[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                    LEARNING FROM HISTORY: IDEAS TO 
              STRENGTHEN AND MODERNIZE THE HUBZONE PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE 

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             MARCH 2, 2017

                               __________

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            Small Business Committee Document Number 115-006
              Available via the GPO Website: www.fdsys.gov
                   
                   
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        TRENT KELLY, Mississippi
                             ROD BLUM, Iowa
                         JAMES COMER, Kentucky
                 JENNIFFER GONZALEZ-COLON, Puerto Rico
                          DON BACON, Nebraska
                    BRIAN FITZPATRICK, Pennsylvania
                         ROGER MARSHALL, Kansas
                                 VACANT
               NYDIA VELAZQUEZ, New York, Ranking Member
                       DWIGHT EVANS, Pennsylvania
                       STEPHANIE MURPHY, Florida
                        AL LAWSON, JR., Florida
                         YVETTE CLARK, New York
                          JUDY CHU, California
                       ALMA ADAMS, North Carolina
                      ADRIANO ESPAILLAT, New York
                        BRAD SCHNEIDER, Illinois
                                 VACANT

                   Kevin Fitzpatrick, Staff Director
                       Jan Oliver, Chief Counsel
                Adam Minehardt, Minority Staff Director
                            
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Knight................................................     1
Hon. Stephanie Murphy............................................     2

                               WITNESSES

Mr. William B. Shear, Director, Financial Markets and Community 
  Investment, United States Government Accountability Office, 
  Washington, DC.................................................     4
Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United 
  States Small Business Administration, Washington, DC...........     6
Ms. Shirley Bailey, Co-Owner-Executive Vice President and Chief 
  Operating Officer, GCC Technologies, LLC, Oakland, MD, 
  testifying on behalf of the HUBZone Contractors National 
  Council........................................................     7
Mansooreh Mollaghasemi, Ph.D., President & CEO, Atria 
  Technologies LLC, Orlando, FL..................................     9

                                APPENDIX

Prepared Statements:
    Mr. William B. Shear, Director, Financial Markets and 
      Community Investment, United States Government 
      Accountability Office, Washington, DC......................    20
    Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United 
      States Small Business Administration, Washington, DC.......    40
    Ms. Shirley Bailey, Co-Owner-Executive Vice President and 
      Chief Operating Officer, GCC Technologies, LLC, testifying 
      on behalf of the HUBZone Contractors National Council......    48
    Mansooreh Mollaghasemi, Ph.D., President & CEO, Atria 
      Technologies LLC, Orlando, FL..............................    59
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
 LEARNING FROM HISTORY: IDEAS TO STRENGTHEN AND MODERNIZE THE HUBZONE 
                                PROGRAM

                              ----------                              


                        THURSDAY, MARCH 2, 2017

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:01 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Steve Knight, 
[chairman of the Subcommittee] presiding.
    Present: Representatives Knight, Chabot, Gonzalez-Colon, 
Evans, and Murphy.
    Chairman KNIGHT. Good morning. It has been an interesting 
morning already, but we are ready to go.
    Welcome to the first hearing of the Subcommittee on 
Contracting and Workforce for the 115th Congress.
    This hearing will come to order. Before we begin, I would 
like to take a moment to thank the returning members for their 
continued service and welcome our new members, particularly 
Ranking Member Stephanie Murphy. This Subcommittee has enjoyed 
a long history of bipartisanship, and I look forward to working 
with Ms. Murphy and all of our members as we begin this new 
Congress.
    I would also like to sincerely thank everybody for being 
with us today, with a special thanks to each of our witnesses. 
I appreciate your willingness to take time out of your schedule 
and appear before this Subcommittee to share your expertise and 
insight.
    As we approach the 20th anniversary this year, today we 
will examine the Small Business Administration's Historically 
Underutilized Business Zones, more commonly known as HUBZone 
Program.
    When the HUBZone Program was first established, its goal 
was to create hope for hundreds of thousands of underemployed 
or unemployed who long ago thought our country had given up on 
them. I can think of no more important goal than bringing 
economic hope, independence, jobs, and businesses to neglected 
areas marked by high unemployment and poverty. To achieve this 
objective, the HUBZone Program must be run efficiently and 
effectively. That requires us to take a hard look backwards and 
learn from the past.
    Over the past 20 years, the Government Accountability 
Office and the Small Business Administration's Office of 
Inspector General have conducted several audits and 
investigations identifying shortfalls in the program that have 
invited fraud and abuse. A number of recommendations were made, 
and many were adopted by SBA. However, some have not.
    The program was improved significantly throughout the 
years, but there is still room to improve. We are very 
fortunate to have a panel of experts with us this morning who 
have either studied or participated in the HUBZone Program. The 
testimony we hear today will provide us with a launching point 
from which we can further examine the intricacies of the 
program and determine whether adjustments are needed to ensure 
that the program performs as intended and benefits the small 
businesses and communities most in need.
    Again, I want to thank each of our witnesses for taking the 
time to be with us today. I look forward to hearing your 
testimony, and now I yield to the Ranking Member Murphy for her 
opening statement.
    Mrs. MURPHY. Thank you, Mr. Chairman. I look forward to 
working with you and the rest of our colleagues to craft 
bipartisan legislation that will help our small businesses 
succeed and our economy grow.
    Each year the Federal Government procures more than 400 
billion in goods and services from businesses around the 
country through the vehicle of government contracts. 
Recognizing the benefit that these contracts bring to our local 
communities in terms of economic development and job creation, 
Congress created a small business contracting program in 1997 
aimed directly at helping underserved regions with low 
employment and high poverty.
    The Historically Underutilized Business Zone Program, or 
HUBZone Program, provides Federal assistance to firms located 
in economically distressed areas by lowering barriers to entry 
into the Federal marketplace for these firms. Ideally this 
would not only provide an incentive for selling goods and 
services to the government, but it would also create jobs and 
bring revenue to these struggling areas.
    However, since its implementation, the HUBZone Program has 
not quite filled its potential. From ensuring that only 
certified businesses enter the program and maintain their 
eligibility, to informing businesses of their HUBZone status in 
a timely manner, to even being able to present evidence that 
the program is meeting its mission, SBA has lagged behind in 
meeting these basic tasks.
    In fact, at one point in time oversight of the 
certification process was so poor that the GAO investigators 
were able to certify fake businesses that they created where 
the principal office locations were in ineligible locations, 
including the Alamo landmark in Texas and a Starbucks down the 
street from the White House. Additionally the SBA Office of 
Inspector General found three firms that were certified under 
the reengineered certification process that did not meet all of 
the program eligibility criteria.
    In addition, for many years the program's portfolio 
consisted of businesses that were eligible only because of a 
grandfathering clause. Once this expired and other areas lost 
their HUBZone designation, close to 6,000 businesses were 
decertified. While GAO's most recent report shows that there 
have been improvements in the certification process, these 
improvements are not far enough along to ensure that the 
businesses are adhering to the program's requirements. The 
recertification process has for the most part become a self-
certification with little outreach or follow-up from SBA.
    I look forward to hearing from our witnesses today about 
ways in which the program can be improved to provide sufficient 
oversight for initial certification, recertification, and 
business development.
    Additionally SBA's outreach efforts have been unsuccessful 
in getting new businesses to enter the program. Nearly 90 
percent of the HUBZone areas still do not have a business 
participating in the program. This low participation rate has 
resulted in the failure to meet the 3 percent prime and 3 
percent subcontracting goals.
    The dollars and actions awarded through this program have 
continually decreased since fiscal year 2008 with only 71,000 
actions worth $6.4 billion, or 1.82 percent of prime 
contracting dollars awarded to these firms in fiscal year 2015. 
Even then the program was vastly underutilized since only 25 
percent of these actions were awarded through a HUBZone set-
aside or a sole source contract.
    I know that last year the full committee held a hearing on 
HUBZones that shed light on the inadequacies of the program and 
made clear that reforms are necessary to get the program on 
track. Today's hearing will provide the background and ideas 
needed to guide the committee as we draft legislation to 
address these deficiencies.
    I thank the witnesses for being here and look forward to 
gaining more insight as to how we can make the HUBZone Program 
more effective in meeting its mission. Thank you, and I yield 
back.
    Chairman KNIGHT. Thank you very much. I would like to now 
introduce our witnesses, and I think what we will do is we will 
introduce all four, and then we will start and go down.
    Our first witness today is Mr. William Shear, Director of 
the Financial Markets and Community Investment Team at the 
Government Accountability Office. That is an acronym. Mr. Shear 
is a familiar face, appearing before the Small Business 
Committee on a number of occasions, most recently at our 
September 7th full committee hearing last year. GAO has issued 
several reports on the HUBZone Program. We welcome Mr. Shear 
back today to discuss the themes GAO has identified in its body 
of work.
    Our second witness today is Mr. Hannibal ``Mike'' Ware. Mr. 
Ware serves as an acting inspector general for the U.S. Small 
Business Administration Office of the Inspector General. The 
OIG is responsible for independent oversight of SBA's programs 
and operations. Mr. Ware has served as the SBA Director Deputy 
Inspector General since last April. Prior to joining SBA OIG, 
Mr. Ware served for 26 years for the Department of Interior 
OIG, most recently as the Deputy Assistant Inspector General 
For Management. Similar to GAO, the SBA OIG has also conducted 
several reviews of the HUBZone Program. We look forward to 
hearing Mr. Ware's testimony on that body of work.
    Our third witness is Ms. Shirley Bailey. Ms. Bailey is 
testifying today in her capacity as board chair of the HUBZone 
Contractors National Council. The HUBZone Council is a 
nonprofit trade association providing information and support 
for HUBZone-certified and other small businesses, prime 
contractors, professionals, agencies, and organizations 
interested in the HUBZone Program. Ms. Bailey has been deeply 
involved in the HUBZone Program for many years, both in her 
service as HUBZone Council board member, and in her personal 
experience as a small business owner. Ms. Bailey is the co-
owner, Executive Vice President, and Chief Operating Officer of 
GCC Technologies, LLC, a successful HUBZone-certified small 
business located in Garrett County, Maryland. We are pleased to 
welcome Ms. Bailey before the committee today.
    I would like to now yield to the ranking member to 
introduce our fourth witness.
    Mrs. MURPHY. Thank you, Chairman Knight. It is my pleasure 
to introduce Dr. Mansooreh Mollaghasemi. She is the founder of 
Atria Technologies, LLC, a small business located in my 
district in Orlando and one of 17 firms in Central Florida that 
are HUBZone certified. Atria Technologies provides professional 
services in engineering, program management, and technology and 
system integration to government agencies and prime 
contractors. She is also the founder and CEO of Productivity 
Apex, an engineering company that focuses on using technology 
to improve the productivity of public and private 
organizations. Additionally she is an Associate Professor in 
the College of Engineering at the University of Central Florida 
where she has been teaching and conducting research for more 
than 25 years.
    And, Chairman Knight, if you will allow me just a moment of 
personal privilege, I should note that Orlando has just been 
recognized by the American City Business Journal as the twelfth 
best metro area in the country for small business vitality, and 
I know entrepreneurs like Dr. Mollaghasemi helped Orlando 
achieve that recognition.
    Thank you for joining us today, and we look forward to 
hearing your testimony.
    Chairman KNIGHT. Thank you, Ms. Murphy.
    Okay. If committee members have an opening statement 
prepared, I ask that they be submitted for the record.
    I would like to take a moment to explain how the lights 
work. You will each have 5 minutes. It will go yellow, and then 
it will go red. If it goes red, I will give you a little time, 
but just kind of be aware that it is going red, and we will get 
through this.
    Five minutes is a pretty good time, and we will start off 
with Mr. Shear, and the floor is yours, sir.

STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
 COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY 
   OFFICE, WASHINGTON, D.C.; HANNIBAL ``MIKE'' WARE, ACTING 
INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS ADMINISTRATION, 
   WASHINGTON, D.C.; SHIRLEY BAILEY, CO-OWNER-EXECUTIVE VICE 
 PRESIDENT AND CHIEF OPERATING OFFICER GCC TECHNOLOGIES, LLC, 
  OAKLAND MD, TESTIFYING ON BEHALF OF THE HUBZONE CONTRACTORS 
NATIONAL COUNCIL; AND MANSOOREH MOLLAGHESAMI, PH.D., PRESIDENT 
           & CEO, ATRIA TECHNOLOGIES LLC, ORLANDO, FL

                 STATEMENT OF WILLIAM B. SHEAR

    Mr. SHEAR. Thank you.
    Chairman Knight, Ranking Member Murphy, and members of the 
committee, I am pleased to be here today to discuss our work on 
the SBA's Historically Underutilized Business Zone Program.
    Congress established the HUBZone Program to stimulate 
economic development in economically distressed communities. 
The program provides Federal contracting preferences to small 
businesses located in HUBZone-designated areas that also employ 
residents of the areas.
    In this statement I will discuss the evolution of the 
HUBZone Program based on our body of work issued between June 
2008 and September 2016. In addition, we met with SBA officials 
one week ago to discuss the status of open recommendations. 
Among other things, I will discuss areas of weaknesses that we 
have previously identified in performance audits and fraud 
investigations, related recommendations, and SBA's actions to 
address them.
    While weaknesses remain, SBA has taken some steps to 
enhance program processes to varying extents. I will refer to 
the following examples. First, the certification process. In 
response to a recommendation in our June 2008 report based on 
the limited verification of the information firms reported, 
since 2009 SBA has required firms to provide supporting 
documentation for applications.
    Second, susceptibility to fraud and abuse. In response to 
recommendations made in a series of investigations in 2008, 
2009, and 2010, SBA officials told us the agency began 
conducting site visits to 10 percent of certified firms.
    Third, recertification process. In 2015, we found that SBA 
had not required firms seeking recertification to submit any 
information to verify continued eligibility and instead simply 
relied on their attestations of continued eligibility. As of 
February 2017, SBA has not yet implemented our recommendation 
to reassess its recertification process and add additional 
controls. SBA officials told us that the agency continues to 
develop a technology solution to help address our 
recommendation.
    Fourth, communications with firms about designations. In 
2015, we found that SBA's communications to firms about 
programmatic changes, including redesignation, generally were 
not specific to affected firms, and thus some firms might not 
have been informed they would lose eligibility. SBA revised its 
letters to newly certified firms, and as of February 2017, SBA 
was implementing additional steps to ensure that all currently 
certified firms would be notified of changes that could affect 
their program eligibility. For this recommendation as well, SBA 
officials told us that the agency continued to develop a 
technology solution to help address our recommendation. We will 
continue to monitor SBA's implementation of this activity.
    Finally, in our 2008 and 2015 reports, we presented 
statistics on economic conditions in HUBZone qualified and 
redesignated HUBZone Census tracts, and in nonmetropolitan 
areas. And in this statement we have updated statistics on 
economic conditions. We continue to find that economic distress 
has been more severe in designated HUBZone areas than in 
redesignated areas.
    Chairman Knight and Ranking Member Murphy, this concludes 
my prepared statement. I would be happy to answer any 
questions.
    Chairman KNIGHT. Thank you very much, Mr. Shear. We will go 
on to Mr. Ware.

              STATEMENT OF HANNIBAL ``MIKE'' WARE

    Mr. WARE. Chairman Knight, Ranking Member Murphy, and 
distinguished members of the subcommittee, thank you for the 
opportunity to be here today and for your continued support of 
the Office of Inspector General.
    As Acting Inspector General, I am proud to represent the 
dedicated men and women of my office. As an independent office, 
OIG conducts and supervises reviews and investigations relating 
to SBA programs and supporting operations. Today I am happy to 
discuss the work we have done to combat fraud, waste, and abuse 
in SBA's HUBZone Program.
    Before I discuss our oversight of the HUBZone Program, I 
want to provide the subcommittee with a bit of context to 
illustrate how the risks within the HUBZone Program factor into 
our top management challenges. Our independent reviews, along 
with an ongoing dialogue with SBA program officials and 
external oversight entities such as GAO, guide the 
identification of these challenges facing SBA. Pertinent to 
today's hearing, we have identified weaknesses in small 
business contracting programs and inaccurate procurement data 
as a top management challenge.
    Our work in overseeing the HUBZone Program continues to 
substantiate this challenge. We issued two reports in recent 
years specific to the HUBZone Program, one in November 2013 and 
one in September of 2014. Those scopes and methodologies 
differed. In both reviews, our findings called into question 
the accuracy of Goaling reporting as it pertains to the 
governmentwide Federal contract and Goaling results. We also 
found SBA had certified firms that did not meet all of the 
eligibility criteria, and ineligible firms had received 
contract awards.
    For the HUBZone Program, these findings indicate there may 
be distortions in the governmentwide Goaling results, and the 
intended economic benefits of the program are not realized when 
ineligible businesses receive HUBZone preferential contract 
awards. SBA has taken corrective action to close the five 
recommendations that were associated with those reports.
    In terms of substantiating the management challenge of 
weaknesses in Small Business contracting programs, we also are 
aware of work published by GAO which we factor into our 
oversight planning purposes to ensure we are not duplicating 
efforts. We intend to initiate a new review in the HUBZone 
Program in 2018.
    On a more granular level, our office continues to receive 
complaints on the hotline involving allegations of wrongdoing 
in the HUBZone Program. In fiscal year 2016, we received over a 
thousand complaints, with 18 being pertinent to the HUBZone 
Program. These allegations and other leads developed directly 
by our investigations division are thoroughly reviewed and 
processed for action by appropriate offices within and external 
to OIG, which can include criminal investigation.
    Since fiscal year 2014, our office has opened 13 
investigations involving the HUBZone Program, resulting in 13 
indictments or informations, 12 convictions or guilty pleas, 
about $12 million in dollar accomplishments, and $35 million of 
cost avoidances.
    In the course of our mission, we also promote suspensions, 
debarments, and similar administrative enforcement actions. 
Last year, for example, we sent 75 suspension and debarment 
referrals to the SBA. Seven involved the HUBZone Program. The 
year before that we sent six that involved the HUBZone Program. 
And in 2014, we referred 50 matters with two involved in the 
HUBZone Program.
    While the OIG is committed to rooting out the fraud, waste, 
and abuse, it cannot be overstressed that SBA's role in 
implementing proper controls and enforcing regulations on the 
front end is key to the viability of not only the HUBZone 
Program, but also of its Federal contracting programs. The 
regulatory oversight is especially important given SBA's 
attempting to tackle the competing interests of expanding the 
number of firms certified for HUBZone Program participation. 
Due diligence to ensure only eligible participants are 
certified and recertified is vital, as is the need for 
continued vigilance through on-site inspections.
    We will continue to focus on this important Federal 
contracting program as well as the most critical risks facing 
the SBA.
    Thank you for the opportunity to speak to you today. I look 
forward to your questions.
    Chairman KNIGHT. Thank you, Mr. Ware. And we will go on to 
Ms. Bailey.

                  STATEMENT OF SHIRLEY BAILEY

    Ms. BAILEY. Good morning, Chairman Knight, Ranking Member 
Murphy, and members of the subcommittee.
    I want to thank you for the opportunity to testify on 
behalf of the HUBZone Contractors National Council.
    My name is Shirley Bailey, President and Board Chair of the 
HUBZone Council, and co-owner of GCC technologies, LLC, a 
certified HUBZone company located in Garrett County, Maryland.
    The Council strives to contribute to the economic 
development of disadvantaged communities by helping HUBZone 
certified firms maximize their success in earning Federal 
contracts. The underlying principal behind the HUBZone program, 
which was established 19 years ago, remains relevant today: to 
decrease unemployment and revitalize low-income and 
economically distressed communities by encouraging businesses 
to located in these HUBZone areas.
    Congress in its creation of the program wrote: Creating new 
jobs in economically distressed areas has been the greatest 
challenge for many of our Nation's governors, mayors, and 
community leaders. The trend is for businesses to locate in 
areas where there are customers and a skilled workforce. Asking 
a business to locate in a distressed area often seems counter 
to its potential to be successful. But without businesses in 
these communities, we don't create jobs, and without sources of 
new jobs, we are unlikely to have a successful revitalization 
effort.
    The question before this subcommittee is how this program 
can live up to its potential, and the numbers suggest that this 
program has room for growth. As of February 2017, there were 
only 6,026 certified firms, which represents a loss of over a 
third of the HUBZone firms since the 2010 Census. Yet these 
businesses have had substantial impact on their communities. An 
average HUBZone company is awarded over a million dollars in 
Federal contracts, a critical revenue threshold in business 
sustainability. Federal contracts awarded to HUBZone companies 
directly support more than 40,000 jobs every year, of which a 
minimum of 35 percent of these jobs are HUBZone employees.
    Our written statement goes into a full history of the 
program, but I would like to use my time today to address the 
changes we believe would increase participation in the program 
and ultimately help the communities that would benefit. There 
are two themes that should guide changes to the program, 
business certainty and program modernization.
    With respect to business certainty, we make the following 
recommendations. The first one is to increase or consider the 
increase in the redesignation period from 3 to 7 years. To 
determine program eligibility, SBA uses data from the decennial 
Census and the American Community Survey. While Census data is 
updated every 10 years, ACS data is updated every 5 years. For 
certain areas, this means minor changes in economic data can 
lead to a community's eligibility to change annually as they go 
through those evaluations.
    When a track or county ceases to meet the qualifications 
for HUBZone status due to changes in income, unemployment, or 
poverty data, it becomes a redesignated area. As a redesignated 
area, it qualifies as a HUBZone designated area for an 
additional period of 3 years. To create business certainty, we 
recommend increasing the current 3-year redesignation period to 
7, which will allow firms to make more substantial, long-term 
investments without the fear of losing their status before the 
business has had an opportunity to succeed or mitigate 
potential financial impacts resulting from the loss of their 
HUBZone status.
    Two, consider supporting the capital investment of a 
company's principal office. Many firms make significant capital 
investments to locate their principal office in a HUBZone, such 
as signing long-term leases or buying and renovating buildings. 
In order to incentivize the company to stay in the distressed 
area even if the area loses its HUBZone designation, we 
recommend the principal office requirement remain fulfilled 
regardless of redesignation until the firm relocates or no 
longer meets other requirements of the program, such as the 
employee residency requirement or Small Business size standard. 
This will encourage long-term investment by providing business 
with certainty.
    Three, simplify employee residency requirements for the 
smallest businesses. By changing the current residency 
requirement from a 35 percent threshold to 33, 1 in 3 employees 
would be required to reside in a HUBZone. In addition to 
simplifying the calculation for employers, this also helps 
small firms ensure that they meet the requirements after the 
unforeseen departure of one employee.
    With respect to program modernization, we recommend the 
following: increased participation in the rural communities. 
Fewer than expected nonmetropolitan counties qualify for the 
HUBZone Program due to having more burdensome requirements for 
median income and unemployment than metropolitan areas. While 
rural areas tend to have lower median income and higher 
unemployment, nonmetropolitan counties are not homogenous. 
Certain county areas may be better off due to the presence of a 
single employer, such as a hospital or college--this is the 
case that we have in Garrett County, Maryland--and cause the 
county to be ineligible. We recommend the nonmetropolitan 
county qualification levels be reexamined to account for the 
diversity in these areas.
    In closing, let me be clear that the Council is advocating 
for strengthening and modernizing the program. However, it 
should not come at the expense of effective compliance efforts 
by the SBA. Fraud penalizes those companies that have gone 
through the proper procedures of certification and met the 
requirements. In order to achieve the desired rulings of an 
effective program, Congress should provide the funding 
necessary to allow for expeditious processing of applications 
and the required steps recommended by the GAO.
    It is disingenuous to fault SBA for failing to administer 
the program without appropriating funds to adequately meet the 
directives. By working together, distressed communities can 
attract businesses which will create jobs and investment. To 
continue on the current path will result in underutilization of 
the program. Our goal should be to encourage businesses to 
locate and create jobs in these communities, and we stand ready 
to help.
    And thank you again for your time and consideration.
    Chairman KNIGHT. Thank you, Ms. Bailey. We are going to put 
a bookmark right here, Doctor. We have votes. Votes are called. 
We have about 7 and a half minutes left to vote, so I want to 
make sure that all the members have a chance to get down.
    So we will take a recess right now, and we will reconvene 
with Dr. Mollaghasemi when we return.
    [Recess.]
    Chairman KNIGHT. We are back in, and I appreciate you all 
staying around.
    We did have the chairman of the full committee who was here 
earlier, and I appreciate Chairman Chabot being here. He has 
been an exceptional chairman and we appreciate when he can come 
to our subcommittee hearing.
    So when we left off, we had Ms. Bailey. I appreciate your 
testimony. And now we are going to go to Dr. Mollaghasemi for 5 
minutes.

           STATEMENT OF MANSOOREH MOLLAGHASEMI, PH.D.

    Ms. MOLLAGHASEMI. Good morning. Chairman Knight, Ranking 
Member Murphy, and members of the subcommittee, thank you for 
the opportunity to testify at this hearing.
    I am honored to share my experience as an entrepreneur and 
highlight the critical role of the program such as HUBZone in 
the growth of our economy. My name is Mansooreh Mollaghasemi, 
and I am the founder and President of Atria Technologies, an 
engineering company based in Orlando, Florida.
    Please allow me to first provide some context on the role 
of small business in fostering innovation in the United States. 
All of today's household names like Google, Amazon, Apple, 
Facebook, and many more were all small businesses, in the early 
years, with an incredible vision and an unmatched team, and 
they did not spring forward from within large organizations. 
But how can we infuse this innovation from small business into 
our Federal Government?
    These SBA programs can provide a mechanism for entry, and 
without them, frankly these barriers are often insurmountable. 
To give you a firsthand account, please allow me to share my 
story. Right after I finished my Ph.D. in industrial 
engineering, I became an Assistant Professor in the Department 
of Industrial Engineering at the University of Central Florida. 
Don't get me wrong. I love teaching. I love doing research, 
managing my grants, and graduating graduate students and 
mentoring them. But there was always something missing. I 
wanted to solve real-world problems and apply my research to 
more impactful real world problems.
    So years later I finally took the leap and started a 
business focused on using technology to improve the 
productivity and efficiency of private and public 
organizations. I remember how naive I was, thinking if I could 
offer a solution to a government organization, of course they 
are going to use me. So I started down that path, but the 
meetings went generally like this. I would go; I would listen 
to their problem; I would talk to them about our core 
competencies and offer a solution; We would brainstorm, and 
then the conversation would go something like this: We like 
what you do. We think it would be useful to our organization, 
but we have no mechanism to come to you. First time I heard 
that, mechanism, what is a mechanism?
    So then I started researching. My research uncovered 
multiple things. I learned about the 8a program, more so than 
the HUBZone, but I knew that it existed. And I was already in a 
lease, that was not in a HUBZone, so I went down the path of 8a 
certification. Needless to say the process and its requirements 
were daunting, and I was advised to hire a firm to help me. So 
I paid, years ago, $4,000 in consulting fees and a lot of hours 
of my own time, and luckily because of paying attention to 
details, I got certified. And another thing I should mention is 
that I had no visibility into the application process. I didn't 
even know whether it was moving from one step to another or 
whether I would be ultimately certified or not.
    While I was able to in the meantime, while I was going 
through that, acquire and retain high-profile commercial 
clients and competitive government contracts, the 8a program 
really was the key that opened a lot of opportunities for me. I 
should mention that through one of those 8a contracts with 
NASA, I developed, with my team, the first ever supply chain 
model of earth to Mars, arguably the longest supply chain known 
to mankind. In another contract, we built a highly 
sophisticated optimization tool to help USDOT to move freight 
more efficiently that with internal R&D I was able to develop a 
commercial tool out of it.
    Fast forward to 10 years later when I founded Atria 
Technologies. I was surprised to experience the same lack of 
visibility and long lead time in the application process, which 
was over 7 months. So there are certainly opportunities for 
improvement in the application and the certification process.
    But let me also share with you the positives that I have 
observed about the HUBZone Program. Aside from providing the 
small business with much needed past performance and experience 
to compete for larger opportunities, I am not aware of any 
other program with such significant social impact. This program 
provides, as you know, distressed areas with sustainable and 
meaningful jobs, leading to economic development of these 
communities and reduction of unemployment, and as Ms. Bailey 
mentioned, reduced homelessness.
    Personally, while I have always strived to provide 
mentorship to various groups, especially women, prior to owning 
a HUBZone company, it never dawned on me to go specifically 
seek out people that live in specific areas. This program 
forces you to do that and do something good and have a social 
impact in the process.
    So in summary I would like to leave you with three 
thoughts: small business in America is an engine of innovation 
that is unmatched in any other economy in the world. Second, 
programs like HUBZone are the essential keys to bringing the 
benefit of this innovation to the government of the American 
people through Federal contract awards and spurring economic 
development in distressed areas. And, third, opportunities 
exist to streamline the application and oversight process for 
these programs to enable their more efficient and effective 
use.
    It is truly an exciting time to be the leader of a small 
business. We are the envy the world and rightly so. The Federal 
programs we are discussing today are vital to enabling the 
bright light of small business innovation to shine on the 
services provided by our Federal agencies.
    Thank you for your time today.
    Chairman KNIGHT. Thank you very much.
    We will now go into questions. I have a few of my own. We 
will take about 5 minutes each, and I am sure the ranking 
member has questions.
    Quickly, Mr. Shear, we have got, according to GAO, the SBA 
has not implemented the procedure measures, the effectiveness 
of the HUBZone Program. What do you think are the most 
important metrics that SBA needs to start collecting and 
tracking? And before you answer that, I am going to take a 
couple of the comments that you made that it looks like the GAO 
has made recommendations. And one of the questions outside of 
this that I kind of jotted down was how do you lose 
eligibility, and if you do lose eligibility, what happens? Is 
it pulled from you, or is there some sort of enforcement 
mechanism? How do we go about that? I know there is three or 
four questions there.
    Mr. SHEAR. I think the answer to your question on 
eligibility is what happens to businesses subject to 
decertification. There is a process where businesses can become 
decertified from the program, even though we have said--and 
sometimes this gets kind of confusing, and I know I have asked 
a lot of questions of it as we have done our work--
recertification is almost like a self-certification. So we say, 
well, why would there be a backlog and things like that? Well, 
the question becomes if a firm becomes identified to be 
decertified, there is a process for that, but there is a 
decertification process, and there are firms that are 
decertified.
    Some of the companies are being decertified that are asked 
to self-certify and provide documentation, and they don't do 
that, so some will withdraw on their own. But there is a 
process where there are businesses that lose their 
certification, and that might be a question for the HUBZone 
Council as well.
    Going back to evaluation, I will just say generally SBA's 
track record of evaluating its programs, including pilot 
programs--HUBZone isn't one--but evaluating programs and using 
evaluations in their strategic planning and to inform how 
programs could be improved, is something that SBA comes up 
short on. So in terms of what we are looking for, and I know we 
had extensive interactions, SBA hired an economist after our 
2008 report to work on an evaluation----
    Chairman KNIGHT. And I will stop you right there because I 
have got Mr. Ware here shaking his head a little bit, and I 
want to kind of delve into this, because I think part of what 
we are going to be doing, in this subcommittee, is making sure 
that if a program is in place, we want it to be in place to 
help and to enhance opportunities.
    But if there is a problem and the problem is not being 
looked at or not being solved, then that might be someplace 
that we want to take a harder look at and structure some sort 
of work that way.
    Mr. SHEAR. And so let me finally kind of get to the issue 
on evaluation. Evaluations can start out as simple. It is 
looking in specific districts. I mean, sometimes it can just 
start with let's look at the HUBZone map. I have a rough 
HUBZone map here for your district.
    Chairman KNIGHT. I have seen it.
    Mr. SHEAR. And for Orlando. And you just see the way they 
are configured. And the question is, you look at the map and 
you just even start to ask questions about how does this 
program play out? It can involve the role of district offices.
    But when we talked about evaluation here, we were talking 
about what is it about the HUBZone Program; how can you measure 
its impact on local economies? So part of it is collecting 
metrics other than how many firms are you certifying? It is not 
a matter of counting up jobs that those firms employ. It is a 
matter of trying to come up with some kind of benchmarks, and 
let's try to look at where you have HUBZone activity.
    What do you see what is happening to those local economies 
in terms of what it is--it can be jobs. It can be looking at 
just improvements in economic conditions, but there are a 
number of metrics you could use, but the idea is whether you 
start at a case study level or you are using systematic, 
economic modeling. There are ways to assess programs like this, 
and this is what we were sharing with SBA at that time----
    Chairman KNIGHT. Okay. And I am going to go to Mr. Ware 
here real quick. We talk about this at the State level, too, 
and I am sure that Florida and California and all of the other 
States have their own programs that try and enhance and try to 
give businesses opportunities inside a zone, whether it be an 
enterprise zone or a free-trade zone or something like that.
    Mr. Ware, let me kind of get to the crux of this. Is there 
something more that the SBA should be doing? Because I am 
seeing these numbers from 2006, from 2007, all the way up to 
2015 and 2016, of numbers that are not alarming, but it doesn't 
seem like they are correcting.
    Mr. WARE. Thank you. And I think that is a very good 
question and actually one being relatively new to SBA that I 
asked coming through the door as I started to review more of 
our work. And that question was, are we really measuring the 
right things to make sure that the programs are really having 
the type of economic impact in the communities that they are 
supposed to be having? And I am not sure, based on the body of 
work that I have seen, that that is how we are working towards 
answering--those are the answers that we are measuring and 
trying to come to. But----
    Chairman KNIGHT. So, those are always going to be the 
questions though, and I know I am taking a little extra time 
here, but the metrics of how you measure a program are always 
the key to the program. If you can't measure if it is doing 
something, or if it is providing what you initially 
constructed, then we don't know, and that is a bad thing.
    Mr. WARE. Yeah. But the agency has done quite a bit to 
strengthen the program and to do things, and the findings of 
both my office and Mr. Shear's is it generally wraps around 
those types of, the same type of things all the time as you saw 
by just going forward and reading the reports. It is basically 
with certification or recertification or with how we measure 
and report on the numbers and everything else. Although they 
have made a lot of strides, a lot more work still needs to be 
done.
    Chairman KNIGHT. Very good. I am going to go to the ranking 
member for her questions.
    Mrs. MURPHY. Thank you for all of your testimony.
    My first question is for Dr. Mollaghasemi. You know, a 
major purpose of this hearing is for us to get a better 
understanding of how this program works for small businesses 
and within the community. Could you elaborate a little bit on 
what your experience with the HUBZone certification process 
looked like?
    Ms. MOLLAGHASEMI. Sure. So the answer that I will give you, 
I will try not to do it too much, but when you have a data 
point, you tend to go to that, so I am going to compare it to 
the 8a certification because I have gone through both.
    The application process was not bad, you know, the 
requirements. It wasn't as daunting as the 8a certification. I 
was really happy to find it online because when I was doing 8a 
certification, a folder like this had to be mailed, and you 
always worried will papers get misplaced and so forth. So I 
liked that part of it, the online format of it.
    The problem came in when, again, you had no visibility into 
where it is? Am I moving in the process? And the help desk was 
extremely cordial every time I asked for status. While they 
were very quick to get back with me, this sort of form email 
came out that within 30 days you are going to be assigned a 
rep, and then within 90 to 160 days you should be certified. 
So, that is a very lengthy process. That is an eternity for a 
small business. So the visibility was not there, and it was a 
lengthy process.
    And I have had more questions answered today than I have 
ever been able to ask because of all the valuable advice that 
is here. And there is really no, I haven't found, other than my 
local SBDC office, that resource is extremely valuable, as you 
know, in the entrepreneurship sense. I have them on speed dial 
if I have a question. So that has been my experience.
    But in terms of recruiting, as you know, right by UCF there 
is a HUBZone. I am extremely fortunate, although I am extremely 
small now, I am very fortunate to have one very high-tech woman 
engineer that occupies one of the full-time HUBZone positions. 
But I am able to augment the part-time 40 hour a month from the 
surrounding University with students, so I can mentor them and 
give them experience.
    Mrs. MURPHY. Just as a follow-up to the recruitment piece, 
in your experiences, do small businesses incur additional costs 
when they are located in and employ workers who reside in 
economically distressed areas? Is it harder for you to find and 
recruit and train workers?
    Ms. MOLLAGHASEMI. In my case no, but I suspect going 
forward, because I have a high-tech business, I am not going to 
be able to staff up full-time employees. As you know, these are 
high-paying jobs, and the likelihood of living in a HUBZone 
area is slim.
    So because of the location that I am, I can hire part-time 
people, but remember that in a high-tech business if they are 
part-time students, for example, what does that do? That just 
increases your rates because they become overhead for the most 
part. So I don't foresee for a technical engineering, high-tech 
company that this would be fast growing without me finding 
other types of service contracts to be able to do, which I 
haven't done yet.
    Mrs. MURPHY. Great. Thank you.
    And then my second question for Mr. Shear, you talked 
extensively in your testimony about some of the status of how 
SBA has followed through or not on the implementation of the 
recommendations. Can you talk a little bit more about why you 
think it is that the SBA has been incomplete in their effort to 
evaluate the program? And also specifically you had mentioned a 
technology solution that was in process. Can you tell me a 
little bit more about that?
    Mr. SHEAR. Yes. Let me start with the second first on 
technology. In response to recommendations we made, actually 
for both the 8a program and HUBZone a number of years ago, SBA 
embarked on a technology solution to help assist with those 
programs, and it was called OneTrack, and it ended in failure. 
It was never implemented.
    And SBA generally, from our management review we did at the 
request of the full committee, we just observed a lot of 
turnover at the CIO level and an agency that is challenged in 
implementing technology.
    So now let me bring that to the HUBZone Program. There is a 
recognition, and rightly so, that SBA is now developing a new 
technology for the HUBZone Program. So like when we spoke with 
them last August, it seemed to be a very vague idea, but they 
said, well, we will have it up and running in the spring. And 
we never thought that that was possible, and it wasn't. So 
speaking with them last week, they spoke with much more detail; 
they have thought a lot more about this technology solution, 
and they are now more realistic about the timelines.
    It should be something that businesses can use, hopefully 
by the end of the fiscal year, and that SBA could use for its 
own analysis of the program by the end of the calendar year. So 
we just hope that by the end of the calendar year they will 
have something that is actually usable.
    So now let's talk about that technology. The idea is that 
you would have data that would be for each of the HUBZone firms 
where you could do queries on where are they located? Where are 
they generating economic activity? You can use it for data 
mining for looking at places where fraud might be most 
prevalent. So you can use it for a number of things. So they 
have said, well, they will use it for recertification. They 
will use it to notify firms because it is very difficult to do 
without that.
    So they are proposing a technology solution, and I hope 
they can get it to work because then you can also have queries 
again for firms that end up in redesignated areas. Where are 
they? I was just showing, Dr.--and I am sorry, I can't 
pronounce your name, a map of Orlando, and you just see the way 
HUBZones are spread out. If you just have, if you can make 
informed decisions about where the activity is occurring and 
just try to say what is happening in the areas where the 
activity is occurring compared with other similarly situated 
places. When we spoke to the economist that was hired by SBA in 
2009 to try to develop an evaluation, we shared these ideas 
without saying how he should do his evaluations.
    But to go back to what Chairman Knight said, we actually 
had a mandate, a number of years ago, to evaluate the 
Empowerment Zone Program. And so we shared with the SBA 
economist how that was done, but it requires data on where 
activity occurs. So from a standpoint of conducting 
evaluations; making it easier for firms by notifying them; and 
by dealing with the recertification process by doing queries 
where you can try to identify, in a risk-based way, where might 
you have to go do a site visit, or where you might have to 
follow up and get more information from firms from the internal 
control standpoint--the technology solution coudl be useful.
    And then again, where is the activity going on? What 
happens at this location? Are they decertified firms? Are they 
firms that are in redesignated areas? Are they isolated places, 
or are they adjacent to areas with depressed economies, just 
looking at the map can be useful. So it is promising if SBA can 
pull it off, but let me just flip to the other side.
    Supposedly the district offices are the boots on the 
ground, and in our work, now in Puerto Rico we are including 
the district office in a very big way, but in the past we 
didn't go through what the district offices are doing. We went 
to business groups, and we went to chambers of commerce and 
local economic development entities to kind of see from their 
standpoint what is SBA doing to help encourage this program?
    So when you don't have technology in place, it becomes more 
important to really have a presence in a community and have 
resources committed to that. And so from the lens that we have 
looked at that, it doesn't seem like SBA really has a presence 
in those local jurisdictions.
    So there is a number of ways to do some of these things 
that involve, people, like site visits are very expensive, that 
involve people in the absence of technology, but it is like 
neither side of that, there is not enough of that occurring on 
either the people or technology side.
    Mrs. MURPHY. Thank you.
    Chairman KNIGHT. Thank you very much.
    I have to go in to get my driver's license renewed tomorrow 
and change the address, so I know, Doctor, what you are going 
through because I have looked online, and they said I come in, 
and it will take them 90 days to send me my driver's license. 
When I have to go in, to be there to take care of all this, I 
don't know why it would take 90 days, but that is the 
department of redundancy department that I am going to.
    So, Ms. Bailey, I have one final question. Are you aware of 
any economically distressed communities that have experienced 
significant economic improvement due to the HUBZone Program, 
and does the SBA highlight these communities?
    And the reason I ask this, and I will give you a little bit 
of a follow-up here, is because I think that some of these 
zones that we have talked about before that are trying to help, 
that are trying to give this effort in, and I agree, Mr. Shear, 
it has got to be easier to check and make sure that things are 
working, and if we are going to talk about fraud and abuse and 
things like that, I always say that the business has to be a 
partner in this, but the HUBZone has to be as easy as possible 
to make sure that the business can get through this.
    So if we are going to ask the business to do something, 
then it should be a very easy process, and that is why I bring 
up the DMV. It should be a very easy process for me to go 
through a very simple step. And yet 3 months later is when the 
step is going to be completed. That doesn't seem very simple, 
even though you are asking me to come in and take care of this, 
and that is fine. That is not what government should be doing. 
Government should be the partner, and then if you are doing 
something wrong, we should be able to come back and say you are 
doing something wrong and we are going to ask you to correct 
it. And if you can't correct it, then we are going to ask you 
to leave. That is the way, in my opinion, it should work.
    Ms. BAILEY. And that is true, and the question was is do we 
know of HUBZones that have actually shown some economic 
improvement as of this program? And, yes, we have ones that are 
going in and out, but the definition of what is that 
improvement? How much is that improvement?
    The example of Garrett County, Maryland, we moved in to 
Garrett County, Maryland in 2007, and the way we ended up doing 
that, we were first in Allegany County. Went in, renovated a 
building. It got redesignated, so we had to look for another 
area that would have the HUBZone Program. So we looked around 
with Garrett County.
    When we went to Garrett County, we had 14 people. We now 
have over 200 with over about 75 in Garrett County alone. When 
we looked at that, when we first went in, there was probably 
only two or three of our companies in there that were HUBZones. 
Now we have over 11. Garrett County for the first time since 
the inception of this program is now redesignated. Do we 
consider it to be a significant improvement? Probably not, but 
we have gone over those thresholds that were considered to be 
the 80 percent, and we are now at 88, which isn't a whole lot, 
and then 125 versus the 140.
    So we saw this improvement. But when we went into that 
area, we were about at 180, and probably income was probably 
about 60, 65 or something like that, so there has been 
significant improvement. But there are several organizations 
that did come into there, made a significant impact. These 
organizations are very community oriented. They focus, they 
have active community involvement programs, those types of 
things. They have connections with the commissioners, the 
economic development groups, the colleges. And we find that 
these areas that are very successful have those types of 
toolkits in their pocket, that they are a working unity that 
are all going through and trying to propel the HUBZone Program.
    Garrett County puts out as the HUBZone Program as one of 
their major economic development tools. So looking at this, 
there are certain areas, we know that there are areas like in 
Page County, Virginia, those areas that are outside about the 
200-mile radius of the D.C. they have to have a different type 
of mechanism to be able to pull all of these units together and 
be able to get these dollars into those areas. And that is what 
is key here.
    The key is to get the dollars and the contracts being 
performed in these areas so you get the maximum multiplier 
effect. It doesn't do any good to issue a contract to a 
contractor who has an principal office in these areas and all 
the work being done in Washington, D.C.
    So the more that we can concentrate on being able to do 
that, you are going to see a greater impact in these areas. And 
that is a perfect example. And I will go back, you know, using 
our company as an example. When we went out to Garrett County, 
one of our first contracts was to help the SBA in 2008 with 
doing the HUBZone Program. And we talked to SBA. Originally our 
contract was to be performed in D.C. And after months and 
months of conversation, we convinced them, let us do this in 
Garrett County. And we ultimately were able to do that, expand 
that contract, and be able to support them from Garrett County, 
Maryland.
    We were subsequently able to do that with the VA 
verification support as well, which is still being done in 
Garrett County, Maryland. So it shows that this type of work 
can be done outside of the Washington, D.C. area, and you are 
going to get the biggest impact when you can do that. So the 
greatest thing that we can do is try to figure a way to get 
these contracts out to these areas. And the further out we go 
into the Midwest, into those areas that don't have these 
straight government installations right in their back door, 
those are the ones we can have the biggest impact on as well.
    Chairman KNIGHT. Well, thank you very much. We always 
appreciate entrepreneurs and business owners that come in and 
have provided jobs and opportunities for people. That will 
always about our mantra around here, that we do believe in 
opportunities and the ability to create. So, Ms. Murphy? Do you 
have any more?
    Mrs. MURPHY. Just one final question. So in 2008 and 2009, 
we have discussed how the GAO investigators have identified 29 
firms that were participating in the SBA HUBZone programs that 
were not in compliance with the program requirements. And then 
in 2013, SBA OIG found three firms that the SBA certified that 
were not in compliance with the eligibility criteria. And the 
example we talked about was the one firm who had the HUBZone in 
Washington, D.C., whose primary location was in a HUBZone in 
Washington, D.C., but its actual location was in an affluent 
suburb.
    Mr. Ware, from your perspective, what adverse outcomes can 
occur when participating businesses are not in compliance, and 
what proactive strategies can SBA use to mitigate any negative 
impact.
    Mr. WARE. Well on the first part--could you repeat that 
first question? The first question was--maybe I should have 
just taken the second one, but go ahead.
    Mrs. MURPHY. Just from your perspective, what adverse 
outcomes can occur when participating businesses are not in 
compliance? And then what proactive strategies can the SBA use 
to mitigate the negative impact?
    Mr. WARE. Thank you very much.
    The adverse outcomes, when firms are in that should not be 
in, that means that a firm that could have gotten that contract 
did not. So definitely that is, in my opinion, the most major 
part, and then on top of it, all the Goaling numbers that we 
are so interested in for good reason, they are thrown off as 
well. So those are the two major reasons for it.
    And in terms of proactive strategy, we have long been 
talking about the need to definitely leverage more of 
information technology resources, and piggybacking off of what 
Mr. Shear said, I mean, we are saying the same things.
    In terms of some of their legacy systems, that system they 
have currently is about 17 years old. It is archaic. It is not 
working. Things are still stovepiped, so it causes a lot of 
delay and everything else. But makes the need for more boots on 
the ground in terms of doing a stronger review and 
incorporating the work of contracting officers as well because 
they also play a role in this in terms of raising red flags 
when they see it because they are the ones getting it first. 
And if they were kind of brought into the equation to help out 
in that regard, those are some of the things that could 
definitely strengthen it and be a proactive stance, a proactive 
approach instead of everything being so reactionary with us 
coming in after the fact with the finding.
    Mrs. MURPHY. Thank you.
    Chairman KNIGHT. I would like to thank all of our witnesses 
for coming in, and this is our first committee.
    I can tell you we will have a fairly bold agenda talking 
about the issues that come in front of us. I think that, I am 
not speaking for the rest of the committee, but we do believe 
in opportunities. I am sure I am speaking for everyone when I 
say we do believe in opportunities, and we do believe that 
businesses should thrive. If there are opportunities that 
businesses can thrive and work in partnership with government, 
then we want that partnership to be a lot clearer and a lot 
easier for both parties.
    SBA's HUBZone Program was created to combat poverty, 
increase economic independence and provide stability. As we 
have learned today, the HUBZone Program has faced some 
challenges in the past. SBA has made some improvements. 
However, we need to continue working to ensure the program 
operates at the highest level to help both our small businesses 
and our communities most in need.
    I encourage SBA to continue on this path forward 
collaborating with GAO and OIG to resolve any outstanding 
recommendations, and I believe we will be following up and 
seeing, because I would hate to have this panel back next year 
and be talking about the exact same things. That is not our 
goal. Our goal is always to be better and to correct 
deficiencies.
    So I look forward to working with each and every one of you 
to make the HUBZone Program one that works for our small 
businesses and our communities.
    I ask unanimous consent that members have 5 legislative 
days to submit statements and supporting materials for the 
record. Without objection, so ordered. This hearing is 
adjourned.
    [Whereupon, at 11:53 a.m., the subcommittee was adjourned.]
                            A P P E N D I X

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman Knight, Ranking Member Murphy and members of the 
Committee on Small Business Subcommittee on Contracting and 
Workforce, thank you for allowing me the opportunity to testify 
at the hearing entitled ``Learning from History: Ideas to 
Strengthen and Modernize the HUBZone Program.''

    My name is Dr. Mansooreh Mollaghasemi and I am the Founder 
& President of Atria Technologies which provides professional 
services in engineering, program management, and technology & 
system integration. I'm pleased to share my experiences as an 
entrepreneur and small business owner in the United States, and 
highlight the critical role of programs such as the HUBZone 
program in the growth of my business--and many others like 
mine.

    But first I would like to provide some context on the role 
that small businesses play in the unique innovation of American 
business. Google, Amazon, and Apple are all household names 
today with a market cap of $1.7 Trillion. The common theme 
among all of them is that growth was achieved primarily in the 
business-to-business or business-to-consumer space in the US 
first, with dramatic expansion to worldwide presence shortly 
thereafter.

    Note that these companies did not spring forward from 
within large corporations. They were all small businesses in 
their early years, staffed with employees with an unmatched 
fire for the achievement of an incredible vision. And succeed 
they did! This is American business at its core. The bottom 
line is that there is no other country in the world that has 
shown the same ability to innovate.

    But what is missing from this picture? What is missing, is 
a commensurate infusion of this unparalleled innovation from 
small business into the requirements of our Federal government. 
The HUBZone program provides one mechanism to transfer this 
innovation from a small business to solve the problems faced by 
our Federal government.

    Last year, Federal government spending reached $1.1 
trillion dollars in contacts and grants \1\ with approximately 
75% of that funding awarded to businesses. The lion's share of 
that funding is awarded to large businesses and one key reason 
lies in the risk aversion of the government. Agencies generally 
look for three things in selecting contractors: past 
performance, ``back reach'', and financial security/depth. To 
meet all three criteria, large business is almost always 
preferred, with ``second place'' going to those medium and 
small business that have managed to find a way to gain 
experience and past performance with federal contracting.
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    \1\ USA Spending. https://www.usaspending.gov/transparency/Pages/
OverviewOfAwards.aspx. Publication date unavailable. Updated 2017. 
Accessed February 21, 2017.

    So the ``catch 22'' here is that the experience with 
federal contracts that small businesses need to demonstrate 
successful past performance, depth of staff with federal 
program track records, and the financial depth from contract 
wins--that ver experience, or rather the lack of it, is the 
major roadblock to their ability to contribute their innovative 
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capabilities to government efforts.

    Finding that mechanism to enable them to gain experience 
with federal contracting is precisely the value that these 
small business vehicles like the HUBZone program provide to 
those small businesses who seek to provide their goods and 
services to the Federal government. Without these programs, the 
barriers to entry can be insurmountable.

    Why is this? Please allow me to use my own story as an 
example....

    After receiving a Ph.D. in Industrial Engineering, I began 
my career as an assistant professor at the University of 
Central Florida. While I greatly enjoyed teaching graduate and 
undergraduate classes, conducting research, and mentoring and 
directing graduate students, I often longed for applying my 
research to more impactful real world problems. To that end, I 
finally took the leap in 2001 and started a business to focus 
on using technology to improve the productivity and efficiency 
of private and public organizations. I am extremely fortunate 
to have agencies like NASA and US Department of Transportations 
(USDOT) as well as Lockheed Martin, Disney, and Universal 
Studios among my clients. But the road to success has not been 
easy.

    There are numerous challenges facing an entrepreneur, the 
least of which are the long hours, recruiting and retaining 
quality employees, and the constant pressure to make payroll.

    I knew that we had services that would be of value to 
Federal government agencies. And I remember how naive I was at 
the start, thinking that if I could offer a solution to a 
government agency's problem, they would, of course, want to 
procure my small business services! But the meetings generally 
went along these lines: I would listen to their particular 
problem, present what our core competencies were and offer a 
solution to their problem, and have a brainstorming discussion. 
Then would come the response... ``we like what you do... we 
think it would be useful to our organization... but there is no 
mechanism for us to procure your services.''

    So I began researching the various mechanisms. I learned 
about the HUBZone program and the 8a certification and the 
benefits of each problem as well as the difficulty attaining 
the certifications. At the time, my office was not in a HUBZone 
location and because I was already committed to a lease, I 
decided to pursue the 8a certification. The process and its 
requirements seemed daunting; so I hired an experienced firm 
and paid over $4,000 in early 2003 to help me with the 
application preparation. The process was every bit as time 
consuming as I had been warned about but luckily paying 
attention to details and providing the requisite documentation 
helped me to get 8a certified one year later. It is worth 
noting that I had no visibility into the application evaluation 
process and no idea if my application was even moving through 
the process, and whether it would ultimately be accepted or 
denied.

    While I was able to acquire and retain many high profile 
commercial clients and won some competitive grants, the 8a 
program was the key that opened the door to major opportunities 
for us to serve the needs of our Federal government.

           Through one of our 8a contracts with NASA, 
        my company developed and analyzed the first every 
        supply chain model of Earth to Mars, arguably the 
        longest supply chain known to mankind.

           In another contract, we built a highly 
        sophisticated optimization tools to help USDO to pilot 
        solutions for moving freight more efficiently. With 
        additional infusion of internal R&D funds, this tool 
        served as the genesis for the development of a 
        commercial tool.

    As we built our past performance and developed intellectual 
property, additional opportunities came about that spurred our 
growth further.

    Years later, when I decided to start Atria Technologies, I 
was surprised to experience the same lack of visibility and 
long lead time in the application process.

    In 2013, I founded Atria Technologies to meet the needs of 
local prime contractors to fulfill HUBZone requirements. I 
learned that many small businesses have difficulty attaining 
and/or maintaining their certification. This may be due to 
redesignation of HUBZone areas, difficulty in meeting the 35% 
HUBZone employee requirement, or lack of experience in running 
a business, in general.

    Although I already had an existing business, very few of my 
nearly 30 employees who were engaged in multiyear projects 
lived in a HUBZone. With Atria Technologies, there was an 
opportunity to start with a clean slate, pursue and hire full 
time employees that live a HUBZone, and find and mentor part 
time HUBZone employees who happen to be students at the 
university.

    I acquired an office in a HUBZone location, hired my first 
HUBZone employee who was a student at the university and 
applied for HUBZone certification for Atria Technologies a few 
months later. While I was pleased to find the application 
process fully on line, the certification process was not much 
different from what I had experienced in 2003 while pursuing 8a 
certification.

    During what turned out to be a full 7-month certification 
process, I made several inquiries into the status of the 
application. While the email correspondence with the HUBZone 
helpdesk was extremely cordial and I received a prompt response 
generally within a day, the helpdesk team was unable to provide 
a time frame for processing my application.

    For any business in the 21st Century, seven months is a 
long time--as long as the life of many products. Please believe 
me when I say that for a small business, a seven-month wait for 
paperwork to be approved is an enternity. It is worth noting 
that by the time I received certification, I had already spent 
over $15,000 without a single contract.

    While my other business focuses on developing software 
tools to put in the hands of end users, Atria Technologies 
focuses on professional services to serve government agencies 
and prime contractors. Almost all federal contracts won by 
large companies include a small business contracting plan that 
includes 1 to 3% HUBZone certified small business requirement. 
This will provide small businesses with the much needed past 
performance to compete for larger opportunities while 
contributing to jobs and economic development in distressed 
areas.

    Today, Atria Technologies is a subcontractor to a large 
Prime contractor on a multi-year Air Force contract in Systems 
Engineering, has 4 employees with 2 residing in a HUBZone. One 
of the HUBZone employees is a full time engineer and the other 
is a student who works 40 hours per month. The ability to hire 
part time HUBZone employees on a 40 hour basis is one of the 
regulations that I find beneficial. This not only allows the 
small business to meet the requirement of the program but most 
importantly provides an opportunity for the part time employees 
to gain experience, build their resume, and make additional 
income.

    So what is the takeaway? These SBA programs are critical 
for enabling small businesses to take their first steps into 
serving the needs of our Federal government and as a result 
contribute to growth and economic development. Specifically, 
the HUBZone program helps the small business program 
participants earn their track records for ``past performance'' 
that enable them to stand up and compete on their own for 
larger opportunities while infusing further investment and jobs 
in distressed areas.

    But as beneficial as these programs are, there are ways 
that they can be improved, primarily in the removal of ``red 
tape'' and barriers to entry for small business leaders. For 
example, it would be extremely valuable to provide visibility 
into the application process. Existing technology can be 
effectively used to streamline the approval process, and 
historical data can be mined to predict the time required to 
process applications based on their complexity. Moreover, once 
HUBZone certified, small business owners would greatly benefit 
from having a resource that can provide guidance and answer 
questions about the program. I have been fortunate to find such 
a resource at our local SBDC office whom I have contacted on 
several occasion to clarify rules and seek guidance.

    So, in summary I would like to leave you with three 
thoughts:

           Small business in America is an engine of 
        innovation that is unmatched in any other economy in 
        the world,

           Programs like HUBZone are the essential keys 
        to bringing the benefits of this innovation to the 
        government of the American people through federal 
        contract awards and spurring economic development in 
        distressed areas,

           Opportunities exist to streamline the 
        application and oversight process for these programs to 
        enable their more efficient and effective use.

    It is truly an exciting time to be the leader of a small 
business. We are the envy of the world, and rightly so. The 
federal programs we are discussing today are vital to enabling 
the bright light of small business innovation to shine on the 
services provided by our government agencies.

    Thank you for your time today.

                                 [all]