Fake companies still win SBA approval

GAO gets HUBZone certification for phantom businesses based at the Alamo

The Small Business Administration continues to certify fake companies into its set-aside programs, even one firm that used the Alamo in Texas as its principle office, according to another Government Accountability Office investigation.

GAO was certified for SBA’s Historically Underutilized Business Zone (HUBZone) program for three bogus firms using the addresses of the Alamo in Texas, a public storage facility in Florida, and a city hall in Texas as principal office locations.


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“A simple Internet search by SBA could have revealed these as phony applications,” according to a report by Gregory Kutz, GAO’s managing director for forensic audits and special investigations. Kutz testified before the House Small Business Committee today.

Agencies can set aside contracts for companies in the program aimed for small businesses in poor economic areas of the country.

Kutz tested SBA’s safeguards against fraudulent companies getting into the HUBZone program in 2008 and 2009. In those investigations, SBA certified GAO’s bogus companies.

However, SBA required more documents from the companies in the application process since GAO's 2008 investigation. Yet, SBA officials don’t sufficiently authenticate self-reported information, and they don’t always validate a company’s address with a visit, Kutz said.

SBA Administrator Karen Mills told the committee today her agency is more stringent during its certification process, and it's doing more site visits. In 2008, SBA did less than 100 visits. That figure rose to more than 800 in 2009. This year, SBA plans to do more than 1,000 visits.

SBA is also pursuing HUBZone fraud cases with the Justice Department, she said.

Rep. Nydia Velázquez (D-N.Y.), the committee’s chairwoman, said SBA officials have told her committee that problems like the ones GAO has again uncovered have been fixed. But fake companies are still benefiting from the HUBZone program, she said.

“As you can see, there is a web of double-talk here,” Velázquez said.

About the Author

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

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