Corporations are scooping up government contracts intended for small companies, according to a new report from the General Accounting Office. In fiscal year 2001 -- the period covered by the study -- the worst offender nabbed $330 million in federal dollars earmarked for entrepreneurs.

Among the exploited loopholes: A company can remain certified as a small business for the life of its contract -- some of which last two decades -- even if it grows, is acquired, or goes public. Officials awarding contracts are instructed to take bidding companies at their word unless they receive what's known as a "size protest" from a competitor. In effect, businesses are allowed to police themselves.

A website is also to blame. Government contractors often rely on the Small Business Administration's PRO-Net to identify eligible small firms. But in preparation for a congressional hearing in May, Lloyd Chapman of the Microcomputer Industry Suppliers Association found AT&T, AOL Time Warner, and Office Depot (or their subsidiaries) listed among the scrappy young ventures. The government responded by requiring agencies that issue government-wide acquisition contracts to have contractors recertified annually. An SBA proposal would require businesses involved in multiple-award contracts to recertify their size every year as well. The agency has also removed more than 600 large businesses from PRO-Net and plans to check new registrants' size. Chapman, for one, remains skeptical of the SBA's contrition. "They wrote the policies that allowed this to happen," he says. "How responsive do you think they are?"