GAO: Fraud in contract program that assists small businesses

WASHINGTON -- Nineteen companies were improperly awarded nearly $30 million in federal contracts that were supposed to go to small businesses in low-income neighborhoods, congressional investigators say in a new report.

The Government Accountability Office, the non-partisan investigative arm of Congress, found the 19 companies while reviewing a sample of participants in HUBZone, or Historically Underutilized Business Zone, a federal program for economically distressed areas run by the Small Business Administration (SBA). The GAO report, scheduled to be released at today's House Small Business Committee hearing, says "there are likely hundreds and possibly thousands of firms" in the program that don't meet its requirements.

The committee's chairwoman, Rep. Nydia Velázquez, D-N.Y., said she plans to urge the SBA to shut down the program until it can fix the problems.

"We're talking here about millions of dollars," Velázquez said. "It's outrageous that money is going to companies that don't qualify to be in the program."

SBA spokesman Jonathan Swain declined to comment Tuesday. He said acting Administrator Darryl Hairston will answer the committee's questions today.

The HUBZone program began in 1997 as a way to encourage economic development in blighted areas by directing some government contracts to businesses based in low-income neighborhoods that draw at least 35% of their workers from those areas. The federal government awarded $8 billion in HUBZone contracts in fiscal 2007, and there are about 9,300 businesses in the program.

A GAO report released in July found that the SBA provided little oversight to ensure companies in the program met those requirements. That report found 10 Washington, D.C.-area businesses were improperly part of the program because their offices were outside of poor neighborhoods or they did not employ enough workers from those neighborhoods, or both. One company, for example, listed its office as a small room above a dentist's office in a low-income area, while investigators found its main office was in the suburb of McLean, Va.