Agencies Slow to Act on Violations in SDV Program Ten service-disabled veteran-owned firms continued to receive federal contracts for months after the Government Accountability Office presented evidence that they had defrauded the government. Last year GAO found some of the companies were fronts for non-SDV owners, while others had subcontracted most or all of their work in violation of SBA rules. The 10 companies had received $100 million in SDV set-aside contracts. Auditors said there were “no controls and no consequences for the few that are caught cheating.” (SAA, 12/4/2009) The companies have not been publicly identified, but GAO reported its findings in November to SBA and agencies that had awarded contracts to the firms. Since then, the auditors said the companies have received $15 million in new contracts. GAO presented its latest findings to the House Small Business Committee’s Subcommittee on Contracting and Technology at a field hearing in Norfolk, VA, May 24. The subcommittee chairman, Rep. Glenn Nye, D-VA, has introduced legislation providing for fines and prison terms for officers of a company that misrepresented itself as an SDV. Gregory Kutz, head of GAO’s special investigations unit, testified that some actions are underway against the suspect companies. Agencies have terminated some contracts, declined to exercise options on others, and referred at least one case for criminal prosecution. He gave no details because the investigations are still in progress. Kutz said a comprehensive fraud prevention program is needed to clean up SDV contracting. He identified three essential strategies to attack fraud: •Verifying a firm’s eligibility “is the first and most important control.” Currently SDV firms are allowed to self-certify their eligibility. The Veterans Affairs Department is verifying the companies’ claims, but VA officials say new applications have been coming in much faster than the department’s Center for Veterans Enterprise can process them. VA does not expect to verify all the companies in its database before 2012. Kutz said agencies should consult independent third-party sources to check a company’s claims that it is owned and managed by a service-disabled veteran. •After SDV contracts are awarded, Kutz said agencies must monitor performance to make sure companies don’t subcontract most of the work. •“Finally, as shown in our investigation, preventive and monitoring controls are not effective unless identified abusers are aggressively prosecuted and/or face other consequences such as suspension, debarment or termination of contracts and future contract options.” Kutz said contracting shops are under pressure to award more work to SDV firms. The government has set a 3% goal for SDV contracting, but has never come close to that. GAO found that some contracting officers ignored evidence of fraud because they needed to improve their SDV numbers. “Given the Federal govern-ment’s emphasis on providing contract dollars to SDVOSB firms, the billions of dollars spent annually on SDVOSB contracts, and weakness identified by GAO, it is imperative that the SBA, VA, and federal-agency contracting offices work together to implement comprehensive fraud prevention controls,” Kutz said.