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Fraud Rattles SBA Program

An investigation of HUBZone revealed millions in loans to ineligible and even fake businesses.

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This story appears in the November 2008 issue of Entrepreneur. Subscribe »

When news broke in July of alleged widespread fraud involving the HUBZone Empowerment Contracting program--launched by the SBA in 1997 to encourage economic development in historically underutilized business zones--it hit a nerve in the small-business community.

According to a Government Accountability Office report dated July 17, 2008, 10 of the 17 firms the GAO investigated in the Washington, DC, metro area weren't eligible for HUBZone certification but had been awarded obligations from federal agencies amounting to more than $105 million since 2006. As part of its investigation, the GAO created four fictitious firms. Using fabricated leases and other documentation, agents skated around the HUBZone requirements--in some cases, using a Starbucks address or leasing mailboxes from retail postal service centers in HUBZone areas to gain certification. Within weeks, all four firms were HUBZone certified.

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