**GAO-09-519T**                      Published: Mar 25, 2009. Publicly Released: Mar 25, 2009.                  

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## Highlights

Created in 1997, the HUBZone program provides federal contracting assistance to small businesses in economically distressed communities, or HUBZone areas, with the intent of stimulating economic development in those areas. On July 17, 2008, we testified before Congress that SBA's lack of controls over the HUBZone program exposed the government to fraud and abuse and that SBA's mechanisms to certify and monitor HUBZone firms provide limited assurance that only eligible firms participate in the program. In our testimony, we identified 10 firms from the Washington, D.C., metropolitan area that were participating in the HUBZone program even though they clearly did not meet eligibility requirements. Of the 10 firms, 6 did not meet both principal office and employee residency requirements while 4 met the principal office requirement but significantly failed the employee residency requirement. We reported in our July 2008 testimony that federal agencies had obligated a total of nearly $26 million in HUBZone contract obligations to these 10 firms since 2006. After the hearing, Congress requested that we perform a follow-on investigation. We describe the results of this investigation and further background about the HUBZone program in a companion report that is being made public today. This testimony will summarize our overall findings. Specifically, this testimony will address (1) whether cases of fraud and abuse in the program exist outside of the Washington, D.C., metro area; (2) what actions, if any, SBA has taken to establish an effective fraud prevention system for the HUBZone program; and (3) what actions, if any, SBA has taken on the 10 firms that we found misrepresented their HUBZone status in July 2008.

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## Topics

Business Regulation and Consumer Protection

AccountabilityBusiness assistanceContract administrationCrime preventionEconomically depressed areasEligibility criteriaEligibility determinationsEmployeesEmployment requirementsFederal agenciesFederal regulationsFraudInternal controlsInvestigations into federal agenciesPersonnel recordsPrime contractorsProgram abusesProgram evaluationProgram managementRehabilitation programsReporting requirementsSet-asidesSmall businessSmall business assistanceSmall business contractorsSmall business contractsWaste, fraud, and abuse