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House panel probes IRS 'champion' contractor

Jun. 24, 2013 - 06:00AM   |  
By JIM McELHATTON   |   Comments
Strong Castle Inc., decertified as a HUBZone contractor, is in Washington's Chinatown section, in the red brick building second from left.
Strong Castle Inc., decertified as a HUBZone contractor, is in Washington's Chinatown section, in the red brick building second from left. (Tom Brown / Staff)

Seven months after Deputy Treasury Secretary Neal Wolin hosted the “champion awards” honoring Signet Computers as the Treasury Department’s 2012 Small Business Prime Contractor of the Year, the renamed company’s fortunes have taken a sharp turn for the worse.

First, the Small Business Administration on May 23 stripped the company of its HUBZone status, leaving in question the future of its roughly half-billion dollars in contracts with the IRS.

Now, the contractor — known as Strong Castle — also finds itself the focal point of a House Oversight and Government Reform Committee hearing Wednesday. The committee announced last week the hearing would focus on IRS contracting practices, including “contracts awarded to Signet Computers, Inc., and its successor, Strong Castle, Inc., and waste, fraud and abuse of government contracting set-asides.”

IRS officials have declined to comment on the status of the agency’s relationship with the company after the SBA ruling. While SBA spokeswoman Tiffani Clements confirmed the HUBZone decertification, she declined to say more because she said the ruling contained confidential business information.

In a statement, Strong Castle said it disagrees with SBA’s decision and “will seek reconsideration of its determination at the appropriate time.”

“In the meantime, Strong Castle will abide by the SBA decision and will not seek new contract opportunities that are set aside for HUBZone small businesses,” the company said, adding that it remains certified as a service-disabled veteran-owned business.

The decertification comes just as the SBA inspector general’s office is conducting an audit to test whether reforms in the HUBZone certification process are working a few years after congressional investigators exposed embarrassing instances of fraud and abuse in the program.

SBA oversees the HUBZone program, which stands for Historically Underutilized Business Zone, a designation that gives contractors an edge in competing for federal work if they’re based in certain economically distressed areas.

The Government Accountability Office issued a series of reports from 2008 to 2010 showing how, with little effort, front companies could obtain HUBZone status. A 2010 undercover operation by GAO found companies even using addresses such as a self-storage facility and the Alamo in Texas.

While SBA has said it has enacted reforms since then, the agency’s inspector general’s office disclosed in a 2014 budget justification to Congress that it is currently reviewing the agency’s HUBZone certification process “in hopes of preventing ineligible firms from achieving certification.”

A spokesman for the SBA IG said the audit is ongoing.

Neither SBA nor IRS have said Signet’s application was fraudulent. However, competitors argued as much in documents and pictures sent to the Government Accountability Office over the winter, insisting that SBA never should have awarded the company HUBZone status.

In bid protest filings, one big question came from lawyers from PCi Tec, who told GAO it would be impossible to fit dozens of Signet employees in a principal location that consists of a 250- to 300-square-foot office suite in Washington’s Chinatown section.

The competitors also said IRS should have known the company’s principal office wasn’t in a HUBZone area because it was sending checks to another location in Arlington, Va., at an address clearly outside a HUBZone.

Under SBA rules, a principal office is where the company’s greatest number of employees at any one location perform their work.

GAO rejected the protest, but stated in a footnote in its ruling that it was not taking up the question of whether the company’s HUBZone status was properly granted because that authority rested solely with SBA.

While SBA has provided no public explanation for its decision stripping the company of HUBZone status, Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, sent a letter to SBA Administrator Karen Mills on May 29 asking for a copy of the notification to Strong Castle.

Issa’s letter, obtained by Federal Times, said SBA’s investigation began in January. That was just a few weeks after the company was honored by the Treasury Department.

In a blog post about the department’s small-business awards ceremony, Nani Coloretti, Treasury’s assistant secretary for management, wrote that Signet was a HUBZone and service-disabled veteran-owned small business.

“Signet worked closely with the Treasury procurement community to understand their needs and delivered innovative and cost-effective infrastructure solutions,” she wrote.

“Signet ensured the timely delivery of hardware and software that the IRS needed to meet key critical production dates, and provided quality staffing resources for critical IT programs.”

Weeks later, Issa sent a letter to Wolin asking for an investigation into the company. The letter cited information from unnamed witnesses who said a contracting official inside IRS steered work to the company. The name of the contracting officer is redacted in a letter later released by the committee.

A spokesman for the Treasury inspector general for tax administration declined to confirm or deny the existence of an investigation.

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