Defense IG Warns of HUBZone, SDV Fraud A Defense Department auditor estimates that at least 20% of DOD awards under the HUBZone program went to ineligible companies. In a spot-check of 12 HUBZone contractors, the auditor found three listed their principal offices in HUBZones, but were actually located elsewhere; furthermore, none of those companies’ employees lived in a HUBZone. Program rules require 35% of employees to live in HUBZones. Four companies listed addresses in HUBZones that were discovered to be rented post-office boxes. One firm was not 51% owned by a U.S. citizen, as the program requires. The companies were not identified. “HUBZone program fraud continues to be problematic for Federal agencies because they are required to rely on the SBA to certify companies for HUBZone participation,” the DOD inspector general’s office said. “SBA has taken some steps to enhance the effectiveness of the program; however, additional improvements are needed.” The IG also reported that a single individual was listed as a 51% owner of five different business partnerships that received engineering contracts under the service-disabled veteran-owned business program. The auditor found that “Mr. XYZ’s ownership of the five companies was documented in each partnership agreement. However, he rarely was seen at any of the office locations. One interviewee stated that he generally came in on Friday mornings for coffee and usually left by ten o’clock to play golf.” SBA regulations require that the management and day-to-day operations of an SDV firm must be conducted by a service-disabled vet. The purported owner was being paid $40,000 a month by the five companies, although he acknowledged he was not a trained engineer and generally did not participate in management decisions. “The auditor concluded that the engineering firms had fraudulently used Mr. XYZ’s status as a certified service-disabled veteran to compete for, and obtain, Department of Defense engineering contracts,” the IG said. The audit findings were posted on the IG’s new website, www.dodig.mil/Inspections/APO/fraud/Index.htm, titled “Fraud Indicators in Procurement and Other Defense Activities.” It is designed as a guide to assist investigators in detecting fraud in DOD programs.