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: Published: Oct 23, 2009. Publicly Released: Nov 19, 2009.

Additional Materials:

Contact:

Gregory D. Kutz
(202) 512-3000
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

The Service-Disabled Veteran-Owned Small Business (SDVOSB) program is intended to provide federal contracting opportunities to qualified firms. In fiscal year 2007, the Small Business Administration (SBA) reported $4 billion in governmentwide sole source and set aside SDVOSB contract awards. Given the amount of federal contract dollars being awarded to SDVOSB firms, GAO was asked to determine (1) whether cases of fraud and abuse exist within the SDVOSB program, and (2) whether the program has effective fraud-prevention controls in place. To identify whether cases exist, GAO reviewed SDVOSB contract awards and protests since 2003, and complaints sent to our fraud hotline. GAO defined a case as one or more affiliated firms who were awarded one or more SDVOSB contracts. To assess fraud-prevention controls, GAO reviewed laws and regulations and conducted interviews with SBA and Department of Veterans Affairs (VA) officials. GAO did not attempt to project the extent of fraud and abuse in the program.

GAO found that the SDVOSB program is vulnerable to fraud and abuse, which could result in legitimate service-disabled veterans' firms losing contracts to ineligible firms. The 10 case-study firms identified in this report received approximately $100 million from SDVOSB contracts through fraud or abuse of the program, or both. For example, contracts for Hurricane Katrina trailer maintenance were awarded to a firm whose owner was not a service-disabled veteran. GAO also found SDVOSB companies used as a pass-through for large, sometimes multinational corporations. In another case a full-time federal contract employee at MacDill Air Force Base set up a SDVOSB company that passed a $900,000 furniture contract on to a company where his wife worked, which passed the work to a furniture manufacturer that actually delivered and installed the furniture. GAO found that the government does not have effective fraud-prevention controls in place for the SDVOSB program. Specifically, SBA and agencies awarding SDVOSB contracts do not have processes in place to validate a firm's eligibility for the program prior to bid submission. SBA and contracting agencies also currently do not have a database of individuals that are service-disabled veterans, a key eligibility requirement for the program. According to VA, it is developing a database, called VetBiz, of validated SDVOSBs, but currently it is only used for contracting by the VA. SBA's bid-protest process is the only governmentwide control over the SDVOSB program. However, although ineligible firms have been identified through bid protests, firms found ineligible do not face real consequences, can be allowed to complete the contracts received, and are not suspended or debarred.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Our work documents numerous cases where the current governmentwide self-certification system over the SDVOSB program has allowed ineligible firms to receive millions of dollars in federal contracts. However, through the Veterans Benefits, Health Care, and Information Technology Act of 2007, Congress required VA to maintain a database of SDVOSBs, determine whether SDVOSBs are indeed owned and controlled by service-disabled veterans, and required VA set-aside and sole-source awards be made only to firms that have had their eligibility verified. Currently, the only efforts to put fraud prevention controls in place are at VA through their VetBiz program, which applies only to VA contracts. Given that outside of VA there is no verification program in place for SDVOSB contracting, Congress may wish to 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 governmentwide.

    Status: Open

    Comments: Agency agreed with recommendation. Team is monitoring agency actions.

    Recommendations for Executive Action

    Recommendation: In an effort to minimize the potential for fraud and abuse in the Service-Disabled Veteran-Owned Small Business (SDVOSB) program and to assure that legitimate service-disabled veterans and their firms reap the benefits of this program, the Administrator of the Small Business Administration (SBA) and the Secretary of the Veterans Affairs (VA) should coordinate with the Office of Federal Procurement Policy (OFPP) to explore the feasibility of (1) expanding the use of the VA VetBiz "verified" database governmentwide for purposes of validating all SDVOSB eligible firms for contracting and, (2) requiring that all contractors who knowingly misrepresent their status as an SDVOSB be debarred for a reasonable period of time.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: Agency agreed with recommendation. Team is monitoring agency actions.

    Recommendation: In an effort to minimize the potential for fraud and abuse in the Service-Disabled Veteran-Owned Small Business (SDVOSB) program and to assure that legitimate service-disabled veterans and their firms reap the benefits of this program, the Administrator of the Small Business Administration (SBA) and the Secretary of the Veterans Affairs (VA) should coordinate with the Office of Federal Procurement Policy (OFPP) to explore the feasibility of (1) expanding the use of the VA VetBiz "verified" database governmentwide for purposes of validating all SDVOSB eligible firms for contracting and, (2) requiring that all contractors who knowingly misrepresent their status as an SDVOSB be debarred for a reasonable period of time.

    Agency Affected: Department of Veterans Affairs

    Status: Open

    Comments: Agency agreed with recommendation. Team is monitoring agency actions.

    Recommendation: The Administrator of SBA should refer all SDVOSB firms that submit misrepresentations of their status to SBA's Office of Inspector General for review and further investigation.

    Agency Affected: Department of Veterans Affairs

    Status: Open

    Comments: Agency agreed with recommendation. Team is monitoring agency actions.

    Recommendation: The Administrator of SBA should refer all SDVOSB firms that submit misrepresentations of their status to SBA's Office of Inspector General for review and further investigation.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: Agency agreed with recommendation. Team is monitoring agency actions.

    Jul 23, 2014

    Jul 22, 2014

    Jul 21, 2014

    Jun 26, 2014

    Jun 20, 2014

    Jun 6, 2014

    Jun 4, 2014

    May 30, 2014

    Apr 24, 2014

    Apr 7, 2014

    Looking for more? Browse all our products here