U.S. OFFICE OF SPECIAL COUNSEL TRANSMITS REPORT OF INVESTIGATION IN RESPONSE TO WHISTLEBLOWER'S ALLEGATIONS OF MISUSE OF FUNDS AT U.S. SMALL BUSINESS ADMINISTRATION

FOR IMMEDIATE RELEASE - 1/17/01
CONTACT: JANE MCFARLAND
(202) 653-7984          

            The U.S. Office of Special Counsel (OSC) today transmitted to the President and the Congress, an investigative report from the U.S. Small Business Administration (SBA), into whistleblower allegations of violations of law, rule, or regulation, a gross waste of funds, and an abuse of authority at the SBA, in Washington, D.C. 

        The SBA investigation was triggered by disclosures made to OSC by Mr. Jose Gutierrez, former Associate Administrator for Minority Small Business/Capital Ownership Development, a Senior Executive Service position. Mr. Gutierrez alleged, among other things, that a former high ranking SBA official, Dr. Richard Hayes, Associate Deputy Administrator for Government Contracting, unlawfully directed that money allocated to a certification program for small, disadvantaged businesses (the SDB program), be used to pay costs and expenses associated with other SBA programs.

        OSC reviewed Mr. Gutierrez’s allegations and determined that they established a substantial likelihood that violations of law, a gross waste of funds, and an abuse of authority had occurred in the administration of the SDB program. Accordingly, pursuant to its statutory authority, OSC referred the matter to SBA Administrator Aida Alvarez, for an investigation.

        The SBA report, which was prepared by its Office of Inspector General, fully substantiated Mr. Gutierrez’s allegation, and found, through an audit, that approximately three million dollars designated for the SDB program were used for non-SDB purposes. The unauthorized expenditures and obligations included the construction and furnishing of office space for other SBA programs, the purchase of equipment, and personnel, consulting, training, and marketing costs. 

        The report substantiated a number of the whistleblower’s related allegations that SBA violated procurement regulations, as well as standards of conduct regulations designed to guard against conflicts of interest and preferential treatment. The report also found that Dr. Hayes abused his authority by ignoring evidence of compounding problems in the administration of a cosponsorship agreement between SBA and a contractor. The SBA’s investigative findings were supported by audit reports confirming these violations. 

    Based on the report’s findings, the SBA has reimbursed approximately $2.3 million to the agencies contributing to the SDB program, and de-obligated $645,000 from SDB obligations. The agency has denied wrongdoing or bad faith on the part of SBA officials. Nonetheless, it has proposed to address areas of major concern through policy changes, stricter controls, and personnel changes in its government contracting and minority enterprise development programs. 

        Among its other functions, the Office of Special Counsel provides federal employees with a secure channel for blowing the whistle on violations of law, rule or regulation, gross mismanagement or waste of funds, an abuse of authority, or a substantial and specific danger to public health and safety. The OSC is empowered to require agencies to conduct investigations whenever it finds a substantial likelihood that a federal employee’s disclosures demonstrate the existence of one of these conditions, and to report back to the OSC its findings along with any corrective action taken. After the OSC reviews the report to insure that it contains the necessary information and that its findings appear reasonable, the OSC transmits the report to the President and the Congress for further action, if appropriate.

        Copies of the SBA report and Special Counsel Elaine Kaplan’s transmittal letter can be obtained by contacting the OSC.

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