- The Washington Times - Tuesday, May 4, 2010

Americans rightly appreciate the competitive, underdog spirit embodied by small-town, mom-and-pop businesses. By exploiting this popularity, politicians have turned the Small Business Administration (SBA) into a bloated, billion-dollar affirmative-action agency that discriminates against worthy companies, using your tax dollars.

In 2008, the federal government doled out a whopping $93.3 billion in contracts to “small businesses,” with the SBA playing a leading role in determining what groups were worthy of this support. Under what is known as the 8(a) program, “socially and economically disadvantaged individuals” receive preferential treatment and even sole-source access to lucrative federal contracts. Agency bureaucrats effectively can bar participation by small, struggling but capable firms merely on the basis of the color of the owner’s skin.

According to a recent Government Accountability Office audit, the money often flows to companies that are not so small and not so disadvantaged. SBA employees failed to bother verifying the ongoing eligibility of 8(a) participants 55 percent of the time, rarely checking application information against Internal Revenue Service records. As a test, GAO investigators created four bogus companies and succeeded in getting one of them entered into the set-aside program. The problem is obvious: When the government spends other people’s money, there’s no incentive for the bureaucracy to be careful.

The carelessness costs taxpayers billions. GAO identified 14 firms that received $325 million in fraudulent 8(a) assistance on top of a stunning $1.2 billion in other federal subsidies - including $17 million from the president’s so-called stimulus package. The owner of a Fairfax information-technology firm, for example, claimed she was “disadvantaged” while concealing her ownership of $4.2 million worth of real estate. Even after GAO pointed out the deception, SBA allowed the company to accept a $1.7 million federal contract.

Such fraud has been going on for decades. In 1977, Ebony magazine featured dozens of examples of bogus outfits taking handouts. In one case, a team of white business owners created seven supposedly minority-owned companies in order to pocket $16 million in subsidies. The treasurer for one of the latter firms was a “73-year-old illiterate farm laborer who signed his name with an X and whose real job was to ‘clean up around the office.’ ” Even the Whitewater investigation that bedeviled the Clinton administration was sparked by a fraudulent SBA loan.

Taking opportunities away from one firm and giving them to another based solely on the owner’s race is a repugnant idea. The easiest way to end the discrimination, waste, fraud and abuse is to end the SBA.