$100M or more in contract fraud found in program for vets

NORFOLK

Six months after government investigators found systemic fraud in a contract set-aside program for small businesses owned by disabled veterans, ineligible companies are still getting millions of dollars in federal contracts under the program.

That testimony came from government and private-sector witnesses Monday at a hearing held at Old Dominion University by U.S. Rep. Glenn Nye, D-Virginia Beach. Nye, who chairs a House subcommittee that has been looking into the abuses, has introduced legislation aimed at cleaning up the program.

The Veterans Benefits Act of 2003 allowed government contracting officers to award sole-source contracts to small businesses owned and controlled by service-disabled veterans. It didn't take long after the program was established for complaints to begin.

Out of more than 100 allegations of abuses, the Government Accountability Office picked 10 cases to investigate and found fraud in every one. Ineligible companies had pocketed $100 million in federal contracts, the congressional watchdog agency reported in November.

Eight of those 10 companies are still listed in a government-wide registry of eligible contractors, and five of them have won an additional $5 million in contracts posing as businesses run by disabled veterans, GAO investigator Gregory Kutz testified Monday.

Kutz placed much of the blame on the Small Business Administration, which runs the program in conjunction with federal procuring agencies. "They don't kick anybody out of the program," he said, adding that in many cases government contracting officers "knew exactly what was going on. They were facilitating it."

Meanwhile, his agency has received dozens more allegations of abuses, Kutz said.

A key reason for the widespread fraud is that the system is "self-validating," Kutz said. Companies are allowed to certify themselves as meeting the criteria of the program by checking a box on a form, and in most cases no one ever looks to see if they're legitimate.

"There is absolutely no oversight or accountability," said George Armbruster, vice president of Fleet Services and Installation, a veteran-owned business in Portsmouth. It's "an honor system which very few honor," he said.

The Department of Veterans Affairs is now required to certify eligible firms, but that program is still in its infancy and there is a long backlog of companies waiting to be certified, Kutz said.

Moreover, that program has its own flaws. Two of the 10 companies found ineligible by the GAO had been certified by the VA as eligible, he said.

Elton Roller Jr., an Air Force veteran who owns Greenland Enterprises Inc., a construction business in Hampton, said he submitted clear evidence that the winning bidder on a VA project had an improper affiliation with a large business, but his complaint was summarily dismissed by the VA contracting officer.

When he took his complaint to the Small Business Administration, that agency agreed with his position, but referred the matter back to the VA, Roller said.

"The SBA says it's the VA's problem; the VA says it's the SBA's problem," he said. "Somebody's got to own it. The buck's got to stop with somebody."

Perhaps most difficult to understand is that "misrepresenting yourself when doing business with the government carries no penalty," said Janice Cavolt, co-owner of JBC Corp. with her husband, a retired Navy SEAL. JBC, based in Virginia Beach, provides medical trauma kits to the military.

The GAO's investigation found no examples of ineligible firms being referred to the Justice Department for prosecution, Kutz said.

Nye's legislation would spell out criminal penalties for misrepresenting a business as owned by a disabled veteran to obtain a federal contract. He is anticipating House action on the measure this summer.

"When unscrupulous businesses defraud the program, there are no consequences," Nye said. "They are stealing taxpayer money that's supposed to be going to our veterans."

Bill Sizemore, (757) 446-2276, bill.sizemore@pilotonline.com