Department of
 

Veterans Affairs
 

Audit of
 

Veteran-Owned and
 

Service-Disabled Veteran-Owned
 

Small Business Programs
 

OFFICE OF AUDITS AND EVALUATIONS

July 25, 2011 

10-02436-234 
ACRONYMS AND ABBREVIATIONS
 

BIRLS Beneficiary Identification Records Locator Subsystem 

CCR Central Contractor Registration 

CFR Code of Federal Regulations 

CVE Center for Veterans Enterprise 

eCMS Electronic Contract Management System 

EPLS Excluded Parties List System 

FAR Federal Acquisition Regulation 

FSS Federal Supply Schedule 

FPDS-NG Federal Procurement Data System-Next Generation 

GAO Government Accountability Office 

JOTFOC Justification for Other Than Full and Open Competition 

NAICS North American Industry Classification System 

OA&L Office of Acquisition and Logistics 

OAL&C Office of Acquisition, Logistics, and Construction 

OIG Office of Inspector General 

ORCA Online Representations and Certifications Application 

OSDBU Office of Small and Disadvantaged Business Utilization 

P&LO Procurement and Logistics Office 

PNM Price Negotiation Memorandum 

SBA U.S. Small Business Administration 

SDVOSB Service-Disabled Veteran-Owned Small Business 

VAAR Veterans Affairs Acquisition Regulation 

VetBiz VIP VetBiz Vendor Information Pages 

VHA Veterans Health Administration 

VOSB Veteran-Owned Small Business 

USH Under Secretary for Health 

To Report Suspected Wrongdoing in VA Programs and Operations:
 

Telephone: 1-800-488-8244
 

E-Mail: vaoighotline@va.gov
 

(Hotline Information: http://www.va.gov/oig/contacts/hotline.asp)
 
Report Highlights: Audit of the 

Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs 

Why We Did This Audit 

We evaluated the Veteran-Owned Small 

Business (VOSB) and Service-Disabled 

Veteran-Owned Small Business (SDVOSB) 

programs to determine if VOSB and SDVOSB 

contracts met program and contract eligibility 

requirements and if program controls were 

effective. The VOSB and SDVOSB programs 

foster entrepreneurship by increasing business 

opportunities for veterans. In FY 2010, VOSB 

and SDVOSB procurements totaled nearly 

$3.5 billion representing approximately 

23 percent of VA’s total procurement spending. 

What We Found 

We project that VA awarded ineligible businesses 

at least 1,400 VOSB and SDVOSB contracts 

valued at $500 million annually and that it will 

award about $2.5 billion in VOSB and SDVOSB 

contracts to ineligible businesses over the next 

5 years if it does not strengthen oversight and 

verification procedures. VA and the Office of 

Small and Disadvantaged Business Utilization 

(OSDBU) need to improve contracting officer 

oversight, document reviews, completion of site 

visits for “high-risk” businesses, and the accuracy 

of VetBiz Vendor Information Pages information. 

Thirty-two (76 percent) of the 42 statistically 

selected reviewed businesses were either 

ineligible to participate in the programs or 

ineligible for the awarded contracts. 

The 32 businesses benefitted from the award of 

$46.5 million in contracts, including $26.7 million in 

Recovery Act-funded contracts intended for 

eligible VOSBs and SDVOSBs. Although VA 

reported awarding 23 and 20 percent of its total 

procurement dollars, respectively, to VOSBs and 

SDVOSBs in FY 2010, we projected that these 

figures were overstated by 3 to 17 percent 

because of awards made to ineligible 

businesses. 

What We Recommended 

We recommended the OSDBU Executive 

Director implement comprehensive VOSB and 

SDVOSB program controls to ensure VA 

effectively administers the programs and meets 

Federal and VA regulations. We also 

recommended the Deputy Under Secretary for 

Health (USH) work with the Office of 

Acquisition, Logistics, and Construction 

(OAL&C) and OSDBU Executive Directors to 

ensure contracting officers adhere to all 

applicable acquisition requirements and review 

subcontracting agreements when making 

awards. 

Agency Comments 

The USH and OAL&C and OSDBU Executive 

Directors agreed with our findings and 

recommendations and plan to complete all 

corrective actions by September 2012. We 

consider these planned actions acceptable and 

will follow up on their implementation. 

(original signed by:) 

BELINDA J. FINN
 

Assistant Inspector General
 

for Audits and Evaluations
 

i 
TABLE OF CONTENTS
 

Introduction......................................................................................................................................1
 

Results and Recommendations ........................................................................................................3
 

Finding 1 Ineligible Businesses Received VOSB and SDVOSB Sole-Source and
 

Set-Aside Contracts.............................................................................................3
 

Appendix E Potential Monetary Benefits in Accordance With Inspector General Act
 

Appendix G Office of Small and Disadvantaged Business Utilization Executive Director
 

Appendix H Office of Acquisition, Logistics, and Construction Executive Director
 

Finding 2 OSDBU Should Implement Management Controls To Provide Effective
 

VOSB and SDVOSB Program Oversight.........................................................18
 

Appendix A Background ...................................................................................................... 23
 

Appendix B Scope and Methodology................................................................................... 25
 

Appendix C Eligibility Exceptions and Contracting Deficiencies ....................................... 28
 

Appendix D Statistical Sampling Methodology................................................................... 30
 

Amendments .................................................................................................... 33
 

Appendix F Under Secretary for Health Comments............................................................ 34
 

Comments ........................................................................................................ 37
 

Comments ........................................................................................................ 44
 

Appendix I Office of Inspector General Contact and Staff Acknowledgments.................. 48
 

Appendix J Report Distribution .......................................................................................... 49
 

ii 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Objectives 

VOSB and 

SDVOSB Program 

Description 

Veterans First 

Contracting 

Program 

Program Office 

Responsibilities 

INTRODUCTION 

We evaluated VA’s oversight of the Veteran-Owned Small Business (VOSB) 

and Service-Disabled Veteran-Owned Small Business (SDVOSB) programs. 

Specifically, we assessed if businesses awarded VOSB and SDVOSB 

sole-source and set-aside contracts met program and contract eligibility 

requirements and if VA has effective management controls in place to 

oversee the programs. 

Congress created the U.S. Small Business Administration (SBA) to maintain 

and strengthen the nation’s economy by enabling the establishment and 

viability of small businesses. In 1999, Congress required the SBA to 

establish programs and services to help veterans make the transition from 

service member to small business owner by increasing Federal contracting 

and subcontracting opportunities for veterans and service-disabled veterans. 

The creation of the VOSB and SDVOSB programs fosters the 

entrepreneurship of veterans by increasing the business opportunities 

available to eligible VOSBs and SDVOSBs when the Federal Government 

purchases goods and services. 

Congress’ passage of the Veterans Benefits, Health Care, and Information 

Technology Act of 2006 (Public Law 109-461) contained veteran-owned 

small business requirements that led to the establishment of the Veterans 

First Contracting Program. The legislation, codified in United States Code, 

Title 38, Sections 8127–8128, authorized VA to take a unique “Veterans 

First” approach in its contracting activities. Provisions in the public law 

changed the order of VA’s contracting preferences, making SDVOSBs and 

VOSBs, the first and second choices, respectively, when satisfying VA’s 

acquisition needs. The law required VOSBs and SDVOSBs to register in a 

VA database, the VetBiz Vendor Information Pages (VIP), to be eligible for 

contract awards and continued to require contracting officers to make fair 

and reasonable price determinations before they awarded VOSB and 

SDVOSB sole-source and set-aside contracts. 

VA’s Office of Small and Disadvantaged Business Utilization (OSDBU) 

assists and supports small business interests through its monitoring of VA’s 

implementation and execution of VOSB and SDVOSB contracting. OSDBU 

is responsible for the development of department-wide policies, programs, 

and practices related to small business concerns. OSDBU also trains VA 

staff, negotiates prime and subcontracting goals, and monitors program 

performance execution for VA leadership. The Office of Acquisition, 

Logistics, and Construction (OAL&C) is responsible for contracting policy 

and training acquisition staff. 

VA Office of Inspector General 1 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Currently, VA is the only agency within the Federal Government that 

maintains an activity to verify the status of veteran-owned small businesses. 

The Center for Veterans Enterprise (CVE) within OSDBU performs the 

business verification function and manages the list of “veteran-owned” 

businesses in VA’s VetBiz VIP database. Further, VA has made additional 

efforts to ensure the integrity of the programs through its amendment of the 

VA Acquisition Regulation (VAAR). For example, VAAR was amended to 

require contracting officers to check the VetBiz VIP database for eligible 

businesses before they award VOSB or SDVOSB contracts. As of 

July 13, 2011, the VetBiz VIP database included over 9,000 businesses, of 

which CVE had verified the eligibility of 7,852 (86 percent) businesses as 

VOSBs or SDVOSBs. 

A revision to the Code of Federal Regulations (CFR)1 has made CVE’s 

VOSB and SDVOSB verification responsibilities more challenging and the 

process for establishing control and ownership more complex. Under this 

revision, veteran owners no longer need to work full-time in the business 

provided they can demonstrate that their outside employment activities do 

not have a significant impact on their ability to manage and control the 

business. In addition, the revised CFR now permits veteran owners to 

maintain more than one business in VetBiz VIP, provided veteran business 

owners demonstrate the requisite requirements of control and ownership. 

1 CFR Title 38, Part 74.4(c)(1) states a business must be controlled by one or more veterans 

or service-disabled veterans who possess requisite management capabilities. Owners need 

not work full-time but must show sustained and significant time invested in the business. 

An owner engaged in employment or management outside the business must submit a 

written statement that demonstrates that the activities will not have a significant impact on 

the owner’s ability to manage and control the business. A January 19, 2011, Federal 

Register notice (Vol. 76, No. 12) modified the rule in CFR Title 38, Part 74, allowing more 

than one business in the VOSB and SDVOSB programs as long as the veteran can 

demonstrate the requisite requirements of ownership and control. 

VA Office of Inspector General 2 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

RESULTS AND RECOMMENDATIONS 

Finding 1	 Ineligible Businesses Received VOSB and SDVOSB 

Sole-Source and Set-Aside Contracts 

VA awarded VOSB and SDVOSB sole-source and set-aside contracts to 

businesses that did not meet eligibility requirements prescribed by Federal 

law.2 Our review of 42 statistically selected businesses disclosed that VA 

awarded 32 (76 percent) ineligible businesses $46.5 million in VOSB and 

SDVOSB contracts during our 12-month review period ending 

May 31, 2010. The awards included $26.7 million in Recovery Act-funded 

contracts. Therefore, we project that VA annually awards ineligible 

businesses a minimum of 1,400 VOSB and SDVOSB sole-source and 

set-aside contracts valued at $500 million. Moreover, over the next 5 years, 

VA will award a minimum of $2.5 billion to ineligible businesses if it does 

not strengthen the programs’ verification and management controls. (See 

Appendix D, Table 4 for additional information.) 

The businesses were ineligible because the veteran owners subcontracted 

more work to nonveteran-owned businesses than allowed under Federal 

regulations or veterans did not really control or own the businesses. 

Ineligible businesses sometimes had multiple issues related to 

subcontracting, control, and ownership. Inadequate CVE eligibility 

verification processes and inadequate oversight of contracting officers who 

are responsible for assessing contractor eligibility at the time of award 

contributed to the award of VOSB and SDVOSB contracts to ineligible 

businesses. Furthermore, many of the awarded VOSB and SDVOSB 

contracts did not meet general Federal Acquisition Regulation (FAR) and 

VAAR requirements intended to ensure the integrity of procurements and 

protect the Government’s interests. 

The award of VOSB and SDVOSB contracts to ineligible businesses reduces 

the funding available to eligible businesses and the accuracy of VA’s 

reported socioeconomic goal accomplishment data. For example, if 

ineligible businesses received between $500 million and $2.6 billion (the 

90 percent confidence interval of our sample) in VOSB and SDVOSB 

awards during FY 2010, VA’s reported total VOSB and SDVOSB 

procurement dollars would decrease anywhere from 3 to 17 percent. Thus, 

VA may be barely meeting the Secretary’s VOSB and SDVOSB 

procurement goals of 12 and 10 percent; even though it reported that it had 

2 CFR Title 38, Part 74 defines business eligibility requirements for participation in VA’s 

VOSB and SDVOSB programs. 

VA Office of Inspector General 3 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Ineligibility Due to 

Subcontracting 

Practices 

“Pass-Through” 

Contracts to 

Nonveteran-Owned 

Businesses 

awarded 23 and 20 percent of its total procurement dollars, respectively, to 

VOSBs and SDVOSBs in FY 2010. (See Appendix D, Table 5 for more 

information.) 

Twenty-four (57 percent) of the 42 reviewed businesses that received 

$39.3 million in VOSB and SDVOSB awards were ineligible because they 

did not meet Federal VOSB and SDVOSB incurred cost and subcontracting 

performance thresholds for the contracted item or service. In these cases, the 

veteran-owned small businesses either entered contracts where they knew 

they would have to “pass through” the majority of the contract funds and 

work requirements to another business or they could not meet FAR incurred 

costs and subcontracting performance requirement thresholds. 

Adherence to incurred cost and subcontracting performance thresholds 

ensures that veteran-owned small businesses, in keeping with the goals of the 

VOSB and SDVOSB socioeconomic procurement programs, perform a 

specified amount of work on each awarded contract. In theory, business 

owners receive a commensurate amount of the funds and benefits from the 

contract award. Use of these thresholds to make awards also reduces the risk 

for fraud and abuse because they deter VOSBs and SDVOSBs from using 

their status to obtain awards and then “pass through” the work for a fee or 

percentage of the contract to larger, nonveteran-owned businesses. 

Despite Federal subcontracting thresholds, 18 businesses that were awarded 

42 VOSB and SDVOSB contracts valued at $35 million “passed through” 

the majority of the contracts’ work requirements and funds to 

nonveteran-owned businesses. Subcontracting thresholds in the CFR3 limit 

the amount of contract work and funds subcontracted out to a 

nonveteran-owned business under a VOSB or SDVOSB contract. In 

addition, the CFR requires VOSBs and SDVOSBs to submit partnering 

agreements with their bid proposals so contracting officers can review them 

prior to award. Nevertheless, businesses used partnering agreements to 

bypass the programs’ subcontracting thresholds. “Pass-through” contracts 

occurred when businesses or joint venture/partnerships listed veterans or 

service-disabled veterans as majority owners of the business, but contrary to 

VOSB and SDVOSB program requirements, the nonveteran-owned 

businesses either performed or managed the majority of the work and 

3 CFR Title 13, Part 125.6(b) and Title 48, Part 852.219-10 and Part 852.219-11 specify 

subcontracting limitations. For service contracts excluding construction, a business must 

incur at least 50 percent of the contract’s personnel costs using its own employees. For 

supplies or products contracts, the business must incur at least 50 percent of the cost of the 

contract. For general construction contracts, the business must incur at least 15 percent of 

the contract’s personnel costs using its own employees. For specialty trade construction 

contracts, the business must incur at least 25 percent of the contract’s personnel costs using 

its own employees. 

VA Office of Inspector General 4 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Exceeding Federal 

Subcontracting 

Thresholds 

received the majority of the contracts’ funds. “Pass-through” contracts 

identified during our audit included the following examples: 

An SDVOSB that offered technical writing services as its major 

business line received two contracts totaling $178,500 to provide 

janitorial services to Veterans Health Administration (VHA) medical 

facilities located in another state. Prior to the award, the SDVOSB 

formed a partnership with a nonveteran-owned business and 

subsequently passed all of the work through to the nonveteran-owned 

business. The SDVOSB alone did not have the experience or staffing 

to perform the work required by the contracts. 

An SDVOSB that provided carpentry and painting services received 

one sole-source and three set-aside contracts valued at $4.2 million 

for projects including elevator and dumbwaiter replacements and 

nursing home and building renovations. The SDVOSB lacked the 

staffing and equipment to complete the required work on these 

contracts and passed the work through to nonveteran-owned 

businesses. For example, the SDVOSB used five nonveteran-owned 

subcontractors to complete a $2.2 million Recovery Act-funded 

SDVOSB set-aside contract to replace elevators and dumbwaiters. 

During interviews, the veteran owner showed no awareness of the 

subcontracting performance requirements and stated the SDVOSB 

did not provide the services required by the contracts so he had to 

outsource the work to subcontractors. 

In some cases, veteran owners did not seem aware of the subcontracting 

performance threshold requirements and that they were ineligible for the 

awarded VOSB and SDVOSB contracts. We concluded that contracting 

officers are not properly reviewing VOSB and SDVOSB contractors’ 

subcontracting and partnering agreements at the time of award to ensure 

businesses meet Federal subcontracting performance thresholds. Many 

factors contributed to the lapse in this review process. Contracting officers 

may not be aware of the requirements and may not be requesting the required 

subcontracting information. Contractors may be withholding the information 

during the bid or request for proposal process, or contracting officers may 

simply not be properly reviewing and evaluating the provided information. 

Six additional businesses that were awarded 15 SDVOSB contracts valued at 

$4.3 million exceeded the subcontracting performance thresholds established 

for service and construction contracts in the CFR. These businesses simply 

lacked the resources to complete the required amount of work under the 

contracts. On service contracts, excluding those for construction, the VOSB 

or SDVOSB must incur at least 50 percent of the cost of the contract using 

its own employees. For general construction contracts, the VOSB or 

SDVOSB must incur at least 15 percent of the cost of the contract using its 

VA Office of Inspector General 5 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Ineligibility 

Because of Lack 

of Control and 

Ownership 

Veterans Did Not 

Manage and 

Control Businesses 

own employees. An example of a business that did not meet the required 

subcontracting threshold follows: 

An SDVOSB received two Recovery Act-funded SDVOSB 

construction contracts valued at $793,000 to repair roads, catch 

basins, and sidewalks and to correct ductwork deficiencies in a 

building. Reviews of the related subcontracts for these two contracts 

determined that the SDVOSB had only performed $47,000 or 

10.5 percent of the work on the road repair contract valued at 

$449,000, while non-SDVOSB subcontractors completed the 

remaining 89.5 percent of the work. The veteran and his employees 

did not perform the required minimum 15 percent of the work on the 

road repair contract along with work required by other active 

contracts assigned to the SDVOSB. 

From our discussions with the business owners who did not meet the 

subcontracting performance thresholds, use of these types of subcontracting 

agreements is a common practice. VOSBs and SDVOSBs solicit 

partnerships with nonveteran-owned businesses that possess the technical 

capability to do the work. Likewise, ineligible nonveteran-owned businesses 

initiate relationships with VOSBs and SDVOSBs to gain access to Federal 

VOSB and SDVOSB contracts. 

Sixteen businesses that were awarded 28 VOSB and SDVOSB contracts 

valued at $8.5 million did not meet Federal control and/or ownership 

requirements for veteran-owned small businesses. Businesses must meet 

these requirements before they can receive VOSB or SDVOSB sole-source 

and set-aside contracts. Thus, CVE focused its efforts exclusively on the 

verification of control and ownership of the businesses to ensure their 

eligibility for the VOSB and SDVOSB programs. Despite CVE’s 

verification processes, our audit still identified ineligible businesses where 

veterans did not control and/or own the businesses but received VOSB or 

SDVOSB awards. 

Fourteen businesses that were awarded 24 VOSB and SDVOSB contracts 

valued at $8 million could not demonstrate that veterans managed and 

controlled the businesses. To establish control, the CFR4 requires one or 

more veterans (or service-disabled veterans) to manage and control the 

operations of a business concern. The veteran(s) must be involved in 

long-term decision making, day-to-day management, and administration of 

4 CFR Title 38, Part 74.1 defines a VOSB and SDVOSB as a business where the 

management and daily business operations are controlled by one or more veterans or 

service-disabled veterans, or in the case of a veteran with a permanent and severe disability, 

a spouse or permanent caregiver of such veteran. Some businesses may be owned and 

operated by an eligible surviving spouse. 

VA Office of Inspector General 6 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

the business’s operations. In addition, the veteran must also hold the highest 

officer position in the business, usually the president or chief executive 

officer, and must have managerial experience commensurate with the extent 

and complexity needed to operate the business. The following provides an 

example where the veteran who was the “president” of the business did not 

control the business. 

An SDVOSB received two SDVOSB construction contracts valued at 

$77,500 to evaluate and rate fire smoke dampers and replace air 

handling and condensing units. However, we were unsuccessful in 

our efforts to contact the veteran, the president of the business. The 

vice president of the SDVOSB, who was not a service-disabled 

veteran, managed the business’s day-to-day operations, and the 

business’s employees said they never met the veteran owner in 

person. The vice president and veteran owner used the owner’s status 

as a service-disabled veteran to obtain sole-source contracts, and the 

absentee veteran owner received quarterly dividend payments from 

the business. 

We also identified similar scenarios involving families where veterans own 

and control the business “on paper.” The self-certifications for the 

businesses on VetBiz VIP, the Central Contractor Registration (CCR), the 

Online Representations and Certifications Application (ORCA), and other 

documents indicate the veteran owns the business. However, interviews and 

observations during visits to businesses often showed that nonveteran family 

members, such as the veterans’ brothers or spouses, managed, operated, and 

controlled the businesses’ day-to-day operations. 

CVE verified 2 of the 14 ineligible businesses where a veteran did not 

manage and control the business. CVE’s verification process involved the 

review of documentation available online about the business such as the 

business license, Dun and Bradstreet reports, CCR, and the USA Spending 

Web site data. However, in our opinion, these online document reviews 

were insufficient to establish control of the business by a veteran. Reviews 

of additional documentation such as resumes, signature cards, negotiated 

checks, as well as onsite interviews with the veteran owner and business 

managers are needed to establish who really controls and manages a 

business. 

VA Office of Inspector General 7 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Veterans Did Not
 

Own Businesses
 Four businesses that did not meet the programs’ ownership requirements 

received seven VOSB and SDVOSB contracts valued at $1.2 million. To 

establish ownership, the CFR5 requires one or more veterans or 

service-disabled veterans to unconditionally and directly own at least 

51 percent of a business. 

As illustrated by the following example, documents may indicate a veteran is 

the business’s owner but that may not be the case in reality: 

A business received a $623,000 SDVOSB contract in July 2009 to 

replace elevators in two VHA medical facility buildings even though 

it was not a veteran-owned business. Online documents such as the 

Dun and Bradstreet reports, CCR, and information from the ORCA 

Web site indicated that a veteran owned the business. However, an 

interview with the president of the company revealed the business 

was actually one of three family-owned and -operated businesses. 

The family employed the veteran in all three businesses, including the 

SDVOSB the veteran supposedly owned, as an hourly wage 

employee. The family encouraged and helped the veteran create the 

SDVOSB, but the documents and interviews with the veteran owner 

and business managers confirmed the veteran did not own or manage 

the business. 

Similar to the ineligible businesses that did not meet control requirements, 

CVE had verified one of the four ineligible businesses that did not meet 

ownership requirements. In the case discussed above, CVE reviewed the 

initial documents available online such as the company’s business license, 

CCR, Dun and Bradstreet, and USA Spending Web site information but did 

not designate this SDVOSB as a “high-risk” business. Consequently, CVE 

did not require a site visit and additional documentation reviews. However, 

it is our opinion that it is difficult to establish ownership without performing 

onsite interviews with the veteran owner and business managers and reviews 

of documents, such as corporate bylaws, stock certificates, and tax returns 

including schedules used to report income from partners. 

CVE also faces additional challenges establishing control and ownership 

because it must change its verification processes to reflect revisions in the 

CFR. The revised CFR states that veteran owners no longer need to work 

full-time in the business and that they could maintain more than one business 

in VetBiz VIP if the veteran owners can demonstrate control and ownership. 

5 CFR Title 38, Part 74.1 defines a VOSB and SDVOSB as a business not less than 

51 percent owned by one or more veterans or service-disabled veterans, or in the case of any 

publicly owned business, not less than 51 percent of the stock of which is owned by one or 

more veterans or service-disabled veterans. 

VA Office of Inspector General 8 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Ineligibility 

Caused by 

Improper Use of 

SDVOSB Status 

Two businesses that did not meet SDVOSB eligibility requirements received 

13 SDVOSB contracts (4 sole-source awards and 9 set-asides) valued at 

$5.6 million. Under Public Law 109-461, businesses owned by 

service-disabled veterans have priority or preference over veteran-owned 

small businesses competing for the same contracts. Moreover, to be eligible 

for SDVOSB contracts, the CFR defines a service-disabled veteran as a 

veteran with a VA service-connected disability rating between 0 and 

100 percent. Consequently, these two VOSBs may have improperly 

benefitted from their use of the SDVOSB status and blocked eligible 

SDVOSBs from receiving these contracts. 

For these two businesses, the veteran owners “self-certified” in the CCR and 

VetBiz VIP that they had service-connected disabilities and requested CVE 

verification to participate in the SDVOSB program. CVE could not verify 

the claimed service-connected disabilities in the Beneficiary Identification 

Records Locator Subsystem (BIRLS) and sent letters to the businesses 

stating that they could not verify the veteran owners’ disability ratings. CVE 

stated that until the passage of the Veterans’ Benefits Act of 20106 it was not 

required to remove businesses from the VetBiz VIP database if it could not 

verify the veterans’ disability rating. As a result, these two businesses were 

still visible to contracting officers on VetBiz VIP and continued to receive 

SDVOSB awards. 

One business that self-certified as an SDVOSB in VetBiz VIP 

received three sole-source and seven set-aside contracts valued at 

$5.3 million for landscaping and cemetery maintenance services. The 

veteran owner never filed a disability claim with the Veterans 

Benefits Administration and could only provide letters during our 

audit from his college and a high school friend as evidence of his 

hearing loss. 

The other business that self-certified as an SDVOSB in VetBiz VIP 

received one sole-source and two set-aside SDVOSB contracts for 

duct cleaning and maintenance work valued at $343,500. Although 

the veteran owner had self-certified his business as an SDVOSB on 

VetBiz VIP, BIRLS did not have a record of the veteran, and the 

veteran did not have a disability rating. During our interviews, the 

veteran owner stated he was in the Marine Corps for 5 weeks. He 

stated that he only attended boot camp during that time and injured 

his leg during a casual football game, which resulted in the veteran 

6 The President signed the Veterans’ Benefits Act of 2010 in October 2010. Section 104 of 

this law expanded VA’s requirement to verify business status as owned and operated by 

veterans, service-disabled veterans, or eligible surviving spouses. In addition, the Act 

specifically prohibited businesses from being listed in the database until VA verified the 

veterans’ statuses, and where applicable, disability ratings. 

VA Office of Inspector General 9 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Factors 

Contributing to 

Awards Made to 

Ineligible 

Businesses 

Contracting Officers 

Did Not Properly 

Assess Contract 

Eligibility 

OSDBU Lacked 

Effective 

Verification 

Processes 

owner’s honorable discharge. However, he never filed a claim with 

the Veterans Benefits Administration and, therefore, lacked a 

service-connected disability rating. Thus, the veteran was not eligible 

to receive the SDVOSB contract awards. 

OSDBU’s inadequate administration and oversight of VA’s VOSB and 

SDVOSB programs, along with current subcontracting and partnering 

practices, makes VA vulnerable to the award of contracts to ineligible 

businesses. Although VA has implemented business verification processes 

that other Federal agencies have not, the Office of Acquisition and Logistics 

(OA&L) and the Procurement and Logistics Office (P&LO) have not 

provided contracting officers sufficient guidance and oversight to ensure they 

adequately assess VOSB and SDVOSB contract eligibility. Contracting 

officers need to assess the business’s subcontracting and work plans at the 

time of award and to monitor performance throughout the term of the 

contracts to ensure their eligibility. Moreover, OSDBU should strengthen its 

CVE verification processes and to coordinate the monitoring and 

administration of the VOSB and SDVOSB programs with two key VA 

procurement offices, OA&L and P&LO. (Finding 2 discusses the 

management problems challenging OSDBU’s ability to carry out its 

responsibilities.) 

Many of the ineligible businesses received VOSB or SDVOSB contracts 

because contracting officers did not adequately assess the businesses’ 

programs and contract eligibility as required by the FAR and VAAR during 

the contract award process. Of the 32 ineligible businesses we reviewed, 

24 (75 percent) were ineligible because contracting officers either did not 

review or properly assess subcontracting and partnering agreements provided 

by contractors before awarding VOSB and SDVOSB contracts. Similarly, 

contracting officers did not consistently check the VetBiz VIP database or 

the businesses’ North American Industry Classification System (NAICS) 

codes to ensure their eligibility for VOSB and SDVOSB contracts. Federal 

law requires businesses to register in VetBiz VIP to be eligible for an award. 

The VAAR 819.7003 requires contracting officers to check the eligibility of 

businesses for VOSB or SDVOSB awards in the VetBiz VIP database prior 

to award. In addition, VAAR requires contracting officers to check the 

NAICS codes of the business with those assigned to the contract to ensure 

the business is a small business concern based on size standards for each 

NAICS category assigned by the SBA. 

OSDBU’s ineffective oversight of CVE contributed to the significant 

number of ineligible businesses that received VOSB and SDVOSB contracts. 

OSDBU did not ensure CVE had adequate VOSB and SDVOSB verification 

processes and that it adequately maintained the VetBiz VIP database. 

Federal law requires CVE to verify each small business concern listed in the 

VA Office of Inspector General 10 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

VetBiz VIP database to ensure a veteran or a service-disabled veteran owns 

and controls the business. Prior to the signing of the Veterans’ Benefits Act 

of 2010 and the related VAAR Class Deviation7 effective on 

October 1, 2010, CVE’s verification process relied heavily on limited 

electronic document reviews and onsite reviews for businesses deemed 

“high-risk.” CVE defined a high-risk business as one where the veteran 

owned only 51 percent of the business, the business received VA contract 

dollars exceeding $5 million, or the business was a Federal Supply Schedule 

(FSS) vendor. 

Consequently, CVE reviewed business information available electronically 

through the CCR, Dynamic Small Business Search, Dun and Bradstreet, 

ORCA, and the USA Spending Web site to assess control and ownership. 

Nevertheless, CVE’s document review process in many cases was 

insufficient to establish control and ownership and an onsite review was not 

required because the business did not meet CVE’s criteria for a high-risk 

business. In effect, this verification process allowed businesses to 

self-certify as veteran-owned or service-disabled veteran-owned small 

businesses with little supporting documentation. Moreover, the likelihood of 

identifying self-certified businesses that were ineligible due to a lack of 

control and ownership was low because CVE did not always follow through 

on its own procedures and require onsite reviews for individual businesses 

that it judged as high-risk. 

Since the VAAR Class Deviation became effective on October 1, 2010, CVE 

started performing additional documentation reviews as part of its 

verification process. It has started requiring businesses to submit additional 

documents that we consider key to establishing control and ownership such 

as tax returns, stock certificates, and negotiated checks. Furthermore, under 

its newly implemented “fast track” process, CVE is making more of an effort 

to complete site visits for businesses under consideration for VOSB and 

SDVOSB contract awards. 

CVE’s failure to maintain accurate and current information in the 

VetBiz VIP database also exacerbated problems in CVE’s verification 

processes. For example, CVE staff did not remove a business from 

VetBiz VIP after OSDBU sustained a protest of a business’s veteran-owned 

status, thus allowing an ineligible business to continue receiving sole-source 

and set-aside contracts. 

7 According to the Class Deviation from VAAR 804.1102, the apparently successful offeror 

is required to apply for and receive verified status by CVE as a VOSB or SDVOSB before a 

contracting officer can execute the award. 

VA Office of Inspector General 11 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

OSDBU’s 

Ineffective 

Oversight Led to 

Awards to Ineligible 

Businesses 

Finally, OSDBU’s ineffective oversight of the VOSB and SDVOSB 

programs and lack of coordination with OA&L and P&LO also contributed 

to the high number of ineligible businesses awarded VOSB and SDVOSB 

sole-source and set-aside contracts. OSDBU acknowledged that it did not 

have current policies and procedures and lacked sufficient monitoring 

mechanisms to properly administer the verification program. OSDBU also 

did not coordinate with OA&L and P&LO to monitor contracting officers 

and ensure they complied with VOSB and SDVOSB requirements. 

For 18 (56 percent) of the 32 ineligible businesses identified by our auditors, 

contracting officers had not checked the eligibility of the business in the 

VetBiz VIP database before awarding them 33 contracts valued at 

$15.6 million. In addition, contracting officers awarded 57 contracts valued 

at $39.3 million to 24 (75 percent) of the 32 ineligible businesses that 

exceeded VOSB and SDVOSB subcontracting thresholds. Thus, the 

majority of the $39.3 million in VOSB and SDVOSB contract funds and 

work benefitted nonveteran-owned businesses. Finally, in the two cases 

discussed below, the contracting officers purposefully facilitated the award 

of VOSB and SDVOSB contracts to ineligible businesses. 

The contracting officer encouraged a nonveteran-owned business to 

enter into a pass-through arrangement with an SDVOSB for the 

purchase and installation of paper shredding equipment. The 

contracting officer told the nonveteran-owned business with which he 

had negotiated a contract to “find an SDVOSB to work with” after 

the contracting officer realized the business was not an SDVOSB. 

The nonveteran-owned business sought out an SDVOSB and paid it 

$15,000 for the use of its SDVOSB status. The contracting officer 

then awarded the $398,000 sole-source contract to the SDVOSB that 

partnered with the nonveteran-owned business to install paper 

shredding machines. 

The contracting officer knowingly awarded a $69,000 VOSB 

sole-source contract for van and taxi services at a VA Community 

Based Outpatient Clinic to an ineligible entity, a nonprofit Veterans 

Service Organization. The CFR8 defines an eligible small business as 

a business entity that has been organized for profit. While VA may 

establish other types of contracts with nonprofits, such as Veterans 

Service Organizations, current legislation prohibits the award of 

VOSB and SDVOSB contracts to nonprofit organizations. 

According to interviews with the Board of Directors of the Veterans 

Service Organization, the contracting officer instructed the 

8 CFR Title 13, Part 121.105 defines a business concern eligible for assistance as a small 

business organized for profit. 

VA Office of Inspector General 12 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

organization to register and self-certify as a VOSB in VetBiz VIP and 

the CCR to obtain the award. 

Other Contracting 

Deficiencies 

Related to 

Inadequate 

Contract 

Oversight 

Many of the VOSB and SDVOSB contracts we reviewed did not meet FAR, 

VAAR, and VA contracting requirements that protect the Government’s 

interests and promote transparency in VA procurements. 

Fifty-four (68 percent) of the 79 VOSB and SDVOSB contracts valued at 

$21.9 million awarded to the 32 ineligible businesses had one or more 

contracting deficiencies. 

Contracting officers awarded 20 businesses 30 VOSB and SDVOSB 

contracts valued at $12 million where they did not complete a justification 

for other than full and open competition (JOTFOC) prior to the award or 

perform and document a price reasonableness determination in a document 

such as the price negotiation memorandum (PNM). FAR 6.303-1 states that 

contracting officers should not use sole-source contracts or award any 

contracts using other than full and open competition unless the contracting 

officer justifies the use of such actions in writing. In addition, 

VAAR 806.302-7 requires the contracting officer to justify contract awards 

using other than full and open competition. Finally, FAR 15.406-3(a)(11) 

requires contracting officers to document in the contract file the principle 

elements of the negotiated agreement to include documentation of fair and 

reasonable pricing. 

Contracting officers also did not review the Excluded Parties List System 

(EPLS) to ensure businesses had not been debarred or determined ineligible 

to receive the contracts. We found contracting officers did not check the 

EPLS for 23 businesses prior to the award of 41 VOSB and SDVOSB 

contracts totaling $19.5 million. FAR 9.405(d)(1) requires contracting 

officers to review the EPLS to ensure businesses have not been debarred, 

suspended, or proposed for debarment. 

In many cases, contracting officers did not properly use VA’s Electronic 

Contract Management System (eCMS), which promotes transparency and 

improves the monitoring of VA contracting actions. Contracting officers had 

not uploaded required contract documents in eCMS for 29 businesses 

awarded 68 VOSB and SDVOSB contracts valued at $27.9 million even 

though OA&L Information Letter IL049-07-06 requires contracting officers 

to record all procurement actions of $25,000 or more in eCMS. VA has 

opportunities to enhance contract performance oversight and accountability 

by ensuring this information is captured in eCMS. 

VA Office of Inspector General 13 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Eligibility and 

Contracting 

Deficiencies in 

Recovery ActFunded Contracts 

Conclusion 

As part of the Office of Inspector General’s (OIG) mandated Recovery Act 

oversight responsibilities, we noted that 13 (41 percent) of the 32 ineligible 

businesses had improperly received $26.7 million in VOSB and SDVOSB 

contracts funded by the Recovery Act. On February 17, 2009, the President 

signed the Recovery Act providing VA with about $1 billion in funding to 

correct, replace, upgrade, and modernize existing infrastructure and utility 

systems at VA medical facilities. Both the President and Congress 

emphasized the need for accountability, efficiency, and transparency in the 

allocation and expenditure of Recovery Act funds. The Recovery Act also 

mandated that the OIG provide oversight for programs, grants, and activities 

funded by the Recovery Act. 

Our statistically selected sample of 42 businesses included 14 businesses that 

were awarded 24 VOSB and SDVOSB Recovery Act-funded contracts 

valued at $27.3 million. Thirteen (93 percent) businesses were ineligible for 

22 VOSB and SDVOSB Recovery Act contracts (92 percent) valued at 

$26.7 million. Similar to other ineligible businesses, businesses awarded 

Recovery Act-funded VOSB and SDVOSB contracts were ineligible because 

of improper subcontracting practices, a lack of demonstrated control or 

ownership, improper use of SDVOSB status, or a combination of these 

factors. 

In addition, contracting officers awarded 9 businesses (64 percent) 10 VOSB 

and SDVOSB Recovery Act-funded contracts valued at $5.3 million that had 

at least 1 contracting deficiency. Contracting officers awarded VOSB and 

SDVOSB Recovery Act contracts without querying VetBiz VIP and EPLS to 

ensure the businesses were eligible to participate in the VOSB and SDVOSB 

programs. Contracting officers also did not prepare required contract 

documentation such as JOTFOCs and PNMs where applicable and did not 

place required documentation in eCMS. (See Appendix C, Table 3 for more 

information.) 

Based on our audit results, VA awards ineligible businesses a minimum of 

1,400 VOSB and SDVOSB sole-source and set-aside contracts valued at 

$500 million annually (lower limit of 90 percent confidence interval), and 

could award a minimum of $2.5 billion to ineligible businesses over the next 

5 years. (See Appendix E for additional information.) Moreover, the 

significant number of ineligible businesses receiving VOSB and SDVOSB 

awards also decreases the reliability of the VOSB and SDVOSB 

socioeconomic goal data reported annually to Congress. VA cannot be 

exactly sure how much VOSBs and SDVOSBs are actually benefitting from 

these contract awards. (See Appendix D, Table 5 for more information.) 

VA should improve visibility and transparency over VetBiz VIP and 

verification information that supports the eligibility of the businesses 

participating in these programs. Since the implementation of the VAAR 

VA Office of Inspector General 14 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Class Deviation in October 2010, CVE has implemented additional 

documentation reviews to strengthen VOSB and SDVOSB verification 

processes. Documentation reviews without onsite visits may not identify 

ineligible businesses where the veteran lacks control and ownership. 

Verification of control and ownership has become even more challenging for 

CVE because it must also implement changes related to the Veterans’ 

Benefits Act of 2010. 

Although OSDBU has recently implemented a “fast track” process to assess 

businesses’ eligibility prior to awards, it should work with OA&L and P&LO 

to develop a long-term solution that ensures the participation of eligible 

businesses and adequate oversight. By coordinating the training and 

monitoring of contracting officers, OSDBU, OA&L, and P&LO can ensure 

contracting officers properly assess VOSB and SDVOSB program and 

contract eligibility and award VOSB and SDVOSB contracts that meet FAR 

and VAAR requirements. Furthermore, because of the significant 

subcontracting issues we identified, OSDBU, OA&L, and P&LO, in our 

opinion, need to hold contracting officers accountable for assessing and 

monitoring businesses’ subcontracting, joint venture, and partnering 

agreements. Contracting officers should be responsible for ensuring 

businesses understand contract and performance requirements at the time of 

award and monitor the businesses’ compliance with subcontracting 

requirements throughout the term of the contract. We also suggest VA 

enhance its veteran-owned business outreach and education efforts to ensure 

veterans receive information on VOSB and SDVOSB program and contract 

eligibility and contract performance requirements. 

Recommendations 1.	 We recommended the Deputy Under Secretary for Health develop and 

implement a review strategy for active, high-dollar VOSB and SDVOSB 

contracts to determine if Federal subcontracting performance 

requirements have been met, and if the requirements have not been met, 

to research and pursue remedies. 

2.	 We recommended the Executive Director of the Office of Small and 

Disadvantaged Business Utilization9 establish an oversight function to 

ensure the completion of site visits for all VOSBs and SDVOSBs 

identified by the Center for Veterans Enterprise as high-risk to ensure 

that they meet all Federal requirements for control, ownership, and 

program eligibility. 

3.	 We recommended the Executive Director of the Office of Acquisition, 

Logistics, and Construction coordinate with the Deputy Under Secretary 

9 The title of this position has recently changed to the Executive Director, Small and Veteran 

Business Programs. 

VA Office of Inspector General 15 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Management 

Comments and 

OIG Response 

for Health and the Executive Director of the Office of Small and 

Disadvantaged Business Utilization to develop and mandate training for 

contracting officers on VOSB and SDVOSB ownership and control 

requirements and the assessment of subcontracts and joint venture 

agreements for compliance with FAR, VAAR, and Federal regulations. 

4.	 We recommended the Executive Director of the Office of Small and 

Disadvantaged Business Utilization coordinate with the Executive 

Director of the Office of Acquisition, Logistics, and Construction and the 

Deputy Under Secretary for Health to monitor VOSB and SDVOSB 

contracts to ensure contracting officers have complied with applicable 

FAR and VAAR requirements; documented their review of 

subcontracting, partnering, and joint venture agreements; and properly 

used the Electronic Contract Management System. 

5.	 We recommended the Executive Director of the Office of Acquisition, 

Logistics, and Construction coordinate with the Deputy Under Secretary 

for Health to develop policies and procedures to ensure that appropriate 

administrative action is taken when it is determined that a contracting 

officer has knowingly awarded a VOSB or SDVOSB contract to an 

ineligible business or entity and, where feasible, terminate these awards 

and reestablish them with eligible businesses. 

The Under Secretary for Health, the Executive Director of the Office of 

Small and Disadvantaged Business Utilization, and the Executive Director of 

the Office of Acquisition, Logistics, and Construction generally agreed with 

our findings and recommendations and provided acceptable action plans. 

The Under Secretary for Health has developed a multi-step strategy using 

statistical sampling to review active VOSB and SDVOSB contracts. 

OSDBU, which is reviewing all businesses with pending awards, estimates 

that it will be able to perform site visits for about one third of the programs’ 

current applicants, and believes it now has the capability to visit all potential 

high-risk applicants. OAL&C is developing contracting officer training on 

the Veterans First Contracting Program and guidance to heighten awareness 

of the use of VetBiz VIP. 

All three offices have indicated that they will address the challenge of 

reducing the number of ineligible businesses in the VOSB and SDVOSB 

programs. However, the effectiveness of their action plans will ultimately 

depend upon their continued collaboration as they follow through with and 

implement the plans. Issues involving Veteran ownership and control and 

business’ eligibility for contracts awarded under the SDVOSB and VOSB 

authorities demonstrate how important it is for OSDBU, VHA’s Procurement 

and Logistics Office, and the OAL&C to work together. 

VA Office of Inspector General 16 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

VA should address the interrelated responsibilities of these three offices as it 

develops and implements an enterprise-wide strategy to reduce the number 

of ineligible businesses receiving VOSB and SDVOSB contracts. We will 

monitor VA’s actions closely to ensure the actions taken adequately address 

the report’s recommendations. We will follow up to ensure contracting staff 

are held accountable for inappropriate actions. Appendixes F, G, and H 

contain the full text of the comments of the Under Secretary for Health, the 

Executive Director of the OSDBU, and the Executive Director of the 

OAL&C. 

Finally, we addressed technical issues and concerns about the report with the 

individual offices and revised or added clarifying information to the report as 

needed. VA’s most significant technical concern with the report regarded 

the OIG’s inclusion in its projections of awards of $25,000 and greater made 

under contracting authorities other than the Veterans First Contracting 

Program. Contracting authorities such as FSS, multi-agency contracts, and 

Government-wide acquisition contracts do not specifically require VA to 

verify the eligibility of the businesses. 

In response, the primary objective of our audit was to identify potentially 

ineligible businesses that received VOSB and SDVOSB awards regardless of 

whether or not VA had verified their status. The majority of the businesses 

in our universe received their awards through the Veterans First Contracting 

Program. Some of the reviewed businesses received FSS orders, as well as 

VOSB and SDVOSB sole-source and set-aside contracts under the Veterans 

First Contracting Program. Although the FSS authority does not specifically 

mandate verifications, we believe it remains incumbent upon VA to ensure 

the eligibility of these businesses because VA’s National Acquisition Center 

establishes the initial FSS contracts and VA includes FSS awards in its 

reported VOSB and SDVOSB socioeconomic goal accomplishment data. In 

addition, none of the reviewed businesses had any multi-agency or 

Government-wide contract orders that were designated VOSB or SDVOSB 

awards valued at $25,000 and greater. Therefore, the awards made under 

these other contracting authorities to these businesses did not affect our audit 

results or projections. 

VA Office of Inspector General 17 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Finding 2
 

OSDBU and CVE 

Lack a Defined 

Organizational 

Structure 

Continuing CVE 

Operational 

Challenges 

OSDBU Should Implement Management Controls To 

Provide Effective VOSB and SDVOSB Program 

Oversight 

OSDBU lacks management controls prescribed by Federal policy10 and the 

CFR to ensure effective operation and achievement of its program office 

responsibilities. OSDBU lacks a clearly defined organizational structure 

with documented roles and responsibilities; current policies, procedures, and 

monitors to administer the VOSB and SDVOSB programs and business 

verification process; and an effective performance management system with 

which to monitor and evaluate overall performance. 

OSDBU did not develop a comprehensive management control structure for 

the management and oversight of CVE because it considered the 

establishment of management controls to be secondary to its other 

responsibilities and day-to-day operations. As a result, OSDBU lacks 

reasonable assurance that CVE is operating effectively to eliminate VA’s 

current backlog of business verifications and is properly maintaining the 

VetBiz VIP database to prevent ineligible businesses from receiving VOSB 

and SDVOSB contracts. Without the implementation of an adequate 

management control system, OSDBU will not be able to ensure the effective 

implementation of current CVE process improvement initiatives and the 

effectiveness of CVE’s management and operations. 

OSDBU and CVE lack a formal organizational structure. OSDBU and CVE 

managers have not formally defined their staff’s roles and responsibilities in 

key areas. Consequently, CVE lacked an accurate, updated organizational 

chart; CVE staff that performed business verifications lacked documented 

duties, roles, and responsibilities; and some CVE staff lacked job 

descriptions that accurately described their current job functions. The CVE 

Deputy Director attributed the absence of key organizational and 

management control documents to recent program changes and a 

reorganization of the office. In addition, the CVE Deputy Director stated 

CVE had encountered difficulties with the Office of Human Resources 

Management in obtaining approval for job position descriptions that had 

been included in the CVE reorganization package approved on 

January 14, 2009. 

In response to Section 104 of the Veterans’ Benefits Act of 2010, effective 

October 13, 2010, CVE implemented new verification processes, including a 

“fast track” verification process for businesses under consideration for 

10 OMB Circular No. A-123 defines management’s responsibility for internal control in 

Federal agencies. 

VA Office of Inspector General 18 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Efforts to Address 

Structural and 

Operational Issues 

in OSDBU and CVE 

OSDBU and CVE 

Lack Formal 

Verification 

Program Guidance 

VOSB or SDVOSB awards. The Act required the exclusion of businesses 

from the VetBiz VIP database and listing until the verification of their status 

as a veteran-owned small business. As of the effective date of the Act, CVE 

had 60 days to notify all of the unverified businesses in the database of the 

need to apply for verification and of their removal from the database if they 

did not submit the requested verification information within 90 days of 

receipt of the notice. As a result, CVE had a significant backlog of 

unverified businesses and had verified only 6,621 (39 percent) of the just 

over 17,000 businesses in the VetBiz VIP database by January 31, 2011. 

During an April 2011 Executive Leadership Board meeting, OSDBU 

reported that in implementing the provisions of the Act, CVE had removed 

8,100 businesses from public view in the VetBiz VIP database because they 

had not responded to CVE document requests. Further, the CVE Deputy 

Director stated that she believed a large number of incoming businesses were 

waiting for the implementation of CVE’s new Web-based portal, VIP 5, to 

submit their verification documents online. CVE expected VIP 5 to improve 

the verification process because it would allow businesses to upload 

verification documents, check their verification status, and allow CVE to 

automate BIRLS system and EPLS reviews. According to OSDBU, it 

implemented VIP 5, including a case management system, with partial 

functionality on May 2, 2011. As of July 13, 2011, CVE had verified 7,852 

(86 percent) of the 9,147 businesses shown in the VetBiz VIP database. 

VA’s Chief of Staff chartered a task force including representatives from 

OSDBU, OA&L, Office of General Counsel, and the Office of Information 

and Technology to identify opportunities for VOSB and SDVOSB 

verification process improvements, standardize communication for veterans 

seeking information on the programs, and ensure OSDBU and CVE work 

together. We consider the implementation of VIP 5 and the process 

improvement initiative of the Chief of Staff to be positive steps. However, 

the absence of a clear organizational structure in which OSDBU and CVE 

staff have documented roles and responsibilities makes the implementation 

of any lasting, long-term operational improvements difficult. Without the 

establishment of a formal organizational structure and fundamental 

management controls, VA cannot ensure the effectiveness of the OSDBU’s 

and CVE’s operations and accountability for specific functions and duties 

within the offices, such as those needed to reduce the backlog of unverified 

businesses. 

OSDBU and CVE lacked current policies and procedures on the 

administration of the VOSB and SDVOSB verification program. During the 

audit, we found that CVE had not updated its policies and procedures to 

reflect changes in VetBiz VIP and to address verification processes needed to 

comply with the Veterans’ Benefits Act of 2010. OSDBU and CVE 

managers stated they generally relied on VA Information Letters issued by 

VA Office of Inspector General 19 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

OSDBU and CVE 

Lack an Effective 

Performance 

Monitoring 

Process 

OA&L and notices of rule changes in the Federal Register to provide 

updated program requirements and guidance to their staffs instead of their 

own updated policies and procedures. Moreover, neither OSDBU nor CVE 

had developed additional guidance to establish needed CVE management 

oversight functions such as accountability for the completion of assigned 

verification duties and responsibilities and the establishment of verification 

performance measures and reporting requirements. On April 15, 2011, after 

the audit had concluded, CVE issued revised guidelines that it believed 

would provide CVE staff comprehensive direction. 

OSDBU and CVE lack comprehensive, effective performance measures and 

monitors. CVE had only established formal timeliness and quality standards 

for one of its three groups, the Risk Assessment group. In total, CVE had 

18 full-time equivalents assigned to 3 CVE groups to help maintain VetBiz 

VIP and complete VOSB and SDVOSB verifications. 

	 The Operations and Technology group assists in CVE operations 

planning, budgeting, VetBiz VIP database IT support, and operates the 

CVE Call Center, which, according to the group manager, receives 

2,000 to 3,000 calls per month from veterans inquiring about business 

assistance and guidance. The group also performs quality reviews on 

completed business verification reviews and risk assessments. 

	 The Verifications group performs initial verification assessments, creates 

new business profiles, updates an internal CVE database, and coordinates 

the performance of business verification reviews with CVE’s contractors. 

	 The Risk Assessment group reviews verification assessments for 

“high-risk” businesses, and as needed, according to the Deputy Director, 

coordinates up to 100 monthly onsite reviews with CVE’s 2 contractors 

who conduct the reviews. 

OSDBU and CVE lacked performance measures to monitor and assess the 

effectiveness of the overall performance for the Operations and Technology 

and Verifications groups. OSDBU and CVE managers’ weekly performance 

monitoring meetings focused on the progress the office made on the 

verifications listed on the verification inventory sheet—a short numerical 

summary showing the number of completed, in process, and the status of 

backlogged businesses awaiting verification. OSDBU and CVE managers 

monitored the office’s progress in completing verifications and implemented 

performance measures and monitors in their staff’s individual performance 

appraisals. However, management did not assign accountability for the 

timely, quality completion of work, and ensure the overall effectiveness of 

the processes of the Operations and Technology and Verifications groups. 

VA Office of Inspector General 20 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Conclusion 

Recommendation 

Management 

Comments and 

OIG Response 

Emphasis on the completion of verifications without equal attention given to 

the quality of the verifications and the proper coordination and execution of 

CVE duties leaves CVE and the VOSB and SDVOSB programs vulnerable 

to fraud and abuse. Inadequate or incomplete verifications, or as discussed 

in Finding 1, the failure to properly maintain VetBiz VIP, can result in the 

award of VOSB and SDVOSB contracts to ineligible businesses. Moreover, 

without an effective performance measurement and monitoring system, 

OSDBU cannot determine if it has the right staff, resources, and processes in 

place to timely address VA’s backlog of about 2,000 verifications in process 

as of the Verification Program Report, dated July 12, 2011. 

OSDBU managers stated CVE was responsible for monitoring verification 

program managers and staff and ensuring the proper completion of business 

verifications. Nevertheless, the CVE Deputy Director had not implemented 

performance measures to monitor CVE supervisors and staff and to ensure 

accountability for performance. The CVE Deputy Director stated that she 

assessed work performance based on recently completed work because some 

of her staff lacked current job descriptions and/or formal assigned duties and 

responsibilities. 

OSDBU and CVE officials need to improve the management of CVE before 

they can effectively administer VA’s VOSB and SDVOSB programs and 

reduce the number of ineligible businesses receiving VOSB and SDVOSB 

awards. At this time, OSDBU lacks the performance management 

information needed to determine if it has the right staffing mix and processes 

in place to address the backlog of businesses requiring eligibility verification 

due to the implementation of the Veterans’ Benefits Act of 2010. OSDBU 

also lacks fundamental management controls, such as a defined 

organizational structure and policies and procedures, to monitor, maintain, 

and measure sustained CVE performance and the implementation of process 

improvements over time. 

6.	 We recommended the Executive Director of the Office of Small and 

Disadvantaged Business Utilization establish a comprehensive 

management control system including a defined organizational structure 

with formalized roles and responsibilities, a performance management 

system, and updated policies and procedures to ensure the effective 

administration of the VOSB and SDVOSB programs and related 

verification and reporting processes required by Federal law. 

The Executive Director of the Office of Small and Disadvantaged Business 

Utilization agreed with our finding and recommendation and provided an 

acceptable action plan. The Executive Director has taken steps to strengthen 

the integrity of the VOSB Verification Program through the issuance of 

updated guidelines on April 15, 2011, and the initiation of the enhanced 

VetBiz VIP database on May 2, 2011. Moreover, the Executive Director has 

VA Office of Inspector General 21 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

developed a detailed action plan to address OSDBU’s organizational 

structure, management controls system, performance management system, 

policies and procedures, reporting systems, and regulations. OSDBU plans 

to complete these corrective actions by September 2012. We consider this 

action plan responsive to our concerns and we will follow up on its 

implementation. (Appendix G contains the full text of the comments 

received from the Executive Director of the Office of Small and 

Disadvantaged Business Utilization.) 

VA Office of Inspector General 22 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix A 

Procurement 

Goals 

VOSB and 

SDVOSB Program 

Magnitude 

CVE Verification 

Process 

Background 

The Veterans Entrepreneurship and Small Business Development Act of 

1999 set an annual Government-wide goal of 3 percent of the total value of 

all prime contract and subcontract awards for each fiscal year for small 

business concerns owned and controlled by service-disabled veterans. In 

January 2008, pursuant to Public Law 109-461, the Secretary established 

VA’s first-ever procurement goals for VOSB and SDVOSB participation in 

VA procurements. These goals increased VA’s SDVOSB procurement goal 

from the Federal Government’s statutory minimum of 3 percent to 7 percent, 

and its VOSB procurement goal from 7 percent to 10 percent. The 

Government awards contracts to VOSBs and SDVOSBs through sole-source 

or set-aside contracts based on competition restricted to small businesses. 

VA’s use of the VOSB and SDVOSB programs has grown significantly over 

the past 3 years. VA has steadily increased VOSB and SDVOSB 

procurements, from $2.1 billion in FY 2008 to $2.7 billion in FY 2009. In 

FY 2010, VA reported that VOSB and SDVOSB program expenditures 

totaled nearly $3.5 billion or 23 percent of VA’s total program procurement 

spending. 

CVE administers a verification process to certify the eligibility of VOSBs 

and SDVOSBs for small business sole-source and set-aside contracting 

opportunities. The verification process begins when the veteran owner(s) 

electronically signs or faxes CVE VA Form 0877 declaring majority and, if 

applicable, minority ownership percentages. To assess a business’s 

eligibility for the VOSB or SDVOSB program, CVE reviews the veteran’s 

status in VA’s BIRLS and reviews information available about the business 

online through the CCR, Dynamic Small Business Search, Dun and 

Bradstreet, ORCA, and USA Spending Web sites. 

CVE designates VOSBs and SDVOSBs high-risk if it determines the 

business has a 51 percent majority veteran owner, has received VA contract 

dollars exceeding $5 million, or is an FSS vendor. When a business is 

designated as high-risk, CVE schedules an onsite review by a contractor to 

conduct additional verification work. The onsite review consists of the 

following: 

	 An evaluation of the business’s day-to-day operations to assess the 

veteran’s involvement in the daily management of the business. 

	 Discussions with the veteran owner and other responsible employees and 

personnel to understand their role in the business and their interaction 

with the veteran owner. 

VA Office of Inspector General 23 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Recent Regulatory 

Changes Affecting 

VOSB and 

SDVOSB 

Programs 

VA Acquisition 

Offices That Help 

Implement the 

VOSB and 

SDVOSB 

Programs 

Prior Audits 

	 Additional reviews of documents such as resumes, negotiated checks, 

corporate bylaws, stock certificates, and tax returns to help assess 

whether the veteran(s) owns and controls the business. 

On September 10, 2010, VA obtained a class deviation from 

VAAR 804.1102, “Vendor Information Pages Database.” The deviation, 

effective October 1, 2010, required prospective VOSB and SDVOSB 

awardees under the Veterans First Contracting Program to apply for 

verification and be verified by CVE prior to the receipt of an award. In 

addition, on October 13, 2010, the President signed the Veterans’ Benefits 

Act of 2010 in which Section 104 of the Act required VA to verify the 

program eligibility of all VOSBs and SDVOSBs listed in the VetBiz VIP 

database. The Act required VA to provide VOSB and SDVOSB owners 

notice of this requirement within 60 days of the Act’s passage, and VOSB 

and SDVOSB owners to submit their applications and supporting 

documentation within 90 days after receipt of the notice. 

In response to these regulatory changes, CVE initiated a “fast track” program 

to complete verifications within 21 business days for businesses awaiting 

awards, implemented additional documentation requirements for 

verifications, and sent out notification letters informing businesses of the 

time frame for submitting required documentation and removal from the 

public VetBiz VIP database if no documentation is submitted. 

VA’s OA&L within the OAL&C develops department-wide acquisition 

policy, manages VA’s acquisition training program, and offers continuing 

education programs for VA procurement staff around the country. The 

OA&L manages VA’s Contracting Officer Certification Program and is 

responsible for warranting all VA contracting officers. 

P&LO within VHA develops the annual VHA Acquisition plan that forms 

the basis for VHA’s acquisition strategy. This strategy seeks to procure 

high-quality health care products and services in the most cost-effective 

manner and to help VA attain socioeconomic procurement goals. P&LO 

coordinates the implementation of acquisition policy and functions as a 

liaison between OAL&C and VHA’s acquisition workforce in the 

21 Veterans Integrated Service Networks. 

The Government Accountability Office (GAO) performed a series of audits 

related to the VOSB and SDVOSB programs. GAO identified case studies 

showing fraud and abuse, ineffective oversight, lack of effective fraud 

prevention controls, and challenges facing VA’s verification program. GAO 

concluded that VA’s process for validating program eligibility might not be 

effective because VA verified the status of two SDVOSBs that GAO 

identified as ineligible for the SDVOSB program. 

VA Office of Inspector General 24 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix B	 Scope and Methodology 

Audit Scope	 We conducted our audit fieldwork from August 2010 through January 2011. 

Our audit was limited to VOSBs and SDVOSBs awarded sole-source and 

set-aside contracts valued at $25,000 and greater that were reported in the 

Federal Procurement Data System-Next Generation (FPDS-NG) during the 

12-month period ending May 31, 2010. In total, our audit included 

42 randomly selected businesses that had received 106 VA VOSB and 

SDVOSB contract awards valued at about $58.6 million. 

Site Visits to From our universe of VOSB and SDVOSB contract awards made during the 

Statistically 12-month period ending May 31, 2010, we sorted our audit universe into Selected clusters (geographic regions). We first statistically selected two businesses Businesses 

from the southern California cluster to test our audit procedures. We then 

statistically selected eight additional geographic clusters and randomly 

selected five businesses within each cluster to review and visit. We visited 

businesses in the following states and cities: 

 Alabama—Andalusia and Ozark 

 California—Los Angeles and San Pedro 

 Colorado—Colorado Springs, Commerce City, Englewood, and Littleton 

 Florida—Cantonment, Groveland, Ocala, Orlando, and Panama City 

Beach 

 Illinois—Chicago, Elmhurst, Lincolnshire, Rockford, and Warrenville 

 Massachusetts—Cambridge, Hanover, Plymouth, Wakefield, and 

West Bridgewater 

 North Carolina—Burlington, Fayetteville, Greensboro, Hillsborough, and 

Raleigh 

 South Carolina—Greenville and Greer 

 Tennessee—Kingsport, Knoxville, and Sevierville 

 Texas—Allen, Dallas, Flower Mound, and Sulphur Bluff 

VA Office of Inspector General 25 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Figure Statistically Selected Geographical Clusters 

Source: VA OIG 

Methodology For each randomly selected business, we evaluated management controls for 

VOSB and SDVOSB program eligibility and reviewed supporting 

documentation to ensure businesses were eligible for the program and 

specific VOSB and SDVOSB contract awards. Documents we reviewed 

included: 

 Articles of incorporation and organization and corporate bylaws 

 Organizational, annual, and board meeting records 

 Stock ledgers and certificates 

 Financial statements 

 Federal personal and business tax returns 

 Lease and loan agreements 

 Payroll records 

 EPLS documentation for the business 

 VetBiz VIP documentation for the business 

 Contracts and related documents such as statements of work, bid 

proposals, partnering agreements, PNMs, and sole-source 

justifications 

We interviewed OSDBU and CVE officials to gain an understanding of the 

controls in place to manage the verification program. We also interviewed 

VA Office of Inspector General 26 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

VA contracting officials to assess compliance with the provisions of the 

VOSB and SDVOSB program during the award process. 

In addition, we interviewed the business and veteran owners and other key 

officers, managers, and employees of the businesses to help verify their 

VOSB or SDVOSB eligibility status. We projected the results of ineligible 

VOSBs and SDVOSBs to the audit universe and assessed the impact of the 

results on VA’s reported VOSB and SDVOSB socioeconomic goal data. 

Fraud Detection	 We planned and implemented our work to identify potentially fraudulent 

activities. We focused primarily on the identification of potentially ineligible 

SDVOSBs and VOSBs as a possible indicator of fraud. We also planned and 

implemented audit steps to determine what management controls, if any, 

were in place to identify potentially fraudulent VOSBs and SDVOSBs. We 

referred certain ineligible businesses that had control and/or ownership issues 

or that did not meet required subcontracting thresholds to the OIG Office of 

Investigations for further evaluation. 

Reliability of We assessed the reliability of FPDS-NG data by comparing selected data 

Computer- elements (such as business name and address) to documentation in CCR and Processed Data sampled items in our review to procurement actions in eCMS. We 

concluded the data used to accomplish the audit objectives were sufficiently 

reliable. 

Compliance With We conducted our audit work from May 2010 through March 2011. Our 

Government Audit assessment of internal controls focused on those controls relating to our audit Standards objectives. We conducted this performance audit in accordance with 

generally accepted government auditing standards. These standards require 

that we plan and perform the audit to obtain sufficient, appropriate evidence 

to provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit 

objectives. 

VA Office of Inspector General 27 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix C Eligibility Exceptions and Contracting Deficiencies
 

Table 1 VOSB and SDVOSB Sample Information and Eligibility Issues 

Description Business 

Count Percent Obligated (Millions) Percent 

Business 

Sampled Businesses Reviewed 42 100 $ 58.6 100 

VOSB 10 24 12.3 21 

Information SDVOSB 32 76 46.3 79 

CVE Verified* 16 38 33.6 57 

Eligibility 

Exceptions 

1 or More Eligibility Issues 32 76 46.5 79 

Subcontracting Issues Identified 24 57 39.3 67 

Control: Not Established 14 33 8.0 14 

Ownership: Not Established 4 10 1.2 2 

Miscellaneous Issues 5 12 5.9 10 

*Two businesses verified by CVE after the OIG site visit to the businesses. 

Source: VA OIG 

Table 2 VOSB and SDVOSB Contract Data and Contracting Deficiencies 

for Sampled Businesses 

Description Contract 

Count Percent Obligated 

(Millions) Percent Business 

Count 

VOSB and 

SDVOSB 

Contracts 

VOSB and SDVOSB Contract 

Awards 106 100 $ 58.6 100 42 

Sole-Source 39 37 8.9 15 19 

Set-Aside 67 63 49.6 85 35 

Recovery Act 24 23 27.3 47 14 

Contracting 

Deficiencies 

1 or More Contracting 

Deficiencies 75 71 32.4 55 32 

No VetBiz VIP check 45 42 20.5 35 26 

No PNM and/or JOTFOC 

Found 30 28 12.0 20 20 

No EPLS Check 41 39 19.5 33 23 

eCMS Lacked Required 

Documents 68 64 27.9 48 29 

Source: VA OIG 

VA Office of Inspector General 28 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Table 3 VOSBs and SDVOSBs Awarded Recovery Act Contracts 

With Eligibility Issues and Contracting Deficiencies 

Description 

Business Contract Obligated 

(Millions) Count Percent Count Percent 

Recovery Act ­

Sample 

Information 

Recovery Act Sample Items 14 100 24 100 $ 27.3 

CVE Verified 8 57 14 58 19.3 

Eligibility 

Exceptions 

1 or More Eligibility Issues 13 93 22 92 26.7 

Subcontracting Issues 9 64 17 71 24.4 

Control: Not Established 3 21 3 13 1.6 

Ownership: Not Established 2 14 2 8 0.8 

Improper Use of SDVOSB Status 2 14 3 13 1.3 

Contracting 

Deficiencies 

1 or More Contracting Deficiencies 9 64 10 42 5.3 

No VetBiz VIP check 6 43 6 25 4.5 

No PNM and/or JOTFOC Found 4 29 4 17 2.5 

No EPLS Check 5 36 6 25 4.0 

eCMS Lacked Required Documents 8 57 9 38 4.6 

Source: VA OIG 

VA Office of Inspector General 29 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix D	 Statistical Sampling Methodology 

Our approach included two-stage statistical sampling. In the first stage, we 

used mapping software to place the businesses in geographic clusters and 

then randomly selected clusters. In the second stage, we statistically selected 

businesses from each of the clusters. We then reviewed each selected 

business to assess the business’s eligibility for the VOSB or SDVOSB 

programs and for the awarded VOSB or SDVOSB sole-source and/or 

set-aside contracts. 

Population	 FPDS-NG reported 3,671 VOSBs and SDVOSBs with 14,732 contracts 

totaling $3.2 billion for the annual period ending May 31, 2010. To ensure 

we reviewed businesses with substantial VA contracting activity, we selected 

from the FPDS-NG universe all of the businesses categorized as VOSBs or 

SDVOSBs with contracting activity of $25,000 and greater as the population 

(audit universe) for this audit. Businesses dropped from our universe 

included businesses under investigation by the OIG Office of Investigations, 

businesses reviewed or subject to an onsite review by CVE, businesses 

already reviewed by GAO, or businesses with no sole-source or set-aside 

contracts. Consequently, the population included 1,503 businesses with 

4,660 contracts totaling $2.9 billion. 

Sampling Design	 We used a two-stage sampling approach. The first stage required that we 

group businesses into geographic “clusters” so that we could statistically 

select nine clusters for site review. We selected one cluster to test our audit 

procedures. Businesses located within a radius of 115 miles formed each 

cluster; we used geographic mapping software to form the clusters according 

to concentration of business addresses. With the exception of the two 

businesses randomly selected in the cluster to test our audit procedures, all 

other clusters included the review of five businesses. Other than the test 

cluster, the likelihood of cluster selection depended upon the number of 

businesses in the cluster. Clusters with greater concentrations of VOSBs and 

SDVOSBs had a greater probability of selection. 

For the second stage, we selected VOSBs/SDVOSBs within each cluster 

using simple random sampling. In total, we reviewed 42 businesses in 

8 clusters and 1 test cluster with 39 sole-source contracts totaling 

$8.9 million and 67 set-aside contracts totaling $49.7 million. 

For each randomly selected business, we verified the veteran or disabled 

veteran status of the business’s owner(s). We reviewed documents and 

visited the business to determine if the veteran owner(s) managed and 

controlled the business. For each VOSB or SDVOSB sole-source or 

set-aside contract awarded to one of our randomly selected businesses, we 

evaluated whether the business had the experience, staffing, and resources to 

VA Office of Inspector General 30 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

complete the contracted work. If completion of the contract work required 

subcontracting, partnering, a joint venture, or the involvement of a 

nonveteran-owned business, we assessed whether the veteran-owned small 

business awarded the contract exceeded Federal subcontracting thresholds. 

Finally, we also assessed the awarded VOSB and SDVOSB contracts to 

determine if contracting officers had followed general FAR and VAAR 

contracting requirements. 

Weights	 We projected the sample results by summing the weights for each projection. 

An OIG statistician computed weights as the product of the inverse of the 

probability of selection at each of the two stages of sampling. Since each 

cluster had a different number of VOSBs and SDVOSBs and contracts and 

the samples sizes were the same across selected clusters, the sampling 

weights varied in size. This accounts for the percentages calculated from the 

raw sample numbers being different from the percentages calculated from 

the weighted projections. 

Projections and In general, projections of potential monetary benefits and contract counts 

Margins of Error from this sample had large sampling errors. While many factors about the 

sample design can contribute to the level of sampling errors, these errors 

occur mostly because of the relatively small size of the sample and the 

complexity of the sample design. 

Due to the imprecision of these sample projections, we chose to report the 

more conservative lower limit of the 90 percent confidence interval instead 

of the midpoint (sample projection). Further, due to the high margin of error 

associated with the eligibility exceptions, we did not project the error rates 

for the individual exception categories. Based on our results, we projected 

the VOSB and SDVOSB eligibility exceptions for the 12-month review 

period ending May 31, 2010. 

Table 4 Sample Projections and Margins of Error for Sample Results 

Estimate Name and Type Estimate 

(Projection) 

Margin 

of Error 

90% Confidence Interval Sample 

Size Lower Limit Upper Limit 

Any Eligibility Value (Millions) $ 1,478 $ 1,014 $ 464* $ 2,493 42 

Exception Contract Count 2,461 1,045 1,416** 3,506 42 

*Rounded to $500 million for annual and 5-year projection purposes. 

**Rounded to 1,400 for annual and 5-year projection purposes. 

Note: The margins of error and confidence intervals are indicators of the precision of the 

estimates. If we select a large number of samples and compute the estimates from each one, 90 

percent of those estimates would fall within the confidence interval. 

Source: VA OIG 

VA Office of Inspector General 31 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Table 5 VA Procurement Goals Adjusted for Projected Errors 

Description 

VOSB SDVOSB 

Millions Percent* Millions Percent* 

Goals Reported by OSDBU** $ 3,525 23 $ 3,065 20 

Minus: Lower Limit of Estimate in Error 508 3 500 3 

Goals As Adjusted by Lower Limit of Error $ 3,017 20 $ 2,565 17 

Goals Reported by OSDBU** $ 3,525 23 $ 3,065 20 

Minus: Upper Limit of Estimate in Error 2,552 17 2,548 17 

Goals As Adjusted by Upper Limit of Error $ 973 6 $ 517 3 

*VA’s internal VOSB and SDVOSB program goals for FY 2010 are 12 percent and 10 percent,
 

respectively, of its total procurement dollars.
 

**OSDBU reported that VA procurements totaled $15.4 billion in FY 2010.
 

Source: VA OIG
 

VA Office of Inspector General 32 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix E Potential Monetary Benefits in Accordance With 

Inspector General Act Amendments 

Questioned Recommendation	 Explanation of Benefits Costs 

1–5	 Review existing VOSB and SDVOSB 

contracts and strengthen VOSB and 

SDVOSB program and contract eligibility 

controls to reduce the number of sole-source 

and set-aside contracts awarded to ineligible 

businesses over the next 5 years. 

Strengthen OSDBU and CVE management 6 and controls to reduce the risk of verifying 

ineligible businesses as eligible VOSBs and 

SDVOSBs and awarding VOSB and 

SDVOSB contracts to ineligible businesses 

over the next 5 years. 

$2.5 billion* 

Total	 $2.5 billion* 

*Note: Per VA OIG policy, we estimate the impact of potential monetary benefits for 5 years. 

VA Office of Inspector General 33 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix F Under Secretary for Health Comments 

Memorandum 

Department of
 

Veterans Affairs
 

Date: June 17, 2011 

From: Under Secretary for Health (10) 

Subj: OIG Draft Report, Audit of the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs (VAIQ 7115984) 

To: Assistant Inspector General for Audits and Evaluations (52) 

1. I have revised Veterans Health Administration’s (VHA) response 

to Recommendation 1. Attached is VHA’s corrective action plan for 

the report’s recommendation. 

2. Thank you for the opportunity to review the draft report. If you 

have any questions, please contact Linda H. Lutes, Director, 

Management Review Service (10A4A4) at (202) 461-7014. 

Attachment 

VA Office of Inspector General 34 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

VETERANS HEALTH ADMINISTRATION (VHA) 

Action Plan 

OIG Draft Report, Audit of the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs (VAIQ 7115984) 

Date of Draft Report: May 17, 2011 

Recommendations/ Actions Completion Date 

Status 

Recommendation 1. We recommend the Deputy Under Secretary for Health 

develop and implement a review strategy for active, high-dollar VOSB and 

SDVOSB contracts to determine if Federal subcontracting performance 

requirements have been met and if the requirements have not been met, to 

research and pursue remedies. 

VHA Comments 

Concur 

VHA’s Chief Procurement and Logistic Office (PL&O) will assign an independent 

review team at each Service Area Organization (SAO) to investigate a statistically 

valid sample of active contracts. The following sample sizes will be developed: 

a.	 >5 million: Those contracts over 5 million, then narrow it further to the 

contracts that show they have option year and then use a random sampling 

calculator with a 90% confidence level, +/- 10 confidence interval to develop 

the final sample size. 

b.	 1-5 million: Same as above 

c.	 100K-1million: Same as above 

The review efforts will be concentrated on those contracts with option years as those 

contracts if awarded/subcontracted improperly have long term effects. 

The SAO team will utilize the following methodology to review the high-dollar sampled 

contracts : 

a.	 Verify status of Veteran- Owned Small Business (VOSB)/Service-Disabled 

Veteran-Owned Small Business(SDVOSB) and ensure contract file is 

documented 

b.	 Determine if a sub contractor is involved in the contract. 

i.	 If No subcontractor, note as such and issue is closed. 

VA Office of Inspector General 35 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

ii.	 If Yes subcontractor – 

* Review and analyze subcontractor agreements (Joint 

Venture/Partnering/Teaming agreements, subcontracts) to determine if 

the Federal requirements for subcontracting limitations are being met 

and/or that the work is not being passed through to nonVOSBs/SDVOSBs. 

* Conduct site visits if SAO reviews of the subcontracting agreements 

identify possible systemic issues at Networks, or identify fraud 

indicators relative to specific VOSBs, SDVOSBs, or contracts. 

c.	 If requirements have been met, document contract file and issue is closed. 

d.	 If requirements have not been met, team will turn over findings to 

contracting officer (CO) and possibly OIG Investigations and Office of 

General Counsel (OGC) to pursue remedies. SAO Team will track until 

issue resolved. 

e.	 VHA’s PL&O will determine after initial sampling results if further active 

contracts should be reviewed. 

In Process December 31, 2011 

Veterans Health Administration 

June 2011 

VA Office of Inspector General 36 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix G Office of Small and Disadvantaged Business Utilization 

Executive Director Comments 

Memorandum 

Department of
 

Veterans Affairs
 

Date: June 21, 2011 

From: Executive Director, Small and Veteran Business Programs (00SB) 

Subj: VA OIG Draft Report - Audit of the Veteran-Owned and ServiceDisabled Veteran-Owned Small Business Programs 

To: Assistant Inspector General for Audits and Evaluations (52) 

1.	 This is in response to your request for the Office of Small and 

Disadvantaged Business’ (OSDBU) review of the OIG Draft 

Report— Audit of the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs. 

2.	 OSDBU appreciates the opportunity to review this report. Our 

response is attached. 

3.	 Questions may be referred to Ms. Elizabeth Torres, Program 

Analyst, at (202) 461-4300. 

VA Office of Inspector General 37 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Office of Small and Disadvantaged Business Utilization
 

Response to VA Office of Inspector General
 

DRAFT REPORT # XX
 

Audit of the Veteran-owned and Service-disabled Veteran-owned
 

Small Business Programs
 

Recommendation #2: We recommend the Executive Director, Small and Veteran 

Business Programs, establish an oversight function to ensure the completion of site 

visits for all VOSBs and SDVOSBs identified by CBVE as high risks to ensure that they 

meet all Federal requirements for control, ownership and program eligibility. 

Response: Concur Targeted Completion Date: May 31, 2012 

Comments: Appendix D cites that Federal Procurement Data System – Next 

Generation records indicate that VA contracted with 3,671 VOSB and SDVOSB firms 

during the report period under review. VA’s Office of Small and Disadvantaged 

Business Utilization (OSDBU) currently has the ability to visit up to 1200 applicants 

yearly. This represents about one-third of incumbents identified in the draft report. 

The report also correctly notes that enactment of the Veterans Small Business 

Verification Act (October 2010) requires VA to now examine supporting documents 

from all applicants. Universal document review complemented by the ability to site 

visit one-third of VA’s SDVOSB and VOSB contractors yearly limits the potential that 

ineligible firms will be approved for the Veteran-owned small business Verification 

Program. During the period January 1, 2011 through April 30, 2011 approximately 

5.2% of firms examined were identified as high risk. (Site visits were conducted for 

95% of these identified as high risk.) This does not include the 11% that were 

identified as critical and sent an initial denial. Given this data, we believe that we have 

enough site visits planned to cover expected high risk applicants. A quarterly briefing 

will be provided to interested staff in VA’s Office of Inspector General. A component of 

the briefing will report the number of high-risk applicants identified and the number of 

site visits completed. 

Recommendation #3: We recommend the Executive Director, Small and Veteran 

Business Programs, coordinate with the Executive Director, Office of Acquisition, 

Logistics and Construction and the Deputy Under Secretary for Health to develop and 

mandate training for contracting officers on VOSB and SDVOSB ownership and 

control requirements and the assessment of subcontracts and joint venture 

agreements for compliance with FAR, VAAR and Federal Regulations. 

Response: Concur in principle. Targeted Completion Date: May 31, 2012 

VA Office of Inspector General 38 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 2. 

OSDBU Response to VA OIG Draft Report on Oversight of VOSB/SDVOSB Programs 

Comments: The Executive Director, Office of Acquisition, Logistics and Construction 

(OALC) is the Department’s responsible official for development and delivery of 

training to VA’s acquisition workforce. Staff in the OSDBU fully support this 

recommendation and have begun to work with the OALC to develop content and 

methodology for this training. VA OSDBU plans to work with OAL and PLO to develop 

an agency specific training program for small business liaisons and acquisition staff, in 

collaboration with VA’s Acquisition Academy. This training will include laws and 

regulations that pertain to small business programs, to include ownership and control 

requirements of SDVOSB and VOSB firms, joint ventures, and subcontracting. This 

training class needs to comply with the small business programs training requirements 

that will be specified by the Federal Acquisition Institute, as they develop the 

requirements for the training specified by Public Law 111-240, Section 1343 (Jobs 

Act). However, we recommend the lead organization be the OALC. 

Recommendation #4: We recommend the Executive Director, Small and Veteran 

Business Programs coordinate with the Executive Director of the Office of Acquisition, 

Logistics and Construction and the Deputy Under Secretary for Health to monitor 

VOSB and SDVOSB contracts to ensure contracting officers have complied with 

applicable FAR and VAAR; documented their review of subcontracting, partnering and 

joint venture agreements and properly used eCMS. 

Response: Concur in principle. Targeted Completion Date: May 31, 2012 

Comments: While VA OSDBU does not monitor contracts, OSDBU works closely with 

OALC to monitor contract compliance. VA acquisition personnel are currently required 

to submit subcontracting plans to OSDBU for review and coordination prior to award. 

The term “partnering” is not specific and could represent non-binding situations in 

which the government does not have privity of contract (such as prime 

contractor/subcontractor relationships). 

The eCMS system is an electronic contract management system that is managed by 

acquisition, not OSDBU. 

OSDBU staff stand ready to assist OALC by reviewing joint venture agreements for 

compliance, but we recommend that the lead organization by OALC. 

VA Office of Inspector General 39 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 3. 

OSDBU Response to VA OIG Draft Report on Oversight of VOSB/SDVOSB Programs 

Recommendation #6: We recommend the Executive Director, Small and Veteran 

Business Programs, establish a comprehensive management control system, including 

a defined organizational structure with formalized roles and responsibilities, a 

performance management system; and updated policies and procedures to ensure the 

effective administration of the VOSB and SDVOSB programs and related verification 

and reporting processes required by the Code of Federal Regulations Title 38, Part 74 

and the Veterans Benefits Act of 2010. 

Response: Concur. Targeted Completion Date: May 31, 2012 

Comments: 

The OSDBU fully supports this recommendation and notes that permanent leadership 

was re-established on April 17, 2011. The OSDBU believes that notable progress has 

been achieved in strengthening the integrity of the VOSB Verification Program since 

May 2010, when OSDBU began calling-in documents. Written guidelines were 

updated on April 15, 2011. Performance plans for both Fiscal Year 2010 and 2011 

contain production standards. Perhaps the most significant action occurred on May 2, 

2011 when the enhanced Vendor Information Pages database and the VetBiz Case 

Management System went live. Further, OSDBU has acquired additional contractor 

support to help manage the volume of applications. This support includes weekly 

progress meetings to discuss an array of measures and quality issues. Our plan of 

action to comply with this specific recommendation follows. A quarterly briefing will be 

scheduled to announce progress toward completing this and other recommendations. 

VA Office of Inspector General 40 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 4.
 

OSDBU Response to VA OIG Draft Report on Oversight of VOSB/SDVOSB Programs
 

Action Category Identified Activities Est. Completion Date 

OSDBU  Interview staff to assess skills January 31, 2012 

Reorganization readiness and identify any 

redundancies; 

 Review legislative and 

regulatory functions; 

 Identify technology 

enhancements to improve 

efficiency; 

 Study in-sourcing/out-sourcing 

balance requirements; 

 Obtain internal concurrence on 

re-structuring, resources 

 Write position descriptions 

 Announce and hire any new 

positions 

Management Control 

System 

 Train additional staff as 

Program Management 

Professionals; 

 Assess existing management 

controls; 

 Acquire VA or contractor 

support to identify critical 

improvements and related 

resource needs; 

 Identify best practices in 

technology tools to measure 

program performance; 

 Develop an internal recurring 

audit function; 

 Obtain VA concurrences for 

planned actions and resources 

needed for OSDBU to become 

ISO 9001 certified. 

May 31, 2012 

VA Office of Inspector General 41 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 5.
 

OSDBU Response to VA OIG Draft Report on Oversight of VOSB/SDVOSB Programs
 

Action Category Identified Activities Est. Completion 

Date 

Performance  Review existing position 

Management descriptions, performance 

System standards and assigned duties 

(note: position description 

rewrites are addressed in 

“OSDBU Reorganization;” 

 Invite VA’s Office of Human 

Resources to review performance 

plans and offer improvement 

ideas; 

 Enforce updates to plans within 

30 days of an employee’s 

significant change of duties; 

 Provide awareness training for all 

staff to be conducted in 

coordination with VA’s Office of 

Labor Relations 

Updated Policies  Executive Director completes May 31, 2012 

and Procedures review of existing policies and 

procedures and revises as 

needed; 

 Effective April 2011, a quarterly 

Change Review Board will 

document discussion of changes 

to the April 15, 2011 Verification 

Program Guidelines; 

 OSDBU will issue a VA Handbook 

or Directive to define intradepartmental responsibilities and 

communications. 

 Exercise option on current 

Advisory and Assistance Services 

contract to refresh November 

2009 benchmarking study and 

recommend further 

enhancements to VA’s VOSB 

Verification Program 

VA Office of Inspector General 42 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 6.
 

OSDBU Response to VA OIG Draft Report on Oversight of VOSB/SDVOSB Programs
 

Action Category Identified Activities Est. Completion Date 

Reporting System  Executive Director completes March 31, 2012 

Improvements review of existing 

organizational metrics and 

identifies changes; 

 OSDBU acquires contractor 

support to develop a 

technology-based 

management dashboard. 

Regulation  Executive Director completes September 30, 2012 

Review/Revision review of current 38 CFR Part 

74; 

 OSDBU conducts focus group 

discussions with stakeholders 

and owners; 

 VA submits proposed Rule 

Change to OMB to be 

published in the Federal 

Register for public comments 

 Changes to 38 CFR Part 74 

are finalized 

VA Office of Inspector General 43 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix H Office of Acquisition, Logistics, and Construction 

Executive Director Comments 

Memorandum 

Department of
 

Veterans Affairs
 

Date: June 10, 2011 

From: Executive Director, Office of Acquisition, Logistics, and Construction 

(001ALC) 

Subj: OIG Draft Report, “Audit of the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs” (VAIQ 7121463) 

To: Assistant Inspector General for Audits and Evaluations (52) 

1. The Office of Acquisition, Logistics, and Construction (OALC) 

reviewed the Office of Inspector General (OIG) draft report, “Audit of 

the Veteran-Owned and Service-Disabled Veteran-Owned Small 

Business Program,” as submitted for comment May 17, 2011, and 

provides the following comments: 

a. Public Law 109-461 mandates verification of service-disabled 

Veteran-owned small business (SDVOSB) and Veteran-owned small 

business (VOSB) status for awards made using the authorities “under 

this section,” i.e, section 8127 of title 38, United States Code. Awards 

not made using these authorities (for example, the Federal Supply 

Schedules) do not carry a verification mandate. The draft report does 

not clearly explain how the OIG removed from its sample the firms that 

received awards through other authorities; if such firms are unverified, 

this does not indicate noncompliance since the mandate does not apply 

to such awards, by law. Moreover, data attempting to measure the 

extent of noncompliance cannot properly be extrapolated to VA’s entire 

acquisition spend, since that effectively extends the mandate to 

contract dollars to which the mandate does not apply. Without properly 

accounting for these statutory distinctions, OIG’s assertion that VA 

overstates its SDVOSB and VOSB awards by 3 to 17 percent (page 3) 

may not be supportable. OALC recommends OIG clarify both the 

report and the scope and methodology appendix to clarify how it 

addressed this issue. 

VA Office of Inspector General 44 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 2 

OIG Draft Report, “Audit of the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs” (VAIQ 7121463 

b. On page 1, the draft report notes the Office of Small and 

Disadvantaged Business Utilization (OSDBU) is responsible for 

developing Department-wide policies, programs, and practices related 

to small business concerns, and educates and trains VA staff. We 

recommend revising this language to indicate this is a collaborative 

effort. With respect to contracting policy and training acquisition staff, 

OALC carries out this responsibility as an inherent part of its oversight 

of these personnel. OALC issues warrants to the acquisition staff and 

sets policy and expectations for such staff to continue exercising those 

responsibilities. Accordingly, OALC is the sole source for authoritative 

contracting policy. However, OSDBU, as the VA interface with the 

Small Business Administration (SBA), is the natural source for 

monitoring and receiving updates on SBA programs. VA’s concurrence 

process provides a collaborative environment where OSDBU and 

OALC can develop appropriate guidance and obtain participation by 

other stakeholders, such as the Office of General Counsel. 

c. On page 9, footnote 6 incorrectly describes Public Law 109-461 as 

the Veterans First Contracting Program. Public Law 109-461 is the 

Veterans Benefits, Health Care, and Information Technology Act of 

2006. The Veterans First Contracting Program is VA’s implementation 

of this statute. 

2. OALC has the following comments on recommendations 3 and 5 of 

the draft report: 

Recommendation 3: We recommend the Executive Director of the 

Office of Acquisition, Logistics, and Construction coordinate with the 

Deputy Under Secretary for Health and the Executive Director of the 

Office of Small and Disadvantaged Business Utilization to develop and 

mandate training for contracting officers on VOSB and SDVOSB 

ownership and control requirements and the assessment of 

subcontracts and joint venture agreements for compliance with FAR, 

VAAR, and Federal regulations. 

VA Office of Inspector General 45 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 3 

OIG Draft Report, “Audit of the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs” (VAIQ 7121463) 

OALC Response: Concur. The VA Acquisition Academy’s 

Contracting Professional School is developing a distance learning 

module for the Veterans First Contracting Program. The module 

provides the information from the initial face-to-face training in an 

interactive Web-based environment. It will be reviewed internally at the 

VAAA and by VA Subject Matter Experts (SMEs). SMEs provided input 

in the form of updated slides, lessons learned, and relevant case 

studies; all have been incorporated into the module. The module will 

be available on the VALU TMS in late July. 

OALC notes that contracting officers generally should rely on the 

verification decisions made by OSDBU and not make independent 

determinations on their own. However, awareness of basic issues 

involved with Veteran ownership and control can help contracting 

officers take note of potential “red flags” justifying a new OSDBU 

verification, such as through the status protest process. 

Recommendation 5: We recommend the Executive Director of the 

Office of Acquisition, Logistics, and Construction coordinate with the 

Deputy Under Secretary for Health to develop policies and procedures 

to ensure that appropriate administrative action is taken when it is 

determined that a contracting officer has knowingly awarded a VOSB or 

SDVOSB contract to an ineligible business or entity and, where 

feasible, terminate these awards and reestablish them with eligible 

businesses. 

OALC Response: Concur in principle. OALC agrees that a 

contracting officer who disregards legal requirements and knowingly 

awards to an ineligible firm should face appropriate administrative 

actions. However, OALC believes existing policies and processes 

provide adequate authority for action. The Veterans Affairs Acquisition 

Regulation authorizes termination of warrants whenever a contracting 

officer blatantly disregards acquisition regulations, policies or 

procedures, or performs unsatisfactorily (VAAR 801.690-7). OALC 

does not believe additional duplicative processes are necessary. 

VA Office of Inspector General 46 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Page 4 

OIG Draft Report, “Audit of the Veteran-Owned and Service-Disabled
 

Veteran-Owned Small Business Programs” (VAIQ 7121463)
 

However, OALC does concur with the need to heighten contracting 

officer awareness of the need to consult the Vendor Information Pages 

(VIP) database to confirm that a prospective awardee is verified, when 

making awards under Veterans First Contracting Program authorities. 

Moreover, contracting officers need to document this action to the 

contract file. OALC will issue additional guidance to contracting officers 

to highlight these issues. 

3. Should you have questions this submission, please contact Mr. C. 

Ford Heard III, Acting Associate Deputy Assistant Secretary for 

Procurement Policy, Systems, and Oversight, at (202) 461-6821, or via 

e-mail at: ford.heard@va.gov. 

VA Office of Inspector General 47 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix I Office of Inspector General Contact and Staff 

Acknowledgments 

OIG Contact	 For more information about this report, please 

contact the Office of Inspector General at 

(202) 461-4720. 

Acknowledgments	 Janet Mah, Director 

Andrea Chinchilla 

Gregory Gladhill 

Herlin Guerra-Sagastume 

Tim Parker 

John Powers 

Daniel Rico 

VA Office of Inspector General 48 
Audit of the Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs 

Appendix J Report Distribution 

VA Distribution 

Office of the Secretary 

Veterans Health Administration 

Veterans Benefits Administration 

National Cemetery Administration 

Assistant Secretaries 

Office of Acquisition, Logistics, and Construction 

Office of Small and Disadvantaged Business Utilization 

Office of General Counsel 

Non-VA Distribution 

House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Appropriations Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

This report will be available in the near future on the OIG’s Web site at 

http://www.va.gov/oig/publications/reports-list.asp. This report will remain 

on the OIG Web site for at least 2 fiscal years. 

VA Office of Inspector General 49