GAO: SBA HUBZone Program Plagued by Fraud


There is widespread fraud in the Small Business Administration’s Historically Underutilized Business Zone (HUBZone) Program, the Government Accountability Office has found.

In a review of 36 contracts awarded in four cities, GAO found that 19 firms claiming to be HUBZone eligible didn’t meet the qualifications for the program that is meant to benefit small businesses in severely economically depressed areas. The firms didn’t have their principal offices in HUBZones or didn’t meet the requirement mandating a certain percentage of employees live in the HUBZone.

The result: the firms fraudulently obtained more than $30 million in HUBZone contracts in fiscal 2006 and 2007.

These firms were located in Texas, Alabama and California, showing abuse of the program is beyond the Washington, D.C area, GAO said. GAO reviewed contracts awarded in Washington last July and found similar cases of abuse.

The latest GAO report was released at a House Small Business Committee hearing today. GAO also found the SBA did not remove 10 contractors identified in the July report from the HUBZone program. The continued participation of those firms in HUBZone meant an additional $25 million in HUBZone contracts went to the unqualified companies, GAO said. .

Committee chairwoman Rep. Nydia M. Velázquez, D-N.Y. called GAO’s findings “disturbing.” She criticized SBA’s management saying:

In July, the SBA told us they had these problems under control. But, now, GAO finds dishonest companies deceiving SBA with techniques that an ambitious college intern could detect using Google Earth. No wonder so many contractors view the HUBZone program as a ‘contract cash cow’ and see SBA’s enforcement efforts as laughable.

She also expressed concern about the agency’s ability to oversee small business contracts awarded with stimulus money and worried continued oversight failures would result in a “historic amount of waste and abuse.”

In a written response to the report, SBA told GAO it is re-engineering the entire HUBZone certification process to minimize fraud and abuse of the program.


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