STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
House Committee on Small Business
Hearing on "Oversight of the Small Business Administration and its Programs "
Wednesday, March 25, 2009, 2 p.m.

As Supreme Court Justice Louis D. Brandeis famously said, “sunshine is the best disinfectant.” To make sure oversight is a priority, the House has adopted rule 11, which requires quarterly hearings on waste, fraud, abuse and mismanagement of programs under the committee’s jurisdiction. Accountability is critical to the legislative process, and it is something that our committee has consistently worked to promote. In the last two years alone, we have held several oversight hearings on issues ranging from Katrina disaster assistance to fraud in contracting. That is a track record we are going to continue in the new Congress, starting with today’s review of GAO’s HUBZone investigation.   

When first introduced, the HUBZone program promised to create opportunities for small businesses in low-income communities.  It was designed to do this by helping entrepreneurs access the federal marketplace. In theory, the benefits would be twofold-- HUBZones would not only bolster the small business community, but would also breathe new life into struggling neighborhoods. However, the program has been undermined by chronic under-funding, inherent program flaws and sloppy management. Instead of being incubators for growth and development, HUBZones have become breeding grounds for fraud and abuse.

This afternoon’s hearing will focus on a new GAO report on the HUBZone program, the findings of which are nothing short of appalling.  

Unfortunately, HUBZone fraud is nothing new. Last Congress, concerns on the part of both this committee and the business community prompted a GAO audit and investigation. What GAO found was that the majority of the HUBZone businesses it reviewed in the DC area were ineligible. And yet somehow, these companies managed to collect over $100 million in federal contracts. Those are funds that should have gone to deserving small businesses.
 
During last year’s hearing on the matter, it quickly became clear that the HUBZone program was not only dysfunctional-- it was riddled with fraud. Apologists claimed these incidents were isolated. They argued that most HUBZone businesses played by the rules, and said the program shouldn’t be blamed for a few bad apples. To see if this was in fact the case, we requested a broader investigation.

The review, which was carried out in four different regions across the country, found that HUBZone abuse is not unique to Washington. Rather, it is systemic.  Today, we will hear from GAO that the majority of the reviewed businesses were not even HUBZone eligible. And yet they received $30 million from the program.  

Eight months after our first HUBZone hearing, SBA still has no control over the initiative. As a result, tens of millions of dollars in HUBZone contracts have gone to unqualified businesses. That includes $27 million that went to businesses GAO had already identified as ineligible in its July report. Because SBA failed to act, those companies continued to receive contracts that were never rightfully theirs.

Abuse of a federal program is never a good thing. Today-- in light of the billions of stimulus dollars about to enter the federal marketplace-- we need to be more vigilant than ever. It is critical that small businesses have a level playing field, and that tax payers get the most bang for their buck.

As important as it is to provide expanded opportunities to entrepreneurs, we just can’t allow a program so fatally flawed to continue. It’s time for SBA to make a decision--either overhaul the program, or scrap it completely. This committee is no longer going to tolerate the excuse “we’re working on it,” while hardworking small business who have played by the rules are being cheated out of opportunities.