The Small Business Administration is stepping up its efforts to ensure contractors aren't fudging the truth in order to win government deals.

The SBA in fiscal year 2010 visited more than 1,000 small business contractors participating in its popular HUBZone program, up from some 700 visits the year before and fewer than 100 in 2008. The program is aimed at linking small firms in economically distressed areas with federal contracting opportunities.

"We need to go out and see that these firms are who they say they are," said Joseph Jordan, the SBA's associate administrator for government contracting and business development. "The vast majority of these firms are well-intentioned and well-behaved, but occasionally you find a bad actor."

In the first half of 2009, the SBA conducted just seven site visits, but it began increasing surveillance activity in the second half of the year, visiting an additional 700 firms. The visits are part of a wider SBA effort to combat fraud connected with its growing contracting programs.

The SBA earlier this year suspended one of the government's most prolific IT contractors, GTSI Corp., accusing it of scheming to get a piece of government contracts for which it was ineligible.

"It was actually the first time we saw a top 50 contractor suspended for doing something they'd been doing for years," said Chris Gunn, a spokesman for the American Small Business League, a small business advocacy group.

The SBA and GTSI, which did not return phone calls seeking its comments, eventually reached an agreement under which several top executives resigned and the suspension was lifted. But similar cases against other companies are emerging.

"There is a tremendous volume of additional firms who are doing very similar things," Mr. Gunn said.

The SBA earlier this month told biotech firm Siga Technologies Inc., which was on the verge of winning a $2.8 billion smallpox-drug contract, that it did not qualify for the award because it is owned by the same large firm that owns such companies as Revlon Inc.

SIGA is appealing the ruling, saying the smallpox-drug contract should not be awarded as a small business set-aside. In a statement this week, SIGA suggested it could be "the only supplier that capable of delivering the requested 1,700,000 courses of therapy in a timely manner."

Still, similar rulings from the SBA could be on the horizon.

The Government Accountability Office in 2009 issued a report citing widespread fraud in the SBA's HUBZone program.

Of a review of 36 firms in four cities, the GAO found 19 weren't actually eligible for the contracts they won.

"One Alabama firm listed its principal office as 'Suite 19,' but when GAO investigators performed a site visit they found the office was in fact trailer 19 in a residential trailer park. The individual living in the trailer had no relationship to the HUBZone firm," the report said.

Combined, the 19 companies were improperly awarded $30 million in HUBZone contracts in 2006 and 2007, the GAO said.

Write to Meena Thiruvengadam at meena.thiruvengadam@dowjones.com

Source: http://online.wsj.com/article/SB10001424052748704170404575624922645150544.html