Report: SBA Mismanages Billion Dollar HUBZone Program

The Small Business Administration relies on an outdated, inaccurate map to maintain its billion dollar HUBZone program that is rife with fraud, according to a government report (pdf) to be released Thursday at a House Small Business hearing.

The House panel is holding the morning hearing to unveil the results of the Government Accountability Office report that exposes fraud in the $8 billion HUBZone program, which is designed to award federal contracts to small businesses in economically disadvantaged areas.

The report said the map, which is designed to help firms determine if they're in a HUBZone area, contains areas that are not eligible for the program and excludes some eligible areas because the SBA has not updated the map since August 2006. The outdated map incorrectly includes 50 metropolitan counties that are ineligible and excludes 27 eligible non-metropolitan areas.

"As a result, ineligible small businesses participated in the program and eligible businesses have not been able to participate," states the report.

The mechanisms that SBA uses to certify and monitor HUBZone firms provide limited assurance that only eligible firms participate in the program, according to the report. Additionally, the GAO's analysis of 125 applications submitted in September 2007 showed that SBA requested supporting documentation for 36 percent of the applications and conducted one site visit. It also found that the agency has not complied with its policy of recertifying firms every three years. About 40 percent, or a bit more than 4,600 firms, have been in the program for three years but have not been recertified.

The GAO recommends that the SBA redo its flawed map, develop and implement guidance to ensure more routine verification of application data, eliminate its backlog of recertifications, formalize and adhere to a specific time frame for decertifying ineligible firms and further assess the effectiveness of the program.

The SBA's Office of Advocacy recently released a report on the HUBZone program and determined it was basically ineffective.

SBA Acting Administrator Jovita Carranza and authors of the GAO study are expected to testify at Thursday's hearing.

By Sharon McLoone |  July 17, 2008; 7:11 AM ET Watchdogs
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Comments

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Abolish this program.
It costs more than it benefits.

Posted by: John | July 17, 2008 10:54 AM

The GAO's report of rampant fraud and abuse of the SBA HUBZone (HZ) program portrays participating HZ companies with a broad brush as bad actors. In its zeal, the GAO may have failed to adequately review and understand the essential elements of HZ compliance.
We do not challenge the public policy rationale of the GAO's goals of spotlighting issues within SBA's HZ program. Rather, we question the means and methods used to achieve GAOS's results as described within its testimony and subsequent report. To summarily allege that HZ companies do not meet principal office and HZ residency requirements may be too simplistic and inaccurate.
The GAO's targeting of certain HZ companies is unfortunate. There may be cases where the GAO failed to examine relevant data. Without engaging with those companies to carefully examine and ascertain the data, the GAO rushed to condemn those companies. By these actions, the GAO puts at risk the very livelihoods of working Americans and small minority owned disadvantaged businesses that the SBA hopes to encourage in government contracting.
Let us work together in helping the SBA make the HUBZone program stronger and more transparent.
Ari Ghosal, Esq.
aghosal@kglaw.us
Kayal & Ghosal, Attorneys at Law
The Law Firm represents SBA HUBZone companies.

Posted by: Kayal & Ghosal, Attorneys at Law | July 22, 2008 6:52 PM

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