SBA decertifies HUBZone companies

IG report says SBA lacks the resources to properly monitor the Historically Underutilized Business Zone program

The Small Business Administration today decertified the final two companies identified in a January inspector general's report as improperly taking part in the agency's Historically Underutilized Business Zone (HUBZone) program.

The report concluded that the program is easy to abuse and that SBA lacks the resources to properly monitor compliance, according to SBA's Office of Inspector General. The IG's office evaluated 15 HUBZone companies in Idaho Falls, Idaho, and found that eight of them did not comply with requirements for the designation.

The HUBZone program gives federal contracting preferences, including sole-source provisions and set-asides, to small businesses that meet the program's criteria. The business' principal office must be located in an official HUBZone, which is typically an area with low income or high unemployment. It must also draw 35 percent or more of its full-time workforce from HUBZone residents. SBA listed 7,555 HUBZone firms as of Jan. 21, 2003.

Of the 15 companies the SBA IG audited, seven no longer met the workforce residency requirement and one had relocated its headquarters outside the HUBZone, the IG reported. Three more had inactive addresses and telephone numbers, and the IG's office assumed they were out of business.

SBA decertified nine of the companies almost immediately, HUBZone Associate Administrator Michael McHale said in a written response to the report. The agency tried to work with the remaining two, but decertified them effective today, said SBA spokeswoman Tiffani Clements.

According to the IG's report, SBA's controls on the program are inadequate to ensure that only qualified companies receive and maintain HUBZone certification. "Since ineligible companies could receive HUBZone contracts, the program is also vulnerable to federal contracting fraud," the IG wrote.

Preventing such fraud has become a key goal for federal procurement officials. In a related example, Angela Styles, administrator of the Office of Federal Procurement Policy, plans to require small businesses to recertify their size status every year under many contract vehicles. The goal is to ensure that firms don't continue receiving small-business benefits after they outgrow eligibility.

The IG recommended that the SBA develop a plan to conduct "an adequate number" of examinations of businesses in the program to reduce the opportunities for fraud. HUBZone officials agreed with the recommendation in a written response. McHale said in his response that the office would consider hiring additional staff or outsourcing the program examination responsibilities, subject to budget availability. SBA has until July 21 to submit an action plan to the IG's office.

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