SBA Relies on Federal Law to Identify HUBZone Areas, but Its Map Is Inaccurate and the Economic Characteristics of Designated Areas Vary Widely

SBA relies on federal law to identify qualified HUBZone areas, but its  HUBZone map is inaccurate and the economic characteristics of HUBZone  areas vary widely. The map that SBA uses to publicize HUBZone areas  contains ineligible areas and has not been updated to include eligible  areas. Such an expansion could diffuse the benefits to be derived  from steering businesses to economically distressed areas. Internal control standards for federal agencies state  that agencies should document and verify information that they collect on  their programs. We found that of the more than 3,600 firms that were  proposed for decertification in fiscal years 2006 and 2007, more than 1,400  were not processed within 60 days. As a result, there is an increased risk  that ineligible firms may participate in the program and have opportunities  to receive federal contracts based on HUBZone certification. We found that SBA verifies the information it receives from firms in  limited instances. Factors such as conflicting  guidance on how to consider the various small business programs when  awarding contracts and a lack of HUBZone firms with the necessary  expertise may have affected the ability of federal agencies to meet their  HUBZone goals. SBA Has Limited Performance Measures and Has Not Implemented Plans to Evaluate the Effectiveness of the Program

While SBA has some measures in place to assess the performance of the  HUBZone program, the agency has not implemented its plans to conduct  an evaluation of the program’s benefits. We reviewed SBA’s performance measures for the HUBZone program and  found that although the measures related to the core activity of the  program (providing federal contracting assistance), they were not directly  linked to the program’s mission of stimulating economic development and  creating jobs in economically distressed communities. Most Federal Agencies Did Not Meet Their Contracting Goals for the HUBZone Program

Although contracting dollars awarded to HUBZone firms have increased  since fiscal year 2003—when the statutory goal of awarding 3 percent of  federally funded contract dollars to HUBZone firms went into effect— federal agencies collectively still have not met that goal. As a result, ineligible  small businesses have been able to participate in the program, while  eligible businesses have not been able to participate. Specifically, revisions to the statutory definition of HUBZone  areas since 1999 have nearly doubled the number of areas and created  areas that can be characterized as less economically distressed than areas  designated under the original statutory criteria. The mechanisms that SBA uses to certify and monitor firms provide  limited assurance that only eligible firms participate in the program. Also, SBA does  not follow its policy of recertifying all firms every 3 years. 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. Appendix I: Objectives, Scope, and Methodology

To review the Small Business Administration’s (SBA) administration and  oversight of the HUBZone program, we examined (1) the criteria and  process that SBA uses to identify and map HUBZone areas and the  economic characteristics of such areas; (2) the mechanisms that SBA uses  to ensure that only eligible small businesses participate in the HUBZone  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. Specifically, we analyzed the data to determine (1) the number of  applications submitted in fiscal years 2000 through 2007 and their  resolution; (2) the number of recertifications that SBA performed in fiscal  years 2005 through 2007 and their results; (3) the number of  recertifications conducted of HUBZone firms based on the number of  years firms had been in the program; (4) the number of program  examinations that SBA performed in fiscal years 2004 through 2007 and  their results; (5) the number of program examinations conducted of  HUBZone firms based on the number of years firms had been in the  program; and (6) the number of firms proposed for decertification in fiscal  years 2004 through 2007.
Why GAO Did This Study

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.

What GAO Found

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.