Small Business Administration: Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program Results
Published: 2008-06-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) program provides federal contracting assistance to small firms located in economically distressed areas, with the intent of stimulating economic development. Questions have been raised about whether the program is targeting the locations and businesses that Congress intended to assist. GAO was asked to examine (1) the criteria and process that SBA uses to identify and map HUBZone areas and the economic characteristics of such areas, (2) the mechanisms SBA uses to ensure that only eligible small businesses participate in the program, and (3) the actions SBA has taken to assess the results of the program and the extent to which federal agencies have met their HUBZone contracting goals. To address these objectives, GAO analyzed statutory provisions, as well as SBA, census, and contracting data, and interviewed SBA and other federal and local officials.
section_title: What GAO Found
paragraphs: SBA relies on federal law to identify qualified HUBZone areas based on provisions such as median income in census tracts, but the map it uses to publicize HUBZone areas is inaccurate, and the economic characteristics of designated areas vary widely. To help firms determine if they are located in a HUBZone area, SBA publishes a map on its Web site. However, the map contains areas that are not eligible for the program and excludes some eligible areas. As a result, ineligible small businesses have been able to participate in the program, and eligible businesses have not been able to participate. Revisions to the statutory definition of HUBZone areas (such as allowing continued inclusion of areas that ceased to be qualified) have nearly doubled the number of areas and created areas that are less economically distressed than areas designated under the original criteria. Such an expansion could diffuse the benefits to be derived from steering businesses to economically distressed areas. The mechanisms that SBA uses to certify and monitor firms provide limited assurance that only eligible firms participate in the program. Although internal control standards state that agencies should verify information they collect, SBA verifies the information reported by firms on their application or during recertification--its process for monitoring firms--in limited instances and does not follow its own policy of recertifying all firms every 3 years. GAO found that more than 4,600 firms that had been in the program for at least 3 years went unmonitored. Further, SBA lacks a formal policy on how quickly it needs to make a final determination on decertifying firms that may no longer be eligible for the program. Of the more than 3,600 firms proposed for decertification in fiscal years 2006 and 2007, more than 1,400 were not processed within 60 days--SBA's unwritten target. As a result of these weaknesses, there is an increased risk that ineligible firms have participated in the program and had opportunities to receive federal contracts based on their HUBZone certification. SBA has taken limited steps to assess the effectiveness of the HUBZone program, and from 2003 to 2006 federal agencies did not meet the government-wide contracting goal for the HUBZone program. While SBA has some measures to assess the results of the HUBZone program, they are not directly linked to the program's mission, and the agency has not implemented its plans to conduct an evaluation of the program based on variables tied to the program's goals. Consequently, SBA lacks key information to manage the program and assess performance. Contracting dollars awarded to HUBZone firms increased from fiscal year 2003 to 2006, but consistently fell short of the government-wide goal of awarding 3 percent of annual contracting dollars to HUBZone firms. According to contracting officials GAO interviewed, factors such as conflicting guidance on how to consider the various small business programs when awarding contracts and a lack of HUBZone firms in certain industries may have affected the ability of federal agencies to meet their HUBZone goals.

section_title: Letter
paragraphs: Created in 1997, the Historically Underutilized Business Zone (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. In fiscal year 2007,  federal agencies awarded contracts valued at about $8 billion to HUBZone  firms. The Small Business Administration (SBA) administers the HUBZone  program, one of several contracting assistance programs that the agency  oversees. Firms that participate in the program must be located in a  HUBZone and employ residents of HUBZones to facilitate the goal of  bringing capital and employment opportunities to distressed areas. There  are more than 14,000 HUBZone areas, and, as of February 2008, almost  13,000 firms participated in the program. Further, to support and  encourage the development of small businesses in HUBZones, Congress  has set a goal for federal agencies to award 3 percent of their annual  contracting dollars to qualifying firms located in HUBZones.
Questions have been raised about whether the program is targeting the  locations and businesses that Congress intended to assist and the extent to  which federal agencies have awarded contracts to certified HUBZone  firms. Therefore, you asked us to review SBA’s administration and  oversight of the HUBZone program. Specifically, this report examines (1)  the criteria and process that SBA uses to identify and map HUBZone areas  and the economic characteristics of such areas, (2) the mechanisms that  SBA uses to ensure that only eligible small businesses participate in the  HUBZone program, and (3) the actions SBA has taken to assess the results  of the program and the extent to which federal agencies have met their  HUBZone contracting goals.
In examining the criteria that SBA uses to identify HUBZone areas, we  reviewed applicable statutes, regulations, and agency documents. To  assess the accuracy of SBA’s map of HUBZone areas, we interviewed  SBA’s mapping contractor and reviewed the contractor’s policies and  procedures. In addition, we analyzed 2000 census data to (1) determine the  economic characteristics, such as poverty and unemployment rates, of  metropolitan and nonmetropolitan HUBZone areas and (2) illustrate the  effect that adjusting the HUBZone area qualification criteria would have  on the number of HUBZone areas. To determine how SBA ensures that  only eligible small businesses participate in the HUBZone program, we  reviewed policies and procedures established by SBA for certifying and  monitoring HUBZone firms and internal control standards for federal  agencies. We compared the actions that SBA takes to help ensure that only  eligible firms participate with its policies and procedures and selected  internal control standards. In examining such compliance, we analyzed  data from the HUBZone Certification Tracking System (the information  system used to manage the HUBZone program) to determine the extent of  SBA monitoring. For example, we reviewed data on the 125 applications  submitted in September 2007 to determine the extent to which SBA had  requested documentation from firms to support the applications. Further,  we analyzed data from the Federal Procurement Data System-Next  Generation (FPDS-NG) and SBA’s Dynamic Small Business Source System  (DSBSS) to identify the characteristics of businesses that participated in  the program.
To determine the measures that SBA has in place to assess the results of  the HUBZone program, we reviewed SBA’s performance reports and other  agency documents. We compared the HUBZone performance measures  with our guidance on the attributes of effective performance measures. To  determine the extent to which federal agencies have met their contracting  goals, we analyzed data from FPDS-NG and SBA’s reports on federal  contracting dollars awarded to HUBZone firms. We also interviewed small  business and contracting officials from a nongeneralizable sample of four  agencies that received different ratings from SBA based on its contracting  scorecard—Department of Commerce (Commerce), Department of  Defense (DOD), Department of Homeland Security (DHS), and Social  Security Administration (SSA)—to determine what factors affect federal  agencies’ ability to meet HUBZone contracting goals. In addition, we  visited a nongeneralizable sample of four HUBZone areas—Lawton,  Oklahoma (to represent Indian Country); Lowndes County, Georgia (a  nonmetropolitan area); and Los Angeles and Long Beach, California (two  metropolitan areas)—to interview stakeholders about what, if any,  benefits they believed the selected firms and communities received. We  also interviewed SBA officials in headquarters and selected field offices, as  well as SBA contractors. We assessed the reliability of the data we used  and found them to be sufficiently reliable for the purposes of this report.  Appendix I contains additional information on our scope and  methodology.
We conducted this performance audit from August 2007 to June 2008 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.
subsections: section_title: Background
paragraphs: The HUBZone program was established by the HUBZone Act of 1997 to  stimulate economic development through increased employment and  capital investment by providing federal contracting preferences to small  businesses in economically distressed communities or HUBZone areas.  The types of areas in which HUBZones may be located are defined by law  and consist of the following:    Qualified census tracts. A qualified census tract has the meaning given the  term by Congress for the low-income-housing tax credit program. The list  of qualified census tracts is maintained and updated by the Department of  Housing and Urban Development (HUD). As currently defined, qualified  census tracts have either 50 percent or more of their households with  incomes below 60 percent of the area median gross income or have a  poverty rate of at least 25 percent. The population of all census tracts that  satisfy one or both of these criteria cannot exceed 20 percent of the area  population. Qualified census tracts may be in metropolitan or  nonmetropolitan areas. HUD designates qualified census tracts  periodically as new decennial census data become available or as  metropolitan area definitions change.
Qualified nonmetropolitan counties. Qualified nonmetropolitan counties  are those that, based on the most recent decennial census data, are not  located in a metropolitan statistical area and in which 1.  the median household income is less than 80 percent of the  nonmetropolitan state median household income;  2.  the unemployment rate is not less than 140 percent of the average  unemployment rate for either the nation or the state (whichever is  lower); or  3.  a difficult development area is located.
The definition of a difficult development area is similar to that of a  qualified census tract in that it comes from the tax code’s provision for the  low-income-housing tax credit program. For the low-income-housing tax  credit program, difficult development areas can be located in both  metropolitan and nonmetropolitan counties; however, for the HUBZone  program, they can only be located in nonmetropolitan counties in Alaska,  Hawaii, and the U.S. territories and possessions.
Qualified Indian reservations. A HUBZone-qualified Indian reservation  has the same meaning as the term Indian Country as defined in another  federal statute, with some exceptions. These are all lands within the limits  of any Indian reservation, all dependent Indian communities within U.S.  borders, and all Indian allotments. In addition, portions of the state of  Oklahoma qualify because they meet the Internal Revenue Service’s  definition of “former Indian reservations in Oklahoma.”
Redesignated areas. Redesignated areas are census tracts or  nonmetropolitan counties that no longer meet the economic criteria but  remain eligible until after the release of the 2010 decennial census data.
Base closure areas. Areas within the external boundaries of former  military bases that were closed by the Base Realignment and Closure Act  (BRAC) qualify for HUBZone status for a 5-year period from the date of  formal closure.
In order for a firm to be certified to participate in the HUBZone program, it  must meet the following criteria:  the company must be small by SBA size standards;  the company must be at least 51 percent owned and controlled by U.S.  citizens; the company’s principal office—the location where the greatest number of  employees perform their work—must be located in a HUBZone; and   at least 35 percent of the company’s full-time (or full-time equivalent)  employees must reside in a HUBZone.
As of February 2008, 12,986 certified firms participated in the HUBZone  program (see fig. 1). Over 4,200 HUBZone firms obtained approximately  $8.1 billion in federal contracts in fiscal year 2007.
A certified HUBZone firm is eligible for federal contracting benefits,  including “sole source” contracts, set-aside contracts, and a price  evaluation preference. A contracting officer can award a sole source  contract to a HUBZone firm if, among other things, the officer does not  have a reasonable expectation that two or more qualified HUBZone firms  will submit offers and the anticipated award price of the proposed  contract, including options, will not exceed $5.5 million for manufacturing  contracts or $3.5 million for all other contracts. If a contracting officer has  a reasonable expectation that at least two qualified HUBZone firms will  submit offers and an award can be made at a fair market price, the  contract shall be awarded on the basis of competition restricted to  qualified HUBZone firms. Contracting officers also can award a contract to  a HUBZone firm through “full and open competition.” In these  circumstances, HUBZone firms are given a price evaluation preference of  up to 10 percent if the apparent successful offering firm is not a small  business. That is, the price offered by a qualified HUBZone firm shall be  deemed as lower than the price offered by another firm (other than  another small business) if the price is not more than 10 percent higher  than the price offered by the firm with the lowest offer.
As of October 1, 2000, all federal agencies were required to meet the  HUBZone program’s contracting goals. Currently, the annual federal  contracting goal for HUBZone small businesses is 3 percent of all prime  contract awards—contracts awarded directly by an agency. In the  HUBZone Act of 1997, Congress increased the overall federal contracting  goal for small businesses from 20 percent to 23 percent to address  concerns that the HUBZone contracting requirement would reduce federal  contracts for non-HUBZone small businesses. Each year, SBA issues a  small business goaling report that documents each department’s  achievement of small business contracting goals.
SBA administers the HUBZone program, and the HUBZone program office  at SBA headquarters is responsible for certifying firms, publishing a list of  HUBZone-certified firms, monitoring certified firms to ensure continuing  eligibility, and decertifying firms that no longer meet eligibility  requirements. A HUBZone liaison at each of SBA’s 68 district offices is  responsible for conducting program examinations—investigations that  verify the accuracy of information supplied by firms during the  certification process, as well as current eligibility status. HUBZone liaisons  also handle program marketing and outreach to the economic  development and small business communities. Federal agencies are  responsible for trying to meet the HUBZone contracting goal and for  enforcing the contracts awarded to HUBZone firms. Each federal agency  has an Office of Small and Disadvantaged Business Utilization (OSDBU),  or an equivalent office, that helps the agency employ special contracting  programs and monitor the agency’s overall small business and special  contracting goals.
In addition to the HUBZone program, SBA has other contracting  assistance programs. The 8(a) program is a business development program  for firms owned by citizens who are socially and economically  disadvantaged. SBA provides technical assistance, such as business  counseling, to these firms. While the 8(a) program offers a broad range of  assistance to socially and economically disadvantaged firms, the Small  Disadvantaged Business (SDB) program is intended only to convey  benefits in federal procurement to disadvantaged businesses. All 8(a) firms  automatically qualify for SDB certification, and federal agencies are  subject to an annual SDB contracting goal of 5 percent of all federal  contracting dollars. Small businesses also can be certified as service- disabled veteran-owned, and the contracting goal for these firms is   3 percent of all federal contracting dollars.
section_title: SBA Relies on Federal Law to Identify HUBZone Areas, but Its Map Is Inaccurate and the Economic Characteristics of Designated Areas Vary Widely
paragraphs: SBA relies on federal law to identify qualified HUBZone areas, but its  HUBZone map is inaccurate and the economic characteristics of HUBZone  areas vary widely. The map that SBA uses to publicize HUBZone areas  contains ineligible areas and has not been updated to include eligible  areas. As a result, ineligible small businesses have participated in the  program, and eligible businesses have not been able to participate. A  series of statutory changes has resulted in an increase in the number and  types of HUBZone areas. HUBZone program officials noted that such an  expansion could diffuse (or limit) the economic benefits of the program.  We found that different types of HUBZone areas varied in the degree to  which they could be characterized as economically distressed (as  measured by indicators such as poverty and unemployment rates).
subsections: section_title: Recent Legislation Increased the Number and Types of HUBZone Areas
paragraphs: In recent years, amendments to the HUBZone Act and other statutes have  increased the number and type of HUBZone areas. The original HUBZone  Act of 1997 defined a HUBZone as any area within a qualified census tract,  a qualified nonmetropolitan county, or lands within the boundaries of a  federally recognized Indian reservation. Qualified census tracts were  defined as having the meaning given the term in the tax code at the time— areas in which 50 percent or more of the households had incomes below  60 percent of the area median gross income. Qualified nonmetropolitan  areas were counties with low median household income or high levels of  unemployment.
However, subsequent legislation revised the definitions of the original  categories and expanded the HUBZone definition to include new types of  qualified areas (see fig. 2). A 2000 statute (1) defined Indian reservation to  include lands covered by the Bureau of Indian Affairs’ phrase Indian  Country and (2) allowed all lands within the jurisdictional areas of an  Oklahoma Indian tribe to be eligible for the program. The 2000 statute  also amended the HUBZone area definition to allow census tracts or  nonmetropolitan counties that ceased to be qualified to remain qualified  for a further 3-year period as “redesignated areas.” Also in 2000, Congress  changed the definition of a qualified census tract in the tax code by adding  a poverty rate criterion; that is, a qualified census tract could be either an  area of low income or high poverty.
A 2004 statute revised the definition of redesignated areas to permit them  to remain qualified until the release date of the 2010 census data. In that  same statute, Congress determined that areas within the external  boundaries of former military bases closed by BRAC would qualify for  HUBZone status for a 5-year period from the date of formal closure. In  addition, Congress revised the definition of qualified nonmetropolitan  counties to permit eligibility based on a county’s unemployment rate  relative to either the state or the national unemployment rate, whichever  was lower. Finally, in 2005, Congress expanded the definition of qualified  nonmetropolitan county to include “difficult development areas” in Alaska,  Hawaii, and the U.S. territories. These areas have high construction, land,  and utility costs relative to area median income.
Subsequent to the statutory changes, the number of HUBZone areas grew  from 7,895 in calendar year 1999 to 14,364 in 2006. As shown in figure 2,  the December 15, 2000, change to the definition of a qualified census  tract—a provision of the low-income-housing tax credit program— resulted in the biggest increase in the number of qualified HUBZone areas.  SBA’s data show that, as of 2006, there were 12,218 qualified census tracts,  1,301 nonmetropolitan counties, 651 Indian Country areas, 82 BRAC areas,  and 112 difficult development areas (see fig. 3).
section_title: SBA’s Web Map Inaccurately Identifies Eligible Areas
paragraphs: SBA program staff employ no discretion in identifying HUBZone areas  because the areas are defined by federal statute, but SBA has not always  designated these areas correctly on the SBA Web map. To identify and  map HUBZone areas, SBA relies on a mapping contractor and data from  other executive agencies (see fig. 4). When a HUBZone designation  changes or more current data become available, SBA alerts the contractor.  The contractor retrieves the data from the designated federal agencies,  such as HUD, the Bureau of Labor Statistics (BLS), and the Census  Bureau. Most HUBZone area designation data are publicly available (and  widely used by researchers and the general public), with the exception of  the Indian Country designation.
Once the changes to the HUBZone areas are mapped, the contractor sends  the maps back to SBA. SBA performs a series of checks to ensure that the  HUBZone areas are mapped correctly and then the contractor places the  maps and associated HUBZone area information on SBA’s Web site.
Essentially, the map is SBA’s primary interface with small businesses to  determine if they are located in a HUBZone and can apply for HUBZone  certification. SBA officials stated that they primarily rely on firms to  identify HUBZone areas that have been misidentified or incorrectly  mapped. Based on client input, SBA estimated that from 1 percent to 2  percent of firms searching the map as part of the application process  report miscodings. SBA’s mapping contractor researches these claims  each month.
During the course of our review, we identified two problems with SBA’s  HUBZone map. First, the map includes some areas that do not meet the  statutory definition of a HUBZone area. As noted previously, counties  containing difficult development areas are only eligible in their entirety for  the HUBZone program if they are not located in a metropolitan statistical  area. However, we found that SBA’s HUBZone map includes 50  metropolitan counties as difficult development areas that do not meet this  or any other criteria for inclusion as a HUBZone area. Nearly all of these  incorrectly designated HUBZone areas are in Puerto Rico. When we  raised this issue with SBA officials, they told us they had provided a  definition of difficult development areas that was consistent with the  statutory language used by the agency’s mapping contractor in December  2005. However, according to SBA, the mapping contactor failed to  properly follow SBA’s guidance when adding difficult development areas  to the map in 2006. According to SBA officials, the agency is in the process  of acquiring additional mapping services and will immediately re-evaluate  all difficult development areas once that occurs. As a result of these  errors, ineligible firms have obtained HUBZone certification and received  federal contracts. As of December 2007, there were 344 certified HUBZone  firms located in ineligible areas in these 50 counties. Further, from  October 2006 through March 2008, federal agencies obligated about $5  million through HUBZone set-aside contracts to 12 firms located in these  ineligible areas.
Second, while SBA’s policy is to have its contractor update the HUBZone  map as needed, the map has not been updated since August 2006. Since  that time, additional data such as unemployment rates from BLS have  become available. According to SBA officials, the update was delayed  because SBA awarded the contract for management of the HUBZone  system to a new prime contractor, which is still in the process of  establishing a relationship with the current mapping subcontractor.  Although SBA officials told us they are working to have the contractor  update the mapping system, no subcontract was in place as of May 2008.
While an analysis of the 2008 list of qualified census tracts showed that the  number of tracts had not changed since the map was last updated, our  analysis of 2007 BLS unemployment data indicated that 27 additional  nonmetropolitan counties should have been identified on the map.  Because firms are not likely to receive information on the HUBZone status  of areas from other sources, firms in the 27 areas would have believed  from the map that they were ineligible to participate in the program and  could not benefit from contracting incentives that certification provides.
Having an out-of-date map led SBA, in one instance, to mistakenly identify  a HUBZone area. When asked by a congressman to research whether  Jackson County, Michigan, qualified in its entirety as a HUBZone area, an  SBA official used a manual process to determine the county’s eligibility  because the map was out of date. The official mistakenly concluded that  the county was eligible. After that determination, the congressman  publicized Jackson County’s status, but SBA, after further review, had to  rescind its HUBZone status 1 week later. Had the information been  processed under the standard mapping procedures, the mapping system  software would have identified the area as a metropolitan county and  noted that it did not meet the criteria to be a HUBZone, as only  nonmetropolitan counties qualify in their entirety. In this case, the lack of  regular updates led to program officials using a manual process that  resulted in an incorrect determination.
section_title: HUBZone Areas Vary with Respect to Characteristics Associated with Economic Distress
paragraphs: Qualified HUBZone areas experience a range of economic conditions.  HUBZone program officials told us that the growth in the number of  HUBZone areas is a concern for two reasons. First, they stated that  expansion can diffuse the impact or potential impact of the program on  existing HUBZone areas. Specifically, they noted that as the program  becomes less targeted and contracting dollars more dispersed, the  program could have less of an impact on individual HUBZone areas. We  recognize that establishing new HUBZone areas can potentially provide  economic benefits for these areas by helping them attract firms that make  investments and employ HUBZone residents. However, diffusion—less  targeting to areas of greatest economic distress—could occur with such an  expansion. Based on 2000 census data, about 69 million people (out of 280  million nationwide) lived in the more than 14,000 HUBZones. Considering  that HUBZone firms are encouraged to locate in HUBZone areas and  compete for federal contracts (thus facilitating employment and  investment growth), the broad extent of eligible areas can lessen the very  competitive advantage that businesses may rely on to thrive in  economically distressed communities. Second, while HUBZone program  officials thought that the original designations resulted in HUBZone areas  that were economically distressed, they questioned whether some of the  later categories—such as redesignated and difficult development areas— met the definition of economic distress.
To determine the economic characteristics of HUBZones, we compared  different types of HUBZone areas and analyzed various indicators  associated with economic distress. We found a marked difference in the  economic characteristics of two types of HUBZone areas: (1) census tracts  and nonmetropolitan counties that continue to meet the eligibility criteria  and (2) the redesignated areas that do not meet the eligibility criteria but  remain statutorily eligible until the release of the 2010 census data. For  example, approximately 60 percent of metropolitan census tracts  (excluding redesignated tracts) had a poverty rate of 30 percent or more,  while approximately 4 percent of redesignated metropolitan census tracts  had a poverty rate of 30 percent or more (see fig. 5). In addition, about 75  percent of metropolitan census tracts (excluding redesignated tracts) had  a median household income that was less than 60 percent of the  metropolitan area median household income; in contrast, about 10 percent  of redesignated metropolitan census tracts met these criteria. (For  information on the economic characteristics of nonmetropolitan census  tracts, see app. III.)
Similarly, we found that about 46 percent of nonmetropolitan counties  (excluding redesignated counties) had a poverty rate of 20 percent or  more, while 21 percent of redesignated nonmetropolitan counties had a  poverty rate of 20 percent or more (see fig. 6). Also, about 54 percent of  nonmetropolitan counties (excluding redesignated counties) had a median  housing value that was less than 80 percent of the state nonmetropolitan  median housing value; in contrast, about 32 percent of redesignated  counties met these criteria.
Overall, difficult development areas appear to be less economically  distressed than metropolitan census tracts and nonmetropolitan counties  (see fig. 7). For example, 6 of 28 difficult development areas (about 21  percent) had poverty rates of 20 percent or more. In contrast, about 93  percent of metropolitan census tracts (excluding redesignated areas) and  about 46 percent of nonmetropolitan counties (excluding redesignated  areas) met this criterion. See appendix III for additional details on the  economic characteristics of Indian Country areas and additional analyses  illustrating the economic diversity among qualified HUBZone areas.
In expanding the types of HUBZone areas, the definition of economic  distress has been broadened to include measures that were not in place in  the initial statute. For example, one new type of HUBZone area—difficult  development areas—consists of areas with high construction, land, and  utility costs relative to area income, and such areas could include  neighborhoods not normally considered economically distressed. As a  result, the expanded HUBZone criteria now allow for HUBZone areas that  are less economically distressed than the areas that were initially  designated. Such an expansion could diffuse the benefits to be derived  from steering businesses to economically distressed areas.
section_title: SBA Has Limited Controls to Ensure That Only Eligible Firms Participate in the HUBZone Program
paragraphs: The policies and procedures upon which SBA relies to certify and monitor  firms provide limited assurance that only eligible firms participate in the  HUBZone program. Internal control standards for federal agencies state  that agencies should document and verify information that they collect on  their programs. However, SBA obtains supporting documentation from  firms in limited instances and rarely conducts site visits to verify the  information that firms provide in their initial application and during  periodic recertifications—a process through which SBA can monitor  firms’ continued eligibility. In addition, SBA does not follow its own policy  of recertifying all firms every 3 years—which can lengthen the time a firm  goes unmonitored and its eligibility is unreviewed—and has a backlog of  more than 4,600 firms to recertify. Furthermore, SBA largely has not met  its informal goal of 60 days for removing firms deemed ineligible from its  list of certified firms. We found that of the more than 3,600 firms that were  proposed for decertification in fiscal years 2006 and 2007, more than 1,400  were not processed within 60 days. As a result, there is an increased risk  that ineligible firms may participate in the program and have opportunities  to receive federal contracts based on HUBZone certification.
subsections: section_title: SBA Largely Relies on Self- Reported Data for HUBZone Certifications and Recertifications, Increasing the Risk That Ineligible Firms Can Participate
paragraphs: To certify and recertify HUBZone firms, SBA relies on data that firms enter  in its online application system; however, the agency largely does not  verify the self-reported information.
subsections: section_title: SBA’s Certification and Recertification Processes Are Similar
paragraphs: The certification and recertification processes are similar. Firms apply for  HUBZone certification using an online application system, which employs  automated logic steps to screen out ineligible firms based on the  information entered on the application. For example, firms enter  information such as their total number of employees and number of  employees that reside in a HUBZone. Based on this information, the  system then calculates whether the number of employees residing in a  HUBZone equals 35 percent or more of total employees, the required level  for HUBZone eligibility.
HUBZone program staff review the applications to determine if more  information is required. While SBA’s policy states that supporting  documentation normally is not required, it notes that agency staff may  request and consider such documentation, as necessary. No specific  guidance or criteria are provided to program staff for this purpose; rather,  the policy allows staff to determine what circumstances warrant a request  for supporting documentation. In determining whether additional  information is required, HUBZone program officials stated that they  generally consult sources such as firms’ or state governments’ Web sites  that contain information on firms incorporated in the state. In addition,  HUBZone program officials stated that they can check information such as  a firm’s address using the Central Contractor Registration (CCR)  database. According to HUBZone program officials, they are in the  process of obtaining Dun and Bradstreet’s company information (such as  principal address, number of employees, and revenue) to cross-check  some application data. While these data sources are used as a cross- check, the data they contain are also self-reported.
The number of applications submitted by firms grew by more than 40  percent from fiscal year 2000 to fiscal year 2007, and the application  approval rate varied. For example, as shown in table 1, 1,527 applications  were submitted in fiscal year 2000, and SBA approved 1,510 applications  (about 99 percent). In fiscal year 2007, 2,204 applications were submitted,  and SBA approved 1,721 (about 78 percent). Of the 2,204 applications  submitted in fiscal year 2007, 383 (about 17 percent) were withdrawn.  Either the firms themselves or SBA staff can withdraw an application if it  is believed the firm will not meet program requirements. HUBZone  program staff noted that they withdraw applications for firms that could, if  they made some minor modifications, be eligible. Otherwise, firms would  have to wait 1 year before they could reapply. The remaining 100  applications (about 5 percent) submitted in fiscal year 2007 were declined  because the firms did not meet the HUBZone eligibility requirements. See  appendix IV for details on the characteristics of current HUBZone firms.
To ensure the continued eligibility of certified HUBZone firms, SBA  requires firms to resubmit an application. That is, to be recertified, firms  re-enter information in the online application system, and HUBZone  program officials review it. In 2004, SBA changed the recertification period  from an annual recertification to every 3 years. According to HUBZone  program officials, they generally limit their reviews to comparing  resubmitted information to the original application. The officials added  that significant changes from the initial application can trigger a request  for additional information or documentation. If concerns about eligibility  are raised during the recertification process, SBA will propose  decertification or removal from the list of eligible HUBZone firms. Firms  that are proposed for decertification can challenge that proposed outcome  through a due-process mechanism. SBA ultimately decertifies firms that do  not challenge the proposed decertification and those that cannot provide  additional evidence that they continue to meet the eligibility requirements.  For example, as shown in table 2, SBA began 3,278 recertifications in fiscal  year 2006 and had completed decertification of 1,699 firms as of January  22, 2008. Although SBA does not systematically track the reasons why  firms are decertified, HUBZone program officials noted that many firms do  not respond to SBA’s request for updated information. We discuss this  issue and others related to the timeliness of the recertification and  decertification processes later in this report.
We found that SBA verifies the information it receives from firms in  limited instances. In accord with SBA’s policy, HUBZone program staff  request documentation from firms and conduct site visits when they feel it  is warranted. The HUBZone Certification Tracking System does not  readily provide information on the extent to which SBA requests  documentation from firms or conducts site visits; therefore, we conducted  reviews of applications and recertifications. Specifically, we reviewed the  125 applications and 15 recertifications submitted or begun in September  2007. For the applications submitted in September 2007, HUBZone  program staff  requested additional information but not supporting documentation for 10  (8 percent) of the applications; requested supporting documentation for 45 (36 percent) of the  applications; and   conducted one site visit.
After reviewing supporting documentation for the 45 applications, SBA  ultimately approved 19 (about 42 percent). Of the remaining 26  applications, 21 (about 47 percent of the 45 applications) were withdrawn  by either SBA or the firm, and 5 (about 11 percent of the 45 applications)  were denied by SBA. For the 15 firms that SBA began recertifying in  September 2007, HUBZone program staff requested information and  documentation from 2 firms and did not conduct any site visits.
In the instances when SBA approved an application without choosing to  request additional information or documentation (about 50 percent of our  application sample), HUBZone program staff generally recorded in the  HUBZone system that their determination was based on the information in  the application and that SBA was relying on the firm’s certification that all  information was true and correct. In requesting additional information,  HUBZone staff asked such questions as the approximate number of  employees and type of work performed at each of the firm’s locations.
When requesting supporting documentation, HUBZone staff requested  items such as copies of driver’s licenses or voter’s registration cards for  the employees that were HUBZone residents and a rental/lease agreement  or deed of trust for the principal office.
Internal control standards for federal agencies and programs require that  agencies collect and maintain documentation and verify information to  support their programs. The documentation also should provide evidence  of accurate and appropriate controls for approvals, authorizations, and  verifications. For example, in addition to automated edits and checks,  conducting site visits to physically verify information provided by firms  can help control the accuracy and completeness of transactions or other  events.
According to HUBZone program officials, they did not more routinely  verify the information because they generally relied on their automated  processes and status protest process. For instance, they said they did not  request documentation to support each firm’s application because the  application system employs automated logic steps to screen out ineligible  firms. For example, as previously noted, the application system calculates  the percentage of a firm’s employees that reside in a HUBZone and screens  out firms that do not meet the 35 percent requirement. But the automated  application system would not necessarily screen out applicants that  submit false information to obtain a HUBZone certification. HUBZone  program officials also stated that it is not necessary to conduct site visits  of HUBZone firms because firms self-police the program through the  HUBZone status protest process. However, relatively few protests have  occurred in recent years. In addition, officials from SBA’s HUBZone  office did not indicate a reliable mechanism HUBZone firms could use to  identify information that could be used in a status protest. For example, it  is unclear how a firm in one state would know enough about a firm in  another state, such as its principal office location or employment of  HUBZone residents, to question its qualified HUBZone status.
Rather than obtaining supporting documentation during certification and  recertification on a more regular basis, SBA waits until it is conducting  examinations of a small percentage of firms to consistently request  supporting documentation. The 1997 statute that created the HUBZone  program authorized SBA to conduct program examinations of HUBZone  firms. Since fiscal year 2004, SBA’s policy has been to conduct program  examinations on 5 percent of firms each year. Over the years, SBA has  developed a standard process for conducting these examinations. SBA  uses three selection factors to determine which firms will be examined  each year. After firms have been selected for a program examination,  SBA field staff request documentation from them to support their  continued eligibility for the program. For instance, they request  documents such as payroll records to evaluate compliance with the  requirement that 35 percent or more of employees reside in a HUBZone  and documents such as organization charts and lease agreements to  document that the firm’s principal office is located in a HUBZone. After  reviewing this documentation, the field staff recommend to SBA  headquarters whether the firm should remain in the program. As shown in  table 3, in fiscal years 2004 through 2006 nearly two-thirds of firms SBA  examined were decertified, and in fiscal year 2007, 430 of 715 firms (about  60 percent) were decertified or proposed for decertification. The number  of firms decertified includes firms that the agency determined to be  ineligible, and were decertified, and firms that requested to be decertified.
Because SBA limits its program examinations to 5 percent of firms each  year, firms can be in the program for years without being examined. For  example, we found that 2,637 of the 3,348 firms (approximately 79  percent) that had been in the program for 6 years or more had not been  examined. In addition to performing program examinations on a limited  number of firms, HUBZone program officials rarely conduct site visits  during program examinations to verify a firm’s information. When  reviewing the 11 program examinations that began in September 2007, we  found that SBA did not conduct any site visits to verify the documentation  provided.
As a result of SBA’s limited application of internal controls when certifying  and monitoring HUBZone firms, the agency has limited assurances that  only eligible firms participated in the program. By not obtaining  documentation and conducting site visits on a more routine basis during  the certification process, SBA cannot be sure that only eligible firms are  part of the program. And while SBA’s examination process involves a  more extensive review of documentation, it cannot be relied upon to  ensure that only eligible firms participate in the program because it  involves only 5 percent of firms in any given year.
section_title: Because SBA Has Not Complied with Its Policy of Recertifying Firms Every 3 Years, Some Firms Went Unmonitored for Longer Periods, and SBA Has Not Specified Time Frames for Eliminating the Large Backlog
paragraphs: As previously noted, since 2004, SBA’s policies have required the agency to  recertify all HUBZone firms every 3 years. Recertification presents another  opportunity for SBA to review information from firms and thus help  monitor program activity. However, SBA has failed to recertify 4,655 of the  11,370 firms (more than 40 percent) that have been in the program for  more than 3 years. Of the 4,655 firms that should have been recertified, 689  have been in the program for more than 6 years.
SBA officials stated that the agency lacked sufficient staff to comply with  its recertification policy. According to SBA officials, staffing levels have  been relatively low in recent years. In fiscal year 2002, the HUBZone  program office, which is located in SBA headquarters in Washington, D.C.,  had 12 full-time equivalent staff. By fiscal year 2006, the number had  dropped to 8 and remained at that level as of March 2008. Of the 8, 3  conduct recertifications on a part-time basis.
SBA hired a contractor in December 2007 to help conduct recertifications,  using the same process that SBA staff currently use. According to the  contract, SBA estimates that the contractor will conduct 3,000  recertifications in fiscal year 2008; in subsequent years, SBA has the option  to direct the contractor to conduct, on average, 2,450 recertifications  annually for the next 4 years. Although SBA has contracted for these  additional resources, the agency lacks specific time frames for eliminating  the backlog. As a result of the backlog, the periods during which some  firms go unmonitored and are not reviewed for eligibility are longer than  SBA policy allows, increasing the risk that ineligible firms may be  participating in the program.
section_title: SBA Lacks a Formal Policy on Time Frames for Decertifying Firms, Which Provides Ineligible Firms with an Opportunity to Obtain Contracts
paragraphs: While SBA policies for the HUBZone program include procedures for  certifications, recertifications, and program examinations, they do not  specify a time frame for processing decertifications—which occur  subsequent to recertification reviews or examinations and determine that  firms are no longer eligible to participate in the HUBZone program. If SBA  suspects that a firm no longer meets standards or fails to respond to  notification of a recertification or program examination, SBA makes a  determination and, if found ineligible, removes the firm from its list of  certified HUBZone firms. Although SBA does not have written guidance  for the decertification time frame, the HUBZone program office negotiated  an informal (unwritten) goal of 60 days with the SBA Inspector General  (IG) in 2006.
In recent years, SBA ultimately decertified the vast majority of firms  proposed for decertification but, as shown in table 4, has not met its 60- day goal consistently. From fiscal years 2004 through 2007, SBA failed to  resolve proposed decertifications within its goal of 60 days for more than  3,200 firms. However, SBA’s timeliness has improved. For example, in  2006, SBA did not resolve proposed decertifications in a timely manner for  more than 1,000 firms (about 44 percent). In 2007, over 400 (or about 33  percent) were not resolved in a timely manner. SBA staff acknowledged  that lags in processing decertifications were problematic and attributed  them to limited staffing. SBA plans to use its contract staff to address this  problem after the backlog of recertifications is eliminated.
In addition, we and the SBA Inspector General found that SBA does not  routinely track the reasons why firms are decertified. According to SBA  officials, a planned upgrade to the HUBZone data system will allow SBA to  track this information. While SBA does not currently track the specific  reasons why firms are decertified, our analysis of HUBZone system data  shows that firms were primarily decertified because firms either did not  submit the recertification form or did not respond to SBA’s notification.  According to HUBZone officials, firms may fail to respond because they  are no longer in business or are no longer interested in participating in the  program. But firms also may not be responding because they no longer  meet the eligibility requirements. Tracking the various reasons why firms  are decertified could help SBA take appropriate action against firms that  misrepresent their HUBZone eligibility status.
While we were unable to determine how many firms were awarded  HUBZone contracts after they were proposed for decertification, our  analysis showed that 90 of the firms proposed for decertification in fiscal  years 2004 through 2007 received HUBZone set-aside dollars after being  decertified. However, some of these firms may have been awarded the  contracts before they were decertified. As a consequence of generally not  meeting its 60-day goal, lags in the processing of decertifications have  increased the risk of ineligible firms participating in the program.
section_title: SBA Has Not Implemented Plans to Assess the Effectiveness of the HUBZone Program, and Most Agencies Have Not Met Contracting Goals
paragraphs: SBA has taken limited steps to assess the effectiveness of the HUBZone  program. While SBA has a few performance measures in place that  provide some data on program outputs, such as the number of  certifications and examinations, the measures do not directly link to the  program’s mission. SBA has plans for assessing the program’s  effectiveness but has not devoted resources to implement such plans.  Although Congress’s goal is for agencies to award 3 percent of their annual  contracting dollars to qualifying firms located in HUBZones, most federal  agencies did not meet the goal for fiscal year 2006—the total for federal  agencies reached approximately 2 percent. Factors such as conflicting  guidance on how to consider the various small business programs when  awarding contracts and a lack of HUBZone firms with the necessary  expertise may have affected the ability of federal agencies to meet their  HUBZone goals.
subsections: section_title: SBA Has Limited Performance Measures and Has Not Implemented Plans to Evaluate the Effectiveness of the Program
paragraphs: While SBA has some measures in place to assess the performance of the  HUBZone program, the agency has not implemented its plans to conduct  an evaluation of the program’s benefits. According to the Government  Performance and Results Act (GPRA) of 1993, federal agencies are  required to identify results-oriented goals and measure performance  toward the achievement of their goals. We have previously reported on the  attributes of effective performance measures. We noted that for  performance measures to be useful in assessing program performance,  they should be linked or aligned with program goals and cover the  activities that an organization is expected to perform to support the intent  of the program.
We reviewed SBA’s performance measures for the HUBZone program and  found that although the measures related to the core activity of the  program (providing federal contracting assistance), they were not directly  linked to the program’s mission of stimulating economic development and  creating jobs in economically distressed communities. According to SBA’s  fiscal year 2007 Annual Performance Report, the three performance  measures were:    number of small businesses assisted (which SBA defines as the number of  applications approved and the number of recertifications processed),   annual value of federal contracts awarded to HUBZone firms, and    number of program examinations completed.
The three measures provide some data on program activity, such as the  number of certifications and program examinations and contract dollars  awarded to HUBZone firms. However, they do not directly measure the  program’s effect on firms (such as growth in employment or changes in  capital investment) or directly measure the program’s effect on the  communities in which the firms are located (for instance, changes in  median household income or poverty levels).
While SBA’s performance measures for the HUBZone program do not link  directly to the program’s mission, the agency has made attempts to assess  the effect of the program on firms. In fiscal years 2005 and 2006, SBA  conducted surveys of HUBZone firms. According to SBA data on the  surveys, HUBZone firms responding to the 2005 survey reported they had  hired a total of 11,461 employees as a result of their HUBZone  certification, and HUBZone firms responding to the 2006 survey reported  they had hired a total of 12,826 employees (see table 5). Based on the firms  that responded to the 2005 survey, the total capital investment increase in  HUBZone firms as a result of firm certification was approximately $523.8  million as of August 31, 2005. As of September 12, 2006, the total capital  investment increase based on firms responding to the 2006 survey was  approximately $372.6 million. SBA did not conduct this survey in fiscal  year 2007, but officials stated that they planned to conduct a similar survey  during fiscal year 2008.
However, the survey results have several limitations. For instance, the  2005 and 2006 surveys appear to have had an approximate response rate of  33 percent and 27 percent, respectively, which may increase the risk that  survey results are not representative of all HUBZone firms. It also is  unclear whether the survey results were reliable because SBA did not  provide detailed guidance on how to define terms such as capital  investment, which may have led to inconsistent responses. Finally, while  the surveys measured increased employment and capital investment by  firms—which provided limited assessment of, and could be linked to, the  program’s effect on individual firms—they did not provide data that  showed the effect of the program on the communities in which they were  located. Since the purpose of the HUBZone program is to stimulate  economic development in economically distressed communities, useful  performance measures should be linked to this purpose.
Similarly, the Office of Management and Budget (OMB) noted in its 2005  Program Assessment Rating Tool (PART) that SBA needed to develop  baseline measures for some of its HUBZone performance measures and  encouraged SBA to focus on more outcome-oriented measures that more  effectively evaluate the results of the program. Although OMB gave the  HUBZone program an assessment rating of “moderately effective,” it  stated that SBA had limited data on, and had conducted limited  assessments of, the program’s effect. The assessment also emphasized the  importance of systematic evaluation of the program as a basis for  programmatic improvement.
The PART assessment also documented plans that SBA had to conduct an  analysis of the economic impact of the HUBZone program on a  community-by-community basis using data from the 2000 and 2010  decennial census. SBA stated its intent to assess the program’s effect in  individual communities by comparing changes in socioeconomic data over  time. Variables that the program office planned to consider included  median household income, average educational levels, and  residential/commercial real estate values. Additionally, in a mandated 2002  report to Congress, SBA identified potential measures to more effectively  assess the HUBZone program. These measures included assessing full- time jobs created in HUBZone areas and the larger areas of which they  were a part, the amount of investment-related expenditures in HUBZone  areas and the larger areas of which they were a part, and changes in  construction permits and home loans in HUBZone areas. While SBA has  recognized the need to assess the results of the HUBZone program, SBA  officials indicated that the agency has not devoted resources to implement  either of these strategies for assessing the results of the program. Yet by  not evaluating the HUBZone program’s benefits, SBA lacks key  information that could help it better manage the program and inform  Congress of its results.
We also conducted site visits to four HUBZone areas (Lawton, Oklahoma;  Lowndes County, Georgia; and Long Beach and Los Angeles, California) to  better understand to what extent stakeholders perceived that the  HUBZone program generated benefits. For all four HUBZone areas, the  perceived benefits of the program varied, with some firms indicating they  have been able to win contracts and expand their firms and others  indicating they had not realized any benefits from the program. Officials  representing economic development entities varied in their knowledge of  the program, with some stating they lacked information on the program’s  effect that could help them inform small businesses of its potential  benefits. (See appendix V for more information on our site visits.)
section_title: Most Federal Agencies Did Not Meet Their Contracting Goals for the HUBZone Program
paragraphs: Although contracting dollars awarded to HUBZone firms have increased  since fiscal year 2003—when the statutory goal of awarding 3 percent of  federally funded contract dollars to HUBZone firms went into effect— federal agencies collectively still have not met that goal. According to  data from SBA’s goaling reports, for fiscal years 2003 through 2006, the  percentage of prime contracting dollars awarded to HUBZone firms  increased but was still about one-third short of the statutory goal for fiscal  year 2006 (see table 6).
In fiscal year 2006, 8 of 24 federal agencies met their HUBZone goals. Of  the 8 agencies, 4 had goals higher than the 3 percent requirement and were  able to meet the higher goals. Of the 16 agencies not meeting their  HUBZone goal, 10 awarded less than 2 percent of their small-business- eligible contracting dollars to HUBZone firms. According to SBA’s most  recent guidance on the goaling process, agencies are required to submit a  report explaining why goals were not met, along with a plan for corrective  action.
Federal agencies may not have met their HUBZone goals for various  reasons, which include uncertainty about how to properly apply federal  contracting preferences. For instance, federal contracting officials  reported facing conflicting guidance about the order in which the various  small business programs—the HUBZone program, the 8(a) program, and  the service-disabled veteran-owned small business program—should be  considered when awarding contracts. The 2007 Report of the Acquisition  Advisory Panel concluded that contracting officers need definitive  guidance on the priority for applying the various small business  contracting preferences to specific acquisitions. The report stated that  each program has its own statutory and regulatory requirements. It also  noted that both SBA and the Federal Acquisition Regulatory Council (FAR  Council) have attempted to interpret these provisions but that their  respective regulations conflict with each other. According to the report,  in general, SBA’s regulations provide for parity among most of the  programs and give discretion to the contracting officer by stating that the  contracting officer should consider setting aside the requirement for 8(a),  HUBZone, or service-disabled veteran-owned firms’ participation before  considering setting aside the requirement as a small business set-aside.  However, according to the report, the FAR currently conflicts with SBA’s  regulations by providing that, before deciding to set aside an acquisition  for small businesses, HUBZone firms, or service-disabled veteran-owned  small firms, the contracting officer should review the acquisition for  offering under the 8(a) program.
Officials at three of the four agencies we interviewed (Commerce, DHS,  and SSA) regarding the awarding of contracts to small businesses stated  that contracting officers occasionally faced uncertainty when applying the  guidelines on awarding contracts under these programs. In March 2008, a  proposal to amend the FAR was published with the purpose of ensuring  that the FAR clearly reflects SBA’s interpretation of the Small Business  Act and SBA’s interpretation of its regulations about the order of  precedence that applies when deciding whether to satisfy a requirement  through award under these various types of small business programs.  Among other things, the proposed rule is intended to make clear that there  is no order of precedence among the 8(a), HUBZone, or service-disabled  veteran-owned small business programs. The proposed rule stated that  SBA believes that, among other factors, progress in fulfilling the various  small business goals should be considered in making a decision as to  which program is to be used for an acquisition.
Federal contracting officials from the four agencies also explained that it  was sometimes difficult to identify HUBZone firms with the required  expertise to fulfill contracts. For example, DHS acquisition officials stated  that market research that their contracting officers conducted sometimes  indicated there were no qualified HUBZone firms in industries in which  DHS awarded contracts. Specifically, a contracting officer in the U.S.  Coast Guard’s Maintenance and Logistics Command explained that for  contracts requiring specialized types of ship-repair work, the Coast Guard  sometimes could not find sufficient numbers of HUBZone firms with the  capacity and expertise to perform the work in the time frame required.  SSA officials also stated that the agency awards most of its contracts to  firms in the information technology industry and that contracting officers  at times have had difficulty finding qualified HUBZone firms operating in  this industry due to the amount of infrastructure and technical expertise  required. Officials representing the Defense Threat Reduction Agency (an  agency within DOD) also stated they often have difficulty finding qualified  HUBZone firms that can fulfill their specialized technology needs. Lastly,  Commerce officials explained that a review of the top 25 North American  Industry Classification System (NAICS) codes under which the agency  awarded contracts in fiscal year 2007 showed that fewer than 100  HUBZone firms operated in 13 of these 25 industries, including 5  industries that had fewer than 5 firms operating. They noted that these  small numbers increased the difficulty of locating qualified HUBZone firms  capable of meeting Commerce’s requirements. We did not validate the  statements made by these federal contracting officials related to the  difficulty they face in awarding contracts to HUBZone firms.
Finally, according to contracting officers we interviewed, the availability  of sole-source contracting under SBA’s 8(a) program could make the 8(a)  program more appealing than the HUBZone program. Through sole-source  contracting, contracting officers have more flexibility in awarding  contracts directly to an 8(a) firm without competition. According to U.S.  Coast Guard contracting officers we interviewed, this can save 1 to 2  months when trying to award a contract. Sole-source contracts are  available to HUBZone program participants but only when the contracting  officer does not have a reasonable expectation that two or more qualified  HUBZone firms will submit offers. Contracting officers we interviewed  regarding HUBZone sole-source contracts stated that this is rarely the  case. In fiscal year 2006, $5.8 billion (about 44 percent) of all dollars  obligated to small business 8(a) firms were awarded through 8(a) sole- source contracts. In contrast, about 1 percent of the contracts awarded to  HUBZone firms were HUBZone sole-source contracts.
section_title: Identifying Contract Dollars Awarded Based on a Particular Designation Is Difficult Because Dollars Can Be Counted under Multiple Socioeconomic Subcategories
paragraphs: Because agencies can count contracting dollars awarded to small  businesses under more than one socioeconomic subcategory, it can be  difficult to identify how many contract dollars firms received based on a  particular designation. Small businesses can qualify for contracts under  multiple socioeconomic programs. For example, if a HUBZone certified  firm was owned by a service-disabled veteran, it could qualify for  contracts set aside for HUBZone firms, as well as for contracts set aside  for service-disabled veteran-owned businesses. The contracting dollars  awarded to this firm would count toward both of these programs’  contracting goals.
We reviewed FPDS-NG data on contracts awarded to HUBZone firms in  fiscal year 2006. We found that approximately 45 percent of contracts  awarded to HUBZone firms were not set aside for any particular  socioeconomic program (see fig. 8). The next largest percentage, about 23  percent, were 8(a) sole-source contracts awarded to HUBZone firms that  also participated in SBA’s 8(a) business development program. These  firms did not have any competitors for the contracts awarded. HUBZone  set-aside contracts, or contracts for which only HUBZone firms can  compete, accounted for about 11 percent of the dollars awarded to  HUBZone firms.
This ability to count contracts toward multiple socioeconomic goals  makes it difficult to determine how HUBZone certification may have  played a role in winning a contract, especially when considering the  limited amount of contract dollars awarded to HUBZone firms relative to  the HUBZone goal. It can also make it more difficult to isolate the effect of  HUBZone program status on economic conditions in a community.
section_title: Conclusions
paragraphs: The map contained on the HUBZone Web site is the primary means of  disseminating HUBZone information. The map offers small businesses an  easy and readily accessible way of determining whether they can apply for  HUBZone certification. However, those positive attributes have been  undermined because the map reflects inaccurate and out-of-date  information. In particular, as of May 2008, SBA’s HUBZone map included  50 ineligible areas and excluded 27 eligible areas. As a result, ineligible  small businesses have been able to participate in the program, while  eligible businesses have not been able to participate. By working with its  contractors to eliminate inaccuracies and more frequently updating the  map, SBA will help ensure that only eligible firms have opportunities to  participate in the program.
Although SBA relies on federal law to identify HUBZone areas, statutory  changes over time have resulted in more areas being eligible for the  program. Specifically, revisions to the statutory definition of HUBZone  areas since 1999 have nearly doubled the number of areas and created  areas that can be characterized as less economically distressed than areas  designated under the original statutory criteria. While establishing new  HUBZone areas could provide economic benefits to these new areas, as  the program becomes less targeted and contracting dollars more  dispersed, the program could have less of an effect on individual HUBZone  areas. Such an expansion could diffuse the benefits that could be derived  by steering businesses to economically distressed areas. Given the  potential for erosion of the intended economic benefits of the program,  further assessment of the criteria used to determine eligible HUBZone  areas, in relation to overall program outcomes, may be warranted.
The mechanisms that SBA uses to certify and monitor firms provide  limited assurance that only eligible firms participate in the program. SBA  does not currently have guidance on precisely when HUBZone program  staff should request documentation from firms to support the information  reported on their application, and it verifies information reported by firms  at application or during recertification in limited instances. Also, SBA does  not follow its policy of recertifying all firms every 3 years. Further, SBA  lacks a formal policy on how quickly it needs to make a final  determination on decertifying firms that may no longer be eligible for the  program. From fiscal years 2004 through 2007, SBA failed to resolve  proposed decertifications within its informal goal of 60 days for more than  3,200 firms. More routinely obtaining supporting documentation upon  application and conducting more frequent site visits would represent a  more efficient and consistent use of SBA’s limited resources. It could help  ensure that firms applying for application are truly eligible, thereby  reducing the need to spend a substantial amount of resources during any  decertification process. In addition, an SBA effort to consistently follow its  current policy of recertifying firms every 3 years, and to formalize and  adhere to a specific time frame for decertifying firms, would help prevent  ineligible firms from obtaining HUBZone contracts.
By not evaluating the HUBZone program’s benefits, SBA lacks key  information that could help it better manage the program and inform  Congress of its results. SBA has some measures to assess program  performance, but they are not linked to the program’s mission and thus do  not measure the program’s effect on the communities in which HUBZone  firms are located. While SBA identified several strategies for assessing the  program’s effect and conducted limited surveys, it has not devoted  resources to conduct a comprehensive program evaluation of the  program’s effect on communities. We recognize the challenges associated  with evaluating the economic effect of the program, such as isolating the  role that HUBZone certification plays in obtaining federal contracts and  generating benefits for communities. Because contract dollars awarded to  firms in one small business program also could represent part of the  dollars awarded in other programs, contract dollars awarded to HUBZone  firms at best represent a broad indicator of program influence on a  community’s economic activity. In addition, the varying levels of economic  distress among HUBZone areas can further complicate such an evaluation.  Despite these challenges, completing an evaluation would offer several  benefits to the agency and the HUBZone program, including determining  how well it is working across various communities, especially those that  suffer most from economic distress. Such an evaluation is particularly  critical in light of the expansion in the number of HUBZone areas, the  potential for erosion of the intended economic benefits of the program  from such expansion, and the wide variation in the economic  characteristics of these areas.
section_title: Recommendations for Executive Action
paragraphs: To improve SBA’s administration and oversight of the HUBZone program,  we recommend that the Administrator of SBA take the following actions:    Take immediate steps to correct and update the map that is used to  identify HUBZone areas and implement procedures to ensure that the map  is updated with the most recently available data on a more frequent basis.
Develop and implement guidance to more routinely and consistently  obtain supporting documentation upon application and conduct more  frequent site visits, as appropriate, to ensure that firms applying for  certification are eligible.
Establish a specific time frame for eliminating the backlog of  recertifications and ensure that this goal is met, using either SBA or  contract staff, and take the necessary steps to ensure that recertifications  are completed in a more timely fashion in the future.
Formalize and adhere to a specific time frame for processing firms  proposed for decertification in the future.
Further develop measures and implement plans to assess the effectiveness  of the HUBZone program that take into account factors such as (1) the  economic characteristics of the HUBZone area and (2) contracts being  counted under multiple socioeconomic subcategories.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested SBA’s comments on a draft of this report, and the Associate  Administrator for Government Contracting, and Business Development  provided written comments that are presented in appendix II. SBA agreed  with our recommendations and outlined steps that it plans to take to  address each recommendation.
First, SBA stated that it recognizes the valid concerns we raised  concerning the HUBZone map and noted that efforts are under way to  improve the data and procedures used to produce this important tool.  Specifically, SBA plans to issue a new contract to administer the HUBZone  map and anticipates that the maps will be updated and available no later  than August 29, 2008. Further, SBA stated that, during the process of  issuing the new contract, the HUBZone program would issue new internal  procedures to ensure that the map is continually updated.
Second, SBA stated that it appreciates our concern about the need to  obtain supporting documents in a more consistent manner. In line with its  efforts to formalize HUBZone processes, the agency noted that it was  formulating procedures that would provide sharper guidance as to when  supporting documentation and site visits would be required. Specifically,  SBA plans to identify potential areas of concern during certification that  would mandate additional documentation and site visits.
Third, SBA noted that the HUBZone program had obtained additional staff  to work through the backlog of pending recertifications and stated that  this effort would be completed by September 30, 2008. Further, to ensure  that recertifications will be handled in a more timely manner, SBA stated  that the HUBZone program has made dedicated staffing changes and will  issue explicit changes to procedures.
Fourth, SBA stated that it is aware of the need to improve the  effectiveness and consistency of the decertification process. SBA noted  that it would issue new procedures to clarify and formalize the  decertification process and its timelines. Among other things, SBA stated  that the new decertification procedure would establish a 60-day deadline  to complete any proposed decertification.
Finally, SBA acknowledged that using HUBZone performance measures in  a more systematized way to evaluate the program’s effectiveness would be  beneficial and would provide important new information to improve and  focus the HUBZone program. Therefore, SBA stated that it would develop  an assessment tool to measure the economic benefits that accrue to areas  in the HUBZone program and that the HUBZone program would then issue  periodic reports accompanied by the underlying data.
We also provided copies of the draft report to Commerce, DOD, DHS, and  SSA. All four agencies responded that they had no comments.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Ranking Member,  House Committee on Small Business, other interested congressional  committees, and the Administrator of the Small Business Administration.  We will also make copies available to others upon request. In addition, the  report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To review the Small Business Administration’s (SBA) administration and  oversight of the HUBZone program, we examined (1) the criteria and  process that SBA uses to identify and map HUBZone areas and the  economic characteristics of such areas; (2) the mechanisms that SBA uses  to ensure that only eligible small businesses participate in the HUBZone  program; and (3) the actions SBA has taken to assess the results of the  program and the extent to which federal agencies have met their HUBZone  contracting goals.
To identify the criteria that SBA uses to identify HUBZone areas, we  reviewed applicable statutes, regulations, and agency documents. Because  the HUBZone program also uses statutory definitions from the Department  of Housing and Urban Development’s (HUD) low-income-housing tax  credit program, we reviewed the statutes and regulations underlying the  definitions of a qualified census tract and difficult development area. To  determine the process that SBA uses to identify HUBZone areas, we  interviewed SBA officials and the contractor that developed and maintains  the HUBZone map on SBA’s Web site. We also reviewed the policies and  procedures the contractor follows when mapping HUBZone areas. Using  historical data provided by SBA’s mapping contractor, we determined how  the number of HUBZone areas has changed over time. We also used these  historical data to determine if SBA had complied with its policy of asking  the contractor to update the map every time the HUBZone area definition  changed or new data used to designate HUBZone areas (for example,  HUD’s lists of difficult development areas and unemployment data from  the Bureau of Labor Statistics or BLS) became available. To assess the  accuracy of the current HUBZone map, we compared the difficult  development areas on the map with the statutory definition of a difficult  development area. We also compared HUD’s 2008 list of qualified census  tracts to the areas designated on the map and analyzed 2007  unemployment data from BLS (the most recent available) to determine if  all of the nonmetropolitan counties that met the HUBZone eligibility  criteria were on the map.
Once we identified the current HUBZone areas, we used 2000 census data  (the most complete data set available) to examine the economic  characteristics of these areas. The 2000 census data are sample estimates  and are, therefore, subject to sampling error. To test the impact of these  errors on the classification of HUBZone areas, we simulated the potential  results by allowing the estimated value to change within the sampling  error distribution of the estimate and then reclassified the results. As a  result of these simulations, we determined that the sampling error of the  estimates had no material impact on our findings. For metropolitan and  nonmetropolitan-qualified census tracts, nonmetropolitan counties, and  difficult development areas in the 50 states and District of Columbia, we  looked at common indicators of economic distress—poverty rate,  unemployment rate, median household income, and median housing  value. In measuring median household income and median housing value,  we compared each HUBZone with the metropolitan area (for  metropolitan-qualified census tracts) in which it was located or with the  state nonmetropolitan area (for nonmetropolitan-qualified census tracts,  nonmetropolitan counties, and difficult development areas) to put the  values into perspective. We limited our analysis of Indian Country to  poverty and unemployment rates because Indian lands vary in nature;  therefore, no one unit of comparison worked for all areas when reporting  median housing income and median housing value. We could not examine  the economic characteristics of base closure areas because they do not  coincide with areas for which census data are collected.
To further examine the economic characteristics of qualified HUBZone  areas, we analyzed the effect of hypothetical changes to the economic  criteria used to designate qualified census tracts and nonmetropolitan  counties. (We report the results of this analysis in app. III.) First, we  adjusted the economic criteria used to designate qualified census tracts:  (1) a poverty rate of at least 25 percent or (2) 50 percent or more of the  households with incomes below 60 percent of each area’s median gross  income. Second, we adjusted the criteria used to designate  nonmetropolitan counties: (1) a median household income of less than 80  percent of the median household income for the state nonmetropolitan  area or (2) an unemployment rate not less than 140 percent of the state or  national unemployment rate (whichever is lower). In both cases, we made  the criteria more stringent as well as less stringent. We assessed the  reliability of the census and BLS data we used to determine the economic  characteristics of HUBZone areas by reviewing information about the data  and performing electronic data testing to detect errors in completeness  and reasonableness. We determined that the data were sufficiently reliable  for the purposes of this report.
To determine how SBA ensures that only eligible small businesses  participate in the HUBZone program, we reviewed policies and procedures  established by SBA for certifying and monitoring HUBZone firms and  internal control standards for federal agencies. We also interviewed SBA  headquarters and field officials regarding the steps they take to certify and  monitor HUBZone firms. We then assessed the actions that SBA takes to  help ensure that only eligible firms participate against its policies and  procedures and selected internal controls. In examining such compliance,  we analyzed data downloaded from the HUBZone Certification Tracking  System (the information system used to manage the HUBZone program) as  of January 22, 2008, to determine the extent of SBA monitoring.  Specifically, we analyzed the data to determine (1) the number of  applications submitted in fiscal years 2000 through 2007 and their  resolution; (2) the number of recertifications that SBA performed in fiscal  years 2005 through 2007 and their results; (3) the number of  recertifications conducted of HUBZone firms based on the number of  years firms had been in the program; (4) the number of program  examinations that SBA performed in fiscal years 2004 through 2007 and  their results; (5) the number of program examinations conducted of  HUBZone firms based on the number of years firms had been in the  program; and (6) the number of firms proposed for decertification in fiscal  years 2004 through 2007. We also analyzed Federal Procurement Data  System-Next Generation (FPDS-NG) data to determine the extent to which  firms that had been proposed for decertification or had actually been  decertified had obtained federal contracts.
Because the HUBZone Certification Tracking System does not readily  provide information on the extent to which SBA requests documentation  from firms or conducts site visits during certification and monitoring, we  conducted reviews of all 125 applications, 15 recertifications, and 11  program examinations begun in September 2007 and completed by  January 22, 2008 (the date of the data set). For applications, we selected  those that were logged into the system in September 2007. For  recertifications and program examinations, we selected those cases where  the firm had acknowledged receipt of the notice that they had been  selected for review in September 2007; we chose September 2007 because  most of the cases had been processed by January 22, 2008. Further, we  analyzed (1) FPDS-NG data for fiscal year 2006 (the most recent year  available at the time of our analysis) and (2) Dynamic Small Business  Source System (DSBSS) data as of December 12, 2007, to identify select  characteristics of businesses that participated in the program. DSBSS  contains information on firms that have registered in the Central  Contractor Registration system (a database that contains information on  all potential federal contractors) as small businesses. We assessed the  reliability of the HUBZone Certification Tracking System, FPDS-NG, and  DSBSS data we used by reviewing information about the data and  performing electronic data testing to detect errors in completeness and  reasonableness. We determined that the data were sufficiently reliable for  the purposes of this report.
To determine the measures that SBA has in place to assess the results of  the HUBZone program, we reviewed SBA’s performance reports and other  agency documents. We then compared SBA’s performance measures for  the HUBZone program to our guidance on the attributes of effective  performance measures. To determine the extent to which federal agencies  have met their contracting goals, we (1) analyzed data from FPDS-NG and  (2) reviewed SBA reports on agency contracting goals and  accomplishments, such as federal contracting dollars awarded by agency  for the various small business programs, for fiscal years 2003 through  2006. We also reviewed Federal Acquisition Regulation and SBA guidance  and other relevant documentation. In addition, we interviewed small  business and contracting officials at a nongeneralizable sample of agencies  (the Departments of Commerce, Defense, Homeland Security and the  Social Security Administration) to determine what factors affect federal  agencies’ ability to meet HUBZone contracting goals. We selected  agencies that received a range of scores as reported in SBA’s fiscal year  2006 Small Business Procurement Scorecard and awarded varying  amounts of contracts to HUBZone firms.
To explore benefits that the program may have generated for selected  firms and communities, we visited a nongeneralizable sample of four  HUBZone areas: Lawton, Oklahoma; Lowndes County, Georgia; and Long  Beach and Los Angeles, California. In selecting these areas, we considered  geographic dispersion, the type of HUBZone area, and the dollar amount  of contracts awarded to HUBZone firms. During each site visit, we  interviewed officials from the SBA district office, the Chamber of  Commerce, a small business development center, and certified HUBZone  firms, with the exception of the city of Long Beach, where we did not meet  with the Chamber of Commerce.
We conducted this performance audit from August 2007 to June 2008 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.
section_title: Appendix II: Comments from the Small Business Administration
section_title: Appendix III: Economic Characteristics of HUBZone Areas
paragraphs: In this appendix, we provide information on the economic characteristics  of three types of HUBZone areas: (1) qualified census tracts, which have  50 percent or more of their households with incomes below 60 percent of  the area median gross income or have a poverty rate of at least 25 percent  and cannot contain more than 20 percent of the area population; (2)  qualified Indian reservations, which include lands covered by a federal  statutory definition of “Indian Country;” and (3) qualified nonmetropolitan  counties, or those having a median household income of less than 80  percent of the median household income for the state nonmetropolitan  area or an unemployment rate that is not less than 140 percent of the state  average unemployment rate or the national average unemployment rate  (whichever is lower). Other types of HUBZone areas are base closure  areas and difficult development areas.
First, we report economic data for those HUBZone areas that are  nonmetropolitan-qualified census tracts and Indian Country areas.  Second, to further illustrate the economic diversity among qualified  HUBZone areas, we provide data on the effect of hypothetical changes to  the economic criteria used to designate metropolitan-qualified census  tracts and nonmetropolitan counties.
Based on poverty rates, nonmetropolitan-qualified census tracts appear to  be as economically distressed as metropolitan-qualified census tracts.  About 99 percent of nonmetropolitan census tracts (excluding  redesignated areas, which no longer meet the economic criteria but by  statute remain eligible until after the release of the 2010 decennial census  data) had a poverty rate of 20 percent or more (see fig. 9). Similarly, about  93 percent of metropolitan census tracts (excluding redesignated areas)  met this criterion. However, there are some differences between the  economic characteristics of nonmetropolitan- and metropolitan-qualified  census tracts. For example, 402 of the 1,272 nonmetropolitan census tracts  (about 32 percent) had housing values that were less than 60 percent of  the area median housing value, while 57 percent of metropolitan census  tracts had housing values that met this criterion.
Overall, we found that qualified Indian Country areas tend to be  economically distressed (see fig. 10). For example, 310 of the 651 Indian  Country areas (about 48 percent) had poverty rates of 20 percent or more.  In addition, Indian Country areas had much higher rates of unemployment  than any other type of HUBZone area. For example, 160 Indian Country  areas (about 25 percent) had unemployment rates of 20 percent or more.  In contrast, metropolitan census tracts and nonmetropolitan counties  (excluding redesignated areas) had unemployment rates that met this  same criterion of about 18 percent and just less than 2 percent,  respectively.
As discussed above, qualified HUBZone areas are economically diverse;  therefore, adjustments to the qualifying criteria could affect the number  and type of eligible areas. Qualified census tracts must meet at least one of  two economic criteria: (1) have a poverty rate of at least 25 percent or (2)  be an area in which 50 percent or more of the households have incomes  below 60 percent of the area’s median gross income. By using a poverty  rate of 10 percent or more for metropolitan census tracts, however, 14,258  additional metropolitan census tracts could be eligible for the program (an  increase of about 143 percent), depending on whether they met the other  eligibility requirements (see table 7). In contrast, by using a poverty rate of  40 percent or more for metropolitan census tracts, the number of  metropolitan census tracts (those tracts that currently meet eligibility  criteria and those that are redesignated) could decrease from 9,959 to  2,270 (a decrease of about 77 percent).
Qualified nonmetropolitan counties are also determined by two economic  criteria: (1) a median household income of less than 80 percent of the  median household income for the state nonmetropolitan area or (2) an  unemployment rate not less than 140 percent of the state or national  unemployment rate (whichever is lower). By using a county median  household income of less than 90 percent of the median household income  for the state nonmetropolitan area, 29 additional nonmetropolitan counties  could be eligible for the program (see table 8). By using a county median  household income of less than 70 percent of the median household income  for the state nonmetropolitan area, the number of eligible HUBZone- qualified nonmetropolitan counties could decrease from 1,162 to 43 (about  96 percent).
section_title: Appendix IV: Characteristics of HUBZone Firms as of 2007
paragraphs: To examine the characteristics of HUBZone firms, we analyzed data from  SBA’s Dynamic Small Business Source System (DSBSS) as of December  12, 2007. DSBSS contains information on firms that have registered as  small businesses in the Central Contractor Registration system (a database  that contains information on all potential federal contractors). With the  exception of information on the firms’ HUBZone, 8(a), and Small  Disadvantaged Business certifications, the data in the system are self- reported. We found that HUBZone firms vary in size, ownership, types of  services and products provided, and additional small business  designations leveraged. Specifically, our analysis showed the following:    The size of HUBZone firms varies. We chose two measures to describe the  size of HUBZone firms—number of employees and average gross revenue.  The average number of staff at HUBZone firms was 24. However, half of  HUBZone firms had 6 or fewer employees. The average gross revenue for  HUBZone firms was almost $3.5 million per year. However, half of  HUBZone firms earned $600,000 or less annually.
Ownership status is diverse. Approximately 30 percent of HUBZone firm  owners were women, while 37 percent were minorities. Table 9 breaks out  the owners of HUBZone firms based on race and ethnicity.
HUBZone firms operate in a variety of industries as defined by North  American Industry Classification System (NAICS) codes, and many  operate in multiple industries. Table 10 lists the top 10 industries in which  HUBZone firms operated and the number of HUBZone firms that provided  a service or product related to that industry.
HUBZone firms often have other small business designations. Although the  majority of HUBZone firms had only the HUBZone designation, 32 percent  had one additional designation, which was most often the service-disabled,  veteran-owned designation. Table 11 shows the extent to which HUBZone  firms had other small business designations.
section_title: Appendix V: Details of Site Visits to HUBZone Areas
paragraphs: We conducted site visits to four HUBZone areas—Lawton, Oklahoma;  Lowndes County, Georgia; and Long Beach and Los Angeles, California— to better understand to what extent benefits have been generated by the  HUBZone program. These four areas represent various types of HUBZone  areas (see table 12), and we found that the perceived benefits of the  HUBZone program varied across these locations. The majority of the  individuals we interviewed indicated that their firms had received some  benefit from HUBZone certification. In most cases, they cited as a benefit  the ability to compete for and win contracts, which in some cases had  allowed firms to expand or become more competitive. However,  representatives of a few firms indicated they had not been able to win any  contracts through the program, which made it difficult to realize any  benefits. We also asked local economic development and Chamber of  Commerce officials if they were familiar with the HUBZone program. We  found varying levels of familiarity with the program, and some officials  representing economic development entities stated they lacked  information on the program’s effect that could help them inform small  businesses of its potential benefits.
Various representatives of HUBZone firms with whom we spoke stated  that the HUBZone program provided advantages. The majority of  representatives of HUBZone firms we interviewed stated that HUBZone  certification had provided them with an additional opportunity to bid on  federally funded contracts. Additionally, some of the business owners we  interviewed who had received contracts stated that winning contracts  through the HUBZone program had allowed their firm to grow (for  example, to hire employees or expand operations). Representatives from  two HUBZone firms located in Lawton, Oklahoma, that had received  contracts through their HUBZone certification stated that the primary  benefits associated with their HUBZone certification had been winning  contracts that allowed them to hire additional employees and continue to  build a reputation for their firms, which in turn had placed them in a better  position to compete for additional contracts. Representatives of a  HUBZone firm located in Valdosta, Georgia, stated that they had utilized  the HUBZone program to obtain more contracts for their construction  firm. They added that the program had allowed their firm to enter the  federal government contracting arena, which provided additional  opportunities aside from private-sector construction contracts.  Representatives from three HUBZone firms in Los Angeles stated that they  had won contracts through the program and had been able to build a  stronger reputation for their firms by completing those contracts.  Representatives of two of these firms also stated that the contracts they  won through the program had helped their firms to grow and hire  additional employees. For example, representatives from one HUBZone  firm we interviewed stated that the firm had hired 10 to 15 full-time  employees partly as a result of obtaining HUBZone contracts.
However, representatives of some HUBZone firms stated that the program  has not generated any particular benefits for their firm. For example,  representatives of two HUBZone firms in Lawton, Oklahoma, and one  HUBZone firm in Valdosta, Georgia, stated that their HUBZone  certification had resulted in no contracts or not enough contracts to  provide opportunities to “grow” their firm. They noted that the HUBZone  certification alone was not sufficient when competing for federally funded  contracts, particularly because—based on their experience—few  contracts were set aside for HUBZone firms. Our interviewees indicated  that they planned to stay in the program but were unlikely to see any  benefits unless additional contracts were set aside for HUBZone firms. A  representative from one HUBZone firm located in Long Beach, California,  stated that her HUBZone firm had not been awarded any contracts directly  through the program, but because of the firm’s HUBZone status, it had  been able to perform work as a subcontractor on contracts that had  HUBZone subcontracting goals. However, her firm had not grown or  expanded employment through the program.
We also found that, while some local economic development and Chamber  of Commerce officials with whom we spoke were familiar with the  HUBZone program, others were not. For example, in Lawton, Oklahoma,  local economic development and Chamber of Commerce officials were  familiar with the program and its requirements, largely because the city of  Lawton has been designated a HUBZone area. In Valdosta, Georgia,  Chamber of Commerce officials and officials from various economic  development authorities were not familiar with the program and its  requirements, but the small business development center official we  interviewed was familiar with the program. In Long Beach and Los  Angeles, California, most of the small business development center and  economic development officials with whom we met also were relatively  unfamiliar with the program, its goals, and how small businesses could use  the program. Finally, officials representing economic development entities  in Lowndes County, Georgia, and Los Angeles, California, stated that they  lacked information on the program’s impact that could help them inform  small businesses of its potential benefits.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Paige Smith (Assistant Director),  Triana Bash, Tania Calhoun, Bruce Causseaux, Alison Gerry, Cindy  Gilbert, Julia Kennon, Terence Lam, Tarek Mahmassani, John Mingus,  Marc Molino, Barbara Roesmann, and Bill Woods made key contributions  to this report.