An Illinois man has admitted setting up a “rent-a-vet” front company and bribing a VA official to award contracts.

One investigator on the case said fraud in the service-disabled veteran-owned contracting program is increasing.

The U.S. attorney’s office in St. Louis said Joseph Madlinger of Dupo, IL, pleaded guilty Feb. 15 to one felony count of conspiracy to commit mail and wire fraud.

According to documents filed in U.S. District Court in St. Louis, Madlinger created a shell company called CJMS Contracting LLC with a service-disabled veteran, James Browdy, as the nominal owner. Browdy had never run a construction business and had no capital to invest in the company. Federal prosecutors said his only duty was to serve as the owner of record.

Madlinger admitted bribing Russell Todd, then chief engineer or chief of projects at the St. Louis VA medical center and Jefferson Barracks National Cemetery. Prosecutors said Todd received cash, tickets to Cardinals baseball games and lunches at a tavern and a “gentlemen’s club.” He has since retired from VA.

From 2007 to 2010 CJMS won $3.4 million in SDV construction contracts from VA and passed the work and the bulk of the money along to Gateway Contractors. The U.S. attorney said the head of Gateway, Michael Woodling, was a co-conspirator in the scheme. A lawyer for Woodling told the St. Louis Post-Dispatch that his client was in discussions with the prosecutors and has not yet been charged.

Madlinger faces up to four years in prison under federal sentencing guidelines and will be ordered to repay about $1.6 million.

“Fraud in the SDVO program in particular continues to be on the rise, which denies our truly service-disabled vets from the assistance they deserve after faithful service to their country,” said Scott Dennis, special agent in charge of the SBA inspector general’s central region office.

VA’s assistant inspector general, Belinda Finn, said the office’s investigations have resulted in one previous conviction and six people awaiting trial in separate cases involving SDV fraud. In Feb. 7 testimony before a subcommittee of the House Oversight and Government Reform Committee, she said 87 investigations are in progress, most involving pass-throughs.

Last year the IG’s office found three-fourths of the SDV businesses it reviewed were not eligible for the program. VA has stopped accepting self-certifications of eligibility and has begun verifying the status of all companies listed in its database, including visiting their workplaces. Several thousand companies have been dropped from VA’s list of eligible businesses, but veterans groups say VA has too often rejected applications on technicalities.

Companies are not eligible for VA set-aside contracts unless their veteran- or SDV-owned status has been verified. However, all other agencies can accept self-certification. Legislation is pending in the Senate to require all agencies to verify contractors’ eligibility through the VA database.

The Government Accountability Office has also documented fraud in the SDV program. “The main process for detecting fraud involves formal bid protests, whereby interested parties to a contract award can protest a firm’s status with SBA if they believe that the firm misrepresented its small-business size or SDVOSB eligibility,” GAO said in a Feb. 7 report to Congress.

GAO suggested verification should be required on all SDV set-asides.