HUBZone program vulnerable to fraud, lawmaker says

The Small Business Administration’s program to develop businesses in underutilized business districts is riddled with holes, leaving it open to fraud, Rep. Nydia Velazquez (D-N.Y.), chairwoman of the House Small Business Committee, said Sept. 19.

Although 14,200 businesses are in the Historically Underutilized Business Zones program, SBA does only 500 examinations annually. Meanwhile, SBA approves 2,000 companies to join the program each year, she said. More astonishing, a preliminary review by the committee found multimillion-dollar homes in areas SBA dubbed HUBZones, she said

“This is not exactly what one would expect for an initiative designed to spur development in low-income areas,” Velazquez said at a committee hearing on abuses in several SBA programs.

She recommended that SBA officials apply more resources to oversight but also create surer ways to weed out the bad apples.

“There is not only flaws in the program and how it’s being used and abused but also that it requires immediate action,” she said.

A 2006 report from the SBA Office of the Inspector General found that the agency approved 70 percent of businesses’ applications to enter the program. But during the recertification processes, SBA took away – or at least proposed to -- more than 81 percent of firms’ HUBZone certifications in fiscal 2005.

“We found that the results of those processes contrasted sharply with the relatively high approval rate at the time of initial application,” the report states.

SBA’s deputy administrator, Jovita Carranza, told Velazquez that the program has flaws. But she said SBA is working to improve it.

“We are cognizant and fully aware of those vulnerabilities,” Carranza said.

She said the agency is developing ways to get control internally of its HUBZone program. It’s tracking companies in the program, and re-engineering and automating processes to improve the overall program. SBA also wants to simplify how the program runs while becoming more sophisticated so it works faster and more accurately.

The IG's report recommends that SBA revise certification rules and track why businesses lose their certification to see trends. It recommends a deadline for removing companies from HUBZone lists once they lose their certifications.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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