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HUBZone Program Under Fire

Mark Marich

PDE staff were on hand yesterday at the House Small Business Committee hearing on oversight of the Small Business Administration and its programs. Not surprisingly, recent reports of fraud in the HUBZones program dominated discussion. Our report of the hearing follows:

The future of the HUBZone program remains unknown, after a heated hearing today in the U.S. House of Representatives Small Business Committee. A decision will be made at a subsequent hearing, scheduled for next week.

The HUBZone (Historically Underutilized Business Zone) program provides federal contracting assistance to small firms located in economically distressed areas, with the intent of stimulating economic development among small businesses owners and entrepreneurs.

At a similar hearing last July, the Government Accountability Office (GAO) presented a study of the HUBZone program in D.C. showing that many recipients were guilty of falsifying documents, and were in fact not eligible for the program. The GAO offered several recommendations to the Small Business Agency (SBA) on ways to fix the program, which SBA leaders agreed to implement.

However, the hearing today showed that such action has not been taken, as GAO detailed in a subsequent, nationwide audit and investigation of the program.

Committee Chairwoman Nydia Velazquez (D-NY) said this lack of response is unacceptable.

“Eight months after our first HUBZone hearing SBA still has no control over the initiative,” Velazquez said. “As a result, tens of millions of dollars in HUBZone contracts have gone to unqualified businesses. That includes $27 million that went to businesses GAO had already identified as ineligible in its July report. Because SBA failed to act, those companies continued to receive contracts that were never rightfully theirs.”

Darryl Hairston, acting administrator of SBA, said he fully realizes the lack of effective oversight and implementation within the program. However, he is concerned that rushing into new policies and procedures may be inefficient, and in the end waste more taxpayer money.

Gregory Kutz, managing director of forensics audits and special investigations at GAO, said the most powerful oversight tool SBA can exercise is conducting unannounced visits—something SBA was told last July. Indeed, it is through surprise visits that GAO uncovered 19 fraudulent cases in the last few months. However, since the last hearing SBA has only initiated seven visits.

Other recommendations made by GAO last July have also not been implemented.

Committee member Mike Thompson (D-CA) said he is committed to keeping the HUBZone program in place, crediting the many positive ways it has helped small business owners and entrepreneurs around the country. To make this possible, Thompson suggested providing more funding for oversight implementation, and instituting harsher punishments for offenders.

Kutz agreed that one of the fatal flaws of the current program is a feeling that offenders will not face consequences. Indeed, several of the offenders GAO uncovered are receiving funding to this day.

Velazquez showed little sympathy for the excuses offered by Hairston, criticizing both his management of SBA and his lack of preparation for today’s hearing.

“This committee is no longer going to tolerate the excuse ‘we’re working on it,’ while hardworking small businesses who have played by the rules are being cheated out of opportunities,” she said. “You have a decision to make: whether or not you are committed to this program. And then the committee has a decision to make: whether they want to continue the program.”

Those decisions are scheduled to be made next week.

[Reported by Paige Ingram] 

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