Evaluation of SBA’s Eligibility Verification of 8(a) Firms Owned by Members of Federally or State- Recognized Indian Tribes

OIG evaluated the effectiveness of SBA’s process for verifying socially disadvantaged eligibility of 8(a) firms owned by enrolled members of a federally or state-recognized Indian tribe. The 8(a) program has several eligibility requirements for individually owned firms, including that the business be at least 51 percent owned, controlled, and managed by U.S. citizens who are socially and economically disadvantaged. Socially disadvantaged individuals include members of certain designated groups or any individuals who have been subjected to racial, ethnic, or cultural bias because of their identities as members of a group without regard to their individual qualities. Native Americans are one of the designated groups which includes Alaska Natives, Native Hawaiians, or enrolled members of a federally or state-recognized Indian tribe. We found that SBA adequately verified the socially disadvantaged eligibility of 8(a) firms owned by enrolled members of a federally or state-recognized Indian tribe for the majority of the applications we reviewed, despite SBA not having documented verification procedures. However, we also found two firms SBA admitted into the 8(a) program although owners were members of tribes not federally or state recognized. Program officials used subjective and inconsistent processes and unofficial information to determine whether Indian tribes were state recognized. These firms received $10.9 million in 8(a) set-aside obligations from FY 2015 through FY 2020 at the expense of eligible disadvantaged firms in the 8(a) program. We recommended that SBA document the process and procedures for verifying that Indian tribes named by individually owned firms claiming socially disadvantaged status as enrolled members are federally or state recognized and train staff on the verification procedures. We also recommended SBA review the two firms we identified that were owned by individuals who were members of Indian tribes not federally or state recognized and take prompt action to remove firms found to be ineligible. Both recommendations from this report are now closed. Socially disadvantaged individuals include members of certain designated groups or any individuals who have been subjected to racial, ethnic, or cultural bias because of their identities as members of a group without regard to their individual qualities. Native Americans are one of the designated groups which includes Alaska Natives, Native Hawaiians, or enrolled members of a federally or state-recognized Indian tribe.