Lawmakers are exploring new ways to ensure agencies verify that contractors who say they are set aside for service-disabled veteran-owned small businesses (SDVOSB) actually meet the requirement. The goal is to prevent bad actors from winning awards.

The problem is exemplified at the Veterans Affairs Department, which might also hold the solution, according to the agency’s inspector general office.

“Last summer, we issued a report, Audit of Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs, that found that 76 percent of businesses we reviewed were ineligible or either the program and/or the specific [Veteran-Owned Small Business] or SDVOSB contract award,” said Belinda Finn, VA assistant inspector general for audits and evaluations at a House Oversight and Government Reform subcommittee hearing last week.

The problem could result “in $2.5 billion awarded to ineligible businesses over the next five years,” she said.

The potential for errors exists across government, said Richard Hillman, managing director of forensic audits and investigative services at the Government Accountability Office, because other agencies do not verify that contractors are eligible for SDVOSB awards.

“In the contractor registry, the firm itself designates whether or not it qualifies for certain types of set aside or sole source [contracts] ,” he told the Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Reform. Most agencies accept this self-certification at face value.

VA, on the other hand, does verify whether contractors in the program are eligible. In fact, it is the only federal agency that checks contractor status, Hillman said.

The department’s verification process includes site visits and paperwork reviews.

For a firm to qualify for the set asides, service-disabled veterans must own at least 51 percent but control and manage all operations, Finn wrote in a written statement for the subcommittee. VA’s process of vetting contractors is the result of changes to laws and rules.

Preventing fraud elsewhere in government: possible solution

The Small Business Contracting Fraud Prevention Act (S. 633), which is pending consideration by the House Small Business Committee, would expand VA’s process for verifying contractor-eligibility to the rest of government. It also would require the department’s secretary to share information from VA’s eligibility database with other agencies. And firms determined to be ineligible could face debarment and suspension.

Not every ineligible firm that competes for a service-disabled veteran-owned small business contract is a bad actor. In most cases, company leaders are not aware their firms do not qualify, said Thomas Leney, executive director of VA’s small and veteran owned business programs.

“I think one of the disservices that we have done to the thousands of veteran business owners that are out there operating with integrity is to imply that lack of eligibility for a VA program equates to fraud,” he said.

Click below to view the hearing, “Jobs for Wounded Warriors: Increasing Access to Contracts for Service Disabled Veterans”:
Part 1
Part 2

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