Small Business Administration head Kelly Loeffler has announced a “full-scale” audit of its 8(a) program for socially and economically disadvantaged small business owners, directing the agency’s Office of Government Contracting and Business Development during the last week of June to begin the audit. Both prime contractors and 8(a) certified firms should be on the lookout for actions on the part of SBA, contracting officers, and representatives that suggest they may become the target of an audit. The stated purpose of the audit is to ferret out waste and abuse, and Administrator Loeffler has directed SBA staff to start with high-dollar contracts as well as those that were awarded with limited competition.

Audit findings will be released to the SBA Office of Inspector General and Department of Justice for enforcement. The SBA says it will pursue all available actions to recover misused funds.

Regardless of why the audit was initiated, prime contractors and subcontractors participating in the initiative or working with someone who does should anticipate a thorough examination of their 8(a) program-related activities. They should prepare to have their contracts and performance under them—both old and going forward—heavily scrutinized. 

Now is the time to review old contracts. If issues are uncovered, there are substantial reductions in penalties for self-reporting. By taking a proactive route, contractors can be better prepared if the government does show up with a subpoena or call with an inquiry. Regardless of a government inquiry, contractors should take seriously the audit and review their contracts now to ensure compliance and avoid legal risk down the road. It can be valuable to partner with outside counsel to review contracts, self-report issues, or comply with government inquiries. When such an internal review is conducted in the course and context of a privileged relationship with counsel, greater options may be available in how a company discovering a problem might proceed.

The audit also comes in the wake of other key legal cases at the Supreme Court and executive actions. In January 2025, a revocation of federal affirmative action requirements was accompanied by a statement from the Trump administration stating its intent to eliminate any federal program that promotes diversity, equity, and inclusion (DEI) principles. This action called into question the future of programs that require that portions of some federal contracts be offered to women- and minority-owned small businesses, as we detailed in a previous client alert.

And, in May 2025, the Supreme Court decision in Kousisis v. United States clarified and expanded the scope of federal fraud statutes as they apply to government contractors. The court held that a contractor can be convicted of federal fraud even if the government did not suffer a net economic loss, so long as the contractor made a material misrepresentation that induced the government to enter into a transaction. In that case, the misrepresentation was a false statement about the inclusion of a minority-owned contractor in the contract.

For more information, please contact us or your regular Parker Poe contact. Click here to subscribe to our latest alerts and insights.