Federal Contracting Program Continues to Suffer from Fraud, Abuse

A Small Business Administration program that provides federal contracting assistance to small firms located in economically disadvantaged areas continues to be rife with fraud and abuse.

A new report from the Government Accountability Office shows that the HUBZone program has problems spread throughout the nation, and not just in the Washington, D.C., area as outlined in a similar report released in July 2008.

After that 2008 report was issued, lawmakers asked the GAO to determine whether fraud existed in the program outside of the nation's capital and if the SBA had taken actions to stem the fraud.

For the study released today, the GAO identified 19 firms in Texas, Alabama, and California participating in the HUBZone program that do not meet program requirements. For example, an Alabama firm listed its principal office as "Suite 19," but GAO investigators found after visiting the site that the office was "Trailer 19" in a residential trailer park. The individual living in the trailer had no relationship to the HUBZone firm. In fiscal 2006 and 2007, federal agencies obligated nearly $30 million to these 19 firms for performance as the prime contractor on HUBZone contracts and a total of $187 million on all federal contracts.

The GAO said the SBA has initiated steps in strengthening its internal controls as a result of GAO's 2008 testimonies and report but "substantial work remains."

Additionally, it found that the SBA was not able to effectively assess that it didn't have the resources to effectively carry out its review of applications in a timely manner. As a result, according to today's study, the agency had a backlog of about 800 HUBZone applications as of January 2009. At that time, SBA's interim application process was taking about 6 months, which far exceeds the one-month goal as specified by SBA regulations.

The GAO said the SBA has taken some enforcement steps on the 10 firms previously identified by GAO that knowingly did not meet HUBZone program requirements. However, SBA's "failure to promptly remove firms from the HUBZone program and examine some of the most egregious cases" from GAO's July 2008 testimony resulted in an additional $7.2 million in HUBZone obligations and about $25 million in HUBZone contracts to these firms.

The GAO report is expected to be discussed at a House Small Business Committee hearing this afternoon. SBA Acting Administrator Darryl Hairston is scheduled to testify.

By Sharon McLoone |  March 25, 2009; 1:20 PM ET Gov't Contracting
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The newly appointed SBA Administrator, Ms. Wells, would be wise to take a strong look at scraping the HUBZone and 8-A programs. Effective government contracting programs to help small businesses share in the pie, especially veteran owned business, need to be reconstructed without the emphasis on social and economically disadvantaged businesses. I wish her the best of luck in awakening an Agency that has been asleep for the last 8 years!

Donn Nemchick
Veteran's Project Manager
Pittsburgh, PA

Posted by: donnem1968 | March 29, 2009 10:00 AM

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