The Small Business Administration’s (SBA) Historically Underutilized Business Zone (HUBZone) program provides federal contracting assistance to small firms located in economically distressed areas. In a June 2008 study the Government Accountability Office (GAO) said that the HUBZone program was vulnerable to fraud and abuse.
Now, in a March 2009 report, the GAO says that it has discovered fraud in the HUBZone programs in Dallas, Texas; Huntsville, Alabama; San Antonio, Texas; and San Diego, California.
The report says that HUBZone awards have been made to firms that did not qualify. Some firms are not in economically disadvantaged areas; some HUBZone awardees have subcontracted large portions of HUBZone work to non-HUBZone firms, thereby failing to meet the program requirement that at least 50 percent of the personnel costs of a contract be expended on its own employees.
The June 2008 report said that in fiscal year 2007 federal agencies awarded contracts valued at about $8 billion to HUBZone firms. There are more than 14,000 HUBZone areas, and, as of February 2008, almost 13,000 firms participated in the program. Congress has set a goal for federal agencies to award 3 percent of their annual contracting dollars to qualifying firms located in HUBZones.