	Framework for Fraud Prevention, Detection, and Prosecution

The results of our investigation serve to emphasize the overall lesson that  a complete fraud prevention framework is necessary in order to minimize  fraud, waste, and abuse within the SDVOSB program. The most effective  and most efficient part of the framework involves the institution of  rigorous controls at the beginning of the process for becoming eligible to  bid on SDVOSB contracts. Next, active and  continual monitoring of contractors performing SDVOSB contracts is also  essential. Given the numerous examples we identified of firms owned by a  service-disabled veteran who subcontracted 100 percent of contract work  to non-SDVOSB firms, it is essential that program officials monitor  compliance with program rules after contract performance has begun. Finally, as shown in our investigation, preventive and monitoring controls  are not effective unless identified abusers are aggressively prosecuted  and/or face other consequences such as suspension, debarment or  termination of contracts and future contract options. Preventive Controls Reduce the Potential for Fraud through Limiting Access to SDVOSB Contracts

Preventive controls are a key element of an effective fraud prevention  framework and are also described in the Standards for Internal Controls in  the Federal Government. This firm is a prime example of why the relatively simple  process of validating an individual’s status as a service-disabled veteran  can prevent fraud within the SDVOSB program. Verifying businesses prior to site visits may allow  ineligible firms to appear as eligible and to receive SDVOSB set-aside and  sole-source contracts. In order for the SBA and VA to ensure the highest level  of compliance with SDVOSB program requirements, there must be  consequences for those firms that chose to fraudulently misrepresent  themselves as SDVOSB firms. Referrals from GAO’s Investigation Have Resulted in Action from Agency Inspector General Offices

Our prior investigation into allegations of fraud and abuse within SDVOSB  contracts found 10 firms that were ineligible for the program but received  approximately $100 million in SDVOSB contracts. Upon completion of our  investigation, we referred all 10 cases to various agency officials who had  contracts with the firms and to each agency’s IG. Based on our referrals,  agencies have taken a variety of actions including the termination of  existing contracts, the decision not to extend contract performance by  exercising future contract options, and the opening of civil and criminal  investigations. IG officials have stated that most of their investigations are  ongoing and that therefore, details cannot be provided because of the risk  of jeopardizing the investigation. The subcontractor’s investigation determined one of its employees helped  to perpetrate the fraud by creating fictitious documents at the request of  the SDVOSB firm’s owner. Additionally, these 10 case-study firms have  received more than $5 million in new contract obligations on SDVOSB  sole-source and set-aside contacts and more than $10 million in other new  contract obligations since November 2009.
Why GAO Did This Study

The Service-Disabled Veteran-Owned Small Business (SDVOSB) program is intended to provide federal contracting opportunities to qualified firms. In fiscal year 2008, the Small Business Administration (SBA) reported $6.5 billion in sole-source, set-aside, and other SDVOSB contract awards. Testimonies GAO delivered on November 19 and December 16, 2009 identified millions of dollars in SDVOSB contracts that were awarded to ineligible firms, and weaknesses in fraud prevention controls at the SBA and VA which allowed ineligible firms to receive contracts. GAO was asked to testify about the key elements of a fraud prevention framework within the SDVOSB program and to provide an update on the status of fraud referrals made based on the prior investigation of selected SDVOSB firms. To address these objectives, GAO reviewed prior findings from audits and investigations of the SDVSOB program and contacted investigative agency officials concerning the referrals GAO made on prior work. GAO also reviewed applicable guidance on internal control standards from the Comptroller General's Standards for Internal Controls in the Federal Government.

What GAO Found

GAO founda lack of government-wide prevention controls, a lack of validation of information provided by SDVOSB firms used to substantiate their eligibility for the program, non-existent monitoring of continued compliance with program requirements, and an ineffective process for investigating and prosecuting firms found to be abusing the program. The results of GAO's investigation serve to emphasize the overall lesson that a complete fraud prevention framework is necessary in order to minimize fraud, waste, and abuse within the SDVOSB program. The most effective and most efficient part of the framework involves the institution of rigorous controls at the beginning of the process for becoming eligible to bid on SDVOSB contracts. Next, active and continual monitoring of contractors performing SDVOSB contracts is also essential. Given the examples GAO identified of firms owned by a service-disabled veteran who subcontracted 100 percent of contract work to non-SDVOSB firms, it is essential that federal agencies monitor compliance with program rules after contract performance has begun. Finally, as shown in GAO's investigation, prevention and monitoring controls are not effective unless identified fraud is aggressively prosecuted or companies are suspended, debarred or otherwise held accountable. GAO's prior investigation into allegations of fraud and abuse within SDVOSB contracts found 10 firms that were ineligible for the program but received approximately $100 million in SDVOSB contracts. Upon completion of its investigation, GAO referred all 10 cases to various agency officials who had contracts with the firms, and each agency's Inspector General (IG). Based on the referrals, agencies have taken a variety of actions including the cancellation of existing contracts, termination of future contract options, and opening of civil and criminal investigations. IG officials have stated that many of their investigations are ongoing, and therefore details cannot be provided due to the risk of jeopardizing the investigation. These 10 companies have obtained over $5 million in new SDVOSB sole-source and set-aside contact obligations since November 2009.