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Federal Market Intelligence for Small Business |
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Set-Aside Alert news analysis:HUBZone fraud, errors continue while participation expandsHUBZone program has grown by 1,562 firms since 2015
The recent audit by the SBA’s Office of Inspector General, released on March 28, is the latest to uncover ineligible firms being certified into the HUBZone program, continuing a longstanding pattern of apparent fraud, errors and abuse in the program. The most recent audit, covering firms certified from April 2017 to April 2018, found three out of 15 randomly-selected HUBZone firms to have been improperly certified and ineligible for the program. That indicates a 20% rate of ineligible firms in the HUBZone program. Those three ineligible firms won $589,000 in federal contracts. “Ineligible firms undermine the integrity of the HUBZone program and divert HUBZone contract opportunities from eligible firms,” the SBA OIG auditors wrote. SBA mostly agreed with the findings and the recommendations for improvement. Reducing fraud in the HUBZone program has been an ongoing concern since at least 2006, and the SBA under the Obama Administration made a push to strengthen oversight and controls starting in 2009, resulting in longer processing times for achieving certification. Despite those efforts, the latest audit by the SBA OIG suggests the administrative challenges are ongoing. The inspector general’s office also said that long processing times for HUBZone certifications are still a reality for some firms, though there has been a downward trend. In a related report by the Congressional Research Service (CRS) on April 3, the CRS said 61% of HUBZone applications currently take less than three months, and 39% exceed three months, to process. More HUBZone firms Concerns about HUBZone fraud and abuse may become more pressing as more firms become certified into the HUBZone program. There recently has been a significant expansion, with 1,562 additional firms joining the HUBZone program since 2015. HUBZone participation fell as a result of demographic changes in the 2010 census, hitting a low of 5,207 firms in July 2015. HUBZone participation has grown steadily each year since then to reach 6,769 firms as of April 2019, the CRS reported. With larger numbers of firms, the oversight responsibilities are growing as well. At the same time, SBA resources have been shrinking in recent years. For fiscal 2020, President Trump has proposed a 5% reduction in the SBA’s federal funding. (Loan fees are expected to rise, so the total SBA budget authority would grow.) Funding for the SBA’s Government Contracting and Business Development unit, which oversees HUBZones, is proposed to stay flat in fiscal 2020, the same as this year’s allocation. Eligibility dispute and site visits In its latest review, the SBA OIG reviewed complicated lease and construction agreements, rent checks and mapping software to determine that Firm B did not meet the HUBZone program requirements for having a principal office in a HUBZone. But the SBA disputed the OIG’s assessment because it was made without an on-site visit. SBA said the company was operating out of a “small facility”--apparently the barn--on the site. Nonetheless, the OIG stood by its decision to rule the company ineligible. The company was not identified. That example underscores how site visits have become more important in the SBA’s reviews of HUBZone firms in recent years. In addition to reengineering its application process starting in 2009, the SBA in recent months has emphasized field visits to check that HUBZone firms are in HUBZones, CRS said. In fiscal 2018, SBA district field offices completed 529 on-site visits of HUBZone firms, covering about 10% of all HUBZone firms, CRS said.
More information:
OIG report: https://bit.ly/2V2wkTs
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Washington Insider:
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