Women-Owned Small Business Program: Actions Needed to Address Continued Oversight Issues

In 2000, Congress authorized the WOSB program, allowing contracting officers to set aside procurements to women-owned small businesses in industries in which they are substantially underrepresented. To be eligible to participate in the WOSB program, firms have the option to self-certify or be certified by a third-party certifier. However, the 2015 NDAA changed the WOSB program by (1) authorizing SBA to implement sole-source authority, (2) eliminating the option for firms to self-certify as being eligible for the program, and (3) allowing SBA to implement a new certification process.

This testimony is based on a report GAO issued in March 2019 ( GAO-19-168 ). For that report, GAO examined (1) the extent to which SBA has addressed the 2015 NDAA changes, (2) SBA's efforts to address previously identified deficiencies, and (3) use of the WOSB program. GAO reviewed relevant laws, regulations, and program documents; analyzed federal contracting data from April 2011 through June 2018; and interviewed SBA officials, officials from contracting agencies selected to obtain a range of experience with the WOSB program, and the three (out of four) private third-party certifiers that agreed to meet with GAO.

The Small Business Administration (SBA) has implemented one of the three changes to the Women-Owned Small Business (WOSB) program authorized in the National Defense Authorization Act of 2015 (2015 NDAA). In September 2015 SBA published a final rule to implement sole-source authority (to award contracts without competition), effective October 2015. As of early May 2019, SBA had not eliminated the option for program participants to self-certify that they are eligible to participate, as required by the 2015 NDAA. SBA officials stated that the agency intended to address the third change made by the 2015 NDAA (meaning implement a new certification process for the WOSB program).

SBA has not addressed WOSB program oversight deficiencies and recommendations in GAO's 2014 report ( GAO-15-54 ). For example, GAO recommended that SBA establish procedures to assess the performance of four third-party certifiers—private entities approved by SBA to certify the eligibility of WOSB firms. While SBA generally agreed with GAO's recommendations and conducted a compliance review of the certifiers in 2016, it has no plans to regularly monitor their performance. By not improving its oversight, SBA is limiting its ability to ensure third-party certifiers are following program requirements. Further, the implementation of sole-source authority in light of these continued oversight deficiencies can increase program risk. GAO maintains that its recommendations aimed at improving oversight should be addressed. In addition, GAO's March 2019 ( GAO-19-168 ) report found that about 3.5 percent of contracts using a WOSB set-aside were awarded for ineligible goods or services from April 2011 through June 2018. At that time, SBA was not reviewing contracting data that could identify which agencies may need targeted training. GAO recommended that SBA review such data to help address identified issues. In early May 2019, SBA said it had initiated such efforts.

While federal contract obligations to all women-owned small businesses and WOSB program set-asides have increased since fiscal year 2012, WOSB program set-asides remain a small percentage (see figure).

Note: Obligations to women-owned small businesses represent contract obligations to women-owned small businesses under WOSB-program-eligible North American Industry Classification System codes. FPDS-NG obligation amounts have been adjusted for inflation.

GAO recommended in March 2019 that SBA develop a process for periodically reviewing the extent to which WOSB program set-asides are awarded for ineligible goods or services and use the results to address identified issues, such as through targeted outreach or training on the WOSB program. SBA agreed with the recommendation.

I am pleased to be here today to discuss our recent work on the Woman- Owned Small Business Program (WOSB program). Congress authorized  the WOSB program in 2000, allowing contracting officers to set aside  procurements to women-owned small businesses in industries in which  they are substantially underrepresented. On October 7, 2010, the Small  Business Administration (SBA) issued a final rule to implement the WOSB  program, and the program began operating in 2011. To be eligible to  participate in the WOSB program, firms have the option to self-certify or  be certified by a third-party certifier. However, the 2015 National Defense  Authorization Act (2015 NDAA) changed the WOSB program by (1)  authorizing SBA to implement sole-source authority, (2) eliminating the  option for firms to self-certify as being eligible for the program, and (3)  allowing SBA to implement a new certification process.

Today I will discuss (1) the extent to which SBA has implemented  changes to the WOSB program made by the 2015 NDAA; (2) the extent  to which SBA has implemented changes to address previously identified  oversight deficiencies, including those we identified in October 2014; and  (3) changes in WOSB program use since 2011, including since the 2015  implementation of sole-source authority. My statement is based on our  March 2019 report. For that report, we reviewed relevant laws,  regulations, and program documents; analyzed federal contracting data  from April 2011 through June 2018; and interviewed SBA officials,  officials from contracting agencies selected to obtain a range of  experience with the WOSB program, and three of the four private third- party certifiers.

The work on which this statement is based was performed in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.

Federal agencies conduct a variety of procurements that are reserved for  small business participation through small business set-asides. These  set-asides can be for small businesses in general, or they can be specific  to small businesses that meet additional eligibility requirements in the  Service-Disabled Veteran-Owned Small Business, Historically  Underutilized Business Zone (HUBZone), 8(a) Business Development  (8(a)), and WOSB programs. The WOSB program enables federal  contracting officers to identify and establish a sheltered market, or set- aside, for competition among women-owned small businesses (WOSB)  and economically disadvantaged women-owned small businesses  (EDWOSB) in certain industries. WOSBs can receive set-asides in  industries in which SBA has determined that women-owned small  businesses are substantially underrepresented. To determine these  industries, SBA is required to conduct a study to determine which North  American Industry Classification System (NAICS) codes are eligible  under the program and to report on such studies every 5 years.

Additionally, businesses must be at least 51 percent owned and  controlled by one or more women who are U.S. citizens to participate in  the WOSB program. The owner must provide documents demonstrating  that the business meets program requirements, including a document in  which the owner attests to the business’s status as a WOSB or  EDWOSB. According to SBA, as of early October 2018, there were  13,224 WOSBs and 4,488 EDWOSBs registered in SBA’s online  certification database. SBA’s Office of Government Contracting  administers the WOSB program by, among other things, promulgating  regulations and conducting eligibility examinations of businesses that  receive contracts under a WOSB or EDWOSB set-aside. According to  SBA, as of October 2018, there were two full-time staff within the Office of  Government Contracting whose primary responsibility was the WOSB  program.

Initially, the program’s statutory authority allowed WOSBs to be self- certified by the business owner or certified by an approved third-party  national certifying entity as eligible for the program. Self-certification is  free, but some third-party certification options require businesses to pay a  fee. Each certification process requires businesses to provide signed  representations attesting to their WOSB or EDWOSB eligibility.  Businesses must provide documents supporting their status before  submitting an offer to perform the requirements of a WOSB set-aside  contract. In August 2016, SBA launched certify.sba.gov, which is an  online portal that allows firms participating in the program to upload  required documents and track their submission and also enables  contracting officers to review firms’ eligibility documentation. According  to the Federal Acquisition Regulation, contracting officers are required to  verify that all required documentation is present in the online portal when  selecting a business for an award. In addition, businesses must register  and attest to being a WOSB in the System for Award Management, the  primary database of vendors doing business with the federal government.

In 2011, SBA approved four organizations to act as third-party certifiers.  According to SBA data, these four third-party certifiers completed a total  of about 3,400 certifications in fiscal year 2017.

In 2014 we reviewed the WOSB program and found a number of  deficiencies in SBA’s oversight of the four SBA-approved third-party  certifiers and in SBA’s eligibility examination processes, and we made  related recommendations for SBA. In addition, in 2015 and 2018 the  SBA Office of Inspector General (OIG) reviewed the WOSB program and  also found oversight deficiencies, including evidence of WOSB contracts  set aside for ineligible firms. In both reports, the SBA OIG also made  recommendations for SBA. Further, in July 2015, we issued GAO’s fraud  risk framework, which provides a comprehensive set of key components  and leading practices that serve as a guide for agency managers to use  when developing efforts to combat fraud in a strategic, risk-based way.

SBA Has Implemented One of the Three Changes Made by the 2015 NDAA

As of early May 2019, SBA had implemented one of the three changes  that the 2015 NDAA made to the WOSB program—sole-source authority.  The two other changes—authorizing SBA to implement its own  certification process for WOSBs and requiring SBA to eliminate the  WOSB self-certification option—had not been implemented. The 2015  NDAA did not require a specific time frame for SBA to update its  regulations. SBA officials have stated that the agency will not eliminate  self-certification until the new certification process for the WOSB program  is in place, which they expect to be completed by January 1, 2020.

In September 2015, SBA published a final rule to implement sole-source  authority for the WOSB program (effective October 2015). Among other  things, the rule authorized contracting officers to award a contract to a  WOSB or EDWOSB without competition, provided that the contracting  officer’s market research cannot identify two or more WOSBs or  EDWOSBs in eligible industries that can perform the requirements of the  contract at a fair and reasonable price. In the final rule, SBA explained  that it promulgated the sole-source rule before the WOSB certification  requirements for two reasons. First, the sole-source rule could be  accomplished by simply incorporating the statutory language into the  regulations, whereas the WOSB certification requirements would instead  require a prolonged rulemaking process. Second, SBA said that  addressing all three regulatory changes at the same time would delay the  implementation of sole-source authority.

As of early May 2019, SBA had not published a proposed rule for public  comment to establish a new certification process for the WOSB program.  Previously, in October 2017, an SBA official stated that SBA was about  1–2 months away from publishing a proposed rule. However, in June  2018, SBA officials stated that a cost analysis would be necessary before  the draft rule could be sent to the Office of Management and Budget for  review. In response to the SBA OIG recommendation that SBA implement  the new certification process, SBA stated that it would implement a new  certification process by January 1, 2020. Further, in June 2018, SBA  officials told us that they were evaluating the potential costs of a new  certification program as part of their development of the new certification  rule. On May 3, 2019, SBA officials explained that they expected to  publish the proposed rule within a few days.

In December 2015, SBA published an advance notice of proposed  rulemaking to solicit public comments to assist the agency with drafting a  proposed rule to implement a new WOSB certification program. In the  notice, SBA stated that it intends to address the 2015 NDAA changes,  including eliminating the self-certification option, through drafting  regulations to implement a new certification process. The advance notice  requested comments on various topics, such as how well the current  certification processes were working, which of the certification options  were feasible and should be pursued, whether there should be a grace  period for self-certified WOSB firms to complete the new certification  process, and what documentation should be required.

Three third-party certifiers submitted comments in response to the  advance notice of proposed rulemaking, and none supported the option of  SBA acting as a WOSB certifier. One third-party certifier commented that  such an arrangement is a conflict of interest given that SBA is also  responsible for oversight of the WOSB program, and two certifiers  commented that SBA lacked the required resources. The three third-party  certifiers also asserted in their comments that no other federal agency  should be allowed to become an authorized WOSB certifier, with one  commenting that federal agencies should instead focus on providing  contracting opportunities for women-owned businesses. All three certifiers  also proposed ways to improve the current system of third-party  certification—for example, by strengthening oversight of certifiers or  expanding their number. The three certifiers also suggested that SBA  move to a process that better leverages existing programs with  certification requirements similar to those of the WOSB program, such as  the 8(a) program. In the advance notice, SBA asked for comments on  alternative certification options, such as SBA acting as a certifier or  limiting WOSB program certifications to the 8(a) program and otherwise  relying on state or third-party certifiers.

SBA Has Not Fully Addressed Deficiencies in Oversight and Program Implementation

SBA has not fully addressed deficiencies we identified in our October  2014 report, and these recommendations remain open. First, we  reported that SBA did not have formal policies for reviewing the  performance of its four approved third-party certifiers, including their  compliance with their agreements with SBA. Further, we found that SBA  had not developed formal policies and procedures for, among other  things, reviewing the monthly reports that certifiers submit to SBA. As a  result, we recommended that SBA establish comprehensive procedures  to monitor and assess the performance of the third-party certifiers in  accordance with their agreements with SBA and program regulations.

In response to our October 2014 recommendation, in 2016 SBA  conducted compliance reviews of the four SBA-approved third-party  certifiers. The compliance reviews included an assessment of the third- party certifiers’ internal certification procedures and processes, an  examination of a sample of applications from businesses that the  certifiers deemed eligible and ineligible for certification, and an interview  with management staff. SBA officials said that SBA’s review team did not  identify significant deficiencies in any of the four certifiers’ processes and  found that all were generally complying with their agreements. However,  one compliance review report described “grave concerns” that a third- party certifier had arbitrarily established eligibility requirements that did  not align with WOSB program regulations and used them to decline firms’  applications. SBA noted in the report that if the third-party certifier failed  to correct this practice, SBA could terminate the agreement. As directed  by SBA, the third-party certifier submitted a letter to SBA outlining actions  it had taken to address this issue, among others.

In January 2017, SBA’s Office of Government Contracting updated its  written Standard Operating Procedures (SOP) to include policies and  procedures for the WOSB program, in part to address our October 2014  recommendation. The 2017 SOP discusses what a third-party-certifier  compliance review entails, how often the reviews are to be conducted,  and how findings are to be reported. The 2017 SOP notes that SBA may  initiate a compliance review “at any time and as frequently as the agency  determines is necessary.” In March 2019, SBA provided an updated SOP,  which includes more detailed information on third-party compliance  reviews, such as how SBA program analysts should prepare for the  review. However, the updated SOP does not provide specific time frames  for how frequently the compliance reviews are to be conducted.

In addition, in April 2018, SBA finalized a WOSB Program Desk Guide  that discusses how staff should prepare for a compliance review of a third-party certifier, review certification documents, and prepare a final  report. In March 2019, SBA provided GAO with an updated WOSB  Program Desk Guide that contains information comparable to that in the  2018 version. Both Desk Guides do not describe specific activities  designed to oversee third-party certifiers on an ongoing basis.

Per written agreements with SBA, third-party certifiers are required to  submit monthly reports that include  the number of WOSB and EDWOSB applications received, approved,  and denied;  identifying information for each certified business, such as the  business name;  concerns about fraud, waste, and abuse; and a description of any changes to the procedures the organizations  used to certify businesses as WOSBs or EDWOSBs.

In our October 2014 report, we noted that SBA had not followed up on  issues raised in the monthly reports and had not developed written  procedures for reviewing them. At that time, SBA officials said that they  were unaware of the issues identified in the certifiers’ reports and that the  agency was developing procedures for reviewing the monthly reports but  could not estimate a completion date. In interviews for our March 2019  report, SBA officials stated that SBA still does not use the third-party  certifiers’ monthly reports to regularly monitor the program. Specifically,  SBA does not review the reports to identify any trends in certification  deficiencies that could inform program oversight. Officials said the reports  generally do not contain information that SBA considers helpful for  overseeing the WOSB program, but staff sometimes use the reports to  obtain firms’ contact information. SBA’s updated 2019 SOP includes  information on reviews of third-party certifier monthly reports, but it does  not contain information on how staff would analyze the reports or how  these reports would inform SBA’s oversight of third-party certifiers and  related compliance activities, such as eligibility examinations. On May 3,  2019, SBA officials stated that, earlier in the week, they had initiated  monthly meetings with the third-party certifiers. SBA officials explained  that they intended to continue holding these monthly meetings to discuss  best practices and potential issues related to the approval and  disapproval of firms and to improve collaboration.

Although SBA has taken steps to enhance its written policies and  procedures for oversight of third-party certifiers, it does not have plans to  conduct further compliance reviews of the certifiers and does not intend to  review certifiers’ monthly reports on a regular basis in a way that would  inform its oversight activities. SBA officials said that third-party certifier  oversight procedures would be updated, if necessary, after certification  options have been clarified in the final WOSB certification rule. However,  ongoing oversight activities, such as regular compliance reviews, could  help SBA better understand the steps certifiers have taken in response to  previous compliance review findings and whether those steps have been  effective. In addition, leading fraud risk management practices include  identifying specific tools, methods, and sources for gathering information  about fraud risks, including data on trends from monitoring and detection  activities, as well as involving relevant stakeholders in the risk  assessment process. Without procedures to regularly monitor and  oversee third-party certifiers, SBA cannot provide reasonable assurance  that certifiers are complying with program requirements and cannot  improve its efforts to identify ineligible firms or potential fraud. Further, it is  unclear when SBA’s final rule will be implemented. As a result, we  maintain that our previous recommendation should be addressed—that  is, that the Administrator of SBA should establish and implement  comprehensive procedures to monitor and assess the performance of  certifiers in accordance with the requirements of the third-party certifier  agreement and program regulations.

SBA also has not fully addressed deficiencies we identified in our October  2014 report related to eligibility examinations. We found that SBA  lacked formalized guidance for its eligibility examination processes and  that the examinations identified high rates of potentially ineligible  businesses. As a result, we recommended that SBA enhance its  examination of businesses that register for the WOSB program to ensure  that only eligible businesses obtain WOSB set-asides. Specifically, we  suggested that SBA should take actions such as (1) completing the  development of procedures to conduct annual eligibility examinations and  implementing such procedures; (2) analyzing examination results and individual businesses found to be ineligible to better understand the  cause of the high rate of ineligibility in annual reviews and determine what  actions are needed to address the causes, and (3) implementing ongoing  reviews of a sample of all businesses that have represented their  eligibility to participate in the program.

SBA has taken some steps to implement our recommendation, such as  including written policies and procedures for WOSB program eligibility  examinations in an SOP and a Desk Guide. However, SBA does not  collect reliable information on the results of its annual eligibility  examinations. According to SBA officials, SBA has conducted eligibility  examinations of a sample of businesses that received WOSB program  set-aside contracts each year since fiscal year 2012. However, SBA  officials told us that the results of annual eligibility examinations—such as  the number of businesses found eligible or ineligible—are generally not  documented. As a result, we obtained conflicting data from SBA on the  number of examinations completed and the percentage of businesses  found to be ineligible in fiscal years 2012 through 2018. For example,  based on previous information provided by SBA, we reported in October  2014 that in fiscal year 2012, 113 eligibility examinations were conducted  and 42 percent of businesses were found to be ineligible for the WOSB  program. However, during our more recent review, we received  information from SBA indicating that 78 eligibility examinations were  conducted and 37 percent of businesses were found ineligible in fiscal  year 2012. In addition, SBA continues to have no mechanism to look  across examinations for common eligibility issues to inform the WOSB  program. As we noted in 2014, by not analyzing examination results  broadly, the agency is missing opportunities to obtain meaningful insights  into the program, such as the reasons many businesses are deemed  ineligible.

Further, SBA still conducts eligibility examinations only of firms that have  already received a WOSB award. In our October 2014 report, we  concluded that this sampling practice restricts SBA’s ability to identify  potentially ineligible businesses prior to a contract award. SBA officials  said that while some aspects of the sample characteristics have changed  since 2012, the samples still generally consist only of firms that have  been awarded a WOSB set-aside. Restricting the samples in this way  limits SBA’s ability to better understand the eligibility of businesses before  they apply for and are awarded contracts, as well as its ability to detect  and prevent potential fraud.

We recognize that SBA has made some effort to address our previous  recommendation by documenting procedures for conducting annual  eligibility examinations of WOSB firms. However, leading fraud risk  management practices state that federal program managers should  design control activities that focus on fraud prevention over detection and  response, to the extent possible. Without maintaining reliable  information on the results of eligibility examinations, developing  procedures for analyzing results, and expanding the sample of  businesses to be examined to include those that did not receive  contracts, SBA limits the value of its eligibility examinations and its ability  to reduce ineligibility among businesses registered to participate in the  WOSB program. These deficiencies also limit SBA’s ability to identify  potential fraud risks and develop any additional control activities needed  to address these risks. As a result, the program may continue to be  exposed to the risk of ineligible businesses receiving set-aside contracts.  In addition, in light of these continued deficiencies, the implementation of  sole-source authority without addressing the other changes made by the  2015 NDAA could increase program risk. For these reasons, we maintain  that our previous recommendation that SBA enhance its WOSB eligibility  examination procedures should be addressed.

SBA has also not addressed previously identified issues with WOSB set- asides awarded under ineligible industry codes. In 2015 and 2018, the  SBA OIG reported instances in which WOSB set-asides were awarded  using NAICS codes that were not eligible under the WOSB program, and  our analysis indicates that this problem persists. Specifically, our  analysis of data from the Federal Procurement Data System–Next  Generation (FPDS–NG) on all obligations to WOSB program set-asides  from the third quarter of fiscal year 2011 through the third quarter of fiscal  year 2018 found the following:

3.5 percent (or about $76 million) of WOSB program obligations were  awarded under NAICS codes that were never eligible for the WOSB  program;

10.5 percent (or about $232 million) of WOSB program obligations  made under an EDWOSB NAICS code went to women-owned  businesses that were not eligible to receive awards in EDWOSB- eligible industries; and

17 of the 47 federal agencies that obligated dollars to WOSB program  set-asides during the period used inaccurate NAICS codes in at least  5 percent of their WOSB set-asides (representing about $25 million).

According to SBA officials we spoke with, WOSB program set-asides may  be awarded under ineligible NAICS codes because of human error when  contracting officers are inputting data in FPDS–NG or because a small  business contract was misclassified as a WOSB program set-aside.  Rather than review FPDS–NG data that are inputted after the contract is  awarded, SBA officials said that they have discussed options for working  with the General Services Administration to add controls defining eligible  NAICS codes for WOSB program set-aside opportunities on  FedBizOpps.gov—the website that contracting officers use to post  announcements about available federal contracting opportunities.  However, SBA officials said that the feasibility of this option was still being  discussed and that the issue was not a high priority. Additionally, as of  November 2018, the WOSB program did not have targeted outreach or  training that focused on specific agencies’ use of NAICS codes, and SBA  officials did not identify any targeted outreach or training provided to  specific agencies to improve understanding of WOSB NAICS code  requirements (or other issues related to the WOSB program). On May 6,  2019, an SBA official provided information that SBA has initiated a review  to determine federal agencies’ use of ineligible NAICS codes and that  SBA plans to share the findings with agencies and also provide training to  procurement center representatives.

Congress authorized SBA to develop a contract set-aside program  specifically for WOSBs and EDWOSBs to address the  underrepresentation of such businesses in specific industries. In addition,  federal standards for internal control state that management should  design control activities to achieve objectives and respond to risks, and  that management should establish and operate monitoring activities to  monitor and evaluate the results. Because SBA does not review  whether contracts are being awarded under the appropriate NAICS  codes, it cannot provide reasonable assurance that WOSB program  requirements are being met or identify agencies that may require targeted  outreach or additional training on eligible NAICS codes. As a result,  WOSB contracts may continue to be awarded to groups other than those  intended, which can undermine the goals of and confidence in the  program.

Federal Contracts to WOSB Set-Asides Remain Relatively Small

While federal contract obligations to all women-owned small businesses  and WOSB program set-asides have increased since fiscal year 2012,  WOSB program set-asides remain a small percentage. Specifically,  federal dollars obligated for contracts to all women-owned small  businesses increased from $18.2 billion in fiscal year 2012 to $21.4 billion  in fiscal year 2017. Contracts awarded to all women-owned small  businesses within WOSB-program-eligible industries also increased  during this period—from about $15 billion to $18.8 billion, as shown in  figure 1. However, obligations under the WOSB program represented  only a small share of this increase. In fiscal year 2012, WOSB program  contract obligations were 0.5 percent of contract obligations to all women- owned small businesses for WOSB-program-eligible goods or services  (about $73.5 million), and in fiscal year 2017 this percentage had grown  to 3.8 percent (about $713.3 million) (see fig. 1).

In summary, the WOSB program aims to enhance federal contracting  opportunities for women-owned small businesses. However, as of early  May 2019, SBA had not fully implemented comprehensive procedures to  monitor the performance of the WOSB program’s third-party certifiers and  had not taken steps to provide reasonable assurance that only eligible  businesses obtain WOSB set-aside contracts, as recommended in our  2014 report. Without ongoing monitoring and reviews of third-party  certifier reports, SBA cannot ensure that certifiers are fulfilling their  requirements, and it is missing opportunities to gain information that could  help improve the program’s processes. Further, limitations in SBA’s  procedures for conducting and analyzing eligibility examinations inhibit its  ability to better understand the eligibility of businesses before they apply  for and potentially receive contracts, which exposes the program to  unnecessary risk of fraud. Also, since SBA does not expect to finish  implementing the changes in the 2015 NDAA until January 1, 2020, these  continued oversight deficiencies increase program risk. As a result, we  maintain that our previous recommendations should be addressed.

In addition, SBA has not addressed deficiencies related to WOSB  program set-asides being awarded under ineligible industry codes.  Although SBA has updated its training and outreach materials for the  WOSB program to address NAICS code requirements, it has not  developed a process for periodically reviewing FPDS–NG data, and has  yet to provide targeted outreach or training to agencies that may be using  ineligible codes. As a result, SBA is not aware of the extent to which  individual agencies are following program requirements and which  agencies may require targeted outreach or additional training. Reviewing  FPDS–NG data would allow SBA to identify those agencies (and  contracting offices within them) that could benefit from such training.  Without taking these additional steps, SBA cannot provide reasonable  assurance that WOSB program requirements are being met.

As such, we made one recommendation in our March 2019 report to  SBA. We recommended that SBA develop a process for periodically  reviewing FPDS–NG data to determine the extent to which agencies are  awarding WOSB program set-asides under ineligible NAICS codes, and  take steps to address any issues identified, such as providing targeted  outreach or training to agencies making awards under ineligible codes. As  of May 2019, this recommendation remains open.

Chairman Golden, Ranking Member Stauber, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, please  contact William Shear, Director, Financial Markets and Community  Investment at (202) 512-8678 or shearw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. GAO staff who made key contributions to  this testimony are Andrew Pauline (Assistant Director), Tarek  Mahmassani (Analyst in Charge), and Jennifer Schwartz.

Other staff who made key contributions to the report cited in the testimony  were Allison Abrams, Pamela Davidson, Jonathan Harmatz, Tiffani  Humble, Julia Kennon, Rebecca Shea, Jena Sinkfield, Tyler Spunaugle,  and Tatiana Winger.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

The Woman-Owned Small Business Program has sought to bolster women's participation in industries in which women are substantially underrepresented. It sets aside a portion of government contracts for women-owned small businesses.

This testimony discusses, among other things, the Small Business Administration's progress in changing the process for certifying program eligibility, and addressing oversight deficiencies.

SBA has not implemented our recommendations related to strengthening the eligibility certification process

About 3.5% of contracts awarded through the program from 2011-2018 were for ineligible goods and services


2018 Lobbying Disclosure: Observations on Lobbyists' Compliance with Disclosure Requirements

The LDA, as amended, requires lobbyists to file quarterly disclosure reports and semiannual reports on certain political contributions. The law also includes a provision for GAO to annually audit lobbyists' compliance with the LDA. GAO's objectives were to (1) determine the extent to which lobbyists can demonstrate compliance with disclosure requirements; (2) identify any challenges or potential improvements to compliance that lobbyists report; and (3) describe the resources and authorities available to USAO in its role in enforcing LDA compliance. This is GAO's 12th annual report under the provision.

GAO reviewed a stratified random sample of 99 quarterly disclosure LD-2 reports filed for the third and fourth quarters of calendar year 2017, and the first and second quarters of calendar year 2018. GAO also reviewed two random samples totaling 160 LD-203 reports from year-end 2017 and midyear 2018. This methodology allowed GAO to generalize to the population of 49,918 disclosure reports with $5,000 or more in lobbying activity, and 29,798 reports of federal political campaign contributions. GAO also interviewed USAO officials.

GAO is not making any recommendations in this report. GAO provided a draft of this report to the Department of Justice for review and comment. The agency stated that it did not have comments.

For the 2018 reporting period, most lobbyists provided documentation for key elements of their disclosure reports to demonstrate compliance with the Lobbying Disclosure Act of 1995, as amended (LDA). For lobbying disclosure (LD-2) reports and political contributions (LD-203) reports filed during the third and fourth quarter of 2017 and the first and second quarter of 2018, GAO estimates that

92 percent of lobbyists who filed new registrations also filed LD-2 reports as required for the quarter in which they first registered (the figure below describes the filing process and enforcement);

97 percent of all lobbyists who filed could provide documentation for lobbying income and expenses. However, an estimated 20 percent of these LD-2 reports were not properly rounded to the nearest $10,000;

19 percent of all LD-2 reports did not properly disclose one or more previously held covered positions as required; and

33 percent of LD-203 reports were missing reportable contributions, which was a statistically significant increase compared to prior years.

Except as noted above, these findings are generally consistent with prior reports GAO issued from 2010 through 2017.

GAO continues to find that most lobbyists in the sample reported some level of ease in complying with disclosure requirements and in understanding the definitions of terms used in the reporting. However, some disclosure reports demonstrate compliance difficulties, such as failure to disclose covered positions or misreporting of income or expenses.

The U.S. Attorney's Office for the District of Columbia (USAO) stated it has sufficient resources to enforce compliance. USAO continued its efforts to resolve noncompliance through filing reports or terminating registrations, as well as imposing civil and criminal penalties.

Questions regarding the influence of special interests in the formation of  government policy have led to efforts to achieve more transparency and  accountability from the lobbying community. The Honest Leadership and  Open Government Act of 2007 (HLOGA) amended the Lobbying  Disclosure Act of 1995 to require lobbyists to file quarterly lobbying  disclosure reports and semiannual reports on certain political  contributions. HLGOA also increased civil penalties and added criminal  penalties for failure to comply with lobbying disclosure requirements. In  addition, HLOGA includes a provision for us to annually audit the extent  of lobbyists’ compliance with the Lobbying Disclosure Act of 1995, as  amended (LDA) by reviewing publicly available lobbying registrations and  other matters. This is our 12th report under this provision.

Consistent with our prior reports, our objectives were to (1) determine the  extent to which lobbyists can demonstrate compliance with the  requirements for registrations and reports filed under the LDA; (2) identify  any challenges or potential improvements to compliance by lobbyists,  lobbying firms, and registrants; and (3) describe the resources and  authorities available to the U.S. Attorney’s Office for the District of  Columbia (USAO) in its role in enforcing LDA compliance and any efforts  it has made to improve that enforcement.

To determine the extent to which lobbyists can demonstrate compliance,  we examined a stratified random sample of 99 quarterly lobbying  disclosure (LD-2) reports with income and expenses of $5,000 or more  filed during the third and fourth quarters of calendar year 2017, and the  first and second quarters of calendar year 2018. We selected the  randomly sampled reports from the publicly downloadable database  maintained by the Clerk of the House of Representatives (Clerk of the  House). This methodology allows us to generalize some elements to the  population of LD-2 reports. We then surveyed and interviewed each  lobbyist or lobbying firm in our sample. Our questionnaire asked  lobbyists about their lobbying income and expenses and accompanying  supporting documentation. In our follow-up interviews, we asked them to  provide written documentation for key elements of their LD-2 reports. This  documentation included the amount of income reported for lobbying  activities, the amount of expenses reported, the houses of Congress or  federal agencies lobbied, lobbying issue areas, and the names of  lobbyists listed in the report. We also reviewed whether lobbyists listed on  the LD-2 reports properly disclosed prior covered official positions, and  whether the lobbyists filed the semiannual report of federal political  contributions.

Two lobbying firms in our sample, Fierce Government Relations and  Hawk International, declined to meet with us following our initial letters,  sent in August 2018, and follow-up contacts in September and November  2018. We informed both firms that because they declined to meet, we  would supply their names to Congress, as provided for in HLOGA. Both  acknowledged understanding this provision. Appendix I contains a list of  lobbyists and clients whose LD-2 reports we randomly selected for our  review.

To determine whether lobbyists reported their federal political  contributions as required by the LDA, we analyzed stratified random  samples of year-end 2017 and midyear 2018 semiannual political  contributions (LD-203) reports. The samples contain 80 LD-203 reports  that have contributions listed and 80 LD-203 reports that list no  contributions. We selected the randomly sampled reports from the  publicly downloadable contributions database maintained by the Clerk of  the House (see appendix II for a list of lobbyists and lobbying firms  randomly selected for our review of LD-203 reports). We then checked  the contributions reported in the Federal Election Commission’s (FEC)  database against the contributions identified in our sample reports. This  helped us determine whether all contributions reported in the FEC  database were also reported on the LD-203s as required. We contacted  lobbyists and asked them to provide documentation to clarify differences  we observed. This methodology allows us to generalize to the population  of LD-203 reports both with and without contributions.

To determine whether lobbyists were meeting the requirement to file an  LD-2 report for the quarter in which they registered, we compared new  registrations (LD-1) filed in the third and fourth quarters of 2017, and the  first and second quarters of 2018 to the corresponding LD-2 reports on  file with the Clerk of the House.

To assess the reliability of the data used, we reviewed available  documentation and interviewed knowledgeable officials about the process  of collecting, entering, and storing data, and mechanisms to ensure  validity, reliability, and consistency of data. We found the data to be  sufficiently reliable for our purposes.

To identify challenges and potential improvements to compliance, we  used a structured web-based survey to obtain views from lobbyists  included in our sample of reports. In general, we asked lobbying firms  whether it was easy or difficult to comply with the LD-2 disclosure  requirements. Specifically, we asked in our survey whether they  understood lobbying terms such as lobbying activities, terminating  lobbyists, lobbying issues codes, and covered positions.

To describe the resources and authorities available to USAO and any  efforts to improve LDA enforcement, we interviewed USAO officials and  obtained information about their system’s capabilities to track  enforcement and compliance trends and referral data that it receives from  the Secretary of the Senate and the Clerk of the House. A more detailed  description of our methodology is provided in appendix III.

The mandate does not require us to identify lobbyist organizations that  failed to register and report in accordance with LDA requirements. The  mandate also does not require us to determine whether reported lobbying  activity or political contributions represented the full extent of lobbying  activities that took place.

We conducted this performance audit from May 2018 to March 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The LDA defines a lobbyist as an individual who is employed or retained  by a client for compensation for services that include more than one  lobbying contact (written or oral communication to covered officials, such  as a high ranking agency official or a Member of Congress made on  behalf of a client), and whose lobbying activities represent at least 20  percent of the time that he or she spends on behalf of the client during the  quarter. Lobbying firms are persons or entities that have one or more  employees who lobby on behalf of a client other than that person or  entity.

The LDA requires lobbyists to register with the Secretary of the Senate  and the Clerk of the House, and to file quarterly reports disclosing their  respective lobbying activities. Lobbyists are required to file their  registrations and reports electronically with the Secretary of the Senate  and the Clerk of the House through a single entry point. Registrations and  reports must be publicly available in downloadable, searchable databases  from the Secretary of the Senate and the Clerk of the House. No specific  statutory requirements exist for lobbyists to generate or maintain  documentation in support of the information disclosed in the reports they  file. However, guidance issued by the Secretary of the Senate and the  Clerk of the House recommends that lobbyists retain copies of their filings  and documentation supporting reported income and expenses for at least  6 years after they file their reports. Figure 1 provides an overview of the  registration and filing process.

Lobbying firms are required to register with the Secretary of the Senate  and the Clerk of the House for each client if the firms receive or expect to  receive more than $3,000 in income from that client for lobbying  activities. Lobbyists are also required to submit an LD-2 quarterly report  for each registration filed. The LD-2s contain information that includes:  the name of the lobbyist reporting on quarterly lobbying activities;  the name of the client for whom the lobbyist lobbied; a list of individuals who acted as lobbyists on behalf of the client  during the reporting period; whether any lobbyists served in covered positions in the executive or  legislative branch, such as high-ranking agency officials or  congressional staff positions, in the previous 20 years;  codes describing general lobbying issue areas, such as agriculture  and education; a description of the specific lobbying issues; houses of Congress and federal agencies lobbied during the reporting  reported income (or expenses for organizations with in-house  lobbyists) related to lobbying activities during the quarter (rounded to  the nearest $10,000).

The LDA requires lobbyists to report certain political contributions  semiannually in the LD-203 report. These reports must be filed 30 days  after the end of a semiannual period by each lobbying firm registered to  lobby and by each individual listed as a lobbyist on a firm’s lobbying  report. The lobbyists or lobbying firms must:  list the name of each federal candidate or officeholder, leadership  political action committee, or political party committee to which he or  she contributed at least $200 in the aggregate during the semiannual  period;  report contributions made to presidential library foundations and  presidential inaugural committees;  report funds contributed to pay the cost of an event to honor or  recognize an official who was previously in a covered position, funds  paid to an entity named for or controlled by a covered official, and  contributions to a person or entity in recognition of an official, or to pay  the costs of a meeting or other event held by or in the name of a  covered official; and  certify that they have read and are familiar with the gift and travel  rules of the Senate and House, and that they have not provided,  requested, or directed a gift or travel to a Member, officer, or  employee of Congress that would violate those rules.

The LDA also requires that the Secretary of the Senate and the Clerk of  the House guide and assist lobbyists with the registration and reporting  requirements and develop common standards, rules, and procedures for  LDA compliance. The Secretary of the Senate and the Clerk of the House  review the guidance annually. It was last revised January 31, 2017, to  (among other issues), revise the registration threshold to reflect changes  in the Consumer Price Index, and clarify the identification of clients and  covered officials and issues related to rounding income and expenses.  The guidance provides definitions of LDA terms, elaborates on  registration and reporting requirements, includes specific examples of  different disclosure scenarios, and provides explanations of why certain  scenarios prompt or do not prompt disclosure under the LDA. The offices  of the Secretary of the Senate and the Clerk of the House told us they  continue to consider information we report on lobbying disclosure  compliance when they periodically update the guidance. In addition, they  told us they email registered lobbyists quarterly on common compliance  issues and reminders to file reports by the due dates.

The Secretary of the Senate and the Clerk of the House, along with  USAO, are responsible for ensuring LDA compliance. The Secretary of  the Senate and the Clerk of the House notify lobbyists or lobbying firms in  writing that they are not complying with the LDA reporting. Subsequently,  they refer those lobbyists who fail to provide an appropriate response to  USAO. USAO researches these referrals and sends additional  noncompliance notices to the lobbyists or lobbying firms, requesting that  they file reports or terminate their registration. If USAO does not receive a  response after 60 days, it decides whether to pursue a civil or criminal  case against each noncompliant lobbyist. A civil case could lead to  penalties up to $200,000 for each violation, while a criminal case—usually  pursued if a lobbyist’s noncompliance is found to be knowing and  corrupt—could lead to a maximum of 5 years in prison.

Lobbyists Generally Demonstrate Compliance with Disclosure Requirements

Lobbyists Filed Disclosure Reports as Required for Most New Lobbying Registrations

Generally, under the LDA, within 45 days of being employed or retained  to make a lobbying contact on behalf of a client, the lobbyist must register  by first filing an LD-1 form with the Secretary of the Senate and the Clerk  of the House. Thereafter, the lobbyist must file quarterly disclosure (LD-2)  reports that detail the lobbying activities, including filing a first report for  the quarter in which the lobbyist registered. Of the 3,618 new registrations  we identified for the third and fourth quarters of 2017 and the first and  second quarters of 2018, we matched 3,329 of them (92.01 percent) to  corresponding LD-2 reports filed within the same quarter as the  registration. These results are consistent with the findings we have  reported in prior reviews. We used the House lobbyists’ disclosure  database as the source of the reports. We also used an electronic  matching algorithm that allows for misspellings and other minor  inconsistencies between the registrations and reports. Figure 2 shows  lobbyists filed disclosure reports as required for most new lobbying  registrations from 2010 through 2018.

As part of their regular enforcement procedures, the Clerk of the House  and the Secretary of the Senate are to follow up with newly filed  registrations where quarterly reports were not filed. If the Clerk of the  House and the Secretary of the Senate are unsuccessful in bringing the  lobbyist into compliance, they may refer those cases to USAO as  described earlier in figure 1.

For Most LD-2 Reports, Lobbyists Provided Documentation for Key Elements, Including Documentation for Their Income and Expenses

For selected elements of lobbyists’ LD-2 reports that can be generalized  to the population of lobbying reports, our findings have generally been  consistent from year to year. Most lobbyists reporting $5,000 or more in  income or expenses provided written documentation to varying degrees  for the reporting elements in their disclosure reports. Figure 3 shows that  for most LD-2 reports, lobbyists provided documentation for income and  expenses for sampled reports from 2010 through 2018, and our 2018  estimate does not represent a statistically significant change from 2017.

Figure 4 shows that in 2018, 10 percent of lobbyists’ reported income or  expenses differed by $10,000 or more. Additionally, for some LD-2  reports, lobbyists did not round their income or expenses as the guidance  requires. In 2018, we estimate 20 percent of reports did not round  reported income or expenses according to the guidance. We have found  that rounding difficulties have been a recurring issue on LD-2 reports from  2010 through 2018. As we previously reported, several lobbyists who  listed expenses told us that based on their reading of the LD-2 form, they  believed they were required to report the exact amount. While this is not  consistent with the LDA and the guidance, this may be a source of some  of the confusion regarding rounding errors. In 2016, the guidance was  updated to include an additional example about rounding expenses to the  nearest $10,000.

The LDA requires lobbyists to disclose lobbying contacts made with  federal agencies on behalf of the client for the reporting period. This year,  of the 99 LD-2 reports in our sample, 46 reports disclosed lobbying  activities at federal agencies. Of those, lobbyists provided documentation  for all disclosed lobbying activities at the federal agencies for 29 LD-2  reports. Figure 5 shows that lobbyists for most LD-2 reports provided  documentation for selected elements of their LD-2 reports that include  general issue area codes for lobbying activities, lobbying the House and  the Senate, and individual lobbyists listed from 2010 through 2018. In  2017 and 2018, there was an improvement of compliance with  documentation for lobbying the House and the Senate over the previous 7  years.

For Most Lobbying Disclosure Reports (LD-2), Lobbyists Filed Political Contribution Reports (LD- 203) for All Listed Lobbyists

Figure 6 shows that lobbyists for most lobbying firms filed contribution  reports as required in our sample from 2010 through 2018. All individual  lobbyists and lobbying firms reporting lobbying activity are required to file  political contribution (LD-203) reports semiannually, even if they have no  contributions to report, because they must certify compliance with the gift  and travel rules.

For Some LD-2 Reports, Lobbyists May Have Failed to Disclose Previously Held Covered Positions

The LDA requires a lobbyist to disclose previously held covered positions  in the executive or legislative branch, such as high-ranking agency  officials and congressional staff, when first registering as a lobbyist for a  new client. This can be done either on a new LD-1 or on the quarterly LD- 2 filing when added as a new lobbyist. This year, we estimate that 19  percent of all LD-2 reports may not have properly disclosed previously  held covered positions as required. As in our other reports, some  lobbyists were still unclear about the need to disclose certain covered  positions, such as paid congressional internships or certain executive  agency positions. Figure 7 shows the extent to which lobbyists may not  have properly disclosed one or more covered positions as required from  2010 through 2018.

Some Lobbyists Amended Their Disclosure Reports after We Contacted Them

Lobbyists amended 23 of the 99 LD-2 disclosure reports in our original  sample to change previously reported information after we contacted  them. Of the 23 reports, 10 were amended after we notified the lobbyists  of our review, but before we met with them. An additional 13 of the 23  reports were amended after we met with the lobbyists to review their  documentation. We consistently find a notable number of amended LD-2  reports in our sample each year following notification of our review. This  suggests that sometimes our contact spurs lobbyists to more closely  scrutinize their reports than they would have without our review. Table 1  lists reasons lobbying firms in our sample amended their LD-2 reports.

Most LD-203 Contribution Reports Disclosed Political Contributions Listed in the Federal Election Commission Database

As part of our review, we compared contributions listed on lobbyists’ and  lobbying firms’ LD-203 reports against those political contributions  reported in the Federal Election Commission (FEC) database to identify  whether political contributions were omitted on LD-203 reports in our  sample. The samples of LD-203 reports we reviewed contained 80  reports with contributions and 80 reports without contributions. We  estimate that overall in 2018, lobbyists failed to disclose one or more  reportable contributions on 33 percent of reports. Additionally, eight LD- 203 reports were amended in response to our review. Table 2 shows our  results from 2010 to 2018; estimates in the table have a maximum margin  of error of 11 percentage points. For this year’s review, the estimated  change in the percent of LD-203 reports missing one or more FEC- reportable contributions was a statistically significant increase compared  to each of the prior 9 years.

Most Lobbying Firms Reported Some Level of Ease in Complying with Disclosure Requirements and Understood Lobbying Terms

As part of our review, we conducted interviews with 97 different lobbying  firms in the 2018 sample of LD-2 disclosure reports. Consistent with  prior reviews, most lobbying firms reported that they found it “very easy”  or “somewhat easy” to comply with reporting requirements. Of the 97  different lobbying firms interviewed, 24 reported that the disclosure  requirements were “very easy,” 61 reported them “somewhat easy,” and  11 reported them “somewhat difficult” or “very difficult.” One lobbying firm  did not respond to this question (see figure 8).

Most lobbying firms we surveyed rated the definitions of terms used in  LD-2 reporting as “very easy” or “somewhat easy” to understand with  regard to meeting their reporting requirements. This is consistent with  prior reviews. Figure 9 shows what lobbyists reported as their ease of  understanding the terms associated with LD-2 reporting requirements  from 2012 through 2018.

The U.S. Attorney’s Office for the District of Columbia Continues to Enforce the LDA

The U.S. Attorney’s Office Has Resources and Authorities to Enforce LDA Compliance

The U.S. Attorney’s Office for the District of Columbia (USAO) officials  stated that they continue to have sufficient personnel resources and  authority under the LDA to enforce reporting requirements. This includes  imposing civil or criminal penalties for noncompliance. Noncompliance  refers to a lobbyist’s or lobbying firm’s failure to comply with the LDA.  However, USAO noted that due to attrition the number of the assigned  personnel has changed from 2017 as indicated in table 3.

USAO officials stated that lobbyists resolve their noncompliance issues  by filing LD-2, LD-203, or LD-2 amendments, or by terminating their  registration, depending on the issue. Resolving referrals can take  anywhere from a few days to years, depending on the circumstances.  During this time, USAO creates summary reports from its database to  track the overall number of referrals that are pending or become  compliant as a result of the lobbyist receiving an email, phone call, or  noncompliance letter. Referrals remain in the pending category until they  are resolved. The pending category is divided into the following areas:  “initial research for referral,” “responded but not compliant,” “no response  /waiting for a response,” “bad address,” and “unable to locate.” USAO  officials noted that they attempt to review and update all pending cases  every six months.

USAO focuses its enforcement efforts primarily on the “responded but not  compliant” and the “no response/waiting for a response” groups. Officials  told us that, if after several attempts, it cannot contact the noncompliant  firm or its lobbyist, it confers with both the Secretary of the Senate and  the Clerk of the House to determine whether further action is needed.

In the cases where the lobbying firm is repeatedly referred for not filing  disclosure reports but does not appear to be actively lobbying, USAO  suspends enforcement actions. USAO officials reported they will continue  to monitor these firms and will resume enforcement actions if required.

USAO received 3,798 referrals from both the Secretary of the Senate and  the Clerk of the House for failure to comply with LD-2 reporting  requirements cumulatively for filing years 2009 through 2018. Figure 10  shows the number and status of the referrals received, and the number of  enforcement actions taken by USAO to bring lobbying firms into  compliance. Enforcement actions include USAO attempts to bring  lobbyists into compliance through letters, emails, and calls. About 40  percent (1,533 of 3,798) of the total referrals received are now compliant  because lobbying firms either filed their reports or terminated their  registrations. In addition, some of the referrals were found to be compliant  when USAO received the referral, so no action was taken. This may  occur when lobbying firms respond to the contact letters from the  Secretary of the Senate and the Clerk of the House after USAO received  the referrals. About 59 percent (2,250 of 3,798) of referrals are pending  further action because USAO could not locate the lobbying firm, did not  receive a response from the firm after an enforcement action, or plans to  conduct additional research to determine if it can locate the lobbying firm.  The remaining 15 referrals did not require action or were suspended  because the lobbyist or client was no longer in business or the lobbyist  was deceased.

LD-203 referrals consist of two types: (1) LD-203(R) referrals represent  lobbying firms that have failed to file LD-203 reports for their lobbying  firm; and (2) LD-203 referrals represent the lobbyists at the lobbying firm  who have failed to file their individual LD-203 reports as required. USAO  received 2,629 LD-203(R) referrals from lobbying firms (cumulatively from  2009 through 2018) and 5,897 LD-203 referrals for individual lobbyists  (cumulatively from 2009 through 2017) from the Secretary of the Senate  and the Clerk of the House for noncompliance with reporting  requirements). LD-203 referrals are more complicated than LD-2 referrals  because both the lobbying firm and the lobbyists within the firm are each  required to file an LD-203. Lobbyists employed by a lobbying firm typically  use the firm’s contact information and not the lobbyists’ personal contact  information. This makes it difficult to locate a lobbyist who is not in  compliance and may have left the firm.

In 2018, USAO officials confirmed that, while many firms have assisted  USAO by providing contact information for lobbyists, they are not required  to do so. According to officials, USAO has difficulty pursuing LD-203  referrals for lobbyists who have departed a firm without leaving forwarding  contact information with the firm. While USAO utilizes web searches and  online databases, including social media, to find these missing lobbyists,  it is not always successful. Figure 11 shows the status of LD-203(R)  lobbying firm referrals received and the number of enforcement actions  taken by USAO to bring lobbying firms into compliance. About 42 percent  (1,093 of 2,629) of the lobbying firms referred by the Secretary of the  Senate and the Clerk of the House for noncompliance from calendar  years 2009 through 2018 are now considered compliant because firms  either filed their reports or terminated their registrations. About 58 percent  (1,523 of 2,629) of the referrals are pending further action. The remaining  13 referrals did not require action or were suspended because the  lobbyist or client was no longer in business or the lobbyist was deceased.

USAO received 5,897 LD-203 individual lobbyists referrals from the  Secretary of the Senate and the Clerk of the House for lobbyists who  failed to comply with LD-203 reporting requirements for calendar years  2009 through 2017. Figure 12 shows the status of the referrals received  and the number of enforcement actions taken by USAO to bring lobbyists  into compliance. In addition, figure 12 shows that about 32 percent (1,880  of 5,897) of the lobbyists had come into compliance by filing their reports  or no longer being registered as a lobbyist. About 68 percent (4,003 of  5,897) of the referrals are pending further action because USAO could  not locate the lobbyist, did not receive a response from the lobbyist, or  plans to conduct additional research to determine if it can locate the  lobbyist. The remaining 14 referrals did not require action or were  suspended because the lobbyist or client was no longer in business or the  lobbyist was deceased.

USAO received LD-203 referrals from the Secretary of the Senate and  the Clerk of the House for 7,617 individual lobbyists who failed to comply  with LD-203 reporting requirements for any filing year from 2009 through  2017. Figure 13 shows the status of compliance for individual lobbyists  listed on referrals to USAO. About 36 percent (2,706 of 7,617) of the  lobbyists had come into compliance by filing their reports or by not being  registered as a lobbyist. About 65 percent (4,911 of 7,617) of the referrals  are pending action because USAO could not locate the lobbyists, did not  receive a response from the lobbyists, or plans to conduct additional  research to determine if it can locate the lobbyists.

USAO officials said that many of the pending LD-203 referrals represent  lobbyists who no longer lobby for the lobbying firms affiliated with the  referrals, even though these lobbying firms may be listed on the lobbyist’s  LD-203 report.

Status of Enforcement Settlement Actions

According to USAO officials, lobbyists and lobbying firms who repeatedly  fail to file reports are labeled chronic offenders and referred to one of the  assigned attorneys for follow-up. USAO also receives complaints  regarding lobbyists who are allegedly lobbying but never filed an LD-203.  USAO officials added that USAO monitors and investigates chronic  offenders to ultimately determine the appropriate enforcement actions,  which may include settlement or other civil actions.

Additionally, USAO officials reported that they are working to resolve an  active case involving a chronic offender firm and lobbyist that was  pending as of 2018. USAO officials noted that the agency is continuing  settlement discussions with the company that failed to respond to  required LDA violation notices and its lobbyist did not respond to  individual violations for semiannual reporting. The company is now  current on filing its reports and USAO is working with the Secretary of the  Senate and the Clerk of the House on settling past violations. USAO  continues to review its records to identify additional chronic offenders for  further action due to noncompliance.

We provided a draft of this report to the Department of Justice for review  and comment. The Department of Justice did not have comments.

We are sending copies of this report to the Attorney General, the  Secretary of the Senate, the Clerk of the House of Representatives, and  interested congressional committees and members. In addition, this  report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2717 or jonesy@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix IV.

Appendix I: List of Lobbyists and Clients for Sampled Lobbying Disclosure Reports

The random sample of lobbying disclosure reports we selected was  based on unique combination of House ID, lobbyist, and client names  (see table 4).

Appendix II: List of Sampled Lobbying Contribution Reports with and without Contributions Listed

Lobbyist or lobbying firm  Jessica Woolley  National Multifamily Housing Council, Inc.

Appendix III: Objectives, Scope, and Methodology

Our objectives were to determine the extent to which lobbyists are able to  demonstrate compliance with the Lobbying Disclosure Act of 1995, as  amended (LDA) by providing documentation (1) to support information  contained on registrations and reports filed under the LDA; (2) to identify  challenges or potential improvements to compliance, if any; and (3) to  describe the resources and authorities available to the U.S. Attorney’s  Office for the District of Columbia (USAO), its role in enforcing LDA  compliance, and any efforts it has made to improve LDA enforcement.

We used information in the lobbying disclosure database maintained by  the Clerk of the House of Representatives (Clerk of the House). To  assess whether these disclosure data were sufficiently reliable for the  purposes of this report, we reviewed relevant documentation and  consulted with knowledgeable officials. Although registrations and reports  are filed through a single web portal, each chamber subsequently  receives copies of the data and follows different data-cleaning,  processing, and editing procedures before storing the data in either  individual files (in the House) or databases (in the Senate). Currently,  there is no means of reconciling discrepancies between the two  databases caused by the differences in data processing. For example,  Senate staff told us during previous reviews they set aside a greater  proportion of registration and report submissions than the House for  manual review before entering the information into the database. As a  result, the Senate database would be slightly less current than the House  database on any given day pending review and clearance.

House staff told us during previous reviews that they rely heavily on  automated processing. In addition, while they manually review reports  that do not perfectly match information on file for a given lobbyist or client,  staff members approve and upload such reports as originally filed by each  lobbyist, even if the reports contain errors or discrepancies (such as a  variant on how a name is spelled). Nevertheless, we do not have reason  to believe that the content of the Senate and House systems would vary  substantially. Based on interviews with knowledgeable officials and a  review of documentation, we determined that House disclosure data were  sufficiently reliable for identifying a sample of quarterly disclosure reports  (LD-2) and for assessing whether newly filed lobbyists also filed required  reports. We used the House database for sampling LD-2 reports from the  third and fourth quarters of 2017 and the first and second quarters of  2018, as well as for sampling year-end 2017 and midyear 2018 political  contributions reports (LD-203). We also used the database for matching  quarterly registrations with filed reports. We did not evaluate the Offices  of the Secretary of the Senate or the Clerk of the House, both of which  have key roles in the lobbying disclosure process. However, we did  consult with officials from each office. They provided us with general  background information at our request.

To assess the extent to which lobbyists could provide evidence of their  compliance with reporting requirements, we examined a stratified random  sample of 99 LD-2 reports from the third and fourth quarters of 2017 and  the first and second quarters of 2018. We excluded reports with no  lobbying activity or with income or expenses of less than $5,000 from our  sampling frame. We drew our sample from 49,918 activity reports filed  for the third and fourth quarters of 2017 and the first and second quarters  of 2018 available in the public House database, as of our final download  date for each quarter.

Our sample of LD-2 reports was not designed to detect differences over  time. However, we conducted tests of significance for changes from 2010  to 2018 for the generalizable elements of our review. We found that  results were generally consistent from year to year and there were few  statistically significant changes (as noted in our report) after using a  Bonferroni adjustment to account for multiple comparisons. For this  year’s review, we estimated that 97 percent of LD-2 reports provided  written documentation for the lobbying income and expenses.

Our sample is based on a stratified random selection and is only one of a  large number of samples that we may have drawn. Because each sample  could have provided different estimates, we express our confidence in the  precision of our particular sample’s results as a 95-percent confidence  interval. This interval would contain the actual population value for 95  percent of the samples that we could have drawn. The percentage  estimates for LD-2 reports have 95-percent confidence intervals of within  plus or minus 12 percentage points or fewer of the estimate itself.

We contacted all the lobbyists and lobbying firms in our sample and,  using a structured web-based survey, asked them to confirm key  elements of the LD-2 and whether they could provide written  documentation for key elements in their reports, including  the amount of income reported for lobbying activities;  the amount of expenses reported on lobbying activities;  the names of those lobbyists listed in the report;  the houses of Congress and the federal agencies that they lobbied,  and  the issue codes listed to describe their lobbying activity.

After reviewing the survey results for completeness, we interviewed  lobbyists and lobbying firms to review the documentation they reported as  having on their online survey for selected elements of their respective LD- 2 report.

Prior to each interview, we conducted a search to determine whether  lobbyists properly disclosed their covered position as required by the  LDA. We reviewed the lobbyists’ previous work histories by searching  lobbying firms’ websites, LinkedIn, Leadership Directories, Legistorm, and  Google. Prior to 2008, lobbyists were only required to disclose covered  official positions held within 2 years of registering as a lobbyist for the  client. The Honest Leadership and Open Government Act of 2007  amended that time frame to require disclosure of positions held 20 years  before the date the lobbyists first lobbied on behalf of the client. Lobbyists  are required to disclose previously held covered official positions either on  the client registration (LD-1) or on an LD-2 report. Consequently, those  who held covered official positions may have disclosed the information on  the LD-1 or a LD-2 report filed prior to the report we examined as part of  our random sample. Therefore, where we found evidence that a lobbyist  previously held a covered official position, and that information was not  disclosed on the LD-2 report under review, we conducted an additional  review of the publicly available Secretary of the Senate or Clerk of the  House database to determine whether the lobbyist properly disclosed the  covered official position on a prior report or LD-1. Finally, if a lobbyist  appeared to hold a covered position that was not disclosed, we asked for  an explanation at the interview with the lobbying firm to ensure that our  research was accurate.

In previous reports, we reported the lower bound of a 90-percent  confidence interval to provide a minimum estimate of omitted covered  positions and omitted contributions with a 95-percent confidence level.  We did so to account for the possibility that our searches may have failed  to identify all possible omitted covered positions and contributions. As we  have developed our methodology over time, we are more confident in the  comprehensiveness of our searches for these items. Accordingly, this  report presents the estimated percentages for omitted contributions and  omitted covered positions rather than the minimum estimates. As a result,  percentage estimates for these items will differ slightly from the minimum  percentage estimates presented in prior reports.

In addition to examining the content of the LD-2 reports, we confirmed  whether the most recent LD-203 reports had been filed for each firm and  lobbyist listed on the LD-2 reports in our random sample. Although this  review represents a random selection of lobbyists and firms, it is not a  direct probability sample of firms filing LD-2 reports or lobbyists listed on  LD-2 reports. As such, we did not estimate the likelihood that LD-203  reports were appropriately filed for the population of firms or lobbyists  listed on LD-2 reports.

To determine if the LDA’s requirement for lobbyists to file a report in the  quarter of registration was met for the third and fourth quarters of 2017  and the first and second quarters of 2018, we used data filed with the  Clerk of the House to match newly filed registrations with corresponding  disclosure reports. Using an electronic matching algorithm that includes  strict and loose text matching procedures, we identified matching  disclosure reports for 3,329, or 92.01 percent, of the 3,618 newly filed  registrations. We began by standardizing client and lobbyist names in  both the report and registration files (including removing punctuation and  standardizing words and abbreviations, such as “company” and “CO”).  We then matched reports and registrations using the House identification  number (which is linked to a unique lobbyist-client pair), as well as the  names of the lobbyist and client.

For reports we could not match by identification number and standardized  name, we also attempted to match reports and registrations by client and  lobbyist name, allowing for variations in the names to accommodate  minor misspellings or typos. For these cases, we used professional  judgment to determine whether cases with typos were sufficiently similar  to consider as matches. We could not readily identify matches in the  report database for the remaining registrations using electronic means.

To assess the accuracy of the LD-203 reports, we analyzed stratified  random samples of LD-203 reports from the 29,798 total LD-203 reports.  The first sample contains 80 reports of the 9,502 reports with political  contributions and the second contains 80 reports of the 20,296 reports  listing no contributions. Each sample contains 40 reports from the year- end 2017 filing period and 40 reports from the midyear 2018 filing period.  The samples from 2018 allow us to generalize estimates in this report to  either the population of LD-203 reports with contributions or the reports  without contributions to within a 95-percent confidence interval of within  plus or minus 11 percentage points or fewer. Although our sample of LD- 203 reports was not designed to detect differences over time, for this  year’s review, the estimated change in percentage of LD-203 reports  missing one or more reportable contributions was a statistically significant  increase compared to each of the prior 9 years.

While the results provide some confidence that apparent fluctuations in  our results across years are likely attributable to sampling error, the  inability to detect significant differences may also be related to the nature  of our sample, which was relatively small and designed only for cross- sectional analysis. We analyzed the contents of the LD-203 reports and  compared them to contribution data found in the publicly available  Federal Elections Commission’s (FEC) political contribution database. We  consulted with staff at FEC responsible for administering the database.  We determined that the data are sufficiently reliable for the purposes of  our reporting objectives.

We compared the FEC-reportable contributions on the LD-203 reports  with information in the FEC database. The verification process required  text and pattern matching procedures so we used professional judgment  when assessing whether an individual listed is the same individual filing  an LD-203. For contributions reported in the FEC database and not on  the LD-203 report, we asked the lobbyists or organizations to explain why  the contribution was not listed on the LD-203 report or to provide  documentation of those contributions. As with covered positions on LD-2  disclosure reports, we cannot be certain that our review identified all  cases of FEC-reportable contributions that were inappropriately omitted  from a lobbyist’s LD-203 report. We did not estimate the percentage of  other non-FEC political contributions that were omitted because they tend  to constitute a small minority of all listed contributions and cannot be  verified against an external source.

To identify challenges to compliance, we used a structured web-based  survey and obtained the views from 97 different lobbying firms included in  our sample on any challenges to compliance. The number of different  lobbying firms is 97, which is less than our original sample of 99 reports  because some lobbying firms had more than one LD-2 report included in  our sample. We calculated responses based on the number of different  lobbying firms that we contacted rather than the number of interviews.  Prior to our calculations, we removed the duplicate lobbying firms based  on the most recent date of their responses. For those cases with the  same response date, the decision rule was to keep the cases with the  smallest assigned case identification number. To obtain their views, we  asked them to rate their ease with complying with the LD-2 disclosure  requirements using a scale of “very easy,” “somewhat easy,” “somewhat  difficult,” or “very difficult.” In addition, using the same scale, we asked  them to rate the ease of understanding the terms associated with LD-2  reporting requirements.

To describe the resources and authorities available to the U.S. Attorney’s  Office for the District of Columbia (USAO) and its efforts to improve its  LDA enforcement, we interviewed USAO officials. We obtained  information on the capabilities of the system officials established to track  and report compliance trends and referrals and on other practices  established to focus resources on LDA enforcement. USAO provided us  with reports from the tracking system on the number and status of  referrals and chronically noncompliant lobbyists and lobbying firms.

The mandate does not require us to identify lobbyists who failed to  register and report in accordance with the LDA requirements, or  determine for those lobbyists who did register and report whether all  lobbying activity or contributions were disclosed. Therefore, this was  outside the scope of our audit.

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Clifton G. Douglas Jr. (Assistant  Director), Shirley Jones (Managing Associate General Counsel), Ulyana  Panchishin (Analyst-in-Charge), James Ashley, Krista Loose, Kathleen  Jones, Amanda Miller, Sharon Miller, Robert Robinson, Stewart W. Small,  Peter Verchinski, and Khristi Wilkins made key contributions to this report.

Assisting with lobbyist file reviews were Adam Brooks, Jazzmin R.  Cooper, Colleen Corcoran, Rianna B. Jansen, Benjamin Legow, Regina  Morrison, Andrew Olson, Amanda R. Prichard, Alan Rozzi, Bryan  Sakakeeny, Kate Wulff, and Edith P. Yuh.

Lobbying Disclosure: Observations on Lobbyists’ Compliance with New  Disclosure Requirements. GAO-08-1099. Washington, D.C: September  30, 2008.  2008 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-09-487. Washington, D.C: April 1, 2009.  2009 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-10-499. Washington, D.C: April 1, 2010.  2010 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-11-452. Washington, D.C: April 1, 2011.  2011 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-12-492. Washington, D.C: March 30,  2012.  2012 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-13-437. Washington, D.C: April 1, 2013.  2013 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-14-485. Washington, D.C: May 28, 2014.  2014 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-15-310. Washington, D.C.: March 26,  2015.  2015 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-16-320. Washington, D.C.: March 24,  2016.  2016 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-17-385. Washington, D.C.: March 31,  2017.  2017 Lobbying Disclosure: Observations on Lobbyists’ Compliance with  Disclosure Requirements. GAO-18-388, Washington, D.C.: March 30,  2018.

We audited compliance with the Lobbyist Disclosure Act, which requires paid lobbyists to disclose their activities and report certain political contributions.

We examined a random sample of lobbying disclosure reports, interviewed the lobbyists responsible for them, sought documentation, and cross-checked the contributions reports.

A third of reports didn't disclose political contributions that should have been disclosed.

A fifth of reports didn't disclose the lobbyist's previous jobs in federal agencies or with Congress. Previous government employment must be reported.