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GAO says there’s fraud in Small Business Administration program

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.

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