News From the
Committee on Small Business
Nydia Velázquez, Chairwoman

For Immediate Release                       CONTACT:  Alex Haurek; Duncan Neasham
November 19, 2009                                                   202-226-3636

Report Exposes Fraud in Veteran Contracting Program
Legislation Introduced to Protect Veteran Business Owners

WASHINGTON, D.C. —Federal investigators with the Government Accountability Office (GAO) today told lawmakers they uncovered widespread fraud in a multi-billion dollar program intended to help service-disabled veterans compete for government projects.  Appearing before the House Small Business Committee, investigators said the Small Business Administration’s (SBA) lack of fraud-prevention controls has left the Service-Disabled Veteran-Owned Small Business (SDVOSB) program vulnerable to abuse.

“When you consider the sacrifices our service-disabled veteran entrepreneurs have made, the findings of this report are nothing short of appalling,” said Rep. Nydia M. Velázquez (D-NY), Chairwoman of the Committee.  “Millions of dollars in taxpayer money that should have gone to honest disabled veteran-entrepreneurs were instead pocketed by imposters who broke the rules and gamed the system to get contracts.”

In its investigation, the GAO highlighted ten firms awarded government contracts intended for service-disabled veteran firms.  The results of the audit found that all ten should not have qualified for the program, yet still collected $100 million in SDVOSB contracts and $300 million in other federal contracts. The GAO report suggested not only that fraud was occurring, but that the SBA lacks safeguards to root out and deter these abuses.

“The GAO’s findings suggest that these incidents of fraud are not isolated incidents, but that there is widespread abuse and little is being done to protect businesses owned by veterans,” said Velázquez. “Until the proper safeguards are implemented, almost anyone can register on the Internet as a service disabled veteran business owner, without documentation, and begin winning contracts that are meant for veterans.”

Members of the Committee said that they would be working in coming weeks to fix the program’s problems. Members demanded that the SBA do a better job of policing for abuse. In addition, Rep. Glenn Nye (D-VA), the Chairman of the Contracting and Technology Subcommittee, announced that he is introducing legislation to help put an end to fraud in the initiative. His bill would institute fines and criminal penalties. It would also require SBA to dedicate more resources to overseeing the contracts and to reaching out to legitimate veteran-owned businesses in order to encourage their participation.

“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,” Nye said. “It is absolutely unacceptable that some businesses have been allowed to fraudulently and shamefully profit at the expense of our veterans. Today, I am introducing 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 SDVOSB program was created in 2003 and is intended to honor the extraordinary service and sacrifice rendered by veterans with service-related disabilities through sole-source contracts. Under the law, the SBA is charged with administering the program.

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For a copy of the GAO report, click here.

To view video of today’s hearing, click here.