VA’s Program Remains Vulnerable to Fraud and Abuse as a Result of a Lack of Inventory Control and Potentially Ineligible Firms Listed in VetBiz

VA has made numerous conflicting statements about its progress  verifying firms listed in VetBiz under the more-thorough process the  agency implemented in response to the 2010 Act. With regard to our previous work, VA has taken some positive  action to enhance its fraud prevention efforts by establishing processes in  response to 6 of 13 recommendations we issued in October 2011. VA has  also begun action on some remaining recommendations. VA officials told us that the agency prioritized its verification under  the process implemented in response to the 2010 Act by reviewing (1)  new applications for firms that had previously only self-certified in VetBiz  (i.e., firms that had not been reviewed under the processes VA created  for the 2006 Act or 2010 Act); (2) new firms that had initially applied for  verification after the 2010 Act, to include reprocessing any firms that were  denied through the new requirements and subsequently requested  reconsideration; and (3) applications for firms initially verified in VetBiz  under the process VA chose to implement for the 2006 Act. In one communication, VA stated that as of February  2011, VA’s 2006 Act verification process had been discontinued, and all  new verifications would use the process implemented in response to the  2010 Act going forward. Our analysis shows that as of  April 1, 2012, 3,717 of the 6,178 SDVOSBs (60 percent) listed as eligible  in VetBiz had yet to be verified using the more-thorough verification  process. Of these 3,717 firms listed as eligible on April 1, 2012, 134  received a total of $90 million in new VA SDVOSB sole-source or set- aside contract obligations during the 4-month period from November 30,  2011, to April 1, 2012. Further, the report noted VA’s document-review process  under the 2006 Act “in many cases was insufficient to establish control  and ownership…  in effect allowed businesses to self-certify as a  veteran-owned or service-disabled veteran-owned small business with  little supporting documentation.” The report goes on to state that VA’s  failure to maintain “accurate and current” information in the VetBiz  database also exacerbated problems in the verification process. However, VA has not developed and  implemented procedures for conducting unannounced site visits to  contract performance locations and interviews with contracting  officials. Until VA develops  procedures on removing SDVOSB contracts from ineligible firms, the  SDVOSB program is at risk for ineligible firms to abuse the program  and retain contracts obtained through fraud and abuse. No Action Has Been Taken to Improve Government-wide SDVOSB Fraud- Prevention Controls

No action has been taken to improve government-wide SDVOSB fraud- prevention controls as the program continues to remain a self-certification  program. Because federal law does not require it, SBA does not verify  firms’ eligibility status, nor does it require that firms submit supporting  documentation. Such an action  is supported by the fact that VA maintains the database identifying which  individuals are service-disabled veterans and is consistent with VA’s  mission of service to veterans. After its review  of DOD contracts awarded from October 2009 to July 2010, the OIG  reported that $1.9 million in SDVOSB contracts went to firms that were  not registered in CCR as SDVOSBs and $340.3 million went to  contractors that potentially misstated their SDVOSB status. To address the vulnerabilities within the government-wide program  caused by reliance on a self-certification process, we suggested in 2009  that Congress consider providing VA with the authority and resources  necessary to expand its SDVOSB eligibility verification process to all  contractors seeking to bid on SDVOSB contracts government-wide. However, such action should not be  undertaken until VA demonstrates that its verification process is  successful in reducing the SDVOSB program’s vulnerability to fraud and  abuse. Recommendations for Executive Action

To minimize potential fraud and abuse in VA’s SDVOSB program and  provide reasonable assurance that legitimate SDVOSB firms obtain the  benefits of this program, we recommend that the Secretary of Veterans  Affairs ensure that all firms within VetBiz have undergone its 2010 Act  verification process. In addition, five new case studies  developed for this report highlight instances of fraud and abuse. Our report’s characterization of the Veterans Small Business  Verification Act (2010 Act), part of the Veterans’ Benefits Act of 2010,  is correct and we did not make associated changes to the report. These firms  received approximately $16 million in VA SDVOSB set-aside and  sole-source contract obligations from October 2010 to December  2011. Our report states that VA has made progress in the area of fraud- awareness training. Service-Disabled Veteran-Owned Small Business Program: Preliminary  Information on Actions Taken by Agencies to Address Fraud and Abuse  and Remaining Vulnerabilities. Service-Disabled Veteran-Owned Small Business Program: Fraud  Prevention Controls Needed to Improve Program Integrity.
Why GAO Did This Study

The SDVOSB program provides federal contracting opportunities to business-owning veterans who incurred or aggravated disabilities in the line of duty. SBA administers the government-wide program, while VA maintains databases of veterans and SDVOSBs and oversees its own contracts. GAO has reported several times since 2009 that both programs were vulnerable to fraud and abuse and recommended improvements. In October 2010, Congress passed the Veterans Small Business Verification Act (2010 Act), part of the Veterans Benefits Act of 2010, to provide tools to VA to more-thoroughly validate firms eligibility before listing them in VetBiz, the database used by VA contracting officials to award SDVOSB contracts.
GAO was asked to assess (1) VAs progress in addressing remaining vulnerabilities to fraud and abuse in its SDVOSB program and (2) actions taken by SBA or other federal agencies to improve government-wide SDVOSB fraud-prevention controls. GAO reviewed agency documentation and interviewed agency officials. GAO also investigated cases of alleged fraud and abuse. GAO did not project the extent of fraud and abuse in the program.

What GAO Found

The Department of Veterans Affairs (VA) Service-Disabled Veteran-Owned Small Business (SDVOSB) program remains vulnerable to fraud and abuse. VA has made inconsistent statements about its progress verifying firms listed in VetBiz using the more-thorough process the agency implemented in response to the Veterans Small Business Verification Act (2010 Act). In one communication, VA stated that as of February 2011, all new verifications would use the 2010 Act process going forward. However, as of April 1, 2012, 3,717 of the 6,178 SDVOSB firms (60 percent) listed as eligible in VetBiz had not been verified under the 2010 Act process. Of these 3,717 firms, 134 received $90 million in new VA SDVOSB set-aside or sole-source contract obligations from November 30, 2011, to April 1, 2012. While the 2010 Act did not include a deadline for verification using the more-thorough process, the presence of firms that have only been subjected to the less-stringent process that VA previously used represents a continuing vulnerability. VAs Office of Inspector General (OIG) reported that the less-stringent process was in many cases insufficient to establish control and ownership and in effect allowed businesses to self-certify as SDVOSBs with little supporting documentation. VA has taken some positive action to enhance its fraud prevention efforts by establishing processes in response to 6 of 13 recommendations GAO issued in October 2011, including conducting unannounced site visits to high-risk firms and developing procedures for referring suspicious SDVOSB applications to the OIG. VA has also begun action on some remaining recommendations, such as providing fraud awareness training and removing contracts from ineligible firms, though these procedures need to be finalized.
Regarding the government-wide SDVOSB program, no action has been taken by agencies to improve fraud-prevention controls. Relying almost solely on firms self-certification, the program continues to lack controls to prevent fraud and abuse. The Small Business Administration (SBA) does not verify firms eligibility status, nor does it require that they submit supporting documentation. While SBA is under no statutory obligation to create a verification process, five new cases of potentially ineligible firms highlight the danger of taking no action. These firms received approximately $190 million in SDVOSB contract obligations. In one case, a firm found ineligible by VA continued to self-certify as an SDVOSB and received about $860,000 from the General Services Administration and the Department of Interior. Further, the Department of Defense (DOD) OIG reported in 2012 that DOD provided $340 million to firms that potentially misstated their SDVOSB status. To address these vulnerabilities, GAO previously suggested that Congress consider providing VA with the authority necessary to expand its SDVOSB eligibility verification process government-wide. Such an action is supported by the fact that VA maintains the database identifying which individuals are service-disabled veterans and is consistent with VAs mission of service to veterans. However, the problems GAO identified with VAs verification process indicate that an expansion of VAs authority to address government-wide program problems should not be undertaken until VA demonstrates that its process is successful in reducing its own SDVOSB programs vulnerability to fraud and abuse.

What GAO Recommends

GAO recommends that VA take steps to ensure that all firms within VetBiz have undergone the 2010 Act verification process. VA generally concurred with the recommendation but expressed concern about how specific report language characterized its program. GAO made some changes to the report but continues to believe that the program remains vulnerable to fraud and abuse.