Auditors Find Wider Evidence of HUBZone Fraud Several members of Congress threatened to shut down the HUBZone program after investigators reported new evidence of widespread fraud, including one company that admitted serving as a front for large corporations and another HUBZone firm that listed its address as a trailer park 90 miles from its home office. “It is time for SBA to make a decision to either overhaul this program or scrap it completely,” said House Small Business Committee chairwoman Nydia Velazquez, D-NY. “This committee is no longer going to tolerate the excuse ‘We’re working on it’ while hardworking small businesses who have played by the rules are being cheated out of opportunities.” The Government Accountability Office said it examined 36 HUBZone companies in Alabama, Texas and California and found 19 of them were not eligible for the program. The ineligible companies had been awarded HUBZone contracts totaling $30 million. The auditors said some companies did not have their principal offices in a HUBZone, others did not employ enough residents of HUBZones and several had subcontracted more than half their work. All those are violations of program rules. The director of GAO’s investigation, Gregory Kutz, said some company executives freely admitted the violations. “I don’t think they think they’ll ever get caught, and if they get caught, as we’ve seen, there’s no serious punishment,” he testified before the committee on March 25. Last July GAO reported that 10 ineligible HUBZone firms in the Washington, DC, area had been awarded more than $100 million in contracts. Eight months later, Kutz said none of those firms has been suspended or debarred and one of them has been awarded a new $23 million contract. SBA said it has initiated suspension or debarment procedures against three of them while four others have dropped out of the program. During its 2008 investigation GAO created four phony companies and got them certified in the HUBZone program. Kutz said SBA has not yet decertified the nonexistent companies. Last July GAO recommended that SBA conduct surprise site visits to verify the eligibility of HUBZone participants. But SBA officials acknowledged the agency has visited only seven companies so far in 2009. There are more than 9,000 certified HUBZone firms. “No wonder so many contractors view the HUBZone program as a ‘contract cash cow’ and see SBA’s enforcement efforts as laughable,” Rep. Velazquez commented. Acting SBA Administrator Darryl Hairston said the agency has tightened controls on new applicants for HUBZone certification by requiring supporting documentation rather than accepting whatever information the companies offered. He said three-fourths of applicants in recent months have been rejected or have withdrawn the applications. But GAO’s Kutz warned, “It is not hard to imaging that hundreds or perhaps thousands of [certified HUBZone] firms are not eligible.” The HUBZone program was created to provide jobs in areas of low income or high unemployment, but SBA says it has done no research to see whether that goal is being achieved. “Instead of being incubators for growth and development, HUBZones have become breeding grounds for fraud and abuse,” Rep. Velazquez said. GAO is also pursuing investigations of 8(a) and service-disabled veteran-owned companies to see whether similar problems exist in those programs.