EVALUATING THE U.S. DEPARTMENT OF VETERANS AFFAIRS SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS CERTIFICATION PROCESS

 


 HEARING

BEFORE  THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON VETERANS' AFFAIRS

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION


JULY 28, 2011


SERIAL No. 112-27


Printed for the use of the Committee on Veterans' Affairs

 

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COMMITTEE ON VETERANS' AFFAIRS

JEFF MILLER, Florida, Chairman

 

CLIFF STEARNS, Florida
DOUG LAMBORN, Colorado
GUS M. BILIRAKIS, Florida
DAVID P. ROE, Tennessee
MARLIN A. STUTZMAN, Indiana
BILL FLORES, Texas
BILL JOHNSON, Ohio
JEFF DENHAM, California
JON RUNYAN, New Jersey
DAN BENISHEK, Michigan
ANN MARIE BUERKLE, New York
TIM HUELSKAMP, Kansas
Vacancy
Vacancy

BOB FILNER, California, Ranking
CORRINE BROWN, Florida
SILVESTRE REYES, Texas
MICHAEL H. MICHAUD, Maine
LINDA T. SÁNCHEZ, California
BRUCE L. BRALEY, Iowa
JERRY MCNERNEY, California
JOE DONNELLY, Indiana
TIMOTHY J. WALZ, Minnesota
JOHN BARROW, Georgia
RUSS CARNAHAN, Missouri

 

 

 

Helen W. Tolar, Staff Director and Chief Counsel


SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
BILL JOHNSON, Ohio, Chairman

CLIFF STEARNS, Florida
DOUG LAMBORN, Colorado
DAVID P. ROE, Tennessee
DAN BENISHEK, Michigan
BILL FLORES, Texas
JOE DONNELLY, Indiana, Ranking
JERRY MCNERNEY, California
JOHN BARROW, Georgia
BOB FILNER, California

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Veterans' Affairs are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

 

       

C O N T E N T S
July 28, 2011


Evaluating the U.S. Department of Veterans Affairs Service-Disabled Veteran-Owned Small Business Certification Process

OPENING STATEMENTS

Chairman Bill Johnson
    Prepared statement of Chairman Johnson
Hon. Joe Donnelly, Ranking Democratic Member
    Prepared statement of Congressman Donnelly


WITNESSES

U.S. Department of Veterans Affairs:
    Belinda J. Finn, Assistant Inspector General for Audits and Evaluations,
        Office of Inspector General
            Prepared statement of Ms. Finn
    Thomas J. Leney, Executive Director, Small and Veteran Business Programs,
        Office of Small and Disadvantaged Business Utilization
            Prepared statement of Mr. Leney
U.S. Government Accountability Office, Gregory D. Kutz, Director, Forensic Audits and
    Investigative Service
    Prepared statement of Mr. Kutz


EVALUATING THE U.S. DEPARTMENT OF VETERANS AFFAIRS SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS CERTIFICATION PROCESS


Thursday, July 28, 2011
U. S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Veterans' Affairs,
Washington, DC.

The Subcommittee met, pursuant to notice, at 10:29 a.m., in Room 334, Cannon House Office Building, Hon. Bill Johnson [Chairman of the Subcommittee] presiding.

Present: Representatives Johnson, Roe, Donnelly, and Barrow.

Also present: Representative Stutzman.

OPENING STATEMENT OF CHAIRMAN JOHNSON

Mr. JOHNSON. Good morning, this hearing will come to order, and I want to welcome everyone to today's hearing on Evaluating the VA's Service-Disabled Veteran-Owned Small Business Certification Process.

I would like to ask unanimous consent of the Subcommittee, they are not here yet, but at some point Chairman Stutzman and Ranking Member Braley of the Economic Opportunity Subcommittee be allowed to join us.

I understand you may have to leave at some point during the hearing, so you might not be here when they show up, but we would like them to be allowed to join our meeting today.

Hearing no objections, so ordered.

In any process we must be willing to be critical in search of new possibilities and positive implications. This process requires a keen eye, and an analytical mind, but most importantly it requires action based on willing participants in order to identify and correct weaknesses and shortcomings.

As many of you know, including today's witnesses, this Subcommittee has partnered with the Subcommittee on Economic Opportunity, the U.S. Government Accountability Office (GAO), the U.S. Department of Veterans Affairs (VA) Office of Inspector General (OIG) and others in conducting an investigation into the certification process for Service-Disabled Veteran-Owned Small Businesses or SDVOSBs.

Months of investigation have revealed many deeply troubling issues, many of which we will discuss today. For instance, businesses such as TeamUS, an organization identified by GAO in November 2009 as ineligible to participate in the SDVOSB program at the VA, though they continue to perform millions of dollars in contracting work for the VA after being found ineligible.

Our investigation into a specific group of companies, along with investigation by OIG and GAO, also identified that fraud was common among not just companies but also individuals. This fraud was not limited to those outside the VA, in some cases the VA's own contracting officers and key decision makers were at fault.  That fault was occasionally due to carelessness, sometimes due to lack of training, but in some instances it was also due to a VA employee's own ego or greed.

As Tertullian noted, truth engenders hatred of truth. As soon as it appears, it is the enemy.

Despite multiple discoveries of fraud in our investigation, it is important to note that there are many dedicated professionals in the VA who seek to do the right thing, and we acknowledge that. In some cases, they have been threatened into silence, they have been circumvented by their own chain of command, they have been ignored, and in some cases even fired.

In such cases, this Subcommittee can and will be their voice, and we will present the evidence they have attempted to bring to light. Truth cannot be suppressed, it will always find a way to be heard.

Veterans seek accountability. They want a process that excludes fraudulence and encourages legitimacy. They want inclusion with integrity. They want opportunity. The current program needs to be emancipated from an ineffective culture that will otherwise destroy it. These good employees expect leadership that allows both the individual and the organization to flourish through the utilization of their creativity, knowledge, and dedication.

This positive growth requires new methods of communicating and new voices with which to communicate. It requires a leader who will engage the issues at all levels, and who will lead by example.

The knowledge we share here must be linked to values and interests that benefit the integrity of the SDVOSB community.

Today we will hear on our second panel from a new leader with direct oversight of this very issue. Mr. Tom Leney, he has been the Executive Director of Small and Veteran Business Programs at VA for just over 3 months. It is my sincere wish that he shares with this Subcommittee what actions he has already taken and what actions he plans on taking in the future to get this program on the solid footing it requires.

As we will hear from the GAO and OIG on the first panel, we are all well aware that problems exist and to a significant degree. There is no denial of these facts, and this hearing provides a positive step forward in addressing and resolving these issues.

I appreciate everyone's attendance at this hearing and I now yield to the Ranking Member, Mr. Donnelly, for an opening statement.

[The prepared statement of Chairman Johnson appears in the Appendix.]

OPENING STATEMENT OF HON. JOE DONNELLY

Mr. DONNELLY. Thank you, Mr. Chairman.

This hearing today will provide the Subcommittee the opportunity to review the contracting practices throughout the Department of Veterans Affairs and ongoing contractor fraud and abuse.

Last year during the 111th Congress, the Committee conducted a hearing in which we heard from both the U.S. Government Accountability Office and the VA Office of Inspector General on their ongoing investigations on service-disabled veteran-owned small businesses contract fraud.

It was in 2009 that we learned that too often non veteran-owned small businesses continue to defraud the system and take away contracting opportunities that well-deserved veterans have earned.

It was during that hearing that we also learned about ten firms that were under investigation for fraud.

Today we will hear about what happened after the GAO report was published and what actions VA took against these ten firms.

Furthermore, the VA OIG projects that VA ordered 1,400 contracts valued at $500 million annually to ineligible businesses. They project VA will award over $2.5 billion over the next 5 years unless oversight and oversight and verification procedures are improved.

Finally, I would like to learn what step the VA has taken to prevent small businesses from claiming SDVOSB set-aside contracts and the progress they have made to certify veteran-owned small businesses.

I look forward to hearing from all of our panelists here today and any suggestions they may have on how we can discourage individuals from abusing veterans programs.

Thank you, and I yield back.

[The prepared statement of Congressman Donnelly appears in the Appendix.]

Mr. JOHNSON.  I thank the Ranking Member for yielding back.

At this time I would like to recognize Mr. Stutzman, we have already received unanimous consent for your participation today, thank you for coming.

The first panel is already seated. On this panel we will hear testimony from Belinda J. Finn, Assistant Inspector General for Audits and Evaluations at the VA Office of Inspector General. Ms. Finn is accompanied by James O'Neill, Assistant Inspector General for Investigations at the VA Office of Inspector General. We will also hear on this panel from Greg Kutz. Am I pronouncing that right, sir?

Mr. KUTZ. Kutz.

Mr. JOHNSON.  Kutz.

Mr. KUTZ. Thank you.

Mr. JOHNSON.  Director of the Forensic Audits and Investigative Service at the Government Accountability Office.

Both of your complete written statements will be made part of the hearing record.

Ms. Finn, you are now recognized for 5 minutes.

STATEMENTS OF BELINDA J. FINN, ASSISTANT INSPECTOR GENERAL FOR AUDITS AND EVALUATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY JAMES J. O'NEILL, ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND GREGORY D. KUTZ, DIRECTOR, FORENSIC AUDITS AND INVESTIGATIVE SERVICE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF BELINDA J. FINN

Ms. FINN. Thank you, sir. Chairman Johnson and Members of the Subcommittee, thank you for the opportunity to be here this morning.

Mr. O'Neill and I will testify on the Office of Inspector General's work related to the Department of Veterans Affairs Veteran-Owned and Service-Disabled Veteran-Owned Small Business programs.

In 2007, VA initiated the veterans first contracting program to increase contracting opportunities for veteran-owned small businesses. As a result, awards to veteran-owned businesses totaled about $3.5 billion by the end of fiscal year 2010.

Due to the programs growth and allegations that veterans may not be receiving the full benefits of the program, we began an audit to assess business eligibility and program controls.

Our audit work disclosed that 76 percent of 42 randomly selected businesses were either not eligible for the program or not eligible to receive the specific contract award because they did not meet subcontracting requirements.  Thirty-two businesses had received $46.5 million in veteran-owned and service-disabled vet-owned small business contracts.

We project that VA awards at least 1,400 of these contracts, valued at $500 million annually, to ineligible businesses. This equates to a minimum of $2.5 billion over the next 5 years.

Besides reducing the opportunities available to veteran-owned businesses, awards to ineligible businesses reduce the accuracies of VA's reported socioeconomic goal accomplishments.

Thirty-eight percent of the reviewed businesses were not owned or controlled by a veteran, and over half did not meet Federal incurred cost and subcontracting thresholds. In many cases, ineligible businesses passed through the majority of the contract work requirements and funds to non-veteran-owned businesses.

The awards made to ineligible businesses with ownership and control issues occurred because VA's Office of Small and Disadvantaged Business Utilization (OSDBU) was not thoroughly reviewing business documentation and performing site visits to verify the veteran-owned status.

In addition, the contracting officers did not always check VA's Center for Veterans Enterprise (CVE) database and the business size classification codes to ensure the businesses met program and size eligibility requirements.

The contracting officers also did not properly assess the subcontracting and partnering agreements to identify the contractors where the businesses would not perform the bulk of the work as required.

The OIG's Office of Investigations is aggressively pursuing allegations that ineligible businesses are misrepresenting themselves as veteran-owned to win contracts.

As of July 2011, we have opened 91 investigations, issued 268 subpoenas, and executed 19 search warrants.

Our investigative work recently resulted in the successful prosecution of the Chief Executive Officer (CEO) of a business that received set aside contracts from VA and the Department of Army. The CEO was convicted on charges of fraud against the United States, mail fraud, witness tampering, and making false statements.

To fix these problems, VA must ensure that legitimate veteran-owned businesses are receiving the contracts intended for them. VA is currently the only Federal agency that verifies the status of veteran-owned businesses, yet many contracts are still going to companies that are ineligible for the program or companies that do not meet the contract requirements.

VA is taking actions to strengthen their verification and contracting practices, but will need strong coordination between the program office and the contracting activities.

We will monitor the implementation of VA's corrective actions and perform follow-up work to assess the effectiveness of this work.

Mr. Chairman, thank you again for the opportunity to be here today. Mr. O'Neill and I would be pleased to answer any questions that you or other Members of the Subcommittee may have.

[The prepared statement of Ms. Finn appears in the Appendix.]

Mr. JOHNSON.  Thank you, Ms. Finn.

Mr. Kutz, you are now recognized for 5 minutes.

STATEMENT OF GREGORY D. KUTZ

Mr. KUTZ. Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to discuss the Service-Disabled Veteran-Owned Small Business Program.

Over the last 2 years, I have testified that this program is highly vulnerable to fraud and abuse. Today's testimony provides an update to our past work.

Let me start by saying that a fraud prevention program should include first, effective firm verification, second, continuous monitoring, and third, significant consequences for fraud and abuse.

When we began our work in 2008, what we found was a self-certification program with no fraud prevention controls. According to small business owners there has been widespread fraud and abuse in this program since its inception.

As you mentioned the ten firms that we investigated and reported on in 2009 received $100 million of service-disabled veteran sole source and set aside contracts using various fraud and abuse schemes. Our recent work has shown some improvement.

For example, VA has made some progress in establishing the VetBiz Verification Program. An effective verification program should reduce the vulnerability to fraud and abuse; however, as the OIG's report shows, this verification program has a ways to go.

All ten of our prior cases have gone through this verification process. Seven of the ten were found by VA to be ineligible, the other three are now VetBiz verified. Of the seven that VA found to be ineligible two still self-certify themselves in the central contractor registry as being valid service-disabled veterans small businesses. Although VA found these firms to be ineligible, there is nothing to prevent them from receiving new sole source and set aside contracts from other Federal agencies.

To address this issue we recommended that the Congress consider providing VA with the additional authority and resources necessary to expand the verification program government-wide. Only 30 percent of current service-disabled veteran contracts are with the Department of Veterans Affairs, thus for the other 70 percent we continue to have a self-certification program.

Historically there have been few or mostly no consequences for fraud and abuse. For example, firms identified through the U.S. Small Business Administration (SBA) bid protest process as ineligible got to keep the contracts that they won through fraud and abuse.

Since our 2009 report, we have identified $100 million of new contract obligations related to the ten firms that we identified that were involved in fraud and abuse. Several, including those that VA found to be ineligible, have received new service-disabled veteran set aside contracts.

Although work remains, there are positive trends in this area. For example, SBA has suspended four firms and three individuals related to two of our cases. In addition, six of these ten cases are currently under investigation. Further, according to the VA, they have debarred a number of firms and individuals in the last year.

Significant well-publicized consequences should deter future fraud.

In conclusion, I commend this Subcommittee for its oversight today of fraud and abuse, your continued interest will be critical. We owe it to the legitimate service-disabled veteran entrepreneurs to ensure that they receive the benefits this program was designed to deliver.

I look forward to continuing to work with this Subcommittee, VA, SBA, and veterans across the country to reduce fraud and abuse from this important program.

Mr. Chairman, that ends my statement and I look forward to your questions.

[The prepared statement of Mr. Kutz appears in the Appendix.]

Mr. JOHNSON.  I thank you for your statement.

Let us start with Ms. Finn. It is my understanding that the OIG gave a heads up to some of the businesses where site visits were going to be conducted. Why do you think it is that some of those businesses were still blatantly ineligible despite knowing of your upcoming visit?

Ms. FINN. When we announced or contacted the businesses to inform them that we were coming to visit we also asked for a good bit of documentation such as corporate records, ownership records, stock certificates, and tax records.  Part of our advance notice was to give the businesses time to pull this information together. So they had about 10 business days, which is not enough if the documentation does not exist.

So that probably is part of the reason why they still were not able prove their status because the documentation didn't exist.

Mr. JOHNSON.  Do you think that the Department, the VA is aware of how much it has been overstating the achievement of socioeconomic goals in contracting?

Ms. FINN. No, I have no evidence to believe they had any indication of the problem until we completed our work.

Mr. JOHNSON.  Okay. What deterrence outside of a strict certification process do you think would be effective in preventing fraudulent businesses from even trying to enter the system?

Ms. FINN. Obviously I think continued prosecution of businesses misrepresenting their status is a very strong deterrent. Also using suspension and debarment where it is warranted provides a deterrent. Any negative consequences are going to be a deterrent from individuals misrepresenting their status.

Mr. JOHNSON.  Mr. Kutz, you indicated that, I believe, if I heard your testimony correctly, we don't have a strong history of prosecution when we find these problems. Why do you think that is?

Mr. KUTZ. Well, I think I kind of park down at the end of the table from the investigative side.  U.S. Attorneys are typically not willing to take these cases, so even if the Inspector General does a great job with the investigation they may not get action with the U.S. Attorney. It doesn't mean that fraud was not committed, it means that for whatever reason there is a prioritization by the U.S. Attorney that does not include something like this.

Many believe that there is no loss to the government because the goods and services were provided; however, I think I would say that that is not true, I think it is an entire loss to the government, because the purpose of this program is to provide work for service-disabled veteran entrepreneurs.

Mr. JOHNSON.  I appreciate you making that comment. It is important that we note the purpose of eliminating fraud in this environment is not simply to protect taxpayer dollars, although that is a significant issue, an equally important issue is making sure that legitimate veteran-owned businesses are able to compete on a level playing field for the opportunities that exist, correct?

Mr. KUTZ. I agree with you 100 percent.

Mr. JOHNSON.  Your report mentioned, Mr. Kutz, that some of the ineligible companies are still getting paid for contracts and still receiving contracts even now, even though they were identified as a fraud in 2009. That is, you know, going on now 3 years ago. What actions can the government and should the government take against these companies?

Mr. KUTZ. Well, all ten received some money since the hearing you had in December of 2009 that I testified at. Two of the ten are now suspended, meaning government-wide they can't get anymore work.

Certainly I believe and I agree with Ms. Finn, that suspension, debarment, and prosecution, and I believe it should be well-publicized so the word gets out that if you cheat you might get caught and something might happen to you would serve as a good deterrent and that is really the back end.

But really, I mean, you really have to put your effort on the front end so you don't have to spend all your time investigating at the back end. If we have an effective firm verification program at the front end and effective monitoring, including the contracting officers getting involved, hopefully we will have less activity at the investigative side of the back end.

Mr. JOHNSON.  We are going to talk about the front end on the second panel, but it sounds to me like, and correct me if I am wrong, given the fact that much of this has been identified through the investigative process one of the most serious break downs is in the judicial system to not hold these businesses accountable. Is that an accurate statement?

Mr. KUTZ. We see that with everything. And again, I know the investigators could speak to that, but whether it be Katrina fraud or recovery act fraud, although the recovery act fraud got priority as did Katrina fraud, it depends what is on someone's plate. If you have got a really interesting drug case or whatever a big dollar case that may be more worth resources in the view of the U.S. Attorney than a service-disabled veteran set aside contract. So it just depends on each district.

For example, one of the cases we had the first time was in Idaho. That might be a good case in Idaho, a Federal Government contract for millions of dollars that was improperly awarded through fraud.

So I think it is going to be a case by case across the country.

Mr. JOHNSON.  It is sad testimony that criminal conduct like this, fraudulent conduct like this can go unaccounted for simply because we don't have our priorities within the judicial system correct.

I hope we will get a round for a second round of questions.  I will yield to the Ranking Member at this time.

Mr. DONNELLY. Thank you, Mr. Chairman.

Ms. Finn, we have about 91 investigations going on right now. Is that a ballpark of where we are?

Ms. FINN. Yes. Mr. O'Neill can confirm that.

Mr. DONNELLY. Okay.

Mr. O'Neill, what is the, you know, obviously not investigation by investigation, but what is the status of some of those? Are those moving forward as well?

Mr. O'NEILL. They are moving forward, and I would comment that I think the impact of your last hearing had a favorable outcome in terms of U.S. Attorneys being more receptive to considering prosecution. Prior to that there was more of a tendency to get a quick declination before we even ramped up fully the complete investigation. Now they are encouraging us to do a thorough investigation, present them all the facts, and I am much more optimistic that there will be more prosecutions down the road.

We indicted four individuals in June, I believe, in a company in one of these frauds out in Kansas, and that there are several more likely before the end of this calendar year.

So actually, I think they are more receptive to considering at least these investigations.  Now we have 91 open investigations, so they are at varying stages, some of them are only several days old—but none have been rejected yet for prosecution.

Mr. DONNELLY. Do you have any process for working with the U.S. Attorneys or method to indicate to them? You know, you mentioned that they may not have looked so closely at these before, is there any program in place to try to make sure that they get the attention from the U.S. Attorney that they may deserve?

Mr. O'NEILL. Yes, sir. By the Attorney General guidelines Offices of Inspectors General are required to discuss very early on in any investigation what the allegations are and what has been discovered in a preliminary investigation.  So that is a routine matter in every case.

Mr. DONNELLY. Well, the reason I am asking is because you said the U.S. Attorney's Office seems to be looking at these more closely now.

Mr. O'NEILL. Yes. We have been lobbying them, but that is not the only reason. I think that the publicity resulted from the last hearing helped spur the Department of Justice's (DOJ’s) interest from above, and that is conjecture on my part, but that seems to be the case.

But we have taught our agents how to go in and, for lack of a better word, "market" these investigations for consideration, because we were needing to get over the hurdle that there was no victim, the government wasn't victimized in this case, and we highlight the fact that the victims are the service-disabled veteran entrepreneurs who have earned the right for these set aside contracts and aren't getting them because of the fraudulent use of this program. We use the term stolen valor and that has been helpful in convincing a number of prosecutors to strongly consider prosecution.

Mr. DONNELLY. And I don't know if it is visible to you or it is something that you can pick up anecdotally or whatever, but have you seen any reduction or any greater awareness from individuals or companies that there is a seriousness about enforcing these rules, that the ability to get around them is being closed off and that if you try the consequences could be drastic?

Mr. O'NEILL. Well, there was a recent incident that we are investigating involving another company and a veteran who is the nominal head of that company and we had a search warrant and executed it and discovered email traffic where the veteran is concerned enough to—that he sent a copy of the press release about the conviction of the individual up in New York.

So we believe that the deterrence will come from greater publicity and we are going to try to do a much better job at publicizing this for the value of deterrence.

And one of the discussions we just had, in fact it was a suggestion from one of the staff members here, was a good one, is we are going to be putting warnings on VetBiz about judicial activity associated with this type of case being prosecuted, actually attach copies of press releases from the Department of Justice when someone is prosecuted, and we are hoping that that will have a deterrent effect and at least maybe educational effect when someone is not intending to defraud the government, but to educate them as to what could likely result in their prosecution if they continue on, particularly after being warned about the activity.

Mr. DONNELLY. Thank you very much.

Mr. JOHNSON.  The Chair recognizes the gentleman from Tennessee, Dr. Roe.

Mr. ROE. Thank you, Chairman, thank you Ms. Finn.

As usual you are here too often and I wish you didn't have to make any visits here, but as I understand this the reason that the Congress, in a bipartisan manner passed this was so that service-connected disabled veterans, entrepreneurs would be an opportunity to establish businesses and be s,uccessful, and we have an unacceptably high unemployment rate in our veteran population. Am I correct on that?

Ms. FINN. I don't have the specific legislative history, but that would sound reasonable.

Mr. ROE. We wanted our veterans to have a chance. Today we are having a big vote on deficit spending and the deficit and so on, and this information for me is so bad that I think if the American people really paid attention, which they are not today because they are focused on something entirely different, would blow this whole program up.

When I look at this—and start from scratch again—because it is that bad. I mean when your report comes in where you have 42 businesses and three-fourths of them are not even eligible; I haven't heard anything this bad since I have been here, and we are talking about billions of dollars. 

And I agree with you, Mr. O'Neill, it is not a shining case, it is not something that promotes the prosecutors, it is maybe a contract somewhere that should have been handled previously.

So there really is no risk for these people to rip the government off, and it is really astounding when I saw this. And I can see now after listening to this testimony today why the American people are so disgusted with us. If we take their hard earned tax dollars that are intended to go, which I don't think anybody in this country doesn't want to see a service-connected disabled veteran have an opportunity to succeed, and certainly not a person on either side of the aisle on this dais doesn't want that to happen, but you brought this up. I mean I have never seen anything this bad since I have been here, and I don't know that it will be get better. Hopefully it will get better, because it can't get much worse.

So any comments about just starting over again?

Ms. FINN. This program as compared to some of the other socioeconomic contracting programs such as the 8-A and the Women-Owned Business Program is almost in its infancy. And I think, this program has more controls, at least with VA, with the verification process than is present in other contracting programs.

So I wouldn't give up hope on it yet. I think there is time. I think this review, the work of GAO, and the ongoing prosecutions will be a great deterrent and will help to raise awareness and make sure this money goes to the veterans it needs to go.

Mr. ROE. You are telling me that this is the best? If this is the best, I mean maybe this is when we should throw the baby out with the bath water.

Ms. FINN. Well VA is the only agency that is certifying, verifying these businesses at all. As Mr. Kutz said, 70 percent of the money is outside VA, and those companies are self-certifying their status.

And if it is one thing I think our audit totally proved is that self-certification is not a sufficient control.

Mr. ROE. Well, I agree with that 100 percent. And Mr. Kutz, I appreciated your testimony. Do you have any suggestions about how to make this better?  Because this is awful.

Mr. KUTZ. Well, I think it is a combination of three things, and I agree with what Ms. Finn said. I mean you have human capital, you have processes, and you have the use of technology, that is on the management side of this. And then with respect to fraud prevention you have what can you do before the contracts are awarded, what can be done during the process, including contracting officers paying attention, and the deterrent through prosecution and perhaps debarments here.

And I think we are at the infancy stage this year, and I agree with you it is very frustrating for the veterans who are legitimately service-disabled out there and they see it, because I get emails all the time. We have hundreds of allegations we have received and the OIG has received hundreds, SBA OIG has received hundreds. I mean it is discouraging at this point, but if you believe in the program then at this point I certainly want to fight with you to try to prevent fraud in this program.

Mr. ROE. You know, here is an eligible veteran over here who is trying to get business and someone else has stepped in front of the line who has no business being there whatsoever. So we don't even know how many service-connected veteran businesses have been held out because of this, which is what the program was designed for. Am I correct?

Mr. KUTZ. That is correct, I agree with you. I think you are talking about jobs for veterans here too, because veterans hire veterans, and some of the cases we have seen there is no way the pass-through companies were hiring any veterans.  They were international foreign companies in some cases.

Mr. ROE. Just one quick question, I am out of time. But is some of this just not knowing the rules when a company applies?  Maybe it is not blatant fraud, I know the rules are complicated, but is that an issue?

Ms. FINN. We did talk to some businesses that seemed unaware of the rules, especially unaware of the subcontracting requirements and how exactly that worked.  Other businesses were clearly very aware of all the rules, and had taken actions to make things look better before we got there.  It is a mixed bag there.

Mr. ROE. Well, like I have said before, we have laws about robbing banks and people still do that.

I yield back.

Mr. JOHNSON.  Unfortunately they do, Dr. Roe.

The Chair recognizes Mr. Stutzman. Chairman Stutzman.

Mr. STUTZMAN. Thank you, Mr. Chairman, for the invitation and for allowing me to sit in today. Thank you to the panel as well for being here.

Have you debarred any ineligible businesses to this point from any contracts?

Mr. O'NEILL. We sought and gained debarment of Mitsubishi Corporation after the conviction of the company and the CEO. That has been the one debarment that I am aware of.

We have suspended, or I should say we sought the suspension and got it of the individuals and company in Kansas, and upon their conviction, if they are convicted, we will seek their debarment as well.

Mr. KUTZ. Of the companies we have looked at none have been debarred. SBA has suspended two, which has the same effect, they are precluded from doing business government-wide, but suspensions are typically shorter in duration than a debarment, especially the 5-year debarments that the VA has done for some of the cases that Mr. O'Neill talked about.

Mr. STUTZMAN. From this Committee hearing already it seems there is enough concern about businesses that are ineligible. Why isn't there more, why isn't action taken more quickly?

And you know, I agree with Ms. Finn that it apparently seems that self-certification is not a proper system, that we need further authorization, but why isn't there further oversight on these contracts when they are made?

I mean evaluating them, making sure that these businesses are eligible to begin with. I mean isn't that possible to do that?

Ms. FINN. That is the intent of the verification process that Center for Veterans Enterprise does. I believe Mr. Leney will be speaking about that later. And they are ramping up efforts.

What we looked at was how well a verification process could work.  We also reported on issues that we felt would impact the Department's ability to implement that verification process, and management and control oversight, structural issues within the office that is responsible for verification.

Hopefully those problems will be addressed soon and the verification process will verify more businesses more stringently. Then we will have a much higher level of assurance that the businesses are eligible.

Mr. STUTZMAN. Because I know government is fully capable of asking questions. As a small business owner, when I am paying my taxes or when I am paying to fill out paperwork for our trucking industry for our company there is no hesitation of asking questions, sometimes obtrusive questions.

So I just don't understand if we are using tax dollars for these contracts self-certification seems to be far insufficient for that. I mean when we are asking for money from taxpayers we ask all the questions, and when we are giving money out for contracts we are asking very little.

It seems like we have it backwards to some extent. We are not asking enough questions if we are taking taxpayer dollars and giving them to award contracts. It seems like we should be able to do that. Am I wrong, am I missing something?

Ms. FINN. No, you are right, we can do that, and that work I believe is beginning more in earnest now. It was not necessarily a priority in the past.  A lot of the businesses were verified through just looking at documentation, ownership documentation.

We feel in many cases that will not be enough, because we determined businesses were ineligible by looking at a lot of different records. We looked at tax records and stock certificates. This goes beyond what you might see in a typical document review. Although I believe even the documentation reviews are being increased in response to this report and the problems we found.

Mr. STUTZMAN. Because my fear is that if folks find out how simple this is you are going to have a bigger problem on your hand moving forward. If this isn't nipped in the bud now it is going to continue to be a problem, and as our veterans come back, as our men and women come back from the wars in Iraq and Afghanistan and want to start a business and would be eligible for these types of contracts, it is going to be such a mess that they are not even going to deal with it and we are missing the whole point of what this program is for.

Mr. KUTZ. This has been no secret, it is been that way from the beginning of this program.

But let me give you one more perspective too because you are talking SBA and VA who are typically advocacy organizations, now you are asking them to be more of an enforcement organization with respect to this. That is a very tough transition as we have seen.

The three people here at the table, we have been trained to look for fraud, waste, and abuse in the government. That is not typically the people who are running these types of programs.

And so I know Mr. Leney will talk about it, he has talked to us about hiring certified fraud examiners and using former Federal agents to do some of this, that is the kind of people you need to do an oversight program like this.

Mr. STUTZMAN. Well, I agree, you know from my experience this government has never had a problem doing those things, and you know, unfortunately people are going to take advantage of this, and it is not only your responsibility, it is the person who is trying to receive the contracts responsibility as well, and unfortunately the burden of proof is on both sides, but it is falling back on us, on you a lot more than it is on them apparently, because if people are going to continue to take advantage of it we are going to continue to have the problems.

So thank you, Mr. Chairman, I will yield back.

Mr. JOHNSON.  Thank you for yielding back.

Some additional questions and we will start a second round at this time.

For any of the panel members, how do we protect whistle blowers that try to bring fraud to the surface?

I've got an example here. We have had a gentlemen send a question in from Facebook that says he brought $230 million in potential fraud to the attention of his bosses and he was retaliated by his bosses at the VA.

What kind of protections can we put in place so that when that is identified, the people who identify it don't wind up the victims?

Mr. O'NEILL. Well, the Office of Special Counsel (OSC) protects whistle blowers, we in the VA OIG take strong measures to protect the identities of the witnesses that come forward. I would have to know more about this individual as to whether that event has occurred or not. I don’t know about that one.

Mr. JOHNSON.  Well, I don't mean to cut you off, it sounds like this individual may have gone to his bosses rather than coming directly to VA OIG.

Are you suggesting that in order to be absolutely safe and protect themselves they should probably stop at your office first to make sure that they are under the umbrella of safety?

Mr. O'NEILL. Well, we would always encourage any VA employee that suspects fraud, any felonies to report them to the VA OIG, without a doubt.

Does that offer 100 percent protection?  Ultimately in court a judge may order a complainant to be identified, that is up to a judge, but certainly it would help protect them and also get to the truth of things, I mean most importantly.

So in this case if an individual is fired because of information they should feel free to come to us now, but I think their immediate recourse is to file a complaint with OSC about whistle blower retaliation, but we would certainly want to know about it if there is evidence of fraud that they are aware of.

Mr. JOHNSON.  I think that is sound advice. I know, you know, thinking about it from a common sense perspective I think a whistle blower is not so concerned about being identified as they are about not being retaliated against for doing what they think is the right thing to do.

Obviously bringing something like that to the surface and reporting it they are doing so because they see that it is wrong, they believe that it is wrong, and they want to see something done about it.

So I think that is something that potential whistle blowers should consider at least as a first stop, stop by your office first.

Mr. O'NEILL. Absolutely.

Mr. JOHNSON.  And get that as a matter of record so that you have that safety net. Would that be advisable?

Mr. O'NEILL. Absolutely.

Mr. JOHNSON.  Okay. Mr. Kutz, what are some further actions that the VA could take to weed out the businesses that are good at paperwork and still able to get around the current verification process?

Mr. KUTZ. Well, there is some at each stage. At the prevention stage I mentioned expert staffing is important, the quality and quantity of staffing for this program is going to be very important. I really believe contracting officers are a key element to this.

We mention whistle blowers, I don't think any of the allegations we have ever received are coming from a contracting officer, but if anybody knows what is going on, it should be the contracting officers who see the pass-through and who are doing the work every day.

So somehow we need to get them more engaged in the fraud prevention and detection process.

On the monitoring side, you know, one of the things we have talked to the program about is the use of unannounced site visits. We find it to be very effective to go out unannounced. I know Ms. Finn in the kind of audit that she did needed these documents, but the issues of ownership and control sometimes you can see very clearly from a surprise visit versus, for example, if an owner is 3,000 miles away. If they know 10 days in advance you are coming, that owner is going to be there.

And we actually had a case where because the contracting officer tipped off the company they changed the asset ownership the day before we got there so it appeared that some other company was involved that really wasn't.

And at the back end again, I really think that you need a more aggressive debarment process at VA and within SBA. I think that is something that really hasn't been done effectively yet.

Mr. JOHNSON.  Thank you. The clock didn't start so I don't know if I even have any time remaining on this round, but Dr. Roe, let me yield to you at this time.

Mr. ROE. Just a couple of comments. One on self-certification. When I played basketball if I had been self-certifying I would have never committed a foul, the ball would have never bounced on me out of bounds. So I think you get the idea there, that that doesn't work, and I think that is clear, so we have to have a verification process.

Mr. Kutz, I think you made a great point that the VA's mission before this may be part of the problem is that they have been advocating and providing services for veterans as opposed to overlooking, for instance, contracting officers' duty in VA. This is different.

The other thing and the Chairman brought it up about whistle blowers, I could be right three-fourths of the time if I saw all these contracts, go look at all of them, I would be right if three out of four that you presented were wrong you could blow the whistle, I could just take a dart and throw and be right.

So I mean this whole process needs incredible scrutiny and cleaning up or otherwise we can't continue to do this this badly with taxpayer dollars, I mean and especially since it doesn't meet the intent of every person at this dais.

I mean, I know as a veteran it is offensive to me to think about other veterans out there, and I meet them at home all the time, we have the largest veterans concentration in the State of Tennessee in my district, good people that are out there trying to get along in a tough economy, and we are making it even tougher for them because we are not making other people follow the rules.

So it is just a comment, and you can comment about it if you would like, but that is sort of how this veteran feels about it.

Ms. FINN. That is definitely how we look at it also.

Mr. ROE. Okay, thank you. I yield back, Mr. Chairman.

Mr. JOHNSON.  I thank the gentleman for yielding back.

Mr. Kutz, a final question here. My understanding is that under the current verification process when a company is deemed ineligible, the VA tells the company exactly why they are rejected.

How can we strike a balance so that eligible companies are able to reapply, but fraudulent companies that have broken the rules intentionally won't simply fix the identified problem? This goes back to a company that might be good at paperwork so you know they come back through the revolving door and they are right back in the game.

Mr. KUTZ. We have suggested that anybody who is rejected, whether it be for an honest mistake or a potentially fraudulent mistake, be put on some sort of a list and if they try to get back in the system, which you know inevitably many of these are going to, they become an automatic high risk flag that requires a site visit and additional scrutiny.

Because again, I think what you are going to see there are hundreds now because they have started doing scrutiny that have been rejected from the VetBiz verification, perhaps thousands at this point.

So they are going to try to get back in if they want the money, they shuffle the deck, whatever the case will be, but that is the problem with the three of our ten that got back in, they were involved in our view in fraud and abuse before, they perhaps cleaned things up and look better today, now they are back in and nothing happened to them for what they did with the millions of dollars they got before.

So that is a real challenge here and I think you just have to put a high risk tag on people that have had prior suspicion of abusing the program.

Mr. JOHNSON.  Well, on behalf of the the Committee I want to thank you folks for your testimony today. I want to reiterate, you know, the focus of our—the intent of this Subcommittee is to level the playing field so that eligible small disabled veteran-owned businesses get what is coming to them and that they have the opportunities that are rightfully theirs and that we identify the bad actors that choose to try to defraud the system. And I don't think they realize they are not just defrauding the Federal Government, they are defrauding the very men and women who fight for their freedom and their ability to be in business in the first place. Not only should they be held accountable in the judicial system, they should just absolutely be ashamed of themselves for engaging in that kind of conduct.

Folks, I thank you for your testimony today.

Mr. ROE. Mr. Chairman, may I have a closing comment?

Mr. JOHNSON.  Absolutely.

Mr. ROE. I want to thank this panel for enlightening us, and I am sorry that what is going on today in this crazy place that more people weren't here to hear your testimony. I think it is some of the most important testimony I have heard since I have been here, and I want to thank all of you all for doing that. I certainly want the Chairman to follow up with this Committee in some period of time to hopefully find out we are making some real progress.

Thank you.

Mr. JOHNSON.  I affirm the gentleman's comments and I support those as well. A lot of activity today around the Nation's deficit, and I am sure you folks hear the news, but this is an important topic as well, and I hope that we can get the message out.

We are focused on it here and we are going to remain focused on it until we get some resolution.

So you are now excused, thank you again for your testimony.

I invite the second panel to the witness table.

On this panel we will hear today from Mr. Tom Leney, the Executive Director of Small and Veteran Business Programs at VA'S Office of Small and Disadvantaged Business Utilization.

Mr. Leney, your complete written statement will be made part of the hearing record, and you are now recognized for 5 minutes.

STATEMENT OF THOMAS J. LENEY, EXECUTIVE DIRECTOR, SMALL AND VETERAN BUSINESS PROGRAMS, OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, U.S. DEPARTMENT OF VETERANS AFFAIRS

STATEMENT OF THOMAS J. LENEY

Mr. LENEY. Thank you, Mr. Chairman, Members of the Committee, I want to thank you for inviting me to discuss the VA's implementation of Public Law 109-461, as well as subsequent legislation.

I listened carefully to your concerns this morning, so I will be summarizing my opening remarks so we can get to the questions, and I hopefully can answer some of those concerns, because it is important for us to all realize that the Congress has provided VA with tools to aid veteran entrepreneurs. VA has used these tools aggressively and leads the government in contracting with veteran small businesses.

In the fiscal year 2010, we awarded more than $3 billion in contracts to veterans out of our contracting base of $15 billion. That is real money in the hands of veteran small businesses and established VA as a leader in this area.

At the same time, VA has actively implemented Public Law 109-461 to ensure procurement or to strive that procurement eligibility only goes to legitimate SDOSBs and VOSBs. We are carrying out the direction of Congress to verify such firms and to debar firms that misrepresent themselves to obtain contracts through misrepresentation.

The VA has accomplished these actions at the time of great challenge in the leadership of the Office of Small and Disadvantaged Utilization.

On April 18th, I became the new Executive Director. I came to the VA most recently from the private sector working for government contractors where building partnerships and mentoring small businesses were central aspects of my work. I am also a veteran having served 22 years in the Army. I have applied that experience to develop and implement solutions that address some of the concerns raised by the GAO and some of the concerns I have heard raised by you here this morning.

We are taking steps and have taken steps to address these concerns. We have been able to do so because the VA senior leadership supports verification and has ensured that we are properly resourced to improve verification.

The senior leadership continues to support the resourcing and requirements of OSDBU, as we expect 2012 will bring an expanded workload in that arena.

And I also want to note that the support and regular engagement of VA's acquisition leaders in the Office of General Counsel have been indispensible in me being able to get at some of these issues and make some improvements.

The VA seeks veteran participation in our procurements, but we also seek to keep out those who misrepresent themselves, those who would take away opportunities from legitimate veterans firms.

We have heard loud and clear from you and from veterans that a credible veterans small business program must ensure that only those who are eligible can participate. We have implemented the Congressional mandates of 109-461.

In 2010, Public Law 111-275 directed VA to list firms in the Vendor Information Pages (VIP) database only after the CVE had certified their status. The law directed the VA to contact all unverified firms within 60 days, and within 90 days after receiving a notice they were all required to submit applications or be removed.

We met the statutory deadlines and we removed almost 8,200 firms from the VIP database.

While we have not verified all firms listed in VIP, by the time the full verification requirement takes effect in January 2012 we will have completed that mission.

In the interim, VA has adopted a policy for verifying firms under an expedited process whenever a service-disabled veteran or veteran-owned small business is the apparently successful offerer for a solicitation. No firm will be awarded a contract at VA under P.L. 109-461 without being verified. That is my commitment to you.

Public Law 109-461 recognizes that some purported veteran-owned businesses will get past the verification screen by misrepresenting themselves.

In other words, to abuse VA contracting opportunities CVE refers questionable cases to the Office of the Inspector General. This fiscal year, 14 of those have resulted in investigations by the OIG, and we also refer cases to the Debarment Committee, and this year the VA has debarred 12 companies.

The VA has overcome challenges to sustain its commitment to legitimate veteran businesses. Now we have implemented and continue to monitor contracting actions for opportunities suitable for veteran firms. We also continue to ensure the programs integrity.

As the new Executive Director, I appreciate and I look forward to engagement by your Committee, because I would agree with what I have heard this morning, this is critical to the integrity of the program and the integrity of what we seek to do, which is to help firms get opportunities with the Federal Government.

So this ends my statement and I look forward to your questions.

[The prepared statement of Mr. Leney appears in the Appendix.]

Mr. JOHNSON.  Thank you, Mr. Leney, I appreciate that, I am encouraged.

First of all thank you for your service, it is always good to know that we have veterans serving in the Veterans Affairs Department. We have appreciated getting veterans on the Congress's Veterans' Affairs Committee and I too am one of those and so I thank you for your service.

Your tone intimates to me resolve to address these issues and we will get into them.

The T-4 basis of award specifies that any bidder receiving an unacceptable in any subfactor will not be eligible for award, yet an award was made to a company that received an unacceptable in one subfactor.

Now I am not sure whether this was before your time or since you arrived or after. 

We also note that this company did not have any VA prime contracts in the last 6 years.

Are you aware of this and can you explain how something like this could happen?

Mr. LENEY. Sir, I am generally aware of the procurement that was handled under T-4. I know that in one case all of the veterans small businesses were referred to us, and in one case we removed a potential awardee for being ineligible.

I cannot speak to, I don't have knowledge of the particular instance you are talking about however, but I can look into that and reply for the record.

[The VA subsequently provided the following information:]

Question 1: The T-4 basis of award specifies that any bidder receiving an unacceptable in any subfactor will not be eligible for award, yet an award was made to a company that received an unacceptable in one subfactor.

Response: No award was made to any company that was rated "unacceptable" in any subfactor.

The Request For Proposal stated that, in order to receive consideration for award, a rating of no less than "Acceptable" must be achieved for the Technical factor, the Technical sub-factors (Sample Tasks and Management), and the Small Business Participation Commitment (SBPC) factor. The Sample Tasks subfactor was comprised of three individual sample tasks, and a rating of at least "Acceptable" was not required for each of the three individual sample tasks. One of the successful SDVOSB offerors received an "Unacceptable" rating for one of the three sample tasks. However, since they received a "Good" rating and an "Acceptable" rating for the other two sample tasks, they received an overall sub-factor rating of "Acceptable" for the Sample Tasks sub-factor.

Question 2: An awardee did not have any VA prime contracts in the last 6 years. Are you aware of this and can you explain how something like this could happen?

Response: Excluding competitors without any VA specific past performance would have been a violation of the terms of our solicitation. That being said, however, all T4 awardees that received an award did in fact demonstrate VA experience either at the prime or major subcontractor level, which constituted the offeror's team.

Mr. JOHNSON.  I would appreciate that.

A question. We talked a little bit earlier and I noted that you were listening intently to the issue of whistle blowers. You know, I hate that term by the way, you know, because it has such a negative connotation to it. It is like calling them a stool pigeon or something when they are trying to do the right thing.

First of all, what is your position in terms of responding to VA employees who bring potential fraud cases forward to their supervisors? What is your position on that?

Mr. LENEY. Well, I think it is the responsibility of supervisors as good stewards of the resources that have been provided to the VA to ensure that those kinds of allegations are looked into.

It is disappointing whenever we hear that a supervisor's first response is to retaliate against someone who raises any kind of an issue as opposed to having a first response as dealing with the issue.

So quite frankly that is alien to my experience, it is alien to the way I do business, and I certainly can't support those who would retaliate against people who bring problems.

Mr. JOHNSON.  Mine too. That kind of conduct would be alien, and I know I am asking you a hypothetical question here, but given that you found credible evidence of retaliation against someone who tried to bring fraud forward what would be your response?

Mr. LENEY. Well, I think that it is the responsibility of any manager, any leader in any agency of the government, not the least of which is the VA, to ensure that again, first of all we address what the issue is, and then determine the validity of the allegation.

I have seen or been aware of experiences where false allegations were made in an attempt to pursue another agenda, but I think that is different from—drawing conclusions about allegations is different from investigating an allegation, and I would certainly hope, and I know that the Secretary has a very strong view on this, I have heard him speak on the subject, he only has one view, which is let us get the problems dealt with, and I think he would find it personally offensive for someone to be retaliated against.

Mr. JOHNSON.  Good. In light of the recent VA OIG report review of allegations of acquisition planning weaknesses and cost overruns on the contract awarded to Catapult Technology Limited how does VA justify selecting SDVOSB and VOSB awardees with no VA prime contracting past experience?

Mr. LENEY. In the 90 days that I have been at the VA, my focus has been on making sure that the process of verification, we have assessed it and approved it.

While I would welcome becoming involved in those kinds of issues, and I don't mean to defer your question, but that would be an important issue for the contracting and the acquisition community, because the notion of a firm's corporate experience in a particular agency is a contracting issue.

I might note from personal experience having had the task in a small business of engaging in a new agency that by in large lack of previous experiences is not necessarily a good thing except in those cases where there is a concern about the quality of previous work.

So I would hope since one of our goals is to introduce new small businesses and new veteran-owned small businesses to procurement opportunities that we wouldn't make being an incumbent or past experience in the agency the sole rational for future awards.

Mr. JOHNSON.  Okay. Thank you for your answers, we will have another round, and I will have a few more, but I will yield to Dr. Roe at this time.

Mr. ROE. I thank the Chairman, for yielding, and Mr. Leney thank you again. I associate my comments with the Chairman for your service to our country.

Mr. LENEY. Thank you, yours as well.

Mr. ROE. Knowing General Shinseki, I am sure that this lights him up just exactly like it does me when he hears about this. When you have got $3 billion being spent, we know that $2 billion of it didn't go to veterans—disabled veteran businesses, which is astonishing to me.

I think you have a target rich environment in which to work, and I believe that you will do your job, I really do. I think you are committed to it. You have only had, obviously you have 90 days, you are brand new on the job.

I think the disbarment of these firms so they can never do business with the Federal Government again is as good as you can do. You can never do business again when you were fraudulent. I think that is very important. And the temptation though with this much money out there and as lax as it is been is just too great for people not to take this on. There really has been almost no risk to them to get this business. I mean you are talking about hundreds of millions of dollars, and especially in a down economy they are going to come after the money, so it is going take some real oversight on your part to do that. I mean if you churn the water they will come.

And so I think the things you are starting to do right now are very positive, and I want to commend you for those, but I think the proof is in the pudding. So we will see on that, and I hope you have procedures, and if you could walk us through a little bit about what you are doing now.

I realize you haven't much time on the job, but what have you done so far?

Mr. LENEY. Yes, sir. Let me start with when I came to the VA. I am operating on a very simple mission statement. The Secretary's mission to me was one sentence. Ensure that you protect the integrity of the Vet First Program by making sure that we verify the firms that are going to be involved in that program and we do not allow ineligible firms to participate. I would simplify that, and this is not his words, mine, it is fix verification and make sure it stays fixed. That is very clear what my job is. That is job one for me. I am the Director for the Center for Veterans Enterprise.

One of the things I have done in the last 90 days, I made personnel changes, I now sit at CVE, I am the Director of CVE, I am personally accountable and responsibility for the performance of that organization, and until I get a new Director into that organization, I am the guy who is now directly handling it.

What have we done? A, we have changed some people. Two, we are looking to recruit some additional people.

And I want to make a couple of I think important notes. One, I don't have a resourcing problem, that has not been the problem. When I took this job and I looked at the budget there were about $6 million allocated to the Center of Veteran Enterprise this year, out of my entire budget I determined that it was insufficient, I moved money around to add resources for the Center for Veteran Enterprise, I went back to my boss and asked for more money, and currently we are looking at about $14 million this year on the Center for Veteran Enterprise.

In my experience when I was in the service working in the Pentagon making that kind of a budget shift in 90 days is unusual, but it is indicative of the level of interest and the level of commitment by the senior leaders at the VA to make this right.

I will tell you that I don't have a blank checkbook, I am accountable for it all, and under considerable pressure to make sure that we are good stewards of those resources.

Secondly, we have done a thorough review of the status of all the veterans. One of the biggest problems in verification right now is communication to the stakeholders of the community. I have letters from a number of Members of the Committee who had constituents who have had concerns about the process, so we are now pushing communications out. By 1 August, every single applicant will be been communicated with in terms of where their status is and what the next steps are, and we have now instituted a process where no one is in progress without having a communication from us every 30 days. Because yes, there have been cases where firms have submitted applications and months have gone by without hearing from my staff, but I think we fixed that.

Mr. ROE. I haven't been here very long—but one of the things that I think I learned with this program right here is if we initiate a new program that whether it is in the VA or anywhere in this government that you have adequate oversight of that program and rules and regulations, not overregulated, but rules and regulations so when you go out that this doesn't happen so that the intention of the Congress is actually met. And now you have now got a mess to clean up 2 years or 3 years into this program.

So I yield back, my time as expired, Mr. Chairman.

Mr. JOHNSON.  Thank you, Mr. Roe. We will have some more time as well.

Mr. Leney, is there a formal appeals process for businesses that are denied verification but are potentially verifiable?

Mr. LENEY. Yes, sir. Every denial is accompanied by the opportunity for a request for reconsideration, and that is a formal part of the process, and I believe that is an important part of the quality control.

My bigger concern is the quality control has been the quality control when we approve that firm. Because as you might imagine as soon as we approve or we verify a firm as a veteran-owned small business they don't complain.

And as I have heard this morning and you have heard from the GAO and the OIG, the integrity of the program is more at risk from approved firms than denied firms.

But yes, sir, we do have a formal process request for reconsideration. We then review them completely again and that does allow firms to fix problems. And I think it is important to note, we have denied 4,000 firms this year. In the majority of those cases, and I have reviewed dozen of cases and I have spoke to dozens and dozens of veteran entrepreneurs who have been involved in our process, the majority of those cases are not fraud, and we need to be a little bit careful about connecting ineligible to misrepresentation to fraud to debarment.

In most cases, when we deny a firm they self-report. From the documents they give us it generates the evidence that makes them ineligible. And I think that is important to note that we don't conflate verification eligibility with fraud.

But yes, when we relook at a firm as a request for reconsideration we do allow them to fix things, because in many cases it is a problem with an operating agreement or the way they operate their board of directors, and our approach is to enable veterans to have opportunities to engage in procurement, not to shut the door on them. So when they fix the problem we verify them.

Mr. JOHNSON.  I am terribly sorry, I actually made a mistake.  The Ranking Member and our colleagues on this side are not here, but I have agreed their counsel has a couple of questions before I ask any further ones. I apologize, I yield to the gentleman.

Mr. HERBERT. I am Marty Herbert, Democratic Staff Director on behalf of Ranking Member Donnelly. I have a question for you, Mr. Leney.

What specific penalties does the VA most often impose on businesses that are found to be ineligible or provide false information, and of those businesses how many were actually penalized?

Mr. LENEY. I think you are speaking in reference to two different groups. Let me address the ineligible group firsts.

The penalty for being ineligible is removal or lack of access to $3 billion worth of VA business, and I think that is a substantial penalty. In talking to firms who seek to do business with the VA who are now denied that opportunity they also view that as a substantial penalty.

To the group that misrepresents itself, consciously misrepresents itself particularly with the goal of fraudulently gaining access to opportunities that we have set aside for veterans, those people are referred both to the Office of Inspector General for prosecution and to the Debarment Committee.

Those processes have had challenges, and one of the things we have done in the last 90 days, the Member from Tennessee asked what has been accomplished, we have now institutionalized some processes as we identify a questionable firm, we now refer them formally to the Office of Inspector General, they conduct their investigation, determine whether or not they are going to pursue it for an indictment or a criminal act, if not, it is referred back to us and we push it through the debarment process.

So debarment is probably the most relevant tool, though criminal proceedings are obviously on the table. But that is not a decision that we make.

Mr. HERBERT. No further questions, Mr. Chairman, I yield back. Thank you.

Mr. JOHNSON.  I would like to continue on the vane of the question that I asked about the appeals process, because you know, our investigation, Mr. Leney, has indicated that there have been numerous cases where a CVE contractor and/or CVE employee has found a statement missing or a statement that is incorrect within the written documents presented by a veteran-owned small business or a disabled veteran-owned small business. Instead of contacting the veteran and asking for clarification, addition, or correction, CVE denies that application and with scant and/or precise information needed by the veteran's business to properly appeal the denial decision.

When this occurs, when the incomplete appeal is submitted, CVE then removes that veteran-owned small business from the database and tells them that they can reapply in 6 months.  In many cases, these small businesses, that is death to that company.  How do you respond?

Mr. LENEY. I believe that our evaluators, when they get to a position of recommending denial, that is a very serious decision. They do so based on an evaluation framework that has been tested, and I think is valid.

In many cases or in a number of cases certainly since part of this evaluation is based on the documentation, the business documentation that is provided to us, if that business documentation is corrected they could be evaluated.

But I would bring to the Chairman's attention there were three firms that were investigated by the GAO, ten firms were investigated, three firms do business with the VA, two of those firms were verified by my organization after the GAO had investigated. They fixed their documentation.

So it is a bit of a challenge. And what we try not to do is to take an incomplete evaluation. So if an evaluator goes to the firm and says you have these document elements are either in error or insufficient, we bring those back and do a totally of circumstance evaluation. In some cases they are single points of failure.

We do allow in the process of the request for reconsideration the correction of those documents, and that is what that process is for.

But I would relate a story to you of an evaluator was out in a business, who identified errors, and of course I can remember my days in the Army when the OIG would visit me, we would want to do on the spot corrections, and I would want to chain the OIG to the table until I managed to correct everything that they found so he could walk away and give me a clean bill of health.

We have changed our evaluation process, because as we send an evaluator out there to collect information quite frankly, sir, that is not an assistance visit, that is an evaluation. We provide the opportunity for it to be fixed.

And I would agree with you, sir, it does have an impact on the firm because it is not 6 months. They have 60 days to respond and we have 60 days to reevaluate. Only if they are denied upon reconsideration are they precluded from doing business with the VA under this program for 6 months.

Mr. JOHNSON.  I appreciate your comments, and you have hit the ground running obviously. And I would leave you with this challenge and then I am going to see if Dr. Roe has some additional questions.

You come from a culture much like I did as a veteran. We have to look at the glass as half full, failure is not an option. And I believe we have to in many cases within the Federal Government, and we see it in other agencies across the Federal Government, which is why our economy is in such a state that it is in right now, agencies like the EPA and the Department of the Interior and such, they have become the departments of no. You know, first stop is a reject.

I appreciate your comments, and I am just going to challenge you, Mr. Leney, I believe you are motivated to do the right things, you have indicated that here before this Subcommittee today, I am certainly willing to give you the chance to do that, and I am optimistic based on your response to the questions and your statements of commitment.

We need to make this easy for veteran-owned businesses to get started. Not just bureaucratic, but easy. That is going to help get our economy started again, that is going to put veterans back to work, I know you understand that.

I would challenge that your Department looks, at every opportunity, to break down barriers and rather than saying no find a way to help that veterans business, if they are truly eligible and verifiable and don't fall into that fraud category, help them determine, help them figure out how to become verifiable.  I believe if the Administration would do that across the bureaucratic agencies that exist in the government today, you would see a lot of businesses springing up. So I would challenge you with that.

Let me see if Dr. Roe has some additional questions.

Mr. ROE. I have no further questions, just a closing comment.

Thank you, Mr. Chairman, for holding this, I think hearing, extremely important, I am just sorry it was today, I wish it could have been a different day because of what is going on here at the Capitol, but three thousand million dollars is a lot of money.

Mr. LENEY. Yes, sir.

Mr. ROE. That is $3 billion, and certainly both sides of the aisle want this money to go where it was intended.

And I would say first, I agree with the Chairman to make it easy, but first let us get it to the people it was intended to be there for, which apparently now $3 out of $4 is not getting to the people that it was intended for.

I am encouraged with your testimony. I know where General Shinseki's heart is. I know him, he is not happy with this, he has to be as embarrassed as I am about this to even have to have this hearing, but I am optimistic also as the Chairman said that we can correct this and make sure that those resources, those opportunities are afforded to our warriors who have protected this country.

So thank you for being here today.

And with that, Mr. Chairman, I yield back.

Mr. JOHNSON.  I thank the gentleman for yielding back, and I do have some closing comments.

You know the Department of Veterans Affairs, VOSB, and SDVOSB contracts account for approximately 30 percent of government-wide contract in this category during fiscal year 2010. This leaves 70 percent of VOSB and SDVOSB contracts to be given to self-certifying firms not verified by the VA.

Given the Department of Labor Inspector General's recent report substantiating a number of issues with this program and our preliminary assessment that those issues also potentially affect the manipulation of veteran-owned and service-disabled veteran-owned business contracts in VA, swift action must be taken to end the corruption and the manipulation of this program.

Fraudulent and unverifiable businesses should not get certified. Fraudulent and unverifiable businesses should not get contracts. Over $21 million so far to fraudulent companies were found in our sampling.

VA must use currently available tools for verification of ineligible businesses.

VA employees must be trained properly. This training should be documented and they should be held accountable for due diligence. And as we discussed earlier, they should be encouraged to bring forth potential fraud, and I would even go so far as to say, and I reflect upon your comments, false accusations.  Obviously you are going to have bad actors in both barrels. Someone who makes an intentional false accusation of fraud that has to be dealt with as well. But if an employee at the VA in your Department suspects fraud, I think they not only have a responsibility, it is incumbent, it is a moral incumbency upon them to bring that issue forward to management, and if it turns out not to be fraud, they should not be penalized for doing their due diligence. We can't hold them accountable for doing due diligence in one place and then slap them around when they try to do that.

VA employees should not be violating the law through favoritism or manipulating the system by encouraging pass-through companies, and Mr. Leney some are doing just that. This issue accounts for 67 percent of the problems that we are discussing here, and anyone improperly taking advantage of this program should pay dearly.

As of this investigation, 91 charges are pending and we continue to investigate.

With that I want to say that again I am encouraged by your testimony. Today is the first day I have met you, but I will speak for myself as Chairman of the Subcommittee, you seem like a man committed with determination and resolve to make a difference there. You served potentially as I did with many of the people that will be coming to your Department to be certified to do work for the Federal Government.

I would like to request that 90 to 120 days from now when you have had a chance to get your feet more firmly planted, that we can take a look at these issues again and get an update from you on what you found and how you are addressing these problems. Will you grace us with that?

Mr. LENEY. Yes, sir, would be happy to do that.

Mr. JOHNSON.  With that I ask unanimous consent that all Members shall have 5 legislative days to revise and extend their remarks and include extraneous material.

Without objection so ordered.

I want to thank all Members and witnesses for their participation in today's hearing and business meeting, and this hearing is now adjourned.

[Whereupon, at 11:56 a.m., the Subcommittee was adjourned.]


APPENDIX


Prepared Statement of Hon. Bill Johnson, Chairman, Subcommittee on Oversight and Investigations

Good morning. This hearing will come to order.

I want to welcome everyone to today’s hearing on Evaluating the VA’s Service Disabled Veteran Owned Small Businesses certification process.

I would like to ask unanimous consent of the Subcommittee that Chairman Stutzman and Ranking Member Braley of the Economic Opportunity Subcommittee be allowed to join us today in our meeting. Hearing no objection, so ordered.

In any process, we must be willing to be critical in search of new possibilities and positive implications. This process requires a keen eye, and an analytical mind, but most importantly it requires action based on willing participants in order to identify and correct weaknesses and shortcomings.

As many of you know, including today’s witnesses, this Subcommittee has partnered with the Subcommittee on Economic Opportunity, Government Accountability Office, the Veterans Affair Office of Inspector General and others in conducting an investigation into the certification process for Service Disabled Veteran Owned Small Businesses, or “SDVOSBs.”

Months of investigation have revealed many deeply troubling issues, many of which we will discuss today. For instance, businesses such as TeamUS, an organization identified by GAO in November 2009 as ineligible to participate in the SDVOSB program at the VA, continued to perform millions of dollars in contracting work for the VA after being found ineligible.

Our investigation into a specific group of companies, along with investigation by OIG and GAO, also identified that fraud was common among not just companies but also individuals. This fraud was not limited to those outside the VA- in some cases, the VA’s own Contracting Officers and key decision makers were at fault. That fault was occasionally due to carelessness, sometimes due to lack of training, but in some instances it was also due to a VA employee’s own ego or greed.

As Tertullian noted, “Truth engenders hatred of truth. As soon as it appears, it is the enemy.”

Despite multiple discoveries of fraud in our investigation, it is important to note that there are many dedicated professionals in the VA who seek to do the right thing.  In some cases they have been threatened into silence, they have been circumvented by their own chain of command, they have been ignored, or even fired. 

In such cases, this Subcommittee can and will be their voice, and we will present the evidence they have attempted to bring to light. Truth cannot be suppressed - it will always find a way to be heard.

Veterans seek accountability. They want a process that excludes fraudulence and encourages legitimacy. They want inclusion with integrity. They want opportunity. The current program needs to be emancipated from an ineffective culture that will otherwise destroy it. These good employees expect leadership that allows both the individual and the organization to flourish through the utilization of their creativity, knowledge, and dedication.

This positive growth requires new methods of communicating and new voices with which to communicate. It requires a leader who will engage the issues at all levels, and who will lead by example. The knowledge we share here must be linked to values and interests that benefit the integrity of the SDVOSB community.

We will hear on our second panel from a new leader with direct oversight of this very issue. Mr. Tom Leney has been the Executive Director of Small and Veteran Business Programs at VA for just over 3 months. It is my sincere wish that he shares with this Subcommittee what actions he has already taken, and what actions he plans on taking in the future to get this program on the solid footing it requires.

As we will hear from the GAO and OIG on the first panel, we are all well aware that problems exist and to a significant degree. There is no denial of these facts. And this hearing provides a positive step forward in addressing and resolving these issues.

I appreciate everyone’s attendance at this hearing and I now yield the Ranking Member for an opening statement.


Prepared Statement of Hon. Joe Donnelly, Ranking Democratic Member, Subcommittee on Oversight and Investigations

This hearing today will provide the Subcommittee the opportunity to review the contracting practices throughout the Department of Veterans’ Affairs and ongoing contractor fraud and abuse.

Last year, during the 111th Congress the Committee conducted a hearing in which we heard from both the U.S. Government Accountability Office and the VA Office of Inspector General on their ongoing investigations on service disabled veteran-owned small businesses contract fraud. It was in 2009 that we learned that too often non-veteran owned small businesses continue to defraud the system and take away contracting opportunities that well deserved veterans have earned. It was during that hearing that we also learned about ten firms that were under investigation for fraud. Today, we will hear about what happened after the GAO report was published and what actions VA took against these ten firms.

Furthermore, the VA OIG projects that VA awarded 1,400 contracts valued at $500 million annually to ineligible businesses. They project VA will award over $2.5 billion over the next 5 years unless oversight and oversight and verification procedures are improved!

Finally, I would like to learn what steps the VA has taken to prevent small businesses from claiming SDVOSB set-aside contracts and the progress they have made to certify veteran owned small businesses.

I look forward to hearing from all of our panelists here today and any suggestions they may have on how we can discourage individuals from abusing veterans programs.

Thank you and I yield back.


Prepared Statement of Belinda J. Finn, Assistant Inspector General for Audits and Evaluations, Office of Inspector General, U.S. Department of Veterans Affairs

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to discuss the Office of Inspector General’s (OIG) work related to the Department of Veterans Affairs’ (VA) Veteran-Owned and Service-Disabled Veteran-Owned Small Business (VOSB and SDVOSB) programs. Recently, we issued an audit report, Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs, that found that 76 percent of the businesses we reviewed were ineligible for either the program and/or the specific VOSB or SDVOSB contract award, potentially resulting in $2.5 billion awarded to ineligible businesses over the next 5 years. I am accompanied by Mr. James J. O’Neill, Assistant Inspector General for Investigations, whose office’s work recently resulted in the successful prosecution of the Chief Executive Officer (CEO) of a business that had been awarded SDVOSB set-aside construction contracts for which the company was not eligible. The CEO was convicted of fraud against the United States, mail fraud, witness tampering, and making false statements.

BACKGROUND

On December 22, 2006, Public Law (PL) 109-461, Veterans Benefits, Health Care, and Information Technology Act of 2006, established participation goals and other requirements to increase VA contracting opportunities for veteran-owned small businesses. VA implemented these requirements by establishing the Veterans First Contracting program. The program placed SDVOSBs and VOSBs first and second in VA’s hierarchy of socioeconomic contracting preferences and required businesses to register in VA’s VetBiz Vendor Information Pages (VIP) to be eligible for contract awards. VetBiz VIP is VA’s congressionally-mandated database of businesses that are eligible to participate in its VOSB and SDVOSB programs. VA’s Office of Small and Disadvantaged Business Utilization (OSDBU) monitors VA’s implementation and execution of socioeconomic programs, including the VOSB and SDVOSB contracting programs. The Center for Veterans Enterprise (CVE) within OSDBU verifies the eligibility of veteran-owned businesses and maintains VetBiz VIP as required by PL 109-461. VA is the only agency within the Federal Government that verifies the status of veteran-owned businesses participating in its VOSB and SDVOSB programs.

With the introduction of the Veterans First Contracting program, VA’s VOSB and SDVOSB programs have grown significantly from $2.1 billion in fiscal year (FY) 2008 to $3.5 billion in FY 2010, an increase from 15 to 23 percent of VA’s total procurement dollars. The VOSB and SDVOSB contracting programs increase contracting and subcontracting opportunities for veterans and service-disabled veterans and ensure these businesses receive fair consideration when VA purchases goods and services.

The growth in the VOSB and SDVOSB programs has also spurred growing concerns that veteran-owned businesses may not be receiving the full benefit of these contracting programs. As a result, the OIG initiated an audit of the VOSB and SDVOSB programs and began investigating an increasing number of referrals alleging that businesses have misrepresented themselves as veteran-owned businesses to obtain VA contracts. Our audit work disclosed that VA has awarded numerous VOSB and SDVOSB sole-source and set-aside contracts to businesses that do not meet program and contract requirements. In addition, we are pursuing numerous other investigations involving alleged “pass throughs” where a VOSB wins a contract, performs little to none of the work, and passes through the contract to an ineligible company for a fee or percentage of the award. To date, our investigative work has resulted in the indictment and conviction of one company official for falsely self-certifying a business as an eligible VOSB and SDVOSB, and we are actively pursuing 91 investigations.

AUDIT OF THE VOSB AND SDVOSB PROGRAMS

In our recently issued report, Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs (July 25, 2011), we examined VA’s VOSB and SDVOSB programs to determine if businesses that received contracts under these programs met program and contract eligibility requirements and if program controls were effective. We found that 76 percent of the businesses we reviewed were ineligible for either the program and/or the specific VOSB or SDVOSB contract award. From the 42 statistically selected businesses we reviewed, 32 ineligible businesses received $46.5 million in VOSB and SDVOSB contracts. These awards included $26.7 million in Recovery Act funded contracts.

We projected that VA annually awards at least 1,400 VOSB and SDVOSB sole-source and set-aside contracts valued at $500 million to ineligible businesses and that it will award a minimum of $2.5 billion over the next 5 years if VOSB and SDVOSB verification and program controls are not strengthened. Further, the award of VOSB and SDVOSB contracts to ineligible businesses reduced the funding available to eligible businesses and the accuracy of VA’s reported socioeconomic goal accomplishment data. For      FY 2010, OSDBU reported that VA procurements totaled $15.4 billion, of which $3.5 billion went to VOSBs and of that $3.5 billion, $3 billion went to SDVOSBs.  Our audit results indicate that VA awards somewhere between $500 million to $2.6 billion in VOSB and SDVOSB contracts to ineligible businesses during a 12-month period. If we adjust the goal data for our findings,  VA’s reported FY 2010 VOSB and SDVOSB procurement dollars would decrease somewhere between 3 to 17 percent. VA, in reality, may be barely meeting the Secretary’s VOSB and SDVOSB procurement goals of 12 and 10 percent.

PROGRAM AND CONTRACT ELIGIBILITY DEFICIENCIES

The audit reported two major areas of risk in VA’s assessment of VOSB and SDVOSB eligibility: the verification of ownership and control to establish the eligibility of the business for the programs and the review of subcontracting and partnering agreements at the time of award to establish the eligibility of the business for the contract. We found that veterans either did not own or control the businesses or veteran-owned businesses “passed through” or subcontracted more work to nonveteran-owned businesses than allowed under Federal regulations.  In some instances, businesses had multiple ownership, control, and subcontracting issues that made them ineligible.

Veterans Did Not Own or Control Businesses

Thirty-eight percent of the reviewed businesses were ineligible for the programs because veterans did not own and/or control the businesses. Sixteen ineligible businesses improperly received 28 VOSB and SDVOSB sole-source and set-aside contracts valued at $8.5 million.  To be eligible for the programs, Title 38, Code of Federal Regulations (CFR), Part 74.1, requires one or more veterans or service-disabled veterans to unconditionally and directly own at least 51 percent of the business and to manage and control the operations of the business concern. Further, veterans must be involved in long-term decision-making and day-to-day management of the business operations, hold the highest officer position in the business (president or chief executive officer), and must have managerial experience commensurate with the extent and complexity needed to operate the business.

In many cases, the self-certifications for the businesses on VetBiz VIP, the Central Contractor Registration (CCR), the Online Representations and Certifications Application, and other documents indicated a veteran owned the business. However, 2 of the 16 businesses that CVE had previously verified as eligible for the program through their review of available online documents such as the CCR, Dun and Bradstreet reports, and obligation amounts from the USA Spending Web site, were, in fact, ineligible.  Our interviews and observations often showed that business managers or nonveteran family members managed, operated, and controlled the day-to-day business operations.  We concluded that online document reviews were insufficient to establish program eligibility and ensure businesses meet Federal ownership and control requirements. Instead, we believe interviews with veteran owners and business managers and the review of documents such as corporate bylaws, stock certificates, tax returns, resumes, and negotiated checks during onsite visits are critical to establishing a veteran’s ownership and control of a business. For example, in the case of an SDVOSB that provided VA duct cleaning and maintenance services, reviews of key documents, such as the past 3 years of tax returns, showed that the veteran’s spouse received 100 percent of the business’ profits and owned the business instead of the veteran.

Businesses “Passed Through” Contracts or Did Not Meet Subcontracting Requirements

Fifty-seven percent of the reviewed businesses were ineligible for the awarded VOSB and SDVOSB contracts because the businesses did not meet Federal incurred cost and subcontracting performance thresholds. The 24 ineligible businesses received 57 VOSB and SDVOSB sole-source and set-aside contracts valued at $39.3 million. Federal regulations at 13 CFR 125.6(b) and 48 CFR 52.219-27(c) prescribe thresholds and limitations on subcontracting for VOSB and SDVOSB contracts. For service contracts, the VOSB or SDVOSB must incur at least 50 percent of the cost of the contract using its own employees. For general construction contracts, the VOSB or SDVOSB must incur at least 15 percent of the cost of the contract using its own employees. In addition, VOSBs and SDVOSBs are required to submit partnering agreements with their bid proposals so contracting officers can review them prior to award.

Despite these requirements, 18 businesses with 42 VOSB and SDVOSB contracts valued at $35 million had passed through the majority of the contracts’ work requirements and funds to nonveteran-owned businesses. Pass through contracts occur when businesses or joint venture/partnerships list veterans or service-disabled veterans as the majority owners of the business, but the nonveteran-owned business either performs or manages the majority of the work and receives the majority of the contracts’ funds. Six additional businesses with 15 SDVOSB contracts valued at $4.3 million also exceeded the VOSB and SDVOSB subcontracting thresholds or limitations established in Federal regulations. These thresholds deter pass through arrangements because they limit the amount of work that can be subcontracted to other businesses and establish the minimum amount of work to be completed by the veteran-owned business.  All 24 of the businesses generally lacked the technical expertise and/or the resources to complete the required amount of work on the contracts. For example, the resume of a veteran-owner of an SDVOSB showed that he lacked the technical expertise to manage and control a construction business because he had no experience in construction. Instead, the veteran-owner’s resume indicated that he had 31 years of experience in the banking industry where he served as a senior officer, president, and CEO of various financial organizations.

From our discussions with business owners, we concluded that these types of subcontracting agreements were common practice. VOSBs and SDVOSBs solicit partnerships with nonveteran-owned businesses that possess the technical capability to do the work.  Likewise, ineligible nonveteran-owned businesses initiate relationships with VOSBs and SDVOSBs to gain access to Federal VOSB and SDVOSB contracts. We believe partnerships and mentoring relationships between VOSBs, SDVOSBs, and other businesses are valuable in promoting the development and advancement of veteran-owned businesses. However, VOSBs and SDVOSBs need to adhere to Federal incurred cost and subcontracting performance requirements.  This will ensure, in keeping with the goals of the VOSB and SDVOSB socioeconomic programs, that eligible businesses perform the specified amount of contract work and receive a commensurate amount of the funds and benefits from the contract awards.

VOSBs Improperly Used the SDVOSB Status Preference

Two VOSBs also improperly used the service-disabled veteran preference to obtain
13 set-aside and sole source contracts valued at $5.6 million. To be eligible for SDVOSB contracts, the Federal regulations define a service-disabled veteran as a veteran with a VA service-connected disability rating between 0 and 100 percent. The veteran owners of these two businesses self-certified in the CCR and VetBiz VIP that they had service-connected disabilities and requested CVE verification to participate in the SDVOSB program. CVE could not verify the claimed service-connected disabilities in the Veterans Benefits Administration’s Beneficiary Identification Records Locator Subsystem and sent letters to the two businesses informing the veteran owners that it could not verify that they were service-connected veterans.  At that time, legislation allowed CVE to accept the businesses’ self-certifications and did not require CVE to remove businesses from the VetBiz VIP database. Because CVE did not remove these two businesses from view in the VetBiz VIP database, the VOSBs improperly benefitted from the receipt of SDVOSB contracts and potentially blocked eligible SDVOSBs from receiving these contracts.

FACTORS CONTRIBUTING TO AWARDS TO INELIGIBLE BUSINESSES

Several factors within VA facilitated the award of VOSB and SDVOSB contracts to ineligible businesses. In general, OSDBU lacked the management controls needed to effectively oversee the VOSB and SDVOSB programs, to ensure the effectiveness of CVE verification processes, and to coordinate the oversight of contracting officers with VA’s major acquisition offices. Inadequate OSDBU program oversight and the lack of coordination with VA’s Office of Acquisition and Logistics (OA&L) and the Veterans Health Administration’s (VHA) Procurement and Logistics Office (P&LO) contributed to the improper award of VOSB and SDVOSB contracts to ineligible businesses. OSDBU’s coordination with VA’s acquisition community should have addressed issues such as the need to review VOSB and SDVOSB subcontracting and partnering agreements that can result in pass-throughs to nonveteran-owned businesses.

OSDBU Lacked Effective Management Controls

OSDBU and CVE lacked a formal organizational structure and an accurate, updated organizational chart. Further, staff performing business verifications lacked documented duties, roles, and responsibilities and some staff lacked job descriptions that accurately described their current job functions. In addition, OSDBU and CVE did not have current policies and procedures for the administration of the verification program.  CVE had last updated its verification program policies and procedures in August 2009. Thus, its policies and procedures did not address changes in VetBiz VIP and revised verification processes needed to comply with the Veterans Benefits Act of 2010 (PL 111-275). On April 15, 2011, CVE issued updated internal policies and procedures for its verification processes. However, neither OSDBU nor CVE have yet developed additional guidance needed for management oversight functions such as accountability for the completion of assigned verification duties and responsibilities and the establishment of verification performance measures and reporting requirements.

Finally, OSDBU and CVE also lacked an effective performance management system to effectively monitor and evaluate staff performance and CVE business verification processes. OSDBU and CVE’s weekly performance monitoring meetings focused on the progress made on the verifications but did not address the timeliness and quality of staff performance and verifications and the maintenance of VetBiz VIP data.  In conclusion, we found OSDBU lacked the management processes needed to determine if it has the right staff, resources, and processes in place to timely implement and monitor current VOSB and SDVOSB program requirements and possible future process improvements.

CVE Lacked Effective Verification Processes

CVE verification processes needed strengthening to reduce the number of ineligible businesses participating in the programs. Until recently, CVE’s verification processes consisted of limited electronic document reviews to assess ownership and control and the selective completion of onsite reviews for businesses deemed high-risk. This verification process allowed businesses to self-certify as VOSBs or SDVOSBs with little supporting documentation and little chance of an onsite review. At the same time, CVE did not properly maintain the VetBiz VIP database. For example, CVE staff did not remove a business from VetBiz VIP after OSDBU sustained a protest of the business’ veteran-owned status, thus allowing the ineligible business to continue receiving VOSB and SDVOSB sole-source and set-aside contracts.

Laws and regulatory changes enacted since May 2010 (the end period for the obligation amounts and businesses in our sample that we reviewed) now require CVE to verify each small business concern listed in the VetBiz VIP database to ensure a veteran or a service-disabled veteran owns and controls the business.  Further, as of September 2010, all prospective VOSB and SDVOSB awardees are required to apply and undergo verification by CVE prior to receiving a contract award. To comply with these requirements, CVE initiated a Fast Track program to verify businesses with pending awards within 21 business days, implemented additional verification documentation requirements, and notified businesses of the new requirements. The additional document reviews CVE has recently implemented have stopped businesses from self-certifying as VOSBs and SDVOSBs and required the businesses to provide evidence of veteran ownership. However, OSDBU and CVE still need to develop strategies and risk analyses to better identify high-risk businesses, and conduct onsite reviews when they identify high-risk or potentially ineligible businesses.

Contracting Officers Lacked Oversight When Awarding VOSB and SDVOSB Contracts

OSDBU’s lack of program oversight and coordination with OA&L and P&LO also contributed to the high number of ineligible businesses awarded VOSB and SDVOSB sole-source and set-aside contracts. OSDBU did not coordinate the monitoring of contracting officers with OA&L and P&LO to ensure they complied with VOSB and SDVOSB contracting requirements. As a result, contracting officers did not adequately assess the eligibility of the business for the VOSB and SDVOSB contracts as required by the Federal Acquisition Regulation and VA Acquisition Regulation during the contract award process. Fifty-seven percent of the reviewed businesses were ineligible for $39.3 million in VOSB and SDVOSB contracts because contracting officers either did not review or properly assess the businesses’ subcontracting and partnering agreements at the time of award. Moreover, contracting officers often did not check VetBiz VIP or the business’ North American Industry Classification System codes assigned by the Small Business Administration (SBA) to ensure businesses met program and size eligibility requirements.

ELIGIBILITY AND CONTRACTING DEFICIENCIES IN RECOVERY ACT CONTRACTS

We also reported that 14 of the 42 statistically selected businesses had received 24 VOSB and SDVOSB contracts funded with $27.3 million from the American Recovery and Reinvestment Act. We noted that 13 of the 42 businesses had improperly received $26.7 million in VOSB and SDVOSB contracts funded by the Recovery Act. As discussed previously, these businesses were ineligible due to a lack of demonstrated ownership and/or control, improper subcontracting practices, improper use of SDVOSB status, or a combination of these factors. Contracting officers also awarded 9 businesses 10 VOSB and SDVOSB Recovery Act contracts valued at $5.3 million that had at least one contracting deficiency.

REPORT RECOMMENDATIONS AND ACTION PLANS

We recommended VA and OSDBU implement effective management and program controls, enhance verification processes, and implement a coordinated contract monitoring activity for VOSB and SDVOSB contracts to ensure the long-term success of the VOSB and SDVOSB programs. The Deputy Under Secretary for Health, the Executive Director of the Office of Small and Disadvantaged Business Utilization, and the Executive Director of the Office of Acquisition, Logistics, and Construction agreed with our report’s findings and recommendations and provided acceptable action plans. Nevertheless, VA will need to address P&LO, OA&L, and OSDBU’s shared and interrelated responsibilities in administering and overseeing VA’s VOSB and SDVOSB programs as it develops an enterprise-wide strategy to reduce the number of ineligible businesses receiving contract awards. The effectiveness, and ultimately the success, of an enterprise-wide strategy will depend on OSDBU, P&LO, and OA&L’s continued collaboration, coordination, and follow through on the planned corrective actions. We plan to monitor the implementation and coordination of the offices’ respective action plans as we follow up on the report’s recommendations and monitor the VOSB and SDVOSB programs.

OIG INVESTIGATIVE WORK RELATED TO VOSBs AND SDVOSBs

The OIG’s Office of Investigations is aggressively pursuing allegations and referrals regarding ineligible businesses that obtain VOSB and SDVOSB contract awards.  As of July 2011, we have 91 open investigations and have issued approximately 268 subpoenas and executed 19 search warrants. Our efforts have resulted in the indictment and conviction of one business official, and we anticipate additional prosecutions in the future.

The CEO of a construction management and general contracting business, that received SDVOSB set-aside construction contracts, was convicted of committing fraud against the United States, mail fraud, witness tampering, and making false statements.  An OIG joint investigation with SBA OIG and the Army Criminal Investigations Division revealed that the CEO falsely self-certified that his business was an eligible VOSB and SDVOSB in order to obtain over $16 million in contracts from these programs. During the investigation, the defendant made false statements to a Federal agent claiming that another person who had served in the military was the majority owner of his business. He is awaiting sentencing, but he and the company have been debarred from doing business with the Federal Government.

Most of our investigations involve “pass through” schemes where an ineligible large business has allegedly created an SDVOSB with the assistance of a service-disabled veteran. The SDVOSB owned by the service-disabled veteran then wins SDVOSB sole-source and set-aside contract awards, but does not perform any of the work. The SDVOSB simply functions as a shell business and “passes through” the work to the ineligible large business.

CONCLUSION

To fix the problems identified, VA must ensure that legitimate veteran-owned businesses are receiving the contracts intended for them. VA is currently the only Federal agency that verifies the status of veteran-owned businesses, yet many contracts are still going to companies that are ineligible for the program or do not meet the specific contract requirements. VA is taking actions to strengthen its CVE verification and its contracting practices. Collaboration between OSDBU, OA&L, and P&LO in the development of a management control system for VA’s VOSB and SDVOSB procurements should promote the participation of eligible businesses and ensure VA has adequate VOSB and SDVOSB program and contract oversight from the time of award through contract performance.  We will monitor the implementation of VA’s corrective actions and perform follow-up work to assess the effectiveness of the future verification and contracting practices.

Mr. Chairman, thank you for the opportunity to discuss the OIG’s work related to VA’s VOSB and SDVOSB programs. We would be pleased to answer any questions that you or other Members of the Subcommittee may have.


Prepared Statement of Gregory D. Kutz, Director, Forensic Audits and Investigative Service, United States Government Accountability Office

SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PROGRAM:  Preliminary Information on Actions Taken by Agencies to Address Fraud and Abuse and Remaining Vulnerabilities

Why GAO Did This Study

The Small Business Administration (SBA) most recently reported in fiscal year 2010 that $10.8 billion of Federal contracts were awarded to Service-Disabled Veteran-Owned Small Businesses (SDVOSB). SBA’s report also showed that, of this amount, $3.2 billion was for Department of Veterans Affairs (VA) contracts. In 2009 and 2010, GAO reported on weaknesses in fraud-prevention controls that allowed 10 ineligible firms to receive millions of dollars in SDVOSB contracts. GAO was asked to update (1) agency actions in response to prior investigations of 10 case-study firms, the status of prior GAO recommendations, and the status of ongoing Inspector General (IG) investigations, and (2) the status of any new Federal contract obligations associated with the case-study firms. This testimony provides preliminary information on GAO’s ongoing work.

To address these objectives, GAO reviewed prior findings from audits and investigations of the SDVOSB program, and contacted SBA, VA, and agency OIG officials for an update on actions taken in response to GAO’s prior recommendations and the 10 case-study firms. GAO identified contract obligations awarded to the 10 case-study firms. GAO did not validate representations made by agency officials or determine whether any of the 10 case-study firms receiving contracts subsequent to the November 2009 testimony were eligible or not. GAO discussed information in this statement with SBA and VA officials who generally agreed with the findings.

What GAO Found

SBA and VA have taken a number of positive actions in response to prior GAO findings and recommendations concerning the SDVOSB program, but the program remains vulnerable to fraud and abuse. For example, SBA requested all 10 previously identified case-study firms to change their SDVOSB status in the Central Contractor Registration (CCR) to show they are not eligible for SDVOSB contracts, and VA rejected 7 of the 10 firms from participation in its VetBiz program. However, as of July 2011, two of the firms rejected by VA continued to self-certify themselves as an SDVOSB in CCR which allows the firms to compete for governmentwide SDVOSB contracts. The fact that some firms continue to list themselves as SDVOSB firms in CCR despite VA finding them ineligible exposes the gaps that still exist in SDVOSB program fraud-prevention controls across the government. Agencies have alsotaken some actions to suspend some of the case-study firms. For example, SBA suspended four companies and three individuals associated with 2 of the 10 case-studies, making them ineligible for further contracts with the Federal Government.

In an effort to minimize the potential for fraud in the SDVOSB program, GAO made recommendations to SBA and VA concerning overall SDVOSB program improvements. In response to prior recommendations, SBA, VA, and other agencies have met to coordinate improvements. VA is also developing procedures to refer firms that knowingly misrepresent their status as an SDVOSB for debarment or suspension. GAO also suggested that Congress consider providing VA with additional authority and resources to expand its SDVOSB verification process governmentwide. There is currently a Senate bill that addresses this matter. SBA and VA concurred with GAO’s conclusion that legislative changes would be needed to expand the VA verification process.  Such action would help prevent firms from obtaining contracts from the rest of the government after VA found the firm to be ineligible. GAO inquiries to OIG officials revealed that 6 of the 10 firms are currently under investigation. Further details can be provided once the cases have been fully adjudicated.

GAO’s prior investigation found that 10 case-study firms that fraudulently or abusively misrepresented material facts related to their eligibility for the SDVOSB program had received approximately $100 million in SDVOSB sole-source and set-aside contracts, and an additional $300 million in other Federal contracts. Subsequent to GAO’s reporting on this, from November 2009 to March 2011, the 10 firms received more than $100 million in additional obligations on Federal contracts, of which approximately $16 million in obligations were associated with SDVOSB set-aside contracts. GAO did not investigate the additional contract obligations to determine whether or not they were appropriate; however, GAO plans to review the basis for these actions and the firms’ continued participation in the SDVOSB program as part of its ongoing work and will include these results in its final report.


Chairman Johnson, Ranking Member Donnelly, and Members of the Subcommittee:

Thank you for the opportunity to discuss the results of our ongoing audit of the Service-Disabled Veteran-Owned Small Business (SDVOSB) Procurement Program. The SDVOSB program is intended to honor the service rendered by veterans with disabilities incurred or aggravated in the line of duty. The program permits contracting officers to award set-aside and sole-source contracts to small-business concerns owned and controlled by one or more service-disabled veterans. The Small Business Administration (SBA) stated in its most recent report that, in fiscal year 2010, $10.8 billion in Federal contracts[1] were awarded to firms that self-certified themselves in the Central Contractor Registration (CCR)[2] as SDVOSBs. Self-certification as an SDVOSB in CCR allows firms to bid on SDVOSB sole-source and set-aside contracts across the government. The Department of Veterans Affairs (VA) SDVOSB contracts accounted for $3.2 billion or approximately 30 percent of governmentwide SDVOSB contracts during fiscal year 2010. In 2011 more than 15,500 firms were listed in CCR that self-certified themselves as SDVOSBs and approximately 5,500 firms were listed as verified by VA as SDVOSBs in VA’s online database called the VetBiz Vendor Information Pages (VetBiz).

In 2009 and 2010, we reported on weaknesses in fraud prevention-controls that allowed ineligible firms to receive millions of dollars in SDVOSB contracts.[3] At that time, we found that the governmentwide SDVOSB program was primarily a self-certification program. VA did have specific statutory authority to implement a SDVOSB verification program,[4] but that authority was limited to contracts awarded by VA. During our previous work, we found that SBA was not obligated to institute any type of fraud prevention controls within the SDVOSB program. SBA was not verifying the eligibility of firms claiming to be SDVOSBs, and did not have a process in place to access the VA service-disabled veteran’s database listing individuals that are valid service-disabled veterans. Unlike other small-business contracting programs, such as the HUBZone and 8(a) programs,[5] there were no document submission requirements for the SDVOSB program used to substantiate eligibility, and no application process associated with the SDVOSB program. The only process in place to detect fraud in the SDVOSB program involved a formal bid-protest process, whereby interested parties to a contract award could protest a firm’s status with SBA if they believed that a firm misrepresented its small-business size or SDVOSB eligibility.

In addition to SBA’s statutory authority over administration of the SDVOSB program, the Veterans Benefits, Health Care, and Information Technology Act[6] requires VA to institute controls for VA SDVOSB contracts.[7] Specifically, as of October 2010 the act requires VA to maintain a database of SDVOSBs and Veteran-Owned Small Businesses (VOSB) and that VA verify the eligibility of these firms. The act requires that VA only use its set-aside and sole-source award authority to SDVOSB firms listed in the database. At the time of our December 2009 testimony, VA already had its database of SDVOSBs and VOSBs—VetBiz—online and reported plans for a validation program that would include steps such as document reviews and site visits to verify a firm’s eligibility for firms wanting to obtain SDVOSB contracts from VA. Beyond VA, contracting officers at other agencies were not required to validate whether a firm met eligibility requirements for participation in the SDVOSB program prior to award.

Our prior work found that the lack of an effective governmentwide fraud-prevention program left the SDVOSB program vulnerable to fraud and abuse. To demonstrate the potential effect of this vulnerability, we investigated and reported on 10 case-study firms[8] that in total received approximately $100 million in sole-source and set-aside SDVOSB contracts despite being ineligible for the program. The 10 case-study firms exploited the lack of an effective governmentwide fraud-prevention program using a variety of schemes, including several firms setting up front companies in order to pass SDVOSB contracts to large, sometimes multinational firms who were ineligible for the program. Other firms received contracts even though there was not a service-disabled veteran associated with the firm, or received contracts even though the service-disabled veteran associated with the firm did not manage or control the business. At the time of our work, 2 of the 10 firms had passed VA’s verification process and were listed in its system as verified SDVOSB firms. In an effort to minimize the potential for fraud and abuse in the SDVOSB program, we recommended that SBA and VA explore the feasibility of improving governmentwide program controls by expanding the use of VA’s VetBiz system to the rest of the Federal Government. In addition, we recommended that SBA refer cases where firms misrepresented their eligibility for the program to the SBA Inspector General (IG) for further review and investigation.[9] SBA and VA generally agreed with our recommendations.

My testimony today provides an update on actions taken by Federal agencies in response to our findings. Specifically, I will address (1) agency actions in response to our prior investigations of 10 case-study firms, the status of past recommendations, and the status of ongoing OIG investigations, and (2) the status of any new Federal contract obligations associated with the case-study firms.

To address our objectives, we reviewed prior findings from GAO audits and investigations of the SDVOSB program. To provide an update on actions taken by various Federal agencies, we requested information from SBA and VA on any actions that they have taken in response to our recommendations and any actions taken related to the 10 case-study firms.[10] We did not validate representations made by SBA or VA. We also searched the CCR to determine whether case-study firms self-certified themselves as SDVOSB firms. In addition, we searched in VA’s VetBiz online system to determine whether case-study firms were listed in the system as verified SDVOSB firms. Additionally, we searched the Excluded Parties List System (EPLS) to determine if any agencies had suspended or debarred[11] the case-study firms or related individuals previously investigated by GAO. To provide an update on contract obligations made to case-study firms, we extracted any contract obligations received by the case-study firms since November 2009 from the Federal Procurement Data System – Next Generation (FPDS-NG). We did not investigate these contract obligations to determine whether they were appropriate or whether the firms were eligible at that time to receive the contracts. To assess the reliability of the data sources, including EPLS, FPDS-NG, and VetBiz, we interviewed agency officials and traced information to source documents when possible. We determined that the data were sufficiently reliable for the purpose of our audit. Lastly, we contacted agency OIGs who received GAO fraud referrals pertaining to the 10 case-study firms to learn of any action taken against the firms. We discussed the information in this statement with SBA and VA officials who generally agreed with our findings.

We conducted our work from February 2011 to July 2011 in accordance with U.S. generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained, and the analysis conducted, provides a reasonable basis for our findings and conclusions in this product.

VA and SBA Officials Have Taken Action in Response to GAO Reports

SBA and VA officials have taken a number of actions in response to our investigation of the 10 case-study firms and in response to recommendations for program control improvements. At the time of our previous work, all 10 case-study firms had self-certified in CCR that they met SDVOSB eligibility criteria, and several of the firms were also listed in VA’s VetBiz database as a verified SDVOSB firm. Since our prior work, SBA stated it has requested all 10 case-study firms to change their status in CCR to show they are not eligible for SDVOSB contracts. However, as of July 2011, several of the firms continued to self-certify themselves as SDVOSBs in CCR.

VA officials stated that since our report, all 10 case-study firms were reviewed through the VetBiz verification process and 7 of the 10 firms were rejected from VetBiz and are no longer listed in the online database. According to VA, the other three firms were reviewed through VA’s verification process and found to be currently eligible for the program. However, VA verification files show some of the firms made changes to their operating practices and ownership structure in response to our prior findings. Of the 7 firms found to be ineligible, two firms continue to self-certify SDVOSB eligibility in CCR. The fact that the two firms continue to list themselves as SDVOSB firms in CCR despite VA finding them to be ineligible exposes the gaps that still exist in SDVOSB program fraud-prevention controls across the government. The gap in controls exists because contracting officers for non-VA agencies are only required to check contractor self-representations in CCR concerning a firm’s SDVOSB status, and are not required to use the VetBiz system. We have received dozens of allegations of continuing fraud and abuse within the SDVOSB program since our last report. We are investigating several of these cases and will report the results at a later date.

In addition to removal of firms from online contracting databases, officials have taken actions to suspend some of the case-study firms. Specifically, SBA suspended four firms associated with 2 of the 10 case-studies we identified, which makes these firms ineligible from obtaining further contracts with the Federal Government. In one of the cases, SBA reported that a principal owner of a case-study firm created a second independent SDVOSB company and defrauded the program again. SBA suspended the new second company as well as the original firm. In addition, SBA suspended three individuals associated with two of the case studies. SBA also mentioned that another firm is currently under review for suspension, and that SBA has chosen not to pursue suspension on other cases because of what they determined to be a lack of proof or because of ongoing OIG investigations. SBA found one of the case-study firms ineligible for the SDVOSB program through its bid-protest process. VA officials stated that they have reviewed several case-study firms for possible suspension and are currently working to suspend one case-study firm.

In an effort to minimize the potential for fraud and abuse in the SDVOSB program, we made several recommendations to SBA and VA concerning overall SDVOSB program improvements. Specifically, we recommended that SBA and VA work with the Office of Federal Procurement Policy (OFPP) to explore the feasibility of expanding the use of VetBiz to the rest of the government, and recommended that all contractors who knowingly misrepresent their status as an SDVOSB be debarred for a reasonable period of time. In addition, we suggested Congress consider providing VA with additional authority and resources necessary to expand its SDVOSB eligibility verification process to all contractors seeking to bid on SDVOSB contracts governmentwide. There is currently a Senate bill that addresses this matter.[12] In response to recommendations made, SBA stated it has met with VA, OFPP, and other agency officials in an effort to coordinate on program improvements, such as the expansion of the use of VetBiz. However, according to SBA and VA officials, they concur with our prior reporting that legislative changes would be needed in order for Federal agencies to change the governmentwide SDVOSB program from a self-certification process into using VA’s VetBiz verification program for all contractors seeking to bid on SDVOSB contracts governmentwide. VA officials also stated that an increase of resources would be needed if VA’s SDVOSB verification process expands governmentwide.

VA officials also stated that they are developing procedures to refer firms who misrepresent their status as an SDVOSB for debarment or suspension. However, SBA officials stated that proving a firm willfully intended to misrepresent itself as an SDVOSB can be difficult. In September 2010, Congress enacted the Small Business Jobs Act of 2010, which, in part, amended the Small Business Act to facilitate prosecution of companies that willfully seek and receive small-business awards through misrepresentation of their small-business status, including SDVOSB.[13] Under the act, willful and intentional misrepresentation can be demonstrated by showing that a company registered on any Federal electronic database in order to be considered for award of a contract as a small business or submitted a bid or proposal for a small business set-aside. Punishments include a fine of not more than $500,000 or imprisonment for not more than 10 years, or both.[14] SBA officials also told us that they are actively reviewing each SDVOSB contract protest decision to determine if a referral to their respective OIG offices is warranted. SBA stated that they have enhanced their bid-protest process by requiring firms found to be ineligible to decertify their status in CCR within 30 days or face being referred to the SBA OIG. In addition, VA has developed its own SDVOSB bid-protest process to respond to protests on specific SDVOSB contract awards.

Upon completion of our investigation of 10 case-study firms in 2009, we referred all 10 firms to the appropriate OIG officials at various Federal agencies. In response to our referrals, several OIGs have joined forces to pursue these firms. Recent inquiries revealed 6 of the 10 firms are currently under investigation, and face criminal or civil penalties, or both. Further details can be provided once the cases have been fully adjudicated.

Case-Study Firms Have Received New Contract Obligations and Additional Obligations on Existing Contracts

Our prior investigation found that 10 case-study firms that fraudulently or abusively misrepresented material facts related to their eligibility for the SDVOSB program had received approximately $100 million in SDVOSB sole-source and set-aside contracts, and an additional $300 million in other Federal contracts. Subsequent to our reporting on this fraud and abuse, from November 2009 to March 2011, the firms received more than $100 million in additional obligations on Federal contracts.[15] All 10 firms received additional obligations since November 2009 ranging from less than $100,000 to more than $20 million in additional obligations. Of the more than $100 million in obligations, approximately $16 million in obligations was associated with SDVOSB set-aside contracts, of which approximately $8 million was associated with obligations on contracts that had been awarded after November 2009. We did not investigate the additional contract obligations to determine whether or not they were appropriate; however, as part of our ongoing work we plan to more fully review the basis for these actions, including the receipt of additional obligations relative to the timing of suspensions, and the firms’ continued participation in the SDVOSB program. We will include these results in our final report.

Chairman Johnson and Ranking Member Donnelly, this concludes my statement. I would be pleased to respond to any questions you may have.

Contacts and Acknowledgments

For additional information about this testimony, please contact Gregory D. Kutz at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement.

Appendix I: Related GAO Products

Service-Disabled Veteran-Owned Small Business Program: Fraud Prevention Controls Needed to Improve Program Integrity, GAO‑10‑740T. Washington, D.C.: May 24, 2010.

Department of Veterans Affairs: Agency Has Exceeded Contracting Goals for Veteran-Owned Small Businesses, but It Faces Challenges with Its Verification Program, GAO‑10‑458. Washington, D.C.: May 28, 2010.

Service-Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts, GAO‑10‑306T. Washington, D.C.: December 16, 2009.

Service-Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts, GAO‑10‑255T. Washington, D.C.: November 19, 2009.

Service-Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts, GAO‑10‑108. Washington, D.C.: October 23, 2009.


[1] SBA calculates its SDVOSB total by including all small-business dollars awarded to SDVOSBs, not just those received through set-aside or sole-source contracts.

[2] CCR is the primary registrant database for the U.S. Federal Government. CCR collects, validates, stores, and disseminates data in support of agency acquisition missions, including Federal agency contract and assistance awards.

[3] See app. I for a list of related GAO products discussing SDVOSB contracting.

[4] Veterans Benefits, Health Care, and Information Act of 2006, Pub. L. No. 109-461, 120 Stat. 3433 (2006), Veterans Small Business Verification Act of 2010, Pub. L. No. 111-275, 124 Stat. 2868 (2010).

[5] SBA’s 8(a) program was created to help small, disadvantaged businesses compete in the American economy. Firms must submit documents to the SBA documenting a variety of eligibility criteria including the owner’s net worth and control of the business. The HUBZone program was established to provide Federal contracting preferences to small businesses operating in economically distressed communities.

[6] Veterans Benefits, Health Care, and Information Act of 2006, Pub. L. No. 109-461, 120 Stat. 3433 (2006).

[7] The Veterans Small Business Verification Act, Pub. L. No. 111-275, § 104, 124 Stat. 2864, 2867 (2010), (Pub. L. No. 111-275, Oct. 13, 2010) requires that effective October 13, 2010, no new small-business applicant may appear in VA’s SDVOSB and VOSB database unless it has been verified as owned and controlled by a veteran or service-disabled veteran. Additionally, VA was required to notify all unverified businesses in its veteran-owned small-business and service-disabled veteran-owned small-business database as of October 13, 2010, about the need to provide supporting business documents that establish the veteran ownership and control of the small-business. Firms were required to do so by 90 days of receipt of the notification in order to avoid removal of the firm from VA’s database.

[8] The case-study firms include all affiliated companies and individuals.

[9] GAO, Service-Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts, GAO‑10‑108 (Washington, D.C.: October 23, 2009).

[10] For our prior work, we selected cases based on a variety of factors including facts and evidence provided in protests and allegations, whether a firm received multiple SDVOSB contracts, and whether a firm received other non-SDVOSB contracts. Our prior work was not designed to identify all firms that misrepresent themselves as SDVOSBs or commit fraudulent or abusive activity, and case examples could not be projected to the overall population of SDVOSB firms.

[11] Suspension and debarment actions prevent companies and individuals from participating in government contracts, subcontracts, loans, grants and other assistance programs. The effect of suspension and debarment by a Federal agency is governmentwide. Suspensions are temporary actions which may last up to 1 year and are effective immediately. Debarments results in the imposition of a set period of time decided on a case-by-case basis.

[12] Small Business Contracting Fraud Prevention Act of 2011, S.633, 112th Cong. § 4 (2011).

[13] Pub. L. No. 111-240, § 1341, 124 Stat. 2543-44 (Sept. 27, 2010) (codified as amended at 15 U.S.C. § 632(w)).

[14] 15 U.S.C. §§ 657f(d), 637(m), 645.

[15] Dollar amounts relate to Federal contract obligations made to the 10 case studies from November 13, 2009 to March 4, 2011.


Prepared Statement of Thomas J. Leney, Executive Director, Small and Veteran Business Programs, Office of Small and Disadvantaged Business Utilization, U.S. Department of Veterans Affairs

Mr. Chairman, Ranking Member, and Members of the Subcommittee, thank you for inviting me to appear before you today to discuss the Department of Veterans Affairs’ (VA) implementation of Veteran-owned small business (VOSB) provisions in the Veterans Benefits, Health Care, and Information Technology Act of 2006 (Public Law 109-461, Sections 502 and 503), as well as subsequent legislation.

The Congress has provided VA with tools to aid Veteran entrepreneurs, and these authorities complement our responsibility to aid Veterans in their transition to civilian life. VA has used these tools aggressively and leads the government in contracting with service-disabled Veteran-owned small businesses (SDVOSBs). VA is also the only agency with specific authority to contract with all VOSBs as such, regardless of service-disability. In Fiscal Year 2010, VA awarded more than $3 billion in contracts to both categories, out of our contracting base of $15.4 billion.  That is real money in the hands of Veterans and their small businesses, and it establishes VA as a leader in this area.

At the same time, VA has actively implemented statutory provisions to ensure the Public Law 109-461 procurement eligibility goes only to legitimate SDVOSBs and VOSBs. We are carrying out the direction of Congress to verify such firms, and to debar firms that misrepresent themselves to obtain contracts through fraud. VA has accomplished these actions at a time of great challenge in the leadership of the Office of Small and Disadvantaged Business Utilization (OSDBU), but I believe we are increasingly well-positioned to carry out these missions: ensuring contracting opportunities for Veterans, and limiting opportunities for those who would abuse the program fraudulently.

Changes and Challenges for OSDBU

On April 18, 2011, I became the new Executive Director for OSDBU, taking the reins from Ford Heard, who filled in as Acting Executive Director since December 6, 2010. I come to VA most recently from two successful government contractors, where building partnerships and mentoring small businesses were central aspects of my work. I am also a Veteran, having served 21 years in the Army.

In my Army career and in work for both nonprofits and businesses, I have extensively led and participated in strategic planning efforts. It is a trite saying, but nevertheless true: most people do not plan to fail, they fail to plan. This is very true for small firms, whether they are startups trying to identify a market and a product or service where they can compete, or they are successful businesses trying to manage growth. They often underestimate the investments they need to make to begin operations, and they overestimate the rate at which they will gain market share and become profitable. OSDBU can be a valuable source of referral to resources that can help entrepreneurs in more detail than is possible for our small office. For example, Small Business Development Centers (SBDCs) across the Nation can help startups with developing business plans that a lender will find credible and an entrepreneur can use as a roadmap to success.

Planning is also key for government organizations. I have applied my planning experience to develop and implement that address concerns raised by the Government Accountability Office (GAO) and others. GAO has noted concerns with staffing, the verification process, and timely site visits to selected applicants. We have taken steps in all these areas. In addition, although last year was a good year for VA and for OSDBU, we faced a major challenge in implementing significant new statutory requirements. VA senior leadership ensured OSDBU was properly resourced to meet those tight deadlines. The senior leadership continues to support the resourcing requirements of OSDBU, as we expect that FY 2012 will continue to have an expanded workload as we begin full examinations on all verified businesses whose verifications have expired.

Ensuring Contracting Opportunities for Veterans

As noted earlier, VA awarded over $3 billion in Fiscal Year (FY) 2010 to service-disabled as well as other Veteran-owned small businesses. Specifically, VA awarded $3.5 billion to VOSBs, of which $3.1 billion went to SDVOSBs, out of a contracting base of $15.4 billion. These awards represent 23 percent to VOSBs and 20 percent to SDVOSBs, and greatly exceed VA’s goals of 12 percent and 10 percent, respectively.  This performance also establishes VA as a leader in contributing toward the governmentwide SDVOSB goal of 3 percent.  In FY 2010, VA achieved 37.3 percent for all small business, and as of July 2011 has achieved 33.8 percent for small business, 19 percent for VOSBs and 16.9 percent for SDVOSBs.

Certainly the contracting authorities in Public Law 109-461 contribute significantly to this positive performance. However, those authorities are not self-executing. They depend on VA’s people to make the day-to-day contracting decisions that, over the course of a year, determine what VA will achieve on its contracting goals.  Toward this end, I would note the top-level commitment from the Secretary as a key factor. In addition, OSDBU’s regular engagement with VA’s acquisition professionals is indispensable.

  Public Law 109-461 recognizes the importance of the “tone at the top.”  The law directs the Secretary to set goals for contracting with SDVOSBs and VOSBs, then provides contracting authorities for VA in support of those goals. The Secretary’s goal for SDVOSBs shall be not less than the goal in the governmentwide SDVOSB program, and the Secretary’s goal for VOSBs is a unique requirement with no governmentwide counterpart. On May 7, 2010, Secretary Shinseki issued a memorandum establishing the prime contracting goals outlined above for Fiscal Years 2010 and 2011. He also adopted goals for VOSBs and SDVOSBs in subcontracting with VA prime contractors, at 5 percent and 3 percent, respectively, for both years. Finally, and most importantly, he continues to track these metrics at his Monthly Performance Review sessions with VA’s senior leadership.

VA is now in the beginning stages of implementing a a new program to increase scrutiny of subcontracting with SDVOSBs and VOSBs. VA will be  conducting subcontracting compliance reviews, and is in the process of including third-party access language in its contracts that will allow  access to VA contractors’ records.  Once the access language is incorporated into VA contracts, VA will begin randomly accessing prime contractors for subcontracting compliance.

Operationally, OSDBU’s engagement with VA’s acquisition professionals ensures they remain conscious of opportunities that may be appropriate for SDVOSB or VOSB sole-source or set-aside authority under Public Law 109-461. OSDBU reviews prospective acquisition strategies on all open market procurements valued over $500,000. Because Public Law 109-461 established a unique procurement hierarchy for VA, with SDVOSBs first and VOSBs second, before any other category of small business program, OSDBU reviews the market research documentation to ensure the contracting officer properly followed the hierarchy. Below $500,000, the proposed acquisition strategy still faces review by the head of contracting activity (HCA) or the HCA’s assigned small business liaison. For Fiscal Year 2011 through July 12, 2011, OSDBU has reviewed 868 of these forms, of which 310 indicated prospective SDVOSB set-asides.

OSDBU also engages the acquisition community on significant contracting opportunities as a voting member on VA’s Integrated Product Teams (IPTs). These are cross-functional teams charged with developing acquisition strategies, risk mitigation strategies, and milestones on new acquisitions of $5 million or more, and on complex acquisitions below $5 million when posing technical, program or business risk to the government. This allows OSDBU to collaborate with the program office, procurement office, General Counsel, or other interested stakeholders at the early stages of developing an acquisition. We help with market research, advise on applicable small business policies, identify opportunities for small business participation, and recommend appropriate acquisition strategies.  OSDBU currently is participating in 26 IPTs.

A success story to come out of these activities is the  Transformation Twenty-One Total Technology  contract (referred to as T4).  VA recently issued 15 awards for the very large indefinite delivery / indefinite quantity contract.. The contract is for 5 years and has a ceiling of $12 billion.  Of the 15 awardees, seven firms are SDVOSBs or VOSBs.  Three of the awardees are participating in the VA Mentor Protégé program (two as mentors and one as a protégé.)

Keeping the acquisition community engaged and informed on small business programs and policies, especially the requirements of Public Law 109-461, is vital to ensuring contracting opportunities exist. It is equally important, though, for small businesses to be ready to take advantage of those opportunities when they arise. OSDBU can assist small businesses in understanding how and what VA buys and who does the buying; this provides firms with basic information on how to property and effectively market themselves as a credible prospective contractor. OSDBU also educates small businesses about VA-specific regulations, such as Public Law 109-461. Few things can deflate a firm’s marketing pitch more than to show a lack of preparation and knowledge of their VA customer. For example, a health care firm that does not understand how the Veterans Health Administration (VHA) is organized runs the risk of losing a lot of time and expense marketing to those who do not buy what the firm has to offer. OSDBU provides monthly vendor counseling sessions in its offices to provide firms with the basics of marketing to VA, and provides similar phone consultations for firms not located in the Washington, DC, area.

OSDBU also conducts numerous outreach efforts at conferences, business fairs, and other events to ensure this information reaches firms outside the Washington D.C. area. In addition, the annual National Veterans Small Business Conference and Expo sponsored by VA will take place August 15-18, 2011, at the Ernest N. Morial Convention Center in New Orleans, Louisiana. This conference is hosted by Secretary Shinseki, and the entire VA senior leadership will be present. As of mid-July, we are expecting over 2,300 attendees and representation from 139 Federal, State and local agencies. There will be over 120 learning sessions with featured speakers to include the Honorable Frank Kendall , Principal Undersecretary of Defense, Acquisition, Logistics and Technology and the Honorable Jane Holl Lute, Deputy Secretary from the Department of Homeland Security. Additionally, more than 116 VA acquisition professionals will be present to meet with owners.

Preventing Fraud and Abuse

As much as VA enthusiastically seeks Veteran participation in our small business contracting opportunities, we also seek to keep out those who misrepresent themselves from taking away opportunities from those Veterans who have rightfully earned contracting opportunities. We have heard, loud and clear, from Veterans as well as from various Congressional statutes, oversight, and direction, that a credible Veteran small business program must ensure appropriate safeguards.

The clear standard, both in the VA-specific program and the government wide small business contracting programs overseen by SBA, is that a service-disabled Veteran-owned small business must be both owned and controlled by one or more service-disabled Veterans; Veteran ownership and control is the standard for a VOSB. It is not sufficient for a Veteran or service-disabled Veteran to own the firm while non-Veterans control its day-to-day operations. Moreover, the requirement that eligible firms be small businesses provides further defense against abuse by those who would put up a legitimate SDVOSB as a front while an ineligible, typically large, firm runs the show and collects the benefits. SBA’s tests for affiliation provide guidance to examine the true nature of business partnerships, to see whether they are legitimate teams or joint ventures, or front operations for ineligible firms.

VA has applied these standards rigorously in implementing the Congressional mandates of Public Law 109-461. As originally passed, the law very clearly directs that only firms listed in the Vendor Information Pages (VIP) database may receive VA contract awards under the law’s special sole-source and set-aside authorities. The program regulations originally adopted on May 19, 2008, describes how VA's OSDBU’s Center for Veterans Enterprise (CVE) would examine firms for ownership and control, incorporated SBA’s standards for affiliation, and listed the types of documentation a firm would need to compile to support an application for verification of its SDVOSB or VOSB status. The Office of Management and Budget approved the data collection requirement under control number 2900-0675, as required under the Paperwork Reduction Act. In many cases, however, the firm would need only to keep the information on file and readily at hand in the event CVE needed to conduct an examination of the firm’s status.

In 2010, Congress further clarified the statutory mandates on verification. Public Law 111-275, Section 104 directed VA not to list any firm in the VIP database unless CVE had first verified its SDVOSB or VOSB status. Further, all unverified firms previously listed in the database on the date of enactment (October 13, 2010) would need to submit their applications for verification, with supporting documentation, or face removal from the database. The law directed VA to contact all unverified firms within 60 days of enactment, or not later than December 12, 2010. Within 90 days after receiving the VA notice, the firms were required to submit their materials or be removed.

VA met the statutory deadlines. On December 10 and 11, 2010, VA notified all unverified firms in the database, as well as those whose prior verifications were within 120 days of expiring. The notices explained the new statutory verification mandate, and provided a list of documents needed for verification, tailored according to the type of firm to try to avoid unnecessary paperwork demands. In practice, this mandate required firms to submit copies of documents they formerly could retain on file.

The letters offered recipients the option to send their materials on a CD-ROM or to wait until early February 2011 for deployment of an on-line document uploading utility.  Either approach would allow the firm to meet the 90-day response deadline in mid-March. VA deployed this utility on February 4, 2011. VA received 2,653 applications as a result of this process, and on March 21, 2011, CVE removed the profiles of about 8,100 non-respondent firms. At this point, the only unverified firms visible in the VIP database are those that submitted applications in response to the December, 2010, VA notice and are still currently being processed. Since the implementation of P.L. 111-275, we have verified approximately 2,000 firms and denied approximately 1600.

  VA’s VIP database is the  mandatory go-to source for VA’s acquisition professionals to confirm the SDVOSB or VOSB status of firms being awarded contracts under Public Law 109-461. Having only verified firms in the database, as Public Law 111-275 directed, will greatly reduce the risk of human error from misreading a database entry and erroneously awarding to an unverified firm. When the verification requirement in VA’s acquisition regulations takes effect January 1, 2012, VA will be well-positioned to ensure compliance.

VA is not sitting idly by until the January 1, 2012, regulatory requirement takes effect. In the interim, VA has adopted a policy for verifying firms under an expedited process whenever an SDVOSB or VOSB is the apparently successful offeror on a contract under a Public Law 109-461 authority (i.e., SDVOSB or VOSB set-asides or sole-source awards). This policy, referred to as a “Class Deviation,”[1] directs VA contracting officers to include a provision in all solicitations issued under such authorities, notifying eligible offerors that they will have to submit their applications and supporting materials for verification if they are apparently successful. CVE will then conduct a verification of the offeror within 21 business days. If CVE is unable to verify the firm, the offeror will not receive the contract award. As of July 12, 2011, CVE has received 347 applications under the Class Deviation process since the requirement took effect October 1, 2010. CVE has approved 199, denied 100, found 8 unverifiable, 10 voluntarily withdrew their applications and 11 had untimely submissions. As part of the process, CVE performed site visits on 202 and 19 are still in process. Twenty-nine percent have failed to meet verification requirements for Veteran ownership and control.

Public Law 109-461 also recognized some purported SDVOSBs or VOSBs will get past the verification screen, such as by misrepresenting themselves to abuse these contracting opportunities. VA is handling this concern with a two-pronged approach. First, with respect to individual contract awards, we invoke the self-interest of those who did not win the contract. If they have specific grounds (as opposed to an unsupported or general allegation) to believe an awardee is not in fact an SDVOSB or VOSB, they can protest the status of the awardee. The protestor submits its information in writing to the contracting officer, within 5 days after notice of the award (or bid opening). The contracting officer refers a status protest to the Executive Director, OSDBU, for decision; if a protest involves issues of size (whether the awardee is, in fact, a small business), those issues are referred to SBA for decision. Timelines for these actions are very tight because the outcome of a contracting action often depends on the decision.  Since VA adopted its status protest process in December 2009, 138 such protests have been filed, 67 were sustained, 50 were dismissed, 17 were denied and 4 are pending as of July 12, 2011. Firms found ineligible in a status protests are effectively deemed unverified, become ineligible for future SDVOSB or VOSB awards at VA, and their profiles are removed from public view in the VIP database. Additionally, many of these cases develop into additional workload in developing support for court cases or responding to inquiries from Members of Congress.

CVE has made 70 referrals to the VA Office of the Inspector General (OIG) this fiscal year. For cases of misrepresentation, Public Law 109-461 directs VA to debar SDVOSB or VOSB firms for up to 5 years. VA has implemented this provision and has begun debarment proceedings. In September, 2010, VA established the 8127 Debarment Committee, so named after section 8127 of title 38, United States Code, as adopted in Public Law 109-461. The 8127 Debarment Committee has provided guidance on the VA Web site on when and how to refer cases to them for review.  The Committee makes recommendations to the agency debarring official, the Deputy Assistant Secretary for Acquisition and Logistics. If a firm is debarred, VA makes an entry in the government wide Excluded Parties List System (EPLS), which has created two data codes specifically for recording 8127 Debarment actions. The Federal Acquisition Regulation (FAR) directs contracting officers to consult the EPLS (and document to the contract file) prior to making a contract award, to ensure debarred firms do not receive contracts during the period of the debarment. As of July 12, 2011, VA has debarred 12 companies or individuals for a period of up to 5 years, and has four more pending. VA publishes this information for public view at http://www.va.gov/oamm/oa/8127debarmentActions.cfm.

Finally, let me note one further issue that goes beyond verification. Verification seeks to ascertain the status of a purported SDVOSB or VOSB. Are you who you claim to be, and does the Veteran or service-disabled Veteran own and control the small business? This is a snapshot in time for the date that the verification was granted. CVE reviews these status issues for verification before VA may make a contract award. At that point, it is not possible to know how a contractor will perform on a contract, what its capabilities are with respect to a future solicitation, or if the firm will receive a contract award at all. When an SDVOSB or VOSB subsequently receives a contract under Public Law 109-461 set-asides or sole-source authorities, it will be required to perform a certain fraction of the work itself or with another SDVOSB or VOSB, depending on the nature of the contract. How the firm will perform on those requirements cannot be known at the time of verification. Instead, matters such performance fraud are issues of contract administration, tracked as all other contract performance issues are, by the contracting officer.

Performance fraud is a serious potential risk to the integrity of the program, as it becomes another way ineligible firms might tap into the program using eligible firms as fronts. VA’s Office of Acquisition, Logistics, and Construction is heightening its scrutiny in this area on VA contracts. We will begin sampling contracts and reviewing them for compliance, as well as reviewing contracts whenever instances of alleged fraud have taken place. As VA finalizes details on this Subcontracting Compliance Review Program, I am sure the cognizant officials will readily share them with Congressional stakeholders.

Conclusion

VA has sought to overcome recent challenges while sustaining its commitment to SDVOSB and VOSB contracting under Public Law 109-461. VA has implemented and continues to monitor contracting actions for opportunities suitable for Veteran small firms. We also continue to implement provisions of the law, as well as other good common-sense initiatives, to ensure the program’s integrity. As OSDBU’s new Executive Director, I appreciate the benefit of your advice and recommendations, and the insights that your constituents share. Your constituents are our Veteran clients, and that is why we dubbed the program under Public Law 109-461 as the Veterans First Contracting Program.

Mr. Chairman and Members of the Subcommittee, this concludes my statement. I would be pleased to answer any questions you may have.


[1]  Both the Veterans Affairs Acquisition Regulation (VAAR) and the governmentwide Federal Acquisition Regulation (FAR) permit deviations from their requirements, when found appropriate under agency processes. Deviations applicable to only one contract action are referred to as “individual deviations” while deviations that cover multiple contract actions (a class) are deemed “class deviations.”  Federal Acquisition Regulation, subpart 1.4.