Small business croynism not limited to Israel

Although much as been reported on recently concerning the indictment and alleged corruption of Prime Minister Netanyahu, corruption in government is not at all a phenomenon limited to American government. In fact, Israel’s closest ally in the world has inter-agency corruption as well. In the United States, some of the largest corporations have come under fire recently when claims surfaced that they pay no corporate taxes. Earlier this month, The New York Times singled out shipping giant FedEx for paying no taxes, claiming FedEx’s effective tax rate at less than zero for fiscal year 2018.

Likewise, The Washington Post reported earlier this year that online omni-retailer Amazon has paid no taxes on its $11 billion of profits for 2018. The idea that big corporations have bought influence to garner a favorable regulatory environment is nothing new around those who watch Washington D.C. machinations. If businesses have a big corporate presence, a deep wallet and a crack lobbying team, they can finesse the government to their advantage.

But what about small businesses? Are smaller firms playing games with the government for fun and profit?

The government has contracts and programs that are set aside for various kinds of specialized businesses like small businesses, women-owned businesses, minority-owned companies or veteran-owned businesses. If the government can designate your company with one of these coveted statuses, you are eligible for lucrative taxpayer-funded service contracts.

Job Corp is a program run by the Department of Labor (DOL) and was created by President Lyndon Johnson that offers young Americans vocational training free of charge. The Job Corp has centers in 125 cities with at least one center in every state. The program’s budget is an impressive $1.7 billion a year.

The Data Center for the Job Corp provides contract support and oversight for a 45K student payroll, financial reporting, LAN/WAN network support for 128 site locations nation-wide, software development for managing student pay and outcome reporting and providing technical assistance support to 65K users. The contract to provide this work, worth $65 million, is considered a set aside for one of the special categories of business

The company that currently holds the contract to provide IT support is Trowbridge & Trowbridge (T&T), a “women owned small business.”

As taxpayers, we trust the government to be good stewards of the money we pay to run the country. We trust there is a robust oversight process engaged in the awarding of government contracts for programs that contribute to society. But what if businesses can simply purchase these contracts, or inherit them, by purchasing the government-approved companies that have been awarded the contracts. As we will see these contracts tend to stay all in the same family.

T&T was formed by a former executive Vice President and stockholder of the RSIS corporation who, coincidentally used to hold the IT support Job Corp contract. RSIS was sold and the founder of RSIS, Rodney Hunt, filed for bankruptcy and lost his $24M home in Virginia to foreclosure. However, Ron Trowbridge, the second largest stakeholder in RSIS, has done very well since convincing embattled owner to sell RSIS before it lost all its money.

With money from the sale, Ron Trowbridge started Trowbridge & Trowbridge (T&T) as a “woman owned small business” with his daughter, Karen Trowbridge, positioning the firm’s eligibility for some of these government contract set asides. T&T subsequently acquired the firm Altech Services, a firm designated by the government as a service disabled veteran owned business, who had the IT Job Corp contract after RSIS went out of business. In 2019, Enlightment Capital, purchased the “women-owned” Trowbridge and Trowbridge. It remains to be seen if Enlightenment will have successfully bought the IT contract at the Job Corp as the contract is now up for renewal.

So what kind of oversight is involved in this small business contract hopscotch? Are the services provided up to par? After all, the most important part of this process is that the taxpayers’ money is being used wisely and efficiently. It’s not clear that is the case, but a report by management consultants KPMG doesn’t bode well. KPMG reported of T&T’s performance running the Job Corp’s IT operations: “…Nine of fifteen systems tested this year still had active user accounts after individuals’ employment had been terminated. One of these systems contained user accounts that appeared to have been accessed after the users’ employment had been terminated. Failing to promptly remove a separated user’s account increases risk of harm to DOL’s information systems. A disgruntled, separated user could wreak havoc by deleting files, compromising protected information, or corrupting the integrity of data.”

How does this system fare for actual small businesses, the kind started by middle class Americans who are minorities, women or service-disabled veterans? Especially when it would seem that the services that are provided have serious problems. Not good. Small business government cronyism is alive and well.