Madam Chairwoman and other Members of the Subcommittee, good afternoon.  Thank you for convening this hearing to discuss issues pertaining to VA's Center for Veterans Enterprise (CVE). I am accompanied today by Ms. Iris Cooper, Associate Deputy Assistant Secretary for Acquisition, Office of Acquisition, Logistics, and Construction, and Ms. Phillipa Anderson, Assistant General Counsel, Government Contracts, Real Property, and Environmental Law Group, Office of the General Counsel. We are pleased to represent Secretary Shinseki and the Veterans who do business with VA.

The Department of Veterans Affairs has a sustained tradition of outstanding support for small businesses with special emphasis on Veteran-owned small businesses, to include service-disabled Veteran-owned small businesses (SDVOSB).  Our CVE has become the central point for agencies, contractors and Veterans for support concerning the Veteran-owned business program at VA. CVE's Verification Program is also a first line of defense to ensure the integrity of these efforts.

Let me assure you how strongly committed we are to identifying, eliminating, and pursuing fraud wherever it appears in a Veteran-owned small business program or in any small business program in which VA participates. The Government Accountability Office (GAO) reported that the "SDVOSB program is vulnerable to fraud and abuse, which could result in legitimate service-disabled veterans' firms losing contracts to ineligible firms." Whenever an ineligible firm receives a contract intended for Veteran small business firms, honest firms are deprived of opportunities they have earned by putting their lives on the line for our country. It is hard to imagine anyone stealing from the heroes who make our way of life possible, but the potential exists. I will discuss actions we are taking in our Verification Program, as well as in other areas, to tackle this problem.

As vital as the Verification Program is, the Center for Veterans Enterprise is far more than that program. The CVE opened in 2001 in response to Public Law 106-50 and, subsequently, its mission has expanded based on statutory and regulatory mandates. CVE staff provides business coaching support through our call center, a hallmark of our "service with a personal touch." The Center maintains the VetBiz.gov Web portal. This Website hosts the Vendor Information Pages (VIP) database for Veteran-owned small businesses. The VetBiz.gov VIP database supports VA's duty in P. L. 106-50 to compile a list of service-disabled Veteran-owned businesses that provide products or services that could be procured by the United States and to deliver that list to each department and agency of the United States for their reference in identifying potential sources. This database also serves as the repository to dispatch information to business owners, another requirement of that law. In addition, under the authority of Executive Order 13360, the CVE provides assistance to other Federal agencies seeking to identify suitable contracting opportunities and the service-disabled Veteran-owned small businesses that could provide those needs. The VIP database is one of many market research tools other agencies may consult as they seek to meet the government contracting goals.

To advance opportunities for Veteran owned small businesses, CVE has numerous partnerships with other Federal agencies, large Federal prime contractors, support sector organizations such as the Association of Small Business Development Centers, the Association of Procurement Technical Assistance Centers, and the Manufacturing Extension Partnership Centers of the National Institute of Standards and Technology (NIST). Most recently we have begun a state outreach effort to assist Veteran business owners with contracting on the state level. With the Association of Procurement Technical Assistance Centers, we have developed a training program, the Federal Contractor Certification program, to enhance the professionalism of small business owners wishing to do business with the government.

We have recently begun a pilot manufacturing program with the Naval Air Warfare Center and NIST's Manufacturing Extension Partnership (MEP) that promises to be a winning solution for extreme back-ordered parts for the U.S. Navy, that provides additional clients for the MEPs, and ultimately helps develop more Veteran-owned manufacturing concerns and increase Veteran employment in them. Our work with the International Franchise Association to develop the Veteran Franchise Program has nearly 400 franchisors participating. More than 1,300 Veterans have opened franchises through this program.

All of these activities are part of the core mission of the CVE: to improve the business climate for Veterans, minimize barriers to access, and inform the public about the benefits of working with Veteran-owned small businesses. We believe that supporting Veteran-owned business goes beyond the Veteran business owner, as Veteran business owners offer greater employment opportunities for Veterans than non­Veteran business owners.

Verification

The Verification Program is a vital part of VA's Veterans First procurement program. VA's unique procurement legislation gives priority to service-disabled Veteran-owned small businesses and Veteran-owned small businesses over all other small business types for set-aside and sole source contracts. The CVE realizes that there are challenging issues with the Verification Program. There will always be a learning curve with any new program, and this holds true for the verification process. We have continuously noted issues as they have arisen and updated our procedures and processes to address them given our current resources. In May 2008, the Department sought public comments regarding the structure and procedures to operate this program. Subsequently, we hired a contractor to study comparable programs, identify best practices and recommend changes to our program to enhance effectiveness and efficiency. In November 2009 our contractor submitted four reports including one on reengineering the process which contained several recommendations that we intend to implement. These recommendations include automating large parts of the process and ensuring that specific business documents are included so that our examiners may make better, more informed recommendations for approval or denial. These two recommendations will eliminate hundreds of man-hours of data entry and our reliance on publicly available documentation. Where we had previously only requested these documents when there was some question about ownership and control of the business, we will now require the documents to be submitted as a part of the application package for all businesses. To implement these recommendations VA will hire and train additional staff, and will develop, test, and certify the automated system. As a recipient of non-appropriated funds from VA's Supply Fund, CVE will continue to work with the Supply Fund Board of Directors to define and adjust its resource needs as demands indicate.

Planned Changes to the Verification Program

The CVE reviewed the reports received from our contractor and decided to implement the most viable recommendations to improve the program. These improvements will be phased in and affect all parts of the Verification Program including its application process, on-site visits, and prioritization of applications from VA contractors, offerors and subcontractors.

In December 2009 and January 2010 our staff devised an action plan to reengineer the process. As the current process employs many manual steps and extensive manual data entry, we have designed an automated process that will extensively revise the VIP database and create a Case Management System (CMS). The new version of VIP will interact with several other databases, including VA's Beneficiary Identification Records Locator Subsystem (BIRLS), for determining Veteran status and service-disabled status, as well as the Excluded Parties List System (EPLS) and LexisNexis for background checks on the owners. It will also be the repository where Veterans will upload their business documents to complete their application package. The CMS will be an interactive tracking system that will date-stamp each part of the process and will allow the Veteran to log into his or her VIP profile to obtain the status of the application processing in a manner similar to the way the shipping of a package can be tracked when ordering a product online. We will have the contract in place soon for the revision of the VIP database and the creation of the CMS and anticipate that this largest part of the process improvements will be ready to implement about 12 months after the contract award.

In order to complete an application package, a Veteran will choose a business type (LLC, S-Corporation, sole proprietorship, etc.) and VIP will then prompt the owner to submit specific business documents that will be examined to determine ownership and control of the firm. Once the package is complete, VIP will automatically run the status checks and populate a case file in the CMS. If there are no anomalies during the status check phase, the file will be moved on to CVE examiners who will review the uploaded documents to determine the eligibility of the company based on ownership and control. As a continuation of our current policy, a CVE Quality Reviewer will then review the entire file to verify the decision recommended by the examiner to complete the process.

CVE has engaged a contractor to perform on site examinations at selected companies. We believe that this additional step will enhance the information we glean from the documentation and help us make a more informed decision in terms of the control of the business. These site visits have already begun, and are proving to be very valuable in determining whether or not the Veteran is in daily control of the business.

Another change to the program will be to give priority to VA contractors. The Verification Program was designed to ensure that only eligible Veteran-owned and service-disabled Veteran-owned small businesses benefit from VA contract awards under the set-aside and sole source authorities and from subcontracting opportunities with VA's large prime contractors. It is important that current or potential VA contractors be given priority in processing applications.

In the interim, however, we are taking actions to ensure award of contracts only to eligible businesses. We are establishing a priority system for processing applications. VA contractors and offerors in line for contract awards will receive expedited processing. It is our current practice to remove from public view any business that has been denied verification and to remove any business found ineligible as a result of a negative finding resulting from a protest decision or appeal. One recent change, implemented after our research into the GAO's report, is that we now lock the company's profile so that it cannot be returned to public view. This was a software anomaly which has been corrected. To retain a record, the profile is not deleted from the database, but it is not visible to public users. This eliminates the possibility of the company conducting further fraud by creating a new profile.

We believe that these changes will substantially reduce the risk of verifying an ineligible firm due to fraud as to its status as not truly a Veteran-owned and controlled small business. However, these changes will not reduce fraud that comes about during subsequent contract performance. The Government Accountability Office's October 2009 report cited examples of both status and performance fraud, with the majority of cases representing performance fraud. A fully eligible business concern can still commit performance fraud by not adhering to the subcontracting limitations included in the contract and becoming what we refer to as a "pass-through." CVE's Verification Program seeks to apply the GAO's "fraud prevention model" by ensuring upfront preventive controls, and applying lessons learned to refine those controls as experience indicates.

On December 8,2009, VA made conforming changes to the Veterans Affairs Acquisition Regulation (VAAR). It established that businesses may be listed in the Vendor Information Pages database until December 31, 2011, after which they must have been officially verified in order to be eligible for a sole-source or set-aside award under the authority of Public Law 109-461, or to have prime contractors receive subcontracting credit. We believe that it will take this long to develop and test the automated system, hire and train additional staff, and eliminate the inventory of aged applications. Our objective is to ensure that businesses that benefit from sole-source or set-aside awards are eligible to receive them. We will not compromise the quality of our examination process. In accordance with the VAAR, until the effective date is reached, we must continue to allow businesses that have yet to be verified to remain in the database.

Minimizing Opportunity for Performance Fraud

Reducing performance fraud has several components. Raising awareness of the problem is a start. Providing training for the acquisition corps and business owners is also important. Developing effective tools that will enable contracting officers and technical representatives to identify possible performance issues early in the contract will also help. Concerns about "pass-throughs" or "fronts" are not limited to VA's Veterans First Program. The GAO report identified this as a problem in the Government-wide service-disabled Veteran-owned small business program. Similar issues have arisen previously in other small business programs. As the Executive Director of VA's Office of Small and Disadvantaged Business Utilization, I intend to champion this issue at the Interagency OSDBU Directors' Council and with my colleagues at the Small Business Administration in the Procurement Advisory Council. Because performance fraud is cross-cutting a truly collaborative Government-wide approach to reducing risk is needed.

VA and the SBA also have a duty to better coordinate support to Veterans under Public Law 109-461. We already have a working group developing plans for enhancing support to Veterans. One outgrowth of that working group is VA's intention to execute an Interagency Agreement with the SBA to process PL 109-461 protests. Reducing performance fraud is vitally important to the integrity of these programs, and we are keeping this on our agenda to continue developing new strategies. We must always try to stay one step ahead of the bad actors. Furthermore, VA intends to randomly sample business owners' records to determine compliance with the limitations on subcontracting contract requirements.

In closing, I hope you will agree that VA has developed strategies to control risk and eliminate fraud in the Veterans' First procurement program as well as in the Verification Program managed by the CVE.

Madam Chairwoman, thank you again for convening today's hearing. I request that this written statement be submitted for the record. I welcome your interest and I am prepared to answer any questions that you or the Members may have.