Bush Leaves Legacy of Fraud and Abuse At Small Business Administration

| Fri Mar. 27, 2009 12:42 PM EDT

It's been a rough decade for the Small Business Administration. The Bush administration slashed its budget by more than half, and many of its most experienced and knowledgeable employees were let go. To make matters worse, multiple investigations have found evidence of waste, fraud, and abuse at the agency, which is supposed to help small businesses drive economic growth. On Wednesday, the embattled agency was dealt another blow when the Government Accountability Office revealed that the SBA's $8 billion program designed to funnel government contracts to small businesses in poor areas gave millions to companies that did not meet the legal requirements, including one that was "headquartered" in a trailer home occupied by someone unrelated to the company. Some of the owners of the "small businesses" in question admitted straight-out to the GAO that they were defrauding the SBA's HUBZone program by funnelling money to big businesses or businesses outside the zones.

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In total, the GAO found 19 businesses that did not meet the HUBZone requirements received some $30 million in federal contracts despite their non-compliance. One firm that collected $900,000 was particularly egregious in its rulebreaking:

[O]ur investigation found that the purported principal office was in fact a residential trailer occupied by someone not associated with the company. The company had represented its office as located in “suite 19,” when in reality, the address was associated with trailer 19 in a residential trailer park. The two employees of the firm—a father and a son—lived in non- HUBZone areas that are located about 90 miles from the trailer park. This firm also subcontracted most of its HUBZone work to non-HUBZone firms.

Chris Gunn, a spokesman for the American Small Business League, has been bird-dogging the SBA for years. He says that since the underfunded and overwhelmed agency was gutted by the Bush administration, "it's not necessarily surprising that we see this amount of fraud and abuse."

Rep. Nydia Velasquez (D-NY), the chair of the House small business committee, has talked of shutting down the HUBZone program entirely. But Gunn says far more drastic measures need to be taken. "If the best they can come up with is to end the program then we're all in trouble," Gunn says. His organization is working on legislation with Rep. Hank Johnson (D-Ga.) to preclude publicly-traded companies from being counted towards the government's small business procurement goals. That move that would keep companies like Raytheon, Honda and 3M (and their subsidiaries), which have received federal small business contracts in the past, from receiving them in the future.

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