SDV Program: “No Controls” to Catch Cheaters SBA plans to tap the Veterans Affairs Department database to tighten controls over the service-disabled veterans contracting program after auditors found evidence of fraud. The Government Accountability Office identified 10 companies that received $100 million in SDV contracts, although they were not eligible for the program. SBA had ruled four of the companies ineligible as a result of bid protests, but their contracts were not canceled and they subsequently received additional contracts, GAO said. “This multibillion-dollar small business program has no controls and no consequences for the few that are caught cheating,” said Gregory Kutz, GAO’s managing director of forensic audits and special investigations. He testified at a Nov. 19 hearing of the House Small Business Committee. Kutz said the program is open to fraud because companies self-certify their eligibility and neither SBA nor the contracting agency checks on them. GAO has also found widespread fraud in the HUBZone program that auditors blamed on lax certification and oversight. (SAA, 4/3) The Veterans Affairs Department maintains a database of companies that it has verified as service-disabled veteran-owned, but other agencies currently cannot access the database, SBA Administrator Karen Mills testified. “SBA and VA have made this a top priority,” she said. But Kutz said the VA certification program “is in its infancy.” Kutz said in some cases involving ineligible SDV companies, “contracting officers were actively involved” in the fraud because they were under pressure to meet the 3% goal for SDV contracting and did not mind if a purported SDV company served as a front for a larger company that could be trusted to do the work. He said there are no incentives for the contracting officer to enforce the rules. Several of the ineligible companies were found to be subcontracting substantially all of their work. Others were not managed by a service-disabled veteran, as SBA rules require. The companies were not identified. In one case, GAO found that a contract employee at MacDill Air Force Base, FL, who was a service-disabled vet, set up a shell company, received a $900,000 Air Force contract for furniture, then passed it on to a company where his wife worked. That company in turn passed it on to a furniture manufacturer that performed the contract. Auditors said MacDill officials were aware of the transaction. The chairman of the Small Business Committee’s contracting subcommittee, 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. “It is absolutely unacceptable that some businesses have been allowed to fraudulently and shamefully profit at the expense of our veterans,” Nye said in a statement. Committee member Brad Ellsworth, D-IN, said, “Let’s call it what it is—they’ve stolen from us.” Kutz said none of the companies has been suspended or debarred from federal contracting. SBA’s Mills said all 10 have been referred to the agency’s inspector general for investigation. However, SBA passed the buck on oversight. In a written response to the GAO report, SBA’s associate administrator for government contracting and business development, Joseph Jordan, said the agency that awards a contract has “the primary accountability” for ensuring that a company is eligible for an SDV set-aside. In her testimony SBA Administrator Mills said the agency will work to better train contracting officers about the program’s rules, but made no mention of any increased surveillance by SBA. Kutz said SBA’s record of lax oversight grows out of its mission. “The history of SBA has been as an advocacy organization, not an enforcement organization,” he testified. “Therefore you’re not going to have the kind of people necessarily that are very good at this. “But I would argue that if you’re going to be an advocate for small businesses, you need to deal with the integrity of the program.”