WASHINGTON – Two government reports have uncovered millions of dollars in federal contracts that were supposed to go to small businesses but instead were awarded to companies that did not qualify or that obtained the contracts fraudulently.

In one report, the inspector general for the Interior Department found that contracts listed as going to small businesses went to a dozen Fortune 500 corporations, including Xerox Corp. and John Deere Co.

The report, based on a sampling of the department's small business contract awards in fiscal 2006 and 2007, uncovered no fraud.

It did find that large businesses received contracts because of data entry errors, incorrect data and failure by contracting officials to verify the size of the business.

The report also said that in several cases, corporations appeared to have misrepresented themselves as small businesses on the federal contractor database.

The second report, by the Government Accountability Office, found that numerous private firms had tapped into the Small Business Administration's set-aside program for small businesses in economically distressed areas by falsely claiming they were in a Historically Underutilized Business Zone, or HUBZone.

Ten randomly selected companies in the Washington area, according to the agency, had set up virtual offices or rented mailboxes in poor communities solely to obtain a HUBZone business address.

The SBA released a statement that outlined the steps it plans to take to correct the problems and verify that companies are eligible.

P. Lynn Scarlett, the Interior Department's deputy secretary, said the department is "working to correct these issues."

Xerox and John Deere said they are moving to correct the errors.

Congress has required that 23 percent of all federal contracts, which total more than $400 billion annually, be set aside for small businesses.

Elizabeth Olson,

The New York Times

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