	Background

There are four types of HUBZones. These  areas—labeled redesignated areas—remain eligible for 3 years after “the  date on which the census tract or nonmetropolitan county ceased to be so  qualified.” During the 3-year period, firms in those areas can continue to  apply to and participate in the program and receive contracting  preferences. 1). For information  about the characteristics of the HUBZones and differences in economic  conditions (for example, as indicated by poverty and unemployment  rates) among redesignated, qualified, and nonqualified areas, see  appendix II. As a  result, ineligible small businesses had participated in the program, and  eligible businesses had not been able to participate. SBA Notifications about Program Changes May Not Reach All Affected Firms

SBA’s communications to firms about programmatic changes, including  changes to the HUBZone map (area designations), generally have not  been targeted or specific to individual firms and may not have reached all  affected firms. SBA Has Improved Its Certification Reviews but Actions Related to Recertification Were Limited

		Revised Certification Process Includes a Full Document Review, Which Helps to Ensure That Only Eligible Firms Participate in the Program

SBA revised its certification process in response to our June 2008  recommendation, and now requires firms to provide documentation and  reviews this documentation to determine their eligibility for the HUBZone  program. 2). SBA Relies on Firms’ Attestations of Continued Eligibility

SBA relies on firms’ attestations of continued eligibility and generally does  not request supporting documentation during recertification. As a result, not all firms may be aware  of changes that would affect their continuing program eligibility. SBA has strengthened its internal controls for initial HUBZone  certifications but missed opportunities to address weaknesses in controls  related to the recertification of firms. Recommendations for Executive Action

To improve SBA’s administration and oversight of the HUBZone program  and reduce the risk that firms that no longer meet program eligibility  criteria receive HUBZone contracts, the Administrator of SBA should take  the following two actions:
Establish a mechanism to better ensure that firms are notified of  changes to HUBZone designations that may affect their participation  in the program, such as ensuring that all certified firms and newly  certified firms are signed up for the broadcast e-mail system or  including more specific information in certification letters about how  location in a redesignated area can affect their participation in the  program. Conduct an assessment of the recertification process and implement  additional controls, such as developing criteria and guidance on using  a risk-based approach to requesting and verifying firm information,  allowing firms to initiate the recertification process, and ensuring that  sufficient staff will be dedicated to the effort so that a significant  backlog in recertifications does not recur. SBA agreed with our recommendations and outlined steps it  has taken or plans to take to address them. Appendix I: Objectives, Scope, and Methodology

This report examines the Historically Underutilized Business Zone  (HUBZone) program of the Small Business Administration (SBA). More  specifically, the report (1) describes HUBZone designations and how SBA  communicates with interested parties about the program, and (2)  examines SBA’s certification and recertification processes for firms,  including the extent to which SBA has implemented procedures to  address recommendations previously made to improve these processes. We also interviewed representatives from local economic development  agencies and from HUBZone firms. Firms in all redesignated areas were  obligated almost $800 million in federal contracts in fiscal year 2013.
Why GAO Did This Study

Small firms participating in SBA's HUBZone program received about $4 billion in federal contracts in fiscal year 2013. The program's purpose is to stimulate economic development in economically distressed areas. A certified HUBZone firm is eligible for federal contracting benefits, including limited competition awards such as sole-source and set-aside contracts. GAO previously reported on weaknesses in SBA's internal controls and problems with ensuring that only eligible firms participate in the program. GAO was asked to examine the steps SBA has taken to address these issues. This report (1) describes HUBZone designations and how SBA communicates with interested parties about the program, and (2) examines SBA's certification and recertification processes for firms.
To address these objectives, GAO analyzed statutory provisions, SBA documents, and federal procurement data. GAO also interviewed SBA and representatives from applicant firms (certified, decertified, and denied) and local economic development agencies located in four HUBZones selected for geographic diversity.

What GAO Found

The Small Business Administration (SBA) designates economically distressed areas as Historically Underutilized Business Zones (HUBZone), based on demographic data such as unemployment and poverty rates, but lacks an effective way to communicate program changes to small businesses. The designations apply to areas such as nonmetropolitan counties and census tracts and are subject to periodic changes as economic conditions change. Small businesses in HUBZones can apply for certification to participate in the program. HUBZones that lose their qualifying status due to changes in economic conditions become “redesignated” and undergo a 3-year transition period. In 2015, 3,417 redesignated areas will lose their HUBZone status. There are 578 firms in those areas (see table below). SBA relies on website updates and broadcast e-mails to inform firms about program changes, and consequently not all affected may be informed about the changes before their resultant decertification. SBA has initiated efforts to improve notification of program changes, but its communications may not reach all affected firms and do not specify when the status of areas might change or what firms are located in those areas. As a result, some firms in the program lack timely awareness of information that could affect their eligibility.
SBA has addressed weaknesses in its certification process that GAO previously identified, but lacks key controls for its recertification process. For instance, to receive certification SBA now requires all firms to provide documentation to show they meet the eligibility requirements. SBA also conducts site visits at selected firms based on, for example, the amount of federal contracts they received. However, SBA does not require firms seeking recertification to submit any information to verify their continued eligibility or provide guidance on when staff should request or verify documentation for recertification. Instead, it relies on firms attesting that they continue to meet the program's eligibility requirements. By not routinely requiring and reviewing key supporting documentation from recertification applicants, SBA is missing an additional opportunity to reduce the risk that ineligible firms obtain HUBZone contracts.

What GAO Recommends

SBA should (1) establish a mechanism to better ensure firms are notified of changes that could affect their participation in the program, and (2) assess the recertification process and implement additional controls, such as criteria and guidance for a risk-based approach to requesting and verifying information during recertification. SBA agreed with both recommendations.