Contracts Stolen From Veterans

Another day, another contracting scandal: The Government Accountability Office reported Thursday that millions of dollars in federal contracts that were set aside for businesses owned by service-disabled veterans instead went to companies that were ineligible for the program.

GAO received more than 100 allegations of fraud and abuse in contracts set aside for service-disabled veterans, and they selected 10 case studies for investigation. These companies shouldn’t have been awarded these contracts because their owners weren’t service-disabled veterans, or the companies were merely fronts for large companies, the GAO found. In one case, work on the contract actually was performed by employees of a $12 billion company based in Denmark.

As a result, companies actually owned by service-disabled veterans lost out on $100 million in work.

“What kind of message does that send to veterans in this country?” said Representative Nydia Velazquez, New York Democrat, who chairs the House Small Business Committee, which requested the GAO investigation.

By law, small businesses owned by service-disabled veterans are supposed to receive 3 percent of federal procurement dollars. The federal government has never achieved this goal. In 2008, $6.5 billion in federal contracts went to companies that claimed to be owned by service-disabled veterans. That represented only 1.5 percent of all procurement dollars.

Those numbers are inflated, based on what GAO found in its sample.

The problem is that companies self-certify that they are owned by small businesses owned by service-disabled veterans. Who is responsible for making sure they’re telling the truth?

“As of now, nobody, and that’s the whole problem,” said Gregory Kutz, GAO’s managing director of forensic auditions and special investigations.

About 16,000 companies are registered with the federal government as businesses owned by service-disabled veterans. These companies don’t have to submit any documentation supporting this claim.

“All you have to do is go on the system and say you are,” Kutz said.

The Small Business Administration oversees contracting programs for small businesses, including set-aside programs for service-disabled veterans. SBA administrator Karen Mills told Velazquez’s committee that keeping ineligible companies from receiving these contracts will be a top priority. The agency has referred the 10 companies identified by GAO to its inspector general, and they could be barred from federal contracting.

The SBA also is working with the Veteran’s Administration to get access to its database of individuals who actually are service-disabled veterans, she said.

The Veterans Administration's database, however, only covers companies who perform contracts for the VA, not other agencies, Kutz said. Plus, the debarment process can take three years, allowing ineligible companies to receive additional contracts in the meantime.

The SBA has the right to suspend contractors suspected of fraud, but seems reluctant to do that because it traditionally has been an advocate for small business, not an enforcement agency, Kutz said.

Currently, the only process in place to detect fraud in contracting to service-disabled veterans is a formal bid protest. But even when firms are found ineligible to receive a contract, they often get to keep it, Kutz said.

There are “no consequences for the few that are caught cheating,” he said.