News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release                                                                               CONTACT:  Press Office
July 17, 2008                                                                                                                 (202) 226-3636

Fraud Rampant in Billion Dollar Contracting Program

Click here to view witness testimony.
Click here to view video of the hearing.

WASHINGTON, D.C. —  The Government Accountability Office (GAO) today released an extensive review of the Historically Underutilized Business Zone (HUBZone) program. Their findings point to extensive fraud in the eight-billion dollar initiative. “You have to wonder about a system that lets individuals self-qualify for a program of this size.  It doesn’t take a genius to recognize the incredible potential for malfeasance.”  That’s what Chairwoman Nydia M. Velázquez (D-NY) said after hearing GAO’s testimony before the House Committee on Small Business. 

The HUBZone initiative is meant to help disadvantaged communities by granting preferential contracts to small businesses in specific areas of the country.  GAO’s lead investigators told the Congressional panel they had found countless instances of abuse by non-qualifying firms.  Members also heard from representatives of the Bush Administration—which has spoken out against stronger accountability in the HUBZone application and certification process.

“Small businesses deserve a fair share of the federal marketplace, but fraudulent HUBZone applicants are shutting out firms that play by the rules,” said Chairwoman Velázquez. “Last year, we passed robust legislation to end these violations, but the Senate has yet to act on our bill and President Bush opposed it aggressively.”

H.R. 3867, the Small Business Contracting Program Improvements Act, calls for on-site visits and other proven means of confirming compliance with HUBZone guidelines.  GAO found the Small Business Administration (SBA)—which is charged with managing the HUBZone program—is doing almost nothing to verify the information of applicants.  Investigators also said they had extensive evidence of individuals who misrepresent the locations of their companies, knowing the agency will not question them about their applications. 

“It’s tougher to get a library card than it is to get into the HUBZone program. All you need is a bit of Wite-out.  It’s absolutely shameful,” said Chairwoman Velázquez.

The GAO reviews unveiled at today’s hearing, were requested by the Committee late last year.  They offer a full audit of the HUBZone program and delve into ten randomly-selected firms in the DC metropolitan area.  Many of these companies had set up “virtual offices” or rented mailboxes in poor communities with the sole purpose of gaining a mailing address within HUBZone boundaries.  All ten failed GAO’s site inspections, and have been referred to the Inspector General for corrective action.  Investigators also set up four bogus firms to test SBA’s application process.  One of the businesses was listed as occupying a local Starbucks; another a major sports arena.  Others simply had P.O. Box addresses.  Each time, the applications were certified as HUBZone eligible by the SBA—with little or no questions asked.

“It’s time the Bush Administration stops pretending fraud isn’t rampant in this program. The American people know better,” said Chairwoman Velázquez.  “The problems with the HUBZone initiative must be fixed immediately. Tax-payers, and the small businesses that drive our economy, deserve no less.”

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