The hearing entitled, "Oversight of the Small Business Administration and its Programs," was held after the Government Accountability Office reported for the second time in less than a year that ineligible firms are taking advantage of the HUBZone program. GAO found (GAO-09-440) that 19 ineligible firms had received $30 million through the HUBZone program in Fiscal 2006 and 2007. To qualify for the program, firms must be located in an economically distressed region and at least 35 percent of their full-time employees must live within the zone.

GAO reviewed 36 contracts in four regions with a high concentration of large HUBZone awards: Dallas; Huntsville, Ala.; San Antonio; and San Diego. The investigation, conducted between September 2008 and March 2009, found problems in each area. Many of the firms examined by GAO subcontracted the majority of the work to companies that were not participating in the program. HUBZone regulations require businesses to spend at least half of a contract's personnel allowance on their own employees. "When a firm subcontracts the majority of its work to other non-HUBZone firms, it is undermining the HUBZone program's stated purpose of stimulating development in economically distressed areas," the report stated.

Chair Velázquez (D-NY) directed the SBA to either overhaul the program or to do away with the program completely stating, "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." Committee Members noted that the new contracts generated by the stimulus bill make it all the more important that contacting fraud be addressed. According to Chair Velazquez, the HUBZone program could see $3 billion in additional contracts from stimulus bill. The Committee also addressed the need for enforcement, deciding that the best way to deter future fraud is to refer cases to the Justice Department for criminal prosecution.

SBA Acting Administrator, Darryl Hairston, stated that companies can get into the program with very little documentation of residency and that SBA is attempting to remedy this by beginning to collect supporting documents from all firms seeking new HUBZone certification or permission to remain in the program. Hairston also noted before any action can be taken against any companies, the SBA must complete the program examinations, propose the firms for decertification, and allow them an opportunity to respond.

To view the hearing, click here.