Officials: HUBZone program is open to fraud

Investigators uncovered serious lapses in a Small Business Administration contracting program after they received set-aside small business status by using false identification, officials said today.

Using fictitious employee information and fabricated documents, Government Accountability Office officials said they easily obtained certification from the SBA as a small business in a Historically Underutilized Business Zone. SBA’s HUBZone program is designed to provide federal contracting opportunities to businesses in economically distressed areas.

For example, GAO submitted its application for HUBZone status using the same address as a Starbucks coffee store, George Kutz, managing director of forensic audits and special investigations at GAO, told a hearing held by the House Small Business Committee.

“If SBA had performed a simple Internet search on the address, it would have been alerted to this fact,” Kutz said.

GAO also found 10 firms in the Washington, D.C., metro area, which included the Virginia and Maryland suburbs, that are certified HUBZone small businesses even though they did not meet the program’s criteria. For certification, a small business must certify that its office where the majority of its employees work is located in an SBA-designated HUBZone and that at least 35 percent of the firm’s employees  live in a HUBZone.

Since 2006, federal agencies have obligated more than $105 million to the 10 firms for performance as prime contractors on federal contracts, Kutz said.

SBA Acting Administrator Jovita Carranza told the panel that GAO’s investigation discovered what the SBA already uncovered. She said the problems stem not from a poor program, but from poor program management. SBA employees relied too much on technology and they took applicants “at full-face value.”

Committee chairwoman Rep. Nydia Velázquez (D-N.Y.) said the results from GAO’s investigation “were nothing short of appalling.”

“The entire process was easier than getting a library card,” she said.

Carranza said the SBA plans to fix the outdated HUBZone map, and the new map should be available by Aug. 29. SBA drafted an Application Processing Manual, which gives concrete guides about requiring supporting documents from applicants.

The SBA hired more contract employees to assist in clearing the backlog of more than 4,000 HUBZone business recertifications by the end of fiscal 2008, she said, adding that by the end of August the SBA will have explicit timelines for processing necessary decertifications.

Velázquez was skeptical of the changes, in particular the extra resources to handle the work.

“We have heard this before, but clearly nothing has changed,” she said.

About the Author

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

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