**GAO-10-920T**                      Published: Jul 28, 2010. Publicly Released: Jul 28, 2010.                  

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## Highlights

This testimony discusses the results of our investigation of the Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) program. In fiscal year 2009, federal agencies obligated nearly $3 billion in sole source or set-aside contracts to firms participating in the HUBZone program. Created in 1997, the program provides federal contracting assistance to small businesses located in HUBZones--economically distressed areas with low income levels or high unemployment rates. Qualified businesses in these areas are eligible to bid on federal prime contracts and subcontracts available exclusively to program participants, in addition to benefiting from other contracting preferences. The SBA must certify that a small business meets the following criteria to qualify for the program: the firm must be owned and controlled by one or more U.S. citizens; at least 35 percent of full-time employees must live in a HUBZone; and the principal office, where most qualifying employees work, must be in a HUBZone. According to the SBA's Dynamic Small Business Web site, as of July 2010, 9,300 firms were participating in the program. Over the last 2 years, we have reported on fraud and abuse and other concerns with the HUBZone program. In July 2008, we testified that the SBA's lack of an effective fraud prevention program meant its application process could not provide reasonable assurance that only eligible firms were being certified to participate in the program. Using fictitious employee and owner information and fabricated documentation, we easily obtained HUBZone certification for four bogus firms. We also identified 10 firms from the Washington, D.C., metro area that participated in the program even though they did not meet eligibility criteria. In March 2009, we reported on 19 additional HUBZone firms from Alabama, California, and Texas that were not eligible for the program. This testimony summarizes our most recent report regarding the HUBZone program. Our report and this statement responds to Congress request that we (1) perform additional proactive testing of the SBA's HUBZone certification process and (2) determine what actions, if any, the SBA has taken against the 29 case study firms we identified in our prior work. In conducting our work, we proactively tested SBA's application process by applying for HUBZone certification for four bogus businesses with fictitious owners and employees. For all four bogus businesses, we used publicly available resources to fabricate documents. To determine what actions, if any, the SBA has taken against the 29 case study firms, we made inquiries with SBA officials. We also analyzed data from the Federal Procurement Data System-Next Generation. We did not attempt to project the extent of fraud and abuse in the program nor systematically assess HUBZone program controls. Our work was done in accordance with quality standards for investigations as set forth by the Council of the Inspectors General on Integrity and Efficiency.

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## Topics

Business Regulation and Consumer Protection

AccountabilityContract administrationContract performanceDocumentationEconomic developmentEconomically depressed areasEligibility determinationsEmployeesInformation technologyLocally administered programsProduct evaluationProgram abusesProgram managementSmall businessCorrective action