The GAO’s Scathing Report on the SBA Office of Advocacy: 15 Big Revelations

by James Goodwin

July 28, 2014

As I noted here last week, the Government Accountability Office (GAO) published a report that delivered a scathing review of the Small Business Administration’s (SBA) Office of Advocacy.  The GAO report’s general objective was to assess whether and to what extent the SBA Office of Advocacy is fulfilling its core mission of serving as a “voice for small businesses within the federal government,” and accordingly looked at two of its most important activities for carrying out that core mission: sponsoring small business-centered economic research and participating in individual rulemakings that have a significant impact on small business interests.

In contrast to most GAO reports—which are conspicuous for avoiding controversy and their dry, moderate tone—this one offered some uncharacteristically strong criticisms of the SBA Office of Advocacy.  For example, after rejecting the SBA Office of Advocacy’s feeble excuses for not taking any steps to verify the quality of information contained in a series of controversial studies on regulatory costs that the agency had sponsored, the GAO report opined, “We acknowledge that these reports may not necessarily be representative of all Advocacy’s research efforts, but not substantiating the quality of the information in even one study could call into question the credibility of Advocacy’s research program.”  (See page 15.)  Elsewhere, the GAO report took the SBA Office of Advocacy to task for its complete failure to document their roundtable discussions, noting that this failure made it “difficult to determine the extent to which small businesses and related entities were represented at these events.”  (See page 18.)

If the GAO seems frustrated, it’s for good reason.  Their review of the SBA Office of Advocacy’s activities produced the following 15 disturbing revelations:

  1. Even though the SBA Office of Advocacy has neither the institutional scientific expertise nor the legal authority to evaluate questions of science, it has nonetheless issued comment letters for the explicit purpose of challenging other agencies’ scientific research.  (See page 8.)  These exercises are particularly perplexing since questions of science have nothing to do with the unique concerns of small businesses; after all, it’s not like there’s one law of gravity that applies to just small businesses and another that applies to everyone else.
     
  2. The SBA Office of Advocacy has no policies defining how its staff should select peer reviewers for the research projects it sponsors.  (See page 10.)  The lack of such policies gives rise to the appearance that SBA Office of Advocacy staff are free to choose peer reviewers who are unqualified or who would be unduly biased in favor of the project undergoing review.
     
  3. The GAO reviewed 20 different research projects that the SBA Office of Advocacy had sponsored, and, of those, 16 lacked any documentation demonstrating that they had been subject to any peer review process, even though such documentation is required by both SBA Office of Advocacy internal guidelines and federal internal control standards.  (See page 11.)  Without such documentation, it is impossible to confirm whether these research projects underwent any peer review at all.
     
  4. The SBA Office of Advocacy lacks any policies or procedures for ensuring that research projects are properly revised to reflect substantive comments from peer reviewers prior to being published.  Of 10 research projects that the GAO reviewed, only 1 “included evidence that the peer reviewer comments were incorporated into the final report.  (See page 12.)  A 2011 CPR white paper documented this problem in the now infamous “Crain and Crain” report on total regulatory costs, which the SBA released in 2010.  There, one of the peer reviewers had raised a significant criticism on the methodology used to calculate the costs of economic regulations, but the final report made no effort to respond to this criticism.
     
  5. The SBA Office of Advocacy did not retain any of the “original data or underlying computer codes” for three studies on regulatory costs—including the 2010 Crain and Crain report—even though this step is required by both Office of Management and Budget (OMB) data quality guidelines and by the SBA’s internal data quality guidelines.  (See page 13.)  By failing to retain these data and codes, it is impossible for the general public to independently verify the quality of these studies.
     
  6. The SBA Office of Advocacy attempted to provide the GAO with a feeble excuse for not retaining the data and computer codes for those three studies, which the GAO easily dismantled.  The SBA Office of Advocacy attempted to claim that retaining the data and codes would have been prohibitively expensive.  Performing its own calculations, however, the GAO concluded that the “cost would not have been prohibitive.”  (See pages 13-14.)
     
  7. The SBA Office of Advocacy also failed to take any additional steps—in lieu of retaining the underlying data and computer codes—to attempt to substantiate the quality of the information contained in two major studies on total regulatory costs (including the Crain and Crain report), even though such steps are required by OMB data quality guidelines.  When pressed on the matter by the GAO, the SBA Office of Advocacy could offer no explanation for this failure, but instead sought to direct the GAO’s investigators to the authors of the two studies who also declined to cooperate.  (See pages 14-15.)
     
  8. The GAO determined that the SBA Office of Advocacy had taken actions that would lead the public to conclude that it agreed with the findings contained in the two major studies on total regulatory costs.  These actions include maintaining the studies on their website and citing one of the studies in their comment letters.  (See page16.)  Because of the fierce controversy surrounding these studies, the SBA Office of Advocacy has sought to distance itself from them, but the GAO suggests that these efforts have been insufficient.  Notably, CPR has in the past repeatedly called on the SBA Office of Advocacy to completely disavow the studies and remove them from their website due to the ongoing public perception that the SBA Office of Advocacy endorses the studies and their conclusions.
     
  9. The SBA Office of Advocacy fails to ensure that their staff have an appropriate basis for their decisions to intervene in individual rulemakings.  In particular, the GAO found that the SBA Office of Advocacy’s policies do not require staff to demonstrate that they have actually met with relevant small business representatives who would be able to verify that they have sufficient information and data to justify intervening in particular rules.  (See page 17.)  Without such policies, there is no way to ensure that the SBA Office of Advocacy is actually intervening in those rules that are of unique concern to real small businesses.
     
  10. Of the 11 comment letters that GAO reviewed that purported to incorporate input from small business representatives, the SBA Office of Advocacy was unable to provide the GAO any evidence—such as emails or notes of conversations—of this input.  (See page 17-18.)  Without this evidence, it is impossible to verify whether these comment letters actually reflect the unique views and concerns of real small businesses.
     
  11. Internal agency guidelines require that the head of the SBA Office of Advocacy—the Chief Counsel—approve the agenda, speakers, and discussion topics for all proposed roundtables before participants are invited, but the GAO found that these policies do not require any documentation of such prior approval.  (See page 18.)  Without such policies, there is no way to ensure that roundtables are organized for only appropriate matters related to genuine concerns of small businesses.
     
  12. Of the comment letters that the GAO reviewed, 19 percent purported to incorporate input from roundtables, but the SBA Office of Advocacy failed to provide the GAO with any written evidence—such as meeting minutes—that could demonstrate that the views expressed in the comment letters were actually based on discussions that took place at roundtables.  (See page 18.)  Without this evidence, it is impossible to verify whether these comment letters actually reflect the unique views and concerns of real small businesses that were expressed at roundtables.
     
  13. The SBA Office of Advocacy does not consistently take attendance at roundtables.  (See page 18.)  Without any attendance lists for roundtables, it is impossible to verify whether small business representatives are actually present (as opposed to just lobbyists representing large corporations and trade associations) and that the viewpoints that are shared at the roundtables actually reflect the unique concerns of real small businesses.

  1. The SBA Office of Advocacy’s internal policies require that roundtable agendas and presentations be posted on the agency’s website, but these policies have never been followed.  (See page 19.)
     
  2. The SBA Office of Advocacy blames the Americans with Disabilities Act (ADA) for its ongoing failure to abide by its internal policies requiring that roundtable agendas and presentations be posted on the agency’s website.  Specifically, the SBA Office of Advocacy claims that it does not know how to post these documents in a way that would satisfy the ADA’s readability and accessibility requirements.  The GAO was skeptical of this excuse, noting that the SBA Office of Advocacy has been able to post a wide variety of other reports and publications in ways that satisfy the ADA.  (See page 19.)

The picture the GAO report paints of the SBA Office of Advocacy is a disturbing one.  It depicts an agency that is at best sloppy and at worst willfully indifferent to whether or not its actions actually help small businesses.  Instead, one is left with the impression that the SBA Office of Advocacy staff has become too focused on attacking those regulations opposed by large corporations and trade associations to properly address the unique concerns of real small businesses in accordance with the agency’s clear statutory mission.

The upshot is that small businesses are left in a worse position than they would be if the SBA Office of Advocacy didn’t exist at all:  Real small businesses continue to lack a meaningful spot at the decision-making table while the large corporations they compete against are able to have their already loud voice further amplified by what amounts to a taxpayer-funded lobby shop.  Under the circumstances, one would think that the GAO report on the SBA Office of Advocacy would be of particular interest to the antiregulatory members of Congress, especially given their obvious fondness for both lambasting flagrant misuses of taxpayer money and extolling the virtues small businesses.  Indeed, the sanctimonious majority leadership of the House Oversight and Small Business Committees should be chomping at the bit to conduct intensive oversight hearings on the SBA Office of Advocacy based on the GAO report.  The ball is in their court; let’s see if it actually happens.  

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James Goodwin, J.D., M.P.P., is a Senior Policy Analyst with the Center for Progressive Reform. He joined CPR in May of 2008.

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