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Report: SBA Program Mismanaged

Companies are bilking the feds out of millions in contracts meant for small businesses in poor neighborhoods, investigators say.
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As the result of a mismanaged federal program meant to boost entrepreneurship in low income communities, the government has awarded millions of dollars in contracts to companies falsely claiming to be located in poor neighborhoods, investigators say.

The actual locations are often mailboxes or abandoned buildings, they say.

According to the Government Accountability Office, at least ten companies have received more than $100 million in set-aside contracts under the Historically Underutilized Business Zone program, or HUBZone program, even though none of them were eligible for the contracts.

In a report released this week, the GAO blamed the problem on a lack of oversight by the Small Business Administration. The report charged the agency with using an outdated map to identify designated HUBZone neighborhoods, among other shortcomings. It also fails to adequately check applications or conduct sufficient audits, the report said.

About 13,000 small businesses in 14,000 neighborhoods currently receive federal contracts under the program. Congress has set a mandated goal of awarding three percent of all federal contracts to HUBZone businesses every year.

As part of the investigation, GAO officials said they successfully received HUBZone certification for four bogus businesses, including one located at a Washington D.C. area Starbucks.

"Anybody with a computer and a mailbox that's willing to lie to the SBA can become a HUBZone company," Gregory Kutz, the managing director of GAO's special investigations unit, told a congressional hearing on Thursday.

Jovita Carranza, the SBA's acting administrator, said the 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.

She said this includes updating the agency's map, boosting oversight management and staff, and implementing more onsite visits.

Last updated: Jul 17, 2008




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