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THE IRS CONTRACTS WITH STRONG CASTLE, INC. 

HEARING 

BEFORE THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JUNE 26, 2013 

Serial No. 113–43 

Printed for the use of the Committee on Oversight and Government Reform 

( 

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

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on June 26, 2013 ............................................................................... 1 

WITNESSES 

Mr. Brad Flohr, Senior Advisor for Compensation Service, Veterans Benefits 

Administration, U.S. Veterans Administration 

Oral Statement ................................................................................................. 7 

Written Statement ............................................................................................ 10 

Mr. Michael A. Chodos, Associate Administrator, Office of Entrepreneurial 

Developmnet, U.S., U.S. Small Business Administration 

Oral Statement ................................................................................................. 25 

Written Statement ............................................................................................ 27 

Ms. Beth Tucker, Deputy Commissioner for Operations Support, Internal 

Revenue Service 

Oral Statement ................................................................................................. 32 

Written Statement ............................................................................................ 34 

Mr. William A. Sisk, Acting Deputy Commissioner, Federal Acquisition Service, General Services Administration 

Oral Statement ................................................................................................. 39 

Written Statement ............................................................................................ 41 

Mr. Braulio Castillo, President and Chief Executive Officer, Strong Castle, 

Inc. 

Oral Statement ................................................................................................. 44 

Written Statement ............................................................................................ 46 

APPENDIX 

U.S. Small Business Administration, Notice of final Decertification .................. 96 

(1) 

THE IRS CONTRACTS WITH STRONG CASTLE, 

INC. 

Wednesday, June 26, 2013 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The committee met, pursuant to call, at 9:04 a.m., in Room 2154, 

Rayburn House Office Building, Hon. Darrell E. Issa [chairman of 

the committee] presiding. 

Present: Representatives Issa, Mica, Duncan, Jordan, Walberg, 

DesJarlais, Gowdy, Woodall, Meadows, Bentivolio, DeSantis, 

Cummings, Maloney, Norton, Tierney, Connolly, Duckworth, Kelly 

and Davis. 

Staff Present: Alexia Ardolina, Assistant Clerk; Jen Barblan, 

Counsel; Kurt Bardella, Senior Policy Advisor; Richard A. Beutel, 

Senior Counsel; Will L. Boyington, Press Assistant; Molly Boyl, 

Senior Counsel and Parliamentarian; Lawrence J. Brady, Staff Director; Ashley H. Callen, Senior Counsel; Steve Castor, General 

Counsel; Drew Colliatie, Professional Staff Member; John 

Cuaderes, Deputy Staff Director; Carlton Davis, Senior Counsel; 

Kate Dunbar, Professional Staff Member; Adam P. Fromm, Director of Member Services and Committee Operations; Linda Good, 

Chief Clerk; Tyler Grimm, Senior Professional Staff Member; 

Christopher Hixon, Deputy Chief Counsel, Oversight; Justin 

LoFranco, Digital Director; Mark D. Marin, Director of Oversight; 

Ashok M. Pinto, Chief Counsel, Investigations; Laura L. Rush, 

Deputy Chief Clerk; Jonathan J. Skladany, Deputy Chief Counsel, 

Investigations; Rebecca Watkins, Deputy Director of Communications; Meghan Berroya, Minority Counsel; Susanne Sachsman 

Grooms, Minority Chief Counsel; Jennifer Hoffman, Minority Press 

Secretary; Elisa LaNier, Minority Deputy Clerk; Dave Rapallo, Minority Staff Director; and Donald Sherman, Minority Counsel. 

Chairman ISSA. The committee will come to order. The Oversight 

Committee’s mission statement is that we exist to secure two fundamental principles: First, Americans have a right to know that 

the money Washington takes from them is well spent; and second, 

Americans deserve an efficient, effective government that works for 

them. 

Our duty on the Oversight and Government Reform Committee 

is to protect these rights. Our solemn obligation is to hold government accountable to taxpayers, because taxpayers have a right to 

know what they get from their government. It is our job to work 

tirelessly in partnership with citizen watchdogs to deliver the facts 

2 

to the American people and bring genuine reform to the Federal 

bureaucracy. 

A few days ago the acting IRS Commissioner, Danny Werfel, 

issued a 30-day assessment on his plan of action for the future of 

the IRS. The report stated that in many instances across the IRS, 

we had efficient, effective management, or effective management 

that is leading positive organizational performance. 

Unfortunately, we are here today because failures within the IRS 

are not isolated to just Tax-Exempt Division. The revelation that 

a company called Strong Castle was able to acquire more than 

$500 million in potential contracts, or in contracts for potential 

sales, with no previous track record completely undermines the IRS 

narrative that just one branch or department within the IRS failed 

the American people. 

Our report, we believe, shows a cozy relationship between Strong 

Castle’s president and the IRS Deputy Director for Information 

Technology Acquisitions, Greg Roseman, and it is the heart of this 

issue. Included in the—included in our report are exchanges of text 

messages that we believe are shockingly inappropriate, and in 

some cases offensive. 

Furthermore, the fact that Mr. Castillo was able to successfully 

manipulate the system—and we are not alleging a crime—but successfully manipulate the system to acquire contracts exposes staggering vulnerability in the IRS’s acquisition process and jeopardizes billions of taxpayer dollars in this situation. 

Quite frankly, we are not sure that we have criminal element 

here, that we have criminal violations. What we are sure of is that 

the intent of Congress and the stated intent of this and each administration before has been thwarted. 

The intention of, without a doubt, that disabled military veterans 

receive preference flies in the face of a small injury in 1984 while 

attending the Military Academy Prep School, one so minor that it 

had no effect on college football participation for years to follow, 

and that took 27 years to conveniently ask to have this put in as 

a disability not because of a true disability or inability to perform 

a job, but, in fact, in order to qualify for a preference statement. 

Additionally, the use of HUBZones, and in this case one that was 

a legacy HUBZone that actually the Verizon Center and the other 

parts of Washington, D.C., are moving out of that into thriving 

areas; the use of that in order to gain a contract and then creating 

absolutely no jobs within that district that were directly related to 

or in support of this $500 million contract. 

Our investigation is still in its infancy. Today we are working 

with the IG and hope to work with others within the IRS to end 

this problem. As we speak, many of these contracts continue to be 

in force. And perhaps that’s the most distressing is that the IRS 

officials immediately—excuse me—initially denied and then repeated their denial that there was a problem. They failed to take 

action after this was brought to their attention, and the IRS is still 

allowing a $266 million contract with Strong Castle to stand. 

The action by the inspector general when he was notified of these 

allegations almost a year ago was a lack of urgency that the American taxpayers deserve. 

3 

In our evaluation we find no value added performed by Strong 

Castle. I repeat, no value added performed by Strong Castle, although profits flow to that company over and above the full payment to the companies who actually provide the IRS with those 

services. 

No hearing related to the IRS would be complete without mentioning that under Obamacare, the task of the IRS to implement 

at least 47 new provisions, including 18 new taxes expected to raise 

$1 trillion over the next decade, and the hiring of thousands of new 

employees, the need for computer systems to work and work accurately begs the question of can we afford to implement Obamacare 

if we cannot get the systems and controls in place for existing requirements. 

Just this year the IRS has requested nearly $500 million, the 

same amount of money the IRS plans to award to Strong Castle, 

to enforce Obamacare, including 2,000 new full-time employees. 

We are not trying to say that one is interchangeable with the 

other, but it’s very clear this is a lot of money, and it’s a lot of 

money that could for a fraction, 2 or 3 or 4 percent savings, be 

passed on to the American people. 

Often on this dais we applaud, appropriately, Federal workers. 

And I want to take a moment to make it clear the vast majority 

of people involved in contracting in the Federal workforce take contracting seriously. They scrutinize the contracts and most often try 

to get the best value for the taxpayer. Because the best value is 

not always the lowest price, this is a difficult job, and it requires 

absolute integrity. If we do not have full confidence in our procurement integrity, then we must choose the lowest price. The lowest 

price is not always the best value for the taxpayer, but the analytics of lowest price versus lowest value depends on an independent, non cozy relationship between the contracting officers and 

their superiors and the contractor. This committee has over the 

years applauded and will continue to applaud that most contracts 

have that characteristic. They are not always awarded the way contractors would like, but they are based on best value to the taxpayer. 

In this case, at least for this chair and our draft report, we don’t 

believe that occurred, and that is the reason that we are continuing 

our investigation. 

Chairman ISSA. I would now like to recognize and thank the 

ranking member for being my full partner in this investigation. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. And I 

want to, first of all, thank you for calling this hearing. It is indeed 

a very important hearing. 

And it is interesting, this hearing is to examine allegations 

against a company named Strong Castle, Inc., that has been 

awarded $51 million in obligations under information technology 

contracts with the Internal Revenue Service. The first allegation 

made against Strong Castle last December was that the company’s 

owner, a local businessman from northern Virginia named Braulio 

Castillo, took improper advantage of the Historically Underutilized 

Business Zone program, the HUBZone, while setting up his companies here in Washington, D.C. 

4 

Let me say from the outset that I have a tremendous interest in 

HUBZones. I have lived in what would consider to be a HUBZone 

for 32 years in the same house, where I would imagine that black 

unemployment, male unemployment, is probably 35 percent unemployment; where businesses struggle trying to become a part of this 

economy and trying to do well. And I have lived long enough and 

seen enough to be able to tell you that I have worked with a lot 

of those small business people who have felt quite often that they 

weren’t on the playing field. As a matter of fact, they felt that they 

weren’t even in the stadium. And they have lived long enough and 

struggled long enough, and now I have seen many of them die 

chasing a dream, trying to get there, looking for a playing field that 

is simply level, but they can’t even get on the field. 

And so the purpose of the HUBZone program is to help small 

businesses increase employment, investment in economic development in historically underutilized business areas. As part of this 

program, which is overseen by the Small Business Administration, 

companies may receive preferred status when bidding on Federal 

contracts. 

In order to qualify, Mr. Castillo opened one small office in a 

HUBZone near Chinatown, the Chinatown neighborhood of Washington, D.C. He then worked with the head football coach at Catholic University, his former college roommate, to hire college students 

living in a different HUBZone near that school. 

Mr. Castillo’s former employer and current competitor, Government Acquisitions, Inc., filed protests with SBA and the Government Accountability Office. The company accused Mr. Castillo of 

engaging in, ‘‘shell game,’’ with multiple businesses and employees. 

It also accused him of, ‘‘manipulating the facts to gain the preferred status.’’ 

SBA investigated these allegations and decertified Mr. Castillo’s 

company as a HUBZone contractor on May 23rd, 2013. I ask unanimous consent that the SBA’s decertification letter be placed into 

the hearing record. 

Chairman ISSA. Without objection, so ordered. 

Mr. CUMMINGS. Thank you, Mr. Chairman. 

SBA determined that Mr. Castillo’s company submitted employee 

records that were, ‘‘false and inaccurate.’’ It also concluded that the 

company, ‘‘does not have the adequate internal controls to independently verify employee records.’’ 

Despite these findings, I credit Mr. Castillo for appearing before 

the committee today. He participated in a 9-hour interview with 

committee staff, he provided documents to us and to SBA, and he 

is here to explain his actions. A committee staff also conducted extensive interviews with almost all of his employees. 

Another major allegation involves Mr. Castillo’s personal relationship with an IRS employee named Greg Roseman. Mr. Roseman did not disclose his relationship to the contracting officers who 

awarded contracts to Strong Castle, to his direct supervisor at the 

IRS, or to the IRS Office of General Legal Services. This certainly 

concerns everybody on this dais. 

Mr. Roseman was not the contracting officer ultimately responsible for awarding the contracts to Mr. Castillo’s company, but he 

5 

participated in the contracting process as a voting member of the 

Contracting Review Board for two of these contracts. 

No IRS officials reported having any knowledge of Mr. Castillo’s 

relationship with Mr. Roseman. In addition, no contracting officials 

or other IRS employee interviewed by the committee reported any 

inappropriate influence by Mr. Roseman on the contracting process; 

nevertheless, the evidence obtained by the committee indicates at 

least an appearance of impropriety because Mr. Roseman did not 

disclose this relationship or recuse himself from the contracting 

process. 

Regarding their personal relationship, Mr. Castillo stated during 

his interview with the committee staff, ‘‘Greg Roseman and I are 

friends’’ 

In addition, on May 15, 2013, the Treasury Inspector General for 

Tax Administration reported that Mr. Castillo and Mr. Roseman 

had exchanged text messages on their personal cellphones that, 

‘‘contained inappropriate language and lacked professional decorum.’’ Three hundred of these text messages included both workrelated and personal communications. They also included obviously 

inappropriate communications with juvenile and offensive homosexual slurs and mocking references to another IRS employee. 

Mr. Roseman has been reassigned pending the completion of the 

inspector general’s review and is no longer overseeing procurement 

matters. Earlier this week his attorney wrote to the committee indicating that Mr. Roseman is invoking his Fifth Amendment right 

not to testify today. I am not here to defend his actions, but this 

is his right under the Constitution, and as Members of Congress 

we are bound to respect that right. 

And just one other note. The chairman talked about the tremendous responsibility that the IRS will now—has been facing with regard to the Affordable Care Act. And I have said it from this dais 

before, but I will say it again: We, all of us, everybody up here has 

fired people, all of us. And bad actors does not stop the show. This 

is the United States of America. We have problems in an institution, and if people are not doing their jobs, they have to go, but 

that doesn’t mean that the law, the law, the Affordable Care Act, 

should not and cannot be administered by that agency. 

We are a can-do Nation. We are a can-do Nation, and it is part 

of our obligation, all of us, to make sure, as the chairman has said, 

that we put right this ship and make sure that it sails so that it 

can accomplish the things that the Congress had voted for, and 

that we have stood up for, and that is the law. 

And with that, Mr. Chairman, I look forward to hearing from our 

witnesses, and I yield back. 

Chairman ISSA. I thank the gentleman. 

Chairman ISSA. All Members will have 7 days to submit opening 

statements for the record. 

Chairman ISSA. And we now recognize our panel. 

Mr. Brad Flohr is Senior Advisor for Compensation Service for 

the Veterans Benefits Administration at the U.S. Veterans Administration. 

Mr. Michael Chodos—— 

Mr. CHODOS. Yes. 

6 

Chairman ISSA. —is the Associate Administrator of the Office of 

Entrepreneurial Development at the U.S. Small Business Administration. 

Ms. Beth Tucker is the Deputy Commissioner for Operations 

Support at the Internal Revenue Service. 

Mr. Gregory Roseman is the Deputy Director for Enterprise Networks and Tier Systems Support at the Internal Revenue Service. 

And I believe that is a previous title, but we will use it for now. 

Mr. William A. Sisk is the Deputy Commissioner for Federal Acquisition Services at the General Services Administration, or GSA. 

Welcome. 

And Mr. Braulio Castillo is the president and chief executive officer of Strong Castle. 

Pursuant to the committee regulations, would you please all rise, 

raise your right hands to take the oath. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth and nothing but 

the truth? 

Let the record reflect—please be seated. Let the record reflect 

that all witnesses answered in the affirmative. 

Before I continue, and because this committee is acutely aware 

that one or more on the panel may choose to assert their Fifth 

Amendment rights, and because this chair does not want to have 

anyone waive that right accidentally, involuntarily or in any other 

way, does anyone here at this time intend to evoke their Fifth 

Amendment rights? 

Mr. Roseman? 

Mr. ROSEMAN. Yes, sir. I do intend to waive my Fifth—I intend 

to invoke my Fifth Amendment right to be silent. 

Chairman ISSA. Mr. Roseman, you have not provided any written 

testimony today; is that correct? 

Mr. ROSEMAN. Yes, sir. 

Chairman ISSA. Okay. I understand from your counsel that you 

may want to assert your constitutional privileges, and you’ve already said that’s correct. 

Mr. Roseman, today’s hearing will cover topics including waste, 

fraud and abuse of government contracting set-asides. As Deputy 

Director, Enterprise Networks and Tier Systems Support at the Internal Revenue Service, you are uniquely qualified to provide testimony that will help the committee better understand information 

technology acquisition practices at the IRS. To that end, I once 

again must ask you to consider answering questions that will bear 

on that subject with us. 

Mr. Roseman, what is your title at the IRS? 

Mr. ROSEMAN. Mr. Chairman, my title is what is—was Deputy 

Director of Enterprise Networks and Tier Systems Procurement. 

Chairman ISSA. Mr. Roseman, to whom do you report at the IRS? 

Mr. ROSEMAN. Mr. Chairman, on the advice of counsel, I respectfully decline to answer any questions, and invoke my Fifth Amendment privilege to remain silent. 

Chairman ISSA. Would you do that once again? I apologize. 

Mr. ROSEMAN. Mr. Chairman, on the advice of counsel, I respectfully decline to answer any questions, and invoke my Fifth Amendment privilege to remain silent. 

7 

Chairman ISSA. Mr. Roseman, when did you first become aware 

of a company known as Strong Castle, Inc.? 

Mr. ROSEMAN. Mr. Chairman, on the advice of counsel, I respectfully decline to answer any questions, and invoke my Fifth Amendment privilege to remain silent. 

Chairman ISSA. Mr. Roseman, are you currently employed by the 

IRS? 

Mr. ROSEMAN. Mr. Chairman, on the advice of counsel, I respectfully decline to answer any questions, and invoke my Fifth Amendment privilege to remain silent. 

Chairman ISSA. Lastly, Mr. Roseman, are you prepared to answer any questions here today about your role in the IRS acquisitions and information technology products and services from Strong 

Castle, Inc.? 

Mr. ROSEMAN. Mr. Chairman, no. 

Chairman ISSA. Mr. Cummings, do you have any—any questions 

before I dismiss the witness? 

Mr. CUMMINGS. No, I have no questions. And I—as we respect 

the witness’ right to remain silent, consistent with the Fifth 

Amendment, Mr. Chairman, so I have no objections with the chairman dismissing this witness. 

Chairman ISSA. Given that the witness has indicated that he 

does not intend to answer any questions, and out of respect for his 

right under the Constitution, I will now ask the committee to excuse the witness, take away his name, and we’ll take a short recess 

so that we can reset the table. 

Mr. Roseman, you’re excused. 

[recess.] 

Chairman ISSA. The committee will come to order. 

I’d like to thank all the witnesses for their forbearance. The chair 

would like to make sure we allow sufficient time, and even though 

we’re slightly smaller now, there’s still a large panel, so I’d ask you 

to recognize that your entire opening statements will be placed in 

the record, and to stay within the 5 minutes or very close to it. 

And with that, you’re recognized, Mr. Flohr, for 5 minutes. 

WITNESS STATEMENTS 

STATEMENT OF BRAD FLOHR 

Mr. FLOHR. Thank you, Mr. Chairman, Ranking Member 

Cummings and members of this committee. I appreciate the opportunity to appear before you this morning to discuss the Department 

of Veterans Affairs’ processes for granting service connection for 

disabled veterans and verifying Service-Disabled Veteran-Owned 

Small Businesses and Veteran-Owned Small Businesses. 

VA is committed to making accurate decisions in claims for disability compensation, as reflected in our goal of 98 percent accuracy 

by 2015 and monitoring the VOSB program. Oversight for these 

programs ensures that qualified veterans receive the benefits and 

business qualifications they have earned through their service to 

our Nation. 

Disability compensation is a monthly benefit payable to veterans 

who have a disability or disabilities resulting from injury or disease 

incurred in or aggravated by Active military service. Such service 

8 

includes Active Duty, Active Duty for training during which the individual concerned was disabled or died from disease or injury incurred or aggravated in the line of duty, and in that Inactive Duty 

for training during which the individual concerned was disabled or 

died from injury incurred or aggravated in line of duty. 

Service consisting solely of attendance at any one of the preparatory schools of the service academies may constitute Active 

Duty or Active Duty for training for VA purposes, depending on the 

circumstances of the individual service. 

VA’s Office of General Counsel held in a precedent opinion issued 

in 1994 and 1995 that characterization of an individual service at 

a United States academy preparatory school for purposes of entitlement to veteran’s benefits depends upon the status in which the individual enters the school. Service by a person entering the school 

as a reservist called to duty for the sole purpose of attending the 

school or by one who is enlisted from civilian life or National Guard 

duty to attend the school constitutes Active Duty for training. 

In contrast, persons who enroll directly from Active Duty under 

a prior enlistment remain on Active Duty within the meaning of 

Title 38 during their attendance. Those individuals selected for enrollment in these preparatory schools are in the military. They 

wear the uniform, are paid based on their military rank, are subject to the Uniform Code of Military Justice, and upon release from 

that period of training, they are issued a DD–214 with either honorable service or other than honorable, or whatever the characterization may be. In November of 1995, the VA amended its regulations to reflect our general counsel’s statutory interpretation concerning this type of service. 

VA’s statutory authority to compensate veterans for disability resulting from service, stated in 38 United States Code section 1110 

is not limited to providing compensation for disabilities caused by 

military service. VA’s statutory authority is to compensate veterans 

for disability incurred in or aggravated by service. 

Once an individual takes the oath to serve and protect the 

United States, they are on duty 24 hours a day 7 days a week. If 

he or she is injured or develops a chronic disease, whether in combat or during routine activities, VA claims processors prepare a disability rating decision that determines entitlement to service connection and the amount of any disability benefits that may be payable. 

In determining whether a disability is related to military service, 

there must be evidence of an injury or disease or an exposure in 

service; medical or, in certain circumstances, lay evidence of a current disability; and evidence of a medical or scientific nexus or link 

between the current condition and the in-service event. 

VA has a statutory duty to assist claimants in gathering the required evidence. This includes obtaining certain supporting evidence and ordering a VA examination or requesting a medical opinion as necessary. VA reviews documents pertaining to military 

service and service treatment records obtained from the particular 

military service. VA also requests evidence identified by the claimant that may be pertinent to the claim and medical records from 

any private providers that we are made aware of. 

9 

VA carefully evaluates all available evidence to determine if entitlement to service connection is established and, if so, the level of 

severity of the disability. VA’s standard of proof in making these 

determinations is reasonable doubt. 

In addition to requesting and revealing records from military 

service departments, newly hired claims processors are provided 

training on military records, which includes identifying any noted 

alterations or suspected fraudulent records. Each regional office 

also has a military records specialist with expertise in military 

records who serves as a liaison with other government agencies. 

VA employees are aware of their responsibility to ensure that benefits are awarded to those who are entitled to them. 

Upon a determination that fraud has occurred, a preliminary decision is made with respect to adjusting or terminating an award. 

The beneficiary is provided due process rights, including notice of 

the action to be taken, the reason for the adjustment, the right to 

representation, and the right to present evidence to rebut the evidence serving as the basis for the proposed adjustment. 

If no evidence is presented, the award is adjusted, and the case 

is referred to the Office of the Inspector General for review and any 

further action that office may deem necessary. 

The Office of the Inspector General coordinates investigation 

with the United States Attorney’s Office, State and local prosecutors—— 

Chairman ISSA. Mr. Flohr, could you summarize, please? 

Mr. FLOHR. Yes, sir. That actually summarizes my statement on 

service connection. 

Chairman ISSA. Thank you very much. 

Mr. FLOHR. You’re welcome. 

[Prepared statement of Mr. Flohr follows:] 

10 


Insert offset folio 1 here 82275.001

STATEMENT OF 

BRAD FLOHR 

SENIOR ADVISOR FOR COMPENSATION SERVICE 

VETERANS BENEFITS ADMINISTRATION (VBA) 

U.S. DEPARTMENT OF VETERANS AFFAIRS 

BEFORE THE 

HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JUNE 26, 2013 

Chairman Issa, Ranking Member Cummings, and Committee Members, thank 

you for providing me the opportunity to discuss the Department of Veterans Affairs' 

(VA) processes for granting service connection for disabled Veterans and verifying 

Service Disabled Veteran-Owned Small Businesses (SDVOSB) and Veteran-Owned 

Small Businesses (VOSB). VA is committed to making accurate decisions for the 

disability compensation program and monitoring the VOSB Program. Oversight for 

these programs ensures that qualified Veterans receive the benefits and business 

qualifications they have earned. 

Disability Compensation Process 

Overview 

Disability compensation is a monthly tax free monetary benefit paid to 

Veterans with disabilities that are the result of a disease or injury incurred or 

aggravated during active military. naval, or air service. Such service includes active 

duty, active duty for training during which the individual concerned was disabled or 

died from disease or injury incurred or aggravated in line of duty, and inactive duty 

training during which the individual concerned was disabled or died from injury 

incurred or aggravated in line of duty or from heart attack or stroke. Service 
11 


Insert offset folio 2 here 82275.002

consisting solely of attendance at anyone of the preparatory schools of the service 

academies may constitute active duty or active duty for training for VA purposes, 

depending on the circumstances. 

VA's Office of General Counsel held in a precedent opinion issued in 1994 that 

characterization of an individual's service at a U.S. academy preparatory school for 

purposes of entitlement to Veterans benefits depends upon the status in which the 

individual enters the school. Service by a person entering the school as a reservist 

called to duty for the sale purpose of attending the school or by one who is enlisted 

from civilian life or National Guard duty to attend the school constitutes "active duty 

for training." In contrast, persons who enroll directly from active duty under a prior 

enlistment continue to serve on "active duty" within the meaning of Title 38, section 

101 (21), during their attendance. The Office of General Counsel found it significant 

that an enlisted Servicemember who is disenrolled from a preparatory school prior to 

completion of the school program still has a military obligation to complete, while an 

individual attending a preparatory school from the Reserves, National Guard, or 

civilian life is generally discharged from the service in the event of premature 

disenrollment. In November 1995, VA amended its regulations to reflect this 

interpretation. 

Compensation may also be paid for post-service disabilities that are 

considered related or secondary to disabilities occurring in service and for disabilities 

presumed to be related to circumstances of military service, even though they may 

arise after service. There is no time limit for filing claims after discharge from military 

service. 

2 
12 


Insert offset folio 3 here 82275.003

VA's disability rating schedule is authorized by 38 U.S.C. § 1155, which 

requires VA to adopt and apply a schedule of ratings of reductions in earning 

capacity from specific injuries or combinations of injuries "based, as far as practicable, 

upon the average impairments of earning capacity resulting from such injuries in civil 

occupations." The VA rating schedule provides, for each listed medical or 

psychological disability, the symptoms or specific findings that warrant a particular 

disability level, and Congress sets the amounts of compensation for each percentage 

of disability. The determination by VA of the range of disability percentages available 

for each condition is, in essence, a determination of how disabling the condition is 

deemed to be, on average, to a person working in a civil occupation. 

The benefit amount is graduated according to the degree of the Veteran's 

disability on a scale from 10 percent to 100 percent (in increments of 10 percent). If 

a Veteran has dependents, an additional allowance may be added if the combined 

disability is rated 30 percent or greater. Compensation may be offset if the Veteran 

receives military retirement pay, disability severance pay, or separation incentive 

payments. 

In determining whether a disability is related to military service, there must be 

evidence of an in-service event, a current condition, and a medical nexus 

establishing a link between the current condition and the in-service event. VA has a 

statutory duty to notify a claimant of the evidence needed to substantiate his or her 

claim and a duty to assist claimants in gathering the required evidence. This includes 

obtaining certain supporting evidence and ordering a VA examination, if necessary. 

After all of the supporting evidence has been received, VA carefully evaluates it to 

3 
13 


Insert offset folio 4 here 82275.004

determine if entitlement to service connection is established and, if so, the level of 

severity of disability. 

Oversight 

VA performs several oversight functions during the claims process. First, VA 

requests Department of Defense (000) documents confirming military service. VA 

also requests documents pertaining to medical treatment in service and personnel 

records from 000. These records, which are generally the original records, are 

forwarded to VA from 000 and are maintained by VA as part of the Veteran's claims 

file record. In addition, VA will accept photocopies of these records if they were 

issued by the service department and have been certified as true copies of the 

originals. Records can be certified by a public custodian, such as the Records 

Management Center, or by an accredited agent, attorney, or service organization 

representative who has successfully completed VA-prescribed training on military 

records. VA also confirms military service electronically with 000 in many cases. 

In addition, newly hired VA claims processors are provided training on military 

records, which includes identifying alterations and fraudulent records. Each regional 

office also has a Military Records SpeCialist with expertise in military records who 

serves as a liaison with other governmental agencies. 

If any potentially fraudulent activity is suspected, the case is referred to the VA 

Office of the Inspector General (OIG). The OIG coordinates investigation with the 

U.S. Attorney's Office, state and local prosecutors, other agencies, and the regional 

office as necessary. OIG pursues criminal and civil actions if warranted, but 

4 
14 


Insert offset folio 5 here 82275.005

fraudulent documentation can result in the severance of benefits as well. VA will act 

to sever benefits if it is determined that fraudulent documentation was the basis for 

granting benefits. 

If at any time, fraud is suspected in a determination made in a claim for 

benefits, VA will make a determination and notify the beneficiary of action to be taken, 

including a new rate of benefits, if any, the right to submit evidence showing the 

action should not be taken, and the right to representation and a hearing. If after 35 

days, no new evidence is received or requested for a hearing or representation, 

award action will be taken, and the claim will be referred to the OIG. 

SDVOSB Program 

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

mission is to help small and VOSBs contribute most effectively to the important 

mission of VA by receiving the maximum practicable percentage of VA contract 

dollars. The Center for Veterans Enterprise (CVE), which is part of OSDBU, is 

responsible for verifying the eligibility of VOSBs and SDVOSBs to participate in VA's 

Veterans First set-aside program that provides procurement preference to VOSBs 

and SDVOSBs, solely for VA acquisitions, in accordance with the requirements of 

Public Law (P.L.) 109-461, as amended by P.L. 111-275. VA's implementing 

regulations are promulgated at 38 Code of Federal Regulations (CFR) Part 74. VA's 

program has been a great success in that VA has achieved over 20 percent of 

procurement dollars being awarded to SDVOSBIVOSBs each of the last several 

fiscal years. The Governmentwide SDVOSB goal is only 3 percent. 

5 
15 


Insert offset folio 6 here 82275.006

A firm applying for verification must gather together all of the relevant business 

documents for its business type in order to submit its application. The Veteran first 

creates a profile in the Vendor Information Pages (VIP) database, at www.vetbiz.gov, 

that lists a company's business contact information, and includes a completed VA 

Form 0877 (Attachment A) that requires the Veteran to list the name of the company, 

its DUNS number1, and a listing of all company owners to include the percentage 

ownership of Veteran, service-disabled Veteran, surviving spouse, or non-Veteran 

owners. All owners must electronically sign the Form 0877. All Veteran owners must 

also supply their social security number, VA file number, or claim number and their 

date of birth. 

Once the application is submitted, eVE then checks the VA's Beneficiary 

Identification Records locator Subsystem (BIRlS) to check the Veteran or related 

status of the Veteran, service-disabled Veteran or surviving spouse owners. The 

record must show an other than dishonorable discharge, and if the Veteran is 

claiming service-disabled status on the application, the service-disabled status is also 

checked. Once this criterion of eligibility is confirmed, eVE checks to ensure that the 

business and all of its owners are not parties currently excluded from Federal 

contracting in the Federal System of Award Management database, that all required 

business documents (see Attachment B) were uploaded, and that they are sufficient 

to proceed with the examination. During the examination stage of the process, the 

examiner reviews publicly available information in an internet search, examines each 

of the submitted documents for compliance with the ownership and control criteria 

1 The Data Universal Numbering System, abbreviated as DUNS, is a system developed and regulated 

by Dun & Bradstreet that assigns a unique numeric identifier to a single business entity. 

6 
16 


Insert offset folio 7 here 82275.007

laid out in 38 CFR Part 74. The internet search includes verifying that the business is 

registered and in good standing on the applicable Secretary of State site, and any 

other information contained in sites such as Dun and Bradstreet or other business 

intelligence sites. The examiner then creates a report noting all relevant information 

for the determination and makes a recommendation to approve, deny or to undergo 

further review. 

The application then passes to the evaluation stage where it receives a quality 

review to ensure that the examiner correctly noted all issues. If the firm is found in 

compliance with the regulations, an approval determination is recommended, and an 

approval letter is prepared for the Director's review and signature. If the firm is found 

to not be in compliance with the regulations, a findings letter is developed to identify 

the issues that would cause the firm to be denied. If the issues are eligible for the 

Pre-Determination Findings process, that was implemented on May 1, 2013, the firm 

is then allowed to correct the issues or withdraw its application prior to a 

determination on the company's eligibility. Once approved, the company then 

appears in the public view on the VetBiz VIP database showing firms that have been 

verified. 

Conclusion 

VA has thorough processes for determining and granting service connection 

for disabled Veterans and verifying SDVOSB and VOSB. These processes include 

appropriate oversight functions that ensure qualified Veterans receive the benefits 

and business qualifications they have earned. This concludes my testimony. I would 

7 
17 


Insert offset folio 8 here 82275.008

be happy to address any questions or comments from Chairman Issa, Ranking 

Member Cummings, or the Committee Members. 

8 
18 


Insert offset folio 9 here 82275.009

Attachment A 

9 
19 


Insert offset folio 10 here 82275.010

Attachment B 

10 
20 


Insert offset folio 11 here 82275.011

11 
21 


Insert offset folio 12 here 82275.012

votlng trust 

12 

controls 

at least 51 % of the total votes, 

This can be validated in the 

minutes of Stockholders' or 

Board of Directors' meetings. 

x 
22 


Insert offset folio 13 here 82275.013

13 
23 


Insert offset folio 14 here 82275.014

14 
24 


Insert offset folio 15 here 82275.015

15 
25 

Chairman ISSA. Mr. Chodos. 

STATEMENT OF MICHAEL A. CHODOS 

Mr. CHODOS. Chairman Issa, Ranking Member Cummings and 

distinguished members of the committee, thank you for inviting me 

to testify about the Small Business Administration’s, or SBA’s, role 

in the awarding of certain contracts to Signet Computers, Inc., and 

its successor, Strong Castle, Inc., a firm recently decertified by SBA 

as a Historically Underutilized Business Zone, or HUBZone entity. 

Before discussing the specifics of the SCI case, I would like to 

briefly describe the HUBZone program and some of its recent successes. Its aim to is help small firms in underserved communities 

gain access to Federal contract opportunities. Generally HUBZones 

are urban or rural areas with very low median household incomes 

and/or very high unemployment. The program requires certified 

companies to have their principal office in a HUBZone and to employee individuals who reside in HUBZones, with the intention of 

spurring economic growth within the community. 

As of May 31, 2013, there were 5,029 certified HUBZone small 

businesses. In fiscal year 2012, over 8 billion—over $8 billion were 

awarded to certified firms for work performed in all 50 States, including D.C., Puerto Rico, Guam, the Virgin Islands, and the 

Northern Mariana Islands. 

In the case of the SCI, the firm applied for HUBZone certification 

on March 11, 2012, and was certified on June 22, 2012. SCI was 

awarded a blanket purchase agreement by the IRS on or about December 7th, 2012. A HUBZone status protest was filed with SBA 

by a competing firm on December 19, 2012. 

SBA could not process the protest, based on applicable jurisdictional rules; however, SBA believed the information contained in 

the protest called into question SCI’s HUBZone eligibility. As a result SBA promptly began its investigation into the eligibility of SCI 

for the HUBZone program in late December of 2012. Based on the 

facts and evidence found during this investigation, SBA proposed 

SCI for decertification on January 31, 2013. 

It is important to note that this investigation and the resulting 

proposed decertification took place before and independent of the 

committee investigation of SCI. 

After a thorough review of the information provided to SBA in 

response to the proposed decertification, SBA decertified SCI on 

May 23, 2013. 

SBA takes very seriously its duty to root out fraud, waste and 

abuse in all of the Federal small business contracting programs, including HUBZone. Our top priority at SBA is to ensure that the 

benefits of our programs flow to the intended recipients. Our government contracting programs are a critical and effective toolkit for 

small businesses; however, we have no tolerance for fraud, waste 

and abuse in those programs. 

For this reason we have implemented a comprehensive threepronged strategy to identify, prevent and pursue noncompliance or 

fraud across all our government contracting programs. First is effective certification processes. Clear and comprehensive eligibility 

screening on the front end ensures that only qualified, eligible 

firms participate in our programs. 

26 

Second, continued surveillance and monitoring. Targeted and 

thorough examinations, reviews and on-site visits identity potentially fraudulent firms or those that no longer qualify. 

And three, robust and timely enforcement. Prompt, proactive enforcement removes bad actors, deters wrongdoing, and provides integrity to our contracting programs. 

We are especially proud of our core partnership with the SBA’s 

Office of Inspector General, whose assistance is critical to the excess—to the success of our improvement efforts. 

Through ongoing and proactive collaboration with the Government Accountability Office and our stakeholders, SBA intends to 

protect the Federal Government commitment to aid and assist 

small business. 

The strategy and efforts described in my testimony reflect an integrated approach that utilizes resources across our Office of Government Contracting and Business Development, our General 

Counsel’s Office and our 68 district offices and others. 

As demonstrated by the initiatives and efforts described in this 

testimony, SBA has taken great strides to strengthen the small 

business contracting programs and implement a robust strategy to 

combat fraud, waste and abuse. Work remains to be done to completely eliminate fraud, waste and abuse in our programs, as bad 

actors, regretfully, still attempt to take wrongful advantage of government benefits. 

While we have made significant progress, we continue to look for 

ways to identify further opportunities for improvement and to 

maximize small businesses’ access to this important source of revenue so they can do what they do best: start, grow and create jobs. 

Thank you for the opportunity to testify before you today, and I 

am happy to answer any questions you may have. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Chodos follows:] 

27 


Insert offset folio 16 here 82275.016

U.S SMALL BUSINESS ADMINISTRATION 

WASHINGTON, D.C. 20416 

TESTIMONY OF MICHAEL A. CHODOS 

U.S. SMALL BUSINESS ADMINISTRATION 

BEFORE THE 

U,S. HOUSE OF REPRESENT A TIVES 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JUNE 26, 2013 

ChailTI1an Issa, Ranking Member Cummings, and distinguished members of the Committee. 

Thank you for inviting me to testify about the Small Business Administration's (SBA) role in the 

awarding of certain contracts to Signet Computers, Inc., and its successor Strong Castle Inc. 

(SCI), a filTI1 recently decertified by SBA as a Historically Underutilized Business Zone 

(HUBZone) entity. 

Before discussing the specifics of the SCI case, I would like to briefly describe the HUBZone 

program and some of its recent successes. The program was enacted into law as part of the 

Small Business Reauthorization Act of 1997. Its aim is to help small filTI1s in underserved 

communities gain access to Federal contract opportunities. Generally, HUBZones are urban or 

rural areas with very low median household incomes and/or very high unemployment. The 

program requires certified companies to have their principal office in a HUBZone and to employ 

individuals who reside in HUBZones, with the intention of spurring economic growth within the 

community. 

In Fiscal Year (FY) 2012, the HUBZone Program assisted 7,872 small businesses to bettcr 

understand program requirements and benefits. As of May 31, 2013, there were 5,029 certified 

HUBZone small businesses. In FY 2012, over $8 billion dollars were awarded to ccrtified filTI1s 

for work pertolTI1ed in all 50 states, including DC, Puerto Rico, Guam, the Virgin Islands, and 

the Northern Mariana Islands. 

In the case ofSCr, thc filTI1 applied for HUBZone certification on March 11,2012, and was 

certified on June 22, 2012.The Internal Revenue Service (IRS) issued RFQ No. TIRNO-12-Q00083 as a request for quotes to establish a Blanket Purchase Agreement under the General 

Services Administration's (GSA) Federal Supply Schedule 70 contract. SCI was awarded the 
28 


Insert offset folio 17 here 82275.017

BPA on or about December 7, 2012. A HUBZone status protest was filed with SBA by a 

competing firm on December 19, 2012. 

SBA could not process the protest based on applicable jurisdictional rules; however, SBA 

believed the information contained in the protest called into question SCI's HUBZone eligibility. 

As a result, SBA began its investigation into the eligibility of SCI for the HUBZone Program in 

late December 0[2012. 

Based on the facts and evidence found during this investigation, SBA proposed SCI for 

decertification on January 31, 2013. It is important to note that this investigation-and the 

resulting proposed decertification-took place before, and independent of, the Committee 

investigation of SCI. 

After a thorough review of the information provided to SBA in response to the proposed 

decertification, SBA decertified SCIon May 23,2013. A more detailed explanation of the 

decertification can be found in SBA 's Notice of Decertification, which has previously been 

provided to the Committee. 

SBA takes very seriously its duty to root out fraud, waste, and abuse in all of the Federal small 

business contracting programs, including HUBZone. Our top priority at SBA is to ensure that 

the benefits of our programs flow to the intended recipients. Our government contracting 

programs are a critical and effective toolkit for small businesses; however, we have no tolerance 

for fraud, waste and abuse in those programs. For this reason, we have implemented a 

comprehensive, three-pronged strategy to identify, prevent and pursue non-compliance or fraud 

across all our government contracting programs: 

1. Effective certification processes: Clear and comprehensive eligibility screening on the 

front-end to ensure that only qualified, eligible firms participate in our programs; 

2. Continued surveillance and monitoring: Targeted and thorough examinations, reviews 

and site visits to identify potentially fraudulent firms or those that no longer qualify; and 

3. Robust and timely enforcement: Prompt, proactive enforcement to remove bad actors, 

deter wrongdoing, and provide integrity to our contracting programs. 

We are especially proud of our core partnership with the SBA's Office of Inspector General 

(OIG), whose assistance is critical to the success of our improvement efforts. Through ongoing 

and proactive collaboration with the Government Accountability Office (GAO) and our 

stakeholders, SBA intends to keep the Federal government's commitment to aid and assist small 

business. Below are the details of the specific ways, we implement our three-pronged strategy in 

SBA's Government Contracting and Business Development (GCBD) programs, with specific 

examples from the HUB Zone Program. 
29 


Insert offset folio 18 here 82275.018

Effective Certification Processes 

SBA certifies eligible firms to participate in the HUBZone program. In FY 2009, SBA began a 

two-year re-engineering effort of the HUBZone program that included enhanced reviews to 

minimize the opportunity for ineligible firms to gain entry into the program. The process now 

requires applicants to submit relevant documentation (i.e., lease/rental agreements, three years of 

tax returns, citizenship documentation, payroll records) to prove they meet the program 

requirements. 

Additional\y, we reduced the HUBZone application processing time and eliminated the 

application backlog issues that hindered the program in the past. In late 2009, the application 

processing time was about 300 days. Now, about 61% of the applications are processed within 

90 days, and the HUBZone office continues to further reduce application processing times. 

Continued Surveillance and Monitoring 

Only those firms entitled to benefit from SBA's programs should remain in them. SBA has used 

three tools to monitor firms in the HUBZone program: (i) site visits, (ii) re-eertitications and (iii) 

legacy portfolio reviews. These efforts, coupled with the changes to the HUBZone maps 

following the 20 I 0 Census as required under the Small Business Act, have significantly reduced 

the number of eligible HUBZone films. 

Robust and Timely Enforcement 

SBA's programs must be reserved for those who are-and who remain-eligible. SBA has a 

range of enforcement tools at its disposal when identifying a firm that is ineligible to participate 

in our programs. Some are not aware that they are out of compliance, and simply withdraw when 

made aware of their ineligibility. Others are bad actors, and are taking intentional and often 

fraudulent advantage of our programs. SBA has no tolerance for a firm found to be acting 

fraudulently, and where appropriate we will act decisively to oust them Irom our programs and 

from doing business with the government generally. 

In addition to our own compliance, monitoring and enforcement efforts, we also conduct a 

thorough investigation and review of every firm cited in IG audits and GAO reports. We haveand will continue to take-all appropriate actions, including suspension and debarment and 

referral to the Department of Justice, against any firms attempting to "game the system" with 

SBA's programs. 

We recently assembled an SBA Suspension and Debarment Task Force (Task Force), which has 

developed a number of tools to encourage fraud detection and streamline fraud referrals. For 

instance, it has implemented a system for the efficient coordination of responses by various SBA 

program offices, the IG, and SBA's Suspension and Debarment Official (SDO). The Task Force 
30 


Insert offset folio 19 here 82275.019

is also implementing a series of tools and procednres to measure and track our enforcement 

results, The table below describes some 

Fiscal 

Year 

Suspensions Proposed Debarments Debarments Total 

We realize, however, that the onus of these does not rest only in the GCBD office, The 

strategy and efforts described in my testimony an integrated approach that utilizes 

resources across GCBD, our General Counsel's Office, our 68 District omces and others, 

Specifically, SBA has been educating its employees on to detect wrongful behavior, and 

what to do wht,n they uncover it The training also provides employees with an understanding of 

the numerous tools that SBA can to combat fraud, To this end, the Task Force has provided 

program specitic training to employees in SBA's 8{a) Business Development office, HUBZone 

office, and SOY Program office. The Task also provided training to most ofSBA's 

size specialists, and all of its Area Directors, SBA plans to continue providing additiona! training 

every year. 

SEA has also increased its coordination with other agencies, Often procuring agencies and their 

contracting offices are in a bettcr position to identify possible fraudulent activity by SEA 

program participants, than SEA, So these efforts have been highly effective, For example, 

our SDO and our H UBZone Program office information, and evidence to the 

Department of the Navy that resulted in the suspension of two firms and three individuals, 

recently SEA'8 SDO worked wry closely with the Departlm,nt of Homeland 

Department of the Navy, the Department ofthe Army, GSA, the Department of Energy, the 

Depaltment of Justice, and the OIG on a case that has resulted in SBA issuing seven 

debarments so far, and with administrative actions being taken by other agendt;s as welL 

As demonstrated by the initiatives alld efforts descrihed in this testimony, SBA has great 

sh'ides to strengthen the small business contracting and implement a robust strategy to 

combat fraud, waste and abuse. Work remains to to eliminate waste 

and abnse in as bad actors, regretfully, still take wrongl.lil adval~ta!!e 

government 'vVhi!c we have made significant progress, for ways to 

! Prior to FY 2008. 

debarment action~. 

did not keep separate records for procurement, and and 
31 


Insert offset folio 20 here 82275.020

identify further opportunities for improvement and to maximize small businesses' access to this 

important source of revenue so they can do what they do best: create jobs. 

Thank you for hearing my testimony today, and I am happy to answer any questions you may 

have. 

### 
32 

Chairman ISSA. Ms. Tucker. 

STATEMENT OF BETH TUCKER 

Ms. TUCKER. Chairman Issa, Ranking Member Cummings and 

distinguished members of the committee, my name is Beth Tucker, 

and I’m the Deputy Commissioner for Operations Support at the 

Internal Revenue Service. I appreciate the opportunity to appear 

before you today. 

I have been an IRS employee for 29 years. I started my IRS career in 1984 as a revenue agent. I am very proud of my government service, and it is an honor for me to work alongside the dedicated men and women of the Internal Revenue Service. 

Our agency is vital to the functioning of government and keeping 

our economy strong. In our role as tax administrators, we collect 

92 percent of all Federal receipts, and last year we issued more 

than $330 billion in refunds to individual taxpayers. 

In my role as Deputy Commissioner, I oversee the support functions of the Internal Revenue Service, including technology, human 

capital, budget, real estate, physical security and procurement. 

In February, the committee sent the Department of Treasury a 

letter raising questions about two contracts that the IRS awarded 

in December 2012 to Strong Castle, one of the thousands of vendors 

that IRS does business with. One of the contracts was for computer 

equipment. Let me be clear: We have made no awards or purchases 

under that contract. The other involves licensing and product support for IBM software that is in use across the enterprise at IRS. 

Upon receipt of the committee’s letter, I immediately referred the 

matter to the Treasury Inspector General for Tax Administration. 

It’s important to note that investigation is still ongoing. 

In mid-May, I was informed by TIGTA about inappropriate and 

unacceptable personal text messages sent by one of our procurement managers, Greg Roseman, to contractors doing business with 

the IRS from his personal phone. As soon as I became aware of this 

situation, I took steps to have Mr. Roseman reassigned to a nonsupervisory position that does not involve the awarding or administration of contracts, pending the outcome of the TIGTA investigation. And then just yesterday the committee released information 

related to this matter that the Internal Revenue Service had not 

been previously apprised of. This new information is deeply troubling, and it raises additional questions that TIGTA and the Internal Revenue Service must investigate. 

Let me be clear: These types of communications should not, 

should not occur between a procurement employee and a contractor. We expect all of our employees to act with professionalism 

and integrity. 

We are taking steps to separate the IRS from any ongoing business relationship with Strong Castle, subject to our need to safeguard our mission-critical resources. 

Under the teaming agreement with IBM that has been talked 

about in the days since the report was mis-—was issued, there’s a 

number that—that’s rolling around about Strong Castle receiving 

$500 million potentially in award from that contract. Let me be 

clear: Strong Castle has not received anywhere near that amount 

of money from the software teaming arrangement. In fact, 98 perVerDate Aug 31 2005 09:09 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 C:\DOCS\82275.TXT APRIL
33 

cent of the value of that contract, if—if it was awarded, would go 

direct to IBM. But as I mentioned, we are taking steps to sever this 

relationship with Strong Castle. 

In response to the committee’s February letter, I also directed officials within our procurement office and Office of Chief Counsel to 

review the documentation and correspondence related to these two 

contracts. 

In addition, as a result of the issues that have surfaced from the 

committee inquiry, we’re doing a top-to-bottom review of procurement policies and procedures, everything from internal controls to 

business processes and staffing practices. I’ve also asked the Department of Treasury to expand its routine assessment of IRS procurement to include a review of small business programs. 

Based on the troubling information that we have received, we 

will also further enhance employee training with regard to ethics, 

with a focus on gift rules, conflicts of interest, impartiality and the 

appearance of impropriety, and issues of official position. 

Let me be clear that I have not seen anything within our procurement organization, and I think this is also backed up by the 

extensive interviews the committees have done with a host of IRS 

procurement officials, inappropriate behavior on the part of any 

other IRS procurement employee. These are 400 hardworking— 

and, Mr. Chairman, as you mentioned, our procurement community 

has a strong ethics and wants to support our agency. 

Bottom line, we will continue to work with the committee to provide you with updates on the results of our continuing review in 

partnership with TIGTA. And we also—we also would implore the 

committee to please share with us the full set of information that 

you have obtained in your interviews, because I do believe it would 

greatly assist the Internal Revenue Service as well as the Treasury 

inspector general in bringing this matter to conclusion. 

With that, I conclude my statement, and I’m happy to answer 

any questions. 

Chairman ISSA. Thank you. 

[Prepared statement of Ms. Tucker follows:] 

34 


Insert offset folio 21 here 82275.021

WRITTEN TESTIMONY OF 

BETH TUCKER 

DEPUTY COMMISSIONER FOR OPERATIONS SUPPORT 

INTERNAL REVENUE SERVICE 

BEFORE THE 

HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

ON IRS PROCUREMENT 

JUNE 26, 2013 

Introduction 

Chairman Issa, Ranking Member Cummings and Members of the Committee, thank you 

for the opportunity to testify on the work being done by the IRS Office of Procurement to 

support our operating divisions in carrying out the mission of the IRS. 

In Fiscal Year (FY) 2012, the IRS processed more than 230 million individual and 

business returns, collecting $2.5 trillion for the Federal Government and issuing $373 

billion in taxpayer refunds. These and other activities could not have been accomplished 

without the support of the Office of Procurement (IRS Procurement), which helps us 

obtain the technology and other tools needed to serve the American taxpayer. IRS 

Procurement delivers the IRS' acquisition planning, contract award and contract 

administration services, which enable our agency to provide taxpayers with help in 

understanding and meeting their tax responsibilities. 

In FY 2012, IRS Procurement completed 17,402 contract actions, valued at $1.9 billion. 

That total includes 6, 146 IT-related actions made to 827 vendors, valued at $1.4 billion. 

It is important to note that small businesses in all 50 states, received IRS procurement 

dollars last year. Numerous contract awards also fulfill important 

Government-wide procurement goals. For example, 546 of our contract actions to 78 

different vendors -- approximately 4 percent -- went to businesses on the Small 

Business Administration's (SBA) list of Historically Underutilized Business Zone 

(HUBZone) businesses. 

IRS Procurement follows not only bureau policies and procedures in the acquisition 

process, but also rules established by the Department of the Treasury (Treasury) and 

the Federal Acquisition Regulation (FAR). The IRS uses a number of different 

acquisition approaches and contract types to fulfill its requirements, including Blanket 

Purchase Agreements (BPAs), which may be established under any General Services 

Administration (GSA) contract. As a purchasing option, GSA Schedules are an efficient 

and convenient acquisition approach. Using a GSA contract allows ordering activities to 

benefit from additional price discounts, expanded opportunities for contractors, 

elimination of redundant effort by utilizing a single contracting vehicle that fulfills 

complex or ongoing needs, reduction of administrative time and paperwork, expanded 

business opportunities for underrepresented groups and help for procuring agencies in 

reaching various contracting goals. 
35 


Insert offset folio 22 here 82275.022

The IRS has a proven history of obtaining excellent contract pricing and value. Between 

FY 2010 and FY 2012, the IRS achieved $160.5 million in "hard" procurement savings 

as a direct result of contract negotiations. Over that same time period, we achieved 

$188.2 million in "soft" procurement savings, which involves reducing or eliminating 

future costs as a result of streamlined processes. 

Government-wide Contracting Goals 

The work done by the Office of Procurement is actually broader than simply acquiring 

goods and services for the IRS. Under federal regulations, IRS Procurement is also 

charged with making a strong effort to procure from small businesses, particularly those 

in various socioeconomic categories, including small disadvantaged businesses, 

women-owned businesses, service disabled veteran-owned business and HUBZone 

businesses. The IRS is committed to its Small Business Program, which generates 

opportunities for small businesses to create jobs and drive our economy forward. 

Owners of these small businesses include men and women who have bravely served 

our country in the military and have important technical expertise that can be of 

significant help to federal agencies in general and the IRS in particular. 

The SBA establishes Government-wide goals for procurement awards to small business 

and those in socioeconomic programs, and Treasury establishes bureau-specific goals 

as well. In our efforts to determine the extent to which small businesses and businesses 

in socioeconomic programs should be awarded procurement contracts, we are guided 

by various federal rules and policies. For example, the GSA has stated that it strongly 

supports the participation of all categories of small business concerns in the GSA 

Schedules program. In addition, the FAR authorizes agencies to contract with small 

businesses and firms in certain socioeconomic categories using set-aside orders 

against task order contracts to small business concerns, or using socioeconomic 

status as an evaluation factor when awarding orders under the GSA Schedule 

contracts. 

The Strong Castle Contract Awards 

Since FY 2012, the IRS has been doing business with Strong Castle, Inc. Strong Castle 

is certified as a Service Disabled Veteran Owned Small Business (SDVOSB), and was 

also certified as a HUBZone business until it was decertified by the SBA as of May 23, 

2013. Strong Castle has provided support to the IRS in program management, and 

logistics support, and has had a record of delivering in accordance with contract terms 

and conditions. 

In February of this year, this Committee sent a letter to Treasury raising questions 

regarding two IT-related BPAs that the IRS awarded to Strong Castle in December 

2012: 

• Computer equipment. One of the BPAs in question was for computer equipment 

and accessories for use by IRS, as well as all of Treasury. Strong Castle was 

2 
36 


Insert offset folio 23 here 82275.023

awarded a contract with a total potential value of $79 million, and the IRS 

projected to achieve $20 million in savings over the five-year contract, as 

compared to GSA Schedule pricing. After this contract was awarded, two other 

contractors who bid unsuccessfully challenged it, but the award was upheld by 

the Government Accountability Office (GAO). The IRS has made no purchases 

under this BPA. 

• IBM software. The second BPA in question is an IBM Software Relationship 

Offering (SRO) involving licensing and product support for the IBM suite of 

products. This BPA, which was not subject to a protest, calls for the software, 

maintenance and services to be deployed enterprise-wide at all tiers from servers 

to desktops and laptops. The BPA, with an estimated value of $266 million, 

replaced a previous contractual vehicle and has been projected to achieve 

savings of approximately $92 million over the five-year contract period, as 

compared to GSA Schedule pricing. While 98 percent of the estimated value of 

this contract will flow to IBM, it is important to note that the work performed by 

Strong Castle fills a critical program management and logistics role that has been 

proven to be more efficient and effective in similar contracting efforts in the past. 

This model enables smaller firms to gain critical experience with both the IRS 

and large firms, often enabling them to grow both their internal capabilities and 

their revenue. 

The Committee's inquiry involved whether improper conduct occurred between an IRS 

Procurement manager and Strong Castle, and whether that conduct would have led to 

the 2012 awards being steered to Strong Castle in violation of federal rules. The 

Committee also questioned whether Strong Castle improperly obtained certifications as 

a HUBZone business and a SDVOSB. 

Upon receipt of the Committee's February letter regarding Strong Castle, I immediately 

referred the matter to the Treasury Inspector General for Tax Administration (TIGTA), 

which opened an investigation that is still underway. At my direction, officials with IRS 

Procurement and the IRS Office of Chief Counsel (Chief Counsel) have reviewed the 

documentation and correspondence related to the contracts under investigation and at 

this point have not seen or otherwise been made aware of any evidence of steering 

contracts to Strong Castle or any statutory or regulatory violations in connection with the 

award of these contracts. In addition, multiple levels of IRS leadership spoke with the 

manager in question regarding this inquiry and were assured that there was no 

improper relationship. 

After receiving the Committee's February letter, the IRS also contacted the SBA to 

clarify Strong Castle's status as a qualified HUBZone business. Subsequently, the SBA 

decertified Strong Castle, effective May 23,2013, noting that the company may not 

have met HUBZone qualifications on December 7,2012. Following receipt of the 

decision, the IRS sought clarification from the SBA as to whether Strong Castle was 

considered a qualified HUBZone business in December 2012, when the two contracts in 

question were awarded. The SBA responded that it did not have the authority in this 

3 
37 


Insert offset folio 24 here 82275.024

circumstance to retroactively address Strong Castle's HUBZone status, and it reaffirmed 

that Strong Castle remained on the SBA's approved list of HUBZone businesses until 

the decertification was effective on May 23,2013. 

Because some of the information in the decision by the SBA to decertify Strong Castle 

as a HUBZone business calls into question the validity of the company's HUBZone 

status as of December 7,2012, the IRS will not issue any future orders under the BPA 

for computer equipment. We do, however, have a critical and ongoing need for the 

services provided under the IBM/SRO BPA with Strong Castle, and failure to continue 

with this BPA would have significant implications and create critical operational 

challenges in the immediate term for the IRS. Thus, absent a finding of fraud or other 

wrongdoing by Strong Castle, we are continuing with this BPA. However, we are 

actively exploring other options to obtain these critical services through alternative 

means in the future. 

Let me turn now to our actions in regard to the personnel matter. On May 15, 2013, 

TIGT A informed me that it had uncovered text messages sent to contractors from the 

personal phone of the IRS Procurement manager I mentioned earlier in my testimony. 

These messages indicated that this manager had a personal relationship with the 

contractors. From what has been shared with me to date, these messages are 

inappropriate and unacceptable. We expect all IRS employees, including those involved 

in procurement, to act with the highest ethical standards, and we operate IRS 

Procurement from an underlying foundation of integrity. Therefore, based on the 

information provided to us by TIGT A, I took immediate steps to have the manager 

reassigned to a non-supervisory position that does not involve the awarding or 

administration of contracts, pending the outcome of TIGT A's investigation. 

Some of the inappropriate personal communications that have come to our attention 

were between this IRS Procurement manager and the principal owner of Strong Castle. 

Though we are not aware of any evidence that these communications inappropriately 

influenced the IRS' decision to contract with the company, we are concerned about the 

tone of the communications as well as the fact that the communications occurred 

between a contractor doing business with the IRS and an IRS Procurement official. 

These types of communications between the IRS and its vendors should not occur. We 

are taking the appropriate management steps to ensure that the IRS' relationship with 

Strong Castle is managed more appropriately, and we will re-emphasize to all IRS 

Procurement staff the ethics rules, including the rules regarding the appearance of 

impropriety and recusal. 

Enhanced IRS Procurement Controls 

As a result of the questions raised about the Strong Castle awards, the IRS has taken 

and is continuing to take a number of actions to ensure that all activities in connection 

with procurement are proper and comply with the applicable laws and regulations. 

4 
38 


Insert offset folio 25 here 82275.025

As noted above, IRS Procurement officials have reviewed all documentation and 

correspondence related to the contract awards in question to ensure proper procedures 

were followed. Procurement officials have also reviewed the FAR, OFPP memoranda, 

Treasury directives and IRS pOlicies to ensure compliance with all Small Business 

program requirements. Additionally, we have asked Treasury's Office of the 

Procurement Executive to expand its regular, routine assessment of IRS Procurement, 

to include a review of our Small Business Program requirements to ensure compliance 

with FAR and the OFPP memoranda. We expect that expanded review to be completed 

by the end of July. 

We are also conducting an internal review focusing on overall procurement policy and 

processes, to include sampling of existing work products, training and business 

process, internal controls and reporting, segregation of duties and staffing practices, 

and the status of audit items and recommendations from entities that provide oversight. 

The target completion date for this peer review is September 2013. 

In addition, Chief Counsel will continue to conduct an annual training course for all IRS 

Procurement officials that focuses on gift rules, conflicts of interest, impartiality and the 

appearance of impropriety, misuse of official position and other ethics issues. 

Conclusion 

Mr. Chairman, Ranking Member Cummings, thank you again for the opportunity to 

appear before the Committee. The IRS remains committed to ensuring that our 

procurement of goods and services follows all agency and federal regulations and is 

done efficiently, effectively and with the highest ethical standards. We will continue 

reviewing and enhancing our controls and increase training of procurement staff as 

needed. In that way, IRS Procurement will continue to support the efforts of the IRS 

operating divisions in the work they do to carry out the mission of the IRS to enforce the 

tax laws and provide excellent taxpayer service. This concludes my statement, and I 

would be happy to answer your questions. 

5 
39 

Chairman ISSA. And I will break with tradition just to note, since 

you made a direct request, that it is our intention to share fully 

with the IG this information. I must admit that it’s been a one-way 

street. We’re still waiting on an awful lot of documents from the 

IRS that are long overdue. 

Mr. Sisk. 

STATEMENT OF WILLIAM A. SISK 

Mr. SISK. Good morning, Chairman Issa, Ranking Member 

Cummings and members of the committee. My name is Bill Sisk, 

and I am the Acting Deputy Commissioner of GSA’s Federal Acquisition Service. I have spent over 20 years at GSA. I started at 

GSA’s regional office in Atlanta in 1990, and I have served in a 

number of management positions, including Assistant Regional Administrator and Regional Commissioner. In my capacity as Regional Commissioner, I represented GSA’s Assisted Acquisition 

Services, Network Services and Personal Property. I have also 

served as Assistant Commissioner in the Office of General Supplies 

and Services within the Federal Acquisition Service and was appointed to the U.S. AbilityOne Commission, which is a unique program that provides employment opportunities for individuals who 

are blind or other—or who have other significant disabilities. 

I appreciate the opportunity to appear here today to discuss 

GSA’s information technology Schedule 70 program and the process 

by which GSA reviews Schedule 70 applications. 

IT Schedule 70 is the largest, most widely used acquisition vehicle in the Federal Government. Schedule 70 is an indefinite delivery/indefinite quantity multiple award schedule, providing direct 

access to IT products and services from private-sector partners 

around the country. 

There are currently 4,853 businesses under Schedule 70, and 

4,172 of these, more than 85 percent, are small businesses. Many 

of these small businesses have socioeconomic designations: 720 are 

8(a), 128 are HUBZone, 381 are Service-Disabled Veteran-Owned, 

333 are Veteran-Owned, and 1,027 are Women-Owned. 

Through June of fiscal year 2013, about $11.5 billion worth of 

procurement has gone through Schedule 70, and $4.5 billion of 

that, 39 percent, went to small business. 

Schedule 70 has helped Federal agencies save time and money 

while ensuring a good value and the avail—in the available goods 

and services. In addition, Schedule 70 is one of the two schedules 

that is available to State and local governments through the cooperative purchasing program, allowing them to leverage the buying 

power of the Federal Government to procure IT goods and services 

at competitive prices. 

By allowing our partner agencies to purchase from preapproved 

vendors, they can receive goods and services faster. While having 

a schedule contract is not the only way to do business with the government, having a schedule contract allows both vendors and agencies to cut down on administrative costs. 

Cost savings are also generated through prenegotiated price ceilings, which provide significant discounts from commercial pricing 

and serve as a starting point for additional competition and negotiations. 

40 

GSA has an established process by which to evaluate applications and make a determination of whether or not to approve businesses to get on schedule. Over the past 3 years, GSA has processed appropriately 2,800 applications for Schedule 70. Currently 

the average application processing time is approximately 110 days. 

Contractors can apply through GSA’s eOffer system. eOffer provides an online, paperless contracting environment and a step-bystep process that complies with the Federal acquisition regulation. 

After an offer package is submitted electronically in your system, 

it is then assigned to a contracting officer or contract specialist who 

reviews the package for completeness. After the initial review, the 

contracting officer or contract specialist sends the offerer an administrative letter identifying any areas for which additional information is required. 

When a package is complete, the contracting officer or contracts—contracting specialist conducts a responsibility determination using FAR Part 9, together with GSA’s in-house pricing tool, 

or by submitting a Standard Form 1403 to GSA’s Office of Credit 

and Finance for review and approval. 

In the review the contracting officer or contracting specialist will 

also utilize the system for award management to review an 

offerer’s representations, certifications, past awards and performance, and to ensure that all information is correct, accurate and 

complete. 

After the responsibility determination is complete, the CO or CS 

prepares a prenegotiation memorandum outlining negotiation strategy and any remaining deficiencies. If negotiations are successful, 

a final proposal revision letter is sent to the offerer. 

If the offerer accepts the FPR, the CO or CS conducts a final review of the offer and prepares and finalizes the price negotiation 

memorandum. After all the required forms and additional information are completed and signed, the CO or CS enters the offer into 

our system and prepares a package to send to the vendor. 

GSA’s Schedule 70 can be an important tool in meeting the IT 

needs of Federal agencies, and GSA has an established process to 

thoroughly review these applications in a timely fashion. 

I appreciate the opportunity to be here today, and I would be 

happy to answer any questions you have. Thank you. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Sisk follows:] 

41 


Insert offset folio 26 here 82275.026

WRITTEN TESTIMONY OF 

BILLSISK 

ACTING DEPUTY COMMISSIONER 

FEDERAL ACQUISITION SERVICE 

BEFORE THE 

HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JUNE 26, 2013 

Good morning Chairman Issa, Ranking Member Cummings and Members of the Committee. My 

name is Bill Sisk and I am the Acting Deputy Commissioner of GSA's Federal Acquisition 

Service. 

I have spent over twenty years at GSA. I started in GSA's Regional office in Atlanta in 1990 and 

have served in a number of management positions including Assistant Regional Administrator 

and Regional Commissioner. In my capacity as Regional Commissioner, I represented GSA's 

Assisted Acquisition Services, Network Services, and Personal Property. I have also served as 

Assistant Comrnissioner in the Office of General Supplies and Services within the Federal 

Acquisition Service and was appointed to the U.S. AbilityOne Commission which is a unique 

program that provides employment opportunities for individuals who are blind or have other 

significant disabilities. 

I appreciate the opportunity to appear here today to discuss GSA's Information Technology (IT) 

Schedule 70 program and the process by which GSA reviews Schedule 70 applications. 

IT Schedule 70 • 

IT Schedule 70 is the largest, most widely used acquisition vehicle in the federal government. 

Schedule 70 is an indefinite delivery/indefinite quantity (1010) multiple award schedule, 

providing direct access to IT products and services from private sector partners around the 

country. There are currently 4,853 businesses under Schedule 70 and 4,172 of these, more 

than 85 percent, are small businesses. Many of these small businesses have socio-economic 

designations: 720 are 8(a), 128 are HUBZone, 381 are Service-Disabled Veteran-Owned, 333 

are Veteran-Owned, and 1,027 are Women-Owned. Through June of Fiscal Year 2013, about 

$11.5 billion worth of procurement has gone through Schedule 70, $4.5 billion (39 percent) of 

which went to small business. 

Schedule 70 has helped Federal agencies save time and money while ensuring a good value in 

the available goods and services. In addition, Schedule 70 is one of the two schedules that is 
42 


Insert offset folio 27 here 82275.027

available to state and local governments through the cooperative purchasing program, allowing 

them to leverage the buying power of the Federal Government to procure IT goods and services 

at competitive prices. 

By allowing our partner agencies to purchase from pre-approved vendors they can receive 

goods and services faster. While having a schedule contract is not the only way to do business 

with the Government, having a schedule contract allows both vendors and agencies to cut down 

on administrative costs. Cost savings are also generated through pre-negotiated price ceilings 

which provide significant discounts from commercial pricing and serve as a starting point for 

additional competition and negotiations. 

Process of Getting on Schedule 70 -

GSA has an established process by which to evaluate applications and make a determination of 

whether or not to approve businesses to get on Schedule. Over the past three years, GSA has 

processed approximately 2,800 applications for Schedule 70. Currently, the average application 

processing time is approximately 110 days. 

Contractors can apply through GSA's eoffer system; eOffer provides an online, paperless 

contracting environment, in a step-by-step process that complies with Federal Acquisition 

Regulation. 

After an offer package is submitted electronically into our system, it is then assigned to a 

contracting officer (CO) or specialist (CS) who reviews the package for completeness. After the 

initial review, the COICS sends the offeror an Administrative letter identifying any areas for 

which additional information is required. 

When a package is complete, the COICS conducts a responsibility determination using FAR 

Part 9 together with GSA's in-house pricing tool or by submitting a Standard Form 1403 to 

GSA's Office of Credit and Finance for review and approval. In the review, the COfCS will also 

utilize the System for Award Management to review an offeror's representations, certifications, 

past awards and performance, and to ensure that all information is current, accurate and 

complete. 

After the responsibility determination is complete the COICS prepares a Pre-Negotiation 

Memorandum outlining negotiation strategy and any remaining deficiencies. If negotiations are 

successful a Final Proposal Revision (FPR) Letter is sent to the Offeror. 

If the offeror accepts the FPR, the COfCS cond ucts a final review of the offer and prepares and 

finalizes the Price Negotiation Memorandum. After all the required forms and additional 

information are completed and signed, the COfCS inputs the offer into our system and prepares 

a package (approval letter, price list, and FPR), to send to the vendor. 

2 
43 


Insert offset folio 28 here 82275.028

Conclusion -

GSA's Schedule 70 can be an important tool in meeting the IT needs of Federal agencies, and 

GSA has an established process to thoroughly review these applications in a timely fashion. 

I appreciate the opportunity to be here today and I would be happy to answer any questions you 

have. Thank you. 

3 
44 

Chairman ISSA. Mr. Castillo. 

STATEMENT OF BRAULIO CASTILLO 

Mr. CASTILLO. Chairman Issa, Ranking Member Cummings and 

members of the committee, my name is Braulio Castillo. I am 

president and CEO of Strong Castle, Inc. 

In January 2012, my wife and I purchased a small company 

called Signet Computers, Inc. At that time Signet had over 15 

years of experience as a government contractor. Because I have significant experiencing serving the IT needs of IRS, our plan was to 

transform Signet into a small business that initially focused on IRS 

IT procurements. 

When we considered how we could best position the company to 

support the agency, we came to learn that the IRS desired to 

award contracts to small businesses, and decided to pursue 

HUBZone and Service-Disabled Veteran-Owned Small Business 

credentials. We have never received any improper preferential 

treatment, and we have competed fairly for every IRS contract that 

we have received. 

In the short time frame that we’ve owned Strong Castle, our 

company has made meaningful contributions to the IRS mission 

and offered the government cost-effective solutions to very difficult 

problems. We’ve also been instrumental in forming teams with 

large software and hardware suppliers and the IRS. 

In order to improve the company’s competitive posture, in early 

2012, as we began working with the Department of Veteran Affairs 

and the Small Business Administration to have Strong Castle 

qualified as a Service-Disabled Veteran-Owned Small Business 

Concern and a HUBZone Business Concern. We understood that 

these credentials were important because the IRS’s increased focus 

on awarding contracts to small business. In order to achieve small 

business participation goals, the IRS drafted some solicitation to 

give favorable consideration to qualified SDVOSB and HUBZone 

concerns. 

In order to compete, we approached the VA and the SBA to apply 

for SDVOSB verification and HUBZone certification. We worked 

closely with the VA and the SBA throughout the application process. For example, we attended multiple HUBZone boot camps, presentations at which representatives of the HUBZone office were 

speakers. After meeting them, we continued to communicate frequently and regularly with them, often on a daily basis. The SBA 

advised us on all aspects of our HUBZone qualification, including 

the establishment of our principal office in a HUBZone and the hiring of college student employees. Because we believed the 

HUBZone status would be a significant benefit to the company, we 

consulted with the SBA on every detail of our application and 

plans. 

We worked diligently, at enormous personal and financial expense, to cooperate with the investigation and to respond to all of 

the committee’s requests for documents. So far we’ve produced over 

20,000 documents, including business records, email communications, text messages and personal information. 

The cost of our effort to cooperate with the committee has been 

tremendous. The mischaracterization of the facts have caused 

45 

Strong Castle to lose contracting partners, lines of credit, and goodwill among our important customers. It has hurt our reputation. 

Having responded to the committee’s request for documentation, 

I believe that we’ve addressed the central issues of the interests of 

the committee. First, it is not true that Strong Castle received $500 

million in IRS contracts. Strong Castle successfully competed for 

blanket purchase agreements, pursuant to which the IRS may or 

may not issue subsequent orders. 

In reality, Strong Castle’s received from the IRS valued contracts 

of approximately $50 million, for which, as Ms. Tucker previously 

mentioned, 49 million went to the large business providers. Of that 

amount—and approximately 1 million to Strong Castle. Last year, 

our company lost approximately $140,000. 

Second, it is simply not true that Strong Castle had no track 

record of past performance on government contracts. The company 

that we purchased had experienced contracting with the government, and I personally had worked with the IRS for almost 15 

years. My prior experience is directly relevant to the work that we 

perform at the IRS. As a company, Strong Castle is uniquely qualified to serve the IRS based on our years of past performance. 

Third, Strong Castle has not received inappropriate preferential 

treatment from the IRS. We competed fairly for each blanket purchase agreement and any contract order that we received. To my 

knowledge, Strong Castle has never received any contract award 

to—as a result of inappropriate preferential treatment. 

Fourth, Strong Castle has been entirely open, truthful and forthcoming with the SBA. Because obtaining HUBZone status was significantly important to the company, we took extreme care to work 

closely in consultation with the HUBZone office and sought approval and guidance throughout the certification process. 

Strong Castle has not sought, nor has it received, unfair advantage in its pursuit of any government contract. We are a responsible small business. Unfortunately, other companies are able to 

use status challenges as competitive weapons against us. 

Despite these challenges, Strong Castle remains committed to delivering results as a valued small business partner to the United 

States and the IRS, as I have done for nearly 15 years. 

Thank you. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Castillo follows:] 

46 


Insert offset folio 29 here 82275.029

June 25, 2013 

.AI 

STRONG CASTLE 

Opening Statement of Braulio Castillo 

President and CEO 

Strong Castle, Inc. 

Chainnan Issa, Ranking Member Cummings, and Members of the Committee: 

My name is Braulio Castillo. I am the President and Chief Executive Officer of Strong Castle, 

Inc., and I am pleased to have the opportunity to address the House Oversight and Government 

Refonn Committee on the subject of Strong Castle's contracting practices with the Internal 

Revenue Service. 

Company Background 

In January 2012, my wife and I purchased a small company called Signet Computers, Inc. 

("Signet"). At the time of the purchase, Signet had over fifteen years of experience as a 

government contractor. Because I personally have fifteen years of experience serving the IT 

needs of the IRS, our plan was to transfonn Signet into a small business that focused initially on 

IRS IT procurements. 

When we considered how we could best position the Company to support the agency, we came 

to learn that the IRS desired to award contracts to small businesses, and decided to pursue 

HUBZone and Service-Disabled Veteran-Owned Small Business (or "SDVOSB") credentials in 

order to increase our competitive position. 

Soon after we purchased Signet, we changed the name of the company to "Strong Castle, Inc.," 

which reflects the English translation of my last name. 

We have never received any improper preferential treatment, and have competed fairly for every 

IRS contract that we have received. In the short time that we have owned Strong Castle, 1 

believe that the Company has made meaningful contributions to the IRS's mission, and offered 

the government cost-effective solutions to very difficult problems. We also have been 

instrumental in fonning teams with large software suppliers and the IRS. 

SDVOSB and HUBZone Applications 

In order to improve the Company's competitive posture for small business contracts, in early 

2012, my wife and I began working with the Department of Veterans Affairs and the Small 
47 


Insert offset folio 30 here 82275.030

Business Administration to have Strong Castle qualified as a Service-Disabled Veteran-Owned 

Small Business Concern and a HUBZone Small Business Concern. 

We understood that these small business credentials were important because of the IRS's 

increased focus on awarding contracts to small businesses. In order to achieve high internal 

small business participation goals, the IRS drafted certain of the agency's solicitations to give 

favorable consideration to qualified SDVOSB and HUBZone concerns. 

In order to compete with other small businesses, we approached the V A and the SBA to apply 

for SDVOSB verification and HUBZone certification. We worked closely with the VA and the 

SBA throughout the application process. For example, we attended multiple HUBZone "boot 

camp" presentations at which Mariana Pardo and Brenda Washington of the SBA's HUBZonc 

office were speakers. After meeting Ms. Pardo and Ms. Washington, we continued to 

communicate frequently and regularly with them, and often on a daily basis. 

The SBA advised us on all aspects of HUBZone qualification, specifically including the 

establishment of a principal office in a HUBZone, and the hiring of college student employees. 

Because we believed that HUBZone status would be a significant benefit to the company, we 

consulted with the SBA on every detail of our applications and plans. The SBA approved Strong 

Castle's HUBZone application on June 22, 2012. 

At the time, we believed that we were acting prudently by maintaining close communications 

with the SBA and seeking its guidance. As we now know, our reliance on thc HUBZone 

regulations and SBA's guidance was insufficient to protect us from the volatile business and 

political environment of the day. Ultimately, our participation in these small business programs 

has caused our Company and our family to face intense and costly scrutiny from the Government 

Accountability Office, [rom Congress, from the press, and from the SBA. 

Indeed, last month, the same individuals at the SBA who helped shape our HUBZone 

applications and strategy issued a decision decertifying Strong Castle from the HUBZone 

program. We believe that the substance of this enforcement action reflects a new bias against the 

Company, and we are working to address the issue with the Ombudsman. 

Cooperation by Strong Castle 

Since receiving copies of the Committee's February 20, 2013 letter to Acting Treasury Secretary 

Wolin, we have worked diligently and at enormous personal and financial expense to cooperate 

with the investigation, and to respond to all of the Committee's extensive requests for 

document~. Thus far, we have provided more than 20,000 documents, including business 

records, e-mail communications, text messages, and even the college registration papers and 

class transcripts of our student employees. 

The cost of our efforts to cooperate has been tremendous. The mischaracterization of the facts 

has caused Strong Castle to lose contracting partners, lines of credit, and goodwill among our 

important government customers. It has hurt our reputation. 

2 
48 


Insert offset folio 31 here 82275.031

The Corrected Record 

Having responded to the Cornmittee's requests for documents and infonnation, I believe Strong 

Castle has addressed the central issues of interest to the Cornmittee that are reflected in the 

February 20 letter to Acting Secretary Wolin. 

1. First, it is not true that Strong Castle received $500 million in IRS contracts. Strong 

Castle has successfully competed for Blanket Purchase Agreements pursuant to which the 

IRS mayor may not issue subsequent orders to Strong Castle. In reality, Strong Castle 

has rcceived contracts from the IRS valued at approximately $50 million in total. Of that 

amount, approximately $49 million has gone to Strong Castle's suppliers and other 

partners, and approximately $1 million has gone to Strong Castle. Last year, Strong 

Castle lost approximately $138,000. Strong Castle's losses this year will be even greater 

due in part to the costs of defending the GAO protests and cooperating with this 

investigation. 

2. Second, it is simply not true that Strong Castle has no "track record or past perfonnance" 

on government contracts. As I mentioned, the company that we purchased in 2012 had 

more than fifteen years of contracting with the government, and I personally have worked 

with the IRS for almost twenty years. My prior experience at Xerox Corporation, 

Oracle/Sun Microsystems, Government Acquisitions, Inc., and Capgemini Government 

Solutions is directly relevant to the work that Strong Castle now perfonns for the IRS. 

As a company, Strong Castle is uniquely qualified to serve the IRS based upon our years 

of past perfolmance. 

3. Third, Strong Castle has not received inappropriate preferential treatment from the IRS. 

We competed fairly for each Blanket Purchase Agreement and contract order that we 

received. To my knowledge Strong Castle has never received any contract award as a 

result of inappropriate preferential treatment. 

4. Fourth, Strong Castle has been entirely open, truthful, and forthcoming with the SBA in 

connection with the HUBZone application process. Because obtaining HUBZone status 

was significantly important to the Company, we took extreme care to work in close 

consultation with the HUB Zone office, and sought approval and guidance for every 

action that we took during the certification process. All of our actions were taken in 

consultation with the SBA, and we have never sought to deceive the government. 

Conclusion 

Strong Castle has not sought nor has it received any unfair advantages in its pursuit of any 

goverrunent contract, including those that the Company has pursued at the Internal Revenue 

Service. 

We are a responsible small business, and have expended a great deal of time, effort, and money 

to pursue our HUBZone and SDVOSB credentials. In so doing, we have worked closely with 

3 
49 


Insert offset folio 32 here 82275.032

the V A and the SBA, and have endeavored to remain qualified under the complex terms of both 

small business programs. 

Unfortunately, other companies are able to use status challenges as competitive weapons in their 

efforts to overturn contract award decisions made by agencies pursuant to formal procurement 

procedures. In this case, Strong Castle has already spent hundreds of thousands of dollars to 

defend itself in a politically charged environment. 

To reiterate: 

• Strong Castle was properly awarded all of its IRS Contracts. 

• Strong Castle did not reeeive any inappropriate advantage in pursuing its GSA Schedule 

Contract. 

• Strong Castle was duly verified as a Service Disabled Veteran Owned Small Business by 

the VA. 

• Strong Castle was properly designated as a HUBZone business. 

Our critics are other small businesses who are disappointed bidders for the same contracts that 

were awarded to Strong Castle. We believe that they have used the bid protest process at GAO 

and the status protest process at SBA to gain business advantages by spurious claims about our 

qualifications and contracting practices. 

These tactics have been successful. The combined pressures and expense of defending multiple 

bid protests, a proposed HUBZone decertification, and this investigation have gravely harmed 

our ability to remain in business and serve the government customer. 

Despite these challenges, Strong Castle remains committed to delivering results as a valued small 

business partner to the United States and the IRS, as I have done for nearly fifteen years. 

4 
50 

Chairman ISSA. Mr. Castillo, you talked about the experience of 

your company in 15 years. How many common employees do you 

have? In other words, how many employees at the—at your firm 

have been there 15 years? 

Mr. CASTILLO. No one has been there 15 years. 

Chairman ISSA. Ten years? 

Mr. CASTILLO. Of the employees? 

Mr. ISSA. Ten years? 

Mr. CASTILLO. None of them have been there 10 years. 

Mr. ISSA. Five years? 

Mr. CASTILLO. I don’t believe anyone—well—— 

Chairman ISSA. One year? 

Mr. CASTILLO. One year? All of them have been there 1 year or 

less. We have—— 

Chairman ISSA. Wait a second. 

Mr. CASTILLO. —January of—— 

Chairman ISSA. No, no. You made an assertion of prior experience. The fact is, the company you bought and the employees of 

your current company have nothing in common. So where—I ran 

a company. I built a company over 20 years. Where is that legacy 

experience that you are claiming your company has? 

Name an employee that, when you bought the company that had never done more than $250,000 in contracting, name the employee 

that is part of that experience that is with you here today. 

Mr. CASTILLO. Of what timeline, sir? 

Chairman ISSA. Well, you claimed 15 years. You bought the company a year and a half ago. How many employees came when you 

bought the company? 

Mr. CASTILLO. Two employees and the owner at the time. 

Chairman ISSA. And where are they today? 

Mr. CASTILLO. The owner left in September of last year, and one 

of the two—we bought a small company with two employees. One 

of them is still there. One—— 

Chairman ISSA. Okay. Well, I just want the public to understand. 

You are claiming this experience and legacy, and now you are 

claiming that, in reality, three employees gross, one was the employer, only one of which is with you today. So, quite frankly, you 

swore an oath to tell the truth and the whole truth. That is shading the truth pretty close, to claim 15 years of experience with essentially no employees, for all practical purposes. 

Ms. Tucker, our committee, back when we sent the letter to you, 

or to the Acting Treasury Secretary, and you got involved in it back 

in February and March, we asked you about this. And, at that 

time, you said there was no ‘‘there’’ there. Do you stand by that 

today, in the case of this investigation? 

Ms. TUCKER. No, sir, I don’t. 

Chairman ISSA. Turn your mic on, please. 

Ms. TUCKER. No, sir, I—let me just be clear. The information 

that we have seen about the personal relationship with Mr. Roseman and Mr. Castillo is inappropriate. Mr. Roseman should have 

recused himself immediately from any involvement whatsoever in 

any IRS interactions with Strong Castle. 

Let me be clear also, and I think as your staff members interviewed extensively IRS procurement officials, that they all stated 

51 

on the record that they were unaware of any relationship with Mr. 

Roseman. 

Chairman ISSA. No, I understand. And, you know—— 

Ms. TUCKER. And—— 

Chairman ISSA. Ms. Tucker, you can’t have it both ways. You 

can’t say you don’t know what our people said while your lawyers 

were in those interviews and then start saying what your people 

said in our interviews. 

So let me use my time more briefly. Just this past Monday, you indicated you were not going to cancel the $266 million contract to 

Strong Castle. My understanding a few minutes ago is you now are 

going to cancel that and put it on hold; it is not so important as 

to not be reworked. Is that correct? 

Ms. TUCKER. Mr. Chairman, what I told members of your staff 

on Monday was that we were exploring options. 

Chairman ISSA. Okay. Well, now, let’s get to this part about the 

money. When you provide a contract, when the Federal Government—and your other witnesses hopefully are helpful—you provide 

a contract to a disabled veteran, like Mr. Castillo, and in a 

HUBZone, the IRS, as I understand it, took full credit for this hundreds of millions of dollars as though they went to that company. 

Isn’t that true? You didn’t take credit for 1 percent of it going to 

a disabled veteran and a small business in a HUBZone; you took 

credit for $500 million. Isn’t that correct? 

Ms. TUCKER. Mr. Chairman, Internal Revenue Service followed 

the—— 

Chairman ISSA. Ma’am, you’re not a witness that I’m terribly 

thrilled at today because you did ignore this until we pressed and 

pressed and pressed. The fact is—and I will go to either of the 

other two witnesses, Mr. Flohr or Mr. Chodos. 

When the IRS awards $500 million, they don’t do it on the net 

that might go, if you will, the skimmed-off-the-top profit, for absolutely no participation in the actual delivery of services. They take 

the gross amount, don’t they? This is scored as hundreds of millions of dollars going to a HUBZone. Isn’t that correct? 

Mr. CHODOS. Mr. Chairman, the ultimate credit for the contract 

is for the dollars incurred. And the dollars incurred are gross, 

so—— 

Chairman ISSA. Okay. So for the American people here today, 

one of the frauds on the American people and for us on the dais 

is we get these report cards talking about hundreds of millions and 

billions of dollars going to our disabled veterans, hundreds of millions and billions of dollars going into these blighted zones that we 

are trying to encourage—I call them enterprise zones; HUBZone 

happens to be one form of it. We are scoring $500 million. And then 

somebody comes here—Ms. Tucker, I’m picking on you for a reason—and tries to say, well, it is minuscule. 

Our indication is that this contract cost more than it would have 

cost if it had been competitively bid to the principals. And, clearly, 

every cent that Mr. Castillo got, from what we can tell, without 

having a true principal operation—and the witnesses did make it 

pretty clear they don’t go there. The people who had real money 

don’t go there. A few college students show up and surf the Internet looking for potential new contracts. That, in fact, was scored as 

52 

hundreds of millions of dollars to help people in blighted areas and 

to help a disabled veteran, who it turns out played college ball for 

years and didn’t limp or have a problem until he got ready to apply 

for this special status. 

I have a scoring problem here today, and I think my ranking 

member and everyone on the dais—and, Mr. Flohr, you didn’t get 

a chance, and I’m going to go to the ranking member now. 

But bear in mind, it’s not about Mr. Castillo per se. He may not 

have broken a single rule. That’s for others to determine under the 

law. But we were shocked to discover that we are scoring as though 

we are doing a lot of good for disabled veterans, not people who 

turn their ankle and have no problem for 27 years until it’s time 

to conveniently become a disabled veteran. 

And we were scoring impact to blighted communities, when, in fact, that score is at best fraudulent. We are scoring apparently $1 

million but writing it in as 10 times or 100 times that. So that is 

part of what this hearing is here today. That is why the ranking 

member and I are teammates on this. 

This is an example of an agency that conveniently had a large 

contract, may or may not have gotten the best value for the American taxpayer. But, certainly, for the two gentlemen to your left, or 

your right, Ms. Tucker, they’re in a position where, complying with 

the law, they’re, in fact, not seeing you deliver the value appropriately to the American people for these set-aside-type events. 

Mr. Cummings? 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Ms. Tucker, I’m going to just pick up where the chairman left off. 

Help me with this. 

You apparently had not made a decision on an IBM contract on 

Monday. Is that right? 

Ms. TUCKER. That’s correct. 

Mr. CUMMINGS. And—— 

Ms. TUCKER. We were exploring options. We were troubled, but 

we had not immediately canceled the contract because the IBM 

software is critical to our mainframe operation. 

Mr. CUMMINGS. I understand. So what happened, what information came to you between Monday and this morning that caused 

you to say what you said? And when was that decision made to 

sever the relationships? If I’m misstating it, tell me. I think that’s 

what you said. 

Ms. TUCKER. Yeah. So, yesterday afternoon when we received the 

report from the committee, the procurement executive team and I 

met. And based on the email exchanges that we’re seeing in the report that we had not been made privy to—and, candidly, based on 

the fact that Mr. Roseman was repeatedly asked by his superiors 

if he had a personal relationship with Mr. Castillo and Strong Castle and he denied it. And I believe the detail that we saw excerpted 

in the report has raised considerable concern, that we are in the 

process of separating our relationship with Strong Castle. 

Chairman ISSA. Would the gentleman yield for a second? I will 

give him additional time. 

Mr. CUMMINGS. Sure. 

Chairman ISSA. Ms. Tucker, I only want to make sure that the 

ranking member understands the email you’re so horrified about 

53 

you gave us. That was part of the discovery. Your organization 

reads them before they deliver them to us. 

Ms. TUCKER. No—— 

Chairman ISSA. Thank you, Mr.—— 

Ms. TUCKER. No, sir, that’s incorrect. That’s not the email that 

I’m referring to. We did provide emails from the Internal Revenue 

Service system. The emails—— 

Mr. CUMMINGS. So the emails that you provided did not lead 

you—were not enough to get you to feel that there should be a severing. Is that right? 

Ms. TUCKER. Correct. 

Mr. CUMMINGS. Now, some additional emails came in. 

Ms. TUCKER. It’s actually text messages. 

Mr. CUMMINGS. Text messages, right. 

Ms. TUCKER. As I said in my opening statement, it’s text messages from—— 

Mr. CUMMINGS. In the report. 

Ms. TUCKER. —Mr. Roseman’s personal phone to Mr. Castillo 

that had not been shared with the Internal Revenue Service and 

that we were unaware of. 

Mr. CUMMINGS. So that basically was the straw that broke the 

camel’s back. Is that correct? 

Ms. TUCKER. Yes, sir. 

Mr. CUMMINGS. Mr. Chodos, tell me, just very briefly because I’ve 

got to talk to Mr. Castillo, tell me how many decertifications you 

have done, you all have done—do you know?—over the last 4 or 5 

years. Can you give us any idea? I’m trying to figure out how 

unique this is, decertification. 

Mr. CHODOS. Thank you, Representative Cummings. 

I can get you a full spread for the last 5 years of all 

decertifications. I believe we decertified approximately 1,500 or 

1,600 firms over the course of the last year. Some of those have 

been due to changes in the HUBZone-qualified census tract maps. 

Some of those have been due to specific issues with particular companies. 

Mr. CUMMINGS. Now, Mr. Castillo, I reviewed your testimony, 

and I have to admit that I’m troubled because you seem to take no 

personal responsibility for any of your own actions. In fact, you 

criticized everyone else but yourself. You even blame your current 

problems on—let me quote this—‘‘the volatile business and political 

environment of the day,’’ whatever that means. 

I would like to read from the letter that SBA sent to you on May 

23rd, about 1 month ago, formally notifying you that your company’s HUBZone status was revoked. Then I would like to get your 

response. 

The SBA letter says that you, ‘‘admitted that records provided 

were false and inaccurate.’’ I want you to put a pin on that. It says 

you, ‘‘did not provide SBA with reliable and accurate payroll 

records.’’ It says you do not have, ‘‘adequate internal controls.’’ It 

says that you tried to claim that your program manager, ‘‘is not an 

employee at all but rather a contractor.’’ It says you have, ‘‘a facetious attitude with regard to accuracy of records.’’ 

54 

You know, Michael Jackson had the song, ‘‘Man in the Mirror’’? 

You need to look in the mirror. It says your employees, ‘‘can record 

time worked as they please.’’ Wouldn’t we all like to have that job? 

So with all of that, Mr. Castillo, let me now give you a chance 

to respond. Do you admit that you submitted false records to SBA? 

Mr. CASTILLO. SBA did decertify us based on the records, and we 

have put measures in place to address some of those concerns. 

Mr. CUMMINGS. That’s not what I asked you. Do you admit that 

you submitted false records to SBA? 

Mr. CASTILLO. Yes. 

Mr. CUMMINGS. How do you respond to the other allegations? 

The SBA letter states that you only corrected these errors, ‘‘after 

being confronted with conflicting evidence presented by SBA.’’ So 

they weren’t problems you were identifying, were they? 

Mr. CASTILLO. No, sir. They identified them, and we corrected 

them. 

Mr. CUMMINGS. And so, Mr. Chodos, let me turn to you. You are 

here representing SBA, so what is your response to Mr. Castillo? 

Do you stand by your findings? 

Mr. CHODOS. Yes, Representative Cummings, the SBA stands by 

its findings that the decertification was justified under these facts. 

Mr. CUMMINGS. And so, going back to you, Mr. Castillo, what do 

you say about the SBA saying that you did not have adequate internal controls? I mean, what is your response to that? I want to 

give you an opportunity to respond—— 

Mr. CASTILLO. Sure. Yes, sir. 

Mr. CUMMINGS. —because you—there’s some problems here. 

Mr. CASTILLO. Yeah. Yes, sir. So they pointed out some inaccuracies, and we’ve put some corrections in place from a time-recording 

perspective. 

Mr. CUMMINGS. And so you admit that there were some problems 

with internal controls? 

Mr. CASTILLO. Yes, sir. 

Mr. CUMMINGS. Now, let me get to something that the chairman 

talked about that is extremely troubling to me. You know, I told 

you in my opening statement that I live in an area where black 

male unemployment is probably 25, 30 percent. I live in a 

HUBZone-type area where businesses are struggling. So I want the 

programs to be work properly, as I know the chairman does. 

The question is, can you tell me, outside of the Catholic University students and faculty, tell me how many other people outside 

of those that you employed from the HUBZone? 

Mr. CASTILLO. Of our 10 employees, sir, not counting the college 

students, we have 1 other HUBZone residence. 

Mr. CUMMINGS. So you had 10 employees—— 

Mr. CASTILLO. Yes, sir. 

Mr. CUMMINGS. —and are you telling me 9 of them were from 

Catholic University? 

Mr. CASTILLO. No, sir. What I was saying, we have approximately 10 employees. About five of them, per your count, are from 

Catholic University. One of them is from—not counting the Catholic students, is from a HUBZone. 

Mr. CUMMINGS. When did you hire that person? 

Mr. CASTILLO. May of this year. 

55 

Mr. CUMMINGS. Oh, so you—oh, you just hired her? 

Mr. CASTILLO. Yes, sir. We disclosed that to the committee during—— 

Mr. CUMMINGS. Okay. 

Mr. CASTILLO. —my transcribed interview, yes, sir. 

Mr. CUMMINGS. Then I guess if you were in my district, the folks 

that I’m talking about would not—they wouldn’t get a job from you 

unless they were at Catholic University, huh? Hello? 

Mr. CASTILLO. No, sir, I would not agree with that characterization. 

Mr. CUMMINGS. All right. 

Let me ask for a moment, just one other question, Mr. Chairman. 

Chairman ISSA. Of course. 

Mr. CUMMINGS. Mr. Castillo, it seems clear from the evidence 

that you wanted to take full advantage of the HUBZone program, 

and not to help D.C. residents or underutilized neighborhoods but 

to maximize your own profits. During your transcribed interview 

with the committee staff, you said this, ‘‘I knew that HUBZone was 

important, being from the industry. And so we went at it that 

way.’’ 

That’s what you said; is that right? 

Mr. CASTILLO. It’s—I don’t recall saying it, but, yes, I stand by 

that. 

Mr. CUMMINGS. And now, finally, what does that mean? What 

did you mean by that? 

Mr. CASTILLO. We moved our operations from northern Virginia 

to Washington, D.C., in a certified HUBZone and established our 

principal office there. That’s what I mean by that, sir. 

Mr. CUMMINGS. All right. 

Thank you very much, Chairman. 

Chairman ISSA. Would the gentleman yield for just one moment? 

Mr. CUMMINGS. Of course. 

Chairman ISSA. Mr. Castillo, just straight yes or no, because we 

have your interviews, your wife’s interview, and so on: Isn’t it true 

that all the Type A people who potentially sell or work on that contract live and effectively work elsewhere, that the testimony of 

yours, your wife, and other principals is that they don’t often go to 

that principal location, that in fact it isn’t manned full-time and 

that when it is manned it was mostly by college students who were 

looking for other contract potential and not executing in this contract, that your accounting operation and all those sort of key operations somebody would think as corporate headquarters were never 

located in that building? 

Mr. CASTILLO. So there was a few things in there, so I will try 

to address them, sir. 

So you’re right, the principal workers, I think you’d say Type A 

workers, all work onsite, at the government site. They don’t report 

to an office like in many other companies—— 

Chairman ISSA. Right. So the—maybe I will cut this down because I’m really on borrowed time. 

Mr. CASTILLO. Yes, sir. 

Chairman ISSA. You don’t work out of that office. Your wife 

doesn’t work out of that office. Those previous individuals that 

were from the previous company don’t even live in the area. One 

56 

lives in Boston; one lives in Florida. That, in fact, when we really 

look at it, the college—during the execution of this contract thus 

far, until a few day ago, basically, college students showed up there 

and surfed a few sites, which was not a direct part of any execution 

of this contract. Isn’t that true, that the HUBZone headquarters 

was in name only, it was not your principal place that you did business executing these contracts? 

Mr. CASTILLO. By ‘‘you’’ do you mean me, sir? 

Chairman ISSA. I mean you, your wife, or anybody other than 

these college students. 

Mr. CASTILLO. Yeah, I work out of our Leesburg HUBZone location, and my wife works out of our home as her—— 

Chairman ISSA. In the richest county in the country, Loudoun, 

right? 

Mr. CASTILLO. Yes, sir, I think I read that—tending to our five 

children, four of them which are under the age of 10 or under. 

The college students and any other worker that reported to an 

office reports to the Washington, D.C., office, which is why SBA established that as our principal office. We did have, as you mentioned, an employee from Florida, a former IRS executive, who 

lived there, who retired to that area. And the gentleman that 

you’re referring to in Boston actually works on a Top Secret facility 

in Hanscom Air Force Base. So that is located in Boston and onsite 

at the client site. 

Chairman ISSA. Yeah. 

Mr. CUMMINGS. Can I ask just one last question—— 

Chairman ISSA. Of course. 

Mr. CUMMINGS. —Mr. Chairman? 

Just based on what the chairman just said, I want to remind you 

that you’re under oath, and I want to ask you this question: Don’t 

you think you manipulated this process and frustrated the true 

purpose of this program? 

Mr. CASTILLO. No, sir. 

Mr. CUMMINGS. And why do you say that? 

Mr. CASTILLO. I don’t feel I manipulated it. That’s why I said 

that. 

Mr. CUMMINGS. You just admitted that you lied with regard to 

accuracy of the information. 

Mr. CASTILLO. Well, to your point, in a direct yes/no, we provided 

inaccurate information on our timesheets, not on our payroll statements, which we shared and have corrected since and put processes 

in place to correct them, sir. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Chairman ISSA. Thank you. 

Mr. Jordan? Oh, I’m sorry. Mr. Mica is here. 

Mr. MICA. Thank you. 

Ms. Tucker, your title is Deputy Commissioner for Operations 

Support. So you oversee the procurement process for IRS and personnel involved in that? 

Ms. TUCKER. Yes, sir. 

Mr. MICA. Uh-huh. And you gave a statement I guess pretty 

much waving the flag in support of some of IRS actions. And I’m 

sure there are thousands of people who every day get up and do 

a good job for IRS. 

57 

But representing people in a district in Florida, and just anywhere I go, I hear more complaints about the IRS. I think you have 

been in sort of a meltdown of scandals: the targeting of certain political organizations. We held a hearing a few weeks ago on conferences gone wild, spending with the IRS. I think on the wire 

today there is a story about credit card abuses. I don’t know if you 

oversee that. Do you see that too? 

Ms. TUCKER. Yes. That’s part of our procurement organization. 

Mr. MICA. Yeah. Well, that, again, is just an embarrassment. 

This hearing on the procurement process that, again, has gotten 

out of hand. I think we have lost great confidence, and probably for 

very good reason. 

It sounds like Mr. Castillo has sort of gamed the system, would 

you agree? 

Ms. TUCKER. Based on my understanding—— 

Mr. MICA. Well, okay, let me ask you a question. Let’s go back 

to—before the committee contacted you about this, had you or any 

employees of IRS, had you all been contacted about what was going 

on with Mr. Castillo and Mr. Roseman? 

Ms. TUCKER. Sir, let me—let me—— 

Mr. MICA. But wait. My question was, before the committee contacted you on the matter of this relationship, were you or any of 

the employees, if are you aware of them, notified that something 

was going on with Mr.—— 

Ms. TUCKER. No, sir. 

Mr. MICA. Absolutely no? 

Ms. TUCKER. No, sir. 

Mr. MICA. Okay. And since then, you have been rather reluctant 

until you’ve had the awakening just in the last few days that something was going wrong, had gone wrong here. 

Mr. Chodos, does it sound like SBA was gamed by this player? 

Mr. CHODOS. Congressman, it appears, from what we know—— 

Mr. MICA. Well, he just told you he provided you inaccurate information. 

Mr. CHODOS. Yes. And as a—— 

Mr. MICA. Thank you. 

Mr. CHODOS. —result of learning that the information was, in 

fact, inaccurate, I mean, it’s a pretty fundamental—— 

Mr. MICA. All right. 

Mr. CHODOS. —principle that we have certified—— 

Mr. MICA. So you—— 

Mr. CHODOS. —they have to provide us accurate information. 

Mr. MICA. —you agree, he gamed you. 

Now, Mr. Castillo, it appears you also gamed the Veterans Administration. We want our veterans with disabilities to have some 

special preference and standing. The only incident of disability was 

in—was it prep school, was it? Was there anything in active military service where you sustained a disability or injury? 

Mr. CASTILLO. The injury that I sustained was during my time 

at the prep school. 

Mr. MICA. But that wasn’t my question. My question, did you 

sustain an injury, again, in active military service, or were you disabled during that time? 

Mr. CASTILLO. So I—I’m not sure—— 

58 

Mr. MICA. In active military service. Were you in combat and 

had an injury where—— 

Mr. CASTILLO. No, my injury is not combat-related, sir. 

Mr. MICA. Okay. 

Mr. CASTILLO. It was during my—— 

Mr. MICA. Mr.—— 

Mr. CASTILLO. —Active Duty with the—— 

Mr. MICA. Mr. Flohr, it sounds like he’s gamed the system. 

Would you agree? 

Mr. FLOHR. Sir—— 

Mr. MICA. Come on, tell—yes or no? Has he gamed the system? 

Mr. FLOHR. Based on discussions, sir, that we had with your staff 

last week, we are not able to provide specific information regarding 

this claim without the release—— 

Mr. MICA. Okay. It sounds to me, Mr. Flohr, like he has gamed 

the system. That’s not what we intended—what Congress intended. 

I’m sad that VA can’t make that determination and say so publicly. 

Let me just also say, Mr. Castillo, you had a few contacts or a 

number of contacts, either by phone, by text, cell phone text, or 

other contacts, with Mr. Roseman. How would you—cell phone contacts, were they a few? Many? Texts, a few, many? Meetings, a few, 

many? 

Mr. CASTILLO. I probably have met with him over the last 5 

years about 10 times or so. And there were—there were text messages where we provided to the committee as part of the investigation. 

Mr. MICA. Well, Mr. Chairman, he just testified, again, a few 

times—between May and October, you and Mr. Roseman exchanged over 100 telephone calls. Don’t you think that that is in 

excess of what you just testified to? 

Mr. CASTILLO. I don’t believe they were telephone calls. I think 

you’re referring to text messages; is that right? 

Mr. MICA. Well, again, we have phone calls or, through the 

texting, over 100 messages. 

And then, in particular, you had a 21-minute telephone conversation between Mr. Roseman and yourself on the 7th of June, 2012. 

And to refresh your memory, that was the night before Mr. Roseman sent you the request for a quote for an $80 million laptopdesktop acquisition. 

So, one, you testified or you just indicated you had very few contacts, contrary to over 100 contacts by phone that we have. And, 

secondly, did you want—and, finally, do you want to comment on 

your 21-minute conversation with Mr. Roseman prior—— 

Chairman ISSA. The gentleman’s time has expired, but would you 

please answer? 

Mr. CASTILLO. I believe I testified that I met with him about 10 

times or so for the last 5 years. I didn’t comment on the number. 

I think I stated that I believe you’re referring to text messages 

versus—that we turned over versus telephone—— 

Mr. MICA. Mr. Chairman, may I—— 

Chairman ISSA. Briefly. 

Mr. CASTILLO. —cell or phone, text, and meetings—three different. 

Chairman ISSA. Duly noted. 

59 

Mr. CASTILLO. So I don’t know the number of telephone calls. I 

believe the text messages I’m very much aware with because I met 

with committee staffers and counsel last week or so and we went 

over them, or the ones that we’d provided. And I don’t recall what 

the conversation was about on June 7th, sir. 

Chairman ISSA. As I go to Ms. Norton, Mr. Castillo, I know Mr. 

Roseman said there wasn’t a friendship. I believe you have repeatedly said there was. You haven’t been quite as—you’ve been on the 

opposite side of that. So these texts are not unexpected, in that you 

said you do have a long relationship with Mr. Roseman. 

Mr. CASTILLO. I’ve worked in support of the IRS for about 15 

years or so. The last 10 years, I mean, since—— 

Chairman ISSA. But since 2003 he has been what you would 

characterize as a friend? 

Mr. CASTILLO. I would say a customer. I met him through my 

previous employer, where they were very, very good friends. And 

we held a contract there at my previous employer, which was a 

small business—— 

Chairman ISSA. Okay, so customer, not friend, is your testimony 

today. 

Mr. CASTILLO. No, sir, I didn’t say that. Because I think I’m on 

record as saying—so we have a business relationship, but I believe 

he is—that we’re friendly or friends. So I’m not changing my testimony that I believe that—— 

Chairman ISSA. Well, I think Mr. Mica was trying to get to the 

question based on this communication, because we do have a witness, not here today, who has said to the IRS that you were not 

friends. 

Yes or no, are you friends under your definition of ‘‘friends’’? 

Mr. CASTILLO. Yes, I would think I’ve been clear—I mean—or 

I’ve stated that several—— 

Chairman ISSA. Thank you. I just want to make sure because I 

know the Treasury wants to understand the disparity in interpretation of friends between an individual who did not disclose and 

yourself. And I’m not trying to put anyone on the spot. I just think 

Mr. Mica deserves a yes or no on that. 

Mr. CASTILLO. I’m not sure he asked me if we were friends or if 

I characterized it. So based on my 10 years of working with him, 

I would say we have a good business relationship and I would consider him a friend under my definition. 

But to be clear, I wish he was here to testify. I’m a small-business owner of 10 or so folks, and I’m here willingly, and I’ve actively participated. I’ve attended everything that you’ve asked me 

to attend. We’ve made every employee available to you. We’ve 

turned over an immense amount of documents, including the text 

messages that you reference. And I would say that we fully have 

cooperated or have tried to do so. 

Chairman ISSA. Well—and this is not my time, so, Ms. Norton, 

if you’d be indulgent for one more moment. 

We have no objection to exactly that. From the get-go, you have 

come in and asserted that you believe you did nothing wrong. One 

of the reasons for this hearing today is we believed, from an IRS 

execution of the contract, it was not appropriate. And, you know, 

we intervened when we believe that. 

60 

And, obviously, we have the SBA here today and the Veterans 

here today because we believe that there needs to be a reform in 

a portion of the process under which you were given these statuses. 

And those are the three points here today. 

But I do appreciate and I want to note for the record that, yes, 

from the get-go, you’ve come in and said, ‘‘I don’t believe I did anything wrong, I will cooperate,’’ and you have. 

Ms. Norton, thank you for your indulgence. 

Ms. NORTON. Yes, and thank you, Mr. Chairman. 

Let me preface my question by indicating that when this program was initiated in the late ’90s, I think 1997, it was done without hearings. The Republican Senator from Missouri, Chris Bond, 

inserted it into an SBA reauthorization. And it seemed like a good 

idea. It seemed to bring together really some of the visions of one 

of my good friends, the late Jack Kemp, to marry his notions of the 

market system and capitalism with his concern for the inner city. 

By the time the Democrats took control of the Congress, its chair, 

Nydia Velazquez, was so disgusted with the program because there 

had been hearings in all of the major cities showing terrible abuse 

by large companies of the HUBZone program. And some of us went 

to Nydia and said, well, you know, it’s a new President, give him 

a chance to clean it up. 

I don’t have any evidence that the program is still like it was 

when those hearings were held throughout the United States showing that big companies had wholesalely abused the notion, but, obviously—and so I do think the program must have improved or else 

we would’ve heard more about that by this time. But I can’t say 

the same for what I’m hearing today. 

I have to tell you, Mr. Castillo, that this hits a bit close to home. 

You, of course, don’t live in D.C. That’s allowed. You’re from a 

wealthy Virginia suburb. That’s allowed. You rented a tiny office 

in Chinatown, and then you recruited students from Catholic University to do the work after you received the contract. 

Why didn’t you go to Wards 7 and 8, which, of course, is the part 

of the city—if you were not going to do it in your own HUBZone, 

which is a part of the city where unemployment is high, it’s classically a part of the city where you could’ve found people to do the 

work, and fully met the notion embodied in the HUBZone, that 

people who live in disadvantaged areas would have some investment in the area and could get employment whereas they could not 

before, why didn’t you go to Wards 7 and 8 instead of going to 

Catholic University? 

Mr. CASTILLO. So, ma’am, I don’t know the wards very well. I 

apologize. I’m not well—— 

Ms. NORTON. Well, you know it well enough to go to Catholic 

University. 

Mr. CASTILLO. Yeah. So—and, ma’am, just to state, the college 

employees that we hired were hired before we—the awards. We put 

together two initiatives. One—— 

Ms. NORTON. Whether they were hired before or after the 

awards, the purpose of the HUBZone is to hire disadvantaged people. Were these Catholic University students disadvantaged people? 

Mr. CASTILLO. They were residents of a HUBZone that we employed. 

61 

Ms. NORTON. You say in your testimony, all of our actions were 

taken in consultation with the SBA, and we have never sought to 

deceive the government. 

Do you believe that hiring college students who go to an expensive private university is in keeping with the goals of this program? 

Mr. CASTILLO. Yes, ma’am. 

Ms. NORTON. Mr. Chodos, do you believe that hiring students 

who go to a private university, an expensive one at that, is in keeping with the goals of the program? 

Mr. CHODOS. Thank you, Representative Norton. 

The answer to your question is this: The HUBZone program, as 

you have said, is designed to spur investment in and economic development in place-based—— 

Ms. NORTON. Do you believe that the hiring of students at a private university meets the goals of the HUBZone program? 

Mr. CHODOS. We have seen many entities throughout time that 

hire students. Many students, of course, take on great debt in order 

to better themselves and their families—— 

Ms. NORTON. He had hired no students except, until recently— 

he had hired no employees except students from this zone. And 

then we learned in May that he did, in fact, hire someone who was 

not a Catholic University student. 

Now, I love Catholic University. I’m trying to marry what the 

zone is about with the actions that were taken here. And I want 

to know whether you believe and whether SBA believes this is in 

keeping with the goals of the program. 

Mr. CHODOS. So long as they are residents of the community 

and—— 

Ms. NORTON. So, as far as you know, throughout the United 

States, people are going and finding—people who are, by definition, 

advantaged because they’ve gotten to college, which most Americans do not, and they may be hiring college students all over the 

United States, rather than bona fide residents. 

You don’t even know that these Catholic University students 

were residents of the District of Columbia. While they live here, 

they of course are residents. They eat and live in the dormitories 

or in a surrounding neighborhood. We’re glad to have them. But 

you don’t even know that they are residents of the city or that they 

meet the notions of ‘‘disadvantaged’’ embodied in the HUBZone 

itself. 

Mr. CHODOS. Well, what we know is what they certify to us, 

which is that they are residents and are planning to live in the 

HUBZone—— 

Ms. NORTON. Well, I’m going to have to ask whether or not you’d 

be willing to ask HUBZone recipients, HUBZone contract recipients, whether they hire college students so that we will know how 

widespread this practice is. 

Mr. CHODOS. Well, let me say this: We agree with you completely. The purpose of the program is not to focus upon college 

students; it’s to focus upon employment in these places. And—— 

Ms. NORTON. But you can’t say today that that isn’t the practice 

not only of Mr. Castillo but of many like Mr. Castillo across the 

United States. 

62 

Mr. CHODOS. I can say that the practice occurs in various places 

at various times. I do not have the data, and I can see if the data 

is available, about exactly how many employees—— 

Ms. NORTON. I would very much appreciate your seeing if the 

data is available. I think a simple questionnaire, how many of your 

employees are college students, would help us to make sure that— 

the chairman said we wanted to have the needed reforms, but 

there may be no sense until this case came up that that could 

amount to an abuse. 

Look, I’m not against the college students. I’m saying if it is a 

systematic practice, you can see what the effect would be if the 

purpose was to make sure that disadvantaged people in the neighborhood were employed. 

So I ask that you submit within 30 days whatever you can find 

on that. 

And one more question, if I may? 

Chairman ISSA. Briefly. 

Ms. NORTON. Mr. Castillo, you indicated something about most 

of the money went to the parent company or to the large company, 

that you made $1 million, your company made $1 million. What’s 

the value of your company? 

Mr. CASTILLO. Last year we reported $8 million in sales, and we lost $140,000 based on those sales. 

Ms. NORTON. But you just testified that $49 million, but your company got $1 million of that. 

Mr. CASTILLO. Yes, ma’am, in gross profits, not in net profits. 

So—— 

Ms. NORTON. I would just submit, for an $8 million company, $1 

million from one contract is very lucrative or, as you said in one 

of your emails to your wife, pay dirt. 

Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. 

And I might note for the record that, as a small-business man 

for many years, if I chose to pay myself no salary, I might make 

half a million dollars, and if I chose to pay myself half a million 

dollars, I might make no money. So with Mr. Castillo and his wife 

as principal employees, I wanted to be clear that the balance sheet 

and the income statement are somewhat not the same as, let’s say, 

a Fortune 500 company’s interpretation of its profits. 

Ms. NORTON. That’s why I wanted to know the worth of the company. 

Chairman ISSA. Yeah. Well, you know, clearly, without these contracts, it will be less. 

With that, we go to the gentleman from Ohio, Mr. Jordan. 

Mr. JORDAN. Ms. Tucker, you’ve been at the IRS 29 years? 

Ms. TUCKER. Yes, sir. 

Mr. JORDAN. And you’re Deputy Commissioner; is that correct? 

Ms. TUCKER. Deputy Commissioner—— 

Mr. JORDAN. How many Deputy Commissioners are there? 

Ms. TUCKER. Two. 

Mr. JORDAN. Is there anyone between the Deputy Commissioner 

and the Commissioner? 

Ms. TUCKER. No. 

Mr. JORDAN. So you’re right near the top? 

63 

Ms. TUCKER. Yes, sir. 

Mr. JORDAN. One month ago, Inspector General Russell George 

gave the committee information that he informed the IRS on May 

30th, 2012, that targeting of conservative political groups was taking place. 

And, in fact, if we can put that up on the screen. This is from 

the TIGTA timeline he gave this committee. 

And he says in that meeting, these terms were used, ‘‘Tea Party,’’ 

‘‘Patriots,’’ ‘‘9/12,’’ that there were three people in that committee, 

or in that meeting: Mr. Shulman, who is no longer with the IRS; 

Steve Miller, who has been fired; and you. 

Now, Mr. Shulman testified a month ago in this committee that 

that was the first time he knew targeting was taking place. Was 

that the first time you knew about the targeting at the IRS? 

Ms. TUCKER. That was the first time I was aware of the situation, yes. 

Mr. JORDAN. Now, Mr. Miller has also—we’ve also been informed, the committee, through talking with Nan Marks, an employee at the IRS, that there was an internal investigation 

launched by Mr. Miller in March of 2012. Did you know about that 

internal investigation? 

Ms. TUCKER. No, sir. 

Mr. JORDAN. And the results of that were Mr. Miller knew about 

what was going on May 3rd of 2012. Did you know the results on 

May 3rd? 

Ms. TUCKER. No, sir. 

Mr. JORDAN. So the earliest you knew about it was the same 

time Mr. Shulman testified and what you’re testifying to today, 

was May 30th of last year. 

Ms. TUCKER. Yes, sir. 

Mr. JORDAN. And you’re familiar with the fact that Mr. Shulman 

testified in front of the Ways and Means Committee in March of 

last year, where he said this. First, Mr. Boustany asked him, ‘‘Can 

you give us assurances that the IRS is not targeting political 

groups?’’ Mr. Shulman said, ‘‘Yes, I can give you assurances. We 

pride ourselves on being a nonpolitical, nonpartisan organization.’’ 

So just 2 months prior to learning that targeting was going on, he 

gave assurances. 

Now, there’s usually, when you give assurances, there’s some 

basis for assurances. Were you part of the basis for assurances that 

Mr. Shulman gave the Ways and Means Committee in March of 

2012? 

Ms. TUCKER. No, sir. 

Mr. JORDAN. You did not have any conversation with Mr. 

Shulman before he went and testified in front of the Ways and 

Means Committee? 

Ms. TUCKER. No, sir. 

Mr. JORDAN. In the meeting that took place on May 30th, the 

meeting that’s highlighted there on the TIGTA timeline, when you 

learned that the targeting was taking place, what was the reaction 

in that meeting? 

Was it, ‘‘Oh, sugar, we’ve got to do something here?’’ Was it, 

‘‘We’ve got to correct the record?’’ What was the reaction when the 

three top people at the IRS learned that this was going on? 

64 

Ms. TUCKER. So, if I might, TIGTA, the Treasury Inspector General, comes in once a month to meet with—— 

Mr. JORDAN. Cut to the chase. What was the reaction? You find 

out there’s targeting of political groups 6 months before a Presidential election. What was the reaction from the top three people 

at the IRS? 

Ms. TUCKER. TIGTA reported the information that they were 

looking into the audit. And then, at that point in time, IRS waits 

for TIGTA to complete their investigation. 

Mr. JORDAN. That’s not what they told you. They told you ‘‘Tea 

Party,’’ ‘‘Patriot,’’ ‘‘9/12’’ were identifying terms used to put groups 

on a list who were never given the tax-exempt status they sought. 

In some cases, they’d been trying to get it for 3 years. 

You learned that May—or, excuse me, May 30th, 2012. And your 

reaction was, oh, we’ll just kind of let it keep going and see what 

TIGTA comes up with? 

Ms. TUCKER. No, sir. 

Mr. JORDAN. I mean, earlier in your testimony, you said to the 

chairman, you know, it would be helpful if this committee would 

share information with us at the IRS about the issue that’s in front 

of the committee today. 

Well, it would’ve been helpful if, once you got that information, 

you’d have shared it with this committee. We would’ve liked to 

have—and, in fact, we are the committee who asked for the audit 

in the first place. We would’ve liked to have known 6 months before an election, May 30th of last year, that targeting was going on. 

Did you instruct Russell George to share this information with 

the House Ways and—Ways and Means Committee and with the 

House Oversight Committee? 

Ms. TUCKER. Sir, my—— 

Mr. JORDAN. Well, that’s a question. Did you tell Mr. George, 

‘‘You know what, this is pretty important information. We just now 

learned today,’’ according to your testimony, ‘‘that this is going on.’’ 

Did you tell Mr. George, you know, ‘‘You might want to share that 

with the Oversight Committee,’’ specifically since Mr. Issa is the 

one who requested the audit? 

Ms. TUCKER. No, sir, that was not my responsibility. I have responsibility at Internal Revenue Service for—— 

Mr. JORDAN. Well, let me ask you this. What—— 

Ms. TUCKER. —operation. 

Mr. JORDAN. But the point is, you were in the meeting. The other 

two guys are gone. Mr. Shulman’s gone, Mr. Miller’s been fired. 

You’re the highest-ranking official at IRS in that meeting. You 

knew about it a year ago. Didn’t you think it was incumbent upon 

you to set the record straight? 

Your boss, Mr. Shulman, had just testified 2 months earlier and 

told Congress nothing was going on. He finds out 2 months later, 

in fact, it is going on. You’re the highest-ranking official still at the 

IRS. You didn’t think it was appropriate to come tell Congress 

what was taking place? 

Ms. TUCKER. The TEGE organization does not report to me. 

Mr. JORDAN. Why didn’t you correct the record? Why didn’t you 

just come—why didn’t you come to Mr. Issa and say, ‘‘You know 

65 

what? What Mr. Shulman’’—did you tell Mr. Shulman he should 

correct the record? 

Ms. TUCKER. No, sir, I did not. 

Mr. JORDAN. And—well, let me ask you this. Have you been disciplined by Mr. Werfel for not correcting the record? 

Ms. TUCKER. No, sir. It’s not in my purview. 

Mr. JORDAN. Well, you’re Deputy Commissioner. You’re in the 

meeting. You learned about it that day, right? 

Ms. TUCKER. Mr. George told us in his routine monthly meeting 

that they were doing an investigation of TEGE. 

Mr. JORDAN. We understand that. All I’m asking is, there’s got 

to be some reason why—you didn’t feel any obligation, any reason 

that you should come forward and set the record straight? The Inspector General told the IRS what was going on. You didn’t feel 

like he should tell us or you didn’t feel incumbent—that it was incumbent upon you to tell the committee? 

Ms. TUCKER. Sir, at the Internal Revenue Service, we have two 

Deputy Commissioners that have very clearly delineated—— 

Chairman ISSA. The gentleman’s time has expired. 

Ms. TUCKER. —roles and responsibilities. 

Chairman ISSA. The gentlelady may finish. 

Ms. TUCKER. At the Internal Revenue Service, we have two Deputy Commissioners with very clearly delineated responsibilities. I 

do not have responsibility—— 

Mr. JORDAN. Mr. Chairman? 

Ms. TUCKER. —for the service and enforcement programs, as Mr. 

Miller would not have—— 

Mr. JORDAN. Well, then, Ms. Tucker, why were you in the meeting? If it has nothing to do with you, why did Mr. Russell George 

think it’s important to tell us that you were in the meeting? 

Ms. TUCKER. Mr. George and his deputies come into Internal 

Revenue Service every month and brief on all of their investigations, some of which are service and enforcement—— 

Chairman ISSA. Okay, well, the gentleman’s time has expired. 

I’m sure we’ll get back to this. 

I would ask unanimous consent the man have 30 additional seconds. 

Mr. CUMMINGS. I don’t mind the 30 seconds, but I want her to 

be able to answer the question. I mean, he’s like a machine gun, 

and she can’t even get her answer out. 

Chairman ISSA. Okay. 

The gentleman may have 30 additional seconds. The gentlelady 

may then answer. 

Mr. JORDAN. In that meeting, did you discuss with Mr.—so what 

you’re saying is Mr. Miller had—that was his area of jurisdiction. 

Ms. TUCKER. That is correct. 

Mr. JORDAN. Did you tell Mr. Miller he should come forward and 

tell Congress what was going on? 

Ms. TUCKER. No, sir. At this meeting—— 

Mr. JORDAN. Was that discussed? 

Ms. TUCKER. If I could, please. 

The meeting—TIGTA comes in once a month to Internal Revenue 

Service to brief the Commissioner and the two Deputies about their 

audits, their open audits. On any given meeting that they come in, 

66 

they could be talking—I mean, there are lots of oversight investigations that happen at Internal Revenue Service. Those meetings are 

typically TIGTA coming in and saying, we’ve opened an investigation on X program; we’ve opened an investigation on another program. 

If it’s an issue that is under my jurisdiction, like procurement, 

like the IRS budget, like our real estate portfolio, then I am the 

responsible party. What I’m trying to convey to you is I do not have 

oversight responsibility for the TEGE program. 

Chairman ISSA. Thank you. 

The gentlelady from Illinois, Ms. Duckworth, please. 

Ms. DUCKWORTH. Thank you, Mr. Chairman. 

You know, this hearing is very troubling to me because this case 

really shows how things can go wrong. I want to support our smallbusiness owners as much as possible. I want these set-asides to be 

successful. But I am absolutely appalled by the advantages that 

have been taken of the system. 

Mr. Flohr, I know you cannot discuss Mr. Castillo’s case because 

you would need his permission to discuss his particular case. That’s 

why you could not answer the question earlier. 

My understanding also is that the VA, or VBA specifically, is 

bound by legislation that says a certain condition has a certain disability rating. For example, a below-knee amputation is 40 percent. 

It just is, correct? 

Mr. FLOHR. That is correct, ma’am. 

Ms. DUCKWORTH. So it seems like there is an opportunity here 

for some legislative fixes to the system. 

Mr. Chodos, is it true that any rating, even if it’s just 5 percent, 

would qualify someone for a service-connected disability—serviceconnected disability-owned business? 

Mr. CHODOS. So long as they qualify under the VA’s rules for 

service-connected disability, that is adequate for the self-certification. 

Ms. DUCKWORTH. Thank you. 

Mr. Castillo, how are you? Thank you for being here today. 

Mr. CASTILLO. I am not well, but you’re welcome. 

Ms. DUCKWORTH. All right. 

So does your foot hurt, your left foot? 

Mr. CASTILLO. Yes, ma’am. 

Ms. DUCKWORTH. It hurts. Yeah, my feet hurt, too. In fact, the 

balls of my feet burn continuously, and I feel like there is a nail 

being hammered into my right heel right now. So I can understand 

pain and suffering and how service connection can actually cause 

long-term, unremitting, unyielding, unstoppable pain. So I’m sorry 

that twisting your ankle in high school has now come back to hurt 

you in such a painful way, if also opportune for you to gain the status for your business as you are trying to compete for contracts. 

I also understand why—you know, something can take years to 

manifest themselves from when you hurt them. In fact, I have a 

dear, dear friend who sprayed Agent Orange out of his Huey in 

Vietnam who—it took 40 years, 40 years for the leukemia to actually manifest itself, and he died 6 months later. So I can see how 

military service, while at the time you seem very healthy, could 40 

years later result in devastating injury. 

67 

Can you tell me if you hurt your left foot again during your football career subsequently to twisting it in high school? 

Mr. CASTILLO. Ma’am, I don’t understand the high school comment—— 

Chairman ISSA. Would the gentlelady—— 

Ms. DUCKWORTH. Prep school. 

Chairman ISSA. Prep school. 

Mr. CASTILLO. I apologize. 

Chairman ISSA. Post-high school. 

Mr. CASTILLO. I’m not—— 

Ms. DUCKWORTH. Post-high school. Okay, post-high school, prep 

school, before college, prep school. 

Did you injure your left foot again after prep school? 

Mr. CASTILLO. I’m not sure I understand the question, ma’am. 

Ms. DUCKWORTH. You played football in college, correct? 

Mr. CASTILLO. Yes, ma’am. 

Ms. DUCKWORTH. As a quarterback? 

Mr. CASTILLO. Yes, ma’am, I did. 

Ms. DUCKWORTH. Did you hurt, did you injure that same foot 

again subsequently in the years since you twisted it in prep school? 

Mr. CASTILLO. Not to my recollection, ma’am. 

Ms. DUCKWORTH. Not to your recollection. Okay. 

Why didn’t you, Mr. Castillo, tell the VA that your doctor’s note 

to them was inaccurate when you knew that it was? 

Mr. CASTILLO. I don’t feel that it’s inaccurate, ma’am. 

Ms. DUCKWORTH. Okay. 

Mr. CASTILLO. Would you like me to address that? 

Ms. DUCKWORTH. Yes. Go ahead. 

Mr. CASTILLO. Yes, ma’am. So one of my doctors that submitted 

letters—so as part of the injury you have to establish that it’s 

chronic and reoccurring. So when I returned home to San Diego, 

my doctor from San Diego had also—had said that he treated me 

for the foot injury that I suffered on Active Duty. 

When I moved to Las Vegas a couple of years later, that doctor 

submitted that he continued to treat me for that left foot, broken 

foot injury. 

Finally, when I moved to Virginia, I went to a doctor, and it continued to hurt. And he established that—so Dr. Sam Wilson, who, 

ironically, was also stationed at Monmouth—— 

Ms. DUCKWORTH. Okay. I have to cut you off because I’m running 

out—— 

Mr. CASTILLO. Okay. 

Ms. DUCKWORTH. —of time. I’m sorry. 

Mr. CASTILLO. Well, I just want to—so let me finish. 

So in talking to Dr. Wilson, who himself was a disabled veteran 

and very familiar with Fort Monmouth in that his son had went 

there, as well, and played football, he actually was the one that 

talked to me about, hey, this may be something that is connected. 

And I believe I told him—— 

Ms. DUCKWORTH. So let me—— 

Mr. CASTILLO. —that I was first—— 

Ms. DUCKWORTH. Let me—I have to cut you off. I have to cut you 

off. This is not an argument. I’m talking. I’m up here. 

Mr. CASTILLO. Yes, ma’am. 

68 

Ms. DUCKWORTH. Let me ask you this. Do you feel that the 30 

percent rating that you have for the scars and the pain in your foot 

is accurate to the sacrifices that you’ve made for this Nation? That 

the VA’s decision is accurate in your case? 

Mr. CASTILLO. Yes, ma’am, I do. 

Ms. DUCKWORTH. You know, my right arm was essentially blown 

off and reattached. I spent a year in limb salvage, with over a 

dozen surgeries over that time period. And, in fact, we thought we 

would lose my arm. And I’m still in danger of possibly losing my 

arm. I can’t feel it. I can’t feel my three fingers. My disability rating for that arm is 20 percent. 

In your letter to a government official, I think it’s the SBA, ‘‘Attention: Gina Mou,’’ you said, ‘‘My family and I have made considerable sacrifices for our country. My service-connected disability 

status should serve as a testimony to that end. I can’t play with 

my kids because I can’t walk without pain. I take twice-daily pain 

medication so I can work a normal day’s work. These are crosses’’— 

these are crosses—‘‘that I bear due to my service to our great country, and I would do it again to protect this great country.’’ 

I’m so glad that you would be willing to play football in prep 

school again to protect this great country. Shame on you, Mr. 

Castillo. Shame on you. You may not have broken any law; we’re 

not sure yet. You did misrepresent to the SBA. But you certainly 

broke the trust of this great Nation. You broke the trust of veterans. 

Iraq and Afghanistan veterans right now are waiting an average 

of 237 days for an initial disability rating. And it is because people 

like you, who are gaming the system, are adding to that backlog 

so that young men and women who are suffering from post-traumatic stress, who are missing limbs, cannot get the compensation 

and the help that they need. 

And I’m sure you played through the pain of that foot all through 

college. Well, let me tell you something. I recovered with a young 

man, a Navy corpsman, who, while he was running into an ambush 

where his Marines were hurt, had his leg knocked off with an RPG. 

He put a tourniquet on himself and crawled forward. He is who 

played through the pain, Mr. Castillo. You did not. You took advantage of the system. 

You described these statuses just today, that other companies 

were using these special statuses as competitive weapons against 

you. You, who never picked up a weapon in defense of this great 

Nation, very cynically took advantage of the system. You broke the 

faith with this Nation. You broke the faith with the men and 

women who lie in hospitals right now at Walter Reed in Bethesda, 

at Brooke Army Medical Center, in Landstuhl. You broke the faith 

with them. 

And if this Nation stops funding veterans’ health care and calls 

into questions why veterans deserve their benefit, it is because 

cases like you have poisoned the public’s opinion on these programs. 

I hope that you think twice about the example that you’re setting 

for your children. I hope that you think twice about what you are 

doing to this Nation’s veterans who are willing to die to protect this 

69 

Nation. Twisting your ankle in prep school is not defending or serving this Nation, Mr. Castillo. 

Mr. Chairman, I’m sorry, I’ve gone—you’ve been very indulgent. 

I yield back. 

Chairman ISSA. I thank the gentlelady. And the time was wellspent. 

And I cannot add on to that, except I want to make sure the 

record is clear, since you are under oath, you said the word ‘‘broken’’ in your testimony just now, but my understanding from staff 

is that the X-ray taken at the time of your injury did not show a 

break. 

Additionally, I want to make this clear for the record, and you 

can clear the record up if we don’t understand it correctly. In your 

VA application and with a doctor’s support, you claim that your 

twisted ankle came from football, as the gentlelady just said. However, in your transcribed interview before this committee, you said 

you slipped on a rock while orienteering. 

For the record today, which one is the truth? 

Mr. CASTILLO. So I believe that Dr. Wilson submitted that I was 

hurt playing football, that I told him that. And so, when meeting 

with the committee, I told them—and in preparation for meeting 

with them, I noticed that the date of injury noted on the—on my— 

from Patterson Hospital at Fort Monmouth was November 19th, 

which was after football season. So my response was that it could 

not have happened, that specific injury, during football. 

The letter that was submitted stated that he had said that I had 

told him, and I think I told Mr. Davis that I would check. I did 

go back to Colonel Wilson and asked him, you know, what was his 

recollection of a conversation we’d had in 2005 that led him to 

write the letter in support of the VA application, which was to be 

submitted by doctors who treated me for my injury. And he’d said, 

to his best recollection, I told him I was hurt playing football. 

So I believe that he submitted that in truth. And, in preparation, 

as I mentioned, the dates did not line up. So I did suffer a subsequent injury. And so I believe that what he had said is that, based 

on the injury I had suffered, it was probably a relapse or it caused 

an aggravation of the injury. 

So I think that answered one of your questions. I think you had 

three in there. Did you have others? I apologize, I don’t remember 

all three of them. 

Chairman ISSA. VA, football, orientearing, and whether it was a 

break. You said in your testimony just a few minutes ago to the 

gentlelady that it was broken. 

Mr. CASTILLO. Yes, and not—so, first and foremost, your service 

to this great country is well-known. And so, just to let you know, 

I didn’t set my 30 percent disability or your 20 percent disability. 

And I think that—— 

Ms. DUCKWORTH. But you’re taking advantage of it. And you 

went after that disability rating for the benefit of your company because, as you said, other companies were using these statuses as 

a competitive weapon against you. You said that today. 

Mr. CASTILLO. Ma’am, when I said that, I meant that they were 

using the protest process of the procurements as competitive weapons, not my disability. So I apologize if I at all stated that they 

70 

were using my disability as a competitive weapon. I meant that 

they were protesting awards as competitive weapons against our 

company. So thank you for allowing me to clear that up. 

And, again, I don’t set the ratings. And in it was in keeping and 

speaking with Dr. Wilson, Colonel Wilson, retired, who was at 

Monmouth Hospital on Fort Monmouth, that he had said that I 

may be able to qualify. And—— 

Ms. DUCKWORTH. You made the decision to apply for a disability 

rating for a twisted ankle from either football or orienteering. You 

can’t—you haven’t even answered the chairman’s question. You 

were there. Did you twist your ankle or did you break—or did you 

twist it playing football? Do you not remember? Was it orienteering 

or was it football? Which was it? 

Mr. CASTILLO. Well, to answer your question, it was not a 

sprained ankle. It was a broken foot. And I believe that the X-ray 

technician wrote that there was a much—I don’t—I’m not a doctor—or that led to it. But it was—in essence, they X-rayed it, and 

they showed a sufficient change in the malformation. I forget exactly. 

So, in speaking with the doctor, I said, can you really just simplify that for me? He says, ‘‘You broke your foot.’’ That’s what he 

told me. 

Chairman ISSA. I thank the gentlelady. 

And I would trust that the VA can take note of testimony here 

today and reopen the case to at least get to an accurate record and 

then an accurate determination. 

We now go to a medical doctor from Tennessee, Dr. DesJarlais. 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

And as a former VA physician and someone who had the privilege of treating many of our great veterans, both service-connected 

and not, I do think that one thing that is very important is a good 

history. 

When did your injury occur? 

Mr. CASTILLO. Around fall of—the initial injury, fall 1984. And 

the second injury, November 19th, 1984. 

Mr. DESJARLAIS. Okay. So in 1984, how did the first injury 

occur? What were you doing, and what was your title? 

Mr. CASTILLO. I believe I was an E–2 enlisted soldier, sir, 

and—— 

Mr. DESJARLAIS. Okay, in prep school. And how did the injury 

happen? 

Mr. CASTILLO. I believe the initial injury happened playing football. 

Mr. DESJARLAIS. Okay. So you were playing football, you went 

and got an X-ray, and that’s when they told you it was broken? 

Mr. CASTILLO. No, sir, the initial injury was not X-rayed, and 

that’s not when they named it broken foot. I was treated by trainers—— 

Mr. DESJARLAIS. Okay. And when was the second injury? 

Mr. CASTILLO. November 19th, 1984. 

Mr. DESJARLAIS. How many months apart was that? 

Mr. CASTILLO. Probably not a month. 

Mr. DESJARLAIS. A month apart? 

Mr. CASTILLO. Thereabouts. 

71 

Mr. DESJARLAIS. Okay, so you had a second injury, and you were 

playing football at that time? 

Mr. CASTILLO. No, sir, I was hurt in the field during an 

orienteering exercise. 

Mr. DESJARLAIS. Okay. And you got an X-ray at that time? 

Mr. CASTILLO. Yes, sir. 

Mr. DESJARLAIS. Okay. And that’s when they thought it was broken? 

Mr. CASTILLO. Yes, sir. 

Mr. DESJARLAIS. Okay. And so it healed in 6 to 8 weeks. You 

were put in a cast, you were on crutches. 

Mr. CASTILLO. On crutches and, well, orthotics or wrapped up or 

whatever—— 

Mr. DESJARLAIS. Sure. 

Mr. CASTILLO. I don’t know—— 

Mr. DESJARLAIS. And by 8 weeks you were walking on it again. 

And then when did you play football again, the next year? 

Mr. CASTILLO. Yes, sir. 

Mr. DESJARLAIS. And how many years did you play football after 

that? 

Mr. CASTILLO. Four years after—— 

Mr. DESJARLAIS. Four years of football. What about your athletic 

career after that? Did you play golf, any other sports, tennis? 

Mr. CASTILLO. I play golf very poorly—— 

Mr. DESJARLAIS. Okay. 

Mr. CASTILLO. —but I played some softball. 

Mr. DESJARLAIS. Okay, softball. Do you still play golf? 

Mr. CASTILLO. No, sir. 

Mr. DESJARLAIS. Okay. When’s the last time you participated in 

sports? 

Mr. CASTILLO. A couple weeks ago, I went out with some buddies 

and played some—— 

Mr. DESJARLAIS. Okay, so you can still get around on it okay, despite having a 30 percent disability service connect for this injury. 

Mr. CASTILLO. Yes, sir, I have—since you’re a doctor, you probably—I have a fused, I think, navicular area that was fused. 

Mr. DESJARLAIS. And so, 27 years later, you decided that this 

must’ve been from the original injury? That’s what the doctors decided? 

Mr. CASTILLO. No, sir. After suffering for 20-plus years, I went 

and saw a doctor, and he—— 

Mr. DESJARLAIS. Okay. 

Mr. CASTILLO. —and he established the broken foot and did the 

fusion—the three-fusion exercises—fusion surgery. Excuse me. 

Mr. DEJARLAIS. I’m sure that doesn’t make you feel much better, 

Ms. Duckworth, but thank you for updating us on the history. 

Ms. Tucker, at the beginning of the hearing this morning, Gregory Roseman invoked his Fifth Amendment right against incrimination, did not testify. As the Deputy Commissioner of the IRS, is 

it your expectation that an IRS employee will appear before the 

committee to testify about official action taken within the scopes of 

his duties at the IRS? 

Ms. TUCKER. So we expect all IRS employees to cooperate with 

Members of Congress. 

72 

Mr. DEJARLAIS. But he didn’t. 

Ms. TUCKER. He did not. And—— 

Mr. DEJARLAIS. Ms. Lerner didn’t. 

Ms. TUCKER. Each of these individuals, as Mr. Cummings said, 

invoked their constitutional right. 

Mr. DEJARLAIS. Okay. And this is an agency you’ve been with 29 

years, and you stated in your testimony you’re very proud of your 

service there and very proud of this agency, despite, you know, the 

multiple black eyes they have right now. 

Has the IRS taken any disciplinary action against Mr. Roseman 

as a result of this committee’s investigation or TIGTA’s investigation? 

Ms. TUCKER. So when I became aware from the Treasury inspector general of investigations in mid-May of hard evidence that they 

had found regarding inappropriate texting by Mr. Roseman, I directed the procurement organization, his superiors, to reassign him 

from a management position. 

Mr. DEJARLAIS. But you agree that he would be uniquely qualified to testify about what we are wanting today? 

Ms. TUCKER. Yes, sir. 

Mr. DEJARLAIS. Okay. So the fact that he invoked his Fifth 

Amendment, that’s his right, but the fact that Lois Lerner did, too, 

and the American people wanting answers, what’s going on with 

the IRS? We’ve got targeting of conservatives, we’ve got excessive 

spending, we’ve got situations like this. And I understand you want 

to be proud of who you work for, and you should be, but how are 

we going to get justice? Do you think that the IRS needs to bring 

people to justice? You were in on these meetings. Mr. Jordan asked 

you why you were in on those meetings, and he asked you what 

was the initial reaction. And nobody’s given us a reaction, nobody 

was shocked, but we—you agree that targeting conservative groups 

was wrong? 

Ms. TUCKER. So what I was told—— 

Mr. DEJARLAIS. Do you agree that targeting conservative groups 

was wrong? That’s a yes or no. Do you agree it was wrong? Can 

someone in the IRS admit that this was wrong? 

Ms. TUCKER. I think the information that was released this week 

by our Acting Commissioner shows that BOLO lists were inappropriately used across multiple, multiple criteria. So, yes, that criteria was incorrect. 

Mr. DEJARLAIS. So the IRS is screwed up. Somebody needs to be 

held accountable. 

Who—who is in charge of appointing the Commissioner of the 

IRS? 

Ms. TUCKER. That’s a Presidential appointment. 

Mr. DEJARLAIS. Okay. All right. Well, somebody needs to be held 

responsible; do you agree? 

Ms. TUCKER. All of us at IRS have to be responsible for the administration of our agency. 

Mr. DEJARLAIS. Okay. The American people are going to be very 

relieved when they get this news of who might be held accountable. 

Do you have any idea as to who might be held accountable? Do you 

think you should be? 

73 

Ms. TUCKER. I think the investigation that’s under way, that’s 

exactly what this is intended to do. As our Acting Commissioner 

Danny Werfel has stated numerous times, we all want to get to the 

truth. 

Mr. DEJARLAIS. Well, the American people want us to get to the 

truth, so thank you for being here today and helping us on—in that 

process. 

I yield back, Mr. Chairman 

Chairman ISSA. Ms. Tucker, the gentleman asked you did you 

think it was wrong to target conservative groups, and you said it 

was incorrect. Could you answer the gentleman’s question, was it 

wrong? 

Ms. TUCKER. So, Chairman Issa, I feel—I feel compelled that I 

need to make sure that everyone understands the meeting that I 

was in when Russell George and his team came in to share just 

their routine, here are the audits we have under way, Mr. George 

at that time basically said, we are initiating an audit—— 

Chairman ISSA. No, no. That’s not the question. And I apologize. 

The doctor asked you a fairly straightforward question, which is, 

as one of the highest career professionals in the IRS, you are now 

aware that these BOLOs were used to target and delay for up to 

3 years a legitimate answer to people’s applications based on their 

ideology. Do you think that was wrong? 

Ms. TUCKER. No, sir. What I’m trying to tell you is that’s not 

what I was told in that meeting. In—— 

Chairman ISSA. I’m not asking about the meeting. I’m asking 

about what is now known. 

Ms. TUCKER. So when the—when TIGTA issued their final report, what, in April, early May of this year, yes, I think all of us 

at IRS that saw the report are troubled; thus the investigation to 

get to the bottom of exactly what transpired. 

Chairman ISSA. Ms. Tucker, I’m just asking about right or 

wrong, and that’s what the doctor was asking about, not was it incorrect. This is—this is virtually a simple question for almost every 

citizen to answer. Was it right or wrong to do what you now know 

from the IG’s report? Was it right or wrong? 

Ms. TUCKER. Sir, I—here’s—here’s what I know based on what 

was told to—— 

Chairman ISSA. Okay. I’m not going to get an answer, and I don’t 

have any time. 

I think, Mr. Davis, you are next up. 

Mr. DAVIS. I think I am, Mr. Chairman, and I thank you very 

much. And I want to thank all of the witnesses. But I also want 

to thank you and the ranking member for holding this hearing. I 

think we’ve learned a great deal, or we’ve had, for some of us, reinforcement of thinking and thoughts. 

Especially do I want to relate myself to the question, and of the 

ranking member and that of Delegate Norton, whose questioning 

revealed that so often in communities that are designated to benefit from program activity, that there are ways to manipulate, to 

scheme and get around to the point where the designation means 

absolutely nothing to the community or neighborhood that is supposed to benefit. And for those who have helped create HUBZones, 

74 

been advocates for them, they look for the benefit that’s to come. 

Didn’t see much benefit from this particular business transaction. 

So, Mr. Chodos, let me ask you about the finding in the SBA decertification letter that Mr. Castillo and his company tried to pass 

off employees as contractors to skirt the HUBZone rules and collect 

or earn millions of dollars. On May 23rd, 2013, SBA sent a decertification letter to Mr. Castillo, and in that letter the director of the 

HUBZone program found that Mr. Castillo erroneously characterized individuals as contractors rather than employees in order to 

maintain the 35 percent eligibility requirement for the HUBZone 

program. 

Mr. Chodos, how would you classify someone as a contractor 

rather than an employee help Mr. Castillo’s application? 

Mr. CHODOS. If I understand your question, Representative 

Davis, it’s when the facts came to our attention that the people 

who were running the company essentially or in managerial charge 

of the company were listed as independent contractors rather than 

as employees, we look to the substance rather than the form of 

whether or not they are actually employees of the company, and we 

were able to determine that under a totality test, that, in fact, they 

were, for all meaningful purposes, employees of the company, and 

thus the test was not met. 

Mr. DAVIS. Well, let me read from the SBA certification letter, 

if I might, and it says this: SCI is telling the government two different stories. To the Internal Revenue Service, the individual is a 

valued and key member of Signet’s management team and its proposed program manager, and to the SBA she is merely an independent contractor. In SBA’s view, a firm’s management team and 

its program manager are not roles that are normally subcontracted 

out to third parties. 

Ms. Tucker, let me ask you, why is it important to procurement 

officials that they know who the proposed program manager is for 

a particular contract? 

Ms. TUCKER. So from—from the folks in our procurement organization, from—from what they tell me, as we are interacting on contracts like the one that we’re talking about today, the project manager is indispensable in communicating with the Internal Revenue 

Service business owners to make sure whatever service or product 

we are contracting for is—is being delivered appropriately. So 

that—that is very important. 

Mr. DAVIS. Mr. Castillo, let me—and I agree with you that you 

didn’t make the rules, you didn’t write the regulations, you didn’t 

pass the bills, so you did not create the opportunities that existed 

for you to try and do business under these arrangements. But let 

me ask, how do you explain telling the Internal Revenue Service 

that someone would be the key program manager for the contract, 

and then telling the Small Business Administration that that person is an independent contractor? 

Mr. CASTILLO. So the person was—is an independent contractor 

in that she works in support of several companies. I think she supported our company and SAIC at that time and was a 1099 employee. 

A program manager, while I understand that it’s important, it 

doesn’t necessarily make that person an employee. And I will tell 

75 

you, being in the consulting field, that a program manager can be 

contracted out and is often contracted out. As we serve as a contractor on the IBM contract that Ms. Tucker—— 

Mr. DAVIS. But you knew that. But you knew that before it was 

brought to your attention by either the SBA or the Internal Revenue Service. I’m saying you knew that as a result of your knowledge and experience and the work that you’ve done, but yet you described it two different ways. 

Mr. CASTILLO. Well, I think they’re both consistent. I think that 

they’re an important member of the team, and we bid them as a 

program manager on the job, as we bid programmer on other jobs 

through other companies. 

And the distinction we made with the other ones was that one 

was a—the other person actually owned a company, supported five 

other companies, and the other one didn’t even work for us, she 

supported us during her maternity leave. She did it as a favor to 

me during her maternity leave. 

Mr. DAVIS. My time has expired, so thank you very much. But 

nevertheless, you described two different ways when you were dealing with the procurement opportunity. 

Thank you, Mr. Chairman. I yield back. 

Mr. BENTIVOLIO. [Presiding.] Thank you. 

The chair now recognizes the gentleman from South Carolina Mr. 

Gowdy. 

Mr. GOWDY. Thank you, Mr. Chairman. I also want to thank my 

friend from North Carolina for yielding me his time. 

Mr. Chairman, I want to thank my colleague from Illinois for her 

service to our country. Her moral standing to discuss service and 

sacrifice is unimpeachable. So I want to publicly thank you again 

for your service to our country. 

Ms. Tucker, more people have invoked their Fifth Amendment 

privilege against self-incrimination in this job than they did my 

former job, and I was a prosecutor, so that’s saying a lot. And two 

of them are current government employees. And just so there’s no 

misunderstanding, they’re invoking their Fifth Amendment privilege in connection with their official duties. We’re not discussing 

bank robberies or narcotics trafficking; we’re discussing their official duties, and they feel the need to invoke their Fifth Amendment 

privilege. 

So I want to ask you to do something for me. Okay? Have you 

seen the texts from Mr. Roseman? 

Ms. TUCKER. Yesterday when the committee released the report—— 

Mr. GOWDY. Okay. 

Ms. TUCKER. —yes, sir, I have seen the text. 

Mr. GOWDY. So you have seen these despicable homophobic slurs. 

Ms. TUCKER. Yes, sir. I saw the information in the committee report. 

Mr. GOWDY. Well, here’s what I’m going to ask you to do for me 

and, frankly, for our fellow citizens: Before the close of business 

today, if you can, issue a statement on behalf of the IRS as to why 

he’s still employed and still drawing a paycheck. If you’ve seen the 

texts that I have seen, I would like an explanation as to how you 

can keep your job if you say things he said in your official capacity. 

76 

Can you do that? Can you explain to us how you can keep your job 

and your paycheck despite these homophobic slurs? 

Ms. TUCKER. Sir, if I might, as I said in my opening statement, 

based on the information in the committee report yesterday, I am— 

I am sickened—— 

Mr. GOWDY. All right. 

Ms. TUCKER. —not only as—— 

Mr. GOWDY. I appreciate that, Ms. Tucker. 

Ms. TUCKER. —not only as an IRS official—— 

Mr. GOWDY. I—— 

Ms. TUCKER. —but also as a citizen. 

Mr. GOWDY. I appreciate that. My question was actually a little 

more specific. Can you issue a statement by 5 o’clock today as to 

how someone who used this language in their official capacity as 

a government employee is still employed and drawing a paycheck? 

Can you explain that to us by close of business today? 

Ms. TUCKER. Sir, if I might, we are having discussions at Internal Revenue Service—— 

Mr. GOWDY. And how long do you anticipate those discussions 

are going to last? Because I just read the texts this morning, and 

I have already reached my conclusion. So how long do you think 

it’s going to take y’all? 

Ms. TUCKER. So we are having discussions with our general 

counsel. 

Mr. GOWDY. How about close of business tomorrow? 

Ms. TUCKER. So we’re going to do our very best to follow due 

process, but, candidly, to also make sure we do this appropriately, 

because I think the committee’s aware of the Federal personnel 

rules, and we want—— 

Mr. GOWDY. If this doesn’t violate them, Ms. Tucker, then we 

need to change them. 

Ms. TUCKER. Yes. So we are doing everything we can to make 

sure—— 

Mr. GOWDY. All right. Well, rule—— 

Ms. TUCKER. —that we follow the proper procedures. 

Mr. GOWDY. I will be anxiously awaiting an explanation as to 

how you can say what this person said in your official capacity and 

keep your job and keep your paycheck. I will anxiously await that 

explanation. 

Ms. TUCKER. Yes. 

Mr. GOWDY. Mr. Castillo. 

Mr. CASTILLO. Yes, sir. 

Mr. GOWDY. Why did Mr. Roseman invoke his Fifth Amendment 

privilege? 

Mr. CASTILLO. I’m—I have no idea, sir. 

Mr. GOWDY. You don’t know? You don’t know what conduct he 

could be worried about? 

Mr. CASTILLO. Well, I think you spoke about one of them, but, 

no, sir, I don’t know why he did, and I wish he was here to speak 

about some of these things. 

Mr. GOWDY. Well, we do, too, Mr. Castillo, but he’s not, so I’ll direct my questions to you. 

Mr. CASTILLO. Okay. 

77 

Mr. GOWDY. Did you discuss his invoking his Fifth Amendment 

privilege with him before today? 

Mr. CASTILLO. No, sir, I did not. 

Mr. GOWDY. When’s the last time you talked to him? 

Mr. CASTILLO. Before February 20th. 

Mr. GOWDY. Do you know what criminal exposure he’s concerned 

about? 

Mr. CASTILLO. No, sir, I don’t. 

Mr. CASTILLO. You don’t have any idea? 

Mr. CASTILLO. No, sir. 

Mr. GOWDY. Did he ever solicit gifts from you? 

Mr. CASTILLO. No, sir, he did not. 

Mr. GOWDY. Did you ever offer gifts to him? 

Mr. CASTILLO. I think it’s noted in the—— 

Mr. GOWDY. Well, humor me and answer it again. 

Mr. CASTILLO. So we went to a ballgame around the 2005 time 

frame when I worked at Government Acquisitions that he paid for. 

I gave him a receipt. And—— 

Mr. GOWDY. Has he discussed employment with you post-IRS? 

Mr. CASTILLO. No, sir, he has not. 

Mr. GOWDY. Will you describe the nature of your relationship 

with Mr. Roseman to us? 

Mr. CASTILLO. I would say that it’s centered on my doing business with the IRS and his—for 10 years or so. 

Mr. GOWDY. Did you discuss contracts that you were competing 

for or interested in with Mr. Roseman prior to the issuing of those 

contracts or the awarding of those contracts? 

Mr. CASTILLO. Not to my—well, I’m not sure I understand the 

question, sir. Did we discuss contracts beforehand? 

Mr. GOWDY. I’m trying to figure out whether or not you violated 

any of the bidding procedures, whether or not he gave you an unfair advantage if you were seeking work that other people were 

also seeking. 

Mr. CASTILLO. No, sir. I’m not aware that I have an unfair advantage in any of them. 

Mr. GOWDY. How about any advantage, unfair or fair? Did his relationship with you give you an advantage? 

Mr. CASTILLO. No, sir. 

Mr. GOWDY. You’ve never discussed future employment with 

him? 

Mr. CASTILLO. No, sir. 

Mr. GOWDY. Well, this is my last question, because my time has 

run out. Mr. Castillo, have you read the texts from Mr. Roseman? 

Mr. CASTILLO. I have—I have read them. Sir, I provided them to 

the committee. 

Mr. GOWDY. All right. And you still say he’s your friend? 

Mr. CASTILLO. So to be clear—— 

Mr. GOWDY. No. I want you to be clear, because—because I just 

read them, and I—and I want you to be clear. You’ve read them. 

Mr. CASTILLO. I have—— 

Mr. GOWDY. You know what’s in them, the homophobic slurs in 

his official capacity. Y’all still friends? 

Mr. CASTILLO. I’m deeply offended. As you’re aware, those were 

targeted toward—towards me—— 

78 

Mr. GOWDY. Yeah. I—— 

Mr. CASTILLO. —towards me. 

Mr. GOWDY. Yeah, I am. That’s why I’m asking you. 

Mr. CASTILLO. So I am offended. If you can appreciate that he’s 

the customer, and it’s not my job to go around correcting what the 

customer does or doesn’t say. And I—and so—— 

Mr. GOWDY. Do you think it’s appropriate for a government employee to say those things about—about someone—— 

Mr. CASTILLO. No, sir. 

Mr. GOWDY. —in their official capacity? 

Mr. CASTILLO. No, sir, it’s not. 

Mr. GOWDY. How long would it take you to get rid of an employee that said that? 

Mr. CASTILLO. Well, I think it’s well noted of the—some of the 

employees that we’ve terminated, it would not take me—— 

Mr. GOWDY. Yeah, for a lot less. 

Mr. CASTILLO. It would not take me until 5 o’clock time—— 

Mr. GOWDY. You did it a lot quicker for a lot less. 

Mr. CASTILLO. Yes, sir. 

Ms. TUCKER. Mr. Gowdy, if—if I might, my folks that are here 

in the room believe that the specific text message that you’re referring to we actually have not seen yet at IRS. 

Mr. GOWDY. Would you like me to walk them down to you? 

Ms. TUCKER. I would—I would like to at some point receive 

those. But let me just be clear, when I said that I was deeply disturbed, that was based even on the mess-—the text messages that 

were already in the report. 

Mr. GOWDY. Well, here. Let me make sure that you get them before you leave—— 

Ms. TUCKER. No. I—— 

Mr. GOWDY. —because if you had thought you were deeply disturbed, you may reach a whole ’nother level of disturbia. 

Ms. TUCKER. Thank you, sir. I appreciate that. 

Mr. BENTIVOLIO. Thank you. 

The chair now recognizes the gentlewoman from Illinois Ms. 

Kelly. 

Ms. KELLY. Thank you, Mr. Chair. 

This committee serves two purposes, oversight and reform, and 

I’d like to get to what reform your agencies are looking at. We have 

seen how a contractor has been able to game the HUBZone system 

to get an advantage on his competitors for millions in government 

contracts, and I want to know how we’re going to prevent this from 

happening in the future. 

Mr. Chodos, is the SBA taking any remedial steps in light of the 

findings of this case? 

Mr. CHODOS. Thank you, Representative Kelly. 

Let me say that the agency did take an immediate step when it 

found out that there was a problem back in December and January 

at the end of last year and the beginning of this year, which was 

to decertify this firm after duly looking into the facts and getting 

the correct facts. 

So in terms of moving forward, the agency is always looking for 

opportunities to make the program more effective and to identify 

ways to work closely with our colleagues at VA and at GSA to align 

79 

and coordinate our different rules about procurement so that they 

all work in the same direction. 

So we have proposed rules under the JOBS Act that are in process now as we speak that seek to make issues involving use of the 

HUB—HUBZone program clearer, more straightforward, and 

which will improve our opportunities for straightforward oversight. 

Ms. KELLY. Mr. Davis read the decertification letter already, but 

is SBA considering asking applicants to provide information identifying not only employees, but all other individuals who work on behalf of the company, such as contractors? 

Mr. CHODOS. Yes. And I believe that change has already been instituted. 

Ms. KELLY. Great. 

As committee staff interviewed IRS procurement officials, they 

also identified that those personnel needed additional training 

about procurement ethics generally, as well as specific training 

about the types of relationships that IRS procurement officials are 

prohib-—prohibited, excuse me, from having with contractors. 

Ms. Tucker, can you please describe the steps the IRS has taken 

to improve its procurement ethics training? 

Ms. TUCKER. Yes, ma’am. We have a whole host of actions under 

way, including an annual ethics training that will be provided to 

all of our procurement employees in addition to what they already 

have. It will be delivered by our chief counsel organization. And, 

in fact, we’re doing an all-employee meeting today with our workforce to reemphasize that the positions we hold, ethics is of the utmost importance. And so I can assure you and give you personal 

assurance that our training programs will be significantly enhanced in the days and weeks ahead. 

Ms. KELLY. Is there any other remedial action that you’re taking 

that you would like to share? 

Ms. TUCKER. You know, the—the—the findings of—regarding 

the, what I believe, totally inappropriate relationship between one 

of our procurement employees and Mr. Castillo, while I—I believe 

at my core that the men and women of our procurement organization are operating with the highest ethics and integrity every day, 

I know that one bad actor can—can cast disparity on our organization, and so as a result, we’re doing a top-to-bottom review of our 

entire procurement organization, just reassuring ourselves that 

we’re following proper policy and procedures. 

I’ve also asked the Treasury Department procurement executive—they do routine reviews of IRS—I’ve asked them to come in. 

I’ve also launched an independent review. 

And in addition, I think, you know, that the focus that we’re 

going to be putting on, you know, more routine briefing—we do a 

quarterly performance review of the procurement organization—I 

think all of our existing internal controls we just need to double 

down on to reassure ourselves that this—this type of behavior is 

not prevalent. And I have no reason to believe, ma’am, that it exists beyond what—the unfortunate situation with Mr. Roseman. 

Ms. KELLY. All right. Thank you. 

How about, Mr. Sisk, anything to add? 

Mr. SISK. We are currently continuing our review of this particular case to make sure all proper rules and regulations were folVerDate Aug 31 2005 09:09 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 C:\DOCS\82275.TXT APRIL
80 

lowed. In addition, we’re taking a look at our internal management 

controls to make—see if they need to be strengthened in any particular areas in light of some of the questions that came out of the 

committee. 

Ms. KELLY. Okay. Mr. Flohr? 

Mr. FLOHR. Thank you, ma’am. 

In my particular area of expertise is veterans benefits, and so I 

don’t have a lot of information about the SP—Veteran-Owned 

Small Businesses, but I would be glad to take any questions for the 

record and provide them to you. 

Ms. KELLY. Okay. Thank you. 

Ms. KELLY. Thank you. And I hope we continue looking at this 

issue and make improvements to gain the public’s trust back. 

Thank you, Mr. Chair. 

Chairman ISSA. [Presiding.] Thank you. 

Mr. Meadows. 

Mr. MEADOWS. Thank you, Mr. Chairman. 

Ms. Tucker, some of the testimony you’ve given recently is very 

troubling, because it’s in direct conflict with testimony we’ve heard 

in this very room from Mr. George. And so with that, to make sure 

that we have a continuity, I’m going to yield some of my time back 

to Mr. Jordan at this particular point. So I yield to the gentleman 

from Ohio. 

Mr. JORDAN. I thank the gentleman. 

Ms. Tucker, so you’re number two at the Internal Revenue Service. You learn on May 30th from the inspector general that political 

targeting of conservative groups is taking place. You know the 

number one at the IRS 2 months prior to that testified in front of 

Congress to just the opposite. And you told me in my first round 

of questioning that because it didn’t fall under your jurisdiction, 

you didn’t feel obligated to set the record straight? 

Ms. TUCKER. Sir—— 

Mr. JORDAN. I mean, what—how does that encourage whistleblowers to come forward when they know something’s been done 

wrong, if you’re the number two career professional at IRS, and 

you don’t come forward and set the record straight? 

Ms. TUCKER. Sir, if I might just—and maybe I’m not making myself clear. The meeting that I was in, what Mr. George told, to the 

best of my recollection, in the meeting was that his team was opening an audit on the TEGE organization, and that part of that audit 

is that they were looking at the—the BOLO list. 

Until—to the best of my recollection, sir, until Mr. George issued 

the report in April where he revealed that inappropriate targeting 

had appeared to have taken place based on the BOLO list, sir, that 

was—that was the first time that I actually had seen the results 

of Mr. George’s investigation. 

Mr. JORDAN. Well, if—if I could, and if the gentleman would cut 

me off when you need to, Congressman—according—this is from 

the hearing. The chairman asked inspector general May 30th, IG 

function has briefed the IRS Commissioner Doug Shulman, Deputy 

Commissioners Miller and Tucker specifically the criteria targeting 

Tea Party Patriots, and 9/12 and other words were used to—in reviewing applications for tax—you briefed, and that was your notes. 

Mr. George response: Yes, that’s correct. 

81 

So it was very specific. You were briefed on it that day, and yet 

you didn’t feel compelled to do anything. 

Ms. TUCKER. Mr. George was briefing on the start, to my recollection, of their audit. And obviously, as he talked about that they 

were looking at these words being used, yes—— 

Mr. MEADOWS. Will the gentleman yield? 

Ms. TUCKER. —that seems to be inappropriate. 

Mr. JORDAN. Be happy to yield back. 

Mr. MEADOWS. I thank the gentleman. 

Ms. Tucker, that’s in direct conflict with what Mr. George said 

sitting on this end right here. What he said, that May 30th meeting he went over preliminary results of the investigation that 

they’ve had and let you, Mr. Shulman and Mr. Miller know in that 

meeting. It was not the start of an audit. It was the preliminary 

results where targeting actually happened. You don’t recall that? 

Ms. TUCKER. Sir, I—to go back—— 

Mr. MEADOWS. Because I’m finding that a lot of members of the 

IRS have very great detail on recalling things at certain times, and 

at other they lack the memory. So you don’t recall that he said 

that? 

Ms. TUCKER. Sir, I recall the meeting, the monthly meetings that 

we have with Mr. George and his team—— 

Mr. MEADOWS. And there was nothing unusual about this May 

30th meeting? There was nothing unusual. This—it was a normal 

routine update that he saw fit to go 4 days later to chief counsel 

and let them know about it? That was Mr.—Mr. George’s testimony. Your testimony and his are not matching up. 

Ms. TUCKER. Sir, I—I’m—I do not recollect. And I have to keep 

going back to this. In our monthly meetings with Mr. George and 

his team, they cover a whole host of IRS audits—— 

Mr. MEADOWS. So there’s nothing unusual about this particular 

time? That May 30th meeting, there was nothing unusual about 

that? This was just a normal routine update that you get every 

month? 

Ms. TUCKER. Sir, obviously when Mr. George conveyed to the Internal Revenue Service that in the course of their examination, or 

their audit, that they were looking into—— 

Mr. MEADOWS. It wasn’t—it was preliminary results, Ms. Tucker, 

not looking into. It was preliminary results where targeting was 

identified. 

Ms. TUCKER. And, sir, based on the testimony that I’ve seen from 

Mr. Miller, following that discussion, to the best of my recollection, 

is when he took action to ask for an independent review. 

Mr. MEADOWS. No. That happened actually before. So let me— 

because we—you earlier on—if the chair will indulge me for just 

a second. You earlier on said that this committee needs to continue 

to give you information, but yet you’re the one that’s paid for managing this whole organization. You’re the one that gets paid for it. 

We have oversight, and yet what we’re finding is we’re having to 

discover and manage the process of which you’re getting paid for. 

And—and here we are, you’ve said eight times, let me be clear. So 

let me be clear that the internal investigation at the IRS happened 

actually before May 30th. It was concluded the first part of May. 

It was started the day after Mr. Shulman gave testimony to the 

82 

Ways and Means Committee saying that there was—he could give 

assurances that there was no targeting, and y’all started an internal investigation the very next day. So your timelines don’t match 

up, Ms. Tucker. 

So how do you—how do we respond to the American people, because all they want, the ranking member has said it, they want 

truth so then yet again they can trust. So how do we respond to 

that? 

Ms. TUCKER. Sir—— 

Chairman ISSA. The gentlelady may answer. The time is expired. 

Mr. MEADOWS. I thank the gentleman. I yield back. 

Ms. TUCKER. Sir, I am—I am trying to share with you the truth 

from what I know and what programs I have responsibility for. IRS 

is an organization of 100,000 people and multiple programs. I am 

the Deputy Commissioner for Operations Support. I do not have responsibility, sir, for oversight and administration of the service and 

enforcement program. 

Chairman ISSA. I thank the gentlelady. 

We now go to the gentleman from Virginia Mr. Connolly. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

I might say to my colleagues, Mr. Meadows, Mr. Jordan, that if 

we’re going to cite the testimony of the inspector general, I would 

cite the question-and-answer period between the inspector general 

and myself in which I directly asked the inspector general whether, 

in fact, progressive groups could also have been targeted in the unidentified 202 organizations that were looked at. And his answer, 

in light of recent facts, is at best elusive. And I certainly think that 

if we want to cite the inspector general, we ought to have him come 

back here under oath, as he was that day we had him, and allow 

him to clarify his answers, because they certainly look strange to 

some of ours. 

Chairman ISSA. Would the gentleman yield? 

Mr. CONNOLLY. If the clock will stop. 

Chairman ISSA. Just—just if you could answer, what are you 

asking to have the IG come back and answer? 

Mr. CONNOLLY. I—Mr. Chairman, I’d—I’d ask the clock to stop. 

Chairman ISSA. We’ll hold the clock, but I just want to know—— 

Mr. CONNOLLY. Mr. Chairman—— 

Chairman ISSA. —if you’re making a request what the request is. 

Mr. CONNOLLY. Yeah. The request is that there is now serious 

confusion about the answer the inspector general gave to my direct 

questioning whether he knew that, in fact, progressive groups, not 

just conservative groups, were also in the filtering of the BOLO. 

Did he know that when he answered my question? Because he inferred from his answer that he did not, that the—that they—that 

those were all unidentified. We now know that’s not true. Now, did 

he know that, and did he know it when he testified under oath before this committee—— 

Chairman ISSA. Okay. We’ll—— 

Mr. CONNOLLY. —because—— 

Chairman ISSA. We’ll—we’ll look at how we can do that. 

Mr. CONNOLLY. Thank you. 

Mr. JORDAN. Will the gentleman yield? 

83 

Mr. CONNOLLY. I’m afraid my time is running out, so I’m going 

to proceed with questioning, but I thank—thank my colleagues. 

During the course of the committee’s investigation, it’s become 

clear that Strong Castle provided inaccurate information to SBA on 

multiple occasions. Mr. Castillo, according to the SBA’s letter decertifying Strong Castle, the company provided inaccurate payroll 

records for two employees. SBA’s decision stated that Strong Castle, ‘‘admitted that the records provided were false and inaccurate.’’ 

Is that correct? 

Mr. CASTILLO. They were inaccurate, yes. 

Mr. CONNOLLY. They were inaccurate? 

Mr. CASTILLO. Yes, sir. 

Mr. CONNOLLY. And the SBA decision goes on to explain, SCI 

confirmed the one instance identified by SBA and identified another. The corrections were only made after being confronted with 

the conflicting evidence presented by SBA. Strong Castle’s former 

C—COO, Michelle Castillo—I guess that’s your wife—— 

Mr. CASTILLO. Yes, sir. 

Mr. CONNOLLY. —said that when she discovered errors in the 

payroll records, she did not check to see whether there were additional errors in other months. When she was asked, how do you 

know there weren’t other errors for the previous 6 months, she replied, I don’t. 

Is that the kind of recordkeeping you kept at your company, Mr. 

Castillo? 

Mr. CASTILLO. Sir, I don’t know of her testimony, but rest assured, I am aware of the two that you’re talking about where a student worked 6 hours in 1 day and 8 hours in the other and transcribed those in that week, and that student employee had written 

that he had worked 8 hours on 1 day when he meant that he 

worked the other day. So I’m aware of those. 

And—and so we have put steps in place, including the person 

that you’d mentioned, my wife, resigning from the company. I’ve 

taken over that. We’ve put steps in place to ensure that we have 

tighter recordkeeping around that—— 

Mr. CONNOLLY. Well—— 

Mr. CASTILLO. —including assigning people on a day-to-day basis 

that log in hours and report and supervise hours. 

Mr. CONNOLLY. Thank you. 

Mr. Chodos, how can SBA base certification decisions on payroll 

records from companies when they can’t verify actual employment, 

by their own admission? 

Mr. CHODOS. Companies have a duty to provide accurate information to the SBA because, of course, the SBA needs accurate information on an ongoing basis in order to originally certify and 

then to decide if a company is still in compliance. 

Mr. CONNOLLY. So is there sort of an honor system? We rely on 

them to be—to verify and to tell the truth? 

Mr. CHODOS. Well, we always expect folks to act in an honorable 

way, but the regulations require that they provide accurate information on an ongoing basis. So this is a regulatory requirement, 

not just a trust system. 

84 

Mr. CONNOLLY. In this case the certification provided previously 

was the difference between, well, qualifying for a HUBZone, but 

also the 35 percent residency requirement. Is that right? 

Mr. CHODOS. I’m sorry, Representative, I just didn’t understand 

the question. 

Mr. CONNOLLY. The information provided by former employee 

Michelle Castillo meant that Strong Castle made the difference 

with the 35 percent residency requirement; is that correct? 

Mr. CHODOS. Yes. The—well—— 

Mr. CONNOLLY. So this wasn’t just an error; this was sort of dispositive. 

Mr. CHODOS. Well, this went to two issues. It went to whether— 

the status of employees and whether or not employees were actually spending their time at the principal location, as represented. 

Mr. CONNOLLY. Is SBA looking into the issue in this case of 

fraud? 

Mr. CHODOS. The SBA is continuing to receive information, and 

has had a number of communications with the committee, and welcomes all information on this topic. And also, as we have indicated 

to the committee, since at least March, the SBA has been in regular communication with our inspector general and has shared all 

of the information available to us with our IG. So it’s an ongoing 

process of evaluating information as it becomes available. 

Mr. CONNOLLY. Thank you. My time has expired. 

Chairman ISSA. Thank the gentleman. 

We now recognize the gentleman from Michigan for his round of 

questioning. 

Mr. BENTIVOLIO. Thank you, Mr. Chairman. 

Members of Congress are elected by the American people. We are 

expected to answer to our constituents, and every 2 years they 

have the ability to fire us. The American taxpayers do not have the 

ability to do this with IRS officials, who have repeatedly let them 

down. We saw this with the targeting of tax-exempt groups, with 

the egregious waste of taxpayer dollars on conference spending, 

and now again with the discovery of an improper relationship between an IRS procurement official and a contractor. 

It is not very common for witnesses to assert their privilege not 

to testify before Congress, but today, again, we have an IRS official 

who has refused to answer questions about actions he took in his 

official capacity. This is the second time in the last month that an 

IRS official has refused to answer this committee’s questions. How 

many more IRS officials are going to come before this committee 

and refuse to answer to the American people? As it is, we are not 

learning all of the necessary facts because of these refusals to testify. 

This problem is not just about Strong Castle and Mr. Roseman’s 

refusal to testify today; this problem is bigger than Strong Castle. 

This problem is about IRS mismanagement, the agency’s failure to 

the American people, and the agency’s refusal to answer for what 

it has done. And the American people deserve better. 

Mr. Chairman, I served in Iraq and Vietnam, and I am 50 percent disabled for a neck injury I suffered in 2007 in Iraq. 

Mr. Castillo, I think Congresswoman Duckworth said it all for 

me, so I’m just going to ask you one simple question: Mr. Castillo, 

85 

I understand that you have produced text messages between yourself and Mr. Roseman that you have access to. There are, however, 

text messages that you have stated were lost in the iPhone migration. Will you agree to work with the committee and with AT&T 

in an attempt to recover these messages? 

Mr. CASTILLO. Yes. And I have. 

Mr. BENTIVOLIO. Thank you. 

Mr. Chairman, I yield back. 

Chairman ISSA. Would the gentleman yield? 

Mr. BENTIVOLIO. Yes. 

Chairman ISSA. I thank you. 

And thank you for helping us with AT&T, and we’ll work on that 

after the—this meeting. 

I want to sort of dwell just a moment on—with Mr. Flohr on the 

veterans’ standing. In the transcribed interviews, which we’ll make 

available to VA, Mr. Castillo has some—little bit of confusion in his 

statement, but essentially, and I’ll paraphrase, that he was aware 

that the doctor’s view that this was a football injury was inaccurate, but didn’t think it was material. 

If we provide that transcript to you, does that empower you to 

review and get accurate the original filing so that you can make 

an assessment as to whether or not the sequence of events, the injury and the doctor’s opinion, would support all the elements necessary for a 30 percent disability? 

Mr. FLOHR. Thank you for the question, Mr. Chairman. 

We would certainly be willing to look at anything that you might 

want to share with us. I’m not saying it would make a difference. 

And as I said earlier in my testimony and written and oral statement, it’s—a veteran who suffers an injury in service, and regardless of what type of injury or what caused it, as long as it wasn’t 

from willful misconduct, and it was in line of duty—— 

Chairman ISSA. No. I understand the line of duty. It’s really— 

I think Ms. Duckworth made it very clear that she looked at a 30 

percent and a $500-a-month or so payment for life and questioned 

whether or not, in light of so many severe injuries—and she was 

incredibly severely injured in—in the line of duty—whether or not 

the assessment was correct. And I think her view, and rightfully 

so, is there’s a lot of veterans on long waiting lists, and there’s a 

lot of veterans who see a 30 percent disability for what appears to 

be a rather—relatively minor injury a long time ago, and they 

question that. 

That’s the only reason that—in light of the testimony and the 

confusion, that we would expect that the VA would reopen, reevaluate and then make a second accurate assessment based on, if you 

will, reevaluating the doctor’s statement, which apparently was inaccurate. 

Having said that, I served for 10 years on Active Duty and 10 

in Reserves. Every one of us got something broken or bent, so I’m 

very aware that, for better or worse, almost all of us have a hearing loss or have something. Most people who served as veterans 

are, in fact, to at least some small extent, and the gentleman from 

Michigan is to a fairly large extent from a serious accident in Iraq, 

service-connected disabled. And I think that’s the point you were 

making is Congress has left you little wiggle room. If you’re at the 

86 

prep school, if something occurs, and you were not in a criminal relationship, or you were in the line of duty, you’re not AWOL, that, 

in fact, that is service-connected-disability-eligible. 

We’re not asking you to rewrite the law, that’s our job, but we 

do think that—that getting it right as to percentages are important 

to so many veterans who essentially say, I can’t work, but they also 

often find themselves far below 50 percent. 

Mr. FLOHR. As I stated, sir, yeah, we’ll be glad to look at anything you have that you want us to look at, and we certainly will— 

will make you aware of what we find. 

Chairman ISSA. I appreciate that. 

We now go to the other gentleman from Michigan Mr. Walberg. 

Mr. WALBERG. I thank the chairman. 

And, you know, I—just responding to one of our colleagues who 

questioned whether we would be getting information from the IG 

on targeting, certainly I think we’ve come to realize that there were 

targeting BOLOs dealing with conservatives and religious groups 

and also progressives. The difference is progressives got their certifications; they were approved. The issue with the targeting of the 

nonprogressive, supposedly, the conservative, the religious organizations is they’re still waiting for approvals, and that’s unconscionable. 

Ms. Tucker, does Strong Castle’s HUBZone decertification affect 

the IRS contracts currently in place with the organization? 

Ms. TUCKER. Sir, as I mentioned earlier, IRS is in the—the process of separating ourselves from Strong Castle. 

Mr. WALBERG. So you plan to end—end the contracts with Strong 

Castle? 

Ms. TUCKER. It’s our—it’s our intention to begin the proceedings 

to separate ourselves from Strong Castle, yes. 

Mr. WALBERG. What would keep you from separating with 

Strong Castle? 

Ms. TUCKER. I’m—I’m not aware of anything that would prohibit 

us. That’s what our folks in our—our counsel organization are reviewing today. 

Mr. WALBERG. So we can expect that there will be a separation? 

Ms. TUCKER. That is our intention, to separate ourselves from a 

relationship with Strong Castle. 

Mr. WALBERG. So do you plan as well to stop ordering from the $266 million IBM contract that was awarded to Strong Castle in 

December of 2012? 

Ms. TUCKER. So as I—I mentioned earlier, the—the contracts in 

question, the one with laptops, IRS has never placed an order on 

that one, nor do we have any reason to do so. And our team has 

already begun the process to separate ourselves, the relationship 

with Strong Castle, on the IBM contract as well. 

Mr. WALBERG. Will any of the dollars obligated to Strong Castle 

count toward the IRS’s small business goals? 

Ms. TUCKER. So as I believe my—my colleague from SBA indicated earlier, the—the only time, and this is to my understanding, 

that those obligations go against the goal is if dollars are ultimately awarded to the contract. 

So, no, based on the decertification, I’m looking to my colleague 

from SBA, it’s my understanding that, no, based upon the fact that 

87 

Strong Castle has been decertified. And this is just my understanding, so I’m—I’m going to need some help from SBA—— 

Mr. WALBERG. Mr. Chodos? 

Ms. TUCKER. —that they would not count toward a small business award. 

Mr. CHODOS. So ordinarily, Congressman, the decertifications are 

prospective. From the date of the certification, no further contract 

actions can occur with the entity as though it’s certified, but contracts which have already been awarded or are being performed beforehand remain in effect unless there is an independent reason to 

terminate them. So if an award had been made and was performed, 

then they will—it will be listed as a small business contract if it 

was before the certification. 

That also occurs with suspension and debarment when wrongdoing comes to our attention. Ordinarily those actions are prospective. 

Mr. WALBERG. Ms. Tucker, the Treasury Department recently 

recognized Strong Castle as the 2012 small business prime contractor of the year. In light of recent developments, should this 

award be reconsidered? 

Ms. TUCKER. So—— 

Mr. WALBERG. Just for the record. 

Ms. TUCKER. So the recognition was given by the Department of 

the Treasury. Strong Castle was not nominated by Internal Revenue Service, but I believe—this is my personal opinion, because I 

cannot speak for Treasury—I do think what has been revealed does 

cast doubt in my mind. 

Mr. WALBERG. Well, I would hope so. 

And, Mr. Chairman, you know, I would say these hearings that 

continue with the type of egregious culture of moral vacuum, I 

think I’d call it, going on is just another example of the—of big government and what we can expect to go amok when we see a government so large that it is willing to allow these types of things 

to happen, in fact, foster things like this happen, foster things because of friendships or otherwise. I mean, we’ve even seen it in the 

most recent Supreme Court decision where we think more about 

personal desires than we do about the best good for children, or the 

best good for taxpayers, or the best good for our economy. We deal 

with promoting entities like this, and this is a perfect example of 

the worst case that can go on with big government. 

I see my time has expired. I—— 

Chairman ISSA. I thank the gentleman for his—— 

Mr. WALBERG. —yield back. 

Chairman ISSA. — his time and his comments. 

We now go to the gentleman from Florida Mr. DeSantis. 

Mr. DESANTIS. Thank you, Mr. Chairman. 

I got to tell you, just the upshot of these past couple months, the 

IRS, to me, is an institution that is—that is terminally ill. We had 

admission that the agency abused its power by targeting conservative groups, which effectively silenced a substantial number of 

Americans for the 2012 election. We had the IRS Commissioner at 

that time come before us; when asked if he accepted responsibility 

for the malfeasance said, well, it happened on my watch, but I’m 

not responsible. 

88 

Now, that would not fly in virtually any other aspect of American 

life. I’m a Navy guy. If a Navy ship runs aground, and the captain 

of the ship were to say, well, yeah, we ran it aground on my watch, 

but that’s actually some E–5’s responsibility because he messed up, 

you’d be gone immediately. 

Lois Lerner came in front of the committee, invoked her Fifth 

Amendment right against self-incrimination rather than answering 

questions for the American people. Now, I think she waived her 

Fifth Amendment right. I think the committee’s going to have 

something to say about that this week. But she’s been placed on 

leave, but she’s still with the agency. 

We had an interesting hearing in which an IRS official was crit- 

—questioned about lavish spending at conferences, suites $3,500 a 

night, $50,000-plus for a Star Trek parody video. And it’s interesting, they didn’t know exactly how much the video cost because 

they didn’t keep receipts for the expenses, and all we got was an 

apology tendered. If the IRS were investigating an American, and 

the American said they just didn’t bother to keep receipts or offered 

an apology, that probably would not be the end of it. I think the 

IRS would hold them accountable and demand more, but yet, to my 

knowledge, we haven’t gotten any accountability for this lavish 

spending and waste of taxpayer funds. It’s, oh, we need more—better procedures, more training, this and that. 

And so here we are another day and another invocation of the 

Fifth Amendment. We see, to me, a clear example of cronyism and 

waste of taxpayer money, but again, as my colleague from South 

Carolina Mr. Gowdy pointed out, no accountability. 

Ms. Tucker, I appreciate when you mentioned due process, but 

it seems to me, where’s the due process for the American taxpayer? 

You know, why does the taxpayer always have to take the back 

seat? Why is there so little accountability in this incredibly powerful bureaucracy? It’s almost as if the IRS has all this power, but 

some of their officials are held to a lower standard than what we 

would expect in private business or people even in other aspects of 

the government, such as the military. And to me, that is not acceptable. And if that means we need to change some of the laws 

that govern this, then I think we absolutely have to do it. 

So I think this is a profound culture of arrogance in the IRS, and 

I think the American people are sick of it. 

And with that, Mr. Chairman, I yield back—— 

Mr. MEADOWS. Will the gentleman yield? 

Mr. DESANTIS. —the balance of my time. 

Mr. MEADOWS. Will the gentleman yield? 

Mr. DESANTIS. Yes, I will. 

Mr. MEADOWS. I think we have a video that I would ask that we 

queue up. It’s a follow-up of some of the questioning, line of questioning, that we had from Mr. Jordan and myself earlier. And if we 

have that, if we can queue that up. I thank—I thank the chair. 

Chairman ISSA. I thank the gentleman, and I think the gentleman from Florida. 

I would now recognize the ranking member for a closing statement. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

89 

Chairman ISSA. Hold it. Could you pause for a moment? I’m 

being told—oh, I’m sorry. If the gentleman—if the remaining time 

can be given to Mr. Meadows. It’s a minute and 40, and go ahead 

and use it as a close. 

[Video shown from previous hearing.] 

Issa: ‘‘Based on the timeline you gave us, on May 29, 2012, the 

audit briefed the IG in advance of the IRS Commissioner’s meeting. 

May 30th IG and function heads briefed the IRS Commissioner, 

Doug Shulman, and the Deputy Commissioners, Steve Miller and 

Beth Tucker, on the audit, comma, specifically that criteria targeting Tea Party Patriots or 9/12, another keyword, and other policies issues were being used to—used to in reviewing applications 

for tax-exempt status.’’ 

‘‘You briefed, and that’s your notes?’’ 

George: ‘‘Yes. That’s correct, sir.’’ 

Issa: ‘‘And so what—what you say on May 30th is, yeah, they’re 

targeting these groups. That’s confirmation you reached the conclusion they’re targeting using these keywords.’’ 

George: ‘‘Yes. Now, just to be rec-—clear, I didn’t take these 

notes, but these are accurate.’’ 

Issa: ‘‘Right. And I’m just using these because they were delivered to us from your staff. So on May 30th, there was a ‘‘there’’ 

there, and you briefed Mr. Shulman and two others. On June 4th, 

you went up—′′ 

[conclusion of video.] 

Mr. MEADOWS. So, Ms. Tucker, your—your testimony does not 

agree with that testimony. So who—who is right? 

Ms. TUCKER. Sir, when you asked me the earlier question, you 

asked me was I present at the briefing that Mr. George gave the 

Internal Revenue Service. I recalled being at that briefing. 

Mr. MEADOWS. Your testimony—— 

Ms. TUCKER. I—— 

Mr. MEADOWS. What your testimony said, Ms. Tucker, was that 

this was a normal briefing talking about an audit. This was obviously results of which you said there were—that they were just 

talking about going to conduct an audit. 

Ms. TUCKER. Sir, if I could, TIGTA comes in to Internal Revenue 

Service monthly. Mr. George—and we will be glad to try and 

produce this. Mr. George briefs the Internal Revenue Service on 

multiple topics at each one of those meetings. To the best of my 

recollection, his discussion of their investigation of TEGE was only 

one of the topics that I recollect from that briefing. 

Let me also be clear. When Mr. George communicated to the Internal Revenue Service, to the best of my recollection, about concerns with the BOLO list and that—the terms that he was talking 

about, it was then the agency’s response, as the investigation is 

under way right now, to say, yes, yes, use of those BOLO terms are 

inappropriate. That’s why there’s an investigation under way, to 

get to the bottom of what the facts are, sir. 

Mr. MEADOWS. But—but you had already had an internal investigation that already indicated that that concluded on May—the 

first part of May, so why would that be a surprise? 

Ms. TUCKER. Sir, I was not privy to any of the internal investigation. 

90 

Mr. MEADOWS. But Mr. Miller was. 

Ms. TUCKER. Mr. Miller is the Deputy Commissioner—or was the 

Deputy—— 

Mr. MEADOWS. My time’s expired. I appreciate the indulgence. 

Chairman ISSA. Would the gentleman yield for just a second? 

Mr. MEADOWS. Yes. 

Chairman ISSA. Ms. Tucker, hopefully I can bring a common answer here. So I’m not trying to put words in your mouth, but let 

me try to paraphrase. 

The IG said there was a ‘‘there’’ there in that meeting. You saw 

the video. You were in the meeting, you heard it, but your testimony today seems to be primarily that, regardless of that, you said 

to yourself, there’s a process, it’s going to go forward, and it’s not 

my job, because it’s not within my lane. 

Is that a fair paraphrasing of the series of answers—questions 

and answers? 

Ms. TUCKER. Yes, sir, because the Deputy Commissioner structure at the Internal Revenue Service, just as if TIGTA was there 

giving feedback on an audit or a report that’s about to be issued, 

then the responsibility for the follow-up actions, just like the report 

someone referenced earlier today, the—the purchase card audit. 

TIGTA briefed IRS a couple of months back in one of these monthly meetings and said, we have done an audit of the purchase cards. 

Here is what our findings show, that 99.75 percent of the purchase 

cards used at IRS are correct, but there are some concerns. 

That is my take-away. I own that in my role at IRS. It is my job 

to then follow up and—— 

Chairman ISSA. Okay. 

Ms. TUCKER. —make sure corrective actions take place. 

Chairman ISSA. Go ahead, Mr. Cummings, with—— 

Mr. CUMMINGS. Yeah. I just want to—just to clarify, I just want 

to be real clear. First of all, Ms. Tucker, I—I have been sitting here 

watching you, just listening, and I just want you to know I believe 

you. I don’t know what that means to you, but it means a lot to 

me. I believe—— 

Ms. TUCKER. It means a lot to me, sir. 

Mr. CUMMINGS. I believe you. And the reason why I say that is, 

as I understand it, IRS, you got a top person, and then you’ve got 

two deputies. And I think you tried to explain it to us probably 10 

times now is that you are on one side dealing with IT and all this 

stuff, and I guess more like the nuts and bolts—is that—— 

Ms. TUCKER. Yes, sir. 

Mr. CUMMINGS. And the other side deals with things like what? 

Ms. TUCKER. Like the—— 

Mr. CUMMINGS. Tax exempt—— 

Ms. TUCKER. —administration, audits, collections. 

Mr. CUMMINGS. And so I just—just going back to what the chairman was just asking you, so when you hear—even when you hear 

this stuff that’s regarding tax-exempt and stuff like that, I’m just— 

I’m just guessing, I guess you’re sitting there saying, okay, you 

know, that is not good, but let me—I’m zeroing in on what I’m supposed to do. How many employees come under you? 

Ms. TUCKER. Roughly 11,000. 

91 

Mr. CUMMINGS. Eleven thousand, your 11,000 employees and all 

your responsibility. So I just—so it’s not that you didn’t care; is 

that right? 

Ms. TUCKER. No, sir. And I—I’m troubled if that is the impression that some on the committee are taking away from this. 

To the best of my recollection—and, again, IRS is a very large 

organization. TIGTA and GAO do multiple oversight audits for Internal Revenue Service. They are in briefings, the Commissioner 

and the two Deputies, monthly, if not more often. In light of recent 

events, Mr. George and his team are now coming in weekly to brief 

on issues. 

Based on my recollection of what was shared at that meeting, 

Mr. George was talking about an audit of TEGE. He also was talking about concerns. It was my takeaway based on that meeting 

that IRS would then be taking appropriate action to deal with that, 

not that it was something that was in my responsibility to leave 

the room and begin working with folks in TEGE or elsewhere to 

take any action. 

And I don’t—I implore you, that is not me trying to shirk responsibilities. That is me focusing on what my responsibilities are at Internal Revenue Service. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Chairman ISSA. Thank you. 

Mr. Jordan, does that answer your question, or do you have further follow-up? 

Mr. JORDAN. If I could, Mr. Chairman, I’d appreciate—— 

Chairman ISSA. The gentleman is recognized for a last round. 

Mr. JORDAN. I thank the chairman for his indulgence. 

I appreciate what the ranking member said, but the gravity of 

what took place here, it seemed to me everyone in a position of influence would want to come forward and set the record straight. 

If I could quickly, Mr. Chairman, I just want to put up one email 

that—this is an email from March 9th, 2012, Mr. Floyd Williams, 

in response to an inquiry from Senator Hatch about the 501(c)(4) 

situation. And the FYI—it’s copied to all these folks, but it says, 

‘‘Latest volley in the 501(c)(4) battle.’’ And I think it’s important to 

note who was copied on this email. Ms. Tucker was copied, Sarah 

Ingram, Nancy Marks, Lois Lerner, Steve Miller. 

Ms. Tucker said she had no—this is not her area. She had nothing to do with it. And yet, 2 months prior, she is getting the latest 

in the battle about the 501(c)(4) scandal that’s going on. And yet 

today she continues to say it had nothing to do with her. 

If it had nothing to do with her, why is she copied in on an email 

that focuses in on this very issue 2 months prior to when she said 

she first heard about it? 

And, with that, I’d yield back, Mr. Chairman. 

Chairman ISSA. Well, the gentlelady may answer. I think there 

was a question there. 

Ms. TUCKER. Yes, sir. 

So our legislative affairs function routinely copies the Commissioners and Deputy Commissioners on correspondence that is 

under way between Congress. That is not an unusual situation. 

Mr. JORDAN. Why is the term ‘‘battle’’ used? 

Ms. TUCKER. I have no idea, sir. 

92 

Mr. JORDAN. Okay. Thank you. 

Chairman ISSA. I thank the gentleman. 

Mr. Cummings? 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

I want to thank all of our witnesses for being here today. 

Mr. Castillo, I must tell you that your testimony is alarming, and 

it concerns me greatly, and I’m sure as it does other members of 

this committee. 

While I said it in a kind of joking way when I referred to Michael 

Jackson’s song, ‘‘Man in the Mirror,’’ I really—and when I read 

your testimony and then I listened to what you said, I’ve got to tell 

you, you’ve got to look closer in the mirror. And, you know, I tell 

my kids, I tell them, whenever you’re constantly complaining that 

people are doing you wrong, I said, sometimes you need to look at 

yourself if you consistently find yourself in that position. 

And so I—but the main thing is that I think we need to try to 

straighten this mess out. And I’m glad, Ms. Tucker, that you all 

are taking the steps that you all are taking. 

Our country is—I think we deserve a strong program. I was just 

telling the chairman about how much I admired his ability to do 

business and come from a small company and to make it successful. And I want everybody to have those kinds of opportunities to 

open the door, but they will never get there if we abuse programs 

that are to help them get there. 

And so I just hope that when you go back, Ms. Tucker, you will 

reiterate that to your people looking at all of these procurements, 

so that we can have that balance, so that we can actually help people achieve their great dreams and not be like the people that I 

talked about in my opening statement who worked so hard for so 

long, pushing, knocking at doors, trying to get to opportunity, and 

then they die before they get there, and so their dreams are locked 

up in the casket with them. 

And so, with that, I want to thank you, Mr. Chairman. Again, 

I think it was a good hearing. 

Chairman ISSA. I thank you, Mr. Cummings. 

In closing, often a hearing is about a specific action. And, Ms. 

Tucker, it appears as though a great deal will come as a result of 

the preparation for this hearing and the report we put out. I’m 

going to work with the ranking member to turn it into a full committee report. It’s essentially a staff draft at this point. And we will 

follow on with some of what we learned here today. 

But I’m going to include, in all likelihood, in that report or an 

additional series of letters a number of things that I could not help 

but recognize today. 

Ms. Tucker, I think to say that the IRS is an organization currently in crisis is a given. I have some confidence and a lot of hope 

that the new Commissioner, Acting Commissioner, will, in fact, be 

able to bring that about. And for the 100,000 or so career professionals that work at the IRS, I wish you well in doing that. It’s important to the American people. 

Mr. Castillo, this is not about you, but, in fact, this hearing, I 

believe, was illustrative of some problems that our government has. 

Mr. Flohr, I believe that our committee is going to be sending a 

number of things, and Ms. Duckworth will undoubtedly be working 

93 

on it with us. And that is that, in a time of limited resources, we 

do need to define service-connected disabled in a way that doesn’t 

automatically trigger virtually every American who served, myself 

included, from qualifying. 

We also need to be better and more consistent on whether or 

not—and we can legally empower you to be more accurate. Ms. 

Duckworth was correct that a strain, a crack, a twisted ankle 27 

years later that clearly didn’t impair the performance of somebody 

going through their life—if we were dealing with workers’ comp, we 

would not be as generous as to turn that into $6,000 a year for the 

rest of their life and other benefits. There’s no question this is far 

greater in the current dollars than I think the taxpayers believe for 

what the record appears to show. 

That’s not to take away from the legitimacy of an application, 

but Congress has an obligation to work with the Veterans Administration to get these numbers better. At the same time, I know 

you’re acutely aware that we are dismayed at how long our Iraq 

veterans and Afghanistan veterans are waiting to get a determination. 

Mr. Chodos, the fact is you got a little bit of a pass here today, 

but I must tell you that I’m disturbed that the process and the 

numbers are such that, without either regulation changing or coming to Congress with a series of changes that you need, we are not 

accurately reflecting HUBZones, we’re not accurately reflecting the 

real benefit that is going to the people that Mr. Cummings and I 

want to see get it. 

Now, much of it may be legislative, but I would charge you to 

go back to your Cabinet Secretaries and say, you know, we owe 

Congress some proposed changes. Whether it’s cost savings or it’s 

benefit being more targeted, you know, I believe that this is part 

of what this hearing is showing. 

There may have been—there clearly were some violations of the 

rules, some incorrect statements made. But I think even if none of 

those were made, we still would probably, from this side of the dais 

on a unanimous basis, have seen a travesty of what was intended 

versus what was allowed, what was achieved versus what was 

scored. 

So I would hope that as you go back today, recognize that we will 

send, at a minimum, letters asking you to be part of the process 

of getting the reform. 

I thank Mr. Sisk. The GAO is our partner in our branch, and it’s 

critical that we have your support. You’re constantly bringing us 

some of these items and high risk. Perhaps you will be and your 

organization, on behalf of those of us in Congress, will be a hub for 

a lot of this. 

But it’s the intention of this chairman to bring to the committees 

of jurisdiction specific recommendations for change that could narrow or prevent this from happening in the future. 

I want to thank you all for your testimony today. 

Ms. Tucker, I’ll close only with one thing: a message, I think for 

the IRS, and it’s a message for the IRS, for the State Department, 

and for every part of government. This committee, over my short 

tenure as chairman, has a consistent frustration, and that is: Messages are received that should alert people. Often it’s not within 

94 

their lane, it’s not their job, but it still bothers us that every single 

American worker in the Federal Government doesn’t say, ‘‘Well, 

but we’ve got to get the truth out there.’’ 

The world is seeing this NSA crisis right now with a vague suggestion that somehow it’s because nobody was listening. This committee is listening. We want to hear. Every Federal employee owes 

it to Congress and to the American taxpayer to be a whistleblower 

if they see something wrong, even if it’s as benign as an Acting 

Commissioner saying we’re not targeting, and then they become 

aware in some way that there’s a likelihood that they are targeting 

and that Congress is not aware that they’ve been misled. 

That was true for 10 months with Fast and Furious. It was true 

for a similar period of time here with the IRS and the targeting. 

And I believe that we’re still dealing with trying to get to the whole 

truth with Benghazi. 

So those are outside of today’s hearing, but I think you get the 

point, that I’m calling on every Federal worker to recognize that 

this Congress passed a major new whistleblower legislation so that 

we could invite people to call your Congressman, write your Congressman, or come to the committees and tell us if you have some 

doubt. It’s okay to be wrong as a whistleblower; it’s really wrong 

to keep a secret you think is wrongdoing. 

Lastly, I would be remiss if I didn’t mention that every part of 

government has an Inspector General. And the IGs are the first 

and most logical report to by Federal workers, and I hope they will 

always do that. 

And, with that, I thank Mr. Cummings, and we stand adjourned. 

[Whereupon, at 12:11 p.m., the committee was adjourned.] 

(95) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

96 


Insert offset folio 33 here 82275.033

U.S. SMALL BUSINESS ADMINISTRATION 

WASHINGTON, n:c. 20416 

Sent vln the HUBZone Certification Tracking System and Fpcsimile 

Braulio M. Castillo, President 

FKA, Signet Computers, Inc. 

Washington, DC 20001 

RE; Notice of Final Decertification 

Denr Mr. Castillo: 

May 23. 2013 

This Jetter is to notifY you that Strong Caslle, Inc. (SCI) finla Signet Computers, Inc. has been 

decertified and removed from the Small Business Administration's (SBA) list of certified 

HUBZone firms. The reason for the decertification is explained below. 

Proposed Decertification Allegations and ReQuest for Information 

S13A received information dUring a HUBZone status protest, which was dismissed for reasons 

unrelated to specificity, but which contained information and allegations which led SBA to 

believe that the firm may no longer meet the HUBZone principal office or 35% residency 

requirement. Therefore SCI was proposed for decertification on January 3 J, 2013. 

In its nouce of proposed decertification,SBA claimed that SCI did not meet the HUBZone 

program's principal office and 35% residency requirement. SBA contended that the address 

listed as SCI's principal office Washington, DC_, may not 

be the ac.tual principal office location because the finn stated that seven employees worked at 

this localion but the office space is only 300 square feet and may not be able to accommodate 

seven employees at that location. SBA contended that SCI has several affiliates with various 

offices (not all were located in HUBZone areas) that appear to be separate entities. but are 

inextricably connected and this could affect SCl's principal office location. Because SCI may 

shn.re employees with its purported affiliates, SBA claimed that SCI may not meet the 35% 

HUBZone residency requirement. 

In its proposed decertification notice SBA alleged that Signet Computers was also affiliated with 

Strong Castle Technologies LLC, Strong Castle, Inc., Castle Strong, LLC, and Strong Castle 

LLC. SCI provided evidence to address the following: (1) The company Castle Strong, LLC of 
97 


Insert offset folio 34 here 82275.034

Nevada was/is not related to the owners of SCI or its other business; (2) I Signet Computer's 

fnc. 'S2 3 name was changed to Strong Castle, Inc. in October 2012; (3) Strong Castle, LLC's 

name was changed to Strong Castle Technologies, LLC in October 2012. SBA has determined 

that Strong Castle, Inc. and Strong Castle Technologies, LLC arc affiliated however, there are 

only two businesses that the owners of SCI OW11, (a) Strong Castle, Inc. and (b)Strong Castle 

Technologies, LLC and when the employees of these two firms are combined the number of 

employees nre less than 150 employees. SCI's NAICs code is 541519, "Other Computer 

Related Services" and the size standard is 150 employees. SCI currently has thirteen 

employees. Its affiliate, Strong Castle Technologies, Inc. did not have any employees at the time 

ofSBA 's notice of proposed deceliification or currently. The film does not have any other 

affiliations and based on the information provided the firm is a small business according to SBA 

size standards. 

Firms that are certified as eligible HUB Zone small business concerns (SEC) must continue to 

meet all the program requirements to retain their eligibility. See 13 C.F.R. Part 126 Subpart E. 

The United States Court of Federal Claims in response to a plaintiffs claim that HUBZone SBCs 

did not have an ongoing responsibility to meet the requirements of the HUBZone program stated 

the following, "Thus, the court concludes that, except for perfonnance during an existing 

[HUBZone contract]. the 35% residency requirement is a continuing requirement." Mission 

Critical Solutions v. United States, 96 Fed.C!. 657, 667 (2011). SBA therefore selected three 

specific times and required SCI to provide evidence of its continued eligibility for the program; 

date of SCI's certification into the program (06/22/20 I 2), the date the firm was awarded a 

contract from the IRS for Solicitation No. T!RNO·12-Q-00083 (12107112), and at the time of 

SBA's notice of proposed decertification (01/31/13): 

an explanation of the relationships of SCI and all of its affiliates. 

q company payroll records for SCI and all of its affiliates showing all employees and 

number of hours worked per week at the times in question; 

g if there are any employees that worked less than 40 hours dUl'ing the week, SCI and its 

affiliates must provide the following to demonstrate that those employees worked at least 

40 hours in a month: 

o payroll records that cover the four-week period leading up to, and ending with tile 

date in question; 

e a statement explaining whether all of the officers ofSer and its affiliates are shown as 

employees on the payrolls; 

o a statement explaining whether all individuals that work for SCI and its affiliates are 

shown as employees on the payroll. including: individuals obtained from a temporary 

I In January 2012111e Castillo',; purehosed 100% oi'silafcs ofSignel Computers 

1 Allhe Hme or tile bid ror the IRS conlraeltilc cumpany name was Signet ComputeI's Inc,lhus Ihe contrael was .warded under 

Ihlll name. 

1 Firm notified SBA onhis maleIlal ehange November 2012. 

2 
98 


Insert offset folio 35 here 82275.035

employee agency, leasing concern, or through a union agreement or co-employed 

pursuant to a professional employer organization agreement; 

• copies of state unemployment tax filings for SCI and its affiliates for the quarter when the 

offer was submitted as well as the most recent filings; 

• records indicating the home address of each HUB Zone resident employee of SCI and its 

affiliates at the times in question, including copies of driver's licenses or yoter 

registration cards showing the employee's home address is in a HUB Zone; 

• a copy of a HUBZone map determination for each employee residing in a HUB Zone. 

including the name of each employee on the HUBZone maps; 

.. records indicating the location at which each employee of SCI's and its affiliates 

performed hislher work; 

.. records indicating those SCI employees and its affiliates' employees who were 

performing the majority of their work at job-site locations to fulfill specific contract 

obligations at the times in question. identifYing 

o the job-site location at which each employee performed his or her work 

o the contract (include a copy of the front page and other pages of the contract 

showing where the work must be performed) and contract number for that job-site 

location, and 

o the percentage of work performed by the employee at that location; 

8 copies of leases or deeds of all of SCI's and its affiliates locations, including its principal 

office; 

• copies ofelectrlcity, water, etc. bills for SCI's plincipal office; 

• copies of SCI's and its affiliates most recent federal corporate income tax return; 

• the by-laws, articles of incorporation, andlor articles or organization for SCI and its 

affiliates; 

• a statement and other information explaining whether the company shares employees, 

offices or equipment with another business concern; and 

• an explanation and documents addressing the specific allegations set forth in this 

proposed decertification. 

In response to this request, on 03/04/13, SCI sent the following: letter from the finn's attorneys; 

signed declaration of Braulio Castillo, amended and restated stock purchase agreement, Strong 

Castle, LLC Certificate of Fact, Signet Computers, Inc. Certificate of Amendment, Strong Castle 

Inc,Payroll Records for 06/22112,12/7/12 and 01131/13; Strong Castle, LLC Payroll Records for 

06122/12: Signet unemployment tax filings that cover the dates 06/22/12 and 12n/2012; Strong 

Castle, LLC unemployment tax filings for 06/22/12; declarations, residential lease documents 

and HUBZone maps for Strong Castle, Inc, 's employees; Signet!Booz Allen task order; lease 

agreement for th location and water and 2011 tax return; 

Strong Castle, Inc.'s 2011 tax return and photographs office. 
99 


Insert offset folio 36 here 82275.036

In addition, SBA conducted an unannounced site visit It . the pU1Jl0l1ed 

principal office ofSCr, on April 16, 2013. One SCI employee was present at the time. That 

employee explained to SBA that the other employees only work part-time, and so it is not 

uncommon for him to be the only employee in the office. He stated he was the only employee 

who worked at the office full-time. The office consisted of two rooms with tables and several 

desktop personal computers. There wus also a locked cabinet that contained laptop computers for 

the employees not present. There appeared to be sufficient space at the tables and enough chairs 

for all the employees to sit at the tables and work. Given the part-time nature of most ofSCr's 

employees, and specificalJy almost all of the employees purported to work at the principal office, 

the results of the site visit is informative but ultimately non-conclusive. 

In response to the notice of proposed decertification on 0312]120]3 SBA requested additional 

informatiOn/clarification from SCI and on 3/27/2013 the firm sent the following statement, along 

with attachments of employee's driver'S license, to SBA: 

With 

request 

"driver's licenses andlor utility bills ... that includes the date of each payroll 

period referenced in the proposed decertification." 

We presume that this request seeks to confirm the HUBZone residence afthe 

employees in Strong Castle, Inc.'s principal ofJice. 

the drivers licenses of •••••••• 

with its HUBZone apphcaliOn materials. Copies 

are attached hereto. 

Because those employees are students at the Catholic University of America, their 

d!ivers' licenses do not reflect the address of their primary residence in the 

HUBZone. For that reason, Strong Castle's March 4, 2013 response to the SBA 

decertification letter includes lease documents for all seven employees (Exlubit 

13) as well as sworn declarations from the same employees regarding their. 

residency in a HUBZone (Exhibit 12). 

With respect to emnlclv,,,,. 

driver'S I 

understanding 

of their lease agreements. It also is our understanding Iliat the HUBZone office 

customarily has not required documents such as drivers' licenses to establish 

residency for university students. 

While we can request copies of the other employees' driver's licenses, those 

licenses will not rel1ect the address of their primary residence in the HUBZone. 

4 
100 


Insert offset folio 37 here 82275.037

Alternatively, we can request utility bills from the employees' landlords and the 

Catholic University for the dates requested. 

Is the SSA asking for copies of the employees' out-of-state driver's licenses 

and/or the utility bills from their landlords and the University? 

SBA responded to the 03/2712013 email on 03/28/2013 and advised the firm to: 

Please provide the following to include the date of each payroll period referenced 

in the proposed decertification notice for each HUBZone resident employee that 

is also a student of a uIDversity. In response to your statement ''the HUBZone 

office customarily has not required documents such as drivers' licenses to 

establish residency for university students" please note that in some cases SSA 

may requests those documents among other supporting documents to confirm 

HUB Zone residency status. 

• Transcripts 

.. Registration 

• Schedules 

Please provide this information NLT April I, 2013. 

On March 21,2013 SCI responded to SBA's request for additional infonnationl clarification 

with the following; 

1. SBA - We note that the fonner owner of Signet Computers, Inc .--

was an employee at the time of the firm's certification as a HUB~ 

Wben did Mr. employment end with the applicant firm? Is Mr . 

••• currently involved in any activities conducted or performed by Strong 

Castle, Inc.? 

SCI's response: Mr._'S employment with the firm ended on September 

28,2012. He is not involved in any activity or conduct of the firm in any respect. 

2. SBA - is listed on the firm's 12/31/12 Virginitl qUat1erly 

unemployment form but not on the firm's payroll for that period. Please explain. 

SCI's response: As noted above was an employee ofthe firm on 

the last business day of the third quarter of2012 (i.e .• on September 28, 2012). 

The firm issued Mr. last paycheck in Oclober 2012. Because Mr . 

•••• last paycheck was issued in the final quarter of2012, he is listed on the 

firm's Virginia quarterly unemployment form dated December 31,2012. 

3, SBA - Why is I listed on 2 separate payrolls (1/31113 - 1131/13, 7 

hours) and (1117113/-1/31/2013,33 hours) for the same period? 

SCI's response: Mr._worked seven hours on January 16,2013. However, 

the firm's payroll software (QuickBooks) erroneously deemed January 17,2013 

5 
101 


Insert offset folio 38 here 82275.038

4. 

to be the first day of tile pay period. For that reaSOn Mr._· s payroll records 

reflect that the worked thirty-three hours during the period January 17,2013 to 

January 31, 2013. In order to make sure that Mr._received payment for the 

seven hours that he worked on January 16, 2013, Mrs. Castillo manually created a 

pay period of one day in duration (January 31,203 to January 31, 2013) and 

attributed seven hours to work that pay period. 

proposed decertification. 

SCI's response: As discussed in correspondence between the firm's outside 

counsel and Ms. the employees listed in Question No.4, 

with the exception of Mr. are enrolled at the Catholic University of 

America ("CUA"). For that reason, their driver's licenses do not reflect the 

addresses of their primary residences in the HUBZone. Moreover, the same 

student employees do not receive uti Ii ty bills under the terms of their lease 

agreements. Accordingly, in lieu of driver's licenses and utility bills, the SBA has 

requested that the firm provide, by Aprill, 2013, copies of the follo\ving 

docwnents for eacIl HUBZone resident employee who is also a student of n 

university - Transcripts, Registrations, and Schedules. 

5. SBA - Explain why the firm's payroll records include the firm's Leesburg address 

and not the firm's purported principal office address. 

SCI's response: The firm uses the address at •••• ~~~ 

Leesburg, Virginia as a corporate headquarters address. The Leesburg 

location is close to the Castillos' home, and receiving mail at the post office 

box at that location is convenient to the Castillos. The firm's principal office 

is located at NW, Washington, DC. The HUBZone 

regulations do not require a company to locale its headquarters in a 

HUBZone. 

6. SBA - It appears that current payments (12/2012) from the IRS list the payments 

in the former nanle "Signet" instead ofthe new name Strong Castle, Inc. and also 

list the location as Arlington, VA. Please explain. 

SCI's response: The payments referenced in Question No.6 concern IRS 

contract vehicles relating to the firm's GSA Schedule 70 Contract (Contract 

No. GS-35F-0319Y), The firm understands that it is the practice of the IRS 

not to implement changes to a contractor's corporate name or address until 

the relevant changes are first made by the GSA. 

B 
102 


Insert offset folio 39 here 82275.039

By letter dated December 7,2012, the firm requested thai GSA recognize the 

change of the firm's name from Signct Computers lncorporated to Strong 

Castle, Inc. A copy of that letter is attached as Exhibit 1. On January II, 

2013. GSA informed the firm that the change of name request was lmder 

review. A copy of that notice is attached as Exhibit 2. The finn ,mderstands 

that GSA and the IRS have now fOlmaHy recognized the name change. 

With respect to the reference to the _____ Arlington, VA 

address, the firm has made several ~information in 

CCR and SAM, but has not yet been successful. 

Note: An attachment as mentioned above; the firm did provide It copy of a 

December 7, 2012 letter from the firm to GSA requesting that GSA recognize the 

change of the firm's name from Signet Computers Incorporated to Strong Castle, 

Inc. and a January 11. 2013 email from GSA informing the firm that the change 

of name request was under review. . 

7. SBA· The 12/31/2012 qtlarterty unemployment statements for the states of 

Alabama, Massachusetts, Virginia, Florida, District of Columbia and the Federal 

940 and 941 are filed under the name of Signet arid not Strong Castle, Inc., 

several months after the firm changed its name. Please explain. 

SCI's response: The firm uses QuickBooks for its payroll software application. 

The QuickBooks appl ication wi 11 not reflect the fmn's name change to Strong 

Castle, Inc. until the IRS recognizes the change of name. 

8. SBA· Provide the days of the week arid the number of hours each employee 

performs their work at the_ Washington, DC location. 

SCI's response: The dally work schedule for the H Street employees is set 

forth below: 

9. SSA - [n a previous SBA communication, your firm indicated that the building 

was recently renovated, which ineluded new electrical services (which the public 

utility _) installed one of two meters) however_had not installed the 

meter serving the upper floors where Signet Computers, Inc. and their af~ 

Strong Castle, LLC occupy. According to a telephone conversation with_ 

7 
103 


Insert offset folio 40 here 82275.040

and SBA,_ advised that this location, , Washington, DC 

location, is only charged for imperviolls surfaces such as: rooftops, paved 

driveways, patios, and pflrking lots, are major contributors to rainwater runoff 

entering the District's sewer system. What company provided services for 

electricity, heat and/or cooling, water? 

SCI's response: The flIm understands that. has represented that it will 

install the S.lectrical meter for the upper floors of the office building in the 

near future. provides only electrical service. water and 

sewer service. The firm understands that estimating (and 

not actually measuring) the building's represented that t1le 

building is on a list to receiving a new water usage meter, but will not say W,;, 

the me~AccordinN0 the property manager for the 

office,...-.. it one time billed only for impervious 

surfaces. The water/sewer bill now includes the impervious surface cllarge and a 

charge for estimated water/sewer usage. 

The firm also provided a December 7, 20J21etter from the fiml to GSA requesting that GSA 

recognize the change ofthe firm's name from Signet Computers Incorporated to Strong Castle, 

Inc, and a January 11,2013 email from GSA informing the film that the change of name l'cquest 

was under review. 

On 04/0112013 SCI, via email.SClprovided the following statement and request: 

Since receiving SBA's request of March 28, Strong Castle, Inc. and its employees 

have been diligently working to collect the Transcripts, Registration documents, 

ruld Class Schedules of the Company employees who are students of the Catholic 

University of America ("CUA"). 

Thus far, we have been able 10 collect Transcripts and Class SclJedules for some, 

but not all of the student employees. Furthermore. we understand that registration 

for CUA classes is conducted online, and that CUA students therefore do not 

receive copies of "Registration documents," as such. In light of the foregoing, we 

respectfully request that SBA withdraw its request for Registration doewnents, 

and extend the due dale for the submission of Transcripts and Class Schedules 

until Wednesday, April 3. In the event we are able to provide the Transcripts and 

Class Schedules before April 3, we will make every effort (0 do so. 

Via email SBA responded to SCI's 04/01/2013 communication with the following: 

Mr. We expect the receipt of the required documents (Transcripts, 

Registration and Schedules) for all employees NL T 41312013, 1 2:00pm EST 

because we believe that the University will provide this official information if 

requested by the student. Thank you. 

e 
104 


Insert offset folio 41 here 82275.041

On 04/03/2013 SCI provided, via email, the following: 

Strong Castle, Inc. is pleased to provide its response to the SBA's request for 

Transcripts. Registration and Schedules for the company employees who also are 

students at the Catholic University of America. This letter responds to the Small 

Business Administration's ("SBA") March 28, 2013 email requesting 

"Transcripts," "Registration," and "Schedules" for each HUBZone resident 

employee that is also a student ofa university. The documents listed below are 

provided as Exhibits to this letter. A ttAroh,Tnf>nt.· Tr~LIlSc:rip:ts, 

schedules 

SCI employs several college students. Information seemed to show that that hours and days that 

Sel's payroll records document certain students performing work at the firm's principal office 

on days and at times that these students had exams. SBA provided information to SCI that its 

payroll records may have been false. On May 8,2013, SBA requested the following; 

SBA llas received information that a majority of Signet/Strong Castle's 

employees are current college students. Further the information shows that on 

12/12/12 an employee had two finals exams. The 1'1 exam was scheduled from 

1:00 - 3:00pm and the second exam was scheduled from 3: 15 - 5:15pm. Strong 

Castle payroll that covers this date and these times records that the student also 

worked 9 hours on that day. Please explain the circumstances that allowed this 

employee to take two final finals and work on the same day at Signet/Strong 

Castle's principal office. Has Signet/Strong Castle provided SBA with any other 

inaccurate payroll records (records showing employees working hours they did 

not in fact work or working at locations they did hOt work at it)? If so please 

provide SBA with a compJete and detailed list of all inaccuracies in any of 

Signet/Strong Castle's payroll records and an explanation of each instance. 

SCI provided the following in response to SBA's inquiry: 

1n the May 8th request, you note that a Strong Castle employee who is a college 

student recorded time worked at Strong Castle on a day on which the student had 

two exams. Although you do not identify the student in question, you ask that 

Strong Castle explain the circumstances that permitted the student to take two exams 

and work on tbe same day. In response to the SBAis request, Strong Castle 

reviewed the lime sheet and payroll records of those employees who attend the 

Catholic University of America ("Catholic") to compare their time worked during 

December 2012 with their final exam conducted during that period. For the reasons 

outlined below, Strong Castle's student employees were ablc to take exams and 

complete their work obligations. 

9 
105 


Insert offset folio 42 here 82275.042

As the result of its review, Strong Castle identified two instances in which those 

employees who attend Catholic mi~me worked during their exam 

period. The first instance involved~ who had a series of final 

exams on December 12th from 1:00 p.m. to 3:00p.m.and from 3:15p.m. t05:15p.m., 

and on December 14th from 8:00 a.m. to 10:00 a.m. and fTOm I :00 p.m. to 3:00p.m. 

Declaration of (' Dec!'''}1 (attached as Exhibit 1). Mr . 

•••• did not have a fillaI exam on December 13th, and worked nine hours at the 

Strong Castle office. Decl5. Following the SBA's May Bill request, Mr. 

, •• checked his time sheets and determined that he had mistakenly recorded 

time worked on December 13th in the December 12th time entry on his time sheet . 

••• Declli. 

The second instance involved who had exams schedule on 

December 10th from 3:15p.m. to 5: 15p.m., on December 11th from 8:00a.m. to 

10:00 a.m., and on December 13th from 3:15p.m. to 5:15p.m. Declaration f_ 

•••• (' Dec1.")4 (attached as Exhibit 2). Mr. !xam 

on December 11th took only 4.5 minutes, and he worked six hours at the Strong 

Castle office following his exam. Decl5. On December 12th, Mr. 

_ did not have any exams and worked eight hours at Strong Castle. 

Id. Following the SBA's May 8th request, Mr. reviewed his time sheets 

and believes that he mistakenly entered his time for work performed on December 

II th on his December 12th time sheet entry, and for work performed on December 

12th on his December 11th time sheet entry. Declo. ComparlY records 

will be corrected in accordance with each student employee declaration. 

Strong Castle has reviewed time records in response to the SBA's May 8th request, 

and identified the two time entry discrepancies discussed above. Apart from these 

discrepancies, Strong Castle is not aware of any other inaccuracies with respect to 

payroll records submitted to the SBA. Declaration of Michelle Castillo ("Castillo 

Decl. "p (attached as Exhibit 3). 

SBA also asked SCI questions regarding the accuracy of information provided to SBA: 

If Signet/Strong Castle cannot at this time verify that all ofits records are accurate 

please provide SBA with a statement to that affect. Additionally, in support of tile 

company's application Strong Castle submilted a copy of a signed lease for two of 

Strong Castle's part-time college student employees. The address on the lease 

was in a HUBZone. Is the lease that was provided to SBA a copy of the actual 

lease that was signed by all the parties? Ifnot please provide an explanation for 

why an altered lease Was submilted to SBA without providing SBA any indication 

10 
106 


Insert offset folio 43 here 82275.043

that the lease provided had been altered after it was signed, but prior to submittal 

to SBA. Your explanation should provide a detailed explanation of who altered 

the lease, who knew the lease was altered, and who decided to provide an altered 

document to SBA. Also please conftrm that all other leases or any other signed 

contract that was provided to SBA has not been altered Castle/Signet. 

or employees of Strong Castle/signet prior to being s~... We 

also note that you provided an Addendum to Lease ft 

May 3,2012. Provide a full copy oflhe executed lease 

resident location Washington, DC 

In response to this question SCI provided the following response4

: 

With respect to student leases provided to the SBA, Strong Castle notes that as 

pan of its application for HUBZone certification submitted to the SBA, Strong 

2

cOas12tle leas We ehx.ecuted b

D

Y

C 

C ill .on]",May 3, as IUgton. .. ast! 0 Dec ./ .• 

.i'ii.i1ii~~~;; Jease signed b) for as part of its initial HUBZone application submission in 

original lease expired in May 2012, during the pendency 

of the SBA's review of Strong Castle's HUBZone certification request. ld. 

SBA notified Strong Castle that the lease had 'expired, and Strong Castle 

subsequently submitted the adde ... ndum to the lease exe~~ 

ld. A copy of MI'. orjgIDJ!Lt()ase fo~is, 

attached as Exhibit 4. 

_ All copies of student Jeases submitted by Strong Castle to the SBA are a<:curate 

to the knowledge of Strong Castle. Castillo Deel.S. As reflected in her 

declaration, Ms. Castillo is not aware of any alteration, whether by Strong 

Castle or any Strong Castle employee, of any lease or other signed contract 

submitted by Strong Castle to the SBA. 

SBA also requested information regarding the accuracy of the firm's payroll: 

Are the payroll provided to SBA a copy of the actual payrolls that covered the 

dale the firm was approved, the date the firm was awarded the IRS contract, and 

the date ofSBA's notice of proposed decertifi<:ation? Ifnot please pl'Ovide an 

explanation for why altered payrolls were submitted to SBA without providing 

SBA any indication that the payrolls provided had been altered prior to submittal 

to SBA. Your explanation should provide a detailed explanation of who altered 

• SCI also provided signed decllll1ltlons from siudents SIBling IhQllhey mistakenly 

enlered lI>e IV",nll. dales/limes Ihat they \'folked. II signed declaration fmm Mlcbell. Bmulllo slllling IhM "t om "<>1 aware Grany 

oIneril1llceu(l!cies with respecllo payroll records submil\ed by Sirong Caslle to SSA" and thn' "1111 eopies ofs!Udenl leases 

submilled by Sirong Castle 10 the SSA are Qccurate 10 the knuwledge of Slrong CllSlle," 

11 
107 


Insert offset folio 44 here 82275.044

each payroll, who lwew the payrolls were altered, and who decided to provide an 

altered document to SBA. 

SCI provided the following response to SBA's question: 

In your May 8th request, you asked about payroll records submitted by Strong 

Castle to the SBA, specifically whether the copies were actual copies of Strong 

Castle payroll records. All copies of payroll records submitted by Strong 

Castle to the SBA reflect Strong Castle's actual payroll records for the dates 

reflected on the specific payroll documents. Castillo Dec 19. As reflected in 

her declaration, Ms. Castillo has not made any modifications to time entries 

made by Strong Castle employees into the timekeeping and payroll system. fa. 

Tile only change to information in the payroll system is a change to 

administrative information uJ1l'elated to time entries by Strong Castle 

employees. ld. Prior to submitting !lle payroll records to the SBA in response 

to its request for payroll information, Ms. Castillo updated the company's 

address Lo reflect its current location and the address of one employee who had 

moved during his employment with Strong Castle. fd. 

SBA became aware of three independent contractors utilized by SCI, and requested information 

from SCI regarding their relationship to the firm, and whether the firm utilized any other 

independent contractors. SBA provided SCI with the following statement and requests: 

Email communication from May 20J2- August 2012 indicates that 

(a),sginet-eomputers.com was/is an employee of Strong Castle, 

Inc. Email commu;ication from November 2012and FeblUary 14,2013 indicates 

that_1ilstrong-castle.com was/is and employee of Strong Castle, Inc. 

Otll~ion received by SBA states that Ms._ is part of the firm's 

management team. Email communications from December 2012 - January 2013 

indicates that 'alstrong-Castle.com was/is an employee of Strong 

Castle, Inc. Documents received by SSA include emails to and from 

~~~illl~!1@.m,s;:Qffiand Ms signature block 

Contracts Manger Signet Computers, Inc." Neither of the 

individuals above are shown on any of the payroll documents provided in 

cOlmection with SBA's notice of proposed decertification. We also note that your 

most recent communications to SBA in connection with the notice of proposed 

decertification clearly states that Strong Castle Teclmologies, LLC is not active 

and does not have any employees or contracts which clearly indieate that these 

individuals did not wOI'k the affiliate, Strong Castle Technologies, LLC at the 

time of Strong Castle, 1nc.'s approval, award, and notice ofpl'oposed 

decertification. 

Does SignetJStrong Caste currently have any independent contractors performing 

work on behalf of SignetJStrong Castle? Did SigneUStrong Castle have any 

12 
108 


Insert offset folio 45 here 82275.045

independent contractors perfonning work on behalf of Signet/Strong Castle at the 

time ofits HUBZone application? Please provide the following infonnation with 

regard to any independent contractors: 

• The name(s) of all independent contractor(s); 

• Signed copies of all executed contracts; 

• Detailed description of work perfonned by all independent contractors including 

the nwnber ofbours work, tbe type of work perfonned, and where they perform 

their work 

o Please provide copies of alJ invoices from the independent contractors, and proof 

of payment for all invoices; 

o Do any of the independent contractors have or have they had in the past, business 

cards issued by Signet/Strong Castle or that have a reference to Signet/Strong 

Castle on them, if yes please provide SBA with a copy ofthe business card; 

• Do any of the independent contractors have email accounts issued to them by 

Signet/Strong Castle, if so please provide SBA with individual's email address. 

In response to SBA's request regarding independent contractors, SCI provided the following 

response: 

In your May 8th request, you asked a number of questions and requested 

intbrmation regarding independent contractors employed by Strong Castle, 

specifically; (1) does Strong Castle have any independent contractors 

performing work on its behalf; (2) did Strong Castle have any independent 

contractors perfonning work on its behalf at the time of its HUBZone 

application; (3) the nanle of any independent contractors engaged by Strong 

Castle; (4) signed copies of all executed contracts; (5) a detailed description of 

work perfonned by independent contractors, including the number of hours 

worked, the type of work perfonned, and where work was perfonned; (6) 

copies of all invoices from the independent contractors and proof of payment; 

(7) whether any of the independent contractors have or have in the past been 

issued Strong Castle business cards or business cards with a reference to Strong 

Castle; and (8) whether any of the independent contractors have Strong Castleissued e-mail accounts. 

on its 

time of its HUBZone 

;:;h~If-iiiiiiiillllii.I---- one independent contractor working on its \.I 

Sel forth below is a discussion of each independent contractor, including 

responses to the questions posed in your May 8th request. 

13 
109 


Insert offset folio 46 here 82275.046

WiUl regard to SCI provide the following statement: 

Strong Castle engaged on a 1099 basis from March 2012 

Ulfough August 2012. performed contracts management and 

bid and proposal support on behalf of Strong Castle. With respect to contracts 

management support, Ms. reviewed contracts for contractor teaming 

arrangements, subcontractors and vendors. With respect to bid and proposal 

support, Ms. acted as the point of contact for bid and proposal 

activities conducted by Strong Castle with respect to potential contract 

opportunities. Ms. I did not have a signed contract with Strong 

Castle. 

Ms_ performed work on behalf of Strong Castle from her home in 

Northern Virginia, and represented to Strong Castle that She.rfOrmed services 

for another contractor while supporting Strong Castle. Ms. would email Strong Castle with her hours man at the end of that 

month. Tlu'ee-mails reflecting hours worked on behalf of 

Strong Castle are attached as Exhibit 5. Ms. did not submit a 

separate invoice for work that she performed. Proof of payment to Ms . 

••••• by Strong Castle is attached as Exhibit 6. 

Strong Castle did not issue a business card to Ms._ As noted in your 

e-mail, Strong Castle did issue Ms. a Strong Castle e-mail address. 

With regard to 4 SCI provided the following statement: 

Castle has engaged_ on a 1099 basis since June 2012. Ms. 

as a subject matter expert for key Strong Castle accounts. Ms. 

lleld a high-level position at the Internal Revenue Service, 

with agency systems and operations that are relevant to Strong 

Castle contracts. Ms._ also acts as a program manager for select Strong 

Castle contracts. As a program manager, Ms. _is responsible for 

coordinating task order-level orders ",'ith Strong Castle customers, including 

understlll1ding customer needs and deveJopmg the appropriate technical 

solution. Ms._ also acts as a liaison v·nth Strong Castle customers to 

ensure the smooth delivery of products and services acquired by agency 

cllstomers. Ms. _ does not have a contract with Strong Castle; however, 

a copy of her Form W-9 is attached as Exhibit 7. Ms._has represented 

to Strong Castle that she performs services for other contractors in addition to 

Strong Castle. 

Ms._performs work on behalf of Strong Castle from her home office in 

Ellicott City, Maryland. Ms. _submits a time report on a monthly basis 

which details the work performed and number of hours performed for that 

month. Those time reports are attached as Exhibit 8. Those time reports act as 

14 
110 


Insert offset folio 47 here 82275.047

Ms._ invoice for work performed on behalf of Strong Castle. Proof of 

payment to Ms._ by Strong Castle is attached as Exhibit 9. 

Strong Castle has not issued a business card to Ms As noted in your 

e-mail, Strong Castle did issue Ms." a Strong Castle e-mail address. 

Finally, with Regard to SCI provided the following statement: 

Strong Castle has engaged on a 1099 basis since October 2012. 

Ms_performs contract management services on behalf of Strong Castle 

by reviewing contracts for contractor teaming an-angements, subcontractors and 

vendors. Ms._also acts as the capture manager for Strong Castle's bid 

and proposal efforts for potential contract opportunities. In addition, Ms._ 

also manages Strong Castle's General Services Administration Federal Supply 

Schedule contract. Ms. _ has represented to Strong Castle that she 

performs services for other contractors in addition to Strong Castle. 

Strong Castle entered into a consulting agreement with Ms._, a copy of 

which is attached as Exhibit 10. Ms._performs work on behalf of Strong 

Castle from her home office in Pennsylvania. Each month Ms._ submits 

an invoice for services performed on behalf of Strong Castle during that month. 

Attached to each invoice is a detailed time report for work perfonned during 

that month. A copy of the invoices and time reports submitted by Ms. is 

attached as Exhibit 11. Proof of payment to Ms._ by Strong Castle is 

attached as Exhibit 12. 

Sirong Castle has not issued a business card to Ms. ~ As noted in your email, Strong Castle did issue Ms. _a Strong Castle e-mail account. 

Validity of Payroll Records 

SBA regulations requires that a firms applying for HUB Zone certification, and firms wanting to 

remain HU BZone certified provide documents and evidence demonstrating tbat they meet and 

continue to meet the requirements of the HUBZone program. SBA relies on the accuracy and 

validity of the records provided in order to establish that a firm has demonstrated its eligibility 

for the HUB Zone program. SSA regulations state the following: 

A concern must apply to SBA for certification. SBA will consider the information 

provided by the concern in order to determine whether the concern qualifies. 

SBA, in its discretion, may rely solely upon the information submitted to establish 

eligibility, may request additional infonnation, or may verify the information 

before making a determination. SBA may draw an adverse inference and deny the 

certification where a concern fails 10 cooperate with SBA or submit information 

requested by SBA. IfSBA detennines that the concern is a qualified HUBZone 

sac, it will issue a certification to that effect and add the concem to the List. 13 

15 
111 


Insert offset folio 48 here 82275.048

C.F.R. § 126.300. 

Further SBA has provided the following guidance to firms with regard to payroll records: 

What kind ofpayroU records does SBA need? 

You must provide official company payroll records. The SBA will not accept 

payroll summaries. The payroll must show at u minimum the employee's name, 

number of hours worked for that pay period, wages, and pay period beginning and 

end dates. The payroll must cover the date being reviewed (e.g., eover the date 

you electronically certify that the information in your online application is true 

and correct). The SBA will assume that all salaried employees work a minimum 

of 40 hours per pay period, unless the payroll or other records indicate otherv.'ise. 

For any employees working less than 40 hours in the payroll period submitted at 

the time of contract award, you must also provide enough prior payrolls to 

demonstrate that those employees work at least 40 hours in a month's time. 

http://www.sba.gov/contentlwhat-kind-payroll-records-does-sba-need 

The record before me shows that SCI did not provide SBA with reJiable and accurate payroll 

records. As noted above, the information and documentation provided by SCI to SBA has not 

been accurate. Specifically, it was discovered that SCI payroll records showed employees 

working at the principal office at the same time they were they were taking exams. In response 

SCI admitted that the records provided were false and inaccurate. SCI confilmed the one 

instance identified by SBA, and identified another instance of the firm's payroll records showing 

an employee working hours on a day that the employee did not wort"~ SCI did not discover the 

false payroll records itself. The corrections wcre only made after being confronted with the 

conflicting evidence presented by SBA. 

Accurate payroll records are essential in order for a firm to demonstrate its eligibility for the 

HUBZone program. SBA relies on payroll records to establish eligibility for the 35% HUBZone 

residency requirement and the principal office requirement Without accurate records SBA 

cannol make a determination of who should be considered an employee under SBA's 

regulations, SBA regulations require SBA to examine how many hours an individual works in 

order to determine jf that individual should be counted as an employee. Further, SBA regulations 

require that a firm demonstrate that its principal office is located in a HUBZone by providing 

documents and evidence that the greatest number of employees perform their work at a location 

in a HUBZone. Accurate payrolll'ecords are essential not only for detelmining wIlD should be 

treated as an employee but also for determining where and when that employee is perfOlming 

hisfher work. 

Without an accurate accounting of how many hours and where an employee works SBA cannot 

make a reasonable conclusion about a firnl's eligibility. In response to SBA's inquiry SCI did 

cOllfinn the inaccuracy, iden1ified a second erroneous payroll record and fixed both. However, 

the record demonstrates that SCI did not and does not appear to have adequate internal controls 

16 
112 


Insert offset folio 49 here 82275.049

to verify the accuracy of its records. Specifically, I note that the signed declarations submitted on 

behalfof2 employees (whose erroneous entries were included in their December payroll 

documents) indicate that SCI's employees' work hours were not properly monitored and/or 

validated by the firm, its owners, and \ts managers. It indicates that SCl empJoyees can record 

time worked as they please or as SCI requests adjustments from the employees, This facelious 

attitude with regard to the accuracy of records may be accepted by SCI and its management; 

however, this is not an acceptable method to verify and accurately report information necessary 

for the SBA to make a reasonable conclusion based on the records in question. It is clear to SBA 

that these employees work times, work locations, and work days were not reasonably monitored 

and supervised by SCI's managers and/or owners. 

In the two instances (the one identified by SEA, and the second identified by SCl) the employees 

in question work at SCI's purported principal office. Based on the information provided, SCI 

only had 13 employees at the time in question. An inability to accurately account for 2 out 13 

employees (with those two employees working at the finn's principal office) demonstrates a lack 

of internal controls that calls in to question the validity of all payroll records submitted to SBA. 

1n order to identify other instances of inaccuracies, SCI had to rely on the testimony of its own 

employees in order verify its payroll. These are the same employees who provided the false data 

in the first place. SCI had no independent method for determining whether its payroll was 

accurate. The record shows that SCI has no internal controls to enSUre that employees purporting 

to work at its principaJ office were actually present and working, 

SCl's payrolls records showed employees working hours they did not work. and at locations 

they were not working:SCI's response to SBA's inquiry demonstrates that SCI does not have the 

. adequate internal controls to independently verify employee records in order to provide SBA 

with an accumte payroll. Therefore, I cannot reasonably rely on the payroll records submitted by 

SCI in making a determination of the firm's eligibility for the HUBZone program. 

Totality of the Circumstances 

As noted above, SCI has stated that it has utilized three independent contractors. However, 

regardless of whether a firm labels an individual an independent contractor, SEA must still 

determine if that individual should be trcated as an employee for the purpose of determining a 

firm's HUBZone eligibility. As explained below, in order to determine whether an individual is 

an employee, SBA applies the "totality of the circumstances" test. 

For purposes of the HUBZone program SSA defines the term "employee" as follows: 

Employee means all individuals employed on a full-time, part-time, or other basis, 

so long as that individual works a minimum of 40 bours per month. This includes 

employees obtained from a temporary employee agency.lea~ing concern, or 

through a union agreement or co-employed pursuant to a professional employer 

17 
113 


Insert offset folio 50 here 82275.050

organization agreement. SBA will consider the totality of the circumstances, 

including criteria used by the IRS for Federal income tax purposes and those set 

forth in SBA's Size Policy Statement No. J, in determining whether individuals 

are employees of a concern. Volunteers Ci.&., individuals who receive deferred 

compensation or no compensation, induding no in-kind compensation, for work 

perfurmed) are not considered employees. However, ifan individual has an 

ownership interest in and works for the HUBZone SBC a minimum of 40 hours 

per montb, that owner is considered an employee regardless of wbether or not the 

individual receives compensation. 

SBA's definition of the term "employee," which explains that "[t]he totality of the 

circul11stances, including factors relevant for tax purposes, will determine whether persons are 

employees of a concern." 13 C.F.R. § J 26.1 03. That means that SSA will review the totality of 

circumstances to determine whether three individuals working for SCI are employees for 

HU13Zone program purposes. 

The "totality of the circumstances" language first appeared in SBA Size Policy Statement No.1, 

published in the Federal.B&gister on February 20, 1986,51 Fed. Reg. 6099. Size Policy 

Statement No.1 gave notice ofSBA's "intended application and interpretation of the definition 

of ' number of employees. ,,, 51 Fed. Reg. 6099. According to Size Policy Statement No. I, the 

intended application ofthe regulation was tu broaden the SBA's authority to flnd that ce11ain 

individuals be considered employees of the concern on an "other basis." ld. Specifically, the 

SBA stated its concern that administrative precedent had interpreted the size regulation "in a way 

which is overly mechanical and has tbe potential for subjecting the SBA size detenninations to 

abuse. In these cases, the Agency has merely applied the common Jaw indicia of an 

employee/employer relationship, Le" who hires, fires, pays and withholds taxes and provides 

benefits, to detennine whether such individuals would be treated as employees of the business or 

not." Id. The SBA further explained that: 

The mechanical exclusion of employees retained through an employment 

contractor from the number of employees counted in determining a business' size 

status would encourage circumvention of the size standards by means of creative 

employment practices. Therefore, in order to preserve the integrity of its size 

regulations, the SBA has determined that in appropriate cases individuals whose 

services have been procured through an employment contractor should be 

considered 'individuals employed on ... [an] other basis,' under [SBA's size 

regulations] and be counted as part oftha! business' 'number of employees' even if 

technically the employees of the contractor under common l~w principles. To do 

otherwise would be to permit form to prevail over substance. The Agency will 

nots:.ondone the use of emplovment practices that allow a business to create the 

facial appearance of being small under the size standards while at the_same time 

18 
114 


Insert offset folio 51 here 82275.051

deriving the usual benefits from the services of individuals in excess of those 

standards. 

Jd. at 6100 {emphasis added}. 

In determining whether a particular concern should be viewed as employing certain individuals 

on an "other basis," Size Policy Statement No, 1 directs that the SBA "should consider any 

information or data relevant to the question of whether an employer is deriving the usual benefits 

incident to employment of such individuals. and !lIe circumstances under which the situation 

came to exist," Id. The Size Policy Statement again directs the SBA to consider the "totality of 

the circumstance," including the following eleven factors: 

1. Did the company engage and select the employees? 

2, Does the company pay the employee's wages andJor with.hold employment 

taxes and/or provide employment benefits? 

3. Does the company have the power to dismiss the employees? 

4, Does the company have the power to control and supervise the employees' 

performance of their duties? 

5. Did the company procure the services of the employees from any employment 

contractor involved in close proximity to the date of self-certification as a 

small business? 

6. Did the company dismiss employees from its own payroll and replace them 

with the employees from any employment contractor involved? Were they 

replaced soon after their dismissal? 

7. Are the individual employees supplied by any employment contractor 

involved the same individuals that were dismissed by the company? 

8. Do the employees possess a type of expertise or skill that other companies in 

the same or similar lines of business normally employ in-house (as opposed to 

procuring by sub-contract or through an employment contractor)? 

9. Do the employees perform tasks normally perfOlmed by the regular 

employees of the business or which were previously performed by the 

company's own employees? 

10. Were the employees procured through an employment contractor to do other 

than fill in for regular employees of the company who are temporarily absent? 

11. Does the contract with the independent contractor have a term based on the 

term of an existing Government contract? 

Id. at 6100·6101. The presence of one or more of the factors in a particular case "may but will 

not necessarily support a finding that the employees should be attributed to the business whose 

size is an issue." Id. at 6101. The SBA explained that there may be legitimate business reasons 

in some cases for a company's employment practices and the SBA's policy is not meant to 

penaliZe a business from engaging in legitimate business 8nangements, ld. The SBA explained 

19 
115 


Insert offset folio 52 here 82275.052

that its regulations were meant to "reach situations where the number of employees is artificially 

reduced to meet particular size standards for the purpose of becoming eligible for a partic\1lar 

procuremen t or for receipt of some other SBA program benefit while the firm continues to 

operate or be capable of operating for all intents and purposes as though it employed a larger 

number ofindividua!s." ld. 

It would make sense that the SBA interprets the "totality of circumstances" language set forth in 

the size I!l1d HUBZone regulations similarly. See Ben Venue Lab" Inc. v. Novarlis 

Pharmaceutical Corp., 10 F. Supp. 2d 446,457 (D.NJ. 1998) (it would be "illogical, indeed, 

even potentially dangerous, for the FDA to have contradictor), understandings of critical tenns .. 

. within its own regulations"}; see also Gustafson v. Alloyd Co., 513 U.S. 561, 570 (1995) (the 

normalmle of statutory construction is that identical words used in different parts of the same act 

are intended to have the same meaning). Thus, [ will look at the SBA's interpretation of the 

"totalily of circumstances" for size purposes to guide me with the interpretation for HUBZone 

program purposes. 

The SBA utilizes the principles enunciated above concerning the totality of circumstances and 

the need to review all factors, when determining whether a person should be counted as an 

employee of a HUBZone SBC. The crux of this totality of circumstl3,1lces test is to ureserve the 

intel'.rity of the HUBZone program and prevent certain employment practices that circuwvent the 

H!lD~oneAct and implementing regulations. 

[n Size ApP!;lltofMaryll!l1d Assemblies. Inc" SBA No. 3134 (July 12,1989). OHA found leased 

employees to be employees of the challenged concern despite the fact the two companies - the 

leasing company and the chaJlenged film - were separate and independent companies. OHA 

found both companies were involved in a pennanent business relationship where Maryland 

Assemblies essentially bad control over the employees, aHhough the leasing company pald their 

wages. After applying the totality of circumstances, "including how the employee-leasing 

situation carne to exist," tbe OHA attributed the employees leased from the leasing company to 

the challenged concern. 

in Metro Machine, the court addressed the totality of circumstances test specifically with respect 

to the HUB Zone program. In that case, the SBA had decertified Metro Machine from the 

HUBZone program after learning tlJat the company transferred 182 non-management employees 

to a donnant, wholly-owned subsidiary of Metro Machine called Meu'o On-Cali. Metro Machine 

Corp, v. SBA, 305 F.Supp.2d 614,617 (E.D. Va.), affd, 1()2 Fed. Appx. 352 {4th Cir. 20()4}. In 

addition to transferring the employees, Metro Machine entered into an agreement with Metro 

On-Call "guaranteeing that the transferred employees would be available at all times to work on 

Metro Machines projects. Further, Metro Machine revised a collective bargaining agreement 

with its union to ensure that employees transferred to [the subsidiary] would not lose any of the 

rights that they would have had under that agreement." Id. SpecificalJy, Metro Machine ensured 

20 
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Insert offset folio 53 here 82275.053

that the transferred employees had the same telms relative to seniority. layoff and recall, 

discipline, shop assignnients and pension payments. 1Q. at 618. The transferred employees 

performed the same work, in the same location, and under the same supervisors as they did 

before the transfer. rd. at 617. Metro Machine advised the SBA that its subsidiary was being 

capitalized and organized as a subsidiary to Metro Machine. 

Using the totality of circumstances as a guide, the SUA had detelmined that the employees of 

Metro On-Call were really employees of Metro Machine. Specifically. the SBA determined: 

(1) Metro Machine dismissed employees from its 0\'v'J1 payroll and replaced them 

with employees of Metto On-Call immedilllely after their dismissal; (2) the 

individual employees supplied by Metro On-Call were the same individuals who 

were dismissed from Metro Machine; (3) Metro Machine has the power to 

control and supel'vise Metro On-Call employees in the performance of their 

duties; (4) Metro Machine engaged and selected Metro On-Call employees; (5) 

Metro Machine has the powcr to dismiss Metro On-Call employees; (6) Metro 

On-Call employees possess skill and expertise that other companies in the same 

line Qfbusiness normally employ in-house; and (7) Metro On-Call employees 

perform tasks that were formerly performed by Metro Machine employees. 

ld. at 6J9. The court held thai the SUA's interpretation of 13 C.F.R. § 126.103,and the use of 

the totality of circumstances test as a guide, was not erroneous, inconsistent with the HUBZone 

regulations, nor contrary to clearly established rules. Further, the court ruled that the SUA's 

decision that Metro On-Call employees should be deemed employees of Metro Machine was not 

arbitrary or capricious. 

In this case SUA, in addition to the employees listed on SCI's payroll, the firm has at various 

times had individuals not on its payroll performing work for SCI and its affiliate company Strong 

Castle, LLC.5 SCI has classified these individuals as "independent contractors", but it is 

necessary for SBA to apply the totality of circumstances test to these individuals to determine if 

they should be considered "employees" for the purposes of HUB Zone eligibility. 

In response to SBA's request for information SCI provided the following statement; 

, I nole lhal, SCI applied for and was certWed by SSA as Signet Computers. Inc. Alibi> limt ofeenlllcDlion anolher linn, Strong 

Caslle. LLC. 0150 owned BJld managed by the managers of Signel Compulers, Inc. was In opel.lion. Strong Cm;Ue, LLC. applied 

for HUBZone cenlflcalion, but was denied .eninoation. Signet Computers, lne. has since Slopped opefllling under thaI name. Bnd 

currenlly operales I!Ji Sirong CasUe, Ine. 1'11. re/l:ren~", here is not to the cumol Strong CllSlle, Inc. (SCI) UIlIa Signet Compulers, 

Ine" but to !he olher Strong Cm;tIeU.C.1l1a! "'DS 10 operation and \VIIS owned Rnd managed by SCI's current OWners Iilld 

manngm. 

21 
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Insert offset folio 54 here 82275.054

Strong Castle engaged on a 1099 basis from March 2012 

through August 2012. contracts management and 

bid and proposal support on behalf of Strong Castle, With respect to contracts 

management support, M, reviewed contracts for contractor teaming 

arrangements, subcontractors and vendors. With respect to bid and proposal 

support, Ms. acted as the point of contact for bid and proposal 

activities conducted by Strong Castle with respect to potential contract 

opportunities. Ms. I did not have a signed contract with Strong 

Castle. 

Ms. performed work on behalf of Strong Castle from her home in 

Northem Virginia, and represented to Strong Castle tllat she perfOlmed services 

for another contractor while supporting Strong Castle. Ms. would email Strong Castle with her hours worked in a specific month at the end of that 

month. Thee-mails reflecting Ms. hours worked on behalf of 

Strong Castle are attached as Exhibit 5. Ms. ' did not submit a 

separate invoke for work that she performed. Proof of payment to Ms . 

•••• by Strong Caslle is attached as Exhibit 6. 

Strong Castle did not issue a business card to Ms. •••• As noted in your 

e-mail, Strong Castle did issue Ms. a Strong Castle e-mail address 

In the case of this individual, after reviewing the information suhmitted I have detelmined that, 

based on the totality of the cireumstances test, the individual should be treated as an employee of 

SCI. Based on the information that was provided; it appears that individual was engaged and 

selected hy the management of Signet, She also performed work for SCI's management on 

behalf of its affiliate Strong Castle, LLC. The work that she performed is work that is normally 

performed by employees of a flml, and not a subcontractor. Specifically contract and vendor 

management is not something that is normally handled by subcontractors. She also acted as the 

point of contact for Government contract opportunities, something that is normally handled inhouse. FUlther, she was given an email account by the flITn from which to conduct business on 

behalfofthe firm. It is not clear from SCI's response whether outside parties, and in particular 

iilh.e.F.e.d.el.'al Govemment (for which she was the point of contact) was informed that Ms. 

• was not in fact an employee of the firm, and that they were communicating with a 

subcontractor and not SCI. It appears from the document and evidence provided, that SCI was 

treating Ms. as an employee, giving her work to perfol1u that would normally be 

performed by employees, supervising her work as if she was an employee, and that outside 

observers (especially the Federal Government and vendors fOT who she was the company's point 

ofcontac~at her as an employee oftlle firm they were attempting to communicate 

with. Ms._ also performed this work for SCI without a contract. She would perform 

tasks at the request of Signet's management and wou!d be paid in hourly increments for work 

completed. 

22 
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Insert offset folio 55 here 82275.055

Therefore, after reviewing all of the infonnation provided and apply the totality of the 

circumstances test, 1 have concluded that for the purpose of determining HUBZone eligibility B._ 1'115._ is considered and employee of SCI. 

In response to SBA's request for information SCI provided the following statement; 

Castle has engaged _ on a 1099 basis since June 2012. Ms. 

as a subject matter expert for key Strong Castle accounts. Ms. 

nre'Vlrlll~IV held a high-level position at the lntemal Revenue Service, 

and with a~slems and operations that are relevant to Strong 

Castle contracts. Ms. _ also acts as a program manager for select Strong 

Castle contracts. As a program manager, Ms._is responsible for 

coordinating task order-level orders with Strong Castle customers, including 

understanding customer needs and developing the appropriate technical 

solution. Ms.~lso nets as a liaison with Strong Castle customers to 

ensure the sm~ivery of products and services acquit-ed by agency 

customers. Ms. _ does not have a contract with Strong Castle; however, 

a copy of her Form W-9 is attached as Exhibit 7. Ms. _ has represented 

to Strong Castle that she performs services for other contractors in addition to 

Strong Castle. 

Ms. _ perfonns work on behalf of Strong Castle from her home office in 

Ellicott City, Maryland. Ms._submits a time report on a monthly basis 

which details the work performed and number of hours performed for that 

month. Those time reports are attached as Exhibit 8. Those time reports act as 

Ms. invoice for work performed on behalf of Strong Castle. Proof of 

payment to Ms._by Strong Castle is attached as Exhibit 9. 

Strong Castle has not issued !l business card to MS._ As noted in your 

e-mail, Strong Castle did issue Ms. _ a Strong Castle e-mail address. 

Further, in addition to information provided by SCI, SBA has also reviewed SCI's proposal in 

response to U.S. Internal Revenue Service (IRS) Personal Computer Equipment and Accessories 

RfQ TIRNO-12-Q-00083. With regard to Ms._·s role, the proposal stated the following: 

Signet'S Management Team has extensive background with the IRS and will use 

this corporate knowledge to effectively manage the rRS PC and Accessories 

contract. Our proposed Program Manager, , possesses broad IRS 

experience in IT leadership project/program management, IT infrastructure 

management, application development and deplQYment, data center operations, 

and strategy and planning. She has direct experience with all phases ofthe 

Enterprise Lifecycle (ECL). including engineering. design, development, test, 

23 
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Insert offset folio 56 here 82275.056

deployment and operations. Ms."is experienced and certified in lTILv3 

Foundations, has three Seniol' Executive Services (SES) appointments at the IRS: 

I) Director, IT infrastructure Division, 2) Director, Large Systems and Storage 

Infrastructure Division, and 3) Director, Filing and Payment Compliance 

Division. Serving as PM, Ms. _will provide direct project management of 

the progranl, ensure quality processes, provide reports and ensure the IRS has 

access to all information on products, orders, tracking and invoicing. Ms_ 

I

.wlllillll.hallvlle.th.e IIBU.PPort of the' Signet executive leadership, Braulio CastilJo~ who also have broad experience v.~th the IRS. 

In this case, SCI is attempting to claim that one of its key employees and its program manager 

for a major Govenunent contract is not an employee at all. The description of the work 

performed by Ms._ describes an individual that is selected by SCI, supervised by SCI. can 

be dismissed by scr.:::r almost exclusively pe1forms tasks that would regularly be perfOlmed 

by employees of the film. Further, SCI's proposal to the IRS is very specific about its use of 

subcontractors, who thcy are, and what functions they 'Nil! be performing. In contrast to this 

specifiCity; the proposal in no place states that SCI's proPS;Ii>iect manager is a 

subcontractor. 1n fact, the proposal is pretty clear that Ms. is part of "Signet's 

Management Team" and not a subcontractor. In this case, it appears that SCI is telling the 

Government two different stories. To the IRS Ms._is a valued and key member of 

"Signet's Management Team" and its proposed Program Manager, and to SBA she is merely an 

independent contractor. In SBA's view, a firm's "Management Team" and its Program Manager 

are not roles that are normally subcontracted out to third parties. 

As with Ms. . Ms. "also performed all her work for SCI without a contract. She 

would perfOlm tasks at the request of SCI's management and would be paid in hourly increments 

for work completed. Further, as of October 2012, Ms. _would report and keep track of her 

hours on SCI's timekeeping system, just as all other SCI employees would6• 

Therefore, after reviewing all of the information provided, I have concluded that for the purpose 

of determining HUBZone eligibility Ms._ is considered and employee of SCI. 

In response to SBA's request for information SCI provided the following statement; 

Stro~tle has engaged _ on a ) 099 basis since October 20]2. 

Ms._performs contract mana.gement services Oil behalf of Strong Castle 

by reviewing contracts for contractor teaming an'angements, subcontractors and 

vendors. Ms. _ also acts as the capture manager for Strong Castle's bid 

6 The documents provided also show rnal once Ms. _began using SCl's timekeeping she would also repoJt to 

SCI her leave, just as allY other employee. 

24 
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Insert offset folio 57 here 82275.057

and proposal efforts for potential contract opportunities. In addition, Ms._ 

also manages Strong Castle's General Services Administration Federal Supply 

Schedule contract. Ms._has represented to Strong Castle that she 

performs services for other contractors in addition to Strong Castle. 

Strong Castle entered into a consulting agreement with Ms." a copy of 

which is attached as Exhibit J O. Ms._performs work on behalf of Strong 

Castle from her home office in Pennsylvania. Each month Ms. _submits 

an invoice for services performed on behalf of Strong Castle during that month. 

Attached to each invoice is a detailed time report for work performed durin, 

that month. A copy of the invoices and time reports submitted by Ms is 

auached 8S Exhibit II. Proof of payment to Ms._by Strong Castle is 

attached as Exhibit 12. 

Strong Castle has not issued a business card to Ms." As noted in your email, Strong Castle did issue Ms._ a Strong Castle e-mail account. 

Unlike Ms. and Ms. _ Ms._ did have a contract with SCI. However, the 

"totality of the circumstances" test requires SBA to review all aspects of the relationship. And in 

this case, after reviewing the information and applying the "totality ofthe circumstances" lest I 

have concluded that Ms._should also be treated as an employee for the purpose of 

determining the firm's HUBZone eligibility. 

Based on the information provided, Ms_ is managing large areas of the firm's business. 

Her role seems to be similar to the role of MS'I and she begins to perform this work 

for SCI after the employment of Ms ends in October of2012. She performs contract 

management. She manages the firm's teaming arrangement, subcontracts, and relationships with 

vendors. She is also the firm's "capture manager." Further, she is responsible for managing the 

firm's GSA schedule contract. These are all significant duties, with significant responsibilities. 

Further, as with Ms and Ms. , SCI has not provided SBA with any information 

indicatinf that it was disclosed to outside parties, and especially to the Federal Government, that 

Ms was not a SCI employee, and that they were in fact communicating with a 

subcontractor of SCI and not with SCI directly. In reviewing this relationship as with the other 

two, it is the tota11ty of circumstances of the party's relationship that requires Ms. _to be 

treated as an employee. She is performing work at the behest of SCI's management, and she is 

managing large and important aspects of se['s business that would nonnally be managed by an 

employee of the firm. 

35 % Requirement 

The HUBZone Act and the implementing regulations require that at least 35% of the 

HUSZone small business concern's (SSC's) employees reside in a HUBZone. 15 U.S.C. 

§ 632(P)(5)(A)(i)(I)(aa); 13 C.F.R. § 126.200(b). SBA's HUBZone regulations define the term 

25 
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Insert offset folio 58 here 82275.058

employee as follows; 

Employee means all individuals employed on a full-time. part-time, or olher basis, 

so long as that individual works a minimum of 40 hours per month. This includes 

employees obtained from a temporary employee agency, leasing concem, or 

through a union agreement or co-employed pursuant to a professional employer 

organization agreement. SBA will consider the totality of the circumstances, 

including criteria used by the IRS for Federal income tax purposes and those set 

forth in SBA's Size Policy Statement No. I, in determining whether individuals 

are employees of a concern. Volunteers (Le., individuals who receive deferred 

compensation or no compensation, including no in-kind compensation, for work 

pClformed) are not considered employees. However, if an individual has an 

ownership interest in and works for the HUB'Z.one SBC a minimum of 40 hours 

per month, that owner is considered an employee regardless of whether or not the 

individuall'eceil'es compensation. 

13 C.F.R. § 126.103. 

A firm must provide SBA with documents and evidence demonstrating that it meets all of the 

requirements of the HUBZone program. SBA relies on the veracity and accuracy of the records 

provided by the firm in order reach reasonable conclusions about the firm's eligibility. As 

explained above, SBA cannot reasonably rely on the payroll records submitted by SCI. Without 

payrolJ records I cannot conclude that 35% of SCT's employees reside in a HUBZone, Therefore, 

SCI has failed to demonstrate that its meets this requirement. 

I also note that even if SBA accepted SCI's payroll records, the firm would still fail to meet the 

35% requirement. 

As noted above, the requirement that 35% a firm's employee must reside in a HUBZone is an 

ongoing requirement that firms are expected to continue satisfYing while participating in the 

program. SBA asked SCI for records and evidence that at least 35% of its employees resided in a 

HUBZone on tile date that it was awarded a contract from the IRS for Solicitation No. TIRNO12-Q-00083 (12/07/12). According to SCI's payroll records and other documents provided, SCI 

had thirteen employees who were working on the date of at issue, 121712012, and that worked at 

least 40 hours dul'ing the month leading up to and including the date of award1

• At least five of 

SCI's employees must have resided in a HUBZone (13 " 35% = 4.29 rounded up to 5)8 to meet 

1 SCI's timekeeping rceords for Ms._,noll' Ihul b<IIVeel1 November 7. 2012 und December 7, 201] she worked 87 hours. 

Ms._ billed SCI for a lolal of 40 buur~ in Ihe monln of November 2012. Therefore after applying the lotalily of the 

ci,eumstlil\ccs test as c~pl.ined. I have ineluded Ihese two in the employee count for determining if SCI meets lhe 35% percent 

employee requirement. 

S The SBA's regulations provide Ihat: "When determining Ihe percentage of employees tho' reside In a HUBZone, if the 

percentage rosulls In a {Taclion, round up 10 theneorest whole number." I) C.F.R. § 126.200Ib)(·I). 

26 
122 


Insert offset folio 59 here 82275.059

the 35% HUBZone residency requirement. According to documentation provided, 4 of SCI's 

thirteen employees resided in a qualified HUBZone at time. Therefore, SCI did not satisfy the 

35% residency requirement at time. 

JiUBZone Principal Office Requiremenf 

The Small Business Act and Implementing regulations require that, with the exception of certain 

specified entities, qualified HUBZone small business concerns have II principal office located in 

a HUBZone. 15 U.S.C. § 632(pX5)(A)(i)(I)(aa); 13 C.F.R. § 126.103. The stalute and 

regulations define B HUBZone to mean an area loeated within one or more qualified census 

tracts, qualified non-metropolitan counties, lands within the external boundaries of an Indian 

reservation, redesignated areas, or base closure areas. Id. § 632(P)(1); 13 C.F.R. § 126.103. The 

statute defines B qualified census tracts as having "the meaning given that term in section 

42(d)(S)(C)(ii) of Title 26."ld. § 632(p)(4){A). The statute referenced. the Internal Revenue 

Code ofl987 ("lRC"),9 defines a qualified census tract as follows: 

(ii) Qualified census tract.--

(I) In general.--The term <qualified census tract' means any census tract which is 

designated by the Secretary of Housing and Urban Development [HUD) and, for 

the most recent year for WhiC]l census data are available on household income in 

such tract, either 1n which 50 percent or more of the households have an income 

which is less than 60 percent of the area median gross income. If the Secretary of 

Housing and Urban Development delelmines that sufficient data for any period 

are not avaiiabJe to apply this clause on the basis of census tracts, such Secretary 

shall apply this clause for such period on the basis of enumeration districts or 

which has a poverty rate of at least 25 percent. 

(II) Limit on MSA's designated.--The portion ofa metropolitan statistical area 

which m!ly be designated for purposes of this subparagraph shall not exceed an 

area having 20 percent of the population of such metropolitan statistical area. 

(III) Determination ofareas.--For purposes of this dause, each metropolitan 

statistical area shall be treated as B separate area and all nonmetropolitan areas in 

II State shall be treated as I area. 

As noted above, a business concern must have its principal office located in one of these 

HUBZones in order to qualify for the program. SBA's regulations define the term "principal 

office" as follows: 

Principal office means the location where the greatest number of the concern's 

• The IRC defines R "qualified census Imcl" rOI Ihe purpose of delermining Low·Jncome Housing Tax Credits (LIHTC}. The 

L1HTC is a tax lnc.nlive "i"lended to increase Ihe availability oflow income housinll." 60 Fed. Rell. 2)246 (1995). The L1HTC 

provides "8 lax credillo owners or newly construcled or subslamlally rehabililaled low-income rental housing projects." IlL. The 

amuunt fifth. lax crtdil is adjusted. in prut. for buildings located in designalcd quolifled census Iracts. l!b 

27 
123 


Insert offset folio 60 here 82275.060

employees at anyone location perform their work. However, for those concerns 

whose 'primary industry' (see 13 CFR 121.201) is service or construction (13 

CFR 121.201), the detennination of principal office excludes thc concern's 

employees who perfonn the majority of their work at job site locations to fulfill 

specific contract obligations. 

13 C.F.R. § 126.103. Because SCI's primary industry is represented by NAICS code 541519, 

"Othcr Computer Related Services," the detennination of its principal office excludes all of 

SCI's employees who perfonn the greatest amount of their work fulfilling specific contract 

obligations. I note that with respect to the defmition of principal office, the SBA recognizes in 

its rcgulations that qualified HUB Zone SBCs may have more than one office, including "offices 

or facllities in another HUBZone or even outside a HUBZone and still be a qualified HUBZone 

S8C." .!Q.. § 126.207. However, in orderto qualify for the program, the concern's principal 

office must be located in u HUBZone. Id. 

A firm must provide SBA with documents and evidence demonstrating that it meets all oflhe 

requirements of the HUBZone program. SBA relies on the veracity nnd accuracy of the records 

provided by the finn in order reach reasonable conclusions about the finn's eligibility. As 

explained above. SEA cannot reasonably rely on the payroll records submitted by SCI. Without 

payroll records I cannot conclude that the greatest number ofSel's employees perform their 

work at an office located in u I-lUBZone. Therefore, SCI has failed to demonstrate that its 

principal office is located in a HUBZonc. 

Small Business Regulatory Enfor!'~mlmt Fairness Act 

If you believe your small business has been the subject of excessive or unfair regulatory 

enforcement or compliance actions as a result of this decision, you have the right under the Small 

Business Regulatory Enforcement Fairness Act to file a complaint or comment with SBA's 

National Ombudsman at: 

Office of the National Ombudsman 

U.S. Small Business Administration 

409 Third SI. SW 

Washington, DC 20416 

PH: 1-888-734-3247 

FX: 1-202·481 -5719 

EM: ombudsman@sba.!mY 

The right to file a complaint or comment with SBA's National Ombudsman is independent of 

any other rights you may have to contest tbis decision. The National Ombudsman may not 

change, stop, or delay a Federal agency's enforcement action or impede any administrative or 

criminal process. 

26 
124 

Æ 


Insert offset folio 61 here 82275.061

Thank you for your cooperation with this matter. If you have any questions, please contact 

hubzone@sba.gov. 

Sincerely, 

~l /,~V v/iVV (. 

Mariana Pardo 

Director 

HUBZone Progra.m 

29