By Jason Miller
Executive Editor
Federal News Radio

The Small Business Administration confirmed that Grande Lum will be the new director of the Historically Underutilized Business Zone program.

And Lum, a law professor and founder of Accordence, a consultancy that provides negotiations, conflict management and persuasion and influence services, is walking into a program plagued with problems.

A SBA spokeswoman says there is no start date for Lum and in the meantime, acting HUBZone director Mariana Pardo remains in charge. Lum will replace Derek Bouchard-Hall who is returning to his position with McKinsey and Associates, sources say.

Congress created the HUBZone program in 1997 with the idea that federal contracts would lure businesses to move to areas designated by the Census as underutilized and hire local citizens. The program has been fraught with problems, according to the most recent Government Accountability Report.

During a House Small Business Committee hearing yesterday, GAO found the program remains vulnerable to fraud and abuse. GAO created four bogus HUBZone applications, including one company based at The Alamo in Texas. SBA approved three of the four applications and lost the documentation on the fourth.

“Our testing revealed that the SBA does not adequately authenticate self-reported information-especially as it pertains to information regarding whether a firm’s principal office location meets program requirements,” GAO states. “For example, for our successful firms, we used the addresses of the Alamo, a public storage facility in Florida, and a city hall in Texas as our principal office locations-locations that a simple Internet search could have revealed as ineligible for the program.”

Committee ranking member Sam Graves (R-Mo.) says few challenges facing SBA are resolved or change.

“The SBA does not seem to take an aggressive approach to fixing the problems identified by Congress, the GAO and the inspector general, instead it spends scarce resources studying these problems,” Graves says. “The SBA doesn’t need any more studies. It needs action. If it’s incapable of taking necessary corrective action, it might be time to examine whether a complete overhaul of the SBA is needed to separate its regulatory functions from its mission to promote small businesses.”

Committee chairwoman Nydia Velázquez (D-N.Y.) says SBA’s new security approaches to the HUBZone program obviously didn’t work.

Greg Kutz, GAO’s managing director forensic audits and special investigations, says the auditors approach was not highly sophisticated.

She also expressed frustration that despite SBA’s promises to fix the HUBZone program, it remains plagued by problems.

“There is a web of double talk here,” Velazquez says. “SBA says you are doing one thing, but GAO finds you are doing another.”

SBA administrator Karen Mills says the agency is trying to continually improve the program. Mills promised the committee to find out how GAO’s bogus companies got through the review process.

SBA now is taking a three-pronged approach to fixing the HUBZone program:

• Certification-SBA developed a new set of criteria that had not existed before where the agency is asking companies to submit extensive documentation to prove they are qualified to be HUBZone certified. SBA also is using several tools to punish fraudulent companies including suspension and debarment, and civil fraud actions and false claims actions with the Justice Department. And Mills says when a company signs their HUBZone contract it’s under penalty of perjury and must be notarized.
• Monitoring-SBA is increasing its site visits to ensure HUBZone firms are located in actual HUBZones. Mills says SBA plans more than 1,000 site visits in 2010. She says a majority of these site visits will be unannounced.
• Removing ineligible firms-GAO in its last report found 29 firms were ineligible, and SBA investigated and found 24 ended up decertifying.

“If we don’t punish the bad actors, people will not be deterred,” Mills says. “We have aggressively added staff to the HUBZone oversight function. We have a position and specific actions that have been implemented that we will not tolerate fraud and abuse.”

Kutz says the program is vulnerable to fraud for several reasons such as maintaining the 35 percent requirement of employees living in the HUBZone area and SBA’s lack of fraud prevention controls and consequences in the past.

“I think the Internet searches for all several thousand companies are an achievable thing,” Kutz says. “I’m also a proponent of random unannounced site visits from these locations. These are my two primary prevention approaches.”

He also says SBA could use some law enforcement tools to help combat fraud and abuse, and work more closely with DoJ to go after these abuses in not only the HUBZone program, but also the 8(a) program and other similar contracting programs.

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