Service-Disabled Veteran-Owned Small Business Program:

Additional Improvements to Fraud Prevention Controls Are Needed

GAO-12-152R: Published: Oct 26, 2011. Publicly Released: Nov 30, 2011.

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This report is in response to a request from congressional subcommittees to evaluate the design of the Department of Veterans Affairs (VA) fraud prevention controls within the Service-Disabled Veteran-Owned Small Business (SDVOSB) verification program instituted in response to Public Law 111-275. This work is part of our ongoing audit of the SDVOSB program governmentwide, which, in part, assesses the design of the three areas of a fraud prevention framework including preventive controls, detection and monitoring controls, and investigations and prosecutions. We will report the results of the larger audit at a later date..

In summary, VA's fraud prevention controls for the SDVOSB program have improved since Public Law 111-275 was enacted including steps taken since Congress' July 28, 2011 hearing; however, further enhancements would help to reduce the program's vulnerability to fraud, waste, and abuse. VA has made progress in implementing a valid verification program with preventive controls to deter ineligible firms from attempting to become verified. VA enhanced deterrents and developed controls to identify firms in its VetBiz database that did not meet SDVOSB eligibility requirements, resulting, according to VA, in over 1,800 ineligible firms being denied SDVOSB verification. However, even with the control enhancements, program weaknesses and vulnerabilities remain. While improvements in preventive controls have been significant, progress has been limited in the areas of detection and monitoring and investigations and prosecutions. VA's monitoring and detection efforts, which now include status protests and announced site visits, lacked periodic compliance reviews and formal processes for unannounced site visits. Moreover, while VA established a debarment committee and is conducting ongoing investigations of suspicious firms, it does not yet have specific criteria in place to implement legislation requiring debarment actions for firms that misrepresent their SDVOSB eligibility. Thus there has been limited actual debarment action against firms found to have misrepresented their SDVOSB status. To address identified vulnerabilities, we recommend that VA take 13 actions in the three areas of the fraud prevention framework--preventive controls, detection and monitoring, and investigations and prosecutions--to provide reasonable assurance that the contracting opportunities meant for our nation's service-disabled veteran entrepreneurs make it to the intended beneficiaries.

Recommendations for Executive Action

  1. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should improve VA's preventive controls to provide reasonable assurance that only eligible firms gain access to the VetBiz database. For example: provide regular fraud awareness training to Center for Veterans Enterprise (CVE) and VA contracting personnel.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: In response to our recommendation, in December 2011, VA issued a memo to contracting personnel reiterating the need to verify firms eligibility both upon receipt of an offer and prior to award. In November 2011, VA offered training to the contracting personnel on the importance of eligibility verification. By providing guidance and training to VA contracting personnel on the importance of verifying firms eligibility, VA has taken an important step toward ensuring that SDVOSB contracts are only awarded to verified firms.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should improve VA's preventive controls to provide reasonable assurance that only eligible firms gain access to the VetBiz database. For example: provide additional guidance and training to the VA contracting personnel on the use of the VetBiz website so that SDVOSB contracts are only awarded to verified firms.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: In response to our recommendation, in April 2012, VA issued guidelines outlining the procedures for VA staff to refer applicants that submitted false information or misrepresented their status to the VA OIG. In addition, from November 2011 through January 2012, VA provided training sessions to staff on the type of red flags that might show up during the application review. By establishing these procedures and providing staff this training, VA has taken important steps toward improving fraud prevention controls within the SDVOSB verification program.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should improve VA's preventive controls to provide reasonable assurance that only eligible firms gain access to the VetBiz database. For example: 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 Office of Inspector General (OIG).

    Agency Affected: Department of Veterans Affairs

  4. Status: Closed - Implemented

    Comments: In response to our recommendation, VA has explored the feasibility of utilizing third parties such as Dun and Bradstreet to validate application information. By exploring the feasibility of validating applicants' information with third parties, VA has taken an important step toward improving fraud prevention controls within the SDVOSB verification program.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should improve VA's preventive controls to provide reasonable assurance that only eligible firms gain access to the VetBiz database. For example: 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.

    Agency Affected: Department of Veterans Affairs

  5. Status: Closed - Implemented

    Comments: In response to our recommendation, the Department of Veterans Affairs has formalized a process to conduct unannounced site visits to high-risk firms. Specifically, VA has issued procedures implementing a monthly process to select firms in the verification process for unannounced site visits. The procedures use risk-based factors to select a sample of 50 percent of firms identified as high-risk during the verification process. By formalizing a process for conducting unannounced site visits to firms identified as high-risk during the verification process, VA has taken an important step toward improving fraud prevention controls within the SDVOSB verification program.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should improve VA's preventive controls to provide reasonable assurance that only eligible firms gain access to the VetBiz database. For example: formalize a process for conducting unannounced site visits to firms identified as high risk during the verification process.

    Agency Affected: Department of Veterans Affairs

  6. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's detection and monitoring controls on verified SDVOSB firms. For example: develop and implement procedures for conducting unannounced site visits to contract performance locations and interviews with contracting officials to better assess whether verified companies comply with program rules after verification.

    Agency Affected: Department of Veterans Affairs

  7. Status: Closed - Implemented

    Comments: In response to our recommendation, VA has formalized a process to conduct unannounced site visits to verified firms. Specifically, VA has implemented a process to select on a weekly basis, based on a combination of random and risk-based factors, verified firms to receive an unannounced site visit. By developing and implementing a process for unannounced site visits to verified firms, VA has taken an important step toward improving fraud prevention controls within the SDVOSB verification program.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's detection and monitoring controls on verified SDVOSB firms. For example: develop and implement a process for unannounced site visits to verified companies' offices to obtain greater effectiveness and consistency in the verification program.

    Agency Affected: Department of Veterans Affairs

  8. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's detection and monitoring controls on verified SDVOSB firms. For example: develop procedures for risk-based periodic reviews of verified firms receiving contracts to assess compliance with North American Industry Classification System (NAICS) size standards and SDVOSB program rules.

    Agency Affected: Department of Veterans Affairs

  9. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's investigative and prosecutorial actions for firms violating SDVOSB program laws and regulations. For example: develop and implement specific processes and criteria for the Debarment Committee on compliance with the requirement in P.L. 109-461 to debar, for a reasonable period of time, firms and related parties that misrepresent their SDVOSB status.

    Agency Affected: Department of Veterans Affairs

  10. Status: Closed - Implemented

    Comments: In response to our recommendation, VA updated its guidelines to show the procedures for VA staff to refer applicants who misrepresented their status in the application process or during the verification eligibility period to the VA OIG and Debarment Committee. Additionally, VA has sent 22 referrals to the VA OIG and Debarment Committee since July 2011. By establishing these procedures to make referrals to the Debarment Committee and VA OIG, VA has taken an important step toward improving fraud prevention controls within the SDVOSB verification program.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's investigative and prosecutorial actions for firms violating SDVOSB program laws and regulations. For example: 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.

    Agency Affected: Department of Veterans Affairs

  11. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's investigative and prosecutorial actions for firms violating SDVOSB program laws and regulations. For example: develop specific guidelines outlining the Debarment Committee's decision process to debar firms that misrepresent their SDVOSB status.

    Agency Affected: Department of Veterans Affairs

  12. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's investigative and prosecutorial actions for firms violating SDVOSB program laws and regulations. For example: develop procedures on removing SDVOSB contracts from ineligible firms.

    Agency Affected: Department of Veterans Affairs

  13. Status: Open

    Comments: Agency concurred with the recommendation; GAO is monitoring agency actions.

    Recommendation: To minimize the risk of fraud and abuse within VA's SDVOSB program, the Secretary of Veterans Affairs should strengthen VA's investigative and prosecutorial actions for firms violating SDVOSB program laws and regulations. For example: formalize procedures to advertise debarments and prosecutions.

    Agency Affected: Department of Veterans Affairs

 

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