HUBZone certifications are averaging 116 days from the date of application to the date of certification, according to a fascinating SBA Office of Inspector General Report on the HUBZone certification process.  The 116-day time frame is considerably longer than the SBA’s goal of 90 days.  However, in a majority of cases, the SBA does complete the certification process within 90 days of receiving all of the applicant’s supporting documentation.

In addition to an overview of the time frames associated with a HUBZone certification (a question I am often asked), the SBA OIG report concludes that the SBA’s HUBZone application procedures need updating–and that three potentially ineligible firms were certified in 2012.

In 2013, the SBA OIG audited the SBA’s processes used to certify firms in the HUBZone program.  The primary objective of the audit “was to determine whether the SBA’s HUBZone certification process provides assurance to limit program certification to eligible firms.”

To conduct its audit, the SBA identified the 367 firms that had received HUBZone verification between July and December 2012.  The SBA OIG then audited the top 12 of those firms in terms of federal dollars awarded.  The SBA OIG concluded that three of those 12 firms may not have been eligible for the HUBZone program.

The SBA OIG found that one of the 12 firms, a cleaning business, may not have had a principal office in a HUBZone.  The SBA OIG found that the firm’s address was different on its HUBZone application than in public databases.  Additionally, the water bill submitted as proof of the address showed no water usage for the relevant dates.  An auditor visited the location at 10 a.m. on a weekday, but no one answered the door.  Neighbors reported no evidence of a cleaning business at the location.  In short, it appeared that no principal office existed at that location.

A second applicant’s owner had been debarred from government contracting from February 10, 2011 through September 21, 2011.  However, the individual answered “no” when asked, on the HUBZone application, whether he had ever been debarred.  The SBA OIG concluded that “[t]his is a false statement” and the firm should not be admitted to the HUBZone program.

In a third case, an applicant was approved even though drivers’ licenses for two of its HUBZone residents had expired at the time of certification.  As a result, the SBA OIG concluded, the firm could only demonstrate that 33 percent of its employees were HUBZone residents.

The SBA OIG’s conclusions are troubling.  In the first two cases, it is certainly reasonable to question whether the applicants knowingly submitted incorrect information on their HUBZone applications.  If so, those companies should certainly be decertified, at the very least.  In my view, the third case is more of a “ticky tack” matter.  Yes, the HUBZone office should have requested updated drivers’ licenses for the two employees, but it does not seem as though the applicant intended any deceit or fraud.

Overall, the SBA OIG concluded that the HUBZone certification process could be improved, and made some suggestions do to so.  However, the SBA OIG also notes that should more scrutiny be given to initial applications, it could lead to longer wait times before applicants can be certified.  It will be interesting to see what changes the SBA makes in response to the SBA OIG report.

In its report, the SBA OIG also discussed how the HUBZone application process works as a general matter.  The SBA OIG’s “big picture” tidbits regarding the HUBZone program include:

• As of January 2013, there were approximately 5,000 firms in the HUBZone program.
• The SBA’s Standard Operating Procedure for the HUBZone program was last updated in 2007.  The HUBZone SOP still calls for firms to self-certify their HUBZone eligibility.  The references to self-certification are outdated, because the SBA has performed full document reviews of HUBZone applicants since 2010.
• The SBA plans to issue a new HUBZone SOP by the fourth quarter of the 2014 fiscal year.
• The HUBZone application process includes three layers of review.  First, the application is assigned to an analyst, who has up to 60 days to review the firm’s documentation and recommend approval or denial.  Second, a senior analyst receives the application file.  The senior analyst has 15 days to review the file.  If the senior analyst agrees with the initial analyst, the file is forwarded to the Director or Deputy Director, who has 15 days to either certify the firm or deny the application.
• HUBZone analysts are expected to “conduct a Google search of the business and its owners, as well as searching for the phone numbers and websites of the businesses to look for inconsistencies.”
• 69 percent of the HUBZone analysts and senior analysts have more than five years of experience with the HUBZone program.
• The application process calls for the firm to submit an application, then wait to be contacted by the SBA.  Only after the SBA contacts the firm does the firm submit its supporting documentation.
• On average, it took the SBA 28 days after receiving an application to obtain all of that firm’s documentation.
• On average, it took the SBA 116 days after receiving an application to certify the applicant.

For anyone interested in applying to the HUBZone program, the SBA OIG report is well worth reading.  The audit of the three potentially ineligible firms is interesting, of course, but the SBA OIG report also sheds light on how HUBZone applications are processed, how long an applicant can expect to wait to be certified, and so on.  For many applicants, it is this “big picture” information that will be of greatest interest–as it was for me.