[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
ODYSSEY OF THE CVE (CENTER FOR VETERANS ENTERPRISE)
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
and the
SUBCOMMITTEE ON ECONOMIC OPPORTUNITY (EO)
of the
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
THURSDAY, AUGUST 2, 2012
__________
Serial No. 112-73
__________
Printed for the use of the Committee on Veterans' Affairs
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COMMITTEE ON VETERANS' AFFAIRS
JEFF MILLER, Florida, Chairman
CLIFF STEARNS, Florida BOB FILNER, California, Ranking
DOUG LAMBORN, Colorado CORRINE BROWN, Florida
GUS M. BILIRAKIS, Florida SILVESTRE REYES, Texas
DAVID P. ROE, Tennessee MICHAEL H. MICHAUD, Maine
MARLIN A. STUTZMAN, Indiana LINDA T. SANCHEZ, California
BILL FLORES, Texas BRUCE L. BRALEY, Iowa
BILL JOHNSON, Ohio JERRY McNERNEY, California
JEFF DENHAM, California JOE DONNELLY, Indiana
JON RUNYAN, New Jersey TIMOTHY J. WALZ, Minnesota
DAN BENISHEK, Michigan JOHN BARROW, Georgia
ANN MARIE BUERKLE, New York RUSS CARNAHAN, Missouri
TIM HUELSKAMP, Kansas
MARK E. AMODEI, Nevada
ROBERT L. TURNER, New York
Helen W. Tolar, Staff Director and Chief Counsel
______
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
BILL JOHNSON, Ohio, Chairman
CLIFF STEARNS, Florida JOE DONNELLY, Indiana, Ranking
DOUG LAMBORN, Colorado JERRY McNERNEY, California
DAVID P. ROE, Tennessee JOHN BARROW, Georgia
DAN BENISHEK, Michigan BOB FILNER, California
BILL FLORES, Texas
______
SUBCOMMITTEE ON ECONOMIC OPPORTUNITY (EO)
MARLIN A. STUTZMAN, Indiana, Chairman
GUS M. BILIRAKIS, Florida BRUCE L. BRALEY, Iowa, Ranking
BILL JOHNSON, Ohio LINDA T. SANCHEZ, California
TIM HUELSKAMP, Kansas TIMOTHY J. WALZ, Minnesota
MARK E. AMODEI, Nevada
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
August 2, 2012
Page
Odyssey of The CVE (Center For Veterans Enterprise).............. 1
OPENING STATEMENTS
Chairman Bill Johnson, Subcommittee on Oversight and
Investigations................................................. 1
Prepared Statement of Chairman Johnson....................... 43
Chairman Marlin A. Stutzman, Subcommittee on Economic Opportunity 3
Prepared Statement of Chairman Stutzman...................... 44
Hon. Joe Donnelly, Ranking Democratic Member, Subcommittee on
Oversight and Investigations................................... 4
WITNESSES
Mr. Thomas J. Leney, Executive Director, Office of Small and
Disadvantaged Business Utilization, U.S. Department of Veterans
Affairs........................................................ 5
Prepared Statement of Mr. Leney.............................. 44
Mr. Richard J. Hillman, Managing Director, Forensic Audits and
Investigative Service, U.S. Government Accountability Office... 20
Prepared Statement of Mr. Hillman............................ 49
Mr. James J. O'Neill, Assistant Inspector General for
Investigations, Office of the Inspector General, U.S.
Department of Veterans Affairs................................. 23
Prepared Statement of Mr. O'Neill............................ 54
Mr. Richard F. Weidman, Executive Director, Policy & Government
Affairs, Vietnam Veterans of America........................... 35
Prepared Statement of Mr. Weidman............................ 57
Executive Summary of Mr. Weidman............................. 61
Mr. Scott F. Denniston, Executive Director, National Veteran
Small Business Coalition....................................... 36
Prepared Statement of Mr. Denniston.......................... 61
SUBMISSION FOR THE RECORD
From: James F. McDonnell, Chairman & CEO, Trinity Applied
Strategies Corporation to the Committee........................ 64
QUESTIONS FOR THE RECORD
Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic
Member, Subcommittee on Oversight and Investigations To: Hon:
Eric K. Shinseki, Secretary, Department of Veterans Affairs.... 68
Responses From: Hon: Eric K. Shinseki, Secretary, Department of
Veterans Affairs To: Hon. Joe Donnelly, Ranking Democratic
Member, Subcommittee on Oversight and Investigations........... 70
Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic
Member, Subcommittee on Oversight and Investigations To: Hon:
Gene L. Dodaro, Comptroller General of the United States,
Government Accountability Office............................... 73
Responses From: Hon: Gene L. Dodaro, Comptroller General of the
United States, Government Accountability Office To: Hon. Joe
Donnelly, Ranking Democratic Member, Subcommittee on Oversight
and Investigations............................................. 74
MATERIALS SUBMITTED FOR THE RECORD
Letter From: George J. Opfer, Inspector General, Department of
Veterans Affairs To: Hon. Joe Donnelly, Ranking Democratic
Member, Subcommittee on Oversight and Investigations and to the
Hon. Bruce L. Braley, Ranking Democratic Member, Subcommittee
on Economic and Opportunity.................................... 80
Letter From: Joe Donnelly, Ranking Democratic Member,
Subcommittee on Oversight and Investigations To: Mr. Scott
Denniston, Executive Director, National Veteran Small Business
Coalition...................................................... 80
Letter From: Joe Donnelly, Ranking Democratic Member,
Subcommittee on Oversight and Investigations To: Mr. Richard F.
Weidman, Executive Director for Policy & Government Affairs,
Vietnam Veterans of America.................................... 81
Letter From: Joe Donnelly, Ranking Democratic Member,
Subcommittee on Oversight and Investigations To: Mr. George J.
Opfer, Inspector General, Department of Veterans Affairs....... 82
ODYSSEY OF THE CVE (CENTER FOR VETERANS ENTERPRISE)
Thursday, August 2, 2012
U.S. House of Representatives,
Committee on Veterans' Affairs,
Subcommittee on Oversight and Investigations,
joint with the
Subcommittee on Economic Opportunity,
Washington, D.C.
The Subcommittees met, pursuant to call, at 10:03 a.m., in
Room 334, Cannon House Office Building, Hon. Bill Johnson
[Chairman of the Subcommittee on Oversight and Investigations]
presiding.
Present from Subcommittee on Oversight and Investigations:
Representatives Johnson, Roe, Benishek, Donnelly, McNerney, and
Barrow.
Present from Subcommittee on Economic Opportunity:
Representatives Stutzman, Bilirakis, Huelskamp, and Walz.
OPENING STATEMENT OF CHAIRMAN BILL JOHNSON,
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
Mr. Johnson. Good morning. This hearing will come to order.
I want to welcome everyone to today's joint hearing on the
Center for Veterans Enterprise.
I thank the Members of the Subcommittee on Economic
Opportunity for their participation and their efforts in
improving the process for veteran-owned and service-disabled
veteran-owned small businesses to conduct business with the VA.
The two Subcommittees have worked throughout this Congress
to improve the certification process for veteran-owned and
service-disabled veteran-owned small businesses or as we refer
to them VOSBs and SDVOSBs.
We have patiently waited for signs of progress following
the installation of a new executive director of small and
veteran business programs at the VA. And while some
improvements have been made, unfortunately the goals
established nearly a year ago have yet to be achieved.
This Committee has an oversight responsibility to the
American people to ensure that tax dollars administered by the
VA are going to legitimate, qualified veteran-owned businesses.
I am hopeful that today's hearing will encourage and assist
the VA in reaching their goals of improving the CVE once and
for all.
As this Committee's own investigations and multiple
Government Accountability Office investigations have shown, the
ad hoc processes implemented by the CVE to verify and reverify
businesses are not working. The recommendations made by the GAO
and the VA's inspector general go unheeded.
Regardless of the reasons, the time has come for the CVE to
take a hard look in the mirror, dig down to the root of the
problem and fix it.
I can assure you veteran business owners are losing
patience. This Subcommittee is losing patience and the American
people are losing patience.
With the attention that this issue has received, the
findings of the recent GAO study, Service-Disabled Veteran-
Owned Small Business Program, Vulnerability to Fraud and Abuse
Remains, are very troubling.
One of the many flaws in the system substantiated by GAO
includes the VA's providing GAO with seven different accounts
of how many SDVOSBs are verified by the CVE under the Veterans
Benefits Healthcare and Information Technology Act of 2006 and
the Veterans Small Business Verification Act of 2010.
Given the amount of resources, we have urged the VA to
commit to the CVE, it is safe to say we expected better than
this.
Over the past several months, this Committee provided the
department with feedback and input regarding the CVE's
reverification problem. With this in mind, we welcome the
secretary's recent announcement that the VA will move from
annual reverification to a biannual reverification, something
this Committee had been strongly urging the VA to do for a long
time.
While this move is commended, the problems plaguing the CVE
go beyond reverification. For instance, the VA's decision to
ignore the Small Business Administration's regulations
regarding ownership and control of a business has resulted in
unnecessary problems.
The VA's choice to create its own standards for ownership
and control has led to the CVE applying inconsistent standards
to businesses applying for verification.
In some instances, these arbitrary standards involve
requests that are invasive and have needlessly hurt legitimate
veteran-owned small businesses.
It is not only the legislative branch that believes the
CVE's improvised standards and reasoning is lacking, but also
the judicial branch.
This past March, a Federal district judge for the District
of Columbia stated in an opinion that, and I quote, ``Several
of the grounds cited by the CVE as a basis for denying the
application for inclusion in the VetBiz VIP database are
described in such generalized and ambiguous terms that the
court is essentially left to guess as to the precise basis for
the agency's decision.''
Unfortunately, this characterization describes the
experience of many businesses who have applied for
certification and have been denied.
On July 11th, Chairman Stutzman and I sent a letter to
Secretary Shinseki detailing these and other problems and we
continue to await a response.
Today's hearing provides an opportunity to candidly discuss
CVE's failures and where and how it can be improved.
I want to thank all of our witnesses for their
participation today and I look forward to the testimony.
I now yield to Chairman Stutzman of the Subcommittee on
Economic Opportunity for his opening statement.
[The prepared statement of Hon. Johnson appears in the
Appendix]
OPENING STATEMENT OF CHAIRMAN MARLIN STUTZMAN,
SUBCOMMITTEE ON ECONOMIC AND OPPORTUNITY
Mr. Stutzman. Thank you, Mr. Chairman.
And good morning to you all.
Everyone here knows about the problems VA has had
implementing the small business provisions of a series of
Public Laws beginning with Public Law 109-461. And we will hear
more about it today, I am sure.
While addressing those continuing issues is important,
especially those which may include criminal activity, the past
is not my focus here today.
I want to know how and equally important when VA will put
in place the systems and policies that will shorten the time to
be approved, decrease the level of effort needed to pass
muster, and lower the cost and finally create a community of
veteran-owned businesses that is reasonably free from
unqualified companies.
This is not just a VA task. There are issues we in Congress
need to deal with as well. For example, current law effectively
eliminates any company funded through investors because of the
hundred percent control requirement. That means should we adopt
a less stringent definition of control which then begs the
question of how to prevent rent-a-vet operations from
flourishing at the expense of fully qualified companies.
Another issue is what VA describes as negative control
where a veteran majority owner can potentially be thwarted by a
non-veteran minority owner.
Another is how to best judge the level of control when
there is a disparity in the resumes of a veteran majority owner
and a minority owner.
Finally, there is the issue of recertification. I believe
the current approach of recertifying every business, whether
every year or every two years or three years or four years, may
overwhelm CVE resources.
Let me explain using an assumed increase of 2,000 approved
businesses annually.
[Chart]
Mr. Stutzman. As you can see on the monitors that we have
above here that if we use the current two-year recertification
process, at the end of the tenth year, CVE will be recertifying
18,000 businesses.
Even using what Mr. Leney will describe as the simplified
recertification process, I do not see how that magnitude of
workload can be managed with a significant increase in
resources beyond the current $30 million per year.
We need another approach, perhaps a risk-based one that
recertifies companies only when they are identified as a
potential contract winner.
So, Mr. Leney, you have your work cut out for you. And I
know you know that as well. And I truly want you to succeed
because the work that you do will be good not only for
taxpayers, it will be good for the veteran community as well.
With that, Mr. Chairman, I yield back.
[The prepared statement of Hon. Stutzman appears in the
Appendix]
Mr. Johnson. Thank you, Chairman Stutzman.
I now yield to Ranking Member Donnelly for his opening
statement.
OPENING STATEMENT OF HON. JOE DONNELLY, RANKING DEMOCRATIC
MEMBER, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
Mr. Donnelly. Thank you, Mr. Chairman.
The veteran-owned small business and service-disabled
veteran-owned small business programs are designed to foster
veteran entrepreneurship by increasing available business
opportunities. Business ownership is especially a great
opportunity for veterans with disabilities.
As part of the process to ensure opportunities for verified
service-disabled veteran-owned businesses, verified businesses
are assured a portion of the VA's contracts and in order to
ensure that only those firms that are actually SDVOSBs or VOSBs
are awarded contracts, the VA Center for Veterans Enterprise is
responsible for verifying the veteran ownership of respective
businesses.
Companies that have been determined to be eligible are
listed in the VetBiz Vendor Information Pages database. CVE,
however, continues to struggle with the verification process as
progress confirming veteran ownership of firms listed in the
VetBiz database has been slow and despite the slow pace of
verification, the GAO remains concerned that CVE is unable to
control its own program.
Specifically in an ongoing investigation, the GAO found
that CVE provided conflicting information on a number of
reverifications they have done under the old law and the new
law. We will give CVE the opportunity to clarify this.
CVE's move to require reverification every two years may
reduce the backlog, but unless those businesses who are
considered verified met eligibility requirements in the first
place, we risk awarding ineligible businesses VOSB and SDVOSB
sole-source and set-aside contracts.
We must find the proper balance among verifying business
ownership or control, making the process easy and streamlined,
and protecting taxpayer dollars from fraud.
I look forward to hearing from our witnesses.
Thank you, and I yield back.
Mr. Johnson. Thank you, Ranking Member Donnelly.
I now invite our first panel to the witness table, and I
see he is already there. We will hear from Mr. Tom Leney,
Executive Director of the Small and Veteran Business programs
at the VA's Office of Small and Disadvantaged Business
Utilization or OSDBU.
Mr. Leney, your complete written statement will be made
part of the hearing record, and you are now recognized for five
minutes.
STATEMENT OF THOMAS J. LENEY, EXECUTIVE DIRECTOR, OFFICE OF
SMALL AND DISADVANTAGED BUSINESS UTILIZATION, U.S. DEPARTMENT
OF VETERANS AFFAIRS
Mr. Leney. Thank you, Chairman Johnson, Chairman Stutzman,
Ranking Member Donnelly, Members of the Subcommittee. Thank you
for inviting me to testify on the status of VA's Veteran-Owned
Small Business Verification Program and our response to the
Government Accountability Office report.
The VA has made substantial progress in improving the VA
Verification Program. These improvements have reduced the
potential for ineligible firms to take improper advantage of
the Veterans First Program at the VA that was established by
this body under Public Law 109-461 while at the same time
making it easier and faster for legitimate Veteran-owned small
businesses to gain greater access to the VA procurement
opportunities.
The VA has addressed the issues raised in the GAO report
and believes the current verification process provides a high
level of assurance that only eligible firms are verified.
We have improved our quality control. We have expanded our
program for referral of firms that we suspect are
misrepresenting their status to the Office of the Inspector
General and to the Debarment Committee.
At the same time, we have taken action to improve the
process in order to enable eligible firms to be verified
quickly and efficiently. By regulation, VA has 90 days to make
an initial decision where practicable.
When I appeared before you a year ago, it took more than
130 days on average to process an initial verification
application. In April, we had reduced that average time to 73
days.
In 2011, only one-third of initial applications as noted in
the GAO report were approved. In June, due in part to our
increased efforts to educate potential applicants on how to
become compliant with the regulation, more than 60 percent of
initial applicants were approved.
CVE has improved the verification process and is able to
track its inventory of firms. Unfortunately, due to limitations
in the capabilities of our verification case management system,
we must do so off-line and that has resulted in problems in
providing accurate aggregate reports.
I can say with confidence, however, that no firm appears in
VIP as eligible for an award unless it has been verified as
owned and controlled by a Veteran.
To ensure that it only verifies eligible firms, CVE has
made a number of improvements. We have established a Legal
Review Program to address potential errors. We have
strengthened the review of requests for reconsideration by
adding a legal review. We have established a risk management
program. We have established a formal referral process to the
Office of the Inspector General and the Debarment Committee.
In addition to these kinds of actions we have taken to
reduce the risk of verifying ineligible firms, we have also
made improvements in the process aimed at reducing the time it
takes to receive a determination of eligibility.
We have established an online application process. We have
expanded our customer service help desk. We have created a
simplified reverification process to get at some of the issues
that were raised by you, Chairman Johnson, here. And we have
initiated a Verification Assistance Program.
The impact of improvements has been limited by the high
rejection rate of initial applications. In 2011, almost two-
thirds of the initial applications were denied.
Our analysis of this result revealed that most rejections
occurred as a result of a lack of understanding of the
requirements of the regulation, not fraudulent intent.
In order to address this problem, we have taken action to
help Veterans better understand the regulatory requirements. We
developed verification assistance briefs. We have provided
briefings to veteran businesses on how to meet the standards.
In response to stakeholder recommendations, we have
developed an online verification self-assessment tool and we
have partnered with the Procurement Technical Assistance
Centers and veteran Service Organizations to provide counseling
and to answer questions from applicants.
In particular, I would like to acknowledge the support of
VET-Force and the National Veterans Small Business Coalition
for their active support of this effort.
Some have raised concerns about the regulation itself. We
have coordinated with the SBA to ensure that the VA regulations
concerning verification are consistent with the SBA regulations
covering the standards for government-wide SDVOSB program.
We will continue this coordination as we have initiated a
formal process seeking input from stakeholders in order to
draft a significant change in the regulation.
The VA has made significant progress in the verification
program. We have overcome many of the challenges and
vulnerabilities raised by the GAO and the IG. Bottom line, the
program works.
So far this year, 20 percent of VA procurements went to
veteran businesses. That is real money to real Vets.
Thank you, Mr. Chairman. I look forward to taking your
questions.
[The prepared statement of Thomas J. Leney appears in the
Appendix]
Mr. Johnson. I thank you for your testimony.
We will now begin with the questioning.
Mr. Leney, you heard the quote that I read just a little
bit ago from the Federal district judge for the District of
Columbia who said several of the grounds cited by the CVE as a
basis for denying the application for inclusion in the VetBiz
VIP database are described in such generalized and ambiguous
terms that the court is essentially left to guess at the
precise basis for the agency's decision.
So what steps has the CVE taken to ensure that decisions
for appeals are sufficiently reasoned so that if the issue does
go to court, a judge can properly exercise judicial review?
Mr. Leney. Sir, I find that judicial concern troubling.
Mr. Johnson. Okay. I know you find it troubling. And we
have got a lot of witnesses to hear from today. I do not want
to spin our wheels.
Have you made any improvements as a result of that district
judge's finding and the input that we have given you from this
Subcommittee to make sure that appeals are sufficiently
reasoned so that they can be understood? Has any action been
taken?
Mr. Leney. Yes, sir. As I mentioned in my oral statement,
every request for reconsideration receives a legal review from
our Office of General Counsel on the basis of ``Are we prepared
to defend it in court.''
Mr. Johnson. Have you made any changes to your process to
make sure that they are efficient?
Mr. Leney. That is, in fact, a change to the process. Every
one of our requests for reconsideration receives a legal
review.
Mr. Johnson. Okay. And that was not being done prior to?
Mr. Leney. That was not being done prior.
Mr. Johnson. Okay. Does VA possess the necessary expertise
in making determinations of ownership under their current
process?
Mr. Leney. Yes, sir.
Mr. Johnson. Okay. VA does not allow for affiliations
whereas--because you testified just a few minutes ago that your
process is consistent, I think, with--your regulations are
consistent with SBA's regulations if I heard you correct.
Mr. Leney. Yes, sir.
Mr. Johnson. The VA does not allow for affiliations whereas
government-wide rules do allow for affiliations.
Why is there a difference between SBA and VA's
interpretation?
Mr. Leney. Sir, in response to engagement with this
Committee, we undertook a review of our regulation with respect
to 13 CFR 125 and 13 CFR 124 which are the SBA regulations.
We found that not only are our regulations similar, our
interpretations are similar as well. In fact, based on our
review to date, the SBA under its regulations routinely reaches
similar if not identical decisions as the VA.
We have undertaken a review of the regulation. We are doing
that in collaboration with the SBA. And, in fact, one of the
elements if you compare the two regulations, our regulation is
much more detailed than 13 CFR 125.
Mr. Johnson. What about 13 CFR 121, Mr. Leney? That is also
a part of this discussion. That describes the intent of the
Congress. How do you involve 13 CFR 121 in your process?
Mr. Leney. Sir, the 13 CFR 121 is one of the regulations we
are now looking at as part of our review of our regulations.
Mr. Johnson. But it has been there for a long time and we
have suggested that you look at it and that you include it for
a long time. And you are just now looking at it?
Mr. Leney. Sir, my focus has been to implement the
regulation that the VA utilizes for the Verification Program.
Mr. Johnson. But shouldn't the regulation be based on the
law, Mr. Leney?
Mr. Leney. The regulation, we believe, is based on the law,
sir.
Mr. Johnson. But not if you exclude 121.
Mr. Leney. Sir, like I say, the Secretary has directed us
to review the regulation. We are doing so in conjunction with
the SBA and stakeholders. I cannot speak to why it was not done
previously, but it is being done now.
Mr. Johnson. How long have you been here, Mr. Leney?
Mr. Leney. Sir, I have been here a year.
Mr. Johnson. And this is not the first time you have
testified before this Subcommittee?
Mr. Leney. It is not the first time.
Mr. Johnson. We have talked about 121 before?
Mr. Leney. Yes, sir.
Mr. Johnson. Okay. So why are you waiting for the Secretary
to tell you to do something that the law clearly requires?
Mr. Leney. Sir, as I stated, my focus has been to implement
the regulation that is in place with the VA. That regulation is
long-standing and has been tested. We are now reviewing that
regulation based on an extensive series of stakeholder
engagements and I will be happy to come back and report the
results.
Mr. Johnson. You will get a chance to come back, Mr. Leney,
because it is a violation of the law. 121 is part of the
process and that is what this Subcommittee demands. It is what
the American people demand.
That is why we are losing patience with the process because
we keep making these suggestions and we keep spinning our
wheels and chasing this same rabbit around the corner over and
over and over again.
So I am sure I will have more questions. I am going to go
now to Mr. Stutzman for his questions.
Mr. Stutzman. Thank you, Mr. Chairman.
I believe the VA has a fairly robust statistical analysis
division; is that correct?
Mr. Leney. Sir, I cannot speak to that. I do not know.
Mr. Stutzman. You do not know that?
Mr. Leney. I do not know the extent of the statistical
analysis----
Mr. Stutzman. You do have one?
Mr. Leney. I cannot speak to that. I do not know.
Mr. Stutzman. Okay. Well, the answer should be yes.
In my opening remarks, I mentioned the effects of
recertification and showed a very simple model of the potential
effect of the current recertification process which is still up
on the screen.
So, therefore, I am asking the VA to provide Chairman
Johnson and myself with an operational analysis of keeping the
current two-year cycle in place as well as other alternative
systems that would be appropriate.
If you could cover a ten-year time period, and I would ask
that you provide that to us during the first week of September.
I would also ask that you consult with staff, VA staff in
identifying alternatives as the analysis begins so that we can
see what your responsibilities will be and how you plan to deal
with the recertification process. Is that possible?
Mr. Leney. We will be happy to provide that analysis, sir.
I would note that it is important to keep in mind of the
over 6,000 firms currently in VIP, fewer than 3,000 of them do
business with the VA.
Mr. Stutzman. Okay.
Mr. Leney. So the notion that we would continue to see a
huge increase in firms in the VIP may be a fundamental
assumption that we need to look at.
Mr. Stutzman. Okay. Do you believe you have a good handle
on the number, actual numbers of firms in the VIP database?
Mr. Leney. Yes, sir.
Mr. Stutzman. I want to talk a little bit about the budget
for your department. Currently your budget is about $30
million; is that correct?
Mr. Leney. Sir, the budget for OSDBU is $33 million.
Mr. Stutzman. Thirty-three million?
Mr. Leney. The budget for CVE is approximately $24 million.
Mr. Stutzman. Okay. And that comes from the VA Supply Fund;
is that correct?
Mr. Leney. Yes, sir.
Mr. Stutzman. And do you anticipate that this is going to
increase your budget and what is your position on continuing
your source of funding in the future?
Mr. Leney. Sir, I have received all the resources that are
necessary to perform the mission from the Supply Fund. The
Supply Fund provides flexible and rapid response to changes in
the mission.
This mission has expanded in scope and complexity even in
the, and correction, in the 15 months I have been at the VA.
And the Supply Fund has enabled us to respond to those changes.
Mr. Stutzman. Who is in control of the Supply Fund?
Mr. Leney. Sir, there is a board that manages and governs
the Supply Fund.
Mr. Stutzman. Okay. Could you give us an idea of what is
the process for deciding to send a firm to the IG or begin
debarment actions?
Mr. Leney. Sir, the CVE makes a determination of
eligibility for participation in the Vets First Program. If our
examiners and evaluators determine there is risk that the firm
is misrepresenting itself, we have a process whereby we do site
visits.
If, in conjunction with a site visit, we make a
determination that there has been misrepresentation, we refer
the firm to the Office of Inspector General.
Mr. Stutzman. Do you have any firms that are still in the
database that are classified under self-certification?
Mr. Leney. No, sir. We have no firms in VIP who are
eligible to receive awards from the VA that have not been
verified.
Mr. Stutzman. And how many firms do you have under the Lite
process or the----
Mr. Leney. Right now as of the 31st of July, we had 6,150
firms in VIP; 3,825 of those firms have been verified under the
process that was established as a result of Public Law 111-275,
and 2,325 of those firms were verified under the earlier
process.
Mr. Stutzman. Is that all of them? All of them would have
some sort of certification or verification?
Mr. Leney. Sir, all the firms in the database are in one of
two categories.
Mr. Stutzman. Okay. All right.
Mr. Leney. They are either eligible to receive awards from
the VA. They are verified and current. We have a category of
firms in VIP that is called reverification. Those are firms
whose verification period has expired. However, we have reached
out to them to initiate reverification. And rather than
disadvantaging those firms because they have expired, we have
kept them available in the database. They are eligible to
submit proposals. They are not eligible to receive an award.
And we have established a process by which if they are
pending an award, we call it fast tracking their application to
determine whether or not they are eligible. If they are
eligible, they may receive the award. If not, they are dropped
from the VIP database.
Mr. Stutzman. Okay. Thank you, Mr. Chairman. I will yield
back.
Mr. Johnson. I thank the gentleman for yielding back.
I will now go to Ranking Member Donnelly for his questions.
Mr. Donnelly. Thank you, Mr. Chairman.
Mr. Leney, thank you for being here.
One of the key things obviously is we have Vets from all of
our conflicts who need jobs, who want to be employed.
And so when we see various businesses turned down, do we
have some type of ability to work with them? You know, there
are some who are just not eligible for various reasons. You
know, maybe they are not Veterans or whatever.
But for the ones who are trying to get paperwork right, who
are trying to figure the system out, who are trying to become
eligible, does the VA have an advocate for them to sit down
with them and say, okay, listen, your paperwork is all fouled
up, you do not have this and this and this right, but these are
the things you need to do and we will work through this with
you to try to make sure you can become one of our guys?
Mr. Leney. Sir, we have done two things. First, in the
reconsideration process, when I reported to this Committee a
year ago, the reconsideration process was limited to a
determination of whether or not CVE had made an error in its
initial determination.
Subsequent to that hearing and in conversation with members
of your staff, we changed the reconsideration process to give
Veterans a second chance, that, if in their initial
determination they were found to be noncompliant with a
regulation, we laid out what the rationale for noncompliance
was and under the request for reconsideration process, we
enabled them to make corrections to those elements of their
application that are noncompliant and resubmit. That is the
first thing we did.
The second thing we have done is we have partnered with a
number of external organizations to provide counseling for
applicants to provide this kind of assistance.
We have also provided verification assistance briefs which
lay out in plain language what is required to be compliant with
the regulation.
We have just developed a self-assessment tool that the
veteran can walk through every element of the regulation to
determine whether or not his business model is consistent with
the regulation.
Mr. Donnelly. The reason I ask this is it is clear some
folks do not qualify, but then it is also clear that some folks
do not qualify simply because they are trying to work through
the maze.
And so I think one of the things the VA ought to do is be
an advocate to help them get through the maze, that they served
us, they served our country, and we should be there for them in
this process to say, hey, listen, your stuff is not right yet,
but we will work with you. We will get you to that point.
And one of the other issues is that we are at 20 percent.
We are happy for the 20. Our goal is to go higher and to try to
have even more veteran work done.
So how do we make veteran businesses that are out there,
whether it is in Idaho or in Indiana where I am from, aware
that there is an opportunity here, there is an opportunity for
business to be part of the VA vendor group?
What is being done now and what is being looked at to try
to make sure that every Vet who comes home, young man or woman
comes home from Afghanistan wants to start their own business,
how do we make it clear to them that, hey, one of your clients
can be the Veterans Administration?
Mr. Leney. Yes, sir. We have done several things. One, we
have engaged in the redesign of the Transition Assistance
Program. And the new Transition Assistance Program will be
rolling out a veteran entrepreneurship module that helps
educate Veterans about entrepreneurship opportunities.
We have worked with our acquisition community to reach out
to Veterans. At our National Veterans Conference in Detroit, we
brought over 650 procurement decision-makers to Detroit and
they spent three days focused on engaging with veteran small
businesses. We reached out to 47,000 veteran small businesses
to let them know about that opportunity to connect directly
with procurement decision-makers.
Mr. Donnelly. How do you find all the Veteran-owned small
businesses out there?
Mr. Leney. How do we find them, sir?
Mr. Donnelly. Yes. Like if there is one in Rochester,
Indiana and the man or woman running it, they have a little
office supply company, is there any way for you to find them or
do they have to find you?
Mr. Leney. Sir, there is approximately, and I am not exact
in my figures, I believe the Census Bureau says about over
three million Veteran-owned businesses.
Mr. Donnelly. Uh-huh.
Mr. Leney. About two million of them have one employee. We
start with the CCR which is the registry by which veteran
businesses register to do business with the Federal Government.
And that has been the group that we focused on.
Mr. Donnelly. Okay, because my goal in this is for the 20
percent to become 25 percent, the 25 percent to become 30
percent, and for the other 70 percent, and up and up, and for
the companies who are not Vet owned to see that they have as
many Vet employees as possible.
Mr. Leney. Sir, I share your goal.
Mr. Donnelly. --I am hopeful and I am sure that is the goal
on your part as well, but that is what we want to head towards.
Thank you very much, sir.
Mr. Johnson. I thank the gentleman for yielding.
We will now go to Mr. Benishek for his questions.
Mr. Benishek. Thank you, Mr. Chairman.
Good morning.
Mr. Leney. Good morning, sir.
Mr. Benishek. How are you?
You know, we talked last week a little bit and, you know, I
have a Veteran-owned business in my district that, you know,
went through this application process and, you know, asked our
office to help with the process.
It just seems like it must be complicated because even
after our office talked with your office and, you know, talked
to my constituent and his attorney and put them on the right
course to, you know, correct the problems with their articles
of incorporation and all that, then they reapplied and they
still got rejected.
Apparently, you know, my staff, their attorney and them
could not figure out how to do it properly even after going
through that, you know, whole process of getting my office
involved, getting your office involved.
And it seems to me that this has got to be a pretty
complicated process considering also that you have got 60
percent initial rejection rate.
How many people are rejected the second time? Is that a
very common occurrence, like what happened to my constituent?
Mr. Leney. Sir, approximately 40 percent are rejected after
a request for reconsideration.
Mr. Benishek. It just seems to me that there is more people
being rejected for technical problems with the application than
they are for being fraudulent. Is that your----
Mr. Leney. Sir, firms are being rejected for being
noncompliant with the regulation. Having examined over the last
year the rationale for denial, a very small percentage are
rejected because we perceive them to be fraudulent.
All the ones that we perceive to be misrepresenting or
fraudulent we now refer to the Office of Inspector General.
Mr. Benishek. Isn't that sort of a problem with the way you
are doing things then? I mean, it seems to me that, you know,
most of them are small businesses because they are, you know,
not shareholder companies and, you know, within the means of,
you know, hiring a corporate attorney which they have to figure
all this out and they still cannot get it right.
It seems like it must be an over-complicated process to me
if even on the second application there is 40 percent
rejection. So, you know, I do not know the answer to that, but
it seems to me that you should just reevaluate your whole
system.
And I am not as familiar with some of the details as some
of the other Members of the Committee perhaps, but, you know,
these are just regular people trying to get communication with
the government and you know how difficult it is to get some
sort of a reasonable answer out of the government. It makes it
frustrating for our Veterans who are trying to, you know,
legitimately because of all these problems.
Let me ask you one other question and this is sort of a
technical detail maybe. One of the reasons why my guy was
rejected was that although he has majority owner, my veteran
had the majority ownership of the company, on his death, you
know, the--because he was dying, then his stock would go to his
other shareholders, that made it ineligible somehow? I mean,
how does that----
Mr. Leney. Upon the death of the Veteran, the firm would no
longer be eligible.
Mr. Benishek. Right. But because that is in the articles,
then the firm is not eligible today?
Mr. Leney. I cannot speak to the specific instance because
I do not know the details. But the majority of firms that are
denied eligibility are denied for a failure of the veteran to
have a hundred percent control. That is the standard that is in
the regulation. And that standard is the same standard that is
applied in the SBA regulations.
Mr. Benishek. So a majority ownership does not----
Mr. Leney. Majority ownership is necessary, but not
sufficient. Our challenge, sir, is we are balancing the--with
this regulation the concerns that you have read about in the
GAO report, the concerns you have read about in the IG report
of ensuring that, as was mentioned by one of the Members, you
know, rent-a-Vets do not occur, that we have only eligible
veterans being part of the program.
So we are balancing that with a process that is expected to
have a high standard of execution with having a process that is
easy for a veteran to get through.
I having spent a great deal of time looking at the process
and the regulation, that is why we have put out some of these.
Sometimes reading a regulation is a tough thing to do. That is
why we have put out assistance briefs, et cetera.
Mr. Benishek. Well, I tend to agree with Mr. Donnelly that
it just seems to be overly complex and that you should be
providing these firms with some further assistance because
obviously, you know, after coming to, you know, coming to you,
coming to me, you know, us talking to you, talking to their
attorney, they still could not get it right.
And, you know, the people, I know these people. They are
not uneducated people. They are trying to comply and yet having
gone through that process once, they still were unable to
comply. And I just think there is a failure somewhere of making
it so difficult for people to get into this program.
I see my time is up. Thank you.
Mr. Johnson. Thank you for yielding.
We will now go to Mr. McNerney for his questions.
Mr. McNerney. Thank you. Thank you, Mr. Chairman.
Mr. Leney, a few minutes ago, you stated that about 60
percent of applicants were denied in 2011, but because of
outreach efforts of your department, that number has decreased
to 30 percent.
But you also stated that most of those applicants that were
denied were not denied because of fraudulence.
So what percentage of applicants are denied because of
fraudulence? Is that number consistent between 2011 and today?
Mr. Leney. Every application that we believe has
intentionally misrepresented their status we refer to the
Office of Inspector General. So far in 2012, we referred 59
firms. In 2011, we referred 25 firms.
The difference in those numbers is less a function of the
incidence of potential misrepresentation than it does to
represent a change in the establishment of a more rigorous
process and formal process for review and referral.
So 59 firms, again, that is less than five percent of those
firms who apply. The vast majority of the firms that I said
before have a business model that it is not compliant with the
regulation. And some of it is they are ignorant of the fact
that their business model does not comply with the regulation
or they do not like the fact that their business model does not
comply with the regulation.
But we verify as eligible those firms whose business model
complies with the regulation in place.
Mr. McNerney. Well, what is the most common lack of
compliance then that would disqualify a business?
Mr. Leney. The most common rationale for lack of compliance
is on the issue of control of the business. There has been
criticisms of the process that it is capricious, subjective.
And, therefore, what we have tried to do is, and the
regulation seeks to do, is draw bright lines and to make it
clear if a veteran meets the control requirements and the
ownership requirements, it is very straightforward. In
ownership, do you have 51 percent or more of the ownership.
In control, the standard is 100 percent control which means
the veteran can do anything he wants or she wants with that
company and none of their partners, none of the other owners
can prevent them from doing so.
What we find in many business models is that the minority
partners seek to have some control of the business. And the
requirement in the current regulation, and that is a regulation
we are looking at, but I will tell you there is a wide range of
views as to how do you determine 90 percent control, how do you
determine 70 percent control.
Mr. McNerney. So in going from a 60 percent rejection rate
to roughly half of that, I mean, what you are describing is a
fairly complicated process. You know, a veteran wants to apply
for business ownership. I do not suppose he has or she has an
MBA.
How hard is this application? Is it the difficulty of the
application or is it the difficulty in showing ownership? I
mean, where is the rub here? I do not quite understand why it
is so hard to comply.
Mr. Leney. Two reasons. And, by the way, I need to clarify
for the Committee. I would like to say that the reduction in
initial denials is a function of our Verification Assistance
Program. I do not believe we have enough data yet to be able
for me to state that with great confidence.
We have undertaken an effort to make it very clear to
Veterans what their business model needs to look like. Hence,
things like our verification assistance briefs.
I will tell you, sir, that probably 80 percent of denials
are issues that are very clear cut. They do not take an MBA.
They do not take a lawyer.
If you have a board with three people and two of the
members of the board are non-Vets and you have an operating
agreement or a set of bylaws that calls for governance and
control of the firm based on the majority vote of the board,
you are noncompliant.
And there have been hundreds of cases where issues that
simple or if the members, other members of the board who are
non-Vets can put restrictions on the Veteran's ability to
transfer, to sell the business, to transfer the business, to
make decisions, then that firm is noncompliant. That is not a
complicated issue.
Mr. McNerney. Well, how much subjectivity is there in this
process?
Mr. Leney. We have sought to minimize the subjectivity
wherever possible which tends to drive us to areas where we
have bright lines. That is why the issue of a hundred percent
control.
People say, wow, I feel like I am in control of my firm,
but I have an investor who wants to make sure that I cannot
sell the company out from underneath them because he has
invested money in the firm.
The current regulation would define that business model to
be noncompliant. Not complicated, but it is a model that that
particular business does not fit.
So I think that given the efforts we have made to clarify,
given the efforts we have made to draw bright lines, I think
there is much less basis to say I just cannot understand what I
need to do. It is ``my business model does not fit what I need
to do to be compliant.''
Mr. McNerney. Okay. I think I have run out of time, Mr.
Chairman.
Mr. Johnson. I thank the gentleman for yielding.
We will go to Dr. Roe.
Mr. Roe. I do not have many questions today, Mr. Chairman.
But just back to control, the definition of control. I have
owned some businesses and if I have got 51 percent, I have got
control. And anybody that owns 51 percent of the shares in a
business is in control of that business.
The last time I looked, you are the majority stockholder
unless there is some language in the contract that you have
that you are not. But, I mean, that is the point in owning 51
percent. You are in control.
And so that is my question here. What is the definition of
control? I think control, if you own 51 percent of General
Motors stock, you control that company. You absolutely do. And
so by narrowing the definition, do you have to have a--I am not
sure whether you own a hundred percent of the stock.
That means you could have no other investors if that is
what you are talking about. It would just have to be me, the
veteran investing all the money. I think that was where Mr.
McNerney was going.
And it sort of confused me when you said--and I get when
you say if you have three on the board and two of them can
veto, no, you do not have control of that. You have one vote,
not two. If you have got two of the three, you absolutely do
control that business.
So you confused me by your definition of control. Explain
it to me again. Fifty-one percent is not control.
Mr. Leney. Fifty-one percent is not control. It is
ownership.
Mr. Roe. And that is in the statute.
Mr. Leney. Simple definition of control is that you as the
business owner can do anything you want with that firm and
nobody can prevent you from doing so.
Mr. Roe. Let me back up again. Stop right there. If I have
got 51 percent of my business, and I have been involved in
several, I control that business period.
Mr. Leney. Sir, that is not the definition applied in the
regulation.
Mr. Roe. So what you are saying is, is that control is not
only the majority of the stock?
Mr. Leney. Yes, sir.
Mr. Roe. That is not control?
Mr. Leney. It is not majority of the stock.
Mr. Roe. And that is written in the regulation where if the
veteran does not have a hundred percent--so he cannot get an
equity owner? In other words, if I start a business, I am a
veteran, if I start a business, I have got to do it with all my
money, no outside investors at all, basically just me; is that
right?
Mr. Leney. The regulation does not require a hundred
percent ownership. The regulation requires a hundred percent
control. You have identified a very real issue for veteran
businesses.
If you have a minority owner or an investor----
Mr. Roe. Let me stop there. If I come in, and to Dr.
Benishek's point, if I come in as a veteran-owned small
business and I come and I make this application and I say to
you I have got 51 percent of this company, I control what
happens, I have got veto power over everything in my company,
but I have got other investors, that means by that definition I
cannot get a veteran-owned small business contract?
Mr. Leney. If your investors can limit your ability to make
decisions about that company, you will not be eligible.
Mr. Roe. But I----
Mr. Leney. An example would be you can have a hundred
percent control----
Mr. Roe. I think we are playing board games here.
Mr. Leney. No, sir.
Mr. Roe. And it is bothering me some because, look, have
you ever owned a business before?
Mr. Leney. No, sir. But I have run businesses. And you are
right, no investor is going to give you 100 percent control of
his investment.
Mr. Roe. Well, let me back up and say if they invest in
your company and you own 51 percent of the stock, they just did
that. That is the point in owning 51 percent.
Mr. Leney. Sir----
Mr. Roe. You can vote on a board all you want to. I do not
care if the board--and when you have a vote at the General
Motors board, when one more than a simple majority votes yes,
that is what that company does.
Mr. Leney. Yes, sir. And if you have two non-veterans on a
board of three, you can own 100 percent of that company and if
those two non-veterans take a vote on the board----
Mr. Roe. No, I got that. I mean, I get two out of three.
Mr. Leney. Yes, sir.
Mr. Roe. So I understand. That is pretty simple math. I get
that. It is when you have 51 percent, that is what I do not.
Anyway, let's go another way. I want to ask also on the
business model, and, again, I am learning a lot here, what
complies? In other words, what makes you a compliant company?
We have sort of muddled this definition, but what else do you
have to go through?
As Dr. Benishek brought up, obviously an attorney and his
client and so forth. How do you become compliant? What are the
criterion to be a compliant company?
Mr. Leney. Put most simply, you have to have at least 51
percent ownership. You must have 100 percent control. You must
demonstrate that you manage the firm's day-to-day operations
and set the strategic direction of the firm.
Mr. Roe. Okay. Restate what you just said to begin with. If
you have 51 percent ownership----
Mr. Leney. Yes, sir.
Mr. Roe. --you would not have control if you did?
Mr. Leney. The regulation does not define 51 percent
ownership or even 100 percent ownership as being in 100 percent
control.
Mr. Roe. Well, I think we need to re-look at that, Mr.
Chairman, because I have never heard where--I always thought if
I owned 51 percent of the----
Mr. Johnson. Will the gentleman yield?
Mr. Roe. I will.
Mr. Johnson. You said you are going toward lines of clear
delineation. Give us the definition of control. You ought to be
able to do that. You are the director of this department.
Mr. Leney. Yes, sir.
Mr. Johnson. Tell this Subcommittee right now, tell the
people that are listening today what is the definition of
control if 51 percent ownership does not qualify. What is it?
Mr. Leney. The definition of a hundred percent control is
that you can do anything you want with that business, make any
decision concerning that business to include selling that
business for a dollar and no one else in that business to
include other owners, other minority owners can do anything to
prevent you from doing so.
Mr. Johnson. Mr. Leney, do you know of any business in the
world that has more than one owner where that definition would
qualify? Can you name me one business, one?
Mr. Leney. I can name you----
Mr. Johnson. One?
Mr. Leney. --six thousand businesses.
Mr. Johnson. Where that definition qualifies?
Mr. Leney. Yes, sir.
Mr. Johnson. Under a court of law?
Mr. Leney. Yes, sir.
Mr. Johnson. I would like to see them. Would you write them
down and submit them to this Committee?
Mr. Leney. Yes, sir.
Mr. Johnson. I would like you to do that. I question that.
Mr. Leney. To make it clear, sir, the businesses that can
do that are the businesses that are currently in VIP.
Mr. Johnson. And you are excluding a lot of veterans'
businesses.
And I thank the gentleman for yielding. Would you like to
reclaim your time?
Mr. Roe. No. I will yield back.
Mr. Johnson. We will go now to Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it.
I have a couple questions. How many days approximately does
it take to complete the reconsideration process?
Mr. Leney. Right now in our most recent calculation, it is
over 200 days on average.
Mr. Bilirakis. Two hundred days?
Mr. Leney. Yes, sir.
Mr. Bilirakis. That is a long time for a veteran to have to
wait.
Mr. Leney. Very long time.
Mr. Bilirakis. Then are they notified immediately once the
process is complete, the veteran?
Mr. Leney. Yes, sir, they are notified.
Mr. Bilirakis. How can we improve upon that?
Mr. Leney. We are improving upon that. We are adding
resources to the reconsideration process. The main reason that
that process takes so long, is that is the lowest priority in
the priority of application examinations.
We give a higher priority to those firms that are
undergoing the initial determination because, remember, we made
a change to the process. The change to the process was that if
you were denied, you have a second chance to correct that which
made you ineligible----
Mr. Bilirakis. What about the----
Mr. Leney. --noncompliant.
Mr. Bilirakis. --businesses--excuse me, sir. I am sorry.
But I want to ask what about the businesses that were denied
through no fault of their own? Say that the CVE made a mistake,
are they put to the top of the pile or do they have to wait
those 200 days for reconsideration?
Mr. Leney. No, sir. We have a legal review process that if
a veteran asserts that we made a substantive error in the
determination, we have a legal review process. We normally turn
those in less than seven days.
Mr. Bilirakis. Less than seven days.
Mr. Leney. That is a determination did we make an error.
And all of those actions are reviewed by our Office of General
Counsel.
Mr. Bilirakis. Okay. Is the veteran certified immediately
once that decision is made?
Mr. Leney. If there were no other issues, then the veteran
is immediately verified. And that does go to the very top of
the pile. Those are put in the front of the line because we do
not want to disadvantage a business because of a substantive
error. And that is why all of those are reviewed by our Office
of General Counsel.
Mr. Bilirakis. All right. Well, thank you very much, Mr.
Chairman. I yield back.
Mr. Roe. Would you yield just a moment?
Mr. Bilirakis. Yes, I will yield to the doctor, sure. Of
course.
Mr. Roe. Back to where I was before, is it legislative
language? Have we as Congress put you in implementing this in a
box as far as determining what a compliant veteran-owned or
disabled veteran business is? Is it legislative language that
has done that or is it rulemaking and your interpretation?
Mr. Leney. It is not legislative language, sir. It is
rulemaking. And I would----
Mr. Roe. Who made the rule?
Mr. Leney. Sir, the VA made the rules. And the VA made the
rules based on rules that were established by the SBA under its
SDVO Program and the 8(a) Program. The rules are the same.
Mr. Roe. So the rules are the same. So I think we need to
get into a little later, Mr. Chairman, I do not want to belabor
this, but I think this is very critical to a lot of Veterans
and maybe other small businesses being able to get business
with the Federal Government.
So I yield back.
Thank you for yielding.
Mr. Johnson. I thank the gentleman for yielding.
Mr. Leney, you mentioned just a few minutes ago that you
can show thousands, several thousands, I think you said, of
businesses that comply with the 100 percent control criteria.
How many of those are sole proprietorships with no other
owners in the company?
Mr. Leney. I can provide that information for the record,
but I do not have that on the top of my head.
Mr. Johnson. Yeah, I would like to see that as well.
Mr. Leney. Yes, sir. We can give you that.
Mr. Johnson. And can you define for me what day-to-day
operations mean, control of day-to-day operations? What is day-
to-day operations?
Mr. Leney. Control of day-to-day operations is focused on
the role of the veteran in managing what the firm does on a
daily basis.
Mr. Johnson. But there is a lot of day-to-day operational
decisions that are made. What defines day-to-day operations? A
Veteran's role as a manager coming in to work every day does
not put them in control nor out of control necessarily of day-
to-day operational decisions. What defines day-to-day
operations?
Mr. Leney. Sir, I cannot give you a----
Mr. Johnson. It is subjective, right?
Mr. Leney. It is----
Mr. Johnson. It is interpretative?
Mr. Leney. It is inter----
Mr. Johnson. Mr. Leney, I will submit to you that you--you
made a statement earlier that this is a very real issue for
veteran businesses. I am going to tell you that this is a very
real issue for the VA because you just confirmed to Mr. Roe
that this is a rulemaking issue. This is a decision that the VA
is making. It is not legislative language. It is rulemaking.
And we have submitted to you already that there are
disparities between the way the SBA handles this and defines
this and the way the VA does, but you persist in denying that
and say that they are the same. They are not. And I think we
are going to get into that with our second panel.
I appreciate the testimony, Mr. Leney, but we clearly have
a lot of work left to do. And with that, you are now excused.
Mr. Leney. Thank you, sir.
Mr. Johnson. We will now call our second panel to the
table. We will hear from Mr. Richard Hillman, Managing Director
of Forensic Audits and Investigative Service at the Government
Accountability Office; and Mr. Jim O'Neill, Assistant Inspector
General for Investigations at the VA Office of Inspector
General.
Both of your complete written statements will be made part
of the hearing record.
Mr. Hillman, you are now recognized for five minutes, sir.
STATEMENTS OF RICHARD J. HILLMAN, MANAGING DIRECTOR, FORENSIC
AUDITS AND INVESTIGATIVE SERVICE, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE; JAMES J. O'NEILL, ASSISTANT INSPECTOR
GENERAL FOR INVESTIGATIONS, OFFICE OF THE INSPECTOR GENERAL,
U.S. DEPARTMENT OF VETERANS AFFAIRS
STATEMENT OF RICHARD J. HILLMAN
Mr. Hillman. Chairmen Johnson and Stutzman, Ranking Member
Donnelly, and Members of the Subcommittees, I am pleased to be
here today to discuss our most recent assessment of fraud
prevention controls within the Service-Disabled Veteran-Owned
Small Business Program or the SDVOSB Program.
This program which is designed to honor disabled veterans'
service by providing them with exclusive contracting
opportunities has both a government-wide and VA component.
[Chart]
Mr. Hillman. As shown on the monitors, in fiscal year 2010,
Federal agencies awarded $10.8 billion in SDVOSB contracts
according to the Small Business Administration. The Department
of Veterans Affairs awarded $3.2 billion or approximately 30
percent of government-wide awards. DoD and other Federal
agencies awarded the remaining $7.6 billion or about 70 percent
of government-wide awards.
SBA administers the government-wide program which relies
almost solely on firms self-certifying their status as an
SDVOSB. In contract, VA is bound by law to verify firms'
eligibility and oversees its own contracts.
Specifically the Veterans Benefits, Healthcare, and
Information Technology Act of 2006 or the 2006 Act requires VA
to maintain a database of SDVOSBs and VOSBs that were confirmed
to be eligible to receive VA set-aside and sole-source
contracts.
Because of weaknesses identified in VA's verification
process and in response to the Veterans Small Business
Verification Act or the 2010 Act, around 2011, VA implemented a
more thorough verification process.
In prior work, we have reported on weaknesses in the fraud
prevention controls in both the government-wide program and
VA's program.
My testimony today discusses our recent assessment of fraud
prevention controls instituted by VA as part of the SDVOSB
Verification Program and summarizes the status of the
government-wide SDVOSB Program.
Regarding our first objective, we have concluded that VA's
program continues to remain vulnerable to fraud and abuse.
While it has been proven difficult to determine an accurate and
complete status of the program, according to the most recent
information provided to us by VA, over 38 percent of the firms
were listed in its verified database called VetBiz using the
less rigorous process that VA chose to implement after the 2006
Act and have not verified under the more thorough process used
in response to the 2010 Act.
Mr. Leney this morning said to you today and to us during
the course of our work that all the firms in VetBiz are
verified. But what he fails to acknowledge are the differences
in the quality of the two verification processes used for the
firms that are in VetBiz.
As shown on the monitors, the 2010 Act verification process
implemented by VA is a more thorough process. It has more
checkmarks showing that it includes unannounced and announced
site visits and a review and analysis of company documentation
to validate a firm's eligibility.
The presence of firms that have only been subjected to the
less stringent process that VA previously used represents a
serious vulnerability.
We have reported in 2009 and 2010 that this verification
process allows ineligible firms to be wrongly certified. In
2011, VA's Office of Inspector General also reported on the
basis of a random selection of 42 firms that 32 of the 42 firms
listed in the VetBiz database or 76 percent were ineligible for
the program.
The OIG further reported that the earlier verification
process was insufficient to establish control and ownership of
a firm which is a key requirement of the program and, in
effect, allowed businesses to self-certify as SDVOSBs with
little supporting documentation.
As a result, our most recent report includes a
recommendation that VA take immediate steps to ensure that all
firms within VetBiz have undergone the 2010 Act verification
process. VA agreed in principle with this recommendation.
Also, in 2011, we issued 13 recommendations to VA related
to vulnerabilities in the verification process implemented by
VA after the 2010 Act.
I am pleased to report that as of June 2012, VA has
provided us with documentation demonstrating that it has
established procedures in response to six of these
recommendations, although we have not assessed the
effectiveness of any of the procedures that VA has established
thus far.
For example, VA has established formal procedures for staff
to refer suspicious applications to the OIG. It has also
formalized a process for conducting unannounced site visits to
firms identified as high risk and has explored the feasibility
of validating applicant information with third parties.
We are still looking for more progress to be made on seven
recommendations including guidance for Debarment Committee
decisions to debar firms that misrepresent their status as well
as procedures on removing contracts from ineligible firms.
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.
While SBA is under no statutory obligation to create a
verification process, five new cases of potentially ineligible
firms discussed in our most recent report 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 Department of Interior.
Further, the Department of Defense OIG reported in 2012
that DoD provided $340 million to firms that potentially
misstated their SDVOSB status.
To address these vulnerabilities, we previously suggested
that Congress consider providing VA 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 VA's mission of service to
veterans.
However, the problems we have identified with VA's
verification process indicate that an expansion of VA's
authority to address government-wide program problems should
not be undertaken until VA demonstrates that it has a process
that is successful in reducing its own vulnerabilities to fraud
and abuse.
This completes my prepared statement. I would be pleased to
answer any questions that you may have at the appropriate time.
[The prepared statement of Richard J. Hillman appears in
the Appendix]
Mr. Johnson. Thank you, Mr. Hillman.
Gentlemen, if we could beg your indulgence. Unfortunately,
Mr. O'Neill, votes have been called. I think the best thing to
do so we can get consistency in the hearing is to go ahead and
recess at this point, go vote, and then let you do your five-
minute statement after we return from votes.
So I anticipate about a half an hour or so delay, but we
really have no choice here because votes have been called. So
with that, we will stand in recess.
[Recess.]
Mr. Johnson. The hearing will now come to order.
I thank you for your indulgence while we went about the
people's business.
Mr. Hillman, thank you for your testimony.
Mr. O'Neill, you are now recognized for five minutes.
STATEMENT OF JAMES J. O'NEILL
Mr. O'Neill. Chairman Johnson, Members of the
Subcommittees, thank you for the opportunity to discuss the
OIG's investigative work in the SDVOSB Program.
In 2010, VA OIG decided to invest considerable resources in
conducting criminal investigations of SDVOSB fraud despite
being unable to identify a single felony conviction in Federal
Court associated with this type of eligibility fraud.
We consider these crimes analogous to stolen valor cases
and the true victims to be the deserving service-disabled
veteran entrepreneurs who had earned the right to government
contracts specifically set aside for them.
We realized then, as GAO has noted in several SDVOSB
reports, that a program of aggressive investigations resulting
in prosecution, debarment, or both is a critical component of
preventing fraud.
Further, if this crime was to be deterred, there had to be
meaningful consequences meted out to those whose greed led them
to lie about their eligibility to participate in this program.
My counterparts at other Offices of Inspectors General,
particularly SBA OIG, agreed to jointly investigate SDVOSB
fraud whenever appropriate and to collaboratively convince
Federal prosecutors that this fraud merits prosecution.
Since few of the SDVOSBs suspected of eligibility fraud
failed to fulfill their government contracts, some assistant
U.S. attorneys were reluctant to prosecute because the
government did not seem to suffer a loss.
However, in addition to the persuasiveness of the stolen
valor argument made by the investigating agents, I believe
multiple congressional hearings as well as GAO and IG audit
reports help convince prosecutors to pursue set-aside fraud
more vigorously.
Additionally, on October 3rd, 2011, the Executive Office
for United States Attorneys advised all Federal prosecutors
that DoJ agreed with SBA that the Small Business Jobs Act of
2010 established a presumption of loss to the United States
equal to the total amount expended on a contract whenever a
concern seeks and receives a contract intended for small
business concerns by misrepresentation.
This means that the SDVOSB defendant can be sentenced to
forfeit all monies received from the government for a
particular contract irrespective of whether the company
fulfilled the terms of that contract.
In the 144 SDVOSB investigations VA OIG has opened to date,
we have issued 419 subpoenas and executed 26 search warrants.
Fourteen individuals and one company have been indicted and six
of the individuals indicted have been already convicted.
We currently have 96 open SDVOSB investigations. The
contract value of these open cases is $908 million including
$159 million in ARRA funds.
We have completed our investigation in 20 of these cases
and await a final decision by AUSA regarding criminal or civil
prosecution.
Another 29 cases have earned prosecutive interest by DoJ
but still require more investigation.
Consequently, I expect many others to be prosecuted. And if
sentencing trends continue, defendants face a very unpleasant
future.
As noted in detail on my written statement, Warren Parker's
guilty plea will result in a $6.8 million judgment against him
in addition to any term of imprisonment he may receive upon
sentencing.
Joseph Madlinger was sentenced to two years in prison and
fined $50,000.
Michael Woodling will forfeit more than $1.5 million to the
government.
Russell Todd, a former VA employee who conspired with
Madlinger and Woodling, was sentenced to 15 months'
imprisonment.
John Raymond White has spent the last 12 months in custody
awaiting sentencing.
We hope that our vigorous criminal investigations deter
this type of crime and help preserve the integrity of a program
designed to benefit the service-disabled veteran entrepreneur.
Chairman Johnson, this concludes my statement. I welcome
any questions you or other Members of the Subcommittees will
have about our work in this area.
[The prepared statement of James J. O'Neill appears in the
Appendix]
Mr. Johnson. I thank you, gentlemen, for your testimony. We
will now begin questioning.
Mr. O'Neill, would it benefit the VA to use the Small
Business Administration's regulations defining ownership and
control of a small business?
Mr. O'Neill. I am not certain I am really qualified to
answer, sir, in all honesty. We investigate fraud associated
with the program and I have not devoted any attention or have
any knowledge in depth about SBA regulations.
Mr. Johnson. In terms of the certification process?
Mr. O'Neill. Yes.
Mr. Johnson. Okay.
Mr. O'Neill. I think that listening to the discussion
today, this control issue, I just want you to understand we are
talking about absolute fabricated fraud here where----
Mr. Johnson. Okay.
Mr. O'Neill. --overt acts were committed, where the veteran
is no----
Mr. Johnson. I understand.
Mr. O'Neill. --way in charge of the company.
Mr. Johnson. I understand.
Mr. Hillman, do you have an opinion on that?
Mr. Hillman. We have not specifically looked at this issue,
but we are aware through our lawyers' most recent review that
the differences between SBA's and VA's regulations are really
very slight, very minor in nature.
For example, we understand that VA defines a service-
disabled veteran as someone who possesses a service-connected
rating disability of zero to 100 percent or a DoD disability
determination whereas SBA's definition of a service-disabled
vet is a disability that is service-connected.
Differences in interpretation between those two definitions
can cause problems in the extent to which veterans are
knowledgeable of what it may take to qualify for a program.
An example of another small difference is that VA allows a
surviving spouse to operate the business. In other words, the
service-disabled veteran must pass away before the spouse is
eligible to manage and control the business. SBA's provisions
require a spouse or primary caregiver to be able to manage the
business.
So due to these small differences in these regulations, it
can cause major differences in whether or not a firm is
eligible or not for the program.
Mr. Johnson. And do either of you have an opinion about
what documents the VA should require for certification?
Mr. Hillman. Given the very specific requirements of the
SDVOSB program having to determine ownership and control, and
something that has not been mentioned today, having to
determine whether or not the performance of the contract has
been consistent with the regulations, requires VA to have a
stringent certification process.
For example, an SDVOSB must manage at least 50 percent of
the contract dollars if it is a service contract, and 15
percent of contract dollars if it has to do with contracting.
Given these very specific requirements, it is very
important that you rely on more than publicly available
information to assess a firm's eligibility. Reviewing an
operating plan of a firm is very important. Reviewing contract
performance information is very important. Conducting
unannounced site visits is very important.
Although we are aware that documentation sometimes can be
voluminous and that can discourage the service-disabled veteran
from applying for the program, we are aware that VA is
developing a document matrix to explain why documents are being
asked for and their importance.
They are also developing a very good question and answer
document which they are sharing widely which further explains
the requirements of the program.
Hopefully through tools such as these, the eligibility
requirements can become better understood.
Mr. Johnson. Mr. O'Neill, do you have an opinion on how
often the VA should recertify business?
Mr. O'Neill. No, sir, I really do not. We believe that when
the fraud is egregious, it won't matter how long it takes, how
often they are recertified. So we do not have an opinion on
that.
Mr. Johnson. Okay. In your testimony, you talked about some
of the legal results and prosecutions.
On average, how many hours does it take to produce results
as you mentioned on a case?
Mr. O'Neill. Well, as of the end of June, we had expended
roughly 9,300 hours to conduct seven investigations that have
gone to court so far.
Now, some of these will go to trial. That will mean many
more hours of court. So on average, about 1,325 hours give or
take.
Mr. Johnson. Okay.
Mr. O'Neill. Excuse me, sir. I am sorry. That is only us.
Many of our cases are joint investigations, so SBA is putting
in time, FBI. That is just our hours.
Mr. Johnson. Have you seen any improvement in the tone of
prosecutors towards pursuing these cases?
Mr. O'Neill. Yes, sir. I think that for the variety of
reasons I mentioned, there is a friendlier atmosphere to our
presentations. There is more willingness to prosecute
definitely over the last two years for sure.
Mr. Johnson. Okay. Thank you, gentlemen. My time has
expired. We may do a second round.
But I will go to Mr. McNerney.
Mr. McNerney. Thank you, Mr. Johnson.
I think our first panel showed the difficulty that we are
facing in terms of coming up with a nonsubjective standard for
awarding veteran status to businesses. The 100 percent control
clearly raised a lot of question within the Committee. But the
fraud issue is another part of this that we have not really
talked about too much.
Mr. Leney was saying that only five percent of applicants
tend to be fraud. But my fear, and I think that is something
that you are showing in prior testimony, is that that five
percent can end up awarding a lot of contracts to people that
are undeserving and should be prosecuted.
How much of a problem do you think fraud is in the overall
program, Mr. Hillman?
Mr. Hillman. The work that we have done looking at
individual case studies is not something that we can
extrapolate to the universe as a whole to give you a percentage
of fraud that we think may exist within the program.
The closest example of that would be a study done by VA's
OIG who in 2011 did a study that was a statistically valid
random sample projecting the extent to which there may be fraud
within the program.
What they found as part of their study was that in a review
of 42 firms, 32 of the 42 or 76 percent of those firms were not
eligible for the program.
However, during the study's assessment period, VA was using
the less rigorous process under the 2006 Act as well as just a
plain self-certification process that was implemented before
the 2006 Act.
And, if you look at only those firms that were included as
part of the 2006 verification process, you see a similar
percentage. About 10 of 14 firms that were included in the VA
OIG's sample were found not to be eligible or 70 percent of
those programs, a very comparable percentage.
Mr. McNerney. Well, do you think this 100 percent control
standard is contributing to fraud? Is that a standard that is
difficult to verify in some way? Is there some way we can
improve that standard in order to reduce the appeal of fraud
to, you know, unscrupulous players?
Mr. Hillman. Like Jim has said, in the cases that we have
examined as part of our work, there has been very little
ambiguity as it relates to an ownership or control issue when
we have gone out and conducted our own investigations.
For example, ownership of a business is determined by
reviewing the business's operating agreement and operating
plans. And you can document the extent to which on paper an
individual is an owner of the business or not.
Control on the other hand is a much more subjective
determination. For example, conversations this morning
suggested that if a service-disabled veteran-owned 51 percent
of a company, and the veteran decided to sell that company,
then the veteran both owned and controlled the company.
However, there could be wording in the operating plan or
other agreements of that firm that if the principal decides to
sell that business, there is a requirement that the principal
consult with the minority owners first to get their agreement.
That would be an example where there was maybe 51 percent
ownership, but because of an operating agreement, not a hundred
percent control. So----
Mr. McNerney. That is informative. That is informative
because then ownership is subjective, it is easy to establish,
it means something, everybody can understand it. And if people
are committing fraud, then they can be prosecuted whereas
control is a much more subjective standard that we are having
to try and manage.
Mr. Hillman. In our cases that we have investigated, we
have found instances where individuals may be living and
working in other businesses that are 500 miles away from the
SDVOSB. We have seen instances where the service-disabled
veteran may be receiving a salary of $12,000 where a minority
owner may be receiving a salary of $80,000.
Examples like these suggest that while on paper, ownership
exists, the veteran is not controlling the business. In those
instances, we provided our case results to the enforcement
organizations and they adjudicate over those issues.
Mr. McNerney. So ownership has its own risks then with
regard to somebody just using a veteran on paper and maybe
skimming off some of the profits but not having control. Okay.
So this is still a difficult issue for us.
Mr. Hillman. And in addition to ownership issues, there are
also issues that you just referred to as a ``pass through''
where you have a service-disabled veteran as the owner of the
business, but that service-disabled veteran may pass that
contract through to an entity that is run by non-veterans or
non-service-disabled veterans to manage that activity.
And in accordance with the provisions of the program, if
the veteran owner does not handle 50 percent of that service
contract or up to 15 percent of a contractor-related contract,
then the veteran is not fulfilling the provisions of the
program as well.
So the details dictate whether or not the service-disabled
veteran is eligible for the program and I think that is a
source of confusion and something that the program has
attempted to clarify.
Mr. McNerney. Thank you.
I yield back.
Mr. Johnson. I thank the gentleman for yielding back.
We will go to Mr. Stutzman.
Mr. Stutzman. Thank you, Mr. Chairman.
Mr. O'Neill, in your testimony, all of the cases you cite
involve companies that self-certified their status as veteran-
owned and controlled.
CVE has now installed a more rigorous verification program
to determine whether a company is truly veteran-owned and
controlled.
Can you tell us how many of your cases open or closed
involve companies certified under the more rigorous process and
whether that process is meeting the goals of eliminating most
of the cheaters?
Mr. O'Neill. No, I cannot tell you here. I can give you a
written response. I would have to do some research.
But I know of one instance, for example, where the company
had been certified under more rigorous standards, but it was at
the beginning of the process and mistakes were made in CVE.
And do not forget. We can execute search warrants. We can
get e-mail. We can uncover evidence of fraud that even the most
rigorous standards applied by CVE won't find.
So it is going to happen. I think it is certainly far fewer
of our cases, and I do not think the number will exceed ten. I
will be surprised if it does, because companies are passing
that level of scrutiny by CVE.
But I will respond to you in writing.
Mr. Stutzman. Okay. Thank you.
Mr. Hillman, looking at just the highlights, you start off
the first paragraph saying that the SDVOSB Program remains
vulnerable to fraud and abuse and you mentioned that several
times.
And even with your recommendations at the conclusion of the
one paragraph, you say GAO made some changes to the report that
you had made after the Veteran Affairs, after they had
challenged some of them or you guys discussed them. But you
continue to believe that the program remains vulnerable to
fraud and abuse.
Do you feel that the VA is concerned about this particular
program? What kind of response do you get from them when you
discuss your concerns about fraud and abuse? Is it as much of a
concern to them as it is a concern to you?
Mr. Hillman. When you are reviewing organizations such as
the Veterans Administration or perhaps maybe even the Small
Business Administration, these entities have largely a roll of
advocacy and service to their constituent groups, either
veterans or small businesses.
The OSDBU function which Mr. Leney operates is also more of
a service-oriented function. The idea of having a strong
controlled environment to help deter or detect fraud and abuse
is not necessarily part of their DNA.
So when we are going in and evaluating the extent to which
a program has strong prevention controls or detection and
monitoring controls or controls to ensure that the program is
taking aggressive actions against bad actors, we are evaluating
the extent to which the program is vulnerable to fraud and
abuse.
I believe Mr. Leney's organization is attempting to develop
a greater awareness of the potential for fraud and abuse
through additional training, through additional guidance, but
it really has not existed to the same degree as we would hope
that it might to date.
Mr. Stutzman. Why do you think that is?
Mr. Hillman. I believe it has an awful lot to do with the
organization's mission as an advocate for those constituent
groups, in this case the veterans. The interest in ensuring
that there is strong oversight and protection over the fraud,
waste, and abuse angle is not something that is really what
they see as their primary function.
Mr. Stutzman. What is your opinion of the VA's process for
debarring companies? Have they set the thresholds high enough?
Are more companies getting denied verification that should be
also considered for debarment? What is your opinion?
Mr. Hillman. The statistics that we have seen show that
over time, the Debarment Committee within VA is making more
debarment decisions and has more proposed debarment decisions
than they have had in the past.
As of July 26, 2012, there were 11 SDVOSB cases that had
been tried by this Debarment Committee, including five
debarments and six proposed debarments. And these debarments
when they occur, last for up to a four to five-year period of
time. They are taking aggressive action in that regard.
However, you use numbers such as five debarments, six
proposed, and you are seeing many more being provided to them
for their review.
The Committee itself was established in September 2010,
almost two years of activity. I do believe that is sufficient
time for someone to go in and take an evaluation of how well
that Committee has been functioning over that two-year period
and what additional steps could possibly be taken.
Mr. Stutzman. Okay. One last question. Do you think that
self-certification was a mistake? Does it open the door for
more fraud and abuse?
Mr. Hillman. Absolutely. The government-wide program which
manages 70 percent of all SDVOSB contracts is largely a self-
certification program and it is very susceptible to fraud and
abuse.
The VA is the only agency that has a verification process
for its service-disabled veteran-owned small businesses and
that has reduced the vulnerability of fraud.
We are hoping that Mr. Leney will continue to make
additional improvements to make that level of fraud as low as
possible commensurate with the cost of establishing controls.
And we are very concerned about the government-wide program
being a self-certified program and that it is not serving
veterans well.
Mr. Stutzman. Thank you.
I will yield back, Mr. Chairman.
Mr. Johnson. We will go into a second round of questions.
Mr. Hillman, in your most recent report, you detailed and
talked about five new case studies that received SDVOSB
contracts despite evidence that they are ineligible for the
SDVOSB Program.
Do you know if any of these were at one point recently
certified or verified by the VA?
Mr. Hillman. We do have some information on that. Two cases
are included in the five that we looked at where VA's more
rigorous verification process ultimately denied them
application into the program.
There was another example where a third case study upon
request from VA for additional documentation consistent with
the 2010 process questions arose. The owner then withdrew from
the program.
Mr. Johnson. Let me be clear.
Mr. Hillman. Sure.
Mr. Johnson. In your study, I thought you detailed five new
case studies that had received SDVOSB contracts----
Mr. Hillman. That is correct.
Mr. Johnson. --despite that they are ineligible. Are these
the ones that we are talking about? I mean, they received
contracts, so they were awarded contracts in spite of--they
were not denied eligibility.
Mr. Hillman. Well----
Mr. Johnson. They received contracts. You guys found them,
correct?
Mr. Hillman. Yes, Chairman. At the time that we began our
investigations, those contractors had received SDVOSB
contracts. Some were verified through the VA's process. Some
were self-certified as part of the SBA process.
Mr. Johnson. Were any of those five recently verified under
the new rigorous program?
Mr. Hillman. That is what, I was not speaking as clearly as
I could have. As we progressed in our review, what we later
learned is that two of the firms that were included amongst the
five that we looked at had then begun to go through the 2010
process and were rejected.
Mr. Johnson. Subsequently rejected?
Mr. Hillman. Correct.
Mr. Johnson. After they had----
Mr. Hillman. That is correct.
Mr. Johnson. --been awarded contract?
Mr. Hillman. So that is evidence to us that the 2010
process is a process that can work. It is a process that can
keep out ineligible firms.
Mr. Johnson. Were those firms once they were identified,
were those contracts terminated, rejected, canceled?
Mr. Hillman. I do not have information on the specifics on
those five, but experience has shown us that firms are often
allowed to continue to complete those contracts.
Mr. Johnson. Wait a minute.
Mr. Hillman. But I can provide specifics for the two firms
in our study. I do not have that information in front of me
now.
Mr. Johnson. Yes, would you, please. And let me clarify and
make sure I understood what you said.
That in your experience----
Mr. Hillman. In my experience, in the contracts that we
have looked at in the past, firms have been allowed to complete
those contracts.
Mr. Johnson. Even though they had been found----
Mr. Hillman. Even though they had been found to be----
Mr. Johnson. Ineligible?
Mr. Hillman. --ineligible.
Mr. Johnson. Wow. Okay.
Mr. Hillman. Due to either timeliness associated with
completing that contract or exigencies in how that contract
process evolved.
Mr. Johnson. Okay. All right. Thank you.
When did you first become aware that a number of firms
still verified in VetBiz had not been verified under the more
thorough process?
Mr. Hillman. We have been under the impression from
testimony that was provided by VA back in the fall that all of
the firms within their program had now been verified.
As was mentioned earlier this morning's, we were under the
impression that VA was confirming that all firms in the program
had been verified under the 2010 Act or the more rigorous
process.
So as part of doing our case studies, Chairman, we
identified firms that should have received the more rigorous
verification process but did not. We found cases that had not
being verified under the more rigorous process and later found
out that over 2,000 firms, 2,355 firms were included in VetBiz
that were verified under the less rigorous process.
That less rigorous process is a source of concern to us and
we are hopeful that VA can expeditiously ensure that all firms
in its VetBiz system have received the more rigorous review.
Mr. Johnson. Clearly given your testimony, we see the
benefit of that more rigorous process as well.
In your report, you mentioned that the VA had provided
seven differing accounts of the numbers of SDVOSBs verified
under the process of the 2006 Act and 2010 Act, the number of
SDVOSBs they plan to remove and the timing of the removals.
Can you give us some examples of the differing accounts
that the VA provided during your review?
Mr. Hillman. I have a couple of pages of examples that
demonstrate conflicting statements made by VA that I would be
happy to submit for the record.
Mr. Johnson. Okay. If you would do that, I would appreciate
it.
And one final question, then we will move on to my
colleagues.
In your analysis or your analysis shows that as of April
1st, 2012, 60 percent of the firms listed as eligible in VetBiz
had yet to be verified using this more thorough process. We
just talked about that. And 134 of these firms received a total
of $90 million in new VA SDVOSB contracts during a four-month
period.
So do you still feel that there is a vulnerability here
until all of the firms have been verified under the new
process?
Mr. Hillman. Yes, Mr. Chairman. The results of VA's OIG
study which found that 70 percent of the firms verified under
the less rigorous process were found to be ineligible for the
program causes us significant pause and we believe that VA
needs to immediately ensure that the more rigorous process is
being followed for all firms within VetBiz.
Mr. Johnson. And given the fact that we are talking about
tens of millions, in this case a total of $90 million in new
contracts during a four-month period, there are millions of
dollars of taxpayer dollars at risk here of going to companies
that are ineligible, thereby diminishing the amount of contract
awards that should be going to eligible veteran companies.
Would you agree with that?
Mr. Hillman. The VA study through its work determined that
for a one-year period of time, there were potentially $500
million going to ineligible firms. And if actions were not
taken to address that problem over a five-year period of time,
$2.5 billion would be provided to ineligible firms.
Mr. Johnson. And given the fact that, according to your
statements a few minutes ago, that previous experience is that
oftentimes even after they are found ineligible they are
allowed to complete those contracts, we are talking about
millions, hundreds of millions of dollars of taxpayer dollars
going to ineligible firms that walk away scot-free, correct?
Mr. Hillman. It seems that is so.
Mr. Johnson. Yes, sir. Thank you.
I yield now to Mr. McNerney.
Mr. McNerney. That was pretty sobering, Mr. Chairman.
Mr. O'Neill, you cited several cases that are being
prosecuted effectively.
Do you have any evidence to show that those cases are
forming some sort of a deterrent to potential bad actors or do
you have any evidence whatsoever that we are being effective in
that effort?
Mr. O'Neill. Well, after the conviction of John White,
during our investigation of another company, we found an e-mail
where they were talking about how they are going to have to be
more careful. I do not know if that is effective deterrent, but
it clearly was in their consciousness.
We are doing all we can to publicize the ramifications of
this type of fraud, so hopefully it will have more and more
deterrent as you see more and more defendants in the next six
months to a year. But beyond that, I do not have empirical
evidence.
Mr. McNerney. Well, what fraction or what portion of the
fraudulent cases do you think you are prosecuting? Is there any
way to estimate that? I know it is an open-ended question.
Mr. O'Neill. No, we do not know what we do not know to be
perfectly frank. But certainly we are seeing traction with
prosecutors.
In the very beginning, there was more of a tendency to
decline prosecution because of the theory that there was no
loss to the government. That has changed. And we have more in
the hopper now that I believe, again, will be successfully
prosecuted either criminally or civilly. And we are more
aggressive about debarments as another tool we can use to try
to deter this type of crime.
Mr. McNerney. Is there any authority that Congress can give
you that would make your office more effective in identifying
fraud cases and prosecuting?
Mr. O'Neill. Not at this time. I mean, to be honest, it has
been more of an issue of convincing prosecutors to accept our
cases which they are now doing.
And the laws that exist that we use, whether it is major
crimes against the government or false statements or wire fraud
or whatever, they seem adequate to do the job if there is a
willingness to prosecute.
In terms of detecting, we are going more proactively into
databases that have become available to us and hopefully that
will yield some more results. Beyond that, I am not prepared to
ask for anything in particular.
Mr. McNerney. So do your prosecutions usually end up
targeting veterans?
Mr. O'Neill. No. Actually, so far, out of the 14
individuals who have been arrested, I believe only one was
purporting to be the SDVOSB, service-disabled veteran.
Now, some of our other defendants were veterans, but they
were not service-disabled and many, the majority, I suspect,
were not veterans at all.
So, no, most of the people so far have not been the person
propped up to pretend to be in charge of the particular
company.
Mr. McNerney. Thank you, Mr. Chairman. I am going to yield
back.
Mr. Johnson. Mr. Stutzman.
Mr. Stutzman. Thank you, Mr. Chairman.
Mr. Hillman, in reading through your highlighted report, a
question I have is, of these 3,717 firms, 134 received $90
million in new VA SDVOSB set-aside or sole-source contract
obligations from November 2011 to April 2012.
Do we know, did all 134 of those go through the more
rigorous certification?
Mr. Hillman. No. The point that we are making there is that
all of those firms went through the less rigorous process.
Mr. Stutzman. And the 134 that received $90 million in
contracts----
Mr. Hillman. Yes.
Mr. Stutzman. --went through the less rigorous
certification?
Mr. Hillman. Correct.
Mr. Stutzman. Because prior to this, you say that VA has
made inconsistent statements about its progress verifying firms
listed in VetBiz.
Can you elaborate on that, the inconsistent statements?
Mr. Hillman. Yes, I would be happy to do that.
We, as I mentioned, have a couple of pages of statements
which we would be happy to submit for the record. But
conflicting statements that VA has made cause us concern about
whether VA actually knows how many firms have been verified
under the more thorough 2010 process.
For example, in one instance, we were told by VA that their
new process for verifying firms began in February 2011.
However, while we were reviewing our case studies, we later
learned that there were cases that we were looking at that were
still confirmed under the old process well after the timeframe
that we were told the new process was in place.
Later, in April 2012, we learned that VA had removed
thousands of firms because they had not supplied the supporting
documentation required under the more rigorous process.
Over the next month, VA officials provided us with at least
seven differing accounts of the number of SDVOSBs verified
under its process for the 2006 Act and the 2010 Act, the number
of the SDVOSBs they planned to remove, and the timing of those
removals.
These conflicting statements create uncertainties about the
status of the agency's efforts to verify firms under the more
rigorous process.
Mr. Stutzman. So would you say that given the presence of a
significant number of firms in the VIP database that have only
been verified using the Lite process, is it time to stop
verification of new applicants until CVE has completed at least
the initial decision on all of the remaining Lite firms under
the more thorough process?
Mr. Hillman. I do not believe I would be in favor of
necessarily stopping the process to verify those done under the
Lite process, but I would like to see a greater level of
attention afforded to ensuring firms are verified using the
more rigorous process.
And, in fact, that may actually be occurring with the new
interim rule that VA put in effect where there is now a two-
year reverification process. That may indeed allow VA to focus
on those that had been verified two years back mostly being
under the less rigorous process, paying greater attention to
those first than those that have been done potentially over a
two-year period under the more rigorous process.
But we continue to remain concerned that with such a large
percentage of firms included in the program under that less
rigorous process that veterans are not being served well.
Mr. Stutzman. Mr. Chairman, I just have a lot of concerns
here. And with the testimony and the answers that Mr. Hillman
has given, as a taxpayer, as a business owner, as an American
watching this sort of or hearing about this sort of testimony,
my confidence is really shaken.
And what is going on and are we making sure that veterans
are really being served through this particular program?
So I will just say thank you for being here and thank you
for your testimony and answers.
With that, I will yield back.
Mr. Johnson. Thank you, Mr. Chairman, for yielding.
And, gentlemen, that concludes our questions. We could
probably spend all day and drill down into this thing, but I
think we have got a pretty accurate picture that we have got a
lot of work left here yet to do.
I appreciate your testimony and with that, you are excused.
Our thanks to the panel.
I would now call our third panel to the table. On our third
panel, we will hear from Mr. Rick Weidman, Executive Director
for Policy & Government Affairs at Vietnam Veterans of America
and current Chairman of VET-Force; and from Mr. Scott
Denniston, Executive Director at the National Veteran Small
Business Coalition.
Both of your complete written statements will be made part
of the hearing record.
Mr. Weidman, you are now recognized for five minutes.
STATEMENTS OF RICHARD F. WEIDMAN, EXECUTIVE DIRECTOR, POLICY &
GOVERNMENT AFFAIRS, VIETNAM VETERANS OF AMERICA; SCOTT
DENNISTON, EXECUTIVE DIRECTOR, NATIONAL VETERAN SMALL BUSINESS
COALITION
STATEMENT OF RICHARD F. WEIDMAN
Mr. Weidman. Thank you, Mr. Chairman, and thank both Mr.
Chairmen and Members.
I think it might be useful at this point just to go back
and set some context to all the discussion today which drilled
down then of necessity to a lot of specific details.
106S50 when it was originally passed, we decided to stay
together the task force that worked with the leadership of this
Committee, at that time Mr. Stump, and with Jim Tallon of
Missouri to get that legislation through. And it was all that
time spent since then mostly is focused on getting the agencies
to implement it successfully.
Several years ago, we became very concerned about fraud,
about rent-a-vets coming into the situation. And it was us who
approached the Committee to ask for assistance to weed out
these folks when a friend of mine said you should know better
than calling people in who then will say we are from the
Federal Government and we are here to help you.
And, unfortunately, a lot of our businesses have literally
been destroyed and very few, relatively few people have been
caught who are the real crooks. They are still out there
operating. They may not be operating in VA, but they are
operating in other agencies because of a lack of due diligence.
So we have a number of suggestions here this morning that
perhaps have the way forward, but let me just say that one of
the things that would help significantly is for this Committee
to communicate to the Authorizing and Appropriation
Subcommittees about the problems with those other agencies,
whether it be the Department of Interior or whoever it might
be, where it is clear that staff, procurement staff is not
doing due diligence on this program or other programs probably.
And, therefore, there are people who are getting in on self-
certification who really are ineligible for the program.
There are number of things in the short-run that we would
suggest that need to be done. First is provide transparency to
the OGC opinions because we have not had those to look at to
understand why and how people came.
Let me just say as a general note as we have noted to Mr.
Leney and noted to your colleagues over on the Oversight and
Investigations Committee of the House of Representatives that
if you are teacher and 60 percent of your students flunk the
test, you have a real bad test or you are a real bad teacher or
both. And that is a failing school.
So we argue that it has not been clear heretofore what are
these criteria, one.
Two, that some of the criteria just make no sense, the
ownership thing as an example. If I own a hundred percent of
the business and I do not have a board of directors, I am a
sole proprietorship, then they would declare, okay, you have
got control.
But to think that I can make a decision without consulting
with my spouse about what supports the family is ludicrous on
the face of it. Maybe your family works different, Mr.
Chairman, but that is the way it works in, I believe, most----
Mr. Johnson. I assure you, Mr. Weidman, it is much more
complex than that at my home.
Mr. Weidman. But consultation must be made, I am sure.
And so the notion of ownership and in the way in which VA
is doing it is not in statute. It makes no sense operationally
and it is not weeding out the real crooks.
What is the purpose of this whole thing? Is it to see how
many angels can dance on the head of a pin of minute things
laid down, or is it to weed out people who are not eligible for
the program?
I would suggest that it is the larger issue that we need to
focus on.
Secretary Shinseki often says do not worry about doing all
things right. Worry about doing the right thing for the
veteran. This is what he has told to all the adjudicators
within the compensation and pension section. In other words, do
not worry about crossing all the T's and dotting the I's and
regulation that may not really pertain.
The key question that was asked here this morning was when
one of the Members of this panel asked Mr. Leney who wrote the
regulations. They wrote the regulations.
When the GI Bill was first implemented, they had 17
different steps and it turned into a real mess getting the
money out to the young people coming home to go to school.
And Secretary Shinseki called the 57 people from the
regional offices in and said why is this taking so long. Walk
me through what happens when a young person sends in an
application for the 21st century GI Bill. And they did and it
was 17 steps.
And he asked, well, why do you go through all these steps.
And they said, well, the regulations require it. Well, who
wrote the regulations. Well, we did. And they reduced it to
three steps, three steps.
And you have not heard any problems with fraud there
because it focused back on the real question which is, are
people eligible or are they not, are they legitimate or are
they not, and did not get into the kinds of details.
I am out of time, I can see, Mr. Chairman, and I apologize
for going over. I did not get into the specific
recommendations, but hopefully we can get into those in the
question period.
I thank you, all of you very much on both Subcommittees for
your leadership on this issue and doggedly pursuing trying to
get this straightened out.
[The prepared statement of Richard F. Weidman appears in
the Appendix]
Mr. Johnson. Thank you, Mr. Weidman.
Mr. Denniston, you are now recognized for five minutes.
STATEMENT OF SCOTT DENNISTON
Mr. Denniston. Chairman Johnson, thank you, Chairman
Stutzman, thank you for holding this hearing.
I am fighting a cold, lost my voice last night, so we will
do the best we can.
The National Veteran Small Business Coalition was
established two years ago to be the honest broker middleman
between the veteran business community, Federal agencies, and
prime contractors.
And we have been imminently involved with this whole
verification process since the very beginning and also because
Mr. Leney as part of his improvements for the program asked the
coalition if we would be involved and be one of his partners to
help veterans and have veterans understand what are the issues
with verification.
So we have got a fairly good background as to what some of
the issues are. And I would like to in the short time that we
have address what we believe to be those issues.
First, the greatest weakness we believe is the lack of
communication between a veteran and the CVE. When an
application is submitted, it basically goes into a black hole.
You heard from Mr. Leney that a reconsideration takes 200 days.
There has got to be a way to communicate.
We have got a veteran that drove up from South Carolina
because he tried the VA help desk and was told that he was
caller number 30 and his approximate wait time was 4,116
minutes. He said he could fly up here faster than that.
The second area of weakness we see in the CVE verification
process is the restrictive rules as a result of Public Law 111-
275. Some of the issues that we see that are absolutely
critical here with the rules being too restrictive.
And I know that Mr. Leney said that the rules are the same
for the SBA programs and also for the service-disabled vet
programs. We have many veterans that come to us that have been
denied CVE verification but yet are 8A contractors.
So the question then becomes how are the rules the same?
Then it must be in the interpretation.
We also are concerned about what we see as CVE's focus on
events that may happen in the future, things like vets that are
in community property states who may go through a divorce,
rights of first refusal which are very standard in most
business contracts which, again, that is something that is
going to happen in the future. But if there is a right of first
refusal clause in the bylaws, the articles of incorporation,
the agreement between two partners, that is going to reject you
for CVE verification.
I mean, realistically no non-veteran investor in his right
mind is going to invest in a service-disabled veteran-owned
business the way the rules are written now.
We also have a difference between the ownership and control
issues that were mentioned, the gentleman from GAO talking
about contract performance, and it is important that we do not
get those confused in my opinion.
The next issue we have with the VA is the inconsistent
interpretation of the rules. And this becomes very critical
when CVE is looking at the past experience of a veteran versus
a non-veteran because many times the non-veteran is going to
have more years of experience in the given industry than the
veteran is because the veteran has been serving their country.
And, again, there is no hard and fast rule as to what
constitutes acceptable experience. That is a very subjective
decision that we think is being unfair to folks in the
veterans' community.
The other problem that we see is CVE staff not
understanding basic business principles, what questions to ask,
and how to ask the questions.
Many times, the VA staff from what we are learning are
confusing operating agreements which are LLCs with articles of
incorporation and bylaws. And CVE staff does not appear to
understand the functions and duties of officers versus
directors of small businesses and how they relate to operation
and control of the business.
So many times CVE is asking for documentation that we do
not believe is relevant to the control issue.
So in our testimony, we have come up with eight specific
suggestions that we think would help the CVE verification
process.
One is an in-depth development of standard operating
procedures.
Number two is open lines of communication with the veteran
applicants through e-mails and phone calls.
Number three, assign a caseworker to every application and
inform the veteran who it is that is processing their case so
they know who they need to talk to.
Establish a management review board which would be people
internal to VA that before anyone is denied or before there is
a request for additional information, that review board would
make sure that the reviewer knew what they were talking about
before they took the action.
Number five, provide veteran applicants an opportunity to
take corrective action before issuing a denial letter.
Number six, at the recent veteran business conference in
Detroit, Secretary Shinseki announced a Committee to review and
determine how the verification rules could be improved. We
would like to see veteran business owners and stakeholders as
part of that process.
We think that it would be important for VA to establish a
business advisory Committee to review processes, procedures,
rules, policies and their implementation as it relates to the
Veterans First Program.
And, number eight, and probably most important, institute a
grace period whereby firms who have been previously verified as
veteran-owned or service-disabled veteran-owned remain verified
until such time as CVE has an opportunity to perform the new
in-depth review when the contractors are pending contract
opportunities which they will lose if CVE pulls their CVE
verification.
With that, as Rick did, I went over my time. I apologize,
and be happy to answer any questions.
[The prepared statement of Scott Denniston appears in the
Appendix]
Mr. Johnson. Thank you, gentlemen, for your testimony.
We will now begin with questions.
For both of you, either of you, how effective, and if you
could answer quickly so we can get to everyone here, how
effective do you think the Verification Assistance Partnering
Program is in the VA?
Mr. Denniston. I think it is too early to tell. I think it
has the foundations to be effective because we are bringing in
people being trained by VA who understand the process and then
can go out and help train veterans. And I think that will go a
long way to some of the issues that we faced in the past.
Mr. Johnson. Okay. Mr. Weidman.
Mr. Weidman. We need to simplify the process first and then
I think it can help a great deal. It is simplification and
clarification in the process so that we can understand it so
that we can help veterans understand it and put together self-
help guides that are clear as a bell about what you need to do
in order to get VA certification.
And the litmus test of that simplification should be what
do you need in order to make sure that you do not have fraud
here. And some of the dancing on the head of a pin definitions
that go into that decision now really make no sense
operationally. It does not accomplish the purpose. And we keep
pointing out that 59 people caught versus thousands literally
rejected who are legitimate makes no sense at all. We need to
clean up this process.
Mr. Johnson. Okay. How is the self-assessment tool being
used by verification assistance counselors and how has it been
received by the partners and individual vets?
Mr. Denniston. Quite frankly, we are not using it because
we do not believe it is effective. We think that we can have
better success working with a veteran one on one because the
self-assessment tool was written from a VA perspective, not
from a business owner's perspective.
Mr. Johnson. Okay.
Mr. Weidman. What Scott said before about consulting with
the stakeholders and business owners before you produce
curricula, that is a sea change that really has to happen
throughout VA and it certainly has to happen in this instance
of sitting down with us before you put together things like
that self-assessment tool so we can offer input which, in fact,
may be helpful to make it a better product.
Mr. Johnson. I thank you for your answers.
Mr. McNerney.
Mr. McNerney. Thank you, Mr. Chairman.
Both the witnesses mentioned that you have specific
recommendations to improve the process.
Has the VA been receptive to your ideas and do you feel
like any of these will be implemented in the regulatory
development?
Mr. Denniston. One of the primary reasons that we agreed
the coalition to become a partner with VA was, number one and
foremost, to help veterans through this very onerous process.
But the second was because we do have the commitment from
VA that as we go down the line, we will have an opportunity to
discuss where the rules are onerous, how we can improve and be
more effective in the process.
So in answer to your question, that was the basic reason
that we agreed to be a partner.
Mr. Weidman. The same is true of VET-Force and I think of
the other organizations who are participating in that. As it
becomes more clear, I think that what the process is and that
the process make sense, I think you are going to have more
people step forward and agree to essentially act as mentors for
people who want to apply.
Mr. McNerney. Would you like to enumerate your suggestions,
Mr. Weidman?
Mr. Weidman. Well, one suggestion is that we have or
recommendation really is to move the CVE and to create a
separate verification unit.
CVE three years ago was a place where you went for help. It
was a good place. Now business owners consider it the enemy.
And people do not get their e-mails returned or answered. They
do not get their phone calls returned, et cetera.
What we are suggesting is to remember that this is a
veteran's benefit. It is based on the notion of the 19th
century notion of bounty legally and the same as veterans'
preference is to give preference in doing selling goods and
services to the Federal Government. And that is its core.
So, therefore, we are suggesting that you move it to and
take the steps necessary to create that fourth division of VA
which focuses on helping veterans become more independent and
self-sustaining.
And that would entail the Veterans' Employment and Training
Service, bring it over from Labor. It would include the
Education Service. It would include the Voc Rehab and it would
include CVE which then would have to cooperate closely with SBA
so that it magnified the services, and to have the verification
unit there as well.
Secretary Shinseki and the Under Secretary in Veterans
Benefits have adjudicators for the first time doing something
that veterans cannot believe, that when they are adjudicating
the claim and they are looking over the claim, they pick up the
phone and call the veteran.
And veterans are astonished and say, look, what we need in
order to do this, did you mean X, Y, and Z. And the veteran
says, no, I meant A, B, and C. And he says, okay, well, we need
to change that and you need this supportive document, do you
understand what I am talk--to actually communicate with the
veteran.
And in the end, it saves money because it stops the churn
within the system. This is a brand new system and we have a
churn that does not quit. We need to get it right the first
time and the way to get it right the first time is for the
legitimate businesses, which is 99 percent of all of them who
apply, to help them get it right to get it through so we can
get on with it.
And so that is the primary suggestion that we have, sir.
Mr. McNerney. That is a big one.
You know, when you send a package out in FedEx or UPS or
even USPS, you know, you can go online and you can see that it
has gone to Memphis and it has gone to Oakland and it is going
to come to you.
Maybe something like that would be reasonable within the VA
when you make an application not only for this but also for
disability benefits to know where your application is and maybe
have sort of a scheduled time when you can expect a call from
the VA to discuss questions.
Mr. Weidman. Assuming you can believe the IT folks, we are
less than a year away from having that kind of a dashboard in
the Compensation and Pension Program where you can track where
your claim is in the system. And once it works in that, there
is no reason why that same software can't be used by the
verification folks.
And we believe that there is software already existing. It
is just they need to give Tom Leney the ability to purchase it.
This is one of the things that troubles us also, by the
way, and I won't get into a long discussion of the supply fund
which we are very much against because of accountability
issues.
But I will say this is that the function of small business
verification, because it is a veteran's benefit, should be a
line item. It should be in Title 38 and it should be subject to
the normal appropriations process.
Mr. McNerney. Thank you.
Mr. Chairman, I am going to yield back.
Mr. Johnson. I thank the gentleman for yielding.
We have spent a lot of time here today.
I have got one clarification for you, Mr. Weidman. Could
you clarify your suggestion that sounded a little bit to me to
sound as though you were suggesting self-certification?
Mr. Weidman. No. What we are suggesting is self-
certification for people who do not intend to do business with
the VA. And so it would be a slightly less rigorous step until
they catch up. I mean, they tightened up so far, and some of it
is not needed in our view, but you need to catch up with this
process.
I have talked to folks who are doing on both the RNC and
the DNC within the past week and when they go out and do town
meetings, every place they go the anger explodes about this
issue of verification process. And it cuts right across every
other issue because as it is viewed from the outside, it is the
apotheosis of bureaucracy running amuck.
I want to say just something personally and on behalf of
VVA and of VET-Force is, we are not demonizing Tom Leney or his
staff. We believe they are taking orders from above because the
emphasis has been on the relatively few frauds instead of how
many people are verified and doing business.
And we will continue. I have already invited Mr. O'Neill
and Mr. Hillman to join us August 21st at the next VET-Force
meeting so we can get their perspective and we can tell them
what we think is important about what they should be looking at
in order to improve the overall process.
So it is that kind of communication that has been lacking,
sir. And, frankly, the chief of staff, Tom Leney is doing
exactly what the chief of staff told him to do. And so that is
where if there is any problem or mind shift that needs--mind
set that needs shifting, that is where it is.
Mr. Johnson. Okay. Thank you, Mr. Weidman.
Well, the CVE has now been notified by both the judicial
branch and the legislative branch that its processes need to be
improved. This combined with the GAO's most recent report and
the firsthand stories this Committee hears from veteran-owned
small businesses tells us that all is not as well as the VA's
testimony claims.
We urge you, Mr. Leney, to thoroughly appraise your
operation and work with this Committee to overcome the CVE's
inadequacies.
This Committee will remain vigilant in monitoring the CVE's
progress. Investigative elements of our Committee will continue
to conduct oversight, pursue bad actors, and refer them for
investigation and potentially criminal prosecution.
With that, I ask unanimous consent that all Members have
five legislative days to revise and extend their remarks and
include extraneous material. Without objection, so ordered.
I want to thank all Members and witnesses for their
participation in today's hearing.
This hearing is now adjourned.
[The prepared statement of James F. McDonnell appears in
the Appendix]
[Whereupon, at 12:51 p.m., the Subcommittees were
adjourned.]
A P P E N D I X
----------
Prepared Statement of Hon. Bill Johnson, Chairman, Subcommittee on
Oversight and Investigations
Good morning. This hearing will come to order.
I want to welcome everyone to today's joint hearing on the Center
for Veterans Enterprise. I thank the Members of the Subcommittee on
Economic Opportunity for their participation today and their efforts in
improving the process for veteran-owned and service-disabled veteran-
owned small businesses to conduct business with the VA.
The two Subcommittees have worked throughout this Congress to
improve the certification process for veteran-owned and service-
disabled veteran-owned small businesses, or VOSBs and SDVOSBs. We have
patiently waited for signs of progress following the installation of a
new Executive Director of Small and Veteran Business Programs at the
VA. While some improvements have been made, unfortunately the goals
established nearly a year ago, have yet to be achieved.
This Committee has an oversight responsibility to the American
people to ensure that tax dollars administered by the VA are going to
legitimate, qualified, veteran owned businesses. I am hopeful that
today's hearing will encourage and assist the VA in reaching their
goals of improving the CVE once and for all.
As this Committee's own investigations and multiple Government
Accountability Office investigations have shown, the ad hoc processes
implemented by the CVE to verify and re-verify businesses are not
working. The recommendations made by GAO and the VA's Inspector General
go unheeded. Regardless of the reasons, the time has come for the CVE
to take a hard look in the mirror, dig down to the root of the problem,
and fix it.
With the attention this issue has received, the findings of the
recent GAO study ``Service-Disabled Veteran-Owned Small Business
Program: Vulnerability to Fraud and Abuse Remains'' are troubling. One
of the many flaws in the system substantiated by GAO includes the VA's
providing GAO with seven different counts of how many SDVOSBs were
verified by the CVE under the Veterans Benefits, Health Care, and
Information Technology Act of 2006 and the Veterans Small Business
Verification Act of 2010. Given the amount of resources we have urged
the VA to commit to the CVE, it is safe to say we expected better than
this.
Over the past several months, this Committee provided the
Department with feedback and input regarding the CVE's re-verification
problem. With this in mind, we welcome the Secretary's recent
announcement that the VA will move from annual re-verification to a bi-
annual re-verification, something this Committee had been strongly
urging the VA to do for a long time. While this move is commended, the
problems plaguing the CVE go beyond re-verification.
For instance, the VA's decision to ignore the Small Business
Administration's regulations regarding ownership and control of a
business has resulted in unnecessary problems. The VA's choice to
create its own standards for ownership and control has led to the CVE
applying inconsistent standards to businesses applying for
verification. In some instances, these arbitrary requests are invasive
and have needlessly hurt legitimate, veteran owned small businesses.
It is not only the legislative branch that believes the CVE's
improvised standards and reasoning is lacking, but also the judicial
branch. This past March, a Federal District Judge for the District of
Columbia stated in an opinion that ``several of the grounds cited by
the CVE as a basis for denying the application for inclusion in the
VetBiz VIP database are described in such generalized and ambiguous
terms that the Court is essentially left to guess as to the precise
basis for the agency's decision.''
Unfortunately, this characterization describes the experience of
many businesses who have applied for certification and been denied.
On July 11, Chairman Stutzman and I sent a letter to Secretary
Shinseki detailing these and other problems, and we continue to await a
response. Today's hearing provides an opportunity to candidly discuss
CVE's failures, and where and how it can improve.
I want to thank all of our witnesses for their participation today,
and I look forward to your testimony. I now yield to Chairman Stutzman
of the Subcommittee on Economic Opportunity for his opening statement.
Prepared Statement of Hon. Marlin Stutzman, Chairman, Economic
Opportunity
Good morning. Everyone here knows about the problems VA has had
implementing the small business provisions of a series of public laws
beginning with P.L. 109-461. And we will hear more about it today.
While addressing those continuing issues is important, especially
those which may include criminal activity, the past is not my focus. I
want to know how and equally important, when VA will put in place the
systems and policies that will shorten the time to be approved,
decrease the level of effort needed to pass muster and lower the cost,
and finally, create a community of veteran-owned businesses that is
reasonably free from unqualified companies.
This is not just a VA task. There are issues we in Congress need to
deal with. For example, current law effectively eliminates any company
funded through investors because of the 100% control requirement. That
means should we adopt a less stringent definition of control which then
begs the question of how to prevent rent-a-vet operations from
flourishing at the expense of fully qualified companies.
Another issue is what VA describes as negative control where a
veteran majority owner can potentially be thwarted by a non-veteran
minority owner. Another is how to best judge the level of control when
there is a disparity in the resumes of a veteran majority owner and a
minority owner.
Finally, there is the issue of recertification. I believe the
current approach of recertifying every business, whether every year, or
every two years, or three years or four years, etc. may overwhelm CVE
resources. Let me explain using an assumed increase of 2,000 approved
businesses annually. As you can see on the monitors, using the current
two year recertification process, at the end of the 10th year, CVE will
be recertifying 18,000 businesses. Even using what Mr. Leney will
describe as the ``simplified recertification process,'' I do not see
how that magnitude of workload can be managed without a significant
increase in resources beyond the current $30 million per year. We need
another approach, perhaps a risk-based one that recertifies companies
only when they are identified as a potential contract winner.
So, Mr. Leney, you have your work cut out for you and I truly want
you to succeed because that will be good for the veteran business
community. I yield back.
Prepared Statement of Thomas J. Leney
Chairman Johnson, Chairman Stutzman, Ranking Member Donnelly,
Ranking Member Braley, and Members of the Subcommittees, thank you for
inviting me to testify on the status of VA's Veteran-owned small
business (VOSB) Verification Program and on VA's response to the
Government Accountability Office (GAO) report GAO-12-697, ``Service-
Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud
and Abuse Remains.''
Overview
VA has made substantial progress in improving the VA VOSB
Verification Program. These improvements have reduced the potential for
ineligible firms to take improper advantage of the ``Veterans First''
program, while making it easier and faster for legitimate VOSBs and
service-disabled Veteran-owned small businesses (SDVOSBs) to gain
greater access to VA procurement opportunities.
VA has addressed the issues raised in the GAO report, and believes
the current VOSB verification process provides a high level of
assurance that only eligible firms are verified. We have improved our
quality control and become more aggressive in referring firms that we
suspect are misrepresenting their status. In FY 2011 we referred 25
firms to the Office of Inspector General (OIG) for investigation as
possible misrepresentation. So far in FY 2012, we have referred 59
firms. In FY 2011, all referrals were made to OIG with the expectation
that if OIG declined to investigate, that the referral would forward on
to the 8127 Debarment Committee. The Center for Veterans Enterprise
(CVE) has established a formal process for referring misrepresentation
to the VA 8127 Debarment Committee that has resulted in improvement,
going from no referrals in FY2011 to 28 referrals so far this year. The
8127 Debarment Committee has debarred 8 firms and 7 individuals and
there are 9 firms and 20 individuals pending a decision from the
committee.
At the same time we have taken action to improve the process, in
order to enable eligible firms to be verified quickly and efficiently.
By regulation, VA has 90 days from the time it receives a complete
verification application to make a decision. When I appeared before you
in July 2011, it took more than 130 days on average to process an
initial verification application. CVE has now improved upon that time.
A year ago, only 41 percent of initial applications were approved. In
the past two months, due to our increased efforts to educate potential
applicants on how to become compliant with the regulation, more than 70
percent of initial applications were approved.
Need to balance efforts addressed by GAO with enabling firms to get
verified
The recent GAO report states that the government-wide SDVOSB self-
representation program is still vulnerable to fraud and abuse. While
acknowledging progress made by the VA VOSB Verification program, the
report states that our program remains vulnerable due to an
inconsistent approach to prioritizing the verification of firms and the
inability of the CVE to accurately track the status of its efforts. VA
believes this GAO finding is inaccurate, as the CVE knows how many
firms have been verified, and is able to track its inventory of firms
that have been verified or are currently in the application process.
CVE tracks its inventory of firms in VIP using the Verification Master
Inventory List due to limitations in the capabilities of our
Verification Case Management System (VCMS). As of July 12, 2012, there
are 6,079 firms in the Vendor Information Pages (VIP) and all of these
firms have been verified under the requirements established by Section
502 of Public Law 109-461 in 2006. Of that total, 2,355 were verified
prior to the enactment of Section 104 of P.L. 111-275 in 2010 and 3,724
were verified using the processes implemented after by that
legislation. No firm appears in VIP as eligible for award unless it has
been verified as owned and controlled by a Veteran or service-disabled
Veteran. There are 1,449 firms listed in VIP whose verification has
expired. These firms are annotated as in ``reverification'' status and
they are not eligible to receive awards without undergoing
reverification using the post-2010 Act process. These companies' two-
year eligibility term has expired, but they previously submitted a
reverification application. This ``reverification'' status allows them
the opportunity to continue to pursue VA ``Veterans First'' set-aside
contracts, but ensures that they will not receive an award until
reverified under the current process.
VA has utilized a consistent approach to prioritization that is
based on the regulation, fundamental principles of fairness, and
availability of resources. Our specific priorities have evolved as
appropriate in response to situational changes and resources.
In May 2011, the priorities were as follows:
(1) Verification of new applications for firms that had
previously only self-represented in VIP (i.e., firms that had not been
reviewed under processes created for the 2006 Act or 2010 Act);
(2) Verification of new firms that had initially applied for
verification after the 2010 Act;
(3) Requests for Reconsideration from firms denied verification;
and
(4) Reverification of firms initially verified in VIP under the
process implemented prior to the 2010 Act.
``Unverified'' firms were listed in VIP as ``pending'' but were not
eligible for award of contracts. They were eligible to submit proposals
and those that were pending award received top priority for
verification as part of ``fast track'' program. VA committed to
eliminating all unverified firms in VIP no later than December 31,
2011. By September 4, 2011, CVE completed that mission and since that
time only those firms who have gone through the verification process
are listed in VIP. CVE reinstituted the ``fast track'' program in May
2012 for those companies identified as being in ``reverification'' who
are identified by the VA Contracting Officer as the apparently
successful offeror for a VA Veterans First set-aside contract.
Today, the priorities are as follows:
(1) Fast Track verification of firms in ``Reverification''
status that are pending award;
(2) Simplified reverification of firms verified using post-P.L.
111-275 procedures;
(3) Verification of new firms using the post- P.L. 111-275
procedures;
(4) Requests for Reconsideration from firms denied verification;
and
(5) Reverification of applications for expired firms initially
verified in VIP under pre-P.L. 111-275 procedures.
CVE primarily initiates reverification of firms verified prior to
P.L. 111-275 when their eligibility expires. This is in accordance with
38 CFR Sec. 74.15 (c) that otherwise only authorizes CVE to initiate a
verification examination ``whenever it receives credible information
calling into question a participant's eligibility as a VOSB.''
To ensure that it verifies only eligible firms, CVE has made a
number of improvements, to include:
Established a Quality Control (QC) Review Program to
address potential errors. An integral feature of the QC Program is a
legal review of CVE's work product performed by staff attorneys within
the Office of General Counsel (OGC) when requested by CVE;
Improved records management/document control;
Strengthened review of Requests for Reconsideration by
adding OGC review of all Requests for Reconsideration;
Established risk management program;
Established formal OIG referral process; and
Established a Standard Operating Procedure process for
referral of cases to the 8127 Debarment Committee in compliance with
P.L. 109-461 requirement
While we believe that these improvements significantly reduce the
risk of ineligible firms being verified, we continue to refine and
improve the system. At last month's National Veterans Small Business
Conference in Detroit, Secretary Shinseki announced an interim final
rule change that modified the eligibility term from one year to two
years. This change had an immediate effect on 2,424 businesses whose
eligibility would have expired, but retained their eligibility for
another year. CVE will reverify these firms using the more robust
verification process established post-P.L. 111-275, when their
eligibility expires.
As stated at the National Veterans Small Business Conference in
Detroit, VA is fully prepared to adjust the standards based on the
lessons learned from the implementation of the verification regulation.
To this end, the OSDBU is in the process of seeking input from
stakeholders in order to draft a significant change to 38 Code of
Federal Regulations (CFR) Part 74. We will be using this feedback to
draft proposed rule changes governing VA VOSB Verification. The
rulemaking process is not quick. VA intends to be thorough in
identifying and analyzing proposed changes to the regulation that will
streamline the process without compromising the integrity of the
examination.
The Committee has asked VA to address how often a business should
be recertified. SBA's HUBZone program is a three year recertification,
while their 8(a) business development program requires annual
recertification. We believe that the recent extension of the
verification eligibility from one to two years is on balance the right
decision. VA welcomes the Committee's input on any possible regulation
changes.
Small Business Administration Comparison
In close collaboration with the SBA, we compared the regulation
that governs VA verification, 38 CFR Part 74, and the regulation that
covers the government-wide SDVOSB program, 13 CFR Part 125 as well as
13 CFR Part 124 that governs the SBA 8(a) business development program.
We have worked closely with cognizant SBA staff to examine the
regulations and the existing case law on SDVOSB status eligibility.
While we found that 38 CFR Part 74 is more detailed in its explicit
requirements for ownership and control, there are very few substantive
differences between the three regulations. Indeed, the VA requirements
for ownership and control are nearly ``word for word'' the same as
SBA's requirements for their 8(a) business development program. The
regulation that covers the SBA SDVOSB program, 13 CFR 125, is mostly
silent in terms of ownership and control, and was written specifically
for a self-representation program. VA and SBA have recently completed
an informal crosswalk of the regulations for the VA VOSB Verification
program (38 CFR Part 74), the SBA SDVOSB program (13 CFR Part 125) and
the 8(a) business development program (13 CFR Part 124) in order to
determine if there are material discrepancies between the regulations.
With respect to the government-wide SDVOSB program, SBA case law
indicates that the places where 13 CFR Part 125 is silent, SBA follows
the 8(a) regulation. This is borne out by case law from the SBA Office
of Hearings and Appeals (OHA) as early as 2005 in SBA No. VET-102.
Apart from the obvious difference that VA's program also addresses
Veteran-owned small businesses in addition to service-disabled Veteran-
owned small business, VA and SBA determined that there was only one
main discrepancy between the SBA regulations and interpretations and
the VA regulation. This is due to the provision of P.L. 109-461 for a
surviving spouse exception that is unique to VA. Both VA and SBA will
be posting a comparison document to their Web sites to illustrate the
consistency between the regulations.
We also examined the document requirements for each regulation and
again did not find substantial differences. Based on this review we do
not believe that there is a need to modify the document requirements in
order to avoid major discrepancies between programs. The documents
required by each program are listed in the table below.
----------------------------------------------------------------------------------------------------------------
VA Document Requirements SBA Document Requirements
----------------------------------------------------------------------------------------------------------------
GENERAL
----------------------------------------------------------------------------------------------------------------
Business and/or personal professional, industry, and/or Copies of licenses and agreements required for the
other licenses, permits or accreditations operation of the business (e.g. franchise, license, and
or similar contractual agreements with other concerns)
----------------------------------------------------------------------------------------------------------------
Resumes of all owners, directors, partners, officers Names, addresses and resumes for all officers,
and other key personnel directors, managing partners, and/or managers of the
firm (the resumes should include the names of current
and former employers and dates of employment)
----------------------------------------------------------------------------------------------------------------
Approval letters for businesses with Sensitive Date and state in which the firm was established or
Compartmented Information Facility (SCIF) or ``Vault incorporated
----------------------------------------------------------------------------------------------------------------
Name and address of the firm's owners, general
partners, members, and principal shareholders/
stockholders
----------------------------------------------------------------------------------------------------------------
FINANCIAL
----------------------------------------------------------------------------------------------------------------
IRS Federal tax form 1040 and the attached Schedule C Copies of the business concern's two most recent
for the past three years Federal tax returns
----------------------------------------------------------------------------------------------------------------
IRS Federal Tax Form 1065 and corresponding K-1 for Unemployment tax filings for the two quarters prior to
past three years. offer
----------------------------------------------------------------------------------------------------------------
Appropriate IRS tax form filed; If filed as Sole Unemployment tax filings for the current quarter
Proprietorship (Schedule C), partnership (Federal tax
form 1065 and K-1); or S Corporation (1120S and K-1)
for the past three years.
----------------------------------------------------------------------------------------------------------------
Federal tax form 1120S and corresponding K-1 for the List of the firm's current financial obligations to
past three years other individuals or entities (e.g. loans, security
agreements, guarantees, indemnifications, etc.)
----------------------------------------------------------------------------------------------------------------
For Joint Ventures, applicable Federal tax returns Breakdown of the firm's sources of revenue indicating
based on business type (see above) for the last three total percentage of revenues attributable to individual
years for each participant source
----------------------------------------------------------------------------------------------------------------
Signature cards authenticated by financial institutions List of individuals who have signed or are expected to
(Banks/Credit Unions/etc.) sign documents to facilitate the ability of the
business concern to receive indemnifications or credit
guarantees, who are NOT owners, officers, directors,
employees, partners, or principal stockholders of the
business concern.
----------------------------------------------------------------------------------------------------------------
Copies of approximately 20 negotiated company checks.
----------------------------------------------------------------------------------------------------------------
MANAGEMENT INFORMATION
----------------------------------------------------------------------------------------------------------------
Lease, Management and Services agrCopy of lease agreement
supporting payments
----------------------------------------------------------------------------------------------------------------
Operating Agreement including all amendments
----------------------------------------------------------------------------------------------------------------
LEGAL STRUCTURE
----------------------------------------------------------------------------------------------------------------
Ownership Agreements or Partnership Agreements (i.e. Buy/sell agreements
proxies and voting trust agreements)
----------------------------------------------------------------------------------------------------------------
Partnership Agreement, including all amendments Percentage of voting stock in the firm or business
owned by SDVs
----------------------------------------------------------------------------------------------------------------
Shareholders Agreement, including all amendments Shareholder agreements
----------------------------------------------------------------------------------------------------------------
Equity participation or equity plans, restricted stock List of any stock options outstanding and name of
or ownership interests or options for stock or person holding option; include agreement
ownership interest or plans
----------------------------------------------------------------------------------------------------------------
Official Certificate of Formation and Operating Copies of promissory notes and proof of payment
Agreement with any amendments
----------------------------------------------------------------------------------------------------------------
Minutes of first and most recent stockholder and Board Copy of the last corporate meeting minutes
of Directors meetings (Evaluator may request
additional minutes, and applicant may supply
additional minutes to explain any changes since the
establishment of the Operating Agreement)
----------------------------------------------------------------------------------------------------------------
All corporate bylaws and all amendments Copy of corporate bylaws, partnership agreement, or
operating agreement
----------------------------------------------------------------------------------------------------------------
Articles of Organization for LLC'Copies of stock certificates (front and back) for all
amendments classes of stock
----------------------------------------------------------------------------------------------------------------
Articles/certificate of incorporation filed with the Articles of Incorporation
Secretary of State including all amendments
----------------------------------------------------------------------------------------------------------------
Joint Venture Agreement and current opportunity on Percentage and description of work under this contract
which joint venture is bidding that will be performed by affiliates
----------------------------------------------------------------------------------------------------------------
Stock registers for Applicant or stock ledgers showing Stock ledger certified by the corporate secretary or
listing all shares of issuance. president
----------------------------------------------------------------------------------------------------------------
List of stock held by a lender or other party as
pledged collateral; include copy of agreement
----------------------------------------------------------------------------------------------------------------
List of stock voted under a proxy agreement, a trust
and a copy of such agreement
----------------------------------------------------------------------------------------------------------------
Trust agreements
----------------------------------------------------------------------------------------------------------------
Copy of any and all contracts or agreements between the
firm and any affiliates (including joint venture
partners)
----------------------------------------------------------------------------------------------------------------
OTHER
----------------------------------------------------------------------------------------------------------------
Evidence that the firm's majority owner has been
recognized by VA or DoD as service-disabled - written
determination
----------------------------------------------------------------------------------------------------------------
Complete copy of proposal
----------------------------------------------------------------------------------------------------------------
List of the firm's affiliates (domestic and foreign)
----------------------------------------------------------------------------------------------------------------
List of all owners, partners, directors, officers or
principal shareholders/stockholders that hold a
position (paid or unpaid) in another firm
----------------------------------------------------------------------------------------------------------------
List of all owners, officers, directors, supervisors
and/or employees that have ever been employed by or
performed work for any affiliate of the firm
----------------------------------------------------------------------------------------------------------------
List of all facilities, equipment, and or personnel
shared with other firms at the time of the bid opening
----------------------------------------------------------------------------------------------------------------
New Process Improvements
In addition to the actions we have taken to strengthen the
verification process, we have also made improvements in the process
aimed at reducing the time it takes to receive an eligibility
determination. CVE has made a number of process improvements, to
include:
Online application system;
Streamlined review process;
Standardized review procedures;
On-demand application status check;
Customer service help desk with expanded hours; and
Determination letters posted online for on-demand
retrieval.
The impact of improvements has been limited by the high rejection
rate of applications. In 2011 more than 60 percent of applications were
rejected. Our analysis of this result revealed that most rejections
occurred as a result of a lack of understanding of the requirements,
not fraudulent applications. In order to address this problem, we have
taken action to help Veterans better understand the requirements. We
developed Verification Assistance Briefs posted on VetBiz that
clarified the requirements and explained in plain language what was
needed. We have provided briefings to Veteran businesses on how to meet
the standards. We have developed an on-line Verification Self
Assessment Tool that takes a prospective applicant through a detailed
review of their business model and its fit to the regulation. It covers
all of the documentation required for their business type and enables
them to assess if there is anything in their business model that would
increase their risk of denial.
For those that need more assistance, we have established
partnerships with the Procurement Technical Assistance Centers and
several Veteran Support Organizations to provide counseling and answer
questions for applicants. The verification counselors are trained with
the same materials that are used to train our examiners. We rolled out
the counseling program at the National Veterans Conference in Detroit,
where it was extremely well-received.
Conclusion
VA has made significant progress in its VOSB verification program.
We have overcome many of the challenges and vulnerabilities that were
raised by the GAO and OIG reports but we seek continuous improvement.
Mr. Chairmen and Members of the Subcommittees, this concludes my
statement. I am pleased to answer any questions you may have.
Prepared Statement Richard J. Hillman
SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PROGRAM
Vulnerability to Fraud and Abuse Remains
Chairmen Stutzman and Johnson, Ranking Members Braley and Donnelly,
and Members of the Subcommittees:
I am pleased to be here as you examine the Service-Disabled
Veteran-Owned Small Business (SDVOSB) Program's vulnerabilities to
fraud and abuse. My remarks today are based on our report, Service-
Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud
and Abuse Remains, recently issued. \1\ In fiscal year 2010, federal
agencies awarded $10.8 billion in small-business obligations to firms
participating in the SDVOSB program, according to the Small Business
Administration (SBA). The program is intended to honor business-owning
veterans who incurred or aggravated disabilities in the line of duty by
providing their firms with sole-source and set-aside contracting
opportunities. Firms must meet several requirements to be eligible to
participate in the program, such as being majority-owned by one or more
service-disabled veterans who manage and control daily business
operations.
---------------------------------------------------------------------------
\1\ GAO-12-697 (Washington, D.C.: Aug. 1, 2012).
---------------------------------------------------------------------------
SBA administers the government-wide SDVOSB program but does not
verify firms' eligibility, stating that its only statutory obligation
is to report other agencies' success in meeting contracting goals. In
addition to SBA's statutory authority over the government-wide program,
the Department of Veterans Affairs (VA) has separate authority over
issues related to its own SDVOSB program. VA awarded $3.2 billion in
SDVOSB contracts in fiscal year 2010--about 30 percent of government-
wide SDVOSB awards. Unlike SBA, VA is bound by the Veterans Benefits,
Health Care, and Information Technology Act of 2006 (2006 Act) to
verify firms' eligibility. Since 2009, we have issued 10 reports and
testimonies detailing how the government-wide and VA SDVOSB programs
are vulnerable to fraud and abuse, making numerous recommendations to
strengthen fraud-prevention controls. \2\ In October 2010, Congress
also passed the Veterans Small Business Verification Act (2010 Act),
part of the Veterans' Benefits Act of 2010, to require VA among other
things to more-thoroughly validate firms' eligibility before listing
them in VetBiz, VA's database of eligible firms. In July 2011, we
reported that both SBA and VA had taken positive steps in response to
our findings and recommendations, but that vulnerabilities remained.
---------------------------------------------------------------------------
\2\ See ``Related GAO Products'' in GAO-12-697.
---------------------------------------------------------------------------
You requested that we again update our prior work and report the
status of our recommendations. Our report assesses (1) VA's progress in
addressing remaining vulnerabilities to fraud and abuse in its SDVOSB
program and (2) actions taken by SBA or other federal agencies since
our previous reports to improve government-wide SDVOSB fraud-prevention
controls. To do so, we reviewed agency documentation and interviewed
agency officials. We investigated new allegations from informants
regarding firms that received SDVOSB contracts through fraudulent or
abusive eligibility misrepresentation and highlighted 5 examples. Our
examples cannot be projected to the overall population of SDVOSB firms.
We also reviewed the status of 10 case studies from our prior work. We
did not project the extent of fraud and abuse in the program. We
conducted this performance audit from January 2011 to July 2012 in
accordance with generally accepted government auditing standards. \3\
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. We performed our
investigative work from January 2011 to July 2012 in accordance with
the standards prescribed by the Council of the Inspectors General on
Integrity and Efficiency.
---------------------------------------------------------------------------
\3\ Some of the work in this report is based on prior GAO products
issued in 2012, 2011, and 2009. GAO, Service-Disabled Veteran-Owned
Small Business Program: Governmentwide Fraud Prevention Control
Weaknesses Leave Program Vulnerable to Fraud and Abuse, but VA Has Made
Progress in Improving Its Verification Process, GAO-12-443T
(Washington, D.C.: Feb. 7, 2012); Service-Disabled Veteran-Owned Small
Business Program: Additional Improvements to Fraud Prevention Controls
Are Needed, GAO-12-205T (Washington, D.C.: Nov. 30, 2011); Service-
Disabled Veteran-Owned Small Business Program: Preliminary Information
on Actions Taken by Agencies to Address Fraud and Abuse and Remaining
Vulnerabilities, GAO-11-589T (Washington, D.C.: July 28, 2011); and
Service-Disabled Veteran-Owned Small Business Program: Case Studies
Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of
Dollars in Contracts, GAO-10-108 (Washington, D.C.: Oct. 23, 2009).
---------------------------------------------------------------------------
In summary, VA's SDVOSB program remains vulnerable to fraud and
abuse. VA has made inconsistent statements about its progress in
verifying firms listed in VetBiz using the new, more-thorough process
the agency implemented in response to the 2010 Act. In one
communication, VA stated that as of February 2011, all new
verifications would use the 2010 Act process going forward. According
to the most-recent information provided by VA, there are 6,079 SDVOSBs
and veteran-owned small businesses (VOSB) listed in VetBiz. Of these,
3,724 were verified under the more-through process implemented under
the 2010 Act, and 2,355--over 38 percent--were verified under the less-
rigorous 2006 Act process. The presence of firms that have only been
subjected to the less-stringent process that VA previously used
represents a continuing vulnerability. \4\ In 2011, VA's Office of
Inspector General (OIG) issued a report finding that VA's document
review process under the 2006 Act ``in many cases was insufficient to
establish control and ownership . . . [and] in effect allowed
businesses to self-certify as a veteran-owned or service-disabled
veteran-owned small business with little supporting documentation.''
---------------------------------------------------------------------------
\4\ On June 27, 2012, VA implemented an interim rule that extends
the eligibility of verified firms to 2 years. VA told us it interprets
``verified'' to include any firms that have been verified under either
the 2006 Act or 2010 Act processes. Consequently, implementation of
this rule means that thousands of firms will continue to be eligible
for contracts even though they have not undergone the more-thorough
2010 Act process.
---------------------------------------------------------------------------
VA has taken some positive action to enhance its fraud-prevention
efforts. VA generally concurred with recommendations we issued in
October 2011 and has established processes in response to 6 of the 13
recommendations (fig. 1). 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.
Figure 1: Status of GAO's Previous Recommendations
----------------------------------------------------------------------------------------------------------------
Fraud-prevention controls GAO recommendations Status as of June 2012
----------------------------------------------------------------------------------------------------------------
Preventive Provide regular fraud-awareness training to I
CVE(a) and VA contracting personnel
----------------------------------------------------------------------------------------------------------------
Provide additional guidance and training to the =
VA contracting personnel on the use of the
VetBiz website so that SDVOSB contracts are
only awared to verified firms
----------------------------------------------------------------------------------------------------------------
Establish formal procedures for VA staff to =
refer suspicious applications to the OIG and
provide guidance on what type of cases to refer
to the OIG
----------------------------------------------------------------------------------------------------------------
Explore the feasibility of validating =
applicants' information with third parties, for
example, requesting consent from SDVOSB
applicants to validate tax information with the
IRS to assess the accuracy of the information
provided
----------------------------------------------------------------------------------------------------------------
Formalize a process for conducting unannounced =
site visits to firms identified as high risk
during the verification process
----------------------------------------------------------------------------------------------------------------
Detection and Monitoring Develop and implement procedures for conducting I
unannounced site visits to contract performance
locations and interviews with contracting
officials to better assess whether verified
companies comply with program rules after
verification
----------------------------------------------------------------------------------------------------------------
Develop and implement a process for unannounced =
site visits to verified companies' offices to
obtain greater effectiveness and consistency in
the verification program
----------------------------------------------------------------------------------------------------------------
Develop procedures for risk-based periodic I
reviews of verified firms receiving contracts
to assess compliance with NAICS(b) size
standards and SDVOSB program rules
----------------------------------------------------------------------------------------------------------------
Investigations and Prosecutions Develop and implement specific processes and I
criteria for the Debarment Committee(c) on
compliance with the requirement in the 2006 Act
to debar, for a reasonable period of time,
firms and related parties that misrepresent
their SDVOSB status
----------------------------------------------------------------------------------------------------------------
Develop and implement specific procedures and =
criteria for staff to make referrals to VA's
Debarment Committee and VA's OIG as a result of
misrepresentations identified during initial
verification and periodic reviews
----------------------------------------------------------------------------------------------------------------
Develop specific guidelines outlining the I
Debarment Committee's decision process to debar
firms that misrepresent their SDVOSB status
----------------------------------------------------------------------------------------------------------------
Develop procedures on removing SDVOSB contracts I
from ineligible forms
----------------------------------------------------------------------------------------------------------------
Formalize procedures to advertise debarments I
and prosecutions
----------------------------------------------------------------------------------------------------------------
= Process established
I Process not established
Source: GAO and analysis of VA data.
(a) VA's Center for Veterans Enterprise (CVE) is responsible for
maintaining VetBiz and implementing VA's verification program.
(b) The North American Industry Classification System (NAICS) is
the standard used by federal statistical agencies in classifying
business establishments for the purpose of collecting, analyzing, and
publishing statistical data related to the U.S. business economy.
(c) VA's Debarment Committee was instituted in September 2010
specifically to debar firms that had violated SDVOSB regulations.
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. For example, the Department of
Defense (DOD) OIG reported in 2012 that DOD provided $340 million to
firms that potentially misstated their SDVOSB status. 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, discussed
below, received approximately $190 million in SDVOSB set-aside and
sole-source contract obligations.
Non-SDVOSB joint venture. An SDVOSB entered a joint
venture with a non-SDVOSB firm and received about $16 million in
government-wide SDVOSB set-aside contract obligations. However, the
owner, a service-disabled veteran, admitted to our investigators that
his SDVOSB firm did not manage the joint venture.
VA-denied firm. Though VA denied this firm SDVOSB status
in 2010 because the firm was not controlled by a service-disabled
veteran owner, it continued to self-certify in the Central Contractor
Registration (CCR). \5\ The firm had received $21 million in SDVOSB
set-aside and sole-source contracts from multiple agencies, and was
awarded about $860,000 by the General Services Administration and the
Department of the Interior (DOI) after it was denied by VA.
---------------------------------------------------------------------------
\5\ CCR is the primary registrant database for the U.S. federal
government. CCR collects, validates, stores, and disseminates data in
support of agency acquisition missions, including federal agency
contract and assistance awards.
---------------------------------------------------------------------------
Multiple firms not veteran-controlled. Two firms and a
joint venture firm received over $91 million in SDVOSB set-aside and
sole-source contract obligations from VA and the Department of Health
and Human Services. However, VA determined they were ineligible because
they were not controlled by the service-disabled veteran who owned one
of the firms. The firms have not been removed from the government-wide
SDVOSB list.
Not service-disabled veteran-controlled. This firm was
ineligible for the SDVOSB program because the veteran did not control
daily operations--he lived 500 miles away and received only a $12,000
salary. This firm received about $37 million in SDVOSB set-aside
contract obligations from DOD and DOI. SBA has since debarred the firm
from the program.
Service-disabled veteran otherwise employed. The firm may
be ineligible because the service-disabled veteran owner worked as an
attorney at a legal services organization Monday through Friday about
40 hours a week. This raises questions about his ability to also manage
the day-to-day proceedings of the SDVOSB firm, which received about $25
million in SDVOSB set-aside and sole-source contract obligations from
VA and the Department of Transportation.
The firms in our previous 10 case studies that we reported in
October 2009 have been or are under investigation by the SBA OIG. The
SBA OIG has joined forces with other agency OIGs to pursue several
cases. For example, enforcement actions have been taken against 3 of
the 10 cases. Specifically, two individuals related to our cases have
been charged with wire fraud in relation to their misrepresentation as
an SDVOSB and another firm pled guilty to wire fraud in relation to
another small-business program.
To address vulnerabilities in the government-wide program, we
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 VA's mission of service to
veterans. However, as shown by our current work, VA's program remains
vulnerable to fraud and abuse because the agency has been unable to
accurately track the status of its efforts and because potentially
ineligible firms remain listed in VetBiz. Consequently, VA's ability to
show that its process is successful in reducing the SDVOSB program's
vulnerability to fraud and abuse remains an important factor in any
consideration about the potential expansion of VA's eligibility
verification process government-wide.
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 in our newly issued report that
the Secretary of Veterans Affairs ensure that all firms within VetBiz
have undergone the 2010 Act verification process. Specifically, this
should include consideration of the following three actions: (1)
inventory firms listed in VetBiz to establish a reliable beginning
point for the verification status of each firm; (2) establish
procedures to maintain the accuracy of the status of all firms listed
in VetBiz, including which verification process they have undergone;
and (3) expeditiously verify all current VetBiz firms and new
applicants under the more-thorough 2010 Act verification procedures.
VA generally concurred with our recommendations but expressed
concern about how specific report language characterized its program.
GAO made some changes to the report as appropriate but continues to
believe that the program remains vulnerable to fraud and abuse. In
written comments, SBA stated that it is committed to eliminating fraud,
waste, and abuse in all of its programs including the government-wide
SDVOSB program.
Mr. Chairmen, Ranking Minority Members, and Members of the
Subcommittees, this concludes my prepared remarks. I would be happy to
answer any questions that you or other members of the subcommittees may
have.
For additional information about this testimony, please contact
Richard J. Hillman at (202) 512-6722 or [email protected]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this statement. Other key contributors
to this statement include Jennifer Costello, Assistant Director; Arturo
Cornejo; Gloria Proa; Abby Volk; and Timothy Walker.
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Prepared Statement of James J. O'Neill
Chairman Johnson and Chairman Stutzman, Members of the
Subcommittees, thank you for the opportunity to discuss the Office of
Inspector General's investigative work in the Service Disabled Veterans
Owned Small Business (SDVOSB) program. The OIG investigates allegations
that companies and individuals have fraudulently obtained Government
noncompetitive set-aside contracts by misrepresenting their SDVOSB
status or eligibility, which would deprive legitimate, eligible
veterans from obtaining these economic opportunities earned through
their honorable military service.
BACKGROUND
The OIG has full law enforcement authority to investigate
allegations of criminal activity involving VA programs and operations.
The OIG's Office of Investigations has committed significant resources
to investigating fraud in SDVOSB operations. As of June 2012, OIG has
worked a total of 144 cases involving SDVOSB fraud. Currently, we have
96 open criminal investigations, including 37 joint cases with the
Small Business Administration (SBA) OIG, 16 with the General Services
Administration (GSA) OIG, 14 with the various Department of Defense
criminal investigative agencies \1\, and 13 with the Federal Bureau of
Investigation.
---------------------------------------------------------------------------
\1\ Including the Defense Criminal investigative Service (DCIS),
Army Criminal Investigations Division (CID), and Air Force Office of
Special Investigations.
---------------------------------------------------------------------------
We have closed 48 cases since fiscal year (FY) 2009: 35 were
unsubstantiated, 8 lacked interest by the United States Attorney's
Office for prosecution, and 5 involved administrative remedies.
Of the cases currently open, 56 are ``pass-through'' schemes, in
which a purported SDVOSB obtains the Government contract award and
passes it on to a non-SDVOSB business to perform the work; 28 cases
involve ``rent-a-vet'' schemes, in which an otherwise ineligible
concern uses a genuine service-disabled veteran as a front to try to
establish SDVOSB eligibility; 6 cases involving veterans who are not
service-disabled or, in some cases, people who are not even veterans
but who attempt to obtain SDVOSB status; 1 case involving a veteran who
is marketing his status to concerns to try to provide them SDVOSB
status; and 5 are cases combining one or more or other types of
schemes.
In the 144 SDVOSB investigations, 419 subpoenas have been issued;
26 search warrants have been executed; and 24 consensual monitorings
have been conducted. We have effected 12 arrests, 16 indictments, and 6
convictions. The contract value of the open cases is $908.2 million,
including $158.8 million in American Recovery and Reinvestment Act
(ARRA) funds.
We have completed our investigation in 20 of the 96 open cases.
Another 29 cases have earned prosecutive interest by Assistant United
States Attorneys (AUSA) but still require more investigation. Of the 96
open SDVOSB cases, 77 involve construction contracts. Eleven cases
involve a service-disabled veteran who is a former employee of a large
company. Three cases involve allegations of bribery of Government
employees.
The OIG has developed a good working relationship with the Center
for Veterans Enterprises (CVE) involving potential fraud matters. Since
February 2011, CVE has made 84 referrals to the OIG of which we
accepted 34, declined 46, and already had open cases in 4 instances.
We have also worked with the Government Accountability Office (GAO)
in this area. We have met with GAO to discuss cases cited in their
previous reports. Several of our cases arose from GAO referrals, and we
anticipate continuing to work with GAO in this area.
OIG INVESTIGATIONS
Following is a discussion of several cases in which there has been
prosecutive action that has been made public. We cannot discuss
nonpublic information on pending cases as that might compromise the
ongoing criminal prosecutions.
Mitsubishi Construction (New York, New York)
In January 2010, a confidential source contacted the OIG with
allegations that Mitsubishi Construction (Mitsubishi) is not owned and
operated by a service-disabled veteran but claims it is an SDVOSB.
Mitsubishi received approximately $16 million in SDVOSB and Veteran
Owned Small Business (VOSB) contracts from June 2007 through June 2010.
The OIG investigated this case jointly with the SBA OIG. The
investigation established from incriminating statements from Mitsubishi
President and Chief Executive Officer John Raymond Anthony White that a
service-disabled veteran was not involved in running the company. White
claimed to be a service-disabled veteran to obtain Government
construction contracts and later made incriminating statements to a
Federal agent that another individual was the service-disabled veteran
who actually was the majority owner of the company. In April 2011,
White was found guilty of major fraud against the United States, mail
fraud, obstruction of justice, and making false statements by a jury in
the U.S. District Court for the Southern District of New York. White
faces a maximum sentence of 75 years in prison and maximum fine of
$3.75 million. Prior to the verdict, both Mitsubishi and White had been
suspended and debarred \2\ by VA. Mitsubishi had self-certified its
SDVOSB status under the earlier regulations.
---------------------------------------------------------------------------
\2\ Debarment is an administrative remedy to bar individuals and
companies from obtaining Federal contracts for a specific period of
time.
---------------------------------------------------------------------------
B&J Multi Service Corporation (Leominster, Massachusetts)
In November 2009, we received an allegation from a confidential
source that B&J Multi Service Corporation (B&J) did not meet
eligibility requirements for the SDVOSB program. We also received
information from GAO in December 2009 about this company. Our joint
investigation with the SBA OIG, the GSA OIG, Army CID, and the U.S.
Department of Labor OIG substantiated the allegation.
On June 22, 2012, a criminal information was filed in the U.S.
District Court for the District of Massachusetts charging Tyrone Jones,
who is not a service-disabled veteran, with one count of conspiracy to
commit wire fraud. Jones faces up to 5 years in prison, followed by 3
years of supervised release, and a fine of $250,000 or twice the gross
gain or loss from the crime, whichever is greater. B&J had self-
certified its SDVOSB status under the earlier regulations. B&J has been
referred to the VA Suspension and Debarment Committee.
GMT Mechanical (Grantville, Georgia)
The OIG initiated a joint investigation with the SBA OIG after
receiving a referral from GAO alleging that GMT Mechanical (GMT), an
SDVOSB, was a shell company. Our investigation revealed that Arthur
Wayne Singleton, the owner of Singleton Enterprises, which is not an
SDVOSB, approached a bedridden Vietnam War veteran and proposed the
idea of starting a joint venture, GMT, using the veteran's service-
disabled veteran status. The veteran performed no work for either
company, did not have an ownership stake in GMT, and GMT was merely a
pass-through for Singleton Enterprises. In November 2011, a Federal
grand jury in the U.S. District Court for the Northern District of
Georgia indicted Singleton and Singleton Enterprises on charges of wire
fraud and major fraud against the United States. The wire fraud counts
carry a maximum sentence of 20 years in prison and up to $250,000 in
fines, and the major fraud count carries a maximum sentence of 10 years
in prison and a fine of $1,000,000. GMT had self-certified its SDVOSB
status under the earlier regulations. Both Singleton and Singleton
Enterprises have been debarred from doing business with the Federal
government.
CJMS Contracting (St. Louis, Missouri)
We initiated a joint investigation with the SBA OIG and the GSA OIG
after receiving allegations that CJMS Contracting, LLC (CJMS) was
engaging in SDVOSB fraud and that a VA employee was accepting bribes
and/or gifts from the company. Our investigation revealed that Joseph
Madlinger, a civil engineer and project manager engaged in commercial
construction, and Michael Woodling, who was doing business as Gateway
Contractors, approached a service-disabled veteran about setting up a
construction company to compete for Government contracts under the
SDVOSB program. They gave Russell Todd, a now retired VA employee,
luxury box tickets at sporting events, lunches, and interest-free loans
to ensure that CJMS continued to receive VA contracts. Todd steered
$3.4 million in work at VA to Madlinger and Woodling.
In February 2012, in U.S. District Court for the Eastern District
of Missouri, Madlinger and Woodling pled guilty to conspiracy involving
the illegal payment of gratuities. As part of his plea agreement,
Woodling agreed to forfeit $1.5 million and a 2011 Jaguar Series XKR
Model XK, which were proceeds of his criminal activity. In May 2012,
Madlinger was sentenced to serve 2 years in prison followed by 1 year
of probation and ordered to pay a $50,000 fine. Woodling was sentenced
to serve 3 years' probation and ordered to pay $1,550,000 in
restitution and a $60,000 fine. In March 2012, Todd pled guilty to
accepting an illegal gratuity and was sentenced to 15 months'
imprisonment and 12 months' probation. CJMS had self-certified its
SDVOSB status under the earlier regulations and was later verified by
CVE under the current regulations as eligible based on false
information. We submitted information to the VA Suspension and
Debarment Committee on the individuals and the two companies.
Silver Star Construction (Blue Springs, Missouri)
A joint VA OIG, SBA OIG, GSA OIG, and DCIS investigation determined
that Silver Star Construction, LLC (Silver Star) acted as a pass-
through company for a larger company and that the owner was not a
service-disabled veteran. Silver Star received more than $8 million in
Government contracts from December 2008 through July 2010. Warren
Parker, owner of Silver Star, had claimed to have been awarded three
Silver Stars, four Bronze Stars, three Purple Hearts, and other medals
for valor during service in Vietnam, Cambodia, and Laos. In June 2011,
Warren Parker, Silver Star Construction, and three other individuals,
Warren's wife Mary Parker, their son Michael Parker, and Thomas
Whitehead, the owner of the larger company, were indicted in the U.S.
District Court for the District of Kansas for conspiracy, major fraud
against the United States, wire fraud, false statements, and engaging
in monetary transactions in property derived from specified unlawful
activity. Silver Star and all four individuals have been suspended. The
investigation determined that Warren Parker served in the National
Guard, was not a service-disabled veteran, and never served overseas.
Silver Star had self-certified its SDVOSB status under the earlier
regulations.
On April 9, 2012, Warren Parker pled guilty to conspiracy to commit
fraud against the United States, major program fraud, wire fraud, money
laundering, and making a false statement. In addition, he pled guilty
to the forfeiture counts of the indictment which will result in a $6.8
million judgment against him. Parker agreed to forfeit personal
property, including military medals and medallions, veterans' patches,
various certificates and DD 214 forms, and a notebook he labeled ``Book
of Death'' which contained a list of Vietnam War ``sniper kills.''
Parker faces a potential sentence of up to 30 years in prison.
M.R. Tafoya Construction (Albuquerque, New Mexico)
In February 2012, Max R. Tafoya and Tyler Cole, his son-in-law,
were indicted by a Federal grand jury in the U.S. District Court for
the District of New Mexico for conspiracy, major fraud against the
United States, and false statements after a proactive VA OIG
investigation determined that Tafoya and Cole conspired to defraud VA
by falsely claiming that M.R. Tafoya Construction, Inc., was an SDVOSB.
Andrew Castillo, a service-disabled veteran who received payment for
allowing the use of his status, had previously pled guilty to
conspiracy and major fraud. Tafoya and Cole face a maximum penalty of 5
years' imprisonment and a $250,000 fine for the conspiracy charge, 10
years' imprisonment and a $1 million fine on each of the four fraud
charges, and 5 years' imprisonment and a $250,000 fine for each of the
false statement charges. Between March 2009 and February 2012, the
company had been awarded five SDVOSB set-aside contracts totaling $10.9
million. The company and the three individuals were suspended in March
2012. Tafoya had self-certified its SDVOSB status under the earlier
regulations.
McDonald Roofing and Construction (Boise, Idaho)
After receiving a GAO referral alleging that McDonald Roofing and
Construction (MRC), an SDVOSB, was a pass-through established for the
sole purpose of obtaining set-aside contracts, we initiated a joint
investigation with the SBA OIG, the GSA OIG, the Department of Interior
OIG, the Department of Agriculture OIG, DCIS, and Army CID. Our
investigation substantiated the allegation. In March 2012, MRC pled
guilty to wire fraud charges relating to HUBZone contracts. In July
2012, MRC was sentenced to 3 years' probation and ordered to pay a
$5,000 fine. MRC had self-certified its SDVOSB status under the earlier
regulations.
OTHER ACTION AVAILABLE
Criminal and civil prosecution, and the suspension and debarment
actions resulting from prosecution, are not the only actions available
to the Government in these cases. We have instructed our special agents
to begin discussions with prosecutors upon conclusion of the covert
phase of an SDVOSB investigation about pursuing fact-based suspension
and debarment before prosecution commences. Prosecutors will have to
determine what evidence can be made available to VA to support these
actions and compromise neither Grand Jury secrecy nor successful
prosecution.
CONCLUSION
As our work demonstrates, the VA OIG has devoted significant
resources to the allegations of fraudulent claims of SDVOSB status for
the purposes of obtaining noncompetitive set-aside contracts for
Government work. Our work has produced significant prosecutions as well
as suspensions and debarments of the wrongdoers. Our pending cases give
us good reason to expect these successes will continue into the
foreseeable future. This work will bring to light, and bring to
justice, criminals who have deprived legitimate service-disabled
veterans who have earned the SDVOSB eligibility as a result of
disabilities they sustained during service to our country and will
increase the economic opportunities for those veterans for whom the
SDVOSB program was designed.
Chairman Johnson and Chairman Stutzman, this concludes my
statement. I welcome any questions that you or other Members of the
Subcommittees may have about our work in this area.
Prepared Statement of Richard Weidman
INTRO:
Good morning, Chairman Johnson, Chairman Stuzman and other
distinguished members of the subcommittees on Oversight and
Investigation and Economic Opportunity. The Vietnam Veterans of America
(VVA) is pleased to have the opportunity to appear here today to
express our views and the views of many veteran business owners who are
members or affiliates of the Veterans Entrepreneurship Task Force (VET-
Force).
Both VVA and the VET-Force have been deeply involved with the
Department of Veterans Affairs' (VA) Veterans Small Business
Verification process as carried out by its Center for Veteran's
Enterprise (CVE) since its beginning. As the regulation was being
crafted, we voiced our concerns about the unintended consequences. As
companies began to receive denials with no apparent basis, we saw these
unfold with increasing severity and impact on our veteran businesses.
For more than 5 years, we have sought to obtain the definitions,
documentation requirements, standards and criteria that were utilized
by CVE so that we could understand and communicate to the veteran
community why companies were being denied for following standard, best
business practices.
In just this past May, VA's Small Business Director implemented a
Partner Education Program to enable Procurement Technical Assistance
Center (PTAC) and Veteran Service Organization representatives to
better assist Veteran business owners with understanding CVE's
requirements, criteria, process and standards. VVA, VET-Force, the
American Legion, Nabvets, Vets Group, the National Veteran Small
Business Coalition are some the groups who have been participating.
While this program has produced 3 rather productive workshops, it has
also shown that most Veterans are denied due to issues of control and
that there are many sections of the regulations which are subject to
the interpretation of the reviewer.
Major Issues Affecting the VA's Veterans Business Verification Process
There are a number of issues that have surfaced regarding the
verification process undertaken by CVE to ensure that a business
concern is a SDVOSB or VOSB; here are just a few:
I. Verification of Veterans Status, Ownership & Control. CVE is
either understaffed or lack a sufficient number of experienced staff
persons qualified to conduct the veteran business verification
procedures as defined by 38 CFR Part 74. It's CVE's task to collect and
review the necessary documents from veteran business owners as well as
to schedule a site visit of the applicant's company.
Veterans Status. The documents needed are to verify that the
business owner is a veteran who was discharged under conditions other
than dishonorable or is a service disabled veteran who possesses either
a disability rating letter issued by DOD or the VA. Veterans being
listed in other VA databases is supposedly no longer required.
Ownership, Control & Management. Additional documents are needed to
establish if the veteran(s) or service disabled veteran(s), or in the
case of a veteran with a permanent or severe disability, the spouse or
permanent caregiver of such veteran, meet the majority ownership
requirement, and that they control the company by performing the day-
to-day management, which is clearly defined in 38 CFR 74.
Verifying Ownership. Verifying the status of the veteran seems to
be the easiest part; particularly since the VA already maintains or has
access to the records of veteran and service disabled veterans.
Verifying Ownership is somewhat more challenging because CVE must
verify if the Ownership is direct and unconditional. It must verify if
the type of Ownership is that of a Partnership, Limited Liability
Company, or a Corporation; and if stock is involved, it must verify the
stock options' effect on the Ownership. There's also the matter of
determining Ownership interests when an owner resides in any of the
community property States or territories of the United States.
Verifying Control. According to 38 CFR 74.4, Control is not the
same as Ownership, even though both may reside in the same person.
Control means management and long-term decision making authority. CVE
must verify that the service disabled veteran or veteran business owner
has both. But where this gets more involved, is when control is
sometimes contingent on who has the expertise or licenses to run the
operation. An owner who is a computer engineer may not be the best CEO.
But according to CVE's verification requirements, the owner must hold
the highest officer position in the company.
Then there is also the somewhat conflicting view that owners need
not work in the company full-time but must show sustained and
significant time invested in the business. But there is also the
requirement that one or more veteran or service disabled veterans who
manage the company must devote full-time to the business during normal
working hours. And even though the veteran owner has an unexercised
right to cause a change in the management quickly or easily, use of a
non-veteran manager may disqualify the company as being veteran owned.
In addition, all of these control issues have to be verified in the
context of the type of company - Partnership, Limited Liability
Company, or Corporation. And it must be determined to what extent do
non-veterans have the power to influence or control the company -
either directly or indirectly via critical financial or bonding
support, Board actions, etc.
Some examples: (1) the regulation states that Control of the
business means that Ownership must be unconditional. So we are having
51% Service Disabled Veteran Business Owners whose spouse is a 49%
owner of the business being denied because the ownership documents
state that the 49% owner has some say in how the company can be
disposed of. Therefore, the majority owner does not have unconditional
control.
And may I point out that in this example, the decision regarding
disposing of the company has nothing to do with the fact that the
company is capable and qualified to provide goods or services to the
VA;
(2) We are hearing from Veterans who are100% owners of their
companies but they also have a Board of Directors. So even though the
owner is President of the company and Chairman of the Board, if each
board member is allowed one equal vote then the owner is viewed by CVE
to not have full control and is therefore denied;
(3) And even more than ever before we are hearing from Veteran
Business Owners who live in 'Community Property States' where for a
veteran who is married, most property acquired during the marriage is
owned jointly by both spouses and is divided upon divorce, annulment or
death. So even in light of the fact that the business is 51% or more
owned by the Veteran according to all documents related to the
ownership of the business, such veteran is likely to be denied by CVE;
and
(4) According to the program guidelines used by CVE, based on their
interpretation of the governing regulations found in 38 CFR 74, a
Veteran Business Owner must demonstrate that they control both the day-
to-day management and administration of business operations. While CVE
uses administration and business operations as part of their criteria,
these are clearly not part of the regulatory requirement (38 CFR 74.4)
which clearly states:
Section 74.4 who does CVE consider to control a veteran-owned
business?
(a) Control means both the day-to-day management and long-term
decision making authority for the VOSB. Where, from section 74.1
definitions ``Day-to-day management means supervising the executive
team, formulating sound policies and setting strategic direction.
Therefore, if a Veteran Business Owner cannot convince CVE that they
are capable of controlling more than one business or controlling their
business while being employed by another, they will be denied.
And to further discourage Veteran Business Owners in this
situation, if the Veteran Business Owner has hired a Business Manager
with more expertise than them to run the day-to-day operations, then
that will also be grounds for denial according to CVE. From CVE's own
definitions and regulation, there is clearly no basis or rational for
these denials.
We are frequently receiving complaints regarding decisions like
these resulting in the Veteran Business Owner being denied and causing
the loss of millions of dollars and numerous jobs, many in the
districts of members of these subcommittees.
The procedures used by CVE are sometimes questionable. We receive
many complaints from veterans who were told that they needed to submit
additional documentation without being given a clear explanation of why
the information is required or what the statutory or regulatory basis
is for these documents. Our constituents tell us that these requests
are overly invasive and burdensome.
We are also concerned about the security of the documentation
submitted and the quality of the review of documentation. Time after
time, we have received complaints whereby CVE has reportedly lost the
documentation submitted with the Veteran's application. And this does
not always occur during the initial submission. As in the case of Ron
Washington, who was scheduled for a site visit by a CVE examiner only
to find that the CVE examiner claimed that he could not locate the
appropriate documents submitted with the application.
We understand the necessity for the CVE program of verification
and/or certification of Veteran and Service Disabled Small Business
Owners.
We know that many of you have supported and voted for legislation
that will benefit Veterans and their families. We realize that through
the use of various procedures, guidelines, and regulations a program
can be established for only a selected group. And those applicants that
don't meet those requirements will not be admitted thus preventing
fraud and misrepresentation by others who don't qualify.
We are well aware of that the use of more stringent verification
requirements were implemented by CVE following a GAO report that
exposed flaws in the verification process, a report by the Inspector
General, and the passage of Public Law 111-275. So we know that CVE and
the VA wants to decrease its chances of error.
But these veterans represent thousands of capable and qualified
veterans and service disabled veteran business owners of all races,
Black, White, Hispanic, Asian, Jewish, they are Male, Female, Old, and
Young. Their preference is due to service and sacrifices in defense of
this country and for no other reason.
And when the requirements of the CVE program are so narrowly viewed
and overly burdensome that nearly half as many Veteran Business Owners
are being harmed by the very agency that it is designed to protect,
support, and honor for their service to our country, then it's time we
modify, improve or replace the existing program.
II. Misperception of CVE's `VERIFIED' status. Other ways many
Veteran Business Owners are being harmed as a result of CVEs
implementation of the VA Veteran Small Business Verification Program.
Many if not all federal agency contracting personnel believe that
SDVOSBs and VOSBs must first be registered in the VA's Veteran Small
Business Database and produce a document stamped with a ``VERIFIED'
seal of approval by CVE in order to be recognized as a genuine SDVOSB
or VOSB. And it's not hard to determine how this misperception came
about.
For several years now, CVE, other organizations, including the VET-
Force, have been encouraging veteran business owners to register in the
Veterans Small Business Database and for federal agencies and Large
Primes to use the Veterans Small Business Database as the
`Authoritative Place' to locate capable and qualified veteran business
owners. However, this was before the actual verification standards and
procedures had begun.
According to Public Law 108-183, the Veterans Federal Procurement
Program, a veteran is only required to SELF-CERTIFY as a SDVOSB, in
order to do business under this small business preference group. There
is no formal certification by SBA or any other entity required.
However, under Public Law 109-461, in order to do business with the VA,
a veteran or service disabled veteran owned business must successfully
complete VA's verification process and register in the VIP database
that's open for use by all federal agencies, Large Primes, and the
public.
While these issues listed above may be considered to be some of the
major ones creating controversy about CVE's management of the VA's
Veterans Small Business Verification process, there are many other
issues that will result in a determination of Denial.
Recommendations to Address the Major Issues.
1.Provide transparency to the OGC opinions and decisions that are
the basis for CVE standards and adjudication procedures.
2.For now, separate the verification process into two phases.
Phase One: Verify Veteran Status Only for all registrants in the
database. Continue Self-Certification of Ownership as allowed under
Public Laws 106-50 and PL 108-183 while verifying - whether the
business owner is a veteran or service disabled veteran.
Phase Two: Verify Ownership and Control. Review of documents for
ownership starting with SDVOBs and then VOSBs seeking to perform
contracts with the VA. It should be noted however, that verification of
Control should only be to the extent necessary to support the Ownership
and to ensure that the company is not being used as a `Rent-A-Vet' or a
pass through company.
3. Provide a clear definition of the roles and responsibilities
required to demonstrate control of a company. These must be compliant
with and limited to the definition provided in section 74.1.
4. Allow the verification of more than one company owned by the
same veteran(s). Entrepreneurship should not be stifled for the sake of
convenience. Each company should be evaluated and verified on its own
merit. Any agency will always have the right to determine the select
criteria to satisfy contract requirements.
5. Change Title 38 definition of ownership and control to match
Title 13, and hence the regulations to bring VA into sync with a
government wide definition.
6. Add Center for Veterans Enterprise (CVE) to Title 38, putting
into Economic Opportunity Administration (currently under the Deputy
Undersecretary of Veterans Benefits for Economic Opportunity). We
believe that there needs to be a free standing fourth division of VA
known as the Veterans Economic Opportunity Administration (VEOA). The
VEOA would include Vocational Rehabilitation, Veterans Education
Service, the Center for Veterans Enterprise (restored to its original
conception of assisting veterans in doing business with the VA), a
separate Verification Unit for veteran owned businesses and service
disabled veteran owned businesses, and lastly the Veterans Employment &
Training Service (currently a ``red headed stepchild at the Department
of Labor.
To work properly, there will have to be much better coordination
and collaboration of the VEOA with the Small Business Administration
(SBA) and the Office of Personnel Management (OPM). While we also
believe that much closer cooperation and coordination with the
Department of Defense is needed, we will save comment on that ``Gordian
Knot'' for another day.
All of the above can be accomplished within existing resources, but
it will take significantly better organization and training of staff,
as well as increased accountability demanded of managers and
supervisors. Most importantly, however, it will take a significant and
vital change in corporate culture of the new division.
The very best and the most important readjustment program we can
provide for veterans who are de-mobilized or discharged is to the
opportunity to obtain and sustain meaningful employment at a living
wage. This is the watershed event of the entire readjustment process,
and should be treated as such.
Messrs. Chairmen, thank you for pursuing this vital issue, for your
strong leadership in holding this hearing today, and for affording us
this opportunity to present our views here today. I will be happy to
answer any questions.
Executive Summary
Congress passed Public Law (PL) 109-461, the Veterans Benefits,
Health Care, and Information Technology Act of 2006. While this
legislation provided a number of benefits for veterans; what's of
particular importance for the purposes of this hearing today, is that
Title V, Sections 502 and 503 of this legislation, authorized a unique
``Veterans First'' approach to VA contracting. This approach has
changed the priorities for contracting preferences within the
Department of Veterans Affairs (VA), by placing Service-Disabled
Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned Small
Businesses (VOSBs) first and second, respectively, in satisfying VA's
acquisition goals as set by the Secretary of the VA.
In so doing, it requires that certain conditions must be met. All
SDVOSBs and VOSBs, must submit an application to be `VERIFIED' by the
VA's Center for Veterans Enterprise (CVE), to be eligible for award of
a contract exclusively within the Department of Veterans Affairs and to
be registered in the VA's Vendor Information Pages (VIP), aka Veterans
Small Business Database, available at www.VetBiz.gov.
Unfortunately, it's this Verification Process established by the VA
and codified in regulations 38 CFR 74 that is being used to determine a
Veteran's status, ownership and control of their company that is
causing
Literally thousands of veteran and service-disabled veteran
business owners to be deprived of millions of dollars in contracting
opportunities that could benefit them, their families, and their
communities.
In the last year, CVE's requirements, criteria, process and
standards have begun to be more transparent. While this visibility has
been insightful, CVE's own statistics show that nearly 60% of all
veteran business owners applying for verification are being denied. It
has become apparent that either the regulations are fundamentally
flawed, or that the adjudication process is out of control.
VIETNAM VETERANS OF AMERICA
Funding Statement
August 2, 2012
The national organization Vietnam Veterans of America (VVA) is a
non-profit veterans' membership organization registered as a 501(c)
(19) with the Internal Revenue Service. VVA is also appropriately
registered with the Secretary of the Senate and the Clerk of the House
of Representatives in compliance with the Lobbying Disclosure Act of
1995.
VVA is not currently in receipt of any federal grant or contract,
other than the routine allocation of office space and associated
resources in VA Regional Offices for outreach and direct services
through its Veterans Benefits Program (Service Representatives). This
is also true of the previous two fiscal years.
For Further Information, Contact: Executive Director of Policy and
Government Affairs, Vietnam Veterans of America, (301) 585-4000,
extension 127.
Prepared Statement of Scott F. Denniston
Chairman Johnson, Chairman Stutzman, Ranking Member Donnelly,
Ranking Member Braley, Members of the Committee and Staff. Thank you
for the opportunity to submit this statement for the record and thank
you for holding this vital hearing on an issue so important to the
health and welfare of veteran and service disabled veteran owned small
businesses in the United States.
My name is Scott Denniston and I am the Executive Director of the
National Veterans Small Business Coalition (NVSBC). The NVSBC is a
501(c) (6) not for profit trade association registered in the District
of Columbia. We are over 100 members strong with 6 corporate sponsors.
There are three requirements to become a member of the NVSBC: 1) must
be a veteran 2) must own and control a small business, and 3) the
Federal market must be your primary market. In operation for two years
now, we established the Coalition for the purpose of being the ``honest
broker'' between Federal agencies, large business prime contractors and
the veteran small business community. Our mission is to transition
veterans into business owners servicing the federal government. Our
vision is to ensure that veteran businesses are given first
consideration for federal prime and subcontracting procurement
opportunities because these owners continue to serve their country,
putting the security of the United States above all else.
As way of background, I had the honor and privilege of serving as
the VA's Director of Small Business Programs for 20 years retiring in
January 2009. In January 2001, after the passage of PL 106-50, VA
formed the Center for Veterans Enterprise (CVE) with 6 incredibly
dedicated and knowledgeable employees. The CVE office was dedicated to
assisting veteran owned small businesses break into the Federal market.
Between the enactment of Public Law (PL) 106-50 in August 1999, whose
purpose was to expand existing and establish new assistance programs
for veterans who own and operate small businesses, to enactment of PL
109-461 in December 2006, which established the provision requiring the
Secretary of the VA to ``verify'' veteran and service connected
disabled veteran firms for ownership and control, the Center for
Veterans Enterprises' mission has changed significantly. Once the go to
organization within VA for a veteran-owned small business to seek
support and assistance in obtaining contracts, it has now been
conflicted with the job of fraud prevention control through the
establishment of a different mission. As you know, VA's Office of Small
Business Programs, including the CVE is funded by VA's Supply Fund.
Prior to my departure a plan was presented and approved to more than
double the funding for CVE, including contractor support to manage the
new requirements placed on CVE by PL 109-461. Unfortunately it was more
than 2 years after my departure before CVE was able to implement the
plan.
This hearing is entitled the ``Odyssey of the CVE''. Figuratively,
an odyssey is any difficult, prolonged journey. The CVE is truly an
odyssey as evidenced by events which have occurred since the passage of
PL109-41, six years ago. CVE has had a turnover of leadership 3 times;
been fraught with fostering too many verification approvals resulting
in a high percentage of fraud; is now considered to be too restrictive
where `denials' are their first response; where IT systems have been
inadequate and unreliable; is now dealing with large volumes of
backlog; is responding to GAO Audits, Interagency Task Forces
established through the President's Executive Order 13450, and other
such directives. All of these challenges inject risk into the success
of any program and we need to stop, identify risk mitigation strategies
and then implement them, keeping in mind that none of them should
detract from the Small Business Program of helping veterans who own and
operate small businesses do business with the federal government.
As an organization for which we pride ourselves on being the
veterans advocate and mediator between small businesses and the
government, we'd like to start by identifying a few of CVE's successes
since its inception. CVE continues to solicit for additional resources
to support the program and have increased their staff (both federal
employees and contractor support) significantly. The CVE's actions have
resulted in fewer misrepresented VOSB or SDVOSB firms being awarded
contracts due to their small business status and those that are found
have disciplinary action taken up to and including debarment. The CVE
has verified 6,124 VOSB and SDVOSB firms as of July 29, 2012 according
to their Vendor Information page.
Unfortunately, the complaints from the veteran community have now
shifted from contract awards going to misrepresented firms to the
onerous and unpredictable verification process itself. We believe this
is a fundamentally flawed process when half of all veterans are denied
by an organization whose mission is ``to care for him whom bore the
battle''. We have seen firsthand the consequences of CVE's actions on
veteran business owners including the loss of contracts and businesses
closing their doors as a result of failure to obtain CVE verification.
In December 2011, the Executive Director of Small Business Programs
at VA approached the NVSBC to become a ``partner'' in the verification
process. His vision was to identify not for profit organizations to be
trained by CVE and then to assist veterans become verified. The Board
of NVSBC was not fully supportive of this idea due to the lack of
verification consistency by CVE in the veteran small business
community. After much deliberation and believing the process to be so
onerous to veterans and our mission of making veteran small business
owners successful in the Federal marketplace, we accepted CVE's offer.
We did however make certain requests which we believed critical to our
success in helping veterans:
1. Training of NVSBC representatives and CVE and contractor
staff involved in the process.
2. A specific CVE staff member to be available to answer
questions regarding the process, regulations, interpretations and
status of applicants we assisted.
3. Ability to be recognized as a representative for applicants.
4. Advanced notice of pending denials of applicants we assisted.
5. Priority processing of applicants we assisted.
6. Names of all firms rejected in the past year.
7. Regular meetings with CVE staff to discuss improvements to
the process.
NVSBC believes the greatest weakness in the CVE verification
process is the lack of communications with veteran applicants. When the
provisions of PL 111-275 were implemented in January 2011 there was no
communications with the veteran small business community that the
requirements had changed. Once veterans submit their applications there
is no communication as to the status or process or whether the
application is complete. Veterans have no idea whether a VA employee or
contractor are reviewing their application. The first communication
from VA in many instances is the letter of denial. Many times the
reasons for denial could be corrected with a simple email or phone call
to the veteran giving them an opportunity to correct the issue. If the
veteran is denied then the process starts anew with the request for
reconsideration.
The second area of weakness in the CVE verification process is the
restrictive rules implemented by VA as a result of PL 111-275. We
understand the need as identified by GAO and VA's IG to insure only
eligible veterans receive the benefits of the ``Veterans First''
contracting program but we strongly disagree with VA's punishing
legitimate veteran small business owners. It does not appear to us that
VA had anyone involved in writing the rules who understands how small
businesses operate in the digital age. How does one define ``full
time''? Why must a veteran be physically present 8 hours, 5 days a week
to ``manage'' a small business? We also disagree with denying a veteran
for something that may happen in the future such as ``rights of first
refusal'' and issues in community property states. If ownership changes
happen the veteran is obligated to notify VA immediately and may no
longer be eligible.
The next issue we have is VA's inconsistent interpretation of the
rules. Many veterans because of their service to their country, lack
years of business experience and consequently are denied as CVE opines
they do not have the background to control their business. As we review
cases we can find no set standard as to what constitutes adequate
experience to control a business. CVE staff says this is a subjective
decision.
Another serious issue is CVE staff not understanding basic business
principles and what questions to ask or how to ask these questions. In
the last week we have heard from several veterans who own and control
corporations with Articles of Incorporation, By-Laws, Stock Ledgers,
etc. Even though most states do not require operating agreements each
of the veterans we heard from tell us that CVE requires ``Operating
Agreements'' in order to be verified and if the operating agreement is
not provided, the verification process will be halted and the veteran
will have his/her application withdrawn.
38CFR 44 defines control as the day-to-day management of the
company. In the definitions, 38CFR clearly defines day-today management
as ``Day-to-day management means supervising the executive team,
formulating sound policies and setting strategic direction''. The
definition of Day-to-day operations is also clear; ``Day-to-day
operations means the marketing, production, sales, and administrative
functions of the firm''. CVE staff does not appear to understand
functions/duties of officers/directors of small businesses and how they
relate to issues of control versus issues of operations. Consequently
CVE many times asks for documentation from veterans that are not
relevant to the control of the business or that are excessively and/or
inappropriately intrusive into the veteran's personal life.
The CVE verification process is not beyond repair and we believe
vitally necessary to ensure veterans receive the benefits of our
economic system they fought to defend. We believe the following
recommendations if implemented, would significantly improve the CVE
verification process:
1. In-depth development of standard operating procedures by
which verification will be conducted by business entity (e.g. S-corp,
C-corp, LLC., etc.) training of CVE and contractor staffs on basic
business management principals. It is vital for CVE and contractor
staff to understand business basics, provide guidance to veterans, and
understand what's necessary to have a robust verification application
and program.
2. Open lines of communications with veteran applicants thru
emails, phone calls and hands on collaborative philosophy. CVE too
often treats the veteran as the enemy rather than as a client.
3. Assign a case worker to every application and inform the
veteran as to who that person is and their responsibilities.
4. Establish a ``Management Review Board'' to :
a. Vet all applications prior to denial and
b. Review requests for additional documentation to assure
there is a statutory or regulatory basis for the request, that is
relevant to determining control or ownership and that it is not
burdensome to veterans.
5. Provide veteran applicants an opportunity to take corrective
action before issuing a denial letter.
6. At the recent veteran business conference in Detroit
Secretary Shinseki announced a committee to review and determine how
the verification rules could be improved. VA should invite veteran
small business owners and stakeholders to be part of the process.
7. Establish a VA Veteran Business Advisory Committee to review
processes, procedures, rules, policies and their implementation as it
relates to ``Veterans First'' to make recommendations to the Secretary
for improvements.
8. Institute a ``Grace Period'' whereby firms who have been
previously verified as veteran or service disabled veteran owned and
controlled remain ``verified'' until such time as CVE has an
opportunity to perform an in-depth review so legitimate veteran or
service disabled veteran owned are not denied pending contract
opportunities while in a state of uncertainty.
Section 101 of Public Law 106-50, the foundation for all we are
addressing today says: `` the United States has done too little to
assist veterans, particularly service disabled veterans, in playing a
greater role in the economy of the United States by forming and
expanding small business enterprises'' and further states ``The United
States must provide additional assistance and support to veterans to
better equip them to form and expand small businesses, thereby enabling
them to realize the American dream they fought to protect.'' It seems
VA and particularly CVE have forgotten this charge through restrictive
and inconsistent rules and interpretations, lack of communications with
veterans, and disregarding the fact our livelihoods and basic wellbeing
rest on their decisions.
In your letter of invitation for this hearing you asked NVSBC to
include our opinion on whether VA should use the Small Business
Administration's regulations defining ownership and control of a small
business, what documents should be required for certification, and how
often a business should be re-certified. The advantage of SBA's
regulations is a body of case law and decisions which allow veterans
and their advocates to understand the basis of decisions. What is more
important is SBA regulations are consistent and provide a basis for
clear implementation which is lacking at VA today. A process that
requires most veteran to seek assistance and pay upwards of $10,000 to
submit an application is erroneous and burdensome, particularly when
half of all veterans are denied verification. We suggest a committee,
including knowledge business experts address the issue of required
documentation. As VA's regulations require notification anytime a
change in ownership or control takes place certification/verification
should be good for at least 3 years. VA has the ability and capacity to
do spot checks of at risk businesses if necessary.
Submission For The Record
Mr. James F. McDonnell
James F. McDonnell
Chairman & CEO
Trinity Applied Strategies Corporation
301 North Fairfax Street, Suite 206
Alexandria, Virginia 22314
July 18, 2012
For the Committee,
This letter is provided for the record in lieu of testimony for the
hearing to be held on or about 2 August 2012 to discuss the SDVOSB/VOSB
certification process.
I am writing you as a service-disabled veteran small business owner
that has been done a disservice by the Department of Veterans Affairs
(VA). Specifically, the VA's Center for Veteran's Enterprise (CVE) has
denied my company the right to be registered in the VA Vetbiz Vendor
Information Pages (VIP) Verification Program. The VA's decision is a
denial of benefits and there finding is not based on fact, includes
allegations that are untrue and they provide no mechanism for appeal to
any higher authority.
The VA Benefits Web Site includes business assistance as one of the
benefits offered to veterans. Unfortunately the VA is not managing this
program as an assistance program; rather they have taken an adversarial
approach. The VIP Verification Program is a benefit for veterans in
that it allows for access to preferential contracting for veteran owned
businesses. The VA should be assisting Veteran's and their companies
with becoming registered in this program instead of focusing on
punishing small business by using the weight of their bureaucracy as a
hammer.
My company, Trinity Applied Strategies Corporation (TAS-Corp) first
applied online for the program in February of 2011. We did not receive
a response until June 1, 2011 and on that date we were asked to submit
around 300 pages of documents within a seven day time period. The CVE
gave us until June 7, 2011 to submit these documents or our application
would be removed from the system. Now, while my company was able to
gather these documents within this time frame it was not without a
great cost to the company, three employees were pulled off of other
projects to gather the documentation for the application. A program
that is promoted as a ``benefit'' for Veterans should not place such
unnecessary burdens on the Veteran during the application process.
Additionally, on its face this 7 day requirement seems to conflict with
federal law which mandates 60 days be allowed for the submission of
requested documents.
TAS-Corp submitted the required paperwork by the June 7, 2011
deadline. On August 8, 2011 TAS-Corp received an un-signed letter from
Gail Wegner that was stamped with the date of July 15, 2011; this
letter denied TAS-Corp from inclusion to the VIP Verification Program.
The reason for the denial was that the CVE determined that TAS-Corp
could not prove that the Service-Disabled Veteran, myself, controlled
and managed the business. We disagreed with this determination and felt
that it was a misunderstanding of how our by-laws are written. I
attempted to contact Ms. Wegner and was told that she no longer worked
for the VA and had left a while ago (Pre-dating the letter we received
with her name on it). Eventually, I was able to speak with David
Eckenrode (Acting Deputy Director of the Center for Veterans
Enterprise) and attempted to request a meeting with the VA to explain
how our board was organized and demonstrate my control of the company.
A meeting was never achieved but in my conversations with Mr. Eckenrode
he seemed to understand that this was simply a junior analyst who
reviewed our documents not understanding corporate structure and that
we would easily be able to clear up the issue. I requested a properly
signed letter be issued to TAS-Corp and Mr. Eckenrode agreed and
identified that our time to appeal of thirty days would run from the
date of the new letter.
I was also able to speak with Tom Leney (Executive Director of
Small and Veterans Business Programs) and I realized that he has a very
different view of what his office should be doing. He indicated that
the role of the office (CVE) is no longer ``assistance'', rather it is
a regulatory function whose primary mission is to prevent companies
that cannot prove eligibility from being in their database. I
understood from our discussion that he, and his staff, would like to be
in the assistance business but their understanding of their mission is
to be the regulatory enforcer. Mr. Leney also told me that when you
seek a second review (i.e. question any of their findings) the CVE goes
through the entire package again so (as in this case), I questioned
their finding and they added another one. Instead of seeking to help
the veteran address the original issue and submit evidence of it being
corrected, the VA process requires another complete review (of items
already reviewed and found acceptable). Mr. Leney consistently blamed
``the regulation'' that VA issued for the problems and felt his hands
were tied when it comes to improving the process. I reminded him that
the regulation came from his office and if he knew it was flawed he was
obligated to fix it, he did not agree with my assessment.
A new letter from the VA was issued on August 25, 2011 and
contained their original finding regarding control and management and
added an additional finding of outside employment that also prevented
me from ``controlling'' TAS-Corp. The new letter concludes that I am a
full time employee of my consulting firm (McDonnell Consulting Group),
however there is no evidence of that . . . in fact the only evidence
they had from our original filing on June 7, 2011 was TAS-Corp payroll
records (which show me being paid for full time work) and my personal
taxes. I am now, and have been, a full time employee of TAS-Corp, their
allegation to the contrary is false and unsubstantiated.
In response to their new letter of August 25, 2011 I submitted a
response letter with over 70 pages of additional documents. In this
submission we provided new board of director resolutions that 1)
reduced our board of directors to one individual, myself; 2) prevented
any officer of the company from enacting any policy that restricts my
control of TAS-Corp, and 3) a resolution clarifying my title as CEO and
Chairman of TAS-Corp. In addition to the board resolutions and in order
to address the outside employment concern of the CVE I submitted time
accounting records for 2009, 2010, and through the current time period
in 2011 that showed my full-time employment with TAS-Corp. I also
included my W-2 showing my full-time salary from TAS-Corp and an
explanation detailing that the sole source of McDonnell Consulting
Group's revenue is from my payments as Chairman of the Board of TAS-
Corp. Additionally, another Board Resolution was included which
requires the CEO to be employed full-time and restricts outside
activity. This packet was a comprehensive response to every concern
that the CVE listed in its revised August 25, 2011 letter.
As of November 2011 we had received no communication from the CVE
regarding our response, on November 8, 2011 we were told that we would
receive a response on or about December 7, 2011. On December 21, 2011 I
received an email from an Amanda Abbey a paralegal contractor for the
CVE identifying that ``the Examiner expressed a need to obtain the
original documents that was part of your company's initial verification
application or 0877 application. Is it possible for you to forward the
documents to me by e-mail?'' This email was surprising for any number
of reasons including that it seems they were only just getting around
to reviewing my submission more than 110 days later. However my main
concern, and my response to the email, was to ask ``What happened to
the documents that we originally submitted? Were they lost, misplaced,
etc.''
A substantial amount of business sensitive information was included
in these documents. In my response I asked for clarification as to what
she was requesting and an explanation for the missing documents. Ms.
Abbey responded ``The Center for Veterans Enterprise has your tax
documents. However, CVE does not have additional relevant information
needed to make a determination on your Request for Reconsideration. The
CVE Examiner has asked for the following: Bylaws, Articles of
Incorporation, Resums for the Vet and owners of more than 20% of the
concern, and Stock Certificates/ledger.'' All of this information was
sent previously to the CVE, in fact they even cited their review of
these documents in their letters denying our registration into the
VetBiz VIP Program. At this time I again tried to engage Mr. Leney and
Mr. Eckenrode I sent both emails attempting to find out how my
documents are missing and why. Mr. Leney failed to respond and Mr.
Eckenrode initially repeated the request that these documents were
needed until I pointed out to him that their letter actually cites
reviewing these records. We were never given a reason that the
documents were asked to be resent and finally on January 18, 2012 we
received another letter denying TAS-Corp's registration into the VetBiz
system. In summary, the documents were never missing . . . they were
not truthful about that and it is my opinion they simply said they were
missing in order to shift blame for the delay to me.
In their most recent letter of January 18, 2012 the VA, through
CVE, agreed that my board resolutions confirm that I am the sole
director but still found that ``my managerial responsibilities with
McDonnell Consulting Group (MCG) prevent me from devoting sustained and
significant amount of time in the concern.'' Nowhere in the CVE's three
page letter do they address the 70 pages worth of documents that I
submitted showing my full-time employment with TAS-Corp and identifying
that the only income my consulting company has is from my chairman of
the board payments from TAS-Corp. This accusation is a flat out lie, I
come to work in my TAS-Corp office every day and they have abused their
position of public trust by in effect accusing me of fraud through
misrepresenting my employment status.
Finally, in addition to ignoring the documentation that I submitted
the CVE issued instructions preventing my company from submitting a new
application until six months' time had elapsed. Only on May 9, 2012 was
my company eligible to once again submit to this process. The law gives
the VA no punitive authority; they have created it for themselves.
I hope this letter properly describes the substantial time and
effort that this Service-Disabled Veteran-Owned Small business has put
into this application for inclusion into a database that is supposed to
be a benefit for veteran small business owners. As you can see from the
description above this process is broken. How many other less
sophisticated or not as financially stable veteran-owned companies are
being kept out of a database that was created for them and should be an
aid to developing their business?
I agree 100% that there should be certain qualifications that any
business wishing to be listed in the database must satisfy, but the CVE
shouldn't be flat denying businesses that don't initially meet these
requirements on paper. Why can't the CVE perform a review and if the
company is deficient identify the documents that they would need to
submit to be approved? The VA, and specifically the CVE, should never
be in the position of acting as a regulator of the veterans that have
served this country. The VA and CVE should act as a facilitator of the
success of veterans. The CVE should be assisting veteran owned
businesses with entry into the VetBiz VIP Program not doing everything
in their power to keep them out. I hope that you will direct the VA's
Center for Veteran Enterprise to review not just the application of my
company but the overall process for veteran-owned businesses in
general. I am happy to meet with members, staff, the VA, or any
interested party and explain what my company went through and what I
think we can do to fix this process.
I attempted to meet with the Secretary, the Deputy Secretary; the
Secretary's Director of Client Relations and was rebuffed at every
turn. I began my discussions with the VA naively thinking this was an
oversight by senior leadership and that once they understood the issue
they would immediately fix it. I have been an SES in two agencies and
looked at this as an issue that was low hanging fruit for improvement.
That being said, the VA seems to be comfortable having an office that
is penalizing small businesses, denying benefits without due process
and empowered to issue official government findings that are incorrect.
I would like to believe that Secretary Shinseki would do the right
thing if he were aware of what his staff was doing but he either
condones this or it is being hidden from him. Since starting this
effort a year ago I have come to the unfortunate conclusion that he
must be aware of the issue and has chosen to ignore it.
It is ironic, that during a period in which other agencies such as
DHS, DOD, DOS and DOE are expanding their support of veteran owned
small businesses the one agency that is funded specifically to assist
veterans is making it difficult to run a business. We have spent
thousands of dollars in wasted labor, submitted hundreds of pages of
documents and spent additional money in legal fees to resolve this
issue and the VA has done nothing to assist. Alternatively, when I had
a concern at DHS some time back I asked for a meeting with the Chief
Procurement Officer and he graciously met and then handed me off to the
head of their office of small business utilization . . . who I've
called for advice on several occasions and has been open and provided
guidance and assistance. I have had similar experiences with DOS and
DOE which demonstrates that this adversarial and harmful role that the
VA has taken on is not government wide.
Finally, it seems inconsistent that the head of CVE not be someone
who has owned a business, the person at the top of this process
shouldn't be a guy who has never been in my shoes. He's never put all
his personal wealth into a company, created jobs (30 so far including
13 veterans), and had to explain to his wife that if the company fails
our house could be taken. Starting and running a small business is
stressful enough without having government employees paid to assist me
feeling free to lie and manipulate a system to make it more difficult
to do business.
We have not, and do not intend to submit another package to the
same people at the VA. They have proven themselves to be untrustworthy,
willing to ``move the goalpost'', misrepresent facts and create their
own rules. They have no appeal process and until there is a change I
feel it is simply a waste of time to deal with them. We submitted a
FOIA request on March 6th to prepare for legal action but the VA has
not been forthcoming with documents (probably violating another law
they are supposed to follow but choose not to).
I thank you for your time and attention to this matter. I have
attached a list of potential legislative remedies for your
consideration.
Sincerely,
James F. McDonnell
Chairman & CEO
Trinity Applied Strategies Corporation
LEGISLATIVE INITIAIVES TO ASSIST SDVOSB/VOSB
1. Clarify that the VIP Database inclusion and preferred
contracting status is a defined veteran's benefit.
a. Direct the VA to manage this process as provision of, or
denial of, a benefit; mandate local VA office assistance for submittal
and review with approval of the benefit at the local level and any
denial elevated to HQ; authorize use of United States Court of Appeals
for Veterans Claims to resolve disputes.
b. Direct that the VA cannot issue blanket denials, rather that
they must provide and ``interim approval'' with guidance on how to
become permanently eligible and provide the veteran assistance in
submitting paperwork.
i. All ``interim approvals'' should provide a 90 day window in
which the business is listed in the VIP database while the veteran
provides any specific additional information,
ii. If the veteran requests an appointment to discuss the
interim decision the VA must meet with the veteran to seek to approve
the request for benefits. The 90 day period shall begin on the date of
the face-to-face meeting to prevent the veteran from being penalized
for VA delays. The VA representative shall, at the time of the meeting
take one of the following actions:
1. Approve the benefit
2. Identify shortfalls and provide guidance to the veteran
and schedule a follow-on meeting for approval
3. Advise the veteran that the package will be forwarded to
HQ for a denial of benefits review if requirements cannot be met within
90 days.
iii. If the VA believes a submission was fraudulent the
package shall be forwarded to the US Attorney for review and
consideration for civil or criminal penalties.
2. Direct that the Director and Deputy Director of CVE be Limited
Term SES Appointments (a position in which new directors rotate in from
the private sector every 2-3 years) and meet the following
requirements: (the incumbents would not qualified for this role)
a. Have owned and controlled as SDVOSB/VOSB for a minimum of 5
years.
b. That company must have provided products or services to the
federal government as a prime contractor.
c. The company must have had a minimum of 15 full time employees
for at least 3 of the 5 years.
d. Shall be a veteran with honorable discharge or retirement.
3. Direct that only the Director of CVE may recommend a company for
denial of benefits and that the Deputy Secretary must personally review
and sign any denial letters. (This action is similar to actions that
would destroy a military career and should have the same weight as a
DOD action against a service member).
4. Direct the VA to forward to the SBA any approved company that is
owned by a disabled veterans (above 30% disabled) for inclusion in the
8a program.
a. Amend 8a statute to include SDVOSB where the owner is >30%
disabled
Questions For The Record
Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic
Member, Subcommittee on Oversight and Investigations To: Hon: Eric K.
Shinseki, Secretary, Department of Veterans Affairs
August 3, 2012
The Honorable Eric K. Shinseki
Secretary
Department of Veterans Affairs
810 Vermont Ave., NW
Washington, DC 20420
Dear Secretary Shinseki:
I would like to request your response to the enclosed questions for
the record I am submitting in reference to our House Committee on
Veterans' Affairs Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity joint oversight hearing titled
Odyssey of the CVE on August 2, 2012. Please answer the enclosed
hearing questions by no later than Friday, September 14, 2012.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for material for all full
committee and subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively on letter size paper,
single-spaced. In addition, please restate the question in its entirety
before the answer.
Due to the delay in receiving mail, please provide your response to
Ms. Orfa Torres-Jaen at [email protected], and fax at
(202) 225-2034. If you have any questions, please call (202) 225-9756.
Sincerely,
Joe Donnelly
Ranking Member
Subcommittee on Oversight and Investigations
DMT/ot
Questions for the Record from the Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity
U.S. House of Representatives
Odyssey of the CVE
August 2, 2012
1. Having enough of the right people in place is critical for the
Department to set up a strong verification program. Although some of
the challenges VA faces are system related, other challenges relate to
government and contract staff that oversee and manage the verification
program at VA.
a. What is the fiscal year 2012 and 2013 projected budget for the
entire verification program
b. Could you break down the number of people supported by your
budget including how many government and contract employees currently
work for CVE and are projected for fiscal year 2013?
c. At our November 2011 hearing you testified that all CVE staff
will get the training and obtain a Certified Fraud Examiner
certification. Can you tell us as of the hearing today, how many of the
CVE staff are Certified Fraud Examiners?
d. Do you believe you have staff including contractors with the
necessary experience to recognize fraud and abuse?
2. What do you believe the primary goal of the CVE should be,
making it easier for firms to sign up or preventing fraud?
3. Do you believe that the duties of CVE should be split into two
operations - one verifying eligibility and one assisting veteran small
business owners obtain contracts?
4. Does VA have the legal authority to rescind an awarded contract
to an ineligible firm? Out of the total number of contracts awarded to
firms subsequently found to be ineligible, how many have been
rescinded?
5. Should VA focus more its efforts on firms that have a contract
or will be awarded a contract?
6. Do you have any firms that are listed in the CVE database that
self-certified?
7. What did VA do to improve records management and document
control?
8. In your testimony you mentioned that ``VA has addressed the
issues in the GAO report.'' Are you referring to the 13 recommendations
GAO made in 2011?
a. According to GAO you have only completed six of the 13
recommendations. Can you explain why you believe you have addressed all
the recommendations while GAO believes only six have been completed?
9. According to a recent meeting with Roger Baker, Assistant
Secretary for Information and Technology, CVE's Verification Case
Management System (VCMS) will undergo major enhancements. How will the
VCMS system change and by when do you expect this to be completed?
10. What is the projected budget for the Verification Case
Management System update?
a. Has funding been allocated for this project?
b. Where does this funding come from?
11. With the tools the VA has made available on VetBiz, such as the
Verification Assistance Briefs, to help veteran owned small businesses
understand the application process, have you noticed an increased
number of verified applicants?
12. What were the policy decisions underlying VA's decision to
extend the time period before re-verification was necessary to two
years?
Responses From: Hon: Eric K. Shinseki, Secretary, Department of
Veterans Affairs To: Hon. Joe Donnelly, Ranking Democratic Member,
Subcommittee on Oversight and Investigations
FINAL PASSBACK
QUESTIONS FOR THE RECORD
HVAC SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION
AUGUST 2, 2012
QUESTIONS FROM RANKING MEMBER JOE DONNELLY (D-IN-2)
Question 1: Having enough of the right people in place is critical
for the Department to set up a strong verification program. Although
some of the challenges VA faces are system related, other challenges
relate to government and contract staff that oversee and manage the
verification program at VA.
a. What is the fiscal year 2012 and 2013 projected budget for the
entire verification program?
VA Response: The budget for Fiscal Year (FY) 2012 is $24.2 million.
In June 2012, the Secretary directed that a Senior Executive Task Force
be stood up to examine the Verification Program and make
recommendations on various issues to include staffing and
infrastructure. The estimated budget for FY 2013 has not been
finalized, pending the results of the Task Force report. The higher
budget in FY 2012 is due to budgeting for a replacement system to the
Verification Case Management System (VCMS). As the VCMS dollars will
not be obligated in FY 2012, this money will be moved to the FY 2013
budget.
b. Could you break down the number of people supported by your
budget including how many government and contract employees currently
work for CVE and are projected for fiscal year 2013?
VA Response: In FY 2012, The Center for Veterans Enterprise (CVE)
has 24 government employees and 152 contract employees. For FY 2013 CVE
projects that there will be 24 government employees and 191 contract
employees. The difference in the budgeted amount from one year to the
next is due to a one-time expenditure on a new case management system.
That funding is now being moved to FY 2013, as the new system was not
obligated in FY 2012.
c. At our November 2011 hearing you testified that all CVE staff
will get the training and obtain a Certified Fraud Examiner
certification. Can you tell us as of the hearing today, how many of the
CVE staff are Certified Fraud Examiners?
VA Response: Certified Fraud Examiner Training is a one week
residential course. To date, two federal employees have completed
Certified Fraud Examiner Training. However, three more employees
finished certification training in September 2012 and an additional
three are scheduled in October 2012. All nine eligible employees will
be certified by March 2013. Training has been delayed due to turnover
and the number of manual procedures needed to complete the verification
process. Pulling staff at critical times would have slowed production.
With the newly re-engineered verification process in place, CVE is now
able to send more staff to the training. CVE seeks to maintain a full
complement of certified eligible staff of nine. In the event of staff
turnover, new employees eligible for CFE training will be scheduled for
training after arrival.
d. Do you believe you have staff including contractors with the
necessary experience to recognize fraud and abuse?
VA Response: CVE believes that it has the staff to recognize fraud
and abuse. CVE leadership is cognizant that fraud awareness is an
important component of the verification process and CVE conducts
monthly training on this topic for all employees.
Question 2: What do you believe the primary goal of the CVE should
be, making it easier for firms to sign up or preventing fraud?
VA Response: CVE's current mission is an audit function which
primarily focuses on ensuring a firm's compliance with 38 Code of
Federal Regulations (CFR) Part 74. There is a balance that needs to be
reached between making it easier for firms to be verified and
preventing fraud. To assist with verification, VA's Office of Small and
Disadvantaged Business Utilization (OSDBU) has developed a Verification
Assistance Program to help Veterans understand verification policy and
the verification process through coaching and counseling. The goal of
the program is to reduce the risk of denial due to lack of
understanding and misinterpretation of the regulation.
Question 3: Do you believe that the duties of CVE should be split
into two operations - one verifying eligibility and one assisting
veteran small business owners obtain contracts?
VA Response: VA's OSDBU is already split into two operations: the
CVE and the Center for Small Business Utilization (CSBU). The advocacy
mission previously held by CVE has been transferred to CSBU. We have
now developed a Strategic Outreach team to focus on assisting Veteran
small business owners with obtaining the education to contract with the
Federal government.
Question 4: Does VA have the legal authority to rescind an awarded
contract to an ineligible firm? Out of the total number of contracts
awarded to firms subsequently found to be ineligible, how many have
been rescinded?
VA Response: Yes, VA has the legal authority to rescind an awarded
contract on a Service-Disabled Veteran-Owned Small Business (SDVOSB)/
Veteran-Owned Small Business (VOSB) set-aside acquisition if the
awardee is determined to be other than an eligible SDVOSB/VOSB in a
status protest. A contract may be deemed void ab initio if the
illegality of the contract is plain and palpable. An award is plain and
palpably illegal if the award was made contrary to statutory or
regulatory requirements because of some action by the contractor, not
the government. In a SDVOSB/VOSB set-aside, the contractor represents
its status as a SDVOSB/VOSB. If that status is challenged and cannot be
supported, the contractor, not the government, created that illegality.
The action is illegal because, pursuant to a SDVOSB/VOSB set-aside,
offers are only solicited from and award may on be made to a properly
eligible SDVOSB/VOSB. See J.E.T.S., Inc. v. United States, 838 F.2d
1196, 1200 (Fed. Cir.), cert. denied, 486 U.S. 1057 (1988) (contractor
obtained contract by falsely stating that it was a small business and a
government contract thus tainted from its inception by fraud is void ab
initio).
Since December 2009, VA has determined 9 contracts to be void ab
initio.
Question 5: Should VA focus more its efforts on firms that have a
contract or will be awarded a contract?
VA Response: Currently, CVE has a Class Deviation ``Fast Track''
program for VOSBs that were previously verified but require
recertification. Although these companies may continue to submit
proposals for VA Veterans First set-aside contracts while in the
process of reverification, they are not eligible to receive an award
until their re-verification is complete and the firm is verified. If a
VA contracting officer identifies a company that is in reverification
(not reconsideration) that is the apparently successful offeror on a VA
set-aside contract, that company is ``Fast Tracked'' to a decision
within 21 business days. Firms that currently have contracts are
subject to random or risk-based post verification audits in the form of
unannounced site visits.
Question 6: Do you have any firms that are listed in the CVE
database that self-certified?
VA Response: No.
Question 7: What did VA do to improve records management and
document control?
VA Response: In May 2011, the CVE VCMS added the capability to
receive and manage all documents submitted by Veteran business owners
for verification. Documents are submitted via secure internet transfer.
This improved capability allows CVE to maintain all verification
related documents in one repository. It is CVE policy that all
communications and verification actions are documented in VCMS as of
February 5, 2012.
Question 8: In your testimony you mentioned that ``VA has addressed
the issues in the GAO report.'' Are you referring to the 13
recommendations GAO made in 2011?
VA Response: The testimony referred to both the 13 recommendations
of the July 2011 report, ``Service-Disabled Veteran-Owned Small
Business Program: Preliminary Information on Actions Taken by Agencies
to Address Fraud and Abuse and Remaining Vulnerabilities'' (GAO-12-
152R), as well as the three recommendations in the July 2012 draft
report and August 2012 final report, ``Service-Disabled Veteran-Owned
Small Business Program: Vulnerability to Fraud and Abuse Remains''
(GAO-12-697).
a. According to GAO you have only completed six of the 13
recommendations. Can you explain why you believe you have addressed all
the recommendations while GAO believes only six have been completed?
VA Response: VA has taken steps to complete all 13 of the
recommendations raised in the July 2011 GAO final report, ``Service-
Disabled Veteran-Owned Small Business Program: Preliminary Information
on Actions Taken by Agencies to Address Fraud and Abuse and Remaining
Vulnerabilities'' (GAO-12-152R). In VA's July 19, 2012, response to
GAO's draft report ``Service-Disabled Veteran-Owned Small Business
Program: Vulnerability to Fraud and Abuse Remains'' (GAO-12-697;
Attachment A), VA also provided an update on the seven remaining open
recommendations (numbers 1, 6, 8, 9, 11, 12, and 13) from the July 2011
final report. In addition, VA's response to the July 19th report (see
pp. 14-17, starting with ``Page 18, Bullet one''), included
documentation on the remaining recommendation, and noted that five of
the seven actions would [?] be closed (i.e, numbers 1, 9, 11, 12 and
13). VA continues to negotiate with GAO and take proactive steps to
resolve and close the remaining two recommendations.
VA is currently reviewing the August 2012 final report and is
developing its response to the three recommendations in the report.
Previously in the draft report, VA concurred with two recommendations
and concurred in principle with one recommendation (see Attachment A).
Question 9: According to a recent meeting with Roger Baker,
Assistant Secretary for Information and Technology, CVE's Verification
Case Management System (VCMS) will undergo major enhancements. How will
VCMS system change and by when do you expect this to be completed?
VA Response: Although VCMS is a substantial step forward from
previous manual systems, it has proven insufficient to handle the
current business process or to obtain aggregate reporting to easily
track program progress. The current system is based on 2008/2009
business requirements. However, the next generation of VCMS will be a
product developed with and by the Office of Information and Technology.
It will automate many current manual processes and integrate
communications aspects associated with the program. We expect to roll
out the first phase of the project within the next nine months.
Question 10: What is the projected budget for the Verification Case
Management System (VCMS) update?
VA Response: VA cannot project the entire budget for the VCMS
update until the analysis of the options that direct the requirements
is completed. The analysis is expected to be complete by September 30,
2012, and the dollars will be placed in OSDBU's FY 2013 budget.
a. Has funding been allocated for this project?
VA Response: Yes. VA had originally allocated about $5 million in
the FY 2012 budget for this project. Those funds will be moved to the
FY 2013 budget when a better estimate is made from the analysis of the
options.
b. Where does this funding come from?
VA Response: Funding for VCMS comes from CVE's budget, which, in
turn, comes from VA's Supply Fund. The Supply Fund supports VA's
mission by the operation and maintenance of a supply system, including
procurement of supplies, equipment, personal services and the repair
and reclamation of used, spent or excess personal property. The primary
customer for Supply Fund activities is VA, but the Fund also has
significant sales to other Federal agencies, including the Department
of Defense and the Department of Health and Human Services.
The statutory authority for the Supply Fund is contained in 38
U.S.C. 8121. Although the Supply Fund has its own authority, there is
nothing from a financial accounting and reporting perspective that
distinguishes it from other financial operations. The Supply Fund is an
integral part of VA's overall financial scheme and is part of the
annual process for developing the year-end VA consolidated financial
statements with notes.
Question 11: With the tools the VA has made available on VetBiz,
such as the Verification Assistance Briefs, to help Veteran-owned small
businesses understand the application process, have you noticed an
increased number of verified applicants?
VA Response: Because the self assessment tool and the partnership
program were rolled out so recently, VA does not have sufficient data
to determine the effectiveness of these tools. Preliminary data would
support that there has been an increase in the number of verified
firms.
Question 12: What were the policy decisions underlying VA's
decision to extend the time period before reverification was necessary
to two years?
VA Response: VA conducted an analysis of the rule and the risk
associated with the two year eligibility that led to a balance that
would mitigate any risk of extending the period by increasing
unannounced spot checks of verified firms. VA feels that the risk is
acceptable because the majority of those that are denied are deemed
ineligible due to documentation that is not in compliance with the
regulation rather than firms attempting to commit fraud. Those that
have been approved have documentation that has been shown to be in
compliance with the regulation.
Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic
Member, Subcommittee on Oversight and Investigations To: Hon: Gene L.
Dodaro, Comptroller General of the United States, Government
Accountability Office
August 3, 2012
The Honorable Gene L. Dodaro
Comptroller General of the United States
Government Accountability Office
441 G Street NW
Washington, DC 20548
Dear Mr. Dodaro:
I would like to request your response to the enclosed questions for
the record I am submitting in reference to our House Committee on
Veterans' Affairs Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity joint oversight hearing titled
Odyssey of the CVE on August 2, 2012. Please answer the enclosed
hearing questions by no later than Friday, September 14, 2012.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for material for all full
committee and subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively on letter size paper,
single-spaced. In addition, please restate the question in its entirety
before the answer.
Due to the delay in receiving mail, please provide your response to
Ms. Orfa Torres-Jaen at [email protected], and fax at
(202) 225-2034. If you have any questions, please call (202) 225-9756.
Sincerely,
Joe Donnelly
Ranking Member
Subcommittee on Oversight and Investigations
DMT/ot
Questions for the Record from the Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity
U.S. House of Representatives
Odyssey of the CVE
August 2, 2012
1. Since 2009, GAO has issued a number of reports or testimonies on
the government-wide SDVOSB program, focusing on its vulnerability to
fraud and abuse, and agencies' actions to prevent contracts from going
to firms that misrepresent themselves as SDVOSBs. What vulnerabilities
did you find in the government-wide program?
2. In a July 2011 testimony GAO suggested that Congress consider
expanding VA's verification program government-wide to employ more
effective fraud-prevention controls over the billions of dollars
awarded to SDVOSBs outside of VA. Given the inventory problems
identified, is the expansion of the VA's SDVOSB verification program
government-wide still a valid recommendation?
3. In your report you recommended VA ensure that all firms within
VetBiz have undergone its new more thorough verification process.
Specifically, VA should inventory firms listed in VetBiz to establish a
reliable beginning point for the verification status of each firm. Can
you explain the importance of a reliable inventory of SDVOSB firms for
VA and other agencies that may rely on the VetBiz status of a firm?
4. Is the process to get listed on the CVE database more difficult
than it needs to be?
5. Should VA model its program more on what SBA is doing?
6. Does the current SDVOSB verification process by VA provide a
high level of assurance that only eligible firms are verified?
7. What is more important making easier for firms to be verified or
preventing fraud?
8. The VA has only taken action on six of the 13 recommendations
you issued in October 2011. Has the VA indicated why they have not
completed the remaining seven recommendations?
9. Does CVE have the right funding and staff to carry out its
mission?
10. In your opinion, does CVE know how many firms have been
verified under the old and new law?
11. What prevents CVE from keeping track of the number of verified
firms?
12. In your opinion, did the VA establish a two year re-
verification requirement to get rid of the backlog?
13. In your opinion, how often should SDVOSBs be verified?
Responses From: Hon: Gene L. Dodaro, Comptroller General of the United
States, Government Accountability Office To: Hon. Joe Donnelly, Ranking
Democratic Member, Subcommittee on Oversight and Investigations
September 11, 2012
The Honorable Joe Donnelly
Ranking Member
Subcommittee on Oversight and Investigations
Committee on Veterans' Affairs
House of Representatives
Subject: Service-Disabled Veteran-Owned Small Business Program:
Responses to Questions for the Record
Dear Mr. Donnelly,
On August 2, 2012, I testified in the joint hearing before the
House Veterans' Affairs Committee, Subcommittee on Economic Opportunity
and Oversight and Investigations on fraud and abuse in the Service-
Disabled Veteran-Owned Small Business (SDVOSB) program. \1\ This letter
responds to your request that I provide answers to questions for the
record from the hearing. The responses are generally based on work
associated with previously issued SDVOSB products. If you have any
questions about this letter or need additional information, please
contact me at (202) 512-6722 or [email protected].
---------------------------------------------------------------------------
\1\ GAO, Service-Disabled Veteran-Owned Small Business Program:
Vulnerability to Fraud and Abuse Remains, GAO-12-697T (Washington,
D.C.: August 2, 2012)
---------------------------------------------------------------------------
Sincerely yours,
Richard J. Hillman
Managing Director
Forensic Audits and Investigative Service
Enclosures (2)
Enclosure I
Responses to Questions for the Record
Richard Hillman, Managing Director
Forensic Audits and Investigative Service, Government
Accountability Office
Questions from Subcommittee Ranking Member Joe Donnelly
1. Since 2009, GAO has issued a number of reports or testimonies on
the government-wide SDVOSB program, focusing on its vulnerability to
fraud and abuse, and agencies' actions to prevent contracts from going
to firms that misrepresent themselves as SDVOSBs. What vulnerabilities
did you find in the government-wide program?
Since 2009 we have continually reported that the SDVOSB program
lacks effective government-wide fraud-prevention controls and therefore
remains vulnerable to fraud and abuse. Because federal law does not
require it, the Small Business Administration (SBA) and agencies
awarding contracts (other than VA) do not validate firms' eligibility
for the program. Instead, they rely on firms' self-certifying as
service-disabled veteran-owned businesses in the Central Contractor
Registration (CCR) without requiring supporting documentation. The only
means of detecting fraud in the government-wide SDVSOB program involves
a formal bid-protest process at SBA, whereby interested parties to a
contract award could protest another firm's SDVOSB eligibility or
small-business size. Without basic checks on firms' eligibility claims,
SBA cannot provide reasonable assurance that only legitimate SDVOSBs
are receiving government contracts.
2. In a July 2011 testimony GAO suggested that Congress consider
expanding VA's verification program government-wide to employ more
effective fraud-prevention controls over the billions of dollars
awarded to SDVOSBs outside of VA. Given the inventory problems
identified, is the expansion of the VA's SDVOSB verification program
government-wide still a valid recommendation?
VA's progress toward eliminating the SDVOSB program's vulnerability
to fraud and abuse should be considered before expanding its
verification program government-wide. 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. 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. However, as shown
by our current work, VA's program remains vulnerable to fraud and abuse
because the agency has been unable to accurately track the status of
its verification efforts and because potentially ineligible firms
remain listed in VetBiz, VA's database of eligible firms. Consequently,
VA's ability to show that its process is successful in reducing the
SDVOSBs program's vulnerability to fraud and abuse remains an important
factor in any consideration about the potential expansion of VA's
eligibility verification process government-wide. GAO has ongoing work
that will, in part, examine some of the key issues that need to be
addressed if VA's verification program were to be implemented
government-wide.
3. In your report you recommended VA ensure that all firms within
VetBiz have undergone its new more thorough verification process.
Specifically, VA should inventory firms listed in VetBiz to establish a
reliable beginning point for the verification status of each firm. Can
you explain the importance of a reliable inventory of SDVOSB firms for
VA and other agencies that may rely on the VetBiz status of a firm?
Without a clear inventory and methods designed to track the
verification process firms have undergone, VA cannot provide reasonable
assurance that all firms appearing in VetBiz have been verified under
VA's more stringent, current verification process as owned and
controlled by a veteran or service-disabled veteran. Past audits show
the risk of providing SDVOSB contracts to firms reviewed under the
less-stringent verification process which VA chose to implement in
response to the Veterans Benefits, Health Care, and Information
Technology Act of 2006 (2006 Act). For example, in 2011, VA's OIG
issued a report that reviewed both SDVOSBs and veteran-owned small
businesses (VOSBs) listed in VetBiz and found that 10 of 14 SDVOSBs and
VOSBs verified under VA's 2006 Act process and listed as eligible were
in fact ineligible for these respective programs. Further, the report
went on to state that VA's failure to maintain ``accurate and current''
information in the VetBiz database also exacerbated problems in the
verification process. We remain convinced that the verification process
utilized by VA prior to the Veterans Small Business Verification Act
(2010 Act) process does not provide reasonable assurance that only
eligible SDVOSBs participate in the program. The more-stringent
verification process VA implemented in response to the Veterans Small
Business Verification Act, part of the Veterans' Benefits Act of 2010,
is better designed to prevent ineligible firms from being allowed into
the program. For example, two of our most recently reported cases were
found ineligible by VA using the 2010 Act verification process. We
therefore believe that all firms must be expeditiously verified under
the 2010 Act process. By better managing its inventory of firms,
maintaining the accuracy of firms' status in VetBiz, and applying the
verification process VA implemented in response to the 2010 Act to all
firms, VA can be more confident that the billions of dollars meant to
provide VA contracting opportunities to our nation's service-disabled
veteran entrepreneurs make it to the intended beneficiaries.
4. Is the process to get listed on the CVE database more difficult
than it needs to be?
We have not directly tested the difficulty of the process to get
listed in VetBiz. However, given the specific requirements of the
SDVOSB program (e.g. determining ownership and control of a firm, and
meeting certain performance levels on contracts), it is important to
have a verification program that does more than rely on publicly
available documentation. We remain convinced that the verification
process utilized by VA prior to the 2010 Act process does not provide
reasonable assurance that only eligible SDVOSBs participate in the
program. Given this ongoing vulnerability to fraud and abuse, we
continue to believe that VA should expeditiously verify current VetBiz
firms and new applicants under the 2010 Act verification process.
5. Should VA model its program more on what SBA is doing?
Based on our previous and most recent work, we cannot suggest that
VA model its program on SBA's actions. As stated in our answer to your
first question, SBA lacks effective fraud-prevention controls, leaving
the government-wide SDVOSB program vulnerable to fraud and abuse.
We are aware that there are technical differences between VA and
SBA regulations for the SDVOSB program, as well as differences in the
interpretation of program regulation. To avoid confusion and to better
ensure efficient implementation of the program, it would be important
to eradicate the differences that exist between VA's and SBA's
regulations.
6. Does the current SDVOSB verification process by VA provide a
high level of assurance that only eligible firms are verified?
Our work was not designed to determine the extent of fraud within
the SDVOSB program and cannot answer whether the current verification
process provides a high level of assurance that only eligible firms are
verified. However, the most effective and most efficient part of a
fraud-prevention framework involves the institution of rigorous
preventative controls at the beginning of the process. At a minimum,
preventive controls for the SDVOSB program should be designed to verify
that a firm seeking SDVOSB status is eligible for the program. With
regard to VA's program, the 2010 Act requires that no new small-
business applicant may appear in VA's SDVOSB and VOSB VetBiz database
unless it has been verified by VA as owned and controlled by a veteran
or service-disabled veteran. To check veteran status, Center for
Veterans Enterprise (CVE) relies in part on VA's Beneficiary
Identification Records Locator Subsystem, which confirms that owners
are documented as having left military service under conditions other
than dishonorable and that the disability results from a service-
connected condition. In response to the 2010 Act, VA also implemented a
verification process that included unannounced and announced site
visits, and review and analysis of company documentation. Under the
2010 Act verification process, VA denied two firms that we concluded
were ineligible in our most recent work.
Past audits show the risk of providing SDVOSB contracts to firms
reviewed under VA's 2006 Act process. For example, in 2011, VA's own
OIG issued a report that reviewed both SDVOSBs and VOSBs listed in
VetBiz and found that 10 of 14 SDVOSBs and VOSBs verified under VA's
2006 Act process and listed as eligible were in fact ineligible for
these respective programs. The report identified several reasons for
why these firms were ineligible, including improper subcontracting
practices, lack of control and ownership, and improper use of SDVOSB
status, among others. Further, the report noted VA's document-review
process under the 2006 Act ``in many cases was insufficient to
establish control and ownership . . . [and] in effect allowed
businesses to self-certify as a veteran-owned or service-disabled
veteran-owned small business with little supporting documentation.''
7. What is more important making easier for firms to be verified or
preventing fraud?
We have not conducted the work necessary to answer this question.
However, we believe that both the accessibility of the SDVOSB program
as well as implementing reasonable fraud-prevention controls are
important to the program's success. Without effective fraud prevention
controls, deserving SDVOSBs may miss out on opportunities to access
federal contracting dollars. When that happens, not only are businesses
harmed, but their employees, who are frequently other veterans, are as
well.
8. The VA has only taken action on six of the 13 recommendations
you issued in October 2011. Has VA indicated why they have not
completed the remaining seven recommendations?
Overall, VA is making good progress in implementing our prior
recommendations. As stated in the agency comments section of our
report, VA has indicated that it has begun taking action on some of the
remaining recommendations issued in October 2011 related to the
vulnerabilities in the verification process implemented by VA after the
2010 Act. However, during the course of our work, VA either did not
demonstrate that it had taken action to implement the open
recommendations or did not provide the supporting documentation needed
to show that they were in fact implemented. In our report, we noted any
progress VA has made with regard to each open recommendation. We will
continue to work with VA to confirm the status of its efforts to
address our recommendations and will close them as supporting
documentation is provided.
9. Does CVE have the right funding and staff to carry out its
mission?
The scope of our work did not assess VA's funding and staffing to
carry out its mission. However, when inquiring about the budget for
CVE, we have experienced difficulty getting supporting documentation.
We are aware that VA's funding has significantly increased in recent
years and VA has hired more CVE staff and contractors to conduct
initial file reviews and site visits. Our prior work identified that VA
has not evaluated the experience of CVE staff to assess whether
appropriate personnel are available to perform application reviews. To
be successful, VA needs expert staff dedicated to maintain the
program's integrity.
10. In your opinion, does CVE know how many firms have been
verified under the old and new law?
VA has demonstrated an inability to accurately track the extent to
which firms have been verified under both verification processes VA
chose to implement under the 2006 Act and the 2010 Act. During the
course of our work, VA 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. These
statements indicate that VA has taken an inconsistent approach to
prioritizing the verification of firms and has been unable to
accurately track the status of its efforts. For more detail on the VA
conflicting statements, see Enclosure II.
11. What prevents CVE from keeping track of the number of verified
firms?
According to VA, CVE has had difficulty providing consistent
aggregated reporting of the number of verified firms due to limitations
of its VetBiz Case Management System (VCMS). In addition, VA stated
that the lack of a comprehensive case-management system has created the
need for aggregated workarounds and resulted in inconsistent aggregate
reporting. The limitations of its current case-management system make
it difficult to track the inventory of firms and as the limitations of
the case-management system increase over time, the potential of CVE to
lose track of how many firms have been verified also increases.
12. In your opinion, did the VA establish a two year re-
verification requirement to get rid of the backlog?
The law gives VA latitude to modify its regulations as it deems
necessary. During the course of our work, VA did not mention its
intentions of extending the verification eligibility from one year to
two years. On June 27, 2012, VA issued updated regulations extending
the eligibility period from one year to two years before reverification
is required. Extending the eligibility period may allow VA to focus its
efforts on more thoroughly verifying firms that were previously
verified under its less-stringent 2006 Act process. However, the
extension allows thousands of firms to continue to be eligible for
contracts even though they have not undergone the more-thorough
verification process. We remain convinced that the verification process
utilized by VA prior to the 2010 Act process does not provide
reasonable assurance that only eligible SDVOSBs participate in the
program.
13. In your opinion, how often should SDVOSBs be verified?
The scope of our work did not assess how often SDVOSBs should be
verified. However, any response to this question would depend on the
quality of the verification process that is used. We believe that from
a fraud-prevention standpoint, all firms should be verified under the
more-thorough 2010 Act verification process. This process includes
unannounced and announced site visits and review and analysis of
company documentation, such as tax returns and operating agreements.
After all firms are verified under the 2010 process, VA could then
consider a somewhat longer timeframe for reverifying firms by
considering certain risk-based factors such as whether or not a firm
has actually received a SDVOSB contract to date.
Enclosure II
Record of VA Conflicting Claims
During the course of our work, VA made numerous conflicting claims
regarding its actions related to its transition from the vulnerable
verification process used under the Veterans Benefits, Health Care, and
Information Technology Act of 2006 to the more-thorough process
established under the Veterans Small Business Verification Act, part of
the Veteran' Benefits Act of 2010. Below, those statements are grouped
by topic and reproduced as VA provided them to us. We were unable to
determine which claims are factual and accurate. As stated in our
report, these statements indicate that the agency has taken an
inconsistent approach to prioritizing the verification of firms and has
been unable to accurately track the status of its efforts.
Timing of VA's transition from the 2006 Act verification process to
the 2010 Act verification process
February 16, 2012 (meeting): Firms were verified using
the 2006 Act verification process between January and May 2011.
April 23 (meeting): Full document reviews using 2010 Act
verification process began in February 2011.
May 12, 2012 (e-mail): No firm was verified under the
2006 Act process after February 2011. Verification reviews using the
2006 Act process had been stopped by January 2011. CVE began the 2010
Act verification process at the end of December 2010.
May 21, 2012 (e-mail): Several firms in VetBiz were
verified under the 2006 Act process after February 2011. At least two
were verified under the 2006 Act process as late as May 2011.
Firms that received the first eligibility documentation request
letter sent in December 2010 under 2010 Act verification process
April 23, 2012 (meeting) and May 2, 2012 (e-mail): In
April, a number of firms that had not been verified under the 2010 Act
verification process were removed from VetBiz. While those firms were
not sent the initial December 2010 document request letter because of
human data-entry errors, they were removed because they failed to
respond within 30 days to a later document request.
May 12, 2012 (email): The above firms were sent the
December 2010 letter.
June 20, 2012 (meeting): All firms in VetBiz did not
receive the initial document request letter sent in December 2010.
Firms verified under the 2006 Act within the six months before December
2010 did not receive the letter. As of December 2010, 13,000 firms had
been sent the document request.
Number of VOSB and SDVOSB firms removed from VetBiz for failing to
respond to a document request under the 2010 Act verification process
April 23, 2012 (meeting): Approximately 3,050 firms were
removed between late March 2012 and early April 2012.
1. May 2, 2012 (e-mail verifying April 23 meeting details):
3,108 firms instead of 3,050.
2. May 2, 2012 (e-mail attachment): Attached spreadsheet
showed 3,019 firms were removed as of the April 23 meeting.
May 8, 2012 (e-mail): 2,984 firms were removed as of
April 2012.
Number of expired VOSB and SDVOSB firms verified under the 2006 Act
process targeted for future removal from VetBiz
April 23, 2012 (meeting): About 900 firms.
April 27, 2012 (e-mail): About 3,500 firms.
May 2, 2012 (e-mail): About 2,660 firms and 2,646 firms
(in the same e-mail).
May 3, 2012 (e-mail): 2,584 firms.
May 12, 2012 (e-mail): 2,581 firms. (The difference
between this and the May 3 figure may be explained by firms changing
their status.)
Firms in VetBiz whose eligibility term, determine under the 2006
Act process, had expired, that were sent documentation requests in
order to go through the 2010 Act verification process
April 23, 2012 (meeting): 900 firms about to be removed
from VetBiz were sent a request for documentation for 2010 Act
verification.
April 27, 2012 (e-mail): The 900 firms were not sent the
above request.
Deadline for removing expired firms that failed to provide
requested documentation for the 2010 Act verification process
April 23, 2012 (meeting): May 2012.
April 27, 2012 (email): May 4, 2012.
May 12, 2012 (e-mail): May 18, 2012.
May 31 (e-mail): July 5, 2012.
Explanation for delays in removal from VetBiz of firms whose
eligibility term, as determined through the 2006 Act verification
process, had expired
Software update
April 23, 2012 (meeting): A software update to a new
electronic system prevented the 900 firms with expired eligibility
terms from being identified.
April 27 (e-mail): The software update did not affect the
900 firms.
Congress
May 12, 2012 and May 21, 2012 (e-mail): Firms removed
from VetBiz in April had not been removed from VetBiz earlier in the
year at the suggestion of Congress due to backlog. VA memo sent as
support for this discussion relates to ``reverification'' under the
2010 Act process.
Technical Difficulties
May 31, 2012 (e-mail): Firms were not removed from VetBiz
because of technical difficulties.
June 20, 2012 (meeting): The Verification Case Management
System (VCMS) allows CVE to manage inventory and automatically notifies
a firm on behalf of CVE when it is approaching a deadline for
reverification.
June 22, 2012 (meeting): VCMS is not accurate, is missing
data fields, and contains dates differing from those in physical files.
Firms previously identified as being verified under the 2006 Act
process as late as May 2011 could be mistaken due to such software
issues.
Estimates for verifying all firms in VetBiz under the 2010 Act
process (before implementation of the interim rule, amending 38 C.F.R.
Part 74.15(a), which extended firms' eligibility terms)
July 11, 2011(meeting): May 2012.
April 23, 2012 (meeting): Mid-August 2012.
May 12, 2012 (e-mail): September 2012.
July 10, 2012 (email): As of June 27, 2012, VA amended 38
C.F.R. 74.15(a) so that all firms verified under either the 2006 Act
process or the 2010 Act process are eligible for a 24 month period
instead of the previous 12 month period.
Materials Submitted For The Record
OCT 1 0 2012
The Honorable Bill Johnson
Chairman, Subcommittee on
Oversight and Investigations
Committee on Veterans' Affairs
United States House of Representatives
Washington, DC 20515
The Honorable Marlin A. Stutzman
Chairman, Subcommittee on
Economic Opportunity .
Cornmittee on Veterans' Affairs
United States House of Representatives
Washington, DC 20515
Dear Chairman Johnson and Chairman Stutzman:
At the joint hearing before your Subcommittees on August 2,2012,
Mr. James O'Neill, Assistant Inspector General for Investigations,
promised to provide a response for the record regarding a question on
how many Office of Inspector General (OIG) Service Disabled Veteran-
Owned Small Business (SDVOSB) cases, open or closed, involved companies
certified under P.L. 111-275, Veterans' Benefits Act of 2010.
As of August 31,2012, 25 of the OIG's 158 open or closed SDVOSB
cases were verified by the Center for Veterans Enterprise (CVE) under
P.L. 111-275. Of those 25 cases, 10 were initiated based on a referral
from CVE, and 4 were referred to us by CVE after we had received an
allegation from another source. Further information on CVE's referral
practices to the OIG should be addressed to the Executive Director, VA
Office of Small and Disadvantaged Business Utilization.
If you have need additional information, please do not hesitate to
contact my office. Thank you for your interest in the Department of
Veterans Affairs.
Sincerely,
GEORGEJ.OPFER
Copy to: The Honorable Joe Donnelly, The Honorable Bruce L. Braley
August 3, 2012
Mr. Scott Denniston
Executive Director
National Veteran Small Business Coalition
14408 Chantilly Crossing Lane
#704
Chantilly, VA 20151
Dear Mr. Denniston:
I would like to request your response to the enclosed questions for
the record I am submitting in reference to our House Committee on
Veterans' Affairs Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity joint oversight hearing titled
Odyssey of the CVE on August 2, 2012. Please answer the enclosed
hearing questions by no later than Friday, September 14, 2012.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for material for all full
committee and subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively on letter size paper,
single-spaced. In addition, please restate the question in its entirety
before the answer.
Due to the delay in receiving mail, please provide your response to
Ms. Orfa Torres-Jaen at [email protected], and fax at
(202) 225-2034. If you have any questions, please call (202) 225-9756.
Sincerely,
Joe Donnelly
Ranking Member
Subcommittee on Oversight and Investigations
DMT/ot
Questions for the Record from the Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity
U.S. House of Representatives
Odyssey of the CVE
August 2, 2012
1. What is your overall perception of the VA's SDVOSB process and
what specific areas need immediate attention?
NO RESPONSE RECEIVED FROM MR. SCOTT DENNISTON AT THE TIME OF
PRINTED PUBLICATION
August 3, 2012
Mr. Richard F. Weidman
Executive Director for Policy & Government Affairs
Vietnam Veterans of America
8719 Colesville Road
Suite 100
Silver Spring, MD 20910
Dear Mr. Weidman:
I would like to request your response to the enclosed questions for
the record I am submitting in reference to our House Committee on
Veterans' Affairs Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity joint oversight hearing titled
Odyssey of the CVE on August 2, 2012. Please answer the enclosed
hearing questions by no later than Friday, September 14, 2012.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for material for all full
committee and subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively on letter size paper,
single-spaced. In addition, please restate the question in its entirety
before the answer.
Due to the delay in receiving mail, please provide your response to
Ms. Orfa Torres-Jaen at [email protected], and fax at
(202) 225-2034. If you have any questions, please call (202) 225-9756.
Sincerely,
Joe Donnelly
Ranking Member
Subcommittee on Oversight and Investigations
DMT/ot
Questions for the Record from the Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity
U.S. House of Representatives
Odyssey of the CVE
August 2, 2012
1. How different are the regulations between SBA, VA and the 8(a)
program?
2. You state that many federal agencies believe that veterans must
first register with VA. If VA has no control over this view what can VA
do about it?
3. In your testimony you state that the VA should allow self-
certification while they verify the. In the past the increased number
of fraud and abuse was due to the VA relying on self certification with
many ineligible firms being wrongly awarded contracts. Are you
confident that returning to self-certification will not lead to an
increase fraud and veterans losing contracts?
a. By allowing self-certification, would the VA have a major influx
of veteran and non-veteran businesses applying and seeking to be
verified, thereby, causing a greater backlog?
4. What is more important, making it easier for firms to be
verified or preventing fraud?
5. According to CVE, one of the main reasons why companies are
denied verification is because they fail to thoroughly review
application requirements and fail to submit appropriate documentation.
The CVE has now included tools in their website to guide companies
through the application process. In your opinion, what are the top 5
reasons for denials?
6. In your testimony you mentioned that ``most veterans are denied
due to issues of control and that are many sections of the regulations
which are subject to the interpretation of the reviewer.'' Do you
prefer that the VA have clear bright line tests of what would be a
cause to deny verification or have some flexibility?
NO RESPONSE RECEIVED FROM MR. RICHARD F. WEIDMAN AT THE TIME OF
PRINTED PUBLICATION
August 3, 2012
Mr. George J. Opfer
Inspector General
Department of Veterans Affairs
801 I Street NW
Washington, DC 20001
Dear Mr. Opfer:
I would like to request your response to the enclosed questions for
the record I am submitting in reference to our House Committee on
Veterans' Affairs Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity joint oversight hearing titled
Odyssey of the CVE on August 2, 2012. Please answer the enclosed
hearing questions by no later than Friday, September 14, 2012.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for material for all full
committee and subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively on letter size paper,
single-spaced. In addition, please restate the question in its entirety
before the answer.
Due to the delay in receiving mail, please provide your response to
Ms. Orfa Torres-Jaen at [email protected], and fax at
(202) 225-2034. If you have any questions, please call (202) 225-9756.
Sincerely,
Joe Donnelly
Ranking Member
Subcommittee on Oversight and Investigations
DMT/ot
Questions for the Record from the Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations and
Subcommittee on Economic Opportunity
U.S. House of Representatives
Odyssey of the CVE
August 2, 2012
1. Does SBA have tougher standards to be recognized as a veteran
company?
2. How many self certified companies remain on CVE's VIP database?
3. Has it become too difficult for SDVOSBs to be verified and sign
up in CVE's VIP database and does CVE ask for too much information?
4. Is CVE properly funded to review applications for the VIP
database?
5. Does the current SDVOSB verification process by VA provide a
high level of assurance that only eligible firms are verified?
6. Should VA be verifying firms every year?
7. What is more important, making it easier for firms to be
verified or preventing fraud?
8. Has the VA made progress in their verification program to reduce
the number of fraudulent SDVOSBs?
NO RESPONSE RECEIVED FROM MR. GEORGE J. OPFER AT THE TIME OF
PRINTED PUBLICATION