Small Business Administration:

Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program Results

GAO-08-643: Published: Jun 17, 2008. Publicly Released: Jul 16, 2008.

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The Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) program provides federal contracting assistance to small firms located in economically distressed areas, with the intent of stimulating economic development. Questions have been raised about whether the program is targeting the locations and businesses that Congress intended to assist. GAO was asked to examine (1) the criteria and process that SBA uses to identify and map HUBZone areas and the economic characteristics of such areas, (2) the mechanisms SBA uses to ensure that only eligible small businesses participate in the program, and (3) the actions SBA has taken to assess the results of the program and the extent to which federal agencies have met their HUBZone contracting goals. To address these objectives, GAO analyzed statutory provisions, as well as SBA, census, and contracting data, and interviewed SBA and other federal and local officials.

SBA relies on federal law to identify qualified HUBZone areas based on provisions such as median income in census tracts, but the map it uses to publicize HUBZone areas is inaccurate, and the economic characteristics of designated areas vary widely. To help firms determine if they are located in a HUBZone area, SBA publishes a map on its Web site. However, the map contains areas that are not eligible for the program and excludes some eligible areas. As a result, ineligible small businesses have been able to participate in the program, and eligible businesses have not been able to participate. Revisions to the statutory definition of HUBZone areas (such as allowing continued inclusion of areas that ceased to be qualified) have nearly doubled the number of areas and created areas that are less economically distressed than areas designated under the original criteria. Such an expansion could diffuse the benefits to be derived from steering businesses to economically distressed areas. The mechanisms that SBA uses to certify and monitor firms provide limited assurance that only eligible firms participate in the program. Although internal control standards state that agencies should verify information they collect, SBA verifies the information reported by firms on their application or during recertification--its process for monitoring firms--in limited instances and does not follow its own policy of recertifying all firms every 3 years. GAO found that more than 4,600 firms that had been in the program for at least 3 years went unmonitored. Further, SBA lacks a formal policy on how quickly it needs to make a final determination on decertifying firms that may no longer be eligible for the program. Of the more than 3,600 firms proposed for decertification in fiscal years 2006 and 2007, more than 1,400 were not processed within 60 days--SBA's unwritten target. As a result of these weaknesses, there is an increased risk that ineligible firms have participated in the program and had opportunities to receive federal contracts based on their HUBZone certification. SBA has taken limited steps to assess the effectiveness of the HUBZone program, and from 2003 to 2006 federal agencies did not meet the government-wide contracting goal for the HUBZone program. While SBA has some measures to assess the results of the HUBZone program, they are not directly linked to the program's mission, and the agency has not implemented its plans to conduct an evaluation of the program based on variables tied to the program's goals. Consequently, SBA lacks key information to manage the program and assess performance. Contracting dollars awarded to HUBZone firms increased from fiscal year 2003 to 2006, but consistently fell short of the government-wide goal of awarding 3 percent of annual contracting dollars to HUBZone firms. According to contracting officials GAO interviewed, factors such as conflicting guidance on how to consider the various small business programs when awarding contracts and a lack of HUBZone firms in certain industries may have affected the ability of federal agencies to meet their HUBZone goals.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: SBA issued a procedural notice, effective December 2008, that established a timeline for processing firms for HUBZone decertification. It stated that the entire decertification process from proposed decertification to final decertification should occur within 60 calendar days of the initial notification of the proposed decertification. Our review of decertification processing times in fiscal years 2010 and 2011 showed that SBA adhered to this time in the majority of cases.

    Recommendation: To improve SBA's administration and oversight of the HUBZone program, the Administrator of SBA should formalize and adhere to a specific time frame for processing firms proposed for decertification in the future.

    Agency Affected: Small Business Administration

  2. Status: Closed - Implemented

    Comments: SBA stated that it had eliminated the initial backlog of recertifications by September 2008. As of July 2012, it was using contractor staff to perform recertifications, but the HUBZone office had just received authority to hire 10 full-time equivalent staff to replace the contractor's staff, according to SBA . In addition, SBA provided data in July 2012 showing that the majority of the 836 HUBZone firms requiring recertification in 2011 had either been recertified or decertified .

    Recommendation: To improve SBA's administration and oversight of the HUBZone program, the Administrator of SBA should establish a specific time frame for eliminating the backlog of recertifications and ensure that this goal is met, using either SBA or contract staff, and take the necessary steps to ensure that recertifications are completed in a more timely fashion in the future.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Comments: In March 2010, SBA issued a guide for analysts to use when reviewing applications to ensure that they consistently request supporting documentation from each new applicant. In August 2012, it provided guidance showing that documentation required at application included business tax returns, proof of U.S. citizenship for owners, the lease or deed for the principal office, payroll records, and proof of residence for HUBZone residents. In addition to requesting supporting documentation from each applicant, SBA has conducted more frequent site visits of firms. Specifically, in 2009, 2010, and 2011, SBA conducted site visits of 911, 1,142, and 988 firms, respectively.

    Recommendation: To improve SBA's administration and oversight of the HUBZone program, the Administrator of SBA should develop and implement guidance to more routinely and consistently obtain supporting documentation upon application and conduct more frequent site visits, as appropriate, to ensure that firms applying for certification are eligible.

    Agency Affected: Small Business Administration

  4. Status: Closed - Implemented

    Comments: SBA stated that it modified its contract with its mapping vendor to enable more frequent updating of the HUBZone map. According to SBA, the first significant update of the map was completed in September 2008. After considering a change of contractors for a June 2010 upgrade of the map, SBA continues to use its original mapping vendor to update the map. Its most recent statement of work with that contractor requires the contractor to update the map annually. SBA officials stated that the accuracy of the map is checked multiple times after each upgrade. First, the mapping vendor tests the quality of the map before it is provided to SBA. Second, an SBA employee uses Maptitude to check the accuracy of approximately 1,000 HUBZone firm addresses each time the map is updated. In the few instances in which SBA has identified problems with the addresses, it sends those addresses to HUD?s Geocode Service Center to conduct further tests and works with the contractor to correct any discrepancies.

    Recommendation: To improve SBA's administration and oversight of the HUBZone program, the Administrator of SBA should take immediate steps to correct and update the map that is used to identify HUBZone areas and implement procedures to ensure that the map is updated with the most recently available data on a more frequent basis.

    Agency Affected: Small Business Administration

  5. Status: Closed - Not Implemented

    Comments: SBA has not begun to assess the effectiveness of the HUBZone program. In August 2008, SBA issued a notice of methodology in the Federal Register for measuring the impact of the HUBZone program. However, the proposed methodology was not well developed. For example, it did not incorporate expert input or a previous study conducted by SBA's Office of Advocacy. We do not believe that this effort was a useful process to address our recommendation. SBA has not taken any additional steps toward closing this recommendation. Specifically, in January 2012 an SBA official noted that they do not have plans in place to assess the effectiveness of the HUBZone program.

    Recommendation: To improve SBA's administration and oversight of the HUBZone program, the Administrator of SBA should further develop measures and implement plans to assess the effectiveness of the HUBZone program that take into account factors such as (1) the economic characteristics of the HUBZone area and (2) contracts being counted under multiple socioeconomic subcategories.

    Agency Affected: Small Business Administration

 

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