The purpose of the HUBZone program, which was established by the HUBZone Act of 1997, is 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 nonmetropolitan counties. Qualified nonmetropolitan counties are those that, based on 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. 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. These 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 four 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. More than 4,200 HUBZone firms obtained approximately $8.1 billion in federal contracts in fiscal year 2007. The annual federal contracting goal for HUBZone small businesses is 3 percent of all prime contract awards—contracts that are awarded directly by an agency. Our June 2008 report found that a series of statutory changes have resulted in an increase in the number and types of HUBZone areas. These changes could diffuse (or limit) the economic benefits of the program. Further, while SBA relies on federal law to identify qualified HUBZone areas, its HUBZone map is inaccurate. In recent years, amendments to the HUBZone Act and other statutes have increased the number and types 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. However, subsequent legislation revised the definitions of the original categories and expanded the HUBZone definition to include new types of qualified areas (see fig. 1). Subsequent to the various statutory changes, the number of HUBZone areas grew from 7,895 in calendar year 1999 to 14,364 in 2006. 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. 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, a 2000 statute amended the HUBZone area definition to allow census tracts or nonmetroplitan counties that ceased to be qualified to remain qualified for a further 3-year period as “redesignated areas.” A 2004 statute permitted these same areas to remain qualified until the release date of the 2010 census data. Further, in 2005, Congress expanded the definition of a qualified nonmetropolitan county to include difficult development areas outside the continental U.S.—areas with high construction, land, and utility costs relative to area income—and such counties could include areas 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 initially designated. HUBZone program officials stated that the expansion can diffuse the impact or potential impact of the program on existing 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, such an expansion could result in less targeting of areas of greatest economic distress. SBA program staff employ no discretion in identifying HUBZone areas because they are defined by federal statute; however, they have not always designated these areas correctly on their Web map. To identify and map HUBZone areas, SBA relies on a mapping contractor and data from other executive agencies (see fig. 2). 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. 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 criterion for inclusion as a HUBZone area. As a result of these errors, ineligible firms have obtained HUBZone certification and received federal contracts. As of December 2007, 344 certified HUBZone firms were 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 the Bureau of Labor Statistics (BLS) have become available. Although SBA officials told us that they have been 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, allowing qualified firms in these areas to participate in the program. 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. In our June 2008 report, we recommended that SBA take immediate steps to correct and update the map and implement procedures to ensure that it is updated with the most recently available data on a more frequent basis. In response to our recommendation, SBA indicated that it 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 updated continually. Our June 2008 report also found that 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. While internal control standards for federal agencies state that agencies should document and verify information that they collect on their programs, SBA obtains supporting documentation from firms in limited instances. In addition, SBA does not follow its own policy of recertifying all firms every 3 years, and has not met its informal goal of 60 days for removing firms deemed ineligible from its list of certified firms. Firms apply for HUBZone certification using an online application system, which according to HUBZone program officials 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 then 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.