I hope
no RS vendors are doing this...
The
Government Accountability Office audited a handful of service-disabled
veteran-owned small business contracts, and might have discovered the tip of a
large iceberg of fraud.
Of more
than 100 allegations of fraud and abuse, GAO audited 10 firms between October 2008 and
November 2009 and found that ineligible companies improperly received millions
of dollars in set-aside and sole source SDVOSB contracts. The audited firms
received approximately $100 million in SDVOSB contracts and another $300
million through other small business programs such as the 8(a) program for
disadvantaged minority groups and the HUBZone program for firms located in
historically underutilized business zones.
According to the
Small Business Administration, $6.5 billion in federal contracts were awarded
to service-disabled veteran-owned small businesses in fiscal
2008.
The
firms GAO studied committed the fraud in several ways. One company owner was
not a service-disabled veteran, another was owned by a service-disabled
veteran, but he did not control the firm's daily operations, and several
SDVOSBs were serving as pass-throughs for large and sometimes foreign
corporations. In the case of a pass-through, a firm or team listed a
service-disabled veteran as the majority owner, but all work was performed and
managed by a nonservice disabled person or firm, in violation of program
requirements.
Gregory
Kutz, GAO managing director of forensic audits and special investigations,
told the House Small Business Committee on Thursday that the case studies show
"significant control weaknesses" in the program, including effective fraud
prevention by the Small Business Administration.
"The
SDVOSB program is essentially an eligibility-based program," Kutz said.
"However, neither the SBA, except when responding to a protest, nor
contracting officials are currently verifying the eligibility of firms
claiming to be SDVOSBs."
Neither
SBA nor contracting agencies have processes in place to access Veterans
Affairs Department records listing individuals who are valid service-disabled
veterans, Kutz said. Contracting officers also are not required to validate a
firm's eligibility before an award. And unlike the 8(a) or HUBZone programs,
firms professing eligibility are not required to submit documents
substantiating this claim.
Perhaps
most discouraging, Kutz said, was that in many fraud cases, federal
contracting officials were "actively involved" in and aware of the
misrepresentation. He cited an example of a contract for furniture at MacDill
Air Force Base in Tampa,
Fla., where the contract was
awarded to a firm -- essentially a shell company -- owned by a full-time
contract employee on the base. "The base director of business operations also
told us that MacDill had about $14 million in service-disabled veteran-owned
small business sole source and set-aside contracts in 2008, and 90 percent of
firms that received these contracts were front companies for large
businesses," Kutz told lawmakers.
Committee members
of both parties expressed outrage and disgust at the misuse of a program
designed to help injured veterans.
"Imagine
being a veteran who is injured in Iraq or Afghanistan,
yet despite your injuries you still manage to launch your own business. Then
imagine finding out that you are losing out on contracts designated for
veterans because a big company found out how to get around the rules," said
Rep. Nydia Velazquez, D-N.Y. "What kind of message does that send to veterans
in this country? We've got to stop it."
Rep. Sam
Graves, R-Mo., said fraud alone would be problematic, but in this case it
shuts out deserving individuals and firms from crucial
opportunities.
"The
firms denied contracts are those owned by individuals who made a significant
sacrifice in defending our country," Graves
said. "That is simply unacceptable."
GAO finds extensive fraud in disabled veteran-owned small biz program
Lawmakers and GAO
both said at the hearing that there must be greater and swifter penalties for
those violating the SDVOSB program. While Mills said SBA has recommended that
the 10 firms GAO studied be investigated by the SBA inspector general, Kutz
said many, if not all, could still be eligible to receive federal
dollars.
"It's
important when they lie to us and cheat that we do something about it," Kutz
said. "You can suspend someone without going through a lengthy three-year
process of debarment."
Administrator
Karen Mills said SBA was working closely with Veterans Affairs to strengthen
oversight of the program, but that primarily SBA is responsible for ensuring
SDVOSBs were in fact small businesses, and VA is responsible for ensuring the
owners are service-disabled veterans.
"The
culture of the SBA is that we will not be the agency of fraud, waste, abuse
and mismanagement," Mills said. "We have an aggressive, new attitude towards
this; it is explicitly one of our priorities."
Kutz
echoed the idea that this priority is relatively new for
SBA.
"SBA is
good people, but the history of SBA has been as an advocacy organization, not
an enforcement organization," he said. "Therefore, you're not going to have
the right kind of people, necessarily, that are very good at this. But I would
argue that if you're going to be an advocate for small businesses, you need to
deal with the integrity of the programs, and today's hearing is a good
start."
