Glenn Nye Announces Hearings To Investigate Fraud And Abuse In Vets Business Program

Press Release

Congressman Glenn Nye (VA-02), the Chairman of the House Small Business Subcommittee on Contracting and Technology, announced today that he intends to hold hearings to investigate contracting fraud and abuse in a federal program intended for disabled veterans who own small businesses.

A new study released by the Government Accountability Office (GAO) today uncovered that multiple companies fraudulently obtained $100 million in federal contracts intended for service-disabled veterans.

"If we are serious about honoring our commitment to our veterans, then the program designed to support veteran entrepreneurs must be more than an empty promise," said Congressman Glenn Nye. "It is absolutely unacceptable that some businesses have been allowed to fraudulently and shamefully profit at the expense of our veterans. I am developing legislation to address this problem, and before the end of the year, I will hold hearings in the Subcommittee on Contracting and Technology to thoroughly investigate this situation, and to find a solution."

The full House Small Business Committee held a hearing today to discuss the findings of the GAO report and to question the Administrator of the Small Business Administration (SBA) about fraud-prevention.

The GAO report found that there are no fraud prevention controls in place to prevent ineligible businesses from obtaining contracts intended for small businesses owned by service-disabled veterans. Currently, neither the SBA nor government contracting officers check to verify whether businesses that claim to be service-disabled veteran-owned small business are actually eligible to receive contracts.

In one case highlighted by the GAO, an employee at MacDill Air Force Base in Florida created a veteran-owned business to obtain a $900,000 contract for furniture design and delivery. He passed the entire contract his wife's company, who then subcontracted the work to a separate furniture manufacturer. In each of the ten cases studied by the GAO, none of the businesses who fraudulently obtained government contracts were punished or barred from receiving federal contract work in the future.

Congressman Glenn Nye chairs the Subcommittee on Contracting and Technology which has oversight over federal small business contracting programs. Virginia's Second Congressional District is home to the highest concentration of veterans anywhere in the country.

Fact Sheet: Highlights of GAO Report on Fraud and Abuse in Service-Disabled Veteran-Owned Small Business Program

An October 2009 Report from the United States Government Accountability Office (GAO) found that fraud and abuse in the Service-Disabled Veteran-Owned Small Business (SDVOSB) program are allowing ineligible businesses to obtain federal contracts intended for businesses owned by service-disabled veterans.

Highlights of the GAO Report:

* The GAO analyzed ten case studies of businesses that were ineligible to receive contracts as SDVOSBs, but that received approximately $100 million in SDVOSB contracts.
* Examples studied in the GAO report include:
o $7.5 million went to a firm that fraudulently certified itself as a SDVOSB to obtain a contract for the maintenance of trailers provided to victims of Hurricane Katrina and Hurricane Rita.
o A firm with only 2 owners and 3 employees obtained twenty-one separate contracts, worth $5 million, for janitorial, construction and other services. In one case, the firm obtained a $3.5 million contract, and immediately turned around and subcontracted the work to a European corporation with $12 billion in annual revenue.
o A ineligible business based in Texas partnered with a SDVOSB to obtain a $3 million contract to perform services at Fort Irwin in California. The owner of the partnering SDVOSB also works 3 days a week at his brother's bar in Illinois -- 1,800 miles away from the project site.
* Neither the Small Business Administration (SBA), which administers the program, nor contracting officials are currently verifying whether businesses that apply for contracts as SDVOSBs actually meet eligibility requirements.
* The only process in place to detect fraud requires an interested party to contest a contract award with the SBA -- a method of self-policing that the GAO found to be ineffective.
* Even in cases where the SBA has determined that a firm misrepresented itself as an SDVOSB, none of the firms studied by the GAO were suspended or debarred from receiving SDVOSB and other government contracts in the future.

Background: Service-Disabled Veteran-Owned Small Businesses

* According to federal law, 3% of all federal contracting dollars should be awarded to small businesses owned by service-disabled veterans.
* To be eligible for set-aside or sole-source contracts designated for SDVOSBs, a firm must meet certain criteria, including:
o Service-disabled veterans must own the firm and control the daily business operations;
o The firm must qualify as a small business;
o The firm must directly incur a designated percentage of the cost of the contract, and cannot pass the entire award to a subcontractor.

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