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Report: SBA Handed Out Millions in Bad Contracts

POSTED: 06:55 PM ET, 07/17/2008 by Derek Kravitz

Companies collected millions of dollars in government small-business contracts by claiming to have main offices in poor neighborhoods that were actually empty duplexes, part-time offices and other ineligible locations, according to a government report released today.

The Government Accountability Office report examined the $8 billion HUBZone program, which is designed to award federal contracts to small businesses in economically disadvantaged areas.

The report said government workers with the program use an outdated map from August 2006 to help firms determine if they're in a HUBZone area, The Post's Sharon McLoone reports on her "Small Business" blog. The nearly two-year-old 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.

A separate third-party consulting report, released in May, found that the number of HUBZone businesses and vendors increases with the population and area of the zone, it concluded that the $6 billion generated by the program has a limited impact on a national scale.

As part of the investigation, government investigators successfully received HUBZone certification for four bogus businesses, including one located at a Starbucks store in the District, Inc.com's Angus Loten reports.

Jovita Carranza, the SBA's acting administrator, told Inc.com that report confirmed the agency's own concerns with the program.

"The administration of the HUBZone program needs considerable improvement," Carranza said, adding that the agency is currently working towards fixing the problem.

By Derek Kravitz |  July 17, 2008; 6:55 PM ET
Previous: Ashcroft Battled White House Over Appointment | Next: Picks of the Week: 'Suspect Soldiers,' Arizona Immigration, Timber in the West

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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 6:54 PM

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