It's a safe bet the Small Business Administration will remember the Alamo - particularly its address.

Investigators with the Government Accountability Office created a bogus company with the Alamo's address and applied for admission to the SBA's Hubzone program, which gives preferences for federal contracts to companies located in low-income areas. It took seven months, but the SBA certified the bogus company as eligible, even though a simple Internet search would have disclosed that the company shared the same address as the Alamo in San Antonio, Texas.

GAO investigators also obtained Hubzone certification for bogus companies that used the addresses of a public storage facility in Florida and a city hall in Texas. The SBA didn't certify a fourth phony company created by GAO, but only because GAO withdrew the application after the SBA repeatedly lost the documents submitted for the firm.

This is the second time in two years that the SBA has been stung by a GAO operation testing SBA's ability to make sure that only legitimate, Hubzone-eligible firms are certified for the program. In 2008, GAO easily obtained Hubzone certification for four bogus firms and identified 10 Washington, D.C., area businesses that participated in the program but didn't qualify for it. Last year, GAO identified another 19 firms in three other states that shouldn't have been certified as Hubzone firms.

Many of these firms used "virtual offices and fake business locations as their principal offices to qualify for Hubzone status," said Gregory Kutz, GAO's managing director of forensic audits and special investigations.

Its latest sting operation proved "the SBA continues to struggle with reducing fraud risks in its Hubzone certification process," he said.

The agency "still does not adequately authenticate self-reported information - especially principal office locations - to ensure program eligibility," Kutz said.

As a result, ineligible firms receive Hubzone contracts that should go to small businesses which actually are located in low-income areas and employ residents of those areas. Nearly $3 billion in sole-source or set-aside contracts were awarded to Hubzone firms last year. About 9,300 small businesses are certified as Hubzone firms.

SBA Administrator Karen Mills said the agency now requires more stringent documentation for Hubzone firms and is making site visits to more than 1,000 firms a year, compared with fewer than 100 site visits two years ago. The SBA investigated the 29 firms cited in past GAO investigations and decertified 16 of them. Eight voluntarily left the Hubzone program, and five were found to be eligible for the program.

Rep. Nydia Velazquez, D-N.Y., isn't convinced the SBA is doing enough to prevent Hubzone fraud. Velazquez, who chairs the House Small Business Committee, noted that Mills and other officials had told her committee in the past that it was fixing the problems with the Hubzone program.

Kutz said the SBA should do Internet searches for all Hubzone firms, increase unannounced site visits and prosecute more fraudulent firms. That would deliver the message that "if you do something wrong here ... you might get caught, and if you get caught, something serious is going to happen."

For more information, see www.house.gov/smbiz

NFIB pleased that judge didn't dismiss lawsuit

A small-business organization that challenged the constitutionality of health-care reform's individual mandate is pleased that a federal judge declined to dismiss a similar lawsuit.

U.S. District Court Judge Henry Hudson ruled Aug. 2 that there were enough questions in dispute to allow Virginia's legal challenge to health-care reform to move forward. The central issue in Virginia's lawsuit is whether the federal government's right to regulate interstate commerce gives it the authority to require individuals to either obtain health insurance or pay a fine.

The National Federation of Independent Business has joined a similar lawsuit filed in Florida by 20 states.

"Today's decision makes us very optimistic about the prospects of our own legal challenge," said Karen Harned, executive director of NFIB's Small Business Legal Center. "This confirms, once again, that there are real constitutional issues with this health-care law that are worthy of a court's consideration."

White House aide Stephanie Cutter, however, said Hudson's ruling was a narrow, procedural one that conflicts with long-standing precedents designed to prevent courts from becoming "forums for political debates."

"Now that this preliminary stage has ended, the government fully expects to prevail on the merits," Cutter said.

"This law came into being precisely because of the interconnectedness of our health-care costs," she said. "People who make an economic decision to forego health insurance do not opt out of the health-care market, but instead shift their costs to others when they become ill or are involved in an accident and cannot pay."

For more information, see www.nfib.com or www.whitehouse.gov

Efforts to repeal 1099 law fall short, resume in Sept.3

Small businesses that want Congress to repeal a new paperwork burden created by health-care reform will have to wait until September.

The law requires businesses, beginning in 2012, to file 1099 forms with the Internal Revenue Service any time they pay more than $600 a year to another business for goods or services. This requirement now applies only to services supplied by unincorporated businesses.

Small businesses contend the new requirement will force them to file dozens or even hundreds more 1099 forms a year.

Senate Republicans hoped to add an amendment repealing this provision to legislation designed to increase the flow of credit to small businesses. Procedural disputes, however, delayed action on the bill, and the House left Washington for its August recess before the Senate voted on it.

A House bill that would repeal the provision fell short of the two-thirds majority it needed under the rules used for the legislation. The House bill also would have increased taxes on multinational corporations.

Small-business groups urged their members to contact their representatives and senators during the August recess and ask them to repeal the new 1099 requirement.

"The flurry of activism this week on this issue is making Congress anxious," said the Small Business and Entrepreneurship Council.

For more information, see www.sbecouncil.org

Grants offered to states for insurance exchanges

The Department of Health and Human Services is offering grants of up to $1 million to states to help them begin work on setting up health insurance exchanges.

The exchanges, which are called for under health-care reform, will offer insurance policies to individuals and small businesses beginning in 2014. States can run their own exchanges, partner with other states on regional exchanges or let HHS establish an exchange for their residents.

HHS also is seeking comments on what rules and standards it should establish for these exchanges.

For more information, see www.healthcare.gov

Kent Hoover: khoover@bizjournals.com