Senate bill takes aim at HUBZone fraud

A new bill in the Senate attempts to clamp down on contractor fraud by giving the Small Business Administration more control over its program for companies in economically depressed areas.

The HUBZone Improvement Act, introduced Feb. 23, addresses the Government Accountability Office’s recommendations on improving how SBA manages and oversees the Historically Underutilized Business Zone (HUBZone) program.

The program assists small companies in depressed regions with contracting assistance by setting aside contracts especially for those businesses. HUBZones are often inner cities and rural counties that suffer from low household incomes, high unemployment rates and a lack of investment.

The legislation would require SBA officials to establish policies to police fraud and ensure that only eligible companies are certified for the set-aside program. Senators say that the bill comes as GAO released several reports in the last two years that criticize SBA’s oversight of the HUBZone program.

GAO found SBA did a poor job of certifying and monitoring companies applying for the program. In one report, GAO stated that “SBA’s control weaknesses exposed the government to fraud and abuse.” GAO officials were concerned that SBA had no proper means to adequately assess program results, according to the report.

Posing as a HUBZone small business, GAO was certified to join the program after it used fictitious employee information and fabricated documents. For example, GAO submitted its application for the set-aside status using the same address as a Starbucks coffee store.

“While the SBA has taken several critical steps to reduce fraud within this critical program, the GAO reports underscore that further improvements are necessary if the agency is to eliminate mismanagement and abuse,” said Sen. Olympia Snowe (R-Maine), ranking member of the Small Business and Entrepreneurship Committee. Snowe introduced the bill, which is similar to a version she offered in 2008. That legislation didn't pass.

The new legislation mandates several new ways to manage the program. It would require SBA officials to ensure that small businesses are employing the appropriate percentage of local residents and to find ways to assess the overall usefulness of the HUBZone program.

The bill would have SBA continually revising the HUBZone map as new data is made available.

SBA officials also would have to notify congressional small business committees of any backlogs in applications or recertifications with plans and timetables for eliminating the backlog, according to the bill. In 2008, SBA officials had to hire more employees to meet the backlog of more than 4,000 business recertifications.

“By providing needed oversight, this bill ensures that federal contracting dollars are spent wisely on the small businesses that need help and have the greatest potential to grow our nation’s most economically distressed areas,” said Sen. Mary Landrieu (D-La.), chairwoman of the small business committee.