	Background

The purpose of the HUBZone program, which was established by the  HUBZone Act of 1997, is to stimulate economic development, through  increased employment and capital investment, by providing federal  contracting preferences to small businesses in economically distressed  communities or HUBZone areas. Qualified nonmetropolitan counties. SBA Relies on Federal Law to Identify HUBZone Areas but Its Map Is Inaccurate

Our June 2008 report found that a series of statutory changes have  resulted in an increase in the number and types of HUBZone areas. These  changes could diffuse (or limit) the economic benefits of the program. 1). To identify and map  HUBZone areas, SBA relies on a mapping contractor and data from other  executive agencies (see fig. Essentially, the map is SBA’s primary  interface with small businesses to determine if they are located in a  HUBZone and can apply for HUBZone certification. SBA Has Limited Controls to Ensure That Only Eligible Firms Participate in the HUBZone Program

Our June 2008 report also found that the policies and procedures upon  which SBA relies to certify and monitor firms provide limited assurance  that only eligible firms participate in the HUBZone program. While  internal control standards for federal agencies state that agencies should  document and verify information that they collect on their programs, SBA  obtains supporting documentation from firms in limited instances. In  addition, SBA does not follow its own policy of recertifying all firms every  3 years, and has not met its informal goal of 60 days for removing firms  deemed ineligible from its list of certified firms. However, SBA has failed to recertify 4,655  of the 11,370 firms (more than 40 percent) that have been in the program  for more than 3 years. As a result of the backlog, the periods during  which some firms go unmonitored and reviewed for eligibility are longer  than SBA policy allows, increasing the risk that ineligible firms may be  participating in the program. SBA Lacks a Formal Policy on Timeframes for Decertifying Firms, Which Provides Ineligible Firms with an Opportunity to Obtain Contracts

While SBA policies for the HUBZone program include procedures for  certifications, recertifications, and program examinations, they do not specify  a timeframe for processing decertifications—the determinations subsequent  to recertification reviews or examinations that firms are no longer eligible to  participate in the HUBZone program. SBA Has Not Implemented Plans to Assess the Effectiveness of the HUBZone Program and Most Agencies Have Not Met Contracting Goals

Our June 2008 report also found that SBA has taken limited steps to assess  the effectiveness of the HUBZone program. Moreover, federal agencies did not meet the  government-wide contracting goal for the HUBZone program in fiscal  years 2003 through 2006 (the most recent years for which goaling data are  available). According to the Government  Performance and Results Act of 1993, federal agencies are required to  identify results-oriented goals and measure performance toward the  achievement of their goals. According to SBA’s fiscal year 2007 Annual Performance Report, the three  performance measures for the HUBZone program were: (1) the number of  small businesses assisted (which SBA defines as the number of  applications approved and the number of recertifications processed), (2)  the annual value of federal contracts awarded to HUBZone firms, and (3)  the number of program examinations completed. However, SBA  officials indicated that the agency has not devoted resources to implement  either of these strategies for assessing the results of the program. Yet by  not evaluating the HUBZone program’s benefits, SBA lacks key  information that could help it better manage the program and inform the  Congress of its results. 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.
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. This testimony focuses on (1) the criteria and process that SBA uses to identify and map HUBZone 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 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, and recent statutory changes have resulted in an increase in the number and types of HUBZone areas--changes that could diffuse the economic benefits of the program. Further, the map that SBA uses to help firms interested in participating in the program to determine if they are located in a HUBZone area is inaccurate. Specifically, the map incorrectly includes 50 metropolitan counties and excludes 27 nonmetropolitan counties. As a result, ineligible small businesses participated in the program, and eligible businesses have not been able to participate. 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. 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. Federal agencies are required to identify results-oriented goals and measure performance toward the achievement of their goals. SBA tracks the number of firms certified or recertified, the annual value of contracts awarded to HUBZone firms, and the number of program examinations completed annually, but has not devoted resources to completing an evaluation of the program. Consequently, SBA lacks key information that could help it better manage and assess the results of the program. Finally, most federal agencies did not meet their HUBZone contracting goals during fiscal year 2006, the most recent year for which we had data. While the percentage of prime contracting dollars awarded to HUBZone firms increased in each fiscal year from 2003 to 2006, the 2006 awards fell short of the government-wide 3 percent goal by about one-third.