IG: Danger of Fraud in HUBZone Program The HUBZone program is vulnerable to fraud and may not be able to achieve its goal of reviving economically depressed areas because of limited resources and inadequate controls, the Small Business Administration’s inspector general found. SBA did not verify the qualifications of any of the more than 7,000 certified HUBZone companies in fiscal 2002, the audit said. At the time of the audit last summer, only seven people were working in SBA’s Office of HUBZone Empowerment, which oversees the program, and they are not able to verify companies’ claims of eligibility, the IG found. Companies apply for certification electronically and SBA relies on what the IG called “a sophisticated electronic application” to determine eligibility. To be eligible, a small business must be controlled by a U.S. citizen, have its principal office in a HUBZone and at least 35% of its employees must be residents of a HUBZone. The IG said SBA examined the qualifications of only 142 companies in fiscal 2001 and none in 2002. Of the companies that were checked out in 2001, one-third were ineligible for the program “for one reason or another,” the audit report said. Acting on a complaint, the IG conducted its own investigation of 15 HUBZone companies that listed addresses in a single census tract in Idaho Falls, ID. Eleven were ineligible for the program: seven of them did not meet the 35% residency requirement; three had inactive addresses and phone numbers and were presumed to have gone out of business; and one had moved out of the HUBZone. Because of the poor controls, “there is little assurance that the program will provide increased employment, investment and economic development for depressed area,” the IG said. “Since ineligible companies could receive HUBZone contracts, the program is also vulnerable to federal contracting fraud.” SBA’s associate administrator for HUBZone, Michael McHale, wrote in response that the audit “identified the major challenges facing the HUBZone program.” He said the agency is considering outsourcing its verification responsibilities if it cannot get funding to hire more staff.