Price Reduction Clause as well as TDR less necessary because the burden is on vendors to provide the lowest price possible as part of contract negotiations. (ibid)

Koses said GSA will refine and consider:

  • The ability of Federal Supply Schedule contracting officers to use transactional data for price negotiations in lieu of commercial sales practices and price reduction clause disclosures
  • The impact of an expanded data collection on GSA’s ability to use the data it currently collects
  • The impact on current/future GSA schedule contract holders
  • Communication to industry partners
  • Training and tools for category managers not impacted by TDR
  • Possible impacts on other FAS initiatives such as the National Defense Authorization Act (ibid)

So when will the pilot move to production? The waters remain murky. Whether the IG will move from the production stage should be made more clear when the Inspector General report on the TDR pilot is released, in the coming weeks. Vendors should be ready to invest in systems to collect and report pricing data, should the TDR pilot go into production.

Questions concerning how to collect and report pricing data? Give us a call.