In its recent Semi-Annual Report to Congress for the period ending March 31, 2013, the SBA's Office of Inspector General ("OIG") reported on the results of its suspension and debarment activities for those six months. During this period, the OIG recommended to the SBA that sixteen persons and companies be either suspended or debarred. During this time, there were an additional 28 recommendations of suspensions or debarments that were pending with the SBA, with action initiated on fourteen of these recommendations. Currently, there are more than 70 persons and entities on the SBA's debarred/suspended list. What does it mean to be suspended or debarred? Why would this happen? How could this happen? Could this happen to you?

To be suspended by the SBA means that the person or entity can not conduct business with the SBA for an undetermined period of time, usually until a debarment decision is made. A suspension action is usually taken on an emergency basis if the SBA believes that it or its programs are being put at unnecessary risk. To be debarred means that the person or entity cannot conduct business with the SBA for the period of debarment, which often is for years. Depending on the nature of your business, this remedy can be draconian. If your business, or a division of your business entity, depends on its ability to contract with the SBA, or provide services to SBA lenders, or make loans guaranteed by the SBA, suspension or debarment could effectively be a death penalty. How long could your business survive if it were suspended or debarred by the SBA? Years ago, when procurement fraud in the defense contracting industry was of primary focus of the government's investigative efforts, large defense contractors on whom the Department of Defense relied were believed to be too big to fail. Indeed, in 1985, the largest defense contractor at the time, General Dynamics, was indicted for fraud and bribery. As was required under Department of Defense regulations, General Dynamics was immediately suspended. That only lasted until the day before the Department of Defense was to award the next contract on which General Dynamics had bid. Things have changed dramatically since. As the result of the passage of the Fraud Enforcement and Recovery Act of 2009, the government's investigative focus has shifted to the financial services industry. With the failure of Lehman Brothers, no financial institution is too big to fail; nor should they be.

The grounds for an SBA enforcement action that could result in suspension and/or debarment are myriad, and include (13 CFR §120.1400): failure to maintain eligibility requirements for SBA programs; failure to comply materially with any Loan Program Requirement; making a false statement or failure to disclose a material fact to the SBA; not performing underwriting, closing or servicing in a commercially reasonable manner; engaging in a pattern of uncooperative behavior with the SBA; repeated failure to correct deficiencies; or for any other reason that the SBA determines may increase the SBA's financial risk. This list is pretty comprehensive. Clearly, the conduct that can result in suspension or debarment does not have to be criminal. There is a lot of discretion that the SBA has in deciding whether to take an enforcement action, what that action will be, and for how long.  

Although there is a published, legal process that the SBA must follow before suspending or debarring anyone, there is no specified means by which the SBA or the OIG must obtain the information that could start that process. The SBA or the OIG can obtain the information from a routine audit, a statistical performance analysis or a whistleblower. Although not required, concerns uncovered by the SBA are usually referred to the OIG for investigation before an enforcement action is recommended or undertaken. If, for whatever reason, the SBA believes that it or its programs are being put at risk, it will take action, with or without the OIG.