The Veterans Affairs Department was in the hot seat Thursday after an audit found it had awarded at least 1,400 contracts intended for veteran-owned companies to ineligible businesses.
The contracts were specifically set aside for veteran-owned small businesses and service-disabled veteran-owned small businesses, but because companies can self-identify, many falsely identified themselves as veteran-owned.
"Seventy-six percent of the businesses we reviewed were ineligible for either the program and/or the specific [veteran-owned small businesses] or [service-disabled veteran-owned small businesses] contract award, potentially resulting in $2.5 billion awarded to ineligible businesses over the next five years," said Belinda Finn, assistant inspector general for audits and evaluations at VA, testifying before the House Veterans' Affairs Committee's oversight panel.
"I think if the American people really paid attention, which they're not today because they're focused on something entirely different, they'd blow this whole program up and start from scratch again. It's really that bad," said Rep. Phil Roe, R-Tenn. "I haven't heard anything this bad since I've been here."
Gregory Kutz, director of forensic audits and investigative service at the Government Accountability Office, said these programs are highly vulnerable to fraud and abuse because businesses designate themselves as being owned by veterans rather than having a third party verify the identification.
Despite VA's shortfalls, it is doing more to certify businesses than other federal agencies. The self-identifying process means companies that have been turned down by VA can still apply for other federal contracts.
"Although VA found these firms to be ineligible, there is nothing to prevent them from receiving new, sole-sourced and set-aside contracts from other federal agencies," Kutz testified.
According to Kutz, there must be severe, well-publicized penalties against fraudulent companies to deter future problems.
"This program is almost in its infancy, it just started a few years back," Finn noted. "I wouldn't give up hope on it yet."
"Hopefully it will get better, since it can't get a lot worse," Roe responded.
The government faces a balancing act of excluding fraudulent companies while also making it easy for veterans to compete. Thomas Leney took over as the executive director of small and veteran business programs at VA just three months ago. In that time, he said, his job was to "fix verification and make sure it stays fixed."
"I am personally accountable and responsible for the performance of that organization," Leney said. "I don't have a blank checkbook; I am accountable for it all."
Leney will update the subcommittee in 90 to 120 days on further progress.
"We're going to stay the course in this process and make sure eligible businesses will get verification," subcommittee chairman Bill Johnson, R-Ohio, said in an interview. "Those that are shamefully trying to circumvent the process will be stopped."
Why companies fail to be recognized as veteran-owned:
• Cannot verify the owner is a veteran or disabled veteran.
• Cannot prove a veteran is the majority owner.
• Day-to-day operational management of the company is not done by a veteran.