	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. To be certified to participate in the HUBZone program, a firm must meet  the following four criteria:    must be small by SBA size standards;   must be at least 51 percent owned and controlled by U.S. citizens;    principal office—the location where the greatest number of employees  perform their work—must be located in a HUBZone; and    at least 35 percent of the full-time (or full-time equivalent) employees must  reside in a HUBZone. More than 4,200  HUBZone firms obtained approximately $8.1 billion in federal contracts in  fiscal year 2007. Our June 2008 report  found problems with SBA’s HUBZone map. To improve its ability to ensure that only eligible firms participate in the  program, we recommended in our June 2008 report that SBA develop and  implement guidance to more routinely and consistently obtain supporting  documentation upon application and conduct more frequent site visits, as  appropriate, to ensure that firms applying for certification are eligible. Because of SBA’s limited progress,  ineligible firms may still be able to participate in the HUBZone program  and receive federal contracts based on their HUBZone certification. According  to HUBZone program officials, the agency lacked sufficient staff to  complete the recertifications. In  response to our recommendation, SBA temporarily obtained additional  staff for the HUBZone program and eliminated the backlog by September  30, 2008. In our report, we recommended that SBA formalize and adhere to a  specific time frame for processing firms proposed for decertification. SBA Has Not Developed Measures or Implemented Plans to Assess the Effectiveness of the HUBZone Program

In June 2008, we reported that SBA had taken limited steps to assess the  effectiveness of the HUBZone program. During subsequent discussions we held  with agency staff about this issue, they stated that they have initiated a  new effort to address this issue.
Why GAO Did This Study

This testimony discusses the Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) program. Created in 1997, the HUBZone program provides federal contracting assistance to small businesses located in economically distressed communities, or HUBZone areas, with the intent of stimulating economic development in those areas. In fiscal year 2007, federal agencies awarded contracts valued at about $8 billion to HUBZone firms. Firms that participate in the program must be located in a HUBZone and employ residents of HUBZones to facilitate the goal of bringing capital and employment opportunities to distressed areas. My statement today is based on work we performed to update the status of recommendations we made in our June 2008 report on the HUBZone program and reiterated in a July 2008 testimony. These recommendations called for SBA to improve its controls over the HUBZone program and assess the program's effectiveness. Specifically, this testimony discusses SBA's progress in (1) ensuring that the HUBZone map is accurate; (2) developing and implementing guidance to ensure that participating firms are eligible; (3) eliminating the backlog of recertifications; (4) formalizing and adhering to time frames for decertifying ineligible firms; and (5) developing measures and implementing plans to assess the effectiveness of the program.

What GAO Found

At the time of the July 2008 testimony and in subsequent correspondence we received from SBA, we observed that the agency did not recognize the commitment required to address the HUBZone program's deficiencies and implement our recommendations. SBA officials told us that they recognize the commitment required to implement our recommendations. Consistent with this recognition, SBA is now working with a contractor to re-engineer its HUBZone program. In summary, SBA has initiated some steps to address the HUBZone program's deficiencies and implement our recommendations.