Last week, the Small Business Administration’s (SBA) Office of the Inspector General (IG) released an audit that identified multiple layers of oversight failures at a small business program that resulted in hundreds of thousands in wasted tax dollars.
The program in question is the SCORE Program – short for Senior Corps of Retired Executives. The SCORE Program has 300 chapters nationwide that offer training and free mentoring services to small businesses and aspiring entrepreneurs. Though the program is almost wholly funded by the federal government through a $11.5 million line-item appropriation from Congress every year, it is structured as a non-profit rather than a federal program.
This distinction provides it the financial backing of a federal program but without the financial transparency of being incorporated into an agency’s budget. It also means that the CEO of this federally-funded program is not subject to compensation limitations. He makes over $400,000 annually – more than double the salary of cabinet secretaries.
The SBA OIG found massive problems at every level. The national office failed to oversee the individual chapters, the SBA failed to oversee the national office, and Congress failed to look into either.
As a result, of the $2.1 million that the IG examined, a whopping 33% (or $714,000) were “questioned or unsupported.”
Let’s just run through the findings.
SCORE’s National Office Failure to Oversee 300 Chapters
The National SCORE office is supposed to monitor the activities at the 300 individual chapters. But this is impossible because each chapter has its own accounting system – including some that are stored on private computers.
Two contracted personnel actually stole $30,250 from an Ohio chapter, yet their accounting systems and oversight mechanisms were so shoddy that nobody knew about it. The IG was the one to find the instances of criminal fraud that went undetected by the chapter, the SCORE national office, or the SBA.
This scattered accounting system also makes it impossible for the national office to monitor or detect when chapters commingle donated non-federal funds with federal funds (i.e. they put it all in the same bank account). Funding sources are supposed to be tracked and if the funds are commingled their uses are restricted.
Instead, chapters used the combined funds to make unallowable purchases. For example, the OIG found 21 instances totaling $35,000 in unallowable expenditures, including $17,000 for meals and $5,700 for alcohol.
The IG also found that one of the chapters was asking for money from clients that used their mentoring services – a major violation of the purpose of the program to provide free services. The chapter collected $82,000 from the participants and the OIG reported that this is rumored to occur in multiple SCORE chapters throughout the nation.
SBA failure to oversee SCORE
One clear sign of inadequate oversight jumps out from the report. SBA does not even know how much is being spent on the SCORE program.
The IG reported that the SCORE National Office in Herndon, Virginia spends twice as much annually as all 300 chapters combined ($7 million vs $3.4 million in 2017). And it had major problems of it own – problems that SBA was oblivious to.
For example, the SCORE program put the $101,000 in leftover program funds for fiscal year 2017 into its bonus pool – bumping it up to $282,000. This bonus pool was divvied up between 19 employees. Though only four employees received the lion’s share of the pool – taking down taxpayer funded bonuses of $168,000 – or an average of $42,000 each.
According to publicly filed tax return info, the CEO received a $101,000 bonus in 2016 and made a total of $400,000 that year. He also spent $32,000 of federal funds to receive executive coaching services from a consultant.
The IG also examined 12 of the 25 contracts that SCORE awarded and found that SCORE officials did not maintain records of support for any of the contracts. Upon this finding, SCORE was able to come up with adequate support for 3 of the 12 contracts – but could not justify the other 9 which totaled $491,116.
Not only did SCORE fail to document the needs for the contracts, they also failed to obtain the proper price quotes when they bid out the contracts. Nor did they ensure that the contracts were competitively and openly awarded. SBA officials did not detect any of these shortcomings.
One more doozy. SCORE has an affiliated non-profit called the SCORE Foundation that does not receive federal funds but does share the same office location and board members as SCORE. They spent $9000 on a board of directors meeting, yet allocated all of the expenses to the federally backed organization. In total, SCORE charged $41,000 to the federal government for activities that benefited the non-federal SCORE Foundation.
And to top it all off, individual SCORE chapters cosponsor events with SBA district offices, but in the process violate multiple requirements within their agreements (such as SBA personnel collecting cosponsored funds despite strict prohibitions). Neither the SCORE national office nor SBA program officials in charge had any idea about the number of agreements that existed between individual SCORE chapters and SBA district offices.
Congress Failure to Oversee SBA or SCORE
The systemic oversight failures throughout SCORE and SBA have presumably been going on for a long time. Yet, Congress, which allocates over $10 million to the non-profit every year did not bother to make sure that the tax dollars were being spent well. Or even to see if the program is working properly at all.
To that point, the SBA has only one metric to measure performance – the number of small businesses started. And even that metric is prone to errors and does not fully capture the performance and goals of the program.
While both SBA and SCORE responded to the report promising to make changes, ultimately our representatives in Congress are the ones that must ensure that it happens. The damning evidence contained in this report should make us question whether the SCORE program should continue to receive federal backing – especially given that two-thirds of the program’s dollars stay in the national office and enrich three executives who are compensated at rates twice as high as cabinet secretaries.
Don’t worry, in the absences of SCORE – the SBA would still spend $208 million annually on six other entrepreneurial development programs and two entrepreneurial development initiatives.
Alternatively, Congress can continue to fund the woefully run SCORE program that will prove positive to any program or recipient of federal funds that it does not matter how disastrously you operate, at the ended of the day you’ll still continue to receive your tax-payer backed check.