SERVICE-DISABLED 

VETERAN-OWNED 

SMALL BUSINESS 

PROGRAM

Vulnerability to Fraud 

and Abuse Remains

Report to Congressional Committees

August 2012

GAO-12-697

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-697, a report to

congressional committees 

August 2012 

SERVICE-DISABLED VETERAN-OWNED SMALL 

BUSINESS PROGRAM

Vulnerability to Fraud and Abuse Remains

Why GAO Did This Study

The SDVOSB program provides 

federal contracting opportunities to 

business-owning veterans who 

incurred or aggravated disabilities in 

the line of duty. SBA administers the 

government-wide program, while VA 

maintains databases of veterans and 

SDVOSBs and oversees its own 

contracts. GAO has reported several 

times since 2009 that both programs 

were vulnerable to fraud and abuse

and recommended improvements. In 

October 2010, Congress passed the 

Veterans Small Business Verification 

Act (2010 Act), part of the Veterans’ 

Benefits Act of 2010, to provide tools to 

VA to more-thoroughly validate firms’ 

eligibility before listing them in VetBiz, 

the database used by VA contracting 

officials to award SDVOSB contracts. 

GAO was asked to assess (1) VA’s 

progress in addressing remaining 

vulnerabilities to fraud and abuse in its 

SDVOSB program and (2) actions 

taken by SBA or other federal agencies 

to improve government-wide SDVOSB 

fraud-prevention controls. GAO 

reviewed agency documentation and 

interviewed agency officials. GAO also 

investigated cases of alleged fraud and 

abuse. GAO did not project the extent 

of fraud and abuse in the program.

What GAO Recommends

GAO recommends that VA take steps

to ensure that all firms within VetBiz 

have undergone the 2010 Act 

verification process. VA generally 

concurred with the recommendation 

but expressed concern about how 

specific report language characterized 

its program. GAO made some changes 

to the report but continues to believe 

that the program remains vulnerable to 

fraud and abuse. 

What GAO Found

The Department of Veterans Affairs (VA) Service-Disabled Veteran-Owned Small 

Business (SDVOSB) program remains vulnerable to fraud and abuse. VA has 

made inconsistent statements about its progress verifying firms listed in VetBiz 

using the more-thorough process the agency implemented in response to the 

Veterans Small Business Verification Act (2010 Act). In one communication, VA 

stated that as of February 2011, all new verifications would use the 2010 Act 

process going forward. However, as of April 1, 2012, 3,717 of the 6,178 

SDVOSB firms (60 percent) listed as eligible in VetBiz had not been verified 

under the 2010 Act process. Of these 3,717 firms, 134 received $90 million in 

new VA SDVOSB set-aside or sole-source contract obligations from November 

30, 2011, to April 1, 2012. While the 2010 Act did not include a deadline for 

verification using the more-thorough process, the presence of firms that have 

only been subjected to the less-stringent process that VA previously used 

represents a continuing vulnerability. VA’s Office of Inspector General (OIG)

reported that the less-stringent process was in many cases insufficient to 

establish control and ownership and in effect allowed businesses to self-certify as 

SDVOSBs with little supporting documentation. VA has taken some positive 

action to enhance its fraud prevention efforts by establishing processes in 

response to 6 of 13 recommendations GAO issued in October 2011, including 

conducting unannounced site visits to high-risk firms and developing procedures 

for referring suspicious SDVOSB applications to the OIG. VA has also begun 

action on some remaining recommendations, such as providing fraud awareness 

training and removing contracts from ineligible firms, though these procedures 

need to be finalized. 

Regarding the government-wide SDVOSB program, no action has been taken by 

agencies to improve fraud-prevention controls. Relying almost solely on firms’ 

self-certification, the program continues to lack controls to prevent fraud and 

abuse. The Small Business Administration (SBA) does not verify firms’ eligibility 

status, nor does it require that they submit supporting documentation. While SBA 

is under no statutory obligation to create a verification process, five new cases of 

potentially ineligible firms highlight the danger of taking no action. These firms 

received approximately $190 million in SDVOSB contract obligations. In one 

case, a firm found ineligible by VA continued to self-certify as an SDVOSB and 

received about $860,000 from the General Services Administration and the 

Department of Interior. Further, the Department of Defense (DOD) OIG reported 

in 2012 that DOD provided $340 million to firms that potentially misstated their 

SDVOSB status. To address these vulnerabilities, GAO previously suggested 

that Congress consider providing VA with the authority necessary to expand its 

SDVOSB eligibility verification process government-wide. Such an action is 

supported by the fact that VA maintains the database identifying which 

individuals are service-disabled veterans and is consistent with VA’s mission of

service to veterans. However, the problems GAO identified with VA’s verification 

process indicate that an expansion of VA’s authority to address government-wide 

program problems should not be undertaken until VA demonstrates that its 

process is successful in reducing its own SDVOSB program’s vulnerability to 

fraud and abuse.

View GAO-12-697. For more information, 

contact Richard J. Hillman at (202) 512-6722 

or hillmanr@gao.gov. 
Page i GAO-12-697 SDVOSB Program

Letter 1 

Background 7

VA’s Program Remains Vulnerable to Fraud and Abuse as a Result 

of a Lack of Inventory Control and Potentially Ineligible Firms 

Listed in VetBiz 11

No Action Has Been Taken to Improve Government-wide SDVOSB 

Fraud-Prevention Controls 20

Conclusions 26

Recommendations for Executive Action 26

Agency Comments and Our Evaluation 27

Appendix I Comments from the Department of Veterans Affairs 32

Related GAO Products 54

Figures

Figure 1: Federal Contracts Awarded to SDVOSBs in Fiscal Year 

2010 9

Figure 2: GAO’s Fraud-Prevention Framework 10

Figure 3: Status of GAO’s Previous Recommendations 16

Contents
Page ii GAO-12-697 SDVOSB Program

Abbreviations

2006 Act Veterans Benefits, Health Care, and Information 

 Technology Act of 2006

2010 Act Veterans Small Business Verification Act

CCR Central Contractor Registration

CVE Center for Veterans Enterprise

DOD Department of Defense

DOI Department of Interior

EPLS Excluded Parties List System

FAR Federal Acquisition Regulation

FPDS-NG Federal Procurement Data System-Next Generation

GSA General Services Administration

HUBZone Historically Underutilized Business Zone

NAICS North American Industry Classification System

OIG Office of Inspector General

ORCA Online Representations and Certifications Application

SBA Small Business Administration

SDVOSB Service-Disabled Veteran-Owned Small Business

VA Department of Veterans Affairs

VOSB Veteran-Owned Small Business

This is a work of the U.S. government and is not subject to copyright protection in the 

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without further permission from GAO. However, because this work may contain 

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necessary if you wish to reproduce this material separately.
Page 1 GAO-12-697 SDVOSB Program

United States Government Accountability Office 

Washington, DC 20548

August 1, 2012

The Honorable Marlin A. Stutzman

Chairman

The Honorable Bruce L. Braley

Ranking Member

Subcommittee on Economic Opportunity

Committee on Veterans’ Affairs

House of Representatives

The Honorable Bill Johnson

Chairman

The Honorable Joe Donnelly

Ranking Member

Subcommittee on Oversight and Investigations

Committee on Veterans’ Affairs

House of Representatives

In fiscal year 2010, federal agencies awarded $10.8 billion in smallbusiness obligations to firms in the Service-Disabled Veteran-Owned 

Small Business (SDVOSB) program, according to the Small Business 

Administration (SBA). The SDVOSB program is intended to honor 

business-owning veterans who incurred or aggravated disabilities in the 

line of duty by providing their firms with sole-source and set-aside 

contracting opportunities.1 Firms must meet several requirements to be 

eligible to participate in the program, such as being majority-owned by 

one or more service-disabled veterans who manage and control daily 

business operations.2

SBA, which administers the government-wide SDVOSB program, does 

not verify firms’ eligibility for the program, and has stated that its only 

statutory obligation is to report on other agencies’ success in meeting 

SDVOSB contracting goals. In 2009, we investigated 10 cases in which 

 

1

Veterans Benefits Act of 2003, Pub. L. No. 108-183, § 308, 117 Stat. 2651, 2662 

(codified at 15 U.S.C. § 657f). 

2

If the business is publicly owned, at least 51 percent of the stock must be held by one or 

more service-disabled veterans. The spouse or permanent caregiver of a veteran with a 

permanent and severe disability may also control the business. See 13 C.F.R. § 125.8(g). 

 
 

Page 2 GAO-12-697 SDVOSB Program

ineligible firms that self-certified their service-disabled veteran-owned 

business status received about $100 million in SDVOSB contracts.3 Since 

2009, we have issued nine reports and testimonies detailing how the 

SDVOSB program is vulnerable to fraud and abuse.4

Accounting for about 30 percent of government-wide awards, the 

Department of Veterans Affairs (VA) awarded $3.2 billion in SDVOSB 

contracts in fiscal year 2010. Unlike SBA, VA is bound by law to verify 

firms’ eligibility; the Veterans Benefits, Health Care, and Information 

Technology Act of 2006 (2006 Act) requires VA to maintain a database of 

SDVOSBs and Veteran-Owned Small Businesses (VOSB), known as 

VetBiz.5 The 2006 Act also requires that VA verify the ownership, control, 

and veteran or service-disabled status of firms listed in VetBiz to confirm 

that they are eligible to receive VA SDVOSB set-aside and sole-source 

contracts. In response to the 2006 Act, VA chose to implement a 

verification process consisting of checking whether a firm’s owner was 

listed in VA’s database of service-disabled veterans and conducting 

searches on publicly available websites such as the Excluded Parties List 

System (EPLS), which lists firms that have been debarred from doing 

business with the federal government. Nonetheless, we reported in 2009 

and 2010 that this verification process allowed ineligible firms to be 

wrongly certified. In 2011, VA’s Office of Inspector General (OIG) also 

reported on the basis of a random selection of 42 firms that 32 of 42 

SDVOSBs and VOSBs listed in the VetBiz database were ineligible for 

the VA SDVOSB program.6

As part of our past work, we made recommendations to strengthen both 

government-wide and VA fraud-prevention controls. Further, in response 

to the Veterans Small Business Verification Act (2010 Act), part of the 

 

3

GAO, Service-Disabled Veteran-Owned Small Business Program: Case Studies Show 

Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts, 

GAO-10-108 (Washington, D.C.: Oct. 23, 2009).

4

See the list of related GAO products at the end of this report. 

5

Pub. L. No. 109-461, § 502, 120 Stat. 3403, 3431 – 3435 (codified as amended at 38 

U.S.C. § 8127).

6

VA Office of Inspector General (OIG), Department of Veterans Affairs: Audit of VeteranOwned and Service-Disabled Veteran-Owned Small Business Programs, 10-02436-234 

(July 25, 2011).
 

Page 3 GAO-12-697 SDVOSB Program

Veterans’ Benefits Act of 2010,7 VA implemented a more-thorough 

verification process that includes unannounced and announced site visits, 

and review and analysis of company documentation to validate a firm’s 

eligibility as owned and controlled by serviced-disabled veterans before 

listing the firm in VetBiz. In July 2011, we reported that both SBA and VA 

had taken positive steps in response to our findings and 

recommendations, but that both the government-wide and VA programs 

remained vulnerable to fraud and abuse.8

To assess vulnerabilities in VA’s verification process, we reviewed prior 

findings and recommendations from GAO audits and investigations of 

VA’s VetBiz verification program, including the status of 

recommendations we issued to VA in October 2011.

To determine whether the 

program remains vulnerable to fraud and abuse, you requested that we 

update our prior work and report the status of our recommendations. 

Therefore, we assessed (1) VA’s progress in addressing remaining 

vulnerabilities to fraud and abuse in its SDVOSB program and (2) actions 

taken by SBA or other federal agencies since our previous reports to 

improve government-wide SDVOSB fraud-prevention controls.

9 We also reviewed 

VA’s standard operating procedures, internal control policies, a VA OIG 

report, and other related documents.10

To assess actions taken to improve government-wide SDVOSB fraudprevention controls since our previous reports, we reviewed prior findings 

and recommendations from our audits and investigations of the SDVOSB 

We interviewed various agency 

officials about the status of VA’s verification efforts. To assess VA’s 

progress toward verifying all firms in VetBiz under the 2010 Act, we 

reviewed relevant statutes and regulations governing the program, VA 

guidance, VA statements provided to Congress, and related documents. 

We also interviewed various agency officials.

 

7

Pub. L. No. 111-275, § 104, 124 Stat. 2864, 2867–2868 (amending 38 U.S.C. § 8127).

8

GAO, Service-Disabled Veteran-Owned Small Business Program: Preliminary 

Information on Actions Taken by Agencies to Address Fraud and Abuse and Remaining 

Vulnerabilities, GAO-11-589T (Washington, D.C.: July 28, 2011).

9

GAO, Service-Disabled Veteran-Owned Small Business Program: Additional 

Improvements to Fraud Prevention Controls Are Needed, GAO-12-152R (Washington, 

D.C.: Oct. 26, 2011).

10VA OIG, Department of Veterans Affairs: Audit of Veteran-Owned and Service-Disabled 

Veteran-Owned Small Business Programs.
 

Page 4 GAO-12-697 SDVOSB Program

program. We reviewed applicable guidance on internal control standards 

from our Standards for Internal Control in the Federal Government,11 the 

fraud-prevention framework,12 and a Department of Defense (DOD) OIG 

report.13 We requested information from SBA on any actions that it has 

taken in response to our recommendations. We also requested 

information from SBA and VA on any actions taken related to the 10 

cases of ineligible firms identified in our previous work.14 In addition, we 

contacted agency OIGs who received our fraud referrals pertaining to 

these 10 cases to learn of any action taken against the firms. We also 

searched the Central Contractor Registration (CCR)15 to determine 

whether original case-study firms were self-certified as SDVOSBs and 

searched VA’s VetBiz online database to determine whether original 

case-study firms were listed in the system as verified SDVOSB firms. In 

addition, we searched EPLS to determine if any agencies had suspended 

or debarred16

 

11GAO, Standards for Internal Control in the Federal Government, 

the original case-study firms or related individuals we 

investigated.

GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 1999). 

12GAO, Service-Disabled Veteran-Owned Small Business Program: Fraud Prevention 

Controls Needed to Improve Program Integrity, GAO-10-740T (Washington, D.C.: May 24, 

2010). 

13DOD OIG, Inadequate Controls Over the DOD Service-Disabled Veteran-Owned Small 

Business Set-Aside Program Allow Ineligible Contractors to Receive Controls, 2012-059 

(Feb. 29, 2012). 

14For our prior work, we selected cases on the basis of a variety of factors including facts 

and evidence provided in protests and allegations, whether a firm received multiple 

SDVOSB contracts, and whether a firm received other non-SDVOSB contracts. Our prior 

work was not designed to identify all firms that misrepresent themselves as SDVOSBs or 

commit fraudulent or abusive activity, and case examples could not be projected to the 

overall population of SDVOSB firms. 

15CCR is the primary registrant database for the U.S. federal government. CCR collects, 

validates, stores, and disseminates data in support of agency acquisition missions, 

including federal agency contract and assistance awards. 

16Suspension and debarment actions prevent companies and individuals from 

participating in government contracts, subcontracts, loans, grants, and other assistance 

programs. The effect of suspension and debarment by a federal agency is governmentwide. Suspensions are temporary actions, effective immediately, which disqualify a 

company pending the completion of an investigation and generally do not last longer than 

1 year. Debarments, which are imposed after an investigation, result in a set period of 

disqualification, but generally not greater than 3 years. 
 

Page 5 GAO-12-697 SDVOSB Program

To further assess vulnerabilities in both the government-wide and VA 

SDVOSB fraud-prevention controls, we investigated new allegations from 

informants regarding firms that received SDVOSB contracts through 

fraudulent or abusive eligibility misrepresentations. We did not design our 

work to identify all firms that misrepresent themselves as SDVOSBs or 

commit fraudulent or abusive activity in the SDVOSB program, nor did we 

attempt to identify fraud and abuse in SDVOSB subcontracts. In addition, 

our case examples cannot be projected to the overall population of 

SDVOSB firms. To identify potential cases, we reviewed SDVOSB 

contract awards and protests filed with SBA since 2008 and VA since 

2010. We also analyzed the CCR database and VA’s VetBiz database of 

applicants for fraudulent activity and reviewed over 100 allegations of 

fraud and abuse we received from informants between 2009 through 

2011. From these sources, we selected 10 potential cases17

To validate the facts in these cases, we interviewed some firm owners 

and managers and reviewed relevant documentation, such as business 

filings and tax returns, to determine if SDVOSB eligibility requirements 

had been met. We reviewed certifications made by firms, such as 

certifications about a firm’s size, SDVOSB status, and line of business, in 

the federal government’s Online Representations and Certifications 

Application (ORCA)

for further 

investigation on the basis of a variety of factors, including the credibility 

and specificity of facts and evidence provided in protests and allegations 

and whether a firm received multiple SDVOSB contracts since fiscal year 

2010. We attempted to select case studies from two categories: 

SDVOSBs verified in VetBiz and firms listed in CCR as SDVOSBs that 

were not verified by VA. In addition, these 10 cases were not under 

investigation by the SBA or VA OIGs at the time of selection.

18 and CCR. We also analyzed data from Federal 

Procurement Data System-Next Generation (FPDS-NG)19

 

17For the purposes of our investigation, we defined a case-study as one or more affiliated 

firms or joint ventures that obtained SDVOSB set-aside and sole-source contracts. These 

cases include multiple firms owned by an individual or multiple firms affiliated through joint 

ventures and other types of partner agreements. 

from October 

18ORCA is a Web-based system that centralizes and standardizes the collection, storage, 

and viewing of many Federal Acquisition Regulation (FAR) required representations and 

certifications. 

19The FPDS-NG is the central repository for capturing information on federal procurement 

actions. Dollar amounts reported by federal agencies to FPDS-NG represent the net 

amount of funds obligated and deobligated as a result of procurement actions. 
 

Page 6 GAO-12-697 SDVOSB Program

2009 through December 2011 to identify SDVOSB contract obligations 

received by the firms, and confirmed the contract information with 

awarding agencies. We also reviewed Accurint20

To assess the reliability of the data sources used for this report, including 

EPLS, FPDS-NG, and VetBiz, we interviewed agency officials and traced 

information to source documents when possible. We verified the 

suspension and debarment information with SBA and the appropriate 

agencies. We verified the contract obligations with the awarding 

agencies. We also verified the firms’ VetBiz SDVOSB verification status 

with VA. We determined that the data were sufficiently reliable for the 

purpose of our audit. We conducted this performance audit from January 

2011 to July 2012 in accordance with generally accepted government 

auditing standards.

reports to identify 

whether owners and firms had any criminal records and federal tax liens 

and validated this information if necessary. Ultimately, through a 

combination of data matching, a review of public records, and interviews, 

we were able to substantiate the informants’ allegations in 4 of the 10 

cases and have gathered enough evidence to indicate firms in a fifth case 

may be ineligible. We have highlighted examples from these 5 cases 

throughout this report and will refer them to SBA and VA and other 

appropriate agencies for further review. We were unable to conclusively 

determine eligibility in the remaining 5 cases.

21

 

20LexisNexis’ Accurint is a database that can provide information on people, businesses, 

assets and locations, including bankruptcy filings, liens and arrest records.

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. We 

performed our investigative work from January 2011 to July 2012 in 

accordance with the standards prescribed by the Council of the 

Inspectors General on Integrity and Efficiency.

21Some of the work in this report is based on prior GAO products issued in 2012, 2011, 

and 2009. GAO, Service-Disabled Veteran-Owned Small Business Program: 

Governmentwide Fraud Prevention Control Weaknesses Leave Program Vulnerable to 

Fraud and Abuse, but VA Has Made Progress in Improving Its Verification Process, 

GAO-12-443T (Washington, D.C.: Feb. 7, 2012); Service-Disabled Veteran-Owned Small 

Business Program: Additional Improvements to Fraud Prevention Controls Are Needed, 

GAO-12-205T (Washington, D.C.: Nov. 30, 2011); GAO-11-589T; and GAO-10-108. 
 

Page 7 GAO-12-697 SDVOSB Program

Federal regulations set requirements for a small business to qualify as an 

SDVOSB. SDVOSB eligibility regulations mandate that a firm must be a 

small business and at least 51 percent-owned by one or more servicedisabled veterans who control the management and daily business 

operations of the firm. Federal statutes and the Federal Acquisition 

Regulations (FAR) require all prospective contractors to update the 

ORCA to state whether their firm qualifies as an SDVOSB.22

With regard to VA’s program, VA’s Center for Veterans Enterprise (CVE) 

is responsible for maintaining VetBiz and implementing VA’s verification 

program. The 2010 Act requires that no new small-business applicant 

may appear in VA’s SDVOSB and VOSB VetBiz database unless it has 

been verified by VA as owned and controlled by a veteran or servicedisabled veteran. Further, within 60 days after enactment, VA was 

required to notify all unverified businesses in its VetBiz database about 

the need to provide supporting documents to establish veteran ownership 

and control. Firms were required to do so within 90 days of receipt of the 

notification in order to avoid removal of the firm from VetBiz.

Additionally, 

the SDVOSB, as a contractor, is required to register in CCR. Contracting 

officials are required to check CCR, which includes information such as a 

firm’s status as an SDVOSB, prior to awarding most federal contracts, 

including an SDVOSB set-aside or sole-source contract. Once an 

SDVOSB receives a contract, SDVOSB regulations also place restrictions 

on the amount of work that can be subcontracted.

23

 

2215 U.S.C. § 632(x) and 48 C.F.R. § 4.1201. This provision, in addition to others in the 

Small Business Jobs Act of 2010, Pub. L. No. 111-240, §§ 1341–1342, 124 Stat. 2504, 

2543–2544, help facilitate the prosecution of firms that willfully seek and receive smallbusiness awards through misrepresentation of their status, including SDVOSBs. 

To check 

veteran status, CVE relies in part on VA’s Beneficiary Identification 

Records Locator Subsystem, which confirms that owners are documented 

as having left service with other than a dishonorable discharge and that 

disability results from a service-connected condition. In response to the 

2010 Act, VA also implemented a verification process that included 

unannounced and announced site visits, and review and analysis of 

company documentation. The 2010 Act does not include a date by which 

VA must complete the verification of firms. Firms that misrepresent 

23Once CVE verifies a business, it sends an approval letter to the firm. Under regulations 

first promulgated in 2008, firms retained their eligibility status for 1 year from the date of 

the letter. However, on June 27, 2012, VA issued updated regulations extending the 

eligibility period to 2 years before reverification is required.

Background
 

Page 8 GAO-12-697 SDVOSB Program

SDVOSB status are required by law to be debarred from contracting with 

VA for a reasonable period of time, as determined by VA.24 Additionally, 

VA regulations state that if a firm or owner is currently debarred or 

suspended, or is delinquent or in default on significant financial 

obligations owed to the federal government, then the firm or owner is 

ineligible for VA’s VetBiz verification program.25

Federal law has established government-wide goals for specific types of 

small businesses to receive a percentage of the total value of all primecontract and subcontract awards for each fiscal year. The statutorilymandated goal for SDVOSB participation is not less than 3 percent26 of all 

federal contract dollars awarded each fiscal year.27 SBA stated in its most 

recent report that, in fiscal year 2010, $10.8 billion in small-business 

obligations were awarded to firms that self-certified themselves in the 

CCR as SDVOSBs.28 DOD SDVOSB contracts accounted for $5.3 billion 

or 49 percent of government-wide SDVOSB contracts during fiscal year 

2010,29 and VA SDVOSB contracts accounted for $3.2 billion, or 30 

percent during the same period.30

 

2438 U.S.C. § 8127(g).

Figure 1 summarizes the federal 

contracts awarded in fiscal year 2010 by federal agencies.

25Government-wide, all prospective federal contractors must certify whether they are 

delinquent on certain federal tax debts. However, such delinquency may not result in an 

automatic disqualification from contracting eligibility, as it does in VA’s VetBiz eligibility.

26The federal government as a whole failed to reach the 3 percent goal in fiscal year 2010.

27Veterans Entrepreneurship and Small Business Development Act of 1999, Pub. L. No. 

106-50, § 502, 113 Stat. 233, 247–248 (codified at 15 U.S.C § 644 (g)(1)). 

28SBA calculates its SDVOSB total by including all small-business dollars awarded to 

SDVOSBs, not just those received through set-aside or sole-source contracts. 

29In 2012, DOD OIG reported that DOD contracting personnel incorrectly coded 137 fiscal 

year 2010 contracts, valued at approximately $1.3 billion, as SDVOSB awards.

30In 2011, VA OIG reported that total fiscal year 2010 SDVOSB and VOSB procurement 

dollars may actually be lower than reported by VA. 
 

Page 9 GAO-12-697 SDVOSB Program

Figure 1: Federal Contracts Awarded to SDVOSBs in Fiscal Year 2010

Since 2009, GAO has issued nine reports or testimonies on the SDVOSB 

program, focusing on its vulnerability to fraud and abuse, and agencies’ 

actions to prevent contracts from going to firms that misrepresent 

themselves as SDVOSBs.31

 

31See the list of related GAO products at the end of this report. 

When discussing the SDVOSB program, we 

have shown that a well-designed fraud-prevention system should consist 

of three crucial elements: (1) up-front preventive controls, (2) detection 

and monitoring, and (3) investigations and prosecutions. Figure 2 below 

outlines the key aspects of an effective fraud-prevention framework.
 

Page 10 GAO-12-697 SDVOSB Program

Figure 2: GAO’s Fraud-Prevention Framework

The most effective and most efficient part of a fraud-prevention 

framework involves the institution of rigorous controls at the beginning of 

the process. At a minimum, preventive controls for the SDVOSB program 

should be designed to verify that a firm seeking SDVOSB status is eligible 

for the program. Even with effective prevention controls, there is residual 

risk that firms that appeared to meet SDVOSB program requirements 

initially will violate program rules once they obtain contracts. This fact 

makes effective monitoring and detection controls essential in a robust 

fraud-prevention framework. Detection and monitoring efforts include 

activities such as periodic reviews of suspicious firms and evaluating 

firms to provide reasonable assurance that they continue to meet 

program requirements. Finally, fraud-prevention controls are not fully 

effective unless identified fraud is aggressively prosecuted or companies 

are suspended, debarred, or otherwise held accountable, or both.
 

Page 11 GAO-12-697 SDVOSB Program

VA has made numerous conflicting statements about its progress 

verifying firms listed in VetBiz under the more-thorough process the 

agency implemented in response to the 2010 Act. These statements 

indicate that VA has taken an inconsistent approach to prioritizing the 

verification of firms and has been unable to accurately track the status of 

its efforts. Specifically, at the close of our audit work, documentation 

provided by VA indicated that thousands of SDVOSBs listed as eligible in 

VetBiz received millions of dollars in SDVOSB sole-source and set-aside 

contract obligations even though they had not been verified under the 

more-thorough process implemented in response to the 2010 Act. At that 

time, VA told us it planned to remove all firms that had their 1-year 

verification period expired and had not provided documentation for 

reverification under the 2010 Act process. Since then, on June 27, 2012, 

VA implemented an interim final rule that extends the eligibility of verified 

firms to 2 years, including firms for which the eligibility period had expired 

but that had not yet been reverified. Extending the eligibility period may 

allow VA to focus its efforts on more thoroughly verifying firms that were 

previously verified under VA’s less-stringent 2006 Act process. However, 

the extension also allows thousands of firms to continue to be eligible for 

contracts even though they have not undergone the more-thorough 

process. With regard to our previous work, VA has taken some positive 

action to enhance its fraud prevention efforts by establishing processes in 

response to 6 of 13 recommendations we issued in October 2011. VA has 

also begun action on some remaining recommendations.

VA has provided a number of conflicting statements and explanations 

related to the status of its verification program, indicating that it is having 

difficulty tracking its inventory of firms and whether they were verified 

under the process implemented to carry out the 2010 Act. As we 

previously stated, the process VA implemented to review firms under the 

2006 Act consisted of checking whether a firm’s owner was listed in VA’s 

database of service-disabled veterans and conducting searches on 

publicly available websites such as the EPLS, which lists firms that have 

been debarred from doing business with the federal government. In 

contrast, VA stated that it implemented a more-thorough verification 

process under the 2010 Act that included unannounced and announced 

site visits and a review and analysis of company documentation.

Although the 2010 Act did not include a date by which VA must complete 

the verification of firms, within 60 days of the law’s enactment VA was 

required to notify all unverified firms listed in its VetBiz database about 

the need to apply for verification by submitting documents to establish 

VA’s Program Remains 

Vulnerable to Fraud 

and Abuse as a Result 

of a Lack of Inventory 

Control and 

Potentially Ineligible 

Firms Listed in VetBiz

VA Has Difficulty Tracking 

Its Inventory of Firms
 

Page 12 GAO-12-697 SDVOSB Program

veteran ownership and control. Firms were required to do so within 90 

days of receipt of the notification in order to avoid removal of the firm from 

VetBiz. VA officials told us that the agency prioritized its verification under 

the process implemented in response to the 2010 Act by reviewing (1) 

new applications for firms that had previously only self-certified in VetBiz 

(i.e., firms that had not been reviewed under the processes VA created 

for the 2006 Act or 2010 Act); (2) new firms that had initially applied for 

verification after the 2010 Act, to include reprocessing any firms that were 

denied through the new requirements and subsequently requested 

reconsideration; and (3) applications for firms initially verified in VetBiz 

under the process VA chose to implement for the 2006 Act.

However, our review of information provided by VA raises concerns about 

the status of this process and whether VA knows how many of its firms 

have actually been verified under the processes implemented in response 

to the 2010 Act. In one communication, VA stated that as of February 

2011, VA’s 2006 Act verification process had been discontinued, and all 

new verifications would use the process implemented in response to the 

2010 Act going forward. Because firms would need to reverify 1 year 

later, this meant that only firms verified under the 2010 Act process 

should have been in VetBiz as of February 2012. In November 2011, VA 

reported that it had removed all unverified firms from its database on 

September 4, 2011. Subsequently, while reviewing new cases involving 

firms that had received VA SDVOSB contracts, we found instances where 

firms were not verified under VA’s 2010 Act process, but rather were 

verified under its 2006 Act process.

32

When we met with VA in February 2012 to discuss our new cases, 

officials confirmed that there were still firms in VetBiz that had not been 

through the processes implemented in response to the 2010 Act, but did 

not explain how many firms still had not gone through the new process. 

Then, on April 23, 2012, officials told us that they had recently removed 

thousands of firms from VetBiz because these firms had not supplied the 

supporting documentation that VA decided was required for verification 

under the process implemented in response to the 2010 Act; VA indicated 

that it planned to remove hundreds of additional firms for the same 

reason. VA has provided conflicting statements about whether these firms 

 

32In one of our cases, firms that were in fact ineligible for the program received 

approximately $16 million in VA SDVOSB set-aside and sole-source contract obligations, 

$251,000 of which were new obligations, from October 2010 to December 2011.
 

Page 13 GAO-12-697 SDVOSB Program

received the December 2010 request to supply documentation. Further, 

over the next month, VA officials provided us with at least seven differing 

accounts of the number of SDVOSBs verified under the processes 

implemented for the 2006 Act and 2010 Act, the number of SDVOSBs 

they planned to remove, and the timing of the removals. VA’s conflicting 

statements create uncertainty about the status of the agency’s efforts to 

verify firms under the process implemented for the 2010 Act. Without a 

clear inventory and methods designed to track the verification process 

firms have undergone, VA cannot provide reasonable assurance that all 

firms appearing in VetBiz have been verified as owned and controlled by 

a veteran or service-disabled veteran.

In its agency comments, VA explained these inventory issues by noting 

(1) the lack of a comprehensive case-management system has created 

the need for aggregate workarounds and resulted in inconsistent 

aggregate reporting; (2) the limitations of its current case-management 

system make it difficult to track the inventory of firms; and (3) as the 

limitations of the case-management system increase over time, the 

potential of CVE to lose track of how many firms have been verified also 

increases. VA also noted that its verification priorities have evolved over 

time. 

As of the close of our audit work, the information provided by VA 

indicated that thousands of potentially ineligible firms remain listed in 

VetBiz because they have not been verified under the more thorough 

process implemented for the 2010 Act. Our analysis shows that as of 

April 1, 2012, 3,717 of the 6,178 SDVOSBs (60 percent) listed as eligible 

in VetBiz had yet to be verified using the more-thorough verification 

process. Of these 3,717 firms listed as eligible on April 1, 2012, 134 

received a total of $90 million in new VA SDVOSB sole-source or setaside contract obligations during the 4-month period from November 30, 

2011, to April 1, 2012.33

 

33We did not investigate these 134 firms to determine if they were in fact ineligible. 

On May 14, 2012, VA told us that it removed 

1,857 of these 3,717 SDVOSBs from April 2 to April 10, 2012, so that 

they are no longer eligible for VA SDVOSB sole-source and set-aside 

contracts. According to VA, the remaining 1,860 firms that had not 

received a review under the 2010 Act process were projected to be 

removed in July 2012 unless the firms provided adequate documentation 

supporting their eligibility. VA also stated that these firms were identified 
 

Page 14 GAO-12-697 SDVOSB Program

as being in “reverification” and no such expired firm was eligible for an 

actual contract award until the reverification decision had been 

completed. 

Since then, on June 27, VA implemented an interim final rule that extends 

the eligibility of verified firms to 2 years. VA told us it interprets “verified” 

to include any firm that has been verified under either its 2006 or 2010 

Act processes. Therefore, according to the interim rule, as long as a firm 

is verified under either process and is in its 2-year eligibility period, VA is 

only authorized to initiate a verification examination if it receives credible 

evidence calling into question a participant’s eligibility. Furthermore, VA 

considered firms whose prior 1-year eligibility period had recently expired, 

but who had not yet been through reverification, to be within the scope of 

the new rule, thus extending their eligibility another year. Extending the 

eligibility period may allow VA to focus its efforts on more thoroughly 

verifying firms that were previously verified under its less-stringent 2006 

Act process. However, the extension also allows thousands of firms to 

continue to be eligible for contracts even though they have not undergone 

the more-thorough process. For example, according to information 

provided by VA in its comments, as of July 13, 2012, there are 6,079

SDVOSBs and VOSBs listed in VetBiz. Of these, 3,724 were verified 

under the more-through process implemented under the 2010 Act and 

2,355—over 38 percent--were verified under VA’s less-rigorous 2006 Act 

process. As VA acknowledges in its agency comments, “the retention of 

firms verified prior to the 2010 Act [process] increases the possibility 

awards will go to firms that will not be verified when the more rigorous 

process is applied.” 

Moreover, past audits show the risk of providing SDVOSB contracts to 

firms reviewed under VA’s 2006 Act process. For example, in 2011, VA’s 

own OIG issued a report that reviewed both SDVOSBs and VOSBs listed 

in VetBiz and found that 10 of 14 SDVOSBs and VOSBs verified under 

VA’s 2006 Act process and listed as eligible were in fact ineligible for 

these respective programs. The report identified several reasons for why 

these firms were ineligible, including improper subcontracting practices, 

lack of control and ownership, and improper use of SDVOSB status, 

among others. Further, the report noted VA’s document-review process 

under the 2006 Act “in many cases was insufficient to establish control 

and ownership... [and] in effect allowed businesses to self-certify as a 

veteran-owned or service-disabled veteran-owned small business with 

little supporting documentation.” The report goes on to state that VA’s 

failure to maintain “accurate and current” information in the VetBiz 

database also exacerbated problems in the verification process. VA’s OIG 
 

Page 15 GAO-12-697 SDVOSB Program

also used statistical sampling methods to project that (1) $500 million of 

VA SDVOSB and VOSB contracts were awarded annually to ineligible 

firms and (2) VA will award about $2.5 billion in SDVOSB and VOSB 

contracts to ineligible firms over the next 5 years if it does not strengthen 

its oversight and verification procedures.

In October 2011, we issued 13 recommendations to VA related to 

vulnerabilities in the verification process implemented by VA after the 

2010 Act; VA generally concurred with our recommendations. As of June 

2012, VA has provided us with documentation demonstrating that it has 

established procedures in response to 6 of these recommendations. 

Figure 3 shows the status of the recommendations; more specific 

information on each recommendation follows the figure. We have not 

assessed the effectiveness of any of the procedures that VA has 

established thus far as this is beyond the scope of this report.

VA Has Made Some 

Progress in Addressing 

Our Prior 

Recommendations
 

Page 16 GAO-12-697 SDVOSB Program

Figure 3: Status of GAO’s Previous Recommendations
 

Page 17 GAO-12-697 SDVOSB Program

• VA has provided additional guidance and training to the VA 

contracting personnel on the use of the VetBiz website. In 

December 2011, VA issued a guidance memo requiring VA 

contracting personnel to check VetBiz to ensure that a firm is verified 

both upon receipt of an offer and prior to award. In November 2011, 

VA also provided training to the contracting personnel on the use of 

VetBiz. Providing guidance and training to current and new 

contracting personnel will help to ensure that these staff are aware of 

the need to check VetBiz prior to awarding a contract.

• VA has established formal procedures for VA staff to refer 

suspicious applications to the OIG and provided guidance on 

what type of cases to refer to the OIG. In April 2012, VA issued 

procedures for VA staff to use if they identify suspicious information or 

possible misrepresentations on an application for eligibility during their 

initial review process. These procedures contain step-by-step 

instructions for how to notify the OIG about suspicious applications. 

Specifically, CVE’s “risk team” makes a determination as to whether 

or not an applicant has intentionally misrepresented its status in an 

apparent attempt to defraud the government. If the information is 

credible, the applicant is referred to the VA OIG. If VA OIG accepts 

the referral, it conducts preliminary inquiries to determine whether a 

full investigation into criminal activity is warranted. If the OIG declines 

the investigation, VA can refer the matter to VA’s Debarment 

Committee, which VA instituted in September 2010 specifically to 

debar firms that had violated SDVOSB regulations. In addition to 

these procedures, from November 2011 through January 2012, VA 

provided three training sessions to the VA staff on the type of red 

flags to note during the application review.

• VA has explored the feasibility of validating applicants’ 

information with third parties. In 2012, VA met with Dun and 

Bradstreet34

 

34Dun and Bradstreet is a public company that licenses information on businesses and 

corporations.

to explore the feasibility of utilizing their services to 

validate applicants’ information, such as names and titles of business 

owners. Validating applicants’ information with third parties may help 

enhance VA’s ability to assess the accuracy of self-reported 

information.

Process Established
 

Page 18 GAO-12-697 SDVOSB Program

• VA has formalized a process for conducting unannounced site 

visits to firms identified as high-risk during the verification 

process. In June 2012, VA issued procedures for VA to conduct 

unannounced site visits on a sample of 50 percent of high-risk firms 

identified during the verification process. Formalizing this process with 

a focus on high-risk firms may help provide reasonable assurance that 

only eligible firms gained access to the VetBiz database.

• VA has developed and implemented a process for unannounced 

site visits to verified companies to obtain greater effectiveness 

and consistency in the verification process. VA’s aforementioned 

June 2012 procedures also apply to verified companies. VA 

developed a process to select on a weekly basis, based on a 

combination of random and risk-based factors, verified firms to 

receive an unannounced site visit. In addition, according to VA it has 

started making these unannounced site visits. Conducting these site 

visits may help provide reasonable assurance to VA that the 

verification process is effective.

• VA has developed and implemented specific procedures and 

criteria for staff to make referrals to the Debarment Committee 

and VA OIG as a result of misrepresentations identified during 

initial verification and periodic reviews. VA’s aforementioned April 

2012 procedures also apply to false information or misrepresentations 

identified after VA’s initial review of the application, during the firm’s 

eligibility period. These procedures may increase VA’s success in 

pursuing firms that have misrepresented their eligibility for the 

program.

• VA has not provided regular fraud-awareness training to CVE 

and VA contracting personnel. One of the most significant 

challenges to an effective verification program is to have sufficient 

human capital with proper training and experience. Although VA has 

not established regular fraud-awareness training, it has made 

progress in this area. For example, VA told us that its OIG recently 

provided training on procurement fraud and that its General Counsel 

provides weekly training on examination procedures and policies in 

order to educate staff on fraud prevention. In addition, VA said that it 

has plans to require all CVE staff to attend a fraud examiners course; 

several CVE staff were already scheduled to attend fraud training in 

July 2012. Having sufficient human capital with the proper training and 

experience would enhance the effectiveness of the verification 

program.

Process Not Established
 

Page 19 GAO-12-697 SDVOSB Program

• VA has not developed and implemented procedures for 

conducting unannounced site visits to contract performance 

locations and interviews with contracting officials to better 

assess whether verified companies comply with program rules 

after verification. VA has started conducting announced site visits as 

part of its subcontracting compliance review program. This program is 

used to determine if a firm is performing in accordance with 

percentage of work performance requirements and other 

subcontracting commitments. However, VA has not developed and 

implemented procedures for conducting unannounced site visits to 

contract performance locations and interviews with contracting 

officials. The unannounced site visits and interviews with contracting 

officials would allow VA to better assess whether verified firms comply 

with program rules after verification.

• VA has not developed procedures for risk-based periodic 

reviews of verified firms receiving contracts to assess 

compliance with North American Industry Classification System 

(NAICS)35

• VA has not developed and implemented specific processes and 

criteria for the Debarment Committee on compliance with the 

requirement in the 2006 Act to debar, for a reasonable period, 

firms and related parties that misrepresent their SDVOSB status. 

According to VA, its Debarment Committee relies on procedures 

outlined in the FAR and the VA Acquisition Regulations to determine 

the length of debarments.

size standards and SDVOSB program rules. In order to 

be eligible for SDVOSB set-aside and sole-source contracts, a firm 

must qualify as a small business under NAICS size standards. In draft 

guidelines, VA included supplemental information for VA staff to 

review the firm’s NAICS codes size standards, but these guidelines 

have yet to be finalized. Moreover, the draft guidelines do not include 

procedures for periodic reviews of verified firms’ compliance with 

these standards. Such procedures would help improve continued 

compliance with SDVOSB program rules.

• VA has not developed specific guidelines outlining the 

Debarment Committee’s decision process to debar firms that 

 

35The NAICS is the standard used by federal statistical agencies in classifying business 

establishments for the purpose of collecting, analyzing, and publishing statistical data 

related to the U.S. business economy. 
 

Page 20 GAO-12-697 SDVOSB Program

misrepresent their SDVOSB status. VA should provide the 

Debarment Committee with guidelines to aid its decision-making 

process in determining what constitutes a “misrepresentation” 

deserving of debarment, as that term is used in the 2006 Act.

• VA has not developed procedures on removing SDVOSB

contracts from ineligible firms. According to the VA Acquisition 

Regulations, the Deputy Senior Procurement Executive has the 

authority to determine whether VA should terminate a contract with a 

debarred firm. However, VA has not developed procedures to remove 

SDVOSB contracts from ineligible firms. According to VA, it is in the 

process of developing a policy on removing SDVOSB contracts from 

ineligible firms as determined by status protests. In addition, VA is in 

the process of providing guidance to the acquisition workforce on 

removing SDVOSB contracts from ineligible firms. Until VA develops 

procedures on removing SDVOSB contracts from ineligible firms, the 

SDVOSB program is at risk for ineligible firms to abuse the program 

and retain contracts obtained through fraud and abuse.

• VA has not formalized procedures to advertise debarments and 

prosecutions. VA has not formalized procedures for advertising 

debarments and prosecutions, though the Debarment Committee, the 

OIG, and CVE have listed these actions on their websites.

No action has been taken to improve government-wide SDVOSB fraudprevention controls as the program continues to remain a self-certification 

program. Because federal law does not require it, SBA does not verify 

firms’ eligibility status, nor does it require that firms submit supporting 

documentation. According to SBA, it is only authorized to perform 

eligibility reviews in a protest situation, including those cases where SBA 

itself has reason to believe that a firm misrepresented its SDVOSB status. 

However, without basic checks on firms’ eligibility claims, SBA cannot 

provide reasonable assurance that legitimate SDVOSBs are receiving 

government contracts. In fact, five of our new case-study firms received 

SDVOSB set-aside and sole-source contract obligations, totaling 

approximately $190 million, of which $75 million were new SDVOSB setaside and sole-source contract obligations, from October 1, 2009, to 

December 31, 2011, despite evidence indicating they are ineligible for the 

No Action Has Been 

Taken to Improve 

Government-wide 

SDVOSB FraudPrevention Controls
 

Page 21 GAO-12-697 SDVOSB Program

program.36 With regard to our original 10 case-study firms reported in 

October 2009, some are under investigation by SBA OIG and punitive 

actions have been taken against others. To address vulnerabilities in the 

government-wide program, we previously suggested that Congress 

consider providing VA with the authority necessary to expand its 

SDVOSB eligibility verification process government-wide. Such an action 

is supported by the fact that VA maintains the database identifying which 

individuals are service-disabled veterans and is consistent with VA’s 

mission of service to veterans. However, such action should not be 

undertaken until VA demonstrates that its verification process is 

successful in reducing the SDVOSB program’s vulnerability to fraud and 

abuse.

In our previous work, we found that the SDVOSB program did not have 

effective government-wide fraud-prevention controls in place and was 

vulnerable to fraud and abuse.37

Our new case studies highlight instances of the fraud and abuse that 

resulted from the lack of verification of firms’ SDVOSB status. In fact, five 

of our new case-study firms received SDVOSB set-aside and sole-source 

contract obligations, totaling approximately $190 million from October 1, 

Outside of VA, there was no verification 

in place for SDVOSB contracting. Because federal law does not require it, 

SBA and agencies awarding contracts—other than VA—do not have a 

process in place to validate a firm’s eligibility for the program, and rely on 

the firms self-certifying as a service-disabled veteran-owned business in 

CCR. We found the only process in place to detect fraud in the 

government-wide SDVSOB program involved a formal bid-protest 

process at SBA, whereby interested parties to a contract award could 

protest another firm’s SDVOSB eligibility or small-business size. 

However, we reported that this self-policing process did not prevent 

ineligible firms from receiving SDVOSB contracts. SBA officials have told 

us that they have limited responsibility over the SDVOSB program, and 

that the agency’s only statutory obligation is to report on other agencies’ 

success in meeting SDVOSB contracting goals.

 

36The SDVOSB contract dollars reported include the four cases for which we were able to 

substantiate allegations of program ineligibility and one case for which we gathered 

enough evidence to indicate the case may be ineligible.

37GAO-10-108. 

Self-Certification Allows 

Ineligible Firms to Win and 

Perform SDVOSB 

Contracts
 

Page 22 GAO-12-697 SDVOSB Program

2009, to December 31, 2011, despite evidence indicating they are 

ineligible for the program. Of this $190 million, $75 million were new 

SDVOSB set-aside and sole-source contract obligations. In four of the 

cases we examined, we were able to substantiate informants’ allegations 

of ineligibility as follows:

• Non-SDVOSB joint venture. An SDVOSB entered a joint venture 

with a non-SDVOSB firm and received about $16 million in new 

government-wide SDVOSB set-aside contract obligations. Such joint 

ventures are eligible if the SDVOSB firm manages the joint venture 

and the contract work. However, the owner, a service-disabled 

veteran, admitted to our investigators that his SDVOSB firm did not 

manage the joint venture. Therefore, the joint venture is ineligible. 

This firm is currently listed as a SDVOSB in CCR, which allows the 

firm to compete for government-wide SDVOSB contracts.

• VA-denied firm. Though VA denied a firm SDVOSB status in 2010 

because the firm was not controlled by a service-disabled veteran 

owner, the firm continued to self-certify in CCR. A VA site visit found 

the service-disabled veteran worked mostly at another company, and 

the non-service-disabled veteran vice president controlled the firm. In 

2011, when the firm applied for VA verification again, the size of the 

firm was also questioned as it shared ownership or management with 

at least four different entities, including companies owned by a nonservice-disabled veteran minority owner. The company withdrew its 

application to be a VA verified SDVOSB. In total, the firm received 

about $21 million in SDVOSB set-aside and sole-source contracts 

from DOD, the General Services Administration (GSA), the 

Department of the Interior (DOI), the U.S. Department of Agriculture 

and the VA, $16 million of which were new SDVOSB set-aside and 

sole-source contract obligations. After VA denied the firm, the firm 

continued to self-certify as a SDVOSB in CCR and GSA, and DOI 

awarded the firm about $860,000 in new SDVOSB set-aside contracts 

obligations. This firm is currently listed as a SDVOSB in CCR, which 

allows the firm to compete for government-wide SDVOSB contracts.

• Multiple firms not veteran–controlled. A service-disabled veteran 

and two non-service disabled veteran co-owners owned two firms and 

a joint venture at the same location. VA found one of the firms 

ineligible. The operating agreements of two of the firms allowed the 

two minority owners to control the firms, rather than the servicedisabled veteran. Additionally, the joint venture, created by one of the 

firms, was also ineligible because the service-disabled veteran’s firm 

did not manage the joint venture and the contract work. Therefore, 
 

Page 23 GAO-12-697 SDVOSB Program

none of the three firms were eligible for the SDVOSB program. The 

three firms received over $91 million in SDVOSB set-aside and solesource contract obligations, about $18 million of which were new 

SDVOSB set-aside and sole- source contract obligations, from VA 

and the Department of Health and Human Services. The three firms 

have been removed from VA VetBiz. However, these firms are 

currently listed as SDVOSBs in CCR, which allows the firms to 

compete for government-wide SDVOSB contracts.

• Not service-disabled veteran–controlled. This firm is ineligible for 

the SDVOSB program because the veteran does not control the daily 

operations. The service-disabled veteran was not the Chief Executive 

Officer, and the firm’s operating agreement did not give the servicedisabled veteran the exclusivity to make decisions for the company. In 

addition, the service-disabled veteran owner lived 500 miles away 

from the firm, received only $12,000 compared to the non-servicedisabled veteran minority owner’s $88,000 salary, and failed to meet 

or communicate with subcontractors. This firm received about $37 

million in SDVOSB set-aside contract obligations, $446,000 of which 

were new SDVOSB set-aside contract obligations, from DOD and 

DOI. During the course of our work, SBA and VA found this company 

ineligible for the SDVOSB program. This firm no longer self-certifies 

as a SDVOSB in CCR. On May 25, 2012, SBA debarred the nonservice-disabled veteran and the firm, making them ineligible for 

further contracts with the federal government.

We were unable to substantiate allegations in a fifth case, but found 

evidence that the firm in question may be ineligible for the SDVOSB 

program because the service-disabled veteran owner may not spend 

sufficient time at the SDVOSB. The service-disabled veteran owner 

worked as an attorney at a legal services organization Monday through 

Friday about 40 hours a week, which could prevent the veteran from 

managing the day-to-day proceedings of the SDVOSB. This firm received 

about $25 million in new SDVOSB set-aside and sole-source contract 

obligations from VA and the Department of Transportation. This firm is

now listed as verified in VetBiz and is currently listed as a SDVOSB in 

CCR, which allows the firm to compete for government-wide SDVOSB 

contracts.

The DOD OIG likewise reported that DOD, which awarded about half of 

government-wide SDVOSB contracts in 2010, did not require adequate 

verification of contractor status before awarding contracts. After its review 

of DOD contracts awarded from October 2009 to July 2010, the OIG 
 

Page 24 GAO-12-697 SDVOSB Program

reported that $1.9 million in SDVOSB contracts went to firms that were 

not registered in CCR as SDVOSBs and $340.3 million went to 

contractors that potentially misstated their SDVOSB status.38

To address the vulnerabilities within the government-wide program 

caused by reliance on a self-certification process, we suggested in 2009 

that Congress consider providing VA with the authority and resources 

necessary to expand its SDVOSB eligibility verification process to all 

contractors seeking to bid on SDVOSB contracts government-wide. Such 

an action is supported by the fact that VA maintains the database 

identifying which individuals are service-disabled veterans and is 

consistent with VA’s mission of service to veterans. In 2011, legislation 

was also introduced and passed in the Senate requiring all agencies to 

use VA’s VetBiz for SDVOSB contract awards; this legislation has not 

become law. However, as shown by our current work, VA’s program 

remains vulnerable to fraud and abuse because the agency has been 

unable to accurately track the status of its efforts and because potentially 

ineligible firms remain listed in VetBiz. Consequently, VA’s ability to show 

that its process is successful in reducing the SDVOSBs program’s 

vulnerability to fraud and abuse remains an important factor in any 

consideration about the potential expansion of VA’s eligibility verification 

process government-wide. GAO has ongoing work that will, in part, 

examine some of the key issues that need to be addressed if VA’s 

verification program were to be implemented government-wide.

The OIG 

also found that DOD awarded 12 SDVOSB set-aside and sole-source 

contracts for a total of $11.5 million to six firms that VA rejected. The OIG 

went on to recommend that DOD create an SDVOSB verification 

program, but the agency disagreed, citing an absence of evidence 

indicating that such a program would produce a net benefit to eligible 

SDVOSBs, and that Congress had not provided DOD with either the 

resources or authority to establish such a system.

In 2009, we found that ineligible firms in 10 cases received $100 million in 

SDVOSB contracts and $300 million in other federal contracts.39

 

38DOD OIG, Inadequate Controls Over the DOD Service-Disabled Veteran-Owned Small 

Business Set-Aside Program Allow Ineligible Contractors to Receive Contracts, 2012-059 

(Feb. 29, 2012). 

We 

39GAO-10-108. 

Actions Taken against 

Ineligible Firms
 

Page 25 GAO-12-697 SDVOSB Program

referred all 10 of these cases to the appropriate agency OIGs. As of April 

2012, while none of the firms are currently suspended or debarred by the 

agencies that received our referrals,40

• The SBA OIG is proceeding with six open investigations. In addition, 

the SBA OIG has joined forces with other agency OIGs to pursue 

several cases. Specific details cannot be provided until the cases 

have been fully adjudicated.

 some actions have been taken:

• One individual related to a case is being prosecuted by the U.S. 

Attorney for wire fraud and fraud against the United States involving a 

contract valued at $1 million or more related to its misrepresentation 

as an SDVOSB. In addition, this individual and a related firm were 

suspended by the Department of Transportation for procurement 

fraud.

• One individual related to a case-study is being charged by the U.S. 

Attorney with conspiracy to commit wire fraud and forfeiture of his 

assets up to $400,000. This individual allegedly conspired to defraud 

the SBA and other government contractors by falsely representing his 

business as a service-disabled veteran-owned and operated 

business.

• Another case-study firm pled guilty to wire fraud in relation to 

fraudulently receiving Historically Underutilized Business Zone 

(HUBZone) federal contracts.41

Actions taken against firms that violate the SDVOSB program 

requirements should help protect the government’s interest and help 

discourage ineligible firms from abusing the SDVOSB program. As 

previously discussed, providing more emphasis on debarments and 

Our previous finding that the case was 

ineligible for the SDVOSB program, in conjunction with the firm’s 

admitting defrauding the HUBZone program, raises the concern of 

ineligible firms applying for multiple procurement programs.

 

40In 2011, GAO reported that SBA suspended four companies and three individuals 

associated with 2 of the 10 case-studies. Since then these suspensions have expired. 

41The HUBZone program was established to provide federal contracting preferences to 

small businesses operating in economically distressed communities. 
 

Page 26 GAO-12-697 SDVOSB Program

investigations could further help the government deter firms from 

attempting to fraudulently gain access to the SDVOSB program.

The SDVOSB program has provided billions of dollars in contracting 

opportunities to deserving service-disabled veterans. However, our body 

of work, along with work by the DOD OIG and VA OIG, has found that the 

program is vulnerable to fraud and abuse, which has allowed millions of 

dollars to be awarded to ineligible firms. The government-wide program 

remains particularly vulnerable since it relies on an honor-system-like 

process whereby firms self-certify their eligibility. VA has the only program 

within the government dedicated to verifying SDVOSB firms’ eligibility; VA 

also has responsibility for maintaining a database of service-disabled 

veterans and a listing of firms that are eligible for the SDVOSB program. 

Given VA’s mission of service to veterans, we previously suggested that 

Congress consider expanding VA’s program government-wide to employ 

more effective fraud-prevention controls over the billions of dollars 

awarded to SDVOSBs outside of VA. However, such action should not be 

undertaken until VA demonstrates that its verification process is 

successful in reducing the SDVOSB program’s vulnerability to fraud and 

abuse.

Furthermore, while the results of this most-recent assessment show that 

VA has made some progress in improving its verification process in 

response to the 2010 Act, it has made conflicting statements regarding 

the verification of firms and has been unable to accurately track the status 

of its efforts. These problems have resulted in thousands of potentially 

ineligible SDVOSBs receiving millions of dollars in sole-source and setaside contract obligations. By better managing its inventory of firms, 

maintaining the accuracy of firms’ status in VetBiz, and applying the 2010 

Act verification process to all firms, VA can be more confident that the 

billions of dollars meant to provide VA contracting opportunities to our 

nation’s service-disabled veteran entrepreneurs make it to the intended 

beneficiaries.

To minimize potential fraud and abuse in VA’s SDVOSB program and 

provide reasonable assurance that legitimate SDVOSB firms obtain the 

benefits of this program, we recommend that the Secretary of Veterans 

Affairs ensure that all firms within VetBiz have undergone its 2010 Act 

verification process. Specifically, this should include consideration of the 

following three actions: (1) inventory firms listed in VetBiz to establish a 

reliable beginning point for the verification status of each firm; (2) 

Conclusions

Recommendations for 

Executive Action
 

Page 27 GAO-12-697 SDVOSB Program

establish procedures to maintain the accuracy of the status of all firms 

listed in VetBiz, including which verification process they have undergone; 

and (3) expeditiously verify all current VetBiz firms and new applicants 

under the 2010 Act verification procedures.

We provided a draft of our report to VA and SBA for comment. In its 

written comments, reproduced in appendix I, VA stated that it concurred 

with our first two recommendations. It concurred “in principle” with the 

third, to verify all current VetBiz firms and new applicants under the 

processes implemented under the 2010 Act. With respect to this 

recommendation, VA noted that it implemented an interim rule on June 

27, 2012, that extends the eligibility of verified firms to 2 years. VA told us 

it interprets “verified” to include any firm that has been verified under 

either its 2006 or 2010 Act processes. Therefore, according to the interim 

final rule, as long as a firm is verified under either process and is in its 2-

year eligibility period, VA is only authorized to initiate a verification 

examination if it receives credible evidence calling into question a 

participant’s eligibility. Extending the eligibility period may allow VA to 

focus its efforts on more thoroughly verifying firms that were previously 

verified under its less-stringent 2006 Act process. However, the extension 

also allows thousands of firms to continue to be eligible for contracts even 

though they have not undergone the more thorough process. We 

acknowledge that VA has latitude under the law to modify its own 

regulations as necessary. However, the interim final rule in effect 

removes a backlog of firms and appears to be a self-created impediment 

delaying verification under the 2010 Act process. We remain convinced 

that the verification process utilized by VA prior to the 2010 Act process 

does not provide reasonable assurance that only eligible SDVOSBs 

participate in the program. Given this ongoing vulnerability to fraud and 

abuse, we continue to believe that VA should expeditiously verify current 

VetBiz firms and new applicants under the 2010 Act verification process. 

Despite these concurrences, VA commented that our report was 

misleading and inaccurate with respect to (1) our characterizations of a 

2011 VA OIG report, (2) conflicting statements made by VA, and (3) VA’s 

implementation of our previously issued recommendations. We disagree. 

First, VA stated that our use of the VA OIG’s 2011 report was misleading 

because the report examined a period when the VetBiz database 

included self-certified firms in addition to firms verified under the 

processes implemented under the 2006 Act. VA also claims the VA OIG 

report contains excessive extrapolations because it examined eligibility 

requirements beyond ownership and control. Specifically, VA notes that 

Agency Comments 

and Our Evaluation
 

Page 28 GAO-12-697 SDVOSB Program

14 of the 42 firms reviewed for the OIG report had been through the 

verification process VA used in response to the 2006 Act and claims that 

only 3 were determined to be ineligible based on ownership and control. 

VA’s statement is incomplete and misleading. According to the OIG, an 

additional 7 were determined to be ineligible for reasons that could be 

identified during a robust verification process. As a result, the OIG found 

10 of 14 firms verified under VA’s 2006 Act process to be ineligible—an 

eligibility failure rate comparable to the overall eligibility failure rate cited 

in the report. 

With regard to the aforementioned 7 firms, the OIG determined they were 

ineligible because they were engaged in improper subcontracting 

practices, such as “pass-through” contracts. Pass-through contracts occur 

when businesses or joint venture/partnerships list veterans or service 

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

programs requirements, the non-veteran owned business either 

performed or managed the majority of the work and received a majority of 

the contracts’ funds. Given that the firms being reviewed by the OIG 

already had existing contracts in place, the OIG was able to identify the 

pass-through contracts by conducting site visits and reviewing business 

documentation, the same steps that VA claims are taken during the 

verification process it implemented in response to the 2010 Act. While we 

acknowledge that it is difficult to identify pass-through contracts for 

applicants to the program who don’t have any preexisting contracts, VA 

should be conducting such a review for those firms that have contracts in 

place. As we have noted in past reports, VA’s fraud prevention controls 

should include detection and monitoring measures to assure that firms 

are completing the work required of an SDVOSB contract.

Second, VA disagrees that it provided numerous conflicting statements to 

us regarding its verification efforts, stating that the verification process 

has evolved and that VA faces technical limitations related to its casemanagement system. While we acknowledge these concerns, it is 

important to note that VA did not provide us with any explanation as to its 

evolving priorities during the course of our audit and instead repeatedly 

sent us contradictory information without any clarification. Moreover, not 

all of the conflicting statements VA made can be attributed to 

inadequacies in its case-management system or to evolving priorities. 

Specifically, the information we received during the course of our audit 

work changed so significantly over such a short period of time that the 

evidence GAO collected does not support VA’s assertion that it “knows 

how many firms have been verified” and can “track individual firms,” as 
 

Page 29 GAO-12-697 SDVOSB Program

VA claims in its agency comment letter. Examples of the conflicting 

statements we received include the following:

• Removal of firms: On April 23, 2012, VA told us that about 900 

SDVOSBs and VOSBs listed in VetBiz were targeted for removal 

because they had not been verified under the 2010 Act process. 

By April 27, 2012, this number increased to approximately 3,500 

SDVOSBs and VOSBs. On May 2, 2012, we received two more 

differing accounts of SDVOSBs and VOSBs targeted for removal--

2,660 firms and 2,646 firms--in the same email.

• Implementation of the 2010 Act process: On February 16, 

2012, VA told us that it continued to verify firms under the process 

implemented under the 2006 Act between January and May 2011. 

Then, on April 23, 2012, VA told us that it stopped verifying firms 

under its 2006 Act process in February 2011 and began 

verification under its 2010 Act process at the same time. Next, on 

May 12, 2012, VA told us that it stopped verifying firms under the 

2006 Act process in January 2011 and began verifying under the 

2010 Act at the end of December 2010. In the same 

communication, VA told us that no firm was approved under its 

2006 Act process after February 2011. But on May 21, 2012, VA 

sent us a list of firms and verification dates showing that multiple 

firms were last verified under its 2006 Act process past February 

2011, with at least two firms verified under iits 2006 Act process 

as late as May 2011.

Finally, VA stated it believed all previous GAO recommendations issued 

in October 2011 should be closed. For GAO to close a recommendation, 

it must be implemented or actions must have been taken that essentially 

meet the recommendation’s intent. Further, the responsible agency must 

provide evidence, with sufficient supporting documentation, that the 

actions are being implemented adequately. By the end of our audit work, 

we were able to close 6 of the 13 recommendations that we issued to VA 

in October 2011 based on documentation VA provided demonstrating that 

the agency had taken specific actions in response to our 

recommendations. Although VA indicated that it would like to close out 

the remaining recommendations, it either did not demonstrate that it had 

taken an action to implement a recommendation or did not provide the 

supporting documentation needed to show that the recommendation was 

in fact implemented. We had several discussions with VA staff about our 

requirements for closing recommendations, the last occurring on June 22, 

2012. Moreover, we noted in our report any progress VA has made with 
 

Page 30 GAO-12-697 SDVOSB Program

respect to each recommendation; the information VA provided in this 

letter had previously been acknowledged in our report. For the 7 

recommendations that remain open after the issuance of this report, we

will continue to seek from VA additional documentation necessary to 

demonstrate that implementation has occurred. At such time, we will 

close each recommendation, as appropriate. 

In addition, VA provided technical comments, which we addressed as 

appropriate. We provide annotated responses to VA’s more detailed 

comments in appendix I. 

In written comments received through e-mail, SBA stated that it is 

committed to eliminating fraud, waste, and abuse in all of its programs 

including the government-wide SDVOSB program. In addition, SBA 

stated that it maintains a “robust and thorough” protest and appeal 

process. However, as noted in our report, SBA’s bid-protest process 

alone—that is, without upfront eligibility verification and other related 

measures—cannot provide reasonable assurance that only legitimate 

firms are awarded SDVOSB contracts. In addition, five new case studies

developed for this report highlight instances of fraud and abuse. SBA 

disagreed with the draft report’s portrayal of actions taken against the 

firms that were the subject of the 10 case studies developed as part of 

our October 2009 report. We revised our report where appropriate. SBA 

also stated that it had taken actions against firms in addition to those cited 

in our case studies, but did not provide specific examples. Finally, SBA 

stated that it was implementing training to help its staff identify fraud and 

abuse and working to improve its referral process and collaboration with 

other agencies. Such efforts could help reduce the SDVOSB program’s 

vulnerability. However, these efforts would affect only SBA’s investigation 

and prosecution efforts, and not prevention, detection, and monitoring. If 

the government-wide program included measures to prevent, detect, and 

monitor fraud in the SDVOSB program, SBA could be more confident that 

the billions of dollars meant to provide contracting opportunities to our 

service-disabled veteran entrepreneurs make it to the intended 

beneficiaries.
 

Page 31 GAO-12-697 SDVOSB Program

We are sending copies of this report to interested congressional 

committees, the Administrator of SBA, the Secretary of Veterans Affairs, 

and other interested parties. The report is also available at no charge on 

the GAO website at http://www.gao.gov. 

If you have any questions concerning this report, please contact Richard 

J. Hillman at (202) 512-6722 or hillmanr@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report.

Richard J. Hillman 

Managing Director

Forensic Audits and Investigative Service
Appendix I: Comments from the Department of 

Veterans Affairs

Page 32 GAO-12-697 SDVOSB Program

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix. 

Page numbers in the draft 

report may differ from 

those in this report.

Appendix I: Comments from the Department 

of Veterans Affairs 
Appendix I: Comments from the Department of 

Veterans Affairs

Page 33 GAO-12-697 SDVOSB Program
Appendix I: Comments from the Department of 

Veterans Affairs

Page 34 GAO-12-697 SDVOSB Program
Appendix I: Comments from the Department of 

Veterans Affairs

Page 35 GAO-12-697 SDVOSB Program

See comment 1.

See comment 1.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 36 GAO-12-697 SDVOSB Program

See comment 2.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 37 GAO-12-697 SDVOSB Program

See comment 4.

See comment 3.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 38 GAO-12-697 SDVOSB Program
Appendix I: Comments from the Department of 

Veterans Affairs

Page 39 GAO-12-697 SDVOSB Program

See comment 5.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 40 GAO-12-697 SDVOSB Program

See comment 6.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 41 GAO-12-697 SDVOSB Program

See comment 5.

See comment 5.

See comment 5.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 42 GAO-12-697 SDVOSB Program

See comment 7.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 43 GAO-12-697 SDVOSB Program

See comment 9.

See comment 8.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 44 GAO-12-697 SDVOSB Program

See comment 12.

See comment 11.

See comment 10.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 45 GAO-12-697 SDVOSB Program

See comment 13.

See comment 13.

See comment 13.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 46 GAO-12-697 SDVOSB Program

See comment 15.

See comment 14.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 47 GAO-12-697 SDVOSB Program

See comment 16.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 48 GAO-12-697 SDVOSB Program

See comment 18.

See comment 17.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 49 GAO-12-697 SDVOSB Program

See comment 19.
Appendix I: Comments from the Department of 

Veterans Affairs

Page 50 GAO-12-697 SDVOSB Program

1. We clarified the report to indicate what the Department of Veterans 

Affairs (VA) Office of Inspector General (OIG) reported on its findings 

in 2011 and also to indicate that the report includes all firms in VetBiz, 

not just those verified under the Veterans Benefits, Health Care, and 

Information Technology Act of 2006 (2006 Act) process. The 

remainder of VA’s comments related to the OIG report are inaccurate, 

based on our review of the report and discussions with VA’s OIG staff. 

See the Agency Comments and Our Evaluation section of this report 

for more detail.

2. In the final report, we deleted the draft report’s discussion of 

information about the Center for Veterans Enterprise (CVE) being 

responsible for helping veterans who are interested in forming or 

expanding their own small businesses. 

3. Our report’s characterization of the Veterans Small Business 

Verification Act (2010 Act), part of the Veterans’ Benefits Act of 2010, 

is correct and we did not make associated changes to the report. 

While VA’s recommended change points out that VA removed firms 

that self-represented or had expired eligibility periods, these 

categories of firms are included by the “all unverified businesses” 

language in the existing report language. 

4. We deleted the sentence stating that SDVOSBs are required to 

receive a portion of government-wide contractual dollars annually. 

5. We have revised our draft report to note that according to VA, (1) the 

lack of a comprehensive case-management system has created the 

need for aggregate workarounds and resulted in inconsistent 

aggregate reporting, (2) the limitations of the case-management 

system make it difficult to track the inventory of firms, and (3) as the 

limitations of the case-management system increase over time, the 

potential of CVE to lose track of how many firms have been verified 

also increases. We also acknowledge VA’s assertion that its 

verification priorities have evolved over time. However, not all of the 

conflicting statements VA made can be attributed to inadequacies in 

its case-management system or to evolving priorities. One of the 

many examples relates to the December 2010 request for 

documentation mentioned in the 2010 Act. Specifically, on April 23, 

2012, VA told us that between late March 2012 and early April 2012 it 

had removed over 3,000 SDVOSBs and VOSBs because these firms 

had failed to provide requested business documentation. We asked 

whether the firms removed in April 2012 had been sent this request. 

In response, VA told us that the firms removed in April 2012 did not 

GAO Comments
Appendix I: Comments from the Department of 

Veterans Affairs

Page 51 GAO-12-697 SDVOSB Program

receive the December 2010 document. Then on May 12, 2012, VA 

told us the firms had in fact been sent the December 2010 letter. 

Later, on June 20, 2012, VA told us that it did not send the December 

2010 letter to all firms listed in VetBiz at the time to avoid a flood of 

applications. In its agency comments, VA states that the 2010 Act did 

not require it to send all firms listed in VetBiz in December 2010 a 

request for documentation if the firms had been verified under the 

2006 Act and this verification had not yet expired. 

6. We revised the text in our draft report to more-clearly reflect that 

thousands of SDVOSBs listed as eligible in VetBiz received millions of 

dollars in contract obligations even though they had not been verified 

under the more-thorough process that VA implemented in response to 

the 2010 Act. VA’s recommended changes also suggest that firms 

that were verified under the 2006 Act process could not be 

immediately reverified under the more-thorough 2010 Act process 

because, in addition to resource-allocation priorities, VA was limited 

by the requirements of 38 C.F.R. § 74.15(c). However, we note that 

VA has latitude under the law to modify its own regulations as 

necessary to ensure that only valid SDVOSBs are included in VetBiz. 

Furthermore, VA’s recent decision to amend 38 C.F.R. § 74.15 and 

extend the VetBiz eligibility term from 1 year to 2 years appears to be 

a self-created impediment to ensuring all firms expeditiously undergo 

the more-thorough 2010 Act process.

7. We revised the text in our report to reflect that the 2010 Act required 

VA to notify all unverified firms about the need to apply for verification. 

8. The language VA objects to concerning VA’s prioritization of 

verifications under the 2010 Act process is taken directly from 

documentation provided by VA during the course of our audit. 

Accordingly, we made no changes to the report.

9. The language VA objects to concerning removal of firms is taken 

directly from oral and written statements made by VA during the 

course of our audit. Accordingly, we made no changes to the report.

10. The firms mentioned in this footnote are related to one of the new 

cases we reviewed as a result of allegations we received from 

confidential informants. These firms were not verified under the 

process implemented under the 2010 Act and we determined that 

they were in fact ineligible for the SDVOSB program because the 

firms’ operating agreements allowed the two minority owners to 

control the firms, rather than the service-disabled veteran. These firms 
Appendix I: Comments from the Department of 

Veterans Affairs

Page 52 GAO-12-697 SDVOSB Program

received approximately $16 million in VA SDVOSB set-aside and

sole-source contract obligations from October 2010 to December 

2011. Accordingly, we made no changes to the report.

11. We revised our report to make clear that we were referring to 

verification using the processes implemented under the 2010 Act. 

12. We received conflicting statements from VA as to which firms 

received the December 2010 notification later and have revised the 

text to clearly reflect this fact. 

13. We revised the text in our report to more-clearly reflect that thousands 

of potentially ineligible firms remain listed in VetBiz because they have 

not been verified under the more-thorough process implemented for 

the 2010 Act. While these firms have been verified under the 2006 Act 

process, past audits show the potential risk of providing SDVOSB 

contracts to firms reviewed under this process. VA’s recommended 

change does not acknowledge this risk and is therefore incomplete. 

Moreover, our statements that were related to the number of firms not 

verified under the requirements of the 2010 Act, the dollar amounts 

those firms received, and the number of firms VA planned to remove 

were all supported by evidence and were accurate at the close of our 

audit work. We have clarified the report to indicate that fact and 

included information on the requirements of the interim final rule VA 

implemented on June 27, 2012. Specifically, in our final report we 

have noted that the rule extends a firm’s eligibility period for 2 years. 

We also note that VA interprets “verified” to include any firm that has 

been verified under either the 2006 Act or 2010 Act processes, 

meaning that this rule will allow thousands of firms to remain eligible 

for contracts even though they have not undergone the morethorough process implemented under the 2010 Act process. See the 

Agency Comments and Our Evaluation section of this report for a 

more-thorough discussion of this issue.

14. To this point, VA has not provided sufficient documentation to close 

the 7 recommendations that remain open. GAO will continue to work 

with VA to confirm the status of its efforts to address our 

recommendations and will close recommendations, as long as 

necessary supporting evidence is provided. 

15. Our report states that VA has made progress in the area of fraudawareness training. However, VA has not provided any 

documentation to show that fraud-awareness training is being 

provided on a regular basis, as we recommended. Our 
Appendix I: Comments from the Department of 

Veterans Affairs

Page 53 GAO-12-697 SDVOSB Program

recommendation will remain open until necessary evidence to close it 

is provided. Accordingly, we have not changed the language in our 

report.

16. The FAR and the VA Acquisition Regulations do not provide specific 

processes and criteria for the Debarment Committee on compliance 

with the requirement in the 2006 Act to debar, for a reasonable period 

of time, firms and related parties that misrepresented their SDVOSB 

status. VA should provide additional guidance to the Debarment 

Committee on the specific process and criteria to use to debar firms 

as required by the 2006 Act. Accordingly we have not changed the 

language in our report.

17. The recommendation requested that VA develop specific guidelines 

outlining the Debarment Committee's decision process to debar firms 

that misrepresent their SDVOSB status. VA needs to provide 

supporting documentation demonstrating that VA provided the 

Debarment Committee with the guidance outlining the decision 

process to debar firms that misrepresent their SDVOSB status. 

Accordingly, we have not changed the language in our report.

18. VA cites provisions of the FAR and the VA Acquisition Regulations 

containing guidance for continuing current contracts to firms that were 

found ineligible through the debarment process. However, our 

recommendation asked VA to develop procedures to remove 

SDVOSB contracts from ineligible firms. Accordingly, we have not 

changed the language in our report.

19. Our report acknowledges that VA advertises the debarments and 

prosecutions on the Debarment Committee, VA OIG, and CVE 

websites. However, our recommendation specifically asked for VA to 

formalize procedures to advertise debarments and prosecutions, and 

we have not received any documentation related to such procedures. 

Accordingly, we have not changed the language in our report.
Related GAO Products

Page 54 GAO-12-697 SDVOSB Program

Service-Disabled Veteran-Owned Small Business Program: 

Governmentwide Fraud Prevention Control Weaknesses Leave Program 

Vulnerable to Fraud and Abuse, but VA Has Made Progress in Improving 

Its Verification Process. GAO-12-443T. Washington, D.C.: February 7, 

2012.

Service-Disabled Veteran-Owned Small Business Program: Additional 

Improvements to Fraud Prevention Controls Are Needed. GAO-12-205T. 

Washington, D.C.: November 30, 2011.

Service-Disabled Veteran-Owned Small Business Program: Additional 

Improvements to Fraud Prevention Controls Are Needed. GAO-12-152R. 

Washington, D.C.: October 26, 2011.

Service-Disabled Veteran-Owned Small Business Program: Preliminary 

Information on Actions Taken by Agencies to Address Fraud and Abuse 

and Remaining Vulnerabilities. GAO-11-589T. Washington, D.C.: July 28, 

2011.

Department of Veterans Affairs: Agency Has Exceeded Contracting Goals 

for Veteran-Owned Small Businesses, but It Faces Challenges with Its 

Verification Program. GAO-10-458. Washington, D.C.: May 28, 2010.

Service-Disabled Veteran-Owned Small Business Program: Fraud 

Prevention Controls Needed to Improve Program Integrity. GAO-10-740T. 

Washington, D.C.: May 24, 2010.

Service-Disabled Veteran-Owned Small Business Program: Case Studies 

Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 

Dollars in Contracts. GAO-10-306T. Washington, D.C.: December 16, 

2009.

Service-Disabled Veteran-Owned Small Business Program: Case Studies 

Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 

Dollars in Contracts. GAO-10-255T. Washington, D.C.: November 19, 

2009.

Service-Disabled Veteran-Owned Small Business Program: Case Studies 

Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 

Dollars in Contracts. GAO-10-108. Washington, D.C.: October 23, 2009.

Related GAO Products

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