VETERAN-OWNED SMALL 

BUSINESSES

Planning and Data System 

for VA’s Verification 

Program Need 

Improvement

Statement of William B. Shear, Director 

Financial Markets and Community Investment 

Testimony

Before the Subcommittee on Contracting and the 

Workforce, Committee on Small Business, and 

the Subcommittee on Oversight and 

Investigations, Committee on Veterans’ Affairs, 

House of Representatives 

For Release on Delivery 

Expected at 2:00 p.m. EDT

Tuesday, March 19, 2013

GAO-13-425T 

United States Government Accountability Office

GAO 
 

Page 1 GAO-13-425T 

Chairmen Hanna and Coffman, Ranking Members Meng and Kirkpatrick, 

and Members of the Subcommittees:

I am pleased to be here to discuss the Department of Veterans Affairs’ 

(VA) efforts to verify the eligibility of veteran-owned small businesses 

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

(SDVOSB), to receive contracting preferences under VA’s Veterans First 

Contracting program.1 During fiscal year 2012, VA awarded $3.8 billion in 

contracts to SDVOSBs and VOSBs, which underscores the importance of 

ensuring the eligibility of those firms to receive contracting preferences.2

My statement is based on our January 2013 report on VA’s verification 

program.3

My testimony today addresses the (1) progress that VA has made in 

ensuring that its program verifies the eligibility of SDVOSBs and VOSBs 

on a timely and consistent basis, and (2) key operational and policy 

issues that VA will have to address if its verification program is expanded 

to support the government-wide SDVOSB contracting program. That 

During the period covered by our study—February 2012 to 

January 2013—VA was introducing significant changes to its verification 

procedures and operations. As a result, we determined that evaluating 

VA’s compliance with its past procedures would be of limited value and 

that testing the effectiveness of verification procedures that were still 

evolving would be premature. We focused instead on issues related to 

planning for and designing the verification program and on changes in the 

program’s management and operations.

 

1

VA established the Veterans First Contracting program in response to the Veterans 

Benefits, Health Care, and Information Technology Act of 2006. Pub. L. No. 109-461, § 502, 

120 Stat. 3403, 3431 - 3435 (codified as amended at 38 U.S.C. § 8127). The act requires 

VA to give preference in its small business contracting to SDVOSBs and VOSBs. It also 

gives the agency unique authority to make noncompetitive (sole-source) awards to these 

firms and to restrict competition for awards to them (set-asides). Along with establishing VA’s 

contracting preferences, the 2006 Act makes VA responsible for maintaining a database of 

SDVOSBs and other VOSBs. The act requires VA to verify that all firms entered in the 

database are actually owned and controlled by one or more veterans and to confirm the 

status of any owner who indicates a service-connected disability.

2

Our analysis of fiscal year 2012 data reflects data input into the Federal Procurement Data 

System—Next Generation (FPDS-NG) as of February 2013. Because agencies enter and 

revise data in FPDS-NG on an ongoing basis, the results reported here may differ from the 

Small Business Administration’s official fiscal year 2012 report on federal agencies’ 

achievement of small business goals, which will be released later in fiscal year 2013. 

3

See GAO, Veteran-Owned Small Businesses: Planning and Data System for VA’s 

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

 
 

Page 2 GAO-13-425T 

program, which is administered by the Small Business Administration 

(SBA), authorizes other federal agencies to award set-aside or solesource contracts up to certain dollar thresholds to firms that self-certify as 

SDVOSBs.4

In summary, the two key findings from our January 2013 report are:

• VA has instituted a number of significant changes to its verification 

processes to improve and address program weaknesses but 

continues to face challenges in its efforts to establish a stable and 

efficient program to verify firms on a timely and consistent basis. 

These challenges are directly related to shortcomings in strategic 

planning and data systems for the verification program. Specifically, 

we noted that the plan lacked performance measures to assess 

whether the desired outcomes were being achieved and had a shortterm focus not typically associated with a strategic plan. Additionally, 

we found that VA’s data system did not collect important data and had 

limited reporting and workflow management capabilities.

• Expanding VA’s verification program to support the government-wide 

SDVOSB contracting program would require VA to improve its 

verification process and address a number of operational and policy 

issues.

To improve the management and oversight of VA’s SDVOSB and VOSB 

verification program, our January 2013 report made two 

recommendations addressing strategic planning and data system needs. 

VA concurred with the two recommendations and stated that it had 

actions under way that would address them.

For our January 2013 report, we reviewed relevant statutes, regulations, 

procedures, and planning and organizational documents. As we were 

completing our review in late October 2012, VA prepared an initial 

strategic planning document for the verification program in response to 

our inquiries. We compared that document to six leading practices 

 

4

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

(codified at 15 U.S.C. § 657f).
 

Page 3 GAO-13-425T 

relevant to agencies’ initial strategic planning efforts.5 We also 

interviewed VA officials and representatives from three veteran service 

organizations and a technical assistance association that were 

participating in an outreach program VA had launched to assist applicant 

firms. We reviewed our prior work on the verification program and a report 

from VA’s Office of Inspector General. We developed rough order-ofmagnitude estimates of how many more SDVOSBs might seek 

verification if it were required government-wide beyond those firms that 

VA had already verified or was in the process of verifying as of 

September 30, 2012.6 Further, because of SBA’s role in administering the 

government-wide SDVOSB program, we reviewed SBA documents and 

interviewed SBA staff. Our work was performed in accordance with 

generally accepted government auditing standards. 

Since December 2011, VA has instituted a number of significant changes 

that are designed to improve its operations and address program 

weaknesses. These changes include:

• revising its Standard Operating Procedures to help ensure greater 

consistency in its verification process and instituting a more robust 

quality assurance process;

• increasing the number of employees and contractors assigned to the 

verification process to about 28 full-time equivalent employees and 

174 contractors as of October 2012;

 

5

We have reported in the past that, taken together, the strategic planning elements 

established under the Government Performance and Results Act of 1993 and associated 

Office of Management and Budget guidance, and practices identified by GAO provide a 

framework of leading practices in federal strategic planning. The six leading practices that 

have been identified as being the most relevant to VA’s initial strategic planning efforts are 

(1) defining the mission and goals; (2) defining strategies that address management 

challenges and identifying resources needed to achieve goals; (3) ensuring leadership 

involvement and accountability; (4) involving stakeholders; (5) coordinating with other 

federal agencies; and (6) developing and using performance measures. 

6

Specifically, our estimation method relied on the number of SDVOSBs listed in the 

Central Contractor Registration database that had not been verified by VA and were not in 

the process of being verified. Next, we determined whether or not these self-certified 

SDVOSBs had received contracts from agencies other than VA in fiscal years 2010 or 

2011 using FPDS-NG.

VA Has Made Changes 

to Improve Its 

Verification Program 

but Continues to Face 

Challenges in Its 

Strategic Planning 

and Information 

Technology Efforts
 

Page 4 GAO-13-425T 

• launching a new Verification Counseling program that trains partner 

organizations to provide counseling to firms interested in becoming 

verified;

• extending the term of a firm’s verification status from 1 to 2 years and 

introducing simplified procedures for reverifying firms that have 

already passed a full verification examination to mitigate an expected 

increase in its workload; and

• forming a senior executive task force in June 2012 to review the 

verification program, determine whether it has sufficient resources 

and support, and present recommendations in the second quarter of 

fiscal year 2013.

Despite the steps that it has taken since December 2011, VA has 

consistently placed a higher priority on addressing immediate operational 

challenges than on developing a comprehensive, long-term strategic 

focus for the verification program—an approach that has contributed to 

programmatic inefficiencies. As of October 2012, when we were 

completing our review, VA had not created a formal strategic plan for the 

verification program. In response to our observations, VA initiated action 

in late October 2012 to compile a strategic planning document for the 

verification program. In this initial strategic planning effort, VA appears to 

have at least partially applied six key leading strategic planning practices. 

We believe that fully implementing these leading practices would make 

the plan more useful. Specifically, we noted that the plan identified goals 

and objectives, but some of these were worded so broadly that it would 

be difficult to assess whether they had been met. For example, one longterm objective is establishing and sustaining a “best in show” operation. 

But VA’s strategic plan does not define such an operation or provide any 

criteria or associated metrics to determine whether it has been achieved. 

Also, VA has not shared the plan with key stakeholders, such as veteran 

support organizations, business associations, and congressional staff and 

committees. As a result, VA has missed an opportunity to make the 

verification program’s plans and priorities transparent and to facilitate 

continued stakeholder involvement. Further, the plan lacks performance 

measures to assess whether the desired outcomes were being achieved 

and has a short-term focus of 2 to 3 years that is not typically associated 

with a strategic plan. Without a longer-term perspective, the current 

strategic plan serves more as a short-term management plan than as a 

forward-looking guide to help frame the verification program’s future 

needs and direction.
 

Page 5 GAO-13-425T 

Since the verification program began in 2008, VA has relied on data 

systems that it developed on an incremental, ad hoc basis in response to 

immediate needs, without an overarching plan or vision and without 

centralized oversight by VA’s Office of Information and Technology.7

To improve the management and oversight of VA’s SDVOSB and VOSB 

verification program, our January 2013 report recommended that VA

As a 

result, the current system has shortcomings that have required VA to 

develop inefficient workarounds in order to operate and oversee the

verification program. For example, because the data system does not 

meet VA’s needs for assigning and monitoring the progress of 

applications, supervisors use separate spreadsheets to track the status of 

applications as their teams review them, increasing the risk that data will 

not be completely or accurately recorded across systems. Furthermore, 

the verification program’s current data system lacks certain data fields 

and reporting capabilities needed to provide key information for program 

management. VA began formally planning in July 2012 to modify or 

replace the system, a process that the Office of Information and 

Technology will manage. But this planning effort had not been tied to 

broader long-term strategic planning to better ensure that the resulting 

system meets the verification program’s long-term information needs and 

goals. Without tying that effort to long-term strategic planning, VA risks 

failing to meet the program’s information needs going forward.

• continue to develop, refine, and implement a formal strategic plan to 

provide a comprehensive framework to guide, integrate, and monitor 

the verification program’s activities over time (including incorporating 

longer-term goals, objectives, and outcome measures for the 

verification program and sharing the plan with key stakeholders); and

• integrate its efforts to modify or replace the verification program’s data 

system with the broader programwide strategic planning effort to 

ensure that the new system not only addresses the short-term needs 

of the program but also can be readily adapted to meet long-term 

needs.

 

7

We have previously reported that an agency must have relevant, reliable information to 

run and control its operations. More specifically, we have noted that pertinent information 

should be identified, captured, and distributed to the right people in sufficient detail, in the 

right form, and at the appropriate time to enable them to carry out their duties and 

responsibilities efficiently and effectively. GAO, Internal Control Management and 

Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
 

Page 6 GAO-13-425T 

VA concurred with the two recommendations and stated that it had 

actions under way that would address them. For example, VA indicated 

that it anticipated submitting a strategic plan for the verification program 

to the Office of the Secretary in fiscal year 2013 and would develop a 

schedule to brief VA senior leaders and other key stakeholders once the 

plan is approved. VA also noted that it had begun the process of 

replacing the verification program’s data system.

Expanding VA’s verification program to support the government-wide 

SDVOSB contracting program would require VA to increase the scale of 

its program to verify potentially thousands of additional firms.8 Beyond 

those firms that VA has already verified or was in the process of verifying 

as of September 30, 2012, we estimated that between about 3,600 and 

16,400 more self-certified SDVOSBs might seek verification under a 

government-wide program.9

Because VA would face additional operational challenges in preparing to 

verify potentially thousands of additional firms, it needs to continue to 

address existing program weaknesses. For example, we reported in 

August 2012 that VA had taken some positive actions to enhance its 

fraud prevention efforts, such as formalizing a process for conducting 

Thousands more existing but unverified and 

new SDVOSBs could eventually register and seek verification if it were 

required.

 

8

Considering the risk of awarding contracts under the government-wide SDVOSB program 

to self-certified firms that are ineligible or deliberately misrepresenting their SDVOSB 

status, in 2009 we suggested 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. GAO, ServiceDisabled 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). For purposes of our January 2013 report, we were 

asked to consider steps necessary for VA to expand its verification program governmentwide. Accordingly, we did not evaluate whether another agency, such as SBA, could or 

should assume responsibility for such a program. Also, we focused only on SDVOSBs 

(not all VOSBs), because they are the subject of government-wide contracting goals and 

preferences and because a recent legislative proposal for a government-wide verification 

program applied only to them.

9

The estimate of 3,600 firms is based on the number of self-certified SDVOSBs that 

received contract obligations from agencies other than VA in fiscal years 2010 or 2011 

(the last full fiscal year available), according to FPDS-NG. The estimate of 16,400 firms 

includes those 3,600 firms and another 12,800 self-certified SDVOSBs that did not receive 

contract obligations in fiscal years 2010 or 2011, according to FPDS-NG. 

Expanding Its 

Verification Program 

Government-wide 

Would Require VA to 

Make Further 

Improvements and 

Address Policy Issues
 

Page 7 GAO-13-425T 

unannounced site visits to firms identified as high risk during the 

verification process. However, VA has not fully implemented 7 of the 13 

recommendations we made in October 2011, including providing regular 

fraud-awareness training to VA verification and contracting personnel and 

removing contracts from ineligible firms.10

In our January 2013 report, we noted that VA had begun a process to 

revise the verification program’s regulations that would likely serve as the 

starting point if VA were charged with implementing a government-wide 

verification program. VA officials said that they were planning to revise 

the regulations partly in response to applicants’ and veterans’ 

organizations’ concerns about VA’s eligibility standards. For example, two 

veterans’ organizations that we interviewed questioned VA’s requirement 

that veteran owners be able to transfer their ownership interest without 

restriction by nonveteran owners, effectively suggesting that VA’s 

standard for establishing control of a firm is too strict. VA officials said that 

they would weigh this concern and others as they developed proposed 

revisions to the regulation.

Without implementing these 

recommendations, VA’s program for awarding contracts to servicedisabled and other veteran-owned small businesses remains vulnerable 

to the fraud and abuse that could result in contracts being awarded to 

ineligible firms. In addition, VA has not determined whether recent 

operational changes have resulted in improved performance or whether 

its new methods for educating applicants have been effective. It has also, 

as noted earlier, not addressed limitations to its data system that hinder 

its ability to operate and oversee the program. 

However, as we concluded in our January 2013 report, any changes to 

VA’s verification requirements could create or widen differences between 

the various government-wide small business contracting programs’ 

 

10GAO, Service-Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud 

and Abuse Remains, GAO-12-697 (Washington, D.C.: Aug. 1, 2012). We are reviewing 

documentation that VA submitted on February 28, 2013, to determine if VA’s actions taken 

to address some of our prior recommendations are sufficient to consider them 

implemented.
 

Page 8 GAO-13-425T 

requirements and VA’s.11 Some veterans’ organizations and others with 

whom we spoke have cited perceived differences between VA’s eligibility 

standards and SBA’s standards for the government-wide SDVOSB 

program and the 8(a) program for economically disadvantaged small 

businesses, whose certification process is most similar to VA’s verification 

program. Initially, VA and SBA officials told us that they had not found 

major differences in the programs’ regulatory eligibility requirements, the 

agencies’ interpretation of them, or the documentation requirements for 

verification. However, in commenting on a draft of our January 2013 

report, SBA said that while the wording of the regulations pertaining to 

eligibility requirements was comparable, some key differences existed in 

the way the agencies interpreted them. SBA also noted that the agencies 

were consulting with one another to determine whether those differences 

could or should be resolved.12

Going forward, any unilateral changes to VA’s verification policies and 

procedures could make aligning small business contracting programs more 

difficult. VA officials told us that the tension between competing calls for VA 

to ease its requirements and to be consistent with the government-wide 

SDVOSB and 8(a) programs would be a major consideration as VA 

continued making changes to its regulations, particularly in light of the 

potential for expanding VA’s program government-wide. Accordingly, the 

officials said that they were consulting with SBA as they developed 

changes to VA’s verification program regulation.

 

11In addition to the government-wide SDVOSB program, federal contracting preference 

programs give federal agencies the authority to set aside contracts for small business 

concerns and specific types of small businesses: women-owned small businesses, 

businesses located in historically underutilized business zones (HUBZone), and socially 

and economically disadvantaged small businesses participating in SBA’s 8(a) program. 

While the SDVOSB and women-owned small business programs allow firms to self-certify 

their eligibility, SBA reviews supporting documentation to certify HUBZone and 8(a) firms, 

with the 8(a) program requiring more extensive documentation similar to what is required 

under VA’s verification program.

12SBA also noted a distinction regarding ownership by spouses of disabled veterans. By 

statute, firms owned and controlled by surviving spouses of deceased veterans may be 

eligible for verification by VA (38 U.S.C. § 8127(h)), but they are not eligible under SBA’s 

regulations for the SDVOSB program. 
 

Page 9 GAO-13-425T 

Chairmen Hanna and Coffman and Ranking Members Meng and 

Kirkpatrick, this concludes my prepared statement. I would be happy to 

answer any questions at this time.

If you or your staff have any questions about this statement, please 

contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this statement. Key contributors to this testimony include 

Harry Medina, Assistant Director; Emily Chalmers, Julianne Dieterich, 

Julia Kennon, and John McGrail.

GAO Contacts and 

Staff 

Acknowledgments

(250707)
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

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

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537.

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Please Print on Recycled Paper.