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Week of 09 November 2009

GAO Report Cites Fraud in SDVOB Contracting

Detroit Companies Graduate From SBA’s ‘Mini-MBA’ Program

Goldman Sachs Small Biz Program Sparks Interest

Healthy Business Credit Is Demystified

GAO Report Cites Fraud in SDVOB Contracting

By JAMES DAO

A program intended to help disabled veterans win government business awarded at least $100 million in contracts to firms that were either ineligible or committed fraud to obtain the work, a federal review has found.

In one case, a Nevada firm won a $7.5 million contract from the Federal Emergency Management Agency even though its majority owner was not a disabled veteran, the review by the Government Accountability Office said. In two other cases, businesses that won contracts were owned by disabled veterans who were also full-time state government employees, making them ineligible. And in at least three other cases, companies owned by disabled veterans did little or none of the contracted work, simply passing it on to subcontractors not owned by disabled veterans.

The report concludes that the program lacks procedures to verify that applicant businesses are owned by disabled veterans. And even when fraud is uncovered, usually as a result of protests from competing companies, punishment is rarely meted out, allowing guilty firms to continue receiving federal contracts, the report says.

The report is scheduled to be released on Thursday in time for a hearing on the disabled veterans program before the House Committee on Small Business.

Representative Nydia M. Velázquez, a Democrat from New York who is chairwoman of the committee, said, "Fraud in this program means that honest veterans who own a small business lose out on projects to impostors who, in many cases, aren’t small businesses or even veterans."

The Small Business Administration, which oversees the program, declined to comment on the report. But in a letter to the accountability office, an agency official asserted that problems with screening applicants and monitoring fraud were the responsibility of the federal agencies that issue the contracts, not the Small Business Administration.

"The S.B.A. is only authorized to perform eligibility reviews in a protest situation," the official, Joseph G. Jordan, wrote. "In this area, the S.B.A. believes it has been diligent and responsible."

Both Velázquez and the accountability office disputed that, saying that federal rules authorize the Small Business Administration to administer the program.

"For these kinds of procurement issues, the Small Business Administration has the appropriate expertise," Velázquez said.

The program, created in 2003, permits federal agencies to set aside a portion of their no-bid or sole-source contracts for small businesses owned by disabled veterans. The rules require that veterans who were disabled during active-duty service not only be majority owners, but also manage and control daily business operations.

Congress set a goal of having 3 percent of all federal contract dollars go to small businesses owned by disabled veterans, though that benchmark has not been reached. In 2007, $4 billion in federal contracts were awarded to firms owned by disabled veterans, about 1 percent of the total.

The review focused on 10 cases where fraud or abuse could be documented; none of the companies were named.

The accountability office recommended that Congress enact rules that punish firms that win contracts through fraud, whether through levying fines, suspending contracts or barring them from receiving future contracts.

Currently, no such penalties are in place, the report said. In one case cited, a company based in Nevada fraudulently described itself as owned by a disabled veteran so it could compete for contracts to maintain trailers for hurricane victims in Louisiana. Yet after the fraud was uncovered, the company was not required to repay $7.5 million it had received, and has not been prohibited from receiving future contracts.

In another case, the accountability office found evidence that a veteran-owned business was a shell company for another firm that actually did the work, involving septic tank service at Army posts. Among other things, the investigators found that the disabled owner worked three days a week at his brother’s bar and lived 1,800 miles from the California job site.

But the company that apparently created the shell business has been allowed to continue doing work on a $1.1 million Army contract, the report said.

The report also calls for a centralized program to certify disabled veteran-owned small businesses. Currently only the Department of Veterans Affairs has a database of firms that are verified to be owned by disabled veterans.

But that database is used only by Veterans Affairs for its own contracts; other agencies allow small businesses to "self certify" that they are owned and controlled by disabled veterans. The report recommends that the database be expanded and made available to all federal agencies.

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Detroit Companies Graduate
From SBA’s ‘Mini-MBA’ Program

By Nancy Kaffer

Participants in the U.S. Small Business Administration’s Detroit e200 program graduated recently in a ceremony at Wayne State University’s TechTown.

The e200 program has been called a "mini-MBA."

It’s an in-depth educational program, focusing on topics such as organizational management, growth strategies and management, market development, and strategic planning, according to the SBA.

Detroit-based graduates include: Applied Power and Controls Inc.; Atlas Global Bistro; Atlas Wholesale Food Co.; Eclipse Creative; Federal Pipe & Supply Co. Inc.; Flora Construction Inc.; Foster Finish Corp.; FutureNet Group Inc.; Meade Distributing Co.; Miller Protection Services Inc.; MKS Inc.; Rivers Investments Management Group; Sparkle Janitorial Service; Total Pack Management, LLC; Vulcanmasters Welding Co. Inc.; and Walker-Miller Energy Services.

As part of the program, the e200 graduates devised a three-year strategic growth program for their businesses.

Qualified participants must have been in business for three years, have $400,000 or more in annual revenue and be located within the inner city boundaries defined by the SBA.

Of the cities participating in the e200 program, only Detroit graduated all 16 of its participants, Richard Temkin, director of the Michigan SBA office said at last night’s ceremony.

SBA Regional Administrator Marianne Markowitz said she was pleased with the results of the e200 program, and said that the program would continue in Detroit in 2010.

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Goldman Sachs Small Biz Program Sparks Interest

When Jay Richardson heard that Goldman Sachs Group Inc. and Warren Buffett were teaming to funnel millions to small businesses, he started making phone calls to see how he could get his share.

Mr. Richardson, 49, runs Master Model Craft Inc., a 24-employee company in Bristol, Tenn., that makes tools for manufacturers, including conveyor belts and robots.

Sales are down 30 percent from last year's $2.3 million clip. That has left him stretched for cash to get the new specialized saw and testing equipment he needs to expand and avoid further layoffs. "Just a little bit of stimulus would help us," he said.

Tennessee business owner Jay Richardson, at his office Wednesday, says a Goldman loan "would help us." With its client roster of multinational corporations, wealthy families and hedge-fund titans, Goldman Sachs has historically avoided the travails of small businesses and entrepreneurs.

But after announcing on Tuesday that it would seed $500 million in a "10,000 Small Businesses" plan, the bank finds itself as a Dear Abby of small-business woe. The company's phones and email boxes are being flooded with hundreds of inquiries.

The reality is that none will receive a check from Goldman Sachs. Rather, Goldman will spend $200 million on education and training programs, while funneling $300 million to so-called community-development financial institutions, which largely serve historically disadvantaged communities that have had trouble accessing capital.

Nor will entrepreneurs be raising Goldman Chief Executive Lloyd Blankfein on the telephone. A recorded message greeted callers to the company's dedicated "10,000 Small Businesses" phone line, directing them to send an email for information. Mr. Richardson phoned Goldman on Wednesday only to be directed to that recording.

What's more, Goldman's five-year gift will be a drop in the bucket compared to a nationwide decline in small-business lending since last year. That reduced access to credit—combined with record Wall Street profits—still makes many Main Street business owners irate.

"We are already working with our community college and [lending] partners to help small businesses particularly in underserved areas. The level of interest since the announcement yesterday underscores the need for business education, capital, and mentoring," said a Goldman spokesman.

"Goldman Sachs was part of what the problem was," said Andrea Audibert, who runs Trinity Construction & Investment, a small real-estate investment venture in Slidell, La. She said getting money from Goldman would constitute "a little retribution here. How do I get in?"

Audibert, 56, said she has run her business with her husband and son for the past 15 years. The family has been unable to get a $950,000 loan to finance construction on a retail building. She said her local bank folded and others have turned her down. "The bankers are looking at me with these dumb looks on their face, like, 'You got to be kidding,' " said Audibert, who emailed The Wall Street Journal looking for information on the plan.

Goldman's announcement sparked some confusion among small-business owners wondering whether they could qualify for the funds. For some, like Audibert, funding isn't likely to be available.

Goldman plans to seed only those companies employing at least four full-time employees and with revenue from $150,000 and $4 million in the most recent fiscal year. Eligible companies have to have been operating for at least two years and work "predominantly in underserved markets."

Small firms employ just over half of all private-sector employees and have generated 64 percent of net new jobs over the past 15 years, according to the Small Business Administration. But these businesses have been short on capital, and hard-pressed to hire and expand.

Despite efforts by the Obama administration's to push more lending to small businesses through the economic stimulus and other measures, Main Street remains gripped by the credit crunch. The SBA approved 36 percent fewer government-guaranteed loans in its fiscal 2009 year. That loan volume dropped to $9.3 billion, falling short of the previous year's mark by $3.4 billion. The closing of small-business credit-card company Advanta earlier this year has also hurt small businesses.

Carl Hawkins, 57, is trying to help fund a startup called the Georgia Regional Health Information Organization. The company would create a "health information exchange" aiming to allow emergency rooms, hospitals and doctors’ offices in Athens, Ga., to access patient records.

Mr. Hawkins said the startup needs somewhere between $10 to $15 million to get going but he isn't optimistic local banks will pony up. "I can tell you point blank that getting money out of banks for anything these days is extremely difficult for small businesses," he said. "You name it, it's hard. I don't know how forthcoming banks would be with this particular concept we have put together."

"The environment from the banking perspective is risk adverse. They're all raising capital. Bankers themselves have expressed a lot of interest but startups are high-risk. Health-care technology startups - that's risky stuff."

Gary M. Busch works at one business hanging on that might not get Goldman's help. THOR Power Corp. employs just two people in Bethlehem, Pa., and makes lightweight motors for use in power tools, airplanes and air conditioners. Despite having interested customers, banks and venture capitalists haven't shown interest in bringing THOR's product to market.

"It's really frustrating," Mr. Busch says. "I think lenders that are giving money feel that's it's safe to give $100 million to a $1 billion company that's going bankrupt" but not one "that needs $1 million and will probably make it."

Back in Tennessee, Mr. Richardson wants to expand his business but his equipment needs could run him well north of $300,000. He said he thinks he can survive, but said any help from Goldman would be a boon. He searched the Internet for Mr. Buffett's email to no avail. "We have a good track record. We pay our bills," Mr. Richardson said. Getting an infusion "would just make it a lot easier."

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Healthy Business Credit Is Demystified

Overwhelmed by the idea of being responsible for managing your business credit? Most, if not all, entrepreneurs understand the importance of building a strong business credit history. However, knowing that your business credit rating is important and knowing how to build a positive credit history for your company are two very different things. The good news is that the Small Business Administration (SBA) and Bradstreet (D&B) have joined forces to help demystify the process of establishing and maintaining healthy credit for small businesses so that they can secure the loans they need...

"Both the SBA and Dun & Bradstreet have a long history of experience in working with small businesses to maximize their business success," said former SBA Administrator Steve Preston. "These are five smart and easy steps that any small business can implement to establish and maintain good business credit and protect their businesses."

5 Steps to A Positive Company Credit File

The SBA and D&B advise entrepreneurs to follow the five tips for establishing and maintaining a healthy credit history:

1. Begin Your Company’s Credit File

The first step in building your business credit file is to obtain a D-U-N-S® Number from Dun & Bradstreet. This unique number is a unique identifier that becomes the basis of the company’s credit file. This should be done as soon as possible once your business opens.

2. Start Establishing a Business Credit History

The best way to begin building a healthy credit history is to separate your business and personal expenses and income from the very beginning. Open a business checking account and use it for all of your company expenses. Doing this allows new businesses to begin building a history of payment that can form the basis of your company’s credit history.

3. On-Time Payments

Just like personal credit, business credit scores are strongly impacted by whether or not the business meets its financial obligations in a timely manners.

4. Monitor Your Credit File

Just as it’s important for individuals to periodically check their personal credit histories, business owners need to pay careful attention to what is in their company credit file. Failure to pay attention to one’s company credit file can lead to problems with supplier, customer, and banking relationships. Small business owners can monitor their files on D&B’s dedicated portal for small business owners.

5. Pay Attention to Customer and Supplier credit

It’s in the best interest of business owners to pay attention to the credit situations of their vendors and clients. Before you agree to payment terms, it’s certainly beneficial to have a good idea of what type of payment record you can expect from customers. If you extend credit to individuals or companies with poor repayment records, your cash flow is likely to suffer.



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FYI Archives

01 March 2010
Hiring to Expand Veterans' Services

Be Wary of Advance Fee Loan Scams

State Rolls Out Quarterly Bid List

White House: Stimulus Funds Targeted Upgrades At Saginaw VA Hospital.

25 January 2010
Worst yet to come in Michigan? Small Business bankruptcies soar in 2009

Detroit Companies Graduate From SBA’s ‘Mini-MBA’ Program

Taking the Myths Out of Four Funding Fantasies

GAO Report Details Fraud in Procurement

23 November 2009
GAO Report Cites Fraud in SDVOB Contracting

Detroit Companies Graduate From SBA’s ‘Mini-MBA’ Program

Goldman Sachs Small Biz Program Sparks Interest

Healthy Business Credit Is Demystified

09 November 2009
SBA Lending Down Sharply in Michigan

Funding Cuts at Vets Homes Sparks Rebuke

Building Your Biz Credit

Sagging Economy Prompts Entrepreneurial Spirit

Getting That Elusive Biz Loan

09 October 2009
Six Ways to Land Venture Funding

24 August 2009
SBA ASSISTING SMALL BUSINESSES

DEPUTY SECRETARY CITES PARTNERSHIP WITH PRIVATE SECTOR

VETERAN BUSINESS NEWS GAZETTE

05 August 2009
DINGELL CONCERNED ABOUT PARKING SITUATION AT VA HOSPITAL IN DETROIT

PANEL AGREES ON NEED TO REFORM VETERANS’ DISABILITY SYSTEM

PHAMPHLETS AND FACT SHEETS

GI BILL INFORMATION

BENEFIT PHAMPHLETS

20 July 2009
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22 June 2009
A Different Kind of Boot Camp

GAO ruling assailed; Vets Urged to Act Quickly to Overturn

ARC money will go fast, from the Tampa Bay Business Journal... Small Business Administration Bridge Loans Likely to go Quickly

05 June 2009
House Bill calls for placing SDVOB program under 8a

Senators prepare for battle over Alaska native contracting

Lending up; much left to accomplish, says SBA Chief

25 May 2009
SBA Launches New 100% Guarantee ARC Loan Program on June 15

Lutz VAMC Will Not Allow Medical Marijuana In Hospital.

VA Hires 530 New Claims Processors To Handle GI Bill Applications

Michigan's Disabled American Veterans' Offices Set For Closure Given Four-Week Reprieve.

USAVETBIZ to Urge Congress for Government-Wide Preference Contracting and Set-Aside Programs for all Veteran-Owned Small Businesses

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27 April 2009
VA Announces Recovery Spending Includes $250 Payment to Eligible Veterans

VA Officials Barred From Testifying Before Subcommittee

New VA Clinic To Be Dedicated In Early May

23 March 2009
American Legion Commander Praises Obama’s Change in Plan

Open Letter from VA Secretary

Congress to Agencies: Don’t Shortchange Vets on Contracting

16 March 2009
Is Stimulus harmful To SDVOSB’s?

Vets object to billing private insurance for service injuries

Agencies to direct stimulus funds to veteran-owned small businesses

09 March 2009
Lessons Learned on the Farm Still Apply to Small Businesses

Senator Lieberman Addresses Rumored Tricare Cuts

02 March 2009
Powerball is Stimulus Ticket?

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How Small Business Will Benefit From Obama's Stimulus

Point, Counterpoint On Stimulus Impact On Small Businesses

23 February 2009
Camp Lejeune Water Study Underway

Some Non-profits Shortchange Troops,
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16 February 2009
Military Veterans Land More than
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SBA’s Bill Elmore on Patriot Express Reaching $250 Million

Landrieu and Snowe Highlight Key Small Business Provisions of
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Renew call for elevating SBA Administrator to Cabinet-level status

09 February 2009
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Veterans Inaugural Ball Scam Investigated

02 Februrry 2009
Stimulus Bill Aims to Boost SBA Lending

D.C. Restaurant Apologizes to Marines