Service-Disabled Veteran-Owned Small Business Program: Additional Improvements to Fraud Prevention Controls Are Needed

This testimony discusses the fraud prevention controls within the Service-Disabled Veteran-Owned Small Business (SDVOSB) program at the Department of Veterans Affairs (VA). Today's testimony summarizes our report, released today, on the design of VA's fraud prevention controls within the SDVOSB verification program, including recent improvements in controls. The SDVOSB program is intended to provide federal set-aside and sole-source contracts to small businesses owned and controlled by one or more service-disabled veterans. About $10.8 billion in contracts were awarded in fiscal year 2010 to firms that self-certified as SDVOSBs in the Central Contractor Registration (CCR), according to the Small Business Administration (SBA). VA's SDVOSB contracts accounted for $3.2 billion, or about 30 percent of the $10.8 billion in governmentwide SDVOSB contracts during fiscal year 2010. As of October 2011, VA's VetBiz Vendor Information Pages database shows that the agency has verified the eligibility of more than 5,000 SDVOSB firms. In addition, more than 15,000 firms also self-certified their SDVOSB eligibility in CCR. In audits of the SDVOSB program conducted in 2009 and 2010, we identified weaknesses in fraud prevention controls that allowed ineligible firms to receive about $100 million in SDVOSB contracts. These weaknesses included a lack of governmentwide controls, which allowed ineligible firms to receive contracts by self-certifying that they were legitimate SDVOSB firms. In addition, we found the absence of continued monitoring of firm eligibility and an ineffective process for investigating and prosecuting firms abusing the program. We also found that VA had made limited progress enacting an effective verification program as required by the Veterans Benefits, Health Care, and Information Technology Act of 2006. After the Veterans Benefits, Health Care, and Information Technology Act of 2006 was passed, Congress passed laws further intended to strengthen the SDVOSB program within VA and governmentwide. The Veterans Small Business Verification Act requires VA to verify a firm's eligibility before including that firm in the database and permits VA to request additional documentation substantiating veteran ownership and control of a firm in order to establish eligibility. To improve governmentwide program controls, we recommended that SBA and VA explore the feasibility of expanding the use of VA's verified VetBiz database to the rest of the federal government. SBA and VA generally agreed with our recommendation. Furthermore, Congress also passed the Small Business Jobs Act of 2010, which facilitates prosecution of firms that willfully seek and receive small business awards through misrepresentation of their status, including SDVOSBs. This testimony summarizes our report on the design of VA's fraud prevention controls within the SDVOSB verification program, including recent VetBiz verification efforts, instituted in response to the Veterans Small Business Verification Act.