Performance Audit Report

Opportunities Exist to Further Improve 

Quality and Timeliness of HUBZone 

Certifications 
 

U.S. Small Business Administration 

Office of Inspector General 

Washington, D.C. 20416 

FINAL REPORT TRANSMITTAL 

REPORT NUMBER: 14-03 

DATE: November 19, 2013 

TO: John Shoraka 

Associate Administrator for Government Contracting and Business Development 

SUBJECT: Opportunities Exist to Further Improve Quality and Timeliness of HUBZone Certifications 

This report presents the results of our audit of the Small Business Administration’s process used to 

certify firms into the Historically Underutilized Business Zones program. 

We conducted this audit in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence 

to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings and conclusions based on our 

audit objective. 

We appreciate the courtesies and cooperation of the SBA extended to the staff during this audit. 

Please direct any questions to me at (202) 205-6587 or Riccardo Buglisi, Director, Business Development 

Programs Group at (202) 205-7489. 

***

/s/ 

Robert A. Westbrooks 

Deputy Inspector General 
EXECUTIVE SUMMARY

Opportunities Exist to Further Improve Quality and Timeliness of HUBZone 

Certifications

Report Number 14-03

November 19, 2013

What OIG Audited 

This report presents the results of our Audit of the 

Small Business Administration’s (SBA) Historically 

Underutilized Business Zones (HUBZone) 

Certification Process. The HUBZone Program helps 

small businesses that are located in economically 

challenged areas to stimulate their local economies. 

This program was created to assist firms located in 

these zones gain access to federal contracting 

opportunities that normally would not be available 

to them. 

The objective of the audit was to determine whether 

the SBA’s HUBZone certification process provides 

assurance to limit program certification to eligible 

firms. We identified the 12 firms certified into the 

program between July and December 2012 that had 

received the largest amount of federal contracts. 

The 12 firms received 94 percent of all federal 

dollars awarded to the 367 firms who received 

certification during this time. We reviewed the 

certification files and interviewed program 

personnel including analysts, reviewers, and senior 

program personnel. Additionally, we performed site 

visits and interviews with 3 of the 12 firms. 

 

What OIG Found 

In recent years, the HUBZone certification process 

has been reengineered from self-certification to a 

full document review. We found that the SBA 

properly certified 9 of 12 firms we reviewed. 

However, we identified three firms the SBA certified 

even when the firms did not meet all of the eligibility 

criteria. Ineligible firms that obtained certification 

distorted the small business HUBZone goaling 

numbers by at least $1.3 million and possibly took 

contracting opportunities away from eligible firms. 

Additionally, other inconsistencies in the review 

process that, while not leading to ineligibility, could 

lead to the admittance of a firm that did not meet 

the requirements of the program. Ineligible firms 

that obtain certification distort the small business 

HUBZone goaling numbers reported to Congress and 

detract from opportunities for eligible firms. 

Additionally, ineligible firms detract from the 

intended economic benefits the program was 

designed to promote. 

Furthermore, we found that the SBA took longer to 

certify firms than the current and proposed 

regulation allows the SBA. The SBA did not meet the 

current 30 day requirement for any of the firms and 

did not meet the proposed 90 day requirement for 5 

of the 12 firms. As a result, firms could not obtain 

the benefits of the program as quickly as possible. 

OIG Recommendations 

We recommended that the SBA update HUBZone 

guidance and review the certifications of the three 

firms identified by the Office of the Inspector 

General in this report for possible decertification. In 

addition, we recommended that the SBA review the 

certification process and identify a means to meet 

the deadlines established by regulation through 

improved business processes. 

Agency Comments 

 

On November 12, 2013, management submitted 

three SBA Form 1824s, Recommendation Actions 

Sheets, concurring with the recommendations in the 

report. The Agency response did not specifically 

state if they concurred with the findings in the 

report. Further, the Agency did not provide any 

additional comments. 
Table of Contents 

Introduction .............................................................................................................................................. 1

Background ............................................................................................................................................... 2

Results ........................................................................................................................................................... 5

Finding: Weaknesses in the SBA’s HUBZone Certification Approval Process Allowed Three Ineligible 

Firms into the HUBZone Program ............................................................................................................. 6

Conclusion ...........................................................................................................................................11

Recommendation ................................................................................................................................11

Finding: The SBA is not Making Eligibility Determinations within 30 Calendar Days, as Required ........11

Conclusion ...............................................................................................................................................13

Recommendation ....................................................................................................................................13

Appendix I: Scope and Methodology ..........................................................................................................15
1

Introduction

The Historically Underutilized Business Zones (HUBZone) Program helps small businesses that are 

located in economically challenged areas, or HUBZones, stimulate their local economies. This program 

was created to assist HUBZone firms in gaining access to federal contracting opportunities that normally 

would not be available to them.1 Before Fiscal Year 2010, HUBZone firms self-certified that they met the 

requirements of the HUBZone Program. However, the Government Accountability Office (GAO), in 

three separate reports2and multiple hearing testimonies3found that self-certifying firms committed 

fraud, waste, and abuse within the Small Business Administration (SBA) HUBZone Program. Further, 

GAO recommended the SBA implement additional controls over the certification process to ensure that 

only eligible firms participate in the HUBZone Program.4Based on these recommendations, the SBA 

implemented an initial certification full document review process; a recertification review, and increased 

the number of site visits to verify principal offices. 

Objective

The audit objective was to determine whether SBA’s HUBZone program certification process provides 

assurance to limit program certification to eligible firms.

To address this objective, we reviewed SBA guidance, prior OIG and GAO reports, and interviewed SBA 

officials in the HUBZone Program Office (Program Office). We identified the 12 firms HUBZone certified 

between July and December 2012 that received the largest amount of federal contracts. These 12 firms 

received 34.9 million dollars in federal contracts from the date of certification until January 2013. The 

12 firms received 94-percent of all federal dollars awarded to the 367 firms who received HUBZone 

certification during this period. For these 12 firms, we reviewed the certification files. Additionally, 3 of 

the 12 firms were located within the Washington, DC, region. We performed site visits and interviews 

with representatives from those firms.

We conducted this audit from January to August 2013, in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on 

our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. Appendix I contains a detailed description of our scope 

and methodology.

 

1

The Small Business Reauthorization Act of 1997 created the Historically Underutilized Business Zones (HUBZone) Program. 

HUBZone areas are typically areas of low household income and/or high unemployment. 

2

GAO Report No. GAO-08-643 Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program 

Results. July 2008. GAO Report No. GAO-09-440 Fraud and Abuse Identified in Four Metropolitan Areas. March 2009. GAO 

Report No. GAO-10-759 Undercover Tests Show HUBZone Program Remains Vulnerable to Fraud and Abuse. June 2010.

3

GAO Testimony GAO-08-964T. SBA’s Control Weaknesses Exposed the Government to Fraud and Abuse. Released July 2008. 

GAO Testimony GAO-09-519T. Fraud and Abuse Identified in Four Metropolitan Areas. Released March 2009. GAO Testimony 

GAO- 09-532T. Status of Efforts to Address Previous Recommendations on the HUBZone Program. Released March 2009. GAO 

Testimony GAO-10-920T. Undercover Tests Show HUBZone Program Remains Vulnerable to Fraud and Abuse. July 2010. 

4

GAO Report No. GAO-08-643. Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program 

Results. July 2008.
2

Background

The HUBZone Program helps small firms located in certain communities with low median household 

incomes, high unemployment, or both, gain access to federal contracting opportunities. Additionally,

the program provides federal contracting assistance to qualified small firms in designated HUBZones to:

 Increase employment opportunities,

 Stimulate capital investment, and

 Empower communities through economic leveraging.

A HUBZone is defined as a historically underutilized business zone, which means any area located within 

one or more qualified census tracts; qualified nonmetropolitan counties; lands within the external 

boundaries of an Indian reservation; re-designated areas, or base closure areas. By statute, designation 

as a HUBZone is determined by information obtained from various Federal agencies. 

HUBZone Maps

The SBA is responsible for consolidating the information provided by these Federal agencies into a 

HUBZone Map. The SBA is also responsible for maintaining the accuracy of the map. The table below 

identifies the types of HUBZones and the agency responsible for contributing the data used to 

determine HUBZone status.

Table 1 HUBZone Types and Data Contributors 

Since multiple agencies are responsible for providing updated information concerning the HUBZone 

map, updates are often performed multiple times a year. This is particularly the case with the Qualified 

Nonmetropolitan County HUBZones, which have three types of qualifications generated by three 

different agencies. While the SBA is responsible for consolidating the information and maintaining the 

accuracy of the HUBZone map, it does not participate in the designation of HUBZones.

HubZone Type Subtype Data Update 

Frequency

Source Data Agency

Qualified Census Tract - Every 5 years Department of Housing and 

Urban Development

Qualified Nonmetropolitan 

County

Qualified by 

unemployment

Annually Bureau of Labor Statistics

Qualified Nonmetropolitan 

County

Qualified by income Annually Census Bureau

Qualified Nonmetropolitan 

County 

Qualified Difficult 

Development Area 

Annually Department of Housing and 

Urban Development

Qualified Indian Land - As necessary Bureau of Indian Affairs

Qualified Base Closure 

Area

- As necessary Department of Defense
 3 

The SBA’s HUBZone Role and Responsibilities 

The SBA regulates and implements the HUBZone program by: 

 Determining which businesses are eligible, 

 Maintaining a list of qualified HUBZone firms to fulfill procurement opportunities, and 

 Adjudicating protests of eligibility regarding HUBZone contracts. 

When determining eligibility, the SBA must oversee the firm’s initial certification, as well as 

decertification and recertification, as required. The SBA is required to recertify HUBZone firms every 

three years. 

As of January 2013, staff from the SBA HUBZone program office (program office) reported that 

approximately 5,000 firms were enrolled in the HUBZone program. For Fiscal Year (FY) 2012, HUBZone 

firms obtained $8.1 billion in prime contracts or 2.01 percent of total federal contracting dollars, which 

was short of the Federal goal of 3-percent. Additionally, the HUBZone contracting dollars decreased 

from FY 2011 when HUBZone firms received 2.35 percent of Federal contracts. 

Eligibility Requirements 

To qualify for the HUBZone program, a business must meet the following conditions: 

 The firm must be a small business by SBA standards; 

 The firm must be owned and controlled at least 51-percent by U.S. citizens;5 

 The firm’s principal office must be located within a HUBZone, which includes lands considered 

“Indian Country” and military facilities closed by the Base Realignment and Closure Act; and 

 The firm must have at least 35-percent of its employees residing in a HUBZone. 

HUBZone Standard Operating Procedure 

The SBA’s HUBZone Standard Operating Procedure6 (SOP) was last updated in November 2007. The SOP 

still requires that firms self-certify themselves into the program, and does not account for recent 

certification policy changes made by the program office. Before Fiscal Year 2010, HUBZone firms selfcertified that they met all eligibility requirements. After the GAO7

 issued two reports on the SBA’s 

certification process—that found that self-certifying firms committed fraud, waste, and abuse—the GAO 

recommended that the SBA develop additional controls over the certification process. The SBA now 

performs full documentation reviews of HUBZone applicants’ supporting documents to determine the 

applicant’s eligibility for the program. 

Overview of the Review Process 

The current HUBZone certification process requires program staff to review all HUBZone applications 

and to either certify or decline the firm entry into the HUBZone program. The program office created a 

 

5

Additional ownership types are listed at 13 CFR§ 126.103 and § 126.200.

6

Standard Operating Procedure (SOP) 80 06, HUBZone Program, issued November 2, 2007.

7

GAO Reports GAO-08-964T, SBA’s Control Weaknesses Exposed the Government to Fraud and Abuse. July 2008 and 

GAO-10-759, Undercover Tests Show HUBZone Program Remains Vulnerable to Fraud and Abuse, June 2010. 
 4 

three level review process to ensure qualified firms are admitted into the program. Each reviewer 

evaluates whether a firm should be certified, denied, or declined from the program with the ultimate 

decision being made by the certifying official, the HUBZone Director. Figure 1 describes this process. 

Figure 1 HUBZone Staff Review Process Cycle 

Documentation Review and Eligibility Determination 

The analyst reviews supporting documentation to verify that the business is small, the principal office is 

located in a HUBZone, a U.S. Citizen owns and controls the firm,8

 and that 35-percent of its employees 

reside in a HUBZone. The analyst then uses a variety of documentation to verify the firm’s eligibility, as 

described in Figure 2. The following figure depicts the types of documentation used to establish the 

above four are truthful. 

 

8

 Additional ownership types are listed at 13 CFR § 126.103 and § 126.200. 

Firm Applies

•Firm submits a HUBZone Application through the SBA Website.

Documentation 

Request

•Firm's application is stored in a queue until its assigned.

•When application is ready for review, the SBA then requests the firm's supporting documentation.

•The doucmentation is scanned by the SBA staff.

1st Level Review

•Assigned Analyst has up to 60 days to perform the documentation analysis and recommend approval or 

denial of the application.

2nd Level Review

•Senior Analyst receives the application file and has 15 days to review the firm’s application.

•If this reviewer agrees with the first level review, the application is forwarded to the Director.

•If this reviewer disagrees or has further questions, the application is either returned to the first Level 

Reviewer for additional documentation clarification or analysis is forwarded to the Director-who has 

final approval.

Certification

•The Director or Deputy Director has 15 days to review the application and either certify or decline the 

application.
 5 

Figure 2 Documentation Used to Establish Eligibility 

Nature of Limited or Omitted Information 

No information was omitted due to confidentiality or sensitivity, nor were there limitations to 

information on this audit. 

Review of Internal Controls 

The Office of Management and Budget (OMB) Circular A-1239 provides guidance to federal managers on 

improving the accountability and effectiveness of federal programs and operations by establishing, 

assessing, correcting, and reporting on internal controls. We determined that material internal control 

weaknesses existed. 

During our review, we found that the SBA program office did not have consistent certification review 

procedures for each level of the certification process due to a lack of guidance on the certification 

process. This lack of controls is attributed to the out of date SOP governing the HUBZone certification 

process. 

Results

In recent years, the HUBZone certification process has been reengineered from self-certification to a full 

document review and we found that SBA properly certified 9 of 12 firms we reviewed. However, we 

identified three firms the SBA certified even when the firms did not meet all of the eligibility criteria. 

Ineligible firms that obtained certification distorted the small business HUBZone goaling numbers by at 

 

9

OMB Circular A-123, Management’s Responsibility for Internal Control, December 21, 2004.

•North American Industrial Classiciatoin System 

Code

•Federal Tax Returns

Size

•Owner's birth certificate or passport

•Firm's stock certificates Ownership

•HUBZone map verification

•Office lease and utility bills

•Site Visits

Principle Office

•HUBZone map verification of addresses

•Employee's state issue identification or driver's 

license

35-Percent Rule
6

least $1.3 million and possibly took contracting opportunities away from eligible firms. Additionally, 

certifying ineligible firms detracted from the economic benefits the program intends to promote in the 

disadvantaged HUBZone areas. The SBA also did not meet the required 30-calendar day timeline for any 

of the 12 firms we reviewed, nor did it meet the proposed deadline of 90 days for 5 firms. For firms who 

are certified, the amount of time the SBA takes to review the application directly inhibits their 

opportunities to obtain federal contracts.

Finding 1: Weaknesses in the SBA’s HUBZone Certification Approval Process Allowed Three 

Ineligible Firms into the HUBZone Program

We found that 3 of the sampled 12 firms certified between July and December 2012 received 

certification without meeting the requirements of the program. Additionally, we found other 

inconsistencies in the review process that while not leading to ineligibility, could potentially lead to the 

admittance of a firm that did not meet the requirements of the program. An outdated SOP and varying 

levels of analytics applied to the review of the applications contribute to the possibility of certifying 

ineligible firms. Because of these inconsistencies, ineligible firms that obtain certification distort the 

small business HUBZone goaling numbers reported to Congress and detract from opportunities for

eligible firms. Additionally, they detract from the intended economic benefits of the program to 

promote small business in disadvantaged HUBZone areas.

The HUBZone Program Office Certified Ineligible Firms 

Certification into the HUBZone program is based on meeting the following four conditions:

 The firm must be a small business by SBA standards;

 The firm must be owned and controlled at least 51-percent by U.S. citizens;

10

 The firm’s principal office must be located within a HUBZone, which includes lands considered 

“Indian Country” and military facilities closed by the Base Realignment and Closure Act; and 

 The firm must have at least 35-percent of its employees residing in a HUBZone.

During our review of 12 certified firms, we determined that one firm did not meet the principal office

requirement, one firm did not meet the 35-percent residency requirement, and one instance where a 

possibly fraudulent application was missed. We also found additional inconsistencies that did not 

disqualify firms but are included only to further illustrate areas of improvement that are needed to 

eliminate the possibility of ineligible firms being admitted into the program.

Evidence for Principal Office Was Not Persuasive for One Firm

In order to gain entrance into the HUBZone program, a firm must maintain its principal office11 within a 

HUBZone. In addition, if a firm is declined entry into the program, it must wait at least 90 days from the 

date of decline before reapplying. However, one firm12 we examined did not meet either of these

requirements. 

 

10 Additional ownership types are listed at 13 CFR § 126.103 and § 126.200.

11 Principal office is the location where the greatest number of the Small Business Concern’s employees performs work. 

13 CFR § 126.103.

12 The names of firms identified in this report were provided to SBA management during the exit conference.
7

The analyst documented the incorrect web address for the company during the review of the firm’s

application. We located the actual web address for the firm and noted the company’s address and 

phone numbers were different from those on the HUBZone application. The address we identified was 

not located in a HUBZone. Additionally, the water bill submitted as evidence of “use of the space” had 

no usage for the dates billed, even though the firm reported this as their office location and as the 

residence for two employees.

We also reviewed the firm’s profile in the SBA Dynamic Small Business Search (DSBS) and noted that the 

firm’s address had been updated. Specifically, the address was changed from the one listed on the 

HUBZone application to the same address on the website. Further, the principal office address from the 

application was no longer listed in the DSBS. We realized the firm could have relocated since their 

HUBZone application, so we further looked into the addresses used by the firm.

To determine if the address provided on their HUBZone application was valid, the OIG audit team visited 

the principal office at 10 am on a weekday, but no one answered the door. We spoke to a neighbor who 

had never seen any evidence of a cleaning business. The OIG then looked into the most current address 

used by the firm. Further research of the Maryland Department of Assessments and Taxation Real 

Property Data Search shows that the owner of the firm has owned the house listed as the firm’s new 

address since 2007. The firm’s owner has paid property taxes on the home since at least 2010, which is 

listed as his principal residence. Because the owner also reported that he lived in the principal office 

space, this evidence raises questions with the validity of these claims on the application and is cause for 

concern. Currently, it does not appear the firm operates out of the HUBZone location and 

decertification is warranted. However, with the property history and the water bill with zero usage at 

the time of application, the audit team concluded the principal office was not valid at the time of 

application, and the firm should not have been certified.

Additionally, the firm’s application file states that the firm was previously declined certification into the 

HUBZone program on September 18, 2012. Then, 48 days later, the firm received certification. This is 

not compliant with Title 13 of the Code of Federal Regulations (CFR) Section 126.309, which requires 

declined firms to wait 90 calendar days from the date of decline before seeking certification again. 

Meaning, it would not have been eligible to submit another application until December 17, 2012. 

Furthermore, the Federal Procurement Data System – Next Generation (FPDS-NG)

13 reported that the 

firm received a federal contract in August 2012 and the firm was identified as being SBA HUBZone 

certified, even though this was before the firm was certified.

14

Additional Inconsistencies Related to Principal Office

While reviewing the 12 sampled firms, we identified issues regarding the accuracy of the HUBZone map. 

For instance, the map identifies all of the HUBZones and is used by SBA staff to determine if firms are 

located in a HUBZone and if persons live or work in a HUBZone. For the firms we reviewed, the audit 

team input the business address and the employee address—for those listed as HUBZone residents—in 

the HUBZone map in order to verify their validity. 

 

13 The database used to report Federal contracts.

14 During our review of the 332 firms certified from July 2012-December 2012, 20 obtained Federal contracts as HUBZone firms 

prior to their date of certification according to the Federal Procurement Data System.
8

While performing the searches, we found three instances where the HUBZone map indicated that an 

address was located in a HUBZone at the time the analyst searched the map. However, when we 

searched the historical information, it no longer indicated that the address was HUBZone qualified for 

FY 2012. We followed up with the Director of the HUBZone program who explained that the HUBZone 

maps are created from multiple data sets. Some of the data sets are updated anywhere from once 

every five years based on census data, for example, or two to three times a year for the Qualified 

Nonmetropolitan Counties.

15

 

Each time the SBA is provided an updated data set, the maps are updated with the information. 

This can cause areas that were once HUBZones to no longer be qualified. However, even with this 

understanding, we still had some questions on the accuracy of the historical map data. In a couple of 

instances the HUBZone map changed from re-designated to unqualified for FY 2012 between the 

analyst’s and the auditor’s search. If the maps changed in this time because of new data sets, it should 

be better documented on the map. If not, HUBZone firms will have a difficult time staying abreast of 

their HUBZone requirements, especially in relation to their compliance with the 35-percent HUBZone 

residency rule. 

False Information on Application Should Have Led to Denial of One Firm

As part of the HUBZone certification process, the analyst checks the Excluded Parties List System16

to ensure the company and the responsible officials (owners and controllers) are not debarred. 

This information is now maintained in the System Award Management database. For the owner of one 

firm, the analyst searched for current exclusions, but did not check the inactive exclusions. When the 

auditors searched for inactive exclusions, we found that the owner was debarred from contracting with 

the Veterans Administration from February 10, 2011 until September 21, 2011. 

On the HUBZone application the applicant is asked, “Has this individual ever been debarred, suspended, 

voluntarily excluded or otherwise ineligible from any department or agency of the Federal 

Government.” The owner’s section of the firm’s application states no. This is a false statement. 

According to the Director of the HUBZone program, a firm with a previous debarment that was not 

reported on the application is a false statement17 and the firm should not be admitted into the HUBZone 

program.

Additional Inconsistencies Related to Application Verification

A tool the analyst uses for verifying information on the HUBZone application is the internet. The analyst 

is expected to conduct a Google search of the business and owners, as well as searching for the phone 

numbers and websites of the businesses to look for inconsistencies. However, for the 12 firms we 

reviewed, we found 11 files did not have all of the searches performed or documented. 

 

15 See Table on page 5 of report.

16 The Excluded Parties List System was a website used by the Federal government to ensure companies and responsible 

officials are not debarred or suspended from contracting with the government.

17 13 CFR 126.900 (b) and (c).
9

Figure 3 Number of Firms Missing Information by Category

Search Item18 Number of Firms

URL Search 7

Phone Number Search 3

Address Search 1

Google Search 1

By not performing the searches, the analyst misses a vital opportunity to find inconsistencies in the 

businesses application and the SBA loses an opportunity to validate, further, the information on the 

HUBZone application. 

Incomplete Review Led to Improper Approval of One Firm Not Meeting the 35-Percent

Requirement

One firm applied to the HUBZone program on July 16, 2012; however, it was not approved until 

November 21, 2012. The firm had 30 employees at the time of application and required 11 employees 

to reside in the HUBZone to meet the 35-percent residency requirement. At the time of application, this 

requirement was met with 12 employees or 40-percent of the employees residing within a HUBZone. 

However, since the application processing took approximately four months, two employees’ driver’s 

licenses expired before approval was received. A driver’s license is evidence of an employee’s address, 

and is expected to be current due to standard application processing practices within the HUBZone 

office. With two employees’ licenses being expired and the analyst not following-up to acquire current 

licenses or proof of residency, those employees should not have been counted as HUBZone residents. 

Thus, without those two employees, the firm only had 33-percent of its employees residing in a 

HUBZone and therefore, should not have been certified. 

By not ensuring the firm has 35-percent of its employees living in a HUBZone, the local area is not fully 

receiving the benefits of the program. The analyst simply needed to follow-up for current driver’s 

licenses or for additional staff members living in the HUBZone.

Additional Inconsistencies Related to the 35-Percent Requirement and Determining the 

Number of Employees

When reviewing payroll and employee lists, we found that there was not always a uniform method for 

ensuring all data was collected and reviewed. For one firm, the analyst calculated requirements based 

on 28 employees;

19 however, if a complete review of the payroll records was performed, there were 

actually 31 employees. In another instance, the firm did not submit the required payroll documentation 

of the previous two pay periods to calculate and determine the number of full time employees. Lastly, 

an independent contractor was counted as a firm’s employee even though there was no documentation 

to prove that this employee met the requirements of an “employee” for HUBZone purposes. For these 

firms, while they still met the 35-percent rule these inconsistencies could result in unqualified firms 

being HUBZone certified.

 

18 Some items may not exist for a firm, but the analyst did not document they searched for the item in the file.

19 Employee is defined as an employee who works 40 hours a month.
10

Outdated Standard Operating Procedure Leads to Inconsistent Review of Applications 

The SBA’s inconsistent application reviews and use of an outdated SOP increases the likelihood that 

ineligible firms are certified into the HUBZone program. The examples above demonstrate 

inconsistencies in the HUBZone certification review process related to principal office, the 35-percent

rule, and overall procedural inconsistency. 

Currently, the SOP is outdated and requires that firms self-certify that they meet the requirements of 

the HUBZone program, even though the process changed in FY 2010—in response to GAO criticism—to

require a full documentation review. In addition, HUBZone management relies solely on the experience 

of their staff to complete these reviews in a consistent method. However, the HUBZone staff has a wide 

variance of experience at the analyst and senior analyst levels. Additionally, HUBZone management has 

voiced concerns with the quality of analytics their analysts apply when conducting HUBZone reviews.

For the 12 HUBZone certifications we reviewed, we found that 10 of the 12 were performed by four

analysts, each with over five years of experience in the HUBZone program. The analysts are allotted 

60 calendar days to perform their review and make their recommendation as to a firm’s eligibility for 

the HUBZone program. However, for the 12 firms we reviewed, the review process for five of the firms 

took less than 10 days or one-sixth of the time allowed. Of those five files, analysts with over five years 

of experience reviewed three. Additionally, for one of the firms that we identified as ineligible at the 

time of certification, the analyst completed the review in only 10 days. For the four files with over 

25 days of review, one analyst performed three of those reviews. The application receives the most 

scrutiny during the first level review, and as such, 60 days is allotted for this review. The analysts need 

to make optimal use of this time to perform a thorough review. 

Figure 4 Number of Days from Receipt to Recommendation by Analyst

With 69-percent of the HUBZone analysts and senior analysts having more than five years of experience 

in the program, a certain level of expertise is expected. However, with the wide variance of time 

invested and the inconsistencies the audit team found in the 12 files reviewed, experience alone is not 

enough to create a consistent review process. While this is a subjective process, there are certain steps

that should always occur when reviewing each HUBZone certification file. By outlining this process in an 

internal guidance, the SBA could add rigor and consistency to the review process.

0

2

4

6

Under 10 Days 10-25 Days Over 25 Days

Days from Receipt to Recommendation by Analyst

Number of Reports
11

Conclusion

The HUBZone program is not meeting its mission to help small firms in certain communities gain access 

to federal contracting opportunities to the greatest extent possible. Specifically, ineligible firms received 

federal contracts that should have been awarded to legitimate HUBZone companies, resulting in the 

diversion of economic benefits to an unintended target. In addition, Federal agencies inappropriately 

received credit toward their Certified HUBZone Small Business contracting goals, resulting in overstated 

HUBZone goaling achievements.

Recommendation

We recommend that the Associate Administrator for Government Contracting and Business 

Development:

1) Update HUBZone guidance based on the current certification process, which includes the full 

supporting documentation review. Consider incorporating into the guidance a search of the 

FPDS-NG database to ensure a firm isn’t receiving contracts with HUBZone status during their 

application review and a method to maintain a complete history of the firm’s status in DSBS.

2) Review the certifications of the three firms identified by the OIG in this report for possible 

decertification.

Finding 2: The SBA is not Making Eligibility Determinations within 30 Calendar Days, as 

Required

The CFR states that the SBA is responsible for receiving and reviewing all complete HUBZone 

applications. The SBA is required to make their determination within 30 calendar days after receipt of a 

complete package whenever practicable. Due to the change from self-certification to the full document 

review for certification, the SBA is seeking to increase the length of time to approve applications to 

90 calendar days. We found that the SBA took longer than the required 30 calendar days20 to make its 

eligibility determinations for all 12 firms, and longer than the proposed 90 calendar days for 5 of 

12 firms.

21

 This occurred because the elapsed days from the date that a firm applies to the program to 

when the SBA receives full supporting documentation is not included in the SBA’s calculation of the time 

needed to certify firms. Currently, the application process requires applicants to submit an application 

online, but the required supporting documentation is not submitted until the SBA contacts the firm.

The average wait time from application to full document attainment by the SBA was 28 days for the 

12 firms reviewed. This additional time results in firms waiting on average 116 days to receive their 

certification. The CFR states that the SBA is required to make their determination within 30 calendar 

days after receipt of a complete package whenever practicable. However, the SBA calculates the time to 

begin when an analyst is assigned to the application. We believe the SBA should calculate the time from

receipt of the complete package, which is at the completion of the scanning step (see Figures 1 and 4 for 

more details). 

 

20 13 CFR 126.306.

21 Time was calculated based on when full documentation was obtained by SBA. 
12

For the of 12 sampled firms, we found that the average completion time from full documentation 

attainment to certification was 87 calendar days, 3 days less than the proposed goal of 90 days. 

However, 5 of the 12 firms exceeded the goal. Approximately one third of the total processing time, or 

a total of 29 days, related to the transit of the application between review levels. The steps included in 

the process are presented in Figure 5. 

Figure 5 Goals and Average Times for Certification Process Steps 

The breakdown of the time each application review took to move through the certification process 

reveals the following: 

 The analysts averaged 21 days or about a third of their goal. 

 The senior analysts averaged 22 days or 1.5 times longer than their goal. 

 From application to full document attainment averages 28 days. 

 Total SBA review time averages 52 days per application. 

 The transit time between personnel in the process takes on average at least 29 days or a third of 

the planned 90 days turnaround time. 

For an applicant, the timeline is significantly longer with the time from application to certification 

averaging 116 calendar days. The difference in the 87 days and the 116 days is based on the additional 

time used to obtain the full documentation for the certification process. Currently, the application 

process requires applicants to submit an application online, but the required supporting documentation 

is not submitted until the SBA contacts the firm. The average wait time from application to full 

document attainment by the SBA was 28 days for the 12 firms reviewed. 

Scanning

• Not included in 

goals.

• Average 28 days.

• Full Document 

Attainment at 

Completion.

Transit

• Average 21.9 

days from 

Scanning to 

Analyst.

Analyst

• 60 day goal.

• Average 20.9 

days.

• If a second 

review was done, 

the average time 

was 5.2 days.

Transit

• Average 6.8 days 

from Analyst to 

Senior Analyst.

Senior Analyst

• 15 day goal.

• Average 21.6 

days.

• Second review, 1 

day.

Transit

• Unknown.

Director

• 15 day goal.

• Average 9.8days.
13

Delays in Obtaining Applicant’s Supporting Documents and Inefficiency of the Certification Process 

Results in Longer Processing Times

The program office needs to reduce the average applicant-waiting period of 116 days or almost four

months to receive HUBZone certification. The Program could improve application-processing times by 

shortening the time spent in transition between review levels and revising the time required to obtain 

all documents needed for the review. 

One would anticipate a quicker certification time because the analysts only use a third of their allotted 

time to review files; however, due to lags in the movement of the files, an average of 29 days was added 

to the certification process because the file was in transit. The largest amount of time is consumed at 

the beginning of the process, when the scanner has completed obtaining the supporting documentation 

and the file is waiting to be assigned to an analyst. This averaged 22 days for the files we reviewed. 

Furthermore, additional time passes from the time of application until full document attainment or the 

SBA obtains a complete package. Since supporting documentation is not included with the initial 

application package, applicants are instructed to wait until they are contacted to provide this 

information to the SBA. For the 12 files we reviewed, this averaged 28 days for the Agency to receive 

the application and subsequently obtain all of the supporting documents.

Conclusion

The HUBZone program is not meeting its mission to help small firms in certain communities gain access 

to federal contracting opportunities to the greatest extent possible. Specifically, the delays in the 

certification process may cause firms to lose-out on potential federal contracts they could have obtained 

with their HUBZone certification. Further, additional consideration will need to be made to the impact 

of analyst’s reviews lengthening with a more robust review process as reported in the first finding. 

With their review times possibly increasing by an average of about 40 days, the overall application to 

certification time could increase to 155 days. To manage this risk, greater efficiencies are needed to 

ensure firms receive certification in a timely manner. 

Recommendation

We recommend the Associate Administrator for Government Contracting and Business Development:

1) Review the HUBZone certification process and identify a means to meet the deadlines 

established by regulation, through an improved business process.
14

Agency Comments and OIG Response

On September 25, 2013, we provided a DRAFT copy of this report to the SBA’s Office of Government 

Contracting and Business Development for comment. On November 12, 2013, the Agency submitted 

three SBA Form 1824s, Recommendation Actions Sheets, concurring with the recommendations in the 

report. The Agency response did not specifically state if they concurred with the findings in the report. 

Further, the Agency did not provide any additional comments. 

Recommendation 1—Update HUBZone guidance based on the current certification process, which 

includes the full supporting documentation review. Consider incorporating into the guidance a search 

of the FPDS-NG database to ensure a firm isn’t receiving contracts with HUBZone status during their 

application review and a method to maintain a complete history of the firm’s status in DSBS.

Management Comments

Management stated that the Agency is planning to update and publish HUBZone Standard 

Operations Procedures by the fourth quarter of FY 14.

OIG Response

We consider the management decision for this recommendation as resolved and the 

recommendation will remain open pending final action.

Recommendation 2—Review the certifications of the three firms identified by the OIG in this report 

for possible decertification.

Management Comments

Management stated that the Agency is planning to issue proposed decertification notices by 

11/29/13 and complete actions within 90 days from the date the firms receive the notifications.

OIG Response

We consider the management decision for this recommendation as resolved and the 

recommendation will remain open pending final action..

Recommendation 3—Review the HUBZone certification process and identify a means to meet the 

deadlines established by regulation, through an improved business process.

Management Comments

Management stated that the Agency is planning to amend the certification process so that 

actions are completed within an average of 90 days from the date the application is 

electronically verified.

OIG Response

We consider the management decision for this recommendation as resolved and the 

recommendation will remain open pending final action..
15

Appendix I: Scope and Methodology

We conducted this audit from January to August 2013 in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on 

our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

To address this objective, we reviewed the Code of Federal Regulations, SBA guidance, prior OIG and 

GAO reports, and interviewed SBA officials in the HUBZone Program Office. We identified the 12 firms 

HUBZone certified between July and December 2012, who had received the largest amount of federal 

contracts. These 12 firms received 34.9 million dollars in federal contracts from the time they were 

certified until January 2013. The 12 firms received 94% of all federal dollars awarded to the 367 firms 

who received HUBZone certification during this time. For these 12 firms, we reviewed the certification 

files. Additionally, three of the 12 firms were located within the Washington, DC, region and we 

performed site visits and interviews with those firms.

For the sampled firms, the audit team obtained the certification file containing the firm’s application, 

supporting documents and analyst’s evaluation of the firm’s HUBZone qualifications. The audit team 

reviewed and assessed if the firm’s file proved that the firm met the HUBZone requirements of: 

1. The firm must be a small business by SBA standards;

2. The firm must be owned and controlled at least 51-percent by U.S. citizen;22

3. The firm’s principal office must be located within a “Historically Underutilized Business Zone,” 

which includes lands considered “Indian Country” and military facilities closed by the Base 

Realignment and Closure Act; and

4. The firm must have at least 35-percent of its employees residing in a HUBZone.

Auditors also noted any review inconsistencies, if each firm was certified within the HUBZone Program 

office 90-day timeframe, and if there were issues with analyst’s documentation. 

Additionally, for three firms within the sample that are located within the Washington, DC area, the 

audit team performed unannounced site visits to verify the firm’s principal office. 

Use of Computer Processed Data

We relied on the data prepared by the SBA program office that was generated from a report run in the 

Federal Procurement Data System. The SBA identified the firms who received HUBZone set-aside 

contracts, and the audit team identified all federal contracts where the firm was identified as HUBZone

certified. Additionally, analysts and auditors performed online information searches, utilized the 

HUBZone Map, and root data at a geographic coding site. We believe the information is reliable for the 

purposes of this audit.

 

22 Additional ownership types are listed at 13 CFR § 126.103 and § 126.200.
16

Prior Coverage 

Congressional Research Service Reports 

Small Business Administration HUBZone Program issued December 27, 2012. 

U.S. Government Accountability Office Audit Reports 

Report GAO-08-643, Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and 

Assess Program Results, June 2008. 

Report No. GAO-09-440, Fraud and Abuse Identified in Four Metropolitan Areas, March 2009. 

Report No. GAO-10-759, SBA: Undercover Tests Show HUBZone Program Remains Vulnerable to Fraud 

and Abuse, June 2010. 

Testimony 

GAO Testimony No. GAO-08-964T, SBA’s Control Weaknesses Exposed the Government to Fraud and 

Abuse, July 2008. 

GAO Testimony No. GAO-08-975T, Additional Actions Are Needed to Certify and Monitor HUBZone 

Businesses and Assess Program Results, July 2008. 

GAO Testimony No. GAO -09-519T, HUBZONE Program: Fraud and Abuse Identified in Four Metropolitan 

Areas, March 2009. 

GAO Testimony No. GAO - 10-920T, SBA: Undercover Tests Show HUBZone Program Remains Vulnerable 

to Fraud and Abuse, July 2010.