Madam Chair, Ranking Member Boozman, and distinguished committee members, on behalf of AMVETS, I would like to extend our gratitude for being given the opportunity to share with you our views and recommendations regarding veteran’s small businesses.

AMVETS feels privileged in having been a leader, since 1944, in helping to preserve the freedoms secured by America’s Armed Forces.  Today our organization prides itself on the continuation of this tradition, as well as our undaunted dedication to ensuring that every past and present member of the Armed Forces receives all of their due entitlements.  These individuals, who have devoted their entire lives to upholding our values and freedoms, deserve nothing less.

By way of background, The Veterans Benefits, Health Care, and Information Technology Act of 2006 requires the Department of Veterans Affairs (VA) to give priority to veteran owned small businesses (VOSB) and service disabled veteran owned small businesses (SDVOSB) when awarding contracts, and also in establishing a certain number set-aside contracts for SDVOSBs. Furthermore, in December 2009 the final rule regarding VA Acquisition Regulation entitled Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 48 Code of Federal Regulations (CFR)  Parts 802, 804, 808, 809, 810, 813, 815, 817, 819, 828, and 852, was updated to reflect veterans’ small business preference in the federal procurement process. The newly published CFR states:

This document implements portions of the Veterans Benefits, HealthCare, and Information Technology Act of 2006 (the Act) and Executive Order 13360, providing opportunities for service-disabled veteran-owned small businesses (SDVOSB) to increase their Federal contracting and subcontracting. The Act and the Executive Order authorize the Department of Veterans Affairs (VA) to establish special methods for contracting with SDVOSBs and veteran-owned small businesses (VOSB). Under this final rule, a VA contracting officer may restrict competition to contracting with SDVOSBs or VOSBs under certain conditions. Likewise, sole source contracts with SDVOSBs or VOSBs are permissible under certain conditions. This final rule implements these special acquisition methods as a change to the VA Acquisition Regulation (VAAR).This document additionally amends SDVOSB/VOSB, Small Business Status Protests, where VA provided that VA would utilize the U.S. Small Business Administration (SBA) to consider and decide SDVOSB and VOSB status protests. This requires VA and SBA to execute an interagency agreement pursuant to the Economy Act. Negotiations of this interagency agreement have not yet been finalized. Therefore, VA has amended these regulations with an interim rule to provide that VA’s Executive Director, Office of Small and Disadvantaged Business Utilization (OSDBU) shall consider and decide SDVOSB and VOSB status protests, and provides procedures there for, until such time as the interagency agreement is executed by the agencies.

Although VA has reportedly exceeded its contracting goals with SDVOSBs and VOSBs for the past 3 years, AMVETS believes that due to the lack of internal oversight and the self-reporting verification processes within VA’s procurement offices, that realistically the 3% goal has not been met.  The Government Accountability Office (GAO) also voiced the same concern in a hearing held in December 2009,  Acquisition Deficiencies at the U.S. Department of Veterans Affairs. During this hearing GAO stated they found that the SDVOSB program is vulnerable to fraud and abuse, which could result in legitimate service-disabled veterans’ firms losing contracts to ineligible firms. In fact, their 10 case-study found firms that GAO investigated previously had received approximately $100 million in SDVOSB sole-source and set-aside contracts through fraud, abuse of the program, or both.

Now, in April of 2010, GAO’s most recent review of interagency agreements found that VA is still  lacking an effective process to ensure that interagency agreements include required language that the other agencies comply to the maximum extent feasible with VA’s contracting goals and preferences for SDVOSBs and VOSBs. And just as disturbing is the fact GAO reports VA has made limited progress in implementing its verification program. While the 2006 Act requires VA to use veteran preferences authorities only to award contracts to verified businesses, VA’s regulation does not require that this take place until January 1, 2012.  To date, VA has verified about 2,900 businesses, approximately 14 percent of businesses in its mandated database of SDVOSBs and VOSBs. Respectfully, Madam Chair, AMVETS finds there to be absolutely no acceptable justifications on why VA has repeatedly ignored or not taken the necessary actions to end such blatant examples of fraud and abuse of funds.

VA issued guidance to all contracting officers about managing interagency acquisitions in March 2009. However, numerous interagency agreements did not even include the required language addressing VA’s contracting goals and preferences until it was amended on March 19, 2010.  This serves as just another example of  how VA not having an established hierarchy or clear delegation of duties in oversight activities, that VA cannot be assured that agencies have made maximum feasible efforts to contract with SDVOSBs or VOSBs. AMVETS is led to believe that many are forgetting that this is not just data or monetary figures we are continually discussing, but rather thousands of veterans lives and the failure to protect those lives and the entire VOSB and SDVOSB communities. AMVETS has dedicated themselves to protecting the due entitlements of those who currently serve and those who have honorably served in the past. AMVETS does not believe that all possible measures have been, nor are currently being taken, to end this never-ending cycle of fraud and untruths occurring within VA’s  VOSB and SDVOSB procurement systems. AMVETS respectfully asks the committee and those involved at VA, how much longer are we going to allow these behaviors to unfairly and negatively impact the entrepreneurial livelihoods of those veterans we  have all promised to protect?

AMVETS recommends the following actions as a way of getting the VA procurement system back on track regarding our VOSB and SDVOSBs:

1. AMVETS believes that implementing a centralized and uniform training program for all persons involved in VA procurement processes, regardless of location or position, will provide a foundation of clarity and standardized education to every individual involved in VA’s procurements process. This will also aide VA in establishing an unambiguous hierarchy and establish a system of unquestionable accountability in regards to procurement. VA’s organizational alignment should be examined to ensure appropriate placement of the acquisition functions are occurring within the agency, and that employees clearly understand their individual defined roles and responsibilities.  AMVETS is not questioning the ethical standards of VA or its employees, rather the structural framework currently in place regarding procurements.  VA must protect the integrity of their procurement process and the authorities granted to them by closely examining their current acquisition hierarchy on every level.

2. AMVETS also believes VA should re-examine their current oversight methods and develop a plan granting authorities to field contract officers, so that they may conduct random inspections of VA’s awards to ensure that the integrity of all VA contracts are protected  and enforced. VA must steer away from such a “reactive” way of conducting contracting oversight and move towards a more “pro-active” approach of procurement processes.

3. AMVETS is very concerned by the fact that VA is not currently auditing their contracts. AMVETS recommends that VA immediately put in to place a functional verification system that allows traceability of every system and process VA currently uses non-uniformly. Even a very simple system will allow VA, as well as the subcommittee if need be, to have a single centralized source.  A functional system will allow VA to accurately process all of their interdependent and linked procedures, which at every stage, consume one or more VA resource (contracts, employees, funds) to convert the inputs into outputs.  These outputs then serve as inputs for the next stage of the functional verification process until a known goal or end result is reached. 

4. AMVETS strongly believes that, the often overlooked process, of internally auditing an organization’s or agency’s current policies, procedures and employee knowledge is often key in overcoming any hurdles an organization may face when implementing successful internal systems and policies.  Internal audits are regularly used by most successful organizations and agencies, as a means of measuring internal successes, quality controls and shortfalls within

5. an organizational system.  An organization will only be successful and run at its full potential if it is able to recognize its weaknesses and any unnecessary duplication of efforts.

6. Finally, AMVETS believes it is necessary to discuss traceability when discussing the current state of the VA’s procurement systems. VA has clearly demonstrated that they possess little to no assurances they are  receiving the services they have paid for or that all contract criteria they are setting forth is being met, on any level. We must not forget that many of the larger or prime contracts have very specific clauses outlining the use of SDVOSB or VOSBs as sub-contractors.  AMVETS believes that an unimaginable number of SDVOSB and VOSB have lost the opportunity to conduct business with the federal government, as outlined by law, due to VA not having any solid systems of traceability on their awards granted.

From an accounting standpoint, traceability is vital for any organization to have the ability to track a specific piece of financial information by means of recorded data.  Equally important is traceability in cost accounting.  VA should already have a system of cost accounting in place to assign a cost directly to an activity or cost of an object on the basis of cause-and-effect contractual relationships. These measures offer VA an uniformed auditing process tool when reviewing all terms of an award have been met. This should also include the review of certified payroll records to ensure the VOSB and SDVOSB clauses of larger awards are being met. Certified payroll records should include all payments made as 1099 financial exchanges between the prime and sub-contractors.

The last part of traceability, vital to the stability of any acquisitions program, is in that of quality control traceability.  This ability to track system requirements from a system function to all those elements that individually or collectively perform that function.  Most importantly traceability gives VA the tool necessary to ensure that SDVOSB and VOSBs are indeed being awarded the federal awards that have been set-aside for them by law.

AMVETS is optimistic that the Executive Order signed on April 26, 2010, by President Barack Obama, will bring more attention to this much overlooked, yet very important issue, regarding the  stability and financial wellbeing of our veteran entrepreneurship community. AMVETS is also hopeful that Veterans Small Business Interagency Task Force will finally be able to provide the necessary measures needed for the implementation and execution of a consistent and non-discretionary system of oversight within the VOSB and SDVOSB federal procurement system.

Madam Chair, AMVETS again thanks you and the subcommittee for being given the opportunity to share with you our concerns and recommendations on veteran small business matters. AMVETS applauds this subcommittee for their unwavering dedication to improving the lives of our veteran entrepreneur community.  This concludes my testimony and I will be happy to answer any questions the subcommittee may have for me.

*Accompanying this testimony you will find the data requested pertaining to VOSB and SDVOSB industry locations, the 2009 top 10 earners per NAICS code for VOSB and SDVOSB, as well as other relevant data. Please note this data was supplied to AMVETS by several federal agencies upon our requests.

SBA:  Top 10 states for VOSB Employer Firms:

• California (veterans, 10.4 percent; SDVs, 9.8 percent; all, 11.6 percent);
• Texas (veterans, 6.6 percent; SDVs, 7.8 percent; all, 6.1 percent);
• Florida (veterans, 5.7 percent; SDVs, 7.8 percent; all, 6.1 percent);
• New York (veterans, 5.0 percent; SDVs, 5.1 percent; all, 6.3 percent);
• Pennsylvania (veterans, 4.3 percent; SDVs, 3.0 percent; all, 4.1 percent);
• Illinois (veterans, 4.2 percent; SDVs, 2.7 percent; all, 4.5 percent);
• Ohio (veterans, 4.1 percent; SDVs, 2.9 percent; all, 3.9 percent);
• North Carolina (veterans, 3.3 percent; SDVs, 3.5 percent; all, 2.9 percent);
• Georgia (veterans, 3.0 percent; SDVs, 3.0 percent; all, 2.7 percent);
• Michigan (veterans, 3.0 percent; SDVs, 2.8 percent; all, 3.4 percent).

SBA: Top 10 states for SDVOSB Employer Firms:

• California (SDVs, 9.8 percent; veterans, 10.4 percent; all, 11.6 percent);
• Texas (SDVs, 7.8 percent; veterans, 6.6 percent; all, 6.1 percent);
• Florida (SDVs, 7.8 percent; veterans, 5.7 percent; all, 6.1 percent);
• New York (SDVs, 5.1 percent; veterans, 5.0 percent; all, 6.3 percent);
• North Carolina (SDVs, 3.5 percent; veterans, 3.3 percent; all, 2.9 percent);
• Virginia (SDVs, 3.4 percent; veterans, 2.9 percent; all, 2.5 percent);
• Pennsylvania (SDVs, 3.0 percent; veterans, 4.3 percent; all, 4.1 percent);
• Georgia (SDVs, 3.0 percent; veterans, 3.0 percent; all, 2.7 percent);
• Washington (SDVs, 3.0 percent; veterans, 2.8 percent; all, 2.6 percent);
• Ohio (SDVs, 2.9 percent; veterans, 4.1 percent; 3.9 percent).

SBA: Top 10 states for VOSB  Non-Employer Firms:

• California (veterans, 10.5 percent; SDVs, 10.2 percent; all, 12.3 percent);
• Texas (veterans, 7.7 percent; SDVs, 8.0 percent; all, 7.2 percent);
• Florida (veterans, 6.5 percent; SDVs, 7.8 percent; all, 6.1 percent);
• New York (veterans, 4.5 percent; SDVs, 3.9 percent; all, 6.2 percent);
• Pennsylvania (veterans, 4.3 percent; SDVs, 3.3 percent; all, 4.0 percent);
• Ohio (veterans, 3.8 percent; SDVs, 2.8 percent; all, 3.8 percent);
• Illinois (veterans, 3.5 percent; SDVs, 2.4 percent; all, 4.0 percent);
• North Carolina (veterans, 3.2 percent; SDVs, 3.6 percent; all, 2.9 percent);
• Michigan (veterans, 3.1 percent; SDVs, 2.7 percent; all, 3.4 percent);
• Georgia (veterans, 3.0 percent; SDVs, 3.6 percent; all, 2.7 percent).

SBA: Top 10 states for SDVOSB Non-Employer Firms:

• California (SDVs, 10.2 percent; veterans, 10.5 percent; all, 12.3 percent);
• Texas (SDVs, 8.0 percent; veterans, 7.7 percent; all, 7.2 percent);
• Florida (SDVs, 7.8 percent; veterans, 6.5 percent; all, 6.1 percent);
• New York (SDVs, 3.9 percent; veterans, 4.5 percent; all, 6.2 percent);
• North Carolina (SDVs, 3.6 percent; veterans, 3.2 percent; all, 2.9 percent);
• Georgia (SDVs, 3.6 percent; veterans, 3.0 percent; all, 2.7 percent);
• Pennsylvania (SDVs, 3.3 percent; veterans, 4.3 percent; all, 4.0 percent);
• Virginia (SDVs, 3.2 percent; veterans, 2.7 percent; all, 2.4 percent);
• Ohio (SDVs, 2.8 percent; veterans, 3.8 percent; all, 3.8 percent);
• Michigan (SDVs, 2.7 percent; veterans, 3.1 percent; all, 3.4 percent).