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AN EXAMINATION OF CONTINUED CHALLENGES IN 

VA’S VETS FIRST VERIFICATION PROCESS 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON VETERANS’ AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

AND THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

WEDNESDAY, NOVEMBER 4, 2015 

Serial No. 114–43 

Printed for the use of the Committee on Veterans’ Affairs 

( 

Available via the World Wide Web: http://www.fdsys.gov 

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(II) 

COMMITTEE ON VETERANS’ AFFAIRS 

JEFF MILLER, Florida, Chairman 

DOUG LAMBORN, Colorado 

GUS M. BILIRAKIS, Florida, Vice-Chairman 

DAVID P. ROE, Tennessee 

DAN BENISHEK, Michigan 

TIM HUELSKAMP, Kansas 

MIKE COFFMAN, Colorado 

BRAD R. WENSTRUP, Ohio 

JACKIE WALORSKI, Indiana 

RALPH ABRAHAM, Louisiana 

LEE ZELDIN, New York 

RYAN COSTELLO, Pennsylvania 

AMATA COLEMAN RADEWAGEN, American 

Samoa 

MIKE BOST, Illinois 

CORRINE BROWN, Florida, Ranking 

Minority Member 

MARK TAKANO, California 

JULIA BROWNLEY, California 

DINA TITUS, Nevada 

RAUL RUIZ, California 

ANN M. KUSTER, New Hampshire 

BETO O’ROURKE, Texas 

KATHLEEN RICE, New York 

TIMOTHY J. WALZ, Minnesota 

JERRY MCNERNEY, California 

JON TOWERS, Staff Director 

DON PHILLIPS, Democratic Staff Director 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION 

MIKE COFFMAN, Colorado, Chairman 

DOUG LAMBORN, Colorado 

DAVID P. ROE, Tennessee 

DAN BENISHEK, Michigan 

TIM HUELSKAMP, Kansas 

JACKIE WALORSKI, Indiana 

ANN M. KUSTER, New Hampshire, Ranking 

Member 

BETO O’ROURKE, Texas 

KATHLEEN RICE, New York 

TIMOTHY J. WALZ, Minnesota 

COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

TOM RICE, South Carolina 

CHRIS GIBSON,New York 

DAVE BRAT, Virginia 

AMATA COLEMAN RADEWAGEN, 

American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking 

Member 

YVETTE CLARK, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, Jr, New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

MARK TAKAI, Hawaii 

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Page

III 

KEVIN FITZPATRICK Staff Director 

STEPHEN DENNIS Deputy Staff Director for Policy 

JAN OLIVER Deputy Staff Director for Operation 

BARRY PINELES Chief Counsel 

MICHAEL DAY Minority Staff Director 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Veterans’ Affairs are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to prepare 

both printed and electronic versions of the hearing record, the process of converting between 

various electronic formats may introduce unintentional errors or omissions. Such occurrences 

are inherent in the current publication process and should diminish as the process is further 

refined. 

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C O N T E N T S 

Wednesday, November 4, 2015 

Page 

An Examination Of Continued Challenges in VA’s Vets First Verification 

Process .................................................................................................................. 1 

OPENING STATEMENTS 

Mike Coffman, Chairman ........................................................................................ 1 

Richard Hanna, Committee on Small Business .................................................... 2 

Nydia Vela ́zquez, Ranking Member of Small Business Committee .................... 3 

Ann M. Kuster, Ranking Member .......................................................................... 5 

Dr. Tim Huelskamp, Member ................................................................................. 17 

WITNESSES 

Mr. William Shear, Director, Financial Markets and Community Investment, 

U.S. Government Accountabililty Office ............................................................ 6 

Prepared Statement ......................................................................................... 28 

Mr. Quentin Aucion, Assistant Inspector General for Investigations, Office 

of the Inspector General ...................................................................................... 7 

Prepared Statement ......................................................................................... 46 

Accompanied by: 

Gregory Gladhill, Audit Manager, Los Angeles Office of Audits and Evaluations, Office of the Inspector General 

Mr. Tom Leney, Executive Director, Office of Small and Disadvantaged Business Utilization, Department of Veterans Affairs ............................................. 9 

Prepared Statement ......................................................................................... 55 

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(1) 

AN EXAMINATION OF CONTINUED CHALLENGES IN VA’S VETS FIRST VERIFICATION 

PROCESS 

Wednesday, November 4, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON VETERANS’ AFFAIRS, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

Washington, D.C. 

The Subcommittees met, pursuant to notice, at 10:35 a.m., in 

Room 334, Cannon House Office Building, Hon. Mike Coffman 

[Chairman of the Subcommittee on Oversight and Investigations] 

presiding. 

Present from the Subcommittee on Oversight and Investigations: 

Representatives Coffman, Huelskamp, Kuster, Rice, and Walz. 

Present from the Subcommittee on Contracting and Workforce: 

Representatives Hanna, King, Kelly, Vela ́zquez, Lawrence, and 

Clarke. 

OPENING STATEMENT OF CHAIRMAN MIKE COFFMAN 

Mr. COFFMAN. Good morning. I would like to welcome everyone 

to today’s joint hearing titled An Examination of Continued Challenges in VA’s Vets First Verification Process. 

I am pleased to host Chairman Richard Hanna and his fellow 

Members of the Subcommittee on Contracting and Workforce for 

the House Committee on Small Business for this joint hearing. 

We are again today to examine the challenges that persist with 

VA’s implementation of the verification process for Vets First setasides. Since 2006, this Committee has held repeated hearings 

while OIG and GAO have issued multiple reports highlighting the 

lack of progress with this program. 

In our previous joint hearing in 2013, I noted that my Subcommittee received frequent complaints from service-disabled, veteran-owned small businesses about the length of time and scope of 

examination for veterans undergoing the verification process. 

We still hear these complaints all too frequently. According to 

VA’s Center for Verification and Evaluation or CVE, risk team applications are being processed within the regulatory timeframe 98 

percent of the time with an error rate of less than one percent. 

What CVE does not report is that it resets the clock for applicants it convinces to withdraw and then reapply to avoid the sixmonth suspension if they had allowed their initial applications to 

be denied for lack of supporting documentation. 

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GAO estimates that accounting for such re-application, 15 percent of applications took more than four months to receive a determination. Unfortunately, VA is adept at gaming the numbers based 

on incorrect data that VA entered into the Federal procurement 

database system or, more importantly, required data that was 

never entered into the system. 

VA has received an A on the small business procurement score 

card every year reported since fiscal year 2011 and has exceeded 

its goal with regard to service-disabled veterans, veteran-owned 

small businesses. 

However, in a hearing before this Committee on June 23, 2015, 

Mr. Jan Frye, VA’s senior procurement executive, testified that VA 

seriously overstated its compliance with government-wide small 

business goals and VA officials at the highest levels knew that the 

data was false at the time they submitted it. Business opportunities that should normally be reserved for service-disabled veterans 

are jeopardized by false data. 

Apart from data manipulation, CVE continues to face serious 

problems. Even after multiple reports, GAO indicated that CVE 

still has not established a cost-effective, veteran-friendly 

verification process or acquired an IT system that meets its needs. 

VA paid a contractor $871,000 for such an IT solution only to cancel the contract on October 2014. 

Significantly, GAO has also found that VA lacks a comprehensive 

operational plan with specific actions and milestone dates for managing and achieving long-term objectives. Lack of an adequate 

operational plan is a serious problem, especially for an agency that 

runs most day-to-day businesses through contract employees rather 

than those within the Federal Civil Service system. 

It is important that CVE get this right. According to procurement data gathered by OIG for fiscal year 2015, VA procurements 

totaled $91.5 billion of which $3.9 billion went to veteran-owned 

small businesses and of that $3.9 billion, $3.5 went to service-disabled, veteran-owned small businesses. 

Notwithstanding CVE’s verification efforts, fraud by ineligible 

contractors remains a priority for OIG. Fortunately, OIG has had 

success in obtaining prosecutions by DOJ. 

Lastly, I note that the Supreme Court will hear a challenge next 

week to VA’s misinterpretation of the rule of two requirements that 

essentially guts the contract award preference for Vets First setasides. VA should be leading the effort for the Vets First Program, 

not trying to undermine it. 

I now recognize Chairman Hanna for his opening statement. 

OPENING STATEMENT OF RICHARD HANNA 

Mr. HANNA. Thank you. 

Chairman Coffman and I held our first joint hearing on the Department of Veterans Affairs’ verification of veterans that service 

disability veterans-owned businesses. We are here today to find out 

what progress has been made and what challenges remain. 

Let’s start with a little good news. First, the Small Business Administration in 2014, Federal Government met the three percent 

goal for prime contracts to service-disabled, veteran-owned businesses. That means, as Chairman Coffman said, nearly $14 billion 

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in contracts, three and a half roughly billion dollars spent with the 

VA. These are real contracts for service-disabled veterans. 

The bad news is that the VA Vets First Contracting Program is 

still in turmoil. Even though VA buys almost every other thing 

than weapon systems, only a third of firms owned by service-disabled veterans registered with the SBA are also verified by the VA. 

For veterans, the number drops to less than 20 percent even 

though there are no benefits to registering as a veteran-owned 

business with the SBA. Why aren’t these companies trying to do 

business with the VA, the one agency directed to contract with veterans and service-disabled veterans first? 

I suspect that part of the answer is that it is still hard to do 

business with the VA. While the verification process seems to have 

gotten speedier, it lacks the comprehensive original plan. Indeed, 

while VA told us in 2013 that they were going to revisit their regulations—this is for you, Mr. Leney—the written statement for today’s hearing contains the same promise during the same hearing. 

VA promised that there was a next generation system under development with an initial operation capability that would be operational in 2013. There is still no system. 

It has been nearly two years since the VA told staff that they 

were going to have SBA take over the appeals process, but still 

there is no agreement in place. We owe our veterans more than 

that. 

The National Veteran Small Business Week next week, there are 

two important days for our veterans. While we all know November 

11 is Veterans Day, you also know, as Chairman Coffman mentioned, there is a Supreme Court case, Kingdomware Technologies 

versus the United States. 

I know that Chairman Coffman, Ranking Member Vela ́zquez, 

and Ranking Member Kuster and I as well as many others signed 

on the amicus brief in support of that case. 

Essentially they are saying that we should be allowed to do less 

for veterans and service-disabled, veteran-owned businesses than 

Congress legislated when it created the Vets First Program. Given 

this argument, if I were a veteran-owned business, I would think 

twice about spending the time and money necessary to be verified 

to participate in the Veterans First Program. 

Again, I want to thank all our witnesses for being here today, 

and I look forward to some concrete solutions and honest answers. 

So thank you. 

Mr. COFFMAN. Thank you, Chairman Hanna. 

I now yield to Ranking Member Nydia Vela ́zquez of the Full 

Committee on Small Business for her opening statement. 

OPENING STATEMENT OF NYDIA VELA ́ ZQUEZ 

Ms. VELA ́ ZQUEZ. Thank you, Chairman, Ranking Members and 

Members of both Committees. 

It is my pleasure to be sitting in for Mr. Takano, especially we 

discuss a topic as important as our Nation’s veterans. 

With Veterans Day next week, we honor the sacrifices our veterans have made for this country. Over the last century, these 

brave Americans have fought in Afghanistan, Iraq, Vietnam, 

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Korea, and Europe for not only our freedoms but for the freedoms 

of others. 

While many lost their lives, the surviving 22 million men and 

women include 5.5 million who were disabled during their service. 

These courageous individuals deserve not only our enduring gratitude but also the opportunity to build a new life after their many 

years of military service. 

One of the most important tools we have to accomplish this mission is the Service-Disabled, Veteran-Owned Small Business Procurement Program. 

In 2015, this initiative awarded more than 100,000 contracts 

worth over $13 billion to SDV small firms. These awards accounted 

for over 3.5 percent of all Federal contracts meeting the statutory 

goal of three percent for the third year in a row. 

Additionally, though, the numbers are not final. It appears that 

the goal will also be reached for fiscal year 2015. While these accomplishments should be applauded, it should also be pointed out 

that it comes on the heels of allegations of fraud and abuse at the 

Department of Veterans Affairs. 

Earlier this year, we heard testimony from the VA’s senior procurement executive indicating that various individuals at the VA 

were procuring billions of dollars worth of goods with purchase 

cards thereby circumventing competition requirements as well as 

the small business reserve. These allegations have left us to question the VA’s performance in small business contracting. 

Today’s hearing focuses on another area that has been problematic for the VA, its process for verifying and certifying SDV businesses to its Vets First Program. Previously GAO has found that 

non-SDV firms have won SDV contracts. This included front companies posing as veterans, pass-throughs, and outright fraud. As a 

result, millions of dollars were diverted away from legitimate SDV 

businesses. 

To prevent these abuses, GAO recommended that a verification 

system be implemented. Over time, VA has complied with this and 

we have seen an improvement in the process. 

As we will hear today, verification times have gone down by 

more than 50 percent to an average of 42 days. And the VA has 

increased its number of site visits to 606 in fiscal year 2015. 

However, there are still areas that need work. For example, the 

VA still lacks an operational plan for the process and there continues to be strong reliance on contractors to verify firms. 

Addressing these failings and ensuring SDV procurement programs work as intended is long past due. With an unemployment 

rate of more than seven percent for veterans of the wars in Iraq 

and Afghanistan, it is essential that all veterans’ resources are 

properly managed and overseen. 

Given that entrepreneurship remains a viable career path for 

many of these men and women, programs like the one we are discussing today are critical to reduce the unemployment rate for veterans. 

I think I can speak for all the Members here today in saying that 

we will do whatever it takes to help service-disabled veterans overcome the challenges they face in today’s economy. 

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With that, I want to thank the witnesses for appearing before 

our Subcommittee this morning. I thank the Chairman and yield 

back. 

Mr. COFFMAN. Thank you, Ranking Member Vela ́zquez. 

I now yield to Ranking Member Kuster for her opening statement. 

OPENING STATEMENT OF ANN M. KUSTER 

Ms. KUSTER. Thank you, Chairman Coffman. 

Welcome, Chairman Hanna and Ranking Member Vela ́zquez. 

I appreciate this opportunity to update the VA’s verification processes for certifying veteran-owned small businesses and service-disabled, veteran-owned small businesses. 

Since 2013, as we have heard when this Subcommittee held a 

hearing on the issue, VA has been making some progress in addressing many of the concerns raised. VA has also taken steps to 

implement new processes and look for ways to improve the certification process. 

However, we understand that there are problems that continue 

to persist and areas that we need to explore going forward. 

It is encouraging to see that the VA has developed a strategic 

plan for the long-term management of this program and has adopted a case management system so that a veteran applying for certification can speak directly with the person at VA performing the 

assessment and address any issues early in the process. 

At the same time, however, I am concerned about high leadership turnover, low staffing levels, and VA’s lack of a plan with specific actions, milestones, and measures of progress to manage its efforts to implement the changes. I am also worried that VA lacks 

an IT system to adequately support case management for its 

verification program. 

Unfortunately, an inability to properly oversee and implement 

sound processes and issues with collection and analysis of accurate 

data seem to be themes we see time and time again before this 

Subcommittee. 

Today I am interested to hear about the specific steps that VA 

plans to take to address these issues, how the VA is measuring and 

demonstrating progress, and when we can expect to see measurable, positive outcomes. 

VA must strike the right balance here. On the one hand, VA 

must ensure its verification process is vet friendly and not overly 

burdensome for our veterans. On the other hand, VA must prevent 

fraud and ensure fairness for all veterans-owned businesses with 

the certification. 

This certification grants our veterans distinct advantages when 

competing for VA contracts and government contracts. And we all 

want to ensure that these advantages are truly afforded to small 

businesses owned by veterans and disabled veterans. 

Our Committees in VA must work together to ensure the VA has 

the resources it needs and that the proper accountability measures 

are in place to achieve this balance so that our taxpayer dollars are 

well spent and so that our small businesses owned by veterans and 

service-disabled veterans are able to prosper and receive the preferences that we as a Nation intend them to receive. 

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Thank you, Mr. Chairman. I yield back. 

Mr. COFFMAN. Thank you, Ranking Member Kuster. 

I now welcome our witnesses to the table. Today we will hear 

from Mr. William Shear, Director of Financial Markets and Community Investments, United States Government Accountability Office. Mr. Shear has frequently testified before both Committees and 

we look forward to hearing his testimony today. 

Mr. Quentin Aucoin, Assistant Inspector General for Investigations, VA Office of the Inspector General. Mr. Aucoin is the agent 

in charge of criminal investigations including those involving fraud 

in the SDVOSB Program. He is accompanied by Mr. Gregory 

Gladhill, Auditor/Manager, Los Angeles Office of Audits and Evaluations. 

Mr. Tom Leney, Executive Director, Office of Small and Disadvantaged Business Utilization, United States Department of Veterans Affairs. Mr. Leney is responsible for promoting small business participation at VA with a particular focus on service-disabled, 

veteran-owned small businesses and veteran-owned small businesses. 

All of your complete written statements will be made part of the 

hearing record. I ask the witnesses to please stand and raise your 

right hand. 

[Witnesses sworn.] 

Mr. COFFMAN. Very well. Please be seated. 

Mr. Shear, you are now recognized for five minutes. 

STATEMENT OF WILLIAM SHEAR 

Mr. SHEAR. Thank you. 

Chairmen Coffmen and Hanna, Ranking Members Kuster and 

Vela ́zquez, and Members of the Committees, I am pleased to be 

here this morning to discuss our ongoing work on the Department 

of Veterans Affairs’ efforts to verify the eligibility of veteran-owned 

small businesses including service-disabled, veteran-owned small 

businesses to receive contracting preferences with VA. 

My testimony discusses preliminary observations on first, VA’s 

progress in establishing a timely and consistent verification program and improving communication with veterans and, second, the 

steps VA has taken to identify and address verification program 

challenges and long-term goals. 

Based on our preliminary observations, VA has made significant 

improvements to its verification process and communication with 

veterans since our 2013 report. VA reported reduced average application processing times. In addition, we reviewed a randomly selected sample of verification applications and found that VA followed its procedures for reviewing applications. 

The agency has also conducted post-verification site visits to 606 

firms in fiscal year 2015 to check the accuracy of verification decisions and help ensure continued compliance with program regulations. In addition, VA has made several changes to improve veterans’ experiences with the program. 

With respect to the steps VA has taken to identify and address 

verification program challenges and long-term goals, VA has multiple efforts underway to make its verification program more cost 

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effective and veteran friendly, but our preliminary results indicate 

that lacks a comprehensive operational plan to guide its efforts. 

For instance, VA intends to restructure part of its verification 

process and in August 2015 began a pilot that gives veterans a case 

manager to serve as one point of contact. VA plans to fully transition to this new process by April 2016. 

VA also plans to change the program’s organizational structure 

and hire a director for the program which has had three different 

directors, the last two of which have been acting directors, since 

2011. 

Finally, VA plans to replace the program’s outdated case management system but has faced delays due to contractor performance issues. Efforts are underway to develop a new system. 

VA has developed a high-level operating plan for its OSDBU, but 

the plan does not include an integrated schedule with specific actions and milestone dates for achieving the multiple program 

changes underway or discuss how these various efforts might be coordinated within OSDBU. 

Our work over the years on organizational transformations states 

that organizations should set implementation goals and a timeline 

to show progress. Such a plan is vital to managing multiple efforts 

to completion and achieving long-term program objectives, particularly when senior level staffing for the verification program has 

lacked continuity. We continue to assess these issues and will report our results early next year. 

Again, thank you for the opportunity to participate in this hearing. I would be happy to answer any questions. 

[THE PREPARED STATEMENT OF WILLIAM SHEAR APPEARS IN THE

APPENDIX] 

Mr. COFFMAN. Thank you, Mr. Shear. 

Mr. Aucoin, you are now recognized for five minutes. 

STATEMENT OF QUENTIN AUCOIN 

Mr. AUCOIN. Thank you, Mr. Chairman. 

Mr. Chairman and Mr. Chairman, Ranking Members, and Members of the Subcommittees, thank you for the opportunity to discuss 

the VA Office of Inspector General’s work related to veteran-owned 

small business and service-disabled, veteran-owned small business 

programs. 

My testimony today will focus on OIG investigations of allegations that companies and individuals have fraudulently obtained 

Government noncompetitive set-aside contracts by misrepresenting 

their status as veteran-owned small businesses, service-disabled, 

veteran-owned small businesses, and through other pass-through 

schemes which deprive legitimate, eligible veteran-owned businesses from obtaining contracts they have earned through their 

honorable military service. 

My written testimony highlights many examples of recent OIG 

cases that have been successfully prosecuted. I am accompanied 

here today by Mr. Gregory Gladhill. He’s an audit manager from 

our Los Angeles Office of Audit and Evaluations. 

The purpose of the Veterans First Contracting Program is to ensure that legitimately-owned and controlled veteran-owned small 

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businesses and service-disabled, veteran-owned small businesses 

are able to compete for set-aside contracts as well as stimulate 

small business communities and to create economic growth. 

However, the program’s set-side advantages have made it a target for abuse and sometimes fraud by ineligible contractors using 

various deceptive schemes to acquire lucrative VA contracts. 

We have opened 386 preliminary predicated investigations and 

168 full investigations regarding allegations of veteran-owned 

small business fraud and service-disabled, veteran-owned small 

business fraud since 2008. 

Currently we have 50 preliminary investigations open and 70 full 

investigations open. Many of these are being worked jointly with 

the Small Business Administration’s Office of Inspector General, 

others with the General Services Administration’s Office of Inspector General, and we have other Federal law enforcement agencies 

that are also working with us jointly. 

Since 2008, our VOSB and SDVOSB investigations have resulted 

in the indictment of 56 individuals and five companies. For those 

defendants charged, 44 have been convicted to date. Furthermore, 

courts of jurisdiction have levied approximately $15 million in fines 

against these defendants and companies and ordered them to pay 

approximately $6.6 million in restitution. 

We consider these results a significant achievement because Federal prosecutions in these areas were historically difficult. It has 

been difficult to convince Federal prosecutors that the Government 

is, in fact, a victim when the services or products are delivered. 

But in these particular instances, it is the program and the legitimate veterans who are being cheated. We have been able to 

convey that, and by doing so, we have obtained successful prosecutions. 

In addition to the criminal and civil prosecutions, our special 

agents pursue suspensions and debarments against individuals and 

companies involved where there is evidence or cause for such action. Since fiscal year 2008, we have achieved 72 suspensions and 

debarments. 

Presently most of our investigations involve pass-through 

schemes where an eligible business obtains a contract but passes 

the business through to an ineligible contractor. The eligible business performs little or no work under the contract it passes 

through. 

This is specifically in violation of the requirements under the 

contract. Federal acquisition thresholds and limitations on subcontracting for VOSB and SDVOSB contracts specifically prohibit this. 

A second type of fraud we look at is a scheme that is commonly 

referred to as ‘‘rent-a-veteran’’. To be eligible for participation in 

the Veterans First Contracting Program, the regulations require 

one or more veterans or service-disabled veterans unconditionally 

direct, control, and own 51 percent of the business. In the rent-avet schemes, an individual who is otherwise not eligible is controlling the business and the veteran is only used as a front to obtain 

the work. 

In this scheme, the true owner of the company conspires with the 

veteran to have the veteran assume ownership in name only. A 

variation of this scheme also involves the establishment of new 

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firms for the sole purpose of obtaining set-aside contracts in an inappropriate manner. 

We have also investigated cases where veterans who are not 

service-disabled or in some cases individuals who are not veterans 

falsely self-certify their business. These businesses improperly benefit from the receipt of VOSB or SDVOSB contracts and they potentially block eligible veterans from competing for or obtaining 

these contracts. 

Lastly, we have investigated several cases where corrupt VA employees have steered business to ineligible contractors and making 

it appear as if they were SDVOSB contracts. 

In closure, our work demonstrates that the OIG has developed 

significant resources to investigate these individuals and companies who use these deceptive schemes. We take these allegations 

seriously and we pursue them aggressively so that individuals who 

seek to defraud the VA and cheat eligible veterans will see this as 

a deterrent factor and they will not engage in activities to deprive 

legitimate veterans for the contracts that they should get. 

Mr. Chairmen, this concludes my statement. We would be 

pleased to answer any questions that you or any other Members of 

the Committees may have. 

[THE PREPARED STATEMENT OF QUENTIN AUCOIN APPEARS IN THE

APPENDIX] 

Mr. COFFMAN. Thank you, Mr. Aucoin, for your testimony. 

Mr. Leney, you are now recognized for five minutes. 

STATEMENT OF TOM LENEY 

Mr. LENEY. Thank you, Mr. Chairman. 

Chairman Coffman, Chairman Hanna, Ranking Member Kuster, 

Ranking Member Vela ́zquez, and Members of the Subcommittees, 

thank you for inviting me to testify regarding what the VA has 

done to address the challenges in our VA Veterans First 

Verification Program. 

The VA has made substantial progress in improving the 

verification program since the last GAO report of 2013. In February 2015, GAO began its newest audit of the program. Their 

statement of facts reflects many of the improvements made by the 

CVE since the 2013 report. 

In short, by the end of 2015, applications were being processed 

within the regulatory timeframe 99.8 percent of the time with an 

approval rate of 94 percent. Initial applications were processed in 

an average of 41 days, well below the regulatory target of 60 days. 

Success in codifying its processes resulted in CVE earning the 

ISO 9001 certification. OSDBU has also implemented a rigorous internal audit and continuous improvement process and CVE has 

taken action to close 95 percent of all of our internal audit findings 

to date. 

In addition to the codification of its processes, GAO found that 

all of CVE records are now secured, controlled, and filed in accordance and compliance with NARA standards. 

As a part of the oversight of the program, CVE conducts postverification audits to monitor ongoing compliance. In 2015, CVE 

conducted 606 such audits revealing a noncompliance rate of apLeonard.horne on VACREP0180 with DISTILLER

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proximately four percent and a determination error rate of less 

than one percent. 

These statistics reflect the higher accuracy of determinations and 

the widespread compliance by veteran-owned small businesses with 

the program. 

The extensive program of audits also addresses concern raised by 

various stakeholders regarding program ineligibility or possible 

fraudulent activities. CVE has implemented a process for responding to allegations and conducting investigations where sufficient 

evidence is provided to support those allegations. 

We work closely with the Office of Inspector General to identify 

fraud and indications of fraud are aggressively pursued by the VA 

Office of Inspector General with our support. 

We have examined the lessons learned from the implementation 

of the current verification regulations and conducted considerable 

stakeholder outreach. VA has drafted changes to the rule to improve clarity and more closely align it to common business practices. 

The draft of the rule is currently under final review and we expect it to be published next Friday in the Federal Register. And the 

comment period will end on the 16th of January 2016. 

Since 2013, we have expanded our efforts to communicate with 

veterans about the program. Our Verification Assistance Program 

consists of several elements now. We now provide access to more 

than 320 counselors located around the country at no cost to the 

veteran to assist them with the process. 

We have expanded a series of verification assistance briefs, our 

frequently asked questions and fact sheets that explain the process 

and the regulatory requirements. We have also expanded our customer service center where veterans can speak with CVE representatives. 

CVE created a self-assessment tool that takes the veteran 

through every step of the process and every element of the regulation. We host pre-application workshops and town halls each 

month to educate veterans on requirements and the process and to 

obtain feedback. 

Firms currently receive predetermination findings notifications 

and have the opportunity to fix issues or withdraw without penalty. CVE sends out pre-expiration notices at 120, 90, and 30 days 

prior to expiration and follows up with phone calls at 90 and 30 

days to make sure that the veterans know what their status is. 

Although CVE has made great improvements in processing time 

and customer assistance, we have not been satisfied. As part of 

Secretary McDonald’s MyVA initiative, we have undertaken a 

transformation of the verification process to improve the veteran 

experience. 

We reached out to veterans via focus groups and surveys to identify pain points that remain in the process and are in the midst of 

a trial that addresses those pain points. 

Feedback to date reflects strong support for the new process and 

we expect it to be fully implemented no later than the end of April 

of 2016. That is the milestone we have established. 

GAO has reported that the CVE’s case management data system 

had shortcomings that hindered our ability to operate, oversee, and 

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11 

monitor the verification process. In 2013, GAO recommended that 

we modify or replace the system. We made improvements to the 

current system to address short-term issues and established plans 

to replace it with a case management system that will support the 

new process currently under trial. 

In conclusion, the VA has made significant progress in its Vets 

First Verification Program. We have overcome many of the challenges and vulnerabilities that were originally raised by the GAO 

and OIG reports. And we continue to improve in order to align with 

Secretary McDonald’s MyVA initiative. 

These improvements will continue to enable veterans to gain access to the VA program, the results of more than $3.8 billion in 

procurement dollars going to veterans, more than 20 percent of our 

total spend and approximately 30 percent of the total Federal Government spend with veteran-owned small businesses. 

Thank you for this opportunity and I look forward to your questions. 

[THE PREPARED STATEMENT OF TOM LENEY APPEARS IN THE APPENDIX] 

Mr. COFFMAN. Mr. Leney, CVE has about 16 full-time equivalent 

Federal employees and 156 contractors with a budget of $16.1 million for fiscal year 2015 coming from the supply fund. 

Why has VA not formalized a more appropriate and transparent 

funding methodology for CVE? 

Mr. LENEY. We have formalized a transparent funding mechanism for CVE. My office, the Office of Small and Disadvantaged 

Business Utilization, including CVE is funded through the VA Supply Fund. And that fund, I believe, is transparent to the Congress 

and we provide and are willing to provide whatever information the 

Congress would like on details on how we utilize that budget dollars. 

Mr. COFFMAN. Mr. Shear, in your testimony, you indicate VA 

lacks an operating plan and an integrated schedule and that it also 

lacks a plan of action and milestone dates for achieving program 

changes. 

What are your major concerns resulting from the lack of such an 

integrated schedule? 

Mr. SHEAR. There are a lot of moving pieces here where everything is going on at the same time. First you are going to a case 

management system that is being tested. Then there is development of an IT system that presumably would be based on what 

type of case management system you were putting in place. But 

that is going on at the same time. 

You are going through an organizational change at the same 

time. And so with those different pieces going on and with the idea 

that there hasn’t been stability in senior leadership, there is only, 

as you just said, 15 or 16 actually government workers that are involved here, these types of transitions really take an awful lot of 

coordination. 

How do all the pieces fit together? And we just don’t see any clarity on that. 

Mr. COFFMAN. Thank you. 

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Mr. Aucoin, the OIG has successfully pursued some fraud cases 

related to veteran-owned small businesses. 

Can you share your insight into this problem? 

Mr. AUCOIN. Yes, sir. Presently the majority of the cases that we 

are seeing are pass-through type of cases. We do have a large number of those. These cases are labor intensive. They are difficult to 

investigate. But I believe the payoff on these cases is huge. 

We are talking about corruption of a program designed to allow 

eligible veterans to get these set-aside contracts, getting the money 

back to the Department, and also serving as a deterrent so that 

other folks won’t try this type of fraud. It’s really important. 

Mr. COFFMAN. How much of it? I know that we have had hearings, other hearings about the procurement problems within the 

VA and the ability of procurement Officers to circumvent the competitive process through these credit card purchases, mounting 

credit card purchases. 

How much does that affect this particular program? 

Mr. AUCOIN. We have had some crossover. We had one particular 

case in New Jersey that involved a senior engineering employee. 

Half of this $6 million scheme involved corruption of the SDVOSB 

process. Steering that business inappropriately allowed him to 

steer the business to a company he helped set up and he got about 

$1.2 million in kickbacks from the fraud. 

Mr. COFFMAN. Okay. Thank you, Mr. Aucoin. 

Chairman Hanna, you are now recognized. 

Mr. HANNA. Mr. Leney, just quickly, could you respond to what 

amounted to an accusation that your agency games the numbers to 

make the dates look better? 

Mr. LENEY. That is not a true statement. The VA does not game 

its numbers. The department has acknowledged that in the past, 

we have had purchase actions that have not been recorded in FPDS 

and have not been brought under FAR-based contracts. 

It is not clear the impact of those actions on veteran-owned small 

business. In fact, the bulk of those actions are what we call nonVA care purchases that go to doctors’ offices. And I can’t tell you 

what percentage of doctors’ offices are veteran-owned or part of the 

Federal Government process. 

Mr. HANNA. So the answer is that you don’t do anything to 

change the time it takes you to approve or disapprove in any way? 

Mr. LENEY. Sir, I don’t understand. 

Mr. HANNA. Well, we are talking about the approval process, the 

length of time it takes you to approve a veteran or not. 

What I heard Mr. Shear say, unless I am mistaken, was that certain things are done to change that date by making someone reapply and cancel their original application. 

Mr. LENEY. Thank you. I now understand. 

We have improved the process. The regulation gives us 60 days 

to complete the process. What we have been able to do is enable 

the veteran to take as much time as they need to provide us with 

documentation that we need in order to make a determination. 

We have now allowed veterans to withdraw by giving them a 

predetermination finding. Originally when you submitted your application, that application was evaluated and you received a determination letter which then if you were found to be ineligible reLeonard.horne on VACREP0180 with DISTILLER

13 

sulted in a six month period of time before you could come back 

in. 

We now provide that information to the veteran and allow them 

to withdraw. It is a courtesy to the veteran. And some firms withdraw two and three times, but we do that for the veteran. 

Mr. HANNA. Okay. I understand. 

When I walked in the room, you and I spoke briefly. And you had 

indicated to me that Congress needs to have legislation in order for 

you to change the nature of the appeal process, that basically veterans are appealing to the same individual who made the original 

decision, whatever that decision was. Obviously it was a negative 

one for them or they wouldn’t appeal. 

But, yet, under your Acquisition Regulation 819.3, it is clear that 

you have the ability to go—in fact, you can forward all status protest to the Small Business Administration. 

But you don’t agree with that, I take it? 

Mr. LENEY. We forward all size determinations to the Small 

Business Administration. We have no objection to utilizing a different appeal process. I am, in fact, the appeal authority for 

verification appeals. 

We have talked with the SBA. I have spoken personally with the 

Office of Hearing and Appeals. We have no particular problem with 

utilizing the Office of Hearing and Appeals. Unfortunately when we 

worked through this process, our Office of General Counsel has informed me that this will require a legislative change in order for 

a process within the VA to have an appeal to another—— 

Mr. HANNA. So that I understand you, you are perfectly content 

having that done by the SBA? 

Mr. LENEY. I have no objection and—— 

Mr. HANNA. But you—— 

Mr. LENEY [continuing]. I am not aware of any change—— 

Mr. HANNA [continuing]. believe that this Congress has to change 

the law in order to allow you to do that even though your own regulations suggest that you—— 

Mr. LENEY. Our own regulations do not allow us to provide that 

appeal authority outside the Department of Veteran Affairs. And 

the Office of General Counsel has informed me we will require legislation to do that. But I am not aware and I am certainly not opposed to using the Office of Hearing and Appeals. 

In fact, we have examined every Office of Hearing and Appeals’ 

decision over the last three years to make sure that we are aligned 

with their interpretations of the regulation since—— 

Mr. HANNA. It has got to be a little awkward to be the originator 

of the decision and also the person or the group that one has to 

appeal to. 

Mr. LENEY. I don’t consider the current appeal process to be optimal. However, I am separated from, while the Center for 

Verification and Evaluation works for me, I am not part of the center. So it is an appeal to a higher authority, if you will. 

But, again, I have no issue or no problem with using the Office 

of Hearing and Appeals. We need your help with legislation. 

Mr. HANNA. Thank you. My time is expired. 

Mr. COFFMAN. Thank you, Chairman Hanna. 

Ranking Member Vela ́zquez, you are now recognized. 

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Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Mr. Shear, there continues to be high reliance on contractors to 

perform the verification functions with only 15 full-time Federal 

employees overseeing all contractors. Additionally, many of the contractors are classified by VA as key personnel. 

Is it at all concerning that VA lacks the capabilities internally 

to run its verification program? 

Mr. SHEAR. There are a number of concerns that can be raised 

about this arrangement with such a small number of government 

workers. One thing is that when you have government staff, you 

have the ability to train the staff and to develop the capacity over 

time to conduct the function. And that is being lost by saying we 

are going to go out and contract whenever we need people with certain qualifications. 

So that is one of the first concerns. There are concerns with overseeing—here I might be answering another question, but there 

might be concerns when you do use contractors to have the capability to actually oversee those contractors. So those would be two 

of the issues that I would highlight.’ 

Ms. VELA ́ ZQUEZ. So in your opinion, does VA have the expertise 

to oversee all of these contractors? 

Mr. SHEAR. We observe that there is a very small number of people who are engaged in the program. So I can’t point to the people 

and just say that they are not capable. 

There are certain contracts we see being used both in terms of 

operating the program and in terms of evaluation to try to determine where the program should go where it is of concern of whether these 15 or so employees really have the capacity to oversee 

those contracts. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. Leney, some question whether contractors should even be 

performing this work because it can be deemed inherently governmental or at the very least a conflict of interest. 

Mr. Leney, what controls do you have in place to ensure that 

there is no improper use of applicant information by the contractors? 

Mr. LENEY. We have internal controls to ensure that the information that is provided to CVE as part of the verification process 

remains confidential. All contractors that are involved in the program sign nondisclosure agreements. 

We have multiple check points. All verification applications are 

reviewed by a Federal employee. We utilize contractors because it 

gives us flexibility and we are able to acquire high-quality. 

Ms. VELA ́ ZQUEZ. But what mechanisms do you have in place to 

oversee that first, they have the training because they are conducting on-site visits, right? 

Mr. LENEY. Yes. 

Ms. VELA ́ ZQUEZ. They perform IT to application reviews. Do they 

have the training? Do they have the expertise? And then what type 

of oversight mechanisms do you have in place to make sure that 

the access to the information and the data that they have is not 

used improperly? 

Mr. LENEY. We know that they are trained because we train 

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15 

uators, our site visitors to the same standard. All of them are required to be qualified and certified to do the job. They are trained 

to exactly the same standard. 

Ms. VELA ́ ZQUEZ. Okay. 

Mr. LENEY. Utilizing contractors, I have lawyers. Every single 

evaluator is a lawyer. Many of them have MBAs. So we are able 

to acquire high-quality people through a contracting mechanism 

much more quickly and efficiently than we would if we were hiring 

federal staff. 

Ms. VELA ́ ZQUEZ. Thank you, sir. 

Mr. Aucoin, Mr. Leney’s testimony indicated that the verification 

program has a 61 percent approval rate when businesses request 

reconsideration of their application. 

Has your office investigated whether these businesses are receiving appropriate levels of scrutiny in their reconsideration? 

Mr. AUCOIN. The Office of Investigations has not addressed that 

particular issue. But I would ask Mr. Gladhill if he has something 

he can speak to in that area. 

Mr. GLADHILL. Yes. The Office of Audits and Evaluations currently has not looked at that rate, but in fiscal year 2017, we will 

be doing a follow-up review of the verification process. We will consider that for part of our methodology. 

Ms. VELA ́ ZQUEZ. Thank you. 

Thank you, Mr. Chairman. 

Mr. COFFMAN. Thank you, Ranking Member Vela ́zquez. 

Ranking Member Kuster, you are now recognized. 

Ms. KUSTER. Thank you, Mr. Chairman. 

And I will direct my questions to Mr. Leney. Apparently, the IT 

contract for the case management system has been canceled on performance grounds. 

What is your plan to ensure the case management system is supported with necessary IT capability and when can we expect to see 

an IT system in place to support the CVE’s verification program? 

Mr. LENEY. That is correct, Congresswoman. We did cancel the 

procurement of our follow-on case management system. We were 

concerned about the performance on the contract. And as stewards 

of the American taxpayer, we cannot allow a contract to continue 

forward if we don’t believe it is going to result in—— 

Ms. KUSTER. How did it take $800,000 worth of the contract before you determined that? 

Mr. LENEY. Because a contractor was able to complete a portion 

of the contract and then we were able to determine in the course 

of that that they would not be able to complete and they were not 

delivering on the rest of the contract. 

Ms. KUSTER. Were they qualified when they were chosen? 

Mr. LENEY. Yes. They were qualified through the procurement 

process. 

Ms. KUSTER. And what is it that you got for that sum, over 

$800,000 of taxpayer money? 

Mr. LENEY. We got some of their earlier deliverables. But when 

they failed to meet subsequent deliverables and we realized they 

had made a change in their subcontracting arrangements, we did 

not have confidence they would be able to complete the contract. 

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Ms. KUSTER. Well, let me ask you this. Where do we go from here and is there any value to the taxpayer of that $800,000? Has 

anything been salvageable? 

Mr. LENEY. Yes. We were able to salvage the analysis of the 

baseline system that they provided. We have worked—we work 

very closely with the Office of Information Technology through the 

PMAS process. So we have put together an extensive and detailed 

plan for the acquisition and implementation of a new system. 

Ms. KUSTER. And what is the timeline for that? 

Mr. LENEY. The timeline for that is 2017. What remains, however, is we have been asked by the Supply Fund to go back to the 

Supply Fund and reinitiate the fundamental business case. 

We did a business case for the original system. They have asked 

us to provide them with a new business case for the follow-on system. We had anticipated doing a pilot here in the first quarter of 

2016, but I will require approval by the Supply Fund board to do 

that. 

Ms. KUSTER. So I am going back to Mr. Shear’s comment. We 

have a lot of moving parts and you are trying to change to a case 

management model while you are in the process of redeveloping 

this IT program. 

Are you able to move forward with the transition to the case 

management model before the IT for case management is in place? 

Mr. LENEY. Yes. In fact, one of the reasons we have not pursued 

more aggressively the change in the case management system is as 

part of our MyVA effort, our fundamental change in the verification 

process. 

We are in the midst of a trial. That will be complete here by the 

end of the first quarter of the fiscal year. We will have a new process in place with contracts by April and we will be able to adapt 

the verification case management system to support that. 

Ms. KUSTER. So further on that, my question is, have you performed an analysis of the SBA verification process versus the VA 

verification process because just speaking on behalf of veterans and 

business owners, this seems like incredibly over-burdensome government regulation that is timely, costly? 

And I don’t see it serving any additional purposes. If the SBA 

manages to get these verifications done at a higher rate in a more 

efficient manner, why don’t we just adopt their system or better 

yet—— 

Mr. LENEY. The SBA does not have—— 

Ms. KUSTER. [continuing]. why don’t we just say if you are 

verified, you can have the contract? 

Mr. LENEY. Two important points. We have done a detailed examination of both the SBA regulation and our regulation and determined there is no material differences between the two currently. There will be some differences when our rule change goes 

into effect as we seek to make our rule more consistent with normal business practices. 

Secondly, the SBA has no verification program. The only time 

the SBA looks at a veteran-owned small business is in response to 

a status protest. Last year, they did about 40. We did about 4,500 

verifications. The difference between the SBA and the VA is we 

verify, they do not. 

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And we believe that—you have heard Mr. Aucoin. You know, we 

think it is, A, you have mandated that we do it and we support 

that because we think it is very important that the $3.9 billion that 

goes to veteran-owned small businesses goes to people who are the 

real deal. It is real money to real vets. 

Ms. KUSTER. Well, I don’t disagree with that. I just wish we 

could do it more efficiently and more effectively. So—— 

Mr. LENEY. Ma’am, I think we are. 

Ms. KUSTER [continuing]. Appreciate your efforts. Thank you. 

Mr. LENEY. I think we are. 

Mr. COFFMAN. Thank you, Ranking Member Kuster. 

Dr. Huelskamp, you are now recognized. 

Dr. HUELSKAMP. Thank you, Mr. Chairman. 

I would like to continue following up on that line of questions of 

Mr. Leney and talking about the SBA. 

Does the CVE coordinate and communicate with the SBA to determine companies that are too large and should be removed from 

your database? 

Mr. LENEY. Yes, sir, we do. All issues with respect to size are referred to the SBA. The SBA is the only organization within the 

Federal Government that is authorized to make size determinations. 

We do not make those determinations. If in the course of our examinations, we believe that the company is not small, we refer 

those companies to the SBA. 

Dr. HUELSKAMP. You say that is the case, but I see at least a 

couple companies brought to my attention that SBA has determined they are a large business. 

Do you monitor their published decisions on this? 

Mr. LENEY. Yes, we do, sir. 

Dr. HUELSKAMP. Okay. Well, we have a case of a construction 

company in Flemington, New Jersey and beginning in 2012 determined to be a large business. 

Yet, here it is three years later, you are still disagreeing with 

that SBA decision? 

Mr. LENEY. To explain that, sir, what happens is the SBA makes 

a size determination with respect to a particular North American 

industry code in a particular procurement. To be eligible for 

verification, you need to have at least one—be considered to be 

small in at least one NAICS code. For example, a firm could—one 

NAICS code—— 

Dr. HUELSKAMP. I don’t want to get into details. So you are saying you have different definitions of small and large business? 

Mr. LENEY. No, sir, we do not. We have the same definitions. It 

is—their determinations are much narrower than ours. 

Dr. HUELSKAMP. Same definition, but narrower? I am missing 

the point. 

Mr. LENEY. Yes, sir. When they do a size determination, it is 

with respect to particular industry sector. 

Dr. HUELSKAMP. All right. Well, I would like a little follow-up on 

that—— 

Mr. LENEY. And we would be happy to follow-up. 

Dr. HUELSKAMP [continuing]. Because apparently they disagree. 

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ness and you say they are not under the same definition, is 

that—— 

Mr. LENEY. I can’t speak to the individual company. I am happy 

to look into that and provide you with an answer for the record, 

sir. 

Dr. HUELSKAMP. Okay. I would like to follow-up on that. 

Mr. LENEY. Yes, sir. 

Dr. HUELSKAMP. And, secondly, with Mr. Aucoin, I appreciate 

your testimony and the department’s support of our efforts in, I believe it is House Bill 3015 to fix some of these problems, so I appreciate that and this verification process. 

You do outline a few areas in which you see the fraud, whether 

it is the rent-a-vet scheme, you know, whether it is the false passthrough schemes, or you do indicate a few cases of corrupt VA employees. 

In particular, back on the issue with the Machinga situation—— 

Mr. AUCOIN. Yes. 

Dr. HUELSKAMP. [continuing]. How was that discovered where a 

corrupt VA employee received $1.2 million in kickbacks just sentenced to 46 months in prison? I mean, can you quickly describe 

how that was found out and how that will be avoided in the future? 

Mr. AUCOIN. It was discovered as part of another similar investigation. While we were conducting the investigation, information 

regarding that scheme came to light. And once the lead came to our 

attention we did a thorough investigation. The scheme was wide 

ranging. It was a $6 million scheme and quite complex. But it came 

to light while we were doing a very similar investigation. 

Dr. HUELSKAMP. So you just happened, somebody happened to 

stumble upon this. Well how was that, I mean I want you to be 

brief, how was that hidden? How will that be found out in future 

situations? I am particularly concerned when Mr. Leney, I think he 

mentioned that he was the single final appeal on some part of this 

process. 

Mr. AUCOIN. Right. 

Dr. HUELSKAMP. Do we have that type of authority established 

in one individual rather than a Committee elsewhere in the VA? 

Mr. AUCOIN. I do not know the answer to that. I will take that 

one for the record. 

Dr. HUELSKAMP. Okay. So again, how will this be avoided, the 

Machinga situation, in the future? 

Mr. AUCOIN. The biggest area we look at is pass throughs. That 

right now is just the biggest area of fraud. And I think that there 

is currently some things under consideration legislation-wise regarding a certification. At the time of contracting, it would be great 

if there was a bright line. We are a country of bright lines. If the 

veteran that is eligible saw this bright line and said, look, you are 

going to have to do this right, and these are the rules in one place. 

And under the penalties of Title 18 Section 1001, you certify that 

you are going to do it right. That would put a bright line there so 

that folks would not get trouble, but also it would give us a better 

tool to address this, whether it is for debarment, suspension, or judicial action. And I think that is presently under consideration 

now. 

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Dr. HUELSKAMP. And I appreciate that. It is H.R. 3016. I appreciate the prosecution side of that. I would like a little feedback of 

how you discover the problem. 

Mr. AUCOIN. Yes. 

Dr. HUELSKAMP. I mean, not, you know, this is a corrupt VA employee steering megamillion dollar contracts to his buddies, I guess, 

and somehow we just stumble upon that? I mean, it shows that 

there are some serious problems in the program when that can 

occur. And I would like a few more details on how we avoid that 

in the future. So I appreciate the work you all did in finding that 

situation, and the FBI did prosecute that. But that is very troubling to me, that that can somehow continue to occur. 

Mr. AUCOIN. Right. 

Dr. HUELSKAMP. So thank you. I yield back. 

Mr. AUCOIN. We have some proactive work in that area. But 

most of our referrals come from contractors who are eligible and 

they find out that someone else who they believe is not eligible got 

the contract. And it is kind of a self-governing system among eligible veterans. They say I know these folks are not eligible, and I 

wanted to get that work because I am eligible, and I want to make 

this referral. And the bulk of our allegations presently come in , 

in that way. 

Dr. HUELSKAMP. Okay. I yield back. Thank you, Mr. Chairman. 

Mr. COFFMAN. Thank you, Dr. Huelskamp. Ms. Rice, you are now 

recognized. 

Ms. RICE. Thank you, Mr. Chairman. Mr. Aucoin, I just wanted 

to follow up on what Dr. Huelskamp was asking you about. So a 

lot of these cases, these investigations, start with an eligible—well, 

you tell me what percentage starts with an eligible contractor informing you or someone at the VA that someone who has been 

awarded a contract is ineligible? 

Mr. AUCOIN. Right now the majority of our cases do originate in 

that fashion, yes. 

Ms. RICE. So I guess what my question is, what are we doing 

wrong here? I mean, I am hearing a lot of, what are we doing— 

well, first of all I think everyone would agree that the Veterans 

First contracting program is a worthwhile program. 

Mr. AUCOIN. Yes. 

Ms. RICE. That needs to, the integrity of which needs to be maintained if it is going to serve the purpose, right? 

Mr. AUCOIN. Yes. 

Ms. RICE. So why, it seems to me like there is absolutely no vetting done up front and it is not until we hear about someone who 

did not get a contract and we get a tip that an investigation starts. 

Why is there no ability to identify ineligible fraudulent contractors 

earlier? 

Mr. AUCOIN. Well, I would not say there is not a vetting process. 

When the Veterans First Contracting Program first started we did 

have a number of folks that just were not eligible at all. They were 

not veterans and they certainly were not disabled veterans, and we 

did have a number of cases like that. But our work load has shifted. Now most of the cases we see are pass throughs, where they 

are eligible but they just do not do it correctly. We do have occasional instances where there are corrupt VA employees who will 

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steer the contract to someone who is not eligible. But again, the 

vast majority of our work now are pass through schemes. 

Ms. RICE. So you are saying that it is impossible to disqualify 

that scenario because it is not until the actual contract is being implemented—— 

Mr. AUCOIN. That is correct. 

Ms. RICE [continuing]. that you see the fraud? 

Mr. AUCOIN. Right. And again, speaking of bright lines, it would 

be advantageous if at the time the contract is signed it advises the 

contractor that they are responsible for following all of the regulations for performing a certain percentage of the work depending on 

the type of contract. It is different for construction versus other 

services. But you have to follow the regulations. If you pass 

through and you do none of the work or very little of the work, that 

is a violation in the middle of the contracting action. You are eligible up front, but you basically made yourself ineligible by fraud in 

the middle of the contract. 

Ms. RICE. One of the biggest—well, I agree that making it a penalty, right, making them sign the legislation that we were talking 

about is actually very, a great idea to act as a deterrent. But the 

other deterrent, I think, is that when you catch people that they 

are actually debarred forever, forever, right? I mean, can you just 

explain the whole debarment process and how effective—I forget 

the number. How many debarments were there? 

Mr. AUCOIN. I can give you—— 

Ms. RICE. I guess the number does not matter but just—— 

Mr. AUCOIN. [continuing]. We have 72 companies debarred. 

Ms. RICE. Okay, so 72 companies. But you, so out of how many 

investigations? I mean, is every ineligible fraudulent company 

debarred? 

Mr. AUCOIN. Every time that we determine that the crime did in 

fact occur we will make that referral. You know, I know that you 

are a former prosecutor. You understand that intent is the hardest 

thing in proving a crime. Once we get over the hump of proving 

the intent, I think that, one, we are very close to getting a criminal 

prosecution that is appealing to the prosecutor. But also it is clear 

that some suspension and debarment action needs to be taken. 

Ms. RICE. Well I cannot tell you how in favor of debarments and 

fines and penalties, I am, because when you hit people where it 

hurts the most, that is an actual deterrent. I am not talking about 

jail, although clearly that former employee deserved to go to prison. 

Mr. AUCOIN. Yes. 

Ms. RICE. But I think, it just seems to me that there are steps 

that we can take to not allow so much money to go out and be 

taken away from legitimate, you know, service-disabled veteran 

small businesses or veteran-owned small businesses, right? I 

mean—— 

Mr. AUCOIN. Yes. 

Ms. RICE. Thank you. I yield back. 

Mr. COFFMAN. Thank you, Ms. Rice. Mr. Kelly, you are now recognized. 

Mr. KELLY. Thank you, Mr. Chairman. Mr. Leney, I want to go 

back to the 60 days to complete the process and to your comment 

saying that is in the best interest of that veteran, that small 

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businessperson. What percentage of those applications are resubmitted after their initial submission? 

Mr. LENEY. I will have to take that question for the record. I cannot give you exact data. But most applications go through the first 

time. When we have a predetermination finding we allow them to 

correct it. If it is going to require a complete reevaluation we give 

them the opportunity to receive a determination or to withdraw. 

Again, this is a courtesy to the veteran. 

Mr. KELLY. Yes, those things, as a veteran and as a former district attorney, those things that are generally courtesies to the veterans kind of scare me sometimes. Because that is an easy way to 

also make your numbers. People did it with maintenance in the 

military, and lots of other ways. But what process do you have in 

place that during that 60 days you actually talk to that veteran 

and look at the packet and say you need these things to thoroughly 

complete it? Do you have anything in place that tries to do that before the 60 days without dismissing or withdrawing and resubmitting? 

Mr. LENEY. Yes sir, we do. In fact our predetermination findings 

program is the evaluator speaks with the veteran, lays out all the 

findings and those issues that would make the veteran ineligible, 

gives the veteran an opportunity to explain them. In some cases 

they can be explained. In some cases they require a change in the 

business model and we allow the veteran to make that change. 

Mr. KELLY. All right. Going back, Mr. Director, I understand that 

during your tenure, or during your tenure, the Center for 

Verification and Evaluation has had three different directors and 

the last two have been acting directors. Additionally, from March 

of 2014 until September, 2015 there was a vacancy in the CVE deputy director position. How have in spite of all these key leadership 

positions being vacant, or changing rapidly, or many times during 

that period, how have you, what steps have you take to form a 

strategic plan that allows you to operate and to fix all these things 

to make it as smooth as possible? 

Mr. LENEY. We have operated under a plan to fix these things. 

We have fixed them. Yes, it is true I have had two acting directors. 

However, the fact that they were acting directors has not adversely 

affected our abilities to perform the mission. I have an excellent 

federal staff in the Center for Verification and Evaluation. We have 

now just closed on the announcement for a new director. The reason we had an acting, we did not have a deputy director, is because 

the deputy director was acting as the director for a period of time. 

But we now have a new deputy director and the job announcement 

just closed and we will be assessing for a new director here shortly. 

Mr. KELLY. And I apologize. I am bad with name pronunciation. 

Mr. Aucoin? Just on, I know the pass through is the primary thing 

that you have identified the way that people abuse. Is there another or other key areas that people routinely use besides the pass 

through to try to get around the system? 

Mr. AUCOIN. There is a scheme that is commonly referred to as 

‘‘rent a vet’’. They get a veteran who would be eligible and they 

prop the veteran up as a figurehead in the business. And the veteran essentially does nothing, no decisionmaking, and has no ownership. But the fraudulent business makes it appear that the vetLeonard.horne on VACREP0180 with DISTILLER

22 

eran is in charge. And that is one of the schemes that is used. Not 

as common as pass through, but that is one of the schemes. 

Mr. KELLY. Mr. Chairman, I yield back. 

Mr. COFFMAN. Thank you, Mr. Kelly. Mr. King, you are now recognized. 

Mr. KING. Thank you, Mr. Chairman. And I thank the witnesses, 

and I appreciate this hearing. And I wanted to compliment Ms. 

Rice on her questioning and I see that she has had to leave. But 

I like the direction that she went with that, being a prosecutor. I 

would take this, I will go to Mr. Aucoin first, but I take this beyond 

that. She said that, you know, a permanent bar or a bar forever 

for those who have gamed the system. Of course, I am all for that. 

Her reference was there is very little, appears to be no vetting up 

front. That may or may not be the case. But here is where I would 

like to know what is the certification when someone applies for a 

government contract under a, say, a combat disabled vet or a service-disabled vet? What is the certification up front? What is the 

background check on that for verification of that certification? And 

you testified that when they fail on the contract that is often when 

you find out, or if a competing contractor identifies and blows the 

whistle so to speak. 

Mr. AUCOIN. Right. 

Mr. KING. They blow the whistle to who? Who acts on it? What 

kind of cooperation are you getting out of the Justice Department? 

Let me stop with that for a moment and then follow up. 

Mr. AUCOIN. That is quite a list. First of all, the certification is 

done through the CVE, that falls under Mr. Leney. We are not getting the number of referrals that we once did that says this business just is not eligible for either a veteran-owned small business 

certification or service-disabled veteran-owned small business. 

Those type of allegations just have not come in as frequently as 

they once did when the Veterans First Contracting Program initially started. 

As far as the reception that we are getting from Department of 

Justice, they are entertaining our cases. It has not always been an 

easy sell. Because if the contract is to build a parking garage, for 

instance, that is a fairly complex process. If you have a business 

that can do that and they deliver it and then in midstream you find 

out they did a pass through, the Government is going to get something in return for expending that money. But you have now eliminated a legitimate veteran-owned small business from doing that 

work. The money is passed through. You have not developed the 

capabilities of a veteran-owned small business to compete down the 

road. 

Mr. KING. If I might, Mr. Aucoin, I am aware of those circumstances where an individual contractor or even a group of contractors have gone out and found the straw man to be their 

front—— 

Mr. AUCOIN. Right. 

Mr. KING [continuing]. in a disadvantaged business enterprise 

and whatever category it might be. And that sets up straw companies. 

Mr. AUCOIN. Yes. 

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23 

Mr. KING. And then the participation level of the requirement, 

I do not remember the percentage of that. Did anybody testify to 

the percentage of the contract that has to be performed by the disadvantaged business? 

Mr. LENEY. Fifty-one percent. 

Mr. KING. Okay, and that is the number. And so then the subcontracts are to total up to be less than 51 percent. Then because 

of that answer I go to Mr. Leney, as Ms. Rice spoke about this 

being debarred for life, how many of these contracts we are talking 

about here are not bonded? 

Mr. LENEY. You are referring to construction contracts—— 

Mr. KING. Well, but also beyond that. Supply contracts, 

unbonded supply contracts seem to me to be an open door for people to get in. And the only verification is after the fact. Construction contracts, though, would be the first part of the answer. 

Mr. LENEY. I think it is important to distinguish here between 

the verification of ownership and control, which is what the Center 

for Verification and Evaluation does and is the focus of this hearing, and the acquisition actions that are taken by a—you can have 

a company that is owned and controlled by a veteran who fails to 

meet the limitations on subcontracting, and that is what Mr. 

Aucoin has been referring to as the bulk of the OIG investigations. 

But the CVE does not get into that, that is not their area of responsibility. 

Mr. KING. So, okay, of course that does not answer my question. 

But I turn back to Mr. Aucoin. Do you know, are you aware, are 

any of the witnesses aware of the distinctions between what percentage of the construction contracts are bonded for performance 

and payment and bid bonds, and the distinction of that. If you have 

got a prime contractor that is bonded in that fashion, then their finances have been vetted by the bonding company. So is there a 

problem in this area at all that you are aware of? 

Mr. AUCOIN. I do not know the answer to that. We will have to 

take that for the record. 

Mr. KING. Okay. And I would say then perhaps I could turn this 

in to Mr. Shear. Are you aware of any problem in this particular 

area? 

Mr. SHEAR. In terms of bonding? Or do you—— 

Mr. KING. Well and what percentage of the contracts, we are 

down now to construction contracting and it is six seconds. So is 

there an awareness of what percentage of the construction contracts themselves that are being performed by disadvantaged businesses that are military veterans that are bonded versus those that 

are not bonded? 

Mr. SHEAR. No, we have not looked at individual contract actions. 

Mr. KING. Thank you. And my comment into this Committee 

then, Mr. Chairman, is that is a very serious topic to look into. The 

bonding companies are a private sector solution to this. They set 

the terms on that, the premiums on the bonding and according to 

the degree of risk on a certified financial statement. So if we have 

a, we have straw men that step forward if they do not have the 

capital they will not get the bond. And I just ask that this ComLeonard.horne on VACREP0180 with DISTILLER

24 

mittee take a look at that perhaps in a future hearing. And I appreciate the attention and I yield back the balance of my time. 

Mr. COFFMAN. You have a very good point. Thank you, Mr. King. 

Mr. Leney, per the VA’s acquisition regulations 819.307, all that is 

necessary for SBA to take over deciding status protests from CVE 

is for CVE to execute an interagency agreement with SBA. Why did 

the VA’s general counsel approve the VA acquisition regulation but 

tell you a new law is necessary? 

Mr. LENEY. I cannot speak to the former. All I can speak to is 

what I was told by the Office of General Counsel We can take that 

for the record and we will provide a comprehensive response. 

Mr. COFFMAN. Yes, I would very much like to see that opinion 

from the General Counsel. 

Mr. LENEY. We will provide that. 

Mr. COFFMAN. Mr. Leney, CVE’s VIP database shows that less 

than ten percent of verified businesses are doing business with VA. 

Why are you allowing CVE to distract from your primary mission 

as Small Business Director, particularly since having CVE under 

OSDBU is not compliant with the Small Business Act? 

Mr. LENEY. To answer the last part first, we do not believe that 

my oversight of the CVE is not in compliance with the Small Business Act. We believe that the verification process is an important 

enabler for small businesses to do business with the VA. And it is 

very much, we seek to very much integrate that with providing opportunities for veteran-owned small businesses. We however do not 

restrict people from applying for verification to those firms that are 

doing business or seek to do business with the VA. 

Mr. COFFMAN. Given the large budget for CVE this would seem 

to be a very poor rate of return for VA’s investment. What have you 

done to turn this around? And what quantitative results have you 

achieved? 

Mr. LENEY. The actual costs of verification are going down and 

we anticipate significant further savings as we institute both a new 

information system and a transformed process. 

Mr. COFFMAN. Mr. Shear, it seems to me that VA’s failure to develop a comprehensive operating plan has some similarities with 

the conclusion in your 2013 report regarding the VA’s failure to develop a comprehensive strategic plan. What similarities do you see 

at these two points of time? Also, please elaborate on what VA has 

done since 2013 and the areas that still need attention with respect 

to the planning for the verification program? 

Mr. SHEAR. Thank you for the question. Let me address it in two 

parts, starting with 2013. When we first started that engagement 

we thought by that time after the passage of time since the 2006 

act, we would be testing a system to see how well it was working. 

Whether it was doing its job, whether it was consistent, things like 

that. And we found out that there was no stable system. So then 

we backed up. And we asked, have you thought strategically about 

what this system is supposed to do and how to develop it? And 

there was no strategic plan. So that was basically part of the outcome. And sometimes you say, well, GAO is big on planning. Well, 

we are. It is for a reason. It is saying, establish your goals and how 

you are going to achieve them. 

Leonard.horne on VACREP0180 with DISTILLER

25 

So after our report there was a strategic plan, which is basically 

a fairly high level type of approach of what your goals are and how 

you hope to achieve them and what types of measures you will 

have to see whether you are reaching them. So what we have now 

is a planning problem. 

So it is still a planning problem. It is a planning problem when 

certain transformation or something new or a number of new 

things are starting to happen. And then you just say there are so 

many moving parts here and there is just a lack of coordination 

among those parts, especially with the turnover and the small 

number of government employees. It just especially raises the concern. But just generally, even in the absence of those things, when 

you have a number of moving parts you always need a plan, whatever you want to name it, you have to know what are you going 

to do at certain times, what things feed into the other pieces, and 

create some clarity on where you are going and exactly how you are 

going to do it. 

Mr. COFFMAN. Thank you, Mr. Shear. Chairman Hannah, you 

are now recognized. 

Mr. HANNA. Thank you, Mr. Chairman. Mr. Shear in your written statement you said it is not clear if OSDBU will develop an 

overall plan that captures and integrates the various efforts it has 

been undertaking that are managed by the CVE and other program 

teams within OSDBU, unquote. 

As you know the Small Business Committee has long been concerned that OSDBU is focusing on areas other than those explicitly 

stated in the Small Business Act. But should we be concerned that 

this marriage of CVE and OSDBU is diluting the ability of each to 

focus on its core mission and deliver results? Are the organizations 

within OSDBU and other CVE involved in the verification process, 

if that is clear? 

Mr. SHEAR. You asked a great question. And based on our audit 

work I cannot answer it completely. But let me just make some observations, if I could, Mr. Chairman? 

We have looked at OSDBUs at the Committee’s request. And it 

is very important what the mission of the OSDBU is, and that they 

have stature in their agency, and that they are focused on expanding opportunities in the Federal contracting work space. It is all 

part of the whole apparatus around the Small Business Act. That 

is what the focus should be. 

I do not think that if part of that is a policing function that it 

necessarily disqualifies the OSDBU, and this is not a statutory interpretation, it is not like our General Counsel has reached a statutory determination. But it may not disqualify the OSDBU if part 

of its actions are engaged in some type of policing action. But the 

very good question that you ask, which we have not evaluated and 

I do not think others have, is in cases where an OSDBU might 

have a broader kind of reign and level of responsibilities. In the extreme is the situation that Mr. Leney is in, that it raises an issue 

as far as what is the focus of this office. So I cannot talk about the 

particulars. I do not know how much of his time or of the OSDBU’s 

time goes into the various activities, or how focused it is on expanding opportunities for small businesses, including service-disLeonard.horne on VACREP0180 with DISTILLER

26 

abled veteran-owned small businesses. But you raise a very good 

issue. 

Mr. HANNA. Thank you. I yield back the balance of my time. 

Mr. COFFMAN. Thank you, Chairman Hannah. One more question for Mr. Shear. Based on evidence to date from VA’s site to 

verify firms, do you think VA has sufficient information to make 

informed choices about the extent to which the verification program 

has effectively identified only eligible firms? 

Mr. SHEAR. Thank you. 

Mr. COFFMAN. Please use the microphone. 

Mr. SHEAR. I am sorry? 

Mr. COFFMAN. Please turn your microphone on. Is it on? 

Mr. SHEAR. It is on. 

Mr. COFFMAN. Okay. 

Mr. SHEAR. I will turn it off and back on. Okay. Now can you 

hear me? 

Mr. COFFMAN. Go ahead. 

Mr. SHEAR. Okay. Thank you. Sometimes the simplest numbers 

are used. And as we reported based on site visits there were only 

a couple of firms that were found where the decision made at the 

time of verification was incorrect. We also found that there were 

a relatively small number of firms based on site visits where the 

verification, where basically the verified firm was no longer eligible, which goes to the issue that sometimes businesses change over 

time. But based on that what I am presuming is that the site visits 

are performing the way they are supposed to be. It is a very comprehensive look at a business. So based on that, it seems like the 

program is working fairly well at making verification decisions, at 

least not verifying firms that should not be verified. There are 

questions that if, as these changes go on and certain changes are 

made in the whole verification process of how much do we need site 

visits to make sure that the decisions are being made correctly? 

But based on those simple numbers it suggests that VA is not 

verifying firms that are not eligible. 

Mr. COFFMAN. Thank you, Mr. Shear. Our thanks to the panel. 

You are now excused and I will go over to Chairman Hannah for 

his closing remarks. 

Mr. HANNA. Thank you. After our last hearing on this topic 

Chairman Coffman showed real leadership and introduced the Improving Opportunities to Service-Disabled Veterans-Owned Small 

Business Act of 2013. I believe you are going to speak to that in 

a moment. I look forward to seeing that reintroduced. There are a 

lot more questions here than answers. I am curious why we cannot 

keep someone in this position. We have had three different directors in a very short period of time. It would seem to be an easy 

position to fill but apparently they are not. But with that I look forward to signing the legislation that your legislative counsel required and I thank you for being here today, all of you. 

Mr. COFFMAN. Thank you. Thank you, Chairman Hannah. Today 

we have had a chance to hear about the serious challenges that 

still exist in the verification process administered by CVE. From 

the testimony provided and questions asked today, it is clear that 

given all the years that have passed since this program was set up, 

Leonard.horne on VACREP0180 with DISTILLER

27 

and the resources that have been added to CVE, it is reasonable 

that we would expect that VA be further along than this. 

As such, this hearing was necessary to accomplish a number of 

items. Number one, to identify the challenges that persist with 

CVE in its verification of vet status and with VA implementation 

of the Vets First goals. Two, to hear about continuing enforcement 

efforts by OIG in combating fraudulent awards to ineligible contractors. Three, to determine what steps need to be taken to move 

toward full and fair implementation of the Vets First Set-Aside 

program. Four, the hearing was also necessarily to emphasize the 

importance of legislation I plan to introduce shortly that unifies the 

definition of VOSB and SDVOSB; unifies VA and SBA regulations; 

and finally creates an appeal process through the SBA Office of 

Hearings and Appeals. 

I ask unanimous consent that all Members have five legislative 

days to revise and extend their remarks and include extraneous 

material. Without objection, so ordered. I would like to once again 

thank all of our witnesses and audience members for joining us 

today in today’s conversation. With that, this hearing is adjourned. 

[Whereupon, at 12:05 p.m., the Subcommittees were adjourned.] 

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APPENDIX 

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Insert offset folio 1 here 98698.001

GAO 

Expected at 10:30 a.m. ET 

Wednesday, November 4, 

2015 

GA0-16-179T 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Oversight 

and Investigations, Committee on Veterans' 

Affairs, and the Subcommittee on Contracting 

and the Workforce, Committee on Small 

Business, House of Representatives 

VETERAN-OWNED 

SMALL BUSINESSES 

Preliminary 

Observations on 

Verification Program 

Progress and 

Challenges 

Statement of William B. Shear, Director, Financial 

Markets and Community Investment 
29 

Leonard.horne on VACREP0180 with DISTILLER


Insert offset folio 2 here 98698.002

GAO u.s. GOVERNMENT ACCOUNTABILITY OFFICE 

441 G St. N.W. 

Washington, DC 20548 

Chairmen Coffman and Hanna, Ranking Members Kuster and Takai, and 

Members of the Subcommittees: 

I am pleased to be here to discuss our ongoing work on the Department 

of Veterans Affairs' (VA) efforts to verify the eligibility of veteran-owned 

small businesses (VOSS), including service-disabled veteran-owned 

small businesses (SDVOSB), to receive contracting preferences with VA. 

Since the passage of the Veterans Benefits, Health Care, and Information 

Technology Act of 2006, the agency reported that total contracting 

awards to VOSBs increased from $616 million ($356 million to 

SDVOSBs) in fiscal year 2006 to $4.0 billion ($3.6 billion to SDVOSBs) in 

fiscal year 2014. The act requires VA to give contracting preferences to 

SDVOSB and VOSBs and to verify the ownership, control, and status of 

firms seeking such preferences and maintain a database of verified 

businesses that have SDVOSB or VOSB status.' The program grew from 

2,900 verified firms in 2010 to more than 7,400 verified firms in 2015. 

GAO found in 2013 that VA faced challenges in verifying firms on a timely 

and consistent basis, developing and implementing long-term strategic 

plans, and enhancing information technology infrastructure. 2 

My statement today is based on preliminary observations from our 

ongoing review of the verification program on which we plan to issue a 

report early next year. Specifically, this statement discusses ( 1) VA's 

progress in establishing a timely and consistent verification program and 

improving communication with veterans, and (2) the steps VA has taken 

to identify and address verification program challenges and long-term 

goals. 

In conducting this work, we reviewed relevant statutes, regulations, and 

procedures, as well as our prior work on the program. We reviewed VA 

administrative program data on application processing times from fiscal 

years 2014 and 2015, assessed the reliability of data by interviewing VA 

1

The act requires VA to give priority to SDVOSB and VOSB when awarding contracts and 

provides for limited competition contract awards to achieve contracting goals that VA must 

establish. Pub. L. No. 109-461, §§ 502, 120 Stat. 3403, 3431-3436 (codified as amended 

at 38 U.S.C. § 8127, 8128). 

2

GAO, Veteran-Owned Small Businesses: Planning and Data System for VA's Verification 

Program Need Improvement, GA0-13-95 (Washington, D.C.: Jan. 14, 2013). 

Page 1 GA0·16·179T 
30 

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Insert offset folio 3 here 98698.003

Background 

officials and reviewing documentation related to VA's data system, and 

determined the data are sufficiently reliable for the purpose of describing 

VA's reported processing statistics. In addition, we reviewed a random 

sample of verification applications submitted to VA from June through 

September 2014, stratified by decision outcome (i.e., approval, denial, or 

withdrawal) to estimate the length of time it took firms to become verified 

and assess the extent to which VA followed its procedures for verifying 

firms. We reviewed the internal audit reports prepared by CVE from 

December 2014 through March 2015. We interviewed agency officials 

and representatives of two veteran service organizations and four 

verification assistance centers selected based on geographic diversity to 

obtain information about VA's procedures to verify applications and 

communicate with veterans. We reviewed VA's strategic and operating 

plans, and interviewed VA officials to discuss steps taken to address 

program challenges. 

The work on which this testimony is based is being conducted in 

accordance with generally accepted government auditing standards. 

Those 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's Office of Small and Disadvantaged Business Utilization (OSDBU) 

has overall responsibility for the verification program.' OSDBU's Center 

for Verification and Evaluation (CVE) maintains the mandated database 

of verified SDVOSBs and VOSBs and is responsible for verification 

operations, such as application processing.' VA's verification process 

consists of reviewing and analyzing a standardized set of documents 

submitted with each verification application. VA uses contractors to 

support its verification program and federal employees oversee the 

SVA's OSDBU develops department~wide policies, programs, and practices related to 

small businesses, monitors VA's implementation and execution of its small business 

contracting goals program, and provides outreach and liaison support to businesses 

(small and large) and other members of the public and private sectors concerning small 

business acquisition issues. 

4

0ther staff and offices within OSDBU and VA, such as Information Technology and the 

Office of General Counsel, also support the verification program. 

Page 2 GA0-16-179T 
31 

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Insert offset folio 4 here 98698.004

contractors and review and approve verification decisions. As of 

September 1, 2015, CVE had 15 federal employees and 156 contract 

staff (employed by five different contractors) verifying applications or 

filling supporting roles. 

CVE is funded by VA's Supply Fund, a self-supporting revolving fund that 

recovers its operating expenses through fees and markups on different 

products or services5 CVE's final obligations for fiscal year 2014 were 

$17.9 million and its approved budget for fiscal year 2015 was $16.1 

million, representing a decrease of about 10 percent ($1.8 million) from 

2014. 

We and VA's Office of Inspector General previously found that VA has 

faced numerous challenges in operating the verification program. Our 

most recent work on this program in 2013 found that VA had made 

significant changes to address previously identified program weaknesses, 

but that it still faced challenges establishing a stable and efficient program 

to verify firms on a timely and consistent basis' Specifically, we found 

that VA consistently placed a higher priority on addressing immediate 

operational challenges than on developing a comprehensive, long-term 

strategic focus for the verification program-an approach that contributed 

to programmatic inefficiencies. We also found that VA's case 

management data system had shortcomings that hindered the agency's 

ability to operate, oversee, and monitor the program. Therefore, we 

recommended that VA (1) refine and implement a strategic plan with 

outcome-oriented long-term goals and performance measures, and (2) 

integrate efforts to modify or replace the program's data system with a 

broader strategic planning effort to ensure the system addresses the 

program's short- and long-term needs. VA adopted a strategic plan in 

2013 and efforts to update its case management system are ongoing.' 

In 2014, VA launched the MyVA Reorganization Plan in an effort to 

improve the efficiency and effectiveness of VA's services to veterans. The 

plan's strategy emphasizes improved service delivery, a veteran-centric 

5

The Supply Fund is a revolving fund that supports VA's mission by the operation and 

maintenance of a supply system, including procurement of supplies, equipment, personal 

seiVices, and the repair and reclamation of used, spent, or excess persona\ property. 

6GA0-13-95. 

7

See page 13 of this statement for more information on these efforts. 

Page3 GA0-16·179T 
32 

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Insert offset folio 5 here 98698.005

VA Took Steps to 

Improve Its 

Verification Program 

and Communication 

with Veterans 

culture, and an environment in which veteran perceptions are the 

indicator of VA's success. MyVA extends to all aspects of the agency's 

operations, including the verification program. In response to this 

organizational change, OSDBU is required to align its own strategy with 

MyVA and take steps to make its operations more customer serviceoriented and veteran-centric. 

Based on our preliminary observations, VA has improved its timeliness for 

application processing, followed its policies for verifying businesses, 

continued to refine quality controls for the program, and improved 

communications with veterans. For instance, CVE reported its processing 

times have improved by more than 50 percent since October 2012, going 

from an average processing time of approximately 85 days to 41 days in 

fiscal year 2015. Additionally, VA officials told us that they have been 

generally meeting their processing goal of 60 days (from receipt of a 

complete application) and only had 5 applications in fiscal year 2014 and 

11 applications in fiscal year 2015 for which it did not meet this goal. Our 

review of randomly selected application files corroborates that CVE has 

generally met its processing goals, but the verification process can take 

longer from a veteran's perspective' In calculating processing times, 

CVE excludes any time spent waiting for additional information it asked 

firms to supply, so the actual number of days it takes an applicant to 

become verified is typically longer than what CVE reports. Our preliminary 

estimates are that it takes an average of 56 days (without stopping the 

regulatory clock while the veteran is preparing and submitting additional 

documents) from when CVE determines a firm's application is complete 

8

We conducted a review of a random sample of 96 verification applications (initial and 

renewal applications) submitted to VA from June through September 2014, stratified by 

decision outcome (i.e., approval, denial, or withdrawal). We are unable to develop an 

estimate for average processing times that are comparable to CVE's reported averages 

because CVE stops the regulatory dock when it is waiting for firms to submit additional 

information for applications, and we were unable to replicate those calculations through 

our review. We estimated the average processing times without stopping the clock to 

confirm that VA is meeting its regulatory goals. 

Page4 GA0-16-179T 
33 

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Insert offset folio 6 here 98698.006

to when the firm receives notification of the verification determination• 

During that time, CVE is reviewing the application and potentially 

requesting and waiting for the applicant to submit additional information. 

Additionally, firms can submit and withdraw their application multiple 

times should they need to correct issues or wish to apply at a later date. 

Each time a firm resubmits an application, CVE resets the application 

processing clock, meaning that CVE's average case processing time 

does not account for instances where a firm withdraws and resubmits an 

application. VA officials said that allowing applicants to withdraw and 

resubmit multiple applications is an advantage to the veteran because 

veterans can make several attempts to become verified, and without 

allowing veterans to withdraw their applications, more veterans would 

receive denials and have to wait 6 months before submitting another 

application. However, this means that some veterans might perceive the 

application process as lengthy if they have submitted and withdrawn 

several applications in their attempt to become verified. For example, we 

estimated that for 15 percent of applications, it took the firm more than 4 

months from the initial application date to receive a determination from 

CVE. 10 

Based on our initial review of application files, VA appeared to follow its 

policies and procedures for verifying SDVOSBs and VOSBs, which 

includes checking the veteran and disability status of the applicant, 

conducting research on the firm from publicly available information, and 

reviewing business documents to determine compliance with eligibility 

requirements, such as direct majority ownership by the veteran, 

experience of the veteran manager, and the SBA small business size 

standard. 11 But, we also found that VA did not have a policy requiring 

9

Since our estimate of the average is based on a sample of verified applications, we 

calculated a confidence interval for our estimate, The 95 percent confidence interval for 

this estimate is 49 to 64 days. Because we followed a probability procedure based on 

random selections, our sample is only one of a large number of samples that we might 

have drawn, Since each sample could have provided different estimates, we express our 

confidence in the precision of our particular sample's results as a 95 percent confidence 

interval. This is the interval that would contain the actual population value for 95 percent of 

the samples we could have drawn. 

1

Grhe 95 percent confidence interval for this estimate is 8 to 24 percent 

11 Our estimate that CVE reviewed the eligibility requirements in 100 percent of 

applications is based on a probability sample of case files. Our estimate has a 95 percent 

confidence interval that is contained within the range from 96 percent to 100 percent. 

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documentation of the rationale for assigning risk level to the application, 

and did not document the rationale in an estimated 40 percent of the 

cases. 12 VA recently implemented a procedure (October 2015) to require 

documentation of the rationale after we notified the agency of this finding. 

CVE has continued to refine its quality management system since our 

January 2013 report 13 For example, CVE has developed detailed written 

work instructions for each part of the verification process, and developed 

a quality manual that documents the requirements of its quality 

management system. CVE officials said they update the work instructions 

on a regular basis. Additionally, CVE implemented an internal audit and 

continuous improvement process. As of September 2015, CVE had taken 

action on and closed 364 of 379 (96 percent) internal audit 

recommendations made from June 2014 through August 2015. Based on 

our review of internal audits conducted by CVE from September 2014 

through February 2015, the findings generally identified information that 

was incomplete, unclear, missing, or not applicable to the current 

verification process. 

CVE also conducted post-verification site visits to 606 firms in fiscal year 

2015 to check the accuracy of verification decisions and help ensure that 

firms continued to comply with program regulations. CVE officials said the 

site visits identified two instances in which evaluators mistakenly verified 

a firm (a less than 1 percent error rate), and CVE issued 25 cancellations 

to firms found noncompliant with program regulations at the time of the 

site visit (a 4 percent noncompliance rate). CVE also monitors compliance 

by investigating potentially noncompliant firms identified through tips from 

external sources. CVE officials said they received about 400 such tips in 

2014. Officials said that they investigate every credible tip by conducting 

public research, reviewing eligibility requirements related to the tip, and 

making a recommendation for corrective action, if necessary. 

We reviewed case files associated with 1 0 firms for which CVE received 

allegations of noncompliance from June 2014 through May 2015. These 

12CVE assigns a risk level to all applications after they have been evaluated. The risk level 

is reflective of the number of issues identified during the application review and whether 

the issues were adequately explained or resolved. This estimate's 95 percent confidence 

interval ranges from 30 percent to 50 percent 

13GA0-13-95. 

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cases included one with an active status protest (a mechanism for 

interested parties to a contract award to protest if they feel a firm 

misrepresented its SDVOSB or VOSB status in its bid submission) and 

nine firms for which CVE received an e-mail allegation that the firm was 

not in compliance with program regulations (a few of these firms also 

recently received a status protest decision)." CVE investigated 6 of 10 

cases we reviewed, although it did not always document that an 

allegation of noncompliance had been received or that it was conducting 

a review of the firm's eligibility based on the allegation. In comparison, 

anytime a protest was filed against a verified firm, the case file had a note 

indicating the firm was the subject of a status protest and verification 

activities should be put on hold until the protest was resolved. We will 

continue to monitor these issues and report our final results early next 

year. 

Our preliminary work revealed that since our 2013 report, VA has made 

several changes to improve veterans' experiences with the verification 

program and reduced the percentage of firms that receive denials from 66 

percent in 2012 to 5 percent in 2015, according to agency data. A few 

examples include the following. 

VA implemented procedures to allow firms to withdraw applications in 

order to avoid denials. For example, veterans can correct minor 

deficiencies or withdraw an application to address more complex 

problems instead of receiving a denial decision and having to wait 6 

months to reapply. 

VA established procedures to communicate with verified firms and 

applicants about their verification status. According to VA officials, the 

agency sends e-mail reminders 120, 90, and 30 days before the 

expiration of a firm's verification status, contacts firms by telephone 90 

days before expiration of verification status; and notifies firms in 

writing 30 days before cancelling verified status. Officials said they 

also send notifications to applicants to indicate that an application is 

complete, additional documents are needed, and that a determination 

has been made. 

14VA's Office of General Counsel reviews status protests for firms that have been 

awarded VA contracts, CVE's Director makes determinations in such protests, and 

OSDBU's Executive Director makes determinations for appeals of status protest 

decisions. Status protest decisions are not public information. 

Page 1 
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VA partnered with Procurement Technical Assistance Centersfunded through cooperative agreements with the Department of 

Defense-to provide verification assistance to veterans at no cost.15 

VA trained more than 300 procurement counselors at the centers on 

the verification process so they could better assist veterans applying 

for verification. 

VA increased interaction with veterans by conducting monthly preapplication, reverification, and town hall webinars to provide 

information and assistance to verified firms and others interested in 

the program. 

VA provided resources for veterans on its website, such as fact 

sheets, verification assistance briefs, and standard operating 

procedures for the verification program. VA also has a tool on its 

website that allows firms to obtain a list of documents required for 

their application depending on the type of company they own. 

VA developed surveys to obtain feedback from firms {1) that go 

through the verification process, {2) that receive a site visit, {3) that 

leave the program, and {4) that participate in any pre-verification 

information sessions. CVE officials stated that they hope these 

surveys will allow them to more systematically collect feedback on 

different aspects of the program. 

All of the verification assistance counselors and representatives of 

veterans' service organizations with whom we spoke noted that VA has 

improved its verification process, although most had some 

recommendations for areas for continued improvement. Three of the four 

verification assistance counselors we spoke with stated that VA's new 

policies to allow veterans to withdraw or submit changes to their 

application represented a positive change. Representatives of one 

veterans' group we spoke to stated that VA was doing a better job 

communicating with applicants on missing documentation and other 

potential issues. They also said VA was interacting more with veteran 

service organizations and veterans at conferences for veteran-owned 

small businesses and town hall meetings. 

15The centers are located across the United States and employ procurement experts to 

help prepare small businesses for contracting opportunities with federal, state, and local governments, including VA 

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VA Has Addressed 

Some Program 

Challenges, but 

Preliminary Findings 

Indicate That VA 

Lacks a 

Comprehensive 

Operational Plan 

However, three of the four verification assistance counselors noted that 

resources on VA's website for the verification program can be difficult to 

locate and representatives from one veteran service organization said VA 

does not provide adequate documentation of the program standards for 

applicants. VA officials said they have been working with the strategic 

outreach team in OSDBU to redesign the website to make documents 

easier to locate. Additionally, we determined that the standard operating 

procedures-documents to help veterans understand the verification 

process-posted on the website were from 2013 and did not reflect 

current procedures, such as the ability to withdraw an application after 

CVE's evaluation. When we notified VA of this issue, the agency updated 

the program's website to reflect current procedures and implemented a 

policy to review and update the operating procedures every 6 months. 

All of the verification assistance counselors we interviewed also stated 

that VA's determination letters to applicants could be clearer and that they 

include regulatory compliance language that could be difficult for some 

applicants to understand. VA officials maintained that the inclusion of 

regulatory language in the determination letters was necessary, but 

acknowledged that this language can present readability challenges. We 

also observed several instances in our review where a letter initially 

stated that documents were due on one date, and then later stated the 

applicant should disregard the initial statement and that documents were 

due on a different, earlier date. VA officials said this was due to a glitch in 

the system that generated the letters and this issue was resolved in May 

2015. 

Despite the significant improvements VA has made to its verification 

program, it continues to face challenges establishing a more costeffective, veteran-friendly verification process, and acquiring an 

information technology system that meets the agency's needs. The efforts 

that VA has either made or currently has underway include restructuring 

the verification process, revising verification program regulations, 

changing the program's organizational structure, and developing a new 

case management system-some of which have been ongoing since our 

January 2013 report. While these efforts are intended to help address 

some of the challenges associated with the verification program, VA lacks 

a comprehensive operational plan with specific actions and milestone 

dates for managing these efforts and achieving its long-term objectives 

for the program. 

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Changes in the verification process. VA intends to restructure part of 

the verification process in an effort to make it more veteran-focused and 

cost-effective. According to OSDBU's Executive Director, VA embarked 

on these changes in response to the agency's new MyVA strategy and 

requests from the Supply Fund to design a veteran-centered process that 

highlights customer service and maximizes cost efficiency. In August 

2015, VA began a pilot for a new verification process that makes a case 

manager the point of contact for the veteran and the coordinator of staff 

evaluating the application. According to the Executive Director, the new 

process is expected to provide cost savings to the agency by reducing the 

amount of time staff spend reviewing applications and addressing 

veterans' questions. Officials said the specific tasks staff perform to 

review applications would not change; rather, the new process would 

eliminate some redundancies and focus on the veteran's experience. Key 

differences between the new and current processes as described by CVE 

officials are shown in table 1. 

Table 1: Key Differences between the Current and New Pilot Verification Processes 

Current process 

Veteran applicants do not have a single point of contact and may 

correspond with different CVE customer service representatives, 

who may not be familiar with the specifics of the application. 

Applicants submit all required documentation at the very 

beginning of the process, but issues with an application are not 

identified and communicated to the veteran until the later stages 

of the process. 

Two CVE contractors evaluate each application for regulatory 

compliance. 

Source· GAO analys•s of VA mformatiOn and •nterv•ews 1 GAO· 16-179T 

New pilot process 

Veteran applicants have a single point of contact, the case 

manager, who would be familiar with the veteran's application 

status and any issues that arose during the process. 

Veterans would be inteiViewed by CVE staff early, which would 

allow staff to identify issues up front and avoid having to conduct 

multiple reviews of applications for firms not meeting program 

requirements. 

One CVE contractor evaluates each application for regulatory 

compliance, which helps to eliminate duplication of 

responsibilities. 

According to CVE officials, as of September 2015, 43 applications had 

been reviewed using the new pilot process and VA had begun collecting 

feedback from applicants. VA also has developed metrics to inform 

adjustments to the pilot and plans to calculate processing times for each 

application, according to CVE officials. Officials stated that VA plans to 

finalize the new process in October 2015 and fully transition to the new 

process by April 2016. VA has not yet conducted an analysis to determine 

the cost of the new pilot process as compared with the current process, 

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but OSDBU's Executive Director said that he estimates the new pilot 

process will save the program about $2 million per year. 16 

Revisions to regulations. VA is continuing to make revisions to its 

program regulations. In 2013 we reported that VA had begun the process 

of modifying the verification program regulations to extend the verification 

period from 1 year to 2 years and published an interim final rule to this 

effect in late June 2012. 17 In addition, VA began a process in 2013 to 

revise program regulations in order to account for common business 

practices that might otherwise lead to a denial decision under the current 

regulation. For example, in addressing the challenges associated with 

one current regulatory provision, VA officials told us that VA plans to allow 

minority owners to vote on extraordinary business decisions such as 

closing or selling the business according to CVE officials. Officials stated 

that the revisions to the regulation are not expected to provide cost and 

resource efficiencies, but are intended to provide clarity for veterans and 

increase their satisfaction with the process. As of September 2015, the 

regulation was undergoing internal review with VA's Office of General 

Counsel according to CVE officials. 

Approach to site visits. According to CVE officials, VA plans to 

determine how many site visits should be conducted annually to maintain 

the quality of the program while minimizing cost. 16 CVE officials told us 

that they plan to visit a random sample of 300 of 2,312 verified firms that 

received VA contracts from March 2014 through April 2015 fiscal years 

2014 and 2015 and then calculate the percentage of firms found to be 

noncompliant with program requirements. A high noncompliance rate 

could indicate that VA should increase the annual number of visits, while 

a low rate could indicate that VA should decrease or maintain the annual 

number of site visits it conducts, according to CVE officials. VA officials 

said that the statistical analysis will allow them to validate the 

noncompliance rate obtained from site visits conducted in fiscal year 2014 

16As previously discussed, CVE's approved budget for fiscal year 2015 was $16.1 million. 

17GA0-13-95. 

18!n fiscal year 2014, VA spent about $3 million to conduct post~verification site visits on 

1,144 firms (16 percent of verified firms). VA officials said that given the cost (about 

$2,600 per site visit) and the low rate of noncompliance identified by site visit examiners, 

the agency reduced the number of site visits to 606 in 2015. 

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and that VA plans to complete its study by January 2016.19 We plan to 

include additional information on this study in our upcoming report. 

Reverification policy. VA revised its reverification policy in an effort to 

improve efficiency and customer service. According to CVE's Acting 

Director, reverification used to require nearly the same effort of CVE staff, 

contractors, and veterans as the full verification process. Under a new 

process CVE implemented in October 2015, CVE contractors are to 

conduct an initial meeting with the veteran to identify necessary 

documentation based on changes to the company since its last 

verification. These changes are intended to improve veterans' 

understanding of the requirements for reverification, and reduce the 

amount of time spent re-verifying applications, according to CVE officials. 

However, it is not yet clear how the change to the reverification procedure 

will impact the number and type of documents veterans will be required to 

submit. In addition, VA analyzed data obtained from its fiscal year 2014 

site visits and concluded that there is no correlation between a firm's 

noncompliance and the time passed since its last verification. According 

to information provided by CVE officials, the agency therefore may be 

able to reduce the number of site visits conducted each year by 

lengthening the 2-year reverification cycle. 

Staffing and organizational structure. VA plans to fill vacant leadership 

positions and make changes to CVE's organizational structure to reflect 

the new verification process and align staffing resources with agency 

needs. In 2010, we noted that leadership and staff vacancies had 

contributed to the slow pace of implementation of the verification 

program. 20 CVE has since filled most of its vacant positions. However, 

staffing at the senior level has been in flux. Since 2011, CVE has had 

three different directors, the last two of which have been acting directors. 

The deputy director position also was vacant from March 2014 to 

September 2015. OSDBU's Executive Director (who has overseen the 

overall verification program since 2011) indicated that VA would begin 

advertising for a CVE director in October 2015. 

also plans to do 50 site visits in fiscal year 2016 to review noncompliance referrals. 

20GAO, Department of Veterans Affairs: Agency Has Exceeded Contracting Goals for 

Veteran-Owned Small Businesses, but It Faces Challenges With Its Verification Program, 

GA0-10-458. (Washington, O.C.: May 28, 2010). 

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VA has developed a draft organizational structure and position 

descriptions for the new verification process. According to CVE officials, it 

also has begun an analysis-using initial data from the new verification 

process pilot-to determine optimal staffing levels for implementing the 

new process and meeting the demand for verification. CVE officials stated 

that VA plans to continue using contractor staff to conduct its verification 

activities because the use of such staff allows VA the flexibility to adjust 

staffing levels as needed. As discussed earlier, CVE currently has 15 fulltime federal employees and 156 contract staff. OSDBU's Executive 

Director stated that VA has contracts in place for the verification program 

through April 2016 and plans to start the process for securing new 

contracts in January 2016. 

Plans for case management system. VA has faced delays in replacing 

the verification program's outdated case management system. In our 

January 2013 report, we also identified deficiencies in VA's data 

system-such as a lack of certain data fields and workflow management 

capabilities needed to provide key information on program 

management-and recommended that VA modify or replace the 

system. 21 VA hired a contractor in September 2013 to develop a new 

system but the contract was cancelled in October 2014 due to poor 

contractor performance. VA paid the contractor about $871,000 for work 

that had been performed prior to the contract's termination, and received 

several planning documents from the contractor that helped inform its 

current acquisition effort, according to CVE officials. VA has since 

decided to develop a pilot case management system through one of the 

agency's other existing contracts. According to VA officials, the pilot 

system is intended to provide VA with the opportunity to test and evaluate 

the capabilities of a new system without the time and expense of putting a 

whole new system in place. VA developed specifications and other 

planning documents for the pilot system, and plans to develop and 

evaluate the system from November 2015 through January 2016. If the 

pilot is successful, VA plans to issue a solicitation and award a contract 

for development of a full system by April 2016 and fully transition to the 

new system by September 2016. VA was in the initial stages of 

developing the pilot system as of October 2015, and has not determined 

how it will select cases for the pilot, evaluate the pilot, and fully transition 

to the new system once the pilot is complete. 

21GA0-13-95. 

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VA has taken some steps to address our previous recommendations, but 

our preliminary findings indicate that additional steps may be needed. In 

our January 2013 report, we found that VA faced challenges in its 

strategic planning efforts and recommended that VA refine and implement 

a strategic plan with outcome-oriented long-term goals and performance 

measures!' VA developed a strategic plan for fiscal years 2014-2018 

that described OSDBU's vision, mission, and various performance goals 

for its programs. It has since developed an operating plan for fiscal year 

2016 that identifies a number of key actions needed to meet OSDBU's 

objectives, such as transitioning to a new verification process, completing 

revisions to the verification regulations, and developing a new case 

management system. But, the plan does not have an integrated schedule 

that includes specific actions and milestone dates for achieving program 

changes or discuss how the various efforts described above might be 

coordinated. Useful practices and lessons learned from organizational 

transformation show that organizations should set implementation goals 

and a timeline to build momentum and show progress from day one. 23 

These practices also show that it is essential that organizations 

undergoing a transformation establish and track implementation goals 

and establish a timeline to pinpoint performance shortfalls and gaps and 

suggest midcourse corrections. According to OSDBU's Executive 

Director, each OSDBU program team (such as CVE) is to develop action 

plans for their specific programs that include resource needs and 

expected timelines. However, it is not clear if OSDBU will develop an 

overall plan that captures and integrates the various efforts it has been 

undertaking that are managed by CVE and other program teams within 

OSDBU. We are continuing to assess the issues discussed in this 

statement and as we finalize our work for issuance early next year, we 

will consider making recommendations, as appropriate. 

Chairmen Coffman and Hanna, Ranking Members Kuster and Takai, and 

Members of the Subcommittees, this concludes my prepared statement I 

would be happy to answer any questions at this time. 

23See, for example, GAO, Results Oriented Cultures: Implementation Steps to Assist 

Mergers and Organizational Transformations, GA0-03-669 (Washington, D.C.: July 2, 

2003). To identify useful practices and lessons learned in organizational transformations, 

GAO convened a forum of public and private sector leaders who had experience 

managing or studying large-scale organizational mergers, acquisitions, and 

transformations. 

Page 14 GA0-16-179T 
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{100374) 

If you or your staff have any questions about this statement, please 

contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this statement Key contributors to this testimony include 

Harry Medina (Assistant Director); Katie Boggs (Analyst-in-Charge), Mark 

Bird, Charlene Calhoon, Pamela Davidson, Kathleen Donovan, John 

McGrail, Barbara Roesmann, and Jeff Tess in. 

This is a work of the U.S, government and is not subject to copyright protection in the 

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Page 15 GA0-16-179T 
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45 

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Affairs, a~~ th~ SUb9~.~1ttt:t_e,o~ Contractln9 and'the Workfor?&, Coml1'frttee ,otrSman Buslness1 ,House,ot,Re~re-serfil:tlve!:!: ' 

Why GAO Did T!tla Study 

VA must giv~ contiaclillg preferen~es 

to seryice-d!sabled :"nd other veteran· 

owned $ffiall buslnesses'!>n<:l yerify th& 

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the steps VA 11as taken to i.dentify and 

addrass verl~c<'~?n.pri:>gram cfl:alfenga"S and long,ferm goal$. 

This stat<!mant IS. baS&don GAO's 

ongoing revil!W ~fVA:s verification 

program: 'GA(?rev,I~~~~~VA's verifit;aiion Proc~ures. and :s!faJegic 

pfan, reviewed it rajl'clom sample of 9() 

verif\~tio!l appll!;anons,.anct 

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V~w ~Q-1~:-'itsT.' ~?{~~re tn~rmati~m: contact Wlllia(ll.B. Shear <it {~02)512-4$25 or shearw@gao.,gov. 

VETERAN-OWNED SMALL BUSINESSES 

Preliminary Observations on Verification Program 

Progress and Challenges 

What GAO Found 

Based on GAO's preliminary observations, the Department of Veterans Affairs 

(VA) has made significant improvements to Its verification process and 

communication with veterans since GAO's 2013 report. VA reported It reduced its 

average application processing times by more than 50 percent-from 85 days in 

2012 to 41 in 2015. GAO reviewed a randomly selected sample of verification 

applications and found that VA followed its procedures for reviewing applications. 

VA continued to refine its quality management by developing written work 

instructions for every part of the verification process, and implemented an 

internal audit process. As of September 2015, VA had taken action on and 

closed 364 of 379 (96 percent) of internal audit recommendations. The agency 

also conducted post-verification site visits to 606 firms in fiscal year 2015 to 

check the accuracy of verification decisions and help ensure continued 

compliance with program regulations. Since 2013, VA has made several changes 

to improve veterans' experiences with the program. For example, VA revised 

procedures to allow veterans additional opportunities to withdraw their 

applications or submit additional information and has partnered with federally 

supported assistance centers to provide assistance to veterans applying for 

verification. Correspondingly, the percentage of firms that received denials has 

dropped from 66 percent in 2012 to 5 percent in 2015. Veterans' organizations 

and verification counselors with whom GAO spoke noted improvements in VA's 

communications and interactions with veterans, although most verification 

counselors we spoke with suggested the program's website arid letters to 

veterans could be clearer. 

VA has multiple efforts underway to make Its verification program more cost· 

effective and veteran-friendly, but GAO's preliminary results Indicate that it lacks 

a comprehensive operational plan to guide its efforts. For instance, VA intends to 

restruclure part of its verification process and in August 2015, began a pilot that 

gives veterans one point of contact (a case manager, who would be aware of the 

specifics of the application throughout the verification process). VA plans to fully 

transition to this new process by April2016. VA also plans to change the 

program's organizational structure and hire a director for the program, which has 

had three different directors, the last two of which have been acting directors, 

since 2011. Finally, VA plans to replace the program's outdated case 

management system, but has faced delays due to contractor performance 

issues. Efforts are under way to develop and evaluate a pilot system by January 

2016 and fully transition to the new case management system by September 

2016. VA has developed a high-level operating plan that identified objectives for 

the office overseeing the verification program-the Office of Small and 

Disadvantaged Business Utilization (OSDBU). But the plan does not include an 

integrated schedule with specific actions and milestone dates for achieving the 

multiple program changes under way or discuss how these various efforts might 

be coordinated within OSDBU. GAO's work on organizational transformations 

states that organizations should set implementation goals and a timeline to show 

progress. Such a plan is vital to managing multiple efforts to completion and 

achieving long-term program objectives, particularly when senior-level staffing for 

the verification program has lacked continuity. GAO continues to assess these 

issues and will report its results early next year. 

-------------United States Government Accountability Office 
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STATEMENT OF QUENTIN G. AUCOIN 

ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS 

OFFICE OF INSPECTOR GENERAL 

DEPARTMENT OF VETERANS AFFAIRS 

BEFORE THE 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

COMMITTEE ON VETERANS' AFFAIRS AND THE 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF REPRESENTATIVES 

JOINT HEARING ON 

"AN EXAMINATION OF CONTINUED CHALLENGES IN VA'S 

VETS FIRST VERIFICATION PROCESS" 

NOVEMBER 4, 2015 

Mr. Chairmen and Members of the Subcommittees, thank you for the opportunity to 

discuss the Office of Inspector General's (OIG) work related to VA's Veteran-Owned 

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

The VOSS and SDVOSB contracting programs increase contracting and subcontracting 

opportunities for veterans and service-disabled veterans and ensure these businesses 

receive fair consideration when VA purchases goods and services. My testimony will 

focus today on the OIG's investigation of allegations that companies and individuals 

have fraudulently obtained Government noncompetitive set-aside contracts by 

misrepresenting their status as a VOSS or SDVOSB, which would deprive legitimate, 

eligible veteran-owned businesses from obtaining contracts earned through their 

honorable military service. We have also issued two oversight reports in recent years 

highlighting various problems related to the VOSS and SDVOSB programs. I am 

accompanied today by Mr. Gregory Gladhill, Audit Manager, Los Angeles Office of 

Audits and Evaluations. 

BACKGROUND 

On December 22, 2006, Public Law (P.L.) 109-461, Veterans Benefits, Health Care, 

and Information Technology Act of 2006, established participation goals and other 

requirements to increase VA contracting opportunities for VOSBs. VA implemented 

these requirements by establishing the Veterans First Contracting program. The 

program placed SDVOSBs and VOSBs first and second in VA's hierarchy of 

socioeconomic contracting preferences and required businesses to register in VA's 

VetBiz Vendor Information Pages (VIP) to be eligible for contract awards. VetBiz VIP is 

VA's congressionally-mandated database of businesses that are eligible to participate in 

its VOSS and SDVOSB programs. 

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

implementation and execution of socioeconomic programs, including the VOSS and 

SDVOSB contracting programs. The Center for Verification and Evaluation (CVE) 

within OSDBU verifies the eligibility of veteran-owned businesses and maintains VetBiz 
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VIP as required by P.L. 109-461.1 VA is the only agency within the Federal government 

that verifies the status of veteran-owned businesses participating in its SDVOSB 

programs. 

With the introduction of the Veterans First Contracting program, VA's VOSB and 

SDVOSB programs have grown significantly from $2.1 billion in fiscal year (FY) 2008 to 

$3.9 billion in FY 2015, an increase from 15 to 20 percent of VA's total procurement 

dollars. For FY 2015, the Federal Procurement Data System-Next Generation reported 

that VA procurements totaled $19.5 billion, of which $3.9 billion went to VOSBs and of 

that $3.9 billion, $3.5 billion went to SDVOSBs. 

The OIG has conducted various reports related to the administration of VA's VOSS and 

SDVOSB programs, which are listed in Appendix A. We plan to begin our next SDVOSB 

audit in FY 2017, which will evaluate the effectiveness of OSDBU's verification 

processes and follow-up on the prior recommendations from our 2011 audit. We have 

planned this work to allow for the implementation of pending regulatory changes. 

FRAUDULENT METHODS USED TO OBTAIN SET-ASIDE CONTRACTS 

The continued growth in the VOSB and SDVOSB programs has prompted ongoing 

concerns that veteran-owned businesses may not be receiving the full benefit of these 

socio-economic contracting programs. The purpose of the Veterans First Contracting 

Program is to ensure that legitimately owned and controlled VOSSs and SDVOSBs are 

able to compete for VA VOSB and SDVOSB set-aside contracts as well as to stimulate 

the small business community and create economic growth. However, the program's 

set-aside advantage made it a target of abuse and fraud by ineligible contractors using 

various deceptive schemes to acquire lucrative VA contracts. 

Businesses "Pass Through" Contracts or Do Not Meet Subcontracting Requirements 

Federal regulations prescribe thresholds and limitations on subcontracting for VOSB 

and SDVOSS contracts.2 For service contracts, the VOSS or SDVOSS generally has 

requirements to incur at least 50 percent of the cost of the contract using its own 

employees. For general construction contracts, the VOSS or SDVOSB must incur at 

least 15 percent of the cost of the contract using its own employees. This requirement 

is generally intended to help ensure the VOSBs and SDVOSBs build their own 

capabilities and become more competitive and sustain their businesses in a competitive 

market in the long term. In addition, VOSBs and SDVOSBs are required to submit 

partnering agreements with their bid proposals so contracting officers can review them 

prior to award. 

Most of our investigations involve "pass-through" schemes where an ineligible business 

or joint venture/partnership lists veterans or service-disabled veterans as the majority 

owners of the business, but the nonveteran-owned business either performs or 

1 Effective September 30, 2013, the former Center for Veterans Enterprise was renamed the Center for 

Verification and Evaluation. See http://www. va.gov/osdbu/pressreleases/news20131 010. asp (Accessed 

October 31, 2015). 2 13 CFR 125.6(b) and 48 CFR 52.219-27(c) 

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manages the majority of the work and receives the majority of the contracts' funds. The 

VOSB or SDVOSB wins a contract, performs little to none of the work, and passes 

through the contract to the ineligible company for a fee or percentage of the award. The 

VOSB or SDVOSB simply functions as a shell business and "passes through" the work 

to the ineligible business. 

Veterans Do Not Own or Control Businesses 

To be eligible for participation in the Veterans First Contracting Program, Federal 

regulations require one or more veterans or service-disabled veterans to unconditionally 

and directly own at least 51 percent of the business and to manage and control the 

operations of the business concern.3 Further, veterans must be involved in long-term 

decision-making and day-to-day management of the business operations, hold the 

highest officer position in the business (president or chief executive officer), and must 

have managerial experience commensurate with the extent and complexity needed to 

operate the business. 

"Rent-A-Vet" schemes occur when an otherwise ineligible business uses a veteran as a 

front to try to establish VOSB or SDVOSB eligibility. In this scheme, the true owner of a 

company conspires with a veteran to have the veteran assume ownership of the 

company in name only. The true owner maintains control over the company, and the 

veteran receives either a flat fee or a percentage of any contracts awarded and does 

not perform any functions associated with owning or operating the company. A 

variation of this scheme involves the establishment of a new firm for the sole purpose of 

set-aside acquisition. The new firm is not actively managed or controlled by the 

veteran, who acts only as a figurehead. 

Businesses Improperly Use the VOSB or SDVOSB Status Preference 

Non-service-disabled or non-veteran schemes also occur when veterans who are not 

service-disabled or, in some cases, people who are not veterans falsely self-certify their 

business as an eligible VOSB or SDVOSB. These businesses improperly benefit from 

the receipt of VOSB and SDVOSB contracts and potentially block eligible VOSBs and 

SDVOSBs from receiving the contracts for which they are eligible to compete. 

Bribery 

Bribery schemes occur when a VA employee, typically a contracting officer, contracting 

officer's representative, or project engineer, conspires with a nonservice-disabled 

veteran or non-veteran to improperly award a contract in furtherance of one or more of 

the aforementioned schemes. The VA employee accepts illegal gratuities in exchange 

for steering contracts to the company. 

SUCCESSFUL PROSECUTION OF OIG CASES 

Since the inception of the Veterans First Contracting Program, the OIG has been 

investigating allegations where businesses and individuals have fraudulently obtained 

Government noncompetitive set-aside contracts by misrepresenting their VOSB or 

SDVOSB status or eligibility, which would deprive legitimate, eligible veterans from 

3 Title 38, CFR, Part 74.1 

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obtaining these economic opportunities earned through military service. We have 

conducted almost 170 investigations involving allegations of VOSB or SDVOSB fraud. 

Currently, we have about 70 open cases, many of which are being worked jointly with 

the Small Business Administration (SBA) OIG, the General Services Administration 

(GSA) OIG, and other Federal law enforcement agencies. 

Since FY 2008, our VOSB and SDVOSB investigations have resulted in the indictment 

of 56 individuals and 5 companies. For those defendants charged, 44 have been 

convicted to date. Furthermore, courts of jurisdiction have levied approximately $15 

million in fines against these defendants and ordered them to pay approximately $6.6 

million in restitution. We consider these results a significant achievement because 

Federal prosecutors were historically reluctant to prosecute what they deemed a 

"victimless" crime because the Government generally received the goods and services 

purchased. However, OIG special agents successfully convinced Federal prosecutors 

that these various schemes victimized legitimate veteran businesses that were not 

awarded contracts because of corrupt contractors' nefarious activities. 

In addition to criminal and civil prosecution, our special agents pursue suspensions and 

debarments against the individuals and companies involved when there is evidence of 

cause for such action. The suspension and debarment process protects the 

Government and taxpayers from fraud, waste, and abuse by using a number of tools to 

avoid doing business with non-responsible contractors. Since FY 2008, 72 suspension 

and/or debarment actions have occurred as a result of our investigations. 

Following is a discussion of several recent cases in which the prosecutive action is 

public information. We cannot discuss nonpublic information on pending cases due to 

the risk of potentially compromising the ongoing criminal prosecutions. 

Veterans of the Land (Santa Maria. California) 

In May 2015, owners of Veterans of the Land (VOTL) paid $1 million to resolve 

allegations that it falsely claimed eligibility as an SDVOSB in order to obtain set-aside 

landscaping and cemetery restoration contracts with VA. From 2008 to 2013, VOTL 

fraudulently secured approximately $30 million in VA set-aside contracts from the 

National Cemetery Administration (NCA). The veteran listed as the owner of the 

SDVOSB admitted that he was not in control of the company. Further investigation 

revealed that the non-veteran co-owner ran the business, which was similar to his 

former company that had previously been awarded several NCA contracts prior to 

2007-the same year NCA contracts started being designated as SDVOSB set-asides. 

VOTL has no further contracts with the VA and, as part of the settlement, has agreed to 

dissolve as a corporation. 

Office Dimensions. Inc. (Teaneck. New Jersey) 

In May 2014, the president and owner of Office Dimensions, who contracted with VA as 

an SDVOSB, pled guilty to false claims. A joint investigation by the VA OIG, GSA OIG, 

and Internal Revenue Service Criminal Investigations revealed that the defendant and 

her company had been doing business with VA under a GSA Schedule as a Woman4 
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Owned business since 2008. In 2009, the defendant self-certified her company to be an 

SDVOSB claiming her father-in-law was the service-disabled owner and operator of the 

business. In reality, her father-in-law had been denied service connection by VA and 

never owned or operated the business. During her plea, the defendant admitted that 

she knew her claims were false and that they led to dozens of contracts to provide 

furniture and interior space planning at VA facilities. In total, VA paid approximately 

$1.2 million to Office Dimensions based on contracts set aside for service-disabled 

veterans. On October 27, 2014, the defendant was sentenced to 2 years of probation 

including 8 months of home confinement. She was also ordered to pay $100,000 in 

restitution. 

Belkro General Contractors (San Juan. Puerto Rico) 

In June 2015, three subjects were indicted and arrested for major fraud against the 

Government and wire fraud. A VA OIG and SBA OIG investigation revealed that from 

2007 to 2014, the defendants used a "pass-through" scheme to create an SDVOSB, 

Belkro General Contractors, in order to qualify for and obtain VA SDVOSB set-aside 

construction contracts at the San Juan, PR, VA Medical Center. The defendants 

created the fraud scheme by using a service-disabled sibling, who was a full-time U.S. 

Postal Service employee, with no construction experience or equipment to establish a 

construction business. The veteran was simply a figurehead or "rent-a-vet," who was 

being used for his service-disabled veteran status to obtain contracts for his brother's 

company, IRC Air Contractors. As a result of the scheme, Belkro General Contractors 

unlawfully received approximately $6.6 million in SDVOSB contracts from the VA. In 

August 2015, all three defendants pled guilty to major fraud against the Government 

and their sentencings are pending. Belkro General Contractors, IRC Air Contractors, 

and the three defendants have been suspended from Government contracting pending 

debarment proceedings 

Silver Star Construction (Blue Springs, Missouri) 

A joint investigation conducted by the VA OIG, SBA OIG, GSA OIG, and the Defense 

Criminal Investigative Service determined that Silver Star Construction, LLC (Silver 

Star) acted as a "pass-through" company for a larger company and that the owner was 

not a service-disabled veteran. Silver Star received more than $8 million in Government 

contracts from December 2008 through July 2010. The owner claimed to have been 

awarded three Silver Stars, four Bronze Stars; three Purple Hearts, and other medals 

for valor during service in Vietnam, Cambodia, and Laos. In June 2011, the owner, his 

wife, his son, and the owner of the larger company were indicted for conspiracy, major 

fraud against the United States, wire fraud, false statements, and engaging in monetary 

transactions in property derived from specified unlawful activity. The investigation 

determined that the owner served in the National Guard, was not a service-disabled 

veteran, and never served overseas. Silver Star had self-certified its SDVOSB status 

under the earlier regulations. 

On April 9, 2012, the owner pled guilty to conspiracy to commit fraud against the United 

States, major program fraud, wire fraud, money laundering, and making a false 

statement. In addition, he pled guilty to the forfeiture counts of the indictment which 

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resulted in a $6.8 million judgment against him. He agreed to forfeit personal property, 

including military medals and medallions, veterans' patches, various certificates and DO 

214 forms, and a notebook he labeled "Book of Death" which contained a list of Vietnam 

War "sniper kills." Further, he was sentenced to 87 months in Federal prison. In 

October 2015, his wife was sentenced to 20 months in Federal prison after pleading 

guilty to one count of aiding and abetting wire fraud. His son pled guilty to conspiracy to 

commit fraud against the United States, major program fraud, and wire fraud and is 

scheduled for sentencing on November 4, 2015. The owner of the larger company pled 

guilty to wire fraud in April 2014; sentencing is pending. 

Machinga and Coconspirator Companies (Trenton. New Jersey) 

In June 2015, a former VA employee who worked as a supervisory engineer at the East 

Orange, New Jersey, medical campus of the VA New Jersey Health Care System was 

sentenced to 46 months in prison for accepting more than $1.2 million in kickback 

payments in connection with VA contracts awarded to companies with which he had 

relationships, and to engaging in a scheme to defraud the VA by claiming one of those 

companies was owned by a service-disabled veteran when it was not. As a supervisory 

engineer, the former employee had the authority and influence to direct certain VA 

construction contracts to particular companies. He partnered with another individual, 

who was not a veteran, to set up three companies that could be used to obtain VA work 

under set-aside SDVOSB contracts. He then directed more than $6 million worth of VA 

construction projects to those companies. The defendant admitted he accepted 

$1 ,277,205 in kickbacks in exchange for his official action and influence between 2007 

and July 2012. He also admitted that for many of the projects awarded to the other 

individual's companies, he recruited other contractors to perform the work so the 

companies were able to keep the money paid to them without having to incur the 

expense of actually completing the projects. 

Veteran Construction Associates. LLC (Burlington. New Jersey) 

In January 2015, Veteran Construction Associates, LLC (Veteran Construction), a 

construction company headquartered in Burlington, New Jersey, agreed to pay $1.3 

million to resolve allegations that it improperly billed VA on Government contracts. 

Veteran Construction was formed in 2006 and listed a service-disabled veteran as its 51 

percent owner. From 2008 through 2011 the company bid on and received SDVOSB 

set-aside contracts and invoiced the Government for a total of $6.5 million. 

However, Veteran Construction was not owned and controlled by a service-disabled 

veteran, and thus should neither have received the Government contracts nor invoiced 

the Government for work performed on those contracts. Veteran Construction admitted 

that it is liable to the United States for its conduct under the False Claims Act. In 

addition to the $1.3 million payment, the company has agreed that it shall never seek to 

obtain any Government contracts set aside for veterans of the United States military 

and will not seek any Government contracts at all for 3 years from the settlement. 

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M.R. Tafoya Construction, Inc. (Albuquerque, New Mexico) 

In June 2014, the owner of M.R. Tafoya Construction, Inc. (Tafoya Construction) and 

his son-in-law were sentenced for defrauding the SDVOSB program. The owner was 

sentenced to 57 months in Federal prison to be followed by a year of supervised 

release, while his son-in-law was sentenced to a 37 -month term of imprisonment 

followed by a year of supervised release. The owner was ordered to pay $1,350,000-

the proceeds fraudulently obtained as the result of the criminal activity-with the son-inlaw being jointly liable for $500,000 of that amount. The two defendants were charged 

in February 2012 in an indictment alleging that they obtained almost $11 million in 

Federal contracts by falsely claiming that the company was qualified to participate in the 

SDVOSB program. A superseding indictment filed in March 2013 added charges of 

witness tampering and obstruction of justice against the owner. 

The owner admitted that between 2009 and 2010, Tafoya Construction was awarded 

five contracts valued at an aggregate amount of $10,984,189 that required the company 

to hold SDVOSB status. During that period, the owner, who is a nonservice-disabled 

veteran, owned 100 percent of Tafoya Construction stock. He admitted obtaining the 

lucrative contracts by paying his stepbrother, a service-disabled veteran who works and 

resides in Florida, a $600 weekly fee to allow Tafoya Construction to use his name and 

service-disabled status in its bids for SDVOSB contracts. The owner acknowledged 

asking his son-in-law to complete certifications stating that Tafoya Construction was an 

SDVOSB and submit them to the VA so that Tafoya Construction could obtain SDVOSB 

contracts. The owner also admitted that he drew up a number of false documents 

designed to create the appearance that his stepbrother was the majority owner and 

controller of Tafoya Construction, when in fact he did not own or operate the company, 

and that his son-in-law forged the stepbrother's signature on the documents. 

The owner lied to an OIG criminal investigator to support the fraudulent claim that 

Tafoya Construction was an SDVOSB. The owner made the following false statements 

to the investigator: (1) that the stepbrother paid $100,000 to purchase 51 percent of 

Tafoya Construction; (2) that the stepbrother worked in Tafoya Construction's 

Albuquerque office; (3) that the stepbrother was working at a VA construction site in 

Santa Fe that day; and (4) that the stepbrother personally signed the VA contracts and 

bonding paperwork on the SDVOSB contracts awarded to Tafoya Construction. The 

owner also admitted traveling to Florida later in February 2011, to meet with his 

stepbrother for the purpose of creating fraudulent documents in an attempt to cover up 

their fraudulent scheme. The owner subsequently submitted these fraudulent 

documents to a Federal grand jury in July 2011. 

In his plea agreement, the son-in-law admitted to participating in the owner's illegal 

scheme and to filling out and submitting certifications to VA that falsely claimed that 

Tafoya Construction was owned by a service-disabled veteran. He further admitted 

signing the stepbrother's signature on bids and other paper work submitted to VA and 

on documents created to make it appear that the stepbrother was the 51 percent owner 

of Tafoya Construction. The stepbrother was sentenced on August 26, 2014, to 3 

years' supervised release and ordered to pay $66,645 in restitution. 

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PROPOSED LEGISLATIVE CHANGES 

The House Committee on Veterans' Affairs has introduced legislation this session, H.R. 

3016, the Veterans Employment, Education, and Healthcare Improvement Act, that 

would require VA to obtain an attestation from program participants, when applying for 

verification, affirming to the truth of the information submitted in their application and 

that they have received notice of the consequences of any false statements or 

information including debarment and civil and criminal penalties. We are optimistic that 

such a requirement would aid in the deterrence and prosecution of fraudulent activity in 

this program. We appreciate the opportunity to have collaborated with the Committee 

on this important piece of legislation and for the showing of support for our mission from 

Congressman Wenstrup and the many Committee cosponsors on this bill. 

CONCLUSION 

As our work demonstrates, the OIG has identified a number of weaknesses in the 

Veterans First Contracting Program, and we have devoted significant resources to 

investigate individuals and companies who exploit those weaknesses in order to obtain 

noncompetitive set-aside contracts for Government work. We will continue to pursue 

these allegations aggressively so that individuals who seek to defraud VA and deprive 

legitimate service-connected veterans are on notice that justice will be served. However, 

for its part, VA must continue to take actions to strengthen problem areas in its Veterans 

First Contracting Program and pursue solutions that ensure legitimate veteran-owned 

businesses are receiving the contracts intended for them. Contracting processes 

must also be strengthened to ensure participation requirements are effectively met after 

contracts are awarded in order to protect the socio-economic interests related to these 

set-aside advantages. We will begin our next SDVOSB audit in FY 2017 to evaluate the 

effectiveness of OSDBU's verification processes and follow-up on the prior 

recommendations from our 2011 audit, and we would be happy to brief members of the 

Committee on the results of our work. 

Mr. Chairman, this concludes my statement. We would be pleased to answer any 

questions that you or other members of the Subcommittees may have. 

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VA Office of Inspector General 

Reporting on the Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs 

APPENDIX A 

August 20, 2012 Review of Enterprise Technology Solutions, LLC Compliance with 

Service-Disabled Veteran-Owned Small Business Program 

Subcontracting Limitations 

http://www. va.gov/oig/pubsN AOIG-12-01235-132.pdf 

April 12, 2012 Administrative Investigation, Improper Contracts, Conflict of 

Interest, Failure to Follow Policy, and Lack of Candor, Health 

Administration Center, Denver, Colorado 

http://www. va.gov/oig/pubsN AOIG-1 0-02328-154.pdf 

July 25, 2011 Audit of the Veteran-Owned and Service-Disabled Veteran-Owned 

Small Business Programs 

http://www. va.gov/oig/52/reports/2011N AOIG-1 0-02436-234.pdf 

July 14, 2010 Review of Allegations of Improper Contract Awards to Watkins 

Sinclair, LLC 

http://www. va.gov/oig/52/reports/201 ON AOIG-09-02322-192.pdf 

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STATEMENT OF THOMAS J. LENEY 

EXECUTIVE DIRECTOR 

OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION (OSDBU) 

DEPARTMENT OF VETERANS AFFAIRS (VA) 

BEFORE THE 

HOUSE COMMITTEE ON VETERANS' AFFAIRS 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS and 

HOUSE COMMITTEE ON SMALL BUSINESS 

SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE 

NOVEMBER 4, 2015 

Chairman Coffman, Chairman Hanna, Ranking Member Kuster, Ranking 

Member Takai, and Members of the Subcommittees, thank you for inviting me to testify 

on an examination of continued challenges in VA's Vets First Verification process. 

Overview 

Since its inception, the VA Verification program has faced challenges balancing 

the need to prevent ineligible firms from taking improper advantage ofVA's "Veterans 

First" program, while making it easier and faster for Veteran-Owned Small Businesses 

(VOSB) and Service-Disabled Veteran-Owned Small Businesses (SDVOSB) that meet 

the requirements of 38 Code of Federal Regulations (CFR) Part 74 to gain greater 

access to VA procurement opportunities. VA has made substantial progress in 

improving the Verification program. 

Early in its history, both VA's Office of Inspector General (OIG) and the 

Government Accountability Office (GAO) reported on issues with backlogs and 

operational challenges. VA's Center for Verification and Evaluation (CVE) addressed all 

of the recommendations identified in the 2011 reports, as well as the GAO report of 

2013. In February 2015, GAO began its newest audit of the program. Their Statement 

of Facts indicates that CVE has made even greater improvements in the program since 

the 2013 report. CVE's risk team now reports applications are being processed within 

the regulatory timeframe 99.8 percent of the time, with an error rate of less than one 

percent. 

In fiscal year (FY) 2013, 77 percent of initial applications were approved with an 

average processing time of 42 days. By the end of FY 2015, 94 percent of initial 

applications were processed in an average of 41 days. For those applications that had 

been denied, and where Veterans requested reconsideration, 61 percent were 

subsequently approved in an average of 94 days in FY 2013, and in FY 2015, 59 

percent were subsequently approved in an average of 34 days. 

In May 2015, CVE earned ISO 9001:2008 certification of its processes. This 

means that CVE's processes are codified and replicable, ensuring standardization of 

application processing across the board. Where it had nine codified processes in 2012, 
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it now has 31. CVE also implemented an internal audit and continuous improvement 

process and has taken action to close 96 percent of all internal audit findings of 

instances of non-compliance with the codified work instructions since its inception. 

Those that remained open at the time GAO examined the findings were classified by the 

CVE internal audit team as administrative findings that have no effect on the process. 

In addition to the codification of its processes, CVE applied best practices of the 

National Archives and Records Administration (NARA), and GAO found that all of CVE's 

records are now secured, controlled, and filed in compliance with NARA's standards. 

Risk Referrals 

As a part of the oversight of the program, CVE has partnered with VA's Office of 

Enterprise Risk Management to conduct a three-phase study to review outcomes of site 

visits, determine the optimal number of site visits needed to ensure compliance with the 

program, and develop a more accurate risk assessment for use in determining which 

companies should receive an on-site examination. In the first phase, we reviewed the 

results of 1,144 firms visited in FY 2014. The results showed that there was a 4.7 

percent non-compliance rate. This conclusion allowed CVE to reduce the number of 

yearly site visits without compromising the integrity of the program. Part two of the 

study is ongoing, and will present a statistical review of the on-site examination program 

to assist with determining the number of visits required without increasing risk to the 

Department. Phase 3 will review risk factors, such as industry type and business 

structure, associated with non-compliant firms that will also assist with determining the 

number and which firms should be visited. This three-phase study will be complete in 

January 2016. 

CVE also often receives referrals from various stakeholders regarding program 

ineligibility or possible fraudulent activity. As a result of these referrals, CVE has 

implemented a process for responding to allegations and conducting investigations 

where specific allegations of program non-compliance are provided. We have updated 

our website with information on what constitutes CVE's span of control on eligibility 

compliance, and have provided a form that stakeholders can use to submit allegations 

of ineligibility for the program. All allegations of fraud are handled by VA's OIG, and 

links to their hotline are also provided. 

Regulations 

In the last hearing on the Verification Program in 2013, I discussed that many of 

the issues Veterans have with the program are now rooted in the regulation that covers 

the program, 38 CFR Part 74. It was the general perception that the CVE regulation 

differed considerably from the Small Business Administration (SBA) regulation on the 

SDVOSB program-13 CFR Part 125. CVE explored the differences between the two 

regulations and found very few differences. CVE also made considerable outreach to 

Veteran business owners to explore the areas that they found most objectionable and 

looked for ways to clarify the regulation and to make it more in line with standard 

business practices. 

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Comparison of Rules Governing Verification Program 

We believe the most significant difference between VA and SBA's programs lies 

in the volume of status determinations made by each program. By statute, VOSBs and 

SDVOSBs must be listed in the VetBiz VIP database before they are eligible for setaside contracts with VA. As SBA notes, this process is inherently more labor-intensive 

than a protest-based self-certification program. This statutory requirement resulted in 

VA making about 4,500 status determinations in FY 2015 alone. Because SBA only 

determines SDVOSB status and only when a protest is filed, the SBA made only 40 

status determinations over the past fiscal year. 

The regulation that governs VA's Verification program, 38 CFR Part 74, was 

derived in large part from the ownership and control portions of the SBA regulations that 

cover the SDVOSB set-aside contracts outside of the VA's Vets First Verification 

program, codified in 13 CFR Part 125, as well as the regulation that covers the section 

8(a) business development program, 13 CFR Part 124. As previously reported, there 

are two statutory differences between the programs due to the provisions of Public Law 

(P.L.) 109-461, as codified in 38 United States Code (U.S.C.) Sections 8127 and 8128. 

The two statutory differences are: 

1. Application to Veteran-Owned Small Businesses: Section 8127(f) states: 

"Database of Veteran-Owned Businesses. - (1) Subject to paragraphs (2) 

through (6), the Secretary shall maintain a database of small business 

concerns owned and controlled by veterans and the veteran owners of such 

business concerns." VA's authority includes both SDVOSBs and VOSBs; 

whereas the government-wide SBA program only addresses SDVOSBs. 

2. Surviving Spouse: Section 8127(h): "Treatment of Businesses After Death of 

Veteran-Owner. - (1) Subject to paragraph (3), if the death of a veteran 

causes a small business concern to be less than 51 percent owned by one or 

more veterans, the surviving spouse of such veteran who acquires ownership 

rights in such small business concern shall, for the period described in 

paragraph (2), be treated as if the surviving spouse were that veteran for the 

purpose of maintaining the status of the small business concern as a small 

business concern owned and controlled by veterans." This currently applies 

to Veterans that were 100 percent service-disabled or who died as a result of 

a service-connected disability. SBA's program has no surviving spouse 

exception. 

Our comparison of the regulations revealed four differences between VA's 

Verification regulation and SBA's SDVOSB regulation. 

1. VA added a requirement for a VOSB to notify the CVE of a change of 

ownership in 38 CFR 74.3(e). This requirement is not present in the SBA 

SDVOSB regulation due to the self-certification nature of the program. 

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2. VA added a provision when the final rule was published, based on public 

comments, which is specific to Employee Stock Ownership Plans (ESOP) that 

does not appear in either the SDVOSB or the 8(a) regulations. VA included a 

provision that would consider certain ESOP's to meet the requirements of 

direct ownership by the Veteran(s). 

3. 38 CFR 74 specifically mentions community property laws to be taken into 

account. 

4. Additional prohibitions on non-Veteran participation are codified in 38 CFR 74 

but are not explicitly outlined in 13 CFR 125 (ex. Full-time devotion, highest 

paid). 

Rule Change 

In order to identify potential changes to the rule, CVE examined the lessons 

learned from the implementation of the current verification regulation and conducted 

considerable stakeholder outreach. We received a number of recommendations worthy 

of consideration. Changes to the rule have been drafted to provide clarity and to more 

closely align with common business practices. The draft of the rule is currently under 

final review, and we expect it to be published as an Interim Final Rule shortly. 

The changes to VA verification requirements will impact the regulatory 

differences between the VA and SBA programs. In particular, VA removed the 

Community Property restrictions and references to ESOP bringing its regulation back 

into alignment with SBA, but modified the "unconditional" ownership requirements to 

align verification more closely with commercially reasonable business practices; allowed 

supermajority or unanimity voting for extraordinary business decisions (e.g., acceptance 

of new capital contributions, addition of new members of an LLC or partnership, material 

amendments to bylaws, issuance of additional shares of stock); deemed the Board of 

Directors of a corporation to be controlled by Veterans when Veterans owning 51 

percent of the voting stock are able to either unilaterally or through block voting remove 

any director at any time and for any reason; and increased the waiting time after the 

issuance of a denial or other negative finding on an application for verification from 6 

months to 1 year. 

Improved Communications 

Since 2013, our efforts to reduce the time and difficulty of achieving verification 

have focused on educating applicants regarding the application of the regulation and 

helping them understand what their business model needs to be to fit the requirements 

of the program. Our Verification Assistance Program currently consists of several 

elements: 

1. Realizing some applicants need extra assistance, we established a 

counseling program in partnership with the Procurement Technical 

Assistance Centers to provide counseling services to Veterans preparing to 

apply for verification. All counselors now receive the qualification training 

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from CVE of a similar quality and depth that our examiners, evaluators, and 

site visitors receive. To ensure transparency and consistency in 

interpretation, we have integrated our counselors into the same qualification 

training and testing that our examiners, evaluators, and site visitors receive. 

At this time, there are 331 counselors located all across the country. 

2. A series of 18 Verification Assistance Briefs that explain the requirements and 

give examples of why firms were denied. These briefs address issues that 

cause more than 80 percent of all denials allowing potential applicants to 

preemptively uncover possible issues with their business documentation or 

structure. CVE has also developed FAQs and a number of fact sheets that 

cover most issues encountered by Veterans in addition to a specialized 

contact center where Veterans can speak with CVE representatives. 

3. An online self-assessment tool that takes a Veteran through each section of 

the regulation and all the required documents and explains how they relate to 

the regulation. 

4. CVE hosts a number of live webinars each month, including ones on the 

specialized topics of pre-application, preparing for re-verification, how to stay 

verified, and a monthly Town Hall. During the months of September and 

October 2015, the Pre-Application Brief and Town Hall webinar experienced a 

discernable increase in registration and subsequent participation. The PreApplication Brief and Town Hall webinars provide training and information for 

Veterans interested in submitting their first CVE Verification application. It 

also provides verification application information to Veterans inactive in the 

process for a period who have a current desire to submit an application. 

5. CVE also sends out expiration notices at 120, 90, and 30 days prior to 

verification expiration to encourage firms to apply for re-verification prior to 

the expiration of their eligibility. Additionally, the 30 and 90 day reminder 

emails are accompanied by a follow up phone call from CVE to ensure 

participants are aware of their upcoming expiration. 

Although these communications and education initiatives have been in place for 

two years or more, they have been improved and expanded to support Secretary 

McDonald's MyVA initiative. Even though the current application process has been 

successful at eliminating the backlog of applications and reducing the total processing 

time for applications, CVE has begun to focus on the precepts of the MyVA initiative by 

creating a more Veteran-centric application process. 

MyVA Verification Trial 

In June 2015, CVE conceived a radical change in the production line method of 

processing verification applications, and began to test the newly conceived process. 

During a series of focus group discussions, CVE noted a number of "pain points" in the 

verification process. Two of the largest "pain points" were: 1) every time a Veteran 

would contact CVE about an application's status, a different person spoke to the 

Veteran; and 2) having to upload all required verification documents before an 

application could be submitted. The new process is a sea change for CVE, in that 

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applications coming in are now routed to a Case Management team that oversees the 

process from submission to recommendation, and the Veteran speaks only with a case 

manager or assessor. The second substantial difference is the insertion of a prequalification phase where firms submit a limited portion of the required documents that 

CVE has identified, through years of implementing the program, constitute the basis for 

a significant portion of denied applications. An assessor reviews these documents and 

conducts an interview with the Veteran owner to discuss any issues found in the 

documents and the likelihood the company will receive a favorable determination should 

it proceed with the application process. 

Using this process, the Veteran gets to speak directly with the person who 

performs the assessment, and can better understand any issues found. If issues are 

found, they can be addressed after only a few days into the process, rather than toward 

the end of the process. This pre-qualification review and in~reased personal in.teraction 

between the Veteran and the processing team has resulted tn a marked reductton tn 

withdrawals, and the virtual elimination of demals to date wtthtn the tnal. 

CVE continues to hold focus group sessions to find additional issues faced by 

participants in the trial and to any necessary changes. 

Staffing 

In reference to staffing issues, CVE filled its vacancy for Deputy Director in 

September 2015, and the announcement for last remaining vacancy for a permanent 

Director closed on November 2, 2015. 

New Case Management System 

GAO has reported that CVE's case management data system had shortcomings 

that hindered our ability to operate, oversee, and monitor the verification program. In 

2013 GAO recommended that the department refine and implement a strategic plan 

with outcome-oriented long-term goals and performance measures, and integrate efforts 

to modify or replace the program's data system with a broader strategic planning effort 

to ensure the system addresses the program's short- and long-term needs.VA has 

plans to replace the Verification program's case management system, and is currently 

updating the business plan for developing and implementing a new system. The 

department has established a working group to plan and manage the project in 

accordance with VA's internal guidelines for managing new information technology 

projects. 

Conclusion 

In conclusion, VA has made significant progress in its Vets First Verification 

program. We have overcome many of the challenges and vulnerabilities that were 

originally raised by the GAO and OIG reports. but we seek continuous imorovement and 

a more Veteran-centric process that fully aligns with Secretary McDonald's MyVA 

initiative. 

Mr. Chairmen and Members of the Subcommittees, this concludes my statement. 

I am pleased to answer any questions you may have. 

/p