Anthony Wright founded Platinum One Contracting, a Washington, D.C., general contracting and roofing firm in 1999. Not long after, the Small Business Administration certified that the company could participate in the SBA’s innovative HUBZone program, designed to funnel government contracts to small businesses located in economically distressed parts of the country.
Under the program, Platinum One received a $12 million contract from the U.S. Air Force for general construction work. But the company never met any of the program’s requirements, nor did the SBA ever bother to check up on the firm. The company is 1 of 10 that have been spotlighted in a new Government Accountability Office (GAO) investigation, which officials are characterizing as “widespread abuse” of the SBA program. According to a copy of the report, the companies collected $105 million from various government agencies based on false claims about their status.
The findings are yet another example of the SBA’s rampant “Cookie Jar Capitalism,” a term that has come to represent the agency’s seemingly inability to prevent fraud that cheats small businesses out of hundreds of millions of dollars annually.
The SBA’s bumbling and incompetence extends from the fiasco involving Hurricane Katrina relief to a $76 million scam involving one of the SBA’s politically connected lenders in its flagship 7(a) loan program. On top of that, the SBA has been unable or unwilling to weed out an untold number of Fortune 500 corporations that rake in hundreds of millions of dollars a year in contracts earmarked for small firms. All of this, of course, has gone on in the face of dozens of government investigations pointing out weaknesses in the SBA’s oversight and accountability.
In this case, 13,000 firms nationwide are HUBZone-certified, yet investigators found that more than 4,600 have never been monitored by the SBA. The GAO probe focused on 17 of those firms in the Washington, D.C., area. Of those, 6 were found to have set up “virtual offices” in HUBZone areas to qualify for contracts, and 4 others did not have the requisite number of employees living in the zone to qualify for the program.
“We found that all 10 of these case-study firms continued to represent themselves ‘as eligible to participate in the HUBZone program,'” the report states. “Because the 10 case-study examples clearly are not eligible, we consider each firm’s continued representation indicative of fraud.”
One company, Quantum Dynamics, used its certification to win a $40 million U.S. Army contract. But its HUBZone “headquarters” was found to be nothing more than a small room above a dentist’s office, which contained a lone computer and a filing cabinet and was too small to accommodate more than two people. The real company headquarters is located in a posh office park in McLean, Va., a wealthy Washington, D.C., suburb.
To test the SBA’s oversight and monitoring capability, the GAO set up four fictitious companies and applied for HUBZone authorization. The SBA certified all four firms, even though one of them gave a local Starbucks coffee shop as the address of its principal office. “If SBA had performed a simple Internet search on the address, it would have been alerted to this fact,” the report states. In fact, no one at the SBA bothered.